Shares for the future: hedging my bets on this AIM stock

Audio equipment producer Focusrite (LSE:TUNE) has frustrated investors with dwindling profitability and by changing its financial year-end. While there is uncertainty about the financials, measures of employee and customer satisfaction keep me hopeful.

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What’s in a year?

Forgive the non-standard data dashboard. This is what happens when companies change their financial year-ends and, in a stroke, render the latest financial year incomparable with prior years.

Focusrite’s financial year used to end in August but now ends six months later in February. That means that in the transition year between the last August year-end (August 2024) and the new financial year-end (February 2026), 18 months have passed.

The justification for this change is that it moves the year end to just after Thanksgiving and Christmas, the company’s busiest period.

Giving us all the numbers then is reasonable, but the timing of change was unwelcome. It makes it harder to see how the company performed during a critical period.

Focusrite was dealing with the pandemic and its aftermath, which initially inflated demand for music equipment made by its Content Creation division, resulting in unprecedented revenue and profitability. The normalisation of demand and subsequent cost increases due to trade frictions resulted in a sharp reversal.

Content Creation is the company’s biggest division (2026: 72% of revenue) and home of the original Focusrite brand of market-leading audio interfaces popular among hobbyists and professional musicians. Other brands in the division design synthesizers and studio monitor speakers and headphones.

Further complicating the numbers, Focusrite splurged on acquisitions between 2019 and 2023. It acquired new brands for Content Creation and assembled a new division, Audio Reproduction.

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Audio Reproduction was initially stymied by the pandemic and then enjoyed a recovery afterwards, moderating the group’s performance somewhat. The division makes sound systems for commercial venues like temples and churches, auditoriums and clubs, and tours and festivals.

In the 2026 annual report, Focusrite gives us pro-forma figures for the 12 months to February 2025 and 2026, and I have used them for revenue and adjusted operating profit in the table (net of 25% corporation tax at the standard rate).

The pro-forma numbers are not sufficient for me to calculate comparable return on capital or cash conversion figures, so I have approximated. This is what I see in the data:

1. Focusrite’s performance may have stabilised, revenue and adjusted profit increased by 1% during the pro-forma year to February 2026.
2. Despite the halving of profit over the last five years, prior growth was extremely strong. Focusrite has grown revenue at a compound annual growth rate of 12% over the last decade. Profit has grown at 7% compound annual growth rate (CAGR).
3. After-tax return on capital has fallen to approximately 10%. Higher costs have halved the company’s profit margin. Capital expenditure and net working capital have tripled since 2021, reducing capital turnover, the other determinant of return on capital.
4. Focusrite has continued growing revenue through acquisition, but return on Total Invested Capital (ROTIC) of approximately 8% brings into question whether the acquisitions are generating sufficient returns to justify their cost.
5. Cash conversion is better than it has been in recent years. But recent years have shown how unpredictable demand and the inconsistent supply of components and materials can gobble up working capital.

Focusrite is upbeat in its commentary. Revenue increased marginally at both divisions in the year to February 2024, and the company says inventory levels across the industry have normalised.

If this is the beginning of a more stable period, revenue growth ought to pick up, and profitability more so. Cash flow should become less volatile too.

But geopolitical risks have not gone away. Over 70% of Focusrite’s revenue is manufactured under contract, much of it with companies in China. It earns about 30% of revenue in the US, China’s main economic and geopolitical rival.

I feel we cannot expect the company to achieve the high levels of profitability and growth it did before the pandemic. Besides the febrile economic times, it is a very different company to the one it was a decade ago.

Future Focusrite

Focusrite is famous for Scarlett, the world’s most popular audio interface. This hardware connects instruments and microphones to computers so musicians can record and edit music. Scarlett drove the company’s growth in the decade after its invention in 2012, but its popularity limits its growth potential.

The company expects more from Content Creation brands with lower market share. These include Novation, a keyboard and synthesizer producer acquired in 2004, ADAM Audio, a monitor and headphone brand acquired in 2019, and Sequential, a synthesizer brand acquired in 2021 and augmented by the acquisition of Oberheim in 2022.

Yet Sequential epitomises some of the problems Focusrite has experienced following the pandemic, and its acquisition splurge.

Sequential produces high-end synthesizers. Higher costs due to US tariffs on Chinese imports has reduced demand. This along with the impending closure of its US contract manufacturer’s operations in the US and the requirement to find a new manufacturer offshore, has led the company to write off £10 million from the subsidiary’s book value, having previously written off more than £5 million. Sequential has developed lower-priced models to rekindle demand.

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Mercifully, Focusrite has eased off acquisitions while it makes sense of them. In the 18 months since its last annual report, it has focused on integrating the Content Creation division. It has restructured by folding some of the smaller brands into Focusrite.

The most eye-catching integration is a new technology platform based on custom-designed silicon chips. This, the company says, gives it greater control over new products, potentially reducing costs and increasing differentiation. The first launch on the new platform will be this year.

Focusrite’s online store is another integration. It bypasses distributors in four important markets: the UK, Germany, Australia and Japan, although notably not the US. The move has increased market share in these regions and direct-to-consumer sales doubled to 12% of Content Creation revenue in the six months to February 2026, compared to the same period two years ago.

By contrast, the Audio Reproduction Division appears to be less integrated. The company expects the expanded product range of its biggest brand Martin Audio, which is British, to gain market share in the US. It competes against three larger businesses there.

Scoring Focusrite: culture counts

Focusrite’s ethos has kept me interested during a period of disappointing financial performance. The company portrays itself as a group of enthusiasts designing equipment for enthusiasts.

It publishes Net Promoter Scores (NPS), which are the results of one-question surveys asking whether an individual would recommend Focusrite to a friend or colleague.

Positive is good, negative is bad. The range is -100 to 100. Focusrite’s employees give it a score of 40. Its customers give it a score of 70. Reviews on e-commerce sites for Scarlett are good, and Focusrite’s Trustpilot score is 4.6/5.

I think the company’s focus on innovation, 24/7 customer service, and building a direct relationship with the customer through its online store are coherent actions intended to build on this ethos. Maybe similar values underlie its relationships with the greater proportion of commercial customers in the Audio Reproduction division.

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The company’s founder and chair, Phil Dudderidge, is stepping down at the annual general meeting in August. As the holder of 33% of the shares, he will remain on the board as a non-executive.

His successor is Ian Barkshire. He is the former chief executive of Oxford Instruments, who joined the board as a non-executive director in March, and bought just shy of £175,000 worth of shares last June.

Barkshire took over at Oxford Instruments after a period of acquisitive debt-fuelled expansion. He simplified the business and refocused it on organic growth. Hopefully, he can help Focusrite follow this track, at least until it has demonstrated the value of the acquisitions it has already made.

I am hedging my bets.

Glass half-full: Focusrite has weathered discombobulating times. It has invested heavily and the returns will follow.

Glass half-empty: the times are still discombobulating, and some of its investments already look a bit dubious.

I last scored Focusrite in September 2025

30 Shares for the future

Here is the ranked list of Decision Engine shares. I review the scores at least once a year, soon after each company has published its annual report. The price scores are calculated using the share price prior to publication.

Generally, I consider shares that score more than 5 out of 10 to be worthy of long-term investment in sizes determined by the ideal holding size (ihs%).

Solid State (LSE:SOLI) has published its annual report. It is due to be re-scored. 

Click on a share's score to see a breakdown (scores may have changed due to movements in share price). Key: qual is the share’s score out of 9 for the three quality factors (capabilities, risks, and strategy), price is the price score from -3 to +1, and ih% is the suggested ideal holding size as a percentage of the total value of a diversified portfolio.

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.  

Richard owns Focusrite and many shares in the Decision Engine. He weights his portfolio so it owns bigger holdings in the higher-scoring shares.

For more on the Decision Engine and Share Sleuth, please see Richard’s explainer.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard