REG - Midwich Group PLC - Final Results
14/03/2023 07:15
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RNS Number : 8234S Midwich Group PLC 14 March 2023
14 March 2023
Midwich Group plc
("Midwich" or the "Group")
Final Results
Record financial performance achieved with significant market share gains and
a confident outlook for 2023
Midwich Group (AIM: MIDW), a global specialist audio visual ("AV") distributor
to the trade market, today announces its final results for the year ended 31
December 2022.
Statutory financial highlights
Year to Year to Total growth %
31 December 2022 31 December 2021
£m £m
Revenue 1,204.1 856.0 40.7%
Gross profit 183.7 131.3 40.0%
Operating profit 35.1 21.0 67.1%
Profit before tax 24.9 18.9 31.9%
Profit after tax 16.9 13.5 25.1%
Basic EPS - pence 17.32 14.11 22.7%
Dividend - pence per share(1) 15.0 11.1 35.1%
Adjusted financial highlights(2)
Year to Year to Total growth Growth at constant currency
31 December 2022 31 December 2021 % %
£m £m
Revenue 1,204.1 856.0 40.7% 38.6%
Gross profit 183.7 131.3 40.0% 37.5%
Gross profit margin % 15.3% 15.3%
Adjusted operating profit 51.1 34.0 50.3% 46.2%
Adjusted profit before tax 45.2 31.9 41.5% 37.5%
Adjusted profit after tax 34.1 23.9 42.3% 39.0%
Adjusted EPS - pence 36.08 25.63 40.8%
Adjusted net debt ratio 1.6x 1.4x
( )
( )
(1) Total of interim and final dividends. 2021 excludes the special dividend
of 3.0p per share
(2) Definitions of the alternative performance measures are set out in note 1
Financial highlights
· Record financial performance and further market share gains achieved
· Revenue increased 40.7% to £1,204.1m (2021: £856.0m), performance
reflects strong organic growth globally and the performance of the
acquisitions of DVS and Nimans
· Revenue growth of 38.6% at constant exchange rates, including 20.7%
organic growth
· Adjusted profit before tax growth of 41.5% to £45.2m (37.5% on a
constant currency basis)
· Net debt to Adjusted EBITDA at the period end reduced to 1.6 times
from the interim period, well within the Board's comfort range
· Proposed final dividend of 10.5p bringing the full year dividend to
15.0p (2021: 11.1p excluding the special dividend of 3.0p per share)
Operational highlights
· Two UK acquisitions, DVS and Nimans, strengthen our unified
communications offering and bring video security capabilities
· Acquisitions have been fully integrated and are delivering a positive
net contribution to the Group
· Gross profit margins remained stable at 15.3%, in line with the prior
year (2021: 15.3%)
· Compound annual growth in revenue and adjusted operating profit since
IPO in 2016 of 22% and 19% respectively, testament to the strength of our
long-term strategy and the quality of our teams
· Management continues to see a strong future acquisition pipeline
across a number of regions and technologies
· Good recovery in live events, hospitality and corporate markets
· Post-period end increase in the Group's revolving bank facilities from
£80m to £175m to support future delivery of our acquisition pipeline
Stephen Fenby, Managing Director of Midwich Group plc, commented:
"We have delivered an outstanding performance this year, with revenues
increasing 40.7% to over £1.2bn, a record level, made significant market
share gains and entered new markets. 2022 saw the strongest annual growth in
the Group's history and I would like to take this opportunity to thank our
employees for their continued hard work, dedication and delivery of our
value-added proposition. Our organic growth of 20.7% (2021: 18.9%) was
supplemented by a significant contribution from the two UK businesses acquired
early in the year. EPS in 2022 was 26.6% higher than in 2019 - the last full
pre-pandemic year.
The impact of the pandemic reduced somewhat in the period, with product
shortages easing (but not completely) and the cost of shipping containers
reducing significantly during the year. We saw the resumption of a significant
part of the live events and hospitality markets, and the corporate market
strengthened during the year.
Although still early into the new financial year and mindful of the slower
general economic conditions and higher interest rate environment, we remain
confident that 2023 will see yet another year of growth in excess of the
overall market."
Analyst meeting/webinar
There will be a meeting and webinar for sell-side analysts at 10.00am GMT
today, 14 March 2023, the details of which can be obtained from FTI
Consulting: midwich@fticonsulting.com (mailto:midwich@fticonsulting.com) .
For further information:
Midwich Group plc +44 (0) 1379 649200
Stephen Fenby, Managing Director
Stephen Lamb, Finance Director
Investec Bank plc (NOMAD and Joint Broker to Midwich) +44 (0) 20 7597 5970
Carlton Nelson / Ben Griffiths
Berenberg (Joint Broker to Midwich) +44 (0) 20 3207 7800
Ben Wright / Richard Andrews / Arnav Kapoor
FTI Consulting +44 (0) 20 3727 1000
Alex Beagley / Tom Hufton / Rafaella de Freitas
midwich@fticonsulting.com (mailto:midwich@fticonsulting.com)
About Midwich Group
Midwich is a specialist AV distributor to the trade market, with operations in
the UK and Ireland, EMEA, Asia Pacific and North America. The Group's
long-standing relationships with over 600 vendors, including blue-chip
organisations, support a comprehensive product portfolio across major audio
visual categories such as large format displays, projectors, digital signage
and professional audio. The Group operates as the sole or largest in-country
distributor for a number of its vendors in their respective product sets.
The Directors attribute this position to the Group's technical expertise,
extensive product knowledge and strong customer service offering built up over
a number of years. The Group has a large and diverse base of over 22,000
customers, most of which are professional AV integrators and IT resellers
serving sectors such as corporate, education, retail, residential and
hospitality. Although the Group does not sell directly to end users, it
believes that the majority of its products are used by commercial and
educational establishments rather than consumers.
Initially a UK only distributor, the Group now has around 1,500 employees
across the UK and Ireland, EMEA, Asia Pacific and North America. A core
component of the Group's growth strategy is further expansion of its
international operations and footprint into strategically targeted
jurisdictions.
For further information, please visit www.midwichgroupplc.com
(http://www.midwichgroupplc.com/)
Chairman's Statement
I am delighted that the Group once again achieved record results in 2022. This
was a milestone year, with exceptional profit growth and sales exceeding £1bn
for the first time. The Pro AV market can be characterised by the breadth of
product offering to a wide spectrum of end users in a market that has
consistently grown above GDP for over twenty years. The overall market
continues to demonstrate robust levels of demand, exceeding pre-pandemic
levels^ in 2022 despite the impact of product shortages during the year.
Midwich Group once again made significant market share gains in the year, with
revenue growth of 40.7% (organic revenue growth of 20.7%) to £1.2bn against
an estimated market growth of 10.5%^. The Group has achieved compound annual
growth in revenue and adjusted operating profit since our IPO in 2016 of 22%
and 19% respectively, which is testament to the strength of our long-term
strategy and the quality of our teams.
Looking to the future, the Pro AV market is forecast to grow by an average of
5.9%^ per annum for the next five years and the Group is well placed to
benefit from this. Despite the scale of the Group's revenue in 2022, it
represented less than 1% of the global Pro AV market which provides
significant opportunity for future growth.
On a macroeconomic level, 2022 was characterised by change and uncertainty,
but, after two years of significant disruption from issues such as computer
chip and product shortages, post-Brexit customs arrangements and labour
shortages in logistics, the AV market largely returned to normal. In the
second half of the year supply chains, for all but the most specialist
products, were stable, global shipping costs reduced and inflationary
pressures in the AV industry were generally below those in the wider economy.
Whilst the industry is not immune from recession, the Board feels that the
structural increase in the use of AV solutions combined with post-pandemic
changes in behaviour will result in robust AV demand in the years ahead.
Alongside record organic growth, I am pleased that the Group was also able to
achieve further strategic milestones, which included:
The Group's acquisition of a controlling stake in Cooper Projects Limited, the
UK-based parent company of DVS Limited ("DVS"), in January 2022 marked its
entry into the distribution of video security products. This is a significant
segment of the AV market in which the Group had little presence. The knowledge
and support of the experienced DVS team bring opportunities for our customers
in an increasingly converging technology market.
In February 2022, the Group acquired Nimans Limited ("Nimans") which is a UK
based specialist distributor of unified communications, telecoms,
collaboration and audio visual technologies. Based near Manchester, Nimans was
founded in 1981 and has built a strong presence and reputation in the UK
telephony hardware market. In recent years the business has expanded
successfully into new market areas such as unified communications, VOIP
solutions, security and networking. Key brand relationships include Yealink,
Jabra and BT. The acquisition brought 2,500 telephony, IT and retail customers
to the Group.
The integration of both businesses is progressing well, delivering some
exciting revenue synergies in the first year, and we have thoroughly enjoyed
welcoming the DVS and Nimans teams to the Group.
We anticipate a continuation of our expansion strategy through both organic
growth and acquisition of complementary businesses and with that in mind,
early in 2023, we increased our revolving credit facility to £175m.
^ Source: AVIXA
Dividend
The Board understands the importance of dividends for many of our investors
and is pleased to recommend a final dividend of 10.5p per share which, if
approved, will be paid on 16 June 2023 to all shareholders on the register as
on 5 May 2023. The last day to elect for dividend reinvestment ("DRIP") is 26
May 2023. With the already announced interim dividend of 4.5p per share, this
represents a total dividend for the year of 15.0p per share. The combined
value of the interim and proposed final dividends is covered 2.4 times by
adjusted earnings.
The Board continues to support a progressive dividend policy to reflect the
Group's strong growth and cash flow. While there is no hard or fixed target,
in order to allow for continued investment in targeted acquisitions, the Board
anticipates that future dividends will continue to be covered in the range of
2.0 to 2.5 times adjusted earnings per share.
Board
Membership of the Board has remained stable throughout the year, and we have
moved to a hybrid approach to our meetings, mixing in person with unified
communications solutions for our meetings. The Board met ten times during the
year and received regular updates from the Executive Leadership Team ("ELT").
In line with prior years, the Board completed a self-evaluation exercise
during 2022, reinforcing our commitment to, and success in, establishing a
strong corporate governance framework. We took the opportunity of this review
to confirm our strong and effective governance and reaffirmed the role of the
Board and its individual members in ensuring compliance with the QCA code.
There were no major issues or concerns raised about the effectiveness of the
Board or its individual members. The Nominations Committee has reviewed the
skills and experience of Board members individually and collectively and
concluded that the size and composition of the Board remain appropriate at
this stage of the Group's development.
The Group has a broad international footprint with the majority of its revenue
coming from outside the UK & Ireland and the Board welcomes the cultural
diversity that this brings. The Midwich culture is an open and welcoming one
and we have been recognised for this. In 2022, we were named "Distributor of
the Year" at the AV Awards whilst in 2021 we were named the "Best place to
work" at the Inavation Awards. The Board understands the importance of
diversity of gender and ethnicity and is committed to ensuring that diversity
will a be key consideration in the appointment of future directors and senior
leaders.
The Group is committed to doing the right thing for the wider society;
community engagement is embedded in our DNA. This year we have stepped up our
work on formalising our approach to Environmental, Social and Governance
("ESG") matters by engaging a third party to support us in developing our
Midwich Sustainability strategy which we have set out in this year's annual
report.
The process for establishing our baseline CO2 emissions was completed in 2022
and we are making good progress on finalising our plans and metrics to reduce
our carbon emissions. Although the absolute value of CO2 emissions is
important, given the historical and planned growth of the Group, the Board
considers that emissions divided by revenue is a more relevant KPI.
As an AIM listed company, the Mandatory Climate-related Financial Disclosures
are not yet applicable to the Group, but as a Board we are on track to report
Group wide data for the 2023 financial year.
The Group continues to apply the QCA code as its governance framework. The
Board has reviewed all aspects of compliance and continues to believe that it
meets or exceeds the requirements of the code. We go beyond the QCA code
requirements through the inclusion of a comprehensive directors' remuneration
report and an annual advisory vote on this at the AGM. We continue to engage
with our largest shareholders including seeking input into our sustainability
strategy and inviting them to join us at our capital markets day and AV trade
show in October 2022.
The Board recognises its duty to have regard to broader stakeholder interests
and, in addition to developing our sustainability strategy this year, our
teams shared industry-leading ideas with a wide audience through our Midwich
Live social media broadcasts.
People
The success of any company is down to the quality of its leadership and its
people. I believe that we have the best teams in the industry, and they have
once again delivered exceptional service to vendors, customers and end users
alike. The Board has a strong belief in rewarding success and ensuring that
engagement levels are high. Share ownership by our people is a core part of
our engagement strategy and I believe that our employee share plans have
incentivised the exceptional business performance. In 2022, I was also
delighted to see how our country managing directors responded to the
cost-of-living pressures. Our business leaders acted to support our people
through a mix of accelerated pay reviews, a step up in staff benefits and a
focus on wellbeing. After the disruption from Covid-19, I was extremely
pleased to see our offices buzzing once again in 2022. Our teams address every
challenge with commitment and determination, and it is this positive approach
that is the main driver of our market share gains and continued growth.
The Board has regular interaction with the ELT, which comprises the executive
directors together with the managing directors of our key operating units. We
have been delighted with the ELT's success in delivering strategic goals at
the same time as leading the Group's record performance. This regional
leadership model is working well and is fully aligned to the Group's long-term
growth ambitions.
On behalf of the Board, I would like to thank all employees and our partners
for their commitment and hard work and congratulate them on achieving an
impressive performance in an exceptionally challenging year.
Andrew Herbert
Non-executive Chairman
Managing Director's review
Overview
The performance of the Group in 2022 was outstanding, with revenues increasing
40.7% to over £1.2bn and adjusted profit before tax of £45.2m being 41.5% up
on 2021. Our organic revenue growth of 20.7% (2021: 18.9%) was supplemented by
a significant contribution from the two UK businesses we acquired early in the
year.
On a constant currency basis, organic growth was between 14% and 18% in all
regions except for North America where we grew at 60%.
The impact of the pandemic reduced somewhat in the period, with product
shortages easing (but not completely) and the cost of shipping containers
reducing significantly during the year. We saw the resumption of a significant
part of the live events and hospitality markets, and the corporate market
strengthened during the year. Although only a small part of the business,
demand for consumer products was suppressed during the year, and lower
consumer demand generally appears to have had a negative impact on investment
by high street retailers.
Our team worked very well in dealing with sporadic product supplies,
particularly in the earlier part of the year where it was important to ensure
that we had sufficient product for our customers' needs. Subsequently, in some
parts of the market (such as displays), manufacturers accelerated production
very rapidly which led to the oversupply of product which required careful
inventory management.
Cash flow was good, particularly given the strong organic growth in the
business. Adjusted net debt to adjusted EBITDA of 1.6 times at the year-end
(2021 1.4 times) was comfortably within the Board's target range and
demonstrates the Group's ability to deleverage post the two acquisitions
completed this year.
Strong organic revenue growth outperforms the market significantly
Group organic revenue growth was 20.7% on a constant currency basis. This
compares with Avixa's estimated growth in the global AV market of 10.5% in
2022.
Steady improvement in most end user markets
We saw a steady improvement in a number of end user markets that have been
quieter since the start of the pandemic. The corporate market was stronger for
us, with demand for our offering of unified communication and collaboration
products showing the greatest improvement. The live events, hospitality and
entertainment markets also improved during the year as in-person activity
resumed.
The retail market has remained relatively subdued - a reflection of relatively
tough trading conditions. Avixa anticipates that this market may not return to
2019 levels until 2025. We believe that this market has historically accounted
for around 5% of Group revenue.
Operating margin improvement
The Group's adjusted operating margin improved from 4.0% in 2021 to 4.2% in
2022. Gross margins were in line with the prior year whilst better operating
leverage led to an improvement in net margins.
The gross margin was positively impacted by strong growth in our higher margin
professional audio business and relatively strong margins from businesses
acquired in the year. However, these were offset by a negative swing in the
provision for aged stock. In 2021, the gross margin was positively impacted by
an aged stock provision release, whereas a charge was seen in 2022. Excluding
these provision movements, the gross margin would have been 0.5% higher in
2022 than in 2021.
Strong contribution from acquisitions
The Group acquired two significant businesses early in the year, Cooper
Projects (trading as DVS) and Nimans. Combined, these two businesses
contributed total revenue of £154m at a gross profit level marginally ahead
of the Group average and with a strong contribution to net profit, after
funding costs. The acquired businesses are based in the UK and either
strengthen our existing technical capabilities (such as in unified
communications in the case of Nimans) or move the Group into new market areas
(CCTV and access control in the case of DVS).
Profitability and cash generation
Adjusted profit before tax increased by 41.5% to reach £45.2m - a new record
for the Group. In addition to maximising profitability, we continued to focus
on managing our cash flow. The significant organic growth experienced in 2022,
plus the cash outflow from acquisitions, meant that adjusted net debt
increased from around £58m to £96m. At 31 December 2022, the ratio of
adjusted net debt to adjusted EBITDA was 1.6 times - well within the Board's
target range. The Board considers that cash conversion of 54.3% is
satisfactory given the strong organic growth of the business. Our expectation
of long-term cash conversion remains between 70% and 80%.
Group strategy remains unchanged
Our Group strategy focuses on long-term profit growth driven by increasing
specialisation, expanding our geographical
footprint and growing the scale of the business. The Board reviews the
validity of this strategy on a regular basis and
believes that it continues to provide a sound basis for the future development
of the business.
Technologies
In broad terms, we categorise our products into mainstream and specialist
categories. Mainstream products cover displays and projectors, which comprised
an aggregate of 40.4% of Group revenue in 2022 (2021: 50%). Specialist
categories cover technologies which require greater pre and post-sales support
and hence tend to carry higher margins. This group covers categories such as
audio, technical video and broadcast and represented 54% of total sales
compared with 43% in 2021. A core part of the Group's long term strategic
focus is to become more specialist.
Our largest technology area is displays, a category which grew by 16% in 2022
and is now 30% larger than it was in the pre Covid year of 2019. Growth was
strong across all geographical regions. LED displays experienced very strong
growth, in excess of 60% in the year, and we believe we have established a
strong market position in this category. These products require a higher
level of expertise to distribute effectively, and hence tend to carry a higher
overall gross margin.
Revenue from projector sales increased by 8% in 2022 (2021: 6%), with the
UK&I once again achieving the most significant growth due to its focus on
high-end projection. Whilst the overall projector market continues to be
impacted by a shift towards displays, we believe that we gained market share
in this category through our focus on high-end projection.
Growing our technical product categories has been a particular focus of the
business for many years and in 2022 revenues in this category increased by
over 76% (2021: 50%). As expected, after two particularly strong years,
revenues in the broadcast segment declined in 2022. However, we saw strong
growth in professional audio, particularly in EMEA. Revenues from lighting
products increased by 60% as live events returned in 2022. Other technical
product categories grew, with the two acquisitions contributing to a new
category of security products and also expanding our unified communications
revenues.
Outlook
The Group has a proven capability to grow ahead of its markets both
organically and through acquisition. I believe that our standing with
customers and vendors alike continues to go from strength to strength.
However, our team is not complacent - we recognise that we operate in a
competitive market where both vendors and customers have a choice of which
partners to work with. Our focus is to ensure that we provide the best service
possible and continue to develop our service offering. We have a strong
pipeline of acquisition opportunities which will enable us to enter new
geographical markets and expand our range of products.
With the global AV market expected by Avixa to grow at 5.9% per annum over the
five years to 2027, I believe our Group is very well positioned for the
future.
Although still early into the new financial year and mindful of the slower
general economic conditions and higher interest rate environment, we remain
confident that 2023 will see yet another year of growth in excess of the
overall market.
NORTH AMERICA
Starin, our North American business, performed well in the year, with revenues
increasing by 78.2% to £123.1m (60.0% on a constant currency basis). The
gross margin of 14% achieved in the year was below the 2021 level, but we
believe it is still strong for a business in the US market. Our 2021
profitability in this region was particularly positively impacted by aged
stock provision movements.
Our focus in North America has been to expand our sales and business
management teams, to gain market share through high service levels and to win
strong new brands. In each of these respects the business performed well in
2022.
Adjusted operating profit was £6.4m - a 41.3% increase on 2021 (27.1% in
constant currency) and 5.2% of revenue in the year.
UK & IRELAND
Revenues in the UK&I grew by 72.1% to £492m. This included organic
revenue growth of 18.4%. Technical product categories, such as audio and
lighting, were particularly strong, as were high-end projector sales. The
gross margin percentage in this division increased from 15.8% to 16.1% despite
an increase in the aged stock provision.
Adjusted operating profit more than doubled from £12.7m to £26.5m due to
strong contributions from both organic growth and the acquired companies.
EMEA
The EMEA region comprises our businesses in France, Germany, Switzerland,
Benelux, Norway, Italy, Iberia and the Middle East. Revenues, on a constant
currency basis, increased by 16.8% to £535.0m, with organic growth also being
16.8%.
Our audio-focused higher margin businesses in Iberia, Italy and the Middle
East performed particularly well in the year with the return of in-person
activities and improved availability of product. We saw high single digit
revenue growth in the main territories of Germany and France. Gross margins
remained flat in France but declined marginally in Germany due to a change in
product mix.
Gross margins in EMEA decreased by 0.1% to 14.6%.
Adjusted operating profit in EMEA increased by 6.4% (3.2% on a constant
currency basis).
ASIA PACIFIC
After a slow start, due to extended pandemic restrictions, our Asia Pacific
business improved in the latter part of the year and finished with revenue
growth of 18.5% to £53.8m (14.3% growth on a constant currency basis). The
overall gross margin percentage dropped slightly due to a relatively strong
performance in the lower margin displays product category.
Adjusted operating profit of £1.4m was 48.8% higher in 2021 (42.3% on a
constant currency basis).
Financial Review
2022 was an exceptional year for Midwich Group; we achieved record revenue
growth and made further significant market share gains which resulted in
revenue of £1.2bn (2021: £856m).
Excluding the impact of acquisitions and currency movements, organic revenue
increased by 20.7% (2021: 18.9%) whilst gross profit margin was in line with
the prior year at 15.3% (2021: 15.3%).
Adjusted operating profit of £51.1m (2021: £34.0m) was a Group record and up
by 46% at constant currency (2021: 110%). Statutory operating profit (before
adjustments) was £35.1m (2021: £21.0m).
Our adjusted net debt to adjusted EBITDA ratio at 1.6x (2021 1.4x) positions
us well for future acquisitions and in January 2023 we increased our revolving
credit facility to £175m which gives us funding capacity to support our
growth strategy.
Statutory financial highlights
Year to 31 Year to 31 Total
December December growth
2022 2021
Revenue £1,204.1m £856.0m 41%
Gross profit £183.7m £131.3m 40%
Operating profit £35.1m £21.0m 67%
Profit before tax £24.9m £18.9m 32%
Profit after tax £16.9m £13.5m 25%
Basic EPS - pence 17.32p 14.11p 23%
Adjusted financial highlights(1)
Year to 31 Year to 31 Total Growth at
December December growth constant
2022 2021 currency
Revenue £1,204.1m £856.0m 41% 39%
Gross profit £183.7m £131.3m 40% 38%
Gross profit margin % 15.3% 15.3%
Adjusted operating profit £51.1m £34.0m 50% 46%
Adjusted profit before tax £45.2m £31.9m 41% 38%
Adjusted profit after tax £34.1m £23.9m 42% 39%
Adjusted EPS - pence 36.08p 25.63p 41%
1 Definitions of the alternative performance measures are set out in
note 1 to the consolidated financial statements
Currency movements increased Group revenue and adjusted operating profit in
the year by 2.1% and 4.1% respectively. The currency impact in the prior year
reduced revenue by 2.6% and adjusted operating profit by 4.7%.
Organic growth in revenue was 20.7% (2021: 18.9%).
The Group's operating segments are the UK and Ireland, EMEA, Asia Pacific and
North America. The Group is supported by a central team.
Regional highlights
Year to 31 Year to 31 Total Growth at Organic growth
December December growth constant %
2022 2021 % currency
£m £m %
Revenue
UK & Ireland 492.2 286.1 72.1% 72.1% 18.4%
EMEA 535.0 455.4 17.5% 16.8% 16.8%
Asia Pacific 53.8 45.4 18.5% 14.3% 14.3%
North America 123.1 69.1 78.2% 60.0% 60.0%
Total Global 1,204.1 856.0 40.7% 38.6% 20.7%
Gross profit margin
UK & Ireland 16.1% 15.8% 0.3ppts
EMEA 14.6% 14.7% (0.1)ppts
Asia Pacific 17.3% 17.5% (0.2)ppts
North America 14.0% 15.9% (1.9)ppts
Total Global 15.3% 15.3% 0.0ppts
Adjusted operating profit(1)
UK & Ireland 26.5 12.7 108.3% 108.5%
EMEA 22.7 21.4 6.4% 3.2%
Asia Pacific 1.4 0.9 48.8% 42.3%
North America 6.4 4.6 41.3% 27.1%
Group costs (5.9) (5.5)
Total Global 51.1 34.0 50.3% 46.2%
Adjusted finance costs (5.9) (2.1) 183.5% 178.4%
Adjusted profit before tax(1) 45.2 31.9 41.5% 37.5%
1. Definitions of the alternative performance measures are set out in note 1
to the consolidated financial statements.
The financial performance of each segment during the year was:
UK & IRELAND
The UK and Ireland segment revenue increased by 72.1% (2021: 27.5%) to
£492.2m (2021: £286.1m). The revenue growth included the contribution from
the DVS and Nimans acquisitions at the start of the year. Organic revenue
growth was 18.4% (2021: 27.7%). The UK&I generated gross profit of £79.1m
(2021: £45.3m) at a gross profit margin of 16.1% (2021: 15.8%). This resulted
in an adjusted operating profit of £26.5m (2021: £12.7m), an increase of
108.3% (2021: 224.8%).
EMEA
The EMEA segment revenue grew 17.5% (2021: 37.5%) to £535.0m (2021:
£455.4m). Gross profit increased to £78.0m (2021: £67.0m) at a gross profit
margin of 14.6% (2021: 14.7%), with the slight erosion in margin attributable
to a £1.4m increase in the aged inventory provision (2021: £1.2m gain). The
region produced an adjusted operating profit of £22.7m (2021: £21.4m), an
increase of 6.4% (2021: 127.4%). In constant currency, revenue grew 16.8%
(2021: 41.8%) and adjusted operating profit increased 3.2% (2021: 132.8%).
ASIA PACIFIC
The Asia Pacific segment revenue grew by 18.5% to £53.8m (2021: £45.4m),
generating gross profit of £9.3m (2021: £8.0m) at a gross profit margin of
17.3% (2021: 17.5%). Adjusted operating profit was £1.4m (2021: £0.9m). On a
constant currency basis, revenue increased by 14.3% (2021: 1.4%) and adjusted
operating profit grew 42.3% (2021: 9.3%).
NORTH AMERICA
The North America segment achieved very strong growth of 78.2% (2021: (38.1%)
due to the exit of fulfilment activity in 2020) to £123.1m (2021: £69.1m).
Gross margins were 14.0% (2021: 15.9%) with adjusted operating profit up by
41.3% (2021: (7.2%) to £6.4m (2021: £4.6m). On constant currency basis,
excluding the impact of the stronger US$, revenue increased by 60.0% (2021:
(34.3%)) and adjusted operating profit grew 27.1% (2021: (2.2%)).
Group costs
Group costs for the year were £5.9m (2021: £5.5m). Group costs include
central support for acquisitions, sales, finance, compliance, human resources,
information technology and executive management.
Adjusted finance costs
Adjusted finance costs at £5.9m (2021: £2.1m) reflect the interest costs on
borrowings for historical acquisition investments and working capital together
with the costs associated with hedging instruments for the purchase of goods
in non-domestic currencies. Finance costs increased during the year mainly
because of interest rate increases during the period. Reported finance costs
of £10.2m (2021: £2.1m) include interest costs on Group borrowings, the
change in valuation of both deferred consideration and put and call options
and the revaluation of loans and financial instruments.
Profit before tax
The Group reported a profit before taxation of £24.9m (2021: £18.9m) and
adjusted profit before tax of £45.2m (2021: £31.9m), the increase using
constant currency rates was 37.5% (2021: 130.3%).
Tax
The adjusted effective tax rate was 24.5% in 2022 (2021: 25.0%) which reflects
the mix of tax rates in the geographies where the Group operates.
Earnings per share
Basic earnings per share is calculated on the total profit of the Group
attributable to shareholders. Basic EPS for the year was 17.32p (2021:
14.11p). Adjusted EPS increased by 41% (2021: 129%) to 36.08p (2021: 25.63p).
Dividend
The Board has recommended a final dividend of 10.5p per share which, together
with the interim dividend of 4.5p per share, gives a total dividend for 2022
of 15.0p per share (2021: 14.1p including a special dividend of 3.0p per
share). If approved by shareholders at the AGM the final dividend will be paid
on 16 June 2023 to shareholders on the register on 5 May 2023. The last day to
elect for dividend reinvestment ("DRIP") is 26 May 2023.
Cash flow
Year to 31 Year to 31
December December
2022 2021
£m £m
Adjusted operating profit 51.1 34.0
Add back depreciation and unadjusted amortisation 7.4 6.1
Adjusted EBITDA 58.5 40.1
Decrease/(Increase) in stocks (15.7) (36.5)
Decrease/(Increase) in debtors (70.7) (12.5)
(Decrease)/Increase in creditors(1) 59.6 27.0
Adjusted cash flow from operations 31.7 18.1
Adjusted EBITDA cash conversion 54.3% 45.2%
1. Excluding the movement in accruals for employer taxes on share based
payments.
The Group's adjusted operating cash flow conversion, calculated comparing
adjusted cash flow from operations with adjusted EBITDA, was 54.3% (2021:
45.2%). The exceptional revenue growth rate led to a step up in the absolute
value of working capital in 2022 which resulted in cash conversion below the
long-term average for the Group. Our expectation of long-term cash conversion
remains between 70% and 80%.
Gross capital spend on tangible assets was £5.3m (2021: £3.6m) and included
investment in new offices in Germany and Australia and the fit-out of
experience centres in the Middle East, Germany and Spain together with rental
asset purchases in UK&I. An investment of £5.8m in intangible fixed
assets included £5.3m (2021: £1.6m) in relation to the Group's new ERP
solution.
Net debt
Reported net debt increased from £79.0m at 31 December 2021 to £119.4m at 31
December 2022. The Group's reported net debt continues to be impacted by the
adoption of IFRS 16 in 2019 which results in approximately £23.4m of lease
liabilities (2021: £21m) being added to net debt. As noted in the prior year,
the Group's focus is net debt excluding leases ("Adjusted net debt"). The
impact of leases on net debt is excluded from the Group's main banking
covenants.
Adjusted net debt at 31 December 2022 was £96.0m (2021: £58.0m). The
increase was largely driven by the investment in working capital together with
payments for acquisitions and deferred consideration.
In January 2023, the Group increased its revolving credit facility to £175m
(£80m at 31 December 2021) to finance future acquisitions. This facility is
supported by six banks, is for a 4½ year term, and has an adjusted net debt
to adjusted EBITDA covenant ratio of 3 times and an adjusted interest cover
covenant of 4 times adjusted EBITDA. The EBITDA covenant is calculated on a
historical twelve-month basis and includes the full benefit of the prior
year's earnings of any businesses acquired.
Most of the Group's other borrowing facilities are to provide working capital
financing. Whilst the use of such facilities is typically linked to trading
activity in the borrowing company these facilities provide liquidity,
flexibility and headroom to support the Group's organic growth. As at 31
December 2022, the Group has access to total facilities of over £200m (2021:
£185m) with an additional £95m added to the RCF post year end.
The Group has a strong balance sheet with a closing adjusted net debt/adjusted
EBITDA ratio of 1.6x (2021: 1.4x). This, combined with the Group's underlying
cash generation, equips it well to fund short-term swings in working capital
as well as to continue to pursue accretive acquisitions. The Group targets a
long-term adjusted net debt to adjusted EBITDA (including proforma acquisition
earnings) range of 1.5x-2.0x, although we may go above this in the short-term
following acquisition investments.
Goodwill and intangible assets
The Group's goodwill and intangible assets of £111.8m (2021: £73.1m) arise
from the various acquisitions undertaken. Each year the Board reviews goodwill
for impairment and, as at 31 December 2022, the Board believes there are no
indications of impairment. The intangible assets arising from business
combinations, for exclusive supplier contracts, customer relationships and
brands, are amortised over an appropriate period.
Working capital
Working capital management is a core part of the Group's performance. Growth
in working capital in the year was driven by organic growth and the impact of
acquisitions. As at 31 December 2022, the Group had working capital (trade and
other receivables plus inventories less trade and other payables) of £150.7m
(2021: £106.1m). This represented 12.5% of current year revenue (2021:
12.4%). The Group uses a range of different techniques to write down inventory
to the lower of cost and net realisable value, including a formulaic
methodology based on the age of inventory. The aged inventory methodology
writes down inventory by a specific percentage based on time elapsed from the
purchase date. There was no change in this methodology in the year. As at 31
December 2022 the Group's inventory provision was £18.8m (10.5% of cost)
(2021: £15.2m: 11% of cost).
Adjustments to reported results
2022 2021
£000
£000
Operating profit 35,053 20,980
Acquisition costs 435 486
Share based payments 6,031 4,416
Employer taxes on share based payments 176 904
Amortisation of brands, customer and supplier relationships 9,413 7,226
Adjusted operating profit 51,108 34,012
Profit before tax 24,916 18,895
Acquisition costs 435 486
Share based payments 6,031 4,416
Employer taxes on share based payments 176 904
Amortisation of brands, customer and supplier relationships 9,413 7,226
Derivative fair value movements and foreign exchange gains and losses on (1,194) (2,058)
borrowings for acquisitions
Finance costs - deferred and contingent consideration 508 347
Finance costs - put option 4,866 1,696
Adjusted profit before tax 45,151 31,912
Profit after tax 16,855 13,473
Acquisition costs 435 486
Share based payments 6,031 4,416
Employer taxes on share based payments 176 904
Amortisation of brands, customer and supplier relationships 9,413 7,226
Derivative fair value movements and foreign exchange gains and losses on (1,194) (2,058)
borrowings for acquisitions
Finance costs - deferred and contingent consideration 508 347
Finance costs - put option 4,866 1,696
Tax impact (3,018) (2,545)
Adjusted profit after tax 34,072 23,945
Profit after tax 16,855 13,473
Non-controlling interest 1,562 1,044
Profit after tax attributable to owners of the Parent Company 15,293 12,429
Number of shares for EPS 88,299,098 88,101,300
Reported EPS - pence 17.32 14.11
Adjusted EPS - pence 36.08 25.63
The directors present adjusted operating profit, adjusted profit before tax,
and adjusted profit after tax as alternative performance measures in order to
provide relevant information relating to the performance of the Group.
Adjusted profits are a reflection of the underlying trading profit and are
important measures used by directors for assessing Group performance. The
definitions of the alternative performance measures are set out in note 1 of
the notes to the financial statements.
Consolidated income statement for the year ended 31 December 2022
Notes 2022 2021
£'000 £'000
Revenue 1,204,049 855,973
Cost of sales (1,020,335) (724,712)
Gross profit 183,714 131,261
Distribution costs (109,042) (80,585)
Administrative expenses (45,592) (34,871)
Other operating income 5,973 5,175
Operating profit 35,053 20,980
Comprising
Adjusted operating profit 51,108 34,012
Costs of acquisitions 3 (435) (486)
Share based payments (6,031) (4,416)
Employer taxes on share based payments (176) (904)
Amortisation of brands, customer relationships, and supplier relationships (9,413) (7,226)
35,053 20,980
Finance income 95 108
Finance costs 4 (10,232) (2,193)
Profit before taxation 24,916 18,895
Taxation (8,061) (5,422)
Profit after taxation 16,855 13,473
Profit for the financial year attributable to:
The Company's equity shareholders 15,293 12,429
Non-controlling interest 1,562 1,044
16,855 13,473
Basic earnings per share 5 17.32p 14.11p
Diluted earnings per share 5 16.74p 13.76p
Consolidated statement of comprehensive income for the year ended 31 December
2022
2022 2021
£'000 £'000
Profit for the financial year 16,855 13,473
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains and (losses) on retirement benefit obligations 588 254
Items that will be reclassified subsequently to profit or loss:
Foreign exchange gains and (losses) on consolidation 8,282 (4,710)
Other comprehensive income for the financial year, net of tax 8,870 (4,456)
Total comprehensive income for the year 25,725 9,017
Attributable to:
Owners of the Parent Company 23,419 8,384
Non-controlling interests 2,306 633
25,725 9,017
Consolidated statement of financial position as at 31 December 2022
Notes 2022 2021
Assets £'000 £'000
Non-current assets
Goodwill 35,765 21,163
Intangible assets 76,002 51,972
Right of use assets 21,559 19,826
Property, plant and equipment 14,961 11,792
Deferred tax assets 2,567 2,725
150,854 107,478
Current assets
Inventories 159,823 125,825
Trade and other receivables 218,612 124,256
Derivative financial instruments 4,630 492
Cash and cash equivalents 25,855 15,476
408,920 266,049
Current liabilities
Trade and other payables (225,899) (142,546)
Derivative financial instruments (1,483) -
Put option liabilities over non-controlling interests - (3,863)
Deferred and contingent considerations (9,275) (466)
Borrowings and financial liabilities 6 (44,955) (34,053)
Current tax (3,541) (2,869)
(285,153) (183,797)
Net current assets 123,767 82,252
Total assets less current liabilities 274,621 189,730
Non-current liabilities
Trade and other payables (1,872) (1,418)
Put option liabilities over non-controlling interests (15,975) (4,287)
Deferred and contingent considerations (8,157) (1,468)
Borrowings and financial liabilities 6 (100,324) (60,399)
Deferred tax liabilities (10,576) (5,066)
Other provisions (3,583) (2,696)
(140,487) (75,334)
Net assets 134,134 114,396
Equity
Share capital 8 889 887
Share premium 67,047 67,047
Share based payment reserve 12,025 7,879
Investment in own shares (5) (5)
Retained earnings 46,023 39,078
Translation reserve 5,356 (2,182)
Hedging reserve - -
Put option reserve (10,799) (7,784)
Capital redemption reserve 50 50
Other reserve 150 150
Equity attributable to owners of the Parent Company 120,736 105,120
Non-controlling interests 13,398 9,276
Total equity 134,134 114,396
The financial statements were approved by the Board of Directors and
authorised for issue on 13 March 2023 and were signed on its behalf by:
Mr S B Fenby
Director
Company
registration number: 08793266
Consolidated statement of changes in equity for the year ended 31 December
2022
Share Share premium Investment in own shares Retained Equity attributable to owners of the Parent Non-controlling interests Total
capital
earnings
Other reserves
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(note 8) (Note 9)
Balance at 1 January 2022 887 67,047 (5) 39,078 (1,887) 105,120 9,276 114,396
Profit for the year - - - 15,293 - 15,293 1,562 16,855
Other comprehensive income - - - 588 7,538 8,126 744 8,870
Total comprehensive income for the year - - - 15,881 7,538 23,419 2,306 25,725
Shares issued (note 8) 2 - (2) - - - - -
Share based payments - - - - 6,006 6,006 - 6,006
Deferred tax on share based payments - - - - (1,093) (1,093) - (1,093)
Share options exercised - - 2 766 (767) 1 - 1
Acquisition of subsidiaries - - - - (6,933) (6,933) 6,933 -
Dividends paid (note 12) - - - (10,901) - (10,901) - (10,901)
Acquisition of non-controlling interest (note 10) - - - 1,199 3,918 5,117 (5,117) -
Balance at 31 December 2022 889 67,047 (5) 46,023 6,782 120,736 13,398 134,134
For the year ended 31 December 2021
Share Share premium Investment in own shares Retained Equity attributable to owners of the Parent Non-controlling interests Total
capital
earnings
Other reserves
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(note 8) (Note 9)
Balance at 1 January 2021 886 67,047 (6) 30,436 1,976 100,339 6,148 106,487
Profit for the year - - - 12,429 - 12,429 1,044 13,473
Other comprehensive income - - - 254 (4,299) (4,045) (411) (4,456)
Total comprehensive income for the year - - - 12,683 (4,299) 8,384 633 9,017
Shares issued (note 8) 1 - (1) - - - - -
Share based payments - - - - 4,398 4,398 - 4,398
Deferred tax on share based payments - - - - 61 61 - 61
Share options exercised - - 2 1,051 (1,052) 1 - 1
Acquisition of subsidiaries - - - - (3,866) (3,866) 3,866 -
Dividends paid (note 12) - - - (5,568) - (5,568) - (5,568)
Acquisition of non-controlling interest (note 10) - - - 476 895 1,371 (1,371) -
Balance at 31 December 2021 887 67,047 (5) 39,078 (1,887) 105,120 9,276 114,396
Consolidated statement of cash flows for the year ended 31 December 2022
2022 2021
£'000 £'000
Cash flows from operating activities
Profit before tax 24,916 18,895
Depreciation 7,039 5,793
Amortisation 9,807 7,502
Loss on disposal of assets 141 25
Share based payments 6,006 4,398
Foreign exchange losses 3,827 (1,026)
Finance income (95) (108)
Finance costs 10,232 2,193
Profit from operations before changes in working capital 61,873 37,672
Increase in inventories (15,670) (36,496)
Increase in trade and other receivables (70,654) (12,473)
Increase in trade and other payables 59,779 27,943
Cash inflow from operations 35,328 16,646
Income tax paid (9,142) (5,151)
Net cash inflow from operating activities 26,186 11,495
Cash flows from investing activities
Acquisition of businesses net of cash acquired (22,372) (16,836)
Purchase of intangible assets (5,760) (2,401)
Purchase of plant and equipment (5,328) (3,558)
Proceeds on disposal of plant and equipment 140 253
Interest received 95 108
Net cash used in investing activities (33,225) (22,434)
Net cash flows from financing activities
Proceeds on exercise of share options 1 1
Deferred consideration paid (198) (11,265)
Acquisition of non-controlling interest (3,974) (2,055)
Dividends paid (10,901) (5,568)
Invoice financing inflows/(outflows) 14,282 6,261
Proceeds from borrowings 31,304 23,222
Repayment of loans (4,947) (4,660)
Interest paid (5,217) (2,087)
Interest on leases (602) (439)
Capital element of lease payments (4,126) (3,072)
Net cash inflow/(outflow) from financing activities 15,622 338
Net increase/(decrease) in cash and cash equivalents 8,583 (10,601)
Cash and cash equivalents at beginning of financial year 11,639 23,795
Effects of exchange rate changes 716 (1,555)
Cash and cash equivalents at end of financial year 20,938 11,639
Comprising:
Cash at bank 25,855 15,476
Bank overdrafts (4,917) (3,837)
20,938 11,639
Notes to the consolidated financial statements
1. Accounting policies
General information and nature of operations
Midwich Group plc ("the Company") is a public limited company incorporated in
England and Wales and listed on the London Stock Exchange's Alternative
Investment Market (AIM). The principal activity of Midwich Group plc and its
subsidiary companies ("the Group") is the distribution of Audio Visual
Solutions to trade customers.
Basis of preparation
The consolidated financial statements of Midwich Group plc have been prepared
in accordance with UK adopted International Accounting Standards ("IAS") in
conformity with the requirements of the Companies Act 2006.
The financial statements have been prepared under the historical cost
convention as modified for financial instruments at fair value and in
accordance with applicable accounting standards.
The directors have adopted the going concern basis in preparing the financial
information. In assessing whether the going concern assumption is appropriate,
the directors have taken into account all relevant available information about
the foreseeable future.
Basis of consolidation
The Consolidated Financial Statements incorporate the results of Midwich Group
plc and entities controlled by the Company (its subsidiaries). A subsidiary is
a company controlled directly by the Group. Control is achieved where the
Group has the power over the investee, rights to variable returns and the
ability to use the power to affect the investee's returns. Income and expenses
of subsidiaries acquired during the year are included in the consolidated
income statement from the effective date of control. When necessary,
adjustments are made to the financial statements of subsidiaries to bring
their accounting policies into line with those used by the Parent Company.
The Group applies the acquisition method of accounting to account for business
combinations. The consideration transferred for the acquisition of a
subsidiary is the fair value of the assets transferred, the liabilities
incurred, and the equity interests issued by the Group. Identifiable assets
acquired, and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition
date. The Group recognises identifiable assets acquired and liabilities
assumed in a business combination regardless of whether they have been
previously recognised in the acquiree's financial statements prior to the
acquisition. Goodwill is stated after separate recognition of identifiable
intangible assets. It is calculated as the excess of the sum of a) fair value
of consideration transferred, b) the recognised amount of any non-controlling
interest in the acquiree and c) acquisition-date fair value of any existing
equity interest in the acquiree, over the acquisition-date fair values of
identifiable net assets. If the fair values of identifiable net assets exceed
the sum calculated above, the excess amount (i.e. gain on a bargain purchase)
is recognised in profit or loss immediately.
Non-controlling interests in the net assets of consolidated subsidiaries are
identified separately within the Group's equity. Non-controlling interests
consist of the amount of those interests at the date of the original business
combination and the non-controlling shareholders' share of changes in equity
since the date of the combination. Non-controlling interests are measured
initially at fair value.
Acquisition-related costs are expensed as incurred and all intra-group
transactions, balances, income and expenses are eliminated in full on
consolidation.
Acquisition of interests from non-controlling shareholders
Acquisitions of non-controlling interests in subsidiaries are accounted for as
transactions between shareholders. There is no remeasurement to fair value of
net assets acquired that were previously attributable to non-controlling
shareholders.
Going concern
In considering the going concern basis for preparing the financial statements,
the Board considers the Group's objectives and strategy, its principal risks
and uncertainties in achieving its goals and objectives which are set out in
the Strategic Report. The Board has undertaken a review of going concern under
three scenarios: 1) our base plan, 2) a downside scenario and 3) a reverse
stress test for the period to 31 December 2024. The sensitivity stress test is
based on a model that allows the Group to assess its liquidity, solvency and
compliance with banking covenants based on inputs for future trading
performance. Varying the inputs into the model allows the Group to assess the
impact of potential adverse trading conditions.
The directors consider the working capital and finance facilities of the
business to be adequate to fund its operations and growth strategy. The Group
has a variety of finance facilities available to it including a revolving
credit facility which expires in 2027 and secured invoice discounting
facilities which require renewal in the forecast period. The directors are
confident that they will be able to renew the secured invoice discounting
facilities given the secured nature of the facility and state of the business.
Notwithstanding, this represents an uncertainty and further models (base plan
and reverse stress test) have been prepared to assess going concern without
the use of on demand facilities. The base case continues to demonstrate the
Group's ability to continue as a going concern. The reverse stress test
demonstrates that the Group can withstand severe adverse trading conditions.
In assessing the ability to withstand severe adverse trading conditions, the
directors have also considered mitigating actions available to them.
There are no material uncertainties that cast significant doubt on the Group's
ability to continue as a going concern and the Group continues to adopt the
going concern basis in preparing consolidated financial statements. The
Group's strategy remains unchanged, and we will continue to focus on
profitable organic growth complemented by targeted acquisitions.
Revenue
Revenue arises from the sale of goods, provision of ancillary services, and
the rental of products.
Revenue from the sale of goods is recognised on despatch when control of the
products is transferred to the customer. All performance obligations are met
on despatch when the customer obtains control to direct the goods within the
sales channel and incurs the risk of obsolescence.
Ancillary services include support services, managed services, licences,
transport, installations, removals, warranties, and repairs. Where contracts
for ancillary services include multiple performance obligations the
transaction price is allocated to each separate performance obligation within
the contact based on estimated cost-plus margin. Revenues from support
services, managed services, and warranties are recognised over time as the
services are performed. Revenues from all other ancillary services including
licences, transport, installations, removals, and repairs are recognised at a
point in time upon delivery of the service. Revenues from licences comprise
the services to arrange for the provision of the licence.
Revenue from the rental of products via an operating lease is recognised on a
straight-line basis over the lease term. Changes in the price or duration of a
lease that were not part of the original terms and conditions are accounted
for as a lease modification and recognised as a new lease from the effective
date of the modification.
Proceeds from the sale of rental assets are recognised as sales of goods.
Revenue for the sale of rental assets is recognised at the point in time when
the control is transferred, at which point the customer obtains the ability to
direct the goods in the channel and incurs the risk of obsolescence.
Finance income and costs
Interest income and expense is recognised using the effective interest method
which calculates the amortised cost of a financial asset or liability and
allocates the interest income or expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future
cash receipts or payments through the expected life of the financial asset or
liability to the net carrying amount of the financial asset or liability.
Other finance costs include the changes in fair value of derivatives and other
financial instruments measured at fair value through profit or loss.
Goodwill
Goodwill represents the future economic benefits arising from business
combinations which are not individually identified and separately recognised.
Goodwill is carried at cost as established at the date of acquisition of the
business less any accumulated impairment losses.
Intangible assets other than goodwill
Intangible assets acquired separately are measured on initial recognition at
cost. The cost of intangible assets acquired in a business combination is
their fair value as at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and
accumulated impairment losses. The useful lives of other intangible assets are
assessed as finite. Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortisation period
and the amortisation method for an intangible asset with a finite useful life
are reviewed at least at the end of each reporting period. Changes in the
expected useful life or the expected pattern of consumption of future economic
benefits embodied in the asset are accounted for by changing the amortisation
period or method, as appropriate, and are treated as changes in accounting
estimates. The amortisation expense on intangible assets with finite lives is
recognised in profit or loss in administrative expenses.
Gains or losses arising from derecognition of an intangible asset are measured
as the difference between the net disposal proceeds and the carrying amount of
the asset and are recognised in profit or loss when the asset is derecognised.
Amortisation is calculated on a straight-line basis over the estimated useful
life of the asset as follows:
· Patents and licences 3-10 years
· Software 3-10 years
· Brands 5-15 years
· Customer relationships 5-15 years
· Supplier relationships 5-15 years
Right of use assets
Right of use assets are recognised at the commencement date of the lease when
the asset is available for use. Right of use assets are initially measured at
cost including initial direct costs incurred and the initial value of the
lease liability. Right of use assets are subsequently measured at cost less
any accumulated depreciation, impairment losses, and adjustments arising from
lease modifications that are not a termination of the lease.
Depreciation is calculated on a straight-line basis on all right of use assets
as follows:
· Land and buildings Over the period of the lease up to a maximum of 50 years
· Plant and equipment Over the period of the lease up to a maximum of 10 years
· Rental assets Over the period of the lease up to a maximum of 10 years
Modifications to leases that decrease the scope of the lease are treated as a
partial or full termination of a lease. A gain or loss on disposal is
recognised when there is termination of a lease.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less any
depreciation and impairment losses. Cost includes expenditure that is directly
attributable to the acquisition or construction of these items. Subsequent
costs are included in the asset's carrying amount only when it is probable
that future economic benefits associated with the item will flow to the Group
and the costs can be measured reliably. All other costs, including repairs and
maintenance costs, are charged to the income statement in the period in which
they are incurred.
Depreciation is calculated on a straight-line basis on property, plant and
equipment as follows:
· Land Not depreciated
· Freehold buildings 50 years
· Leasehold improvements Over the period of the lease up to a maximum of 50 years
· Rental assets 3-10 years
· Plant and equipment 3-10 years
Depreciation is provided on cost less residual value. The residual value,
depreciation methods and useful lives are reassessed annually. Each asset's
estimated useful life has been assessed for limitations in its physical life
and for possible future variations in those assessments. Estimates of
remaining useful lives are made on a regular basis for all machinery and
equipment, with annual reassessments for major items. Changes in estimates are
accounted for prospectively. The gain or loss arising on disposal or scrapping
of an asset is determined as the difference between the sales proceeds, net of
selling costs, and the carrying amount of the asset and is recognised in the
income statement.
Impairment of non-financial assets including goodwill
For the purposes of impairment testing, goodwill is allocated to each of the
Group's cash-generating units that are expected to benefit from the synergies
of the combination. Each unit to which goodwill is allocated represents the
lowest level within the Group that independent cash flows are monitored. A
cash-generating unit to which goodwill has been allocated is tested for
impairment annually, or more frequently when there is indication that the unit
may be impaired.
At each reporting date, the Group reviews the carrying amounts of non-current
assets excluding goodwill to determine whether there is any indication that
they have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of any
impairment loss. Where the asset does not generate cash flows that are
independent from other assets, the estimate is the recoverable amount of the
cash-generating unit to which the asset belongs. Recoverable amount is the
higher of fair value less costs of disposal and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted. If the recoverable
amount of an asset or cash-generating unit is estimated to be less than the
carrying amount, then the carrying amount of the asset or cash-generating unit
is reduced to the recoverable amount. The impairment loss is allocated first
to reduce the carrying amount of any goodwill allocated to the unit and then
to the other assets of the unit pro rata based on the carrying amount of each
asset in the unit. An impairment loss is recognised as an expense immediately.
An impairment loss recognised for goodwill is not reversed in subsequent
periods. Where an impairment loss on other non-financial assets subsequently
reverses, the carrying amount of the asset or cash-generating unit is
increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset or
cash-generating unit in prior periods. A reversal of an impairment loss is
recognised in the income statement immediately.
Inventory
Inventory is valued at the lower of cost and net realisable value, after
making due allowance for obsolete and slow-moving items. Cost comprises
purchase price and directly attributable costs incurred in bringing products
to their present location and condition. Some goods are held on behalf of
customers and are not included within the Group's inventory.
Financial instruments
Financial instruments are contracts that give rise to financial assets or
financial liabilities and are recognised when the Group becomes a party to the
contractual provisions of the instrument.
Derivatives are financial instruments that have a value that changes in
response to a specific external factor and do not have a significant initial
investment.
Financial assets
Financial assets include trade and other receivables, cash and cash
equivalents, and derivative financial instruments with a positive market
value.
The Group classifies financial assets into two categories:
· financial assets measured at amortised cost; and
· financial assets measured at fair value through profit or loss.
The classification of a financial asset depends on the Group's business model
for managing the asset and the contractual cash flow characteristics
associated with the asset.
Financial assets measured at amortised cost are initially measured at fair
value plus directly attributable transaction costs and subsequently measured
using the effective interest method. The effects of discounting within the
effective interest method are omitted if immaterial.
Financial assets measured at fair value through profit and loss are initially
and subsequently measured at fair value. Transaction costs directly
attributable to the acquisition of the financial asset are recognised in the
profit and loss.
Investments in equity instruments that are not held for trading are classified
as financial assets and are measured at fair value through profit and loss.
Financial assets with embedded derivatives are recognised as hybrid contracts
and are classified in their entirety and not in separate components.
Financial assets are derecognised when the contractual rights to the cash
flows from the financial asset expire, or when the financial asset and
substantially all the risks and rewards are transferred.
Financial liabilities
Financial liabilities include trade and other payables; deferred
considerations; put option liabilities; borrowings; and derivative financial
instruments with a negative market value.
The Group classifies financial liabilities into three categories:
· financial liabilities measured at amortised cost;
· financial liabilities measured at fair value through profit or loss; and
· contingent consideration recognised in a business combination.
Financial liabilities measured at amortised cost are initially measured at
fair value minus directly attributable transaction costs and subsequently
measured using the effective interest method. The effects of discounting
within the effective interest method are omitted if immaterial. Where the
contractual cash flows of the financial liability are renegotiated or
otherwise modified the financial liability is recalculated at the present
value of the modified contractual cash flows discounted at the financial
liability's original effective interest rate.
Financial liabilities measured at fair value through profit or loss are
initially and subsequently measured at fair value. Transaction costs directly
attributable to the issue of the financial liability are recognised in the
profit and loss.
Contingent consideration recognised in a business combination is initially and
subsequently measured at fair value.
Financial liabilities with embedded derivatives are recognised as hybrid
contracts and are classified in their entirety and not in separate components
unless:
· the economic characteristics and risks of the embedded derivative are not
closely related to the economic characteristics and risks of the financial
liability;
· a separate instrument with the same terms as the embedded derivative
would meet the definition of a derivative; and
· the hybrid contract is not measured at fair value with changes in fair
value recognised in profit or loss.
Financial liabilities are derecognised when they are extinguished, discharged,
cancelled, or expire.
Trade and other receivables
Trade and other receivables are financial assets recognised when the Group
becomes party to the contractual provisions of the instrument.
Trade and other receivables are initially measured at transaction price plus
directly attributable transaction costs. Transaction price is equivalent to
fair value for trade and other receivables that do not contain a significant
financing component. Where trade and other receivables do contain a
significant financing component the fair value is equivalent to the
transaction price adjusted for the effects of discounting. The effects of
discounting are not adjusted if it is expected at the inception of the
contract that there will be a period of one year or less from when the goods
or services are transferred to the customer to the payment date.
Trade and other receivables are subsequently measured at amortised cost using
the effective interest method less expected credit losses. Expected credit
losses are calculated based on probability weighted amounts derived from a
range of possible outcomes that are based on reasonable supporting information
and discounted for the time value of money. The Group applies the simplified
approach to measure the loss allowance at an amount equal to lifetime expected
credit losses including where trade receivables contain a significant
financing component. The effects of expected credit losses are omitted if
immaterial.
Supplier rebates and other income
Supplier rebates include promotional income and are recognised when the
conditions attached to the rebate have been satisfied and after deducting any
probable liability to repay the rebate. Supplier rebates are deducted from
inventory or recorded within cost of sales depending on the contractual terms
of the rebate. Promotional income from suppliers does not relate to the
purchase of inventory and is therefore recognised within other income.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with
banks and other short-term highly liquid investments with original maturities
of three months or less from inception.
Borrowings
Borrowings include bank loans and overdrafts, loan notes, amounts advanced
under invoice factoring arrangements, and leases. Bank loans and overdrafts,
loan notes, and amounts advanced under invoice factoring arrangements are
financial liabilities that are recognised when the Group becomes party to the
contractual provisions of the instrument. Bank loans and overdrafts, loan
notes, and amounts advanced under invoice factoring arrangements are initially
measured at fair value minus transaction costs directly attributable to the
issue of the financial liability. Bank loans and overdrafts, loan notes, and
amounts advanced under invoice factoring arrangements are subsequently
measured using the effective interest method. The effects of discounting
within the effective interest method are omitted if immaterial. Where the
contractual obligations of financial instruments (including share capital) are
equivalent to a similar debt instrument, those financial instruments are
classified as financial liabilities. Cash inflows from invoice discounting
arrangements are classified as financing cash inflows and cash inflows from
receivables are classified as operating cash inflows. The business continues
to recognise the receivables and the amount received from the factor is
recorded as a financial liability.
Trade and other payables
Trade and other payables are financial liabilities recognised when the Group
becomes party to the contractual provisions of the instrument. Trade and other
payables are initially measured at fair value minus transaction costs directly
attributable to the issue of the financial liability. Trade and other payables
are subsequently measured at amortised cost using the effective interest
method.
Derivative financial instruments
Derivative financial instruments are recognised when the Group becomes party
to the contractual provisions of the instrument. Derivative financial
instruments are initially and subsequently measured at fair value. Any
transaction costs directly attributable to the acquisition of the financial
asset are recognised in the profit and loss. The fair values are determined by
reference to active markets or using a valuation technique where no active
market exists.
Put option liabilities
Put options to acquire non-controlling interests of subsidiaries are initially
recognised at present value and subsequently measured at amortised cost, being
the present value of future payments discounted at the original effective
interest rate. Where the contractual cash flows of the put option liability
are renegotiated or otherwise modified the financial liability is recalculated
at the present value of the modified contractual cash flows discounted at the
financial liability's original effective interest rate. Further details of the
measurement of put options are given in the accounting judgements and key
sources of estimation uncertainty accounting policy.
Foreign currency
The presentation currency for the Group's consolidated financial statements is
Sterling. Foreign currency transactions by group companies are recorded in
their functional currencies at the exchange rate at the date of the
transaction. Monetary assets and liabilities are translated at rates in effect
at the reporting date with any gain or loss on foreign exchange adjustments
usually being credited or charged to the income statement within
administrative expenses. The Parent Company's functional currency is Sterling.
On consolidation the assets and liabilities of the subsidiaries with a
functional currency other than Sterling are translated into the Group's
presentational currency at the exchange rate at the reporting date and the
income and expenditure account items are translated at the average rate for
the period. The exchange difference arising on the translation from functional
currency to presentational currency of subsidiaries is classified as other
comprehensive income and is accumulated within equity as a translation
reserve. The balance of the foreign currency translation reserve relating to a
subsidiary that is partially or fully disposed of is recognised in the income
statement at the time of disposal.
Current taxation
Current tax payable or recoverable is based on taxable profit for the year.
Taxable profit differs from profit as reported in the income statement because
some items of income or expense are taxable or deductible in different years
or may never be taxable or deductible. The Group's liability for current tax
is calculated using UK and foreign tax rates and laws that have been enacted
or substantively enacted by the end of the reporting period date.
Deferred taxation
Deferred taxation is calculated using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, if the
deferred tax arises from the initial recognition of an asset or liability in a
transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss, it is not
accounted for. No deferred tax is recognised on initial recognition of
goodwill or on investment in subsidiaries. Deferred tax is determined using
tax rates and laws that have been enacted or substantively enacted by the
reporting date and are expected to apply when the related deferred tax asset
is realised, or the deferred tax liability is settled. Deferred tax
liabilities are provided in full and are not discounted. Deferred tax assets
are recognised to the extent that it is probable that future taxable profits
will be available against which the temporary differences can be utilised.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expense in the income statement, except where they relate to items that
are charged or credited directly to equity, in which case the related deferred
tax is also charged or credited directly to equity. Deferred income tax assets
and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred
income tax assets and liabilities relate to income taxes levied by the same
taxation authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a net basis.
Employment benefits
Provision is made in the financial statements for all employee benefits.
Liabilities for wages and salaries, including non-monetary benefit and annual
leave obliged to be settled within 12 months of the reporting date, are
recognised in accruals. Contributions to defined contribution pension plans
are charged to the income statement in the period to which the contributions
relate. The Group operates defined benefit pension plans in the Netherlands
and Switzerland, which require contributions to separately managed funds. Both
defined benefit pension plans are final salary pension schemes which provide
members with a guaranteed income on retirement. Defined benefit pension scheme
surpluses or deficits are calculated by independent qualified actuaries using
actuarial assumptions applied to actual pension contributions and salaries.
The actuarial assumptions include return on assets, inflation, life
expectancy, mortality rates and expected retirement ages. Actuarial
assumptions are updated annually to reflect changes in market conditions and
all actuarial gains and losses are recognised in other comprehensive income.
Leases
Assets and liabilities arising from a lease are initially measured at present
value. The present value is comprised of fixed and variable payments
discounted using the interest rate implicit in the lease unless it can't be
readily determined, in which case payments are discounted using the
incremental borrowing rate. Variable payments are payments that depend on a
rate or index and are initially measured using the appropriate rate or index
at the commencement date of the lease. Where a material variation to the
initial measurement of lease payments occurs the lease liability is reassessed
with a corresponding adjustment to the value of right of use asset.
Lease payments beyond a break clause or within an extension option are
included in the measurement of present value provided it is reasonably certain
that the lease will not be terminated before the respective break point or
lease extension and there is no active plan to do so.
Finance costs are added to the lease liabilities at amounts that produce a
constant periodic rate of interest on the remaining balance of the lease
liabilities using the interest rates used to calculate the present value of
the leases. Lease payments are deducted from the lease liability.
Short-term leases of less than 12 months or leases for low value assets are
recognised on a straight-line basis as an expense in the income statement.
Government grants
Government grants are recognised when the conditions attached to the grant
have been satisfied and after deducting any probable liability to repay the
grant.
Government grants relating to costs incurred are offset against the cost to
which the grant relates in the income statement. Government grants in relation
to employment support are offset against the employee costs in the income
statement. Government grants relating to the purchase of property, plant and
equipment are deducted from the purchase price of the asset and credited to
the income statement on a systematic basis over the expected useful life of
the related asset.
Equity
Equity comprises the following:
· "Share capital" represents the nominal value of equity shares issued.
· "Share premium" represents the amounts subscribed for share capital, net
of issue costs, above the nominal value.
· "Investment in own shares" represents amounts of the Parent Company's own
shares held within an Employee Benefit Trust.
· "Share based payment reserve" represents the accumulated value of share
based payments expensed in the income statement, along with any accumulated
deferred tax credits or charges recognised in other comprehensive income in
respect of options that have yet to exercise.
· "Retained earnings" represents the accumulated profits and losses
attributable to equity shareholders.
· "Translation reserve" represents the exchange differences arising from
the translation of the financial statements of subsidiaries into the Group's
presentational currency.
· "Put option reserve" represents the initial present value of put options
over shares in a subsidiary held by non-controlling interest shareholders that
have not been exercised.
· "Capital redemption reserve" represents the nominal value of shares
repurchased by the Parent Company.
· "Other reserve" relates to the Employee Benefit Trusts.
· "Non-controlling interest" represents the share of a subsidiary's profit
or loss and net assets that is not held by the Group. The Group attributes
total comprehensive income or loss of subsidiaries between the owners of the
Parent and the non-controlling interests based on their respective ownership
interests.
Share based payments
Equity-settled share based payments are measured at the fair value of the
equity instrument. The fair value of the equity-settled transactions is
recognised as an expense over the vesting period. The fair values of the
equity instruments are determined at the date of the grant incorporating
market based vesting conditions. The fair value of goods and services received
is measured by reference to the fair value of options. The fair values of
share options are measured using the Black Scholes model. The expected life
used in the models is adjusted, based on management's best estimate of the
effects of non-transferability, exercise restrictions and behavioural
considerations. The cost of equity-settled transactions is recognised,
together with a corresponding increase in equity, over the period in which the
performance or service conditions are fulfilled, ending on the date on which
the relevant employees become fully entitled to the award ("the vesting
date"). The cumulative expense recognised for equity-settled transactions at
each reporting date until the vesting date reflects the extent to which the
vesting period has expired and the Group's best estimate of the number of
equity instruments that will ultimately vest. The income statement charge or
credit for a period represents the movement in cumulative expense recognised
as at the beginning and end of that period. No expense is recognised for
awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective
of whether the market condition is satisfied, provided that all other
performance or service conditions are satisfied. Where the terms of an
equity-settled award are modified, the minimum expense recognised is the
expense as if the terms had not been modified. An additional expense is
recognised for any modification, which increases the total fair value of the
share based payment arrangement, or is otherwise beneficial to the employee as
measured at the date of modification. Where an equity-settled award is
cancelled, it is treated as if it had vested on the date of cancellation, and
any expense not yet recognised for the award is recognised immediately.
However, if a new award is substituted for the cancelled award, and designated
as a replacement award on the date that it is granted, the cancelled and new
awards are treated as if they were a modification of the original award. Where
an equity-settled award is forfeited during the vesting period, the cumulative
charge expensed up to the date of forfeiture is credited to the income
statement.
Employee Benefit Trust
The assets and liabilities of the Employee Benefit Trusts (EBT) have been
included in the Group and Company financial statements. Any assets held by the
EBT cease to be recognised on the statement of financial position when the
assets vest unconditionally in identified beneficiaries. The costs of
purchasing own shares held by the EBT are shown as a deduction within
shareholders' equity. The proceeds from the sale of own shares are recognised
in shareholders' equity. Neither the purchase nor sale of own shares leads to
a gain or loss being recognised in the income statement.
Segment reporting
An operating segment is a component of an entity that engages in business
activities from which it may earn revenues and incur expenses (including
revenues and expenses related to transactions with other components of the
same entity), whose operating results are regularly reviewed by the entity's
Chief Operating Decision Maker to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete
financial information is available. The Chief Operating Decision Maker has
been identified as the Managing Director, at which level strategic decisions
are made. Details of the Group's reporting segments are provided in note 2.
New and amended International Accounting Standards adopted by the Group
The Group adopted the following standards, amendments to standards and
interpretations, which are effective for the first time this year:
Amendments to IFRS 3 Business combinations - References to the conceptual
framework;
Amendments to IAS 16 Property, plant and equipment - Proceeds before intended
use; and
Amendments to IAS 37 Provisions, contingent liabilities and contingent assets
- Costs of fulfilling an onerous contract.
The new standards have not had a material impact on the reported results and
there is no adjustment to previously reported equity due to the implementation
of the new standards.
International Accounting Standards in issue but not yet effective
The Group intends to adopt new and amended standards and interpretations, if
applicable, when they become effective. The new and amended standards and
interpretations that are issued, but not yet effective, up to the date of
issuance of the Group's financial statements are not expected to have an
impact on the Group's reported financial position or performance.
Use of alternative performance measures
The Group has defined certain measures that it uses to understand and manage
performance. These measures are not defined under IAS and they may not be
directly comparable with other companies' adjusted measures. These non-GAAP
measures are not intended to be a substitute for any IAS measures of
performance, but management has included them as they consider them to be key
measures used within the business for assessing the underlying performance.
Growth at constant currency: This measure shows the year on year change in
performance after eliminating the impact of foreign exchange movement, which
is outside of management's control.
Organic growth: This is defined as growth at constant currency excluding
acquisitions until the first anniversary of their consolidation.
Adjusted operating profit: Adjusted operating profit is disclosed to indicate
the Group's underlying profitability. It is defined as profit before
acquisition related expenses, share based payments and associated employer
taxes and amortisation of brand, customer relationship, and supplier
relationship intangible assets. Share based payments are adjusted to the
provide transparency over the costs.
Adjusted EBITDA: This represents operating profit before acquisition related
expenses, share based payments and associated employer taxes, depreciation and
amortisation.
Adjusted profit before tax: This is profit before tax adjusted for acquisition
related expenses, share based payments and associated employer taxes,
amortisation of brand, customer and supplier relationship intangible assets,
changes in deferred or contingent considerations and put option liabilities
over non-controlling interests, foreign exchange gains or losses on borrowings
for acquisitions, fair value movements on derivatives for borrowings, and
financing fair value remeasurements.
Adjusted profit after tax: This is profit after tax adjusted for acquisition
related expenses, share based payments and associated employer taxes,
amortisation of brand, customer relationship, and supplier relationship
intangible assets, changes in deferred or contingent considerations and put
option liabilities over non-controlling interests, foreign exchange gains or
losses on borrowings for acquisitions, fair value movements on derivatives for
borrowings, and financing fair value remeasurements and the tax thereon.
Adjusted EPS: Adjusted EPS is EPS calculated using the basis of adjusted
profit after tax instead of profit after tax after deducting adjustments to
profit after tax due to non-controlling interests.
Adjusted net debt: Net debt is borrowings less cash and cash equivalents.
Adjusted net debt excludes leases.
Accounting judgements and sources of estimation uncertainty
The preparation of financial statements in accordance with the principles of
the IASs requires the directors to make judgements and use estimation
techniques to provide a fair presentation of the Group's financial position
and performance. Accounting judgements represent the accounting decisions made
by the directors that have the most significant effect on amounts recognised
in the financial statements. Sources of estimation uncertainty represent the
assumptions made by management that carry significant risks of a material
adjustment to the value of assets and liabilities within the next financial
year. Judgements and estimates are evaluated based on historical experience,
continuing developments within the Group, and reasonable expectations of
future events. Judgements and estimates are subject to regular review by the
directors.
The following are the significant accounting judgements made by the Group in
preparing the financial statements:
Put options over non-controlling interests
Where the Group has acquired less than 100% ownership of a subsidiary it has
always issued put and call options over the remaining non-controlling
interests. The significant accounting judgement is whether the Group has 100%
control despite not having 100% ownership. If the Group judges that it has
100% control, there would be no recognition of a put option liability or
non-controlling interest. If the Group judges that it does not have 100%
control, it recognises a put option liability and non-controlling interest.
The key judgements to determine the proportion of control are assessments of
the level of risks and rewards, the proportionate right to dividends, and the
exposure to changes in the value of shares.
The following are the significant sources of estimation uncertainty facing the
Group in preparing the financial statements:
Inventory write down
Inventory is written down to the lower of cost and net realisable value. To
determine inventory write downs the Group is required to estimate the future
sales volumes, sales prices, costs to sell inventory, and shrinkage.
The Group uses a range of different techniques to write down inventory to the
lower of cost and net realisable value including a formulaic methodology based
on the age of inventory. The aged inventory methodology writes down inventory
by a specific percentage based on time elapsed from purchase date and these
specific percentages are based on historical data.
The only uncertainty with regards to estimation on the write down of inventory
is whether the realisable value on sale or disposal of inventory approximates
the value of inventory after write downs have been applied. The ultimate sale
or disposal of inventory results in a reversal of the write down against the
cost of inventory disposed with a potential gain or loss depending upon the
accuracy of the estimation.
If each write down percentage applied to inventory were increased by ten
percentage points the total write down against inventory held at the reporting
date would increase by £5,657k. This increase excludes inventory on which no
write down has been applied and is subject to an increase up to a maximum
write down of 100%.
If each write down percentage applied to inventory were decreased by ten
percentage points the total write down against inventory held at the reporting
date would decrease by £5,474k. This decrease is subject to a minimum write
down of 0%.
Fair value of separately identifiable intangible assets in business
combinations
The Group is required to calculate the fair value of identifiable assets and
liabilities acquired in business combinations. To estimate the fair value of
separately identifiable assets in business combinations certain assumptions
must be made about future trading performance, royalty rates, customer
attrition rates, and supplier contract renewal rates. The fair values of
assets and liabilities acquired in business combinations are disclosed in note
11.
Contingent considerations and put option liabilities
The Group is required to record contingent considerations at fair value. The
Group initially measures put option liabilities at present value and
subsequently measures put option liabilities at amortised cost using the
effective interest rate method. The Group use a range of present valuation
techniques including both the discount rate adjustment technique and the
expected present value technique to determine the fair values of contingent
considerations and the present values of put option liabilities.
2. Segmental reporting
Operating segments
For the purposes of segmental reporting, the Group's Chief Operating Decision
Maker ("CODM") is the Managing Director. The Group is a distributor of audio
visual solutions to trade customers. The Board reviews attributable revenue,
expenses, assets and liabilities by geographic region and makes decisions
about resources and assesses performance based on this information. Therefore,
the Group's operating segments are geographic in nature.
2022 UK & Ireland EMEA Asia Pacific North America Other Total
£'000 £'000 £'000 £'000
£'000 £'000
Revenue 492,203 534,962 53,763 123,121 - 1,204,049
Gross profit 79,104 78,014 9,312 17,284 - 183,714
Gross profit % 16.1% 14.6% 17.3% 14.0% - 15.3%
Adjusted operating profit 26,500 22,718 1,378 6,437 (5,925) 51,108
Costs of acquisitions - - - - (435) (435)
Share based payments (2,260) (1,911) (469) (96) (1,295) (6,031)
Employer taxes on share based payments (56) (57) 3 (4) (62) (176)
Amortisation of brands, customer and supplier relationships (4,201) (3,566) (282) (1,364) - (9,413)
Operating profit 19,983 17,184 630 4,973 (7,717) 35,053
Interest (10,137)
Profit before tax 24,916
2022 UK & Ireland EMEA Asia Pacific North America Total
£'000 £'000 £'000 £'000 Other
£'000
£'000
Segment assets 235,716 245,321 27,024 51,002 711 559,774
Segment liabilities (196,934) (187,802) (19,013) (20,985) (906) (425,640)
Segment net assets 38,782 57,519 8,011 30,017 (195) 134,134
Depreciation 2,731 3,294 443 571 - 7,039
Amortisation 4,290 3,652 297 1,568 - 9,807
Other segmental information UK International Total
£'000 £'000 £'000
Non-current assets 68,547 82,307 150,854
Deferred tax asset 1,051 1,516 2,567
Non-current assets excluding deferred tax 67,496 80,791 148,287
2021 UK & Ireland EMEA Asia Pacific North America Other Total
£'000 £'000 £'000 £'000
£'000 £'000
Revenue 286,060 455,434 45,384 69,094 - 855,972
Gross profit 45,333 67,000 7,958 10,969 - 131,260
Gross profit % 15.8% 14.7% 17.5% 15.9% - 15.3%
Adjusted operating profit 12,720 21,356 926 4,556 (5,546) 34,012
Costs of acquisitions - - - - (486) (486)
Share based payments (1,599) (1,384) (366) (45) (1,022) (4,416)
Employer taxes on share based payments (249) (401) (33) (5) (216) (904)
Amortisation of brands, customer and supplier relationships (2,371) (3,356) (273) (1,226) - (7,226)
Operating profit 8,501 16,215 254 3,280 (7,270) 20,980
Interest (2,085)
Profit before tax 18,895
2021 UK & Ireland EMEA Asia Pacific North America Total
£'000 £'000 £'000 £'000 Other
£'000
£'000
Segment assets 106,426 203,066 21,489 41,987 559 373,527
Segment liabilities (74,564) (148,943) (17,357) (17,454) (813) (259,131)
Segment net assets 31,862 54,123 4,132 24,533 (254) 114,396
Depreciation 2,064 2,761 563 405 - 5,793
Amortisation 2,391 3,446 288 1,377 - 7,502
Other segmental information UK International Total
£'000 £'000 £'000
Non-current assets 25,575 81,903 107,478
Deferred tax asset 1,268 1,457 2,725
Non-current assets excluding deferred tax 24,307 80,446 104,753
Revenue from the UK, being the domicile of the Parent Company, amounted to
£470,930k (2021: £270,954k). Revenue from Germany amounted to £249,570k
(2021: £228,487k) and revenue from the USA amounted to £123,121k (2021:
£69,094k). There was no other revenue from a country that amounted to more
than 10% of total revenue. Included within the international non-current
assets excluding deferred tax is £19,108k (2021: £12,531k) for Germany and
£16,181k (2021: £15,709k) for the USA. There were no other non-current
assets excluding deferred tax in any country that amounted to more than 10%.
Segment revenues above are generated from external customers. The accounting
policies of the reportable segments have been consistently applied. Segment
operating profits include the costs of share based payments arising from both
cash and equity settled share options, and the amortisation of intangible
assets measured at fair value acquired in business combinations.
In addition to the external revenue reported by segment the UK & Ireland
segment made £17,647k (2021: £6,149k) of intercompany sales and the EMEA
segment made £20,084k (2021: £3,739k) of intercompany sales. The North
America segment made £nil (2021: £274k) of intercompany sales. There were
no intercompany sales made by the Asia Pacific segments for the current and
prior year.
Sales to the largest customer
Included in revenue is £12.4m (2021: £21.5m) that arose from sales to the
Group's largest customer based in Germany. No single customer contributed 10%
or more to the Group's revenue in any period presented.
3. Administrative expenses
Administrative expenses in the period include £435k of acquisition related
costs (2021: £486k). For details of acquisitions in the year see note 11.
4. Finance costs
2022 2021
£'000 £'000
Interest on overdraft and invoice discounting 2,221 867
Interest on leases 602 439
Interest on loans 2,470 810
Foreign exchange derivative costs 733 77
Other interest costs 26 15
Borrowings derivative costs (2,888) (1,244)
Foreign exchange losses/(gains) on borrowings for acquisitions 1,694 (814)
Interest, foreign exchange and other finance costs of deferred and contingent 508 347
considerations
Interest, foreign exchange and other finance costs of put option liabilities 4,866 1,696
10,232 2,193
5. Earnings per share
Basic earnings per share is calculated by dividing the profit after tax
attributable to equity shareholders of the Company by the weighted average
number of shares outstanding during the year. Shares outstanding is the total
shares issued less the own shares held in employee benefit trusts. Diluted
earnings per share is calculated by dividing the profit after tax attributable
to equity shareholders of the Company by the weighted average number of shares
in issue during the year adjusted for the effects of all dilutive potential
Ordinary Shares.
Profit attributable to equity holders of the Group (£'000) 15,293 12,429
Weighted average number of shares in issue 88,299,098 88,101,300
Potentially dilutive effect of the Group's share option schemes 3,064,305 2,204,110
Weighted average number of diluted Ordinary Shares 91,363,403 90,305,410
Basic earnings per share 17.32p 14.11p
Diluted earnings per share 16.74p 13.76p
Diluted earnings per share excludes the antidilutive effects of potential
Ordinary Shares that result in a decrease in the loss per share.
6. Borrowings
2022 2021
£'000 £'000
Secured borrowings
- Bank overdrafts and invoice discounting 47,052 30,856
- Bank loans 74,782 42,604
- Leases 23,445 20,992
145,279 94,452
Current 44,955 34,053
Non-current 100,324 60,399
145,279 94,452
Summary of borrowing arrangements:
The Group has overdraft borrowings which comprised £4,917k at the end of 2022
(2021: £3,837k). The facilities are uncommitted and secured with fixed and
floating charges over the assets of the Group.
At the reporting date the Group had drawn down £42,135k (2021: £27,019k) on
invoice discounting and short-term borrowing facilities. The total amount
drawn down on invoice discounting facilities was £30,352k (2021: £20,628k).
The short-term borrowing facilities are secured with floating charges over the
assets of the Group. The invoice discounting facilities comprise fully
revolving receivables financing agreements which are secured on the underlying
receivables. The facilities have no fixed repayment dates and receivables are
automatically offset against the outstanding amounts of the facility on
settlement of the receivable. The Group retains the credit risk associated
with the receivables. Invoice discounting arrangements included within
acquisitions completed during the year totalled £3,968k.
At the reporting date the Group had drawn down £74,782k (2021: £42,604k) of
its long-term loan facilities. The loans are secured with fixed and floating
charges over the assets of the Group. The Group is subject to covenants under
its Revolving Credit Facility and if the Group defaults under these covenants,
it may not be able to meet its payment obligations.
The Group has lease liabilities of £23,445k at the end of 2022 (2021:
£20,992k). Lease obligations included within acquisitions completed during
the year totalled £2,720k. There were no lease obligations included within
acquisitions in the prior year.
Borrowings
2022 2021
£'000 £'000
Borrowings due within 1 year 40,900 30,900
Borrowings due after 1 year 80,934 42,560
Leases 23,445 20,992
145,279 94,452
Reconciliation of liabilities arising from financing activities
2022 2021
£'000 £'000
At 1 January 94,452 64,764
Cash flows:
Invoice financing inflows/(outflows) 14,282 6,261
Proceeds from borrowings 32,384 25,369
Repayment of loans (4,947) (4,660)
Capital element of leases (4,126) (3,072)
Non-cash:
Acquisitions 6,689 -
New liabilities arising on leases 2,783 6,753
Disposals on modification or termination of leases (10) (297)
Foreign exchange gain or loss 3,772 (666)
At 31 December 145,279 94,452
7. Financial instrument risk exposure and management
The Group's operations expose it to degrees of financial risk that include
liquidity risk, credit risk, interest rate risk, and foreign currency risk.
This note describes the Group's objectives, policies and process for managing
those risks and the methods used to measure them.
Credit risk
The Group's credit risk is primarily attributable to its cash balances and
trade receivables. The Group does not have a significant concentration of
risk, with exposure diversified over a substantial number of third parties.
The risk is further mitigated by insurance of the trade receivables. Some
specifically identified receivables have been provided for at 100%.
The credit risk on liquid funds is limited because the third parties are large
international banks with a credit rating of at least A. The Group's total
credit risk amounts to the total of the sum of the trade receivables and cash
and cash equivalents. At 31 December 2022 total credit risk amounted to
£216,735k (2021: £124,564k).
Interest rate risk
The interest on the Group's overdrafts, invoice discounting facilities and
Revolving Credit Facility borrowings are variable. Since 2019 the Group has
entered into interest rate swap contracts in respect of the Group's variable
interest rates in order to achieve a fixed rate of interest. Rising interest
rates present an increased cash flow risk associated with the high cost of
servicing debt. Rising interest rates also increase the finance costs of
working capital. The Group manages the increased cost of working capital by
focusing on profitability margins and working capital arrangements of the
business.
Foreign exchange risk
The Group is largely able to manage the exchange rate risk arising from
operations through the natural matching of payments and receipts denominated
in the same currencies. Any exposure tends to be on the payment side and is
mainly in relation to the Sterling strength relative to the Euro or US
Dollar. This transactional risk is considered manageable as the proportion of
Group procurement that is not sourced in local currency is small. However, on
occasions the Group does buy foreign currency call options and forward
contracts to mitigate this risk.
The Group holds certain borrowings in the currencies of foreign acquired
operations to reduce the Group's exposure to fluctuations in the value of
foreign currencies that have a negative effect on the value of foreign
operations. The Group does not adopt hedge accounting and recognises gains and
losses on foreign exchange in both the income statement and translation
reserve.
The total value of borrowings held in foreign currencies by companies whose
functional currency is GBP relating to overseas acquired operations is as
follows:
2022 2021
£'000 £'000
EUR 20,578 17,574
AUD - 3,925
USD 17,600 15,722
At the reporting date the Group was in the process of renewing its borrowing
facilities and repaid the AUD borrowing facility relating to the overseas
operations in the APAC segment for renewal. A 10% increase or decrease in the
strength of sterling against all borrowings held in foreign currencies by
companies whose functional currency is GBP would increase or decrease profit
before tax by £3,818k (2021: £3,722k).
The Group reports in Pounds Sterling (GBP) but has significant revenues and
costs as well as assets and liabilities that are denominated in Euros (EUR),
Dollars (USD) and Australian Dollars (AUD). The table below sets out the
exchange rates in the periods reported.
Annual average Year end
2022 2021 2022 2021
EUR/GBP 1.170 1.166 1.128 1.191
AUD/GBP 1.777 1.839 1.771 1.859
NZD/GBP 1.946 1.950 1.897 1.973
USD/GBP 1.231 1.374 1.204 1.348
CHF/GBP 1.173 1.257 1.111 1.231
NOK/GBP 11.832 11.864 11.846 11.893
AED/GBP 4.525 5.049 4.435 4.971
QAR/GBP 4.485 5.004 4.396 4.927
The following tables illustrate the effect of changes in foreign exchange
rates in the EUR, AUD, NZD, USD, CHF, and NOK relative to the GBP on the
profit before tax and net assets. The amounts are calculated retrospectively
by applying the current year exchange rates to the prior year results so that
the current year exchange rates are applied consistently across both periods.
Changing the comparative result illustrates the effect of changes in foreign
exchange rates relative to the current year result.
Applying the current year exchange rates to the results of the prior year has
the following effect on profit before tax and net assets:
Profit/(loss) before tax
2021 Revised 2021 Impact Impact
£'000 £'000 £'000 %
EUR 18,895 18,774 (121) (0.6)%
AUD 18,895 18,899 4 0.0%
NZD 18,895 18,895 - 0.0%
USD 18,895 19,261 366 1.9%
CHF 18,895 18,875 (20) (0.1)%
NOK 18,895 18,896 1 0.0%
AED 18,895 19,268 373 1.9%
QAR 18,895 19,008 113 0.6%
All currencies 18,895 19,611 716 3.7%
Net assets
2021 Revised 2021 Impact Impact
£'000 £'000 £'000 %
EUR 114,396 117,541 3,145 2.7%
AUD 114,396 114,514 118 0.1%
NZD 114,396 114,408 12 0.0%
USD 114,396 115,604 1,208 1.0%
CHF 114,396 114,352 (44) (0.0)%
NOK 114,396 114,404 8 0.0%
AED 114,396 115,252 856 0.7%
QAR 114,396 114,627 231 0.2%
All currencies 114,396 119,930 5,534 4.6%
Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash
balances to ensure the Group can meet liabilities as they fall due, and
ensuring adequate working capital using bank borrowing arrangements.
In managing liquidity risk, the main objective of the Group is therefore to
ensure that it has the ability to pay all of its liabilities as they fall due.
The Group monitors its levels of working capital to ensure that it can meet
its liability payments as they fall due.
See note 6 for details of borrowing arrangements.
The tables below show the undiscounted cash flows on the Group's financial
liabilities as at 31 December 2022 and 2021, on the basis of their earliest
possible contractual maturity:
At 31 December 2022
Total Within 2 Within Between 6 - 12 Between 1-2 After
months
months
years
than
2 -6
months 2 years
£'000 £'000 £'000 £'000 £'000 £'000
Trade payables 175,646 167,753 7,878 3 - 12
Other payables 213 153 53 7 - -
Deferred consideration 17,902 3,800 5,500 - 8,602 -
Put option liabilities 17,499 - - - 17,499 -
Leases 25,817 764 1,602 2,263 4,120 17,068
Accruals 33,682 26,277 4,488 1,057 191 1,669
Bank overdrafts, loans and invoice discounting 121,834 39,901 531 468 72,970 7,964
392,593 238,648 20,052 3,798 103,382 26,713
At 31 December 2021
Total Within 2 Within Between 6 - 12 Between 1-2 After
months
months
years
than
2 -6
months 2 years
£'000 £'000 £'000 £'000 £'000 £'000
Trade payables 106,376 96,167 10,209 - - -
Other payables 348 321 27 - - -
Deferred consideration 2,372 - - 538 - 1,834
Put option liabilities 9,234 - 3,903 - - 5,331
Leases 23,107 635 1,191 1,752 3,048 16,481
Accruals 25,333 20,980 2,586 349 23 1,395
Bank overdrafts, loans and invoice discounting 73,460 28,273 1,502 1,125 1,967 40,593
240,230 146,376 19,418 3,764 5,038 65,634
8. Share capital
The total allotted share capital of the Parent Company is:
Allotted, issued and fully paid
2022 2021
Number £'000 Number £'000
Issued and fully paid Ordinary Shares of £0.01 each
At 1 January 88,735,612 887 88,604,712 886
Shares issued 144,300 2 130,900 1
At 31 December 88,879,912 889 88,735,612 887
During the year the Company issued 144,300 shares to the Group's employee
benefit trusts (2021: 130,900).
Employee benefit trust
The Group's employee benefit trusts were allocated the following shares to be
issued on exercise of share options:
2022 2021
Number £'000 Number £'000
At 1 January 518,300 5 593,600 6
Allocated during the year 144,300 2 130,900 1
Shares issued on exercise of options (161,140) (2) (206,200) (2)
At 31 December 501,460 5 518,300 5
9. Other reserves
Movement in other reserves for the year ended 31 December 2022
Share based payment reserve Translation reserve Put option reserve Capital redemption reserve Other reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2022 7,879 (2,182) (7,784) 50 150 (1,887)
Other comprehensive income - 7,538 - - - 7,538
Total comprehensive income for the year - 7,538 - - - 7,538
Share based payments 6,006 - - - - 6,006
Deferred tax on share based payments (1,093) - - - - (1,093)
Share options exercised (767) - - - - (767)
Acquisition of subsidiary (note 11) - - (6,933) - - (6,933)
Acquisition of non-controlling interest - - 3,918 - - 3,918
(note 10)
Balance at 31 December 2022 12,025 5,356 (10,799) 50 150 6,782
Movement in other reserves for the year ended 31 December 2021
Share based payment reserve Translation reserve Put option reserve Capital redemption reserve Other reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2021 4,472 2,117 (4,813) 50 150 1,976
Other comprehensive income - (4,299) - - - (4,299)
Total comprehensive income for the year - (4,299) - - - (4,299)
Share based payments 4,398 - - - - 4,398
Deferred tax on share based payments 61 - - - - 61
Share options exercised (1,052) - - - - (1,052)
Acquisition of subsidiary (note 11) - - (3,866) - - (3,866)
Acquisition of non-controlling interest - - 895 - - 895
(note 10)
Balance at 31 December 2021 7,879 (2,182) (7,784) 50 150 (1,887)
10. Acquisition of non-controlling interest
During the current year the Group acquired the remaining 12% non-controlling
interest in Earpro SA and the remaining 20% non-controlling interest in Prase
Engineering SpA. The non-controlling interest in Earpro SA had a value of
£1,309k and was acquired for a consideration of £1,062k. The non-controlling
interest in Prase Engineering SpA had a value of £3,808k and was acquired for
a consideration of £2,912k. £1,033k of the put option reserve was
transferred to retained earnings when the Earpro SA element of the put option
was extinguished and £2,885k of the put option reserve was transferred to
retained earnings when the Prase Engineering SpA element of the put option was
extinguished.
During the prior year the Group acquired the remaining 35.0% non-controlling
interest in Blonde Robot Pty Limited, which had a value of £1,371k, for a
consideration of £2,055k. £895k of the put option reserve was transferred to
retained earnings when this element of the put option was extinguished.
11. Business combinations
Acquisitions have been completed by the Group to increase scale, broaden its
addressable market and widen the product offering.
Subsidiaries acquired:
Acquisition Principal activity Date of acquisition Proportion acquired (%) Fair value of consideration
£'000
Nimans Distribution of audio visual products and telephone network services 7 February 2022 100% 27,271
DVS Distribution of audio visual and security products to trade customers 7 January 2022 65% 12,877
NMK Distribution of audio visual products to trade customers 1 January 2021 80% 15,463
Trade and assets acquired:
In addition to the acquisition of subsidiaries listed above during 2021 the
Group also acquired trade and assets from eLink Distribution AG ("eLink"), a
company registered in Germany and Intro 2020 Limited ("Intro 2020"), a company
registered in England and Wales.
Fair value of consideration transferred 2022 DVS Nimans
£'000 £'000
Cash 8,580 16,500
Deferred consideration 4,297 10,771
Total 12,877 27,271
Acquisition costs of £376k were expensed to the income statement during the
year in relation to the acquisition of DVS and Nimans. £59k of acquisition
costs were expensed to the income statement during the year in relation to
acquisitions not completed by the reporting date.
Fair value of acquisitions 2022 DVS Nimans
£'000 £'000
Non-current assets
Goodwill 5,055 8,388
Intangible assets - patents and software 103 -
Intangible assets - brands 1,288 2,950
Intangible assets - customer relationships 799 4,809
Intangible assets - supplier relationships 5,948 8,591
Right of use assets 314 1,610
Property, plant and equipment 242 510
13,749 26,858
Current assets
Inventories 6,513 11,815
Trade and other receivables 7,841 15,861
Cash and cash equivalents 643 2,065
14,997 29,741
Current liabilities
Trade and other payables (2,297) (22,308)
Borrowings and financial liabilities (4,119) (275)
Current tax (142) -
(6,558) (22,583)
Non-current liabilities
Borrowings and financial liabilities (256) (2,039)
Deferred tax (2,057) (3,874)
Other provisions (65) (832)
(2,378) (6,745)
Non-controlling interests (6,933) -
Fair value of net assets acquired attributable to equity shareholders of the 12,877 27,271
Parent Company
Goodwill acquired in 2022 relates to the workforce, synergies, sales and
purchasing knowledge and experience. Goodwill arising on the DVS and Nimans
acquisitions has been allocated to the UK and Ireland segment.
Net cash outflows of acquisitions 2022
DVS Nimans
£'000 £'000
Consideration paid in cash 8,580 16,500
Less: cash and cash equivalent balances acquired (643) (2,065)
Net cash outflow 7,937 14,435
Plus: borrowings acquired 4,375 2,314
Net debt outflow 12,312 16,749
Post-acquisition contribution 2022
Acquired subsidiaries made the following contributions to the Group's results
for the year in which they were acquired, from their respective acquisition
dates:
DVS Nimans
£'000 £'000
Date acquired 7 Jan 7 Feb
Post-acquisition contribution to Group revenue 38,600 115,055
Post-acquisition contribution to Group profit after tax 762 4,245
Proforma full year contribution 2022
Acquired subsidiaries would have made the following contributions to the
Group's results for the year in which they were acquired if they were acquired
on 1 January 2022:
DVS Nimans
£'000 £'000
Date acquired 7 Jan 7 Feb
Post-acquisition contribution to Group revenue(1) 38,600 125,703
Post-acquisition contribution to Group profit after tax(1) 762 4,738
As the acquisition of DVS occurred on 7 January 2022 the acquired subsidiary
made a full year contribution to the Group's results for the year. The revenue
and profit after tax(1) for the Group would have been no different if the DVS
were acquired earlier.
As the acquisition of DVS occurred on 7 January 2022 the acquired subsidiary
made a full year contribution to the Group's results for the year. The revenue
and profit after tax(1) for the Group would have been no different if the DVS
were acquired earlier.
(1)These amounts have been calculated using the results of subsidiaries and
adjusting them for differences between the accounting policies and Generally
Accepted Accounting Principles applicable to the subsidiaries and the
accounting policies and IAS reporting requirements of the Group. The
translation adjustments to modify the reported results of the subsidiaries
have been applied as if the Group's accounting policies and IAS reporting
requirements had always been applied. The translation adjustments include the
additional depreciation and amortisation charges relating to the fair value
adjustments to property, plant and equipment and intangible assets assuming
the fair values recognised on acquisition were valid on 1 January 2021,
together with the consequential tax effects.
Fair value of consideration transferred 2021 NMK eLink Intro 2020
£'000 £'000 £'000
Cash 11,350 7,441 702
Deferred contingent consideration 4,113 1,334 -
Total 15,463 8,775 702
Acquisition costs of £53k in relation to the acquisition of NMK, £29k in
relation to the eLink acquisition of trade and assets, £199k in relation to
the Intro 2020 acquisition of trade and assets, and £205k in relation to
acquisitions not completed by the year end were expensed to the income
statement during the year ended 31 December 2021.
Fair value of acquisitions 2021 NMK eLink Intro 2020
£'000 £'000 £'000
Non-current assets
Goodwill 3,769 2,634 20
Intangible assets - brands 721 172 -
Intangible assets - customer relationships 1,700 972 -
Intangible assets - supplier relationships 8,289 2,197 448
Property, plant and equipment 77 - 20
14,556 5,975 488
Current assets
Inventories 2,325 2,800 209
Trade and other receivables 4,673 - 28
Cash and cash equivalents 2,657 - -
9,655 2,800 237
Current liabilities
Trade and other payables (4,432) - (23)
(4,432) - (23)
Non-current liabilities
Deferred tax (81) - -
Other provisions (369) - -
(450) - -
Non-controlling interests (3,866) - -
Fair value of net assets acquired attributable to equity shareholders of the 15,463 8,775 702
Parent Company
Goodwill acquired in 2021 relates to the workforce, synergies and sales know
how. Goodwill arising on the NMK acquisition and eLink acquisition of trade
and assets has been allocated to the EMEA segment. Goodwill arising on the
Intro 2020 acquisition of trade and assets has been allocated to the United
Kingdom and Ireland segment.
Net cash outflows of acquisitions 2021
NMK eLink Intro 2020
£'000 £'000 £'000
Consideration paid in cash 11,350 7,441 702
Less: cash and cash equivalent balances acquired (2,657) - -
Net cash outflow 8,693 7,441 702
Plus: borrowings acquired - - -
Net debt outflow 8,693 7,441 702
Post-acquisition contribution 2021
Acquired subsidiaries made the following contributions to the Group's results
for the year in which they were acquired, from their respective acquisition
dates:
NMK
£'000
Date acquired 1 Jan
Post-acquisition contribution to Group revenue 24,140
Post-acquisition contribution to Group profit after tax 3,093
Proforma full year contribution 2021
As the acquisition occurred on 1 January 2021 the acquired subsidiaries made a
full year contribution to the Group's results for the year and the revenue and
profit after tax(1) for the Group would have been no different if the
subsidiaries were acquired earlier.
(1)These amounts have been calculated using the results of subsidiaries and
adjusting them for differences between the accounting policies and Generally
Accepted Accounting Principles applicable to the subsidiaries and the
accounting policies and IAS reporting requirements of the Group. The
translation adjustments to modify the reported results of the subsidiaries
have been applied as if the Group's accounting policies and IAS reporting
requirements had always been applied. The translation adjustments include the
additional depreciation and amortisation charges relating to the fair value
adjustments to property, plant and equipment and intangible assets assuming
the fair values recognised on acquisition were valid on 1 January 2021,
together with the consequential tax effects.
12. Dividends
On the 17 June 2022 the Company paid a final dividend of £6,910k. Excluding
the effects of waived dividends this equated to 7.80 pence per share. On 25
October 2022 the Company paid an interim dividend of £3,991k. Excluding the
effects of waived dividends this equated to 4.50 pence per share. During the
prior year the Company paid a special dividend of £2,650k and an interim
dividend of £2,918k. Excluding the effects of waived dividends this equated
to 3.00 and 3.30 pence per share respectively.
The Board is recommending a final dividend of 10.5 pence per share which, if
approved, will be paid on 16 June 2023 to shareholders on the register on 6
May 2023.
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