REG - Midwich Group PLC - Pre-close Trading Statement

MidwichAnnouncement

18/07/2024 07:00

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RNS Number : 8409W  Midwich Group PLC  18 July 2024

18 July 2024

 

Midwich Group plc

("Midwich" or the "Group")

 

Pre-close Trading Statement

 

Robust revenue, gross margin & market share performance, driven by a
continued focus on value-added technical solutions, despite challenging market
conditions. Board's expectations of adjusted operating profit for the full
year remain in line with previous expectations.

 

 

Midwich Group (AIM: MIDW), a global specialist audio visual distributor to the
trade market, is pleased to provide a trading update for the six months ended
30 June 2024 ("H1 2024").

 

Revenue for H1 2024 is expected to be approximately £645 million,
representing an increase of over 5.7% versus H1 2023 (7.5% growth on a
constant currency basis). Organic revenue on a constant currency basis reduced
by 1.1% versus H1 2023. This reflected the continued challenging market
conditions, particularly in the UK & Ireland ("UK&I"), as previously
detailed in the Group's AGM statement on 14 May 2024.  Mainstream product
categories have been particularly impacted, we believe due to some over-supply
of products resulting in short-term price erosion this year.

 

Nevertheless, the Group delivered a record gross margin of approximately
17.3%, which was significantly higher than the 16.3% achieved in H1 2023. The
main factor for this strong growth, was the mix of sales, which was weighted
towards higher margin technical products, in line with the Group's strategy.

 

Group overheads increased as expected during the period, due to the
acquisitions completed in H2 2023, and labour cost inflation, which is now
showing signs of easing. Given the ongoing delayed market recovery which has
resulted in overhead cost growth in excess of the increase in gross profits,
the Group is focused on delivering targeted efficiencies in order to improve
profitability in the second half of 2024.

 

Adjusted EBIT was approximately £21.5 million in the period, a reduction of
around 17% versus H1 2023 on constant currency basis. The EBIT margin was
approximately 3.3% of sales (H1 2023: 4.3%). Adjusted profit before tax for H1
2024 is expected to be not less than £16.8 million (H1 2023: £21.8 million).

 

Revenue in the UK&I was in line with H1 2023, but down approximately 4% on
an organic basis. The Group has its highest market share in the UK&I and
the ongoing market backdrop resulted in slightly lower gross margins compared
to H1 2023. Operating profits in the region were significantly below H1 2023.

 

Trading in EMEA was robust, with revenue in line with H1 2023 on a constant
currency basis. Continued investment in the technical businesses resulted in
gross margins improving significantly in this region, whilst the impact of
softer mainstream category demand resulted in operating profits below H1 2023
at constant currency.

 

Trading remained strong in North America with sales up approximately 69% on a
constant currency basis, including the impact of acquisitions completed in the
last twelve months. Organic revenue was up approximately 17%, with record
gross margins and operating profit significantly ahead of H1 2023.

 

Cash generation in H1 2024 was in line with the Board's expectations. Adjusted
net debt* increased by approximately £50 million from the prior year end to
£132 million, as a result of deferred acquisition payments, normal working
capital seasonality and further investment in the Group's ERP system, which
went live in the first country in June 2024. At 2.0x adjusted net debt over
adjusted EBITDA** at the period end, leverage is expected to reduce to
approximately 1.8x by the year end and remains comfortably within the Group's
covenants.

 

Outlook

 

Whilst the Board believes it is prudent to assume macroeconomic conditions in
certain markets, such as the UK&I, will likely remain challenging for the
remainder of 2024, market survey data indicates a return to growth in
mainstream product demand in a number of our key geographies during H2 2024.
The Group has a strong pipeline of new vendor opportunities as well as
targeted acquisition opportunities it continues to review which, when combined
with a tight focus on overheads efficiencies in H2, means that the Board's
expectations of adjusted operating profit for the full year remain in line
with its previous expectations.

 

Stephen Fenby, Group Managing Director, commented:

"The Group has continued to navigate challenging trading conditions in the
first half of 2024, particularly in the UK & Ireland, and has delivered a
solid result, despite this backdrop. Midwich remains well positioned as the
leading global specialist Pro AV distributor, with the Group's £1.3bn revenue
in 2023 representing less than 1% of the global market and just 3-4% of our
target addressable market.

 

"Over the coming years, we anticipate there being significant opportunities to
continue growing faster than the overall market, both organically and through
acquisition and the Board remains excited by the long-term prospects for the
Group."

 

Midwich will announce its half year results for the six months ended 30 June
2024 on 3 September 2024.

 

* Adjusted net debt is borrowings less cash and cash equivalents and excludes
IFRS 16 equivalent lease liabilities

 

** Adjusted EBITDA represents operating profit before acquisition related
expenses, exceptional costs, share based payments and associated employer
taxes, depreciation, amortisation and impairments. For leverage calculations,
it includes a proforma twelve-month contribution from acquisitions.

 

 

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
 FTI Consulting                                                 +44 (0) 20 3727 1000

Alex Beagley / Tom Hufton / Matthew Young

                                                          midwich@fticonsulting.com (mailto:midwich@fticonsulting.com)

About Midwich Group

 

Midwich Group is a specialist AV distributor, with operations in
the UK and Ireland, EMEA, Asia Pacific and North America. The Group's
long-standing relationships with over 800 vendors, including blue-chip
organisations, support a comprehensive product portfolio across major audio
visual categories such as displays, projectors, technical AV, broadcast,
professional audio, lighting and unified communications. 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 24,000 trade
customers, most of which are professional AV integrators and IT resellers
serving sectors such as corporate, education, retail, residential and
hospitality.

 

Initially a UK only distributor, the Group now has approximately 1,900
employees across the UK and Ireland, EMEA, North America and Asia
Pacific. 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/)

 

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