REG - Midwich Group PLC - Unaudited full year results
08/03/2022 07:00
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RNS Number : 9407D Midwich Group PLC 08 March 2022
8 March 2022
Midwich Group plc
("Midwich" or the "Group")
Unaudited full year results
Record revenues and profits despite pandemic challenges
Midwich Group (AIM: MIDW), a global specialist audio visual ("AV") distributor
to the trade market, today announces its unaudited full year results for the
year ended 31 December 2021.
Statutory financial highlights
Year to Year to Total growth %
31 December 2021 31 December 2020
£m £m
Revenue 856.0 711.8 20.3%
Gross profit 131.3 101.8 28.9%
Operating profit 21.0 7.1 196%
Profit before tax 18.9 (1.0) N/a
Profit after tax 13.5 (3.4) N/a
Basic EPS - pence 14.11 (4.32) N/a
Adjusted financial highlights(1)
Year to Year to Total growth Growth at constant currency
31 December 2021 31 December 2020 % %
£m £m
Revenue 856.0 711.8 20.3% 22.9%
Gross profit 131.3 101.8 28.9% 31.6%
Gross profit margin % 15.3% 14.3%
Adjusted operating profit 34.0 16.5 105.7% 110.4%
Adjusted profit before tax 31.9 14.2 125.4% 130.3%
Adjusted profit after tax 23.9 10.3 132.6% 138.6%
Adjusted EPS - pence 25.63 11.20 128.8%
( )
( )
(1 )Definitions of the alternative performance measures are set out in note 1
Financial highlights
· The Group achieved record revenue and adjusted profit before tax,
whilst making further market share gains, despite ongoing disruption from the
pandemic
· Revenue growth of 22.9% at constant exchange rates to £856.0
million, including 18.9% organic growth
· Gross margin recovered strongly to 15.3% (2020:14.3%)
· Adjusted profit before tax increased by 130.3% at constant exchange
rates to £31.9m, ahead of pre-pandemic levels
· Adjusted EPS increased to 25.63p (2020: 11.20p)
· Proposed final dividend of 7.8p bringing the full year dividend to
14.1p (including special and interim dividends)
· Strong balance sheet, with year-end adjusted net debt to EBITDA of
1.4x (2020:0.9x), providing financial flexibility
Operational highlights
· Acquisitions made in 2020 and 2021 have been fully integrated and are
delivering a positive contribution to the Group
· Entry into the strategically important Middle East market through the
acquisition of NMK
· Two further acquisitions strengthen our unified communications and
broadcast offerings
· Post-period end acquisitions:
· Acquisition of Cooper Project Limited in January 2022, representing
entry into the UK video security market
· Acquisition of Nimans Limited in February 2022, a UK based specialist
distributor of unified communications, telecoms, collaboration and audio
visual technologies.
· Strong future acquisition pipeline across a number of regions and
technologies.
· Trading since the year end in line with management expectations
Stephen Fenby, Managing Director of Midwich Group plc, commented:
"The Group has had a very strong year, achieving record revenues and adjusted
net profits. This level of performance has required a monumental effort from
all of our teams and the much-appreciated loyalty and support of our customers
and vendors. The pandemic-related difficulties of 2020 continued through
much of 2021. These included the practicalities of home and hybrid working,
product shortages, unpredictable timing of inventory supplies, logistics cost
increases and a number of higher margin end-user markets remaining largely
closed.
We have continued to focus not only on delivering strong short-term
performance, but also building the business for the long term. We have grown
and strengthened our team during the year, including particularly in North
America, and also in our group-wide IT capabilities. Our acquisition
programme has continued, with three transactions completed in the year and two
substantial deals announced post year end.
As markets start to open up once more, I believe our business is well placed
to enjoy further growth and success."
Analyst meeting/webinar
There will be a meeting and webinar for sell-side analysts at 9.30am GMT
today, 8 March 2022, the details of which can be obtained from FTI Consulting:
midwich@fticonsulting.com (mailto:midwich@fticonsulting.com) .
For further information:
Midwich Group plc Tel: +44 (0) 13 7964 9200
Stephen Fenby, Managing Director
Stephen Lamb, Finance Director
Investec Bank plc (NOMAD and Joint Broker to Midwich) Tel: +44 (0) 20 7597 5970
Carlton Nelson
Ben Griffiths
Berenberg (Joint Broker to Midwich) Tel: +44 (0) 20 3207 7800
Ben Wright
Mark Whitmore
Alix Mecklenberg-Solodkoff
FTI Consulting Tel: +44 (0) 20 3727 1000
Alex Beagley midwich@fticonsulting.com (mailto:midwich@fticonsulting.com)
Tom Hufton
Rafaella de Freitas
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 20,000
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 1,300 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/)
COVID-19 and its impact on our business
The coronavirus ("COVID-19") pandemic represents the biggest shock known to
our business sector. Throughout the crisis, we have taken decisive action
which has allowed us to continue to successfully deliver our strategic
objectives despite the unprecedented disruption.
Although the economic effect of COVID-19 has been significant across the
world, our market strength, combined with the diversity of our Group in terms
of geographical spread, vendor breadth, technology focus and end user markets
have enabled us to continue to grow and increase market share, highlighting
the strength of our business model.
Despite further lockdowns and continued disruption to many of our end user
markets, the Group improved revenues consistently throughout the year
resulting in growth of 22.9%, at constant currency, to £856.0 million. This
improvement, together with a partial recovery in gross margins, resulted in an
adjusted profit before tax for the year of £31.9 million. This was
significantly ahead of the Board's original expectations at the beginning of
the year and represents a record performance for the Group.
The impact on our strategy
The COVID-19 pandemic has shocked the global economy and how we live our
lives. However, we believe that the AV industry is well placed for the future
and see no overall change in the long-term prospects for the market, with
growth forecast at 7.2% per annum for the five years to 2026 (Source: Avixa
2021). We believe the Group is the largest specialist AV distributor globally
and remains well positioned to deliver on its long-term growth strategy.
During the year, the impact of COVID-19 continued to create short-term
uncertainty from further lockdowns impacting end user demand through to
significant disruption in the global supply chain. Whilst global uncertainties
are expected to continue into 2022, the Group's strategy remains focused on
its core markets and product areas where it can leverage its value-add
services, technical expertise and sales and marketing skills. Using its market
knowledge and expertise, the Group provides its vendors with support to build
and execute plans to grow market share. The Group supports its customers to
deliver successful projects, from initial pitch through to execution.
A core component of the Group's growth strategy remains further expansion of
its international operations and footprint into strategically targeted
jurisdictions, both organically and through acquisition. We continued our
acquisition activity in the year with three acquisitions completed in 2021,
including the strategic entry into the Middle East and the acquisition of a
specialist Unified Communications business in Germany.
The effect on our end-markets
Throughout the pandemic, markets which are largely government funded (such as
education, healthcare and defence) have remained relatively strong, albeit
with some short-term disruption from lockdowns restricting the ability of
customers to access sites. The corporate market is adapting to the increased
uncertainty and new working patterns, such as hybrid working, with demand
improving during the year.
Activity continues to be muted in live events and hospitality markets but, in
the second half of the year, we began to see some events taking place and
increased enquires as end users prepare for the end of restrictions. The
emergence of the Omicron variant and associated restrictions at the end of the
year delayed the recovery in live events and hospitality, but industry
forecasts are for these sectors to fully recover in 2023.
The rapid recovery in demand for computer chips, combined with both disruption
in parts of the world where AV equipment is manufactured, and global logistics
challenges, resulted in significant uncertainty in our global supply chain
during the year. The strength and breadth of our vendor relationships together
with an exceptional performance by our teams allowed us to minimise this
disruption to the business, however supply chain uncertainty has continued
into 2022. We continue to work closely with our vendors to maintain product
supplies and to support our customers and end users with as little disruption
as possible.
The Board believes that current market conditions highlight more than ever the
need for manufacturers to use a high-quality specialist distributor such as
Midwich. Over the last two years, the Group launched an encouraging number of
new vendor relationships, including with Neat, Jabra, Logitech, Sonos,
Netgear, Poly and Huddly, and rolled out existing relationships, with
Promethean, Barco, Biamp, Shure, DTEN and Absen, into new technology areas
(such as the Barco ClickShare range in the UK & Ireland and France) and
geographical markets (such as launching Shure in France). The launch of new
vendors is a core element of the Group's strategy and this has accelerated
during the pandemic period as the Group continues to position its portfolio in
exciting growth markets, such as unified communications.
How we are responding
Whilst we continue to monitor the effects of the pandemic and remain cautious
in our outlook for 2022, we are optimistic about the future and our ability to
successfully execute against our strategic objectives. Over the last two years
we have launched new vendor relationships and further developed our expertise
in the unified communications sector. Our acquisition programme has continued
with the strategic entry into both North America (2020) and the Middle East
(2021) and we have a number of exciting opportunities in the pipeline across
various other geographies. After a very challenging 2020, the Group recovered
exceptionally well in 2021, delivering record revenue and adjusted profit
before tax.
What the long-term future looks like
The Board would like to thank our staff, customers and partners for their
incredible support throughout the pandemic and looks forward to continuing our
long-term growth trajectory.
Conflict in Ukraine and its impact on our business
The Group does not operate in Eastern Europe and has no direct exposure to
either Russia or Ukraine. We do not believe that any of our major customers
have a material exposure to these markets. The Board is monitoring the wider
economic situation, but, at this time, does not anticipate any significant
impact to the Group from the conflict.
Chairman's Statement
Against a backdrop of continuing disruption and uncertainty from the pandemic,
I am pleased that the Group was able to achieve record results in 2021 and
deliver against further strategic milestones.
Even though many of our end user markets are yet to fully recover, I am
pleased to report that we achieved revenue of £856.0 million in the year,
20.3% ahead of 2020. The Pro AV market has picked up strongly during 2021, but
remains below pre-pandemic levels with full recovery now expected in 2023.
Against this backdrop, our results demonstrate the strength of our long-term
strategy in achieving a record revenue and adjusted profit before tax
performance, with Group revenue in 2021 up by twenty five percent compared to
pre-pandemic levels. A strong close to the year saw the Group exceed the
Board's expectations for full year revenue and adjusted profit while also
ending the year with record order books.
An emerging theme of 2021 was supply chain disruption, with many factors
affecting both the global economy and the AV industry. During the year we
faced headwinds from price inflation, computer chip and product shortages,
post-Brexit customs arrangements, labour shortages in logistics and even the
blockage of the Suez canal. Our teams addressed these challenges with
commitment and determination which, when combined with our strong AV market
position and the diversity of our Group in terms of geographical spread,
vendor breadth, technology focus and end user markets, allowed us to
successfully navigate these issues and achieve organic revenue growth of
18.9%. Whilst many of these uncertainties continue as we move into 2022, we
remain very positive about the opportunity to deliver on our strategic growth
priorities.
Our teams have demonstrated passion, flexibility and resilience over the last
two years. Whilst the global vaccination programme provided end users with
greater confidence to begin investing, each of the countries where we operate
continued to see further lockdowns and restrictions during the year. Our teams
have delivered exceptional service to vendors, customers and end users alike.
I believe that we have the best team in the industry and that this has been
the main driver of our market share gains and progressive improvement in
trading throughout the year. Early in 2021, the Board decided to end the
temporary restrictions put in place at the start of the pandemic and we were
delighted to welcome all our staff back to work. As a result of the improved
trading performance, the Board decided to repay furlough money received by the
UK&I business for 2021.
Alongside recovery and organic growth, which were a major focus in 2021, I am
pleased that the Group was also able to achieve further strategic milestones:
The Group's acquisition of a majority stake in NMK Group in January 2021
represented our entry into the Middle East, the world's fastest growing AV
market. Based in the UAE and Qatar, NMK Group is a specialist audio and visual
distributor with a strong heritage in the professional audio market where the
business operates with high-end specialist brands, such as Shure and Bose. In
April 2021, the Group acquired the Unified Communications ("UC") division of
Hamburg-based eLink Distribution AG ("eLink"). Now fully integrated into our
business in Germany, Austria and Switzerland ("DACH"), eLink provides audio
visual communication and network solutions to trade customers and is renowned
for its technical support and expertise. The business is an established
value-added distributor of leading manufacturer partners such as Poly,
Lifesize, and DTEN. Our Holdan professional video and broadcast business also
welcomed the team from Intro2020 to the Group in July 2021. This small
acquisition complements Holdan's broadcast and professional video solutions by
adding a leading UK supplier of photo and pro-video equipment and an
established client base in the professional photography segment.
During 2021, we further expanded our vendor relationships in support of our
long-term organic growth objectives. New brands added by our businesses in the
year enhanced our UC and education offerings and included Neat, Jabra,
Logitech, Promethean, Aver, Lenovo and L-Acoustics.
After the period end, we completed the acquisition of a controlling stake in
Cooper Projects Limited, the parent company of DVS Limited ("DVS"), a UK based
distributor of video security products. This acquisition provides the Group
with access to a significant segment of the AV market in which we have had
little presence, and which is expected to grow at around 8% per annum for the
next five years. We also completed the acquisition of Nimans Limited (and its
subsidiaries) ("Nimans"), a UK based specialist distributor of unified
communications, telecoms, collaboration and audio visual technologies. This
deal allows the Group to grow its UC offering and brings further
opportunities, in terms of skills in new product and technology areas, service
offerings to the trade, a large new customer base and new vendor
relationships.
The pandemic has caused significant disruption to our end user markets. The
business achieved an exceptional recovery in 2021 and industry data continues
to show long-term growth in demand for AV products; exceeding GDP growth. The
Board attributes our strong performance to continued focus on service, looking
after our teams and continuing to deliver on our strategic goals. We believe
that the business is well positioned for the future.
Dividend
The Board understands the importance of dividends for many of our investors
and was grateful for their support and understanding when we took the
difficult decision to suspend dividends in 2020. The strength of the Group's
recovery allowed us to reinstate dividends earlier than anticipated and the
Board was pleased to be able to pay a special dividend of 3 pence per share in
July 2021. The Board is recommending a final dividend of 7.8 pence per share
which, if approved, will be paid on 17 June 2022 to shareholders on the
register on 6 May 2022. The last day to elect for dividend reinvestment
("DRIP") is 25 May 2022. With the interim dividend of 3.3 pence per share and
the special dividend paid in July this represents a total dividend for the
year of 14.1 pence per share. The combined value of the interim and proposed
final dividends at 11.1 pence per share is covered 2.3 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 to 2.5 times adjusted earnings per share.
Board
Membership of the Board has remained stable throughout the year, and we have
continued to use our unified communications solutions for both our AGM and our
Board and committee 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 2021, 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 remains appropriate at
this stage of the Group's development.
In recent years, the Group has significantly expanded its international
footprint with two thirds of its revenue coming from outside the UK &
Ireland in 2021 (One third at IPO) and the Board welcomes the cultural
diversity that this brings. The Midwich culture is an open and welcoming one
and in 2021 we were named the "Best place to work" in the Inavation Awards.
The Board understands the importance of diversity of gender and ethnicity and
is committed to ensuring that diversity will be key consideration in the
appointment of future directors and senior leaders.
The Group's approach to Environmental, Social and Governance ("ESG") matters
is aligned to three key pillars: reducing our environmental impact; helping
our local communities and charities; and supporting our people. The Board has
determined that the Group's primary sustainability focus will be on carbon
emissions. In 2021, we focused our environmental activity through the
establishment of a carbon reduction programme supported by a Group wide team,
with a desire to make a difference, led by an internal candidate with
qualifications in sustainability. To support this team, and after a review of
suitable candidates, the Board appointed Climate Partner GmbH as a specialist
external adviser on carbon measurement and reduction.
The process for establishing our baseline CO2 emissions across the business
commenced in 2021 and is making good progress. 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.
The Board intends to provide further progress updates on its environmental
strategy later in 2022. This will include baseline CO2 data from the audit
together with our agreed approach to becoming net zero with respect to scope 1
and 2 carbon emissions by 2030 or earlier. As an AIM listed company, the Task
Force on Climate-related Financial Disclosures ("TCFD") are not yet applicable
to the Group, but as a Board we have determined that we will progress towards
the majority of the TCFD disclosures over the next two years.
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. Over the last few years, we
have enhanced our reporting including further ESG disclosure this year. 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 engaged with our largest shareholders as part of the 2021 AGM process and
have included the conclusions and actions arising from these discussions in
this year's report.
The Board recognises its duty to have regard to broader stakeholder interests
and, in addition to including both a separate Section 172 Statement and
further ESG information in the annual report, we added further information
about the Group to our website during the year and introduced a stakeholder
newsletter from the start of 2021.
People
The success of any company is down to the quality of its leadership and its
people. The team at Midwich has once again demonstrated immense skill,
enthusiasm, commitment, drive and resilience over the last twelve months. Our
people performed exceptionally in 2021, delivering industry leading customer
service and acting as true partners to our vendors which has resulted in
further market share gains across the Group. I recognise the enormous efforts
made by our teams in supporting our recovery from the pandemic disruption and
strongly believe that we have the best team in the industry and are well
positioned for future growth.
During 2021, the Board has continued to interact with the Executive Leadership
Team ("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 challenges to our industry, business and people that were experienced in
2020 as a result of the COVID-19 pandemic, continued throughout 2021.
Although the severity of lockdowns reduced generally, throughout the year
governments advised their people to work from home for much of the time.
Product shortages continued as did logistics issues and price inflation.
Our operations continued to perform to a high level despite these
difficulties, and we believe that our efforts were rewarded by high market
shares and growing order books. Our staff worked tirelessly in trying to
marry product shortages and delivery unpredictability with the needs of our
customers and their end users.
Strong organic revenue growth despite the ongoing challenges
Group revenue increased by 20.3% in the year, of which 18.9% was organic.
This compares with AVIXA's estimated growth in the global AV market of 8.5% in
2021.
We saw substantial organic growth in our two core business regions - EMEA and
the UK&I. Growth was modest in the APAC region as COVID restrictions
remained strict for much of the year. In North America, our exit from a low
margin fulfilment business at the end of 2020 meant that revenue dropped by
38%. Removing this fulfilment revenue from the prior year, our business in
this region grew by over 25% in 2021 and Group revenue increased by over 30%.
Little change in end-user market demand profile
With lockdown cycles continuing throughout 2021, we did not see the changes to
end user demand that were expected at the start of the year. In particular,
the live events and entertainment sectors remained generally subdued. The
corporate market, which comprises principally investment in existing and new
offices, also remained more subdued than expected as many companies failed to
settle on their future office and home working strategies. To counteract
this, our expanded range of products addressing the corporate market
(particularly in respect of UC solutions) resulted in this segment accounting
for a slightly greater share of the overall business than in 2020.
The education sector remained strong throughout the year. We have a
particularly strong offering for this market and believe that it accounts for
around one third of overall revenues.
Overall gross margin improvement
The overall Group gross margin percentage improved from 14.3% to 15.3%, a
significant step back towards the 16.5% achieved in 2019.
We believe that margins were negatively impacted in 2020 as a result of lower
volumes and an adverse change in mix of products sold. During 2021, we saw a
partial recovery in the volume related margin drop. As volumes recovered,
the Group was more successful in achieving volume purchasing rebates from
manufacturers. This was partially supressed by ongoing product shortages,
which reduced our ability to negotiate volume purchasing rebates.
We saw some improvement in the product mix, with around 43% of Group revenues
now being accounted for by our more technical product areas. The positive
impact on overall gross margins from this growth was supressed somewhat by an
ongoing lack of demand from certain higher margin end user markets, and also
the fact that some of our newer product areas carry slightly lower margins.
In the last two years the Group has been particularly successful in growing
some lower margin product areas, such as in sales of mainstream products into
education. This success has contributed significantly to Group net profit
and expanded market shares, but does have a supressing impact on overall gross
margins.
Managing the impact of ongoing product shortages
Throughout 2021 our industry experienced significant disruption to supply
chains through a combination of the well-advertised global shortage of
semi-conductors, manufacturing disruption caused by lockdowns, and a shortage
of sea container capacity. Such disruption has impacted the business in a
number of ways. Firstly, we believe there has been a supressing impact on
revenue for the year. Although this is difficult to quantify (and should be
temporary in nature), the increase in customer back orders would suggest that
this impact could have been quite significant. Secondly, in order to provide
the most consistent supply of product to customers, we have often held higher
buffer stocks, where product has become available, which has an impact on
working capital levels. Despite heightened inventories, it has been more
difficult to maintain consistently high product availability to our customers
across all ranges. Optimising our service level has involved often complex
product scheduling and allocation, and significantly higher workloads for our
staff.
We believe that significant product shortages remain ongoing, although there
are some signs of this easing in the display market particularly.
Profitability and cash generation
Adjusted profit before tax increased by over 125% to reach £31.9 million - a
record for the Group.
In addition to maximising profitability, we continued to focus on managing our
cash flow. At the end of 2020, the Group's working capital, and hence net
debt, was particularly low. The significant organic growth experienced in
2021, and also our decision to hold higher buffer stocks, meant that adjusted
net debt increased from around £21 million to £58 million. At 31 December
2021, the ratio of adjusted net debt(2) to adjusted EBITDA was 1.4 times -
well within the Board's comfort range.
1. Based on adjusted operating profit
2. Adjusted for lease liabilities
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(3)
In broad terms, we categorise our products into mainstream and specialist
categories. Mainstream products cover displays and projectors, which comprised
an aggregate of 50% of Group revenue in 2021 (54% in 2020). 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 43% of total sales in
2021 compared with 38% in 2020.
Our largest technology area is displays, a category which grew by 30% in 2021
compared with a fall of 14% in 2020. Growth was particularly strong in in
UK&I, which had seen the largest fall in 2020, but grew at over 40% in
2021 compared with the market growth of 14%.
Revenue from projector sales increased by 6% in 2021 following a fall of 7% in
2020, with the UK&I increase being the most significant amongst our
territories. Whilst the overall projector market continues to be impacted by a
shift towards displays, we believe that we gained market share in this
category.
Within both mainstream categories the bulk of revenue is in more
volume/commoditised products, which tend to carry lower margins. The market
for higher end, and hence higher margin products, has remained fairly subdued
as these tend to be sold into the live events, entertainment or high-end
corporate markets.
Sales in our technical product categories increased by around 50% after being
broadly flat last year. After a particularly strong growth in 2020, as
expected, the broadcast segment grew at a slower rate in 2021. We saw
particular growth in professional audio, boosted by the acquisition of NMK at
the start of the year. Technical video products grew at 55%. This included
some of the new ranges of UC products, which tend to be at slightly lower
margins than some other specialist products.
3. This analysis excludes revenue from the fulfilment activity that Starin
exited from at the end of 2020.
Outlook
Record revenues and profits were achieved in a year in which the business and
our industry faced significant challenges. Although some of these challenges
continue, there are signs of easing as economies open up. We have continued
to invest in the business and position it for the long term - building strong
foundations for the future. Midwich has been very successful in gaining and
developing new vendor relationships and rolling these out across the Group.
Our ongoing acquisition programme has enabled us to enter new geographical
markets and expand our range of products.
With the global AV market expected by Avixa to grow at 7.2% per annum over the
five years to 2026, I believe our Group is very well positioned for the
future.
UK & IRELAND
Our UK&I business has made significant progress in its recovery, helped by
new vendor launches and winning additional market share.
After a challenging start (due to severe lockdowns in early 2021) we achieved
revenue of £286.1 million in the region (2020: £224.4 million) - an increase
of 27.5%. Gross margins increased by 1.8% to 15.8%. The improvement in margin
was across a number of different product categories. The gross margin should
improve further as the trade rental business returns.
Adjusted operating profit increased substantially, from £3.9 million to
£12.7 million. During renewed lockdowns at the beginning of the year the
UK&I received £0.4 million from government furlough schemes, although
this has been repaid subsequently.
EMEA
The EMEA region comprises our businesses in France, Germany, Switzerland,
Benelux, Norway, Italy, Iberia, and the addition of the Middle East from the
start of 2021.
Revenues, on a constant currency basis, increased by 41.8% to £455.4 million,
with organic growth being 34.5%. The relative strength of Sterling to
European currencies resulted in an exchange rate headwind that reduced
reported revenue growth by 4.3% to 37.5%.
Our German and French businesses performed particularly well, with growth well
in excess of 30% and 40% respectively. We believe that these two businesses
have continued to gain profitable share in each of their markets.
We were very pleased with the contribution of NMK in the Middle East, and have
commenced a programme of organic investment in that region.
Gross margins in EMEA increased by 0.9% to 14.7%. Margins improved across a
number of mainstream and technical product categories. The mix of sales
improved, with revenues in both display and projection categories increasing,
but by less than the higher margin technical areas. Audio sales performed
particularly well, helped by the acquisition of NMK.
Adjusted operating profit in EMEA more than doubled to £21.4 million (2020:
£9.4 million).
ASIA PACIFIC
Our Asia Pacific region struggled to gain growth momentum in the year due to
ongoing strict lockdowns. Revenue increased by 2% to £45.4 million in 2021.
We believe that this performance was significantly ahead of the local market,
indicating that we have gained share over the year.
The gross margin in APAC improved by 2.2% to 17.5% reflecting a recovery in
rebate levels. In prior years, APAC margins have benefited from high value
add, complex projects. These were adversely affected by Covid-19 in the last
two years, although we have started to see the pipeline of projects building
recently.
Adjusted operating profit increased marginally to £0.9 million.
NORTH AMERICA
When Starin, our North American business, became part of the Group on in
February 2020, around half of its revenue was in a non-core fulfilment
activity. We exited this low margin activity at the end of 2020. Revenue in
North America was £69.1 million in 2021, compared with £111.8 million in the
prior year. Excluding the fulfilment business, revenues increased by over
25% in the year.
We believe that the North American market holds significant potential for our
business and have been investing accordingly. The US AV market is the largest
in the world, although much of it is low margin fulfilment business. Our
strategy in this market is to focus on more specialist AV products, supported
by high value add customer service. Our gross margin in North America was
15.9% (2020 16.1%), which reflects this focused specialist approach. Adjusted
operating profit was £4.6 million, representing 6.7% of sales.
Finance Director's Review
Despite ongoing disruption in the wider market, we achieved record revenue and
adjusted profit before tax in 2021 with the Group making further market share
gains.
Revenue increased in 2021 by 20.3% to £856.0 million (2020: £711.8 million).
Excluding the impact of acquisitions and currency movements, organic revenue
increased by 18.9% (2020: -14.1%). Gross profit margin increased by one
percentage point to 15.3% (2020: 14.3%).
Adjusted operating profit of £34.0 million (2020: £16.5 million) was a Group
record and up by 110.4% at constant currency (2020: -50.8%). Operating profit
before adjustments was £21.0 million (2020: £7.1 million).
Statutory financial highlights
Year to 31 Year to 31 Total
December December growth
2021 2020
Revenue £856.0m £711.8m 20.3%
Gross profit £131.3m £101.8m 28.9%
Operating profit £21.0m £7.1m 196%
Profit before tax £18.9m £(1.0)m N/a
Profit after tax £13.5m £(3.4)m N/a
Basic EPS - pence 14.11p (4.32)p N/a
Adjusted financial highlights(1)
Year to 31 Year to 31 Total Growth at
December December growth constant
2021 2020 currency
Revenue £856.0m £711.8m 20.3% 22.9%
Gross profit £131.3m £101.8m 28.9% 31.6%
Gross profit margin % 15.3% 14.3%
Adjusted operating profit £34.0m £16.5m 105.7% 110.4%
Adjusted profit before tax £31.9m £14.2m 125.4% 130.3%
Adjusted profit after tax £23.9m £10.3m 132.6% 138.6%
Adjusted EPS - pence 25.63p 11.20p 128.8%
1 Definitions of the alternative performance measures are set out in
note 1 to the consolidated financial statements
Currency movements reduced Group revenue and adjusted operating profit in the
year by 2.6% and 4.7% respectively. The currency impact in the prior year was
negligible.
Organic growth in revenue was 18.9% (2020: -14.1%)
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 %
2021 2020 % currency
£m £m %
Revenue
UK & Ireland 286.1 224.4 27.5% 27.7% 27.7%
EMEA 455.4 331.1 37.5% 41.8% 34.5%
Asia Pacific 45.4 44.5 2.0% 1.4% 1.3%
North America 69.1 111.8 (38.2%) (34.3%) (37.8%)
Total Global 856.0 711.8 20.3% 22.9% 18.9%
Gross profit margin
UK & Ireland 15.8% 14.0% 1.8ppts
EMEA 14.7% 13.8% 0.9ppts
Asia Pacific 17.5% 15.3% 2.2ppts
North America 15.9% 16.1% (0.2)ppts
Total Global 15.3% 14.3% 1.0ppts
Adjusted operating profit(1)
UK & Ireland 12.7 3.9 224.8% 225.8%
EMEA 21.4 9.4 127.4% 132.8%
Asia Pacific 0.9 0.8 12.9% 9.3%
North America 4.6 4.9 (7.2%) (2.2%)
Group costs (5.5) (2.5)
Total Global 34.0 16.5 105.7% 110.4%
Adjusted finance costs (2.1) (2.3) (11.5%) (8.4%)
Adjusted profit before tax(1) 31.9 14.2 125.4% 130.3%
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 and Ireland
The UK and Ireland segment revenue increased by 27.5% (2020: -28.7%) to
£286.1 million (2020: £224.4 million), generating gross profit of £45.3
million (2020: £31.3 million) at a gross profit margin of 15.8% (2020:
14.0%). This resulted in an adjusted operating profit of £12.7 million (2020:
£3.9 million), an increase of 224.8% (2020: -80.3%).
EMEA
The EMEA segment revenue grew 37.5% (2020: 3.2%) to £455.4 million (2020:
£331.1 million). Gross profit increased to £67.0 million (2020: £45.6
million) at a gross profit margin of 14.7% (2020: 13.8%), leading to an
adjusted operating profit of £21.4 million (2020: £9.4 million) that
increased 127.4% (2020: -33.4%). In constant currency, revenue grew 41.8%
(2020: 2.2%) and adjusted operating profit increased 132.8% (2020: -33.9%).
Organic revenue growth, excluding the effects of acquisitions in the current
and prior period, increased by 34.5% (2020: -0.1%).
Asia Pacific
The Asia Pacific segment revenue grew by 2.0% to £45.4 million (2020: -12.1%
to £44.5 million), generating gross profit of £8.0 million (2020: £6.8
million) at a gross profit margin of 17.5% (2020: 15.3%). Adjusted operating
profit was £0.9 million (2020: £0.8 million). On constant currency basis,
revenue increased by 1.4% (2020: -1.4%) and adjusted operating profit grew
9.3% (2020: -69.6%).
North America
The North America segment revenue was impacted by the end of fulfilment
activity for a vendor relationship which ended in December 2020. Approximately
half of the prior year revenue was attributable to this activity. Revenue from
North America declined by 38.2% to £69.1 million (2020: £111.8 million).
Gross profit margins at 15.9% were broadly in line with the prior year (16.1%)
leading to an adjusted operating profit of £4.6 million (2020: £4.9
million).
Group costs
Group costs for the year were £5.5 million (2020: £2.5 million). The
increase in cost was due to a mix of factors including the reversal of
temporary reductions in salaries and bonuses in the prior year, attributable
to the impact of COVID 19, stretch bonus achievement in the year and further
investment in integration and IT capabilities.
Adjusted finance costs
Adjusted finance costs at £2.1 million (2020: £2.3 million) reflect the
interest costs on borrowings for historic acquisition investments and working
capital. Reported finance costs of £2.1 million (2020: £8.3 million) 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 £18.9 million (2020: £1.0
million loss), while adjusted profit before tax increased by 130.3% (2020:
-54.7%), at constant currency, to £31.9 million (2020: £14.2 million).
Tax
The adjusted effective tax rate was 25.0% in 2021 (2020: 27.3%) which reflects
a shift in the mix of profits arising in lower tax jurisdictions.
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 14.11p (2020:
-4.32p). Adjusted EPS increased by 128.8% (2020: -60.7%) to 25.63p (2020:
11.20p).
Dividend
The Board has recommended a final dividend of 7.8 pence per share which,
together with the interim dividend of 3.3 pence per share and special dividend
of 3.0 pence per share, gives a total dividend for 2021 of 14.1 pence per
share (2020:nil). If approved by shareholders at the annual general meeting
the final dividend will be paid on 17 June 2022 to shareholders on the
register on 6 May 2022. The last day to elect for dividend reinvestment
("DRIP") is 25 May 2022.
Cash flow
Year to 31 Year to 31
December December
2021 2020
£m £m
Adjusted operating profit 34.0 16.5
Add back depreciation and unadjusted amortisation 6.1 6.2
Adjusted EBITDA 40.1 22.7
Decrease/(Increase) in stocks (36.5) 34.9
Decrease/(Increase) in debtors (12.5) 18.1
(Decrease)/Increase in creditors(1) 27.0 (31.6)
Adjusted cash flow from operations 18.1 44.1
Adjusted EBITDA cash conversion 45.2% 194.4%
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 45.2% compared to
194.4% for the prior year. The combination of strong growth combined with
selected investment in buffer stocks to address supply chain risks resulted in
cash conversion below the long-term average for the Group. The combined
operating cashflow during the two financial years of the pandemic was 99.2%.
Our expectation of long-term cash conversion remains between 70 and 80%.
Gross capital spend on tangible assets was £3.6 million (2020: £1.9 million)
and included investment in a new office in the Middle East and a warehouse in
Germany together with the resumption of rental assets purchases in the second
half of the year. An investment of £2.4m in intangible fixed assets included
£1.6 million (2020: £1.1m) in relation to the Group's new ERP solution.
Net debt
Reported net debt increased from £39.3 million at 31 December 2020 to £79.0
million at 31 December 2021. The Group's reported net debt continues to be
impacted by the adoption of IFRS 16 in 2019 which results in approximately
£21 million of lease liabilities (2020: £18.3m) being added to net debt. The
biggest increase in lease liabilities in the year was the commencement of a
new experience centre lease in the Middle East. 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 2021 was £58.0m (2020 £21.0 million). The
increase was largely driven by the investment in working capital together with
payments for acquisitions and deferred consideration.
In December 2021, the Group increased its revolving credit facility to £80
million (£50 million at 31 December 2020) to finance the acquisitions of DVS
and Nimans. This facility has an adjusted net debt to adjusted EBITDA covenant
ratio of 2.75 times. This is calculated on a historic 12-month basis and
includes the 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 2021, the Group has access to total facilities of over £185 million
(2020: £170 million).
The Group has a strong balance sheet with a closing adjusted net debt/adjusted
EBITDA ratio of 1.4x (2020: 0.9x). This, combined with the Group's underlying
cash generation, equips the Group well to fund short-term swings in working
capital as the Group delivers organic growth as well as 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 £73.1 million (2020: £59.0
million) arise from the various acquisitions undertaken. Each year the Board
reviews goodwill for impairment and, as at 31 December 2021, 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, some additional
investment in stock to address supply chain disruption and the impact of
acquisitions. At 31 December 2021, the Group had working capital (trade and
other receivables plus inventories less trade and other payables) of £106.1
million (2020: £79.3 million). This represented 12.4% of current year revenue
(2020: 11.1%). 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
receipt date. There was no change in this methodology in the year. At 31
December 2021 the Group's inventory provision was £15.2 million (11% of cost)
(2020: £23.8 million; 22% of cost). The reduction in provision in 2021
included £5.8m associated with the disposal of fully written down stock due
to the exit of fulfilment activity in North America.
Adjustments to reported results
2021 2020
£000
£000
Operating profit 20,980 7,090
Acquisition costs 486 526
Share based payments 4,416 2,562
Employer taxes on share based payments 904 130
Amortisation of brands, customer and supplier relationships 7,226 6,224
Adjusted operating profit 34,012 16,532
Profit/(loss) before tax 18,895 (995)
Acquisition costs 486 526
Share based payments 4,416 2,562
Employer taxes on share based payments 904 130
Amortisation of brands, customer and supplier relationships 7,226 6,224
Derivative fair value movements and foreign exchange gains and losses on (2,058) 2,282
borrowings for acquisitions
Finance costs - deferred and contingent consideration 347 3,275
Finance costs - put option 1,696 154
Adjusted profit before tax 31,911 14,158
Profit/(loss) after tax 13,473 (3,387)
Acquisition costs 486 526
Share based payments 4,416 2,562
Employer taxes on share based payments 904 130
Amortisation of brands, customer and supplier relationships 7,226 6,224
Derivative fair value movements and foreign exchange gains and losses on (2,058) 2,282
borrowings for acquisitions
Finance costs - deferred and contingent consideration 347 3,275
Finance costs - put option 1,696 154
Tax impact (2,545) (1,472)
Adjusted profit after tax 23,945 10,294
Profit/(loss) after tax 13,473 (3,387)
Non-controlling interest 1,044 364
Profit/(loss) after tax attributable to owners of the Parent Company 12,429 (3,751)
Number of shares for EPS 88,101,300 86,893,508
Reported EPS - pence 14.11 (4.32)
Adjusted EPS - pence 25.63 11.20
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 2021
Notes 2021 2020
£'000 £'000
Revenue 855,973 711,754
Cost of sales (724,712) (609,961)
Gross profit 131,261 101,793
Distribution costs (80,585) (68,488)
Total administrative expenses (34,871) (28,225)
Other operating income 5,175 2,010
Operating profit 20,980 7,090
Comprising
Adjusted operating profit 34,012 16,532
Costs of acquisitions 3 (486) (526)
Share based payments (4,416) (2,562)
Employer taxes on share based payments (904) (130)
Amortisation and impairments of brands, customer and supplier relationships (7,226) (6,224)
20,980 7,090
Finance income 108 172
Finance costs 4 (2,193) (8,257)
Profit/(loss) before taxation 18,895 (995)
Taxation (5,422) (2,392)
Profit/(loss) after taxation 13,473 (3,387)
Profit/(loss) for the financial year attributable to:
The Company's equity shareholders 12,429 (3,751)
Non-controlling interest 1,044 364
13,473 (3,387)
Basic earnings per share 5 14.11p (4.32)p
Diluted earnings per share 5 13.76p (4.32)p
Consolidated statement of comprehensive income for the year ended 31 December
2021
2021 2020
£'000 £'000
Profit/(loss) for the financial year 13,473 (3,387)
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains and (losses) on retirement benefit obligations 254 (4)
Items that will be reclassified subsequently to profit or loss:
Net (loss)/gain on net investment hedge - (194)
Foreign exchange gains and (losses) on consolidation (4,710) 3,542
Other comprehensive income for the financial year, net of tax (4,456) 3,344
Total comprehensive income for the year 9,017 (43)
Attributable to:
Owners of the Parent Company 8,384 (878)
Non-controlling interests 633 835
9,017 (43)
Consolidated statement of financial position as at 31 December 2021
Notes 2021 2020
Assets £'000 £'000
Non-current assets
Goodwill 21,163 15,350
Intangible assets 51,972 43,631
Right of use assets 19,826 17,102
Property, plant and equipment 11,792 11,206
Deferred tax assets 2,725 2,386
107,478 89,675
Current assets
Inventories 125,825 83,995
Trade and other receivables 124,256 107,082
Derivative financial instruments 492 24
Cash and cash equivalents 15,476 25,485
266,049 216,586
Current liabilities
Trade and other payables (142,546) (110,136)
Derivative financial instruments - (1,094)
Put option liabilities over non-controlling interests (3,863) (1,306)
Deferred and contingent considerations (466) (7,012)
Borrowings and financial liabilities 6 (34,053) (30,045)
Current tax (2,869) (638)
(183,797) (150,231)
Net current assets 82,252 66,355
Total assets less current liabilities 189,730 156,030
Non-current liabilities
Trade and other payables (1,418) (1,708)
Put option liabilities over non-controlling interests (4,287) (3,337)
Deferred and contingent considerations (1,468) (465)
Borrowings and financial liabilities 6 (60,399) (34,719)
Deferred tax liabilities (5,066) (7,011)
Other provisions (2,696) (2,303)
(75,334) (49,543)
Net assets 114,396 106,487
Equity
Share capital 8 887 886
Share premium 67,047 67,047
Share based payment reserve 7,879 4,472
Investment in own shares (5) (6)
Retained earnings 39,078 30,436
Translation reserve (2,182) 2,117
Hedging reserve - -
Put option reserve (7,784) (4,813)
Capital redemption reserve 50 50
Other reserve 150 150
Equity attributable to owners of the Parent Company 105,120 100,339
Non-controlling interests 9,276 6,148
Total equity 114,396 106,487
The financial statements were approved by the Board of Directors and
authorised for issue on 7 March 2022 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
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
For the year ended 31 December 2020
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 2020 799 28,225 (5) 31,867 (2,891) 57,995 7,298 65,293
(Loss)/profit for the year - - - (3,751) - (3,751) 364 (3,387)
Other comprehensive income - - - (4) 2,877 2,873 471 3,344
Total comprehensive income for the year - - - (3,755) 2,877 (878) 835 (43)
Shares issued (note 8) 87 38,822 (7) - - 38,902 - 38,902
Share based payments - - - - 2,562 2,562 - 2,562
Deferred tax on share based payments - - - - (232) (232) - (232)
Share options exercised - - 6 1,855 (1,856) 5 - 5
Acquisition of non-controlling interest (note 10) - - - 469 1,516 1,985 (1,985) -
Balance at 31 December 2020 886 67,047 (6) 30,436 1,976 100,339 6,148 106,487
Consolidated statement of cash flows for the year ended 31 December 2021
2021 2020
£'000 £'000
Cash flows from operating activities
Profit/(loss) before tax 18,895 (995)
Depreciation 5,793 5,991
Amortisation 7,502 6,429
Loss on disposal of assets 25 1,122
Share based payments 4,398 2,562
Foreign exchange losses (1,026) (295)
Finance income (108) (172)
Finance costs 2,193 8,257
Profit from operations before changes in working capital 37,672 22,899
(Increase)/decrease in inventories (36,496) 34,939
(Increase)/decrease in trade and other receivables (12,473) 18,097
Increase /(decrease) in trade and other payables 27,943 (31,442)
Cash inflow from operations 16,646 44,493
Income tax paid (5,151) (4,372)
Net cash inflow from operating activities 11,495 40,121
Cash flows from investing activities
Acquisition of businesses net of cash acquired (16,836) (18,393)
Purchase of intangible assets (2,401) (1,730)
Purchase of plant and equipment (3,558) (1,860)
Proceeds on disposal of plant and equipment 253 306
Interest received 108 172
Net cash used in investing activities (22,434) (21,505)
Net cash flows from financing activities
Gross proceeds on issue of shares - 39,724
Costs associated with shares issued - (822)
Proceeds on exercise of share options 1 5
Deferred consideration paid (11,265) (5,238)
Acquisition of non-controlling interest (2,055) (2,875)
Dividends paid (5,568) -
Invoice financing inflows/(outflows) 6,261 (32,191)
Proceeds from borrowings 23,222 4,796
Repayment of loans (4,660) (4,445)
Interest paid (2,087) (2,438)
Interest on leases (439) (362)
Capital element of lease payments (3,072) (4,226)
Net cash inflow/(outflow) from financing activities 338 (8,072)
Net (decrease)/increase in cash and cash equivalents (10,601) 10,544
Cash and cash equivalents at beginning of financial year 23,795 11,497
Effects of exchange rate changes (1,555) 1,754
Cash and cash equivalents at end of financial year 11,639 23,795
Comprising:
Cash at bank 15,476 25,485
Bank overdrafts (3,837) (1,690)
11,639 23,795
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 re-measurement 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. Given the ongoing global uncertainty, largely due to the
impact of COVID-19, 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 a period of at least 12 months from the date of this report.
The directors consider the working capital and finance facilities of the
business to be adequate to fund its operations and growth strategy. 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 and incidental 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 in the
channel and incurs the risk of obsolescence. Ancillary services are not
material to the Group and include installations, removals, support services,
transport, warranties, and repairs. Revenue from ancillary services is
recognised over time as the services are performed. Where contracts for the
sales of ancillary services include multiple performance obligations the
transaction price is allocated to each separate performance obligation within
the contract. Revenue for each performance obligation is estimated based on
expected cost-plus margin and is recognised over time as the service is
performed.
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 estimate 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
· Rental assets Over the period of the lease up to a maximum of 10 years
· Plant and equipment 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 annually reassessed. 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 transactions 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. Included within
trade and other receivables are vendor rebates. Vendor rebates are recognised
on completion of the contractual obligation and recorded within cost of sales.
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.
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.
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 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 a 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 be 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 Trust.
· "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 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 and 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 financial statements. Any assets held by the EBT cease
to be recognised on the group 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:
Annual improvements to IFRS standards 2018-2020;
Amendments to IFRS16 - COVID-19 related rent concessions IBOR reform phase 1
amendments;
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Interest rate
benchmark reform phase 2;
Amendments to IAS 12 - Deferred tax related to assets and liabilities arising
from a single transaction; and
IFRS 17 Insurance contracts.
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 growth
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 and supplier relationship intangible
assets.
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 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.
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 historic experience,
on-going 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
As a result of a some of the acquisitions the Group has issued several put
options over non-controlling interests. The liability is recorded at the
present value of the redemption amount and is accounted for as a separate
component in equity on the basis that the directors have judged that the Group
does not currently hold the risks and rewards associated with ownership of
these shares. The key judgements in determining whether the risks and rewards
regarding control have passed were the proportionate right to dividends and
determining if there is exposure to changes in 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.
The only uncertainty with regards to inventory is the realisable value on sale
or disposal of inventory, which applies to all inventory as disclosed in the
inventory note. 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 the
write down percentages applied to inventory were 10% higher or 10% lower the
effect would be a decrease or increase of £1,520k respectively in profit
before tax for the year.
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.
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
2020 UK & Ireland EMEA Asia Pacific North America Other Total
£'000 £'000 £'000 £'000
£'000 £'000
Revenue 224,386 331,115 44,476 111,777 - 711,754
Gross profit 31,321 45,635 6,821 18,016 - 101,793
Gross profit % 14.0% 13.8% 15.3% 16.1% - 14.3%
Adjusted operating profit 3,916 9,393 820 4,909 (2,506) 16,532
Costs of acquisitions - - - - (526) (526)
Share based payments (1,141) (799) (218) (3) (401) (2,562)
Employer taxes on share based payments (46) (31) (7) (-) (46) (130)
Amortisation of brands, customer and supplier relationships (2,490) (2,285) (270) (1,179) - (6,224)
Operating profit 239 6,278 325 3,727 (3,479) 7,090
Interest (8,085)
Loss before tax (995)
2020 UK & Ireland EMEA Asia Pacific North America Total
£'000 £'000 £'000 £'000 Other
£'000
£'000
Segment assets 94,627 150,167 21,039 40,130 298 306,261
Segment liabilities (60,545) (103,078) (17,614) (17,851) (686) (199,774)
Segment net assets 34,082 47,089 3,425 22,279 (388) 106,487
Depreciation 2,540 2,603 480 368 - 5,991
Amortisation 2,519 2,356 286 1,268 - 6,429
Other segmental information UK International Total
£'000 £'000 £'000
Non-current assets 25,959 63,716 89,675
Deferred tax asset 730 1,656 2,386
Non-current assets excluding deferred tax 25,229 62,060 87,289
Revenue from the UK, being the domicile of the Parent Company amounted to
£270,954k (2020: £208,601k). Revenue from Germany amounted to £228,487k
(2020: £169,864k). 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 £15,709k (2020: £16,472k) 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
profit represents the operating profit by each segment after amortisation of
intangibles arising on consolidation.
In addition to the external revenue reported by segment the UK & Ireland
segment made £496k (2020: £3,660k) of intercompany sales, the EMEA segment
made £1,280k (2020: £1,278k) of intercompany sales, and the North America
segment made nil (2020: £652k) intercompany sales.
Sales to the largest customer
Included in revenue is £21.5m (2020: £17.3m) that arose from sales to the
Group's largest customer, which is based in the Germany (2020: USA). 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 £486k of acquisition related
costs (2020: £526k). For details of acquisitions in the year see note 11.
4. Finance costs
2021 2020
£'000 £'000
Interest on overdraft and invoice discounting 867 1,194
Interest on leases 439 362
Interest on loans 810 830
Fair value movements on foreign exchange derivatives 77 156
Other interest costs 15 4
Fair value movements on derivatives for borrowings (1,244) 1,194
Foreign exchange gains on borrowings for acquisitions (814) 1,088
Interest, foreign exchange and other finance costs of deferred and contingent 347 3,275
considerations
Interest, foreign exchange and other finance costs of put option liabilities 1,696 154
2,193 8,257
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/(loss) attributable to equity holders of the Group (£'000) 12,429 (3,751)
Weighted average number of shares in issue 88,101,300 86,893,508
Potentially dilutive effect of the Group's share option schemes 2,204,110 1,242,399
Weighted average number of diluted Ordinary Shares 90,305,410 88,135,907
Basic earnings per share 14.11p (4.32)p
Diluted earnings per share 13.76p (4.32)p
Diluted earnings per share excludes the antidilutive effects of potential
Ordinary Shares that result in a decrease in the loss per share.
6. Borrowings
2021 2020
£'000 £'000
Secured borrowings
- Bank overdrafts and invoice discounting 30,856 22,448
- Bank loans 42,604 24,042
- Leases 20,992 18,274
94,452 64,764
Current 34,053 30,045
Non-current 60,399 34,719
94,452 64,764
Summary of borrowing arrangements:
The Group has overdraft borrowings which comprised £3,837k at the end of 2021
(2020: £1,690k). The facilities are uncommitted and secured with fixed and
floating charges over the assets of the Group.
The Group has invoice discounting borrowings which comprised £27,019k at the
end of 2021 (2020: £20,758k). The facilities comprise fully revolving
receivables financing agreements which are secured on the underlying
receivables. The facility has 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. Acquisitions completed during the year were debt free
and did not include invoice discounting facilities.
The Group has loans of £42,604k at the end of 2021 (2020: £24,042k). 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 leases of £20,992k at the end of 2021 (2020: £18,274k).
Acquisitions completed during the year did not include any finance leases.
Borrowings
2021 2020
£'000 £'000
Short term borrowings 30,900 27,292
Long term borrowings 42,560 19,198
Leases 20,992 18,274
94,452 64,764
Reconciliation of liabilities arising from financing activities
2021 2020
£'000 £'000
At 1 January 64,764 82,995
Cash flows:
Invoice financing inflows/(outflows) 6,261 (32,191)
Proceeds from borrowings 25,369 4,968
Repayment of loans (4,660) (4,445)
Capital element of leases (3,072) (4,226)
Non-cash:
Acquisitions - 13,334
New liabilities arising on leases 6,753 3,792
Disposals on modification or termination of leases (297) -
Foreign exchange gain or loss (666) 537
At 31 December 94,452 64,764
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 2021 total credit risk amounted to
£124,564k (2020: £117,611k).
Interest rate risk
The interest on the Group's overdrafts, invoice discounting facilities and
Revolving Credit Facility borrowings are variable. During the 2019 the Group
entered into an interest rate swap contract in respect of the Group's variable
interest rates in order to achieve a fixed rate of interest.
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 financial instruments 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. However, the Group does not adopt hedge accounting and
recognises gains and losses on foreign exchange in both the income statement
and translation reserve. The underlying foreign exchange risk arising from
trading activities is immaterial.
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
2021 2020 2021 2020
EUR/GBP 1.166 1.127 1.191 1.112
AUD/GBP 1.839 1.858 1.859 1.763
NZD/GBP 1.950 1.969 1.973 1.885
USD/GBP 1.374 1.287 1.348 1.365
CHF/GBP 1.257 1.207 1.231 1.220
NOK/GBP 11.864 12.086 11.893 11.627
AED/GBP 5.049 N/A 4.971 N/A
QAR/GBP 5.004 N/A 4.927 N/A
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:
(Loss)/profit before tax
2020 Revised 2020 Impact Impact
£'000 £'000 £'000 %
EUR (995) (734) 261 (26.2)%
AUD (995) (998) (3) 0.3%
NZD (995) (993) 2 (0.2)%-
USD (995) (881) 114 (11.5)%
CHF (995) (1,022) (27) 2.7%
NOK (995) (996) (1) 0.1%
All currencies (995) (649) 346 (34.8)%
Net assets
2020 Revised 2020 Impact Impact
£'000 £'000 £'000 %
EUR 106,487 109,838 3,351 3.2%
AUD 106,487 106,702 215 0.2%
NZD 106,487 106,500 13 -
USD 106,487 106,396 (91) (0.1)%
CHF 106,487 106,487 - -
NOK 106,487 106,534 47 -
All currencies 106,487 110,022 3,535 3.3%
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 2021 and 2020, on the basis of their earliest
possible contractual maturity:
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
At 31 December 2020
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 82,323 78,393 3,930 - - -
Other payables 125 39 - 86 - -
Deferred consideration 7,625 7,015 - - - 610
Put option liabilities 4,892 - - 1,363 3,529 -
Leases 19,732 487 1,062 1,512 2,786 13,885
Accruals 17,133 12,083 2,127 1,215 632 1,076
Bank overdrafts, loans and invoice discounting 46,490 24,988 1,093 1,211 1,291 17,907
178,320 123,005 8,212 5,387 8,238 33,478
8. Share capital
The total allotted share capital of the Parent Company is:
Allotted, issued and fully paid
2021 2020
Number £'000 Number £'000
Issued and fully paid Ordinary Shares of £0.01 each
At 1 January 88,604,712 886 79,973,412 799
Shares issued 130,900 1 8,631,300 87
At 31 December 88,735,612 887 88,604,712 886
During the year the Company issued 130,900 shares to the Group's employee
benefit trusts. During the prior year the Company issued 7,944,800 shares for
total proceeds less issue cost of £38,902k and 686,500 shares to the Group's
employee benefit trusts.
Employee benefit trust
The Group's employee benefit trusts were allocated the following shares to be
issued on exercise of share options:
2021 2020
Number £'000 Number £'000
At 1 January 593,600 6 476,700 5
Allocated during the year 130,900 1 686,500 7
Shares issued on exercise of options (206,200) (2) (569,600) (6)
At 31 December 518,300 5 593,600 6
9. Other reserves
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)
Movement in other reserves for the year ended 31 December 2020
Share based payment reserve Translation reserve Hedging reserve Put option reserve Capital redemption reserve Other reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2020 3,998 (954) 194 (6,329) 50 150 (2,891)
Other comprehensive income - 3,071 (194) - - - 2,877
Total comprehensive income for the year - 3,071 (194) - - - 2,877
Share based payments 2,562 - - - - - 2,562
Deferred tax on share based payments (232) - - - - - (232)
Share options exercised (1,856) - - - - - (1,856)
Acquisition of non-controlling interest (note 10) - - - 1,516 - - 1,516
Balance at 31 December 2020 4,472 2,117 - (4,813) 50 150 1,976
10. Acquisition of non-controlling interest
During the current 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.
During the prior year the Group acquired the remaining 30.0% non-controlling
interest in Gebroeders van Domburg BV, which had a value of £1,985k, for a
consideration of £2,874k. £1,516k 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(1) Principal activity Date of acquisition Proportion acquired (%) Fair value of consideration
£'000
NMK Distribution of audio visual products to trade customers 1 January 2021 80% 15,463
Starin Distribution of audio visual products to trade customers 6 February 2020 100% 20,961
Trade and assets acquired:
In addition to the acquisition of subsidiaries listed above 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. In the prior year the Group acquired trade
and assets from Vantage Systems Pty Limited ("Vantage"), a company registered
in Australia.
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.
Fair value of consideration transferred 2020 Starin Vantage
£'000 £'000
Cash 18,872 506
Deferred contingent consideration 2,089 379
Total 20,961 885
Acquisition costs of £506k in relation to the acquisition of Starin and £20k
in relation to the Vantage acquisition of trade and assets were expensed to
the income statement during the year ended 31 December 2020.
Fair value of acquisitions 2020 Starin Vantage
£'000 £'000
Non-current assets
Goodwill 520 960
Intangible assets - brands 4,065 -
Intangible assets - customer relationships 2,884 -
Intangible assets - supplier relationships 9,189 -
Intangible assets - software 82 -
Right of use assets 743 -
Property, plant and equipment 515 5
Deferred tax 3 -
18,001 965
Current assets
Inventories 30,243 -
Trade and other receivables 20,951 129
Cash and cash equivalents 985 -
52,179 129
Current liabilities
Trade and other payables (35,885) (209)
Borrowings and financial liabilities (12,728) -
(48,613) (209)
Non-current liabilities
Borrowings and financial liabilities (606) -
(606) -
Fair value of net assets acquired attributable to equity shareholders of the 20,961 885
Parent Company
Goodwill acquired in 2020 relates to the workforce, synergies and sales know
how. Goodwill arising on the Starin acquisition has been allocated to the
North America segment, goodwill arising on the Vantage trade and assets
acquisition has been allocated to the Asia Pacific segment.
Net cash outflows on acquisitions 2020
Starin Vantage
£'000 £'000
Consideration paid in cash 18,872 506
Less: cash and cash equivalent balances acquired (985) -
Net cash outflow 17,887 506
Plus: borrowings acquired 13,334 -
Net debt outflow 31,221 506
Post-acquisition contribution 2020
Acquired subsidiaries made the following contributions to the Group's results
for the year in which they were acquired, from their respective acquisition
dates:
Starin
£'000
Date acquired 6 Feb
Post-acquisition contribution to Group revenue 111,777
Post-acquisition contribution to Group profit after tax 2,540
Proforma full year contribution 2020
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 2020:
Starin
£'000
Full year revenue(1) 130,502
Full accounting period profit after tax(1) 1,921
If the acquisitions had occurred on 1 January 2020, revenue of the Group for
the year would have been £730,479k and loss after tax for the year would have
been £4,006k.
(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 2020,
together with the consequential tax effects.
12. Dividends
On the 7 July 2021 the Company paid a special dividend of £2,650k, excluding
the effects of waived dividends this equated to 3.00 pence per share. On 25
October 2021 the Company paid an interim dividend of £2,918k, excluding the
effects of waived dividends this equated to 3.30 pence per share. The Company
did not pay any dividends during the prior year.
13. Events after the reporting date
On 10 January 2022, the Group acquired 65% of the share capital of Cooper
Projects Limited, the parent Company of DVS Limited, a Company based in
Cardiff, United Kingdom. The business specialises in the distribution of video
security products to the trade market. The initial consideration is £8.6m
with a contingent consideration of up to £6.4m payable in 2023.
Put and call options are granted over the non-controlling interest in Cooper
Project Limited to the holders of the non-controlling interest and Group
respectively. The put and call options have an exercisable value in 2025 of up
to £20m depending on the financial performance of the business during the
2022-2024 financial years.
On 7 February 2022, the Group entered a binding agreement to acquire 100% of
the share capital of Nycomm Holdings Limited and all its subsidiaries, a group
of companies based in Manchester, United Kingdom. The business is a specialist
distributor of unified communications, telecoms, collaboration and audio
visual technologies. The initial consideration is £16.5m with deferred
considerations of £5.5m payable in 2023 and 2024 respectively.
Due to the proximity of the date of the announcement to the date these
financial statements were authorised for issue, the Group considers it
impracticable to produce disclosures required under IFRS 3 regarding the
acquisition fair value of assets and liabilities to be acquired under the
acquisition.
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