REG - Midwich Group PLC - Unaudited full year results
19/03/2024 07:00
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RNS Number : 3241H Midwich Group PLC 19 March 2024
19 March 2024
Midwich Group plc
("Midwich" or the "Group")
Unaudited full year results
Record financial performance and market share gains in FY23
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 2023.
Statutory financial highlights
Year to Year to Total growth %
31 December 2023 31 December 2022
£m £m
Revenue 1,289.1 1,204.1 7%
Gross profit 216.5 183.7 18%
Operating profit 41.6 35.1 19%
Profit before tax 36.5 24.9 47%
Profit after tax 28.9 16.9 72%
Basic EPS - pence 27.98 17.32 62%
Dividend - pence per share(1) 16.5 15.0 10%
Adjusted financial highlights(2)
Year to Year to Total growth Growth at constant currency
31 December 2023 31 December 2022 % %
£m £m
Revenue 1,289.1 1,204.1 7% 7%
Gross profit 216.5 183.7 18% 18%
Gross profit margin % 16.8% 15.3%
Adjusted operating profit 59.6 51.1 17% 17%
Adjusted profit before tax 50.0 45.2 11% 11%
Adjusted profit after tax 38.5 34.1 13%
Adjusted EPS - pence 37.46 36.08 4%
Adjusted net debt ratio 1.1x 1.6x
( )
(1) Total of interim and final dividends.
(2) Definitions of the alternative performance measures are set out in note 1
Financial highlights
· Another record financial performance with further market share gains achieved
· Revenue increased 7.1% to £1,289.1m (2022: £1,204.1m), reflecting a good
organic growth performance, against a challenging global market backdrop, and
a contribution from the seven acquisitions completed in the year
· Revenue growth of 6.8% at constant exchange rates, including 0.8% organic
growth
· Highest ever gross profit margins of 16.8%, substantially ahead of the prior
year (2022: 15.3%) driven by stronger technical product sales
· Adjusted operating profit growth of 16.6% to £59.6m (16.8% on a constant
currency basis)
· Net debt to Adjusted EBITDA at the period end reduced to c.1.1 times, well
within the Board's comfort range
· Proposed final dividend of 11.0p bringing the full year dividend to 16.5p
(2022: 15.0p)
Operational highlights
· The Group continued to deliver strong technical product growth, increasing
specialisation particularly in the audio market, inline with the Group's
stated strategy
· Entry into the Canadian pro audio market through the acquisition of S.F.
Marketing Inc.
· Completion of six further acquisitions during the period, including prodyTel,
with integration progressing well
· Successful equity placing of £50m in June 2023, to support the Group's
acquisition strategy
· Compound annual growth in revenue and adjusted operating profit since IPO (in
2016) of 20% and 18% respectively, with attractive levels of return on
capital. This is testament to the strength of the Group's long-term strategy
and quality of our team
· Management continues to see a robust future acquisition pipeline across a
number of key geographies and technologies
Stephen Fenby, Managing Director of Midwich Group plc, commented:
"The Group had another strong year, both operationally and financially,
improving all key metrics in a highly challenging market. Our performance
reflects the fundamental strength of the business, our customer and vendor
relationships, our geographic and technical solution diversity and, most of
all, the skills and dedication of our team.
"Despite lower demand for mainstream products, stronger technical product
sales led to our highest ever gross margin percentage. A strong increase in
adjusted operating profit of 17% helped us to achieve adjusted profit before
tax in excess of £50 million for the first time.
"Although still early into the new financial year, and being mindful of the
continued challenging general economic conditions, we remain confident that
2024 will see yet another year of growth in excess of the overall market."
Analyst meeting/webinar
There will be a meeting and webinar for sell-side analysts at 9.00am GMT
today, 19 March 2024, the details of which can be obtained from FTI
Consulting: midwich@fticonsulting.com (mailto:midwich@fticonsulting.com) .
For further information:
Midwich Group plc +44 (0) 1379 649200
Stephen Fenby, Managing Director
Stephen Lamb, Finance Director
Investec Bank plc (NOMAD and Joint Broker to Midwich) +44 (0) 20 7597 5970
Carlton Nelson / Ben Griffiths
Berenberg (Joint Broker to Midwich) +44 (0) 20 3207 7800
Ben Wright / Richard Andrews
FTI Consulting +44 (0) 20 3727 1000
Alex Beagley / Tom Hufton / Matthew Young
midwich@fticonsulting.com (mailto:midwich@fticonsulting.com)
About Midwich Group
Midwich is a specialist AV distributor to the trade market, with operations
in EMEA, the UK and Ireland, Asia Pacific and North America. The Group's
long-standing relationships with its 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 most of its vendors in their respective product sets.
The Directors attribute this position to the Group's technical expertise,
extensive product knowledge and strong customer service offering built up over
a number of years. The Group has a large and diverse base of over 24,000
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 1,800 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/)
Chair's Statement
Midwich has had another very strong year and I am pleased to be able to report
further strategic progress for the Group in 2023, including record results,
further development of our leadership team, and a new market entry in what has
been our busiest year for acquisitions.
Our diversity of geographies and technical solutions enabled the Group to
respond to a challenging market backdrop. The strong results are testament to
our team's exceptional knowledge and commitment.
Whilst the Pro AV market has consistently grown above GDP, there were a number
of unprecedented challenges in 2023. After two years of post-pandemic bounce
back, the pressures of macro economic slowdowns, higher interest rates and
labour market disputes impacted demand for our mainstream products. The Group
responded to this well, by focusing on value-added technical solutions and, as
such, achieved both significant margin improvements and further market share
gains across our biggest regions.
Record results
Group revenue increased by 6.8%, at constant currency, (organic 0.8%) to
£1.3bn which, combined with a record gross margin of 16.8% (2022: 15.3%),
resulted in adjusted operating profit of £59.6m, up 16.5% on the prior year.
Despite higher interest rates in the period, the Group achieved adjusted
profit before tax of £50m for the first time.
The Group has achieved compound annual growth in revenue and adjusted
operating profit since our IPO in 2016 of 20% and 18% respectively, which is
testament to the strength of our long-term strategy and the quality of our
teams. Whilst early into the new year, the wider economic backdrop continues
to remain challenging. Nevertheless, the Board believes that the structural
increase in the use of AV solutions will see robust AV demand in the years
ahead.
Over the longer term, the Pro AV market is forecast to grow by an average of
5.6% (AVIXA) per annum for the next five years and the Group is well placed to
benefit from this. Despite the Group's significant revenue, it represented
less than 4% of our estimate of our target addressable global Pro AV market
and the Group continues to have ambitious growth plans.
Acquisitions in the year
Alongside record profitability, I am pleased that the Group was also able to
complete seven strategically aligned acquisitions in the year.
In June 2023, the Group completed the acquisition of S.F. Marketing, Inc.
("SFM"), a specialist value-add AV distributor based in Canada. Founded in
1978 and based in Montreal, SFM is a leading value-add distributor of
professional AV, with heritage in the professional audio market. It has 146
employees and over 1,500 customers. The business has grown through long
standing relationships with tier-1 brands and developing a reputation for
offering exceptional levels of service, which remains a key focus of the
business's strategy.
SFM is the Group's second investment in the strategically important North
American region, following the acquisition of Starin in 2020. SFM is Midwich's
first physical presence in Canada, which represents 2.6% of the global AV
market.
In July 2023, the Group made five further acquisitions, each of which add
expertise and new product areas to existing territories.
Starin, the US arm of the Group, expanded its broadcast technology offering
with the acquisitions of Toolfarm.com, Inc and Digital Media Promos, Inc
(trading as 76 Media). Toolfarm.com, distributes video software products and
plugins, with a particular focus on 3D and motion graphics, whilst 76 Media is
a value-add distributor of high-end video storage and media asset management
hardware to the US market.
In the UK and Ireland, the Group completed the acquisition of HHB
Communications Holdings Limited ("HHB"), a leading supplier of specialist
professional audio equipment, content creation products, and music technology.
Founded in 1976 and with 55 employees, HHB has built a name for itself in the
broadcasting, media and entertainment market and has supported many notable
post production facilities, film, gaming, recording studios, and broadcasters
with its products used by the likes of Warner Brothers, BBC, Sky and Pinewood
Studios. Representing manufacturers such as RØDE, Genelec, and AVID from its
three London locations, HHB joining the Group further develops Midwich's
offering in these strategically important markets.
Furthermore, in the UK and Ireland, the Group acquired Pulse Cinemas Holdings
Limited trading as Pulse Cinemas. Founded in 2003, Pulse Cinemas is a home
cinema distributor with an established reputation for delivering beautiful
cinema spaces with class-leading luxury brands. Pulse Cinemas enhances the UK
and Ireland business' custom installation offering and also brings
state-of-the-art home cinema demonstration facilities.
In Spain, Midwich Iberia acquired Video Digital Soluciones S.L. trading as
Video Digital. Video Digital is a Barcelona based distributor of Pro AV
equipment in Spain and Portugal with a strong position in the broadcast
market, working with a range of leading manufacturers, including Blackmagic
Design.
In November 2023, the Group acquired prodyTel Distribution Gmbh ("prodyTel"),
a distributor of professional audio and technical solutions products based
near Nuremberg, Germany. Based in Stein, on the outskirts of Nuremberg,
prodyTel was founded in 2003, originally as a manufacturer of audio codecs
before switching its focus to distribution in 2014. From there, it has
developed a strong vendor portfolio, including premium brands Biamp, Aver and
Jabra, with a particular focus on the corporate and education market.
These acquisitions bring new technologies, customers and vendor relationships,
further delivering the Group's strategy to grow margins and earnings, both
organically and through selective acquisitions of strong complementary
businesses. They also expand our reach in the strategically important North
American market.
The integration of these businesses is progressing well, and we have
thoroughly enjoyed welcoming over 250 new team members to the Group.
The oversubscribed equity raise in June 2023 was fully deployed in the year to
finance these acquisitions and we are highly appreciative of existing
shareholders' and new investors' support.
We anticipate a continuation of our expansion strategy through both organic
growth and acquisition of complementary businesses and believe that our
balance sheet and bank facilities position us well to achieve this. The
acquisition pipeline remains healthy, and the management team continues to
review attractive opportunities.
Dividend
The Board understands the importance of dividends for many of our investors
and is pleased to recommend a final dividend of 11.0p per share which, if
approved, will be paid on 14 June 2024 to all shareholders on the register as
on 10 May 2024. The last day to elect for dividend reinvestment ("DRIP") is 23
May 2024. With the interim dividend of 5.5p per share, this represents a total
dividend for the year of 16.5p per share. The combined value of the interim
and proposed final dividends 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.
Corporate Governance and sustainability
Membership of the Board remained stable throughout 2023, and we continue to
follow a hybrid approach to our meetings, mixing in person with unified
communications solutions for our meetings. The Board met ten times during the
year and received regular updates from the Executive Leadership Team ("ELT").
In line with prior years, the Board completed a self-evaluation exercise
during 2023, 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.
The Nominations Committee has reviewed the skills and experience of Board
members individually and collectively. There were no major issues or concerns
raised about the effectiveness of the Board or its individual members and
concluded that the size and composition of the Board remain appropriate at
this stage of the Group's development.
In line with the Board's succession planning, and the evolving governance
environment, it was determined to add a further Non-executive Director with
relevant finance and governance experience. Following a search and interview
process, we are delighted to welcome Alison Seekings to the Board. Alison
brings a wealth of accounting, governance and technology company experience to
the Group and she is expected to become the Chair of the Audit Committee after
completing her onboarding.
The Group has a broad international footprint with the majority of its revenue
coming from outside the UK and Ireland and the Board welcomes the cultural
diversity that this brings. The Midwich culture is an open and welcoming one
and we have been recognised for this. For example, in 2023 we won 'Audio
Visual Distributor of the Year' at the Technology Reseller Awards 23 and our
Tech Xpo event won Best Partner Event (Distributor) in the CRN Sales and
Marketing Awards 2023. The Board understands the importance of diversity of
gender and ethnicity and is committed to ensuring that diversity will be a key
consideration in the appointment of future Directors and senior leaders.
The Group is committed to doing the right thing for the wider society;
community engagement is embedded in our DNA. Our teams are passionate about
making a difference and once again stepped up their time commitment for our
nominated good causes. I'm delighted to report our Gift of AV programme raised
a record amount for charity in the year.
This year we further enhanced our work on formalising our approach to
environmental matters by engaging a third party to support us in adopting the
Mandatory Climate-related Financial Disclosures incorporating the Task Force
on Climate-related Financial Disclosure ("TCFD") aligned reporting. This
includes changes to our environment-related governance, risk management,
scenario analysis, carbon reporting and net zero target setting.
The Group continues to apply the QCA code as its governance framework and has
assessed compliance with the newly revised QCA code (November 2023) which
applies from our 2024 annual report. The Board welcomes the enhanced QCA code
requirements and has chosen to adopt the majority of additional code
requirements early in this year's annual report. We continue to engage with
our largest shareholders through regular face to face meetings and inviting
them to join us for office/showroom tours and at our AV trade shows.
The Board recognises its duty to have regard to broader stakeholder interests
and, in addition to developing our sustainability strategy this year, our
teams shared industry-leading ideas with a wide audience through our Midwich
Live social media broadcasts.
People
The success of any company is down to the quality of its leadership and its
people, and this is even more important in a challenging market. I believe
that we have the best teams in the industry, and they have once again
delivered exceptional service to vendors, customers and end users alike. The
Board has a strong belief in rewarding success and ensuring that engagement
levels are high. Share ownership by our people is a core part of our
engagement strategy and I believe that our employee share plans continue to
incentivise exceptional business performance.
In 2023, I was also delighted to see how our businesses responded to the
market conditions. Our teams went above and beyond to support our existing
customers and vendors, onboard new brand relationships and welcome the seven
new businesses acquired during the year. Our culture and values are at the
heart of how we do everything in the Group, and we have continued to invest
resources in maintaining the spirit of Midwich. This includes tangible
changes, such as a step up in staff benefits and further free share awards, to
a focus on community involvement and wellbeing, and expanding opportunities to
work with colleagues in other businesses. Our teams continue to address every
challenge with commitment and determination, and it is this positive approach
that is the main driver of our market share gains and continued profit growth.
The Board has regular interaction with the Executive Directors together with
the Managing Directors of our key operating units. This year we have also
spent time with the new Group Management Team ("GMT") which is an expanded
leadership group responsible for both the delivery of the long-term strategic
objectives of the Group and the successful execution of the operating plans.
This team is working well and shows the strength and depth of the Group's
leadership to support future growth.
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 a challenging year.
Andrew Herbert
Non-executive Chair
Managing Director's Review
Overview
I am delighted to report that 2023 was another record year for Midwich. After
two years of exceptional growth, the market was more challenging in 2023, with
macroeconomic factors impacting demand for our more mainstream products.
Despite challenging market conditions, our team responded brilliantly,
delivering record revenue, our biggest ever annual improvement in gross margin
to 16.8% (our highest ever gross margin) and, as a result, we reached £50m of
adjusted profit before tax for the first time.
The Group continued to deliver on its strategy of growth and increasing
specialisation. In particular, sales of technical products reached 59% of
Group revenue in 2023, we entered the Canadian Pro AV market, total revenue
reached £1.3bn, and our team has expanded to over 1,800 people.
We have built a globally diversified, agile and responsive business that can
adapt quickly to changes in market conditions. Our values-based culture is
focused on the needs of our vendors and customers and our partnership approach
to both helped us to increase our market shares in our key markets during the
year.
Business performance
Group revenue increased by 6.8%^ to £1.3bn in 2023, with gross margins
reaching 16.8% (2022: 15.3%). Both were records for the Group and reflect our
strong performances in each of our biggest regions. The exceptional increase
in gross margin reflects the favourable mix benefit from our strategic focus
on value-added technical products.
We take a measured approach to investment, investing in our teams and
operational capabilities whilst targeting improvements in operating profit
margins. In 2023, adjusted operating profit increased by 16.8%^ to £59.6m,
which represents an adjusted operating profit margin of 4.6%, up from 4.2% in
the prior year.
Disciplined working capital management contributed to strong operating cash
generation, with operating cash at 114% of adjusted EBITDA ahead of our
long-term average of c.80%. This helped mitigate some of the headwinds from
higher interest rates and contributed to a record adjusted profit before tax
of £50.0m (2022: £45.2m).
We ended the year with leverage (adjusted net debt to adjusted EBITDA) of
c.1.1 times which was better than market expectations and the prior year
(2022: 1.6 times). This, combined with our long-term bank facilities, provides
significant capacity for the Group to continue to pursue both organic and
inorganic opportunities.
Technologies and volatility in end user markets
Third party data (Futuresource Consulting) for 2023 shows double digit
declines in a number of the mainstream Pro AV product categories and an
overall mid-single digit decline in the Pro AV distribution market.
The Group's overall growth of 6.8%^, with organic growth of 0.8%, demonstrates
further market share gains for Midwich in 2023. The Group adapted to the
evolving market conditions, working closely with our customers and vendors to
meet the changes in market demand.
In broad terms, we categorise our products into mainstream and specialist
technical categories. Mainstream products cover displays and projectors, which
comprised an aggregate of 35% of Group revenue in 2023 (2022: 40%). 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 59% of total sales
compared with 54% in 2022. A core part of the Group's long-term strategic
focus is to become more specialist.
Displays and projection are at the core of the majority of Pro AV projects,
and we are the leading distributor of high-end displays and projection in many
of our businesses. Despite a challenging market, which third party data
indicates declined at double digit rates in 2023, our display and projection
business reduced by only 6.6% in the year, but is still c.15% larger than it
was pre-pandemic. LED solutions, which continue to gain share from displays
and projection in the larger format categories, continued to experience very
strong growth, up 23% in the year, and we believe we have established a strong
market position in this category. These products require a higher level of
expertise to distribute effectively, and hence tend to carry a higher overall
gross margin.
Growing our technical product categories has been a particular focus of the
business for many years, and in 2023 revenues in this category increased by
18%. This was driven by increased demand from entertainment and live events
together with improved product availability. There was strong growth in both
professional audio and lighting, particularly in EMEA and North America.
Technical video, which includes image processing, digital signage,
connectivity and control, is now the Group's largest product category and saw
double digit growth in 2023. This reflects increasing complexity of Pro AV
solutions in many end user environments.
Investing in the future
The global Pro AV market is in excess of $300bn (AVIXA), of which our
assessment of the Group's Target Addressable Market ("TAM") is c$45bn. Whilst
I believe that we are the leading global specialist Pro AV distributor, our
£1.3bn revenue in 2023 represents less than 1% of the global market and 3-4%
of our TAM. The opportunity for the future remains enormous and we will
continue to target growth both organically and through acquisition.
In the last two years we have invested further in our M&A capabilities,
which allowed us to complete seven acquisitions in 2023. This was a
significant step-up from our post-IPO average of two to three deals per annum.
We acquire businesses to enter new geographies or add to our product set and
technical capabilities. The 2023 acquisitions brought entry into the Canadian
Pro AV market and added specialist capabilities in pro audio, home cinema,
technical video, broadcast and software.
Organically, we also continue to invest in our business. Over the last year we
added to our commercial teams, our M&A and integration capabilities and
further strengthened our finance and IT groups.
In a relatively tough market, we raised £51m of equity funding in June 2023.
This over-subscribed fundraise was used in the year for our acquisition
programme and I wish to thank both our long-term and new shareholders for
their support.
Our values and culture
Midwich is our people, their skills, experience, relationships and attitude.
We promote trust, honesty, hard work, integrity, humility and creativity, and
value everyone's ideas and contribution. Team engagement is of critical
importance, and we saw improvements in our engagement survey in 2023. Our
approach is to reward success, and we continue to adapt to the changing work
environment. In the last twelve months, we have evolved our approach to hybrid
working, stepped up employee benefits and increased our engagement with our
nominated charities, our communities and our environment.
The 2023 acquisitions also added over 250 people to the Midwich family and we
very much look forward to working with our new colleagues to accelerate the
growth in their businesses.
Outlook
The Group has a proven capability to grow ahead of its markets both
organically and through acquisition. I believe that we have further enhanced
the strength of our relationships with our customers and vendors alike over
the last twelve months. However, our team is not complacent; we recognise that
we operate in a competitive market where both vendors and customers have a
choice of which partners to work with. Of our top 40 vendors in 2023, we were
either exclusive or the number one distributor for the vast majority. Our
focus is to ensure that we provide the best service possible and continue to
develop our offering.
We also have a strong pipeline of acquisition opportunities which will enable
us to continue our strategy of entering new geographical markets and expanding
our range of products.
Looking to the longer-term, with the global AV market expected by AVIXA to
grow at 5.6% per annum over the five years to 2028, I believe our Group is
very well positioned for the future.
The challenging market conditions seen last year have continued into 2024 and
we do not expect a near-term improvement in mainstream product growth whilst
demand for technical products has remained strong in the first few months of
2024.
^at constant currency
Financial Review
2023 was a strong year for the Group with record revenue, gross margin and
adjusted profit before tax. Midwich further consolidated its position in the
market by completing seven acquisitions and entering the Canadian market.
Group revenue increased to £1.3bn (2022: £1.2bn). Challenging macroeconomic
conditions impacted demand for our mainstream products, but the Group's focus
on technical product categories, which represents 59% of the group's revenue,
resulted in a record increase in gross margin to 16.8% (2022: 15.3%).
Adjusted operating profit of £59.6m (2022: £51.1m) was a Group record and up
by 16.8% at constant currency (2022: 46%). Statutory operating profit (before
adjustments) was £41.6m (2022: £35.1m).
There was strong operating cash generation, with operating cash conversion at
114% (2022: 54%). Our adjusted net debt to adjusted EBITDA ratio at c.1.1x
(2022: 1.6x) positions us well for future acquisitions and our revolving
credit facility gives us funding capacity to support our growth strategy.
Statutory financial highlights
Year to 31 Year to 31 Total growth
December 2023 December 2022
Revenue £1,289.1m £1,204.1m 7%
Gross profit £216.5m £183.7m 18%
Operating profit £41.6m £35.1m 19%
Profit before tax £36.5m £24.9m 47%
Profit after tax £28.9m £16.9m 72%
Basic EPS - pence 27.98p 17.32p 62%
Adjusted financial highlights(1)
Year to 31 December 2023 Year to 31 Total growth Growth at
December 2022 constant
currency
Revenue £1,289.1m £1,204.1m 7% 7%
Gross profit £216.5m £183.7m 18% 18%
Gross profit margin % 16.8% 15.3%
Adjusted operating profit £59.6m £51.1m 17% 17%
Adjusted operating profit margin % 4.6% 4.2%
Adjusted profit before tax £50.0m £45.2m 11% 11%
Adjusted profit after tax £38.5m £34.1m 13%
Adjusted EPS - pence 37.46p 36.08p 4%
1 Definitions of the alternative performance measures are set out on page
28.
Currency movements increased Group revenue and reduced adjusted operating
profit in the year by 0.3% and 0.1% respectively. The currency impact in the
prior year increased revenue by 2.1% and adjusted operating profit by 4.1%.
Organic growth in revenue was 0.8% (2022: 20.7%). Adjusted EPS growth in 2023
was diluted by the equity fundraise, for acquisition purposes, in June 2023.
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
December 2023 December 2022 growth constant growth
£m £m % currency %
%
Revenue
UK & Ireland 474.7 492.2 (3.6%) (3.6%) (8.1%)
EMEA 589.3 535.0 10.2% 8.9% 8.0%
Asia Pacific 47.6 53.8 (11.4%) (7.3%) (7.3%)
North America 177.5 123.1 44.2% 45.5% 8.1%
Total Global 1,289.1 1,204.1 7.1% 6.8% 0.8%
Gross profit margin
UK & Ireland 18.1% 16.1% 2.0ppts
EMEA 15.7% 14.6% 1.1ppts
Asia Pacific 16.8% 17.3% (0.5)ppts
North America 17.2% 14.0% 3.2ppts
Total Global 16.8% 15.3% 1.5ppts
Adjusted operating profit(1)
UK & Ireland 27.1 26.5 2.3% 2.1%
EMEA 28.1 22.7 23.8% 23.9%
Asia Pacific (0.3) 1.4 (118%) (119%)
North America 9.5 6.4 46.4% 48.6%
Group costs (4.8) (5.9)
Total Global 59.6 51.1 16.6% 16.8%
Adjusted finance costs (9.6) (5.9) (61.0%) (60.5%)
Adjusted profit before tax1 50.0 45.2 10.7% 11.1%
1 Definitions of the alternative performance measures are set out on
page 28.
The financial performance of each segment during the year was:
UK & IRELAND
After two years of unprecedented growth, the UK and Ireland segment revenue
reduced by 3.6% (2022: +72.1%) to £474.7m (2022: £492.2m). Technical product
categories remained strong whilst demand for mainstream products was subdued
due to challenging market conditions. The gross profit margin increased
significantly to 18.1% (2022: 16.1%), reflecting a focus on higher margin
products. This resulted in an adjusted operating profit of £27.1m (2022:
£26.5m), an increase of 2.3% (2022: 108.3%).
EMEA
The EMEA segment revenue grew 10.2% (2022: 17.5%) to £589.3m (2022:
£535.0m). Gross profit increased to £92.3m (2022: £78.0m) at a gross profit
margin of 15.7% (2022: 14.6%), with the increase in margin attributable to a
favourable change in product mix. The region produced an adjusted operating
profit of £28.1m (2022: £22.7m), an increase of 23.8% (2022: 6.4%). In
constant currency, revenue grew 8.9% (2022: 16.8%) and adjusted operating
profit increased 23.9% (2022: 3.2%).
ASIA PACIFIC
The Asia Pacific segment, which is mainly Australia, continues to see a high
level of competition in a subdued market. Revenue reduced by 11.4% to £47.6m
(2022: +18.5% to £53.8m), generating gross profit of £8.0m (2022: £9.3m) at
a gross profit margin of 16.8% (2022: 17.3%). Adjusted operating losses were
£0.3m (2022: £1.4m profit). On a constant currency basis, revenue reduced by
7.3% (2022: 14.3%).
NORTH AMERICA
The entry into Canada in June 2023 supported further strong growth in the
North America region of 44.2% (2022: 78.2%) to £177.5m (2022: £123.1m).
Gross margins were 17.2% (2022: 14.0%) with the increase attributable to the
positive impact from the SFM acquisition whilst adjusted operating profit grew
by 46.4% (2022: 41.3%) to £9.5m (2022: £6.4m). On a constant currency basis,
revenue increased by 45.5% (2022: 60.0%) and adjusted operating profit grew
48.6% (2022: 27.1%).
Group costs
Group costs for the year were £4.8m (2022: £5.9m). Group costs include
central support for sales, finance, compliance, human resources, information
technology and executive management.
Exceptional administration costs relate to acquisition-related expenses. These
increased to £1.5m (2022: £0.4m) due to the step up in M&A activity in
the year with seven transactions closed in 2023 (2022: two).
Adjusted finance costs
Adjusted finance costs at £9.6m (2022: £5.9m) mainly reflect the interest
costs on borrowings for historical acquisition investments and working
capital. Finance costs increased during the year mainly because of interest
rate increases during the period. Reported net finance costs of £5.1m (2022:
£10.1m) include interest costs on Group borrowings, the change in valuation
of both deferred consideration and put and call options and the revaluation of
loans and financial instruments.
Profit before tax
The Group reported a profit before taxation of £36.5m (2022: £24.9m) and
adjusted profit before tax of £50.0m (2022: £45.2m); the increase using
constant currency rates was 11.1% (2022: 37.5%).
Tax
The adjusted effective tax rate was 23.1% in 2023 (2022: 24.5%), which
reflects the mix of tax rates in the geographies where the Group operates.
Earnings per share
Following a successful equity placing in June 2023, the average number of
shares in issue increased to 95.9m (2022: 88.3m). At 31 December 2023, there
were 103.3m shares in issue.
Basic earnings per share is calculated on the total profit of the Group
attributable to shareholders. Basic EPS for the year was 27.98p (2022:
17.32p). Adjusted EPS increased by 4% (2022: 41%) to 37.46p (2022: 36.08p).
This was below the increase in adjusted profit after tax due to the equity
issued in 2023.
Dividend
The Board has recommended a final dividend of 11.0p per share, which, together
with the interim dividend of 5.5p per share, gives a total dividend for 2023
of 16.5p per share (2022: 15.0p). If approved by shareholders at the AGM, the
final dividend will be paid on 14 June 2024 to shareholders on the register on
10 May 2024. The last day to elect for dividend reinvestment ("DRIP") is 23
May 2024.
Cash flow
Year to Year to
31 December 31 December
2023 2022
£m £m
Adjusted operating profit 59.6 51.1
Add back depreciation and unadjusted amortisation 9.9 7.4
Adjusted EBITDA 69.5 58.5
Decrease/(Increase) in stocks 10.5 (15.7)
Decrease/(Increase) in debtors 8.2 (70.7)
(Decrease)/Increase in creditors1 (8.7) 59.6
Adjusted cash flow from operations 79.6 31.7
Adjusted EBITDA cash conversion 114% 54%
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 114% (2022: 54%).
Strong working capital management, together with more measured revenue growth
in 2023, resulted in cash conversion ahead of the long-term average for the
Group. Our expectation of long-term cash conversion remains between 70% and
80%.
Gross capital spend on tangible assets was £5.6m (2022: £5.3m) and included
investment in facilities together with rental asset purchases in the UK and
Ireland. An investment of £10.4m (2022: £5.8m) in intangible fixed assets
included £10.1m (2022: £5.3m) in relation to the Group's new ERP solution.
Net debt
Reported net debt reduced from £119.4m at 31 December 2022 to £106.2m at 31
December 2023. The Group's reported net debt continues to be impacted by the
adoption of IFRS 16 in 2019, which results in approximately £23.6m of lease
liabilities (2022: £23.4m) being added to net debt. As noted in the prior
year, the Group's focus is net debt excluding leases ("adjusted net debt").
The impact of leases on net debt is excluded from the Group's main banking
covenants.
Adjusted net debt at 31 December 2023 was £82.6m (2022: £96.0m). This
reduction can be attributed to the June 2023 equity placing (£50.0m net of
fees), less M&A and deferred consideration payments in the year (£52.0m,
2022: £26.5m) and supported by strong operating cash generation.
In December 2023, the Group exercised its option to extend its £175m
revolving credit facility by twelve months to mid-2028. This facility is
supported by six banks and has an adjusted net debt to adjusted EBITDA
covenant ratio of 3x and an adjusted interest cover covenant of 4x adjusted
EBITDA. The EBITDA covenant is calculated on a historical twelve month basis
and includes the full benefit of the prior year's earnings of any businesses
acquired.
Most of the Group's other borrowing facilities are to provide working capital
financing. Whilst the use of such facilities is typically linked to trading
activity in the borrowing company, these facilities provide liquidity,
flexibility and headroom to support the Group's organic growth. As at 31
December 2023, the Group has access to total facilities of over £300m (2022:
over £200m).
The Group has a strong balance sheet with a closing adjusted net debt/adjusted
EBITDA ratio of 1.1x (2022: 1.6x). This, combined with the Group's underlying
cash generation, equips it well to fund short-term movements in working
capital as well as to continue to pursue accretive acquisitions. The Group
targets a long-term adjusted net debt to adjusted EBITDA (including pro forma
acquisition earnings) range of 1.5x-2.0x, although we may go above this in the
short term following acquisition investments, before returning to our target
range through cash generation.
Goodwill and intangible assets
The Group's goodwill and intangible assets of £168.5m (2022: £111.8m) arise
from the various acquisitions undertaken. Each year, the Board reviews
goodwill for impairment and, as at 31 December 2023, 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 the impact of acquisitions
partially offset by a reduction in organic working capital. As at 31 December
2023, the Group had working capital (trade and other receivables plus
inventories less trade and other payables) of £154.6m (2022: £150.7m). This
represented 12.0% of current year revenue (2022: 12.5%). The Group uses a
range of different techniques to write down inventory to the lower of cost and
net realisable value, including a formulaic methodology based on the age of
inventory. The aged inventory methodology writes down inventory by a specific
percentage based on time elapsed from the purchase date. There was no change
in this methodology in the year. As at 31 December 2023, the Group's inventory
provision was £18.5m (10.0% of cost) (2022: £18.8m, 10.5% of cost).
Statutory measures
The Group reports alternative performance measures, which are defined on page
28. These measures reflect the key metrics used in the day-to-day management
of the Group.
The alternative profit related performance measures exclude acquisition
related costs, impairments, certain share-based payments and a number of
non-cash related finance charges related to the re-valuation of financial
instruments. Users should exercise caution in relying on alternative
performance measures which should be seen as supplementary information in
addition to the statutory disclosures.
Adjusted return on capital employed
Adjusted return on capital employed is an alternative performance measure.
The director's believe that this is an important measure of the investment
returns of the Group
Calculation 2023 2022
£'000 £'000
Total equity 196,144 134,134
Total debt 106,191 119,424
Accumulated amortisation of acquired intangibles 52,969 42,600
Right of use assets (21,051) (21,559)
Acquisition related liabilities 38,080 33,407
Closing capital employed 372,333 308,006
Average capital employed 340,169 266,222
Adjusted operating profit 59,593 51,108
Adjusted return on capital employed 17.5% 19.2%
The Group continues to deliver a strong return on capital.
The Group completed an equity fundraise and seven acquisitions in 2023 (2022:
Two) which significantly increased the capital employed. If in-year
acquisitions were included on a proforma basis, from 1st January, the adjusted
return on capital employed would have been c19% (2022: c19%).
Adjustments to reported results
2023 2022
£'000 £'000
Operating profit 41,583 35,053
Acquisition costs 1,489 435
Share based payments 4,738 6,031
Employer taxes on share based payments 603 176
Amortisation of brands, customer and supplier relationships 11,180 9,413
Adjusted operating profit 59,593 51,108
Net finance costs (5,060) (10,137)
Derivative fair value movements and foreign exchange gains and losses on 659 (1,194)
borrowings for acquisitions
Finance costs - deferred and contingent consideration (4,150) 508
Finance costs - put option (1,063) 4,866
Adjusted net finance costs (9,614) (5,957)
Profit before tax 36,547 24,916
Acquisition costs 1,489 435
Share based payments 4,738 6,031
Employer taxes on share based payments 603 176
Amortisation of brands, customer and supplier relationships 11,180 9,413
Derivative fair value movements and foreign exchange gains and losses on 659 (1,194)
borrowings for acquisitions
Finance costs - deferred and contingent consideration (4,150) 508
Finance costs - put option (1,063) 4,866
Adjusted profit before tax 50,003 45,151
Profit after tax 28,926 16,855
Acquisition costs 1,489 435
Share based payments 4,738 6,031
Employer taxes on share based payments 603 176
Amortisation of brands, customer and supplier relationships 11,180 9,413
Derivative fair value movements and foreign exchange gains and losses on 659 (1,194)
borrowings for acquisitions
Finance costs - deferred and contingent consideration (4,150) 508
Finance costs - put option (1,063) 4,866
Tax impact (3,930) (3,018)
Adjusted profit after tax 38,452 34,072
Profit after tax 28,926 16,855
Non-controlling interest (2,109) (1,562)
Profit after tax attributable to owners of the Parent Company 26,817 15,293
Adjusted profit after tax 38,452 34,072
Non-controlling interest (2,109) (1,562)
Adjustments to profit after tax due to NCI (439) (650)
Adjusted profit after tax attributable to owners of the Parent Company 35,904 31,860
Number of shares for EPS 95,852,306 88,299,098
Reported EPS - pence 27.98 17.32
Adjusted EPS - pence 37.46 36.08
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 to the
consolidated financial statements.
Unaudited consolidated income statement for the year ended 31 December 2023
Notes 2023 2022
£'000 £'000
Revenue 1,289,144 1,204,049
Cost of sales (1,072,675) (1,020,335)
Gross profit 216,469 183,714
Distribution costs (130,873) (109,042)
Administrative expenses (51,029) (45,592)
Other operating income 7,016 5,973
Operating profit 41,583 35,053
Comprising
Adjusted operating profit 59,593 51,108
Costs of acquisitions 3 (1,489) (435)
Share based payments (4,738) (6,031)
Employer taxes on share based payments (603) (176)
Amortisation of brands, customer relationships, and supplier relationships (11,180) (9,413)
41,583 35,053
Share of profit after tax from associate 24 -
Finance income 293 95
Finance costs 4 (5,353) (10,232)
Profit before taxation 36,547 24,916
Taxation (7,621) (8,061)
Profit after taxation 28,926 16,855
Profit for the financial year attributable to:
The Company's equity shareholders 26,817 15,293
Non-controlling interest 2,109 1,562
28,926 16,855
Basic earnings per share 5 27.98p 17.32p
Diluted earnings per share 5 27.06p 16.74p
The financial statements are also comprised of the notes on pages 20 to 44.
Unaudited consolidated statement of comprehensive income for the year ended 31
December 2023
2023 2022
£'000 £'000
Profit for the financial year 28,926 16,855
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains and (losses) on retirement benefit obligations (172) 588
Items that will be reclassified subsequently to profit or loss:
Foreign exchange gains and (losses) on consolidation (5,432) 8,282
Other comprehensive income for the financial year, net of tax (5,604) 8,870
Total comprehensive income for the year 23,322 25,725
Attributable to:
Owners of the Parent Company 21,681 23,419
Non-controlling interests 1,641 2,306
23,322 25,725
The financial statements are also comprised of the notes on pages 20 to 44.
Unaudited consolidated statement of financial position as at 31 December 2023
Notes 2023 2022
Assets £'000 £'000
Non-current assets
Investments 299 -
Goodwill 51,216 35,765
Intangible assets 117,009 76,002
Right of use assets 21,051 21,559
Property, plant and equipment 16,640 14,961
Deferred tax assets 617 2,567
206,832 150,854
Current assets
Inventories 165,588 159,823
Trade and other receivables 223,826 218,612
Derivative financial instruments 2,084 4,630
Cash and cash equivalents 56,135 25,855
447,633 408,920
Current liabilities
Trade and other payables (230,915) (225,899)
Derivative financial instruments (26) (1,483)
Put option liabilities over non-controlling interests (21,958) -
Deferred and contingent considerations (11,694) (9,275)
Borrowings and financial liabilities 6 (49,146) (44,955)
Current tax (179) (3,541)
(313,918) (285,153)
Net current assets 133,715 123,767
Total assets less current liabilities 340,547 274,621
Non-current liabilities
Trade and other payables (3,915) (1,872)
Put option liabilities over non-controlling interests (743) (15,975)
Deferred and contingent considerations (3,685) (8,157)
Borrowings and financial liabilities 6 (113,180) (100,324)
Deferred tax liabilities (18,920) (10,576)
Other provisions (3,960) (3,583)
(144,403) (140,487)
Net assets 196,144 134,134
Equity
Share capital 8 1,033 889
Share premium 116,959 67,047
Share based payment reserve 10,843 12,025
Investment in own shares (616) (5)
Retained earnings 63,093 46,023
Translation reserve 392 5,356
Put option reserve (18,649) (10,799)
Capital redemption reserve 50 50
Other reserve 150 150
Equity attributable to owners of the Parent Company 173,255 120,736
Non-controlling interests 22,889 13,398
Total equity 196,144 134,134
The financial statements are also comprised of the notes on pages 20 to 44.
The financial statements were approved by the Board of Directors and
authorised for issue on 18 March 2024 and were signed on its behalf by:
Mr S B Fenby
Director
Company registration number: 08793266
Unaudited consolidated statement of changes in equity for the year ended 31
December 2023
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 2023 889 67,047 (5) 46,023 6,782 120,736 13,398 134,134
Profit for the year - - - 26,817 - 26,817 2,109 28,926
Other comprehensive income - - - (172) (4,964) (5,136) (468) (5,604)
Total comprehensive income for the year - - - 26,645 (4,964) 21,681 1,641 23,322
Shares issued (note 8) 144 49,912 (23) - - 50,033 - 50,033
Shares purchases (note 8) - - (600) - - (600) - (600)
Share based payments - - - - 4,661 4,661 - 4,661
Deferred tax on share based payments - - - - (434) (434) - (434)
Share options exercised - - 12 5,407 (5,409) 10 - 10
Acquisition of subsidiaries (note 12) - - - - (7,850) (7,850) 7,850 -
Dividends paid (note 13) - - - (14,982) - (14,982) - (14,982)
Balance at 31 December 2023 1,033 116,959 (616) 63,093 (7,214) 173,255 22,889 196,144
For the year ended 31 December 2022
Share Share premium Investment in own shares Retained Equity attributable to owners of the Parent Non-controlling interests Total
capital
earnings
Other reserves
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(note 8) (Note 9)
Balance at 1 January 2022 887 67,047 (5) 39,078 (1,887) 105,120 9,276 114,396
Profit for the year - - - 15,293 - 15,293 1,562 16,855
Other comprehensive income - - - 588 7,538 8,126 744 8,870
Total comprehensive income for the year - - - 15,881 7,538 23,419 2,306 25,725
Shares issued (note 8) 2 - (2) - - - - -
Share based payments - - - - 6,006 6,006 - 6,006
Deferred tax on share based payments - - - - (1,093) (1,093) - (1,093)
Share options exercised - - 2 766 (767) 1 - 1
Acquisition of subsidiaries (note 12) - - - - (6,933) (6,933) 6,933 -
Dividends paid (note 13) - - - (10,901) - (10,901) - (10,901)
Acquisition of non-controlling interest (note 11) - - - 1,199 3,918 5,117 (5,117) -
Balance at 31 December 2022 889 67,047 (5) 46,023 6,782 120,736 13,398 134,134
The financial statements are also comprised of the notes on pages 20 to 44.
Unaudited consolidated statement of cash flows for the year ended 31 December
2023
2023 2022
£'000 £'000
Cash flows from operating activities
Profit before tax 36,547 24,916
Depreciation 9,286 7,039
Amortisation 11,818 9,807
Loss on disposal of assets 763 141
Share based payments 4,661 6,006
Foreign exchange (gains)/losses (2,467) 3,827
Share of profit after tax from associate (24) -
Finance income (293) (95)
Finance costs 5,353 10,232
Profit from operations before changes in working capital 65,644 61,873
(Increase)/decrease in inventories 10,524 (15,670)
(Increase)/decrease in trade and other receivables 9,637 (70,654)
Increase/(decrease) in trade and other payables (9,429) 59,779
Cash inflow from operations 76,376 35,328
Income tax paid (12,586) (9,142)
Net cash inflow from operating activities 63,790 26,186
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired (42,359) (22,372)
Deferred consideration paid (9,300) (198)
Investment in associate (275) -
Purchase of intangible assets (10,364) (5,760)
Purchase of plant and equipment (5,605) (5,328)
Proceeds on disposal of plant and equipment 198 140
Interest received 293 95
Net cash used in investing activities (67,412) (33,423)
Net cash flows from financing activities
Proceeds on issue of shares 51,250 -
Costs associated with shares issued (1,217) -
Purchase of own shares (600) -
Proceeds on exercise of share options 10 1
Acquisition of non-controlling interest (61) (3,974)
Dividends paid (14,982) (10,901)
Invoice financing inflows/(outflows) (3,009) 14,282
Proceeds from borrowings 39,228 31,304
Repayment of loans (19,690) (4,947)
Interest paid (9,360) (5,217)
Interest on leases (651) (602)
Capital element of lease payments (5,235) (4,126)
Net cash inflow/(outflow) from financing activities 35,683 15,820
Net increase/(decrease) in cash and cash equivalents 32,061 8,583
Cash and cash equivalents at beginning of financial year 20,938 11,639
Effects of exchange rate changes (946) 716
Cash and cash equivalents at end of financial year 52,053 20,938
Comprising:
Cash at bank 56,135 25,855
Bank overdrafts (4,082) (4,917)
52,053 20,938
The financial statements are also comprised of the notes on pages 20 to 44.
Notes to the unaudited consolidated financial statements
1. Accounting policies
General information and nature of operations
Midwich Group plc ("the Company") is a public limited company incorporated in
England and Wales and listed on the London Stock Exchange's Alternative
Investment Market (AIM). The principal activity of Midwich Group plc and its
subsidiary companies ("the Group") is the distribution of Audio Visual
Solutions to trade customers.
Basis of preparation
The consolidated financial statements of Midwich Group plc have been prepared
in accordance with UK adopted International Accounting Standards ("IAS") in
conformity with the requirements of the Companies Act 2006.
The financial statements have been prepared under the historical cost
convention as modified for financial instruments at fair value and in
accordance with applicable accounting standards.
The directors have adopted the going concern basis in preparing the financial
information. In assessing whether the going concern assumption is appropriate,
the directors have taken into account all relevant available information about
the foreseeable future.
Basis of consolidation
The Consolidated Financial Statements incorporate the results of Midwich Group
plc and entities controlled by the Company (its subsidiaries). A subsidiary is
a company controlled directly by the Group. Control is achieved where the
Group has the power over the investee, rights to variable returns and the
ability to use the power to affect the investee's returns. Income and expenses
of subsidiaries acquired during the year are included in the consolidated
income statement from the effective date of control. When necessary,
adjustments are made to the financial statements of subsidiaries to bring
their accounting policies into line with those used by the Parent Company.
The Group applies the acquisition method of accounting to account for business
combinations. The consideration transferred for the acquisition of a
subsidiary is the fair value of the assets transferred, the liabilities
incurred, and the equity interests issued by the Group. Identifiable assets
acquired, and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition
date. The Group recognises identifiable assets acquired and liabilities
assumed in a business combination regardless of whether they have been
previously recognised in the acquiree's financial statements prior to the
acquisition. Goodwill is stated after separate recognition of identifiable
intangible assets. It is calculated as the excess of the sum of a) fair value
of consideration transferred, b) the recognised amount of any non-controlling
interest in the acquiree and c) acquisition-date fair value of any existing
equity interest in the acquiree, over the acquisition-date fair values of
identifiable net assets. If the fair values of identifiable net assets exceed
the sum calculated above, the excess amount (i.e. gain on a bargain purchase)
is recognised in profit or loss immediately.
Non-controlling interests in the net assets of consolidated subsidiaries are
identified separately within the Group's equity. Non-controlling interests
consist of the amount of those interests at the date of the original business
combination and the non-controlling shareholders' share of changes in equity
since the date of the combination. Non-controlling interests are measured
initially at fair value.
Acquisition-related costs are expensed as incurred and all intra-group
transactions, balances, income and expenses are eliminated in full on
consolidation.
Acquisition of interests from non-controlling shareholders
Acquisitions of non-controlling interests in subsidiaries are accounted for as
transactions between shareholders. There is no remeasurement to fair value of
net assets acquired that were previously attributable to non-controlling
shareholders.
Going concern
In considering the going concern basis for preparing the financial statements,
the Board considers the Group's objectives and strategy, its principal risks
and uncertainties in achieving its goals and objectives which are set out in
the Strategic Report. The Board has undertaken a review of going concern under
three scenarios: 1) our base plan, 2) a downside scenario and 3) a reverse
stress test for the period to 31 December 2025. The sensitivity and reverse
stress tests are based on a model that allows the Group to assess its
liquidity, solvency and compliance with banking covenants based on inputs for
future trading performance. Varying the inputs into the model allows the Group
to assess the impact of potential adverse trading conditions.
The directors consider the working capital and finance facilities of the
business to be adequate to fund its operations and growth strategy. The Group
has a variety of finance facilities available to it including a revolving
credit facility which expires in 2028 and secured invoice discounting
facilities which require renewal in the forecast period. The directors are
confident that they will be able to renew the secured invoice discounting
facilities given the secured nature of the facility and state of the business.
Notwithstanding, this represents an uncertainty and further models (base plan
and reverse stress test) have been prepared to assess going concern without
the use of on demand facilities. The base case continues to demonstrate the
Group's ability to continue as a going concern. The reverse stress test
demonstrates that the Group can withstand severe adverse trading conditions.
In assessing the ability to withstand severe adverse trading conditions, the
directors have also considered mitigating actions available to them.
There are no material uncertainties that cast significant doubt on the Group's
ability to continue as a going concern and the Group continues to adopt the
going concern basis in preparing consolidated financial statements. The
Group's strategy remains unchanged, and we will continue to focus on
profitable organic growth complemented by targeted acquisitions.
Revenue
Revenue arises from the sale of goods, provision of ancillary services, and
the rental of products.
Revenue from the sale of goods is recognised on despatch when control of the
products is transferred to the customer. All performance obligations are met
on despatch when the customer obtains control to direct the goods within the
sales channel and incurs the risk of obsolescence. This includes revenue
recognised for bill and hold arrangements where the goods are despatched to a
warehouse and held on behalf of the customer.
Ancillary services include support services, managed services, licences,
transport, installations, removals, warranties, and repairs. Where contracts
for ancillary services include multiple performance obligations the
transaction price is allocated to each separate performance obligation within
the contact based on estimated cost-plus margin. Revenues from support
services, managed services, and warranties are recognised over time as the
services are performed. Revenues from all other ancillary services including
licences, transport, installations, removals, and repairs are recognised at a
point in time upon delivery of the service. Revenues from licences comprise
the services to arrange for the provision of the licence.
Revenue from the rental of products via an operating lease is recognised on a
straight-line basis over the lease term. Changes in the price or duration of a
lease that were not part of the original terms and conditions are accounted
for as a lease modification and recognised as a new lease from the effective
date of the modification.
Proceeds from the sale of rental assets are recognised as sales of goods.
Revenue for the sale of rental assets is recognised at the point in time when
the control is transferred, at which point the customer obtains the ability to
direct the goods in the channel and incurs the risk of obsolescence.
Finance income and costs
Interest income and expense is recognised using the effective interest method
which calculates the amortised cost of a financial asset or liability and
allocates the interest income or expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future
cash receipts or payments through the expected life of the financial asset or
liability to the net carrying amount of the financial asset or liability.
Other finance costs include the changes in fair value of derivatives and other
financial instruments measured at fair value through profit or loss.
Goodwill
Goodwill represents the future economic benefits arising from business
combinations which are not individually identified and separately recognised.
Goodwill is carried at cost as established at the date of acquisition of the
business less any accumulated impairment losses.
Intangible assets other than goodwill
Intangible assets acquired separately are measured on initial recognition at
cost. The cost of intangible assets acquired in a business combination is
their fair value as at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and
accumulated impairment losses. The useful lives of other intangible assets are
assessed as finite. Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortisation period
and the amortisation method for an intangible asset with a finite useful life
are reviewed at least at the end of each reporting period. Changes in the
expected useful life or the expected pattern of consumption of future economic
benefits embodied in the asset are accounted for by changing the amortisation
period or method, as appropriate, and are treated as changes in accounting
estimates. The amortisation expense on intangible assets with finite lives is
recognised in profit or loss in administrative expenses.
Gains or losses arising from derecognition of an intangible asset are measured
as the difference between the net disposal proceeds and the carrying amount of
the asset and are recognised in profit or loss when the asset is derecognised.
Amortisation is calculated on a straight-line basis over the estimated useful
life of the asset as follows:
· Patents and licences 3-10 years
· Software 3-15 years
· Brands 5-15 years
· Customer relationships 5-15 years
· Supplier relationships 5-15 years
Right of use assets
Right of use assets are recognised at the commencement date of the lease when
the asset is available for use. Right of use assets are initially measured at
cost including initial direct costs incurred and the initial value of the
lease liability. Right of use assets are subsequently measured at cost less
any accumulated depreciation, impairment losses, and adjustments arising from
lease modifications that are not a termination of the lease.
Depreciation is calculated on a straight-line basis on all right of use assets
as follows:
· Land and buildings Over the period of the lease up to a maximum of 50 years
· Plant and equipment Over the period of the lease up to a maximum of 10 years
· Rental assets Over the period of the lease up to a maximum of 10 years
Modifications to leases that decrease the scope of the lease are treated as a
partial or full termination of a lease. A gain or loss on disposal is
recognised when there is termination of a lease.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less any
depreciation and impairment losses. Cost includes expenditure that is directly
attributable to the acquisition or construction of these items. Subsequent
costs are included in the asset's carrying amount only when it is probable
that future economic benefits associated with the item will flow to the Group
and the costs can be measured reliably. All other costs, including repairs and
maintenance costs, are charged to the income statement in the period in which
they are incurred.
Depreciation is calculated on a straight-line basis on property, plant and
equipment as follows:
· Land Not depreciated
· Freehold buildings 50 years
· Leasehold improvements Over the period of the lease up to a maximum of 50 years
· Rental assets 3-10 years
· Plant and equipment 3-10 years
Depreciation is provided on cost less residual value. The residual value,
depreciation methods and useful lives are reassessed annually. Each asset's
estimated useful life has been assessed for limitations in its physical life
and for possible future variations in those assessments. Estimates of
remaining useful lives are made on a regular basis for all machinery and
equipment, with annual reassessments for major items. Changes in estimates are
accounted for prospectively. The gain or loss arising on disposal or scrapping
of an asset is determined as the difference between the sales proceeds, net of
selling costs, and the carrying amount of the asset and is recognised in the
income statement.
Impairment of non-financial assets including goodwill
For the purposes of impairment testing, goodwill is allocated to each of the
Group's cash-generating units that are expected to benefit from the synergies
of the combination. Each unit to which goodwill is allocated represents the
lowest level within the Group that independent cash flows are monitored. A
cash-generating unit to which goodwill has been allocated is tested for
impairment annually, or more frequently when there is indication that the unit
may be impaired.
At each reporting date, the Group reviews the carrying amounts of non-current
assets excluding goodwill to determine whether there is any indication that
they have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of any
impairment loss. Where the asset does not generate cash flows that are
independent from other assets, the estimate is the recoverable amount of the
cash-generating unit to which the asset belongs. Recoverable amount is the
higher of fair value less costs of disposal and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted. If the recoverable
amount of an asset or cash-generating unit is estimated to be less than the
carrying amount, then the carrying amount of the asset or cash-generating unit
is reduced to the recoverable amount. The impairment loss is allocated first
to reduce the carrying amount of any goodwill allocated to the unit and then
to the other assets of the unit pro rata based on the carrying amount of each
asset in the unit. An impairment loss is recognised as an expense immediately.
An impairment loss recognised for goodwill is not reversed in subsequent
periods. Where an impairment loss on other non-financial assets subsequently
reverses, the carrying amount of the asset or cash-generating unit is
increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset or
cash-generating unit in prior periods. A reversal of an impairment loss is
recognised in the income statement immediately.
Inventory
Inventory is valued at the lower of cost and net realisable value, after
making due allowance for obsolete and slow-moving items. Cost comprises
purchase price and directly attributable costs incurred in bringing products
to their present location and condition. Some goods are held on behalf of
customers and are not included within the Group's inventory.
Financial instruments
Financial instruments are contracts that give rise to financial assets or
financial liabilities and are recognised when the Group becomes a party to the
contractual provisions of the instrument.
Derivatives are financial instruments that have a value that changes in
response to a specific external factor and do not have a significant initial
investment.
Financial assets
Financial assets include trade and other receivables, cash and cash
equivalents, and derivative financial instruments with a positive market
value.
The Group classifies financial assets into two categories:
· financial assets measured at amortised cost; and
· financial assets measured at fair value through profit or loss.
The classification of a financial asset depends on the Group's business model
for managing the asset and the contractual cash flow characteristics
associated with the asset.
Financial assets measured at amortised cost are initially measured at fair
value plus directly attributable transaction costs and subsequently measured
using the effective interest method. The effects of discounting within the
effective interest method are omitted if immaterial.
Financial assets measured at fair value through profit and loss are initially
and subsequently measured at fair value. Transaction costs directly
attributable to the acquisition of the financial asset are recognised in the
profit and loss.
Investments in equity instruments that are not held for trading are classified
as financial assets and are measured at fair value through profit and loss.
Financial assets with embedded derivatives are recognised as hybrid contracts
and are classified in their entirety and not in separate components.
Financial assets are derecognised when the contractual rights to the cash
flows from the financial asset expire, or when the financial asset and
substantially all the risks and rewards are transferred.
Financial liabilities
Financial liabilities include trade and other payables; deferred
considerations; put option liabilities; borrowings; and derivative financial
instruments with a negative market value.
The Group classifies financial liabilities into three categories:
· financial liabilities measured at amortised cost;
· financial liabilities measured at fair value through profit or loss; and
· contingent consideration recognised in a business combination.
Financial liabilities measured at amortised cost are initially measured at
fair value minus directly attributable transaction costs and subsequently
measured using the effective interest method. The effects of discounting
within the effective interest method are omitted if immaterial. Where the
contractual cash flows of the financial liability are renegotiated or
otherwise modified the financial liability is recalculated at the present
value of the modified contractual cash flows discounted at the financial
liability's original effective interest rate.
Financial liabilities measured at fair value through profit or loss are
initially and subsequently measured at fair value. Transaction costs directly
attributable to the issue of the financial liability are recognised in the
profit and loss.
Contingent consideration recognised in a business combination is initially and
subsequently measured at fair value.
Financial liabilities with embedded derivatives are recognised as hybrid
contracts and are classified in their entirety and not in separate components
unless:
· the economic characteristics and risks of the embedded derivative are not
closely related to the economic characteristics and risks of the financial
liability;
· a separate instrument with the same terms as the embedded derivative
would meet the definition of a derivative; and
· the hybrid contract is not measured at fair value with changes in fair
value recognised in profit or loss.
Financial liabilities are derecognised when they are extinguished, discharged,
cancelled, or expire.
Cashflows in respect of deferred considerations, including contingent
considerations, are reported as an investing cash flows because they are cash
flows that arise from obtaining control of subsidiaries.
Trade and other receivables
Trade and other receivables are financial assets recognised when the Group
becomes party to the contractual provisions of the instrument.
Trade and other receivables are initially measured at transaction price plus
directly attributable transaction costs. Transaction price is equivalent to
fair value for trade and other receivables that do not contain a significant
financing component. Where trade and other receivables do contain a
significant financing component the fair value is equivalent to the
transaction price adjusted for the effects of discounting. The effects of
discounting are not adjusted if it is expected at the inception of the
contract that there will be a period of one year or less from when the goods
or services are transferred to the customer to the payment date.
Trade and other receivables are subsequently measured at amortised cost using
the effective interest method less expected credit losses. Expected credit
losses are calculated based on probability weighted amounts derived from a
range of possible outcomes that are based on reasonable supporting information
and discounted for the time value of money. The Group applies the simplified
approach to measure the loss allowance at an amount equal to lifetime expected
credit losses including where trade receivables contain a significant
financing component. The effects of expected credit losses are omitted if
immaterial.
Supplier rebates and other income
Supplier rebates include promotional income and are recognised when the
conditions attached to the rebate have been satisfied and after deducting any
probable liability to repay the rebate. Supplier rebates are deducted from
inventory or recorded within cost of sales depending on the contractual terms
of the rebate. Promotional income from suppliers does not relate to the
purchase of inventory and is therefore recognised within other income.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with
banks and other short-term highly liquid investments with original maturities
of three months or less from inception.
Borrowings
Borrowings include bank loans and overdrafts, loan notes, amounts advanced
under invoice factoring arrangements, and leases. Bank loans and overdrafts,
loan notes, and amounts advanced under invoice factoring arrangements are
financial liabilities that are recognised when the Group becomes party to the
contractual provisions of the instrument. Bank loans and overdrafts, loan
notes, and amounts advanced under invoice factoring arrangements are initially
measured at fair value minus transaction costs directly attributable to the
issue of the financial liability. Bank loans and overdrafts, loan notes, and
amounts advanced under invoice factoring arrangements are subsequently
measured using the effective interest method. The effects of discounting
within the effective interest method are omitted if immaterial. Where the
contractual obligations of financial instruments (including share capital) are
equivalent to a similar debt instrument, those financial instruments are
classified as financial liabilities. Cash flows from invoice discounting
facilities are classified as financing cash flows. Cash flows from invoice
discounting facilities are presented net because the turnover of cash receipts
and payments is quick, the amounts are large, and the maturities are short.
Cash inflows from receivables are classified as operating cash inflows. The
business continues to recognise the receivables and the amount received from
the factor is recorded as a financial liability.
Trade and other payables
Trade and other payables are financial liabilities recognised when the Group
becomes party to the contractual provisions of the instrument. Trade and other
payables are initially measured at fair value minus transaction costs directly
attributable to the issue of the financial liability. Trade and other payables
are subsequently measured at amortised cost using the effective interest
method.
Derivative financial instruments
Derivative financial instruments are recognised when the Group becomes party
to the contractual provisions of the instrument. Derivative financial
instruments are initially and subsequently measured at fair value. Any
transaction costs directly attributable to the acquisition of the financial
asset are recognised in the profit and loss. The fair values are determined by
reference to active markets or using a valuation technique where no active
market exists.
Put option liabilities
Put options to acquire non-controlling interests of subsidiaries are initially
recognised at present value and subsequently measured at amortised cost, being
the present value of future payments discounted at the original effective
interest rate. Where the contractual cash flows of the put option liability
are renegotiated or otherwise modified the financial liability is recalculated
at the present value of the modified contractual cash flows discounted at the
financial liability's original effective interest rate. Further details of the
measurement of put options are given in the accounting judgements and key
sources of estimation uncertainty accounting policy.
Foreign currency
The presentation currency for the Group's consolidated financial statements is
Sterling. Foreign currency transactions by group companies are recorded in
their functional currencies at the exchange rate at the date of the
transaction. Monetary assets and liabilities are translated at rates in effect
at the reporting date with any gain or loss on foreign exchange adjustments
usually being credited or charged to the income statement within
administrative expenses. The Parent Company's functional currency is Sterling.
On consolidation the assets and liabilities of the subsidiaries with a
functional currency other than Sterling are translated into the Group's
presentational currency at the exchange rate at the reporting date and the
income and expenditure account items are translated at the average rate for
the period. The exchange difference arising on the translation from functional
currency to presentational currency of subsidiaries is classified as other
comprehensive income and is accumulated within equity as a translation
reserve. The balance of the foreign currency translation reserve relating to a
subsidiary that is partially or fully disposed of is recognised in the income
statement at the time of disposal.
Current taxation
Current tax payable or recoverable is based on taxable profit for the year.
Taxable profit differs from profit as reported in the income statement because
some items of income or expense are taxable or deductible in different years
or may never be taxable or deductible. The Group's liability for current tax
is calculated using UK and foreign tax rates and laws that have been enacted
or substantively enacted by the end of the reporting period date.
Deferred taxation
Deferred taxation is calculated using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, if the
deferred tax arises from the initial recognition of an asset or liability in a
transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss, it is not
accounted for. No deferred tax is recognised on initial recognition of
goodwill or on investment in subsidiaries. Deferred tax is determined using
tax rates and laws that have been enacted or substantively enacted by the
reporting date and are expected to apply when the related deferred tax asset
is realised, or the deferred tax liability is settled. Deferred tax
liabilities are provided in full and are not discounted. Deferred tax assets
are recognised to the extent that it is probable that future taxable profits
will be available against which the temporary differences can be utilised.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expense in the income statement, except where they relate to items that
are charged or credited directly to equity, in which case the related deferred
tax is also charged or credited directly to equity. Deferred income tax assets
and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred
income tax assets and liabilities relate to income taxes levied by the same
taxation authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a net basis.
Employment benefits
Provision is made in the financial statements for all employee benefits.
Liabilities for wages and salaries, including non-monetary benefit and annual
leave obliged to be settled within 12 months of the reporting date, are
recognised in accruals. Contributions to defined contribution pension plans
are charged to the income statement in the period to which the contributions
relate. The Group operates defined benefit pension plans in the Netherlands
and Switzerland, which require contributions to separately managed funds. Both
defined benefit pension plans are final salary pension schemes which provide
members with a guaranteed income on retirement. Defined benefit pension scheme
surpluses or deficits are calculated by independent qualified actuaries using
actuarial assumptions applied to actual pension contributions and salaries.
The actuarial assumptions include return on assets, inflation, life
expectancy, mortality rates and expected retirement ages. Actuarial
assumptions are updated annually to reflect changes in market conditions and
all actuarial gains and losses are recognised in other comprehensive income.
Leases
Assets and liabilities arising from a lease are initially measured at present
value. The present value is comprised of fixed and variable payments
discounted using the interest rate implicit in the lease unless it can't be
readily determined, in which case payments are discounted using the
incremental borrowing rate. Variable payments are payments that depend on a
rate or index and are initially measured using the appropriate rate or index
at the commencement date of the lease. Where a material variation to the
initial measurement of lease payments occurs the lease liability is reassessed
with a corresponding adjustment to the value of right of use asset.
Lease payments beyond a break clause or within an extension option are
included in the measurement of present value provided it is reasonably certain
that the lease will not be terminated before the respective break point or
lease extension and there is no active plan to do so.
Finance costs are added to the lease liabilities at amounts that produce a
constant periodic rate of interest on the remaining balance of the lease
liabilities using the interest rates used to calculate the present value of
the leases. Lease payments are deducted from the lease liability.
Short-term leases of less than 12 months or leases for low value assets are
recognised on a straight-line basis as an expense in the income statement.
Government grants
Government grants are recognised when the conditions attached to the grant
have been satisfied and after deducting any probable liability to repay the
grant.
Government grants relating to costs incurred are offset against the cost to
which the grant relates in the income statement. Government grants in relation
to employment support are offset against the employee costs in the income
statement. Government grants relating to the purchase of property, plant and
equipment are deducted from the purchase price of the asset and credited to
the income statement on a systematic basis over the expected useful life of
the related asset.
Equity
Equity comprises the following:
· "Share capital" represents the nominal value of equity shares issued.
· "Share premium" represents the amounts subscribed for share capital, net
of issue costs, above the nominal value.
· "Investment in own shares" represents amounts of the Parent Company's own
shares held within an Employee Benefit Trust.
· "Share based payment reserve" represents the accumulated value of share
based payments expensed in the income statement, along with any accumulated
deferred tax credits or charges above or below amounts recognised in the
income statement in respect of options that have yet to exercise.
· "Retained earnings" represents the accumulated profits and losses
attributable to equity shareholders.
· "Translation reserve" represents the exchange differences arising from
the translation of the financial statements of subsidiaries into the Group's
presentational currency.
· "Put option reserve" represents the initial present value of put options
over shares in a subsidiary held by non-controlling interest shareholders that
have not been exercised.
· "Capital redemption reserve" represents the nominal value of shares
repurchased by the Parent Company.
· "Other reserve" relates to the Employee Benefit Trusts.
· "Non-controlling interest" represents the share of a subsidiary's profit
or loss and net assets that is not held by the Group. The Group attributes
total comprehensive income or loss of subsidiaries between the owners of the
Parent and the non-controlling interests based on their respective ownership
interests.
Share based payments
Equity-settled share based payments are measured at the fair value of the
equity instrument. The fair value of the equity-settled transactions is
recognised as an expense over the vesting period. The fair values of the
equity instruments are determined at the date of the grant incorporating
market based vesting conditions. The fair value of goods and services received
is measured by reference to the fair value of options. The fair values of
share options are measured using the Black Scholes model. The Black Scholes
model is used even where market conditions exist so long as the market
conditions do not prevent the Black Scholes model from calculating the fair
value of the option reliably. The expected life used in the models is
adjusted, based on management's best estimate of the effects of
non-transferability, exercise restrictions and behavioural considerations. The
cost of equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the performance or
service conditions are fulfilled, ending on the date on which the relevant
employees become fully entitled to the award ("the vesting date"). The
cumulative expense recognised for equity-settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting
period has expired and the Group's best estimate of the number of equity
instruments that will ultimately vest. The income statement charge or credit
for a period represents the movement in cumulative expense recognised as at
the beginning and end of that period. No expense is recognised for awards that
do not ultimately vest, except for awards where vesting is conditional upon a
market condition, which are treated as vesting irrespective of whether the
market condition is satisfied, provided that all other performance or service
conditions are satisfied. Where the terms of an equity-settled award are
modified, the minimum expense recognised is the expense as if the terms had
not been modified. An additional expense is recognised for any modification,
which increases the total fair value of the share based payment arrangement,
or is otherwise beneficial to the employee as measured at the date of
modification. Where an equity-settled award is cancelled, it is treated as if
it had vested on the date of cancellation, and any expense not yet recognised
for the award is recognised immediately. However, if a new award is
substituted for the cancelled award, and designated as a replacement award on
the date that it is granted, the cancelled and new awards are treated as if
they were a modification of the original award. Where an equity-settled award
is forfeited during the vesting period, the cumulative charge expensed up to
the date of forfeiture is credited to the income statement.
Employee Benefit Trust
The assets and liabilities of the Employee Benefit Trusts (EBT) have been
included in the Group and Company financial statements. Any assets held by the
EBT cease to be recognised on the statement of financial position when the
assets vest unconditionally in identified beneficiaries. The costs of
purchasing own shares held by the EBT are shown as a deduction within
shareholders' equity. The proceeds from the sale of own shares are recognised
in shareholders' equity. Neither the purchase nor sale of own shares leads to
a gain or loss being recognised in the income statement.
Segment reporting
An operating segment is a component of an entity that engages in business
activities from which it may earn revenues and incur expenses (including
revenues and expenses related to transactions with other components of the
same entity), whose operating results are regularly reviewed by the entity's
Chief Operating Decision Maker to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete
financial information is available. The Chief Operating Decision Maker has
been identified as the Managing Director, at which level strategic decisions
are made. Details of the Group's reporting segments are provided in note 2.
New and amended International Accounting Standards adopted by the Group
The Group adopted the following standards, amendments to standards and
interpretations, which are effective for the first time this year:
Amendments to IFRS 17 Insurance contracts - amendments to assist with
implementing the standard;
Amendments to IAS 8 Accounting policies, changes in accounting estimates and
errors - Changes to the definition of accounting estimates;
Amendments to IAS 1 Presentation of financial statements - disclosure of
accounting policies; and
Amendments to IAS 12 Income taxes - Deferred tax related to assets and
liabilities arising from a single transaction
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.
The amendments to IAS 12 clarify that the standard applies to income taxes
arising from tax law enacted or substantively enacted to implement the Pillar
Two model rules published by the OECD, including tax law that implements
qualified domestic minimum top-up taxes described in those rules.
The amendments introduce a temporary exception to the accounting requirements
for deferred taxes in IAS 12, so that an entity would neither recognise nor
disclose information about deferred tax assets and liabilities related to
Pillar Two income taxes.
Following the amendments, the Group is required to disclose that it has
applied the exception and to disclose separately its current tax expense
(income) related to Pillar Two income taxes.
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 used within the business for assessing
and managing performance. These measures are not defined under IAS and they
may not be directly comparable with other companies' adjusted measures. The
Group discloses the adjustments to IAS measures to provide transparency over
the costs that are excluded from the alternative performance measures.
The alternative performance measures provide a materially different
presentation of the Group's performance compared to IAS measures. The
alternative performance measures are not a substitute for IAS measures and are
presented with the adjustments to IAS measures to provide supplementary
information for assessing performance in accordance with IAS measures.
Growth at constant currency: This measure shows the year on year change in
performance after eliminating the impact of foreign exchange movement, which
is outside of management's control.
Organic growth: This is defined as growth at constant currency excluding
acquisitions until the first anniversary of their consolidation.
Adjusted operating profit: Adjusted operating profit is disclosed to indicate
the Group's underlying profitability. It is defined as profit before
acquisition related expenses, share based payments and associated employer
taxes and amortisation of brand, customer relationship, and supplier
relationship intangible assets and impairments. Share based payments are
adjusted to provide transparency over the costs.
Adjusted EBITDA: This represents operating profit before acquisition related
expenses, share based payments and associated employer taxes, depreciation,
amortisation, and impairments.
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,
impairments, changes in deferred or contingent considerations and put option
liabilities over non-controlling interests, foreign exchange gains or losses
on borrowings for acquisitions, fair value movements on derivatives for
borrowings, and financing fair value remeasurements.
Adjusted profit after tax: This is profit after tax adjusted for acquisition
related expenses, share based payments and associated employer taxes,
amortisation of brand, customer relationship, and supplier relationship
intangible assets, impairments, changes in deferred or contingent
considerations and put option liabilities over non-controlling interests,
foreign exchange gains or losses on borrowings for acquisitions, fair value
movements on derivatives for borrowings, and financing fair value
remeasurements and the tax thereon.
Adjusted EPS: Adjusted EPS is EPS calculated using the basis of adjusted
profit after tax instead of profit after tax after deducting adjustments to
profit after tax due to non-controlling interests.
Adjusted net debt: Net debt is borrowings less cash and cash equivalents.
Adjusted net debt excludes lease liabilities.
Adjusted return on capital employed: Adjusted operating profit divided by
adjusted capital employed.
Adjusted capital employed: Total equity, plus total debt, plus accumulated
amortisation on intangible assets measured at fair value in business
combinations, minus deferred considerations, minus put option liabilities over
non-controlling interests, and minus right of use assets.
Accounting judgements and sources of estimation uncertainty
The preparation of financial statements in accordance with the principles of
the IASs requires the directors to make judgements and use estimation
techniques to provide a fair presentation of the Group's financial position
and performance. Accounting judgements represent the accounting decisions made
by the directors that have the most significant effect on amounts recognised
in the financial statements. Sources of estimation uncertainty represent the
assumptions made by management that carry significant risks of a material
adjustment to the value of assets and liabilities within the next financial
year. Judgements and estimates are evaluated based on historical experience,
continuing developments within the Group, and reasonable expectations of
future events. Judgements and estimates are subject to regular review by the
directors.
The following are the significant accounting judgements made by the Group in
preparing the financial statements:
Put options over non-controlling interests
For all subsidiaries where the Group has acquired less than 100% ownership the
Group has obtained put and call options over the remaining non-controlling
interests. The significant accounting judgement is whether the Group has 100%
control despite not having 100% ownership. If the Group judges that it has
100% control, there would be no recognition of a put option liability or
non-controlling interest. If the Group judges that it does not have 100%
control, it recognises a put option liability and non-controlling interest.
The key judgements to determine the proportion of control are assessments of
the level of risks and rewards, the proportionate right to dividends, and the
exposure to changes in the value of shares.
The following are the significant sources of estimation uncertainty facing the
Group in preparing the financial statements:
Inventory write down
The Group is required to write inventory down to the lower of cost and net
realisable value. To determine the write down of inventory the Group estimates
the future sales volumes, sales prices, costs to sell inventory, and
shrinkage.
The Group uses a range of different techniques to write down inventory to the
lower of cost and net realisable value including a formulaic methodology based
on the age of inventory. The aged inventory methodology writes down inventory
by a specific percentage based on time elapsed from purchase date and these
specific percentages are based on historical data.
The uncertainty associated with estimating the write down of inventory is
whether the realisable value on sale or disposal of inventory approximates the
value of inventory after write downs have been applied. The ultimate sale or
disposal of inventory results in a reversal of the write down against the cost
of inventory disposed with a potential gain or loss depending upon the
accuracy of the estimation.
If each write down percentage applied to inventory were increased by ten
percentage points the total write down against inventory held at the reporting
date would increase by £5,734k. This increase excludes inventory on which no
write down has been applied and is subject to an increase up to a maximum
write down of 100%.
If each write down percentage applied to inventory were decreased by ten
percentage points the total write down against inventory held at the reporting
date would decrease by £5,001k. This decrease is subject to a minimum write
down of 0%.
Fair value of separately identifiable intangible assets in business
combinations
The Group is required to calculate the fair value of identifiable assets and
liabilities acquired in business combinations. To estimate the fair value of
separately identifiable assets in business combinations certain assumptions
must be made about future trading performance, royalty rates, customer
attrition rates, and supplier contract renewal rates. The fair values of
assets and liabilities acquired in business combinations are disclosed in note
12.
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. When there are modifications in the
contractual cash flows during the year the put option liabilities are
subsequently remeasured to present value.
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. Subsequent measurements to fair value and
remeasurement to present value can result in significant increases or
decreases in the value of the liability.
Enterprise Resource Planning system impairment risk
The carrying value of the enterprise resource planning system asset arising
from development is £20,507k (2022: £10,432k).
The Group is required to test the enterprise resource planning system asset
arising from development for impairments annually because it is an asset that
is not yet available for use.
Inherent with such projects is a degree of risk that the project will not be
delivered on time, will not achieve the planned functionality, or will not
deliver the planned benefits. In the event of such risks crystallising there
is a risk that the carrying value of the asset could be impaired or could be
nil.
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.
2023 UK & Ireland EMEA Asia Pacific North America Other Total
£'000 £'000 £'000 £'000
£'000 £'000
Revenue 474,722 589,270 47,643 177,509 - 1,289,144
Gross profit 85,699 92,287 8,025 30,458 - 216,469
Gross profit % 18.1% 15.7% 16.8% 17.2% - 16.8%
Adjusted operating profit 27,110 28,122 (245) 9,425 (4,819) 59,593
Costs of acquisitions - - - - (1,489) (1,489)
Share based payments (1,905) (1,389) (274) (102) (1,068) (4,738)
Employer taxes on share based payments (180) (258) (13) (9) (143) (603)
Amortisation of brands, customer and supplier relationships (5,247) (3,614) (267) (2,052) - (11,180)
Operating profit 19,778 22,861 (799) 7,262 (7,519) 41,583
Share of profit after tax from associate 24
Interest (5,060)
Profit before tax 36,547
2023 UK & Ireland EMEA Asia Pacific North America Total
£'000 £'000 £'000 £'000 Other
£'000
£'000
Segment assets 265,463 276,633 22,471 89,838 60 654,465
Segment liabilities (197,062) (182,015) (18,575) (59,936) (733) (458,321)
Segment net assets 68,401 94,618 3,896 29,902 (673) 196,144
Depreciation 3,570 3,640 642 1,434 - 9,286
Amortisation 5,623 3,684 284 2,227 - 11,818
Segment country information UK Germany USA Other Total
£'000 £'000 £'000 £'000 £'000
Non-current assets 92,509 29,404 20,942 63,977 206,832
Deferred tax assets - 310 135 172 617
Non-current assets excluding deferred tax 92,509 29,094 20,807 63,805 206,215
2022 UK & Ireland EMEA Asia Pacific North America Other Total
£'000 £'000 £'000 £'000
£'000 £'000
Revenue 492,203 534,962 53,763 123,121 - 1,204,049
Gross profit 79,104 78,014 9,312 17,284 - 183,714
Gross profit % 16.1% 14.6% 17.3% 14.0% - 15.3%
Adjusted operating profit 26,500 22,718 1,378 6,437 (5,925) 51,108
Costs of acquisitions - - - - (435) (435)
Share based payments (2,260) (1,911) (469) (96) (1,295) (6,031)
Employer taxes on share based payments (56) (57) 3 (4) (62) (176)
Amortisation of brands, customer and supplier relationships (4,201) (3,566) (282) (1,364) - (9,413)
Operating profit 19,983 17,184 630 4,973 (7,717) 35,053
Interest (10,137)
Profit before tax 24,916
2022 UK & Ireland EMEA Asia Pacific North America Total
£'000 £'000 £'000 £'000 Other
£'000
£'000
Segment assets 235,716 245,321 27,024 51,002 711 559,774
Segment liabilities (196,934) (187,802) (19,013) (20,985) (906) (425,640)
Segment net assets 38,782 57,519 8,011 30,017 (195) 134,134
Depreciation 2,731 3,294 443 571 - 7,039
Amortisation 4,290 3,652 297 1,568 - 9,807
Other segmental information UK International Total
£'000 £'000 £'000
Non-current assets 68,547 82,307 150,854
Deferred tax asset 1,051 1,516 2,567
Non-current assets excluding deferred tax 67,496 80,791 148,287
Revenue from the UK, being the domicile of the Parent Company, amounted to
£455,138k (2022: £470,930k). Revenue from Germany amounted to £239,449k
(2022: £249,570k) and revenue from the USA amounted to £132,934k (2022:
£123,121k). 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 £29,094k (2022: £19,108k) for Germany and
£20,807k (2022: £16,181k) 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. In
addition to the external revenue reported by segment the UK & Ireland
segment made £22,103k (2022: £17,647k) of intercompany sales. The EMEA
segment made £42,012k (2022: £20,084k) of intercompany sales. The Asia
Pacific segment made £653k (2022: £nil) of intercompany sales. The North
America segment made £3k (2022: £nil) of intercompany sales.
Sales to the largest customer
Included in revenue is £13.7m (2022: £12.4m) that arose from sales to the
Group's largest customer based in Germany. No single customer contributed 10%
or more to the Group's revenue in any period presented.
3. Administrative expenses
Administrative expenses in the period include £1,489k of acquisition related
costs (2022: £435k). For details of acquisitions in the year see note 12.
4. Finance costs
2023 2022
£'000 £'000
Interest on overdraft and invoice discounting 3,894 2,221
Interest on leases 651 602
Interest on loans 5,214 2,470
Foreign exchange derivative costs 54 733
Other interest costs 88 26
Borrowings derivative costs 1,219 (2,888)
Foreign exchange (gains)/losses on borrowings for acquisitions (554) 1,694
Interest, foreign exchange and other finance costs of deferred and contingent (4,150) 508
considerations
Interest, foreign exchange and other finance costs of put option liabilities (1,063) 4,866
5,353 10,232
5. Earnings per share
Basic earnings per share is calculated by dividing the profit after tax
attributable to equity shareholders of the Company by the weighted average
number of shares outstanding during the year. Shares outstanding is the total
shares issued less the own shares held in employee benefit trusts. Diluted
earnings per share is calculated by dividing the profit after tax attributable
to equity shareholders of the Company by the weighted average number of shares
in issue during the year adjusted for the effects of all dilutive potential
Ordinary Shares.
Profit attributable to equity holders of the Group (£'000) 26,817 15,293
Weighted average number of shares in outstanding 95,852,306 88,299,098
Potentially dilutive effect of the Group's share option schemes 3,233,327 3,064,305
Weighted average number of diluted Ordinary Shares 99,085,633 91,363,403
Basic earnings per share 27.98p 17.32p
Diluted earnings per share 27.06p 16.74p
Diluted earnings per share excludes the antidilutive effects of potential
Ordinary Shares that result in a decrease in the loss per share.
6. Borrowings
2023 2022
£'000 £'000
Secured borrowings
- Bank overdrafts and invoice discounting 42,518 47,052
- Bank loans 96,198 74,782
- Leases 23,610 23,445
162,326 145,279
Current 49,146 44,955
Non-current 113,180 100,324
162,326 145,279
Summary of borrowing arrangements:
The Group has overdraft borrowings which comprised £4,082k at the end of 2023
(2022: £4,917k). The facilities are uncommitted and secured with fixed and
floating charges over the assets of the Group.
At the reporting date the Group had drawn down £38,436k (2022: £42,135k) on
invoice discounting and short-term borrowing facilities. The total amount
drawn down on invoice discounting facilities was £33,571k (2022: £30,352k).
The short-term borrowing facilities are secured with floating charges over the
assets of the Group. The invoice discounting facilities comprise fully
revolving receivables financing agreements which are secured on the underlying
receivables. The facilities have no fixed repayment dates and receivables are
automatically offset against the outstanding amounts of the facility on
settlement of the receivable. The Group retains the credit risk associated
with the receivables. Invoice discounting arrangements included within
acquisitions completed during the year totalled £1,832k (2022: £3,968k).
At the reporting date the Group had drawn down £96,198k (2022: £74,782k) of
its long-term loan facilities. The loans are secured with fixed and floating
charges over the assets of the Group. The Group is subject to covenants under
its Revolving Credit Facility and if the Group defaults under these covenants,
it may not be able to meet its payment obligations.
The Group has lease liabilities of £23,610k at the end of 2023 (2022:
£23,445k). Lease obligations included within acquisitions completed during
the year totalled £1,927k (2022: £2,720k).
Borrowings
2023 2022
£'000 £'000
Borrowings due within 1 year 44,534 40,900
Borrowings due after 1 year 94,182 80,934
Leases 23,610 23,445
162,326 145,279
Reconciliation of liabilities arising from financing activities
2023 2022
£'000 £'000
At 1 January 145,279 94,452
Cash flows:
Invoice financing inflows/(outflows) (3,009) 14,282
Proceeds from borrowings 39,228 32,384
Repayment of loans (20,525) (4,947)
Capital element of leases (5,235) (4,126)
Non-cash:
Acquisitions 4,459 6,689
New liabilities arising on leases 4,939 2,783
Disposals on modification or termination of leases (955) (10)
Foreign exchange (gain) or loss (1,855) 3,772
At 31 December 162,326 145,279
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 2023 total credit risk amounted to
£256,028k (2022: £218,882k).
Interest rate risk
The interest on the Group's overdrafts, invoice discounting facilities and
Revolving Credit Facility borrowings are variable. The Group has interest rate
swap contracts in respect of the Group's variable interest rates to achieve a
fixed rate of interest. Rising interest rates present an increased cash flow
risk associated with the high cost of servicing debt. Rising interest rates
also increase the finance costs of working capital. The Group manages the
increased cost of working capital by focusing on profitability margins and
working capital arrangements of the business.
Foreign exchange risk
The Group is largely able to manage the exchange rate risk arising from
operations through the natural matching of payments and receipts denominated
in the same currencies. Any exposure tends to be on the payment side and is
mainly in relation to the Sterling strength relative to the Euro or US
Dollar. This transactional risk is considered manageable as the proportion of
Group procurement that is not sourced in local currency is small. However, on
occasions the Group does buy foreign currency call options and forward
contracts to mitigate this risk.
The Group holds certain borrowings in the currencies of foreign acquired
operations to reduce the Group's exposure to fluctuations in the value of
foreign currencies that have a negative effect on the value of foreign
operations. The Group does not adopt hedge accounting and recognises gains and
losses on foreign exchange in both the income statement and translation
reserve.
The total value of borrowings held in foreign currencies by companies whose
functional currency is GBP relating to overseas acquired operations is as
follows:
2023 2022
£'000 £'000
EUR 27,378 20,578
AUD 3,585 -
USD 17,063 17,600
CAD 10,441 -
At the prior year reporting date the Group was in the process of renewing its
borrowing facilities and repaid the AUD borrowing facility relating to the
overseas operations in the APAC segment for renewal. A 10% increase or
decrease in the strength of sterling against all borrowings held in foreign
currencies by companies whose functional currency is GBP would increase or
decrease profit before tax by £5,847k (2022: £3,818k).
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 used in the periods reported.
Annual average Year end
2023 2022 2023 2022
EUR/GBP 1.152 1.170 1.154 1.128
AUD/GBP 1.880 1.777 1.868 1.771
NZD/GBP 2.032 1.946 2.013 1.897
USD/GBP 1.248 1.231 1.275 1.204
CHF/GBP 1.118 1.173 1.073 1.111
NOK/GBP 13.189 11.832 12.947 11.846
AED/GBP 4.582 4.525 4.678 4.435
QAR/GBP 4.541 4.485 4.637 4.396
SAR/GBP 4.638 N/A 4.769 N/A
CAD/GBP 1.666 N/A 1.682 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:
Profit/(loss) before tax
2022 Revised 2022 Impact Impact
£'000 £'000 £'000 %
EUR 24,916 24,664 (252) (1.0)%
AUD 24,916 25,013 97 0.4%
NZD 24,916 24,919 3 0.0%
USD 24,916 24,934 18 0.1%
CHF 24,916 24,948 32 0.1%
NOK 24,916 24,983 67 0.3%
AED 24,916 25,090 174 0.7%
QAR 24,916 24,987 71 0.3%
All currencies 24,916 25,126 210 0.8%
Net assets
2022 Revised 2022 Impact Impact
£'000 £'000 £'000 %
EUR 134,134 135,594 1,460 1.1%
AUD 134,134 134,316 182 0.1%
NZD 134,134 134,148 14 0.0%
USD 134,134 134,927 793 0.6%
CHF 134,134 134,172 38 0.0%
NOK 134,134 134,365 231 0.2%
AED 134,134 134,890 756 0.6%
QAR 134,134 134,291 157 0.1%
All currencies 134,134 137,765 3,631 2.7%
Liquidity risk
The main objective of the Group's liquidity risk management strategy is to
ensure that the Group has sufficient liquidity to pay all liabilities as
they fall due. The Group manages liquidity by monitoring working capital and
maintaining sufficient cash balances to meet liabilities as they fall due
using bank borrowing arrangements.
See note 6 for details of borrowing arrangements.
The tables below show the undiscounted cash flows on the Group's financial
instrument liabilities as at 31 December 2023 and 2022, on the basis of their
contractual maturity:
At 31 December 2023
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 177,489 165,885 11,582 5 6 11
Other payables 312 310 2 - - -
Deferred consideration 16,802 1,053 10,611 200 2,402 2,536
Put option liabilities 23,535 - 9,833 12,607 - 1,095
Leases 26,070 807 1,914 2,605 4,742 16,002
Accruals 36,993 29,150 2,822 1,123 1,989 1,909
Bank overdrafts, loans and invoice discounting 138,716 43,260 1,076 198 168 94,014
419,917 240,465 37,840 16,738 9,307 115,567
At 31 December 2022
Total Within 2 Within Between 6 - 12 Between 1-2 After
months
months
years
than
2 -6
months 2 years
£'000 £'000 £'000 £'000 £'000 £'000
Trade payables 175,646 167,753 7,878 3 - 12
Other payables 213 153 53 7 - -
Deferred consideration 17,902 3,800 5,500 - 8,602 -
Put option liabilities 17,499 - - - 17,499 -
Leases 25,817 764 1,602 2,263 4,120 17,068
Accruals 33,682 26,277 4,488 1,057 191 1,669
Bank overdrafts, loans and invoice discounting 121,834 39,901 531 468 72,970 7,964
392,593 238,648 20,052 3,798 103,382 26,713
8. Share capital
The total allotted share capital of the Parent Company is:
Allotted, issued and fully paid
2023 2022
Number £'000 Number £'000
Issued and fully paid Ordinary Shares of £0.01 each
At 1 January 88,879,912 889 88,735,612 887
Shares issued 14,371,414 144 144,300 2
At 31 December 103,251,326 1,033 88,879,912 889
During the year the Company issued 2,312,476 shares to the Group's employee
benefit trusts (2022: 144,300) and issued 12,058,938 shares for total proceeds
less issue cost of £50,033k.
Employee benefit trust
The Group's employee benefit trusts were allocated the following shares to be
issued on exercise of share options:
2023 2022
Number £'000 Number £'000
At 1 January 501,460 5 518,300 5
Share issued 2,312,476 23 144,300 2
Shares purchased 149,838 600 - -
Shares issued on exercise of options (1,268,822) (12) (161,140) (2)
At 31 December 1,694,952 616 501,460 5
During the year the Company purchased 149,838 shares for £600k.
9. Other reserves
Movement in other reserves for the year ended 31 December 2023
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 2023 12,025 5,356 (10,799) 50 150 6,782
Other comprehensive income - (4,964) - - - (4,964)
Total comprehensive income for the year - (4,964) - - - (4,964)
Share based payments 4,661 - - - - 4,661
Deferred tax on share based payments (434) - - - - (434)
Share options exercised (5,409) - - - - (5,409)
Acquisition of subsidiary (note 12) - - (7,850) - - (7,850)
Balance at 31 December 2023 10,843 392 (18,649) 50 150 (7,214)
Movement in other reserves for the year ended 31 December 2022
Share based payment reserve Translation reserve Put option reserve Capital redemption reserve Other reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2022 7,879 (2,182) (7,784) 50 150 (1,887)
Other comprehensive income - 7,538 - - - 7,538
Total comprehensive income for the year - 7,538 - - - 7,538
Share based payments 6,006 - - - - 6,006
Deferred tax on share based payments (1,093) - - - - (1,093)
Share options exercised (767) - - - - (767)
Acquisition of subsidiary (note 12) - - (6,933) - - (6,933)
Acquisition of non-controlling interest - - 3,918 - - 3,918
(note 11)
Balance at 31 December 2022 12,025 5,356 (10,799) 50 150 6,782
10. Share based payments
The Group operates two share option plans, the Long Term Incentive Plan
("LTIP") and the Share Incentive Plan ("SIP"). The Group has made a grant
under the LTIP and SIP during both the current and prior year.
Share Incentive Plan:
The Group operates a SIP to which the employees of the Group may be invited to
participate by the Remuneration Committee. Under the SIP, free shares granted
to employees are issued and held in trust in during a conditional vesting
period. The SIP shares vest 3 years after the date of grant. The SIP share are
settled in equity once exercised.
Long Term Incentive Plan:
The Group also operates an LTIP to which the employees of the Group may be
invited to participate by the Remuneration Committee. Options issued under the
LTIP are exercisable at £0.01 per share but the Group has the option to
provide an exemption for this payment. The options vest 3 years after the date
of grant, subject to certain service and non-market performance conditions.
The Group has the option to require an extended holding period in relation to
specific options. The options are settled in equity once exercised except for
options issued to employees in certain jurisdictions where settlement in
equity is prohibited. For options issued to employees in jurisdictions in
which settlement in equity is prohibited the options are issued on the same
basis except they are settled in cash.
If the options remain unexercised after a period of 10 years from the date of
grant, the options expire. Options are forfeited if the employee leaves the
Group before the options vest.
LTIP options and SIP shares were valued using the Black-Scholes option-pricing
model. The fair value of the 2023 Options granted and the assumptions used in
the calculation are as follows:
LTIP SIP
Date of grant 16 Aug 2023 11 Apr 2023
Number granted 1,190,811 111,300
Share price at date of grant (£) £4.17 £5.12
Exercise price (£) £0.01 -
Expected volatility 13.9% 13.9%
Expected life (years) 2.67 3
Risk free rate 5.06% 3.93%
Expected dividend yield excluded from option 2.91% 0.0%
Fair value at date of grant £3,557,234 £401,756
Earliest vesting date 31 Mar 2026 11 Apr 2026
Expiry date 16 Aug 2033 11 Apr 2033
Included within the LTIP issue in 2023 are 143,100 options issued to employees
in that will be settled in cash.
LTIP options and SIP shares were valued using the Black-Scholes option-pricing
model. The fair value of the 2022 Options granted and the assumptions used in
the calculation are as follows:
LTIP SIP
Date of grant 21 Jun 2022 8 Apr 2022
Number granted 1,017,141 106,800
Share price at date of grant (£) £5.96 £6.32
Exercise price (£) £0.01 -
Expected volatility 18.1% 18.1%
Expected life (years) 1.5-2.75 3
Risk free rate 1.53% 1.18%
Expected dividend yield excluded from option 2.7% 0.0%
Fair value at date of grant £4,919,088 £482,083
Earliest vesting date 1 Jan 2024 8 Apr 2025
Expiry date 21 Jun 2032 8 Apr 2032
Included within the LTIP issue in 2022 are 13,000 options issued to employees
in jurisdictions where settlement in equity is prohibited and the options will
be settled in cash.
The expected volatility is based on the volatility of similar companies in the
industry. The expected life is the average expected period to exercise. The
risk-free rate of return is the yield on zero-coupon UK government bonds of a
term consistent with the assumed option life.
The Group recognised total expenses of £4,661k (2022: £6,006k) related to
equity-settled share based payment transactions.
In addition to equity settled share based payment transactions the Group
recognised £77k (2022: £25k) related to cash-settled share based payment
transactions and £603k (2022: £176k) related to employer taxes on share
options for the above schemes during the year. The total carrying amount of
liabilities arising from share based payment transactions at the end of the
year was £1,525k (2022: £1,531k).
A reconciliation of LTIP option movements over the current and prior year
excluding any options to be settled in cash is shown below:
As at 31 December 2023 As at 31 December 2022
Number of LTIP options Weighted average exercise price Number of LTIP options Weighted average exercise price
£ £
Outstanding at start of year 4,115,317 0.01 3,284,374 0.01
Granted 1,047,711 0.01 1,004,141 0.01
Lapsed (177,490) 0.01 (89,458) 0.01
Exercised (1,099,592) 0.01 (83,740) 0.01
Outstanding at end of year 3,885,946 0.01 4,115,317 0.01
Weighted average remaining contractual life 1.1 years 1.1 years
A reconciliation of SIP movements over the current and prior year is shown
below:
As at 31 December 2023 As at 31 December 2022
Number of SIP shares Weighted average exercise price Number of SIP shares Weighted average exercise price
£ £
Outstanding at 1 January 280,800 - 267,900 -
Granted 111,300 - 106,800 -
Lapsed (21,900) - (16,500) -
Exercised (93,900) - (77,400) -
Outstanding at 31 December 276,300 - 280,800 -
Weighted average remaining contractual life 1.4 years 1.6 years
As at the year end there were 1,048,911 (2022: 167,000) equity settled share
options that had vested and had yet to be exercised.
11. Acquisition of non-controlling interest
During the prior year the Group acquired the remaining 12% non-controlling
interest in Earpro SA and the remaining 20% non-controlling interest in Prase
Engineering SpA. The non-controlling interest in Earpro SA had a value of
£1,309k and was acquired for a consideration of £1,062k. The non-controlling
interest in Prase Engineering SpA had a value of £3,808k and was acquired for
a consideration of £2,912k paid in 2022 and a further £61k of consideration
that was retained and settled in 2023. £1,033k of the put option reserve was
transferred to retained earnings when the Earpro SA element of the put option
was extinguished and £2,885k of the put option reserve was transferred to
retained earnings when the Prase Engineering SpA element of the put option was
extinguished.
12. Business combinations
Acquisitions have been completed by the Group to increase scale, broaden its
addressable market and widen the product offering.
Subsidiaries acquired:
Acquisition Principal activity Acquisition date Proportion acquired (%) Fair value of consideration
£'000
ProdyTel Distribution of professional audio products to trade customers 10 November 2023 51% 8,170
Pulse Cinemas Distribution of specialist home cinema products to trade customers 31 July 2023 100% 1,715
Video Digital Distribution of broadcast products to trade customers 21 July 2023 100% 1,364
HHB Distribution of professional audio products to trade customers 12 July 2023 100% 21,078
76 Media Distribution of broadcast products to trade customers 5 July 2023 100% 1,123
Toolfarm Distribution of video editing software to trade customers 5 July 2023 100% 5,057
SF Marketing Distribution of audio visual products to trade customers 31 May 2023 100% 21,369
Nimans Distribution of audio visual products and telephone network services 7 February 2022 100% 27,271
DVS Distribution of audio visual and security products to trade customers 7 January 2022 65% 12,877
Fair value of considerations 2023 SF Marketing HHB ProdyTel Others
£'000 £'000 £'000 £'000
Cash 20,215 13,087 7,406 7,706
Deferred consideration 1,154 - - 689
Contingent consideration - 7,991 764 864
Total 21,369 21,078 8,170 9,259
Costs of £1,489k were expensed to the income statement during the year in
relation to acquisitions.
Fair value of acquisitions 2023 SF Marketing HHB ProdyTel Others
£'000 £'000 £'000 £'000
Non-current assets
Goodwill 3,792 4,259 4,744 3,391
Intangible assets - patents and software 284 - - 2
Intangible assets - brands 1,702 702 487 680
Intangible assets - customer relationships 2,485 5,082 3,751 1,722
Intangible assets - supplier relationships 6,924 7,095 9,052 4,493
Right of use assets 972 140 297 55
Property, plant and equipment 686 36 162 239
16,845 17,314 18,493 10,582
Current assets
Inventories 10,792 3,836 959 702
Trade and other receivables 9,217 2,674 1,784 1,176
Derivative financial instruments 21 - - -
Cash and cash equivalents 118 3,794 634 1,510
20,148 10,304 3,377 3,388
Current liabilities
Trade and other payables (9,690) (3,092) (1,093) (2,672)
Borrowings and financial liabilities (700) - - (3)
Current tax - - (129) (146)
(10,390) (3,092) (1,222) (2,821)
Non-current liabilities
Borrowings and financial liabilities (2,781) (501) (357) (117)
Deferred tax (2,453) (2,947) (4,271) (1,773)
(5,234) (3,448) (4,628) (1,890)
Non-controlling interests - - (7,850) -
Fair value of net assets acquired attributable to equity shareholders of the 21,369 21,078 8,170 9,259
Parent Company
Goodwill acquired in 2023 relates to the workforce, synergies, sales and
purchasing knowledge and experience. Goodwill arising on the SF Marketing,
Toolfarm and 76 Media acquisitions has been allocated to the North America
segment. Goodwill arising on the Video Digital and ProdyTel acquisitions has
been allocated to the Europe Middle East and Africa segment. Goodwill arising
on the HHB and Pulse Cinemas acquisitions has been allocated to the United
Kingdom and Republic of Ireland segment.
Net cash outflows of acquisitions 2023
SF Marketing HHB ProdyTel Others
£'000 £'000 £'000 £'000
Consideration paid in cash 20,215 13,087 7,406 7,706
Less: cash and cash equivalent balances acquired (118) (3,794) (634) (1,509)
Net cash outflow 20,097 9,293 6,772 6,197
Plus: borrowings acquired 3,481 501 357 120
Net debt outflow 23,578 9,794 7,129 6,317
Post-acquisition contribution 2023
Acquired subsidiaries made the following contributions to the Group's results
for the year in which they were acquired:
SF Marketing Toolfarm 76 Media HHB Video Digital Pulse Cinemas ProdyTel
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 44,575 1,048 1,250 11,760 1,835 1,892 2,646
Profit/(loss) after tax 1,662 205 67 (180) (63) 96 283
Proforma full year contribution 2023
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 2023:
SF Marketing Toolfarm 76 Media HHB Video Digital Pulse Cinemas ProdyTel
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 72,159 2,199 2,551 28,084 5,452 4,893 16,569
Profit after tax(1) 2,653 313 165 494 1 149 1,731
(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 2023,
together with the consequential tax effects.
Fair value of consideration transferred 2022 DVS Nimans
£'000 £'000
Cash 8,580 16,500
Deferred consideration 4,297 10,771
Total 12,877 27,271
Acquisition costs of £376k were expensed to the income statement during the
year in relation to the acquisition of DVS and Nimans. £59k of acquisition
costs were expensed to the income statement during the year in relation to
acquisitions not completed by the reporting date.
Fair value of acquisitions 2022 DVS Nimans
£'000 £'000
Non-current assets
Goodwill 5,055 8,388
Intangible assets - patents and software 103 -
Intangible assets - brands 1,288 2,950
Intangible assets - customer relationships 799 4,809
Intangible assets - supplier relationships 5,948 8,591
Right of use assets 314 1,610
Property, plant and equipment 242 510
13,749 26,858
Current assets
Inventories 6,513 11,815
Trade and other receivables 7,841 15,861
Cash and cash equivalents 643 2,065
14,997 29,741
Current liabilities
Trade and other payables (2,297) (22,308)
Borrowings and financial liabilities (4,119) (275)
Current tax (142) -
(6,558) (22,583)
Non-current liabilities
Borrowings and financial liabilities (256) (2,039)
Deferred tax (2,057) (3,874)
Other provisions (65) (832)
(2,378) (6,745)
Non-controlling interests (6,933) -
Fair value of net assets acquired attributable to equity shareholders of the 12,877 27,271
Parent Company
Goodwill acquired in 2022 relates to the workforce, synergies, sales and
purchasing knowledge and experience. Goodwill arising on the DVS and Nimans
acquisitions has been allocated to the UK and Ireland segment.
Net cash outflows of acquisitions 2022
DVS Nimans
£'000 £'000
Consideration paid in cash 8,580 16,500
Less: cash and cash equivalent balances acquired (643) (2,065)
Net cash outflow 7,937 14,435
Plus: borrowings acquired 4,375 2,314
Net debt outflow 12,312 16,749
Post-acquisition contribution 2022
Acquired subsidiaries made the following contributions to the Group's results
for the year in which they were acquired, from their respective acquisition
dates:
DVS Nimans
£'000 £'000
Date acquired 7 Jan 7 Feb
Post-acquisition contribution to Group revenue 38,600 115,055
Post-acquisition contribution to Group profit after tax 762 4,245
Proforma full year contribution 2022
Acquired subsidiaries would have made the following contributions to the
Group's results for the year in which they were acquired if they were acquired
on 1 January 2022:
DVS Nimans
£'000 £'000
Date acquired 7 Jan 7 Feb
Post-acquisition contribution to Group revenue(1) 38,600 125,703
Post-acquisition contribution to Group profit after tax(1) 762 4,738
As the acquisition of DVS occurred on 7 January 2022 the acquired subsidiary
made a full year contribution to the Group's results for the year. The revenue
and profit after tax(1) for the Group would have been no different if the DVS
were acquired earlier.
As the acquisition of DVS occurred on 7 January 2022 the acquired subsidiary
made a full year contribution to the Group's results for the year. The revenue
and profit after tax(1) for the Group would have been no different if the DVS
were acquired earlier.
(1)These amounts have been calculated using the results of subsidiaries and
adjusting them for differences between the accounting policies and Generally
Accepted Accounting Principles applicable to the subsidiaries and the
accounting policies and IAS reporting requirements of the Group. The
translation adjustments to modify the reported results of the subsidiaries
have been applied as if the Group's accounting policies and IAS reporting
requirements had always been applied. The translation adjustments include the
additional depreciation and amortisation charges relating to the fair value
adjustments to property, plant and equipment and intangible assets assuming
the fair values recognised on acquisition were valid on 1 January 2022,
together with the consequential tax effects.
13. Dividends
On the 16 June 2023 the Company paid a final dividend of £9,388k. Excluding
the effects of waived dividends this equated to 10.50 pence per share. On 27
October 2023 the Company paid an interim dividend of £5,594k. Excluding the
effects of waived dividends this equated to 5.50 pence per share. During the
prior year the Company paid a final dividend of £6,910k and an interim
dividend of £3,991k. Excluding the effects of waived dividends these equated
to 7.80 and 4.50 pence per share respectively.
The Board is recommending a final dividend of 11.0 pence per share which, if
approved, will be paid on 15 June 2024 to shareholders on the register on 5
May 2024.
14. Events after the reporting date
On 19 January 2024, the Group acquired 100% of The Farm North West LLC and The
Farm Norcal LLC ("the Farm"), a business in close proximity to San Jose
in the Silicon Valley, California in the United States of America.
The Farm operates primarily as a sales representative to manufacturers
acting as the exclusive sales agent on behalf of its vendor partners.
The initial consideration is $3,850k adjusted for cash or net debt as at the
closing date with contingent consideration payable in 2025, 2026 and 2027. The
maximum amount of consideration across the three years is $12,150k, of which a
maximum of only $6,075k can be paid in 2025.
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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