18 July 2023

Midwich Group PLC

("Midwich" or "the Group")

Pre-close Trading Statement

Midwich Group (AIM: MIDW), a global specialist audio visual distributor to the trade market, is pleased to provide a trading update for the six months ended 30 June 2023 ("H1 2023").

Overall trading was strong in H1 2023, with record first half revenues and adjusted profit before tax. 

Revenue is expected to be in excess of £610 million, an increase of over 7.5% versus H1 2022 (5.1% growth on a constant currency basis). Organic revenue growth on a constant currency basis was 2.2% versus H1 2022. Continued recovery in the live events market was partly offset by slower corporate and education markets, particularly in the UK & Ireland. 

The overall gross margin was around 16.3%, which is significantly higher than the 14.9% achieved in H1 2022 and the highest since the previous record in 2019. The mix of sales was the main factor in this strong growth, driven by higher margin sales into the live events market.  

Adjusted EBIT was around £26 million, an increase of over 25.0% versus H1 2022. The EBIT margin was around 4.3% of sales (H1 2022: 3.6%).

Adjusted profit before tax for H1 2023 is expected to be over £21.5 million, compared with £19.2 million in the first half of 2022, an increase of over 14.0%.

Trading in EMEA was strong, with revenue around 14.0% higher than in H1 2022 (around 10.0% on a constant currency basis). The EMEA audio businesses performed very well leading to strong improvements in gross and adjusted operating margins in the region.

Revenue in the UK & Ireland was marginally below H1 2022, but strong gross margins and overheads management led to a significant increase in operating profits in the region.

Cash generation was better than the Board's expectations.  Adjusted net debt* increased by around £7 million from the prior year end to £103m, as a result of M&A spend and normal working capital seasonality, less the balance of the £50 million equity issue completed in June 2023.  At 1.5x adjusted net debt over adjusted EBITDA** at the period end, leverage remains comfortably within the Group's covenants.

Acquisitions

In June 2023, the Group acquired SF Marketing, a specialist value-add AV distributor in Canada, adding 1,500 new customers and strengthening relationships with key tier-1 vendors in the audio and visual markets.

Post the period end, and in line with the stated use of proceeds of the equity issue in June 2023, the Group has acquired Toolfarm.com, Inc and Digital Media Promos, Inc (trading as 76 Media) in the US, and HHB Communications Holdings Limited in the UK. The aggregate cash spent (net of cash acquired) on these three transactions was around £16 million.

Outlook

With order books remaining healthy, unless general economic conditions deteriorate significantly, the Board expects the momentum seen in H1 2023 to continue throughout the remainder of the year.  As a result, the Board continues to expect trading performance for the full year to be in line with its previous expectations before the positive contribution from the three acquisitions completed in July.

Midwich will announce its half year results for the six months ended 30 June 2023 on 5 September 2023.

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

** Adjusted EBITDA represents operating profit before acquisition related expenses, share based payments and associated employer taxes, depreciation and amortisation and includes a proforma contribution twelve month contribution from acquisitions  

For further information:

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 over 600 vendors, including blue-chip organisations, support a comprehensive product portfolio across major audio visual categories such as large format displays, projectors, digital signage and professional audio. The Group operates as the sole or largest in-country distributor for a number of its vendors in their respective product sets.

The Directors attribute this position to the Group's technical expertise, extensive product knowledge and strong customer service offering built up over a number of years. The Group has a large and diverse base of over 20,000 customers, most of which are professional AV integrators and IT resellers serving sectors such as corporate, education, retail, residential and hospitality. Although the Group does not sell directly to end users, it believes that the majority of its products are used by commercial and educational establishments rather than consumers.

Initially a UK only distributor, the Group now has around 1,800 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