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(Sharecast News) - Trade-focussed audio-visual distributor Midwich Group reported a robust first-half financial performance on Tuesday, even amid challenging market conditions.
The AIM-traded firm said revenue for the six months ended 30 June increased 7.4% to £610.4m, up from £568.4m in the same period last year.
That growth was primarily organic, contributing to 2.3% of the increase, and remained strong even when adjusted for currency fluctuations, showing a 5.1% rise.
Midwich also demonstrated a marked improvement in its gross margins, which increased to 16.3% from 14.9% year-on-year.
Adjusted operating profit grew significantly by 30.9%, reaching £26.4m compared to £20.2m in the first six months of 2022.
The company's operating cash conversion stood at a 27% inflow, ahead of the board's expectations and a turnaround from last year's 32% outflow.
That, the board said, reflected the company's typical seasonal investments in working capital.
In June, Midwich successfully raised more than £50m in an equity placing, which would support its mergers and acquisitions strategy.
The adjusted net debt of the company at the end of the period was £102.1m, with leverage standing at 1.5x after the equity fundraise and the acquisition of SF Marketing in Canada.
Midwich declared an interim dividend of 5.5p per share, making for a 22% increase from last year's 4.5p per share distribution.
Additionally, the group completed five acquisitions since the reporting period ended, namely Toolfarm.com and Digital Media Promos in the US; HHB Communications and Pulse Cinemas in the UK; and Video Digital Soluciones in Spain.
The aggregate cash spent on those acquisitions, net of cash acquired, totalled £18m.
Looking ahead, despite the broader challenging market conditions, the firm's order books remained healthy.
The board said it anticipated that the strong momentum from the first half would carry through the remainder of the year, and as such, it expected the full-year trading performance to align with its prior expectations.
"Our performance in the first half was strong, with the group delivering revenue growth of 7.4% and adjusted operating profit improving by 30.9% compared with the first half of 2022, despite continued challenging market conditions in a number of key markets," said managing director Stephen Fenby.
"Particularly notable was the significant improvement in our gross profit percentage, moving from 14.9% in 2022 to 16.3% in 2023, and our adjusted operating profit percentage which increased from 3.6% to 4.3%.
"Higher interest charges impacted our adjusted profit before tax, which nonetheless still increased by 13.4% to £21.8 million in the period."
Fenby said slower-than-expected corporate and education markets were more than compensated for by strength in the live event and entertainment sectors.
"The change in mix attributable to the significant growth of technical video and audio products resulted in a favourable product margin mix.
"The EMEA region performed particularly well, with strong improvements in organic revenue, gross margin and adjusted operating profit.
"Although general macroeconomic conditions are widely expected to remain challenging over the coming months, the group continues to be well placed to identify and benefit from organic and inorganic business development opportunities."
Stephen Fenby said he believed the firm's demonstrable track record of performing well despite challenging broader economic conditions was a testament to the quality of its business, and its ability to grow market share profitably.
"Furthermore, our order books remain strong and as a result the board's expectations for the full year remain unchanged."
At 1112 BST, shares in Midwich Group were up 4.42% at 408.3p.
Reporting by Josh White for Sharecast.com.
