Midwich Group Regulatory News (MIDW)

12 September 2017

Midwich Group Plc

("Midwich" or "the Group")

Interim Results

Double digit revenue growth and strong net profits across all territories

Midwich, a specialist audio visual and document solutions distributor to the trade market, today announces its interim results for the six-months ended 30 June 2017.

Financial Highlights

· Revenue increased by 33.6% to £211.6 million (27.9 % on constant currency basis)

· Gross margin of 15.3%, in line with full year 2016

· Adjusted operating profit increased by 33.8 % to £10.5 million (27.8 % on constant currency basis)

· Adjusted profit before tax improved by 35.6% to £10.3 million (29.5 % on constant currency basis)

· Interim dividend declared of 4.17 pence per share (2016: 1.53 pence per share), an increase of 36.3% on a like for like basis.

Operational Highlights

· Recent acquisitions have performed ahead of expectations

· Positive full year effect of new distribution agreements

· Continued growth in the audio visual business

Post-Period Highlights

· Acquisition of Gebroeders van Domburg B.V. a Netherlands based audio visual distributor

Stephen Fenby, Managing Director of Midwich Group Plc, commented:

"The Group has performed strongly in the first six months of the year across all geographies with robust organic growth and contributions from recent acquisitions Holdan and Earpro.

"Our business in large format displays continues to grow strongly and we are pleased with progress in the developing specialist broadcast and audio segments.

"Profit margins have been maintained and cash generation is in line with our expectations at this stage of the year. We are pleased to declare an interim dividend of 4.17 pence per share, 36% ahead of prior year on a like for like basis.

"The strong performance reported in the first half year coupled with indications of positive sales momentum and strong contributions from recent acquisitions gives the Board confidence in reporting results for the full year in line with our expectations, which were upgraded at the time of the Group's trading statement on 21 July 2017."

Enquiries:

Notes to editors

Midwich is a specialist AV and document solutions distributor to the trade market, with operations in the UK and Ireland, France, Germany, Iberia, and Australasia. The Group's long-standing relationships with over 300 vendors, including blue-chip organisations such as Samsung, LG, Epson, and NEC, support a comprehensive product portfolio across major audio visual categories such as large format displays, projectors, digital signage and printers. 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 approximately 10,000 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 over 600 employees across the UK and Ireland, Germany, France, Iberia, and Australasia. In the six months to 30 June 2017, 38 per cent of the Group's revenues were derived from outside the UK. 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

MANAGING DIRECTOR'S REPORT

Overview

The Group has performed strongly in the first six months of 2017. Our business continues to develop in all markets, with double digit revenue growth being achieved in all territories, including the UK and Ireland - our most established segment.

Recent acquisitions have performed ahead of expectations, and have helped to grow our presence in the specialist broadcast and audio markets.

We saw strong growth in the displays (particularly large format and interactive displays), broadcast, audio and technical product categories.

Strategy

The Group's strategy for growth continues to be both organic and inorganic, reflecting the contributors to the successful growth track record in recent years.

The Group's organic growth strategy is focused on the provision of market leading support to its customers and vendors. As a distributor, the Group neither develops product nor does it sell to the end-users of those products. It is aware that both its vendors and customers generally have a choice of distribution partner. The Group's expertise is the provision of services which provide the greatest assistance to vendors in pushing product out into the market, and to help customers provide the highest level of support to their end-users.

Underpinning the Group's growth strategy is its success in sourcing, executing and integrating its chosen acquisitions. The Group takes a disciplined approach to acquisitions, seeking to add capital value without an adverse impact on the existing business. Acquisitions remain a fundamental aspect of the Group's strategy and it continues to pursue a strong pipeline of opportunities.

Acquisitions

On 27 March 2017, the Group completed the acquisition of EarPro S.A. ("Earpro"), a value-added distributor of audio, video and lighting solutions in Spain and Portugal. Integration of the business is progressing well and we are pleased with its performance since acquisition.

Post period end, on 6 September 2017 the Group completed the acquisition of Gebroeders van Domburg , a market leading specialist audio visual and lighting distributor in the Netherlands. The Group's robust balance sheet means it is well placed to continue its buy and build strategy both in new and existing territories.

Trading and Financial Review

Group turnover increased by 33.6% to £211.6 million for the period (H1 2016: £158.3 million). Significant double digit growth was achieved in all territories with Germany and Australasia growing at the fastest rates of 47% and 44% respectively. Our business in Germany has continued to gain share in the projection category and to develop its business in the large format and technical categories. Our businesses in Australasia benefited from the introduction of new technical vendors and growth in existing vendors. The UK and Ireland business grew at 27% with Holdan, which was acquired in September 2016, performing strongly. Our business in France grew by 18% driven particularly by the projection category. Earpro had a strong first quarter, contributing nearly £5 million in sales, which was above the Board's original expectations.

The Group's gross margin for the half year fell by 0.3% to 15.3%, in line with the full year result for 2016. The gross margin in the UK business was 0.6% lower than in the first half of last year, partly as a result of one-off high margin document solutions sold in the prior period and partly due to the impact of product mix. The gross margins in Germany and France were also slightly below prior year as a result of product mix effects. Australasia grew its gross margin strongly as it extended its technical vendor base. The gross margin of the Earpro business in Iberia contributed positively to the overall Group result.

Operating profit increased by 56.6% to £8.7 million (H1 2016: £5.6 million). Adjusting for acquisition costs and amortisation, operating profit of £10.5 million represented growth of 33.8%. Adjusted operating profit increased by 28% in the UK & Ireland with particularly strong contributions from Holdan and the PSCo rental business. Operating profit in Australasia grew by nearly 70% and in Germany by nearly 20%. The only territory which experienced a fall in operating profit was France where we have invested in additional resources to support future growth.

Group turnover and adjusted operating profit both grew by 28% on a constant currency basis in the first half. The Group benefited from movements in currency in the first half and the positive impact on adjusted operating profit was approximately £0.4 million.

Taxation

The tax charge for the period was £2.2 million (H1 2016: £1.1 million) which represents an effective current tax rate of 22% (H1 2016: 21%) based on adjusted operating profits less net interest costs. The charge in H1 2017 includes a prior year debit of £0.1 million. The charge in 2016 included prior year credits amounting to £0.3 million.

Financial Position

The Group had a net cash inflow from operations before tax of £3.5 million for the period (H1 2016: outflow £1.2 million). The first half year is traditionally a more working capital intensive period than the full year and this performance was in line with management expectations. 

Net debt at 30 June 2017 was £22.8 million (£15.0 million at 31 December 2016).

Dividend

The Board is pleased to declare an interim dividend of 4.17 pence per share (H1 2016: 1.53 pence per share for the shortened interim period after the IPO), which will be paid on 27 October 2017 to those shareholders on the Company's register as at 22 September 2017.

Outlook

The strong performance reported in the first half year coupled with indications of positive sales momentum and strong contributions from recent acquisitions gives the Board confidence in reporting results for the full year in line with our expectations, which were upgraded at the time of the Group's trading statement on 21 July 2017 .

Stephen Fenby

Managing Director

Unaudited Consolidated Income Statement for the 6 months ended 30 June 2017

Unaudited Consolidated Statement of Comprehensive Income for 6 months ended 30 June 2017

Unaudited Consolidated Balance Sheet as at 30 June 2017

Unaudited Consolidated Statement of Changes in Equity for 6 months ended 30 June 2017

For the period ended 30 June 2017

For the period ended 30 June 2016

*See note 6

For the year ended 31 December 2016

*See note 6

Unaudited Consolidated Cashflow Statement for 6 months ended 30 June 2017

Notes to the Interim Consolidated Financial Information

1. GENERAL

The interim financial information for the period to 30 June 2017 is unaudited and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

They do not include all the information required in annual financial statements in accordance with IFRS, and should therefore be read in conjunction with the consolidated financial statements for the year ended 31 December 2016.

2. ACCOUNTING POLICIES

The interim financial information in this report has been prepared on the basis of the accounting policies set out in the audited financial statements for the year ended 31 December 2016, which complied with International Financial Reporting Standards as adopted for use in the European Union ("IFRS").

The financial information has been prepared on the basis of IFRS that the Directors expect to be applicable as at 31 December 2017.

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.

The statutory accounts for the year ended 31 December 2016, which were prepared under IFRS, have been delivered to the Registrar of Companies. The auditors reported on these accounts; their report was unqualified; did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006, and did not include reference to any matters to which the auditor drew attention by way of emphasis.

3. EARNINGS PER SHARE

Basic earnings per share is based on the profit after tax for the period/year and the weighted average number of shares in issue during the period/year. Preference shares are non-participating and therefore excluded.

Diluted earnings per share is calculated by adjusting the average number of shares in issue during the period to assume conversion of all dilutive potential ordinary shares. Since July 2016, the Group has issued potentially dilutive shares relating to the long term incentive plan available to senior management and key members of staff.

\* The weighted average number of shares for the purpose of earnings per share has been based on the assumed number of shares as if the bonus issue on 6 May 2016 had occurred at the beginning of the earliest period presented.

Taking the Group's LTIP's into consideration in respect of the Group's weighted average number of ordinary shares for the purposes of diluted earnings per share, is as follows:

4. SEGMENTAL REPORTING

1Iberian subsidiary acquired 27 March 2017

5. FINANCE COSTS

6. SHARE CAPITAL

The total allotted share capital of the company is:

Allotted, issued and fully paid