Midwich Group Regulatory News (MIDW)

14 March 2017

Midwich Group Plc

("Midwich" or the "Group")

Preliminary Results

Midwich, the leading specialist audio visual and document solutions distributor to the trade market, today announces its maiden Preliminary Results for the year to 31 December 2016.

Financial Highlights

· Revenue increased by 17.8% from £314.3m to £370.1 million (15.1% on a constant currency basis)

· Gross profit margin increased by 0.4% driven by an improving product mix

· Adjusted operating profit increased by 22.2% from £15.2m to £18.5m (19.7% on a constant currency basis)

· Adjusted profit before tax(2) grew 22.8% from £14.6m to £17.9m (20.1% on a constant currency basis)

· Conservative balance sheet with net debt of £15.0 million (76% of Adjusted EBITDA(3))

· Recommended final dividend payment of 7.09 pence per share (2015: nil) taking the total dividend payment for the 8 months from IPO to 31 December 2016 to 8.62 pence per share

Operational highlights

· Improved revenue and net profits across all territories driven by impressive growth in the audio visual business and the continued roll out of technical brands overseas

· Successfully listed on AIM in May 2016, positioning the Group well for its next stage of development and providing a strong platform for future growth

· Acquisition of a majority stake in Holdan Limited - a trade only distributor of professional video products

· Launch with significant new vendors including SMART Technologies in the UK and Ireland, and Biamp in Australia

There will be a presentation for analysts at 9:30am today, 14 March 2017, at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD.

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

"2016 was a transformational year for Midwich with our successful IPO on AIM in May positioning the Group well for its next stage of development. Post-IPO, we also acquired a majority stake in Holdan Limited and the trade and assets of Wired Limited, further strengthening Midwich's market position in the UK and Australasia respectively.

"The Group delivered strong revenue and profit growth in 2016 and I am pleased to report that trading in the first few months of 2017 has built on the good growth we saw last year giving the Board confidence in delivering a result in 2017 in line with its expectations."

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Notes to Editors

Midwich Group is a specialist Audio Visual ('AV') and document solutions distributor to the trade markets, operating across the UK, Ireland, France, Germany, Australia and New Zealand.

The Group's staff of over 500, who operate out of 12 offices, are dedicated to continually enhancing our technical expertise, building extensive product knowledge and delivering strong customer service.

We have a large and diverse base of approximately 10,000 customers and long-standing relationships with over 300 vendors, including blue chip organisations.

The Group supports a comprehensive product portfolio across major technology categories such as large format displays, projectors, digital signage and document solutions.

Chairman's Statement

This is my first statement since joining the Board and becoming Chairman as part of the Group's IPO in May 2016. I am pleased to report that Midwich has delivered a strong set of results in its first year as a public company, achieving both revenue and profit growth across all of its markets and geographies and carrying good momentum into 2017. Revenue growth for this year of 15.1% at constant currency to £370.1 million reflects an impressive level of organic growth across the business along with the successful acquisition of Holdan Limited contributing from part way through the year.

I was delighted to be asked to join the Board of Midwich and have enjoyed working with the team this year. Midwich is a leading business in its markets with an impressive track record of consistent growth while delivering excellent service to both its customers and vendors. As a Board, we are focused on delivering profitable growth and enhancing the capabilities and reach of the Group in its core business areas.

Strategy

As stated at the time of IPO, the Group's strategy for growth is 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. 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.

Dividend

Since IPO in May 2016, the Board has adopted a progressive dividend policy to reflect the Group's strong earnings and cash flow while maintaining an appropriate level of dividend cover to allow the Board to invest in the Group's long term growth.

The Board has recommended a final dividend of 7.09 pence per share (2015: nil) which, if approved will be paid on 21 April to shareholders on the register on 24 March. With the interim dividend declared in September 2016, this represents a total dividend for the period Midwich has been listed to 31 December 2016 of 8.62 pence per share.

Board

Michael "Mike" Ashley and I joined the Board as Non-Executive directors at the time of the IPO in May 2016. Since that time, we have worked closely with the executive members of the Board and Midwich's senior management team to help with the transition to being a public company. I believe we have been successful in establishing a strong corporate governance framework within the business and that Midwich has an experienced Board and management team in place to help grow the business to the benefit of our customers, our vendors, our employees and our shareholders.

People

The success of any company is down to the quality of its leadership and its people. I am very impressed with the skill, commitment and drive of all of Midwich's people and they continue to be the key to the Group's strong track record and continued future success. I would like to thank everyone, across all levels and markets on behalf of the Board for their commitment and hard work that has been the key to delivering these impressive results.

Initial public offering and change of name

On 6 May 2016, the Company was admitted to trading on the AIM market of the London Stock Exchange marking a new chapter in the Group's history. The successful listing has provided the Group with a stable capital base on which to progress further its growth objectives. As part of the process towards delivering a successful initial public offering of the Group, on 15 April 2016, the Company changed its name from Jade 320 Limited to Midwich Group Limited. On the same date the Company re-registered from a Private to a Public Limited Company, becoming Midwich Group Plc.

Andrew Herbert

Chairman

Managing Director's Review

DELIVERING OUR GROWTH PLANS

2016 was an important and transformative year for Midwich, with the business continuing to build on its leading position as a trade-only distribution partner in all its key markets as well as joining the AIM market as a public company. I am very pleased to report that we have been successful in delivering good growth across all the Group's businesses and regions at both a revenue and profit level. As well as impressive organic growth, we have also been successful in using targeted acquisitions to drive future growth as well as build our expertise in a broader range of markets and products.

Strong financial performance

Midwich has delivered a strong growth performance in 2016 with revenue for the year increasing by 15.1% on a constant currency basis to £370.1 million (2015: £314.3 million). This resulted from revenue growth across all regions within the Group, but particularly strong growth in Germany, France and Australia.

Group gross profit increased by 20.2% to £56.5 million (2015: £47.0 million). The growth in gross profit represented a further increase in the Group's gross margin from 14.9% to 15.3%. This increase was delivered through the Group's focus on margins and driving improvement through improving product mix and working closely with vendors and customers alike to add value to both in the supply chain. The growth in Technical Video, LED and Rental sectors also helped improve margins. Midwich has now successfully increased the Group gross margin every year for the last 10 years.

Our adjusted operating profit margin improved from 4.8% to 5.0%. Adjusted profit after tax increased 22.4% to £14.4 million (2015: £11.7 million) and adjusted earnings per share increased 19.5% to 18.6 pence (2015: 15.6 pence). Reported profit before tax was £12.1 million (2015: £8.6 million) and reported earnings per share increased to 10.9 pence (2015: 7.1 pence).

Our business model

Midwich is a specialist distributor serving only the trade market and specialising on audio visual equipment and document solutions. With initial operations in the UK, the Group has expanded its footprint to include Ireland, France, Germany and Australasia. In 2006 the Group started a programme of acquiring smaller businesses which provided it with access to new product, sector or geographical markets. Our general strategy was to acquire businesses which not only added to the Group's capabilities, but which provided exciting opportunities for growth. We continue to have significant success with this strategy.

We believe that our primary role as a distributor is to facilitate growth in the markets in which we operate. We help our manufacturer partners to gain access and grow their businesses in geographical and vertical markets.

The Group's long-standing relationships with over 300 vendors, including blue-chip organisations such as Samsung, LG, Epson and NEC, supports 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. We 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 offers a range of support to our customers, including demonstrating products, training their staff, providing technical assistance through to logistics and post-sales support. We have a large and diverse base of over 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, we believe that the majority of our products are used by commercial and educational establishments rather than consumers.

Midwich has an established track record of acquiring complementary businesses and then assisting them to grow significantly. Over the past four years around one third of turnover and profit growth has derived from acquired businesses, with the majority of growth being organic. Between 2006 and 2008 our acquisition strategy was focused primarily on adding more technical businesses into the UK company. From 2009 onwards the focus turned to expanding the business outside the UK, with a primary drive to have a presence in the three largest European AV markets (the UK, France and Germany). The Group trades as Sidev in France, Kern & Stelly in Germany and Square One Distribution in Ireland.

A continually evolving and growing market sector

Our addressable market in professional audio visual solutions covers areas such as sound, video, lighting, display and projection systems, and are prevalent and relied upon in many areas of daily life - at home, in transit, at the workplace and in a wide range of retail, leisure and recreational uses. The application of AV systems is found in areas such as collaborative conferencing, and digital signage solutions, with end users broadly covering the corporate, events, government, education, retail, hospitality, healthcare and residential markets. The increased use of all this technology is being driven by a number of inter-related factors, such as an increased pace of both technological advancements and technology adoption, changes to working day practices, continued technology convergence, and evolving social and consumer trends. Economic recovery since the global recession has also been beneficial for the AV market, albeit even a more benign corporate and consumer investment environment failed to significantly dampen growth in the market.

In addition to this increased use of our core product sets by end users, the recent trend in the AV market has been towards increased use by large manufacturers of distributors as intermediaries in the AV supply chain, driven by economic factors (vendors trying to reduce costs and financial risk) and growth aspirations (vendors seeking to maximise growth prospects for expanded product lines by an increased distribution reach).

Key events in 2016

This year has seen a number of important events for our business. In May, Midwich was admitted to AIM in order to provide the Group with a stable independent ownership structure and a long-term framework to support future growth and investment. Furthermore, the IPO has positioned the Group for its next stage of development by:

We are delighted that our first year on the market has lived up to expectations.

The issue of New Ordinary Shares at the time of the IPO raised approximately £24.2 million after commissions, fees and expenses. These net proceeds have strengthened the balance sheet of the Group and provided increased capacity to finance growth.

In September part of the proceeds of the IPO were used in the acquisition of Holdan Limited and the acquisition of the trade and assets of Wired Limited.

Holdan is a value-added distributor of technology solutions focused on the broadcast, professional video and traditional audio-visual markets. Holdan is a leader within the UK broadcast market, and has a significant and growing export business and increases the Group's exposure to this growing market segment. Wired is a small New Zealand based AV distributor with offices in Wellington and Auckland specialising in HD distribution solutions for the domestic and commercial market. The acquisition augments Midwich's existing market position and capability in the Australian and New Zealand markets.

Operational review

The Group operates on a geographical basis with entities in the relevant jurisdiction to service the local market.

UK and Ireland

The UK and Ireland segment is our most established division. We improved turnover by 11.5%, helped by the acquisition of Holdan in September 2016, and the full year impact of the acquisition of PSCo in April 2015. Underlying revenue growth was 6.1%. Revenue decline in the document solutions product set was largely compensated for by an improvement in the gross margin percentage.

The displays product set (comprising principally large format, LED and interactive displays, and televisions) grew significantly. The strongest growth was achieved in the interactive display business, helped by the launch of the SMART brand in the second half of the year.

France

In France, Sidev had a very successful year, improving revenue by 39.3% to £33.4 million (2015: £24.0 million). A significant proportion of the sales growth was in large format displays, although the lower gross margin in this product set contributed to a small decline in the division's overall gross margin percentage. As this business grows we hope to be able to improve the gross margin through additional buying economies and careful vendor selection. The growth in revenue, combined with an improvement in operating leverage, led to underlying operating profit more than doubling to £1.1 million (2015: £0.5 million).

Germany

In Germany, Kern & Stelly (K&S) performed very strongly, with revenue growth of 26.0% to £64.3 million (2015: £51.0 million). A focus on higher-end projectors and technical products helped to improve the gross margin percentage. Sales of displays increased at a faster rate than for the Company as a whole, as K&S grows its share of this faster expanding segment. Adjusted operating profit improved by 34.5% to £3.9 million (2015: £2.9 million).

Australasia

Midwich Australia achieved a 42.8% growth in sales from £17.9 million to £25.5 million. Growth was achieved in all major product categories, but particularly in the higher margin technical and audio areas. The acquisition of the small Wired business in New Zealand is helping to build the critical mass of our operation in that country. Adjusted operating profit in Australasia increased by 124.5% from £0.7 million to £1.6 million.

Product offering

The Group distributes and provides technical support for a comprehensive range of technologies. The range of products varies across the geographies with the UK and Ireland offering the largest suite of product options.

Technologies

Displays is the largest technology category for the Group, accounting for 40.4% of Group turnover in 2016 (2015: 37.0%). It grew 28.8% in the year, with particularly impressive levels of growth seen in Germany, France and Australasia.

Projection represents 23.9% of Group turnover (2015: 25.8%) and grew 9.4% in the year, thanks mainly to double digit growth in Germany and France.

At 11.5% of Group sales (2015: 15.6%), Document Solutions (printers, scanners and consumables) which is only sold in the UK and Ireland, is the Group's third largest technology. Revenues in this technology declined by 13.4% in the year.

Sales of Technical products which include the Audio, Security, Broadcast and Technical Commercial and Technical Consumer AV categories, rose 52.2%, partly thanks to the acquisition of Holdan but also thanks to very strong growth in this category in Australasia, Germany and France. Technical products constitute 14.5% of Group sales in the year (2015: 11.2%).

Overview of Group strategy

The Group's growth strategy has and continues to be both organic and inorganic. Our success in sourcing, executing and integrating our chosen acquisitions underpins this growth strategy. The Group takes a disciplined approach to acquisitions, seeking to add capital value without an adverse impact on the existing business. We have a strong ongoing pipeline of opportunities.

Our overall strategy focuses on:

Outlook

We continue to see exciting growth opportunities across all of our markets and geographies driven by increasing demand from end users as well as continued innovation and new products from our manufacturer partners. There is also a continued trend in the increasing use and need for high quality distributors such as Midwich to support the professional audio visual and document solutions market. As a result, we continue to exploit a significant number of organic growth opportunities from targeting new vendors while continuing to grow our customer base.

We are pursuing acquisition opportunities that would fit within our strategic focus of adding new product ranges, capabilities or geographies to our existing portfolio.

The Board is continuing to pursue the strategy detailed at the time of the IPO, and is pleased with the progress made since Admission. Trading in the first few months of 2017 has built on the good growth we saw through last year giving the Board confidence in delivering results in 2017 in line with its expectations.

Stephen Fenby

Managing Director

Financial review

Trading results

The Group enjoyed a solid first year as a public company.

Turnover of £370.1m (2015: £314.3m) represented growth of 17.8%. With the gross profit margin rising 0.4% to 15.3%, the Group generated absolute growth in gross profit of £9.5m. This translated into adjusted operating profit of £18.5m, growth of £3.4m or 22.2% year on year. Before adjustments, operating profit grew from £12.6m to £14.5m.

A weakening sterling, primarily against the Euro and especially in the second half of the year, boosted our overseas earnings. On a constant currency basis, our growth in turnover and PAT were 15.1% and 20.0% respectively.

Segmental Review

Each of the trading segments performed strongly.

UK & Ireland

UK revenue grew 11.5% to £247.0m, generating gross profit of over £39.3m at a gross profit margin of 15.9% and adjusted operating profit of £12.0m, representing growth of 9.1%. Organic revenue growth was 6.0%.

Germany

Revenue in Germany grew 26.0% to £64.3m with Kern and Stelly's operating profit growing 34.5% to £3.9m including the benefit of a 0.7% rise in gross profit margin to 13.2%. In constant currency, revenue and operating profit grew 18.0% and 26.0%, respectively.

France

Sidev, in France, was able to double its adjusted operating profit on revenue growth of 39.3% and despite the gross profit margin falling 0.2% to 13.5%. In constant currency, revenue and operating profit grew 30.0% and 91.0%, respectively.

Australasia

Midwich Australia's adjusted operating profit grew 124.0% to £1.6m as a result of revenue growth of 43.0% to £25.5m and an increase in gross profit margin of 1.9% to 16.2%. In constant currency, revenue and operating profit grew 34.0% and 111.0%, respectively.

Profit before Tax

Profit before tax for the year increased by 41.4% to £12.1m (2015: £8.6m), while adjusted profit before tax for the year increased by 22.8% to £17.9m (2015: £14.6m).

Tax

The effective tax rate was 22.7% in 2016, representing a small increase on 2015. Sidev, which is based in France, exhausted its cumulative losses in the course of 2016 and began to pay a full rate of corporate tax in the year however the Group benefitted from a positive adjustment to tax payable brought forward into the year in PSCo (UK) and in Midwich Australia.

Earnings per share

Basic earnings per share is calculated on the total profit of the Group attributable to shareholders. Basic EPS for the year was 10.9p (2015: 7.1p), representing growth of 52.9%. Diluted EPS was 10.9p (2015: 7.1p).

Dividend

The Board has proposed a final dividend of 7.09p per share which, together with the interim dividend of 1.53p paid in October 2016 gives a final dividend of 8.62p for the 8 months since listing. If approved by shareholders at the general meeting, the final dividend will be paid on 21 April 2017 to those shareholders on the register on 24 March.

Cash flow

Following the strong trading result in the year, the Group's adjusted operating cash flow conversion, calculated comparing adjusted cash flow from operations with adjusted EBITDA, dropped to 44.5% compared to 128.8% for the prior year. The reduction in the year was expected and was primarily a result of an abnormally low level of net working capital in the 2015 year-end position of the Group, particularly in Germany. The reversal of this in the first quarter of 2016 caused the apparent shift in use of cash. The Board is content that this was a timing issue and that, over a two-year period, cash flows are normal.

Gross capital spend was £2.3m including approximately £0.8m which was incurred in the last quarter by Holdan for the freehold acquisition of its new site. Rental assets accounted for £0.7m of this spend. Excluding these two items, capital spend was £0.8m.

Net debt

At 31 December 2016, the Group had net debt of £15.0m (2015: £29.8m). The Group has a strong Balance Sheet with closing net debt/EBITDA ratio of just 76%. This, combined with the Group's underlying cash generation, equips the Group well to fund short term swings in working capital as the Group delivers organic growth as well as to continue its buy and build strategy where appropriate opportunities arise. Borrowings of £35.1m at 31 December 16 compare to facilities totalling £55.2m at that date.

Goodwill and intangible assets

The Group's goodwill and intangible assets of £23.4m (2015: £22.8m) arise from the various acquisitions undertaken. Each year the Board reviews goodwill for impairment and, as at 31 December 2016, 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.

ADJUSTMENTS TO REPORTED RESULTS

Principal Risks

Dependence on key personnel

The Group is dependent upon key senior management personnel who have extensive experience and knowledge of the Group, the Group's markets, product and service offering, vendor portfolio and customer base. The successful delivery of the Group's strategy depends on the continuing availability of senior management and the Group's ability to attract, motivate and retain other qualified employees.

The Group actively measures the retention of talent within the business, actively engages with employees by focusing on training and development and conducts an annual assessment of remuneration packages to ensure market position is maintained. In addition, the Group has adopted share plans to align the interests of senior management and the broader employee workforce with those of Shareholders.

Expected benefits from acquisitions may not be realised

The Group intends to continue executing its strategy of entering into new jurisdictions through carefully targeted acquisitions. The Group also intends to pursue targeted acquisitions in its current markets in order to bolster product offerings and sector penetration, increase scale of gain access into new market segments.

Acquisitions give rise to inherent execution and integration risk. The process of integration may produce unforeseen operating difficulties and expenditures and may absorb significant attention of the Group's management. They also may involve unforeseen liabilities, difficulties in realising costs or revenues, loss of key employees and customer relationship issues. A poorly implemented acquisition could damage the Group's reputation, brand and financial position.

The Group only enters into acquisitions after a through due diligence exercise which will involve a detailed review of operational, resource & financial trends and forecasts as well as a thorough analysis of the target's compliance record. Numerous personal visits to the target will take place in order to establish the viability of accommodating it and its senior management into the Group. The structure of most acquisitions will involve a significant financial incentive for departing shareholders to perform toward certain financial targets in the first three years after acquisition in order to maximize their disposal value.

Loss of key customers

Most of the Group's customers contract with the Group on a deal by deal basis with no formal ongoing purchasing commitment. As such they have a voluntary right to terminate their contractual relationships with the Group without notice or penalties. There is therefore a lack of certainty in respect of the retention of existing customers why may elect not to continue contracting with the Group.

The Group does have a very large customer base of approximately 10,000 AV integrators and IT resellers many of whom have long term relationships with it. The diversity of the Group's customer base is demonstrated by the fact that that no customer accounted for more than 2.4% of overall Group revenues for the year ended 31 December 2016. By providing a best in class service in terms of stock availability, logistics and credit capacity, the Group intends to continue to keep our customer base satisfied.

Loss of key vendors

There is no formal ongoing contractual commitment to the Group by the majority of vendors. As such they have a right to terminate their contractual relationships with the Group without notice or penalties. In addition, certain vendors provide the Group with incentives in the form of rebates, marketing developments funds, early payment discounts and price protections which enable the Group to manage it profitability. There can be no assurance that the Group will continue to receive the same level of income in future.

Many of the Group's vendor relationships are long term, established and now cover a number of territories. By bringing projects to our vendors and enabling them to fulfil their market share aspirations the Group will continue to maintain strong relationships with its vendors.

Consolidated Income Statement for the year ended 31 December 2016

Consolidated Statement of Comprehensive Income for the year ended 31 December 2016

Consolidated Balance Sheet as at 31 December 2016

The financial statements were approved by the Board of Directors and authorised for issue on 13 March 2017 and were signed on its behalf by:

Mr S B Fenby

Director

Company registration number: 08793266

Consolidated Statement of Changes in Equity for the year ended 31 December 2016

For the year ended 31 December 2016

*See note 7

For the year ended 31 December 2015

Consolidated Statement of Cash Flows for the year ended 31 December 2016

Nature of operations

The principal activity of Midwich Group Plc, a public limited liability company, and its subsidiary companies is the distribution of Audio Visual and Document Solutions to trade customers. It is registered in England and Wales. Midwich Group Plc's shares are listed on the London Stock Exchange's Alternative Investment Market (AIM).

Principal Accounting Policies

Basis of preparation

The information in this news release does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2016 will be delivered to the Registrar of Companies in England and Wales in accordance with Section 441 of the Act. The auditor has reported on those accounts. Its report was unqualified and did not contain a statement under Section 498(2) or (3) of the Act.

The Consolidated Financial Statements of Midwich Group Plc and its subsidiaries (together, "the Group") have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the EU, IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

IFRS is subject to amendment and interpretation by the IASB and the IFRS Interpretations Committee, and there is an on-going process of review and endorsement by the European Commission. These accounting policies comply with each IFRS that is mandatory for accounting periods ending on 31 December 2016.

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 consider that the company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.

Basis of consolidation

The Consolidated Financial Statements incorporate the results of Midwich Group Plc ("the Company") 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 values 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 from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder's share of changes in equity since the date of the combination.

Non-controlling interests are measured initially at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net assets.

Acquisition-related costs are expensed as incurred.

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

The Board takes all reasonable steps to review and consider any factors that may affect the ability of the Group to continue as a going concern. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is able to generate sufficient liquidity to continue in operational existence for the foreseeable future. At the end of 2016 the Directors considered the working capital of the business to be adequate for its needs, and the Group therefore continues to adopt the going concern basis in preparing consolidated financial statements.

Revenue recognition

Revenue comprises amounts recognised in respect of goods and services supplied during the period, exclusive of Value Added Tax and trade discounts.

Revenue from the sale of goods is recognised when goods are despatched. Revenue from rental products is recognised evenly over the rental period.

Some goods are held on behalf of customers and are not included within group inventory. The sale of these goods are recognised on isolation from stock for resale.

Promotional income is recognised on completion of the promotional activity in line with when it is contractually earned, and recorded separately in other operating income.

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.

Dividends on preference shares classified as debt are included as finance costs.

Other finance costs include the changes in fair value of financial derivatives.

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 accumulated impairment losses, if any.

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, if any.

The useful lives of other intangible assets are assessed as finite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in administrative expenses.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised

Amortisation is calculated on a straight-line basis over the estimate useful life of the asset as follows:

Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation less any recognised 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 provided on all property, plant and equipment and is calculated on a straight-line basis as follows:

Depreciation is provided on cost less residual value. The residual value, depreciation methods and useful lives are annually reassessed.

Each asset's estimated useful life has been assessed with regard to its own physical life limitations and to 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.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.

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 is 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 balance sheet date the Directors review the carrying amounts of the Group's non-current assets, other than goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from other assets, the Directors estimate 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 its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its 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.

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.

Financial instruments

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

Derivative financial instruments are accounted for at Fair Value Through Profit or Loss. All changes in an instrument's fair value are included in finance costs or finance income. The fair values are determined by reference to active markets or using a valuation technique where no active market exists.

Put and call options to acquire non-controlling interests of subsidiaries are stated originally at fair value and subsequently at amortised cost, being the present value of future payments discounted at the original effective interest rate. Details of the measurement of put and call options are given in the critical accounting judgements and key sources of estimation uncertainty accounting policy.

Financial assets and financial liabilities are measured initially at fair value plus transactions costs. Financial assets and financial liabilities are measured subsequently as described below.

Financial assets

The Group classifies its financial assets as 'loans and receivables' and assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulty, high probability of bankruptcy or default are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The loss is recognised in the Income Statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited to the Income Statement.

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.

Financial liabilities

The Group's financial liabilities include trade and other payables, deferred consideration, borrowings and derivative financial instruments.

Borrowings include amounts advanced under invoice discounting facilities. 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.

Preference shares not held by the employee benefit trust are classified as a financial liability, with fixed rate dividends accounted for as interest.

Trade and other payables and borrowings are recognised initially at fair value less transaction costs and subsequently measured at amortised cost using the effective interest method ("EIR" method).

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the Income Statement.

Loans and borrowings are classified as current liabilities unless the Group has an unconditional right to defer the settlement of the liability for at least 12 months after the balance sheet date.

A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

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 have been translated at rates in effect at the balance sheet date, with any exchange adjustments being charged or credited 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 balance sheet 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 disposed of, or partially disposed of, is recognised in the Income Statement at the time of disposal.

Current taxation

Current tax payable or recoverable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because some items of income or expense are taxable or deductible in different years or may never be taxable or deductible. The Group's liability for current tax is calculated using UK and foreign tax rates and laws that have been enacted or substantively enacted by the end of reporting period date.

Deferred taxation

Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. However, if the deferred tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. No deferred tax is recognised on initial recognition of goodwill or on investment in subsidiaries. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet 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 balance sheet 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.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. The interest element of finance lease payments is charged to profit or loss as finance costs over the period of the lease. All other leases are classified as operating leases.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Equity

Equity comprises the following:

· "Share capital" represents the nominal value of equity shares issued.

· "Share premium" represents amounts subscribed for share capital, net of issue costs, in excess of 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.

· "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 fair value of written put and call options over shares in a subsidiary held by non-controlling interest shareholders accounted for as contracts over own shares.

· "Capital redemption reserve" represents the nominal value of shares repurchased by the Parent Company.

· "Other reserve" relate to the employee benefit trust.

· "Non-controlling interest" represents the share of a subsidiary's profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests.

Share-based payments

Equity-settled share-based payments to employees and Directors are measured at the fair value of the equity instrument. The fair value of the equity-settled transactions with employees and Directors is recognised as an expense over the vesting period. The fair value of the equity instruments are determined at the date of grant, taking into account market based vesting conditions. The fair value of goods and services received are measured by reference to the fair value of options.

The fair values of share options are measured using the Black Scholes model. The expected life used in the models is adjusted, based on management's best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees (or other beneficiaries) 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 or not the market condition is satisfied, provided that all other performance and/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, as described in the previous paragraph.

Where an equity-settled award is forfeited, 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 trust (EBT) have been included in the group and company accounts. Any assets held by the EBT cease to be recognised on the group balance sheet 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 1.

New and amended International Financial Reporting Standards adopted by the Group

The Group has adopted the following standards, amendments to standards and interpretations which are effective for the first time this year. The impact is shown below:

International Financial Reporting Standards in issue but not yet effective

At the date of authorisation of the Consolidated Financial Statements, the IASB and IFRS Interpretations Committee have issued standards, interpretations and amendments which are applicable to the Group.

Whilst these standards and interpretations are not effective for, and have not been applied in the preparation of, these Consolidated Financial Statements, the following may have an impact going forward:

*Based on the current business model and accounting policies, management does not expect material impact on the financial information when the standards become effective, except for IFRS 16. The Group is considering the implementation implications. The Group does not expect IFRS 15 to have a material impact on the business as the key principles have already been adhered to within the current revenue recognition policy.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Assumptions and accounting estimates are subject to regular review. Any revisions required to accounting estimates are recognised in the period in which the revisions are made including all future periods affected.

The following are the significant estimates used in applying the accounting policies of the Group that have the most significant effect on the financial statements:

· Impairment review requires judgement with respect to the discount rate, growth rates and components of forecast cash flows.

· Payments in respect of tax liabilities for an accounting period comprise payments on account and payments on final resolution of open items with tax authorities and as a result there can be significant differences between the charge in the income statement and the cash tax payments made.

· Judgement is required in assessing whether a lease is an operating lease or a finance lease, to determine whether or not substantially all the risks and rewards of ownership of the leased asset are held by the Group. Since finance lease obligations are recognised as liabilities and operating lease obligations are not this may have an effect on the reported financial position of the Group.

The following are the significant judgements made by the Group in preparing the financial statements:

Fair value of intangibles recognised in business combinations

Management uses valuation techniques when determining the fair value of assets transferred and liabilities acquired in business combinations which includes estimates to determine the valuation of separable intangibles. Valuation models used are based on acknowledged industry approach and, where appropriate, external market data.

Put and call option

Until 2016, the group has had a symmetrical put and call option over the non-controlling interest held by local management in Kern & Stelly Medientechnik GmbH, which was extinguished as a result of the acquisition of the non-controlling interest during 2016.

As a result of the acquisition of Holdan Limited during 2016, the group has a second symmetrical put and call option over the non-controlling interest held by local management in that company.

For both, the call option is required to be accounted for as a contract over own shares. The liability is recorded at the present value of the redemption amount and is accounted for as a separate component in equity on the basis that the group does not consider it currently holds the risks and rewards associated with the ownership of these shares.

Determination of share based payment costs

The determination of these costs is based on financial models. The inputs to these models are based on the directors' judgements and estimates and are not capable of being determined with precision.

Notes to the Consolidated Financial Information

1. Segmental reporting

Operating segments

For the purposes of segmental reporting, the Group's Chief Operating Decision Maker (CODM) is considered to be the Managing Director. The Group is a distributor of audio visual ("AV") hardware and document 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.

The Group's operating segments are therefore considered geographic in nature and align to subsidiaries / subsidiary groups.