Midwich revenue rises, earnings fall in first half

Specialist audio-visual distributor Midwich Group reported a robust first-half revenue performance on Thursday, but a fall in earnings amid challenging market conditions.

The AIM-traded company said its revenue for the six months ended 30 June was expected to be around £645m, making for an increase of over 5.7% compared to the first half of 2023, with 7.5% growth on a constant currency basis.

However, organic revenue on a constant currency basis decreased 1.1% year-on-year, reflecting the tough market environment, particularly in the UK and Ireland.

Despite those challenges, Midwich achieved a record gross margin of 17.3%, significantly higher than the 16.3% margin recorded a year ago.

That growth was primarily driven by a sales mix weighted towards higher-margin technical products, in line with the group's strategic focus.

Group overheads rose as anticipated due to acquisitions completed in the second half of 2023 and labour cost inflation, which the board said was now easing.

Given the delayed market recovery and overhead cost growth outpacing gross profit increases, the group said it was focussed on delivering targeted efficiencies to improve profitability in the second half of 2024.

Adjusted EBIT for the period was around £21.5m, a reduction of about 17% compared to the first half of 2023 on a constant currency basis.

The EBIT margin was 3.3% of sales, down from 4.3%, while adjusted profit before tax for the period was expected to be at least £16.8m, compared to £21.8m a year earlier.

Revenue in the UK and Ireland remained stable year-on-year but declined by around 4% on an organic basis.

The region experienced slightly lower gross margins and significantly lower operating profits compared to the first half of 2023, due to a challenging market backdrop.

In the EMEA region, trading was robust with revenue in line with the first half of 2023 on a constant currency basis.

Continued investment in technical businesses led to significant gross margin improvements, though softer demand for mainstream categories resulted in lower operating profits.

North America saw a strong trading performance, with sales up about 69% on a constant currency basis, driven by recent acquisitions.

Organic revenue grew by around 17%, achieving record gross margins and significantly higher operating profit compared to the first six months of 2023.

Cash generation in the half-year met the board's expectations, with adjusted net debt increasing by £50m from the prior year-end to £132m.

That increase was due to deferred acquisition payments, normal working capital seasonality, and further investment in the group's ERP system, which went live in its first country in June.

Leverage stood at 2.0x adjusted net debt over adjusted EBITDA at the period end and was expected to reduce to approximately 1.8x by year-end, remaining well within the group's covenants.

Looking ahead, the board said it expected macroeconomic conditions in some markets, such as the UK and Ireland, to remain challenging for the rest of 2024.

However, market survey data suggested a return to growth in mainstream product demand in several key geographies during the second half.

With a strong pipeline of new vendor and acquisition opportunities and a focus on overhead efficiencies, the board said its expectations for adjusted operating profit for the full year remained in line with previous forecasts.

“The group has continued to navigate challenging trading conditions in the first half of 2024, particularly in the UK and Ireland, and has delivered a solid result, despite this backdrop,” said group managing director Stephen Fenby.

“Midwich remains well positioned as the leading global specialist pro AV distributor, with the group's £1.3bn revenue in 2023 representing less than 1% of the global market and just 3-4% of our target addressable market.

“Over the coming years, we anticipate there being significant opportunities to continue growing faster than the overall market, both organically and through acquisition and the Board remains excited by the long-term prospects for the group.”

Midwich said it would announce its half year results for the six months ended 30 June on 3 September.

At 1301 BST, shares in Midwich Group were down 1.66% at 361.9p.

Reporting by Josh White for Sharecast.com.