Midwich confident after solid first half

Midwich Group reported a robust first-half performance amid challenging market conditions on Tuesday, with a 5.8% increase in revenue to £646.1m, or 7.5% at constant currency.

The AIM-traded audio-visual distributor said despite that growth, it faced a 30.9% decline in operating profit to £12.8m and a 34.9% drop in profit before tax to £10.1m, primarily due to ongoing market challenges and increased operational costs.

It highlighted a significant improvement in gross margins, which rose to a record 17.3%, up from 16.3% in the prior year.

The margin expansion was driven by a strategic shift towards higher-margin technical products, which now comprised nearly two-thirds of the group's revenue.

Technical product revenue grew by over 13%, supported by strong performances in technical video, audio, LED, and rental categories, particularly in the live events and entertainment sectors.

The group's North American operations performed particularly well, with sales up 69% and organic revenue growth of 16.8%.

Gross margins in the region also reached a record 19.7%.

The acquisition of California-based The Farm in January further bolstered Midwich's position in the audio and technical video markets.

Looking ahead, Midwich said it had a positive start to the second half, with a return to growth in July.

The company said it had made substantial progress with its overhead reduction programme, expected to be largely complete by the end of the year, delivering annualised savings of over £5m from early 2025.

Additionally, Midwich acquired the remaining 70% stake in Dry Hire Lighting, enhancing its presence in the UK live events market.

Despite ongoing macroeconomic challenges, the board said it remained optimistic about its full-year performance, expecting trading results to align with previous expectations.

Midwich said it was continuing to pursue selective acquisition opportunities to support its long-term growth strategy.

“Our performance in the first half demonstrated the robustness of Midwich's offering, against a tough market backdrop, with the group delivering revenue growth of 7.5% at constant currency and a significant improvement in our group gross profit percentage, moving from 16.3% in the first half of 2023, to a new record of 17.3%,” said managing director Stephen Fenby.

“The AV market at the end of 2023, and through the first half of 2024, was affected by a degree of oversupply of mainstream products and associated discounting.

“Demand in corporate and education markets remained subdued, although this was largely offset by ongoing strength in the live event and entertainment sectors.”

Fenby said the change in mix was reflected in both a further increase in the mix of technical video and audio products sold by the group, and higher gross margins.

“Whilst it is prudent to assume macroeconomic conditions in certain markets, such as the UK and Ireland, will likely remain challenging for the remainder of 2024, we have seen some signs of the market stabilising in recent weeks, with market survey data indicating a recovery in pricing in the second half of the year.

“Trading since the start of July has been in line with the board's expectations and slightly ahead of 2023.”

Stephen Fenby said the group had acted to become stronger during recent months, ahead of the anticipated market recovery, with a focus on adding new vendor opportunities, further targeted acquisitions and a focus on overhead efficiencies.

“These actions position the group well to return to operating profit growth in the second half of 2024.”

At 0832 BST, shares in Midwich Group were up 1.54% at 329p.

Reporting by Josh White for Sharecast.com.