Midwich upbeat on first half as markets gradually reopen
Specialist audiovisual distributor Midwich Group updated the market on its first half of trading on Tuesday, reporting that the momentum it reported in the second half of 2020 had continued, with group revenue for the period expected to be about 29% higher year-on-year at £390m.
The AIM-traded firm did note that the growth represented a weak comparator due to the onset of the Covid-19 pandemic in the second quarter of 2020, adding that organic growth was about 25%.
It said its overall gross margin was 15.2% for the six months ended 30 June, 0.7% higher than in the first half of 2020, and 0.9% higher than for 2020 as a whole.
“The group has seen improvements in product mix and in rebates received, although we believe that further gross margin improvements should be deliverable once lockdowns are eased further and the live events, entertainment and hospitality markets return more fully,” the board said in its statement.
Adjusted profit before tax for the period was expected to be around £13m, compared with £3.2m in the first half of 2020.
Midwich said trading in the Europe, Middle East and Africa geography showed the greatest improvement, with revenues up 65% year-on-year, and net profit “substantially higher”.
Its recent acquisitions of eLink and NMK made strong positive contributions to the results, but organic revenue and profit also improved in almost all of the group#s businesses, particularly in Germany and France.
The board said performance in the UK and Ireland improved “significantly” after the easing of more severe lockdown restrictions earlier in the period.
Revenues there were ahead 25%, helped by the contribution from new vendors launched in late 2020 and in the first half of 2021, including Barco Clickshare and BirdDog.
The gross margin percentage was flat year-on-year, although that represented a continued improvement on the post-Covid-19 period.
“The live events, entertainment and hospitality markets have remained subdued, but it is anticipated that further easing of restrictions should enable these markets to return towards normality, thus improving sales and margins in the UK and Ireland business,” the directors said.
Trading in North America improved steadily in the period, with strong margins being helped by the release of provisions for aged stock sold in the period.
As expected, trading in the Asia-Pacific region was relatively flat compared with the prior year.
Cash generation was in line with the board's expectations, with an increase of around £40m in net debt being a combination of merger and acquisition spend and working capital increases, due to normal seasonality and “significant growth” in the business.
The board said the firm’s leverage remained “comfortably within” its covenants.
“If lockdown restrictions within the group's key markets continue to ease, the board expects the momentum seen in the first half of 2021 to continue throughout the remainder of the year,” the board said of the company’s outlook.
“As a result, the board now expects that revenue and profit for the full year will be comfortably ahead of the top end of analyst expectations.”
Midwich said it would announce its results for the six months ended 30 June on 7 September.
At 0857 BST, shares in Midwich Group were up 7.68% at 566.4p.