Midwich Group Plc · LSE:MIDW
Midwich — H1 2023 Earnings Presentation
44 slides from Midwich's earnings presentation, Sep 5, 2023
Slide 1: 2023 Half Year Results
2023 HALF YEAR RESULTS September 2023 1
Slide 2: Financial Highlights
FINANCIAL HIGHLIGHTS “Strong gross margin improvement Revenue Growth Organic growth resulting in operating £610m 7.4% 2.3% profit growth of over 2022: £569m CFX: 5.1% 2022: 27.9% 30%” Gross Margin Adjusted operating profit1 Adjusted op. profit margin1 16.3% £26.4m 4.3% 2022: 14.9% 2022: £20.2m 2022:
Slide 3: Strengths and Defensibility
STRENGTHS AND DEFENSIBILITY ✓ Focus on the AV market; ✓ Key long-term, value-add relationships with major vendors and customers; ✓ High value-add distribution with specialisms and bespoke service offering, acting as a key differentiator; ✓ Leading competitive position and established international p
Slide 4: Long Track Record of Growth
LONG TRACK RECORD OF GROWTH Sixteen years of unbroken revenue growth The Group has achieved compound annual growth in revenue and adjusted operating profit since IPO in 2016 of CAGR over 16 years of 15% (21% since 2019) 22% and 19% respectively, testament to the strength of our long-term strategy an
Slide 5: Profitability Trends
PROFITABILITY TRENDS Gross Margin Adjusted EBIT Margin Favourable product mix has led to significant improvement in gross profit margin. Little impact from aged stock provision movements in 5.0% H1 2023. Gross Margin % 4.5% 4.3% 16.5% 16.3% 4.0% 16.2% 3.6% 16.0% 3.5% 15.5% 15.4% 3.0% 15.3% 15.3% 14.
Slide 6: Current Landscape
CURRENT LANDSCAPE General Market Conditions • General economic weakness having an impact on our markets – to varying degrees; • UK&I and Australian markets particularly impacted, with some impact in US and mainland Europe. Continued strength in Middle East; • COVID-related factors now virtually elim
Slide 7: Long Term Growth Strategy Remains Unchanged
LONG TERM GROWTH STRATEGY REMAINS UNCHANGED Why? How? Success Measures Specialisation Relevance Portfolio management Growth in technical product sales1 Profitability Acquisition Long term growth in gross margin Defensibility Value add services Geographical Support Acquisition Number of territories C
Slide 8: Revenue Development of the Business
REVENUE DEVELOPMENT OF THE BUSINESS Specialisation H1 2022 H1 2023 • Technical product categories continues to increase in importance (2019 36%); • Displays and projection now 38% of sales (2019 57%); Geographical H1 2022 H1 2023 • Increase in North Coverage America and EMEA mix in line with Group s
Slide 9: Low Concentration of Customers and Vendors (2022 Data)
LOW CONCENTRATION OF CUSTOMERS AND VENDORS (2022 DATA) Vendors • Reduced vendor • Largest supplier accounts for 11% of sales; concentration dilutes risk; • Top 10 vendors account for 45% sales; • Significant gains from • 12 of our top 20 vendors have started working with us in the last 5 years; winn
Slide 10: Market Data
MARKET DATA 2023 • AVIXA has downgraded global ProAV growth in 2023 to 7.6%, but we believe this remains overoptimistic and that a further downward revision could be made later in the year; • Significant reductions were seen in flat panel, interactive displays and projection markets in H1 2023 (Futu
Slide 11: Significant Market Opportunity
SIGNIFICANT MARKET OPPORTUNITY Substantial addressable Market Opportunity to grow remains Significant Note: Assumes £1=$1.22 in 2022 and 2027 and £1-= $1.37 in 2021 2027 global revenue scenarios: (£ million) Addressable market is an estimate based on: Possible additions not taken into account: Targe
Slide 12: Revenue Bridge H1 2023
REVENUE BRIDGE H1 2023 Organic +2.3% +7.4% vs H1 2022 +2.8% -6.0% +9.5% +2.3% +5.4% 5.1% Revenue increase (CFX) 2.3% Organic revenue increase 12 12
Slide 13: UK & Ireland (38% Group Revenue)
UK & IRELAND (38% GROUP REVENUE) AV Hub EXPERIENCE CENTRE, EDINBURGH 11 • After an exceptionally strong H1 2022, which saw some post Covid-19 expenditure catch up and associated revenue growth of 86.3%, revenue in the UK & Ireland (UK&I) was Offices in marginally below the prior year. This reflected
Slide 14: EMEA (46% Group Revenue)
EMEA (46% GROUP REVENUE) 17 • The EMEA region comprises our businesses in France, Germany, Switzerland, Benelux, Offices in Norway, Italy, Iberia, and the Middle East. EMEA • Revenue, on a constant currency basis, increased by 9.5% to £281.3 million, with organic growth also being 9.5%. • Whilst Ger
Slide 15: Asia Pacific (4% Group Revenue)
ASIA PACIFIC (4% GROUP REVENUE) 6 • Revenue in Asia Pacific was up 2.3% on the prior year. • There was good growth in mainstream product demand, whilst broadcast sales returned to normal after a period of strong demand during the pandemic. Whilst we continue to Offices in see a higher level of enqui
Slide 16: North America (12% Group Revenue)
NORTH AMERICA (12% GROUP REVENUE) • Organic revenue at Starin (our US business) increased by 5.4% reflecting continue demand for UC&C solutions. Starin continues to deliver gross margins which we understand are ahead of the wider North American market at 14.5%. • First month’s contribution following
Slide 17: Trading Results
• Further revenue growth of 5.1% (CFX) to £610m; TRADING RESULTS • Organic revenue growth of 2.3% reflects strong performance in technical products with some Summary Income Statement headwinds with respect to Constant mainstream product demand; £m Actual change currency H1 2023 H1 2022 change • Exce
Slide 18: Strong Balance Sheet
STRONG BALANCE SHEET • Non-current assets: Increase relates to the acquisition of SFM in Canada in June 2023; Balance Sheet (30 June) £m 2023 2022 • Increase in working capital Non-current assets 164.5 151.5 reflects the growth in revenue and the SFM acquisition; Inventories 168.3 171.4 Trade and ot
Slide 19: Investing in Growth
• Adjusted net cash inflow from INVESTING IN GROWTH operations before tax of £8.2m (H1 2022: (£7.6m)); Cash Flow • Good operating cash flow given £m H1 2023 H1 2022 H1 seasonal working capital Adjusted EBITDA 30.5 23.8 patterns adjusted; (Increase) in stock 2.3 (27.3) • Collections have held up well
Slide 20: Acquisitions
ACQUISITIONS A demonstrable track record of executing accretive deals Company Country Annual Primary Primary end Key vendors Revenue product user market (approx.) set Pro audio, live Canada $100m+ Audio events, corporate Media and UK £25m Audio entertainment Home UK £5m Residential cinema Video edit
Slide 21: SF Marketing: A leading Canadian value add AV distributor
SF Marketing: A leading Canadian value add AV distributor Who they are • Founded in 1978 and grown to become a leading player in the Canadian market • HQ in Montreal, Quebec, with c.146 employees • Represents over 50 audio, broadcast and video brands - strong international audio representation • Sel
Slide 22: Summary and Outlook
SUMMARY AND OUTLOOK Proven long-term financial track record Revenue growth 19.5% CAGR of Good every year since adjusted PBT cash 2005 over 9 years generation Strong market position Market Proven Strong leadership acquisition organic positions model growth Positioned for growth New vendors and Acquis
Slide 23: Appendices
Midwich Group Plc
Slide 24: Experienced Management Team and Board
EXPERIENCED MANAGEMENT TEAM AND BOARD Andrew Herbert Stephen Fenby Stephen Lamb Mike Ashley Hilary Wright Non-Executive Managing Director Finance Director Non-Executive Director Non-Executive Director Chairman Group Finance Director of Domino Joined Midwich as Finance Joined end July 2018 Extensive
Slide 25: Group Management Team
GROUP MANAGEMENT TEAM Stephen Fenby Stephen Lamb Tom Sumner Mark Lowe Managing Director Finance Director Chief Strategy Officer Chief Commercial Officer Mathieu Payet Stuart Mizon Joe Thompson Phil Bligh Managing Director - EMEA Group Commercial Director Corporate Strategy Director Chief Finance Off
Slide 26: Profitability Trends
PROFITABILITY TRENDS Adjusted EPS Adjusted PBT - £m 40 50 36.1p 45.2 45 35 40 28.5p 30 35 27.2p 25.6p 31.2 31.9 29.1 22.9p 30 25 24.3 18.6p Pence 25 20 17.9 15.6p 20 14.6 14.2 15 15 11.7 9.1 11.2p 10 10 5 0 5 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 0 2015 2016 2017 2018 2019 2020 2021 2022
Slide 27: End User Markets
END USER MARKETS End User Markets - Estimated Share 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Source: Midwich estimates 2020 2021 2022 27 27
Slide 28: AVIXA Market Report 2023
AVIXA MARKET REPORT 2023 All segments expected to grow over the next 5 years, with the market confident that new as yet unknown opportunities will arise 28
Slide 29: AVIXA Market Report 2023
AVIXA MARKET REPORT 2023 Growth in hybrid learning expecting to slow after the investment made in the last two years Strong surge in live performance 29
Slide 30: AVIXA Market Report 2023
AVIXA MARKET REPORT 2023 Growth rates close to average of 5.6% across most categories. Exceptions are standalone software and control/ collaboration due to growth in demand from enterprises. Drop in projection follows long term trend. 30
Slide 31: Target3D
2023 CASE STUDY TARGET3D VIRTUAL PRODUCTION STUDIO • New virtual production and motion capture studio in central London. • Designed for filmmakers, game developers, and other creatives to capture an actor’s full range of skills and turn these into a digital character. • Studio features a 10.5 x 3.5m
Slide 32: Tour de France 2023
2023 CASE STUDY TOUR DE FRANCE 2023 • Official presentation to the participating teams in the grounds of the Museo Guggenheim, Bilbao. • Sporting event broadcast by more than 200 television stations around the world. • EARPRO&EES provided lighting and audio solutions with Robe and Shure. • More than
Slide 33: University of Hertfordshire
2023 CASE STUDY UNIVERSITY OF HERTFORDSHIRE EMBRACING LED IN HIGHER EDUCATION • The University undertook a huge project to integrate LED displays into its long-term AV strategy to create state-of-the-art teaching facilities for students and teachers. • The project covered multiple areas of the campu
Slide 34: Why Midwich?
WHY MIDWICH? WHY OUR CUSTOMERS CHOOSE US WHY OUR VENDORS CHOOSE US Nurturing Training and Vertical Credit/business Working Market focus Efficient Scale and Marketing and long-term events market focus services together logistics flexibility sales support relationships 100% Market and Award-winning Pe
Slide 35: Demand Drivers in the AV Industry
DEMAND DRIVERS IN THE AV INDUSTRY Driver Reason Examples • Touch screen in shopping centre reduces need for help desk staff Reduces people costs • Touch screen ordering in fast food outlet reduces serving staff Cost Saving Reduces waste • Elimination of posters reduces paper waste Saves time • Video
Slide 36: Environmental, Social & Governance
ENVIRONMENTAL, SOCIAL & GOVERNANCE Our approach to sustainability has always been about doing the right thing for our business, our stakeholders and wider society. 36
Slide 37: Midwich Group Sustainability Strategy
MIDWICH GROUP SUSTAINABILITY STRATEGY We continue to take our commitment to Environmental and Social Responsibility seriously. Our strategy harnesses the collective power of our culture and is underpinned by strong governance and responsible behaviors. Hilary Wright Non-executive Director 37 37
Slide 38: Materiality Assessment
MATERIALITY ASSESSMENT Working with an external consultant we conducted a detailed materiality assessment to prioritise our focus and inform our strategy decisions. 38 38
Slide 39: Midwich Sustainability: Focus for 2023
MIDWICH SUSTAINABILITY: FOCUS FOR 2023 Our people and Our environmental Our solutions Our channel giving back performance To care about our team and local community. To manage and reduce emissions and To promote AV solutions that help people to To support a sustainable value chain to Developing skil
Slide 40: Group Results Highlights
GROUP RESULTS HIGHLIGHTS 6 MONTHS ENDED 30 JUNE 2023 6 months to 30 6 months to 30 Constant June 2023 June 2022 Growth % currency £m £m growth % Revenue 610.4 568.6 7.4% 5.1% Gross Profit 99.6 84.7 17.5% 15.2% Gross profit margin 16.3% 14.9% Adjusted operating profit1 26.4 20.2 30.9% 27.9% 4.3% 3.6%
Slide 41: Regional Results Highlights – H1 2023
REGIONAL RESULTS HIGHLIGHTS – H1 2023 Region Revenue Revenue CFX % Org % GP % 2022 GP % 2021 GP % H1 2023 £m H1 2022 £m Change UK&I 234.0 239.3 (2.3%) (6.0%) 17.7% 15.7% +2.0% EMEA 281.3 247.9 9.5% 9.5% 15.5% 14.1% +1.4% APAC 25.2 25.0 2.3% 2.3% 17.5% 15.7% +1.8% North America 69.9 56.4 18.7% 5.4% 1
Slide 42: Adjustments to Statutory Results – H1 2023
ADJUSTMENTS TO STATUTORY RESULTS – H1 2023 £m H1 2023 H1 2022 Statutory operating profit/(loss) 18.6 12.7 Acquisition related expenses 0.3 0.4 Share based payments and employer taxes 2.7 2.7 Amortisation of acquired intangibles 4.8 4.4 Adjusted operating profit 26.4 20.2 Statutory profit after tax 1
Slide 43: Modelling Considerations
MODELLING CONSIDERATIONS 1 Deals pre June 2023: £18.9m deferred payments estimated for 2024 with £6.2m estimated for 2025. Acquisitions Deals done H2 to date: Approx £18m of payments in H2 2023 for acquisitions post period end with c£10m of deferred considerations due over the next 3 years. ERP prog
Slide 44: Midwich Group Plc
Midwich Group Plc