Midwich Group Plc · LSE:MIDW
Midwich — H1 2020 Earnings Presentation
37 slides from Midwich's earnings presentation, September 2020
Slide 1: Interim Results Presentation September 2020
Delivering experiences Beyond expectations Heading Sub-Heading Date Delivering experiences Beyond expectations Interim Results Presentation September 2020 1
Slide 2: Financial Highlights
Financial Highlights Revenue Growth Organic growth £302.0m (4.1)% (22.1)% 2019: £314.8m CFX: (3.9)% Gross Margin Adjusted operating profit1 14.5% £4.1m (71.9)% 2019: 16.6% CFX: (71.6)% Adjusted PBT2 Adjusted EPS Net debt £3.2m (79.1)% £41.2m (76.6)% to 2.67p 2019: £53.3m Notes 1 Adjustments are acqu
Slide 3: Impact of Covid 19
Impact of Covid 19 Negative Factors Implication for Group Limitations on customers being able to get on site to undertake installs Generally limitations have significantly eased. Some end users reviewing current project needs A few cancellations, but more delays or reworking. New/ reworked orders no
Slide 4: Short Term Strategy – Key Focus Areas
Short Term Strategy – Key Focus Areas Risk Mitigation Staff safety Working capital management Overhead control Keeping customer service and vendor support as high as possible Secure funding arrangements Cease discretionary capital spend Recovery Planning for short to medium term business development
Slide 5: Revenue Progression
Revenue Progression • Underlying revenue heading back to 2019 levels. Including Starin, revenue since June > 100% of 2019; • Product mix biased towards lower margin products and territories; • New orders reflecting post Covid world requirements now being seen; • Core AV in US represented 7% of Group
Slide 6: Gross margin impact
Gross margin impact • Gross margin reduced from 16.6% to 14.5%; • As expected, lower margin Starin business accounts for 0.4% of the reduction; • Excluding Starin, margins lower across most categories due to: - Lower level of purchases in latter part of Q1 and Q2 means less ability to gain volume pu
Slide 7: Market overview
Global AV market Market overview expected to decline by 8% in 2020, return to 2019 Demand Drivers levels by 2022 and then grow to $315bn by 2025 ▪ Saving cost (five year CAGR 5.8%) Source: AVIXA 2020 ▪ Improving efficiency/effectiveness ▪ Gaining competitive advantage ▪ Environmental considerations
Slide 8: Expected revenue trends by end user market
Expected revenue trends by end user market Impact excluding Starin Starin impact on group revenue 2020 Full recovery by Corporate (30%) 2022 2020 decline halved. Recovery by 2021 Education Single digit growth N/a – growth Double digit growth 2020 accelerates in 2021 Hospitality (60%) 2022 Recovery b
Slide 9: Corporate end user market – short and longer term development
Corporate end user market – short and longer term development Covid 19 has accelerated trends we were seeing already: • Remote working; • Greater use of technology to facilitate communication; • Further adoption of collaboration technology We believe most end users are still trying to determine how
Slide 10: Corporate end user market – short and longer term development
Corporate end user market – short and longer term development Smaller office space • Technology can improve effectiveness where space is limited; • Flexible working results in need for more technology; • Enhanced collaboration solutions needed in order to improve the video conferencing experience (e
Slide 11: Corporate end user market – project examples
Corporate end user market – project examples End User Project Major UK bank Replace Cisco VC with Zoom in all meeting rooms, with complete hardware refresh Global outsourced office provider Considering Haas model for upgrading AV – model facilitates recharging UK HQ for Canadian bank Investing in mo
Slide 12: Education end user market – short and longer term development
Education end user market – short and longer term development Historically we have seen that in difficult economic times, governments continue to spend on education. This mirrors our experience in 2020: • We believe our education business will be greater this year than last – including on an underly
Slide 13: Education end user market – project examples
Education end user market – project examples End user Project Italian university Upgrading 360 classrooms. Moving from wireless to MXA beam tracking microphones – improves in room and remote experience. Adoption of IP technologies and projector upgrade Italian university campus Tailor made AV soluti
Slide 14: Other end user sectors showing good levels of activity
Other end user sectors showing good levels of activity End User Projects Churches Broadcast technologies (including high end audio) Medical and healthcare Improved communication across multiple sites. Some aged care projects Pharmaceutical/ tech Display technologies companies Utilities Meeting room
Slide 15: Starin – integration, development and opportunity
Starin – integration, development and opportunity Despite the difficult conditions, the Starin integration remains on track and the significant US opportunity unchanged: Integration and business improvement • We have built a very good working relationship with the team. Three new key strategic roles
Slide 16: Long term strategy remains unchanged
Long term strategy remains unchanged Sales by type Specialisation ▪ Balance of business remains broadly similar ▪ Technical product sales increase as % of overall business. ▪ Small decline in relative importance of displays ▪ Other includes volume consumer audio Geographical product sold through e-t
Slide 17: Revenue bridge H1 2020
vs H1 2019 Revenue bridge H1 2020 4.1% Organic (22.1)% Revenue Reduction £314.8m 22.1% M&A 18.2% FX (0.2)% £302.0m Organic Revenue Reduction (4.1)% 17
Slide 18: UK & Ireland
UK & Ireland 7 • Steady improvement in revenue from May onwards, with a focus on education, healthcare, streaming and home working use Offices in • Fewer complex projects and a lack of rental activity has impacted UK & Ireland margins • Furlough and overhead savings helped limit the impact on operat
Slide 19: Continental Europe
Continental Europe 10 • Covid 19 impact varies by country and product area with Germany performing the best due to demand for education and Countries with a streaming solutions. Overall revenue down by 8% (13.1% presence organic decline) • New vendor launches expected to support future growth • Limi
Slide 20: Asia-Pacific
Vantage acquisition Asia-Pacific Adds Unified Communications experience • Revenue broadly in line with H1 2019 at constant exchange rates (1.8% organic decline). Margin impacted by change in mix away from high value installation projects • Some disruption from recent local lockdowns • Small Vantage
Slide 21: North America
Starin head office North America • Integration progressing well • Group able to leverage Starin’s unified communications vendor relationships • North American market provides opportunity for future growth 21 21
Slide 22: Trading results
Trading results Summary Income Statement Constant H1 H1 Actual £m currency • Revenue impacted by Covid-19 down 4.1% 2020 2019 change change (Organic reduction of 22.1%) Revenue 302.0 314.8 (4.1)% (3.9)% • Gross margin adversely affected by product Gross profit 43.8 52.2 (15.9)% and project mix; main
Slide 23: Focus on cash management
Balance Sheet Focus on cash management £m H1 2020 H1 2019 Non-current assets 93.8 76.7 Inventories 110.6 90.6 • Strong focus on cash management and working capital in H1 2020 Trade and other receivables 92.5 107.3 • Adjusted net debt of £41.2m (£53.3m at December 2019) Trade and other payables (103.
Slide 24: Robust cash flow
Robust cash flow Cash Flow £m H1 2020 H1 2019 Adjusted EBITDA 7.1 17.2 • Net cash inflow from operations before tax of £9.0m (H1 2019: £4.9m) Decrease/(Increase) in stock 8.3 (7.6) Decrease/(Increase) in receivables 32.7 (12.1) • Adjusted EBITDA cash conversion of 127%, significantly ahead of long t
Slide 25: Summary and outlook
Summary and outlook Covid-impacted financial performance Revenue Gross Margin Adj. Op. Profit1 Adj. Net Debt2 (4.1)% 14.5% (71.9)% £41.2m CFX: (3.9)% 2019: 16.6% CFX: (71.6)% 1.4x EBITDA Strong market position Market Acquisitions Good leadership well cash positions integrated generation Positioned f
Slide 26: Appendices
Appendices 26
Slide 27: Experienced management team and Board
Experienced management team and Board Andrew Herbert Stephen Fenby Stephen Lamb Mike Ashley Hilary Wright Non-Executive Chairman Managing Director Finance Director Non-Executive Director Non-Executive Director Group Finance Director of Joined Midwich as Finance Joined end July 2018 Chief Commercial
Slide 28: Executive Leadership Team
Executive Leadership Team Michael Broadbent Tom Sumner Mark Lowe Managing Director – Asia Pacific Managing Director - Europe Managing Director – UK and Ireland Joined as Managing Director in June Joined Midwich in 2007 Joined Midwich Business 2014 Management team in 2004 Integration of Sidev busines
Slide 29: Long track record of accretive delivery
Long track record of accretive delivery £700 20% £686 18% £600 Growth and margin progression through financial crisis £574 16% £500 14% £472 12% Revenue (£m) £400 £370 10% £300 £314 8% £281 £200 £234 6% £202 £203 £211 £184 £173 £157 4% £134 £100 2% £0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014
Slide 30: Long term strategy
Long term strategy Why? How? Success Measures Specialisation Relevance Portfolio management Growth in technical product sales1 Profitability Acquisition Long term growth in gross profit % Defensibility Value add services Geographical Support Acquisition Number of territories Coverage Projects Invest
Slide 31: Why Midwich?
WHY OUR CUSTOMERS eS p (> gs £ x Nurturing long- Training Vertical Market and web Award-winning Personal term relationships and events market focus services distribution approach We help our customers to win and deliver successful projects" W H Yy 0 U R V E N D 0 RS Market Efficient C H 0 0 S E U S
Slide 32: 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 33: Market Data – AVIXA 2019
Market Data – AVIXA 2019 Global Pro AV Market Size by Region - 2019 Global Pro AV Market Revenues $m Geographic Area Share of Global Total Revenue ($bn) CAGR 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 (2019 -2024) Europe 23% 55.9 194.4 201.4 214.4 230.8 246.6 261.1 276.0 291.6 308.3 324.8 5.6
Slide 34: Market Forecasts – AVIXA July 2020
Market Forecasts – AVIXA July 2020 Key highlights: • Global revenues expected to fall 8% in 2020 before hitting pre-Covid 2019 levels in 2022; • CAGR of 5.8% expected between 2020 and 2025; • APAC expected to grow at 7.4%, compared with 4.7% for Americas and 4.5% for EMEA; • Corporate spend expected
Slide 35: Regional results highlights – H1 2020
Regional results highlights – H1 2020 Region Revenue Revenue CFX % Org % GP % GP % GP % H1 2020 H1 2019 2020 2019 Change £m £m UK&I 103.1 154.0 (33.1)% (33.1)% 15.5% 17.8% -2.3% Continental Europe 127.2 138.0 (8.0)% (13.1)% 14.5% 15.0% -0.5% APAC 21.7 22.8 (0.7)% (1.8)% 15.7% 18.1% -2.4% North Ameri
Slide 36: Adjustments to statutory results – H1 2020
Adjustments to statutory results – H1 2020 £m H1 2020 H1 2019 Statutory operating profit/(loss) (0.7) 10.5 Acquisition related expenses 0.4 0.3 Share based payments and employer taxes 1.3 1.5 Amortisation of acquired intangibles 3.1 2.3 Adjusted operating profit 4.1 14.6 Statutory profit after tax (
Slide 37: Midwich Group Plc
Midwich Group Plc