TIDMMIDW
RNS Number : 5446T
Midwich Group PLC
21 July 2020
21 July 2020
Midwich Group PLC
("Midwich" or "the Group")
Pre-close Trading Statement
Midwich Group (AIM: MIDW), a specialist audio visual distributor
to the trade market with operations across the UK and Ireland,
Continental Europe, Asia Pacific and North America, is today
providing a trading update for the six months ended 30 June 2020
("H1 2020").
Trading in much of the period was impacted significantly by the
coronavirus pandemic. As a result, Group revenue for H1 2020 is
expected to be around 4% below the same period last year, with a
decline in underlying sales of around 22%. Due to product mix,
gross margins are also expected to be up to 2.5 percentage points
lower. Actions taken to reduce operating expenditure mean the Board
expects the Group to be profitable in H1 2020, but at a level
significantly below the same period last year.
Board priorities
In view of the pandemic, during the last four months the Board's
priorities have been:
-- Protection of our people;
-- Protection of the business over the short term; and
-- Refining the Group's strategy for the future where necessary.
In our announcement on 30 March 2020, we explained the actions
taken to protect our people and the business in the short term.
Initially, the vast majority of our people worked from home,
successfully using technology to undertake their roles. More
recently, a number of staff have returned to our offices, where it
is considered sufficiently safe and effective for them to do
so.
Due to reduced customer demand during the period, our staff have
shown great flexibility in their work patterns, including voluntary
short time working and reduced remuneration. We have also used the
support offered by governments as necessary, such as furloughing in
the UK. The Board would like to thank the team for their
understanding during this period.
Protection of the business over the short term has meant a
significant and ongoing focus on the management of working capital.
Whilst seeking to ensure strong short-term liquidity, management
has been careful not to disrupt long term customer and supplier
relationships. Cash receipts from customers have generally remained
at normal levels and we have been pleased that, overall, suppliers
have shown flexibility where necessary. Inventory management has
been a high priority, and as a result the overall value of
inventory (excluding acquisitions) has reduced since 31 December
2019.
The overall impact of actions taken to manage cashflow is that
adjusted net debt has reduced by GBP13 million since 31 December
2019 to GBP40.5 million. Approximately half the reduction is
accounted for by the fund raise undertaken in February, less the
cost of the US (Starin) acquisition. The balance is a result of our
strong working capital management.
Trading performance
As a specialist audio visual ("AV") distributor, a significant
proportion of the products sold by the Group are installed into
buildings. As countries entered lockdown, the ability of the
Group's customers, primarily system integrators, to access sites
became significantly curtailed, and many projects were delayed.
While some of these projects have since been undertaken, and
certain others are anticipated in the short to medium term, a small
number are now considered unlikely to be carried out. This led to a
reduction in revenue, which was felt in March and more
significantly in the month of April, when revenue was less than 50%
of the expectation set out by the Board at the start of the year.
Revenue improved in May and further in June. The Board is
encouraged by the speed of recovery but notes that revenue
continues to be below its initial expectations set at the start of
the year and that further improvement will be, in part, linked to
the development of the pandemic.
Revenue performance has varied by territory, product set,
customer type and end user market.
Territories
The Group operates in eighteen different territories across the
world. This geographical diversity has been an advantage as the
impact of the crisis has varied by territory, however every country
has been significantly impacted. In general, countries that
experienced the most comprehensive initial lockdowns (such as
France, Spain, Italy, Ireland and New Zealand) saw the most
dramatic reduction in revenue initially, but the sharpest
subsequent recovery as the lockdowns eased.
The Group's businesses in Germany and Australia have been so far
a little less impacted than in other territories.
The impact on the US business has been similar to the rest of
the Group overall.
The UK is the Group's single largest territory by revenue,
profit and headcount, and addresses multiple markets with many
different product sets. As such, general economic conditions tend
to have a more significant impact on the UK business than in other
countries where the Group has a relatively smaller market share.
Similar to other regions, the impact on the UK business has been
significant but has improved month on month since April.
Importantly, the Board is confident that overall the Group has not
lost share to its competition in the UK or other territories.
Products
Certain product sets have been impacted in different ways
depending on their use. Relatively strong performance was achieved
initially from technologies used to facilitate working from home.
Such products include desk top monitors, printers and various
associated accessories. Certain broadcast products have also
performed well throughout the period, as organisations invest in
technologies which enable better remote communication. Unified
communications solutions have performed well, and the Group has
sought to maximise the skills and relationships it acquired through
the acquisition of Starin in the US in February of this year. The
integration of this business has gone well, which is particularly
pleasing in the circumstances, and the Board remains encouraged by
the opportunity that Starin represents.
The Board believes that current market conditions highlight more
than ever the need for manufacturers to use a high-quality
specialist distributor such as Midwich. So far in 2020, the Group
has launched a number of new vendor relationships, such as with
Sonos, Netgear, Poly and Huddly and rolled out existing
relationships with Barco, Biamp, Shure, DTEN and Absen into new
technology areas (such as the Barco Clickshare range in the UK
& Ireland and France) or geographical markets (such as
launching Shure in France). The launch of new vendors has continued
during the lockdown period as the Group continues to position its
portfolio for the future.
Customers
While the Group's system integrator customers initially
struggled to undertake typically complex projects, sales to
customers selling on-line have been comparatively strong during the
last four months particularly, albeit that the margins on such
sales tend to be lower than the Group's average.
End-use markets
The Board has noted the impact of the crisis on different end
user markets. Markets which are largely government funded (such as
education, healthcare and defence) have remained relatively strong
- impacted mostly by the ability of customers to access sites. The
corporate market has been more muted with end users mostly working
from home and investment plans largely placed on hold.
Outlook
Market conditions for the Group's products and services are
likely to remain significantly impacted by the development of the
pandemic for the remainder of 2020. Should the positive trading
momentum seen in May and June continue for the rest of this year,
trading performance in the second half of the year should be better
than in the first half. It is likely that the growth in
profitability will be slowed as certain government support measures
for employment, particularly in the UK, is scaled back later in
2020.
Whilst continuing to ensure the ongoing financial strength of
the business, the Board is now putting increasing focus on ensuring
the Group is best able to capitalise on trading conditions in 2021
and thereby continue the long-term momentum that was generated up
to 2019.
To this end, a number of key focus areas have been developed,
including:
-- Continuing to launch new vendors and technologies;
-- Ensuring the profile of inventory is appropriate at 31 December 2020;
-- Continuing the roll out of the Group's new ERP system;
-- Building expertise and reach in the unified communications market; and
-- Resuming conversations with key strategic acquisition targets.
The Board believes that the Group's high value add specialist
distribution model remains fundamentally valid, and that Midwich's
strong technical skills combined with product breadth and
geographical spread means that the business is well placed for
future growth.
Midwich will announce its half year results for the six months
ended 30 June 2020 on 8 September 2020.
For further information:
Midwich Group plc Tel: +44 (0) 13
Stephen Fenby, Managing Director 7964 9200
Stephen Lamb, Finance Director
Investec Bank plc (NOMAD and Joint Broker Tel: +44 (0) 20
to Midwich) 7597 5970
James Rudd
Carlton Nelson
Berenberg (Joint Broker to Midwich) Tel: +44 (0) 20
Ben Wright 3207 7800
Mark Whitmore
Alix Mecklenberg-Solodkoff
FTI Consulting Tel: +44 (0) 20
Alex Beagley 3727 1000
Tom Hufton
Rafaella de Freitas
About Midwich Group
Midwich is a specialist AV distributor to the trade market, with
operations in the UK and Ireland, Continental Europe, Asia Pacific
and North America. The Group's long-standing relationships with
over 500 vendors, including blue-chip organisations, support a
comprehensive product portfolio across major audio visual
categories such as large format displays, projectors, digital
signage and professional audio. The Group operates as the sole or
largest in-country distributor for a number of its vendors in their
respective product sets.
The Directors attribute this position to the Group's technical
expertise, extensive product knowledge and strong customer service
offering built up over a number of years. The Group has a large and
diverse base of over 20,000 customers, most of which are
professional AV integrators and IT resellers serving sectors such
as corporate, education, retail, residential and hospitality.
Although the Group does not sell directly to end users, it believes
that the majority of its products are used by commercial and
educational establishments rather than consumers.
Initially a UK only distributor, the Group now has around 1,000
employees across the UK and Ireland, Continental Europe, Asia
Pacific and North America. A core component of the Group's growth
strategy is further expansion of its international operations and
footprint into strategically targeted jurisdictions.
For further information, please visit
www.midwichgroupplc.com
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END
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