TIDMMIDW
RNS Number : 5576R
Midwich Group PLC
09 March 2021
9 March 2021
Midwich Group plc
("Midwich" or the "Group")
Unaudited Full Year Results
Demonstrating resilience through a robust and progressive
revenue recovery
Midwich Group (AIM: MIDW), a global specialist audio visual
("AV") distributor to the trade market , today announces its
unaudited full year results for the year ended 31 December
2020.
Statutory financial highlights
Year to Year to Total growth
31 December 2020 31 December %
GBPm 2019
GBPm
Revenue 711.8 686.2 3.7%
Gross profit 101.8 113.1 (10.0)%
Operating profit 7.1 24.9 (71.6)%
Profit before tax (1.0) 23.8 (104.2)%
Profit after tax (3.4) 18.2 (118.6)%
Basic EPS - pence (4.32) 21.67 (119.9)%
Adjusted financial highlights(1)
Year to Year to Total growth Growth at constant
31 December 31 December % currency
2020 2019 %
GBPm GBPm
Revenue 711.8 686.2 3.7% 3.3%
Gross profit 101.8 113.1 (10.0)% (10.2)%
Gross profit margin
% 14.3% 16.5%
Adjusted operating
profit 16.5 33.5 (50.6)% (50.8)%
Adjusted profit before
tax 14.2 31.2 (54.6)% (54.7)%
Adjusted profit after
tax 10.3 23.8 (56.7)% (56.8)%
Adjusted EPS - pence 11.20 28.49 (60.7)%
(1) Definitions of the alternative performance measures are set
out in note 1
Financial highlights
-- A record revenue performance despite the challenges from the
global pandemic, highlighting the resilience of the business
-- Revenue increased by 3.7% to GBP711.8 million (3.3% on a
constant currency basis) (2019: GBP686.2m)
-- Group revenues improved consistently from April, such that
the Group's organic revenue decline of 22% in the first half of the
year reduced to a 7% decline in the second half of the year
-- Gross margin was impacted by COVID-19 disruption, but is expected to recover over time
-- Adjusted profit before tax reduced to GBP14.2 million (2019:
GBP31.2 million) as a direct result of COVID-19 disruption
-- Adjusted EPS decreased to 11.2p (2019: 28.5p)
-- An exceptional year of operating cash conversion at 194.4% of adjusted EBITDA
-- Strong balance sheet, with year-end adjusted net debt to
EBITDA of 0.9x (2019:1.4x), providing financial flexibility
Operational highlights
-- Resilient operational performance - a robust recovery in the
second half exceeded the Board's original expectations at the onset
of the pandemic
-- Acquisitions made in 2019 and 2020 have been fully integrated
and are delivering a positive contribution to the Group
-- Entry into the strategically important North American market
through the acquisition of Starin Marketing Inc. ("Starin")
-- Established specialist unified communications capabilities,
as well as the addition of numerous new vendors
-- Successful equity placing and refinancing to fund Starin acquisition investment
-- Continue to have a strong acquisition pipeline across a number of regions and technologies
Post-period end
-- Completed the acquisition of a majority stake in NMK
Electronics ENT. ("NMK Group"), a value-added distributor of AV
products based in the UAE and Qatar, marking Group's entry into the
Middle East
-- Trading since the year end in line with management expectations
Stephen Fenby, Managing Director of Midwich Group plc,
commented:
"2020 was a challenging year for everyone and I would like to
take this opportunity to thank all of our employees, partners and
suppliers for their tireless hard work and continued support. We
delivered a robust performance in the year, thanks to our proven
business model and our position as a true value add distributor in
the global AV market.
We announced our entry into the US, the world's largest AV
market, in February 2020 and post period end, entered the Middle
East, giving us true global scale. Whilst we have experienced a
slowdown in some of our sectors, we have also witnessed improved
performances in others and our results in the second half of the
year exceeded the Board's expectations. We are well placed through
our diversified geographical and multi-sector footprint, combined
with long-term vendor relationships, to continue to deliver growth
and take advantage of market opportunities, both organically and
through acquisition."
There will be a webinar for sell-side analysts at 8:00am GMT
today, 9 March 2021, the details of which can be obtained from FTI
Consulting: midwich@fticonsulting.com .
For further information:
Midwich Group plc Tel: +44 (0) 13 7964 9200
Stephen Fenby, Managing Director
Stephen Lamb, Finance Director
Investec Bank plc (NOMAD and Joint Broker Tel: +44 (0) 20 7597 5970
to Midwich)
Carlton Nelson
Ben Griffiths
Berenberg (Joint Broker to Midwich) Tel: +44 (0) 20 3207 7800
Ben Wright
Mark Whitmore
FTI Consulting Tel: +44 (0) 20 3727 1000
Alex Beagley midwich@fticonsulting.com
Tom Hufton
Rafaella de Freitas
About Midwich Group
Midwich is a global specialist AV distributor to the trade
market, with operations in the UK and Ireland, EMEA, 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, EMEA, 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
COVID-19 and its impact on our business
The coronavirus pandemic represents the biggest shock known to
our business sector. As the crisis unfolded, we took decisive
action to protect our teams, preserve cash and support our
customers and vendors. These remain our key priorities as the
pandemic continues.
Although the economic effect of COVID-19 has been significant
across the world, our market strength, combined with the diversity
of our Group in terms of geographical spread, vendor breadth,
technology focus and end user markets have partially mitigated the
negative impact on our business, highlighting the strength of our
business model.
After the initial fall, the Group's revenue improved
consistently from April, such that the Group's organic revenue
decline of 22% in the first half of the year reduced to a 7%
decline in the second half of the year. Including the impact of the
Starin acquisition, we were pleased to be able to grow Group
revenue by 3.7% to GBP711.8 million for 2020. Adjusted profit
before tax for the year was reduced to GBP14.2 million (2019:
GBP31.2 million) as a direct result of the disruption from
COVID-19.
The impact on our strategy
The coronavirus pandemic has shocked the global economy and how
we live our lives. However, we believe that the AV industry is well
placed for the future and see no overall change in long-term
prospects for the market. Although some segments of the market may
be slower to recover, other trends have unsurprisingly accelerated,
such as the increased adoption of unified communications
technology, and our entry into this market through the acquisition
of Starin positions the Group well for the future.
Whilst the impact of COVID-19 continues to create short term
uncertainty, the Group's strategy remains focused on markets and
product areas where it can leverage its value-add end-to-end
services, technical expertise, and sales and marketing skills.
Using its market knowledge and expertise, the Group provides its
vendors with support to build and execute plans to grow market
share. The Group supports its customers to deliver successful
projects, from initial pitch to execution.
A core component of the Group's growth strategy remains further
expansion of its international operations and footprint into
strategically targeted jurisdictions both organically and through
acquisition. After the initial disruption from the pandemic, we
resumed our acquisition activity in the second half of the
year.
The effect on our end 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. The most significant
impact has been to the live events and hospitality markets.
While the Group's system integrator customers initially
struggled to undertake typically complex projects due to limited
ability to access sites, sales to customers selling on-line were
comparatively strong. Over the second half of the year customers'
site access improved and the increased market demand helped the
Group improve revenue throughout the period. The disruption to more
complex projects and the events market has had an adverse impact on
Group margins, although these are anticipated to recover as markets
return to normal.
Certain product sets have been impacted in different ways
depending on their use. A strong performance was achieved from
technologies used to facilitate working from home. Such products
include desktop monitors, printers and various associated
accessories. Certain broadcast products have also performed well
throughout the period, as organisations have invested 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 2020.
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. In 2020, the Group launched
an encouraging 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) and geographical markets (such as
launching Shure in France). The launch of new vendors has continued
during the lockdown period as the Group further positions its
portfolio in exciting growth markets, such as unified
communications.
How we are responding
Whilst we continue to monitor the pandemic and remain cautious
given the return to COVID-19 restrictions in early 2021, we have
increasingly shifted our focus to the future. We have launched new
vendor relationships and further developed our expertise in the
unified communications sector. Our acquisition programme
recommenced in the second half of 2020 and we subsequently
completed the acquisition of NMK Group in early 2021. The Group has
a number of exciting opportunities in the pipeline across various
geographies.
What the long-term future looks like
The Board would like to thank our staff, customers and partners
for their incredible support in recent months and looks forward to
returning to our previous financial performance as quickly as
possible thereby continuing our long-term growth trajectory.
Chairman's Statement
Overview
In an unprecedented year, I am delighted that we achieved record
revenue of GBP711.8 million, 3.7% ahead of the prior year. Against
the backdrop of the global pandemic, we demonstrated resilience in
achieving a robust and progressive recovery in revenue throughout
the second half of the year. A strong close to the year saw the
Group exceed the Board's expectations for full year revenue and
adjusted profit while also delivering a significant reduction in
net debt, maintaining the financial flexibility of the Group.
At the start of the pandemic, we took early and decisive action
to address the emerging risks posed by COVID-19, including
protecting our teams, preparing all staff for remote working,
supporting our customers and vendors and preserving cash and
liquidity. Countries and economies were affected by lockdowns and
other restrictions at different times during the year and the Group
was able to respond quickly and adapt to the changes in market
needs. Our strong AV market position, combined with the diversity
of our Group in terms of geographical spread, vendor breadth,
technology focus and end user markets have partially mitigated the
negative impact of the crisis.
Our response to the pandemic required the Board to make some
difficult decisions during the year including the use of furlough
schemes and part time working, salary reductions and a small number
of headcount reductions. Given the use of government support to
help retain jobs and a focus on the preservation of cash we also
determined that the Group would not pay dividends in 2020. The
Board is conscious of the impact of this decision on shareholders,
including the majority of our staff who own shares in the Group,
and is committed to reinstating dividend payments when
appropriate.
Whilst the pandemic was a major focus in 2020, I am pleased that
the Group was able to achieve further strategic milestones.
The Group's acquisition of Starin Marketing Inc. in February
2020 represented our entry into North America, the world's largest
AV market. Starin is a value-added AV distributor with a reputation
for technical excellence and a high level of customer support.
Since the acquisition, Midwich has helped Starin to accelerate its
development by strengthening its sales and business management
capabilities, releasing significant cash invested in working
capital and exiting lower margin activities to focus on high growth
and higher margin market segments. Starin has brought expert
knowledge of the unified communications ("UC") market to the wider
Group and supported the addition of multiple UC vendors to the
Group's portfolio.
During 2020, we further expanded our vendor relationships in
support of our long-term organic growth objectives. New brands
added in the year included Barco ClickShare, Poly, DTEN and Huddly
and the Group also launched a Hardware as a Service ("HaaS")
solution to help channel partners to offer the latest UC technology
to their customers, without the requirement for substantial upfront
outlay.
After the period end, we completed the acquisition of a majority
stake in NMK Electronics ENT. ("NMK Group"). Based in the UAE and
Qatar, NMK Group is a value-added distributor of AV products and
represents the Group's entry into the Middle Eastern market, one of
the fastest growing AV markets in the world. The deal further
expands the Group's geographical footprint, enabling it to extend
the support it can provide to customers and vendors
internationally.
The pandemic has caused significant disruption to our end user
markets. Although the business has seen the benefit of increased
investment in remote working and teaching, we have been negatively
impacted by the cancellation or postponement of live events and
conferences in many countries. Both the AV industry and our
customers have demonstrated agility in switching activity to the
areas of demand during the pandemic, and industry data continues to
show long-term growth in demand for AV products; exceeding GDP
growth.
The Board attributes our robust performance through this
challenging year to continued focus on service, looking after our
teams and continuing to pursue our strategic goals. We believe that
the business is well positioned for the future.
Board
Board membership and composition has not changed in the year and
we adapted to the use of unified communications for both our AGM
and our board and committee meetings. Reflecting the challenging
global backdrop, the Board met more frequently during the year and
received regular updates from the Executive Leadership Team
("ELT").
In line with prior years the Board completed a self-evaluation
exercise during 2020, reinforcing our commitment to, and success
in, establishing a strong corporate governance framework. We took
the opportunity of this review to confirm strong and effective
governance and reaffirmed the role of the Board and its individual
members in ensuring compliance with the QCA code. There were no
major issues or concerns raised about the effectiveness of the
Board or its individual members.
For a number of years, the Group has acted to reduce its
environmental impact. This year the Board has chosen to formalise
its focus on sustainability by asking Hilary Wright to be the
non-executive director with particular responsibility for
environmental, social and governance ("ESG") matters and through
the introduction of our first environmental targets for the
Group.
The Group continues to apply the QCA code as its governance
framework. The Board has reviewed all aspects of compliance and
continues to believe that it meets or exceeds the requirements of
the code. Over the last few years, we have enhanced our reporting
by including a detailed Directors' Remuneration Report and
environmental, social and governance information. We also chose to
introduce an annual advisory vote on the Directors' Remuneration
Report.
The Board recognises its duty to have regard to broader
stakeholder interests and, in addition to including both a separate
Section 172 Statement and additional carbon reporting in the annual
report, we added further information about the Group to our website
during the year and introduced a stakeholder newsletter from the
start of 2021.
People
The success of any company is down to the quality of its
leadership and its people. The team at Midwich has demonstrated
immense skill, commitment, drive and resilience over the last
twelve months. Our people have adapted incredibly well to each and
every challenge without sacrificing quality of service or losing
their enthusiasm. I recognise the sacrifices made by our teams in
responding to the pandemic and strongly believe that we have the
best team in the industry and are well positioned for future
growth.
During 2020, the Board has welcomed the opportunity to interact
with the Executive Leadership Team ("ELT"), which comprises the
executive directors together with the managing directors of our key
operating units. We have been delighted with the ELT's success in
delivering strategic goals at the same time as leading the Group's
operational response to COVID-19. This regional leadership model is
working well and is fully aligned to the Group's long-term growth
ambitions.
On behalf of the Board, I would like to thank all employees and
our partners for their commitment and hard work and congratulate
them on achieving an impressive performance in an exceptionally
challenging year.
Andrew Herbert
Non-executive Chairman
Managing Director's Review
2020 was a challenging year for everyone and I would like to
take this opportunity to thank all of our employees, partners and
suppliers for their tireless hard work and continued support. We
delivered a robust performance in the year, thanks to our proven
business model and our position as a true value add distributor in
the global AV market.
We announced our entry into the US, the world's largest AV
market, in February 2020 and post period end, entered the Middle
East, giving us true global scale. Whilst we have experienced a
slowdown in some of our sectors, we have also witnessed improved
performances in others and our results in the second half of the
year exceeded the Board's expectations. We are well placed through
our diversified geographical and multi-sector footprint, combined
with long-term vendor relationships, to continue to deliver growth
and take advantage of market opportunities, both organically and
through acquisition.
Overview
In 2020 the world economy, the AV industry and our business
faced unprecedented challenges. Changes to how people interact,
work, travel and spend their leisure time have often been
significant and sudden. Against this background, our people and
business have responded brilliantly, adapting to how we work and
communicate with each other, and how we continue to deliver a
consistently excellent service.
Despite the negative financial impact of the pandemic, Midwich
has had one of its most successful years - building on its market
position and pursuing our long-term goals.
Revenue growth in a challenging market
Group revenue increased by 3.7% in the year, with the
contribution from Starin, since February 2020, more than
compensating for challenges in other markets. The Group's
comprehensive product offering, and geographical reach have enabled
us to capitalise on those opportunities that were available to us
in 2020.
We believe our market share has grown in each of our major
territories, reflecting the strength of our offering and the
support we have continued to give our customers and vendors in
challenging times.
Impact on end-user markets
The COVID-19 pandemic has impacted many of our end user markets,
mostly negatively, but in some cases more positively. Our two
largest end user markets are education and corporate. The education
market was relatively robust in 2020, with government spend
remaining strong. We saw an increase in demand for technologies to
enable combined remote and in-class teaching. The corporate market
was impacted in the year as businesses assessed their future office
strategies. Nonetheless, we remain comfortable that our broad
technology portfolio will form an important part of future office
strategies, enabling closer collaboration or remote communication,
amongst other benefits.
End user markets such as events, leisure and hospitality have
continued to be severely impacted, but are expected to recover once
people are able to mix freely again.
Short term impact on gross margins
Generally lower end user demand had an impact on our revenues,
which in turn reduced the volume of purchases we made from vendors.
Lower purchase levels can have an impact on our ability to hit
rebate targets, to obtain special pricing support from
manufacturers, and reduces volume discounts. In addition, greater
price competition can reduce selling prices, particularly in
mainstream products. These factors have all contributed to
generally lower margins, however these should be reversed once
volumes build back.
The mix of sales has also been impacted by the pandemic. In
particular, the depressed events, leisure and hospitality sectors
often use more specialist (higher margin) products, particularly in
the technical video, audio and lighting technology areas. During
the year we reviewed our policy of applying fixed percentage write
downs to our stock as it ages. Given the temporary disruption to
end user markets many current and viable products would have become
fully written down, which would not reflect their recoverable
value. To reflect this the time period to full write down was
extended for some products to a maximum of two years (previously 12
months). At the end of the year the Group had a stock provision of
GBP23.8 million (22% of cost) compared to GBP13.3 million at the
end of the prior year (13%). Had the Group maintained the previous
percentages, the inventory write down would have been GBP6.5m
higher as at 31 December 2020.
Managing costs without damaging the business
With lower revenues and gross profits, we took decisive actions
at the onset of the pandemic to realign our cost base. Our focus
was to reduce discretionary spend whilst seeking to maintain our
market leading team. We reduced recruitment and most leavers have
not been replaced. The Group took advantage of government job
support funding where appropriate, receiving approximately GBP2.8
million in UK&I and about half this amount in other
regions.
Profitability and cash generation
The Group remained profitable in 2020, with adjusted profit
before tax falling to just under half the level achieved in 2019.
In its 41 year history, Midwich has never had a loss making year,
at the adjusted operating profit level, and I am pleased that this
still continues to be the case.
In addition to maximising profitability, we focused heavily on
managing our cash flow. The rapid decline in trade in the spring of
2020 meant that we needed to give particular focus to managing
inventory levels , provisions, supplier payments and customer
receipts. We made very good progress in working capital management,
with the result that our net debt reduced significantly over the
course of the year.
Group strategy remains unchanged
Since the start of the COVID-19 crisis we have kept our
long-term strategy under constant review. In particular, we have
been seeking to identify areas of risk with our previous strategy,
and whether we need to fundamentally refocus onto new product, end
user or geographical market areas. We have taken note of industry
research, including an Avixa report published in July 2020, which
suggested that after a decline in 2020, the global AV market is
expected to grow at a compound annual rate of 5.8% for the next
five years. Overall, we concluded that the changes we have seen in
the market were either an acceleration of changes that were already
happening, fall within our current focus areas or appear to be
short term in nature. As such, we have not fundamentally changed
our focus on increasing specialisation, expanding our geographical
footprint and growing our scale.
Whilst dealing with short term challenges, we have continued to
focus on our longer-term strategies and plans. For example, we have
taken on an unprecedented number of new vendor relationships, and
expanded our footprint through the acquisition of Starin in the US
in February 2020 and NMK in the Middle East after the end of the
year.
Technologies(1)
In broad terms, we categorise our products into mainstream and
specialist categories. Mainstream products cover displays and
projectors, which comprised an aggregate of 54% of Group revenue in
2020 (2019: 57%). Specialist categories cover technologies which
require greater pre and post sales support and hence tend to carry
higher margins. This group covers categories such as audio,
technical video and broadcast and represented 38% of total sales in
2020 (2019: 36%).
Our largest technology area is displays, a category which has
been growing for a number of years but actually fell by 14% in
2020. The fall was particularly pronounced in the UK&I, and was
mitigated in part by a growth in display sales in EMEA. Displays
represented 37% of Group revenue in 2020 (2019: 40%). We believe
that the fall in our displays business was less than that of the
overall market in our key territories.
Revenue from projector sales fell 7% in 2020, with the UK&I
reduction being the most significant amongst our territories.
Whilst the overall projector market continues to be impacted by a
shift towards displays, we believe that we gained market share in
high-end projection and are well positioned for the expected
recovery in demand in this area.
Mainstream product categories tend to see greater price
competition, which was a factor in lower gross margins across
displays and projection in the year.
Sales in our technical product categories were broadly flat
across the year. However, this was a combination of significant
growth in the broadcast business (particularly in streaming and pro
video solutions), in technical AV products (including unified
communications products) and significant falls in audio and
lighting (caused by lower demand in the events and hospitality
markets).
(1) This analysis excludes revenue from the fulfilment activity
that Starin exited from at the end of 2020.
UK and Ireland
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.
Like other regions, the impact of COVID-19 on the UK business was
initially significant but trading steadily improved as the year
progressed.
We achieved revenue of GBP224.4 million in the region (2019:
GBP314.6 million) whilst margins declined to 14.0% (2019: 17.6%).
The change in margin reflects both a change in mix, as higher
margin value added projects and our rental business were most
affected by the COVID-19 restrictions, and a reduction in vendor
rebates, as the level of purchasing activity was reduced in the
year. The Board expects gross margins to recover as normal economic
activity resumes.
In response to the pandemic we acted to reduce costs, including
reductions in salaries, bonuses and discretionary expenditure. In
addition, the UK&I received GBP2.8 million from government
schemes towards enhanced furlough payments and offered flexible
working to its team members. These actions allowed it to limit
headcount reductions to a relatively small number and ensure that
the business is well positioned for the anticipated recovery.
The overall revenue reduction of around 30% was experienced
across most product categories, reflecting a general drop in the
market. Professional audio and lighting was impacted to a greater
degree due to the virtual cessation of the events and entertainment
markets in the region during 2020. Strong performance was seen in
the smaller categories of document solutions (as consumers set
themselves up to work from home) and also consumer audio sold
through online retailers.
EMEA
The EMEA region comprises our businesses in France, Germany,
Switzerland, Benelux, Norway, Italy and Iberia and will include
activities in the Middle East from 2021.
Despite the adverse impact from COVID-19 we improved revenue by
3.2% to GBP331.1 million (2019: +44.6% to GBP321.0 million). Whilst
all territories in the region were affected by the pandemic, the
initial reduction in revenue and pace of recovery has varied by
both country and product area. Germany and France recovered
strongly during the second half of the year helped by strong demand
for education, remote working, broadcast and streaming solutions.
The more specialist audio and lighting focused businesses in
Southern Europe have seen a greater impact on demand, but they have
performed well, maintained or increased market share, and are well
positioned for future growth. Underlying revenue (excluding the
effects of acquisitions and currency changes) was in line with the
prior year (2019: +15.2%).
In line with other territories, gross margin was impacted by
COVID-19, reducing to 13.8% (2019: 15.2%) manly due to a negative
mix effect. Operating profit in EMEA, at GBP9.4 million (2019:
GBP14.1 million), was impacted by the change in gross margin.
Whilst certain countries benefited from government support to
retain jobs this was at a much lower level (GBP0.8 million) than
that received in UK&I.
In the mainstream product categories, revenue from displays
increased by 9% but from projectors declined by 5%, reflecting a
long-term trend as part of the projector market switches to
displays. Our broadcast product sales increased significantly,
driven by stronger sales of live streaming, prosumer and corporate
products, particularly in the German market. Pro audio and lighting
showed revenue declines of around 25%, being somewhat less impacted
than the UK&I market.
Asia Pacific
Our Asia Pacific region sales declined by 12.1% to GBP44.5
million in 2020 (2019: +41.2% to GBP50.6 million). Across the
region the response to the pandemic saw some very strict lockdowns
and periods of business closure particularly in New Zealand.
Against this backdrop our businesses have performed well,
especially broadcast and streaming solutions. In prior years, APAC
margins have benefitted from high value add, complex projects.
These were adversely affected by COVID-19 in 2020 and the resulting
change in mix resulted in a gross margin of 15.3% (2019:
17.7%).
APAC received GBP0.4 million of government support, and due to
the reduction in gross profit, adjusted operating profit declined
by GBP1.9 million to GBP0.8 million (2019: GBP2.7 million).
North America
Starin became part of the Group on 6 February 2020 and
contributed GBP111.8 million to Group revenue in the year.
Despite the COVID-19 pandemic, the integration of Starin has
progressed ahead of our initial plans with significant achievements
including restructuring and investing in both sales and business
management capabilities, overhead reductions, exiting low margin
fulfilment activity and a significant reduction in net debt through
focus on working capital management.
Gross margins at 16.1% and adjusted PBT at GBP4.9 million were
ahead of our expectations and included the benefits of the
accelerated integration activity.
The Group has also been able to leverage Starin's strong
relationships with unified communications vendors to expand its
capabilities and strengthen its UC offering across all regions.
Environmental, Social and Governance ("ESG")
We continue to take our commitment to environmental and social
responsibility seriously and in 2020 we further progressed the work
that we started in the last two years. The Group's approach to ESG
is aligned to four key pillars: our local communities; supporting
charities close to our hearts; reducing our environmental impact
and supporting our people. These focus areas continue to be
relevant and are at the heart of what matters to our people.
During 2020, work continued within the four pillars and despite
the pandemic we've adapted our approach and continued to make a
difference in each area. For 2021, we have set Group wide targets
for each of the pillars and we have appointed Hilary Wright to be
the non-executive director with responsibility and overview for ESG
matters.
Outlook
Despite the short-term impact of the pandemic, we have continued
to pursue our long-term strategic goals with the result that I
believe the business is in a stronger market position at the end of
2020 than it was at the beginning.
The global AV market was believed by Avixa to be worth $239bn in
2020 and will grow at 5.8% per annum for the next five years to
reach $315 billion in 2025. Midwich is a major player in the
market, with a focused, skilled and experienced team. With revenue
representing under 1% of the world market and operations in just 20
countries we are well placed to capitalise on the long-term growth
prospects of the market.
In the short term, we expect that severe COVID lockdowns in many
key markets will suppress our recovery in at least the first half
of 2021. Trading in the first two months of 2021 was in line with
our expectations. Should vaccination programmes develop as hoped,
and general economic conditions improve, we expect to see a return
towards normal levels of trade in the second half of 2021.
Finance Director's Review
We achieved further revenue growth in 2020 and generated
exceptionally strong cash flows which leaves the Group well
positioned for the post COVID-19 recovery.
Despite the pandemic, we achieved further growth in 2020 with
revenue increasing by 3.7% to GBP711.8 million (2019: GBP686.2
million). Excluding the impact of acquisitions and currency
movements, organic revenue declined by 14.1% (2019: +6.0%). Gross
profit margin was down on the prior year at 14.3% (2019:
16.5%).
Adjusted operating profit of GBP16.5 million (2019: GBP33.5
million) reduced by 50.8% at constant currency (2019: +11.0%).
Operating profit before adjustments was GBP7.1 million (2019:
GBP24.9 million).
Statutory financial highlights
Year to Year to Total growth
31 31 December
December 2019
2020
------------------- ---------- ------------- -------------
Revenue GBP711.8m GBP686.2m 3.7%
Gross profit GBP101.8m GBP113.1m (10.0)%
Operating profit GBP7.1m GBP24.9m (71.6)%
Profit before tax GBP(1.0)m GBP23.8m (104.2)%
Profit after tax GBP(3.4)m GBP18.2m (118.6)%
Basic EPS - pence (4.32)p 21.67p (119.9)%
------------------- ---------- ------------- -------------
Adjusted financial highlights (1)
Year to Year to Total growth Growth
31 December 31 December at constant
2020 2019 currency
Revenue GBP711.8m GBP686.2m 3.7% 3.3%
Gross profit GBP101.8m GBP113.1m (10.0)% (10.2)%
Gross profit margin % 14.3% 16.5%
Adjusted operating profit GBP16.5m GBP33.5m (50.6)% (50.8)%
Adjusted profit before tax GBP14.2m GBP31.2m (54.6)% (54.7)%
Adjusted profit after tax GBP10.3m GBP23.8m (56.7)% (56 . 8)%
Adjusted EPS - pence 11.20p 28.49p (60.7)%
(1) Definitions of the alternative performance measures are set
out on page 31.
Currency movements had a limited impact across the Group in both
2020 and 2019.
On a constant currency basis, growth in revenue was 3.3% (2019:
20.1%) and adjusted profit after tax reduced by 56.8% (2019:
+7.7%).
The Group's operating segments are the UK and Ireland, EMEA,
Asia Pacific and North America. The Group is supported by a central
team.
Regional highlights
Year to Year to Total Growth Organic
31 December 31 December growth at constant growth
2020 2019 currency
GBPm GBPm % % %
------------------------------- ------------- ------------- -------- ------------- --------
Revenue
UK & Ireland 224.4 314.6 (28.7) (28.7) (28.7)
EMEA 331.1 321.0 3.2 2.2 (0.1)
Asia Pacific 44.5 50.6 (12.1) (10.7) (11.8)
North America 111.8 - - - -
------------------------------- ------------- ------------- -------- ------------- --------
Total Global 711.8 686.2 3.7 3.3 (14.1)
Gross profit margin
(3.6)
UK & Ireland 14.0% 17.6% ppts
(1.4)
EMEA 13.8% 15.2% ppts
(2.4)
Asia Pacific 15.3% 17.7% ppts
North America 16.1% -
------------------------------- ------------- ------------- -------- ------------- --------
(2.2)
Total Global 14.3% 16.5% ppts
Adjusted operating profit(1)
UK & Ireland 3.9 19.9 (80.3) (80.3)
EMEA 9.4 14.1 (33.4) (33.9)
Asia Pacific 0.8 2.7 (69.8) (69.6)
North America 4.9 -
Group costs (2.5) (3.2)
------------------------------- ------------- ------------- -------- ------------- --------
Total Global 16.5 33.5 (50.6) (50.8)
Adjusted finance costs (2.3) (2.3)
------------------------------- ------------- ------------- -------- ------------- --------
Adjusted profit before tax(1) 14.2 31.2 (54.6) (54.7)
(1) Definitions of the alternative performance measures are set
out in note 1 to the consolidated financial statements.
The financial performance of each segment during the year
was:
UK and Ireland
The UK and Ireland segment revenue reduced by 28.7% (2019:
-0.4%) to GBP224.4 million (2019: GBP314.6 million) generating
gross profit of GBP31.3 million (2019: GBP55.3 million) at a gross
profit margin of 14.0% (2019: 17.6%). This resulted in an adjusted
operating profit of GBP3.9 million (2019: GBP19.9 million), a
decrease of 80.3% (2019: +1.6%).
EMEA
The EMEA segment revenue grew 3.2% (2019: +44.6%) to GBP331.1
million (2019: GBP321.0 million). Gross profit reduced to GBP45.6
million (2019: GBP48.8 million) at a gross profit margin of 13.8%
(2019: 15.2%) leading to an adjusted operating profit of GBP9.4
million (2019: GBP14.1 million) that reduced 33.4% (2019: +37.3%).
In constant currency, revenue grew 2.2% (2019: +45.2%) and adjusted
operating profit fell 33.9% (2019: +37.9%). Organic revenue growth,
excluding the effects of acquisitions in the current and prior
period, decreased by 0.1% (2019: +15.2%).
Asia Pacific
The Asia Pacific segment revenue declined 12.1% to GBP44.5
million (2019: +41.2% to GBP50.6 million) generating gross profit
of GBP6.8 million (2019: GBP9.0 million) at a gross profit margin
of 15.3% (2019: 17.7%). Adjusted operating profit was GBP0.8
million (2019: GBP2.7 million). On constant currency basis, revenue
reduced by 10.7% (2019: +44.1%) and adjusted operating profit fell
69.6% (2019: -5.2%). Organic revenue growth, excluding the effects
of acquisitions in the current and prior period, decreased by 11.8%
(2019: +4.4%).
North America
The North America segment was new for 2020 following the
acquisition of Starin in February 2020. Revenue from North America
was GBP111.8 million, of which approximately half was attributable
to fulfilment activity for a vendor relationship which will not
continue into 2021. Gross margin at 16.1% was above the Group
average due to the benefit of integration activity, including
better working capital management and the exit of low margin vendor
relationships. Adjusted operating profit was GBP4.9 million.
Group costs
Group costs for the year were GBP2.5 million (2019: GBP3.2
million). The decline in cost was largely due to savings in staff
costs attributable to the impact of COVID-19, including temporary
salary cuts, lower bonus costs and a small number of headcount
reductions.
Adjusted finance costs
Adjusted finance costs at GBP2.3 million (2019: GBP2.3 million)
reflect the interest costs on borrowings for historic acquisition
investments and working capital. Reported finance costs of GBP8.3
million (2019: GBP1.2 million) include interest costs on Group
borrowings, the change in valuation of both deferred consideration
and put and call options and the currency revaluation of loans and
financial instruments.
Profit before tax
The Group reported a loss before taxation of GBP1.0 million
(2019: GBP23.8 million profit), while adjusted profit before tax
reduced by 54.7% (2019: +8.5%), at constant currency, to GBP14.2
million (2019: GBP31.2 million).
Tax
The adjusted effective tax rate was 27.3% in 2020 (2019: 23.7%)
which reflects an increase in the mix of profits arising in higher
tax jurisdictions. Note, COVID-19 had a significant impact on mix
in 2020.
Earnings per share
Basic earnings per share is calculated on the total profit of
the Group attributable to shareholders. Basic EPS for the year was
-4.32p (2019: 21.67p). Diluted EPS was -4.32p (2019: 21.31p).
Adjusted EPS reduced by 60.7% (2019: +4.7%) to 11.20p (2019:
28.49p).
Dividend
The Board took the appropriate decision to suspend dividend
payments as part of its response to COVID-19. Disruption from the
pandemic has continued into 2021 and, as such, the Board is not
proposing a final dividend for 2020.
Cash flow
Year to Year to
31 December 31 December
2020 2019
GBPm GBPm
--------------------------------------------------- ------------- -------------
Adjusted operating profit 16.5 33.5
Add back depreciation and unadjusted amortisation 6.2 5.5
--------------------------------------------------- ------------- -------------
Adjusted EBITDA 22.7 39.0
Decrease/(Increase) in stocks 34.9 (5.1)
Decrease/(Increase) in debtors 18.1 (7.7)
(Decrease)/Increase in creditors(1) (31.6) 0.9
--------------------------------------------------- ------------- -------------
Adjusted cash flow from operations 44.1 27.1
--------------------------------------------------- ------------- -------------
Adjusted EBITDA cash conversion 194.4% 69.5%
(1) Excluding the movement in accruals for employer taxes on
share based payments.
The Group's adjusted operating cash flow conversion, calculated
comparing adjusted cash flow from operations with adjusted EBITDA,
was 194.4% compared to 69.5% for the prior year. The exceptional
performance for the current year reflects a focus on cash and
working capital management during the pandemic. Our expectation of
long-term cash conversion remains between 70 and 80%.
Gross capital spend on tangible assets was GBP1.9 million (2019:
GBP5.8 million). The reduction on prior year reflected a cautious
approach to capital expenditure during the pandemic together with
an exceptional investment of GBP1.5 million on our new UK facility
in 2019. Intangible asset additions in 2020 include GBP1.1 million
(2019: GBP1.8m) in relation to the Group's new ERP solution.
Net debt
Reported net debt reduced from GBP70.0 million at 31 December
2019 to GBP39.3 million at 31 December 2020. The Group's reported
net debt continues to be impacted by the adoption of IFRS 16 in
2019 which resulted in approximately GBP17 million of lease
liabilities being added to net debt. As noted in the prior year,
the Group's focus is net debt excluding leases ("Adjusted net
debt"). The impact of leases on net debt is excluded from the
Group's main banking covenants.
Adjusted net debt at 31 December 2020 was GBP21.0m (2019:
GBP53.3 million). The strong working capital performance together
with the Group's response to the pandemic which focused on
preserving cash, liquidity and headroom resulted in a significant
reduction in net debt during the year. Adjusted net debt was also
favourably impacted by the excess net proceeds from the placing
undertaken in February 2020. This resulted in a net debt reduction
of GBP5.3 million being the net placing proceeds of GBP38.9 million
less Starin purchase price of GBP21.0 million, associated
transaction costs of GBP0.3 million and net debt acquired of
GBP12.3 million.
In January 2020, the Group increased its revolving credit
facility to GBP50 million (GBP20 million at 31 December 2019) to
support its acquisition strategy. This facility has an adjusted net
debt to adjusted EBITDA covenant ratio of 2.75 times calculated on
a historic 12-month basis.
Most of the Group's other borrowing facilities are to provide
working capital financing. During the period, the Group arranged
further flexibility in working capital financing including the
addition of flexible term loans, inventory backed facilities and
extended overdrafts in several countries. Whilst the use of such
facilities has been limited, the additional headroom has enhanced
the Group's access to liquidity. As at 31 December 2020, the Group
has access to total facilities of over GBP170 million (2019: GBP115
million).
The Group has a strong balance sheet with a closing adjusted net
debt/adjusted EBITDA ratio of 0.9x (2019: 1.4x). This, combined
with the Group's underlying cash generation, equips the Group well
to fund short-term swings in working capital as the Group delivers
organic growth as well as continue to pursue accretive
acquisitions. The Group targets a long-term adjusted net debt to
adjusted EBITDA range of 1.5x-2.0x.
Goodwill and intangible assets
The Group's goodwill and intangible assets of GBP59.0 million
(2019: GBP45.3 million) arise from the various acquisitions
undertaken. Each year the Board reviews goodwill for impairment
and, as at 31 December 2020, the Board believes there are no
indications of impairment. The intangible assets arising from
business combinations, for exclusive supplier contracts, customer
relationships and brands, are amortised over an appropriate
period.
Working capital
Working capital management is a core part of the Group's
performance and there was considerable focus on this during the
year. At 31 December 2020, the Group had working capital (Trade and
other receivables plus inventories less trade and other payables)
of GBP79.3 million (2019: GBP85.8 million). This represented 11.1%
of current year revenue (2019: 12.5%). The Group uses a range of
different techniques to write down inventory to the lower of cost
and net realisable value including a formulaic methodology based on
the age of inventory. The aged inventory methodology writes down
inventory by a specific percentage based on time elapsed from
purchase date. In 2020 the Group reviewed and revised these
percentages to reflect both the delays to market demand from
COVID-19 and the Board's view that, as the Group mix has moved
towards more specialist value added products, the average period
for which inventory can be sold at above cost has increased. At 31
December 2020 the Group's inventory provision was GBP23.8 million
(22% of cost) (2019: GBP13.3 million; 13% of cost). Had the Group
maintained the previous percentages the inventory write down would
have been GBP6.5m higher as at 31 December 2020.
Adjustments to reported results
2020 2019
GBP000 GBP000
Operating profit 7,090 24,934
Acquisition costs 526 356
Share based payments 2,562 2,874
Employer taxes on share based payments 130 427
Amortisation of brands, customer and supplier relationships 6,224 4,871
Adjusted operating profit 16,532 33,462
=========== ===========
(Loss)/profit before tax (995) 23,781
Acquisition costs 526 356
Share based payments 2,562 2,874
Employer taxes on share based payments 130 427
Amortisation of brands, customer and supplier relationships 6,224 4,871
Derivative fair value movements and foreign exchange
gains and losses on borrowings for acquisitions 2,282 (104)
Finance costs - deferred and contingent consideration 3,275 (949)
Finance costs - put option 154 (48)
Adjusted profit before tax 14,158 31,208
=========== ===========
(Loss)/profit after tax (3,387) 18,200
Acquisition costs 526 356
Share based payments 2,562 2,874
Employer taxes on share based payments 130 427
Amortisation of brands, customer and supplier relationships 6,224 4,871
Derivative fair value movements and foreign exchange
gains and losses on borrowings for acquisitions 2,282 (104)
Finance costs - deferred and contingent consideration 3,275 (949)
Finance costs - put option 154 (48)
Tax impact (1,472) (1,840)
Adjusted profit after tax 10,294 23,787
=========== ===========
(Loss)/profit after tax (3,387) 18,200
Non-controlling interest (364) (1,018)
(Loss)/profit after tax attributable to owners of
the Parent Company (3,751) 17,182
=========== ===========
Number of shares for EPS 86,893,508 79,275,480
Reported EPS - pence (4.32) 21.67
Adjusted EPS - pence 11.20 28.49
The directors present adjusted operating profit, adjusted profit
before tax, and adjusted profit after tax as alternative
performance measures in order to provide relevant information
relating to the performance of the Group. Adjusted profits are a
reflection of the underlying trading profit and are important
measures used by directors for assessing Group performance. The
definitions of the alternative performance measures are set out
later in this document.
Consolidated income statement for the year ended 31 December
2020
Notes 2020 2019
GBP'000 GBP'000
Revenue 711,754 686,240
Cost of sales (609,961) (573,133)
---------- ----------
Gross profit 101,793 113,107
Distribution costs (68,488) (68,624)
Total administrative expenses (28,225) (23,132)
Other operating income 2,010 3,583
Operating profit 7,090 24,934
Comprising
----------------------------------------------------------------------------- ------ ---------- ----------
Adjusted operating profit 16,532 33,462
Costs of acquisitions 3 (526) (356)
Share based payments 9 (2,562) (2,874)
Employer taxes on share based payments (130) (427)
Amortisation and impairments of brands, customer and supplier relationships (6,224) (4,871)
----------------------------------------------------------------------------- ------ ---------- ----------
7,090 24,934
Finance income 172 66
Finance costs 4 (8,257) (1,219)
---------- ----------
(Loss)/profit before taxation (995) 23,781
Taxation (2,392) (5,581)
---------- ----------
(Loss)/profit after taxation (3,387) 18,200
========== ==========
(Loss)/profit for the financial year attributable to:
The Company's equity shareholders (3,751) 17,182
Non-controlling interest 364 1,018
(3,387) 18,200
========== ==========
Basic earnings per share 5 (4.32)p 21.67p
Diluted earnings per share 5 (4.32)p 21.31p
Consolidated statement of comprehensive income for the year
ended 31 December 2020
2020 2019
GBP'000 GBP'000
(Loss)/profit for the financial year (3,387) 18,200
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains and (losses) on retirement benefit obligations (4) (386)
Items that will be reclassified subsequently to profit or loss:
Net (loss)/gain on net investment hedge (194) 194
Foreign exchange gains and (losses) on consolidation 3,542 (3,115)
-------- --------
Other comprehensive income for the financial year, net of tax 3,344 (3,307)
Total comprehensive income for the year (43) 14,893
======== ========
Attributable to:
Owners of the Parent Company (878) 14,171
Non-controlling interests 835 722
(43) 14,893
======== ========
Consolidated statement of financial position as at 31 December
2020
Notes 2020 2019
Assets GBP'000 GBP'000
Non-current assets
Goodwill 15,350 13,326
Intangible assets 43,631 31,974
Right of use assets 17,102 15,949
Property, plant and equipment 11,206 12,086
Deferred tax assets 2,386 2,169
---------- ----------
89,675 75,504
Current assets
Inventories 83,995 88,691
Trade and other receivables 107,082 104,100
Derivative financial instruments 24 -
Cash and cash equivalents 25,485 13,015
---------- ----------
216,586 205,806
Current liabilities
Trade and other payables (110,136) (106,342)
Derivative financial instruments (1,094) (132)
Put option liabilities over non-controlling interests (1,306) (3,490)
Deferred and contingent considerations (7,012) (4,133)
Borrowings and financial liabilities 6 (30,045) (46,529)
Current tax (638) (2,331)
---------- ----------
(150,231) (162,957)
Net current assets 66,355 42,849
Total assets less current liabilities 156,030 118,353
Non-current liabilities
Trade and other payables (1,708) (665)
Put option liabilities over non-controlling interests (3,337) (3,799)
Deferred and contingent considerations (465) (2,796)
Borrowings and financial liabilities 6 (34,719) (36,466)
Deferred tax liabilities (7,011) (6,850)
Other provisions (2,303) (2,484)
---------- ----------
(49,543) (53,060)
Net assets 106,487 65,293
========== ==========
Equity
Share capital 8 886 799
Share premium 67,047 28,225
Share based payment reserve 4,472 3,998
Investment in own shares (6) (5)
Retained earnings 30,436 31,867
Translation reserve 2,117 (954)
Hedging reserve - 194
Put option reserve (4,813) (6,329)
Capital redemption reserve 50 50
Other reserve 150 150
---------- ----------
Equity attributable to owners of the Parent Company 100,339 57,995
Non-controlling interests 6,148 7,298
---------- ----------
Total equity 106,487 65,293
========== ==========
Consolidated statement of changes in equity for the year ended
31 December 2020
Equity
Investment attributable
Share Share in own Retained Other to owners of Non-controlling
capital premium shares earnings reserves the Parent interests Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(note 8 ) (Note 9 )
Balance at 1
January 2020 799 28,225 (5) 31,867 (2,891) 57,995 7,298 65,293
(Loss)/profit
for the year - - - (3,751) - (3,751) 364 (3,387)
Other
comprehensive
income - - - (4) 2,877 2,873 471 3,344
---------------- --------
Total
comprehensive
income for the
year - - - (3,755) 2,877 (878) 835 (43)
Shares issued
(note 8 ) 87 38,822 (7) - - 38,902 - 38,902
Share based
payments - - - - 2,562 2,562 - 2,562
Deferred tax on
share based
payments - - - - (232) (232) - (232)
Share options
exercised - - 6 1,855 (1,856) - - 5
Acquisition of
non-controlling
interest (note
10 ) - - - 469 1,516 1,985 (1,985) -
Balance at 31
December 2020 886 67,047 (6) 30,436 1,976 100,339 6,148 106,487
========== ======== =========== ========= ========== ============= ================ ========
For the year ended 31 December 2019
Equity
Investment attributable
Share Share in own Retained Other to owners of Non-controlling
capital premium shares earnings reserves the Parent interests Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(note 8 ) (Note 9 )
Balance at 1
January 2019 794 25,855 (5) 27,535 (630) 53,549 4,570 58,119
Profit for the
year - - - 17,182 - 17,182 1,018 18,200
Other
comprehensive
income - - - (386) (2,625) (3,011) (296) (3,307)
---------------- ---------
Total
comprehensive
income for the
year - - - 16,796 (2,625) 14,171 722 14,893
Shares issued
(note 8 ) 2 - (2) - - - - -
Share based
payments - - - - 2,874 2,874 - 2,874
Deferred tax on
share based
payments - - - - (128) (128) - (128)
Share options
exercised - 497 2 86 (585) - - -
Acquisition of
subsidiary
(note 11 ) - - - - (2,886) (2,886) 2,884 (2)
Acquisition of
non-controlling
interest (note
10 ) 3 1,873 - (245) 1,089 2,720 (843) 1,877
Dividends paid - - - (12,305) - (12,305) (35) (12,340)
---------- -------- ----------- --------- ---------- ------------- ---------------- ---------
Balance at 31
December 2019 799 28,225 (5) 31,867 (2,891) 57,995 7,298 65,293
========== ======== =========== ========= ========== ============= ================ =========
Consolidated statement of cash flows for the year ended 31
December 2020
2020 2019
GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit before tax (995) 23,781
Depreciation 5,991 5,425
Amortisation 6,429 5,023
Loss on disposal of assets 1,122 50
Share based payments 2,562 2,874
Foreign exchange losses (295) (583)
Finance income (172) (66)
Finance costs 8,257 1,219
--------- ---------
Profit from operations before changes in working capital 22,899 37,723
Decrease/(increase) in inventories 34,939 (5,110)
Decrease/(increase) in trade and other receivables 18,097 (7,686)
(Decrease)/increase in trade and other payables (31,442) 1,293
--------- ---------
Cash inflow from operations 44,493 26,220
Income tax paid (4,372) (8,844)
--------- ---------
Net cash inflow from operating activities 40,121 17,376
Cash flows from investing activities
Acquisition of businesses net of cash acquired (18,393) (10,091)
Purchase of intangible assets (1,730) (1,977)
Purchase of plant and equipment (1,860) (5,793)
Proceeds on disposal of plant and equipment 306 417
Interest received 172 66
--------- ---------
Net cash used in investing activities (21,505) (17,378)
Net cash flows from financing activities
Gross proceeds on issue of shares 39,724 -
Costs associated with shares issued (822)
Proceeds on exercise of share options 5 -
Deferred consideration paid (5,238) (5,517)
Acquisition of non-controlling interest (2,875) -
Dividends paid - (12,340)
Invoice financing (outflows)/inflows (32,191) 6,785
Proceeds from borrowings 4,796 13,099
Repayment of loans (4,445) (1,053)
Interest paid (2,438) (1,679)
Interest on leases (362) (379)
Capital element of lease payments (4,226) (2,627)
--------- ---------
Net cash outflow from financing activities (8,072) (3,711)
Net increase/(decrease) in cash and cash equivalents 10,544 (3,713)
Cash and cash equivalents at beginning of financial year 11,497 16,357
Effects of exchange rate changes 1,754 (1,147)
--------- ---------
Cash and cash equivalents at end of financial year 23,795 11,497
========= =========
Comprising:
Cash at bank 25,485 13,015
Bank overdrafts (1,690) (1,518)
--------- ---------
23,795 11,497
========= =========
Notes to the consolidated financial statements
1. Accounting policies
General information and nature of operations
The principal activity of Midwich Group plc, a public limited
liability company, and its subsidiary companies is the distribution
of Audio Visual Solutions to trade customers. It is registered in
England and Wales. Midwich Group plc's shares are listed on the
London Stock Exchange's Alternative Investment Market (AIM).
Basis of preparation
The consolidated financial statements of Midwich Group plc ("the
Group") have been prepared in accordance with International
Accounting Standards ("IAS") in conformity with the requirements of
the Companies Act 2006.
These accounting policies comply with each IAS that is mandatory
for accounting periods ending on 31 December 2020. The financial
statements have been prepared under the historical cost convention
as modified for financial instruments at fair value and in
accordance with applicable accounting standards.
The directors have adopted the going concern basis in preparing
the financial information. In assessing whether the going concern
assumption is appropriate, the directors have taken into account
all relevant available information about the foreseeable
future.
Basis of consolidation
The Consolidated Financial Statements incorporate the results of
Midwich Group plc ("the Company") and entities controlled by the
Company (its subsidiaries). A subsidiary is a Company controlled
directly by the Group. Control is achieved where the Group has the
power over the investee, rights to variable returns and the ability
to use the power to affect the investee's returns. Income and
expenses of subsidiaries acquired during the year are included in
the consolidated income statement from the effective date of
control. When necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies into
line with those used by the Parent Company.
The Group applies the acquisition method of accounting to
account for business combinations. The consideration transferred
for the acquisition of a subsidiary is the fair value of the assets
transferred, the liabilities incurred, and the equity interests
issued by the Group. Identifiable assets acquired, and liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date.
The Group recognises identifiable assets acquired and liabilities
assumed in a business combination regardless of whether they have
been previously recognised in the acquiree's financial statements
prior to the acquisition. Goodwill is stated after separate
recognition of identifiable intangible assets. It is calculated as
the excess of the sum of a) fair value of consideration
transferred, b) the recognised amount of any non-controlling
interest in the acquiree and c) acquisition-date fair value of any
existing equity interest in the acquiree, over the acquisition-date
fair values of identifiable net assets. If the fair values of
identifiable net assets exceed the sum calculated above, the excess
amount (i.e. gain on a bargain purchase) is recognised in profit or
loss immediately.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately within the Group's equity.
Non-controlling interests consist of the amount of those interests
at the date of the original business combination and the
non-controlling shareholders' share of changes in equity since the
date of the combination. Non-controlling interests are measured
initially at fair value.
Acquisition-related costs are expensed as incurred and all
intra-group transactions, balances, income and expenses are
eliminated in full on consolidation.
Acquisition of interests from non-controlling shareholders
Acquisitions of non-controlling interests in subsidiaries are
accounted for as transactions between shareholders. There is no
re-measurement to fair value of net assets acquired that were
previously attributable to non-controlling shareholders.
Going concern
The Board takes all reasonable steps to review and consider any
factors that may affect the ability of the Group to continue as a
going concern. The Group's forecasts and projections, taking
account of reasonably possible changes in trading performance, show
that the Group is able to generate sufficient liquidity to continue
in operational existence for the foreseeable future. There are no
material uncertainties that cast significant doubt on the Group's
ability to continue as a going concern. During 2020, the Group
increased its revolving credit facility (RCF) and issued shares to
support the Group's acquisitive growth strategy. At the start of
the COVID-19 pandemic, the Board took early and decisive action to
address the emerging risks and to preserve cash and liquidity.
These actions resulted in a significant reduction in Group net debt
during 2020. At end of 2020, the directors considered the working
capital of the business to be adequate for its needs, and the Group
therefore continues to adopt the going concern basis in preparing
consolidated financial statements.
Revenue
Revenue arises from the sale of goods, rental of products and
ancillary services including the provision of support services,
transport, warranties, and repairs.
To determine whether to recognise revenue, the Group follows a
5-step process;
-- Identifying the contract with a customer;
-- Identifying the performance obligations;
-- Determining the transaction price;
-- Allocating the transaction price to the performance obligations; and
-- Recognising revenue when or as performance obligations are satisfied.
The Group often enters transactions involving a range of the
Group's products and services, for example for the supply of goods
and provision of services. In all cases, the total transaction
price for a contract is allocated amongst the various performance
obligations based on their relative stand-alone selling prices. The
transaction price for a contract excludes any amounts collected on
behalf of third parties.
Revenue is recognised either at a point in time or over time,
when or as, the Group satisfies performance obligations by
transferring the promised goods or services to customers. The Group
recognises contract liabilities for consideration received in
respect of unsatisfied performance obligations and reports these
amounts as other liabilities in the statement of financial
position. If the Group satisfies a performance obligation before it
receives the consideration, the Group recognises a receivable in
its statement of financial position.
The sale of goods for a fixed fee is recognised when or as the
Group transfers control of the assets to the customer. For
stand-alone sales of goods that are neither customised by the Group
nor subject to significant integration services, control transfers
at the point in time the goods are despatched. When goods are
either customised or sold together with significant services, the
goods and services represent a single combined performance
obligation over which control is considered to transfer over time.
The combined product is unique to each customer, has no alternative
use, and the Group has an enforceable right to payment for the work
completed to date. Revenue for these performance obligations is
recognised over time as the customisation or ancillary service is
performed, using the cost-to-cost method to estimate progress
towards completion. As costs are generally incurred uniformly as
the work progresses and are proportionate to the entity's
performance, the cost-to-cost method provides a faithful depiction
of the transfer of goods and services to the customer.
Supplier income and vendor rebates
Promotional income is recognised on completion of the
promotional activity in-line with when it is contractually earned
and recorded separately in other operating income. Vendor rebates
are recognised on completion of the contractual obligation and
recorded within cost of sales.
Finance income and costs
Interest income and expense is recognised using the effective
interest method which calculates the amortised cost of a financial
asset or liability and allocates the interest income or expense
over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash receipts or payments
through the expected life of the financial asset or liability to
the net carrying amount of the financial asset or liability. Other
finance costs include the changes in fair value of derivatives and
other financial instruments measured at fair value through profit
or loss.
Goodwill
Goodwill represents the future economic benefits arising from
business combinations which are not individually identified and
separately recognised. Goodwill is carried at cost as established
at the date of acquisition of the business less any accumulated
impairment losses.
Intangible assets other than goodwill
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is their fair value as at the date of
acquisition. Following initial recognition, intangible assets are
carried at cost less any accumulated amortisation and accumulated
impairment losses. The useful lives of other intangible assets are
assessed as finite. Intangible assets with finite lives are
amortised over the useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be
impaired. The amortisation period and the amortisation method for
an intangible asset with a finite useful life are reviewed at least
at the end of each reporting period. Changes in the expected useful
life or the expected pattern of consumption of future economic
benefits embodied in the asset are accounted for by changing the
amortisation period or method, as appropriate, and are treated as
changes in accounting estimates. The amortisation expense on
intangible assets with finite lives is recognised in profit or loss
in administrative expenses.
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in
profit or loss when the asset is derecognised.
Amortisation is calculated on a straight-line basis over the
estimate useful life of the asset as follows:
* Patents and licences 3-10 years
* Software 3-10 years
* Brands 5-15 years
* Customer relationships 5-15 years
* Supplier relationships 5-15 years
Right of use assets
Right of use assets are recognised at the commencement date of
the lease when the asset is available for use. Right of use assets
are initially measured at cost including initial direct costs
incurred and the initial value of the lease liability. Right of use
assets are subsequently measured at cost less any accumulated
depreciation, impairment losses, and adjustments arising from lease
modifications that are not a termination of the lease.
Depreciation is calculated on a straight-line basis on all right
of use assets as follows:
* Land and buildings Over the period of the lease up to a maximum of 50 years
* Rental assets Over the period of the lease up to a maximum of 10 years
* Plant and equipment Over the period of the lease up to a maximum of 10 years
Modifications to leases that decrease the scope of the lease are
treated as a partial or full termination of a lease. A gain or loss
on disposal is recognised when there is termination of a lease.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less
any depreciation and impairment losses. Cost includes expenditure
that is directly attributable to the acquisition or construction of
these items. Subsequent costs are included in the asset's carrying
amount only when it is probable that future economic benefits
associated with the item will flow to the Group and the costs can
be measured reliably. All other costs, including repairs and
maintenance costs, are charged to the income statement in the
period in which they are incurred.
Depreciation is calculated on a straight-line basis on property,
plant and equipment as follows:
* Land Not depreciated
* Freehold buildings 50 years
* Leasehold improvements Over the period of the lease up to a maximum of 50 years
* Rental assets 3-10 years
* Plant and equipment 3-10 years
Depreciation is provided on cost less residual value. The
residual value, depreciation methods and useful lives are annually
reassessed. Each asset's estimated useful life has been assessed
for limitations in its physical life and for possible future
variations in those assessments. Estimates of remaining useful
lives are made on a regular basis for all machinery and equipment,
with annual reassessments for major items. Changes in estimates are
accounted for prospectively. The gain or loss arising on disposal
or scrapping of an asset is determined as the difference between
the sales proceeds, net of selling costs, and the carrying amount
of the asset and is recognised in the income statement.
Impairment of non-financial assets including goodwill
For the purposes of impairment testing, goodwill is allocated to
each of the Group's cash-generating units that are expected to
benefit from the synergies of the combination. Each unit to which
goodwill is allocated represents the lowest level within the Group
that independent cash flows are monitored. A cash-generating unit
to which goodwill has been allocated is tested for impairment
annually, or more frequently when there is indication that the unit
may be impaired.
At each reporting date, the Group reviews the carrying amounts
of non-current assets excluding goodwill to determine whether there
is any indication that they have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated to determine the extent of any impairment loss. Where the
asset does not generate cash flows that are independent from other
assets, the estimate is the recoverable amount of the
cash-generating unit to which the asset belongs. Recoverable amount
is the higher of fair value less costs of disposal and value in
use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted. If the recoverable amount
of an asset or cash-generating unit is estimated to be less than
the carrying amount, then the carrying amount of the asset or
cash-generating unit is reduced to the recoverable amount. The
impairment loss is allocated first to reduce the carrying amount of
any goodwill allocated to the unit and then to the other assets of
the unit pro rata based on the carrying amount of each asset in the
unit. An impairment loss is recognised as an expense immediately.
An impairment loss recognised for goodwill is not reversed in
subsequent periods. Where an impairment loss on other non-financial
assets subsequently reverses, the carrying amount of the asset or
cash-generating unit is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been determined had
no impairment loss been recognised for the asset or cash-generating
unit in prior periods. A reversal of an impairment loss is
recognised in the income statement immediately.
Inventory
Inventory is valued at the lower of cost and net realisable
value, after making due allowance for obsolete and slow-moving
items. Cost comprises purchase price and directly attributable
costs incurred in bringing products to their present location and
condition. Some goods are held on behalf of customers and are not
included within the Group's inventory.
Financial instruments
Financial instruments are comprised of financial assets and
financial liabilities, which are recognised when the Group becomes
party to the contractual provisions of the instrument. Financial
assets are derecognised when the contractual rights to the cash
flows from the financial assets expire or substantially all the
risks and rewards of ownership of the financial asset are
transferred. Financial liabilities are derecognised when
extinguished.
Financial assets
Financial assets include trade and other receivables, cash and
cash equivalents, and derivative financial instruments with a
positive market value.
The Group classifies financial assets into three categories:
-- financial assets measured at amortised cost;
-- financial assets measured at fair value through other comprehensive income; and
-- financial assets measured at fair value through profit or loss.
The classification of a financial asset depends on the Group's
business model for managing the asset and the contractual cash flow
characteristics associated with the asset. Financial assets with
embedded derivatives are recognised as hybrid contracts. Hybrid
contracts are classified in their entirety and not in separate
components. Investments in equity instruments that are not held for
trading are classified as financial assets measured at fair value
through profit and loss unless the Group makes an irrevocable
election on initial recognition to classify the asset as measured
at fair value through other comprehensive income. Trade receivables
that do not contain a significant financing component are initially
measured at transaction price. All other financial assets
classified as either financial assets measured at amortised cost,
or financial assets measured at fair value through other
comprehensive income are initially measured at fair value plus
transaction costs directly attributable to the acquisition of the
financial asset. Financial assets measured at fair value through
profit and loss are initially measured at fair value and any
transaction costs directly attributable to the acquisition of the
financial asset are recognised in the profit and loss. Financial
assets measured at amortised cost are subsequently measured using
the effective interest method. The effects of discounting within
the effective interest method are omitted if immaterial. Where the
contractual cash flows of the financial asset are renegotiated or
otherwise modified the financial asset is recalculated at the
present value of the modified contractual cash flows discounted at
the financial asset's original effective interest rate. Financial
assets measured at fair value through other comprehensive income
and financial assets measured at fair value through profit and loss
are subsequently measured at fair value. Expected credit loss
impairments are recognised in respect of financial assets measured
at amortised cost and financial assets measured at fair value
through other comprehensive income immediately on initial
recognition of the respective financial asset. Expected credit
losses are measured using an expected credit loss model. The
expected credit loss model reflects a probability weighted amount
derived from a range of possible outcomes that are discounted for
the time value of money and based on reasonable and supportable
information. Where trade receivables contain a significant
financing component the Group applies the simplified approach to
measure the loss allowance at an amount equal to lifetime expected
credit losses.
Financial liabilities
Financial liabilities include trade and other payables; put
option liabilities; deferred consideration; bank loans, overdrafts
and invoice discounting facilities; and derivative financial
instruments with a negative market value.
The Group classifies financial liabilities into six
categories:
-- financial liabilities measured at amortised cost;
-- financial liabilities measured at fair value through profit or loss;
-- financial liabilities that arise when a transfer of a
financial asset does not qualify for derecognition or when the
continuing involvement approach applies;
-- financial guarantee contracts;
-- commitments to provide loans at below market interest rates; and
-- contingent consideration recognised in a business combination.
Financial liabilities measured at fair value through profit or
loss are initially measured at fair value and any transaction costs
directly attributable to the issue of the financial liability are
recognised in the profit and loss. Financial liabilities that arise
when a transfer of a financial asset does not qualify for
derecognition or when the continuing involvement approach applies
are initially measured at the amount of the consideration received
in respect of the financial asset. All other financial liabilities
are initially measured at fair value minus transaction costs
directly attributable to the issue of the financial liability.
Financial liabilities measured at amortised cost are subsequently
measured using the effective interest method. The effects of
discounting within the effective interest method are omitted if
immaterial. Where the contractual cash flows of the financial
liability are renegotiated or otherwise modified the financial
liability is recalculated at the present value of the modified
contractual cash flows discounted at the financial liability's
original effective interest rate. Financial liabilities measured at
fair value through profit and loss are subsequently measured at
fair value. The subsequent measurement of financial liabilities
that arise
when a transfer of a financial asset does not qualify for
derecognition or when the continuing involvement approach applies
depends upon whether the transferred asset is measured at amortised
cost or fair value. If the transferred asset is measured at
amortised cost then associated liability is measured in such a way
that the net carrying amount of the transferred asset and the
associated liability is the amortised cost of the rights and
obligations retained by the entity. However, if the transferred
asset is measured at fair value the associated liability is
measured in such a way that the net carrying amount of the
transferred asset and the associated liability is equal to the fair
value of the rights and obligations retained by the entity when
measured on a stand-alone basis. Financial guarantee contracts are
subsequently measured at the higher of the amount of the loss
allowance calculated in accordance with the expected credit loss
model and the amount of the initially recognised. Commitments to
provide loans at below market interest rates are subsequently
measured at the higher of the amount of the loss allowance
calculated in accordance with the expected credit loss model and
the amount initially recognised. Contingent consideration
recognised in a business combination is subsequently measured at
fair value.
Trade and other receivables
Trade and other receivables are financial assets recognised when
the Group becomes party to the contractual provisions of the
instrument. Trade receivables that do not contain a significant
financing component are initially measured at transaction price,
which is equivalent to fair value. All other trade and other
receivables are initially measured at fair value plus transaction
costs directly attributable to the acquisition of the financial
asset. Trade and other receivables are subsequently measured at
amortised cost using the effective interest method, less loss
allowances.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held
at call with banks and other short-term highly liquid investments
with original maturities of three months or less from
inception.
Borrowings
Borrowings include bank loans and overdrafts, loan notes,
amounts advanced under invoice factoring arrangements, and leases.
Bank loans and overdrafts, loan notes, and amounts advanced under
invoice factoring arrangements are financial liabilities that are
recognised when the Group becomes party to the contractual
provisions of the instrument. Bank loans and overdrafts, loan
notes, and amounts advanced under invoice factoring arrangements
are initially measured at fair value minus transaction costs
directly attributable to the issue of the financial liability. Bank
loans and overdrafts, loan notes, and amounts advanced under
invoice factoring arrangements are subsequently measured using the
effective interest method. The effects of discounting within the
effective interest method are omitted if immaterial. Where the
contractual obligations of financial instruments (including share
capital) are equivalent to a similar debt instrument, those
financial instruments are classified as financial liabilities.
Trade and other payables
Trade and other payables are financial liabilities recognised
when the Group becomes party to the contractual provisions of the
instrument. Trade and other payables are initially measured at fair
value minus transaction costs directly attributable to the issue of
the financial liability. Trade and other payables are subsequently
measured at amortised cost using the effective interest method.
Derivative financial instruments
Derivative financial instruments are recognised when the Group
becomes party to the contractual provisions of the instrument.
Derivative financial instruments are initially and subsequently
measured at fair value. Any transaction costs directly attributable
to the acquisition of the financial asset are recognised in the
profit and loss. The fair values are determined by reference to
active markets or using a valuation technique where no active
market exists.
Put option liabilities
Put options to acquire non-controlling interests of subsidiaries
are initially recognised at present value and subsequently measured
at amortised cost, being the present value of future payments
discounted at the original effective interest rate. Where the
contractual cash flows of the put option liability are renegotiated
or otherwise modified the financial liability is recalculated at
the present value of the modified contractual cash flows discounted
at the financial liability's original effective interest rate.
Further details of the measurement of put options are given in the
accounting judgements and key sources of estimation uncertainty
accounting policy.
Foreign currency
The presentation currency for the Group's consolidated financial
statements is Sterling. Foreign currency transactions by group
companies are recorded in their functional currencies at the
exchange rate at the date of the transaction. Monetary assets and
liabilities are translated at rates in effect at the reporting date
with any gain or loss on foreign exchange adjustments usually being
credited or charged to the income statement within administrative
expenses. The Parent Company's functional currency is Sterling. On
consolidation the assets and liabilities of the subsidiaries with a
functional currency other than Sterling are translated into the
Group's presentational currency at the exchange rate at the
reporting date and the income and expenditure account items are
translated at the average rate for the period. The exchange
difference arising on the translation from functional currency to
presentational currency of subsidiaries is classified as other
comprehensive income and is accumulated within equity as a
translation reserve. The balance of the foreign currency
translation reserve relating to a subsidiary that is partially or
fully disposed of is recognised in the income statement at the time
of disposal.
Current taxation
Current tax payable or recoverable is based on taxable profit
for the year. Taxable profit differs from profit as reported in the
income statement because some items of income or expense are
taxable or deductible in different years or may never be taxable or
deductible. The Group's liability for current tax is calculated
using UK and foreign tax rates and laws that have been enacted or
substantively enacted by the end of reporting period date.
Deferred taxation
Deferred taxation is calculated using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated
financial statements. However, if the deferred tax arises from the
initial recognition of an asset or liability in a transaction other
than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss, it is not
accounted for. No deferred tax is recognised on initial recognition
of goodwill or on investment in subsidiaries. Deferred tax is
determined using tax rates and laws that have been enacted or
substantively enacted by the reporting date and are expected to
apply when the related deferred tax asset is realised, or the
deferred tax liability is settled. Deferred tax liabilities are
provided in full and are not discounted. Deferred tax assets are
recognised to the extent that it is probable that future taxable
profits will be available against which the temporary differences
can be utilised. Changes in deferred tax assets or liabilities are
recognised as a component of tax expense in the income statement,
except where they relate to items that are charged or credited
directly to equity in which case the related deferred tax is also
charged or credited directly to equity. Deferred income tax assets
and liabilities are offset when there is a legally enforceable
right to offset current tax assets against current tax liabilities
and when the deferred income tax assets and liabilities relate to
income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
Employment benefits
Provision is made in the financial statements for all employee
benefits. Liabilities for wages and salaries, including
non-monetary benefit and annual leave obliged to be settled within
12 months of the reporting date, are recognised in accruals.
Contributions to defined contribution pension plans are charged to
the income statement in the period to which the contributions
relate. The Group operates defined benefit pension plans in the
Netherlands and Switzerland, which require contributions to a
separately managed funds. Both defined benefit pension plans are
final salary pension schemes which provide members with a
guaranteed income on retirement. Defined benefit pension scheme
surpluses or deficits are calculated by independent qualified
actuaries using actuarial assumptions applied to actual pension
contributions and salaries. The actuarial assumptions include
return on assets, inflation, life expectancy, mortality rates and
expected retirement ages. Actuarial assumptions are updated
annually to reflect changes in market conditions and all actuarial
gains and losses are recognised in other comprehensive income.
Leases
Assets and liabilities arising from a lease are initially
measured at present value. The present value is comprised of fixed
and variable payments discounted using the interest rate implicit
in the lease unless it can't be readily determined, in which case
payments are discounted using the incremental borrowing rate.
Variable payments are payments that depend on a rate or index and
are initially measured using the appropriate rate or index at the
commencement date of the lease. Where a material variation to the
initial measurement of lease payments occurs the lease liability is
reassessed with a corresponding adjustment to the value of right of
use asset.
Lease payments beyond a break clause or within an extension
option are included in the measurement of present value provided it
is reasonably certain that the lease will be not be terminated
before the respective break point or lease extension and there is
no active plan to do so.
Finance costs are added to the lease liabilities at amounts that
produce a constant periodic rate of interest on the remaining
balance of the lease liabilities using the interest rates used to
calculate the present value of the leases. Lease payments are
deducted from the lease liability.
Short-term leases of less than 12 months or leases for low value
assets are recognised on a straight-line basis as an expense in the
income statement.
Government grants
Government grants are recognised when the conditions attached to
the grant have been satisfied and after deducting any probable
liability to repay the grant.
Government grants relating to costs incurred are offset against
the cost to which the grant relates in the income statement.
Government grants in relation to employment support are offset
against the employee costs in the income statement.
Government grants relating to the purchase of property, plant
and equipment are deducted from the purchase price of the asset and
credited to the income statement on a systematic basis over the
expected useful life of the related asset.
Equity
Equity comprises the following:
-- "Share capital" represents the nominal value of equity shares
issued.
-- "Share premium" represents the amounts subscribed for share
capital, net of issue costs, above the nominal value.
-- "Investment in own shares" represents amounts of the Parent
Company's own shares held within an Employee Benefit Trust.
-- "Share based payment reserve" represents the accumulated
value of share based payments expensed in the income statement,
along with any accumulated deferred tax credits or charges
recognised in other comprehensive income in respect of options that
have yet to exercise.
-- "Retained earnings" represents the accumulated profits and
losses attributable to equity shareholders.
-- "Translation reserve" represents the exchange differences
arising from the translation of the financial statements of
subsidiaries into the Group's presentational currency.
-- "Put option reserve" represents the initial present value of
put options over shares in a subsidiary held by non-controlling
interest shareholders that have not been exercised.
-- "Capital redemption reserve" represents the nominal value of
shares repurchased by the Parent Company.
-- "Other reserve" relates to the Employee Benefit Trust.
-- "Non-controlling interest" represents the share of a
subsidiary's profit or loss and net assets that is not held by the
Group. The Group attributes total comprehensive income or loss of
subsidiaries between the owners of the Parent and the
non-controlling interests based on their respective ownership
interests.
Share based payments
Equity-settled share based payments are measured at the fair
value of the equity instrument. The fair value of the
equity-settled transactions is recognised as an expense over the
vesting period. The fair values of the equity instruments are
determined at the date of grant incorporating market based vesting
conditions. The fair value of goods and services received is
measured by reference to the fair value of options. The fair values
of share options are measured using the Black Scholes model. The
expected life used in the models is adjusted, based on management's
best estimate of the effects of non-transferability, exercise
restrictions and behavioural considerations. The cost of
equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the
performance or service conditions are fulfilled, ending on the date
on which the relevant employees become fully entitled to the award
("the vesting date"). The cumulative expense recognised for
equity-settled transactions at each reporting date until the
vesting date reflects the extent to which the vesting period has
expired and the Group's best estimate of the number of equity
instruments that will ultimately vest. The income statement charge
or credit for a period represents the movement in cumulative
expense recognised as at the beginning and end of that period. No
expense is recognised for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether the
market condition is satisfied, provided that all other performance
or service conditions are satisfied. Where the terms of an
equity-settled award are modified, the minimum expense recognised
is the expense as if the terms had not been modified. An additional
expense is recognised for any modification, which increases the
total fair value of the share based payment arrangement, or is
otherwise beneficial to the employee as measured at the date of
modification. Where an equity-settled award is cancelled, it is
treated as if it had vested on the date of cancellation, and any
expense not yet recognised for the award is recognised immediately.
However, if a new award is substituted for the cancelled award, and
designated as a replacement award on the date that it is granted,
the cancelled and new awards are treated as if they were a
modification of the original award. Where an equity-settled award
is forfeited during the vesting period, the cumulative charge
expensed up to the date of forfeiture and is credited to the income
statement.
Employee Benefit Trust
The assets and liabilities of the Employee Benefit Trusts (EBT)
have been included in the Group financial statements. Any assets
held by the EBT cease to be recognised on the group statement of
financial position when the assets vest unconditionally in
identified beneficiaries. The costs of purchasing own shares held
by the EBT are shown as a deduction within shareholders' equity.
The proceeds from the sale of own shares are recognised in
shareholders' equity. Neither the purchase nor sale of own shares
leads to a gain or loss being recognised in the income
statement.
Segment reporting
An operating segment is a component of an entity that engages in
business activities from which it may earn revenues and incur
expenses (including revenues and expenses related to transactions
with other components of the same entity), whose operating results
are regularly reviewed by the entity's Chief Operating Decision
Maker to make decisions about resources to be allocated to the
segment and assess its performance, and for which discrete
financial information is available. The Chief Operating Decision
Maker has been identified as the Managing Director, at which level
strategic decisions are made. Details of the Group's reporting
segments are provided in note 2 .
New and amended International Financial Reporting Standards
adopted by the Group
The Group adopted the following standards, amendments to
standards and interpretations, which are effective for the first
time this year:
IBOR reform phase 1 amendments;
IFRS 3 amendment;
IFRS 16 amendment;
New definition of materiality; and
Updated references to the conceptual framework.
The new standards have not had a material impact on the reported
results and there is no adjustment to previously reported equity
due to the implementation of the new standards.
International Financial Reporting Standards in issue but not yet
effective
The new and amended standards and interpretations that are
issued, but not yet effective, up to the date of issuance of the
Group's financial statements are disclosed below. The Group intends
to adopt these new and amended standards and interpretations, if
applicable, when they become effective.
IFRS 17 'Insurance contracts'
The Group does not issue insurance contacts and there will be no
impact of the adoption of IFRS 17.
Use of alternative performance measures
The Group has defined certain measures that it uses to
understand and manage performance. These measures are not defined
under IAS and they may not be directly comparable with other
companies' adjusted measures. These non-GAAP measures are not
intended to be a substitute for any IAS measures of performance,
but management has included them as they consider them to be key
measures used within the business for assessing the underlying
performance.
Growth at constant currency: This measure shows the year on year
change in performance after eliminating the impact of foreign
exchange movement, which is outside of management's control.
Organic growth: This is defined as growth at constant currency
growth excluding acquisitions until the first anniversary of their
consolidation.
Adjusted operating profit: Adjusted operating profit is
disclosed to indicate the Group's underlying profitability. It is
defined as profit before acquisition related expenses, share based
payments and associated employer taxes and amortisation of brand,
customer and supplier relationship intangible assets.
Adjusted EBITDA: This represents operating profit before
acquisition related expenses, share based payments and associated
employer taxes, depreciation and amortisation.
Adjusted profit before tax: This is profit before tax adjusted
for acquisition related expenses, share based payments and
associated employer taxes, amortisation of brand, customer and
supplier relationship intangible assets, changes in deferred or
contingent considerations and put option liabilities over
non-controlling interests, foreign exchange gains or losses on
borrowings for acquisitions, fair value movements on derivatives
for borrowings, and financing fair value remeasurements.
Adjusted profit after tax: This is profit after tax adjusted for
acquisition related expenses, share based payments and associated
employer taxes, amortisation of brand, customer and supplier
relationship intangible assets, changes in deferred or contingent
considerations and put option liabilities over non-controlling
interests, foreign exchange gains or losses on borrowings for
acquisitions, fair value movements on derivatives for borrowings,
and financing fair value remeasurements and the tax thereon.
Adjusted EPS: This is adjusted profit after tax attributable to
equity shareholders of the Company divided by the weighted number
of shares outstanding.
Adjusted net debt: This is net debt excluding leases.
Accounting judgements and sources of estimation uncertainty
The preparation of financial statements in accordance with the
principles of the IASs requires the directors to make judgements
and use estimation techniques to provide a fair presentation of the
Group's financial position and performance. Accounting judgements
represent the accounting decisions made by the directors that have
the most significant effect on amounts recognised in the financial
statements. Sources of estimation uncertainty represent the
assumptions made by management that carry significant risks of a
material adjustment to the value of assets and liabilities within
the next financial year. Judgements and estimates are evaluated
based on historic experience, on-going developments within the
Group, and reasonable expectations of future events. Judgements and
estimates are subject to regular review by the directors.
The following are the significant accounting judgements made by
the Group in preparing the financial statements:
Put options over non-controlling interests
As a result of a some of the acquisitions the Group has issued
several put options over non-controlling interests. The liability
is recorded at the present value of the redemption amount and is
accounted for as a separate component in equity on the basis that
the directors have judged that the Group does not currently hold
the risks and rewards associated with ownership of these shares.
The key judgements in determining whether the risks and rewards
regarding control have passed were the proportionate right to
dividends and determining if there is exposure to changes in value
of shares.
The following are the significant sources of estimation
uncertainty facing the Group in preparing the financial
statements:
Inventory write down
Inventory is written down to the lower of cost and net
realisable value. To determine inventory write downs the Group is
required to estimate the future sales volumes, sales prices, costs
to sell inventory, and shrinkage.
The Group uses a range of different techniques to write down
inventory to the lower of cost and net realisable value including a
formulaic methodology based on the age of inventory. The aged
inventory methodology writes down inventory by a specific
percentage based on time elapsed from purchase date. In 2020 the
Group reviewed and revised these percentages to reflect both the
delays to market demand from COVID-19 and the Board's view that, as
the Group mix has moved towards more specialist value added
products, the average period for which inventory can be sold at
above cost has increased. At 31 December 2020 the Group's inventory
provision was GBP23,850k (22% of cost) (2019: GBP13,305k; 13% of
cost). Had the Group maintained the previous percentages the
inventory write down would have been GBP6.5m higher as at 31
December 2020.
Fair value of separately identifiable intangible assets in
business combinations
The Group is required to calculate the fair value of
identifiable assets and liabilities acquired in business
combinations. To estimate the fair value of separately identifiable
assets in business combinations certain assumptions must be made
about future trading performance, royalty rates, customer attrition
rates, and supplier contract renewal rates. The fair values of
assets and liabilities acquired in business combinations are
disclosed in note 11 .
Contingent considerations and put option liabilities
The Group is required to record contingent considerations at
fair value. The Group initially measures put option liabilities at
present value and subsequently measures put option liabilities at
amortised cost using the effective interest rate method. The Group
use a range of present valuation techniques including both the
discount rate adjustment technique and the expected present value
technique to determine the fair values of contingent considerations
and the present values of put option liabilities.
2. Segmental reporting
Operating segments
For the purposes of segmental reporting, the Group's Chief
Operating Decision Maker ("CODM") is the Managing Director. The
Group is a distributor of audio visual solutions to trade
customers. The Board reviews attributable revenue, expenses, assets
and liabilities by geographic region and makes decisions about
resources and assesses performance based on this information.
Therefore, the Group's operating segments are geographic in
nature.
EMEA North
UK & Asia America Other Total
Ireland Pacific GBP'000
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- ----------- ------------ --------- ------------- ----------- ------------
Revenue 224,386 331,115 44,476 111,777 - 711,754
Gross profit 31,321 45,635 6,821 18,016 - 101,793
Gross profit % 14.0% 13.8% 15.3% 16.1% - 14.3%
Adjusted operating profit 3,916 9,393 820 4,909 (2,506) 16,532
Costs of acquisitions - - - - (526) (526)
Share based payments (1,141) (799) (218) (3) (401) (2,562)
Employer taxes on share based
payments (46) (31) (7) (-) (46) (130)
Amortisation of brands, customer
and supplier relationships (2,490) (2,285) (270) (1,179) - (6,224)
Operating profit 239 6,278 325 3,727 (3,479) 7,090
------------------------------------------- ----------- ------------ --------- ------------- ----------- ------------
Interest (8,085)
------------
(Loss)/profit before tax (995)
============
EMEA
UK & Asia North Other Total
Ireland Pacific America
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment assets 94,627 150,167 21,039 40,130 298 306,261
Segment liabilities (60,545) (103,078) (17,614) (17,851) (686) (199,774)
------------------------------------------- ----------- ------------ --------- ------------- ----------- ------------
Segment net assets 34,082 47,089 3,425 22,279 (388) 106,487
Depreciation 2,540 2,603 480 368 - 5,991
Amortisation 2,519 2,356 286 1,268 - 6,429
UK International Total
Other segmental information GBP'000 GBP'000 GBP'000
----------------------------------------------------------------- -------------- -------- ---------------- --------
Non-current assets 25,959 63,716 89,675
EMEA
UK & Other Total
Ireland Asia Pacific
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------- --------- ------------- -------------- ---------- ------------
Revenue 314,627 320,990 50,623 - 686,240
Gross profit 55,328 48,805 8,974 - 113,107
Gross profit % 17.6% 15.2% 17.7% - 16.5%
Adjusted operating profit 19,850 14,108 2,716 (3,212) 33,462
Costs of acquisitions - - - (356) (356)
Share based payments (1,230) (948) (235) (461) (2,874)
Employer taxes on share based payments (136) (201) (17) (73) (427)
Amortisation of brands, customer
and supplier relationships (2,558) (2,039) (274) - (4,871)
Operating profit 15,926 10,920 2,190 (4,102) 24,934
----------------------------------------------------- --------- ------------- -------------- ---------- ------------
Interest (1,153)
------------
Profit before tax 23,781
============
EMEA
UK & Other Total
Ireland Asia Pacific
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment assets 113,690 143,859 23,633 128 281,310
Segment liabilities (86,535) (109,427) (19,644) (411) (216,017)
----------------------------------------------------- --------- ------------- -------------- ---------- ------------
Segment net assets 27,155 34,432 3,989 (283) 65,293
Depreciation 2,562 2,412 451 - 5,425
Amortisation 2,637 2,095 291 - 5,023
UK International Total
Other segmental information GBP'000 GBP'000 GBP'000
------------------------------------------------------------------------- -------------- ---------------- ---------
Non-current assets 29,112 46,392 75,504
Revenue from the UK, being the domicile of the Parent Company
amounted to GBP208,601k (2019: GBP291,576k).
Segment revenues above are generated from external customers.
The accounting policies of the reportable segments have been
consistently applied. Segment profit represents the operating
profit by each segment after amortisation of intangibles arising on
consolidation.
In addition to the external revenue reported by segment the UK
& Ireland segment made GBP3,660k of intercompany sales, the
EMEA segment made GBP1,278k of intercompany sales, and the North
America segment made GBP652k of intercompany sales. There were no
intersegment sales during the prior year.
Sales to the largest customer
Included in revenues arising in 2020 are revenues of GBP17.3m
(2019: GBP12.8m) that arose from sales to the Group's largest
customer, which is based in the United States of America (2019:
Germany). No single customer contributed 10% or more to the Group's
revenue in any period presented.
3. Administrative expenses
Administrative expenses in the period include GBP526k of
acquisition related costs (2019: GBP356k). For details of
acquisitions in the year see note 11 .
4. Finance costs
2020 2019
GBP'000 GBP'000
Interest on overdraft and invoice discounting 1,194 1,176
Interest on leases 362 379
Interest on loans 830 517
Fair value movements on foreign exchange derivatives 156 246
Other interest costs 4 2
Fair value movements on derivatives for borrowings 1,194 42
Foreign exchange gains on borrowings for acquisitions 1,088 (146)
Interest, foreign exchange and other finance costs of deferred and contingent
considerations 3,275 (949)
Interest, foreign exchange and other finance costs of put option liabilities 154 (48)
8,257 1,219
======== ========
5. Earnings per share
Basic earnings per share is calculated by dividing the profit
after tax attributable to equity shareholders of the Company by the
weighted average number of shares outstanding during the year.
Shares outstanding is the total shares issued less the own shares
held in employee benefit trusts. Diluted earnings per share is
calculated by dividing the profit after tax attributable to equity
shareholders of the Company by the weighted average number of
shares in issue during the year adjusted for the effects of all
dilutive potential Ordinary Shares.
2020 2019
(Loss)/profit attributable to equity holders of the Group (GBP'000) (3,751) 17,182
Weighted average number of shares in issue 86,893,508 79,275,480
Potentially dilutive effect of the Group's share option schemes 1,242,399 1,334,953
----------- -----------
Weighted average number of diluted Ordinary Shares 88,135,907 80,610,433
=========== ===========
Basic earnings per share (4.32)p 21.67p
=========== ===========
Diluted earnings per share (4.32)p 21.31p
=========== ===========
Diluted earnings per share excludes the antidilutive effects of
potential Ordinary Shares that result in a decrease in the loss per
share.
6. Borrowings
2020 2019
GBP'000 GBP'000
* Bank overdrafts and invoice discounting 22,448 41,134
* Bank loans 24,042 24,805
* Leases 18,274 16,708
-------- --------
64,764 82,647
======== ========
Unsecured - at amortised cost
* Unsecured loan notes - 348
======== ========
Total secured and unsecured borrowings 64,764 82,995
======== ========
Current 30,045 46,529
Non-current 34,719 36,466
64,764 82,995
======== ========
Summary of borrowing arrangements:
The Group has overdraft borrowings which comprised GBP1,690k at
the end of 2020 (2019: GBP1,519k). The facilities are uncommitted
and secured with fixed and floating charges over the assets of the
Group.
The Group has invoice discounting borrowings which comprised
GBP20,758k at the end of 2020 (2019: GBP39,615k). The facilities
comprise fully revolving receivables financing agreements which are
secured on the underlying receivables. The facility has no fixed
repayment dates and receivables are automatically offset against
the outstanding amounts of the facility on settlement of the
receivable. The Group retains the credit risk associated with the
receivables. Included within invoice discount borrowings as at 31
December 2020 is GBP1,032k that relate to facilities acquired as
part of the Starin acquisition.
The Group has loans of GBP24,042k at the end of 2020 (2019:
GBP25,153k). The loans are secured with fixed and floating charges
over the assets of the Group. The Group is subject to covenants
under its Revolving Credit Facility and if the Group defaults under
these covenants, it may not be able to meet its payment
obligations.
The Group has leases of GBP18,274k at the end of 2020 (2019:
GBP16,708k). Included within leases as at 31 December 2020 is
GBP1,690k that relates to operations acquired as part of the Starin
acquisition.
Borrowings
2020 2019
GBP'000 GBP'000
Short term borrowings 27,292 43,897
Long term borrowings 19,198 22,390
Leases 18,274 16,708
-------- --------
64,764 82,995
======== ========
Reconciliation of liabilities arising from financing
activities
2020 2019
GBP'000 GBP'000
At 1 January 82,995 52,946
Cash flows:
Invoice financing (outflows)/inflows (32,191) 6,785
Proceeds from borrowings 4,968 14,285
Repayment of loans (4,445) (1,053)
Capital element of leases (4,226) (2,627)
Non-cash:
Acquisitions 13,334 7,362
New liabilities arising on leases 3,792 5,759
Foreign exchange gain or loss 537 (462)
--------- --------
At 31 December 64,764 82,995
========= ========
7. Financial instrument risk exposure and management
The Group's operations expose it to degrees of financial risk
that include liquidity risk, credit risk, interest rate risk, and
foreign currency risk.
This note describes the Group's objectives, policies and process
for managing those risks and the methods used to measure them.
Credit risk
The Group's credit risk is primarily attributable to its cash
balances and trade receivables. The Group does not have a
significant concentration of risk, with exposure diversified over a
substantial number of third parties. The risk is further mitigated
by insurance of the trade receivables.
The credit risk on liquid funds is limited because the third
parties are large international banks with a credit rating of at
least A.
The Group's total credit risk amounts to the total of the sum of
the trade receivables and cash and cash equivalents. At 31 December
2020 total credit risk amounted to GBP117,611k (2019:
GBP107,859k).
Interest rate risk
The interest on the Group's overdrafts, invoice discounting
facilities and Revolving Credit Facility borrowings are variable.
During the prior year the Group entered into an interest rate swap
contract in respect of the Group's variable interest rates in order
to achieve a fixed rate of interest.
Based on year end balances a 1% increase in interest rates would
impact profit and equity by GBP465k (2019: GBP663k).
Foreign exchange risk
The Group is largely able to manage the exchange rate risk
arising from operations through the natural matching of payments
and receipts denominated in the same currencies. Any exposure tends
to be on the payment side and is mainly in relation to the Sterling
strength relative to the Euro or US Dollar. This transactional risk
is considered manageable as the proportion of Group procurement
that is not sourced in local currency is small. However, on
occasions the Group does buy foreign currency call options and
forward contracts to mitigate this risk.
The Group does hold material non-domestic balances on occasions
and currently does not take any action to mitigate this risk.
Inter-company balances between trading entities tend to be short
term and repaid within the month. The Group is able to manage its
exchange rate risk through the natural matching of payments and
receipts denominated in the same currencies. The Group paid and
entered into financial instruments in the currency of the acquired
entity for the Prase acquisition as part of a net investment hedge
strategy to reduce the exposure to fluctuations in foreign
currencies and any potential negative effects on the value of
equity acquired.
The Group reports in Pounds Sterling (GBP) but has significant
revenues and costs as well as assets and liabilities that are
denominated in Euros (EUR), Dollars (USD) and Australian Dollars
(AUD). The table below sets out the exchange rates in the periods
reported.
Annual average Year end
2020 2019 2020 2019
EUR/GBP 1.127 1.135 1.112 1.177
AUD/GBP 1.858 1.828 1.763 1.883
NZD/GBP 1.969 1.929 1.885 1.960
USD/GBP 1.287 1.272 1.365 1.321
CHF/GBP 1.207 1.267 1.220 1.277
NOK/GBP 12.086 11.204 11.627 11.607
The following tables illustrate the effect of changes in foreign
exchange rates in the EUR, AUD, NZD, USD, CHF, and NOK relative to
the GBP on the profit before tax and net assets. The amounts are
calculated retrospectively by applying the current year exchange
rates to the prior year results so that the current year exchange
rates are applied consistently across both periods. Changing the
comparative result illustrates the effect of changes in foreign
exchange rates relative to the current year result.
Applying the current year exchange rates to the results of the
prior year has the following effect on profit before tax and net
assets:
(Loss)/profit before tax
2019 Revised 2019 Impact Impact
GBP'000 GBP'000 GBP'000 %
EUR 23,781 23,922 141 0.6%
AUD 23,781 23,755 (26) (0.1)%
NZD 23,781 23,778 (3) -
USD 23,781 23,780 (1) -
CHF 23,781 23,800 19 0.1%
NOK 23,781 23,743 (38) (0.2)%
All currencies 23,781 23,873 92 0.4%
Net assets
2019 Revised 2019 Impact Impact
GBP'000 GBP'000 GBP'000 %
EUR 65,293 67,944 2,651 3.9%
AUD 65,293 65,512 219 0.3%
NZD 65,293 65,311 18 -
USD 65,293 65,294 1 -
CHF 65,293 65,262 (31) -
NOK 65,293 65,290 (3) -
All currencies 65,293 68,148 2,855 4.2%
Liquidity risk
Prudent liquidity risk management includes maintaining
sufficient cash balances to ensure the Group can meet liabilities
as they fall due, and ensuring adequate working capital using bank
borrowing arrangements.
In managing liquidity risk, the main objective of the Group is
therefore to ensure that it has the ability to pay all of its
liabilities as they fall due. The Group monitors its levels of
working capital to ensure that it can meet its liability payments
as they fall due.
See note 6 for details of borrowing arrangements.
The tables below show the undiscounted cash flows on the Group's
financial liabilities as at 31 December 2020 and 2019, on the basis
of their earliest possible contractual maturity:
At 31 December 2020
Total Within 2 Within Between 6 - 12 Between 1-2 After
months 2 -6 months years than
months 2 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 82,323 78,393 3,930 - - -
Other payables 125 39 - 86 - -
Deferred consideration 7,625 7,015 - - - 610
Put option liabilities 4,892 - - 1,363 3,529 -
Leases 19,732 487 1,062 1,512 2,786 13,885
Accruals 17,133 12,083 2,127 1,215 632 1,076
Bank overdrafts, loans and
invoice discounting 46,490 24,988 1,093 1,211 1,291 17,907
-------- --------- -------- --------------- ------------ ---------
178,320 123,005 8,212 5,387 8,238 33,478
======== ========= ======== =============== ============ =========
At 31 December 2019
Total Within 2 Within Between 6 - 12 Between 1-2 After
months 2 -6 months years than
months 2 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 81,761 76,031 5,226 390 114 -
Other payables 184 184 - - - -
Deferred consideration 7,042 1,572 1,564 2,171 1,735 -
Put option liabilities 7,625 - 3,559 - 1,150 2,916
Leases 18,336 476 1,055 1,446 2,424 12,935
Accruals 13,033 11,275 743 464 63 488
Bank overdrafts, loans and
invoice discounting 66,287 40,486 554 2,857 20,132 2,258
-------- --------- -------- --------------- ------------ ---------
194,268 130,024 12,701 7,328 25,618 18,597
======== ========= ======== =============== ============ =========
8. Share capital
The total allotted share capital of the Parent Company is:
Allotted, issued and fully paid
2020 2019
Number GBP'000 Number GBP'000
Issued and fully paid Ordinary Shares of GBP0.01 each
At 1 January 79,973,412 799 79,448,200 794
Shares issued 8,631,300 87 525,212 5
----------- -------- ----------- --------
At 31 December 88,604,712 886 79,973,412 799
=========== ======== =========== ========
During the year the Company issued 7,944,800 shares for total
proceeds less issue cost of GBP38,902k and 686,500 shares to the
Group's employee benefit trusts. During the prior year the Company
issued 300,212 in settlement of the put option liability over the
remaining non-controlling interest in Holdan Limited and 225,000
shares to the Group's employee benefit trusts.
Employee benefit trust
The Group's employee benefit trusts were allocated 480,700
Ordinary Shares in 2016, a further 225,000 shares in 2019 and
686,500 in 2020. During the year 569,600 (2019: 229,000) of these
shares were distributed employees on the exercise of share options
leaving 593,600 Ordinary Shares held in the Group's employee
benefit trusts as at 31 December 2020 (2019: 476,700).
9. Other reserves
Movement in other reserves for the year ended 31 December
2020
Share based Translation Hedging Put option Capital Other Total
payment reserve reserve reserve redemption reserve
reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2020 3,998 (954) 194 (6,329) 50 150 (2,891)
Other
comprehensive
income - 3,071 (194) - - - 2,877
------------ ------------ ------------ ------------ ------------ ------------- --------
Total
comprehensive
income for the
year - 3,071 (194) - - - 2,877
Share based
payments 2,562 - - - - - 2,562
Deferred tax on
share based
payments (232) - - - - - (232)
Share options
exercised (1,856) - - - - - (1,856)
Acquisition of
non-controlling
interest (note
10 ) - - - 1,516 - - 1,516
Balance at 31
December 2020 4,472 2,117 - (4,813) 50 150 1,976
============ ============ ============ ============ ============ ============= ========
Movement in other reserves for the year ended 31 December
2019
Share based Translation Hedging Put option Capital Other Total
payment reserve reserve reserve redemption reserve
reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2019 1,837 1,865 - (4,532) 50 150 (630)
Other
comprehensive
income - (2,819) 194 - - - (2,625)
------------ ------------ ------------ ------------ ------------ ------------- --------
Total
comprehensive
income for the
year - (2,819) 194 - - - (2,625)
Share based
payments 2,874 - - - - - 2,874
Deferred tax on
share based
payments (128) - - - - - (128)
Share options
exercised (585) - - - - - (585)
Acquisition of
subsidiary
(note 11 ) - - - (2,886) - - (2,886)
Acquisition of
non-controlling
interest (note
10 ) - - - 1,089 - - 1,089
Balance at 31
December 2019 3,998 (954) 194 (6,329) 50 150 (2,891)
============ ============ ============ ============ ============ ============= ========
10. Acquisition of non-controlling interest
During the year, the Group acquired the remaining 30.0%
non-controlling interest in Gebroeders van Domburg BV, which had a
value of GBP1,985k, for a consideration of GBP2,874k. GBP1,516k of
the put option reserve was transferred to retained earnings when
this element of the put option was extinguished.
During the prior year, the Group acquired the remaining 10.5%
non-controlling interest in Holdan Limited, which had a value of
GBP843k, for a consideration of GBP1,876k. GBP1,089k of the put
option reserve was transferred to retained earnings when this
element of the put option was extinguished.
11. Business combinations
Acquisitions have been completed by the Group to increase scale,
broaden its addressable market and widen the product offering.
Subsidiaries acquired:
Acquisition(1) Principal activity Date of acquisition Proportion Fair value
acquired of consideration
(%) GBP'000
---------------- ------------------------------ --------------------- ----------- ------------------
Distribution of audio visual 6 February
Starin products to trade customers 2020 100% 20,961
---------------- ------------------------------ --------------------- ----------- ------------------
Distribution of lighting
EES products to trade customers 1 July 2019 100% 3,245
---------------- ------------------------------ --------------------- ----------- ------------------
Distribution of audio visual
AV Partner products to trade customers 3 May 2019 100% 5,467
---------------- ------------------------------ --------------------- ----------- ------------------
Distribution of audio visual 31 January
Prase products to trade customers 2019 80% 11,534
---------------- ------------------------------ --------------------- ----------- ------------------
Distribution of audio visual 17 January
MobilePro products to trade customers 2019 100% 882
---------------- ------------------------------ --------------------- ----------- ------------------
In addition to the acquisition of subsidiaries listed above the
Group also acquired trade and assets from Vantage Systems Pty
Limited ("Vantage"), a company registered in Australia.
Fair value of consideration transferred 2020 Starin Vantage
GBP'000 GBP'000
Cash 18,872 506
Deferred contingent consideration 2,089 379
-------- --------
Total 20,961 885
======== ========
Acquisition costs of GBP506k in relation to the acquisition of
Starin and GBP20k in relation to the Vantage acquisition of trade
and assets were expensed to the income statement during the year
ended 31 December 2020.
Fair value of acquisitions 2020 Starin Vantage
GBP'000 GBP'000
Non-current assets
Goodwill 520 960
Intangible assets - brands 4,065 -
Intangible assets - customer relationships 2,884 -
Intangible assets - supplier relationships 9,189 -
Intangible assets - software 82 -
Right of use assets 743 -
Property, plant and equipment 515 5
Deferred tax 3 -
--------- --------
18,001 965
Current assets
Inventories 30,243 -
Trade and other receivables 20,951 129
Cash and cash equivalents 985 -
--------- --------
52,179 129
Current liabilities
Trade and other payables (35,885) (209)
Borrowings and financial liabilities (12,728) -
--------- --------
(48,613) (209)
Non-current liabilities
Borrowings and financial liabilities (606) -
--------- --------
(606) -
Fair value of net assets acquired attributable to equity shareholders of the Parent
Company 20,961 885
========= ========
Goodwill acquired in 2020 relates to the workforce, synergies
and sales know how. Goodwill arising on the Starin acquisition has
been allocated to the North America segment, goodwill arising on
the Vantage trade and assets acquisition has been allocated to the
Asia Pacific segment.
Gross contractual amounts of trade and other receivables
acquired in 2020 were GBP21,977k, with bad debt provisions of
GBP897k.
Net cash outflow on acquisition of subsidiaries 2020
Starin Vantage
GBP'000 GBP'000
Consideration paid in cash 18,872 506
Less: cash and cash equivalent balances acquired (985) -
Net cash outflow 17,887 506
======== ========
Plus: borrowings acquired 13,334 -
-------- --------
Net debt outflow 31,221 506
======== ========
Post-acquisition contribution 2020
Acquired subsidiaries made the following contributions to the
Group's results for the year in which they were acquired, from
their respective acquisition dates:
Starin
GBP'000
Date acquired 6 Feb
Post-acquisition contribution to Group revenue 111,777
Post-acquisition contribution to Group profit after tax 2,540
Proforma full year contribution 2020
Acquired subsidiaries would have made the following contributions to the Group's results for
the year in which they were acquired if they were acquired on 1 January 2020:
Starin
GBP'000
Full year revenue(1) 130,502
Full accounting period profit after tax(1) 1,921
If the acquisitions had occurred on 1 January 2020, revenue of
the Group for the year would have been GBP730,479k and loss after
tax for the year would have been GBP4,006k.
(1) These amounts have been calculated using the results of
subsidiaries and adjusting them for differences between the
accounting policies and Generally Accepted Accounting Principles
applicable to the subsidiaries and the accounting policies and IAS
reporting requirements of the Group. The translation adjustments to
modify the reported results of the subsidiaries have been applied
as if the Group's accounting policies and IAS reporting
requirements had always been applied. The translation adjustments
include the additional depreciation and amortisation charges
relating to the fair value adjustments to property, plant and
equipment and intangible assets assuming the fair values recognised
on acquisition were valid on 1 January 2020, together with the
consequential tax effects.
Fair value of consideration transferred MobilePro Prase AV Partner EES
2019
GBP'000 GBP'000 GBP'000 GBP'000
Cash 882 6,108 3,225 2,189
Deferred contingent consideration - 5,426 2,242 1,056
---------- -------- ----------- --------
Total 882 11,534 5,467 3,245
========== ======== =========== ========
Acquisition costs of GBP116k in relation to the acquisition of
Prase, GBP115k in relation to the acquisition of AV Partner, GBP78k
in relation to the acquisition of EES and GBP47k in relation to
other acquisitions not completed during the year were expensed to
the income statement during the year ended 31 December 2019.
On acquisition of Prase the Group recognised GBP2,886k in
relation to the initial present value of the put option liabilities
to acquire the remaining non-controlling interest.
Fair value of acquisitions 2019 MobilePro Prase AV Partner EES
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Goodwill 451 371 1,195 131
Intangible assets - brands 535 382 142 81
Intangible assets - customer relationships 165 1,504 1,193 567
Intangible assets - supplier relationships 326 3,110 2,241 810
Right of use assets 1,548 69 1,370 209
Plant and equipment 59 2,497 8 71
Deferred tax 3 143 - 1
---------- -------- ----------- --------
3,087 8,076 6,149 1,870
Current assets
Inventories 3,742 3,604 1,285 569
Trade and other receivables 2,162 8,830 983 1,301
Current tax - - 33 -
Cash and cash equivalents 42 1,439 12 820
---------- -------- ----------- --------
5,946 13,873 2,313 2,690
Current liabilities
Trade and other payables (1,970) (4,370) (838) (601)
Borrowings and financial liabilities (3,526) (90) (132) (34)
Current tax (1) (404) - (137)
---------- -------- ----------- --------
(5,497) (4,864) (970) (772)
Non-current liabilities
Borrowings and financial liabilities (2,094) (69) (1,238) (179)
Deferred tax (220) (1,429) (787) (364)
Other provisions (340) (1,169) - -
---------- -------- ----------- --------
(2,654) (2,667) (2,025) (543)
Non-controlling interests - (2,884) - -
---------- -------- ----------- --------
Fair value of net assets acquired attributable to equity
shareholders of the Parent Company 882 11,534 5,467 3,245
========== ======== =========== ========
In addition to the above the Group paid GBP45k to secure an
exclusive supplier arrangement in a trade and assets
acquisition.
Goodwill acquired in 2019 relates to the workforce, synergies
and sales know how. Goodwill arising on all acquisitions in the
period have been allocated to the EMEA segment.
Gross contractual amounts of trade and other receivables
acquired in 2019 were GBP13,276k, with bad debt provisions of
GBP59k.
Net cash outflow on acquisition of subsidiaries 2019
MobilePro Prase AV Partner EES
GBP'000 GBP'000 GBP'000 GBP'000
Consideration paid in cash 882 6,108 3,225 2,189
Less: cash and cash equivalent balances acquired (42) (1,439) (12) (820)
Net cash outflow 840 4,669 3,213 1,369
========== ======== =========== ========
Plus: borrowings acquired 5,620 159 1,370 213
---------- -------- ----------- --------
Net debt outflow 6,460 4,828 4,583 1,582
========== ======== =========== ========
Post-acquisition contribution 2019
Acquired subsidiaries made the following contributions to the
Group's results for the year in which they were acquired, from
their respective acquisition dates:
MobilePro Prase AV Partner EES
GBP'000 GBP'000 GBP'000 GBP'000
Date acquired 17 Jan 31 Jan 3 May 1 July
Post-acquisition contribution to Group revenue 22,670 22,550 6,535 2,516
Post-acquisition contribution to Group profit after tax 230 1,471 349 201
Proforma full year contribution 2019
Acquired subsidiaries would have made the following contributions to the Group's results for
the year in which they were acquired if they were acquired on 1 January 2019:
MobilePro Prase AV Partner EES
GBP'000 GBP'000 GBP'000 GBP'000
Full year revenue(1) 23,624 24,219 9,021 6,196
Full accounting period profit after
tax(1) 187 1,495 415 511
If the acquisitions had occurred on 1 January 2019, revenue of
the Group for the year would have been GBP695,029k and profit after
tax for the year would have been GBP18,557k.
(1) These amounts have been calculated using the results of
subsidiaries and adjusting them for differences between the
accounting policies and Generally Accepted Accounting Principles
applicable to the subsidiaries and the accounting policies and IAS
reporting requirements of the Group. The translation adjustments to
modify the reported results of the subsidiaries have been applied
as if the Group's accounting policies and IAS reporting
requirements had always been applied. The translation adjustments
include the additional depreciation and amortisation charges
relating to the fair value adjustments to property, plant and
equipment and intangible assets assuming the fair values recognised
on acquisition were valid on 1 January 2019, together with the
consequential tax effects.
12. Dividends
The Company did not pay any dividends during the year. During
the prior year, the Company paid dividends of GBP12,305k, excluding
the effects of waived dividends this equated to 15.45 pence per
share.
13. Events after the reporting date
On 1 January 2021, the Group acquired the trade and assets of
Nicolas M. Kvernitis Electronics ENT, a business based in Dubai in
the United Arab Emirates, NMK Middle East FZE, a company based in
Dubai in the United Arab Emirates and Edge Electronics Trading LLC,
a company based in Doha, Qatar. The businesses specialise in the
distribution of professional audio products to the trade
market.
The acquisition of the three enterprises was made through
Midwich International Limited an 80% owned subsidiary that was
incorporated with the sellers of the acquired businesses as a
non-controlling interest for the purpose of the acquisition.
The initial consideration was AED 49,750k with a deferred
consideration of AED 21,000k payable in June 2021. Put and call
options were granted over the non-controlling interest in Midwich
International Limited to the holders of the non-controlling
interest and Group respectively. The put and call options will have
an exercisable value in March 2024 of between AED 26,500k and AED
46,000k depending on the average performance of the enterprises
during the 2021-2023 financial years.
Due to the proximity of the date of the announcement to the date
these financial statements were authorised for issue, the Group
considers it impracticable to produce disclosures required under
IFRS 3 regarding the acquisition fair value of assets and
liabilities to be acquired under the acquisition.
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