International audiovisual (AV) distributor Midwich has reported a healthy uptick in gross and adjusted operating margins for the first half of its financial year.
On the back of a 5.1% constant currency revenue increase to £610 million, the UK-based group grew gross profit by 17.5% to just under £100 million, while adjusted operating profit of £26.4 million was a year-on-year jump of almost 28%.
The good performance came despite what Managing Director Stephen Fenby called “challenging market conditions”.
“Slower than expected corporate and education markets were more than compensated for by strength in the live event and entertainment sectors,” he noted. “The change in mix attributable to the significant growth of technical video and audio products resulted in a favourable product margin mix.”
He added: “The EMEA region performed particularly well, with strong improvements in organic revenue, gross margin and adjusted operating profit. Although general macro-economic conditions are widely expected to remain challenging over the coming months, the group continues to be well placed to identify and benefit from organic and inorganic business development opportunities.”
Since an equity issue in June that raised over £50 million, Midwich has made five acquisitions: Toolfarm.com and Digital Media Promos (trading as 76 Media) in the US; HHB Communications Holdings and Pulse Cinemas in the UK; and Video Digital Soluciones in Spain. The aggregate cash spent (net of cash acquired) on these transactions was £18 million.
The wholesaler said the acquisition pipeline remains healthy and that it is reviewing a number of “attractive” opportunities in several markets and regions.
Below, is Midwich’s commentary on the H1 2023 performance at its UK & Ireland (UK&I) reporting region:
After an exceptionally strong H1 2022, which saw some post-COVID-19 expenditure catch up and associated revenue growth of 86.3%, revenue in the UK&I was marginally below the prior year. This reflected a slower market for mainstream products, which is attributed to delayed expenditure by corporate and education end users. Both have been affected by additional cost pressures, while the education sector has also been impacted by labour disputes and uncertainty over future wage bills. There was a small contribution from the full-year effect of acquisitions completed at the start of 2022.
Based on industry data, combined with our own analysis of customer and vendor activity, we believe we have increased or maintained market share in the UK&I and we remain confident that the pro AV market will continue to grow faster than GDP in the medium term.
The UK&I achieved an exceptional increase in gross profit margin percentage to 17.7% (H1 2022: 15.7%) reflecting positive product mix with further growth in technical products and the continued recovery in higher margin markets such as live events, entertainment and hospitality.
Adjusted operating profit increased by 28.6% (H1 2022: 119.7%) in the UK&I to £13.9 million (H1 2022: £10.8 million).