Midwich Group (AIM: MIDW) has provided a trading update for the year ended 31 December 2020
Despite the ongoing challenges of the coronavirus pandemic, the group’s trading recovery continued in the second half of the year and, as a consequence of a strong close in November and December, the Board now expects to report revenue for 2020 as a whole in excess of £710m, representing growth of approximately four per cent over the prior year (four per cent at constant currency). Underlying sales before the effect of in-year acquisitions were seven per cent lower in the second half of the year than in the comparative period in 2020, compared with 22% lower in the first half, giving an overall decline of 14% for the year.
As a result of this strong performance, the Board now anticipates reporting adjusted profit before tax for 2020 of approximately £14m, significantly ahead of its prior expectations.
A number of the group’s end user markets, such as hospitality and events, continue to be depressed as a result of lockdown restrictions in various territories. As these are often more profitable areas, gross margins continued to be held back in the second half of the year.
The group’s focus on working capital management has led to strong cash generation, with net debt reducing to approximately £20m at 31 December 2020 (2019: £53m).
The current lockdowns that are in place in many of the group’s key geographical markets mean that market conditions for the group’s products and services are likely to be impacted for at least the first half of 2021. In view of this uncertainty, although trading strengthened as we closed 2020, the Board currently considers it too early to revise its expectations for 2021.
Stephen Fenby, group MD of Midwich, commented: “I am pleased with the group’s significant achievements in what was a very challenging year for both the world economy and our industry.
“Despite significant challenges, we managed to continue our long-term year-on-year revenue growth. Although markets for many of our higher margin product areas were significantly depressed (and continue to be so), I am pleased that the group was able to grow its share of the business available. This demonstrates that our service levels have remained high and that we are well placed to capitalise on future market demand when it returns fully.
“The group has made substantial progress in acquiring new brands while also exiting from lower margin or unprofitable relationships. In particular, we have enhanced our offering in the unified communications, collaboration and audio segments through the year.
“Our acquisition of Starin Marketing in the US in February 2020, followed by the announcement in December of the acquisition of NMK in the Middle East, represent the group’s entry into two strategically important markets. These acquisitions should substantially enhance our ability to serve international integrators and their global end user project rollouts. As a result of these acquisitions, the group now has a foothold in all strategically important global regions and will look to build on that presence in the years to come. Our enhanced team represents by far the strongest in the industry and our acquisition pipeline remains healthy.”
Midwich will announce its final results for the year ended 31 December 2020 on 9 March 2021.