Midwich underlying sales drop 22% in pandemic
The group has been expanding vendor relationship despite lockdowns, which had their biggest impact in April, and has benefitted from the acquisition of Starin in the US in February.
Underlying sales at Midwich are expected to have fallen by around 22% in the first half of 2020, according to a trading update for the six months ended 30 June. Group revenue for the first half, which includes acquisitions, is expected to be down just 4% with gross margins up to 2.5% lower. The company will still be profitable in the first half of 2020, due to action taken to cut operating costs, but at a level significantly below that seen in the first half of last year.
In a statement issued today, the company said that, in view of the pandemic, the Board’s priorities for the last four months had been protecting the company’s people, protecting its business over the short term, and refining the group’s strategy for the future where necessary.
Initially, the vast majority of Midwich’s people worked from home, successfully using technology for their roles. More recently, some staff have returned to Midwich’s offices where it is sufficiently safe and effective for them to do so.
Due to reduced customer demand, staff have been flexible in their work pattern, including some voluntary short-time working and reduced pay. The group has also used government support, such as furloughing in the UK.
To protect the business in the short term, there has been a significant and ongoing focus on managing working capital. Cash receipts from customers have generally remained at normal levels and, overall, suppliers have shown flexibility where necessary. As inventory management has been a high priority, the overall value of inventory, excluding acquisitions, has gone down.
Adjusted net debt has been reduced by £13 million to £40.5 million over the last six months. About half of this reduction is due to fundraising in February, less the cost of the acquisition of Starin in the US. The remaining improvement comes from strong working capital management.
Commeting on the group’s trading performance, the Midwich statement says that there was some reduction in revenue in March but it was felt most significantly in April, when revenue was less than 50% of the Board’s expectation at the beginning of the year. Revenue improved in May and further in June but revenue continues to be below the group’s initial expectations at the start of the year. Some projects that were delayed as access to sites was curtailed have been undertaken and some are anticipated to take place in the short to medium term, but a small number are now considered unlikely to ever be carried out.
Midwich, which operates in 18 territories around the word, said that countries with the most comprehensive initial lockdowns, such as France, Spain, Italy, Ireland and New Zealand, saw the most dramatic reductions in revenue initially, followed by the sharpest subsequent recoveries as the lockdowns were eased.
The group’s businesses in Germany and Australia have been a little less impacted than other territories so far, and the impact in the US has been similar to that in the group overall. The impact in the UK, which is the group’s single largest territory by revenue, profit and headcount has been significant but has improved month on month since April. The Midwich board is confident that it has not lost share to its competition in the UK or other territories.
Among product sets, there was strong performance initially from technologies used to facilitate working from home. UC solutions have performed well and the Group has sought to make the best of the skills and relationships it acquired with Starin in the US in February this year. Midwich says the integration of Starin has gone well.
So far in 2020, the Group has launched a number of new vendor relationships, such as with Sonos, Netgear, Poly and Huddly and rolled out existing relationships with Barco, Biamp, Shure, DTEN and Absen into new technology areas (such as the Barco Clickshare ranged in the UK & Ireland and France) or geographical markets (such as launching Shure in France). The launch of new vendor relationship has continued despite lockdowns.
Among end-use markets, fields which are largely government-funded such as education, healthcare and defence have remained relatively strong and have been impacted mostly by site access constraints. The corporate market has however been more muted, with end users mostly working from home and investment plans largely place on hold.
For more information, see: https://midwichgroupplc.com/investors/regulatory-news/
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Posted: 31st July 2020