Thank you. Welcome to the Midwich H1 2023 results. In the first half of 2023, we had particular success with our long-term strategy of focing on specialist product areas. We saw strong growth in areas such as audio, lighting, and technical video. These helped push gross margins up to the highest level we've seen since 2019. As we flagged earlier in the year , we've also seen softness in a number of markets, including Australia, Germany, and particularly the U.K. , which we'll cover later. So the overall impact of these were that revenue was up 7.4%, 2.3% on an organic basis. The gross margin increased to 16.3% from 14.9% last year.
Our adjusted operating profit was up over 30% to GBP 26.4 million, and our operating margin was up to 4.3% from 3.6%. After the expected higher interest charges, our PBT increased by 13.4%. Positive cash conversion of 27% for the half year was good for the first half of our year. Our full year expectations are unchanged. This slide, you may recognize, we put it in last time, so I won't run through it all in detail, but suffice to say that in the first half of this year, I think that our strength and our strategy has helped us to compensate for softness in some market areas and still deliver an outstanding set of results. The next slide is my favorite. It shows our long-term revenue growth.
Again, I won't go through this in detail, just a reminder of where we've come from over the last two decades. The only comment I would make is, although the business is now very a very substantial group, we believe we still have only a small share of the global addressable market, maybe 3%-4%. So there's plenty of markets for us to go after. So looking at profitability, on the left-hand side of this page, we look at gross margins. So I've got put in the full year for 2022, and then the first half of 2022 and 2023. You may remember that in the first half of 2022, our margin was impacted quite significantly by a large AV stock provision increase.
This year, the movement has had a minimal effect on the margin, so you can see that we achieved a very strong gross margin, in fact, excluding the effect of aged stock provisions. The full year margin will be influenced by a number of factors, including the continued strength of some of our higher margin product areas, and the recovery of particularly the corporate and education business, which I'll talk about in a minute. And then finally, actually, the impact of the acquisitions we've made recently, which I'll also talk about later. On the right-hand side of the page, just a reminder of our EBIT margin increasing from 3.6%-4.3%. Improving our EBIT margins remains an important focus of the business going forwards.
So in terms of the current landscape, we're seeing an impact on the business from general economic conditions, particularly, as I mentioned, in the . and Ireland and Australia. Two areas of the market being affected, particularly, are corporate spend, particularly in respect of unified communications, where we think some projects are being paused, and unusually, education, particularly, discretionary local spend, where schools are using more of their budgets for energy and staff salaries. These two areas of softness particularly impact our displays business. To give you an indication of the displays market generally, there is market research to show that the global display markets, globally, in the first half of this year, was down 15%. Our displays business was down 8%, and in the U.K., the displays market was down 27%, and we were down 17%.
Our order books are largely back to normal, maybe a little bit above where they were in 2019. Our market shares are either stable or more often increasing. And finally, we've completed 6 transactions this year, with a building pipeline of more to come. Again, this slide will look very familiar to people in terms of just explaining our long-term strategy of becoming more specialized, increasing our geographical coverage, and growing scale. To pick out a few areas of the development of our strategy this year so far, we've continued to roll out brand relationships across the group. We've added in new product areas in broadcast software and specialist servers, particularly. We've built on specializations through acquisition, audio, broadcast, and technical video, and we've expanded into one major new territory of Canada.
In terms of the revenue development of the business, you can see at the top that our display business has reduced from 32% of revenue down to 28% in the first half of this year. Not surprising, given the market conditions I just discussed. Our technical product areas are now 58% of revenue, up from 53%. In terms of geographical splits, the UK has dropped from 42%-38% of overall group revenues, and EMEA has increased from 44%-46%. North America has gone from 10%-12%. It would have been 16% had we acquired SFM at the beginning of the year, so on a pro forma basis. This slide, looking at concentration of customers and vendors, again, this is left in from last year. We'll update this at the year-end.
shows the broad spread we have of our vendors and customers. I think we'll see with the continued development of the business and the acquisitions that we made during the course of the year, when we come to the year-end update, then we'll find that we have more customers, more vendors, and a broader spread of the business... So looking at market data, AVIXA, a trade body, has published its 2023 report, in which it downgraded its global Pro AV expectations for 2023 to 7.6. However, our evidence, and I think the actual results for the year to date, suggest this is still very overoptimistic, and we do expect further downward revision in their numbers by the end of the year.
As I mentioned, there have been significant reductions in market for flat panels, interactive displays, and projection. That's from Futuresource, another research body. We've seen indications from manufacturers that new C&E demand could be up to 20% down in H1 2023 compared to 2022, but they still expect long-term growth to be ahead of GDP. I've put a few of more of the long-term growth trends identified by AVIXA at the bottom of this page. I'll just pick on one really, which is bottom right, which is that they see increased use of distribution rather than direct selling to end users or resellers. I think that's a development that will play to us. The market opportunity slide, again, repeated from last year. We'll update this again at the year end.
This just looks at the size of our business, what the global and regional market size is, and what share we believe we have of the global market. So, as I mentioned earlier, on the left-hand side, we think we've probably got 3%-4% of the target addressable market.
Just picking up on the first half, trading. This is our revenue bridge, showing overall growth of 7.4% over the period. After an exceptional period of organic growth in the prior year, organic growth in H1 this year was 2.3%. Our market data, as Stephen said, indicates this is ahead of the wider market growth and shows further share gains. Key drivers of H1 growth were double-digit increases in technical product categories, offsetting a mid-single-digit slowdown in mainstream products. Our most mature market is the U.K. and Ireland. Here, we have the biggest market share, so we're more impacted by the wider market trends, and hence a slight reduction in revenue. In other territories, we saw good growth, largely driven by the additional technical product sales.
M&A, which is the full year effect of the acquisitions during Q1 2022, and the first month of SFM, added 2.8% to the period, which took growth in constant currency to 5.1%. As we saw last year, weaker sterling means our overseas earnings are worth more in GBP, with currency changes adding a further 2.3% in the first half. Although current exchange rates will lap the period, the pound was very weak in H2 last year, so this currency effect will reverse fully in the second half of the year. As a reminder, the majority of our trading is in local currency, so while FX impacts the numbers, it has a much smaller impact on transactional activity. Just looking at the regional performances, let's start with the U.K. and Ireland.
So after an 86% growth in H1 last year, the U.K. and Ireland region saw some calm return in the first half. Over the last few years, we've had a significant number of new unified communications and other technical brands to this region, which has allowed us to increase market share and build a very robust business with full service offerings to all end user markets. We saw a downturn in mainstream demand in the first half, as Steve mentioned, driven by a mix of strong comparatives, tighter economy, and some budget uncertainty, such as delaying spending in the education sector. However, by focusing on our key goal of growing profitability, we successfully increased our technical sales mix and significantly increased gross margins from 15.7% to 17.7%.
and this shift was driven by a combination of the recovery of live events, rental, and entertainment sectors, together with contribution from new brands that have been post-COVID. As noted, for the year, inflation's not had any significant impact on AV product pricing. We've been able to offset labor inflation with focus on higher margin sales, productivity improvements, and operating leverage in our technical businesses. As a result, operating profits in the U.K. and Ireland reached record levels in the first half, with 29% growth to GBP 13.9 million, from margins increasing from 4.5%-5.9%. Just turning to EMEA, which is our biggest region in terms of revenue. EMEA continued to deliver strong growth, with revenue at constant currency up by about 10%, all of which is organic.
Growth in the first half is especially strong in our specialist pro audio businesses in Southern Europe and the Middle East, and this reflects a combination of market recovery and further share gains with both existing vendors' business and also through adding some new vendor relationships. In Germany, which is our biggest EMEA market, we saw some softening in the mainstream and broadcast demand, but less so than in the U.K. Reported sales have been broadly in line with prior year. Just for context, our German business is about half the size of the U.K. business in a Pro AV market that's the biggest in Europe, and we continue to invest in our team there to pursue further opportunities. Gross margins in EMEA increased strongly from 14.1%-15.5%, once again, driven by product mix.
And the combination of revenue growth, gross margin improvements, and operating leverage resulted in strong growth in operating profits, up by 39% to GBP 12.6 million, with operating margins increasing from 3.5% to 4.5%. Looking at APAC, which is our smallest region, mainly focused on Australia and New Zealand. This region is like others in its recovery from COVID, and the growth in the first half, 2.3%, reflected increased corporate activity, with some softening in broadcast demand as people return to office-based work. An increase in upsell of technical products attached to mainstream sales resulted in margins improving by 1.8% to 17.5%. And we do continue to see a pipeline of large projects building, but it's not yet turned into significant level of activity.
We are well positioned for future growth in the region, invested in enhancing the team, which has resulted in a small reduction in operating profit from GBP 0.2 million to GBP 0.1 million. Finally, on the regions, we entered the North America markets in 2020 with our acquisition of . We're focusing on delivering unified comms and end point solutions. This business has grown hugely since we acquired it, and it joined the group, and grew further in H1 by 5.4% in U.S. dollars, despite some softness in corporate demand. We continue to increase our share of customer wallets and see further significant growth opportunities in the region for the future. We also entered the Canadian market this year through the acquisition of SFM, which included in the group results first time in June.
Including SFM, revenue in H1 was GBP 69.9 million, up 18.7% in local currency, with gross margins pretty much in line with last year. There was a small reduction in operating profit in the region, due to further investments in our sales and business management capabilities. Just looking at the overall group P&L, we were really pleased with the performance in the first half, especially the significant increase in the gross margin from 14.9%-16.3%. It was almost back to pre-pandemic levels, despite a near doubling of the business and an increase in the slightly lower margin unified communications activity over the last few years.
Despite further investments in our team to support future growth, increased operating margins from 3.6%-4.3%, which resulted in operating profit growth of 27.9% in constant currency to GBP 26.4 million. As mentioned, interest rate increases, which have been greater than our expectations at the start of the year, has also net finance costs increasing to GBP 4.6 million. We do expect these to be a little more than our previous expectations, say GBP 1 million or so in the second half of the year, due to further increased interest rate hikes during the year to date. It's worth noting about GBP 40 million of our debt is at fixed interest rates. Effective tax rate is 26.1%, really just reflects the overall mix of the group.
It's decreased a little bit due to UK corporation tax rates increasing in the year, and we expect it to increase a little bit further the Middle East introduces corporation tax in the near future. So all of that results in EPS increasing by 10%, doing a small dilution effect from the successful fundraise in June, and in line with our progressive dividend policy, and despite the fundraise, we've increased our interim dividend by 22% to 5.5p. Just worth noting, the interim dividend is typically half the group's final dividend. Just looking at the balance sheets, the main impact here was the acquisition of SFM, which added about GBP 16 million to goodwill and other non-current assets. If you exclude the impact of SFM, trade debt has increased in line with group sales growth.
We've seen collection holding up well, and we continue to use trade credit insurance in most countries. Product supply issues have now largely been resolved, with stock levels in line with expectations this time of year. Adjusted net debt of GBP 102 million was impacted by the fundraise, the SFM acquisition in June, and GBP 9.3 million deferred consideration paid in the first half. It was a little bit lower than we were expecting at the time of the fundraise. Leverage, which is our adjusted net debt divided by our adjusted EBITDA, was 1.5 at the end of the period, which is again, a little bit better than we had expected at the time of the fundraise.
And despite M&A payments from the deals we've done in the second half to date, and subject to further M&A, we expect leverage to come down as operating cash inflows in the second half of the year. It's worth saying other liabilities are mainly fixed and performance-related deferred M&A payments. As at the 30th of June, we had about GBP 25 million projected future M&A payments, and GBP 19 million of those due in 2024, and GBP 6 million of those due in 2025. And since the period end, we've also spent GBP 18 million on the 5 M&A transactions that Stephen mentioned, which also had about GBP 10 million of deferred consideration for most of them arriving in 2026. And finally, just looking at cash flows, as noted in prior years, our cash flow is quite seasonal.
We typically have a cash outflow in the first half of the year as we gear up for the summer installation season. The slightly slower revenue growth this time around and really good focus on working capital, which has an operating cash inflow of 27%, which is EBITDA in the first half, and full-year guidance around 70%-80% operating cash conversion. Full-year CapEx is expected to be at GBP 12 million, including the roll out to our ERP solution in Q4. Similar level to CapEx next year.
Thank you. So moving on to our acquisitions. In the first half of the year, as we mentioned, we acquired SFM, a Canadian-based audio distributor, which I'll talk a bit more about in a minute. Subsequent to the half year end, we acquired HHB, which is a London-based, well-established and highly respected audio distributor into the media and entertainment sector. Then a small business called Pulse Cinemas, which is a home cinema specialist based in Stansted, in the east of England, addressing particularly the residential market. Then two acquisitions in the US, one called Toolfarm and 76 Media Systems. The Toolfarm is particularly interesting in the sense that it provides video editing software, and it's our first acquisition of a software business. So again, both targeting the sort of media, entertainment, broadcast markets.
76 Media Systems supplies specialist video storage solutions. Then finally, Video Cine Import is an Iberian-based distributor of pro video broadcast products, with a particular focus on Blackmagic Design. So we've been very busy. At the time of the fundraise, I think we said we had six businesses in due diligence, so we've now completed five of them, and one more still going, which I think will take maybe one or two months to complete. We've been building our pipeline of next transactions, and we have a number of those coming through now. So whether we do complete any more, I think, we'll see this year, but we have several more coming through.
Just a few. There's another slide on SF Marketing, which you may have seen if you have looked at the time of our fundraise, but it's the largest acquisition we made this year. They founded in 1978, about the same time as Midwich. Growth has become a leading player in the Canadian AV market, based in Montreal. Big workforce, 146 people with 50 brands, 1,500 trading accounts, the vast majority of which we weren't dealing with at all. Very strong track record, good strong gross margins, and compound growth rates. One office with excellent facilities in there for looking after their customers and the team. The founder of the business, who was no longer actively involved in the business, now has stepped back.
And there's a strong and established management team, which continued with the business. We're making very good progress and established a very good relationship with the team. Very strong in the pro audio market, with some very good brands at the bottom that we're very pleased to get them into the group. So finally, I think we've had excellent second results in a challenging market. The business is growing stronger as we roll out our relationships into new markets, we bring on new brands, and we move into new territories. We've delivered strong operating gross margin growth and 6 more acquisitions during the period, and our full year expectations are unchanged. Thank you. Any questions?
Stephen, where do you expect to see the most growth from a geographical perspective and in the medium, short and medium term?
I think in our business, I mean, EMEA has grown strongly this year. We've still got plenty of organic growth come out of dealing around targeted acquisitions, where there are a number of territories that we don't have a presence in. Yes, in that, in, that part of the world. So that's done well. The U.S. market, our business is growing quite significantly, and as you see, we've started bolting some little businesses onto Starin, onto our business there. I think that probably has the most organic growth opportunity. We have the U.K. and Ireland, there's been a sort of steady growth for us on time this year. You know, much more challenging from an economic point of view.
So we've always said we expect that to be a sort of steady growth with a real focus on margins and profitability. And you know, ultimately, we need to do a bit more in the APAC region. We're very small out there, and I think there's some better opportunities for us in that part of the world. A little bit more difficult to sort of identify the opportunities and find suitable acquisition targets, but I think some good growth out there. So I think mostly North America, I think is probably the top of the list, and EMEA second. Do you agree?
Yeah.
Good. Okay. More questions?
Just, just looking at the, kind of, the APAC operating margins, and we talked about the fact that it's not come back to kind of pre-pandemic.
Mm-hmm. Yeah.
In a world where everything normalizes and goes back to pre-pandemic-
Meaning what
How structurally pressured are those margins, given cost to serve heavily fragmented markets?
Yeah
versus, say, the UK works from a single market?
I think historically, it's been the highest operating margin regions. It tends to have some really big projects, and that's the bit that's sort of missing at the moment. So it tends to be complicated technical projects with good gross margins and obviously quite a lot of operating leverage because the team can service those projects really well, so.
I think the Australian market, for us anyway, is, yeah, as Stephen said, it's been dominated by infrastructure spend, you know, new buildings, oil and gas, raw material sector, quite a lot into education. And that part, anything sort of property-related, that part of the world seems to be really struggling, and I've heard that from a number of different parties, so it's been a difficult market. Some signs of, as Stephen said earlier, some signs of improvements...
That's still really just only 4% of the group versus the quite small, so it's more opportunistic upside.
Mm.
Questions online.
Anything else?
There are no questions from the online audience, Stephen, so over to you for any more in the room or closing comments.
Did you say it's GBP 40 million that was fixed?
Yes.
Yes.
Is that, that would be all that is then drawn last year?
Yeah. So we've basically got up to GBP 40 million and expect to think most of that's is fully blend actually into sterling, euros, and U.S. dollars. We've got about GBP 100 million net debt at the end of the half, so it's about 40% of that.
When roughly do you get that?
Some of it was fixed for five to six years, in 2019, I think. So we've got, we've got quite a while to run on that. There's some space this year in U.S. dollars.
Thank you.
Okay. Thank you. We're very pleased with the first half. Tough market, but I think we've made some good progress, so I look forward to giving you an update at the full year. Thank you.