Welcome everyone to the Midwich Group 2022 results presentation. This was a fantastic year for our group, smashing the revenue and profit records that we set in 2021. Our revenue was up 40% to GBP 1.2 billion. First time we've gone past GBP 1 billion. Half of our growth was organic, and half through the acquisition of two businesses in the early part of last year. Our organic growth of about 20% was roughly double the rate of the market growth. With a few moving parts, which I'll talk about later, our gross margin was flat at 15.3%, which is a good improvement in the second half of the year. Our operating profit margin increased to 4.2%.
Our Adjusted PBT of 45.2 million was over 41% up on last year. Our earnings per share was also up 41% on last year. We're proposing a final dividend of 10.5p. , bringing the total for the year to 15p. With such a strong organic growth rate, we were pleased with our cash conversion rate of 54%. Our adjusted net debt of GBP 96 million reflected acquisitions made in the year, and our operating leverage of 1.6 times was very comfortably within our acceptable range. A really great year. Before I go into the detail of our results, I thought it'd be worthwhile just giving you a brief reminder of the strength and defensibility of our business.
I think many people will have seen this slide before, so I won't go through all of the detail, but in summary, our absolute focus on the AV market gives us a uniquely strong, genuine value add offering to our customers and our vendors. Our market has experienced long-term growth, which is expected to continue into the future. We have demonstrated an ability to consistently grow our business profitably, even in tough market conditions. We've been successful in our model of acquiring, integrating, and then growing businesses using our experience, relationships, and expertise. Next slide. We've achieved a compound annual growth rate of 15% a year over the last 16 years and 21% a year growth since 2019.
Since coming to the market in 2016, our revenue and operating profit have increased by 22% and 19% a year respectively. All looks very easy, particularly on this graph, but it does take huge amounts of planning and expertise by the team. After the vanity of the revenue slide, the rather more important reality of our profit trend. The graph on the top left shows our Adjusted Profit Before Tax, which has grown over 19% a year since 2013. The only year I can remember our profit falling was in the COVID year, but we managed to bounce back fully in 2021, and then we overachieved our long-term profit trend significantly in 2022.
Our EBIT margin increased to 4.2%. As I mentioned, our earnings per share also, of 36.1p was also up over 41% on 2021. As a point of reference, it's up nearly 27% on the earnings per share in 2019. On the right-hand side of this slide, we look at gross margin trends. You may recall that in the first half of 2022, our gross margin was 14.9%, a figure that had been impacted quite a lot by aged stock provision increases. We managed to reverse quite a chunk of that provision increase, but not completely, so that acted as a small drag on the margin for the year as a whole.
However, this was compensated for by a return of the live events and other in-person activities, which helped sales of some of our higher margin products. If we strip the aged stock provision movement out of the numbers completely in 21 and 22, the graph on the middle of the right-hand side shows the underlying gross margin trend is actually quite positive in 22. Our long-term ambition remains to increase gross and net margins. The main factor in achieving this will be the mix of sales, which we're working to continue improving. In terms of the current landscape, many of the distortions of the last three years have improved. In particular, product supply has improved, although still it's not perfect in some areas.
Most markets are back to where they were, although high street retail is still expected to take quite some time to recover. General economic conditions are maybe a little bit slower, particularly in the U.K and the U.S, we remain comfortable in our expectations for the full year. Our customer order backlog has reduced over the last six months, reflecting an improvement in product supply, but our order backs still remain healthy and strong. The next slide you'll have seen before is a summary of our long-term strategy. We have three elements to our strategy. Firstly, to become more specialized over time, which makes us more relevant to our customers, improves our profitability and makes the business more defensible.
Secondly, we want to improve our geographical expansion, again, which allows us to support our customers in their international rollouts and obtain an improved share of their wallets. Finally, scale. We want to become a bigger and bigger business, which makes us more efficient, improves our profitability, and helps us to cross-sell into different markets. In terms of the development of the business, our focus on specialization continued, with technical product areas now accounting for more than 50% of revenue. Mainstream product areas of displays and projection grew, but at a lower rate than the overall business. With two larger acquisitions in the first half of last year resulted in the U.K. and Ireland representing a larger share of group revenue than in 2021.
We still expect this region to represent a smaller part of the overall business in the longer term as other regions grow. Our US business grew strongly last year and represented 10% of our overall turnover for the year as a whole. I thought it might be interesting to refresh some of the customer and vendor analysis that we did at the time of the IPO in 2016. In terms of our vendors, as we've moved into more specialist areas over the years, our vendor base has grown, and our reliance on individual vendors has reduced as a consequence. At the time of the IPO, our largest vendor accounted for 20% of group revenue. We've continued to grow that vendor, but now that represents just 11% of group revenue.
Our analysis of vendors showed our base is dynamic and changes with the direction of our business. We rarely lose brands, but bring on and develop substantial new relationships. For example, in 2022, a third of our top 20 vendors were in Unified Communications, but none of these were in the top 20 three- years ago. We have a long tail of small suppliers. These are important to us because they support our niche businesses, or they allow us to provide complete solutions. We also tend to make stronger margins from these smaller suppliers. I know we can also be an important partner to these brands. It's important that we look after them as well.
In terms of customers, we continue to have a low co-concentration of customers, with our largest customer accounting for 1.7% of sales. Our top 10 customers account for just 11% of group turnover. We work with many of our top 20 customers on an international basis, often supporting them with their major rollouts across the world. These relationships can be invaluable when we add new companies into our group, and we can roll those relationships into the new business. We have many small customers. They're an important part of our value add to our vendors as they're difficult to reach, and they need our economies of scale in order to service them efficiently. The next few slides are a repeat of the findings from the last AVIXA market survey undertaken in 2022. I shared these at the interim stage.
Just in summary, the key findings are that the market is expected to grow at about 5.9% a year for the next five- years, most markets are already back to their 2019 levels. Slide 12, you can see that the market growth rates in 2022 and compare those with how we've done against these and our overachievement in each of these markets. Slide 13 shows the significant potential for our business. It builds on some analysis we gave at the capital markets day last year. The large left-hand circle at the top shows the market size in 2022 and the expected market size according to AVIXA in 2027. What I've then done is estimated our addressable share of that market.
I think our addressable share of the global market is probably about 15%. Then underneath that, I've estimated how much of that addressable market we actually had last year, which is 3%-4%. These circles on the right-hand side, the three circles, just do the same analysis by different regions of the world. You can see that our market's huge. Our target market's no more than 25% of each of the different geographies. And we have under a 5% share of each of the, of the target markets currently, with a global share of under 4%. The box at the bottom right shows some scenarios of what our revenue could be in 2027 under different shares of the addressable market.
For example, you will see that if we had a 10% share of the, of the global market in 2027, we'd have a revenue of about GBP 4.4 billion. Stephen.
Thank you. Next slide is our revenue bridge. As Stephen said, organic growth was 20.7% in the year, with growth nicely balanced between all the regions bar the exceptional growth in North America. To put this into context, it's about double the market growth rate. Organic growth in the second half was approximately 15%, which reflects a more normal second half than the prior year as pandemic restrictions unwound. The acquisitions in the U.K. of DVS and Nimans delivered a further 18%. These were completed in the first few weeks of 2022, so became organic from the start of the current year.
Growth in constant currency was therefore 38.6%, whilst a weakening of sterling in the year gave us an FX gain on the translation of our overseas revenue of about 2%, leading to overall growth of just over 40%. Looking at the regional performance over the next few slides. Revenue in the U.K. And Ireland increased by 72% in the year, including those acquisitions, and Stephen will talk about those a bit more shortly. Organic revenue in the region was 18%. This is outstanding in such a well-established market. The business particularly benefiting in the first half from the return to normal working practices following the cessation of lockdown restrictions, the year before. Organic growth during the second half, 9%, reflected further market share gains in our biggest single market.
These can be attributed both to the contribution from the new vendors we've launched over the last few years and also our long-term partnerships with our customers increasing our overall share of their wallet. Technical product categories were particularly strong due to both the return of end-user demand and also supply chain issues easing, and that helped our gross margin increase from 15.8% to 16.1% in the U.K. and Ireland. As noted at the half year, we've not seen significant inflation in the U.K. to date. The long-term trend for AV products tends to be slightly downwards. We estimate inflation to be in the sort of 2%-3% range for the products that we sell. We've also seen shipping costs fall significantly in the last 12 months, which really helps.
On overheads, we've supported our teams with higher and earlier pay increases and other cost of living benefits, and we've also conducted similar actions in other regions too. Just a reminder that energy costs are less than 1% of our overall cost base. Adjusted operating profit in U.K. and Ireland increased by 108% to GBP 26 .5 million, really reflecting that sales growth and the operating leverage. Turning to MEA, which is our biggest region. It's an excellent performance in the year, with sales growth over 16.8% to GBP 535 million. The growth is really strong across all the individual countries. Notable performances in the Middle East and in Southern Europe. There we saw a rebound in demand from corporates and live events.
It's worth pausing to say how pleased we've been with the performance of NMK in the Middle East. Since they joined the group in 2021, their performance has exceeded our expectations, both as a result of higher project demand than we expected, but also the benefit of the new vendors we've been able to add to that business. We've also opened a world-class experience center that I saw a few weeks ago. After the unprecedented demand for broadcast during the pandemic, this returned to normal levels as we expected in 2022. Gross margins, as Stephen mentioned, were broadly in line with the prior year, which is an improvement on the first half where we saw a margin of 14.1% rising to 15% in the second half.
That's really the progress we made on aged stock in the second half of the year. Although we still took a small hit in the year. Excluding this, margins would have been roughly 0.3% higher than 2021. Adjusted operating profit in MEA at GBP 22.7 million was up 6% on the prior year. If you just turn to APAC over the page, growth in APAC was 14% at constant currency to just under GBP 54 million. This really reflected the removal of the pandemic restrictions being a little bit later in the year, which resulted in much stronger growth in the second half of the year than the first half of the year.
We still believe some of the higher margin technical projects in that part of the world haven't quite come back to normal, and we see good prospects for those over the years ahead. APAC margins remain slightly higher than the group just due to the mix of products and the nature of the projects they do down there, at 17.3%. Adjusted profit, operating profit, as the business regained some scale, was GBP 1.4 million, up 42% at constant currency. Finally, on North America. Trading in North America was absolutely outstanding in the year, with growth of 60% in US dollars, up to GBP 123 million. This really reflects the strategic focus on specialist AV activity since they joined the group, and the benefit is the investment in sales capabilities they've done.
Since they joined Midwich, they've added numerous brands over the last few years, really increased their customer base and share of wallet with existing customers in what is the world's biggest AV market. As expected, gross margins at 14% were a little lower than the rest of the group, although we believe this reflects the wider American market. In fact, we're probably a little bit ahead of the wider American market for average gross margins. The prior year margin is a bit higher, but that was really to do with the release of an aged stock provision. Adjusted operating profits in North America increased by 27% to $6.4 million. There, our market share remains very small, but we are focused on higher margin specialist opportunities, and the opportunity remains significant for us.
That said, we don't think the growth will be quite as high as 60% in the year ahead. Just a few slides on the financials. Turning to the group P&L. As noted earlier, we're delighted with the revenue growth and market share gains in the year. While aged stock had some impact and we saw a net gain in the second half, full year margins are in line with the prior at 15.3%, up from 14.9% in the first half. Good overhead management led to an increase in operating profit of 50%, the net operating profit margins increasing from 4% to 4.2%.
Adjusted finance expenses increased from GBP 2.1 million- GBP 5.9 million, which really reflected the impact on borrowings of the M&A investments we did, together with some higher interest rates during the year. The group has approximately GBP 40 million of fixed interest debt, with the rest floating. We expect adjusted finance expenses to reach about GBP 9 million this year before, whether an age due to those increases in interest costs. Adjusted PBT, which record levels and exceeded our expectations for the year at GBP 45.2 million, up by 41% and in line with the revenue growth. Tax rates are broadly stable at about 25%, although these will increase slightly going forwards as rates in the U.K. increase and corporation tax is introduced in the United Arab Emirates.
As Stephen said, Adjusted EPS increased by 41% to 36.1p. We've proposed a final dividend of ten and a half p, giving a full year dividend for the year of 15 p., which is within our 2 - 2.5 x covered by Adjusted EPS. I've also included some further analysis and some modeling considerations in the appendix if anyone's interested. Looking at the balance sheet, no significant or unexpected changes here really. We added about GBP 40 million to goodwill and non-current assets in the acquisitions of DVS and Nimans. Working capital increased by 41%, which is exactly the same as the increase in revenue, GBP 150 million.
Net debt excluding leases was GBP 96 million, up from GBP 58 million at the end of last year, but down from GBP 112 million at the half year. As you've seen before, the business generates really good cash flows in the second half of the year. We're able to deleverage following the M&A investments in January, February last year. As previously guided, adjusted net debt to EBITDA at 1.6x was down from 2.1x at the half year, well within our normal range of 1.5x-2x. As noted previously, we may move above this for a short period when we do acquisitions.
It's worth mentioning that we increased our RCF bank facility at the start of January from GBP 80 million to GBP 175 million for the four-and-a-half year term. That's supported by a syndicate of six banks, a few of whom are here today. These are a mix of long-established U.K., U.S., and European banks supporting the group. This facility helps support our M&A strategy and carries a leverage of 3 x Adjusted EBITDA with a bit of flexibility for acquisitions. Finally, on balance sheet, other short-term liabilities include deferred consideration of GBP 9.3 million, which we paid out in Q1 this year. The longer-term balance includes about GBP 24 million-GBP 25 million of put options for NMK and DVS, which will typically be paid three years after the acquisition dates. Finally, over the page, looking at cash flow.
We continue to expect seasonality in the business, with cash generation very strong in the second half of the year. Whilst our guidance remains approximately 70%-80% of Adjusted EBITDA, the exceptionally high growth in 2022 resulted in some working capital investment, we're very pleased with 54% given the scale of growth. Just on CapEx, we spent GBP 10.9 million in the year. A little below our guidance of GBP 12 million. We continue to progress the deployment of our new ERP solution, which is about half of that CapEx. The balance is the investments we make in rental assets and our facilities and experience centers. Back to Stephen.
Thank you. The next slide looks at the two acquisitions we made last year, which happened in the first half of the year. I did run through these at the interim stage. In brief, DVS is a business based in Cardiff, deals with video security, so it's a fairly new area for us, and an interesting to see that market and gain some experience of it. Nimans joined the group in February last year. Very long-established, quite sizable business actually. Gives us further inroads into the Unified Comms market, some exposure to telecoms and particularly networking and some other AV technologies. Both of those businesses have settled in really well. Really pleased with how they've settled in and the management team and the employees have working very well together with us.
In terms of the current pipeline, we have a significant number of deals in due diligence, probably more than I can ever remember. I would expect that we'll be making a number of announcements in the first half of this year, hopefully, if things go to plan. As Stephen mentioned, we have an increased in our revolving credit facility to accommodate these new acquisitions, we're very excited about those. On the final slide, in summary, Midwich is a group that's achieved strong continuous growth in revenue and profit over many years. After building the foundations of our business, 2022 was an outstanding year, with revenue and net profit both growing in excess of 40%. Our expectations for 2023 have been recently upgraded, and so far our trading's in line with those expectations.
Although we're a relatively large player in our market, we still have a very small overall share of the market, that market continues to grow. We have big plans for the future, I'd like to thank our staff, our customers, our vendors, and of course, our shareholders for their ongoing support and enthusiasm for the business. Thank you. Any questions?
The M&A pipeline.
Yes.
How come so much larger than any other time? What's changed, sort of in that procedure instead of
Yeah.
You can see more than you might have any.
I think to some extent the M&A pipeline sort of happens when it happens, and we have continuous dialogue with lots of different businesses. I think we've seen an increased willingness of companies to talk to shareholders, companies to talk to us when they see the benefits of being part of a bigger group. It just happens to have a lot of businesses bunching together at the moment. In the terms of the areas they're in, I think we have one in a new territory. Most of them are sort of specialist businesses that we will add into territories that we're already operating in. That's been a big part of our business historically. They're all, you know, be a good fit from that side.
One territory and the rest of them.
Yeah.
Teams and businesses.
Yeah. That's a model that we started in the U.K. a long time ago. You know, we haven't done many sort of second acquisitions in other markets. We've got quite a number of these on the go at the moment, which is good. Exciting. Thank you.
Just a couple of questions for me. On organic growth, do you measure how much of that comes from sort of your existing customer base versus expanding more sort of addressable? As in from your existing customer base or by acquiring new customers? Do you know what I mean?
We don't. We probably could. My feeling is that most of our growth comes from our existing customer base and gaining share with them, either just getting more of the business in technologies that we're already selling them or actually quite often by adding in new technologies to our portfolio. We're just getting another share of the business that they have. Certainly some of it's through new customers. I think the majority would be through existing customers.
Just one more on that. The helpful slide on sort of total addressable markets and as you do more M&A and build out your sort of technical specialism or product as well as entering into new geographies, does your expectation that, you know, for example, in the U.S., you see 10% of it addressable, is that now or is that with sort of expected M&A?
Yeah.
Feature as well?
I think that's with expected M&A.
Okay.
It's not that When you look at the entire market and think, well, how much of that market we thought with the portfolio of products that we have across the whole group.
Mm.
If we had that offering in the U.S., how much of that market could we get access to?
Yeah.
In the US market, that's a little bit lower than other markets because, you know, there are very big chunks of that market are very commoditized, low margin, high volume business that isn't really of as much interest to us as the more specialist areas of the market.
Right. Thank you.
Stephen, you speak in the statement about live events and hospitality.
Yes.
Is it too early to ask if your senses of the coming back of the same sort of slightly elevated gross margin that you were used to sort of three or four years ago?
I still think when I look at margins, like for like, they're pretty similar to what they were. I don't think there's been a significant drop or increase in
It's a question of volume and when they.
Yeah, I think so.
Back end of this year, any sense that should we look forward to some bigger stuff?
In terms of the live events.
Yeah.
Difficult to say. I think it's fairly well normalized. Late last year.
Yeah.
We certainly saw, you know, if I think about the size of some parts of our business, they got back to where they had been. I think it fairly normalized now, actually. Lots of our live events are sort of corporate conferences and things like that. We do some outdoor events as well. I think they were pretty much getting back to where they were. I wouldn't expect to see a great big bump in those events this year.
I think the current margin is more a reflection of the mix than anything else. There's obviously more Unified Comms in there, which is, sits really in the sort of midpoint on the margins. It's slightly diluting those higher margin live event things as well, just because of that extra mix of that activity.
Any more questions?
Just in terms of operating leverage.
Mm.
In the U.K., for example, you saw that come through very strongly. When we look at sort of EMEA, North America, operating margins went down. I understand in North America, because that's primarily driven by the gross margin.
Mm.
In EMEA, you know, do you guys put additional investment in that market, which prevents the best of operating leverage coming through? Trying to understand if that's a trend in both those markets you expect to continue or reverse.
I think the prior year was slightly flattered by a bit of aged stock provision in a couple of in those territories too. That's obviously with a very high margin activity. I think we try and keep a fairly sensible balance. You know, The aim is to try and grow net profit, but without damaging the business in doing so. Every time we can grow, we can invest in more things. We've opened new experience centers in the Middle East. We've increased our investment in our German business. There's quite a lot of investment in those specialist skills that makes our business defensible and scalable as we go. It's trying to keep all of the lines. Well, actually, we've done a good job this year.
It's trying to keep everything pretty well balanced across the business so that everybody's happy and we're able to grow going forwards.
How do you think about the impact of those aged stock provisions? Is that just a sort of normalization of the turbulent yeah, I think so from COVID?
You sort of had a destocking, bit of an extra provision because things slowed down in COVID, then some shortages, then a bit of probably overstocking, bit of provision in the first half, tidied up in the second half. Feels like we're more or less back to normal now, doesn't it?
Obviously, it's formula driven, so it sort of just does what it does. Yeah, we spent a lot of time in the second half of the year sort of getting the portfolio inventory part back to the right sort of mix. We're in quite good shape coming into this year.
Borrowing on working capital, just expectations for 2023. Obviously the last, you know, last year, big increase in receiving volumes, smaller increase in stock than you've seen in the prior year, but sort of still significant outflows there. Just trying to get a sense of where the supply chain situation eases and what you expect in the working capital?
I think we should say it's a similar sort of percentage of revenue. There might be a little bit of opportunity for that to come down when everything stays settled down. Yeah, we tend. It's probably a little bit higher than it was pre-pandemic. We've got a few more brands now. You know, we're managing more different products in stock, but we've managed to keep it pretty consistent with the sales growth. Again, there's that natural tension that we're always balancing between making sure we can meet everybody's needs and not having too much stuff. As Stephen said earlier, one of our conversations, we've got 44 years of doing that, so they've got quite good at it, but we don't always get it exactly right every month.
44 years of stress. Fortunately, I haven't been there for all of them.
On visibility, I know not to talk too much about anything on visibility, but is there anything at the moment gives you more optimism than perhaps in previous years at this time? Is there anything in the way that's happening that.
Mm.
What's there that gives you this.
I think a lot of the anomalies of the last few years have largely gone away. The business feels a bit more normal again. Remember, the world doesn't. The business feels a bit more normal.
Mm.
Maybe it's a little bit more predictable. I suppose maybe next week there'll be another shock happen or something. It feels more normal. Is there a big expected upturn? No, I think we'll carry on with a normal growth rate. Feels like, you know. The business is in good spirits. I would say everyone's buzzing. We're, you know, we're having a very good year. Started, you know, well this year. Happy with progress. Still plenty of opportunities for us. Lots of things going on. You know, more of the same.
Great.
Yeah. Thank you. Anything else? Good. Thank you.