Well, good morning, everybody, and welcome to the Midwich Group 2022 Interim Results. We are very pleased with the H1 results. The H1 of last year represented a bounce back from 2020. This year takes us substantially ahead with revenue up 46%. We had very strong organic growth of 28% with significant contributions from the two acquisitions we made in the UK earlier this year. Our gross margin percentage is down slightly on the previous year, which is really down to aged stock provision movements. These should reverse in due course. Our adjusted profit before tax of GBP 19.2 million is up 48% on the prior period. Earnings per share is up over 50% and we'll pay an increased interim dividend of 36% up to 4.5p.
Our net debt increased to GBP 112 million, mostly due to acquisitions with some working capital increase as is normal at this time of year. Leverage of 2.1 times is well within our banking covenants and is in line with guidance we provided earlier this year. On page 2, I thought it might be worth a reminder of what makes our business strong and is defensible. Firstly, we have an absolute focus on the AV market, which means we're not distracted by selling other products. We have huge depth of expertise, and customers and vendors know that they have our full attention. We're good at building long-term relationships, which means we get to understand what partners are looking for and make sure we give the best service to them.
We've built a strong international platform, which makes us more relevant to vendors and customers. We operate in a market that's grown steadily for years and is forecast to continue growing, and where the drivers for growth make the market very robust. Our business has a long history of making good acquisitions and driving growth from them. We consistently outperform against the market. Our proven model can accommodate economic downturns, such as in the COVID crisis or in the financial crisis. We've grown revenue every year. We've never made a loss, even in 2020, a year in which our focus on cash meant that we nearly drove all the debt out of our business.
This slide shows our revenue bridge for the H1 . As Stephen said, we were delighted with the organic growth in the H1 of the year at 27.9%. This is actually above the H1 growth last year when we were bouncing back from COVID and is roughly two and a half times the wider AV market growth. With outstanding growth in the UK and Ireland and in North America, with organic growth of 30% and over 80% respectively, and EMEA grew at over 20% despite very strong comparatives from this time last year. The acquisitions of DVS and Nimans in the UK and Ireland added a further 18% to revenue in the H1 , while the various FX movements around the world broadly offset each other.
While FX is generally quite volatile at the moment, we don't expect significant impact to the full year with U.S. dollar gains largely offsetting Euro weaknesses. Overall revenue growth in the period was 46%.
Now I'd like to look at some profitability trends in the business. The graph on the left shows our adjusted profit before tax for the H1 of this year, and for the previous three years. You can see that 2022 was a record year with organic growth, organic profit increase of 25%, supplemented by a strong contribution from our acquired businesses. One of our main focus areas is on net profit percentage, which increased to 3.4%, excuse me, despite a slight dip in our gross profit percentage. We look at the gross profit percentage more on the right-hand box. We saw some benefits to margin from a partial return of live events, but this was more than compensated for by an increase in our aged stock provision.
You may recall we have a strict provision policy based on the age of inventory. With product shortages being widespread, particularly earlier in the period, where inventory became available, we bought heavier than we would normally. Although most of this is expected to sell through without any discounting, some of it's become aged, so we have provided for it. In terms of the current landscape, well, most of our markets are now pretty open. We're still seeing quite a few product shortages. The flat panels, so the main large displays business, is pretty much back to normal, but we're still seeing quite some shortages, particularly in audio and some of the technical video products. The global logistics costs are still high, but they've come down quite significantly from the highest point. The corporate market's recovering but isn't quite back to where it was, I think, in 2019.
The education sector, which is a really strong part of our business, has continued to be strong. We're seeing some recovery in live events, a sector particularly in Southern Europe and to some extent in the UK with the corporate market, but a full recovery is not expected now for some time. Retail investment will take quite some time, we think, to recover given the problems on the high street. Currently, we're not seeing a direct impact from the Ukraine Conflict, although I think some sentiment's being affected, particularly in mainland Europe. In terms of our business, our order books remain high, even with the high level of sales we've seen in the H1 of the year. Those high order books are due to customers primarily trying to order stock ahead or to missing components from projects.
Our work in terms of build it, bringing on new vendors and technologies continues, and the acquisitions we made in the H1 of the year really helped that. We're seeing a good flow of potential bolt-on M&A deals. Seeing quite a number of potential sellers approaching us. I believe we are the buyer of choice for a number of businesses in our sector. The continuation of unpredictable product supplies is leading to a high level of workload for our staff and our customers as we try to manage inventory levels to fit in with projects. The next slide you'll all have seen quite a number of times. I won't go through it in any detail. It's about our long-term strategy, which remains unchanged.
Our focus is on becoming more specialist, on expanding our geographical coverage and growing the scale of the business, and you can see on that slide some of the reasons why and how we go about doing this. In terms of progress, on the following slide, in terms of scale, the 4%-6% growth I think has significantly increased the scale of the business. In terms of specialization, you can see on the top section, the yellow on the right-hand side shows that our technical product categories are now over half of the business, with mainstream displays and projection now 42%. In terms of geographies, the two larger acquisitions we made earlier this year, plus the strong organic growth in the UK and Ireland, made that business a larger part of Group revenue at 42%.
We also saw very strong organic growth in North America, and that meant that sector was now 10% of our overall revenue in the H1 of this year. I'd expect to see North America becoming a larger part of the group over the next few years, the UK and Ireland to reduce as a percentage of overall turnover as we expand our international network. AVIXA is our industry trade body, and they issued an annual market review a couple of months ago, and I thought it'd be interesting just to spend a little bit of time going through some of the highlights of this report. In terms of in sort of macro terms for the industry, the return of in-person activities has led to an increase in demand, and some suppliers are struggling to keep up with that demand.
What they mean by in-person activities is live events or any sort of situation where people are getting together again. It could be theaters, or entertainment venues, and also the live events. We're certainly finding problems with getting hold of enough of certain categories of product, particularly audio and some of the technical products. They see a general recession risk as being higher, and I suspect if they were writing it today, they'd find the recession risk even higher. Increase in demand from the return of in-person activities they thought should at least mitigate some of the sort of general contraction impact from a recession. They looked at drivers for the corporate market.
They're looking at office rents, construction activity, and employer plans, and concluded that the corporate market has a strong outlook. In terms of pricing, we've seen some price increases in the Pro AV market, but they have been less than inflation. End users seem to be waiting for product to come through rather than paying a higher price. They mentioned resource planning becoming critical, which is what I've just referred to. They believe the Pro AV market grew at 11% in 2021, and they expect it to grow by a further 10.5% this year, by which time the market will be larger than it was in 2019. The compound growth rate projected for the next five years is 5.9%, and the market will grow to $351 billion.
Growth is expected to be similar across all regions, but with APAC the fastest growing region at 6.6%, driven particularly by growth in the Indian market. Looking across the different regions, AVIXA sees a fairly similar growth rate in 2022, with EMEA lagging behind a little at 9.6%. As a point of reference, our growth in H1 in North America was over 90%. In EMEA, including the U.K. and Ireland, it was over 40%, organically over 20%. In the UK and Ireland, our growth was 85%, organic growth was 30%. Our growth has materially exceeded the market in each of these regions, and you'll see that two of these regions are expected to be above their 2019 levels by the end of this year.
On the next slide, this looks at the expected five-year growth by end user market. You'll note that all but one sector is expected to grow. That's the residential sector, where the drop in this segment is because people are spending less time at home, they expect over the next few years. Venues and events growth is expected to be the highest, but that was the worst affected sector from the pandemic. The next slide looks at when AVIXA expects each end user market to return to its 2019 level. Some markets are back already if they ever declined, so that's the first column. They expect to be back by the end of this year, notably, I think, the corporate market. Others will take much longer to recover.
Venues and events, they think by 2024, and retail by 2025. I think these broadly fit in with our expectations and observations on the market. The next slide has quite a lot of numbers on it, but I've just tried to use their report to understand what this means for us as a business. I looked at some of the specific geographies that are of interest to us. Took the 2021, 2022, and then the 2027 forecast numbers to evaluate the market size. I've got Global market you can see in here, and a number of individual countries that are a particular focus for us.
I looked at how much of those markets are what I would consider to be our addressable market, taking into account our integrator value add, direct sales from manufacturers, low margin business is less interest to us and some geographical markets that aren't of interest to us currently, such as Russia and China. I've then come to an idea, an indication of what I believe the addressable market for us is, what our target market should be for each of these different types of geographies. Looked at the share of the total market and then our share currently of the addressable market. What this shows is that we still have a very small share, not only of the overall market, but also of our target markets.
For example, even the U.K., which I think is our biggest relative business, I believe we probably have a 20%-25% share of the addressable market. We're in a substantial and growing market, but we still have lots of opportunity to grow our business. The ways we do that through larger sales resources, penetrating deeper into our customers, customer base, expanding our range of brands within our current, product segments, and expanding into new technologies in markets where we don't have a current offering, and of course, moving into new countries.
Just turning to the regional performance. Looking first at U.K. and Ireland. Revenue in the U.K. and Ireland increased by 86% in the period, excuse me, including the impact of acquisitions of DVS and Diamond at the beginning of the year, which Stephen will talk about shortly. Organic revenue growth is exceptionally strong. It's over 30%, with the business benefiting from return to normal working practices following the cessation of pandemic restrictions and further significant market share gains. These share gains are attributed to the contribution from new vendors launched in the last two years, including in education and unified communications, combined with strong long-term value-added partnerships with our customers, resulting in increased share of wallet. It should be noted that certain end user markets are still not fully recovered, as Stephen said, such as live events, rental, and even corporate to some degree.
The gross margin improved by 0.3 percentage points compared to last year, reflecting a partial recovery in higher margin categories, although mix and certain product supply issues continue to impact certain higher margin areas across the Group. To date, we've seen limited signs of product price inflation in the U.K., excuse me, although we expect this to pick up a little in H2, reflecting the weakness in the GBP against the U.S. dollar. Shipping costs seem to have stabilized about halfway between pre-pandemic levels and their peak, and we're seeing some pressure on wage inflation. Implemented a half-year salary review. We're also working on a number of initiatives to support our staff through the winter fuel period. Energy costs are less than 1% of our business costs, and we have fixed our prices until mid-2023.
While it's only anecdotal, we're hearing a number of reports that the fuel cost crisis will also accelerate a return to office working and possibly corporate investment. As of today, our U.K. team feels confident they can balance inflation pressures without a material impact on net margin. Adjusted operating profit in the H1 increased by 120% to GBP 10.8 million, reflecting good operating leverage. Turning to EMEA. After an exceptionally strong performance in H1 last year, where revenue was up 66%, EMEA achieved further market share gains with growth of over 20% at constant currency to GBP 247.9 million in the period.
Revenue growth was balanced across all territories in the region, with notable performances in the Middle East as a result of projects and the benefit of new vendors added in prior periods, in Southern Europe due to a rebound in demand from corporates and live events, and in Germany, where education market demand remains high. After 2 years of unprecedented activity, Broadcast Solutions revenue returned to normal levels in the period. Gross margin at 14.1% was 0.4% below the prior year, reflecting both the impact of the increase in aged inventory provisions and product mix. The size of product supply issues began to ease during the period, although this continues to have an impact, especially with respect to higher margin complex projects.
Excluding aged stock movements from both periods, the GP would have been roughly half a percentage point higher this year than last year. Adjusted operating profit of GBP 8.7 million was broadly in line with the same period last year, and obviously is impacted by the aged stock hit. Looking at Asia-Pacific, our smallest region, revenue is up 12% on the prior year. Our team in the region has been frustrated by COVID restrictions continuing beyond those in Europe and the U.S., but these have eased in recent months. Revenue growth is driven by increased sales of displays into education and corporate markets, but sales into higher margin technical projects remain below past levels. We continue to see a higher level of inquiry for larger projects, although ongoing product supply challenges in the region and delayed market recovery means the timing of delivery is uncertain.
The gross margin was 15.7%, 2 percentage points below H1 last year, reflecting a less technical product mix, and operating profit in the region was GBP 0.2 million. Looking at North America. Trading in North America is outstanding in the H1 , reflecting the payoff from its strategic focus on the specialist AV business and the benefit of investment in sales capabilities over the last two years. The Starin business has added new brands in the last few years and increased both its customer base and its share of wallet with existing customers, and revenue increased by 81.5% to GBP 56 million. The increased scale and focus on core AV activity resulting in gross margins of 14.7%, which we understand are ahead of the wider North American market, which is slightly lower than the global average AV margins.
Gross margins in the prior period benefited from the release of aged stock provisions. Adjusted operating profit in North America increased by 156% to GBP 3 million, GBP 3.1 million. Our market share in North America remains very small. As Stephen said, with the business less than a quarter of our U.K. and Ireland business in a market that's over 10 times the size of that. While we're focused on the higher value-added element of this market, the opportunity remains enormous. Just turning now to the group P&L. As noted earlier, we're delighted with the revenue growth and market share gains. Mix and increased stock holdings did have an impact on gross margins, which would have been 15.3% without the impact of aged stock movements in the H1 .
Overhead management has allowed us to protect operating margins, resulting in increase in adjusted PBT margin to 3.4% from 3.3%. Total adjusted PBT at GBP 19.2 million was up 47% on last year and up over 40% from our pre-pandemic peak in 2019. Finance costs in the period benefited from the timing of cash payments for the acquisitions, which were mid to late Q1, and some FX gains on hedges. H2 finance charges will increase, and we're expecting a roughly GBP 2.5 million charge for the H2 . It should also be noted just under GBP 30 million of our group debt is at fixed interest rates in 2026. Our effective tax rate dropped to 25% in the H1 .
That really reflects the mix of profits, with more coming from the U.K. and Middle East compared to the prior period. We do expect this to move up towards 26.5%-27% over time if the U.K. Corporation Tax increases happen as planned. Adjusted EPS is at 53%, and we're declaring an interim dividend as Steve said of 4.5p, which is payable on the 26th of October. We continue to expect full year dividends to be covered 2-2.5 times by adjusted EPS. Looking at the balance sheet, the big change in the balance sheet period really was the acquisition of DVS and Nimans. These added over GBP 40 million to goodwill and non-current assets, and working capital increased by 45% to GBP 154 million compared to June 2021.
We acquired about GBP 17 million of working capital with DVS and Nimans, and the growth in the rest of working capital is almost exactly aligned to the organic revenue growth. We usually carry extra working capital at the half year due to the education season. As Stephen mentioned, we've got some extra inventory to cover shortage risks. Adjusted net debt, which is excluding leases, is GBP 112.5 million, up from GBP 58 million in December 2021. This reflects the M&A payments and debt acquired for DVS and Nimans of about GBP 30 million together with business growth and seasonality. We increased our RCF covenant for adjusted net debt to EBITDA three times recently, but still expect to operate below two times in the medium term. The covenant was at 2.1 times at the end of June, reflecting the Q1 M&A.
Note, the covenant ratio includes the pro forma earnings, annualizing the M&A during the period. I expect adjusted net debt to be below 2x by the end of the year, subject to any further M&A. The deferred consideration payable in H2 of GBP 3.6 million is the acquisition of our remaining stake in Prase in Italy, which took place in July. About GBP 10 million of the over 12 months deferred consideration is due next year. Finally, just looking at cash flow. As noted, our H1 seasonality typically results in operating cash outflow in the H1 . Just 32% were adjusted EBITDA this period versus 31% last year. Our annual guidance remains an operating inflow of 70%-80% of adjusted EBITDA. This will be affected by any decisions to hold additional inventory.
We resumed activity on our ERP development last year, and we expect this to go live to the first countries next year. Full year CapEx is expected to be about GBP 12 million, mainly on ERP and the resumption of investment in rental assets in the U.K. Back to Steve.
Thank you. As I mentioned earlier, we've made two acquisitions so far this year, both in the earlier part of the H1 . Firstly, DVS, security products business based in Cardiff. The interesting element of this, it's a very well-run business with a good value add offering to the market with strong technical support and a good crossover with our core AV business. Then in February, we acquired the 100% of the Nimans business. Nimans is a very well-established, very reputable distributor operating particularly in the Unified Communications, telecoms and networking markets. Again, a good crossover for what we're doing and expanding our offering into new markets.
Our general acquisition pipeline is looking strong with a number of owners approaching us, as well as vice versa. Currently, we have one deal in due diligence, one in serious negotiation, and around half a dozen others in active discussion, so a very promising pipeline. In summary, we had a very strong H1 , continuing our revenue and profit growth. Our business is strong and is a leading player in a growing market with large growth opportunities. We made some exciting acquisitions this year, and there are plenty more in the pipeline. Finally, we have a proven ability to navigate our way through challenging economic times. Finally, could I remind you that we are having a Capital Markets Day at our Technology Exposed event in Ascot on the fifth of October, which I invite analysts to join us. Thank you.
All right. Any questions?
How is the organic growth trending for the first couple of months of this year?
Naughty question. I think I wouldn't say we particularly monitor it necessarily every month-on-month, but I think so far in the H2 , things are panning out as we had expected. We're happy with the first two months.
Following up on that, the dreaded R-word, recession.
Mm.
Obviously we'll drive ourselves nuts about that. How does that look for you guys? I know you've been pretty resilient in the past.
Mm.
particularly in the U.K. What should we look out for and what would be the warning signs for you, that you expect, sort of, canary in the coal mine and beyond that, how might that benefit you?
We've been through a few recessions of different types and for different causes, and they all have slightly different effects. I think for us, as a distributor, I think for us and for our customers, we're very adaptable. It's a very adaptable industry, actually, and our customers and ourselves, we will go and focus on those parts of the markets that are still strong or continuing. Certainly in the financial crisis, for example, education market continued as it did during the COVID crisis. We'll put even more focus on making sure we're doing a great job into that market. We can be quite adaptable. There's always business to be had, and I think as a mindset, we'll go out and look for the business that we can find.
We're not completely resilient to, you know, recessions, of course. I don't think anybody is. We've got a great team. We've been there before. We'll adapt our model to try and do the best job we can. I suppose, you know, we still have a small share in markets, and markets will still be there. What we've found in the past is that, you know, people sometimes buy AV products for entertainment or nice-to-haves, and that's a fairly small part of the industry, but it's an interesting part. Most of our industry is about people using products to make their lives more efficient and effective. In a downturn, then there's a greater need than ever to be able to, you know, to use technology for that purpose, to save money.
The industry is now, you know, well over 25 years old. There's a big established base of products, and I think when it breaks or it needs upgrading, then if there's a recession or not, people will come and replace their, you know, their board, you know, their display in the classroom or whatever. Their, you know, this technology is established, so there's a good level of renewals. Not completely immune, of course. I think 2020 showed how good the team is and how adaptable our business is. I couldn't imagine a challenge greater than that one, and I think we came through that really well. As I said in my, you know, earlier part, we've never lost money. You know, I think we'll do a decent job.
If there is a recession, depending on what causes it.
Stephen, you made some comments about Europe, I think talking about the effects of Ukraine-
Mm.
on sentiment.
Mm.
Among your European clients. Do you think Germany is behaving significantly differently in terms of panic, softening demand across all your verticals to the rest of EU?
Yeah. I mean, I think maybe Germany, so, I mean, I'm not an expert on Germany, but obviously I have German colleagues, and we do talk to them. This is a really interesting topic. I think a lot of the Germans have been seem to have been quite impacted sort of psychologically by the Ukraine war and how it came about and where they are in that. We do ask constantly about have we seen any drop-off in demand or change in demand? We haven't yet. Yes, there is, you know, there is a change in sentiment, but it doesn't yet seem to have actually, if that was the right terminology of it, doesn't yet seem to have changed the demand for our products.
We've got quite a strong education business in Germany, and that's probably not going to be, you know, so impacted. If it were to be an effect, it might be on, you know, the corporate side of the market. As yet, no change.
It's certainly visible more on a relative basis than our other geographies.
Correct.
-Europe.
Yeah. Yeah.
This is to Steve, can you just look at the picture of the gross margin? I think it goes from the H1 of 2020. It is extraordinary how flat it is in all geographies, except for U.S. Can you just confirm that what we're seeing there is a Starin, high margin impact and then normalization after. Everything's flat, but U.S. is looking a little bit more volatile. It's up and down.
Yeah. I mean, the margins don't move around an enormous amount. If you look at even the aged stock impact, in most years it's been almost negligible. You know, we're quite good at managing it. It sort of tends to ebb and flow a bit. In the U.S., we just had a few funnies last year because we were obviously repurposing the business and tidying it up. There's some post-acquisition. We cleared out a lot of aged stock that came, some draggy bits that came with the business. I would say the current margin is more reflective of where they're at, possibly even a little higher than it could be over time, just depending on mix, really. The U.S. one will move around a bit with mix, but as it scales, it feels about right.
The unpredictability is now the case across all your geographies. It is likely to be where we're seeing this established.
I think so. I think the Asia Pac one should go back up again over time as we see more projects return. That's always been. If you look at the ranking, Asia Pac's always been the highest, then the U.K., then Europe, then the U.S. There's no reason why that trend shouldn't return over time.
Any more? No. Thank you.