Good morning, everyone, and welcome to the Midwich Group 2024 final results. It's great to see so many people here in the room. For those people joining us online, please feel free to write questions, and then we can deal with those at the end of the presentation. If we start with the financial and strategic highlights. In a challenging market, we delivered record revenues and gross margins. Once again, we had a strong performance from our strategic product areas such as audio, lighting, and technical video. However, tight markets for mainstream display and projection products, particularly in education and corporate, and an oversupply led to some significant price erosion. The market had expected to start seeing this reverse in H2, but it didn't, and indeed it still has not. We undertook a cost mitigation exercise with expected annual savings of around GBP 5 million.
Our operating cash generation was above expectations, with leverage of around 2x . We made 4 acquisitions in the year, which are now integrated. This made 11 transactions in around 18 months, so plenty for us to work on. Currently, we do not have any deals in progress, but we continue to maintain our pipeline of potential transactions. We will spend GBP 13 million on M&A payments in H1 this year, with a further GBP 2.5 million in H2, and then very little by way of future M&A commitments. The total dividend of GBP 13 million for the full year reflects cover of 2x . Our expected trading performance for the full year remains unchanged, but with short-term trading not expected to improve materially, we expect a higher weighting in H2.
The revenue of GBP 1.317 billion was 3.5% up on 2023 on a constant currency basis. However, underlying revenue was down 1.4%, so the growth is accounted for by the acquisitions we made in 2023 and 2024. As I mentioned, technical sales grew strongly by 6.8%, but our mainstream revenues dropped by 8.9%, mostly as a result of price erosion. Gross margin was up by 0.3% to 17.8%, and Stephen will talk about a slightly different way we've been looking at our gross margin percentage. Our adjusted operating profit of GBP 48.3 million was down 17.4% on last year, and the adjusted operating margin of 3.7% was down by 0.9%. As I mentioned, operating cash conversion of 97% was very strong for the year, and leverage and dividends I've talked about.
In terms of the current landscape, as I'm sure everyone's aware, there are significant ongoing challenges in global economic conditions, and we see no signs of general improvements in these. Markets in the U.K. were very challenging in 2024, but so far it has been slightly better this year. Demand in mainland Europe was suppressed, particularly in the German and French markets, and we've continued to see strength in our Middle East business. The corporate market remained weak through general economic uncertainty. We're expecting a post-COVID refresh cycle, but the timing of this remains uncertain. There's some significant softness in discretionary spend in education, particularly in the German market and in the U.K., where we have very strong education businesses, and the live events and entertainment businesses continue to be robust. In terms of our own business, our order books remain stable.
Demand for mainstream products, that's flat and interactive panels and projectors, varied by category and by territory. I've seen reports anywhere from small increases to over 30% reductions in volumes. Overall, we think volume in the mainstream sales in our markets was somewhere between flat and -10%. However, with a lot of products still being pushed into the market, we saw some significant price erosion, we think between 10% and 13%. This is on mainstream products. So we're effectively doing the same amount of work, supporting 10% lower revenues. I think I've covered the other points on this page. Just on the next slide, just as a reminder really of our purpose and our key differentiators, why Midwich? What do we do? We exist to help our customers win and then deliver successful projects and help our manufacturers to reach a broad market.
We have identified four key differentiators of our business. Firstly, we have deep vendor relationships. They are very broad. They are long-term relationships. We are very close to our vendors. They are symbiotic. We both benefit from this relationship, and they are unique in the sense that we have such a broad range of relationships. We are exclusive, our number one distributor in most of the relationships with our top 40 vendors, and that goes much deeper into our vendor base. We have expertise in managing portfolios across products, technologies, and geographies, and this has delivered seamless growth every year since 2005, doubling our GP and increasing our PBT by 38x . We have an unrivaled depth of specialist knowledge. We support customers to win and deliver great projects. Our technical sales growth grew 6.8% in the year in a tough market. Finally, we have consistently high customer service.
Our staff are responsive and knowledgeable and understanding of our customers' needs and effective operators, and we have very good long-term relationships with all of our top customers over many years. On the next slide, in terms of market data, the table on the left looks at the total IT and AV markets. IT is a bigger part of the overall numbers in this slide. The market was relatively flat in 2024, with some growth expected in 2025. I have included at the bottom of this a quote from CONTEXT, which is a market research company that indicates that after five years, five years after COVID, this should be the refresh year, but we will wait to see if it is. On the right-hand side, I have picked out trends in large format displays in Europe. This product category represents about 23% of our overall revenues.
You can see that they are suggesting in 2024 there was an 8.4% increase in volume, but a 2.5% decrease in value, so a price erosion of about 11%. Our observation supports the price erosion comment, but the volumes in our markets did not increase by this much. CONTEXT expects a drop in volume, but an increase in value in 2025. Whilst the value increase is welcome, they did also predict this trend in the second half of last year, but it did not happen, so we will have to see what does occur. On the bottom, AVIXA's annual update is not due for another month or so, so this data is a little out of date. That said, we do not expect a significant change in the five-year market growth expectation.
We should add that a lot of this growth is expected to be driven out of China and India, with low growth in Europe, which is our core market.
Thanks, Stephen. Turning to the group profit and loss chart on page nine, overall, we're pleased with our revenue growth and further market share gains in the year, against, as Stephen said, a challenging mainstream market backdrop. Having changed auditors this year, we've taken the opportunity to review a few of our accounting policies. Whilst these changes have no impact on net profit, we have classified carriage income as principal versus agent this time round, which moves that to revenue to align with best practice. With carriage costs still in distribution costs, this increases our gross margins both in the current year and in the prior year by about 0.7%.
The two years have both been stayed on a comparable basis. Record gross margins of 17.8% reflect our continued strategic focus and shifting sales mix, both organically and through M&A towards higher margin technical products where we can add more value. Looking at net margins, over recent years, we've seen good progress in net margins. Obviously, this reversed in 2024. As the overhead growth in the year, though, the vast majority relates to 11 businesses we've acquired since the start of 2023. We've also made some further investments to help us continue to grow in both the Middle East and in North America. In response to the mainstream price reductions that Stephen mentioned, we took action on costs in the middle of the year, and as such, our overhead base fell by about GBP 3 million from the first half into the second half of the year.
We do remain mindful that overhead inflation, which for us is mainly people, facilities, and logistics, will continue to be a headwind until the mainstream markets return to normal. Across the group, we've increased our focus on productivity and automation, and we'll be investing more in these areas in 2025 and the years ahead to improve our medium-term net margins. We've treated the cost to deliver the in-year restructuring as exceptional, and these costs of around GBP 3 million are excluded from the operating profits presented. Unfortunately, we also experienced the spillover from a fire at a neighboring warehouse in the UAE in December. This fire destroyed about GBP 4 million worth of inventory. This is fully insured, claims underway.
We have obviously got that business is made up of large project business, which is now pretty much fully back on track, and a run rate business, which we expect to be back on track in the second quarter of the year. Across the year, this is not expected to have a material impact on our profits, but it will shift about GBP 1 million of profit from the first half to the second half. Interest costs of about GBP 10 million reflect the levels of net debt in the year and increased slightly due to the timing of both M&A payments and deferred acquisition payments during the year. We have not planned for any further rate reductions in 2025 and now expect the full year charge for this year to be about GBP 12 million.
We continue to follow a conservative approach to tax planning, and the increase in the rate in the year to 26% reflects geographic mix combined with the introduction of corporation tax in the UAE and also the minimum global tax regulation impact. The change in year-on-year EPS reflects a reduction in operating profit with some further impact on the equity issue in June 2023. I think Stephen's covered the dividend, but just to flag that the final dividend will be paid on the 4th of July. Looking at the balance sheet, our balance sheet was impacted by four small acquisitions completed in 2024, which resulted in a small increase in goodwill and acquired intangible assets. Net working capital was well managed during the year. As a percentage of annualized revenue, this fell slightly to 11.8% by the year end.
The strong working capital management also resulted in operating cash generation of 97% of adjusted EBITDA, which is ahead of our long-term guidance, which remains 70%-80%. There are payments of almost GBP 38 million in the year for acquisitions and deferred consideration. This was the main drive of the increase in adjusted net debt, excluding leases to GBP 130 million at the end of the year. Year-end net debt, as Stephen said, the leverage ratio was 2x adjusted EBITDA, which uses the methodology set out in our banking agreements.
We're also coming to the end of our committed M&A payments, so we expect to pay about GBP 15.5 million in deferred consideration in 2025, mostly in the first half of the year, which combined with our normal working capital seasonality will result in leverage increasing at the half year before falling back to around two at the end of the year. Beyond 2025, though, deferred acquisition payments are now expected to be less than GBP 2 million in total, which clearly helped with long-term debt reduction, and we remain focused on maintaining leverage in the one and a half to two times adjusted EBITDA range over time. I've added some further detail on segmental results, cash flow, and modeling considerations and dependencies.
Just shifting to the regional performance in 2024, U.K. and Ireland, U.K. and Ireland market demand, as Stephen said, continues to be subdued in the period with revenue largely flat year on year. We have our highest market shares in this region, and we believe that we've continued to outperform our competitors in a challenging period. The mainstream, which is mainly large format displays in the U.K. market, over the last two years has been characterized by oversupply and significant discounting. Whilst we've weathered this better than many, it has had some impact on gross margins, which fell from 18.7% to 18% in the year. As Stephen said, it still takes the same effort to sell a display at a lower price, and as such, net profits in the U.K. decreased in the year.
We did take action, as I previously mentioned, to reduce costs, which partially mitigates these headwinds. We have also got a program underway to improve productivity further as we move forwards. There is strong demand in markets such as live events, entertainment, and hospitality, and that is supported further by technical growth across the business. These represent about two-thirds of U.K. and Ireland revenue. Our deep industry knowledge, relationships with customers and brands, and a passion for what we do means we are really well positioned for the future in this country. We completed three small acquisitions in the U.K. in the year, and integrations progressed well. These further strengthen our specialist capabilities in areas such as security and live events.
Turning to EMEA, which is our biggest region in terms of both revenue and net profit, overall revenue at constant currency was broadly in line with the previous year and down 2.7% organically. There was a significant north-south divide in EMEA in 2024. Our businesses in southern Europe and the Middle East, which are largely technical with a focus on audio and lighting, performed exceptionally well. They delivered outstanding results with further market share gains, strong organic growth, and great operating profits. In northern Europe, where our focus is more on corporate and education users in the more mainstream and unified communication solutions, markets were equally challenging as we saw in the U.K. Our German business, in particular, was impacted by softer government investment in education infrastructure and corporates delaying investment decisions.
We don't believe there's been any shift away from the need for mainstream AV solutions in EMEA as the digitization trend continues. However, as Stephen noted, it remains unclear exactly when demand will return to normal and when corporate technology refreshes will get underway. The stronger technical product performance supported an increase in gross margins to 16.7% in the year, and adjusted operating margins held up well given the mainstream market challenges. Just moving to North America, which remains the single biggest strategic market for our future growth plans for us, we continue to make good progress in the year with growth in local currency of 28% and organic growth, excluding the impact of the mid-year 2023 Canadian acquisition of 7%.
Although growth slowed in the second half, reflecting slightly softer economic conditions and possibly some delayed spending around the U.S. election, the overall performance was good with further market share gains and increased customer wallet share. We continue to be recognized by our vendors in the U.S. for our value-added approach and have further invested in our sales capabilities to support future growth. In Canada, SFM is working very closely with the wider group to enhance its vendor portfolio. In the second half, it was slightly impacted by the partial shift away from a large vendor, which is moving to a blended distribution direct model, but we've got some exciting new vendors being onboarded in the first half of this year to offset this.
The gross margins in North America are the highest in the group at over 20%, which is well ahead of the wider market norm and reflects the value-added technical nature of our approach in this region. Operating profit was in line with the prior year, reflecting the impact of the further investments in the region. Finally, just looking at APAC, which is our smallest region, only 3.5% of global revenue. As I've noticed in previous presentations, it's also the region with the highest proportion of mainstream sales at just over 60%. Mainstream markets in APAC were impacted in the same way as Europe, and the relatively flat sales was a good result in the context of these headwinds in its product mix.
We have a detailed recovery plan for APAC, including a focus on more technical solutions, adding new brands, strengthening our team, and relaunching our Southeast Asian business in 2025. We continue to believe that over the medium term, this region can be a good profit contributor. Thank you. Looking at our M&A strategy and results, it has been part of our strategy since 2006. We acquire businesses either in order to access new geographical markets or to get into new technical product areas in existing businesses. I think we have now acquired probably about 45 businesses to date. As Stephen mentioned, we have acquired four businesses in 2024. The Farm on the west coast of the US is a very technical sales representative business, which is a great addition to our Starin offering in the US market.
In July, we acquired the remaining 70% of a company called Dry Hire Lighting, which is a provider of lighting rental services in the U.K., so a good fit with our PSCo business. We then acquired UK Fire and Safety, a distributor of fire safety products in the U.K., which fits very well with the PSCo business in the U.K. Finally, we completed the acquisition of a company called Direct Cable Systems DCS, which is an assembler and distributor of cable solutions, particularly for the live events market. Currently, we do not have any live M&A transactions, although we do continue to maintain our pipeline and keep in contact with potential sellers in the future. The next slide summarizes our four key pillars of our investment proposition.
I won't go through each of these bullet points, but basically, we have a market-leading position across the globe, really the biggest leading Pro AV value-add distributor in a very big market that's expected to continue growing over the long term. With a very low market share, we have a strong strategy that's clear with strong foundations. Our strategy has remained consistent since our IPO. We have a robust business model. We have adapted and will continue to adapt our business model to fit in with the changing markets. Strong long-term customer and vendor relationships give significant barriers to entry. We have a proven track record and a strong financial position. Accepting recent challenges in the business, we do have a long track record of consistent and resilient revenue and profit growth, strong product portfolio management skills with a high degree of repeat business from our customers.
We have a values-based culture and a very experienced and stable management team, high levels of team engagement. We expect our long-term success to be achieved through a combination of organic growth enhanced by M&A, a progression in our margin, particularly through improving our product mix, and the management of our cost base. We continue to believe that with the combination of all these factors, we can deliver an annual EPS growth in five years' time of 10%. In summary, 2024 was a challenging year, and it has continued to be challenging into the first part of this year. We continue to perform well against our competition, and we either maintained or gained market share in our key markets.
Our long-term strategy of focusing on specialist product categories has helped us, but soft demand and price erosion caused by oversupply in the mainstream product areas has posed challenges for us. Uncertainty in macroeconomic conditions has hampered demand for our products, particularly from corporate end users, and tight government spending has constrained demand for technology products, particularly in the education sector. The cost reduction exercise we undertook in late 2024 has brought some benefits to our overhead base. In terms of the outlook, short-term trading conditions are not expected to improve materially, but the group is ideally placed for an improvement in the markets. In the meantime, we're focused on exploiting revenue and gross profit opportunities whilst ensuring our operations are carried out as efficiently as possible. Our expected trading performance for the full year remains unchanged, but given the current trading challenges, we expect this to be second half weighted.
I suppose as a final comment, this is only the second time in 20 years that our profits dropped, the other year being COVID year. I am confident about the long-term prospects for the business and our ability to deliver strong results. Thank you. Any questions? Michael. The microphone, please. Yeah.
Defense, European, emerging, any benefits from that? What is the portion of defense so far and what are the opportunities?
What portion of our business is in defense? I would say probably quite small directly. We have done, I know we have done projects into the U.K., Germany, I can think of, Australian defense in the past. It is a fairly small part of the business. There is scope for AV technologies in the defense world. Increased defense spending, I would expect to have a little bit of an impact directly on us.
I suppose the wider benefit is money being put into economies generally flows through into other technology. The EUR 500 billion investment the German government's talking about making, some of that will, a lot of it will go into defense, some of it will go into infrastructure. That will flow through into corporate businesses, I expect. I would also expect them to invest some of their additional money into education. Directly a bit, indirectly, probably more just through the additional money going into economies. Does that make sense?
It does. When you talk about U.K. and Germany, is it German federal government and U.K. MoD you're selling to directly?
No, we sell through integrators, resellers. Integrators who contract directly with the—yeah.
Okay. I suppose the question is, is there scope to do more with more integrator resellers than maybe you're not working with at the moment?
They've got a bigger exposure to defense than perhaps the ones you've done historically.
I suppose it's possible. I don't know actually the straight answer to that. I don't know. I mean, you need to operate with the MoD, for example, you'd need obviously high-level clearances, and only certain people have those and certain companies do. They will certainly buy AV products for things like control rooms and monitoring stations. On a wider basis, their own training facilities that they will and training skills they'll put our technology into as well. I would say increased, yeah, increased military spending, some benefits. If they announced a GBP 500 billion investment in education technology, I probably would have a bigger impact on our business.
Just wondering what the proportion of technical sales from businesses now and if you've got a target where you kind of want to get to maybe over the next kind of three to five years. And then just on the weighting, do you normally have a seasonal weighting between H1 and H2 and kind of where does your expectation for this year kind of sit relative to that?
Yes, 64% was the technical sales in 2024. Let Stephen comment on whether we have a target. I wouldn't say a target of where we'd like to get to. I would expect over time the technical element will grow as it has done for a long time. The sort of mainstream products, at the end of most AV installations, there's a display or a projector, I think.
We would still expect to be selling those products, but growing the technical side more strongly. If you look back at the last dozen or so acquisitions we've done, almost all of them have been in more technical areas. We would expect that to continue to be a focus of the business going forwards, but probably still carrying mainstream products. As they're involved in most projects, it's a good way of keeping close to our customers and being able to provide them with a complete solution. Just on seasonality, you've got a few corporate and education seasons through the year, particularly in Europe and the US that affect us. We tend to see low 40% in the first half, sort of 50-something percent in the second half traditionally.
We do think that will be slightly more skewed to the second half this year, partly because of the current market conditions, but also partly the UAE fire will take a bit of time to recover from as well. Any other questions in the room?
Stephen, on page 10, there's about 100 facilities, and I think it's mainly working capital. So, and that's not short-term debt, that's all a factoring facility.
We don't really factor. We use a mix of overdrafts and invoice financing, and the invoice financing is effectively, it's just an overdraft secured on receivables. Everything's in our balance sheet.
Yeah, so there's a bit of overdraft and then a bit of invoice discount.
That's the majority of that, 100 and something million.
What's your receivables normally sitting at a year in the balance sheet?
We normally hold about 50 days-60 days, something like that. We've usually got a couple of hundred million GBP worth of stock, a couple of hundred million GBP worth of payables, and a couple of hundred million GBP worth of receivables at a very broad level.
Between like 70-100, yeah, is against those receivables.
Yeah, it's really the mainstream businesses that have seasonality and use the working capital facilities of technical businesses to perform.
You mentioned how much that's in drawn at the end of this.
We were 130 drawn at the end of the year. I think we had about EUR 40 million of cash. They call it 170 drawn. I think probably 140 or something was RCF, so the balance would be working capital facilities.
There's probably some opportunity to be a bit more efficient with netting cash, which a couple of people I think in the room are helping us with. Yep, certainly got a big market of people to help you. Okay. Any online questions?
There's no current questions online.
Okay. Very good. Thank you for your time.