Midwich
Group Plc
ANNUAL REPORT &
FINANCIAL STATEMENTS 2018
About The Midwich Group
A SPECIALIST AUDIO
VISUAL DISTRIBUTOR
TO THE TRADE MARKET
Another year of strong growth with
revenue and net profit increasing in
all regions.
Strong working capital management
has generated free cash flow
conversion of 92%.
Successfully completed and
integrated three acquisitions,
strengthening the Group’s broadcast
and professional audio credentials
and extending its global footprint
into Asia.
Significant improvement in gross
margins reflecting the Group’s focus
on technical products and the positive
impact from acquisitions.
Appointed Stephen Lamb as Group
Finance Director in July 2018 and
Hilary Wright as Non-executive
Director in March 2018.
CONTENTS
STRATEGIC REPORT
Introduction
The Midwich Group at a Glance
Chairman’s Statement
Managing Director’s Review
Corporate Social Responsibility
Key Performance Indicators
Financial Review
Principal Risks
GOVERNANCE
Board of Directors
Chairman’s Statement on
Corporate Governance
Corporate Governance Report
Nomination Committee Report
Audit Committee Report
Statement from the Chairman of the
Remuneration Committee
Directors’ Remuneration Report
Directors’ Report
Annual General Meeting
FINANCIAL STATEMENTS
Independent Auditor’s Report to the
Members of Midwich Group plc
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
SHAREHOLDER INFORMATION
Notice of Annual General Meeting
Notes to the Annual General Meeting
Directors, Officers and Advisers
01
02
06
08
12
14
15
18
20
22
23
24
25
27
30
36
39
41
46
51
88
90
96
97
100
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Introduction
HIGHLIGHTS
REVENUE
£574m
2018
2017
2016
GROSS PROFIT %
16.5%
2018
2017
2016
NET DEBT
£25.7m
2018
2017
2016
ADJUSTED OPERATING PROFIT
£30.2m2
£472M
£370M
£574M
2018
2017
2016
£30.2M
£25.0M
£18.5M
ADJUSTED PROFIT AFTER TAX
£22.3m3
16.5%
15.5%
15.3%
2018
2017
2016
£22.3M
£18.7M
£14.4
FINAL DIVIDEND
10.60p4
£25.7M
£22.3M
2018
2017
2016
£15.0M
10.60P
9.65P
7.09P
ADJUSTED OPERATING PROFIT % GROWTH
20.9%1
2018
2017
2016
20.9%
19.7%
31.3%
1. At constant currency.
2. 2018 is operating profit of £24.7m adjusted for amortisation of £3.8m,
acquisition costs of £0.4m and share based payments (including employer
taxes) of £1.3m. 2017 adjusted operating profit is operating profit of £20.8m
adjusted for amortisation of £3.2m, acquisition costs of £0.3m and share
based payments (including employer taxes) of £0.7m.
3. 2018 profit after tax is profit after tax of £15.3m adjusted for amortisation
of £3.8m, acquisition costs of £0.4m, non operational finance costs of
£2.5m, share based payments (including employer taxes) of £1.3m and the
negative tax impact of the adjustments of £1.0m. 2017 profit after tax is profit
after tax of £14.0m adjusted for amortisation of £3.2m, acquisition costs of
£0.3m,non operational finance costs of £1.2m, share based payments
(including employer taxes) of £0.7m and the negative tax impact of the
adjustments of £0.7m.
4. Total dividend of 15.20p (13.82p for the year ending December 2017).
WE OPERATE IN THE UK &
IRELAND, CONTINENTAL
EUROPE AND ASIA PACIFIC
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 01
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT The Midwich Group at a Glance
OUR BUSINESS
Midwich is a specialist AV distributor to
the trade market, with operations in the
UK and Ireland, Continental Europe and
Asia Pacific.
The Group’s long-standing relationships with over 400
vendors, including blue-chip organisations, support
a comprehensive product portfolio across major
audio-visual categories such as large format displays,
projectors, digital signage and professional audio.
The Group operates as the sole or largest in-country
distributor for a number of its vendors in their
respective product sets.
The directors attribute this position to the Group’s
technical expertise, extensive product knowledge
and strong customer service offering built up over a
number of years. The Group has a large and diverse
base of over 17,000 customers, most of which are
professional AV integrators and IT resellers serving
sectors such as corporate, education, retail, residential
and hospitality. Although the Group does not sell
directly to end users, it believes that the majority of
its products are used by commercial and educational
establishments rather than consumers.
Initially a UK only distributor, the Group now has 900
employees across the UK and Ireland, Continental
Europe and Asia Pacific. A core component of the
Group’s growth strategy is further expansion of its
international operations and footprint into strategically
targeted jurisdictions.
OUR JOURNEY
s
h
o
w
r
o
o
m
/
d
e
m
o
f
a
c
i
l
i
t
i
e
s
12
26
offices
staff members
900+
+17,000
accounts serviced in 2018
countries of
operation
16
turnover 2018
£574m
1995
Introduced
trade-only
policy
1999
Name
changed
to Midwich
Limited
2005
Launched
distribution
of consumer
electronics
2007
Acquired
Invision UK Ltd
2010
Acquired
French
Distributor,
Sidev
2012
Acquired
Australian
Distributor, IDT
(now Midwich
Australia)
1979
Midwich
Computer
Company was
formed
1996
Commenced
distribution of
projectors
2000
Launched
distribution
of large format
displays
2006
Acquired
True Colours
Distribution
2008
Acquired
Owl Visual
Systems
2012
Acquired
RW Salt
02
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
WHY OUR
CUSTOMERS
CHOOSE US
Credit/business
services
Working
together
100%
trade only
Nurturing long-
term relationships
Training
and events
Vertical
market focus
Market and web
services
Award-winning
distribution
Personal
approach
“We help our customers to win and deliver successful projects”
WHY OUR VENDORS
CHOOSE US
Market
focus
Efficient
logistics
Scale and
flexibility
Marketing and
sales support
Events
Long-term
relationships
Cross-
border projects
Market intelligence
and trends
“We help our vendors build and deliver successful market development strategies”
2015
Acquired
PSCo UK
2016
Acquired New
Zealand based
distributor,
Wired
2017
Strengthened audio
presence through
acquisition of
Sound Technology
2017
AV Awards –
Winner
Distributor of the Year
InAVate Awards –
Winner Distributor
of the Year
2018
Acquired New
Media AV to
expand the broadcast
opportunity in
Germany
2018
Ventured into the
Asia Pacific
region, through
the acquisition
of Blonde Robot
2013
Entered the market
in Germany through
the acquisition of
Kern & Stelly.
2016
Acquired Holdan,
UK to build on
pro-video and
broadcast
opportunity
2017
Ventured into the
Iberia region,
through the
acquisition of
distributor,
Earpro
2017
Ventured into the
Benelux region,
through the
acquisition of Van
Domburg
Partners
2018
AV Awards – Winner
Distributor of the Year
CRN Awards –
Winner Best
Company to
Work For
2018
Created an audio
division in France
through the acquisition
of Perfect Sound
(now Sidev
audio)
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 03
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT
The Midwich Group at a Glance continued
INTERNATIONAL PLATFORM
UK & IRELAND
midwich.com.au
Midwich
The UK’s leading trade-only,
value-added distributor of
technology solutions to the
AV and IT channels.
Square One
Trade-only AV and document
solutions, value-added
distributor in Ireland.
Invision
Holdan
Specialist distributor of
technology solutions for
homes and businesses,
supplying custom installers
across UK, Ireland,Belgium
and the Netherlands
Trade-only distributor and
specialist in professional video,
streaming and broadcast
equipment. Supplying customers
across UK, Ireland and Benelux.
Revenue (+11.3%)
£315.8m
2018
2017
£315.8M
£283.7M
Adjusted Operating Profit
£19.6m
2018
2017
£19.6M
£16.7M
Trade-only rental supplier
and specialist distributor of
LED technologies.
PSCo
T E C H N O L O G Y
Sound Technology
Trade-only distributor and
specialist in professional
audio, professional lighting
and musical instruments.
CONTINENTAL EUROPE
Revenue (+42.2%)
£222.0m
2018
2017
£222.0M
£156.2M
GERMANY
BENELUX
FRANCE
Kern & Stelly
Van Domburg Partners
Sidev
Germany’s premier
trade- only distributor of
AV products and solutions,
based in Hamburg.
Rotterdam based specialist,
value-added, trade-only
distributor of audio
visual solutions.
Lyon and Paris based
trade-only, value-added,
specialist distributor of AV
solutions throughout France.
Adjusted Operating Profit
£10.2m
2018
2017
£10.2M
£7.5M
New Media AV
Nuremberg-based
trade-only, specialist
distributor for broadcast,
video, livestreaming and
post-production solutions.
04
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
ASIA PACIFIC
Revenue (+11.8%)
£35.9m
2018
2017
£35.9M
£32.1M
midwich.com.au
Midwich
Trade-only, value-
added distributor of
AV technology in Australia
and New Zealand.
Blonde Robot
Trade-only distributor
of specialist professional
video, photographic and
broadcast equipment.
Adjusted Operating Profit
£2.9m
2018
2017
£2.9M
£2.6M
IBERIA
2019 ACQUISITIONS
ITALY
SWITZERLAND
Earpro
A value-added, specialist
distributor of audio, video,
lighting and technical video
solutions, based in Madrid,
Barcelona and Lisbon.
Prase Engineering
Mobile Pro
Italy’s leading specialist
value-added distributor of
professional audio and
video products.
A leading Swiss, value-
added, trade-only AV
distributor, based in Zurich.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 05
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Chairman’s Statement
STRONG RESULTS AND
CONTINUED GROWTH
The Board remains focused
on delivering profitable growth
and enhancing the capabilities
and reach of the Group in its
core business areas.”
ANDREW HERBERT
Chairman
06
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
I am pleased to report that the
Group has continued to deliver
strong results in 2018, achieving
both revenue and profit
growth across all its markets
and geographies.
Revenue of £573.7 million was 21.6% ahead of
prior year (21.4% at constant currency) and
reflects an impressive level of organic growth
across the business along with contributions
from the successful acquisitions during the year
and the full year impact of those acquisitions
completed in 2017.
The gross profit margin improved again and
adjusted profit before tax grew by 19.7% to £29.1
million. Adjusted earnings per share increased
by 19.3% to 27.28 pence per share.
Healthy operating cash flow performance,
slightly above our long-term average, helped
us maintain a strong balance sheet. We also
increased our bank borrowing facilities to
support our acquisition strategy.
The Board remains focused on delivering
profitable growth and enhancing the capabilities
and reach of the Group in its core business areas.
Organic growth in revenues, before the impact
of acquisitions, was 8.7% reflecting the strong
performance across all our geographic markets.
The Displays, LED and Technical Video product
ranges were particularly strong contributors to
this growth.
During 2018 we successfully further expanded
the reach of the Group through acquisitions,
adding specialist broadcast businesses in
Germany and Asia Pacific and an audio business
in France. These businesses are being
integrated as expected, are already contributing
to both sales and profit and have added to our
capabilities. After the year-end, we completed
two acquisitions entering new markets in
Switzerland, with MobilePro AG, and in Italy, with
Prase Engineering S.p.A (“Prase”). The Prase deal
is one of the largest undertaken by the Group
and brings us a market leading business in one
of the largest European AV territories. Prase has
a very strong heritage in the audio segment and
has been integral to the successful delivery of a
number of high profile and complex installations
in Italy and further afield.
Our strategy of delivering organic growth
while adding capability and scale to the
business through acquisition is unchanged
and we continue to pursue a good pipeline
of opportunities.
Dividend
The Board is recommending a final
dividend of 10.60 pence per share (2017:
9.65 pence), which if approved will be
paid on 21 June 2019 to shareholders
on the register on 17 May 2019. With the
interim dividend declared in September
2018, this represents a total dividend for
the year to 31 December 2018 of 15.20
pence per share and growth of 10% on
the prior year 13.82 pence per share.
The proposed dividend is covered 1.8
times by adjusted earnings.
The team at
Midwich continues to
demonstrate great skill,
commitment and drive.”
The Board has adopted a progressive
dividend policy to reflect the Group’s
strong earnings and cash flow. While
there is no hard or fixed target, in order
to allow for continued investment in
targeted acquisitions the Board intends
to pay future dividends within a cover
range of 2 to 2.5 times adjusted earnings.
Board
In our 2017 evaluation of Board
effectiveness, we identified the
opportunity to further strengthen the
Board with the appointment of a third
independent non-executive director.
We were pleased to welcome Hilary
Wright to the Board on 9 March 2018.
Hilary is an HR professional with a
background in international businesses
and brings a wealth of complementary
experience to the team.
2018 also saw a change in Group Finance
Director. Following the retirement of
Anthony Bailey, we were pleased to
welcome Stephen Lamb to the Board.
Having overseen the Group’s IPO and
initial period of operation as a new public
company, Anthony left the business
to pursue personal interests. We are
grateful to him for his commitment
and contribution to the business. Stephen
Lamb, who is also appointed as Company
Secretary, brings considerable experience
gained in senior finance roles in
international businesses.
The Board once again completed a
self-evaluation exercise during 2018,
reinforcing our commitment to and
success in establishing a strong corporate
governance framework. We took the
opportunity of this review to confirm strong
and effective governance and reaffirmed
the role of the Board and its individual
members in ensuring compliance with the
revised provisions of the QCA code. There
were no major issues or concerns raised
about the effectiveness of the Board or
its individual members.
In formally adopting the QCA code (as
revised April 2018) as its governance
framework, the Board has reviewed all
aspects of compliance and has acted
to improve disclosures on the Group’s
corporate website.
People
The success of any company is down
to the quality of its leadership and its
people. The team at Midwich continues
to demonstrate great skill, commitment
and drive and it is our people that are the
key to the Group’s strong track record
and continued success.
During 2018, the Board has reviewed and
approved changes in organisation structure
and capability through creation of additional
roles to ensure the Group is prepared
for and capable of further expansion.
Specifically, we have strengthened the
central team responsible for acquisition
and business integration.
Also, as part of the process of exposure
to the business and people throughout
the Group, the Board has committed to
visiting and holding meetings with at least
two subsidiary businesses in any twelve
month period. We continue to be pleased
and impressed with the engagement and
quality of our teams.
On behalf of the Board, I would like to
thank all employees and our partners
for their commitment and hard work
and congratulate them all on achieving
these impressive results.
Andrew Herbert
Chairman
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 07
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Managing Director’s Review
ORGANIC GROWTH AND
TARGETED ACQUISITIONS
The growth in specialist
Audio, Technical Video,
LED and Lighting
categories particularly
helped improve margins.”
STEPHEN FENBY
Group Managing Director
08
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Continued growth from a proven model
I am very pleased to report that in 2018 we
again achieved strong growth across all the
Group’s businesses and regions at both a
revenue and profit level. Our organic growth
continued to be strong, and we have continued
to undertake targeted acquisitions to drive
future growth as well as build our expertise
in a broader range of markets and products.
Strong financial performance
Midwich has delivered strong growth
performance in 2018 with revenue for the year of
£573.7 million (2017: £471.9 million), an increase of
21.4% (2017: 24.2%) on a constant currency basis.
The performance resulted from revenue growth
across all regions within the Group, with
particularly strong growth in our Continental
European business. The three acquisitions made
in the second half of the year (Sound Directions
(trading as Perfect Sound), Bauer & Trummer
(trading as New Media) and Blonde Robot)
accounted for 1.9% of the 21.4% growth.
Group gross profit increased by 29.3% to £94.6
million (2017: 29.5% to £73.1 million). The growth
in gross profit resulted from a further strong
increase in the Group’s gross margin, from 15.5%
to 16.5%. This increase was delivered through the
Group’s focus on margins, driving improvement
through product mix and working closely with
vendors and customers alike to add value to
both throughout the supply chain. The growth
in specialist Audio, Technical Video, LED and
Lighting categories particularly helped improve
margins. These product areas require a higher
level of investment in specialist knowledge,
facilities and personnel, which means that,
although the improved gross profit margin
does not fully flow down to operating margins,
the business is much more specialist and
therefore defensible. Midwich has now
successfully increased Group gross margin
percentage every year for over 10 years.
Our adjusted operating profit margin remained
in line with prior year at 5.3% and adjusted profit
before tax increased by 19.9% (at constant
currency) to £29.1 million. Adjusted profit after
tax increased 19.7% to £22.3 million (2017: 29.9%
to £18.7 million) and adjusted earnings per share
increased 19.3% (2017: 22.7%) to 27.28 pence
(2017: 22.86 pence). Reported profit before tax
was £21.1 million (2017: £18.9 million) and
reported earnings per share increased to 18.5
pence (2017: 17.1 pence).
I am particularly pleased to note that the
Group’s adjusted profit before tax has
doubled in the last three years, from £14.5
million in 2015 to £29.1 million in 2018.
Our business model
Midwich is a specialist distributor serving
only the trade market and specialising
in audio-visual equipment. With initial
operations in the UK, the Group has
expanded its footprint to include Ireland,
Continental European (Benelux, France,
Germany and Iberia, with businesses in
Italy and Switzerland joining the Group
post year-end) and Asia Pacific (Australia,
New Zealand, Hong Kong, Malaysia and
Singapore). The Group has a long-standing
programme of supplementing its organic
growth with the acquisition of smaller
businesses which provide it with access
to new products, sectors and geographical
markets. Our general strategy is to acquire
businesses which not only add to the
Group’s capabilities, but which provide
exciting opportunities for growth and
widen our addressable market. We
continue to have significant success
with this strategy.
We believe that our primary role as a
distributor is to facilitate growth in the
markets in which we operate.
Midwich has an
established track
record of acquiring
complementary
businesses and then
assisting them to grow
significantly.”
We believe that our ability to help our
manufacturer partners to gain access and
grow their businesses in geographical and
vertical markets is a particular strength of
Midwich. This ability often results in a
number of manufacturers wishing to
follow the Group as it enters new markets;
providing us with an ability to rapidly
develop newly acquired businesses.
The Group’s long-standing relationships
with over 400 vendors, including blue-chip
organisations such as Samsung, LG, Epson
and NEC, supports a comprehensive
product portfolio across major audio-visual
categories such as large format displays,
projectors, technical and professional
video, audio and digital signage. The Group
operates as the sole or largest in-country
distributor for many of its vendors in their
respective product sets. We attribute this
position to the Group’s technical expertise,
extensive product knowledge, focused
sales capability and strong customer
service offering built up over many years.
The Group offers a range of support to
our customers, including demonstrating
products, training their staff, providing
technical advice, logistics, and post-sales
support. We have a large and diverse
base of over 17,000 customers, most of
which are professional AV integrators and
IT resellers serving sectors such as
corporate, education, retail, residential
and hospitality. Although the Group does
not sell directly to end users, we believe
that the majority of our products are
used by commercial and educational
establishments rather than consumers.
Midwich has an established track record
of acquiring complementary businesses
and then assisting them to grow
significantly. Over the past five years
around one third of revenue and profit
growth has been derived from acquired
businesses, with the majority of growth
being organic. Between 2006 and 2008
our acquisition strategy was focused
primarily on adding more technical
businesses into the UK segment. From
2009 the focus turned to expanding the
business outside the UK, with a primary
drive to have a presence in the three
largest European AV markets (the UK,
France and Germany) and then expanding
the business further across Europe. The
Group trades as Sidev in France, Kern &
Stelly and New Media in Germany, Earpro
in Iberia, van Domburg in the Benelux,
Prase in Italy, MobilePro in Switzerland
and Square One Distribution in Ireland.
Our businesses in Australia and New
Zealand trade under the Midwich name
and also as Blonde Robot.
A continually evolving and growing
market sector
Our addressable market in professional
audio-visual solutions covers areas such
as sound, video, lighting, display and
projection systems. These solutions are
prevalent and relied upon in many areas
of daily life – at home, in transit, at the
workplace and in a wide range of retail,
leisure and recreational uses. The
application of AV systems is found in
areas such as workplace collaboration,
conferencing and digital signage
solutions, with end users broadly covering
the corporate, events, government,
education, retail, hospitality, healthcare
and residential markets. The increased
use of this technology is being driven by
a number of inter-related factors, such as
an increased pace of both technological
advancements and technology adoption,
changes to working day practices,
continued technology convergence, and
evolving social and consumer trends.
Economic recovery since the global
recession has also been beneficial
for the AV market, albeit even a more
benign corporate and consumer
investment environment failed to
significantly dampen growth in the
market. Fundamentally, we believe
that AV solutions are used to enhance
efficiency or provide organisations with
a competitive advantage – they therefore
have an appeal in periods of economic
growth and more challenging times.
In addition to this increased use of our
core product sets by end users, the recent
trend in the AV market has been towards
increased use by large manufacturers of
distributors as intermediaries in the AV
supply chain, driven by economic factors
(vendors trying to reduce costs and
financial risk) and growth aspirations
(vendors seeking to maximise growth
prospects for expanded product lines
by an increased distribution reach).
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 09
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Managing Director’s Review continued
We acquired New Media in August 2018.
Headquartered in Nuremburg, New Media
is a specialist distributor of broadcast and
professional video products including
cameras, recording hardware, editing
software and accessories. New Media
predominantly serves the German,
Austrian and Swiss markets and is
believed to be the leading distributor of
its kind in this region. After the successful
purchase of Holdan Limited in the UK
in 2016, the acquisition underlines
the Group’s investment in broadcast
technology, which continues to converge
with the traditional market covered in
Germany by Kern & Stelly.
Perfect Sound is a value-added distributor
of professional audio products based in
France and serves predominantly the
French and French speaking Swiss
markets. Headquartered in St Etienne,
Perfect Sound has a particular focus on
the audio integration market, and is a
strong complementary fit with Sidev, the
Group’s French business.
Blonde Robot was acquired shortly before
the year end and is a value-add distributor
of professional video, broadcast and
photography products. Headquartered in
Melbourne, Australia, with subsidiaries
in Hong Kong, Malaysia and Singapore,
Blonde Robot distributes product in a
number of countries across the Asia
Pacific region, including Australia, New
Zealand, Hong Kong, Singapore, Thailand
and Malaysia.
Operational review
The Group operates on a geographical
basis with entities in the relevant
jurisdiction to service the local market.
UK and Ireland
The UK and Ireland segment is our most
established division. We achieved revenue
of £315.8 million, an improvement of 11.3%
compared to last year (2017: £283.7
million), helped by the full year effect of
the acquisition of Sound Technology
Limited in December 2017. Underlying
revenue growth (excluding the effects of
the acquisition in the prior year) was 1.8%
(2017: 5.6%).
The audio, lighting and technical video
product sets grew particularly strongly in
the UK and Ireland segment, as did some
of the more specialist display categories
such as interactive and LED. Such
changes to the product mix in the UK
and Ireland led to an improvement in the
gross profit margin from 16.2% to 17.4%
and an increase in the adjusted operating
profit of 17.2% to £19.6 million (2017: 25.0%
to £16.7 million).
Continental Europe
The Continental European division
comprises our businesses in the Benelux,
France, Germany and Iberia. Post period
end we expanded our Continental
European division to include businesses
in Switzerland and Italy.
We improved revenue by 42.2% in the year
to £222.0 million (2017: 60% to £156.2
million), helped by the full year effect of
the acquisitions of Earpro and Gebroeders
van Domburg in 2017 and New Media and
Perfect Sound in the second half of 2018.
Underlying revenue growth (excluding the
effects of the acquisition in the current
and prior year) was 20.4% (2017: 26.5%).
Revenue in France and Germany
increased by 27% and 23% respectively,
and our Iberian and Benelux businesses,
which were acquired in 2017 contributed
an additional £33.7 million of revenue
in 2018.
KEY EVENTS IN 2018
This year has seen a number of important events for our business, including:
• Continued development of our broadcast and professional video capabilities;
• Expansion of our audio business in the UK and Ireland and France;
• Three acquisitions: Sound Directions (trading as Perfect Sound), Bauer & Trummer
(trading as New Media) and Blonde Robot, which added additional product
specialisms into our French, German and Australasian businesses respectively;
• Entry into the South East Asian market through the acquisition of Blonde Robot;
• Strong full year performance from each of the three businesses acquired in 2017
(Earpro, van Domburg and Sound Technology);
• Recruitment of Stephen Lamb as Group Finance Director; and
• Strengthening of the Group’s central team, which should enable us to acquire and
integrate businesses quicker and more effectively.
10
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
All product categories grew strongly in
Continental Europe, with technical video,
audio and lighting showing the greatest
improvement. The gross margins in each
of these categories are above average
for the division. Overall changes to the
product mix in Continental Europe led to
an improvement in the gross profit margin
from 13.9% to 14.9% and an increase in the
adjusted operating profit of 36.9% to £10.2
million (2017: 51.2% to £7.5 million).
Asia Pacific
Asia Pacific achieved an 11.8% (2017: 25.7%)
growth in sales from £32.1 million to £35.9
million. The gross margin percentage
increased from 17.7% to 18.4% in the year
as a combination of stronger sales and
margins in the displays category, including
particularly interactive and LED displays,
offset to some degree by lower audio
sales. Adjusted operating profit in Asia
Pacific increased by 14% (2017: 60.8%)
from £2.6 million to £2.9 million.
Product offering
The Group distributes and provides
technical support for a comprehensive
range of technologies. The range of
products varies across the geographies,
with the UK and Ireland offering the
largest suite of product options.
Technologies
The Displays category is the largest
technology category for the Group,
accounting for 43.3% of Group revenue
in 2018 (2017: 42.6%). This category grew
23.7% (2017: 30.4%) in the year, with strong
growth in interactive sales across the
Group, large format displays in Germany
and the full year impact of Large Format
Displays (“LFD”) sales in the Benelux
and Iberia.
Projection represented 18.4% of Group
revenue (2017: 22.1%), with sales remaining
broadly flat in the year (2017: growth
17.5%). We believe that the overall
long-term trend is for certain parts of the
projector market to be replaced by LFD.
Sales of technical products, which
include Audio, Broadcast, Lighting, LED
and Technical Video rose by an aggregate
of 54.7% (2017: 80.0%). Audio sales more
than doubled, helped significantly by the
full year impact of the acquisitions of
Earpro and Sound Technology in 2017.
Lighting and LED sales also increased
significantly. Technical Video product
revenue increased in every territory. In
aggregate, these technical product
categories constituted 26.4% of Group
sales in the year (2017: 20.5%), with most
technical product categories enjoying
gross margins in excess of the Group
average. We believe that our technical
expertise, focus and scale mean that the
Group is the defacto distributor of choice
for customers and vendors involved in
complex, technically challenging projects.
Summary of Group strategy
The Group’s growth strategy has been,
and continues to be, both organic and
inorganic. Our success in sourcing,
executing and integrating our chosen
acquisitions underpins this growth strategy.
The Group takes a disciplined approach to
acquisitions, seeking to add capital value
without an adverse impact on the existing
business. We have a strong ongoing
pipeline of opportunities.
Our overall strategy focuses on:
• technology, product and vendor
selection in established markets, in
order to maximise the value we can
add to customers;
• gaining profitable market share in
developing markets; and
• identifying profitable new markets
(whether geographical, customer or
technology) which the Group can
enter, either through acquisition or
through a new start-up.
Outlook
We continue to see exciting growth
opportunities across all of our markets
and geographies driven by increasing
demand from end users as well as
continued innovation and new products
from our manufacturer partners. There
is also a continued trend in the increasing
use and need for high quality distributors
such as Midwich to support the
professional AV market. As a result, we
continue to exploit a significant number
of organic growth opportunities from
targeting new vendors while continuing
to grow our customer base.
We are pursuing acquisition opportunities
that would fit within our strategic focus of
adding new product ranges, capabilities
or geographies to our existing portfolio.
Shortly after the year end we established
a presence in Switzerland through the
acquisition of MobilePro and entered
the Italian market through the acquisition
of Prase.
The Board is continuing to pursue its
established strategy and is pleased with
the progress made during 2018. Trading
in the first two months of 2019 has built
on the good growth we saw through
last year, giving the Board confidence
in delivering 2019 performance in line
with its existing expectations.
Stephen Fenby
Group Managing Director
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
11
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Corporate Social Responsibility
COMMITMENT TO OUR PEOPLE,
LOCAL COMMUNITIES AND
ENSURING A SUSTAINABLE
ENVIRONMENT
We take our social responsibility
seriously and this year have
chosen to include information
about how we engage with our
people, environment and local
communities. We are committed
to behaving in a way that is
beneficial to all stakeholders.
• Giving our best
• Empathy and respect
• Cooperation and engagement
• Continuous improvement
• Trustworthiness
• Open communication
• Fairness
Our People
The nature of our business, as a value-
adding distributor, means expertise and
people skills are at the core of what we
do and how we maintain our competitive
advantage. Having a people-oriented
ethos, where team work and commitment
are recognised, is central to the success
of our strategy. We are committed to
developing and supporting our staff
across all Group companies and we
pride ourselves on our home-grown
talent, with a significant number of our
senior managers having built their
careers from within the Group.
We strive to create the best possible
working environment for our workforce,
which in turn allows our people to deliver
an outstanding service to our external
stakeholders. Continued investment in
our people’s technical expertise, extensive
product knowledge, working culture and
strong customer service offering sets us
apart. We believe that supporting growth
and development of individuals, helps us
attract and retain talented people, at all
levels within the Group.
The Group is committed to promoting a
strong ethical and values driven culture
throughout the organisation. We have
developed and continually communicate
a set of values that we consider important
to success:
We understand that our people need to
enjoy what they do. We recognise those
who demonstrate our values both
informally and through recognition
schemes. We also believe in our
employees participating in the ownership
of the Group. Our directors and employees
owned over 40% of our share capital at
the end of December 2018. For each of
the last three years we have awarded free
shares to eligible employees across
our geographies, with approximately
400,000 free shares being awarded to
515 employees since our IPO in 2016.
When we welcome new companies to
the Group through acquisition, we take
particular care to plan the integration in
a way that blends the culture and values
of the acquired businesses with those of
the Group. We run a robust onboarding
process, so that newly acquired
businesses have a clear understanding
of the key activities and processes
required for a smooth transition into the
Group, but we also appreciate that each
business has its own character. We have
invested in our integration capabilities
and believe that our approach accelerates
an acquired business’s growth whilst
remaining sensitive to its values. We have
found time and time again, that when
we seek to acquire a business, we are
searching for partnerships where we
have a natural cultural fit and a matched
outlook in terms of how we behave – this
approach has served us well.
Midwich recognises wellbeing and mental
health as paramount to a happy working
environment and we back this up with an
extensive package of staff benefits and
professional support services. In 2018,
we strengthened our support offering
by training some of our employees as
mental health first aiders. We are now
better positioned to provide initial support
to a colleague who may be experiencing
a mental health issue and guide them
towards appropriate treatment and other
sources of help.
In 2018, Midwich Limited celebrated
winning Distributor of the Year at the
industry’s leading awards ceremony,
the AV Awards. It is the first company
to win this prestigious award for three
consecutive years. The team also
celebrated winning the ‘Best Company
to work for’ award at the CRN Sales and
Marketing Awards.
Kern & Stelly won three manufacturer
awards in 2018, including, SMART’s
Distributor of the year 2018 (EMEA),
ATLONA’s Distributor of the year 2018
(worldwide, outside the US) and Legrand’s
Distributor of the Year.
In Spain, Earpro celebrated Harman’s
EMEA 30 Year Anniversary Award.
We place great emphasis on providing
an environment where our people can
develop their skills and enhance their
knowledge. Over the last few years we
have invested in a variety of programmes
to enhance our talent and skills base. For
example, in the UK, we operate a variety
of programmes to help develop the
technical, leadership and personal skills
of our team. We believe that the success
of our internal talent programmes has
resulted in a high proportion of senior
management having developed their
careers within the business.
12
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Our environment
We are conscious of our broader
environmental responsibilities and
are taking positive steps towards
environmental good practice.
We are focused on improving our energy
efficiency, reducing packaging, managing
our waste responsibly and reducing
our carbon emissions. For example, as
a distributor of video conferencing
(VC) equipment, we have utilised this
technology across our Group by installing
VC capabilities in each meeting space,
which has meant colleagues have
reduced the need to travel for meetings.
We are conscious of our
broader environmental
responsibilities and are
taking positive steps
towards environmental
good practice.”
Our activities do not stop there. In addition
to ensuring we make the best use of our
own technology, we also have a number
of initiatives taking place across the globe
further enhancing our ‘sustainability for
the future’ mentality, including but not
limited to:
• Midwich Australia joined the Australian
Packaging Covenant Association during
the year. The association provides
initiatives to reduce the harmful effects of
packaging on the Australian environment.
• In France, Sidev has implemented
schemes for WEEE collect and
payment; paper recycling and cartridge
ink recycling. In our French offices we
are discouraging the use of plastic and
encourage healthier lifestyles including
giving staff access to free fruit.
• Having reviewed the energy efficiency
of their offices, Holdan and Sound
Technology, both based in the UK,
installed Solar panels, LED efficient
lighting and motion lighting to reduce
their electricity consumption.
• In Germany, Kern & Stelly introduced
healthy organic snacks into the office
for employees and is championing
the reduction of the use of paper
through better processes as part of
their “green” office initiative.
These are examples of how our Group
companies are taking steps towards a
more sustainable working environment.
Better waste management and minimising
our use of resources across the
businesses will be a strong focus over
the next twelve months.
Our local communities
To promote our ethical values, we actively
encourage and support community
involvement. We are dedicated to making a
real difference to the communities in which
we operate across the Group. We also
respect and value the things that make our
people individuals and we are committed
to creating a culture of inclusion.
Our teams regularly engage in volunteering
and fundraising. In return, we support our
people by providing time off and support
to facilitate work in the community.
Our head office operates an in-house
Charity Committee whose purpose is to
raise awareness and funds for our chosen
charities and employee members are
proud to choose a local charity to support
every two years. In 2017/2018, our UK
employees chose to support a local
charity called Nelson’s Journey. This
charity supports children and young
people, living in Norfolk (UK), who have
experienced the death of a significant
person in their life, helping them to move
forward positively. Over the two-year
period, staff have raised donations
through an enjoyable series of fundraising
events, ranging from sporting events,
silent auctions, quiz nights, community
raffles and cake baking through to more
daring events such as sky diving. For the
2017–18 years, staff based at our head
office raised an impressive £45,834 for
Nelson’s Journey.
We are also getting involved around the
globe in supporting our local communities
and have some fantastic examples of how
we are really making a difference to those
around us. We are happy to raise donations
through a range of creative activities, whilst
having fun along the way. These can range
from ‘happy waffle days’ to charity golf
days and cycling challenges.
• In Midwich Australia, there has been
increased focus on autism awareness,
especially in children, which has
resulted in campaigns to support
the ongoing funding of the ‘national
disability insurance scheme’ for those
affected, as well as appearance on
national TV and newspapers further
promoting autism awareness. We have
also supported other charities including
‘Can Teen’ (teenagers with cancer),
Puka Up and the McGrath Foundation.
• In Kern & Stelly in Germany, we invited
our employees to support homeless
people by donating small product
packages. Further charities that have
been supported have included ‘Save
the Children’ and ‘The last Wish’, which
provides donations for the elderly or
very sick people, where we can help
fulfil one of their last wishes.
• Within our Spanish office, Earpro
have brought together the power
of donations and social media, by
associating donations with the number
of ‘likes’ they receive (€1 for each like).
This activity has supported fund raising
for ‘Fundacion Pequeno Deseo’ in
Spain and ‘Make a Wish’ in Portugal.
In addition, Earpro support a foundation
called ‘Fundacio Ginesta’ which offers
services to companies working with
people with disabilities.
• Sound Technology in the UK has
committed to supporting children
through an education focus by donating
musical instruments to local schools,
encouraging children to play with
instruments, which are often out
of reach for many due to cost. In
addition, directors and senior staff
are encouraged to become involved
in charities within the music sector.
The MD and FD are trustees for ‘Music
for Youth’ which is a registered charity
with the aim of providing events which
allows children the opportunity to
perform. The charity targets schools
in areas of hardship, those who may be
outside the reach of normal education
channels and special schools for
children with learning disabilities.
• Within our Holdan office in the UK, we
support ‘Prevent-UK’ which is a charity
that works with young children to ensure
they are given the best support through
education for issues such as substance
abuse, crime and Internet safety.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 13
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Key Performance Indicators
HOW WE
PERFORMED
COUNTRIES WITH A PRESENCE1
2018
2017
2016
6
14
11
REVENUE GROWTH
2018
2017
2016
21%
24%
15%
GROSS PROFIT MARGIN
2018
2017
2016
CASH FLOW CONVERSION
2018
2017
2016
45%
16.5%
15.5%
15.3%
92%
83%
1. After the year end we entered two new countries (Switzerland and Italy)
taking the total countries with a presence to sixteen.
14
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Countries with a presence
Why it is measured?
Geographic footprint is an indicator of scale and the
opportunity to further grow revenue by supporting our
customers and vendors in their international growth.
Comment
The Group continued to increase its international
presence in 2018, both broadening its product range
with further acquisitions in France and Germany and
starting trading in Asia (from Hong Kong, Malaysia and
Singapore) through the acquisition of Blonde Robot.
Revenue growth (at constant currency)
Why it is measured?
Revenue growth (at constant currency) is often an
indicator of the health of the Group. It may indicate
the Group is participating in a growing market or has
gained market share, or both.
Comment
The Group continued to grow strongly in 2018 with
organic growth in all regions and a strong contribution
from acquisitions made in 2017 and 2018.
Gross profit margin
Why it is measured?
An increase in gross profitability would suggest an
improved competitive positioning from year to year
either through carrying a greater range of products
that require a technical sale, stronger relations with
customers and vendors, or greater buying power, or
a combination of each.
Comment
2018 continued our record of increasing gross margin.
The 2017 acquisitions in Iberia, Benelux and the UK
were beneficial as they boosted the proportion of
high margin Professional Audio and Professional
Lighting sales.
Cash flow conversion
Why it is measured?
Cash flow conversion measures the ability of the
Group to generate cash from its operations as a
function of turning stock to sales to cash quickly.
It gives an indication as to the ability of the Group
to pay its dividend and self-fund investments.
Comment
2018 was a very strong year for cash flow conversion
with the majority of Group entities contributing to the
overall picture.
A very strong close to
the year which resulted
in an operating cash
conversion ahead of our
longer-term average.”
STEPHEN LAMB
Group Finance Director
Financial Review
ANOTHER YEAR OF
STRONG GROWTH
Summary
We achieved further strong growth in 2018 with revenue
increasing by 21.6% to £573.7 million (2017: £471.9 million).
Excluding the impact of acquisitions and currency movements,
organic revenue growth was 8.7% (2017: 11.9%). Our gross profit
margin increased by 1.0% (2017: 0.2%) to 16.5% (2017: 15.5%).
The £5.2 million (2017: £6.5 million) additional adjusted operating
profit was an increase of 20.9% at constant currency (2017: 31.3%)
year on year. Operating profit before adjustments grew from
£20.8 million to £24.7 million.
Statutory financial highlights
Year to 31
December
2018
£m
Year to 31
December
2017
£m
573.7
94.6
24.7
21.1
15.3
18.53
471.9
73.1
20.8
18.9
14.0
17.06
Total
growth
%
21.6%
29.3%
18.9%
11.5%
9.3%
8.6%
Revenue
Gross profit
Operating profit
Profit before tax
Profit after tax
Basic EPS – pence
Adjusted financial highlights1
Year to 31
December
2018
£m
Year to 31
December
2017
£m
Total
growth
%
Growth at
constant
currency
%
573.7
94.6
471.9
73.1
21.6%
29.3%
21.4%
29.2%
16.5%
15.5%
30.2
25.0
20.8%
20.9%
29.1
22.3
24.3
19.7%
19.9%
18.7
19.7%
19.8%
27.28
22.86
19.3%
Revenue
Gross profit
Gross profit
margin %
Adjusted
operating profit
Adjusted profit
before tax
Adjusted profit
after tax
Adjusted EPS
– pence
1 Definitions of the alternative performance measures are set out on page 60.
Currency movements had a limited impact across the Group in
2018. On a constant currency basis, growth in revenue was 21.4%
(2017: 24.2%) and growth in adjusted profit after tax was 19.8%
(2017: 26.4%).
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 15
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Financial Review continued
Segmental reporting
The Board has taken the decision to amend
the presentation of segmental information
to more closely fit the management
structure of the Group. Accordingly, our
mainland European businesses have now
been amalgamated for presentation
purposes into Continental Europe.
Following our investment in Blonde Robot,
which has a presence in both Australia and
South East Asia, our Australasia region has
been renamed Asia Pacific (‘APAC’). Group
costs have also been separated from the
UK and Ireland segment.
Each of the trading segments performed
strongly.
UK & Ireland
Year to 31
December
2018
£m
Year to 31
December
2017
£m
Revenue
315.8
283.7
Adjusted operating
profit
19.6
16.7
The UK and Ireland segment revenue grew
11.3% (2017: 14.9%) to £315.8 million (2017:
£283.7 million) generating gross profit of
£54.9 million (2017: £45.8 million) at a gross
profit margin of 17.4% (2017: 16.2%). This
resulted in an adjusted operating profit
of £19.6 million (2017: £16.7 million), an
increase of 17.2% (2017: 25.0%) on the prior
year. Organic revenue growth excluding
the effects of acquisitions in the current
and prior period was 1.8% (2017: 5.6%).
Continental Europe
Year to 31
December
2018
£m
Year to 31
December
2017
£m
Revenue
222.0
156.2
Adjusted operating
profit
10.2
7.5
The Continental Europe segment revenue
grew 42.2% (2017: 59.9%) to £222.0 million
(2017: £156.2 million). Gross profit
increased to £33.1 million (2017: £21.6
million) at a gross profit margin of 14.9%
(2017: 13.9%) leading to an adjusted
operating profit of £10.2 million (2017: £7.5
million) that has increased 36.9% (2017:
51.2%) on the prior year. In constant
currency, revenue grew by 40.5% (2017:
49.5%) and adjusted operating profit grew
35.6% (2017: 41.7%). Organic revenue
growth, excluding the effects of
acquisitions in the current and prior
period, increased by 20.4% (2017: 26.5%).
was 18.53p (2017: 17.06p), representing
growth of 9% (2017: 56%). Diluted EPS was
18.36p (2017: 17.0p). Adjusted EPS grew
by 19.3% (2017: 22.7%) to 27.28 pence
(2017: 22.86 pence).
Asia Pacific
Year to 31
December
2018
£m
Year to 31
December
2017
£m
Revenue
Adjusted operating
profit
35.9
2.9
32.1
2.6
The Asia Pacific segment revenue grew
11.8% to £35.9 million (2017: £32.1 million)
generating gross profit of £6.6 million
(2017: £5.7 million) at a gross profit margin
of 18.4% (2017: 17.7%). This has resulted in
an adjusted operating profit of £2.9 million
(2017: £2.6 million), an increase of 14.0%
(2017: 60.8%) on the prior year. In constant
currency, revenue grew by 18.0% (2017:
17.4%) and adjusted operating profit grew
20.4% (2017: 50.0%). Organic revenue
growth, excluding the effects of
acquisitions in the current and prior
period, increased by 13.4% (2017: 17.4%).
Group costs
Group costs for the year were £2.5 million
(2017: £1.7 million). The increase reflects
additional investment in legal, compliance,
information technology and acquisition and
business integration capabilities to support
the Group’s growth strategy.
Profit before tax
Profit before tax for the year increased
by 11.5% (2017: 56.2%) to £21.1 million
(2017: £18.9 million), while adjusted
profit before tax increased by 19.9%
(2017: 31.9%), at constant currency, to
£29.1 million (2017: £24.3 million).
Tax
The adjusted effective tax rate was 23.3%
in 2018, representing a small increase on
2017 (23.2%) which reflects an increase
in the mix of profits arising in higher
tax jurisdictions.
Earnings per share
Basic earnings per share is calculated on
the total profit of the Group attributable
to shareholders. Basic EPS for the year
Dividend
The Board has recommended a final
dividend of 10.60p per share (2017: 9.65p)
which, together with the interim dividend
of 4.60p paid in October 2018 gives a final
dividend of 15.20p for 2018 (2017: 13.82p).
If approved by shareholders at the general
meeting, the final dividend will be paid on
21 June 2019 to those shareholders on the
register on 17 May 2019.
Cash flow
Year to 31
December
2018
£m
Year to 31
December
2017
£m
Adjusted operating
profit
Add back
depreciation
Adjusted EBITDA
Increase in adjusted
stocks
Increase in adjusted
debtors
Increase in adjusted
creditors
Adjusted cash flow
from operations
EBITDA cash
conversion
30.2
2.5
32.7
25.0
1.8
26.8
(9.4)
(7.2)
(3.2)
(12.0)
10.0
30.1
14.7
22.3
91.9%
83.4%
The Group’s adjusted operating cash
flow conversion, calculated comparing
adjusted cash flow from operations with
adjusted EBITDA, increased to 91.9%
compared to 83.4% for the prior year.
The performance for the current year
reflected a very strong close to the
year and resulted in an operating cash
conversion ahead of our longer-term
average of between 70–80%.
Gross capital spend on tangible assets
was £2.4 million (2017: £3.1 million).
Rental assets accounted for £1.3 million
(2017: £2.2 million) of this spend. Capital
expenditure on plant and equipment was
£1.0 million (2017: £0.9 million). Intangible
asset additions in 2018 include £0.6 million
(2017: nil) in relation to the Group’s new
ERP solution.
16
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Net debt
At 31 December 2018, the Group had net
debt of £25.7 million (2017: £22.3 million).
The Group has a strong balance sheet
with closing net debt/adjusted EBITDA
ratio of 0.8 (2017: 0.8). This, combined
with the Group’s underlying cash
generation, equips the Group well to
fund short term swings in working capital
as the Group delivers organic growth
as well as continue to pursue accretive
acquisitions. Year-end borrowings of
£42.4 million (2017: £50.5 million) compare
to facilities totalling £92 million (2017: £73
million) at that date. During the year the
Group added a £15 million revolving credit
facility to support its buy and build
acquisition strategy where appropriate
opportunities arise. This was increased
to £20 million after the year end.
During the year the
Group added a £15
million revolving credit
facility to support its
buy and build
acquisition strategy.”
Goodwill and intangible assets
The Group’s goodwill and intangible assets
of £36.0 million (2017: £31.4 million) arise
from the various acquisitions undertaken.
Each year the Board reviews goodwill for
impairment and, as at 31 December 2018,
the Board believes there are no indications
of impairment. The intangible assets arising
from business combinations, for exclusive
supplier contracts, customer relationships
and brands, are amortised over an
appropriate period.
Working capital
Working capital management is a core
part of the Group’s performance. At 31
December 2018, the Group had working
capital (trade and other receivables plus
inventories less trade and other payables)
of £59.8 million (2017: £54.7 million). This
represented 10.4% of current year
revenue (2017: 11.6%).
Adjustments to reported results
Operating profit
Acquisition costs
Share based payments
Employer taxes on share based payments
Amortisation
Adjusted operating profit
Profit before tax
Acquisition costs
Share based payments
Employer taxes on share based payments
Amortisation
Finance costs – deferred and contingent consideration
Finance costs – put option
Adjusted profit before tax
Profit after tax
Acquisition costs
Share based payments
Employer taxes on share based payments
Amortisation
Finance costs – deferred and contingent consideration
Finance costs – put option
Tax impact
Adjusted profit after tax
Profit after tax
Non-controlling interest
Profit after tax attributable to owners of the Parent Company
2018
£000
24,747
365
1,120
221
3,792
30,245
2017
£000
20,809
336
551
118
3,230
25,044
21,077
18,898
365
1,120
221
3,792
2,219
311
336
551
118
3,230
(81)
1,257
29,105
24,309
15,285
13,979
365
1,120
221
3,792
2,219
311
(981)
336
551
118
3,230
(81)
1,257
(726)
22,332
18,664
15,285
(561)
14,724
13,979
(422)
13,557
Number of shares for EPS
Reported EPS – pence
Adjusted EPS – pence
79,448,200
79,448,200
18.53
27.28
17.06
22.86
The directors present adjusted operating profit, adjusted profit before tax, and adjusted
profit after tax as alternative performance measures in order to provide relevant
information relating to the performance of the Group. Adjusted profits are a reflection
of the underlying trading profit and are important measures used by directors for
assessing Group performance. The definitions of the alternative performance
measures are set out on page 60.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 17
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Principal Risks
PRINCIPAL RISKS
Dependence on key personnel
The Group is dependent upon key senior
management personnel who have
extensive experience and knowledge of
the Group, the Group’s markets, product
and service offering, vendor portfolio and
customer base. The successful delivery
of the Group’s strategy depends on
the continuing availability of senior
management and the Group’s ability
to attract, motivate and retain other
qualified employees.
The Group actively measures the
retention of talent within the business,
actively engages with employees by
focusing on training and development
and conducts an annual assessment of
remuneration packages to ensure market
position is maintained. In addition, the
Group has adopted share plans to align
the interests of senior management and
the broader employee workforce with
those of Shareholders.
The Board has made succession planning
a key agenda item.
Expected benefits from acquisitions
may not be realised
The Group intends to continue executing
its strategy of entering new jurisdictions
through carefully targeted acquisitions.
The Group also intends to pursue targeted
acquisitions in its current markets in order
to bolster product offerings and sector
penetration, increase scale and to gain
access into new market segments.
Acquisitions give rise to inherent execution
and integration risk. The process of
integration may produce unforeseen
operating difficulties and expenditures,
and may absorb significant attention of
the Group’s management. They also may
involve unforeseen liabilities, difficulties
n realising costs or revenues, loss of key
employees and customer relationship
issues. A poorly implemented acquisition
could damage the Group’s reputation,
brand and financial position.
The Group only enters into acquisitions
after a thorough due diligence exercise
which will involve a detailed review of
operational resource, financial trends and
forecasts, as well as a thorough analysis
of the target’s compliance record.
Numerous personal visits to the target
will take place in order to establish the
viability of accommodating it and its
senior management into the Group.
The structure of most acquisitions will
involve a significant financial incentive
for departing shareholders to perform
toward certain financial targets in the
first three years after acquisition in order
to maximize their disposal value.
Full business appraisal and diligence
reports are prepared and presented to
the Board.
Loss of key customers
Most of the Group’s customers contract
with the Group on a deal by deal basis
with no formal ongoing purchasing
commitment. As such they have a
voluntary right to terminate their
contractual relationships with the Group
without notice or penalties. There is
therefore a lack of certainty in respect of
the retention of existing customers who
may elect not to continue contracting with
the Group.
The Group does have a very large
customer base of over 17,000 AV
integrators and IT resellers many of whom
have long-term relationships with it. The
diversity of the Group’s customer base is
demonstrated by the fact that no
customer accounted for more than 2.0%
(2017: 2.0%) of overall Group revenues for
the year ended 31 December 2018. By
providing a best in class service in terms
of stock availability, logistics and credit
capacity, the Group intends to continue
to keep our customer base satisfied.
Loss of key vendors
There is no formal ongoing contractual
commitment to the Group by the majority
of vendors. As such they have a right to
terminate their contractual relationships
with the Group without notice or penalties.
In addition, certain vendors provide the
Group with incentives in the form of
rebates, marketing developments funds,
early payment discounts and price
protections which enable the Group to
manage profitability. There can be no
assurance that the Group will continue to
receive the same level of income in future.
Many of the Group’s vendor relationships
are long-term, established and now cover
a number of territories. By bringing projects
to our vendors and enabling them to fulfil
their market share aspirations the Group will
continue to maintain strong relationships
with its vendors.
Regulatory risk
The Group is subject to an increasingly
complex regulatory environment. A failure
to follow regulatory laws, orders and
codes of practice requirements will
expose the Group to regulatory sanction
and subsequent reputational damage.
The Group has defined policy statements
which articulate the protocols adopted to
minimise the risk of a breach. Staff training
takes place on a regular basis to ensure
behavioural alignment with these policies.
Acquired businesses are subject to a post-
acquisition onboarding process which
includes improvement of compliance
protocols where necessary. The Board is
regularly updated on compliance matters.
This includes a full review across the
Group on an annual basis.
Brexit uncertainty
The Group operates across multiple
geographies and relies on the availability
of physical goods, the majority of which
are manufactured outside of the European
Union (“EU”), but distributed within the EU
by its vendors. A “hard” Brexit could lead
to disruption in the availability of goods to
the Group’s UK and Ireland businesses
(55% of Group revenue in 2018).
The Board is monitoring Brexit risks and
reviewing action plans, although the
outcome of Brexit negotiations is currently
subject to a high degree of uncertainty.
In the short-term, disruption to the supply
of products could affect the ability of UK
and Ireland operations to meet customer
demand. The UK business expects to hold
approximately two months’ inventory at the
time of Brexit and is working closely with
key vendors to maintain availability of goods
during any initial post-Brexit disruption.
Longer-term risks include tariffs and
divergence of regulation and standards
between the UK and the EU. Whilst the
range of tariffs for our principal products
under World Trade Organisation rules
is from 0% to 14%, the average tariff is
approximately 1.5%. This is expected to
affect the wider AV industry consistently.
The Group is, and will continue to, work
closely with its vendors to minimise any
Brexit related disruption.
The Group currently services its
Republic of Ireland business from the
UK. Following a review of alternatives,
this model is expected to continue,
18
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
although direct EU to Ireland options
will be evaluated in the event of material
tariffs or permanent disruptions to the
UK to Ireland supply chain.
The Group’s European businesses each
operate locally, with export sales from
the UK to Continental Europe representing
less than 5% of UK revenue. There are no
significant dependencies on migrant
labour, cross border financing or
centralised infrastructure.
Based on the Board’s review of the
current Brexit risks the directors do not
believe, at this time, that Brexit will result
in any impairment of Group assets or
materially impact the Group’s ability to
continue as a going concern.
There is an analysis of the key financial
risks facing the Group in the Directors’
Report.
The Strategic Report comprising the
Chairman’s Statement, Managing
Director’s Review and Financial Review
was approved by the Board on 11 March
2019 and signed on its behalf by:
Andrew Herbert
Chairman
EPSON 15,000 LM USED FOR
WORLD FIRST AT STONEHENGE
Projection mapping specialists
Motion Mapping has made history
by bringing prehistoric monument
Stonehenge to life with a spectacular
video projection display for a show by DJ
Paul Oakenfold. The Midwich group is
pleased to work with Motion Mapping,
who delivered a stunning digital display
that dazzled the select group of guests
as the sun set.
PSCo was the selected partner to support
the product supply/selection for this
project.
Motion Mapping used a combination of
Epson’s EB-L1755u projectors with the
U03 lens for the stones and paired with
the W05 for the DJ booth. The size of the
projectors along with their brightness was
an ideal match for the show which relied
on only one team member to move them.
As the sun set and darkness fell, all
challenges had been overcome and the
projections created a hypnotic, almost
spiritual event as the bright spotlights
danced on the surfaces of the rock.
We had the huge
responsibility of
transforming
Stonehenge artistically
like never before,”
Stuart Harris
Owner and creative director,
Motion Mapping.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 19
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Board of Directors
EXPERIENCED
MANAGMENT
Experience
ANDREW HERBERT (59)
Non-Executive Chairman
STEPHEN FENBY (55)
Group Managing Director
Andrew was Group Finance Director of
Domino Printing Sciences plc from 1998
until the sale of the company to Brother
Industries in 2015. He joined the business
in 1986 and held senior finance, operational
and general management roles prior to
joining the Board of Domino Printing
Sciences plc. He has extensive experience
of managing profitable growth in a global
business, including acquisition and
disposal strategy and line management
of overseas subsidiaries.
After qualifying as a Chartered Accountant
with Ernst & Young, Stephen joined Deloitte
and worked for 16 years in the corporate
finance team, latterly in the Cambridge
office. Stephen joined Midwich as Finance
Director in 2004 and became Managing
Director in 2010. He has led the Group’s
acquisition and development programme.
Qualifications and
External Responsibilities
Andrew has a BA in Business Studies from
Hatfield Polytechnic and is a Fellow of the
Chartered Institute of Management
Accountants.
He is also a non-executive director of
Xaar plc.
Stephen has a BSc in Accounting and
Financial Analysis from the University of
Warwick and is an associate of both the
Institute of Chartered Accountants in
England and Wales and the Chartered
Institute of Management Accountants.
2020
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
STEPHEN LAMB (45)
Group Finance Director
MIKE ASHLEY (51)
Non-Executive Director
HILARY WRIGHT (59)
Non-Executive Director
Stephen joined Midwich as Group Finance
Director in July 2018. He has over 20
years’ experience in finance, working
in high growth, international business
services organisations. Before joining
Midwich, Stephen was the International
CFO at Iron Mountain Inc, supporting
the profitable and cash generative
development of the International
business. He has held senior financial
positions at IWG plc (CFO, Europe) and
Experian plc (Group Director of FP&A, FD,
Decision Analytics and CFO, Asia Pacific).
Mike is currently the Chief Commercial
Officer (“CCO”) of the P&H division of
Travis Perkins plc, having originally
joined this group in 2014 as CCO of
its retail business Wickes. Prior to this
Mike led the turnaround of Harvard
International plc (formerly Alba plc) as
Chief Executive Officer, culminating in
the successful sale to a listed Chinese
consumer electronics business. Mike was
a member of the Executive Board for five
years with 30 months as Chief Executive
Officer, experiencing and driving several
corporate transactions.
Hilary is currently the Group HR Director
of Domino Printing Sciences plc which
she joined in 2016. Her background was
formed in retailing and more latterly
with Cambridge based engineering and
technology companies where she has
gained her global experience as well as
involvement in a number acquisitions.
She has held both strategic and operation
roles and devised and led the HR direction
for significant global growth (ensuring
people development, succession planning
and talent acquisition are aligned for
transformational change).
Mike has extensive retail and consumer
experience through senior commercial,
marketing and strategic roles at Boots,
Argos and Dixons Retail Group.
Stephen has a BA in Economics and
Econometrics from the University of
Nottingham and is a Fellow of the
Institute of Chartered Accountants
in England and Wales.
Mike completed retail MBA modules at
Manchester Business School sponsored
by Home Retail Group.
Hilary is a Fellow of the Chartered Institute
of Personnel and Development.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 2121
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Chairman’s Statement on Corporate Governance
THE BOARD CONSIDERS
SOUND GOVERNANCE TO BE
AN ESSENTIAL ELEMENT OF
A WELL-RUN BUSINESS AND
HAS FOLLOWED THE QUOTED
COMPANIES ALLIANCE (QCA)
GUIDELINES SINCE IPO.
ANDREW HERBERT
Chairman
In line with the recent changes to the AIM Rules, we
have now formally adopted the updated QCA code as
our benchmark for governance matters. The statement
of compliance with the QCA Corporate Governance
Code was formally adopted by the Board on 11
September 2018 and is available on the Company’s
website.
My role as Chairman of the Board remains separate to, and independent
of, that of the Chief Executive (Group Managing Director) and we both
have clearly defined and separate responsibilities. Details of the
responsibilities of all directors along with matters reserved for the Board
and terms of reference for all the committees of the Board can be found
on the Company’s website.
The Board is comprised of three independent non-executive directors
(including the Chairman who was independent upon appointment)
and two executive directors. The Board is satisfied that it has a suitable
balance between independence and knowledge of the business to
allow it to discharge its duties and responsibilities effectively.
Executive directors hold service contracts with a nine-month notice
period. Non-executive directors’ letters of appointment were updated
in March 2019 and included a three-month notice period on each side.
All directors retire and submit themselves for re-election each year at
the Company’s Annual General Meeting.
The post of Company Secretary is presently held by an executive
director. The Board considers that the size and nature of the Company
means that the two roles can be carried out effectively by the Group
Finance Director. The position is kept under review.
The Board maintains a regular dialogue with Investec, the Company’s
nominated adviser, and obtains other legal and financial advice as
necessary to ensure compliance with the AIM Rules and other
governance requirements.
We continue to review our approach to governance and how the views
of stakeholders are represented in our oversight of the business. To that
end, I continue to meet with shareholders as necessary. Feedback on
both operational and governance matters from those meetings
continues to form part of the Board’s agenda.
We take our social responsibility seriously and this year have chosen to
include information (page 12) about how we engage with our people, our
environment and our local communities. We are committed to behaving
in a way that is beneficial to all stakeholders.
There have been a number of regulatory and government initiatives
introduced in recent years to which the Company has responded.
These include implementation of the General Data Protection
Regulation 2016 (“GDPR”), the Modern Slavery Act 2015, the Equality Act
2010 (Gender Pay Gap Information) Regulations 2017, the 2016 Finance
Act requirement to publish our tax strategy and AIM’s requirements to
formally adopt a recognised corporate governance code. Information
on the policies and, where appropriate, the performance of the Group
is available on the Company’s website.
2222
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Andrew Herbert
Chairman
Corporate Governance Report
The Board met in person eight times during the year and held a
number of meetings by telephone to consider specific matters.
The Board receives a full pack of reports in advance of each
scheduled meeting detailing Group and entity trading
performance and containing individual reports from each of
the executive directors and local management. During 2018
the Board also received presentations from operational
management on topics including business unit strategy, HR
and succession planning, tax strategy, IT systems and cyber
security, and acquisition proposals.
Alongside monitoring operational performance, it is the Board’s
responsibility to formulate, review and approve the Group’s
strategy, investments (including acquisitions), budgets and major
items of expenditure.
Board committees
The Board has established three committees, (Audit,
Nominations and Remuneration), each having written terms
of reference which are available on the Company’s website.
Attendance at board and committee meetings
Board meetings are scheduled in advance for each calendar
year. The scheduled board meetings and attendance during
the twelve months ended 31 December 2018 were as follows:
Board
meetings
Audit
Remuneration
Nomination
Andrew Herbert
(Chairman)
Mike Ashley
Hilary Wright1
Stephen Fenby
Anthony Bailey2
Stephen Lamb3
8
8
7
8
4
4
3
3
3
5
5
4
2
2
2
2
1 Hilary Wright was appointed on 9 March 2018 and attended all board and
committee meetings from that date.
2 Anthony Bailey left the role of Group FD and resigned as a director from
30 June 2018.
3 Stephen Lamb was appointed on 26 July 2018 and attended all board
meetings from that date.
Audit Committee
The Audit Committee consists of the non-executive directors
and is scheduled to meet at least three times a year. Andrew
Herbert is the Chairman of the Audit Committee having a
relevant background. The current terms of reference of the
Audit Committee were published in May 2016. Hilary Wright
was appointed to the Audit Committee upon joining the Board.
No change was made to those terms of reference during 2018.
The main roles of the Audit Committee are:
• to monitor the integrity of the financial statements of the
Company, including its annual and half-yearly reports and
trading updates;
• to review and challenge where necessary the consistency of,
and any changes to, accounting policies both on a year on
year basis and across the Company/Group;
• to keep under review the effectiveness of the Company’s
internal controls and risk management systems; and
• to consider and make recommendations to the Board, to be
put to shareholders for approval at the AGM, in relation to the
appointment, re-appointment and removal of the Company’s
external auditor.
Nominations Committee
The Nominations Committee consists of the non-executive
directors and the Group Managing Director and is scheduled to
meet at least once a year. Andrew Herbert is the Chairman of the
Nominations Committee. The current terms of reference of the
Nominations Committee were published in May 2016 and remain
unchanged. Hilary Wright was appointed to the Nominations
Committee upon joining the Board.
The main roles of the Nominations Committee are:
• to lead the process for Board appointments and make
recommendations to the Board;
• to evaluate the structure, size and composition of the Board
(including the balance of skills, knowledge and experience);
• keep under review the leadership needs of the organisation,
both executive and non-executive; and
• be responsible for identifying and nominating for the approval
of the Board, candidates to fill Board vacancies as and when
they arise.
Remuneration Committee
The Remuneration Committee consists of the non-executive
directors and is scheduled to meet at least three times year.
Mike Ashley is the Chairman. The current terms of reference
of the Remuneration Committee were published in May 2016.
No changes were made to these terms of reference during 2018.
Hilary Wright was appointed to the Remuneration Committee
upon joining the Board.
The main roles of the Remuneration Committee are:
• to determine the framework and broad policy for setting
remuneration for the Group Managing Director (chief
executive) and all executive directors;
• to recommend and monitor the level and structure of
remuneration for senior management;
• to review the establishment of all share incentive plans for
approval by the Board and shareholders and determine each
year whether awards will be made, and if so, the overall
amount of such awards and the individual awards per person
to executive directors and other senior management; and
• to produce an annual report on the Company’s remuneration
policy.
Separate reports from the Audit Committee, Nomination
Committee and Remuneration Committee are presented on
the following pages.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 2323
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Nomination Committee Report
This year we have
added a third
independent non-
executive director
and appointed a
new Group
Finance Director.”
ANDREW HERBERT
Chairman of the Nomination
and Audit Committees
I am pleased to present
the report of the
Nomination Committee.
Board composition
The Committee is responsible for
monitoring the Board’s balance of skills,
knowledge, experience and diversity,
and makes recommendations to the
Board throughout the year.
This year we have added a third
independent non-executive director and
appointed a new Group Finance Director.
Appointment of a non-executive
director
Following a self-evaluation in 2017, the
opportunity was identified to further
strengthen the Board through the
appointment of a third independent
non-executive director. We spent time
considering the key attributes that the
Board would require, considering the
Company’s strategy, opportunities and
challenges; together with the current
Board composition.
Following an internally managed
candidate identification, review and
selection process, we were pleased to
recommend to the Board the appointment
of Hilary Wright as an independent
non-executive director and as a member
of the Audit, Remuneration and
Nomination Committees.
Group Finance Director succession
On 11th May 2018, the Company
announced that Anthony “Tony” Bailey
was retiring from the company and
resigning his role as Group Finance
Director on 30 June 2018.
The Committee appointed third-party
recruitment consultants to identify,
evaluate and shortlist candidates for
assessment by the Board members.
Stephen Lamb was appointed Group
Finance Director and joined the Group
Board on 26 July 2018.
The Group Finance Director undertakes the
role of Company Secretary. The Committee
keeps this position under review and
believes that, at this present time, the two
roles can be combined effectively.
Board evaluation
Following the introduction of a formal
Board evaluation and appraisal process in
2017, this process was repeated in 2018.
A survey seeking the individual views of
directors on Board composition and
effectiveness, business leadership, QCA
code compliance and other matters
was undertaken.
The Group Head of Human Resources
compiled results and subsequently
facilitated a Board discussion during
which matters arising were reviewed and
actions agreed. There were no major
issues or concerns raised about the
effectiveness of the Board or its individual
members and the minor points raised
were acted upon.
The Board will continue to monitor
its approach to the evaluation of
effectiveness including the use from
time to time of external facilitation.
Succession planning
During the year the members of the
Committee worked closely with the
executive directors on definition of
organisation, capability and resourcing
necessary to support longer term
business growth. This resulted in the
promotion of internal candidates to
regional leadership positions and the
addition of skills and capability to support
business acquisition and integration.
2424
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Audit Committee Report
I am pleased to present the
Audit Committee Report
describing our work during
the past year.
Auditors
Grant Thornton UK LLP (“Grant Thornton”)
was re-appointed as the Company’s Auditor
at the Annual General Meeting. James
Brown remains the engagement partner.
Membership and responsibilities of
the Committee
On 9 March 2018 Hilary Wright,
independent non-executive director
joined the Audit Committee, taking the
membership to three, Hilary, Mike Ashley
and myself, all independent non-
executive directors. I am the Chairman
of the Committee and the member with
recent and relevant experience.
The Committee met three times during
2018.
Key responsibilities include monitoring
the audit arrangements, monitoring the
integrity of the financial statements,
and reviewing internal control and risk
management systems.
Monitoring audit
The Committee oversees the plans for
both the interim review and the full year
audit undertaken by Grant Thornton.
Grant Thornton drafts initial proposals in
consultation with executive management
and these are presented to the Committee
for review. These plans describe an
assessment of the principal risks, the
proposed scope of work and the
approach to be taken to the audit
including materiality. The Committee
has the opportunity to challenge and
satisfy itself that the proposed audit
plan is appropriate and adequate.
Review of financial statements and
audit findings
The Committee reviewed the interim
and full year financial statements, and
the report of the auditors on these
statements. The audit partner and
relevant senior members of the audit
team attended the Audit Committee
meetings, presenting the results of
the audit and answering questions
from the Committee.
Significant potential issues presented to
the Committee in respect of financial
statements were:
• Under International Standard on
Auditing (UK) 240 ‘The Auditor’s
Responsibilities Relating to Fraud in an
Audit of Financial Statements’, there is
a rebuttable presumed risk that revenue
may be misstated due to the improper
recognition of revenue due to fraud.
The auditors were able to confirm no
material misstatement of revenues;
• The risk of intangible assets being
improperly accounted for on acquisition
of Group companies – this risk relates to
the assessment of the extent to which
acquired intangible assets, liabilities
assumed and non-controlling interests
are recognised separately from
goodwill. The Committee received
feedback from the auditors on their
separate assessment of goodwill to be
recognised and noted that there was no
material difference from that proposed
by management; and
• The risk of management override of
controls – this is a presumed risk
and relates to both the internal
control environment and the basis
of management assessment and
accounting estimates, including
working capital provisions. There
were no material issues identified.
The Committee has reviewed the 2018
annual report and accounts to ensure they
are fair, balanced and understandable,
and that they provide the information
necessary for shareholders to assess the
Company’s performance, business model
and strategy in a clear, concise and
balanced manner.
Internal control and risk
management
The Group seeks to operate consistent
accounting policies and control
procedures across its subsidiary
operations, including newly acquired
entities, and places the onus on local
management to ensure those policies
and procedures are followed. This is
confirmed by review by the central
finance team. The Audit Committee
receives feedback on the effectiveness
of internal controls from executive
management and correlates that with
separate reports from the external audit
process. While there have been no
specific internal control issues identified
to date, the growth of the business has
led the Committee to discuss the possible
introduction of an internal audit function,
the options for which are under review.
The Group operates a risk assessment and
monitoring process. This is coordinated by
the Group Finance Director who reports
principal risks and mitigation actions to the
Committee. Further detail on these risks is
included at page 18.
Assessment of auditors
The Committee has assessed the
qualification, expertise, resources and
independence of the external auditor and
is satisfied that Grant Thornton is meeting
those requirements.
In addition to seeking the views of the
executive team, the Committee considers
a range of criteria in that assessment:
• the delivery of a thorough audit,
meeting the agreed plan in a timely
manner to agreed budget;
• demonstration of a deep understanding
of the business of the Group and its
subsidiaries, evidenced in the quality
and completeness of presentation
material;
• the provision of perceptive advice on
key accounting and technical matters;
• the professionalism and competence
of the audit team deployed; and
• and confirmation from the firm
themselves of their processes to
ensure independence.
The Committee also monitors
arrangements to ensure the
independence of the auditor is not
compromised either by the non-audit
work undertaken or the relationship
they have with executive management.
During the year, and to reflect best
governance practice, the Committee
tightened the Company’s policy to limit
use of the auditor for non-audit work to
tax and other compliance activities where
use of the auditors is cost effective given
their knowledge of the business. The
auditor is no longer used for acquisition
due diligence.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 2525
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT
Audit Committee Report continued
During the year Grant Thornton was paid fees of £220k (2017:
£351k) in respect of audit and non-audit work as follows:
There was no contingent element to any of these fees and
independence was safeguarded as follows:
2018
£000
2017
£000
Audit fees in relation to the audit of
the Company
Audit fees in relation to the audit of
subsidiaries
Audit related assurance fees in
relation to the interim review
Total audit fees for audit services
Total fees for tax compliance services
Corporate finance services
(principally acquisition due diligence)
Other services
Total fees for audit and non-audit
services
33
143
15
191
10
–
19
220
33
129
15
177
10
129
35
351
• the teams performing tax compliance work including the
computation and compliance work were separate and led
by a different partner;
• the teams performing the corporate finance services including
the due diligence work were separate to the audit team and
led by a different partner. No due diligence work was
undertaken by Grant Thornton in 2018; and
• other services include services relating to ‘Senior Accounting
Officer’ tax reporting responsibilities and GDPR compliance.
In both cases the teams performing the work were separate
to the audit team and led by a different partner.
Terms of reference
The Committee maintains its terms of reference under review and
makes recommendations for changes to the Board as required.
There were no changes made during 2018. Details of the full
terms of reference are available on the Company’s website.
Andrew Herbert
Chairman of the Audit Committee
SUPPORTING THE NEW
OFFICES FOR DELOITTE
IN NEW STREET, LONDON
Unique opportunity,
using a range of
technologies across
the Midwich Group
specialist businesses.”
Steve Fay
Director – External Sales,
Midwich
2626
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
The successful integration of multiple technologies, required
technical support throughout the project. There was a need
to ensure interoperability of different vendors’ technologies
across the Midwich Group’s different business portfolios,
which was a significant challenge over a limited timescale.
Being a trusted adviser was key to working with SmartComm
to deliver this complex install.
The Midwich Group has an extremely close working
relationship with manufacturers and its team maintains
specific and detailed product knowledge. This up-to-date
experience means that any integration challenges were
highlighted at an extremely early stage in the project,
preventing surprises close to the delivery date.
The requirements of this full AV project included control
systems, broadcast, audio, LED and display technologies.
Working together, a number of the Group’s different business
units were able to fulfil all of the requirements of the project
– a unique offering for a UK distributor. This specialist support
enabled our customer to successfully deliver a large,
complex project.
Statement from the Chairman of the Remuneration Committee
Appropriately
aligned to its
strategic goals,
delivering
shareholder value
and supporting the
long-term.”
MIKE ASHLEY
Chairman of the
Remuneration Committee
In our 2017 Directors’ Remuneration Report,
the Committee acknowledged that, were it
necessary to establish a new executive-
level Board role, the remuneration levels
may not be sufficient to attract the right
calibre of candidate, and internal relativities
would need to be addressed at that time.
During the year, and to support the
appointment of a new FD, we have acted
to align executive pay to the market. The
Committee believes that remuneration
levels are now competitive and better
reflect the scale and responsibilities of
these roles. Further details are set out in
the Annual Report on Remuneration.
Following a review of the existing
long-term incentive plan (‘LTIP’), which
was put in place in 2016, we have made
several changes to the scheme rules that
apply to LTIP awards from 2018 onwards.
The LTIP was put in place for the Group’s
senior management and has now been
expanded to include the executive
directors. The most significant change to
the LTIP is the introduction of a minimum
two-year post-vesting holding period
awards from 2018 onwards, bringing the
total period of the awards to five years.
We believe that this additional holding
period better aligns the executive
directors’ and senior leaders’ interests to
the long-term goals of the Company and
its stakeholders, as well as wider market
practice. Further details of the grant made
in 2018 under the LTIP can be found on
page 33.
The Committee takes a pragmatic
approach to the remuneration of its
executives, recognising the substantial
shareholdings of the MD and the recent
changes to the remuneration levels of
both the MD and FD. The Committee
is satisfied that the incumbents are
incentivised to achieve strong
performance. However, the Committee
recognises that remuneration agreements
may need to be reviewed should there
be any changes or additions to the
Executive Board or changes in the
scope or responsibilities of a role
and will continue to monitor this
going forward.
As Chairman of the
Remuneration Committee,
I am pleased to present the
Directors’ Remuneration Report
for the financial year ended
31 December 2018.
The Remuneration Committee comprises
the non-executive directors including,
from 9 March 2018, Hilary Wright.
Changes to AIM Rule 26, effective from
28 September 2018, required AIM
companies to adopt a recognised
corporate governance code. Since our
IPO in 2016, we have adopted the
corporate governance code published
by the Quoted Companies Alliance (the
‘QCA Code’) and continue to do so. The
Remuneration Committee carried out a
review during the year and is satisfied it
continues to meet, and exceed, the
standards set by the QCA Code.*
The report is split into three parts:
• ●This Annual Statement;
• ●A “Remuneration Overview” section
which provides a brief summary of the
Company’s remuneration agreements
with its directors; and
• An Annual Report on Remuneration
which sets out payments made to the
directors and details the link between
Company’s performance and
remuneration for the 2018 financial year.
This Annual Report on Remuneration will
be put to an advisory shareholder vote at
the forthcoming AGM on 13 May 2019.
Our approach to executive pay
Following the Company’s IPO in May 2016,
the remuneration of the executive
directors was positioned to reflect the
newly listed nature of the Company,
the high shareholdings of the Group
Managing Director (‘MD’) and the previous
Group Finance Director (‘FD’) and the
value of these shareholdings given the
rapid growth in the Company’s share price
since IPO.
Furthermore, the remuneration
arrangements for the executive directors
are designed to be in the best interests of
the Company and appropriately aligned to
its strategic goals, delivering shareholder
value and supporting the long-term
success of the Company.
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Statement from the Chairman of the Remuneration Committee continued
In addition to the Committee’s remit of
the remuneration of the executive
directors, the Committee strongly focuses
on succession and the development of
the next tier of talent in the business.
It is our strategy to retain and incentivise
the leadership of the future and the
Committee takes an active role in
reviewing the remuneration structures
of the senior leadership.
Changes to the Board
Hilary Wright was appointed as a
non-executive director and member of
the Remuneration Committee on 9 March
2018. The terms of her employment and
her fees are aligned with those of the
other non-executive directors.
On 11 May 2018, the Company announced
that Anthony Bailey was retiring as FD and
from the Board on 30 June 2018.
To reflect Midwich’s strategic growth
aspirations, the Board was keen to attract
the new FD from a larger company with
international experience and considered
a variety of factors when determining
appropriate remuneration for the role,
including market benchmarking and
the existing remuneration package of
candidates. Stephen Lamb was appointed
to succeed Anthony as FD and joined
the Group Board on 26 July 2018.
2018 performance and
remuneration
In the past year, the Company’s
performance has been very strong, with
improved sales and profit performance
across all territories (sales have grown
by 22% to £573.7 million and adjusted
operating profit by 20% to £29.1 million).
In addition, the Group completed three
strategic technical product acquisitions;
broadcast in both Germany and Asia
Pacific and audio in France. Our executive
team, led by the MD and FD, has been
instrumental in driving these results.
The Committee determined that the
annual bonuses for the executive
directors, which are based on profit
growth, cash conversion and stretching
strategic objectives, pay out at 50% of the
maximum opportunity for both the MD
and the FD. The annual bonus for the year
was therefore 50% and 21.6% (Being 50%
pro-rated from his joining date) for the
MD and FD respectively. Following his
departure from the Board during the
year, Anthony Bailey was not awarded
a bonus for 2018.
The stretching nature of the targets is
reflected in the fact that the bonus has
not paid out at maximum levels, as not
all criteria were met, despite the very
strong performance. Further details
are set out in the Annual Report on
Remuneration on page 32.
Stephen Lamb joined the Company as
FD on 26 July 2018 on a base salary
of £250,000. On appointment, the
Committee determined that it was
appropriate to consider bonus payments
and deferred unvested incentive awards
forfeited from his previous employer as
a result of his appointment at Midwich.
The Committee has taken particular care
in ensuring that these arrangements are
appropriate and replicate, as closely as
possible, the expected value and time
horizons of the forfeited awards. To reflect
the forfeiture of his bonus and deferred
unvested awards from his previous
employer, he was awarded a one-off
payment of £68,000 and 50,000 nominal
value share options which vest over three
years, subject to continued employment.
In addition, the FD was awarded share
options under the LTIP, which vest after
three years from his date of joining subject
to the achievement of performance
criteria. A two-year minimum post-vesting
holding period also applies.
In order to address the relative
remuneration levels of the executive
directors, and the MD’s remuneration
level being significantly below the
market median, the Committee decided
to increase the base salary of Stephen
Fenby from 1 July 2018, with a further
increase from 1 January 2019. However,
due to his substantial shareholding he did
not participate in LTIP awards made in
2018. Details of the MD’s remuneration
can be found on page 32.
Key activities of the Remuneration
Committee
The Remuneration Committee sets the
overall approach to remuneration and the
terms of employment of the executive
directors, having regard to pay and
conditions elsewhere in the Group.
The Committee aims to ensure that the
remuneration packages offered are
competitive, and designed to attract,
retain and motivate directors of the right
calibre, as well as being aligned to the
Group’s corporate objectives.
The Remuneration Committee met five
times during 2018 and its key activities
were as follows:
• ● Reviewed the 2017 Directors’
Remuneration Report;
• ● Agreed 2017 annual bonus awards for
executive directors and the wider
Senior Management Team;
• ● Discussed 2018 annual bonus scheme
proposal for executive directors and
the Senior Management Team for 2018;
• ● Introduced a two-year post-vesting
holding period on the LTIP;
• ● Proposed the remuneration for the
new FD;
• ● Proposed changes to the remuneration
of the MD for the remainder of 2018;
• ● Reviewed the executive directors’
remuneration arrangements for 2019;
• ● Considered the remuneration of the
Senior Management Team for 2019; and
• ● Reviewed the gender pay gap figures
for Midwich Limited.
The results of a benchmarking exercise,
undertaken by PricewaterhouseCoopers
(“PwC”) in November 2017 demonstrated
that the executive directors’ remuneration
levels were significantly below the market
in respect of all elements of remuneration
and no longer reflected the size and
complexity of the business. A
benchmarking update was provided in
October 2018 and the Committee used
this to further validate the salary increases
made in 2018 and inform salary increases
for 2019.
In May 2018, the Committee also engaged
PwC to conduct a market review of
its Long-Term Incentive Plans (“LTIP”).
The LTIP scheme is now offered to both
executive directors and the Group’s senior
management. Following this review, we
have made a number of changes to the
LTIP scheme that apply to LTIP awards
from 2018 onwards. The principal change
being the introduction of a two-year
post-vesting holding period.
Both the remuneration policy and
LTIP scheme are summarised in the
“Remuneration Overview” section of
this report.
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MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Outlook for the 2019 financial year
The MD’s salary was increased by 6.8% to
£315,000 from 1 January 2019. The FD was
appointed in the second half of 2018 at a
market-aligned salary of £250,000. His
salary is unchanged from 1 January 2019.
As discussed in the 2017 Directors’
Remuneration Report, non-executive
director fees were increased from
1 January 2018 to better reflect market
rates. Non-executive director fees
are unchanged from 1 January 2019.
The Company has ambitious plans to
grow, and consideration will need to
be given to the nature of remuneration
arrangements that will be necessary
to deliver the Company’s strategy.
Summary
The Committee believes that the current
remuneration agreements are in the
best interests of the Company and are
appropriately aligned to the Company’s
strategic goals, delivering shareholder
value and supporting the long-term
success of the Company. We have
acted to align remuneration with the
market in 2018 and believe that we
are appropriately positioned for 2019
and beyond. To ensure that strategic
alignment is maintained, the Committee
will continue to monitor its remuneration
agreements in light of the evolving
strategic, business and economic climate.
We are committed to a responsible
and transparent approach in respect of
executive pay and I hope that you find
the information in this report helpful and
informative and will support the advisory
vote on the Directors Remuneration
Report at the forthcoming Annual
General Meeting.
Mike Ashley
Chairman of the Remuneration Committee
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Remuneration overview
Summary of remuneration agreements
In setting the remuneration arrangements the Remuneration Committee takes into account:
1 The responsibilities of each individual’s role and their experience and performance;
2
The need to attract, retain and motivate executive directors and senior management, ensuring an appropriate mix between
fixed and variable pay;
3 The pay and benefits arrangements elsewhere in the Group, and in the sector;
4
Periodic external benchmarking to consider market conditions, and remuneration practices for roles of a similar size and
complexity; and
5 The need to align the overall reward arrangements with the Company’s strategy, both in the short and long-term.
A summary of the remuneration arrangements applicable to remuneration in 2018 and 2019 is set out below for reference to
assist with the understanding of the contents of this report and to demonstrate alignment with strategy.
Purpose and link to strategy
Operation
Opportunity
Performance metrics used,
weighting and time period
applicable
Base salary
Provides a base level of remuneration
to support recruitment and retention
of executive directors with the
necessary experience and expertise
to deliver the Company’s strategy.
Salaries are reviewed at the
discretion of the Committee.
Benefits and pension
Provides a competitive level of
benefits and pension.
The executive directors receive
benefits which include pension,
car allowance and private medical
insurance.
Annual bonus
The annual bonus provides a
significant incentive to the executive
directors linked to achievement in
delivering strategic goals, including
financial performance. Maximum
bonus is only payable for achieving
demanding targets.
The FD also receives a contribution
towards weekday accommodation
near the Company’s head office.
Further benefits may also be
provided for relocation following
the appointment of new executives.
Performance is measured annually
against a range of pre-determined
performance conditions. Outcomes
are determined by the Committee
after the year end based on
performance against these targets.
All bonus payments are at the
ultimate discretion of the
Committee and the Committee
retains an overriding ability to
ensure that overall bonus payments
reflect its view of corporate
performance during the year.
Annual bonuses are paid in cash
after the end of the financial year
to which they relate.
None
None
Base salaries will be set by the
Committee at an appropriate level,
with consideration given to
comparable listed companies,
experience in role and the
Company’s performance.
Employer pension contribution of
6% of base salary per annum or a
salary supplement representing
this contribution net of employer’s
National Insurance of 13.8%.
The maximum value of other
benefits will be set at the cost of
providing the benefits described.
The maximum bonus opportunity
is currently 100% of base salary.
Performance is measured over
the financial year.
Targets are set annually by
the Committee.
Performance metrics for 2019
will include targets for:
•
•
•
● profit growth
● cash conversion
● strategic targets
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MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Performance metrics used,
weighting and time period
applicable
Performance is measured over a
minimum three-year performance
period.
Targets are set for each performance
period by the Committee.
Performance metrics for the 2018
awards and 2019 awards are based
on adjusted EPS growth.
Purpose and link to strategy
Operation
Opportunity
LTIP awards are made using
nominal cost share options.
The maximum LTIP award is
200% of base salary.
This may be increased to 300%
in exceptional circumstances.
Long-term incentive plans (‘LTIP’)
The LTIP provides a significant
incentive to the executive
directors linked to achievement in
delivering longer term strategic
goals, including sustained
financial performance. Maximum
awards are only payable for
achieving demanding targets.
Non-executive director fees
Provides a level of fees to support
recruitment and retention of
non-executive directors with the
necessary experience to advise
and assist with establishing and
monitoring the Company’s
strategic objectives.
Performance is measured over
three financial years against
a range of pre-determined
performance conditions.
LTIP awards are subject to
a two-year post-vesting
holding period.
All LTIP awards are at the
ultimate discretion of the
Committee and the Committee
retains an overriding ability to
ensure that overall LTIP awards
reflect its view of corporate
performance during the period.
LTIP awards may attract dividend
equivalents for the duration of
the performance period.
Non-executive directors are paid
a base fee.
Fees are reviewed from time
to time at the Remuneration
Committee’s discretion based on
equivalent roles in an appropriate
comparator group used to review
salaries paid to the executive
directors.
The base fees for non-executive
directors are set at a market rate.
No additional fees are awarded for
committee chairmanship or
membership.
None
Wider employee pay
As outlined in the Chairman’s Statement, the Company is committed to developing the next tier of talent and the Committee spent
some time during the year reviewing, with the executive directors, the remuneration of the senior leadership. The MD put forward
proposals to the Committee for increases to base salary and bonus potential together with long-term incentive awards in line with
these individuals’ performance. The proposals also reflected the executive directors’ commitment to retaining and incentivising
those individuals who are key to the future success of the Company with succession planning in mind.
Pay and conditions elsewhere in the Group were taken into account when considering arrangements for the remuneration of the
executive directors. For example, the executive directors’ pension contributions are consistent with those for the wider employee
population. The same overarching remuneration principles apply, but are proportionate to an individual’s influence at Group level.
The Committee also encourages the participation of Midwich employees in share ownership and is supportive of the Group’s share
participation and free share award programmes. At 31 December 2018, over 50% of Group employees were participants in the
Group’s share ownership programmes.
Directors’ service agreements and letters of appointment
The dates on which directors’ initial service agreements/letters of appointment commenced and the current notice periods are
as follows:
Executive directors
Stephen Fenby
Date of original appointment
Term of appointment
Notice period
13 April 2016
Continuous
Stephen Lamb
26 July 2018
Continuous
Subject to nine months written
notice by either party
Subject to nine months written
notice by either party
Non-executive directors
Date of original appointment
Term of appointment
Notice period
Andrew Herbert
13 April 2016
Continuous
Mike Ashley
Hilary Wright
13 April 2016
Continuous
9 March 2018
Continuous
Subject to three months written
notice by either party
Subject to three months written
notice by either party
Subject to three months written
notice by either party
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The non-executive directors’ letters of appointment were renewed in March 2019 at which time the term of appointment was changed
from three years to continuous. Performance of the Board and independence of the non-executive directors is assessed annually.
Executive and non-executive directors are subject to annual re-election by shareholders at the AGM.
Approach to recruitment remuneration of executive directors
The Company’s approach when setting the remuneration of any newly recruited executive director will be assessed in line with the
same principles for the existing executive directors, as set out in the service agreements above. The Remuneration Committee’s
approach to recruitment remuneration is to pay no more than is necessary to attract candidates of the appropriate calibre and
experience needed for the role from the market in which the Company competes. The Remuneration Committee is mindful that it
wishes to avoid paying more than it considers necessary to secure the preferred candidate and will have regard to guidelines and
shareholder sentiment regarding one-off or enhanced short-term or long-term incentive payments made on recruitment and the
appropriateness of any performance measures associated with an award.
Executive directors’ termination payments
The Remuneration Committee will honour executive directors’ contractual entitlements. Service agreements do not contain
liquidated damages clauses. If a contract is to be terminated, the Remuneration Committee will determine such mitigation as it
considers fair and reasonable in each case. There are no contractual arrangements that would guarantee a pension with limited
or no abatement on severance or early retirement. There is no agreement between the Company and its executive directors or
employees, providing for compensation for loss of office or employment that occurs because of a takeover bid.
The Remuneration Committee reserves the right to make additional payments where such payments are made in good faith in
discharge of an existing legal obligation (or by way of damages for breach of such an obligation), or by way of settlement or
compromise of any claim arising in connection with the termination of an executive director’s office or employment.
When determining any loss of office payment for a departing individual the Remuneration Committee will always seek to minimise
cost to the Company whilst seeking to address the circumstances at the time.
Annual Report on Remuneration
Executive director remuneration
(Audited – see note 7 of the notes to the consolidated financial statements).
The table below sets out the total remuneration with a breakdown for each executive director in respect of the 2018 financial year.
Comparative figures for the 2017 financial year have also been provided.
Base salary
Benefits1
Annual Bonus
Pension2
Other
Total
£’000
Stephen Fenby
Anthony Bailey4
Stephen Lamb5
2018
2633
90
108
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
215
161
–
12
3
12
14
11
–
131
–
54
182
137
–
14
5
6
13
10
–
–
–
686
–
–
–
420
98
248
424
319
–
1 The taxable benefits received in 2017 and 2018 were principally car allowances and private medical insurance. Stephen Lamb also receives a contribution to
weekday accommodation near the Company’s head office.
2 Executive directors receive pension contributions of 6% of base salary. From 1 November 2017 for Stephen Fenby and 26 July 2018 for Stephen Lamb,
contributions were delivered as a salary supplement net of employer’s National Insurance of 13.8%. The pension contribution for Anthony Bailey was payable
into a defined contribution scheme.
3 Stephen Fenby’s base pay was increased from £230,000 to £295,000 from 1 July 2018.
4 Anthony Bailey left the role of Group FD and resigned as a director from 30 June 2018.
5 Stephen Lamb was appointed to the Board on 26 July 2018.
6 On appointment, Stephen Lamb received a cash award of £68,000 based on the forfeited pro rata expected annual bonus payment from his previous employer.
In addition, he received 50,000 nominal cost options which vest over a three-year period, from his date of appointment, subject to continued employment.
The value of these awards was £265,000 based on the share price of 530 pence at the date of grant and an exercise price of 1 penny. The final value of these
awards will be disclosed upon vesting.
Non-executive directors (Audited)
The table below sets out the total remuneration and breakdown for each non-executive director.
£’000
Andrew Herbert1
Mike Ashley1
Hilary Wright2
Fees
Total
2018
2017
2018
2017
81
41
34
49
32
–
81
41
34
49
32
–
1 On 1 January 2018, non-executive director fees for Andrew Herbert and Mike Ashley were increased to £81,000 and £41,000 per annum respectively.
2 Hilary Wright was appointed non-executive director on 9 March 2018. Her fees are £41,000 per annum.
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MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Additional information regarding directors’ remuneration
The Remuneration Committee considers that performance conditions for all incentives are suitably demanding, having regard to
the business strategy, shareholder expectations, the markets in which the Group operates and external advice. To the extent that
any performance condition is not met, the relevant part of the award will lapse. There is no retesting of performance.
Base Salary
Salary levels as at the end of the financial period were:
Executive director
Stephen Fenby
Stephen Lamb
Base salary
£295,000
£250,000
Base salaries for the 2019 financial year are set out on page 34 of this report.
Bonus awards
The annual bonus opportunity for the executive directors in the year was a maximum of 100% of base salary and performance was
assessed against the following metrics:
• ● Profit growth targets (60% weighting)
• ● Cash conversion rate (20% weighting)
• ● Strategic targets (20% weighting)
The following bonus awards were approved by the Remuneration Committee for the executive directors:
Executive director
Stephen Fenby
Anthony Bailey1
Stephen Lamb
Maximum bonus
opportunity
(% of salary)
100%
100%
43.2%2
Bonus awarded
(% of maximum)
Bonus awarded
(% of salary)
Bonus awarded
(£’000)
50%
0%
50%
50%
0%
21.6%2
131
–
54
1 Anthony Bailey left the role of Group FD and resigned as a director from 30 June 2018.
2 Stephen Lamb joined the Group on 26 July 2018 and his bonus is payable on a pro forma basis for 2018; this reduced the maximum bonus opportunity
from 100% to 43.2% for 2018.
The Remuneration Committee considers that the specific pro-rata targets for the 2018 annual bonus awards remain
commercially sensitive.
Long-term incentives awarded in 2018
To reflect the substantial shareholdings of Stephen Fenby, and in line with the approach taken in 2016 and 2017, no LTIP awards
were granted to him during the year.
Details of the awards granted to Stephen Lamb during the year are set out below:
Scheme
Date of Grant
Performance conditions
Award on joining
20 December 2018
Continued employment
Award on joining
20 December 2018
Continued employment
Award on joining
20 December 2018
Continued employment
2018 LTIP
20 December 2018
Adjusted EPS growth
Market price of
shares on the date
of grant
Earliest date of
vesting
Exercise price
Number of
shares
530p
530p
530p
530p
26 July 2019
26 July 2020
26 July 2021
26 July 20211,2
1p
1p
1p
1p
30,000
10,000
10,000
50,000
1 Subject to a two-year post-vesting holding period.
2 The Board determined that the vesting date should be three years from date of appointment (26 July 2018).
All share options lapse, if they are not exercised, ten years after the grant date.
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Non-Executive fees in 2018
Fees for the non-executive directors were increased with effect from 1 January 2018.
Fees at the end of the financial period were:
Non-executive director
Andrew Herbert
Mike Ashley
Hilary Wright
Fees
£81,000
£41,000
£41,000
Non-executive director fees for the 2019 financial year are set out on page 35 of this report.
Directors’ shareholdings at 31 December 2018
The interests of directors and their connected persons in Ordinary Shares as at 31 December 2018 are presented in the table below.
Executive directors
Stephen Fenby1
Stephen Lamb
Non-executive directors
Andrew Herbert
Mike Ashley
Hilary Wright
Ordinary Shares as at
31 December 2018
% of total Ordinary
Shares of Company
20,040,000
7,500
30,000
1,442
4,000
25.22%
<0.01%
0.04%
<0.01%
<0.01%
1 On 29 January 2018, Stephen Fenby and closely associated persons sold 1,000,000 Ordinary Shares. Stephen Fenby and closely associated persons no longer
includes the shares held by his children as they are considered independent adults.
Stephen Fenby is subject to a lock-in agreement following the IPO on 6 May 2016 as follows:
• ● For a period of three years after the IPO (i.e. up to 5 May 2019), he must retain a shareholding equal to 40% of the shares held on
the IPO.
• ● For a period of four years after the IPO (i.e. up to 5 May 2020), he must retain a shareholding equal to 20% of the shares held on
the IPO.
Implementation of remuneration agreements in 2019
Base salary
The salary of the MD was increased by 6.8% 1 January 2019 to achieve greater alignment with the market. Stephen Lamb was
appointed FD on 26 July 2018 and was not eligible for a salary increase on 1 January 2019.
The table below sets out the base salaries effective from 1 January 2019 (with previous base salaries included for reference):
Stephen Fenby
Stephen Lamb
Base salary
As at 31 December 2018
As at 1 January 2019
£295,000
£250,000
£315,000
£250,000
Annual bonus
The maximum bonus opportunity for the MD and FD will be maintained at 100% of base salary. Pay-outs will be determined by
performance against the following targets:
• ●Profit growth targets (60% weighting)
• ●Cash conversion rate (20% weighting)
• ●Strategic targets (20% weighting)
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MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Long-term incentive
The Group MD and FD will be eligible to participate in any long-term incentive awards will be granted during 2019. However, due to
his significant existing shareholding, it is expected that the MD will not participate in the 2019 award. The Remuneration Committee
will keep this under review in future years.
Pension
Company pension contributions will remain at 6% of base salary. The MD and FD each elect to receive this via salary supplement of
6% of salary (less employer’s National Insurance of 13.8%) in lieu of pension contributions.
Non-executive director fees
Non-executive director fees were revised following a benchmarking exercise from 1 January 2018. The table below sets out the
2019 fees for the non-executive directors, which are unchanged from 2018:
Andrew Herbert
Mike Ashley
Hilary Wright
As at 31 December 2018
As at 1 January 2019
Fees
£81,000
£41,000
£41,000
£81,000
£41,000
£41,000
Adviser
During the financial year the Committee received independent advice from PwC. As founder members of the Remuneration
Consultants Group, PwC voluntarily operate under the Voluntary Code of Conduct in relation to executive remuneration consulting
in the UK. The Remuneration Committee is satisfied that the advice received was objective and independent.
Approval
This report is approved by the Board on 11 March 2019 and signed on its behalf by:
Mike Ashley
Chairman of the Remuneration Committee
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 3535
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Directors’ Report
The directors present their report and the financial statements of the Group for the year ended 31 December 2018. Some
disclosures that would normally be included in the Directors’ Report are included in the Strategic Report. These include the
review of the principal risks and uncertainties facing the business (on page 18) and an indication of likely future developments
for the Group (on page 11).
Results and dividends
The profit after tax for the period amounted to £15.3 million (2017 £14.0 million).
The Company paid dividends in the year of £11.3 million (2017: £8.9 million).
Going concern
The Board takes all reasonable steps to review and consider any factors that may affect the ability of the Group to continue as a
going concern. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show
that the Group is able to generate sufficient liquidity to continue in operational existence for the foreseeable future. At the end of
2018 the directors considered the working capital of the business to be adequate for its needs, and the Group therefore continues
to adopt the going concern basis in preparing consolidated financial statements. In February 2019, the Group increased both its
working capital facilities and revolving credit facility to increase headroom for future growth.
Financial risk management and policies
The Group uses various financial instruments such as loans, invoice discounting, forward exchange contracts, trade receivables and
trade payables that arise directly from its operations. The main purpose of the financial instruments is to provide working capital for
the Group’s operations.
The main financial risks arising from the Group’s operations are credit risk, interest rate risk, currency risk and liquidity risk.
The directors review and agree policies for managing each of these risks and they are summarised below.
Credit risk
The Group’s principal financial assets are cash and trade receivables.
In order to manage credit risk, the directors prioritise the credit control function, and clear procedures are in place to take on new
customers and manage and mitigate the impact of slow payers. The Group is a significant purchaser of credit insurance cover.
Interest rate risk
The Group’s borrowing facilities, including its invoice discounting facilities, are linked to either LIBOR or base rate. An increase in
these benchmarks would impact the Group’s cost of borrowing which, in turn, would affect the Group’s financial performance.
The Group regularly monitors its exposure to interest rate movements and, where appropriate, will consider risk management
products to mitigate this risk.
Currency risk
The Group companies largely source their goods and supply their customers in their domestic currency. In addition, many foreign
currency denominated payments or receipts are hedged naturally with each other.
In the event of a long-term and material exposure to a movement in currency the Group takes out risk management products to
reduce the risk.
Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash
assets safely and profitably.
Short term flexibility is achieved by invoice finance facilities and overdraft facilities.
3636
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Directors
The directors of the Company during the year and their beneficial interest in the Ordinary Shares of the Company at 31 December
2018 are set out below:
Mr S B Fenby1
Mr A M G Bailey2
Mr S Lamb3
Mr A C Herbert
Mr M Ashley
Mrs H Wright4
Ordinary Shares
2018
2017
20,040,000
22,280,000
2,523,480
3,178,230
7,500
30,000
1,442
4,000
–
20,000
1,442
–
22,606,422
25,479,672
1 On 29 January 2018, Stephen Fenby and closely associated persons sold 1,000,000 Ordinary Shares. Stephen Fenby and closely associated persons no longer
includes the shares held by his children as they are now considered independent adults.
2 Resigned 30 June 2018.
3 Appointed 26 July 2018.
4 Appointed 9 March 2018.
Stephen Lamb is the only director with interests in share options of the Company. These are detailed on page 86.
Directors’ remuneration
Mr S B Fenby
Mr A M G Bailey1
Mr S Lamb2
Mr A C Herbert
Mr M Ashley
Mrs H Wright3
1 Resigned 30 June 2018.
2 Appointed 26 July 2018.
3 Appointed 9 March 2018.
2018
Salary/fees
and bonus
£’000
2018
Pension
£’000
2018
Benefits in kind
£’000
394
90
230
81
41
34
870
14
5
6
–
–
–
25
12
3
12
–
–
–
27
2018
Total
£’000
420
98
248
81
41
34
922
2017
Total
£’000
424
319
–
49
32
–
824
Directors' and officers' liability insurance
The Company maintains insurance cover for the directors and key personnel against liabilities which may be incurred by them
while carrying out their duties.
Employee involvement and policies
We recognise the importance of our staff to the success of the business, since our product sales rely on the excellent service
provided by our team. We aim to attract, motivate and retain the best people in our industry, regardless of race, age or disability.
The Group provides its employees with information and consults with staff on matters of concern to them.
The Group gives full consideration to applications for employment from disabled persons where the requirements of the job can
be adequately fulfilled by a handicapped or disabled person. Where existing employees become disabled, it is the Group’s policy
whenever practicable to provide continuing employment under normal terms and conditions and to provide training and career
development and promotion to disabled employees wherever appropriate.
The Board would like to thank our staff for the support, commitment and enthusiasm shown last year.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 3737
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Directors’ Report continued
Substantial shareholders
The Company has been notified of the following interests of 3% or more in its issued share capital as at 25 January 2019:
Shareholders
Midwich Group plc directors & related parties
Aberdeen Standard Investments
Canaccord Genuity Group Inc
Schroders
Octopus Investments Limited
Independent Investment Trust
Mr Anthony Bailey
Number of Shares
Percent (%)
20,082,942
11,448,488
5,768,260
5,053,260
4,553,538
2,500,000
2,473,480
25.28
14.41
7.26
6.36
5.73
3.15
3.11
Directors’ Responsibilities Statement
The directors are responsible for preparing the Strategic Report, Directors’ Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial period. Under that law the directors have
elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the European Union and have elected to prepare the Parent Company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws including FRS 101 Reduced
Disclosure Framework). Under company law the directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Company and Group and of the profit or loss of the Group for that period.
In preparing these financial statements, the directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and estimates that are reasonable and prudent;
• State whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the
consolidated financial statements;
• State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and
explained in the company financial statements; and
• Prepare the financial statement on the going concern basis unless it is inappropriate to presume that the Group will continue
in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them
to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets
of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Provision of information to auditor
Each of the persons who are directors at the time when this Directors’ Report is approved has confirmed that:
• So far as that director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and
• That director has taken all steps that ought to have been taken as a director in order to be aware of any information needed by the
Company’s auditor in connection with preparing its report and to establish that the Company’s auditor is aware of that information.
Auditor
The auditor, Grant Thornton UK LLP, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006.
This report was approved by the Board and signed on its behalf.
Mr S B Fenby
Director
Date: 11 March 2019
Company registration number: 08793266
3838
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Annual General Meeting
The notice convening the Annual General Meeting (the “AGM”)
is set out on pages 96 to 99 Resolutions 1 to 9 set out in the
notice of the AGM deal with the ordinary business to be
transacted at the AGM. The special business to be transacted
at the meeting is set out in Resolutions 10 to 12.
Authority to allot shares (Resolution 10)
Under section 551 of the Companies Act 2006 (the “CA 2006”),
the Directors may only allot shares or grant rights to subscribe
for or convert any securities into shares if authorised by the
shareholders to do so.
Resolutions 1 to 9 are being proposed as ordinary resolutions
(and therefore need the approval of a simple majority of those
shareholders who are present and voting in person or by proxy
at the AGM) and Resolutions 11 and 12 are being proposed as
special resolutions (and therefore need the approval of at least
75 per cent of those shareholders who are present and voting in
person or by proxy at the AGM).
Presentation of the Company’s annual accounts
(Resolution 1)
Resolution 1 deals with the adoption of the Company’s annual
accounts for the financial year ending 31 December 2018.
Re-election of Directors (Resolution 2 to 6)
The Company’s Articles of Association require the number
nearest to one third of the Board to retire by rotation at each
Annual General. The UK Corporate Governance Code provides
that all Directors should be subject to re-election by their
shareholders every year. In accordance with this provision of the
UK Corporate Governance Code and in keeping with the Board’s
aim of following best corporate governance practice, the Board
has decided that, as at recent Annual General Meetings of the
Company, all Directors should retire at each Annual General
Meeting and offer themselves for re-election.
Information about the directors is set out on pages 20 and 21.
Re-appointment and remuneration of auditors
(Resolution 7)
Resolution 7 proposes the re-appointment of Grant Thornton UK
LLP as auditors of the Company and authorises the directors to
set the auditors’ remuneration.
Declaration of dividend (Resolution 8)
The directors are recommending a final dividend for the financial
year ended 31 December 2018 of 10.60p per ordinary share,
which requires the approval of the shareholders.
Directors’ Remuneration Report (Resolution 9)
This Resolution seeks shareholder approval for the Directors’
Remuneration Report (excluding the remuneration policy). The
Directors’ Remuneration Report can be found on pages 30 to 35
(inclusive) of the Annual Report and Financial Statements.
In accordance with regulations which came into force on
1 October 2013, Resolution 9 offers shareholders an advisory
vote on the implementation of the Company’s existing
remuneration policy.
Resolution 10, which complies with guidance issued by the
Investment Association, will, if passed, authorise the Directors
to allot ordinary shares or grant rights to subscribe for or convert
any securities into ordinary shares, up to an aggregate nominal
value of £264,827 (corresponding to approximately one-third of
the issued share capital at 16 April 2019 and up to an additional
aggregate nominal value of £529,655 (corresponding to
approximately two-thirds of the issued share capital at 16 April
2019) in the case of allotments only in connection with a fully
pre-emptive rights issue. The Directors have no present intention
to exercise the authority sought under this Resolution. However,
the Directors may consider doing so if they believe it would be
appropriate in respect of business opportunities that may arise
consistent with the Company’s strategic objectives.
This authority will expire no later than 15 months after the
passing of the Resolution. It is the Board’s current intention to
seek renewal of such authority at each future Annual General
Meeting of the Company.
As at 16 April 2019, the Company does not hold any shares in
the Company in treasury.
Disapplication of pre-emption rights (Resolutions 11
and 12)
Under section 561(1) of the CA 2006, if the Directors wish to allot
equity securities (as defined in section 560 of the CA 2006) they
must in the first instance offer them to existing shareholders in
proportion to their holdings. In addition, there may be occasions,
when the Directors will need the flexibility to finance business
opportunities by the issue of shares without a pre-emptive offer
to existing shareholders. This cannot be done under the CA
2006 unless the shareholders have first waived their pre-
emption rights.
In accordance with institutional guidelines, under Resolution 11,
to be proposed as a special resolution, authority is sought to
allot shares:
(i)
in relation to a pre-emptive rights issue only, up to an
aggregate nominal amount of £529,655 (being the nominal
value of approximately two thirds of the issued share capital
of the Company); and
(ii)
in any other case, up to an aggregate nominal amount of
£39,724 (representing 5% of the issued share capital of
the Company).
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018 3939
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Disapplication of pre-emption rights (Resolutions 11
and 12) continued
In addition, Resolution 12 asks the shareholders to waive
their pre-emption rights in relation to the allotment of equity
securities or sale of treasury shares up to an aggregate nominal
amount of £39,724 (representing 5% of the issued share capital
of the Company), with such authority to be used only for the
purpose of financing (or refinancing, if the authority is to be
used within six months after the original transaction) a
transaction which the Directors of the Company determine
to be an acquisition or other capital investment of a kind
contemplated by the Statement of Principles on Disapplying
Pre-Emption Rights.
The Directors will also have regard to the guidance in the
Statement of Principles concerning cumulative usage of
authorities within a three-year period. Accordingly, the Board
confirms that it does not intend to issue shares for cash
representing more than 7.5 per cent. of the Company’s issued
ordinary share capital in any rolling three-year period other than
to existing shareholders, save as permitted in connection with an
acquisition or specified capital investment as described above,
without prior consultation with shareholders.
Shareholders will note that Resolution 12 will be proposed as a
special resolution.
If Resolutions 11 and 12 are passed, the authorities will expire
at the conclusion of the next Annual General Meeting of the
Company, or, if earlier, the date which is 15 months after the date
of passing of the Resolutions. It is the Board’s current intention to
seek renewal of such authorities at each future Annual General
Meeting of the Company.
4040
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Independent Auditor’s Report to the Members of Midwich Group plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Midwich Group plc (the ‘parent company’) and its subsidiaries (the ‘Group’)
forthe year ended 31 December 2018, which comprise the Consolidated Income Statement, Consolidated Statement of
Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity,
Consolidated Statement of Cash Flows, Company Statement of Financial Position, Company Statement of Changes in
Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting
framework that has been applied in the preparation of the group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been
applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard 101 ‘Reduced Disclosures Framework’ (United Kingdom Generally
Accepted Accounting Practice).
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at
31 December 2018 and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our
report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are authorised for issue.
Overview of our audit approach
• Overall materiality: £1,000,000, which represents 4% of the group’s estimated profit before taxation;
• We performed full scope audit procedures for Midwich Group plc, Midwich Limited and Kern & Stelly
Medientechnik GmbH; targeted audit procedures were performed for Holdan Limited, Square One
Distribution Limited, Sidev SAS, Midwich Australia Pty Limited, Earpro S.A., Gebroeders van Domburg
B.V group and Sound Technology Limited; analytical procedures were performed for all other
components; and
• Key audit matters were identified as
– the risk of improper recognition of revenue due to fraud; and
– risk of intangible assets being incorrectly accounted for on acquisition of group companies.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
41
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Independent Auditor’s Report to the Members of Midwich Group plc continued
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Our audit work included, but was not restricted to:
• Review and testing of revenue recognition policies to ensure
they are consistent and in accordance with IFRS 15 ‘Revenue
from Contracts with Customers’;
• Testing of the design and operating effectiveness of relevant
controls in the sales process over a sample of sales orders
for significant components;
• Corroborating a sample of revenue transactions, with a
higher focus on sales in the final two months of the year,
to proof of delivery to verify the occurrence of the sale;
• Review and testing of credit notes issued since year end
against the credit note provision;
• Undertaking a review of revenue trends across the period
for the group reported revenue (month by month analysis
of current year against prior year revenue) to identify and
analyse key movements and significant transactions which
have occurred in the year; and
• Testing a sample of sales transactions in the final quarter of
the year and either side of the balance sheet date to evidence
of dispatch, to assess the timing of delivery and verify
whether revenue has been recognised in the correct period.
The group’s accounting policy on revenue recognition is shown
under Accounting Policies within the notes to the financial
statements and related disclosures are included in notes 1,2
and 3.
Key observations
Based on our audit work, we did not identify any material
misstatement of revenue or any instances where revenue was
not recognised in accordance with the stated accounting policies.
Our audit work included, but was not restricted to:
• For material acquisitions, assessing the valuation models
prepared by management’s experts in respect of each
acquisition, including the basis and methodology adopted
for identifying and valuing separate intangible assets distinct
from goodwill;
• Agreeing significant inputs used in the models to underlying
purchase agreements and other supporting documentation;
• Critically assessing and challenging the key judgements
and assumptions, such as revenue growth rates and discount
rates, used by management in the valuation models to ensure
reasonableness as compared to historic and industry data; and
• Agreeing the fair value of identified intangible assets to the
consolidation schedule.
The group’s accounting policy on intangible assets is shown
under Accounting Policies within the notes to the financial
statements and related disclosures are included in note 33.
Key observations
Our audit work did not identify any material errors in the
accounting for intangible assets.
The risk of improper recognition of revenue due to fraud
Under International Standard on Auditing (UK) 240 ‘The Auditor’s
Responsibilities Relating to Fraud in an Audit of Financial
Statements’, there is a rebuttable presumed risk that revenue
may be misstated due to the improper recognition of revenue
due to fraud.
The group has reported revenues of £574m (2017: £472m) arising
from the sale of goods and ancillary services and equipment
rentals. The group has other operational income of £3m (2017:
£3m) which relates to promotional activities. The nature of the
group’s revenue involves the processing of numerous
transactions with each stream possessing different revenue
recognition criteria.
The group’s revenue is material to the financial statements.
We therefore identified the risk of improper recognition of
revenue due to fraud as a significant risk, which was one of
the most significant assessed risks of material misstatement.
The risk of intangible assets being incorrectly accounted
for on acquisition of group companies
In accordance with IFRS 3, following the acquisitions of Bauer
& Trummer GmbH and the group Blonde Robot Pty Limited
separate intangible assets are required to be identified
and valued.
Management are required to fair value separately identifiable
assets and liabilities on acquisition. This involves identifying
and valuing intangible assets distinct from goodwill. The group
engages with third parties to assist in the performance of these
assessments for material acquisitions to ensure they are free
from bias.
Upon the acquisition of Bauer & Trummer GmbH on 23 August
2018, separate intangible assets for key supplier relationships
(£0.9m), customer relationships (£0.6m), licensing rights of £15k
and the Bauer & Trummer trade name (£0.3m) were identified
and valued, resulting in goodwill of £1.5m arising on the
transaction.
Blonde Robot Pty Limited was acquired on 4 December 2018.
Key supplier relationships (£0.4m), customer relationships (£1.7m)
and the Blonde Robot trade name (£0.3m) were recognised,
with goodwill of £0.9m arising from the transaction.
Due to the high level of judgement and assumptions necessary
to perform valuations of separately identifiable intangible assets
arising on acquisitions, and due to the materiality of the assets
recognised by the group, we have identified the risk of
intangible assets being incorrectly accounted for on acquisition
of group companies as a significant risk, which was one of the
most significant assessed risks of material misstatement.
42 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
There are no separate key audit matters identified in the parent company.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature,
timing and extent of our audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality measure
Group
Parent
Financial statements as a whole
Performance materiality used to drive
the extent of our testing
Specific materiality
£1,000,000 which is 4% of the group’s
estimated profit before taxation. This
benchmark is considered the most
appropriate because earnings before
taxation is a primary measure of
profitability used by the directors.
Materiality for the current year is higher
than the level that we determined for the
year ended 31 December 2017 to reflect
levels of organic and acquisition-related
growth achieved by the group in the year.
£369,000 which is 1% of total assets.
This benchmark is considered the most
appropriate because the parent company
is a non-trading holding company.
Materiality for the current year is lower
than the level that we determined for
the year ended 31 December 2017, due
to a reduction in total assets from the
prior year.
75% of financial statement materiality.
75% of financial statement materiality.
We have determined a lower level of
specific materiality of £10,000 for
directors’ remuneration and related
party transactions.
We have determined a lower level of
specific materiality of £10,000 for
directors’ remuneration and related
party transactions.
Communication of misstatements to the
audit committee
£50,000 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
£18,450 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.
OVERALL MATERIALITY – GROUP
OVERALL MATERIALITY – PARENT
25%
25%
75%
75%
Tolerance for potential uncorrected mistatements
Performance materiality
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
43
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An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment
and risk profile and in particular included:
• evaluation by the group audit team of identified components to assess the significance of that component and to determine
the planned audit response based on a measure of materiality. Significance was determined as a percentage of the group’s
total assets, revenues and profit before taxation;
• performance of full scope audits of the financial information of the parent company Midwich Group plc, Midwich Limited and
Kern & Stelly Medientechnick GmbH. For all other entities in the group, we have completed targeted or analytical procedures
to support the group audit opinion;
• component auditors were used to complete audit procedures for the following subsidiaries: Kern & Stelly Medientechnik GmbH,
Holdan Limited, Square One Distribution Limited, Sidev SAS, Midwich Australia Pty Limited, Earpro S.A., Gebroeders van Domburg
B.V. and Sound Technology Limited. The group audit team instructed the component auditors as to the procedures to be
completed over the risk areas for group purposes within each component. The group audit team reviewed the audit working
papers for these significant areas;
• testing performed over 98% of total group revenues, either through full scope or targeted audit procedures;
• testing performed over 97% of total group assets, either through full scope or targeted audit procedures;
• we have revised our approach in the current year to adopt a controls-based approach on revenue for significant components
in the group, compared to our approach for the year ended 31 December 2017, which was fully substantive in nature.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report and financial statements, other than the financial statements and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements,
we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of
the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
44 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 38, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
James Brown
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP,
Statutory Auditor, Chartered Accountants
Cambridge
11 March 2019
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
45
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Consolidated income statement
for the year ended 31 December 2018
Revenue
Cost of sales
Gross profit
Distribution costs
Total administrative expenses
Other operating income
Operating profit
Comprising
Adjusted operating profit
Costs of acquisitions
Share based payments
Employer taxes on share based payments
Amortisation
Finance income
Finance costs
Profit before taxation
Taxation
Profit after taxation
Profit for the financial year attributable to:
The Company’s equity shareholders
Non-controlling interest
Basic earnings per share
Diluted earnings per share
The financial statements are also comprised of the notes on pages 51 to 87.
Notes
2018
£’000
2017
£’000
3
573,682
471,937
(479,120)
(398,810)
94,562
(56,329)
(16,511)
3,025
24,747
30,245
(365)
(1,120)
(221)
(3,792)
24,747
81
(3,751)
21,077
(5,792)
15,285
14,724
561
15,285
18.53p
18.36p
73,127
(45,679)
(9,470)
2,831
20,809
25,044
(336)
(551)
(118)
(3,230)
20,809
5
(1,916)
18,898
(4,919)
13,979
13,557
422
13,979
17.06p
17.00p
4
5
6
31
5
8
9
10
10
46 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Consolidated statement of comprehensive income
for the year ended 31 December 2018
Profit for the financial year
Other comprehensive income
Items that will be reclassified subsequently to profit or loss:
Foreign exchange gains on consolidation
Other comprehensive income for the financial year, net of tax
Total comprehensive income for the year
Attributable to:
Owners of the Parent Company
Non-controlling interests
The financial statements are also comprised of the notes on pages 51 to 87.
2018
£’000
15,285
158
158
2017
£’000
13,979
974
974
15,443
14,953
14,894
549
15,443
14,531
422
14,953
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
47
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Consolidated statement of financial position
as at 31 December 2018
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Current liabilities
Trade and other payables
Derivative financial instruments
Put option liabilities
Deferred consideration
Borrowings and financial liabilities
Current tax
Net current assets
Total assets less current liabilities
Non-current liabilities
Trade and other payables
Put option liabilities
Deferred consideration
Borrowings and financial liabilities
Deferred tax liabilities
Other provisions
Net assets
Equity
Share capital
Share premium
Share based payment reserve
Investment in own shares
Retained earnings
Translation reserve
Put option reserve
Capital redemption reserve
Other reserve
Equity attributable to owners of the Parent Company
Non-controlling interests
Total equity
Notes
2018
£’000
2017
£’000
12
13
14
9
15
16
20
17
18
20
21
22
23
18
21
22
23
9
19
30
11,188
24,766
7,391
1,222
44,567
74,379
83,139
25
16,685
174,228
9,094
22,310
7,692
387
39,483
62,984
76,361
–
28,203
167,548
(97,729)
(84,617)
–
(1,746)
(4,005)
(35,151)
(2,892)
(93)
–
(4,841)
(50,176)
(2,873)
(141,523)
(142,600)
32,705
77,272
(736)
(4,654)
(757)
(7,211)
(5,512)
(56)
(18,926)
58,346
794
25,855
1,837
(5)
27,766
1,861
(4,532)
50
150
53,776
4,570
58,346
24,948
64,431
(181)
(5,195)
(1,197)
(321)
(4,445)
–
(11,339)
53,092
794
25,855
751
(5)
24,331
1,691
(3,638)
50
150
49,979
3,113
53,092
The financial statements are also comprised of the notes on pages 51 to 87. The financial statements were approved by the Board of
Directors and authorised for issue on 11 March 2019 and were signed on its behalf by:
Mr S B Fenby
Director
Company registration number: 08793266
48 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Consolidated statement of changes in equity
for the year ended 31 December 2018
Share
capital
£’000
Share
premium
£’000
Share
based
payment
reserve
£’000
Investment
in own
share
£’000
Retained
earnings
£’000
Translation
reserve
£’000
Put
option
reserve
£’000
Capital
redemption
reserve
£’000
Other
reserve
£’000
Equity
attributable
to owners of
the Parent
£'000
Non-
controlling
interests
£’000
Total
£’000
794
25,855
751
(5)
24,331
1,691
(3,638)
50
150
49,979
3,113 53,092
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,120
(34)
–
–
–
–
14,724
–
–
170
–
14,724
170
–
–
–
–
–
–
–
(11,289)
–
–
–
–
–
–
–
–
–
(894)
–
794
25,855
1,837
(5)
27,766
1,861
(4,532)
–
–
–
–
–
–
–
50
–
–
–
–
–
–
–
14,724
561
15,285
170
(12)
158
14,894
549
15,443
1,120
(34)
–
–
1,120
(34)
(894)
908
14
(11,289)
– (11,289)
150
53,776
4,570 58,346
Balance at
1 January 2018
Profit for the year
Other
comprehensive
income
Total
comprehensive
income for the
year
Share based
payments
Deferred tax on
share based
payments
Acquisition of
subsidiary (note
33)
Dividends paid
Balance at 31
December 2018
For the year ended 31 December 2017
Share
capital
£’000
Share
premium
£’000
Share
based
payment
reserve
£’000
Investment
in own
share
£’000
Retained
earnings
£’000
Translation
reserve
£’000
Put
option
reserve
£’000
Capital
redemption
reserve
£’000
Other
reserve
£’000
Equity
attributable
to owners of
the Parent
£'000
Non-
controlling
interests
£’000
Total
£’000
794
25,855
84
(5)
19,765
717
(1,770)
50
150
45,640
952
46,592
Balance at
1 January 2017
Profit for the year
Other
comprehensive
income
Total
comprehensive
income for the
year
Acquisition of
non-controlling
interest (note 32)
Share based
payments
Deferred tax on
share based
payments
Acquisition of
subsidiary
(note 33)
Dividends paid
Balance at
31 December
2017
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
551
116
–
–
794
25,855
751
13,557
–
–
974
13,557
974
–
–
–
–
–
–
–
(79)
–
–
–
–
–
–
681
–
–
–
–
–
–
(2,549)
–
(5)
(8,912)
24,331
–
–
1,691
(3,638)
–
50
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,557
974
422
13,979
–
974
14,531
422
14,953
602
(602)
–
551
116
–
–
551
116
(2,549)
2,341
(208)
(8,912)
–
(8,912)
150
49,979
3,113
53,092
The financial statements are also comprised of the notes on pages 51 to 87.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
49
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Consolidated statement of cash flows
for the year ended 31 December 2018
Cash flows from operating activities
Profit before tax
Depreciation
Amortisation
Loss/(gain) on disposal of assets
Share based payments
Foreign exchange losses
Finance income
Finance costs
Profit from operations before changes in working capital
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Cash inflow from operations
Income tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of businesses, net of cash and debt acquired
Deferred consideration paid
Purchase of intangible assets
Purchase of plant and equipment
Proceeds on disposal of plant and equipment
Interest received
Net cash used in investing activities
Net cash flows from financing activities
Acquisition of non-controlling interest
Dividends paid
Invoice financing (outflows)/inflows
Proceeds from borrowings
Repayment of loans
Interest paid
Interest on finance leases
Capital element of finance lease payments
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Effects of exchange rate changes
Cash and cash equivalents at end of financial year
Comprising:
Cash at bank
Bank overdrafts
The financial statements are also comprised of the notes on pages 51 to 87.
50 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
2018
£’000
21,077
2,504
3,792
27
1,120
4
(81)
3,751
32,194
(9,468)
(3,221)
10,246
29,751
(7,377)
22,374
(5,152)
(5,507)
(778)
(2,360)
382
81
2017
£’000
18,898
1,793
3,230
(21)
551
156
(5)
1,916
26,518
(7,217)
(11,954)
14,724
22,071
(4,784)
17,287
(6,254)
(1,511)
(48)
(3,064)
528
5
(13,334)
(10,344)
–
(11,289)
(8,704)
10,668
(2,107)
(1,362)
(28)
(99)
(12,921)
(3,881)
20,010
228
16,357
16,685
(328)
16,357
(751)
(8,912)
5,673
–
(26)
(647)
(4)
(121)
(4,788)
2,155
17,201
654
20,010
28,203
(8,193)
20,010
Notes to the consolidated financial statements
1. Accounting policies
General information and nature of operations
The principal activity of Midwich Group plc, a public limited liability company, and its subsidiary companies is the distribution of
Audio-Visual Solutions to trade customers. It is registered in England and Wales. Midwich Group plc’s shares are listed on the
London Stock Exchange’s Alternative Investment Market (AIM).
Basis of preparation
The consolidated financial statements of Midwich Group plc (“the Group”) have been prepared in accordance with International
Financial Reporting Standards ("IFRSs"), as adopted by the EU, IFRIC interpretations and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
IFRS is subject to amendment and interpretation by the IASB and the IFRS Interpretations Committee, and there is an on-going
process of review and endorsement by the European Commission. These accounting policies comply with each IFRS that is
mandatory for accounting periods ending on 31 December 2018.
The financial statements have been prepared under the historical cost convention as modified for financial instruments at fair
value and in accordance with applicable accounting standards.
The directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future.
Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.
Basis of consolidation
The Consolidated Financial Statements incorporate the results of Midwich Group plc (“the Company”) and entities controlled by
the Company (its subsidiaries).
A subsidiary is a Company controlled directly by the Group. Control is achieved where the Group has the power over the investee,
rights to variable returns and the ability to use the power to affect the investee’s returns.
Income and expenses of subsidiaries acquired during the year are included in the consolidated income statement from the effective
date of control. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies
into line with those used by the Parent Company.
The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred, and the equity interests issued by the Group.
Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date. The Group recognises identifiable assets acquired and liabilities assumed in a business combination
regardless of whether they have been previously recognised in the acquiree’s financial statements prior to the acquisition.
Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value
of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair
value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values
of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in
profit or loss immediately.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein.
Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-
controlling shareholders’ share of changes in equity since the date of the combination.
Non-controlling interests are measured initially at fair value.
Acquisition-related costs are expensed as incurred.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
Acquisition of interests from non-controlling shareholders
Acquisitions of non-controlling interests in subsidiaries are accounted for as transactions between shareholders. There is no
re-measurement to fair value of net assets acquired that were previously attributable to non-controlling shareholders.
Going concern
The Board takes all reasonable steps to review and consider any factors that may affect the ability of the Group to continue as a
going concern. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show
that the Group is able to generate sufficient liquidity to continue in operational existence for the foreseeable future. During 2018
the Company agreed to a revolving credit facility (RCF) to support the acquisitive growth strategy. At the end of 2018 the directors
considered the working capital of the business to be adequate for its needs, and the Group therefore continues to adopt the going
concern basis in preparing consolidated financial statements. In February 2019, the Group increased both its working capital
facilities and revolving credit facility to increase headroom for future growth.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
51
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the consolidated financial statements continued
1. Accounting policies continued
Revenue
The majority of revenue arises from the sale of goods, rental of products and ancillary services including the provision of support
services, transport, warranties, and repairs.
To determine whether to recognise revenue, the Group follows a five-step process:
• Identifying the contract with a customer;
• Identifying the performance obligations;
• Determining the transaction price;
• Allocating the transaction price to the performance obligations; and
• Recognising revenue when/as performance obligation(s) is/are satisfied.
The Group often enters into transactions involving a range of the Group’s products and services, for example for the supply of
goods and provision of services. In all cases, the total transaction price for a contract is allocated amongst the various performance
obligations based on their relative stand-alone selling prices. The transaction price for a contract excludes any amounts collected
on behalf of third parties.
Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring
the promised goods or services to its customers.
The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports
these amounts as other liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation
before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial
position, depending on whether something other than the passage of time is required before the consideration is due.
The sale of goods for a fixed fee is recognised when or as the Group transfers control of the assets to the customer. Invoices for
goods or services transferred are due upon receipt by the customer.
For stand-alone sales of goods that are neither customised by the Group nor subject to significant integration services, control
transfers at the point in time the goods are despatched. When such items are either customised or sold together with significant
integration services, the goods and services represent a single combined performance obligation over which control is considered
to transfer over time. This is because the combined product is unique to each customer (has no alternative use) and the Group has
an enforceable right to payment for the work completed to date. Revenue for these performance obligations is recognised over
time as the customisation or integration work is performed, using the cost-to-cost method to estimate progress towards completion.
As costs are generally incurred uniformly as the work progresses and are considered to be proportionate to the entity’s performance,
the cost-to-cost method provides a faithful depiction of the transfer of goods and services to the customer.
Supplier income and vendor rebates
Promotional income is recognised on completion of the promotional activity in-line with when it is contractually earned, and
recorded separately in other operating income. Vendor rebates are recognised on completion of the contractual obligation
and recorded within cost of sales.
Finance income and costs
Interest income and expense is recognised using the effective interest method which calculates the amortised cost of a financial
asset or liability and allocates the interest income or expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability to the net
carrying amount of the financial asset or liability.
Other finance costs include the changes in fair value of derivatives and other financial instruments measured at fair value through
profit or loss.
Goodwill
Goodwill represents the future economic benefits arising from business combinations which are not individually identified and
separately recognised.
Goodwill is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.
52 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Intangible assets other than goodwill
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a
business combination is their fair value as at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment
losses, if any.
The useful lives of other intangible assets are assessed as finite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset
with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period
or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with
finite lives is recognised in profit or loss in administrative expenses.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds
and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.
Amortisation is calculated on a straight-line basis over the estimate useful life of the asset as follows:
Patent licences
Software
Brands
Customer relationships
Exclusive supplier contracts
3–10 years
3–10 years
5–15 years
5–15 years
5–15 years
Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation less any recognised impairment losses. Cost includes
expenditure that is directly attributable to the acquisition or construction of these items. Subsequent costs are included in the
asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and
the costs can be measured reliably. All other costs, including repairs and maintenance costs, are charged to the income statement
in the period in which they are incurred.
Depreciation is provided on all property, plant and equipment and is calculated on a straight-line basis as follows:
Land
Freehold land and buildings
Leasehold improvements
Not depreciated
50 years
Period of the lease
Plant and equipment (including rental assets)
3–10 years
Depreciation is provided on cost less residual value. The residual value, depreciation methods and useful lives are annually reassessed.
Each asset’s estimated useful life has been assessed with regard to its own physical life limitations and to possible future variations
in those assessments. Estimates of remaining useful lives are made on a regular basis for all machinery and equipment, with annual
reassessments for major items. Changes in estimates are accounted for prospectively.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However,
when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over
the shorter of the lease term and their useful lives.
The gain or loss arising on disposal or scrapping of an asset is determined as the difference between the sales proceeds, net of
selling costs, and the carrying amount of the asset and is recognised in the income statement.
Impairment of non-financial assets including goodwill
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units that is expected to
benefit from the synergies of the combination. Each unit to which goodwill is allocated represents the lowest level within the Group
that independent cash flows are monitored. A cash-generating unit to which goodwill has been allocated is tested for impairment
annually, or more frequently when there is indication that the unit may be impaired.
At each balance sheet date, the directors review the carrying amounts of the Group’s non-current assets, other than goodwill,
to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset
does not generate cash flows that are independent from other assets, the directors estimate the recoverable amount of the
cash-generating unit to which the asset belongs.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
53
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT
Notes to the consolidated financial statements continued
1. Accounting policies continued
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount
of the asset or cash-generating unit is reduced to its recoverable amount. The impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount
of each asset in the unit.
An impairment loss is recognised as an expense immediately.
An impairment loss recognised for goodwill is not reversed in subsequent periods.
Where an impairment loss on other non-financial assets subsequently reverses, the carrying amount of the asset or cash-generating
unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit
in prior periods. A reversal of an impairment loss is recognised in the income statement immediately.
Inventory
Inventory is valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow-moving items.
Cost comprises purchase price and directly attributable costs incurred in bringing products to their present location and condition.
Some goods are held on behalf of customers and are not included within the Group’s inventory.
Financial instruments
Financial instruments are comprised of financial assets and financial liabilities, which are recognised when the Group becomes
party to the contractual provisions of the instrument.
Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire or substantially all
the risks and rewards of ownership of the financial asset are transferred. Financial liabilities are derecognised when extinguished.
Financial assets
Financial assets include trade and other receivables, cash and cash equivalents, and derivative financial instruments with a positive
market value.
The Group classifies financial assets into three categories;
• financial assets measured at amortised cost;
• financial assets measured at fair value through other comprehensive income; and
• financial assets measured at fair value through profit or loss.
The classification of a financial asset depends on the Group’s business model for managing the asset and the contractual cash flow
characteristics associated with the asset.
Financial assets with embedded derivatives are recognised as hybrid contracts. Hybrid contracts are classified in their entirety and
not in separate components.
Investments in equity instruments that are not held for trading are classified as financial assets measured at fair value through profit
and loss unless the Group makes an irrevocable election on initial recognition to classify the asset as measured at fair value through
other comprehensive income.
Trade receivables that do not contain a significant financing component are initially measured at transaction price. All other financial
assets classified as either financial assets measured at amortised cost, or financial assets measured at fair value through other
comprehensive income are initially measured at fair value plus transaction costs directly attributable to the acquisition of the
financial asset.
Financial assets measured at fair value through profit and loss are initially measured at fair value and any transaction costs directly
attributable to the acquisition of the financial asset are recognised in the profit and loss.
Financial assets measured at amortised cost are subsequently measured using the effective interest method. The effects of
discounting within the effective interest method are omitted if immaterial. Where the contractual cash flows of the financial asset
are renegotiated or otherwise modified the financial asset is recalculated at the present value of the modified contractual cash
flows discounted at the financial asset’s original effective interest rate.
Financial assets measured at fair value through other comprehensive income and financial assets measured at fair value through
profit and loss are subsequently measured at fair value.
54 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Expected credit loss impairments are recognised in respect of financial assets measured at amortised cost and financial assets
measured at fair value through other comprehensive income immediately on initial recognition of the respective financial asset
being impaired.
Expected credit losses are measured using an expected credit loss model. The expected credit loss model reflects a probability
weighted amount derived from a range of possible outcomes that are discounted for the time value of money and based on
reasonable and supportable information.
Where trade receivables contain a significant financing component the Group applies the simplified approach to measure the loss
allowance at an amount equal to lifetime expected credit losses.
Financial liabilities
Financial liabilities include trade and other payables; put option liabilities; deferred consideration; bank loans, overdrafts and invoice
discounting facilities; and derivative financial instruments with a negative market value.
The Group classifies financial liabilities into six categories:
• financial liabilities measured at amortised cost;
• financial liabilities measured at fair value through profit or loss;
• financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing
involvement approach applies;
• financial guarantee contracts;
• commitments to provide loans at below market interest rates; and
• contingent consideration recognised in a business combination.
Financial liabilities measured at fair value through profit or loss are initially measured at fair value and any transaction costs directly
attributable to the issue of the financial liability are recognised in the profit and loss.
Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing
involvement approach applies are initially measured at the amount of the consideration received in respect of the financial asset.
All other financial liabilities are initially measured at fair value minus transaction costs directly attributable to the issue of the
financial liability.
Financial liabilities measured at amortised cost are subsequently measured using the effective interest method. The effects of
discounting within the effective interest method are omitted if immaterial. Where the contractual cash flows of the financial liability
are renegotiated or otherwise modified the financial liability is recalculated at the present value of the modified contractual cash
flows discounted at the financial liability’s original effective interest rate.
Financial liabilities measured at fair value through profit and loss are subsequently measured at fair value.
The subsequent measurement of financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition
or when the continuing involvement approach applies depends upon whether the transferred asset is measured at amortised cost
or fair value. If the transferred asset is measured at amortised cost then associated liability is measured in such a way that the net
carrying amount of the transferred asset and the associated liability is the amortised cost of the rights and obligations retained by
the entity. However, if the transferred asset is measured at fair value the associated liability is measured in such a way that the net
carrying amount of the transferred asset and the associated liability is equal to the fair value of the rights and obligations retained
by the entity when measured on a stand-alone basis.
Financial guarantee contracts are subsequently measured at the higher of the amount of the loss allowance calculated in
accordance with the expected credit loss model and the amount of the initially recognised.
Commitments to provide loans at below market interest rates are subsequently measured at the higher of the amount of the loss
allowance calculated in accordance with the expected credit loss model and the amount initially recognised.
Contingent consideration recognised in a business combination is subsequently measured at fair value.
Trade and other receivables
Trade and other receivables are financial assets recognised when the Group becomes party to the contractual provisions of
the instrument.
Trade receivables that do not contain a significant financing component are initially measured at transaction price, which is
equivalent to fair value. All other trade and other receivables are initially measured at fair value plus transaction costs directly
attributable to the acquisition of the financial asset. Trade and other receivables are subsequently measured at amortised cost
using the effective interest method, less loss allowances.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
55
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the consolidated financial statements continued
1. Accounting policies continued
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments
with original maturities of three months or less from inception.
Borrowings
Borrowings include bank loans and overdrafts, loan notes, amounts advanced under invoice factoring arrangements, and finance
leases. Bank loans and overdrafts, loan notes, and amounts advanced under invoice factoring arrangements are financial liabilities
that are recognised when the Group becomes party to the contractual provisions of the instrument.
Bank loans and overdrafts, loan notes, and amounts advanced under invoice factoring arrangements are initially measured at fair
value minus transaction costs directly attributable to the issue of the financial liability.
Bank loans and overdrafts, loan notes, and amounts advanced under invoice factoring arrangements are subsequently measured
using the effective interest method. The effects of discounting within the effective interest method are omitted if immaterial.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument,
those financial instruments are classified as financial liabilities.
Trade and other payables
Trade and other payables are financial liabilities recognised when the Group becomes party to the contractual provisions of
the instrument.
Trade and other payables are initially measured at fair value minus transaction costs directly attributable to the issue of the financial
liability. Trade and other payables are subsequently measured at amortised cost using the effective interest method.
Derivative financial instruments
Derivative financial instruments are recognised when the Group becomes party to the contractual provisions of the instrument.
Derivative financial instruments are initially and subsequently measured at fair value. Any transaction costs directly attributable
to the acquisition of the financial asset are recognised in the profit and loss. The fair values are determined by reference to active
markets or using a valuation technique where no active market exists.
Put option liabilities
Put options to acquire non-controlling interests of subsidiaries are initially recognised at present value and subsequently measured
at amortised cost, being the present value of future payments discounted at the original effective interest rate. Details of the
measurement of put options are given in the accounting judgements and key sources of estimation uncertainty accounting policy.
Foreign currency
The presentation currency for the Group’s consolidated financial statements is Sterling. Foreign currency transactions by group
companies are recorded in their functional currencies at the exchange rate at the date of the transaction. Monetary assets and
liabilities have been translated at rates in effect at the balance sheet date, with any exchange adjustments being charged or
credited to the income statement, within administrative expenses.
The Parent Company’s functional currency is Sterling. On consolidation the assets and liabilities of the subsidiaries with a functional
currency other than Sterling are translated into the Group’s presentational currency at the exchange rate at the balance sheet date
and the income and expenditure account items are translated at the average rate for the period. The exchange difference arising on
the translation from functional currency to presentational currency of subsidiaries is classified as other comprehensive income and
is accumulated within equity as a translation reserve. The balance of the foreign currency translation reserve relating to a subsidiary
that is disposed of, or partially disposed of, is recognised in the income statement at the time of disposal.
Current taxation
Current tax payable or recoverable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income
statement because some items of income or expense are taxable or deductible in different years or may never be taxable or
deductible. The Group’s liability for current tax is calculated using UK and foreign tax rates and laws that have been enacted or
substantively enacted by the end of reporting period date.
56 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Deferred taxation
Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred tax arises from the initial
recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss, it is not accounted for. No deferred tax is recognised on initial recognition of goodwill or
on investment in subsidiaries. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted
by the balance sheet date and are expected to apply when the related deferred tax asset is realised, or the deferred tax liability
is settled.
Deferred tax liabilities are provided in full and are not discounted.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the
temporary differences can be utilised.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where
they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited
directly to equity.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a
net basis.
Employment benefits
Provision is made in the financial statements for all employee benefits. Liabilities for wages and salaries, including non-monetary
benefit and annual leave obliged to be settled within 12 months of the balance sheet date, are recognised in accruals.
Contributions to defined contribution pension plans are charged to the income statement in the period to which the
contributions relate.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership
to the lessee. The interest element of finance lease payments is charged to profit or loss as finance costs over the period of the
lease. All other leases are classified as operating leases.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The
aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Equity
Equity comprises the following:
• “Share capital” represents the nominal value of equity shares issued.
• “Share premium” represents amounts subscribed for share capital, net of issue costs, in excess of nominal value.
• “Investment in own shares” represents amounts of the Parent Company’s own shares held within an Employee Benefit Trust.
• “Share based payment reserve” represents the accumulated value of share based payments expensed in the income statement.
• “Retained earnings” represents the accumulated profits and losses attributable to equity shareholders.
• “ Translation reserve” represents the exchange differences arising from the translation of the financial statements of subsidiaries
into the Group’s presentational currency.
• “ Put option reserve” represents the initial present value of written put and call options over shares in a subsidiary held by non-
controlling interest shareholders accounted for as contracts over own shares.
• “Capital redemption reserve” represents the nominal value of shares repurchased by the Parent Company.
• “Other reserve” relates to the Employee Benefit Trust.
• “ Non-controlling interest” represents the share of a subsidiary’s profit or loss and net assets that is not held by the Group.
The Group attributes total comprehensive income or loss of subsidiaries between the owners of the Parent and the non-
controlling interests based on their respective ownership interests.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
57
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the consolidated financial statements continued
1. Accounting policies continued
Share based payments
Equity-settled share based payments to employees and directors are measured at the fair value of the equity instrument.
The fair value of the equity-settled transactions with employees and directors is recognised as an expense over the vesting
period. The fair value of the equity instruments are determined at the date of grant, taking into account market based
vesting conditions. The fair value of goods and services received are measured by reference to the fair value of options.
The fair values of share options are measured using the Black-Scholes model. The expected life used in the models is adjusted,
based on management’s best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which the relevant employees (or other beneficiaries)
become fully entitled to the award (“the vesting date”).
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent
to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.
The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the
beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other
performance and/or service conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum
expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for any modification,
which increases the total fair value of the share based payment arrangement, or is otherwise beneficial to the employee as
measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated
as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the
original award, as described in the previous paragraph.
Where an equity-settled award is forfeited during the vesting period, the cumulative charge expensed up to the date of forfeiture
and is credited to the income statement.
Employee Benefit Trust
The assets and liabilities of the Employee Benefit Trust (EBT) have been included in the Group and Company financial statements.
Any assets held by the EBT cease to be recognised on the group balance sheet when the assets vest unconditionally in identified
beneficiaries.
The costs of purchasing own shares held by the EBT are shown as a deduction within shareholders' equity. The proceeds from the
sale of own shares are recognised in shareholders' equity. Neither the purchase nor sale of own shares leads to a gain or loss being
recognised in the income statement.
Segment reporting
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur
expenses (including revenues and expenses related to transactions with other components of the same entity), whose operating
results are regularly reviewed by the entity’s Chief Operating Decision Maker to make decisions about resources to be allocated
to the segment and assess its performance, and for which discrete financial information is available. The Chief Operating Decision
Maker has been identified as the Managing Director, at which level strategic decisions are made.
Details of the Group’s reporting segments are provided in note 2.
New and amended International Financial Reporting Standards adopted by the Group
The Group adopted IFRS 9 ‘Financial instruments’ and IFRS 15 ‘Revenue from contracts with customers’ on 1 January 2018. The
Group has elected to apply the modified retrospective approach to the transition to both IFRS 9 and IFRS 15. The modified
retrospective approach requires the transition to be implemented without restatement of the prior year results. The new standards
have not had a material impact on the reported results and there is no adjustment to equity at 1 January 2018 as a result of the
implementation of the new standards.
International Financial Reporting Standards in issue but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s
financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if
applicable, when they become effective.
58 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease,
SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS
16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account
for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard
includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g. personal computers) and short-term leases
(i.e. leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make
lease payments (i.e. the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e. the
right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation
expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term,
a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
IFRS 16, which is effective for annual periods beginning on or after 1 January 2019, requires lessees and lessors to make more
extensive disclosures than under IAS 17.
Transition to IFRS 16
The Group plans to adopt IFRS 16 retrospectively to each prior reporting period presented. The Group will elect to apply the
standard to contracts that were previously identified as leases applying IAS 17 and IFRIC 4. The Group will therefore not apply
the standard to contracts that were not previously identified as containing a lease applying IAS 17 and IFRIC 4.
The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12
months as of the date of initial application, and lease contracts for which the underlying asset is of low value. The Group has leases
of certain office equipment (i.e. personal computers, printing and photocopying machines) that are considered of low value.
During 2018, the Group has performed a detailed impact assessment of IFRS 16. In summary the impact of IFRS 16 adoption is
expected to be, as follows:
Impact on the statement of financial position as at 31 December 2018:
Assets
Goodwill
Property, plant and equipment (right-of-use assets)
Deferred tax
Liabilities
Lease liabilities
Impact on net assets and equity
Impact on the income statement for 2018:
Income statement
Increase in depreciation expense
Increase in foreign exchange gain
Decrease in operating lease expense
Increase in operating profit
Increase in finance costs
Decrease in tax cost
Decrease in profit for the year
£000
380
9,732
199
10,311
(10,538)
(227)
£000
1,654
(4)
(1,847)
(197)
239
(18)
24
Due to the adoption of IFRS 16, the Group’s operating profit will improve, while its interest expense will increase. This is due to the
change in the accounting for expenses of leases that were classified as operating leases under IAS 17.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
59
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the consolidated financial statements continued
1. Accounting policies continued
Use of alternative performance measures
The Group has defined certain measures that it uses to understand and manage performance. These measures are not defined
under IFRS and they may not be directly comparable with other companies’ adjusted measures. These non-GAAP measures are
not intended to be a substitute for any IFRS measures of performance, but management has included them as they consider them
to be key measures used within the business for assessing the underlying performance.
Growth at constant currency: This measure shows the year on year change in performance after eliminating the impact of foreign
exchange movement, which is outside of management’s control.
Organic growth: This is defined as growth at constant currency growth excluding acquisitions until the first anniversary of
their consolidation.
Adjusted operating profit: Adjusted operating profit is disclosed to indicate the Group’s underlying profitability. It is defined as profit
before acquisition related expenses, share based payments and associated employer taxes and amortisation of intangible assets.
Adjusted EBITDA: This represents adjusted operating profit plus the reported depreciation charge for the period.
Adjusted profit before tax: This is profit before tax adjusted for acquisition related expenses, share based payments and associated
employer taxes, amortisation of intangible assets, changes in contingent consideration and financing fair value remeasurements.
Adjusted profit after tax: This is profit after tax adjusted for acquisition related expenses, share based payments and associated
employer taxes, amortisation of intangible assets, changes in contingent consideration and financing fair value remeasurements
and the tax thereon.
Adjusted EPS: This is adjusted profit after tax less profit, amortisation and tax thereon due to non-controlling interests divided by
the number of shares in issue.
Accounting judgements and sources of estimation uncertainty
The preparation of financial statements in accordance with the principles of the IFRSs requires the directors to make judgements
and use estimation techniques in order to provide a fair presentation of the Group’s financial position and performance.
Accounting judgements represent the accounting decisions made by the directors that have the most significant effect on amounts
recognised in the financial statements. Sources of estimation uncertainty represent the assumptions made by management that
carry significant risks of a material adjustment to the value of assets and liabilities within the next financial year.
Judgements and estimates are evaluated based on historic experience, on-going developments within the Group, and reasonable
expectations of future events. Judgements and estimates are subject to regular review by the directors.
The following are the significant accounting judgements made by the Group in preparing the financial statements:
Symmetrical put and call options
As a result of a some of the acquisitions the Group has issued a number of symmetrical put and call options over non-controlling
interests held by local management.
The liability is recorded at the present value of the redemption amount and is accounted for as a separate component in equity
on the basis that the directors have judged that the Group does not currently hold the risks and rewards associated with ownership
of these shares. The key judgements in determining whether the risks and rewards regarding control have passed were the
proportionate right to dividends and determining if there is exposure to changes in value of shares.
The following are the significant sources of estimation uncertainty facing the Group in preparing the financial statements:
Aged inventory provisions
Aged inventory provisions are recognised in order to record inventory at the lower of cost and net realisable value. In order to
determine aged inventory provisions the Group is required to estimate the future sales volumes, sales prices, costs to sell inventory,
and shrinkage. The value of inventories and the amount of inventories impaired in the period are disclosed in note 15.
Fair value of separately identifiable intangible assets in business combinations
The Group is required to calculate the fair value of identifiable assets and liabilities acquired in business combinations. In order to
estimate the fair value of separately identifiable assets in business combinations certain assumptions must be made about future
trading performance, royalty rates, customer attrition rates, and supplier contract renewal rates. The fair values of assets and
liabilities acquired in business combinations are disclosed in note 33 and the carrying values of separately identifiable intangible
assets initially measured at fair value are disclosed in note 13.
60 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Contingent considerations and put option liabilities
The Group is required to record contingent considerations at fair value. The Group initially measures put option liabilities at present
value and subsequently measures put option liabilities at amortised cost using the effective interest rate method. Where the
contractual cash flows of the put option liability are renegotiated or otherwise modified the financial liability is recalculated at the
present value of the modified contractual cash flows discounted at the financial liability’s original effective interest rate. The Group
use a range of present valuation techniques including both the discount rate adjustment technique and the expected present value
technique in order to determine the fair values of contingent considerations and the present values of put option liabilities. The fair
value of contingent consideration is disclosed in note 22 and the amortised cost of put option liabilities is disclosed in note 21.
2. Segmental reporting
Operating segments
For the purposes of segmental reporting, the Group’s Chief Operating Decision Maker (“CODM”) is the Managing Director. The Group
is a distributor of audio-visual solutions to trade customers. The Board reviews attributable revenue, expenses, assets and liabilities
by geographic region and makes decisions about resources and assesses performance based on this information. Therefore, the
Group’s operating segments are geographic in nature.
On 1 January 2018 the Group restructured its internal reporting and combined the results of its previously reported segments into
three main trading segments.
2018
Revenue
Gross profit
Gross profit %
Adjusted operating profit
Costs of acquisitions
Share based payments
Employer taxes on share based payments
Amortisation
Operating profit
Interest
Profit before tax
Other segmental information
2018
Segment assets
Segment liabilities
Segment net assets
Depreciation
Other segmental information
Non-current assets
UK & Ireland
£’000
Continental
Europe
£’000
315,808
222,017
54,890
17.4%
19,567
–
(557)
(72)
(2,672)
16,266
33,086
14.9%
10,227
–
(382)
(109)
(1,050)
8,686
APAC
£’000
35,857
6,586
18.4%
2,936
–
(106)
(14)
(70)
Other
£’000
–
–
–
(2,485)
(365)
(75)
(26)
–
2,746
(2,951)
UK & Ireland
£’000
Continental
Europe
£’000
115,529
(101,431)
14,098
1,644
84,858
(45,705)
39,153
778
APAC
£’000
18,066
(12,957)
5,109
82
Other
£’000
342
(356)
(14)
–
Total
£’000
573,682
94,562
16.5%
30,245
(365)
(1,120)
(221)
(3,792)
24,747
(3,670)
21,077
Total
£’000
218,795
(160,449)
58,346
2,504
UK
£’000
21,853
International
£’000
22,714
Total
£’000
44,567
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
61
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the consolidated financial statements continued
2. Segmental reporting continued
2017
Revenue
Gross profit
Gross profit %
Adjusted operating profit
Costs of acquisitions
Share based payments
Employer taxes on share based payments
Amortisation
Operating profit
Interest
Profit before tax
Other segmental information
2017
Segment assets
Segment liabilities
Segment net assets
Depreciation
Other segmental information
Non-current assets
UK & Ireland1
£’000
283,712
45,830
16.2%
16,701
–
(351)
(66)
(2,450)
13,834
Continental
Europe1
£’000
156,163
21,637
13.9%
7,470
–
(142)
(50)
(730)
6,548
APAC
£’000
32,062
5,660
17.7%
2,576
–
(50)
–
(50)
Other1
£’000
–
–
–
(1,703)
(336)
(8)
(2)
–
2,476
(2,049)
UK & Ireland1
£’000
Continental
Europe1
£’000
122,259
(108,312)
13,947
1,281
73,242
(38,847)
34,395
385
APAC
£’000
11,223
(6,693)
4,530
127
Other1
£’000
307
(87)
220
–
Total
£’000
471,937
73,127
15.5%
25,044
(336)
(551)
(118)
(3,230)
20,809
(1,911)
18,898
Total
£’000
207,031
(153,939)
53,092
1,793
UK
£’000
25,135
International
£’000
14,348
Total
£’000
39,483
1 Restated to combine France, Germany and the Rest of Europe into one segment and show Group office functions within the Other segment due to internal
restructuring undertaken on 1 January 2018.
Revenue from the UK, being the domicile of the Parent Company amounted to £295,067k (2017: £264,514k).
Segment revenues above are generated from external customers. The accounting policies of the reportable segments have
been consistently applied. Segment profit represents the operating profit by each segment after amortisation of intangibles
arising on consolidation.
Intersegment sales during the year were as follows:
2018
Buying segment:
UK & Ireland
Continental Europe
APAC
Other
Selling segment:
£’000
UK & Ireland
Continental
Europe
APAC
Other
–
280
–
–
108
–
–
–
–
–
–
–
–
–
–
–
62 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
2017
Buying segment:
UK & Ireland
Continental Europe1
APAC
Other1
Selling segment:
£’000
UK & Ireland
Continental
Europe1
APAC
Other1
–
201
–
–
294
–
–
–
–
–
–
–
–
–
–
–
1 Restated to combine France, Germany and the Rest of Europe into one segment and show Group office functions within the Other segment due to internal
restructuring undertaken on 1 January 2018.
Information about major customers
Included in revenues arising in 2018 are revenues of £9.0m (2017: £9.3m) that arose from sales to the Group’s largest customer,
which is based in Germany. No single customer contributed 10% or more to the Group’s revenue in any period presented.
3. Revenue
Revenue is all derived from continuing operations. The analysis of revenue by category:
Sale of goods and ancillary services
Rental of goods
4. Other operating income
Promotional receipts
Other income
5. Operating profit
Operating profit is stated after charging:
Depreciation of property, plant and equipment
– owned assets
– assets held under finance lease
Amortisation of intangible fixed assets
Auditor’s remuneration
– audit service in relation to the Company
– audit services in relation to the subsidiaries
– audit related assurance services
– tax compliance services
– all other taxation advisory services
– services related to corporate finance
– all non-audit services not covered above
Difference on foreign exchange
Operating lease costs
– buildings
– motor vehicles
2018
£’000
570,107
3,575
573,682
2018
£’000
2,743
282
3,025
2017
£’000
469,021
2,916
471,937
2017
£’000
2,606
225
2,831
2018
£’000
2017
£’000
2,412
92
3,792
33
143
15
10
4
–
15
4
1,735
58
3,230
33
129
15
10
18
129
17
377
1,850
161
1,436
298
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
63
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the consolidated financial statements continued
6. Administrative expenses
Administrative expenses in the period include £365k of acquisition related costs (2017: £336k). For details of acquisitions in the year
see note 33.
7. Directors and employees
The aggregate payroll costs of the employees were as follows:
Staff costs
Wages and salaries
Social security costs
Pension costs
2018
£’000
34,519
4,458
974
39,951
2017
£’000
26,668
3,368
879
30,915
Average monthly number of persons, including directors, employed by the Group during the year was as follows:
By activity:
Administration
Sales and distribution
Remuneration of directors
Remuneration
Employer contribution to defined contribution schemes
Emoluments of highest paid director
Remuneration
Employer contribution to defined contribution scheme
2018
Number
2017
Number
155
637
792
2018
£’000
915
5
920
2018
£’000
420
–
420
131
515
646
2017
£’000
802
22
824
2017
£’000
411
13
424
Retirement benefits were accruing to 1 director (2017: 2) under a money purchase pension scheme. 100,000 share options were
granted to directors under the Long Term Incentive Plan.
Details of key management personnel and their remuneration is disclosed within note 34.
The directors’ remuneration report on page 30 of this annual report forms part of these financial statements.
8. Finance costs
Interest on overdraft and invoice discounting
Interest on finance leases
Interest on other loans
Interest, foreign exchange and other finance costs of deferred and contingent considerations
Interest, foreign exchange and other finance costs of put option liabilities
2018
£’000
1,042
28
151
2,219
311
3,751
2017
£’000
666
4
70
(81)
1,257
1,916
64 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
9. Taxation on ordinary activities
Analysis of charge
Current tax
UK corporation tax for the current year
Adjustment in respect of prior years
Total UK current tax
Overseas tax for the current year
Adjustment in respect of prior years
Total overseas current tax
Total current tax
Deferred tax
Deferred tax for the current year
Adjustment in respect of prior years
Total deferred tax
Tax on profit on ordinary activities
2018
£’000
2,967
(358)
2,609
4,186
518
4,704
7,313
(1,181)
(340)
(1,521)
5,792
2017
£’000
2,579
–
2,579
3,054
–
3,054
5,633
(714)
–
(714)
4,919
The reasons for the differences between the actual tax charge for the year and the standard rate of corporation tax in the United
Kingdom applied to profits/(losses) for the year are as follows:
Reconciliation of the effective tax charge:
Profit on ordinary activities before taxation
Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 19% (2017: 19.25%)
Factors affecting tax expense for the year:
Adjustment in respect of prior years
Expenses not deductible for tax purposes
Effects of different tax rates in foreign jurisdictions
Differences in tax rates
Effects of changes in tax rates
Total amount of tax
2018
£’000
21,077
4,005
(180)
697
1,194
77
(1)
5,792
2017
£’000
18,898
3,638
–
328
1,067
–
(114)
4,919
The main UK Corporation tax rate from 1 April 2016 of 20% was reduced to 19% from 1 April 2017, resulting in an effective corporation
tax rate of 19% for 2018 (2017: 19.25%). The Finance Act 2017 (No. 2) was substantially enacted on the 31 October 2017 and maintains
the decision to reduce the main rate of corporation tax from 19% to 17% from 1 April 2020.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
65
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the consolidated financial statements continued
9. Taxation on ordinary activities continued
Deferred tax
At 1 January 2017
Acquired in business combinations
Credited to income statement
Credited to equity
Other balance sheet movement
At 31 December 2017
Acquired in business combinations
Credited to income statement
Credited to equity
Other balance sheet movement
At 31 December 2018
Presentation of deferred tax in balance sheet:
Deferred tax asset
Deferred tax liability
Net deferred liability
Accelerated
capital
allowances
£'000
Company
share
schemes
£'000
3,430
1,439
(617)
–
35
4,287
1,749
(1,389)
–
(30)
4,617
Total
£'000
3,414
1,439
(714)
(116)
35
4,058
1,749
(1,521)
34
(30)
(16)
–
(97)
(116)
–
(229)
–
(132)
34
–
(327)
4,290
2018
£'000
1,222
(5,512)
(4,290)
2017
£'000
387
(4,445)
(4,058)
10. Earnings per share
Basic earnings per share is calculated by dividing the profit after tax attributable to equity shareholders of the Company by the
weighted average number of shares in issue during the year.
Diluted earnings per share is calculated by dividing the profit after tax attributable to equity shareholders of the Company adjusted
for the fair value (measured in accordance with IFRS 2) of any goods or services to be supplied to the Group in the future under the
share options granted by the balance sheet date by the weighted average number of shares in issue during the year adjusted for
the effects of all dilutive potential Ordinary Shares.
Profit attributable to equity holders of the Group (£’000)
Weighted average number of shares in issue
Potentially dilutive effect of the Group’s share option schemes
Weighted average number of diluted Ordinary Shares
Basic earnings per share
Diluted earnings per share
2018
14,724
2017
13,557
79,448,200
79,448,200
725,002
305,464
80,173,202
79,753,664
18.53p
18.36p
17.06p
17.00p
66 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
11. Subsidiaries
The following principal subsidiary undertakings have been included within the consolidated financial statements and are all held
indirectly unless otherwise stated:
Name
Midwich Limited1
Principal activity
Country of
incorporation
Distribution of audio-visual products to
trade customers
England and Wales
Midwich Employees’ Trustees Limited
True Colours Distribution Limited
Dormant
Dormant
Invision UK Ltd
Distribution of audio-visual products to
trade customers
England and Wales
England and Wales
England and Wales
Square One Distribution Limited
Distribution of audio-visual products to
trade customers
Republic of Ireland
Sidev SAS
Midwich Australia Pty Limited
Midwich Limited
Kern & Stelly Medientechnik GmbH
PSCo Limited2
Holdan Limited3
Earpro S.A.4
Distribution of audio-visual products to
trade customers
France
Distribution of audio-visual products to
trade customers
Australia
Distribution of audio-visual products to
trade customers
New Zealand
Distribution of audio-visual products to
trade customers
Germany
Dormant
Distribution of professional broadcast
equipment to trade customers
England and Wales
England and Wales
Distribution of audio-visual and lighting
products to trade customers
Spain
Gebroeders van Domburg B.V.5
Holding company
Van Domburg Partners B.V.5
Transport en Opslagbedrijf
Van Domburg B.V.5
Van Domburg Services B.V.5
Dutch Light Pro B.V.5
Sound Technology Limited6
Bauer & Trummer GmbH7
Sound Directions France SAS8
Holdan Benelux B.V.9
Blonde Robot Pty Limited10
Blonde Robot Limited10
Blonde Robot Pte Limited10
Blonde Robot Sdn Bhd10
Distribution of audio-visual products to
trade customers
Provision of logistics services to trade
customers
Netherlands
Netherlands
Netherlands
Provision of administration and support to
other companies within the segment
Netherlands
Distribution of lighting products to trade
customers
Netherlands
Distribution of professional audio, musical
and lighting products to trade customers
England and Wales
Distribution of professional broadcast
equipment to trade customers
Distribution of professional audio
products to trade customers
Dormant
Distribution of audio-visual products to
trade customers
Germany
France
Netherlands
Australia
Distribution of audio-visual products to
trade customers
Hong Kong
Dormant
Dormant
Singapore
Malaysia
% ownership held by the Group
2018
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
89%
88%
70%
70%
70%
70%
70%
100%
100%
100%
100%
65%
65%
65%
65%
2017
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
89%
88%
70%
70%
70%
70%
70%
100%
–
–
–
–
–
–
–
1
Investments held directly by Midwich Group plc.
2 Company dissolved 15 May 2018.
3 Acquired 7 September 2016. See “Holdan” acquisition in note 33.
4 Acquired 27 March 2017. See “Earpro” acquisition in note 33.
5 Acquired 6 September 2017. See “van Domburg” acquisition in note 33.
6 Acquired 30 November 2017. See “Sound Technology” acquisition in note 33.
7 Acquired 23 August 2018. See “New Media” acquisition in note 33.
8 Acquired 5 September 2018. See “Perfect Sound” acquisition in note 33.
9 Incorporated on 11 October 2018.
10 Acquired 4 December 2018. See “Blonde Robot” acquisition in note 33.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
67
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the consolidated financial statements continued
12. Goodwill
Cost
At 1 January 2017
On acquisition of Earpro
On acquisition of van Domburg
On acquisition of Sound Technology
Foreign exchange gain/(loss)
At 31 December 2017
On acquisition of New Media
On acquisition of Perfect Sound
On acquisition of Blonde Robot
Foreign exchange gain/(loss)
At 31 December 2018
£’000
4,557
1,009
2,667
851
10
9,094
1,004
173
924
(7)
11,188
Allocation of goodwill to cash generating units
Goodwill is not amortised but tested for impairment annually with the recoverable amount being determined from value in use
calculations. Goodwill has been allocated for impairment testing to groups of Cash Generating Units (CGUs) for each operating
segment, as follows:
Allocation of goodwill to groups of CGUs
United Kingdom & Ireland
Continental Europe1
APAC
Other1
2018
£’000
4,734
5,456
998
–
11,188
2017
£’000
4,730
4,244
120
–
9,094
1 Restated to combine France, Germany and the Rest of Europe into one segment and show Group office functions within the Other segment due to internal
restructuring undertaken on 1 January 2018.
The value in use calculation is based on cash flow projections from a formally approved 12-month forecast which has been
extrapolated using an individual growth rate expected for each group of CGUs over a five-year period from the balance sheet date
and cash flows beyond this period exclude growth. Management has concluded that there are no reasonably possible changes in
any key assumptions that would cause the carrying amount of goodwill to exceed the value in use.
Other major assumptions are as follows:
Forecast profitability assumptions
Management’s key assumptions are the achievement of the forecast profits for the 12-month period after the balance sheet date
and stable long-term profit margins. The 12-month forecast data is based on the most recent annual financial statements adjusted
for management’s best estimates of reasonable growth.
Growth rates
The annual growth rates used to extrapolate the approved forecast for years two to five within the value in use calculation are
between 0% – 2.5% (2017: 0% – 2.5%). The growth rates are based on economic data for the wider economy and represent a prudent
expectation of growth.
Discount rates
Discount rates are based on management’s assessment of the specific risks relating to the groups of CGUs within each operating
segment. Discount rates used in the value in use calculation for assessing the recoverable amount of goodwill for each operating
segment are as follows:
Operating segment
United Kingdom & Ireland
Continental Europe1
APAC
Other1
68 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
2018
2017
11.0–11.7%
10.6–11.0%
10.3–13.1%
10.7–11.1%
10.6–11.3%
–%
10.6%
–%
The recoverable amounts for each operating segment’s group of CGUs exceed the carrying amounts by the following amounts in
each year assessed:
Amount by which recoverable amount exceeds carrying amount:
United Kingdom & Ireland1
Continental Europe1
APAC
Other1
Total
2018
£’000
185,786
105,017
42,621
–
2017
£’000
189,374
93,410
26,034
–
333,424
308,818
1 Restated to combine France, Germany and the Rest of Europe into one segment and show Group office functions within the Other segment due to internal
restructuring undertaken on 1 January 2018.
The directors believe that any reasonable change in the key assumptions on which recoverable amount is based would not cause
the aggregate carrying amount to exceed the aggregate recoverable amount for any of the cash-generating units.
13. Intangible assets
Cost
At 1 January 2017
On acquisition
Additions
Disposals
Foreign exchange differences
At 31 December 2017
On acquisition
Additions
Disposals
Foreign exchange differences
At 31 December 2018
Amortisation
At 1 January 2017
Charge for year
Disposals
Foreign exchange differences
At 31 December 2017
Charge for year
Disposals
Foreign exchange differences
At 31 December 2018
Net book value
At 31 December 2017
At 31 December 2018
Assets in the
course of
construction
£’000
Patents and
software
£’000
Brands
£’000
Customer
relations
£’000
Supplier
contracts
£’000
–
–
–
–
–
–
–
598
–
–
598
–
–
–
–
–
–
–
–
–
–
598
310
110
48
(14)
6
460
15
180
(3)
2
654
86
125
(14)
4
201
172
–
2
375
259
279
3,600
415
–
–
38
4,053
625
–
–
(3)
20,602
2,918
–
–
207
23,727
2,964
–
–
(12)
4,675
26,679
1,067
377
–
13
1,457
465
–
5
5,948
2,276
–
83
8,307
2,504
–
30
1,745
3,041
–
–
37
4,823
1,935
–
–
(12)
6,746
336
452
–
–
788
651
–
4
Total
£’000
26,257
6,484
48
(14)
288
33,063
5,539
778
(3)
(25)
39,352
7,437
3,230
(14)
100
10,753
3,792
–
41
1,927
10,841
1,443
14,586
2,596
2,748
15,420
15,838
4,035
5,303
22,310
24,766
Included within intangible assets are £23,317k of separately identifiable intangible assets that were measured at fair value on
acquisition in business combinations. These assets have subsequently been measured at amortised cost. The fair value of
separately identifiable intangible assets is calculated based on the estimation of future trading performance, royalty rates,
customer attrition rates, and supplier contract renewal rates. If the estimated fair values of intangible assets on acquisition
were 10% higher or 10% lower the effect would be a decrease or increase of £271k respectively in profit after tax for the year.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
69
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT
Notes to the consolidated financial statements continued
14. Property, plant and equipment
Freehold land
and buildings
£’000
Leasehold
improvements
£’000
Rental assets
£’000
Plant and
equipment
£’000
Cost
At 1 January 2017
Additions on acquisition
Additions
Disposals
Foreign exchange differences
At 31 December 2017
Additions on acquisition
Additions
Disposals
Foreign exchange differences
At 31 December 2018
Depreciation
At 1 January 2017
Charge for year
Disposals
Foreign exchange differences
At 31 December 2017
Charge for year
Disposals
Foreign exchange differences
At 31 December 2018
Net book value
At 31 December 2017
At 31 December 2018
2,795
–
30
–
–
2,825
–
12
–
–
2,837
79
53
–
–
132
53
–
–
185
2,693
2,652
390
–
16
(16)
(3)
387
116
49
(43)
(12)
497
71
44
(15)
–
100
44
(43)
(4)
97
287
400
935
–
2,222
(881)
–
2,276
–
1,269
(728)
–
2,817
151
827
(472)
–
506
1,200
(463)
–
1,243
1,770
1,574
Included in freehold land and buildings is land at £255k (2017: £255k) that is not depreciated.
Included within the net book values above are amounts relating to assets held under finance leases:
Plant and equipment
The depreciation charged to the financial statements in each year in respect of such assets amounted to:
Plant and equipment
2,302
1,782
869
(791)
62
4,224
133
1,030
(465)
32
4,954
1,086
869
(690)
17
1,282
1,207
(323)
23
2,189
2,942
2,765
2018
£’000
253
253
2018
£’000
92
92
Total
£’000
6,422
1,782
3,137
(1,688)
59
9,712
249
2,360
(1,236)
20
11,105
1,387
1,793
(1,177)
17
2,020
2,504
(829)
19
3,714
7,692
7,391
2017
£’000
324
324
2017
£’000
58
58
70 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
15. Inventories
Finished goods for resale
2018
£’000
74,379
74,379
2018
£’000
2017
£’000
62,984
62,984
2017
£’000
Amounts of inventories recognised as an expense during the period as cost of sales (gross of vendor rebates) are:
491,303
407,596
Amounts of inventories impaired during the period are:
16. Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
2018
£’000
115
2018
£’000
78,136
790
4,213
83,139
2017
£’000
167
2017
£’000
73,325
245
2,791
76,361
Trade receivables includes an amount of £32,829k (2017: £41,534k) which is subject to a receivables financing agreement.
The directors consider the carrying value of trade and other receivables is approximate to its fair value.
All of the Group’s trade and other receivables have been reviewed for indicators of impairment. The Group suffers a small incidence of
credit losses. However, where management views that there is a significant risk of non-payment, a specific provision for impairment is
made and recognised as a deduction from trade receivables.
Impairment provision at 1 January
Impairments arising on acquisitions
New impairment provision in the year
Release of impairment provision against written off receivables
Foreign exchange variance
Impairment provision at 31 December
The amount of trade receivables past due but not impaired at each balance sheet date is as follows:
Trade receivables past due but not impaired at 31 December
17. Cash and cash equivalents
Cash at bank (GBP)
Cash at bank (EUR)
Cash at bank (USD)
Cash at bank (AUS $)
Cash at bank (NZ $)
All significant cash and cash equivalents were deposited with major clearing banks with at least an ‘A’ rating.
2018
£’000
1,386
32
171
(47)
8
1,550
2018
£’000
1,303
2018
£’000
737
13,413
1,679
510
346
2017
£’000
791
2,610
436
(2,470)
19
1,386
2017
£’000
1,157
2017
£’000
10,738
16,259
763
238
205
16,685
28,203
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
71
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT
Notes to the consolidated financial statements continued
18. Trade and other payables
Amounts falling due within one year:
Trade payables
Other taxation and social security
Other payables
Accruals and deferred income
Amounts falling due after one year:
Trade payables
Accruals and deferred income
19. Provisions
Dilapidations provision
Dilapidations provision at 1 January
Dilapidations provision arising on acquisitions
Foreign exchange variance
Dilapidations provision at 31 December
20. Derivative financial instruments
Derivative financial assets
Foreign currency call options (see note 24)
Derivative financial liabilities
Forward exchange contracts (see note 24)
Net derivative financial instruments
2018
£’000
75,361
10,763
582
11,023
97,729
2018
£’000
253
483
736
2018
£’000
56
2018
£’000
–
58
(2)
56
2017
£’000
66,117
9,522
486
8,492
84,617
2017
£’000
–
181
181
2017
£’000
–
2017
£’000
–
–
–
–
2018
£’000
2017
£’000
25
–
25
–
(93)
(93)
During the year the Group entered into foreign currency call options and forward exchange contracts in relation to foreign
currencies. Details of the Group’s management of foreign exchange risk are included in note 25.
21. Put option liabilities
Current:
Put option liabilities (see note 24)
Non-current:
Put option liabilities (see note 24)
Total put option liabilities
2018
£’000
2017
£’000
1,746
–
4,654
6,400
5,195
5,195
During the year the Group entered into a symmetrical put and call option contract to acquire the non-controlling interests created
by the Blonde Robot acquisition (see note 33). The non-controlling interests are due to be acquired when the put and call options
are timed to be exercised in 2021.
72 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
During the prior year the Group entered into symmetrical put and call option contracts to acquire the non-controlling interests that
were created by the Earpro and van Domburg acquisitions (see note 33). The non-controlling interests are due to be acquired when
the put and call options are timed to be exercised in 2020.
The classification between current and non-current liabilities is based on management’s best estimates of when the options will
be exercised.
22. Deferred consideration
Current:
– Deferred consideration at amortised cost
– Contingent consideration
Total current deferred consideration
Non-current:
– Contingent consideration
Total non-current deferred consideration
Total deferred consideration at amortised cost
Total contingent consideration
Total deferred consideration
2018
£’000
–
4,005
4,005
757
757
–
4,762
4,762
2017
£’000
4,719
122
4,841
1,197
1,197
4,719
1,319
6,038
During the year the Group acquired Bauer & Trummer GmbH (“New Media”), Sound Directions France SAS (“Perfect Sound”), and the
Blonde Robot Pty Limited group of companies (“Blonde Robot”). Deferred consideration in relation to the New Media acquisition is
due to be settled in instalments in 2019 and 2020. Deferred consideration in relation to Perfect Sound is due to be settled in
instalments in 2020, 2021 and 2022.
During the prior year, the Group acquired Earpro S.A. (“Earpro”), the Gebroders van Domburg B.V. group of companies (“van Domburg”)
and Sound Technology Limited (“Sound Technology”) (see note 33). Deferred consideration in relation to the Earpro and Sound
Technology acquisitions was settled in the year. Deferred contingent consideration in relation to the van Domburg acquisition was
part settled by a payment in the year and a second instalment is due to be paid in 2019.
The total fair value of contingent consideration has been valued at £4,762k at 31 December 2018 (2017: £1,319k).
The fair value of deferred contingent consideration is based on estimations of future trading performance and discount factors.
If the estimated future trading performance were 10% higher or 10% lower the effect would be an increase of £1,124k and a decrease
of £690k respectively in the fair value of the deferred contingent consideration liability. If the estimated discount factors were
1 percentage point higher or lower the effect would be a decrease or increase respectively of £19k in the fair value of the deferred
contingent consideration liability.
23. Borrowings
Secured – at amortised cost
– Bank overdrafts and invoice discounting
– Bank loans
– Finance leases (see note 27)
Unsecured – at amortised cost
– Unsecured loan notes
Total secured and unsecured borrowings
Current
Non-current
2018
£’000
33,157
8,689
242
42,088
274
42,362
35,151
7,211
42,362
2017
£’000
49,727
236
369
50,332
165
50,497
50,176
321
50,497
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Notes to the consolidated financial statements continued
23. Borrowings continued
Summary of borrowing arrangements:
The Group has overdraft facilities which comprised £328k at the end of 2018 (2017: £8,193k). The facilities are uncommitted and
secured with fixed and floating charges over the assets of the Group. Included within overdraft facilities as at 31 December 2018
is £196K that was an overdraft facility acquired as part of the Blonde Robot acquisition.
The Group has invoice discounting facilities which comprised £32,829k at the end of 2018 (2017: £41,534k). The facilities comprise fully
revolving receivables financing agreements which are secured on the underlying receivables and have no fixed repayment dates.
The Group has loans of £8,963k at the end of 2018 (2017: £401k). The loans are secured with fixed and floating charges over the
assets of the Group with the exception of £274k (2017: £165k), which is unsecured. Included within loans as at 31 December 2018
is £1,445k that were loans acquired as part of the New Media, Perfect Sound, and Blonde Robot acquisitions. The Group is subject
to covenants under its Revolving Credit Facility and if the Group defaults under these covenants, it may not be able to meet its
payment obligations.
The Group has finance leases of £242k at the end of 2018 (2017: £369k). Included within finance leases as at 31 December 2018
is £20K that were finance leases acquired as part of the Blonde Robot acquisition.
For details of finance leases please refer to note 27.
Reconciliation of liabilities arising from financing activities
At 1 January 2018
Cash flows:
(Repaid)/advanced
Non-cash:
Acquisitions
24. Financial instruments
Long term
borrowings
£’000
Short term
borrowings
£’000
165
49,963
Finance
leases
£’000
369
Total
£’000
50,497
5,199
(15,206)
(149)
(10,156)
1,781
7,145
218
34,975
22
242
2,021
42,362
Classification of financial instruments
The fair value hierarchy allocates financial assets and liabilities to groups according to three levels based on the significance of
inputs used in measuring the fair value of the financial assets and liabilities.
The fair value hierarchy has the following levels:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to
the fair value measurement. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the year
(2017: none).
Financial instruments measured at fair value through profit or loss comprise forward contracts and contingent consideration.
As at 31 December 2018 the Group had foreign currency call options, which were measured at fair value. The valuation of the
forward exchange contracts is based on observable inputs other than quoted prices and hence is a level 2 valuation.
The contingent considerations in relation to the acquisitions of Perfect Sound, New Media, and van Domburg (see note 22) have
been measured at fair value. The valuation of the contingent consideration is based on unobservable inputs and hence is a level 3
valuation. The fair value has been calculated using the expected present value technique using a discount factor based on the
risk-free rate that has been adjusted to include systematic risk. Discount factors of 6.4%, 6.6%, and 7.7% respectively have been
applied to probability weighted cash flows that are not certainty-equivalent because they have not been adjusted to exclude
systematic risk.
74 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
The put option liabilities held by the Group to acquire the remaining non-controlling interests that arose in the Blonde Robot and van
Domburg acquisitions (see note 33) were initially measured at present value. The valuations of the put option liabilities were based
on unobservable inputs and hence were level 3 valuations. The discount factors of 5.9% and 7.7% respectively were applied to
probability weighted cash flows that are not certainty-equivalent because they were not adjusted to exclude systematic risk. The
put option liabilities are subsequently measured at amortised cost using the effective interest method. However, when contractual
cash flows relating to the put option are modified the put option liability is remeasured at present value using the original effective
interest rate. Due to modifications in the contractual cash flows the put option liabilities were subsequently remeasured to present
value at the year end.
The put option liabilities held by the Group to acquire the remaining non-controlling interest that arose in the Earpro acquisition
(see note 33) and the Holdan Limited acquisition in 2016 were initially measured at present value. The valuations of the put option
liabilities were based on unobservable inputs and hence were level 3 valuations. The present value was calculated using the
discount rate adjustment technique using a discount rate derived from market data for comparable assets. The discount rate of
8.2% was applied to the most likely cash flows. The put option liabilities are subsequently measured at amortised cost using the
effective interest method. However, when contractual cash flows relating to the put option are modified the put option liability is
remeasured at present value using the original effective interest rate. Due to modifications in the contractual cash flows the put
option liabilities were subsequently remeasured to present value at the year end.
In 2017 the Group exercised part of the put option in relation to Holdan Limited and acquired half of the non-controlling interest
(see note 32).
The expected cash flows in relation to the put option liabilities are provided in note 25.
The reconciliation of the carrying amounts of the put options is as follows:
Brought forward
Interest costs1
Other finance being movement in fair value and foreign exchange1
Extinguished on partial acquisition of non-controlling interest2
Recognition of new put option on acquisitions
Interest costs on new put option1
Other finance being movement in fair value on new put option1
At 31 December
Current
Non-current
2018
£’000
5,195
302
(41)
–
5,456
894
4
46
6,400
1,746
4,654
6,400
2017
£’000
2,139
202
44
(750)
1,635
2,549
132
879
5,195
–
5,195
5,195
1 A total of £311k has been recognised within finance costs in the Income Statement for these transactions (2017: £1,257k).
2 See note 32 for details of the acquisitions of non-controlling interest.
The tables below set out the Group’s accounting classification of each class of its financial assets and liabilities.
Financial assets
Financial assets at amortised cost
Trade and other receivables (note 16)
Cash and cash equivalents (note 17)
2018
£’000
78,926
16,685
95,611
2017
£’000
73,570
28,203
101,773
All of the above financial assets’ carrying values are approximate to their fair values, as at each reporting date disclosed.
Financial assets at fair value through profit or loss
Derivative financial instruments (note 20)
2018
£’000
25
2017
£’000
–
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
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24. Financial instruments continued
Financial liabilities at amortised cost
Trade and other payables (note 18)
Accruals (note 18)
Finance lease payables (note 27)
Put option liabilities (note 21)
Bank loans, overdrafts and invoice discounting (note 23)
Deferred consideration (note 22)
Unsecured loan notes (note 23)
2018
£’000
76,196
11,506
242
6,400
41,846
–
274
2017
£’000
66,603
8,673
369
5,195
49,963
4,719
165
136,464
135,687
All of the above financial liabilities’ carrying values are considered by management to be approximate to their fair values, as at each
reporting date disclosed.
Financial liabilities at fair value through profit or loss
Derivative financial instruments (note 20)
Contingent consideration
Contingent consideration (note 22)
2018
£’000
–
2018
£’000
4,762
2017
£’000
93
2017
£’000
1,319
25. Financial instrument risk exposure and management
The Group’s operations expose it to degrees of financial risk that include liquidity risk, credit risk, interest rate risk, and foreign
currency risk.
This note describes the Group’s objectives, policies and process for managing those risks and the methods used to measure
them. Further quantitative information in respect of these risks is presented in notes 16 to 24.
Credit risk
The Group’s credit risk is primarily attributable to its cash balances and trade receivables. The Group does not have a significant
concentration of risk, with exposure spread over a number of third parties. The risk is further mitigated by insurance of the trade
receivables.
The credit risk on liquid funds is limited because the third parties are large international banks with a credit rating of at least A.
The Group’s total credit risk amounts to the total of the sum of the trade receivables and cash and cash equivalents. At 31 December
2018 total credit risk amounted to £94,821k (2017: £101,528k).
Interest rate risk
The interest on borrowings, being overdraft and invoice discounting facilities with HSBC Bank plc, a loan and invoice discounting
facility with Barclays Bank PLC, and an invoice discount facility with Lloyds Bank Commercial Finance Ltd, is variable. During the
year the Group moved an invoice discounting facility with Coöperatieve Rabobank U.A. to HSBC Bank plc.
Based on year end balances a 1% increase in interest rates would impact profit and equity by £421k (2017: £500k).
The interest received on the cash held on deposit is immaterial.
76 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Foreign exchange risk
The Group is largely able to manage its exchange rate risk through the natural matching of payments and receipts denominated in
the same currencies. Any exposure tends to be on the payment side and is mainly in relation to the Sterling strength relative to the
Euro or US Dollar. This transactional risk is considered manageable as the proportion of Group procurement that is not sourced in
local currency is small. However, on occasions the Group does buy foreign currency call options and forward contracts to mitigate
this risk.
The Group does hold material non-domestic balances on occasions and currently does not take any action to mitigate this risk.
Inter-company balances between trading entities tend to be short term and repaid within the month. The Group is able to manage
its exchange rate risk through the natural matching of payments and receipts denominated in the same currencies.
The Group reports in Pounds Sterling (GBP) but has significant revenues and costs as well as assets and liabilities that are denominated
in Euros (EUR) and Australian Dollars (AUD). The table below sets out the prevailing exchange rates in the periods reported.
Annual average
Year end
EUR/GBP
AUD/GBP
NZD/GBP
USD/GBP
2018
1.129
1.780
1.923
1.337
2017
1.145
1.688
1.814
1.289
Applying the current period foreign exchange rates to the reported results for 2017 had the following effect:
Currency
Increase/(decrease) in revenue due to movement in foreign exchange rate:
Increase/(decrease) in profit before tax due to movement in foreign exchange rate:
Increase/(decrease) in net debt due to movement in foreign exchange rate:
EUR
£000
1,871
87
69
2018
1.115
1.809
1.902
1.277
AUD
£000
(1,516)
(113)
(8)
2017
1.126
1.725
1.895
1.349
NZD
£000
(154)
(14)
(1)
The following table illustrates the sensitivity of the reported profit before tax and equity for 2018 to material exchange rate
movements in the pound relative to the Euro, Australian dollar and New Zealand dollar.
It assumes a +/- 10% change in GBP relative to the average and closing rates for these currencies employed in 2018.
If the GBP had strengthened against the above currencies by 10%, the impact, in GBP terms, on the 2018 financial statements
would have been:
2018
Profit before tax
Equity
EUR
£’000
(1,105)
(2,799)
AUD
£’000
(222)
(269)
NZD
£’000
(25)
(32)
USD
£’000
(2)
(8)
If the GBP had weakened against the above currencies by 10%, the impact, in GBP terms, on the 2018 financial statements would
have been:
2018
Profit before tax
Equity
EUR
£’000
1,350
3,423
AUD
£’000
272
331
NZD
£’000
28
37
USD
£’000
3
4
Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash balances to ensure the Group can meet liabilities as they
fall due, and ensuring adequate working capital using bank borrowing arrangements.
In managing liquidity risk, the main objective of the Group is therefore to ensure that it has the ability to pay all of its liabilities as
they fall due. The Group monitors its levels of working capital to ensure that it can meet its liability payments as they fall due.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
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25. Financial instrument risk exposure and management continued
The tables below show the undiscounted cash flows on the Group’s financial liabilities as at 31 December 2018 and 2017, on the
basis of their earliest possible contractual maturity:
At 31 December 2018
Trade payables
Other payables
Put option liabilities
Finance lease payables
Accruals
Bank overdrafts, loans and invoice discounting
Deferred consideration
At 31 December 2017
Trade payables
Other payables
Derivative financial instruments
Put option liabilities
Finance lease payables
Accruals
Bank overdrafts, loans and invoice discounting
Deferred consideration
142,075
112,310
Total
£’000
75,614
582
7,082
266
11,506
42,120
4,905
Total
£’000
66,117
486
93
5,461
384
8,673
50,128
6,038
582
–
33
10,300
32,865
–
486
93
–
105
7,502
49,933
–
Within
2 months
£’000
Within
2–6 months
£’000
Between
6–12 months
£’000
Between
1–2 years
£’000
After than
2 years
£’000
68,530
6,826
–
–
65
407
804
3,373
11,475
5
–
1,875
97
316
1,306
673
4,272
253
–
4,102
71
8
6,725
9
11,168
Within
2 months
£’000
Within
2–6 months
£’000
Between
6–12 months
£’000
Between
1–2 years
£’000
54,510
11,262
345
–
–
–
47
695
12
4,841
16,857
–
–
–
70
295
18
–
728
–
–
–
1,684
3,777
108
67
165
1,197
3,221
54
114
–
–
3,945
–
–
1,105
–
475
420
850
2,850
After
than
2 years
£’000
–
–
–
137,380
112,629
26. Capital management
The Group’s capital management objectives are:
• To ensure the Group’s ability to continue as a going concern; and
• To provide long-term returns to shareholders
The Group defines and monitors capital on the basis of the carrying amount of equity plus its outstanding loan notes, less cash and
cash equivalents as presented on the face of the balance sheet and as follows:
Equity
Borrowings
Cash and cash equivalents
2018
£’000
53,776
42,362
(16,685)
79,453
2017
£’000
49,979
50,497
(28,203)
72,273
The Board of Directors monitors the level of capital as compared to the Group’s commitments and adjusts the level of capital as is
determined to be necessary by issuing new shares or adjusting the level of debt. The Group is not subject to any externally imposed
capital requirements.
78 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
27. Leasing arrangements
Operating Leases
Operating leases primarily relate to land and buildings and motor vehicles.
The Group does not have an option to purchase any of the operating leased assets at the expiry of the lease periods.
Payments recognised as an expense are disclosed in note 5.
Non-cancellable operating lease commitments
Land and buildings
Not later than 1 year
After 1 year and not later than 5 years
After 5 years
Other
Not later than 1 year
After 1 year and not later than 5 years
After 5 years
2018
£’000
1,698
3,269
106
5,073
167
71
–
238
2017
£’000
1,567
3,640
543
5,750
287
221
–
508
Finance Leases
The Group leased certain items of property and equipment under finance leases. The average lease term is 1 year for 2018
(2017: 2 years).
The Group’s obligations under finance leases are secured by the lessors’ title to the leased assets.
Finance lease liabilities minimum lease payments:
Not later than one year
Later than one year and not later than five years
Less: future finance charges
Present value of minimum lease payments
Finance lease liabilities are included in liabilities:
Current
Non-current
2018
£’000
2017
£’000
195
71
266
(24)
242
2018
£’000
176
66
242
221
163
384
(15)
369
2017
£’000
213
156
369
28. Guarantees and other financial commitments
The Group has provided a cross guarantee to HSBC Bank plc in respect of borrowings due by companies within the Group headed
by Midwich Group plc. The liabilities in respect of these guarantees at 31 December 2018 were £32,064k (2017: £46,401k).
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
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29. Retirement benefit plans
The Group contributes to a number of retirement benefit pension schemes according to employee service contracts. The retirement
benefit pension schemes include both defined contribution and defined benefit pension schemes.
Defined contribution retirement benefit pension schemes
The majority of the retirement benefit pension schemes are defined contribution pension schemes. Group contributions to these
schemes are charged as an expense to the consolidated income statement as they fall due. The assets of these schemes are held
separately from those of the Group in independently administered funds.
Expenses for retirement benefit pension schemes recognised as defined contribution schemes are as follows:
Defined contribution pension schemes expense
2018
£’000
974
2017
£’000
879
Defined benefit retirement benefit pension schemes
Due to the van Domburg acquisition (see note 33) the Group became a participant to the “Pensioenfonds Vervoer”, an industry-wide
pension fund in the Netherlands.
The pension scheme is a defined benefit pension scheme offering beneficiaries an average wage retirement benefit plan. The
investment risk is shared collectively among the members of the scheme and the employers. The employer is only required to make
a fixed contribution for current employees. Fixed contributions could be increased or decreased in future but it is legally prohibited
for the pension fund to require any additional contribution in excess of the fixed contributions. Equally the Group has no claim to any
excess pension scheme assets.
The Group has accounted for the pension scheme as a defined contribution pension scheme because the records of the industry-
wide pension fund are not designed to provide the sufficient information to enable reporting a defined benefit pension scheme.
30. Share capital
The total allotted share capital of the Parent Company is:
Allotted, issued and fully paid
Issued and fully paid Ordinary Shares of £0.01 each
At 1 January
At 31 December
2018
2017
Number
£’000
Number
£’000
79,448,200
79,448,200
794
794
79,448,200
79,448,200
794
794
There were no share transactions effected during the current or prior year.
Employee benefit trust
The Group’s employee benefit trust was allocated 480,700 Ordinary Shares in 2016. As at 31 December 2018 325,300 of these
shares were distributed to the SIP trust, leaving 155,400 Ordinary Shares in the employee benefit trust as at 31 December 2018
(2017: 241,700).
31. Share based payments
The Group operates two share option plans, the Long Term Incentive Plan (“LTIP”) and the Share Incentive Plan (“SIP”). There have
been five grants for the LTIP and three grants for the SIP. There was one grant for each option in 2016 (the “2016 options”). The was
one grant for each option in 2017 (the “2017 options”). There were three grants for the LTIP and one grant for the SIP in 2018 (the
“2018 options”).
Long Term Incentive Plan (“LTIP”):
The Group operates an LTIP to which the employees of the Group may be invited to participate by the Remuneration Committee.
Options issued under the LTIP are exercisable at £0.01 per share. The options vest three years after the date of grant, subject to
certain service and non-market performance conditions. The options are settled in equity once exercised.
If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the
employee leaves the Group before the options vest.
80 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Share Incentive Plan (“SIP”):
The Group also operates a SIP to which the employees of the Group may be invited to participate by the Remuneration Committee.
Under the SIP, conditional free shares are granted to employees. The SIP shares vest three years after the date of grant. The SIP
shares are settled in equity once exercised.
LTIP options and SIP shares were valued using the Black-Scholes option-pricing model. The fair value of the 2018 options granted
and the assumptions used in the calculation are as follows:
Date of grant
Number granted
Share price at date of grant (£)
Exercise price (£)
Expected volatility
Expected life (years)
Risk free rate
Expected dividend yield
Fair value at date of grant
Earliest vesting date
Expiry date
LTIP
LTIP
LTIP
SIP
4 May 2018
9 Jul 2018
20 Dec 2018
8 Aug 2018
75,000
509,400
100,000
91,500
£6.28
£0.01
9.0%
2
0.63%
2.2%
£6.45
£0.01
8.9%
3–5
0.61%
2.1%
£5.30
£0.01
9.8%
1–3
0.75%
2.7%
£6.23
–
8.9%
3
0.67%
0.00%
£416,956
£2,572,735
£469,804
£401,587
31 May 2020
9 Jul 2021
26 Jul 2019
9 Jul 2021
4 May 2028
9 Jul 2028
20 Dec 2028
8 Aug 2028
LTIP options and SIP shares were valued using the Black-Scholes option-pricing model. The fair value of the 2017 Options granted
and the assumptions used in the calculation are as follows:
Date of grant
Number granted
Share price at date of grant (£)
Exercise price (£)
Expected volatility
Expected life (years)
Risk free rate
Expected dividend yield
Fair value at date of grant
Earliest vesting date
Expiry date
LTIP
SIP
31 May 2017
31 May 2017
613,500
128,500
£3.19
£0.01
9.0%
3
0.3%
3.33%
£3.19
–
9.0%
3
0.3%
0.00%
£1,563,817
£289,333
31 May 2020
31 May 2020
31 May 2027
31 May 2027
The expected volatility is based on the volatility of similar companies in the industry. The expected life is the average expected
period to exercise. The risk-free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the
assumed option life.
The Group recognised total expenses of £1,120k (2017: £551k) related to equity-settled share based payment transactions for the
above schemes during the year.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
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31. Share based payments continued
A reconciliation of LTIP option movements over the year to 31 December 2018 is shown below:
Outstanding at start of year
Granted
Lapsed
Outstanding at end of year
As at 31 December 2018
As at 31 December 2017
Number of
LTIP
options
788,000
634,400
(11,500)
1,410,900
Weighted
average
exercise price
£
Number of
LTIP
options
Weighted
average
exercise price
£
0.01
0.01
0.01
0.01
188,500
613,500
(14,000)
788,000
0.01
0.01
0.01
0.01
A reconciliation of SIP movements over the year to 31 December 2018 is shown below:
Outstanding at 1 January
Granted
Lapsed
Outstanding at 31 December
As at 31 December 2018
As at 31 December 2017
Number of
SIP
shares
Weighted
average
exercise price
£
Number of
SIP
shares
Weighted
average
exercise price
£
227,000
91,500
(34,200)
284,300
–
–
–
–
119,000
128,500
(20,500)
227,000
–
–
–
–
32. Acquisition of non-controlling interest
On 3 October 2017, the Group acquired 10.5% of the 21% non-controlling interest in Holdan Limited, which had a value of £602k, for
a consideration of £750k. £681k of the put option reserve was transferred to retained earnings when this element of the put option
was extinguished.
33. Business combinations
Acquisitions have been completed by the Group to increase scale, broaden its addressable market and widen the product offering.
Subsidiaries acquired:
Acquisition
New Media1
Principal activity
Distribution of professional broadcast equipment to trade
customers
Date of acquisition
23 August 2018
Perfect Sound1
Distribution of professional audio products to trade customers
5 September 2018
Blonde Robot1
Distribution of audio-visual products to trade customers
4 December 2018
Earpro1
van Domburg1
Distribution of audio-visual and lighting products to trade
customers.
Distribution of audio-visual and lighting products to trade
customers.
27 March 2017
6 September 2017
Sound Technology1
Distribution of professional audio, musical and lighting products
to trade customers
30 November 2017
1 See note 11 for details of companies acquired during the current and year prior.
Proportion
acquired (%)
Fair value of
consideration
£’000
100%
100%
65%
88.5%
70%
100%
3,311
682
1,687
8,311
2,942
3,858
82 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
2018 acquisitions
Fair value of consideration transferred:
2018
Cash
Deferred contingent consideration
Total
New Media
£’000
Perfect Sound
£’000
Blonde Robot
£’000
1,354
1,957
3,311
628
54
682
1,687
–
1,687
Acquisition costs of £119k in relation to the acquisition of New Media, £47k in relation to the acquisition of Perfect Sound, £83k in
relation to the acquisition of Blonde Robot, and £116k in relation to other acquisitions not completed before the end of the year
were expensed to the income statement during the year ended 31 December 2018.
On acquisition of Blonde Robot the Group recognised £894k in relation to the initial present value of the put option liabilities to
acquire the remaining non-controlling interest.
Fair value of acquisitions
2018
Non-current assets
Goodwill
Intangible assets – customer relationships
Intangible assets – supplier contracts
Intangible assets – brands
Intangible assets – other
Plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
Current tax
Derivative financial instruments
Borrowings and financial liabilities
Non-current liabilities
Deferred tax
Other provisions
Non-controlling interests
Fair value of net assets acquired attributable to equity shareholders of the Parent Company
New Media
£’000
Perfect Sound
£’000
Blonde Robot
£’000
1,004
1,051
1,349
337
15
140
3,896
702
550
327
1,579
173
105
159
18
–
23
478
61
698
211
970
924
1,808
427
270
–
86
3,515
1,164
2,309
–
3,473
(1,045)
(628)
(1,746)
–
–
(216)
(1,261)
(903)
–
(903)
–
3,311
–
–
(44)
(672)
(94)
–
(94)
–
682
(53)
(23)
(1,761)
(3,583)
(752)
(58)
(810)
(908)
1,687
Goodwill acquired in 2018 relates to the workforce, synergies and sales know how. Goodwill arising on the New Media and Perfect
Sound acquisitions has been allocated to the Continental Europe segment. Goodwill arising on the Blonde Robot acquisition has
been allocated to the APAC segment.
Gross contractual amounts of trade and other receivables acquired in 2018 were £3,589k, with bad debt provisions of £32k.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
83
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the consolidated financial statements continued
33. Business combinations continued
Net cash outflow on acquisition of subsidiaries
Consideration paid in cash
Less: cash and cash equivalent balances acquired
Plus: borrowings acquired
Net cash outflow
New Media
£’000
Perfect Sound
£’000
Blonde Robot
£’000
1,354
(327)
216
1,243
628
(211)
44
461
1,687
–
1,761
3,448
Post-acquisition contribution
Acquired subsidiaries made the following contributions to the Group’s results for the year in which they were acquired, from their
respective acquisition dates:
2018
Date acquired
Post-acquisition contribution to Group revenue
Post-acquisition contribution to Group profit after tax
New Media
£’000
Perfect Sound
£’000
Blonde Robot
£’000
23 Aug
6,563
90
5 Sep
916
90
4 Dec
1,430
103
Proforma full year contribution
Acquired subsidiaries would have made the following contributions to the Group’s results for the year in which they were acquired if
they were acquired on 1 January 2018:
Full year revenue1
Full accounting period profit after tax1
New Media
£’000
Perfect Sound
£’000
Blonde Robot
£’000
17,851
26
3,016
190
17,364
337
If the acquisitions had occurred on 1 January 2018, revenue of the Group for the year would have been £603,004k and profit after
tax for the year would have been £15,555k.
1 These amounts have been calculated using the results of subsidiaries and adjusting them for differences between the accounting policies and Generally
Accepted Accounting Principles applicable to the subsidiaries and the accounting policies and IFRS reporting requirements of the Group. The translation
adjustments to modify the reported results of the subsidiaries have been applied as if the Group’s accounting policies and IFRS reporting requirements had
always been applied. The translation adjustments include the additional depreciation and amortisation charges relating to the fair value adjustments to
property, plant and equipment and intangible assets assuming the fair values recognised on acquisition were valid on 1 January 2018, together with the
consequential tax effects.
2017 acquisitions
Fair value of consideration transferred:
2017
Cash
Deferred consideration
Deferred contingent consideration
Total
Earpro
£’000
van Domburg
£’000
Sound
Technology
£’000
4,987
3,324
–
8,311
1,522
–
1,420
2,942
2,600
1,258
–
3,858
Acquisition costs of £81k in relation to the acquisition of Earpro, £164k in relation to the acquisition of van Domburg, £84k in relation
to the acquisition of Sound Technology and £7k in relation to the prior year acquisition of Holdan were expensed to the income
statement during the year ended 31 December 2017.
On acquisition of Earpro and van Domburg the Group recognised £1,033k and £1,516k in relation to the initial present value of the
put option liabilities to acquire the remaining non-controlling interest in each acquisition.
84 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Fair value of acquisitions
2017
Non-current assets
Goodwill
Intangible assets – customer relationships
Intangible assets – supplier exclusivity
Intangible assets – trade name
Intangible assets – other
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current tax
Current liabilities
Trade and other payables
Derivative financial instruments
Borrowings and financial liabilities
Current tax
Non-current liabilities
Borrowings
Deferred tax
Non-controlling interests
Fair value of net assets acquired attributable to equity shareholders of the Parent Company
Earpro
£’000
van Domburg
£’000
Sound
Technology
£’000
1,009
740
1,488
104
58
66
3,465
2,053
4,003
3,172
–
9,228
(2,723)
–
–
–
(2,723)
–
(579)
(579)
(1,080)
8,311
2,667
2,178
–
158
–
1,765
6,768
2,878
3,526
–
–
851
–
1,553
153
52
28
2,637
2,694
4,132
65
6
6,404
6,897
(5,334)
–
(2,877)
(4)
(8,215)
(170)
(584)
(754)
(1,261)
2,942
(3,655)
(128)
(1,617)
–
(5,400)
–
(276)
(276)
–
3,858
Goodwill acquired in 2017 relates to the workforce, synergies and sales know how. Goodwill arising on the Earpro acquisition has
been allocated to the Continental Europe operating segment, goodwill arising on the van Domburg acquisition has been allocated
to the Continental Europe operating segment and goodwill arising on the Sound Technology acquisition has been allocated to the
United Kingdom and Ireland operating segment.
Gross contractual amounts of trade and other receivables acquired in 2017 were £14,271k, with bad debt provision of £2,610k.
Net cash outflow on acquisition of subsidiaries
Consideration paid in cash
Plus: overdraft borrowings
Less: cash and cash equivalent balances acquired
Net cash outflow
Earpro
£’000
4,987
–
(2,989)
1,998
van Domburg
£’000
Sound
Technology
£’000
1,522
200
–
1,722
2,600
–
(65)
2,535
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
85
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the consolidated financial statements continued
33. Business combinations continued
Post-acquisition contribution
Acquired subsidiaries made the following contributions to the Group’s results for the year in which they were acquired, from their
respective acquisition dates:
2017
Date acquired
Post-acquisition contribution to Group revenue
Post-acquisition contribution to Group profit after tax
Earpro
£’000
van Domburg
£’000
Sound
Technology
£’000
27 March
6 September 30 November
15,081
1,103
8,870
174
1,901
61
Proforma full year contribution
Acquired subsidiaries would have made the following contributions to the Group’s results for the year in which they were acquired if
they were acquired on 1 January 2017:
Full year revenue1
Full accounting period profit after tax1
Earpro
£’000
20,530
1,388
van Domburg
£’000
26,600
456
Sound
Technology
£’000
21,497
637
If the acquisitions had occurred on 1 January 2017, revenue of the Group for the year would have been £514,712k and profit after tax
for the year would have been £14,840k.
1 These amounts have been calculated using the results of subsidiaries and adjusting them for differences between the accounting policies and Generally
Accepted Accounting Principles applicable to the subsidiaries and the accounting policies and IFRS reporting requirements of the Group. The translation
adjustments to modify the reported results of the subsidiaries have been applied as if the Group’s accounting policies and IFRS reporting requirements had
always been applied. The translation adjustments include the additional depreciation and amortisation charges relating to the fair value adjustments to
property, plant and equipment and intangible assets assuming the fair values recognised on acquisition were valid on 1 January 2017, together with the
consequential tax effects.
34. Related party transactions
Transactions and outstanding balances between the Group companies have been eliminated on consolidation. For transactions
between the Company and subsidiaries see note 9 of the separate company financial statements.
Key management personnel are identified as the executive and non-executive directors, and their remuneration is disclosed
as follows:
Remuneration of key management
Remuneration
Social security costs
Company pension contributions to defined contributions scheme
During the year Mr S Lamb was granted 100,000 share options under the LTIP scheme.
Dividends on Ordinary Shares were paid to key management and close members of their family as follows:
Mr S B Fenby
Mr A M G Bailey1
Mr S Lamb
Mr A C Herbert
Mr M Ashley
Mrs H Wright
1
Includes dividends up to the date of resignation of 30 June 2018.
There were no related party borrowing or share transactions during the current or prior year.
86 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
2018
£’000
924
121
5
1,038
2018
£’000
3,035
307
–
5
–
–
2017
£’000
804
80
20
904
2017
£’000
2,513
359
–
2
–
–
3,347
2,874
35. Dividends
The Company paid dividends in the year of £11,289k (2017: £8,912k), excluding the effects of waived dividends this equated to 14.25
(2017: 11.26) pence per share.
The Board has recommended a final dividend of 10.60 pence per share (2017: 9.65) which, if approved will be paid on 21 June 2019
to shareholders on the register on 17 May 2019. With the interim dividend declared in September 2018, this represents a total
dividend for the year to 31 December 2018 of 15.20 pence per share (2017: 13.82).
36. Events after the balance sheet date
On 17 January 2019 the Group acquired 100% of MobilePro AG, a leading distributor of audio-visual products based in Zurich,
Switzerland for an upfront consideration of €1.0m only.
On 31 January 2019 the Group acquired 80% of Prase Engineering S.p.A, an added value distributor of audio-visual products in Italy.
The initial consideration payable was €7.0m followed by four fixed payments of an aggregate €6.4m over the two subsequent
years. The Group has options to acquire the remaining 20% stake over the next three years on a pre-determined methodology
linked primarily to earnings growth.
37. Ultimate controlling party
As at 31 December 2018, Midwich Group plc had no ultimate controlling party.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
87
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Company statement of financial position
As at 31 December 2018
Assets
Non-current assets
Investments
Deferred tax
Current assets
Receivables
Current liabilities
Payables
Net current assets
Total assets less current liabilities
Non-current liabilities
Net assets
Share capital
Share premium
Share based payment reserve
Investment in own shares
Retained earnings:
Opening retained earnings
Profit/(loss) for the year
Dividends paid
Total retained earnings
Capital redemption reserve
Other reserve
Shareholders’ funds
Notes
2018
£’000
2017
£’000
3
4
5
6
7
31,845
327
32,172
4,698
4,698
(356)
4,342
36,514
–
36,514
794
25,855
1,837
(5)
10,863
8,259
(11,289)
7,833
50
150
30,918
307
31,225
7,320
7,320
(87)
7,233
38,458
–
38,458
794
25,855
751
(5)
20,083
(308)
(8,912)
10,863
50
150
36,514
38,458
The financial statements are also comprised of the notes on pages 90 to 95. The financial statements were approved by the Board
of Directors and authorised for issue on 11 March 2019 and were signed on its behalf by:
Mr S B Fenby
Director
Company registration number: 08793266
88 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Company statement of changes in equity
For the year ended 31 December 2018
Balance at 1 January 2018
Profit for the year
Total comprehensive income for the year
Share based payments
Deferred tax on share based payments
Dividends paid
Share
capital
£’000
Share
premium
£’000
794
25,855
–
–
–
–
–
–
–
–
–
–
Share
based
payment
reserve
£’000
751
–
–
1,120
(34)
–
Investment
in own
shares
£’000
Retained
earnings
£’000
Capital
redemption
reserve
£’000
Other
reserve
£’000
Total
£’000
(5)
10,863
50
150
38,458
–
–
–
–
–
8,259
8,259
–
–
(11,289)
–
–
–
–
–
–
–
–
–
–
8,259
8,259
1,120
(34)
(11,289)
Balance at 31 December 2018
794
25,855
1,837
(5)
7,833
50
150
36,514
For the year ended 31 December 2017
Balance at 1 January 2017
Loss for the year
Total comprehensive income for the year
Share based payments
Deferred tax on share based payments
Dividends paid
Share
capital
£’000
Share
premium
£’000
794
25,855
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2017
794
25,855
Share
based
payment
reserve
£’000
84
–
–
551
116
–
751
Investment
in own
share
£’000
Retained
earnings
£’000
Capital
redemption
reserve
£’000
Other
reserve
£’000
(5)
20,083
50
150
–
–
–
–
–
(308)
(308)
–
–
(8,912)
–
–
–
–
–
–
–
–
–
–
Total
£’000
47,011
(308)
(308)
551
116
(8,912)
(5)
10,863
50
150
38,458
The financial statements are also comprised of the notes on pages 90 to 95.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
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1. Accounting policies
Basis of Preparation
The annual financial statements of Midwich Group plc (the parent company financial statements) have been prepared in accordance
with Financial Reporting Standard 100 Application of Financial Reporting Requirements (“FRS 100”) and Financial Reporting
Standard 101 Reduced Disclosure Framework (“FRS 101”).
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101.
Therefore, these financial statements do not include:
• certain comparative information as otherwise required by EU endorsed IFRS;
• certain disclosures regarding the Company’s capital;
• a statement of cash flows;
• the effect of future accounting standards not yet adopted;
• the disclosure of the remuneration of key management personnel; and
• disclosure of related party transactions with the Company’s wholly owned subsidiaries.
In addition, and in accordance with FRS 101 further disclosure exemptions have been adopted because equivalent disclosures are
included in the Company’s Consolidated Financial Statements. These financial statements do not include certain disclosures in
respect of:
• Financial instruments (other than certain disclosures required as a result of recording financial instruments at fair value); and
• Fair value measurement (other than certain disclosures required as a result of recording financial instruments at fair value).
As permitted by section 408 of Companies Act 2006, a separate income statement for the Company has not been included in
these financial statements.
The principal accounting policies adopted in the preparation of the financial statements as set out below have been consistently
applied to all periods presented.
Finance income and costs
Interest income and expense is recognised using the effective interest method which calculates the amortised cost of a financial
asset or liability and allocates the interest income or expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability to the net
carrying amount of the financial asset or liability.
Other finance costs include the changes in fair value of financial derivatives and financial instruments at fair value through profit or loss.
Investments
Investments are valued at cost less provision for any permanent impairment.
Financial instruments
Financial instruments are comprised of financial assets and financial liabilities, which are recognised when the Group becomes
party to the contractual provisions of the instrument.
Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire or substantially all
the risks and rewards of ownership of the financial asset are transferred. Financial liabilities are derecognised when extinguished.
Financial assets
Financial assets include trade and other receivables, cash and cash equivalents, and derivative financial instruments with a positive
market value.
The Group classifies financial assets into three categories;
• financial assets measured at amortised cost;
• financial assets measured at fair value through other comprehensive income; and
• financial assets measured at fair value through profit or loss.
The classification of a financial asset depends on the Group’s business model for managing the asset and the contractual cash flow
characteristics associated with the asset.
Financial assets with embedded derivatives are recognised as hybrid contracts. Hybrid contracts are classified in their entirety and
not in separate components.
90 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Investments in equity instruments that are not held for trading are classified as financial assets measured at fair value through profit
and loss unless the Group makes an irrevocable election on initial recognition to classify the asset as measured at fair value through
other comprehensive income.
Trade receivables that do not contain a significant financing component are initially measured at transaction price. All other financial
assets classified as either financial assets measured at amortised cost, or financial assets measured at fair value through other
comprehensive income are initially measured at fair value plus transaction costs directly attributable to the acquisition of the
financial asset.
Financial assets measured at fair value through profit and loss are initially measured at fair value and any transaction costs directly
attributable to the acquisition of the financial asset are recognised in the profit and loss.
Financial assets measured at amortised cost are subsequently measured using the effective interest method. The effects of
discounting within the effective interest method are omitted if immaterial. Where the contractual cash flows of the financial asset
are renegotiated or otherwise modified the financial asset is recalculated at the present value of the modified contractual cash
flows discounted at the financial asset’s original effective interest rate.
Financial assets measured at fair value through other comprehensive income and financial assets measured at fair value through
profit and loss are subsequently measured at fair value.
Expected credit loss impairments are recognised in respect of financial assets measured at amortised cost and financial assets measured
at fair value through other comprehensive income immediately on initial recognition of the respective financial asset being impaired.
Expected credit losses are measured using an expected credit loss model. The expected credit loss model reflects a probability
weighted amount derived from a range of possible outcomes that are discounted for the time value of money and based on
reasonable and supportable information.
Where trade receivables contain a significant financing component the Group applies the simplified approach to measure the loss
allowance at an amount equal to lifetime expected credit losses.
Financial liabilities
Financial liabilities include trade and other payables; put option liabilities; deferred consideration; bank loans, overdrafts and invoice
discounting facilities; and derivative financial instruments with a negative market value.
The Group classifies financial liabilities into six categories;
• financial liabilities measured at amortised cost;
• financial liabilities measured at fair value through profit or loss;
• financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing
involvement approach applies;
• financial guarantee contracts;
• commitments to provide loans at below market interest rates;
• contingent consideration recognised in a business combination.
Financial liabilities measured at fair value through profit or loss are initially measured at fair value and any transaction costs directly
attributable to the issue of the financial liability are recognised in the profit and loss.
Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing
involvement approach applies are initially measured at the amount of the consideration received in respect of the financial asset.
All other financial liabilities are initially measured at fair value minus transaction costs directly attributable to the issue of the
financial liability.
Financial liabilities measured at amortised cost are subsequently measured using the effective interest method. The effects of
discounting within the effective interest method are omitted if immaterial. Where the contractual cash flows of the financial liability
are renegotiated or otherwise modified the financial liability is recalculated at the present value of the modified contractual cash
flows discounted at the financial liability’s original effective interest rate.
Financial liabilities measured at fair value through profit and loss are subsequently measured at fair value.
The subsequent measurement of financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition
or when the continuing involvement approach applies depends upon whether the transferred asset is measured at amortised cost
or fair value. If the transferred asset is measured at amortised cost then associated liability is measured in such a way that the net
carrying amount of the transferred asset and the associated liability is the amortised cost of the rights and obligations retained by
the entity. However, if the transferred asset is measured at fair value the associated liability is measured in such a way that the net
carrying amount of the transferred asset and the associated liability is equal to the fair value of the rights and obligations retained
by the entity when measured on a stand-alone basis.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
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1. Accounting policies continued
Financial guarantee contracts are subsequently measured at the higher of the amount of the loss allowance calculated in
accordance with the expected credit loss model and the amount of the initially recognised.
Commitments to provide loans at below market interest rates are subsequently measured at the higher of the amount of the loss
allowance calculated in accordance with the expected credit loss model and the amount initially recognised.
Contingent consideration recognised in a business combination is subsequently measured at fair value.
Trade and other receivables
Trade and other receivables are financial assets recognised when the Group becomes party to the contractual provisions of
the instrument.
Trade receivables that do not contain a significant financing component are initially measured at transaction price, which is
equivalent to fair value. All other trade and other receivables are initially measured at fair value plus transaction costs directly
attributable to the acquisition of the financial asset. Trade and other receivables are subsequently measured at amortised cost
using the effective interest method, less loss allowances.
Trade and other payables
Trade and other payables are financial liabilities recognised when the Group becomes party to the contractual provisions of the instrument.
Trade and other payables are initially measured at fair value minus transaction costs directly attributable to the issue of the financial
liability. Trade and other payables are subsequently measured at amortised cost using the effective interest method.
Foreign currency
The presentation currency for the Company’s financial statements is Sterling. Foreign currency transactions are recorded in their
functional currencies at the exchange rate at the date of the transaction. Monetary assets and liabilities have been translated at
rates in effect at the balance sheet date, with any exchange adjustments being charged or credited to the Income Statement,
within “administrative expenses”.
The Parent Company’s functional currency is Sterling.
Current taxation
Current taxation for the Company is based on the local taxable income at the local statutory tax rate enacted or substantively
enacted at the balance sheet date and includes adjustments to tax payable or recoverable in respect of previous periods.
Deferred taxation
Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements. However, if the deferred tax arises from the initial recognition of
an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting
nor taxable profit or loss, it is not accounted for. No deferred tax is recognised on initial recognition of goodwill or on investment in
subsidiaries. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance
sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax liabilities are provided in full and are not discounted.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the
temporary differences can be utilised.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where
they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited
directly to equity.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation
authority where there is an intention to settle the balances on a net basis.
92 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Equity
Equity comprises the following:
• “Share capital” represents the nominal value of equity shares issued.
• “Share premium” represents amounts subscribed for share capital, net of issue costs, in excess of nominal value.
• “Share based payment reserve” represents the accumulated value of share based payments expensed in the income statement.
• “Investment in own shares” represents amounts of the Parent Company’s own shares held within an Employee Benefit Trust.
• “Retained earnings” represents the accumulated profits and losses attributable to equity shareholders.
• “Capital redemption reserve” represents the nominal value of shares repurchased by the Parent Company.
• “Other reserve” relate to the Employee Benefit Trust.
Employee benefit trust
The assets and liabilities of the employee benefit trust (EBT) have been included in the Company financial statements. Any assets
held by the EBT cease to be recognised on the balance sheet when the assets vest unconditionally in identified beneficiaries.
The costs of purchasing own shares held by the EBT are shown as a deduction within shareholders’ equity. The proceeds from the
sale of own shares are recognised in shareholders’ equity. Neither the purchase nor sale of own shares leads to a gain or loss being
recognised in the income statement.
Share based payments
Equity-settled share based payments to employees and directors are measured at the fair value of the equity instrument. The fair
value of the equity-settled transactions with employees and directors is recognised as an expense over the vesting period. The fair
value of the equity instruments are determined at the date of grant, taking into account market based vesting conditions. The fair
value of goods and services received are measured by reference to the fair value of options.
The fair values of share options are measured using the Black-Scholes model. The expected life used in the models is adjusted,
based on management’s best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which the relevant employees (or other beneficiaries)
become fully entitled to the award (“the vesting date”).
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent
to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.
The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the
beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other
performance and/or service conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum
expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for any modification,
which increases the total fair value of the share based payment arrangement, or is otherwise beneficial to the employee as
measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated
as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the
original award, as described in the previous paragraph.
Where an equity-settled award is forfeited, the cumulative charge expensed up to the date of forfeiture is credited to the
income statement.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
93
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notes to the Company financial statements continued
2. Directors and employees
The directors’ remuneration is as stated in the directors’ remuneration disclosure in the Directors’ Report and in note 7 to the
consolidated financial statements.
Average monthly number of persons, including directors, employed by the Company during the year was as follows:
By activity:
Administration
3. Investments
At 1 January
Additions
At 31 December
2018
Number
2017
Number
15
3
2018
£’000
30,918
927
31,845
2017
£’000
30,465
453
30,918
The Company holds 100% of the share capital of Midwich Limited, a company incorporated in England and Wales. Indirect share
interests in the Midwich Group of companies are disclosed in note 11 of the consolidated financial statements. Additions in the year
represent the capital contributions to subsidiaries in respect of share option schemes, see note 31 of the consolidated financial
statements for details of share options.
4. Deferred tax
Deferred tax asset on temporary differences
5. Receivables
Prepayments
Amounts due from Group undertakings
6. Payables
Accruals
7. Share capital
The total allotted share capital of the Company is:
Allotted, issued and fully paid
Issued and fully paid Ordinary Shares of £0.01 each
At start of year
At end of year
2018
£’000
327
2018
£’000
15
4,683
4,698
2018
£’000
356
2017
£’000
307
2017
£’000
–
7,320
7,320
2017
£’000
87
2018
2017
Number
£’000
Number
£’000
79,448,200
79,448,200
794
794
79,448,200
79,448,200
794
794
There were no share transactions effected during the current or prior year.
94 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
8. Dividends
The Company paid dividends in the year of £11,289k (2017: £8,912k), excluding the effects of waived dividends this equated to 14.25
(2017: 11.26) pence per share.
The Board has recommended a final dividend of 10.60 pence per share (2017: 9.65) which, if approved will be paid on 21 June 2019
to shareholders on the register on 17 May 2019. With the interim dividend declared in September 2018, this represents a total
dividend for the year to 31 December 2018 of 15.20 pence per share (2017: 13.82).
9. Related parties and transactions with directors
There were no related party transactions or transactions with the directors during the current or prior year. The directors are
remunerated by subsidiary entities and recharged to the Company.
Other related party transactions
Included within other debtors are the following transactions and outstanding amounts with Midwich Limited, a wholly
owned subsidiary:
Outstanding at 1 January
Amounts advanced
Management charges
Amounts repaid
Outstanding at 31 December
Audit fees for the entity are borne by subsidiary entities and recharged to the Company.
10. Ultimate controlling party
As at 31 December 2018, Midwich Group plc had no ultimate controlling party.
2018
£’000
7,320
11,289
204
(14,130)
4,683
2017
£’000
16,616
–
204
(9,500)
7,320
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
95
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORT Notice of Annual General Meeting
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting
(“Meeting”) of Midwich Group plc (the “Company”) will be held
in the London and Tower Rooms, at the offices of Mills & Reeve
LLP, 24 Monument Street, London, EC3R 8AJ on Monday 13 May
2019 at 10.00 a.m. You will be asked to consider and vote on
the resolutions below. Resolutions 1 to 10 will be proposed as
ordinary resolutions and resolutions 11 and 12 will be proposed
as special resolutions.
Special business
Issue of ordinary shares
10 THAT the directors of the Company be hereby generally and
unconditionally authorised and empowered pursuant to and
in accordance with section 551 of the Companies Act 2006
(the “CA 2006”), to exercise all the powers of the Company to
allot shares and or grant rights to subscribe for or to convert
any security into shares (“Rights”):
Ordinary business
Report and accounts
1
THAT the Company’s annual accounts for the financial year
ended 31 December 2018, together with the Directors’
Report and Auditor’s Report on those accounts, be received
and adopted.
Re-election of directors
2
THAT Stephen Fenby be re-elected as a director of
the Company.
3
4
5
THAT Andrew Herbert be re-elected as a director of
the Company.
THAT Mike Ashley be re-elected as a director of
the Company.
THAT Stephen Lamb be re-elected as a director of
the Company.
6
THAT Hilary Wright be re-elected as a director of
the Company.
Re-appointment and remuneration of auditors
7
THAT Grant Thornton UK LLP be re-appointed as the
Company’s auditors to hold office from the conclusion of this
meeting until the conclusion of the next meeting at which
accounts are laid before the Company and that the directors
be authorised to agree the remuneration of the auditors.
Dividend
8 T HAT a final dividend recommended by the directors for
the financial year ended 31 December 2018 of 10.60p per
ordinary share of £0.01 each in the capital of the Company
(“ordinary share”) be declared.
Directors’ remuneration report
9
THAT the Directors’ Remuneration Report (excluding the
directors’ remuneration policy, set out on pages 30 to 35
of the Directors’ Remuneration Report), as set out in the
Company’s annual report and accounts for the financial
year ended 31 December 2018 be approved.
(i) up to an aggregate nominal value of £264,827 (being the
nominal value of approximately one third of the issued
share capital of the Company); and
(ii) up to an aggregate nominal value of £529,655 (being the
nominal value of approximately two thirds of the issued
share capital of the Company) (such amount to be reduced
by the nominal amount of any shares allotted or Rights
granted under paragraph (i)) in connection with an offer
by way of a rights issue or other pre-emptive offer to:
(a) the holders of ordinary shares in proportion (as nearly
as may be practicable) to the respective numbers of
ordinary shares held by them; and
(b) holders of other equity securities, as required by the
rights of those securities or, subject to such rights, as
the directors otherwise consider necessary,
and so that, in each case, the directors of the Company
may impose any limits or restrictions and make any
arrangements which they consider necessary or
appropriate to deal with treasury shares, fractional
entitlements, record dates, legal, regulatory or practical
problems in, or under the laws of, any territory or the
requirements of any regulatory body or stock exchange
or any other matter,
such authorities to expire on the earlier of the next Annual
General Meeting of the Company held after the date on
which this resolution becomes unconditional and the date
15 months after the passing of this resolution, save that the
Company may at any time before such expiry make any
offer(s) or enter into any agreement(s) which would or might
require shares to be allotted or Rights to be granted after
such expiry and the directors may allot shares or grant Rights
in pursuance of any such offer(s) or agreement(s) as if the
authority conferred hereby had not expired. This resolution
revokes and replaces all unexercised authorities previously
granted to the directors to allot shares or grant Rights but
without prejudice to any allotment of shares or grant of
Rights already made, offered or agreed to be made pursuant
to such authorities.
96 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
Notes to the Annual General Meeting
11 THAT, subject to the passing of resolution 10, the directors
of the Company be authorised to allot equity securities (as
defined in section 560 of the CA 2006) for cash under the
authority conferred by that resolution and/or to sell ordinary
shares held by the Company as treasury shares as if section
561 of the CA 2006 did not apply to any such allotment or
sale, provided that such authority shall be limited to:
(i) the allotment of equity securities in connection with an
offer of equity securities (but, in the case of the authority
granted under paragraph (ii) of resolution 10, by way of a
rights issue only):
(a) to the holders of ordinary shares in proportion (as
nearly as may be practicable) to their respective
holdings; and
(b) to holders of other equity securities as required by the
rights of those securities or as the Directors otherwise
consider necessary,
but subject to such exclusions or other arrangements
as the directors of the Company may deem necessary
or expedient in relation to treasury shares, fractional
entitlements, record dates, legal or practical problems
in or under the laws of any territory or the requirements
of any regulatory body or stock exchange; and
(ii) the allotment of equity securities or sale of treasury
shares (otherwise than pursuant to paragraph (i) of this
resolution) to any person up to an aggregate nominal
amount of £39,724.
The authority granted by this resolution will expire at the
conclusion of the Company’s next Annual General Meeting
after the passing of this resolution or, if earlier, at the close
of business on the date 15 months after the passing of this
resolution, save that the Company may, before such expiry
make offers or agreements which would or might require
equity securities to be allotted (or treasury shares to be sold)
after the authority expires and the directors of the Company
may allot equity securities (or sell treasury shares) in
pursuance of any such offer or agreement as if the authority
had not expired.
12 THAT, subject to the passing of resolution 10, the directors
of the Company be authorised in addition to any authority
granted under resolution 11 to allot equity securities (as
defined in section 560 of the CA 2006) for cash under the
authority conferred by resolution 10 and/or to sell ordinary
shares held by the Company as treasury shares as if section
561 of the CA 2006 did not apply to any such allotment or
sale, provided that such authority shall be:
(i) limited to the allotment of equity securities or sale of
treasury shares up to an aggregate nominal amount
of £39,724; and
(ii) used only for the purpose of financing (or refinancing,
if the authority is to be used within six months after the
original transaction) a transaction which the directors
of the Company determine to be an acquisition or other
capital investment of a kind contemplated by the
Statement of Principles on Disapplying Pre-Emption
Rights most recently published by the Pre-Emption
Group prior to the date of this notice.
The authority granted by this resolution will expire at the
conclusion of the Company’s next Annual General Meeting
after this resolution is passed or, if earlier, at the close of
business on the date 15 months after the passing of this
resolution, save that the Company may, before such expiry
make offers or agreements which would or might require
equity securities to be allotted (or treasury shares to be
sold) after the authority expires and the directors of the
Company may allot equity securities (or sell treasury
shares) in pursuance of any such offer or agreement as
if the authority had not expired.
Dated 18 April 2019
By order of the Board
Stephen Lamb
Company Secretary
Registered Office
Vinces Road
Diss
Norfolk
IP22 4YT
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
97
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Notes to the Annual General Meeting continued
Notice of Meeting Notes:
The following notes explain your general rights as a shareholder
and your right to attend and vote at this Meeting or to appoint
someone else to vote on your behalf.
1.
To be entitled to attend and vote at the Meeting (and for the
purpose of the determination by the Company of the number
of votes they may cast), shareholders must be registered in
the Register of Members of the Company at close of trading
on 9 May 2019. Changes to the Register of Members after
the relevant deadline shall be disregarded in determining
the rights of any person to attend and vote at the Meeting.
2. Shareholders, or their proxies, intending to attend the Meeting
in person are requested, if possible, to arrive at the Meeting
venue at least 20 minutes prior to the commencement of the
Meeting at 10.00am (UK time) on 13 May 2019 so that their
shareholding may be checked against the Company’s
Register of Members and attendances recorded.
3. Shareholders are entitled to appoint another person as a
proxy to exercise all or part of their rights to attend and to
speak and vote on their behalf at the Meeting. A shareholder
may appoint more than one proxy in relation to the Meeting
provided that each proxy is appointed to exercise the rights
attached to a different ordinary share or ordinary shares held
by that shareholder. A proxy need not be a shareholder of
the Company.
4. In the case of joint holders, where more than one of the joint
holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted.
Seniority is determined by the order in which the names
of the joint holders appear in the Company’s Register of
Members in respect of the joint holding (the first named
being the most senior).
5. A vote withheld is not a vote in law, which means that the vote
will not be counted in the calculation of votes for or against
the resolution. If no voting indication is given, your proxy will
vote or abstain from voting at his or her discretion. Your proxy
will vote (or abstain from voting) as he or she thinks fit in
relation to any other matter which is put before the Meeting.
6. You can vote either:
• by logging on to www.signalshares.com and following
the instructions;
• you may request a hard copy form of proxy directly from
the registrars, Link Asset Services (previously called Capita),
on Tel: 0371 664 0300. Calls cost 12p per minute plus your
phone company’s access charge. Calls outside the United
Kingdom will be charged at the applicable international rate.
Lines are open between 09:00 – 17:30, Monday to Friday
excluding public holidays in Englandand Wales.
• in the case of CREST members, by utilising the CREST
electronic proxy appointment service in accordance with
the procedures set out below.
In order for a proxy appointment to be valid a form of proxy must
be completed. In each case the form of proxy must be received
by Link Asset Services at 34 Beckenham Road, Beckenham,
Kent, BR3 4ZF by 10.00am on 9 May 2019.
7.
If you return more than one proxy appointment, either
by paper or electronic communication, the appointment
received last by the Registrar before the latest time for the
receipt of proxies will take precedence. You are advised to
read the terms and conditions of use carefully. Electronic
communication facilities are open to all shareholders and
those who use them will not be disadvantaged.
8. The return of a completed form of proxy, electronic filing or
any CREST Proxy Instruction (as described in note 11 below)
will not prevent a shareholder from attending the Meeting
and voting in person if he/she wishes to do so.
9. CREST members who wish to appoint a proxy or proxies
through the CREST electronic proxy appointment service
may do so for the Meeting (and any adjournment of the
Meeting) by using the procedures described in the CREST
Manual (available from www.euroclear.com/site/public/EUI).
CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed
a service provider(s), should refer to their CREST sponsor or
voting service provider(s), who will be able to take the
appropriate action on their behalf.
10. In order for a proxy appointment or instruction made by
means of CREST to be valid, the appropriate CREST message
(a ‘CREST Proxy Instruction’) must be properly authenticated
in accordance with Euroclear UK & Ireland Limited’s
specifications and must contain the information required for
such instructions, as described in the CREST Manual. The
message must be transmitted so as to be received by the
issuer’s agent (ID RA10) by 10.00am on 9 May 2019. For this
purpose, the time of receipt will be taken to mean the time
(as determined by the timestamp applied to the message by
the CREST application host) from which the issuer’s agent
is able to retrieve the message by enquiry to CREST in the
manner prescribed by CREST. After this time, any change of
instructions to proxies appointed through CREST should be
communicated to the appointee through other means.
11. CREST members and, where applicable, their CREST
sponsors or voting service providers should note that
Euroclear UK & Ireland Limited does not make available
special procedures in CREST for any particular message.
Normal system timings and limitations will, therefore,
apply in relation to the input of CREST Proxy Instructions.
It is the responsibility of the CREST member concerned to
take (or, if the CREST member is a CREST personal member,
or sponsored member, or has appointed a voting service
provider(s), to procure that his CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary
to ensure that a message is transmitted by means of the
CREST system by any particular time. In this connection,
CREST members and, where applicable, their CREST
sponsors or voting system providers are referred, in particular,
to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings. The Company
may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
12. Any corporation which is a shareholder can appoint one or
more corporate representatives who may exercise on its
behalf all of its powers as a shareholder provided that no
more than one corporate representative exercises powers
in relation to the same shares.
98 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
13. As at 16 April 2019 (being the latest practicable business day
prior to the publication of this Notice), the Company’s ordinary
issued share capital consists of 79,448,200 ordinary shares,
carrying one vote each. Therefore, the total voting rights in
the Company as at 16 April 2019 are 79,448,200.
18. You may not use any electronic address (within the meaning
of Section 333(4) of the Companies Act 2006) provided in
either this Notice or any related documents (including the
form of proxy) to communicate with the Company for any
purposes other than those expressly stated.
A copy of this Notice, and other information required by
Section 311A of the Companies Act 2006, can be found on
the Company’s website at www.midwichgroupplc.com
14. Under Section 527 of the Companies Act 2006, shareholders
meeting the threshold requirements set out in that section
have the right to require the Company to publish on a website
a statement setting out any matter relating to: (i) the audit of
the Company’s financial statements (including the Auditor’s
Report and the conduct of the audit) that are to be laid before
the Meeting; or (ii) any circumstances connected with an
auditor of the Company ceasing to hold office since the
previous meeting at which annual financial statements and
reports were laid in accordance with Section 437 of the
Companies Act 2006 (in each case) that the shareholders
propose to raise at the relevant meeting. The Company may
not require the shareholders requesting any such website
publication to pay its expenses in complying with Sections
527 or 528 of the Companies Act 2006. Where the Company
is required to place a statement on a website under Section
527 of the Companies Act 2006, it must forward the
statement to the Company’s auditor not later than the time
when it makes the statement available on the website. The
business which may be dealt with at the Meeting for the
relevant financial year includes any statement that the
Company has been required under Section 527 of the
Companies Act 2006 to publish on a website.
15. Any shareholder attending the Meeting has the right to ask
questions. The Company must cause to be answered any
such question relating to the business being dealt with at
the Meeting but no such answer need be given if: (a) to do so
would interfere unduly with the preparation for the Meeting
or involve the disclosure of confidential information; (b) the
answer has already been given on a website in the form of
an answer to a question; or (c) it is undesirable in the interests
of the Company or the good order of the Meeting that the
question be answered.
16. The following documents are available for inspection during
normal business hours at the registered office of the
Company on any business day from the date of this Notice
until the time of the Meeting and may also be inspected at
the Meeting venue, as specified in this Notice, from 10.00am
on the day of the Meeting until the conclusion of the Meeting:
• copies of the Directors’ letters of appointment or service
contracts.
17. Except as provided above, members who have general
queries about the Meeting should use the following means
of communication:
• calling our shareholder helpline provided by the Company’s
registrars, Link Asset Services, on 0871 664 0300 (calls cost
12 pence per minute plus network extras) or +44 (0) 371 664
0300 from outside the UK. Lines are open Monday to Friday,
9:00 a.m. to 5:30 p.m.; or
• calling the Company Secretary on +44 (0) 1379 649271;
• or emailing the Company Secretary at
stephen.lamb@midwich.com.
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
99
GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Directors, Officers and Advisers
Directors
Mr S B Fenby
Mr S Lamb
Mr M Ashley
Mr A C Herbert
Mrs H Wright
Independent auditor
Grant Thornton UK LLP
Chartered Accountants
Statutory Auditor
101 Cambridge Science Park
Milton Road
Cambridge
CB4 0FY
Bankers
HSBC Bank plc
19 Midsummer Place
Milton Keynes
Buckinghamshire
MK9 3GB
Company Secretary
Mr S Lamb
Registered office
Vinces Road
Diss
Norfolk
IP22 4YT
Solicitors
Mills and Reeve LLP
Botanic House
100 Hills Road
Cambridge
CB2 1PH
Nominated advisers and brokers
Investec
30 Gresham Street
London
EC2V 7QP
Berenberg
60 Threadneedle St
London
EC2R 8HP
Company registration number
08793266
100 MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
MIDWICH GROUP PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2018
101
Midwich Group Plc
Vinces Road
Diss
Norfolk
IP22 4YT
T: 01379 649200
midwichgroupplc.com