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Delivering experiences
Beyond expectations
Annual Report and Financial Statements
For the year ended 31 December 2020
Company registration number: 08793266
www.midwichgroupplc.com
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MIDWICH GROUP IS A
LEADING GLOBAL SPECIALIST
AV DISTRIBUTOR TO THE
TRADE MARKET
The Group's long-standing relationships with over 500 vendors, including blue-chip
organisations, support a comprehensive product portfolio across major audio visual
(“AV”) categories such as large format displays, projectors, digital signage, unified
communications and professional audio. With operations in the UK and Ireland, EMEA, Asia
Pacific and North America, the Group operates as the sole or largest in-country distributor
for a number of its vendors in their respective product sets.
OUR PURPOSE
VALUES
CULTURE
To help our customers win and
then deliver successful projects,
and our manufacturers to reach
a broad market.
We value honesty, trust, hard
work, humility and creativity.
Our people are passionate,
collaborative, supportive,
ambitious and service-minded.
“AV solutions help people to
communicate, collaborate and work
more efficiently. They also provide
experiences and entertainment.”
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FINANCIAL HIGHLIGHTS
STATUTORY MEASURES
Revenue
£712m
2019: £686m
Gross profit
14.3%
2019: 16.5%
Operating profit
£7.1m
2019: £24.9m
Basic EPS
(4.32)p
2019: 21.67p
ADJUSTED PERFORMANCE MEASURES
Adjusted operating
profit
£16.5m
2019: £33.5m
Adjusted profit
before tax
£14.2m
2019: £31.2m
Adjusted EBITDA
cash conversion
194.4%
2019: 69.5%
Adjusted
net debt
£21.0m
2019: £53.3m
OPERATIONAL HIGHLIGHTS
• Resilient financial performance – a robust recovery in the second
half of the year exceeded the Board’s expectations at the start of
the pandemic
• Acquisitions made in 2019 and 2020 have been fully integrated and
are delivering a positive contribution to the Group
• Entry into the strategically important North American market
through the acquisition of Starin Marketing Inc.
• Established specialist unified communications capabilities, including
the addition of numerous new vendors
• Successful equity placing and refinancing to fund acquisition
investment
• Post-period end, entry into the Middle East market through the
acquisition of NMK Group
• Continue to have a strong acquisition pipeline across a number of
regions and technologies
See note 1 of the Group financial statements for definitions of non-GAAP measures, and note 26
actual and constant currency exchange rates.
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CONTENTS
Overview
Highlights
Group at a Glance
COVID-19 Statement
Chairman’s Statement
Strategic Report
Marketplace
The Value Chain
Business Model
Strategy
Key Performance Indicators
Managing Director’s Review
Operational Review
Financial Review
Managing Risk
01
02
04
06
10
12
14
16
18
20
22
26
30
Our Stakeholder Engagement 34
37
46
48
49
54
55
57
62
70
74
78
88
93
Environmental, Social and
Governance
Governance
Experienced Management
Operational Management
Chairman’s Statement on
Corporate Governance
Nominations Committee
Report
Audit Committee Report
Statement from the
Chairman of the
Remuneration Committee
Directors’ Remuneration
Report
Directors’ Report
Resolution Summary
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
Additional Information
Notice of AGM
Directors, Officers
and Advisers
139
141
147
151
01
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOVERVIEW
GROUP AT A GLANCE
INVESTMENT CASE
Experienced team has grown revenue and profit in 14 of the last 15 years. Expertise, focus, strong customer and supplier
relationships, and scale in a market expected to grow at an average of 5.8% per annum for the next five years.
Specialist AV offering
Absolute focus on AV market brings
broad offering, technical support and
expertise to customers and vendors in
a market with a history of long-term
growth.
Geographical footprint
Presence in many key markets means
strong support for international
vendors, customers and their end user
project roll-outs.
Buy and grow expertise
Long track record of successfully
buying, integrating and growing
businesses. Often seen as the buyer
of choice in the market by owners
who want to be part of a large, well
regarded AV specialist group.
Revenue split between divisions
6%
16%
31
Offices/showrooms1
20,000+
Customers served
46%
■ UK and Ireland
■ EMEA
■ Asia Pacific
■ North America
20
Countries of operation2
500+
Vendor relationships
32%
1,000+
Staff members
Media &
Entertainment
Read more about
Our Marketplace on page 10
1. Numbers inclusive of NMK Group
2. Includes UAE and Qatar from 2021
02
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOVERVIEW COMPREHENSIVE TECHNOLOGY
PORTFOLIO
Display
Projection
Technical
Broadcast
Unified Comms
LED
20,000+
Customers served
500+
Vendor relationships
Audio
Lighting
OUR END MARKETS
Corporate
Education
Government
Corporate
Education
Government
Healthcare Transportation
Broadcast & media
Retail
Venues & Events
Hospitality
Residential
Media &
Entertainment
Retail
Venues
& Events
Hospitality
Residential
PROVEN ACQUISITION CAPABILITY
Midwich has a history of entering new geographical
and product markets through acquisition and then
substantially growing the acquired businesses.
15 acquisitions since IPO
2016
Holdan
UK
Wired
New Zealand
2018
New Media
Germany, Austria and
Switzerland
Perfect Sound
France, Switzerland
Blonde Robot
Asia Pacific region
2020
Starin Marketing
USA
Vantage Systems
Australia
2017
Earpro
Spain and Portugal
Van Domburg Partners
Netherlands
Sound Technology
UK
2019
Mobile Pro
Switzerland
Prase
Italy
AV Partner
Norway
EES
Spain
2021
NMK Group
UAE, Qatar
Customer showroom experience
at Prase, Italy (pre-pandemic)
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOVERVIEW
COVID-19 STATEMENT
COVID-19 and its impact
on our business
The coronavirus pandemic represents
the biggest shock known to our
business sector. As the crisis unfolded,
we took decisive action to protect our
teams, preserve cash and support our
customers and vendors. These remain
our key priorities as the pandemic
continues.
Although the economic effect of
COVID-19 has been significant across
the world, our market strength,
combined with the diversity of our
Group in terms of geographical spread,
vendor breadth, technology focus
and end user markets have partially
mitigated the negative impact on our
business, highlighting the strength of
our business model.
After the initial fall, Group revenues
improved consistently from April,
such that the Group’s organic revenue
decline of 22% in the first half of the
year reduced to a 7% decline in the
second half of the year. Including the
impact of the Starin acquisition, we
were pleased to be able to grow Group
revenue by 3.7% to £711.8 million for
2020. Adjusted profit before tax for
the year was reduced to £14.2 million
(2019: £31.2 million) as a direct result of
the disruption from COVID-19.
The impact on our strategy
The coronavirus pandemic has shocked
the global economy and how we live
our lives. However, we believe that
the AV industry is well placed for the
future and see no overall change in
long-term prospects for the market.
Although some segments of the
market may be slower to recover, other
trends have unsurprisingly accelerated,
such as the increased adoption of
unified communications technology,
and our entry into this market through
the acquisition of Starin positions the
Group well for the future.
Whilst the impact of COVID-19
continues to create short-term
uncertainty, the Group's strategy
remains focused on markets and
product areas where it can leverage its
value-add services, technical expertise,
and sales and marketing skills. Using
its market knowledge and expertise,
the Group provides its vendors with
support to build and execute plans
to grow market share. The Group
supports its customers to deliver
successful projects, from initial pitch
to execution.
A core component of the Group's
growth strategy remains further
expansion of its international
operations and footprint into
strategically targeted jurisdictions both
organically and through acquisition.
After the initial disruption from the
pandemic, we resumed our acquisition
activity in the second half of the year.
The effect on our end-markets
Markets which are largely government
funded (such as education, healthcare
and defence) have remained relatively
strong, impacted mostly by the ability
of customers to access sites. The
corporate market has been more
muted with end users mostly working
from home and investment plans
largely placed on hold. The most
significant impact has been to the live
events and hospitality markets.
While the Group's system integrator
customers initially struggled to
undertake typically complex projects
due to limited ability to access sites,
sales to customers selling online were
comparatively strong. Over the second
half of the year customers’ site access
improved and the increased market
demand helped the Group improve
revenue throughout the period. The
disruption to more complex projects
and the events market has had an
adverse impact on Group margins,
although these are anticipated to
recover as markets return to normal.
Certain product sets have been
impacted in different ways depending
on their use. A strong performance
was achieved from technologies used
to facilitate working from home. Such
products include desktop monitors,
printers and various associated
accessories. Certain broadcast
products have also performed well
throughout the period, as organisations
have invested in technologies which
enable better remote communication.
Unified communications solutions
have performed relatively well, and the
Group has sought to maximise the skills
and relationships it acquired through
the acquisition of Starin in the US in
February 2020.
The Board believes that current market
conditions highlight more than ever
the need for manufacturers to use
a high-quality specialist distributor
such as Midwich. In 2020, the Group
launched an encouraging number of
new vendor relationships, such as with
Sonos, Netgear, Poly and Huddly, and
rolled out existing relationships, with
Barco, Biamp, Shure, DTEN and Absen,
into new technology areas (such as
the Barco ClickShare range in the UK &
Ireland and France) and geographical
markets (such as launching Shure in
France). The launch of new vendors has
continued during the lockdown period
as the Group continues to position its
portfolio in exciting growth markets,
such as unified communications.
How we are responding
Whilst we continue to monitor the
pandemic and remain cautious given
the return to COVID-19 restrictions
in early 2021, we have increasingly
shifted our focus to the future. We have
launched new vendor relationships and
further developed our expertise in the
unified communications sector. Our
acquisition programme recommenced
in the second half of 2020, we acquired
NMK Group in early 2021 and we have a
number of exciting opportunities in the
pipeline across various geographies.
What the long-term future
looks like
The Board would like to thank our
staff, customers and partners for their
incredible support in recent months
and looks forward to returning to our
previous financial performance as
quickly as possible, thereby continuing
our long-term growth trajectory.
04
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOVERVIEW OUR RESPONSE
Supporting the NHS
(or key worker environments)
A large quantity of our products
formed part of mission critical
installations in the health, defence,
education, and emergency services
sectors. In 2020 we prioritised
orders into key worker sectors, for
example, the Nightingale Hospital
in Birmingham.
New partnerships
In 2020, the Group not only
continued to launch with new
vendors during the lockdown
period but rolled out existing
partnerships and entered new
technology areas and geographical
markets. Below are just some of
the 2020 brands launched or had
their reach extended.
Barco ClickShare, Poly, DTEN,
Biamp, Netgear, BirdDog, Sure,
ZeeVee, Sonos, Huddly, Absen.
Outdoor cinemas
New opportunities in outdoor
cinema experiences emerged during
the pandemic. Partnering with
One Agency, saw the use of AV
technology in the creation of Scare
City, in Manchester, an immersive
drive-in experience watching
favourite horror films from the car.
Each event was accompanied by
professional actors, adding to the
bone-chilling outdoor screening.
STEPHEN FENBY
Group Managing Director
STEPHEN LAMB
Group Finance Director
“In a difficult year
we have remained
resilient, profitable,
service driven and
continued to pursue
our successful
long-term strategy.”
“A strong cash
performance in 2020
leaves us well placed
for the recovery.”
Read more about the effect of
COVID-19 on our operational
performance on page 22
Read more about the effect
of COVID-19 on our financial
performance on page 26
Collaborative roadshow event,
Sidev AV Tour de France
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOVERVIEW CHAIRMAN’S STATEMENT
Andrew Herbert, Chairman
Whilst the pandemic
was a major focus in
2020, I am pleased
that the Group was
able to achieve further
strategic milestones.
In an unprecedented year, I am
delighted that we achieved record
revenue of £711.8 million, 3.7% ahead of
the prior year. Against the backdrop of
the global pandemic, we demonstrated
resilience in achieving a robust and
progressive recovery in revenue
throughout the second half of the year.
A strong close to the year saw the
Group exceed the Board’s expectations
for full year revenue and adjusted
profit while also delivering a significant
reduction in net debt, maintaining the
financial flexibility of the Group.
At the start of the pandemic, we
took early and decisive action to
address the emerging risks posed by
COVID-19, including protecting our
teams, preparing all staff for remote
working, supporting our customers
and vendors and preserving cash and
liquidity. Countries and economies
were affected by lockdowns and other
restrictions at different times during
the year and the Group was able to
respond quickly and adapt to the
changes in market needs. Our strong
AV market position, combined with
the diversity of our Group in terms of
geographical spread, vendor breadth,
technology focus and end user markets
have partially mitigated the negative
impact of the crisis.
Our response to the pandemic required
the Board to make some difficult
decisions during the year, including the
use of furlough schemes and part-time
working, salary reductions and a small
number of headcount reductions.
Given the use of government support
to help retain jobs and a focus on
the preservation of cash we also
determined that the Group would not
pay dividends in 2020. The Board is
conscious of the impact of this decision
on shareholders, including the majority
of our staff who own shares in the
Group, and is committed to reinstating
dividend payments when appropriate.
Whilst the pandemic was a major
focus in 2020, I am pleased that the
Group was able to achieve further
strategic milestones:
The Group’s acquisition of Starin
Marketing Inc. (“Starin”), in February
2020, represented our entry into
North America, the world’s largest
AV market. Starin is a value added
AV distributor with a reputation
for technical excellence and a high
level of customer support. Since the
acquisition, Midwich has helped Starin
to accelerate its development by
strengthening its sales and business
management capabilities, releasing
significant cash invested in working
capital and exiting lower margin
activities to focus on high growth and
higher margin market segments. Starin
has brought expert knowledge of the
unified communications (“UC”) market
to the wider Group and supported the
addition of multiple UC vendors to the
Group’s portfolio.
During 2020, we further expanded our
vendor relationships in support of our
long-term organic growth objectives.
New brands added in the year included
Barco ClickShare, Poly, DTEN and
Huddly and the Group also launched
a Hardware as a Service (“HaaS”)
solution to help channel partners to
offer the latest UC technology to their
customers, without the requirement for
substantial upfront outlay.
After the period end, we completed
the acquisition of a majority stake in
NMK Electronics ENT. (“NMK Group”).
Based in the UAE and Qatar, NMK
Group is a value-added distributor
of AV products and represents the
Group’s entry into the Middle Eastern
market, one of the fastest growing AV
markets in the world. The deal further
expands the Group’s geographical
footprint, enabling it to extend the
support it can provide to customers
and vendors internationally.
The pandemic has caused significant
disruption to our end user markets.
Although the business has seen the
benefit of increased investment in
remote working and teaching, we
have been negatively impacted by
the discontinuation of live events and
conferences in many countries. Both
the AV industry and our customers
have demonstrated agility in switching
activity to the areas of demand during
the pandemic, and industry data
continues to show long-term growth
in demand for AV products; exceeding
GDP growth.
06
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOVERVIEW Innovation House, Bracknell, UK
The Board attributes our robust
performance through this challenging
year to continued focus on service,
looking after our teams and
continuing to pursue our strategic
goals. We believe that the business is
well positioned for the future.”
The Board attributes our robust
performance through this
challenging year to continued
focus on service, looking after our
teams and continuing to pursue
our strategic goals. We believe that
the business is well positioned for
the future.
Board
Membership of the Board has
remained stable throughout the
year and we adapted to the use of
unified communications for both our
AGM and our Board and committee
meetings. Reflecting the challenging
global backdrop, the Board met
more frequently during the year and
received regular updates from the
Executive Leadership Team (“ELT”).
In line with prior years the Board
completed a self-evaluation
exercise during 2020, 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 QCA code. There were no
major issues or concerns raised about
the effectiveness of the Board or its
individual members.
For a number of years, the Group has
acted to reduce its environmental
impact. This year the Board has chosen
to formalise its focus on sustainability
by asking Hilary Wright to be the
non-executive director with particular
responsibility for Environmental, Social
and Governance (“ESG”) matters and
through the introduction of our first
environmental targets for the Group.
The Group continues to apply the QCA
code as its governance framework.
The Board has reviewed all aspects
of compliance and continues to
believe that it meets or exceeds the
requirements of the code. Over the
last few years, we have enhanced
our reporting by including a detailed
Directors’ Remuneration Report and
ESG information. We also chose to
introduce an annual advisory vote on
the Directors’ Remuneration Report.
The Board recognises its duty to
have regard to broader stakeholder
interests and, in addition to including
both a separate Section 172 Statement
and additional carbon reporting in
the annual report, we added further
information about the Group to our
website during the year and introduced
a stakeholder newsletter from the start
of 2021.
People
The success of any company is down
to the quality of its leadership and
its people. The team at Midwich
has demonstrated immense skill,
commitment, drive and resilience over
the last twelve months. Our people
have adapted incredibly well to each
and every challenge without sacrificing
quality of service or losing their
enthusiasm. I recognise the sacrifices
made by our teams in responding to the
pandemic and strongly believe that we
have the best team in the industry and
are well positioned for future growth.
During 2020, the Board has welcomed
the opportunity to interact with the
Executive Leadership Team (“ELT”),
which comprises the executive directors
together with the managing directors
of our key operating units. We have
been delighted with the ELT’s success
in delivering strategic goals at the same
time as leading the Group’s operational
response to COVID-19. This regional
leadership model is working well and is
fully aligned to the Group’s long-term
growth ambitions.
On behalf of the Board, I would like to
thank all employees and our partners
for their commitment and hard work
and congratulate them on achieving
an impressive performance in an
exceptionally challenging year.
Andrew Herbert
Non-executive Chairman
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07
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOVERVIEW Case study
Lighting
for Circo
de Halo 2
show
EES, our Spanish
distributor, worked
with lighting designer
Juanjo Llorens
who designed the
latest winter show
from Madrid-based
Productores de Sonrisas
(Smile Producers),
creators of large-
scale multidisciplined
extravaganzas like
Circo de Los Horrores.
The newest arena show, directed
by Suso Silva, played in a bespoke
1,800-capacity circular tent erected
for the production at IFEMA Madrid.
The show combined premium ice
skating with acrobatics, breathtaking
stunts – including a skater fighting
with a violinist playing live – and was
filled with theatricality, live music
and incredible visuals! Juanjo worked
with the EES team to identify the
best solution and chose 40 x Robe
LEDBeam 150s, 24 x MegaPointe and
24 x Spiider moving lights to be central
to his lighting rig for this project.
EES provided the best
lighting solutions for the
show, helping to deliver
breath taking results.”
08
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT Strategic
report
MARKETPLACE
THE VALUE CHAIN
BUSINESS MODEL
STRATEGY
KPIS
MANAGING DIRECTOR’S REVIEW
OPERATIONAL REVIEW
FINANCIAL REVIEW
MANAGING RISK
OUR STAKEHOLDER ENGAGEMENT
ENVIRONMENTAL, SOCIAL
AND GOVERNANCE
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10
12
14
16
18
20
22
26
30
34
37
09
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT
MARKETPLACE
Our addressable market in professional audio visual solutions covers areas
such as sound, video and lighting. These solutions are prevalent and relied
upon in many areas of daily life – at home, in transit, at the workplace,
in education and in a wide range of retail, leisure and recreational uses.
The application of AV systems is found in areas such as unified communications, workplace collaboration and digital signage
solutions, with end users broadly covering the corporate, education, government, events, retail, hospitality, healthcare and
residential markets.
KEY TRENDS IN THE AV MARKET
Continued research and development
in the sector is expected to create
further advances, increasing
applications and therefore use of AV.
In addition, there is an established
renewal cycle for AV products,
ensuring a base level of demand.
Fundamentally, we believe that the
multiple demand drivers for AV
solutions have an appeal in periods
of economic growth and more
challenging times. Even during the
unprecedented disruption from
COVID-19, AV market demand has
remained robust with Group revenue
growing by 3.7% in 2020.
Industry forecasts indicate that the
global market for AV is expected to
grow at a compound annual growth
rate of 5.8% over the five years
to 2025.
How we're responding
Midwich is a specialist distributor
serving only the trade market and
specialising in AV equipment.
We believe that our primary role is
to facilitate growth in the markets in
which we operate and that our ability
to help our manufacturer partners to
gain access and grow their businesses
is a particular strength of the Group.
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.
The Group accesses new technologies
and applications through close contact
with innovative manufacturer partners.
Our intimate knowledge of the AV
market and trends means that we are
able to feed into manufacturer product
development programmes. This helps
our partners to develop and exploit
commercially focused products.
Our sales and marketing operations,
backed by strong product and
technical knowledge helps us to
develop markets for technologies at
the early stage of their life cycle.
The Group continues to invest in
training facilities which we use to
educate our customers in specific
technologies and market development
opportunities.
Increased use of distributors as
intermediaries in the AV supply
chain by large manufacturers
The use of distributors is well
established in the AV market and
has increased in recent years.
The distribution model allows the
manufacturers to reach a large and
fragmented customer base without
the need for investment in substantial
sales and marketing, technical support
and logistics activities. A value added
distributor helps manufacturers grow
faster whilst reducing their costs and
financial risk.
In addition, the distribution model
helps AV integrators develop the right
solutions for their customers, which
are often made up of products from
multiple vendors. This enhances the
growth of the overall AV industry and
increases customer satisfaction. It also
allows the distributor to share.
Growing use of AV products
and technology
The global pro AV market has grown
and evolved significantly over the
last 25 years with both cultural and
technological changes increasing the
demand for AV solutions.
There are multiple demand drivers in
the AV industry, including:
• Cost savings – reducing people
costs, for example using touch
screens to take orders in food
outlets, and reducing waste by
eliminating single use marketing
materials
• Improved effectiveness/efficiency
– improved learning, for example
collaborative solutions give
teachers real time analysis of
students’ understanding of lessons
• Competitive advantage – improved
customer proposition, for example,
extensive use of innovative AV
solutions enhances audience
experience at live events
• Environmental considerations
– reduced carbon footprint, for
example, unified communications
allow highly productive meetings
to take place without the need for
people to travel
• User expectations/social trends
– people now expect to use
technology in both the workplace
and in their interactions with retail/
leisure providers
• Safeguarding – improved safety
solutions, for example, the use
of high-end audio solutions to
improve evacuation procedures at
large venues
10
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT OUR END USER MARKETS
Our customers are primarily installers and resellers of AV
equipment into the pro AV market. This market addresses a
number of segments covering a very broad range of end user
markets. We believe that in 2020 these segments represented
the following proportions of our business:
Corporate
CORPORATE
The corporate market principally
covers offices, including meeting
rooms, huddle spaces, conference
rooms and reception areas. The
use of technology within the
corporate market is widespread,
and AV technology has been used
increasingly to aid the efficiency,
and effectiveness of operations.
We believe that the pandemic has
contributed to accelerate trends
that were already taking place in this
market, such as the use of technology
to collaborate in meetings and to
communicate remotely.
With significant numbers of people
working from home, recently we have
seen less investment in the corporate
market as end users contemplate
their future office strategy post
pandemic. Our belief is that offices
will continue to be used extensively,
but with adjustments to occupancy
levels and to methods of working.
For example, we expect to see
greater adoption of video and audio
conferencing technology, which will
enable staff in office and working
remotely to communicate effectively.
The Midwich Group product portfolio
is ideally suited to future corporate
requirements, particularly following
the strengthening of our unified
communications offering.
Other end user market segments
are individually smaller and tend to
have other own product and support
needs, which the Group addresses
through its range of specialist
businesses and staff. In 2020 the
COVID-19 pandemic adversely
affected a number of these markets –
such as venues, events and hospitality
where the severe restrictions on
meeting and socialising led to a
significant drop in demand for our
products. We believe that these
markets will return in due course, and
our ability to support them will be as
strong as ever.
Corporate 25%
Education 30%
Venues and
events 4%
Media and
entertainment 9%
Retail 5%
Others 6%
Residential 1%
Transportation 2%
Government and
military 8%
Hospitality 3%
Healthcare 7%
Further details in respect of
our two main segments are
as follows:
Education
EDUCATION
The education market covers primary
through to higher education and
is probably the most significant
market for the Group overall, and
particularly in the UK, Germany and
France. Through our long presence
in this market the Group has built
a very strong vendor portfolio,
close relationships with customers
addressing this market and also
in-house expertise in supporting the
needs of this segment.
The majority of the education market
is funded by government as part of
its investment in developing the skill
sets of its population. Historically,
government education spend has
tended to be relatively stable, with
the occasional addition of significant
additional investment programmes.
Recent trends in this market have
included the growth in interactive
displays and, more recently,
technology to facilitate effective
remote learning. The Group’s growing
portfolio of products addressing
the unified communications and
broadcast markets have improved our
offering to the education segment.
broad market feedback with the
manufactures which helps inform
long-term product development.
How we're responding
The Group’s long-standing
relationships with over 500 vendors,
including blue-chip organisations
such as Samsung, LG, Epson and
SMART, 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
20,000 customers, most of which
are professional AV integrators and
IT resellers serving sectors such as
corporate, education, retail, residential
and hospitality.
5.8%
Annual expected
AV market growth
to 2025
Source: AVIXA 2020
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT THE VALUE CHAIN
THE AV EQUIPMENT VALUE CHAIN
Midwich Group is part of a larger value chain in the AV equipment industry. This is shown below, along with the value
exchange between each member of the value chain.
Education
Education
VALUE EXCHANGE
VALUE EXCHANGE
AV manufacturers
Develop and
manufacture products
across multiple AV
categories, such as
displays, projectors,
video, audio and
digital signage.
Midwich Group
Midwich Group
distributes AV
products to the
trade market.
Value that AV manufacturers get
from Midwich:
• Market intelligence, strategic and tactical
input into planning
• Market access through highly experienced
and effective AV sales, marketing and
technical teams
Value that the trade market gets
from Midwich:
• Proactive help to sell and deliver
successful projects
• Unrivalled depth of product and
technical expertise
• Widest product range and an ability to
• Ability to reach broad, profiled AV
offer complete solutions
customer base
•
Industry-leading events and experience
centres enable greater interaction with
customers and end users
• Efficient logistics and specialist
product support
• Global reach gives ability to support
multi-national projects
• Midwich’s scale means fewer points of
contact, improving operating efficiency
for manufacturer
Value that Midwich gets from AV
manufacturers:
• Access to high quality products to
distribute to its customers, often on an
exclusive or number one basis
• Efficient logistics
• Demonstration and training facilities
• Credit team knowledge and support
• Technical requirements and targeted
marketing support for different vertical
markets
• Strong relationship management skills
• 100% trade focus builds high
customer trust
Value that Midwich gets from the
trade market:
• Customers for AV products
• Opportunities to support multinational
end users’ projects across geographies
• Ability to influence product development
• Market knowledge and end user feedback
and early access to new technology
• AV product training, informing users of the
value proposition
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT VALUE EXCHANGE
Trade market
The AV trade market is
formed of professional AV
integrators and IT resellers.
AV integrators assess their
clients’ needs and develop
an integrated solution,
utilising various AV products.
End users
End users of AV
products broadly cover
the corporate, events,
government, education,
retail, hospitality,
healthcare and
residential markets.
Value that trade market gets
from end users:
• Customers for the AV products
• Feedback on their needs from the
AV market
Value that end users get from
the trade market:
• Advice and assistance on the AV
products and the solution that they
require to meet their needs
•
Integration and installation of the
AV products to ensure that all the
products work well together as
one solution
• Ongoing monitoring and support of
AV installations
CASE STUDY
Technological
innovation –
successful
renovation of
‘El Beatriz’
El Beatriz, an emblematic
building in the city of
Madrid, recently underwent
a comprehensive renovation
of its architecture, design
and installations in order to
strengthen its positioning
as the “Perfect venue for
holding professional events
providing the highest levels
of comfort, technology and
exclusiveness."
One of the highlights of the
building’s facilities is the
remodelled El Beatriz Madrid,
with approximately 300m2
of floorspace and seating for
192 people. To carry out its
renovation, the managers of
El Beatriz chose Telesonic
S.A.U. which, with the support
of EARPRO, designed and
installed a conference,
microphone and simultaneous
interpretation system, capable
of meeting and exceeding the
highest expectations in terms
of performance, quality and
aesthetics.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT BUSINESS MODEL
MARKET-LEADING SPECIALIST VALUE ADDED AV DISTRIBUTION
The Group now has a global presence. Operating in every key geographic region, we believe that Midwich is the largest
specialist AV distributor in the world.
KEY RESOURCES AND CAPABILITIES
Market-leading AV vendor
portfolio
Resource
The Group operates as the sole or
largest in-country distributor for many
of its 500+ vendors in their respective
product sets. We believe this is the
largest global vendor portfolio in the
AV market, a position that has been
built over many years through our
technical expertise, extensive product
knowledge, focused sales capability
and strong customer service offering.
Benefits
The Group’s long-standing vendor
relationships make it attractive to
customers who are looking to limit
their number of buying relationships.
Opportunities
Broad and close vendor relationships
lead to opportunities to introduce new
brands and technologies into current
or new Group companies.
Strong relationships with a
broad range of focused AV
customers
Resource
The strongest industry team of
account managers, pre and post-sales
technical and product specialists gives
customers the support they need to
win and deliver successful projects.
Experience centres, demonstration
facilities and training facilities help
develop customer knowledge and
support their end user sales activities.
Benefits
A consistently reliable and supportive
trade-only distribution partner
encourages customer loyalty and a
larger share of wallet.
Opportunities
Continued investment in technical
expertise, support services and
experience centres should facilitate
closer customer relationships.
Proven ability to successfully
acquire, integrate and grow
businesses
Resource
Fifteen years’ experience and a strong
internal team of M&A, integration and
business development specialists have
facilitated a steady stream of successful
acquisitions.
Benefits
The Group uses acquisition to quickly
gain access to relevant and attractive
new geographical and product markets.
An effective acquisition process reduces
the risk of failed acquisitions and
management distraction. The Group’s
reputation as a trustworthy potential
partner make it an attractive prospect for
business owners looking to join a larger,
focused AV group and often allows us to
partner with the best businesses in the
market.
Opportunities
The Group has a strong pipeline of
acquisition opportunities either in new
geographical markets or in specialist
product areas.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT KEY RESOURCES AND CAPABILITIES
WHAT MAKES US DIFFERENT?
• Our industry expertise allows us to specialise and add value to both our
vendors and our customers
• Our global footprint makes us the largest specialist AV distributor in the
world
• Our approach to acquisitions creates scale and growth in value whilst
retaining entrepreneurial spirit
UK&I New Experience Centre
Depth of up-to-date market
knowledge
Resource
We have a strong team of business
management and technology experts
whose roles include the identification
and assessment of new products and
technologies. The scale of our business
enables us to track movements in the
market such as demand for different
technologies and products. Strong
internal collaboration helps to share
insight amongst the wider Group.
Benefits
Up-to-date market insight gives a
competitive advantage in terms of stock
profiling and customer and vendor
strategies. Market intelligence can be
used to support customers and vendors,
making Midwich a more valued partner.
Opportunities
The continued development of internal,
specialist market focused teams who
share information will improve the
Group’s capabilities to support customers
and vendors as well as designing lucrative
future strategies.
Financial strength
Resource
A strong balance sheet, with strong
bank facilities and supportive
shareholders. Our expertise and
propriety tools and analysis help
all Group businesses maintain a
disciplined approach to working capital
management and cash generation.
Benefits
Our financial strength and capabilities
mean the Group is capable of
exploiting new opportunities – whether
acquisitions, investment in infrastructure
or the financing of working capital.
Expertise in inventory and receivables
management ensure the Group’s risk
from obsolescence or default are
minimised and provides comfort to
banks, trade insurers and vendors.
Opportunities
Continued focus on the interests of all
stakeholders should ensure the Group
has the resources to continue
its organic and inorganic growth.
VALUE GENERATED
Trade customers
Short-term: By having our sales
capability completely focused on
trade customers, we are well placed
to ensure we meet the needs and
requirements of our customers.
Long-term: We partner with our
customers to support their long-
term growth ambitions, including
helping them operate across multiple
geographies.
AV manufacturers
Short-term: Our scale and specialist
AV approach allows our vendors
to reach the widest range of
opportunities.
Long-term: Through our distribution
reach, we can grow the market
share of the products of our AV
manufacturer partners.
Employees
Short-term: We offer training and
development to our employees,
which keeps them engaged with the
Company and also ensures that our
employees develop the technical
expertise and product knowledge
required to service our customers.
Long-term: Our merit-based
approach recognises the value
contributed by our employees. We
actively encourage employee share
ownership and the majority of our
people own shares and participate in
our equity incentive schemes.
Shareholders
Short-term: The Group has generated
above AIM market returns since IPO
in 2016 and continues to invest to
deliver future growth.
Long-term: The Group has strategy
focused on both organic and
inorganic growth. Industry data
indicates average annual growth in
demand in the AV sector exceeding
global GDP growth for the next
five years.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT STRATEGY
The Group’s growth strategy has been, and continues to be, both organic
and inorganic.
Our primary focus is on organic growth supplemented by acquisition of businesses in new geographical or product markets.
Where we acquire, it is always with a plan for how we can help that business to grow and be more successful. 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 THREE STRATEGIC AREAS
SPECIALISATION
GEOGRAPHICAL
COVERAGE
SCALE
Why?
How?
• Relevance
• Portfolio
• Profitability
• Defensibility
management
• Acquisition
• Values and
services
Why?
• Support
• Projects
• Share of wallet
How?
• Acquisition
• Investment
Why?
How?
• Efficiency
• Focus
• Profitability
• Cross selling
• Sharing
expertise
• Referral
• Acquisition
Success Measures
Success Measures
• Growth in technical product sales
• Number of territories
Success Measures
• EBIT % growth
• Long-term growth in gross profit
• Market presence
• Growth in acquired companies
margin
• Number of customers
• Product offering
Risk Mitigation
• Staff safety
• Working capital
management
• Overhead control
• Keeping customer service
and vendor support as high
as possible
• Secure funding
arrangements
• Cease discretionary
capital spend
STRATEGY IN ACTION
OUR
SHORT-TERM
STRATEGIC FOCUS
Recovering from COVID-19
Our focus has been on mitigating
short-term risk whilst also positioning
the business for the future. Our
assessment is that the opportunity
for Midwich in the AV market
remains as strong as ever.
Recovery
• Planning for short to
medium-term business
development
• New vendor acquisition
and launch
• Launch of “as a service”
model
• Bring people back to work
and into offices safely
• Continue to focus on
working capital – particularly
inventory management
• Resume M&A programme
and selective CapEx
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT CASE STUDY
STRATEGIC REPORT
Travel hub transformation
takes flight
A vast digital canvas
at the centre of
Edinburgh Airport’s
multimillion-pound
redevelopment project
is transforming the
check-in hall by
quickly and seamlessly
delivering important
information to
travellers.
Traditional check-in desks at
Edinburgh Airport have been replaced
by an 85m visually striking self-
check-in LED environment, ensuring
wayfinding, flight information and
marketing visuals are clearly visible
from anywhere in the hall.
As part of a long-term expansion
and modernisation plan, Edinburgh
Airports Limited (EAL) has completed
a multimillion-pound redevelopment
of the check-in facility featuring a
baggage carousel display spanning
the full length of the hall enhanced by
innovative self-service technology.
Completed in March 2020 in just
over five weeks, the team behind the
ambitious project endeavoured to
integrate a flexible wayfinding and
flight information display solution.
From the outset, nuVIDEO worked
with our Midwich team and PSCo
(part of the Midwich Group) to ensure
everything was in place to facilitate
an installation that would be seen by
millions of travellers.
A critical use of innovation
The redevelopment project’s success
lies in its ability to harness the power
of technology to help achieve the
airport’s vision of creating a multi-
airline self-bag drop facility that
enhances the airport experience for
passengers by reducing bag drop
nuVIDEO worked with our Midwich
team to ensure everything was in
place to facilitate an installation
that would be seen by millions of
travellers.”
times, informing customers of new
check-in processes and providing
pertinent information regarding their
journey.
This has been particularly crucial in
enabling Edinburgh Airport to operate
safely throughout the coronavirus
pandemic, engaging with customers
on a scale previously not possible, to
deliver clear and concise information
on new procedures and local
restrictions.
In a busy and constantly changing
environment such as an airport, using
LED as a canvas for digital signage
supported by reliable processing
systems can be a powerful tool to
engage travellers and deliver targeted
and meaningful messaging.
MIDWICH GROUP PLC
MIDWICHGROUPPLC.COM
17
17
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT KEY PERFORMANCE INDICATORS
How we performed in 2020
1
%
5
1
%
4
2
%
1
2
%
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
REVENUE
GROWTH
%
3
0
2
0
2
2
%
3
.
5
1
6
1
0
2
%
5
.
6
1
%
5
.
6
1
%
5
.
5
1
7
1
0
2
8
1
0
2
9
1
0
2
%
3
.
4
1
0
2
0
2
GROSS
MARGIN
3%
Change in total
revenue vs prior year
at constant currency.
Why we use this measure
Revenue growth (at constant
currency) is often an indicator of the
financial health of the Group. It may
indicate the Group is participating in a
growing market or has gained market
share, or both.
Performance
Despite the global disruption from
COVID-19 during the year, the Group
continued to grow in 2020 with total
growth of 3.3% (CFX). Whilst the
pandemic slowed organic growth,
a good recovery in the second half
of the year combined with a strong
contribution from acquisitions made
in 2019 and 2020 allowed the Group
to maintain its record of long-term
growth.
Target
The Group aims to grow its revenue at
a faster rate than the overall market to
increase its market share.
14.3%
Gross profit as
a percentage of
revenue.
Why we use this measure
An increase in the gross margin 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.
Performance
In 2020, COVID-19 caused significant
disruption to many of our end user
markets. This was felt particularly hard
in some of the higher margin value add
areas, such as live events and corporate
infrastructure investments. Despite
this, the Group was pleased with the
gross margin performance and is well
positioned for gross margins to recover
as activity returns to normal.
Target
Maintain or increase gross margin each
year.
3
%
6
4
6
1
0
2
%
4
9
1
%
2
9
%
4
8
%
9
6
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
CASH FLOW
CONVERSION
194%
Adjusted operating cash
flow as a percentage of
adjusted EBITDA.
Why we use this measure
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.
Performance
The Group had a tight focus on
working capital and cash in 2020 and
was able to substantially reduce its
net debt during the year. Not only
does this demonstrate the resilience
of the Group’s business model but
also positions the Group well to invest
in future growth.
Target
Over 70% of EBITDA.
18
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT AV in one of three COMBO globetrotting
hostels in Venice, Milan and Turin.
4
6
6
1
0
2
8
1
7
1
4
1
1
1
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
COUNTRIES WITH
A PRESENCE
18
The number of
countries in which the
Group has operations.
Why we use this measure
Geographic footprint is an indicator of
our ability to support customers, end
users and vendors with global project
rollouts, in addition to scale and the
opportunity to further grow revenue.
Performance
The Group continued to increase
its international presence in 2020,
entering the North American
market through the acquisition of
Starin, which gave us a presence in
the world’s largest AV market and
increases our direct representation
in the global AV market to over 50%.
After the period end the acquisition of
NMK Group in the Middle East gives
us a presence in all the major global
AV regions and increases the number
of countries where we operate to 20.
Target
Entry into at least one new
geographical market per annum.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT
MANAGING DIRECTOR’S REVIEW
Stephen Fenby
MANAGING DIRECTOR’S Q&A ON 2020
Q
A
Q
A
“2020 was a
challenging year
for everyone and I
would like to take this
opportunity to thank
all of our employees,
partners and suppliers
for their tireless hard
work and continued
support. We delivered
a robust performance
in the year, thanks to
our proven business
model and our position
as a true value add
distributor in the
global AV market.”
How has the past year
been for Midwich?
In 2020 the world economy,
the AV industry and our
business faced unprecedented
challenges. Changes to how
people interact, work, travel
and spend their leisure time
have often been significant
and sudden. Against this
background our people and
business have responded
well – adapting to how we
work, communicate with each
other, our customers and
vendors, and how we continue
to deliver a consistently
excellent service. We believe
our market share has grown in
each of our major territories
– reflecting the strength of
our offering and the support
we have continued to give
our customers and vendors in
challenging times.
With our comprehensive
product offering and
geographical reach the
business has been able to
maximise the opportunities
that have been available to us
in 2020 – focusing particularly
on those end user markets
that have been strong through
the pandemic. Group revenue
increased in the year, with
the contribution from Starin
more than compensating for
challenges in other markets.
Whilst dealing with short-term
challenges, the business has
not lost focus on our longer-
term strategies and plans. For
example, we have taken on
an unprecedented number
of new vendor relationships,
and expanded our footprint
through the acquisition of
Starin in the US in February
2020 and NMK after the
year end.
Despite the pandemic, I feel
that Midwich has had one of
our most successful years.
What impact has
COVID-19 had on
Midwich’s performance?
The COVID 19 pandemic
has impacted many of our
end user markets – mostly
negatively, but in some cases
positively. Generally, lower end
user demand had an impact
on our revenues, which in
turn reduced the volume of
purchases we made from
vendors. Lower purchase
levels can have an impact on
our ability to hit rebate targets,
to obtain special pricing
support from manufacturers,
and reduces volume discounts.
In addition, additional price
competition can reduce
selling prices, particularly in
mainstream products. These
factors have all contributed
to generally lower margins,
but should be reversed once
volumes build back.
The mix of sales has also been
impacted by the pandemic. In
particular, end user markets
in the events, leisure and
hospitality sectors were
depressed for the majority
of 2020. These markets
often use more specialist,
(and hence higher margin)
products, particularly in the
technical video, audio and
lighting technology areas.
With lower revenues and
gross profits, we took actions
to realign our cost base.
Our focus was to reduce
discretionary spend whilst
seeking to maintain our
market-leading team. We
reduced recruitment and most
leavers were not replaced.
The Group took advantage
of government job support
funding where appropriate.
The Group remained
profitable in 2020, with
adjusted profit before tax
falling to just under half
20
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT Q
A
Q
A
the level achieved in 2019. In
its 41-year history Midwich has
never had a loss making year1.
In addition to maximising
profitability, we focused heavily
on managing our cash flow.
The rapid decline in trade in the
spring of 2020 meant that we
needed to give particular focus
to managing inventory levels,
supplier payments and customer
receipts. We made very good
progress in working capital
management, with the result that
our net debt reduced significantly
over the course of the year.
Has COVID-19 impacted
your strategy moving
forward?
Since the start of the COVID-19
crisis we have kept our long-term
strategy under constant review. In
particular, we have been seeking
to identify areas of risk with our
previous strategy, and whether
we need to fundamentally refocus
onto new product, end user
or geographical market areas.
We have taken note of industry
research, including an Avixa report
published in July 2020, which
suggested that after a decline
in 2020, the global AV market is
expected to grow at a compound
annual rate of 5.8% for the next
five years. Overall, we have
Keeping in touch during
the pandemic
concluded that the changes we
have seen in the market were either
an acceleration of changes that
were already happening, fall within
our current focus areas or appear
to be short term in nature. As
such, we have not fundamentally
changed our focus on increasing
specialisation, expanding our
geographical footprint and growing
our scale.
What does the future look
like for Midwich?
The global AV market was believed
by Avixa to be worth $239bn in
2020 and will grow at 5.8% per
annum for the next five years.
Midwich is a major player in the
market, with a focused, skilled and
experienced team. With revenue
representing under 1% of the world
market and operations in just 20
countries we are well placed to
capitalise on the long-term growth
prospects of the market.
In the short term, we expect
that severe COVID lockdowns in
many key markets will suppress
our potential in at least the first
half of 2021. Should vaccination
programmes develop as hoped,
and general economic conditions
improve, we would expect to see a
return to normal levels of trade in
the second half of 2021.
1. Based on adjusted operating profit.
CASE STUDY
Mercedes-Benz
Fashion Week
Madrid – the
show goes on
The new edition of the Mercedes-
Benz Fashion Week Madrid
(MBFWM) has celebrated its first
hybrid edition marked by strict
security measures and capacity
control.
Our specialist lighting distributor
EES, located in Spain, worked closely
with Fluge, their reseller partner, to
support this hybrid format; the first
of its kind. This new edition of the
Mercedes-Benz Fashion Week, held
in Madrid, once again counted on
designer Juanjo Saunier as master
of ceremonies. Saunier works to
programme, illuminate and make the
event as spectacular as the usual
in-person fashion shows through
designing a digital experience.
Saunier's challenge was to create
lighting designs that allowed each of
the shows to look different as part of
the requirements of a new digital era.
The Midwich Group company EES
was honoured to be able to support
the partners of this iconic fashion
show, together with its creators
and the show’s commitment to
‘hybridisation’ and ‘digitisation’ have
resulted in its success.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT OPERATIONAL REVIEW
Overview
In 2020 the world economy, the
AV industry and our business faced
unprecedented challenges. Changes to
how people interact, work, travel and
spend their leisure time have often been
significant and sudden. Against this
background, our people and business
have responded brilliantly – adapting
to how we work and communicate with
each other, and how we continue to
deliver a consistently excellent service.
Despite the negative financial impact
of the pandemic, Midwich has had one
of its most successful years – building
on its market position and pursuing our
long-term goals.
Revenue growth in a challenging
market
Group revenue increased by 3.7% in
the year, with the contribution from
Starin since February 2020 more than
compensating for challenges in other
markets. The Group’s comprehensive
product offering, and geographical
reach have enabled us to capitalise on
those opportunities that were available
to us in 2020.
We believe our market share has
grown in each of our major territories
– reflecting the strength of our offering
and the support we have continued
to give our customers and vendors in
challenging times.
Impact on end-user markets
The COVID-19 pandemic has impacted
many of our end user markets –
mostly negatively, but in some cases
positively. Our two largest end user
markets are education and corporate.
The education market was relatively
robust in 2020, with government spend
remaining strong. We saw an increase
in demand for technologies to enable
combined remote and in-class teaching.
The corporate market was impacted
in the year as businesses assess their
future office strategies. Nonetheless, we
remain comfortable that our technology
portfolio will form an important part of
future office strategies – for example
to enable closer collaboration or
remote communication.
End user markets such as events, leisure
and hospitality have continued to be
severely impacted, but are expected
to recover once people are able to mix
freely again.
Short-term impact on gross
margins
Generally lower end user demand had
an impact on our revenues, which in
turn reduced the volume of purchases
we made from vendors. Lower
purchase levels can have an impact
on our ability to hit rebate targets, to
obtain special pricing support from
manufacturers, and reduces volume
discounts. In addition, greater price
competition can reduce selling prices,
particularly in mainstream products.
These factors have all contributed to
generally lower margins, but should be
reversed once volumes build back.
The mix of sales has also been
impacted by the pandemic. In
particular, the depressed events, leisure
and hospitality sectors often use more
specialist, (and hence higher margin)
products, particularly in the technical
video, audio and lighting technology
areas. During the year, we reviewed our
policy of applying fixed percentage
write-downs to our stock as it ages.
Given the temporary disruption to end
user markets, many current and viable
products would have become fully
written down, which would not reflect
the recoverable value of such items, as
such, the time to full write-down was
extended. At the end of the year the
Group had a stock provision of £23.8
million (22% of cost) compared to £13.3
million at the end of the prior year
(13%). Had the Group maintained the
previous percentages, the inventory
write-down would have been £6.5m
higher as at 31 December 2020.
Managing costs without
damaging the business
With lower revenues and gross profits,
we took actions to realign our cost base.
Our focus was to reduce discretionary
spend whilst seeking to maintain our
market-leading team. We reduced
recruitment and most leavers were not
replaced. The Group took advantage of
government job support funding where
appropriate, receiving approximately
£2.8 million in UK&I and about half this
amount across other regions.
Estimated split of pro AV revenue by end user market
35%
30%
25%
20%
15%
10%
5%
0%
Corporate
Venues -
events
Media &
entertainment
Retail
Others
Education
Residential
Transportation
Government
& Military
Hospitality
Healthcare
Avixa 2019
2019
2020
2021
Source: AVIXA/Company 2020
22
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT Profitability and cash generation
The Group remained profitable in
20201, with adjusted profit before
tax falling to just under half the level
achieved in 2019. In its 41-year history
Midwich has never had a loss-making
year at the adjusted operating profit
level and I am pleased that this still
continues to be the case.
In addition to maximising profitability,
we focused heavily on managing our
cash flow. The rapid decline in trade
in the spring of 2020 meant that we
needed to give particular focus to
managing inventory levels, provisions,
supplier payments and customer
receipts. We made very good progress
in working capital management, with
the result that our net debt reduced
significantly over the course of the year.
1. Based on adjusted operating profit
Group strategy remains
unchanged
Since the start of the COVID-19 crisis
we have kept our long-term strategy
under constant review. In particular,
we have been seeking to identify areas
of risk with our previous strategy, and
whether we need to fundamentally
refocus onto new product, end user
or geographical market areas. We
have taken note of industry research,
including an Avixa report published in
July 2020, which suggested that after
a decline in 2020, the global AV market
is expected to grow at a compound
annual rate of 5.8% for the next five
years. Overall, we concluded that the
changes we have seen in the market
were either an acceleration of changes
that were already happening, fall within
our current focus areas or appear to be
short-term in nature. As such, we have
not fundamentally changed our focus
on increasing specialisation, expanding
our geographical footprint and growing
our scale.
Whilst dealing with short-term
challenges, we have continued to
focus on our longer-term strategies
and plans. For example, we have taken
on an unprecedented number of new
vendor relationships, and expanded
our footprint through the acquisition of
Starin in the US in February 2020 and
NMK in the Middle East at the end of
the year.
Technologies2
In broad terms, we categorise our
products into mainstream and specialist
categories. Mainstream products
cover displays and projectors, which
comprised an aggregate of 54%
of Group revenue in 2020 (57% in
2019). Specialist categories cover
technologies which require greater
pre and post-sales support and hence
tend to carry higher margins. This
group covers categories such as audio,
technical video and broadcast and
represented 38% of total sales in 2020
compared with 36% in 2019.
Our largest technology area is displays,
a category which has been growing for
a number of years but actually fell by
14% in 2020. The fall was particularly
pronounced in UK&I, and was mitigated
in part by a growth in display sales in
Long track record of accretive delivery
)
m
£
(
e
u
n
e
v
e
R
£800
£700
£600
£500
£400
£300
£200
£100
£0
157
134
173
184
202
203
211
234
574
472
370
314
291
20%
18%
712
16%
686
G
r
o
s
s
m
a
r
g
n
(
%
)
i
14%
12%
10%
8%
6%
4%
2%
0%
2006 2007 2008 2009 2010 2011
2012 2013 2014 2015 2016 2017 2018 2019 2020
Global AV market expected to decline by 8% in 2020, return to 2019 levels by 2022
and then grow to $315bn by 2025 (five year CAGR 5.8%)
Source: Company 2020
EMEA. Displays represented 37% of
Group revenue in 2020 (2019 40%).
We believe that the fall in our displays
business was less than that of the
overall market in our key territories.
Revenue from projector sales fell by
7% in 2020, with the UK&I reduction
being the most significant amongst our
territories. Whilst the overall projector
market continues to be impacted by a
shift towards displays, we believe that
we gained market share in high-end
projection and are well positioned
for the expected recovery in demand
in this area. Mainstream product
categories tend to see greater price
competition, which was a factor in
lower gross margins across displays
and projection in the year.
Sales in our technical product
categories were broadly flat cross the
year. However, this was a combination
of significant growth in the broadcast
business (particularly in streaming
and pro video solutions), in technical
AV products (including unified
communications products) and
significant falls in audio and lighting
(caused by lower demand in the events
and hospitality markets).
2. This analysis excludes revenue from the
fulfilment activity that Starin exited from at
the end of 2020.
Outlook
Despite the short-term impact of the
pandemic, we have continued to pursue
our long-term strategic goals with the
result that I believe the business is in a
stronger market position at the end of
2020 than it was at the beginning.
The global AV market was believed
by Avixa to be worth $239bn in 2020
and will grow at 5.8% per annum
for the next five years to reach $315
billion in 2025. Midwich is a major
player in the market, with a focused,
skilled and experienced team. With
revenue representing under 1% of the
world market and operations in just
20 countries we are well placed to
capitalise on the long-term growth
prospects of the market.
In the short term, we expect that
severe COVID lockdowns in many key
markets will suppress our potential in
at least the first half of 2021. Should
vaccination programmes develop
as hoped, and general economic
conditions improve, we expect to see a
return towards normal levels of trade in
the second half of 2021.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT
STRATE GIC REPORT
OPERATIONAL REVIEW CONTIN UED
UK & IRELAND
The UK is the Group's single largest territory by revenue,
profit and headcount, and addresses multiple markets with
many different product sets. As such, general economic
conditions tend to have a more significant impact on the
UK business than in other countries where the Group has a
relatively smaller market share. Like other regions, the impact
of COVID-19 on the UK business was initially significant but
trading steadily improved as the year progressed.
We achieved revenue of £224.4 million in the region (2019:
£314.6 million) whilst margins declined to 14.0% (2019:
17.6%). The change in margin reflects both a change in
mix, as higher margin value added projects and our rental
business were most affected by the COVID-19 restrictions,
and a reduction in vendor rebates, as the level of purchasing
activity was reduced in the year. The Board expects gross
margins to recover as normal economic activity resumes.
In response to the pandemic we acted to reduce costs,
including reductions in salaries, bonuses and discretionary
expenditure. In addition, UK&I received £2.8 million from
government schemes towards enhanced furlough payments
and offered flexible working to its team members. These
actions allowed us to limit headcount reductions to a
relatively small number and ensure that the business is well
positioned for the anticipated recovery.
The overall revenue reduction of around 30% was reflected
across most product categories, reflecting a general drop in
the market. Professional audio and lighting were impacted
to a greater degree due to the virtual cessation of the events
and entertainment markets in the region during 2020.
Strong performance was seen in the smaller categories of
document solutions (as consumers set themselves up to
work from home) and also consumer audio sold through
online retailers.
EMEA
The EMEA region comprises our businesses in France,
Germany, Switzerland, Benelux, Norway, Italy and Iberia and
will include activities in the Middle East from 2021.
Despite the adverse impact from COVID-19 we improved
revenue by 3.2% to £331.1 million (2019: +44.6% to £321.0
million). Whilst all territories in the region were affected
by the pandemic, the initial reduction in revenue and pace
of recovery has varied by both country and product area.
Germany and France recovered strongly during the second
half of the year, helped by strong demand for education,
remote working, broadcast and streaming solutions. The
more specialist audio and lighting focused businesses in
Southern Europe have seen a greater impact on demand,
but they have performed well, maintained or increased
market share, and are well positioned for future growth.
Underlying revenue (excluding the effects of acquisitions
and currency changes) was in line with the prior year
(2019: +15.2%).
In line with other territories, gross margin was impacted by
COVID-19, reducing to 13.8% (2019: 15.2%) manly due to a
negative mix effect. Operating profit in EMEA at £9.4 million
(2019: £14.1 million), was impacted by the change in gross
margin. Whilst certain countries benefited from government
support to retain jobs, this was at a much lower level
(£0.8 million) than that received in UK&I.
In the mainstream product categories, revenue from displays
increased by 9% but from projectors declined by 5%,
reflecting a long-term trend as part of the projector market
switches to displays. Our broadcast product sales increased
significantly, driven by stronger sales of live streaming,
prosumer and corporate products, particularly in the German
market. Pro audio and lighting showed revenue declines
of around 25%, being somewhat less impacted than the
UK&I market.
£224.4m
Revenue
14.0%
Gross margin
£331.1m
Revenue
13.8%
Gross margin
m
8
.
5
1
3
£
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6
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7
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3
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24
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS STRATEGIC REPORT
ASIA PACIFIC
Our Asia Pacific region sales declined by 12.1% to £44.5
million in 2020 (2019: Up 41.2% to £50.6 million). Across
the region the response to the pandemic saw some
very strict lockdowns and periods of business closure,
particularly in New Zealand. Against this backdrop our
businesses have performed well, especially broadcast and
streaming solutions.
In prior years, APAC margins have benefited from high value
add, complex projects. These were adversely affected by
COVID-19 in 2020 and the resulting change in mix resulted in
a gross margin of 15.3% (2019: 17.7%).
APAC received £0.4 million of government support, and due
to the reduction in gross profit, adjusted operating profit
declined by £1.9 million to £0.8 million (2019: £2.7 million).
NORTH AMERICA
Starin became part of the Group on 6 February 2020 and
contributed £111.8 million to Group revenue in the year.
Despite the COVID-19 pandemic, the integration of Starin
has progressed ahead of our initial plans with significant
achievements including restructuring and investing in both
sales and business management capabilities, overhead
reductions, exiting low margin fulfilment activity and a
significant reduction in net debt through focus on working
capital management.
Gross margins at 16.1% and adjusted PBT at £4.9 million
were ahead of our expectations and included the benefits
of the accelerated integration activity.
The Group has also been able to leverage Starin’s strong
relationships with unified communications vendors to
expand its capabilities and strengthen its UC offering across
all regions.
£44.5m
Revenue
15.3%
Gross margin
£111.8m
Revenue
16.1%
Gross margin
m
1
.
2
3
£
m
5
.
5
2
£
m
9
.
5
3
£
.
m
6
0
5
£
6
1
7
1
8
1
9
1
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5
.
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4
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.
8
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%
7
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.
%
7
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.
%
2
.
6
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.
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.
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25
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COM FINANCIAL REVIEW
Stephen Lamb
We achieved further
revenue growth in
2020 and generated
exceptionally strong
cash flows which
leaves the Group well
positioned for the post
COVID-19 recovery.
Despite the pandemic, we achieved further growth in 2020 with revenue
increasing by 3.7% to £711.8 million (2019: £686.2 million). Excluding the impact of
acquisitions and currency movements, organic revenue declined by 14.1% (2019:
+6.0%). Gross profit margin was down on the prior year at 14.3% (2019: 16.5%).
Adjusted operating profit of £16.5 million (2019: £33.5 million) reduced by 50.8%
at constant currency (2019:+11.0%). Operating profit before adjustments was £7.1
million (2019: £24.9 million).
Statutory financial highlights
Revenue
Gross profit
Operating profit
Profit before tax
Profit after tax
Basic EPS – pence
Year to 31
December
2020
Year to 31
December
2019
£711.8m
£101.8m
£7.1m
£(1.0)m
£(3.4)m
(4.32)p
£686.2m
£113.1m
£24.9m
£23.8m
£18.2m
21.67p
Adjusted financial highlights1
Revenue
Gross profit
Gross profit margin %
Adjusted operating profit
Adjusted profit before tax
Adjusted profit after tax
Adjusted EPS – pence
Year to 31
December
2020
Year to 31
December
2019
£711.8m
£101.8m
14.3%
£16.5m
£14.2m
£10.3m
11.20p
£686.2m
£113.1m
16.5%
£33.5m
£31.2m
£23.8m
28.49p
Total
growth
3.7%
(10.0)%
(50.6)%
(54.6)%
(56.7)%
(60.7)%
Total
growth
3.7%
(10.0)%
(71.6)%
(104.2)%
(118.6)%
(119.9%)%
Growth at
constant
currency
3.3%
(10.2)%
(50.8)%
(54.7)%
(56.8)%
1. Definitions of the alternative performance measures are set out on page 101.
Currency movements had a limited impact across the Group in both 2020
and 2019.
On a constant currency basis, growth in revenue was 3.3% (2019: 20.1%) and
adjusted profit after tax reduced by 56.8% (2019: +7.7%).
The Group’s operating segments are the UK and Ireland, EMEA, Asia Pacific and
North America. The Group is supported by a central team.
26
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT Regional highlights
Revenue
UK & Ireland
EMEA
Asia Pacific
North America
Total Global
Gross profit margin
UK & Ireland
EMEA
Asia Pacific
North America
Total Global
Adjusted operating profit1
UK & Ireland
EMEA
Asia Pacific
North America
Group costs
Total Global
Adjusted finance costs
Adjusted profit before tax1
Organic
growth
%
(28.7)
(0.1)
(11.8)
–
(14.1)
Year to 31
December
2020
£m
Year to 31
December
2019
£m
Total
growth
%
Growth at
constant
currency
%
224.4
331.1
44.5
111.8
711.8
14.0%
13.8%
15.3%
16.1%
14.3%
3.9
9.4
0.8
4.9
(2.5)
16.5
(2.3)
14.2
314.6
321.0
50.6
–
686.2
17.6%
15.2%
17.7%
–
16.5%
19.9
14.1
2.7
–
(3.2)
33.5
(2.3)
31.2
(28.7)
3.2
(12.1)
–
3.7
(28.7)
2.2
(10.7)
–
3.3
(3.6)ppts
(1.4)ppts
(2.4)ppts
(2.2)ppts
(80.3)
(33.4)
(69.8)
(80.3)
(33.9)
(69.6)
(50.6)
(50.8)
(54.6)
(54.7)
1. Definitions of the alternative performance measures are set out in note 1 to the consolidated financial statements.
The financial performance of each segment during the year was:
UK and Ireland
The UK and Ireland segment
revenue reduced by 28.7%
(2019: -0.4%) to £224.4
million (2019: £314.6 million),
generating gross profit of
£31.3 million (2019: £55.3
million) at a gross profit
margin of 14.0% (2019:
17.6%). This resulted in an
adjusted operating profit
of £3.9 million (2019: £19.9
million), a decrease of 80.3%
(2019: +1.6%).
EMEA
The EMEA segment revenue
grew 3.2% (2019: 44.6%)
to £331.1 million (2019:
£321.0 million). Gross profit
reduced to £45.6 million
(2019: £48.8 million) at a
gross profit margin of 13.8%
(2019: 15.2%), leading to an
adjusted operating profit
of £9.4 million (2019: £14.1
million) that reduced 33.4%
(2019: +37.3%). In constant
currency, revenue grew 2.2%
(2019: 45.2%) and adjusted
operating profit fell 33.9%
(2019: +37.9%). Organic
revenue growth, excluding
the effects of acquisitions
in the current and prior
period, decreased by 0.1%
(2019: +15.2%).
Asia Pacific
The Asia Pacific segment
revenue declined 12.1% to
£44.5 million (2019: +41.2%
to £50.6 million), generating
gross profit of £6.8 million
(2019: £9.0 million) at a
gross profit margin of 15.3%
(2019: 17.7%). Adjusted
operating profit was £0.8
million (2019: £2.7 million).
On constant currency basis,
revenue reduced by 10.7%
(2019: 44.1%) and adjusted
operating profit fell 69.6%
(2019: -5.2%). Organic
revenue growth, excluding
the effects of acquisitions in
the current and prior period,
decreased by 11.8% (2019:
+4.4%).
North America
The North America segment
was new for 2020 following
the acquisition of Starin in
February 2020. Revenue
from North America was
£111.8 million, of which
approximately half was
attributable to fulfilment
activity for a vendor
relationship which will
not continue into 2021.
Gross margin at 16.1%
was above the Group
average due to the benefit
of integration activity,
including better working
capital management and
the exit of low margin
vendor relationships.
Adjusted operating profit
was £4.9 million.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT
FINANCIAL REVIEW CONTIN UED
Group costs
Group costs for the year were £2.5
million (2019: £3.2 million). The decline
in cost was largely due to savings in
staff costs attributable to the impact of
COVID-19, including temporary salary
cuts, lower bonus costs and a small
number of headcount reductions.
Adjusted finance costs
Adjusted finance costs at £2.3 million
(2019: £2.3 million) reflect the interest
costs on borrowings for historic
acquisition investments and working
capital. Reported finance costs of
£8.3 million (2019: £1.2 million) include
interest costs on Group borrowings, the
change in valuation of both deferred
consideration and put and call options
and the revaluation of loans and
financial instruments.
Profit before tax
The Group reported a loss before
taxation of £1.0 million (2019: £23.8
million profit), while adjusted profit
before tax reduced by 54.7% (2019:
+8.5%), at constant currency, to
£14.2 million (2019: £31.2 million).
Tax
The adjusted effective tax rate was
27.3% in 2020 (2019: 23.7%) which
reflects an increase in the mix of profits
arising in higher tax jurisdictions. Note,
COVID-19 had a significant impact on
the mix in 2020.
Earnings per share
Basic earnings per share is calculated
on the total profit of the Group
attributable to shareholders. Basic EPS
for the year was -4.32p (2019: 21.67p).
Diluted EPS was -4.32p (2019: 21.31p).
Adjusted EPS reduced by 60.7% (2019:
+4.7%) to 11.20p (2019: 28.49p).
Dividend
The Board took the difficult decision
to suspend dividend payments as part
of its response to COVID-19. Disruption
from the pandemic has continued into
2021 and, as such, the Board is not
proposing a final dividend for 2020.
Cash flow
Adjusted operating profit
Add back depreciation and unadjusted amortisation
Adjusted EBITDA
Decrease/(Increase) in stocks
Decrease/(Increase) in debtors
(Decrease)/Increase in creditors1
Adjusted cash flow from operations
Adjusted EBITDA cash conversion
Year to 31
December
2020
£m
Year to 31
December
2019
£m
16.5
6.2
22.7
34.9
18.1
(31.6)
44.1
194.4%
33.5
5.5
39.0
(5.1)
(7.7)
0.9
27.1
69.5%
1. Excluding the movement in accruals for employer taxes on share based payments.
The Group’s adjusted operating cash flow conversion, calculated comparing adjusted
cash flow from operations with adjusted EBITDA, was 194.4% compared to 69.5% for
the prior year. The exceptional performance for the current year reflects a focus on cash
and working capital management during the pandemic. Our expectation of long-term
cash conversion remains between 70 and 80%.
Gross capital spend on tangible assets was £1.9 million (2019: £5.8 million). The
reduction on prior year reflected a cautious approach to capital expenditure during the
pandemic together with an exceptional investment of £1.5 million on our new UK facility
in 2019. Intangible asset additions in 2020 include £1.1 million (2019: £1.8m) in relation to
the Group’s new ERP solution.
Net debt
Reported net debt reduced from £70.0 million at 31 December 2019 to £39.3 million
at 31 December 2020. The Group’s reported net debt continues to be impacted by the
adoption of IFRS 16 in 2019 which resulted in approximately £17 million of lease liabilities
being added to net debt. As noted in the prior year, the Group’s focus is net debt
excluding leases (“Adjusted net debt”). The impact of leases on net debt is excluded
from the Group’s main banking covenants.
Adjusted net debt at 31 December 2020 was £21.0m (2019: £53.3 million). The strong
working capital performance together with the Group’s response to the pandemic
which focused on preserving cash, liquidity and headroom resulted in a significant
reduction in net debt during the year. Adjusted net debt was also favourably impacted
by the excess net proceeds from the placing undertaken in February 2020. This resulted
in a net debt reduction of £5.3 million, being the net placing proceeds of £38.9 million
less Starin purchase price of £21.0 million, associated transaction costs of £0.3 million
and net debt acquired of £12.3 million.
In January 2020, the Group increased its revolving credit facility to £50 million (£20
million at 31 December 2019) to support its acquisition strategy. This facility has an
adjusted net debt to adjusted EBITDA covenant ratio of 2.75 times calculated on a
historic 12-month basis.
Most of the Group's other borrowing facilities are to provide working capital financing.
During the period, the Group arranged further flexibility in working capital financing,
including the addition of flexible term loans, inventory-backed facilities and extended
overdrafts in several countries. Whilst the use of such facilities has been limited, the
additional headroom has enhanced the Group's access to liquidity. As at 31 December
2020, the Group has access to total facilities of over £170 million (2019: £115 million).
The Group has a strong balance sheet with a closing adjusted net debt/adjusted
EBITDA ratio of 0.9 (2019: 1.4). 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. The
Group targets a long-term adjusted net debt to adjusted EBITDA range of 1.5x–2.0x.
28
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT Goodwill and intangible assets
The Group’s goodwill and intangible assets of £59.0 million (2019: £45.3 million) arise from the various acquisitions undertaken.
Each year the Board reviews goodwill for impairment and, as at 31 December 2020, 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 and there was considerable focus on this during the year.
At 31 December 2020, the Group had working capital (trade and other receivables plus inventories less trade and other payables) of
£79.3 million (2019: £85.8 million). This represented 11.1% of current year revenue (2019: 12.5%). The Group uses a range of different
techniques to write down inventory to the lower of cost and net realisable value, including a formulaic methodology based on the
age of inventory. The aged inventory methodology writes down inventory by a specific percentage based on time elapsed from
the purchase date. In 2020 the Group reviewed and revised these percentages to reflect both the delays to market demand from
COVID-19 and the Board’s view that, as the Group mix has moved towards more specialist value added products, the average period
for which inventory can be sold at above cost has increased. At 31 December 2020 the Group’s inventory provision was £23.8 million
(22% of cost) (2019: £13.3 million; 13% of cost). Had the Group maintained the previous percentages the inventory write-down would
have been £6.5m higher as at 31 December 2020.
Adjustments to reported results
Operating profit
Acquisition costs
Share based payments
Employer taxes on share based payments
Amortisation of brands, customer and supplier relationships
Adjusted operating profit
(Loss)/profit before tax
Acquisition costs
Share based payments
Employer taxes on share based payments
Amortisation of brands, customer and supplier relationships
Derivative fair value movements and foreign exchange gains and losses on borrowings for acquisitions
Finance costs – deferred and contingent consideration
Finance costs – put option
Adjusted profit before tax
(Loss)/profit after tax
Acquisition costs
Share based payments
Employer taxes on share based payments
Amortisation of brands, customer and supplier relationships
Derivative fair value movements and foreign exchange gains and losses on borrowings for acquisitions
Finance costs – deferred and contingent consideration
Finance costs – put option
Tax impact
Adjusted profit after tax
(Loss)/profit after tax
Non-controlling interest
(Loss)/profit after tax attributable to owners of the Parent Company
Number of shares for EPS
Reported EPS – pence
Adjusted EPS – pence
2020
£000
7,090
526
2,562
130
6,224
16,532
(995)
526
2,562
130
6,224
2,282
3,275
154
14,158
(3,387)
526
2,562
130
6,224
2,282
3,275
154
(1,472)
10,294
(3,387)
364
(3,751)
2019
£000
24,934
356
2,874
427
4,871
33,462
23,781
356
2,874
427
4,871
(104)
(949)
(48)
31,208
18,200
356
2,874
427
4,871
(104)
(949)
(48)
(1,840)
23,787
18,200
(1,018)
17,182
86,893,508
(4.32)
11.20
79,275,480
21.67
28.49
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 101.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT MANAGING RISK
Our risk management process
The Board is responsible for maintaining and
reviewing the effectiveness of our risk management
activities from a strategic, financial, and operational
perspective. These activities are designed to
identify and manage, rather than eliminate, the
risk of failure to achieve business objectives or to
successfully deliver our business strategy.
The risk management process is
designed to identify, assess, respond
to, report on and monitor the risks
that threaten our ability to achieve our
business strategy and objectives, within
our risk appetite.
risks as part of our due diligence
process. Our integration process
includes early establishment of
delegated authorities and key controls.
While the Group does not have a
dedicated internal audit function, the
Group team conducts local reviews of
tax and compliance matters. The Group
team also has a direct relationship with
the auditors of each business.
Our risk appetite
The Board assesses the level of risk and
our associated risk appetite to ensure
we focus appropriately on those risks
we face. We target risks based on an
assessment of strategic, operational
and financial impact. We then prioritise
them for mitigation. The Board and
Audit Committee review the principal
risks, of which there are currently seven,
on an ongoing basis.
Our approach to risk management
is a combination of local and Group-
wide activities. Risks are owned and
managed within our businesses and
reviewed by the Group Risk Committee,
which reports key matters to the Board
half yearly. At a Group level our teams
review risks and controls, including
those relating to information security
and regulatory compliance. Delegated
authorities are in place across the
Group to facilitate local ownership, but
within an agreed risk framework.
When we acquire new companies,
we conduct detailed assessments of
commercial, tax, legal and regulatory
Risk Heat Map
High
1 Dependence on
key personnel
2 Expected
benefits from
acquisitions
may not be
realised
3 Loss of key
customers
4 Loss of key
vendors
5 Regulatory risk
6 Brexit
7 COVID-19
7
1
4
t
c
a
p
m
I
3
2
5
6
Low
Low
Likelihood
High
Increasing
Stable
Reducing
30
Our risk culture
The Board is committed to maintaining
an open culture that emphasises the
importance of managing risk and
encourages transparent and timely risk
reporting. We work to align employees’
behaviours, attitudes and incentives
with our risk appetite and other
governance and risk management
policies. Our delegated authorities and
risk governance process reinforces
and facilitates appropriate ownership,
accountability, escalation, and
management of our principal risks.
Current areas of focus
Whilst our risk landscape continues
to evolve, in 2020 the emergence of
COVID-19 was an area of enhanced
focus for the Board, with additional
resources allocated to reviewing the
impact of COVID-19 and the Group’s
response. In addition, the Board spent
additional time reviewing the Group’s
preparation for Brexit.
Risk management framework
Risk Management Framework to
identify, asses, respond to, report on
and monitor.
The Board
Group Risk
Committee
Group Teams
Management Teams with
Local Leadership
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT Trend key
Decreased risk
Increased risk
Unchanged risk
1
DEPENDENCE
ON KEY PERSONNEL
Risk description
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.
Mitigation
The Group actively measures the retention of talent
within the business and engages with employees by
focusing on training and development. We conduct
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 and
leadership development a key agenda item.
Change in the risk during the year
After establishing a regional operating model in 2018,
this year we have taken further steps to broaden the
leadership of the Group, strengthening the executive
leadership team through the addition of Lutz Kern (MD
DACH) to the team.
In line with our integration plans, we have taken steps
to reorganise and enhance the Starin leadership team
in order to position that business for future growth.
We have also reviewed participation in the Group’s
LTIP scheme and taken action to ensure that the
interests of our key senior leaders are aligned to
those of other stakeholders and the Group’s strategic
objectives.
2
EXPECTED BENEFITS
FROM ACQUISITIONS
MAY NOT BE REALISED
Risk description
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 in 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.
Mitigation
The Group only enters into acquisitions after a
thorough due diligence exercise which will involve
a detailed review of operational resources, 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 maximise their disposal value.
Change in the risk during the year
The Group acquired two businesses during the year.
Our approach to acquisitions is considered a core
capability which we seek to evolve and improve as we
do more deals. While we cannot eliminate risk in this,
the investment that we have made in the Group team
in recent years has allowed us to reduce the risk in this
area year on year.
Acquisition appraisals and due diligence findings were
reviewed by the Board. The Board receives progress
updates on integration and conducts post-acquisition
reviews of deals completed.
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Link to KPIs
1
31
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT MANAGING RISK CON TINUE D
3
LOSS OF KEY
CUSTOMERS
4
LOSS OF KEY
VENDORS
5
REGULATORY
RISK
Risk description
Risk description
Risk description
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.
Mitigation
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.
Change in the risk during the year
The regulatory environment has
been relatively stable across the
Group during the year.
We continue to monitor the
regulatory backdrop for changes
that will affect the Group and adapt
our internal policies and procedures
accordingly.
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 development
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.
Mitigation
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.
Change in the risk during the year
Our vendor portfolio was a
significant area of strategic focus
in the year with many new vendors
added in strategic growth areas,
such as unified communications.
We also expanded existing vendor
relationships into more of our
businesses and took the decision
to exit a small number of low
margin relationships.
Through our acquisitions we added
further vendors to the Group and
strengthened our relationship with a
number of existing ones
Most 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
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.
Mitigation
The Group has a very large
customer base of over 20,000
AV integrators and IT resellers,
many of whom have long-term
relationships with it. The diversity of
our customer base is demonstrated
by the fact that no customer
accounted for more than 2.5%
(2019: 2.0%) of overall Group
revenues this year. 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.
Change in the risk during the year
While the competitive risk to our
business remains high, we believe
our mitigation efforts limit this risk
and have allowed us to deepen
our customer relationships as well
as increase our market share in a
number of key territories in 2020.
During the year we quickly adapted
to the COVID-19 pandemic and
remote working; ensuring that
customer service was a top priority.
In addition to our normal activities,
we provided our customers
with enhanced remote training,
virtual access to our experience
centres and practical advice on
areas such as logistics and credit
management. We strengthened
our dedicated support for our
multinational customers which
allows us to partner with them
on complex projects across our
different geographies.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT Trend key
Decreased risk
Increased risk
Unchanged risk
6
BREXIT
7
COVID-19
Risk description
Risk description
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. Brexit
could lead to disruption in the availability of goods to the
Group’s UK and Ireland (“UK&I”) businesses.
Mitigation
During the year, the Board monitored Brexit risks and
reviewed action plans. The UK-EU trade agreement in late
December 2020 addressed much of this uncertainty, but
a number of operational uncertainties remained.
In the short term, disruption to the supply of products
could affect the ability of UK&I operations to meet
demand. The UK business held approximately two
months’ inventory at 31 December 2020 and had worked
closely with key vendors to maintain availability of goods
during any initial disruption. The Group currently services
its Republic of Ireland business from the UK. Following a
review of alternatives, this model is expected to continue,
although direct EU to Ireland options will be evaluated in
the event of permanent disruptions to the UK to Ireland
supply chain.
Whilst longer-term risks include tariffs and divergence
of regulation and standards between the UK and the
EU, this risk was largely mitigated by the UK-EU deal.
There remains a residual risk with respect to goods
manufactured outside of UK/EU countries. Our EMEA
businesses each operate locally, with limited export
sales from the UK to EMEA representing less than 5%
of UK revenue. There are no significant dependencies
on migrant labour, cross-border financing or centralised
infrastructure.
The Group continues to work closely with its vendors to
minimise any Brexit related disruption. The Board does
not believe that Brexit will result in any impairment of
assets or materially impact the Group’s ability to continue
as a going concern.
Change in the risk during the year
During the year we invested substantial time and effort to
monitor and plan for the post-Brexit trade arrangements.
Whilst there were a number of practical changes
made to administrative processes, vendor and banking
agreements, Brexit planning did not have a material
effect on operations during the year.
Post period end, the Group saw a short period of direct
disruption of supply from the UK to Ireland because of
administrative changes required by customs and logistics
suppliers. A small number of vendors also experienced
challenges supplying goods from the UK to the EU. We
attribute this to the timing of the announcement of the
UK-EU deal and this has now substantially improved.
The emergence of the COVID-19 pandemic in the
first quarter of the year represented the biggest ever
known shock to our business sector. Initially, risks
were to our supply chain although this quickly evolved
into market disruption through lockdowns and other
restrictions. COVID-19 risks to our business include:
reduction in demand (impacting sales and margins),
excess working capital (cash and liquidity) and
disruption to our teams and supply chain (operations).
Mitigation
We took decisive actions to protect our people
and the business in the short term. Initially, most of
our people worked from home, successfully using
technology to undertake their roles. When permitted,
our offices reopened, and a limited number of staff
have returned to them, but only where it is considered
sufficiently safe and effective for them to do so. We
continue to offer flexible home working solutions to
the rest of our teams.
Due to reduced customer demand during the period,
our employees showed great flexibility in their work
patterns, including voluntary short-time working and
reduced remuneration. We also used the support
offered by governments as necessary, such as
furloughing in the UK.
Protection of the business over the short term meant
a significant and ongoing focus on the management
of working capital. Measures undertaken included
additional bank facilities, temporary suspension of
acquisition activities and capital expenditure; together
with the withdrawal of dividend payments.
Whilst seeking to ensure strong short-term liquidity,
we’ve been careful not to disrupt long-term customer
and supplier relationships. Cash receipts from
customers generally remained at normal levels and
suppliers have shown flexibility where necessary.
The overall impact of actions taken to manage
cashflow is that adjusted net debt has reduced
significantly during the year.
Change in the risk during the year
COVID-19 affected our businesses to a different
extent and at different times during the year. We
took decisive actions at an early stage to mitigate the
emerging risk. Whilst the disruption from the various
government restrictions fluctuated during the year, as
the pandemic evolved, our revenue broadly recovered
month on month and our net debt was reduced. The
approval of vaccines late in 2020 provides increased
confidence that the COVID-19 risk will diminish during
2021, although we note that the restrictions in place at
the time of writing are expected to result in continued
disruption for the time being.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT OUR STAKEHOLDER ENGAGEMENT
Statement by the directors in performance of their statutory duties in
accordance with s172(1) of the Companies Act 2006
When making decisions, the Board of
directors of Midwich Group plc must
act in the way they consider, in good
faith, would be most likely to promote
the success of the Company for the
benefit of its members as a whole
(having regard to the stakeholders and
matters set out in s172(1)(a-f) of the
Companies Act 2006).
The Company has a clearly defined
strategy (as summarised on pages 10
to 16) and the Board takes into account
the long-term consequences of its
decisions in the context of this. When
making decisions the Board considers
a number of factors, including:
• The macroeconomic environment,
including anticipated GDP growth,
market disruptions and investment
activity.
• The AV marketplace (see pages 10
to 13) – specifically ensuring that
the Group continues to build on its
reputation for high standards as a
value-add AV specialist.
• The translation of the strategy into
both longer-term goals and annual
plans with regular updates reviewed
by the Board throughout the year.
• How the Group’s objectives influence
its employees, customers, suppliers
and shareholders together with
the Group’s wider impact on the
environment and the communities
where it operates. Further details
on stakeholder engagement are set
out below and in the ESG section on
pages 37 to 42.
• Our Risk Management Framework
which, as a distributor, places our
relationships with wider stakeholders
at the centre of our decision-making
(see pages 30 to 33).
During the year, specific significant
decisions made by the Board included
actions taken in response to the
COVID-19 pandemic, the decision to
raise capital for acquisition investment
through an equity placing, the approval
of the Starin acquisition, the strategic
entry into the Middle East, approval
of additional debt facilities and the
allocation of share awards to our
employees. The Board members also
received feedback from our customers,
vendors, employees and shareholders.
34
OUR
STAKEHOLDERS
As a Board, our
intention is to behave
responsibly towards
our stakeholders and
treat them fairly and
equitably, so that they
all benefit from the
successful delivery of
our strategy."
As a Board, our intention is to behave
responsibly toward our stakeholders
and treat them fairly and equitably, so
that they all benefit from the successful
delivery of our strategy. The Board of
directors has overall responsibility for
determining the Company’s purpose,
values and strategy and for ensuring
high standards of governance. The
role of the Board is to promote the
long-term sustainable success of
the Company, generating value for
shareholders and contributing to wider
society.
The Board considers relationships
with, and the engagement of,
our stakeholders to be a critical
success factor for our business. As a
specialist distributor, we add value by
developing and maintaining in-depth
understanding of our vendors’ and
customers’ needs.
Our business model is predicated on
strong long-term relationships with
high-end brand manufacturers, offering
value-added service to trade-only
customers.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT STRATEGIC REPORT
CUSTOMERS
VENDORS
EMPLOYEES
Why it is important to engage
Midwich operates a strictly
business-to-business model so our
customers are also a value-adding
part of the supply chain.
Ways we engage
We have a dedicated sales
and support organisation with
responsibility for both day-to-day
and more strategic communication.
We receive regular feedback
through these channels, together
with the results of formal customer
surveys, on customer needs, our
performance, product performance
and satisfaction of the ultimate
end-user.
Customer feedback informs our
decisions on the product portfolio
and helps us to engage effectively
with vendors; suggesting product
enhancements and reporting on
performance issues. Customer
feedback also informs our decisions
on support and how we organise
resources to provide an effective
and efficient service. Matters
pertaining to customers and the
internal support organisation are
reported to the Board regularly.
Stakeholders’ key interests
• Market knowledge and AV
industry trends
• Customer service and value-
added support and advice
• Product range and availability
• High quality logistics
• Long-term relationships
Actions taken on the back of
engagement
• Partnering with our customers to
design end user solutions
• Access to our experience centres
to build product and market
knowledge
• Customer training programmes
• Supporting multi-country project
delivery
Why it is important to engage
Why it is important to engage
Midwich is a value-added distributor
of AV products, representing over
500 high end manufacturers. Vendor
relationships are critical to the
long-term success of our business.
Ways we engage
Vendor relationships are managed
across all levels of the organisation
with regular communication on both
strategic matters and day-to-day
engagement.
Midwich prides itself on the
longevity of many of these
relationships and the key position it
holds in the commercial operation
of its vendors. The Board maintains
an overview of vendor relationships
through regular reporting and
presentations from management.
Stakeholders’ key interests
• Market focus and scale
• Support, attention and market
intelligence
• Profiled customer base with
targeted sales and marketing
• Industry-leading events to interact
with customers and end users
• Ability to support multinational
projects
• Efficient logistics and product
support
Actions taken on the back of
engagement
• Feedback on market trends and
demand to develop creative
solutions
• Hosting trade events in
partnership with our vendors
• Supporting our vendors to enter
new markets and grow market
share
Our employees are integral to the
success of our value-add strategy.
Knowledge, skills and experience are
vital to ensuring both vendor and
customer satisfaction and, therefore,
staff recruitment, retention and
reward are critical.
Ways we engage
We have increased investment in
training year-on-year, including
dedicated in-house training
resources.
We hold regular open
communication sessions with staff at
all levels via management briefings
and ‘town hall’ meetings in all
locations.
Staff surveys are conducted
periodically, and staff members have
individual appraisals annually.
The Board receives regular reports
including the results and action
plans from our staff surveys.
Stakeholders’ key interests
• Alignment with Group strategy
• Understanding purpose, culture
and values
• Feeling part of the Company
through share ownership
• Communication
• Training and career development
• Responding to employee
feedback
Actions taken on the back of
engagement
• Group-wide and local
communication programmes
• Broad participation in share
ownership
• Enhanced furlough, regular
communication and training to
support our people during the
pandemic
MIDWICH GROUP PLC
MIDWICHGROUPPLC.COM
35
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STRATE GIC REPORT
OUR STAKEHOLDER ENGAGEMENT CONTIN UED
SHAREHOLDERS
ENVIRONMENT
COMMUNITIES
Why it is important to engage
As a publicly listed company we
need to provide fair, balanced and
understandable information to instil
trust and confidence and allow
informed investment decisions to be
made.
Ways we engage
The Company engages with its
shareholders through formal
meetings, informal communications
and through stock exchange
announcements.
Management meets with institutional
shareholders presenting Company
results, articulating strategy and
updating shareholders on progress.
Trading and other statements are
made via the stock exchange during
the year and the Company holds its
Annual General Meeting (AGM), at
which all shareholders can attend
and speak with management.
Company contact details are
included in all announcements
and are available on the Company
website.
Stakeholders’ key interests
• Annual reports
• RNS announcements
• Annual General Meetings
• Investor presentations
• Corporate website
• One-on-one meetings
• Company visits and events
Actions taken on the back of
engagement
• Additional content made available
to stakeholders on the Group
website
• Group newsletter launched
• The introduction of a “virtual”
AGM
Why it is important to engage
Why it is important to engage
As part of the wider AV industry,
we want to promote the use of AV
technology for environmentally
sound purposes while minimising
any adverse effects.
We are a significant employer across
a number of countries, and we
aim to contribute positively to the
communities and environment in
which we operate.
Ways we engage
Ways we engage
The Company supports the use
of AV technology as an enabler
of more efficient and effective
working, for example our products
are increasingly being used as
sustainable alternatives to one-off
actions, such as videoconferences
instead of travel to meetings or
digital signage as an alternative to
printed marketing materials.
We are also focused on reducing
our impact on the environment and
embedding a sustainable approach
into all areas of the business. For
example, the use of solar energy
generation on our buildings in the
UK or reducing our consumption of
single-use plastic and non-recyclable
containers across the Group.
In line with our people-orientated
ethos and ethical values, we
continued to support the local
communities in which our offices are
based; committing to making a real
difference.
Under the “Midwich Loves…” brand
we support our chosen charities and
community activities. We provide
our staff with time and support to
volunteer for good causes.
Supporting local communities also
comes in the form of using local
suppliers for our offices, where
possible.
Stakeholders’ key interests
• Impact of Group activities on the
wider community
Stakeholders’ key interests
• Support for the local economy
• Alignment of Company values
with environmental concerns
• Actions to reduce environmental
impact
• Investments in sustainability
Actions taken on the back of
engagement
• Appointment of a non-executive
director to be responsible for ESG
• Setting targets to directly reduce
our energy consumption and
emissions
• New offices must meet stretching
environmental impact targets
• Staff time and engagement with
good causes
Actions taken on the back of
engagement
• Support for local charities
selected by our teams
• Encouraging our team members
to support community action for
COVID-19
• Virtual team events to raise
money for charity
Read more about the environment
on page 39
Read more about communities
on page 38
36
MIDWICH GROUP PLC
ANNUAL REPORT AND FINANCIAL STATEMENTS
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Hilary Wright
We continue to take our
commitment to Environmental
and Social Governance seriously
across the Group and in 2020 we
further progressed the work that
we started in 2018. The Group’s
approach to ESG is aligned to four
key pillars: our local communities;
supporting charities close to our
hearts; reducing our environmental
impact and supporting our people.
These focus areas continue to be
relevant and are at the heart of what
matters to our people. Each country
adopts these in their own unique
way to ensure that they matter to
their teams and build strong local
engagement with the programme.
Not only do we have our own ESG
pillars, we also support those of our
partner brands. As a distributor, we
are integral to their ‘go to market’
approach and wherever we can, we
will help them to achieve their goals to
improve the world for us all.
During 2020, work continued
within the four pillars and
despite the pandemic
we’ve adapted
our approach and
continued to make
a difference in each
area.
Hilary Wright
Non-executive director
with responsibility
for ESG
OUR FOUR PILLARS
THE
COMMUNITY
CHARITY
SUPPORT
Summary
Summary
During 2020 we continued
to play our part in our local
communities. In this COVID-19
year, community spirit was more
prevalent than ever with our
teams seeking to provide extra
support for key workers and their
communities during lockdowns
across the world.
2021 Targets:
• Every office to have a
community programme
We continue to support an
array of local, national and
international charities across
the Group. Although it has been
tough with COVID-19 preventing
the usual fund raisers, the teams
have been creative to ensure
that our charities continue to
be supported.
2021 Targets:
• Every Group company to have
a nominated local charity
• To donate £10,000 worth of
• To contribute over £25,000 to
AV equipment to local schools
or community projects
our chosen charities
• To contribute over 100 hours
to our chosen charities
THE
ENVIRONMENT
OUR
PEOPLE
Summary
Summary
We care about the environment
and in 2020 we took our first
step to formalising our approach
by commissioning our first
sustainability analysis, carried
out at Kern and Stelly based in
Hamburg, Germany. The goal
was to identify environmental
improvements that could be
implemented, build them into our
culture and roll out Group wide.
The Midwich Group continues
to take its social responsibilities
seriously and we strive to
look after and develop our
employees. Not only supporting
their professional development
but their personal welfare too,
through providing additional
external resources for mental
health and wellbeing over and
above what would be expected.
2021 Targets:
2021 Targets:
• Create internal environment
• Safely welcome our teams
teams to champion being more
environmentally conscious
back to our offices
• Welcome NMK Group to the
• Reduce our SECR intensity
Midwich family
ratio vs 2019
• Increase our percentage of
low-emission vehicles in the
fleet vs 2020
• Resume face-to-face social
activities
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE
CONTI NUED
THE COMMUNITY
During 2020 our ‘generosity amplified’
approach continued.
Our track record
for supporting local
communities across
the Group ensures that
our reach is worldwide.
COVID-19 did not stop our
teams’ desires to do good
and demonstrated that
the offer of time can be
so valuable to many small
and individual community
ventures.
In recognition of this, we
continued to support and
provide time off for our
people to regularly engage
in volunteering for their
chosen causes or giving
back to the community.
Examples include, one of
our technology specialists
offering time as an on-
call firefighter; a business
development manager used
her skill set to support the
government’s track and
trace system during COVID
19; and our ERP Data &
Business Intelligence Analyst
helped the homeless and
vulnerable with hot meals at
least twice a week through
the charity ‘The People’s
Picnic’.
Supporting local
communities also comes
in the form of buying local,
for example Kern and Stelly
source office supplies locally,
with the majority of their
suppliers connected to a
social or environmental
project.
In 2020, Midwich’s
achievements have played
an important part in firmly
placing Norfolk on the
map as an innovative and
dynamic place to live and
work. The team based at
our head office won the
Outstanding Achievement
award from the local
business community which
looked at the company’s
41-year history, as well as
the positive impacts our
employees have generated
and will continue to deliver
into the future.
Volunteer support,
'The People's Picnic'
Our pledge
Throughout 2021, we will once again continue
to support local worthwhile community
projects, as well as supporting our people to
give up their time to volunteer for local causes
that matter to them.
38
Midwich UK&I employees taking part
in the one million steps
Our pledge
In 2021, we will once
again continue to
support charities
chosen by the
committees at each
of our businesses,
as well as support
our people through
being flexible to
allow fund-raising
activities to take
place.
OUR CHARITY SUPPORT
We will use our platform and resources
to bring benefits to society through the
support of charities chosen by our peoples.
With a long track record
of teams around the world
supporting local charities,
the pandemic certainly
presented obstacles to
the traditional ways of
fundraising. However, many
employees have been
innovative in overcoming this
and not let COVID-19 get
in the way of their, and our,
desire to do good.
For example, the team
across the UK&I businesses
pledged to walk, jog or run
1,000,000 steps for charity
starting on World Mental
Health Day and finishing on
World Kindness Day. This
approach allowed everyone
to work together towards
a combined goal whilst
avoiding physical contact
with others and respecting
the COVID-19 restrictions.
The UK&I team’s efforts over
that last two years meant
that a cheque for £27,000
was handed over to the
mental health charity Norfolk
and Waveney Mind.
In addition to our various
charity committees’
fundraising efforts, many
employees across the
Group carry out their own
fundraising and where
possible, the business
supports them in their
individual charity ventures.
Throughout 2020, our ethical
values and inclusive culture
were strongly represented
by our employees, with a
keen enthusiasm to help find
alternative ways to make a
difference throughout the
pandemic.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT
THE ENVIRONMENT
We are committed to reducing negative
environmental impact directly and
indirectly across our supply chain.
As referenced in the
summary, we care about the
environment. More than ever
before, 2020 saw the Group
focussed on looking at ways
to make a difference.
renewable energy suppliers,
using LED lights in our
offices, using recycled paper
products and moving to
electric vehicles where it is
viable to do so.
Our role as a distributor
limits our ability to directly
affect carbon emissions as
we do not manufacture the
products we supply, but
we are determined to do
what we can. To this end,
we felt it was important
to understand where
we are today and have
initiated a programme of
commissioning sustainability
analysis for the Group,
starting with our Hamburg
office in Germany. We see
this as the first step to
understanding what we are
doing well and, of course,
not so well.
From here we can
understand priorities, create
an action plan to make
a difference and, where
possible, implement change
across the Group.
In addition to this, the
Group companies continue
to champion a number of
the following initiatives:
encouraging employees
to come to work by bike,
eliminating single-use
plastics, engaging with
We are also committed
to reducing negative
environmental impact
directly and indirectly
across our supply chain.
As a distributor of
technology, we understand
it is often purchased as an
upgrade and to replace
old technology. Our
responsibility here is to
comply with the WEEE
regulations and register
all electronic products we
sell and pay for them to be
discharged correctly.
We also work with
our partner brands to
support their corporate
social responsibility and
sustainability goals. We
are integral to their ‘go
to market’ strategy and
wherever possible we will
help them to improve the
world for us all.
Furthermore, we provide
unified communications
solutions, for example
ZoomRooms, which keep
people connected whilst
significantly reducing the
need for travel. We practice
what we preach and have
enabled and encouraged
our employees to use this
technology. This positioned
us well to adapt to the initial
impact of the pandemic and
has significantly reduced the
requirement to travel, which
has in turn reduced our
carbon emissions.
We have included
Streamlined Energy and
Carbon Reporting (“SECR”)
for Midwich Limited for the
first time this year and a
number of our companies
have conducted a CO2
footprint calculation, as we
are keen to understand the
effect of our businesses
and how we can offset
our carbon emissions
and continue to make a
concerted effort to reduce
our environmental impact.
In 2020, we continued with
our goal of reducing waste
going to landfill and our
consumption of single-use
plastic and non-recyclable
containers. With the majority
of our people working from
home, due to COVID-19,
this has naturally further
reduced. As we return to
our offices in 2021, this will
continue to be a focus area
and we have set targets
for each country to create
less waste. We continue to
support many initiatives
across the Group designed
to be embedded in our
culture and change our
mentality to ‘sustainability
for the future’.
Our pledge
To increase the number of sustainability audits, to analyse where improvements can be made,
and to set targets for lower waste by company. Our commitment is to focus on positive
impacts on the environment and to reduce the negative impacts. To underpin these reports and
deliver the actions and outcomes we will establish teams within each of our businesses across
the world to focus on the green topics and champion change.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE
CONTI NUED
OUR PEOPLE
We are committed to programmes
and initiatives that support our people,
balancing the delivery of success with the
whole person approach.
The last twelve months has
been challenging for our
teams all around the world.
Throughout this time, we
have focussed on ensuring
everyone is supported and
engaged; putting wellbeing
at the forefront of our
response to the pandemic
that changed everyone’s
lives. With most of our
people working from home
it was more important
than ever before to stay
connected.
We are committed to
programmes and initiatives
that support our people.
The tools that we have
established over the years,
which balance success
with a whole person
approach, were the perfect
foundation to build upon.
Internal communications
were increased with virtual
company updates and
regular staff newsletters,
containing a high proportion
of video content created in-
house, activities for staff to
get involved in and a virtual
weekly coffee morning.
Where possible, the Midwich
Group has tried to maintain
people activities, such
as our employee awards
and continuing training
Recognition for their long service
and development. The
creation of a learning and
development (L&D) portal
proved an excellent asset,
not only to staff in work but
for those on furlough, as it
provided easy and simple
access to online personal
development tools.
The pandemic and
lockdowns around the world
forced many of us to work
remotely. The HR team
developed a digital portal
to help our people to easily
find information when they
wanted it.
During 2020, we continued
with our mental health first
aiders and our assistance
programmes to support
people, in an anonymous
way, if they struggle with
personal problems, such as
finance, family, advice for
work, providing them with
an option to reach out.
Ultimately, our staff’s
wellbeing and happiness
is extremely important to
us and we believe that, as
a result, we offer the best
possible service to our
customers and partners. The
nature of our business as
a value adding distributor,
means that our people are
central to our strategy and
maintaining our competitive
advantage.
Our pledge
In the year ahead we will
focus on supporting the
health and wellbeing of
our people. Recognising
that COVID-19 has
affected everyone
differently we will support
our teams as they return
to work in our offices.
Mark Lowe, UK&I Managing Director,
receiving the 'Outstanding Achievement
Award' on behalf of the team
Celebrating long service
7 years 5 months
Average length of service
per employee
2,258 years
combined years of service
(UK&I employee data as of December 2020)
40
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT STRATEGIC REPORT
Following on from these pillars, you can see we recognise that our people
underpin our success and are at the forefront of the business.
BENEFITS
We will continually improve
our benefits offering to ensure
we are competitive with our
industry peers.
TRAINING
Talent is not just about leaders.
Talent is committing to our
business and excelling in
your field. All our people will
have access to the training
and support that they need
to develop and perform at
their best.
EQUALITY
Committed to fairness, inclusion
and diversity. We are focused on
how we can close the gap via the
right methods.
WELLBEING
Health and Wellbeing is
important for everyone. We will
continue to support our people
with this by running wellbeing
events throughout the year.
EVENTS
We will continue to hold virtual
social gatherings to aid positive
mental health, team building
and to show appreciation of our
people.
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MIDWICH GROUP PLC
MIDWICHGROUPPLC.COM
41
STREAMLINED ENERGY AND CARBON REPORTING
In addition to the
activity taking
place across the
Group to reduce our
environmental impact,
we are reporting on
energy consumption
and Greenhouse Gas
(“GHG”) emissions
under the Streamlined
Energy and Carbon
Reporting (“SECR”)
regulations for the
first time this year.
The data reported is for Midwich Limited1 and we have chosen to include
comparable 2019 data to assist the user in understanding the one-off impact from
the Covid-19 disruption.
Our carbon footprint
The Group operates within the wider AV industry value chain but, as a distributor,
only has direct influence on its own operations which include office and warehouse
facilities, travel and its logistics operations. We also support the action plans of our
customers and vendors to reduce environmental impact across the AV sector.
Quantification and reporting methodology
The information used to calculate these emissions is based on electricity and gas
meter readings, whilst transport information is captured as part of our operational
processes. We have used emission factors from the UK Department for Business,
Energy & Industrial Strategy (“BEIS”) “Conversion factors 2020: condensed set” to
calculate our Scope 1, 2 and 3 emissions. The reported Scope 3 data relates to fuel
purchased by employees for business travel in their own vehicles. The Group uses
third parties for the shipment of goods from vendors and to customers. These
emissions fall outside of our Scope 3 reporting as they will be reported as Scope 1
emissions by those parties.
1. Midwich Limited is the only UK “Large” company in the Group
GHG emissions and energy use data for the year ended 31 December 2020
Year to
31 December
2020
Year to
31 December
2019
Energy
(kWh)
GHG
emissions
(tCo2e)
Energy
(kWh)
GHG
emissions
(tCo2e)
–
8,747
8,747
–
2.2
2.2
22,798
55,246
78,045
4.6
13.7
18.3
430,767
100.4
499,796
116.5
146,453
585,966
36.2
138.2
515,923
1,093,765
116.5
262.7
Scope 1 emissions (direct)1
Gas consumption
Transport
Total Scope 1
Scope 2 emissions
(energy indirect)2
Electricity
Scope 3 emissions
(other indirect)3
Employee-owned vehicles
Combined total (Scope 1 and 2)
1. Emissions from direct activities such as combustion in owned or controlled boilers and vehicles
that release emissions into the atmosphere.
2. Emissions released into the atmosphere associated with the consumption of purchased
electricity. These are indirect emissions that are a consequence of Midwich Limited’s activities
but which occur at sources that are not owned or controlled.
3. Emissions from business travel in rental cars or employee-owned vehicles where the company is
responsible for purchasing the fuel.
42
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSSTRATEGIC REPORT STRATEGIC REPORT
Over the last two years, Midwich has consolidated its southern UK office and showroom facilities into a modern purpose-
built facility. Environmental considerations were at the heart of this change and the new facility includes automated building
monitoring, solar panels, low energy heating and lighting and electric vehicle charging facilities. We are also moving our
vehicle fleet towards low emission vehicles and have implemented policies restricting single-use plastic and non-recyclable
containers. Further information on the Group’s approach to sustainability is set out on pages 37 to 42.
Intensity ratio
The intensity ratio compares emissions data with an appropriate metric or financial indicator. We have chosen to use tonnes
of CO2e per £ million of revenue. Note, 2020 data includes the unprecedented impact of COVID-19 which has reduced both
revenue and emissions.
GHG emissions and energy use data
Midwich Limited
Year to
31 December 2020
Revenue
£ million
153.6
Intensity
ratio
0.90
Year to
31 December 2019
Revenue
£ million
225.8
Intensity
ratio
1.16
The Strategic Report comprising the Chairman’s Statement, Managing Director’s Review and Financial Review was approved
by the Board on 9 March 2021 and signed on its behalf by:
Andrew Herbert
Chairman
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COM CASE STUDY
University
of Southern
California
How technology has evolved
in learning environments at
the University of Southern
California
Prior to the pandemic, resulting in students being
sent home, Joe Way, the Director of Learning at the
University of Southern California, had already started
the process of designing and mocking up what the
next generation of 200–300 student classrooms and
Hyflex spaces look like. Behind the scenes, Joe was
strengthening and upgrading their campus network
as the foundation for new systems to come. As Joe
mentioned “…the true convergence is not AV and IT,
but the convergence of AV and UC.”
The pandemic has become a great equaliser, and
the use of technology in every room is now a
necessity. The priority is to continue education while
maintaining student safety. One goal was to simplify
controls, based on Zoom’s user interface. A key
component to the overall design was the experience
of the end users. Allowing the faculty to decide how
they wanted to interact with the technology was key.
Though Joe and his team have been very hands-on
with regard to the specification of the spaces, he
encourages all Technology Managers to strengthen
their relationships with manufactures, distributors,
and integrators. These relationships are key to
selecting the right technology, coordinating the
project timelines, and getting the work done right.
This is where Starin, a Midwich Group company
based in the US, added their expertise and support.
The true convergence
was not AV and IT,
the convergence is
AV and UC.”
Joe Way, PhD
Director of Learning Environments
at University of Southern California
Joe Way, PhD, Director of Learning Environments
at University of Southern California
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Governance
EXPERIENCED MANAGEMENT
OPERATIONAL MANAGEMENT
CHAIRMAN’S STATEMENT ON
CORPORATE GOVERNANCE
NOMINATIONS COMMITTEE REPORT
AUDIT COMMITTEE REPORT
STATEMENT FROM THE CHAIRMAN OF THE
REMUNERATION COMMITTEE
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REPORT
RESOLUTION SUMMARY
46
48
49
54
55
57
62
70
74
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMSTRATEGIC REPORT EXPERIENCED MANAGEMENT
ANDREW HERBERT (61)
Non-Executive Chairman
STEPHEN FENBY (57)
Group Managing Director
STEPHEN LAMB (47)
Group Finance Director
A N R
N
Appointed
2016
Appointed
2016
Appointed
2018
Qualifications
Andrew has a BA in Business Studies
from Hatfield Polytechnic and is a
Fellow of the Chartered Institute
of Management Accountants. He is
also the non-executive chairman of
Xaar plc.
Previous experience
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.
Qualifications
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.
Previous experience
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
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.
Previous experience
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.
Stephen qualified as a Chartered
Accountant with PwC and has held
senior financial positions at IWG plc
and Experian plc.
46
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE BOARD BALANCE
Tenure of directors
2
1
2
0–3 years
Stephen Lamb and Hilary Wright
4–6 years
Andrew Herbert and Mike Ashley
6+ years
Stephen Fenby
Independence
2
3
Independent
Non-Independent
Skills
Strategy
Financial
3
International
Leadership
Technology
3
5
5
5
Committee membership
A Audit
Committee
R Remuneration
Committee
N Nominations
Committee
Chair of
Committee
MIKE ASHLEY (53)
Non-Executive Director
HILARY WRIGHT (61)
Non-Executive Director
A N
R
A N R
ESG
Appointed
2016
Appointed
2018
Qualifications
Mike completed retail MBA modules
at Manchester Business School
sponsored by Home Retail Group.
Previous experience
Mike is the Chief Commercial Officer
(“CCO”) of Holland and Barrett
International Ltd. He joined the
business from Travis Perkins plc in
2019. In his time there, he held the
position of CCO both in Wickes and
the Plumbing and Heating Division,
leading transformation of both
businesses.
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 has extensive retail and
consumer experience through senior
commercial, marketing and strategic
roles at Boots, Argos, Dixons Retail
Group and Travis Perkins.
Qualifications
Hilary is a Fellow of the Chartered
Institute of Personnel and
Development. She is also a non-
executive director of ActiveOps PLC.
Previous experience
Hilary was Group HR Director of
Domino Printing Sciences plc from
2016 until her retirement in 2019.
Her background was formed in retailing
and more latterly with Cambridge
based engineering and technology
companies, where she gained global
experience as well as involvement in a
number of acquisitions.
She has held both strategic and
operational roles. Hilary has provided
HR leadership in support of significant
global growth (ensuring people
development, succession planning and
talent acquisition were aligned with
transformational change).
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE OPERATIONAL MANAGEMENT
MARK LOWE (40)
UK & Ireland
THOMAS SUMNER (34)
EMEA and North America
LUTZ KERN (52)
Germany, Austria and
Switzerland (DACH)
MICHAEL BROADBENT (57)
Asia Pacific
Skills
• Extensive industry
knowledge
• Strategic planning
Skills
• Strategic planning
•
International market
knowledge
• Strong business track
• M&A strategy
record
• Managerial, business and
company development
•
International market
knowledge
• M&A strategy
Previous experience
Mark joined Midwich in 2004
supporting the business
management team then he
became Divisional Manager in
the rapidly growing consumer
electronics category.
Working closely with the sales
teams, it was here that he
learned about the world of
audio visual. In 2012, together
with his family, he relocated to
Sydney and helped Midwich
to develop a larger footprint
in the ANZ marketplace
before returning to the UK.
In the years that followed, he
trained as Project Manager and
managed a number of major
projects including various pre
and post-acquisition activities
and strategies.
In 2017, Mark took on the
role of Chief Operating
Officer, and in 2018 became
Managing Director of Midwich
UK & Ireland. His focus is to
progressively develop the
initiatives, strategies and
staff to ensure that Midwich
continues to add more value
for its customers and vendor
partners.
• Business and company
development
• Tom has a BSc in business
management from the
Norwich Business School
(University of East Anglia)
Previous experience
Tom commenced his career
with Midwich in the Company’s
business management
department. Following the
acquisition of Sidev in 2010,
he moved to Lyon, France,
to oversee the integration,
planning and ongoing
development of this business.
In 2013, his remit was widened
to include the development
of the Group’s business in
Europe before becoming
Managing Director for the
region in 2018. Since taking
on a wider European role, he
has been a leading force in
the Group’s acquisition and
ongoing business development
programmes.
Tom also has responsibility
for the Group’s ‘go-to-market’
central office team. This
commercially focused team,
support the development and
strategy execution across all
Group territories.
Following the acquisition of
Starin in 2020, Tom has led the
onboarding and integration of
that business into the wider
Midwich Group.
48
Skills
• Strong business track
Skills
• Strong business track
record
record
• Extensive experience in
business ownership
• Extensive experience in
business ownership
• Managerial and business
• Managerial and business
development
development
• Strong sales orientation
• Strong sales orientation
• Extensive industry
• Extensive industry
knowledge
knowledge
• Technically trained
• Technically trained
• Further education in
business and marketing
• Further education in
business and marketing
Previous experience
After graduating from
Hamburg University with a
business degree in 1995, Lutz
started his professional career
as a product manager in the
AV distribution company
Anders + Kern in Hamburg.
Previous experience
Michael has 30 years’
experience within the
Australian and New Zealand
commercial audio visual
market, including ten years
as an owner of a leading
Australian systems integrator.
He spent three years as
General Manager of the AV
division at Programmed,
one of the largest Australian
technology integrators.
Michael has also held senior
roles with companies such as
Rexel, which was the Australian
distributor for Panasonic.
He joined Midwich Australia as
a consultant in 2012 and took
over as Managing Director
of Midwich ANZ in June
2014. Michael was appointed
Managing Director, Asia Pacific
in 2018.
In the following years, he
successfully worked his way
through the organisation
as Marketing Manager, Key
Account Manager and Sales
Manager. Finally, he took
over responsibility for Sales
and Marketing as Managing
Director in 2001.
After some significant
restructuring measures in
the parent company, in 2004
Lutz decided to leave the
company and founded Kern &
Stelly Medientechnik GmbH,
together with his former
colleague, Andreas Stelly.
Lutz leads the biggest
business within the EMEA
region as Managing Director,
DACH.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE CHAIRMAN’S STATEMENT ON
CORPORATE GOVERNANCE
Andrew Herbert, Chairman
The established
policies and strong
management
disciplines within the
Midwich Group have
enabled the business
to manage through
this most challenging
of years with no loss of
focus on governance.
MICHAEL BROADBENT (57)
Asia Pacific
The Board considers sound governance
to be an essential element of a well-
run business and has followed the
Quoted Companies Alliance (“QCA”)
guideline since IPO. We have included
a summary of our compliance with
the QCA code in the annual report.
The full statement of compliance
with the QCA Corporate Governance
Code, as approved by the Board on
10 September 2020, is available on the
Company’s website.
The established policies and strong
management disciplines within the
Midwich Group have enabled the
business to manage through this most
challenging of years with no loss of
focus on governance. The Board has
particularly focused on the wellbeing
of our people and continues to take
a longer-term view on sustainability
as we develop and enhance our
governance approach.
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’
service contracts include 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
appointed Hilary Wright as the non-
executive director responsible for
ESG matters. We have also enhanced
our ESG reporting this year. In
addition to including information
(page 34) about how we engage
with our people, our environment and
our local communities, we have set
targets to reduce our environmental
impact. 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 s172
statement, Streamlined Energy and
Carbon Reporting (“SECR”), 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.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE OUR GOVERNAN CE
CHAIRMAN’S STATEMENT ON
CORPORATE GOVERNANCE CON TINU ED
Our leadership structure
THE BOARD
Nominations Committee
The Nominations Committee
evaluates the structure,
size and composition of
the Board. It leads the
process of identifying, and
nominating for the approval
of the Board, candidates to
fill vacancies as and when
they arise. The Committee
also reviews the leadership
of the organisation including
executive development plans
and succession planning.
Members:
• Andrew Herbert (Chairman)
• Mike Ashley
• Stephen Fenby
• Hilary Wright
Audit Committee
The Audit Committee monitors
the integrity of the Company’s
financial statements. It provides
review and challenge to
accounting policies and the
effectiveness of the Company’s
internal controls and risk
management processes. The
Committee evaluates the
Group auditors and makes
recommendations to the
Board in relation to auditor
appointment, rotation, and
removal for approval at the
AGM.
Members:
• Andrew Herbert (Chairman)
• Mike Ashley
• Hilary Wright
Remuneration Committee
The Remuneration Committee
determines the framework
and broad policy for setting
executive remuneration. It
also reviews and monitors the
Company’s approach to share
incentive plans and senior
management remuneration.
Taking input from specialists,
the Committee evaluates
the Company’s approach to
remuneration in the context of
both the Group’s performance
and the wider environment,
including all stakeholders’
interests.
Members:
• Mike Ashley (Chairman)
• Andrew Herbert
• Hilary Wright
50
MIDWICH GROUP PLC
ANNUAL REPORT AND FINANCIAL STATEMENTS
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The Board met in person or by video conference ten times during the year and held a number of meetings by telephone/
video conference 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 2020, the Board also received presentations from operational management on topics including
business unit strategy, talent and succession planning, tax strategy, IT systems and 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 2020
as detailed here:
Board
Meetings
10
10
Andrew Herbert
(Chairman)
Mike Ashley
10
10
Hilary Wright
10
10
Stephen Fenby
10
10
Stephen Lamb
10
10
Audit
Remuneration
Nominations
3
3
3
3
3
3
n/a
n/a
4
4
4
4
4
4
n/a
n/a
1
1
1
1
1
1
1
1
n/a
Note: Attendance was 100% and Board meetings were held by video conference from March 2021.
Attended
Meetings
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MIDWICH GROUP PLC
MIDWICHGROUPPLC.COM
51
OUR GOVERNANCE
CHAIRMAN’S STATEMENT ON
CORPORATE GOVERNANCE
CONTI NUED
Audit Committees
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. No change
was made to those terms of reference
during 2020.
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.
Remuneration Committee
The Remuneration Committee consists
of the non-executive directors and is
scheduled to meet at least three times
a 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 2020.
Separate reports from the Audit
Committee, Nominations Committee
and Remuneration Committee are
presented throughout pages 54 to 61.
COMPLIANCE WITH THE
QCA CODE
The Board has resolved to establish a
strong governance culture using the
Quoted Companies Alliance (“QCA”)
code as the basis for its governance
framework. The full Statement of
compliance with the QCA Corporate
Governance Code is available on the
Midwich Group plc website. A summary
of how the Group complies with the
principles of the code is set out below.
1. Establish a strategy and business
model which promote long-term
value for shareholders
Overview
Midwich has a clearly articulated
strategy and business plan as a value-
added distributor of Audio Visual and
related products.
2. Seek to understand and meet
shareholder needs and expectations
Overview
The Company engages with its
shareholders through formal meetings,
informal communications and stock
exchange announcements.
3. Take into account wider
stakeholder and social responsibilities
and their implications for long-term
success
Overview
The Board considers relationships
with, and the engagement of,
our stakeholders to be a critical
success factor for our business. As a
specialist distributor, we add value by
developing and maintaining in-depth
understanding of our vendors’ and
customers’ needs.
52
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE OUR GOVERNANCE
4. Embed effective risk management, considering both
opportunities and threats, throughout the organisation
8. Promote a corporate culture that is based on ethical
values and behaviours
Overview
The Board has ultimate responsibility for the Group’s
system of internal controls and for reviewing its
effectiveness. However, any such system of internal control
can only provide reasonable, but not absolute, assurance
against material misstatement or loss. The Board considers
that the internal controls in place are appropriate for the
size, complexity and risk profile of the Group.
The Group operates a risk assessment and monitoring
process with regular updates provided to the Board and
the Audit Committee.
5. Maintain the board as a well-functioning, balanced
team led by the chair
Overview
The Board is comprised of three independent non-
executive directors (including the Chairman who was
independent upon appointment) and two executive
directors.
6. Ensure that between them the directors have the
necessary up-to-date experience, skills and capabilities
Overview
Each Board member brings a different mix of knowledge
and experience, which blend well into a successful and
effective team. For example, specialist AV industry
knowledge and broad experience in sales, operations,
international expansion, finance, human resources,
information technology and capital markets.
Board composition is kept under review and the Board is
committed to ensuring diversity of skill, experience and
gender balance.
7. Evaluate board performance based on clear and
relevant objectives, seeking continuous improvement
Overview
The Board conducts a formal evaluation and appraisal
process annually. A senior Group employee compiles the
results and subsequently facilitates a Board discussion
during which matters arising are reviewed and actions
agreed.
Overview
The Board is committed to promoting a strong ethical
and values-driven culture throughout the organisation.
We believe this to be an essential element of a well-run
business.
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 competitive advantage.
Having a people-oriented ethos, where teamwork and
commitment are recognised, is central to the success
of our strategy. We pride ourselves on our home-grown
talent, with a significant number of our senior managers
having built their careers within the Group.
To promote our ethical values, we actively encourage and
support community involvement across the Group.
9. Maintain governance structures and processes that
are fit for purpose and support good decision-making
by the board
Overview
The Board typically meets eight times a year. There were
ten meetings in 2020 with additional meetings required
to address COVID-19. Each one was attended by all Board
directors. Further ad hoc meetings are held by telephone
as necessary.
A formal Board programme is agreed before the start of
each financial year.
This is structured, as far as possible, to align with the
Group’s annual financial programme.
10. Communicate how the company is governed and is
performing by maintaining a dialogue with shareholders
and other relevant stakeholders
Overview
The Group communicates with shareholders through the
Annual Report and Accounts, half-yearly trading updates,
the AGM, capital markets days and one-to-one meetings
with certain existing or potential new shareholders.
Reports from the Audit, Nominations and Remuneration
Committees are set out within the Annual Report.
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NOMINATIONS COMMITTEE REPORT
Andrew Herbert, Chairman
Board evaluation
In line with prior years, there was a
formal Board evaluation and appraisal
process in 2020. A survey seeking
the individual views of directors on
Board composition and effectiveness,
business leadership, QCA code
compliance and other matters was
undertaken.
A senior Group employee compiled the
results and subsequently facilitated a
Board discussion during which matters
arising were reviewed and actions
agreed. The Board has been forced
to operate remotely throughout most
of 2020 due to social distancing and
lockdown restrictions but has found
an efficient and effective method of
working through video and telephone
links. Despite this, the evaluation
identified no major issues or concerns
about the effectiveness of the Board or
its individual members, and concluded
that the processes of the Board had
not been impaired as a result of the
circumstances. A few minor points that
were raised have been 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.
Leadership development
The Group’s Executive Leadership
Team (“ELT”) is responsible for
determining and driving operational
strategy. This team comprises the
Group Managing and Finance Directors,
as well as the Managing Directors
for each of our four operating units,
together with the Managing Director
for the DACH businesses.
The Committee believes that this is
the right model to drive operation
performance of the Group whilst
ensuring implementation of the agreed
strategy. In 2020, the ELT also met
frequently to, initially, manage the
immediate response to the emerging
COVID-19 pandemic and then to plan
for the post-pandemic recovery. There
was regular communication between
the ELT and the Board throughout
the year.
The Committee continues to
support the Group’s leadership
development programme for the
executive team members.
Step 1
Annual survey of Board members
Step 2
Facilitated review of survey
findings with agreed action plans
Step 3
Monitoring of progress against
agreed plans
MAIN
RESPONSIBILITIES
• 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);
• To evaluate diversity and
inclusion at both Board and
senior management levels;
• 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.
Group wide, we are
committed to being an
equal opportunities
employer and the
Committee reviews
gender pay and equal
pay reports and action
plans annually.
Nominations Committee report
I am pleased to present the report of
the Nominations Committee.
The Committee is comprised of the
three independent non-executive
directors and the Group Managing
Director. The Committee met once in
2020.
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.
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.
Leadership diversity
The Committee believes that diversity,
including skills, experience, gender,
culture and ethnicity, strengthens
our business. Our non-executive
directors each bring specific skillsets
that complement the experience of
the executive directors. The gender
mix of our Board is 80% male/20%
female and, while we have no formal
gender or ethnicity targets for Board
composition, the Committee is
committed to ensuring that diversity
is a significant consideration in all
Board appointments. Group wide,
we are committed to being an equal
opportunities employer and the
Committee reviews gender pay and
equal pay reports and action plans
annually.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE AUDIT COMMITTEE REPORT
I am pleased to present the Audit
Committee report describing our work
during the past year.
Auditors and audit tender
Grant Thornton UK LLP (“Grant
Thornton”) was reappointed as the
Company’s auditor at the 2020 Annual
General Meeting.
Grant Thornton has been the Group’s
auditors since 2010 and there have
been two engagement partner
rotations during this period. While
there is no mandated requirement for
AIM companies to tender their audit,
the Committee remains committed
to ensuring sufficient rigour and
independence of the auditor and their
process, therefore it was decided to
undertake an audit tender process for
the Group’s 2021 financial year.
The process was informed by the FRC’s
Audit Tenders Notes on Best Practice.
Six firms were invited to tender, a
mix of both the big four and top ten
audit firms and all were given access
to appropriate information and Group
management. A predefined assessment
and scoring methodology has been
agreed by the Committee. At the time
of writing, three audit firms have been
shortlisted for the final review. We
expect to make a recommendation of
the appointment of the firm chosen
by the Committee to the Board in the
coming months.
The reappointment of Grant Thornton
will be recommended to shareholders
for approval at the 2021 AGM in the
meantime.
Membership and responsibilities
of the Committee
Membership of the Audit Committee is
limited to the 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
2020.
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, proposed scope of work
and 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
2020 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.
SIGNIFICANT RISKS CONSIDERED BY THE COMMITTEE
1
2
3
4
COVID-19 impact on
liquidity and going
concern
Corresponding actions
taken by the Committee
Meetings with senior
management including
review of action plans
and information including
forecasts, net debt, bank
facilities and covenants.
Brexit disruption
Dependence on key
personnel
Corresponding actions
taken by the Committee
Review of management
action plans, risk
assessments and
discussions of third-party
recommendations.
Corresponding actions
taken by the Committee
Engagement with senior
management across the
Group, review of strategy,
review of organisational
changes and staff retention
and succession plans.
Expected benefits
from acquisitions may
not be realised
Corresponding actions
taken by the Committee
Assessment of acquisitions
including integration plans
and risks. Post-acquisition
reviews.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE
AUDIT COMMITTEE REPORT CON TINU ED
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 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
• 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.
In the prior year, and to reflect best
governance practice, the Committee
further tightened the Company’s
policy to limit use of the auditor from
2020 onwards to only audit and other
assurance related activities. The Group
complies with the FRC’s Revised Ethical
Standard 2019 on audit engagements.
During the year, Grant Thornton UK LLP and its associates were paid fees of £434k
(2019: £251k) in respect of audit and non-audit work as follows:
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 and audit related
assurance services
Tax compliance services
Tax advisory services
Other services
Total fees for audit and non-audit services
2020
£’000
2019
£’000
66
337
18
421
3
–
10
434
87
119
18
224
14
4
9
251
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 2020. Details of
the full terms of reference are available
on the Company’s website.
Andrew Herbert
Chairman of the Audit Committee
There was no contingent element to
any of these fees and independence
was safeguarded as follows:
• No tax advisory work was performed
by Grant Thornton in respect of
2020. The teams performing tax
compliance work in 2020, including
the computation and compliance
work, were separate and led by a
different partner.
• Other services include accounts
preparation for a non-significant
subsidiary and assurance work under
the German Packaging Act. In both
cases, the teams performing the work
were separate to the Group audit
team and led by a different partner.
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 pages 30 to 33.
MAIN
RESPONSIBILITIES
• 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,
reappointment and removal of
the Company’s external auditor.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE STATEMENT FROM THE CHAIRMAN OF
THE REMUNERATION COMMITTEE
Mike Ashley, Chairman
The remuneration
arrangements are
designed to be in
the best interests
of the Company and
appropriately aligned
to its strategic goals.
As Chairman of the Remuneration
Committee, I am pleased to present
the Directors’ Remuneration report for
the financial year ended 31 December
2020. The Remuneration Committee
comprises the three non-executive
directors.
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.
• 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 2020
financial year.
Our approach to the COVID-19
pandemic
2020 was an unprecedented year,
with the emergence of the COVID-19
pandemic requiring the Committee,
working closely with the executive
directors, to adopt a number of
measures in response. The Committee
believes that the interests of the
executive directors should be strongly
aligned with those of the Group’s
wider stakeholders. This resulted in the
following set of actions being adopted
during 2020:
• All directors voluntarily reduced
their salary and fees to align
their interests with the negative
impacts from COVID-19 on other
stakeholders including the wider
workforce and shareholders.
• Other reductions in salaries were
tiered, with higher percentage
reductions applied to more senior
staff.
• Government job retention
schemes were used to preserve
employment.
• For furloughed staff, the Group
made top-up payments to partially
offset reductions in income.
• No bonuses would be paid
to executive directors for
2020 regardless of the actual
performance.
MAIN
RESPONSIBILITIES
The Committee’s main
responsibilities 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.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE STATEMENT FROM THE CHAIRMAN OF
THE REMUNERATION COMMITTEE CONTIN UED
• Post-pandemic recovery incentive
plans were developed to align the
executive directors’ and senior
managers’ interests with wider
stakeholders.
• Other actions included the provision
of technology for home working,
offering part time and flexible
working patterns and enhanced
wellbeing support.
Further details regarding the
implementation of these is set out
below.
2020 performance and
remuneration
2020 performance and impact of
COVID-19
In the past year, despite the material
impact from the COVID-19 pandemic,
the Group was able to grow revenue by
3.7% to £711.8m, delivering an increased
overall market share. The Group
completed two strategic acquisitions:
entering North America and adding
Unified Communications capabilities in
APAC. In a period of global uncertainty,
the Group was also able to deliver
exceptional cash conversion and a
£32m reduction in adjusted net debt.
Our executive team, led by the MD and
FD, has been instrumental in driving this
performance.
However, the Committee recognises
the wider adverse impact from the
pandemic on the Group’s stakeholders
including reductions in dividends,
furloughs and salary cuts for our
employees and support from several
government institutions.
In March 2020, the Committee and
the directors agreed that there should
be reductions in base salary or fees
for all directors. This resulted in all
directors taking reductions equivalent
to between 19–53% of base pay or
fees for the six month period up to
30 September 2020.
2020 annual bonus
The annual executive bonus is linked
to specific goals covering profit, cash
conversion and strategic objectives.
Measured against these goals, the
2020 Group performance would have
resulted in a bonus payment for both
the MD and FD. However, given the
global backdrop and the experience
of our stakeholders during the year,
the executive directors volunteered
to waive any bonus for 2020. Further
details are set out in the Directors’
Remuneration report on page 62.
2020 LTIP award
The Committee reviewed the Group’s
in-flight performance-based share
awards. As a direct result of the
unprecedented impact of the COVID-19
pandemic, LTIP awards granted in 2018
and 2019, which had been on track,
were no longer expected to meet their
performance criteria. Conversely, the
vesting of free share awards (which are
The diagram below illustrates the performance and vesting timelines of the original awards (including the 2020 LTIP award we
originally expected to grant pre-pandemic) and the 2020 LTIP award:
2018
2018
2018
Before changes:
Before changes:
Before changes:
2018 LTIP
award
2018 LTIP
award
2018 LTIP
Before changes:
award
2019 LTIP
award
2019 LTIP
2018 LTIP
award
2019 LTIP
award
award
Expected
2020 LTIP
Expected
2019 LTIP
award
2020 LTIP
Expected
award
award
2020 LTIP
award
After changes:
After changes:
Expected
After changes:
2020 LTIP
award
2018
2018
2018
2018
2018
2018
2018
2018
2018
2020 LTIP
award
After changes:
2020 LTIP
award
2020 LTIP
award
2018
2018
2018
2020 LTIP
award
3 year performance
period (2018-2020)
3 year performance
period (2018-2020)
3 year performance
period (2018-2020)
2019
2019
2019
3 year performance
period (2018-2020)
2019
2019
2019
2019
2 year post-vesting
holding period
2 year post-vesting
holding period
2 year post-vesting
holding period
2022
2022
2022
2 year post-vesting
holding period
2021
2021
2021
2020
2020
3 year performance
period (2019–2021)
2020
3 year performance
period (2019–2021)
3 year performance
period (2019–2021)
2020
2020
2020
2020
3 year performance
period (2019–2021)
2020
2020
2020
2020
2021
2021
3 year performance
2021
period (2020–2022)
2021
3 year performance
period (2020–2022)
3 year performance
period (2020–2022)
2021
2021
2021
2021
3 year performance
period (2020–2022)
2024
2024
2024
2023
2023
2 year post-vesting
holding period
2023
2 year post-vesting
holding period
2 year post-vesting
holding period
2023
2023
2023
2023
2 year post-vesting
holding period
2023
2023
2023
2023
2022
2022
2022
2022
2022
2022
2022
2022
2024
2024
2 year post-vesting
2024
holding period
2024
2 year post-vesting
holding period
2 year post-vesting
holding period
2024
2024
2024
2024
2 year post-vesting
holding period
2025
2025
2025
2025
2025
2025
2025
2025
2025
2025
2025
2021
3 year performance
period (2020–2022)
3 year performance
period (2020–2022)
3 year performance
period (2020–2022)
2022
2021
2021
2021
3 year performance
period (2020–2022)
2022
2022
2022
2023
2023
2023
2023
2 year post-vesting
holding period
2 year post-vesting
2024
holding period
2 year post-vesting
holding period
2025
2024
2 year post-vesting
2024
holding period
2024
2025
2025
2025
2019
2019
2019
2019
2019
2019
2019
2019
2020
Stretch
Stretch
Stretch
Base
award
Base
award
Base
award
Stretch
element{
element{
element{
element{
2020
2020
2020
{
{
{
Base
award
{
2018
2019
2020
2021
2022
2023
2024
2025
58
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE not subject to performance conditions)
granted to junior employees each year
since our IPO have been unaffected,
and these awards will continue to vest
on their normal timescales.
The Committee recognised the need
to ensure that senior management
continues to be retained and
incentivised to deliver a strong
recovery. For this reason, a one-
off 2020 LTIP award was granted
to the executive leadership team
(“ELT”) (including the FD) and the
senior management team, subject to
stretching performance conditions
linked to the Group’s profitability.
To reflect this and mitigate potential
dilution concerns, the in-flight 2018 and
2019 awards have been cancelled. The
MD does not currently participate in
the LTIP, but the Committee remains
satisfied that he is incentivised to
deliver strong performance through his
substantial shareholding.
The 2020 LTIP Award will ordinarily
vest in 2023 and is exercisable for up
to ten years from the date of grant.
The base award is subject to a two-
year holding period from the date
of vesting.
The Committee recognises that a key
concern of shareholders is dilution
arising from share based incentive
schemes. This was a key driver behind
the decision to cancel the 2018 and
2019 LTIP awards. The dilutive impact
of the 2020 LTIP is 2.5% (at maximum
performance, based on the current
share capital), but the net dilutive
impact (once the cancellation of the
2018 and 2019 LTIP awards is taken into
account) is 1.3%.
Free share awards to junior employees
(which are not subject to performance
conditions) were granted as normal
during the year.
Executive shareholdings
The Committee expects executive
directors to have sufficient
shareholdings to align their interests
with shareholders. In particular,
executive directors are expected to
develop a shareholding of 200% of
base salary over an appropriate period
of time from appointment. Given the
MD’s substantial shareholding (over
20% of the Group) and the FD joining
the Company in 2018, the Committee
is satisfied that the executive directors’
shareholdings are sufficient.
Our long-term approach to
executive pay
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.
In prior years, the Committee
has engaged a third party to
benchmark executive remuneration.
The Committee believes that the
remuneration levels are competitive
and reflect the current scale and
responsibility of the executive
directors’ roles.
The Group operates a long-term
incentive plan (“LTIP”) for the executive
directors and members of the senior
management team to incentivise long-
term performance and achieve greater
alignment with shareholders through
share ownership. Where executive
directors participate in the LTIP
scheme, the normal annual awards are
now subject to a minimum two-year
post-vesting holding period, bringing
the total period of the awards to five
years.
The Committee takes a pragmatic
approach to the remuneration of
its executives, acknowledging the
substantial shareholdings of the MD
and the external benchmarking of 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.
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.
Alignment with the wider
workforce
The Company believes in treating all
employees fairly (evidenced by our
tiered approach to salary reductions
during the COVID-19 pandemic) and
encourages employee share ownership
across the Group.
During 2020, the Group benefited from
government support, which helped it
maintain jobs during the pandemic. The
Committee recognises the sacrifices
made by our employees during the
year including time off due to furlough,
part-time working and reductions in
earnings. We believe that the Group
took a fair and balanced approach
to managing the COVID-19 impact
through both enhanced furlough
payments and larger percentage
reductions in earnings for the Group’s
more senior staff. These actions have
ensured that we are well positioned for
the post-COVID recovery.
As at 31 December 2020, over half
of Group employees were either
shareholders or participants in share
awards that will vest in the next
three years.
Each year since IPO, the Company
has made free share awards and/or
LTIP awards to employees that meet
the Committee’s criteria. Free shares,
which vest after three years, have
typically been awarded to employees
of eligible Group companies based on
length of service. Since IPO, 800,000
free share awards have been given to
members of staff, this includes 300
shares per eligible employee awarded
to 600 employees in 2020.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE STATEMENT FROM THE CHAIRMAN OF
THE REMUNERATION COMMITTEE CONTIN UED
Broader employee remuneration is
considered by the Committee when
determining executive remuneration,
for example, executive directors’
pension arrangements (at 6% of base
salary) are aligned to those offered
to the wider workforce. Executive
salary increases are also considered
in the context of those given to other
staff and are not expected to be
significantly different to overall salary
increases (other than in exceptional
circumstances or significant growth of
the Company).
2017 share award vesting
LTIP awards are made to senior
management to align personal
objectives with the Company’s
strategic goals and recognise long-
term value creation.
Awards have been made annually
since the Company’s IPO in 2016. The
Committee was pleased to be able
to determine that the performance
criteria for the vesting of the 2017
awards were met in full (based on
financial performance for the three
years ended 31 December 2019). No
executive directors were included in
this vesting.
H-Farm Campus, AV
solutions, by Prase, Italy
Advisory vote on Directors’
Remuneration report
Since 2019, the Company has included
an advisory vote at the AGM on
the Directors’ Remuneration report.
Whilst the Committee acknowledges
that this is beyond our obligations
as an AIM-listed company and the
requirements of the QCA code, it has
determined that this is an opportunity
to better engage with shareholders
on this important topic. The outcome
of the 2020 advisory vote was
99.05% in favour. The 2020 Directors’
Remuneration report will be subject to
an advisory vote at the 2021 AGM.
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 four
times during 2020 and its key activities
were as follows:
• Reviewed the 2019 Directors’
Remuneration report;
• Agreed 2019 annual bonus awards
for executive directors and the wider
ELT;
• Discussed 2020 annual bonus
scheme proposal for executive
directors and the ELT for 2020;
• Reviewed the 2017 LTIP award
performance and approved the
vesting in full of these awards;
• Assessed the impact of COVID-19
and recommended and approved
actions on directors’ base pay and
bonuses;
• Assessed the impact of COVID-19
and recommended and approved
actions on the LTIP scheme;
• Reviewed and approved the
executive directors’ remuneration
arrangements for 2021; and
• Considered the remuneration of the
ELT for 2021.
60
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE H-Farm Campus, AV in the
classroom, by Prase Italy
Both the remuneration policy and
LTIP scheme are summarised in the
“Remuneration Overview” section of
this report.
Outlook for the 2021 financial
year
Whilst 2020 was impacted by
COVID-19, the Committee recognises
that the Company has delivered
long-term shareholder returns, grown
strongly, made market share gains
and completed strategic acquisitions,
and believes in incentivising a strong
recovery. The Committee will keep the
remuneration arrangements under
review and retains flexibility to reward
significant outperformance through its
incentive schemes.
The Committee believes that the MD
is incentivised through his substantial
shareholding and will therefore not
participate in any 2021 LTIP award.
The Committee determined that it was
not appropriate to increase executive
directors’ salaries or non-executive
directors’ fees from 1 January 2021.
Summary
The Committee believes that the
current remuneration arrangements are
in the best interests of the Company
and are appropriately aligned to
strategic goals, delivering shareholder
value and supporting the long-term
success of the Company.
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.
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.
Mike Ashley
Chairman of the
Remuneration Committee
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE DIRECTORS’ REMUNERATION
REPORT
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 2020 and 2021 is set out below for reference,
to assist with the understanding of the contents of this report and to demonstrate alignment with strategy.
Operation
Opportunity
Salaries are reviewed at the
discretion of the Committee.
Purpose and link to
strategy
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.
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.
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.
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.
Performance metrics
used, weighting and time
period applicable
None
None
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE Operation
Opportunity
Purpose and link to
strategy
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.
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 annually
against a range of predetermined
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.
LTIP awards are made using
nominal cost share options.
Performance is measured over
three financial years against a range
of predetermined 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 maximum normal
bonus opportunity is
currently 100% of base
salary.
The Committee
retains discretion to
award a higher bonus
in circumstances
of significant
outperformance.
Performance metrics
used, weighting and time
period applicable
Performance is measured
over the financial year.
Targets are set annually
by the Committee.
Performance metrics for
2021 will include targets
for:
• Profit growth
• Other financial KPIs
• Strategic/personal
targets
The normal maximum
LTIP award is 200% of
base salary.
Performance is measured
over a minimum three-
year performance period.
In 2020, an enhanced
LTIP award of 550% of
salary was granted to
the FD. This reflected
the cancellation of both
the 2018 and 2019 LTIP
awards.
Targets are set for each
performance period by
the Committee.
Performance metrics for
the awards are based on
adjusted profit growth.
None
The base fees for non-
executive directors are
set at a market rate.
No additional fees are
awarded for committee
chairmanship or
membership.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE DIRECTORS’ REMUNERATION
REPORT CONTINUED
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 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 2020, over half 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
Date of
original
appointment
Term of
appointment
Notice period
Stephen Fenby
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
13 April 2016
Continuous
Hilary Wright
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
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.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE 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.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE ANNUAL REPORT ON REMUNERATION
Total shareholder returns
The chart below shows Midwich Group plc’s annual TSR performance against the AIM All-Share Index over the period since
IPO (May 2016).
The Committee believes that a well-run business will deliver superior returns to its shareholders over time. In the period since
IPO, we have created over £218m of value through market capitalisation growth and dividends. Over the same period, we have
outperformed the AIM All-Share Index by 37%.
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31/12/15
31/12/16
31/12/17
31/12/18
31/12/19
31/12/20
Midwich
FTSE AIM All-Share
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 2020 financial
year. Comparative figures for the 2019 financial year have also been provided.
£’000
Base salary1
2020
2019
Benefits2
2020
2019
Annual Bonus
2019
2020
Pension3
Other4
Total
2020
2019
2020
2019
2020
2019
Stephen Fenby
Stephen Lamb
237
233
315
250
12
31
12
30
–
–
58
36
11
11
16
13
–
40
–
168
260
315
401
497
1 In response to the COVID-19 pandemic, Stephen Fenby and Stephen Lamb agreed to reductions in base salary for the six months ended 30 September 2020.
2 The taxable benefits received in 2019 and 2020 were principally company cars/car allowances and private medical insurance. Stephen Lamb also
receives a contribution to weekday accommodation near the Company’s head office.
3 Executive directors receive pension contributions of 6% of base salary. Pension contributions were delivered as a salary supplement net of employer’s
National Insurance of 13.8%.
4 On appointment, Stephen Lamb 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, at the time of grant, was £265,000 based on the share price of 530 pence at the date of grant and
an exercise price of 1 penny. 10,000 of these options vested on 26 July 2020 at a value (net of the exercise price) of £39,900 based on a share price of
400 pence at the date of vesting. In the prior year, 30,000 of these options vested on 26 July 2019 at a value of £167,700 based on a share price of 560
pence at the date of vesting.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE
Non-executive directors (audited)
The table below sets out the total remuneration and breakdown for each non-executive director.
£’000
Andrew Herbert
Mike Ashley
Hilary Wright
Fees1
Total
2020
73
37
37
2019
81
41
41
2020
73
37
37
2019
81
41
41
1 In response to the COVID-19 pandemic, all non-executive directors agreed to a reduction of 25% in fees for the six months ended 30 September 2020.
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
£322,875
£257,500
Base salaries for the 2021 financial year are set out on page 68 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)
Whilst targets were achieved for cash conversion and strategic goals, the Remuneration Committee supported the executive
directors’ decision to waive any bonuses in 2020. Further detail on 2020 performance is set out in the Directors Remuneration
report on page 62.
Long-term incentives awarded in 2020
As noted in the Chairman’s statement, the Committee reviewed the Group’s in-flight performance-based share awards. As a
result of the impact of the COVID-19 pandemic and therefore factors outside of the senior management team’s control, LTIP
awards granted in 2018 and 2019 were not expected to meet their performance criteria. The Committee determined that
exercising discretion to permit these awards to vest would not be aligned with the experience of our shareholders.
However, the Committee also recognised the need to ensure that the senior management team continues to be retained
and incentivised to deliver a strong recovery. For this reason, a one-off 2020 LTIP award was granted to senior management
(including the FD) subject to stretching performance conditions linked to the Group’s profitability. To reflect this and mitigate
potential dilution concerns, the in-flight 2018 and 2019 awards have been cancelled.
The 2020 LTIP award for the FD consists of two elements:
• A “base award” of 66,026 nominal cost options, which will only vest if adjusted profit before tax in the financial year ending
31 December 2022 exceeds the adjusted profit before tax for the year ending 31 December 2019; and
• Subject to achieving the base award performance condition, an additional element of up to 231,090 nominal cost options will
vest subject to the achievement of further tiers of stretching profit targets above this level for the year ending 31 December
2022.
The 2020 LTIP award will vest in 2023 and is exercisable for up to ten years from the date of grant. The base award is subject
to a two-year holding period from the date of vesting.
To reflect the substantial shareholdings of Stephen Fenby, and in line with the approach taken since IPO, no LTIP awards were
granted to him during the year.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE ANNUAL REPORT ON REMUNERATION CON TINUED
Share interests
The interests of directors and their connected persons in Ordinary Shares and share options as at 31 December 2020 are
presented in the table below.
Ordinary
Shares at
31 December
2020
19,425,000
10,682
40,000
1,442
4,000
Vested but not
exercised
–
40,000
–
–
–
Options held:
Unvested
and subject
to continued
employment
–
10,000
–
–
–
Unvested and
subject to
performance
criteria1
–
297,116
–
–
–
Percentage
shareholding2
21.92%
0.04%
0.05%
<0.01%
<0.01%
Percentage of
salary held2
30,081%
72%
n/a
n/a
n/a
Director
Stephen Fenby
Stephen Lamb
Andrew Herbert
Mike Ashley
Hilary Wright
1 Base award of 66,026 shares subject to a two-year post-vesting holding period.
2 Percentage shareholding and percentage of salary held is based on a share price of £5.00 on 31 December 2020. Vested but unexercised options and
options that are only subject to continued employment are included at 53% of their nominal value to reflect estimated tax deductions.
No share options were exercised by directors during the year. All share options lapse, if they are not exercised, ten years after
the grant date.
Non-executive fees in 2020
Fees for the non-executive directors were not increased for the year ending 31 December 2020.
Fees at the end of the financial period were:
Non-executive director
Andrew Herbert
Mike Ashley
Hilary Wright
Fees
£83,000
£42,000
£42,000
Non-executive director fees for the 2020 financial year are set out on page 63 of this report.
Implementation of remuneration agreements in 2021
Base salary
There was no increase in base salary for either the MD or FD from 1 January 2021.
The table below sets out the base salaries effective from 1 January 2021 (with previous base salaries included for reference):
Base salary
As at
31 December
2020
£322,875
£257,500
As at
1 January
2021
£322,875
£257,500
Stephen Fenby
Stephen Lamb
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE Annual bonus
2021 will be a critical year for the Group and the Committee believes it is vital that the executive directors, and broader senior
management team, are incentivised to deliver strong results for our shareholders as we emerge from the global pandemic.
Normal bonus opportunities for Executive Directors will be 100% of salary, but the Committee retains the flexibility to provide
additional reward for significant outperformance. The performance targets for the 2021 bonus will be:
• Profit growth targets (50% weighting)
• Other financial KPIs (25% weighting)
• Strategic/personal targets (25% weighting)
Long-term incentive
The Group MD and FD will be eligible to participate in any long-term incentive awards granted during 2021. However, due
to his significant existing shareholding, it is expected that the MD will not participate in the 2021 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
There was no increase in fees for the non-executive directors from 1 January 2021.
The table below sets out the 2021 fees for the non-executive directors (with previous fees included for reference):
Andrew Herbert
Mike Ashley
Hilary Wright
Fees
As at
31 December
2020
£83,000
£42,000
£42,000
As at
1 January
2021
£83,000
£42,000
£42,000
Adviser
During the financial year, the Committee received independent advice from PwC and Deloitte. As founder members of the
Remuneration Consultants Group, PwC and Deloitte 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 9 March 2021 and signed on its behalf by:
Mike Ashley
Chairman of the Remuneration Committee
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE DIRECTORS’ REPORT
UK&I Experience Centre
The directors present their report and
the financial statements of the Group
for the year ended 31 December 2020.
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
(page 30), stakeholder engagement
(page 34), environmental reporting
(page 37) and an indication of likely
future developments for the Group
(on page 22).
Results and dividends
The loss after tax for the period
amounted to £3.4m (2019: £18.2m
profit).
The Company did not pay dividends in
the year (2019: £12.3m).
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 2020,
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.
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 uses financial instruments to
swap an element of its variable interest
rate borrowings into fixed interest
rates. The purpose of this is to provide
greater certainty of future interest
payments.
The Group regularly monitors its
exposure to interest rate movements
and, where appropriate, will consider
further 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.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE Directors
The directors of the Company during the year and their beneficial interest in the Ordinary Shares of the Company at
31 December 2020 are set out below:
Stephen Fenby
Stephen Lamb
Andrew Herbert
Mike Ashley
Hilary Wright
Ordinary Shares
2020
19,425,000
10,682
40,000
1,442
4,000
19,481,124
2019
19,125,000
7,766
30,000
1,442
4,000
19,168,208
Stephen Lamb is the only director with interests in share options of the Company. These are detailed on page 68.
Directors’ remuneration
Stephen Fenby
Stephen Lamb
Andrew Herbert
Mike Ashley
Hilary Wright
2020
Salary/fees
and bonus
£’000
237
233
73
37
37
617
2020
Pension
£’000
11
11
–
–
–
22
2020
Benefits in
kind
£’000
12
31
–
–
–
43
2020
Share option
vesting
£’000
–
40
–
–
–
40
2020
Total
£’000
260
315
73
37
37
722
2019
Total
£’000
401
497
81
41
41
1,061
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 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.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE DIRECTORS’ REPORT CON TINU ED
Substantial shareholders
The Company has been notified of the following interests of 3% or more in its issued share capital as at 17 February 2021:
Shareholders
Midwich Group plc directors & related parties
Aberdeen Standard Investments
Granular Capital Ltd
Octopus Investment Nominees Limited
Liontrust Investment Partners
Canaccord Genuity Group Inc
Number of
shares
19,481,124
10,241,644
7,087,709
6,417,560
4,530,147
4,108,246
%
21.99
11.56
8.00
7.24
5.11
4.64
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 Accounting Standards (“IAS”). 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 and of the profit or loss of the Company and 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 IASs have been followed, subject to any material departures disclosed and explained in the
consolidated 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 hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The directors confirm that:
• so far as each director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and
• the directors have taken all steps that ought to have been taken as a director in order to make themselves aware of any
relevant audit information 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: 9 March 2021
Company registration number: 08793266
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE OUR GOVERNANCE
CASE STUDY
H-FARM Campus –
a school of innovation
Prase, a Midwich
Group company based
in Italy, worked closely
with H-FARM Campus
on their digital
transformation.
A school of innovation
with the best AV
technology for the
people of today.
“The cultural transformation caused
by digital innovation is forcing us to
rethink dialogue with consumers and
how to rewrite the internal processes
of companies. Similarly, in schools
and universities and in education, in
general, we need to rethink software
platforms to communicate with
students and to reorganise teachers
and staff.”
H-FARM Campus has entered into
technological partnerships to create
future-proof digital buildings, asking
for support for AV solutions from
Prase Media Technologies. The project
covered multiple rooms throughout
the campus and supported a wide
variety of AV technology to deliver a
multi-use approach throughout.
“Prase, an added-value distributor
played a key role in the H-FARM
Campus project,” commented Alberto
Prase, Founder and Sales Manager
of the company of the same name.
“Our team of AV specialists have
interpreted the needs and objectives
given, not only by proposing suitable
technological solutions, but also by
guiding the client along a careful
validation process. The various
combinations were first tested with
the H-FARM Campus representatives
at our headquarters, and then test
rooms were set up on site to validate
the proposed solution in a live
environment.”
Prase proved to be a fundamental
partner for the success of our
project. Thanks to the close
collaboration with the technical
team, we were able to build a solid
infrastructure.”
Alberto Aldrigo, IT Manager of H-FARM
H-FARM campus operates from
kindergarten to masters, with the new
school complex boasting a unique
internationally inspired educational
cycle that can accommodate over
2,000 students and about 3,000
people. The various complexes cover
a total area of 30,000 square meters,
spread over 27 hectares of park, which
is open to the public. This makes the
project a complex AV integration
requiring specialist expertise at every
stage.
“Prase proved to be a fundamental
partner for the success of our
project. They supported us through
all the requirements analysis and
development phases of our AV project,
allowing us to field test every single
component for the necessary time in
production environments to validate
specifications before inserting them
into the final solution. Thanks to the
close collaboration with the technical
team, we were able to build a solid
infrastructure by optimising the
number of products installed in the
field and introducing some innovative
elements, such as Biamp’s voice
lift system and automatic shooting
systems with speaker tracking.”
said Alberto Aldrigo, IT Manager of
H-FARM.
You can see the full project details at
www.prase.it/h-farm-campus.
MIDWICH GROUP PLC
MIDWICHGROUPPLC.COM 73
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RESOLUTION SUMMARY
Annual General Meeting
The notice convening the Annual
General Meeting (the “AGM”) is set
out on pages 147 to 148. Resolutions
1 to 8 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 9 to 11.
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 10 and 11 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 2020.
COVID-19 statement
In the lead up to the Annual General
Meeting (notice of which is set out
below), the directors are closely
monitoring the impact of the COVID-19
virus in the United Kingdom. Due
to ongoing limitations on public
gatherings and associated social
distancing measures in response
to COVID-19, external shareholders
(i.e. shareholders who do not also hold
office as a director of the Company)
are prohibited from attending the
Annual General Meeting in person.
Accordingly, so as to ensure their
vote is counted at the Annual
General Meeting, all shareholders
are asked to submit a proxy form,
instructing the Chairman on how
they wish to vote on the proposed
resolutions. Further, the Company
will be providing a conference call
link to enable shareholders to follow
proceedings of the meeting and
potentially to ask questions remotely.
All shareholders are encouraged to
use these facilities should they wish
to follow the progress of the meeting.
Any shareholders who wish to listen
to the meeting by such means, should
contact the Company Secretary
prior to the day of the meeting at
Stephen.Lamb@midwich.com in order
to request conference dial-in details.
Re-election of Directors
(Resolutions 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 46 to 47.
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.
Directors’ Remuneration Report
(Resolution 8)
This Resolution seeks shareholder
approval for the Directors’
Remuneration Report (excluding the
remuneration policy). The Directors’
Remuneration Report can be found
on pages 62 to 69 (inclusive) of
the Annual Report and Financial
Statements.
In accordance with regulations which
came into force on 1 October 2013,
Resolution 8 offers shareholders an
advisory vote on the implementation of
the Company’s existing remuneration
policy.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR GOVERNANCE Disapplication of pre-emption
rights (Resolutions 10 and 11)
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 10, 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 £590,698 (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
£44,302 (representing 5% of
the issued share capital of the
Company).
The Directors do not currently have an
intention to exercise the authority.
Authority to allot shares
(Resolution 9)
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.
Resolution 9, 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 £295,349 (corresponding
to approximately one-third of the
issued share capital at 6 April 2021
and up to an aggregate nominal
value of £590,698 (corresponding to
approximately two-thirds of the issued
share capital at 6 April 2020) 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 6 April 2021, the Company does
not hold any shares in the Company in
treasury.
In addition, Resolution 11, again
in accordance with institutional
guidelines and which is also to be
proposed as a special resolution,
asks the shareholders to waive their
pre-emption rights in relation to
the allotment of equity securities
or sale of treasury shares up to a
further aggregate nominal amount
of £44,302 (representing 5% of the
issued share capital of the Company),
but where such authority may only be
used for the purpose of financing (or
refinancing, if the authority is to be
used in the 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 Pre-emption Group’s 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.
If Resolutions 10 and 11 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.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR GOVERNANCE CASE STUDY
The Leadenhall
Building reception
in London was
transformed with a
32m2 fine pitch LED
canvas. Providing
creative opportunities
and impact, the choice
to upgrade was an
easy one.
The transformation entailed a
three‑month design and build project to
upgrade their 24 screen videowall to a
spectacular 32m2 fine pitch LED canvas.
The journey started when PSCo met
with the end client and 444 digital and
showcased a range of solutions from a
variety of manufacturers. Each offering
was reviewed on a range of aspects
including product quality, capabilities,
reliability, and support, alongside their
suitability for the space and overall
value and benefit they would bring to
the building.
PSCo teamed with the capabilities of
444 Digital’s signage platform and a
client who has world‑class expectations,
to deliver the resulting smart content that
goes far, far beyond simply displaying
pictures. LED displays and content should
work in harmony to drive the thinking
and investment behind projects in the
corporate space.
Digital signage is often
spoken about in terms
of content possibilities –
The Leadenhall Building is
leveraging the full potential
of these possibilities today.”
Inigo Melis, Managing Director
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Our Financials
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
NOTICE OF AGM
DIRECTORS, OFFICERS AND ADVISERS
78
88
93
139
141
147
151
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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”)
for the year ended 31 December 2020, 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”) in conformity with the requirements of the Companies Act 2006. 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 Disclosure 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 2020 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006;
• 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 are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Group’s and the Parent Company’s ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit
evidence obtained up to the date of our report. However, future events or conditions may cause the Group or the Parent
Company to cease to continue as a going concern.
A description of our evaluation of management’s assessment of the ability to continue to adopt the going concern basis of
accounting, and the key observations arising with respect to that evaluation is included in the, Key audit matters, section of
our report. In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the Group’s and
the Parent Company’s business model including effects arising from Brexit and COVID-19, we assessed and challenged the
reasonableness of estimates made by the directors and the related disclosures and analysed how those risks might affect the
Group’s and the Parent Company’s financial resources or ability to continue operations over the going concern period.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s and the Parent Company’s ability to continue as a going
concern for a period of at least 12 months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for the
financial statements’ section of this report.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Our approach to the audit
Overview of our audit approach
Overall materiality: £1.2m
Materiality
Key audit
matters
Group: £1.2m, which represents 5% of normalised profit before taxation taking into account the
average profitability of the Group for the last few years.
Parent Company: £709k, which represents 2% of draft total assets.
Scoping
Key audit matters were identified as:
• The risk of improper recognition of revenue due to fraud
• The risk of intangible assets being incorrectly accounted for on acquisition of Group
companies
• Going concern (new key audit matter for this year)
• Change in estimate for the inventory provision (new key audit matter for this year)
Our auditor’s report for the year ended 31 December 2019 did not include any key audit matters
that have not been reported as key audit matters in our current year’s report.
We performed an audit of the financial information of the component using component
materiality (full-scope audit) for the Parent Company Midwich Group plc, Midwich Limited,
Kern & Stelly Medientechnik GmbH, and Starin Marketing Inc.; an audit of one or more account
balances, classes of transactions or disclosures of the component (specific-scope audit) was
performed for Sidev SAS, Midwich Australia Pty Limited, Gerbroeders van Domburg B.V, Bauer
and Trummer GmbH and Prase Engineering S.p.A.; analytical procedures were performed for all
other components of the Group.
Key audit matters
We performed an audit of the financial information of the component
using component materiality (full-scope audit) for the Parent
Company Midwich Group plc, Midwich Limited, Kern & Stelly
Medientechnik GmbH, and Starin Marketing Inc.; an audit of one
or more account balances, classes of transactions or disclosures
of the component (specific-scope audit) was performed for Sidev
SAS, Midwich Australia Pty Limited, Gerbroeders van Domburg B.V,
Bauer and Trummer GmbH and Prase Engineering S.p.A.; analytical
procedures were performed for all other components of the group.
Description
Audit
response
KAM
Disclosures
Our results
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MIDWICH GROUP PLC CONTIN UED
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
High
Potential
financial
statement
impact
Inventory
provision
Going concern
Impairment
of intangibles
Intangibles asset
on acquisition
Revenue
Management
override
Inventory
Payables
Receivables
Furlough
Derivatives
Put option
liabilities
Net
investment
hedge
Extent of management judgement
High
Low
Low
Key audit
matter
Significant
risk
Other
risk
Key audit matter – Group
How our scope addressed the matter – Group
In responding to the key audit matter, we performed the
following audit procedures:
• Reading the revenue recognition policies to ensure they
are consistent with the prior year and in accordance with
appropriate accounting standards;
• Testing the design effectiveness of relevant controls in the
sales order process through reperformance by walkthrough;
• Performing substantive testing on a sample of revenue
transactions, with a higher focus on sales in the final two
months of the year, by tracing to proof of delivery to verify
the occurrence of the sale;
• Substantive tests of detail were performed on a sample of
revenue transactions agreeing to supporting documentation
to gain assurance over the occurrence of revenue; and
• Testing manual adjustments (journal postings) made to
revenue to identify whether there were any indicators of
manipulation of revenue.
The risk of improper recognition of revenue due to fraud
We identified the risk of improper recognition of revenue
as one of the most significant assessed risks of material
misstatement 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 £712m (2019: £686m)
arising from the sale of goods and ancillary services
and equipment rentals. The Group has other operational
income of £2m (2019: £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.
The audit team’s assessment is that the vast majority of
revenue transactions are non-complex, with no judgement
applied over the amount recorded as revenue recognised
equates to the value of the goods despatched. We have
therefore focused our significant risk assessment on open
revenue transactions where the sales process is not yet
fully complete (generally in the final two months of the
year) and also on the manual adjustments that are made to
revenue (i.e. manual journal postings).
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Key audit matter – Group
How our scope addressed the matter – Group
Relevant disclosures in the Annual Report and Accounts
2020
• Financial statements: note 1, Accounting policies and
note 3, Revenue.
The risk of intangible assets being incorrectly accounted
for on acquisition of Group companies
We identified the risk of intangible assets being incorrectly
accounted for on acquisition as one of the most significant
assessed risks of material misstatement due to fraud or
error.
In accordance with IFRS 3, 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.
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.
Our results
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.
In responding to the key audit matter, we performed the
following audit procedures:
• Assessing the valuation models prepared by management’s
experts in respect of the acquisition of Starin Marketing Inc.,
including the basis and methodology adopted for identifying
and valuing separate intangible assets distinct from goodwill;
• Using our own auditor’s expert to critique the valuation
models prepared by management’s expert;
• 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 and
comparing to historic performance data; and
• Agreeing the fair value of identified intangible assets from
the valuation models prepared by management’s experts to
the amounts recorded in the financial statements.
Relevant disclosures in the Annual Report and Accounts
2020
• Financial statements: note 1, Accounting policies and
Our results
Our audit work did not identify any material misstatements in
the accounting for intangible assets.
note 35, Business combinations.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MIDWICH GROUP PLC CONTIN UED
Key audit matter – Group
How our scope addressed the matter – Group
Going concern
We have identified a key audit matter related to going
concern as one of the most significant assessed risks of
material misstatement due to fraud and error as a result
of the judgement required to conclude whether there is a
material uncertainty related to going concern.
As stated in the ‘Conclusions relating to going concern’
section of our report, COVID-19 is one of the most
significant economic events currently faced by the
global economy, and at the date of this report its effects
are subject to unprecedented levels of uncertainty. In
undertaking their assessment of going concern for
the Group, the directors considered the impact of the
following COVID-19-related events in their forecast future
performance of the Group and anticipated cash flows:
• The current financing available to the Group and
associated debt covenants;
In responding to the key audit matter, we performed the
following audit procedures and made the following significant
judgements:
• Obtaining an understanding of key controls over
management’s going concern models, including those over
the inputs and assumptions used in the models;
• Obtaining management’s cash flow and covenant
compliance forecasts covering the period to 31 December
2022, which included a base case, reasonably possible
downside scenario and an extreme stress test scenario;
• Obtaining and comparing analyst reports, industry data and
other external information with management’s estimates;
• Applying professional judgment to determine if the external
reports, data and other information provided corroborative
or contradictory evidence in relation to management’s
assumptions;
• The Group’s ability to obtain covenant waivers should
the forecast indicate that a breach was likely; and
• Comparing historic forecasting recent historical financial
information to evaluate the accuracy of forecasting;
• Cost saving actions that the Group could take as a result
• Understanding management’s proposed mitigating actions
of the COVID-19 pandemic.
The directors have applied a sensitivity to the forecast and
performed a reverse stress test of the Group’s liquidity.
Under the sensitivity analysis, the Group remains in
compliance with all debt covenants. The results of these
analyses have been considered by the directors in forming
their conclusion. As a result of the current macro economic
environment, there is significantly more judgment applied
in developing cash flow forecasts. The assumptions subject
to the most judgment include:
• The anticipated recovery of customer demand and in
the wider AV industry;
• The potential impact on currency movements;
• The gross margin achieved on goods; and
• The replacement of current financing that is due for
renewal in the assessment period.
The directors have concluded, based on the various
scenarios developed, that the group has sufficient
resources available to meet its liabilities as they fall due and
have concluded that there are no material uncertainties
around the going concern assumptions.
to reduce costs and manage cash flows and assessing
whether the mitigating actions were within the Group’s
control;
• Challenging the expected impact of those actions based on
available supporting evidence;
• Testing the underlying data used to prepare the forecast
scenarios and applying professional judgment to determine
whether there was adequate support for the assumptions
underlying the forecast;
• Using our internal specialist to assess the appropriateness of
the forecast, through:
− evaluating the results of the reverse stress tests
performed by management;
− corroborating the key terms of the debt facilities replied
upon in the forecast;
− understanding the impact on the covenants compliance
and headroom if the Group failed to replace facilities due
for renewal in the assessment period, with no breach of
covenants is expected;
− evaluating the foreign exchange exposure of the Group;
and
− evaluating the integrity of the model;
• Evaluating the results of the procedures performed by our
internal specialists; and
• Evaluating the Group’s disclosures on going concern for
compliance the requirements of IAS 1 ‘Presentation of
financial statements.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Key audit matter – Group
How our scope addressed the matter – Group
Relevant disclosures in the Annual Report and Accounts
2020
• Financial statements: note 1, Accounting policies
Change in estimate for the inventory provision
We identified the risk around the Group’s change in
the inventory provisioning policy to be one of the most
significant assessed risks of material misstatement due to
error.
Inventory is written down to the lower of cost and net
realisable value. To determine inventory write downs the
Group is required to estimate the future sales volumes,
sales prices, costs to sell inventory, and shrinkage. The
Group uses a range of different techniques to write down
inventory to the lower of cost and net realisable value
including a formulaic methodology based on the age of
inventory.
As disclosed on page 102, during the year the Group
reviewed and revised these percentages to reflect
both the delays to market demand from COVID-19 and
management’s view that, as the product mix has moved
towards more specialist value-added products, the average
period for which inventory can be sold at above cost has
increased.
At 31 December 2020, the Group’s inventory provision
was £23,850k (22% of cost) (2019: £13,305k; 13% of cost).
Had the Group maintained the previous percentages, the
inventory write down would have been £6.5m higher as at
31 December 2020.
Due to the high level of judgement and assumptions in
determining the write down of inventory at period end,
and due to the materiality of the income statement impact
arising from the change in accounting policy recognised by
the Group, we have identified the risk around the Group’s
change in the inventory provisioning policy as a significant
risk, which was one of the most significant assessed risks of
material misstatement.
Relevant disclosures in the Annual Report and Accounts
2020
• Financial statements: note 1, Accounting judgements
and sources of estimation uncertainty.
Our results
Based on our audit work, we are satisfied that the assumptions
made in management’s assessment of the use of the going
concern assumption in preparation of financial statements were
appropriate. We consider that the Group’s disclosure to be in
accordance with IAS 1.
In responding to the key audit matter, we performed the
following audit procedures and made the following significant
judgements:
• Obtained an understanding of key controls relating to
management’s estimates adopted in their Group-wide
inventory provision through a design effectiveness
assessment;
• Challenged management on the basis for the accounting
policy change and corroborating management’s responses
regarding the forecasts for future product demand to sales
forecasts and associated inventory requirements by looking
at post year-end sales;
• Compared management’s analysis of the inventory product
mix at 31 December 2020 to the product mix at the prior
balance sheet date to corroborate management’s assertions
regarding the change in product mix to year end inventory
listings in significant components across the Group;
• Tested a sample of post year-end inventory sales made and
considered whether the sales trends recorded supported
or contradicted management’s assessment of the average
provision required; and
• Challenged management on the sufficiency and extent of
disclosures to be made in the financial statements regards
the sensitivity of the provision to changes in write down
percentages.
Our results
Based on our audit work, we are satisfied that the assumptions
made in management’s estimate of the inventory provision
were appropriate and that the associated disclosures in the
financial statements appropriately explain the judgements
made and estimation uncertainty present.
There are no key audit matters identified in the Parent Company.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MIDWICH GROUP PLC CONTIN UED
Our application of materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion
in the auditor’s report.
Materiality was determined as follows:
Materiality measure
Group
Parent Company
Materiality for financial
statements as a whole
We define materiality as the magnitude of misstatement in the financial statements that,
individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of these financial statements. We use materiality in determining the nature,
timing and extent of our audit work.
Materiality threshold
£1.2m, which represents 5% of normalised
profit before taxation, taking into account the
average profitability of the Group for the last
few years.
£709k, which represents 2% of draft total assets.
Significant judgements
made by auditor
in determining the
materiality
In determining materiality, we made the
following judgments:
In determining Parent Company materiality, we
used the benchmark of 2% of draft total assets.
Materiality for the current year is higher than
for the year ended 31 December 2019, due to an
increase in total assets.
• The 5% benchmark was based on
normalised profit before taxation, taking
into account the average profitability
of the Group for the last few years. A
normalised figure was used because the
2020 results were significantly impacted
by the COVID-19 pandemic but the Group
continues to grow and has purchased a
significant new subsidiary in the US (Starin).
• Materiality for the current year is higher
than the level that we determined for the
year ended 31 December 2019 to reflect the
acquisition in the year as well as organic
growth in certain subsidiaries.
Performance
materiality used to
drive the extent of our
testing
We set performance materiality at an amount less than materiality for the financial statements as
a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds materiality for the financial statements as a whole.
Performance materiality
threshold
£900k, which is 75% of financial statement
materiality.
£532k, which is 75% of financial statement
materiality.
Significant judgements
made by auditor
in determining the
performance materiality
In determining performance materiality, we
made the significant judgement of setting it
at 75% based on the fact that there were no
material adjustments identified in the 2019
audit, and management are suitable qualified
and experienced.
In determining performance materiality, we
made the significant judgement of setting it
at 75% based on the fact that there were no
material adjustments identified in the 2019
audit, and management are suitable qualified
and experienced.
Specific materiality
We determine specific materiality for one or more particular classes of transactions, account
balances or disclosures for which misstatements of lesser amounts than materiality for the
financial statements as a whole could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
Specific materiality
threshold
We determined a lower level of specific
materiality of £10k for directors’ remuneration
and related party transactions.
We determined a lower level of specific
materiality of £10k for directors’ remuneration
and related party transactions.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Materiality measure
Group
Parent Company
Communication of
misstatements to the
Audit Committee
Threshold for
communication
We determine a threshold for reporting unadjusted differences to the Audit Committee.
£60k was the threshold used for reporting
misstatements, and any items below that
threshold that, in our view, warrant reporting
on qualitative grounds.
£35k was the threshold used for reporting
misstatements, and any items 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 Company
Normalised profit
before tax
£24m
FSM
£1.2m
5%
PM
£900k
75%
TFPUM
£300k
25%
Total assets
£35.5m
FSM
£709k
2%
PM
£532k
75%
TFPUM
£177k
25%
FSM: Financial statements materiality
PM: Performance materiality
TFPUM: Tolerance for potential uncorrected misstatements
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding of the Group’s and the Parent Company’s business and in
particular matters related to:
Understanding the Group, its components, and their environments, including Group-wide controls
• The engagement team obtained an understanding of the Group and its environment, including Group-wide controls, and
assessed the risks of material misstatement at the Group level.
• The engagement team obtained an understanding of the effect of the Group organisational structure on the scope of the
audit, identifying that the Group financial reporting system is centralised, and that there is a use of management experts
where required.
Identifying significant components
• Significant components were identified through assessing their relative share of key financial metrics including revenue,
profit before taxation, fixed assets, current assets and current liabilities. If any of the individual metrics above were >20% of
the Group total, then that component was classified as ‘individually financially significant to the Group’ and an audit of the
financial information of the component using component materiality (full-scope audit) was performed.
• Components were selected as ‘likely to include Group significant risks’ if any of the individual metrics above were >6% of
the Group total, and an audit of one or more account balances, classes of transactions or disclosures of the component
(specific-scope audit) was performed.
• Performance of full-scope audits of the financial information of the Parent Company Midwich Group plc, Midwich Limited,
Starin Marketing Inc., and Kern & Stelly Medientechnik GmbH.
• Specific-scope audit procedures were performed for Sidev SAS, Midwich Australia Pty Limited, Gerbroeders van Domburg
B.V, Bauer and Trummer GmbH group and Prase Engineering S.p.A. Component auditors were used to complete these
procedures.
• Analytical procedures were performed for all other components.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MIDWICH GROUP PLC CONTIN UED
Testing has been performed over 81% of total Group revenues, either through full-scope or specific-scope audit procedures
and 81% of total Group assets, either through full-scope or specific-scope audit procedures.
Audit approach
Full-scope audit
Specific-scope audit
Analytical procedures
No. of
components
4
5
13
% coverage of
total assets
58
22
19
% coverage
of revenue
55
25
19
% coverage
of PBT
46
33
20
The Group audit team communicated with all component auditors performing full-scope audits and specific-scope audit
procedures throughout the stages of their work, from planning, through fieldwork and as part of the concluding procedures.
There were no changes in approach from the prior period, other than the Group team reviews being performed remotely due
to travel restrictions in the COVID-19 pandemic.
Other information
The directors are responsible for the other information. The other information comprises the information included in the
annual report, 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.
Matter 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.
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement, 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.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 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.
Explanation as to what extent the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with
our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the
inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial statements may not be
detected, even though the audit is properly planned and performed in accordance with the ISAs (UK).
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
• We understood how Midwich Group plc is complying with legal and regulatory frameworks by making enquiries of
management, those responsible for legal and compliance procedures and the company secretary. We corroborated our
enquiries through our review of Board minutes and papers provided to the Audit Committee.
• We enquired of management and the Audit Committee about the Group’s policies and procedures relating to the
identification, evaluation and compliance with laws and regulations and the detection and response to the risks of fraud
and the establishment of internal controls to mitigate risks related to fraud or non-compliance with laws and regulations.
• We enquired of management, internal audit and the Audit Committee, whether they were aware of any instances of
non-compliance with laws and regulations or whether they had any knowledge of actual, suspected or alleged fraud. No
instances were identified.
• We enquired of component auditors whether they were aware of any instances of non-compliance with laws and
regulations or whether they had any knowledge of actual, suspected or alleged fraud. No instances were identified.
• We identified that there is a culture of honesty and ethical behaviour and that there is a strong emphasis of prevention and
deterrence of fraud.
• The engagement partner assessed that the engagement team collectively had the appropriate competence and
capabilities to identify or recognise non-compliance with laws and regulations.
• We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might
occur, by evaluating management’s incentives and opportunities for manipulation of the financial statements. This included
the evaluation of the risk of management override of controls. We determined that the principal risks were in relation to
areas of increased management judgement, specifically share based payments, put and call options, acquisition accounting
and the impairment of intangible assets, all of which could be impacted by management bias, as well as the risk of fraud
through the use of journal entries that increase revenues.
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.
Sergio Cardoso
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
10 March 2021
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2020
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 and impairments of brands, customer and supplier relationships
Finance income
Finance costs
(Loss)/profit before taxation
Taxation
(Loss)/profit after taxation
(Loss)/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 93 to 138.
Notes
3
4
5
6
32
13
8
9
10
10
2020
£’000
711,754
(609,961)
101,793
(68,488)
(28,225)
2,010
7,090
2019
£’000
686,240
(573,133)
113,107
(68,624)
(23,132)
3,583
24,934
16,532
(526)
(2,562)
(130)
(6,224)
7,090
172
(8,257)
(995)
(2,392)
(3,387)
33,462
(356)
(2,874)
(427)
(4,871)
24,934
66
(1,219)
23,781
(5,581)
18,200
(3,751)
364
(3,387)
17,182
1,018
18,200
(4.32)p
21.67p
(4.32)p
21.31p
88
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020
(Loss)/profit for the financial year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains and (losses) on retirement benefit obligations
Items that will be reclassified subsequently to profit or loss:
Net (loss)/gain on net investment hedge
Foreign exchange gains and (losses) 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 93 to 138.
2020
£’000
(3,387)
2019
£’000
18,200
(4)
(386)
(194)
3,542
3,344
(43)
(878)
835
(43)
194
(3,115)
(3,307)
14,893
14,171
722
14,893
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 31 DECEMBER 2020
Assets
Non-current assets
Goodwill
Intangible assets
Right-of-use 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 over non-controlling interests
Deferred and contingent considerations
Borrowings and financial liabilities
Current tax
Net current assets
Total assets less current liabilities
Non-current liabilities
Trade and other payables
Put option liabilities over non-controlling interests
Deferred and contingent considerations
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
Hedging reserve
Put option reserve
Capital redemption reserve
Other reserve
Equity attributable to owners of the Parent Company
Non-controlling interests
Total equity
Notes
2020
£’000
2019
£’000
12
13
14
15
9
16
17
21
18
19
21
22
23
24
19
22
23
24
9
20
31
15,350
43,631
17,102
11,206
2,386
89,675
83,995
107,082
24
25,485
216,586
(110,136)
(1,094)
(1,306)
(7,012)
(30,045)
(638)
(150,231)
66,355
156,030
(1,708)
(3,337)
(465)
(34,719)
(7,011)
(2,303)
(49,543)
106,487
886
67,047
4,472
(6)
30,436
2,117
–
(4,813)
50
150
100,339
6,148
106,487
13,326
31,974
15,949
12,086
2,169
75,504
88,691
104,100
–
13,015
205,806
(106,342)
(132)
(3,490)
(4,133)
(46,529)
(2,331)
(162,957)
42,849
118,353
(665)
(3,799)
(2,796)
(36,466)
(6,850)
(2,484)
(53,060)
65,293
799
28,225
3,998
(5)
31,867
(954)
194
(6,329)
50
150
57,995
7,298
65,293
The financial statements are also comprised of the notes on pages 93 to 138. The financial statements were approved by the
Board of directors and authorised for issue on 9 March 2021 and were signed on its behalf by:
Mr S B Fenby
Director
Company registration number: 08793266
90
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020
Share
capital
£’000
(note 31)
Share
premium
£’000
Investment
in own
shares
£’000
Retained
earnings
£’000
Other
reserves
£’000
(note 32)
Equity
attributable
to owners of
the Parent
£’000
Non-
controlling
interests
£’000
Total
£’000
799
28,225
(5)
31,867
(2,891)
57,995
7,298
65,293
–
–
–
87
–
–
–
–
–
–
–
38,822
–
–
–
–
–
–
–
(7)
–
–
6
–
(3,751)
–
(3,751)
364
(3,387)
(4)
2,877
2,873
(3,755)
–
–
2,877
–
2,562
–
1,855
(232)
(1,856)
(878)
38,902
2,562
(232)
–
471
835
–
–
–
–
3,344
(43)
38,902
2,562
(232)
5
469
1,516
1,985
(1,985)
–
886
67,047
(6)
30,436
1,976
100,339
6,148
106,487
Share
capital
£’000
(note 31)
Share
premium
£’000
Investment
in own
shares
£’000
Retained
earnings
£’000
Other
reserves
£’000
(note 32)
Equity
attributable
to owners of
the Parent
£’000
Non-
controlling
interests
£’000
Total
£’000
794
–
25,855
–
–
–
2
–
–
–
–
3
–
–
–
–
–
–
497
–
1,873
–
(5)
–
–
–
(2)
–
–
2
–
–
–
27,535
17,182
(630)
–
53,549
17,182
4,570
1,018
58,119
18,200
(386)
(2,625)
(3,011)
(296)
(3,307)
16,796
–
–
–
86
–
(2,625)
–
2,874
(128)
(585)
14,171
–
2,874
(128)
–
722
–
–
–
–
14,893
–
2,874
(128)
–
(2,886)
(2,886)
2,884
(2)
(245)
(12,305)
1,089
–
2,720
(12,305)
(843)
(35)
1,877
(12,340)
799
28,225
(5)
31,867
(2,891)
57,995
7,298
65,293
Balance at 1 January
2020
(Loss)/profit for the
year
Other comprehensive
income
Total comprehensive
income for the year
Shares issued (note 31)
Share based payments
Deferred tax on
share based payments
Share options exercised
Acquisition of non-
controlling interest (note
34)
Balance at
31 December 2020
Balance at 1 January
2019
Profit for the year
Other comprehensive
income
Total comprehensive
income for the year
Shares issued (note 31)
Share based payments
Deferred tax on
share based payments
Share options exercised
Acquisition of subsidiary
(note 35)
Acquisition of non-
controlling interest
(note 34)
Dividends paid
Balance at
31 December 2019
The financial statements are also comprised of the notes on pages 93 to 138.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
Cash flows from operating activities
(Loss)/profit before tax
Depreciation
Amortisation
Loss on disposal of assets
Share based payments
Foreign exchange losses
Finance income
Finance costs
Profit from operations before changes in working capital
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
(Decrease)/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 acquired
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
Gross proceeds on issue of shares
Costs associated with shares issued
Proceeds on exercise of share options
Deferred consideration paid
Acquisition of non-controlling interest
Dividends paid
Invoice financing (outflows)/inflows
Proceeds from borrowings
Repayment of loans
Interest paid
Interest on leases
Capital element of lease payments
Net cash outflow from financing activities
Net increase/(decrease) 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
2020
£’000
(995)
5,991
6,429
1,122
2,562
(295)
(172)
8,257
22,899
34,939
18,097
(31,442)
44,493
(4,372)
40,121
(18,393)
(1,730)
(1,860)
306
172
(21,505)
39,724
(822)
5
(5,238)
(2,875)
–
(32,191)
4,796
(4,445)
(2,438)
(362)
(4,226)
(8,072)
10,544
11,497
1,754
23,795
25,485
(1,690)
23,795
2019
£’000
23,781
5,425
5,023
50
2,874
(583)
(66)
1,219
37,723
(5,110)
(7,686)
1,293
26,220
(8,844)
17,376
(10,091)
(1,977)
(5,793)
417
66
(17,378)
–
–
–
(5,517)
–
(12,340)
6,785
13,099
(1,053)
(1,679)
(379)
(2,627)
(3,711)
(3,713)
16,357
(1,147)
11,497
13,015
(1,518)
11,497
The financial statements are also comprised of the notes on pages 93 to 138.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 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 Accounting Standards (“IAS”) in conformity with the requirements of the Companies Act 2006.
These accounting policies comply with each IAS that is mandatory for accounting periods ending on 31 December 2020.
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 have adopted the going concern basis in preparing the financial information. In assessing whether the going
concern assumption is appropriate, the directors have taken into account all relevant available information about the
foreseeable future.
Basis of consolidation
The Consolidated Financial Statements incorporate the results of Midwich Group plc (the “Company”) and entities controlled
by the Company (“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 within the Group’s equity.
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 and 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
remeasurement to fair value of net assets acquired that were previously attributable to non-controlling shareholders.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 1. Accounting policies continued
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. There are no material uncertainties that cast significant doubt on the Group’s ability to continue as a
going concern. During 2020, the Group increased its revolving credit facility (RCF) and issued shares to support the Group’s
acquisitive growth strategy. At the start of the COVID-19 pandemic, the Board took early and decisive action to address the
emerging risks and to preserve cash and liquidity. These actions resulted in a significant reduction in Group net debt during
2020. At end of 2020, 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.
Revenue
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 or as performance obligations are satisfied.
The Group often enters 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 standalone 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 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. If the Group satisfies a performance obligation before it receives the consideration, the Group recognises a
receivable in its statement of financial position.
The sale of goods for a fixed fee is recognised when or as the Group transfers control of the assets to the customer. For
standalone 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 goods are either customised or sold together with significant
services, the goods and services represent a single combined performance obligation over which control is considered
to transfer over time. 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 ancillary service 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 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 that 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 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 any
accumulated impairment losses.
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. 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:
• Patents and licences
• Software
• Brands
• Customer relationships
• Supplier relationships
3–10 years
3–10 years
5–15 years
5–15 years
5–15 years
Right-of-use assets
Right-of-use assets are recognised at the commencement date of the lease when the asset is available for use. Right-of-use
assets are initially measured at cost including initial direct costs incurred and the initial value of the lease liability. Right-of-use
assets are subsequently measured at cost less any accumulated depreciation, impairment losses, and adjustments arising
from lease modifications that are not a termination of the lease.
Depreciation is calculated on a straight-line basis on all right-of-use assets as follows:
• Land and buildings
• Rental assets
• Plant and equipment
Over the period of the lease up to a maximum of 50 years
Over the period of the lease up to a maximum of 10 years
Over the period of the lease up to a maximum of 10 years
Modifications to leases that decrease the scope of the lease are treated as a partial or full termination of a lease. A gain or loss
on disposal is recognised when there is termination of a lease.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less any depreciation and 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 calculated on a straight-line basis on property, plant and equipment as follows:
• Land
• Freehold buildings
• Leasehold improvements
• Rental assets
• Plant and equipment
Not depreciated
50 years
Over the period of the lease up to a maximum of 50 years
3–10 years
3–10 years
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 1. Accounting policies continued
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 for limitations in its physical life and for 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. 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 are 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 reporting date, the Group reviews the carrying amounts of non-current assets excluding goodwill to determine
whether there is any indication that they have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated to determine the extent of any impairment loss. Where the asset does not generate cash
flows that are independent from other assets, the estimate is the recoverable amount of the cash-generating unit to which the
asset belongs. 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 the carrying
amount, then the carrying amount of the asset or cash-generating unit is reduced to the 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 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. 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. 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 standalone 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.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 1. Accounting policies continued
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.
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
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.
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. Further 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 are translated at rates in effect at the reporting date with any gain or loss on foreign exchange
adjustments usually being credited or charged 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 reporting
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 partially or fully disposed of is recognised in the income statement at the
time of disposal.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 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.
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 reporting 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 reporting 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. The Group operates defined benefit pension plans in the Netherlands and Switzerland, which require
contributions to a separately managed funds. Both defined benefit pension plans are final salary pension schemes, which
provide members with a guaranteed income on retirement. Defined benefit pension scheme surpluses or deficits are
calculated by independent qualified actuaries using actuarial assumptions applied to actual pension contributions and
salaries. The actuarial assumptions include return on assets, inflation, life expectancy, mortality rates and expected retirement
ages. Actuarial assumptions are updated annually to reflect changes in market conditions and all actuarial gains and losses
are recognised in other comprehensive income.
Leases
Assets and liabilities arising from a lease are initially measured at present value. The present value is comprised of fixed and
variable payments discounted using the interest rate implicit in the lease unless it can’t be readily determined, in which case
payments are discounted using the incremental borrowing rate. Variable payments are payments that depend on a rate or
index and are initially measured using the appropriate rate or index at the commencement date of the lease. Where a material
variation to the initial measurement of lease payments occurs the lease liability is reassessed with a corresponding adjustment
to the value of right of use asset.
Lease payments beyond a break clause or within an extension option are included in the measurement of present value
provided it is reasonably certain that the lease will be not be terminated before the respective break point or lease extension
and there is no active plan to do so.
Finance costs are added to the lease liabilities at amounts that produce a constant periodic rate of interest on the remaining
balance of the lease liabilities using the interest rates used to calculate the present value of the leases. Lease payments are
deducted from the lease liability.
Short-term leases of less than 12 months or leases for low value assets are recognised on a straight-line basis as an expense in
the income statement.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 1. Accounting policies continued
Government grants
Government grants are recognised when the conditions attached to the grant have been satisfied and after deducting any
probable liability to repay the grant.
Government grants relating to costs incurred are offset against the cost to which the grant relates in the income statement.
Government grants in relation to employment support are offset against the employee costs in the income statement.
Government grants relating to the purchase of property, plant and equipment are deducted from the purchase price of the
asset and credited to the income statement on a systematic basis over the expected useful life of the related asset.
Equity
Equity comprises the following:
• “Share capital” represents the nominal value of equity shares issued.
• “Share premium” represents the amounts subscribed for share capital, net of issue costs, above the 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, along with any accumulated deferred tax credits or charges recognised in other comprehensive income in
respect of options that have yet to exercise.
• “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 put options over shares in a subsidiary held by non-controlling
interest shareholders that have not been exercised.
• “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.
Share based payments
Equity-settled share based payments are measured at the fair value of the equity instrument. The fair value of the equity-
settled transactions is recognised as an expense over the vesting period. The fair values of the equity instruments are
determined at the date of grant incorporating market based vesting conditions. The fair value of goods and services received
is 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 or service conditions are fulfilled,
ending on the date on which the relevant employees 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 the market condition is
satisfied, provided that all other performance 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. 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.
100
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Employee Benefit Trust
The assets and liabilities of the Employee Benefit Trusts (EBT) have been included in the Group financial statements.
Any assets held by the EBT cease to be recognised on the Group statement of financial position 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 Accounting Standards adopted by the Group
The Group adopted the following standards, amendments to standards and interpretations, which are effective for the first
time this year:
• IBOR reform phase 1 amendments;
• IFRS 3 amendment;
• IFRS 16 amendment;
• New definition of materiality; and
• Updated references to the conceptual framework.
The new standards have not had a material impact on the reported results and there is no adjustment to previously reported
equity due to the implementation of the new standards.
International Accounting 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.
IFRS 17 ‘Insurance contracts’
The Group does not issue insurance contacts and there will be no impact of the adoption of IFRS 17.
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 IAS 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 IAS 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 brand,
customer and supplier relationship intangible assets.
Adjusted EBITDA: This represents operating profit before acquisition related expenses, share based payments and associated
employer taxes, depreciation and amortisation.
Adjusted profit before tax: This is profit before tax adjusted for acquisition related expenses, share based payments and
associated employer taxes, amortisation of brand, customer and supplier relationship intangible assets, changes in deferred
or contingent considerations and put option liabilities over non-controlling interests, foreign exchange gains or losses on
borrowings for acquisitions, fair value movements on derivatives for borrowings, and financing fair value remeasurements.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 1. Accounting policies continued
Adjusted profit after tax: This is profit after tax adjusted for acquisition related expenses, share based payments and
associated employer taxes, amortisation of brand, customer and supplier relationship intangible assets, changes in deferred
or contingent considerations and put option liabilities over non-controlling interests, foreign exchange gains or losses on
borrowings for acquisitions, fair value movements on derivatives for borrowings, and financing fair value remeasurements and
the tax thereon.
Adjusted EPS: This is adjusted profit after tax attributable to equity shareholders of the Company divided by the weighted
number of shares outstanding.
Adjusted net debt: This is net debt excluding leases.
Accounting judgements and sources of estimation uncertainty
The preparation of financial statements in accordance with the principles of the IASs requires the directors to make
judgements and use estimation techniques 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, ongoing 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:
Put options over non-controlling interests
As a result of a some of the acquisitions, the Group has issued several put options over non-controlling interests. 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:
Inventory write down
Inventory is written down to the lower of cost and net realisable value. To determine inventory write downs the Group is
required to estimate the future sales volumes, sales prices, costs to sell inventory, and shrinkage. The gross value and write
down of inventories, as well as cost of inventory write downs in the period are disclosed in note 16.
The Group uses a range of different techniques to write down inventory to the lower of cost and net realisable value including
a formulaic methodology based on the age of inventory. The aged inventory methodology writes down inventory by a
specific percentage based on time elapsed from purchase date. In 2020, the Group reviewed and revised these percentages
to reflect both the delays to market demand from COVID-19 and the Board’s view that, as the Group mix has moved towards
more specialist value-added products, the average period for which inventory can be sold at above cost has increased. At
31 December 2020, the Group’s inventory provision was £23,850k (22% of cost) (2019: £13,305k; 13% of cost). Had the Group
maintained the previous percentages the inventory write down would have been £6.5m higher as at 31 December 2020. If the
write down percentages applied to inventory between 180 and 365 days old were 5% higher or 5% lower, the effect would
be a decrease or increase of £705k respectively in profit before tax for the year. If the write down percentages applied to
inventory over 365 days old, but not fully provided for, were 5% higher or 5% lower, the effect would be a decrease or increase
of £545k respectively in profit before tax for the year.
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. 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 35 and the carrying values of separately
identifiable intangible assets initially measured at fair value are disclosed in note 13.
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. The
Group use a range of present valuation techniques including both the discount rate adjustment technique and the expected
present value technique 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 23 and the amortised cost of put option liabilities is
disclosed in note 22.
102
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 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.
2020
Revenue
Gross profit
Gross profit %
Adjusted operating profit
Costs of acquisitions
Share based payments
Employer taxes on share based payments
Amortisation of brands, customer and
supplier relationships
Operating profit
Interest
(Loss)/profit before tax
2020
Segment assets
Segment liabilities
Segment net assets
Depreciation
Amortisation
Other segmental information
Non-current assets
UK & Ireland
£’000
EMEA
£’000
Asia Pacific
£’000
224,386
31,321
14.0%
3,916
–
(1,141)
(46)
331,115
45,635
13.8%
9,393
–
(799)
(31)
44,476
6,821
15.3%
820
–
(218)
(7)
North
America
£’000
111,777
18,016
16.1%
4,909
–
(3)
–
(2,490)
239
(2,285)
6,278
(270)
325
(1,179)
3,727
Other
£’000
–
–
–
(2,506)
(526)
(401)
(46)
–
(3,479)
Total
£’000
711,754
101,793
14.3%
16,532
(526)
(2,562)
(130)
(6,224)
7,090
(8,085)
(995)
UK & Ireland
£’000
EMEA
£’000
Asia Pacific
£’000
94,627
(60,545)
34,082
2,540
2,519
150,167
(103,078)
47,089
2,603
2,356
21,039
(17,614)
3,425
480
286
North
America
£’000
40,130
(17,851)
22,279
368
1,268
Other
£’000
298
(686)
(388)
–
–
Total
£’000
306,261
(199,774)
106,487
5,991
6,429
UK
£’000
25,959
International
£’000
63,716
Total
£’000
89,675
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 2. Segmental reporting continued
2019
Revenue
Gross profit
Gross profit %
Adjusted operating profit
Costs of acquisitions
Share based payments
Employer taxes on share based payments
Amortisation of brands, customer and supplier
relationships
Operating profit
Interest
Profit before tax
2019
Segment assets
Segment liabilities
Segment net assets
Depreciation
Amortisation
Other segmental information
Non-current assets
UK & Ireland
£’000
EMEA
£’000
Asia Pacific
£’000
314,627
55,328
17.6%
19,850
–
(1,230)
(136)
320,990
48,805
15.2%
14,108
–
(948)
(201)
(2,558)
15,926
(2,039)
10,920
50,623
8,974
17.7%
2,716
–
(235)
(17)
(274)
2,190
UK & Ireland
£’000
EMEA
£’000
Asia Pacific
£’000
113,690
(86,535)
27,155
2,562
2,637
143,859
(109,427)
34,432
2,412
2,095
23,633
(19,644)
3,989
451
291
Other
£’000
–
–
–
(3,212)
(356)
(461)
(73)
–
(4,102)
Other
£’000
128
(411)
(283)
–
–
Total
£’000
686,240
113,107
16.5%
33,462
(356)
(2,874)
(427)
(4,871)
24,934
(1,153)
23,781
Total
£’000
281,310
(216,017)
65,293
5,425
5,023
UK
£’000
International
£’000
Total
£’000
29,112
46,392
75,504
Revenue from the UK, being the domicile of the Parent Company amounted to £208,601k (2019: £291,576k).
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.
In addition to the external revenue reported by segment, the UK & Ireland segment made £3,660k of intercompany sales, the
EMEA segment made £1,278k of intercompany sales, and the North America segment made £652k of intercompany sales.
There were no intersegment sales during the prior year.
Sales to the largest customer
Included in revenues arising in 2020 are revenues of £17.3m (2019: £12.8m) that arose from sales to the Group’s largest
customer, which is based in the United States of America (2019: 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
Operating lease income
104
2020
£’000
710,838
908
8
711,754
2019
£’000
682,657
3,583
–
686,240
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 4. Other operating income
Promotional receipts
Other income
5. Operating profit
Operating profit is stated after charging:
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
− all non-audit services not covered above
Net (gain)/loss on foreign exchange
Short-term lease cost
2020
£’000
1,914
96
2,010
2020
£’000
66
337
18
3
–
10
(295)
487
2019
£’000
3,230
353
3,583
2019
£’000
87
119
18
14
4
9
(583)
155
6. Administrative expenses
Administrative expenses in the period include £526k of acquisition related costs (2019: £356k). For details of acquisitions in
the year, see note 35.
7. Directors and employees
The aggregate payroll costs of the employees were as follows:
Staff costs
Wages and salaries
Social security costs
Pension costs
2020
£’000
42,552
5,213
1,510
49,275
2019
£’000
41,538
5,602
1,308
48,448
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
2020
Number
2019
Number
198
825
1,023
2020
£’000
575
–
575
194
736
930
2019
£’000
898
–
898
105
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 7. Directors and employees continued
Emoluments of highest paid director
Remuneration
Employer contribution to defined contribution scheme
2020
£’000
275
–
275
2019
£’000
401
–
401
No retirement benefits were accruing to directors (2019: nil) under a money purchase pension scheme. During the year, the
197,116 (2019: 50,000) share options were granted to directors under the Long Term Incentive Plan and 100,000 share options
previously awarded were modified with revised performance or vesting conditions.
Details of key management personnel and their remuneration is disclosed within note 36. The directors’ remuneration report
on page 62 of this annual report forms part of these financial statements.
The Group received £4.0m from government schemes towards enhanced furlough payments and offer flexible working to
its team members. These actions allowed it to limit headcount reductions to a relatively small number and ensure that the
business is well positioned for the anticipated recovery.
8. Finance costs
Interest on overdraft and invoice discounting
Interest on leases
Interest on loans
Fair value movements on foreign exchange derivatives
Other interest costs
Fair value movements on derivatives for borrowings
Foreign exchange gains on borrowings for acquisitions
Interest, foreign exchange and other finance costs of deferred and contingent considerations
Interest, foreign exchange and other finance costs of put option liabilities
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
2020
£’000
1,194
362
830
156
4
1,194
1,088
3,275
154
8,257
2020
£’000
(494)
(429)
(923)
3,760
(70)
3,690
2,767
(530)
155
(375)
2,392
2019
£’000
1,176
379
517
246
2
42
(146)
(949)
(48)
1,219
2019
£’000
2,450
(154)
2,296
5,392
(84)
5,308
7,604
(1,797)
(226)
(2,023)
5,581
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:
106
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Reconciliation of the effective tax charge:
(Loss)/profit on ordinary activities before taxation
(Loss)/profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of
19% (2019: 19%)
Factors affecting tax expense for the year:
Adjustment in respect of prior years
Overseas tax losses with no available relief
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
2020
£’000
(995)
2019
£’000
23,781
(189)
4,518
(344)
112
1,066
1,352
199
196
2,392
(464)
–
178
1,001
141
207
5,581
The main UK corporation tax rate for the current and prior year has remained at 19%. No changes in the UK rate of tax were
substantially enacted by the period end.
Deferred tax
At 1 January 2019
Acquired in business combinations
Credited to income statement
Credited to equity
Other movement
At 31 December 2019
Acquired in business combinations
Credited to income statement
Credited to equity
Other movement
At 31 December 2020
Presentation of deferred tax in the statement of financial position:
Deferred tax asset
Deferred tax liability
Net deferred liability
Losses
available
for relief
£’000
–
–
–
–
–
–
Accelerated
capital
allowances
£’000
4,418
2,653
(1,718)
–
(168)
5,185
Company
share
schemes
£’000
(327)
–
(305)
128
–
(504)
–
(96)
–
–
(96)
(3)
(2)
–
90
5,270
–
(277)
232
–
(549)
2020
£’000
2,386
(7,011)
(4,625)
Total
£’000
4,091
2,653
(2,023)
128
(168)
4,681
(3)
(375)
232
90
4,625
2019
£’000
2,169
(6,850)
(4,681)
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 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 outstanding during the year. Shares outstanding is the total shares issued less the
own shares held in employee benefit trusts. Diluted 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 adjusted for the
effects of all dilutive potential Ordinary Shares.
(Loss)/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
2020
(3,751)
86,893,508
1,242,399
88,135,907
(4.32)p
(4.32)p
2019
17,182
79,275,480
1,334,953
80,610,433
21.67p
21.31p
Diluted earnings per share excludes the antidilutive effects of potential Ordinary Shares that result in a decrease in the loss
per share.
11. Subsidiaries
The following principal subsidiary undertakings have been included within the consolidated financial statements and are all
held indirectly unless otherwise stated:
Country of
incorporation
England and Wales
England and Wales
England and Wales
England and Wales
Republic of Ireland
France
Australia
New Zealand
Germany
England and Wales
Spain
Netherlands
Netherlands
Netherlands
% ownership held
by the Group
2020
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
88%
100%
100%
100%
2019
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
88%
70%
70%
70%
Name
Midwich Limited1
Midwich Employees’
Trustees Limited
True Colours Distribution
Limited
Invision UK Ltd
Square One Distribution
Limited
Sidev SAS
Midwich Australia Pty
Limited
Midwich Limited
Kern Und Stelly
Medientechnik GmbH
Holdan Limited
Earpro S.A.
Principal activity
Distribution of audio visual products to
trade customers
Dormant
Dormant
Distribution of audio visual products to
trade customers
Distribution of audio visual products to
trade customers
Distribution of audio visual products to
trade customers
Distribution of audio visual products to
trade customers
Distribution of audio visual products to
trade customers
Distribution of audio visual products to
trade customers
Distribution of professional broadcast
equipment to trade customers
Distribution of audio visual and lighting
products to trade customers
Holding company
Gebroeders van Domburg
B.V.2
van Domburg Partners B.V.2 Distribution of audio visual products to
Transport en Opslagbedrijf
van Domburg B.V.2
trade customers
Provision of logistics services to trade
customers
108
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Principal activity
Name
van Domburg Services B.V.2 Provision of administration and support to
other Group companies in the Netherlands
Distribution of lighting products to trade
customers
Sound Technology Limited Distribution of professional audio, musical
Dutch Light Pro B.V.2
Country of
incorporation
Netherlands
Netherlands
England and Wales
Bauer Und Trummer GmbH Distribution of professional broadcast
Germany
and lighting products to trade customers
Holdan Benelux B.V.
equipment to trade customers
Dormant
Blonde Robot Pty Limited
Blonde Robot Limited3
Distribution of audio visual products to
trade customers
Dormant
Blonde Robot Pte Limited
Blonde Robot Sdn Bhd4
Distribution of audio visual products to
trade customers
Dormant
MobilePro AG5
Midwich Asia Pte Limited6
Prase Engineering SpA7
AV Partner AS8
Entertainment Equipment
Supplies SL9
New Tension Inc10
Starin Marketing Inc11
Think Fast Holdings LLC11
Midwich International
Limited12
Distribution of audio visual products to
trade customers
Distribution of audio visual products to
trade customers
Distribution of audio visual products to
trade customers
Distribution of audio visual products to
trade customers
Distribution of lighting products to trade
customers
Holding company
Distribution of lighting products to trade
customers
Distribution of audio visual products to
trade customers
Dormant
Netherlands
Australia
Hong Kong
Singapore
Malaysia
Switzerland
Singapore
Italy
Norway
Spain
USA
USA
USA
England and Wales
% ownership held
by the Group
2020
100%
100%
100%
100%
100%
65%
65%
65%
65%
100%
100%
80%
100%
88%
100%
100%
100%
80%
2019
70%
70%
100%
100%
100%
65%
65%
65%
65%
100%
100%
80%
100%
88%
n/a
n/a
n/a
n/a
1
Investments held directly by Midwich Group plc.
7 Acquired 31 January 2019. See “Prase” acquisition in note 35.
2 Acquired remaining shares on 18 September 2020. See note 34.
8 Acquired 3 May 2019. See “AV Partner” acquisition in note 35.
3 Company dissolution began on 30 November 2020.
9 Acquired 1 July 2019. See “EES” acquisition in note 35.
4 Company dissolution began on 2 December 2020.
10 Incorporated 14 January 2020.
5 Acquired 17 January 2019. See “MobilePro” acquisition in note 35.
11 Acquired 6 February 2020. See “Starin” acquisition in note 35.
6
Incorporated on 30 January 2019.
12 Incorporated 15 November 2020.
Invision UK Ltd is exempt from the requirements of the Companies Act 2006 (the “Act”) relating to the audit of individual
financial statements by virtue of section 479A of the Act. Midwich Group plc guarantee any contingent and prospective
liabilities that Invision UK Ltd is subject to in accordance with Section 479C of the Act.
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109
MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 12. Goodwill
Cost
At 1 January 2019
On acquisition of MobilePro
On acquisition of Prase
On acquisition of AV Partner
On acquisition of EES
Foreign exchange gain/(loss)
At 31 December 2019
On acquisition of Starin
On acquisition of Vantage
Foreign exchange gain/(loss)
At 31 December 2020
Total
£’000
11,568
451
371
1,195
131
(390)
13,326
520
960
544
15,350
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
EMEA
Asia Pacific
North America
Other
2020
£’000
4,899
7,846
2,112
493
–
15,350
2019
£’000
4,878
7,479
969
–
–
13,326
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 reporting
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 reporting 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% – 2.0% (2019: 0% – 2.5%). The growth rates are based on economic data for the wider economy and represent a
prudent expectation of growth.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 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
EMEA
Asia Pacific
North America
Other
2020
13.5%
12.9%
12.3%
11.9%
n/a
2019
9.1–9.4%
8.7–11.2%
9.1–9.2%
n/a
n/a
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 & Ireland
EMEA
Asia Pacific
North America
Other
Total
2020
£’000
105,452
60,962
13,929
13,400
–
193,743
2019
£’000
223,795
191,355
39,938
–
–
455,088
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 groups of cash
generating units.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 13. Intangible assets
Cost
At 1 January 2019
On acquisition
Additions
Disposals
Foreign exchange differences
At 31 December 2019
On acquisition
Additions
Disposals
Foreign exchange differences
At 31 December 2020
Amortisation
At 1 January 2019
Charge for year
Disposals
Foreign exchange differences
At 31 December 2019
Charge for year
Disposals
Foreign exchange differences
At 31 December 2020
Net book value
At 31 December 2019
At 31 December 2020
Assets
in the
course of
construction
£’000
Patents and
software
£’000
Brands
£’000
Customer
relationships
£’000
Supplier
relationships
£’000
598
–
1,829
–
–
2,427
–
1,272
–
3
3,702
–
–
–
–
–
–
–
–
–
2,427
3,702
654
–
103
(148)
(33)
576
82
458
(150)
4
970
375
152
(148)
(25)
354
205
(146)
14
427
222
543
4,675
1,140
–
–
(100)
5,715
4,065
–
–
(58)
9,722
1,927
576
–
(33)
2,470
940
–
29
3,439
3,245
6,283
26,679
3,429
–
–
(646)
29,462
2,884
–
–
607
32,953
10,841
3,035
–
(212)
13,664
3,348
–
273
17,285
15,798
15,668
Total
£’000
39,352
11,101
1,932
(148)
(1,119)
51,118
16,220
1,730
(150)
516
69,434
14,586
5,023
(148)
(317)
19,144
6,429
(146)
376
25,803
6,746
6,532
–
–
(340)
12,938
9,189
–
–
(40)
22,087
1,443
1,260
–
(47)
2,656
1,936
–
60
4,652
10,282
17,435
31,974
43,631
Included within intangible assets are £39,386k 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 £622k respectively in profit after tax for the year.
Assets in the course of construction includes £3,486k (2019: £2,427) relating to the development of an Enterprise Resource
Planning system. The costs for the asset will transfer to patents and software and amortise over a period of 10 years or less as
the asset is brought into use from 2021.
Assets in the course of construction are tested for impairment annually with the recoverable amount being determined from
value in use calculations. The value in use calculation is based on cash flow projections from a formally approved 12-month
forecast which has been extrapolated using 2% growth rate over a ten year period from the reporting date. Management has
concluded that there are no reasonably possible changes in any key assumptions that would cause the carrying amount of
assets in the course of construction to exceed the value in use. The value in use exceeded recoverable amount by £793k using
a discount rate of 14.8%.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS
14. Right-of-use assets
Cost
At 1 January 2019
On acquisition
Additions
Disposals
Foreign exchange differences
At 31 December 2019
On acquisition
Additions
Disposals
Foreign exchange differences
At 31 December 2020
Depreciation
At 1 January 2019
Charge for year
Disposals
Foreign exchange differences
At 31 December 2019
Charge for year
Disposals
Foreign exchange differences
At 31 December 2020
Net book value
At 31 December 2019
At 31 December 2020
Land and
buildings
£’000
Rental
assets
£’000
Plant and
equipment
£’000
13,093
3,116
4,515
(474)
(550)
19,700
743
3,280
(3,797)
588
20,514
3,572
2,002
(372)
(146)
5,056
2,209
(2,675)
133
4,723
14,644
15,791
–
–
–
–
–
–
–
87
–
(5)
82
–
–
–
–
–
7
–
–
7
–
75
1,628
80
1,244
(688)
(83)
2,181
–
426
(334)
251
2,524
1,008
594
(688)
(38)
876
559
(334)
187
1,288
1,305
1,236
Total
£’000
14,721
3,196
5,759
(1,162)
(633)
21,881
743
3,793
(4,131)
834
23,120
4,580
2,596
(1,060)
(184)
5,932
2,775
(3,009)
320
6,018
15,949
17,102
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 15. Property, plant and equipment
Cost
At 1 January 2019
On acquisition
Additions
Disposals
Foreign exchange differences
At 31 December 2019
On acquisition
Additions
Disposals
Foreign exchange differences
At 31 December 2020
Depreciation
At 1 January 2019
Charge for year
Disposals
Foreign exchange differences
At 31 December 2019
Charge for year
Disposals
Foreign exchange differences
At 31 December 2020
Net book value
At 31 December 2019
At 31 December 2020
Land and
buildings
£’000
Leasehold
improvements
£’000
Rental
assets
£’000
Plant and
equipment
£’000
2,837
2,153
5
–
(60)
4,935
–
–
–
123
5,058
185
87
–
(1)
271
90
–
2
363
4,664
4,695
497
–
2,251
(160)
(16)
2,572
100
9
(101)
17
2,597
97
201
(160)
(7)
131
441
(41)
14
545
2,441
2,052
2,817
–
1,764
(1,071)
–
3,510
–
617
(752)
–
3,375
1,243
1,218
(783)
–
1,678
1,160
(543)
–
2,295
1,832
1,080
4,017
482
1,773
(388)
(370)
5,514
420
1,234
(493)
475
7,150
1,615
1,323
(311)
(262)
2,365
1,525
(462)
343
3,771
3,149
3,379
Total
£’000
10,168
2,635
5,793
(1,619)
(446)
16,531
520
1,860
(1,346)
615
18,180
3,140
2,829
(1,254)
(270)
4,445
3,216
(1,046)
359
6,974
12,086
11,206
Included in land and buildings is land at £607k (2019: £607k) that is not depreciated.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 16. Inventories
Finished goods for resale
Gross inventory
Impairment provision
Amounts of inventories recognised as an expense during the period as cost of sales
(gross of vendor rebates)
Total inventory impairment charge/(credit) for the period
17. Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
2020
£’000
2019
£’000
107,845
(23,850)
83,995
101,996
(13,305)
88,691
2020
£’000
2019
£’000
620,234
590,739
2020
£’000
239
2020
£’000
92,126
2,110
12,846
107,082
2019
£’000
(132)
2019
£’000
94,844
1,736
7,520
104,100
Trade receivables includes a total of £51,938k (2019: £53,305k) subject to a receivables financing agreement.
The directors consider the carrying value of trade and other receivables is approximate to its fair value.
The Group incurs a small incidence of credit losses and as a result the receivables are impaired for expected credit losses.
Where management views that there is a significant risk of non-payment, an additional specific provision for impairment is
made and recognised as a deduction from 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
2020
£’000
1,656
897
1,079
(733)
7
2,906
2019
£’000
1,550
59
182
(77)
(58)
1,656
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 18. Cash and cash equivalents
Cash at bank (GBP)
Cash at bank (EUR)
Cash at bank (USD)
Cash at bank (AUD)
Cash at bank (NZD)
Cash at bank (CHF)
Cash at bank (NOK)
2020
£’000
598
20,069
4,242
28
169
–
379
25,485
2019
£’000
382
10,809
277
529
317
535
166
13,015
All significant cash and cash equivalents were deposited with major clearing banks with at least an ‘A’ rating.
19. 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
20. Provisions
Dilapidations provision
Defined benefit obligations (see note 30)
Agency contract severance provisions
Dilapidations provision
Provision at 1 January
Increase in provision
Amortised interest cost
Release of provision
Foreign exchange variance
Provision at 31 December
116
2020
£’000
82,323
12,263
125
15,425
110,136
2019
£’000
81,647
12,029
184
12,482
106,342
2020
£’000
–
1,708
1,708
2020
£’000
587
1,545
171
2,303
2020
£’000
597
–
4
(17)
3
587
2019
£’000
114
551
665
2019
£’000
597
1,343
544
2,484
2019
£’000
56
538
2
–
1
597
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Dilapidations provision comprises liabilities in respect of future expected repair and restoration costs that the Group has
obligations for under the terms of lease contracts.
Agency contract severance provision
Provision at 1 January
Arising on acquisitions
Decrease in provision
Foreign exchange variance
Provision at 31 December
2020
£’000
544
–
(399)
26
171
2019
£’000
–
637
(221)
128
544
Agency contract severance provision (“FISC”) comprises liabilities in respect of future expected agency costs that the Group
is required to settle on conclusion of the agent’s contract in accordance with the terms and conditions of the contract and as
required by statutory obligations for engaging agency workers in Italy.
21. Derivative financial instruments
Derivative financial assets
Foreign currency call options (see note 25)
Derivative financial liabilities
Interest rate swaps (see note 25)
Net derivative financial instruments
2020
£’000
24
(1,094)
(1,070)
2019
£’000
–
(132)
(132)
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 26.
22. Put option liabilities
Current:
Put option liabilities (see note 25)
Non-current:
Put option liabilities (see note 25)
Total put option liabilities
2020
£’000
2019
£’000
1,306
3,490
3,337
4,643
3,799
7,289
During the prior year, the Group entered into a symmetrical put and call option contract to acquire the non-controlling
interests created by the Prase acquisition (see note 35). The non-controlling interests are due to be acquired when the put
and call options are timed to be exercised in 2022.
During 2018, the Group entered into a symmetrical put and call option contract to acquire the non-controlling interests
created by the acquisition of Blonde Robot Pty Limited. The non-controlling interests are due to be acquired when the put
and call options are timed to be exercised in 2021.
During 2017, the Group entered into symmetrical put and call option contracts to acquire the non-controlling interests that
were created during the acquisitions of Earpro SA and Gebroeders van Domburg BV. The put and call option to acquire the
non-controlling interests in Gebroeders van Domburg BV were exercised during the year and further detail is provided in
note 34. The put and call option is over the remaining non-controlling interest in Earpro SA is timed to exercise in 2022.
The classification between current and non-current liabilities is based on management’s best estimates of when the options
will be exercised.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 23. Deferred consideration
Current:
− Deferred consideration at amortised cost
− Contingent consideration
Total current deferred and contingent considerations
Non-current:
− Deferred consideration at amortised cost
− Contingent consideration
Total non-current deferred and contingent considerations
Total deferred consideration at amortised cost
Total contingent consideration
Total deferred and contingent considerations
2020
£’000
3,189
3,823
7,012
–
465
465
3,189
4,288
7,477
2019
£’000
4,133
–
4,133
2,248
548
2,796
6,381
548
6,929
During the year, the Group recognised deferred consideration in respect of the Starin acquisition and contingent
consideration in respect of the Vantage acquisition (see note 35). Deferred consideration in relation to the Starin acquisition is
due to be settled in 2021. Contingent consideration in relation to Vantage acquisition is due to be settled in 2022.
During the prior year, the Group recognised deferred and contingent consideration in relation to the Prase and AV Partner
acquisitions (see note 35). Deferred consideration in relation to the Prase acquisition was partially settled during the year
and the remaining contingent consideration is due to be settled in 2021. Deferred considerations in relation to AV Partner
acquisition were settled in instalments in 2020 and the remaining contingent consideration will be settled in 2021.
During 2018, the Group recognised deferred and contingent consideration in relation to the acquisition of Bauer Und Trummer
GmbH and Sound Directions France SAS. Contingent consideration in relation to the Bauer Und Trummer GmbH acquisition
is due to be settled in 2021. Contingent consideration in relation to Sound Directions France SAS is due to be settled in
instalments in 2021 and 2022.
During the prior year, the Group settled contingent consideration in relation to the 2017 acquisition of Gebroders van
Domburg BV.
The total fair value of contingent consideration has been valued at £4,288k at 31 December 2020 (2019: £548k). The final
payments depend upon the future profitability of the subsidiaries acquired.
The fair value of 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 a £202k increase or £404k
decrease respectively in the fair value of the deferred contingent consideration liability. If the estimated discount factors were
one percentage point higher or lower the effect would be a decrease or increase respectively of £7k in the fair value of the
deferred contingent consideration liability.
24. Borrowings
Bank overdrafts and invoice discounting
Bank loans
Leases (see note 28)
Unsecured – at amortised cost
Unsecured loan notes
Total secured and unsecured borrowings
Current
Non-current
118
2020
£’000
22,448
24,042
18,274
64,764
–
64,764
30,045
34,719
64,764
2019
£’000
41,134
24,805
16,708
82,647
348
82,995
46,529
36,466
82,995
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Summary of borrowing arrangements
The Group has overdraft borrowings which comprised £1,690k at the end of 2020 (2019: £1,519k). The facilities are
uncommitted and secured with fixed and floating charges over the assets of the Group.
The Group has invoice discounting borrowings that comprised £20,758k at the end of 2020 (2019: £39,615k). The facilities
comprise fully revolving receivables financing agreements, which are secured on the underlying receivables. The facility
has no fixed repayment dates and receivables are automatically offset against the outstanding amounts of the facility on
settlement of the receivable. The Group retains the credit risk associated with the receivables. Included within invoice discount
borrowings as at 31 December 2020 is £1,032k that relate to facilities acquired as part of the Starin acquisition.
The Group has loans of £24,042k at the end of 2020 (2019: £25,153k). The loans are secured with fixed and floating charges
over the assets of the Group. 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 leases of £18,274k at the end of 2020 (2019: £16,708k). Included within leases, as at 31 December 2020, is
£1,690k that relates to operations acquired as part of the Starin acquisition.
For details of leases please refer to note 28.
Borrowings
Short-term borrowings
Long-term borrowings
Leases (see note 28)
Reconciliation of liabilities arising from financing activities
At 1 January
Cash flows:
Invoice financing (outflows)/inflows
Proceeds from borrowings
Repayment of loans
Capital element of leases
Non-cash:
Acquisitions
New liabilities arising on leases
Foreign exchange gain or loss
At 31 December
2020
£’000
27,292
19,198
18,274
64,764
2020
£’000
82,995
(32,191)
4,968
(4,445)
(4,226)
13,334
3,792
537
64,764
2019
£’000
43,897
22,390
16,708
82,995
2019
£’000
52,946
6,785
14,285
(1,053)
(2,627)
7,362
5,759
(462)
82,995
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 25. Financial instruments
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
(2019: none). Financial instruments measured at fair value through profit or loss comprise forward contracts and contingent
consideration.
As at 31 December 2020, the Group had interest rate swaps and foreign exchange options, which were measured at fair value.
The valuation of the interest rate swap and foreign exchange options 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 EES, AV Partner, Sound Directions France SAS, and Bauer
Und Trummer GmbH (see note 23) 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 6.0%, 6.2%, 6.4%, and 6.6% respectively have been applied to probability weighted cash flows that are not certainty
equivalent because they have not been adjusted to exclude systematic risk.
The contingent consideration in relation to the acquisitions of Vantage (see note 23) have been measured at fair value. 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 15.5% was applied to the most likely cash flows.
The put option liabilities held by the Group to acquire the remaining non-controlling interests that arose in the Prase and
Blonde Robot acquisitions (see note 35) along with acquisition of Gebroeders van Domburg BV and Earpro SA in 2017 were
initially measured at present value. The valuations of the put option liabilities were based on unobservable inputs and hence
were level 3 valuations.
A discount factor of 2.5% was applied to certainty equivalent cash flows that were adjusted to exclude systematic risk to
discount the put option liability over the non-controlling interest for the Prase acquisition. 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 to calculate the put option liabilities over the non-controlling interest for the Blonde Robot and of
Gebroeders van Domburg BV acquisitions. A discount rate of 9.4% was applied to the most likely cash flows to calculate the
put option liability over the non-controlling interest of Earpro SA.
Put option liabilities over non-controlling interests 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.
During the year, the Group exercised the put option in relation to Gebroeders van Domburg BV and acquired the remaining
non-controlling interest (see note 34).
During the prior year, the Group exercised the put option in relation to Holdan Limited and acquired the remaining non-
controlling interest (see note 34).
The expected cash flows in relation to the put option liabilities are provided in note 26. The maximum amount payable under
all put option liabilities over non-controlling interests is £12,287k (2019: £18,017k).
120
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS The reconciliation of the carrying amounts of the put options is as follows:
Brought forward
Recognition of new put option on acquisitions
Subsequent remeasurement to present value
Interest cost amortised
Loss/(gain) on foreign exchange1
Extinguished on acquisition of non-controlling interest2
At 31 December
Current
Non-current
2020
£’000
7,289
–
(523)
263
488
(2,874)
4,643
1,306
3,337
4,643
2019
£’000
6,400
2,885
(343)
529
(307)
(1,875)
7,289
3,490
3,799
7,289
1 A £73k credit was recognised in the income statement as part of the unwinding of a net investment hedge relationship recognised in the prior year.
2 See note 34 for details of the acquisitions of non-controlling interest.
The contract for put options over non-controlling interest state they are to be settled in cash and the amounts vary
depending upon the results of the acquired subsidiary.
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 17)
Cash and cash equivalents (note 18)
2020
£’000
94,236
25,485
119,721
2019
£’000
96,580
13,015
109,595
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 21)
Financial liabilities at amortised cost
Trade and other payables (note 19)
Accruals (note 19)
Lease payables (note 28)
Put option liabilities (note 22)
Bank loans, overdrafts and invoice discounting (note 24)
Deferred consideration (note 23)
Unsecured loan notes (note 24)
2020
£’000
24
2020
£’000
82,448
17,133
18,274
4,643
46,490
3,189
–
172,177
2019
£’000
–
2019
£’000
81,944
13,034
16,708
7,289
65,939
6,381
348
191,643
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.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 25. Financial instruments continued
Financial liabilities at fair value through profit or loss
Derivative financial instruments (note 21)
Contingent consideration
Contingent consideration (note 23)
Carrying value of hedging instruments
Borrowings and financial liabilities
Put option liabilities over non-controlling instruments
Deferred and contingent considerations
Initial value of hedging instruments recognised during the year
Borrowings and financial liabilities
Put option liabilities over non-controlling instruments
Deferred and contingent considerations
2020
£’000
1,094
2020
£’000
4,288
2020
£’000
–
–
–
–
2020
£’000
(7,522)
(2,758)
(3,817)
(14,097)
2019
£’000
132
2019
£’000
548
2019
£’000
(7,522)
(2,758)
(3,817)
(14,097)
2019
£’000
(6,108)
(2,886)
(5,426)
(14,420)
All hedging instruments are subsequently measured at amortised costs and there is no change in fair value associated with
any of the hedging instruments in the current or prior year.
Amounts recognised in hedging reserve in respect of hedging instruments
At 1 January
Charge/(credit) recognised in hedging reserve
At 31 December
Change in value of hedged item
Carrying value of hedged item at 1 January
Initial value of hedged item
Change in value of hedged item
Carrying value of hedged item at 31 December
Amounts recognised in translation reserve in respect of hedged items
At 1 January
Charge recognised in translation reserve
At 31 December
122
2020
£’000
(194)
194
–
2020
£’000
15,505
–
(15,505)
–
2020
£’000
(428)
428
–
2019
£’000
–
(194)
(194)
2019
£’000
–
14,418
1,087
15,505
2019
£’000
–
(428)
(428)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 26. 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 17 to 25.
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 diversified over a substantial number of third parties. The risk is further
mitigated by insurance of the trade receivables. Some specifically identified receivables have been provided for at 100%, the
Group has a general provision of 0.5%.
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 2020, total credit risk amounted to £117,611k (2019: £107,859k).
Interest rate risk
The interest on the Group’s overdrafts, invoice discounting facilities and RCF borrowings are variable. During the prior year,
the Group entered into an interest rate swap contract in respect of the Group’s variable interest rates in order to achieve a
fixed rate of interest.
Based on year end balances, a 1% increase in interest rates would impact profit and equity by £465k (2019: £663k).
Foreign exchange risk
The Group is largely able to manage the exchange rate risk arising from operations 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 not consider the foreign exchange risk arising from
the financial assets and liabilities at year end to be material.
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 paid and entered into financial instruments in the currency of the acquired entity for the Prase acquisition as part
of a net investment hedge strategy to reduce the exposure to fluctuations in foreign currencies and any potential negative
effects on the value of equity acquired.
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), Dollars (USD) and Australian Dollars (AUD). The table below sets out the exchange rates in the
periods reported.
EUR/GBP
AUD/GBP
NZD/GBP
USD/GBP
CHF/GBP
NOK/GBP
Annual average
Year end
2020
1.127
1.858
1.969
1.287
1.207
12.086
2019
1.135
1.828
1.929
1.272
1.267
11.204
2020
1.112
1.763
1.885
1.365
1.220
11.627
2019
1.177
1.883
1.960
1.321
1.277
11.607
The following tables illustrate the effect of changes in foreign exchange rates in the EUR, AUD, NZD, USD, CHF, and NOK relative
to the GBP on the profit before tax and net assets. The amounts are calculated retrospectively by applying the current year
exchange rates to the prior year results so that the current year exchange rates are applied consistently across both periods.
Changing the comparative result illustrates the effect of changes in foreign exchange rates relative to the current year result.
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123
MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 26. Financial instrument risk exposure and management continued
Applying the current year exchange rates to the results of the prior year has the following effect on profit before tax and
net assets:
(Loss)/profit before tax
EUR
AUD
NZD
USD
CHF
NOK
All currencies
Net assets
EUR
AUD
NZD
USD
CHF
NOK
All currencies
2019
£’000
23,781
23,781
23,781
23,781
23,781
23,781
23,781
2019
£’000
65,293
65,293
65,293
65,293
65,293
65,293
65,293
Revised
2019
£’000
23,922
23,755
23,778
23,780
23,800
23,743
23,873
Revised
2019
£’000
67,944
65,512
65,311
65,294
65,262
65,290
68,148
Impact
£’000
141
(26)
(3)
(1)
19
(38)
92
Impact
£’000
2,651
219
18
1
(31)
(3)
2,855
Impact
%
0.6%
(0.1)%
–
–
0.1%
(0.2)%
0.4%
Impact
%
3.9%
0.3%
–
–
–
–
4.2%
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.
See note 24 for details of borrowing arrangements.
The tables below show the undiscounted cash flows on the Group’s financial liabilities as at 31 December 2020 and 2019, on
the basis of their earliest possible contractual maturity:
At 31 December 2020
Trade payables
Other payables
Deferred consideration
Put option liabilities
Leases
Accruals
Bank overdrafts, loans and invoice
discounting
124
Total
£’000
82,323
125
7,625
4,892
19,732
17,133
Within
2 months
£’000
78,393
39
7,015
–
487
12,083
46,490
178,320
24,988
123,005
Within
2–6
months
£’000
3,930
–
–
–
1,062
2,127
1,093
8,212
Between
6–12
months
£’000
–
86
–
1,363
1,512
1,215
Between
1–2 years
£’000
–
–
–
3,529
2,786
632
After than
2 years
£’000
–
–
610
–
13,885
1,076
1,211
5,387
1,291
8,238
17,907
33,478
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS At 31 December 2019
Trade payables
Other payables
Deferred consideration
Put option liabilities
Leases
Accruals
Bank overdrafts, loans and invoice
discounting
Total
£’000
81,761
184
7,042
7,625
18,336
13,033
Within
2 months
£’000
76,031
184
1,572
–
476
11,275
5,226
–
1,564
3,559
1,055
743
66,287
194,268
40,486
130,024
554
12,701
Within
2–6
months
£’000
Between
6–12
months
£’000
Between
1–2 years
£’000
After than
2 years
£’000
390
–
2,171
–
1,446
464
2,857
7,328
114
–
1,735
1,150
2,424
63
20,132
25,618
–
–
–
2,916
12,935
488
2,258
18,597
27. 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 based on the carrying amount of equity plus its outstanding loan notes, less cash and
cash equivalents as presented on the face of the statement of financial position and as follows:
Equity
Borrowings
Cash and cash equivalents
2020
£’000
100,339
64,764
(25,485)
139,618
2019
£’000
57,952
82,995
(13,015)
127,932
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.
28. Leases
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
2020
£’000
3,061
16,671
19,732
(1,458)
18,274
2019
£’000
2,977
15,359
18,336
(1,628)
16,708
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 28. Leases continued
Lease liabilities are included in liabilities:
Current
Non-current
2020
£’000
2,753
15,521
18,274
2019
£’000
2,632
14,076
16,708
The Group classifies its right-of-use assets associated with lease liabilities consistently with its classification of property,
plant, and equipment. The Group has leases in respect of land and buildings, plant and machinery, and rental assets. Leases
in respect of land and buildings relate to sales offices and warehouses and leases in respect and plant and machinery relate
to motor vehicles. Leases in respect of rental assets relate to products that are held for use by the Group to generate rental
income.
29. 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 covered by these guarantees at the year end were £41,655k (2019: £60,321k).
30. Retirement benefit plans
The Group contributes to several retirement benefit pension schemes according to service contracts of employees working in
the various countries in which the Group operates. The retirement benefit pension schemes include both defined contribution
and defined benefit pension schemes.
Defined contribution retirement benefit pension schemes
Most of the Group’s retirement benefits are provided in the form of defined contribution pension schemes. The 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
2020
£’000
1,375
2019
£’000
1,223
Defined benefit retirement obligations
The Group participates in the “Pensioenfonds Vervoer”, an industry-wide pension fund in the Netherlands, “Swiss life” a
defined benefit pension scheme in Switzerland, and has statutory obligations to pay employee severance in Italy, which is
recognised as a defined benefit obligation.
Pensioenfonds Vervoer 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.
Swiss Life is a defined benefit pension scheme offering beneficiaries an average wage retirement benefit plan. The scheme
is funded by payments to an independently managed fund. Contributions calculated by qualified actuaries using projected
unit credit method valuations and are charged to the income statement. The liabilities of the scheme are measured by
discounting the future cash flows to participants estimated by actuaries using the projected unit credit method. Changes in
the value of assets and liabilities in the scheme excluding contributions charged to income statement are recognised in other
comprehensive income.
126
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS The employee severance (“TFR”) is payable to employees in Italy. In addition to TFR, there are also amounts payable to
directors (“TFM”). Both the TFR and TFM obligations are recognised as defined benefit obligations in accordance with IAS 19.
Present value of defined benefit pension obligations
Fair value of plan assets
Net defined benefit pension liability
At 1 January 2019
Service cost
Current service cost
Past service cost
Net interest
Interest income on plan assets
Interest cost on defined benefit obligation
Total defined benefit cost recognised in income statement
Cash flows
Plan participants contributions
Employer contributions
Benefits paid
Unfunded benefits paid
Expected closing position
Remeasurements
Changes in financial assumptions
Other experience
Foreign exchange gain/(loss) recognised in translation reserve
Total remeasurements recognised in other comprehensive income
At 31 December 2020
2020
£’000
(3,083)
1,538
(1,545)
2019
£’000
(2,571)
1,228
(1,343)
Defined
benefit
obligation
£’000
(2,571)
Fair value of
plan assets
£’000
1,228
Net defined
benefit
liability
£’000
(1,343)
(238)
17
(221)
–
(9)
(9)
(230)
(249)
–
103
36
(2,911)
(2)
(11)
(159)
(172)
–
–
–
2
–
2
2
249
75
(103)
–
1,451
–
9
78
87
(238)
17
(221)
2
(9)
(7)
(228)
–
75
–
36
(1,460)
(2)
(2)
(81)
(85)
(3,083)
1,538
(1,545)
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 30. Retirement benefit plans continued
At 1 January 2018
On acquisition
Service cost
Current service cost
Net interest
Interest income on plan assets
Interest cost on defined benefit obligation
Total defined benefit cost recognised in income statement
Cash flows
Plan participants contributions
Employer contributions
Benefits paid
Unfunded benefits paid
Expected closing position
Remeasurements
Changes in financial assumptions
Other experience
Foreign exchange gain/(loss) recognised in translation reserve
Total remeasurements recognised in other comprehensive income
At 31 December 2019
Plan assets
Cash and cash equivalents
Insurance contracts with a quoted market price
Actuarial assumptions
Salary increase rate
Discount rate
Inflation rate
Life expectancy
Defined
benefit
obligation
£’000
–
(1,393)
Fair value of
plan assets
£’000
–
521
Net defined
benefit
liability
£’000
–
(872)
(182)
–
(10)
(10)
(192)
(881)
–
235
13
(2,218)
(116)
(283)
46
(353)
(2,571)
–
4
–
4
4
881
63
(235)
–
1,234
–
13
(19)
(6)
1,228
2020
£’000
–
1,538
1,538
(182)
4
(10)
(6)
(188)
–
63
–
13
(984)
(116)
(270)
27
(359)
(1,343)
2019
£’000
–
1,228
1,228
2020
2019
2.0–2.5%
0.2–0.4%
0.3–1.2%
BVG 2015
2.5%
0.2–1.0%
1.2%
BVG 2015
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Sensitivity analysis
The defined benefit obligation would increase/(decrease) by the following amounts due to the respective changes in the
following actuarial assumptions:
0.5% increase in discount rate
0.5% decrease in discount rate
0.5% increase in salary increase rate
0.5% decrease in salary increase rate
One year increase in life expectancy
One year decrease in life expectancy
2020
£’000
(257)
295
28
(27)
53
(53)
2019
£’000
(224)
256
25
(24)
44
(46)
Funding
The total amount of contributions expected to be paid during the financial year ending 31 December 2021 is £297k.
31. 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
Shares issued
At 31 December
2020
2019
Number
£’000
Number
£’000
79,973,412
8,631,300
88,604,712
799
87
886
79,448,200
525,212
79,973,412
794
5
799
During the year, the Company issued 7,944,800 shares for total proceeds less issue cost of £38,902k and 686,500 shares
to the Group’s employee benefit trusts. During the prior year, the Company issued 300,212 in settlement of the put option
liability over the remaining non-controlling interest in Holdan Limited and 225,000 shares to the Group’s employee benefit
trusts.
Employee benefit trust
The Group’s employee benefit trusts were allocated 480,700 Ordinary Shares in 2016, a further 225,000 shares in 2019 and
686,500 in 2020. During the year, 569,600 (2019: 229,000) of these shares were distributed employees on the exercise of
share options leaving 593,600 Ordinary Shares held in the Group’s employee benefit trusts as at 31 December 2020 (2019:
476,700).
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 32. Other reserves
Movement in other reserves for the year ended 31 December 2020
Share based
payment
reserve
£’000
3,998
Translation
reserve
£’000
(954)
Hedging
reserve
£’000
194
Put option
reserve
£’000
(6,329)
Capital
redemption
reserve
£’000
50
Other
reserve
£’000
150
Balance at 1 January 2020
Other comprehensive
income
Total comprehensive
income for the year
Share based payments
Deferred tax on share based
payments
Share options exercised
Acquisition of non-
controlling interest (note 34)
Balance at
31 December 2020
–
2,562
(232)
(1,856)
–
–
3,071
(194)
3,071
–
(194)
–
–
–
–
–
–
–
–
–
–
–
–
–
1,516
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
(2,891)
2,877
2,877
2,562
(232)
(1,856)
1,516
4,472
2,117
(4,813)
50
150
1,976
Movement in other reserves for the year ended 31 December 2019
Share based
payment
reserve
£’000
Translation
reserve
£’000
Hedging
reserve
£’000
Put option
reserve
£’000
Capital
redemption
reserve
£’000
1,837
1,865
–
(4,532)
50
Other
reserve
£’000
150
–
(2,819)
–
2,874
(128)
(585)
–
–
(2,819)
–
–
–
–
–
194
194
–
–
–
–
–
–
–
–
–
–
(2,886)
1,089
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
(630)
(2,625)
(2,625)
2,874
(128)
(585)
(2,886)
1,089
3,998
(954)
194
(6,329)
50
150
(2,891)
Balance at 1 January 2019
Other comprehensive
income
Total comprehensive income
for the year
Share based payments
Deferred tax on share based
payments
Share options exercised
Acquisition of subsidiary
(note 35)
Acquisition of non-
controlling interest (note 34)
Balance at
31 December 2019
33. Share based payments
The Group operates two share option plans, the Long-Term Incentive Plan (“LTIP”) and the Share Incentive Plan (“SIP”). The
Group has made a grant under each plan during the year and made three awards under the LTIP and one award under the SIP
in the prior year.
Share Incentive Plan
The Group operates a SIP to which the employees of the Group may be invited to participate by the Remuneration
Committee. Under the SIP, free shares granted to employees are issued and held in trust in during a conditional vesting period.
The SIP shares vest three years after the date of grant. The SIP share are settled in equity once exercised.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Long-Term Incentive Plan
The Group also 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 but the Group has the option to provide an
exemption for this payment. The options vest between three years after the date of grant, subject to certain service and
non-market performance conditions. The Group has the option to require an extended holding period in relation to specific
options. The options are settled in equity once exercised.
If the options remain unexercised after a period of ten years from the date of grant, the options expire. Options are forfeited if
the employee leaves the Group before the options vest.
During the year, the Group cancelled 522,500 LTIP shares options issued in 2018 and 576,000 LTIP share options issued in
2019. The cancelled options were replaced with the same number of LTIP options with revised performance conditions and
a vesting date of 31 January 2023. The replacement options are accounted for as a modification of the original grant. The
incremental fair value of the options granted, measured immediately before and after the modification, has been recognised
in addition to the fair value of the options at the original grant date. The total incremental fair value of share options modified
during the year is £52,242.
LTIP options and SIP shares were valued using the Black–Scholes option-pricing model. The fair value of the 2020 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 excluded from option
Fair value at date of grant
Earliest vesting date
Expiry date
LTIP
25 Nov 2020
1,222,676
£4.55
£0.01
17.5%
3–5
(0.03%)
3.05%
£4,628,300
31 Jan 2023
25 Nov 2030
SIP
25 Nov 2020
105,900
£4.55
–
17.5%
3
(0.03%)
0.0%
£339,667
7 Dec 2023
25 Nov 2030
LTIP options and SIP shares were valued using the Black–Scholes option-pricing model. The fair value of the 2019 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 excluded from option
Fair value at date of grant
Earliest vesting date
Expiry date
LTIP
1 Jul 2019
655,050
£5.56
£0.01
9.0%
3–5
0.67%
2.8%
£2,801,999
1 Jul 2022
1 Jul 2029
SIP
1 Jul 2019
107,400
£5.56
–
9.0%
3
0.67%
0.0%
£420,936
1 Jul 2022
1 Jul 2029
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 £2,562k (2019: £2,874k) related to equity-settled share based payment transactions
for the above schemes during the year.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 33. Share based payments continued
A reconciliation of LTIP option movements over the year to 31 December 2020 is shown below:
Outstanding at start of year
Granted
Lapsed
Exercised
Outstanding at end of year
Weighted average remaining contractual life
As at 31 December 2020
As at 31 December 2019
Weighted
average
exercise
price
£
0.01
0.01
0.01
0.01
0.01
Number of
LTIP options
1,410,900
705,050
(16,200)
(123,500)
1,976,250
2.0 years
Weighted
average
exercise
price
£
0.01
0.01
0.01
0.01
0.01
Number of
LTIP options
1,976,250
1,222,676
(39,750)
(467,500)
2,691,676
2.0 years
A reconciliation of SIP movements over the year to 31 December 2020 is shown below:
Outstanding at 1 January
Granted
Lapsed
Exercised
Outstanding at 31 December
Weighted average remaining contractual life
As at 31 December 2020
As at 31 December 2019
Weighted
average
exercise
price
£
–
–
–
–
–
Number of
SIP shares
284,300
107,400
(21,100)
(105,500)
265,100
1.5 years
Weighted
average
exercise
price
£
–
–
–
–
–
Number of
SIP shares
265,100
105,900
(14,200)
(102,100)
254,700
1.8 years
As at the year end, there were 296,000 (2019: 78,500) share options that had vested and had yet to be exercised.
34. Acquisition of non-controlling interest
During the year, the Group acquired the remaining 30.0% non-controlling interest in Gebroeders van Domburg BV, which had
a value of £1,985k, for a consideration of £2,874k. £1,516k of the put option reserve was transferred to retained earnings when
this element of the put option was extinguished.
During the prior year, the Group acquired the remaining 10.5% non-controlling interest in Holdan Limited, which had a value
of £843k, for a consideration of £1,876k. £1,089k of the put option reserve was transferred to retained earnings when this
element of the put option was extinguished.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 35. Business combinations
Acquisitions have been completed by the Group to increase scale, broaden its addressable market and widen the product
offering.
Subsidiaries acquired:
Acquisition1
Starin
EES
AV Partner
Prase
MobilePro
Principal activity
Distribution of audio visual products to trade customers
Distribution of lighting products to trade customers
Distribution of audio visual products to trade customers
Distribution of audio visual products to trade customers
Distribution of audio visual products to trade customers
Date of acquisition
6 February 2020
1 July 2019
3 May 2019
31 January 2019
17 January 2019
1 See note 11 for details of companies acquired during the current and prior year.
Proportion
acquired
(%)
100
100
100
80
100
Fair value of
consideration
£’000
20,961
3,245
5,467
11,534
882
In addition to the acquisition of subsidiaries listed above, the Group also acquired trade and assets from Vantage Systems Pty
Limited (“Vantage”), a company registered in Australia.
Fair value of consideration transferred 2020
Cash
Deferred contingent consideration
Total
Starin
£’000
18,872
2,089
20,961
Vantage
£’000
506
379
885
Acquisition costs of £506k in relation to the acquisition of Starin and £20k in relation to the Vantage acquisition of trade and
assets were expensed to the income statement during the year ended 31 December 2020.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 35. Business combinations continued
Fair value of acquisitions 2020
Non-current assets
Goodwill
Intangible assets – brands
Intangible assets – customer relationships
Intangible assets – supplier relationships
Intangible assets – software
Right-of-use assets
Property, plant and equipment
Deferred tax
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
Borrowings and financial liabilities
Non-current liabilities
Borrowings and financial liabilities
Fair value of net assets acquired attributable to equity shareholders of the Parent Company
Starin
£’000
Vantage
£’000
520
4,065
2,884
9,189
82
743
515
3
18,001
30,243
20,951
985
52,179
(35,885)
(12,728)
(48,613)
(606)
(606)
20,961
960
–
–
–
–
–
5
–
965
–
129
–
129
(209)
–
(209)
–
–
885
Goodwill acquired in 2020 relates to the workforce, synergies and sales know how. Goodwill arising on the Starin acquisition
has been allocated to the North America segment, goodwill arising on the Vantage trade and assets acquisition has been
allocated to the Asia Pacific segment.
Gross contractual amounts of trade and other receivables acquired in 2020 were £21,977k, with bad debt provisions of £897k.
Net cash outflow on acquisition of subsidiaries 2020
Consideration paid in cash
Less: cash and cash equivalent balances acquired
Net cash outflow
Plus: borrowings acquired
Net debt outflow
Starin
£’000
18,872
(985)
17,887
13,334
31,221
Vantage
£’000
506
–
506
–
506
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Post-acquisition contribution 2020
Acquired subsidiaries made the following contributions to the Group’s results for the year in which they were acquired, from
their respective acquisition dates:
Date acquired
Post-acquisition contribution to Group revenue
Post-acquisition contribution to Group profit after tax
Starin
£’000
6 Feb
111,777
2,540
Proforma full year contribution 2020
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 2020:
Full year revenue1
Full accounting period profit after tax1
Starin
£’000
130,502
1,921
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 IAS 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 IAS 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
2020, together with the consequential tax effects.
If the acquisitions had occurred on 1 January 2020, revenue of the Group for the year would have been £730,479k and loss
after tax for the year would have been £4,006k.
Fair value of consideration transferred 2019
Cash
Deferred contingent consideration
Total
MobilePro
£’000
882
–
882
Prase
£’000
6,108
5,426
11,534
AV Partner
£’000
3,225
2,242
5,467
EES
£’000
2,189
1,056
3,245
Acquisition costs of £116k in relation to the acquisition of Prase, £115k in relation to the acquisition of AV Partner, £78k in
relation to the acquisition of EES and £47k in relation to other acquisitions not completed during the year were expensed to
the income statement during the year ended 31 December 2019.
On acquisition of Prase, the Group recognised £2,886k in relation to the initial present value of the put option liabilities to
acquire the remaining non-controlling interest.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 35. Business combinations continued
Fair value of acquisitions 2019
Non-current assets
Goodwill
Intangible assets – brands
Intangible assets – customer relationships
Intangible assets – supplier relationships
Right-of-use assets
Plant and equipment
Deferred tax
Current assets
Inventories
Trade and other receivables
Current tax
Cash and cash equivalents
Current liabilities
Trade and other payables
Borrowings and financial liabilities
Current tax
Non-current liabilities
Borrowings and financial liabilities
Deferred tax
Other provisions
Non-controlling interests
Fair value of net assets acquired attributable to equity shareholders
of the Parent Company
MobilePro
£’000
Prase
£’000
AV Partner
£’000
451
535
165
326
1,548
59
3
3,087
3,742
2,162
–
42
5,946
(1,970)
(3,526)
(1)
(5,497)
(2,094)
(220)
(340)
(2,654)
–
371
382
1,504
3,110
69
2,497
143
8,076
3,604
8,830
–
1,439
13,873
(4,370)
(90)
(404)
(4,864)
(69)
(1,429)
(1,169)
(2,667)
(2,884)
1,195
142
1,193
2,241
1,370
8
–
6,149
1,285
983
33
12
2,313
(838)
(132)
–
(970)
(1,238)
(787)
–
(2,025)
–
EES
£’000
131
81
567
810
209
71
1
1,870
569
1,301
–
820
2,690
(601)
(34)
(137)
(772)
(179)
(364)
–
(543)
–
882
11,534
5,467
3,245
In addition to the above, the Group paid £45k to secure an exclusive supplier arrangement in a trade and assets acquisition.
Goodwill acquired in 2019 relates to the workforce, synergies and sales know how. Goodwill arising on all acquisitions in the
period have been allocated to the EMEA segment.
Gross contractual amounts of trade and other receivables acquired in 2019 were £13,276k, with bad debt provisions of £59k.
Net cash outflow on acquisition of subsidiaries 2019
Consideration paid in cash
Less: cash and cash equivalent balances acquired
Net cash outflow
Plus: borrowings acquired
Net debt outflow
MobilePro
£’000
882
(42)
840
5,620
6,460
Prase
£’000
6,108
(1,439)
4,669
159
4,828
AV Partner
£’000
3,225
(12)
3,213
1,370
4,583
EES
£’000
2,189
(820)
1,369
213
1,582
136
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS Post-acquisition contribution 2019
Acquired subsidiaries made the following contributions to the Group’s results for the year in which they were acquired, from
their respective acquisition dates:
Date acquired
Post-acquisition contribution to Group revenue
Post-acquisition contribution to Group profit after tax
MobilePro
£’000
17 Jan
22,670
230
Prase
£’000
31 Jan
22,550
1,471
AV Partner
£’000
3 May
6,535
349
EES
£’000
1 July
2,516
201
Proforma full year contribution 2019
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 2019:
Full year revenue1
Full accounting period profit after tax1
MobilePro
£’000
23,624
187
Prase
£’000
24,219
1,495
AV Partner
£’000
9,021
415
EES
£’000
6,196
511
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 IAS 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 IAS 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
2019, together with the consequential tax effects.
If the acquisitions had occurred on 1 January 2019, revenue of the Group for the year would have been £695,029k and profit
after tax for the year would have been £18,557k.
36. 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 other members of the senior
management team, and their remuneration is disclosed as follows:
Remuneration of key management
Remuneration cost
Share based payment cost
Employer taxes
Company pension contributions to defined contributions scheme
2020
£’000
1,095
488
207
25
1,815
2019
£’000
1,412
761
299
28
2,500
The definition of key management personnel includes the Board of Directors and a representative from the UK & Ireland,
EMEA and Asia Pacific segments admitted to the senior management team.
During the year, Mr S Lamb was granted 197,116 (2019: 50,000) share options under the LTIP scheme and the performance
conditions and vesting dates of 100,000 share options previously issued to Mr S Lamb were modified.
A further 309,788 (2019: 105,000) of share options were awarded to other members of the senior management team and
the performance conditions and vesting dates of 205,000 share options previously issued to other members of the senior
management team were modified.
There were no related party borrowing or share transactions during the current or prior year.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS 37. Dividends
The Company did not pay any dividends during the year. During the prior year, the Company paid dividends of £12,305k,
excluding the effects of waived dividends this equated to 15.45 pence per share.
38. Events after the reporting date
On 1 January 2021, the Group acquired the trade and assets of Nicolas M. Kvernitis Electronics ENT, a business based in
Dubai in the United Arab Emirates, NMK Middle East FZE, a company based in Dubai in the United Arab Emirates, and Edge
Electronics Trading LLC, a company based in Doha, Qatar. The businesses specialise in the distribution of professional audio
products to the trade market.
The acquisition of the three enterprises was made through Midwich International Limited an 80% owned subsidiary that was
incorporated with the sellers of the acquired businesses as a non-controlling interest for the purpose of the acquisition.
The initial consideration was AED 49,750k with a deferred consideration of AED 21,000k payable in June 2021. Put and call
options were granted over the non-controlling interest in Midwich International Limited to the holders of the non-controlling
interest and Group respectively. The put and call options will have an exercisable value in March 2024 of between AED
26,500k and AED 46,000k depending on the average performance of the enterprises during the 2021–2023 financial years.
Due to the proximity of the date of the announcement to the date these financial statements were authorised for issue, the
Group considers it impracticable to produce disclosures required under IFRS 3 regarding the acquisition fair value of assets
and liabilities to be acquired under the acquisition.
39. Ultimate controlling party
As at 31 December 2020, Midwich Group plc had no ultimate controlling party.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDMIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS COMPANY STATEMENT OF
FINANCIAL POSITION
AS AT 31 DECEMBER 2020
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
(Loss)/profit for the year
Dividends paid
Transfers into retained earnings
Total retained earnings
Capital redemption reserve
Other reserve
Shareholders’ funds
Notes
2020
£’000
2019
£’000
3
4
5
6
6
7
36,421
292
36,713
39,130
39,130
(545)
38,585
75,298
(141)
75,157
886
67,047
4,716
(6)
3,873
(3,408)
–
1,849
2,314
50
150
75,157
34,258
119
34,377
3,123
3,123
(316)
2,807
37,184
(95)
37,089
799
28,225
3,997
(5)
7,833
8,409
(12,305)
(64)
3,873
50
150
37,089
The financial statements are also comprised of the notes on pages 141 to 146. The financial statements were approved by the
Board of directors and authorised for issue on 9 March 2021 and were signed on its behalf by:
Mr S B Fenby
Director
Company registration number: 08793266
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS COMPANY STATEMENT OF
CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020
Share
capital
£’000
Share
premium
£’000
28,225
–
–
38,822
–
799
–
–
87
–
–
–
Share-
based
payment
reserve
£’000
3,997
–
–
–
2,562
–
–
7
(1,850)
Investment
in own
shares
£’000
Retained
earnings
£’000
Capital
redemption
reserve
£’000
(5)
–
–
(7)
–
–
6
3,873
(3,408)
(3,408)
–
–
–
1,849
50
–
–
–
–
–
–
Other
reserve
£’000
150
–
–
–
–
–
–
Total
£’000
37,089
(3,408)
(3,408)
38,902
2,562
7
5
886
67,047
4,716
(6)
2,314
50
150
75,157
Balance at 1 January 2020
Loss for the year
Total comprehensive
income for the year
Shares issued
Share based payments
Deferred tax on share based
payments
Share options exercised
Balance at
31 December 2020
FOR THE YEAR ENDED 31 DECEMBER 2019
Share
capital
£’000
Share
premium
£’000
794
–
25,855
–
–
5
–
–
–
–
–
1,873
–
–
497
–
Share-
based
payment
reserve
£’000
1,837
–
–
–
2,875
(280)
(435)
–
Investment
in own
shares
£’000
Retained
earnings
£’000
Capital
redemption
reserve
£’000
(5)
–
–
(2)
–
–
2
–
7,833
8,409
8,409
–
–
–
(64)
(12,305)
50
–
–
–
–
–
–
–
Other
reserve
£’000
150
–
–
–
–
–
–
–
Total
£’000
36,514
8,409
8,409
1,876
2,875
(280)
–
(12,305)
799
28,225
3,997
(5)
3,873
50
150
37,089
Balance at 1 January 2019
Profit for the year
Total comprehensive
income for the year
Shares issued
Share based payments
Deferred tax on share based
payments
Share options exercised
Dividends paid
Balance at
31 December 2019
The financial statements are also comprised of the notes on pages 141 to 146.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS NOTES TO THE COMPANY
FINANCIAL STATEMENTS
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 IAS;
• 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 Company
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.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS NOTES TO THE COMPANY
FINANCIAL STATEMENTS
CONTI NUE D
1. Accounting policies continued
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. 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. 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 standalone 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.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 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 reporting 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 reporting 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 reporting 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.
Equity
Equity comprises the following:
• “Share capital” represents the nominal value of equity shares issued.
• “Share premium” represents the amounts subscribed for share capital, net of issue costs, above the 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.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS NOTES TO THE COMPANY
FINANCIAL STATEMENTS
CONTI NUE D
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 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 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.
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:
2020
Number
2019
Number
23
23
By activity:
Administration
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS 3. Investments
At 1 January
Additions
At 31 December
2020
£’000
34,258
2,163
36,421
2019
£’000
31,845
2,413
34,258
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 32 of the
consolidated financial statements for details of share options.
4. Deferred tax
Deferred tax on losses
Deferred tax asset on temporary differences
5. Receivables
Prepayments
Amounts due from Group undertakings
6. Payables
Amounts falling due within one year:
Accruals
Amounts falling due after one year:
Accruals
2020
£’000
96
196
292
2020
£’000
6
39,124
39,130
2020
£’000
545
2020
£’000
141
2019
£’000
–
119
119
2019
£’000
9
3,114
3,123
2019
£’000
316
2019
£’000
95
145
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMOUR FINANCIALS NOTES TO THE COMPANY
FINANCIAL STATEMENTS
CONTI NUE D
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
Shares issued
At end of year
2020
2019
Number
£’000
Number
£’000
79,973,412
8,631,300
88,604,712
799
87
886
79,448,200
525,212
79,973,412
794
5
799
During the year, the Company issued 7,944,800 shares for total proceeds less issue cost of £38,902k and 686,500 shares to
the Company’s employee benefit trusts. During the prior year, the Company issued 300,212 in settlement of the put option
liability over the remaining non-controlling interest in Holdan Limited and 225,000 shares to the Company’s employee benefit
trusts.
8. Dividends
The Company did not pay any dividends during the year. During the prior year, the Company paid dividends of £12,305k,
excluding the effects of waived dividends this equated to 15.45 pence per share.
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 2020, Midwich Group plc had no ultimate controlling party.
2020
£’000
3,115
38,902
204
(3,097)
39,124
2019
£’000
4,683
12,305
204
(14,077)
3,115
146
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSOUR FINANCIALS NOTICE OF AGM
COVID-19 statement
In the lead up to the Annual General Meeting (notice of which
is set out below), the directors are closely monitoring the
impact of the COVID-19 virus in the United Kingdom. Due
to ongoing limitations on public gatherings and associated
social distancing measures in response to COVID-19, external
shareholders (i.e. shareholders who do not also hold office
as a director of the Company) are prohibited from attending
the Annual General Meeting in person. Accordingly, so
as to ensure their vote is counted at the Annual General
Meeting, all shareholders are asked to submit a proxy form,
instructing the Chairman on how they wish to vote on the
proposed resolutions. Further, the Company will be providing
a conference call link to enable shareholders to follow
proceedings of the meeting and potentially to ask questions
remotely. All shareholders are encouraged to use these facilities
should they wish to follow the progress of the meeting. Any
shareholders who wish to listen to the meeting by such means,
should contact the Company Secretary prior to the day of the
meeting at Stephen.Lamb@midwich.com in order to request
conference dial-in details.
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting (the
“Meeting”) of Midwich Group plc (the “Company”) will be
held at the offices of the Company at Vinces Road, Diss,
Norfolk, IP22 4YT on Monday 10 May 2021 at 10.00 a.m. You
will be asked to consider and vote on the resolutions below.
Resolutions 1 to 9 will be proposed as ordinary resolutions and
resolutions 10 and 11 will be proposed as special resolutions.
Ordinary business
Report and accounts
1. THAT the Company’s annual accounts for the financial
year ended 31 December 2020, 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. THAT Andrew Herbert be re-elected as a director of the
Company.
4. THAT Mike Ashley be re-elected as a director of the
Company.
5. 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.
Reappointment and remuneration of auditors
7. THAT Grant Thornton UK LLP be reappointed 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.
Directors’ remuneration report
8. THAT the directors’ remuneration report (excluding the
directors’ remuneration policy, set out on pages 62 to 69
of the directors’ remuneration report), as set out in the
Company’s annual report and accounts for the financial
year ended 31 December 2020 be approved.
Special business
Issue of Ordinary Shares
9. 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”):
i. up to an aggregate nominal value of £295,349 (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 £590,698 (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 or exclusions or
other arrangements that 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.
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMADDITIONAL INFORMATION NOTICE OF AGM
CONTINUED
10. THAT, subject to the passing of resolution 9, 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:
11. THAT, subject to the passing of resolution 9, the directors
of the Company be authorised in addition to any authority
granted under resolution 10 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. 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
9, by way of a rights issue or other pre-emptive offer
only) 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,
but subject to such limits or restrictions or exclusions
or other arrangements, which the directors of the
Company may 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;
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 £44,302,
such authorities granted by this resolution to 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 that 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.
i. limited to the allotment of equity securities or sale of
treasury shares up to an aggregate nominal amount of
£44,302; 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,
such authority granted by this resolution to 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 that 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 6 April 2021
By order of the Board
Stephen Lamb
Company Secretary
Registered Office
Vinces Road
Diss
Norfolk
IP22 4YT
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES OF THE AGM
Notes:
Entitlement to attend and vote
1. Pursuant to Regulation 41 of the Uncertificated Securities
Regulations 2001, the Company specifies that only
those members registered on the Company’s register of
members:
• At the time which is 48 hours prior to the Meeting; or
• If this Meeting is adjourned, at the time which is 48
hours prior to the adjourned meeting,
shall be entitled to attend and vote at the Meeting.
Appointment of proxies
2. If you are a member of the Company at the time set out
in note 1 above, you are entitled to appoint a proxy to
exercise all or any of your rights to attend, speak and vote
at the Meeting and you should have received a proxy form
with this notice of meeting. You can only appoint a proxy
using the procedures set out in these notes and the notes
to the proxy form.
3. If you are not a member of the Company but you have
been nominated by a member of the Company to enjoy
information rights, you do not have a right to appoint any
proxies under the procedures set out in this “Appointment
of proxies” section.
4. Due to ongoing limitations on public gatherings and
associated social distancing measures in response to
COVID-19, the Company is required to restrict the proxy
appointment right to the appointment of the Chairman of
the Meeting only. Details of how to appoint the Chairman
of the Meeting as your proxy using the proxy form are set
out in the notes to the proxy form. The Company intends
to provide a conference call link to enable shareholders
to follow proceedings of the meeting and potentially to
ask questions remotely. Details can be obtained from the
Company Secretary (stephen.lamb@midwich.com).
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 (the Chairman of the Meeting) will vote or abstain
from voting at their discretion. Your proxy (the Chairman
of the Meeting) will vote (or abstain from voting) as they
think fit in relation to any other matter which is put before
the Meeting.
Appointment of proxies using hard copy form
6. The notes to the proxy form explain how to direct your
proxy (the Chairman of the Meeting) how to vote on each
resolution or withhold their vote.
To appoint the Chairman of the Meeting as your proxy
using the proxy form, the form must be:
• completed and signed;
• sent or delivered to the offices of the Company’s
registrars, Link Group, in accordance with the reply
paid details or by hand or by courier only to Link Group
PXS1 , 10th Floor, Central Square, 29 Wellington Street,
Leeds LS1 4DL; and
• received by the Company’s registrars no later than 48
hours prior to the time set for the start of the Meeting.
CREST members should use the CREST electronic proxy
appointment service and refer to note 9 below in relation
to the submission of a proxy appointment via CREST.
In the case of a member that is a company, the proxy form
must be executed under its common seal or signed on its
behalf by an officer of the company or an attorney for the
company.
Any power of attorney or any other authority under which
the proxy form is signed (or a duly certified copy of such
power or authority) must be included with the proxy form.
In each case, the proxy appointment must be received
not less than 48 hours before the time for the holding of
the Meeting or adjourned meeting together (except in
the case of appointments made electronically) with any
authority (or notarially certified copy of such authority)
under which it is signed.
Appointment of proxies via the web
7. As an alternative shareholders may, and are encouraged
to, cast their vote online via the registrars website at
www.signalshares.com.
Appointment of Proxies via Proxymity
8. If you are an institutional investor, you may be able to
appoint a proxy electronically via the Proxymity platform.
For further information regarding Proxymity, please go to
www.proxymity.io. Your proxy must be lodged 48 hours
prior to the time appointed for the Meeting in order to
be considered valid. Before you can appoint a proxy via
this process, you will need to have agreed to Proxymity’s
associated terms and conditions. It is important that you
read these carefully as you will be bound by them and
they will govern the electronic appointment of your proxy.
Appointment of proxies through CREST
9. As an alternative to completing the hard copy proxy
form, CREST members who wish to appoint the Chairman
of the Meeting as their proxy by utilising the CREST
electronic proxy appointment service may do so for
the Meeting and any adjournment(s) of it by using the
procedures described in the CREST Manual (with such
procedures, as applicable, being read in conjunction with
the appointment restrictions detailed in these Notes).
CREST Personal Members or other CREST sponsored
members, and those CREST members who have
appointed a voting 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.
In order for a proxy appointment 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 (“EUI”) specifications and must contain the
information required for such instructions, as described in
the CREST Manual. The message, regardless of whether
it constitutes the appointment of the Chairman of the
Meeting as proxy or an amendment to the instruction
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MIDWICH GROUP PLC MIDWICHGROUPPLC.COMADDITIONAL INFORMATION ADD ITI ONAL INFOR MATION
NOTES OF THE AGM
CONTINUED
given to a the Chairman of the Meeting as proxy
previously, must, in order to be valid, be transmitted so
as to be received by the Company’s agent (ID: RA10) by
not later than 48 hours prior to the time appointed for
the Meeting or adjourned meeting. For this purpose, the
time of receipt will be taken to be the time (as determined
by the timestamp applied to the message by the CREST
Applications Host) from which the Company’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.
CREST members and, where applicable, their CREST
sponsors or voting service providers, should note that
EUI does not make available special procedures in CREST
for any particular messages. 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 service 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.
Appointment of proxy by joint members
10. In the case of joint holders, where more than one of
the joint holders purports to appoint the Chairman of
the Meeting as 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).
Changing proxy instructions
11. To change your proxy instructions, simply submit a new
proxy appointment using the methods set out above.
Note that the cut-off time for receipt of proxy forms (see
above) also apply in relation to amended instructions; any
amended proxy form received after the relevant cut-off
time will be disregarded.
Where you have appointed the Chairman of the Meeting
as your proxy using the hard copy proxy form and would
like to change the instructions using another hard copy
proxy form, please contact the Company’s registrars, Link
Group, PXS1, 10th Floor, Central Square, 29 Wellington
Street, Leeds LS1 4DL.
If you submit more than one valid proxy appointment, the
appointment received last before the latest time for the
receipt of proxies will take precedence.
Termination of proxy appointments
12. In order to revoke a proxy instruction, you will need to
inform the Company by sending a signed hard copy
notice clearly stating your intention to revoke your
proxy appointment to the Company’s registrars, Link
Group, PXS1, 10th Floor, Central Square, 29 Wellington
Street, Leeds LS1 4DL. In the case of a member that is a
company, the revocation notice must be executed under
its common seal or signed on its behalf by an officer
of the company or an attorney for the company. Any
power of attorney or any other authority under which
the revocation notice is signed (or a duly certified copy
of such power or authority) must be included with the
revocation notice.
The revocation notice must be received by the Company’s
registrars not less than 48 hours before the time for
holding the Meeting or adjourned meeting.
If you attempt to revoke your proxy appointment but the
revocation is received after the time specified then your
proxy appointment will remain valid.
Corporate representatives
13. A corporation that is a member should appoint the
Chairman of the Meeting as its proxy in the manner
detailed above and in the notes to the proxy form.
Issued shares and total voting rights
14. As at 5.00 p.m. on 6 April 2021, the Company’s issued
share capital comprised 88,604,712 Ordinary Shares of
£0.01 each. Each Ordinary Share carries the right to one
vote at a general meeting of the Company and, therefore,
the total number of voting rights in the Company as at
5.00 p.m. on the 6 April 2021 is 88,604,712.
Communication
15. Except as provided above, members who have general
queries about the Meeting should use the following means
of communication:
• calling the Company Secretary on +44 (0) 1379 774 661;
or
• calling our shareholder helpline provided by the
Company’s registrars, Link Group, on 0371 664 0300
(calls are charged at the standard geographic rate
and will vary by provider) 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
• emailing the Company Secretary at
stephen.lamb@midwich.com.
You may not use any electronic address provided either:
• in this Notice of Annual General Meeting; or
• any related documents (including the proxy form),
to communicate with the Company for any purposes
other than those expressly stated.
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MIDWICH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 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
Nominated advisers and brokers
Investec
30 Gresham Street
London
EC2V 7QP
Company registration number
08793266
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
Berenberg
60 Threadneedle Street
London
EC2R 8HP
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ADDITIONAL INFORMATION Delivering experiences
Beyond expectations
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Midwich Group Plc
Vinces Road
Diss
Norfolk
IP22 4YT
T: 01379 649200
MIDWICHGROUPPLC.COM
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