Midwich CEO: The AV market is resistant to recession

Midwich Group CEO Stephen Fenby has expressed confidence in the continued growth of the AV market and the company, despite fears of recession.

Fenby was speaking after the Midwich Group posted another set of outstanding financial results, outperforming the market.

Midwich’s revenue for the six months ended 30 June grew 45.8% to £568.6m, with adjusted profit before tax up 47.4% to £19.2m.

Leaving aside two acquisitions, its organic revenue growth of 27.9% was more than double the 10.5% growth in the global pro AV market estimated by AVIXA.

The company previously reported full-year revenue of £856m, up 20.3% year on year, in the year ended 31 December 2021, with adjusted profit before tax of £31.9m, up 130%.

In a presentation on this year’s interim results, Midwich pointed to AVIXA market reports showing that the fastest growing markets in AV include many that are recession resistant.

And in a company statement, Fenby added: “I believe that we have demonstrated the resilience of our business in more challenging economic conditions, as seen by our strong performance throughout prior recessions.”

Speaking to AV Magazine this morning, Fenby said that part of the reason people bought AV was for “entertainment and fun and excitement” and this was a discretionary spend. But the majority of spending was to make people’s lives, their businesses or their teaching more effective

“AV has become not a nice to have, but a need to have,” he said.

As the industry has been around for some time, it has an established base of products, and AV spending will continue to benefit from the replenishment cycle. In addition, Midwich’s strong connection to the education market would benefit the company as governments had continued to spend money on education throughout the last two recessions.

Midwich would also gain from the high level of adaptability shown by its customers. “They will look to do business where there is a strong market. If you look at all the end-user markets in the financial crisis, the City (London’s financial district) went very quiet, so we focused on education and other parts of the market that were busier and so did our customers. In the Covid crisis, there were a lot of people working from home so we focused on selling products for use in the home.”

Fenby added: “That’s not to say that we’re completely resistant to a very significant economic downturn but our industry is adaptable and the drivers for demand in AV mean there is a resilience.”

Midwich has also seen some improvement in its supply chain challenges although there is still a mixed picture overall.

“We’re starting to get a lot of flat panels coming through so I think that’s probably back to where it needs to be,” said Fenby, “but there are still big shortages for us, particularly on the audio side of the business.”

As a result of purchasing extra stock when it becomes available to meet supply chain challenges, Midwich is carrying a higher level of inventory which requires an aged stock accounting provision, but this level is likely to come down as the product is sold to meet demand.

Among the company’s end-user markets, education has remained strong and Midwich outperforms against the market here. The corporate market, probably the second biggest for Midwich but the biggest for the AV industry as a whole, has seen some recovery but there is still some way to go before it reaches figures seen in 2019.

There has been some recovery in live events, particularly in outdoor events in Southern Europe. Live events in the UK had been better than expected. But there is still a long way to go in this market for Midwich, with supply chain issues affecting audio and technical products.

Meanwhile, selling into retail stores has been quiet, given the state of the High Street.

Midwich’s fast growth shows some variations by product type. Sales of mainstream products such as displays and projectors grew by 21%. But sales of specialist products such as technical video, audio, broadcast and lighting solutions grew by 86%.

In part this is due to the company’s acquisitions this year of video security products distributor DVS and Nimans, which distributes a range of unified communications, telecoms, collaboration and AV technologies. It also reflects the company’s work in the last few years, building up its UC business, including the acquisition of Starin in the US and the UC division of eLink in Germany.

Nimans and DVS had brought the Midwich Group a lot of new customers in different segments. “It’s early days in terms of growing cross selling to those customer bases but we’ve already seen some successes there,” Fenby said.

The return of live events should also help sales of higher-margin technical products. “That’s provided we can get enough of them as it’s in that area that we still have supply chain issues,” Fenby said.