REG - discoverIE Group plc - Interim Results
05/12/2023 07:00
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RNS Number : 6316V discoverIE Group plc 05 December 2023
5 DECEMBER 2023
discoverIE Group plc
Interim results for the six months ended 30 September 2023
Strong operating profit growth and progress towards margin targets
discoverIE Group plc (LSE: DSCV, "discoverIE" or "the Group"), a leading international designer and manufacturer of customised electronics to industry, today announces its interim results for the six month period ended 30 September 2023 ("H1 2023/24" or "the Period").
H1 2023/24 H1 2022/23 Growth % CER((3)) growth %
Revenue((1)) £222.0m £222.6m 0% +4%
Underlying operating profit((2)) £28.6m £25.6m +12% +17%
Underlying operating margin((1,2)) 12.9% 11.5% +1.4ppts +1.4ppts
Underlying profit before tax((2)) £25.1m £23.5m +7%
Underlying EPS((2)) 19.2p 17.8p +8%
Reported profit before tax £16.0m £14.8m +8%
Reported fully diluted EPS 11.7p 10.9p +7%
Interim dividend per share 3.75p 3.55p +6%
Highlights
· Sales growth with operating efficiencies driving strong first
half results
o Group sales up 4% CER on strong comparators (+23% CER last year)
o Organic((4)) sales up 1% (M&C: +2%; S&C: +1%)
o Gross margins robust and significant operational efficiencies
o Underlying operating profit up 17% CER
o Underlying EPS up 8%
· Further good progress towards key targets
o Underlying operating margin increased by 1.4ppts to 12.9%
o Operating cash flow for the last 12 months up 36% with a 91% conversion
rate((5))
o ROCE((6)) of 15.1%, in line with target
o Carbon emissions reduced by c.45% in absolute terms since CY 2021((7))
· Supply chain, order book and lead times normalised
o Period end order book of £203m, c.5 months of sales, provides good
forward visibility
· Excellent acquisition returns of 19.2% EBIT ROI((8)) demonstrate
value creation
· Two high-margin acquisitions completed for £65m
o 2J and Silvertel integrations underway and progressing as planned
o Period-end gearing((9)) of 1.6x at lower end of target range 1.5x to 2.0x
· Group well positioned for further growth
o Record bank of design wins (up 23% to £190m ELV((10))), with significant
further opportunities
o Strong acquisition pipeline
o On track to deliver full year underlying earnings in line with the Board's
expectations
Nick Jefferies, Group Chief Executive, commented:
"discoverIE performed well in the first half. Our operational focus and
sustained strong sales levels, which follows two years of growth at over 20%
per year, delivered significant efficiencies with underlying operating profit
increasing by 17% at constant exchange rates. We are making excellent progress
towards our margin targets with a 1.4ppts increase in underlying operating
margin, reflecting the leverage in our technology clusters, that is enabling
efficiencies and creating value from acquisitions.
As expected, the order book ended the Period at c.5 months of sales, almost
back to historic norms and the book-to-bill ratio is improving indicating that
the supply chain inventory correction in our markets is largely complete.
Since the period end orders have continued to strengthen being ahead of sales
and growing organically over last year.
The returns generated from our acquisitions exceed, increasingly over time,
our cost of capital and demonstrate the value creation of long-term
compounding organic growth with integration efficiencies. Over two-thirds of
the Group's operating profit growth over the last 12 years was generated from
the organic growth of our businesses since their acquisition and integration.
We are well positioned to continue this proven approach and remain a
consolidator in a fragmented market for customised industrial electronics.
Additionally, our capital light model is highly cash generative; over the last
12 months, operating cash flow increased by 36% to £50m, a 91% conversion
rate supporting further self-funding of acquisitions.
We are focused on generating organic growth in sustainable markets, enhanced
by earnings accretive acquisitions, and to this end our design wins and our
acquisition pipeline are stronger than ever.
The Group is well positioned to continue making good progress and remains on
track to deliver full year underlying earnings in line with the Board's
expectations."
Analyst and investor presentation:
A results briefing for sell side analysts and investors will be held today at
9.30am (UK time) at the offices of Peel Hunt. If you would like to join in
person or via the live webinar, please contact Buchanan at
discoverie@buchanan.uk.com.
Enquiries:
discoverIE Group
plc
01483 544 500
Nick Jefferies Group Chief Executive
Simon Gibbins Group Finance Director
Lili Huang Head of Investor Relations
Buchanan
020 7466 5000
Chris Lane, Toto Berger, Jack Devoy
discoverIE@buchanan.uk.com
Notes:
(1) Revenue for H1 2022/23 and the related underlying operating margin
have been restated to include £2.9m of one-off increase in semiconductor
costs at nil margin passed through to customers. £5m of similar costs passed
through to customers were included in revenue for FY 2022/23. See note 2 of
the attached condensed consolidated interim financial statements.
(2) 'Underlying Operating Profit', 'Underlying Operating Margin",
'Underlying EBITDA', 'Underlying Profit before Tax' and 'Underlying EPS' are
non-IFRS financial measures used by the Directors to assess the underlying
performance of the Group. These measures exclude acquisition-related costs
(amortisation of acquired intangible assets of £7.7m and acquisition expenses
of £1.4m) totalling £9.1m. Equivalent underlying adjustments within the H1
2022/23 underlying results totalled £8.7m. For further information, see note
7 of the attached condensed consolidated interim financial statements.
(3) Growth rates at constant exchange rates ("CER"). The average Sterling
rate of exchange weakened 2% against the Euro compared with the average rate
for the same period last year whilst strengthening 9% on average against the
three Nordic currencies and 3% against the US Dollar.
(4) Organic growth for the Group compared with last year is calculated at
CER and is shown excluding the first 12 months of acquisitions post completion
(CDT in June 2022, Magnasphere in January 2023, Silvertel in August 2023 and
2J in September 2023).
(5) Operating cash flow is cash flow from operations including investment
in working capital and capital expenditure.
(6) ROCE is defined as annualised H1 2023/24 underlying operating profit
including the annualisation of acquisitions, as a percentage of net assets
excluding net debt, deferred consideration related to discontinued operations
and legacy defined benefit pension asset/(liability).
(7) CY 2025 target is to reduce scope 1 & 2 carbon emissions by 65% on
an absolute basis (base year CY 2021).
(8) EBIT ROI for acquisitions is the total annualised H1 2023/24
underlying operating profit for each business owned for greater than two years
divided by total cost of those acquisitions including acquisition expenses,
earn outs (as accrued) and integration costs.
(9) Gearing ratio is defined as net debt divided by underlying EBITDA
(excluding IFRS 16; annualised for acquisitions).
(10) ELV is estimated lifetime value
(11) Unless stated, growth rates refer to the comparable prior year period.
(12) The information contained within this announcement is deemed by the Group
to constitute inside information as stipulated under the Market Abuse
Regulation, Article 7 of EU Regulation 596/2014. Upon the publication of this
announcement via Regulatory Information Service, this inside information is
now considered to be in the public domain.
Notes to Editors:
About discoverIE Group plc
discoverIE Group plc is an international group of businesses that design and
manufacture innovative electronic components for industrial applications.
The Group provides application-specific components to original equipment
manufacturers ("OEMs") internationally through its two divisions, Magnetics
& Controls, and Sensing & Connectivity. By designing components that
meet customers' unique requirements, which are then manufactured and supplied
throughout the life of their production, a high level of repeating revenue is
generated with long-term customer relationships.
With a focus on sustainable key markets driven by structural growth and
increasing electronic content, namely renewable energy, medical,
electrification of transportation and industrial automation &
connectivity, the Group aims to achieve organic growth that is well ahead of
GDP and to supplement that with complementary acquisitions. The Group is
committed to reducing the impact of its operations on the environment with an
SBTi aligned plan to reach net zero. With its key markets aligned with a
sustainable future, the Group has been awarded an ESG "AA" rating by MSCI and
is Regional (Europe) Top Rated by Sustainalytics.
The Group employs c.4,500 people across 20 countries with its principal
operating units located in Continental Europe, the UK, China, Sri Lanka, India
and North America.
discoverIE is listed on the Main Market of the London Stock Exchange and is a
member of the FTSE250, classified within the Electrical Components and
Equipment subsector.
Strategic, Operational and Financial Review
Good progress towards our targets
The Group designs and manufactures niche, customised, innovative electronics.
We have made good progress this Period towards our near and medium-term goals
of increasing operating margins, supplying UN SDG-aligned target markets
internationally, and generating consistently strong cash flow.
The Group delivered sales growth of 4% at CER, underlying operating profit
growth of 17% at CER and underlying EPS growth of 8%. This continued the good
progress of the previous four years which saw compound annualised growth in
the ongoing Group of 10% in organic sales, 32% in underlying operating profit
and 25% in underlying EPS.
Despite economic headwinds, organic sales growth was very strong in North
America, up by 35%, driven by organic growth in key target market customers,
easing of semiconductor supply chains and localisation of production by some
customers; good organic growth was also achieved in a number of key
territories with the UK increasing by 6%, Nordics by 5%, and Eastern Europe by
5%. In total, these regions accounted for 61% of Group revenues. These were
largely offset by reductions in Asia (mainly China and India) which was down
by 23% particularly as customers' production localisation continued, resulting
in Group organic sales growth of 1%.
Robust gross margins and tight operating cost management led to an underlying
operating margin of 12.9%, up 1.4ppts year-on-year and another significant
step towards achieving our Group targets of 13.5% by FY 2024/25, and 15% in
the medium-term.
During the Period, expansion of the Group's production capacity in Germany and
Thailand was completed and we continued with the building of a new facility in
India which is expected to be operational in the next financial year.
Following constraints last year, supply chains have now returned to normal.
Accordingly, the Group order book, which peaked a year ago at £257m (c.7
months of sales), has normalised as expected, converting into sales during the
second half of last year and the first half this year. The order book at 30
September 2023 was £203m, representing c.5 months of sales. Other than a
couple of businesses with specific reasons for longer order books, the Group's
order books are back to normal levels with Group orders returning to
sequential growth in the second quarter of 2%.
The quarterly book-to-bill ratio improved sequentially in the first half with
a Period exit rate close to 1:1 indicating that customer inventory corrections
are largely complete. With strong growth in design wins (up 23% this Period),
the Group is well positioned to accelerate growth as end market demand
conditions strengthen.
Positioned well in a changing world
The Group is well positioned in an environment of rapidly changing global
conditions, with a business model that is both resilient and flexible.
- Essential products: the Group's products are designed-in and
essential for customers' applications whilst amounting to a small proportion
of their overall system cost, thereby driving resilient gross margins.
- Broad footprint: a decentralised model with 34 manufacturing sites
and operations around the world, able to support customers locally and with
the decarbonisation of their supply chains.
- Efficient supply chains: our manufacturing uses a low proportion of
bought-in components, the majority being manufactured in-house from raw
materials and base components, reducing our exposure to external supply chain
disruptions.
- Low energy intensity operations: the large majority of the Group's
energy exposure is electricity and with operations mainly being manual or
semi-automated, energy costs represent less than 1% of Group revenues,
limiting the Group's exposure to energy price rises and operational
disruptions.
With a capital light business model, a differentiated product portfolio, a
strong balance sheet and low customer concentration (the Group's largest
customer is c.7% of Group sales), the Group has grown strongly and
consistently over the last decade whilst proving resilient through economic
downturns, most recently experienced with the pandemic. We expect this to
continue to be the case in a changing world.
Continued Financial Progress
Group sales for the first half increased by 4% at CER to £222.0m
notwithstanding strong comparators (+23% CER growth in the prior period and
20% CER the year before that). Combined with significant operating
efficiencies, first half underlying operating profit increased by 17% CER to
£28.6m. Conversely interest rate rises over the last 12 months increased
finance costs by £1.4m to £3.5m resulting in underlying profit before tax
growth of 7% (up to £25.1m) with underlying earnings per share up 8% to 19.2p
(H1 2022/23: 17.8p).
After underlying adjustments for the inclusion of acquisition-related costs,
profit before tax for the Period on a reported basis increased by 8% to
£16.0m (H1 2022/23: £14.8m) with fully diluted earnings per share increasing
by 7% to 11.7p (H1 2022/23: 10.9p).
Free cash flow of £30.5m was generated over the last 12 months, being 26%
higher than the prior 12 month period and representing 85% of underlying
earnings, in line with the Group's conversion target. Net debt at 30 September
2023 increased to £111.3m (30 September 2022: £45.2m) with a gearing ratio
of 1.6x following the acquisitions of Magnasphere in the second half last year
and 2J and Silvertel this half, for a combined investment of £83m. This
gearing is towards the lower end of our target range of 1.5x to 2.0x.
Increased Dividend
The Board is pleased to declare an increase in the interim dividend of 6% to
3.75p per share (H1 2022/23: 3.55p per share). Since 2010, the annual dividend
per share has more than doubled.
The Board believes in maintaining a progressive dividend policy along with a
long-term dividend cover of over three times earnings on an underlying basis
(FY 2022/23: dividend cover of 3.1x). This approach, along with the continued
development of the Group, will enable funding of both dividend growth and a
higher level of investment in acquisitions from internally generated
resources.
The interim dividend is payable on 24 January 2024 to shareholders registered
on 15 December 2023. Alongside the interim dividend, the Company is starting a
Dividend Re-Investment Programme ("DRIP"), details of which are available from
the Company's Registrars, Equiniti. The final date for DRIP elections for the
interim dividend will be 3 January 2024.
Sustainability and Social Responsibility
The Group creates innovative electronics that help customers produce new
technologies for a sustainable world. Our focus on sustainability forms the
core of our target markets where, through focused initiatives, we aim to grow
our revenues organically ahead of the wider industrial market. These trends
are reported in our key strategic indicators as target market sales.
Additionally, the Group has reduced focus on market areas that are
inconsistent with a long-term sustainability agenda.
Our target markets are aligned to the UN Sustainable Development Goals with
our target of generating around 85% of new design wins from these markets. We
achieved 89% during the Period, while sales from target markets were 76% of
Group sales. We also aim to increase the proportion of the Group's operations
covered by ISO 14001, the international standard for environmental management
to 80% by CY 2025. Please refer to the Group's Impact Report which is
available on the Group's website and illustrates how we are helping to meet
the global sustainability agenda.
The Group was awarded the MSCI ESG "A" Rating in April 2022, which was
subsequently upgraded to "AA" rating in July 2023, being in the top 16% of all
companies surveyed; the Group is also rated by Morningstar Sustainalytics as
one of the Regional (Europe) Top Rated companies in 2023, a recognition given
to companies that have achieved the highest scores in ESG risk management.
During the Period, a number of initiatives were undertaken to improve our
sustainability and diversity including:
Environmental
- Further progress made on net zero targets including: more solar
panel installations under consideration at sites in Sri Lanka, China, India
and Mexico; opened the Group's first carbon-neutral facility in Germany in
September 2023;
- Four more sites achieved ISO 14001 Environmental Management Systems
accreditation, bringing the total number of sites to 34, or 61% of Group
facilities;
- Energy audit programme continued; on track to meet our CY 2025
target of 80% of Group sites completing energy audits since 2018;
- Established a new carbon reporting system to help streamline data
collection, consolidation and reporting on greenhouse gases, particularly
Scope 3 emissions;
- Continued education and mapping of Scope 3 emissions through
Group-wide emission awareness and reporting webinars.
Social
- Two more sites in Europe achieved ISO 45001 Occupational Health
& Safety Management Systems accreditation;
- Initiated a learning & development platform that enables
operating businesses to manage people development and skill gaps consistently;
- Established an industrial placement scheme for engineering
undergraduates with the University of Surrey.
Governance
- Enhanced ESG accountability by establishing three-year ESG
objectives and KPIs for each operating business;
- MSCI ESG rating upgraded to AA from A;
- Launched Business Ethics Policy and Sustainability Policy;
- Completed Carbon Disclosure Project ("CDP") full disclosure for the
first time;
- Increased transparency by reporting on Sustainable Finance
Disclosure Regulation Principal Adverse Impact (PAI) indicators;
- Preparation for IFRS Sustainability Reporting underway with
dedicated resources in place.
A Proven Growth Strategy
The Group has been built through a focus on organic growth together with
operational efficiency, alongside 23 carefully selected and well-integrated
acquisitions over the past 12 years to create a focused, growth-oriented,
higher margin design and manufacturing business. We have a well-developed
approach to acquisitions and capital allocation and see significant scope for
further expansion with a strong pipeline of opportunities in development.
The Group's strategy comprises four elements:
1. Grow sales well ahead of GDP over the economic cycle by
focusing on the structural growth markets that form our sustainable
target markets;
2. Improve operating margins by moving up the value chain into
higher margin products;
3. Acquire businesses with attractive growth prospects and
strong operating margins;
4. Further internationalise the business by expanding
operations in North America and Asia.
These elements are underpinned by core objectives of generating strong cash
flows from a capital-light business model and delivering long-term sustainable
returns while progressing towards net zero carbon emissions and reducing our
impact on the environment.
Focused on UN SDG-Aligned Target Markets
Our four target markets of industrial automation & connectivity, medical,
renewable energy, and the electrification of transportation accounted for 76%
of first half sales. Long-term growth in these target markets is being driven
by increasing electronic content and by global megatrends such as the
accelerating need for industrial automation and connectivity, an ageing
affluent population, renewable sources of energy and the electrification of
transport.
Our focus on these markets is driving the Group's organic revenue growth well
ahead of GDP over the economic cycle, gives resilience in softer market
conditions and creates acquisition opportunities.
During the Period, target market sales were 1% lower and included a return to
growth in renewable energy offset by a slowing due to de-stocking by some
specific industrial automation customers. Other target markets remained in
growth. Since 2017, sales into the Group's target markets have grown
organically by 82% cumulatively, compared with 27% in the other markets. This
reflects the sustained compounding organic growth and less cyclical nature of
these markets.
Continued progress on Key Strategic and Performance Indicators
Since 2014, the Group's strategic progress and its financial performance have
been measured through key strategic indicators ("KSIs") and key performance
indicators ("KPIs"). The KSI targets have been raised six times, most recently
in June 2023, as the Group has developed into a pure designer and manufacturer
of highly engineered components with higher operating margins.
For tracking purposes, the KSIs and KPIs in the tables below remain as
reported at the time rather than adjusted for disposals. Targets are for the
medium-term unless stated, with medium-term defined as being around five
years. This year's performance relative to last year is discussed below.
Key Strategic Indicators
FY14 FY18 FY19 FY20 FY22 FY23 H1 24 Targets
1. Increase underlying operating margin 3.4% 6.3% 7.0% 8.0% 10.9% 11.5% 12.9% 15%((1))
2. Build sales beyond Europe((2)) 5% 19% 21% 27% 40% 40% 42% 45%
3. Increase target market sales((2)) 62% 66% 68% 76% 77% 76% 85%
4. Carbon emissions Scope 1 & 2 reduction((3)) 35% c.45% 65%
(1) Also a target for FY2024/25 of 13.5%.
(2) As a percentage of Group revenue.
(3) Carbon emissions are measured on a calendar year basis. Target is
for absolute carbon emissions reduction by CY 2025 from CY 2021 with net zero
by CY 2030.
The Group made further excellent progress with its KSIs during the Period:
- Underlying operating margin was 12.9%, an increase of 1.4ppts on the
first half last year (H1 2022/23: 11.5%) and 1.4ppts higher than last year in
total (FY 2022/23: 11.5%). The Group benefited in the Period from robust gross
margins, operational efficiencies and tight cost control augmented by higher
margin acquisitions. The Group remains on track to achieve its targets of
13.5% in FY 2024/25 and 15% in the medium-term.
- Sales beyond Europe for the Period increased by 2ppts to 42% of
Group revenue compared with FY 2022/23, with strong organic sales in the US
partly offset by reduced demand in Asia. The target for FY 2024/25 is 45%.
- Target market sales in the Period reduced by 1ppt to 76% of Group
revenue compared with FY 2022/23 as a result of lower sales in industrial
automation, acquisitions which had lower target market sales at the outset and
a recovery in some non-target market areas (aerospace & defence sector,
some non-UN SDG aligned industrial markets and distributor re-stocking).
Design wins, which are the bedrock of future sales, were up 23% year-on-year
with 89% in target markets, ahead of our 85% target.
- Carbon emissions reduced further during the Period and are now an
estimated 45% lower on an absolute basis than in CY 2021, excellent progress
towards our reduction targets of 65% by CY 2025 and net zero by 2030.
Key Performance Indicators
FY14 FY18 FY19 FY20 FY22((1)) FY23 H1 24 Targets
1. Sales growth
CER 17% 11% 14% 8% 27% 15% 4% Well ahead
of GDP
Organic 3% 11% 10% 5% 14% 10% 1%
2. Underlying EPS growth 20% 16% 22% 11% 20% 20% 8% >10%
3. Dividend growth 10% 6% 6% 6%((2)) 6% 6% 6% Progressive
4. ROCE((3)) 15.2% 13.7% 15.4% 16.0% 14.7% 15.9% 15.1% >15%
5. Operating profit conversion((3)) 100% 85% 93% 106% 101% 94% 91% >85% of underlying operating profit
6. Free cash conversion((3)) 94% 104% 102% 95% 85% >85% of underlying
earnings
(1) FY 2021/22 shown as growth over the pre-Covid period FY 2019/20 as this
reflects the ongoing growth of the business. FY 2013/14 to FY 2019/20 are for
total operations before disposals as reported at the time.
(2) 6% increase in the H1 2019/20 interim dividend; a final dividend was not
proposed for FY 2019/20 due to Covid.
(3) Defined in note 7 of the attached condensed consolidated interim
financial statements.
The Group also made further good progress with its KPIs during the Period,
especially given the economic backdrop.
- Organic sales increased by 1% this Period. Growth rates have reduced
due to normalising markets, although we retain our focus on achieving 10%
organic growth through cycle. Since FY 2017/18, organic sales have grown by 9%
per annum on average, illustrating the strong through-cycle organic growth of
the business.
- Underlying EPS increased by 8%. Excluding increased finance costs
and at CER, underlying operating profit increased by 17%, only 3ppts lower
growth than last year during much stronger economic conditions, due to our
operational efficiencies with robust gross margins, tight control of operating
costs, and contributions from acquisitions.
- The interim dividend is being increased by 6%, continuing our
progressive policy whilst providing for a higher proportion of investment in
acquisitions from internally generated resources. This progressive policy has
seen a more than doubling of the dividend per share since 2010, whilst
dividend cover on an underlying basis increased to 3.1x for the last financial
year.
- ROCE for the Period was 15.1% and whilst 0.8ppts lower than last year
(FY 2022/23: 15.9%), was in-line with our 15% target and in-line with 12
months ago (H1 2022/23: 15.2%). The reduction follows the acquisitions of
Silvertel in August 2023 and 2J in September 2023 which, as with most
acquisitions, are initially dilutive to ROCE. Silvertel is expected to be
accretive this year and 2J accretive from next financial year.
- Operating cash flow and free cash flow for the last 12 months were 36%
and 26% higher respectively than the comparable 12 month period with operating
cash conversion of 91%, ahead of our 85% target and with free cash conversion
of 85% being in line with our target. Over the last ten years, both operating
cash conversion and free cash conversion have been consistently strong,
averaging well over 90%, reflecting tight management of working capital and
expenditure through the economic cycle.
Divisional Results
The divisional results for the Group for the six months ended 30 September
2023 are set out and reviewed below.
H1 2023/24 H1 2022/23 Reported revenue growth CER revenue growth Organic revenue
Growth
Revenue £m Underlying Margin Revenue £m Underlying Margin
operating profit((1)) operating profit((1))
£m £m
M&C 134.4 19.9 14.8% 131.5 17.1 13.0% -2% 2% 2%
S&C 87.6 15.2 17.4% 82.2 13.4 16.3% 5% 7% 1%
Unallocated (6.5) (6.0)
Total (CER) 222.0 28.6 12.9% 213.7 24.5 11.5% 1% 4% 1%
Pass-thru cost 2.9 -
FX 6.0 1.1
Total 222.0 28.6 12.9% 222.6 25.6 11.5% 0%
(1) Underlying operating profit excludes acquisition-related costs
(2) Revenue for H1 2022/23 and the related underlying operating margin
restated to include £2.9m of one-off increase in semiconductor costs at nil
margin passed through to customers. £5m of similar costs passed through to
customers were included in revenue for FY 2022/23.
Magnetics & Controls Division ("M&C")
The M&C division designs, manufactures and supplies highly differentiated
magnetic and power components, embedded computing and interface controls, for
industrial applications. The division comprises one cluster and six further
businesses operating across 17 countries. The large majority of the products
are manufactured in-house at one of the division's 21 manufacturing
facilities, with its principal sites being in China, India, Mexico, Poland,
Sri Lanka, Thailand and the UK. Geographically, 5% of sales by destination are
in the UK, 50% in the rest of Europe, 26% in North America and 19% in Asia.
Capacity of our facility in Thailand has been expanded and construction of a
new larger production facility has continued in Kerala, India. This will
supersede our existing plant and become operational in the next financial
year.
With supply chains back to normal during the Period following constraints last
year, the divisional order book normalised as expected with orders reducing by
14% CER to £120.0m (H1 2022/23: £144.8m) for a book-to-bill ratio of 0.89:1
(H1 2022/23: 1.06:1) against strong prior year comparators. The book-to-bill
has improved through the Period, from 0.86:1 in the first quarter to 0.93:1 in
the second quarter, Sales grew by 2% organically, driven by strong growth in
North America of 35% and the Nordics up 12%. Conversely Asia reduced by 24%
primarily due to reductions in China, and the rest of Europe reduced by 5%,
mainly due to a slow-down in Germany.
Including the impact of translation from a stronger Sterling on average,
reported divisional revenue reduced by 2% to £134.4m (H1 2022/23: £136.5m
reported and £131.5m at CER). Underlying operating profit of £19.9m was
£2.8m (+16%) higher than last year at CER and £1.9m (+11%) higher on a
reported basis (H1 2022/23: £18.0m). The underlying operating margin of 14.8%
was 1.8ppts higher than last year at CER and 1.6% higher on a reported basis
(H1 2022/23: 13.2%), reflecting the positive effect of organic growth robust
gross margins and strong operating efficiencies.
Sensing & Connectivity Division ("S&C")
The S&C division designs, manufactures and supplies highly differentiated
sensing and connectivity components for industrial applications and comprises
three clusters and four further businesses operating across nine countries.
The majority of the products are manufactured in-house at one of the
division's 13 manufacturing facilities, with its principal ones being in
Hungary, the Netherlands, Norway, Slovakia, the UK and the US. Geographically,
21% of sales by destination are in the UK by destination, 42% in the rest of
Europe, 23% in North America and 14% in Asia. This Period has seen the opening
of a new, purpose built, larger facility in Germany.
As with the M&C division, supply conditions returned to normal during the
Period, with the divisional order book normalising as expected with orders
reducing by 19% CER to £73.9m (H1 2022/23: £92.1m) for a book-to-bill ratio
of 0.84:1 (H1 2022/23: 1.11:1) against strong prior year comparators. The
book-to-bill improved through the Period, from 0.80:1 in the first quarter to
0.89:1 in the second quarter, Sales increased by 1% organically, with 35%
organic growth in North America and 9% in the UK, offset by a 6% reduction in
the rest of Europe and a 19% reduction in Asia, principally in China.
Combined with a 6% sales increase from acquisitions, overall sales increased
by 7% CER. Including the impact of translation from a stronger Sterling on
average, reported divisional revenue increased by 5% to £87.6m (H1 2022/23:
£83.2m reported and £82.2m at CER).
Underlying operating profit of £15.2m was £1.8m (+13%) higher than last year
at CER and £1.6m (+12%) higher on a reported basis (H1 2022/23: £13.6m). The
underlying operating margin of 17.4% was 1.1ppts higher than last year (H1
2022/23: 16.3%), which, as with the M&C division, reflects the positive
effect of sales growth, robust gross margins and strong operating
efficiencies.
Design Wins Driving Future Recurring Revenues
Project design wins are a measure of new business creation. By working with
customers at an early stage in their project design cycle, opportunities are
identified for our products to be specified into their designs, leading to
future recurring revenue streams.
The Group has a strong bank of design wins built up over many years, creating
the basis for the Group's strong organic growth through the cycle. During the
Period, new design wins were registered with an estimated lifetime value of
£190m, an increase of 23% over last year and with 89% being in our target
markets. This large increase in design wins reflects both the expected
increase in customer project design activity at this stage in the cycle,
catch-up from designs that were paused during last year's supply chain
bottlenecks and increased focus and implementation by Group engineers.
Additionally, new project design activity remains at a very high level, being
broad-based across all target markets along with a smaller proportion in other
market areas with similar high quality recurring revenue characteristics such
as Space and Aeronautics. The total pipeline of ongoing projects continues to
be strong.
Acquisitions
The market is highly fragmented with many opportunities to acquire and
consolidate. Currently, from approximately 400 businesses being tracked, the
Group's pipeline consists of 250 identified targets of which 45 are in active
outreach phase and 15 in live deal negotiation.
The businesses we acquire are typically led by entrepreneurs who wish to
remain with the business for a period following acquisition. We encourage this
as it helps retain a dynamic, decentralised and entrepreneurial culture.
We acquire high-quality businesses that are successful with good long-term
growth prospects, paying a price that reflects this quality whilst generating
good returns for shareholders. We invest in these businesses for growth and
operational performance development. According to the circumstances, we add
value in some or all of the following areas:
Strategy and operations:
- Creating a long-term strategy for growth with operational leverage
for the business;
- Grouping businesses into clusters under one operational leadership
team;
- Generating operational efficiencies;
- Internationalising sales channels;
- Accelerating organic growth by expanding the customer base,
including cross-selling and focusing sales development onto target market
areas;
- Developing the product range.
People:
- Investing in management capability;
- Enabling peer networking and collaboration;
- Succession planning and management transition.
Sustainability:
- Implementing energy audits;
- Creating carbon emission reduction plans;
- Achieving ISO standards accreditation;
- Inclusion in the Group's SBTi net zero carbon emission reduction
program;
- Supporting operating companies with their customers emission
reduction plans.
Investment:
- Capital investment in manufacturing and infrastructure;
- Improving manufacturing and infrastructure efficiency;
- Internationalising operations;
- Expansion through further acquisitions;
- Upgrading systems such as IT.
Controls and support:
- Implementing robust financial controls;
- Finance and related support, such as treasury, banking, legal, tax
and insurance;
- Risk management and internal audit.
The Group has acquired 23 design and manufacturing businesses over the last 12
years, with the Group's continuing revenues increasing to £449m in FY 2022/23
from £10m in FY 2009/10. By taking a long-term approach to create compounding
organic growth in acquired and integrated businesses, the Group has generated
substantial value organically. Over this period, more than two thirds of the
Group's earnings growth has been delivered from the organic growth and
integration of these acquisitions with the balance being from immediate deal
accretion. During this Period, the Group completed two high margin
acquisitions:
i) Silvertel, a UK-based designer and manufacturer of
differentiated, high performance Power-over-Ethernet ("PoE") modules and
complementary products for global industrial electronic connectivity markets,
which sells into more than 70 countries. Silvertel was acquired for an initial
cash consideration of £21.4m on a debt free, cash free basis, together with
an earn-out of up to £23m payable subject to Silvertel's performance over the
next four years.
ii) 2J Antennas Group ("2J"), a Slovakian-based designer and
manufacturer of high performance antennas for industrial electronic
connectivity applications for a cash consideration of €50.8m (£43.6m) on a
debt free, cash free basis. 2J, which has subsidiaries in the US and UK and
sells into more than 50 countries, will form a new technology cluster with the
Group's existing antenna business, Antenova, creating a leading platform in
the growing, high performance, industrial wireless connectivity market.
The Group's operating model is well established and has facilitated the smooth
integration of acquired businesses. Through a combination of investment in
efficiency and leveraging of the broader Group's commercial infrastructure,
the businesses acquired since 2011 and owned for at least two years delivered
a return on investment ("EBIT ROI") of 19.2% this Period, well above our
target of 15%.
Group Financial Results
Revenue and Orders
Group sales of £222.0m were 1% higher organically than last year (H1 2022/23:
£219.7m) and with acquisitions (CDT and Magnasphere acquired last year,
together with Silvertel and 2J this Period) adding 3% to revenue, Group sales
increased by 4% at CER. Revenue for H1 2022/23 has been restated to include
£2.9m of one-off increase in semiconductor costs at nil margin passed through
to customers, which reduced reported sales growth by 1%. A stronger Sterling
on average during the Period, particularly compared with Nordic currencies and
the US Dollar, reduced sales by 3% on translation resulting in reported sales
being at the same level as last year.
Revenue (£m) H1 H1 2022/23
2023/24 %
Organic sales 216.7 213.7 +1%
Acquisitions 5.3
Sales at CER 222.0 213.7 +4%
Nil margin pass thru costs 2.9
FX translation 6.0
Reported sales 222.0 222.6 0%
As mentioned above, the Group order book continued to normalise during the
first half as supply chains returned to normal, ending the Period at £203m
(c.5 months of sales) compared with £257m last year (c.7 months of sales) at
the height of supply constraints.
Orders for the Period were £193.9m, 16% lower at CER than last year (H1
2022/23: £236.9m). The extent of normalisation reduced across the Period with
a book to bill ratio of 0.84:1 in the first quarter improving to 0.91:1 in the
second quarter for a first half ratio of 0.87:1 with orders in the second
quarter increased by 2% sequentially.
Group Operating Profit and Margin
Group underlying operating profit for the Period was £28.6m, a 12% increase
on last year (H1 2022/23: £25.6m), and 17% higher at CER, delivering an
underlying operating margin of 12.9%, 1.4ppts higher than last year (H1
2022/23: 11.5%) and 1.4ppts higher at CER. We remain well on track to reach
our targets of 13.5% in FY 2024/25 and 15% in the medium term.
Group reported operating profit for the Period (including acquisition-related
costs discussed below) was £19.5m, 15% higher than last year (H1 2022/23:
£16.9m).
£m H1 2023/24 H1 2022/23
Operating Finance Profit before tax Operating profit Finance cost Profit before tax
profit Cost
Underlying 28.6 (3.5) 25.1 25.6 (2.1) 23.5
Underlying adjustments
Acquisition expenses (1.4) - (1.4) (0.9) - (0.9)
Amortisation of acquired intangibles (7.7) - (7.7) (7.8) - (7.8)
Reported 19.5 (3.5) 16.0 16.9 (2.1) 14.8
Underlying operating profit growth has been achieved through a combination of
strong operating efficiencies and acquisitions as shown below:
£m Underlying
Operating
Profit
H1 2022/23 25.6
Gross profit on organic sales growth 1.2
Organic gross margin 4.4
Organic investment in opex (2.3)
Organic profit growth - operations 3.3
Head Office investment (0.5)
Profit from acquired companies 1.3
Foreign exchange impact (1.1)
H1 2023/24 28.6
Over three quarters (£3.3m) of the incremental profits in the Period were
generated from organic operating performance driven by robust gross margins
with operational efficiencies and tight management of operating costs amidst a
high inflation environment. The remaining incremental profits were delivered
by the three acquisitions made in the last 12 months (namely Magnasphere,
Silvertel and 2J) partly offset by increased investment at Head Office, mainly
into enlarging our M&A team.
Sterling has been stronger this Period versus 12 months ago, compared with the
US dollar (-3%) and Nordic currencies (-9%), partly offset by further weakness
compared to the Euro (+2%). This gave rise to a reduction in underlying
operating profits on translation of £1.1m for the Period.
Underlying Adjustments
Underlying adjustments for the Period comprise acquisition expenses of £1.4m
(H1 2022/23: £0.9m), and the amortisation of acquired intangibles of £7.7m
(H1 2022/23: £7.8m).
Acquisition expenses of £1.4m are the costs associated with the acquisitions
during the Period of Silvertel in August 2023 and 2J in September 2023
together with movements in accrued contingent consideration cost relating to
the acquisitions of Limitor, Phoenix and CPI. While the amortisation charge
for the Period is broadly in line with last year, the acquisitions of
Silvertel and 2J will increase the expected charge for the full year to
approximately £17m.
Financing Costs
Net finance costs for the Period were £3.5m (H1 2022/23: £2.1m) and include
a £0.3m charge for leased assets under IFRS 16 (H1 2022/23: £0.4m) and
£0.4m charge for amortised upfront facility costs (H1 2022/23: £0.4m).
Finance costs related to our banking facilities were £2.8m (H1 2022/23:
£1.3m) and have more than doubled following the rise in interest rates across
the Period for Sterling, US Dollars and Euros, the Group's principal borrowing
currencies. From September 2022 to September 2023, the Sterling base rate
increased from 2.25% to 5.25%, the US Dollar Federal rate from 3.25% to 5.5%
and the ECB lending rate from 1.25% to 4.5%. Together with the debt funded
acquisitions of Silvertel and 2J towards the end of the Period, net finance
costs for the current year are expected to be approximately £9m at current
interest rates, annualising to approximately £11m next year. Looking forward,
a 1ppt increase/reduction in interest rates would increase/reduce finance
costs by approximately £1.1m.
Underlying Tax Rate
The underlying effective tax rate ("ETR") in the first half was 25%, lower
than last year's rate (H1 2022/23: 26%) and broadly in line with last year's
rate for the full year (FY 2022/23: 25.3%).
The overall ETR was 28% (H1 2022/23: 28%). This was higher than the underlying
ETR due to there being no tax relief on acquisition expenses (within
underlying adjustments above).
£m H1 2023/24 H1 2022/23
PBT ETR PBT ETR
Group underlying 25.1 25% 23.5 26%
Acquisition expenses (1.4) 0% (0.9) 0%
Amortisation of acquired intangibles (7.7) 23% (7.8) 24%
Total reported 16.0 28% 14.8 28%
Profit Before Tax and EPS
Underlying profit before tax for the Period of £25.1m was £1.6m higher (+7%)
than last year (H1 2022/23: £23.5m), with underlying EPS for the Period
increasing by 8% to 19.2p (H1 2022/23: 17.8p).
£m H1 2023/24 H1 2022/23
PBT EPS PBT EPS
Underlying 25.1 19.2p 23.5 17.8p
Underlying adjustments
Acquisition expenses (1.4) (0.9)
Amortisation of acquired intangibles (7.7) (7.8)
Reported 16.0 11.7p 14.8 10.9p
After the underlying adjustments above, reported profit before tax for
continuing operations was £16.0m, an increase of £1.2m (+8%) compared with
last year (H1 2022/23: £14.8m) while reported fully diluted earnings per
share was 11.7p, 7% higher than last year (H1 2022/23: 10.9p).
Working Capital and Asset Returns Ratios
Working capital at 30 September 2023 was £89.3m, equivalent to 18.8% of first
half annualised sales at CER with an additional £8.2m of working capital from
acquisitions during the last 12 months offset by £2.8m from foreign exchange
translation. This is 2.3ppt higher than last year when working capital was
£74.7m or 16.5% of first half annualised sales. Inventory levels have been
normalising, remaining slightly elevated due to continuing supply chain
buffers and are expected to further reduce in the second half.
Working capital KPIs have remained robust during the Period with debtor days
of 49 (in line with last year), creditor days of 74 (4 days lower than last
year) and stock turns of 2.8 (0.2 turn lower than last year).
ROCE for the Period of 15.1% was ahead of our 15% target and broadly in line
with 12 months ago (H1 2022/23: 15.2%). Return on Tangible Capital Employed
(ROTCE) for the Period, which excludes intangible and non-operational assets,
was 42.5% an increase of 0.5ppts from last year (H1 2022/23: 42.0%) and
illustrates the strong returns generated by the Group's operational
assets.
Cash Flow
Net debt at 30 September 2023, excluding leases, was £111.3m, compared with
£42.7m at 31 March 2023 and £45.2m at 30 September 2022, with the increase
in the Period of £68.6m mainly related to the acquisitions of Silvertel on 30
August 2023 and 2J on 12 September 2023.
£m H1 H1 Last 12 Months
2023/24 2022/23
Opening net debt (42.7) (30.2) (45.2)
Free cash flow (see table below) 8.1 10.6 30.5
Acquisitions (67.5) (13.2) (84.9)
Equity issuance (net of taxes) (0.2) (0.6) (0.2)
Dividends (7.6) (7.1) (11.0)
Foreign exchange impact (1.4) (4.7) (0.5)
Net debt at 30 Sept (111.3) (45.2) (111.3)
Acquisition costs of £67.5m in the Period comprised £21.4m for the
acquisition of Silvertel, £43.6m for the acquisition of 2J (both on a debt
free, cash free basis) and £2.5m of associated expenses.
Last year's final dividend of £7.6m, which was paid in July 2023, was an
increase of 6% over the prior year.
The cash impact from FX translation was relatively low in the Period, compared
to last year which saw Sterling significantly weaken in particular compared to
the US Dollar. The Group's policy is to hold net debt in currencies aligned to
the currency of its cash flows in order to protect the gearing of the Group.
£m H1 H1 Last 12
2023/24 2022/23 Months
Underlying Profit before tax 25.1 23.5 47.9
Net finance costs 3.5 2.1 6.9
Non-cash items 7.5 6.9 15.2
Underlying EBITDA 36.1 32.5 70.0
IFRS 16 - lease payments (3.1) (2.8) (6.1)
EBITDA (pre IFRS 16) 33.0 29.7 63.9
Changes in working capital (12.3) (10.3) (8.4)
Capital expenditure (2.7) (2.6) (5.7)
Operating cash flow 18.0 16.8 49.8
Finance costs (3.7) (2.0) (6.7)
Taxation (5.2) (3.2) (11.0)
Legacy pension (1.0) (1.0) (1.6)
Free cash flow 8.1 10.6 30.5
Underlying EBITDA (pre IFRS 16 lease payments) of £33.0m was 11% higher than
last year (H1 2022/23: £29.7m) reflecting operating efficiency combined with
contributions from the three acquisitions made since the first half of last
year.
During the Period, the Group invested £12.3m in working capital, an increase
of £2.0m on last year; as with the second half last year, this should reduce
as supply chain conditions continue to normalise. With working capital
released during the second half last year of £3.9m, a net £8.4m was invested
in working capital over the last 12 months.
Capital expenditure of £2.7m was invested during the Period, similar to last
year (H1 2022/23: £2.6m) including various new production line extensions,
ERP upgrades and ESG initiatives. Capital expenditure levels are expected to
increase in the second half to around £8m for the full year as we continue to
invest in additional capacity and roll out our ESG initiatives.
£18.0m of operating cash was generated in the first half up 7% on last year
(H1 2022/23: £16.8m). Together with £31.8m generated in the second half of
last year, a total of £49.8m of operating cash was generated over the last 12
months representing 91% of underlying operating profit, ahead of our 85%
target. This was 36% higher than the comparable 12 month period (12 months
ended 30 Sep 2022: £36.6m). Over the last 10 years, the Group has
consistently achieved high levels of operating cash conversion, averaging well
in excess of 90%.
Finance cash costs of £3.7m were £1.7m higher than last year following
interest rate rises throughout the Period, while corporate income tax payments
of £5.2m were £2.0m ahead of last year reflecting higher profitability this
Period and loss utilisation last year. A further £8m of tax payments is
expected during the second half.
Free cash flow (being cash flow before dividends, acquisitions and equity fund
raises) of £8.1m was generated in the first half, £2.5m lower than last year
(H1 2022/23: £10.6m) due to the higher finance and tax costs. Together with
£22.4m generated in the second half last year, a total of £30.5m of free
cash flow was generated over the last 12 months being a free cash conversion
of 85% of underlying earnings, in line with our target. Free cash flow was 26%
higher than the comparable 12 month period (12 months ended 30 Sep 2022:
£24.3m).
Banking Facilities
The Group has a £240m syndicated banking facility which extends to June 2027.
In addition, the Group has an £80m accordion facility which it can use to
extend the total facility up to £320m. The syndicated facility is available
both for acquisitions and for working capital purposes, and comprises seven
lending banks.
With net debt at 30 September 2023 of £111.3m, the Group's gearing ratio at
the end of the Period (being net debt divided by underlying EBITDA as
annualised for acquisitions) was 1.6x compared with a target gearing range of
between 1.5x and 2.0x.
Balance Sheet
Net assets of £305.8m at 30 September 2023 were £2.2m higher than at the end
of the last financial year (31 March 2023: £303.6m). The increase primarily
relates to the net profit after tax for the Period of £11.5m partially offset
by last year's final dividend of £7.6m paid during this Period. The movement
in net assets is summarised below:
£m H1
202/24
Net assets at 31 March 2023 303.6
Net profit after tax 11.5
Dividend paid (7.6)
Currency net assets - translation impact (1.6)
Loss on defined benefit scheme (0.9)
Share based payments (inc tax) 0.8
Net assets at 30 September 2023 305.8
Defined Benefit Pension Scheme
The Group's IAS 19 pension asset, associated with its legacy defined benefit
pension scheme, decreased over the Period by £1.6m from £2.3m at 31 March
2023, to £0.7m at 30 September 2023 (30 September 2022: £4.3m). The key
driver was the reduction in the value of fund assets partly offset by
increases in corporate bond yields used for discounting purposes.
Risks and Uncertainties
The principal risks faced by the Group are set out on pages 87 to 96 of the
Group's Annual Report for year ended 31 March 2023, a copy of which is
available on the Group's website: www.discoverieplc.com. These risks comprise:
the economic environment, particularly linked to the geopolitical issues
arising from the ongoing Ukraine conflict; inflationary headwinds and rising
interest rates; the performance of acquired companies; climate-related risks;
loss of major customers or suppliers; technological changes; major business
disruption; cyber security; loss of key personnel; inventory obsolescence;
product liability; liquidity and debt covenants; exposure to adverse foreign
currency movements; and non-compliance with legal and regulatory requirements.
During the Period, the Board has continued to review the Group's existing and
emerging risks and the mitigating actions and processes in place. Following
this review, the Board believes there has been no material change to the
relative importance or quantum of the Group's principal risks for the
remaining six months of the current financial year.
The risk assessment and review are an ongoing process, and the Board will
continue to monitor risks and the mitigating actions in place. The Group's
risk management processes cover identification, impact assessment, likely
occurrence and mitigation actions where practicable. Some level of risk,
however, will always be present. The Group is well positioned to manage such
risks and uncertainties, if they arise, given its strong balance sheet,
committed banking facility of £240m and the adaptability we have as an
organisation.
Summary and Outlook
discoverIE performed well in the first half. Our operational focus and
sustained high sales levels, which follows two years each with 20+% CER
growth, delivered significant efficiencies with underlying operating profit
increasing by 17% at constant exchange rates. We are making excellent progress
towards our margin targets with a 1.4ppts increase in underlying operating
margin, reflecting the leverage in our technology clusters, that is enabling
efficiencies and creating value from acquisitions.
As expected, the order book ended the Period at c.5 months of sales, almost
back to historic norms and the book-to-bill ratio is improving indicating that
the supply chain inventory correction is largely complete. Since the period
end orders have continued to strengthen being ahead of sales and growing
organically over last year.
The returns generated from our acquisitions increasingly exceed over time our
cost of capital and demonstrate the value creation of long-term compounding
organic growth with integration efficiencies. Over two-thirds of the Group's
operating profit growth over the last 12 years was generated from the organic
growth of our businesses since their acquisition and integration. We are well
positioned to continue this proven approach and remain a consolidator in a
fragmented market for customised industrial electronics.
Additionally, our capital light model is highly cash generative; over the last
12 months, operating cash flow increased by 36% to £50m, a 91% conversion
rate supporting further self-funding of acquisitions.
We are focused on generating organic growth in sustainable markets, enhanced
by earnings accretive acquisitions, and to this end our design wins and our
acquisition pipeline are stronger than ever.
The Group is well positioned to continue making good progress and remains on
track to deliver full year underlying earnings in line with the Board's
expectations.
Nick
Jefferies
Simon Gibbins
Group Chief
Executive
Group Finance Director
5 December 2023
Statement of Directors' responsibilities
The Directors confirm that these condensed consolidated interim financial
statements have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and that the interim management report includes a fair
review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the
first six months and their impact on the condensed consolidated set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
· material related-party transactions in the first six months and
any material changes in the related-party transactions described in the last
annual report.
The maintenance and integrity of the discoverIE Group plc website is the
responsibility of the Directors.
The Directors of discoverIE Group plc are listed in the discoverIE Group plc
annual report for 31 March 2023. A list of current Directors is maintained on
the discoverIE Group Plc website: www.discoverieplc.com
(https://protect-eu.mimecast.com/s/zoMGCqAljtA8zFZWMjH?domain=discoverieplc.com)
.
By order of the board
Nick
Jefferies
Simon Gibbins
Group Chief
Executive
Group Finance Director
5 December
2023
Independent review report to discoverIE Group plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed discoverIE Group plc's condensed consolidated interim
financial statements (the "interim financial statements") in the interim
results of discoverIE Group plc for the six month period ended
30 September 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
1. the condensed consolidated statement of financial position as at
30 September 2023;
2. the condensed consolidated statement of profit or loss and condensed
consolidated statement of comprehensive income for the period then ended;
3. the condensed consolidated statement of cash flows for the period then
ended;
4. the condensed consolidated statement of changes in equity for the
period then ended; and
5. the explanatory notes to the condensed consolidated interim financial
statements.
The interim financial statements included in the interim results of discoverIE
Group plc have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the interim results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The interim results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the interim results, including the
interim financial statements, the directors are responsible for assessing the
group'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 to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the interim results based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
5 December 2023
Condensed consolidated statement of profit or loss
Unaudited Audited
Notes Unaudited Six months Year
Six months ended ended
ended 30 Sept 2022 as restated 1 (#_ftn1) 31 Mar 2023
30 Sept 2023 £m £m
£m
Revenue 5 222.0 222.6 448.9
Operating costs (202.5) (205.7) (414.3)
Operating profit 19.5 16.9 34.6
Finance income 1.5 0.3 1.6
Finance costs (5.0) (2.4) (7.1)
Profit before tax 16.0 14.8 29.1
Tax expense 8 (4.5) (4.1) (7.8)
Profit for the period 11.5 10.7 21.3
Earnings per share
Basic, profit for the period 10 12.0p 11.2p 22.3p
Diluted, profit for the period 10 11.7p 10.9p 21.7p
Supplementary statement of profit or loss information
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
Underlying Performance Measure Notes 30 Sept 2023 30 Sept 2022 31 Mar 2023
m m
£m £m £m
Operating profit 19.5 16.9 34.6
Add: Acquisition expenses 1.4 0.9 1.4
Amortisation of acquired intangible assets 7.7 7.8 15.8
Underlying operating profit 28.6 25.6 51.8
Profit before tax 7 16.0 14.8 29.1
Add: Acquisition expenses 7 1.4 0.9 1.4
Amortisation of acquired intangible assets 7 7.7 7.8 15.8
Underlying profit before tax 7 25.1 23.5 46.3
Underlying earnings per share 7 19.2p 17.8p 35.2p
The above condensed consolidated statement of profit or loss should be read in
conjunction with the accompanying notes.
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sept 2023 30 Sept 2022 31 Mar 2023
£m £m £m
Profit for the period 11.5 10.7 21.3
Other comprehensive (loss)/income:
Items that will not be subsequently reclassified to profit or loss:
Actuarial (loss)/gain on defined benefit pension scheme (1.3) 0.8 (1.2)
Deferred tax credit/(charge) relating to defined benefit pension scheme 0.4 (0.2) 0.3
(0.9) 0.6 (0.9)
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign subsidiaries (1.6) 18.1 0.7
(1.6) 18.1 0.7
Other comprehensive (loss)/income for the period, net of tax (2.5) 18.7 (0.2)
Total comprehensive income for the period, net of tax 9.0 29.4 21.1
The above condensed consolidated statement of comprehensive income should be
read in conjunction with the accompanying notes.
Condensed consolidated statement of financial position
Unaudited
Notes Unaudited at 30 Sept 2022 as restated 2 (#_ftn2) Audited
at 30 Sept 2023 £m at 31 March 2023
£m £m
Non-current assets
Property, plant and equipment 25.8 24.6 25.2
Intangible assets - goodwill 231.0 190.0 188.1
Intangible assets - other 101.8 90.1 83.9
Right of use assets 19.4 22.5 19.2
Pension asset 16 0.7 4.3 2.3
Other receivables 6.2 6.0 6.0
Deferred tax assets 10.4 8.7 11.2
395.3 346.2 335.9
Current assets
Inventories 91.2 92.8 90.0
Trade and other receivables 82.0 82.2 74.6
Current tax assets 0.3 1.3 1.3
Cash and cash equivalents 14 122.7 134.5 83.9
296.2 310.8 249.8
Total assets 691.5 657.0 585.7
Current liabilities
Trade and other payables (85.5) (100.3) (95.2)
Other financial liabilities (91.9) (105.4) (39.9)
Lease liabilities (5.6) (5.3) (4.0)
Current tax liabilities (11.4) (10.2) (10.4)
Provisions (2.9) (1.6) (1.7)
(197.3) (222.8) (151.2)
Non-current liabilities
Trade and other payables (4.3) (3.7) (4.1)
Other financial liabilities (142.1) (74.3) (86.7)
Lease liabilities (13.7) (16.8) (14.8)
Provisions (3.1) (4.5) (4.2)
Deferred tax liabilities (25.2) (21.8) (21.1)
(188.4) (121.1) (130.9)
Total liabilities (385.7) (343.9) (282.1)
Net assets 305.8 313.1 303.6
Equity
Share capital 4.8 4.7 4.8
Share premium 192.0 192.0 192.0
Merger reserve 2.9 3.4 2.9
Currency translation reserve 4.0 23.0 5.6
Retained earnings 102.1 90.0 98.3
Total equity 305.8 313.1 303.6
The above condensed consolidated statement of financial position should be
read in conjunction with the accompanying notes.
Condensed consolidated statement of changes in equity
Attributable to equity holders of the Company
Currency translation reserve
Share capital Share premium Merger reserve £m Retained earnings Total
£m £m £m £m equity
£m
At 1 April 2023 4.8 192.0 2.9 5.6 98.3 303.6
Profit for the period - - - - 11.5 11.5
Other comprehensive loss - - - (1.6) (0.9) (2.5)
Total comprehensive (loss)/income - - - (1.6) 10.6 9.0
Share-based payments including tax - - - - 0.8 0.8
Dividends - - - - (7.6) (7.6)
At 30 September 2023 - unaudited 4.8 192.0 2.9 4.0 102.1 305.8
At 1 April 2022 4.7 192.0 10.5 4.9 78.3 290.4
Profit for the period - - - - 10.7 10.7
Other comprehensive income - - - 18.1 0.6 18.7
Total comprehensive income - - - 18.1 11.3 29.4
Share-based payments including tax - - - - 0.4 0.4
Transfer to retained earnings - - (7.1) - 7.1 -
Dividends - - - - (7.1) (7.1)
At 30 September 2022 - unaudited 4.7 192.0 3.4 23.0 90.0 313.1
As at 30 September 2023, the Company's issued share capital consisted of
96,356,109 ordinary shares of 5p each (31 March 2023: 96,356,109 ordinary
shares of 5p each).
As at 30 September 2023, the Employee Share Trust held 508,384 shares (31
March 2023: 690,092). During the six-months period to 30 September 2023,
employees exercised 181,708 (year ended 31 March 2023: 378,334) share options
under the terms of the various share option schemes.
The above condensed consolidated statement of changes in equity should be read
in conjunction with the accompanying notes.
Condensed consolidated statement of cash flows
Notes
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 Sept 2023 30 Sept 2022 ended
£m £m 31 Mar 2023
£m
Net cash flow from operating 13 9.6 8.5 36.3
activities
Investing activities
Acquisitions of businesses, net of cash acquired 11 (65.0) (7.0) (22.8)
Contingent consideration related to business acquisitions - - (2.3)
Purchase of property, plant and equipment (2.5) (2.4) (5.4)
Purchase of intangible assets (0.2) (0.2) (0.2)
Interest received 1.3 0.3 1.4
Net cash used in investing activities (66.4) (9.3) (29.3)
Financing activities
Proceeds from borrowings 66.5 11.0 61.8
Repayment of borrowings (10.8) (9.7) (44.9)
Payment of lease liabilities (2.8) (2.4) (5.2)
Dividends paid (7.6) (7.1) (10.5)
Net cash generated from/(used in) financing activities 45.3 (8.2) 1.2
Net (decrease)/increase in cash and cash equivalents (11.5) (9.0) 8.2
Cash and cash equivalents at beginning of period 43.4 36.9 36.9
Effect of exchange rate fluctuations (1.2) 0.6 (1.7)
Cash and cash equivalents at end of period 30.7 28.5 43.4
Reconciliation to cash and cash equivalents in the condensed consolidated
statement of financial position
Net cash and cash equivalents shown above 30.7 28.5 43.4
Add back: bank overdrafts 92.0 106.0 40.5
Cash and cash equivalents presented in current assets in the condensed 122.7 134.5 83.9
consolidated statement of financial position 3 (#_ftn3)
Further information on the condensed consolidated statement of cash flows is
provided in note 13.
The above condensed consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
1. General information
discoverIE Group plc ("the Company") is incorporated and domiciled in England,
UK. The Company's shares are traded on the London Stock Exchange. The
interim condensed consolidated financial statements consolidate the financial
statements of discoverIE Group plc and entities controlled by the Company
(collectively referred to as "the Group").
The condensed consolidated interim financial statements for the six month
period ended 30 September 2023 were authorised for issue by the Board of
Directors on 5 December 2023.
The condensed consolidated interim financial statements for the six month
period ended 30 September 2023 are unaudited but have been subject to an
independent review by the auditors. These condensed consolidated interim
financial statements do not comprise statutory accounts within the meaning of
section 434 of the Companies Act 2006. Statutory accounts for the year ended
31 March 2023 were approved by the Board of Directors on 7 June 2023 and
delivered to the Registrar of Companies. The report of the auditors on those
accounts was unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under section 498 of the Companies Act 2006.
2. Basis of preparation and accounting policies
This condensed consolidated interim financial report for the six month period
ended 30 September 2023 has been prepared in accordance with the UK-adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules (DTR) sourcebook of the United
Kingdom's Financial Conduct Authority.
The interim report does not include all of the notes of the type normally
included in an annual financial report. Accordingly, this report is to be read
in conjunction with the annual report for the year ended 31 March 2023, which
has been prepared in accordance with UK-adopted international accounting
standards and with requirements of the Companies Act 2006, and any public
announcements made by discoverIE Group plc during the interim reporting
period.
The accounting policies adopted are consistent with those of the previous
financial year and corresponding interim reporting period.
New standards and interpretations applied for the first time
There were no standards, amendments or interpretations applied for the first
time that had a material impact for the Group.
Going Concern
As at 30 September 2023 the Group's financial position remains robust with a
£240.0m syndicated banking facility committed to the end of June 2027. In
addition, the Group has an £80.0m accordion facility which it can use to
extend the total facility to £320.0m. The syndicated facility is available
both for acquisitions and working capital purposes. Net debt as at 30
September 2023 was £111.3m compared with £42.7m at the year end. The Group's
gearing ratio at the end of the period (being net debt divided by underlying
EBITDA adjusted for pre-acquisition EBITDA) was 1.6x compared with 0.7x at 31
March 2023. This compares with a financial covenant of less than 3.0x.
The Directors have reviewed the latest available forecasts to assess the cash
requirements of the Group to continue in operational existence for a minimum
period of 12 months from the date of approval of these interim financial
statements. The Directors have also carried out a going concern assessment
taking into account severe but plausible downside scenarios to the forecasts
and the principal risks and uncertainties as set out in the annual report and
accounts for the year ended 31 March 2023. None of the scenarios result in a
breach of the Group's available debt facility or covenants and accordingly the
Directors continue to adopt the going concern basis in preparing the condensed
consolidated interim financial statements.
2. Basis of preparation and accounting policies (continued)
Prior period restatement
Cash Offsetting
As disclosed in the annual report for the year ended 31 March 2023, the
Financial Reporting Council ("FRC") reviewed the Group's Annual Report and
Accounts for the year ended 31 March 2022. Following completion of the review,
the Directors have concluded that the overdraft balances of Group entities
should be separately presented gross on the condensed consolidated statement
of financial position, rather than netted off against cash and cash
equivalents held either by the same entity, or other Group entities, with the
same bank, despite the existence of a legal right of set off. These overdrafts
are held with the Group's relationship banks.
As a result, the condensed consolidated statement of financial position as at
30 September 2022 has been restated as follows:
Condensed consolidated statement of financial position As reported Unaudited Impact of restatement 2022 Restated Unaudited
30 Sept 2022 £m 30 Sept 2022
£m £m
Current assets
Cash and cash equivalents 34.2 100.3 134.5
Current liabilities
Bank overdrafts (note 14) (5.7) (100.3) (106.0)
Net cash (note 14) 28.5 - 28.5
The restatement did not result in any change to reported profit, earnings per share, net assets or cash flows reported for the periods ended 30 September 2022 and 30 September 2021.
Presentation of revenue for semiconductor pass-through costs
Prior period revenue and operating costs have been restated to reflect the
one-off increase in semiconductor costs passed through to customers at nil
margin that had been recognised net in operating costs rather than revenue for
the period ended 30 September 2022. There is a corresponding impact on the
sale of products revenue as presented in note 5 and on Magnetics &
Controls division in note 6. The restatement did not result in any change to
the reported operating profit, earnings per share, net assets or cash flows
for the period ended 30 September 2022.
Condensed consolidated statement of profit or loss As reported Unaudited Impact of restatement 2022 Restated Unaudited
30 Sept 2022 £m 30 Sept 2022
£m £m
Revenue 219.7 2.9 222.6
Operating costs (202.8) (2.9) (205.7)
Operating profit 16.9 - 16.9
3. New accounting standards and financial reporting requirements
New standards not yet effective
Certain new accounting standards and interpretations have been published that
are not mandatory for the period covered in these condensed consolidated
interim financial statements and have not been early adopted by the Group.
None of these are expected to have a material impact on the Group's financial
results in the current or future reporting periods.
4. Critical estimates and critical judgements
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results might differ from these estimates.
In preparing these condensed consolidated interim financial statements, the
significant judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the same as those
that applied to the consolidated financial statements for the year ended 31
March 2023.
5. Revenue
The Group's revenue from external customers by geographical location is
detailed below:
Six months
Six months ended Year
ended 30 Sept 2022 as restated ended
30 Sept 2023 £m 31 Mar 2023
£m £m
UK 26.0 22.9 49.6
Europe 104.0 109.2 221.1
North America, Asia and Rest of World 92.0 90.5 178.2
Total revenue 222.0 222.6 448.9
Revenue derived from the rendering of services was £2.5m (six month period to
30 September 2022: £3.1m; year ended 31 March 2023 £6.5m). All revenue was
otherwise derived from the sale of products.
6. Segmental reporting
The Reportable Operating Segments of the Group include two distinct divisions,
Magnetics & Controls ("M&C") and Sensing & Connectivity
("S&C"). Within each of these reportable operating segments are aggregated
business units with similar characteristics such as the nature of customers,
products, risk profile and economic characteristics.
Management monitors the operating results of its business units separately for
the purpose of making decisions about resource allocation and performance
assessment. Segment performance is reported and evaluated based on operating
profit or loss earned by each segment.
Six months ended 30 September 2023
Magnetics & Controls Sensing & Connectivity Unallocated costs
£m £m £m Total
£m
Revenue 134.4 87.6 - 222.0
Underlying operating profit/(loss) 19.9 15.2 (6.5) 28.6
Acquisition expenses (0.7) (0.7) - (1.4)
Amortisation of acquired intangible assets (3.1) (4.6) - (7.7)
Operating profit/(loss) 16.1 9.9 (6.5) 19.5
Six months ended 30 September 2022
Magnetics & Controls Sensing & Connectivity Unallocated costs
£m £m £m Total
£m
Revenue (as restated) 139.4 83.2 - 222.6
Underlying operating profit/(loss) 18.0 13.6 (6.0) 25.6
Acquisition and disposal expenses - (1.2) 0.3 (0.9)
Amortisation of acquired intangible assets (3.1) (4.7) - (7.8)
Operating profit/(loss) 14.9 7.7 (5.7) 16.9
6. Segmental reporting (continued)
Year ended 31 March 2023
Magnetics & Controls Sensing & Connectivity Unallocated costs
£m £m £m Total
£m
Revenue 280.8 168.1 - 448.9
Underlying operating profit/(loss) 38.4 25.6 (12.2) 51.8
Acquisition and disposal expenses - (1.8) 0.4 (1.4)
Amortisation of acquired intangible assets (6.3) (9.5) - (15.8)
Operating profit/(loss) 32.1 14.3 (11.8) 34.6
For the purposes of monitoring segment performance and allocating resources
between segments, the Directors monitor the net assets attributable to each
segment. Assets and liabilities are allocated to reportable segments, with the
exception of the pension liability, tax assets and liabilities, cash and all
borrowings, central assets (Head Office assets) and central liabilities (Head
Office liabilities), as demonstrated below:
Segment assets and liabilities
At 30 September 2023 Magnetics & Controls Sensing & Connectivity Unallocated Total
Assets and liabilities £m £m £m £m
Segment assets (excluding goodwill and other intangible assets) 130.1 85.1 215.2
Goodwill and other intangible assets 141.7 191.1 332.8
271.8 276.2 548.0
Central assets 9.4 9.4
Cash and cash equivalents 122.7 122.7
Pension asset 0.7 0.7
Current and deferred tax assets 10.7 10.7
Total assets 271.8 276.2 143.5 691.5
Segment liabilities (66.0) (40.2) (106.2)
Central liabilities (8.9) (8.9)
Other financial liabilities (234.0) (234.0)
Current and deferred tax liabilities (36.6) (36.6)
Total liabilities (66.0) (40.2) (279.5) (385.7)
Net assets/(liabilities) 205.8 236.0 (136.0) 305.8
At 30 September 2022 Magnetics & Controls Sensing & Connectivity Unallocated Total
Assets and liabilities £m £m £m £m
Segment assets (excluding goodwill and other intangible assets) 141.9 76.9 218.8
Goodwill and other intangible assets 135.9 144.2 280.1
277.8 221.1 498.9
Central assets 9.3 9.3
Cash and cash equivalents (as restated) 134.5 134.5
Pension asset 4.3 4.3
Current and deferred tax assets 10.0 10.0
Total assets 277.8 221.1 158.1 657.0
Segment liabilities (80.8) (43.8) (124.6)
Central liabilities (7.6) (7.6)
Other financial liabilities (179.7) (179.7)
Current and deferred tax liabilities (32.0) (32.0)
Total liabilities (80.8) (43.8) (219.3) (343.9)
Net assets/(liabilities) 197.0 177.3 (61.2) 313.1
6. Segmental reporting (continued)
At 31 March 2023 Magnetics & Controls Sensing & Connectivity Unallocated Total
Assets and liabilities £m £m £m £m
Segment assets (excluding goodwill and other intangible assets) 128.5 76.8 205.3
Goodwill and other intangible assets 120.7 151.3 272.0
249.2 228.1 477.3
Central assets 9.7 9.7
Cash and cash equivalents 83.9 83.9
Pension asset 2.3 2.3
Current and deferred tax assets 12.5 12.5
Total assets 249.2 228.1 108.4 585.7
Segment liabilities (70.5) (42.9) (113.4)
Central liabilities (10.6) (10.6)
Other financial liabilities (126.6) (126.6)
Current and deferred tax liabilities (31.5) (31.5)
Total liabilities (70.5) (42.9) (168.7) (282.1)
Net assets/(liabilities) 178.7 185.2 (60.3) 303.6
7. Underlying Performance Measures
These condensed consolidated interim financial statements include underlying
performance measures that are not prepared in accordance with IFRS. These
alternative performance measures have been selected by management to assist
them in making operating decisions as they represent the underlying operating
performance of the Group and facilitate internal comparisons of performance
over time.
Underlying performance measures are presented in these condensed interim
financial statements as management believe they provide investors with a means
of evaluating performance of the Group on a consistent basis, similar to the
way in which management evaluates performance, that is not otherwise apparent
on an IFRS basis, given that certain strategic non-recurring and acquisition
related items that management does not believe are indicative of the
underlying operating performance of the Group are included when preparing
financial measures under IFRS. The trading results of acquired businesses are
included in underlying performance.
The Directors consider there to be the following key underlying performance
measures:
Underlying operating profit
"Underlying operating profit" is defined as operating profit excluding
acquisition-related costs (namely amortisation of acquired intangible assets
and acquisition expenses).
Acquisition expenses comprise transaction costs relating to acquisitions,
contingent consideration relating to the retention of former owners of
acquired businesses, adjustments to previously estimated contingent
consideration, and costs related to integration of acquired businesses into
the Group.
Underlying EBITDA
"Underlying EBITDA" is defined as underlying operating profit with
depreciation, amortisation, equity-settled share-based payment expense and IAS
19 pension cost added back.
Underlying operating margin
"Underlying operating margin" is defined as underlying operating profit
divided by revenue.
Underlying profit before tax
"Underlying profit before tax" is defined as profit before tax excluding
acquisition-related costs (namely amortisation of acquired intangible assets
and acquisition expenses).
7. Underlying Performance Measures (continued)
Underlying tax charge / Underlying effective Tax Rate ("ETR")
"Underlying tax charge" is defined as the tax charge adjusted for the tax effect on the acquisition-related costs (namely amortisation of acquired intangible assets and acquisition expenses).
"Underlying ETR" is defined as underlying tax charge divided by underlying profit before tax.
Underlying profit after tax (profit for the period)
"Underlying profit after tax" is defined as profit for the period excluding
acquisition-related costs (namely amortisation of acquired intangible assets
and acquisition expenses), net of tax effect on underlying adjustments.
Underlying earnings per share
"Underlying earnings per share" is calculated as underlying profit after tax
divided by the weighted average number of ordinary shares (for diluted
earnings per share purposes) in issue during the year.
Underlying operating cash flow / Underlying operating cash flow conversion
"Underlying operating cash flow" is defined as underlying EBITDA adjusted for
the investment in, or release of, working capital and less the cash cost of
capital expenditure and lease payments.
"Underlying operating cash flow conversion" is defined as underlying operating
cash flow divided by underlying operating profit.
Free cash flow / Free cash flow conversion
"Free cash flow" is defined as net cash flow before dividend payments, net
proceeds from equity fund raising and the cost of acquisitions.
"Free cash flow conversion" is free cash flow divided by underlying profit
after tax.
Return on capital employed ("ROCE")
"ROCE" is defined as underlying operating profit, including the annualisation
of operating profits of acquired businesses, as a percentage of net assets
excluding net debt, deferred consideration related to discontinued operations
and legacy defined benefit pension asset.
Return on tangible capital employed ("ROTCE")
"ROTCE" is annualised underlying operating profit, as a percentage of tangible
capital employed. Tangible capital employed is defined as property, plant and
equipment, right of use assets, inventories and trade and other receivables,
offset by current trade and other payables, excluding contingent
consideration.
Organic and CER growth
"CER growth" is defined as growth rates at constant exchange rates.
"Organic growth" is defined as CER growth excluding the effect of
acquisitions/disposals.
Gearing ratio
Gearing ratio is defined as net debt (excluding leases) divided by underlying
EBITDA (including the annualisation of acquired businesses excluding lease
payments).
7. Underlying Performance Measures (continued)
The tables below shows the reconciliation for the main underlying performance measures used by the Group.
Underlying operating profit / Underlying EBITDA
Underlying operating profit and EBITDA are calculated as follows:
Six months ended Six months Year
30 Sept 2023 ended ended
£m 30 Sept 2022 31 Mar 2023
£m £m
Operating profit 19.5 16.9 34.6
Add back: Acquisition expenses (a) 1.4 0.9 1.4
Amortisation of acquired intangibles (b) 7.7 7.8 15.8
Underlying operating profit 28.6 25.6 51.8
Add back: Depreciation and amortisation 5.7 5.7 11.7
Share-based payment and IAS 19 pension cost 1.8 1.2 2.9
Underlying EBITDA 36.1 32.5 66.4
The tax impact of the underlying profit adjustments above is a credit of
£1.7m (H1 2022/23: £1.9m).
a) Acquisition expenses of £1.4m comprise £1.8m of transaction costs in
relation to the acquisition of Silvertel, 2J and ongoing transactions, offset
by £0.4m credit relating to the movement in fair value of contingent
consideration on past acquisitions.
During the prior period, the acquisition expenses of £0.9m comprised £0.5m
of transaction costs in relation to the acquisition of CDT and ongoing
transactions; £0.7m of charge relating to the movement in fair value of
contingent consideration on past acquisitions; offset by £0.3m credit
relating to disposal costs in connection with the Acal BFi disposal in FY
2021/22.
b) Amortisation charge relates to intangible assets recognised as part of
business combinations.
Underlying profit before tax
Underlying profit before tax is calculated as follows:
Six months ended Six months Year
30 Sept 2023 ended ended
£m 30 Sept 2022 31 Mar 2023
£m £m
Profit before tax 16.0 14.8 29.1
Add back: Acquisition expenses 1.4 0.9 1.4
Amortisation of acquired intangibles 7.7 7.8 15.8
Underlying profit before tax 25.1 23.5 46.3
7. Underlying Performance Measures (continued)
Underlying effective tax rate
Underlying effective tax rate ("ETR") is calculated as follows:
Six months ended Six months Year
30 Sept 2023 ended ended
£m 30 Sept 2022 31 Mar 2023
£m £m
Underlying profit before tax 25.1 23.5 46.3
Tax expense 4.5 4.1 7.8
Tax effect on amortisation of acquired intangible assets and acquisition 1.7 1.9 3.9
expenses
Underlying tax charge 6.2 6.0 11.7
Underlying effective tax rate 24.7% 25.5% 25.3%
Underlying profit after tax (profit for the period) / Underlying earnings per
share
Underlying profit after tax and earnings per share are calculated as follows:
Six months ended Six months ended Year
30 Sept 2023 30 Sept 2022 ended
£m £m 31 Mar 2023
£m
Profit for the period 11.5 10.7 21.3
Add back: Acquisition expenses 1.4 0.9 1.4
Amortisation of acquired intangible assets 7.7 7.8 15.8
Tax effects on the above (1.7) (1.9) (3.9)
Underlying profit for the period 18.9 17.5 34.6
Number Number Number
Weighted average number of shares for basic earnings per share 95,780,662 95,375,108 95,426,255
Effect of dilution - share options 2,728,085 3,201,151 2,917,061
Adjusted weighted average number of shares for diluted earnings per share 98,508,747 98,576,259 98,343,316
Underlying earnings per share - diluted 19.2p 17.8p 35.2p
Underlying operating cash flow / Free cash flow
Six months ended Six months ended Year
30 Sept 2023 30 Sept 2022 ended
£m £m 31 Mar 2023
£m
Underlying EBITDA 36.1 32.5 66.4
Lease payments (3.1) (2.8) (5.8)
EBITDA (incl. lease payments) 33.0 29.7 60.6
Changes in working capital (12.3) (10.3) (6.4)
Capital expenditure (2.7) (2.6) (5.6)
Underlying operating cash flow 18.0 16.8 48.6
Net interest paid (3.7) (2.0) (5.0)
Taxation (5.2) (3.2) (9.0)
Legacy pension scheme funding (1.0) (1.0) (1.6)
Free cash flow 8.1 10.6 33.0
8. Taxation
Income tax expense is recognised based on management's estimate of the
weighted average effective annual income tax rate expected for the full
financial year, in accordance with IAS 34 'Interim financial reporting'.
The underlying tax charge for the period was £6.2m (H1 2022/23: £6.0m)
giving an underlying effective tax rate on underlying profit before tax of
24.7% (H1 2022/23: 25.5%), 0.6% lower than the rate for FY 2022/23 of 25.3%.
The tax credit in respect of the underlying profit adjustments was £1.7m (H1
2022/23: £1.9m). This gives an overall tax charge for the period of £4.5m
(H1 2022/23: £4.1m) on profit before tax of £16.0m (H1 2022/23: £14.8m)
which is an effective tax rate of 28.1% (H1 2022/23: 27.7%). The higher
effective rate is mainly due to limited tax relief available on acquisition
expenses.
9. Dividends
The Directors have declared an interim dividend of 3.75 pence per share (H1
2022/23: 3.55 pence) payable on 24 January 2024 to shareholders on the
register at 15 December 2023.
In accordance with IAS 10, this dividend has not been reflected in the interim
results. The cash cost of the interim dividend will be £3.6m (H1 2022/23:
£3.4m).
The final dividend of 7.9p per share for the year ended 31 March 2023 was paid
on 1 August 2023.
10. Earnings per share
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
Six months ended Six months ended Year
30 Sept 2023 30 Sept 2022 ended
£m £m 31 Mar 2023
£m
Profit for the period 11.5 10.7 21.3
Number Number Number
Weighted average number of shares for basic earnings per share 95,780,662 95,375,108 95,426,255
Effect of dilution - share options 2,728,085 3,201,151 2,917,061
Adjusted weighted average number of shares for diluted earnings per share 98,508,747 98,576,259 98,343,316
Earnings per share - basic 12.0p 11.2p 22.3p
Earnings per share - diluted 11.7p 10.9p 21.7p
At the period end, there were 3.1 million ordinary share options in issue that
could potentially dilute earnings per share in the future, of which 2.7
million are currently dilutive (30 September 2022: 4.1 million in issue and
3.2 million dilutive, 31 March 2023: 3.0 million in issue and 2.9 million
dilutive).
11. Business combinations
Acquisitions in the period ended 30 September 2023
Acquisition of Silvertel
On 30 August 2023, the Group completed the acquisition of Silver Telecom
Limited ("Silvertel"), a company incorporated in the United Kingdom by
acquiring 100% of the shares of its parent company SLV Holdings Limited.
Silvertel is a designer and manufacturer of differentiated, high-performance
Power-over-Ethernet ("PoE") modules and complementary products for global
industrial electronic connectivity markets.
Silvertel was acquired for an initial cash consideration of £23.0m before
expenses, funded from the Group's existing debt facilities. In addition,
contingent payment of up to £23.0m will be payable subject to Silvertel's
EBIT performance over the next four years. This includes up to £4.0m payable
subject to continuous employment during the performance period.
The provisional fair value of the identifiable assets and liabilities of
Silvertel at the date of acquisition was:
Provisional fair value
recognised at acquisition
£m
Intangible assets - other (incl. customer relationships) 9.3
Property, plant and equipment 0.1
Right of use assets 0.2
Inventories 2.6
Trade and other receivables 1.4
Net cash 1.6
Trade and other payables (0.9)
Current tax liabilities (0.4)
Deferred tax liabilities (2.4)
Lease liabilities (0.2)
Total identifiable net assets 11.3
Provisional goodwill arising on acquisition 14.5
Total investment 25.8
Discharged by
Initial cash consideration 23.0
Contingent consideration 2.8
25.8
Included in the £14.5m of goodwill recognised above are certain intangible
assets that cannot be individually separated and reliably measured, due to
their nature. These include the value of expected operational benefits. All
the acquired receivables are expected to be collected.
Net cash outflows in respect of the acquisition comprise:
Total
£m
Cash consideration 23.0
Transaction costs of the acquisition (included in operating cash flows) (1) 0.5
Net cash acquired (1.6)
21.9
1) Acquisition costs of £0.5m were expensed as incurred in the six
months period to 30 September 2023. These were included within operating
costs.
Included in cash flow from investing activities is the cash consideration of
£23.0m, offset by the net cash acquired of £1.6m.
11. Business combinations (continued)
Acquisition of 2J
On 12 September 2023, the Group completed the acquisition of 2J Antennas Group
("2J"), by acquiring 100% equity and voting rights of 2J Antennas, s.r.o.
(Slovakia), 2J Antennas UK Limited and 2J Antennas USA Corp.
2J is a leading designer and manufacturer of high-performance antennas for
industrial electronic connectivity applications. 2J was acquired for an
initial cash consideration of £44.5m (€51.9m), before expenses, funded from
the Group's existing debt facilities.
The provisional fair value of the identifiable assets and liabilities of 2J at
the date of acquisition was:
Provisional fair value
recognised at acquisition
£m
Intangible assets - other (incl. customer relationships) 16.1
Property, plant and equipment 0.8
Inventories 2.8
Trade and other receivables 1.9
Cash and cash equivalents 1.3
Overdraft (0.4)
Trade and other payables (1.0)
Current tax (1.5)
Deferred tax liabilities (3.3)
Lease liabilities (0.2)
Total identifiable net assets 16.5
Provisional goodwill arising on acquisition 28.0
Total investment 44.5
Discharged by
Cash 44.5
Included in the £28.0m of goodwill recognised above are certain intangible
assets that cannot be individually separated and reliably measured, due to
their nature. These include the value of expected operational benefits. All
the acquired receivables are expected to be collected.
Net cash outflows in respect of the acquisition comprise:
Total
£m
Cash consideration 44.5
Transaction costs of the acquisition (included in operating cash flows) (1) 0.8
Net cash acquired (0.9)
44.4
1) Acquisition costs of £0.8m were expensed as incurred in the six
months period to 30 September 2023. These were included within operating
costs.
Included in cash flow from investing activities is the cash consideration of
£44.5m, offset by the net cash acquired of £0.9m.
Acquisitions in the year ended 31 March 2023
On 30 June 2022 and 18 January 2023, the Group completed the acquisition of
CDT 123 Limited and CustomDesignTechnologies Ltd ("CDT") and Magnasphere
Corporation ('Magnasphere'), respectively. Details of these business
combinations were disclosed in note 11 of the Group's annual financial
statements for the year ended 31 March 2023. Since 31 March 2023, there were
no material changes to the fair value of assets and liabilities acquired.
12. Goodwill
Cost £m
At 1 April 2022 175.7
Arising from business combinations 11.5
Exchange adjustments 0.9
At 31 March 2023 188.1
Arising from business combinations 42.5
Exchange adjustments 0.4
At 30 September 2023 231.0
Impairment
At 31 March 2023 and 30 September 2023 -
Net book value at 30 September 2023 231.0
Net book value at 31 March 2023 188.1
Impairment testing of goodwill
Management has identified two CGUs within the Sensing & Connectivity
division, which represent 2% and 5% of the total carrying amount of goodwill
in the Group as at 30 September 2023, where changes in the value-in-use
assumptions may lead to the recoverable amount of the CGU being less than its
carrying value. The assumptions made in estimating the value of the future
cash flow for these two CGUs are pre-tax discount rates of 13.0% for both
CGUs, 5-year Sales CAGR of 2.7% and 3.6% respectively and a long-term growth
rate of 2% for both CGUs. The headroom for these two CGUs are £3.9m and
£5.1m at the date of the assessment.
A reduction in long-term growth rate of 0.5% reduces the headroom in the two
CGUs by £0.5m and £0.9m respectively. An increase of one percentage point in
the pre-tax discount rate reduces the headroom in the two CGUs by £1.3m and
£2.5m respectively and a reduction in the 5-year sales CAGR by 1% reduces the
headroom in the two CGUs by £1.3m and £1.8m respectively.
None of the changes to individual assumptions above would lead to the carrying
amount of the two CGUs exceeding their recoverable amount.
The assumptions that would result in the recoverable amount equalling the
carrying amount are 5-year sales CAGR of 0.5% (a reduction of 2.2 percentage
points), long-term growth rate of 2%, and a pre-tax discount rate of 14.2% (an
increase of 1.2 percentage points) for the CGU representing 2% of the total
carrying value of the Group goodwill, and 5-year sales CAGR of 1.6% (a
reduction of 2 percentage points), long-term growth rate of 2%, and a pre-tax
discount rate of 14% (an increase of 1 percentage point) for the CGU
representing 5% of the total carrying value of the Group goodwill.
13. Reconciliation of cash flow from operating activities
Six months ended Six months Year
30 Sept 2023 ended ended
£m 30 Sept 2022 31 Mar 2023
£m £m
Profit for the period 11.5 10.7 21.3
Tax expense 4.5 4.1 7.8
Net finance costs 3.5 2.1 5.5
Depreciation of property, plant and equipment 2.4 2.4 4.6
Depreciation of right of use assets 3.0 3.0 5.8
Amortisation of intangible assets - other 7.9 8.1 16.5
Loss on disposal of intangible assets - - 0.6
Change in provisions 0.1 (0.3) (0.2)
Pension scheme funding (1.0) (1.0) (1.6)
IAS 19 pension charge 0.4 0.3 0.7
Contingent consideration related to business acquisitions - (4.2) (4.0)
Business disposal costs - (1.2) (1.2)
Associated taxes on LTIPs (0.2) - (0.6)
Impact of equity-settled share-based payment expense 1.4 0.6 2.2
Operating cash flows before changes in working capital 33.5 24.6 57.4
Decrease/(Increase) in inventories 3.4 (9.1) (8.6)
(Increase)/Decrease in trade and other receivables (3.3) (0.8) 5.0
Decrease in trade and other payables (13.5) (0.6) (1.7)
Decrease in working capital (13.4) (10.5) (5.3)
Cash generated from operations 20.1 14.1 52.1
Interest paid (5.0) (2.0) (6.2)
Interest paid on lease liabilities (0.3) (0.4) (0.6)
Net income taxes paid (5.2) (3.2) (9.0)
Net cash inflow from operating 9.6 8.5 36.3
activities
14. Closing net debt
At At At
30 Sept 2023 30 Sept 2022 as restated 31 Mar 2023
£m £m £m
Cash and cash equivalents 122.7 134.5 83.9
Bank overdrafts (92.0) (106.0) (40.5)
Net cash 30.7 28.5 43.4
Bank loans under one year (0.3) - -
Bank loans over one year (143.9) (75.8) (88.1)
Capitalised debt cost 2.2 2.1 2.0
Total loan capital (142.0) (73.7) (86.1)
Closing net debt (111.3) (45.2) (42.7)
Lease liability (19.3) (22.1) (18.8)
Closing net debt (incl. lease liability) (130.6) (67.3) (61.5)
Condensed consolidated statement of financial position:
At At At
30 Sept 2023 30 Sept 2022 31 Mar 2023
£m £m £m
Current liabilities
Other financial liabilities (91.9) (105.4) (39.9)
Lease liabilities (5.6) (5.3) (4.0)
(97.5) (110.7) (43.9)
Non-current liabilities
Other financial liabilities (142.1) (74.3) (86.7)
Lease liabilities (13.7) (16.8) (14.8)
(155.8) (91.1) (101.5)
Cash and cash equivalents 122.7 134.5 83.9
Closing net debt (incl. lease liability) (130.6) (67.3) (61.5)
Bank overdrafts reflect the aggregated gross overdrawn balances of Group
companies (even if those companies have other positive cash balances). The
overdrafts and cash and cash equivalents are held with the Group's
relationship banks with a legal right to offset. Bank overdrafts are repayable
on demand with interest based on floating rates linked to SONIA, SOFR and
EURIBOR.
Included in bank loans over one year are mainly drawdowns against the Group's
revolving credit facility of £143.8m (31 March 2023: £88.0m) denominated in
Sterling, US Dollars and Euros which bear interest based on SONIA, SOFR and
EURIBOR, plus a facility margin.
Cash and cash equivalents earn interest at floating rates on daily bank
deposit rates.
Lease liabilities of £19.3m (31 March 2023: £18.8m) have been presented
separately in the consolidated statement of financial position. The increase
of £0.5m during the six month period to 30 September 2023 consisted of
additions/modifications of £3.5m and interest accruals of £0.3m, offset by
lease payments of £3.1m and early terminations of £0.2m.
Certain businesses in the Group participate in supply chain finance
arrangements whereby suppliers may elect to receive early payment of their
invoices from a bank by factoring their receivable from discoverIE entities.
Included within trade payables is £2.4m (31 March 2023: £2.3m) subject to
such an arrangement.
14. Closing net debt (continued)
Reconciliation of movement in cash and net debt
Six months Six months Year
ended ended ended
30 Sept 2023 30 Sept 2022 31 Mar 2023
£m £m £m
Net (decrease)/increase in cash and cash equivalents (11.5) (9.0) 8.2
Proceeds from borrowings (66.5) (11.0) (61.8)
Repayment of borrowings 10.8 9.7 44.9
Decrease in net cash before translation differences (67.2) (10.3) (8.7)
Translation and other non-cash changes (1.4) (4.7) (3.8)
Decrease in net cash (68.6) (15.0) (12.5)
Net debt at beginning of the period (42.7) (30.2) (30.2)
Net debt at end of the period (111.3) (45.2) (42.7)
15. Fair value measurement of financial instruments
The Group's principal non-derivative financial instruments comprise bank loans
and overdrafts, cash and short term borrowings. The Group also holds other
financial instruments such as trade receivables and trade payables that arise
directly from the Group's trading operations. The carrying value of the
Group's trade and other receivables and trade and other payables approximates
their book value due to the short maturity of these instruments.
Derivative financial instruments are represented by short-term foreign
currency forward contracts placed by the Group with external banks as part of
the Group's cash management and foreign currency risk management activities.
The fair value of derivative foreign exchange instruments is determined on
initial recognition at forward market exchange rates at inception of the
contract and subsequently remeasured based on forward market exchange rates at
the balance sheet date. As at 30 September 2023, the fair value of derivatives
was a liability of £0.2m (31 March 2023: asset of £0.1m).
The carrying value of the Group's other financial assets, including cash and
cash equivalents of £122.7m and deferred consideration of £6.1m, are
equivalent to their fair value.
The carrying value of the Group's financial liabilities measured at amortised
costs, including bank overdrafts of £92.0m, other fixed and floating interest
borrowings of £144.2m, lease liabilities of £19.3m and contingent
consideration of £6.6m, are equivalent to their fair value at 30 September
2023.
The methods and assumptions used to determine the fair value of financial
assets and liabilities are set out below.
All material changes in fair value of financial instruments as at the balance
sheet date have been taken to the condensed consolidated statement of profit
or loss. Impairment reviews did not identify any material impairment of
financial assets from carrying values as reported at the balance sheet date
and, as such, no material impairments are included in the condensed
consolidated statement of profit or loss.
Fair Value Methods and Assumptions
Forward foreign exchange contracts (forwards) - the fair value of forward
foreign currency contracts is determined with reference to observable yield
curves and foreign exchange rates at the reporting date. The forwards
outstanding with banks at 30 September 2023 had a maturity of two years or
less.
Loans and borrowings - the fair value of loans and borrowings has been
calculated by discounting future cash flows, where material, at prevailing
market interest rates.
Fair Value Hierarchy
For financial assets and financial liabilities measured at fair value, as set
out in the tables above, the fair value measurement techniques are based upon
applying unadjusted, quoted market rates or prices or inputs other than quoted
prices that are observable for the assets or liability either directly or
indirectly.
15. Fair value measurement of financial instruments (continued)
Fair Value Hierarchy (continued)
IFRS 13 'Financial Instruments: Disclosures' requires financial instruments
measured at fair value to be analysed into a fair value hierarchy based upon
the valuation technique used to determine fair value. The highest level in
this hierarchy is Level 3 within which inputs that are not based on observable
market data for the asset or liability are applied.
The valuation techniques used by the Group for the measurement of derivative
financial instruments, loans and deferred consideration receivable are
considered to be within Level 2, which includes inputs other than quoted
prices included within Level 1 that are observable either directly or
indirectly. Contingent consideration is included in Level 3 of the fair value
hierarchy. The fair value is determined considering the expected payment,
discounted to present value using a risk adjusted discount rate. The expected
payment is determined separately in respect of each individual earn-out
agreement taking into consideration the expected level of profitability of
each acquisition. The unobservable inputs are the projected forecast measures
that are assessed on an annual basis. Changes in the fair value of contingent
consideration relating to updated projected forecast performance measures are
recognised in the consolidated Statement of Profit or Loss in the period that
the change occurs. Contingent consideration is sensitive to forecast operating
profits of the relevant acquired businesses.
16. Pension
The acquisition of the Sedgemoor Group in June 1999 included a defined benefit
pension scheme, the Sedgemoor Group Pension Fund ("the Sedgemoor Scheme"). The
Sedgemoor Scheme, which is funded by the Company, provides retirement benefits
based on final pensionable salary. Its assets are held in a separate
trustee-administered fund. Following the acquisition of the Sedgemoor Group,
the Sedgemoor Scheme was closed to new members. Shortly thereafter,
employees were given the opportunity to join the discoverIE pension scheme and
future service benefits ceased to accrue to members under the Sedgemoor
Scheme. Contributions to the Sedgemoor Scheme are determined in accordance
with the advice of independent, professionally qualified actuaries.
During the period, the financial position of the Sedgemoor Scheme has been
updated in line with changes in actuarial assumptions. The valuation used for
IAS 19 disclosures has been based on the most recent valuation as at 31 March
2021 updated to take account of the requirements of IAS 19 in order to assess
the liabilities of the scheme as at 30 September 2023.
The IAS 19 defined benefit pension scheme asset as at 30 September 2023 was
£0.7m (31 March 2023: £2.3m). The surplus reduced over the period due to a
fall in the value of the Fund's bond related assets which reflects an increase
in gilt and corporate bond yields. The loss was offset to an extent by the
fall in the value of the obligation which is based purely on corporate bond
yields.
17. Exchange rates
The principal exchange rates used to translate the results of overseas
businesses are as follows:
Six months ended 30 Sept 2023 Six months ended 30 Sept 2022 Year ended 31 March 2023
Closing rate Average rate Closing rate Average rate Closing rate Average rate
US Dollar 1.2253 1.2592 1.1040 1.2189 1.2369 1.2058
Euro 1.1566 1.1566 1.1325 1.1744 1.1374 1.1576
Norwegian Krone 13.0161 13.3321 11.9862 11.7728 12.9595 11.9778
18. Events occurring after the reporting period
There were no matters arising, between the statement of financial position
date and the date on which these condensed consolidated interim financial
statements were approved by the Board of Directors, requiring adjustment in
accordance with IAS 34 'Interim financial reporting'.
19. Interim report
A copy of the interim report will be available for inspection at the Company's
registered office: 2 Chancellor Court, Occam Road, Surrey Research Park,
Guildford, England, GU2 7AH.
As permitted by current regulations, the 2023 interim results published on 5
December 2023 will not be sent to shareholders. The 2023 interim results and
other information about discoverIE Group plc are available on the Company's
website at www.discoverieplc.com.
1 (#_ftnref1) Restatement did not result in any change to reported profit,
earnings per share, net assets or cash flows reported for the restated period.
Refer to note 2 for more details.
2 (#_ftnref2) Restatement did not result in any change to reported profit,
earnings per share, net assets or cash flows reported for the restated period.
Refer to note 2 for more details.
3 (#_ftnref3) Restatement did not result in any change to reported profit,
earnings per share, net assets or cash flows reported for the restated period.
Refer to note 2 for more details.
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