REG - discoverIE Group plc - Interim Results
03/12/2024 07:00
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RNS Number : 5006O discoverIE Group plc 03 December 2024
3 DECEMBER 2024
discoverIE Group plc
Interim results for the six months ended 30 September 2024
Resilient through-cycle performance with structural efficiencies
and record operating margin
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 2024 ("H1 2024/25" or "the Period").
H1 2024/25 H1 2023/24 Growth % CER((2)) growth %
Revenue £211.1m £222.0m -5% -4%
Underlying operating profit((1)) £29.1m £28.6m +2% +4%
Underlying operating margin((1)) 13.8% 12.9% +0.9ppt +1.0ppt
Underlying profit before tax((1)) £23.8m £25.1m -5%
Underlying EPS((1)) 18.4p 19.2p -4%
Reported profit before tax £15.8m £16.0m -1%
Reported fully diluted EPS 12.2p 11.7p +4%
Interim dividend per share 3.90p 3.75p +4%
Highlights
· Revenue down 4% CER, reflecting industry de-stocking and
lead-time normalisation
o Organic sales((3)) 10% lower (S&C division -5%, M&C -12%)
o Organic orders up 1% (+8% CER), led by S&C division +20% (M&C
-11%)
· Underlying operating profit up 4% CER from flexible operating
structure and efficiencies
o Record underlying operating margin of 13.8%, up 1.0ppt at CER, ahead of FY
2024/25 target
o Underlying EPS reduced 4% due to higher interest rates
· Excellent free cash flow((4)) up 46% to £45m for last 12 months
o Conversion rate of 126%, capacity for c.£70m of further acquisitions in
the second half
· Further good progress towards other key targets
o Well on track to achieve 15% underlying operating margin target in
FY2027/28
o ROCE((5)) of 15.2%, slightly ahead of target and last year
o Carbon emissions reduced by c.50% in absolute terms since CY 2021((6))
· Record design wins (up 33% over 2 years) with significant further
opportunities
· One bolt-on acquisition completed during the Period for an EBIT
multiple of 6x
o Period-end gearing((7)) of 1.45x, below the lower end of target range
(1.5x to 2.0x)
· Growth drivers remain strong with the Group well
positioned
o Period end order book of £163m provides good forward visibility
o High growth security market added as a fifth target market((8))
o Strong pipeline of acquisition opportunities
o Group will benefit from reducing interest rates
· On track to deliver full year underlying earnings in line with
the Board's expectations
Nick Jefferies, Group Chief Executive, commented:
"discoverIE delivered a resilient first half performance with a 4% increase in
underlying operating profit, growth in operating margins to 13.8%, ahead of
our near-term target, and excellent cashflow. This was in an environment of
supply chain lead times returning to normal and widespread customer inventory
reductions resulting in sales that were 4% lower.
Our flexible operating model allows us to control costs in response to lower
production volumes, which along with ongoing efficiency initiatives and
accretive acquisitions, has more than offset lower sales. This is a great
strength of the business that has delivered improved underlying operating
profits and margins in each of the last ten years (in-line in the covid year).
Orders increased by 5% sequentially, with a book to bill ratio of around 1.0.
In the S&C division, orders grew by 20% organically as design wins
converted into new orders whilst in the M&C division, orders were 11%
lower as industrial destocking continued to work through.
Third quarter trading to date is in-line with our expectations with orders run
rate ahead of sales and ahead of the second quarter.
We remain focused on generating above-market growth through the cycle and our
design win pipeline remains strong. This, along with our acquisition
opportunities, is our engine for growth and we remain 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 Burson 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
Burson
Buchanan
020 7466 5000
Chris Lane, Toto Berger, Jack Devoy
discoverIE@buchanan.uk.com
Notes:
1) 'Underlying operating profit', 'Underlying operating margin',
'Underlying EBITDA', 'Underlying profit before tax', 'Underlying EPS',
'Underlying operating cash flow' and 'Free cash flow' are non-IFRS financial
measures used by the Directors to assess the underlying performance of the
Group. These measures exclude acquisition and disposal related costs
(amortisation of acquired intangible assets of £7.8m and acquisition and
disposal expenses of £0.2m) totalling £8.0m. Equivalent underlying
adjustments within the H1 2023/24 underlying results totalled £9.1m.
'Underlying EBITDA' also excludes non-cash share-based payments cost, and
IAS19 pension cost in line with the Group's banking covenant. For further
information, see note 7 of the attached condensed consolidated interim
financial statements.
2) Growth rates at constant exchange rates ("CER"). In calculating CER
for the Period, the average Sterling rate of exchange strengthened 2% against
the Euro compared with the average rates for last year, 2% against the US
Dollar and 2% on average against the three Nordic currencies, resulting in an
additional 1% sales reduction for the first Period.
3) 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 (Silvertel in August 2023, 2J Antennas Group ("2J") in September
2023, Shape, DTI and IKN in Q4 2023/24 and Hivolt in August 2024) and
excluding the disposal of the Santon solar business unit announced last
year.
4) Free cash flow is cash flow available for the payment of dividends
and investment in acquisitions. Free cash flow conversion is free cash flow
divided by underlying profit after tax. See definitions in note 7 of the
attached interim financial statements.
5) ROCE is defined as annualised H1 2024/25 underlying operating
profit including the annualisation of acquisitions, as a percentage of net
assets excluding net debt, deferred consideration related to disposed
businesses and legacy defined benefit pension asset/(liability).
6) CY 2025 target is to reduce scope 1 & 2 carbon emissions by 65%
on an absolute basis (base year CY 2021).
7) Gearing ratio is defined as net debt divided by underlying EBITDA
(excluding IFRS 16; annualised for acquisitions).
8) Target markets are medical, electrification of transportation,
renewable energy, security and industrial automation & connectivity.
9) Unless stated, growth rates refer to the comparable prior year
period. Sequential growth compares to the immediately preceding period e.g. H1
2024/25 would be compared to H2 2023/24 on an organic basis.
10) 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, high quality customer relationships.
With a focus on key markets driven by structural growth, increasing electronic
content and sustainability, namely medical, electrification of transportation,
renewable energy, security 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 in order 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 FTSE 250, classified within the Electrical Components and
Equipment subsector.
Strategic, Operational and Financial Review
Good Progress towards our Targets
The Group designs and manufactures essential, customised, high value-add,
technically complex electronic products, enabling our customers to create
better equipment. Despite industry destocking and strong prior year
comparators, we made further good progress this Period towards our near and
medium-term goals of increasing operating margins and generating consistently
strong cash flow.
The Group delivered underlying operating profit growth of 4% at CER with the
operating margin increasing by 1.0ppt at CER to 13.8%, ahead of our 13.5%
target for this financial year and well on track for our FY2027/28 target of
15%.
Underlying operating profit growth was achieved with operational efficiencies,
strong gross margins and tight control of operating expenses, more than
offsetting the 4% reduction in sales at CER. Higher annualised interest costs
have, as expected, reduced underlying EPS by 4% with this impact set to unwind
as rates decrease.
Free cash flow for the last 12 months increased by 46% to £44.6m, with a
conversion rate of 126% being well ahead of our target of 85% driven by a
strong working capital performance.
Organic sales reduced by 10%, reflecting industry destocking and the
normalisation of supply chains. Asia was the most resilient territory,
increasing by 5% while the UK reduced by 4% and Nordics reduced 8%. North
America reduced by 19% following growth of 35% last year, and the rest of
Europe reduced by 12%.
Orders increased by 8% CER in the Period and by 5% sequentially. Organically
orders increased by 1% with Asia up 15% and the UK up 8% partially offset by
Europe reducing 2% and North America reducing by 9%. The book-to-bill ratio
for the Period increased to 0.98 from 0.89 last financial year (H1 24: 0.87;
H2 24: 0.91). With strong growth in design wins (up 8% this Period and up 33%
on two years ago), the Group is well positioned to accelerate growth once
market conditions improve.
The Group order book at 30 September 2024 was £163m, representing c.4.5
months of first half sales (consistent with pre-covid levels) and providing
good visibility for the second half of the year. The order book has reduced
from higher levels in the prior period when orders included earlier
stocking-up amid constrained supply chains.
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 resilient, flexible and innovative.
- 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 both resilient gross margins and
long-term repeating revenues.
- Broad footprint: a decentralised model with 37 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 the Group's 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. Additionally with the installation of solar panels at some of our
sites as part of our project to reduce carbon emissions, this percentage is
reducing.
With a capital light business model, a differentiated product portfolio, a
strong balance sheet, high quality customers and low customer concentration
(the Group's largest customer is c.8% of Group sales), the Group has grown
strongly and consistently over the last decade whilst proving resilient
through economic downturns. We expect this to continue to be the case.
Further Operational Efficiencies deliver Margin Progress and Strong Cashflow.
The first half saw further significant benefits derived from operational
efficiencies, tight control of operating expenses and continuing robust gross
margins, which more than offset the reduction in sales. While Group sales for
the first half reduced by 4% CER to £211.1m, underlying operating profit
increased by 4% CER to £29.1m, with operating margins increasing by 1.0ppt at
CER to 13.8%. Last year's rapid rise in interest rates drove an increase in
finance costs for the Period of £1.8m to £5.3m, which resulted in underlying
profit before tax reducing by 5% to £23.8m, with underlying earnings per
share reducing by 4% to 18.4p (H1 2023/24: 19.2p). Conversely, the Group will
benefit as interest rates reduce.
After adjustments for the inclusion of acquisition and disposal-related costs
of £8.0m, profit before tax for the Period on a reported basis was £15.8m
(H1 2023/24: £16.0m) with fully diluted earnings per share increasing by 4%
to 12.2p (H1 2023/24: 11.7p).
Free cash flow of £44.6m was generated over the last 12 months, being 46%
higher than the prior 12 month period and representing 126% of underlying
earnings, well ahead of the Group's 85% conversion target. Net debt (excluding
IFRS16) at 30 September 2024 reduced by £5.3m to £98.7m (31 March 2024:
£104.0m) with gearing reducing to 1.45x (31 March 2024: 1.5x). This gearing
is below the lower end of our target range of 1.5x to 2.0x and, together with
expected cash flow in the second half, would provide acquisition funding of
c.£70m for the rest of the year while keeping the Group within its target
gearing range.
Increased Dividend
The Board is declaring a 4% increase in the interim dividend to 3.9p per share
(H1 2023/24: 3.75p per share). The interim dividend is payable on 24 January
2025 to shareholders registered on 13 December 2024.
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.
This approach, along with the continued development of the Group, will enable
the funding of both dividend growth and a higher level of investment in
acquisitions from internally generated resources.
The Company operates a Dividend Re-Investment Programme ("DRIP"), details of
which are available from the Company's Registrar, Equiniti. The final date for
DRIP elections for the interim dividend will be 3 January 2025.
A Proven Growth Strategy
The Group has been built through a focus on organic growth and enhanced
operational efficiency, alongside 27 carefully selected and well-integrated
acquisitions over the past 13 years to create a focused, growth-oriented,
higher margin design and manufacturing business. We have a well-developed
approach to capital allocation and see significant scope for further expansion
with a strong pipeline of investment opportunities in development. The Group
operates in a c.$30bn fragmented market with many smaller players presenting
an exciting consolidation opportunity.
The Group's strategy comprises four elements:
1. Grow sales well ahead of GDP over the economic cycle by focusing on
high quality growth target markets for design opportunities.
2. Generate efficiencies and improve operating margins through clustering
of businesses to achieve operational and production efficiencies, moving up
the value chain into higher margin products with increased product innovation
and differentiation and value based pricing.
3. Acquire highly differentiated businesses with attractive growth
prospects and strong operating margins.
4. Reduce our impact on the environment by achieving net-zero carbon
emissions.
These elements are underpinned by core objectives of generating strong cash
flows and long-term sustainable returns from a capital-light business model.
A fifth Target Market added this year
At our Capital Markets Day in September 2024, the Group announced the addition
of the security market as a fifth target market. Along with our other four
target markets (industrial automation & connectivity, medical, renewable
energy, and the electrification of transportation), security is another
fragmented market underpinned by a number of structural growth drivers.
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, increasing security concerns, an
ageing affluent population, renewable sources of energy and the
electrification of transport. In total, the five target markets accounted for
around 80% of first half sales.
The Group's focus on these markets has been driving the Group's through-cycle
organic revenue growth well ahead of GDP, and creates acquisition
opportunities. Between 2017 and 2024, sales into the Group's target markets
grew organically by 80% cumulatively, compared with around 19% in the other
markets. This reflects the sustained compounding organic growth of these
markets.
Continued progress on Key Strategic Indicators
For more than 10 years, the Group's strategic progress and its financial
performance have been measured through key strategic indicators ("KSIs") and
key performance indicators. These are reviewed periodically, and targets have
been raised six times previously, most recently in June 2023 when the current
15% underlying operating margin target was set. From this year, targets have
been simplified into seven KSIs which will be the key business drivers for the
next stage of our development. Two previously monitored KSIs have now been
largely achieved. Sales beyond Europe (target 45%) are now at 43% having risen
from 5% in FY 2013/14. Target market sales (target 85%) are at 80% having
risen from c.40% in FY2013/14 when first set, and will likely remain around
that level as new acquisitions are typically below this level when acquired so
have a short term offsetting effect against existing businesses. Dividend
growth was also previously included as a KPI and while it's not one of the
simplified seven KSIs, a progressive dividend policy remains.
For tracking purposes, the KSIs 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
Period's performance relative to last year is discussed below.
Key Strategic Indicators
FY14 FY18 FY19 FY20 FY21 FY22 FY23 H124 H125 Target
1. Increased underlying operating margin 3.4% 6.3% 7.0% 8.0% 10.2% 10.9% 11.5% 12.9% 13.8% 15%((2))
2. Sales growth
CER 17% 11% 14% 8% -1% 28% 15% 4% -4% Well ahead of
GDP thru cycle
Organic 3% 11% 10% 5% -4% 18% 10% 1% -10%
3. Underlying EPS growth 20% 16% 22% 11% -8% 31% 20% 8% -4% >10%
4. Operating profit conversion((3)) 100% 85% 93% 106% 128% 80% 94% 91%((4)) 115%((4)) >85% of underlying operating profit
5. Free cash conversion((3)) 107% 78% 94% 104% 136% 77% 95% 85%((4)) 126%((4)) >85% of underlying
earnings
6. ROCE((3)) 15.2% 13.7% 15.4% 16.0% 14.5% 14.7% 15.9% 15.1% 15.2% >15%
7. Carbon emissions Scope 1 & 2 reduction((5)) 35% 47% c.50% 65%
(1) FY 2013/14 to FY 2019/20 are for total operations before disposals as
reported at the time.
(2) 13.5% target by FY 2024/25 and 15% by FY 2027/28
(3) Defined in note 7 of the attached condensed consolidated interim
financial statements.
(4) Last 12 months (LTM)
(5) Carbon emissions are measured on a calendar year basis (e.g. CY 2022
shown as FY 2022/23). Target is for absolute carbon emissions reduction of 65%
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 13.8%, an increase of 0.9ppts on the first
half last year (H1 2023/24: 12.9%) and 0.7ppts higher than the last financial
year (FY 2023/24: 13.1%) taking growth in underlying operating margin to
10.4ppts since FY14. The Group benefited in the Period from operational
efficiencies, tight cost control and robust gross margins augmented by higher
margin acquisitions. The Group has exceeded its target of 13.5% six months
early and is well on track to achieve its 15% target in FY 2027/28.
- Sales reduced by 10% organically this Period due to industry destocking
and against strong prior year comparators. We retain our focus on achieving
strong through-cycle organic growth which is supported by our pipeline of
design wins. Since FY 2017/18, sales have grown by 6% organically per annum on
average.
- Excellent operational efficiencies, robust gross margins, tight control of
operating costs, and contributions from acquisitions resulted in underlying
operating profit for the Period increasing by 4% CER. Despite this, underlying
EPS reduced by 4% due to higher finance costs following last year's increase
in interest rates. In total, the Group has grown its underlying EPS by 19%
CAGR in the last 10 years.
- Underlying operating cash flow and free cash flow for the last 12 months
were 33% and 46% higher respectively than the comparable 12 month period with
respective conversion rates of 115% and 126%, well ahead of our 85% targets.
Over the last ten years, both operating cash conversion and free cash
conversion have been consistently strong, averaging around 100% through-cycle,
reflecting low capital expenditure requirements and efficient working capital.
- ROCE for the Period was 15.2%, slightly ahead of last year (H1 2023/24:
15.1%) and ahead of our 15% target. Further progress in the short term is
impacted by the record number of acquisitions (six) in the last 14 months
(most acquisitions are dilutive to Group ROCE at the outset before growing).
We acquire businesses with long term growth prospects that we expect will
generate high returns over time. For example, our acquisitions made up to
FY2017/18 generated a collective ROCE of 29% last year. We expect this to
continue growing and for acquisitions made more recently to grow similarly.
- Carbon emissions reduced further during the Period and are now an
estimated 50% 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.
Divisional Results
The divisional results for the Group for the six months ended 30 September
2024 are set out and reviewed below.
H1 2024/25 H1 2023/24 Reported revenue growth CER revenue growth Organic revenue
Growth
Revenue £m Underlying Margin((2)) Revenue £m Underlying Margin
operating profit((1)) operating profit((1))
£m £m
M&C 125.8 18.2 14.5% 132.2 19.6 14.8% -6% -5% -12%
S&C 85.3 16.8 19.7% 86.7 15.0 17.3% -3% -2% -5%
Unallocated (5.9) (6.5)
Total (CER) 211.1 29.1 13.8% 218.9 28.1 12.8% -4% -10%
FX 3.1 0.5
Total 211.1 29.1 13.8% 222.0 28.6 12.9% -5%
(1) Underlying operating profit excludes acquisition and disposal-related
costs
(2) Margin refers to underlying operating margin
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 operates across 17 countries and
comprises two clusters (Magnetics and Embedded Systems) and three further
businesses. Almost all 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, the UK and the US.
Geographically, 5% of sales by destination are in the UK, 44% in the rest of
Europe, 27% in North America and 24% in Asia. During the Period, Noratel's
move to a new Chinese facility was completed.
Orders reduced by 3% at CER to £114.6m and by 11% organically for a
book-to-bill ratio of 0.91 (H1 2023/24: 0.89; H2 2023/24: 0.90) as customers
actively reduced their stocks. The divisional order book at 30 September 2024
was £93.8m, being 4.3 months of first half sales, providing good visibility
for the second half of the year.
Sales reduced by 12% organically, similarly impacted by destocking in the
industrial and transport sectors. The medical and renewable energy sectors
were flat. By territory, Asia grew by 16% (having reduced by 24% last year)
with the UK up by 2%. Conversely, North America reduced by 28% (having
increased by 35% last year), the Nordic region reduced by 13% and the rest of
Europe by 19%.
There was a 7% contribution to sales from three acquisitions made in the last
14 months with Silvertel acquired in August 2023 plus Shape and DTI acquired
in Q4 2023/24. Including these acquisitions, sales at CER reduced by 5%.
With the impact of translation from a stronger Sterling (on average), reported
divisional revenue reduced by 6% to £125.8m (H1 2023/24: £134.4m reported
and £132.2m at CER). Underlying operating profit of £18.2m was £1.4m (-7%)
lower than last year at CER and £1.7m lower on a reported basis (H1 2023/24:
£19.9m) reflecting the net impact of the organic sales shortfall. The
underlying operating margin of 14.5% was 0.3ppts lower than last year (H1
2023/24: 14.8%), reflecting the mitigating effects of operational efficiencies
and robust gross margins.
Sensing & Connectivity Division ("S&C")
The S&C division designs, manufactures and supplies highly differentiated
sensing and connectivity components for industrial applications. The division
operates across nine countries and comprises four clusters and four further
businesses. Products are manufactured in-house at one of the division's 16
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, 46% in the rest of Europe, 24% in North America
and 9% in Asia.
This Period saw the acquisition of Hivolt, a Northern Ireland based specialist
capacitor designer and manufacturer, into the division.
Divisional orders were particularly strong, increasing by 26% at CER and by
20% organically as earlier design wins generated new business, for a
book-to-bill ratio of 1.08 improving from 0.84 in the first half last year and
0.99 in the second half. Excluding one business with particularly high orders,
the remaining divisional orders increased by 13% organically, coming from most
businesses, and with a book to bill ratio of 1.10. The increase in orders came
from strength in transport security, data centre security, US rail transport,
US wireless connectivity demand, industrial and fibre communications in
Europe. As with the destocking phase, S&C exhibits earlier cycle
characteristics than M&C. Overall, the divisional order book increased by
6% since 31 March 2024 to £68.7m, representing 4.8 months of first half
sales, giving good visibility for the second half.
Sales reduced by 5% organically, with a pick-up during the second quarter in
mid-market industrial and connectivity applications along with strong demand
in data security applications, offsetting softer conditions in medical
applications. By region, the Nordics increased by 10%, while the rest of
Europe reduced by 5%, North America was down by 3%, the UK down by 6% and Asia
down by 33%, mainly related to local customer project delays.
Combined with a 3% sales increase from acquisitions, overall divisional sales
reduced by 2% CER. Including the impact of translation from a stronger
Sterling on average, reported divisional revenue reduced by 3% to £85.3m (H1
2023/24: £87.6m reported and £86.7m at CER).
Underlying operating profit of £16.8m was £1.8m (+12%) higher than last year
at CER and £1.6m (+11%) higher on a reported basis (H1 2023/24: £15.2m). The
underlying operating margin of 19.7% was 2.4ppts higher than last year at CER
(H1 2023/24: 17.3%) reflecting the positive effect of operational
efficiencies, robust gross margins and higher margin acquisitions.
Design Wins Driving Future Recurring Revenues
Our business revenue is created by engineering development with customers and
as such organic growth is achieved by winning new design opportunities that
lead to pull through demand. Project design wins are therefore an indicator of
new business creation and are achieved by working with customers at an early
stage in their project design cycle to identify opportunities. A design win is
registered when our products are specified into our customers' designs.
The Group has a strong bank of design wins built up over many years, forming
the basis for the Group's strong through-cycle organic growth. During the
Period, new design wins were registered with an estimated lifetime value of
£205m, an increase of 8% over last year (and up 33% on two year ago). This
increase in design wins reflects both the anticipated increase in customer
project design activity at this stage in the cycle, cross-business
opportunities and the increased focus and implementation by Group engineers.
Additionally, new project design activity remains at a high level, being
broad-based across all target markets. The total pipeline of ongoing projects
continues to be very strong.
Acquisitions
The market is highly fragmented with many opportunities to acquire. Currently,
the Group's pipeline consists of around 250 possible targets of which a number
are in the active outreach phase and live deal negotiation at any time.
The Group has acquired 27 design and manufacturing businesses over the last 13
years, with the Group's continuing revenues increasing to £437m in FY 2023/24
from £10m in FY 2009/10. By taking a long-term approach to create compounding
growth in acquired and integrated businesses, the Group has generated
substantial value organically. As reported in the Finance section, our ROCE
for each acquisition typically increases over time, broadly according to the
period of ownership.
During the Period, the Group completed the acquisition of Hivolt Capacitors
Limited ("Hivolt"), a Northern Ireland-based designer and manufacturer of
custom-built capacitors for a wide range of high voltage applications for sale
in the UK and internationally, mainly into the medical market. Hivolt was
acquired in August 2024 into the S&C division, for an initial cash
consideration of £3.3m on a debt free, cash free basis representing an EBIT
multiple of 6x, together with an earn-out of up to £0.9m payable subject to
Hivolt's performance up to 31 March 2025.
The Group's operating model is well established and has facilitated the smooth
integration of this and previously acquired businesses.
Sustainability and Social Responsibility
The Group creates innovative electronics that help improve the world and
people's lives. This commitment is reflected in our focus on markets that are
aligned with UN Sustainable Development Goals. More information on how we work
with customers and suppliers to support the global sustainability goals is
available on our website www.discoverIEplc.com.
In September 2024, MSCI reaffirmed the Group's ESG "AA" rating, placing us in
the top 17% of all companies surveyed. The Group was also rated by Morningstar
Sustainalytics as one of the Regional (Europe) Top Rated companies in 2023,
with a Low Risk rating, which is a recognition given to companies that have
achieved the highest scores in ESG risk management. In 2024, the Group's ESG
rating further improved from Low Risk to Negligible Risk, which placed the
Group in the top 1.5% of over 16,000 companies evaluated globally.
Last year, the Group conducted detailed scenario analysis and financial
modelling for climate-related risks and opportunities, and published the
process and findings in its TCFD report. This can be found in the Group's 2024
Annual Report and Accounts and on its corporate website. In early 2024, the
Group conducted an interim reassessment to incorporate newly acquired
businesses, which confirmed that there had been no material change in the
Group's climate-related risk profile.
During the Period, the Group continued its progress across a range of ESG
related areas, including the following:
- On track to achieve our target of net zero Scope 1 & 2 carbon
emissions by 2030 and the intermediate target of a 65% reduction by CY2025,
with CY2024 Scope 1 & 2 emissions expected to be c. 55% lower than the
CY2021 baseline.
- Plans have been developed for the installation of solar panels at one of
our sites in China which should be completed by the end of the financial
year. This continues the Group's progress in developing self-generation
capacity which, as well as lowering carbon emissions, provides an element of
security for the Group's energy supply.
- Reflecting the importance that we place on health & safety, the Group
has adopted a revised Group Health & Safety Policy, as well as more
stringent metrics to capture and record incidents occurring, as well as
improved near miss reporting. While the policy continues to emphasise the
importance of local accountability for health & safety matters within each
of our businesses, we continue to demand higher standards in this crucial
area.
- A further site achieved the occupational health & safety ISO 45001
accreditation, further extending the proportion of our global workforce
covered by this standard.
- The Group has rolled out a broader and increased level of cyber security
awareness training. We are also in the process of developing a formal
governance framework for the use of artificial intelligence, addressing both
the significant opportunities that this brings to the Group as well as the
risks it poses.
- An industrial placement scheme has been launched in partnership with the
University of Surrey, with the first group of engineering students having
started training in September 2024.
- In addition to local training that individual businesses already conduct,
the Group has introduced an additional online learning and development
platform, with the plan being to roll this out more extensively across the
Group in the second half.
- A detailed review has been conducted of the requirements of the EU's
Corporate Sustainability Reporting Directive (CSRD) (no reporting requirement
this year). Preparatory work has commenced and the Group seeks to use this
exercise as an opportunity to enhance its stakeholder engagement activities.
Group Financial Results
Revenue and Orders
Group sales of £211.1m were 4% lower than last year at CER and 5% lower
reported (H1 2023/24: £222.0m). Six acquisitions in the last 14 months
(Silvertel, 2J, Shape, IKN and DTI last financial year) plus Hivolt this
Period, added 8% to revenue while the disposal of the Santon solar business
announced last year reduced sales by 2%. Organic sales reduced by 10%
following a period of customer destocking.
Revenue (£m) H1 H1 2023/24
2024/25 %
Organic sales 189.6 209.8 -10%
Acquisitions 17.5
Disposals 4.0 9.1
Sales at CER 211.1 218.9 -4%
FX translation 3.1
Reported sales 211.1 222.0 -5%
Orders for the Period were £206.6m, 8% higher at CER than last year (H1
2023/24: £193.9m). The extent of customer destocking reduced in the Period
with a book to bill ratio of 0.98 compared with 0.87 in the first half last
year, and 0.91 in the second half, with orders in the Period increasing by 1%
organically and 5% sequentially.
The Group order book continued to normalise during the first half as customer
destocking continued, ending the Period at £163m (c.4.5 months of first half
sales, consistent with pre-covid levels).
Group Operating Profit and Margin
Group underlying operating profit for the Period was £29.1m, a 4% increase on
last year at CER and up 2% reported (H1 2023/24: £28.6m). This delivered an
underlying operating margin of 13.8%, which was 1.0ppt higher than last year
at CER and 0.9ppt higher on a reported basis (H1 2023/24: 12.9%). We have
therefore achieved our 13.5% near-term target six months early and we remain
well on track to reach our target for FY2027/28 of 15%.
Group reported operating profit for the Period (including acquisition and
disposal-related costs as discussed below within underlying adjustments) was
£21.1m, 8% higher than last year (H1 2023/24: £19.5m).
£m H1 2024/25 H1 2023/24
Operating Finance Profit before tax Operating profit Finance cost Profit before tax
profit Cost
Underlying 29.1 (5.3) 23.8 28.6 (3.5) 25.1
Underlying adjustments
Amortisation of acquired intangibles (7.8) - (7.8) (7.7) - (7.7)
Acquisition & disposal expenses (0.2) - (0.2) (1.4) - (1.4)
Reported 21.1 (5.3) 15.8 19.5 (3.5) 16.0
As shown below, underlying operating profit growth has been achieved through a
combination of strong operational efficiencies and accretive acquisitions
offsetting the temporary impact of customer destocking on organic sales:
£m Underlying
Operating
Profit
H1 2023/24 28.6
Gross profit on organic sales reduction (8.3)
Organic gross margin improvement 2.7
Organic operational efficiencies 3.3
Organic profit reduction (2.4)
Profit from acquired companies 3.4
CER growth in operating profits 1.0
Foreign exchange impact (0.5)
Net growth in operating profits 0.5
H1 2024/25 29.1
Through a number of manufacturing and operating initiatives, organic gross
margins improved by 1.4ppts and organic operating costs reduced by 5% with
reductions shared across divisions and at Head Office. Gross margin
improvement was delivered despite volume reduction reflecting the Group's
ability to flex capacity resources according to volume.
Sterling was 2% stronger this Period versus 12 months ago, compared with our
major currencies, Euro, US dollar and Nordic currencies, giving rise to a
reduction in underlying operating profits on translation of £0.5m for the
Period.
UK employers national insurance rates which were raised in the recent UK
budget will increase costs for the Group by c.£0.9m from next financial year.
Underlying Adjustments
Underlying adjustments for the Period comprise the amortisation of acquired
intangibles of £7.8m (H1 2023/24: £7.7m) together with net acquisition and
disposal expenses of £0.2m (H1 2023/24: £1.4m).
The amortisation charge for the Period of £7.8m has increased only marginally
over last year following the annualisation effect of recent acquisitions
largely offset by FX movements.
Net acquisition and disposal expenses of £0.2m comprise the costs associated
with recent acquisitions of £0.7m; losses of £0.4m incurred by the non-core
Santon solar business whose disposal was announced last year and integration
costs of £1.2m related to the establishment of our operating clusters mainly
associated with removing duplicate positions in our Magnetics and Sensors
clusters. This was offset by a credit of £2.1m being the movement in the fair
value of contingent consideration on past acquisitions.
Financing Costs
Net finance costs for the Period were £5.3m (H1 2023/24: £3.5m) and include
a £0.4m charge for leased assets under IFRS 16 (H1 2023/24: £0.3m) and a
£0.3m charge for amortised upfront facility costs (H1 2023/24: £0.4m). Net
finance costs related to our banking facilities were £4.6m (H1 2023/24:
£2.8m), an increase of 64%, being the annualisation of interest rate rises
from last year and higher average net debt levels following six acquisitions
in the last 14 months.
During the Period, interest rates started to reduce with the Sterling base
rate reducing by 0.25% to 5.0%, the US Dollar Federal rate by 0.5% to 5.0% and
the ECB lending rate by 0.85% to 3.65%, these being the Group's three
principal borrowing currencies. Since the Period end, Sterling, US Dollar and
ECB lending rates have all reduced by a further 0.25%. Looking forward, a
further 1ppt reduction in interest rates for all three of our principal
borrowing currencies would reduce annual finance costs by approximately £1.3m
and increase annual EPS by c.1.0p or c.3%.
Underlying Tax Rate
The underlying effective tax rate ("ETR") in the first half was 24% which was
1ppt lower than last year's first half rate (H1 2023/24: 25%) due to a shift
in the profit mix towards lower tax territories.
The overall ETR of 24% (H1 2023/24: 28%) was at the same level as the
underlying ETR as shown in the table below.
£m H1 2024/25 H1 2023/24
PBT ETR PBT ETR
Group underlying 23.8 24% 25.1 25%
Amortisation of acquired intangibles (7.8) 21% (7.7) 22%
Acquisition & disposal expenses (0.2) 150% (1.4) 0%
Total reported 15.8 24% 16.0 28%
Profit Before Tax and EPS
Due to the significant increase in net finance costs, underlying profit before
tax for the Period of £23.8m was £1.3m lower (-5%) than last year (H1
2023/24: £25.1m) with underlying EPS for the Period reducing by 4% to 18.4p
(H1 2023/24: 19.2p).
£m H1 2024/25 H1 2023/24
PBT EPS PBT EPS
Underlying 23.8 18.4p 25.1 19.2p
Underlying adjustments
Amortisation of acquired intangibles (7.8) (7.7)
Acquisition & disposal expenses (0.2) (1.4)
Reported 15.8 12.2p 16.0 11.7p
After underlying adjustments, reported profit before tax was £15.8m, 1% lower
than last year (H1 2023/24: £16.0m) with reported fully diluted earnings per
share of 12.2p, 4% ahead of last year (H1 2023/24: 11.7p).
Working Capital and Asset Returns Ratios
Working capital (which comprises inventories, current trade and other
receivables and payables, excluding deferred and contingent consideration) at
30 September 2024 was £80.0m (H1 2023/24: £89.3m), equivalent to 18.9% of
first half annualised sales, broadly in line with last year (H1 2023/24:
18.8%). Working capital reduced by £9.3m during the last 12 months being
£3.9m of working capital improvements, £6.8m from foreign exchange
translation and £1.4m increase from acquisitions. This ratio is still at
higher rates than normal due to lower sales momentum during the Period.
Working capital KPIs have remained robust during the Period with debtor days
of 48 (1 day lower than last year), creditor days of 73 (1 day lower than last
year) and stock turns of 2.9 (0.1 turn higher than last year).
Asset Return Ratios
ROCE for the year of 15.2% was ahead of our 15% target and ahead of the ROCE
reported last year (H1 2023/24: 15.1%).
Organic ROCE (which excludes acquisitions completed in the last 12 months),
was 17.3% (an increase of 0.3ppts on last year) and we expect this to continue
to grow well going forward. The effect of compounding growth on acquisitions
over time can be seen in the ROCE for those businesses acquired more than 7
years ago which in aggregate have a ROCE of 29% including an apportionment of
Group central costs.
Return on Tangible Capital Employed ("ROTCE") for the year, which excludes
goodwill, intangible assets and non-operational assets, was 48.9% and
illustrates both the strong returns being generated by the Group's operational
assets, and the capital-light requirements of those businesses with capital
expenditure of only 1.1% of sales in the last 12 months (FY 2023/24: 1.2%).
ROTCE was 1.1ppt ahead of last year (H1 2023/24: 47.8%) following the
improvements in organic operational efficiency and the increase in operating
margin.
Cash Flow
Net debt at 30 September 2024, excluding leases, was £98.7m, compared with
£104.0m at 31 March 2023 and £111.3m at 30 September 2023, with the
reduction in the Period of £5.3m driven by strong free cash generation partly
offset by acquisition and disposal net investment and last year's final
dividend.
£m H1 H1 Last 12 Months
2024/25 2023/24
Opening net debt (104.0) (42.7) (111.3)
Free cash flow (see table below) 15.7 8.1 44.6
Dividends (7.9) (7.6) (11.5)
Acquisitions & disposals (4.9) (67.5) (22.8)
Equity issuance (net of taxes) - (0.2) (0.1)
Foreign exchange impact 2.4 (1.4) 2.4
Net debt at 30 Sept (98.7) (111.3) (98.7)
Acquisition and disposal net cash outflows of £4.9m in the Period comprised
£3.3m for the acquisition of Hivolt, £1.7m payment of earnouts, £1.9m of
acquisition and disposal expenses partly offset by disposal receipts of
£2.0m, mainly related to the disposal of the Santon solar business announced
last year. Additional receipts of around £5m are due in the second half
related to the solar business and facility disposals.
Last year's final dividend of £7.9m, which was paid in August 2024, was an
increase of 5% over the prior year.
The impact of stronger Sterling in the Period led to an FX gain of £2.4m
compared with an FX loss last year of £1.4m. 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.
Underlying operating cash flow and free cash flow for the year (see
definitions in note 7 to the summary consolidated financial statements)
compared with last year are shown below:
£m H1 H1 Last 12
2024/25 2023/24 Months
Underlying Profit before tax 23.8 25.1 46.9
Net finance costs 5.3 3.5 10.8
Non-cash items 7.1 7.5 15.5
Underlying EBITDA 36.2 36.1 73.2
IFRS 16 - lease payments (3.8) (3.1) (7.5)
EBITDA (pre IFRS 16) 32.4 33.0 65.7
Changes in working capital (5.0) (12.3) 5.1
Capital expenditure (2.3) (2.7) (4.5)
Underlying operating cash flow 25.1 18.0 66.3
Finance costs (4.6) (3.7) (8.6)
Taxation (4.2) (5.2) (11.5)
Legacy pension (0.6) (1.0) (1.6)
Free cash flow 15.7 8.1 44.6
Underlying EBITDA (pre IFRS 16 lease payments) of £32.4m was 2% lower than
last year (H1 2023/24: £33.0m) with operational efficiencies and
contributions from the six acquisitions made in the last 14 months minimising
the cash impact of reduced organic sales.
During the Period, the Group invested £5.0m in working capital, a reduction
of £7.3m on last year, partly linked to an ongoing drive to reduce inventory
levels and partly linked to lower sales levels. With working capital released
during the second half last year of £10.1m, a net £5.1m was released from
working capital over the last 12 months.
Capital expenditure of £2.3m was invested during the Period, similar to last
year (H1 2023/24: £2.7m) including new facilities and various new production
line extensions. Capital expenditure levels are expected to increase in the
second half to around £7m for the full year.
£25.1m of underlying operating cash flow was generated in the first half, up
39% on last year (H1 2023/24: £18.0m). Together with £41.2m generated in the
second half of last year, a record total of £66.3m of underlying operating
cash was generated over the last 12 months representing 115% of underlying
operating profit, well ahead of our 85% target. This was 33% higher than the
comparable 12 month period (12 months ended 30 Sep 2023: £49.8m). Over the
last 10 years, the Group has consistently achieved high levels of operating
cash conversion, averaging over 100%.
Finance cash costs of £4.6m were £0.9m higher than last year being the
annualisation of interest rate rises last year and the cost of acquisitions,
while corporate income tax payments of £4.2m were £1.0m lower than last year
reflecting changes in the timing of payments. Around a further £8m of tax
payments are expected during the second half.
Free cash flow (being cash flow before dividends, acquisitions and equity fund
raises) of £15.7m was generated in the first half, 94% higher than last year
(H1 2023/24: £8.1m). Together with £28.9m generated in the second half last
year, a total of £44.6m of free cash flow was generated over the last 12
months being a free cash conversion of 126% of underlying earnings, well ahead
of our 85% target. Free cash flow was 46% higher than the comparable 12 month
period (12 months ended 30 Sep 2023: £30.5m).
Banking Facilities
The Group has a £240m syndicated banking facility which extends to August
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 (excluding IFRS 16 leases in accordance with our banking
covenants) at 30 September 2024 of £98.7m, the Group's gearing ratio at the
end of the Period (being net debt excluding IFRS 16 leases divided by
underlying EBITDA as annualised for acquisitions) was 1.45x compared with a
target gearing range of between 1.5x and 2.0x. Together with expected cash
flow in the second half, the Group has access to acquisition funding of
c.£70m for the rest of the year while remaining within our target gearing
range.
Balance Sheet
Net assets of £296.6m at 30 September 2024 were £5.0m lower than at the end
of the last financial year (31 March 2024: £301.6m). The reduction primarily
relates to last year's final dividend of £7.9m paid during this Period and
the currency translation impact of £8.8m being partly offset by net profit
after tax for the Period of £12.0m. The movement in net assets is summarised
below:
£m H1
2024/25
Net assets at 31 March 2024 301.6
Net profit after tax 12.0
Dividend paid (7.9)
Currency net assets - translation impact (8.8)
Loss on defined benefit scheme (0.1)
Share based payments (inc tax) (0.2)
Net assets at 30 September 2024 296.6
Defined Benefit Pension Scheme
The Group's IAS 19 pension asset, associated with its legacy defined benefit
pension scheme, decreased over the Period by £0.4m from £0.3m at 31 March
2024, to a liability of £0.1m at 30 September 2024 (30 September 2023: £0.7m
asset). The key driver was the running costs associated with the scheme.
Risks and Uncertainties
The principal risks faced by the Group are set out on pages 71 to 81 of the
Group's Annual Report for year ended 31 March 2024, 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 and in the Middle East; potential
for increased trade tariffs following the US election; 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 delivered a resilient first half performance with a 4% increase in
underlying operating profit, growth in operating margins to 13.8%, ahead of
our near-term target and excellent cashflow. This was in an environment of
supply chain lead times returning to normal and widespread customer inventory
reductions resulting in sales that were 4% lower.
Our flexible operating model allows us to control costs in response to lower
production volumes, which along with ongoing efficiency initiatives and
accretive acquisitions, has more than offset lower sales. This is a great
strength of the business that has delivered improved underlying operating
profits and margins in each of the last ten years (in-line in the covid year).
Orders increased by 5% sequentially, with a book to bill ratio of around 1.0.
In the S&C division, orders grew by 20% organically as design wins
converted into new orders whilst in the M&C division, orders were 11%
lower as industrial destocking continued to work through.
Third quarter trading to date is in-line with our expectations with orders run
rate ahead of sales and ahead of the second quarter.
We remain focused on generating above-market growth through the cycle and our
design win pipeline remains strong. This, along with our acquisition
opportunities, is our engine for growth and we remain 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
2 December 2024
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 2024. 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
2 December
2024
INDEPENDENT REVIEW REPORT TO DISCOVERIE GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2024, which comprises the condensed consolidated statement of profit
and loss, the condensed consolidated statement of comprehensive income, the
condensed consolidated statement of financial position, the condensed
consolidated statement of changes in equity and the condensed consolidated
statement of cash flows and related notes 1 to 20.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2024 is not prepared,
in all material respects, in accordance with United Kingdom adopted
International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules 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 inquiries, 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.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion 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 entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, 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
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
Reading, United Kingdom
2 December 2024
Condensed consolidated statement of profit or loss
Audited
Notes Unaudited Unaudited Year
Six months Six months ended
ended ended 31 Mar 2024
30 Sept 2024 30 Sept 2023 £m
£m £m
Revenue 5 211.1 222.0 437.0
Operating costs (190.0) (202.5) (405.8)
Operating profit 8 21.1 19.5 31.2
Finance income 1.8 1.5 3.9
Finance costs (7.1) (5.0) (12.9)
Profit before tax 15.8 16.0 22.2
Tax expense 9 (3.8) (4.5) (6.7)
Profit for the period 12.0 11.5 15.5
Earnings per share
Basic, profit for the period 11 12.5p 12.0p 16.2p
Diluted, profit for the period 11 12.2p 11.7p 15.8p
Supplementary statement of profit or loss information
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
Underlying Performance Measure Notes 30 Sept 2024 30 Sept 2023 31 Mar 2024
m m
£m £m £m
Operating profit 21.1 19.5 31.2
Add: Acquisition and disposal expenses 0.2 1.4 9.8
Amortisation of acquired intangible assets 7.8 7.7 16.2
Underlying operating profit 29.1 28.6 57.2
Profit before tax 7 15.8 16.0 22.2
Add: Acquisition and disposal expenses 7 0.2 1.4 9.8
Amortisation of acquired intangible assets 7 7.8 7.7 16.2
Underlying profit before tax 7 23.8 25.1 48.2
Underlying earnings per share 7 18.4p 19.2p 36.8p
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 2024 30 Sept 2023 31 Mar 2024
£m £m £m
Profit for the period 12.0 11.5 15.5
Other comprehensive loss:
Items that will not be subsequently reclassified to profit or loss:
Actuarial loss on defined benefit pension scheme (0.1) (1.3) (1.2)
Tax credit relating to defined benefit pension scheme - 0.4 0.3
(0.1) (0.9) (0.9)
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign subsidiaries (8.8) (1.6) (7.7)
(8.8) (1.6) (7.7)
Other comprehensive loss for the period, net of tax (8.9) (2.5) (8.6)
Total comprehensive income for the period, net of tax 3.1 9.0 6.9
The above condensed consolidated statement of comprehensive income should be
read in conjunction with the accompanying notes.
Condensed consolidated statement of financial position
Notes Unaudited Unaudited Audited
at 30 Sept 2024 at 30 Sept 2023 at 31 March 2024
£m £m £m
Non-current assets
Property, plant and equipment 20.2 25.8 20.5
Intangible assets - goodwill 13 227.2 231.0 231.7
Intangible assets - other 89.4 101.8 97.8
Right of use assets 21.5 19.4 20.6
Pension asset 17 - 0.7 0.3
Other receivables 0.2 6.2 0.2
Deferred tax assets 8.3 10.4 9.9
366.8 395.3 381.0
Current assets
Inventories 78.7 91.2 80.1
Trade and other receivables 81.7 82.0 88.8
Current tax assets 1.0 0.3 1.3
Cash and cash equivalents 15 115.6 122.7 110.8
Assets held for sale 12 4.9 - 6.7
281.9 296.2 287.7
Total assets 648.7 691.5 668.7
Current liabilities
Trade and other payables (77.8) (85.5) (87.5)
Other financial liabilities (84.4) (91.9) (78.7)
Lease liabilities (5.4) (5.6) (5.7)
Current tax liabilities (8.1) (11.4) (8.3)
Provisions (4.8) (2.9) (5.2)
(180.5) (197.3) (185.4)
Non-current liabilities
Trade and other payables (0.4) (4.3) (4.6)
Other financial liabilities (129.9) (142.1) (136.1)
Pension liability 17 (0.1) - -
Lease liabilities (15.7) (13.7) (14.4)
Provisions (3.8) (3.1) (3.6)
Deferred tax liabilities (21.7) (25.2) (23.0)
(171.6) (188.4) (181.7)
Total liabilities (352.1) (385.7) (367.1)
Net assets 296.6 305.8 301.6
Equity
Share capital 4.8 4.8 4.8
Share premium 192.0 192.0 192.0
Merger reserve 2.9 2.9 2.9
Currency translation reserve (10.9) 4.0 (2.1)
Retained earnings 107.8 102.1 104.0
Total equity 296.6 305.8 301.6
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 2024 4.8 192.0 2.9 (2.1) 104.0 301.6
Profit for the period - - - - 12.0 12.0
Other comprehensive loss - - - (8.8) (0.1) (8.9)
Total comprehensive (loss)/income - - - (8.8) 11.9 3.1
Share-based payments including tax - - - - (0.2) (0.2)
Dividends - - - - (7.9) (7.9)
At 30 September 2024 - unaudited 4.8 192.0 2.9 (10.9) 107.8 296.6
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
As at 30 September 2024, the Company's issued share capital consisted of
96,356,109 ordinary shares of 5p each (31 March 2024: 96,356,109 ordinary
shares of 5p each).
As at 30 September 2024, the Employee Share Trust held 300,279 shares (31
March 2024: 414,600). During the six month period to 30 September 2024,
employees exercised 114,321 (year ended 31 March 2024: 275,492) 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 2024 30 Sept 2023 ended
£m £m 31 Mar 2024
£m
Net cash flow from operating 14 17.7 9.6 41.2
activities
Investing activities
Acquisitions of businesses, net of cash acquired 12 (3.3) (65.0) (82.8)
Contingent consideration related to business acquisitions (1.7) - -
Business disposal proceeds 2.0 - -
Purchase of property, plant and equipment (2.3) (2.5) (4.8)
Purchase of intangible assets - software - (0.2) (0.1)
Interest received 1.8 1.3 3.9
Net cash used in investing activities (3.5) (66.4) (83.8)
Financing activities
Proceeds from borrowings 8.0 66.5 79.4
Repayment of borrowings (10.6) (10.8) (28.9)
Payment of lease liabilities (3.4) (2.8) (6.1)
Dividends paid (7.9) (7.6) (11.2)
Net cash (used in)/generated from financing activities (13.9) 45.3 33.2
Net increase/(decrease) in cash and cash equivalents 0.3 (11.5) (9.4)
Cash and cash equivalents at beginning of period 31.5 43.4 43.4
Effect of exchange rate fluctuations (1.1) (1.2) (2.5)
Cash and cash equivalents at end of period 30.7 30.7 31.5
Reconciliation to cash and cash equivalents in the condensed consolidated
statement of financial position
Net cash and cash equivalents shown above 30.7 30.7 31.5
Add back: bank overdrafts 84.9 92.0 79.3
Cash and cash equivalents presented in current assets in the condensed 115.6 122.7 110.8
consolidated statement of financial position
Further information on the condensed consolidated statement of cash flows is
provided in note 14.
The above condensed consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
Notes to the condensed consolidated interim financial statements
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
condensed consolidated interim 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 2024 were authorised for issue by the Board of
Directors on 2 December 2024 and are unaudited but have been subject to an
independent review by the auditors. These 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 2024 were approved by the
Board of Directors on 4 June 2024 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 2024 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 2024, which
was 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 2024 the Group's financial position remains robust with a
£240.0m syndicated banking facility committed to the end of August 2027. In
addition, the Group has an £80.0m accordion facility which, with approval
from the banking syndicate, 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 2024 was £98.7m
compared with £104.0m 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 1.45x compared with 1.5x at the year end. This
complies 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 compared the latest forecasts with the
forecasts used in the going concern assessment undertaken at 31 March 2024,
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 2024. 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.
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 material 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
material 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 2024.
5. Revenue
The Group's revenue from external customers by geographical location is
detailed below:
Six months Six months Year
ended ended ended
30 Sept 2024 30 Sept 2023 31 Mar 2024
£m £m £m
UK 24.7 26.0 52.5
Europe 95.3 104.0 206.1
North America, Asia and Rest of World 91.1 92.0 178.4
Total revenue 211.1 222.0 437.0
Revenue derived from the rendering of services was £2.5m (six month period to
30 September 2023: £2.5m; year ended 31 March 2024: £5.6m). 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"). Operating segments are reported in a manner consistent with
internal reporting provided to the chief operating decision maker. The chief
operating decision maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the
Board, as described in the Group's annual report for the year ended 31 March
2024.
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 underlying operating profit or loss earned by
each segment.
6. Segmental reporting (continued)
Six months ended 30 September 2024
Magnetics & Controls Sensing & Connectivity Unallocated costs
£m £m £m Total
£m
Revenue 125.8 85.3 - 211.1
Underlying operating profit/(loss) 18.2 16.8 (5.9) 29.1
Acquisition and disposal expenses 1.3 (1.5) - (0.2)
Amortisation of acquired intangible assets (3.1) (4.7) - (7.8)
Operating profit/(loss) 16.4 10.6 (5.9) 21.1
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 and disposal 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
Year ended 31 March 2024
Magnetics & Controls Sensing & Connectivity Unallocated costs
£m £m £m Total
£m
Revenue 265.1 171.9 - 437.0
Underlying operating profit/(loss) 40.6 28.9 (12.3) 57.2
Acquisition and disposal expenses (2.2) (7.6) - (9.8)
Amortisation of acquired intangible assets (6.6) (9.6) - (16.2)
Operating profit/(loss) 31.8 11.7 (12.3) 31.2
6. Segmental reporting (continued)
As part of monitoring segment performance, the Directors monitor the net
assets attributable to each segment. Assets and liabilities are allocated to
reportable segments, with the exception of the pension asset/(liability), tax
assets and liabilities, cash and all borrowings and central
assets/(liabilities) (Head Office assets/(liabilities), as shown below:
Segment assets and liabilities
At 30 September 2024 Magnetics & Controls Sensing & Connectivity Unallocated Total
Assets and liabilities £m £m £m £m
Segment assets (excluding goodwill and other intangible assets) 113.4 76.5 189.9
Goodwill and other intangible assets 137.9 178.7 316.6
251.3 255.2 506.5
Central assets 12.4 12.4
Cash and cash equivalents 115.6 115.6
Current and deferred tax assets 9.3 9.3
Assets classified as held for sale 4.9 4.9
Total assets 251.3 260.1 137.3 648.7
Segment liabilities (59.0) (42.8) (101.8)
Central liabilities (6.1) (6.1)
Pension liability (0.1) (0.1)
Other financial liabilities (214.3) (214.3)
Current and deferred tax liabilities (29.8) (29.8)
Total liabilities (59.0) (42.8) (250.3) (352.1)
Net assets/(liabilities) 192.3 217.3 (113.0) 296.6
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
6. Segmental reporting (continued)
At 31 March 2024 Magnetics & Controls Sensing & Connectivity Unallocated Total
Assets and liabilities £m £m £m £m
Segment assets (excluding goodwill and other intangible assets) 124.7 74.4 199.1
Goodwill and other intangible assets 146.7 182.8 329.5
271.4 257.2 528.6
Central assets 11.1 11.1
Cash and cash equivalents 110.8 110.8
Pension asset 0.3 0.3
Current and deferred tax assets 11.2 11.2
Assets classified as held for sale 6.7 6.7
Total assets 271.4 263.9 133.4 668.7
Segment liabilities (65.2) (45.2) (110.4)
Central liabilities (10.6) (10.6)
Other financial liabilities (214.8) (214.8)
Current and deferred tax liabilities (31.3) (31.3)
Total liabilities (65.2) (45.2) (256.7) (367.1)
Net assets/(liabilities) 206.2 218.7 (123.3) 301.6
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 and disposal related costs (namely amortisation of acquired
intangible assets and acquisition and disposal expenses).
Acquisition and disposal expenses comprise transaction costs relating to
acquisitions and disposals, contingent consideration relating to the retention
of former owners of acquired businesses, adjustments to previously estimated
contingent consideration, costs related to integration of acquired businesses
into the Group, and restructuring costs and expenses incurred in relation to
the disposal of the Santon solar business unit, including its losses incurred
following the announcement of its closure.
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, in line with the Group's banking covenant.
Underlying operating margin
"Underlying operating margin" is defined as underlying operating profit
divided by revenue.
7. Underlying Performance Measures (continued)
Underlying profit before tax
"Underlying profit before tax" is defined as profit before tax excluding
acquisition and disposal related costs (namely amortisation of acquired
intangible assets and acquisition and disposal expenses).
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 and disposal related costs (namely amortisation of acquired intangible assets and acquisition and disposal 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 and disposal related costs (namely amortisation of acquired
intangible assets and acquisition and disposal 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, the cost of acquisitions and proceeds from
business disposals.
"Free cash flow conversion" is free cash flow divided by underlying profit
after tax.
Return on capital employed ("ROCE") / Return on tangible capital employed ("ROTCE")
"ROCE" is defined as underlying operating profit, including the annualisation
of profits of acquired businesses, as a percentage of net assets excluding net
debt, deferred consideration related to discontinued operations, assets held
for sale and legacy defined benefit pension asset/(liability).
"ROTCE" is defined as ROCE excluding the value of acquired goodwill and
intangibles, lease liabilities, provisions and tax balances.
Organic and CER revenue growth
"CER revenue growth" is defined as growth rates at constant exchange rates.
"Organic revenue growth" is defined as CER revenue growth excluding the first
12 months of acquisitions post completion and excluding last year's announced
disposal of the Santon solar business unit.
Gearing ratio
Gearing ratio is defined as net debt divided by underlying EBITDA, including
the annualisation of acquired businesses, excluding IFRS 16 lease payments.
The tables below shows the reconciliation to the IFRS reporting measures, for the main underlying performance measures used by the Group.
7. Underlying Performance Measures (continued)
Underlying operating profit / Underlying EBITDA
Underlying operating profit and EBITDA are calculated as follows:
Six months ended Six months Year
30 Sept 2024 ended ended
£m 30 Sept 2023 31 Mar 2024
£m £m
Operating profit 21.1 19.5 31.2
Add back: Acquisition and disposal expenses (a) 0.2 1.4 9.8
Amortisation of acquired intangibles (b) 7.8 7.7 16.2
Underlying operating profit 29.1 28.6 57.2
Add back: Depreciation and amortisation 6.0 5.7 12.5
Share-based payment and IAS 19 pension cost 1.1 1.8 3.4
Underlying EBITDA 36.2 36.1 73.1
The tax impact of the underlying profit adjustments above is a credit of
£1.9m (H1 2023/24: £1.7m).
a) Acquisition and disposal expenses of £0.2m comprise the costs
associated with recent acquisitions of £0.7m; losses of £0.4m incurred by
the non-core Santon solar business whose disposal was announced last year and
integration costs of £1.2m related to the establishment of our operating
clusters mainly associated with removing surplus in our Magnetics and Sensing
clusters; this was offset by a credit of £2.1m being the movement in the fair
value of contingent consideration on past acquisitions.
During the prior period, the acquisition and disposal expenses of £1.4m
comprised £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.
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 2024 ended ended
£m 30 Sept 2023 31 Mar 2024
£m £m
Profit before tax 15.8 16.0 22.2
Add back: Acquisition and disposal expenses 0.2 1.4 9.8
Amortisation of acquired intangibles 7.8 7.7 16.2
Underlying profit before tax 23.8 25.1 48.2
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 2024 ended ended
£m 30 Sept 2023 31 Mar 2024
£m £m
Underlying profit before tax 23.8 25.1 48.2
Total tax charge 3.8 4.5 6.7
Add back tax effect of amortisation of acquired intangible assets and 1.9 1.7 5.3
acquisition and disposal expenses
Underlying tax charge 5.7 6.2 12.0
Underlying effective tax rate 24.0% 24.7% 24.9%
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 2024 30 Sept 2023 ended
£m £m 31 Mar 2024
£m
Profit for the period 12.0 11.5 15.5
Add back: Acquisition and disposal expenses 0.2 1.4 9.8
Amortisation of acquired intangible assets 7.8 7.7 16.2
Tax charge related to the above adjustments (1.9) (1.7) (5.3)
Underlying profit for the period 18.1 18.9 36.2
Number Number Number
Weighted average number of shares for basic earnings per share 96,001,835 95,780,662 95,835,775
Effect of dilution - share options 2,345,851 2,728,085 2,450,593
Adjusted weighted average number of shares for diluted earnings per share 98,347,686 98,508,747 98,286,368
Underlying earnings per share 18.4p 19.2p 36.8p
7. Underlying Performance Measures (continued)
ROCE / ROTCE
ROCE and ROTCE are calculated as follows:
Six months ended Six months Year
30 Sept 2024 ended ended
£m 30 Sept 2023 31 Mar 2024
£m £m
Net assets 296.6 305.8 301.6
Less: Deferred consideration in relation to (6.1) (6.2) (6.3)
disposed businesses
Net debt 98.7 111.3 104.0
IAS 19 pension 0.1 (0.7) (0.3)
(asset)/liability
Assets held for sale (4.9) - (6.7)
Adjusted net assets 384.4 410.2 392.3
Less: Goodwill (227.2) (231.0) (231.7)
Acquired intangible assets (88.2) (100.6) (96.2)
Deferred tax assets and 13.4 14.8 13.1
liabilities
Current tax assets and 7.1 11.1 7.0
liabilities
Lease liabilities 21.1 19.3 20.1
Provisions 8.6 6.0 8.8
Tangible Capital 119.2 129.8 113.4
Underlying operating profit 29.1 28.6 57.2
Add: Annualisation of acquired businesses 0.1 4.9 4.2
Annualised operating profit 58.3 62.1 61.4
ROCE 15.2% 15.1% 15.7%
ROTCE 48.9% 47.8% 54.1%
Underlying operating cash flow / Free cash flow
Six months ended Six months ended Year
30 Sept 2024 30 Sept 2023 ended
£m £m 31 Mar 2024
£m
Underlying EBITDA 36.2 36.1 73.1
Lease payments (3.8) (3.1) (6.8)
EBITDA (incl. lease payments) 32.4 33.0 66.3
Changes in working capital (5.0) (12.3) (2.2)
Capital expenditure (2.3) (2.7) (4.9)
Underlying operating cash flow 25.1 18.0 59.2
Net interest paid (4.6) (3.7) (7.7)
Tax payments (4.2) (5.2) (12.5)
Legacy pension scheme funding (0.6) (1.0) (2.0)
Free cash flow 15.7 8.1 37.0
Notes to the condensed consolidated interim financial statements
8. Operating profit
Six months ended Six months ended Year
30 Sept 2024 30 Sept 2023 ended
£m £m 31 Mar 2024
£m
Revenue 211.1 222.0 437.0
Direct materials/ direct labour (119.5) (130.9) (255.0)
Other cost of goods sold (2.4) (2.9) (5.0)
Selling and distribution costs (20.8) (20.9) (41.0)
Administrative expenses (47.3) (47.8) (104.8)
Operating profit 21.1 19.5 31.2
9. 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 £5.7m (H1 2023/24: £6.2m)
giving an underlying effective tax rate on underlying profit before tax of
24.0% (H1 2023/24: 24.7%), 0.9% lower than the rate for FY 2023/24 of 24.9%.
The tax credit in respect of the underlying profit adjustments was £1.9m (H1
2023/24: £1.7m). This gives an overall tax charge for the period of £3.8m
(H1 2023/24: £4.5m) on profit before tax of £15.8m (H1 2023/24: £16.0m)
which is an effective tax rate of 24.0% (H1 2023/24: 28.0%).
10. Dividends
The Directors have declared an interim dividend of 3.90 pence per share (H1
2023/24: 3.75 pence) payable on 24 January 2025 to shareholders on the
register at 13 December 2024.
In accordance with IAS 10, this dividend has not been reflected in the interim
results. The cash cost of the interim dividend will be £3.8m (H1 2023/24:
£3.6m).
The final dividend of 8.25p per share for the year ended 31 March 2024 was
paid on 2 August 2024.
11. 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 2024 30 Sept 2023 ended
£m £m 31 Mar 2024
£m
Profit for the period 12.0 11.5 15.5
Number Number Number
Weighted average number of shares for basic earnings per share 96,001,835 95,780,662 95,835,775
Effect of dilution - share options 2,345,851 2,728,085 2,450,593
Adjusted weighted average number of shares for diluted earnings per share 98,347,686 98,508,747 98,286,368
Basic earnings per share 12.5p 12.0p 16.2p
Diluted earnings per share 12.2p 11.7p 15.8p
At the period end, there were 2.7 million ordinary share options in issue that
could potentially dilute earnings per share in the future, of which 2.3
million are currently dilutive (30 September 2023: 3.1 million in issue and
2.7 million dilutive, 31 March 2024: 2.7 million in issue and 2.5 million
dilutive).
12. Business combinations
Acquisitions in the period ended 30 September 2024
Acquisition of Hivolt
On 1 August 2024, the Group completed the acquisition of 100% of the
outstanding ordinary shares of Hivolt Capacitors Limited ("Hivolt"), a company
incorporated in the United Kingdom. Hivolt is a designer and manufacturer of
custom-built capacitors for specialised applications involving high voltages
and the acquisition is set to strengthen the Group's position in the
electronics market and enhance its offering across key target sectors,
including medical and transportation.
Hivolt was acquired for a consideration of £3.3m on a cash free, debt free
basis, before expenses, funded from the Group's existing debt facilities. In
addition, a contingent payment of up to £0.9m will be payable subject to
Hivolt's EBIT performance over the period between 1 April 2024 and 31 March
2025.
The provisional fair value of the identifiable assets and liabilities of
Hivolt at the date of acquisition was:
Provisional fair value
recognised at acquisition
£m
Intangible assets - other (incl. customer relationships) 2.6
Property, plant and equipment 0.1
Right of use assets 0.2
Inventories 0.6
Trade and other receivables 0.2
Cash acquired 5.0
Trade and other payables (0.4)
Current tax liabilities (0.1)
Deferred tax liabilities (0.7)
Lease liabilities (0.2)
Total identifiable net assets 7.3
Provisional goodwill arising on acquisition 1.9
Total investment 9.2
Discharged by:
Initial cash consideration 8.3
Contingent consideration 0.9
9.2
The goodwill is attributable to the workforce and the high profitability of
the acquired business. It will not be deductible for tax purposes. Included in
the £1.9m 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 8.3
Transaction costs of the acquisition (included in operating cash flows) (1) 0.1
Net cash acquired (5.0)
3.4
1) Acquisition costs of £0.1m were expensed as incurred in the six
months period to 30 September 2024. These were included within operating
costs.
Included in cash flow from investing activities is the cash consideration of
£8.3m, offset by the net cash acquired of £5.0m.
12. Business combinations (continued)
Acquisitions in the year ended 31 March 2024
During the year ended 31 March 2024, the Group completed the acquisition of
Silver Telecom Limited ("Silvertel") on 30 August 2023, 2J Antennas Group
("2J") on 12 September 2023, Shape LLC ("Shape") on 24 January 2024, Diamond
Technologies, Inc ("DTI") on 6 March 2024 and IKN AS ("IKN") on 16 March 2024.
Details of these business combinations were disclosed in note 11 of the
Group's annual financial statements for the year ended 31 March 2024. Since 31
March 2024, there were no material changes to the fair value of assets and
liabilities acquired.
Business disposed and Assets held for sale
In December 2023, the Group agreed to sell certain assets of its Santon solar
business unit (the "disposal group") based in the Netherlands. The
consideration for the disposal comprises £2.6m plus c£3.3m in relation to
inventory transferred to the buyer. Completion of the sale is subject to the
transfer of production lines, inventory and other related assets to the
buyer's location. The disposals of the solar business unit is expected to
complete in the financial year ending 31 March 2025 and expected to generate
net cash inflow of c.£7m after costs (including the sale of its manufacturing
facility), of which 1.7m has been received in the period.
As the Group expects to recover the carrying value of these assets through a
sale transaction within the next financial year, in accordance with IFRS 5
'Assets held for sale and discontinued operations', the disposal group and the
manufacturing facility have been classified as assets held for sale at the
balance sheet date for the period ended 30 September 2024 and year ended 31
March 2024.
Six months ended Year
30 Sept 2024 ended
£m 31 Mar 2024
£m
Disposal group held for sale
Non-current assets
Property, plant and equipment 0.6 2.1
Intangible assets - other 0.1 0.2
Current assets
Inventory 1.7 1.9
2.4 4.2
Non-current assets held for sale
Property, plant and equipment 2.5 2.5
Total assets classified as held for sale 4.9 6.7
13. Goodwill
The carrying value of goodwill is analysed as follows:
Six months ended Year
30 Sept 2024 ended
£m 31 Mar 2024
£m
Magnetics & Controls 102.5 106.4
Sensing & Connectivity 124.7 125.3
227.2 231.7
The movement in goodwill compared to prior year relates to the acquisition of
Hivolt (note 12), offset by movement in foreign exchange rates.
14. Reconciliation of cash flow from operating activities
Six months ended Six months Year
30 Sept 2024 ended ended
£m 30 Sept 2023 31 Mar 2024
£m £m
Profit for the period 12.0 11.5 15.5
Tax expense 3.8 4.5 6.7
Net finance costs 5.3 3.5 9.0
Depreciation of property, plant and equipment 2.2 2.4 4.7
Depreciation of right of use assets 3.5 3.0 6.6
Amortisation of intangible assets - other 8.0 7.9 16.5
Write-down of assets related to disposal group - other intangible assets - - 1.0
Write-down of asset related to disposal group - goodwill - - 1.7
Loss on disposal of property, plant and equipment 0.1 - 0.2
Change in provisions - 0.1 2.6
Pension scheme funding (0.6) (1.0) (2.0)
IAS 19 pension charge 0.4 0.4 0.8
Associated taxes on LTIPs - (0.2) (0.3)
Impact of equity-settled share-based payment expense and associated taxes 0.7 1.4 2.6
Operating cash flows before changes in working capital 35.4 33.5 65.6
Decrease in inventories 0.1 3.4 14.5
Decrease/(Increase) in trade and other receivables 5.2 (3.3) (3.0)
Decrease in trade and other payables (12.0) (13.5) (11.1)
(Increase)/Decrease in working capital (6.7) (13.4) 0.4
Cash generated from operations 28.7 20.1 66.0
Interest paid on overdraft and borrowings (6.4) (5.0) (11.6)
Interest paid on lease liabilities (0.4) (0.3) (0.7)
Net income taxes paid (4.2) (5.2) (12.5)
Net cash inflow from operating 17.7 9.6 41.2
activities
15. Closing net debt
At At At
30 Sept 2024 30 Sept 2023 31 Mar 2024
£m £m £m
Cash and cash equivalents 115.6 122.7 110.8
Bank overdrafts (84.9) (92.0) (79.3)
Net cash 30.7 30.7 31.5
Bank loans under one year - (0.3) -
Bank loans over one year (131.0) (143.9) (137.5)
Capitalised debt cost 1.6 2.2 2.0
Total loan capital (129.4) (142.0) (135.5)
Net debt (98.7) (111.3) (104.0)
Lease liability (21.1) (19.3) (20.1)
Net debt (incl. lease liability) (119.8) (130.6) (124.1)
Extract from the condensed consolidated statement of financial position:
At At At
30 Sept 2024 30 Sept 2023 31 Mar 2024
£m £m £m
Current liabilities
Other financial liabilities (84.4) (91.9) (78.7)
Lease liabilities (5.4) (5.6) (5.7)
(89.8) (97.5) (84.4)
Non-current liabilities
Other financial liabilities (129.9) (142.1) (136.1)
Lease liabilities (15.7) (13.7) (14.4)
(145.6) (155.8) (150.5)
Cash and cash equivalents 115.6 122.7 110.8
Closing net debt (incl. lease liability) (119.8) (130.6) (124.1)
Bank overdrafts reflect the aggregated gross overdrawn balances of Group companies (even if those companies have other positive cash balances). Cash and cash equivalents, and bank overdrafts, reflect the aggregated gross balances of Group companies (even if those companies individually have both a cash balance and an overdraft with the same bank). Whilst there is a legal right of offset within our facilities we do not have an intention to net settle these positions in the short-term. Bank overdrafts are repayable on demand with interest based on floating rates linked to SONIA, SOFR and EURIBOR.
Bank loans over one year are mainly drawdowns against the Group's revolving
credit facility of £130.9m (31 March 2024: £137.4m) 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 £21.1m (31 March 2024: £20.1m) have been presented
separately in the consolidated statement of financial position. The increase
of £1.0m during the six month period to 30 September 2024 consisted of
additions/modifications of £5.1m and interest accruals of £0.4m, offset by
lease payments of £3.7m, early terminations of £0.3m and foreign exchange
impact of £0.5m.
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 £1.6m (31 March 2024: £2.0m) subject to
such an arrangement.
15. Closing net debt (continued)
Reconciliation of movement in cash and net debt
Six months Six months Year
ended ended ended
30 Sept 2024 30 Sept 2023 31 Mar 2024
£m £m £m
Net (decrease)/increase in cash and cash equivalents 0.3 (11.5) (9.4)
Proceeds from borrowings (8.0) (66.5) (79.4)
Repayment of borrowings 10.6 10.8 28.9
Decrease in net cash before translation differences 2.9 (67.2) (59.9)
Translation and other non-cash changes 2.4 (1.4) (1.4)
Increase/(decrease) in net cash 5.3 (68.6) (61.3)
Net debt at beginning of the period (104.0) (42.7) (42.7)
Net debt at end of the period (98.7) (111.3) (104.0)
16. 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 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. As at 30 September
2024, the fair value of derivatives was an asset of £0.4m (31 March 2024:
£nil).
The carrying value of the Group's other financial assets, including cash and
cash equivalents of £115.6m and deferred consideration of £6.1m (included
within other receivables current and non-current), are equivalent to their
fair value.
The carrying value of the Group's financial liabilities measured at amortised
cost, including bank overdrafts of £84.9m, other fixed and floating interest
borrowings of £129.4m, lease liabilities of £21.1m and contingent
consideration of £3.6m, are equivalent to their fair value at 30 September
2024.
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 2024 had a maturity of one year 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 liabilities either directly or
indirectly.
16. 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 liabilities are 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.
17. 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 Group, 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 2024.
The IAS 19 defined benefit pension scheme liability as at 30 September 2024
was £0.1m (31 March 2024: pension asset of £0.3m). The Scheme's assets are
predominantly linked to gilts, which fell over the period. The liabilities are
measured relative to corporate bonds, which also fell over the period broadly
mitigating the effect of the asset reduction.
18. Exchange rates
The principal exchange rates used to translate the results of overseas
businesses are as follows:
Six months ended 30 Sept 2024 Six months ended 30 Sept 2023 Year ended 31 March 2024
Closing rate Average rate Closing rate Average rate Closing rate Average rate
US Dollar 1.3401 1.2805 1.2253 1.2592 1.2643 1.2566
Euro 1.1970 1.1777 1.1566 1.1566 1.1695 1.1585
Norwegian Krone 14.0820 13.7382 13.0161 13.3321 13.6814 13.3524
19. 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'.
20. 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 2024/25 interim results published on
3 December 2024 will not be sent to shareholders. The 2024/25 interim results
and other information about discoverIE Group plc are available on the
Company's website at www.discoverieplc.com.
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