TIDMDSCV
RNS Number : 6316V
discoverIE Group plc
05 December 2023
5 DECEMBER 2023
discoverIE Group plc
Interim results for the six months ended 30 September 2023
Strong operating profit growth and progress towards margin
targets
discoverIE Group plc (LSE: DSCV, "discoverIE" or "the Group"), a
leading international designer and manufacturer of customised
electronics to industry , today announces its interim results for
the six month period ended 30 September 2023 ("H1 2023/24" or "the
Period").
H1 2023/24 H1 2022/23 Growth CER(3)
% growth
%
Revenue(1) GBP222.0m GBP222.6m 0% +4%
Underlying operating
profit(2) GBP28.6m GBP25.6m +12% +17%
Underlying operating
margin(1,2) 12.9% 11.5% +1.4ppts +1.4ppts
Underlying profit
before tax(2) GBP25.1m GBP23.5m +7%
Underlying EPS(2) 19.2p 17.8p +8%
Reported profit before
tax GBP16.0m GBP14.8m +8%
Reported fully diluted
EPS 11.7p 10.9p +7%
Interim dividend
per share 3.75p 3.55p +6%
Highlights
-- Sales growth with operating efficiencies driving strong first half results
o Group sales up 4% CER on strong comparators (+23% CER last
year)
o Organic(4) sales up 1% (M&C: +2%; S&C: +1%)
o Gross margins robust and significant operational
efficiencies
o Underlying operating profit up 17% CER
o Underlying EPS up 8%
-- Further good progress towards key targets
o Underlying operating margin increased by 1.4ppts to 12.9%
o Operating cash flow for the last 12 months up 36% with a 91%
conversion rate(5)
o ROCE(6) of 15.1%, in line with target
o Carbon emissions reduced by c.45% in absolute terms since CY
2021(7)
-- Supply chain, order book and lead times normalised
o Period end order book of GBP203m, c.5 months of sales,
provides good forward visibility
-- Excellent acquisition returns of 19.2% EBIT ROI(8) demonstrate value creation
-- Two high-margin acquisitions completed for GBP65m
o 2J and Silvertel integrations underway and progressing as
planned
o Period-end gearing(9) of 1.6x at lower end of target range
1.5x to 2.0x
-- Group well positioned for further growth
o Record bank of design wins (up 23% to GBP190m ELV(10) ), with
significant further opportunities
o Strong acquisition pipeline
o On track to deliver full year underlying earnings in line with
the Board's expectations
Nick Jefferies, Group Chie f Executive, commented:
"discoverIE performed well in the first half. Our operational
focus and sustained strong sales levels, which follows two years of
growth at over 20% per year, delivered significant efficiencies
with underlying operating profit increasing by 17% at constant
exchange rates. We are making excellent progress towards our margin
targets with a 1.4ppts increase in underlying operating margin,
reflecting the leverage in our technology clusters, that is
enabling efficiencies and creating value from acquisitions .
As expected, the order book ended the Period at c.5 months of
sales, almost back to historic norms and the book-to-bill ratio is
improving indicating that the supply chain inventory correction in
our markets is largely complete . Since the period end orders have
continued to strengthen being ahead of sales and growing
organically over last year.
The returns generated from our acquisitions exceed, increasingly
over time, our cost of capital and demonstrate the value creation
of long-term compounding organic growth with integration
efficiencies. Over two-thirds of the Group's operating profit
growth over the last 12 years was generated from the organic growth
of our businesses since their acquisition and integration. We are
well positioned to continue this proven approach and remain a
consolidator in a fragmented market for customised industrial
electronics.
Additionally, our capital light model is highly cash generative;
over the last 12 months, operating cash flow increased by 36% to
GBP50m, a 91% conversion rate supporting further self-funding of
acquisitions.
We are focused on generating organic growth in sustainable
markets, enhanced by earnings accretive acquisitions, and to this
end our design wins and our acquisition pipeline are stronger than
ever.
The Group is well positioned to continue making good progress
and remains on track to deliver full year underlying earnings in
line with the Board's expectations. "
Analyst and investor presentation:
A results briefing for sell side analysts and investors will be
held today at 9.30am (UK time) at the offices of Peel Hunt. If you
would like to join in person or via the live webinar, please
contact Buchanan at discoverie@buchanan.uk.com.
Enquiries :
discoverIE Group plc 01483 544 500
Nick Jefferies Group Chief Executive
Simon Gibbins Group Finance Director
Lili Huang Head of Investor Relations
Buchanan 020 7466 5000
Chris Lane, Toto Berger, Jack Devoy
discoverIE@buchanan.uk.com
Notes:
(1) Revenue for H1 2022/23 and the related underlying operating
margin have been restated to include GBP2.9m of one-off increase in
semiconductor costs at nil margin passed through to customers.
GBP5m of similar costs passed through to customers were included in
revenue for FY 2022/23. See note 2 of the attached condensed
consolidated interim financial statements.
(2) 'Underlying Operating Profit', 'Underlying Operating
Margin", 'Underlying EBITDA', 'Underlying Profit before Tax' and
'Underlying EPS' are non-IFRS financial measures used by the
Directors to assess the underlying performance of the Group. These
measures exclude acquisition-related costs (amortisation of
acquired intangible assets of GBP7.7m and acquisition expenses of
GBP1.4m) totalling GBP9.1m. Equivalent underlying adjustments
within the H1 2022/23 underlying results totalled GBP8.7m. For
further information, see note 7 of the attached condensed
consolidated interim financial statements.
(3) Growth rates at constant exchange rates ("CER"). The average
Sterling rate of exchange weakened 2% against the Euro compared
with the average rate for the same period last year whilst
strengthening 9% on average against the three Nordic currencies and
3% against the US Dollar.
(4) Organic growth for the Group compared with last year is
calculated at CER and is shown excluding the first 12 months of
acquisitions post completion (CDT in June 2022, Magnasphere in
January 2023, Silvertel in August 2023 and 2J in September
2023).
(5) Operating cash flow is cash flow from operations including
investment in working capital and capital expenditure.
(6) ROCE is defined as annualised H1 2023/24 underlying
operating profit including the annualisation of acquisitions, as a
percentage of net assets excluding net debt, deferred consideration
related to discontinued operations and legacy defined benefit
pension asset/(liability).
(7) CY 2025 target is to reduce scope 1 & 2 carbon emissions
by 65% on an absolute basis (base year CY 2021).
(8) EBIT ROI for acquisitions is the total annualised H1 2023/24
underlying operating profit for each business owned for greater
than two years divided by total cost of those acquisitions
including acquisition expenses, earn outs (as accrued) and
integration costs.
(9) Gearing ratio is defined as net debt divided by underlying
EBITDA (excluding IFRS 16; annualised for acquisitions).
(10) ELV is estimated lifetime value
(11) Unless stated, growth rates refer to the comparable prior
year period.
(12) The information contained within this announcement is
deemed by the Group to constitute inside information as stipulated
under the Market Abuse Regulation, Article 7 of EU Regulation
596/2014. Upon the publication of this announcement via Regulatory
Information Service, this inside information is now considered to
be in the public domain.
Notes to Editors:
About discoverIE Group plc
discoverIE Group plc is an international group of businesses
that design and manufacture innovative electronic components for
industrial applications.
The Group provides application-specific components to original
equipment manufacturers ("OEMs") internationally through its two
divisions, Magnetics & Controls, and Sensing &
Connectivity. By designing components that meet customers' unique
requirements, which are then manufactured and supplied throughout
the life of their production, a high level of repeating revenue is
generated with long-term customer relationships.
With a focus on sustainable key markets driven by structural
growth and increasing electronic content, namely renewable energy,
medical, electrification of transportation and industrial
automation & connectivity, the Group aims to achieve organic
growth that is well ahead of GDP and to supplement that with
complementary acquisitions. The Group is committed to reducing the
impact of its operations on the environment with an SBTi aligned
plan to reach net zero. With its key markets aligned with a
sustainable future, the Group has been awarded an ESG "AA" rating
by MSCI and is Regional (Europe) Top Rated by Sustainalytics.
The Group employs c.4,500 people across 20 countries with its
principal operating units located in Continental Europe, the UK,
China, Sri Lanka, India and North America.
discoverIE is listed on the Main Market of the London Stock
Exchange and is a member of the FTSE250, classified within the
Electrical Components and Equipment subsector.
Strategic, Operational and Financial Review
Good progress towards our targets
The Group designs and manufactures niche, customised, innovative
electronics. We have made good progress this Period towards our
near and medium-term goals of increasing operating margins,
supplying UN SDG-aligned target markets internationally, and
generating consistently strong cash flow.
The Group delivered sales growth of 4% at CER, underlying
operating profit growth of 17% at CER and underlying EPS growth of
8%. This continued the good progress of the previous four years
which saw compound annualised growth in the ongoing Group of 10% in
organic sales, 32% in underlying operating profit and 25% in
underlying EPS.
Despite economic headwinds, organic sales growth was very strong
in North America, up by 35%, driven by organic growth in key target
market customers, easing of semiconductor supply chains and
localisation of production by some customers; good organic growth
was also achieved in a number of key territories with the UK
increasing by 6%, Nordics by 5%, and Eastern Europe by 5%. In
total, these regions accounted for 61% of Group revenues. These
were largely offset by reductions in Asia (mainly China and India)
which was down by 23% particularly as customers' production
localisation continued, resulting in Group organic sales growth of
1%.
Robust gross margins and tight operating cost management led to
an underlying operating margin of 12.9%, up 1.4ppts year-on-year
and another significant step towards achieving our Group targets of
13.5% by FY 2024/25, and 15% in the medium-term.
During the Period, expansion of the Group's production capacity
in Germany and Thailand was completed and we continued with the
building of a new facility in India which is expected to be
operational in the next financial year.
Following constraints last year, supply chains have now returned
to normal. Accordingly, the Group order book, which peaked a year
ago at GBP257m (c.7 months of sales), has normalised as expected,
converting into sales during the second half of last year and the
first half this year. The order book at 30 September 2023 was
GBP203m, representing c.5 months of sales. Other than a couple of
businesses with specific reasons for longer order books, the
Group's order books are back to normal levels with Group orders
returning to sequential growth in the second quarter of 2%.
The quarterly book-to-bill ratio improved sequentially in the
first half with a Period exit rate close to 1:1 indicating that
customer inventory corrections are largely complete. With strong
growth in design wins (up 23% this Period), the Group is well
positioned to accelerate growth as end market demand conditions
strengthen.
Positioned well in a changing world
The Group is well positioned in an environment of rapidly
changing global conditions, with a business model that is both
resilient and flexible.
- Essential products: the Group's products are designed-in and
essential for customers' applications whilst amounting to a small
proportion of their overall system cost, thereby driving resilient
gross margins.
- Broad footprint: a decentralised model with 34 manufacturing
sites and operations around the world, able to support customers
locally and with the decarbonisation of their supply chains.
- Efficient supply chains: our manufacturing uses a low
proportion of bought-in components, the majority being manufactured
in-house from raw materials and base components, reducing our
exposure to external supply chain disruptions.
- Low energy intensity operations: the large majority of the
Group's energy exposure is electricity and with operations mainly
being manual or semi-automated, energy costs represent less than 1%
of Group revenues, limiting the Group's exposure to energy price
rises and operational disruptions.
With a capital light business model, a differentiated product
portfolio, a strong balance sheet and low customer concentration
(the Group's largest customer is c.7% of Group sales), the Group
has grown strongly and consistently over the last decade whilst
proving resilient through economic downturns, most recently
experienced with the pandemic. We expect this to continue to be the
case in a changing world.
Continued Financial Progress
Group sales for the first half increased by 4% at CER to
GBP222.0m notwithstanding strong comparators (+23% CER growth in
the prior period and 20% CER the year before that). Combined with
significant operating efficiencies, first half underlying operating
profit increased by 17% CER to GBP28.6m. Conversely interest rate
rises over the last 12 months increased finance costs by GBP1.4m to
GBP3.5m resulting in underlying profit before tax growth of 7% (up
to GBP25.1m) with underlying earnings per share up 8% to 19.2p (H1
2022/23: 17.8p).
After underlying adjustments for the inclusion of
acquisition-related costs, profit before tax for the Period on a
reported basis increased by 8% to GBP16.0m (H1 2022/23: GBP14.8m)
with fully diluted earnings per share increasing by 7% to 11.7p (H1
2022/23: 10.9p).
Free cash flow of GBP30.5m was generated over the last 12
months, being 26% higher than the prior 12 month period and
representing 85% of underlying earnings, in line with the Group's
conversion target. Net debt at 30 September 2023 increased to
GBP111.3m (30 September 2022: GBP45.2m) with a gearing ratio of
1.6x following the acquisitions of Magnasphere in the second half
last year and 2J and Silvertel this half, for a combined investment
of GBP83m. This gearing is towards the lower end of our target
range of 1.5x to 2.0x.
Increased Dividend
The Board is pleased to declare an increase in the interim
dividend of 6% to 3.75p per share (H1 2022/23: 3.55p per share).
Since 2010, the annual dividend per share has more than
doubled.
The Board believes in maintaining a progressive dividend policy
along with a long-term dividend cover of over three times earnings
on an underlying basis (FY 2022/23: dividend cover of 3.1x). This
approach, along with the continued development of the Group, will
enable funding of both dividend growth and a higher level of
investment in acquisitions from internally generated resources.
The interim dividend is payable on 24 January 2024 to
shareholders registered on 15 December 2023. Alongside the interim
dividend, the Company is starting a Dividend Re-Investment
Programme ("DRIP"), details of which are available from the
Company's Registrars, Equiniti. The final date for DRIP elections
for the interim dividend will be 3 January 2024.
Sustainability and Social Responsibility
The Group creates innovative electronics that help customers
produce new technologies for a sustainable world. Our focus on
sustainability forms the core of our target markets where, through
focused initiatives, we aim to grow our revenues organically ahead
of the wider industrial market. These trends are reported in our
key strategic indicators as target market sales. Additionally, the
Group has reduced focus on market areas that are inconsistent with
a long-term sustainability agenda.
Our target markets are aligned to the UN Sustainable Development
Goals with our target of generating around 85% of new design wins
from these markets. We achieved 89% during the Period, while sales
from target markets were 76% of Group sales. We also aim to
increase the proportion of the Group's operations covered by ISO
14001, the international standard for environmental management to
80% by CY 2025. Please refer to the Group's Impact Report which is
available on the Group's website and illustrates how we are helping
to meet the global sustainability agenda.
The Group was awarded the MSCI ESG "A" Rating in April 2022,
which was subsequently upgraded to "AA" rating in July 2023, being
in the top 16% of all companies surveyed; the Group is also rated
by Morningstar Sustainalytics as one of the Regional (Europe) Top
Rated companies in 2023, a recognition given to companies that have
achieved the highest scores in ESG risk management.
During the Period, a number of initiatives were undertaken to
improve our sustainability and diversity including:
Environmental
- Further progress made on net zero targets including: more
solar panel installations under consideration at sites in Sri
Lanka, China, India and Mexico; opened the Group's first
carbon-neutral facility in Germany in September 2023;
- Four more sites achieved ISO 14001 Environmental Management
Systems accreditation, bringing the total number of sites to 34, or
61% of Group facilities;
- Energy audit programme continued; on track to meet our CY 2025
target of 80% of Group sites completing energy audits since
2018;
- Established a new carbon reporting system to help streamline
data collection, consolidation and reporting on greenhouse gases,
particularly Scope 3 emissions;
- Continued education and mapping of Scope 3 emissions through
Group-wide emission awareness and reporting webinars.
Social
- Two more sites in Europe achieved ISO 45001 Occupational
Health & Safety Management Systems accreditation;
- Initiated a learning & development platform that enables
operating businesses to manage people development and skill gaps
consistently;
- Established an industrial placement scheme for engineering
undergraduates with the University of Surrey.
Governance
- Enhanced ESG accountability by establishing three-year ESG
objectives and KPIs for each operating business;
- MSCI ESG rating upgraded to AA from A;
- Launched Business Ethics Policy and Sustainability Policy;
- Completed Carbon Disclosure Project ("CDP") full disclosure for the first time;
- Increased transparency by reporting on Sustainable Finance
Disclosure Regulation Principal Adverse Impact (PAI)
indicators;
- Preparation for IFRS Sustainability Reporting underway with dedicated resources in place.
A Proven Growth Strategy
The Group has been built through a focus on organic growth
together with operational efficiency, alongside 23 carefully
selected and well-integrated acquisitions over the past 12 years to
create a focused, growth-oriented, higher margin design and
manufacturing business. We have a well-developed approach to
acquisitions and capital allocation and see significant scope for
further expansion with a strong pipeline of opportunities in
development.
The Group's strategy comprises four elements:
1. Grow sales well ahead of GDP over the economic cycle by
focusing on the structural growth markets that form our sustainable
target markets;
2. Improve operating margins by moving up the value chain into higher margin products;
3. Acquire businesses with attractive growth prospects and strong operating margins;
4. Further internationalise the business by expanding operations in North America and Asia.
These elements are underpinned by core objectives of generating
strong cash flows from a capital-light business model and
delivering long-term sustainable returns while progressing towards
net zero carbon emissions and reducing our impact on the
environment.
Focused on UN SDG-Aligned Target Markets
Our four target markets of industrial automation &
connectivity, medical, renewable energy, and the electrification of
transportation accounted for 76% of first half sales. Long-term
growth in these target markets is being driven by increasing
electronic content and by global megatrends such as the
accelerating need for industrial automation and connectivity, an
ageing affluent population, renewable sources of energy and the
electrification of transport.
Our focus on these markets is driving the Group's organic
revenue growth well ahead of GDP over the economic cycle, gives
resilience in softer market conditions and creates acquisition
opportunities.
During the Period, target market sales were 1% lower and
included a return to growth in renewable energy offset by a slowing
due to de-stocking by some specific industrial automation
customers. Other target markets remained in growth. Since 2017,
sales into the Group's target markets have grown organically by 82%
cumulatively, compared with 27% in the other markets. This reflects
the sustained compounding organic growth and less cyclical nature
of these markets.
Continued progress on Key Strategic and Performance
Indicators
Since 2014, the Group's strategic progress and its financial
performance have been measured through key strategic indicators
("KSIs") and key performance indicators ("KPIs"). The KSI targets
have been raised six times, most recently in June 2023, as the
Group has developed into a pure designer and manufacturer of highly
engineered components with higher operating margins.
For tracking purposes, the KSIs and KPIs in the tables below
remain as reported at the time rather than adjusted for disposals.
Targets are for the medium-term unless stated, with medium-term
defined as being around five years. This year's performance
relative to last year is discussed below.
Key Strategic Indicators
FY14 FY18 FY19 FY20 FY22 FY23 H1 Targets
24
1. Increase underlying
operating margin 3.4% 6.3% 7.0% 8.0% 10.9% 11.5% 12.9% 15%(1)
2. Build sales beyond
Europe(2) 5% 19% 21% 27% 40% 40% 42% 45%
3. Increase target
market sales (2) 62% 66% 68% 76% 77% 76% 85%
4. Carbon emissions
Scope 1 & 2 reduction
(3) 35% c.45% 65%
(1) Also a target for FY2024/25 of 13.5%.
(2) As a percentage of Group revenue.
(3) Carbon emissions are measured on a calendar year basis.
Target is for absolute carbon emissions reduction by CY 2025 from
CY 2021 with net zero by CY 2030.
The Group made further excellent progress with its KSIs during
the Period:
- Underlying operating margin was 12.9%, an increase of 1.4ppts
on the first half last year (H1 2022/23: 11.5%) and 1.4ppts higher
than last year in total (FY 2022/23: 11.5%). The Group benefited in
the Period from robust gross margins, operational efficiencies and
tight cost control augmented by higher margin acquisitions. The
Group remains on track to achieve its targets of 13.5% in FY
2024/25 and 15% in the medium-term.
- Sales beyond Europe for the Period increased by 2ppts to 42%
of Group revenue compared with FY 2022/23, with strong organic
sales in the US partly offset by reduced demand in Asia. The target
for FY 2024/25 is 45%.
- Target market sales in the Period reduced by 1ppt to 76% of
Group revenue compared with FY 2022/23 as a result of lower sales
in industrial automation, acquisitions which had lower target
market sales at the outset and a recovery in some non-target market
areas (aerospace & defence sector, some non-UN SDG aligned
industrial markets and distributor re-stocking). Design wins, which
are the bedrock of future sales, were up 23% year-on-year with 89%
in target markets, ahead of our 85% target.
- Carbon emissions reduced further during the Period and are now
an estimated 45% lower on an absolute basis than in CY 2021,
excellent progress towards our reduction targets of 65% by CY 2025
and net zero by 2030.
Key Performance Indicators
FY14 FY18 FY19 FY20 FY22(1) FY23 H1 Targets
24
1. Sales growth
Well ahead
CER 17% 11% 14% 8% 27% 15% 4% of GDP
Organic 3% 11% 10% 5% 14% 10% 1%
2. Underlying
EPS growth 20% 16% 22% 11% 20% 20% 8% >10%
3. Dividend
growth 10% 6% 6% 6%(2) 6% 6% 6% Progressive
4. ROCE (3) 15.2% 13.7% 15.4% 16.0% 14.7% 15.9% 15.1% >15%
>85% of underlying
5. Operating operating
profit conversion(3) 100% 85% 93% 106% 101% 94% 91% profit
------
6. Free cash >85% of underlying
conversion(3) 94% 104% 102% 95% 85% earnings
------ ------ -------- ------ ------ -------------------
(1) FY 2021/22 shown as growth over the pre-Covid period FY
2019/20 as this reflects the ongoing growth of the business. FY
2013/14 to FY 2019/20 are for total operations before disposals as
reported at the time.
(2) 6% increase in the H1 2019/20 interim dividend; a final
dividend was not proposed for FY 2019/20 due to Covid.
(3) Defined in note 7 of the attached condensed consolidated
interim financial statements.
The Group also made further good progress with its KPIs during
the Period, especially given the economic backdrop.
- Organic sales increased by 1% this Period. Growth rates have
reduced due to normalising markets, although we retain our focus on
achieving 10% organic growth through cycle. Since FY 2017/18,
organic sales have grown by 9% per annum on average, illustrating
the strong through-cycle organic growth of the business.
- Underlying EPS increased by 8%. Excluding increased finance
costs and at CER, underlying operating profit increased by 17%,
only 3ppts lower growth than last year during much stronger
economic conditions, due to our operational efficiencies with
robust gross margins, tight control of operating costs, and
contributions from acquisitions.
- The interim dividend is being increased by 6%, continuing our
progressive policy whilst providing for a higher proportion of
investment in acquisitions from internally generated resources.
This progressive policy has seen a more than doubling of the
dividend per share since 2010, whilst dividend cover on an
underlying basis increased to 3.1x for the last financial year.
- ROCE for the Period was 15.1% and whilst 0.8ppts lower than
last year (FY 2022/23: 15.9%), was in-line with our 15% target and
in-line with 12 months ago (H1 2022/23: 15.2%). The reduction
follows the acquisitions of Silvertel in August 2023 and 2J in
September 2023 which, as with most acquisitions, are initially
dilutive to ROCE. Silvertel is expected to be accretive this year
and 2J accretive from next financial year.
- Operating cash flow and free cash flow for the last 12 months
were 36% and 26% higher respectively than the comparable 12 month
period with operating cash conversion of 91%, ahead of our 85%
target and with free cash conversion of 85% being in line with our
target. Over the last ten years, both operating cash conversion and
free cash conversion have been consistently strong, averaging well
over 90%, reflecting tight management of working capital and
expenditure through the economic cycle.
Divisional Results
The divisional results for the Group for the six months ended 30
September 2023 are set out and reviewed below.
H1 2023/24 H1 2022/23 Reported CER Organic
revenue revenue revenue
growth growth Growth
------------------------------ ------------------------------
Revenue Underlying Margin Revenue Underlying Margin
GBPm operating GBPm operating
profit(1) profit(1)
GBPm GBPm
-------- ----------- ------- -------- ----------- -------
M&C 134.4 19.9 14.8% 131.5 17.1 13.0% -2% 2% 2%
S&C 87.6 15.2 17.4% 82.2 13.4 16.3% 5% 7% 1%
Unallocated (6.5) (6.0)
-------- ----------- ------- -------- ----------- ------- --------- --------- ---------
Total (CER) 222.0 28.6 12.9% 213.7 24.5 11.5% 1% 4% 1%
--------- ---------
Pass-thru 2.9 -
cost
FX 6.0 1.1
---------
Total 222.0 28.6 12.9% 222.6 25.6 11.5% 0%
---------
(1) Underlying operating profit excludes acquisition-related costs
(2) Revenue for H1 2022/23 and the related underlying operating
margin restated to include GBP2.9m of one-off increase in
semiconductor costs at nil margin passed through to customers.
GBP5m of similar costs passed through to customers were included in
revenue for FY 2022/23.
Magnetics & Controls Division ("M&C")
The M&C division designs, manufactures and supplies highly
differentiated magnetic and power components, embedded computing
and interface controls, for industrial applications. The division
comprises one cluster and six further businesses operating across
17 countries. The large majority of the products are manufactured
in-house at one of the division's 21 manufacturing facilities, with
its principal sites being in China, India, Mexico, Poland, Sri
Lanka, Thailand and the UK. Geographically, 5% of sales by
destination are in the UK, 50% in the rest of Europe, 26% in North
America and 19% in Asia. Capacity of our facility in Thailand has
been expanded and construction of a new larger production facility
has continued in Kerala, India. This will supersede our existing
plant and become operational in the next financial year.
With supply chains back to normal during the Period following
constraints last year, the divisional order book normalised as
expected with orders reducing by 14% CER to GBP120.0m (H1 2022/23:
GBP144.8m) for a book-to-bill ratio of 0.89:1 (H1 2022/23: 1.06:1)
against strong prior year comparators. The book-to-bill has
improved through the Period, from 0.86:1 in the first quarter to
0.93:1 in the second quarter, Sales grew by 2% organically, driven
by strong growth in North America of 35% and the Nordics up 12%.
Conversely Asia reduced by 24% primarily due to reductions in
China, and the rest of Europe reduced by 5%, mainly due to a
slow-down in Germany.
Including the impact of translation from a stronger Sterling on
average, reported divisional revenue reduced by 2% to GBP134.4m (H1
2022/23: GBP136.5m reported and GBP131.5m at CER). Underlying
operating profit of GBP19.9m was GBP2.8m (+16%) higher than last
year at CER and GBP1.9m (+11%) higher on a reported basis (H1
2022/23: GBP18.0m). The underlying operating margin of 14.8% was
1.8ppts higher than last year at CER and 1.6% higher on a reported
basis (H1 2022/23: 13.2%), reflecting the positive effect of
organic growth robust gross margins and strong operating
efficiencies.
Sensing & Connectivity Division ("S&C")
The S&C division designs, manufactures and supplies highly
differentiated sensing and connectivity components for industrial
applications and comprises three clusters and four further
businesses operating across nine countries. The majority of the
products are manufactured in-house at one of the division's 13
manufacturing facilities, with its principal ones being in Hungary,
the Netherlands, Norway, Slovakia, the UK and the US.
Geographically, 21% of sales by destination are in the UK by
destination, 42% in the rest of Europe, 23% in North America and
14% in Asia. This Period has seen the opening of a new, purpose
built, larger facility in Germany.
As with the M&C division, supply conditions returned to
normal during the Period, with the divisional order book
normalising as expected with orders reducing by 19% CER to GBP73.9m
(H1 2022/23: GBP92.1m) for a book-to-bill ratio of 0.84:1 (H1
2022/23: 1.11:1) against strong prior year comparators. The
book-to-bill improved through the Period, from 0.80:1 in the first
quarter to 0.89:1 in the second quarter, Sales increased by 1%
organically, with 35% organic growth in North America and 9% in the
UK, offset by a 6% reduction in the rest of Europe and a 19%
reduction in Asia, principally in China.
Combined with a 6% sales increase from acquisitions, overall
sales increased by 7% CER. Including the impact of translation from
a stronger Sterling on average, reported divisional revenue
increased by 5% to GBP87.6m (H1 2022/23: GBP83.2m reported and
GBP82.2m at CER).
Underlying operating profit of GBP15.2m was GBP1.8m (+13%)
higher than last year at CER and GBP1.6m (+12%) higher on a
reported basis (H1 2022/23: GBP13.6m). The underlying operating
margin of 17.4% was 1.1ppts higher than last year (H1 2022/23:
16.3%), which, as with the M&C division, reflects the positive
effect of sales growth, robust gross margins and strong operating
efficiencies.
Design Wins Driving Future Recurring Revenues
Project design wins are a measure of new business creation. By
working with customers at an early stage in their project design
cycle, opportunities are identified for our products to be
specified into their designs, leading to future recurring revenue
streams.
The Group has a strong bank of design wins built up over many
years, creating the basis for the Group's strong organic growth
through the cycle. During the Period, new design wins were
registered with an estimated lifetime value of GBP190m, an increase
of 23% over last year and with 89% being in our target markets.
This large increase in design wins reflects both the expected
increase in customer project design activity at this stage in the
cycle, catch-up from designs that were paused during last year's
supply chain bottlenecks and increased focus and implementation by
Group engineers.
Additionally, new project design activity remains at a very high
level, being broad-based across all target markets along with a
smaller proportion in other market areas with similar high quality
recurring revenue characteristics such as Space and Aeronautics.
The total pipeline of ongoing projects continues to be strong.
Acquisitions
The market is highly fragmented with many opportunities to
acquire and consolidate. Currently, from approximately 400
businesses being tracked, the Group's pipeline consists of 250
identified targets of which 45 are in active outreach phase and 15
in live deal negotiation.
The businesses we acquire are typically led by entrepreneurs who
wish to remain with the business for a period following
acquisition. We encourage this as it helps retain a dynamic,
decentralised and entrepreneurial culture.
We acquire high-quality businesses that are successful with good
long-term growth prospects, paying a price that reflects this
quality whilst generating good returns for shareholders. W e invest
in these businesses for growth and operational performance
development. According to the circumstances, we add value in some
or all of the following areas:
Strategy and operations:
- Creating a long-term strategy for growth with operational leverage for the business;
- Grouping businesses into clusters under one operational leadership team;
- Generating operational efficiencies;
- Internationalising sales channels;
- Accelerating organic growth by expanding the customer base,
including cross-selling and focusing sales development onto target
market areas;
- Developing the product range.
People:
- Investing in management capability;
- Enabling peer networking and collaboration;
- Succession planning and management transition.
Sustainability:
- Implementing energy audits;
- Creating carbon emission reduction plans;
- Achieving ISO standards accreditation;
- Inclusion in the Group's SBTi net zero carbon emission reduction program;
- Supporting operating companies with their customers emission reduction plans.
Investment:
- Capital investment in manufacturing and infrastructure;
- Improving manufacturing and infrastructure efficiency;
- Internationalising operations;
- Expansion through further acquisitions;
- Upgrading systems such as IT.
Controls and support:
- Implementing robust financial controls;
- Finance and related support, such as treasury, banking, legal, tax and insurance;
- Risk management and internal audit.
The Group has acquired 23 design and manufacturing businesses
over the last 12 years, with the Group's continuing revenues
increasing to GBP449m in FY 2022/23 from GBP10m in FY 2009/10. By
taking a long-term approach to create compounding organic growth in
acquired and integrated businesses, the Group has generated
substantial value organically. Over this period, more than two
thirds of the Group's earnings growth has been delivered from the
organic growth and integration of these acquisitions with the
balance being from immediate deal accretion. During this Period,
the Group completed two high margin acquisitions:
i) Silvertel, a UK-based designer and manufacturer of differentiated, high performance Power-over-Ethernet ("PoE") modules and complementary products for global industrial electronic connectivity markets, which sells into more than 70 countries . Silvertel was acquired for an initial cash consideration of GBP21.4m on a debt free, cash free basis, together with an earn-out of up to GBP23m payable subject to Silvertel's performance over the next four years.
ii) 2J Antennas Group ("2J") , a Slovakian-based designer and
manufacturer of high performance antennas for industrial electronic
connectivity applications for a cash consideration of EUR50.8m
(GBP43.6m) on a debt free, cash free basis . 2J, which has
subsidiaries in the US and UK and sells into more than 50
countries, will form a new technology cluster with the Group's
existing antenna business, Antenova, creating a leading platform in
the growing, high performance, industrial wireless connectivity
market.
The Group's operating model is well established and has
facilitated the smooth integration of acquired businesses. Through
a combination of investment in efficiency and leveraging of the
broader Group's commercial infrastructure, the businesses acquired
since 2011 and owned for at least two years delivered a return on
investment ("EBIT ROI") of 19.2% this Period, well above our target
of 15%.
Group Financial Results
Revenue and Orders
Group sales of GBP222.0m were 1% higher organically than last
year (H1 2022/23: GBP219.7m) and with acquisitions (CDT and
Magnasphere acquired last year, together with Silvertel and 2J this
Period) adding 3% to revenue, Group sales increased by 4% at CER.
Revenue for H1 2022/23 has been restated to include GBP2.9m of
one-off increase in semiconductor costs at nil margin passed
through to customers, which reduced reported sales growth by 1%. A
stronger Sterling on average during the Period, particularly
compared with Nordic currencies and the US Dollar, reduced sales by
3% on translation resulting in reported sales being at the same
level as last year.
H1
Revenue (GBPm) 2023/24 H1 2022/23 %
Organic sales 216.7 213.7 +1%
Acquisitions 5.3
------------ ----
Sales at CER 222.0 213.7 +4%
Nil margin pass thru
costs 2.9
FX translation 6.0
Reported sales 222.0 222.6 0%
As mentioned above, the Group order book continued to normalise
during the first half as supply chains returned to normal, ending
the Period at GBP203m (c.5 months of sales) compared with GBP257m
last year (c.7 months of sales) at the height of supply
constraints.
Orders for the Period were GBP193.9m, 16% lower at CER than last
year (H1 2022/23: GBP236.9m). The extent of normalisation reduced
across the Period with a book to bill ratio of 0.84:1 in the first
quarter improving to 0.91:1 in the second quarter for a first half
ratio of 0.87:1 with orders in the second quarter increased by 2%
sequentially.
Group Operating Profit and Margin
Group underlying operating profit for the Period was GBP28.6m, a
12% increase on last year (H1 2022/23: GBP25.6m), and 17% higher at
CER, delivering an underlying operating margin of 12.9%, 1.4ppts
higher than last year (H1 2022/23: 11.5%) and 1.4ppts higher at
CER. We remain well on track to reach our targets of 13.5% in FY
2024/25 and 15% in the medium term.
Group reported operating profit for the Period (including
acquisition-related costs discussed below) was GBP19.5m, 15% higher
than last year (H1 2022/23: GBP16.9m).
GBPm H1 2023/24 H1 2022/23
Operating Finance Profit Operating Finance Profit
profit Cost before profit cost before
tax tax
---------- ---------- -------- --------
Underlying 28.6 (3.5) 25.1 25.6 (2.1) 23.5
Underlying adjustments
Acquisition expenses (1.4) - (1.4) (0.9) - (0.9)
Amortisation of acquired
intangibles (7.7) - (7.7) (7.8) - (7.8)
Reported 19.5 (3.5) 16.0 16.9 (2.1) 14.8
Underlying operating profit growth has been achieved through a
combination of strong operating efficiencies and acquisitions as
shown below:
GBPm Underlying
Operating
Profit
H1 2022/23 25.6
Gross profit on organic
sales growth 1.2
Organic gross margin 4.4
Organic investment in
opex (2.3)
Organic profit growth
- operations 3.3
Head Office investment (0.5)
Profit from acquired
companies 1.3
Foreign exchange impact (1.1)
H1 2023/24 28.6
Over three quarters (GBP3.3m) of the incremental profits in the
Period were generated from organic operating performance driven by
robust gross margins with operational efficiencies and tight
management of operating costs amidst a high inflation environment.
The remaining incremental profits were delivered by the three
acquisitions made in the last 12 months (namely Magnasphere,
Silvertel and 2J) partly offset by increased investment at Head
Office, mainly into enlarging our M&A team.
Sterling has been stronger this Period versus 12 months ago,
compared with the US dollar (-3%) and Nordic currencies (-9%),
partly offset by further weakness compared to the Euro (+2%). This
gave rise to a reduction in underlying operating profits on
translation of GBP1.1m for the Period.
Underlying Adjustments
Underlying adjustments for the Period comprise acquisition
expenses of GBP1.4m (H1 2022/23: GBP0.9m), and the amortisation of
acquired intangibles of GBP7.7m (H1 2022/23: GBP7.8m).
Acquisition expenses of GBP1.4m are the costs associated with
the acquisitions during the Period of Silvertel in August 2023 and
2J in September 2023 together with movements in accrued contingent
consideration cost relating to the acquisitions of Limitor, Phoenix
and CPI. While the amortisation charge for the Period is broadly in
line with last year, the acquisitions of Silvertel and 2J will
increase the expected charge for the full year to approximately
GBP17m.
Financing Costs
Net finance costs for the Period were GBP3.5m (H1 2022/23:
GBP2.1m) and include a GBP0.3m charge for leased assets under IFRS
16 (H1 2022/23: GBP0.4m) and GBP0.4m charge for amortised upfront
facility costs (H1 2022/23: GBP0.4m). Finance costs related to our
banking facilities were GBP2.8m (H1 2022/23: GBP1.3m) and have more
than doubled following the rise in interest rates across the Period
for Sterling, US Dollars and Euros, the Group's principal borrowing
currencies. From September 2022 to September 2023, the Sterling
base rate increased from 2.25% to 5.25%, the US Dollar Federal rate
from 3.25% to 5.5% and the ECB lending rate from 1.25% to 4.5%.
Together with the debt funded acquisitions of Silvertel and 2J
towards the end of the Period, net finance costs for the current
year are expected to be approximately GBP9m at current interest
rates, annualising to approximately GBP11m next year. Looking
forward, a 1ppt increase/reduction in interest rates would
increase/reduce finance costs by approximately GBP1.1m.
Underlying Tax Rate
The underlying effective tax rate ("ETR") in the first half was
25%, lower than last year's rate (H1 2022/23: 26%) and broadly in
line with last year's rate for the full year (FY 2022/23:
25.3%).
The overall ETR was 28% (H1 2022/23: 28%). This was higher than
the underlying ETR due to there being no tax relief on acquisition
expenses (within underlying adjustments above).
GBPm H1 2023/24 H1 2022/23
PBT ETR PBT ETR
------- ------- ----
Group underlying 25.1 25% 23.5 26%
Acquisition expenses (1.4) 0% (0.9) 0%
Amortisation of acquired
intangibles (7.7) 23% (7.8) 24%
Total reported 16.0 28% 14.8 28%
Profit Before Tax and EPS
Underlying profit before tax for the Period of GBP25.1m was
GBP1.6m higher (+7%) than last year (H1 2022/23: GBP23.5m), with
underlying EPS for the Period increasing by 8% to 19.2p (H1
2022/23: 17.8p).
GBPm H1 2023/24 H1 2022/23
PBT EPS PBT EPS
------ ------ ------
Underlying 25.1 19.2p 23.5 17.8p
Underlying adjustments
Acquisition expenses (1.4) (0.9)
Amortisation of acquired
intangibles (7.7) (7.8)
Reported 16.0 11.7p 14.8 10.9p
After the underlying adjustments above, reported profit before
tax for continuing operations was GBP16.0m, an increase of GBP1.2m
(+8%) compared with last year (H1 2022/23: GBP14.8m) while reported
fully diluted earnings per share was 11.7p, 7% higher than last
year (H1 2022/23: 10.9p).
Working Capital and Asset Returns Ratios
Working capital at 30 September 2023 was GBP89.3m, equivalent to
18.8% of first half annualised sales at CER with an additional
GBP8.2m of working capital from acquisitions during the last 12
months offset by GBP2.8m from foreign exchange translation. This is
2.3ppt higher than last year when working capital was GBP74.7m or
16.5% of first half annualised sales. Inventory levels have been
normalising, remaining slightly elevated due to continuing supply
chain buffers and are expected to further reduce in the second
half.
Working capital KPIs have remained robust during the Period with
debtor days of 49 (in line with last year), creditor days of 74 (4
days lower than last year) and stock turns of 2.8 (0.2 turn lower
than last year).
ROCE for the Period of 15.1% was ahead of our 15% target and
broadly in line with 12 months ago (H1 2022/23: 15.2%). Return on
Tangible Capital Employed (ROTCE) for the Period, which excludes
intangible and non-operational assets, was 42.5% an increase of
0.5ppts from last year (H1 2022/23: 42.0%) and illustrates the
strong returns generated by the Group's operational assets.
Cash Flow
Net debt at 30 September 2023, excluding leases, was GBP111.3m,
compared with GBP42.7m at 31 March 2023 and GBP45.2m at 30
September 2022, with the increase in the Period of GBP68.6m mainly
related to the acquisitions of Silvertel on 30 August 2023 and 2J
on 12 September 2023.
GBPm H1 Last
H1 12 Months
2023/24 2022/23
Opening net debt (42.7) (30.2) (45.2)
Free cash flow (see
table below) 8.1 10.6 30.5
Acquisitions (67.5) (13.2) (84.9)
Equity issuance (net
of taxes) (0.2) (0.6) (0.2)
Dividends (7.6) (7.1) (11.0)
Foreign exchange impact (1.4) (4.7) (0.5)
Net debt at 30 Sept (111.3) (45.2) (111.3)
Acquisition costs of GBP67.5m in the Period comprised GBP21.4m
for the acquisition of Silvertel, GBP43.6m for the acquisition of
2J (both on a debt free, cash free basis) and GBP2.5m of associated
expenses.
Last year's final dividend of GBP7.6m, which was paid in July
2023, was an increase of 6% over the prior year.
The cash impact from FX translation was relatively low in the
Period, compared to last year which saw Sterling significantly
weaken in particular compared to the US Dollar. The Group's policy
is to hold net debt in currencies aligned to the currency of its
cash flows in order to protect the gearing of the Group.
GBPm Last
H1 H1 12
2023/24 2022/23 Months
Underlying Profit
before tax 25.1 23.5 47.9
Net finance costs 3.5 2.1 6.9
Non-cash items 7.5 6.9 15.2
---------- ---------- ---------
Underlying EBITDA 36.1 32.5 70.0
IFRS 16 - lease payments (3.1) (2.8) (6.1)
---------- ---------- ---------
EBITDA (pre IFRS
16) 33.0 29.7 63.9
Changes in working
capital (12.3) (10.3) (8.4)
Capital expenditure (2.7) (2.6) (5.7)
Operating cash flow 18.0 16.8 49.8
Finance costs (3.7) (2.0) (6.7)
Taxation (5.2) (3.2) (11.0)
Legacy pension (1.0) (1.0) (1.6)
Free cash flow 8.1 10.6 30.5
Underlying EBITDA (pre IFRS 16 lease payments) of GBP33.0m was
11% higher than last year (H1 2022/23: GBP29.7m) reflecting
operating efficiency combined with contributions from the three
acquisitions made since the first half of last year.
During the Period, the Group invested GBP12.3m in working
capital, an increase of GBP2.0m on last year; as with the second
half last year, this should reduce as supply chain conditions
continue to normalise. With working capital released during the
second half last year of GBP3.9m, a net GBP8.4m was invested in
working capital over the last 12 months.
Capital expenditure of GBP2.7m was invested during the Period,
similar to last year (H1 2022/23: GBP2.6m) including various new
production line extensions, ERP upgrades and ESG initiatives.
Capital expenditure levels are expected to increase in the second
half to around GBP8m for the full year as we continue to invest in
additional capacity and roll out our ESG initiatives.
GBP18.0m of operating cash was generated in the first half up 7%
on last year (H1 2022/23: GBP16.8m). Together with GBP31.8m
generated in the second half of last year, a total of GBP49.8m of
operating cash was generated over the last 12 months representing
91% of underlying operating profit, ahead of our 85% target. This
was 36% higher than the comparable 12 month period (12 months ended
30 Sep 2022: GBP36.6m). Over the last 10 years, the Group has
consistently achieved high levels of operating cash conversion,
averaging well in excess of 90%.
Finance cash costs of GBP3.7m were GBP1.7m higher than last year
following interest rate rises throughout the Period, while
corporate income tax payments of GBP5.2m were GBP2.0m ahead of last
year reflecting higher profitability this Period and loss
utilisation last year. A further GBP8m of tax payments is expected
during the second half.
Free cash flow (being cash flow before dividends, acquisitions
and equity fund raises) of GBP8.1m was generated in the first half,
GBP2.5m lower than last year (H1 2022/23: GBP10.6m) due to the
higher finance and tax costs. Together with GBP22.4m generated in
the second half last year, a total of GBP30.5m of free cash flow
was generated over the last 12 months being a free cash conversion
of 85% of underlying earnings, in line with our target. Free cash
flow was 26% higher than the comparable 12 month period (12 months
ended 30 Sep 2022: GBP24.3m).
Banking Facilities
The Group has a GBP240m syndicated banking facility which
extends to June 2027 . In addition, the Group has an GBP80m
accordion facility which it can use to extend the total facility up
to GBP320m. The syndicated facility is available both for
acquisitions and for working capital purposes, and comprises seven
lending banks.
With net debt at 30 September 2023 of GBP111.3m, the Group's
gearing ratio at the end of the Period (being net debt divided by
underlying EBITDA as annualised for acquisitions) was 1.6x compared
with a target gearing range of between 1.5x and 2.0x.
Balance Sheet
Net assets of GBP305.8m at 30 September 2023 were GBP2.2m higher
than at the end of the last financial year (31 March 2023:
GBP303.6m). The increase primarily relates to the net profit after
tax for the Period of GBP11.5m partially offset by last year's
final dividend of GBP7.6m paid during this Period. The movement in
net assets is summarised below:
GBPm H1
202/24
Net assets at 31 March
2023 303.6
Net profit after tax 11.5
Dividend paid (7.6)
Currency net assets -
translation impact (1.6)
Loss on defined benefit
scheme (0.9)
Share based payments
(inc tax) 0.8
Net assets at 30 September
2023 305.8
Defined Benefit Pension Scheme
The Group's IAS 19 pension asset, associated with its legacy
defined benefit pension scheme, decreased over the Period by
GBP1.6m from GBP2.3m at 31 March 2023, to GBP0.7m at 30 September
2023 (30 September 2022: GBP4.3m). The key driver was the reduction
in the value of fund assets partly offset by increases in corporate
bond yields used for discounting purposes.
Risks and Uncertainties
The principal risks faced by the Group are set out on pages 87
to 96 of the Group's Annual Report for year ended 31 March 2023, a
copy of which is available on the Group's website:
www.discoverieplc.com. These risks comprise: the economic
environment, particularly linked to the geopolitical issues arising
from the ongoing Ukraine conflict; inflationary headwinds and
rising interest rates; the performance of acquired companies;
climate-related risks; loss of major customers or suppliers;
technological changes; major business disruption; cyber security;
loss of key personnel; inventory obsolescence; product liability;
liquidity and debt covenants; exposure to adverse foreign currency
movements; and non-compliance with legal and regulatory
requirements.
During the Period, the Board has continued to review the Group's
existing and emerging risks and the mitigating actions and
processes in place. Following this review, the Board believes there
has been no material change to the relative importance or quantum
of the Group's principal risks for the remaining six months of the
current financial year.
The risk assessment and review are an ongoing process, and the
Board will continue to monitor risks and the mitigating actions in
place. The Group's risk management processes cover identification,
impact assessment, likely occurrence and mitigation actions where
practicable. Some level of risk, however, will always be present.
The Group is well positioned to manage such risks and
uncertainties, if they arise, given its strong balance sheet,
committed banking facility of GBP240m and the adaptability we have
as an organisation.
Summary and Outlook
discoverIE performed well in the first half. Our operational
focus and sustained high sales levels, which follows two years each
with 20+% CER growth, delivered significant efficiencies with
underlying operating profit increasing by 17% at constant exchange
rates. We are making excellent progress towards our margin targets
with a 1.4ppts increase in underlying operating margin, reflecting
the leverage in our technology clusters, that is enabling
efficiencies and creating value from acquisitions .
As expected, the order book ended the Period at c.5 months of
sales, almost back to historic norms and the book-to-bill ratio is
improving indicating that the supply chain inventory correction is
largely complete . Since the period end orders have continued to
strengthen being ahead of sales and growing organically over last
year.
The returns generated from our acquisitions increasingly exceed
over time our cost of capital and demonstrate the value creation of
long-term compounding organic growth with integration efficiencies.
Over two-thirds of the Group's operating profit growth over the
last 12 years was generated from the organic growth of our
businesses since their acquisition and integration. We are well
positioned to continue this proven approach and remain a
consolidator in a fragmented market for customised industrial
electronics.
Additionally, our capital light model is highly cash generative;
over the last 12 months, operating cash flow increased by 36% to
GBP50m, a 91% conversion rate supporting further self-funding of
acquisitions.
We are focused on generating organic growth in sustainable
markets, enhanced by earnings accretive acquisitions, and to this
end our design wins and our acquisition pipeline are stronger than
ever.
The Group is well positioned to continue making good progress
and remains on track to deliver full year underlying earnings in
line with the Board's expectations.
Nick Jefferies Simon Gibbins
Group Chief Executive Group Finance Director
5 December 2023
Statement of Directors' responsibilities
The Directors confirm that these condensed consolidated interim
financial statements have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority and
that the interim management report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed consolidated
set of financial statements, and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
-- material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The maintenance and integrity of the discoverIE Group plc
website is the responsibility of the Directors.
The Directors of discoverIE Group plc are listed in the
discoverIE Group plc annual report for 31 March 2023. A list of
current Directors is maintained on the discoverIE Group Plc
website: www.discoverieplc.com .
By order of the board
Nick Jefferies Simon Gibbins
Group Chief Executive Group Finance Director
5 December 2023
Independent review report to discoverIE Group plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed discoverIE Group plc's condensed consolidated
interim financial statements (the "interim financial statements")
in the interim results of discoverIE Group plc for the six month
period ended 30 September 2023 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
1. the condensed consolidated statement of financial position as at 30 September 2023;
2. the condensed consolidated statement of profit or loss and condensed consolidated statement of comprehensive income for the period then ended;
3. the condensed consolidated statement of cash flows for the period then ended;
4. the condensed consolidated statement of changes in equity for the period then ended; and
5. the explanatory notes to the condensed consolidated interim financial statements.
The interim financial statements included in the interim results
of discoverIE Group plc have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom ("ISRE (UK) 2410"). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with ISRE (UK) 2410.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim results, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the interim results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In
preparing the interim results, including the interim financial
statements, the directors are responsible for assessing the group's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the interim results based on our review.
Our conclusion, including our Conclusions relating to going
concern, is based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion paragraph of
this report. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
5 December 2023
Condensed consolidated statement of profit or loss
Unaudited
Unaudited Six months
Six months ended
ended 30 Sept Audited
30 Sept 2022 as Year
2023 restated ended
GBPm [1] 31 Mar 2023
Notes GBPm GBPm
Revenue 5 222.0 222.6 448.9
Operating costs (202.5) (205.7) (414.3)
------------- ------------ -------------
Operating profit 19.5 16.9 34.6
Finance income 1.5 0.3 1.6
Finance costs (5.0) (2.4) (7.1)
------------- ------------ -------------
Profit before tax 16.0 14.8 29.1
------------- ------------ -------------
Tax expense 8 (4.5) (4.1) (7.8)
-------------------------------------------- -------- ------------- ------------ -------------
Profit for the period 11.5 10.7 21.3
-------------------------------------------- -------- ------------- ------------ -------------
Earnings per share
-------------------------------------------- -------- ------------- ------------ -------------
Basic, profit for the period 10 12.0p 11.2p 22.3p
Diluted, profit for the period 10 11.7p 10.9p 21.7p
-------------------------------------------- -------- ------------ -------------
Supplementary statement of profit or loss information
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
Underlying Performance Measure Notes 30 Sept 30 Sept 31 Mar 2023
2023 2022
m m
GBPm GBPm GBPm
Operating profit 19.5 16.9 34.6
Add: Acquisition expenses 1.4 0.9 1.4
Amortisation of acquired intangible
assets 7.7 7.8 15.8
Underlying operating profit 28.6 25.6 51.8
-------- ------------- ------------
Profit before tax 7 16.0 14.8 29.1
Add: Acquisition expenses 7 1.4 0.9 1.4
Amortisation of acquired intangible
assets 7 7.7 7.8 15.8
Underlying profit before tax 7 25.1 23.5 46.3
-------- ------------- ------------
Underlying earnings per share 7 19.2p 17.8p 35.2p
The above condensed consolidated statement of profit or loss
should be read in conjunction with the accompanying notes.
Condensed consolidated statement of comprehensive income
Unaudited Unaudited
Six months Six months Audited
ended ended Year
30 Sept 30 Sept ended
2023 2022 31 Mar 2023
GBPm GBPm GBPm
--------------------------------------------- ------------- ------------- --------------
Profit for the period 11.5 10.7 21.3
--------------------------------------------- ------------- ------------- --------------
Other comprehensive (loss)/income:
Items that will not be subsequently
reclassified to profit or loss:
Actuarial (loss)/gain on defined benefit
pension scheme (1.3) 0.8 (1.2)
Deferred tax credit/(charge) relating
to defined benefit pension scheme 0.4 (0.2) 0.3
--------------------------------------------- ------------- ------------- --------------
(0.9) 0.6 (0.9)
--------------------------------------------- ------------- ------------- --------------
Items that may be subsequently reclassified
to profit or loss:
Exchange differences on translation
of foreign subsidiaries (1.6) 18.1 0.7
(1.6) 18.1 0.7
--------------------------------------------- ------------- ------------- --------------
Other comprehensive (loss)/income
for the period, net of tax (2.5) 18.7 (0.2)
--------------------------------------------- ------------- ------------- --------------
Total comprehensive income for the
period, net of tax 9.0 29.4 21.1
--------------------------------------------- ------------- ------------- --------------
The above condensed consolidated statement of comprehensive
income should be read in conjunction with the accompanying
notes.
Condensed consolidated statement of financial position
Unaudited
Notes Unaudited at 30 Sept Audited
at 30 Sept 2022 as at 31 March
2023 restated 2023
GBPm [2] GBPm
GBPm
------------------------------- -------- ------------- ------------- --------------
Non-current assets
Property, plant and equipment 25.8 24.6 25.2
Intangible assets - goodwill 231.0 190.0 188.1
Intangible assets - other 101.8 90.1 83.9
Right of use assets 19.4 22.5 19.2
Pension asset 16 0.7 4.3 2.3
Other receivables 6.2 6.0 6.0
Deferred tax assets 10.4 8.7 11.2
------------------------------- -------- ------------- ------------- --------------
395.3 346.2 335.9
------------------------------- -------- ------------- ------------- --------------
Current assets
Inventories 91.2 92.8 90.0
Trade and other receivables 82.0 82.2 74.6
Current tax assets 0.3 1.3 1.3
Cash and cash equivalents 14 122.7 134.5 83.9
------------------------------- -------- ------------- ------------- --------------
296.2 310.8 249.8
------------------------------- -------- ------------- ------------- --------------
Total assets 691.5 657.0 585.7
Current liabilities
Trade and other payables (85.5) (100.3) (95.2)
Other financial liabilities (91.9) (105.4) (39.9)
Lease liabilities (5.6) (5.3) (4.0)
Current tax liabilities (11.4) (10.2) (10.4)
Provisions (2.9) (1.6) (1.7)
------------------------------- -------- ------------- ------------- --------------
(197.3) (222.8) (151.2)
------------------------------- -------- ------------- ------------- --------------
Non-current liabilities
Trade and other payables (4.3) (3.7) (4.1)
Other financial liabilities (142.1) (74.3) (86.7)
Lease liabilities (13.7) (16.8) (14.8)
Provisions (3.1) (4.5) (4.2)
Deferred tax liabilities (25.2) (21.8) (21.1)
(188.4) (121.1) (130.9)
------------------------------- -------- ------------- ------------- --------------
Total liabilities (385.7) (343.9) (282.1)
------------------------------- -------- ------------- ------------- --------------
Net assets 305.8 313.1 303.6
------------------------------- -------- ------------- ------------- --------------
Equity
Share capital 4.8 4.7 4.8
Share premium 192.0 192.0 192.0
Merger reserve 2.9 3.4 2.9
Currency translation reserve 4.0 23.0 5.6
Retained earnings 102.1 90.0 98.3
------------------------------- -------- ------------- ------------- --------------
Total equity 305.8 313.1 303.6
------------------------------- -------- ------------- ------------- --------------
The above condensed consolidated statement of financial position
should be read in conjunction with the accompanying notes.
Condensed consolidated statement of changes in equity
Attributable to equity holders of the Company
------------------ -----------------------------------------------------------------------------------
Currency
Share Share Merger translation Retained Total
capital premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2023 4.8 192.0 2.9 5.6 98.3 303.6
Profit for the period - - - - 11.5 11.5
Other comprehensive
loss - - - (1.6) (0.9) (2.5)
-------------------------- ---------- ---------- ---------- ------------- ----------- -----------
Total comprehensive
(loss)/income - - - (1.6) 10.6 9.0
Share-based payments
including tax - - - - 0.8 0.8
Dividends - - - - (7.6) (7.6)
---------- ---------- ---------- ------------- ----------- -----------
At 30 September 2023
- unaudited 4.8 192.0 2.9 4.0 102.1 305.8
-------------------------- ---------- ---------- ---------- ------------- ----------- -----------
At 1 April 2022 4.7 192.0 10.5 4.9 78.3 290.4
Profit for the period - - - - 10.7 10.7
Other comprehensive
income - - - 18.1 0.6 18.7
-------------------------- ---------- ---------- ---------- ------------- ----------- -----------
Total comprehensive
income - - - 18.1 11.3 29.4
Share-based payments
including tax - - - - 0.4 0.4
Transfer to retained
earnings - - (7.1) - 7.1 -
Dividends - - - - (7.1) (7.1)
-------------------------- ---------- ---------- ---------- ------------- ----------- -----------
At 30 September 2022
- unaudited 4.7 192.0 3.4 23.0 90.0 313.1
-------------------------- ---------- ---------- ---------- ------------- ----------- -----------
As at 30 September 2023, the Company's issued share capital
consisted of 96,356,109 ordinary shares of 5p each (31 March 2023:
96,356,109 ordinary shares of 5p each).
As at 30 September 2023, the Employee Share Trust held 508,384
shares (31 March 2023: 690,092). During the six-months period to 30
September 2023, employees exercised 181,708 (year ended 31 March
2023: 378,334) share options under the terms of the various share
option schemes.
The above condensed consolidated statement of changes in equity
should be read in conjunction with the accompanying notes.
Condensed consolidated statement of cash flows
Notes
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar 2023
2023 2022 GBPm
GBPm GBPm
-------------------------------------------- ------ ------------- ------------- --------------
Net cash flow from operating activities 13 9.6 8.5 36.3
Investing activities
Acquisitions of businesses, net of
cash acquired 11 (65.0) (7.0) (22.8)
Contingent consideration related
to business acquisitions - - (2.3)
Purchase of property, plant and equipment (2.5) (2.4) (5.4)
Purchase of intangible assets (0.2) (0.2) (0.2)
Interest received 1.3 0.3 1.4
Net cash used in investing activities (66.4) (9.3) (29.3)
-------------------------------------------- ------ ------------- ------------- --------------
Financing activities
Proceeds from borrowings 66.5 11.0 61.8
Repayment of borrowings (10.8) (9.7) (44.9)
Payment of lease liabilities (2.8) (2.4) (5.2)
Dividends paid (7.6) (7.1) (10.5)
Net cash generated from/(used in)
financing activities 45.3 (8.2) 1.2
-------------------------------------------- ------ ------------- ------------- --------------
Net (decrease)/increase in cash
and cash equivalents (11.5) (9.0) 8.2
Cash and cash equivalents at beginning
of period 43.4 36.9 36.9
Effect of exchange rate fluctuations (1.2) 0.6 (1.7)
-------------------------------------------- ------ ------------- ------------- --------------
Cash and cash equivalents at end
of period 30.7 28.5 43.4
-------------------------------------------- ------ ------------- ------------- --------------
Reconciliation to cash and cash
equivalents in the condensed consolidated
statement of financial position
Net cash and cash equivalents shown
above 30.7 28.5 43.4
Add back: bank overdrafts 92.0 106.0 40.5
Cash and cash equivalents presented
in current assets in the condensed
consolidated statement of financial
position [3] 122.7 134.5 83.9
-------------------------------------------- ------ ------------- ------------- --------------
Further information on the condensed consolidated statement of
cash flows is provided in note 13.
The above condensed consolidated statement of cash flows should
be read in conjunction with the accompanying notes.
1. General information
discoverIE Group plc ("the Company") is incorporated and
domiciled in England, UK. The Company's shares are traded on the
London Stock Exchange. The interim condensed consolidated financial
statements consolidate the financial statements of discoverIE Group
plc and entities controlled by the Company (collectively referred
to as "the Group").
The condensed consolidated interim financial statements for the
six month period ended 30 September 2023 were authorised for issue
by the Board of Directors on 5 December 2023.
The condensed consolidated interim financial statements for the
six month period ended 30 September 2023 are unaudited but have
been subject to an independent review by the auditors. These
condensed consolidated interim financial statements do not comprise
statutory accounts within the meaning of section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31 March
2023 were approved by the Board of Directors on 7 June 2023 and
delivered to the Registrar of Companies. The report of the auditors
on those accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under section
498 of the Companies Act 2006.
2. Basis of preparation and accounting policies
This condensed consolidated interim financial report for the six
month period ended 30 September 2023 has been prepared in
accordance with the UK-adopted International Accounting Standard
34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules (DTR) sourcebook of the United Kingdom's
Financial Conduct Authority.
The interim report does not include all of the notes of the type
normally included in an annual financial report. Accordingly, this
report is to be read in conjunction with the annual report for the
year ended 31 March 2023, which has been prepared in accordance
with UK-adopted international accounting standards and with
requirements of the Companies Act 2006, and any public
announcements made by discoverIE Group plc during the interim
reporting period.
The accounting policies adopted are consistent with those of the
previous financial year and corresponding interim reporting
period.
New standards and interpretations applied for the first time
There were no standards, amendments or interpretations applied
for the first time that had a material impact for the Group.
Going Concern
As at 30 September 2023 the Group's financial position remains
robust with a GBP240.0m syndicated banking facility committed to
the end of June 2027. In addition, the Group has an GBP80.0m
accordion facility which it can use to extend the total facility to
GBP320.0m. The syndicated facility is available both for
acquisitions and working capital purposes. Net debt as at 30
September 2023 was GBP111.3m compared with GBP42.7m at the year
end. The Group's gearing ratio at the end of the period (being net
debt divided by underlying EBITDA adjusted for pre-acquisition
EBITDA) was 1.6x compared with 0.7x at 31 March 2023. This compares
with a financial covenant of less than 3.0x.
The Directors have reviewed the latest available forecasts to
assess the cash requirements of the Group to continue in
operational existence for a minimum period of 12 months from the
date of approval of these interim financial statements. The
Directors have also carried out a going concern assessment taking
into account severe but plausible downside scenarios to the
forecasts and the principal risks and uncertainties as set out in
the annual report and accounts for the year ended 31 March 2023.
None of the scenarios result in a breach of the Group's available
debt facility or covenants and accordingly the Directors continue
to adopt the going concern basis in preparing the condensed
consolidated interim financial statements.
2. Basis of preparation and accounting policies (continued)
Prior period restatement
Cash Offsetting
As disclosed in the annual report for the year ended 31 March
2023, the Financial Reporting Council ("FRC") reviewed the Group's
Annual Report and Accounts for the year ended 31 March 2022.
Following completion of the review, the Directors have concluded
that the overdraft balances of Group entities should be separately
presented gross on the condensed consolidated statement of
financial position, rather than netted off against cash and cash
equivalents held either by the same entity, or other Group
entities, with the same bank, despite the existence of a legal
right of set off. These overdrafts are held with the Group's
relationship banks.
As a result, the condensed consolidated statement of financial
position as at 30 September 2022 has been restated as follows:
As reported Restated
Unaudited Impact Unaudited
30 Sept of restatement 30 Sept
Condensed consolidated statement of financial 2022 2022 2022
position GBPm GBPm GBPm
------------------------------------------------ ------------ ---------------- -----------
Current assets
Cash and cash equivalents 34.2 100.3 134.5
Current liabilities
Bank overdrafts (note 14) (5.7) (100.3) (106.0)
------------------------------------------------ ------------ ---------------- -----------
Net cash (note 14) 28.5 - 28.5
------------------------------------------------ ------------ ---------------- -----------
The restatement did not result in any change to reported profit,
earnings per share, net assets or cash flows reported for the
periods ended 30 September 2022 and 30 September 2021.
Presentation of revenue for semiconductor pass-through costs
Prior period revenue and operating costs have been restated to
reflect the one-off increase in semiconductor costs passed through
to customers at nil margin that had been recognised net in
operating costs rather than revenue for the period ended 30
September 2022. There is a corresponding impact on the sale of
products revenue as presented in note 5 and on Magnetics &
Controls division in note 6. The restatement did not result in any
change to the reported operating profit, earnings per share, net
assets or cash flows for the period ended 30 September 2022.
As reported Restated
Unaudited Impact Unaudited
30 Sept of restatement 30 Sept
Condensed consolidated statement of profit 2022 2022 2022
or loss GBPm GBPm GBPm
--------------------------------------------- ------------ ---------------- -----------
Revenue 219.7 2.9 222.6
Operating costs (202.8) (2.9) (205.7)
Operating profit 16.9 - 16.9
--------------------------------------------- ------------ ---------------- -----------
3. New accounting standards and financial reporting
requirements
New standards not yet effective
Certain new accounting standards and interpretations have been
published that are not mandatory for the period covered in these
condensed consolidated interim financial statements and have not
been early adopted by the Group. None of these are expected to have
a material impact on the Group's financial results in the current
or future reporting periods.
4. Critical estimates and critical judgements
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results might differ from these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 31 March
2023.
5. Revenue
The Group's revenue from external customers by geographical location
is detailed below:
Six months
Six months ended Year
ended 30 Sept ended
30 Sept 2022 as 31 Mar
2023 restated 2023
GBPm GBPm GBPm
---------------------------------------- ------------- ----------- ---------
UK 26.0 22.9 49.6
Europe 104.0 109.2 221.1
North America, Asia and Rest of World 92.0 90.5 178.2
Total revenue 222.0 222.6 448.9
---------------------------------------- ------------- ----------- ---------
Revenue derived from the rendering of services was GBP2.5m (six
month period to 30 September 2022: GBP3.1m; year ended 31 March
2023 GBP6.5m). All revenue was otherwise derived from the sale of
products.
6. Segmental reporting
The Reportable Operating Segments of the Group include two
distinct divisions, Magnetics & Controls ("M&C") and
Sensing & Connectivity ("S&C"). Within each of these
reportable operating segments are aggregated business units with
similar characteristics such as the nature of customers, products,
risk profile and economic characteristics.
Management monitors the operating results of its business units
separately for the purpose of making decisions about resource
allocation and performance assessment. Segment performance is
reported and evaluated based on operating profit or loss earned by
each segment.
Six months ended 30 September 2023
Magnetics Sensing Unallocated
& Controls & Connectivity costs Total
GBPm GBPm GBPm GBPm
Revenue 134.4 87.6 - 222.0
------------------------------------- ------------ ---------------- ------------ --------
Underlying operating profit/(loss) 19.9 15.2 (6.5) 28.6
Acquisition expenses (0.7) (0.7) - (1.4)
Amortisation of acquired intangible
assets (3.1) (4.6) - (7.7)
Operating profit/(loss) 16.1 9.9 (6.5) 19.5
------------------------------------- ------------ ---------------- ------------ --------
Six months ended 30 September 2022
Magnetics Sensing Unallocated
& Controls & Connectivity costs Total
GBPm GBPm GBPm GBPm
Revenue (as restated) 139.4 83.2 - 222.6
------------------------------------- ------------ ---------------- ------------ --------
Underlying operating profit/(loss) 18.0 13.6 (6.0) 25.6
Acquisition and disposal expenses - (1.2) 0.3 (0.9)
Amortisation of acquired intangible
assets (3.1) (4.7) - (7.8)
Operating profit/(loss) 14.9 7.7 (5.7) 16.9
------------------------------------- ------------ ---------------- ------------ --------
6. Segmental reporting (continued)
Year ended 31 March 2023
Magnetics Sensing Unallocated
& Controls & Connectivity costs Total
GBPm GBPm GBPm GBPm
Revenue 280.8 168.1 - 448.9
------------------------------------- ------------ ---------------- ------------ --------
Underlying operating profit/(loss) 38.4 25.6 (12.2) 51.8
Acquisition and disposal expenses - (1.8) 0.4 (1.4)
Amortisation of acquired intangible
assets (6.3) (9.5) - (15.8)
Operating profit/(loss) 32.1 14.3 (11.8) 34.6
------------------------------------- ------------ ---------------- ------------ --------
For the purposes of monitoring segment performance and
allocating resources between segments, the Directors monitor the
net assets attributable to each segment. Assets and liabilities are
allocated to reportable segments, with the exception of the pension
liability, tax assets and liabilities, cash and all borrowings,
central assets (Head Office assets) and central liabilities (Head
Office liabilities), as demonstrated below:
Segment assets and liabilities
Magnetics Sensing
At 30 September 2023 & Controls & Connectivity Unallocated Total
Assets and liabilities GBPm GBPm GBPm GBPm
--------------------------------------- ------------ ---------------- ------------ --------
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
--------------------------------------- ------------ ---------------- ------------ --------
Magnetics Sensing
At 30 September 2022 & Controls & Connectivity Unallocated Total
Assets and liabilities GBPm GBPm GBPm GBPm
--------------------------------------- ------------ ---------------- ------------ --------
Segment assets (excluding goodwill
and other intangible assets) 141.9 76.9 218.8
Goodwill and other intangible
assets 135.9 144.2 280.1
--------------------------------------- ------------ ---------------- ------------ --------
277.8 221.1 498.9
--------------------------------------- ------------ ---------------- ------------ --------
Central assets 9.3 9.3
Cash and cash equivalents (as
restated) 134.5 134.5
Pension asset 4.3 4.3
Current and deferred tax assets 10.0 10.0
Total assets 277.8 221.1 158.1 657.0
--------------------------------------- ------------ ---------------- ------------ --------
Segment liabilities (80.8) (43.8) (124.6)
Central liabilities (7.6) (7.6)
Other financial liabilities (179.7) (179.7)
Current and deferred tax liabilities (32.0) (32.0)
Total liabilities (80.8) (43.8) (219.3) (343.9)
--------------------------------------- ------------ ---------------- ------------ --------
Net assets/(liabilities) 197.0 177.3 (61.2) 313.1
--------------------------------------- ------------ ---------------- ------------ --------
6. Segmental reporting (continued)
Magnetics Sensing
At 31 March 2023 & Controls & Connectivity Unallocated Total
Assets and liabilities GBPm GBPm GBPm GBPm
--------------------------------------- ------------ ---------------- ------------ --------
Segment assets (excluding goodwill
and other intangible assets) 128.5 76.8 205.3
Goodwill and other intangible
assets 120.7 151.3 272.0
--------------------------------------- ------------ ---------------- ------------ --------
249.2 228.1 477.3
--------------------------------------- ------------ ---------------- ------------ --------
Central assets 9.7 9.7
Cash and cash equivalents 83.9 83.9
Pension asset 2.3 2.3
Current and deferred tax assets 12.5 12.5
--------------------------------------- ------------ ---------------- ------------ --------
Total assets 249.2 228.1 108.4 585.7
--------------------------------------- ------------ ---------------- ------------ --------
Segment liabilities (70.5) (42.9) (113.4)
Central liabilities (10.6) (10.6)
Other financial liabilities (126.6) (126.6)
Current and deferred tax liabilities (31.5) (31.5)
--------------------------------------- ------------ ---------------- ------------ --------
Total liabilities (70.5) (42.9) (168.7) (282.1)
--------------------------------------- ------------ ---------------- ------------ --------
Net assets/(liabilities) 178.7 185.2 (60.3) 303.6
--------------------------------------- ------------ ---------------- ------------ --------
7. Underlying Performance Measures
These condensed consolidated interim financial statements
include underlying performance measures that are not prepared in
accordance with IFRS. These alternative performance measures have
been selected by management to assist them in making operating
decisions as they represent the underlying operating performance of
the Group and facilitate internal comparisons of performance over
time.
Underlying performance measures are presented in these condensed
interim financial statements as management believe they provide
investors with a means of evaluating performance of the Group on a
consistent basis, similar to the way in which management evaluates
performance, that is not otherwise apparent on an IFRS basis, given
that certain strategic non-recurring and acquisition related items
that management does not believe are indicative of the underlying
operating performance of the Group are included when preparing
financial measures under IFRS. The trading results of acquired
businesses are included in underlying performance.
The Directors consider there to be the following key underlying
performance measures:
Underlying operating profit
"Underlying operating profit" is defined as operating profit
excluding acquisition-related costs (namely amortisation of
acquired intangible assets and acquisition expenses).
Acquisition expenses comprise transaction costs relating to
acquisitions, contingent consideration relating to the retention of
former owners of acquired businesses, adjustments to previously
estimated contingent consideration, and costs related to
integration of acquired businesses into the Group.
Underlying EBITDA
"Underlying EBITDA" is defined as underlying operating profit
with depreciation, amortisation, equity-settled share-based payment
expense and IAS 19 pension cost added back.
Underlying operating margin
"Underlying operating margin" is defined as underlying operating
profit divided by revenue.
Underlying profit before tax
"Underlying profit before tax" is defined as profit before tax
excluding acquisition-related costs (namely amortisation of
acquired intangible assets and acquisition expenses).
7. Underlying Performance Measures (continued)
Underlying tax charge / Underlying effective Tax Rate
("ETR")
"Underlying tax charge" is defined as the tax charge adjusted
for the tax effect on the acquisition-related costs (namely
amortisation of acquired intangible assets and acquisition
expenses).
"Underlying ETR" is defined as underlying tax charge divided by
underlying profit before tax.
Underlying profit after tax (profit for the period)
"Underlying profit after tax" is defined as profit for the
period excluding acquisition-related costs (namely amortisation of
acquired intangible assets and acquisition expenses), net of tax
effect on underlying adjustments.
Underlying earnings per share
"Underlying earnings per share" is calculated as underlying
profit after tax divided by the weighted average number of ordinary
shares (for diluted earnings per share purposes) in issue during
the year.
Underlying operating cash flow / Underlying operating cash flow
conversion
"Underlying operating cash flow" is defined as underlying EBITDA
adjusted for the investment in, or release of, working capital and
less the cash cost of capital expenditure and lease payments.
"Underlying operating cash flow conversion" is defined as
underlying operating cash flow divided by underlying operating
profit.
Free cash flow / Free cash flow conversion
"Free cash flow" is defined as net cash flow before dividend
payments, net proceeds from equity fund raising and the cost of
acquisitions.
"Free cash flow conversion" is free cash flow divided by
underlying profit after tax.
Return on capital employed ("ROCE")
"ROCE" is defined as underlying operating profit, including the
annualisation of operating profits of acquired businesses, as a
percentage of net assets excluding net debt, deferred consideration
related to discontinued operations and legacy defined benefit
pension asset.
Return on tangible capital employed ("ROTCE")
"ROTCE" is annualised underlying operating profit, as a
percentage of tangible capital employed. Tangible capital employed
is defined as property, plant and equipment, right of use assets,
inventories and trade and other receivables, offset by current
trade and other payables, excluding contingent consideration.
Organic and CER growth
"CER growth" is defined as growth rates at constant exchange
rates.
"Organic growth" is defined as CER growth excluding the effect
of acquisitions/disposals.
Gearing ratio
Gearing ratio is defined as net debt (excluding leases) divided
by underlying EBITDA (including the annualisation of acquired
businesses excluding lease payments).
7. Underlying Performance Measures (continued)
The tables below shows the reconciliation for the main
underlying performance measures used by the Group.
Underlying operating profit / Underlying EBITDA
Underlying operating profit and EBITDA are calculated as
follows:
Six months
ended Six months Year
30 Sept ended ended
2023 30 Sept 2022 31 Mar 2023
GBPm GBPm GBPm
------------------------------------------------------- ----- ----------- -------------- -------------
Operating profit 19.5 16.9 34.6
Add back: Acquisition expenses (a) 1.4 0.9 1.4
Amortisation of acquired intangibles (b) 7.7 7.8 15.8
------------------------------------------------------- ----- ----------- -------------- -------------
Underlying operating profit 28.6 25.6 51.8
-------------------------------------------------------------- ----------- -------------- -------------
Add back: Depreciation and amortisation 5.7 5.7 11.7
Share-based payment and IAS
19 pension cost 1.8 1.2 2.9
-------------------------------------------------------------- ----------- -------------- -------------
Underlying EBITDA 36.1 32.5 66.4
-------------------------------------------------------------- ----------- -------------- -------------
The tax impact of the underlying profit adjustments above is a
credit of GBP1.7m (H1 2022/23: GBP1.9m).
a) Acquisition expenses of GBP1.4m comprise GBP1.8m of
transaction costs in relation to the acquisition of Silvertel, 2J
and ongoing transactions, offset by GBP0.4m credit relating to the
movement in fair value of contingent consideration on past
acquisitions.
During the prior period, the acquisition expenses of GBP0.9m
comprised GBP0.5m of transaction costs in relation to the
acquisition of CDT and ongoing transactions; GBP0.7m of charge
relating to the movement in fair value of contingent consideration
on past acquisitions; offset by GBP0.3m credit relating to disposal
costs in connection with the Acal BFi disposal in FY 2021/22.
b) Amortisation charge relates to intangible assets recognised as part of business combinations.
Underlying profit before tax
Underlying profit before tax is calculated as follows:
Six months
ended Six months Year
30 Sept ended ended
2023 30 Sept 2022 31 Mar 2023
GBPm GBPm GBPm
Profit before tax 16.0 14.8 29.1
Add back: Acquisition expenses 1.4 0.9 1.4
Amortisation of acquired
intangibles 7.7 7.8 15.8
-------------------------------------------- ----------- -------------- -------------
Underlying profit before
tax 25.1 23.5 46.3
-------------------------------------------- ----------- -------------- -------------
7. Underlying Performance Measures (continued)
Underlying effective tax rate
Underlying effective tax rate ("ETR") is calculated as
follows:
Six months
ended Six months Year
30 Sept ended ended
2023 30 Sept 2022 31 Mar 2023
GBPm GBPm GBPm
---------------------------------------- ----------- -------------- -------------
Underlying profit before tax 25.1 23.5 46.3
----------------------------------------- ----------- -------------- -------------
Tax expense 4.5 4.1 7.8
Tax effect on amortisation of acquired
intangible assets and acquisition
expenses 1.7 1.9 3.9
Underlying tax charge 6.2 6.0 11.7
----------------------------------------- ----------- -------------- -------------
Underlying effective tax rate 24.7% 25.5% 25.3%
----------------------------------------- ----------- -------------- -------------
Underlying profit after tax (profit for the period) / Underlying
earnings per share
Underlying profit after tax and earnings per share are
calculated as follows:
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2023 2022 2023
GBPm GBPm GBPm
Profit for the period 11.5 10.7 21.3
Add back: Acquisition expenses 1.4 0.9 1.4
Amortisation of acquired intangible assets 7.7 7.8 15.8
Tax effects on the above (1.7) (1.9) (3.9)
Underlying profit for the period 18.9 17.5 34.6
------------------------------------------------------------ ----------- ----------- -----------
Number Number Number
Weighted average number of shares for basic
earnings per share 95,780,662 95,375,108 95,426,255
Effect of dilution - share options 2,728,085 3,201,151 2,917,061
------------------------------------------------------------ ----------- ----------- -----------
Adjusted weighted average number of shares
for diluted earnings per share 98,508,747 98,576,259 98,343,316
------------------------------------------------------------ ----------- ----------- -----------
Underlying earnings per share - diluted 19.2p 17.8p 35.2p
Underlying operating cash flow / Free cash flow
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2023 2022 2023
GBPm GBPm GBPm
-------------------------------- ----------- ----------- --------
Underlying EBITDA 36.1 32.5 66.4
Lease payments (3.1) (2.8) (5.8)
-------------------------------- ----------- ----------- --------
EBITDA (incl. lease payments) 33.0 29.7 60.6
Changes in working capital (12.3) (10.3) (6.4)
Capital expenditure (2.7) (2.6) (5.6)
-------------------------------- ----------- ----------- --------
Underlying operating cash flow 18.0 16.8 48.6
Net interest paid (3.7) (2.0) (5.0)
Taxation (5.2) (3.2) (9.0)
Legacy pension scheme funding (1.0) (1.0) (1.6)
-------------------------------- ----------- ----------- --------
Free cash flow 8.1 10.6 33.0
-------------------------------- ----------- ----------- --------
8. Taxation
Income tax expense is recognised based on management's estimate
of the weighted average effective annual income tax rate expected
for the full financial year, in accordance with IAS 34 'Interim
financial reporting'.
The underlying tax charge for the period was GBP6.2m (H1
2022/23: GBP6.0m) giving an underlying effective tax rate on
underlying profit before tax of 24.7% (H1 2022/23: 25.5%), 0.6%
lower than the rate for FY 2022/23 of 25.3%.
The tax credit in respect of the underlying profit adjustments
was GBP1.7m (H1 2022/23: GBP1.9m). This gives an overall tax charge
for the period of GBP4.5m (H1 2022/23: GBP4.1m) on profit before
tax of GBP16.0m (H1 2022/23: GBP14.8m) which is an effective tax
rate of 28.1% (H1 2022/23: 27.7%). The higher effective rate is
mainly due to limited tax relief available on acquisition
expenses.
9. Dividends
The Directors have declared an interim dividend of 3.75 pence
per share (H1 2022/23: 3.55 pence) payable on 24 January 2024 to
shareholders on the register at 15 December 2023.
In accordance with IAS 10, this dividend has not been reflected
in the interim results. The cash cost of the interim dividend will
be GBP3.6m (H1 2022/23: GBP3.4m).
The final dividend of 7.9p per share for the year ended 31 March
2023 was paid on 1 August 2023.
10. Earnings per share
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2023 2022 2023
GBPm GBPm GBPm
Profit for the period 11.5 10.7 21.3
--------------------------------------------- ----------- ----------- -----------
Number Number Number
Weighted average number of shares for basic
earnings per share 95,780,662 95,375,108 95,426,255
Effect of dilution - share options 2,728,085 3,201,151 2,917,061
--------------------------------------------- ----------- ----------- -----------
Adjusted weighted average number of shares
for diluted earnings per share 98,508,747 98,576,259 98,343,316
--------------------------------------------- ----------- ----------- -----------
Earnings per share - basic 12.0p 11.2p 22.3p
Earnings per share - diluted 11.7p 10.9p 21.7p
--------------------------------------------- ----------- ----------- -----------
At the period end, there were 3.1 million ordinary share options
in issue that could potentially dilute earnings per share in the
future, of which 2.7 million are currently dilutive (30 September
2022: 4.1 million in issue and 3.2 million dilutive, 31 March 2023:
3.0 million in issue and 2.9 million dilutive).
11. Business combinations
Acquisitions in the period ended 30 September 2023
Acquisition of Silvertel
On 30 August 2023, the Group completed the acquisition of Silver
Telecom Limited ("Silvertel"), a company incorporated in the United
Kingdom by acquiring 100% of the shares of its parent company SLV
Holdings Limited. Silvertel is a designer and manufacturer of
differentiated, high-performance Power-over-Ethernet ("PoE")
modules and complementary products for global industrial electronic
connectivity markets.
Silvertel was acquired for an initial cash consideration of
GBP23.0m before expenses, funded from the Group's existing debt
facilities. In addition, contingent payment of up to GBP23.0m will
be payable subject to Silvertel's EBIT performance over the next
four years. This includes up to GBP4.0m payable subject to
continuous employment during the performance period.
The provisional fair value of the identifiable assets and
liabilities of Silvertel at the date of acquisition was:
Provisional fair value
recognised at acquisition
GBPm
---------------------------------- ----------------------------
Intangible assets - other (incl.
customer relationships) 9.3
Property, plant and equipment 0.1
Right of use assets 0.2
Inventories 2.6
Trade and other receivables 1.4
Net cash 1.6
Trade and other payables (0.9)
Current tax liabilities (0.4)
Deferred tax liabilities (2.4)
Lease liabilities (0.2)
Total identifiable net assets 11.3
Provisional goodwill arising
on acquisition 14.5
------------------------------------ ---------------------------
Total investment 25.8
------------------------------------ ---------------------------
Discharged by
Initial cash consideration 23.0
Contingent consideration 2.8
------------------------------------ ---------------------------
25.8
---------------------------------- ---------------------------
Included in the GBP14.5m of goodwill recognised above are
certain intangible assets that cannot be individually separated and
reliably measured, due to their nature. These include the value of
expected operational benefits. All the acquired receivables are
expected to be collected.
Net cash outflows in respect of the acquisition comprise:
Total
GBPm
------------------------------------------------ ------
Cash consideration 23.0
Transaction costs of the acquisition (included
in operating cash flows) (1) 0.5
Net cash acquired (1.6)
-------------------------------------------------- ------
21.9
------------------------------------------------ ------
1) Acquisition costs of GBP0.5m were expensed as incurred in the
six months period to 30 September 2023. These were included within
operating costs.
Included in cash flow from investing activities is the cash
consideration of GBP23.0m, offset by the net cash acquired of
GBP1.6m.
11. Business combinations (continued)
Acquisition of 2J
On 12 September 2023, the Group completed the acquisition of 2J
Antennas Group ("2J"), by acquiring 100% equity and voting rights
of 2J Antennas, s.r.o. (Slovakia), 2J Antennas UK Limited and 2J
Antennas USA Corp.
2J is a leading designer and manufacturer of high-performance
antennas for industrial electronic connectivity applications. 2J
was acquired for an initial cash consideration of GBP44.5m
(EUR51.9m), before expenses, funded from the Group's existing debt
facilities.
The provisional fair value of the identifiable assets and
liabilities of 2J at the date of acquisition was:
Provisional fair value
recognised at acquisition
GBPm
---------------------------------- ----------------------------
Intangible assets - other (incl.
customer relationships) 16.1
Property, plant and equipment 0.8
Inventories 2.8
Trade and other receivables 1.9
Cash and cash equivalents 1.3
Overdraft (0.4)
Trade and other payables (1.0)
Current tax (1.5)
Deferred tax liabilities (3.3)
Lease liabilities (0.2)
Total identifiable net assets 16.5
Provisional goodwill arising
on acquisition 28.0
------------------------------------ ---------------------------
Total investment 44.5
------------------------------------ ---------------------------
Discharged by
Cash 44.5
------------------------------------ ---------------------------
Included in the GBP28.0m of goodwill recognised above are
certain intangible assets that cannot be individually separated and
reliably measured, due to their nature. These include the value of
expected operational benefits. All the acquired receivables are
expected to be collected.
Net cash outflows in respect of the acquisition comprise:
Total
GBPm
------------------------------------------------ ------
Cash consideration 44.5
Transaction costs of the acquisition (included
in operating cash flows) (1) 0.8
Net cash acquired (0.9)
-------------------------------------------------- ------
44.4
------------------------------------------------ ------
1) Acquisition costs of GBP0.8m were expensed as incurred in the
six months period to 30 September 2023. These were included within
operating costs.
Included in cash flow from investing activities is the cash
consideration of GBP44.5m, offset by the net cash acquired of
GBP0.9m.
Acquisitions in the year ended 31 March 2023
On 30 June 2022 and 18 January 2023, the Group completed the
acquisition of CDT 123 Limited and CustomDesignTechnologies Ltd
("CDT") and Magnasphere Corporation ('Magnasphere'), respectively.
Details of these business combinations were disclosed in note 11 of
the Group's annual financial statements for the year ended 31 March
2023. Since 31 March 2023, there were no material changes to the
fair value of assets and liabilities acquired.
12. Goodwill
Cost GBPm
----------------------------------------- -----
At 1 April 2022 175.7
Arising from business combinations 11.5
Exchange adjustments 0.9
----------------------------------------- -----
At 31 March 2023 188.1
Arising from business combinations 42.5
Exchange adjustments 0.4
At 30 September 2023 231.0
----------------------------------------- -----
Impairment
----------------------------------------- -----
At 31 March 2023 and 30 September 2023 -
----------------------------------------- -----
Net book value at 30 September 2023 231.0
----------------------------------------- -----
Net book value at 31 March 2023 188.1
----------------------------------------- -----
Impairment testing of goodwill
Management has identified two CGUs within the Sensing &
Connectivity division, which represent 2% and 5% of the total
carrying amount of goodwill in the Group as at 30 September 2023,
where changes in the value-in-use assumptions may lead to the
recoverable amount of the CGU being less than its carrying value.
The assumptions made in estimating the value of the future cash
flow for these two CGUs are pre-tax discount rates of 13.0% for
both CGUs, 5-year Sales CAGR of 2.7% and 3.6% respectively and a
long-term growth rate of 2% for both CGUs. The headroom for these
two CGUs are GBP3.9m and GBP5.1m at the date of the assessment.
A reduction in long-term growth rate of 0.5% reduces the
headroom in the two CGUs by GBP0.5m and GBP0.9m respectively. An
increase of one percentage point in the pre-tax discount rate
reduces the headroom in the two CGUs by GBP1.3m and GBP2.5m
respectively and a reduction in the 5-year sales CAGR by 1% reduces
the headroom in the two CGUs by GBP1.3m and GBP1.8m
respectively.
None of the changes to individual assumptions above would lead
to the carrying amount of the two CGUs exceeding their recoverable
amount.
The assumptions that would result in the recoverable amount
equalling the carrying amount are 5-year sales CAGR of 0.5% (a
reduction of 2.2 percentage points), long-term growth rate of 2%,
and a pre-tax discount rate of 14.2% (an increase of 1.2 percentage
points) for the CGU representing 2% of the total carrying value of
the Group goodwill, and 5-year sales CAGR of 1.6% (a reduction of 2
percentage points), long-term growth rate of 2%, and a pre-tax
discount rate of 14% (an increase of 1 percentage point) for the
CGU representing 5% of the total carrying value of the Group
goodwill.
13. Reconciliation of cash flow from operating activities
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2023 2022 2023
GBPm GBPm GBPm
----------------------------------------------- ----------- ----------- --------
Profit for the period 11.5 10.7 21.3
Tax expense 4.5 4.1 7.8
Net finance costs 3.5 2.1 5.5
Depreciation of property, plant and equipment 2.4 2.4 4.6
Depreciation of right of use assets 3.0 3.0 5.8
Amortisation of intangible assets - other 7.9 8.1 16.5
Loss on disposal of intangible assets - - 0.6
Change in provisions 0.1 (0.3) (0.2)
Pension scheme funding (1.0) (1.0) (1.6)
IAS 19 pension charge 0.4 0.3 0.7
Contingent consideration related to business
acquisitions - (4.2) (4.0)
Business disposal costs - (1.2) (1.2)
Associated taxes on LTIPs (0.2) - (0.6)
Impact of equity-settled share-based payment
expense 1.4 0.6 2.2
----------------------------------------------- ----------- ----------- --------
Operating cash flows before changes in
working capital 33.5 24.6 57.4
----------------------------------------------- ----------- ----------- --------
Decrease/(Increase) in inventories 3.4 (9.1) (8.6)
(Increase)/Decrease in trade and other
receivables (3.3) (0.8) 5.0
Decrease in trade and other payables (13.5) (0.6) (1.7)
----------------------------------------------- ----------- ----------- --------
Decrease in working capital (13.4) (10.5) (5.3)
----------------------------------------------- ----------- ----------- --------
Cash generated from operations 20.1 14.1 52.1
Interest paid (5.0) (2.0) (6.2)
Interest paid on lease liabilities (0.3) (0.4) (0.6)
Net income taxes paid (5.2) (3.2) (9.0)
----------------------------------------------- ----------- ----------- --------
Net cash inflow from operating activities 9.6 8.5 36.3
----------------------------------------------- ----------- ----------- --------
14. Closing net debt
At
At 30 Sept
30 Sept 2022 as At
2023 restated 31 Mar 2023
GBPm GBPm GBPm
------------------------------------------ --------- ---------- -------------
Cash and cash equivalents 122.7 134.5 83.9
Bank overdrafts (92.0) (106.0) (40.5)
------------------------------------------ --------- ---------- -------------
Net cash 30.7 28.5 43.4
------------------------------------------ --------- ---------- -------------
Bank loans under one year (0.3) - -
Bank loans over one year (143.9) (75.8) (88.1)
Capitalised debt cost 2.2 2.1 2.0
------------------------------------------ --------- ---------- -------------
Total loan capital (142.0) (73.7) (86.1)
------------------------------------------ --------- ---------- -------------
Closing net debt (111.3) (45.2) (42.7)
------------------------------------------ --------- ---------- -------------
Lease liability (19.3) (22.1) (18.8)
------------------------------------------ --------- ---------- -------------
Closing net debt (incl. lease liability) (130.6) (67.3) (61.5)
------------------------------------------ --------- ---------- -------------
Condensed consolidated statement of financial position:
At At
30 Sept 30 Sept At
2023 2022 31 Mar 2023
GBPm GBPm GBPm
------------------------------------------ --------- --------- -------------
Current liabilities
Other financial liabilities (91.9) (105.4) (39.9)
Lease liabilities (5.6) (5.3) (4.0)
------------------------------------------ --------- --------- -------------
(97.5) (110.7) (43.9)
------------------------------------------ --------- --------- -------------
Non-current liabilities
Other financial liabilities (142.1) (74.3) (86.7)
Lease liabilities (13.7) (16.8) (14.8)
------------------------------------------ --------- --------- -------------
(155.8) (91.1) (101.5)
------------------------------------------ --------- --------- -------------
Cash and cash equivalents 122.7 134.5 83.9
------------------------------------------ --------- --------- -------------
Closing net debt (incl. lease liability) (130.6) (67.3) (61.5)
------------------------------------------ --------- --------- -------------
Bank overdrafts reflect the aggregated gross overdrawn balances
of Group companies (even if those companies have other positive
cash balances). The overdrafts and cash and cash equivalents are
held with the Group's relationship banks with a legal right to
offset. Bank overdrafts are repayable on demand with interest based
on floating rates linked to SONIA, SOFR and EURIBOR.
Included in bank loans over one year are mainly drawdowns
against the Group's revolving credit facility of GBP143.8m (31
March 2023: GBP88.0m) denominated in Sterling, US Dollars and Euros
which bear interest based on SONIA, SOFR and EURIBOR, plus a
facility margin.
Cash and cash equivalents earn interest at floating rates on
daily bank deposit rates .
Lease liabilities of GBP19.3m (31 March 2023: GBP18.8m) have
been presented separately in the consolidated statement of
financial position. The increase of GBP0.5m during the six month
period to 30 September 2023 consisted of additions/modifications of
GBP3.5m and interest accruals of GBP0.3m, offset by lease payments
of GBP3.1m and early terminations of GBP0.2m.
Certain businesses in the Group participate in supply chain
finance arrangements whereby suppliers may elect to receive early
payment of their invoices from a bank by factoring their receivable
from discoverIE entities. Included within trade payables is GBP2.4m
(31 March 2023: GBP2.3m) subject to such an arrangement.
14. Closing net debt (continued)
Reconciliation of movement in cash and net debt
Six months Six months
ended ended Year
30 Sept 30 Sept ended
2023 2022 31 Mar 2023
GBPm GBPm GBPm
------------------------------------------ ----------- ----------- -------------
Net (decrease)/increase in cash and cash
equivalents (11.5) (9.0) 8.2
Proceeds from borrowings (66.5) (11.0) (61.8)
Repayment of borrowings 10.8 9.7 44.9
------------------------------------------ -----------
Decrease in net cash before translation
differences (67.2) (10.3) (8.7)
Translation and other non-cash changes (1.4) (4.7) (3.8)
------------------------------------------ ----------- ----------- -------------
Decrease in net cash (68.6) (15.0) (12.5)
Net debt at beginning of the period (42.7) (30.2) (30.2)
------------------------------------------ ----------- ----------- -------------
Net debt at end of the period (111.3) (45.2) (42.7)
------------------------------------------ ----------- ----------- -------------
15. Fair value measurement of financial instruments
The Group's principal non-derivative financial instruments
comprise bank loans and overdrafts, cash and short term borrowings.
The Group also holds other financial instruments such as trade
receivables and trade payables that arise directly from the Group's
trading operations. The carrying value of the Group's trade and
other receivables and trade and other payables approximates their
book value due to the short maturity of these instruments.
Derivative financial instruments are represented by short-term
foreign currency forward contracts placed by the Group with
external banks as part of the Group's cash management and foreign
currency risk management activities. The fair value of derivative
foreign exchange instruments is determined on initial recognition
at forward market exchange rates at inception of the contract and
subsequently remeasured based on forward market exchange rates at
the balance sheet date. As at 30 September 2023, the fair value of
derivatives was a liability of GBP0.2m (31 March 2023: asset of
GBP0.1m).
The carrying value of the Group's other financial assets,
including cash and cash equivalents of GBP122.7m and deferred
consideration of GBP6.1m, are equivalent to their fair value.
The carrying value of the Group's financial liabilities measured
at amortised costs, including bank overdrafts of GBP92.0m, other
fixed and floating interest borrowings of GBP144.2m, lease
liabilities of GBP19.3m and contingent consideration of GBP6.6m,
are equivalent to their fair value at 30 September 2023.
The methods and assumptions used to determine the fair value of
financial assets and liabilities are set out below.
All material changes in fair value of financial instruments as
at the balance sheet date have been taken to the condensed
consolidated statement of profit or loss. Impairment reviews did
not identify any material impairment of financial assets from
carrying values as reported at the balance sheet date and, as such,
no material impairments are included in the condensed consolidated
statement of profit or loss.
Fair Value Methods and Assumptions
Forward foreign exchange contracts (forwards) - the fair value
of forward foreign currency contracts is determined with reference
to observable yield curves and foreign exchange rates at the
reporting date. The forwards outstanding with banks at 30 September
2023 had a maturity of two years or less.
Loans and borrowings - the fair value of loans and borrowings
has been calculated by discounting future cash flows, where
material, at prevailing market interest rates.
Fair Value Hierarchy
For financial assets and financial liabilities measured at fair
value, as set out in the tables above, the fair value measurement
techniques are based upon applying unadjusted, quoted market rates
or prices or inputs other than quoted prices that are observable
for the assets or liability either directly or indirectly.
15. Fair value measurement of financial instruments (continued)
Fair Value Hierarchy (continued)
IFRS 13 'Financial Instruments: Disclosures' requires financial
instruments measured at fair value to be analysed into a fair value
hierarchy based upon the valuation technique used to determine fair
value. The highest level in this hierarchy is Level 3 within which
inputs that are not based on observable market data for the asset
or liability are applied.
The valuation techniques used by the Group for the measurement
of derivative financial instruments, loans and deferred
consideration receivable are considered to be within Level 2, which
includes inputs other than quoted prices included within Level 1
that are observable either directly or indirectly. Contingent
consideration is included in Level 3 of the fair value hierarchy.
The fair value is determined considering the expected payment,
discounted to present value using a risk adjusted discount rate.
The expected payment is determined separately in respect of each
individual earn-out agreement taking into consideration the
expected level of profitability of each acquisition. The
unobservable inputs are the projected forecast measures that are
assessed on an annual basis. Changes in the fair value of
contingent consideration relating to updated projected forecast
performance measures are recognised in the consolidated Statement
of Profit or Loss in the period that the change occurs. Contingent
consideration is sensitive to forecast operating profits of the
relevant acquired businesses.
16. Pension
The acquisition of the Sedgemoor Group in June 1999 included a
defined benefit pension scheme, the Sedgemoor Group Pension Fund
("the Sedgemoor Scheme"). The Sedgemoor Scheme, which is funded by
the Company, provides retirement benefits based on final
pensionable salary. Its assets are held in a separate
trustee-administered fund. Following the acquisition of the
Sedgemoor Group, the Sedgemoor Scheme was closed to new members.
Shortly thereafter, employees were given the opportunity to join
the discoverIE pension scheme and future service benefits ceased to
accrue to members under the Sedgemoor Scheme. Contributions to the
Sedgemoor Scheme are determined in accordance with the advice of
independent, professionally qualified actuaries.
During the period, the financial position of the Sedgemoor
Scheme has been updated in line with changes in actuarial
assumptions. The valuation used for IAS 19 disclosures has been
based on the most recent valuation as at 31 March 2021 updated to
take account of the requirements of IAS 19 in order to assess the
liabilities of the scheme as at 30 September 2023.
The IAS 19 defined benefit pension scheme asset as at 30
September 2023 was GBP0.7m (31 March 2023: GBP2.3m). The surplus
reduced over the period due to a fall in the value of the Fund's
bond related assets which reflects an increase in gilt and
corporate bond yields. The loss was offset to an extent by the fall
in the value of the obligation which is based purely on corporate
bond yields.
17. Exchange rates
The principal exchange rates used to translate the results of
overseas businesses are as follows:
Six months ended Six months ended 30 Year ended 31 March
30 Sept 2023 Sept 2022 2023
----------- ------------------- ---------------------- ----------------------
Closing Average Closing Average Closing Average
rate rate rate rate rate rate
US Dollar 1.2253 1.2592 1.1040 1.2189 1.2369 1.2058
Euro 1.1566 1.1566 1.1325 1.1744 1.1374 1.1576
Norwegian
Krone 13.0161 13.3321 11.9862 11.7728 12.9595 11.9778
----------- --------- -------- ---------- ---------- ---------- ----------
18. Events occurring after the reporting period
There were no matters arising, between the statement of
financial position date and the date on which these condensed
consolidated interim financial statements were approved by the
Board of Directors, requiring adjustment in accordance with IAS 34
'Interim financial reporting'.
19. Interim report
A copy of the interim report will be available for inspection at
the Company's registered office: 2 Chancellor Court, Occam Road,
Surrey Research Park, Guildford, England, GU2 7AH.
As permitted by current regulations, the 2023 interim results
published on 5 December 2023 will not be sent to shareholders. The
2023 interim results and other information about discoverIE Group
plc are available on the Company's website at
www.discoverieplc.com.
[1] Restatement did not result in any change to reported profit,
earnings per share, net assets or cash flows reported for the
restated period. Refer to note 2 for more details.
[2] Restatement did not result in any change to reported profit,
earnings per share, net assets or cash flows reported for the
restated period. Refer to note 2 for more details .
[3] Restatement did not result in any change to reported profit,
earnings per share, net assets or cash flows reported for the
restated period. Refer to note 2 for more details.
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END
IR VZLFBXLLBFBL
(END) Dow Jones Newswires
December 05, 2023 02:00 ET (07:00 GMT)
DiscoverIE (AQSE:DSCV.GB)
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