TIDMDSCV
RNS Number : 8395G
discoverIE Group plc
30 November 2020
30 NOVEMBER 2020
discoverIE Group plc
Interim results for the six months ended 30 September 2020
Resilient performance with strong cash generation
discoverIE Group plc (LSE: DSCV, "discoverIE" or "the Group"), a
leading international designer, manufacturer and supplier of
customised electronics to industry , today announces its interim
results for the six months ended 30 September 2020 ("H1 2020/21" or
the "Period").
H1 2020/21 H1 2019/20 Movement
%
Revenue GBP217.9m GBP232.0m (6%)
Underlying operating
profit(1) GBP15.8m GBP17.7m (11%)
Underlying profit before
tax(1) GBP13.8m GBP15.6m (12%)
Underlying EPS(1) 11.3p 14.4p (22%)
Reported profit before
tax GBP7.7m GBP10.4m (26%)
Reported fully diluted
EPS 5.8p 9.1p (36%)
Operating cash flow GBP25.7m GBP9.2m +179%
Gearing(8) 1.0x 1.6x (0.6x)
Interim dividend per
share 3.15p 2.97p +6%
Highlights
-- Resilient trading during pandemic reflects strength of the
operating model and target market focus
o Group sales declined by 8% organically with target markets
performing ahead of wider markets
o Group operating expenses reduced by 4% organically (7%
reduction from H2 2019/20 run rate)
o Underlying operating profit 11% lower
o Underlying earnings per share reflecting lower profits &
the equity issuance in H2 2019/20
o Increasing order momentum since Q2, returning to organic
growth in September
-- Excellent cash generation leading to resumption of dividend and acquisitions
o GBP43m of free cash flow(7) in the last 12 months up 63% on
prior period and 174% of post-tax profit
o Gearing(8) reduced to 1.0x at 30 Sept 2020 from 1.6x(8) in the
last 12 months
o Dividend reinstated with a 6% increase in the interim
payment
-- Good progress on strategic priorities
o Sales from D&M(4) increased to 65% of Group sales (H1
2019/20: 63%)
o Sales from target markets(5) increased to 68% of Group sales
(H1 2019/20: 66%)
o Sales beyond Europe increased to 28% of Group sales (H1
2019/20: 24%)
o Increasing ESG focus with introduction of carbon emissions
reduction target of 50% over 5 years
-- Second half has started well with orders ahead of sales and up on last year
o Phoenix America acquired for $11.0m (GBP8.5m) in October
2020
o Pipeline of acquisition opportunities in development
o Delivery of strategic targets for the next 5 years remain the
focus
Nick Jefferies, Group Chie f Executive, commented:
"The Group took quick action to reduce costs and preserve cash
as the pandemic spread, and with our focus on structural growth
markets and a flexible operating structure, we have delivered a
resilient performance whilst preserving the capabilities to benefit
from conditions as they improve.
Cash generation was excellent with GBP43m of free cash flow over
the last 12 months reducing gearing to 1.0x from 1.6x. As well as
reinforcing the cash generating capability of our businesses and
the strength of the operating model, this provides us with the
capacity to pursue further value enhancing initiatives.
Accordingly, we have resumed dividends, with an increased interim
payment, and acquisitions, with Phoenix America announced last
month and others in the pipeline.
The second half has started well with orders ahead of sales and
up on last year. With the Group's continued focus on the structural
growth markets of renewable energy, medical, electrification of
transportation and industrial & connectivity, we expect to
continue to perform ahead of wider markets and make further
progress on our strategic priorities."
Analyst and investor presentation
A virtual results briefing for analysts and investors will be
held today at 9.30am (UK time) via a live webinar.
If you would like to join the 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
Buchanan 020 7466 5000
Chris Lane, Toto Berger, Charlotte Slater
discoverIE@buchanan.uk.com
Notes:
(1) 'Underlying Operating Profit', 'Underlying EBITDA',
'Underlying Operating Costs', '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 GBP5.3m, acquisition costs of GBP0.6m
and the IAS19 pension charge relating to a legacy defined benefit
scheme of GBP0.2m) totalling GBP6.1m. Equivalent underlying
adjustments within the H1 2019/20 underlying results totalled
GBP5.2m. For further information, see notes 2 and 5 of the attached
summary financial statements.
(2) Organic growth for the Group is calculated at CER and is
shown excluding the first 12 months of acquisitions (Hobart and
Positek were both acquired on 15 April 2019 and Sens-Tech was
acquired on 16 October 2019).
(3) Growth rates at constant exchange rates ("CER"). The average
sterling rate of exchange weakened 1% against the Euro compared
with the average rate for the same period last year while
strengthening 1% against the US Dollar and by 1% on average against
the three Nordic currencies.
(4) D&M is the Group's Design & Manufacturing division.
(5) Target markets are renewable energy, medical, transportation, industrial & connectivity.
(6) 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.
(7) Free cash flow is cash flow before dividends, acquisitions and equity fund raising.
(8) Gearing ratio is defined as net debt divided by underlying
EBITDA (annualised for acquisitions). Gearing of 1.6x shown for H1
2019/20 is the proforma gearing including the acquisition of
Sens-Tech in October 2019.
(9) Unless stated, growth rates refer to the comparable prior year period.
10) The information contained within this announcement is deemed
by the Group to constitute inside information as stipulated under
the Market Abuse Regulation, Article 7 of EU Regulation 596/2014.
Upon the publication of this announcement via Regulatory
Information Service, this inside information is now considered to
be in the public domain.
Notes to Editors:
About discoverIE Group plc
discoverIE Group plc is an international group of businesses
that designs, manufactures and supplies innovative components for
electronic applications.
The Group provides application-specific components to original
equipment manufacturers ("OEMs") internationally. 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 key markets driven by structural growth and
increasing electronic content, namely renewable energy,
transportation, medical and industrial & connectivity, the
Group aims to achieve organic growth that is well ahead of GDP and
to supplement that with targeted complementary acquisitions.
The Group employs c.4,200 people and its principal operating
units are located in Continental Europe, the UK, China, Sri Lanka,
India and North America.
The Group is listed on the Main Market of the London Stock
Exchange and is in the top quartile of the FTSE Small Cap Index,
classified within the Electrical Components and Equipment
subsector, and has revenues of over GBP450m. Over the last five
years, underlying earnings per share almost doubled.
Strategic, Operational and Financial Review
Overview
The first half of this year coincided with the spread of the
COVID-19 pandemic, testing all aspects of the Group's business. The
Group's multi-site operations responded quickly, establishing safe
working practices and maintaining continuity. While the effects of
the pandemic are evident in these results, the Group's performance
has proven resilient and able to mitigate the scale of impact while
continuing to deliver on its strategic goals.
First half Group sales were 8% lower than last year organically
(7% lower in the D&M division organically and 11% lower in the
Custom Supply division), and 6% lower including acquisitions.
Performance in the target markets, which account for 68% of Group
sales, has been better than other markets which were more severely
affected.
Orders for the period were 18% lower than last year organically
as a result of uncertainty created by the pandemic. Orders
increased sequentially through the second quarter with a return to
organic growth in September of 6%, and ahead of sales. The book to
bill ratio was 0.85:1 in the first quarter, improving to 0.97:1 in
the second quarter. This resulted in a period-end order book of
GBP140m (10% lower than last year, 11% lower organically). The
second half has started well with orders for October and November
ahead of sales and up on last year.
Project design wins were 19% lower in the period with an
estimated lifetime value of GBP108m, reflecting customers' focus on
business continuity during the pandemic over new projects,
particularly in the first quarter. The second quarter saw a sharp
increase sequentially in new project activity and the project
pipeline remains at a high level with the Group well positioned to
benefit from the significant bank of design wins.
Operational cash performance was excellent, reflecting the cash
generative nature of the business. This together with a number of
prudent actions taken at the onset of the pandemic such as
suspending acquisitions and dividends, ceasing non-essential
capital expenditure, and cutting expenses and the pay of the Board
and Group management, served to reduce our gearing to the lowest
level in seven years, ensuring the Group is well positioned and
resourced to return to strong growth as market conditions
recover.
Together with these results, we have introduced a carbon
emissions reduction target, with the intention to reduce Group
emissions by 50% over five years. Along with the focus on selling
into markets that are aligned with a sustainable future, this
target reflects the Group's ongoing commitment to reducing the
impact of its operations on the environment.
COVID-19
The Group responded decisively to the emergence of the COVID-19
pandemic, prioritising the well-being of employees, supporting
customers and trading partners, developing fast solutions for
medical market customers, and maintaining business continuity. W
hilst sales in China have recovered strongly and returned to
growth, the effects have been felt across all other regions of the
business.
During the period, the Group consisted of operations in 23
countries, with 27 manufacturing facilities in 17 of those
countries across Europe, the UK, Asia and the Americas. Four
facilities (Sri Lanka, California and two in India) were required
by government mandate to close for a short period in the first
quarter and again in the second quarter. All sites are now open
with capacity approaching normal levels.
With a decentralised structure , the Group was able to adapt
quickly to establish safe working practices and appropriate
distancing measures, with each business implementing an operating
plan developed to suit its needs and welfare requirements. At its
peak, over 650 employees were working from home although this has
since reduced to around 300 employees and mixed mode working.
We took prudent actions to preserve cash and reduce operating
expenses, including:
- Deferral of non-essential capital expenditure and other discretionary spend
- Deferral of bonuses and pay rises, together with a hiring freeze
- 20% salary reduction for the Board and Group Executive Committee for three months
- Increased focus on working capital efficiency
- All acquisitions deferred, but pipeline development continued
- No final dividend proposed for the year ended 31 March 2020
These actions led to organic operating costs being 4% lower than
last year, a reduction of 7% over last year's second half run rate,
capital expenditure being c.50% lower than last year and working
capital being 9% lower than at the start of the year, helping to
achieve strong operating cash generation for the period of GBP25.7m
up 179% on last year.
Enormous effort was also deployed supporting customers in the
rapid development and supply of key components for virus-related
medical products with over 60 customer projects developed.
On behalf of the Board, we would like to thank everybody at
discoverIE for their commitment and hard work, particularly during
this unprecedented situation when their flexibility, resilience,
initiative and support have demonstrated, beyond all expectations,
their quality and capability.
W ith its focus on high quality growth markets, the Group is
well positioned for a return to strong growth as conditions recover
.
Group Results Summary
Group sales for the first half reduced by 6% to GBP217.9m, with
first half underlying operating profit, which excludes
acquisition-related costs, reducing by 11% to GBP15.8m and
underlying profit before tax by 12% to GBP13.8m.
Fully diluted share capital increased by 12% in the last 12
months, mainly as a result of the 10% equity fund raising in
October 2019, such that underlying earnings per share for the
period reduced by 22% to 11.3p (H1 2019/20: 14.4p).
After underlying adjustments for acquisition-related costs of
GBP6.1m which were higher than last year following the acquisition
of Sens-Tech in October 2019 (H1 2019/20: GBP5.2m), profit before
tax for the year on a reported basis was GBP7.7m, compared with
GBP10.4m last year with fully diluted earnings per share of 5.8p
(FY 2019/20: 9.1p).
Cash generation in the period was particularly strong. Operating
cash generation for the period was GBP25.7m (163% of underlying
operating profits, and up 179% on last year) driven by an inflow
from lower working capital as well as the swift actions taken in
response to COVID-19. Free cash flow for the period was GBP20.1m
(194% of underlying profit after tax). This resulted in a c.GBP20m
reduction in net debt over the period from GBP61.3m at 31 March
2020 to GBP42.1m at 30 September 2020, with a gearing ratio of 1.0x
reducing by 0.25x from the year end (gearing: 1.25x at 31 March
2020) and by 0.6x over the last 12 months (proforma gearing: 1.6x
at 30 September 2019 including the Sens-Tech acquisition).
On a proforma basis at 30 September 2020, including our post
period-end acquisition of Phoenix America, gearing was 1.2x. Our
target gearing range remains between 1.5x and 2.0x therefore
leaving debt capacity for further acquisitions.
Dividend
With an improving outlook, and strong cash flow, the Board is
pleased to reinstate dividends, and has declared a 6% increase in
the interim dividend to 3.15p per share (H1 2019/20: 2.97p per
share).
The Board believes that, as an acquisitive growth company,
maintaining a progressive dividend policy with a long term dividend
cover of over 3 times underlying earnings is appropriate to enable
both dividend growth and a higher level of investment from
internally generated resources.
The interim dividend is payable on 15 January 2021 to
shareholders registered on 18 December 2020.
Carbon emissions
Over the last year, we have developed our focus on
sustainability and our environmental impact and for 2020, the Group
received a rating of AA in the MSCI ESG Ratings assessment. Our
target sales markets were already well aligned to a sustainable
agenda and earlier this year, we set ourselves the goal of
achieving 85% of sales from those target markets by the end of FY
2024/25.
With these results, we are also announcing the introduction of
carbon reduction targets.
With 27 manufacturing locations in the period, the primary
source (75%) of our emissions are from purchased electricity (Scope
2 emissions). The remainder are mainly from vehicles (Scope 1).
Our plan is to reduce emissions by sourcing electricity from
renewable and lower / no carbon sources and to reduce electricity
demand through more efficient practices. This will include both
sustainably generated grid power and the installation of renewable
power sources at some of our sites.
We aim to achieve a 50% reduction in carbon emissions from our
existing businesses over 5 years. Additionally for our newly
acquired businesses, we are targeting that within the first 5 years
of ownership, at least 50% of their energy demand will be generated
from renewable sources.
Brexit
discoverIE does not anticipate a material direct impact from
Brexit. As an international Group, only 13% of sales are in the UK
with minimal cross border trade between the UK & the EU. The
majority of sales in the UK are of products manufactured outside
the EU, predominantly in Asia and the US, and are thus unaffected.
WTO rules, were they to apply, for products traded between the EU
and the UK and vice versa, would only be expected to have a minimal
impact.
Changes have been made to some warehousing and logistics to hold
a buffer stock in the country of demand to minimise the effects of
any border disruption.
Risks remain in terms of disruption leading to delayed
deliveries, softening customer demand as a result of any
uncertainty, and also from the impact from any depreciation of
Sterling which would increase import costs.
Group Strategy
The Group is a customised electronics business operating
internationally, focusing on structurally growing markets which are
driven by increasing electronic content and where there is an
essential need for our products. The Group's product range is
highly differentiated, being customised for specific applications,
supplying complex, value-added solutions for international
customers. With our target markets and global customer base, the
business is expanding beyond Europe (28% of Group sales are now
outside Europe) as well as within Europe, as we continue to build a
geographically-diverse electronics group.
Acquisitions have made a significant contribution to the
development of the D&M division as, over the last 10 years, we
have acquired 15 specialist, high margin D&M businesses which
have been integrated successfully and helped to drive our growth.
We have a well-developed and disciplined approach to acquisitions
and the use of capital, and we see significant scope for further
expansion of the D&M division with several acquisition
opportunities in development.
Our strategy comprises four elements:
1. Grow sales well ahead of GDP over the economic cycle by focusing on structural growth markets;
2. Move up the value chain by continuing to build revenues in the higher margin D&M division;
3. Acquire businesses with attractive growth prospects and strong operating margins;
4. Further internationalise the business by developing in North America and Asia.
These underpin a core objective of generating strong cash flows
from a capital-light model, and delivering long-term sustainable
returns.
Target Markets
The four focus target markets of transportation, medical,
renewable energy and industrial & connectivity, account for 73%
of D&M turnover (up 3ppts from last year) and 68% of Group
turnover (up 2ppts from last year). These markets are expected to
drive the Group's organic revenue growth well ahead of GDP over the
economic cycle and create acquisition opportunities. Growth in
these markets is driven by increasing electronic content and by
global macro trends such as an ageing affluent population and the
increasing need for renewable sources of energy.
During the first half, in the D&M division, target market
sales reduced by 5% organically with other markets reducing by 11%,
resulting in D&M organic sales being 7% lower organically than
last year. At a Group level, revenue in the target markets reduced
by 7% organically, as compared with other markets which reduced by
11%, resulting in overall Group organic reduction of 8%.
i) Renewable Energy
The increasing global requirement for clean electricity is
leading to the rapid deployment of sustainable energy generation.
So much so that, according to the International Energy Agency
(IEA), 70% of the growth (2017-23) in global electricity production
will come from renewable energy sources with the proportion of
total energy production rising to 40% globally from 25% currently.
Our focus is on wind and solar energy. We anticipate that demand
for renewable energy will accelerate further.
ii) Transportation
We focus particularly on rail and bus transportation,
electrification infrastructure and specialist vehicle
electrification, all of which are important for increasingly urban
environments and consistent with the sustainability agenda. We do
not address the passenger car market. Electronic content is
increasing driven by electrification, safety, intelligence,
automation and convenience.
iii) Medical
Driven by the increasing use of technology in diagnosing,
monitoring and controlling medical conditions, as well as an
increasingly affluent and ageing global population which now
accounts for the majority of healthcare spending in developed
economies, the medical electronics market is expected to continue
growing steadily.
iv) Industrial & Connectivity
Technology is creating opportunities for widespread connectivity
of equipment and devices, and is being increasingly adopted in
industry and automation. With a focus on sustainable markets, we
concentrate on industrial markets that are aligned with a
sustainable growth agenda and also fibre optic and wireless
connectivity applications within these markets.
Engineering-led Sales Model
Our business model has three core capabilities:
- Engineering - our primary differentiator. By understanding our
customers' design challenges we design and create products that
specifically address their needs.
- Manufacturing - we manufacture individually designed products
to a consistently high standard at one or more of our production
facilities internationally.
- Logistics - we supply our products internationally to
customers' production locations over the life of their demand,
typically for five to seven years.
We apply these capabilities to develop long term, embedded
relationships with our customers as follows:
- Understanding customer needs
By listening and understanding customers' needs, we help solve
their technical challenges to create more effective, efficient,
productive and sustainable equipment and comply with increasingly
stringent environmental, health, safety and performance
requirements.
- Enduring customer relationships
Our sales model creates a unique understanding of customers'
needs and builds long term relationships that last for many
years.
- Engineering-led solutions
By applying our extensive technical knowledge of applications
and design, our engineers create unique products for customers'
specific needs.
- Recurring revenues
Our designs are specified into our customers' system designs,
leading to multiple years of repeated monthly demand, creating
stable, recurring revenue streams.
- Regional manufacturing
Manufacturing locations in Europe, Asia and the Americas provide
regional supply for customers, reducing transit times, costs and
environmental impact as well as providing flexibility and reducing
risk of disruption.
Additionally, we acquire businesses with similar
characteristics, building our product capability and international
presence. With many customers operating internationally, it is
necessary for us to have a presence in the major regions of the
world and with the market being highly fragmented, numerous
opportunities exist for us to acquire complementary businesses.
Key Strategic and Performance Indicators
Since 2014, the Group's progress with its strategic objectives
has been measured through key strategic indicators ("KSIs"), and
progress with its financial performance has been measured through
key performance indicators ("KPIs"). Our KSI targets have been
raised as they have been achieved, and in June 2020, we set new
increased targets up to 31 March 2025.
Key Strategic Indicators
FY14 FY15 FY16 FY17 FY18 FY19 H1 H1 FY25
20 21 Target
-----
1. Increase share
of Group revenue
from D&M (1) 18% 37% 48% 52% 57% 61% 63% 65% >75%
2. Increase underlying
operating margin 3.4% 4.9% 5.7% 5.9% 6.3% 7.0% 7.6% 7.3% 12.5%
3. Build sales
beyond Europe(1) 5% 12% 17% 19% 19% 21% 24% 28% 40%
4. Target market
sales (1) n/d n/d n/d 56% 62% 66% 66% 68% 85%
(1) As a percentage of Group revenue
n/d: not disclosed
The Group has continued to make progress with its KSIs during
this period despite the impact of COVID-19.
- The higher margin D&M division delivered 65% of Group
sales, up 2ppts on the first half last year (H1 2019/20: 63%),
generating 87% of the Group's underlying operating profit
contribution (H1 2019/20: 81%); importantly, customer concentration
remains low with no single customer accounting for more than 7% of
Group sales;
- Underlying operating margin was impacted by reduced sales in
the period resulting from the global slowdown partly offset by
savings from the tight management of operating costs, reducing to
7.3% from 7.6% prior year. We aim to achieve organic margin
improvement through growth-based efficiencies and to acquire
business with margins that are higher than our D&M
division;
- Sales beyond Europe in the first half represented 28% of Group
revenue (up from 24% in H1 2019/20), partly increasing as a result
of the acquisition of Sens-Tech in October 2019 (for which c.70% of
sales in the period were outside Europe). The recent acquisition of
Phoenix in October 2020 will further increase this metric with 100%
of its revenue derived in the US. We continue to seek acquisitions
with high quality international revenues; and
- In June 2020, we introduced a new mid-term target of achieving
85% of Group sales from our target markets, namely renewable
energy, transportation, medical and industrial & connectivity.
These are all markets which have long-term growth momentum. Since
first publishing this data, target market sales have increased from
56% of Group sales in FY 2016/17 to 68% in the first half this
year, with an increase of 2ppts over this period last year. As in
previous years, sales in target markets outperformed sales in other
markets with target market sales in D&M reducing by 5%
organically compared with other markets which were 11% lower.
Key Performance Indicators
FY14 FY15 FY16 FY17 FY18 FY19 H1 H1 Target
20 21
1. Sales growth
Well ahead
CER 17% 36% 14% 6% 11% 14% 9% (6%) of GDP
Organic 2% 3% 3% (1%) 6% 8% 5% (8%)
2. Underlying
EPS growth 20% 31% 10% 13% 16% 22% 11% (22%) >10%
3. Dividend
growth 10% 11% 6% 6% 6% 6% 6%(1) 6% Progressive
4. ROCE (2) 15.2% 12.0% 11.6% 13.0% 13.7% 15.4% 15.8% 12.7% >15%
>85% of
underlying
5. Operating operating
profit conversion(2) 100% 104% 100% 136% 85% 93% 101% 159% profit
>85% of
6. Free cash underlying
conversion (2) n/d n/d n/d n/d n/d 94% 116% 174% PAT
------ ------ ------ ------ ------ ------ ------
7.Carbon emissions 50% reduction
v 2019
--------------
(1) 6% increase in the H1 2019/20 interim dividend; a final
dividend was not proposed for FY 2019/20 due to COVID-19
(2) Defined in Note 2 of the attached summary financial
statements; operating profit conversion is calculated based on last
12 months.
n/d: not disclosed
The performance of each of our Group KPIs for this period are as
follows:
- Organic sales reduced by 8%, better than GDP, driven by a
stronger performance in our D&M target markets where sales were
5% lower, compared with 11% lower in the other markets;
- Underlying EPS for the period was 22% below last year (H1
2019/20: +11%), a reflection of the equity issuance in the second
half last year as well as the impact of COVID-19 on
profitability;
- As part of the cash conservation actions taken earlier in the
year, a final dividend for last year was not paid. With greater
visibility and improving conditions, we are now resuming dividends
with an interim payment for this period, which is 6% higher than
last year's, aligned with our progressive dividend policy;
- The reduction in underlying operating profit resulting from
COVID-19 has also impacted ROCE which reduced to 12.7% (H1 2019/20:
15.8%);
- Operating cash conversion has been extremely strong at 159% of
underlying operating profit over the last 12 months, significantly
above our 85% target, reflecting tight management of working
capital and expenditure during this period. Over the last eight
years, operating cash conversion has been consistently strong both
during periods of strong organic growth and now with growth
impacted by a global pandemic;
- Strong operating cash flow has translated into strong free
cash conversion at 174% of profit after tax, being cash available
for dividends and acquisitions. This is a new target set last year
as we seek to become a business which can increasingly self-fund
its acquisitions; and
- A new target has been introduced for the reduction of carbon
emissions from our existing businesses by 50% over 5 years from the
end of 2019. Additionally for new acquisitions, we are targeting
that within the first 5 years of ownership, at least 50% of their
energy demand is generated from renewable sources.
Divisional Results
Divisional and Group performances for the half year ended 30
September 2020 are set out and reviewed below.
H1 2020/21 H1 2019/20 Revenue CER Organic
growth revenue revenue
growth growth
------------------------------
Revenue Underlying Margin Revenue Underlying Margin
GBPm operating GBPm operating
profit profit
(1) (1)
GBPm GBPm
-------- ----------- ------- -------- ----------- -------
Design &
Manufacturing 141.3 17.2 12.2% 146.6 17.6 12.0% (4%) (3%) (7%)
Custom Supply 76.6 2.5 3.3% 85.4 4.1 4.8% (10%) (11%) (11%)
Unallocated
costs (3.9) (4.0)
-------- ----------- ------- -------- ----------- ------- -------- --------- ---------
Total 217.9 15.8 7.3% 232.0 17.7 7.6% (6%) (6%) (8%)
-------- ----------- ------- -------- ----------- ------- -------- --------- ---------
(1) Underlying operating profit excludes acquisition-related
costs.
Order Book
The Group continues to retain a healthy order book of GBP140m at
30 September 2020 despite the impact of the pandemic which resulted
in a reduction of 10% CER compared with last year. On an organic
basis, the Group order book reduced by 11%, with the D&M order
book 10% lower organically than last year and the Custom Supply
order book 14% lower.
The order book is driven by repeating revenues from existing
customer projects as well as by the conversion of new project
design wins into orders. The pandemic had the effect of temporarily
shortening customers' order windows with fewer orders being placed
for delivery beyond the immediate three months ahead. Towards the
end of the period and since the period end, customers have again
started placing longer term orders. Over 80% of the order book is
for delivery within twelve months from the time of order.
Design wins
Project design wins are a measurement of new business creation.
By working with customers at an early stage in their project design
cycle, we identify opportunities for our products to be specified
into their design, which will lead to future revenue streams.
In many cases, the operational disruption for customers arising
from the pandemic had the effect of reducing their focus on new
products and maintaining revenue momentum with existing products.
This led to a 19% reduction in new product design wins to GBP108m.
Additionally, new project activity slowed sharply in the first
quarter recovering significantly in the second quarter. 90% of
design wins in the D&M division were within the target markets
and 82% for the Group overall.
Design & Manufacturing Division
The D&M division designs, manufactures and supplies highly
differentiated, innovative components for electronic applications.
Over 80% of the products are manufactured in-house, with the
division's principal manufacturing facilities being in China,
India, Mexico, the Netherlands, Poland, Slovakia, Sri Lanka,
Thailand, the US and the UK.
More resilient demand from our key target markets reduced the
impact of the pandemic with sales 7% lower organically. While
orders were 18% lower organically for the period, second quarter
orders increased by 15% sequentially, and were 10% lower
organically. September saw a return to organic order growth and
orders have continued into the third quarter at a similar level to
last year.
Growth in the period was impacted in certain markets by short
term site closures, as required by local government regulations.
Four facilities, in Sri Lanka, India (two) and the US were required
to close for a short period during the first quarter, with the
Indian and Sri Lankan facilities requiring a further short closure
in the second quarter. All are now open and operating at, or close
to, normal capacity. The closures impacted sales in these
areas.
Our Chinese facilities which were closed temporarily in the
fourth quarter of last year, have recovered well since reopening,
with Asian sales up by 4%. All other sites remained open, several
with essential supplier status and a number operated at reduced
capacity for periods during the disruption but are now approaching
normal capacity. Demand in our German businesses was resilient, and
unaffected by the regional auto decline to which we have negligible
direct exposure, with sales 1% lower than last year organically.
Sales in other territories were all impacted, including the UK
(-19%), the Nordic region (-7%), the rest of Europe (-13%) and
North America (-8%). Asia and North America now account for 38% of
D&M revenues (H1 2019/20: 34%), up from 22% five years ago.
Organic sales reduced by 7% for the division combined with a 4%
sales increase from acquisitions, resulting in overall sales for
the first half of GBP141.3m being 3% lower than last year (H1
2019/20: GBP146.6m).
Divisional revenue was 65% of Group revenue, an increase of
2ppts over last year (H1 2019/20: 63%) and further good progress
towards our mid-term target for D&M to exceed 75% of Group
revenue.
Underlying operating profit of GBP17.2m was GBP0.4m (2%) lower
than last year (H1 2019/20: GBP17.6m) and GBP0.2m (1%) lower at
CER, and represents 87% of the Group's underlying profit
contribution, up 6ppts on last year (H1 2019/20: 81%).
The underlying operating margin of 12.2% was 0.2ppts higher than
last year (H1 2019/20: 12.0%) reflecting the positive mix effect of
operating efficiencies and higher margin acquisitions offsetting
the impact of lower sales.
Acquisitions
Typically, the businesses we acquire are led by entrepreneurial
leaders who wish to remain following acquisition. We encourage this
as it helps retain a decentralised, entrepreneurial culture. The
market is highly fragmented with many opportunities to acquire and
consolidate.
We acquire businesses that are successful and profitable with
good growth prospects and where we invest for growth and
operational performance development. According to the
circumstances, we add value in some of or all of the following
areas:
- Internationalising sales channels and expanding the customer
base, including via Group cross-selling initiatives and focussing
sales development onto target market areas;
- Developing and expanding the product range;
- Investing in management capability ('scaling up') and succession planning;
- Capital investment in manufacturing and infrastructure;
- Improving manufacturing efficiency;
- Enabling growth with larger customers;
- Infrastructure efficiencies, such as warehousing and freight;
- Finance & administrative support, such as treasury,
banking, legal, pension, tax & insurance, risk & control;
and
- Expanding the business through further acquisitions.
Since the period end, the Group announced in October, the
acquisition of the trade and assets of Phoenix America Inc
("Phoenix"), a US designer and manufacturer of magnetically
actuated sensors, encoders and related products. Phoenix was
acquired for an initial cash consideration of $11.0m (GBP8.5m) on a
debt free, cash free basis and a contingent payment of up to $1.5m
(GBP1.2m), subject to the achievement of certain growth targets
over a three year period.
Based in Fort Wayne, Indiana, the business is well aligned with
our core technologies and will operate within the Variohm business
cluster in the D&M division, retaining its distinct brand
identity and high-quality management. Their complementary product
range and wider access to customers will create cross-selling
opportunities in our target markets and drive further growth. We
are delighted to welcome their employees into the Group.
Prior to the recent Phoenix transaction, the Group had
successfully completed 14 acquisitions in the D&M division
since 2011, which have contributed to growth in revenues in the
D&M division from GBP15m in FY13 to GBP298m in FY20 resulting
in Group operating margins increasing by 5ppts to 8% over the same
period. 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, had delivered an
average return on investment of 17% by FY 2019/20 over the life of
those acquisitions, ahead of our target of 15%.
Custom Supply Division
The Custom Supply division provides customised electronic,
photonic and medical products for technically demanding
applications in industrial, medical and healthcare markets. The
business operates similarly to the D&M division, but with
products that are mostly sourced from third party suppliers rather
than manufactured in-house. As such, operating margins are lower
than in the D&M division. Additionally, the division acts as a
sales channel through which to grow sales of D&M products.
The division comprises two businesses, Acal BFi and Vertec. Acal
BFi supplies industrial markets and accounts for most of Custom
Supply divisional revenue. It supplies products from a group of
manufacturers (including the Group's D&M businesses) to
customers in five technology areas: Communications & Sensors,
Power & Magnetics, Electromechanical & Cabling,
Microsystems, and Imaging & Photonics. The business operates
across Europe, with centralised warehousing, purchasing and
finance, supplier contact management and IT systems. Vertec
supplies exclusively sourced medical imaging and radiotherapy
products into medical and healthcare markets in the UK and South
Africa.
The division's trading in the first half was more impacted by
the pandemic than D&M, due to sales being predominately in
Europe and with a lower percentage of sales in the more resilient
target markets (59% of sales in target markets in Custom Supply
compared with 72% in D&M). R eported divisional revenue was 10%
lower than last year at GBP76.6m (H1 2019/20: GBP85.4m). Underlying
operating profit of GBP2.5m was GBP1.6m lower than last year (H1
2019/20: GBP4.1m) while the underlying operating margin reduced to
3.3% (H1 2019/20: 4.8%) as a result of the drop through of reduced
revenues offset in part by cost saving actions which reduced
operating expenditure by 6% compared with last year.
Group Financial Results
Revenue and Orders
Reflecting the impact of the global pandemic across the Group,
sales of GBP217.9m were 8% lower organically than last year (H1
2019/20: GBP232.0m), and with the acquired business of Sens-Tech
adding 2%, overall sales reduced by 6% CER and with minimal net FX
translation impact, by 6% on a reported basis also.
FY
GBPm 2020/21 FY 2019/20 %
Reported revenue 217.9 232.0 (6%)
FX translation impact (0.8)
----------- -----
Underlying revenue (CER) 217.9 231.2 (6%)
Acquisitions (5.5) -
Organic revenue 212.4 231.2 (8%)
Group orders reduced by 18% organically to GBP198.7m with a book
to bill ratio of 0.91, with a low point in the first quarter (with
a book to bill ratio of 0.85) improving through the second quarter
(with a book to bill ratio of 0.97), ending with September up 6%
organically with a monthly book to bill ratio of 1.04.
Gross Margin and Gross Profit
Group gross margin increased 0.3ppts in the first half to 33.7%
(H1 2019/20: 33.4%). This is the highest Group gross margin since
the current strategy was started ten years ago. Underlying gross
margin was marginally down by 0.3ppts, with high gross margin
acquisitions adding 0.6ppts.
Gross profit for the period was GBP73.4m, 5% lower than last
year (H1 2019/20: GBP77.4m).
The Group continues with its policy of hedging transactions from
the point of order through to payment, typically hedging around six
months of the order book.
Underlying Operating Costs
At the outset of the pandemic, the Group took prudent actions to
preserve cash and reduce expenditure including deferral of
discretionary spend, deferral of pay rises, a hiring freeze, and a
three month 20% salary reduction for the Board and Group Executive,
the effect of which was to reduce Group underlying operating costs
by 4% organically and by 7% compared with the second half run rate
from last year.
GBPm H1 2020/21 H1 2019/20 %
Organic operating costs 57.0 59.4 (4%)
Acquisition operating
costs 0.6
----------- -----
Underlying operating
costs (CER) 57.6 59.4 (3%)
FX translation 0.3
Underlying adjustments
(see below) 6.1 5.1
Reported operating costs 63.7 64.8 (2%)
GBPm H1 2020/21 H1 2019/20
Selling and distribution
costs 27.6 29.5
Administrative expenses 36.1 35.3
----------- -----------
Reported operating costs 63.7 64.8
----------- -----------
Group Operating Profit and Margin
Group underlying operating profit for the period was GBP15.8m, a
reduction of GBP1.9m on last year (H1 2019/20: GBP17.7m),
delivering a Group underlying operating margin of 7.3%, 0.3ppts
lower than last year (H1 2019/20: 7.6%).
Reported Group operating profit for the period (after accounting
for the underlying adjustments discussed below) was GBP9.7m,
GBP2.9m lower than last year.
GBPm H1 2020/21 H1 2019/20
Operating Finance Profit Operating Finance Profit
profit Cost before profit cost before
tax tax
---------- ---------- -------- --------
Underlying 15.8 (2.0) 13.8 17.7 (2.1) 15.6
Underlying adjustments
Acquisition expenses (0.6) - (0.6) (1.4) - (1.4)
Amortisation of acquired
intangibles (5.3) - (5.3) (3.6) - (3.6)
IAS 19 pension cost (0.2) - (0.2) (0.1) (0.1) (0.2)
Reported 9.7 (2.0) 7.7 12.6 (2.2) 10.4
Underlying Adjustments
Underlying adjustments for the period comprise acquisition
expenses of GBP0.6m (H1 2019/20: GBP1.4m), the amortisation of
acquired intangibles of GBP5.3m (H1 2019/20: GBP3.6m) and the IAS19
legacy pension cost of GBP0.2m (H1 2019/20: GBP0.2m).
Acquisition expenses of GBP0.6m are mainly the accrued
contingent consideration costs relating to the acquisition of
Cursor Controls (acquired in October 2018) and Sens-Tech (acquired
in October 2019). The GBP1.7m increase in the amortisation charge
since last year to GBP5.3m relates to the amortisation of
intangibles acquired with Sens-Tech.
Financing Costs
For the half year, total finance costs were GBP2.0m (H1 2019/20:
GBP2.2m). This year's charge comprises underlying finance costs
(being interest and facility fees arising from the Group's banking
facilities) of GBP1.7m (H1 2019/20: GBP1.8m) and an IFRS 16
interest charge of GBP0.3m in line with last year. Last year, there
was additionally a GBP0.1m interest charge relating to the IAS19
legacy pension finance charge.
Underlying finance costs for the period of GBP1.7m were GBP0.1m
lower than last year due to lower average net debt this year
compared with last year.
Underlying Tax Rate
The underlying effective tax rate for the first half was 25%,
1ppt higher than last year's rate due to increased profits in
Asia.
The overall effective tax rate of 31% (H1 2019/20: 28%) was
higher than the underlying effective tax rate due to there being no
tax relief on acquisition costs and a lower rate of tax on
amortisation of acquired intangibles (within underlying adjustments
above).
Profit Before Tax and EPS
Underlying profit before tax for the period of GBP13.8m was
GBP1.8m lower than last year (H1 2019/20: GBP15.6m), with
underlying EPS for the period reducing to 11.3p (H1 2019/20:
14.4p). The reduction in underlying EPS (22%) was higher than that
for underlying profit before tax (12%) due to the issuance of 10%
new equity, both in April 2019 and in October 2019, increasing
fully diluted shares by 12% to 92.2m shares (H1: 2019/20: 82.5m
shares)
After the underlying adjustments above, reported profit before
tax was GBP7.7m, a reduction of GBP2.7m compared with last year (H1
2019/20: GBP10.4m) with reported fully diluted earnings per share
of 5.8p reducing by 3.3p compared with last year (H1 2019/20:
9.1p).
GBPm H1 2020/21 H1 2019/20
PBT EPS PBT EPS
------ ------ ------
Underlying 13.8 11.3p 15.6 14.4p
Underlying adjustments
Acquisition expenses (0.6) (1.4)
Amortisation of acquired
intangibles (5.3) (3.6)
IAS 19 pension cost (0.2) (0.2)
Reported 7.7 5.8p 10.4 9.1p
Working Capital
Working capital at 30 September 2020 was GBP64.5m, equivalent to
14.7% of annualised second quarter sales at CER and was GBP6.4m
(9%) lower than at the year-end (31 March 2020: GBP70.9m and 14.4%
of last year's annualised fourth quarter sales). This reduction is
partly due to the lower demand in the period with organic sales
reducing by 8%, and partly reflects tight management across the
Group, with debtor days reducing 1 day to 51 days and creditor days
increasing by 2 days to 65 days. Due to the lower sales, stock
turns reduced by 0.9 turns to 4.3 turns. Compared to last year,
working capital was 20% lower (30 September 2019: GBP81.2m),
principally driven by debtor days which were 5 days lower.
The D&M division working capital was 17.7% of sales (FY
2019/20: 17.7%; H1 2019/20: 21.0%) and in Custom Supply was 13.1%
of sales (FY 2019/20: 11.1%; H1 2019/20: 13.1%).
Cash Flow
Net debt at 30 September 2020 was GBP42.1m compared with
GBP61.3m at 31 March 2020 and GBP55.4m at 30 September 2019.
Excluding spend on acquisitions and the equity raised in the second
half last year, net debt reduced by GBP39.1m in the last 12 months,
equating to well over 100% of underlying operating profits,
demonstrating continuing strong cash generation by the Group.
H1 Last 12
H1 Months
2020/21 2019/20
Opening net debt (61.3) (63.3) (55.4)
Free cash flow (see
table below) 20.1 4.3 43.1
Acquisition related
cash flow (0.2) (18.0) (58.1)
Equity issuance - 28.2 32.3
Dividends - (5.4) (2.7)
Foreign exchange impact (0.7) (1.2) (1.3)
Net debt at 30 Sept (42.1) (55.4) (42.1)
With dividends and acquisitions put on hold as part of our
COVID-19 cash preservation measures, the only outflow this period
was GBP0.2m of acquisition expenses. This compares with a GBP5.4m
final dividend payment last year in respect of the year ended 31
March 2019 together with GBP18.0m of acquisition related cash flow,
largely in respect of the acquisitions of Hobart and Positek in
April last year. The acquisition outflow of GBP58.1m in the last 12
months is mainly the Sens-Tech acquisition in October 2019.
Operating cash flow and free cash flow (see definitions in note
2 to the interim financial statements) for the period, compared
with the first half of last year, and for the last 12 months, are
shown below:
H1 H1 Last 12
GBPm 2020/21 2019/20 Months
Underlying profit
before tax 13.8 15.6 31.0
Finance costs 2.0 2.2 4.1
Non-cash items* 6.9 6.4 14.0
--------- --------- --------
Underlying EBITDA 22.7 24.2 49.1
Working capital 7.9 (8.5) 18.0
Capital expenditure (1.5) (3.2) (4.6)
IFRS 16 (3.4) (3.3) (6.7)
--------- --------- --------
Operating cash flow 25.7 9.2 55.8
Finance costs (1.7) (1.9) (3.5)
Taxation (3.0) (2.1) (7.3)
Legacy pensions (0.9) (0.9) (1.8)
Executive share option
exercises - - (0.1)
Free cash flow 20.1 4.3 43.1
* Non-cash items are depreciation, amortisation and share based
payments. Includes GBP3.4m IFRS 16 depreciation for H1 2020/21 (H1
2019/20: GBP3.1m)
Underlying EBITDA of GBP22.7m was 6% lower than last year (H1
2019/20: GBP24.2m). With a heightened focus on working capital
optimisation during the period and partly as a result of an 8%
reduction in organic sales, a GBP7.9m inflow was generated from
working capital compared with an outflow of GBP8.5m last year
driven by a 7% organic increase in D&M sales. In total GBP18.0m
of cash has been generated from working capital in the last 12
months. With sales expected to increase sequentially in the second
half of the year, investment will be required into working
capital.
Capital expenditure was also restricted during the period to
mainly maintenance costs giving a 53% reduction to GBP1.5m (H1
2019/20: GBP3.2m). Capital expenditure levels are expected to
increase in the second half to around GBP4.0m spend for the full
year.
With the various cash conservation measures taken this period,
GBP25.7m of operating cash was generated in the first half;
together with GBP30.1m generated in the second half of last year.
The total of GBP55.8m of operating cash generated over the last 12
months, was an increase of 65% over last year (12 month operating
cash to 30 Sept 2019: GBP33.8m). This represents 159% of underlying
operating profit during that period, well above our 85% target.
Over the last 7 years, the Group has consistently achieved high
levels of cash conversion averaging in excess of 100%.
Finance cash costs of GBP1.7m were GBP0.2m lower than last year
due to reduced average net debt balances in the period. Tax
payments of GBP3.0m were GBP0.9m higher than the first half last
year, reflecting last year's increased Group profitability. Further
payment of taxes in the second half of c.GBP4.5m is expected.
Free cash flow (being cash flow before dividends, acquisitions
and equity) for the last 12 months was GBP43.1m an increase of 63%
over the prior 12 month period (H1 2019/20: GBP26.4m). Our free
cash conversion over the last 12 months was 174% of profit after
tax, again well ahead of our 85% target.
Banking Facilities
The Group has a GBP180m syndicated banking facility which
extends to June 2024, together with a GBP60m accordion increasing
the total facility to GBP240m if required. The syndicated facility
is available both for acquisitions and for working capital
purposes.
With net debt at 30 September 2020 of GBP42.1m, the Group's
gearing ratio at the end of the period (being net debt divided by
underlying EBITDA as annualised for acquisitions) was 1.0x.
Including the post period-end acquisition of Phoenix America Inc,
pro-forma gearing at 30 September 2020 increased to 1.2x, with our
target gearing range being between 1.5x and 2.0x, so plenty of debt
capacity for further acquisitions.
Balance Sheet
Net assets of GBP207.0m at 30 September 2020 were GBP6.5m higher
than at the end of the last financial year (31 March 2020:
GBP200.5m). The increase primarily relates to the net profit after
tax for the period of GBP5.3m. The movement in net assets is
summarised below:
H1
GBPm 2020/21
Net assets at 31 March
2020 200.5
Net profit after tax 5.3
Currency net assets -
translation impact 3.3
Loss on defined benefit
scheme (2.9)
Share based payments
(inc tax) 0.8
Net assets at 30 Sep
2020 207.0
Defined Benefit Pension Scheme
The Group's IAS19 pension liability, associated with its legacy
defined benefit pension scheme, reduced during the last 12 months
by GBP0.6m from GBP1.7m at 30 September 2019 to GBP1.1m at 30
September 2020.
Corporate bond yields temporarily increased due to the COVID-19
situation around the year ended 31 March 2020 converting the net
liability at 30 September 2019 to a net asset at 31 March 2020 of
GBP1.8m. Since the year end, corporate bond yields reverted back to
previous levels resulting in a net liability at 30 September
2020.
Annual payments of GBP1.8m are payable, growing by 3% each year
until September 2022 in accordance with the plan agreed with the
pension trustees as part of the most recent triennial valuation.
The next triennial valuation will be as at 31 March 2021.
Risks and Uncertainties
The principal risks faced by the Group are set out on pages 50
to 55 of the Group's Annual Report for year ended 31 March 2020, a
copy of which is available on the Group's website:
www.discoverieplc.com. These risks include, but are not limited to:
the economic environment, particularly linked to the impact of
COVID-19; the impact arising from the UK's decision to leave the
European Union; the performance of acquired companies; loss of
major customers or suppliers; technological change; major business
disruption; cyber security; inventory obsolescence; product
liability; liquidity and debt covenants; exposure to adverse
foreign currency movements; obligations in respect of a legacy
defined benefit pension scheme; loss of key personnel; and
non-compliance with legal and regulatory requirements.
The Group's risk management processes cover identification,
impact assessment, likely occurrence and mitigation actions. 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 and committed banking facility of
GBP180m.
Summary and Outlook
The Group took quick action to reduce costs and preserve cash as
the pandemic spread, and with our focus on structural growth
markets and a flexible operating structure, we have delivered a
resilient performance whilst preserving the capabilities to benefit
from conditions as they improve.
Cash generation was excellent with GBP43m of free cash flow over
the last 12 months reducing gearing to 1.0x from 1.6x. As well as
reinforcing the cash generating capability of our businesses and
the strength of the operating model, this provides us with the
capacity to pursue further value enhancing initiatives.
Accordingly, we have resumed dividends, with an increased interim
payment, and acquisitions, with Phoenix America announced last
month and others in the pipeline.
The second half has started well with orders ahead of sales and
up on last year. With the Group's continued focus on the structural
growth markets of renewable energy, medical, electrification of
transportation and industrial & connectivity, we expect to
continue to perform ahead of wider markets and make further
progress on our strategic priorities.
Nick Jefferies
Group Chief Executive
Simon Gibbins
Group Finance Director
30 November 2020
Condensed consolidated income statement
for the six months ended 30 September
2020
Unaudited Unaudited
six months six months Audited
ended ended year
30 Sept 30 Sept ended
2020 2019 31 Mar 2020
Notes GBPm GBPm GBPm
Revenue 4 217.9 232.0 466.4
Cost of sales (144.5) (154.6) (309.7)
-------------------------------------------- -------- ------------- ------------ -------------
Gross profit 73.4 77.4 156.7
Selling and distribution costs (27.6) (29.5) (58.1)
Administrative expenses (including
underlying adjustments) (36.1) (35.3) (74.8)
Operating profit 4 9.7 12.6 23.8
Finance revenue 0.1 0.2 0.6
Finance costs (2.1) (2.4) (4.9)
Profit before tax 7.7 10.4 19.5
Tax expense 6 (2.4) (2.9) (5.2)
Profit for the period 5.3 7.5 14.3
-------------------------------------------- -------- ------------- ------------ -------------
Earnings per share
Basic 8 6.0p 9.4p 17.0p
Diluted 8 5.8p 9.1p 16.5p
-------------------------------------------- -------- ------------ -------------
Supplementary income statement
information
Unaudited Unaudited Audited
six months six months year
ended ended ended
Underlying Performance Measure Notes 30 Sept 30 Sept 31 Mar 2020
2020 2019 GBPm
GBPm GBPm
Operating profit 4 9.7 12.6 23.8
Add: Acquisition costs 5 0.6 1.4 4.0
Amortisation of acquired intangible
assets 5 5.3 3.6 9.0
IAS 19 pension administrative
charge 0.2 0.1 0.3
-------------------------------------------- -------- ------------- ------------ -------------
Underlying operating profit 15.8 17.7 37.1
-------------------------------------------- -------- ------------- ------------ -------------
Profit before tax 7.7 10.4 19.5
Add: Acquisition costs 5 0.6 1.4 4.0
Amortisation of acquired intangible
assets 5 5.3 3.6 9.0
Total IAS 19 pension charge 5 0.2 0.2 0.3
Underlying profit before tax 13.8 15.6 32.8
-------- ------------- ------------
Underlying earnings per share
Diluted 8 11.3p 14.4p 30.2p
Condensed consolidated statement of comprehensive income
for the six months ended 30 September 2020
Unaudited Unaudited
six months six months Audited
ended ended year
30 Sept 30 Sept ended
2020 2019 31 Mar 2020
GBPm GBPm GBPm
--------------------------------------------- ------------ ------------ -------------
Profit for the period 5.3 7.5 14.3
--------------------------------------------- ------------ ------------ -------------
Other comprehensive (loss)/income:
Items that will not be subsequently
reclassified to profit or loss:
Re-measurement (loss)/gain on defined
benefit pension scheme (3.6) 0.2 2.4
Deferred tax credit/(charge) relating
to defined benefit pension scheme 0.7 - (0.5)
--------------------------------------------- ------------ ------------ -------------
(2.9) 0.2 1.9
--------------------------------------------- ------------ ------------ -------------
Items that may be subsequently reclassified
to profit or loss:
Exchange differences on translation
of foreign subsidiaries 3.3 3.0 (4.6)
3.3 3.0 (4.6)
--------------------------------------------- ------------ ------------ -------------
Other comprehensive income/(loss)
for the period, net of tax 0.4 3.2 (2.7)
--------------------------------------------- ------------ ------------ -------------
Total comprehensive income for the
period, net of tax 5.7 10.7 11.6
--------------------------------------------- ------------ ------------ -------------
Condensed consolidated statement of financial position
at 30 September 2020
Unaudited Unaudited Audited
at 30 Sept at 30 Sept at 31 March
Notes 2020 2019 2020
GBPm GBPm GBPm
------------------------------- -------- ------------ ------------ -------------
Non-current assets
Property, plant and equipment 24.6 25.4 25.2
Intangible assets - goodwill 119.7 94.5 117.3
Intangible assets - other 59.8 38.8 64.9
Right of use assets 20.6 17.8 21.1
Defined benefit surplus 11 - - 1.8
Deferred tax assets 7.5 5.7 6.1
------------------------------- -------- ------------ ------------ -------------
232.2 182.2 236.4
------------------------------- -------- ------------ ------------ -------------
Current assets
Inventories 69.3 72.2 68.4
Trade and other receivables 80.4 92.8 90.1
Current tax assets 2.1 1.3 2.1
Cash and cash equivalents 10 30.3 24.9 36.8
------------------------------- -------- ------------ ------------ -------------
182.1 191.2 197.4
------------------------------- -------- ------------ ------------ -------------
Total assets 414.3 373.4 433.8
Current liabilities
Trade and other payables (85.2) (83.8) (87.6)
Other financial liabilities (3.6) (2.1) (4.3)
Lease liabilities (5.2) (6.7) (5.3)
Current tax liabilities (6.5) (7.6) (5.5)
Provisions (1.1) (0.7) (0.9)
------------------------------- -------- ------------ ------------ -------------
(101.6) (100.9) (103.6)
------------------------------- -------- ------------ ------------ -------------
Non-current liabilities
Trade and other payables (3.7) (1.9) (3.1)
Other financial liabilities (68.8) (78.2) (93.8)
Lease liabilities (14.8) (11.2) (14.7)
Pension liability 11 (1.1) (1.7) -
Provisions (4.7) (3.3) (4.7)
Deferred tax liabilities (12.6) (7.4) (13.4)
(105.7) (103.7) (129.7)
------------------------------- -------- ------------ ------------ -------------
Total liabilities (207.3) (204.6) (233.3)
------------------------------- -------- ------------ ------------ -------------
Net assets 207.0 168.8 200.5
------------------------------- -------- ------------ ------------ -------------
Equity
Share capital 4.4 4.1 4.4
Share premium account 138.8 106.9 138.8
Merger reserve 22.7 2.9 22.7
Currency translation reserve 1.1 5.4 (2.2)
Retained earnings 40.0 49.5 36.8
Total equity 207.0 168.8 200.5
------------------------------- -------- ------------ ------------ -------------
Condensed consolidated statement of changes in equity
for the six months ended 30 September 2020
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 2020 4.4 138.8 22.7 (2.2) 36.8 200.5
Profit for the period - - - - 5.3 5.3
Other comprehensive
income - - - 3.3 (2.9) 0.4
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Total comprehensive
income - - - 3.3 2.4 5.7
Share-based payments - - - - 0.8 0.8
At 30 September 2020
- unaudited 4.4 138.8 22.7 1.1 40.0 207.0
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
At 1 April 2019 3.7 106.9 2.9 2.4 18.8 134.7
Profit for the period - - - - 7.5 7.5
Other comprehensive
income - - - 3.0 0.2 3.2
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Total comprehensive
income - - - 3.0 7.7 10.7
Shares issued 0.4 - - - 27.8 28.2
Share-based payments - - - - 0.6 0.6
Dividends - - - - (5.4) (5.4)
---------- ---------- ---------- ------------- ----------- ---------
At 30 September 2019
- unaudited 4.1 106.9 2.9 5.4 49.5 168.8
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
At 1 April 2019 3.7 106.9 2.9 2.4 18.8 134.7
Profit for the period - - - - 14.3 14.3
Other comprehensive
loss - - - (4.6) 1.9 (2.7)
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Total comprehensive
income - - - (4.6) 16.2 11.6
Shares issued 0.7 31.9 27.9 - - 60.5
Share-based payments - - - - 1.8 1.8
Transfer to retained
earnings - - (8.1) - 8.1 -
Dividends - - - - (8.1) (8.1)
---------- ---------- ---------- -------------
At 31 March 2020 -
audited 4.4 138.8 22.7 (2.2) 36.8 200.5
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Condensed consolidated statement of cash flows
for the six months ended 30 September 2020
Unaudited Unaudited
six months six months Audited
ended ended year
30 Sept 30 Sept ended
2020 2019 31 Mar 2020
Notes GBPm GBPm GBPm
---------------------------------------------- ------ ------------ ------------ -------------
Net cash inflow from operating activities 9 24.7 9.3 37.4
Investing activities
Acquisitions of shares in subsidiaries
and businesses - (15.7) (72.6)
Acquisition related contingent consideration - (1.0) (1.0)
Purchase of property, plant and equipment (1.3) (2.7) (5.3)
Purchase of intangible assets - software (0.2) (0.5) (1.0)
Interest received 0.1 0.2 0.5
Net cash used in investing activities (1.4) (19.7) (79.4)
---------------------------------------------- ------ ------------ ------------ -------------
Financing activities
Net proceeds from the issue of shares - 28.2 60.5
Proceeds from borrowings - 18.5 41.9
Repayment of borrowings (26.6) (26.2) (31.3)
Principal element of lease payments (3.1) (3.0) (6.0)
Interest paid on lease liabilities (0.3) (0.3) (0.6)
Dividends paid - (5.4) (8.1)
Net cash (absorbed)/generated from
financing activities (30.0) 11.8 56.4
---------------------------------------------- ------ ------------ ------------ -------------
Net (decrease)/increase in cash and
cash equivalents (6.7) 1.4 14.4
Cash and cash equivalents at beginning
of period 34.8 20.8 20.8
Net foreign exchange differences 0.4 0.2 (0.4)
---------------------------------------------- ------ ------------ ------------ -------------
Cash and cash equivalents at end
of period 28.5 22.4 34.8
---------------------------------------------- ------ ------------ ------------ -------------
Reconciliation to cash and cash equivalents
in the condensed consolidated statement
of financial position
Cash and cash equivalents shown above 28.5 22.4 34.8
Add bank overdrafts 1.8 2.5 2.0
Cash and cash equivalents in the
condensed consolidated statement
of financial position 30.3 24.9 36.8
---------------------------------------------- ------ ------------ ------------ -------------
Further information on the condensed consolidated statement of
cash flows is provided in notes 9 and 10.
1. Corporate information
discoverIE Group plc ("the Company") is incorporated and
domiciled in England and Wales. 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 interim condensed consolidated financial statements for the
six months ended 30 September 2020 were authorised for issue by the
Board of Directors on 30 November 2020. They do not constitute
statutory accounts within the meaning of Section 434 of the
Companies Act 2006, and are unaudited.
2. Basis of preparation and accounting policies
The interim condensed consolidated financial statements for the
six months to 30 September 2020 have been prepared in accordance
with the Disclosure and Transparency Rules (DTR) of the Financial
Conduct Authority and IAS 34 'Interim Financial Reporting' as
adopted by the European Union. They do not include all the
information and disclosures required in the annual financial
statements, and should be read in conjunction with the Group's
annual financial statements for the year ended 31 March 2020, which
were prepared in accordance with IFRS as adopted by the European
Union.
The results for the year ended 31 March 2020 are based on
audited statutory consolidated financial statements prepared in
accordance with IFRS as adopted by the European Union. These
financial statements were filed with the Registrar of Companies and
contain a report of the auditor, which was unqualified and which
does not contain a statement under section 498 of the Companies Act
2006. The consolidated financial statements of the Group for the
year ended 31 March 2020 ("FY20 Annual Accounts") are available on
request from the Company's registered office or on its website.
As at 30 September 2020 the Group's financial position remains
robust with a GBP180m syndicated banking facility which extends to
June 2024, together with a GBP60m accordion increasing the total
facility to GBP240m if required. Net debt at 30 September 2020 is
GBP42.1m compared with GBP61.3m at the year-end, following a period
of strong cash generation. The Group's gearing ratio at the end of
the period (being net debt divided by underlying EBITDA as
annualised for acquisitions) is 1.0x compared with 1.25x at the
year-end (1.6x pro-forma at 30 September 2019 including the
Sens-tech acquisition). Including the post period-end acquisition
of Phoenix America Inc, pro-forma gearing at 30 September 2020
increased to 1.2x. This compares with a financial covenant of less
than 3.0x.
In May 2020 a base case scenario was prepared, the "May
Forecast". The May forecast was a consolidation of sales, profits,
working capital and cash flow made by each operating entity and
head office, factoring in each business's view of COVID-19 this
financial year. Details of this scenario is set out on page 48 of
the Annual Report and Accounts for the year-ended 31 March
2020.
As at 30 September 2020 the base case scenario was reviewed and
updated. The revised forecast reflects the resilient performance of
the Group in dealing with the challenges of COVID-19 and the
reduction of net debt in the first half of the year. The revised
base case includes plausible downside scenarios in the second half
of the year which could be caused by a greater impact of
COVID-19.
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
financial statements.
The principal accounting policies adopted in the preparation of
these interim condensed consolidated financial statements are
included in the consolidated financial statements for the year
ended 31 March 2020. All other accounting policies have been
consistently applied to all periods presented. The significant
estimates and judgements made by management in preparing the
financial information were consistent with those applied to the
consolidated financial statements for the year ended 31 March
2020.
Underlying Performance Measures
The Group uses a number of alternative non Generally Accepted
Accounting Practice ("non-GAAP") financial measures which are not
defined within IFRS. The Directors use these measures in order to
assess the underlying operational performance of the Group and, as
such, these measures are important and should be considered
alongside the IFRS measures. The following non-GAAP measures are
referred to in these interim condensed consolidated financial
statements.
Underlying operating profit
"Underlying operating profit" is defined as operating profit
excluding acquisition related expenditure (namely amortisation of
acquired intangible assets, acquisition costs and the IAS19 pension
administrative charge relating to the Group's legacy defined
benefit pension scheme).
Acquisition costs comprise all attributable costs in connection
with business acquisitions and related integration into the Group.
They include contingent consideration where it is treated as an
expense and movement in contingent consideration where it is
treated as purchase price outside of the 12 month measurement
period.
Underlying EBITDA
"Underlying EBITDA" is defined as underlying operating profit
with depreciation, amortisation and equity settled share-based
payment expense added back.
Underlying profit before tax
"Underlying profit before tax" is defined as profit before tax
excluding acquisition related expenditure (namely amortisation of
acquired intangible assets, acquisition costs and the total IAS19
pension charge relating to the Group's legacy defined benefit
pension scheme).
Underlying effective tax rate
"Underlying effective tax rate" is defined as the effective tax
rate on underlying profit before tax.
Underlying earnings per share
"Underlying earnings per share" is calculated as underlying
profit before tax reduced by the underlying effective tax rate,
divided by the weighted average number of ordinary shares (for
diluted earnings per share purposes) in issue during the
period.
Operating cash flow
"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 IFRS 16 lease costs.
Free cash flow
"Free cash flow" is defined as net cash flow before dividend
payments, net proceeds from equity fund raising, the cost of
acquisitions and proceeds from business disposals.
Return On Capital Employed ("ROCE")
"ROCE" is defined as underlying operating profit as a percentage
of net assets plus net debt, including an annualisation for
acquisitions.
Organic basis
Reference to 'organic' basis included in the Strategic,
Operational and Financial Review means at constant exchange rates
("CER"), and is shown excluding the first 12 months of acquisitions
(Hobart and Positek were both acquired on 15 April 2019 and
Sens-Tech was acquired on 16 October 2019).
3. New accounting standards and financial reporting
requirements
New standards not yet effective
There are no IFRSs or IFRIC interpretations that are not yet
effective that would be expected to have a material impact on the
Group in the current or future reporting periods.
4. Segmental reporting
The Group organises its businesses into two divisions, Design
& Manufacturing and Custom Supply:
-- The Design & Manufacturing division manufactures custom
electronic products that are uniquely designed or modified from a
standard product for a specific customer requirement. The products
are manufactured at one of our in-house manufacturing facilities
or, in some cases, by third party contractors.
-- The Custom Supply division provides technically demanding,
customised electronic, photonic and medical products to the
industrial, medical and healthcare markets, both from a range of
high-quality, international suppliers (often on an exclusive basis)
and from discoverIE's Design & Manufacturing division .
These two divisions have been assessed as the reportable
operating segments of the Group. Within each reportable operating
segment are aggregated business units with similar characteristics
such as the method of acquiring products for sale (manufacturing
versus supply), the nature of customers and 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 without allocation of central administration costs
including directors' salaries, investment revenue and finance
costs, and income tax expense.
Six months to 30 September 2020 - unaudited
Design & Custom Unallocated Total
Manufacturing Supply costs operations
GBPm GBPm GBPm GBPm
Revenue 141.3 76.6 - 217.9
------------------------------------ --------------- -------- ------------ ------------
Underlying operating profit/(loss) 17.2 2.5 (3.9) 15.8
Acquisition costs (0.6) - - (0.6)
Amortisation of acquired
intangible assets (5.3) - - (5.3)
IAS 19 pension charge - - (0.2) (0.2)
Operating profit/(loss) 11.3 2.5 (4.1) 9.7
------------------------------------ --------------- -------- ------------ ------------
Six months to 30 September 2019 - unaudited
Design & Custom Unallocated Total
Manufacturing Supply costs operations
GBPm GBPm GBPm GBPm
Revenue 146.6 85.4 - 232.0
------------------------------------ --------------- -------- ------------ ------------
Underlying operating profit/(loss) 17.6 4.1 (4.0) 17.7
Acquisition costs (1.4) - - (1.4)
Amortisation of acquired
intangible assets (3.6) - - (3.6)
IAS 19 pension charge - - (0.1) (0.1)
------------------------------------
Operating profit/(loss) 12.6 4.1 (4.1) 12.6
------------------------------------ --------------- -------- ------------ ------------
Year to 31 March 2020 - audited
Design & Custom Unallocated Total
Manufacturing Supply costs operations
GBPm GBPm GBPm GBPm
Revenue 297.9 168.5 - 466.4
------------------------------------ --------------- -------- ------------ ------------
Underlying operating profit/(loss) 38.1 7.3 (8.3) 37.1
Acquisition costs (3.8) (0.2) - (4.0)
Amortisation of acquired
intangible assets (9.0) - - (9.0)
IAS 19 pension charge - - (0.3) (0.3)
Operating profit/(loss) 25.3 7.1 (8.6) 23.8
------------------------------------ --------------- -------- ------------ ------------
5. Underlying profit before tax
Unaudited
six months Unaudited Audited
ended six months year
30 Sept ended ended
2020 30 Sept 2019 31 Mar 2020
GBPm GBPm GBPm
Profit before tax 7.7 10.4 19.5
Add back: Acquisition costs (a) 0.6 1.4 4.0
Amortisation of acquired
intangibles (b) 5.3 3.6 9.0
IAS19 pension costs (c) 0.2 0.2 0.3
------------------------------------------- ----- ------------ -------------- -------------
Underlying profit before
tax 13.8 15.6 32.8
-------------------------------------------------- ------------ -------------- -------------
The tax impact of the underlying profit adjustments above is a
credit of GBP1.0m (H1 2019/20: GBP0.8m).
a) Accrued contingent consideration costs in relation to past acquisitions.
During FY19/20 there were GBP4.0m of acquisition costs. Costs of
GBP1.5m were incurred in relation to the acquisition of Hobart,
Positek and Sens-Tech and GBP0.3m in relation to ongoing
acquisitions. Contingent consideration of GBP2.0m was charged in
relation to current and past acquisitions. Costs of GBP0.2m was
incurred in relation to the integration of RSG into the Custom
Supply division.
b) Amortisation charge for intangible assets recognised for business combinations.
c) Pension costs related to the Group's legacy defined benefit pension scheme (see note 11).
6. Taxation
The underlying tax charge for the period was GBP3.4m (H1
2019/20: GBP3.7m) giving an underlying effective tax rate on
underlying profit before tax of 25% (H1 2019/20: 24%) which is 4%
higher than the rate for FY 2019/20 of 21%. The higher rate is due
to increased profits in Asia and also the FY 2019/20 rate
benefitted from the recognition of certain tax losses.
The tax credit in respect of the underlying adjustments was
GBP1.0m (H1 2019/20: GBP0.8m). This gives an overall tax charge for
the period of GBP2.4m (H1 2019/20: GBP2.9m) on profit before tax of
GBP7.7m (H1 2019/20: GBP10.4m) which is an effective tax rate of
31% (H1 2019/20: 28%).
7. Dividends
The Directors have declared an interim dividend of 3.15 pence
per share (H1 2019/20: 2.97 pence) payable on 15 January 2021 to
shareholders on the register at 18 December 2020.
In accordance with IAS 10, this dividend has not been reflected
in the interim results. The cash cost of the interim dividend will
be GBP2.8m (H1 2019/20: GBP2.7m).
8. Earnings per share
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2020 2019 2020
GBPm GBPm GBPm
Profit for the period 5.3 7.5 14.3
--------------------------------------------- ------------ ------------ -----------
No No No
Weighted average number of shares for basic
earnings per share 88,740,383 79.990,843 83,997,130
Effect of dilution - share options 3,430,052 2,518,035 2,878,352
--------------------------------------------- ------------ ------------ -----------
Adjusted weighted average number of shares
for diluted earnings per share 92,170,435 82,508,878 86,875,482
--------------------------------------------- ------------ ------------ -----------
Earnings per share - basic 6.0p 9.4p 17.0p
Earnings per share - diluted 5.8p 9.1p 16.5p
--------------------------------------------- ------------ ------------ -----------
At the period end, there were 3.9 million ordinary share options
in issue that could potentially dilute earnings per share in the
future, of which 3.4 million are currently dilutive (30 September
2019: 2.8 million in issue and 2.5 million dilutive, 31 March 2020:
3.3 million in issue and 2.9 million dilutive).
Underlying earnings per share
Underlying earnings per share are calculated as follows:
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2020 2019 2020
GBPm GBPm GBPm
Profit for the period 5.3 7.5 14.3
Acquisition costs 0.6 1.4 4.0
Amortisation of acquired intangible assets 5.3 3.6 9.0
IAS 19 pension costs 0.2 0.2 0.3
Tax effects of acquisition costs, exceptional
items, amortisation of acquired intangible
assets and IAS 19 pension costs (1.0) (0.8) (1.4)
Underlying profit for the period 10.4 11.9 26.2
----------------------------------------------- ------------ ------------ -----------
No No No
Weighted average number of shares for basic
earnings per share 88,740,383 79.990,843 83,997,130
Effect of dilution - share options 3,430,052 2,518,035 2,878,352
----------------------------------------------- ------------ ------------ -----------
Adjusted weighted average number of shares
for diluted earnings per share 92,170,435 82,508,878 86,875,482
----------------------------------------------- ------------ ------------ -----------
Underlying earnings per share 11.3p 14.4p 30.2p
9. Reconciliation of cash flow from operating activities
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2020 2019 2020
GBPm GBPm GBPm
----------------------------------------------- ------------ ------------ --------
Profit for the period 5.3 7.5 14.3
Taxation expense 2.4 2.9 5.2
Net finance costs 2.0 2.2 4.3
Depreciation of property, plant and equipment 2.4 2.4 4.8
Depreciation of right of use assets 3.4 3.1 6.6
Amortisation of intangible assets 5.6 3.9 9.6
Loss on disposal of property, plant and
equipment - - 0.1
Change in provisions 0.2 0.1 (0.3)
Pension scheme funding (0.9) (0.9) (1.8)
IAS 19 pension administration charge 0.2 0.2 0.3
Equity-settled share based payment expense
and associated taxes 0.8 0.6 1.3
----------------------------------------------- ------------ ------------ --------
Operating cash flows before changes in
working capital 21.4 22.0 44.4
----------------------------------------------- ------------ ------------ --------
(Decrease)/increase in inventories (0.1) (1.7) 2.7
Increase/(decrease) in trade and other
receivables 12.0 (1.3) 1.9
(Decrease)/increase in trade and other
payables (3.8) (5.5) (1.0)
----------------------------------------------- ------------ ------------ --------
Increase/(decrease) in working capital 8.1 (8.5) 3.6
----------------------------------------------- ------------ ------------ --------
Cash generated from operations 29.5 13.5 48.0
Interest paid (1.8) (2.1) (4.2)
Net income taxes paid (3.0) (2.1) (6.4)
----------------------------------------------- ------------ ------------ --------
Net cash inflow from operating activities 24.7 9.3 37.4
----------------------------------------------- ------------ ------------ --------
10. Closing net debt
At At
30 Sept 30 Sept At
2020 2019 31 Mar 2020
GBPm GBPm GBPm
------------------------------------------- --------- --------- -------------
Borrowings - current - overdrafts (1.8) (2.5) (2.0)
Borrowings - current portion of long term
debt (2.3) - (2.8)
Borrowings - non current (69.7) (79.4) (95.0)
Capitalised debt cost 1.4 1.6 1.7
Cash and cash equivalents 30.3 24.9 36.8
------------------------------------------- --------- --------- -------------
Closing net debt (42.1) (55.4) (61.3)
------------------------------------------- --------- --------- -------------
Reconciliation of movement in cash and net debt
Six months Six months
ended ended Year
30 Sept 30 Sept ended
2020 2019 31 Mar 2020
GBPm GBPm GBPm
-------------------------------------------- ----------- ----------- -------------
Net (decrease)/increase in cash and cash
equivalents (6.7) 1.4 14.4
Proceeds from borrowings - (18.5) (41.9)
Repayment of borrowings 26.6 26.2 31.3
-------------------------------------------- -----------
Increase in net cash before translation
differences 19.9 9.1 3.8
Translation and other non-cash changes (0.7) (1.2) (1.8)
-------------------------------------------- ----------- ----------- -------------
Increase in net cash 19.2 7.9 2.0
Net debt at beginning of the period (61.3) (63.3) (63.3)
-------------------------------------------- ----------- ----------- -------------
Net debt at end of the period (42.1) (55.4) (61.3)
-------------------------------------------- ----------- ----------- -------------
Supplementary information to the statement
of cash flows
Six months Six months
ended ended Year
30 Sept 30 Sept ended
2020 2019 31 Mar 2020
Underlying Performance Measure GBPm GBPm GBPm
Increase in net cash before translation
differences 19.9 9.1 3.8
Add: Business acquisitions 0.2 18.0 75.9
Dividends paid - 5.4 8.1
Less: Net proceeds from share issue - (28.2) (60.5)
Free cash flow 20.1 4.3 27.3
-------------------------------------------- ----------- ----------- -------------
Executive options issuance - - 0.1
Legacy pension scheme funding 0.9 0.9 1.8
Net finance costs 1.7 1.9 3.7
Taxation 3.0 2.1 6.4
-------------------------------------------- ----------- ----------- -------------
Operating cash flow 25.7 9.2 39.3
-------------------------------------------- ----------- ----------- -------------
11. Pension liability
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 and cash contributions made to the Scheme. The
valuation used for IAS 19 disclosures has been based on the most
recent valuation at 31 March 2018 updated to take account of the
requirements of IAS 19 in order to assess the liabilities of the
scheme as at 30 September 2020.
The IAS 19 defined benefit pension scheme liability at 30
September 2020 was GBP1.1m (31 March 2020: GBP1.8m asset). The
movement principally relates to the changes in actuarial
assumptions and cash contributions in the period.
12. 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 2020 Sept 2019 2020
----------- ------------------- ---------------------- ----------------------
Closing Average Closing Average Closing Average
rate rate rate rate rate rate
US Dollar 1.2833 1.2660 1.2294 1.2597 1.2360 1.2722
Euro 1.0961 1.1167 1.1290 1.1268 1.1281 1.1448
Norwegian
Krone 12.1673 12.1149 11.1719 11.0785 12.9847 11.4630
----------- --------- -------- ---------- ---------- ---------- ----------
13. Events after the reporting date
Business Combinations
On 13 October 2020, subsequent to the period end, the Group
acquired the trade and assets of Phoenix America Inc for an upfront
consideration of $11.0m (GBP8.5m) on a debt free, cash free basis,
with further contingent cash consideration of up to $1.5m
(GBP1.2m), payable subject to the achievement of certain profit
growth targets over a three year period.
14. 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,
GU2 7AH.
Current regulations permit the Company not to send copies of its
interim results to shareholders. Accordingly, the 2020 interim
results published on 30 November 2020 will not be sent to
shareholders. The 2020 interim results and other information about
discoverIE Group plc are available on the Company's website at
www.discoverieplc.com.
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END
IR ZZMZMLLDGGZM
(END) Dow Jones Newswires
November 30, 2020 02:00 ET (07:00 GMT)
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