TIDMDSCV
RNS Number : 9463T
discoverIE Group plc
30 November 2021
30 NOVEMBER 2021
discoverIE Group plc
Interim results for the six months ended 30 September 2021
Record growth and order book, targets upgraded
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 months ended 30 September 2021 ("H1 2021/22" or "the
period").
H1 2021/22 H1 2020/21 Growth H1 2019/20 Growth
Continuing Operations(1) % %
Revenue GBP174.3m GBP143.8m +21% GBP149.4m +17%
Underlying operating
profit(2) GBP18.0m GBP13.6m +32% GBP14.2m +27%
Underlying operating
margin(2) 10.3% 9.5% +0.8ppts 9.5% +0.8ppts
Underlying profit
before tax(2) GBP16.1m GBP11.7m +38% GBP12.0m +34%
Underlying EPS(2) 13.0p 9.5p +37% 11.0p +18%
Reported profit
before tax GBP6.4m GBP5.6m +14% GBP6.8m (6%)
Total Operations
Reported fully diluted
EPS 6.6p 5.8p +14% 9.1p (27%)
Interim dividend
per share 3.35p 3.15p +6% 2.97p +13%
Highlights
-- Record growth in orders and sales driving strong financial performance
o Organic(3) orders: +64% (v H1 2020/21) and +34% (v pre-Covid
period H1 2019/20)
o Organic sales: +15% (v H1 2020/21) and +8% (v H1 2019/20)
o Underlying operating profit from continuing operations:
+32%
o Underlying EPS from continuing operations: +37%
-- Further progress made towards key targets; strategic targets now upgraded
o Underlying operating margin increased to 10.3% (with target
increased to 13.5%)
o Good progress towards carbon emissions target reduction of 50%
by 2025
o Sales beyond Europe increased to 38% of total sales (with
target increased to 45%)
o Sales into target markets(4) of 77% (H1 2020/21: 68%)
o Excellent free cash conversion(5) of 95% of PAT, well ahead of
85% target
-- Three international acquisitions completed for GBP85m
o Beacon, Antenova and CPI acquired; integrations progressing
well
o Well supported equity placing in Sept 2021 raising a net
GBP53m
-- Group well positioned for further growth
o Announced sale of Acal BFi business for GBP50m concludes exit
from distribution business
o Record order book of GBP198m (organic: +71% v Sept 2020; +54%
v Sept 2019)
o Further acquisition opportunities developing with considerable
funding headroom
o Proforma gearing(6) post Acal BFi sale of 0.9x, well below our
target of 1.5x to 2.0x
Nick Jefferies, Group Chie f Executive, commented:
"These strong results demonstrate the strength of the discoverIE
business model, with record growth in orders, order book and
underlying earnings per share, which increased by 37% and follows a
resilient performance last year through Covid. Revenues and
earnings are now well ahead of the pre-Covid period and I would
like to thank all employees around the Group for their tremendous
effort and flexibility over the last 18 months that has led to
these results.
The announced sale of Acal BFi earlier this month concludes the
Group's exit from the business of distribution, with discoverIE now
becoming a solely focused global designer and manufacturer of
customised electronics. We have raised our medium-term strategic
targets accordingly and our continuing focus is on achieving
organic growth with new design wins in sustainable target markets,
together with accretive acquisitions.
The second half has started well with continued order and sales
growth over the same period last year and two years ago, and the
Group is on track to deliver full year underlying earnings for the
continuing operations ahead of the Board's previous expectations
despite ongoing supply chain and foreign exchange headwinds.
With a clear strategy focused on long-term, high quality,
structural growth markets across Europe, North America and Asia, a
diversified customer base, a record order book and a strong
pipeline of acquisition opportunities, the Group is well positioned
to make further progress on its key 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
Nick Jefferies Group Chief Executive
Simon Gibbins Group Finance Director
Lili Huang Head of Investor Relations 01483 544 500
Buchanan
Chris Lane, Toto Berger, Jack
Devoy
discoverIE@buchanan.uk.com 020 7466 5000
Notes:
(1) Continuing operations excludes the results of the Acal BFi
and Vertec SA businesses following their post period-end disposal
announcements. These two businesses comprise the discontinued
operations.
(2) 'Underlying Operating Profit', 'Underlying Operating
Margin", 'Underlying Operating Expenses', '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 relate to continuing operations and exclude
acquisition-related costs (amortisation of acquired intangible
assets of GBP6.4m and acquisition & disposal expenses of
GBP3.3m) totalling GBP9.7m. Equivalent underlying adjustments
within the H1 2020/21 underlying results totalled GBP6.1m. For
further information, see notes 2 and 5 of the attached summary
financial statements.
(3) Organic growth for the Group compared with last year is
calculated at constant exchange rates ("CER") and is shown
excluding the first 12 months of acquisitions post completion
(Phoenix was acquired in October 2020, Limitor in February 2021,
CPI in May 2021, Antenova in August 2021 and Beacon in September
2021). Organic growth compared with two years ago excludes the
first 24 months of acquisitions so also excludes Sens-Tech acquired
in October 2019. The average sterling rate of exchange strengthened
4% against the Euro compared with the average rate for the first
half last year and strengthened 10% against the US Dollar while
remaining in line on average against the three Nordic
currencies.
(4) Target markets are renewable energy, medical, transportation, industrial & connectivity.
(5) Free cash flow is cash flow before dividends, acquisitions and equity fund raising.
(6) Gearing ratio is defined as net debt divided by underlying
EBITDA (annualised for acquisitions).
(7) Unless stated, growth rates refer to the comparable prior year period.
(8) 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 and manufactures 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, medical,
transportation 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 has an
ongoing commitment to reducing the impact of its operations on the
environment, while its key markets are aligned with a sustainable
future.
The Group's continuing operations employs c.4,500 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 a member of the FTSE250, classified within the
Electrical Components and Equipment subsector.
Strategic, Operational and Financial Review
Overview
The first half saw strong organic growth compared with both the
Covid-impacted prior year, and the pre-Covid period two years ago,
building on the progress of previous years. Over the last four
years as the D&M strategy has gathered momentum, ongoing Group
organic sales have grown by 9% CAGR while underlying EPS of
continuing operations have grown by 17% CAGR, excluding the Covid
year.
With the announcement in November 2021 of the sale of the Acal
BFi distribution business, discoverIE is now solely focused on the
design and manufacture of customised, innovative electronics. Five
higher margin acquisitions were made over the last year (three
during the period), further progressing us towards our medium-term
goals of becoming a higher margin Group, focused on international
and sustainably-aligned target markets, and delivering strong cash
generation. To reflect this, our key strategic targets have been
upgraded, as detailed in the Key Strategic and Performance
Indicators section below. Meanwhile, our low gearing leaves us with
considerable headroom for further acquisitions.
First half continuing Group sales increased by 21%, being 15%
higher organically than last year and 8% higher than the pre-Covid
period two years ago. Performance in our target markets, which now
account for 77% of Group sales, has been much stronger than other
markets, helping to deliver an underlying operating margin of over
10% for the first time.
Orders grew by 64% organically compared with last year and by
34% compared with two years ago following the build-up of a strong
pipeline of design wins over several years. This resulted in a
record period-end order book of GBP198m, respectively 71% and 54%
higher organically than 12 months and 24 months previously.
The Group is managing widespread supply chain challenges
effectively. While these conditions are expected to continue during
the second half, the period has started well with continuing
organic growth in orders and sales and the Group is on track to
deliver full year underlying earnings for the continuing operations
ahead of the Board's previous expectations. To ensure that the
Group can continue to grow well into the future, production
capacity is being expanded in the US, Germany and India, and
production has begun as scheduled at the Group's new larger
facility in Nogales, Mexico.
Carbon emissions
Last year the Group introduced a target to reduce carbon
emissions by 50% on a like for like basis across the Group by 2025.
With numerous manufacturing locations internationally, the primary
source (73%) of emissions is from purchased electricity (Scope 2
emissions). The remaining emissions are mainly from vehicles, as
well as natural gas and oil consumed on site (Scope 1). Good
progress towards our reductions target was made in calendar year
2020 with a 6% like-for-like reduction in underlying carbon
emissions and we anticipate further progress when measurements are
taken at the end of this calendar year.
Sourcing electricity from clean and lower or zero carbon sources
where possible, or installing renewable power generation on site,
as well as adopting more energy efficient practices, are the key
steps to achieving our emissions target. Of the Group's 30
manufacturing sites, the largest eight are responsible for c.60% of
the Group's carbon emissions. Two of these eight sites have now
switched to renewable energy tariffs, while the Sri Lankan facility
has completed the first phase of solar panel installation and one
in Poland has installed a natural source heat pump. When complete,
these latter two initiatives alone are expected to reduce the
Group's carbon emissions by around 10%. Phase 2 and 3 of the solar
panel project in Sri Lanka are both planned for 2022 and, when
complete, will reduce site carbon emissions by c. 75%.
Additionally, the switch to electric and hybrid vehicles is
underway and EV chargers are being installed at a number of sites
around the Group. Likewise, there is an ongoing reduction in
flights with the Group's businesses encouraged to use flights only
where necessary, continuing with video communication and other
channels where possible.
For newly acquired businesses, we aim to increase renewable
energy to at least 50% of their total energy consumption within the
first five years post acquisition. This target is being integrated
into their business plans. Emission audits with the three
acquisitions this Period are expected to complete by the year
end.
Group Results Summary
Continuing Group sales for the first half increased by 21% to
GBP174.3m (+24% CER), with first half underlying operating profit,
which excludes acquisition & disposal-related costs, increasing
by 32% to GBP18.0m. Underlying profit before tax increased by 38%
to GBP16.1m, with underlying earnings per share for the period
increasing by 37% to 13.0p (H1 2020/21: 9.5p).
After underlying adjustments for acquisition costs, together
with taxation costs and the inclusion of net profits from the
discontinued operation, profit after tax for the period on a
reported basis increased by 17% to GBP6.2m (H1 2020/21: GBP5.3m)
with fully diluted earnings per share increasing by 14% to 6.6p (H1
2020/21: 5.8p).
Strong free cash flow of GBP28.1m over the last 12 months
represented 95% of PAT, well ahead of the 85% target. Net debt at
30 September 2021 was GBP75.6m (30 September 2020: GBP42.1m) with a
gearing ratio of 1.3x, being net debt divided by underlying EBITDA
(annualised for acquisitions). Including our post period-end
announced disposals of Acal BFi and Vertec SA, proforma gearing at
the end of September reduced to 0.9x, well below our target range
of 1.5x to 2.0x, leaving considerable headroom for further
accretive acquisitions.
Alongside the acquisitions of Antenova in August 2021 and Beacon
in September 2021, the balance sheet was strengthened in the period
by way of a well-supported equity placing that raised net proceeds
of GBP53.4m. Together with strong organic cash flows, these provide
the Group with an excellent platform from which to continue to
execute its growth strategy. On behalf of the Board, we would like
to thank shareholders for their support.
Increased Dividend
The Board is pleased to declare an increase in the interim
dividend of 6% to 3.35p per share (H1 2020/21: 3.15p per share).
Since 2010, the annual dividend per share has doubled and the total
dividend payment has increased by nearly 400%.
The Board believes that, as an acquisitive growth company,
maintaining a progressive dividend policy is appropriate along with
a long-term dividend cover of over three times on an underlying
basis. This approach will enable funding of both sustainable
dividend growth and a higher level of investment in acquisitions
from internally generated resources.
The interim dividend is payable on 14 January 2022 to
shareholders registered on 17 December 2021.
Board and Group Executive Committee Strengthened
The Board is pleased to report that to support the continued
development of the business, two additional senior level
appointments have been made.
Rosalind Kainyah MBE will join the Board in January 2022 as a
Non-Executive Director. Rosalind brings many years of senior
management, executive and board experience in international
environments. She has extensive experience in sustainability
matters and currently runs Kina Advisory, a consultancy advising on
environmental, social and governance matters for businesses.
Previously, Rosalind held senior executive roles at Tullow Oil, as
Vice President, External Affairs & Corporate Social
Responsibility and De Beers SA with various roles, latterly as
President of its US business.
Following a period of introduction, Rosalind will chair a new
ESG committee of the Board with responsibility for the ESG
strategy, policies and performance of discoverIE and helping to
drive further progress.
Paul Hill joins the Group Executive Committee (GEC) in December
2021 as Group Commercial Director overseeing a number of the
Group's D&M businesses. Paul brings extensive experience in the
electronics and technology sector having held senior operational
roles in both hardware and software companies. Having started his
career in electronics engineering, Paul has worked in electronic
components, smart card systems and electronic design and
manufacturing businesses. More recently Paul has led private equity
held businesses and joins from Antenova, our recent acquisition,
where he was Chief Executive Officer.
Following a period of introduction, Paul will also have
Groupwide responsibility for evolving our approach to developing
design opportunities.
Sustainability and Social Responsibility
The Group provides innovative electronics that help customers
create new technologies for a sustainable world. Applications which
use our products help to reduce power consumption and increase
efficiency, such as wind turbines for renewable energy, charging
infrastructure for vehicle electrification and wireless and fibre
optic communications. This focus on sustainability forms the core
of our target markets where, through targeted growth initiatives,
we aim to grow our revenues organically. 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 sales markets are well aligned to the UNGC
Sustainable Development Goals with our aim being to achieve 85% of
sales from those target markets by the end of FY 2024/25. By the
end of this period, sales from target markets were 77% of
continuing Group sales, an increase of 9ppts in the last two years.
We also aim to increase the proportion of the Group's operations
covered by ISO14001, the international standard for environmental
management, from 31% in FY 2020/21 to 80% by CY 2025. Please refer
to the Group's Impact Report which is published online and which
illustrates how the Group is helping meet the sustainability
challenges facing the world today.
Also during the period a number of initiatives were undertaken
to improve our sustainability and diversity. As mentioned above a
new Non-Executive Director has been appointed, Rosalind Kainyah
MBE, who will lead a new ESG committee of the Board, to be
established in the coming months which will accelerate our progress
on ESG matters. We are also prioritising diversity in our
businesses with a broader range of inputs and more collaborative
working practices. During the period, in addition to a number of
new appointments, further work has been undertaken to increase
diversity in our operating companies. This is an ongoing and
long-term objective.
A range of other ESG activities have taken place, including:
i) Environmental
- Initiated Group Environmental Policy;
- Work commenced on ISO14001 certification in Sri Lanka and Denmark;
- Completed first of three phases to install solar panels in Sri Lanka;
- Natural source heat pump fitted in Poland;
- Continued phase out of R22 refrigerant in Sri Lanka;
- Installed electric car chargers at sites in Norway and at
Group's UK headquarters by end of 2021;
- Several sites in Finland, the UK and Denmark switched to
renewable tariffs in addition to the two Poland sites;
- Introduced other energy efficient measures such as installing
sun screens to reduce the need for cooling and heat exchangers to
reduce emissions from heating; and
- Exploring options for grid supply of clean energy and site
specific renewable power generation in China.
ii) Social
- Launched Supplier Code of Conduct with Group wide supplier
audits due to commence in December 2021;
- Integrated diversity principles into Group hiring practice,
starting with the search for female leaders and engineers in the
electronics industry;
- Improved health & safety incident reporting;
- Initiated Group policies on Human Rights, Conflict Minerals and Freedom of Association; and
- Initiated and supported the Funder Plus Programme through
Community Foundation for Surrey, a longstanding partner of the
Group.
iii) Governance
- Set up the first externally-facilitated Board evaluation;
- Board Diversity Policy adopted;
- Anti-Bribery and Corruption programme on track - policy
updated, benchmarking and risk assessment completed;
- Completed preliminary scoping exercise for BEIS UK Sox
proposal and created a roadmap for implementation;
- Continued roll-out of enhanced cyber security software throughout the Group;
- Internal controls manual reviewed. Roll-out of updated policy,
including self-assessment surveys.
- Subsidiary risk reporting and Group risk register updated.
Group Strategy
The Group designs and manufactures customised electronics,
operating internationally and focusing on structurally growing
markets which are driven by increasing electronic content and where
there is an essential need for our products. With our target
markets and global customer base, the business is expanding both in
Europe and beyond, with 38% of first half continuing Group sales
being outside Europe, as we build a geographically diverse
electronics group.
Acquisitions have made a significant contribution to the
development of the Group and, over the past 11 years, we have
acquired 19 specialist, high margin design and manufacturing
businesses which have been integrated successfully, augmenting our
growth alongside our important organic focus. 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 Group with a number of acquisition opportunities in
development.
Following the announced disposals of the Acal BFi and Vertec SA
businesses, the Group's strategy continues to comprise four
elements:
1. Grow sales well ahead of GDP over the economic cycle by
focussing on the structural growth markets that form our target
markets;
2. Move 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 developing
operations in North America and Asia.
These elements are underpinned by a core objective of generating
strong cash flows from a capital-light business model, and
delivering long-term sustainable returns.
Target Markets
Our four focus target markets of renewable energy, medical,
transportation, and industrial & connectivity account for 77%
of continuing Group sales. These markets are expected to drive the
Group's organic revenue growth well ahead of GDP over the economic
cycle and create acquisition opportunities. With continuing sales
growing organically by 8% over the pre-Covid period two years ago,
target market sales have grown by 13% organically in this time
while non-target markets have declined by 6%.
Growth in these target markets is driven by increasing
electronic content and by global trends such as the accelerating
need for renewable sources of energy, an ageing affluent
population, vehicle electrification and industrial automation.
Key Strategic and Performance Indicators
Since 2014, the Group's progress with its strategic objectives
and its financial performance has been measured through key
strategic indicators ("KSIs") and key performance indicators
("KPIs"). The KSI targets have been raised each time they are
achieved, and in June 2020, upwardly revised targets for FY 2024/25
were set. With the announcement in November 2021 of the planned
sale of Acal BFi, the targets have again been upwardly revised. For
tracking purposes, these KSIs and KPIs remain as reported at the
time rather than adjusted for the recently announced disposals.
Given the one-off impact of Covid last year, we have shown this
period's growth relative to the pre-Covid period two years ago (H1
2019/20) to illustrate the underlying development of the Group.
Key Strategic Indicators - targets now upwardly revised
FY14 FY15 FY16 FY17 FY18 FY19 H1 H1 Prior Revised
20 22(1) FY25 FY25
Targets Targets
-----
1. Increase share
of Group revenue
from D&M (2) 18% 37% 48% 52% 57% 61% 63% 100% >75% 100%
2. Increase underlying
operating margin 3.4% 4.9% 5.7% 5.9% 6.3% 7.0% 7.6% 10.3% 12.5% 13.5%
3. Build sales
beyond Europe(2) 5% 12% 17% 19% 19% 21% 24% 38% 40% 45%
-----
4. Target market
sales (2) 56% 62% 66% 66% 77% 85% 85%
(1) Continuing operations
(2) As a percentage of Group revenue
The Group made further significant progress against its KSIs
during this period. Alongside strong organic growth, the announced
exit from distribution by way of the disposals of Acal BFi and
Vertec South Africa has resulted in a positive step change in the
KSIs, which is explained as follows:
- Following this exit, the Group is now wholly focused on the
design and manufacture of customised electronics.
- First half underlying operating margin exceeded 10% for the
first time benefiting both from the strong organic sales growth
delivered during the period and the planned exit from the lower
margin distribution business. With this exit, the FY2024/25 margin
target has been increased to 13.5%.
- Sales beyond Europe in the first half increased by 10ppts to
38% of Group revenue from 28% last year (24% two years ago) driven
by three factors. Firstly, the planned exit from distribution which
is a UK/European focused business (c.7ppts increase); secondly, the
five acquisitions in the last year (c.2ppts) in particular Beacon,
Phoenix and CPI which are all US based; thirdly, organic growth
during the period was strongest in Asia accounting for 22% of
ongoing Group sales (c.1ppt). On an annualised basis, the recent
acquisitions increase our sales beyond Europe to 40% and
accordingly the target for FY2024/25 has been increased to 45%.
- Target market sales in the first half increased by 9ppts to
77% of Group revenue from 68% last year (66% two years ago) of
which 5ppts reflects the planned exit from the distribution
businesses. A further 4ppts improvement has been delivered through
a combination of organic growth being more weighted to these
long-term structural growth markets and from the five acquisitions
in the last year which are well aligned with these markets.
-
Key Performance Indicators
FY14 FY15 FY16 FY17 FY18 FY19 H1 H1 Target
20 22(1)
1. Sales growth
Well ahead
CER 17% 36% 14% 6% 11% 14% 9% 20% of GDP
Continuing organic 3% 9% 3% (1%) 11% 10% 7% 8%
2. Underlying
EPS growth 20% 31% 10% 13% 16% 22% 11% 18% >10%
3. Dividend
growth 10% 11% 6% 6% 6% 6% 6%(2) 6% Progressive
4. ROCE (3) 15.2% 12.0% 11.6% 13.0% 13.7% 15.4% 15.8% 14.8%(4) >15%
>85% of
underlying
5. Operating operating
profit conversion(3) 100% 104% 100% 136% 85% 93% 101% 124% profit
------ ------ ------ ------
>85% of
6. Free cash underlying
conversion (3) 94% 104% 125% PAT
------ ------
7.Carbon emissions Annual 50% reduction
test(5) v CY19
--------- --------------
(1) Continuing operations. H1 2021/22 shown as growth over the
pre-Covid period H1 2019/20 to illustrate the underlying growth of
the business
(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 2 of the attached summary financial
statements; operating cash conversions are calculated based on the
last 12 months
(4) Excludes the acquisitions of Beacon and Antenova which only
completed towards the end of the period
(5) Annual carbon emissions for CY 2020 reduced by 19%
(like-for-like) compared to CY 2019 and by 6% on an underlying
basis (adjusted to normalise the impact of Covid).
The Group made further significant progress against its KPIs
during this period. Given the one-off impact of Covid last year,
this period's growth is shown relative to the pre-Covid period H1
2019/20 thus illustrating the underlying development of the
Group.
The performance of each of our Group KPIs for this period are as
follows:
- Organic sales increased by 8% compared with the pre-Covid
period H1 2019/20 (comprising 15% organic growth this year
offsetting an 8% organic reduction during the Covid period). This
follows average annual organic growth of 9% for the preceding three
years and illustrates the strong through cycle organic growth of
the business.
- Underlying EPS increased by 18% compared with the pre-Covid
period H1 2019/20 (comprising 37% growth this year offsetting a 14%
reduction during the Covid period).
- The 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 doubling of the dividend over
the last 11 years, whilst dividend cover on an underlying basis has
increased.
- ROCE of the continuing operations for the period was 14.8%
compared with 15.8% two years ago, and was 2.5ppts higher than that
for the Covid-impacted last year (H1 2020/21: 12.3%).
The reduction compared to two years ago is as a result of recent
larger acquisitions and the discontinuation of Custom Supply.
- Operating profit conversion into cash has been very strong
again at 124% of underlying operating profit on average over the
last 24 months (comprising 95% in the last 12 months during a
period of strong organic growth with the need for increased working
capital, and 159% in the prior 12 month (Covid) period during which
working capital was released). This is significantly above the 85%
target, reflecting tight management of working capital and
expenditure during this period. Over the last nine years, operating
cash conversion has been consistently strong.
- Free cash conversion has also been very strong at 125% of
underlying profit after tax, on average over the last 24 months
(comprising 95% conversion in the last 12 months and 174%
conversion in the prior 12 month period). Again, this is
significantly above the 85% target. This is an important metric as
we seek to increasingly self-fund acquisitions.
- A new target was introduced last year for the reduction of
carbon emissions from the Group's existing businesses by 50% over
five years. Additionally, for new acquisitions, we are targeting
that within the first five years of ownership, at least 50% of
their energy demand is generated from renewable sources. For
calendar year 2020, carbon emissions reduced by 19% and by 6% on an
underlying basis adjusted for the effects of Covid. During this
period, capital has been invested in projects to reduce carbon
emissions by switching to clean energy, including solar panel
installations in Sri Lanka, and an air source heat pump in Poland,
two of the Group's major manufacturing facilities.
Divisional Results (Continuing Group)
The divisional results and results for the Continuing Group for
the half year ended 30 September 2021 are set out and reviewed
below.
H1 2021/22 H1 2020/21 Organic Organic
revenue order
growth growth
------------------------------
Revenue Underlying Margin Revenue Underlying Margin
GBPm operating GBPm operating
profit profit
(1) (1) Revenue
GBPm GBPm growth
-------- ----------- ------- -------- ----------- -------
D&M(2) 174.3 23.9 13.7% 140.5 17.3 12.3% 24% 15% 64%
Unallocated
costs (5.9) (3.9)
FX 3.3 0.2 (3%)
-------- ----------- ------- -------- ----------- ------- -------- --------- --------
Total 174.3 18.0 10.3% 143.8 13.6 9.5% 21% 15% 64%
-------- ----------- ------- -------- ----------- ------- -------- --------- --------
(1) Underlying operating profit excludes acquisition-related
costs and results of the discontinued operations
(2) The residual ongoing business within Custom Supply has been
transferred to D&M with sales in H1 2020/21 of GBP2.5m,
underlying operating profit of GBP0.3m
Orders and Order Book
Organic orders grew very strongly in the period, increasing by
64% organically to GBP221.2m with a book to bill ratio of 1.27:1.
Compared with the pre-Covid period two years ago, orders have grown
by 34% organically.
During the period, the Group order book for continuing
operations also grew very strongly and finished the period at a
record level of GBP198m, being 108% (CER) higher than a year ago.
Organically the order book increased by 71% in a year and by 54%
compared with 30 September 2019, prior to the start of Covid.
Sequentially, the order book increased by 44% (CER) since the year
end.
Since the second half of last year, customers resumed placing
longer term orders. Over 80% of the order book is for delivery
within twelve months from the time of order.
Divisional Revenue and Operating profit
The strong order performance has led to sales increasing
organically by 15%. Combined with a 9% sales increase from
acquisitions, overall sales increased by 24% CER. Including the
impact of translation, reported divisional revenue increased by 21%
to GBP174.3m (H1 2020/21: GBP143.8m).
Compared to the pre-Covid period two years ago, sales grew by 8%
organically. Growth was widespread across the Group although in
certain businesses was offset by supply chain shortages of raw
materials and external components and a slower post Covid recovery
in some of our UK based businesses.
Underlying operating profit of GBP23.9m was GBP6.6m (+38% CER)
higher than last year (H1 2020/21: GBP17.3m at CER) with an
underlying operating margin of 13.7%, 1.4ppts higher than last year
(H1 2020/21: 12.3% at CER) reflecting the positive effect of
organic growth and higher margin acquisitions. On an organic basis,
operating margin increased by 0.5ppt.
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, opportunities are identified for our products to be
specified into their designs, which in turn lead to future
recurring revenue streams.
The Group has a strong bank of design wins built up over several
years that creates the basis for the strong through cycle growth
and the growth in orders and sales now being experienced. During
the period, design wins increased by 56% over the prior year and by
10% on the pre-Covid period two years prior. 80% were in the
Group's target markets, led by the renewable energy and industrial
& connectivity sectors.
Additionally, during the period, new project design activity
increased strongly, being broad based across all markets. The total
pipeline of ongoing projects in development is now at a record high
level.
Operations
The D&M division designs, manufactures and supplies highly
differentiated, innovative components for electronic applications.
Over 85% of the products are manufactured in-house, with the
division's principal manufacturing facilities being in China,
Hungary, India, Mexico, the Netherlands, Poland, Slovakia, Sri
Lanka, Thailand, the US and the UK. Geographically, 11% of sales
are in the UK, 51% in Europe, 16% in North America and 22% in Asia.
77% of sales in the period were made into the Group's target
markets.
The Group's production facilities have established "new normal"
ways of operating after the disruption of Covid. Some sites are
still feeling the effects of higher absence rates but overall, the
Group's production has returned to output growth capable of
satisfying the strong sales growth rates. To meet future growth,
capacity is being expanded in the US, Germany and India, and
production has begun as scheduled at the Group's new larger
facility in Nogales, Mexico.
Acquisitions
The businesses we acquire are typically led by entrepreneurs who
wish to remain following acquisition. We encourage this as it helps
retain a decentralised, entrepreneurial, dynamic 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 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;
- Implementing ESG initiatives;
- 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.
During the period, the Group completed three acquisitions:-
1) In May 2021, Control Products Inc ("CPI"), a New Jersey,
US-based designer and manufacturer of custom, rugged sensors and
switches, for $11.4m (GBP8.1m) on a debt free, cash free basis.
2) In August 2021, Antenova, a UK-based designer and
manufacturer of antennas and radio frequency (RF) modules for
industrial connectivity applications, for GBP18.2m on a debt free,
cash free basis.
3) In September 2021, Beacon EmbeddedWorks ("Beacon"), a
US-based designer, manufacturer and supplier of custom
System-on-Module (SOM) embedded computing boards and related
software, principally supplying the medical and industrial markets
in the US. Beacon was acquired for $80.5m (GBP58.8m) on a debt
free, cash free basis.
All three have retained their distinct brand identities and
high-quality management. Their complementary product ranges and
wider access to customers will create cross-selling opportunities
in our target markets which are expected to drive further
growth.
The Group has completed 19 acquisitions since 2011, contributing
to growth in continuing Group revenues from GBP15m in FY 2012/13 to
GBP303m in FY 2020/21. 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 an average return on investment of 16% by FY 2020/21 over
the life of those acquisitions, ahead of our target of 15%.
Group Financial Results
Revenue and Orders
Continuing Group sales of GBP174.3m were 15% higher organically
than last year (H1 2020/21: GBP143.8m), and with acquired
businesses (Phoenix and Limitor acquired last year, and CPI,
Antenova and Beacon added this year) adding 9%, continuing sales
increased by 24% CER. A stronger Sterling during the period,
particularly compared with the US Dollar and Euro, reduced sales by
3% on translation for a net growth in reported continuing Group
sales of 21%. Compared with two years ago, sales increased by 20%
CER with 8% organic growth and 12% through acquisitions (the five
acquisitions above together with Sens-Tech which was acquired in
the last two years).
H1 H1 2021/22 H1 2019/20
Continuing Revenue % %
(GBPm) 2021/22 H1 2020/21
Reported 174.3 143.8 21% 174.3 149.4 17%
FX translation
impact (3.3) (4.6)
----------- ---- ----------- ----------- ----
Underlying (CER) 174.3 140.5 24% 174.3 144.8 20%
Acquisitions:
last 12mths (12.9)
Acquisitions:
last 24mths (18.1)
Organic 161.4 140.5 15% 156.2 144.8 8%
Sales were driven by very strong order rates. Continuing orders
increased by 75% CER to GBP221.2m, and by 64% organically compared
with the Covid-impacted prior period and importantly, by 49% CER
and 34% organically compared with the pre-Covid period 2 years
ago.
The book to bill ratio for the period was 1.27:1 building on the
improvement seen in the second half last year (book to bill:
1.16:1) as the Group recovered from the sharp impact of Covid in
the first half last year (book to bill: 0.90:1). Two years ago the
comparable book to bill ratio was 1.02:1.
Continuing Group Gross Margin and Gross Profit
The continuing Group's gross margin increased 1.1ppts in the
first half to 38.6% (H1 2020/21: 37.5%). Organically, gross margin
decreased by 0.1ppts, with higher gross margin acquisitions adding
1.2ppts.
Gross profit for the period was GBP67.2m, 25% higher than last
year (H1 2020/21: GBP53.9m), being a combination of the 21%
increase in continuing reported sales with 4% from the improvements
in the continuing Group gross margin.
The Group continues with its policy of currency hedging
transactional exposures from the point of order through to payment,
typically hedging around six months of the order book.
Underlying Operating Costs
At the outset of Covid last year, 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
Committee, the cumulative effect of which was to reduce Group
underlying operating costs by 4% organically and by 7% sequentially
(H2 2019/20 to H1 2020/21).
GBPm H1 2021/22 H1 2020/21 %
Organic operating costs
(pre LTIP/HO) 42.8 39.8 8%
Incremental LTIP related
charges 1.6
Central team investment 0.7
----------- ----------- ----
Operating costs (inc
LTIP/HO) 45.1 39.8 13%
Acquisition operating
costs 4.1
----------- ----------- ----
Underlying operating
costs (CER) 49.2 39.8 24%
FX translation 0.5
Underlying adjustments
(see below) 9.7 6.1
Reported operating costs 58.9 46.4 27%
GBPm H1 2021/22 H1 2020/21
Selling and distribution
costs 18.0 15.3
Administrative expenses 40.9 31.1
----------- -----------
Reported operating costs 58.9 46.4
----------- -----------
This period we have invested carefully in operating expenditure
to ensure capacity to deliver strong sales growth, this year and in
future, with costs increasing by 5% organically compared with the
pre-Covid period, H1 2019/20, and 8% relative to last year. This
excludes upscaling of central capabilities and incremental LTIP
related charges.
We have invested in additional central resource to support our
growth plans, including M&A, risk & internal audit, and
ESG. Further investment is anticipated in the next 12 months in
particular additional Board and Group Executive Committee members
as referred to above and additional IT resources to support D&M
system upgrades.
With a share price which, by 30 September 2021, had risen 60%
since the start of the year and 150% since the start of last year,
the accrued cost of national insurance contributions ("NIC") on
LTIPs, the increased rate of NIC from April 2022 and the EPS growth
impact on share based payment accruals, has added an additional
cost of GBP1.6m relative to last year.
Continuing Group Operating Profit and Margin
Continuing Group underlying operating profit for the period was
GBP18.0m, a 32% increase on last year (H1 2020/21: GBP13.6m),
delivering an underlying operating margin of 10.3%, 0.8ppts higher
than last year (H1 2020/21: 9.5%).
Reported Group continuing operating profit for the period (after
accounting for the underlying adjustments discussed below) was
GBP8.3m, GBP0.8m (+11%) higher than last year.
Continuing operations H1 2021/22 H1 2020/21
GBPm
Operating Finance Profit Operating Finance Profit
profit Cost before profit cost before
tax tax
---------- ---------- -------- --------
Underlying 18.0 (1.9) 16.1 13.6 (1.9) 11.7
Underlying adjustments
Acquisition expenses (3.3) - (3.3) (0.6) - (0.6)
Amortisation of acquired
intangibles (6.4) - (6.4) (5.3) - (5.3)
IAS 19 pension cost (0.2) - (0.2)
Reported 8.3 (1.9) 6.4 7.5 (1.9) 5.6
Underlying Adjustments
Underlying adjustments for the period comprise acquisition
expenses of GBP3.3m (H1 2020/21: GBP0.6m), and the amortisation of
acquired intangibles of GBP6.4m (H1 2020/21: GBP5.3m). From this
period, the IAS 19 pension cost of GBP0.3m has been taken as a
continuing cost of the business.
Acquisition expenses of GBP3.3m are the costs associated with
the acquisitions during the period of CPI, Antenova and Beacon
(GBP1.6m), accrued contingent consideration costs of GBP1.3m
(mainly relating to the acquisitions of Cursor and Limitor) and the
integration of Hobart into Noratel (GBP0.4m). The GBP1.1m increase
in the amortisation charge since last year to GBP6.4m relates to
the amortisation of intangibles relating to the five acquisitions
since the first half last year. The annualised amortisation charge
for next year is approximately GBP16.5m.
Financing Costs
Net finance costs for the period were GBP1.9m (H1 2020/21:
GBP1.9m) and include a GBP0.4m charge for leased assets under IFRS
16 (H1 2020/21: GBP0.3m). Finance costs related to our banking
facilities of GBP1.5m (H1 2020/21: GBP1.6m) reflect marginally
lower average net debt during the period.
Underlying Tax Rate
The underlying effective tax rate for continuing operations in
the first half was 25%, in line with last year's rate.
The overall effective tax rate for continuing operations was 53%
(H1 2020/21: 34%). This was higher than the underlying effective
tax rate due to there being tax relief on only a small amount of
acquisition-related expenses and a lower rate of tax relief on the
amortisation of acquired intangibles (both within underlying
adjustments above). The effective tax rate ("ETR") on intangibles
was further impacted this period by the enactment of the increase
in the UK corporate tax rate from 1 April 2023, resulting in a
one-off increase in the deferred tax liability (a non-cash
item).
GBPm H1 2021/22 H1 2020/21
PBT ETR PBT ETR
------- ------- ----
Continuing operations 16.1 25% 11.7 25%
Acquisition expenses (3.3) 4% (0.6) 0%
Amortisation of acquired
intangibles (6.4) 7% (5.3) 19%
IAS 19 pension cost (0.2) 19%
Total reported 6.4 53% 5.6 34%
Continuing Group Profit Before Tax and EPS
Underlying profit before tax for the period of GBP16.1m was
GBP4.4m higher (+38%) than last year (H1 2020/21: GBP11.7m), with
underlying EPS for the period increasing by 37% to 13.0p (H1
2020/21: 9.5p). The increase in underlying EPS was slightly lower
than that for underlying profit before tax due to the issuance of
new equity in September 2021 increasing fully diluted shares by 1%
to 93.3m shares (H1: 2020/21: 92.2m shares). The annualised fully
diluted shares for the full year is expected to be c. 96m
shares.
After the underlying adjustments above, reported profit before
tax on continuing operations was GBP6.4m, an increase of GBP0.8m
(+14%) compared with last year (H1 2020/21: GBP5.6m). With the
reported effective tax rate for the period of 53% being higher than
last year's rate of 34% (for the reasons mentioned above), the
resulting reported fully diluted earnings per share on continuing
operations was 3.2p, 0.8p lower than last year (H1 2020/21:
4.0p).
Continuing operations H1 2021/22 H1 2020/21
GBPm
PBT EPS PBT EPS
------ ------ -----
Underlying 16.1 13.0p 11.7 9.5p
Underlying adjustments
Acquisition expenses (3.3) (0.6)
Amortisation of acquired
intangibles (6.4) (5.3)
IAS 19 pension cost (0.2)
Reported 6.4 3.2p 5.6 4.0p
Discontinued Operations
Since the end of the period, the Group has announced the
disposals of the Acal BFi and Vertec SA distribution businesses
which have been treated for accounting purposes together as a
discontinued operation. In accordance with IFRS 5, net profits of
the discontinued operation have been shown separately to the
results of the continuing operations.
GBPm H1 2021/22 H1 2020/21
PAT EPS PAT EPS
----- ----- ------
Continuing operations 3.0 3.2p 3.7 4.0p
Discontinued operations 3.2 3.4p 1.6 1.8p
Total operations 6.2 6.6p 5.3 5.8p
In accordance with IFRS 5, net assets of the discontinued
operation of GBP55.8m as at 30 September 2021 (including cash in
the operation of GBP26.2m) have been categorised on the Group
balance sheet as assets held for sale comprising assets of GBP91.2m
and liabilities of GBP35.4m.
Working Capital
D&M divisional working capital at 30 September 2021 was
GBP60.5m, equivalent to 16.9% of sales, an efficiency improvement
of 0.8ppts since last year (30 September 2020: GBP48.4m of working
capital at 17.7% of sales). Absolute working capital has increased
to support the strong organic growth in sales, and also by
incorporating the working capital of five acquisitions since the
first half last year. Working capital KPIs have remained robust
with debtors days of 50, creditor days of 71 and stock turns of
3.3.
Cash Flow
Net debt at 30 September 2021 was GBP75.6m compared with
GBP47.2m at 31 March 2021 and GBP42.1m at 30 September 2020.
Excluding dividends, acquisitions and equity raised, free cash flow
over the last 12 months was GBP28.1m, at 95% of underlying profit
after tax (including disposals), demonstrating continuing strong
cash generation by the Group.
H1 Last 12
H1 Months
2021/22 2020/21
Opening net debt (47.2) (61.3) (42.1)
Free cash flow (see
table below) 10.6 20.1 28.1
Acquisition-related
costs (86.7) (0.2) (108.3)
Equity issuance 53.4 - 53.5
Dividends (6.2) - (9.0)
Foreign exchange impact 0.5 (0.7) 2.2
Net debt at 30 Sept (75.6) (42.1) (75.6)
Net acquisition-related costs of GBP86.7m in the period
comprised GBP58.8m for the acquisition of Beacon in September 2021,
GBP18.2m for Antenova in August 2021 and GBP8.1m for CPI in May
2021 (all on debt free, cash free bases). Additionally there were
GBP1.6m of expenses associated with acquisitions and disposals
during the period. Together with the acquisitions of Phoenix and
Limitor during the six month period ended 31 March 2021, a total of
GBP108.3m has been spent on acquisitions during the last 12
months.
A 6% placing of shares in September 2021 raised net equity
proceeds of GBP53.4m, while the final dividend for the last
financial year of GBP6.2m was paid in July 2021, being a 6%
increase on the final dividend for the year ended 31 March 2019; no
final dividend was declared for the year ended 31 March 2020 as
management sought to preserve cash at the outset of Covid.
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 2021/22 2020/21 Months
Underlying profit
before tax 16.1 11.7 32.3
Discontinued profit
before tax 4.6 2.1 6.1
--------- --------- --------
Total profit before
tax 20.7 13.8 38.4
Net finance costs 2.0 2.0 3.7
Non-cash items 7.8 6.9 14.1
--------- --------- --------
Total EBITDA 30.5 22.7 56.2
IFRS 16 (3.5) (3.4) (6.8)
--------- --------- --------
EBITDA (pre IFRS16) 27.0 19.3 49.4
Working capital (8.1) 7.9 (4.4)
Capital expenditure (2.8) (1.5) (4.9)
Operating cash flow 16.1 25.7 40.1
Finance costs (1.6) (1.7) (3.0)
Taxation (3.0) (3.0) (7.2)
Legacy pensions (0.9) (0.9) (1.8)
Free cash flow 10.6 20.1 28.1
Total EBITDA of GBP30.5m was 34% higher than the Covid-impacted
last year (H1 2020/21: GBP22.7m) and 26% higher than the pre-Covid
period two years ago (H1 2019/20: GBP24.2m) reflecting strong
organic sales growth combined with contributions from the five
acquisitions made since the first half last year.
During the period, the Group invested GBP8.1m in working capital
to support the organic sales growth contrasting with last year's
GBP7.9m inflow resulting from the reduction in sales following the
onset of the Covid. In total, a net GBP4.4m has been invested in
working capital in the last 12 months.
Capital expenditure of GBP2.8m was invested during the period
including capacity expansions in Mexico and on ESG initiatives
including solar panels in Sri Lanka, the largest Group facility.
While ahead of last year (GBP1.5m), when expenditure was reduced to
maintenance spend only, this was still below our spend of two years
ago (H1 2019/20: GBP3.2m). Capital expenditure levels are expected
to increase in the second half to around GBP8.0m for the full year
as we continue to invest in additional capacity and roll out of our
ESG initiatives.
GBP16.1m of operating cash was generated in the first half;
together with GBP24.0m generated in the second half of last year, a
total of GBP40.1m of operating cash was generated over the last 12
months. While this was below last year's GBP55.8m, this was due to
working capital inflows last year of GBP18.0m resulting from the
reduction in sales due to Covid. Excluding working capital,
operating cash in the last 12 months was up 18% on last year. It
was also 19% higher than for the pre-Covid 12-month period two
years ago (12 month operating cash to 30 Sept 2019: GBP33.8m).
GBP40.1m of operating cash flow represents 95% of underlying
operating profit during the last 12 months (including disposals),
above our 85% target. Over the last eight years, the Group has
consistently achieved high levels of cash conversion, averaging in
excess of 100%.
Finance cash costs of GBP1.6m were marginally below last year
while corporate income tax payments of GBP3.0m were in line with
last year. Further payment of taxes in the second half of c.GBP4m
are expected.
Free cash flow (being cash flow before dividends, acquisitions
and equity) for the last 12 months was GBP28.1m. which was 29%
higher than last year excluding working capital. Compared with the
pre-Covid period two years ago, free cash flow was up 16% (12 month
free cash flow to 30 Sept 2019: GBP24.2m). Our free cash conversion
over the last 12 months was 95% of underlying profit after tax
(including disposals), 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 2021 of GBP75.6m, the Group's
gearing ratio at the end of the period (being net debt divided by
underlying EBITDA as annualised for acquisitions) was 1.3x.
Including the announced disposals of the Acal BFi and Vertec South
Africa distribution businesses, pro-forma gearing at 30 September
2021 reduced to 0.9x, with our target gearing range being between
1.5x and 2.0x, leaving plenty of funding capacity for future
acquisitions.
Balance Sheet
Net assets of GBP269.3m at 30 September 2021 were GBP60.5m
higher than at the end of the last financial year (31 March 2021:
GBP208.8m). The increase primarily relates to the net issuance of
equity of GBP53.5m, nearly all being the placing in September 2021,
with net profit after tax for the period of GBP6.2m being offset by
last year's final dividend of GBP6.2m paid this period. The
movement in net assets is summarised below:
H1
GBPm 2021/22
Net assets at 31 March
2021 208.8
Net profit after tax 6.2
Dividend paid (6.2)
Net equity issuance 53.5
Currency net assets -
translation impact 2.7
Gain on defined benefit
scheme 0.3
Share based payments
(inc tax) 4.0
Net assets at 30 September
2021 269.3
Defined Benefit Pension Scheme
The Group's IAS 19 pension liability, associated with its legacy
defined benefit pension scheme, reduced during the last 12 months
by GBP1.2m from a liability of GBP1.1m at 30 September 2020 to an
asset of GBP0.1m at 30 September 2021, the key driver being the
annual payment made during the year of GBP1.8m.
An annual payment of GBP1.9m is currently payable, growing by 3%
each year until September 2022 in accordance with the plan agreed
with the pension trustees as part of the last agreed triennial
valuation dated 31 March 2018. The next triennial valuation as at
31 March 2021 is currently being assessed.
Risks and Uncertainties
The principal risks faced by the Group are set out on pages 47
to 52 of the Group's Annual Report for year ended 31 March 2021, a
copy of which is available on the Group's website:
www.discoverieplc.com. These risks comprise: the economic
environment, particularly linked to the impact of Covid; the impact
arising from the UK's decision to leave the European Union; the
performance of acquired companies; climate-related risks; loss of
major customers or suppliers; technological change; major business
disruption; cyber security; loss of key personnel; inventory
obsolescence; product liability; liquidity and debt covenants;
exposure to adverse foreign currency movements; obligations in
respect of a legacy defined benefit pension scheme; and
non-compliance with legal and regulatory requirements.
The Board has continued to review the Group's existing and
emerging risks and the mitigating actions and processes in place in
the first half of the financial year, taking specific consideration
of the impact of Covid. Following this review the Board believes
there has been no material change to the relative importance or
quantum of the Group's principal risks in the first half 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 GBP180m and the adaptability we have
as an organisation.
Summary and Outlook
These strong results demonstrate the strength of the discoverIE
business model, with record growth in orders, order book and
underlying earnings per share, which increased by 37% and follows a
resilient performance last year through Covid. Revenues and
earnings are now well ahead of the pre-Covid period and I would
like to thank all employees around the Group for their tremendous
effort and flexibility over the last 18 months that has led to
these results.
The announced sale of Acal BFi earlier this month concludes the
Group's exit from the business of distribution, with discoverIE now
becoming a solely focused global designer and manufacturer of
customised electronics. We have raised our medium-term strategic
targets accordingly and our continuing focus is on achieving
organic growth with new design wins in sustainable target markets,
together with accretive acquisitions.
The second half has started well with continued order and sales
growth over the same period last year and two years ago, and the
Group is on track to deliver full year underlying earnings for the
continuing operations ahead of the Board's previous expectations
despite ongoing supply chain and foreign exchange headwinds.
With a clear strategy focused on long-term, high quality,
structural growth markets across Europe, North America and Asia, a
diversified customer base, a record order book and a strong
pipeline of acquisition opportunities, the Group is well positioned
to make further progress on its key priorities.
Nick Jefferies
Group Chief Executive
Simon Gibbins
Group Finance Director
30 November 2021
Condensed consolidated income statement
(unaudited)
for the six months ended 30 September
2021
Six months Six months
ended ended Year
30 Sept 30 Sept ended
2021 2020* 31 Mar 2021*
Notes GBPm GBPm GBPm
Continuing operations
Revenue 4 174.3 143.8 302.8
Cost of sales (107.1) (89.9) (187.7)
-------------------------------------------- -------- ------------ ----------- --------------
Gross profit 67.2 53.9 115.1
Selling and distribution costs (18.0) (15.3) (32.3)
Administrative expenses (including
underlying adjustments) (40.9) (31.1) (65.7)
Operating profit 4 8.3 7.5 17.1
Finance income 0.2 0.1 0.3
Finance costs (2.1) (2.0) (3.9)
Profit before tax 6.4 5.6 13.5
Tax expense 6 (3.4) (1.9) (4.0)
Profit for the period from continuing
operations 3.0 3.7 9.5
-------------------------------------------- -------- ------------ ----------- --------------
Discontinued operations
Profit for the period from discontinued
operations 3.2 1.6 2.5
Profit for the period 6.2 5.3 12.0
-------------------------------------------- -------- ------------ ----------- --------------
Earnings per share
Basic, profit from continuing
operations 8 3.3p 4.2p 10.7p
Diluted, profit from continuing
operations 8 3.2p 4.0p 10.3p
Basic, profit for the year 8 6.9p 6.0p 13.5p
Diluted, profit for the year 8 6.6p 5.8p 13.0p
-------------------------------------------- -------- ----------- --------------
Supplementary income statement
information
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar 2021*
Underlying Performance Measure Notes 2021 2020* GBPm
GBPm GBPm
Operating profit 4 8.3 7.5 17.1
Add: Acquisition and merger expenses 5 3.3 0.6 1.2
Amortisation of acquired intangible
assets 5 6.4 5.3 11.1
IAS 19 pension charge - 0.2 1.4
-------------------------------------------- -------- ------------ ----------- --------------
Underlying operating profit 18.0 13.6 30.8
-------------------------------------------- -------- ------------ ----------- --------------
Profit before tax 6.4 5.6 13.5
Add: Acquisition and merger expenses 5 3.3 0.6 1.2
Amortisation of acquired intangible
assets 5 6.4 5.3 11.1
Total IAS 19 pension charge 5 - 0.2 1.4
Underlying profit before tax 16.1 11.7 27.2
-------- ------------ -----------
Underlying earnings per share 8 13.0p 9.5p 22.4p
* Re-presented for discontinued operations (note 10)
Condensed consolidated statement of comprehensive income
(unaudited)
for the six months ended 30 September 2021
Unaudited Unaudited
six months six months Audited
ended ended year
30 Sept 30 Sept ended
2021 2020 31 Mar 2021
GBPm GBPm GBPm
--------------------------------------------- ------------ ------------ -------------
Profit for the period 6.2 5.3 12.0
--------------------------------------------- ------------ ------------ -------------
Other comprehensive income/(loss):
Items that will not be subsequently
reclassified to profit or loss:
Actuarial gain/(loss) on defined benefit
pension scheme 0.4 (3.6) (3.4)
Deferred tax (charge)/credit relating
to defined benefit pension scheme (0.1) 0.7 0.6
--------------------------------------------- ------------ ------------ -------------
0.3 (2.9) (2.8)
--------------------------------------------- ------------ ------------ -------------
Items that may be subsequently reclassified
to profit or loss:
Exchange differences on translation
of foreign subsidiaries 2.7 3.3 (0.5)
2.7 3.3 (0.5)
--------------------------------------------- ------------ ------------ -------------
Other comprehensive income/(loss)
for the period, net of tax 3.0 0.4 (3.3)
--------------------------------------------- ------------ ------------ -------------
Total comprehensive income for the
period, net of tax 9.2 5.7 8.7
--------------------------------------------- ------------ ------------ -------------
Condensed consolidated statement of financial position
(unaudited)
at 30 September 2021
Unaudited Unaudited Audited
at 30 Sept at 30 Sept at 31 March
Notes 2021 2020 2021
GBPm GBPm GBPm
--------------------------------------- -------- ------------ ------------ -------------
Non-current assets
Property, plant and equipment 22.8 24.6 23.5
Intangible assets - goodwill 172.7 119.7 127.9
Intangible assets - other 97.0 59.8 63.3
Right of use assets 22.5 20.6 22.4
Pension surplus 13 0.1 - -
Deferred tax assets 11.0 7.5 7.9
--------------------------------------- -------- ------------ ------------ -------------
326.1 232.2 245.0
--------------------------------------- -------- ------------ ------------ -------------
Current assets
Inventories 70.1 69.3 67.7
Trade and other receivables 63.9 80.4 84.9
Current tax assets 1.8 2.1 1.8
Cash and cash equivalents 12 19.9 30.3 29.2
--------------------------------------- -------- ------------ ------------ -------------
155.7 182.1 183.6
--------------------------------------- -------- ------------ ------------ -------------
Assets in a disposal group classified
as held for sale 10 91.2 - -
Total assets 573.0 414.3 428.6
Current liabilities
Trade and other payables (88.1) (85.2) (94.8)
Other financial liabilities (2.1) (3.6) (0.8)
Lease liabilities (4.6) (5.2) (4.8)
Current tax liabilities (8.0) (6.5) (5.6)
Provisions (2.0) (1.1) (1.8)
--------------------------------------- -------- ------------ ------------ -------------
(104.8) (101.6) (107.8)
--------------------------------------- -------- ------------ ------------ -------------
Non-current liabilities
Trade and other payables (1.4) (3.7) (0.8)
Other financial liabilities (119.6) (68.8) (75.6)
Lease liabilities (17.0) (14.8) (16.7)
Pension liability 13 - (1.1) (1.0)
Provisions (4.5) (4.7) (5.4)
Deferred tax liabilities (21.0) (12.6) (12.5)
(163.5) (105.7) (112.0)
--------------------------------------- -------- ------------ ------------ -------------
Liabilities in a disposal group
classified as held for sale 10 (35.4) - -
Total liabilities (303.7) (207.3) (219.8)
--------------------------------------- -------- ------------ ------------ -------------
Net assets 269.3 207.0 208.8
--------------------------------------- -------- ------------ ------------ -------------
Equity
Share capital 4.7 4.4 4.4
Share premium account 192.0 138.8 138.8
Merger reserve 13.7 22.7 19.9
Currency translation reserve - 1.1 (2.7)
Retained earnings 58.9 40.0 48.4
Total equity 269.3 207.0 208.8
--------------------------------------- -------- ------------ ------------ -------------
Condensed consolidated statement of changes in equity
(unaudited)
for the six months ended 30 September 2021
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 2021 4.4 138.8 19.9 (2.7) 48.4 208.8
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Profit for the period - - - - 6.2 6.2
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Other comprehensive
income - - - 2.7 0.3 3.0
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Total comprehensive
income - - - 2.7 6.5 9.2
Shares issued 0.3 53.2 - - - 53.5
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Share-based payments
including tax - - - - 4.0 4.0
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Transfer to retained
earnings - - (6.2) - 6.2 -
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Dividends - - - - (6.2) (6.2)
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
At 30 September 2021
- unaudited 4.7 192.0 13.7 - 58.9 269.3
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
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
including tax - - - - 0.8 0.8
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
At 30 September 2020
- unaudited 4.4 138.8 22.7 1.1 40.0 207.0
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
At 1 April 2020 4.4 138.8 22.7 (2.2) 36.8 200.5
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Profit for the period - - - - 12.0 12.0
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Other comprehensive
loss - - - (0.5) (2.8) (3.3)
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Total comprehensive
income - - - (0.5) 9.2 8.7
Share-based payments
including tax - - - - 2.4 2.4
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Transfer to retained
earnings - - (2.8) - 2.8 -
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
Dividends - - - - (2.8) (2.8)
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
At 31 March 2021 -
audited 4.4 138.8 19.9 (2.7) 48.4 208.8
----------------------- ---------- ---------- ---------- ------------- ----------- ---------
As at 30 September 2021, the Company's issued share capital
consisted of 94,806,109 ordinary shares of 5p each (31 March 2021:
89,455,915 ordinary shares of 5p each).
Condensed consolidated statement of cash flows (unaudited)
for the six months ended 30 September 2021
Unaudited Unaudited
six months six months Audited
ended ended year
30 Sept 30 Sept ended
2021 2020 31 Mar 2021
Notes GBPm GBPm GBPm
--------------------------------------------- ------ ------------ ------------ -------------
Net cash inflow from operating activities 11 13.9 24.7 46.6
Investing activities
Acquisitions of businesses (net of
cash/(debt) acquired) (83.9) - (20.8)
Purchase of property, plant and equipment (2.6) (1.3) (3.2)
Purchase of intangible assets - software (0.2) (0.2) (0.7)
Proceeds from disposal of property,
plant and equipment - - 0.3
Interest received 0.2 0.1 0.3
Net cash used in investing activities (86.5) (1.4) (24.1)
--------------------------------------------- ------ ------------ ------------ -------------
Financing activities
Net proceeds from the issue of shares 53.4 - 0.1
Proceeds from borrowings 100.0 - 9.3
Repayment of borrowings (56.5) (26.6) (27.8)
Principal element of lease payments (3.1) (3.1) (6.1)
Interest paid on lease liabilities (0.4) (0.3) (0.6)
Dividends paid (6.2) - (2.8)
Net cash generated/(absorbed) from
financing activities 87.2 (30.0) (27.9)
--------------------------------------------- ------ ------------ ------------ -------------
Net increase/(decrease) in cash and
cash equivalents 14.6 (6.7) (5.4)
Cash and cash equivalents at beginning
of period 28.2 34.8 34.8
Net foreign exchange differences 1.0 0.4 (1.2)
--------------------------------------------- ------ ------------ ------------ -------------
Cash and cash equivalents at end
of period 43.8 28.5 28.2
--------------------------------------------- ------ ------------ ------------ -------------
Reconciliation to cash and cash equivalents
in the condensed consolidated statement
of financial position
Cash and cash equivalents shown above 43.8 28.5 28.2
Less cash within assets held for
sale 10 (26.2) - -
Add bank overdrafts 2.3 1.8 1.0
Cash and cash equivalents in the
condensed consolidated statement
of financial position 19.9 30.3 29.2
--------------------------------------------- ------ ------------ ------------ -------------
Further information on the condensed consolidated statement of
cash flows is provided in notes 11 and 12.
Notes to the interim condensed consolidated financial
statements
for the six months ended 30 September 2021
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 2021 were authorised for issue by the
Board of Directors on 30 November 2021. 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 2021 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 United Kingdom. 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
consolidated financial statements for the year ended 31 March 2021,
which were prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006 and the applicable legal requirements of the Companies Act
2006. The consolidated 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 2021 are
available on request from the Company's registered office or on its
website.
As at 30 September 2021 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 2021 was
GBP75.6m compared with GBP47.2m at the year end. The Group's
gearing ratio at the end of the period (being net debt divided by
underlying EBITDA as annualised for acquisitions) was 1.3x compared
with 1.1x at 31 March 2021 (0.9x pro-forma at 30 September 2021
including the impact of the recently announced disposal of Acal BFi
distribution business and Vertec SA). 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 reviewed the downside scenarios to the
forecasts taking into account the principal risks and uncertainties
as set out in the A nnual R eport and A ccounts for the year ended
31 March 2021. 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 2021. 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
2021.
Discontinued operations and assets held for sale
The Group reports a business as a discontinued operation when it
has been disposed of in a period, or its future sale is considered
to be highly probable at the balance sheet date, and results in the
cessation of a major line of business or geographical area of
operation. An asset or liability is classified as held for sale if
it is available for immediate sale in its present condition subject
only to terms that are usual and customary for sales of such assets
and that it is highly probable the asset will be sold within one
year from the date of classification.
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
from continuing operations excluding acquisition related
expenditure (namely amortisation of acquired intangible assets and
acquisition and merger expenses).
Acquisition and merger expenses comprise all attributable costs
in connection with business acquisitions and disposals and any
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 part of the
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.
Total EBITDA
"Total EBITDA" is defined as underlying EBITDA plus EBITDA of
discontinued operations.
Underlying profit before tax
"Underlying profit before tax" is defined as profit before tax
from continuing operations excluding acquisition related
expenditure (namely amortisation of acquired intangible assets and
acquisition and merger expenses).
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 total EBITDA adjusted for
the investment in, or release of, working capital and less the cash
cost of capital expenditure.
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, excluding acquisitions in the current
period.
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
post completion (Phoenix was acquired in October 2020, Limitor in
February 2021, CPI in May 2021, Antenova in August 2021 and Beacon
in September 2021). Organic growth compared with two years ago
excludes the first 24 months of acquisitions so also excludes
Sens-Tech acquired in October 2019.
3. New accounting standards and financial reporting
requirements
New standards not yet effective
There are no IFRSs or IFRIC interpretations applicable for the
current reporting period that have a material impact on the current
or future reporting periods.
4. Segmental reporting
Following the announcement of the disposal of the Acal BFi
distribution business and Vertec SA, the Custom Supply segment has
been classified as discontinued operations. The small residual
business in the Custom Supply segment has been transferred to the
continuing Design & Manufacturing division. The prior periods
have been re-presented to reflect this change.
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.
Six months to 30 September 2021
Design & Unallocated Total continuing
Manufacturing costs operations
GBPm GBPm GBPm
Revenue 174.3 - 174.3
------------------------------------- --------------- ------------ -----------------
Underlying operating profit/(loss) 23.9 (5.9) 18.0
Acquisition and merger expenses (3.3) - (3.3)
Amortisation of acquired intangible
assets (6.4) - (6.4)
Operating profit/(loss) 14.2 (5.9) 8.3
------------------------------------- --------------- ------------ -----------------
Six months to 30 September 2020
Design & Unallocated Total continuing
Manufacturing* costs operations
GBPm GBPm GBPm
Revenue 143.8 - 143.8
------------------------------------- ---------------- ------------ -----------------
Underlying operating profit/(loss) 17.5 (3.9) 13.6
Acquisition and merger expenses (0.6) - (0.6)
Amortisation of acquired intangible
assets (5.3) - (5.3)
IAS 19 pension charge - (0.2) (0.2)
-------------------------------------
Operating profit/(loss) 11.6 (4.1) 7.5
------------------------------------- ---------------- ------------ -----------------
Year to 31 March 2021
Design & Unallocated Total continuing
Manufacturing* costs operations
GBPm GBPm GBPm
Revenue 302.8 - 302.8
------------------------------------- ---------------- ------------ -----------------
Underlying operating profit/(loss) 38.9 (8.1) 30.8
Acquisition and merger expenses (1.2) - (1.2)
Amortisation of acquired intangible
assets (11.1) - (11.1)
IAS 19 pension charge - (1.4) (1.4)
Operating profit/(loss) 26.6 (9.5) 17.1
------------------------------------- ---------------- ------------ -----------------
* Re-presented for discontinued operations (note 10)
5. Underlying profit before tax
Six months
ended Six months Year
30 Sept ended ended
2021 30 Sept 2020* 31 Mar 2021*
GBPm GBPm GBPm
Profit before tax 6.4 5.6 13.5
Add back: Acquisition and
merger expenses (a) 3.3 0.6 1.2
Amortisation of acquired
intangibles (b) 6.4 5.3 11.1
IAS19 pension costs (c) - 0.2 1.4
------------------------------------------- ----- ----------- --------------- --------------
Underlying profit before tax 16.1 11.7 27.2
-------------------------------------------------- ----------- --------------- --------------
* Re-presented for discontinued operations (note 10)
The tax impact of the underlying profit adjustments above is a
credit of GBP0.6m (H1 2020/21: GBP1.0m).
a) Acquisition and merger related expenses of GBP3.3m comprise
GBP1.6m of transaction costs in relation to the acquisition of CPI,
Antenova, Beacon and ongoing transactions; GBP1.3m of charge
relating to the movement in fair value of contingent consideration
on past acquisitions; and GBP0.4m charge in relation to the
integration of acquired businesses in North America.
During the prior year there were GBP1.2m of acquisition and
merger related expenses. GBP1.0m of transaction costs were incurred
in relation to the acquisition of Phoenix, Limitor and ongoing
transactions. There was a net contingent consideration credit of
GBP0.2m in relation to current and past acquisitions and GBP0.4m
charge in relation to the integration of acquired businesses in
North America.
b) Amortisation charge for intangible assets recognised for
business combinations. The increase in charge from the comparative
period in the prior year reflects the full year impact of
acquisitions in the prior year and the acquisitions in the current
financial year.
c) Pension costs in the prior periods related to the Group's
legacy defined benefit pension scheme..
6. Taxation
The underlying tax charge for continuing operations for the
period was GBP4.0m (H1 2020/21: GBP2.9m) giving an underlying
effective tax rate on underlying profit before tax of 25% (H1
2020/21: 25%) which is 1% higher than the rate for FY 2020/21 of
24%. The prior year rate benefitted to a greater extent from the
recognition of certain tax losses.
The tax credit in respect of the underlying adjustments to
continuing operations was GBP0.6m (H1 2020/21: GBP1.0m). This gives
an overall tax charge for the period of GBP3.4m (H1 2020/21:
GBP1.9m) on profit before tax from continuing operations of GBP6.4m
(H1 2020/21: GBP5.6m) which is an effective tax rate of 53% (H1
2020/21: 34%). The higher effective rate is partly due to limited
tax relief available on acquisition and merger expenses. In
addition, the tax credit on amortisation of acquired intangibles
was impacted by the increase in the UK corporation tax rate from
19% to 25% with effect from FY 2023/24 onwards, which was
substantively enacted in May 2021. The overall tax charge for the
period was increased by GBP0.7m to reflect the resulting increase
in the deferred tax liability on intangibles.
7. Dividends
The Directors have declared an interim dividend of 3.35 pence
per share (H1 2020/21: 3.15 pence) payable on 14 January 2022 to
shareholders on the register at 17 December 2021.
In accordance with IAS 10, this dividend has not been reflected
in the interim results. The cash cost of the interim dividend will
be GBP3.2m (H1 2020/21: GBP2.8m).
8. 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
2021 2020* 2021*
GBPm GBPm GBPm
Continuing operations 3.0 3.7 9.5
Discontinued operations 3.2 1.6 2.5
----------------------------------------------- ----------- ----------- -----------
Profit for the period 6.2 5.3 12.0
----------------------------------------------- ----------- ----------- -----------
Number Number Number
Weighted average number of shares for basic
earnings per share 89,606,780 88,740,383 88,753,576
Effect of dilution - share options 3,701,699 3,430,052 3,469,048
----------------------------------------------- ----------- ----------- -----------
Adjusted weighted average number of shares
for diluted earnings per share 93,308,479 92,170,435 92,222,624
----------------------------------------------- ----------- ----------- -----------
Earnings per share from continuing operations
- basic 3.3p 4.2p 10.7p
Earnings per share from continuing operations
- diluted 3.2p 4.0p 10.3p
Earnings per share - basic 6.9p 6.0p 13.5p
Earnings per share - diluted 6.6p 5.8p 13.0p
----------------------------------------------- ----------- ----------- -----------
* Re-presented for discontinued operations (note 10)
At the period end, there were 4.1 million ordinary share options
in issue that could potentially dilute earnings per share in the
future, of which 3.7 million are currently dilutive (30 September
2020: 3.9 million in issue and 3.4 million dilutive, 31 March 2021:
3.9 million in issue and 3.5 million dilutive).
Underlying earnings per share
Underlying earnings per share are calculated as follows:
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2021 2020* 2021*
GBPm GBPm GBPm
Profit for the period from continuing operations 3.0 3.7 9.5
Acquisition and merger expenses 3.3 0.6 1.2
Amortisation of acquired intangible assets 6.4 5.3 11.1
IAS 19 pension costs - 0.2 1.4
Tax effects of acquisition costs, exceptional
items, amortisation of acquired intangible
assets and IAS 19 pension costs (0.6) (1.0) (2.5)
Underlying profit for the period 12.1 8.8 20.7
-------------------------------------------------- ----------- ----------- -----------
Number Number Number
Weighted average number of shares for basic
earnings per share 89,606,780 88,740,383 88,753,576
Effect of dilution - share options 3,701,699 3,430,052 3,469,048
-------------------------------------------------- ----------- ----------- -----------
Adjusted weighted average number of shares
for diluted earnings per share 93,308,479 92,170,435 92,222,624
-------------------------------------------------- ----------- ----------- -----------
Underlying earnings per share 13.0p 9.5p 22.4p
* Re-presented for discontinued operations (note 10)
9. Business combinations
Acquisitions in the period ended 30 September 2021
Acquisition of CPI
On 13 May 2021, the Group completed the acquisition of Control
Products Inc ("CPI") via the purchase of 100% of the share capital
and voting equity interests of Calculagraph Corporation, and which
trades under the name of Control Products Inc ("CPI"). CPI, based
in the USA, is a designer and manufacturer of custom, rugged
sensors and switches.
CPI was acquired for an initial cash consideration of GBP8.7m
($12.2m), before expenses, funded from the Group's existing debt
facilities. In addition, a contingent payment of up to GBP3.8m
($5.4m) will be payable subject to CPI achieving certain
operational and profit growth targets during the four-year period
ending 31 March 2025. GBP2.2m ($3.2m) fair value of contingent
consideration has been accounted for in the purchase price at the
acquisition date. There has been no change in the fair value of
contingent consideration between the acquisition date and 30
September 2021.
The provisional fair value of the identifiable assets and
liabilities of CPI at the date of acquisition were:
Provisional
fair value
recognised
at acquisition
GBPm
------------------------------------- -----------------
Intangible assets - other (customer
relationships) 4.4
Right of use assets 0.6
Inventories 0.9
Trade and other receivables 0.4
Net cash 0.6
Trade and other payables (0.4)
Lease liabilities (0.6)
Total identifiable net assets 5.9
Provisional goodwill arising
on acquisition 5.2
--------------------------------------- ----------------
Total investment 11.1
--------------------------------------- ----------------
Discharged by
Cash 8.7
Purchase price adjustments 0.2
Contingent consideration 2.2
11.1
------------------------------------- ----------------
Net cash outflows in respect of the acquisition comprise:
Total
GBPm
------------------------------------------------ ------
Cash consideration 8.7
Transaction costs of the acquisition (included
in operating cash flows) (1) 0.3
Net cash acquired (0.6)
-------------------------------------------------- ------
8.4
------------------------------------------------ ------
1) Acquisition costs of GBP0.3m and GBP0.1m were expensed as
incurred in the period ended 30 September 2021 and the year ended
31 March 2021 respectively. These were included within
administrative expenses.
Included in cash flow from investing activities is the cash
consideration of GBP8.7m and the net cash acquired of GBP0.6m.
Acquisition of Antenova
On 25 August 2021, the Group completed the acquisition of 100%
of the share capital and voting equity interests of Antenova Ltd
("Antenova"). Antenova, based in the UK, is a designer and
manufacturer of antennas and radio frequency (RF) modules for
industrial connectivity applications.
Antenova was acquired for a cash consideration of GBP20.5m,
before expenses, funded from the Group's existing debt
facilities.
The provisional fair value of the identifiable assets and
liabilities of Antenova at the date of acquisition were:
Provisional
fair value
recognised
at acquisition
GBPm
------------------------------------ -----------------
Property, plant and equipment 0.2
Intangible assets -other (customer
relationships) 8.6
Right of use assets 0.8
Inventories 0.6
Trade and other receivables 0.9
Net cash 3.0
Trade and other payables (1.2)
Current tax liabilities (0.1)
Deferred tax liabilities (1.9)
Lease liabilities (0.8)
Total identifiable net assets 10.1
Provisional goodwill arising
on acquisition 10.6
-------------------------------------- ----------------
Total investment 20.7
-------------------------------------- ----------------
Discharged by
Cash 20.5
Purchase price adjustments 0.2
20.7
------------------------------------ ----------------
Net cash outflows in respect of the acquisition comprise:
Total
GBPm
------------------------------------------------ ------
Cash consideration 20.5
Transaction costs of the acquisition (included
in operating cash flows) (1) 0.4
Net cash acquired (3.0)
-------------------------------------------------- ------
17.9
------------------------------------------------ ------
1) Acquisition costs of GBP0.4m were expensed as incurred in the
period ended 30 September 2021. These were included within
administrative expenses.
Included in cash flow from investing activities is the cash
consideration of GBP20.5m and the net cash acquired of GBP3.0m.
Acquisition of Beacon
On 2 September 2021, the Group completed the acquisition of
Beacon EmbeddedWorks ("Beacon") via the purchase of 100% of the
share capital and voting equity interests of Logic PD Inc which
trades under the name of Beacon EmbeddedWorks ("Beacon"). Beacon,
based in the USA, designer, manufacturer and supplier of custom
System on Module (SOM) embedded computing boards and related
software, supplying the medical, industrial and aerospace &
defence markets in the US.
Beacon was acquired for a cash consideration of GBP57.7m
($79.4m), before expenses, funded from the Group's existing debt
facilities.
The provisional fair value of the identifiable assets and
liabilities of Beacon at the date of acquisition were:
Provisional
fair value
recognised
at acquisition
GBPm
------------------------------------- -----------------
Property, plant and equipment 0.4
Intangible assets - other (customer
relationships) 26.2
Right of use assets 2.1
Inventories 2.9
Trade and other receivables 1.9
Trade and other payables (3.9)
Deferred tax liabilities (6.3)
Lease liabilities (2.1)
Total identifiable net assets 21.2
Provisional goodwill arising
on acquisition 36.5
--------------------------------------- ----------------
Total investment 57.7
--------------------------------------- ----------------
Discharged by
Cash 57.7
57.7
------------------------------------- ----------------
Net cash outflows in respect of the acquisition comprise:
Total
GBPm
------------------------------------------------ ------
Cash consideration 57.7
Transaction costs of the acquisition (included
in operating cash flows) (1) 0.7
58.4
------------------------------------------------ ------
1) Acquisition costs of GBP0.7m were expensed as incurred in the
period ended 30 September 2021. These were included within
administrative expenses.
Included in cash flow from investing activities is the cash
consideration of GBP57.7m.
Acquisitions in the year ended 31 March 2021
A purchase price adjustment of GBP0.6m was paid during the first
half in connection with the Limitor acquisition made in the prior
year. No other changes have been made to the provisional values of
the assets and liabilities recorded as part business combinations
in the prior year.
10. Discontinued operations and assets held for sale
The Group announced the disposal of Vertec SA on 4 October 2021
and the disposal of Acal BFi on 9 November 2021. The completion of
sale of the two businesses is subject to certain consultation
requirements and regulatory approvals which are expected to be
received during the current financial year.
As at 30 September 2021, the disposal group was available for
immediate sale in its present condition and the sale was considered
highly probable. The assets and liabilities of the disposal group
have been classified as held for sale in the condensed statement of
financial position. The disposal group also represents a major line
of business and has been reported as discontinued operations.
The results of the discontinued operations for the period and
the prior periods are presented below:
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2021 2020 2021
GBPm GBPm GBPm
Revenue 86.5 74.1 151.5
Cost of sales (63.2) (55.7) (111.3)
Gross profit 23.3 18.4 40.2
Selling and distribution costs (12.2) (11.2) (25.5)
Administrative expenses* (6.4) (5.0) (11.1)
------------------------------------------------ ----------- ----------- --------
Operating profit 4.7 2.2 3.6
Finance costs (0.1) (0.1) (0.1)
------------------------------------------------ ----------- ----------- --------
Profit before tax from discontinued operations 4.6 2.1 3.5
Tax expense (1.4) (0.5) (1.0)
------------------------------------------------ ----------- ----------- --------
Profit for the year from discontinued
operations 3.2 1.6 2.5
------------------------------------------------ ----------- ----------- --------
Earnings per share
at 30 Sept at 30 Sept at 31 March
2021 2020 2021
GBPm GBPm GBPm
Basic profit per share on discontinued
operations 3.6p 1.8p 2.8p
Diluted profit per share on discontinued
operations 3.4p 1.8p 2.7p
------------------------------------------ ----------- ----------- ------------
*included with administrative expenses are disposal related
costs of GBP0.9m (H1 2020/21: GBPnil, FY 2020/21: GBP0.8m)
Cash flows relating to discontinued operations
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2021 2020 2021
GBPm GBPm GBPm
--------------------------------------------- ----------- ----------- --------
Net cash inflow from operating activities 3.5 5.3 11.9
Net cash outflows from investing activities (0.3) - (0.1)
Net cash outflows from financing activities (1.1) (1.3) (2.3)
Net increase in cash and cash equivalents 2.1 4.0 9.5
--------------------------------------------- ----------- ----------- --------
Assets classified as held for sale
The major classes of assets and liabilities classified as held
for sale at 30 September 2021 are summarised below:
at 30 Sept
2021
GBPm
------------------------------- -------------
Property, plant and equipment 1.8
Intangible assets - goodwill 9.6
Right of use assets 6.1
Deferred tax assets 0.5
Inventories 15.0
Trade and other receivables 32.0
Cash and cash equivalents 26.2
------------------------------- -------------
Total assets 91.2
------------------------------- -------------
Trade and other payables (27.2)
Lease liabilities (6.0)
Current tax liabilities (0.3)
Provisions (1.9)
Total liabilities (35.4)
------------------------------- -------------
11. Reconciliation of cash flow from operating activities
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2021 2020 2021
GBPm GBPm GBPm
----------------------------------------------- ----------- ----------- --------
Profit from continuing operations 3.0 3.7 9.5
Profit from discontinued operations 3.2 1.6 2.5
Profit for the period 6.2 5.3 12.0
Taxation expense 4.8 2.4 5.0
Net finance costs 2.0 2.0 3.7
Depreciation of property, plant and equipment 2.4 2.4 4.9
Depreciation of right of use assets 3.4 3.4 6.6
Amortisation of intangible assets 6.7 5.6 11.7
Gain on disposal of property, plant and 0.1 - -
equipment
Change in provisions 0.6 0.2 1.0
Pension scheme funding (0.9) (0.9) (1.8)
IAS 19 pension charge 0.2 0.2 1.4
Equity-settled share based payment expense
and associated taxes 1.4 0.8 1.1
----------------------------------------------- ----------- ----------- --------
Operating cash flows before changes in
working capital 26.9 21.4 45.6
----------------------------------------------- ----------- ----------- --------
Decrease in inventories (11.8) (0.1) (0.1)
(Decrease)/increase in trade and other
receivables (6.9) 12.0 5.5
Increase/(decrease) in trade and other
payables 10.5 (3.8) 6.2
----------------------------------------------- ----------- ----------- --------
(Decrease)/increase in working capital (8.2) 8.1 11.6
----------------------------------------------- ----------- ----------- --------
Cash generated from operations 18.7 29.5 57.2
Interest paid (1.8) (1.8) (3.4)
Net income taxes paid (3.0) (3.0) (7.2)
----------------------------------------------- ----------- ----------- --------
Net cash inflow from operating activities 13.9 24.7 46.6
----------------------------------------------- ----------- ----------- --------
12. Closing net debt
At At
30 Sept 30 Sept At
2021 2020 31 Mar 2021
GBPm GBPm GBPm
------------------------------------------- --------- --------- -------------
Borrowings - current - overdrafts (2.3) (1.8) (1.0)
Borrowings - current portion of long term
debt (0.2) (2.3) (0.3)
Borrowings - non current (120.1) (69.7) (76.3)
Capitalised debt cost 0.9 1.4 1.2
Cash and cash equivalents 19.9 30.3 29.2
Cash and cash equivalents in assets held 26.2 - -
for sale
------------------------------------------- --------- --------- -------------
Closing net debt (75.6) (42.1) (47.2)
------------------------------------------- --------- --------- -------------
Reconciliation of movement in cash and net debt
Six months Six months
ended ended Year
30 Sept 30 Sept ended
2021 2020 31 Mar 2021
GBPm GBPm GBPm
-------------------------------------------- ----------- ----------- -------------
Net increase/(decrease) in cash and cash
equivalents 14.6 (6.7) (5.4)
Proceeds from borrowings (100.0) - (9.3)
Repayment of borrowings 56.5 26.6 27.8
-------------------------------------------- -----------
(Decrease)/increase in net cash before
translation differences (28.9) 19.9 13.1
Translation and other non-cash changes 0.5 (0.7) 1.0
-------------------------------------------- ----------- ----------- -------------
Decrease/increase in net cash (28.4) 19.2 14.1
Net debt at beginning of the period (47.2) (61.3) (61.3)
-------------------------------------------- ----------- ----------- -------------
Net debt at end of the period (75.6) (42.1) (47.2)
-------------------------------------------- ----------- ----------- -------------
Supplementary information to the statement
of cash flows
Six months Six months
ended ended Year
30 Sept 30 Sept ended
2021 2020 31 Mar 2021
Underlying Performance Measure GBPm GBPm GBPm
(Decrease)/increase in net cash before
translation differences (28.9) 19.9 13.1
Add: Business acquisitions 86.7 0.2 21.8
Dividends paid 6.2 - 2.8
Less: Net proceeds from share issue (53.4) - (0.1)
Free cash flow 10.6 20.1 37.6
-------------------------------------------- ----------- ----------- -------------
Executive options issuance - - 3.1
Legacy pension scheme funding 0.9 0.9 1.8
Net finance costs 1.6 1.7 -
Taxation 3.0 3.0 7.2
-------------------------------------------- ----------- ----------- -------------
Operating cash flow 16.1 25.7 49.7
-------------------------------------------- ----------- ----------- -------------
13. 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 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 2021. The scheme's triennial valuation as
at 31 March 2021 is ongoing and expected to be completed by the end
of the current financial year.
The IAS 19 defined benefit pension scheme asset at 30 September
2021 was GBP0.1m (31 March 2021: GBP1.0m liability). The movement
principally relates to the changes in actuarial assumptions and
cash contributions in the period.
14. 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 2021 Sept 2020 2021
----------- ------------------- ---------------------- ----------------------
Closing Average Closing Average Closing Average
rate rate rate rate rate rate
----------- --------- -------- ---------- ---------- ---------- ----------
US Dollar 1.3456 1.3883 1.2833 1.2660 1.3760 1.3075
----------- --------- -------- ---------- ---------- ---------- ----------
Euro 1.1621 1.1650 1.0961 1.1167 1.1736 1.1207
----------- --------- -------- ---------- ---------- ---------- ----------
Norwegian
Krone 11.8125 11.8918 12.1673 12.1149 11.7306 11.9697
----------- --------- -------- ---------- ---------- ---------- ----------
15. Events after the reporting date
Sale of Acal BFi distribution business and Vertec SA
business
On 9 November 2021, the Group announced the disposal of Acal BFi
for an upfront consideration of GBP45m on a debt free, cash free
basis, before expenses. In addition, deferred consideration of
GBP5m will be payable in 3 years from completion of the
disposal.
On 4 October 2021, the Group announced the disposal of Vertec SA
for an upfront consideration of ZAR 25m (GBP1.25m) before
transaction costs and subject to certain completion adjustments
with deferred consideration of ZAR 20m (GBP1.0m) payable in cash
over the next three years.
The completion of sale of the Acal BFi business and Vertec SA is
subject to certain consultation requirements and regulatory
approvals, which are expected to be received in the current
financial year.
16. 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 2021 interim
results published on 30 November 2021 will not be sent to
shareholders. The 2021 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 BIBDBSGDDGBC
(END) Dow Jones Newswires
November 30, 2021 02:00 ET (07:00 GMT)
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