TIDMDSCV
RNS Number : 6438A
discoverIE Group plc
03 June 2021
3 JUNE 2021
discoverIE Group plc
Preliminary results for the year ended 31 March 2021
Strong second half recovery with record order book and excellent
cash generation
discoverIE Group plc (LSE: DSCV, "discoverIE" or "the Group"), a
leading international designer, manufacturer and supplier of
customised electronics to industry , today announces its results
for the year ended 31 March 2021 ("FY 2020/21" or the "Year").
FY FY 2019/20 Movement
2020/21 %
Revenue GBP454.3m GBP466.4m (3%)
Underlying operating
profit(1) GBP35.2m GBP37.1m (5%)
Underlying profit before
tax(1) GBP31.5m GBP32.8m (4%)
Underlying EPS(1) 26.0p 30.2p (14%)
Reported profit before
tax GBP17.0m GBP19.5m (13%)
Reported fully diluted
EPS 13.0p 16.5p (21%)
Free cash flow(2) GBP37.6m GBP27.3m +38%
Gearing(3) 1.1x 1.25x (0.15x)
Full year dividend
per share 10.15p 2.97p 242%(4)
Highlights
-- Strong second half order growth(5) with sales returning to organic growth(6) by year end
o H2 orders up 12% organically and 40% above H1
o H2 sales up 10% on H1 and returned to organic growth for the
last two months
o Record year end order book, up 11% organically to GBP181m
-- Resilient trading during pandemic reflects strength of
operating model and target market(7) focus
o Group adapted quickly to pandemic, creating safe working
practices and maintaining service levels
o Full year Group sales 6% lower organically with target markets
well ahead of wider markets
o Gross margin increased by 0.6ppts to 34.2% (FY 2019/20:
33.6%)
o Underlying operating expenses reduced by 2% and working
capital by 13%
o Underlying PBT recovered to be 3% higher than last year in H2,
and 4% lower for the year
o EPS of 26.0p, ahead of expectations
-- Excellent cash generation with resumption of acquisitions and dividends in H2
o GBP38m of free cash flow, up 38% on last year and 157% of
post-tax profit
o Two acquisitions completed during H2 for GBP21m (Phoenix and
Limitor)
o ROCE(8) for the year recovered well to 14.5% (H2: 15.6%; H1
12.7%)
o Year-end gearing down to 1.1x, well below target range of 1.5x
to 2.0x
o Full year dividend increased by 6% over FY 2018/19 (last full
dividend payment)
-- Key strategic initiatives on track towards FY 2024/25 targets
o 65% of Group sales in D&M(9) , up 1ppt, with a target of
greater than 75%
o Sales in target markets of 70%, up 2ppts, with a target of
85%
o Carbon emissions reduced by 19% and by 6% underlying(10)
o Underlying operating margin of 7.7%, 0.3ppts lower, with a
target of 12.5%
-- New year has started well with record order book
o Strong order intake continues and ahead of sales
o Organic sales growth over the last two years
o Completed US sensor acquisition (Control Products Inc) in May
2021
o Strong pipeline of acquisition opportunities
Nick Jefferies, Group Chie f Executive, commented:
"This year challenged us in ways we couldn't have foreseen. Our
dedicated employees responded quickly, creating a new normal
operating environment with COVID safety at its core, whilst
continuing operations with minimal disruption to customers.
The second half saw a strong recovery following the uncertainty
of the first half, with orders increasing organically by 12%
year-on-year and the Group returning to organic sales growth by the
year end. A record order book, up 15%, leads the way for sales
growth in the year ahead. Together with robust gross margins and
tight management of expenditure throughout the year, underlying
earnings ended the year ahead of expectations.
Cash generation was excellent with GBP38m of free cash flow for
the year reducing gearing to 1.1x. As well as demonstrating the
cash generating capability of our businesses and the strength of
the operating model, this provides us with the capacity to pursue
further value enhancing acquisitions.
The new financial year has started well with organic sales
growth ahead of last year and the year before
and continuing strong orders running ahead of sales across all
territories.
With a clear strategy focussed on long-term high quality growth
markets, a diversified customer base, excellent order book and a
strong pipeline of acquisition opportunities, we are well
positioned to make further progress on our key strategic
priorities."
Analyst and investor presentation
A virtual results briefing for analysts and investors will be
held today at 9.30am (UK time) via a live webinar.
If you would like to join the webinar, please contact Buchanan
at discoverIE@buchanan.uk.com.
Enquiries :
discoverIE Group plc
Nick Jefferies Group Chief Executive
Simon Gibbins Group Finance Director 01483 544 500
Buchanan
Chris Lane, Toto Berger
discoverIE@buchanan.uk.com 020 7466 5000
Notes:
(1) 'Underlying Operating Profit', 'Underlying EBITDA',
'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 exclude acquisition-related costs (amortisation of
acquired intangible assets of GBP11.1m, acquisition and merger
expenses of GBP2.0m and the IAS19 pension charge relating to a
legacy defined benefit scheme of GBP1.4m) totalling GBP14.5m.
Equivalent underlying adjustments within the FY 2019/20 underlying
results totalled GBP13.3m. For further information, see note 5 of
the attached summary financial statements.
(2) Free cash flow is cash flow before dividends, acquisitions and equity fund raising.
(3) Gearing is defined as net debt divided by underlying EBITDA
(excluding IFRS 16, annualised for acquisitions).
(4) No final dividend declared for FY 2019/20 as part of COVID
cash saving measures. The final dividend for this year is 6% higher
than the last full dividend declared in FY 2018/19.
(5) Growth rates are at constant exchange rates ("CER") and
refer to the comparable prior year period unless stated. The
average sterling rate of exchange against the Euro weakened by 2%
compared with the average rate last year, and by 2% on average
against the three Nordic currencies, but strengthened by 3%
compared with the US dollar rate for last year.
(6) Organic growth for the Group is calculated at CER and is
shown excluding the first 12 months of acquisitions post completion
(Sens-Tech was acquired in October 2019, Phoenix in October 2020
and Limitor in February 2021).
(7) Target markets are renewable energy, medical, transportation, industrial & connectivity.
(8) Return on capital employed ("ROCE") is defined as underlying
operating profit as a percentage of net assets plus net debt,
including an annualisation of acquisitions.
(9) D&M is the Group's Design & Manufacturing division.
(10) Carbon emission reductions were 19% from CY 2019 to CY 2020
on a like-for-like basis excluding acquisitions in CY 2020; on an
underlying basis (i.e with emissions adjusted to normalise the
impact of COVID-19), carbon emission reductions were 6%.
Notes to Editors:
About discoverIE Group plc
discoverIE Group plc is an international group of businesses
that designs, manufactures and supplies innovative components for
electronic applications.
The Group provides application-specific components to original
equipment manufacturers ("OEMs") internationally. By designing
components that meet customers' unique requirements, which are then
manufactured and supplied throughout the life of their production,
a high level of repeating revenue is generated with long term
customer relationships.
With a focus on key markets driven by structural growth and
increasing electronic content, namely renewable energy, 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 employs c.4,400 people and its principal operating
units are located in Continental Europe, the UK, China, Sri Lanka,
India and North America.
The Group is listed on the Main Market of the London Stock
Exchange and is in the top quartile of the FTSE Small Cap Index,
classified within the Electrical Components and Equipment
subsector, and has revenues of over GBP450m.
CHAIRMAN'S STATEMENT
This year coincided with the unprecedented COVID-19 pandemic,
testing every aspect of the Group's business. The Group's multiple
operations around the world responded quickly, establishing safe
working practices and maintaining continuity. While the effects of
the pandemic are evident in these results, the Group's ability to
mitigate the impact and to rebound strongly in the second half
represents a very creditable performance, while continuing to make
progress on the strategic priorities.
Cash generation was very strong, reflecting both the quality of
earnings generated by the business and the efficient nature of the
Group's operating model. This, together with a number of prudent
actions taken in the first half, such as suspending acquisitions
and dividends, served to reduce gearing to the lowest level in
seven years, minimised risk and enabled a strong recovery as
conditions improved in the second half.
The Group is committed to reducing the impact of its business
operations on the environment. Along with its focus on selling into
markets that are aligned with a sustainable future, the Group has
introduced an important sustainability target this year, to reduce
its carbon emissions by 50% over five years, and good progress has
been made to date.
Throughout the year, the Group has demonstrated the quality and
resilience of its businesses and, with good levels of operational
and funding capacity, is well positioned for continued growth in
the year ahead.
Strategy
discoverIE is a customised electronics business operating
internationally, focusing on structurally growing markets driven by
increasing electronic content and where there is an essential need
for our products. The Group's product range is highly
differentiated, being customised for specific applications.
With our target markets being worldwide and major customers
operating internationally, the business is expanding both within
and beyond Europe, building an international electronics group
supplying complex, value-added solutions for international
customers.
Alongside organic growth, acquisitions have made a significant
contribution to the development of the D&M division and over
the 11 years to 31 March 2021, we have acquired 16 specialist, high
margin D&M businesses which have been integrated successfully,
helping to drive our growth. An additional business has been
acquired since the year end. We have a well-developed and
disciplined approach to acquisitions and continue to see
significant scope for further expansion of the D&M division
with several acquisition opportunities in development.
The Group's capital-light model delivers strong cash flows which
we look to reinvest into accelerating the strategy and delivering
further value creation for shareholders.
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 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 emphasis in market areas that
are inconsistent with a long term sustainable agenda.
The Group also aims to be a socially responsible employer,
adhering to the highest ethical standards both internally and
externally through its supply chain, with excellent employee
relations and a commitment to increasing diversity in the
workplace.
Reporting to the Board, the Group Executive Committee has
responsibility for ESG implementation around the Group and each
member has the achievement of ESG objectives included in their
bonus plans.
Group Results Summary
Group sales for the year reduced by 3% to GBP454.3m, with
underlying operating profit, which excludes acquisition-related
costs, reducing by 5% to GBP35.2m and underlying profit before tax
reducing by 4% to GBP31.5m.
Underlying earnings per share for the year reduced by 14% to
26.0p (FY 2019/20: 30.2p) as a result of the combined effect of
share capital increasing by 6% following equity fund-raising last
year, the underlying tax rate increasing by 4ppts to 24% and
profitability reducing by 5%.
After accounting for acquisition-related costs of GBP14.5m (FY
2019/20: GBP13.3m), profit before tax for the year on a reported
basis was GBP17.0m, 13% lower than last year (FY 2019/20: GBP19.5m)
with fully diluted earnings per share of 13.0p (FY 2019/20:
16.5p).
Free cash flow increased by 38% to GBP37.6m (157% of underlying
profit after tax) driven by an inflow from lower working capital as
well as swift operational actions taken in response to COVID-19.
This resulted in net debt reducing by GBP35.9m during the year
(before including the cost of two acquisitions) with net debt at
the year end of GBP47.2m and a gearing ratio of 1.1x, reducing by
0.15x over the year (gearing: 1.25x at 31 March 2020).
Acquisitions
The Group paused acquisitions during the first half during the
height of the pandemic to preserve resources, recommencing in the
second half. The Group made two acquisitions of specialist sensor
manufacturers: the German-based Limitor GmbH ("Limitor") and the
trade and assets of the US-based Phoenix America Inc ("Phoenix"),
for a combined initial cash consideration of GBP21.2m on a debt
free, cash free basis.
Both businesses are being integrated into the Group and now
operate within the Variohm sensors cluster in the D&M division,
retaining their distinct identity and high-quality management
teams. Their complementary product ranges and wider access to
customers should create cross-selling opportunities in our target
markets and drive further growth. Both businesses have started well
and in line with expectations, delivering organic growth in orders
and sales.
Since the year end, we have also acquired Control Products Inc
("CPI"), a New Jersey, USA, based designer and manufacturer of
custom, rugged sensors and switches for GBP8m on a debt free, cash
free basis.
We are delighted to welcome the employees of all three
businesses into the Group.
COVID-19
The Group responded decisively to the coronavirus pandemic at
the beginning of the year, prioritising the well-being of employees
and trading partners, supporting customers, quickly developing
solutions for medical market customers, maintaining business
continuity and preserving resources.
Widespread changes were made to operating procedures across the
Group's 29 international manufacturing locations with high levels
of operational continuity and only a small number of short term
site closures, as required by local government regulations, which
has continued into the new year.
Employees and Culture
On behalf of the Board, I would like to thank everybody at
discoverIE for their commitment and hard work, particularly during
this unprecedented period, when their flexibility, resilience,
initiative and support have demonstrated, beyond all expectations,
their quality and capability.
The Group comprises approximately 4,400 employees in 24
countries around the world. By adopting an entrepreneurial and
decentralised operating environment with rigorous planning, review,
support, investment and controls, and with a commitment to
increasing diversity, the Group has created an ambitious and
successful culture.
We aim to achieve a culture across the Group that:
- is entrepreneurial
- is honest, reliable, trusting and non-political
- enables decision making close to the customer through a decentralised structure
- enables open, constructive communication with a willingness to listen
- is performance, target and results driven
Dividend
Last year, with the onset of COVID-19, the Board took the
prudent decision not to declare a final dividend for FY 2019/20.
With an improving outlook by the third quarter, and strong cash
flow, the Board reinstated dividends in November 2020 with a 6%
increase in this year's interim dividend to 3.15p per share (H1
2019/20: 2.97p per share).
With the Group's performance continuing to improve, the Board is
recommending a final dividend of 7.0p per share, giving a full year
dividend of 10.15p per share, 6% higher than the pre-pandemic
dividend for FY 2018/19 of 9.55p per share. This represents a cover
against underlying earnings of 2.6 times (FY 2018/19: 2.8 times).
The final dividend is payable on 3 August 2021 to shareholders
registered on 11 June 2021. 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 with a
long term dividend cover of over three times against underlying
earnings. This will enable us to fund both dividend growth and a
higher level of investment in acquisitions from internally
generated resources.
Summary
With these results, the Group has demonstrated its strength and
adaptability through a year of unprecedented market and operational
conditions. The benefits of discoverIE's clear commercial and
operational strategy, which delivered strong organic growth during
the 'up' cycle of the previous few years, have enabled the Group to
demonstrate real resilience through the pandemic and leave it well
positioned to capitalise on the significant long term opportunities
ahead.
By focussing on custom products in attractive growth markets,
the Group has a high-quality business with excellent prospects. The
customised electronics market remains highly fragmented, providing
scope to further build capability and extend geographic coverage
through disciplined acquisitions.
Despite the challenges still posed by the pandemic in certain
parts of the world, the Board and management are excited by the
opportunities ahead to continue building a global business that
attracts and retains high quality employees, delivers exceptional
value to our customers, grows long term returns for our
shareholders, contributes to the creation of a sustainable
environment and that adheres to the highest standards.
Malcolm Diamond
Chairman
3 June 2021
STRATEGIC AND OPERATIONAL REVIEW
Overview
The Group is pursuing its clear and established strategy of
focussing on growing opportunities for customised electronic
products in targeted growth markets, namely renewable energy,
medical, transportation and industrial & connectivity. Group
organic sales were 6% lower than last year (4% lower in the D&M
division and 8% lower in the Custom Supply division) due to the
effects of COVID-19. Performance in our target markets, which
accounted for 70% of Group sales, has been better than other
markets which were more severely affected by the global pandemic.
Including acquisitions, Group sales reduced by 3% on a reported
basis and by 4% CER to GBP454.3m.
As a result of the uncertainty caused by the onset of the
pandemic, customers significantly reduced their placement of new
orders in April and May 2020 to cover a much shorter period, with
the result that orders for the first half were 18% lower than last
year organically with a book to bill ratio of 0.91:1. The situation
stabilised over the summer, and orders picked up strongly in the
second half being 40% higher than the first half at CER and up 12%
organically, as longer term orders resumed. Orders were
significantly ahead of sales with the book to bill ratio of 1.19:1
for the second half and 1.05:1 for the full year. This strong
second half order growth resulted in a record order book at the
year end of GBP181m, 15% higher than last year at CER, and 11%
higher organically.
During the year, we introduced a carbon emissions reduction
target, with the intention to reduce Group emissions by 50% over
five years. Along with the focus on selling into markets that are
aligned with a sustainable future, this target reflects the Group's
commitment to reducing the impact of its operations on the
environment. A good start has been made with underlying carbon
emissions reducing by 6% in calendar 2020 since last year. Overall
carbon emissions reduced by 19%, the difference being savings
arising from the impact of the pandemic on our operations including
sites closures, freight and travel reductions.
COVID-19
The Group responded decisively to the emergence of the COVID-19
pandemic, prioritising the well-being of employees, supporting
customers and trading partners, developing fast solutions for
medical market customers, and maintaining business continuity. W
hilst sales in China, which were impacted by the pandemic at the
end of last year have recovered quickly and returned to growth, its
effects have been felt across all other regions where the Group
operates.
The Group has operations in 24 countries, with 29 manufacturing
facilities in 18 of those countries across Europe, the UK, Asia and
the Americas. Four facilities (Sri Lanka, California and two in
India) were required by government mandate to close for short
periods during the first half. By the year end, all sites were open
with capacity mostly back to normal levels as organic sales growth
returned to the Group in the last two months of the year. The
recent escalation of the pandemic in India, where the Group has two
production facilities, and Sri Lanka, has resulted in some
disruption to those operations. We expect this situation may
continue for some time and are making arrangements to mitigate the
impact. The effects on the Group overall are expected to be
minimal.
With a decentralised structure , the Group was able to adapt
quickly to establish safe working practices and appropriate
distancing measures, with each business making changes to suit its
particular needs and welfare requirements. At its peak, around 650
employees were working from home although this has since
reduced.
During the year we took prudent actions to preserve cash and
reduce operating expenses, including:
- Deferral of non-essential capital expenditure and other discretionary spend
- Freezes in pay rises and hiring
- 20% salary reduction for the Board and Group Executive
Committee for three months and reduced bonuses for the Group
Executive Committee
- Increased focus on working capital efficiency
These actions led to organic operating costs being 2% lower than
last year, a reduction of 4% over last year's second half run rate,
with working capital and capital expenditure being 13% and 43%
lower than last year respectively. These reductions all helped to
achieve strong operating cash generation for the year of GBP49.7m,
up 26% on last year (141% of underlying operating profits).
Additionally, during the first half, acquisitions were deferred
and no final dividend was made for the year ended 31 March 2020. By
the second half, with an improving outlook, continuing strong cash
generation and low gearing, the Group repaid all UK furlough
payments received, resumed acquisitions with two deals completed,
and resumed its dividend with a 6% uplift compared with FY 2018/19,
the last year pre-pandemic.
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 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 emphasis in market areas that
are inconsistent with a long term sustainable agenda.
Our target sales markets are well aligned to a sustainable
agenda and last year we set ourselves the goal of achieving 85% of
sales from those target markets by the end of FY 2024/25. By the
end of this year, sales from target markets were 70% of Group sales
and 75% of sales in our D&M division.
Please refer to the Group's Impact Report which will be
published online with the Annual Report and Accounts and which
illustrates how the Group is helping meet the sustainability
challenges facing the world today.
Carbon emissions
During the year we introduced carbon reduction targets for the
Group. With 29 manufacturing locations, the primary source (80%) of
our emissions is from purchased electricity (Scope 2 emissions).
The remainder are mainly from vehicles (Scope 1).
We plan to reduce emissions by sourcing electricity from
renewable and lower or zero carbon sources and to reduce
electricity demand through more efficient working practices. This
will include both sustainably generated grid sourced power and the
installation of renewable power sources at some sites.
It is planned to achieve a 50% reduction in carbon emissions
from existing businesses over 5 years and additionally, it is
targeted that for newly acquired businesses, within the first 5
years of ownership, at least 50% of their energy demand will be
generated from renewable sources.
During the year the Group committed to invest c.GBP1m in capital
expenditure for renewable energy generation in Sri Lanka and Poland
which will be installed in the coming year. Good progress towards
our targets has been made in calendar year 2020 with a 6%
year-on-year reduction in underlying carbon emissions. Overall
carbon emissions were 19% lower.
Brexit
As expected, discoverIE has not been materially impacted by
Brexit, and although there was some minor disruption in the first
few weeks as new border processes were established, this has since
settled.
As an international business, exposure to Brexit risks are low,
with only 12% of sales in the UK and minimal cross border trade
between the UK & the EU. The majority of sales in the UK are of
products manufactured outside the EU, predominantly in Asia and the
US, and are unaffected.
Prior to Brexit, changes had been made to some warehousing and
logistics to hold a buffer stock in the country of demand to
minimise the effects of any border disruption.
Group Strategy
The Group designs, manufactures and supplies 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 Europe (28% of Group sales and 36% of
D&M sales are now outside Europe) as we build a geographically
diverse electronics group.
Acquisitions have made a significant contribution to the
development of the D&M division and over the 11 years to 31
March 2021, we have acquired 16 specialist, high margin D&M
businesses which have been integrated successfully, helping to
drive our growth alongside our key organic focus. A further
acquisition has been completed since the year end. We have a
well-developed and disciplined approach to acquisitions and the use
of capital, and we see significant scope for further expansion of
the D&M division with several acquisition opportunities in
development.
Our strategy comprises four elements:
1. Grow sales well ahead of GDP over the economic cycle by
focussing on the structural growth markets that form our target
markets;
2. Move up the value chain by continuing to build revenues in
the higher margin D&M division;
3. Acquire businesses with attractive growth prospects and strong operating margins;
4. Further internationalise the business by developing
operations in North America and Asia.
These elements are underpinned by a core objective of generating
strong cash flows from a capital-light model, and delivering
long-term sustainable returns.
Target Markets
Our four focus target markets of renewable energy, medical,
transportation, and industrial & connectivity account for 75%
of D&M turnover and 70% of Group turnover. These markets are
expected to drive the Group's organic revenue growth well ahead of
GDP over the economic cycle and create acquisition
opportunities.
During the year, sales to target markets continued to perform
well ahead of sales into other markets, both in the D&M
division and in the Group overall. Target market sales reduced by
only 3% organically while other markets reduced by 9%, resulting in
D&M organic sales being 4% lower organically and Group organic
sales being 6% lower.
Growth in these markets is driven by increasing electronic
content and by global trends such as the accelerating need for
renewable sources of energy and an ageing affluent population.
i) Renewable Energy
Mega trend - decarbonisation and diversification of energy
sources
The increasing global requirement for clean electricity is
leading to the rapid deployment of sustainable energy generation.
According to the International Energy Agency (IEA), renewable
energy production needs to increase by 7% p.a. globally, driving
the proportion of global electricity production coming from
renewable energy to increase from 28% in 2019 to 49% in 2030. The
Group's focus is on wind and solar energy which in 2020 accounted
for around two thirds of global growth. We anticipate that demand
for renewable energy will accelerate further.
ii) Medical
Mega trend - sensing, analytics and artificial intelligence
Driven by the increasing use of technology in diagnosing,
monitoring and controlling medical conditions, as well as an
increasingly affluent and ageing global population which now
accounts for the majority of healthcare spending in developed
economies, the medical electronics market is expected to continue
growing steadily. The medical sensors market is forecast to grow by
10% p.a. (2021 - 2026) according to Mordor market intelligence.
iii) Transportation
Mega trend - vehicle electrification
The Group is particularly focussed on rail and bus
transportation, electrification infrastructure and specialist
vehicle electrification, all of which are important for the urban
environment and consistent with the sustainability agenda.
Electronic content is increasingly driven by electrification,
safety, intelligence, automation and convenience. External reports
indicate that the rail electrification and vehicle charging markets
will grow at a combined 11% p.a. from 2020 through to 2025.
iv) Industrial & Connectivity
Mega trend - industrial automation and connectivity
Technology proliferation is creating opportunities for
widespread connectivity of equipment and devices, and is being
increasingly adopted in industry and automation for remote
monitoring and control. With a focus on sustainable markets, we
concentrate on improving efficiency in industrial market
applications that are aligned with a sustainable growth agenda,
including fibre optic and wireless connectivity applications within
these markets. According to Grandview research, the global
industrial automation market is forecast to grow by 8.6% p.a. from
2019 to 2025.
Engineering-led Sales Model
Our business model has three core capabilities:
- Engineering - our primary and leading differentiator. By
understanding our customers' design challenges we design and create
products that address their specific needs.
- Manufacturing - we manufacture individually designed products
to a repeatedly and consistently high standard at one or more of
our production facilities internationally.
- Logistics - we supply our products internationally to
customers' various production locations over the life of their
demand, typically for five to seven years.
We apply these capabilities to develop long term, embedded
relationships with our customers as follows:
- Understanding customer needs
By listening to and understanding customers' needs, we help
solve their technical challenges to create more effective,
efficient, productive and sustainable equipment and comply with
increasingly stringent environmental, health, safety and
performance requirements.
- Enduring customer relationships
Our sales model creates a unique understanding of customers'
needs and builds long term relationships that last for many
years.
- Engineering-led solutions
By applying our extensive technical knowledge of applications
and design, our engineers create unique products for customers'
specific needs.
- Recurring revenues
Our designs are specified into our customers' system designs,
leading to multiple years of repeated monthly demand and creating
stable, recurring revenue streams.
- Regional manufacturing
Manufacturing locations in Europe, Asia and the Americas provide
regional supply for customers, reducing transit times, costs and
environmental impact as well as providing flexibility and reducing
risk of disruption.
Additionally, we acquire businesses with similar
characteristics, building our product capability and international
presence. With many customers operating internationally, it is
necessary for us to have a presence in the major regions of the
world and with the market being highly fragmented, numerous
opportunities exist for us to acquire complementary businesses.
Key Strategic and Performance Indicators
Since 2014, the Group's progress with its strategic objectives
and its financial performance have been measured through key
strategic indicators ("KSIs") and key performance indicators
("KPIs"). Our KSI targets have been raised each time they are
achieved, and in June 2020, we set increased targets for 31 March
2025.
Key Strategic Indicators
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY FY25
21 Target
-----
1. Increase share
of Group revenue
from D&M (1) 18% 37% 48% 52% 57% 61% 64% 65% >75%
2. Increase underlying
operating margin 3.4% 4.9% 5.7% 5.9% 6.3% 7.0% 8.0% 7.7% 12.5%
3. Build sales beyond
Europe(1) 5% 12% 17% 19% 19% 21% 27% 28% 40%
4. Target market
sales (1) n/d n/d n/d 56% 62% 66% 68% 70% 85%
(1) As a percentage of Group revenue
n/d: not previously disclosed
During the year, the Group made further progress with its KSIs
despite the impact of COVID-19.
- The higher margin D&M division delivered 65% of Group
sales, up 1ppt on last year (FY 2019/20: 64%), generating 87% of
the Group's underlying operating profit contribution (FY 2019/20:
84%); importantly, customer concentration remains low with no
single customer accounting for more than 7% of Group sales;
- Underlying operating margin was impacted by reduced sales in
the year resulting from the global slowdown caused by the pandemic
partly offset by savings from lower operating costs, reducing by
0.3ppts to 7.7%. We aim to achieve organic margin improvement
through growth-based efficiencies and to acquire businesses with
margins that are higher than our D&M division, with a target in
the next four years to increase the Group's margin to 12.5%;
- 28% of Group sales were beyond Europe, in line with last year,
with sales arising from stronger organic growth in Asia and the
acquisition of the US based Phoenix, being offset by weaker organic
sales in North America and the acquisition of the Germany based
Limitor. We continue to seek acquisitions with high quality
international revenues with a target to reach 40% of sales by FY
2024/25; and
- In June 2020, we introduced a new mid-term target of achieving
85% of Group sales from our target markets, all of which have
long-term growth momentum. Since first publishing this data, target
market sales have increased from 56% of Group sales in FY 2016/17
to 70% this year, with an increase of 2ppts over last year. As in
previous years, sales in target markets outperformed sales in other
markets with target market sales in D&M reducing by 3%
organically compared with other markets which were 10% lower.
Key Performance Indicators
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Target
1. Sales growth
Well ahead
CER 17% 36% 14% 6% 11% 14% 8% (4%) of GDP
D&M organic 3% 9% 3% (1%) 11% 10% 5% (4%)
Group organic 2% 3% 3% (1%) 6% 8% 2% (6%)
2. Underlying
EPS growth 20% 31% 10% 13% 16% 22% 11% (14%) >10%
3. Dividend
growth 10% 11% 6% 6% 6% 6% 6%(1) 6%(2) Progressive
4. ROCE (3) 15.2% 12.0% 11.6% 13.0% 13.7% 15.4% 16.0% 14.5% >15%
>85% of
underlying
5. Operating operating
profit conversion(3) 100% 104% 100% 136% 85% 93% 106% 141% profit
------ ------ ------ ------
>85% of
6. Free cash underlying
conversion (3) 94% 104% 157% PAT
------ ------
7. Carbon emissions (6%)(4) 50% reduction
to CY25
-------- --------------
(1) 6% increase in the H1 2019/20 interim dividend; a final
dividend was not proposed for FY 2019/20 due to COVID-19
(2) 6% increase over FY 2018/19, the last full dividend payment
year
(3) Defined in Note 5 of the attached summary financial
statements
(4) Annual carbon emissions for CY 2020 reduced by 19% on a
like-for-like basis and by 6% on an underlying basis (adjusted to
normalise the impact of COVID-19)
The performance of each of our KPIs for this year was as
follows:
- Group organic sales reduced by 6% driven by a stronger
performance in our target markets in D&M where organic sales
were 3% lower. Second half organic sales reduced by 3% and returned
to growth for the last two months of the year;
- Underlying EPS for the year was 14% below last year (FY
2019/20: +11%), a combination of the equity issuance in the second
half last year, increased underlying tax rates and the impact of
COVID-19;
- As part of the cash conservation actions taken earlier in the
year, a final dividend for last year was not paid. With greater
visibility and improving conditions, dividends resumed this year at
a level 6% higher than in FY2018/19 (the last full dividend payment
year), aligned with our progressive dividend policy;
- ROCE reduced to 14.5% (FY 2019/20: 16.0%) reflecting the lower
underlying operating profit resulting from COVID-19. First half
ROCE reduced to 12.7% before recovering to 15.6% in the second
half, ahead of our 15% target;
- Operating cash conversion for the year was very strong at 141%
of underlying operating profit, reflecting tight management of
working capital, working capital inflow from lower sales and lower
capital expenditure throughout the year. Over the last eight years
since targets were introduced, operating cash conversion has been
consistently strong through the cycle;
- Strong operating cash flow has translated into strong free
cash conversion (being cash available for dividends and
acquisitions) at 157% of profit after tax. This target was
established last year as we seek to become a business which can
increasingly and repeatedly self-fund acquisitions; and
- A new target was introduced during the year for the reduction
of carbon emissions from our 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% on a like-for-like basis
and by 6% on an underlying basis adjusted for the effects of
COVID-19.
Order Book
During the second half, the Group order book grew strongly and
finished the year at a record level of GBP181m, an increase of 15%
CER compared with last year. Second half orders increased 29% over
the first half more than offsetting the 11% year on year reduction
in the first half. On an organic basis, the Group order book
increased by 11%.
The order book is driven by repeating revenues from existing
customer projects as well as by the conversion of new project
design wins into new orders. The pandemic had the effect of
customers temporarily shortening their order windows amidst the
uncertainty. During the second half, customers resumed placing
longer term orders. Over 80% of the order book is for delivery
within twelve months from the time of order.
Design Wins
Project design wins are a measurement of new business creation.
By working with customers at an early stage in their project design
cycle, we identify opportunities for our products to be specified
into their designs, which then lead to future revenue streams.
Design wins were 15% lower for the year, with the second half
being 12% lower and the first half 19% lower. Second half design
wins were 3% higher sequentially than the first half and were
supported by an increase in new project activity, albeit that this
was still lower than for the same prior year period.
Over 90% of design wins in the D&M division and 60% in the
Custom Supply division were in the target markets.
The Group has a strong bank of design wins built up over several
years that creates the basis for the strong order growth now being
experienced.
Divisional Results
Divisional and Group performance for the year ended 31 March
2021 are set out and reviewed below.
FY 2020/21 FY 2019/20 Revenue CER Organic
growth revenue revenue
growth growth
------------------------------
Revenue Underlying Margin Revenue Underlying Margin
GBPm operating GBPm operating
profit profit
(1) (1)
GBPm GBPm
-------- ----------- ------- -------- ----------- -------
Design &
Manufacturing 296.6 37.7 12.7% 297.9 38.1 12.8% 0% (1%) (4%)
Custom Supply 157.7 5.6 3.6% 168.5 7.3 4.3% (6%) (8%) (8%)
Head office
costs (8.1) (8.3)
-------- ----------- ------- -------- ----------- ------- -------- --------- ---------
Total 454.3 35.2 7.7% 466.4 37.1 8.0% (3%) (4%) (6%)
-------- ----------- ------- -------- ----------- ------- -------- --------- ---------
(1) Underlying operating profit excludes acquisition-related
costs.
Design & Manufacturing Division
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.
Growth in the first half was impacted by short term site
closures, as required by local government regulations in Sri Lanka,
India and the US to combat COVID-19. These sites were all open
during the second half and operating at normal capacity by the end
of the year. Our two Chinese facilities, which were closed
temporarily in the fourth quarter of the last financial year,
recovered quickly with Asian sales up 11% this year. All other
sites remained open throughout the year, several with essential
supplier status classification, and a number operated at reduced
capacity but are mostly now back to normal capacity. At the time of
writing, lockdown restrictions are affecting our sites in India and
Sri Lanka and while causing some disruption, these are minor in
nature at a Group level.
Demand in our German and Rest of Europe businesses was resilient
with organic sales 3% and 1% lower than last year respectively.
Organic sales in other territories were more impacted, including
the UK (15% lower), the Nordic region (8% lower) and North America
(17% lower). Asia and North America now account for 36% of D&M
revenues up from 22% five years ago. Demand was much better in
target markets (75% of D&M sales) with sales only 3% lower than
last year compared with 9% in the other markets.
Organic orders recovered strongly in the second half increasing
by 10%, partially offsetting an 18% fall in the first half for a
net 4% organic reduction for the year to GBP307.0m with a book to
bill ratio of 1.04:1. Second half orders were 40% higher than the
first half at CER.
The second half also saw a noticeable improvement in organic
sales being only 2% lower than last year compared with 7% lower in
the first half for a net 4% reduction in organic sales for the
year. Together with a 3% sales contribution from acquisitions,
overall reported sales of GBP296.6m were broadly level with last
year (FY 2019/20: GBP297.9m), with second half reported sales
increasing by 1%.
D&M revenue was 65% of Group revenue, an increase of 1ppt
over last year (FY 2019/20: 64%) and further progress towards our
mid-term target for D&M to exceed 75% of Group revenue.
Underlying operating profit of GBP37.7m was GBP0.4m (1%) lower
than last year (FY 2019/20: GBP38.1m), or 1% lower at CER, and was
87% of the Group's underlying profit contribution, up 3ppts on last
year (FY 2019/20: 84%).
The underlying operating margin of 12.7% was 0.1ppts lower than
last year (FY 2019/20: 12.8%) reflecting the positive effect of
operating efficiencies and higher margin acquisitions largely
offsetting the impact of lower sales resulting from the
pandemic.
Acquisitions
We acquire businesses that are successful and profitable with
good growth prospects, led by entrepreneurial management teams
where we can invest for growth and operational performance
development. We operate a decentralised structure and an
entrepreneurial culture with the business unit leadership empowered
to make decisions and act quickly. The market is highly fragmented
with many opportunities to acquire and consolidate. According to
circumstances, the Group adds value in some of or all of the
following areas:
- Internationalising sales channels and expanding the customer
base, including Group cross-selling initiatives;
- Focussing sales development onto target market areas and
enabling growth with larger customers;
- Developing and expanding the product range;
- Investing in management capability ('scaling up') and succession planning;
- Capital investment in manufacturing and infrastructure,
improving efficiency in manufacturing, warehousing and freight;
- Finance and administrative support, such as treasury, banking,
legal, pension, tax and insurance;
- Installing Group risk, control, ESG and diversity policies;
- Longer term strategic planning for the business; and
- Expanding the acquired business through further acquisitions.
During the year, the Group completed two acquisitions:-
1) In October 2020, the trade and assets of Phoenix America Inc
("Phoenix"), a US designer and manufacturer of magnetically
actuated sensors, encoders and related products, for an initial
cash consideration of $11.0m (GBP8.5m) on a debt free, cash free
basis and a contingent payment of up to $1.5m (GBP1.2m), subject to
the achievement of certain growth targets over a three year period.
Phoenix is based in Fort Wayne, Indiana.
2) In February 2021, Limitor GmbH, a German designer and
manufacturer of custom thermal safety sensors and limiters, for an
initial consideration of EUR14.5m (GBP12.8m) on a debt free, cash
free basis and a contingent payment of up to EUR3.5m (GBP3.1m)
subject to the achievement of certain growth targets over a three
year period. Limitor is based near Urbach, Germany, with production
in Pécs , Hungary.
Both will operate within the Variohm business cluster in the
D&M division, retaining their distinct brand identity 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.
Also, since the year end, in May 2021, we completed the
acquisition of Control Products Inc ("CPI"), a New Jersey, USA,
based designer and manufacturer of custom, rugged sensors and
switches, for $11.4m (GBP8.1m) on a debt free, cash free basis.
In the 11 years to 31 March 2021, the Group has successfully
completed 16 D&M acquisitions contributing to an increase in
D&M revenues from GBP15m in FY 2012/13 to GBP297m in FY 2020/21
with Group operating margins increasing by 5ppts to 8% over the
same period, and increasing D&M operating margins to c.13%. The
Group's operating model is well established, facilitating the
smooth integration of acquired businesses, with a combination of
investment in growth and efficiency while leveraging the Group's
commercial infrastructure. The D&M businesses acquired and
owned for at least two years delivered an average return on
investment of 16% over the life of those acquisitions, ahead of our
target of 15%. While this is a 1ppt lower average than last year
due to the pandemic's impact on profits, it illustrates the
strength and resilience of our acquired businesses.
Custom Supply Division
The Custom Supply division provides customised electronic,
photonic and medical products for technically demanding
applications in industrial, medical and healthcare markets. The
business operates similarly to the D&M division, but with
products that are mostly sourced from third party suppliers rather
than manufactured in-house. As such, operating margins are lower
than in the D&M division. Additionally, the division acts as a
sales channel through which to cross-sell D&M products.
The division comprises two businesses, Acal BFi and Vertec. Acal
BFi supplies industrial markets and accounts for most of the
divisional revenue. It supplies products from third party
manufacturers to customers in five technology areas: Communications
& Sensors, Power & Magnetics, Electromechanical &
Cabling, Microsystems, and Imaging & Photonics. The business
operates across Europe, with centralised warehousing, purchasing
and finance, supplier contact management and IT systems. Vertec
supplies exclusively sourced medical imaging and radiotherapy
products into medical and healthcare markets in the UK and South
Africa.
The division's trading for the year was more impacted by the
pandemic than D&M, due to sales being predominately in Europe
and with a lower percentage of sales in the more resilient target
markets (60% of sales in target markets in Custom Supply compared
with 75% in D&M). R eported divisional revenue was 6% lower
than last year at GBP157.7m (FY 2019/20: GBP168.5m) with organic
sales 8% lower, the difference being the translation benefit from a
net weakening of Sterling compared with last year. The second half
saw a noticeable improvement with organic sales 6% lower compared
with 10% lower in the first half. Orders of GBP173.0m were in line
with last year organically with a book to bill ratio of 1.09:1.
Similar to D&M, second half orders increased by 16%
organically, offsetting a similar level fall in the first half to
be c.40% ahead of first half levels.
Underlying operating profit for the year reduced by GBP1.7m on
last year to GBP5.6m (or GBP1.8m lower at CER) with an underlying
operating margin of 3.6% (FY 2019/20: GBP7.3m at 4.3%). Gross
margins remained strong and operating expenditure reducing 4%
compared with last year's second half run rate, partly offsetting
the impact of lower sales.
Summary and Outlook
This year challenged us in ways we couldn't have foreseen. Our
dedicated employees responded quickly, creating a new normal
operating environment with COVID safety at its core, whilst
continuing operations with minimal disruption to customers.
The second half saw a strong recovery following the uncertainty
of the first half, with orders increasing organically by 12%
year-on-year and the Group returning to organic sales growth by the
year end. A record order book, up 15%, leads the way for sales
growth in the year ahead. Together with robust gross margins and
tight management of expenditure throughout the year, underlying
earnings ended the year ahead of expectations.
Cash generation was excellent with GBP38m of free cash flow for
the year reducing gearing to 1.1x. As well as demonstrating the
cash generating capability of our businesses and the strength of
the operating model, this provides us with the capacity to pursue
further value enhancing acquisitions.
The new financial year has started well with organic sales
growth ahead of last year and the year before
and continuing strong orders running ahead of sales across all
territories.
With a clear strategy focussed on long-term high quality growth
markets, a diversified customer base, excellent order book and a
strong pipeline of acquisition opportunities, we are well
positioned to make further progress on our key strategic
priorities.
Nick Jefferies
Group Chief Executive
3 June 2021
FINANCE REVIEW
Revenue and Orders
Reflecting the impact of the pandemic across the Group, sales of
GBP454.3m were 6% lower organically than last year, second half
sales being 3% lower and first half sales being 8% lower. The
acquired businesses of Sens-Tech in October last year, and Phoenix
and Limitor this year, added 2% to sales, such that overall Group
sales reduced by 3% on both a CER and reported basis (FY 2019/20:
GBP466.4m).
FY %
GBPm 2020/21 FY 2019/20
Reported revenue 454.3 466.4 (3%)
FX translation impact 4.6
----------- -----
Underlying revenue (CER) 454.3 471.0 (4%)
Acquisitions (9.5) -
Organic revenue 444.8 471.0 (6%)
With 90% of Group sales in non-Sterling currencies, the
translation of Group results into Sterling was positively impacted
by Sterling being on average 2% weaker against the Euro and Nordic
currencies during the year, partially offset by 3% strength against
the US dollar.
Group orders reduced by 2% organically for the year to GBP480.0m
with a book to bill ratio of 1.06:1. Second half orders rebounded
strongly growing 12% organically with a book to bill ratio of
1.19:1 following the pandemic-impacted first half with orders 18%
lower and a book to bill ratio of 0.91:1.
Gross Margin and Gross Profit
Group gross margin increased 0.6ppts in the year to 34.2% (FY
2019/20: 33.6%). This is the highest Group gross margin since the
current strategy was implemented 11 years ago. Organic gross
margins were robust and increased by 0.1ppt with high gross margin
acquisitions adding 0.5ppts.
With the benefit of the higher gross margin year-on-year, gross
profit for the year of GBP155.3m was only 1% lower than last year
(FY 2019/20: GBP156.7m).
The Group continues with its policy of hedging foreign exchange
transactions from the point of order through to settlement.
Underlying Operating Costs
At the outset of the pandemic, the Group took prudent actions to
preserve cash and reduce expenditure including deferral of
discretionary spend, freezes in pay rises and hiring, a three month
20% salary reduction for the Board and Group Executive Committee
and reduced bonus opportunity for the Group Executive Committee.
The combined effect of these actions was to reduce Group underlying
operating costs for the year by 2% organically and by 4% compared
with the second half run rate from last year.
FY %
GBPm 2020/21 FY 2019/20
Organic operating costs 118.0 120.4 (2%)
Acquisition operating
costs 2.1
----------- -----
Underlying operating
costs (CER) 120.1 120.4 0%
FX translation (0.8)
Underlying adjustments
(see below) 14.5 13.3
Reported operating costs 134.6 132.9 1%
FY
GBPm 2020/21 FY 2019/20
Selling and distribution
costs 57.8 58.1
Administrative expenses 76.8 74.8
--------- -----------
Reported operating costs 134.6 132.9
--------- -----------
Group Operating Profit and Margin
Group underlying operating profit for the year was GBP35.2m, a
reduction of GBP1.9m on last year (FY 2019/20: GBP37.1m),
delivering a Group underlying operating margin of 7.7%, 0.3ppts
lower than last year (FY 2019/20: 8.0%).
Reported Group operating profit for the year (after accounting
for the underlying adjustments discussed below) was GBP20.7m,
GBP3.1m lower than last year.
GBPm FY 2020/21 FY 2019/20
Operating Finance Profit Operating Finance Profit
profit Cost before profit cost before
tax tax
---------- ---------- -------- --------
Underlying 35.2 (3.7) 31.5 37.1 (4.3) 32.8
Underlying adjustments
Acquisition & merger
expenses (2.0) - (2.0) (4.0) - (4.0)
Amortisation of acquired
intangibles (11.1) - (11.1) (9.0) - (9.0)
Legacy pension cost (1.4) - (1.4) (0.3) - (0.3)
Reported 20.7 (3.7) 17.0 23.8 (4.3) 19.5
Underlying Adjustments
Underlying adjustments for the year comprise acquisition and
merger expenses of GBP2.0m (FY 2019/20: GBP4.0m), the amortisation
of acquired intangibles of GBP11.1m (FY 2019/20: GBP9.0m) and the
IAS19 legacy pension cost of GBP1.4m (FY 2019/20: GBP0.3m).
Acquisition expenses of GBP2.0m mainly comprise the transactions
costs incurred in acquiring Phoenix and Limitor, ongoing
transaction costs and the integration costs of North American
businesses within the Noratel cluster. The GBP2.1m increase in the
amortisation charge since last year to GBP11.1m relates to the
annualisation of the amortisation charge for Sens-Tech together
with amortisation for Phoenix and Limitor. The increased pension
charge of GBP1.1m compared with last year relates mainly to a one
off adjustment relating to historic commutation terms for legacy
scheme members.
Financing Costs
Total finance costs for the year were GBP3.7m (FY 2019/20:
GBP4.3m). This year's charge comprises underlying finance costs
(being interest and facility fees arising from the Group's banking
facilities) of GBP3.1m (FY 2019/20: GBP3.7m) and an IFRS 16
interest charge of GBP0.6m, in line with last year.
Finance costs (excluding IFRS 16 interest charge) of GBP3.1m
were GBP0.6m lower than last year due to lower average net debt
this year resulting from strong cash generation.
Underlying Tax Rate
The underlying effective tax rate for the year was 24%, an
increase of 4ppts over last year due to a greater proportion of
group profits arising in higher taxed countries, such as China, and
the recognition last year of certain tax losses not available this
year.
The overall effective tax rate of 29% (FY 2019/20: 27%) was
higher than the underlying effective tax rate due to there being no
tax relief on acquisition costs and a lower rate of tax relief on
amortisation of acquired intangibles (within underlying adjustments
above).
Profit Before Tax and EPS
Underlying profit before tax ("PBT") for the year of GBP31.5m
was GBP1.3m lower than last year (FY 2019/20: GBP32.8m), with
underlying EPS for the year reducing to 26.0p (FY 2019/20: 30.2p).
On the back of improving conditions, underlying PBT rebounded in
the second half rising GBP0.5m on last year (+3%) partly offsetting
a GBP1.8m reduction in the first half at the height of the
pandemic. The reduction in underlying EPS of 14% was higher than
that for underlying profit before tax (4%) due to higher underlying
tax rates and the issuance of new equity in October 2019,
increasing weighted average fully diluted shares by 6% to 92.2m
shares (FY 2019/20: 86.9m shares).
GBPm FY 2020/21 FY 2019/20
PBT EPS PBT EPS
------- ------ ------
H1 Underlying 13.8 11.3p 15.6 14.4p
H2 Underlying 17.7 14.7p 17.2 15.8p
------- ------ ------ ------
FY Underlying 31.5 26.0p 32.8 30.2p
Underlying adjustments
Acquisition & merger
expenses (2.0) (4.0)
Amortisation of acquired
intangibles (11.1) (9.0)
Legacy pension cost (1.4) (0.3)
Reported 17.0 13.0p 19.5 16.5p
After the underlying adjustments above, reported profit before
tax was GBP17.0m, a reduction of GBP2.5m compared with last year
(FY 2019/20: GBP19.5m) with reported fully diluted earnings per
share of 13.0p reducing by 3.5p compared with last year (FY
2019/20: 16.5p).
Working Capital
Working capital at 31 March 2021 was GBP61.6m, equivalent to
13.1% of annualised second half sales at CER and was GBP9.3m (13%)
lower than the prior year (31 March 2020: GBP70.9m at 14.4% of
annualised sales). This reduction is partly due to the lower demand
in the year with organic sales reducing by 6%, and partly reflects
tight management across the Group, with debtor days reducing 4 days
to 48 days partly offset by creditor days decreasing by 2 days to
61 days. Due to the lower sales, stock turns reduced by 0.2 turns
to 5.0 turns.
Working capital performance was strong across both divisions: in
D&M, working capital was 17.0% of sales (FY 2019/20: 17.7%) and
in Custom Supply, it was 9.6% of sales (FY 2019/20: 11.1%).
Return on Capital Employed
ROCE for the year (return on capital employed, as defined in
note 5 to the attached summary financial statements) including an
annualisation of acquisitions, was 14.5%, a reduction of 1.5ppts on
last year reflecting lower underlying operating profit resulting
from COVID-19 taking it below our target of 15%. The impact was
particularly noticeable in the first half with ROCE reducing to
12.7% before recovering to 15.6% in the second half, ahead of our
target. The full year Group ROCE is expected to improve further
next year.
Cash Flow
Net debt at 31 March 2021 was GBP47.2m compared with GBP61.3m at
31 March 2020. Excluding spend on acquisitions, net debt reduced by
GBP35.9m in the year (59% of last year's net debt) demonstrating
continuing strong cash generation by the Group.
FY FY
2020/21 2019/20
Opening net debt (61.3) (63.3)
Free cash flow (see
table below) 37.6 27.3
Acquisition related
cash flow (21.8) (75.9)
Equity issuance 0.1 60.5
Dividends (2.8) (8.1)
Foreign exchange impact 1.0 (1.8)
Net debt at 31 March (47.2) (61.3)
While dividends and acquisitions were put on hold in the first
half as part of our cash preservation measures in response to the
pandemic, the second half saw a resumption of both as conditions
improved. The acquisitions of Phoenix and Limitor, associated
acquisition expenses and earnout payments totalled GBP21.8m. The
acquisition outflow last year of GBP75.9m comprised the acquisition
of Sens-Tech in October 2019 for GBP58.4m together with Hobart and
Positek acquired in April 2019. The payment of an interim dividend
of GBP2.8m was GBP0.2m higher than last year's interim following a
6% increase. Included last year was GBP5.5m paid in respect of the
FY 2018/19 final dividend payment with no final dividend paid for
FY 2019/20.
Operating cash flow and free cash flow (see definitions in note
5 to the summary financial statements) for the year compared with
last year, are shown below:
FY FY
GBPm 2020/21 2019/20
Underlying profit
before tax 31.5 32.8
Net finance costs 3.7 4.3
Non-cash items* 13.2 13.5
--------- ---------
Underlying EBITDA 48.4 50.6
Working capital 11.6 1.6
Capital expenditure (3.6) (6.3)
IFRS 16 (6.7) (6.6)
--------- ---------
Operating cash flow 49.7 39.3
Net finance costs (3.1) (3.7)
Taxation (7.2) (6.4)
Legacy pensions (1.8) (1.8)
Executive share option
exercises - (0.1)
Free cash flow 37.6 27.3
* Non-cash items are depreciation, amortisation and share based
payments. Includes GBP6.6m IFRS 16 depreciation for FY 2020/21 (FY
2019/20: GBP6.6m)
Underlying EBITDA of GBP48.4m was 4% lower than last year (FY
2019/20: GBP50.6m). With a heightened focus on working capital
optimisation during the year and partly as a result of a 6%
reduction in organic sales, an GBP11.6m inflow was generated from
working capital compared with an inflow of GBP1.6m last year.
Around 50% of this year's savings are expected to reverse as we
invest in working capital to support growth.
Capital expenditure was also restricted during the year to
mainly maintenance costs giving a 43% reduction to GBP3.6m (FY
2019/20: GBP6.3m). Capital expenditure levels are expected to
increase next year to around GBP8.5m spend for the full year.
Combined with the other cash conservation measures taken by the
Group this year, GBP49.7m of operating cash was generated in the
year, an increase of 26% over last year (FY 2019/20: GBP39.3m).
This represents 141% of underlying operating profit during the
year, well above our 85% target. Over the last 7 years, the Group
has consistently achieved high levels of cash conversion averaging
in excess of 100%.
Finance cash costs of GBP3.1m were GBP0.6m lower than last year
due to reduced average net debt balances in the year. Tax payments
of GBP7.2m were GBP0.8m higher than last year, reflecting last
year's increased Group profitability.
Free cash flow (being cash flow before dividends and
acquisitions) for the year was GBP37.6m, an increase of 38% over
last year (FY 2019/20: GBP27.3m). Our free cash conversion for the
year was 157% of profit after tax, again well ahead of our 85%
target.
Banking Facilities
The Group has a GBP180m syndicated banking facility which
extends to June 2024, together with a GBP60m accordion increasing
the total facility to GBP240m if required. The syndicated facility
is available both for acquisitions and for working capital
purposes.
With net debt at 31 March 2021 of GBP47.2m, the Group's gearing
ratio at the end of the year (being net debt divided by underlying
EBITDA as annualised for acquisitions) was 1.1x a reduction of
0.15x from last year despite completing two acquisitions. Excluding
the acquisitions, on a like-for-like basis, the gearing would have
been 0.7x at the year end. Including the post year end acquisition
of CPI, pro-forma gearing at 31 March 2021 increased to 1.25x; with
our target gearing range being between 1.5x and 2.0x, plenty of
debt capacity remains for further acquisitions.
Balance Sheet
Net assets of GBP208.8m at 31 March 2021 were GBP8.3m higher
than at the end of the last financial year (31 March 2020:
GBP200.5m). The increase primarily relates to the net profit after
tax for the year of GBP12.0m offset by dividends paid in the year
and movements on the Group's legacy defined benefit scheme. The
movement in net assets is summarised below:
FY
GBPm 2020/21
Net assets at 31 March
2020 200.5
Net profit after tax 12.0
Dividend paid (2.8)
Currency net assets -
translation impact (0.6)
Loss on defined benefit
scheme (2.8)
Shares issued 0.1
Share based payments
(inc tax) 2.4
Net assets at 31 March
2021 208.8
Defined Benefit Pension Scheme
The Group's IAS19 pension liability, associated with its legacy
defined benefit pension scheme, increased during the year by
GBP2.8m from a surplus of GBP1.8m at 31 March 2020 to a deficit of
GBP1.0m at 31 March 2021.
At the end of last year, corporate bond yields temporarily
increased due to the COVID-19 situation, converting the net
liability at 31 March 2019 of GBP2.5m to a net surplus at 31 March
2020. Since last year end, corporate bond yields have reverted back
to previous levels and historic commutation rates for legacy scheme
members have been subject to a one off adjustment, resulting in a
GBP1.0m liability at the year end. Over the last two years, there
has been a net liability reduction of GBP1.5m.
Annual payments of GBP1.8m are payable, growing by 3% each year
until September 2022 in accordance with the plan agreed with the
pension trustees as part of the most recently completed triennial
valuation at 31 March 2018. The next triennial valuation will be at
31 March 2021.
Risks and Uncertainties
The principal risks faced by the Group are covered in more
detail in the Group's Annual Report and Accounts, which will be
published shortly. These risks are: the economic environment,
particularly linked to the impact of COVID-19; the impact arising
from the UK's decision to leave the European Union; the performance
of acquired companies; 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 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. The Group's performance over the last year has
demonstrated this well.
Simon Gibbins
Group Finance Director
3 June 2021
Consolidated income statement
for the year ended 31 March 2021
2021 2020
notes GBPm GBPm
--------------------------------- ----- ------- -------
Revenue 454.3 466.4
Cost of sales (299.0) (309.7)
--------------------------------- ----- ------- -------
Gross profit 155.3 156.7
Selling and distribution costs (57.8) (58.1)
Administrative expenses (76.8) (74.8)
--------------------------------- ----- ------- -------
Operating profit 20.7 23.8
Finance income 0.3 0.6
Finance costs (4.0) (4.9)
--------------------------------- ----- ------- -------
Profit before tax 17.0 19.5
Tax expense (5.0) (5.2)
--------------------------------- ----- ------- -------
Profit for the year 12.0 14.3
--------------------------------- ----- ------- -------
Earnings per share 9
Basic 13.5p 17.0p
Diluted 13.0p 16.5p
--------------------------------- ----- ------- -------
Supplementary income statement information
2021 2020
Underlying Performance Measures notes GBPm GBPm
------------------------------------------------------------------------- ----- ----- -----
Operating profit 20.7 23.8
Add back: Acquisition and merger expenses 2.0 4.0
Amortisation of acquired intangible assets 11.1 9.0
IAS 19 pension charge 1.4 0.3
------------------------------------------------------------------------- ----- ----- -----
Underlying operating profit 35.2 37.1
------------------------------------------------------------------------- ----- ----- -----
Profit before tax 7 17.0 19.5
Add back: Acquisition and merger expenses 2.0 4.0
Amortisation of acquired intangible assets 11.1 9.0
IAS 19 pension charge 1.4 0.3
------------------------------------------------------------------------- ----- ----- -----
Underlying profit before tax 7 31.5 32.8
------------------------------------------------------------------------- ----- ----- -----
Underlying earnings per share 9 26.0p 30.2p
------------------------------------------------------------------------- ----- ----- -----
Consolidated statement of comprehensive income
for the year ended 31 March 2021
2021 2020
notes GBPm GBPm
-------------------------------------------------------------- ------ ----- -----
Profit for the year 12.0 14.3
---------------------------------------------------------------------- ----- -----
Other comprehensive (loss)/income:
Items that will not be subsequently reclassified
to profit or loss:
Actuarial (loss)/gain on defined benefit pension
scheme (3.4) 2.4
Deferred tax credit/(charge) relating to defined
benefit pension scheme 0.6 (0.5)
---------------------------------------------------------------------- ----- -----
(2.8) 1.9
--------------------------------------------------------------------- ----- -----
Items that may be subsequently reclassified to profit
or loss:
Exchange differences on translation of foreign subsidiaries (0.5) (4.6)
(0.5) (4.6)
--------------------------------------------------------------------- ----- -----
Other comprehensive loss for the year, net of tax (3.3) (2.7)
---------------------------------------------------------------------- ----- -----
Total comprehensive income for the year, net of tax 8.7 11.6
---------------------------------------------------------------------- ----- -----
Consolidated statement of financial position
as at 31 March 2021
2021 2020
notes GBPm GBPm
---------------------------------- ----- ------- -------
Non-current assets
Property, plant and equipment 23.5 25.2
Intangible assets - goodwill 13 127.9 117.3
Intangible assets - other 63.3 64.9
Right of use assets 22.4 21.1
Defined benefit pension surplus 15 - 1.8
Deferred tax assets 7.9 6.1
---------------------------------- ----- ------- -------
245.0 236.4
---------------------------------- ----- ------- -------
Current assets
Inventories 67.7 68.4
Trade and other receivables 84.9 90.1
Current tax assets 1.8 2.1
Cash and cash equivalents 29.2 36.8
---------------------------------- ----- ------- -------
183.6 197.4
---------------------------------- ----- ------- -------
Total assets 428.6 433.8
---------------------------------- ----- ------- -------
Current liabilities
Trade and other payables (94.8) (87.6)
Other financial liabilities (0.8) (4.3)
Lease liabilities (4.8) (5.3)
Current tax liabilities (5.6) (5.5)
Provisions (1.8) (0.9)
---------------------------------- ----- ------- -------
(107.8) (103.6)
---------------------------------- ----- ------- -------
Non-current liabilities
Trade and other payables (0.8) (3.1)
Other financial liabilities (75.6) (93.8)
Lease liabilities (16.7) (14.7)
Pension liability 15 (1.0) -
Provisions (5.4) (4.7)
Deferred tax liabilities (12.5) (13.4)
---------------------------------- ----- ------- -------
(112.0) (129.7)
---------------------------------- ----- ------- -------
Total liabilities (219.8) (233.3)
---------------------------------- ----- ------- -------
Net assets 208.8 200.5
---------------------------------- ----- ------- -------
Equity
Share capital 14 4.4 4.4
Share premium 138.8 138.8
Merger reserve 19.9 22.7
Currency translation reserve (2.7) (2.2)
Retained earnings 48.4 36.8
---------------------------------- ----- ------- -------
Total equity 208.8 200.5
---------------------------------- ----- ------- -------
The financial statements were approved by the Board of Directors
on 3 June 2021 and signed on its behalf by:
Nick Jefferies Simon Gibbins
Group Chief Executive Group Finance Director
Consolidated statement of changes in equity
for the year ended 31 March 2021
Attributable to equity holders of the Company
Currency
Share Merger translation Retained Total
capital Share premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- ------------- -------- ------------ --------- -------
At 1 April 2019 3.7 106.9 2.9 2.4 18.8 134.7
--------------------------------- -------- ------------- -------- ------------ --------- -------
Profit for the year - - - - 14.3 14.3
Other comprehensive loss - - - (4.6) 1.9 (2.7)
--------------------------------- -------- ------------- -------- ------------ --------- -------
Total comprehensive income - - - (4.6) 16.2 11.6
Shares issued (note 14) 0.7 31.9 27.9 - - 60.5
Share-based payments including
tax - - - - 1.8 1.8
Transfer to retained earnings - - (8.1) - 8.1 -
Dividends (note 8) - - - - (8.1) (8.1)
--------------------------------- -------- ------------- -------- ------------ --------- -------
At 31 March 2020 4.4 138.8 22.7 (2.2) 36.8 200.5
--------------------------------- -------- ------------- -------- ------------ --------- -------
Profit for the year - - - - 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 (note 8) - - - - (2.8) (2.8)
--------------------------------- -------- ------------- -------- ------------ --------- -------
At 31 March 2021 4.4 138.8 19.9 (2.7) 48.4 208.8
--------------------------------- -------- ------------- -------- ------------ --------- -------
Consolidated statement of cash flows
for the year ended 31 March 2021
2021 2020
notes GBPm GBPm
---------------------------------------------------------- ----- ------ ------
Net cash flow from operating activities 12 46.6 37.4
Investing activities
Acquisition of businesses (net of cash/(debt) acquired) (20.8) (72.6)
Acquisition related contingent consideration - (1.0)
Purchase of property, plant and equipment (3.2) (5.3)
Purchase of intangible assets - software (0.7) (1.0)
Proceeds from disposal of property, plant and equipment 0.3 -
Interest received 0.3 0.5
---------------------------------------------------------- ----- ------ ------
Net cash used in investing activities (24.1) (79.4)
---------------------------------------------------------- ----- ------ ------
Financing activities
Net proceeds from the issue of shares 0.1 60.5
Proceeds from borrowings 9.3 41.9
Repayment of borrowings (27.8) (31.3)
Payment of lease liabilities (6.1) (6.0)
Interest paid on lease liabilities (0.6) (0.6)
Dividends paid 8 (2.8) (8.1)
Net cash (used in)/generated from financing activities (27.9) 56.4
---------------------------------------------------------- ----- ------ ------
Net (decrease)/increase in cash and cash equivalents
(1) (5.4) 14.4
Net cash and cash equivalents at 1 April 34.8 20.8
Effect of exchange rate fluctuations (1.2) (0.4)
---------------------------------------------------------- ----- ------ ------
Net cash and cash equivalents at 31 March 28.2 34.8
---------------------------------------------------------- ----- ------ ------
Reconciliation to cash and cash equivalents in the
consolidated statement of financial position
Net cash and cash equivalents shown above 28.2 34.8
Add back: bank overdrafts 1.0 2.0
---------------------------------------------------------- ----- ------ ------
Cash and cash equivalents presented in current assets
in the consolidated statement of financial position 29.2 36.8
---------------------------------------------------------- ----- ------ ------
1 Further information on the consolidated statement of cash
flows is provided in notes 11 and 12.
Notes to the Group consolidated financial statements
for the year ended 31 March 2021
1. Publication of non-statutory accounts
The preliminary results were authorised for issue by the Board
of Directors on 3 June 2021. The financial information set out
above does not constitute the Company's statutory accounts for the
years ended 31 March 2021 or 2020, but is derived from those
accounts. Statutory accounts for 2020 have been delivered to the
Registrar of Companies whereas those for 2021 will be delivered
following the Company's Annual General Meeting. The auditors have
reported on those accounts; their report was unqualified and did
not contain a statement under section 237 (2) or (3) of the
Companies Act 2006.
2. Basis of preparation
The Group's consolidated financial statements have been 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. In addition to
complying with international accounting standards in conformity
with the requirements of the Companies Act 2006, the consolidated
financial statements also comply with international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union (IFRS). The
consolidated financial statements are prepared under the historical
cost convention, unless otherwise stated.
The consolidated financial statements are presented in pounds
sterling and all values are rounded to the nearest hundred thousand
except as otherwise indicated.
3. Changes in Accounting Policies
In the prior year, the Group adopted IFRS 16 'Leases'; and
recognised lease liabilities and right of use assets in respect of
the leasing agreements in place as at 1 April 2019 and those which
were entered into during the prior year. During the prior year, the
Group did not make use of the exemption of applying IFRS 16 for
short-term leases (leases shorter than 12 months). In the current
year, for the purposes of practical expediency, the Group has
decided to make use of the above exemption available under IFRS 16.
This change in accounting policy does not have a material impact on
the current year and prior year balances and therefore the numbers
for prior year have not been restated.
4. Going concern
In line with IAS1 'Presentation of financial statements' and
revised guidance on 'risk management, internal control and related
financial and business reporting', management has taken into
account all available information about the future for a period of
at least, but not limited to, 12 months from the date of approval
of the financial statements when assessing the Group's and
Company's ability to continue as a going concern.
The Group's forecasts and projections, taking account of the
sensitivity analysis of changes in trading performance, show that
the Group is well placed to operate within the level of its current
committed facilities for the foreseeable future.
The sensitivities take into account the principal risks and
uncertainties, notably instability in the economic environment,
loss of key customers and suppliers, underperformance of acquired
businesses, major business disruption, liquidity restriction,
breach of debt covenants and adverse foreign currency movements
arising from a stronger Sterling.
The most severe but plausible downside scenario assumes a
recurrence of COVID-19 in the second half of FY 2021/22 and adverse
macroeconomic factors resulting in a significant decline in second
half sales of FY 2021/22, negative sales growth in FY 2022/23 and
modest growth thereon in FY 2023/24. Additionally, gross margin was
reduced, working capital materially increased, significant one-off
expenditures (product liability, major customer insolvency or
litigation) included, and an increase in the Group effective tax
rate.
Even after factoring in these significant additional downsides,
there remains good headroom both in terms of liquidity and our
banking covenants. This is supported by the fact that the Group
sells a wide portfolio of different products across a diverse set
of industries and geographies, low customer/supplier concentration,
has a global supply chain network, diverse manufacturing capacity,
and has well-established and in many cases long term relationships
with its customers. These factors are considered important in
mitigating many of the risks that could affect the long-term
viability of the Group.
The Directors are confident that the Company and the Group have
sufficient resources to continue in operational existence for at
least 12 months from the date of approval of the financial
statements. Accordingly, they continue to adopt the going concern
basis in preparing the Annual Report and Accounts.
5. Underlying profits and earnings
These financial statements include alternative performance
measures that are not prepared in accordance with IFRS. These
alternative performance measures have been selected by management
to assist them in making operating decisions because they represent
the underlying operating performance of the Group and facilitate
internal comparisons of performance over time. See note 7.
Alternative performance measures are presented in these
financial statements as management believe they provide investors
with a means of evaluating performance of the Group on a consistent
basis, similar to the way in which management evaluates
performance, that is not otherwise apparent on an IFRS basis, given
that certain strategic non-recurring, infrequent or non-cash items
that management does not believe are indicative of the underlying
operating performance of the Group are included when preparing
financial measures under IFRS. The Directors consider there to be
the following alternative performance measures:
Underlying operating profit
"Underlying operating profit" is defined as operating profit
excluding acquisition related expenditure (namely amortisation of
acquired intangible assets, acquisition and merger expenses, and
the IAS19 pension charge relating to the Group's legacy defined
benefit pension scheme) and exceptional items.
Acquisition and merger expenses comprise all attributable costs
in connection with business acquisitions and disposals and any
related integration into the Group. Acquisition costs include
contingent consideration where it is treated as an expense and
movement in contingent consideration where it is treated as
purchase price outside of the 12 month measurement period.
Underlying EBITDA
"Underlying EBITDA" is defined as underlying operating profit
with depreciation, amortisation and equity settled share-based
payment expense added back.
Underlying profit before tax
"Underlying profit before tax" is defined as profit before tax
excluding acquisition related expenditure (namely amortisation of
acquired intangible assets, acquisition and merger expenses and the
IAS19 pension charge relating to the Group's legacy defined benefit
pension scheme) and exceptional items.
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 year.
Operating cash flow
"Operating cash flow" is defined as underlying EBITDA adjusted
for the investment in, or release of, working capital and less the
cash cost of capital expenditure.
Free cash flow
"Free cash flow" is defined as net cash flow before dividend
payments, net proceeds from equity fund raising, the cost of
acquisitions and proceeds from business disposals.
Return On Capital Employed ("ROCE")
"ROCE" is defined as underlying operating profit as a percentage
of net assets plus net debt, including an annualisation for
acquisitions.
Organic basis
Reference to 'organic' basis included in the Chairman's
statement, Strategic and Operational Review and Finance Review
means at constant exchange rates ("CER") and excluding the first 12
months of acquisitions (Sens-Tech was acquired on 16 October 2019,
Phoenix on 13 October 2020 and Limitor on 11 February 2021).
6. Operating segment information
The Group organises its businesses into two divisions, Design
& Manufacturing and Custom Supply.
-- The Design & Manufacturing division manufactures custom
electronic products that are uniquely designed or modified from a
standard product for a specific customer requirement. The products
are manufactured at one of our in-house manufacturing facilities
or, in some cases, by third party contractors.
-- The Custom Supply division provides technically demanding,
customised electronic, photonic and medical products to the
industrial, medical and healthcare markets, both from a range of
high-quality, international suppliers (often on an exclusive basis)
and from discoverIE's Design & Manufacturing division.
These two divisions have been assessed as the reportable
operating segments of the Group. Within each reportable operating
segment are aggregated business units with similar characteristics
such as the method of acquiring products for sale (manufacturing
versus distribution), the nature of customers and products, risk
profile and economic characteristics.
Management monitors the operating results of its business units
separately for the purpose of making decisions about resource
allocation and performance assessment. Segment performance is
reported and evaluated based on operating profit or loss earned by
each segment without allocation of central administration costs
including directors' salaries, investment revenue and finance
costs, and income tax expense.
Segment revenue and results
Design Custom
& Manufacturing Supply Unallocated Total
2021 GBPm GBPm GBPm GBPm
--------------------------------------------- ---------------- ------- ----------- ------
Revenue 296.6 157.7 - 454.3
--------------------------------------------- ---------------- ------- ----------- ------
Result
Underlying operating profit/(loss) 37.7 5.6 (8.1) 35.2
Acquisition and merger expenses (2.0) - - (2.0)
Amortisation of acquired intangible assets (11.1) - - (11.1)
IAS 19 pension charge - (1.0) (0.4) (1.4)
--------------------------------------------- ---------------- ------- ----------- ------
Operating profit/(loss) 24.6 4.6 (8.5) 20.7
--------------------------------------------- ---------------- ------- ----------- ------
Design Custom
& Manufacturing Supply Unallocated Total
2020 GBPm GBPm GBPm GBPm
--------------------------------------------- ---------------- ------- ----------- -----
Revenue 297.9 168.5 - 466.4
--------------------------------------------- ---------------- ------- ----------- -----
Result
Underlying operating profit/(loss) 38.1 7.3 (8.3) 37.1
Acquisition and merger expenses (3.8) (0.2) - (4.0)
Amortisation of acquired intangible assets (9.0) - - (9.0)
IAS 19 pension charge - - (0.3) (0.3)
--------------------------------------------- ---------------- ------- ----------- -----
Operating profit/(loss) 25.3 7.1 (8.6) 23.8
--------------------------------------------- ---------------- ------- ----------- -----
7. Underlying profit before tax
2021 2020
GBPm GBPm
------------------------------------------------------------------------- ---- ----- -----
Profit before tax 17.0 19.5
Add back Acquisition and merger expenses (a) 2.0 4.0
Amortisation of acquired intangible assets (b) 11.1 9.0
Total IAS 19 pension charge (c) 1.4 0.3
Underlying profit before tax 31.5 32.8
------------------------------------------------------------------------------- ----- -----
The tax impact of the underlying profit adjustments above is a
credit of GBP2.5m (2020: GBP1.4m).
a. In the year there were GBP2.0m of acquisition and merger
related expenses. GBP1.8m 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.
In the prior year there were GBP4.0m of acquisition and merger
related expenses. Costs of GBP1.5m were incurred in relation to the
acquisition of Hobart, Positek and Sens-Tech and GBP0.3m in
relation to ongoing transactions. Contingent consideration of
GBP2.0m was charged in relation to current and past acquisitions.
Costs of GBP0.2m were incurred in relation to the integration of
RSG into the Custom Supply division.
b. Amortisation charge for intangible assets recognised on
acquisition of GBP11.1m being amortisation of acquired customer
relationships and patents. The equivalent charge last year was
GBP9.0m. The increase relates to the three acquisitions during the
last two years (Sens-Tech in October 2019, Phoenix in October 2020
and Limitor in February 2021).
c. Pension costs of GBP1.4m this year in respect of the Group's
legacy defined benefit pension scheme, mainly relate to a one-off
adjustment relating to historic commutation terms for legacy scheme
members (see note 15).
8. Dividends
Dividends recognised in equity as distributions to equity 2021 2020
holders in the year: GBPm GBPm
-------------------------------------------------------------- ------- -------
Equity dividends on ordinary shares:
Final dividend for the year ended 31 March 2020 of 0.0p
(2019: 6.75p) - 5.4
Interim dividend for the year ended 31 March 2021 of 3.15p
(2020: 2.97p) 2.8 2.7
-------------------------------------------------------------- ------- -------
Total amounts recognised as equity distributions during
the year 2.8 8.1
-------------------------------------------------------------- ------- -------
2021 2020
Proposed for approval at AGM: GBPm GBPm
-------------------------------------------------------------- ------- -------
Equity dividends on ordinary shares:
-------------------------------------------------------------- ------- -------
Final dividend for the year ended 31 March 2021 of 7.0p
(2020: 0.0p) 6.2 -
-------------------------------------------------------------- ------- -------
Summary
Dividends per share declared in respect of the year 10.15p 2.97p
Dividends per share paid in the year 3.15p 9.72p
Dividends paid in the year GBP2.8m GBP8.1m
-------------------------------------------------------------- ------- -------
9. Earnings per share
Basic earnings per share is calculated by dividing the net
profit for the year attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the year.
Diluted earnings per share is the basic earnings per share after
allowing for the dilutive effect of the conversion into ordinary
shares of the weighted average number of options outstanding during
the year.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
2021 2020
GBPm GBPm
------------------------------------------------------------------ ---------- ----------
Profit for the year attributable to equity holders of the
parent: 12.0 14.3
------------------------------------------------------------------ ---------- ----------
Number Number
------------------------------------------------------------------ ---------- ----------
Weighted average number of shares for basic earnings per
share 88,753,576 83,997,130
Effect of dilution - share options 3,469,048 2,878,352
------------------------------------------------------------------ ---------- ----------
Adjusted weighted average number of shares for diluted earnings
per share 92,222,624 86,875,482
------------------------------------------------------------------ ---------- ----------
Basic earnings per share 13.5p 17.0p
Diluted earnings per share 13.0p 16.5p
------------------------------------------------------------------ ---------- ----------
Underlying earnings per share is calculated as follows:
2021 2020
GBPm GBPm
------------------------------------------------------------------ ---------- ----------
Net profit for the year 12.0 14.3
Acquisition and merger expenses 2.0 4.0
Amortisation of acquired intangible assets 11.1 9.0
IAS 19 pension charge 1.4 0.3
Tax effect of the above (2.5) (1.4)
------------------------------------------------------------------ ---------- ----------
Underlying profit 24.0 26.2
------------------------------------------------------------------ ---------- ----------
Number Number
------------------------------------------------------------------ ---------- ----------
Weighted average number of shares for basic earnings per
share 88,753,576 83,997,130
Effect of dilution - share options 3,469,048 2,878,352
------------------------------------------------------------------ ---------- ----------
Adjusted weighted average number of shares for diluted earnings
per share 92,222,624 86,875,482
------------------------------------------------------------------ ---------- ----------
Underlying earnings per share 26.0p 30.2p
------------------------------------------------------------------ ---------- ----------
At the year end, there were 3,928,273 ordinary share options in
issue that could potentially dilute underlying earnings per share
in the future, of which 3,469,048 are currently dilutive (2020:
3,306,166 in issue and 2,878,352 dilutive).
10. Business combinations
Acquisitions in the year ended 31 March 2021
Acquisition of Phoenix
On 13 October 2020, the Group completed the acquisition of the
trade and assets of Phoenix America Inc ("Phoenix"). The trade and
assets were transferred to a newly incorporated company, Phoenix
America LLC.
Phoenix was acquired for an initial cash consideration of
GBP8.5m ($10.9m) and funded from the Group's existing debt
facilities. In addition, a contingent payment of up to
GBP1.2m($1.5m) will be payable subject to Phoenix achieving certain
profit targets during the three-year period ended 31 December 2023.
The fair value of the contingent consideration will be recognised
in the consolidated income statement over the performance
period.
Phoenix, based in the USA, is a designer and manufacturer of
magnetically actuated sensors, encoders and related products for
industrial customers.
The provisional fair value of the identifiable assets and
liabilities of Phoenix at the date of acquisition were:
Provisional
fair value
recognised
at acquisition
GBPm
------------------------------- -----------------
Property, plant and equipment 0.5
Intangible assets - other 3.3
Inventories 0.7
Trade and other receivables 0.5
Trade and other payables (0.2)
Total identifiable net assets 4.8
Provisional goodwill arising
on acquisition 3.7
--------------------------------- ------------------
Total investment 8.5
--------------------------------- ------------------
Discharged by
Cash 8.5
8.5
------------------------------- ----------------
Included in the GBP3.7m of goodwill recognised above are certain
intangible assets that cannot be individually separated and
reliably measured from the acquiree, due to their nature. These
include the value of expected operational benefits.
Net cash outflows in respect of the acquisition comprise:
Total
GBPm
------------------------------------------------ ------
Cash consideration 8.5
Transaction costs of the acquisition (included
in operating cash flows) (1) 0.4
8.9
------------------------------------------------ ------
1 Acquisition costs of GBP0.1m and GBP0.3m were expensed as
incurred in the years ended 31 March 2021 and 31 March 2020
respectively. These were included within administrative expenses
(note 6).
Included in cash flow from investing activities is the cash
consideration of GBP8.5m.
Acquisition of Limitor
On 11 February 2021, the Group completed the acquisition of the
Limitor Group ("Limitor") via the purchase of 100% of the share
capital and voting equity interests of Limitor GmbH and its
subsidiary company Limitor Solutions GmbH and 100% of the share
capital and voting equity interests of Limitor Hungaria Kft.
Limitor was acquired for an initial cash consideration of
GBP12.8m (EUR14.6m), before expenses, funded from the Group's
existing debt facilities. In addition, a contingent payment of up
to GBP3.1m (EUR3.5m) will be payable subject to Limitor achieving
certain operational and profit growth targets during the three-year
period ended 31 March 2024. GBP0.4m of contingent consideration has
been accounted for in the purchase price with the remaining fair
value of the contingent consideration to be recognised in the
consolidated income statement over the performance period.
Limitor, based in Germany and Hungary, designs and manufactures
custom thermal safety components for industrial markets.
The provisional fair value of the identifiable assets and
liabilities of Limitor at the date of acquisition were:
Provisional
fair value
recognised
at acquisition
GBPm
------------------------------- -----------------
Property, plant and equipment 0.8
Intangible assets - other 6.5
Inventories 0.7
Trade and other receivables 0.9
Cash and cash equivalents 1.0
Trade and other payables (0.8)
Current tax asset 0.1
Deferred tax liabilities (1.6)
Total identifiable net assets 7.6
Provisional goodwill arising
on acquisition 5.6
--------------------------------- ------------------
Total investment 13.2
--------------------------------- ------------------
Discharged by
Cash 12.8
Contingent consideration 0.4
--------------------------------- ----------------
13.2
------------------------------- ----------------
Included in the GBP5.6m of goodwill recognised above are certain
intangible assets that cannot be individually separated and
reliably measured from the acquiree, due to their nature. These
include the value of expected operational benefits.
Net cash outflows in respect of the acquisition comprise:
Total
GBPm
------------------------------------------------ ------
Cash consideration 12.8
Transaction costs of the acquisition (included
in operating cash flows) (1) 0.5
Net cash acquired (1.0)
-------------------------------------------------- ------
12.3
------------------------------------------------ ------
1 Acquisition costs of GBP0.5m were expensed as incurred in the
year ended 31 March 2021 and were included within administrative
expenses (note 6).
Included in cash flow from investing activities is the cash
consideration of GBP12.8m and the net cash acquired of GBP1.0m.
11. Movements in cash and net debt
1 April Non cash 31 March
2020 Cash flow changes 2021
Year to 31 March 2021 GBPm GBPm GBPm GBPm
---------------------------- ------- --------- -------- --------
Cash and cash equivalents 36.8 (6.0) (1.6) 29.2
Bank overdrafts (2.0) 0.6 0.4 (1.0)
---------------------------- ------- --------- -------- --------
Net cash 34.8 (5.4) (1.2) 28.2
---------------------------- ------- --------- -------- --------
Bank loans under one year (2.8) 2.4 0.1 (0.3)
Bank loans over one year (95.0) 16.1 2.6 (76.3)
Capitalised debt costs 1.7 - (0.5) 1.2
---------------------------- ------- --------- -------- --------
Total loan capital (96.1) 18.5 2.2 (75.4)
---------------------------- ------- --------- -------- --------
Net debt (61.3) 13.1 1.0 (47.2)
---------------------------- ------- --------- -------- --------
Bank loans over one year above include GBP74.0m (2020: GBP94.8m)
drawn down against the Group's revolving credit facility.
1 April Non cash 31 March
2019 Cash flow changes 2020
Year to 31 March 2020 GBPm GBPm GBPm GBPm
---------------------------- ------- --------- -------- --------
Cash and cash equivalents 22.9 13.5 0.4 36.8
Bank overdrafts (2.1) 0.9 (0.8) (2.0)
---------------------------- ------- --------- -------- --------
Net cash 20.8 14.4 (0.4) 34.8
---------------------------- ------- --------- -------- --------
Bank loans under one year - (2.7) (0.1) (2.8)
Bank loans over one year (85.9) (7.9) (1.2) (95.0)
Capitalised debt costs 1.8 - (0.1) 1.7
---------------------------- ------- --------- -------- --------
Total loan capital (84.1) (10.6) (1.4) (96.1)
---------------------------- ------- --------- -------- --------
Net debt (63.3) 3.8 (1.8) (61.3)
---------------------------- ------- --------- -------- --------
Supplementary information to the statement of cash flows
2021 2020
Underlying Performance Measure GBPm GBPm
--------------------------------------- ------ ------
Increase in net cash 13.1 3.8
Add: Business combinations 21.8 75.9
Dividends paid 2.8 8.1
Less: Net proceeds from share issue (0.1) (60.5)
--------------------------------------- ------ ------
Free cash flow 37.6 27.3
Net finance costs 3.1 3.7
Taxation 7.2 6.4
Executive options issuance - 0.1
Legacy pension scheme funding 1.8 1.8
Operating cash flow 49.7 39.3
--------------------------------------- ------ ------
12. Reconciliation of cash flows from operating activities
2021 2020
GBPm GBPm
----------------------------------------------------------- ----- -----
Profit for the year 12.0 14.3
Tax expense 5.0 5.2
Net finance costs 3.7 4.3
Depreciation of property, plant and equipment 4.9 4.8
Depreciation of right of use assets 6.6 6.6
Amortisation of intangible assets - other 11.7 9.6
Loss on disposal of property, plant and equipment - 0.1
Change in provisions 1.0 (0.3)
Pension scheme funding (1.8) (1.8)
IAS 19 pension charge 1.4 0.3
Impact of equity-settled share-based payment expense and
associated taxes 1.1 1.3
----------------------------------------------------------- ----- -----
Operating cash flows before changes in working capital 45.6 44.4
(Increase)/decrease in inventories (0.1) 2.7
Decrease in trade and other receivables 5.5 1.9
Increase/(decrease) in trade and other payables 6.2 (1.0)
----------------------------------------------------------- ----- -----
Decrease in working capital 11.6 3.6
----------------------------------------------------------- ----- -----
Cash generated from operations 57.2 48.0
Interest paid (3.4) (4.2)
Income taxes paid (7.2) (6.4)
----------------------------------------------------------- ----- -----
Net cash flow from operating activities 46.6 37.4
----------------------------------------------------------- ----- -----
13. Intangible assets - goodwill
Cost GBPm
------------------------------------- ------
At 1 April 2019 122.1
Arising from business combinations 35.4
Exchange adjustments (3.4)
------------------------------------- ------
At 31 March 2020 154.1
Arising from business combinations 9.3
Exchange adjustments 1.3
------------------------------------- ------
At 31 March 2021 164.7
------------------------------------- ------
Impairment GBPm
------------------------------------- ------
At 31 March 2020 and 31 March 2021 (36.8)
------------------------------------- ------
Net book value at 31 March 2021 127.9
------------------------------------- ------
Net book value at 31 March 2020 117.3
------------------------------------- ------
The carrying value of goodwill is analysed as follows:
2021 2020
GBPm GBPm
------------------------- ----- -----
Custom Supply
Acal BFi 9.6 9.9
Medical 0.6 0.6
Design & Manufacturing
Stortech 3.6 3.6
Hectronic 0.6 0.6
MTC 2.0 1.9
Myrra 5.1 5.3
Noratel 28.6 25.9
Foss 5.4 5.1
Flux 0.6 0.6
Contour 7.7 7.7
Variohm 6.0 6.0
Santon 5.1 5.3
Cursor Controls 9.0 9.0
Hobart 5.0 5.7
Positek 2.7 2.7
Sens-Tech 27.4 27.4
Phoenix 3.5 -
Limitor 5.4 -
------------------------- ----- -----
127.9 117.3
------------------------- ----- -----
Goodwill acquired through business combinations is allocated to
cash-generating units ("CGUs").
The movement in goodwill compared to prior year relates to the
movement in foreign exchange with the exception of Phoenix and
Limitor which were acquired in the year (refer to note 10 for
details).
14. Share capital
2021 2021 2020 2020
Allotted, called up and fully paid Number GBPm Number GBPm
------------------------------------- ---------- ----- ---------- -----
Ordinary shares of 5p each 89,455,915 4.4 88,705,915 4.4
------------------------------------- ---------- ----- ---------- -----
In April 2020 750,000 shares were issued to the Group's Employee
Benefit Trust. At 31 March 2021 the Trust held 689,307 shares
(2010: nil). During the year to 31 March 2021, employees exercised
60,693 share options under the terms of the various schemes (2020:
2,361).
On 18 April 2019, 7,309,867 shares were issued for a gross
consideration of GBP29.2m before costs and GBP28.2m after costs.
The shares were issued at 400 pence per share, a discount of 3.85
per cent to the closing share price of 416 pence per share on 15
April 2019. The shares were issued under a cash box structure and
accordingly, GBP0.3m was share capital with the balance of GBP27.9m
being allocated to a merger reserve. This amount is fully available
for distribution.
On 17 October 2019, 8,034,840 shares were issued for a gross
consideration of GBP33.3m before costs and GBP32.3m after costs.
The shares were issued at 415 pence per share, a discount of 3.9
per cent to the closing share price of 432 pence per share on 16
October 2019. GBP0.4m was share capital with the balance of
GBP31.9m being allocated to share premium account.
15. Pension
The pension liability relates to the Sedgemoor Group Pension
Fund, which was brought into the Group on the acquisition of the
Sedgemoor Group in 1999. The fund, which is a defined benefit
scheme, is operated as a 'paid up' pension scheme with only
pensioners and deferred members.
Based upon the results of the triennial funding valuation at 31
March 2018, the Sedgemoor Scheme's Trustees agreed with Sedgemoor
Limited on behalf of the participating employers to continue the
participating employers' contributions under the deficit recovery
plan agreed at the previous valuation at 31 March 2015. This
required contributions of GBP1.8m p.a. over the year to 31 March
2021 with future contributions increasing by 3% each April payable
over the period to 30 September 2022. There is a risk that adverse
experience could lead to a requirement for additional contributions
to recover any deficit that arises. The next triennial funding
valuation is due for the year ended 31 March 2021.
The results of the triennial funding valuation as at 31 March
2018 were updated to the accounting date by an independent
qualified actuary in accordance with IAS 19.
The pension liability at 31 March 2020 was GBP1.0m (2020:
GBP1.8m asset) and the total pension charge was GBP1.4m (2020:
GBP0.3m).
The pension costs include GBP0.4m administration costs (2020:
GBP0.3m) and a GBP1.0m charge (2020: nil) relating to a one-off
adjustment to historic commutation terms for legacy scheme
members
16. Exchange rates
The profit and loss accounts of overseas subsidiaries are
translated into sterling at average rates of exchange for the year
and consolidated statements of financial position are translated at
year end rates. The main currencies are the US Dollar, the Euro and
the Norwegian Krone. Details of the exchange rates used are as
follows:
Year to 31 March Year to 31 March
2021 2020
------------------
Closing Average Closing Average
rate rate rate rate
------------------ -------- -------- -------- --------
US Dollar 1.3760 1.3075 1.2360 1.2722
Euro 1.1736 1.1207 1.1281 1.1448
Norwegian Krone 11.7306 11.9697 12.9847 11.4639
------------------ -------- -------- -------- --------
17. Events after the reporting date
There were no matters arising, between the statement of
financial position date and the date on which these financial
statements were approved by the Board of Directors, requiring
adjustment in accordance with IAS10, Events after the reporting
period. The following important non-adjusting events should be
noted:
Dividends
A final dividend of 7.0p per share (2020: nil), amounting to a
dividend of GBP6.2m (2020: nil) and bringing the total dividend for
the year to 10.15p (2020: 2.97p), was declared by the Board on 27
May 2021. The discoverIE group financial statements do not reflect
this dividend.
Business Combinations
On 13 May 2021, subsequent to the year end, the Group completed
the acquisition of Control Products Inc ("CPI"). CPI was acquired
for an initial cash consideration of GBP8.1m ($11.4m) on a debt
free, cash free basis, 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
profit growth targets over a four year period.
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