DISCOVERIE GROUP PLC discoverIE Group plc
Annual Report and Accounts for the year ended 31 March 2024
Enabling technology for a sustainable world
Welcome to the 2024
Annual Report
discoverIE is a leading international designer and manufacturer of customised electronics for industrial applications. We create innovative electronics that deliver value
to our customers, whilst making positive impacts on the environment, society and people's lives
Our vision is to be a leading innovator in electronics, internationally
Strategic Report
HIGHLIGHTS
FINANCIAL
GROUP | UNDERLYING | UNDERLYING | |||||||||||||||||||||||||||
REVENUE | OPERATING PROFIT1 | EPS1 | |||||||||||||||||||||||||||
£437.0m | £57.2m | 36.8p | |||||||||||||||||||||||||||
-3% | +10% | +5% | |||||||||||||||||||||||||||
FY22 | £379.2m | FY22 | £41.4m | FY22 | 29.4p | ||||||||||||||||||||||||
FY23 | £448.9m | FY23 | £51.8m | FY23 | 35.2p | ||||||||||||||||||||||||
FY24 | £437.0m | FY24 | £57.2m | FY24 | 36.8p | ||||||||||||||||||||||||
REPORTED | UNDERLYING OPERATING | FULL YEAR DIVIDEND | |||||||||||||||||||||||||||
OPERATING PROFIT2 | CASH FLOW3 | PER SHARE | |||||||||||||||||||||||||||
£31.2m | £59.2m | 12.0p | |||||||||||||||||||||||||||
-10% | +22% | +5% | |||||||||||||||||||||||||||
FY22 | £20.9m | FY22 | £33.1m | FY22 | 10.8p | ||||||||||||||||||||||||
FY23 | £34.6m | FY23 | £48.6m | FY23 | 11.45p | ||||||||||||||||||||||||
FY24 | £31.2m | FY24 | £59.2m | FY24 | 12.0p | ||||||||||||||||||||||||
STRATEGIC | |||||||||||||||||||||||||||||
UNDERLYING | SALES BEYOND | ||||||||||||||||||||||||||||
OPERATING MARGIN1 | EUROPE | ||||||||||||||||||||||||||||
13.1% | 41% |
CONTENTS
Strategic Report
Highlights
The discoverIE Difference Group at a Glance Chairman's Statement Investment Case
Our Strategy
Key Performance Indicators Strategy in Action Market Overview
Our Business Model
Strategic and Operational Review Financial Review
Our Engagement with Stakeholders
Section 172 Statement
Sustainability Report
Summary Disclosure Against TCFD Recommendations
Risk Management
Principal Risks and Uncertainties Viability Statement
Non-Financial Information and Sustainability Statement
86 Consolidated Statement
88 | of Financial Position | 150 |
89 | Consolidated Statement | 151 |
100 | of Changes in Equity | |
Consolidated Statement of | ||
108 | Cash Flows | 152 |
110 Notes to the Group Consolidated
113 | Financial Statements | 153 |
Company Statement of | 203 | |
139 | Financial Position | |
Company Statement | 204 | |
of Changes in Equity | ||
Notes to the Company | 205 | |
Financial Statements |
140 Additional Information
148 | Five Year Record | 207 |
Principal Locations | 208 | |
148 | Financial Calendar 2024/25 | 209 |
Corporate Information | 209 | |
149 |
FY22 | 10.9% | FY22 | 40% | ||||||||
FY23 | 11.5% | FY23 | 40% | ||||||||
FY24 | 13.1% | FY24 | 41% | ||||||||
TARGET | CARBON | ||||||||||
MARKET SALES4 | EMISSIONS REDUCTION5 | ||||||||||
75% | 47% | ||||||||||
FY22 | 76% | CY22 | 35% | ||||||||
FY23 | 77% | CY23 | 47% | ||||||||
FY24 | 75% | ||||||||||
Notes:
- "Underlying operating profit", "underlying operating margin", and "underlying EPS", are non-IFRS financial measures used by the Directors to assess the underlying performance of the Group. These measures exclude amortisation of acquired intangible assets of £16.2m and acquisition and disposal expenses of £9.8m, totalling £26.0m. Equivalent underlying adjustments within the FY2023 underlying results totalled £17.2m. For further information, see note 6 on pages 164 to 168.
2 Reported operating profit growth below underlying operating growth because of the disposal of the Santon solar business unit and more acquisitions in the year.
- "Underlying operating cash flow" is a non-IFRS financial measure. It is underlying EBITDA adjusted for the investment in, or release of, working capital and less the cash cost of capital expenditure and lease payments.
- Target markets are renewable energy, transportation, medical, and industrial & connectivity.
5 Scope 1 & 2 emissions reduction against CY21 baseline.
discoverIE Group plc Innovative Electronics
Annual Report and Accounts for the year ended 31 March 2024 | 01 |
THE discoverIE DIFFERENCE
Strategic Report
At discoverIE, we are more than just electronics
Our Purpose | Our Vision |
To create innovative electronics | To be a leading global innovator in |
How we operate differently
manufacturers. We are a global leader in designing and building customised, niche solutions that empower industries.
Our innovations not only deliver exceptional value to our customers but also contribute to a more sustainable and equitable world.
that help improve the world and | electronics |
people's lives |
Our Mission
To design and manufacture innovative electronics that help our customers create ever better technical solutions around the world. We aim to achieve this through a motivated, entrepreneurial and empowered workforce that adheres to the highest ethical and quality standards.
Our Values
These are our fundamental beliefs and principles that guide our decision-making:
- Integrity - we act with honesty and openness, treating our partners and stakeholders fairly
- Quality - we strive for excellence and make constant improvements that deliver superior value to our customers
- Empowerment - we inspire growth and innovation by providing an entrepreneurial environment
- Collaboration - we work together, trust and respect each other
- Positive impact - we care about the environment and societies we live in and commit to making a positive impact
A decentralised model
The discoverIE Group consists of 26 operating businesses, specialising in different technologies. Based on technology areas, these businesses are grouped into two divisions - Magnetics & Controls and Sensing
- Connectivity, each with its own divisional head. Each business operates autonomously under its own brand within a well-defined framework and is supported by the Group's central resources. This emphasis on decentralised decision- making fosters a strong sense of ownership and accountability within individual businesses.
Strength in our clusters
Businesses within each division with similar or adjacent technologies are grouped into clusters. The clustering approach makes it easy to identify synergies and foster collaboration among the operating businesses. Instead of adding another management layer, a leadership team from within the cluster takes the lead. This keeps the structure flat, allowing for faster decision- making and greater agility.
Sustainable approach
At discoverIE, sustainability is embedded throughout our business. We design long-lasting,energy-efficient products that minimise service or replacement needs. We focus on markets that are aligned with the UN Sustainable Development Goals ("SDGs").
We recognise that sustainability is a shared responsibility. By collaborating with our customers and suppliers on their sustainability journeys, we strive to help them achieve their environmental goals, whilst working to achieve our own.
Our Culture
We embrace a decentralised operating model, and our success hinges on a culture built on respect, fairness, and equality. In turn, our decentralised structure strengthens a culture that empowers our teams, fosters open communication, and unites us towards our shared vision and ambitions.
These core values and the collaborative spirit of our global workforce fuel
our passion for innovation, guide our decision-making, and propel us towards achieving our mission of providing the highest quality products and services to our customers, whilst creating a positive impact on the environment, society and people's lives.
- Dedication and determination
- driven by empowerment and a sense of ownership
- Customer centricity - allow employees closest to the customers to make decisions that directly affect customer satisfaction
- Respect, fairness and equality
- create an open and inclusive environment in which everyone has an equal opportunity to flourish and grow
- Open communication - create a trusting environment where information flows freely and collaboration thrives
- Target driven - strive for results and high performance
The importance of cultural fit in the acquisitions we make
For a decentralised Group like discoverIE, cultural fit with the businesses we acquire is crucial to our and their long-term success. We thrive on empowered employees and independent decision-making, close to our customers. Acquired businesses benefit from being part of a larger group of like-minded businesses that are able to meet the local needs of their stakeholders whilst retaining their own identity.
By factoring in cultural fit, we can ensure acquired businesses seamlessly integrate into our existing structure, preserving the agility and innovation that make discoverIE successful.
Our sustainability focus areas
Our sustainability | |||
programme has | |||
three pillars: | Our Planet | Our People | Our Products |
Creating a positive | Keeping | Ensuring product | |
impact on our | our people safe | reliability and | |
environment | and happy | sustainability |
02 | discoverIE Group plc Innovative Electronics | Annual Report and Accounts for the year ended 31 March 2024 | 03 |
GROUP AT A GLANCE
Strategic Report
discoverIE is a global leader in innovative electronic components for industrial applications.
Our international network of businesses design and manufacture differentiated products, catering to key growth markets worldwide. Our in-house engineering teams and a global manufacturing footprint allow us to deliver ever better technical solutions to our customers.
RevenueUnderlying operating profit
M&C £265m | M&C £40.6m |
S&C £172m | S&C £28.9m |
Our global footprint |
North America
North America
UK | |
UK | |
Europe | ASIA |
Europe | |
Asia | |
M&C manufacturing site | M&C sales representative |
S&C manufacturing site | S&C sales representative |
Our UN SDG-aligned target markets
Renewable Energy
More electricity will come from solar and wind in the coming decades as the world is racing to meet net zero goals
Transportation
Green cities and a clean future drive demand for electric transport
Medical
Chronic diseases, ageing populations and better healthcare access fuel a rise in demand for electronic devices
Our divisions
Magnetics & Controls
Comprises the magnetic components, embedded computing and human-machine interface businesses. It consists of two clusters - magnetics and human-machine interface - and six standalone businesses, across 17 countries with 21 manufacturing sites. Produces electronics for signal conditioning, power conversion and switching, monitoring and remote control, communication and interface control.
Revenue breakdown
UK - 6%
Nordics - 23%
Rest of Europe - 26%
N. America - 26%
Asia & ROW - 19%
Revenue | Magnetics | Controls |
£235m | £281m | £265m | |
FY22 | FY23 | FY24 | Indicates |
our Clusters |
Industrial & Connectivity
The rise of the Industrial Internet of Things, 5G and artificial intelligence is creating an ever-increasing need for electronics
READ MORE ABOUT OUR TARGET MARKETS ON PAGES 24 TO 27
Sensing & Connectivity
Comprises four clusters - sensing, RF/wireless communication, fibre optic and connectors - and three standalone connectivity businesses, across nine countries with 15 manufacturing sites. Produces electronics for X-ray detection, wireless transmission, fibre optic and cable connection, electromagnetic shielding and sensing components for measuring movement, temperature, pressure, position, force and load.
Revenue breakdown
UK - 22%
Nordics - 10%
Rest of Europe - 34%
N. America - 23%
Asia & ROW - 11%
Revenue | Sensing | Connectivity |
£145m | £168m | £172m |
FY22 | FY23 | FY24 |
READ MORE ABOUT OUR CLUSTERS ON PAGE 28
04 | discoverIE Group plc Innovative Electronics | Annual Report and Accounts for the year ended 31 March 2024 | 05 |
Strategic Report
Our ambition:
To create innovative electronics that make a positive difference, contributing to
a better future
Our aim is to have a positive impact…
Incorporating proven technology
Our products are based on proven technologies, which is the key to creating successful and reliable products. The challenging task is applying such technology to meet the requirements of a specific application. This requires a deep understanding of the application itself as well as the technology. Our team of electronics, mechanical, and software engineers have in-depth knowledge of the technologies and a wealth of experience in applying them. They work hand-in-hand with customers to find the best solution for the application.
Working with customers to maximise our impact
Application 1: The maritime sector is undergoing a green revolution, with shipping companies and system integrators seeking innovative solutions to meet emissions targets.
We are at the forefront of this change, collaborating with industry leaders to retrofit existing vessels to enable them to run on hybrid or renewable energy sources.
Our project-based,custom-designed products, such as optimised single or 3-phase transformers and reactors, are tailor-made for these new hybrid-electric or fully electric propulsion systems.
We support our customers in their green transformations, while contributing to a cleaner, lower carbon future for the global economy.
Application 2: Since its inauguration in 2019, the Vande Bharat Express has revolutionised travel across India. This semi-high speed train significantly reduces travel times on key routes - some by as much as 15%. We partner with Siemens on this project, custom-designing and manufacturing the crucial power systems which keep trains operational. These systems ensure a constant and regulated flow of electricity to power essential onboard functions such as lighting, displays, and air conditioning.
06 | discoverIE Group plc Innovative Electronics | Annual Report and Accounts for the year ended 31 March 2024 | 07 |
Strategic Report
...by delivering highly
Our specialist electronic components are customised to ensure optimal efficiency for the end user
Magnetic components for | X-ray detection for waste | Embedded solution for |
wind turbine systems | management | medical devices |
Application | Application | Application |
Inductors to reduce harmonics in wind | Dual energy X-ray detectors for sorting | Embedded microcomputer for wearable |
energy conversion | waste materials | cardiac monitoring device |
customised
products...
Benefits
A variable speed wind turbine uses power electronics converters to convert the AC power generated by the turbine into DC, then back to AC to feed into the grid. The converter system creates harmonics in the wind-generated power's voltage and current, reducing power quality. Our custom-designed inductors reduce the harmonics in the wind energy conversion system, minimising power loss and making the wind turbine system more efficient.
Benefits
Traditional metal sorting using magnets can only sort between ferrous and non-ferrous metals. However, using dual energy X-ray measurements can sort materials at a much more granular level, such as sorting aluminium by different grades. This method helps to increase the recovery of valuable materials, such as minerals and metals.
Benefits
The compact, wearable device records patients' heartbeats for signs of potentially dangerous arrhythmias and then wirelessly transmits data to patient monitoring services, allowing remote care and early intervention. We design and build the small embedded system comprising a powerful application processor with PC-like speeds and a wireless chipset with Bluetooth and GPS support. The system is designed for optimal efficiency, ensuring extended operation on a single charge.
Our products are essential components for many industrial applications. We focus on those markets that have long-term growth prospects and that are aligned with the UN Sustainable Development Goals.
READ MORE ABOUT HOW WE CONTRIBUTE TO THE UN SUSTAINABLE DEVELOPMENT GOALS ON PAGES 52 TO 53
Target market | Target market | Target market | |||
Key
Renewable energy | Transportation | Medical | Industrial & Connectivity |
Our product range is expanding as we continue to acquire businesses that are leading in their respective fields. We are also looking for new technology platforms that will complement our existing businesses while bringing product, technical and geographic strengths to the Group.
■ We have acquired 26 businesses | ■ They are grouped into four | ■ Based on these technologies, |
since 2011. They are based on | technology areas: magnetics, | we customise and develop new |
different technology platforms but | embedded computer & interface | applications to meet our customers' |
all share the discoverIE DNA. | controls, sensing, cable & wireless | specific requirements. |
connectivity. |
08 | discoverIE Group plc Innovative Electronics | Annual Report and Accounts for the year ended 31 March 2024 | 09 |
Strategic Report
...serving vital markets
We focus on four target markets, providing tangible benefits to the world
Growth in our target markets is driven by megatrends, such as decarbonisation, electrification, and digitalisation.
READ MORE ON THE MEGATRENDS ON PAGES 24 TO 27
contributing to a more sustainable world.
Renewable energy
Why is it important
The key to unlocking a clean energy future lies in sustainable power sources. By building new electricity capacity, such as wind and solar, we can significantly reduce carbon emissions and create a more sustainable world.
The role we play
We are at the forefront of the renewable energy revolution. Our innovative components play a critical role in enabling the efficient transmission of wind and solar power, minimising energy loss during transit. We also develop solutions that go directly into customer products, empowering them to generate clean electricity from these renewable sources. By minimising energy loss and enabling wider adoption of renewable technologies,
we are actively contributing to a cleaner, more sustainable future.
Medical
Why is it important
The healthcare industry is experiencing a surge in electronic devices due to three key factors: the growing prevalence of chronic diseases, an ageing population, and increased access to healthcare. These devices play a crucial role in enhancing patient care, improving diagnostics, and enabling minimally invasive surgeries.
The role we play
Our mission-critical electronics are embedded in a wide range of medical equipment, from X-ray detection systems in scanners to fully sealed control panels
for ultrasound machines. These innovative solutions empower healthcare providers to deliver exceptional care and improve patients' quality of life.
Transportation
Why is it important
Transportation is a major contributor to global CO2 emissions. Driven by the combined forces of decarbonisation and urbanisation, the demand for electrified transportation is surging. This electrification extends beyond personal vehicles to encompass mass transit systems like trains and buses, as well as specialised vehicles used for deliveries and agriculture. Furthermore, even traditional vehicles are incorporating more electric components to enhance safety, efficiency,
and communication capabilities.
The role we play
We help our customers create products that assist with the electrification of transportation. From DC switches isolating train batteries to HVAC control solutions ensuring passenger comfort, and from magnetic components
in high-powered EV chargers to pressure sensors for hydrogen buses, our diverse range of long-lasting,energy-efficient products touches nearly every aspect of electric mobility. We further contribute by retrofitting existing trains and ships with the latest, more efficient power systems.
Industrial & Connectivity
Why is it important
Industrial automation and robotics have increased exponentially in certain sectors, such as manufacturing, and are now expanding into medical, aviation and agriculture. With the growing adoption of the Internet of Things ("IoT"), 5G and artificial intelligence ("AI"), the demand for electronics such as antennas, sensors, and fibre optic connections will continue to grow.
The role we play
We are at the heart of industrial automation. Our products perform the essential functions of automation, such as signal conditioning and transmission, monitoring and remote control. We provide fast and reliable cable and wireless connections, enabling industrial IoT to take place and, in turn, helping to improve productivity and efficiency.
10 | discoverIE Group plc Innovative Electronics | Annual Report and Accounts for the year ended 31 March 2024 | 11 |
Strategic Report
CHAIRMAN'S STATEMENT
The Group continues to deliver strong results through the business cycle, demonstrating
its quality and resilience."
Bruce Thompson
Chairman
GROUP REVENUE
£437.0m
(FY2023: £448.9m)
UNDERLYING
OPERATING PROFIT
£57.2m
(FY2023: £51.8m)
This year's results reflect another strong performance, with operational efficiencies driving good growth in underlying operating profits and margin, as well as underlying earnings per share. Once again, the high quality of the Group's earnings, along with its capital-light nature, has delivered excellent growth in cash flow.
Industrial markets slowed this year following two strong years where Group revenue increased by almost 50%. The industry wide supply chain shortages of a year ago led to inventory imbalances that have had to be realigned. Encouragingly, the inventory correction in our markets appears to have been achieved smoothly; testament to the improved supply chain skills developed in the industry in previous downturns.
Despite the changing market conditions, the Group's revenue has proven resilient. By focussing on structural growth markets, and avoiding the more cyclical and consumer-facing markets, the Group has successfully offset the impact of inventory correction in the industrial markets. The Group continued to make excellent progress operationally, generating efficiencies that partly come from organising our businesses into clusters, thereby sharing resources and know-how, reducing working capital and making further progress on the acquisition front.
Strategy
The Group's strategy has remained consistent for a number of years and has delivered sustained returns for shareholders. The Group designs and manufactures high quality components which are created to fit the unique requirements of each customer allowing for secure, long- term revenue streams. Operating with an international, decentralised business model allows us to retain an entrepreneurial mindset and be close to our customers, reacting quickly to their needs and operating an efficient supply chain. To deliver consistent, long-term growth we focus on structurally growing, sustainable markets driven by increasing electronic content and where there is an essential need for our products.
The Group's target markets are renewable energy, transportation, medical and industrial & connectivity and are all aligned with the UN Sustainable Development Goals ("UN SDGs"). With these being worldwide markets and with major customers operating internationally, the business is expanding both within and, to an increasing extent, beyond Europe. By focusing on these target markets, the Group is also helping to facilitate the transition to a cleaner, healthier, and more sustainable world.
Alongside organic growth, acquisitions are a key factor in the Group's compounding growth strategy.
Since 2011, the Group has acquired 26 specialist, value and margin- enhancing design and manufacturing businesses, which have been integrated successfully and driven further growth. discoverIE has a disciplined approach to acquisitions and continues to see opportunities for further acquisitions in a highly fragmented market with a strong pipeline in development.
The Group's capital-light model generates strong cash flows, which management reinvests into accelerating the strategy and delivering further value creation for shareholders.
Sustainability and
Positive Impact
The Group continues to work hard to build a more sustainable business. Excellent progress has been made towards its target of reducing its carbon emissions and the Group has a net zero plan to reduce Scope 1 & 2 emissions to zero by 2030 and Scope 3 emissions to zero by 2040. Since 2021, Scope 1 & 2 emissions have already been reduced by 47%. In addition, managements' remuneration continues to be aligned with delivering on ESG-related objectives.
Last year, the Group undertook an assessment of the resilience of its business model and strategy, and potential impact of climate change over the short and medium term. It concluded that, while the Group may be exposed to certain risks during the transition to a low carbon economy, such risks are considered to be low and more than outweighed by the commercial opportunities presented to the Group in our target markets from the energy transition. In early 2024, the Group carried out an interim reassessment of the climate risks to take into account the newly acquired businesses. The results showed that there has been no material change in the Group's climate-related risk profile.
The Group also aims to be a socially responsible employer, adhering to the highest ethical standards both internally and throughout its supply chain, with a commitment to excellent employee relations and to increasing diversity at all levels of the business.
Recognising the Group's achievements and focus on sustainable development, MSCI has upgraded its classification of the Group with an "AA" rating in its 2023 ESG Rating assessment (previously
"A" rating). The Group is also 'Regional Top rated' by Sustainalytics. Both acknowledged the Group's strong performance against industry peers in various areas, including opportunities in clean technology and corporate governance.
Acquisitions
The Group made five acquisitions during the year, for a total consideration of £83m.
Three of those acquisitions were in the M&C division, namely Silvertel, a UK-based designer and manufacturer of differentiated, high performance Power-over-Ethernet ("PoE") modules acquired in August 2023; Shape, a US-based designer & manufacturer of speciality transformers acquired in January 2024 as a bolt-on to the Noratel cluster, and DTI, a US-based designer and manufacturer of custom embedded modules acquired in March 2024 as a bolt-on to the Beacon cluster.
Two acquisitions were made in the S&C division, namely 2J Antennas Group ("2J Antennas"), a Slovakia-based designer and manufacturer of high performance antennas acquired in September 2023, which is to be integrated with our existing Antenova business, and IKN, a Norwegian cable designer and manufacturer acquired in March 2024 as a bolt-on to the Foss cluster.
The management teams at each business have remained in position post-acquisition, and with the support structure and cross-selling opportunities that come from being part of an enlarged group, we fully expect to see accelerated growth in the years ahead.
We welcome the employees of these businesses into the Group and look forward to working with them in the years ahead.
12 | discoverIE Group plc Innovative Electronics | Annual Report and Accounts for the year ended 31 March 2024 | 13 |
CHAIRMAN'S STATEMENT continued
Strategic Report
INVESTMENT CASE
Continued financial progress
Group sales for the year increased by
1% at CER to £437.0m, notwithstanding strong comparators (+48% growth
in the prior two years). As a result of significant operating efficiencies, underlying operating profit increased by 16% at CER to £57.2m with underlying operating margin increasing by 1.6ppts to 13.1%. Conversely interest rate rises contributed to a £3.5m increase in finance costs to £9.0m and, together with a stronger Sterling, reduced growth in underlying profit before tax to 4% (increasing from £46.3m to £48.2m) with underlying earnings per share up 5% to 36.8p (FY2023: 35.2p).
This year saw a greater number and value of acquisitions (five deals for a total of £83m compared with two last year for a total of £23m), resulting in
Increased Dividend
The Board is recommending a 4% (0.35 pence) increase in the final dividend to 8.25 pence per share, giving a 5% increase in the full year dividend per share to 12.0 pence (FY2023: 11.45 pence) and an underlying earnings cover
of 3.1 times (FY2023: 3.1 times). The final dividend is payable on 2 August 2024 to shareholders registered on 28 June 2024.
The Board believes in maintaining a progressive dividend policy along with a long-term dividend cover of over three times earnings on an underlying basis. This approach, along with the continued development of the Group, will enable funding of both dividend growth and a higher level of investment in acquisitions from internally generated resources.
The Group comprises approximately 4,500 employees in 20 countries around the world. By adopting an entrepreneurial and decentralised operating environment, together with rigorous planning, controls and investment, the Group has created an ambitious and successful culture.
We aim to achieve a culture across the Group that:
■ | is entrepreneurial |
■ treats everybody equally and | |
recognises the importance of | |
diversity | |
■ is honest, reliable, trusting and non- | |
political | |
■ enables decision-making close | |
to the customer through a | |
decentralised structure | |
■ | enables open, constructive |
Sustainable growth markets
Increasing electronic content and electrification of products and processes drive demand for electrical and electronic components. We prioritise four markets that are driven by megatrends and are aligned with UN Sustainable Development Goals. Read more on the megatrends on pages 24 to 27.
FORECASTED GROWTH IN OUR TARGET MARKETS1
7-12% p.a.
Target markets: Renewable energy, Transportation, Medical, and Industrial & Connectivity
Differentiated product offering
We specialise in providing customised and niche electronic solutions, utilising established technologies to create small, mission-critical components tailored to meet the unique needs of our customers. We manufacture and supply these engineered components for the lifespan of the end products.
LONGEST CUSTOMER
RELATIONSHIP
30+ years
Long-lasting customer relationships and stable, repeat revenue
Strong financials
Sustainable, profitable growth and excellent cash generation. Our strong balance sheet with gearing in the range of our 1.5x - 2x target allows headroom for further acquisitions.
UNDERLYING OPERATING PROFIT GROWTH2 OF
21%
CAGR4 from FY2019-FY2024
FREE CASH FLOW
CONVERSION3 OF
109%
on average from FY2019-FY2024
proportionately higher acquisition expenses. In addition, there were £5.9m of costs associated with the disposal of the Santon solar business unit (see note 12); net cash proceeds of c.£7m from this transaction are due to be received in the new financial year. After underlying adjustments for the inclusion of higher acquisition and disposal-related costs, profit before tax on a reported basis reduced by £6.9m to £22.2m (FY2023: £29.1m) with fully diluted earnings per share reducing by 5.9p to 15.8p (FY2023: 21.7p).
Free cash flow of £37.0m was generated this year, being 12% higher than
last year and representing 102% of underlying earnings, well ahead of the Group's conversion target of 85%. With £83m invested in five acquisitions this year, net debt at 31 March 2024 increased to £104.0m (31 March 2023: £42.7m) with a gearing ratio of 1.5x, at the lower end of our target range of 1.5x to 2.0x.
At the time of the interim dividend in January 2024, the Company started a Dividend Re-Investment Programme ("DRIP"), details of which are available from the Company's Registrars, Equiniti. The final date for DRIP elections for the final dividend will be 12 July 2024.
Board of Directors
On 1 June 2023 we were pleased to welcome Celia Baxter to the Board. She has many years of experience in listed companies, including at Bunzl plc, DS Smith plc and Dowlais plc. She will succeed Tracey Graham as both Chair of the Remuneration Committee and as Senior Independent Director when Tracey retires from the Board in November this year. We extend our sincere thanks to Tracey for her service to the Board and to the Company since her initial appointment in November 2015 and we wish her every success for the future.
Employees and Culture
On behalf of the Board, I would like to thank everybody at discoverIE for their sustained dedication, hard work, initiative and support.
communication with a willingness |
to listen |
■ is performance driven |
Summary
The Group is building a leading business that continues to deliver strong results through the economic cycle and the Group has again demonstrated the quality and resilience of its business.
The market remains highly fragmented, providing scope to build further capability and extend geographic reach through disciplined, accretive acquisitions. The Board is excited by the opportunities available to continue building a business that attracts and retains a high quality workforce, delivers essential products for our customers, grows long-term returns for our shareholders, and contributes to the creation of a sustainable environment.
With a strong pipeline of opportunities, the Group is well positioned for continued growth.
Bruce Thompson
Chairman
Proven strategy for growth
Grow organically well ahead of GDP through the economic cycle by focusing on structural growth markets and an expanding product offering, bolstered by earnings and margin-enhancing acquisitions. Proven track record of delivering strategic and financial targets.
REVENUE GROWTH2 OF
10%
CAGR4 from FY2019-FY2024
Consistent Shareholder returns
Disciplined capital allocation with a track record of value-enhancing acquisitions drive capital appreciation and progressive dividends.
DIVIDEND GROWTH OF
6%
CAGR4 from FY2014-FY2024
TOTAL SHAREHOLDER
RETURN OF
403%
FY2014-FY2024
- See estimated growth in our target markets on pages 24 to 27.
- Continuing operations only, i.e. excluding the disposals of Acal BFi and Vertec SA in March 2022.
- Free cash flow conversion is defined as net cash flow before dividend payments, net proceeds from equity fund raising, acquisition costs and business disposal proceeds divided by underlying profit after tax.
4 Compound Annual Growth Rate.
14 | discoverIE Group plc Innovative Electronics | Annual Report and Accounts for the year ended 31 March 2024 | 15 |
OUR STRATEGY
Over the past decade our clear strategy has delivered stellar
Our strategic aim
Our mission is to grow our business in customised electronics by focusing on markets with sustained growth prospects, driven by increasing electronic content and where there is an essential need for our products.
We aim to achieve this through a motivated, entrepreneurial and empowered workforce that adheres to the highest ethical and quality standards.
Impact of climate change
Strategic Report
Our strategic priorities
Over the past decade, our clear strategy of investing in initiatives that enhance design opportunities for niche, customised products and targeting structural growth markets has delivered stellar results. Despite divesting a substantial portion
of our business through the sale of the distribution business in 2022, the Group's revenue has more than doubled and underlying operating profit has grown sixfold in the past ten years. Along the way, we have built a global specialist electronics engineering business, with strong design capabilities and a growing international presence. We remain committed to this path, with unwavering focus on our strategic priorities:
Key strategic indicators
A | Increase underlying | B | Build sales beyond | C | Increase target | D Reduce carbon | ||||
operating margin | Europe | market sales | emissions | |||||||
Risks | ||||||||||
1 | Instability in the | 2 | Business acquisitions | 3 | Climate-related risks | 4 | Cyber security | |||
economic environment | underperformance | |||||||||
5 Loss of key customers | 6 | Loss of key | 7 | Technological changes | 8 | Major business | ||||
suppliers/supply | disruption | |||||||||
9 | Loss of key personnel | 10 | Product liability | 11 | Inventory obsolescence | 12 | Liquidity and debt | |||
13 | 14 | covenants | ||||||||
Foreign currency | Non-compliance with legal | |||||||||
and regulatory requirements | ||||||||||
SEE OUR PRINCIPAL RISKS AND UNCERTAINTIES ON PAGES 75 TO 81 | Link to key | |||||||||
strategic | Link | |||||||||
Strategic priorities | Progress to date | indicators | to risks | |||||||
Grow sales well | The Group has delivered on average 6% | B C | 1 | 4 | ||||||
ahead of GDP | annual organic growth since FY2014. | 5 | 7 | |||||||
through the economic cycle by focusing | Target markets have grown well ahead | |||||||||
on structural growth markets, namely | of wider markets, even during the | 8 | ||||||||
pandemic. Sales into the target markets | ||||||||||
renewable energy, transportation, medical, | ||||||||||
as a proportion of the Group sales had | ||||||||||
and industrial & connectivity. Each of | ||||||||||
increased from 56% in FY2017 when it | ||||||||||
these markets is predicted to grow faster | ||||||||||
was first measured, to 75% in FY2024. We | ||||||||||
than global GDP. Read more about these | ||||||||||
aim to achieve 85% sales from the target | ||||||||||
markets on pages 24 to 27. | ||||||||||
markets in the medium-term. | ||||||||||
Move up the value chain | Since F2014, the Group's underlying | A | 2 | 4 |
results and we remain committed to this path, with a clear focus on our strategic priorities."
Nick Jefferies
Group Chief Executive
Climate change presents a different set of challenges and opportunities to our business. To understand the financial impact of climate-related risks and opportunities on the Group, we conducted a detailed analysis and financial modelling in FY2023. The results showed that the net financial impact of the climate-related risks and
That being said, we recognise that climate change remains a threat to the Group's assets in the long term and that there has been a growing expectation among our stakeholders that we, as a responsible corporate citizen, address climate risks in our business operations. Therefore, we have prioritised climate-related risks as a
where margins are higher. We aim to | operating margin has risen significantly, | 5 | 6 |
from 3.4% to 13.1% in FY2024. This | |||
achieve this by improving efficiency and | |||
leveraging synergies among our operating | improvement is attributable to a | 7 | |
combination of factors, including | |||
businesses, as well as through strategic |
acquisitions of higher margin businesses | efficiency gains, operating leverage and |
higher margin acquisitions. The sale | |
with niche and more differentiated | |
of the lower margin Custom Supply | |
products. | |
distribution business in March 2022 also | |
played a contributing role. |
opportunities to the Group is immaterial as the costs incurred in mitigating such risks are more or less offset by the benefits arising from the opportunities, and that our business model and strategy remained resilient in the face of climate change. More details on the scenario analysis can be found in the TCFD Report on page 66 and 86 of the 2023 Annual Report.
principal risk and manage it as such, with carbon reduction being one of our Key Strategic Indicators since November 2022. Climate change is now considered in many aspects of how we manage our business, from strategic and financial planning to capital investment and acquisitions to remuneration. It is fully embedded in our operations.
Our net zero plan and SBTi-aligned
Acquire high quality businesses
with attractive growth prospects and strong, sustainable margins. In a fragmented market, opportunities exist to consolidate certain manufacturers of niche, customised products for the Group's common customer base. We have a clear approach to acquisitions, and the target businesses must have discoverIE DNA.
The Group has acquired 26 design and manufacturing businesses over the past 13 years, investing a total of over £470m, of which c.£110m was in the last two years alone. The businesses that have been part of the Group for more than two years have delivered a return on investment of 18.5% in FY2024.
A | B | 1 2 |
C | D |
In FY2024, we assessed the five newly acquired businesses using the same methodology and concluded that they face no significant climate-related risks. Hence, the new acquisitions do not change the Group's climate-related risk profile.
targets announced in November 2022 are a demonstration of our long-term commitment to tackle this issue. More information about the progress we have made against these targets can be found in the Sustainability Report on pages
55 and 61 to 64, and in the TCFD summary report on pages 65 to 70.
Further internationalise
by expanding in North America and Asia. From its British roots, the Group has established a strong European presence over the years. We are committed to continued growth in our home region, while strategically expanding in North America and Asia, where demand for our products is surging. This geographic diversification enhances the Group's resilience against market fluctuations.
Beyond Europe, our sales have grown | B | 1 2 |
significantly, increasing from just 5% | 7 | |
of the Group's total in FY2014 to 41% in |
FY2024. This expansion is fuelled by both organic growth initiatives and strategic acquisitions. Notably, North America,
a previously untapped market, now contributes a quarter of Group sales.
16 | discoverIE Group plc Innovative Electronics | Annual Report and Accounts for the year ended 31 March 2024 | 17 |
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discoverIE Group plc published this content on 20 June 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 June 2024 08:05:07 UTC.
