05 June 2024
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Strong growth in underlying operating profit and margin, with excellent cash flow. Expectations for the new year unchanged

discoverIE Group plc (LSE: DSCV, "discoverIE" or the "Group"), a leading international designer and manufacturer of customised electronics to industry, today announces its results for the year ended 31 March 2024 ("FY 2023/24" or the "year").

FY 2023/24

FY 2022/23

Growth %

CER(2) growth %

Revenue

£437.0m

£448.9m

-3%

+1%

Underlying operating profit(1)

£57.2m

£51.8m

+10%

+16%

Underlying operating margin(1)

13.1%

11.5%

+1.6ppts

+1.7ppts

Underlying profit before tax(1)

£48.2m

£46.3m

+4%

Underlying EPS(1)

36.8p

35.2p

+5%

Reported profit before tax

£22.2m

£29.1m

-24%

Reported fully diluted EPS

15.8p

21.7p

-27%

Interim dividend per share

12.0p

11.45p

+5%

Highlights

  • Strong through cycle growth with efficiencies
    • Group revenue up 1% CER after adjusting for pass-through costs, a 3% reduction on a statutory basis against strong comparators (sales increased by +48% over prior 2 years)
    • Operating efficiencies improve margins and more than offset a 1% reduction in organic sales(3)
    • Strong double-digit organic sales growth in medical, renewable and transportation markets offset by short-term destocking in industrial automation
    • Underlying operating profit up 16% CER
  • Underlying EPS +5% reflecting higher interest costs and foreign exchange movements
    • EPS ahead of top end of consensus range
    • Group will benefit from reducing interest rates
  • Further good progress towards key targets
    • Record underlying operating margin of 13.1%, up 1.6ppts, a significant step towards achieving targets of 13.5% in the year ahead and 15% over the medium term
    • Underlying operating cash flow up 22% with a 103% conversion rate(4)
    • ROCE(5) of 15.7%, ahead of target, reflecting disciplined growth investment
    • ROTCE(6) of 54% reflects capital-light business
    • Carbon emissions reduced by 47% in absolute terms since CY 2021(7)
  • Reported PBT reduced by 24% due to the timing of a non-core disposal
    • Costs associated with the sale of the Santon solar business unit included in these results with net cash proceeds of c.£7m to be recognised in FY 2024/25
  • Five higher-margin acquisitions completed for £83m
    • 2J and Silvertel integrations progressing well
    • Three smaller bolt-ons in the second half for an average mid-single digit EBIT multiple
    • Year-end gearing(8) of 1.5x, at the lower end of the target range of 1.5x to 2.0x
  • Group well positioned for growth
    • Strong bank of design wins to drive future recurring sales (up 23% to £337m ELV(9))
    • Order book of c.4.5 months provides good visibility
    • Strong pipeline of acquisition opportunities and identified targets
  • Positive outlook with expectations for the full year unchanged
    • Q1 trading in line with Board expectations against a tough comparator with first half sales expected to be ahead sequentially
    • Order book supports an anticipated normal seasonal weighting to results

Nick Jefferies, Group Chief Executive, commented:

"Over the past three years, the underlying profitability of the business has nearly doubled on revenues that have increased by almost 50% as the combination of organic growth with efficiencies and higher margin acquisitions came through. This year's results reflect another strong performance against a tougher trading backdrop, with good growth in underlying operating profits and margin, as well as underlying earnings per share. Revenues in our Transportation, Renewable and Medical markets delivered strong organic growth whilst Industrial & Connectivity declined as a result of customer destocking.

"Cash generation has again been strong reflecting both the high quality of earnings and the capital-light nature of the business. Naturally, higher interest rates have taken effect although we will see the corresponding benefit if and when rates reduce.

"Underlying operating profit grew by 16% at constant exchange rates with underlying operating margin increasing by 1.6ppts to over 13% driven organically by efficiencies and value creation in our technology clusters and by higher margin acquisitions. Underlying operating cash flow increased by 22% to £59m.

"We made five acquisitions during the year for a consideration of £83m. Our approach to long-term compounding organic growth is delivering increasing ROCE over time, with our longer standing acquisitions now generating 28% ROCE and we expect our newer businesses to generate similar returns over time. Our commitment to disciplined capital allocation includes review of the business portfolio and during the year we sold our solar switches production lines, enabling us to focus on the remaining higher margin products in the Santon business.

"Whilst the softer market conditions in some sectors are expected to continue for the first half of the year, we have a strong pipeline of design wins, order backlog and acquisition opportunities. With the benefit of a robust balance sheet, we expect to make further progress in the year ahead, in line with the Board's expectations, building on the essential role that our specialist products provide for our customers."

Analyst and investor presentation:

A results briefing for sell side analysts and investors will be held today at 9.30am (UK time) at the offices of Peel Hunt. If you would like to join in person or via the live webinar, please contact Buchanan at discoverie@buchanan.uk.com.

Enquiries:

discoverIE Group plc 01483 544 500

Nick Jefferies Group Chief Executive

Simon Gibbins Group Finance Director

Lili Huang Head of Investor Relations

Buchanan 020 7466 5000

Chris Lane, Toto Berger, Jack Devoy

discoverIE@buchanan.uk.com

Notes:

(1) 'Underlying operating profit', 'Underlying operating margin', 'Underlying EBITDA', 'Underlying profit before tax', 'Underlying EPS', 'Underlying operating cash flow' and 'Free cash flow' are non-IFRS financial measures used by the Directors to assess the underlying performance of the Group. These measures exclude acquisition and disposal related costs (amortisation of acquired intangible assets of £16.2m and acquisition and disposal expenses of £9.8m) totalling £26.0m. Equivalent underlying adjustments within the FY 2022/23 underlying results totalled £17.2m. For further information, see note 6 of the attached consolidated financial statements.

(2) Growth rates at constant exchange rates ("CER") exclude the impact of nil margin, pass-through costs in FY 2022/23 totalling £5.0m. The average Sterling rate of exchange was unchanged against the Euro compared with the average rate for last year whilst strengthening 7% on average against the three Nordic currencies and 4% against the US Dollar.

(3) Organic growth for the Group compared with last year is calculated at CER and is shown excluding the first 12 months of acquisitions post completion (CDT in June 2022, Magnasphere in January 2023, Silvertel in August 2023, 2J Antennas Group ("2J") in September 2023 and Shape, DTI and IKN in Q4 2023/24) and excluding the agreed disposal of the Santon solar business unit.

(4) Underlying operating cash flow is underlying EBITDA adjusted for the investment in, or release of, working capital and less the cash cost of capital expenditure and lease payments.

(5) ROCE is defined as underlying operating profit including the annualisation of acquisitions, as a percentage of net assets excluding net debt, deferred consideration related to discontinued operations and legacy defined benefit pension asset/(liability). Organic ROCE excludes acquisitions made this year.

(6) ROTCE (return on tangible capital employed) is ROCE excluding the value of acquired goodwill and intangibles, leases provisions and tax.

(7) Target is to reduce scope 1 & 2 carbon emissions by 65% by CY 2025 on an absolute basis (base year CY 2021). (8) Gearing ratio is defined as net debt divided by underlying EBITDA (excluding IFRS 16; annualised for acquisitions).

(9) ELV is estimated lifetime value.

(10) Unless stated, growth rates refer to the comparable prior year period.

(11) The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Market Abuse Regulation, Article 7 of EU Regulation 596/2014. Upon the publication of this announcement via Regulatory Information Service, this inside information is now considered to be in the public domain.

Notes to Editors:

About discoverIE Group plc

discoverIE Group plc is an international group of businesses that design and manufacture innovative electronic components for industrial applications.

The Group provides application-specific components to original equipment manufacturers ("OEMs") internationally through its two divisions, Magnetics & Controls, and Sensing & Connectivity. By designing components that meet customers' unique requirements, which are then manufactured and supplied throughout the life of their production, a high level of repeating revenue is generated with long-term customer relationships.

With a focus on sustainable key markets driven by structural growth and increasing electronic content, namely renewable energy, medical, electrification of transportation and industrial automation & connectivity, the Group aims to achieve organic growth that is well ahead of GDP and to supplement that with complementary acquisitions. The Group is committed to reducing the impact of its operations on the environment with an SBTi-aligned plan to reach net zero. With its key markets aligned with a sustainable future, the Group has been awarded an ESG "AA" rating by MSCI and is Regional (Europe) Top Rated by Sustainalytics.

The Group employs c.4,500 people across 20 countries with its principal operating units located in Continental Europe, the UK, China, Sri Lanka, India and North America.

discoverIE is listed on the Main Market of the London Stock Exchange and is a member of the FTSE250, classified within the Electrical Components and Equipment subsector.

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discoverIE Group plc published this content on 05 June 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 June 2024 06:08:04 UTC.