TIDMDSCV
RNS Number : 7207O
discoverIE Group plc
14 June 2022
14 JUNE 2022
discoverIE Group plc
Preliminary results for the year ended 31 March 2022
Record growth and development
discoverIE Group plc (LSE: DSCV, "discoverIE" or "the Group"), a
leading international designer and manufacturer of customised
electronics for industrial applications, today announces its
results for the year ended 31 March 2022 ("FY 2021/22" or "the
Year").
FY 2021/22 FY 2020/21 Growth FY 2019/20 Growth(2)
%
Continuing Operations(1) %
Revenue GBP379.2m GBP302.8m +25% GBP303.3m +25%
Underlying operating
profit(3) GBP41.4m GBP30.8m +34% GBP30.8m +34%
Underlying operating
margin(3) 10.9% 10.2% +0.7ppts 10.2% +0.7ppts
Underlying EPS(3) 29.4p 22.4p +31% 24.4p +20%
Reported operating
profit GBP20.9m GBP17.1m +22% GBP17.8m +17%
Total Operations
Reported fully diluted
EPS 26.3p 13.0p +102% 16.3p +61%
Gearing 0.6x 1.1x (0.5x) 1.25x (0.65x)
Full year dividend
per share 10.8p 10.15p +6% 2.97p +264%(4)
Highlights
-- Record growth in orders & sales driven by focus on structurally growing target markets
o 76% of sales into UNSDG aligned sectors of renewables,
medical, transport, industrial & connectivity
o Organic(5) orders: +36% (v FY 2020/21) and +32% (v pre-Covid
period FY 2019/20)
o Organic sales: +18% (v FY 2020/21) and +14% (v FY 2019/20)
o Total sales +25% (v FY 2020/21) and +25% (v FY 2019/20)
-- Delivering strong financial performance
o Underlying operating profit from continuing operations:
+34%
o Underlying EPS from continuing operations: +31%
-- Excellent progress towards key strategic targets
o Underlying operating margin increased by 0.7ppts to 10.9%
(target: 13.5%)
o Like-for-like carbon emissions(6) reduced by 33% since CY 2019
(v 50% target by 2025)
o Free cash flow conversion(7) over two years of 102% of net
profit (v 85% target)
-- Three international acquisitions completed for GBP85m; well
supported equity placing for net GBP53m
o Beacon, Antenova and CPI; now fully integrated
-- Sale of Acal BFi completes exit from the business of distribution
o Continuing operations arranged into two new divisions:
Magnetics & Controls ("M&C") and Sensing & Connectivity
("S&C")
-- Group well positioned for further growth
o Record order book of GBP224m (organic: +62% v Mar 2021; +71% v
Mar 2020)
o Pipeline of acquisition opportunities remains strong
o Gearing(8) of 0.6x, well below our target of 1.5x to 2.0x;
significant funding headroom available
o New financial year started well - continued strong organic
revenue growth
Nick Jefferies, Group Chie f Executive, commented:
"These results reflect the strength of the discoverIE business
model which is performing well in good demand conditions and an
inflationary environment and follows a resilient performance
through the weaker Covid conditions of the year before. With record
growth in orders, sales, order book and underlying earnings per
share, which increased by 31%, continuing revenues and earnings are
now well ahead of the pre-Covid period. I would like to thank all
of our employees around the Group for their tremendous effort and
flexibility over the last two years that has led to these
results.
We are also making good progress on our sustainability
initiatives. By switching our sites to renewable sources of energy
where possible, the Group's like-for-like carbon emissions were 33%
lower in calendar year 2021 than 2019 and we are on track to
achieve our goal of a 50% reduction by 2025.
Following the Group's exit during the year from the business of
distribution, discoverIE is now solely focused on the design and
manufacture of customised electronics for industrial applications;
our continuing focus is on achieving organic growth and new design
wins in sustainable target markets, together with accretive
acquisitions. The Group is well-funded, with a strong balance sheet
and cash flow, and has significant funding headroom for further
acquisitions.
The new financial year has started well, with continued strong
growth in organic sales, and the order book at record high levels.
While supply chain headwinds and inflationary pressures remain,
they are expected to be manageable.
With a clear strategy focused on long-term, high quality,
structural and sustainable growth markets across Europe, North
America and Asia, a diversified customer base, a record order book
and a strong pipeline of acquisition opportunities, the Group is
well positioned to make further good progress in the year ahead .
"
Analyst and investor presentation:
A results briefing for analysts and investors will be held today
at 9.30am (UK time). If you would like to join in person or via the
live webinar, please contact Buchanan a t
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) Continuing operations excludes the results of the Acal BFi
and Vertec SA businesses, and profit on sale, following their
disposals during the year. These two businesses have been treated
under IFRS 5 as discontinued operations.
(2) This is the two year growth from FY2019/20 to FY2021/22
(3) 'Underlying Operating Profit', 'Underlying Operating
Margin", 'Underlying Profit before Tax' and 'Underlying EPS' are
non-IFRS financial measures used by the Directors to assess the
underlying performance of the Group. These measures relate to
continuing operations and exclude acquisition-related costs
(amortisation of acquired intangible assets of GBP14.0m and
acquisition expenses of GBP6.5m) totalling GBP20.5m. Equivalent
underlying adjustments within the FY 2020/21 underlying results
totalled GBP13.7m. For further information, see note 5 of the
attached summary financial statements.
(4) A final dividend was not proposed for FY2019/20 due to Covid.
(5) Organic growth for the Group compared with last year is
calculated at constant exchange rates ("CER") and is shown
excluding the first 12 months of acquisitions post completion
(Phoenix was acquired in October 2020, Limitor in February 2021,
CPI in May 2021, Antenova in August 2021 and Beacon in September
2021). Organic growth compared with two years ago excludes the
first 24 months of acquisitions so also excludes Sens-Tech acquired
in October 2019. The average sterling rate of exchange against the
Euro strengthened by 5% compared with the average rate last year,
by 2% on average against the three Nordic currencies, and by 5%
compared with the US dollar rate for last year.
(6) Target is for Scope 1 and Scope 2 carbon emissions and is
based on an intensity measure of tonnes of CO2 equivalent per GBPm
revenue (tCO2e/GBPm revenue). Historic figures have been adjusted
to exclude disposals in FY22 and acquisitions completed in the last
12 months.
(7) Free cash flow is cash flow before dividends, acquisitions,
disposals and equity issuance. Free cash flow conversion rate of
136% of net profit in FY21 (linked to an inflow of working capital
with organic sales down 4%), 77% in FY22 (linked to an outflow of
working capital with organic sales up 18%) giving 102% for the 2
year period (with organic sales up 14%).
(8) Gearing ratio is defined as net debt divided by underlying
EBITDA (annualised for acquisitions).
(9) Growth rates for the period FY 2017/18 to FY 2021/22 exclude
the Covid year FY 2020/21 so the growth from FY 2019/20 to FY
2021/22 is treated as one year.
(10) Unless stated, growth rates refer to the comparable prior
year period.
Notes to Editors:
About discoverIE Group plc
discoverIE Group plc is an international group of businesses
that designs and manufactures 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 has an ongoing commitment to
reducing the impact of its operations on the environment and with
its key markets aligned with a sustainable future, MSCI has awarded
the Group an ESG "A" rating.
The Group employs c.4,900 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.
CHAIRMAN'S STATEMENT
This year saw discoverIE recover very strongly from the effects
of Covid the previous year, to deliver record organic growth in
orders, sales and order book compared with both last year and the
pre-Covid period two years ago, resulting in record profitability
for its continuing operations. The exit from the business of
distribution has enabled the Group to be fully focussed on its core
strategy of designing and manufacturing customised electronics for
industrial applications through two new divisions, with disposal
proceeds available for re-investment into further high quality,
higher margin acquisitions.
Cash generation has again been strong, reflecting both the
quality of earnings generated and the efficient, capital-light
nature of the Group's operating model. Gearing is now at its lowest
level in eight years, with significant funding headroom for further
acquisitions.
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
made excellent progress towards its target of reducing its carbon
emissions by 50% by 2025 and is currently developing its net zero
plan.
Strategy
discoverIE is a customised electronics business operating
internationally, focusing on structurally growing, sustainable
markets driven by increasing electronic content and where there is
an essential need for its products. The Group's product range is
highly differentiated, being customised for specific
applications.
With the Group's 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 customers.
Alongside organic growth, acquisitions are another key factor in
building discoverIE. Since 2011, the Group has acquired 19
specialist, high margin design and manufacturing businesses which
have been integrated successfully and have helped to accelerate its
growth. discoverIE has a disciplined approach to acquisitions and
continues to see significant scope for further expansion with
several opportunities in development.
The Group's capital-light model delivers strong cash flows which
management looks to reinvest into accelerating the strategy and
delivering further value creation for shareholders.
Sustainability and Positive Impact
This is the first year that the UK requirement of TCFD reporting
(Task Force on Climate-Related Financial Disclosures) comes into
force. The Group has undertaken a preliminary assessment of the
resilience of its business model and strategy, and potential impact
of climate change over the short and medium term. It has 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 opportunities presented to the
Group.
The Group's business model of designing and manufacturing
customised electronics for industrial applications is well
established. Aligning its purpose with the UN Sustainable
Development Goals ("UN SDGs"), the Group creates a positive impact
on the world around us and people's lives through both our products
and our operations. By creating innovative electronics and focusing
on our four target markets, we play an essential role in achieving
a cleaner, healthier, and more sustainable world.
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.
Emphasising its importance to the business, a Sustainability
Committee of the Board has been established with responsibility for
setting the Group's sustainability strategy, overseeing its
implementation and ensuring progress. Reporting to the Board, the
Group Executive Committee also has responsibility for
Environmental, Social and Governance ("ESG") implementation and
each member has the achievement of ESG objectives included in their
annual incentive plans.
Recognising the Group's achievements and strong strategic focus
on sustainable development, MSCI awarded the Group an "A" rating in
its 2022 ESG Rating assessment. It acknowledged the Group's strong
performance against global industry peers in various areas,
including opportunities in clean tech and corporate governance.
Acquisitions and disposals
The Group made three acquisitions during the year for a total
consideration of GBP85m on a cash free, debt free basis. Control
Products Inc ("CPI"), a US based designer and manufacturer of
custom, rugged sensors and switches was acquired in May 2021 and
Antenova Limited, a UK and Taiwan based designer and manufacturer
of antennas and radio frequency (RF) modules was acquired in August
2021. Both businesses now operate within the Sensing &
Connectivity division. Beacon EmbeddedWorks ("Beacon"), a US based
designer and manufacturer of custom embedded computing boards, was
acquired in September 2021 and now operates within the Magnetics
& Controls division.
All three businesses retain their distinct identity and
high-quality management teams, and have now been fully integrated
into the Group. Their complementary product ranges and wider access
to customers is expected to create cross-selling opportunities in
the Group's target markets and drive further growth.
We are delighted to welcome the employees of all three
businesses into the Group.
Additionally during the year, the Group completed the disposals
of the Acal BFi and Vertec SA distribution businesses, which has
enabled the Group to be fully focussed on its core strategy of
designing and manufacturing custom electronics for industrial
applications.
We wish all employees of Acal BFi and Vertec SA well for the
future and thank them for their excellent and long-standing
contributions to the Group.
Group Results Summary
Continuing Group sales for the year increased by 25% to
GBP379.2m (+28% CER), with underlying operating profit, which
excludes acquisition costs, increasing by 34% to GBP41.4m.
Underlying profit before tax increased by 38% to GBP37.6m, with
underlying earnings per share for the year increasing by 31% to
29.4p (FY 2020/21: 22.4p).
After underlying adjustments for acquisition costs, together
with taxation costs and the inclusion of net profits from
discontinued operations, net profit for the year on a reported
basis increased by 110% to GBP25.2m (FY 2020/21: GBP12.0m) with
fully diluted earnings per share increasing by 102% to 26.3p (FY
2020/21: 13.0p).
Strong free cash flow over the last two years represents 102% of
underlying net profits, well ahead of the Group's 85% target
despite strong organic sales growth requiring investment in working
capital. Net debt at 31 March 2022 was GBP30.2m (31 March 2021:
GBP47.2m) and a gearing ratio of 0.6x, well below our target range
of 1.5x to 2.0x, leaves considerable headroom for further accretive
acquisitions.
Alongside the acquisitions of Antenova in August 2021 and Beacon
in September 2021, the balance sheet was further strengthened by
way of a well-supported equity placing that raised net proceeds of
GBP53.4m. Together with strong organic cash flows, these
acquisitions provide the Group with an excellent platform from
which to continue to execute its growth strategy. On behalf of the
Board, I would like to thank shareholders for their support.
Increased Dividend
The Board is recommending a 6% (0.45 pence) increase in the
final dividend per share to 7.45 pence per share, giving a full
year dividend per share of 10.8 pence, and representing a cover
against underlying earnings of 2.7 times (FY 2020/21: 2.4 times).
Since 2010, the annual dividend per share has more than
doubled.
The Board believes that, as an acquisitive growth company,
maintaining a progressive dividend policy is appropriate along with
a long-term dividend cover of over three times on an underlying
basis. This approach along with the continued growth of the Group
should enable funding of both sustainable dividend growth and a
higher level of investment in acquisitions from internally
generated resources.
The final dividend is payable on 2 August 2022 to shareholders
registered on 24 June 2022.
Employees and Culture
On behalf of the Board, I would like to thank everybody at
discoverIE for their commitment and hard work through the
unprecedented circumstances of the last two years when their
flexibility, resilience, initiative and support have demonstrated,
beyond all expectations, their quality, capability and
dedication.
The Group comprises approximately 4,900 employees in 20
countries around the world and, by adopting an entrepreneurial and
decentralised operating environment, together with rigorous
planning, review, support, investment and controls, the Group has
created an ambitious and successful culture, with a commitment to
increasing diversity across the organisation.
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 communication with a willingness to listen
- is performance driven
Board and Group Executive Committee Strengthened; Chairman-elect
announced.
Two additional senior level appointments were made during the
year:
- Rosalind Kainyah MBE joined the Board in January 2022 as a
Non-Executive Director. Rosalind brings many years of senior
management, executive and board experience in international
environments. She has extensive experience in sustainability
matters and currently runs Kina Advisory, a consultancy advising on
ESG matters for businesses. Previously, Rosalind held senior
executive roles at Tullow Oil, as Vice President, External Affairs
& Corporate Social Responsibility and at De Beers SA in various
roles, latterly as President of its US business. On 1 April 2022,
Rosalind was appointed chair of the newly established
Sustainability Committee of the Board with responsibility for the
Group's sustainability strategy, policies and performance of
discoverIE and driving further progress.
- Paul Hill joined the Group Executive Committee ("GEC") in
December 2021 and, since February 2022, has been leading the newly
established Sensing & Connectivity division. Paul brings
extensive experience in the electronics and technology sector
having held senior operational roles in both hardware and software
companies. Having started his career in electronics engineering,
Paul has worked in electronic components, smart card systems and
electronic design and manufacturing businesses. More recently Paul
led private equity held businesses and joined from Antenova, our
recent acquisition, where he was Chief Executive Officer. Paul also
has Group-wide responsibility for evolving our approach to
developing design opportunities.
After seven enjoyable years with discoverIE during which time
the Group has ascended into the FTSE250, I am today announcing my
intention to step down as Chairman of the Group from 1 November
2022. I am pleased to announce that my colleague Bruce Thompson
will become Chairman from that date. Bruce has been a Non-Executive
Director of the Group since February 2018, and the Group's Senior
Independent Director since March 2019. Bruce is also Chairman of
Avon Protection plc and, prior to joining the Group, was Chief
Executive Officer of Diploma plc for over 20 years. I am also
pleased to announce that Tracey Graham, a member of the Board since
November 2015 and Chair of the Remuneration Committee, will succeed
Bruce as Senior Independent Director.
Summary
The Group is building a high-quality business that is delivering
strong results with excellent prospects. The customised electronics
market remains highly fragmented, providing scope to further build
capability and extend geographic coverage through disciplined
acquisitions.
The Board is 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 adheres to the highest standards.
Throughout the year, the Group has again demonstrated the
quality of its business and, with good levels of operational and
funding capacity, is well positioned for continued growth in the
year ahead.
Malcolm Diamond
Chairman
14 June 2022
STRATEGIC AND OPERATIONAL REVIEW
Overview
The Group had a strong year delivering record organic growth
building on the progress made in the Covid-impacted prior year, and
the pre-Covid period two years ago. Since FY 2017/18 as the
customised design and manufacturing strategy gathered momentum,
ongoing Group organic sales have grown by 10% CAGR while underlying
EPS has grown by 26% CAGR.
With the exit this year from the lower margin business of
electronic distribution, discoverIE is now solely focused on the
design and manufacture of customised and niche, innovative
electronics. Five higher margin acquisitions have been made over
the last 18 months (three during the year), further progressing us
towards our medium-term goals of becoming a higher margin Group,
focused on international and sustainably-aligned target markets,
generating strong cash flow. Our low gearing leaves us with
considerable headroom for further acquisitions.
Continuing Group sales for the year increased by 28% at CER,
being 18% higher organically than last year and 14% higher
organically than the pre-Covid period two years ago. Performance in
our target markets, which now account for 76% of Group sales,
continues to be strong, helping to deliver an underlying operating
margin of 10.9% up 3.2ppts since last year and up 0.7ppts on a
continuing basis.
Orders grew by 36% organically compared with last year and by
32% compared with two years ago following the build-up of a strong
pipeline of design wins over several years. This resulted in a
record order book of GBP224m, respectively 62% and 71% higher
organically than last year and two years previously. Whilst over
80% of the order book is for delivery within twelve months from the
time of order, we have seen customers continue to place longer term
orders. Over the course of the new financial year, we expect the
order book level to normalise as it converts into sales.
The agility of the Group's model and the capabilities of our
employees have enabled our businesses to respond effectively to the
operational challenges caused by Covid and ongoing supply chain
headwinds, including semiconductor shortages which delayed sales in
the second half of the year in two of our 20 businesses .
Positioned well in a changing world
The Group is well positioned in an environment of rapidly
changing global events and conditions, proving both resilient and
flexible.
With 30 manufacturing sites and operations around the world
supplying international and multinational customers, the Group is
responding quickly to the growing trend of customers localising
production, both for risk mitigation and environmental reasons.
Additionally, with our manufacturing using only a low proportion of
bought-in components, the majority being manufactured in-house from
raw materials, our exposure to external supply chain restrictions
is reduced (but not eliminated).
Gross margins have been robust despite supply chain headwinds
and inflationary pressures. The Group's products are essential
components, amounting to a small proportion of a customer's system
cost, and sustain resilient margins.
The Group operates a capital-light business model focused on
organic growth, operating efficiencies and high quality, accretive
acquisitions. Selling into high quality markets with long term
growth prospects, the Group expects to continue to grow ahead of
the wider industry, converting revenue growth into profits and
earnings into cash. Since 2017/18, organic sales from continuing
operations have grown by 10% CAGR, approximately double that of
global industrial production growth, with underlying operating
profit growing by 34% CAGR and underlying earnings per share by 26%
CAGR. Over the same period, conversion of operating profits into
operating cash flow exceeded 100% p.a. on average.
Creating a sustainable business is one of the Group's top
priorities. As detailed further below, actions to halve our
like-for-like carbon emissions are underway and making good
progress. More widely, our Group ESG priorities have been
established with detailed plans and targets set.
Group Strategy
The Group designs and manufactures customised and niche
electronic components, operating internationally and focusing on
structurally growing markets that are driven by increasing
electronic content and where there is an essential need for our
products. With our target markets and global customer base, the
business is expanding both in Europe and beyond, with 40% of
continuing Group sales being outside Europe, as we build a
geographically diverse electronics group.
The continuing Group has been built through organic growth,
operational efficiency and 19 carefully selected and integrated
acquisitions over the past 11 years to create a specialist, high
margin design and manufacturing business. We have a well-developed
approach to acquisitions and the use of capital, and see
significant scope for further expansion of the Group with a number
of opportunities in development.
The Group's 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
sustainable target markets;
2. Move up the value chain into higher margin products;
3. Acquire businesses with attractive growth prospects and strong operating margins;
4. Further internationalise the business by developing
operations in North America and Asia.
These elements are underpinned by core objectives of generating
strong cash flows from a capital-light business model, and
delivering long-term sustainable returns while reducing our impact
on the environment.
Sustainability and our positive impact
The Group's purpose aligns with the United Nations'
Sustainability Development Goals ("UN SDGs"). We create a positive
impact on the world around us and people's lives through both our
products and our operations. By creating innovative electronics and
focusing on four target markets, we play an essential role in
enabling the following UN SDGs:
-- SDG3 - Ensure healthy lives and promote well-being for all ages
-- SDG7 - Ensure access to affordable, reliable, sustainable and modern energy for all
-- SDG9 - Build resilient infrastructure, promote inclusive and
sustainable industrialisation and foster innovation
-- SDG11 - Make cities and human settlements inclusive, safe, resilient and sustainable
-- SDG13 - Take urgent action to combat climate change and its impact
The following sections outline the progress we have made in the
past year under the three pillars of our sustainability programme:
Our Planet, Our People and Our Products.
Our Planet
Carbon emissions and energy usage
We have made decarbonisation a major priority for the Group and
have a target of reducing our like-for-like carbon emissions
intensity (Scope 1 and Scope 2) by 50% over the five years to 2025.
Thereafter our target will be to achieve net zero as soon as
possible, the details of which are currently being determined and
will be published in due course. Following completion of the
disposal of the Custom Supply distribution businesses in March
2022, we have rebased our 2019 benchmark, excluding the disposed
businesses and acquisitions for the first 12 months.
We aim to achieve this goal through:
-- Reducing carbon emissions from energy consumption (Scope 2) by:
-- Purchasing electricity from renewable sources
-- Installing renewable energy generation on site
-- Implementing energy saving measures
-- Switching to hybrid or electric vehicles where practical
-- Replacing gas heating with heat pumps and other natural sources
Progress made during the year:
-- Reduced CY2021 emissions by 33% from CY2019 levels (CY2020: 6% reduction)
-- Completed phase 1 of solar panels project at the Sri Lanka
site. This is now operational and contributing to renewable energy
capacity
-- Conducted energy audits at a number of sites; energy saving
opportunities identified and being implemented. Energy audits for
the remaining sites are planned for the next 18 months
-- Increased hybrid and fully electric vehicles in our car fleet to 26% from 19%(1) in CY2020
1. This figure has been rebased to exclude the disposals of Acal
Bfi and Vertec SA. The reported figure (including disposals) for
2020 was 9%.
In accordance with TCFD reporting, the Group has undertaken an
initial assessment of the resilience of its business model and
strategy and concluded that while the Group may be exposed to
certain risks in the transition to a low carbon economy, such risks
are considered low and more than outweighed by the opportunities
presented to the Group. Details of the assessment can be found in
the TCFD report in the 2022 Annual Report. Further analysis is
being carried out to quantify the potential impacts of climate
change and will be reported in due course.
Water usage
During the year, we undertook an assessment of the Group's use
of water and determined that the risk of water scarcity to our
operations is not a material concern. The Group's production
processes require little or no water.
ISO14001 accreditations
ISO14001 Environmental Management System is an international
standard that ensures organisations have appropriate policies,
processes and systems in place to manage their environmental
performance, which includes efficient use of resources and
reduction of waste. It provides an objective and independently
assessed view of an organisation's environmental credentials.
In 2020, the Group set a target of 80% of its operations,
measured by revenue, to be covered by an ISO14001 accreditation by
2025. As at the end of CY2021, 63% of the Group's operations had
achieved the accreditation.
Our People
Health and safety
The Group aims to provide clean, healthy and safe working
conditions. In addition to compliance with local regulations,
discoverIE promotes working practices which protect the health and
safety of its employees and other persons who enter its
premises.
As at 31 December 2021, the Group had over 120 health &
safety representatives, equivalent to a ratio of 1:38
representative to employees (31 December 2020: 1:52). During the
year, the Group conducted over 5,500 hours of health and safety
training.
Recognising the importance of a structured and objectively
verifiable approach to Health & Safety, the Group has set a
target to ensure that, by 2025, at least 80% of its global
workforce is working in operations covered by an ISO45001 health
and safety management system. The bulk of this programme is
scheduled for CY2023 and CY2024, with preparation currently
underway.
Equality and diversity
The Group is committed to ensuring employees are treated fairly
and with respect, are empowered and appropriately rewarded. Our
employment policies are based on equal opportunities for all.
Diversity at management level improved further during the year.
As at 31 December 2021, the proportion of female representatives in
the Group's executive management and their direct reports (29
people) was 20% (FY 2020/21: 15%), and as a proportion of the
Group-wide operational senior management (66 people) was 36% (FY
2020/21: 18%).
Learning and development
The Group provides technical training to employees, as relevant
for their role. We also have in place apprenticeship schemes and
graduate programmes in certain countries, such as the UK and
Germany.
Personal development is discussed alongside annual performance
reviews. Employees are actively encouraged to undertake further
learning, such as National Vocational Qualifications or similar
level courses, as well as continual professional development.
Our Products
Product responsibility
The Group produces high-quality, reliable products that bring
considerable benefits to customers and the environment alike and
that use materials procured from responsible sources.
During the year, a Group-wide supplier audit was conducted which
covered the key suppliers of each operating business, equivalent to
60% of the Group's materials spend in the year. The areas surveyed
included environment, people and labour, health and safety, and
quality and governance. A majority of the surveyed suppliers were
compliant with the Group's Supplier Code of Conduct, with areas of
improvement identified and communicated. A small number of
non-compliant suppliers were also identified and required actions
to achieve compliance have been communicated.
The quality and safety of our products is ensured and monitored
through the widespread adoption of ISO9001 systems. As at 31
December 2021, 95% of the Group's products, measured by revenue,
were manufactured under an ISO9001 accredited system (31 December
2020: 88%). The Group receives very few customer complaints and
fault / return rates are very low.
Product sustainability
The Group takes measures to minimise waste in the manufacture of
products, using recycling options where possible and reducing
packaging. Most of our products are components embedded in larger
systems or devices. As such, regular servicing and replacement is
generally not possible. However, our products are designed to be
long-lasting and energy efficient, therefore reducing waste for
customers.
Where hazardous materials are used in the manufacturing process,
environmental risks are minimised by the use of appropriate
labelling and technical information, in conjunction with training
and procedures for handling, storage and disposal.
Target Markets - Aligned with structurally growing, sustainable
markets
With global GDP expected to grow by around 4% CAGR 2020-26
(Source: Statista) and global industrial production forecast to
also grow by around 4% in 2022, discoverIE continues to focus on
its four target markets which are expected to grow at higher rates
than other industrial markets: renewable energy, medical,
electrification of transportation, and industrial automation &
connectivity. Together they account for 76% of continuing Group
sales.
For the Group, these markets continue to show above average
revenue growth. Over the last five years, continuing Group organic
sales have grown by 10% CAGR with target market sales growing by
12% CAGR while non-target markets have grown by 6% CAGR.
Growth in these target markets is driven by increasing
electronic content and by global mega trends such as the
accelerating need for renewable sources of energy, an ageing
affluent population, vehicle electrification and industrial
automation.
i) Renewable Energy
Mega trend - decarbonisation and diversification of energy
sources
The world's drive towards net zero will require a global shift
towards electricity as a main source of power and the majority of
new electricity capacity is expected to come from solar and wind.
The International Energy Agency (IEA) estimates that demand for
global electricity will need to double to achieve net zero by 2050
and expects that the share of renewables in electricity generation
will increase from 29% in 2020 to 60% in 2030 and as high as 90% by
2050. Shorter-term, the IEA predicts that renewables will account
for up to 95% of the global increase in power capacity between 2020
and 2026 with solar alone accounting for half the growth. The
growth in solar and wind energy is partially driven by the fall in
costs: research by the World Resources Institute has shown that the
cost of solar photovoltaic electricity has fallen by 85% since
2010; the cost of both onshore and offshore wind electricity has
halved during the same period.
ii) Medical
Mega trend - sensing, analytics and artificial intelligence
Growth in the global medical and healthcare markets is driven by
the rise in chronic diseases, a growing geriatric population,
rising disposable income and improved access to healthcare
facilities. Moreover, the use of electronic content is increasing
as a result of the proliferation of digital technologies and the
rising adoption of electronic devices for rapid and enhanced
patient care diagnostics as well as the rise in minimal-invasive
surgeries and non-invasive diagnostic devices.
The medical electronics market is expected to maintain its
above-average growth, with Precedence Research predicting a global
market growth of 11.8% CAGR for 2021-2030.
iii) Transportation
Mega trend - smart transportation, vehicle electrification
Safety, efficiency and environmental impact are key trends
driving the rise in electronic content in the global transport
market with improving technology and falling costs leading the
growing demand for electronics.
The Group continues to focus on niche applications, especially
in rail, bus and delivery vehicles, together with the growing
demand for interconnectivity of the transport infrastructure and
the emergence of smart cities.
Data Bridge Research estimates that the smart transportation
market will grow at 11.1% CAGR from 2021 to 2029, whilst Research
and Markets predicts CAGR growth of nearly 20% in global electronic
connectivity in the transportation market between 2021 and
2030.
iv) Industrial Automation & Connectivity
Mega trend - growth in robotics, industrial automation and
connectivity
The market for autonomous mobile robots is expanding rapidly
across multiple sectors of industry such as warehousing, aviation,
medicine and healthcare, and farming.
Furthermore, the increasing adoption of the internet of things
("IoT") and artificial intelligence ("AI"), the rising awareness of
safety and security as well as the increasing demand for predictive
maintenance and efficient supply chain management is driving the
underlying growth of global industrial IoT markets. Fortune
Business Insights predicts an average growth of 9.8% from 2021 to
2029 in the global industrial automation market and Statista
expects growth of as much as 22.8% CAGR in the global industrial
IoT market during 2021 - 2028.
With a focus on sustainable markets, the Group continues to
concentrate on improving efficiency in industrial market
applications that are aligned with a sustainable growth agenda,
including fibre optic and wireless connectivity applications.
Examples of new and emerging applications include areas in smart
agriculture such as pollination and crop management.
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 North America 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 multiple 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 has been measured through key
strategic indicators ("KSIs") and key performance indicators
("KPIs"). The KSI targets have been raised as they are achieved,
and in November 2021 the targets were raised again following the
announced exit from the distribution businesses. For tracking
purposes, the KSIs and KPIs in the tables below remain as reported
at the time rather than adjusted for disposals. Given the one-off
impact of Covid in FY 2020/21, we have shown in the tables below
this year's growth for both KSIs and KPIs relative to the pre-Covid
period two years ago (FY 2019/20) to illustrate the development of
the Group. This year's growth relative to both FY2019/20 and FY
2020/21 is discussed below.
Key Strategic Indicators
FY14 FY15 FY16 FY17 FY18 FY19 FY FY FY25
20 22(1) Targets
-----
1. Increase underlying
operating margin 3.4% 4.9% 5.7% 5.9% 6.3% 7.0% 8.0% 10.9% 13.5%
2. Build sales
beyond Europe(2) 5% 12% 17% 19% 19% 21% 27% 40% 45%
-----
3. Increase target
market sales
(2) 56% 62% 66% 68% 76% 85%
4. Carbon emissions
reduction 6%(3) 33% 50%
(1) Continuing operations. FY 2021/22 shown as growth over the
pre-Covid period FY 2019/20 as this reflects the actual ongoing
growth of the business. FY 2013/14 to FY 2019/20 are for total
operations before disposals, as reported at the time.
(2) As a percentage of Group revenue
(3) First test was CY20 compared to CY19
The Group made further significant progress with its KSIs during
this year. Alongside strong organic growth, the exit from
distribution has resulted in a positive step change in the KSIs,
which is explained as follows:
- Underlying operating margin exceeded 10% for the first time
and follows 8.0% reported in FY 2019/20 and 7.7% in FY 2020/21 when
the business included custom supply. The Group benefited both from
the strong organic sales growth delivered during the year and the
exit from the lower margin distribution business. With this exit,
the FY 2024/25 margin target was increased during the year to 13.5%
(previously 12.5%).
- Sales beyond Europe in the year increased by 13ppts to 40% of
Group revenue from 27% two years ago (and 28% last year) driven by
three factors. Firstly, the exit from distribution which was a
UK/European focused business (c.7ppts increase); secondly, the five
acquisitions in the last year in particular Beacon, Phoenix and CPI
which are all US based (c.3ppts); thirdly, organic growth during
the year was strongest in Asia and North America (c.3ppts).
Accordingly, the target for FY2024/25 was increased during the year
to 45% (previously 40%).
- Target market sales in the year increased by 8ppts to 76% of
Group revenue from 68% two years ago (and 70% last year) of which
5ppts reflects the exit from the distribution businesses. A further
5ppts improvement has been delivered through a combination of
organic growth being more weighted to these long-term structural
growth markets with a 2ppts reduction from the five acquisitions in
the last year which, while well aligned with these markets, are
currently below our average rate. The FY2024/25 target remains as
85% of sales from target markets.
- A new target was introduced in November 2020 for the reduction
of carbon emissions intensity from the Group's existing businesses
by 50% over five years. Additionally, for new acquisitions, we are
targeting that within the first five years of ownership, at least
50% of their energy demand is generated from renewable sources. For
calendar year 2021, carbon emissions reduced by 33% on a
like-for-like basis (calendar year 2020: 6% like-for-like
reduction). During this year, capital has been invested in projects
to reduce carbon emissions by switching to clean energy, including
solar panel installations in Sri Lanka, and an air source heat pump
in Poland, two of the Group's major manufacturing facilities.
Key Performance Indicators
FY14 FY15 FY16 FY17 FY18 FY19 FY FY Target
20 22(1)
1. Sales growth
Well ahead
CER 17% 36% 14% 6% 11% 14% 8% 27% of GDP
Continuing organic 3% 9% 3% (1%) 11% 10% 5% 14%
2. Underlying
EPS growth 20% 31% 10% 13% 16% 22% 11% 20% >10%
3. Dividend
growth 10% 11% 6% 6% 6% 6% 6%(2) 6% Progressive
4. ROCE (3) 15.2% 12.0% 11.6% 13.0% 13.7% 15.4% 16.0% 14.7% >15%
>85% of
underlying
5. Operating operating
profit conversion(3) 100% 104% 100% 136% 85% 93% 106% 101% profit
------ ------ ------ ------
>85% of
6. Free cash underlying
conversion (3) 94% 104% 102% net profit
------
(1) Continuing operations. FY 2021/22 shown as growth over the
pre-Covid period FY 2019/20 as this reflects the actual ongoing
growth of the business. FY 2013/14 to FY 2019/20 are for total
operations before disposals as reported at the time.
(2) 6% increase in the H1 2019/20 interim dividend; a final
dividend was not proposed for FY 2019/20 due to Covid
(3) Defined in note 5 of the attached summary financial
statements
The Group also made further significant progress with its KPIs
during the year. Given the one-off impact of Covid last year, this
year's growth is shown relative to the pre-Covid period FY 2019/20
illustrating the development of the Group. This year's growth
relative to both FY2019/20 and FY 2020/21 is discussed below.
The performance of each of our Group KPIs for this year are as
follows:
- Organic sales increased by 14% compared with the pre-Covid
year FY 2019/20 (comprising 18% organic growth this year offsetting
a 4% organic reduction during the Covid period). This follows
average annual organic growth of 9% for the preceding three years
and illustrates the strong through-cycle organic growth of the
business.
- Underlying EPS increased by 20% compared with the pre-Covid
year FY 2019/20 (comprising 31% growth this year offsetting an 8%
reduction during FY 2019/20).
- The dividend is being increased by 6%, continuing our
progressive policy whilst providing for a higher proportion of
investment in acquisitions from internally generated resources.
This progressive policy has seen a doubling of the dividend per
share since 2010, whilst dividend cover on an underlying basis has
increased to 2.7x.
- ROCE for the year for continuing operations was 14.7% compared
with 16.0% two years ago, and 0.2ppts higher than last year (FY
2020/21: 14.5%). The reduction compared to two years ago is mainly
a result of recent larger acquisitions and the discontinuation of
Custom Supply. Acquisitions will often be dilutive to the Group
ROCE in the near term.
- Operating profit conversion into cash was very strong again at
101% of underlying operating profit on average over the last 2
years (comprising 80% this year during a period of very strong
organic growth and the resulting need for additional working
capital along with further inventory additions (GBP4m) to ease
supply chain issues, and 128% in the prior (Covid) year during
which working capital was released). This is significantly ahead of
the 85% target and reflects the tight management of working capital
and expenditure through the economic cycle. Over the last ten
years, operating cash conversion has been consistently strong.
- Free cash conversion has also been very strong at 102% of
underlying net profit, on average over the last 2 years comprising
77% conversion this year and 136% conversion in the prior 12 month
(Covid) period. Again, this is significantly ahead of the 85%
target.
Divisional Results
Fol lowing the Group's exit from distribution, the Custom Supply
division has been treated as discontinued operations, with the
Design & Manufacturing ("D&M") division housing all of the
Group's ongoing operating businesses. Reflecting this development
and in line with certain growth initiatives, during the final
quarter, the Group arranged the D&M division into two operating
segments, the Magnetics & Controls division ("M&C") and the
Sensing & Connectivity division ("S&C").
This new structure, which aligns business units by technology
area, will enable greater collaboration between business units,
improve visibility for the Group's growth initiatives and increases
management bandwidth for further growth. Both divisions have
similar exposure to the Group's target markets and geographies. The
management and structure of each business unit is unchanged.
The divisional results for the continuing Group for the year
ended 31 March 2022 are set out and reviewed below.
FY 2021/22 FY 2020/21 Reported Organic Organic
revenue revenue order
growth growth growth
------------------------------
Revenue Underlying Margin Revenue Underlying Margin
GBPm operating GBPm operating
profit(1) profit(1)
GBPm GBPm
-------- ----------- ------- -------- ----------- -------
M&C 234.7 29.8 12.7% 190.4 23.4 12.3% 23% 22% 36%
S&C 144.5 23.3 16.1% 112.4 15.5 13.8% 29% 11% 36%
Unallocated (11.7) (8.1)
Total 379.2 41.4 10.9% 302.8 30.8 10.2% 25% 18% 36%
(1) Underlying operating profit excludes acquisition-related
costs and results of discontinued operations
Magnetics & Controls Division ("M&C")
The M&C division designs, manufactures and supplies highly
differentiated magnetic and power components, embedded computing
and interface controls for industrial applications through eight
businesses operating across 16 countries. The great majority of the
products are manufactured in-house at one of the division's 20
manufacturing facilities, with its principal ones being in China,
India, Mexico, Poland, Sri Lanka, Thailand, the US and the UK.
Geographically, 6% of sales are in the UK, 49% in rest of Europe,
17% in North America and 28% in Asia.
During the year, the Group's production facilities established
new normal ways of operating after the disruption of Covid and the
Group's production capacity has returned to output capacity levels
capable of satisfying strong sales growth rates. To meet future
growth, capacity is being expanded in the US and India, and
production began as scheduled at the Group's new larger facility in
Nogales, Mexico.
Orders were very strong in the year, increasing by 36%
organically to GBP280.0m with a book to bill ratio of 1.19:1 (FY
2020/21: 1.06:1). The strong order performance led to sales
increasing organically by 22% with strong organic growth across all
regions: Asia growing organically by 30% driven by very strong
organic growth in India, North America 28% and Europe & UK by
17%.
Combined with a 5% sales increase from acquisitions, overall
sales increased by 27% CER. Including the impact of translation
from a stronger Sterling on average, reported divisional revenue
increased by 23% to GBP234.7m (FY 2020/21: GBP190.4m). This was
achieved despite ongoing supply chain headwinds, in particular
semiconductor shortages which have delayed sales in two businesses
within the division.
Underlying operating profit of GBP29.8m was GBP6.8m (+29%)
higher than last year at CER and GBP6.4m (+27%) higher on a
reported basis (FY 2020/21: GBP23.4m) with an underlying operating
margin of 12.7%, 0.4ppts higher than last year (FY 2020/21: 12.3%)
reflecting the positive effect of organic growth. Gross margin
reduced slightly as delays to semiconductor supplies temporarily
reduced volume throughput.
Sensing & Connectivity Division ("S&C")
The S&C division designs, manufactures and supplies highly
differentiated sensing and connectivity components for industrial
applications through 12 businesses operating across nine countries.
The vast majority of the products are manufactured in-house at one
of the division's 10 manufacturing facilities, with its principal
ones being in Hungary, the Netherlands, Norway, Slovakia, the US
and the UK. Geographically, 20% of sales are in the UK, 49% in
Europe, 14% in North America and 17% in Asia.
As with the M&C division, orders were very strong,
increasing by 36% organically to GBP173.0m with a book to bill
ratio of 1.20:1 (FY2020/21: 1.0:1). The strong order performance
led to sales increasing organically by 11%, with 13% organic growth
across Europe and 6% growth in Asia. Sales in North America were
flat year-on-year due to the slower recovery of certain transport
infrastructure projects and semiconductor supply delays.
Combined with a 20% sales increase from acquisitions, overall
sales increased by 31% CER. Including the impact of translation
from a stronger Sterling on average, reported divisional revenue
increased by 29% to GBP144.5m (FY 2020/21: GBP112.4m). This was
achieved despite a slower post Covid recovery in some of our UK
based businesses.
Underlying operating profit of GBP23.3m was GBP7.9m (+51%)
higher than last year at CER and GBP7.8m (+50%) higher on a
reported basis (FY 2020/21: GBP15.5m) with an underlying operating
margin of 16.1%, 2.3ppts higher than last year (FY 2020/21: 13.8%)
reflecting the positive effect of organic growth coupled with
higher margin acquisitions.
Design Wins
Project design wins are a measurement of new business creation.
By working with customers at an early stage in their project design
cycle, opportunities are identified for our products to be
specified into their designs, which in turn lead to future
recurring revenue streams.
The Group has a strong bank of design wins built up over several
years that creates the basis for the growth in orders and sales now
being experienced. During the year, design wins in the continuing
business increased by 52% over the prior year and by 12% over the
pre-Covid period two years ago. 86% of design wins were in the
Group's target markets.
Additionally, during the year, new project design activity
increased strongly, being broad based across all markets. The total
pipeline of ongoing projects continues at a very high level.
Acquisitions
The businesses we acquire are typically led by entrepreneurs who
wish to remain following acquisition. We encourage this as it helps
retain a decentralised, entrepreneurial and dynamic culture. The
market is highly fragmented with many opportunities to acquire and
consolidate.
We acquire businesses that are successful and profitable with
good growth prospects and where we invest for growth and
operational performance development. According to the
circumstances, we add value in some of or all of the following
areas:
Strategy, sales and products
- Developing the longer term strategy of the business;
- Internationalising sales channels and expanding the customer
base, including via cross-selling initiatives and focusing sales
development onto target market areas;
- Developing and expanding the product range;
- Developing and implementing sustainability initiatives.
Talent management
- Investing in management capability ('scaling up') and succession planning;
- Peer networking and collaboration.
Investment
- Capital investment in manufacturing and infrastructure;
- Improving manufacturing efficiency;
- Infrastructure efficiencies, such as warehousing and freight;
- Expansion through further acquisitions.
Controls and support
- Implementing robust financial controls;
- Finance and related support, such as treasury, banking, legal, tax, insurance, consolidation.
During the year, the Group completed three acquisitions:
1) In May 2021, Control Products Inc ("CPI"), a US designer and
manufacturer of custom, rugged sensors and switches, for $11.4m
(GBP8.1m) on a debt free, cash free basis.
2) In August 2021, Antenova, a UK designer and manufacturer of
antennas and radio frequency (RF) modules for industrial
connectivity applications, for GBP18.2m on a debt free, cash free
basis.
3) In September 2021, Beacon EmbeddedWorks ("Beacon"), a US
designer, manufacturer and supplier of custom System-on-Module
(SOM) embedded computing boards and related software, principally
supplying the medical and industrial markets in the US. Beacon was
acquired for $80.5m (GBP58.8m) on a debt free, cash free basis.
All three have retained their distinct brand identities and
high-quality management. Their complementary product ranges and
wider access to customers will create cross-selling opportunities
in our target markets which are expected to drive further
growth.
The Group has completed 19 acquisitions since 2011, contributing
to growth in continuing Group revenues from GBP15m in FY 2012/13 to
GBP379m this year. The Group's operating model is well established
and has facilitated the smooth integration of acquired businesses.
Through a combination of investment in efficiency and leveraging of
the broader Group's commercial infrastructure, the 14 businesses
acquired since 2011 and owned for at least two years delivered a
return on investment this year of 18.8%, an increase of 1.5ppts
over last year (FY2020/21: 17.3% based on 13 acquisitions greater
than 2 years old).
Summary and Outlook
These results reflect the strength of the discoverIE business
model which is performing well in good demand conditions and an
inflationary environment and follows a resilient performance
through the weaker Covid conditions of the year before. With record
growth in orders, sales, order book and underlying earnings per
share, which increased by 31%, continuing revenues and earnings are
now well ahead of the pre-Covid period. I would like to thank all
of our employees around the Group for their tremendous effort and
flexibility over the last two years that has led to these
results.
We are also making good progress on our sustainability
initiatives. By switching our sites to renewable sources of energy
where possible, the Group's like-for-like carbon emissions were 33%
lower in calendar year 2021 than 2019 and we are on track to
achieve our goal of a 50% reduction by 2025.
Following the Group's exit during the year from the business of
distribution, discoverIE is now solely focused on the design and
manufacture of customised electronics for industrial applications;
our continuing focus is on achieving organic growth and new design
wins in sustainable target markets, together with accretive
acquisitions. The Group is well-funded, with a strong balance sheet
and cash flow, and has significant funding headroom for further
acquisitions.
The new financial year has started well, with continued strong
growth in organic sales, and the order book at record high
levels.While supply chain headwinds and inflationary pressures
remain, they are expected to be manageable.
With a clear strategy focused on long-term, high quality,
structural and sustainable growth markets across Europe, North
America and Asia, a diversified customer base, a record order book
and a strong pipeline of acquisition opportunities, the Group is
well positioned to make further good progress in the year ahead
.
Nick Jefferies
Group Chief Executive
14 June 2022
Group Financial Results
Revenue
Continuing Group sales of GBP379.2m were 18% higher organically
than last year (FY 2020/21: GBP302.8m), and with acquired
businesses (Phoenix and Limitor acquired last year, and CPI,
Antenova and Beacon added this year) adding 10%, continuing sales
increased by 28% CER. A stronger Sterling during the year,
particularly compared with the US Dollar and Euro, reduced sales by
3% on translation for a net growth in reported continuing Group
sales of 25%. Compared with two years ago, sales increased by 27%
CER with 14% organic growth and 13% through acquisitions (the five
acquisitions above together with Sens-Tech which was acquired in
the last two years). The effects on the Group of the conflict in
Ukraine are negligible.
Continuing Revenue FY FY FY
GBPm 2021/22 FY 2020/21 % 2021/22 2019/20 %
Reported 379.2 302.8 25% 379.2 303.3 25%
FX translation
impact (6.9) (5.5)
----------- ---- --------- --------- ----
Underlying (CER) 379.2 295.9 28% 379.2 297.8 27%
Acquisitions:
last 12mths (31.3)
Acquisitions:
last 24mths (40.9)
Organic 347.9 295.9 18% 338.3 297.8 14%
Orders and Order Book
Continuing Group orders increased by 48% CER to GBP453.0m, and
by 36% organically compared with the Covid-impacted prior year and
importantly, by 48% CER and 32% organically compared with the
pre-Covid year 2 years ago.
The book to bill ratio for the year was 1.19:1 (H1: 1.26:1; H2:
1.12:1) building on the momentum of the second half last year (book
to bill: 1.16:1) as the Group recovered from the sharp impact of
Covid in the first half last year (book to bill: 0.90:1). Two years
ago the comparable book to bill ratio was 1.03:1. While this year's
second half ratio was lower than the first half, this was due to
the stronger comparators with organic orders still being 1% higher
than in the first half.
During the year, the Group order book for continuing operations
also grew very strongly and finished the year at a record level of
GBP224m, being 86% (CER) higher than a year ago. Organically the
order book increased by 62% in the year and by 71% compared with
the pre-Covid period two years ago . Sequentially, the order book
increased by 13% (CER) during the second half.
Group Operating Profit and Margin
Continuing Group underlying operating profit for the year was
GBP41.4m, a 34% increase on last year (FY 2020/21: GBP30.8m),
delivering an underlying operating margin of 10.9%, 0.7ppts higher
than last year (FY 2020/21: 10.2%).
Underlying operating profit growth has been achieved through a
combination of organic growth, efficient operational execution and
acquisitions. Operationally, incremental profits on organic sales
growth of GBP7.3m have been delivered across the two divisions,
being a drop through ratio of 14%. During the year there has been
progressive investment in operating expenditure across both
divisions to support organic growth this year and in the future,
with an average investment of 5.5% p.a. over the last two years.
Gross margins have been robust despite supply chain headwinds,
although semiconductor shortages, which have delayed sales in two
of our 20 businesses, have impacted their manufacturing recovery
rates with Group organic gross margin reducing 0.7ppts overall.
Underlying
Operating
GBPm Profit
FY 2020/21 30.8
Gross profit on organic
sales growth 19.4
Organic gross margin (2.3)
Investment in opex (9.8)
Organic profit growth
- operations 7.3
Profit from acquired
companies 6.5
Investment in central
capabilities (0.8)
Additional LTIP charge (1.9)
Foreign exchange impact (0.5)
FY 2021/22 41.4
Acquired companies contributed GBP6.5m of underlying operating
profit since acquisition being CPI, Antenova and Beacon acquired
this year, together with an annualisation of profits from Phoenix
and Limitor acquired last year.
Centrally, the Group has invested GBP0.8m in additional
resources to support growth plans, including ESG, risk &
internal audit and IT to support operating company system upgrades.
Further investment is anticipated in the next 12 months in
particular in M&A and IT.
The EPS growth impact on share based payment accruals, the
accrued cost of national insurance contributions ("NIC") on LTIPs
and the increased rate of NIC since April 2022 have added an
additional cost of GBP1.9m relative to last year.
Reported Group continuing operating profit for the year (after
accounting for the underlying adjustments discussed below) was
GBP20.9m, GBP3.8m (+22%) higher than last year.
Continuing operations FY 2021/22 FY 2020/21
GBPm
Operating Finance Profit Operating Finance Profit
Profit Cost before profit cost before
tax tax
---------- ---------- -------- --------
Underlying 41.4 (3.8) 37.6 30.8 (3.6) 27.2
Underlying adjustments
Acquisition expenses (6.5) - (6.5) (1.2) - (1.2)
Amortisation of acquired
intangibles (14.0) - (14.0) (11.1) - (11.1)
IAS 19 pension cost (1.4) - (1.4)
Reported 20.9 (3.8) 17.1 17.1 (3.6) 13.5
Underlying Adjustments
Underlying adjustments for the year comprise acquisition &
integration expenses of GBP6.5m (FY 2020/21: GBP1.2m), and the
amortisation of acquired intangibles of GBP14.0m (FY 2020/21:
GBP11.1m). From this year, the IAS 19 pension administration cost
has been taken as a continuing cost of the business. Last year's
pension cost comprised the administration cost of GBP0.4m and a one
off adjustment of GBP1.0m relating to historic commutation terms
for legacy scheme members.
Acquisition expenses of GBP6.5m are the costs associated with
acquisition activity during the year of GBP3.0m, principally of
CPI, Antenova and Beacon, accrued contingent consideration costs of
GBP3.1m and the GBP0.4m for the integration of Hobart into Noratel.
The GBP2.9m increase in the amortisation charge since last year to
GBP14.0m relates to the amortisation of intangibles relating to the
five acquisitions since the first half of last year. The annualised
amortisation charge for next year is approximately GBP16.5m.
Financing Costs
Net finance costs for the year were GBP3.8m (FY 2020/21:
GBP3.6m) and include a GBP0.6m charge for leased assets under IFRS
16 (FY 2020/21: GBP0.6m). Finance costs related to banking
facilities of GBP3.2m (FY 2020/21: GBP3.0m) were slightly higher
than last year reflecting marginally higher average net debt during
the year.
Underlying Tax Rate
The underlying effective tax rate for continuing operations for
the year was 25%, 1ppt ahead of last year's rate (FY 2020/21: 24%)
reflecting increased profits accruing in higher tax
territories.
The overall effective tax rate for continuing operations was 43%
(FY 2020/21: 30%). This was higher than the underlying effective
tax rate due to there being no tax relief on certain
acquisition-related expenses and a lower rate of tax relief on the
amortisation of acquired intangibles (both within underlying
adjustments above). The effective tax rate ("ETR") on intangibles
was further impacted this year by the enactment of the increase in
the UK corporate tax rate from 1 April 2023, resulting in a one-off
increase in the deferred tax liability (a non-cash item).
GBPm FY 2021/22 FY 2020/21
PBT ETR PBT ETR
------- ------- ----
Continuing operations 37.6 25% 27.2 24%
Acquisition expenses (6.5) 12% (1.2) 10%
Amortisation of acquired
intangibles (14.0) 9% (11.1) 19%
IAS 19 pension cost (1.4) 19%
Total reported 17.1 43% 13.5 30%
Group Profit Before Tax and EPS
Continuing Group underlying profit before tax for the year of
GBP37.6m was GBP10.4m higher (+38%) than last year (FY 2020/21:
GBP27.2m), with underlying EPS for the year increasing by 31% to
29.4p (FY 2020/21: 22.4p). The increase in underlying EPS was lower
than that for underlying profit before tax due to the higher
effective tax rate (+1ppt) and the issuance of new equity in
September 2021 increasing fully diluted shares by 4% to 95.8m
shares (FY: 2020/21: 92.2m shares). The annualised fully diluted
shares for the full year is expected to be c. 98m shares.
After the underlying adjustments above, reported profit before
tax on continuing operations was GBP17.1m, an increase of GBP3.6m
(+27%) compared with last year (FY 2020/21: GBP13.5m). With the
reported effective tax rate for the year of 43% being higher than
last year's rate of 30% (as mentioned above), the resulting
reported fully diluted earnings per share on continuing operations
was 10.1p, 0.2p lower than last year (FY 2020/21: 10.3p).
Continuing operations FY 2021/22 FY 2020/21
GBPm
PBT EPS PBT EPS
------- ------- ------
Underlying 37.6 29.4p 27.2 22.4p
Underlying adjustments
Acquisition & integration
expenses (6.5) (1.2)
Amortisation of acquired
intangibles (14.0) (11.1)
IAS 19 pension cost (1.4)
Reported 17.1 10.1p 13.5 10.3p
Discontinued Operations
During the year, the Group completed the disposals of the Acal
BFi and Vertec SA distribution businesses which have been treated
for accounting purposes as discontinued operations. In accordance
with IFRS 5, net profits (profit after tax or "PAT") of
discontinued operations, which includes the profit on disposal of
the businesses, have been shown separately to the results of the
continuing operations.
Total operations GBPm FY 2021/22 FY 2020/21
PAT EPS PAT EPS
----- ----- ------
Continuing operations 9.7 10.1p 9.5 10.3p
Discontinued operations 15.5 16.2p 2.5 2.7p
Total operations 25.2 26.3p 12.0 13.0p
Working Capital
Working capital at 31 March 2022 was GBP57.2m, equivalent to
13.9% of annualised second half sales at CER and was GBP4.4m (7%)
lower than the prior year-end (31 March 2021: GBP61.6m). This
reduction is due to the disposal of the Custom Supply division in
the year which had GBP15.6m of the Group's working capital last
year end.
For continuing operations, working capital increased by GBP11.2m
to support the significant increase in sales (+28% growth CER) and
at 13.9% was 0.4ppts better as a percentage of annualised second
half sales at CER (FY 2020/21: 14.3%) reflecting continuing tight
management across the Group. Debtor days were 47 days, creditor
days were 80 days and stock turns were 3.4 turns. Stock turns
reduced by 0.3 turns on a continuing basis (GBP4m) reflecting the
increase in inventories given current supply chain pressures.
Working capital performance was similar in both divisions.
Cash Flow for Continuing Operations
Net debt at 31 March 2022 was GBP30.2m compared with GBP47.2m at
31 March 2021.
FY FY
GBPm 2021/22 2020/21
Opening net debt at
1 April (47.2) (61.3)
Free cash flow (see
table below) 21.8 28.1
Discontinued operations 38.4 9.5
Acquisition-related
costs (87.6) (21.8)
Equity issuance (net
of taxes) 52.6 0.1
Dividends paid (9.4) (2.8)
Foreign exchange impact 1.2 1.0
Net debt at 31 March (30.2) (47.2)
Net acquisition-related costs of GBP87.6m in the year comprised
GBP58.8m for the acquisition of Beacon in September 2021, GBP18.2m
for Antenova in August 2021 and GBP8.1m for CPI in May 2021 (all on
debt free, cash free bases). Additionally there were GBP2.5m of
expenses associated with acquisitions during the year. Together
with the acquisitions of Phoenix and Limitor during the six month
period ended 31 March 2021, a total of GBP109.4m has been spent on
acquisitions during the last 18 months.
Group acquisitions were partly funded from a 6% placing of
shares in September 2021 which raised net equity proceeds of
GBP53.4m; GBP0.8m of national insurance contributions paid in
respect of executive share options which were exercised during the
year . Net cash of GBP38.4m was raised from discontinued operations
with a further GBP5m of deferred consideration due to the Group in
three years' time. Dividends of GBP9.4m were paid during the year,
compared to only GBP2.8m last year when no final FY 2019/20
dividend was declared as management sought to preserve cash at the
outset of Covid.
Operating cash flow and free cash flow for continuing operations
(see definitions in note 5 to the summary financial statements) for
the year compared with last year are shown below.
FY FY
GBPm 2021/22 2020/21
Underlying profit before
tax 37.6 27.2
Net finance costs 3.8 3.6
Non-cash items 12.5 10.4
--------- ---------
Total EBITDA 53.9 41.2
IFRS 16 (5.1) (4.2)
--------- ---------
EBITDA (pre IFRS16) 48.8 37.0
Working capital (10.2) 5.6
Capital expenditure (5.5) (3.1)
Operating cash flow 33.1 39.5
Finance costs (3.2) (3.1)
Taxation (6.2) (6.5)
Legacy pensions (1.9) (1.8)
---------
Free cash flow 21.8 28.1
---------
Operating cash (ex working
capital) 43.3 33.9
Free cash flow (ex working
capital) 32.0 22.5
--------- ---------
EBITDA of GBP53.9m was 31% higher than the Covid-impacted last
year (FY 2020/21: GBP41.2m) and the pre-Covid period two years ago
(FY 2019/20: GBP41.2m) reflecting strong organic sales growth
combined with contributions from the five acquisitions made in the
last 18 months.
During the year, the Group invested GBP10.2m in working capital
to support organic sales growth contrasting with last year's
GBP5.6m inflow resulting from the reduction in sales following the
onset of Covid. In combination, over the last 2 years only GBP0.7m
has been invested in working capital despite organic sales growth
of 14% across that period, reflecting further significant
improvements in working capital efficiency.
Capital expenditure of GBP5.5m was invested during the year
including capacity expansions in Mexico and on ESG initiatives
including solar panels in Sri Lanka, the Group's largest facility.
This saw a return to more normal levels following a reduction
during the Covid-impacted last year to maintenance levels only (FY
2020/21: GBP3.1m). Capital expenditure levels are expected to
increase next year to around GBP8.5m for the full year as we
continue to invest in additional capacity, system upgrades and the
roll out of our ESG initiatives.
GBP33.1m of operating cash was generated in the year. While this
was below last year's GBP39.5m, this was due to working capital
inflows last year of GBP5.6m resulting from the reduction in sales
due to Covid. Excluding working capital, operating cash was up 28%
on last year. GBP33.1m of operating cash flow represents 80% of
underlying operating profit (FY 2020/21: 128%). While this was
below our 85% target due to the strong organic sales growth, the
two year conversion rate of 101% is well ahead. Over the last ten
years, the Group has consistently achieved high levels of cash
conversion, averaging in excess of 100%.
Finance cash costs of GBP3.2m were marginally ahead of last year
while corporate income tax payments of GBP6.2m were GBP0.3m lower
than last year reflecting refunds of R&D tax credits.
Free cash flow (being cash flow before dividends, acquisitions,
disposals and equity issuance) for the year was GBP21.8m. While
this was 22% lower than the prior year, it was 42% higher excluding
working capital. Our free cash flow conversion rate this year was
77% of underlying net profit (FY 2020/21: 136%). While this was
below our 85% target due to the strong organic sales growth, the
two year conversion rate of 102% is well ahead illustrating the
strength of the Group's cash generation.
Banking Facilities
During May 2022, the Group increased its syndicated banking
facility from GBP180m to GBP240m and extended the remaining term of
the facility by two years out to four years ending in June 2026,
with an option exercisable by the Group to extend the facility by a
further year to June 2027. In addition, the Group has an GBP80m
accordion facility which it can use to extend the total facility up
to GBP320m. The syndicated facility is available both for
acquisitions and for working capital purposes, and now comprises
seven lending banks.
With net debt at 31 March 2022 of GBP30.2m, the Group's gearing
ratio at the end of the year (being net debt divided by underlying
EBITDA as annualised for acquisitions) was 0.6x, the lowest Group
gearing ratio since 2015. With our target gearing range being
between 1.5x and 2.0x, there is plenty of funding capacity for
future acquisitions.
Balance Sheet
Net assets of GBP290.4m at 31 March 2022 were GBP82.0m higher
than at the end of the last financial year (31 March 2021:
GBP208.4m). The increase primarily relates to the net issuance of
equity of GBP53.5m (nearly all being the equity placing in
September 2021) and net profit after tax for the year of GBP25.2m
(which includes the profit on disposal of discontinued operations).
This has been partly offset by dividend payments this year of
GBP9.4m. The movement in net assets is summarised below:
FY
GBPm 2021/22
Net assets at 31 March
2021 208.4
Net profit after tax 25.2
Dividend paid (9.4)
Net equity issuance 53.5
Currency net assets -
translation impact 7.6
Gain on defined benefit
scheme 1.7
Share based payments
(inc tax) 3.4
Net assets at 31 March
2022 290.4
Defined Benefit Pension Scheme
The Group's IAS19 pension position associated with its legacy
defined benefit pension scheme improved during the year by GBP3.7m,
from a GBP1.0m deficit at 31 March 2021 to a GBP2.7m surplus at 31
March 2022. This partly results from contributions of GBP1.9m made
by the Group; and also from increased corporate bond yields
increasing discount rates over the year. These are partly offset by
increases in future inflation expectations and updated demographic
assumptions during the year.
Risks and Uncertainties
The principal risks faced by the Group are covered in more
detail in the Group's Annual Report, which will be published
shortly. These risks comprise: the economic environment,
particularly linked to the geo-political issues arising from the
ongoing Ukraine conflict and also from Covid; the performance of
acquired companies; climate-related risks; loss of major customers
or suppliers; technological changes; major business disruption;
cyber security; loss of key personnel; inventory obsolescence;
product liability; liquidity and debt covenants; exposure to
adverse foreign currency movements; and non-compliance with legal
and regulatory requirements.
The Board reviewed the Group's existing and emerging risks and
the mitigating actions and processes in place during the financial
year, giving specific consideration to the impact of the Ukraine
conflict, supply chain headwinds and Covid. The Board view that
risks associated with the macroeconomic environment and supply
chain for existing and acquired businsses has increased during the
financial year with no material change to the relative importance
or quantum of the Group's other principal risks.
The risk assessment and review are an ongoing process, and the
Board will continue to monitor risks and the mitigating actions in
place. The Group's risk management processes cover identification,
impact assessment, likely occurrence and mitigation actions where
practicable. Some level of risk, however, will always be present.
The Group is well positioned to manage such risks and
uncertainties, if they arise, given its strong balance sheet,
committed banking facility of GBP240m and the adaptability we have
as an organisation.
Simon Gibbins
Group Finance Director
14 June 2022
Consolidated Statement of Profit or Loss
for the year ended 31 March 2022
2022 2021
restated*
Continuing operations notes GBPm GBPm
--------------------------------------------------- ----- ------- ----------
Revenue 379.2 302.8
Operating costs (358.3) (285.7)
--------------------------------------------------- ----- ------- ----------
Operating profit 20.9 17.1
Finance income 0.4 0.3
Finance costs (4.2) (3.9)
--------------------------------------------------- ----- ------- ----------
Profit before tax 17.1 13.5
Tax expense (7.4) (4.0)
--------------------------------------------------- ----- ------- ----------
Profit for the year from continuing operations 9.7 9.5
--------------------------------------------------- ----- ------- ----------
Discontinued operations
Profit for the year from discontinued operations 9 15.5 2.5
--------------------------------------------------- ----- ------- ----------
Profit for the year 25.2 12.0
--------------------------------------------------- ----- ------- ----------
Earnings per share 11
Basic, profit from continuing operations 10.4p 10.7p
Diluted, profit from continuing operations 10.1p 10.3p
Basic, profit for the year 27.1p 13.5p
Diluted, profit for the year 26.3p 13.0p
--------------------------------------------------- ----- ------- ----------
Supplementary Statement of Profit or Loss information
2022 2021
restated*
Underlying Performance Measures (continuing operations) notes GBPm GBPm
------------------------------------------------------------------------- ----- ----- ----------
Operating profit 20.9 17.1
Add back: Acquisition expenses 6.5 1.2
Amortisation of acquired intangible assets 14.0 11.1
IAS 19 pension charge - 1.4
------------------------------------------------------------------------- ----- ----- ----------
Underlying operating profit 41.4 30.8
------------------------------------------------------------------------- ----- ----- ----------
Profit before tax 17.1 13.5
Add back: Acquisition expenses 6.5 1.2
Amortisation of acquired intangible assets 14.0 11.1
IAS 19 pension charge - 1.4
------------------------------------------------------------------------- ----- ----- ----------
Underlying profit before tax 7 37.6 27.2
------------------------------------------------------------------------- ----- ----- ----------
Underlying earnings per share 11 29.4p 22.4p
------------------------------------------------------------------------- ----- ----- ----------
* 2021 restated. Refer to note 4 to the consolidated Financial
Statements.
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2022
2022 2021
GBPm GBPm
-------------------------------------------------------------- ----- -----
Profit for the year 25.2 12.0
--------------------------------------------------------------- ----- -----
Other comprehensive income/(loss):
Items that will not be subsequently reclassified
to profit or loss:
Actuarial gain/(loss) on defined benefit pension
scheme 2.2 (3.4)
Deferred tax (charge)/credit relating to defined
benefit pension scheme (0.5) 0.6
--------------------------------------------------------------- ----- -----
1.7 (2.8)
-------------------------------------------------------------- ----- -----
Items that may be subsequently reclassified to profit
or loss:
Exchange differences on translation of foreign subsidiaries 9.6 (0.5)
Reclassification of exchange differences on disposal
of businesses (2.0) -
7.6 (0.5)
-------------------------------------------------------------- ----- -----
Other comprehensive income/(loss) for the year,
net of tax 9.3 (3.3)
--------------------------------------------------------------- ----- -----
Total comprehensive income for the year, net of
tax 34.5 8.7
--------------------------------------------------------------- ----- -----
Consolidated Statement of Financial Position
as at 31 March 2022
2022 2021 restated*
notes GBPm GBPm
-------------------------------- ----- ------- --------------
Non-current assets
Property, plant and equipment 23.5 23.5
Intangible assets - goodwill 14 175.7 127.9
Intangible assets - other 87.6 62.9
Right of use assets 21.9 22.4
Pension asset 16 2.7 -
Other receivables 5.9 -
Deferred tax assets 9.2 7.9
-------------------------------- ----- ------- --------------
326.5 244.6
-------------------------------- ----- ------- --------------
Current assets
Inventories 77.8 67.7
Trade and other receivables 78.0 84.9
Current tax assets 1.6 1.8
Cash and cash equivalents 39.4 29.2
-------------------------------- ----- ------- --------------
196.8 183.6
-------------------------------- ----- ------- --------------
Total assets 523.3 428.2
-------------------------------- ----- ------- --------------
Current liabilities
Trade and other payables (104.8) (94.8)
Other financial liabilities (2.0) (0.8)
Lease liabilities (4.7) (4.8)
Current tax liabilities (7.7) (5.6)
Provisions (1.7) (1.8)
-------------------------------- ----- ------- --------------
(120.9) (107.8)
-------------------------------- ----- ------- --------------
Non-current liabilities
Trade and other payables (2.7) (0.8)
Other financial liabilities (67.6) (75.6)
Lease liabilities (16.4) (16.7)
Pension liability 16 - (1.0)
Provisions (4.2) (5.4)
Deferred tax liabilities (21.1) (12.5)
-------------------------------- ----- ------- --------------
(112.0) (112.0)
-------------------------------- ----- ------- --------------
Total liabilities (232.9) (219.8)
-------------------------------- ----- ------- --------------
Net assets 290.4 208.4
-------------------------------- ----- ------- --------------
Equity
Share capital 15 4.7 4.4
Share premium 192.0 138.8
Merger reserve 10.5 19.9
Currency translation reserve 4.9 (2.7)
Retained earnings 78.3 48.0
-------------------------------- ----- ------- --------------
Total equity 290.4 208.4
-------------------------------- ----- ------- --------------
*2021 restated. Refer to note 4 to the consolidated Financial
Statements.
The Financial Statements were approved by the Board of Directors
on 14 June 2022 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 2022
Attributable to equity holders of the Company
Currency
Share Share Merger translation Retained Total
capital premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- -------- -------- ------------ --------- -------
At 1 April 2020 4.4 138.8 22.7 (2.2) 36.8 200.5
Prior year restatement (note
4) - - - - (0.4) (0.4)
--------------------------------- -------- -------- -------- ------------ --------- -------
At 1 April 2020 (restated) 4.4 138.8 22.7 (2.2) 36.4 200.1
--------------------------------- -------- -------- -------- ------------ --------- -------
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 10) - - - - (2.8) (2.8)
--------------------------------- -------- -------- -------- ------------ --------- -------
At 31 March 2021 (restated) 4.4 138.8 19.9 (2.7) 48.0 208.4
--------------------------------- -------- -------- -------- ------------ --------- -------
Profit for the year - - - - 25.2 25.2
Other comprehensive income - - - 7.6 1.7 9.3
--------------------------------- -------- -------- -------- ------------ --------- -------
Total comprehensive income - - - 7.6 26.9 34.5
Shares issued (note 15) 0.3 53.2 - - - 53.5
Share-based payments including
tax - - - - 3.4 3.4
Transfer to retained earnings - - (9.4) - 9.4 -
Dividends (note 10) - - - - (9.4) (9.4)
--------------------------------- -------- -------- -------- ------------ --------- -------
At 31 March 2022 4.7 192.0 10.5 4.9 78.3 290.4
--------------------------------- -------- -------- -------- ------------ --------- -------
Consolidated Statement of Cash Flows
for the year ended 31 March 2022
2022 2021
notes GBPm GBPm
---------------------------------------------------------- ----- ------- ------
Net cash flow from operating activities 13 30.9 46.0
Investing activities
Acquisition of businesses, net of cash acquired (84.5) (20.8)
Business disposal proceeds 37.3 -
Purchase of property, plant and equipment (5.4) (3.2)
Purchase of intangible assets - software (0.8) (0.7)
Proceeds from disposal of property, plant and equipment 0.4 0.3
Interest received 0.4 0.3
---------------------------------------------------------- ----- ------- ------
Net cash used in investing activities (52.6) (24.1)
---------------------------------------------------------- ----- ------- ------
Financing activities
Net proceeds from the issue of shares 53.4 0.1
Proceeds from borrowings 94.1 9.3
Repayment of borrowings (102.3) (27.8)
Payment of lease liabilities (6.4) (6.1)
Cash-settled share-based payments (0.1) -
Dividends paid 10 (9.4) (2.8)
Net cash generated from/(used in) financing activities 29.3 (27.3)
---------------------------------------------------------- ----- ------- ------
Net increase/(decrease) in cash and cash equivalents
(1) 7.6 (5.4)
Net cash and cash equivalents at 1 April 28.2 34.8
Effect of exchange rate fluctuations 1.1 (1.2)
---------------------------------------------------------- ----- ------- ------
Net cash and cash equivalents at 31 March 36.9 28.2
---------------------------------------------------------- ----- ------- ------
Reconciliation to cash and cash equivalents in the
consolidated statement of financial position
Net cash and cash equivalents shown above 36.9 28.2
Add back: bank overdrafts 2.5 1.0
---------------------------------------------------------- ----- ------- ------
Cash and cash equivalents presented in current assets
in the consolidated statement of financial position 39.4 29.2
---------------------------------------------------------- ----- ------- ------
1 Further information on the consolidated statement of cash
flows is provided in notes 12 and 13.
Notes to the Group consolidated Financial Statements
for the year ended 31 March 2022
1. Publication of non-statutory accounts
The preliminary results were authorised for issue by the Board
of Directors on 14 June 2022. The financial information set out
above does not constitute the Company's statutory accounts for the
years ended 31 March 2022 or 31 March 2021, but is derived from
those accounts. Statutory accounts for 2021 have been delivered to
the Registrar of Companies whereas those for 2022 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 UK-adopted International Accounting Standards
(UK adopted IAS) and with requirements of the Companies Act 2006
applicable to companies reporting under those standards. 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. 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 its current committed
facilities of GBP240m for the foreseeable future.
The sensitivities take into account the principal risks and
uncertainties, notably instability in the economic environment,
underperformance of acquired businesses, climate related risks,
loss of key customers and suppliers, major business disruption,
liquidity restriction, liquidity and debt covenants and adverse
foreign currency movements.
The most severe but plausible downside scenario assumes a
worsening of the economic environment caused by a prolonged Ukraine
conflict, significant reduction in consumer demand due to
inflationary pressures and a resurgence of Covid-19. This downside
scenario results in a significant decline in second half sales of
FY 2022/23, negative sales growth in FY 2023/24 and modest growth
thereon in FY 2024/25. Additionally, operating margin was reduced,
working capital materially increased, significant one-off
expenditures included (product liability, major customer insolvency
or litigation, climate change), interest rates increased
significantly and an increase in the Group effective tax rate.
After factoring in the 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, has low customer/supplier
concentration, has a global supply chain network, diverse
manufacturing capacity, and has well-established 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. As a consequence, the Directors believe that the Group is
well placed to manage its principal risks and uncertainties.
Reverse stress testing has also been applied to the most
plausible downside scenario to determine the level of downside that
would be required before the Group would be at risk of breaching
its existing financial covenants or current liquidity headroom
during the assessment period. The reverse stress test was conducted
on the basis that certain mitigating actions would be undertaken to
reduce overheads and capital expenditure during the period as sales
declined and, on that basis, a fall in underlying operating margin
to below 2% would be required before such a breach occurred. The
Board considers the possibility of such a scenario to be remote and
further mitigation, such as hiring freezes, pay and bonus
reductions, headcount reductions, reduction in planned capital
expenditure, suspension of dividend payments and equity raise,
would be available if future trading conditions indicated that such
an outcome were possible.
The Company acts as a holding company for investments in the
subsidiaries and does not engage in any trading activities directly
and thus is dependent on the trading activities of its
subsidiaries. The Company holds sufficient net current assets as at
31 March 2022 to continue as a going concern.
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 Financial Statements.
4. Prior year restatement
Discontinued Operations
The Group has restated the prior year comparatives in the
consolidated Statement of Profit or Loss to exclude the results of
discontinued operations with the objective of ensuring that the
amounts disclosed for the year ended 31 March 2022 are comparable
with the results for the year ended 31 March 2021 (the comparative
period). Details of the financial position and results for the
discontinued operations can be found in note 9 to the consolidated
Financial Statements.
Following the disposal of the Group's Custom Supply Division,
the Group has reviewed its reporting of operating performance to
the Board, which is now organised into two new divisions: (i)
Magnetics & Controls ("M&C") and (ii) Sensing &
Connectivity ("S&C"). These have been assessed as the
Reportable Operating Segments of the Group as described in note 6
to these Financial Statements.
As a result, and according to requirements of IFRS 8 'Operating
Segments', the Group has changed the disclosures in note 6 to
reflect the new defined operating segments and has restated the
corresponding items of segment information for last year.
Presentation of the Consolidated Statement of Profit or Loss
Following the discontinuance of the Custom Supply division,
there is a broad range of gross margins within the operating
companies of the Group which make operating profit margin a more
consistent, reliable and comparable indicator of ongoing
performance of the continuing operations. Accordingly, the Company
has changed the presentation of the consolidated Statement of
Profit and Loss for the year ending 31 March 2022 and the
comparative prior year by amalgamating cost of sales, selling and
distribution costs, and administrative expenses into one line item
namely operating costs. There is no change to the prior year
operating profit, profit before tax and profit for the year as a
result of these presentational changes as demonstrated in the below
table:
2021 2021
2022 restated* original
GBPm GBPm GBPm
--------------------------------- ------- ---------- ---------
Revenue 379.2 302.8 454.3
Cost of Sales (233.0) (187.7) (299.0)
--------------------------------- ------- ---------- ---------
Gross profit 146.2 115.1 155.3
Selling and distribution costs (37.7) (32.3) (57.8)
Administrative expenses (87.6) (65.7) (76.8)
--------------------------------- ------- ---------- ---------
Operating profit 20.9 17.1 20.7
--------------------------------- ------- ---------- ---------
* Restated to exclude the results of discontinued operations as
described in note 9 to the consolidated Financial Statements.
FY 2021/22 Financial Statements (with changes in
presentation)
2021
restated
GBPm
------------------- ---------
Revenue 302.8
Operating costs (285.7)
--------------------- ---------
Operating profit 17.1
--------------------- ---------
Configuration and Customisation costs in a Cloud Computing
Arrangement
The Group has changed its accounting policy relating to the
capitalisation of certain software costs; this change follows the
IFRIC Interpretation Committee's agenda decision published in April
2021 and relates to the capitalisation of costs of configuring or
customising application software under 'Software as a Service'
('SaaS') arrangements. The Group's accounting policy has
historically been to capitalise costs directly attributable to the
configuration and customisation of SaaS arrangements as intangible
assets in the Consolidated Statement of Financial Position.
Following the adoption of the above IFRIC agenda guidance, the
accounting policy was changed so that the Group only capitalises
costs relating to the configuration and customisation of SaaS
arrangements as intangible assets where control of the asset
exists. As a result of this change in accounting policy, all
current SaaS arrangements were identified and assessed to determine
if the Group has control of the asset.
For those arrangements where the Group does not have control of
the developed application, the Group derecognised the intangible
asset previously capitalised. The change in accounting policy led
to adjustments amounting to a GBP0.4m reduction in intangible
assets and a GBP0.4m reduction in retained earnings in the 31 March
2021 Consolidated Statement of Financial Position. The 2021
consolidated Statement of Profit or Loss and Statement of Other
Comprehensive Income have not been restated, as the impact on them
is immaterial. Accordingly, the prior period consolidated Statement
of Financial Position at 31 March 2021 have been restated in
accordance with IAS 8 requirements. The overall impact of the
adjustment is not considered to be material and, therefore, a
consolidated Statement of Financial Position for 31 March 2020 has
not been presented.
The tables below show the impact of the change in accounting
policy on the previously reported financial position.
As previously Impact
reported of restatement Restated
2021 2021 2021
GBPm GBPm GBPm
--------------------------- ------------- --------------- --------
Intangible asset - other 63.3 (0.4) 62.9
Retained earnings 48.4 (0.4) 48.0
--------------------------- ------------- --------------- --------
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 as 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 and acquisition related 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
from continuing operations excluding acquisition related costs
(namely amortisation of acquired intangible assets and acquisition
expenses).
Acquisition expenses comprise transaction costs, contingent
consideration payments relating to the retention of former owners
of acquired businesses, adjustments to previously estimated
contingent consideration, and costs related to integration of
acquired businesses into the Group.
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
from continuing operations excluding acquisition related costs
(namely amortisation of acquired intangible assets and acquisition
expenses).
Underlying effective tax rate
"Underlying effective tax rate" is defined as the effective tax
rate on underlying profit before tax.
Underlying earnings per share
"Underlying earnings per share" is calculated as underlying
profit before tax reduced by the underlying effective tax rate,
divided by the weighted average number of ordinary shares (for
diluted earnings per share purposes) in issue during the 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 from continuing
operations 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 from continuing
operations including the annualisation for acquisitions as a
percentage of net assets excluding net debt, deferred consideration
related to discontinued operations and legacy defined benefit
pension asset/(liability).
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 is shown excluding
the first 12 months of acquisitions post completion (Phoenix was
acquired in October 2020, Limitor in February 2021, CPI in May
2021, Antenova in August 2021 and Beacon in September 2021).
Organic growth compared with two years ago excludes the first 24
months of acquisitions (also Sens-Tech which was acquired in
October 2019).
6. Operating segment information
During the year, the Group completed the disposal of its Custom
Supply Division, as described in note 9. As a result of the
disposal, the Group has reorganised its businesses into two
distinct divisions, Magnetics & Controls ("M&C") and
Sensing & Connectivity ("S&C). These have been assessed as
the new Reportable Operating Segments in accordance with IFRS 8
'Operating Segments'. The senior management structure has also been
aligned with these two segments.
Within each of the above reportable operating segment are
aggregated business units with similar characteristics such as the
nature of customers, 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.
Segment revenue and results
Magnetics Sensing Unallocated Total
& Controls & Connectivity Costs continuing
operations
2022 GBPm GBPm GBPm GBPm
--------------------------------------------- ----------- --------------- ----------- -----------
Revenue 234.7 144.5 - 379.2
--------------------------------------------- ----------- --------------- ----------- -----------
Result
Underlying operating profit/(loss) 29.8 23.3 (11.7) 41.4
Acquisition expenses (1.4) (5.1) - (6.5)
Amortisation of acquired intangible assets (4.8) (9.2) - (14.0)
Operating profit/(loss) 23.6 9.0 (11.7) 20.9
--------------------------------------------- ----------- --------------- ----------- -----------
Magnetics Sensing Unallocated Total
& Controls & Connectivity Costs continuing
operations
2021 (restated*) GBPm GBPm GBPm GBPm
--------------------------------------------- ----------- --------------- ----------- -----------
Revenue 190.4 112.4 - 302.8
--------------------------------------------- ----------- --------------- ----------- -----------
Result
Underlying operating profit/(loss) 23.4 15.5 (8.1) 30.8
Acquisition expenses 0.4 (1.6) - (1.2)
Amortisation of acquired intangible assets (3.5) (7.6) - (11.1)
IAS 19 pension charge - - (1.4) (1.4)
--------------------------------------------- ----------- --------------- ----------- -----------
Operating profit/(loss) 20.3 6.3 (9.5) 17.1
--------------------------------------------- ----------- --------------- ----------- -----------
* 2021 restated. Refer to note 4 to the consolidated Financial
Statements.
7. Underlying profit before tax
2022 2021
restated*
GBPm GBPm
------------------------------------------------------------------------- ---- ----- ----------
Profit before tax 17.1 13.5
Add back Acquisition expenses (a) 6.5 1.2
Amortisation of acquired intangible assets (b) 14.0 11.1
Total IAS 19 pension charge (c) - 1.4
------------------------------------------------------------------------- ---- ----- ----------
Underlying profit before tax 37.6 27.2
------------------------------------------------------------------------------- ----- ----------
* 2021 restated. Refer to note 4 to the consolidated Financial
Statements.
The tax impact of the underlying profit adjustments above is a
credit of GBP2.0m (2021: GBP2.5m).
a. Acquisition and merger related expenses of GBP6.5m comprise
GBP2.6m of transaction costs in relation to the acquisition of CPI,
Antenova, Beacon and ongoing transactions; GBP3.5m charge relating
to the movement in fair value of contingent consideration and
assets acquired on past acquisitions; and GBP0.4m charge in
relation to the integration of acquired businesses in North
America.
During the prior year there were GBP1.2m of acquisition and
merger related expenses. GBP1.0m of transaction costs were incurred
in relation to the acquisition of Phoenix, Limitor and ongoing
transactions. There was a net contingent consideration credit of
GBP0.2m in relation to current and past acquisitions and GBP0.4m
charge in relation to the integration of acquired businesses in
North America.
b. Amortisation charge for intangible assets recognised on
acquisition of GBP14.0m being amortisation of acquired customer
relationships and patents. The equivalent charge last year was
GBP11.1m. The increase relates to the five acquisitions during the
last two years (Phoenix in October 2020, Limitor in February 2021,
CPI in May 2021, Antenova in August 2021 and Beacon in September
2021).
c. Pension costs in the prior period related to a one-off
adjustment relating to historic commutation terms for legacy scheme
members.
8. Business combinations
Acquisition of CPI
On 13 May 2021, the Group completed the acquisition of Control
Products Inc ("CPI") via the purchase of 100% of the share capital
and voting equity interests of Calculagraph Corporation, and which
trades under the name of Control Products Inc ("CPI"). CPI, based
in the USA, is a designer and manufacturer of custom, rugged
sensors and switches.
CPI was acquired for an initial cash consideration of GBP8.9m
($12.5m), before expenses, funded from the Group's existing debt
facilities. In addition, a contingent payment of up to GBP3.8m
($5.4m) will be payable subject to CPI achieving certain
operational and profit growth targets during the four-year period
ending 31 March 2025. GBP2.2m ($3.2m) fair value of contingent
consideration has been accounted for in the purchase price at the
acquisition date.
The provisional fair value of the identifiable assets and
liabilities of CPI at the date of acquisition were:
Provisional
fair value
recognised
at acquisition
GBPm
------------------------------------- -----------------
Intangible assets - other (customer
relationships) 4.4
Right of use assets 0.6
Inventories 0.9
Trade and other receivables 0.4
Net cash 0.6
Trade and other payables (0.3)
Provisions (0.1)
Lease liabilities (0.6)
Total identifiable net assets 5.9
Provisional goodwill arising
on acquisition 5.2
--------------------------------------- ----------------
Total investment 11.1
--------------------------------------- ----------------
Discharged by
Initial cash consideration 8.9
Contingent consideration 2.2
11.1
------------------------------------- ----------------
Net cash outflows in respect of the acquisition comprise:
Total
GBPm
------------------------------------------------ ------
Fair value of cash consideration 8.9
Transaction costs of the acquisition (included
in operating cash flows) (1) 0.5
Net cash acquired (0.6)
-------------------------------------------------- ------
8.8
------------------------------------------------ ------
1) Acquisition costs of GBP0.4m and GBP0.1m were expensed as
incurred in the period ended 31 March 2022 and the year ended 31
March 2021 respectively. These were included within operating costs
(note 7).
Included in cash flow from investing activities is the cash
consideration of GBP8.9m and the net cash acquired of GBP0.6m.
Acquisition of Antenova
On 25 August 2021, the Group completed the acquisition of 100%
of the share capital and voting equity interests of Antenova Ltd
("Antenova"). Antenova, based in the UK, is a designer and
manufacturer of antennas and radio frequency (RF) modules for
industrial connectivity applications.
Antenova was acquired for a cash consideration of GBP20.9m,
before expenses, funded from the Group's existing debt
facilities.
The provisional fair value of the identifiable assets and
liabilities of Antenova at the date of acquisition were:
Provisional
fair value
recognised
at acquisition
GBPm
-------------------------------------- -----------------
Property, plant and equipment 0.2
Intangible assets - other (customer
relationships) 8.2
Intangible assets - other (software) 0.1
Right of use assets 0.3
Inventories 1.0
Trade and other receivables 0.9
Net cash 3.0
Trade and other payables (1.2)
Current tax liabilities (0.1)
Deferred tax liabilities (1.9)
Lease liabilities (0.3)
Total identifiable net assets 10.2
Provisional goodwill arising
on acquisition 10.7
---------------------------------------- ----------------
Total investment 20.9
---------------------------------------- ----------------
Discharged by
Cash 20.9
20.9
-------------------------------------- ----------------
Net cash outflows in respect of the acquisition comprise:
Total
GBPm
------------------------------------------------ ------
Fair value of cash consideration 20.9
Transaction costs of the acquisition (included
in operating cash flows) (1) 0.6
Net cash acquired (3.0)
-------------------------------------------------- ------
18.5
------------------------------------------------ ------
1) Acquisition costs of GBP0.6m were expensed as incurred in the
year ended 31 March 2022. These were included within operating
costs (note 7).
Included in cash flow from investing activities is the cash
consideration of GBP20.9m and the net cash acquired of GBP3.0m.
Acquisition of Beacon
On 2 September 2021, the Group completed the acquisition of
Beacon EmbeddedWorks ("Beacon") via the purchase of 100% of the
share capital and voting equity interests of Logic PD Inc which
trades under the name of Beacon EmbeddedWorks. Based in the USA,
Beacon is a designer, manufacturer and supplier of custom System on
Module (SOM) embedded computing boards and related software,
supplying the medical, industrial and aerospace & defence
markets in the USA.
Beacon was acquired for a cash consideration of GBP57.7m
($79.4m), before expenses, funded from the Group's existing debt
facilities.
The provisional fair value of the identifiable assets and
liabilities of Beacon at the date of acquisition were:
Provisional
fair value
recognised
at acquisition
GBPm
------------------------------------- -----------------
Property, plant and equipment 0.4
Intangible assets - other (customer
relationships) 25.1
Right of use assets 2.2
Inventories 2.9
Trade and other receivables 1.9
Trade and other payables (3.6)
Provisions (0.2)
Deferred tax liabilities (6.3)
Lease liabilities (2.2)
Total identifiable net assets 20.2
Provisional goodwill arising
on acquisition 37.0
--------------------------------------- ----------------
Total investment 57.2
--------------------------------------- ----------------
Discharged by
Initial cash consideration 57.7
Working capital purchase price
adjustment (0.5)
57.2
------------------------------------- ----------------
Net cash outflows in respect of the acquisition comprise:
Total
GBPm
------------------------------------------------ ------
Fair value of cash consideration 57.7
Working capital purchase price adjustment (0.5)
Transaction costs of the acquisition (included
in operating cash flows) (1) 0.6
57.8
------------------------------------------------ ------
1) Acquisition costs of GBP0.9m were expensed as incurred in the
period ended 31 March 2022. These were included within operating
costs (note 7). GBP0.3m of costs remained unpaid at 31 March
2022.
Included in cash flow from investing activities is the cash
consideration of GBP57.7m.
9. Discontinued operations and assets held for sale
During the year, the Group exited its distribution business by
completing the disposal of its Acal BFi business and Vertec
Scientific SA Proprietary Limited, which together has been referred
to as the disposal group.
The disposal of the Acal BFi business completed on 3 March 2022
for an initial cash consideration of GBP37.6m net of normalised
working capital adjustment and debt-like adjustments, and before
expenses. In addition, deferred consideration (loan note) of GBP5m
will be payable 3 years from completion of the disposal.
The disposal of Vertec Scientific SA Proprietary Limited
completed on 5 January 2022 for an initial cash consideration of
GBP1.3m, before expenses. In addition, deferred consideration of
GBP0.9m will be payable over a 3-year period from completion.
The disposal group generated a profit on disposal of GBP6.6m,
which is summarised below:
Total
GBPm
----------------------------------------------------------------------- -------
Net consideration 44.8
Net assets disposed of (33.1)
Cumulative exchange loss reclassified from equity to the consolidated
Statement of Profit or Loss (2.0)
Transaction costs (3.1)
----------------------------------------------------------------------- -------
Profit on disposal 6.6
----------------------------------------------------------------------- -------
Consideration received:
Net upfront cash consideration received 38.9
Deferred consideration 5.9
----------------------------------------------------------------------- -------
Net consideration receivable 44.8
----------------------------------------------------------------------- -------
Net assets disposed of:
Property, plant and equipment 1.4
Right of use assets 6.6
Intangible assets - Goodwill 9.4
Intangible assets - Other 1.0
Inventories 13.7
Trade and other receivables 34.8
Cash 1.6
Trade and other payables (26.4)
Current tax liabilities (1.4)
Lease liability (5.9)
Provisions (2.0)
Deferred tax assets 0.3
----------------------------------------------------------------------- -------
Net assets disposed of 33.1
----------------------------------------------------------------------- -------
Net cash inflow from disposal:
Cash consideration 38.9
Cash disposed (1.6)
Transaction costs of disposal (included in operating cash flows) (2.4)
----------------------------------------------------------------------- -------
Net cash inflow on disposal 34.9
----------------------------------------------------------------------- -------
The results of the disposal group are shown as discontinued
operations for the year and the prior year and are presented
below:
2022 2021
GBPm GBPm
-------------------------------------------------------- -------- --------
Revenue 162.7 151.5
Operating costs (150.3) (147.9)
-------------------------------------------------------- -------- --------
Operating profit 12.4 3.6
Finance costs (0.2) (0.1)
-------------------------------------------------------- -------- --------
Profit before tax from operating activities 12.2 3.5
Tax expense (2.9) (1.0)
-------------------------------------------------------- -------- --------
Profit for the year from operating activities 9.3 2.5
-------------------------------------------------------- -------- --------
Gain on sale of discontinued operations 6.6 -
-------------------------------------------------------- -------- --------
Tax expense on gain on sale of discontinued operations (0.4) -
-------------------------------------------------------- -------- --------
Profit for the year from discontinued operations 15.5 2.5
-------------------------------------------------------- -------- --------
Earnings per share
2022 2021
GBPm GBPm
Basic profit per share on discontinued operations 16.7p 2.8p
Diluted profit per share on discontinued operations 16.2p 2.7p
----------------------------------------------------- ------ ------
The operating profit for 2022 excludes GBP1.0m of depreciation
charge on non-current assets as a result of them being classified
as held for sale as at 30 September 2021.
Cash flows relating to trading activity of discontinued
operations
2022 2021
GBPm GBPm
--------------------------------------------- ------ ------
Net cash inflow from operating activities 5.9 11.9
Net cash outflows from investing activities (0.3) (0.1)
Net cash outflows from financing activities (2.1) (2.3)
Net increase in cash and cash equivalents 3.5 9.5
--------------------------------------------- ------ ------
10. Dividends
Dividends recognised in equity as distributions to equity 2022 2021
holders in the year: GBPm GBPm
-------------------------------------------------------------- ------- -------
Equity dividends on ordinary shares:
Final dividend for the year ended 31 March 2021 of 7.0p
(2020: 0.0p) 6.2 -
Interim dividend for the year ended 31 March 2022 of 3.35p
(2021: 3.15p) 3.2 2.8
-------------------------------------------------------------- ------- -------
Total amounts recognised as equity distributions during
the year 9.4 2.8
-------------------------------------------------------------- ------- -------
2022 2021
Proposed for approval at AGM: GBPm GBPm
-------------------------------------------------------------- ------- -------
Equity dividends on ordinary shares:
-------------------------------------------------------------- ------- -------
Final dividend for the year ended 31 March 2022 of 7.45p
(2021: 7.0p) 7.1 6.2
-------------------------------------------------------------- ------- -------
Summary
Dividends per share declared in respect of the year 10.8p 10.15p
Dividends per share paid in the year 10.35p 3.15p
Dividends paid in the year GBP9.4m GBP2.8m
-------------------------------------------------------------- ------- -------
11. 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:
2022 2021
GBPm GBPm
------------------------------------------------------------ ---------- ----------
Profit for the year attributable to equity holders of the
parent:
Continuing operations 9.7 9.5
Discontinued operations 15.5 2.5
------------------------------------------------------------ ---------- ----------
Profit after tax for the year 25.2 12.0
------------------------------------------------------------ ---------- ----------
Number Number
------------------------------------------------------------ ---------- ----------
Weighted average number of shares for basic earnings per
share 93,015,684 88,753,576
Effect of dilution - share options 2,783,673 3,469,048
------------------------------------------------------------ ---------- ----------
Adjusted weighted average number of shares for diluted
earnings per share 95,799,357 92,222,624
------------------------------------------------------------ ---------- ----------
Basic earnings per share from continuing operations 10.4p 10.7p
Diluted earnings per share from continuing operations 10.1p 10.3p
Basic earnings per share 27.1p 13.5p
Diluted earnings per share 26.3p 13.0p
------------------------------------------------------------ ---------- ----------
Underlying earnings per share is calculated as follows:
2022 2021
GBPm GBPm
----------------------------------------------------------- ---------- ----------
Profit after tax for the year from continuing operations 9.7 9.5
Acquisition expenses 6.5 1.2
Amortisation of acquired intangible assets 14.0 11.1
IAS 19 pension charge - 1.4
Tax effect of the above (2.0) (2.5)
----------------------------------------------------------- ---------- ----------
Underlying profit after tax 28.2 20.7
----------------------------------------------------------- ---------- ----------
Number Number
----------------------------------------------------------- ---------- ----------
Weighted average number of shares for basic earnings per
share 93,015,684 88,753,576
Effect of dilution - share options 2,783,673 3,469,048
----------------------------------------------------------- ---------- ----------
Adjusted weighted average number of shares for diluted
earnings per share 95,799,357 92,222,624
----------------------------------------------------------- ---------- ----------
Underlying earnings per share 29.4p 22.4p
----------------------------------------------------------- ---------- ----------
At the year end, there were 2,985,201 ordinary share options in
issue that could potentially dilute underlying earnings per share
in the future, of which 2,783,673 are currently dilutive (2021:
3,928,273 in issue and 3,469,048 dilutive).
12. Movements in cash and net debt
1 April Non cash 31 March
2021 Cash flow changes 2022
Year to 31 March 2022 GBPm GBPm GBPm GBPm
---------------------------- ------- --------- -------- --------
Cash and cash equivalents 29.2 9.0 1.2 39.4
Bank overdrafts (1.0) (1.4) (0.1) (2.5)
---------------------------- ------- --------- -------- --------
Net cash 28.2 7.6 1.1 36.9
---------------------------- ------- --------- -------- --------
Bank loans under one year (0.3) 0.3 - -
Bank loans over one year (76.3) 7.9 0.6 (67.8)
Capitalised debt costs 1.2 - (0.5) 0.7
---------------------------- ------- --------- -------- --------
Total loan capital (75.4) 8.2 0.1 (67.1)
---------------------------- ------- --------- -------- --------
Net debt (47.2) 15.8 1.2 (30.2)
---------------------------- ------- --------- -------- --------
Bank loans over one year above include GBP65.5m (2021: GBP74.0m)
drawn down against the Group's revolving credit facility.
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)
---------------------------- ------- --------- -------- --------
Supplementary information to the statement of cash flows
2022 2021
Underlying Performance Measure GBPm GBPm
--------------------------------------- ------ ------
Increase in net cash 15.8 13.1
Add: Business combinations 87.6 21.8
Dividends paid 9.4 2.8
Less: Net proceeds from share issue (52.6) (0.1)
Discontinued operations (38.4) (9.5)
--------------------------------------- ------ ------
Free cash flow 21.8 28.1
Net finance costs 3.2 3.1
Taxation 6.2 6.5
Legacy pension scheme funding 1.9 1.8
Operating cash flow 33.1 39.5
--------------------------------------- ------ ------
13. Reconciliation of cash flows from operating activities
2022 2021
GBPm GBPm
----------------------------------------------------------- ------ -----
Profit for the year 25.2 12.0
Tax expense 10.7 5.0
Net finance costs 4.1 3.7
Depreciation of property, plant and equipment 4.7 4.9
Depreciation of right of use assets 6.1 6.6
Amortisation of intangible assets - other 14.5 11.7
Gain on business disposal (6.6) -
Gain on disposal of property, plant and equipment (0.1) -
Change in provisions (0.3) 1.0
Pension scheme funding (1.9) (1.8)
IAS 19 pension charge 0.6 1.4
Impact of equity-settled share-based payment expense and
associated taxes 1.3 1.1
----------------------------------------------------------- ------ -----
Operating cash flows before changes in working capital 58.3 45.6
Increase in inventories (17.7) (0.1)
(Increase)/decrease in trade and other receivables (24.9) 5.5
Increase in trade and other payables 26.8 6.2
----------------------------------------------------------- ------ -----
(Decrease)/increase in working capital (15.8) 11.6
----------------------------------------------------------- ------ -----
Cash generated from operations 42.5 57.2
Interest paid (3.7) (3.4)
Interest paid on lease liabilities* (0.8) (0.6)
Income taxes paid (7.1) (7.2)
----------------------------------------------------------- ------ -----
Net cash flow from operating activities 30.9 46.0
----------------------------------------------------------- ------ -----
14. Intangible assets - goodwill
Cost GBPm
---------------------------------------------- ------
At 1 April 2020 154.1
Arising from business combinations 9.3
Exchange adjustments 1.3
---------------------------------------------- ------
At 31 March 2021 164.7
Arising from business combinations (note 8) 53.7
Business disposed (note 9) (46.2)
Exchange adjustments 3.5
---------------------------------------------- ------
At 31 March 2022 175.7
---------------------------------------------- ------
Impairment GBPm
---------------------------------------------- ------
At 1 April 2020 and at 31 March 2021 (36.8)
Business disposed (note 9) 36.8
---------------------------------------------- ------
At 31 March 2022 -
---------------------------------------------- ------
Net book value at 31 March 2022 175.7
---------------------------------------------- ------
Net book value at 31 March 2021 127.9
---------------------------------------------- ------
Goodwill acquired through business combinations is allocated to
cash-generating units ("CGUs") and tested annually for impairment.
Newly acquired entities might be a single CGU until such time they
can be integrated .
Following disposal of the Group's Custom Supply Division, as
described in note 6, the Group's operations were reorganised into
two distinct divisions, Magnetics & Control ("M&C") and
Sensing & Connectivity ("S&C). Within each division are
aggregated business units which generate largely independent cash
inflows and are considered to be individual CGUs from an impairment
testing perspective.
The carrying value of goodwill is analysed as follows:
2022 2021
GBPm GBPm
-------------------------- ----- -----
Discontinued operations - 9.6
Magnetics & Controls 89.3 49.5
Sensing & Connectivity 86.4 68.8
175.7 127.9
-------------------------- ----- -----
The movement in goodwill compared to prior year relates to the
movement in foreign exchange with the exception of Acal BFi, which
was disposed of during the year (note 9) and CPI, Antenova and
Beacon which were acquired in the year (note 8).
The significant amounts of goodwill is analysed below:
2022 2021
GBPm GBPm
------------ ----- -----
Noratel 34.7 33.6
Beacon 38.8 -
Variohm 24.0 17.6
Sens-Tech 27.4 27.4
124.9 78.6
------------ ----- -----
The Group defines significant as 10% of the total carrying value
of goodwill.
15. Share capital
2022 2022 2021 2021
Allotted, called up and fully paid Number GBPm Number GBPm
------------------------------------- ---------- ----- ---------- -----
Ordinary shares of 5p each 95,456,109 4.7 89,455,915 4.4
------------------------------------- ---------- ----- ---------- -----
During the year to March 2022, 650,000 shares were issued to the
Group's Employee Benefit Trust (2021: 750,000). At 31 March 2022
the Trust held 168,425 shares (2021: 689,307). During the year to
31 March 2022, employees exercised 1,170,882 share options under
the terms of the various share option schemes (2021: 60,693).
On 2 September 2021, 5,350,194 shares were issued for a gross
consideration of GBP55.0m before costs and GBP53.5m after costs.
The shares were issued at 1,028 pence per share, which is equal to
the mid-market closing price on 2 September 2021. GBP0.3m was share
capital with the balance of GBP53.2m being allocated to share
premium account.
16. Pension
The acquisition of the Sedgemoor Group in June 1999 included a
defined benefit pension scheme, the Sedgemoor Group Pension Fund
("the Sedgemoor Scheme"). The Sedgemoor Scheme, which is funded by
the Company, provides retirement benefits based on final
pensionable salary. Its assets are held in a separate
trustee-administered fund. Following the acquisition of the
Sedgemoor Group, the Sedgemoor Scheme was closed to new members.
Shortly thereafter, employees were given the opportunity to join
the discoverIE pension scheme and future service benefits ceased to
accrue to members under the Sedgemoor Scheme. Contributions to the
Sedgemoor Scheme are determined in accordance with the advice of
independent, professionally qualified actuaries.
During the year, the financial position of the Sedgemoor Scheme
has been updated in line with changes in actuarial assumptions and
cash contributions made to the Scheme. The valuation used for IAS
19 disclosures has been based on the most recent valuation at 31
March 2018 updated to take account of the requirements of IAS 19 in
order to assess the liabilities of the scheme as at 31 March
2022.
The IAS 19 defined benefit pension scheme asset at 31 March 2022
was GBP2.7m (31 March 2021: GBP1.0m liability). The movement
principally relates to the changes in actuarial assumptions and
cash contributions in the period.
17. 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
2022 2021
------------------
Closing Average Closing Average
rate rate Rate rate
------------------ -------- -------- -------- --------
US Dollar 1.3123 1.3668 1.3760 1.3075
Euro 1.1821 1.1761 1.1736 1.1207
Norwegian Krone 11.479 11.856 11.731 11.970
------------------ -------- -------- -------- --------
18. 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 7.45p per share (2021: 7.0p), amounting to a
dividend of GBP7.1m (2021: GBP6.2m) and bringing the total dividend
for the year to 10.8p (2021: 10.15p), was declared by the Board on
27 May 2022.
Revolving Credit Facility
On 3 May 2022, the Group increased its syndicated banking
facility from GBP180m to GBP240m and extended the remaining term of
the facility by two years out to four years ending in June 2026,
with an option exercisable by the Group to extend the facility by a
further year to June 2027. In addition, the Group has an GBP80m
accordion facility which it can use to extend the total facility up
to GBP320m.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR FJMPTMTTBBIT
(END) Dow Jones Newswires
June 14, 2022 02:00 ET (06:00 GMT)
Discoverie (LSE:DSCV)
Historical Stock Chart
From Apr 2024 to May 2024
Discoverie (LSE:DSCV)
Historical Stock Chart
From May 2023 to May 2024