Strategy Delivering Further Strong Growth/media/Files/D/Discoverie-Corp/... · discoverIE Group plc...

Preliminary results FY19 – 4th June 2019discoverIE Group plc

Preliminary resultsYear ended 31st March 2019

4th June 2019

Strategy Delivering Further Strong Growth


(1) Estimated lifetime sales value of projects

A strong year

Group sales up +13% Organic growth +8%

Record period end order book +12% (organic)

New project design wins +40%(1)

Underlying operating profit +25%

Underlying EPS +22%

Operating cash flow +29%

3 higher margin acquisitions for £35m, 2 since the year end

1

Preliminary results FY19 – 4th June 2019discoverIE Group plcdiscoverIE Group plc

From FY13 to FY18: Sales up > 2x Underlying EPS up > 2x Operating profits up > 4x Share price growth 19% CAGR(2)

Dividend growth 7.6% CAGR(3)

(1) Group revenue, excluding disposed businesses(2) Growth from April 2012 (FY13) to March 2018(3) Growth from FY13 to FY18

From FY19 our aim is to double EPS in 5 years FY19 EPS up 22%

We aim to provide investors with Returns of 15 – 20% pa A progressive dividend

Growth Company

2

FY13 FY14 FY15 FY16 FY17 FY18 FY19

SALES(1)


UNDERLYING OPERATING PROFIT & EPS

Underlying Operating Profit EPS


FINANCIAL REVIEW


Increasing operating margin Up 0.7ppts to 7.0%

Excellent cash flowOperating cash flow of

£28.6m, up 29% 93% conversion of

operating profit

Gearing reduced Gearing down to 1.7x 1.4x proforma post Apr

placing

Growing ROCE(2,3)

Up 1.7ppts to 15.4%

(1) Underlying profits exclude acquisition-related costs and exceptional items (see Appendices I & II)(2) FY18 reported profit before tax, fully diluted EPS and ROCE restated for prior year adjustment(3) ROCE is underlying operating profit as a percentage of net assets plus net debt

Financial Review

Continued strong growth

4

FY19 FY18 GrowthCER

Growth

Revenue £438.9m £387.9m +13% +14%

Underlying operating profit(1) £30.6m £24.5m +25% +26%

Underlying profit before tax(1) £27.2m £21.9m +24%

Underlying EPS(1) 27.2p 22.3p +22%

Reported profit before tax(2) £19.3m £14.6m +32%

Reported fully diluted EPS(2) 19.4p 14.2p +37%

Dividend per share 9.55p 9.00p +6%


6 years revenue growth of 150% (16% CAGR)

Financial Review

Consistent revenue growth

5

(1) Organic growth excludes acquisitions

Growth FY19

Organic(1) 8%

Acq 6%

CER 14%

Currency -1%

Actual 13%

£177m £212m£271m £288m

£338m£388m

£439m+19%

+28% +6%

+18%

+15%

+13%


REVENUE


Underlying op profit(1) of £30.6m Up 26% CER (+£6.4m) on FY18 33% CAGR in 6 years

Underlying op margin of 7.0% Up 0.7ppts on FY18 Up 3.9ppts in 6yrs Good progress towards 8.5% target(2)

(1) Underlying measures exclude acquisition-related costs and exceptional items (see Appendices I and II).(2) Mid-term target by Nov 21

Financial Review

6

£5.5m £7.1m

£13.4m£16.3m

£20.0m

£24.5m

£30.6m

3.1%3.4%

4.9%

5.7% 5.9%6.3%

7.0%


UNDERLYING OP PROFIT & MARGIN

Strong profit growth with increasing margin


EBIT drop thru of 13%(2)

Strong organic revenue growth of 8%

Infrastructure investment in D&M to support growth

£2.5m contribution from Cursor Controls and Santon

(1) Underlying measures exclude acquisition-related costs and exceptional items (see Appendices I and II).(2) Increase in CER profits as a percentage of sales growth (organic)

Financial Review

7

Organic growth with good operating leverage

£24.5m

£9.8m

(£0.4m)

(£5.4m)£2.4m

(£0.3m)

£30.6m

FY18 REVENUE GM OPEX ACQS FX FY19

UNDERLYING OPERATING PROFIT

+£4.0m organic


(1) UOP is underlying operating profit(2) Organic growth excludes acquisitions (D&M)

Financial Review

CUSTOM SUPPLY

DESIGN & MANUFACTURING

Profit growth across both divisions…

Operating profit up 25% CER Margin up 0.3ppts to 11.2% Margin increase reduced by short

term solar slow down

Operating profit up 15% CER Margin up 0.4ppts to 5.0%,

achieving mid-term target Strong operating leverage

8

£m

D&M 266.2 29.8 11 .2% 219.8 23.9 10.9% 20% 21% 10% 25%

Custom Supply 172.7 8.6 5.0% 164.2 7.5 4.6% 4% 5% 5% 15%

Unallocated (7.8) (7.2)

Total (CER) 438.9 30.6 7.0% 384.0 24.2 6.3% 13% 14% 8% 26%

FX 3.9 0.3

Total (reported) 438.9 30.6 7.0% 387.9 24.5 6.3%

Revenue UOP(1 ) %

FY19

Revenue UOP(1 )

UOP

growth

%

Revenue growth

Organic (2 )% Actual CER

FY18 (CER)


(1) Underlying measures exclude acquisition-related costs and exceptional items (see Appendices I and II)

Financial Review

… drives EPS increase of 22%

9

Underlying PBT up 24%

Underlying EPS up 178% in 6 yrs

£m FY19 FY18

Underlying operating profit(1) 30.6 24.5

Finance costs(1) (3.4) (2.6)

Underlying PBT(1) 27.2 21.9

Effective tax rate 25% 24%

Underlying PAT 20.5 16.6

Fully diluted shares (m) 75 .4 74.5

Underlying EPS (p) 27.2p 22.3p

9.8p 11 .8p15.4p 17.0p 19.2p

22.3p27.2p+20%

+31%+10%

+13%+16%

+22%


UNDERLYING EPS


Strong 0perating cash flow(1)

£28.6m up 29% 93% of underlying operating profit Well ahead of 85% target despite

higher w/c requirement in D&M.

Net debt at 31 Mar 19 of £63m £13m reduction since last year (ex

acquisitions) Gearing ratio(3) reduced to 1.7x Further reduced to 1.4x post placing

on a proforma basis Target range 1.5x – 2.0x

Revolving credit facility increased to £180m (from £120m) Plus £60m accordion; term extended

to Jun 23 (with option to Jun 24)

Available for acquisitions and w/c

(1) Operating cash flow defined as EBITDA less working capital and capex – see Appendix III(2) FY18 operating cash flow restated for prior year adjustment(3) Net debt at 31 Mar 19 as a ratio of adjusted EBITDA (Group underlying EBITDA adjusted for a full year of the underlying EBITDA from acquisitions).

OPERATING CASH FLOW(1)

Financial Review

10

Excellent cash flow

FY14 FY15 FY16 FY17 FY18( 2) FY19 Target

100% 104% 100% 136% 90% 93% 85%% Underlying

Operating Profit

£7. 1m

£13.9m£16.3m

£27. 1m

£22. 1m

£28.6m


Dividend up 6% 88% growth FY dividend in 9yrs 7.2% CAGR

Maintaining progressive policy FY19: 2.8x cover (underlying) and

1.8x cover (reported) To exceed 3x cover (underlying)

Financial Review

Increasing dividend

11

1.69p 1.69p 1.82p 1.82p 1.82p 2.20p 2.33p 2.45p 2.65p 2.80p

3.40p 3.74p3.99p 4.36p

4.98p

5.40p5.72p

6.05p6.35p

6.75p

5.09p5.43p

5.81p6.18p

6.80p

7.60p8.05p

8.50p9.00p

9.55p

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19


OPERATING REVIEW


Strong organic growth Sales +10% Orders +11%

Operating profit up 25% Operating leverage with 17% organic

EBIT drop through

Enlarged production facilities now operational (5.5ksqm, +11%) Magnetics – Bangalore, India Fibre optics – Bratislava, Slovakia Shielding – Seoul, Korea

Expansion in China underway Magnetics (+3.6k sqm)

Growing Santon order book

Note: At constant exchange rates (CER)

Operating Review

Design & Manufacturing division

13

Growth FY19

Organic 10%

Acquisitions 11%

CER 21%

Currency -1%

Actual 20%

£4.7m

£12.0m

£18.7m£20.6m

£23.9m

£29.8m

41%

63%

78% 79%76%

78%

FY14 FY15 FY16 FY17 FY18 FY19

Underlying Operating Profit% Group profit contribution

£39m

£110m

£157m£178m

£220m

£266m

19%

38%

49%52%

57% 61%


Sales% Group total


Widespread, strong organic growth

(1) Sales destination, excluding acquisitions(2) D&M organic growth excluding acquisitions

Operating Review

14

9% 9%

14%

11% 11% 11%10%

11%

9%

Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19

QUARTERLY ORGANIC SALES GROWTH(2)

Strong, widespread D&M organic growth

UK13%

Germany13%

Nordic29%

R.O.E.18%

N. America12%

Asia15%

REVENUE BY REGION


(1) Sales growth excluding acquisitions. Target markets are renewable energy, transportation, medical and industrial connectivity

Operating Review

Target markets leading growth

Up from 62% in FY18

15

12%

1%

8%

Target Markets

Other Markets

Total

ORGANIC GROWTH BY MARKET(1)

Target Markets £290m

66%

GROUP REVENUE FROM TARGET MARKETS (% of total revenue)


Good organic growth FY Sales +5% (+6% underlying) H2 sales +8%

Operating profit up 15% Operating leverage (13% EBIT drop through) Structural efficiencies & tight cost control

Performance driven by Germany, Italy & Netherlands

Cross selling up 20% CER to £10.6m Higher gross margins (c.+10ppts v CS GM)

Note: At constant exchange rates (CER)

Operating Review

Custom Supply division

16

£6.9m £7.2m

£5.3m £5.5m

£7.5m

£8.6m


UNDERLYING OPERATING PROFIT

£169m £176m£164m £165m £164m £173m

£7m £7m£7m £3m


REVENUE

Ongoing Discontinued


£139m record p/e order book CER +15% Organic +12% v FY18

High proportion of recurring revenues

Driven by New project design wins Repeat revenue growth


Operating Review

Record order book underpins FY20

17

£52m £50m£65m

£73m£85m

£109m£122m

£139m


Renewable energy

Transportation

DESIGN WINS

Creating future growth£266m in new project wins

(est lifetime value or ELV)

Represents 16% of current revenue

+40% increase on prior year

75% in target markets

(1) Estimated lifetime sales value of projects,

Operating Review

18

Medical

Industrial & Connectivity

£92m

£127m

£190m

£266m

FY16 FY17 FY18 FY19

Design wins - ELV(1) (£m)


Operating Review

Consistent, proven strategy

Sales growth well ahead of GDP over the economic

cycle

Move up the value chain into higher margin products

Acquire businesses with attractive growth prospects

and strong operating margins

Internationalise the business

19


Focused on growth markets Technology revolution driving new product development Global trends underpinning structural growth Applications necessitating increased electronic content Essential components for application-specific solutions

Transportation MedicalRenewable

EnergyIndustrial &

ConnectivityAutomotive circuit sales

expected to rise CAGR 13.4% (2016- 2021) IC Insights

Medical electronics to grow CAGR 6.8% (2017 -2022)

Research+Markets

Two thirds global investment in power

generation to 2040 will be into renewable energy

World Energy Outlook 2017

Overall market size for global machine-to-machine

connections to rise 13.2% CAGR (2016-2021)

Markets-and-Markets

20

Operating Review


Essential products into growth markets

Medical

Renewable Energy

Industrial & Connectivity

Charging Sensing systems Power control Cabin monitoring &

control

Increasing scale of wind turbines

Diversification of solar systems

Wireless telematics Fibre optic connectivity Communication technologies Wireless robotics control Power control

Monitoring & control Automation & robotics Advanced surgery

Electric vehicles Mass transit & route

vehicles Autonomous vehicles High speed railTransportation

discoverIEsolutionsMarket driversMega trends

Decarbonisation & Diversification

Electrification & Autonomous

vehicles

Connectivity, automation &

Industrial Internet of Things

Artificial intelligence, sensing & analytics

Power inductors Turbine blade pitch

control Airflow measurement

Embedded diagnostics Interface device & cabling Power systems

Automation & robotics ‘Smart factories’ Artificial intelligence Increasing electronic

content

Technology integration

Decarbonisation ‘Safety-centric’ agenda Mass transit & route

vehicles

Proactive & preventative medicine

Technological & biological fusion

Predictive analytics

Geopolitical consensus Growing public awareness Legislative and regulatory

regimes Cost of energy

Remote monitoring & control

Quality control Precision & automation

21

Operating Review


(1) As a percentage of Group revenue(2) Mid-term is a 3 to 5 year period starting in Nov 16(3) FY18 ROCE and cash flow restated for prior year adjustment

Repeat the performance in the next 5 years

85%

10%

40%

Long term

ambit ion

Operating Review

Good progress towards targets

22

Key Strategic Indicators Mid termTarget(2)

1. Increase share of Group revenue from D&M(1) 18% 37% 48% 52% 57% 61% 75%

2. Increase underlying operating margin 3.4% 4.9% 5.7% 5.9% 6.3% 7.0% 8.5%

3. Build sales beyond Europe(1) 5% 12% 17% 19% 19% 21% 30%

Key Performance Indicators 3 yr target(FY20)

1. Sales growth

CER 17% 36% 14% 6% 11% 14%

Organic 2% 3% 3% -1% 6% 8%

2. Increase cross-selling £0.3m £0.9m £3.0m £4.6m £8.8m £10.6m £12m p.a.

(was £10m)

3. Underlying EPS growth 20% 31% 10% 13% 16% 22% >10%

4. Dividend growth 10% 11% 6% 6% 6% 6% Progressive

5. ROCE 15.2% 12.0% 11.6% 13.0% 13.7%(3) 15.4% >15%

6. Operating cash flow 100% 104% 100% 136% 90%(3) 93% >85% of Op

profit

FY14

FY16

FY17

FY17FY14 FY18

FY18 FY19

FY19

Well ahead

of GDP

FY15

FY15

FY16


Recent acquisitions continue pace of development

23

Three high quality, higher margin niche businesses for £35m

Cursor Controls – acquired October 2018 Custom trackballs, trackpads & rugged keyboards Brings additional product capability & international

sales

Hobart Electronics – acquired April 2019 Custom magnetic components Builds presence in US Brings manufacturing in Mexico

Positek – acquired April 2019 Custom, high accuracy position sensors Brings additional sensor products & international

sales

Operating Review


14 D&M acquisitions, £187m spent since 2011 EBIT ROI of D&M acquisitions(1) of

20%, up from 17% in FY18 (v 15% target)

Consistent profitable growth from acquisitions

Acquisitions performing well

(1) ROI defined as operating profit attributable to the business over acquisition cost comprising up-front consideration, acquisition expenses, earn-out (once earned), and integration costs

(2)All D&M businesses included which were acquired more than 2yrs ago. Excludes recent acquisitions: Santon, Cursor Controls, Hobart Electronics and Positek.

Operating Review

24

115%

67%

31% 30% 30%25% 24%

12% 12%3%

20%

A B C D E F G H I J Overall

EBIT ROI(1) % of FY19

Target 15%


Business fundamentals

• Growth markets

• Designed-in products, difficult to replace

• Distinct business, competitive advantage

• Low customer concentration

• Good gross margin

• Low capital investment requirements

• Acquisitions at the right price

Attractive rewards

• GDP++ organic growth

• High levels of repeating revenue

• Sustainable margins

• Reduced risk

• Cash generative

• Self-funding growth

• Earnings accretion

Our business

Operating Review

25


Operating Review

Outlook

The new year has started well with the fundamentals in place for this to continue Record order book High level of design wins In-line with management’s expectations

Healthy acquisition pipeline

26

APPENDICES


Management believe the adjustments enable a better understanding of the underlying performance of the business

Adjustments made to IFRS results are:

Acquisition/disposal related costs (transaction costs, earn-outs, amortisation of acquired intangibles, gain or loss on acquisition or disposal, IAS 19 pension charge related to legacy scheme)

Exceptional items (restructuring, integration, one offs)

FY18 reported results restated for prior year adjustment:- £1.2m of the £4.0m fraud identified in FY19 was an

exceptional loss in FY18.

Appendix I

Underlying to IFRS reconciliation

28

FY19 (£m) UOP Excep. Acqs Amort IAS19 IFRS

Gross profit 145.0 145.0

S&D costs (57.6) (57.6)

Admin expenses (56.8) 0.2 (1.8) (5.9) (0.4) (64.7)

Operating profit 30.6 0.2 (1 .8) (5 .9) (0.4) 22.7

Net finance costs (3.4) (3.4)

Profit before tax 27.2 0.2 (1.8) (5.9) (0.4) 19.3

Taxation (6.7) 0.1 0.5 1.3 0.1 (4.7)

Profit after tax 20.5 0.3 (1 .3) (4.6) (0.3) 14.6


EPS 27.2p 19.4p

FY18 (£m) UOP Excep. Acqs Amort IAS19 IFRS

Gross profit 126.7 126.7

S&D costs (54.5) (54.5)

Admin expenses (47.7) (1.2) (0.8) (4.9) (0.3) (54.9)

Operating profit 24.5 (1 .2) (0.8) (4.9) (0.3) 17.3

Net finance costs (2.6) (0.1) (2.7)

Profit before tax 21.9 (1.2) (0.8) (4.9) (0.4) 14.6

Taxation (5.3) 0.2 1.0 0.1 (4.0)

Profit after tax 16.6 (1 .2) (0.6) (3.9) (0.3) 10.6


EPS 22.3p 14.2p


UNDERLYING ADJUSTMENTS (£m) NET ASSETS (£m)

Appendix II

Underlying adjustments & net assets

29

(1) FY18 exceptional items and net assets at 31 Mar 2018 restated for prior year adjustment

Net Assets

At 31 March 2018( 1) 126.8

Net profit after tax 14.6

Dividend paid (6.7)

Currency net assets - translation impact (1.1)

Gain on defined benefit scheme 0.1

Shares issued 0.1

Share-based payments (incl tax) 0.9

At 31 March 2019 134.7

FY19 FY18

Exceptional items(1) 0.2 (1.2)

Acquisition costs (1.8) (0.8)

Amortisation of acquired intangibles (5.9) (4.9)

Legacy pension - IAS19 (0.4) (0.4)

Underlying adjustments (7.9) (7.3 )

Tax impact of adjustments 2.0 1.3

After tax adjustments (5.9) (6.0)


(1) Cash flow for FY18 restated for prior year adjustment(2) Non-cash items are depreciation, amortisation and share based payments.(3) Operating cash flow as a percentage of underlying operating profit.(4) Free cash as a percentage of underlying profit after tax.

Appendix III

Cash flow & net debt

NET DEBT (£m) CASH FLOW (£m)

30

FY19 FY18(1 )

Underlying profit before tax 27.2 21.9

Finance costs 3.4 2.6

Non cash items(2) 6.4 4.8

Underlying EBITDA 37.0 29.3

Working capital (3.2) (2.9)

Capital expenditure (5.2) (4.3)

Operating cash f low 28.6 22.1

Finance costs (3.4) (2.6)

Taxation (3.8) (3.7)

Free cash 21.4 15 .8 Target

Operating cash flow %(3) 93% 90% 85%

Free cash flow %(4) 104% 95% 90%

FY19 FY18

Net debt at 1 Apri l (52.4) (30.0)

Free cash flow 21.4 15.8

Acquisition related cash flow (24.2) (25.4)

Executive options issuance (1.6) -

Net settlement expense - (1.5)

Equity issuance 0.1 -

Net exceptional receipt 1.1 (3.0)

Legacy pension (1.7) (1.7)

Dividends (6.7) (6.2)

Foreign exchange impact 0.7 (0.4)

Net debt at 31 March (63.3) (52.4)


Translation effects

Sterling weakened significantly in FY17 and FY18 but rose against Nordic currencies during FY19 impacting the Group on translation of overseas results into Sterling by c1%.

c.85% of Group revenues are non-UK (mainly € and Nordic).

Translation impact for FY19: Sales £3.9m Underlying operating profit £0.3m

(1) Nordic rate is a weighted average combination of £/NOK, £/SEK and £/DKK rates based on Group sales in each territory.

Operational effects

Sterling weakened significantly against US$ in FY17. Although strengthening throughout FY18, weakened again during FY19, and still remains well below the FY16 average rate.

Approximately 90% of UK cost of goods are non-Sterling, so impacts on purchase pricing .

The Group hedges material transactional exposures for around six months. Protects GM at FX rate at time of order.

Appendix IV

Foreign exchange effects

31

£/€ £/Nordic (1)

FY19 v FY18 0% 4%

FY18 v FY17 -5% -2%

FY17 v FY16 -13% -12%

£/$

FY19 v FY18 -1%

FY18 v FY17 1%

FY17 v FY16 -13%


Opex %

Gross margin %

Operating costs down 0.4ppts Improving operating efficiency Lowest ratio since new strategy began

Operating margin % Operating margin of 7.0% 0.7ppts improvement from FY18 Up 3.6ppts in 5 years Towards mid-term target of 8.5%

Efficiency drives operating margin

32

GM back to its highest level Impact of weaker sterling v $ rates on

import costs in FY 18, reversed with better pricing

Appendix V

FY14

FY15

FY16

FY17

FY18

FY19

29.8%

31.1%

32.2%

32.8%

32.7%

33.0%

FY14

FY15

FY16

FY17

FY18

FY19

3.4%

4.9%

5.7%

5.9%

6.3%

7.0%

FY14

FY15

FY16

FY17

FY18

FY19

26.4%

26.2%

26.5%

26.9%

26.4%

26.0%


Similar WC/sales ratio to last year 14.3% of annualised Q4 sales (v 14.4% LY) Reflects increasing proportion of D&M

(D&M WC at 19% of sales, CS WC at 10% of sales)

WC up £3.7m organically in LTM Strong organic growth in Q4 of 8%

(£35m annualised sales) = 9% WC rate. well below Group average

(1) Cash to cash cycle (C2C) is the average net number of days from remitting cash to suppliers to receipt of cash from customers (stock days – creditor days + debtor days)(2) Working capital is defined as net inventory, trade & other receivables and trade & other payables. Unallocated working capital is not represented in this chart.

33

Working capital efficiencies

Appendix VI

£21mC2C 42

£19mC2C 35

£17mC2C 41

£18mC2C 33

£37mC2C 93

£39mC2C 83

£51mC2C 93

£54mC2C 83

18 .7%13.9% 14.4% 14.3%

48%52%

57%61%

FY16 FY17 FY18 FY19

WORKING CAPITAL(2)

CS D&M Group SWC% Sales D&M Sales%


Case study: Our unique solutions for Renewable energy

Power inductors

Pitch controllerAirflow measurement

Strong and trusted customer relationships across supply chain Providing innovation-led, bespoke solutions to essential customer requirements Multi-year design cycles provide strong visibility & recurring revenues Complementary technologies create cross-selling opportunities

34

Appendix VII

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