05 December 2023
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Strong operating profit growth and progress towards margin targets

discoverIE Group plc (LSE: DSCV, "discoverIE" or "the Group"), a leading international designer and manufacturer of customised electronics to industry, today announces its interim results for the six month period ended 30 September 2023 ("H1 2023/24" or "the Period").

H1 2023/24

H1 2022/23

Growth %

CER(3) growth %

Revenue(1)

£222.0m

£222.6m

+0%

+4%

Underlying operating profit(2)

£28.6m

£25.6m

+12%

+17%

Underlying operating margin(1,2)

12.9%

11.5%

+1.4ppts

+1.4ppts

Underlying profit before tax(2)

£25.1m

£23.5m

+7%

Underlying EPS(2)

19.2p

17.8p

+8%

Reported profit before tax

£16.0m

£14.8m

+8%

Reported fully diluted EPS

11.7p

10.9p

+7%

Interim dividend per share

3.75p

3.55p

+6%

Highlights:

  • Sales growth with operating efficiencies driving strong first half results
    • Group sales up 4% CER on strong comparators (+23% CER last year)
    • Organic(4) sales up 1% (M&C: +2%; S&C: +1%)
    • Gross margins robust and significant operational efficiencies
    • Underlying operating profit up 17% CER
    • Underlying EPS up 8%

  • Further good progress towards key targets
    • Underlying operating margin increased by 1.4ppts to 12.9%
    • Operating cash flow for the last 12 months up 36% with a 91% conversion rate(5)
    • ROCE(6) of 15.1%, in line with target
    • Carbon emissions reduced by c.45% in absolute terms since CY 2021(7)
  • Supply chain, order book and lead times normalised
    • Period end order book of £203m, c.5 months of sales, provides good forward visibility
  • Excellent acquisition returns of 19.2% EBIT ROI(8) demonstrate value creation
  • Two high-margin acquisitions completed for £65m
    • 2J and Silvertel integrations underway and progressing as planned
    • Period-end gearing(9) of 1.6x at lower end of target range 1.5x to 2.0x
  • Group well positioned for further growth
    • Record bank of design wins (up 23% to £190m ELV(10)), with significant further opportunities
    • Strong acquisition pipeline
    • On track to deliver full year underlying earnings in line with the Board's expectations

Nick Jefferies, Group Chief Executive, commented:

"discoverIE performed well in the first half. Our operational focus and sustained strong sales levels, which follows two years of growth at over 20% per year, delivered significant efficiencies with underlying operating profit increasing by 17% at constant exchange rates. We are making excellent progress towards our margin targets with a 1.4ppts increase in underlying operating margin, reflecting the leverage in our technology clusters, that is enabling efficiencies and creating value from acquisitions.

"As expected, the order book ended the Period at c.5 months of sales, almost back to historic normsand the book-to-bill ratio is improving indicating that the supply chain inventory correction in our markets is largely complete.Since the period end orders have continued to strengthen being ahead of sales and growing organically over last year.

"The returns generated from our acquisitions exceed, increasingly over time, our cost of capital and demonstrate the value creation of long-term compounding organic growth with integration efficiencies. Over two-thirds of the Group's operating profit growth over the last 12 years was generated from the organic growth of our businesses since their acquisition and integration. We are well positioned to continue this proven approach and remain a consolidator in a fragmented market for customised industrial electronics.

"Additionally, our capital light model is highly cash generative; over the last 12 months, operating cash flow increased by 36% to £50m, a 91% conversion rate supporting further self-funding of acquisitions.

"We are focused on generating organic growth in sustainable markets, enhanced by earnings accretive acquisitions, and to this end our design wins and our acquisition pipeline are stronger than ever.

"The Group is well positioned to continue making good progressandremains on track to deliver full year underlying earnings in line with the Board's expectations."


Analyst and investor presentation:

A results briefing for sell side analysts and investors will be held today at 9.30am (UK time) at the offices of Peel Hunt, which is accessible via live webcast on https://brrmedia.news/DSCV_HYR

If you would like to join in person, please contact Buchanan at [email protected].

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

[email protected]

Notes:

(1) Revenue for H1 2022/23 and the related underlying operating margin have been restated to include £2.9m of one-off increase in semiconductor costs at nil margin passed through to customers. £5m of similar costs passed through to customers were included in revenue for FY 2022/23. See note 2 of the attached condensed consolidated interim financial statements.

(2) 'Underlying Operating Profit', 'Underlying Operating Margin", 'Underlying EBITDA', 'Underlying Profit before Tax' and 'Underlying EPS' are non-IFRS financial measures used by the Directors to assess the underlying performance of the Group. These measures exclude acquisition-related costs (amortisation of acquired intangible assets of £7.7m and acquisition expenses of £1.4m) totalling £9.1m. Equivalent underlying adjustments within the H1 2022/23 underlying results totalled £8.7m. For further information, see note 7 of the attached condensed consolidated interim financial statements.

(3) Growth rates at constant exchange rates ("CER"). The average Sterling rate of exchange weakened 2% against the Euro compared with the average rate for the same period last year whilst strengthening 9% on average against the three Nordic currencies and 3% against the US Dollar.

(4) Organic growth for the Group compared with last year is calculated at CER and is shown excluding the first 12 months of acquisitions post completion (CDT in June 2022, Magnasphere in January 2023, Silvertel in August 2023 and 2J in September 2023).

(5) Operating cash flow is cash flow from operations including investment in working capital and capital expenditure.

(6) ROCE is defined as annualised H1 2023/24 underlying operating profit including the annualisation of acquisitions, as a percentage of net assets excluding net debt, deferred consideration related to discontinued operations and legacy defined benefit pension asset/(liability).

(7) CY 2025 target is to reduce scope 1 & 2 carbon emissions by 65% on an absolute basis (base year CY 2021).

(8) EBIT ROI for acquisitions is the total annualised H1 2023/24 underlying operating profit for each business owned for greater than two years divided by total cost of those acquisitions including acquisition expenses, earn outs (as accrued) and integration costs.

(9) Gearing ratio is defined as net debt divided by underlying EBITDA (excluding IFRS 16; annualised for acquisitions).

(10) ELV is estimated lifetime value

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

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


Notes to Editors:

About discoverIE Group plc

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

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

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

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

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

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discoverIE Group plc published this content on 05 December 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 December 2023 07:50:40 UTC.