DiscoverIE : Annual Report and Accounts 2022

Enabling technology for a sustainable world

discoverIE Group plc

Annual Report and Accounts for the year ended 31 March 2022

CONTENTS

Strategic Report

Highlights

Investment Case

Group at a Glance

Chairman's Statement

Our Business Model

Market Review

Our Strategy

Our Strategy in Action

Key Strategic Indicators

Key Performance Indicators

Strategic and Operational Review

Financial Review

Risk Management

Viability Statement

Principal Risks and Uncertainties

Sustainability Report

Stakeholder Engagement

Non-financial Information Statement

Section 172 Statement

Corporate Governance

The Board

The Group Executive Committee

Corporate Governance Report

Audit and Risk Committee Report

Nomination Committee Report

Directors' Report

Directors' Remuneration Report

Statement of Directors'

Responsibilities in Respect of the

Financial Statements

Financial Statements

Independent Auditor's Report to the members of discoverIE Group plc

Consolidated Income Statement

Supplementary Income Statement Information

Consolidated Statement

of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Group Financial Statements

Company Balance Sheet

Company Statement

of Changes in Equity

Notes to the Company Financial Statements

Additional Information

Five Year Record

Principal Locations

Financial Calendar 2022/23

Corporate Information

	WELCOME TO THE 2022
03	ANNUAL REPORT
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10
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16	discoverIE is an international
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20	leading designer and
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25	manufacturer of customised
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42	electronics for industrial
36	applications. We create innovative
54
52	electronics that deliver value to our
75
60	customers, while making positive
78
79	impacts on the environment,
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society and people's lives.
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86
97
104
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215
	Visit our investor website
218	www.discoverIEplc.com
219	It contains a wide range of information of interest to institutional and
220
private investors including:
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■ Latest news and press releases
	■ Reports and presentations

Strategic Report

Our vision is to be a leading innovator in electronics, internationally.

Over the past 11 years, we have transformed from a European distribution business to an electronic engineering, design and manufacturing group with our own product development and a global manufacturing footprint.

We aim to go further, to become the world's leading innovator in customised electronics by continuing to build capabilities and strengthen our presence beyond Europe.

The change of	We target	We're	Our strategy
business model	markets that	committed	of focusing on
enables us to	are exhibiting	to making a	sustainable
move up the	structural	positive impact	growth markets,
value chain and	growth and	through our	bolstered
improve our	are driven by	operations and	by earnings
margins	technology	our products	enhancing
			acquisitions,
			has enabled
			us to achieve
Read more on	Read more on	Read more on	substantial
Our Journey	Our Markets	Sustainability	growth
Page 05	Page 16	Page 60
			Read more on
Read more on			Our Strategy
		Page 18
Our Business
Model

Page 14

Read more on

Corporate Governance

Page 86

Annual Report and Accounts for the year ended 31 March 2022	01

Strategic Report

HIGHLIGHTS

REVENUE1

£379.2m

(FY21: £302.8m)

+25%

UNDERLYING EPS1 2

29.4p

(FY21: 22.4p)

+31%

REPORTED FULLY DILUTED EPS

26.3p

(FY21: 13p)

+102%

UNDERLYING OPERATING PROFIT1 2

£41.4m

(FY21: £30.8m)

+34%

REPORTED OPERATING PROFIT1

£20.9m

(FY21: £17.1m)

+22%

FULL YEAR DIVIDEND PER SHARE

10.8p

(FY21: 10.15p)

+6%

"This has been a year of record growth, with excellent progress towards our key strategic targets."

Nick Jefferies

Group Chief Executive

Notes

1	These figures relate to continuing operations.
	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	'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

Record growth in orders & sales driven by focus on structurally growing target markets

• 76% of sales into UNSDG aligned sectors of renewables, medical, transport, industrial & connectivity
• Organic3 orders: +36% (v FY 2020/21) and +32% (v pre-Covid period FY 2019/20)
• Organic sales: +18% (v FY 2020/21) and +14% (v FY 2019/20)
• Total sales +25% (v FY 2020/21) and +25% (v FY 2019/20)

Delivering strong financial performance

• Underlying operating profit from continuing operations: +34%
• Underlying EPS from continuing operations: +31%

Excellent progress towards key strategic targets

• Underlying operating margin increased by 0.7ppts to 10.9% (target: 13.5%)
• Like-for-likecarbon emissions4 reduced by 33% since CY 2019 (v 50% target by 2025)

• Free cash conversion5 over two years of 102% of net profit (v 85% target)

Three international acquisitions completed for £85m, well supported equity placing for net £53m

• Beacon, Antenova and CPI; now fully integrated

Sale of Acal BFi completes exit from the business of distribution

• Continuing operations1 arranged into two new divisions: Magnetics & Controls ("M&C") and Sensing & Connectivity ("S&C")

Group well positioned for further growth

• Record order book of £224m (organic: +62% v Mar 2021; +71% v Mar 2020)
• Pipeline of acquisition opportunities in development
• Gearing6 of 0.6x, well below our target of 1.5x to 2.0x; significant funding headroom available
• New financial year started well
  - continued strong organic revenue growth

	of acquired intangible assets of £14.0m and
	acquisition expenses of £6.5m) totalling £20.5m.
	Equivalent underlying adjustments within the FY
	2020/21 underlying results totalled £13.7m.
3	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.
4	Target is for Scope 1 and Scope 2 carbon emissions
	and is based on an intensity measure of tonnes
	of CO2 equivalent per £m revenue (tco2e/£m
	revenue). Historic figures have been adjusted to
	exclude disposals in FY 2021/22 and acquisitions
	completed in the last 12 months.
5	Free cash flow is cash flow before dividends,
	acquisitions, disposals and equity issuance. Free
	cash flow conversion rate of 136% of net profit in FY
	2020/21 (linked to an inflow of working capital with
	organic sales down 4%). 77% in FY 2021/22 (linked to
	an outflow of working capital with organic sales up
	18%) giving 102% for the 2 year period (with organic
	sales up 14%).
6	Gearing ratio is defined as net debt divided by
	underlying EBITDA (annualised for acquisitions).
7	Growth rates for the period FY 2017/18 to FY 2021/22
	excludes the Covid year FY 2021/22 so the growth
	from FY 2019/20 to FY 2021/22 is treated as one year.
8	Unless stated, growth rates refer to the comparable
	prior year period.

02	discoverIE Group plc Innovative Electronics

INVESTMENT CASE

Sustainable growth markets

Increasing electronic content and electrification of products and processes drives demand for electrical and electronic components. We prioritise four markets with structural, sustainable growth.

Predicted growth in	Target markets:
our target markets	Renewable energy,
7-12% p.a
Transportation,
	Medical, and Industrial
	and Connectivity

Strategic Report

Differentiated product offering

Customised electronic solutions based on commercially proven technologies, designed to meet customers' unique requirements. We manufacture and supply the components throughout the life of the end products.

Longest customer	Long lasting
relationship	customer
30+ years	relationships and
stable, recurring
	revenue

Proven strategy for growth

Grow well ahead of GDP through the economic cycle by focusing on target markets and an expanding product offering, bolstered by earnings enhancing acquisitions. Proven track record of delivering strategic and financial targets.

Strong financials

Sustainable, profitable growth and excellent cash generation. The strong balance sheet with a gearing of well below our 1.5x - 2x target allows ample headroom for further acquisitions.

Consistent shareholder return

Disciplined capital allocation with a track record of value enhancing acquisitions drive capital appreciation and progressive dividends.

Revenue	Underlying operating	Free cash flow
growth1 of	profit growth1 of	conversion2 of
38%	28%	116%
CAGR from	CAGR from	on average over
FY 2014-FY 2022	FY 2018-FY 2022	four years to
		FY 2022

Read more in Our Business Model on pages 14 to 15

Dividend	Total shareholder
growth of	return3 of
6%	515%
CAGR
FY 2012-FY 2022	FY 2012-FY 2022

1. Design and manufacturing businesses only; excludes Custom Supply business which was sold in March 2022.
2. Free cash flow conversion is defined as net cash flow before dividend payments, net proceeds from equity fund raising, acquisition costs and business disposal proceeds divided by underlying profit after tax.
3. Share price of last trading day of the year and dividend of the year.

Annual Report and Accounts for the year ended 31 March 2022	03