discoverIE Group - Strategy Delivering Further …/media/Files/D/Discoverie...discoverIE Group plc Interim results FY20 –28th November 2019 Underlying operating profit up 22% CER

Interim results FY20 – 28th November 2019discoverIE Group plc

Interim resultsHalf year ended 30th September 2019

28th November 2019

Strategy Delivering Further Strong Growth


A good first half

Group sales up 10%, organic +5% Design & Manufacturing organic +7%

Record order book +15%

Underlying operating profit +22%

Underlying EPS +11%

Excellent cash conversion – 101% of operating profits

Since the half year end – the acquisition of Sens-Tech for £58m

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Interim results FY20 – 28th November 2019discoverIE Group plcdiscoverIE Group plc

From FY13 to FY18:

Sales(1) 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(4) FY20 consensus

From FY19 our aim has been to double underlying EPS again in 5 yrs

FY19 EPS up 22%

H1 20 EPS up 11%

We aim to provide investors with

Returns of 15 – 20% pa

A progressive dividend

Growth Company

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(4)

(4)


FINANCIAL REVIEW


Increasing operating margin Up 0.8ppts to 7.6%

Excellent cash performance Operating cash flow up 48% to

£33.8m in last 12 months

101% operating cash conversion

Growing ROCE(2)

Up 1.0ppts to 15.8%

(1) Underlying measures exclude acquisition-related costs (see Appendices I & II)(2) ROCE is underlying operating profit as a percentage of net assets plus net debt

Financial Review

Strong first half performance

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H1 20 H1 19 GrowthCER

Growth

Revenue £232.0m £211.7m +10% +9%

Underlying operating profit(1) £17.7m £14.5m +22% +22%

Underlying profit before tax(1) £15.6m £12.9m +21%

Underlying EPS(1) 14.4p 13.0p +11%

Reported fully diluted EPS 9.1p 7.1p +28%

Interim dividend per share 2.97p 2.80p +6%


Revenue up 132% in 6 years (15% CAGR)

Financial Review

Consistent Revenue Growth

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Growth H1 20

Organic(1) 5%

Acq 4%

CER 9%

Currency 1%

Actual 10%

(1) Organic sales growth excludes the first 12 months of acquisitions.


Underlying operating profit(1) of £17.7m Up £3.2m on H1 19 (+22% reported &

CER)

26% CAGR in last 3 years

Underlying operating margin of 7.6% Up 0.8ppts on H1 19

Up 4.8ppts in 6yrs

Acquisition of Sens-Tech increases Group margin to 8.4% pro forma

Good progress towards 8.5% target(2)

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

Financial Review

Growing profit and margin

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Underlying operating profit up 22% CER

Organic revenue growth of 5%

Gross margin up 0.4ppts to 33.4% Reduced 0.4ppts organically

Opex at 25.8% of sales, the lowest level since strategy began.

Continued investment in commercial and manufacturing capability to support future growth

Acquisition contributions from Cursor Controls, Hobart and Positek

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

Financial Review

Profit increase driven by organic growth and acquisitions

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(1) EBIT is underlying operating profit(2) Organic sales growth excludes the first 12 months of acquisitions.

Financial Review

CUSTOM SUPPLY

DESIGN & MANUFACTURING

Profit growth across both divisions…

Operating profit up 24% CER Margin up 0.9ppts to 12.0%

Operating profit up 5% CER Margin up 0.2ppts to 4.8%

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£m

D&M 146.6 17.6 12.0% 128.2 14.2 11.1% 15% 14% 7% 24%

Custom Supply 85.4 4.1 4.8% 83.9 3.9 4.6% 2% 2% 0% 5%

Unallocated (4.0) (3.6)

Total (CER) 232.0 17.7 7.6% 212.1 14.5 6.8% 10% 9% 5% 22%

FX (0.4) (0.0)

Total (reported) 232.0 17.7 7.6% 211.7 14.5 6.8%

Revenue EBIT ( 1)

EBIT

growth

%

Revenue growth

Organic(2)% Actual CER

H1 19 (CER)

Revenue EBIT ( 1) %

H1 20


Underlying PBT up 21%

Underlying EPS up 11% to 14.4p Up c.200% in 6yrs (20% CAGR)

Reported EPS up 28% to 9.1p

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

Financial Review

… driving further EPS growth

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£m H1 20 H1 19 Growth

Underlying operating profit(1) 17.7 14.5 22%

Finance costs(1) (2.1) (1.6)

Underlying PBT(1) 15.6 12.9 21%

Effective tax rate 24% 25%

Underlying PAT(1) 11.9 9.7 23%

Fully diluted shares (m) 82.5 74.5 11%

Underlying EPS (p)(1) 14.4p 13.0p 11%

Reported PBT 10.4 7.8 33%

Reported diluted EPS (p) 9.1p 7.1p 28%


Strong operating cash flow(1)

£33.8m for last 12 months, up 48% 101% of underlying operating profit Consistently high conversion rate over

the last 7 years.

Net debt at 30 Sep 19 of £55.4m

£18.9m reduction since last year (ex acquisitions and equity placing)

Gearing(2) of 1.3x (target range 1.5x – 2.0x) Proforma gearing of 1.6x (after Sens-Tech)

Revolving credit facility of £180m

Plus £60m accordion; term to Jun 23 (with option to extend to Jun 24)

Available for acquisitions and working capital

(1) Operating cash flow defined as EBITDA less working capital, capex and IFRS 16 depreciation charge – see Appendix III(2) Net debt at 30 Sep 19 as a ratio of adjusted EBITDA (Group underlying EBITDA for last 12 months adjusted for a full year of the underlying EBITDA from acquisitions).

OPERATING CASH FLOW(1)

over last 12 months (£m)

Financial Review

Excellent cash conversion

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H1 14 H1 15 H1 16 H1 17 H1 18 H1 19 H1 20 Target

100% 104% 106% 107% 95% 84% 101% 85%% Underlying

Operating Profit


Interim dividend up 6% 88% growth HY dividend in 9yrs

7.2% CAGR

Maintaining progressive policy To exceed 3.0x cover (underlying)

FY19: 2.8x cover (underlying) and 2.0x cover (reported)

Financial Review

Increasing dividend

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OPERATING REVIEW


Good organic growth Sales +7% Orders +8%

Operating leverage Operating profit up 24%

Expansion in China completed Magnetics (+3.6k sqm)

Expanding Bangalore facility

Minimal effects from US/China tariffs Only £2.8m sales subject to tariffs Moving this production to India &

Sri Lanka

Management development & succession underway

Investment in system upgrades

Note: At constant exchange rates (CER)

Operating Review

Design & Manufacturing division

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Growth H1 20

Organic 7%

Acquisitions 7%

CER 14%

Currency 1%

Actual 15%


Widespread organic growth

(1) H1 20 sales by destination.

Operating Review

Strong D&M organic growth

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(1) Sales growth excluding acquisitions. (2) Target markets are renewable energy, transportation, medical and industrial & connectivity

Operating Review

Target markets leading D&M growth

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Recent acquisitions continue pace of development

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3 high quality, higher margin niche businesses for £74m

Sens-Tech – acquired Oct 19

X-ray and optical detection modules

Brings additional product capability & international sales

Hobart Electronics – acquired Apr 19 Custom magnetic components Builds presence in US Brings manufacturing in Mexico Bolt-on acquisition for Noratel

Positek – acquired Apr 19 Custom, high accuracy position sensors Brings additional sensor products &

international sales Bolt-on acquisition for Variohm

Operating Review


Organic sales level with prior year

Lower proportion of revenue in target markets

Strong growth in Italy and Benelux UK and Germany both down

Operating efficiencies generate leverage Operating profit up 5% Operating margin up 0.2ppts to 4.8%

Integration of RSG power business

Cross selling up 13% to £5.4m CER Higher gross margins (c.+10ppts v CS GM)

Note: At constant exchange rates (CER)

Operating Review

Custom Supply division

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£153m record p/e order book

CER +15%

Organic +11%

High proportion of recurring revenues

Driven by

New project design wins

Repeat revenue growth

Operating Review

Record order book underpins H2

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Renewable energy

Transportation

DESIGN WINS

High level of design wins will drive future growth £134m in new project wins

(est lifetime value or ELV)

15% of current revenue

+6% increase on prior year

80% in target markets (90% in D&M)

(1) Estimated lifetime sales value of projects

Operating Review

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Medical

Industrial & Connectivity


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

Further internationalise the business

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Focused on growth markets Technology driving new product development

Global trends underpinning structural growth

Increased electronic content

Essential products

Transportation MedicalRenewable

EnergyIndustrial &

ConnectivitySmart transportation market to grow 18.7% CAGR globally

(2019-24) Research & Markets

Medical electronics to grow 8% CAGR (2018 -2024)

TechSci Research

70% of growth in global electricity production (2017-23) will be into renewable

energyInternational Energy Agency

Industrial market for Semiconductors to grow 10.8% CAGR (2018-22); IoT market to

grow 18.7% CAGR 2019-24Markets-and-Markets

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Operating Review


Key Strategic Indicators Mid termTarget (2)

1. Increase share of Group revenue from D&M(1) 18% 37% 48% 52% 57% 61% 63% 75%7%

2. Increase underlying operating margin 3.4% 4.9% 5.7% 5.9% 6.3% 7.0% 7.6% 8.5%

3. Build sales beyond Europe(1) 5% 12% 17% 19% 23% 21% 24% 30%

Key Performance Indicators

1. Sales growth

CER 17% 36% 14% 6% 11% 14% 9%

Organic 2% 3% 3% -1% 6% 8% 5%

2. Increase cross-selling £0.3m £0.9m £3.0m £4.6m £8.8m £9.7m(3) £10.8m(3)£12m p.a.

(was £10m)

3. Underlying EPS growth 20% 31% 10% 13% 16% 22% 11% >10%

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

5. ROCE 15.2% 12.0% 11.6% 13.0% 13.5% 15.4% 15.8% >15%

6. Operating cash flow 100% 104% 100% 136% 85% 93% 101% >85% of Op

profit

FY16 FY17 FY18

FY14 FY15 FY16

FY14 FY15

Well ahead

of GDP

FY19

FY19

FY17 FY18 H1 20

H1 203 yr target

(FY20)

Positive development on all key metrics

Key Strategic Indicators Mid termTarget (2)

1. Increase share of Group revenue from D&M(1) 18% 37% 48% 52% 57% 61% 75% 85%

2. Increase underlying operating margin 3.4% 4.9% 5.7% 5.9% 6.3% 6.8% 8.5% 10%

3. Build sales beyond Europe(1) 5% 12% 17% 19% 23% 30% 40%

Key Performance Indicators 3 yr target

(FY20)

1. Sales growth(1)

CER 17% 36% 14% 6% 11% 13%

Organic 2% 3% 3% -1% 6% 4%

2. Increase cross-selling £0.3m £0.9m £3.0m £4.6m £8.8m £9.7m(3) £10m p.a.

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

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

5. ROCE(4) 15.2% 12.0% 11.6% 13.0% 13.5%(5) >15%

6. Operating cash flow(4) 100% 104% 100% 136% 85% >85% of Op

profit

Long term

ambit ion

Well ahead

of GDP

H1 19

H1 19

FY17 FY18

FY16 FY17 FY18

FY14 FY15 FY16

FY14 FY15

Operating Review

Good progress towards targets

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(1) As a proportion of Group revenue(2) Mid term is a 3 to 5 year period starting in Nov 16(3) Annualised sales (H1 20: £5,4m, H1 19: £4.8m CER).


Business fundamentals

Growth markets

Designed-in products, difficult to replace

Distinct business, competitive advantage

Low customer concentration

Design, not price led

Low capital requirements

Acquisitions at the right price

Attractive rewards

GDP++ organic growth

High levels of repeating revenue

Sustainable margins

Reduced risk

Good gross margins

Cash generative

Earnings accretion

Our business

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Operating Review

Outlook

The fundamentals are in place for continued development Target markets outperforming wider market Record order book High level of design wins

On track to deliver full year earnings in line with our expectations

Healthy acquisition pipeline

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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, integration 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, one offs)

Appendix I

Underlying to IFRS reconciliation

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(1) Restated – see note 2 of the accounting statements


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

Appendix II

Underlying adjustments & net assets

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H1 20 H1 19

Acquisition costs (1.4) (0.4)

Exceptional items - (1.5)

Amortisation of acquired intangibles (3.6) (2.9)

Legacy pension - IAS19 (0.2) (0.3)

Underlying adjustments (5.2) (5.1)

Tax impact of adjustments 0.8 0.7

After tax adjustments (4.4) (4.3)

Net Assets

At 31 March 2019 134.7

Net profit after tax 7.5

Dividend paid (5.4)

Currency net assets - translation impact 3.0

Gain on defined benefit scheme 0.2

Equity issued 28.2

Share-based payments (incl tax) 0.6

At 30 September 2019 168.8


(1) Non-cash items are depreciation, amortisation and share based payments. Includes £3.1m for IFRS 16 depreciation in H1 2019/20

(2) Operating cash flow as a percentage of underlying operating profit.(3) Free cash as a percentage of underlying profit after tax.

Appendix III

Cash flow & net debt NET DEBT (£m) CASH FLOW (£m)

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H1 20 H1 19

Underlying profit before tax 15.6 12.9 29.9

Finance costs 2.2 1.6 4.0

Non cash items(1) 6.4 3.0 9.8

Underlying EBITDA 24.2 17.5 43.7

Working capital (8.5) (11.6) (0.1)

Capital expenditure (3.2) (1.9) (6.5)

IFRS16 (3.3) - (3.3)

Operating cash flow 9.2 4.0 33.8

Finance costs (1.9) (1.6) (3.7)

Taxation (2.1) (1.7) (4.2)

Free cash 5.2 0.7 25.9 Target

Operating cash flow %(2)101% 85%

Free cash flow %(3)114% 90%

Last 12

mths


Translation effects

Sterling weakened significantly in FY17 and FY18 and slightly weakened overall in FY 19 and H1 20 (the latter impacting the Group on translation of overseas sales into Sterling by c1%)

c.87% of Group revenues are non-UK (mainly €, Nordic and US$).

Translation impact for H1 20: Sales +£0.4m Underlying operating profit +c£40k

H2 impact v H1 average rates 1% strengthening of £ reduces sales by c.£2m

and EBIT by c.£0.2m

(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 and again in H1 20.

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

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£/$

H1 20 v H1 19 -6%

FY19 vs FY 18 -1%

FY18 vs FY 17 1%

FY17 vs FY 16 -13%

£/€ £/Nordic(1)

H1 20 v H1 19 0% 2%

FY19 vs FY 18 0% 4%

FY18 vs FY 17 -5% -2%

FY17 vs FY 16 -13% -12%


Opex %

Gross margin %

Operating costs 0.4ppts lower

Strong cost control across both divisions

Operating margin % Operating margin of 7.6%

0.8ppts improvement from H1 19

Up 4.8ppts in 6 years

Towards mid-term target of 8.5%

Efficiency drives operating margin

30

GM up to its highest level

Stable GM in existing business with strong margin maintained in acquisitions

Appendix V


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 AI communication Wireless robotics 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 & 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

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

Operational efficiency and flexibility

Quality control Competition from

Technology companies

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Appendix VI

Documents

discoverIE Group - Strategy Delivering Further …/media/Files/D/Discoverie...discoverIE Group plc Interim results FY20 –28th November 2019 Underlying operating profit up 22% CER