REG - discoverIE Group plc - Preliminary results
05/06/2024 07:00
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RNS Number : 1034R discoverIE Group plc 05 June 2024
5 JUNE 2024
discoverIE Group plc
Preliminary results for the year ended 31 March 2024
Strong growth in underlying operating profit and margin, with excellent cash
flow.
Expectations for the new year unchanged.
discoverIE Group plc (LSE: DSCV, "discoverIE" or the "Group"), a leading international designer and manufacturer of customised electronics to industry, today announces its results for the year ended 31 March 2024 ("FY 2023/24" or the "year").
FY 2023/24 FY 2022/23 Growth % CER((2)) growth %
Revenue £437.0m £448.9m -3% +1%
Underlying operating profit((1)) £57.2m £51.8m +10% +16%
Underlying operating margin((1)) 13.1% 11.5% +1.6ppts +1.7ppts
Underlying profit before tax((1)) £48.2m £46.3m +4%
Underlying EPS((1)) 36.8p 35.2p +5%
Reported profit before tax £22.2m £29.1m -24%
Reported fully diluted EPS 15.8p 21.7p -27%
Full year dividend per share 12.0p 11.45p +5%
Highlights
· Strong through cycle growth with efficiencies
o Group revenue up 1% CER after adjusting for pass-through costs, a 3%
reduction on a statutory basis against strong comparators (sales increased by
+48% over prior 2 years)
o Operating efficiencies improve margins and more than offset a 1% reduction
in organic sales((3))
o Strong double-digit organic sales growth in medical, renewable and
transportation markets offset by short-term destocking in industrial
automation
o Underlying operating profit up 16% CER
· Underlying EPS +5% reflecting higher interest costs and foreign
exchange movements
o EPS ahead of top end of consensus range
o Group will benefit from reducing interest rates
· Further good progress towards key targets
o Record underlying operating margin of 13.1%, up 1.6ppts, a significant
step towards achieving targets of 13.5% in the year ahead and 15% over the
medium term
o Underlying operating cash flow up 22% with a 103% conversion rate((4))
o ROCE((5)) of 15.7%, ahead of target, reflecting disciplined growth
investment
o ROTCE((6)) of 54% reflects capital-light business
o Carbon emissions reduced by 47% in absolute terms since CY 2021((7))
· Reported PBT reduced by 24% due to the timing of a non-core
disposal
o Costs associated with the sale of the Santon solar business unit included
in these results with net cash proceeds of c.£7m to be recognised in FY
2024/25
· Five higher-margin acquisitions completed for £83m
o 2J and Silvertel integrations progressing well
o Three smaller bolt-ons in the second half for an average mid-single digit
EBIT multiple
o Year-end gearing((8)) of 1.5x, at the lower end of the target range of
1.5x to 2.0x
· Group well positioned for growth
o Strong bank of design wins to drive future recurring sales (up 23% to
£337m ELV((9)))
o Order book of c.4.5 months provides good visibility
o Strong pipeline of acquisition opportunities and identified targets
· Positive outlook with expectations for the full year unchanged
o Q1 trading in line with Board expectations against a tough comparator with
first half sales expected to be ahead sequentially
o Order book supports an anticipated normal seasonal weighting to results
Nick Jefferies, Group Chief Executive, commented:
"Over the past three years, the underlying profitability of the business has
nearly doubled on revenues that have increased by almost 50% as the
combination of organic growth with efficiencies and higher margin acquisitions
came through. This year's results reflect another strong performance against a
tougher trading backdrop, with good growth in underlying operating profits and
margin, as well as underlying earnings per share. Revenues in our
Transportation, Renewable and Medical markets delivered strong organic growth
whilst Industrial & Connectivity declined as a result of customer
destocking.
Cash generation has again been strong reflecting both the high quality of
earnings and the capital-light nature of the business. Naturally, higher
interest rates have taken effect although we will see the corresponding
benefit if and when rates reduce.
Underlying operating profit grew by 16% at constant exchange rates with
underlying operating margin increasing by 1.6ppts to over 13% driven
organically by efficiencies and value creation in our technology clusters and
by higher margin acquisitions. Underlying operating cash flow increased by 22%
to £59m.
We made five acquisitions during the year for a consideration of £83m. Our
approach to long-term compounding organic growth is delivering increasing ROCE
over time, with our longer standing acquisitions now generating 28% ROCE and
we expect our newer businesses to generate similar returns over time. Our
commitment to disciplined capital allocation includes review of the business
portfolio and during the year we sold our solar switches production lines,
enabling us to focus on the remaining higher margin products in the Santon
business.
Whilst the softer market conditions in some sectors are expected to continue
for the first half of the year, we have a strong pipeline of design wins,
order backlog and acquisition opportunities. With the benefit of a robust
balance sheet, we expect to make further progress in the year ahead, in line
with the Board's expectations, building on the essential role that our
specialist products provide for our customers."
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. If you would like to join in
person or via the live webinar, please contact Buchanan at
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) 'Underlying operating profit', 'Underlying operating margin',
'Underlying EBITDA', 'Underlying profit before tax', 'Underlying EPS',
'Underlying operating cash flow' and 'Free cash flow' are non-IFRS financial
measures used by the Directors to assess the underlying performance of the
Group. These measures exclude acquisition and disposal related costs
(amortisation of acquired intangible assets of £16.2m and acquisition and
disposal expenses of £9.8m) totalling £26.0m. Equivalent underlying
adjustments within the FY 2022/23 underlying results totalled £17.2m. For
further information, see note 6 of the attached consolidated financial
statements.
(2) Growth rates at constant exchange rates ("CER") exclude the impact of
nil margin, pass-through costs in FY 2022/23 totalling £5.0m. The average
Sterling rate of exchange was unchanged against the Euro compared with the
average rate for last year whilst strengthening 7% on average against the
three Nordic currencies and 4% against the US Dollar.
(3) 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, 2J
Antennas Group ("2J") in September 2023 and Shape, DTI and IKN in Q4 2023/24)
and excluding the agreed disposal of the Santon solar business unit.
(4) Underlying operating cash flow is underlying EBITDA adjusted for the
investment in, or release of, working capital and less the cash cost of
capital expenditure and lease payments.
(5) ROCE is defined as 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). Organic ROCE excludes acquisitions
made this year.
(6) ROTCE (return on tangible capital employed) is ROCE excluding the
value of acquired goodwill and intangibles, leases provisions and tax.
(7) Target is to reduce scope 1 & 2 carbon emissions by 65% by CY 2025
on an absolute basis (base year CY 2021).
(8) Gearing ratio is defined as net debt divided by underlying EBITDA
(excluding IFRS 16; annualised for acquisitions).
(9) ELV is estimated lifetime value
(10) Unless stated, growth rates refer to the comparable prior year period.
(11) 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.
Strategic and Operational Review
Good progress towards our targets
The Group designs and manufactures niche, customised, innovative electronics.
Good progress was made this year towards our near and medium-term goals of
increasing operating margins, supplying UN SDG-aligned target markets
internationally, generating consistently strong cash flow and enhancing our
value-creation through a disciplined approach to capital allocation.
The Group continues to deliver sustained compounding growth over time, both
organically and from acquisitions. Since FY 2017/18, sales have grown by 14%
CAGR, of which organic growth was 7% CAGR. In the same period, returns have
grown at a faster rate with underlying operating profit growth of 22% CAGR and
underlying EPS growth of 17% CAGR.
During the year, underlying operating profit grew by 16% at CER and underlying
EPS by 5% (10% at CER), despite the economic headwinds. Organic ROCE, which
excludes this year's acquisitions, rose by 1.9ppts to 17.8% with an overall
ROCE (including this year's acquisitions) of 15.7%, ahead of our benchmark
target reflecting the effectiveness of our investment approach.
Sales in the year increased by 1% CER on strong comparators of 48% in the last
two years, with an organic reduction of 1% for the year and growth of 2% in
the final quarter.
The target markets of medical, renewable energy and transportation (46% of
Group sales), grew by 12% organically, driven by strong demand in both
existing and new projects. This was offset by the industrial automation market
(29% of Group sales) which reduced by 19% as major industrial customers
reduced their global inventories. Additionally, other markets (25% of Group
sales) grew by 3% organically, driven by the space, aeronautics and security
sectors, offsetting declines in distribution and general industry.
By region, organic sales growth was strongest in North America (25% of Group
sales), which grew by 20%, driven by growth in key target market customers,
easing of semiconductor supply chains and customer re-shoring of production.
The UK and Nordics (30% of Group sales), grew by 1%, whilst the rest of Europe
(29% of Group sales) declined by 8% due primarily to softness in Germany.
Growth in Asia (16% of Group sales), reduced by 15% driven principally by one
large customer destocking in India. Excluding this customer, Asia reduced by
1%, with India continuing to grow and China in-line with last year.
By organising into clusters, our businesses are able to generate efficiencies
which result in higher gross margins and lower operating expenses. These
efficiencies combined with higher margin acquisitions led to an underlying
operating margin of 13.1%, an increase of 1.6ppts year-on-year and another
significant step towards achieving our Group targets of 13.5% in the year
ahead, and 15% in the medium-term.
During the year, our enlarged M&A team delivered five higher margin
acquisitions (two platforms and three cluster bolt-ons) for a total investment
of £83m. We also reached an agreement to sell Santon's solar business unit
enabling it to focus on its higher margin industrial business. This exit,
which recognises £5.9m of costs in the year reported, is expected to realise
c.£7m in net cash proceeds next year. Expansion of the Group's production
capacity in Germany and Thailand was also completed this year, as was the
transfer of production from Tempe, Arizona to Mexico.
Following supply chain constraints last year, the Group order book, which
peaked at £257m in September 2022 (c.7 months of sales), has normalised as
expected with the order book at 31 March 2024 reducing to £175m, representing
c.4.5 months of sales, in line with historic coverage levels and appropriate
to meet current sales expectations.
With strong growth in design wins (up 23% this year), an end to the customer
destocking cycle and reductions in interest rates stimulating both demand and
earnings, the Group is very well positioned to accelerate growth once market
conditions improve.
Positioned well for market recovery
The Group is well positioned in an environment of rapidly changing conditions,
with a business model that is both resilient and flexible.
- Essential products: the Group's products are designed-in and
essential for customers' applications whilst amounting to a small proportion
of their overall system cost, thereby driving resilient gross margins.
- Broad footprint: a decentralised model with 36 manufacturing sites
and with operations around the world, able to support customers locally and
contribute to the decarbonisation of their supply chains.
- Efficient supply chains: our manufacturing uses a low proportion of
bought-in components, the majority being manufactured in-house from raw
materials and base components, reducing our exposure to external supply chain
disruptions.
- Low energy intensity operations: the large majority of the Group's
energy exposure is electricity and with operations mainly being manual or
semi-automated, energy costs represent less than 1% of Group revenues,
limiting the Group's exposure to energy price rises and operational
disruptions.
With a capital-light business model, a differentiated product portfolio, a
strong balance sheet and low customer concentration (the Group's largest
customer is c.7% of Group sales), the Group has grown strongly and
consistently over the last decade whilst proving resilient through economic
downturns, including the pandemic. We expect this to continue to be the case.
Continued Financial Progress
Group sales for the year increased by 1% at CER after adjusting for
pass-through costs to £437.0m, notwithstanding strong comparators (+48%
growth in the prior two years). As a result of significant operating
efficiencies, underlying operating profit increased by 16% at CER to £57.2m
with underlying operating margin increasing by 1.6ppts to 13.1%. Conversely
interest rate rises contributed to a £3.5m increase in finance costs to
£9.0m, and together with a stronger Sterling, reduced growth in underlying
profit before tax to 4% (increasing from £46.3m to £48.2m) with underlying
earnings per share up 5% to 36.8p (FY 2022/23: 35.2p).
This year saw a greater number and value of acquisitions (five deals for a
total of £83m compared with two last year for a total of £25m) resulting in
proportionately higher acquisition expenses. In addition, there were £5.9m of
costs associated with the disposal of the Santon solar business unit (see
finance section); net cash proceeds of c.£7m from this transaction are due to
be received in the new financial year. After underlying adjustments for the
inclusion of acquisition and disposal related costs, profit before tax on a
reported basis reduced by £6.9m to £22.2m (FY 2022/23: £29.1m) with fully
diluted earnings per share reducing by 5.9p to 15.8p (FY 2022/23: 21.7p).
Free cash flow of £37.0m was generated this year, being 12% higher than last
year and representing 102% of underlying earnings, well ahead of the Group's
conversion target of 85%. With £83m invested in five acquisitions this year,
net debt at 31 March 2024 increased to £104.0m (31 March 2023: £42.7m) with
a gearing ratio of 1.5x, at the lower end of our target range of 1.5x to 2.0x.
Increased Dividend
The Board is recommending a 4% (0.35 pence) increase in the final dividend to
8.25 pence per share, giving a 5% increase in the full year dividend per share
to 12.0 pence (FY 2022/23: 11.45 pence) and an underlying earnings cover of
3.1 times (FY 2022/23: 3.1 times). The final dividend is payable on 2 August
2024 to shareholders registered on 28 June 2024.
The Board believes in maintaining a progressive dividend policy along with a
long-term dividend cover of over three times earnings on an underlying basis.
This approach, along with the continued development of the Group, will enable
funding of both dividend growth and a higher level of investment in
acquisitions from internally generated resources.
At the time of the interim dividend in January 2024, the Company started a
Dividend Re-Investment Programme ("DRIP"), details of which are available from
the Company's Registrars, Equiniti. The final date for DRIP elections for the
final dividend will be 12 July 2024.
Sustainability and Social Responsibility
The Group creates innovative electronics that help customers produce new
technologies. Our focus on sustainability forms the core of our target markets
where, through focused initiatives, we aim to grow our revenues organically
ahead of the wider industrial market. These trends are reported in our key
strategic indicators as target market sales.
Our target markets are aligned to the UN Sustainable Development Goals with
our target of generating around 85% of new design wins from these markets. 90%
of our new design wins during the year were into these target markets, while
sales from target markets were 75% of Group sales. Please refer to the Group's
website that illustrates how we are working with customers and suppliers to
meet the global sustainability agenda.
The Group was awarded the MSCI ESG "A" Rating in April 2022, which was
subsequently upgraded to "AA" rating in July 2023, being in the top 16% of all
companies surveyed; the Group is also rated by Morningstar Sustainalytics as
one of the Regional (Europe) Top Rated companies in 2023, a recognition given
to companies that have achieved the highest scores in ESG risk management.
Last year, the Group conducted detailed scenario analysis and financial
modelling for climate-related risks and opportunities, and published the
process and findings in our TCFD report. This can be found in the Group's 2023
Annual Report and Accounts and on our corporate website. In early 2024, we
carried out an interim reassessment of our climate risk analysis, taking into
account the newly-acquired businesses. The results showed that there has been
no material change in the climate-related risk profile of the Group.
During the year, we also made good progress against our Net Zero plan and
other sustainability targets, including:
Environmental
- Carbon emissions:
o Scope 1 & 2 emissions reduced by 47% in CY 2023 (CY 2022: 35%)
compared with the CY 2021 baseline despite multiple acquisitions, and we
remain on track to meet our target of a 65% reduction by CY 2025;
o Completed a full assessment of Scope 3 emissions; we are working on our
reduction plan and are on target to complete our SBTi submission by the end of
this year;
- Energy intensity (kWh/£m revenue) reduced by 11%
year-on-year, with 72% of our electricity from renewable / clean sources;
- 13 more sites achieved ISO 14001 Environmental Management Systems accreditation, bringing the total number of sites to 43 sites; revenue generated from these sites represents 69% of Group sales (CY 2022: 59%); - 12 sites completed energy audits in the year, which means 81% of Group sites have now completed an audit since 2018, meeting our 80% CY 2025 target two years early;
- Electric or hybrid vehicles now represent 40% of our car fleet (CY 2022: 33%), also on track to meet our target of 50% by CY 2025.
Social
- 13 more sites achieved ISO 45001 Occupational Health & Safety
Management Systems accreditation, bringing the total number of employees
covered to 60% of our global workforce (CY 2022: 48%);
- 16,500 hours of health and safety training was carried out,
representing a 3% increase year-on -year. The health and safety representative
to employee ratio increased to 1:20 (CY 2022: 1:21), well ahead of our
original target of maintaining a ratio of at least 1:50;
- Made further progress on learning and development, including the
initiation of a cloud-based learning platform and an internal knowledge
sharing webinar series, and the launch of an industrial placement scheme;
- 98% of Group revenue was from operations accredited with ISO 9001
(CY 2022: 92%).
Governance
- Enhanced ESG accountability by establishing three-year ESG
objectives and KPIs for each operating business;
- Rolled out a new carbon reporting system across the Group to help
streamline data collection, consolidation and reporting on greenhouse gases;
- Launched a Business Ethics Policy and a Sustainability Policy;
- Completed Carbon Disclosure Project ("CDP") full disclosure for the
first time;
- Increased transparency by reporting on the Sustainable Finance
Disclosure Regulation Principal Adverse Impact (PAI) indicators;
- Preparation for IFRS Sustainability Reporting underway with
dedicated resources in place;
- Improved Board gender diversity with female members representing 43%
of the Board.
A Proven Growth Strategy
The Group has been built through a focus on organic growth and enhanced
operational efficiency, alongside 26 carefully selected and well-integrated
acquisitions over the past 13 years to create a focused, growth-oriented,
higher margin design and manufacturing business. We have a well-developed
approach to capital allocation and see significant scope for further expansion
with a strong pipeline of opportunities in development.
The Group's strategy comprises four elements:
1. Grow sales well ahead of GDP over the economic cycle by
focusing on the structural growth markets that form our sustainable
target markets;
2. Improve operating margins by moving 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 expanding
operations in North America.
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 progressing towards net zero carbon emissions and reducing our
impact on the environment.
Focused on UN SDG-Aligned Target Markets
Our four target markets of industrial automation & connectivity, medical,
renewable energy, and the electrification of transportation accounted for 75%
of sales. Long-term growth in these target markets is being driven by
increasing electronic content and by global megatrends such as the
accelerating need for industrial automation and connectivity, an ageing
affluent population, renewable sources of energy and the electrification of
transport.
Our focus on these markets is driving the Group's organic revenue growth well
ahead of GDP over the economic cycle, giving resilience in softer market
conditions and creating acquisition opportunities.
During the year, target market sales overall were 2% lower organically. There
was a return to organic sales growth in renewable energy which grew by 15%,
with strong growth also in transportation (+22%) while medical grew by 5%.
Growth in these markets was offset by a 19% reduction in industrial automation
as major industrial customers reduced their global inventories. Since 2017,
sales into the Group's target markets have grown organically by 80% compared
with 19% in other markets. This reflects the sustained structural growth
drivers and less cyclical nature of these markets.
Continued progress on Key Strategic and Performance Indicators
Since 2014, the Group's strategic progress and its financial performance have
been measured through key strategic indicators ("KSIs") and key performance
indicators ("KPIs"). The KSI targets are reviewed periodically and were raised
most recently in June 2023 when the new mid-term operating margin was set.
For tracking purposes, the KSIs and KPIs in the tables below remain as
reported at the time rather than adjusted for disposals. Targets are for the
medium-term unless stated, with medium-term defined as being around five years
from FY 2022/23. This year's performance relative to last year is discussed
below.
Key Strategic Indicators
FY14 FY18 FY19 FY20 FY22 FY23 FY24 Targets
1. Increase underlying operating margin 3.4% 6.3% 7.0% 8.0% 10.9% 11.5% 13.1% 15%((1))
2. Build sales beyond Europe((2)) 5% 19% 21% 27% 40% 40% 41% 45%
3. Increase target market sales((2)) 62% 66% 68% 76% 77% 75% 85%
4. Carbon emissions Scope 1 & 2 reduction((3)) 35% 47% 65%
(1) Also a target for FY 2024/25 of 13.5%.
(2) As a percentage of Group revenue.
(3) Carbon emissions are measured on a calendar year basis. Target is
for absolute carbon emissions reduction by CY 2025 from CY 2021 with net zero
by CY 2030.
The Group made further good progress on its KSIs during the year:
- Underlying operating margin this year was 13.1%, an increase of 1.6ppts
on last year (FY 2022/23: 11.5%) with the second half margin of 13.4% being
0.5ppts higher than for the first half (H1 2022/23: 12.9%). The Group
benefited in the year from operational efficiencies resulting in robust gross
margin and lower operating costs, augmented by higher margin acquisitions. The
Group remains on track to achieve its targets of 13.5% in FY 2024/25 and 15%
in the medium-term.
- Sales beyond Europe increased by 1ppt to 41% of Group revenue
compared with FY 2022/23, with strong organic sales growth in the US plus two
US acquisitions being partly offset by reduced demand in Asia. The target is
45%.
- Target market sales reduced by 2ppt to 75% of Group revenue compared
with FY 2022/23 as a result of lower sales in industrial automation,
acquisitions which had lower target market sales at the outset, as is often
the case, and a recovery in some non-target market areas (space, aeronautics
and security sectors and some non-UN SDG aligned industrial markets). Design
wins, which are the bedrock of future sales, were up by 23% year-on-year with
90% in target markets, ahead of our 85% target.
- Carbon emissions (Scope 1 & 2) reduced further during the year
and are now 47% lower on an absolute basis than in CY 2021, demonstrating
excellent progress towards our reduction targets of 65% by CY 2025 and net
zero by 2030.
Key Performance Indicators
FY14 FY18 FY19 FY20 FY22((1)) FY23 FY24 Targets
1. Sales growth
CER 17% 11% 14% 8% 27% 15% 1% Well ahead
of GDP
Organic((2)) 3% 11% 10% 5% 14% 10% -1%
2. Underlying EPS growth 20% 16% 22% 11% 20% 20% 5% >10%
3. Dividend growth 10% 6% 6% 6%((3)) 6% 6% 5% Progressive
4. ROCE((4)) 15.2% 13.7% 15.4% 16.0% 14.7% 15.9% 15.7% >15%
5. Operating profit conversion((4)) 100% 85% 93% 106% 101% 94% 103% >85% of underlying operating profit
6. Free cash conversion((4)) 94% 104% 102% 95% 102% >85% of underlying
earnings
(1) FY 2021/22 shown as growth over the pre-Covid year FY 2019/20 as this
reflects the ongoing growth of the business. FY 2013/14 to FY 2019/20 are for
total operations before disposals as reported at the time.
(2) Group organic sales growth for FY 2021/22 to FY 2023/24, and D&M
divisional organic growth for years prior to disposal of Custom Supply
division during FY 2021/22.
(3) 6% increase in the H1 2019/20 interim dividend; a final dividend was not
proposed for FY 2019/20 due to Covid.
(4) Defined in note 6 of the attached consolidated financial statements.
The Group also made good progress on its KPIs during the year, especially
given the prevailing economic headwinds.
- CER sales after adjusting for pass-through costs increased by 1%
this year with organic sales reducing by 1%. Growth rates have reduced due to
normalising markets and de-stocking in the industrial automation sector.
Growth in the transportation, renewable energy and medical markets remained
strong as well as in some of our other smaller market areas such as space,
aeronautics and security. Over the last 10 years, organic sales have grown by
6% per annum on average, illustrating the strong through-cycle organic growth
of the business, with 7% average growth per annum in the last seven years.
- Underlying EPS increased by 5% and by 10% at CER. Excluding
increased finance costs and at CER (so eliminating the impact of stronger
Sterling), underlying operating profit increased by 16% due to our operational
efficiencies with robust gross margins, tight control of operating costs, and
contributions from acquisitions.
- It is proposed to increase the full year dividend by 5%, continuing
our progressive policy whilst providing for a higher proportion of investment
in acquisitions from internally generated resources. This progressive policy
has seen a more than doubling of the dividend per share since 2010 (up 135%),
whilst dividend cover on an underlying basis remained at 3.1x for the year.
- ROCE for the year was 15.7% and remains ahead of our 15% target. As
expected, it was marginally lower than last year (FY 2022/23: 15.9%) following
five acquisitions this year for a total investment of £83m, as acquisitions
will typically be dilutive to ROCE initially. Organic ROCE, which excludes
acquisitions this year, increased by 1.9ppts to 17.8%.
- Underlying operating cash flow and free cash flow for the year were
22% and 12% higher respectively than last year with operating cash conversion
of 103%, and free cash conversion of 102%, both well ahead of our 85% targets.
Over the last ten years, both operating cash conversion and free cash
conversion have been consistently strong, averaging well over 90%, reflecting
the cash generative nature of the business through the economic cycle.
Divisional Results
The divisional results for the Group for the year ended 31 March 2024 are set
out and reviewed below.
FY 2023/24 FY 2022/23 CER revenue growth Organic revenue
Growth
Revenue £m Underlying Margin Revenue £m Underlying Margin
operating profit((1)) operating profit((1))
£m £m
M&C 265.1 40.6 15.3% 265.9 36.4 13.6% 0% (2%)
S&C 171.9 28.9 16.8% 165.3 25.1 15.2% +4% +2%
Unallocated (12.3) (12.2)
Total (CER) 437.0 57.2 13.1% 431.2 49.3 11.4% +1% (1%)
Pass-thru((2)) 5.0 - (1%)
FX 12.7 2.5 (3%)
Total 437.0 57.2 13.1% 448.9 51.8 11.5% (3%)
(1) Underlying operating profit excludes acquisition and disposal-related
costs
(2) Revenue for FY 2022/23 included a £5.0m one-off increase in
semiconductor costs passed through to customers at nil margin
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. The division comprises two clusters and three further
businesses operating across 17 countries. Products are manufactured in-house
at one of the division's 21 manufacturing facilities, with its principal sites
being in China, India, Mexico, USA, Poland, Sri Lanka, Thailand and the UK.
Geographically, 6% of sales by destination are in the UK, 49% in the rest of
Europe, 26% in North America and 19% in Asia.
This year has seen three new acquisitions into the division: Silvertel, a
UK-based high performance power-over-Ethernet modules business; Shape, a US
speciality transformer business to be part of the Noratel magnetics cluster;
and DTI, a US custom embedded modules business to be part of the Beacon
embedded modules cluster. Capacity of our facility in Thailand has also been
expanded and the move to a new facility in China is underway. Construction of
a larger production facility in Kerala, India has been put on hold following
the reduced demand by a major customer there. Our US facility in Tempe,
Arizona has been closed with production being integrated into one of our
existing sites in Mexico.
With supply chain conditions back to normal during the year, the divisional
order book normalised as expected with orders reducing by 7% CER to £237.1m
(FY 2022/23: £254.9m CER) for a book-to-bill ratio of 0.90:1 against
exceptional prior year comparators. The book-to-bill ratio improved during the
year, from 0.89:1 in the first half to 0.91:1 in the second half.
Normalisation of inventories at customers led to sales reducing in the year by
2% organically. Strong growth in North America of 19% was offset by sales in
Asia reducing by 15%, primarily due to one major customer's slowdown in India,
and the rest of Europe reducing by 5%, mainly in Germany. Excluding one large
customer destocking in India, sales in Asia were down only 1%.
Combined with a 2% sales increase from acquisitions, overall sales were in
line with last year at CER. Including the impact of translation from a
stronger Sterling on average, reported divisional revenue reduced by 6% to
£265.1m (FY 2022/23: £280.8m reported and £265.9m CER). Underlying
operating profit of £40.6m was £4.2m (+12%) higher than last year at CER and
£2.2m (+6%) higher on a reported basis (FY 2022/23: £38.4m). The underlying
operating margin of 15.3% was 1.7pts higher than last year at CER and 1.6%
higher on a reported basis (FY 2022/23: 13.7%), reflecting the positive effect
of operating efficiencies, robust margins and higher margin acquisitions.
Sensing & Connectivity Division ("S&C")
The S&C division designs, manufactures and supplies highly differentiated
sensing and connectivity components for industrial applications and comprises
four clusters and three further businesses operating across nine countries.
Products are manufactured in-house at one of the division's 15 manufacturing
facilities, with its principal ones being in Hungary, the Netherlands, Norway,
Slovakia, the UK and the US. Geographically, 22% of sales by destination are
in the UK, 44% in the rest of Europe, 23% in North America and 11% in Asia.
This year has seen two new acquisitions into the division: 2J, a high
performance antennas business forming an RF (radio frequency) & wireless
cluster with our existing Antenova business and IKN, which is now part of the
Foss Nordic cabling business cluster. Additionally, the Group has sold its
lower margin, solar business unit within Santon, enabling it to focus on its
higher margin industrial business. This year has also seen the opening of a
new, purpose built, larger facility in Germany for MTC, a business acquired in
2011.
As with the M&C division, supply conditions returned to normal during the
year, with the divisional order book normalising as expected leading to orders
reducing by 11% CER to £152.6m (FY 2022/23: £170.9m CER) for a book-to-bill
ratio of 0.89:1, also against exceptional prior year comparators. The
book-to-bill ratio improved in the year, from 0.84:1 in the first half to
0.93:1 in the second half. Normalisation of inventories at customers impacted
sales which grew by 2% organically, with 22% organic growth in North America
and 7% in the UK, offset by a 14% reduction in the rest of Europe and an 11%
reduction in Asia, principally in China.
Combined with a 2% sales increase from acquisitions less disposals, overall
sales increased by 4% CER. Including the impact of translation from a stronger
Sterling on average, reported divisional revenue increased by 2% to £171.9m
(FY 2022/23: £168.1m reported and £165.3m CER).
Underlying operating profit of £28.9m was £3.8m (+15%) higher than last year
at CER and £3.3m (+13%) higher on a reported basis (FY 2022/23: £25.6m). The
underlying operating margin of 16.8% was 1.6ppts higher than last year (FY
2022/23: 15.2%), which, as with the M&C division, reflects the positive
effect of operating efficiencies, robust margins and higher margin
acquisitions.
Design Wins Driving Future Recurring Revenues
As a business with an engineering led sales function, organic growth is
achieved by identifying and winning new design opportunities and as such,
project design wins are an indicator of new business creation. These are
achieved by working with customers at an early stage in their project design
cycle to identify opportunities. Once the products are specified into their
designs, a design win is registered which leads to future recurring revenue
streams.
The Group has a strong bank of design wins built up over many years, creating
the basis for the Group's strong organic growth through the cycle. During the
year, new design wins were registered with an estimated lifetime value of
£337m, an increase of 23% over last year and with 90% being in our target
markets. This increase in design wins reflects both the expected increase in
customer project design activity at this stage in the cycle, catch-up from
designs that were paused during last year's supply chain bottlenecks, and
increased focus and implementation by Group engineers.
Additionally, new project design activity remains at a high level, being
broad-based across all target markets along with a smaller proportion in other
market areas with similar high quality recurring revenue characteristics such
as space, aeronautics and security. The total pipeline of ongoing projects
continues to be very strong.
Acquisitions
The market is highly fragmented with many opportunities to acquire. Currently,
the Group's pipeline consists of around 250 possible targets of which a number
are in the active outreach phase and live deal negotiation at any time.
The businesses we acquire are typically led by entrepreneurs who wish to
remain with the business for a period following acquisition. We encourage this
as it enables integration and helps retain a dynamic, decentralised and
entrepreneurial culture.
We acquire high quality businesses that are successful with good long-term
growth prospects, paying a price that reflects this quality whilst generating
good returns for shareholders. We invest in these businesses for growth and
operational performance development. According to the circumstances, we add
value in some or all of the following areas:
Strategy and operations:
- Creating a long-term strategy for growth with operational leverage;
- Grouping businesses into clusters;
- Generating operational efficiencies;
- Internationalising sales channels;
- Accelerating organic growth by focusing sales development onto
target market areas, expanding the customer base including through
cross-selling, and;
- Developing the product range.
People:
- Investing in management capability;
- Enabling peer networking and collaboration;
- Increasing diversity;
- Succession planning and management transition.
Sustainability:
- Aligning sustainability strategies with those of the Group;
- Creating carbon emission reduction plans;
- Inclusion in the Group's SBTi net zero carbon emission reduction
program;
- Providing training and development.
Investment:
- Capital investment in manufacturing and infrastructure;
- Internationalising operations;
- Expansion through further acquisitions;
- Upgrading systems such as IT.
Controls and support:
- Implementing robust financial measurement, KPIs and controls;
- Finance and related support, such as treasury, banking, legal, tax
and insurance;
- Risk management and internal audit.
The Group has acquired 26 design and manufacturing businesses over the last 13
years, with the Group's continuing revenues increasing to £437m in FY 2023/24
from £10m in FY 2009/10. By taking a long-term approach to create compounding
organic growth in acquired and integrated businesses, the Group has generated
substantial value organically. As reported in the finance section, our ROCE
increases over time, broadly according to the period of ownership.
During the year, the Group completed five high margin acquisitions:
i) Silvertel, a UK-based designer and manufacturer of
differentiated, high performance Power-over-Ethernet ("PoE") modules and
complementary products for global industrial electronic connectivity markets,
which sells into more than 70 countries. Silvertel was acquired for an initial
cash consideration of £21.7m on a debt free, cash free basis, together with
an earn-out of up to £23m payable subject to Silvertel's performance over the
next four years.
ii) 2J, a Slovakian-based designer and manufacturer of high
performance antennas for industrial electronic connectivity applications for a
cash consideration of €50.8m (£44.1m) on a debt free, cash free basis. 2J,
which has subsidiaries in the US and UK and sells into more than 50 countries,
will form a new technology cluster with the Group's existing antenna business,
Antenova, creating a leading platform in the growing, high performance,
industrial wireless connectivity market.
iii) Three smaller bolt-on deals for a total debt free, cash
free consideration of £17.0m for an average mid-single digit EBIT multiple,
namely: Shape, a US-based designer and manufacturer of speciality
transformers; DTI, a US-based designer and manufacturer of custom embedded
modules; and IKN, a Norwegian cable designer and manufacturer. All three will
be part of existing clusters, with Shape part of the Noratel cluster, DTI part
of the Beacon cluster and IKN being part of the Foss cluster.
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 businesses acquired since 2011 and owned for at least two years delivered
a return on investment ("EBIT ROI") of 18.5% this year, well above our target
of 15%.
Summary and Outlook
Over the past three years, the underlying profitability of the business has
nearly doubled on revenues that have increased by almost 50% as the
combination of organic growth with efficiencies and higher margin acquisitions
came through. This year's results reflect another strong performance against a
tougher trading backdrop, with good growth in underlying operating profits and
margin, as well as underlying earnings per share. Revenues in our
Transportation, Renewable and Medical markets delivered strong organic growth
whilst Industrial & Connectivity declined as a result of customer
destocking.
Cash generation has again been strong reflecting both the high quality of
earnings and the capital-light nature of the business. Naturally, higher
interest rates have taken effect although we will see the corresponding
benefit if and when rates reduce.
Underlying operating profit grew by 16% at constant exchange rates with
underlying operating margin increasing by 1.6ppts to over 13% driven
organically by efficiencies and value creation in our technology clusters and
by higher margin acquisitions. Underlying operating cash flow increased by 22%
to £59m.
We made five acquisitions during the year for a consideration of £83m. Our
approach to long-term compounding organic growth is delivering increasing ROCE
over time, with our longer standing acquisitions now generating 28% ROCE and
we expect our newer businesses to generate similar returns over time. Our
commitment to disciplined capital allocation includes review of the business
portfolio and during the year we sold our solar switches production lines,
enabling us to focus on the remaining higher margin products in the Santon
business.
Whilst the softer market conditions in some sectors are expected to continue
for the first half of the year, we have a strong pipeline of design wins,
order backlog and acquisition opportunities. With the benefit of a robust
balance sheet, we expect to make further progress in the year ahead, in line
with the Board's expectations, building on the essential role that our
specialist products provide for our customers.
Nick
Jefferies
Group Chief Executive
Group Financial Results
Revenue and Orders
Group sales of £437.0m were 1% higher than last year at CER after adjusting
for pass-through sales (FY 2022/23: £431.2m CER). Acquisitions and disposals
in the last 12 months added a net 2% to organic sales which were 1% lower than
last year as customers continued to normalise their inventory levels.
Acquisitions comprised five deals this year plus two deals last year and in
the final quarter, the Group agreed the sale of its lower margin, Santon solar
business unit.
Last year's revenue included £5.0m of one-off increases in semiconductor
purchase costs due to the unprecedented supply constraints. These costs were
passed through to customers at nil margin and impacted sales growth by 1%. A
stronger Sterling on average during the year, particularly compared with
Nordic currencies and the US Dollar, reduced sales by 3% on translation,
resulting in reported sales being 3% lower than last year.
Revenue (£m) FY FY 2022/23
2023/24 %
Organic sales 404.4 408.1 (1%)
Acquisitions 18.6
Disposals 14.0 23.1
Sales at CER 437.0 431.2 +1%
Nil margin pass-thru costs 5.0 (1%)
FX translation 12.7 (3%)
Reported sales 437.0 448.9 (3%)
As mentioned above, the Group order book normalised as supply chains eased,
ending the year at £175m (c.4.5 months of sales) compared with £257m at 30
September 2022 (c.7 months of sales) at the height of global supply
constraints.
Orders for the year were £389.7m, 8% lower at CER than last year (FY 2022/23:
£425.7m CER), in line with the order book normalisation. The extent of
normalisation reduced during the year with a book to bill ratio of 0.87:1 in
the first half improving to 0.91:1 in the second half, for a full year ratio
of 0.89:1.
Group Operating Profit and Margin
Group underlying operating profit for the year was £57.2m, a 10% increase on
last year (FY 2022/23: £51.8m), and 16% higher at CER, delivering an
underlying operating margin of 13.1%, 1.6ppts higher than last year (FY
2022/23: 11.5%) and 1.7ppts higher at CER. Underlying operating margin in the
second half of the year increased to 13.4%, being well on track to reach our
targets of 13.5% in FY 2024/25 and 15% over the medium term.
Group reported operating profit for the year (including acquisition and
disposal-related costs discussed below) of £31.2m was £3.4m lower than last
year (FY 2022/23: £34.6m). This was due to the costs arising from the
disposal of Santon's lower margin solar business unit (£5.9m) and higher
acquisition expenses (£3.9m) due to an increased number and value of
acquisitions this year (five deals for £83m) compared with last year (two
deals for £23m). Proceeds from the disposal will be recognised in next year's
accounts.
£m FY 2023/24 FY 2022/23
Operating Finance Profit before tax Operating profit Finance cost Profit before tax
profit Cost
Underlying 57.2 (9.0) 48.2 51.8 (5.5) 46.3
Underlying adjustments
Amortisation of acquired intangibles (16.2) - (16.2) (15.8) - (15.8)
Acquisition & disposal expenses (9.8) - (9.8) (1.4) - (1.4)
Reported 31.2 (9.0) 22.2 34.6 (5.5) 29.1
Underlying operating profit growth has been achieved through a combination of
strong operating efficiencies and acquisitions as shown below:
£m Underlying
Operating
Profit
FY 2022/23 51.8
Gross profit on lower organic sales (1.5)
Organic gross margin improvement 4.9
Organic opex savings 0.5
Organic profit growth 3.9
Profit from acquired companies 4.0
CER growth in operating profits 59.7
Foreign exchange impact (2.5)
FY 2023/24 57.2
£3.9m or half of the incremental CER profits in the year were generated from
organic operating performance of the businesses driven by robust gross margins
from operational efficiencies and tight management of operating costs amidst a
high inflation environment. The remaining incremental profits were delivered
by the seven acquisitions made in the last two years.
Sterling has been stronger this year versus 12 months ago, compared with the
US dollar (+4%) and Nordic currencies (+7%), while the Euro was at the same
level as last year on average. This gave rise to a reduction in underlying
operating profits on translation of £2.5m for the year.
Underlying Adjustments
Underlying adjustments for the year comprise the amortisation of acquired
intangible assets of £16.2m (FY 2022/23: £15.8m) together with acquisition
and disposal expenses of £9.8m (FY 2022/23: £1.4m).
The amortisation charge for the year has increased over last year following
the five acquisitions completed during the year. With the annualisation effect
of those acquisitions, the expected charge for next year is c.£17m.
£3.9m of the acquisition and disposal expenses are the costs associated with
the five acquisitions during the year together with movements in accrued
contingent consideration costs relating to the acquisitions of Limitor,
Phoenix, CPI and Silvertel.
£5.9m of costs (of which c.£2.4m are cash costs) arise from the agreed sale
of Santon's lower margin solar business unit including £3.0m of costs being
the assets of the business unit, and £2.9m of exit and restructuring costs.
c.£2.0m of profit is expected to accrue in FY 2024/25 on completion of the
disposal for an overall net transaction book loss of c.£4.0m with a net cash
inflow on the whole transaction arising next year of c.£7m.
Financing Costs
Net finance costs for the year were £9.0m (FY 2022/23: £5.5m) and include a
£0.7m charge for leased assets under IFRS 16 (FY 2022/23: £0.6m) and £0.6m
charge for amortised upfront facility costs (FY 2022/23: £0.6m). Finance
costs related to our banking facilities were £7.7m (FY 2022/23: £4.3m) and
have increased by 79%. This increase is mainly linked to the rise in interest
rates during last year and the first half of this year. From April 2022 to
September 2023, the Sterling base rate increased from 0.75% to 5.25%, the US
Dollar Federal rate from 0.5% to 5.5% and the ECB lending rate from 0% to
4.5%, these being the Group's three principal borrowing currencies. Together
with five debt funded acquisitions in the last seven months of the year, net
finance costs for next year are expected to annualise to c.£11m. Looking
forward, with interest rates expected to have peaked, and the Group's banking
facility being at variable rates, a 1ppt reduction in interest rates would
reduce annualised finance costs by approximately £1.3m, and increase EPS by
c.1.0p or c.2.5%.
Underlying Tax Rate
The underlying effective tax rate ("ETR") for the year was 24.9%, marginally
lower than last year's rate (FY 2022/23: 25.3%) due to a positive impact on
this year's tax charge from adjustments to prior year tax liabilities.
The overall ETR was 30% (FY 2022/23: 27%). This was higher than the underlying
ETR due to there being a lower rate of tax relief expected on acquisition and
disposal expenses (within underlying adjustments above).
£m FY 2023/24 FY 2022/23
PBT ETR PBT ETR
Group underlying 48.2 25% 46.3 25%
Amortisation of acquired intangibles (16.2) 22% (15.8) 20%
Acquisition & disposal expenses (9.8) 16% (1.4) 57%
Total reported 22.2 30% 29.1 27%
Profit Before Tax and EPS
Underlying profit before tax for the year of £48.2m was £1.9m higher (+4%)
than last year (FY 2022/23: £46.3m), with underlying EPS for the year also
increasing by 5% to 36.8p (FY 2022/23: 35.2p).
£m FY 2023/24 FY 2022/23
PBT EPS PBT EPS
Underlying 48.2 36.8p 46.3 35.2p
Underlying adjustments
Amortisation of acquired intangibles (16.2) (15.8)
Acquisition & disposal expenses (9.8) (1.4)
Reported 22.2 15.8p 29.1 21.7p
After the underlying adjustments above, reported profit before tax was
£22.2m, a reduction of £6.9m compared with last year (FY 2022/23: £29.1m)
while reported fully diluted earnings per share was 15.8p, 5.9p lower than
last year (FY 2022/23: 21.7p). The reductions reflect the costs associated
with the agreed sale of Santon's solar business unit (with costs recognised
this year and income recognised only on receipt of the sale proceeds next
year) and expenses associated with the increased level of acquisitions.
Working Capital
Working capital at 31 March 2024 was £77.5m equivalent to 16.6% of fourth
quarter annualised sales at CER with an additional £9.3m of working capital
from acquisitions during the last 12 months offset by £2.2m from foreign
exchange translation. This is 2.2ppts lower than at the half year as Group
inventory levels reduced following the global supply chain constraints. The
working capital ratio is higher than last year when working capital was
£69.4m or 15.1% of fourth quarter annualised sales.
Working capital KPIs have remained robust with debtor days of 50 (5 days above
last year), creditor days of 80 (in line with last year) and stock turns of
3.3 (0.1 turn better than last year).
Asset Return Ratios
ROCE for the year of 15.7% was ahead of our 15% target and 0.6ppts ahead of
ROCE reported at 30 September 2023 (H1 2023/24: 15.1%). While 0.2ppts below
last year (FY 2022/23: 15.9%), this reflects the dilutive effect of five
acquisitions for an £83m investment over the last seven months.
Organic ROCE, excluding acquisitions this year, was 17.8% (an increase of
1.9ppts on last year) and we expect this to continue to grow well going
forward. The effect of compounding growth on acquisitions over time can be
seen in the ROCE for those businesses acquired more than 7 years ago which
have a ROCE of 28% including an apportionment of Group central costs.
Return on Tangible Capital Employed ("ROTCE") for the year, which excludes
intangible and non-operational assets, was 54.1% and illustrates both the
strong returns being generated by the Group's operational assets, and the
capital-light requirements of those businesses with capital expenditure of
only 1.1% of sales this year (FY 2022/23: 1.2%). ROTCE was 5.8ppts ahead of
last year (FY 2022/23: 48.3%) with improvements from organic operating
efficiency and also from acquiring high margin businesses with low capital
requirements.
Cash Flow
Net debt at 31 March 2024, excluding leases, was £104.0m, compared with
£42.7m at 31 March 2023 with the increase in the year of £61.3m mainly
related to five acquisitions during the year partly offset by continued strong
free cash flow. The movements in net debt during the year are summarised as
follows:
£m FY FY
2023/24 2022/23
Opening net debt at 1 April (42.7) (30.2)
Free cash flow (see table below) 37.0 33.0
Acquisitions & disposals (85.4) (30.6)
Equity issuance (net of taxes) (0.3) (0.6)
Dividends (11.2) (10.5)
Foreign exchange impact (1.4) (3.8)
Net debt at 31 March (104.0) (42.7)
Total acquisition costs of £85.4m during the year comprised £82.8m on five
acquisitions, on debt free, cash free bases and £2.6m of acquisition and
disposal expenses.
Dividends of £11.2m paid during the year were 7% higher than paid in the
previous year (FY 2022/23: £10.5m) mainly following a 6% increase in the
total dividends declared last year.
The cash impact from FX translation was lower this year, compared to last year
which saw Sterling significantly weaken in particular compared to the US
Dollar. The Group's policy is to hold net debt in currencies aligned to the
currency of its cash flows in order to protect the gearing of the Group.
Underlying operating cash flow and free cash flow for the year (see
definitions in note 6 to the summary consolidated financial statements)
compared with last year are shown below:
£m FY FY
2023/24 2022/23
Underlying profit before tax 48.2 46.3
Net finance costs 9.0 5.5
Non-cash items((1)) 15.9 14.6
Underlying EBITDA 73.1 66.4
IFRS 16 - lease payments (6.8) (5.8)
EBITDA (incl. lease payments) 66.3 60.6
Changes in working capital (2.2) (6.4)
Capital expenditure (4.9) (5.6)
Underlying operating cash flow 59.2 48.6
Finance costs (7.7) (5.0)
Taxation (12.5) (9.0)
Legacy pensions (2.0) (1.6)
Free cash flow 37.0 33.0
(1) Non-cash items are depreciation, amortisation, share based payments and
IAS19 pension charge
Underlying EBITDA (pre IFRS 16 lease payments) of £73.1m was 10% higher than
last year (FY 2022/23: £66.4m) reflecting operating efficiency combined with
contributions from the seven acquisitions made since the start of last year.
During the year, the Group invested £2.2m in working capital, a reduction of
£4.2m on last year as supply chain conditions continued to normalise with
Group inventory turns increasing to the highest level in the last two years.
Capital expenditure of £4.9m was invested during the year including various
new production line extensions, ERP upgrades and ESG initiatives. This
represents 1.1% of sales, down from 1.2% of sales last year illustrating the
capital-light nature of the Group's businesses.
£59.2m of underlying operating cash flow was generated in the year, an
increase of 22% on last year (FY 2022/23: £48.6m) representing 103% of
underlying operating profit, well ahead of our 85% conversion target.
Finance cash costs of £7.7m were £2.7m higher than last year, partly due to
increased interest rates and partly on additional levels of debt used to fund
five acquisitions during the year. Corporate income tax payments of £12.5m
were £3.5m ahead of last year reflecting higher profitability this year and
loss utilisation last year, notably in the US.
Free cash flow (being cash flow before dividends, acquisitions and equity fund
raises) of £37.0m was generated in the year, £4.0m or 12% higher than last
year (FY 2022/23: £33.0m), a lower growth rate than underlying operating cash
flow due to the higher finance and tax costs. This represents a free cash
conversion rate of 102% of underlying earnings, again well ahead of our 85%
target. Over the last 10 years, the Group has consistently achieved high
levels of operating cash and free cash conversion, averaging well in excess of
90%.
Banking Facilities
The Group has a £240m syndicated banking facility which extends to August
2027. In addition, the Group has an £80m accordion facility which it can use
to extend the total facility up to £320m. The syndicated facility is
available both for acquisitions and for working capital purposes, and
comprises seven lending banks.
With net debt at 31 March 2024 of £104.0m, the Group's gearing ratio at the
end of the year (being net debt divided by underlying EBITDA, excluding IFRS
16 and as annualised for acquisitions) was 1.5x compared with a target gearing
range of between 1.5x and 2.0x. Excluding acquisitions in the year, organic
gearing reduced from 0.7x at 31 March 2023 to 0.3x following continued strong
cash generation during the year.
Balance Sheet
Net assets of £301.6m at 31 March 2024 were £2.0m lower than at the end of
the last financial year (31 March 2023: £303.6m). The decrease primarily
relates to the net profit after tax for the year of £15.5m partially offset
by currency translation impact of £7.7m and dividend payments this year of
£11.2m. The movement in net assets is summarised below:
£m FY
2023/24
Net assets at 31 March 2023 303.6
Net profit after tax 15.5
Dividend paid (11.2)
Currency net assets - translation impact (7.7)
Loss on defined benefit scheme (0.9)
Share based payments (inc tax) 2.3
Net assets at 31 March 2024 301.6
Defined Benefit Pension Scheme
The Group's IAS 19 pension asset, associated with its legacy defined benefit
pension scheme, decreased this year by £2.0m from £2.3m at 31 March 2023, to
£0.3m at 31 March 2024 (30 September 2023: £0.7m). The key drivers were the
reduction in the value of fund assets and the cost of scheme administration.
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 geopolitical issues
arising from the ongoing conflicts in Ukraine and the Middle East;
inflationary headwinds and rising interest rates; 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 principal risks and the mitigating actions and
processes in place during the financial year. The Board's view is that risks
associated with the macroeconomic environment have increased during the
financial year, while the supply chain issues flagged last year have reduced,
with no material change to the relative importance or quantum of the Group's
other principal risks.
Risk management is 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
mitigating actions. Some level of residual 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
£240m and the adaptability we have as an organisation.
Simon Gibbins
Group Finance Director
Consolidated Statement of Profit or Loss
for the year ended 31 March 2024
Notes 2024 2023
£m £m
Revenue 4 437.0 448.9
Operating costs (405.8) (414.3)
Operating profit 7 31.2 34.6
Finance income 3.9 1.6
Finance costs (12.9) (7.1)
Profit before tax 22.2 29.1
Tax expense (6.7) (7.8)
Profit for the year 15.5 21.3
Earnings per share 11
Basic, profit for the year 16.2p 22.3p
Diluted, profit for the year 15.8p 21.7p
Supplementary Statement of Profit or Loss information
Underlying performance measures Notes 2024 2023
£m £m
Operating profit 31.2 34.6
Add back: Acquisition and disposal expenses 9.8 1.4
Amortisation of 16.2 15.8
acquired intangible assets
Underlying operating profit 6 57.2 51.8
Profit before tax 22.2 29.1
Add back: Acquisition and disposal expenses 9.8 1.4
Amortisation of 16.2 15.8
acquired intangible assets
Underlying profit before tax 6 48.2 46.3
Underlying earnings per share 6 36.8p 35.2p
The above consolidated Statement of Profit or Loss should be read in
conjunction with the accompanying notes.
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2024
Notes 2024 2023
£m £m
Profit for the year 15.5 21.3
Other comprehensive loss:
Items that will not be subsequently reclassified to profit or loss:
Actuarial loss on defined benefit pension scheme 16 (1.2) (1.2)
Tax credit relating to defined benefit pension scheme 0.3 0.3
(0.9) (0.9)
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign subsidiaries (7.7) 0.7
(7.7) 0.7
Other comprehensive loss for the year, net of tax (8.6) (0.2)
Total comprehensive income for the year, net of tax 6.9 21.1
The above consolidated Statement of Comprehensive Income should be read in
conjunction with the accompanying notes.
Consolidated Statement of Financial Position
as at 31 March 2024
Notes 2024 2023
£m £m
Non-current assets
Property, plant and equipment 20.5 25.2
Intangible assets - goodwill 12 231.7 188.1
Intangible assets - other 97.8 83.9
Right of use assets 20.6 19.2
Pension asset 16 0.3 2.3
Other receivables 0.2 6.0
Deferred tax assets 9.9 11.2
381.0 335.9
Current assets
Inventories 80.1 90.0
Trade and other receivables 88.8 74.6
Current tax assets 1.3 1.3
Cash and cash equivalents 110.8 83.9
Assets held for sale 9 6.7 -
287.7 249.8
Total assets 668.7 585.7
Current liabilities
Trade and other payables (87.5) (95.2)
Other financial liabilities (78.7) (39.9)
Lease liabilities (5.7) (4.0)
Current tax liabilities (8.3) (10.4)
Provisions (5.2) (1.7)
(185.4) (151.2)
Non-current liabilities
Trade and other payables (4.6) (4.1)
Other financial liabilities (136.1) (86.7)
Lease liabilities (14.4) (14.8)
Provisions (3.6) (4.2)
Deferred tax liabilities (23.0) (21.1)
(181.7) (130.9)
Total liabilities (367.1) (282.1)
Net assets 301.6 303.6
Equity
Share capital 15 4.8 4.8
Share premium 192.0 192.0
Merger reserve 2.9 2.9
Currency translation reserve (2.1) 5.6
Retained earnings 104.0 98.3
Total equity 301.6 303.6
The above consolidated Statement of Financial Position should be read in
conjunction with the accompanying notes.
The Financial Statements were approved by the Board of Directors on 4 June
2024 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 2024
Attributable to equity holders of the Company
Share Share premium Merger reserve Currency translation reserve Retained earnings Total
capital £m £m £m £m equity
£m £m
At 1 April 2022 4.7 192.0 10.5 4.9 78.3 290.4
Profit for the year - - - - 21.3 21.3
Other comprehensive income/(loss) - - - 0.7 (0.9) (0.2)
Total comprehensive income - - - 0.7 20.4 21.1
Shares issue (note 15) 0.1 - - - - 0.1
Share-based payments including tax - - - - 2.5 2.5
Transfer to retained earnings - - (7.6) - 7.6 -
Dividends (note 10) - - - - (10.5) (10.5)
At 31 March 2023 4.8 192.0 2.9 5.6 98.3 303.6
Profit for the year - - - - 15.5 15.5
Other comprehensive loss - - - (7.7) (0.9) (8.6)
Total comprehensive (loss)/income - - - (7.7) 14.6 6.9
Share-based payments including tax - - - - 2.3 2.3
Dividends (note 10) - - - - (11.2) (11.2)
At 31 March 2024 4.8 192.0 2.9 (2.1) 104.0 301.6
The above consolidated Statement of Changes in Equity should be read in
conjunction with the accompanying notes.
Consolidated Statement of Cash Flows
for the year ended 31 March 2024
Notes 2024 2023
£m £m
Net cash flow from operating activities 14 41.2 36.3
Investing activities
Acquisition of businesses, net of cash acquired (82.8) (22.8)
Contingent consideration related to business acquisitions - (2.3)
Purchase of property, plant and equipment (4.8) (5.4)
Purchase of intangible assets - software (0.1) (0.2)
Interest received 3.9 1.4
Net cash used in investing activities (83.8) (29.3)
Financing activities
Proceeds from borrowings 79.4 61.8
Repayment of borrowings (28.9) (44.9)
Payment of lease liabilities (6.1) (5.2)
Dividends paid 10 (11.2) (10.5)
Net cash generated from financing activities 33.2 1.2
Net increase in cash and cash equivalents(( 1 )) (9.4) 8.2
Net cash and cash equivalents at 1 April 43.4 36.9
Effect of exchange rate fluctuations (2.5) (1.7)
Net cash and cash equivalents at 31 March 31.5 43.4
Reconciliation to cash and cash equivalents in the consolidated Statement of
Financial Position
Net cash and cash equivalents shown above 31.5 43.4
Add back: bank overdrafts 79.3 40.5
Cash and cash equivalents presented in current assets in the consolidated 110.8 83.9
Statement of Financial Position
The above consolidated Statement of Cash Flows should be read in conjunction
with the accompanying notes.
Notes to the Group consolidated Financial Statements
for the year ended 31 March 2024
1. Publication of non-statutory accounts
The preliminary results were authorised for issue by the Board of Directors on
4 June 2024. The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 March 2024 or 31 March
2023, but is derived from those accounts. Statutory accounts for 2023 have
been delivered to the Registrar of Companies whereas those for 2024 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 Group 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 IAS 1 "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 business activities, together with factors which may adversely
impact its future development, performance and position, are set out in the
Strategic Report. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are described in the Finance
Review section of the Strategic Report.
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 debt facilities of £240m committed up to the
end of August 2027.
The Viability Base Case has been subjected to sensitivity analysis involving
flexing a number of the underlying key assumptions, both individually and in
conjunction. The sensitivities take into account the principal risks and
uncertainties set out in the annual report, notably instability in the
economic environment, underperformance of acquired businesses, climate-related
risks, loss of key customers and suppliers, major business disruption,
liquidity restriction, debt covenants and adverse foreign currency
movements.
The most severe but plausible downside scenario assumes a worsening of the
economic environment caused by a number of factors including geo-political
events and significant reduction in consumer demand due to continuing
inflationary pressures and elevated interest rates. This downside scenario
results in a significant decline in second half sales of FY 2024/25, negative
sales growth in FY 2025/26 and modest growth thereon in FY 2026/27.
Additionally, operating margin was reduced, working capital materially
increased, significant one-off expenditures included (such as product
liability, major customer insolvency or litigation, climate change,
cyber-security incident), interest rates increased, and the Group effective
tax rate increased.
After factoring in all of the significant additional downsides, there remains
good headroom both in terms of liquidity and 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 as disclosed in the Strategic Report.
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 breach 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 6% in FY 2024/25
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 2024 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. Revenue
Group revenue is analysed below:
2024 2023
£m £m
Sale of goods 431.4 442.4
Rendering of services 5.6 6.5
Total revenue 437.0 448.9
5. Operating segment information
The Reportable Operating Segments of the Group include two distinct divisions,
Magnetics & Controls ("M&C") and Sensing & Connectivity
("S&C"). Within each of these reportable operating segments 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. Unallocated costs relate to central
head office administration costs that are not directly attributable to the
Operating Segments.
Segment revenue and results
2024 Magnetics & Controls Sensing & Connectivity Unallocated
Costs Total
£m £m
£m £m
Revenue 265.1 171.9 - 437.0
Result
Underlying operating profit/(loss) 40.6 28.9 (12.3) 57.2
Acquisition and disposal expenses (2.2) (7.6) - (9.8)
Amortisation of acquired intangible assets (6.6) (9.6) - (16.2)
Operating profit/(loss) 31.8 11.7 (12.3) 31.2
2023 Magnetics & Controls Sensing & Connectivity Unallocated Total
Costs
£m £m £m
£m
Revenue 280.8 168.1 - 448.9
Result
Underlying operating profit/(loss) 38.4 25.6 (12.2) 51.8
Acquisition and disposal expenses - (1.8) 0.4 (1.4)
Amortisation of acquired intangible assets (6.3) (9.5) - (15.8)
Operating profit/(loss) 32.1 14.3 (11.8) 34.6
6. Underlying performance measures
These Financial Statements include underlying 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.
Underlying 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 trading results of acquired businesses are included
in underlying performance.
The Directors consider there to be the following key underlying performance
measures:
Underlying operating profit
"Underlying operating profit" is defined as operating profit excluding
acquisition and disposal related costs (namely amortisation of acquired
intangible assets and acquisition and disposal expenses).
Acquisition and disposal expenses comprise transaction costs relating to
acquisitions and disposals, contingent consideration relating to the retention
of former owners of acquired businesses, adjustments to previously estimated
contingent consideration, costs related to integration of acquired businesses
into the Group and expenses incurred in relation to the disposal of the Santon
solar business unit.
Underlying EBITDA
"Underlying EBITDA" is defined as underlying operating profit with
depreciation, amortisation, equity-settled share-based payment expense and IAS
19 pension cost added back.
Underlying operating margin
"Underlying operating margin" is defined as underlying operating profit
divided by revenue.
Underlying profit before tax
"Underlying profit before tax" is defined as profit before tax excluding
acquisition and disposal related costs (namely amortisation of acquired
intangible assets and acquisition and disposal expenses).
Underlying tax charge / Underlying effective Tax Rate ("ETR")
"Underlying tax charge" is defined as the tax charge adjusted for the tax
effect of the acquisition and disposal related costs (namely amortisation of
acquired intangible assets and acquisition and disposal expenses) and other
tax charges and credits relating to acquisitions and disposals.
"Underlying ETR" is defined as underlying tax charge divided by underlying
profit before tax.
Underlying profit after tax
"Underlying profit after tax" is defined as profit for the year excluding
acquisition and disposal related costs (namely amortisation of acquired
intangible assets and acquisition and disposal expenses), net of the tax
effect on underlying profit.
Underlying earnings per share
"Underlying earnings per share" is calculated as underlying profit before tax
reduced by the underlying effective tax charge, divided by the weighted
average number of ordinary shares (for diluted earnings per share purposes) in
issue during the year.
Underlying operating cash flow / Underlying operating cash flow conversion
"Underlying 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 and lease payments.
"Underlying operating cash flow conversion" is defined as underlying operating
cash flow divided by underlying operating profit.
Free cash flow / Free cash flow conversion
"Free cash flow" is defined as net cash flow before dividend payments, net
proceeds from equity fund raising, the cost of acquisitions and proceeds from
business disposals.
"Free cash flow conversion" is free cash flow divided by underlying profit
after tax.
Return on capital employed ("ROCE") / Return on tangible capital employed
("ROTCE")
"ROCE" is defined as underlying operating profit, including the annualisation
of profits of acquired businesses, as a percentage of net assets excluding net
debt, deferred consideration related to discontinued operations, assets held
for sale and legacy defined benefit pension asset/(liability).
"ROTCE" is defined as ROCE excluding the value of acquired goodwill and
intangibles, lease liabilities, provisions and tax balances.
Organic and CER revenue growth
"CER revenue growth" is defined as growth rates at constant exchange rates,
excluding the impact of nil margin, one-off increase in semiconductor
pass-through costs.
"Organic revenue growth" is defined as "CER revenue growth" adjusted for the
effect of acquisitions/disposals in the last 12 months.
Gearing ratio
Gearing ratio is defined as net debt divided by underlying EBITDA, including
the annualisation of acquired businesses, adjusted for lease payments.
The tables below show the reconciliation to the IFRS reporting measures, for
the main underlying performance measures used by the Group.
Underlying operating profit / Underlying EBITDA
Underlying operating profit and EBITDA are calculated as follows:
2024 2023
£m £m
Operating profit 31.2 34.6
Add back Acquisition and disposal expenses (a) 9.8 1.4
Amortisation of (b) 16.2 15.8
acquired intangibles
Underlying operating profit 57.2 51.8
Add back Depreciation and amortisation 12.5 11.7
Share-based payment and IAS 3.4 2.9
19 pension cost
Underlying EBITDA 73.1 66.4
a. Acquisition expenses comprise £3.1m of transaction costs in relation
to the acquisition of Silvertel, 2J, Shape, DTI, IKN and ongoing transactions,
and £0.8m charge relating to the movement in fair value of contingent
consideration and assets acquired on past acquisitions. Disposal expenses
comprise £5.9m of expenses which have been incurred in relation to the
disposal of the Santon solar business unit.
During the prior year, acquisition and disposal expenses of £1.4m comprised
£1.8m of transaction costs in relation to the acquisition of CDT, Magnasphere
and ongoing transactions, £1.5m charge relating to the movement in fair value
of contingent consideration and assets acquired on past acquisitions, offset
by £0.4m credit relating to disposal costs in connection with the Acal BFi
disposal in 2022, and £1.5m in relation to insurance receipts relating to a
previous year acquisition of CPI.
b. Amortisation charge for intangible assets recognised on acquisition is
£16.2m being the amortisation of acquired customer relationships and patents.
The equivalent charge last year was £15.8m. The increase relates to the seven
acquisitions during the last two years offset by lower amortisation on fully
written down acquired intangible assets on past acquisitions.
Underlying profit before tax
Underlying profit before tax is calculated as follows:
2024 2023
£m £m
Profit before tax 22.2 29.1
Add back Acquisition and disposal expenses 9.8 1.4
Amortisation of 16.2 15.8
acquired intangible assets
Underlying profit before tax 48.2 46.3
Underlying effective tax rate
Underlying effective tax rate ("ETR") is calculated as follows:
2024 2023
£m £m
Underlying profit before tax 48.2 46.3
Total tax charge 6.7 7.8
Add back tax effect of amortisation of acquired intangible assets and 5.3 3.9
acquisition and disposal expenses and other tax charges and credits relating
to acquisitions and disposals
Underlying tax charge 12.0 11.7
Underlying effective tax rate 24.9% 25.3%
Underlying profit after tax / Underlying earnings per share
Underlying profit after tax and earnings per share are calculated as follows:
2024 2023
£m £m
Profit for the year 15.5 21.3
Add back Acquisition and disposal expenses 9.8 1.4
Amortisation of 16.2 15.8
acquired intangible assets
Tax charge relating to the above adjustments (5.3) (3.9)
Underlying profit after tax 36.2 34.6
Number Number
Weighted average number of shares for basic earnings per share 95,835,775 95,426,255
Effect of dilution - share options 2,450,593 2,917,061
Adjusted weighted average number of shares for diluted earnings per share 98,286,368 98,343,316
Underlying earnings per share 36.8p 35.2p
Underlying operating cash flow / Free cash flow
2024 2023
£m £m
Underlying EBITDA 73.1 66.4
Lease payments (6.8) (5.8)
EBITDA (incl. lease payments) 66.3 60.6
Changes in working (2.2) (6.4)
capital
Capital expenditure (4.9) (5.6)
Underlying operating cash flow 59.2 48.6
Net interest paid (7.7) (5.0)
Tax payments (12.5) (9.0)
Legacy pension scheme funding (2.0) (1.6)
Free cash flow 37.0 33.0
ROCE / ROTCE
ROCE and ROTCE are calculated as follows:
2024 2023
£m £m
Net assets 301.6 303.6
Less: Deferred consideration in relation to (6.3) (6.0)
disposed businesses
Net debt 104.0 42.7
IAS 19 pension asset (0.3) (2.3)
Assets held for sale (6.7) -
Adjusted net assets 392.3 338.0
Less: Goodwill (231.7) (188.1)
Acquired intangible assets (96.2) (82.7)
Deferred tax assets and 13.1 9.9
liabilities
Current tax assets and 7.0 9.1
liabilities
Lease liabilities 20.1 18.8
Provisions 8.8 5.9
Tangible Capital 113.4 110.9
Underlying operating profit 57.2 51.8
Add: Annualisation of acquired businesses 4.2 1.8
Annualised operating profit 61.4 53.6
ROCE 15.7% 15.9%
ROTCE 54.1% 48.3%
Organic and CER revenue growth
Organic and CER revenue growth are calculated as follows:
2024 2023
£m £m
Revenue 437.0 448.9
FX translation impact - (12.7)
One-off increase in semiconductor pass-through cost - (5.0)
Underlying (CER) revenue 437.0 431.2
Acquisitions and disposals (32.6) (23.1)
Organic revenue 404.4 408.1
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 (CDT in June 2022, Magnasphere in January 2023,
Silvertel in September 2023, 2J in September 2023, Shape in January 2024, DTI
in March 2024 and IKN in March 2024) and the results of the Santon solar
business unit.
Gearing ratio
Gearing ratio is calculated as follows:
2024 2023
£m £m
Net debt 104.0 42.7
Underlying EBITDA 73.1 66.4
Lease payments (6.8) (5.8)
Annualisation of acquired businesses 4.2 2.0
Adjusted EBITDA 70.5 62.6
Gearing ratio 1.5 0.7
7. Operating profit
2024 2023
£m £m
Revenue 437.0 448.9
Direct materials/direct labour (255.0) (274.9)
Other cost of goods sold (5.0) (4.8)
Selling and distribution costs (41.0) (45.4)
Administrative expenses(1) (104.8) (89.2)
Operating profit 31.2 34.6
1) Administrative expenses includes acquisition and disposal related costs
(amortisation of acquired intangible assets of £16.2m and acquisition and
disposal expenses of £9.8m) totalling £26.0m (2023: £17.2m).
8. Business combinations
Acquisitions in the year ended 31 March 2024
Acquisition of Silvertel
On 30 August 2023, the Group completed the acquisition of Silver Telecom
Limited ("Silvertel"), a company incorporated in the United Kingdom by
acquiring 100% of the shares of its parent company SLV Holdings Limited.
Silvertel is a designer and manufacturer of differentiated, high-performance
Power-over-Ethernet ("PoE") modules and complementary products for global
industrial electronic connectivity markets.
Silvertel was acquired for an initial cash consideration of £23.0m before
expenses, funded from the Group's existing debt facilities. In addition,
contingent payments of up to £23.0m will be payable subject to Silvertel's
EBIT performance over the next four years. This includes up to £4.0m payable
subject to continuous employment during the performance period.
The provisional fair value of the identifiable assets and liabilities of
Silvertel at the date of acquisition was:
Provisional
fair value
recognised
at acquisition
£m
Intangible assets - other (incl. customer relationships) 9.3
Property, plant and equipment 0.1
Right of use assets 0.2
Inventories 2.6
Trade and other receivables 1.4
Net cash 1.6
Trade and other payables (0.9)
Current tax liabilities (0.4)
Deferred tax liabilities (2.4)
Lease liabilities (0.2)
Total identifiable net assets 11.3
Provisional goodwill arising on acquisition 14.5
Total investment 25.8
Discharged by
Initial cash consideration 23.0
Contingent consideration 2.8
25.8
Net cash outflows in respect of the acquisition comprise:
Total
£m
Cash consideration 23.0
Transaction costs (included in operating cash flows) (1) 0.6
Net cash acquired (1.6)
22.0
1) Acquisition costs of £0.6m were expensed as incurred in the period ended
31 March 2024. These were included within operating costs.
Included in cash flow from investing activities is the cash consideration of
£23.0m and the pre-acquisition tax settled of £0.3m, offset by the net cash
acquired of £1.6m.
The goodwill is attributable to the workforce and the high profitability of
the acquired business. It will not be deductible for tax purposes. Included in
the £14.5m of goodwill recognised above are certain intangible assets that
cannot be individually separated and reliably measured, due to their nature.
These include the value of expected operational benefits. All the acquired
receivables are expected to be collected.
Acquisition of 2J Antennas
On 12 September 2023, the Group completed the acquisition of 2J Antennas Group
("2J"), by acquiring 100% equity and voting rights of 2J Antennas, s.r.o.
(Slovakia), 2J Antennas UK Limited and 2J Antennas USA Corp.
2J is a leading designer and manufacturer of high-performance antennas for
industrial electronic connectivity applications. 2J was acquired for an
initial cash consideration of £44.9m (€52.4m), before expenses, funded from
the Group's existing debt facilities.
The provisional fair value of the identifiable assets and liabilities of 2J at
the date of acquisition was:
Provisional
fair value
recognised
at acquisition
£m
Intangible assets - other (incl. customer relationships) 16.2
Property, plant and equipment 0.5
Right of use assets 0.2
Inventories 2.8
Trade and other receivables 1.9
Cash and cash equivalents 1.3
Overdraft (0.4)
Trade and other payables (1.1)
Current tax (1.6)
Deferred tax liabilities (3.4)
Lease liabilities (0.2)
Total identifiable net assets 16.2
Provisional goodwill arising on acquisition 28.7
Total investment 44.9
Discharged by
Cash 44.9
Net cash outflows in respect of the acquisition comprise:
Total
£m
Cash consideration 44.9
Transaction costs (included in operating cash flows) (1) 1.0
Net cash acquired (0.9)
45.0
1) Acquisition costs of £1.0m were expensed as incurred in the period ended
31 March 2024. These were included within operating costs.
Included in cash flow from investing activities is the cash consideration of
£44.9m and settlement of pre-acquisition tax liabilities of £0.1m, offset by
the net cash acquired of £0.9m.
The goodwill is attributable to the workforce and the high profitability of
the acquired business. It will not be deductible for tax purposes. Included in
the £28.7m of goodwill recognised above are certain intangible assets that
cannot be individually separated and reliably measured, due to their nature.
These include the value of expected operational benefits. All the acquired
receivables are expected to be collected.
Other acquisitions
Shape
On 24 January 2024, the Group completed the acquisition of Shape LLC
("Shape"), a company incorporated in the US, by acquiring 100% of the
membership interests of Shape LLC.
Shape is a US-based designer and manufacturer of specialty transformer
equipment. Shape was acquired for an initial cash consideration of £7.9m
($10.0m), before expenses, funded from the Group's existing debt facilities.
DTI
On 6 March 2024, the Group completed the acquisition of Diamond Technologies,
Inc. ("DTI"), a company incorporated in the US, by acquiring 100% of DTI
shares.
DTI specialises in customised data collection products geared primarily to
original equipment manufacturers ("OEM"), including OEM focused embedded
barcode, RFID, vision and embedded gateway and controller solutions. DTI was
acquired for an initial cash consideration of £6.6m ($8.4m), before expenses,
funded from the Group's existing debt facilities. In addition, a contingent
payment of up to £3.2m will be payable subject to DTI's financial performance
over the next three years, subject to the seller's continuous employment
during the performance period.
IKN
On 16 March 2024, the Group completed the acquisition of IKN AS ("IKN"), a
company incorporated in Norway, by acquiring 100% of IKN AS shares.
IKN specialises in products and services for data centres, networking and
cabling systems. IKN was acquired for an initial cash consideration of £2.5m
(NOK 33.6m), before expenses, funded from the Group's existing debt facilities
In addition, a contingent payment of up to £0.3m (NOK 3.4m) will be payable
subject to IKN's revenue performance over the period ending 31 December 2024
and subject to IKN achieving certain integration targets.
The combined provisional fair value of the identifiable assets and liabilities
of the three acquisitions above, at the date of acquisition was:
Provisional
fair value
recognised
at acquisition
£m
Intangible assets - other (incl. customer relationships) 7.3
Property, plant and equipment 0.1
Right of use assets 1.1
Inventories 2.8
Trade and other receivables 2.4
Net cash 0.8
Trade and other payables (2.1)
Current tax liabilities (0.1)
Deferred tax liabilities (0.2)
Lease liabilities (1.1)
Total identifiable net assets 11.0
Provisional goodwill arising on acquisition 6.1
Total investment 17.1
Discharged by
Initial cash consideration 17.0
Contingent consideration 0.1
17.1
Net cash outflows in respect of the acquisition comprise:
Total
£m
Cash consideration 17.0
Transaction related bonuses 0.8
Transaction costs (included in operating cash flows) (1) 0.9
Net cash acquired (0.8)
17.9
1) Acquisition costs of £0.9m were expensed as incurred in the period ended
31 March 2024. These were included within operating costs.
Included in cash flow from investing activities is the cash consideration of
£17.0m and the transaction bonus of £0.8m, offset by the net cash acquired
of £0.8m.
The goodwill is attributable to the workforce and the high profitability of
the acquired businesses. It will not be deductible for tax purposes. Included
in the £6.1m of goodwill recognised above are certain intangible assets that
cannot be individually separated and reliably measured, due to their nature.
These include the value of expected operational benefits. All the acquired
receivables are expected to be collected.
9. Assets held for sale
In December 2023, the Group agreed to sell certain assets of its Santon solar
business unit (the "disposal group") based in the Netherlands. The
consideration for the disposal comprises £2.6m plus up to £3.4m in relation
to inventory transferred to the buyer. Completion of the sale is subject to
the transfer of production lines, inventory and other related assets to the
buyer's location. In conjunction with this disposal, the Group also intends to
sell its manufacturing facility in the Netherlands with the retained business
moving to a smaller facility. The disposals of both the solar business unit
and the manufacturing facility are expected to complete in the financial year
ending 31 March 2025 and expected to generate net cash inflow of c.£7m after
costs.
As the Group expects to recover the carrying value of these assets through a
sale transaction within the next financial year, in accordance with IFRS 5
'Assets held for sale and discontinued operations', the disposal group and the
manufacturing facility have been classified as assets held for sale at the
balance sheet date for the year ended 31 March 2024.
The disposal group is not considered to be a major line of operation and does
not represent one of the Group's cash generating units. Accordingly its
results are not presented as a discontinued operation for the years ended 31
March 2024 and 31 March 2023.
In accordance with IFRS 5, a plan to dispose of an asset is considered to be
an impairment indicator. Therefore, the assets of the disposal group and the
manufacturing facility have been tested for impairment and measured at the
lower of their carrying amount and fair value less cost to sell at the time of
the reclassification. This has resulted in the recognition of a write-down of
£2.7m relating to the goodwill and other intangible assets of the disposal
group during the year ended 31 March 2024. There was no impact on the carrying
value of the manufacturing facility.
The assets included as held for sale and that are presented within total
assets of the Sensing & Connectivity segment (note 5), are the following:
2024
£m
Disposal group held for sale
Non-current assets
Property, plant and equipment 2.1
Intangible assets - other 0.2
Current assets
Inventory 1.9
4.2
Non-current assets held for sale
Property, plant and equipment 2.5
Total assets classified as held for sale 6.7
10. Dividends
2024 2023
Dividends recognised in equity as distributions to equity holders in the year: £m £m
Equity dividends on ordinary shares:
Final dividend for the year ended 31 March 2023 of 7.90p (2022: 7.45p) 7.6 7.1
Interim dividend for the year ended 31 March 2024 of 3.75p (2023: 3.55p) 3.6 3.4
Total amounts recognised as equity distributions during the year 11.2 10.5
2024 2023
Proposed for approval at AGM: £m £m
Equity dividends on ordinary shares:
Final dividend for the year ended 31 March 2024 of 8.25p (2023: 7.90p) 7.9 7.6
Summary
Dividends per share declared in respect of the year 12.00p 11.45p
Dividends per share paid in the year 11.65p 11.00p
Dividends paid in the year £11.2m £10.5m
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 Company 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 calculations.
2024 2023
£m £m
Profit after tax for the year 15.5 21.3
Number Number
Weighted average number of shares for basic earnings per share 95,835,775 95,426,255
Effect of dilution - share options 2,450,593 2,917,061
Adjusted weighted average number of shares for diluted earnings per share 98,286,368 98,343,316
Basic earnings per share 16.2p 22.3p
Diluted earnings per share 15.8p 21.7p
At the year-end, there were 2,713,941 ordinary share options in issue that
could potentially dilute underlying earnings per share in the future, of which
2,450,593 are currently dilutive (2023: 3,025,959 in issue and 2,917,061
dilutive).
12. Intangible assets - goodwill
Cost £m
At 1 April 2022 175.7
Business acquired 11.5
Exchange adjustments 0.9
At 31 March 2023 188.1
Business acquired (note 7) 49.3
Exchange adjustments (4.0)
At 31 March 2024 233.4
Impairment £m
At 31 March 2023 -
Impairment charge(1) (1.7)
At 31 March 2024 (1.7)
Net book value at 31 March 2024 231.7
Net book value at 31 March 2023 188.1
1) Write-down of intangible assets related to the disposal group (note 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 as they can be
integrated.
The Group's operations are organised into two distinct divisions, Magnetics
& Controls ("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:
2024 2023
£m £m
Magnetics & Controls 106.4 89.0
Sensing & Connectivity 125.3 99.1
231.7 188.1
The movement in goodwill compared to prior year relates mainly to the movement
in foreign exchange rates and to Silvertel, 2J, Shape, DTI and IKN which were
acquired in the year (note 7).
13. Movements in cash and net debt
Year to 31 March 2024 Cash flow Non-cash changes 31 March
1 April £m £m 2024
2023 £m
£m
Cash and cash equivalents 83.9 29.2 (2.3) 110.8
Bank overdrafts (40.5) (38.6) (0.2) (79.3)
Net cash 43.4 (9.4) (2.5) 31.5
Bank loans over one year (88.1) (51.1) 1.7 (137.5)
Capitalised debt costs 2.0 0.6 (0.6) 2.0
Total loan capital (86.1) (50.5) 1.1 (135.5)
Net debt (42.7) (59.9) (1.4) (104.0)
Lease liability (18.8) 6.8 (8.1) (20.1)
Net debt (incl. lease liability) (61.5) (53.1) (9.5) (124.1)
Bank loans over one year above include £137.4m (2023: £88.1m) drawn down
against the Group's revolving credit facility.
Bank overdrafts reflect the aggregated gross overdrawn balances of Group
companies (even if those companies have other positive cash balances). The
overdrafts and cash and cash equivalents are held with the Group's
relationship banks with a legal right to offset.
Year to 31 March 2023 1 April Cash flow Non-cash changes 31 March
2022 £m £m 2023
£m £m
Cash and cash equivalents 108.8 (23.4) (1.5) 83.9
Bank overdrafts (71.9) 31.6 (0.2) (40.5)
Net cash 36.9 8.2 (1.7) 43.4
Bank loans over one year (67.8) (18.6) (1.7) (88.1)
Capitalised debt costs 0.7 1.7 (0.4) 2.0
Total loan capital (67.1) (16.9) (2.1) (86.1)
Net debt (30.2) (8.7) (3.8) (42.7)
Lease liability (21.1) 5.8 (3.5) (18.8)
Net debt (incl. lease liability) (51.3) (2.9) (7.3) (61.5)
14. Reconciliation of cash flows from operating activities
2024 2023
£m £m
Profit for the year 15.5 21.3
Tax expense 6.7 7.8
Net finance costs 9.0 5.5
Depreciation of property, plant and equipment 4.7 4.6
Depreciation of right of use assets 6.6 5.8
Amortisation of intangible assets - other 16.5 16.5
Write-down of assets related to disposal group - other intangible assets 1.0 -
Write-down of asset related to disposal group - goodwill 1.7 -
Loss on disposal of property, plant and equipment 0.2 -
Loss on disposal of intangible assets - 0.6
Change in provisions 2.6 (0.2)
Pension scheme funding (2.0) (1.6)
IAS 19 pension charge 0.8 0.7
Contingent consideration related to business acquisitions - (4.0)
Business disposal costs - (1.2)
Associated taxes on LTIPs (0.3) (0.6)
Impact of equity-settled share-based payment expense and associated taxes 2.6 2.2
Operating cash flows before changes in working capital 65.6 57.4
Decrease/(Increase) in inventories 14.5 (8.6)
(Increase)/Decrease in trade and other receivables (3.0) 5.0
Decrease in trade and other payables (11.1) (1.7)
Decrease/(Increase) in working capital 0.4 (5.3)
Cash generated from operations 66.0 52.1
Interest paid (11.6) (6.2)
Interest paid on lease liabilities (0.7) (0.6)
Income taxes paid (12.5) (9.0)
Net cash flow from operating activities 41.2 36.3
15. Share capital
2024 2024 2023 2023
Allotted, called up and fully paid Number £m Number £m
Ordinary shares of 5p each 96,356,109 4.8 96,356,109 4.8
During the year to 31 March 2024, no shares were issued to the Group's
Employee Benefit Trust (2023: 900,000). At 31 March 2024 the Trust held
414,600 shares (2023: 690,092). During the year to 31 March 2024, employees
exercised 275,492 share options under the terms of the various share option
schemes (2023: 378,333).
16. Pension
The acquisition of the Sedgemoor Group in June 1999 brought with it certain
defined benefit pension schemes, together "the Sedgemoor Scheme". The
Sedgemoor Scheme is funded by the Group, provides retirement benefits based on
final pensionable salary and 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 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 and are set based
upon funding valuations carried out every three years.
Based upon the results of the triennial funding valuation at 31 March 2021,
the Sedgemoor Scheme's Trustees agreed with Sedgemoor Limited on behalf of the
participating employers to continue the same rate of participating employer's
contributions under the deficit recovery plan agreed at the previous valuation
at 31 March 2018. This required contributions of £1.9m over the year to 31
March 2022, with subsequent contributions of £1.9m p.a. increasing by 3% each
April payable over the period to 30 April 2024. After the valuation, in
December 2022, it was agreed with the Trustees that, with effect from January
2023, these contributions could be paid into an escrow account to the benefit
of the Trustees unless and until such time as pension benefits are fully
secured with an insurer and the scheme wound up. For the year ended 31 March
2024, a total of £2.0m (2023: £0.2m) was paid into the escrow account and is
reported under trade and other receivables.
The IAS 19 defined benefit pension scheme asset at 31 March 2024 was £0.3m
(31 March 2023: £2.3m). The key drivers in the movement from prior year were
the reduction in value of fund assets and the cost of scheme administration.
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 2024 Year to 31 March 2023
Closing Average Closing Average
rate rate Rate rate
US Dollar 1.2643 1.2566 1.2369 1.2058
Euro 1.1695 1.1585 1.1374 1.1576
Norwegian Krone 13.6814 13.3524 12.9595 11.9778
18. Events after the reporting date
There were no matters arising, between the balance sheet date and the date on
which these Financial Statements were approved by the Board of Directors,
requiring adjustment in accordance with IAS 10 "Events after the Reporting
Period". The following important non-adjusting events should be noted:
Dividends
A final dividend of 8.25p per share (2023: 7.90p), amounting to a dividend of
£7.9m (2023: £7.6m) and bringing the total dividend for the year to 12.00p
(2023: 11.45p), was declared by the Board on 4 June 2024. The Group Financial
Statements do not reflect this dividend.
1 Further information on the consolidated Statement of Cash Flows is
provided in notes 13 and 14.
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