preliminary results/media/files/d/discoverie-corp/... · up £6.9m at cer (+106%) operating...

PRELIMINARY RESULTSFull year ended 31 March 2015

2 June 2015

2PRELIMINARY RESULTS│ 2nd June 2015

Overview

Very good full year results and continued delivery of strategy

31% increase in underlying EPS driven by acquisitions and organic growth

Revenue up 36% CER to £271m

Underlying operating profit doubled to £13.4m

Despite foreign exchange headwinds

Significant step forward in the transition to a highly differentiated Group

Design & Manufacturing revenues increasing as a proportion of Group sales

Two important acquisitions – Noratel & Foss

Cross-selling initiatives generating new business

Both new acquisitions performing well

Noratel second half sales growth

Foss integrating quickly

Full year dividend increased by 12%

Note: Growth rates quoted at constant exchange rates (CER)


Financial review


Gross margin up 1.3ppt to 31.1%

Free cash flow of £9.0m (76% of underlying PBT)

ROTCE(4) at 24%

Working capital at 13.6% of sales

1. Revenue at constant exchange rates (CER)

2. No. of shares rebased following rights issue (see Appendix III)

3. Underlying profits exclude exceptional costs, amortisation of acquired intangible assets and IAS 19 legacy pension charge (see Appendices I and II)

4. Return on trading capital employed excludes goodw ill and uses annualised result for Foss and Noratel acquisitions

Good results

FY 15 FY 14Reported

Growth

CER

Growth(1)

Revenue £271.1m £211.6m +28% +36%

Underlying operating profit £13.4m £7.1m +89% +106%

Underlying operating margin 4.9% 3.4% +1.5ppts

Underlying profit before tax £11.8m £6.3m +87%

Reported profit before tax £4.3m £4.2m

Underlying diluted EPS 15.4p 11.8p(2) +31%

Reported EPS 4.8p 2.8p

Dividend per share 7.6p 6.8p(2) +12%


155 164 170

16

3642

59

FY 13 FY 14 FY 15

Noratel/Foss Other D&M Distribution

Growing revenue and gross margin

Revenue (£271.1m)

Reported revenue up 28% 8% translation impact (weaker € & Nordic currencies)

Up 36% CER Custom Distribution +4%

Design & Manufacturing +182%

Like-for-like sales growth +3% Custom Distribution +2%

Design & Manufacturing +9%

Gross Profit (£84.4m)

Gross profit up 42% CER

Gross margin up 1.3ppt Up 5ppts in last 6yrs

1. Revenue at constant exchange rates (CER)

Revenue(1) (£m)

Gross Margin

30.7%

29.8%

31.1%

FY 13 FY 14 FY 15

59

155164

170

FY 13 FY 14 FY 15

Distribution Noratel/Foss Other D&M


Costs controlled

Like-for-like costs up 3% Investing in D&M growth

Custom Distribution +1%

Underlying adjustments Acquisition/integration related

Restructure of ABFi UK

1. Underlying adjustments for FY15 total £7.5m being £7.3m in operational costs above and £0.2m IAS19 interest charge in f inance costs.

FY 15 FY 14 %

Like-for-like costs 52.9 51.5 +3%

Acquisitions/disposals 18.1 1.4

Underlying (CER) 71.0 52.9 +34%

FX (translation) - 3.0

Acquisition/integration 3.3 0.2

Restructuring 1.7 0.5

Amortisation 2.1 1.0

IAS 19 Pension 0.2 0.2

Reported (IFRS) 78.3 57.8 +35%


Increased operating margin

Operating profit(1) of £13.4m, up £6.3m (+89%) Up £6.9m at CER (+106%)

Operating margin(1) of 4.9%, up 1.5ppts Driven by D&M growth

H1: 4.5%; H2: 5.3%

1. Underlying operating profit and margin exclude exceptional items, amortisation of acquired intangible assets and IAS19 legacy pension cost (see Appendix I and II)

Operating

Profit £mOperating

Margin %

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

0.0

3.0

6.0

9.0

12.0

15.0

FY 13 FY 14 FY 15

Underlying operating profit (CER) % of revenue (CER)


Divisional performance

Custom Distribution – profit up £0.3m CER (37% of Group profit contribution(2))

Improving demand in all territories except UK (H1: 0%, H2: 3%)

Design & Manufacturing – profit up £7.0m CER (63% of Group profit contribution(2))

37% of Group sales

Like-for-like sales up 9% with growth from all businesses

Strong operating margins at over 11%

1. Like-for-like sales exclude companies acquired since last year - YEG (Custom Distribution); Noratel, Foss and RSG (D&M)

2. Underlying operating profit excluding unallocated costs

£m

Revenue Operating % Revenue Operating % CER Like for

profit profit like(1)

Custom Distribution 169.8 6.7 3.9% 163.7 6.4 3.9% 4% 2%

Design & Manufacture 101.3 11.4 11.3% 35.9 4.4 12.3% 182% 9%

Unallocated (4.7) (4.3)

Total (CER) 271.1 13.4 4.9% 199.6 6.5 3.3% 36% 3%

FX (translation) 12.0 0.6 0.1%

Total (IFRS) 271.1 13.4 4.9% 211.6 7.1 3.4%

Sales Growth FY 14 (CER)FY 15


9.8p

11.8p

15.4p

FY 13 FY 14 FY 15

Strong earnings per share growth

Underlying PBT up 87%

Underlying EPS of 15.4p up 31% Up 57% in 2 yrs

1. No of shares for FY 14 rebased follow ing rights issue (see Appendix III)

2. Underlying PBT excludes exceptional costs (£5.0m), amortisation of acquired intangible assets (£2.1m) and IAS 19 legacy pension cost (£0.4m) (see Appendix I and II)

Underlying EPS

£m FY 15 FY 14

Operating profit 13.4 7.1

Finance costs (1.6) (0.8)

Underlying PBT 11.8 6.3

Effective tax rate 20% 14%

Underlying PAT 9.4 5.4

Fully diluted shares(1) (m) 60.9 45.9

Underlying diluted EPS (p) 15.4p 11.8p

£m FY 15

Underlying PBT 11.8

Underlying adjustments(2) (7.5)

IFRS PBT 4.3

IFRS EPS (p) 4.8p


Consistent cash flow

Free cash flow up £3.6m to £9.0m 76% of PBT

Average of 78% PBT over last 3 years

Gearing ratio(4) of c 1.0x

Average net debt of £24m since Foss acquisition

5 year revolving credit facility of £70m Excellent long term, committed funding

1. Non-cash items: D&A and share based payments

2. Working capital adjusted over last 3 yrs for a signif icant customer prepayment of £3.2m (FY13: £2.6m, FY14: £0.6m), invoicedthis yr.

3. FY15 - Acquisition of Noratel and Foss less receipt from sale of Enterprise, plus associated acquisition/disposal costs

4. Net debt at 31 March 2015 as a ratio of adjusted EBITDA (being the Group underlying EBITDA adjusted for a full year’s inclusion of the underlying EBITDA of acquisitions).

FY 15

Net cash at 31 March 2014 2.3

Cash flow from continuing operations (1.5)

Acquisitions/disposals(3) (74.2)

Net equity proceeds 52.7

Cash flow from discontinued operations (0.2)

FX (translation) 1.9

Net cash at 31 March 2015 (19.0)

FY 15 FY 14

Underlying profit before tax 11.8 6.3

Finance cost 1.6 0.8

Non cash items(1) 3.4 1.9

EBITDA 16.8 9.0

Working capital (0.5) (0.5)

Capex & FA disposals (2.4) (1.4)

Operating cash flow 13.9 7.1

Interest (1.6) (0.8)

Tax (3.3) (0.9)

Free cash 9.0 5.4

Exceptional payments (2.1) (2.5)

Customer prepayment (3.2) 0.6

Legacy pension (1.6) (1.5)

Dividends (3.6) (2.7)

Cash flow (pre equity) (1.5) (0.7)


Dividend per share(1)

1. No. of shares for FY10 to FY14 rebased follow ing rights issue (see Appendix III)

Progressive dividend

Full year dividend up 12% Reflects strong results

FY15 underlying dividend cover of 2.0 Aim: 2-3x cover (underlying basis)

Delivered 49% growth FY10 - FY15 8.3% CAGR

Full impact of rights issue from next year Cash cost £4.8m (£3.6m FY15)

1.7p 1.7p 1.8p 1.8p 1.8p 2.2p

3.4p 3.7p4.0p 4.4p

5.0p

5.4p

5.1p5.4p

5.8p6.2p

6.8p

7.6p

FY10 FY11 FY12 FY13 FY14 FY15


Summary financial highlights

Solid organic sales growth

Excellent performance from higher margin D&M

Acquisitions all performing well

Strong contribution from Noratel

Significant growth in profits, margins and EPS

Despite translational impact of weaker currencies

Tight control of costs and capital

Dividend up 12%


Operating review


Strong operational performance

GDP+ organic growth in most countries

Widespread growth in Germany

Soft in UK (general manufacturing market & re-organisation disruption) and Norway (oil price)

New markets of North America & Asia growing well

Acquiring high quality businesses that are proving a very good fit

Focus is on Design & Manufacturing but also Custom Distribution

Noratel second half grew 7% YoY with Foss similar early signs

Validates a key part of our strategy

Cross-selling & web programmes generated £5.5m in new business

Growing profitability with excellent working capital efficiency

New operating margin target of 6-7%

Working capital efficiency remains <14% of sales

Delivering significant shareholder value

Upper quartile FTSE Small Cap TSR performance over each of the last 3 years

TSR growth of 101% in the last 3 years, c.400% over the last 6 years


Strategy reminder

Transforming into a technology-led provider of customised electronics for industrial applications

with design, manufacturing and distribution capabilities

Moving up the electronics value chain

Focussing on higher margin, differentiated products in Design & Manufacturing

Growing sales organically well ahead of GDP

Attractive market fundamentals

Cross-selling between Group companies

Powerful web marketing platform

Acquiring businesses

Strong fit with Group strategy

Broadening and strengthening geographic and technical capabilities

Developing sales beyond Europe

Following existing customers

Acquisitions in target markets and geographies

Creating our own market space


(1) As a proportion of group rev enue

(2) Return on trading capital employ ed excludes goodwill and uses annualised result f or Foss and Noratel acquisitions in the y ear

(3) Free cash f low def ined as net cash f low bef ore pay ment of exceptional items, pay ment to the legacy def ined benef it pension sc heme, div idends, net proceeds f rom equity f und raising and costs of / proceeds

f rom acquisitions and disposals

Good progress towards strategic &

performance targets

Key Strategic Indicators Mid term

target

1. Increase Design & Manufacturing revenue(1) c. 5% 18% 37% 65%

2. Increase cross-selling & web generated sales (1) 0% 2.7% 4% 4~5%

3. Build sales beyond Europe(1) 0% 5% 12% 20%

Key Performance Indicators 3 yr

target

1. Organic sales growth -16% 2% 3%

2. Increase underlying operating margin -0.3% 3.4% 4.9% 6-7% H2 15 at 5.3%

3. Attractive ROTCE(2) - 24% 24% >25%

4 Generate strong free cash flow (FCF)(3) - 86% 76% >75% PBT

5 Generate long term value for shareholders (TSR) - 42% 19%

(percentile v FTSE small cap index) 27th percentile 21st percentile

FY 10

FY 10

FY 15(2)FY 14

FY 14 FY 15

Well ahead

of GDP

Upper

quartile

GDP grew 1.1% in Europe (CY 14);

UK & Norway behind GDP growth

101% TSR in 3 years

Comments


Northern Europe, (7)%

Central Europe, 12%

Southern Europe, 9%

North America, 41%

Asia & Africa, 6%

-20%

-10%

0%

10%

20%

30%

40%

50%

Group revenue - organic growth* & relative size

Revenue & order book

Significant growth in European markets

UK electronics manufacturing was soft

Oil price effects felt in Norway

North America growing strongly with very highly

customised products

* Group organic grow th defined as like for like CER, including acquisitions and pre-acquisition period

40,000

50,000

60,000

70,000

80,000

90,000

Group order book (£m)

Group order book up 77% in last 3 years

Driven by organic growth and acquisitions

March -12 March -13 March -14 March -15


0.4

0.6

0

0.5

1

1.5

New sales in the year

Recurring sales

Cross-selling

£5.5m in new sales from cross-selling

£11.2m total sales from cross-selling

£5.7m recurring sales

From prior year projects

Two forms of cross-selling:

Sister company cross-selling

Selling between Group companies

Acal BFi cross-selling

Selling different Acal BFi technologies to

existing Acal BFi customers

Sister Company cross-selling (£m)

5.3

4.9

0

10

New sales in the year

Recurring sales

Acal BFi cross-selling (£m)


Custom Distribution

2% organic sales growth CER

4% including YEG

8% organic growth in continental Europe

All regions in growth

UK sales declined by 14%

Electronic manufacturing markets remain weak

Re-organisation disruption

Successful integration of Young Electronics into

Acal BFi UK

High proportion of value added engineering

Customised products

Built to order (stock turn c.10x)

Not a ‘box shifter’

UK, (14)%

Ger 9% Fr 10%Bnlx 8%

Nordic, 7%

Italy, 14%

Spain, 1%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Custom Distribution – organic growth* & relative size

* Organic grow th defined as like for like CER, including acquisitions and pre-acquisition period


UK, 2%

Germany, 26%

France, 13%

Nordic, -4%

Europe other, 2%

North America, 41%

Asia, 14%

-20%

-10%

0%

10%

20%

30%

40%

50%

Design & Manufacturing – organic growth* & relative size

Design & Manufacturing

9% organic sales growth CER

Driven by Germany, Asia & North America

Developing new international business

Oil price effects felt in Norway

Noratel North America returned to profitability

and growing strongly

Driving improvements in Group operating

margin

* Organic grow th defined as like for like CER, including acquisitions and pre-acquisition period


Diversified Group

France11%

International12%

UK

21%

Germany 22%

Nordic19%

Benelux 7%

Italy 5%

Spain3%

FY15

14%

26%

23%

9%

12%

8%

8%

FY11

Sales by country Sales by industry sectorSales by customer

Largest individual customer – <2%

Top 100 individual customers – 34%

Largest Group of customers – 3%

Automation6%

Auto8%

Comms10%

Consumer4%

Distribution9%

Defence7%

Industrial20%

Medical12%

Oil & Gas

2%

Renew able6%

Transport4%

Research4%

Other8%

Two thirds – Germany, UK, Nordic

International – 12% and growing

Industrial – 20%

Medical – 12%

Communications – 10%

Stable growing sectors

Top 1011%

Top 11-10023%

All others66%


Noratel delivering

Designer & manufacturer of customised transformers & inductors

Acquired in July 2014 for £71m, plus 3 year earn out subject to performance

Higher operating margins

c.70% customised products

Selling in Europe, Asia and USA

Progress

Trading well as expected

7% organic sales growth in H2

North America returned to profitability and sales growth

Immediately earnings enhancing

Cross-selling underway

First orders received in cross-sell activities

Further opportunities identified

Purchasing synergies of £0.2m achieved in Poland & China

In line with expectations


Foss acquisition update

Designer, manufacturer and distributor of customised fibre optic cables and support products

Acquired in January 2015 for £8.5m

3 year earn out of up to £1.7m subject to performance targets

Based in Norway and Slovakia

Sales, production and value add capabilities

Established 1984 in Norway and acquired Slovakian facility in 2013

Proven management remaining with the business

Broadly doubles Acal’s fibre optic business

Cross-selling activities underway

Creates further bolt-on acquisition opportunities

Immediately earnings enhancing


Outlook

The new financial year has started in line with our expectations

Well positioned for further growth with market conditions expected to improve

Compelling long term organic market drivers

Developing several acquisition opportunities

Funding resources available

APPENDICES


37%

EBIT

Power & Magnetics

Electro-mechanical

Microsystems & Displays

Communications & Sensors

Imaging & Photonics

Head Office

Custom Distribution


Key:

20,000 customers

Acal today


Own products, highly differentiated, c.5000 customers

c.75% customised

Higher margins

Custom distribution

Market reach – 20,000 customers, 12 geographies

Sales & engineering capability – 560 employees

Web platform – lead generation

37%

Sales

63%

EBIT

63%

Sales

Operating companies

Share customer opportunities

Achieve synergies

Retain an entrepreneurial culture


The market opportunity

Attractive markets driven by technology adoption

Customers need technology to create innovation in their products

Estimated* £12bn market globally (£4bn Eu, £6bn USA, £2bn Asia)

Markets likely to remain attractive long term

Growth well ahead of GDP

Customer need for expert technical support will continue and grow

Market will remain highly fragmented – acquisition opportunities

Europe & USA will remain centres for high end industrial design

Focused customised electronics leader

• Design, manufacturing and custom distribution

• International footprint

• Industrial market

• Driven by;

• Organic growth

• Cross-selling

• Acquisitions

Our future

* Management estimates


Underlying to IFRS reconciliation

Management believe the adjustments

enable a better understanding of the

performance of the business.

The adjustments made to IFRS results

are:-

Acquisition/disposal related costs

(transaction costs, earn-outs,

integration, amortisation of

acquired intangibles, gain or loss on

acquisition or disposal)

Other exceptionals (restructuring,

IAS 19 pension charge related to

legacy scheme)

Appendix I

1. * No. of shares for FY14 rebased following rights issue (see Appendix III)

YE 31 March 2015 (£m)

Underlying Excep. Amort IAS19 Di sc ont i nue d IFRS

Gross profit 84.4 84.4

S&D costs (39.9) (39.9)

Admin expenses (31.1) (5.0) (2.1) (0.2) (38.4)

Operating Profit 13.4 (5.0) (2.1) (0.2) 6.1

Net f inance costs (1.6) (0.2) (1.8)

Profit before tax 11.8 (5.0) (2.1) (0.4) 4.3

Taxation (2.4) 0.1 0.8 0.1 (1.4)

Discontinued - -

Profit after tax 9.4 (4.9) (1.3) (0.3) - 2.9


EPS 15.4p 4.8p

YE 31 March 2014 (£m)

Underlying Excep. Amort IAS19 Di sc ont i nue d IFRS

Gross profit 63.0 63.0

S&D costs (36.5) (36.5)

Admin expenses (19.4) (0.7) (1.0) (0.2) (21.3)

Operating Profit 7.1 (0.7) (1.0) (0.2) 5.2

Net f inance costs (0.8) (0.2) (1.0)

Profit before tax 6.3 (0.7) (1.0) (0.4) 4.2

Taxation (0.9) 0.3 0.1 (0.5)

Discontinued (2.4) (2.4)

Profit after tax 5.4 (0.7) (0.7) (0.3) (2.4) 1.3


EPS * 11.8p 2.8p


Appendix II

Exceptional items & underlying adjustments

FY 15 FY 14

Earn outs (Myrra/Noratel) (0.8) (0.3)

Acquisiton costs (2.5) (1.4)

Acal BFi restructuring (1.7) (0.5)

Gain on acquisition of YEG - 1.5

Total Exceptionals (5.0) (0.7)

Amortisation of acquired intangibles (2.1) (1.0)

Legacy pension - IAS19 (0.4) (0.4)

Underlying Adjustments (7.5) (2.1)

Tax impact of adjustments 1.0 0.4

After tax adjustments (6.5) (1.7)


Appendix III

The number of shares for FY14 (and

earlier years) was increased by a factor of

1.3759 being the bonus issue element

inherent in the rights issue completed in

July 2014.

Accordingly, earnings per share and

dividend per share have been adjusted

down by the same factor.

FY14 – Continuing Operations

Pre-rights

issue

Post-rights

issue

Underlying profit after tax 5.4 5.4

Reported profit after tax 3.7 3.7

No of shares - Total (mil) 31.314 43.085

No of shares - Diluted (mil) 33.368 45.910

Underlying basic EPS 17.2p 12.5p

Underlying diluted EPS 16.2p 11.8p

EPS (IFRS) 11.8p 8.6p

Dividend per share 9.4p 6.8p

Impact of the rights issue


Balance Sheet

Increase in operating capital employed and

reduction in cash relates to:

Acquisitions in the period (Noratel and Foss)

Movement in Net Assets

Appendix IV

Net Assets

At 31 March 2014 48.5

Profit after tax 2.9

Dividend paid (3.6)

Equity issue 53.5

FX on net currency assets (8.0)

(1.6)

Change in FV of cash flow hedges 0.6

Share based payment (incl tax) 0.4

At 31 March 2015 92.7

Actuarial losses on defined

benefit pension (incl tax)

FY15FY 14

(CER)

Fixed Assets

PPE 13.8 3.2

Intangibles 18.3 3.9

32.1 7.1

Trading capital employed

Inventories 39.8 19.0

Receivables 60.8 44.1

Payables (56.2) (44.1)

44.4 19.0

Operating capital employed 76.5 26.1

Other assets/(liabilities)

Goodwill 51.6 19.3

Provisions (6.1) (3.3)

Net tax (liabilities)/assets (2.9) 0.8

Pension (7.4) (6.5)

Net cash (19.0) 2.0

Net assets held for sale - 5.5

FX (Translation) - 4.6

Total reported net assets 92.7 48.5


Working capital remains well managed

Working capital was13.6% of sales(1)

10.2% excluding Noratel

ROTCEat 24% is consistent year on year

Working capital as a % of sales(1)

1. Calculated as a percentage of annualised Q4 sales

Appendix V

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

FY 10 FY 11 FY 12 FY 13 FY14 FY15

Working Capital excl Noratel Noratel/Foss Working Capital

% sales excl Noratel % sales total


Fleet management computer for a Nordic

food transportation firm

Cross-selling between Acal BFi and Hectronic

A Nordic food transportation fleet management firm asked Hectronic and

Acal BFi to supply a new fleet management computer.

Hectronic worked with the customer on the design of the elements used to log

driver data and record additional fleet management data such as speed, mileage

and fuel consumption. These elements were customised to the customer’s

requirements.

Acal BFi worked with Hectronic to design and specify the sensing elements for

recording speed, acceleration, location, pressure and altitude, using Sensing, GPS

and Wifi systems from Acal BFi’s suppliers.

The fleet management computer and sensors were designed to the customer’s

specific requirements by engineers with products from two Acal businesses.

The result was a highly optimised product for the customer, and a better solution

for Acal, selling more than just one product.

Internal power supply for a European

sound and lighting company

Acal BFi and Myrra cross-selling

Acal BFi was supplying a leading European sound and lighting firm with

electronic components for an automated audio messaging and video unit. Audio amplification in this unit was key to sound performance, and

the quality of the internal power supply determined the calibre of the sound.

During the design process, Acal BFi specified a customised Myrrainductor, using a core component from an Acal BFi supplier.

The collaboration between Acal BFi and Myrra created a superior end product for the customer. For Acal, the cross-selling between its

distribution and manufacturing companies resulted in additional sales and a longer-term contract.


Utilising electricity infrastructures

for fibre optic communications

Technological know how

The use of optical ground wires (“OPGW”) is a cost effective and

secure method of carrying high speed data traffic in long distance

regional optical networks.

Operating in remote areas and under severe weather conditions

requires simple and effective tools for splicing the OPGW. In co-

operation with the national system operator, Foss has developed a

system for splicing the optical fibre, contained within a stainless

steel enclosure, whilst also storing excess cable.

Foss engineers support the system by offering on-site installation

training. Several national and international installers have

undertaken this training.

Design of a new livestock tracking

device for a UK manufacturer

Consultative approach

For several years, Acal BFi has been supplying customised magnetic

components to a UK manufacturer of a livestock tracking device.

During this time Acal BFi learned that the current design consumed

too much power, thereby draining the batteries when the animals

were remote from the farm.

Acal BFi engineers created a new design so providing much greater

battery life and reduced weight, and which incorporates a movement

sensor that detects injured animals.

preliminary results/media/files/d/discoverie-corp/... · up £6.9m at cer (+106%) operating...

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