June 2020 discoverIE Group plc discoverIE Group plc
Investor presentation June 2020 discoverIE Group plc discoverIE - - PowerPoint PPT Presentation
Investor presentation June 2020 discoverIE Group plc discoverIE - - PowerPoint PPT Presentation
Investor presentation June 2020 discoverIE Group plc discoverIE Group plc June 2020 Introduction to discoverIE We Design, Manufacture & Supply customised electronic components for industry Highly differentiated products Fibre
June 2020 discoverIE Group plc discoverIE Group plc
Introduction to discoverIE
- 1. Underlying profit for y/e 31 Mar 20.
We Design, Manufacture & Supply customised electronic components for industry
Highly differentiated products
Customers are Original Equipment Manufacturers (OEMs)
Essential products
Supplying growth markets with increasing electronic content
Renewables, medical, transportation, industrial & connectivity
Revenue of £466m, operating profit(1) of £37.1m
Operating across 23 countries
Acquisitive
Fragmented market
Power & Magnetics Fibre Optics Sensors Electromechanical, Cabling & Switches Microsystems & interface
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X-ray Detection
June 2020 discoverIE Group plc discoverIE Group plc discoverIE Group plc
From FY13 to FY18:
Sales(1) up > 2x
Underlying EPSup > 2x
Operating profits up > 4x
Share price growth 19% CAGR(2)
Dividend growth 7.6% CAGR(3)
(1) Group revenue, excluding disposed businesses (2) Growth from April 2012 (FY13) to March 2018 (3) Growth from FY13 to FY18
From FY19 our aim has been to double underlying EPS in 5 years
FY19 + FY20 op profits up 51%
FY19 + FY20 EPS up 35%
We aim to provide investors with
Returns of 15 – 20% pa
A progressive dividend
Growth Company
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FY1 3 FY1 4 FY1 5 FY1 6 FY1 7 FY1 8 FY1 9 FY20
SALES(1
)
June 2020 discoverIE Group plc discoverIE Group plc
Consistent, proven strategy
Sales growth well ahead of GDP over the economic cycle Move up the value chain into higher margin products Acquire D&M businesses with attractive growth prospects and strong operating margins Further internationalise the business Generate strong cash flows and long term sustainable returns
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June 2020 discoverIE Group plc discoverIE Group plc
Our engineering led sales model
- Customer needs
- Helping customers solve their technical challenges to create more efficient,
productive and sustainable equipment and comply with increasingly stringent environmental, health, safety and performance requirements.
- Enduring customer relationships
- Our model gains a unique understanding of customers’ needs and builds
long term relationships that last for many years.
- Engineering led solutions
- By applying our extensive technical knowledge of applications and design
- ur engineers create unique products for customers’ specific needs
- Recurring revenues
- Our designs are specified into our customers’ system designs for production,
leading to multiple years of repeated monthly demand, creating stable, recurring revenue streams
- Regional manufacturing
- Manufacturing locations in Europe, Asia and the Americas provides regional
supply for customers, reducing transit times, costs and environmental impact as well as reducing risk of disruption
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June 2020 discoverIE Group plc discoverIE Group plc
Focused on sustainable growth markets
- Global trends driving structural growth
- Product development driven by technology
- Increasing electronic content
- Essential products
- Markets aligned with UN SDG*
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Transportation Medical Industrial & Connectivity
Smart transportation market to grow 18.7% CAGR globally (2019-24) Research & Markets Medical electronics to grow 8% CAGR (2018 -2024) TechSci Research 70% of growth in global electricity production (2017- 23) will be into renewable energy International Energy Agency Industrial market for Semiconductors to grow 10.8% CAGR (2018-22); IoT market to grow 18.7% CAGR 2019-24 Markets-and-Markets
Renewable Energy
* UN SDG United Nations Sustainable Development Goals
June 2020 discoverIE Group plc discoverIE Group plc
Case study: Our unique solutions for Renewable energy
Power inductors Pitch controller Airflow measurement
- Strong and trusted customer relationships across supply chain
- Providing innovation-led, bespoke solutions to essential customer requirements
- Multi-year design cycles provide strong visibility & recurring revenues
- Complementary technologies create cross-selling opportunities
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June 2020 discoverIE Group plc discoverIE Group plc
Our customers
& the European ‘Mittelstand’
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June 2020 discoverIE Group plc discoverIE Group plc
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41% 12% 25% 22% Power Magnetics Components Systems
D&M clusters Revenue share
- Capital light model with capex
c.2%/rev
- R&D investment c. 2%/rev
- Customer specific development
Design & Manufacturing division
- 64% Group Revenues
- 6% Organic CAGR over last 5 years
- Generating 84% of FY20 Group profit contribution
- 13% operating margin
- 2ppts improvement in last 5 years
- 14 acquisitions completed since
2011
- Increasing specialist capability and
international reach
- 27 manufacturing sites
in 17 countries
June 2020 discoverIE Group plc discoverIE Group plc
- Growth ahead of wider markets with lower cyclicality
- Target markets – resilient
- Slowing growth rates driven by non-target markets
- COVID-19 impact in Q4 was £4m sales, £1.5m EBIT; H2 growth would have been 5%
- Asia drives international growth
- Western multinational customers
(1) Sales destination
Widespread D&M organic growth
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June 2020 discoverIE Group plc discoverIE Group plc
- Target market sales grew at 9% organically
- Higher growth, less cyclical than wider market
- Target markets account for 72% (PY: 66%) of D&M revenue
- New design wins account for >90%, future growth driver
Target markets leading organic growth
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June 2020 discoverIE Group plc discoverIE Group plc
High quality acquisitions over 10 years
14 D&M acquisitions, £268m spend, £135m new
equity
Developed sustainable growth business ahead of
market
Clear approach to acquisitions
Companies targeted by:
- Product, Geography, Market
Must have discoverIE DNA EBIT ROI1 > 15% within 3 years
Average EBIT ROI of D&M acquisitions since
acquisition of 17%
Acquisitions performing well
(1) Average ROI defined as average operating profit attributable to the business since acquisition over acquisition cost (comprising up-front consideration, acquisition expenses, earn-out (once earned), and integration costs) (2) All D&M businesses included which were acquired more than 2yrs ago. Excludes recent acquisitions: Cursor Controls, Hobart Electronics, Positek and Sens-Tech.
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Average EBIT ROI
June 2020 discoverIE Group plc discoverIE Group plc
Acquisition case study – MTC GmbH
Acquired Oct 2011 Products – Electromagnetic shielding &
thermally conductive components
Development since acquisition:
Organic growth, with operational leverage Expanded product range & customer base Established cross-selling through Acal BFi Recruited new management Invested in larger offices & expanded production
capacity
Strong, local management have embraced:
The market opportunity discoverIE’s investment capability
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M TC 20 1 2-20
Revenue 17% CAGR Operating profit 24% CAGR Operating m argin 15% 24%
- No. of active custom ers
Doub led
- No. of products
In creased 2.4x
- No. of em ployees
22 49 Sales into target m arkets 30 % 82% Cross-selling 0 % 7%
June 2020 discoverIE Group plc discoverIE Group plc
Good progress towards targets
14 Revised targets for the next 5 years
(1) As a percentage of Group revenue (2) Mid-term was a period to Nov 2020 (3) New targets for the five-year period to Mar 2025 (4) A final dividend has not been proposed due to COVID-19 (5) Includes an annualisation of the results of Sens-Tech acquired in Oct 2019 n/d – not previously disclosed
Key Strategic Indicators M id term N ew Targets(2) Targets(3) 1 . Increase share of Group revenue from D&M (1
)
1 8% 37% 48% 52% 57% 61 % 64% 75% > 75%
- 2. Increase underlying operating m argin
3.4% 4.9% 5.7% 5.9% 6.3% 7.0% 8.0% 8.5% 1 2.5%
- 3. Build sales beyond Europe(1
)
5% 1 2% 1 7% 1 9% 1 9% 21 % 27% 30% 40%
- 4. Target Market Sales(1
)
n/d n/d n/d 56% 62% 66% 68% New 85% Key Perform ance Indicators 1 . Sales grow th CER 1 7% 36% 1 4% 6% 1 1 % 1 4% 8% D&M Organic 3% 9% 3%
- 1
% 1 1 % 1 0% 5% Group Organic 2% 3% 3%
- 1
% 6% 8% 2%
- 2. Increase cross-selling
£0.3m £0.9m £3.0m £4.6m £8.8m £1 0.6m £1 1 .4m £1 2m p.a.
- 3. Underlying EPS grow th
20% 31 % 1 0% 1 3% 1 6% 22% 1 1 % >1 0%
- 4. Dividend grow th
1 0% 1 1 % 6% 6% 6% 6% n/a(4) Progressive
- 5. ROCE
1 5.2% 1 2.0% 1 1 .6% 1 3.0% 1 3.7% 1 5.4% 1 6.0%(5) >1 5% 6 Operating cash flow 1 00% 1 04% 1 0 0 % 1 36% 90% 93% 1 06% >85% of Op profit FY14 FY16 FY17 FY17 FY14 Well ahead
- f GDP
FY19 FY19 FY18 FY18 FY20 FY20 FY15 FY15 FY16 Targets
June 2020 discoverIE Group plc discoverIE Group plc
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Increasingly cash generative, disciplined use of capital
Free cash flow at 54% of
EBITDA
Increasing strongly in the last
2yrs
104% of underlying PAT (v
85% target)
Increasing self funding
capacity for acquisitions
June 2020 discoverIE Group plc discoverIE Group plc
Strong FY20 performance
FY20 (to 31 Mar 2020)
Underlying EPS up 11% Organic sales growth 2% (D&M: 5%) Underlying operating margin up 1ppt to 8.0% Operating cash flow of £39.3m up 37%
106% EBIT conversion v 85% target
ROCE(2) of 16.0% up 0.6ppts.
(1) Underlying profits exclude acquisition-related costs and exceptional items . (2) ROCE is underlying operating profit as a percentage of net assets plus net debt including an annualisation of acquisitions
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FY20 FY19 Grow th CER Grow th Revenue £466.4m £438.9m +6% +8% Underlying operating profit (1
)
£37.1m £30.6m +21 % +23% Underlying profit before tax(1
)
£32.8m £27.2m +21 % Underlying EPS(1
)
30 .2p 27.2p +1 1 %
June 2020 discoverIE Group plc discoverIE Group plc
Outlook, financing & dividends
FY21 trading update
Resilient Q1 trading to date with sales tracking down by only
10%.
Fundamentals in place for long term growth to continue.
Financing
Net debt of £61m at 31 Mar 20 with gearing of 1.25x
(reduced from 1.6x proforma at 30 Sep 19).
£180m committed facility (to Jun 24) plus a £60m accordion. Confirmed eligibility in principle for BofE CCFF – not
expected to be required
Dividend
Progressive dividend policy. 88% dividend increase in 9yrs to FY19 (7.2% CAGR) No final FY20 dividend proposed - COVID-19 cash
preservation
Long term: >3x cover (underlying basis); FY19 2.8x
Latest recommendations1
(1) Recommendations as at 31 May 20.
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Latest Rec Date Peel Hunt
580 p Buy Mar-20
Berenberg
50 0 p Buy Mar-20
FinnCap
641 p Buy Jan-20
Jefferies
585p Buy Apr-20
Num is
51 0 p Add Apr-20
Panm ure
537p Buy May-20
Stiefel
530 p Buy Mar-20
Average
555p
June 2020 discoverIE Group plc discoverIE Group plc
Business fundamentals
- Growth markets
- Designed-in products, difficult to replace
- Distinct business, competitive advantage
- Low customer concentration
- Design, not price led
- Low capital requirements
- Acquisitions at the right price
Attractive rewards
- GDP++ organic growth
- High levels of repeating revenue
- Sustainable margins
- Reduced risk
- Good gross margins
- Cash generative
- Earnings accretion
Our business
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APPENDIX
June 2020 discoverIE Group plc discoverIE Group plc
History since incorporation
High Quality Shareholders Top 5 (31%) –Standard Life Aberdeen, Black Rock, Charles Stanley, Kempen, Montanaro Next 15 (40%) – Amati, Axa, Canaccord (Hargreave Hale), Colombia Threadneedle, Danske, Franklin Templeton, Herald, Invesco, L&G, M&G,
Premier Miton, Royal London, Schroders, Tellworth, Unicorn
Directors/management: 4%
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1994
Acquisition of Myrra (£8m) Acquisitions of Compotron, Hectronic, MTC (total £9m) Acquisition of BFi Optilas SAS (£13m) Admission to the official list
- f the London
Stock Exchange
1986 2009 2011 Jan 2013 Aug 2013
Sale of ATM Parts Incorporation New management: NJ joins as CEO SG as CFO (Jul 10)
Jan 2009 2010
Sale of UK Parts
Apr 2013
Acquisition of YEG (£2m) Acquisition of RSG (£3m)
Nov 2013
Sale of EAF Parts Acquisition of Noratel (£71m) Acquisition of Foss (£8m) Acquisition of Flux (£3m) Acquisition of Contour (£17m) and Plitron (£2m) Sale of AES
(completes exit from IT Supply Chain £12m total)
Jun 2014 Jul 2014 Jan 2015 Nov 2015 Jan/Feb 2016 Jan 2017
Acquisition of Variohm Holdings (£12m) £6m placing £55m rights issue £14m placing Acquisition of Santon (£24m)
Jan 2018 Oct 2018
Acquisition of Cursor Controls (£19m) £28m placing Acquisition of Positek (£4m)
Apr 2019 Oct 2019
Acquisition of Sens-Tech (£58m) Acquisition of Hobart (£12m) £32m placing
June 2020 discoverIE Group plc discoverIE Group plc discoverIE Group plc
Board of Directors
C Watson - Non-Executive Director
Clive, a Chartered Accountant, became a Non-Executive Director and Chair of the Audit & Risk Committee in September 2019. He is a also a Non-Executive Director at Breedon Group plc and was Non-Executive Director and Chair of the Audit Committee at Spirax- Sarco Engineering plc for 9 years. During his executive career he was Group Finance Director of Spectris plc for 13 years until 2019.
M M Diamond MBE - Chairman
Malcolm was appointed a Non-Executive Director in November 2015 and became Chairman in April 2017. He is also Non-Executive Chairman of Trifast Plc and of Flowtech Fluidpower plc Malcolm was previously Chief Executive of Trifast plc and, among other previous appointments, was Senior Non-Executive Director of Dechra Pharmaceuticals plc and a Non- Executive Director of Unicorn AIM VCT plc.
T Graham - Non-Executive Director
Tracey joined the Board as a Non-Executive Director in November 2015. She is also a Non-Executive Director at Ibstock plc, Royal London Mutual Building Society and Link Scheme Limited. Among other previous appointments, she was a non-Executive Director at RPS Group plc. During her executive career, she was Chief Executive of Talaris Limited and Managing Director of De La Rue Cash Systems.
N J Jefferies – Group Chief Executive
Nick was appointed Group Chief Executive in January 2009. His experience of electronics and the components industry comes from holding senior positions for over 15 years with leading international distributors of electronic components and computer products, such as Electrocomponents plc and Arrow Electronics. Nick originally trained as an Electronics Design Engineer with Racal Defence (now part of Thales plc)
S M Gibbins – Group Finance Director
Simon was appointed as Group Finance Director in July 2010. A Chartered Accountant, he was previously Global Head of Finance and Deputy CFO at Shire plc. Prior to joining Shire in 2000, he spent 6 years with ICI plc in various senior finance roles, both in the UK and
- verseas. His earlier career was spent with Coopers & Lybrand in London
B M Thompson – Senior Non-Executive Director
Bruce joined the Board as a Non-Executive Director in February 2018. He is also Chairman Designate of Avon Rubber plc since March 2020. He retired in 2018 as Chief Executive Officer of Diploma plc after 22 years. Bruce brings a wide range of strategic and leadership expertise to the Board with proven experience of growing international industrial businesses.
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discoverIE Group plc
Group Executive Management
S M Gibbins – Group Finance Director*
Simon was appointed as Group Finance Director in July 2010. A Chartered Accountant, he was previously Global Head of Finance and Deputy CFO at Shire plc. Prior to joining Shire in 2000, he spent 6 years with ICI plc in various senior finance roles, both in the UK and
- verseas. His earlier career was spent with Coopers & Lybrand in London
M F Pangels - Group Development Director
Martin is Group Strategy and Development Director. He joined discoverIE in July 2010 after working as an advisor to the business. Prior to joining discoverIE, Martin spent 9 years at Electrocomponents plc, where he was Regional General Manager for Europe, and 6 years with Bain & Company as a strategy consultant.
G D Davidson – Group General Counsel & Company Secretary
Greg joined discoverIE in November 2019 and is responsible for legal and company secretarial affairs. He is a qualified lawyer with extensive experience of technology, corporate and commercial matters. His experience includes 5 years at Wiggin & Co LLP, with clients focused predominantly in the technology sector and, prior to joining discoverIE, 16 years at RM plc, with 7 years as General Counsel & Company Secretary
P G Webster - Group Director – Acal BFi and Cross Selling
Paul joined discoverIE in June 2010 as Managing Director, Acal BFi UK. He has many years experience in senior management roles, including Head of Product Management for Electronics globally at Electrocomponents plc. He began his career as a design engineer for Plessey Avionics (now part of BAE Systems). * Denotes membership of the Board
N J Jefferies – Group Chief Executive*
Nick was appointed Group Chief Executive in January 2009. His experience of electronics and the components industry comes from holding senior positions for over 15 years with leading international distributors of electronic components and computer products, such as Electrocomponents plc and Arrow Electronics. Nick originally trained as an Electronics Design Engineer with Racal Defence (now part of Thales plc)
P H Neville - Group Commercial Director
Paul was appointed Group Commercial Director in March 2009. A Chartered Accountant, he has over 15 years experience of working in senior management positions for listed public companies, including Wincanton plc and Uniq plc. Prior to joining discoverIE he was Group Chief Executive of an AIM listed software development company.
J J Morcom – Group Head of Corporate Development
Jeremy was appointed Group Head of Corporate Development in March 2017. A physicist by background, he has extensive experience in mergers and acquisitions, having held M&A leadership roles at Spectris plc and Invensys plc preceded by over a decade spent in investment banking.
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Applications – Renewable Energy
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Wind measurement and pitch controller Airflow, temperature and pressure switches Power supply for pitch controller Turbine power converters and inductors High voltage, high current DC and AC switches
June 2020 discoverIE Group plc discoverIE Group plc
Applications – Medical
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Embedded computers and displays Power isolator and protection for operating theatres Cabling and connectors for medical equipment Foot switches to control the height and position of the
- perating table
Toroidal isolation transformers used in C-Arm X-ray machines and X- ray generators
June 2020 discoverIE Group plc discoverIE Group plc
Applications – Transportation
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Under car equipment & engineered assemblies Door controls Driver desk indicators and controls, speedometer and monitors Drum switches and connectors Transformers and inductors, smaller battery solutions for in-train power
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Applications – Industrial & Connectivity
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Power & signal electronics for industrial drive unit Power unit for satellite propulsion Fibre optic switching module for testing fibre
- ptic cables
Telematics for remote control
- f industrial
equipment Position sensor for extensometers Wireless communications for industrial metering
June 2020 discoverIE Group plc discoverIE Group plc
Essential products into growth markets
Medical Renewable Energy Industrial Connectivity
Charging Sensing systems Power control Cabin monitoring & control Increasing scale of wind
turbines
Diversification of solar systems Wireless telematics Fibre optic connectivity AI communication Wireless robotics control Monitoring & control Automation & robotics Advanced surgery Electric vehicles Mass transit & route vehicles Autonomous vehicles High speed rail
Transportation
discoverIE solutions Market drivers Mega trends
Decarbonisation & Diversification Electrification & Autonomous vehicles Connectivity & Industrial Internet of Things Artificial intelligence, sensing & analytics
Power inductors Turbine blade pitch control Airflow measurement Embedded diagnostics Interface device & cabling Power systems Automation & robotics ‘Smart factories’ Artificial intelligence
Technology integration
Decarbonisation ‘Safety-centric’ agenda Mass transit & route vehicles Proactive & preventative
medicine
Technological & biological
fusion
Predictive analytics Geopolitical consensus Growing public awareness Legislative and regulatory
regimes
Cost of energy Operational efficiency and
flexibility
Quality control Competition from Technology
companies
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- Enablers of new sustainable
capabilities
- Smart agriculture
- Efficient food manufacturing
systems
- Efficient water
use/management
- Water quality improvement
Growth areas where electronics will drive efficiency, intelligence and sustainability
Example: Resource Optimisation Industrial & Connectivity
Industrial market for Semiconductors to grow 10.8% CAGR (2018-22); IoT market to grow 18.7% CAGR 2019-24 Markets-and-Markets
Industrial & Connectivity
- Industrial applications that
support & enable sustainability;
- Energy efficiency, automation
& communication
- Focus on improvement