Investor presentation June 2021 - discoverIE Group plc
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Investor presentation
June 2021
discoverIE Group plc June 2021
Introduction to discoverIE
◼ Design, Manufacture & Supply customised electronic components
◼ Highly differentiated products
◼ Customers: Original Equipment Manufacturers (OEMs)
◼ Essential products, repeating revenue
◼ Sustainable growth markets
◼ Renewable energy, transportation, medical, industrial & connectivity
◼ Revenue of £454m, operating profit(1) of £35.2m
◼ Operating across 24 countries
◼ Acquisitive
◼ Fragmented market – 17 acquisitions in last 11 yrs
(1) Underlying profit for y/e 31 Mar 21
.
discoverIE Group plc June 2021 2
Sustainable growth Company,
resilient in tough conditions
SALES(1)
We aim to provide investors with
◼ Returns of 15 – 20% pa +19% CAGR(1)
◼ A progressive dividend +6% CAGR(1)
COVID year
In 5yrs to FY18:
◼ Sales(2) up > 2x
◼ Underlying EPS up > 2x FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
◼ Operating profits up > 4x
UNDERLYING OPERATING
PROFIT & EPS
Since FY19 our aim has been to double
underlying EPS in 5 years
◼ FY19 + FY20 op profits up 51%
COVID year
◼ FY19 + FY20 EPS up 35%
◼ Covid actions minimise impact to
only 5% & 14% lower respectively
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Underlying Operating Profit EPS
(1) Share price and dividend growth from FY13 to FY21
(2) Group revenue, excluding disposed businesses
discoverIE Group
discoverIE Groupplc
plc June 2021 3
Our business
Business fundamentals Attractive rewards
▪ Growth markets ▪ GDP++ organic growth
▪ Designed-in products, difficult to replace ▪ High levels of repeating revenue
▪ Distinct business, competitive advantage ▪ Sustainable margins
▪ Low customer concentration ▪ Reduced risk
▪ Design, not price led ▪ Increasing margins
▪ Low capital requirements ▪ Cash generative
▪ Multiple manufacturing sites & technologies ▪ Reduced risk
▪ Acquisitions at the right price ▪ Earnings accretion
Underpinned with high standards of Environmental, Social & Governance for a better world
discoverIE Group plc June 2021 4
Consistent, proven strategy
◼ Sales growth well ahead of GDP over the economic
cycle
◼ Move up the value chain into higher margin products
◼ Acquire businesses with attractive growth prospects
and strong operating margins
◼ Further internationalise the business
◼ Generate strong cash flows and long term sustainable
returns while reducing impact on the environment
discoverIE Group plc June 2021 5
Focused on delivering key targets
Key Strategic Indicators FY25
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Targets
1. Increase share of Group revenue from D&M (1) 18% 37% 48% 52% 57% 61% 64% 65% >75%
2. Increase underlying operating margin 3.4% 4.9% 5.7% 5.9% 6.3% 7.0% 8.0% 7.7% 12.5%
(1)
3. Build sales beyond Europe 5% 12% 17% 19% 19% 21% 27% 28% 40%
(1)
4. Target Market Sales n/d n/d n/d 56% 62% 66% 68% 70% 85%
Key Performance Indicators
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Targets
1. Sales growth
CER 17% 36% 14% 6% 11% 14% 8% (4%) Well ahead
D&M Organic 3% 9% 3% (1%) 11% 10% 5% (4%) of GDP
Group Organic 2% 3% 3% (1%) 6% 8% 2% (6%)
2. Underlying EPS growth 20% 31% 10% 13% 16% 22% 11% (14%) >10%
(2) (3)
3. Dividend growth 10% 11% 6% 6% 6% 6% 6% 6% Progressive
4. ROCE 15.2% 12.0% 11.6% 13.0% 13.7% 15.4% 16.0% 14.5% >15%
5. Operating profit conversion 100% 104% 100% 136% 85% 93% 106% 141% >85% of Op
profit
6. Free cash conversion n/d n/d n/d n/d n/d 94% 104% 157% >85% of PAT
7. Carbon emissions (6%)(4) 50% reduction
by CY25
(1) As a percentage of Group revenue
(2) Increase in the interim dividend, a final dividend was not proposed due to COVID-19
(3) Increase over FY 2018/19, the last full dividend
(4) Carbon emissions reduced by 19% including the effects of Covid, 6% reduction on an underlying basis
n/d – not previously disclosed
discoverIE Group plc June 2021 6
▪ Global trends driving structural growth
FOCUSED ON ▪ Product development driven by technology
SUSTAINABLE ▪ Increasing electronic content
GROWTH MARKETS ▪ Essential products
▪ Markets aligned with UN SDG(1)
Renewable Transportation Medical Industrial &
Energy Connectivity
Artificial Connectivity,
Mega Decarbonisation Electrification intelligence, automation &
Trends & Diversification & Autonomous
vehicles
sensing and
analytics
Industrial
Internet of Things
(1)UN SDG United Nations Sustainable Development Goals
discoverIE Group plc June 2021 7
Our planet, Our people, Our products
Environmental, Social & Governance (ESG) priorities for a better world
Environment Health & Safety Diversity Governance
Tonnes CO2/£m turnover Accidents per employee Gender split Internal audit covers 80%
Head office staff
Group EBIT & 67% Group
22.91 64% Stock over two years
-19% 0.022
61% 62%
18.52
0.020 36% 39% 38% Employee engagement
programs focused on
0.019 communication, health & well
being
FY19 FY20 FY21
Community outreach
2019 2020 FY19 FY20 FY21 Male Female
Community Foundation Surrey
Manufacturing for the disabled
• 19% fall in CO2 emissions • >6500 hours of H&S training • Focused on increasing our
• 6% underlying fall ex-covid • >90 H&S reps Group wide diversity
• Targeting 50% reduction by • Targeting >80% of global • 38% Head Office staff gender
CY25, with c.£3m investment workforce to be under diversity
• ISO14001 accreditation ISO45001 by 2025 • 13% Head Office staff ethnic
program underway for 80% diversity
target by 2025, currently 31% • Targeting 33% board gender
diversity
discoverIE Group plc June 2021 8
Design & Manufacturing division
REVENUE FROM TARGET
MARKETS
▪ 65% of Group Revenue REVENUE BY
BY REGION (% of total revenue)
REVENUE REGION
▪ 6% Organic CAGR over last 5 years (pre FY21)
▪ 75% in faster growing target markets UK
UK
10%
▪ Generating 87% of FY21 Group profit contribution Asia
10%
23%
Asia Germany Other
▪ 13% operating margin 23% 12%
Germany Industrial &
12% Connectivity
▪ 16 acquisitions completed since 2011 N. America
13% Nordic
▪ Increasing specialist capability and international reach 24% Transport
N. America
13% R.O.E. Nordic Medical
24%
18% Renewable
▪ Capital light model with capex c.2%of revenue
R.O.E. energy
18%
75%
▪ R&D investment c. 2%/rev
▪ 29 manufacturing sites / 18 countries
HALF YEARLY ORGANIC
SALES GROWTH
12%
11%
10% 10%
9%
7%
5%
3%
(2%)
(7%)
Q4 17 H1 18 H2 18 H1 19 H2 19 H1 20 H2 20 H1 21 H2 21
Without COVID-19 With COVID-19
discoverIE Group plc June 2021 9
Strong cash flow and returns
Operating cash flow ◼ Strong growth in operating &
Free cash flow free cash flows
Operating & £49.7m
free cash flow ◼ Consistently high conversion rate
£39.3m £37.6m ◼ Aiming to be self sufficient in
funding over time
£28.6m £27.3m
£27.1m
£22.1m
£16.3m
£19.2m
◼ High quality acquisitions over 11
£13.9m £13.2m
£9.6m years
£7.1m £7.2m
◼ £280m invested in 17 D&M
Operating cash flow %
acquisitions, £135m new equity
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Target
100% 104% 100% 136% 90% 93% 106% 141% 85%
◼ Generating strong returns
◼ Well ahead of cost of capital
66% ◼ Higher margin, capital-lite, cash
Average EBIT ROI generative
43% ◼ Average EBIT ROI(1) of
acquisitions of 16%
25% 25% ◼ Targeting EBIT ROI > 15%
22%
17% 17% 16%
15% 15%
Target 12% 10% 10% ◼ Clear approach to acquisitions
3%
◼ Must have discoverIE DNA
A B C D E F G H I J K L M TOTAL
◼ Group ROCE for FY21 of 14.5%
(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) ◼ H2 15.6%
(2) All D&M businesses included which were acquired more than 2yrs ago. Excludes recent acquisitions: Sens-Tech, Limitor, Phoenix and CPI
discoverIE Group plc June 2021 10Acquisition case study – Noratel Group
Noratel FY15-21 ◼ Acquired July 2014
Noratel
Revenue growth FY15-21
7% CAGR ◼ Products – Power Transformers
Revenue growth
Operating margin 10% → 14%
7% CAGR
◼ Developments since acquisition:
Operating
ROCE margin 10% →→ 24%
12% 14%
◼ Developed long term strategic plan
ROCE
ROI 12%
14% →→ 24%
21% ◼ Organic growth in target markets
◼ Upscaled production facilities to support
ROI
Working capital % 14% →→ 21%
29% 14%
growth including new Indian facility
Working capital%
Target market % 29% →→ 75%
62% 14% ◼ Manufacturing rationalisation
Target market %% 62% →
28% 75%
47% ◼ 2 bolt on acquisitions in North America
International sales
(Plitron and Hobart)
International sales %
Bolt on acquisitions 28% →
2 47% ◼ Working capital optimisation
Bolt on acquisitions 2 ◼ Upscaled finance team
◼ Integrated Group risk, control & ESG
policies
◼ Transitioned to new CEO
discoverIE Group plc June 2021 11Outlook, financing & dividends
Latest recommendations (1)
Latest Rec Date
Peel Hunt 835p Buy Apr-21
Berenberg 850p Buy Apr-21
◼ Outlook
FinnCap 833p Buy Apr-21 ◼ Fundamentals in place for long term growth to
Jefferies 800p Buy Feb-21
resume: strong order growth, good levels of
design wins, pipeline of acquisitions
Numis 740p Hold Apr-21
Panmure 850p Buy Apr-21 ◼ Financing
Shore2 845p Buy Apr-21 10.15p ◼ Net debt of £47m at 31 Mar 21 with gearing of 1.1x
9.55p
Average 822p ◼ £180m committed facility (to Jun 24) plus a £60m
Covid cash protection action
9.00p
8.50p
8.05p
accordion.
7.60p
6.80p
5.81p
6.18p
6.75p
7.00p
◼ Dividend
5.43p 6.35p
5.09p
5.72p
6.05p
◼ Progressive dividend policy.
5.40p
4.36p
4.98p ◼ 100% dividend increase in 11yrs to FY21 (7% CAGR)
3.99p
3.74p
3.40p
◼ Long term: >3x cover (underlying basis); FY21 2.5x
2.97p 3.15p
2.65p 2.80p
2.20p 2.33p 2.45p
1.69p 1.69p 1.82p 1.82p 1.82p
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
(1) Recommendations as at 31 May 2021
(2) Shore recommendation within the paper
discoverIE Group plc June 2021 12APPENDIX Board, GEC & History
Board of Directors
M M Diamond MBE - Chairman
B M Thompson – Senior Non-Executive Director
Malcolm was appointed a Non-Executive Director in November 2015 and Bruce joined the Board as a Non-Executive Director in February 2018. He
became Chairman in April 2017. Malcolm was previously Chief Executive of is also Chairman of Avon Rubber plc. He retired in 2018 as Chief Executive
Trifast plc and then Non Executive Chairman for a combined period of 30 Officer of Diploma plc after 22 years. Bruce brings a wide range of
years. Other previous roles include Non-Executive Chairman of Flowtech strategic and leadership expertise to the Board with proven experience of
Fluidpower plc and Senior Non-Executive Director of Dechra growing international industrial businesses.
Pharmaceuticals plc.
N J Jefferies – Group Chief Executive T Graham - Non-Executive Director
Nick was appointed Group Chief Executive in January 2009. His
experience of electronics and the components industry comes from Tracey joined the Board as a Non-Executive Director in November 2015.
holding senior positions for over 15 years with leading international She is also a Non-Executive Director at Ibstock plc, Royal London
distributors of electronic components and computer products, such as Mutual Building Society and Link Scheme Limited. Among other
Electrocomponents plc and Arrow Electronics. Nick originally trained as previous appointments, she was a non-Executive Director at RPS Group
an Electronics Design Engineer with Racal Defence (now part of Thales plc. During her executive career, she was Chief Executive of Talaris
plc). Limited and Managing Director of De La Rue Cash Systems.
S M Gibbins – Group Finance Director C Watson - Non-Executive Director
Simon was appointed as Group Finance Director in July 2010. A Chartered
Clive, a Chartered Accountant, became a Non-Executive Director and
Accountant, he was previously Global Head of Finance and Deputy CFO at
Chair of the Audit & Risk Committee in September 2019. He is a also a
Shire plc. Prior to joining Shire in 2000, he spent 6 years with ICI plc in
Non-Executive Director at Breedon Group plc, Kier Group plc and Trifast
various senior finance roles, both in the UK and overseas. His earlier career
plc and was Non-Executive Director and Chair of the Audit Committee at
was spent with Coopers & Lybrand in London
Spirax-Sarco Engineering plc for 9 years. During his executive career he
was Group Finance Director of Spectris plc for 13 years until 2019.
discoverIE Group
discoverIE Groupplc
plc June 2021 14Group Executive Management
N J Jefferies – Group Chief Executive* S M Gibbins – Group Finance Director*
Nick was appointed Group Chief Executive in January 2009. His Simon was appointed as Group Finance Director in July 2010. A Chartered
experience of electronics and the components industry comes from Accountant, he was previously Global Head of Finance and Deputy CFO at
holding senior positions for over 15 years with leading international Shire plc. Prior to joining Shire in 2000, he spent 6 years with ICI plc in
distributors of electronic components and computer products, such as various senior finance roles, both in the UK and overseas. His earlier career
Electrocomponents plc and Arrow Electronics. Nick originally trained as was spent with Coopers & Lybrand in London
an Electronics Design Engineer with Racal Defence (now part of Thales
plc)
P H Neville - Group Commercial Director M F Pangels - Group Development Director
Paul was appointed Group Commercial Director in March 2009. A Martin is Group Strategy and Development Director. He joined discoverIE
Chartered Accountant, he has over 15 years experience of working in senior in July 2010 after working as an advisor to the business. Prior to joining
management positions for listed public companies, including Wincanton discoverIE, Martin spent 9 years at Electrocomponents plc, where he was
plc and Uniq plc. Prior to joining discoverIE he was Group Chief Executive of Regional General Manager for Europe, and 6 years with Bain & Company
an AIM listed software development company. as a strategy consultant.
J J Morcom – Group Head of Corporate P G Webster - Group Director – Acal BFi and Cross
Development Selling
Jeremy was appointed Group Head of Corporate Development in March Paul joined discoverIE in June 2010 as Managing Director, Acal BFi UK. He
2017. A physicist by background, he has extensive experience in mergers has many years experience in senior management roles, including Head of
and acquisitions, having held M&A leadership roles at Spectris plc and Product Management for Electronics globally at Electrocomponents plc.
Invensys plc preceded by over a decade spent in investment banking. He began his career as a design engineer for Plessey Avionics (now part of
BAE Systems).
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
* Denotes membership of the Board
discoverIE Group plc 15History since incorporation
BFi Optilas Compotron, Myrra, YEG & Variohm Cursor
Incorporation Hectronic & Noratel Flux Hobart Sens-Tech Limitor
SAS RSG Holdings Controls
MTC (£71m) (£3m) (£12m) (£58m) (£13m)
(£13m) (total £9m) (total £13m) (£12m) (£19m)
Admission to
the official list
Sale of AES Contour CPI
of the London Sale of ATM Sale of UK (completes exit
Foss Santon Positek Phoenix
Stock (£17m) and
Parts Parts from IT Supply (£8m) (£24m) (£4m) (£9m) (£8m)
Exchange Chain £12m total) Plitron (£2m)
New
management: £55m rights
£6m placing £14m placing £28m placing £32m placing
issue
NJ joins as
CEO
SG as CFO
(Jul 10) Sale of EAF
Parts
Jan Jan Jun Jul Jan Nov Jan/Feb Jan Jan Oct Apr Oct Oct Feb May
1986 1994 2009 2009 2010 2011 2013 2013 2014 2014 2015 2015 2016 2017 2018 2018 2019 2019 2020 2021 2021
Acquisitions
Disposals
Fundraising
◼ High Quality Shareholders
◼ Top 5 (34%) –Standard Life Aberdeen, Black Rock, Kempen, Montanaro, Canaccord
◼ Next 15 (38%) – Amati, Axa, Charles Stanley, Colombia Threadneedle, Danske, Franklin Templeton, Herald, Invesco, Kabouter, L&G,
Rathbones, Royal London, Royce, Schroders, Swedbank
◼ Directors/management: 4%
discoverIE Group plc June 2021 16APPENDIX Sales model and customers
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 our 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
discoverIE Group plc June 2021 18Our customers
& the European ‘Mittelstand’
discoverIE Group plc June 2021 19APPENDIX Target Markets
Essential products into growth markets
Technology discoverIE
Mega trends Market drivers
integration solutions
Decarbonisation ◼ Geopolitical consensus ◼ Increasing scale of wind ◼ Power inductors
◼ Growing public awareness turbines ◼ Turbine blade pitch
& Diversification
◼ Legislative and regulatory ◼ Diversification of solar control
regimes systems ◼ Airflow measurement
◼ Cost of energy
Renewable Energy
Electrification ◼ Decarbonisation ◼ Electric vehicles ◼ Charging
& Autonomous ◼ ‘Safety-centric’ agenda ◼ Mass transit & route ◼ Sensing systems
◼ Mass transit & route vehicles ◼ Power control
vehicles
vehicles ◼ Autonomous vehicles ◼ Cabin monitoring &
◼ High speed rail control
Transportation
Artificial intelligence, ◼ Proactive & preventative ◼ Monitoring & control ◼ Embedded diagnostics
sensing & analytics medicine ◼ Automation & robotics ◼ Interface device & cabling
◼ Technological & biological ◼ Advanced surgery ◼ Power systems
fusion
◼ Predictive analytics
Medical
Connectivity & ◼ Operational efficiency and ◼ Automation & robotics ◼ Wireless telematics
flexibility ◼ ‘Smart factories’ ◼ Fibre optic connectivity
Industrial
◼ Quality control ◼ Artificial intelligence ◼ AI communication
Internet of Things ◼ Competition from ◼ Wireless robotics control
Technology companies
Industrial & Connectivity
discoverIE Group plc June 2021 21Renewable Energy
Applications
Airflow, temperature and
pressure switches
Wind measurement and
pitch controller
Turbine power converters
and inductors
High voltage, high current
DC and AC switches
Power supply for
pitch controller
discoverIE Group plc June 2021 22Medical
Applications
Embedded computers
and displays
Foot switches to control the
height and position of the
operating table
Cabling and connectors for
medical equipment
Toroidal isolation transformers
used in C-Arm X-ray machines
and X-ray generators
Power isolator and protection
for operating theatres
discoverIE Group plc June 2021 23Transportation
Applications
Rail carriage door
controls and connectors
Driver desk indicators and
controls, speedometer and
monitors
Vehicle electrification
charging infrastructure
Drum switches
and connectors
Transformers and inductors,
smaller battery solutions
for in-train power
discoverIE Group plc June 2021 24Industrial & Connectivity
Applications
Power unit for
satellite propulsion
Wireless communications for
industrial metering
Telematics for remote control of
industrial equipment
Power & signal electronics for
industrial drive unit
Position sensor
for extensometers
Fibre optic switching module for
testing fibre optic cables
discoverIE Group plc June 2021 25Refining our industrial market focus
Growth areas where electronics will drive efficiency, intelligence and
sustainability
▪ Industrial applications that
support & enable
sustainability
Industrial & ▪ Energy efficiency,
Connectivity automation &
communication
▪ Focus on improvement
▪ Enablers of new
sustainable capabilities
▪ Smart agriculture
Industrial &
Connectivity Example: ▪ Efficient food
Resource manufacturing systems
Optimisation ▪ Efficient water
use/management
▪ Water quality improvement
discoverIE Group plc June 2021 26Case study: Our unique solutions for
Renewable energy
▪ 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
Airflow measurement Pitch controller
Power inductors
discoverIE Group plc June 2021 27APPENDIX Sustainability in action
Sustainability in action
Advancing the Electrification of Transportation
discoverIE Group plc June 2021 29Sustainability in action
Enhancing the Quality of life and care for people
discoverIE Group plc June 2021 30END
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