discoverIE Group (LSE:DSCV) — Full Year Results for the year ended 31 March 2026

0:01 Good afternoon, and welcome to the DISCOVERIE GROUP PLC Preliminary Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just simply type in your questions and press send. Before we begin, I would like to submit the following poll. And I would now like to hand you over to the executive management team from the DSCV Group PLC, Nick. Good afternoon to you, sir. Hello there. Thank you very much. Hello, everybody. Thank you for joining. I'm Nick Jeffries, and I'm with Simon Gibbons, our group CFO. Yes. So this is a summary presentation and talk through the preliminary results for the year end the end of March. It has been a solid year. We've delivered a good set of results with further growth in operating profit and adjusted earnings per share, continuing our long term ten year plus growth track record.

1:02 We were able to deliver this with really driven by, in the second half, a strong a return to strong growth in orders and sales. Our organic orders increased by 14% in the fourth quarter, leading to a 5% growth for the year. Our organic sales grew by 5% in the fourth quarter, leading to a 2% for the full year. And that's really been the key theme of the of the performance through the year, the increasing momentum that really started at the summertime last year with a gradual tick up in orders accelerating through the year and that following sort of some months later into sales growth. So we've exited the year with both divisions in growth. We've delivered an order book that's up 5% on the first half, giving us good visibility into the new financial year, and indeed, that growth has continued into the new year.

1:58 And at the same time, we've invested in further growth. In the second half of the year, we increased investment into engineering sales and production capacity, a total of £2,200,000, of which 1,700,000 was for engineering and sales capability, principally in Europe and North America. And then the additional £05,000,000 was for extra production equipment in our Thai, Indian, and South Korean facilities. So the net of all that was that adjusted operating profits for the year were up 1% on earnings per share up 4%. Our operating margin was 13.8%, down 40 basis points due to the £2,200,000 cost investment. It's worth just noting that ex the £2,200,000 cost investment, our operating margin would have been marginally ahead of the prior year.

2:51 As always, our cash flow has been excellent. Our free cash flow conversion for the year was 92% ahead of target, consistent with our long term over ten year conversion rate of around about 100%. We have a low CapEx business model, and that is consistently very cash generative. Also, in the last few months, we've announced three significant acquisitions for a total consideration of £95,000,000, all three of which are increasing our presence in fast growing our fast growing target markets. Three weeks ago, we announced the acquisition of three g Metal Works for £50,000,000 for a 90% share of that business. It's a business based in North America, in Canada, and The US, that designs and manufactures electromagnetic shielding products for security, that's defense, space, and transportation industrial applications.

3:47 That business is subject to approval, regulatory approval, and we expect that to be to approval to come through over the next few months. Before that, we acquired in April Trival, which is a business based in Slovenia, Ljubljana, for £40,000,000. That business designs and manufactures antennas for the security defense market. As with three g metalworks, it has a very strong management team and has a very strong track record of growth and further growth. In December, we acquired Storm, which is actually, the company name is KeyMap, a trader's Storm, for £5,500,000. That's a bolt on acquisition into our magnetics and controls division. That business has settled in well. They design and manufacture audio guide components for the visually impaired to use in sort of point of information, point of sale terminal equipment.

4:47 Two thirds of their sales are in The US, but it's expanding rapidly into Europe and The UK and internationally as well. That's a market that's driven by legislation. So there is legislation for point of use terminals in many Western countries now that requires an audio guidance element to be provided on such equipment so that the visually impaired can use them. Storm defined the standard and manufactures the products that enable that, and therefore, they've been seeing some very strong growth. All three businesses are accretive to both our adjusted earnings and operating margin. They have operating margins themselves well ahead of our target margin of 17%. And we acquired those three businesses for an EBIT multiple of 9% last twelve month EBIT multiple of 9%.

5:36 In addition to that, we have a strong pipeline of acquisition and design opportunities. The acquisition pipeline is principally generated through targets that we identify and focus on, and that continues to be very strong. Our gearing, following the three acquisitions that we've recently announced, is on a pro form a 2.2. But by the end of this year that we've now entered, it will be down to 1.7. So that will give us further funding capacity. In addition to that, we have a strong base of design opportunities. Design opportunities are fundamental to our organic growth and remain a key plank of everything we do. We have seen good growth over the last year in design wins, and we expect that to continue in the year ahead.

6:27 The outlook for the year ahead is positive. We've entered the first quarter with trading starting very well. Organic order orders continue to grow strongly, and we have also continuing good organic sales growth. Orders are well ahead of sales, and so that's driving further increase in the order book. And it's worth saying that our orders are noncancelable, and almost all of them, 90 plus percent of them, are for delivery within twelve months. So as the orders come in onto the order book, they are firm demand. So all of that gives us a positive outlook for FY 'twenty seven. We're only two months into the new year, but our trading is in line with board expectations. The first half, second half trading will be broadly split, I. E, there won't there's no we're not dependent upon any big second half sort of hockey stick.

7:19 The growth drivers, as I just mentioned, are in very good shape. The design wins, the opportunities, and the increasing exposure to our security target market. It's worth saying that Trival the Trival acquisition, the revenues are just shy of a 100% sold into defense markets. Three g, around 50% of 50% of the revenue comes from the defense markets. So what with that and those acquisitions coming through to completion, we are expecting a good year ahead. I'll just pause there and hand back to questions. I'll hand over to questions. I think Lily has a list that she's been gathering. So please keep those questions coming in. Yes. Thanks, Nick. So first question coming in, your recent acquisitions were acquired at margins above the group average. How quickly do you think that those benefits will be reflected at the consolidated level?

8:19 So the first two acquisitions well, the Treval acquisition is the main one. That is already in the market consensus numbers, and that's delivering a 40 basis points improvement in operating margin consensus for the year that we're now in, the new year. The three g margin effect isn't in the consensus numbers because the timing of approval will determine the exact number that we put in the in the year's outlook. But on an annualized basis, Treval and three g generate 80 basis points of margin improvement, and that will come through this year. But they're also they're all all three are immediately accretive. So when you take into account the interest we're paying, they're all immediately accretive. So that will contribute straight from the start of acquisition.

9:12 And follow on that question, you mentioned that you're now that a pro form a gearing of 2.2x. And how comfortable are you with that gearing? And would you consider larger acquisitions if attractive opportunities arose? So, yes, we're comfortable with the gearing. I mean, we generate just under half a point of gearing in cash flow each year, so the cash flow the gearing comes down pretty quickly. We expect the growth the gearing at the end of the year we're now in will drop to about 1.8. As we've our business has shown over the last few years, we have a very resilient EBITDA profitability, in the last year or so as the last couple of years as we went through the destocking cycle, we continued to deliver margin and operating profit progression. So we didn't suffer the margin squeeze that some, perhaps, more traditional manufacturing companies, you know, can see. And therefore, we haven't seen a gearing squeeze. So we're comfortable with that lever level of gearing.

10:19 Additionally, our gearing covenants were increased from three and a half so from three to three and a half last last autumn when we renewed the facility. So so we have plenty of headroom, you know, ahead of the covenant. So our yeah. We we our self imposed limit is a gearing of two and a half, which we have never never achieved, but the covenant is 3.5. So we've got plenty of room. Great. Next one. Sorry. Continue. Yes. That question is there. Sorry. Next one, about organic growth. So you have a very strong organic orders pickup, up 14% in q four. What gives you the confidence that, that trend is going to continue?

11:07 So we have seen that the industrial cycle has turned. The macro industrial cycle, which we monitor very closely, which is driven by things like money supply, has turned. And it's gradually been picking up over the last few months as have our orders. And, you know, and and so we we believe that that will certainly continue. How far ahead can we see? Well, we have limited visibility, as does everyone, but we can see growth continuing for at least a year ahead as that cycle continues to recover and hopefully beyond that. Also, the next one is related to target markets. You identified defense as a target market about eighteen months ago.

11:58 And how is it going? And also that you acquired two businesses that have exposures to the defense. And are you doing anything organically to drive that market as well? Yes. We are. So we hired some months ago, we hired a business development resource at the group with specific responsibility for establishing our position in the defense markets. Historically, we're not known for selling into the defense markets. We have sporadic bits, but it's historically been very small. So we hired someone that has a career history of of doing just that, selling electronic components into the defense prime contractors in UK and Europe. It's early days, but that's going very well. We have a very sort of compelling product offer.

12:46 Certainly, in some of The UK and European primes that we presented that to, it has been very warmly received. Now, of course, the $64,000,000 question is how long will that take to come through into tangible business? Cycles are longer, but we've certainly got the activity underway, and we are identifying as as we as we are now, opportunities for organic revenue growth. So we expect good development from that over time. Next one. What is the typical time frame between securing a design win and generating meaningful recurring revenue? So historically, the average is that typically a revenue will start to come through six months after the design win. It's a that's an average of a broad range, but at a group level, that's broadly what it is. That was extended over the last two years as the world went through this destocking cycle, but we think that that's now coming back to a much shorter cycle as as things pick up. So, typically, that's six months after the design win the first revenue starts. That's typically either low volume production or preproduction.

13:58 And then it but then it it ramps from there over the next twelve months. So it it really sort of starts to get meaningful, typically sort of nine, twelve months after the design win. Thank you. The next one is about three g. Three g is the first minority interest deal that you have. Can you talk more about the business and why do you do the minority interest? Yes. So three gs is a fantastic business. They spent the last sort of five, seven years building position in high quality industrial defense and space customers in North America. And the management team there can see that there is plenty of growth yet to come.

14:43 So they were very keen to retain a minority interest in the business, and we were keen to accommodate that. So they were saying 5% each on a three to five year put call option, and, you know, we expect that to yeah. We well, and we expect that business to grow, and management want to benefit from that. So we think three g is a fantastic business. It's got a very, very good track record of growth. It has an excellent customer list, qualified customer list, and it has excellent management. So we're excited to to, you know, to to bring the business on board and create an opportunity that will, you know, create growth for both of us. Thank you, Nick. That's all the questions. I'll hand over to Alex.

15:29 That's great. Thank you very much indeed, guys, for addressing those questions today. But Nick, before I redirect investors to provide you with their feedback, which you know is particularly important to yourself and the company, could I please ask you for a few closing comments? Yes. Thank you. So yes, so we have started exited the year well. We have a business that is performing very strongly. We've seen I should have said earlier, we've seen the trading broaden and deepen across sort of the mid tier of customers. We've got a very broad based pickup in trading underway. Along with the acquisitions, we are well on track to deliver solid growth through this year and beyond. That's great, Nick. Simon, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations.

16:24 On behalf of the management team, we would like to thank you for attending today's presentation, and good afternoon to you all.