discoverIE Group H2 2025 Earnings Report

discoverIE Group EPS Results

• Actual EPS: GBX 39.70
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

discoverIE Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

discoverIE Group Announcement Details

• Quarter: H2 2025
• Date: 6/4/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, June 4, 2025
• Conference Call Time: 4:30AM ET

discoverIE Group (LON:DSCV) is an international group of businesses that design and manufacture innovative electronic components for industrial use. The Group provides application-specific components to original equipment manufacturers (“OEMs”) internationally, with a focus on key markets driven by structural growth and increasing electronic content, namely renewable energy, medical, transportation and industrial & connectivity. The Group employs c.4,500 people across 20 countries. Its principal operating units are located in Continental Europe, the UK, China, Sri Lanka, India, Thailand, Mexico and the USA.

discoverIE Group H2 2025 Earnings Call Transcript

Key Takeaways

• Operating profit rose 8% at constant exchange rates to £60.5 m, while margins hit a record 14.3% for FY 2024 (14.8% in H2), prompting a new margin target of 17% by FY 2029.
• Group sales fell 2% at constant exchange rates (3% reported), with organic revenue down 7% as industry-wide destocking pressured the top line.
• Q4 orders surged 15% (4% in H2) as customer destocking cycles ended, driving a strong rebound in the order book heading into FY 2025.
• Adjusted EPS grew 5% (8% at CER) to £38.7, supported by higher margins and set to benefit further as elevated interest costs abate.
• Free cash flow increased 9% to £40.4 m, with net debt down to £94 m (1.3x EBITDA) and gearing reduced, highlighting robust cash generation.

Presentation

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Thank you for coming this morning to the Discovery annual results presentation. So you you I think we we have a couple of new faces, but, from in the audience, but this is the same old rogues here. Bruce, our chairman over there, Simon, who's gonna follow me, and, of course, me, and then Lily and Henry. So Henry is where's Henry?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Everyone knows Henry. Henry is now part of the team with Lily on IR. So he he'll answer all your questions. He can tell you the real answers now. Right.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So so it's been a good year. As many of you will know, there's been quite some pressure on the top line with widespread industry destocking, but our operating profits are up 8% at constant exchange rate. We're very pleased with that. Of course, we're pleased with it. We're also pleased with the fact that margins reached a record level of 14.3% for the year, 14.8% in H2.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

And that's against the target of 15% by FY 2028. So as a consequence of that, we've increased our target to 17 by FY 2029, And that represents something over ten years now of continuing operating profit and margin growth. It's a very important metric for us. And as those of you who know us well will know, we set a target out over the sort of three to five year period and then we aim to hit it early and then we bump it up again and that's exactly what we're doing this morning. And as I say, that's despite sales which were 2% lower at CER, 3% reported driven by 7% lower organic sales minus 10% first half, minus 2% in the second half.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

We'll talk more about that and how we've managed that and been able to offset any sort of margin squeeze. Q4 orders were up 15%. It was up 4% in the second half and 15% in the Q4. Very, very strong bounce back. The reason for that is that most of the subdivisions in the business came to the end of their destocking period, and the consequence of that is that customers start placing orders again.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So the result of all that is earnings per share up adjusted earnings per share up 5%, and that's with the effect of the higher interest charges, which of course will start to are starting to abate and will continue to abate from which we will benefit as we go forward from here. Cash flow, fantastic. Free cash flow up 9% to £40,400,000 1 hundred and 6 percent Very, very cash generative through the cycle. Our carbon emissions are also in good shape, came down by 59% since our base year of calendar year '21, meaning that we're well on track for our 65% reduction this year, calendar year, and then net zero by 02/1930.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

We made two acquisitions during the year for £29,000,000 High Volt and Burster, some of which we'll talk about a bit later. And we have a very strong pipeline of acquisition opportunities. We'll again, we'll talk a bit about that later, but we've got £80,000,000 of funding, which on the multiples we're acquiring at is about equivalent of being able to acquire about 15% of current EBIT. So we've got good opportunities, and we're just focused on getting the timing right of some of those opportunities. So it's been a good year.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

We're well set for going forward from here. We'll talk about some of the operations later, but I'll now hand over to Simon to take you through the financials.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Great. Yes. Thanks very much, Nick. Okay. First up from me, financial the financial highlights.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Front page table here, I hope you'll recognize that this is strong set of results delivered in tough conditions. So despite that, it's been a year of quite heavy industrial destocking in a number of businesses. Look, we're still delivering record profits, record margins, record EPS and record cash flow. So we're really pleased to be able to deliver that to you guys coming through the backdrop that we have. So more I'll give more detail on all of these later, but it just gives you that oversight.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Okay. Next up is this is a table actually we use at the Capital Markets Day. It shows our targets, our medium term targets across the top. In the center, can see the results through cycle results across the ten year period. And then at the base, I've put this year's numbers.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

So if you take on the left, organic sales over the ten year period, we delivered a healthy 6% annualized growth. This year, coming through the bottom of the cycle, 7% down, but as Nick said, it's improving to 4% down in the second half. And actually, that's quite similar to the previous downturn. If you remember, that was COVID. And we came through that very nicely.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

And despite that, looking at the margin, despite that impact, we delivered some really decent operating margin growth. So up 1.2%, up to fourteen point three fourteen point eight as Nick mentioned in the second half. And that adds to eight percentage points that we delivered over the previous ten year period. So we're really sort of moving that up. We've easily sort of comfortably achieved our 13.5% target, if you remember, we set for this year.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

We're pretty close now to the 15% target. So we've moved that target up now to 15%, five year target, 17%. EPS, again, that margin has really helped us deliver on the EPS front despite higher interest rates, up five percent, up 15% in the second half, and that adds to 19% annualized growth that we've been achieving over that previous ten year period. Cash conversion, you can see, continues to be strong. We're a very cash generative company.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

That's over 100% conversion rates. And that's again is sort of in line with what we've achieved on average over the last ten years and nicely above our target that we set ourselves. The return, we managed to keep that improving despite having done a couple of acquisitions this year, despite the destocking, it's still gone up. And actually, look, second half is at 16.4%, so again, a good number. And on the right there, we are continuing to do good work in terms of reducing our carbon emissions, and you can see that's down 59% since the base we set three years ago.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

So nicely on track for the 65% target we set for for this coming year and, you know, well over half towards the net zero target by FY thirty. Yeah. Moving on to operating profit and and margin. You can see on this chart that actually, you know, regardless of what the organic sales performance has actually been, we've continued to deliver, you know, growth in you know, good growth in operating profits and margin As you can see there, you know, it's flat, you know, flat in the COVID year, but we'll we'll we'll take that. So this year, profits up 8% at compound exchange rates to 60.5%.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

The margin, as I say, lifted up by 1.2 percentage points. And there's a number of factors in there driving that improved margin performance. So I think a key a very key aspect is our flexible production model, so which allows us to sort of flex, you know, our production costs, you know, with volume. So that's a really important thing to keep your gross margins at a at a decent level. But, you know, plenty of activity in terms of getting, you know, better pricing, pricing for value, but lots of efficiencies too.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

You know, there's lots of small things that that add up. So there's, you know, production transfers, you know, where we sort of move production production between businesses, bring production in house. We're doing more clustering. We've talked about clustering before. And cross selling between the clusters is really starting to pick up.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

So all those sort of things compound to make us a more efficient business, and that will continue. And as said, we've increased the margin to 17%, and that is actually the tenth time looking back that we've increased our margin target over the fifteen years that we've been following this strategy. Moving on, this gives you a nice walk from last year's profits, 7.2% up to the 60.5% this year. The three bars on the left, that's our organic performance. We like to sort of show you that.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

And if you look at it, real upsides there, gross margin, that's actually up the organic gross margin for us is up 1.6 percentage points. Those efficiencies helping both the gross margin, but also we've reduced operating costs through those efficiencies by 2%. And those two combined have offset much of the impact from an organic perspective is caused by the sales shortfall. So GBP 2,400,000.0 organic profit impact over from an organic point of view. All of that you can see is in the second half, the first half, second half was flat.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

And that shortfall together with the impact of a stronger sterling has been more of an offset by the seven acquisitions we've done in the last eighteen months, the 6,800,000.0 there. So profits up 3,300,000.0, up 4.4, at constant exchange rates. And I really, you know, I really I always say is I like this chart because it it just shows you what our strategy our strategy in action, it's about organic performance, it's about operating efficiencies and it's about accretive acquisitions. I've also put this chart in. I think we put it in the Capital Markets Day again, but it neatly shows how we've lifted our margin from seven point six percent seven years ago to the 14.3 you see now.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

And it's a nice even split between what work we're doing organically, but also in terms of accretive acquisitions. And I think looking forward to the 17%, you're probably going to ask, well, how are going to achieve it? I think we would see about onethree of that coming organically and twothree from acquisitions, but let's wait and see. Next on to the divisional performance. Nick touched on this.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

You've got a real contrast between the early cycle S and C business and the later stage, later cycle M and C. So just just looking at S and C first, organic sales actually up 1% overall for the year. It's actually up 6% organically in the second half. And and that growth combined with really good gross margins, we've been putting cost in, we've been investing costs too into the business, and we've got the benefit of four acquisitions in the last eighteen months. All of that's helped lift, you know, profits by 26% up to 36,000,000, and operating margin up, I think, 3.6, over 20% now.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

So a really decent performance from them. Orders orders were at 12% we delivered 12% order growth through the year, nipping up to 15% in the second half. So a really good strong performance coming out of the low point of their cycle. You know, conversely, M and C, you know, still been, you know, some quite heavy impact on on destocking, you know, for those guys. You know, organic sales down 11%, sort of 10% down in the second half.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

So it is still a bit to come out there. But we've done a lot there, you can see, to minimize the impact. So good gross margins again. We've reduced some of the operating expenses, making more efficient. And so we've reduced the impact there, profit impact down to 9% and the margin impact to 0.6 percentage points.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

And you can see that the orders through the year down 4%, but I think we put this in the trading update, orders were up 15% and said that's good. It's a good sign. We need that to continue as we do in S and C. But really, record performance from S and C, resilient performance from M and C, and Nick will take you through a bit more detail on the two divisions later. Next on to earnings.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

This tracks you from profit of CHF 60,500,000.0 down to EPS of CHF 38.7 You can see the finance costs actually is up 16% in the year. And that's the interest rates on average were about this about even year on year. So it's more the average level of debt was higher this year versus last year. As Nick said, that that we should get the benefit now. I've put the data as rates start coming down.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

You know, we've got, you know, variable a variable based, debt facility, so we will benefit at a one percentage point fall in base rates, so gives us about a 3% EPS pickup. So fingers crossed there. Tax rates, tax rates down one percentage points. That's the use of some historic tax losses. So overall, 6% growth in operating profit, 8% at CER, converts to 5% growth in EPS, 8% growth at CER.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

And that was 15% growth in the second half. So if you remember, was 4% down first half, 15% up second half. So really excellent second half performance. And that adds, if you can see the graph, we've delivered 15% annualized return over that particular period. So it all adds to that.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

I've put a number there. Reported EPS up 58%, huge. There were some disposal costs associated with with Santon last year. If you take those out, we're up 15%. So it's still a decent bit of growth there.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

And finally, we've got a progressive dividend policy. We've increased the dividend again by 4% in line with the interim. And actually looking back, we've grown the dividend in the fifteen years we've been around by 150%. So we're pretty pleased with that. Next on the cash generation.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

So this chart, you'll be familiar with this from previous years. It takes you through the EBIT adjusted EBITDA of 68,000,000 through to free cash flow of just over GBP 40,000,000. The two bars on the left, that's our capital investment. So you can see we've reduced working capital at Taj. We've invested GBP 6,000,000 in CapEx.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

There's a replacement Chinese facility thrown in there. There's a number of product line extensions. There's a fair bit in there, but it's only 1.4% of top line. So that's very capital light. I think it was slightly up on last year, but it's capital light, that's what we're very much about.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

And if you look at the chart in the middle, free cash flow is up 9% year on year. Operating cash is up 5% year on year and is actually, if you look at it backwards, it's 16% annualized growth in cash flow over the last ten years. So that's not too shabby. And conversion rates, they're strong. I said that they're over 100% for both those cash flow metrics.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

And that's what we've delivered. You can see the table at the base of that, which shows our conversion rates over the last ten years and they're averaging over 100% as well. In terms of balance sheet, we ended the year at GBP 94,000,000 net debt, GBP 104,000,000 last year. Gearing has come down from GBP 1,500,000.0 down to GBP 1.3 Within that, was about GBP 33,000,000 we spent on acquisitions and earn outs. We've received actually GBP 13,000,000 on disposals.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

That's the Sinton disposal we would have talked about this last year. Proceeds came in this year. And we've also got the deferred consideration from the sale of ACAL BFI, that was due this year and came in on time. So GBP 30,000,000 in total. I've also noted there that we've done a buying of our defined benefit scheme, and that should save us about GBP 1,500,000.0 of annual cash flow going forward.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

And then just yours asked, in terms of funding capacity, GBP 1,300,000.0 gearing translates to around about GBP 80,000,000 capacity by the end of this year, and that's plenty for us to be going on with, plenty of scope for more accretive acquisitions. Finally, it's another look at the KSIs. We like the KSIs. And this sort of metric allows you to see the picture of those KSIs through the history. And it reflects you can see our journey in that.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

If you look at the lives two and three, sales and EPS, in good times, we're growing really strongly. In tougher times like COVID, like now, we're pretty resilient. And on the top line, you can see that through all of that, we're growing profits, we're growing operating margin. And four, five and six, we're delivering strong cash flows, good returns. And finally, we're delivering on those environmental promises.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

So with that, I'll hand over to Nick to give us the operational overview.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Yes. So just a recap of what we're about. We think that we have a very strong value proposition. We create innovative products that are driven by a technological need, and we help customers create solutions for their equipment that they perhaps wouldn't otherwise be able to do. So it's got very high added value.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

We price increasingly price according to the value that we're creating rather than than the sort of cost plus mentality. And very important today, have the flexible international production footprint is important and very relevant. We can move production according to where customers need it or perhaps, in this case, where tariffs are are more dictating it currently. So we we we we're creating a real value solution for cut for big customers globally, and they like it, they need it, and we are building a very strong position that we're able to add to by acquiring other similar smaller independent standalone businesses and build out our footprint. So we have a very start from a strong base. We have a very clear strategy to grow, acquire, generate more efficiencies, and, you know, and repeat. So, yeah, we're in we're in good shape. So this is just a quick overview of the group. At the top right, you can see the geographic splits.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

I think perhaps most relevantly down at the bottom left are the organic growth is the organic growth profile through the year. The headline point here is that the destocking has been mostly felt in The U. S, which is down 16%. That follows 20% organic growth last year, followed by U. K.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

And Germany both down seven and then the rest of Europe and Nordic down around 3%. The one bright spot was Asia, which recovered by 1%. If you look at those bar charts on the right, you can really see the difference between the first half and the second half. So the blue chart at the bottom there, bar chart, you can see that the industrial, connectivity, and security sectors were down 10% organically in the first half, recovering to 9% organic growth in the second half. So very strong sort of switch in performance as that destocking sort of came to an end there.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Looking at the data, a different slice of the same data, the the middle bars there, you can see that our top 10 customers at a group level were down 5% organically in the first half, up 13% in the second half. That's significant because sort of eighteen months ago, the first signs of destocking were led by those top 10 customers, and you can see how that's played through the year and and then recovered strongly in the second half. Design wins. We always talk about our design win figures. The, excuse me, the performance continues to be strong.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

We grew five percent in the year. More importantly perhaps, that's up 30% on two years ago. So very, very strong design wins. And despite the softer top line, the design win progress has continued, albeit at a slightly slower pace, but nevertheless continuing. So we have a bank of design wins registered during the year with an estimated lifetime revenue potential of over £350,000,000 As we always say, you can't precisely correlate design wins to next year's sales numbers because it's not a it's not that closely related.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

But the the thing that I always ask you to remember is that without design wins, we would have no future revenue. It is fundamental to this business, And they are in good shape. And as you can see from the chart at the bottom right, they're continuing to grow. And then in addition to that, behind the design wins is the list of new opportunities that we're working on, where we have a pipeline there of well over a billion pounds potential value coming through. So really good fundamental for the business.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Notwithstanding the year's negative organic growth, we're focused on long term growth markets. Actually, they have been more and our revenue has been more resilient than the market overall. And what we expect to see is very good sort of steady recovery of revenue over the next stage of the cycle, sort of playing into this whole point about long term growth through various cycles. In the Capital Markets Day last September, we added security as our fifth target market. That's obviously a bit of sort of flavor of the moment.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Our security market is focused on both commercial and military security applications. And it is, in terms of design opportunities and design wins, it's obviously a fairly fast growing sector at the moment. But the other four target markets, industrial and connectivity, is a fairly wide area but continues to be an exciting area. There's actually quite a lot of technological innovation going on in that area, particularly in the sort of connectivity of industrial applications, robotics, AI controlled remote applications, things like that. Medical is mainly medical equipment for us.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Think scanners, think diagnostic equipment, things like that. Transport is principally things like rail and marine. It's not electric cars, never has been. And then renewable energy now is we sold our solar business, the Santon business last year, so it's now principally wind along with a little bit of hydrogen. So those are all markets that are have they all ebb and flow in slightly different slightly different timings, but they are good markets, we believe, for the long term sustained growth of the business.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Looking at the Magnetics and Controls division, you can see here that the as Simon reported, it was down 11% organic. Sales were down 11% organically for the year. But importantly, orders in the second half orders for the year were up 4% sorry, down 4% organically, but up 4% in the second half, up 15% in the final quarter. And that was principally as the industrial and connectivity markets started to turn the corner. You can see geographically North America being the main destocking culprit, followed by sort of Europe and UK similar to the overall group profile.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

During the year, we acquired two businesses, which have actually gone into S and C, but we have brought in three businesses over the last three years, Silvertell, Shape and DTI, all of which get included into the M and C division. Sensing and connectivity. So this business grew 1% organically, but orders grew 12%. Again, with the second half orders up four percent and fourth quarter orders up 15%. So very, very strong recovery, again, as the destocking came through came to an end.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

High and Bursta are the two recent acquisitions we made. High Volt in Northern Ireland last August and then Bursta in January of this year based in Germany. And you can see here the slightly different geographic profile. So U. K.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Is a bigger proportion of revenue here, 22% of revenue, and that was down 6% in the year. North America, just slightly better than flat at up 5%. That's principally driven by some of the big security applications. A little bit on order book. So we have currently about four point five months order book.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

That's down from the seven month sort of peak order book level that we had at September 22. That's actually slightly elevated, about three to four weeks compared to historic norms. And there are really three reasons for that. Firstly, I think it's fair to say across the industry generally, customers have moved from a just in time to a just in case mentality. It doesn't do them any harm nowadays to just put a little bit more order book in place.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Secondly, actually, some customers, particularly in some of the big sort of medical customers that have been destocking pretty pretty significantly, as their their demand profile has actually softened slightly as well, so it's pushed out. So they've pushed out some of their orders, and we we generally don't allow reschedules, but there's been a bit of an effect of that. So it means that it effectively extends the order book coverage window. And then actually on the positive side, we we're seeing that 15% pickup in orders that we saw in the fourth quarter is includes orders long term being twelve month frame orders that we're receiving from some of our big recovery customers. So we've seen some big industrial and medical customers place twelve month orders, which affirm that the call off scheduling varies a little bit, but that all goes into the order book.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So and that has obviously an averaging up effect. So the net effect of all that is the order book is slightly elevated, flattening out overall from the adjustment period of the prior couple of years. And we think that that's probably the likely the new norm for now in coverage terms. So outlook, importantly for us, the growth drivers are in good very good shape. Our order trends and sales trends are steadily improving.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Most of our business units are now have bottomed out and are picking up, a little bit more to go, but most of them are there and as short as eggs are eggs, the final steps will follow. We have a very, very good bank of design wins, are important for the medium term organic growth driving the medium term organic growth. And we've got a very significant pipeline of acquisition opportunities. So the areas that we need to be the drivers that we need to be strong are strong. So that's really good.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

We've unchanged the outlook for this year. We've got a positive outlook for FY 2026, further progress. Q1 has kind of started okay, bit better than it, you know, further continued improvement steadily. It's doing what we would expect it to do. Our expectations are for the year to have the normal H1, H2 split.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

We're fairly balanced sort of 47, 40 eight, 50 two, 50 three typically, first half, second half split, and this year is no different from that. And as we've talked about, we've upgraded our margin targets. So notwithstanding the somewhat volatile trading conditions that could have sort of adverse or positive effects, we are doing all we can to continue making good progress. And we're well set to continue that trend from here. So that concludes the presentation.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

I think now we'll move over to questions and answers. We'll probably move up to the table, shall we? Mark, hi.

[Mark Fielding, Analyst at RBC Capital Markets]

Mark Fielding from RBC. Thanks for taking the question. Actually, two questions, please. One, very short term, one, much longer term. Short term, just could you provide any comment on whether you've seen any recent change in trends in the last couple of months after tariffs, just how things are evolving in the more near term? Maybe just do that first and then.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

There's certainly more uncertainty, unquestionably. Yeah. There's less there's less clarity. Things change. They, you know, they they pause.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

They start. There's bit more start stop. I think we've been somewhat shielded from that because our order books are actually quite good. So the call offs are sort of the sales output is much smoother. But the activity levels in the customers is quite clear.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

The levels of uncertainty have a sort of a slightly sort of destabilizing effect on behavior of customers.

[Mark Fielding, Analyst at RBC Capital Markets]

And then, say, the longer term question. Simon preempted the question of what will the split be organic, inorganic, but I'm still going to ask about it because actually the run rate in the last seven years has been broadly on average 50 basis points per annum of organic margin improvement, which if you kept going at that rate would largely get you to that 2030 target. So I suppose my question is, is the structural reasons you wouldn't be able to continue to deliver the sort of efficiencies and benefits you have over the last seven years from an organic perspective?

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Well, I think we're going to continue to work on that. That's why I said let's wait and see. I think, obviously, we've some of the businesses which are lower margin, we've done a lot of heavy lifting on that. But acquisitions that come in, we continue to look to improve efficiency as well. So let's wait and see.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

But I think onethree, twothree is a good estimate for now, but we'll push hard. We probably said onethree, twothree in the We did. I think we did. And it came out different. The obviously, the important thing is to get there.

[Mark Fielding, Analyst at RBC Capital Markets]

Thank you.

[Mark Davies Jones, MD - Industrials at Stifel Financial]

Only taking questions from Marks today. Mark, too. Yes. Can we just talk a little bit more about the balance between the divisions? Because also S and C had a really strong year, margins north of 20%. Presumably, don't go higher than that short term, and perhaps more of the focus this year is what you can get out of M and C.

[Mark Davies Jones, MD - Industrials at Stifel Financial]

But I guess the question is, how comfortable are you that it's just later cycle issues versus something a bit more structural, particularly The U. S. Being very weak and the orange one not liking windmills, whether you see any real impact from that?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Well, so if you stand back from it, we've always had a one of our focuses has been to reduce exposure to any one customer, any one particular market area, and any one particular geography because over the long term you always get variations and things come in and out of fashion or vogue. And our model of low customer concentration, largest customer six just over 6%, low individual application concentration or target market concentration. All of those things sort of protect us from the kind of gyrations that that, you know, that we're that we're seeing recently. Has anything fundamentally changed in the M and C area? No.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

I mean, M and C has a big exposure to things like electrification, not just renewable energy, but sort of grid optimization and other sort of sort of subset areas. So, you know, what we've the the reason that the m and c fundamentally, the reason that the m and c division is softer at the moment is because the and recovering more laterally is because the sea of m and c is the area that has yet to fully turn the corner. So the follow on question is why is that the the why is because they there are customers in that sector that have been very, very heavily affected, particularly in medical in North America, from the short the prior shortage period component shortage periods two or three years ago. So they stocked up very heavily. Our products into that sector have a sort of high sort of semiconductor content, which kind of added to the concerns.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

And so customers are, you know, taking the stock that they've burning off the stock that they've had. And so that comes through in the M and C growth rates. But, you know, the medical diagnostics is, you know, is still a good space to be in, so it'll come back once those inventories are burnt off.

[Mark Davies Jones, MD - Industrials at Stifel Financial]

Great stuff. If I can sorry. One more. Just on the M and A side, you said you're waiting for the right moment, lots of prospects out there. But how much is that also affected by the geopolitics?

[Mark Davies Jones, MD - Industrials at Stifel Financial]

Are you looking different places, different industries? How does that affect your your hunt for the next target? Target?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Yes. We slightly shifted our focus. When the tariff issue was announced, we just sort of paused on acquisitions that were sort of U. S. Dependent to some extent and shifted our focus to other areas.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

And then once the tariff situation sort of settles, then we'll look at it again. So in the short term, we're progressing opportunities that have a lower U. S. Exposure until that has been until that's also clear and steady and stable out.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Andrew Douglas from Jefferies. A few questions, please. Can we focus a little bit on the 15% order intake in the fourth quarter? So I'm a bit lazy here, but is there a weak comp in there that we need to be cognizant of? Is it a one off pre buy impact from the tariffs?

[Andrew Douglas, Managing Director at Jefferies Financial Group]

I guess what I'm trying to get at is, is that just a one quarter blip and then we go into the first quarter and we're back to, you could say, progress? I don't know whether it's mid single digit or

[Nick Jefferies, Group Chief Executive at discoverIE Group]

mid single Yes, there's a bit of all of that. So yes, there's not pre buy. Our products are on a three to four month lead time, and we didn't see any kind of particular pre buying activity from customers. What we saw is that in certain sectors as their inventory destocking came to an end, their order levels just bounced back very strongly. So it was against a weak comp, yes, but a continuing sort of weak figure through the year.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

And then suddenly, once it's destocked, you've destocked, then your order levels have to bounce back through to reflect your demand, and that's what's happened.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

But no double digit order intake in the first quarter like we're seeing in the fourth quarter.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

I couldn't possibly comment.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

It doesn't sound like it. Slightly following on from the two questions from Marks. On the M and A focus, clearly, we've got this security focus. Given what's going on with commercial aerospace recovery and defense now being the vogue sector, are you struggling to find sensible acquisitions at sensible prices? Or are you guys operating in a slightly different world where maybe SGR doesn't make a difference?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So we're not our business is about buying reasonably priced, high quality businesses. We're not gonna so we're not gonna buy a business that is very highly priced because it's in the super attractive sector. What we will do is buy businesses that we that have some degree of possible exposure into that space. We'll pay a reasonable multiple for them and hopefully try and accelerate the growth through increasing focus into that sector. That model works better for us, we find.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

You know, there's a bit of a sort of a bit of a gold rush on inevitably on some of the sort of defense related businesses, and that's something we don't need to get involved with.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

And then last one, just on Mark's question. We've seen a lot of industrial companies in our universe having to put cost back in when recovery comes from a top line perspective. It sounds like you've got quite a lot of firepower in terms of cost out. Do you have to put cost back in soon? And if so, when do you pick that kind of moment?

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Is it based on order intake? Is it gut feel? Is it post order intake improving? Just trying to figure out that kind of margin improvement. Do we have a little bit of a slow period and then a bit of a catch up?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Yes. So growth continue I mean to continue growing, you've got to continue putting a steady rate of costing in. We have been taking costs out overall, but within certain areas of the business, as Simon referred to in his slides, we did actually put cost in. So you manage it very much on a micro, case by case basis. We have plans to put more cost in, and it's the rate at which we put that cost in.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So we will you know, we phase the cost in according to the conditions that we're seeing. And, you know, that's always been the case, it'll continue to be. So so, yeah, there's cost to put in, and we'll choose the timing when when we feel the timing is is right. Okay. Thank you.

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

Thank you. It's Maggie Schooley from Redburn. Order trends are obviously moving the right way, but what we've seen across the industry is that the sales growth has been lagging particularly somewhat different than in other cycles. Historically, you've probably had a timeframe in mind from orders to sales growth starting to Can you give us some indication about what you're thinking in this particular cycle given the unprecedented conditions and what we're seeing across the rest of this cycle? So kind of have a feel for and particularly that you mentioned you had some long twelve month orders in the fourth quarter.

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

How should we think about that normalized order growth rate and then the conversion into sales?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So orders have inflected and sales are following. And but they haven't fully caught up yet. That's the headline. So we in the fourth quarter, we saw both areas come back strongly as we talked about in orders, and that'll start to flow through into or is starting to flow through into sales. Typically, there is a four to six month lag between orders and sales coming through, realistically.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

I mean, that's it varies from from from sort of application customer to to customer, but that's broadly what we see. So what we're seeing is orders has done this and it's sort of back to where it was just over a year ago and sales is catching up.

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

And second question, if you could, qualitatively. On Page 18, you give the end market SKU. So could you just perhaps give us some qualitative understanding of what you're seeing by end market, so we have a better idea of how we should be thinking about that?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Yeah. I mean, so industrial and connectivity and security are growing quite strongly, actually. And within industrial and and connectivity, you know, there are that's quite a wide catchment area. Some of the connectivity, security related application sorry, connectivity, wireless comms related applications are growing quite strongly. Wireless metering, as an example, is something that has really been there was a a big wireless metering project that was on hold this time last year.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

We had the design win, but it was on hold of the customer, and that has now taken off. So we're seeing sort of these sort of specific projects moving quite quickly. Security, there are quite a lot of moving parts in security. It's not actually, it's not as simple as all security is up. It moves around quite quickly, but the net effect of security is it's up quite significantly.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Mostly the security is in well, almost all of it is in passive applications, so training, wireless comms, things like that for military applications and things like data centers and the like. Medical is slow, Medical equipment is slow. Largest medical equipment manufacturer started to recover in the fourth quarter, but the others are playing catch up. Certainly, of our US medical customers are still burning off some of that big inventory that they build up built up. Transportation is mixed.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

It's very much project by project. We've seen a couple of project delays in The US offset by one new one that was accelerated, but it's a very lumpy kind of more a lumpy kind of business. Renewable energy is wind, and that has been doing did very well during the first half, slowed a bit during the second half, and actually in April and May has picked up again a bit. So that's I don't know if that gives you that's not very qualitative, but that's kind of a little bit of flavor as to what's going on.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

It's good just to sort of reinforce the reason why we these are long term growth markets, but we're in a number of markets, just one rather than just one. It's all about sort of derisking the model. So we're in a number of markets, we're in a number of technologies, we've got different divisions and all of that. And you can see that this set of results is a great example of that, but it derisks it. So we can still get that growth.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Things are going to move at different rates, but we're in the right sort of areas for overall the company is going forward.

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

Sorry, one last question. Kind of a swerve on Andy's, and it's two part. Cash conversion, as you start to recover, should we be thinking more around the 90% level?

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Yes. Once that's the history, if you look back at our conversion, is when the times are strong and you start get some sales growth, you're going have to invest in working capital. So that's why we tend to have that target of 85%, so it allows for lower conversion rates in higher sales times here.

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

And a completely unfair question, and I'm sorry for this, but there's been some concern with companies who have exposure in The U. S. On Section eight ninety nine from the big beautiful tax bill in terms of cash remittances. Have you had a look at that?

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Yeah. Well, yeah, it is yeah. Yeah. I did get

[Nick Jefferies, Group Chief Executive at discoverIE Group]

That's right. That is an unfair question. It is unfair question.

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

I know.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Yeah. We are yeah. It is something that we are looking at. I don't think initially is an issue, but, yeah, we are looking at it and it might have changed by tomorrow anyway.

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

You.

[James Bayliss, Associate Director - Equity Research at Berenberg]

Good morning, both. James Bayliss from Berenberg here. Just looking at Slide 25 in the appendix on the gross margin profile, can you talk us through that acceleration from 2023 up to FY 2025 and the 42.9% you've got now? And then if we think about the future margin story on the organic side of the business, how much more is there to be done on managing that gross margin up through proactively working with your operating companies?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So obviously, has a positive averaging up effect. We buy higher margin higher operating margin businesses, and they have higher gross margins. Additionally to that, our organic margins have increased across the businesses. Although there's a mix effect in the headline figure, as a higher margin business may be growing faster than a lower margin business, you get those kind of effects coming through. Despite that, actually across our operating businesses, almost all of them have delivered organic gross margin improvement.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

And the reason that that has happened overall is really three reasons. Firstly, flexible production is key. So as volumes have come off in the destocking, we've been able to take the direct costs down accordingly. So that protects you. You don't get the gross margin squeeze that you get in a more automated production environment.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

And we can do that because we've got high mix batch production operations. So that's the primary, or that's the first reason. The second reason is efficiencies. So as we put businesses into clusters, move stuff around. We do a lot of that.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So we move production, You know, we're we're always moving production from, you know, from one business to another for some certain reason and customer. And, you know, you get efficiencies from lower cost labor rates, better purchasing, aggregating some of the purchasing through the cluster. And there are lots of small Simon said, are lots many, many, many small moving parts, but that you know, they they they add up to quite a significant contributor. And then the third area is we have better you know, we spent years building up this design pipeline. We put a lot of focus on the quality of the design pipeline and the design wins.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

And one of the outcomes of that is that the the margin profile of the revenue we have these days is better than it was ten years ago. And so we're able to have more robust margins through better quality revenue streams. That's not about putting necessarily putting prices up with existing revenue, but having a better priced new revenue stream than perhaps an old outgoing revenue stream. So you add all that together, and then you add on the acquisitions, and that's what that's how you get the gross margin improvement. And now those paths are those plans are in motion.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

They've been running for a number of years, and they'll continue to run. We actually did a check during the year to make sure that we weren't missing anything in terms of volumes. And the resounding feedback that we got back from the businesses was that we're not we're in good shape with the volume and how our efficiency programs are working really well. So yes, just keep more of the same, just keep going.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Yes. If you look back, we're quite visible in terms of we put out what the organic gross margin improvement is. And obviously, you can then work out what the bit is from acquisitions. And if you look back, we've certainly, the last three years is a lot of that is organic. So I said it's 1.6 percentage points this year.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Might be the similar I think it's a similar sort of amount the previous year. So a lot of what Nick a lot of those initiatives that we've been following are coming through. The clusterings, we've been doing a bit, but that's really taken effect over the last few years. So you're getting the benefits of that really coming through.

[James Bayliss, Associate Director - Equity Research at Berenberg]

Sorry, can I just pick up on that? Because from the outside, it's looked like the clustering has had a big effect, particularly in a period of weaker volume. But how far can you push that before it starts to sort of dent the strategy of keeping things very decentralized and autonomous, particularly when it comes to, I guess, M and A and pitching to entrepreneurs who run their own businesses?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Yeah. So we don't impose the we put businesses in clusters, and the cluster management and the opcos within the clusters come up with these plans, and they're all incentivized to do it. It makes sense for them to do it. I mean, for example, you know, the last year, we've moved a business we bought a business that had production on the East Coast Of The US, and we've now integrated that production facilities into one of our business another one of our businesses in The US in Minneapolis. And that is just a net it's a net gain, and all parties are incentivized to do it.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

It actually has other additional benefits because by moving the production into this larger facility, it comes with all the medical certifications required. So we've won approval of a major US new major US medical customer on the back of it. So we'll get new revenue from it. So it's it's not like we're sort of forcing them to do something that they don't really would really rather not do. It's it's more a case that they're you know, we we arranged we put them together.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

We incentivize people. We we have common sort of incentives, aligned incentives throughout the group. We put them together and we, you know, see what opportunities and synergies we can find, and then that's what comes through. So how far can it keep going? Well, you know, we're we're cognizant that we've got more to do.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

You know, where's the limit? We don't we're conscious that we don't wanna push it too hard, but you know, so I don't know. It'll we'll we'll keep going until until we find that we can't get more. Of course, the the areas where it will come more from is the more recent acquisitions. So you're keeping the as we keep the rate of acquisitions going at a healthy lick, then we should be able to keep that coming through.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

And that will be and those will then be classed as organic margin improvements.

[Simon Gibbins, Group Finance Director & Executive Director at discoverIE Group]

Yes. Clustering is it's not some big hard integration. It's as Nick said, it's getting them to work similar businesses to work closely together and find opportunities. We're not sort of dragging out loads and loads of costs in order to do that. It's actually more about efficiencies at the top line and on gross margin.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

Okay. I think this must be the last question. I'm being waved at the back.

[James Bayliss, Associate Director - Equity Research at Berenberg]

Yes. Just a follow-up on the other part of that actually, which is the pricing part. I suppose I'm just curious whether the more inflationary world that we had in recent years allowed for a bit of an exceptional step change in how you approach pricing and whether you still see that same pricing momentum in the design wins going forward. And I suppose linking to that tariffs and are you going to deal with that potentially with partly pricing or surcharges because the two are obviously different in the long term impact? And just how does that all fit together?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So on the tariff point, there's a different so there are lots of so if it's a component that we're if we're buying a component that is subject to tariffs for use in our production, then we because it will be a small proportion of the system cost, we will pass it through as a price increase. If the customer requests and and those conversations have been happening for some time now. In some cases, the customer requests us to classify it as a surcharge, and so they would choose to account for it as a surcharge, then we'll make the adjustment accordingly. But we basically class it as a price increase. Most of the tariff effects though are incurred not by us but by the customer.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So where the customer is importing product, upon the point of importation, they pick up that the tariff as it enters the tariff cost as it enters the country. So we don't actually mechanically see it.

[James Bayliss, Associate Director - Equity Research at Berenberg]

And on the wider thought of the strong pricing of recent years, does that continue in the design win backlog that you have?

[Nick Jefferies, Group Chief Executive at discoverIE Group]

So we're very you know, we feel as though we price the products fairly for the value we're creating, which means we don't want to undercharge and we don't want to overcharge, and we think we've struck that balance fairly well. But what that does mean is that as we've seen over the last three years, as things like in we had this, you know, the the rapid inflation of three years ago, we passed that through. You know, we we haven't got room to just absorb that, and we've made that very clear. We've been consistent. And customers have understood that and accepted that partly because we haven't taken advantage of it.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

No one likes a price increase, but they have accepted that in the context of the products we're supplying, that's not an unreasonable position to take, and, you know, and and we've pushed them through. So we continue with that approach and mentality, and I think and and so through, you know, the last five years, well, and longer, you our gross margin has been very steady because of that approach. We haven't taken any negative hits from adverse external conditions, sort of blowing us off course, and we won't. Because it plays to the heart of the value proposition of our products. Very high-tech, very highly differentiated, small proportion of customers' equipment spend and cost, but absolutely critical.

[Nick Jefferies, Group Chief Executive at discoverIE Group]

And that's sort of the backdrop. And if we don't abuse that position, then our position remains a strong one, and that's very much what we intend to do. Thank I think that's it. We've got a cool time. Thank you very much for coming, and thanks for all the attention and questions. Thank you.

Participants

Executives

• Nick Jefferies, Group Chief Executive
• Simon Gibbins, Group Finance Director & Executive Director

Analysts

• Mark Fielding, Analyst at RBC Capital Markets
• Mark Davies Jones, MD - Industrials at Stifel Financial
• Andrew Douglas, Managing Director at Jefferies Financial Group
• Margaret Schooley, Equity Research Analyst at Redburn Atlantic
• James Bayliss, Associate Director - Equity Research at Berenberg