discoverIE Group H2 Earnings Call Highlights

Key Points

• discoverIE reported an in-line year with improving momentum, as organic orders rose 14% in Q4 and sales 5%, helping full-year organic sales rise 2% and the order book finish 5% higher in the second half than the first.
• Profitability was supported by continued growth investment: adjusted operating profit rose 1%, adjusted EPS increased 4%, and management said the company remains on track to reach its 17% operating margin target by fiscal 2030 despite a 40 bps margin dip to 13.8%.
• Cash generation stayed strong, with 91% operating cash conversion and net debt of GBP 81 million, while recent acquisitions and a stronger order pipeline boosted exposure to higher-growth areas like defense, aerospace, and renewables.

discoverIE Group LON: DSCV reported what Chief Executive Nick Jefferies described as an in-line annual performance, with improving momentum through the year and a stronger exit rate as orders and sales returned to organic growth.

Speaking on the company’s results call for the year ended March 26, Jefferies said the group saw “increasing trading momentum through the year,” including organic orders up 14% in the fourth quarter and sales up 5%. For the full year, organic sales rose 2%, with both divisions in growth. The order book increased 5% by the end of the second half compared with the first half, reflecting orders running ahead of sales.

Jefferies said discoverIE had also continued to invest in future growth, adding production, sales and management capability mainly in Europe and the United States, with some investment in Asia. Adjusted operating profit rose 1%, while the adjusted operating margin declined 40 basis points to 13.8%. Adjusted earnings per share increased 4%.

Finance Director Simon Gibbins called the performance “robust,” noting that conditions had been “a little tricky” as the Controls unit worked through the final stages of destocking. He said that unit had now recovered and returned to growth in the final quarter.

Margins Held Back by Growth Investment

Gibbins said discoverIE delivered its highest adjusted and reported profits and earnings while continuing to invest in resources, capacity, working capital and acquisitions. The company added GBP 4.4 million of operating expenses during the period, with about half directed toward growth initiatives.

Those investments included new sales and engineering resources, additional capacity in Thailand and South Korea, and a new facility in India expected to complete in August. Gibbins said new resources can take more than a year to deliver value, but management believed the timing was appropriate as demand began to recover.

“Short-term impact on margin, so margin would’ve been slightly ahead, if we hadn’t made that, but it’s the right thing to do as we push towards that 17% target,” Gibbins said.

He said the company remains on track toward its medium-term adjusted operating margin target of 17% by fiscal 2030. Gibbins added that operating margins have increased by more than eight percentage points over the past decade.

Gross margins remained strong, with underlying business margins up 0.2 percentage points, although the benefit was offset by mix effects as the lower-margin Magnetics business grew more strongly than the higher-margin Controls business. Organic profit would have increased GBP 0.7 million without the GBP 2.2 million growth investment, Gibbins said, but including that investment, organic profit was down GBP 1.5 million. Acquisitions made over the past 18 months contributed GBP 2.2 million.

Cash Conversion Remains a Key Feature

Cash generation remained strong, with operating cash conversion of 91% and free cash flow conversion of 92%. Jefferies said the company has averaged roughly 100% cash conversion over the last decade, which supports its ability to self-fund acquisitions.

Gibbins said adjusted EBITDA was GBP 68 million and free cash flow was GBP 37 million. Working capital investment totaled GBP 5.5 million to support growing sales and the order book, while working capital as a percentage of sales declined to 16.6% from 17.2%. Capital expenditure was GBP 6.6 million, equal to 1.5% of sales.

Net debt stood at GBP 81 million, with gearing of 1.2 times. Including the completed acquisition of Trival and the pending acquisition of 3Gmetalworx, gearing rises to 2.2 times, which Gibbins said is expected to reduce to 1.8 times over the current financial year.

The company also reported continued progress on carbon reduction, with emissions down 68% over four years, ahead of a 65% target for the year. Gibbins said the next target is net zero in 2030.

Divisional Performance and Regional Trends

In Sensing & Connectivity, organic sales rose 2%, led by medical and security markets and North America. Including acquisitions such as Burster and Hi-Volt, sales increased 8%, while EBIT rose 7% at constant exchange rates. The division’s margin declined 30 basis points to 17.8%.

Magnetics & Controls also delivered 2% organic sales growth, led by renewables and Europe. Profit declined 2%, reflecting mix effects and growth investments, while the margin fell 0.8 percentage points.

Jefferies said Europe was the strongest region, growing 3% organically, led by Western Europe and Germany. He cited large renewable energy projects, industrial products and German medical customers as contributors. North America was flat for the full year but grew 10% in the second half. Asia grew 2%, with India benefiting from a customer production transfer and China improving in the second half.

Jefferies said Controls destocking had “well and truly finished,” with both the Magnetics and Controls units posting double-digit order growth in the second half.

Acquisitions Add Defense and Aerospace Exposure

discoverIE completed or announced three acquisitions recently: Keymat, which trades as Storm, for GBP 5.5 million in December; Trival for GBP 40 million in April; and 90% of 3Gmetalworx for GBP 50 million, pending regulatory approvals. Jefferies said the businesses are high-margin and higher-growth, with the latter two particularly focused on defense and aerospace markets.

Trival, based in Slovenia, makes antennas and antenna masts principally for defense applications. Jefferies said it has high margins, good growth prospects and low customer concentration. 3Gmetalworx, based in Toronto with production sites in Florida and California, makes electromagnetic shielding products. Jefferies said the business will sit alongside discoverIE’s existing MTC business and offers cooperation opportunities.

During the Q&A, Jefferies said the three latest acquisitions were trading well, based on available data. He said Hi-Volt, acquired in August 2024, was “going like a steam train,” with management evaluating a larger expansion to meet medical and industrial customer demand. Burster, acquired in February 2025, had a flat year, which Jefferies attributed partly to the German economy, though he said activity had improved in recent months.

Asked about defense exposure, Jefferies said defense remains a relatively small part of group revenue but is expected to grow as a proportion over the next three to five years. He said management does not want defense to dominate the portfolio, preferring a balanced spread across five target markets.

Outlook: Orders Ahead of Sales

Jefferies said first-quarter trading had started “very well,” with strong growth in organic orders and good sales momentum. The order book continued to grow as orders remained ahead of sales, providing about four and a half months of sales coverage.

In response to an analyst question, Jefferies said customer orders are firm and relate to real demand rather than precautionary stock building. He said customers may reschedule orders once or twice, but the company treats orders as committed because its products are bespoke manufactured items.

Management said it expects the first-half and second-half split to be fairly even, with a marginal second-half weighting. The board’s expectations for the year remain unchanged at this early stage.

Jefferies said discoverIE has a “very strong pipeline” of design wins and acquisition opportunities, though the timing of further deals will depend on gearing, funding and the progression of individual opportunities.

About discoverIE Group LON: DSCV

discoverIE Group plc 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, security, 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.

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