Capital Markets Day th March 2018 - discoverieplc.com/media/Files/D/Discoverie-Corp/... · Sales doubled Underlying EPS doubled Operating profits quadrupled The next five years Repeat

Capital Markets Day15th March 2018

Introduction

Nick Jefferies

Capital Markets Day – 15th March 2018 3discoverIE Group plc

Agenda

• Introduction

• Design & Manufacturing

• Cross-selling & Custom Supply

• Product Exhibition

• Acquisitions

• Q&A

• Drinks


Developing & delivering customised components for critical electronic

applications

Innovative electronicsTransportation

Industrial connectivity

Renewable energy

Medical

Diverse, high quality customer base

Targeting structurally growing markets

Multi-year production cycles

OUR GLOBAL REACH


The last five years

Over the last five years Sales doubled

Underlying EPS doubled

Operating profits quadrupled

The next five years Repeat

(1) Group revenue, excluding disposed businesses

(2) Consensus at 28 February 2018

A clear strategy, that works High quality acquisitions, that then grow

Building on the discoverIE DNA

We aim to provide investors with: A progressive dividend

Returns of 15 – 20% pa

(1)

(2) (2)


(1) Mid-term is a 3 to 5 year period starting in Nov 16(2) As a percentage of Group revenue(3) Annualised sales (H1 18: £4.2m; H1 17 £1.9m)(4) Based on last 12 months; UOP: underlying operating profit

Clear growth targetsKey Strategic Indicators Mid term

Target (1)

1. Increase share of Group revenue from D&M 18% 37% 48% 52% 57% 75%

2. Increase underlying operating margin 3.4% 4.9% 5.7% 5.9% 6.2% 8.5%

3. Build sales beyond Europe(2) 5% 12% 17% 19% 20% 30%

Key Performance Indicators 3 yr target

(FY 20)

1. Sales growth(2)

CER 17% 36% 14% 6% 15%

Organic 2% 3% 3% -1% 9% Well ahead

of GDP

2. Increase cross-selling £0.3m £0.9m £3.0m £4.6m £8.4m(3) £10m p.a.

3. Underlying EPS growth 20% 31% 10% 13% 24% >10%

4. Dividend growth 10% 11% 6% 6% 8% Progressive

5. ROCE(4) 15.2% 12.0% 11.6% 13.0% 14.5% >15%

6. Operating cash flow(4) 100% 104% 100% 136% 95% >85% of

U.O.P.

H1 18

FY 16FY14

FY14 FY 16

FY 17

FY 17

H1 18FY15

FY15

Post-Santon

(pro-rata)59%

6.7%

24%

Long term ambition

85%

10%

40%


Objectives for today

For us:

Demonstrate the transformation of the Group into a Design & Manufacturing led business and our future growth prospects

For you:

Gain an appreciation of the high quality and long term nature of the business, our markets and customers;

Gain an appreciation of the products and the customised nature of the applications;

Gain greater insight into the growth prospects of the Group both in terms of organic and acquisition-led value creation;

Meet the management team driving discoverIE forward.

Design & Manufacturing

Paul Neville – Group Commercial Director D&M


Highly differentiated approach

Products that are critical to end equipment

Customised products, priced on

value

Local engineers & language, close to

customers

High performance & reliability, optimised for each application

Small proportion of equipment cost,

but essential

Vital, niche products into

growing markets


D&M – creating customised components for growing markets

Case study - wind turbines

Airflow measurement Turbine power inductors

Pitch controller


Industrial Connectivity

Smart metering, industrial control, ‘Internet of Things’

M2M growth 12% CAGR

• Our market est. £20bn worldwide

• Electronic components market c.£300bn worldwide

• Growing markets

• Essential need for our products

Renewable energy

Wind & Solar

Largest source of power by 2030

Transportation

Road, rail, air

Auto electronics growth 10% CAGR

Key macro trends

Population growth >30% by 2050(1)

Growing affluent older population

Increasing use of ‘green’ energy

Reducing cost of technology

Medical

Monitoring, diagnostic & control

Electronic content growth >7% CAGR

Targeting growth markets driven by innovation


D&M - 12 business units – c.60% of group revenues Magnetics & Power

• 11 countries• Acq July 2014

High power magnetic components

• France, Germany, Poland & China

• Acq April 2013

Magnetic components & power supplies

• Denmark & Thailand

• Acq Nov 2015

Magnetic components & power supplies

• Canada, USA• Acq Feb 2016

Magnetic components

• Germany• Acq Nov 2013

Power supplies


D&M - 12 business units – c.60% of group revenues Components

• Sweden, Taiwan

• Acq Jun 2011

Industrial computing

• UK, Germany• Acq Jan 2017

Sensors, switches & actuators

• UK, China• Acq 1990s

Cabling & components

• UK, China• Acq Jan 2016

Cabling & connectivity

• Norway, Slovakia

• Acq Jan 2015

Fibre optic cabling & components

• Europe, S Korea

• Acq Oct 2011

Electromagneticshielding

• Netherlands, China

• Acq Feb 2018

Switches


Building D&M since 2011

Revenue & operating margin Operating margin c.11%

Organic revenue growth >5% CAGR

Drivers of margin Growth with operating leverage Product differentiation

Manufacturing efficiencies

Purchasing efficiencies Acquisitions

Geographic diversification

Note: 2018F figures comprise 2018 consensus plus consensus annualised effect of Santon acquisition

Revenue

UK100%


Growing faster in target markets

2018F, £241m2015, £101m

£42m, 42%

£132m, 55%

Note: 2018F Figures include annualised pro-rata effect of Santon acquisition

We are growing revenue in target markets at double the rate of other markets

Target markets +46% pa since FY15

Other markets +23% pa

Organically and by acquisition

Transportation Medical Renewable energy Industrial connectivity


Design wins drive future revenue

Focus is on our target markets 75% of design wins

Typically 1 - 3 year project design cycles

High level of recurring revenue Typically 5 years (2 - 10yrs)

Notes: - Design win value, estimated lifetime project value- Excludes Santon- 2015e - estimated


How we will continue to grow

Organic

Focus on growth markets

Identify key customers in target growth markets

Geographic expansion (new areas)

Product expansion

Acquisition

Complementary businesses

Technology

Markets

Customers

Focus on growth markets

Identify key

customers

New countries

New products

Clear strategy with strong execution

Custom Supply

Paul Webster – Group Product Management & Cross-Selling Director


The Custom Supply business

Exclusive third party suppliers

Sales channel for D&M products

Targeting the same growth markets

• 8 countries• 400 employees

• UK, South Africa

• 40 employees

Electronic components

Medical equipment

Exclusive supplier contracts

Bone scan & imaging

Pre-existing business

38% of Group revenue <3% of Group revenue


Renewable Energy Industrial connectivity Industrial & Security

Transportation Medical Aerospace & Defence

ABFi – sales & engineering channel

Major European markets

Specialist products

Cables & Connectors

Electro-mechanical

Embedded Computing

Fibre optic components

Imaging IoT & Wireless modules

MagneticComponents

Photonics

Power FrequencyControl

Test & Measurement

Sensors

Provides solutions for complex engineering challenges

c. 60% of revenue derived from exclusive products

Sales channel for D&M products

D&M and Group brands now account for 11% of ABFi revenue (<5% in 2014)

Includes discoverIE D&M products


Cross-selling

1. Generates additional product sales to existing customers Wider range of products Additional, high quality revenue

2. Opens new markets for acquired businesses Achieves access to new countries with relative ease

3. Broadens customer relationships

Group cross-selling


Cross-selling case study – MTC

MTC GmbH acquired in FY2012

Operations in Germany & S. Korea

3 year development phase

Cross-selling now approaching 10% of sales

Doubled number of customers

Developed sales beyond Germany into new countries

Incremental organic growth

Accelerating sales growth from 17% to 19% CAGR since acquisition

Enhancing post acquisition value creation

Development phase Revenue growth


Control unit for transportation refrigerator

Designed by Hectronic Electronic hardware & software Mechanical hardware

Cross-selling of ABFi products Wireless communication for data

transfer Antenna components

Manufactured under licence by a third party

Cross-selling case study – Hectronicand ABFi


How we will continue to grow cross-selling

Currently running c.1 year ahead of our KPI to achieve £10m revenue pa.

Targeted approach Identify key opportunities

markets

countries

customers products

Use of existing sales force knowledge

Driven with sales incentives

Exhibition

Acquisitions

Jeremy Morcom- Group Head of Corporate Development


Acquisition history (2009-2018)

Acquisition of Myrra (£8m)

Acquisition of Hectronic (£1m)

Acquisition of BFi Optilas

(£13m)

2011 2011 Aug 2013

2009 Apr 2013

Acquisition of YEG (£2m)

Acquisition of RSG (£3m)

Nov 2013

Acquisition of Noratel (£71m)

Acquisition of Foss (£8m)

Acquisition of Flux (£3m)

Acquisition of Plitron (£2m)

Jul 2014 Jan 2015

Nov 2015

Jan 2016

Feb 2016

Jan 2017

Acquisition of Variohm

(£12m)

£6m placing

£14m placing

Acquisition of CompoTRON

(£6m)

Acquisition of MTC (£2m)

£55m rights issue

Acquisition of Contour (£17m)

Feb 2018

Acquisition of Santon (£24m)

Design & Manufacture

Custom Supply

Equity financing

Debt / self financing

Enterprise Value

£6mJan ‘09 £330m

Mar ‘18

Total Investment

£151m

£21m

£172m

(£75m)

£97m


44%

32%

26% 24%

18% 17%13% 12%

10% 8%

16%

Value creating acquisitions

Since acquisition, overall;

Strong and growing profits and cash flow

Organic revenue growth of 5% CAGR

Organic EBIT growth 7% CAGR

Average EBIT ROI is ahead of target

Average EBIT ROI increasing in FY18

* EBIT ROI defined as annualised, operating profit attributable to the business over acquisition cost comprising up-front consideration, acquisition expenses, earnout (once earned), and integration costs

15% Target ROI

Note: Chart excludes acquisition of Santon (January ‘18)

D&M Businesses - EBIT ROI FY17

FY18

1 2 3 4 5 6 7 8 9 10 Average


Acquisition approach

Target markets Proven performance Products we understand Strong value proposition OEM customers Long term growth potential Ambitious management

BUY

BUILD

Target 15% EBIT ROI within 2 years

ADD VALUE

Design & Manufacturing revenue


Integration approach

Clear business plan with strong growth incentives

Jointly agreed with seller & management pre-acquisition

Primary focus is growth with operating leverage

Earn-out to reward growth and align incentives

Retain brands & identity

Preserve entrepreneurial spirit

De-centralised operating environment

Avoid “one-size-fits-all” solutions

Encourage cross-selling across business units


How we add value

Invest for the long term

Enhance commercial capabilities

Support & develop

management

Optimise operating efficiency

Develop finance and back office

• New sales territories & customers

• New products

• Cross-selling opportunities

• Capacity expansion

• Streamlined processes & cost savings

Growth Efficiency


Acquisition case study –Hectronic

Acquired FY2012

Design & manufacture of embedded computers for industrial applications

Development since acquisition: Organic growth with operational leverage Focused core product offering

Developed higher value add sales focus

Invested in new sales resource & territories Established cross-selling with ABFi

Strong, local management embraced both: The market opportunity

discoverIE’s investment capability

Hectronic 2012-18

Revenue Doubled

Operating profit up 10x

No. of activecustomers Same

No. of employees Same

Sales into target markets Doubled

Cross-selling Established

EBIT ROI FY18 >50%


Sustained focus on D&M acquisitions Stand-alone acquisitions Complementary & adjacent acquisitions

Continue successful approach

Worldwide with a focus on North America

EV of £10-80m – consider larger if attractive

Gearing < 2 x EBITDA

Good scope for continued investment Targeting multiple product/technology

segments Fragmented industry structure

Looking ahead

Design & Manufacture

(sales £m)

2019 2020 2021 2022 2023

Keep Investing !

241

Conclusion and Q&A

Customised products

for

Common markets&

Common customers

Documents

Capital Markets Day th March 2018 - discoverieplc.com/media/Files/D/Discoverie-Corp/... · Sales doubled Underlying EPS doubled Operating profits quadrupled The next five years Repeat