25971.01 14 June 2018 12:13 PM Proof 8discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018for the year ended 31 March 2018 Stock code: DSCVdiscoverIE Group plc Annual Report and AccountsInnovative ElectronicsdiscoverIE AR2018.indd 314/06/2018 12:20:11 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8The Group has changed its name to discoverIE Group plc and was reclassified from the Support Services sector to the Electronic and Electrical Equipment sector. The change of name and reclassification reflects discoverIE’s successful transformation over recent years, from a distribution company to an international designer, manufacturer and supplier of custom electronics.Visit our investor website: www.discoverIEplc.comIt contains a wide range of information of interest to institutional and private investors including: Latest news and press releases Reports and presentationsThe Group is an international leader in customised electronics, focusing on markets with sustained growth prospects and increasing electronic content, where there is an essential need for our products.WELCOME TO THE 2018 ANNUAL REPORTNavigating the reportRead more on Our name and sector change on page 5This icon signposts to content in other sections of the reportThis icon signposts to further information that can be found onlinediscoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018discoverIE AR2018.indd 414/06/2018 12:20:15 25971.01 14 June 2018 12:13 PM Proof 8NOTES-HEADING-LEVEL-ONEnotes-heading-level-twonotes-heading-level-threenotes-heading-level-fournotes-straplinenotes-text-bodynotes-list-bulletnotes-list-bespoke-whitenotes-list-bespoke-orange−notes-list-dashd.notes-list-alpha5.notes-list-numbervi.notes-list-romanHeadingHeadingHeadingTable plain textDefaultDefaultDefaultBackground123Border123Border123Attractive markets Markets with increasing electronic content Long term growth driven by both technology trends andeconomic factorsStrategic report HighlightsOur name and sector changeGroup at a glanceChairman’s statementOur business modelMarket reviewOur strategyStrategy in actionKey strategic indicatorsKey performance indicatorsOperating reviewFinance reviewRisk managementPrincipal risks and uncertaintiesCorporate social responsibilityCorporate governance The BoardThe Group Executive CommitteeDirectors’ reportBoard report on corporate governanceAudit Committee reportNomination Committee reportDirectors’ remuneration reportDirectors’ responsibilities statementFinancials statements Independent auditor’s report to the members of discoverIE plcConsolidated income statementConsolidated statement of comprehensive incomeConsolidated statement of financial positionConsolidated statement of changes in equityConsolidated statement of cash flowsNotes to the Group financial statementsCompany balance sheetCompany statement of changes in equityNotes to the financial statementsOther information Five year recordPrincipal locationsShareholder notesFinancial calendar 2018/2019Corporate informationINVESTMENT CASEDrivers of future performance High level of project wins and new opportunities drivingfuture organic growth Record order book Cross-selling opportunities between the businesses International expansion Good track record of value-accretive acquisitions, with arobust acquisition pipelineRead more in the Market review on pages 12 and 13Read more in Our strategy on pages 14 and 15Strong financials Solid balance sheet Progressive dividend policy Sustainable, profitable growthRead more on the Key strategic indicators on page 21, Key performance indicators on pages 22 and 23 and the Finance review on page 30 to 35Focus on customised electronics Highly differentiated electronic products with optimisedperformance for the applications of our customersRead more in Our business model on pages 10 and 110405060810121416212224303638425052545868747697100110111112113114115158159160164165166IBCIBC01discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018discoverIE AR2018.indd 114/06/2018 12:20:19 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8Helping customerssolve complex technical challengesInnovations in technology are driving dramatic changes in every aspect of our lives. Electronic component specialist discoverIE is at the centre of this revolution.Watch our Corporate film at: www.discoverIEplc.comAirflow measurementdiscoverIE AR2018.indd 214/06/2018 12:20:20 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8Pitch controllerTurbine power indicatorsSTRATEGIC REPORTdiscoverIE AR2018.indd 314/06/2018 12:20:20 HIGHLIGHTS
REVENUE
GROWTH (CER)1
+11%
FY18
FY17
FY16
FY15
£388m
£349m
£331m
£295m
UNDERLYING OPERATING
PROFIT GROWTH2 (CER)
UNDERLYING PROFIT
BEFORE TAX2
+18%
FY18
FY17
FY16
FY15
£24.5m
£20.8m
£19.4m
£14.5m
+27%
FY18
FY17
FY16
FY15
£21.9m
£17.2m
£14.5m
£11.8m
UNDERLYING
EPS2
+16%
FY18
FY17
FY16
FY15
22.3p
19.2p
17.0p
15.4p
DIVIDEND
PER SHARE
+6%
FY18
FY17
FY16
FY15
9.0p
8.5p
8.05p
7.6p
ORDER BOOK
(CER)1
+12%
FY18
FY17
FY16
FY15
£122m
£109m
£90m
£76m
Financial Highlights
Strong growth in sales, orders, profits and earnings
z Sales up 15% (+11% CER) and orders up 14%
(+11% CER)
z Underlying operating profit up 23% (+18% CER)
z Underlying earnings per share up 16%
z Cross-selling revenue of £8.8m, nearly double last year
(FY 2016/17: £4.6m)
z ROCE1 of 15.5% (FY 2016/17: 13.0%)
z Operating cash flow1 of £20.9m, in line with our
conversion target
z Full year dividend increased by 6%
Organic growth driven by strong performance from the
D&M division
Operational Highlights
Santon acquired on 1 February 2018 and settling in well
z D&M organic sales up 11% – now 59% of Group sales,
when annualised for recent acquisitions(FY 2016/17:
52%)
z Group organic sales1 up 6%
Good progress on key strategic and performance targets
z Underlying operating margin increased to 6.3%
(FY 2016/17: 5.9%)
Group well positioned for further growth
z Record year end order book of £122m (+12% CER)
z Strong growth in number and value of new project
design wins
z Further acquisition opportunities developing
1 CER means constant exchange rate
z Annualised international sales up to 23%
2 See note 2 to the Group financial statements on pages 115
(FY 2016/17: 19%)
to 122
Read more about our Key strategic
indicators on page 21 and Key performance
indicators on pages 22 and 23
Read more about Our strategy
on pages 14 and 15
04
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OUR NAME AND SECTOR CHANGE
Since 2009, our strategy has been to create an international supplier
of customised electronics to growth markets. This strategy has been
successful in transforming the Group to what it is today. With the change
in the activities of the Group, there came a need to readdress how we
named and classified ourselves.
Name change to discoverIE Group plc
In November 2017, the Company changed its name from
Acal plc to discoverIE Group plc. This change reflects the
transformation of the Group over recent years into a design
and manufacturing focused, higher margin business and the
future ambitions of the Board in this direction.
The Group was established in 1986 as a distributor of
electronics and IT products. Since 2011, the Group has
disposed of its IT products business and built a successful
and growing electronics Design & Manufacturing division
(“D&M”) through the acquisition of high quality businesses
and subsequent organic growth. Today that division accounts
for 76% of Group profit contribution.
discoverIE or “discover innovative electronics”, emphasises the
Group’s focus on being a highly differentiated, customised
business that enables customer solutions. The Group’s
operating business names, which customers know and rely
on, remain unchanged, preserving trusted brands.
Reflecting the changing nature of its business, the Custom
Distribution division was renamed Custom Supply. With
continuing focus on designing customers solutions for
customers with our third party suppliers and the growth
in cross-selling of complementary products from our D&M
division, the new name more accurately reflects the nature of
business in this division.
Sector change
As a consequence of the transformation of the Group into a
design and manufacturing business, the Group’s FTSE sector
classification changed from Support Services to Electronic and
Electrical Equipment with effect from 18 September 2017.
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05
GROUP AT A GLANCE
GLOBAL REACH
We have a unique competitive position – no other company on a
global scale has the ability to offer customers complex solutions,
matching our product diversity with quality, flexibility and technical
engineering. As a global supplier, we are able to follow the
opportunities of our global customers.
Sales
Manufacturing
Sales and manufacturing
Global customers served by a global operation with a highly differentiated approach.
The Design & Manufacturing division (“D&M”) has gone from a UK business in 2011 to an international business in 2018
operating in 23 countries. Nineteen per cent of Group sales for the year were beyond Europe; annualised for the acquisition of
Santon, this ratio increases to 23%. India will be a growth market in the future and the Group has invested in a second Indian
factory. North American sales continue to increase, with significant capital investment from our customers, especially in the
transportation sector.
The Custom Supply division also has a strong international presence. Acal BFi operates across 12 countries in Europe, with
logistic centres in Germany, UK and Hong Kong. Each country has their own dedicated salesforce and technical support teams.
06
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OUR DIVISIONS
discoverIE operates across two divisions: Design & Manufacturing
and Custom Supply. The Group’s increasing focus on design and
manufacturing is reflected in both revenue and underlying profit.
z Design &
Manufacturing
57%
£223m
z Custom
Supply
43%
£165m
REVENUE
DESIGN &
MANUFACTURING
The Design & Manufacturing division supplies custom
electronic products which are designed uniquely,
or specifically modified from an existing product to
customer specifications.
Design & Manufacturing has over 5,000 customers. It
distributes some of its products via discoverIE’s Custom
Supply division and this cross-selling is growing.
Margin:
10.9%
Number of employees:
3,593
UNDERLYING
OPERATING
PROFIT1
z Design &
Manufacturing
76%
£24.2m
z Custom
Supply
24%
£7.5m
1 Before unallocated costs
CUSTOM
SUPPLY
The Custom Supply division provides technically
demanding, customised electronic, photonic
and medical products to over 20,000 industrial
manufacturers. The products come from a range of
high-quality third party international suppliers, as well
as from discoverIE’s own Design & Manufacturing division.
A high degree of technical knowledge is required in
the sales process. Approximately half of the division’s
employees are technically qualified.
Margin:
4.5%
Number of employees:
439
Read more about Design & Manufacturing in
the Operating review on pages 27 and 28
Read more about Custom Supply in
the Operating review on page 29
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CHAIRMAN’S STATEMENT
“discoverIE has clearly
repositioned itself, and been
fully recognised as a designer
and manufacturer of specialist
components for electronics.”
I am pleased to report that the Group has made significant
progress again this year. Along with an excellent set of results
that have delivered good levels of growth and operating
efficiency, discoverIE has clearly repositioned itself, and been
fully recognised as a designer and manufacturer of specialist
components for electronics. Progress has been made on all
the Group’s strategic and operational objectives towards the
targets which were increased last year.
Acquisitions continue to play an important role in building
discoverIE and I am pleased to report that they are
performing well. The most recent acquisition of Santon,
based in the Netherlands, is settling in well. Santon expands
the Group’s international presence in the solar energy market,
a focus market for us, and one that we believe will continue
to grow significantly in the coming years.
Strategy
The Group is an international leader in customised
electronics, focusing on markets with sustained growth
prospects and increasing electronic content, where there is
an essential need for our products. The Group’s product range
is highly differentiated with the majority being either partly or
fully customised for specific customer applications.
With our key markets being worldwide, management
continues to see the opportunity to expand beyond Europe,
as well as within Europe, as we continue our strategy of
evolving into a highly differentiated, global electronics design
and manufacturing group.
Malcolm Diamond MBE — CHAIRMAN
Group results
Group sales for the year increased by 15% to £387.9m and
by 11% at constant exchange rates (‘‘CER’’), the difference
reflecting the translation benefit of Sterling weakness during
the year.
Underlying operating profit, which excludes acquisition-
related costs, increased by £4.5m to £24.5m (up 23% and
up 18% CER) with underlying profit before tax increasing by
£4.7m to £21.9m (up 27%).
Underlying earnings per share for the year increased by 16%
to 22.3p (up 3.1p from 19.2p last year). The difference between
the growth of underlying profit before tax and underlying
earnings per share mainly relates to the impact of the
equity placing in January 2017 which funded the Variohm
acquisition.
After underlying adjustments totalling £6.1m for acquisition-
related costs, profit before tax for the year on a reported basis
was £15.8m, a significant increase from last year (FY 2016/17:
£4.8m), with fully diluted earnings per share also increasing
strongly by 10.7p to 15.8p (FY 2016/17: 5.1p).
Cash generation was again healthy with operational cash flow
of £20.9m; at 85% of underlying operating profit, this was in
line with our conversion target. Net debt at the year end was
£52.4m, resulting in a Group gearing ratio of 1.5 times, within
our target gearing range of 1.5 to 2.0 times.
Acquisition
On 1 February this year, the Group acquired the Santon
Group (“Santon”), a Dutch-based designer and manufacturer
of custom switches for electronic applications, for an initial
consideration of €27.0m (£23.7m) on a debt free, cash free
basis, and contingent consideration of up to €22.5m (£19.7m)
payable over the next three years, subject to Santon achieving
certain high growth targets.
Santon has significant alignment with our core technologies,
market and sector focus and is settling in well. We are
delighted to welcome their employees into the Group.
08
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Strategic report
New Non-Executive Director
In February 2018, Bruce Thompson joined the Board as a
Non-Executive Director. Bruce has recently stepped down as
Chief Executive Officer (“CEO”) of Diploma PLC (“Diploma”),
the FTSE 250 specialised technical products and services
business, a role he has held since 1996. During his 22 years as
CEO, Bruce led the transformation of Diploma, growing the
business, both organically and through targeted acquisition,
into a market-leading, international business operating across
Europe, North America and Australasia, experience which
will be invaluable in helping the Group to achieve its growth
plans. We are delighted to welcome Bruce to the Group.
Dividend
The Board is recommending an increase in the final dividend
per share of 0.30 pence to 6.35 pence per share, giving a
full year dividend per share of 9.0 pence, representing an
increase of 6% for the year and a cover against underlying
earnings of 2.5 times (FY 2016/17: 2.3 times). The final dividend
is payable on 31 July 2018 to Shareholders registered on
15 June 2018. Since 2010, the annual dividend per share has
risen by 77% and the total dividend payment by over 300%.
The Board aims to maintain a progressive dividend policy,
together with a long term dividend cover of between two and
three times underlying earnings.
A technical non-compliance issue has been identified with
respect to distributable reserves and the payment of recent
dividends. The Board is confident that there were adequate
reserves in subsidiary companies to meet these dividends
at the time and that this will not impact the Group’s ability
to pay future dividends. We expect to remedy the position
by means of appropriate resolutions at a general meeting of
Shareholders and a circular in respect of this will be issued.
Employees
The Group consists of c.4,000 employees in 23 countries
around the world. The Board believes that by adopting an
entrepreneurial and decentralised operating environment,
together with rigorous planning, review, support and
investment, the Group is able to continue to foster an
ambitious and successful culture.
During my visits to the businesses, I meet committed,
enthusiastic employees and the highest quality local
management leadership. On behalf of the Board, I would like
to thank everybody at discoverIE for their commitment and
hard work. Their dedication remains essential in helping us to
achieve our goals.
Summary
This has been a year of significant progress for the Group
during which it has further repositioned itself.
There is much more to do. The pace of technology change
is again moving quickly and presents many opportunities in
what is a highly fragmented market.
The Board and management continue to be excited by the
opportunities ahead to create a more international business,
adding value for our customers and for our Shareholders.
Malcolm Diamond MBE
Chairman
5 June 2018
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09
25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8ProductionOUR BUSINESS MODELWe design, manufacture and supply application-specific electronic products that help our customers solve their technical challenges.OUR RESOURCES People First-class engineers High degree of technical knowledge Ambitious, successful and entrepreneurial cultureThe Group has c.4,000 employees across 23 countries, who all contribute to the Group's success. Design & Manufacturing FacilitiesOver 80% of the products made by the Design & Manufacturing division are manufactured in-house. The division’s principal manufacturing facilities are in China, India, the Netherlands, Poland, Sri Lanka and Thailand. Read about Design & Manufacturing on page 27Watch our Corporate film at: www.discoverIEplc.com Long term customer relationshipsdiscoverIE’s highly skilled engineers work closely with customers, developing a deep understanding of their industry, sharing unique expertise and insights, and producing custom electronic solutions to address each challenge; thereby enhancing product performance and reinforcing long term relationships. FinancialWe use our financial capital to invest heavily in our businesses and make acquisitions that add to our expertise.10discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018discoverIE AR2018.indd 1014/06/2018 12:20:31 Strategic report
Our Customers
Our customers are OEMs that require solutions for their
product-specific applications. With rising electronic content,
customers are increasingly dependent on technology to develop
their next generation products.
Identification of opportunity
By working closely with our customers, we are able to understand
their needs and provide solutions. We understand our customers,
how they operate and how our components and solutions fit into
their products. The solutions we provide result in an enhanced
performance of our customers’ products, which benefits not only
our customers but also the end users of those products.
Design and quotation
We design solutions for our customers. While some solutions are
designed completely from scratch, we have “platform product
ranges” that can be modified to meet our customers’ needs.
Speed is important – the ability to provide customers with a
quote quickly enables them to produce the final product faster.
This approach saves customers time and cost. Customers will
work with a dedicated team of engineers to create a design that
matches their requirements.
OUR
MODEL
O u r Customers
ply
p
u
S
s
m
a
a t revenue stre
e
p
e
R
P
r
o
d
u
c
t
i
o
n
Id
e
n
ti
f
c
a
t
i
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f
o
p
p
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r
t
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i
t
y
n
otatio
u
e sig n and q
D
Sample and appr o v a l s
Repeat revenue streams
Once approved, our products typically enjoy repeat
revenue for the lifetime of the customer’s production,
typically 5–7 years, depending on the product end market.
Sample and approvals
Cross-selling opportunities
A key strategic focus for the Group is cross-selling
between the businesses. We aim to sell as many product
groups to our customers as possible.
Cross-selling initiatives are changing the nature of the
discoverIE business by broadening the range of products
sold to customers, in turn developing more valuable
customer relationships and achieving more efficient use of
sales resources. The divisional structure provides excellent
cross-selling opportunities by providing the Design &
Manufacturing businesses access to 25,000 customers.
Once the quote and design is accepted, a few samples are
provided to the customer for approval. This is a critical step in
the process.
Production
With internal know-how and in-house manufacturing, we are
able to maintain complete control of the product manufacturing
process, ensuring both high standards and reliability. Quality is
assured through our advanced testing procedures.
Supply
discoverIE are able to supply the customer consistently over the
lifetime of the project.
discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018
11
Watch our Corporate film at:
www.discoverIEplc.com
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25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8MARKET REVIEWTARGETING GROWTH MARKETS DRIVEN BY INNOVATIONLong term technology trendsTarget marketsThe Group focuses on four target markets, which account for around half of Group turnover: transportation, medical, renewable energy and industrial connectivity. These are expected to drive the Group’s organic revenue well ahead of GDP over the economic cycle and create acquisition opportunities. Growth in these markets is driven by increasing electronic content in products, and by global macro trends such as a growing middle class population, an ageing affluent population, an expanding transport infrastructure and the increasing need for renewable sources of energy. In FY 2017/18, organic revenue growth in these target markets was 9%, compared with 2% in other markets.Our Sales by Industry Sector9%2%6%Target marketsOther marketsTotalz Target markets £216m 56%z Other markets £172m 44%REVENUE FROM TARGET MARKETS (% OF TOTAL) GROUP REVENUEORGANIC GROUP GROWTH12discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018discoverIE AR2018.indd 1214/06/2018 12:20:32 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8OUR KEY MARKETSSince 2009, our strategy has been to grow our business in customised electronics focusing on markets with sustained growth prospects, driven by an increasing electronic content and where there is an essential need for our products.INDUSTRIAL CONNECTIVITYTechnology is creating opportunities for connectivity everywhere, which is becoming increasingly important in industry. A report by the research firm Markets-and-Markets, expects the overall market size for global machine-to-machine connections to rise by 13.2% CAGR between 2016 and 2021.TRANSPORTATIONTransport markets continue to grow around the world, driven by increasing demand and falling costs, whether it be rail, air or automotive. The electronics content is rising, for instance to add convenience features, or for safety or security. IC Insights, an electronic market research company, expects integrated circuit sales, a proxy for electronic content, into the automotive market to rise by a CAGR of 13.4% between 2016 and 2021.RENEWABLE ENERGYThe combination of increased need for electricity, reducing acceptance of nuclear and coal as sources, and falling costs all favour the demand for renewable energy. So much so, that according to the World Energy Outlook 2017, two thirds of global investment in power generation up to 2040 will be into renewable energy, primarily wind and solar. MEDICALThis market is driven by the increasing use of technology in diagnosing, monitoring and controlling medical conditions, as well as an increasingly affluent and ageing global population which now accounts for the majority of healthcare spending in developed economies. A report by Research+Markets forecasts the global sales of medical electronics to grow by a CAGR of 6.8% between 2017 and 2022.13discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018Strategic reportdiscoverIE AR2018.indd 1314/06/2018 12:20:40 OUR STRATEGY
The Group designs, manufactures and supplies highly
differentiated, innovative components for electronic
applications.
Core to our value proposition is the understanding of our
customers’ design challenges and how to design and
manufacture engineered products that meet their needs,
which we then supply over the life of the customer’s
production, typically five to seven years.
In a fragmented market, there exists an opportunity to
consolidate manufacturers which offer a product range
that is tailored to meet the needs of the Group’s common
customer base ranging from mid-sized OEMs (original
equipment manufacturers) to multinational companies
operating across multiple sites and regions. Our four
target markets (renewable energy, transportation, medical
and industrial connectivity), are long term, international
growth markets driven by excellent fundamentals where
our customers depend upon the Group’s products.
“Core to our value proposition
is the understanding of our
customers’ design challenges.”
Nick Jefferies — GROUP CHIEF EXECUTIVE
Our strategy comprises four elements.
Our strategic aim: To grow our business in customised
electronics by focusing on markets with sustained growth
prospects, driven by an increasing electronic content and where
there is an essential need for our products.
Our strategic priorities
Growing sales well
ahead of GDP
Continue building
revenues
Acquire high quality
businesses
Internationalising
the business
Read about Strategy in action on page 16
14
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Strategic report
Strategic
priorities
Progress
made
Link to key
strategic
indicators
Growing sales well ahead of GDP
Grow sales well ahead of GDP over the
economic cycle by focusing on structural
growth markets
Continue building revenues in the higher
margin D&M division
Continue building revenues in the Design
& Manufacturing (“D&M”) division where
operating margins for our businesses are
higher (>10%)
Optimise performance in the Custom
Supply division to achieve an operating
margin of 5% and to develop cross-selling
of D&M division products
Acquire high quality businesses
Acquire businesses with attractive growth
markets
Internationalising the business
Internationalise the business by developing
sales in North America and Asia
The operating leverage delivered on our organic sales
growth combined with the benefits of restructuring
last year led to a reduction in operating costs as a
percentage of sales, reducing by 0.5ppts to 26.4%; this
has helped to improve the Group operating margin by
0.4ppts since last year to 6.3% (FY2016/17: 5.9%).
The higher margin D&M division generated 57% of
Group sales (FY2016/17: 52%), generating 76% of the
Group's underlying profit contribution. Annualised for
the Santon acquisition in February 2018, D&M sales
represent 59% of Group sales. Importantly, customer
concentration remains low with no one customer
accounting for more than 4% of Group sales.
In February 2018, the Group acquired the Santon Group,
a Dutch-based designer and manufacturer of highly
differentiated, patented, direct current switches for
use in solar, industrial and transportation markets. The
acquisition is expected to double the Group’s sales into
the renewable energy sector.
Sales beyond Europe for the year were 19% of Group
sales (in line with last year) with very strong organic
growth in D&M in North America and Asia (combined
growth of 27%), being offset by the acquisition of Variohm
whose revenue is in Europe. Annualised for the Santon
acquisition, this ratio increases to 23%. We continue to
seek acquisitions with revenues beyond Europe.
2
1
1
2
3
3
Key to strategic indicators
1
Increase share of Group revenue from
Design & Manufacturing
2
Increase underlying
operating margin
3
Build sales
beyond Europe
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25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8STRATEGY IN ACTIONThe Santon X-type switch is a high voltage, high current DC and AC switch. It is of a modular design that enables a variety of construction combinations for various applications.For example, combinations of DC and AC in one switch are available, such as for enabling simultaneous switching of both sides of an inverter if required. The switching range is from 10 Amp through to 32 Amp, with operational voltages from 500 Volt through to 1,000 Volt. Suitable for a wide range of demanding and industrial applications, the X-type switch is commonly used in solar inverters throughout the world.Benefits to the customer include: Very high switching performance Reliable and durable Space optimised for each applicationSANTON SWITCHESProduct case studyDifferentiated productsContinue building revenues16discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018discoverIE AR2018.indd 1614/06/2018 12:20:45 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8Cross-sellingFor acquired businesses, cross-selling through our Custom Supply division or between other D&M businesses provides new customer and geographic growth opportunities. It takes typically three years for cross-selling to become established with a business unit, due to project lead-in cycles, but then develops into a significant additional source of revenue, as evidenced by the Group's longer standing acquisitions of MTC and Myrra, which both now count intra-group sales as one of their largest customers. This year, a significant step forward was achieved with revenues nearly doubling to £8.8m from the previous year (FY2016/17: £4.6m). Cross-selling now accounts for 2.3% of Group revenue, and we are well on our way to achieving our three-year cross-selling target (set in March 2017) of £10m per annum.The requirements of the customerAcal BFi has a long term relationship with a leading provider of power electronic systems specialised in uninterruptible power supplies. The customer needed high performance chokes for high power uninterruptible power supplies (UPS). The solution we developedDue to its knowledge of the products and capabilities of the D&M division, Acal BFi was able to partner with Noratel, a D&M company, to develop a custom component. Noratel designed and manufactured custom inductors for the boost and inverter sections of the UPS, which used more efficient material in its production.Benefits to the customerThe material used in the inverter requires less power consumption and as such, creates less heat which means that the final product size can be reduced and used in smaller units, with better overall performance as well as increased energy efficiency.Cross-selling case studyHIGH POWER, HIGH PERFORMANCE POWER SUPPLIESGrowing sales well ahead of GDP17discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018Strategic reportdiscoverIE AR2018.indd 1714/06/2018 12:20:47 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8STRATEGY IN ACTIONAcquisitionsThere are numerous opportunities to acquire businesses that will enhance, strengthen and build the Group. Good acquisitions, at the right price, which build complementary product and/or geographic capability and supply common markets and customers, create future organic growth opportunities and build value for Shareholders. We acquire businesses that are successful, profitable and growing in our existing and adjacent technology areas, with good growth prospects and long term growth drivers similar to the Group’s target markets.Typically, the businesses we acquire are led by entrepreneurial managers who wish to remain following acquisition. We encourage this, as it helps to retain a decentralised, entrepreneurial culture.Our primary acquisition focus is to invest for growth, with operational improvement. As such, the D&M division operates a decentralised structure with business units operating to pre-agreed business plans. We support growth investment requirements and develop operational performance according to the requirements of each business unit. Depending upon the circumstances, we add value in some or all of the following areas: Internationalising sales channels and expanding the customer base, including via Group cross-selling initiatives (see page 17); Developing and expanding the product range; Investing in management capability (‘‘scaling up’’) and succession planning; Capital investment in manufacturing & infrastructure; Improving manufacturing efficiency; Enabling growth with larger customers as a consequence of the stronger Group balance sheet; Infrastructure efficiencies, such as warehousing and freight; Finance and administrative support, such as treasury, banking, legal, pension, tax & insurance, risk & control; and Expanding the business through further acquisitions.Acquisition performanceOver the last seven years, 11 businesses have been acquired in the D&M division at a cost of £153m. On a weighted average basis, revenues of the acquired businesses have grown by 5% per annum (organically at CER) and operating profits by 7% per annum since acquisition. We measure acquisition return on investment (“ROI”) using the current year operating profit attributable to each business over the acquisition costs (including earn outs, expenses of acquisition and integration costs). The Group, which has a weighted average cost of capital of c.9%, targets an acquisition EBIT ROI of 15% within two years. Overall, the weighted average ROI of our acquired businesses for the year was 17%, ahead of the target. During the year, six businesses exceeded target ROI with a range of 19% to 77%, mostly the result of several years’ profitable growth from businesses acquired in earlier years. Two were broadly on target while two smaller businesses performed below the target level and, following changes that were made during the year, are expected to improve in the year ahead. Acquire high quality businesses18discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018discoverIE AR2018.indd 1814/06/2018 12:20:49 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8Acquisition case studyHectronic, based in Stockholm in Sweden and acquired in June 2011, is a provider of customised embedded computing technology for industrial applications and is a good example of how we develop and invest in businesses following acquisition. Since acquisition, organic revenue has doubled, and operating profits have grown tenfold. Furthermore, the following have been achieved: Focused core product offering; Developed higher value-add sales focus; Focused on key markets with strong success in transportation and medical; Invested in new sales resources and territories; Established cross-selling with Acal BFi; Moved main production to Taiwan; Enabled growth with larger customers as a consequence of a strong Group balance sheet; Shared management, resources and facility between Hectronic and Acal BFi Nordic. The strong, local management team have embraced the market opportunity and the investment capability that the Group brought to the business to deliver strong results. The business has excellent growth prospects ahead.HECTRONIC19discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018Strategic reportdiscoverIE AR2018.indd 1914/06/2018 12:20:52 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8STRATEGY IN ACTIONOperational investmentsInvestment case studyInternationalising the businessEXPANDING MAGNETICS PRODUCTION IN INDIADuring the year, investment was made in a new magnetics production facility in Bangalore.While the Group has an existing facility in Trivandrum, additional space was required for new production of a new product range. Bangalore was identified as the location for the new facility in order to be close to target customers.The facility which was chosen by discoverIE required low initial investment as it had most of its internal infrastructure in place. The Group also has the ability to increase production capability which allows for further growth.The Indian market is fast growing as a result of Government polices such as ‘‘Make In India’’ and ‘‘Digital India’’. The Ministry for New and Renewable Energy in India targets an accelerated growth of renewable electricity and the Government has made a commitment to move to electric vehicles by 2030, both target markets of the Group.The Group intends to grow our business in India and the expansion of the magnetics production is a first step in meeting this strategic goal. 20discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018discoverIE AR2018.indd 2014/06/2018 12:20:53 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8KEY STRATEGIC INDICATORSINCREASE SHARE OF GROUP REVENUE FROM DESIGN & MANUFACTURING1INCREASE UNDERLYING OPERATING MARGINBUILD SALES BEYOND EUROPE1123FY1859%352%%FY1748%%FY1637%%FY1518%%FY14FY186.3%5.9%%FY175.7%%FY164.9%%FY153.4%%FY14FY1823%319%%FY1717%%FY1612%%FY155%%FY1459%6.3%23%DefinitionThe proportion of total Group revenue that is derived from business in the Design & Manufacturing (‘‘D&M’’) division.Why we measure thisThis is a measure of the implementation of our strategy; moving up the value chain into higher margin products that are generated in the D&M division.Commentary on performanceThe D&M division delivered 57% of Group sales, up from 52% last year, and 59% when annualised for recent acquisitions. This is further progress towards our mid-term target of 75%.DefinitionUnderlying operating profits as a percentage of sales.Why we measure thisThis is a measure of the operating efficiency of the Group.Commentary on performanceIncreased to 6.3% from 5.9% last year. The ninth consecutive year of increasing margin. This is further progress toward our mid-term target of 8.5%.DefinitionSales in the Americas, Asia and Africa. Excludes the UK and Europe.Why we measure thisIncreasingly, we sell to companies with operations on more than one continent. It is important that we are able to support and supply those customers where they operate.Commentary on performanceNineteen per cent of sales were generated beyond Europe with very strong organic growth in North America and Asia by D&M of 27%, being offset by the acquisition of Variohm whose revenue is in Europe.Link to strategic prioritiesLink to strategic prioritiesLink to strategic prioritiesTarget 2 75%Target 2 8.5%Target 2 30%1 As a proportion of Group revenue2 Mid-term is a three to five year period starting in November 20163 Includes the annualised impact of Santon, acquired in February 20182 Mid-term is a three to five year period starting in November 20161 As a proportion of Group revenue2 Mid-term is a three to five year period starting in November 20163 Includes the annualised impact of Santon, acquired in February 201821discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018Strategic reportdiscoverIE AR2018.indd 2114/06/2018 12:20:54 KEY PERFORMANCE
INDICATORS
2
INCREASE
CROSS-SELLING
3
UNDERLYING EPS
GROWTH1
£8.8m
16%
3yr Target (FY20) £10m p.a.
3yr Target (FY20) >10%
£8.8m
FY18
FY17
FY16
FY15
FY14
£4.6m
£3.0m
£0.9m
£0.3m
FY18
FY17
FY16
FY15
FY14
16%
13%
10%
31%
20%
1 Defined in note 2 of the Group financial
statements
SALES GROWTH
1
11% CER
3yr Target (FY20) Well ahead of GDP
FY18
11%
FY17
6%
FY16
FY15
FY14
14%
17%
36%
6% ORGANIC1
3yr Target (FY20) Well ahead of GDP
6%
FY18
FY17
FY16
FY15
FY14
(1)%
3%
3%
2%
1 Defined in note 2 of the Group financial
statements
Definition
Two measures are used to calculate
sales growth:
Definition
Sales between Group operating
companies.
1. Organic sales growth is calculated at
constant exchange rates and includes
the equivalent pre-acquisition period
for recent acquisitions.
2. Constant Exchange Rate (CER)
growth measures the total increase
in sales, both organic growth and the
additive effect of acquisitions.
Why we measure this
1. Organic sales growth measures the
success of the Group in generating new
business and growth.
2. CER growth measures the total
growth of the Group and drives overall
levels of profitability and earnings.
Commentary on
performance
Organic sales growth for the period of
6% was well ahead of GDP. CER sales
grew by 11%.
Why we measure this
Cross-selling expands the sales
opportunity by widening the range
of products that can be sold. For
acquired businesses, cross-selling
provides new customer and geographic
opportunities to enhance organic
growth. In both cases, cross-selling
creates stronger customer relationships.
Commentary on
performance
Cross-selling, which generated £8.8m of
Group sales (nearly double the £4.6m of
last year), is closing in on our three-year
target of £10m p.a.
Definition
Growth in underlying earnings per
share (being underlying operating
profit after tax divided by the weighted
average fully diluted number of
ordinary shares during the period).
Why we measure this
This measures the growth of the
underlying earnings for each share and
illustrates the level of profit growth
being generated by the Group for each
share in issue.
Commentary on
performance
Underlying EPS growth for the period
was strong at 16%, ahead of our target
for the year of exceeding 10%.
22
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Strategic report
UNDERLYING EPS
GROWTH1
4
DIVIDEND
GROWTH
5
RETURN ON
CAPITAL
EMPLOYED
(ROCE)1
6
OPERATING
CASH FLOW 1
6%
15.5%
85%
3yr Target (FY20) Progressive
3yr Target (FY20) >15%
3yr Target (FY20) >85% of
underlying operating profit
6%
6%
6%
FY18
FY17
FY16
FY15
FY14
12%
10%
FY18
FY17
FY16
FY15
FY14
15.5%2
13.0%
11.6%
12.0%
15.2%
FY18
FY17
FY16
FY15
FY14
85%
136%
100%
104%
100%
1 Defined in note 2 of the Group financial
1 Defined in note 2 of the Group financial
statements
statements
2 Excludes the impact of the Santon
acquisition
Definition
Growth in the amount derived from
the Group's earnings, that is paid to
Shareholders annually, expressed in
pence per share.
Why we measure this
The Group has a progressive dividend
policy. Dividend growth is an
important parameter as investors are
often attracted by dividend growth
prospects. The Group depends on
supportive Shareholders for the
future development of the Group, for
example, when raising new equity for
acquisitions.
Commentary on
performance
The full year dividend has increased by
6% reflecting the strong performance
of the year and confidence in
future prospects. This is the eighth
consecutive year of increase.
Definition
Underlying operating profits for
the year as a percentage of capital
employed (net assets including
goodwill, plus net debt as at the end of
the year).
Why we measure this
This is a measure of profitability and
the efficiency with which capital is
utilised. By including goodwill incurred
in acquisitions, it measures the
effectiveness of acquisitions.
Commentary on
performance
ROCE was 15.5%, up from 13.0% in the
prior year, in line with our target of
exceeding 15%.
Definition
Underlying EBITDA less working capital
and capital expenditure as a percentage
of underlying operating profits.
Why we measure this
This measures the conversion rate of
underlying operating profits into cash.
Commentary on
performance
Operating cash flow was 85% of
underlying operating profit, in line with
our target. While a lower percentage
than in previous years, this reflects
investment in working capital to meet
organic growth requirements..
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OPERATING REVIEW
“The Group is well positioned
to continue benefiting from the
technological changes that are
under way in our target markets.
We look forward to making
further progress in the year
ahead.”
Overview
The Group has invested, over recent years, in initiatives that
enhance design and manufacturing sales opportunities in
our key customers and markets. The results are evident with
strong levels of organic revenue growth across the business
units within our D&M division. In our Custom Supply division,
the focus has been on improving efficiency and increasing
profitability which has resulted in a 44% increase in the
division’s underlying operating profits.
Organic sales in the year grew by 6% driven by 11% organic
growth in the D&M division. Together with a 5% contribution
from the acquisitions of Variohm Holdings Limited (“Variohm”)
in January 2017, and Santon in February 2018, Group sales
increased by 11% CER; including translation benefits from a
weaker Sterling on average since last year, reported Group
revenues were up 15%.
Orders also performed well, growing by 5% organically to
£401m and by 11% CER, when including acquisitions, leading
to another record year end order book at 31 March 2018 of
£122m (up 12% CER year-on-year).
Project design wins, a proxy measurement for new business
creation, grew strongly during the year. The estimated
lifetime sales value of design wins during the year was £190m,
an increase of 50% compared with last year, with 75% of
these wins in our target markets.
Nick Jefferies — GROUP CHIEF EXECUTIVE
Strong revenue growth has driven a 23% increase in
underlying operating profit, rising by £4.5m to £24.5m
(18% CER), with Underlying EPS increasing by 16% to 22.3p.
Group Strategy
The Group designs, manufactures and supplies highly
differentiated, innovative components for electronic
applications.
Core to our value proposition is the understanding of our
customers’ design challenges and how to design and
manufacture engineered products that meet their needs,
which we then supply over the life of the customer’s
production, typically five to seven years.
In a fragmented market, there exists an opportunity to
consolidate manufacturers which offer a product range
that is tailored to meet the needs of the Group’s common
customer base, ranging from mid-sized OEMs (original
equipment manufacturers) to multinational companies
operating across multiple sites and regions. Our four target
markets (renewable energy, transportation, medical, and
industrial connectivity), are long term, international growth
markets driven by excellent fundamentals where our
customers depend upon the Group’s products.
Our strategy comprises four elements:
1. Grow sales well ahead of GDP over the economic cycle by
focusing on structural growth markets;
2. Move up the value chain by continuing to build revenues
in the higher margin D&M division;
3. Acquire businesses with attractive growth prospects;
4.
Internationalise the business by developing sales in North
America and Asia.
The Group’s progress with its strategic objectives is measured
through key strategic indicators (“KSIs”), while progress
with its financial performance is measured through key
performance indicators (“KPIs”). Our KSIs are mid-term targets
over a three to five year period from November 2016 while our
KPIs are three year targets starting in March 2017.
24
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Strategic report
Key Strategic Indicators
1. Increase share of Group revenue from D&M1
2. Increase underlying operating margin
3. Build sales beyond Europe1
1 As a proportion of Group revenue
FY 14
18%
3.4%
5%
FY 15
37%
4.9%
12%
FY 16
48%
5.7%
17%
FY 17
52%
5.9%
19%
FY 18
59%3
6.3%
23%3
Mid term
Target2
75%
8.5%
30%
2 Mid-term is a three to five year period starting in November 2016
3
Includes the annualised impact of Santon, acquired in February 2018
The Group made good progress towards its strategic objectives during the year:
The higher margin D&M division delivered 57% of Group sales (FY 2016/17: 52%), generating 76% of the Group’s underlying
profit contribution. Annualised for the Santon acquisition in February 2018, D&M sales represent 59% of Group sales.
Importantly, customer concentration remains low with no one customer accounting for more than 4% of Group sales;
The operating leverage delivered on our organic sales growth combined with the benefits of restructuring last year led to a
reduction in operating costs as a percentage of sales, reducing by 0.5ppts to 26.4%; this has helped to improve the Group
operating margin by 0.4ppts since last year to 6.3% (FY 2016/17: 5.9%);
Sales beyond Europe for the year were 19% of Group sales (in line with last year) with very strong organic growth in D&M
in North America and Asia (combined growth of 27%) being offset by the acquisition of Variohm whose revenue is in
Europe. Annualised for the Santon acquisition, this ratio increases to 23%. We continue to seek acquisitions with revenues
beyond Europe.
Our long term ambition is to increase the share of Group revenue from D&M to 85% with an operating margin of 10% and
sales beyond Europe of 40%.
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25
OPERATING REVIEW
Key Performance Indicators
1. Sales growth
CER
Organic
FY 14
FY 15
FY 16
FY 17
FY 18
3 yr target
(FY20)
17%
2%
36%
3%
14%
3%
6%
(1%)
11%
6% Well ahead of GDP
2. Increase cross-selling
£0.3m
£0.9m
£3.0m
£4.6m
£8.8m
3. Underlying EPS growth
4. Dividend growth
5. ROCE1
6. Operating cash flow1
20%
10%
15.2%
100%
31%
12%
12.0%
104%
10%
6%
11.6%
100%
13%
6%
13.0%
136%
1 Defined in note 5 of the attached summary financial statements
2 Excludes the impact of the Santon acquisition
16%
6%
15.5%2
£10m p.a.
>10%
Progressive
>15%
85% >85% of underlying
operating profit
The Group also made good progress towards its operational objectives during the year:
Organic sales growth for the period of 6% was well ahead of GDP, with strong organic growth in our higher margin D&M
division, increasing organically by 11% as earlier design wins and order book converted into revenue;
Cross-selling, which generated £8.8m of Group sales (nearly double the £4.6m of last year), is closing in on our three year
target of £10m p.a.; as with organic growth in D&M, cross-selling revenue accelerated following the conversion of earlier
design wins and order book into revenue;
Underlying EPS growth for the period was 16%, comfortably ahead of our target for the year of exceeding 10% and
reflecting the strong continuing performance of acquisitions together with broad-based organic growth;
Strong growth in underlying operating profit has driven a 2.5ppts increase in return on capital employed to 15.5%
compared with 13.0% in FY 2016/17, on the organic business, ahead of our three year target of exceeding 15%. ROCE
including Santon (which factors in only two months of its operating profit but all of its assets) increased by 0.5ppts to 13.5%;
Operating cash flow was 85% of underlying operating profit, in line with our target; while a lower percentage than in
previous years, this reflects investment in working capital to meet organic growth requirements, with sales growing by 6%
organically this year compared with a reduction of 1% last year.
Divisional Results
Divisional and Group performances for the year ended 31 March 2018 are set out and reviewed below.
FY 2017/18
Underlying
operating
profit1
£m Margin
FY 2016/17
Underlying
operating
profit1
£m Margin
Revenue
£m
Revenue
growth
CER
revenue
growth
Organic
revenue
growth
24.2
7.5
(7.2)
24.5
10.9%
4.5%
175.6
162.6
20.2
5.2
(5.4)
11.5%
3.2%
27%
2%
24%
(2%)
11%
0%
6.3%
338.2
20.0
5.9%
15%
11%
6%
Revenue
£m
222.6
165.3
387.9
Design & Manufacturing
Custom Supply
Unallocated costs2
Total
1
2
Underlying operating profit excludes acquisition-related costs in both years and exceptional costs in FY 2016/17
£1.4m of the £1.8m increase in unallocated costs relates to the accrual for employer’s national insurance on LTIPs following an 85%
increase in the share price during the year
26
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Strategic report
With over 80% of Group sales in non-Sterling currencies,
the translation of Group results into Sterling has benefited
from Sterling weakness on average against Euro and Nordic
currencies, increasing Group revenue growth from 11% CER
to 15% on a reported basis. Conversely, weaker Sterling
put pressure on our UK import costs in the final quarter of
last year and the first half of this year, impacting UK gross
margins where approximately 90% of the cost of goods are
non-Sterling. During the second half, we mitigated much of
these effects through a combination of manufacturing and
purchasing efficiencies, and in some cases price increases to
customers, such that the second half gross margin increased
by nearly 1ppt over first half margins.
Order Book
Orders have continued to grow well and at the year end the
order book reached a record high of £122m, an increase of
12% CER over last year. On an organic basis, the order book
increased by 7%.
The order book is driven by repeating revenues from existing
customer projects and the conversion of customer design
wins from new projects into orders.
Over 80% of the order book is for delivery within 12 months
from the time of order, and it is this conversion into sales
which is driving the continued momentum in sales into
FY2018/19.
By working with high quality customers in our focus markets,
we aim to build an order book that leads to long term and
repeating revenues.
Design wins
Project design wins are a proxy measurement for new
business creation and are a key driver of organic sales growth.
By working with customers at an early stage in their project
design cycle we identify opportunities to create custom
products to meet specific needs.
Design opportunities take on average 18 months to develop
to conclusion, at which point they become a design win.
Once in production, the design win will create a recurring
revenue stream over a number of years.
This year design wins grew very strongly driven by a clear
focus on our part and a strong growth in investment on the
part of our customers. The estimated lifetime sales value
of design wins during the period was £190m, an increase
of 50% over the prior year (FY 2016/17: £127m). A portion of
design wins are to replace existing projects as they become
end-of-life.
Design & Manufacturing (“D&M”)
Division
The D&M division designs, manufactures and supplies
highly differentiated, innovative components for electronic
applications. Over 80% of the products are manufactured
in-house, the balance being manufactured by approved
third party contractors. The division’s principal manufacturing
facilities are in China, India, the Netherlands, Poland, Sri Lanka
and Thailand.
A number of operational investments were made during the
year which included a new magnetics production facility
in Bangalore, India, close to some of our larger customers;
expanding fibre optic production capacity with a new factory
in Slovakia; and expanding our electromagnetic shielding
production capacity in South Korea. During the year ahead,
we are planning to expand our magnetics production
capacity in China. Additionally, as part of the acquisition
of Santon in February 2018, investment is being made to
expand capacity and automate production at their factory in
Rotterdam.
Trading in the year was strong, generating 11% organic sales
growth and continuing the momentum started in the second
half of last year. This growth was driven by new project wins,
mostly in our target markets, and product cross-selling,
supported by favourable market conditions. Strong growth
was seen in the Nordic region, Germany, Asia and the US.
Orders for the division increased by 10% organically year-on-
year, and the divisional order book was up by 12% organically.
Organic sales growth of 11%, combined with 13% sales growth
contribution from the acquisitions of Variohm in January
2017 and Santon in February 2018, resulted in overall sales
increasing by 24% CER. Including the benefit of translation
gains, reported divisional revenue increased by 27% to
£222.6m (FY 2016/17: £175.6m).
Divisional revenue was 57% of Group revenue (59%
annualised for acquisitions; FY 2016/17: 52%) and generated
76% of the Group’s underlying profit contribution. This
represents further good progress towards our mid-term
target for D&M to account for 75% of Group revenue, with our
long term ambition being 85%.
Underlying operating profit of £24.2m was £4.0m (+20%)
higher than last year (FY 2016/17: £20.2m) and up £3.5m CER
(+17%). The underlying operating margin of 10.9% remained
consistent through the year and in line with the second half
of last year. The modest reduction in operating margin on an
annual basis reflects the impact of Sterling weakness on UK
import pricing which was evident from the end of the first
half last year.
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27
OPERATING REVIEW
Variohm
Variohm was acquired in January 2017 and has since been
integrated into the D&M division. It performed strongly during
the year, with good organic growth in both orders and sales
driving a 14% increase in its profitability. As with previous
acquisitions, Variohm is expected to benefit from the access
it has to the Group’s wider customer base and international
reach, creating new revenue opportunities from cross-selling
within the Group. Variohm has a strong pipeline of cross-
selling projects and a number of design wins and pre-
production orders already secured.
Santon
In February 2018, the Group acquired the Santon Group,
a Dutch-based designer and manufacturer of highly
differentiated, patented, direct current (“DC”) switches for
use in solar, industrial and transportation markets. The
acquisition was consistent with the Group’s strategy of
targeting structural growth markets, in this case renewable
energy and transportation, internationalising sales and
building on its position in niche components for solar power
and its established position in wind power. The acquisition
is expected to nearly double the Group’s sales into the
renewable energy sector and increase the level of Group sales
into Asia from 8% to 13%.
Santon was acquired for an initial consideration of €27.0m
(£23.7m) on a debt free, cash free basis and generated
revenue for its year ended 31 December 2016 of €24.4m
(£20.0m) with a normalised operating profit of €3.2m (£2.6m).
In addition, contingent consideration of up to €22.5m
(£19.7m) will be payable over the next three years subject to
Santon achieving certain high growth targets.
Since acquisition, Santon is settling in well. In addition to its
strong solar business, a number of new opportunities have
arisen in the transportation and industrial sectors, some with
customers that are common to the Group.
As with Variohm, we expect the business to benefit from
access to discoverIE’s broader, international customer base,
to create new revenue opportunities from cross-selling across
the Group.
28
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Custom Supply Division
During the year, the Custom Distribution division was
renamed Custom Supply. With continuing focus on designing
customised solutions for customers with our third party
suppliers, and the growth in cross-selling of complementary
products from our D&M division, the new name more
accurately reflects the nature of business in this division.
The Spanish business was closed during December 2016 as
part of the efficiency and cost reduction programme. This
closure impacted sales this year by 2%, resulting in overall
divisional sales being below last year by 2% CER. Including
the benefit of translation gains from weaker Sterling since last
year, reported divisional revenue increased by 2% to £165.3m
(FY 2016/17: £162.6m).
The division provides customised electronic, photonic and
medical products for technically demanding applications
in industrial, medical and healthcare markets. The business
operates similarly to the D&M division, but mostly with third
party suppliers rather than with products manufactured
in-house. As such, operating margins are lower than in
D&M. A key element of the division’s strategy is to grow the
proportion of cross-sales from manufactured products from
the D&M division in a manner that complements, but does
not compete with or limit growth of, our highly valued third
party suppliers, thereby enhancing the Group’s overall value
proposition to customers and suppliers.
A high degree of technical knowledge is required during the
sales process, with the division’s in-house engineers helping
customers to solve their design challenges. The Group is
the only industrial electronics business which provides
such a comprehensive range of customer-specific products
and solutions across Europe. The division comprises two
businesses, Acal BFi and Vertec.
Acal BFi supplies industrial markets and accounts for the
majority of Custom Supply revenue. It supplies products
from a selected group of manufacturers (including the
Group’s D&M businesses) to customers in five technology
areas: Communications & Sensors, Power & Magnetics,
Electromechanical & Cabling, Microsystems, and Imaging
& Photonics. The business operates across Europe, with
centralised warehousing, purchasing, finance, customer
contact management and IT systems. Vertec supplies
exclusively sourced medical imaging and radiotherapy
products into medical and healthcare markets in the UK and
South Africa.
The division’s overall trading performance in the year was
steady with organic sales in line with last year. First half sales
grew by 7% organically while second half sales were 6% lower
following strong prior year comparators. Strong growth was
delivered in Germany and Italy offset by softness in domestic
UK demand. Orders for the division were also in line with last
year organically with a book to bill ratio of 1.02.
The division’s focus on high value-add sales saw divisional
gross margins increase by 0.7ppts. This, together with the
benefits from last year’s efficiency programme, resulted in
much improved profitability. Underlying operating profit rose
by 44% to £7.5m (up 36% CER), with an underlying operating
margin of 4.5%, 1.3ppts higher than last year (FY 2016/17:
3.2%). This is excellent progress towards achieving our target
margin for this division of 5%.
Group Priorities for the Year Ahead
Our priority for the year ahead is to deliver further good
growth in earnings and operating margins, through:
1. Organic sales growth including:
Continued growth in cross-selling
2. Developing new and expanded production facilities
3.
Integrating the Santon acquisition:
Organic growth
Complete automation project
Establish cross-selling
4. Further value enhancing acquisitions.
Summary and Outlook
As expected, this has been a year of good progress. The
Design & Manufacturing division has delivered strong organic
growth in revenue and profits and in Custom Supply, the
efficiency programme of last year has delivered much
improved profitability.
The Group order book grew by 12% CER to reach a new
record level of £122m and the value of new projects won
during the year continued to grow well, particularly in our
target markets; both are important for building organic
growth. To support this, we have invested in additional
production capacity at three sites with one more under way
in the coming year.
We have a healthy pipeline of acquisition opportunities with a
number being developed in line with our stated objectives.
Trading in the new year has started well with continuing
growth in orders and sales and the Group is well positioned
to continue benefiting from the technology changes that are
under way in our target markets. We look forward to making
further progress in the year ahead.
Nick Jefferies
Group Chief Executive
5 June 2018
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29
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FINANCE REVIEW
“Another year of good progress,
Group revenue for the year
increased by 15% over last year."
Orders and Revenue
Group revenue for the year increased by 15% over last year
to £387.9m, and by 11% CER, the difference reflecting the
translation benefit of Sterling weakness since last year.
Organic revenue increased by 6%, while the acquisitions
of Variohm last year, and Santon this year, less last year’s
closure of the Spanish distribution business, contributed an
additional 5% growth in revenues.
£m
Reported revenue
FX translation impact
Underlying revenue (CER)
Acquisitions/closures
Organic revenue
FY
2017/18
387.9
387.9
(3.7)
384.2
FY
2016/17
338.2
10.7
348.9
13.3
362.2
%
15%
11%
6%
Group orders increased by 11% CER with a book to bill ratio
of 1.03 (H1: 1.02, H2: 1.04). Organically, orders were up 5% for
the year.
With approximately 80% of Group sales in non-Sterling
currencies, the translation of Group results into Sterling has
benefited from its weakness since last year. Sterling declined
by 5% against the Euro in the year compared with last year,
and by 2% against Nordic currencies.
Simon Gibbins — GROUP FINANCE DIRECTOR
Gross Profit and Margin
Gross profit for the year of £126.7m increased by 14% over last
year. Gross margins in the second half increased during the
year to 33.1% compared with 32.2% in the first half, to give a
full year gross margin of 32.7%, broadly in line with last year.
The second half improvement reflects the benefit of some
increased pricing to pass on the impact of adverse foreign
exchange movements on UK import costs, as well as the
benefit of higher margin acquisitions.
Despite currency pressures over the last two years, the second
half gross margin is the Group’s highest half yearly gross
margin, which has increased by around 7ppts in the last nine
years, a reflection of the differentiated nature of our products.
Underlying Operating Costs
Overall reported costs were up 5% as detailed below.
Excluding underlying adjustments, Group underlying
operating costs increased by 9% CER. Adjusting for the
pre-acquisition costs of Variohm and Santon, underlying
operating costs increased by 4% organically reflecting
investment in D&M businesses to support strong revenue
growth. The increase is related mainly to organic sales growth
of £22m and the higher cost accrual for UK national insurance
on share based payments of £1.4m following an 85%
increase in the share price during the year, partially offset
by restructuring savings from last year’s efficiency and cost
reduction programme of £2.3m.
As a percentage of sales, underlying operating costs for the
year reduced by 0.5ppts to 26.4%, or 26.0% excluding the
UK national insurance on share based payments, the Group’s
lowest percentage since the outset of the current strategy
in 2009, as the business continues to invest for growth and
improve its efficiency.
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£m
Organic operating costs
Acquisitions/closure operating costs
Underlying operating costs (CER)
FX translation
Underlying adjustments
Acquisition-related costs
Amortisation of acquired intangibles
Exceptional restructuring costs
IAS 19 pension administration cost
Reported operating costs
£m
Selling and distribution costs
Administrative expenses
Reported operating costs
%
4%
9%
FY 2017/18
FY 2016/17
101.1
1.1
102.2
0.8
4.9
—
0.3
97.3
(3.7)
93.6
(2.6)
1.7
3.9
6.4
0.3
108.2
103.3
5%
FY 2017/18
FY 2016/17
54.5
53.7
108.2
49.4
53.9
103.3
Selling and distribution costs, and administrative expenses both include the additional operating costs of the recently
acquired businesses. Underlying adjustments, which are included in the financial statements within administrative expenses,
are discussed on page 32.
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31
FINANCE REVIEW
Group Operating Profit and Margin
Group underlying operating profit for the year was £24.5m, up £4.5m (+23%) on last year, and up 18% CER, delivering a Group
underlying operating margin of 6.3%, up 0.4ppts on last year.
Reported Group operating profit for the year (after accounting for the underlying adjustments discussed below) was £18.5m,
an increase of £10.8m compared with £7.7m last year. Last year was impacted by exceptional restructuring costs of £6.4m, of
which there are none this year. Excluding those exceptional costs from last year, reported Group operating profit increased by
£4.4m (+31%).
£m
Underlying
Underlying adjustments
Acquisition-related costs
Amortisation of acquired intangibles
Exceptional restructuring costs
IAS 19 pension cost
Reported
FY 2017/18
FY 2016/17
Operating
profit
Finance
cost
Profit
before tax
Operating
profit
Finance
cost
Profit
before tax
24.5
(2.6)
21.9
20.0
(2.8)
17.2
(0.8)
(4.9)
—
(0.3)
18.5
—
—
—
(0.1)
(2.7)
(0.8)
(4.9)
—
(0.4)
15.8
(1.7)
(3.9)
(6.4)
(0.3)
7.7
—
—
—
(0.1)
(2.9)
(1.7)
(3.9)
(6.4)
(0.4)
4.8
Underlying Adjustments
Underlying adjustments for the year comprise acquisition-
related costs of £0.8m (FY 2016/17: £1.7m), the amortisation
of acquired intangibles of £4.9m (FY 2016/17: £3.9m) and the
IAS 19 legacy pension cost of £0.4m (FY 2016/17: £0.4m). There
were no exceptional costs (FY 2016/17: £6.4m).
Acquisition-related costs of £0.8m comprised expenses
of £1.2m related to the acquisition of Santon in February
2018, integration costs of £0.3m and earn out net credit
adjustments of £0.7m.
The £1.0m increase in the amortisation charge since last year
relates to the amortisation of intangibles identified as part of
the acquisitions of Variohm last year and Santon this year. The
total annualised amortisation cost for next year is expected to
be around £6.0m.
Additionally, last year there was £6.4m of exceptional
costs related to the Group’s efficiency and cost reduction
programme which delivered £4.0m of savings, of which £1.7m
arose last year with the additional £2.3m arising this year.
There were no exceptional costs this year.
Financing Costs
Group finance costs of £2.7m (FY 2016/17: £2.9m) comprised
underlying finance costs (being interest and facility fees
arising from the Group’s banking and pooling facilities),
together with an IAS 19 pension finance charge.
Underlying finance costs for the year were £2.6m, a reduction
of £0.2m from last year (FY 2016/17: £2.8m) due to lower
average debt balances during the year. Included within
finance costs is the amortisation of the upfront arrangement
fees associated with the Group’s syndicated banking facility of
approximately £0.3m per annum.
The IAS 19 pension finance cost for the year was £0.1m, in line
with last year.
Underlying Tax Rate
The underlying effective tax rate for the year was 24%. This
was in line with last year.
The overall effective tax rate of 25% was slightly higher
than the underlying effective tax rate of 24% mainly due to
lower tax relief available on the amortisation of acquired
intangibles.
32
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Profit Before Tax and EPS
Underlying profit before tax for the year was £21.9m, an increase of £4.7m (27%) compared with last year. This increase, offset
partly by the increased equity base following the equity placing in January 2017, resulted in underlying diluted earnings per
share for the year of 22.3p, up 16% on last year.
After the underlying adjustments discussed above, reported profit before tax was £15.8m, £11.0m higher than last year, with
reported fully diluted earnings per share of 15.8p, an increase of 10.7p from last year.
£m
Underlying
Underlying adjustments
Acquisition-related costs
Amortisation of acquired intangibles
Exceptional restructuring costs
IAS 19 pension cost
Reported
FY 2017/18
FY 2016/17
PBT
21.9
(0.8)
(4.9)
—
(0.4)
15.8
EPS
22.3p
15.8p
PBT
17.2
(1.7)
(3.9)
(6.4)
(0.4)
4.8
EPS
19.2p
5.1p
Working Capital
Working capital at 31 March 2018 was £61.8m, equivalent to 15% of annualised final quarter sales at CER. This compares with
working capital of £55.1m at 31 March 2017, also at 15% of last year’s annualised final quarter sales at CER. Continued tight
management of working capital has kept this ratio similar with last year, despite increased sales in the D&M division, which
as a manufacturer, holds raw material and more finished goods than in Custom Supply, and hence has lower stock turns (3.5
times in D&M compared with 9.5 times in Custom Supply). This in turn, results in higher working capital as a percentage of
sales in the D&M division (21% in D&M compared with 10% in Custom Supply).
Group stock turns were 4.9, 0.8 turns lower than last year, as a result of the increasing percentage of D&M sales. Group trade
debtor days and trade creditor days outstanding at 31 March 2018 were higher than last year at 55 days (up 4 days) and 63 days
(up 6 days) respectively, again largely linked to the increased percentage of sales in D&M for which both ratios are higher than
in Custom Supply.
ROCE for the year (return on capital employed, as defined in note 2 of the Group financial statements) on our organic business
was 15.5%, up 2.5ppts on last year driven by increased profitability and operating efficiency. This is ahead of our target to
achieve a ROCE of at least 15%. Including our recent Santon acquisition, ROCE (which factors in only two months of Santon’s
operating profit but all of its assets) was still up 0.5ppts to 13.5%.
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33
FINANCE REVIEW
Cash Flow
Net debt at 31 March 2018 was £52.4m, compared with £30.0m
at 31 March 2017. The increase of £22.4m results mainly from
the Santon acquisition in February 2018. Excluding the upfront
costs and expenses related to acquisitions, net debt would
have reduced by £3.0m to £27.0m.
Net debt at 1 April
Free cash flow (see table below)
Acquisition-related cash flow
Equity issuance
Net settlement expense
Exceptional payments
Legacy pension
Dividends
Foreign exchange impact
Net debt at 31 March
(30.0)
14.6
(25.4)
—
(1.5)
(1.8)
(1.7)
(6.2)
(0.4)
(38.1)
21.3
(13.8)
13.6
—
(6.4)
(1.6)
(5.2)
0.2
(52.4)
(30.0)
Net acquisition cash flows of £25.4m comprise a £19.4m
upfront cash payment for the acquisition of Santon in
February 2018, £4.4m of acquired debt on acquisition,
associated acquisition costs of £0.8m and the cash cost
of earn out payments made in the period of £0.8m. Cash
payments of exceptional items for the year totalled £1.8m
(being payments of prior year accruals for last year’s efficiency
and cost reduction programme). Additionally, £1.5m of tax
was paid in respect of executive share options which were net
settled on exercise.
Dividend payments increased by £1.0m (+19%) to £6.2m
following the 6% increase of last year’s dividend and the 10%
increase in the number of shares following the equity placing
in January 2017 which funded the Variohm acquisition. The
Group will continue to review the level of future dividend
growth in relation to its policy of long term dividend cover of
two to three times underlying earnings per share.
Operating cash flow and free cash flow (see definitions in
note 2 of the Group financial statements on page 115) for the
year compared with last year are shown below.
£m
Underlying profit before tax
FY
2017/18
FY
2016/17
Finance costs
Non-cash items*
Underlying EBITDA
Working capital
Capital expenditure
Operating cash flow
Finance costs
Taxation
Free cash flow
FY
2017/18
FY
2016/17
21.9
2.6
4.8
29.3
(4.1)
(4.3)
20.9
(2.6)
(3.7)
14.6
17.2
2.8
4.5
24.5
5.9
(3.3)
27.1
(2.8)
(3.0)
21.3
* Non-cash items comprise depreciation (£3.5m), amortisation (£0.6m)
and share based payments (£0.7m)
Underlying EBITDA of £29.3m was 20% higher than last year.
£4.1m was invested into working capital, to support strong
organic D&M sales growth of 11% (being additional organic
D&M sales of £22.0m CER). This additional working capital
equates to 19% of D&M sales, 2ppts below the 21% average for
the D&M division.
Together with lower growth last year, strong year end cash
collections in March 2017 allowed for working capital of
£5.9m to be released. Across the two-year period, £1.8m has
been released from Group working capital at a time when
organic sales have grown by £20m, delivering an overall 1ppt
reduction in working capital as a percentage of sales for the
period FY 2016 to 2018.
Capital expenditure at £4.3m was £1.0m higher than last year
with increased investment in the D&M division, in particular
funding new facilities in Noratel India, Foss Slovakia and MTC
Korea plus a full year’s capital expenditure for Variohm which
was acquired last year. Tax payments were £0.7m higher than
last year due to increased profits in the Group.
Operating cash flow of £20.9m represents 85% of underlying
operating profit, in line with our conversion target. Free cash
flow (after finance costs and taxation) was £14.6m; at 88% of
underlying profit after tax, this was broadly in line with our
target of 90%.
34
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Banking Facilities
The Group has a five-year £120m syndicated banking facility
which extends out to July 2021. In addition, the Group has
a £30m accordion facility to extend the total facility up to
£150m. The syndicated facility is available both for acquisitions
and for working capital purposes.
With net debt at 31 March 2018 of £52.4m, the Group’s
gearing ratio was 1.5 times (FY 2016/17: 1.2 times), being
defined as net debt divided by underlying EBITDA
(annualised for acquisitions). The gearing ratio has increased
due to the acquisition of Santon in February 2018. Excluding
the Santon acquisition, the gearing at 31 March 2018 would
have been 1.1 times.
Balance Sheet
Net assets of £129.3m at 31 March 2018 were £5.5m higher
than at the end of the last financial year (31 March 2017:
£123.8m). The increase primarily relates to the net profit
for the year partly offset by the payment of last year’s final
dividend. The movement in net assets is summarised below:
£m
Net assets at 31 March 2017
Net profit after tax
Dividend paid
Currency net assets – translation impact
Gain on defined benefit scheme
Equity issuance
Share based payments (inc. tax)
Net assets at 31 March 2018
FY 2017/18
123.8
11.8
(6.2)
(3.5)
1.8
1.0
0.6
129.3
The Group’s IAS 19 pension liability, associated with its legacy
defined benefit pension scheme, reduced during the period
by £3.4m, from £6.4m at 31 March 2017 to £3.0m at 31 March
2018. This mainly follows increased gilt and corporate bond
rates during the year, and reductions in market expectations
for life expectancy improvements, which together have
reduced the value of longer term pension liabilities by £1.8m
(as shown in the reconciliation above). Additionally, there
were payments to the pension fund in the year totalling £1.7m
less interest payable of £0.1m. Annual payments of £1.7m
remain payable (growing by 3% each year in accordance
with the plan agreed with the pension trustees in 2009) until
March 2022. The triennial valuation of the scheme will be
undertaken as at 31 March 2018.
Risks and Uncertainties
The principal risks faced by the Group are detailed on
pages 38 to 41. These risks include but are not limited to:
the economic environment, particularly within Europe; the
impact arising from the UK’s decision to leave the European
Union; the performance of acquired companies; loss of major
customers or suppliers; technological change; major business
disruption; cyber security; product liability; liquidity and debt
covenants; exposure to adverse foreign currency movements;
obligations in respect of a legacy defined benefit pension
scheme; and loss of key personnel.
The Group’s risk management processes cover identification,
impact assessment, likely occurrence and mitigation actions.
Some level of risk, however, will always be present. The Group
is well positioned to manage such risks and uncertainties,
if they arise, given its strong balance sheet and committed
banking facility of £120m.
Simon Gibbins
Group Finance Director
5 June 2018
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35
RISK MANAGEMENT
I d e n t i fy and assess
i n t e r n a l a nd external risks
Objective:
foster a culture of
risk management
to effectively
execute discoverIE’s
corporate strategy
ctiveness
n efforts
r effe
tio
a
ig
t
i
m
f
o
o
t
i
n
o
M
C
a
o
n
m
d
m
m
u
i
ti
g
n
ic
tio
a
ate risks
n plans
m s, and
b ilit y, c o ntrols,
d p r o c e d ures
h s y st e
E s t a b l i s
a
a c c o u n t
s a
i c i e
p o l
n
D
e
t
e
r
r
i
m
s
i
k
n
r
e
e
a
p
p
s
p
o
n
s
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a
t
e
Enterprise Risk Management is a framework applied by
the Company to identify potential events that may affect
the Group and manage the associated risks. The Risk
Management Framework is made up of six components:
1. The policy on business conduct sets the tone and values
of the Group;
2. Event identification and risk assessment to identify
internal and external risks that may affect the objectives
of the Group;
3. The risk response is based on risk exposure, considered as
a function of likelihood and impact of the risk;
4. Control activities to ensure that risk responses are carried
out effectively and consistently;
5.
Information and communication to make the
organisation aware of risks and mitigating actions; and
6. Monitoring of controls and preventive actions.
RISK MANAGEMENT
FRAMEWORK
In delivering value to our Shareholders, our employees
and other stakeholders, we need to understand and
manage the risks faced across our entire organisation.
discoverIE’s businesses are affected by a number of risks
and uncertainties. These may be affected by factors, some
of which we cannot control. Many of the risks are similar to
those found by comparable companies in terms of scale
and operations.
Risk appetite
The Group Executive Committee is responsible for
overseeing the risk management processes and
procedures and reports to the Board through the Audit
Committee on the key risks facing the Group. It monitors
the mitigating actions put in place to address the
identified risks. The Board has approved the acceptance
of certain risks which are considered appropriate to
achieve the Group’s strategic priorities. discoverIE is
averse to exposing itself to reputational risk, regulatory
and compliance risks, and risks relating to the security of
systems and data, while being more open to risks relating
to the pursuit of innovating our products, building our
customer base and increasing our competitive strength in
the market. The degree of risk to be accepted is managed
on a day-to-day basis through the Board delegated
authority levels.
Risk can be viewed as the combination of the likelihood
of an event and the impact of its occurrence. A negative
impact can prevent value creation or erode existing value.
Risks are inherent in our business activities and can be
grouped into four categories:
1. Strategic threats;
2. Operational issues;
3. Compliance with laws; and
4. Financial and reporting obligations.
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Board
Overall responsibility for corporate strategy and risk management
Defines the Group’s appetite for risk
Audit
Committee
Reviews effectiveness of Group’s risk management framework and internal controls
Ensures compliance with relevant laws
Oversees effectiveness of Group’s Internal Audit function
Group
Executive
Committee
Management of the Group and delivery of the strategy
Monitoring of the key risks
Regular reviews of the risk management framework
Group Risk
Management
Responsible for the integration of the risk management framework
Monitors compliance with the Group’s internal controls and policies
Conducts or commissions Internal Audit
Operating
Companies
Identify internal and external risks
Responsible for the implementation of risk mitigation actions and compliance with internal controls and
policies
Responsible for compliance with relevant laws
Viability statement
In accordance with the revised UK Corporate Governance
Code, the Directors have assessed the prospects of the
Group over a period significantly longer than 12 months
from the approval of the financial statements. The Board has
concluded that the most relevant time period for this review
should be the three-year period ending 31 March 2021 which
coincides with the rolling annual long range plan.
The long range plan, which includes the budget for the year
ending 31 March 2019, is built up by each operating company,
applying assumed growth rates and it considers the Group’s
cash flows, cash and financial covenant headroom under
existing borrowing facilities, and other key financial ratios
over the period. The plan is subject to sensitivity analysis,
which involves flexing a number of the underlying main
assumptions, both individually and in conjunction, together
with mitigating actions that the Directors would consider
undertaking. The sensitivities take into account the principal
risks and uncertainties set out on pages 38 to 41, notably
an economic downturn, Brexit, loss of key customers,
underperformance of acquire businesses, major business
disruption, liquidity and debt covenants and foreign currency.
The other risks which have not been modelled are more
qualitative in nature and thus highly subjective to model, but
their relevance and potential impact has been considered by
the Board as part of the risk management process.
The Group has a syndicated banking facility of £120m which
is committed up to July 2021. In addition, the Group has a
£30m accordion facility which it can use to extend the total
facility up to £150m. The syndicated facility is available both
for acquisitions and for working capital purposes.
The Strategic Report on pages 2 to 46 sets out the key details
of the Group’s financial performance, capital management,
business environment and principal risks and uncertainties.
Based on the Director's assessment, the Board believes that,
taking into account the Group’s current position, having
regard to the available committed borrowing facilities
available to the Company, and subject to the principal risks
and uncertainties faced by the business as documented on
pages 38 to 41 of the Strategic Report, the Group will be able
to continue in operation and to meet its liabilities as they fall
due for the three-year period of their assessment.
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37
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PRINCIPAL RISKS
AND UNCERTAINTIES
Strategic risk – Instability in the economic environment
Risk description and assessment
Mitigation
Change
A key external risk affecting the Group remains the
challenge of macroeconomic and market conditions,
especially in Europe. These conditions, which are
underpinned by slow economic growth, could
adversely affect the Group in a number of ways,
including:
Transition into a differentiated specialist supplier
should help reduce exposure to major shocks in
the economic environment;
Diversification into different markets, locations
and product offerings;
The Group is vigilant entering markets that are
Any slowdown in order intake and increased
politically or financially unstable;
competition, due to the lack of end-user demand
could affect the Group’s profitability through a
reduction in sales and/or lower margins.
Equity and debt raising conditions may become
more challenging which could impact on the
Group’s ability to raise funds for both the growth of
our business and, in particular, the growth of value-
adding acquisitions, a core part of the Group’s
stated strategy.
Careful monitoring of performance against
targets and incentive plans for staff;
Identifying and completing value-adding and
earnings-enhancing acquisitions;
The Group has a five-year £120m syndicated
banking facility which extends to July 2021. In
addition, the Group has a £30m accordion facility
which increases the total facility up to £150m;
Robust policy for hedging transactional exposures
to reduce margin exposure.
Strategic risk – Business acquisitions underperformance
Risk description and assessment
Mitigation
Change
Value-adding acquisitions are a core part of the Group’s
growth strategy. These acquisitions may underperform,
key employees may leave and expected synergies and
cross-selling opportunities may not be realised.
Detailed operational, financial and legal due
diligence and working capital modelling on target
businesses;
Seek appropriate warranties and indemnities
from vendors;
Use of earn out structures, where possible, to
retain and incentivise key management;
Continuous monitoring of the acquired business
against budgeted performance and review
meetings with management;
Hiring of more experienced Finance Directors and
Financial Controllers.
38
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Strategic report
Operational risk – Brexit
Risk description and assessment
Mitigation
Change
Although there is still a lack of clarity on the process
of exit of the UK from the EU, following analysis by the
Brexit Committee (see opposite), we do not consider
the impact on the Group will be material.
A Brexit Committee was established in the first
quarter of the financial year and has completed
an impact analysis covering all aspects of the
business, with particular focus on possible
withdrawal from the customs union. In addition,
work streams continue to analyse the impact
on commercial, operational, financial and
other compliance areas in response to ongoing
negotiations between the UK and EU;
The Group has flexible production and warehouse
facilities enabling movement of production and
supply to other countries if required;
The Group continues to focus on foreign
exchange volatility and hedging operations to
mitigate FX risks.
Operational risk – Loss of major customers
Risk description and assessment
Mitigation
Change
A core part of the Group’s organic growth strategy is
winning new key customers and maintaining existing
key accounts.
Major customers continue to review their supplier
base and, in some circumstances, are reducing the
number of suppliers.
Culture of high quality service and long term
customer relationships;
Reducing Group dependency on any single
customer, with the largest customer less than 4%
of Group revenues;
Careful monitoring of key suppliers by senior
management;
Robust customer quality management systems.
Operational risk – Loss of major suppliers
Risk description and assessment
Mitigation
Change
The Group is dependent on its key suppliers. Loss
of key suppliers or uncertainty about the viability of
key suppliers may adversely impact production and
relationships with key customers and reduce sales.
Reducing Group dependency on any single
supplier, as the proportion of own-manufactured
product increases;
Exiting low value supplier relationships;
Careful monitoring of key accounts by senior
management;
Maintaining long term supplier relationships;
Strong customer relationships which support and
enhance relationships with suppliers;
Market and technological developments
are closely monitored, including input from
customers.
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39
PRINCIPAL RISKS AND
UNCERTAINTIES
Operational risk – Technological changes
Risk description and assessment
Mitigation
Change
The inability to develop technology to meet
technological changes resulting in lost sales.
Diversified business, both manufacturing and
supply;
The Group is diversified into a number of
differentiated technology units;
Focus on established technologies with low
capital requirements.
Operational risk – Major business disruption
Risk description and assessment
Mitigation
Change
The Group has a number of manufacturing facilities,
warehouses, other operational premises and systems in
the UK, Europe, Asia, North America and South Africa.
Major damage to any of these facilities could adversely
affect the business.
Disaster recovery and business continuity plans
are monitored regularly;
Multiple manufacturing sites and warehousing
enabling the movement of some production and
warehousing from one facility to another;
Insurance cover.
Operational risk – Cyber security
Risk description and assessment
Mitigation
Change
Attacks from computer viruses and/or hackers could
result in business disruption, reduced service to
customers, financial loss and theft of and/or access
to confidential data. Recent experiences of other
companies across many of the territories in which
the Group operates have reinforced the need to be
diligent.
Central IT security guidance policy;
Robust anti-virus and anti-spam software and
specialised target threat protection services;
Solid backup policies in place;
Secure private networking;
Third party cyber security assessments across the
Group in progress.
Operational risk – Loss of key personnel
Risk description and assessment
Mitigation
Change
People
The performance of the Group depends on its ability
to continue to attract, motivate and retain high calibre
staff across all functions.
The electronics industry is very competitive and
the Group’s employees may be targeted by other
companies for recruitment.
People
Staff development, training programmes and
succession planning;
Appropriate remuneration and rewards for
personal and business success;
Regular remuneration benchmarking;
Use of earn out structures, where possible, to
retain and incentivise key management from
acquired companies;
Comprehensive recruitment policies.
40
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Strategic report
Operational risk – Product liability
Risk description and assessment
Mitigation
Change
Products are delivered not according to customer
specifications or that contain failures.
Extensive quality controls in place before
products are shipped to customers;
T&C’s limit companies’ maximum liabilities;
The majority of products are customised so risk is
limited to individual customers;
No single customer represents more than 4% of
Group revenue..
Financial risk – Liquidity and debt covenants
Risk description and assessment
Mitigation
Change
The Group’s ability to operate depends on access to
short and medium-term funding. From time to time,
such funding requires refinancing, the success of
which depends on the financial condition of the Group
and the risk appetite of the lending market.
The Group’s £120m revolving credit facility is subject
to compliance with certain financial debt covenants.
There is a risk that the covenants may be breached if
the profitability of the Group substantially deteriorates
and/or its net debt increases materially.
Financial risk – Foreign currency
Central treasury function oversees the Group’s
cash resources and financing requirements;
Ongoing review of headroom against committed
facilities and financial covenants;
Working capital controls and monitoring of key
working capital metrics;
Issuance of equity to fund the cost of certain
acquisitions.
Risk description and assessment
Mitigation
Change
The Group’s main foreign exchange exposures relate to
the translation of results and net assets denominated
in foreign currencies into Sterling (translational
exposure), and the occurrence of transactions in
currencies other than the operational currency of the
transacting company (transactional exposure).
Use of forward currency contracts to hedge
transactional exposure for committed and
forecast sales and purchases in foreign currency;
Currency borrowings as a natural hedge against
same currency assets;
Regular review of foreign currency exposures by
the central treasury function;
Financial risk – Retirement benefit obligations
Risk description and assessment
Mitigation
Change
The funding position of the Group’s legacy post-
retirement defined benefit scheme (the Sedgemoor
Scheme – see note 32 to the Group financial
statements) may be adversely affected by poor
investment performance, changes in interest and
inflation rates, increased life expectancy rates or
changes in the regulatory environment. Such changes
could increase the charge to the income statement
and/or the level of cash contributions required to be
made to the scheme.
The Sedgemoor Scheme was closed to new
members in 2000 and, shortly thereafter, future
service benefits ceased to accrue to existing
members;
A deficit recovery plan has been agreed with the
Trustees of the Scheme based on actuarial advice.
The next triennial valuation at 31 March 2018 will
be reviewed during the course of FY 2018/19 and
the deficit plan adjusted if necessary;
Regular monitoring of the assets and liabilities of
the fund by the Company and the Trustee;
Investment strategy reviews are carried out at
least every three years.
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CORPORATE SOCIAL
RESPONSIBILITY
Day-to-day responsibility for implementation of corporate
and social policies is delegated to the management of
discoverIE’s operating companies. Where appropriate, the
Group policies and procedures are supported by the local
operating companies’ policies and codes of conduct.
During the year, the Group policies and procedures were
reviewed to ensure that they remained fit for purpose. The
health and safety policy was updated and the Board decided
to expand the annual Health and Safety questionnaire
to include additional questions on labour practices and
working conditions.
In addition, the Group has due diligence processes in place
to support the ongoing assessment and management of risks
associated with both existing and newly acquired companies
and the development of relationships with new suppliers.
These include site visits by both executive and non-executive
management; meetings with customers and suppliers; and,
where relevant, asking our suppliers to confirm compliance
with Group policies.
Management, at all levels, is committed to giving
consideration to corporate social responsibility in its actions,
endeavours to show due respect for human rights and
works to high standards of integrity and ethical propriety.
As an international organisation, discoverIE takes account of
cultural differences between the various territories in which it
operates. discoverIE’s values are essential to how it operates
and to the long term success and growth of the Group.
The Board recognises that the long term success of the
Group is enhanced by positive relationships with all
stakeholders, including: Shareholders; employees; customers
and suppliers; as well as the local communities and the
environment in which it operates. The Group endeavours to
identify and manage any risks to the value of its business
from social, environmental and ethical matters, and to take
any opportunities presented by a sensible and considerate
approach to such matters to enhance Shareholder value.
The Group promotes policies and procedures across
the Group which take into account: the interest of the
Group’s employees; the need to foster reasonable business
relationships with suppliers, customers and others; the
impact of the Group’s operations on workers, the community
and the environment; and the maintenance of high
standards of business conduct. Our policies and procedures
include the following:
Anti-bribery and corruption;
Whistleblowing; and
Health and safety.
42
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Strategic report
Our people
The Group is committed to the principle of equal opportunity
in employment. Employment policies are fair, equitable and
consistent with the skills and abilities of employees and the
needs of the Group’s business. These policies ensure that
everyone is accorded equal opportunity for recruitment,
training and promotion.
Diversity
discoverIE’s employment policy is based on equal
opportunities for all employees and prospective employees,
and on there being no discrimination on grounds of colour,
ethnic origin, gender, age, religion, political or other opinion,
disability or sexual orientation. The Group endeavours to
protect employees from, and does not tolerate, any sexual,
physical or mental harassment.
Set out below is an analysis of the number of employees by
gender during the year.
Total gender split
Senior managers
and executives
Directors
2018
Male
55%
2018
Female
45%
2017
Male
55%
2017
Female
45%
73%
71%
27%
29%
73%
71%
27%
29%
Development and training
Employees are encouraged to develop their knowledge and
skills and to progress their careers to the mutual benefit of
themselves and the Group companies they work for. It is the
responsibility of management to ensure that they comply
with all local laws and regulations, including those relating to
the employment of underage staff. Employees benefit from
the ability to improve their skills and work in a challenging
and ambitious work environment. They get the opportunity to
make a contribution to world-leading products.
Some of the Group’s operating companies have structured
apprenticeship schemes for technical staff. Employees are
actively encouraged to undertake further learning, such as
National Vocational Qualifications or similar level courses, as
well as continual professional development to maintain any
relevant professional accreditations.
Recruitment and retention
Clear and fair terms of employment, as well as a fair and
competitive remuneration policy, are in place. It is Group
policy to communicate with employees on major matters
to encourage them to take an interest in the affairs of their
employing company and the Group. Each of the Group’s
operating companies is responsible for developing effective
arrangements in this regard, including the creation of a
common awareness by employees of the financial and
economic factors affecting their employing company’s
performance.
The Group remains supportive of the employment and
advancement of disabled persons. Full consideration is given
to applications for employment from disabled persons,
where the candidate’s particular aptitudes and abilities are
consistent with meeting adequately the requirements of the
job. Opportunities are available to disabled employees for
training, career development and promotion.
Where existing employees become disabled, it is the
Group’s policy to provide continuing employment, wherever
practicable, in the same or an alternative position and to
provide appropriate training and support to achieve this aim.
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43
CORPORATE SOCIAL
RESPONSIBILITY
Health and safety
A great deal of importance is attached to the provision of
clean, healthy and safe working conditions. In addition to
compliance with all local regulations, discoverIE promotes
working practices which protect the health and safety of
its employees and other persons who enter its premises.
The Board has overall responsibility for health and safety
matters but, in line with the Group’s decentralised
management approach, health and safety matters are
kept under regular review by local management to ensure
compliance with local regulatory requirements. The
operating companies report to the Board on a monthly
basis in respect of health and safety issues, including
the number of on-site accidents (if any), near misses and
mitigation. All accidents are investigated and corrective
actions and preventive measures are put in place to ensure
that the accident does not reoccur and future risks are
mitigated.
The Group’s statement of intent on health and
safety matters can be found on its website:
www.discoverIEplc.com
Business ethics
All discoverIE Group companies seek to be honest, fair
and competitive in their relationships with customers and
suppliers. Every attempt is made to ensure that products
and services are provided to the agreed standards and all
reasonable steps are taken to ensure the safety and quality
of the goods and services provided. Payment is made to
suppliers in accordance with the agreed terms, the relevant
goods or services having been satisfactorily delivered.
So far as it is able to, and taking into account local cultural
and regulatory differences, discoverIE encourages the
organisations and people with whom it does business to
abide by principles of good practice in relation to their
corporate social responsibility.
discoverIE is committed to ensuring that no form of
modern slavery, servitude, forced or compulsory labour and
human trafficking exists in its business operations or its
supply chains. The Group does not tolerate modern slavery
or human trafficking in any part of the Group’s business
and expects the same high standards from our third party
suppliers and contractors.
Further information can be found on the
Group’s website: www.discoverIEplc.com
The Group’s statement of intent on business
relationships can be found on its website:
www.discoverIEplc.com
The Group whistleblowing policy was also reviewed and
updated during the year. It was determined that an external
whistleblowing helpline should be put in place in addition to
the existing internal reporting procedure.
The updated policy can be found on the
discoverIE website: www.discoverIEplc.com
In accordance with the Market Abuse Regulations of the
Financial Conduct Authority, employees are required to seek
Board level approval before dealing in any of the Company’s
shares.
Anti-bribery and corruption
discoverIE is committed to applying the highest standards
of integrity, honesty and fairness in its business activities
everywhere. A zero-tolerance approach is taken towards
bribery and corruption in all its forms by, or of, its employees
or any persons or companies acting on its behalf. It is
discoverIE’s policy that no-one in the Group should offer or
accept any bribes or other corrupt payments, engage in any
anti-competitive practices or knowingly be involved in any
fraud or money laundering.
The Board and senior management have implemented a
worldwide anti-bribery and corruption programme to enforce
and monitor effective anti-bribery procedures in accordance
with the UK Bribery Act 2010. The programme was reviewed
during the year and the updated programme was provided to
all employees and, where relevant, customers and suppliers.
Community
The Group believes that good community relations are
important to the long term development and sustainability
of the operating business. The Group considers the
environmental and social impacts on the community of
conducting business and this forms part of the business
decision-making process.
The Group has been a Foundation Champion of the
Community Foundation for Surrey since 2015.
Further information on the Group’s
charitable giving can be found on its website:
www.discoverIEplc.com
44
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018 Strategic report
Environment
Environmental matters are taken seriously by discoverIE,
which seeks to ensure that its activities do not harm the
communities as places in which to work and live. The Group
endeavours to ensure that its operations do not have a
negative impact on the environment. Apart from compliance
with all local environmental laws and regulations, Group
companies are encouraged to manage effectively natural
resources and energy, to minimise waste and to recycle,
where economically viable means of doing so are available.
Although the majority of products discoverIE deals with
are non-hazardous, where such products are involved, it
minimises the environmental risks by use of appropriate
labelling and technical information, in conjunction with
proper training and procedures for the handling, storage
and disposal of such products. The Group has implemented
procedures to ensure compliance with the Restriction of the
Use of Hazardous Substances in Electrical and Electronic
Equipment Regulations 2004 (RoHS), the Waste Electrical
and Electronic Equipment Regulations 2006 (WEEE), the
Producer Responsibility Obligations (Packaging Waste)
Regulations 2005 and the Waste Batteries and Accumulators
Regulations 2009.
Greenhouse gas emissions
Market-based Greenhouse gas (GHG) emission per £m of sales
decreased 13% compared with the prior year, as a result of
finding more efficient ways to produce and supply our goods
and the increased use of renewable energy. discoverIE’s most
significant emissions arise from the use of electricity (78% of
the total emissions (2016: 75%)), which comprises all of the
Scope 2 emissions. Sixty-three per cent (2016: 68%) of the
Scope 1 emissions arise from transport fuel, the remainder
arising mainly from the use of gas and oil for heating.
As well as enabling the reporting of emissions and
understanding our GHG footprint, this information will help
discoverIE to identify potential cost savings going forward.
GHG emissions for the period from
1 January 2017 to 31 December 2017
(tonnes of CO2 equivalent):
Total Scope 1 emissions1
Total Scope 2 emissions –
Location-based
Total Scope 2 emissions –
Market-based
Total gross scope 1 and 2
emissions – Location-based
Total gross scope 1 and 2
emissions – Market-based
Intensity measurement
(tonnes CO2e per £m sales):
Location-based
Market-based
YE 31/12/17
YE 31/12/16
1.995
1.931
7.077
5.886
6.693
6.732
9.073
7.817
8.689
8.663
23.4
22.4
23.3
25.8
1 Excludes refrigerants, air conditioning and heat pumps
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45
25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8CORPORATE SOCIAL RESPONSIBILITYMethodologydiscoverIE has reported greenhouse gas emissions pursuant to the Companies Act 2006 (Strategic Report and Directors’ Report Regulations 2013 (the “Regulations”). The reporting followed the 2013 UK Government environmental reporting guidance (Chapter 2) and used the GHG Protocol Corporate Accounting and Reporting Standard (revised edition).The reporting period is 1 January 2017 to 31 December 2017.As per the GHG protocol, discoverIE reports both its location and market-based Scope 2 footprint. For the location-based footprint, emissions are calculated using either Defra or IEA emission factors. For the market-based footprint, discoverIE has applied supplier specific factors or the Reliable Disclosure II residual factors, where supplier specific factors are not available. In the absence of both supplier specific and residual factors, discoverIE has applied the location-based factor.discoverIE reports its emissions data using an operational control approach to define the organisational boundary which meets the definitional requirements of the Regulations in respect of those emissions for which it is responsible. This includes all subsidiaries 100% owned by discoverIE. discoverIE has reported on all emission sources for which we deem ourselves responsible. Emissions of the recently acquired company Santon are not included, as the acquisition completed in February 2018. Long leased vehicles and properties under operational control have been included in Scope 1 and 2 emissions.The Strategic Report, as set out on pages 2 to 46, has been approved by the Board.On behalf of the BoardNick Jefferies Group Chief ExecutiveSimon Gibbins Group Finance Director5 June 2018Improvements in Social Impact case studyTHE COMMUNITY FOUNDATION FOR SURREYAs a Foundation Champion, discoverIE assists the Community Foundation for Surrey in meeting some of the support costs it incurs in sourcing, vetting and following up on the 300–400 grants that it makes to local causes across Surrey each year.The Foundation, together with its donors, tackles a wide range of need that includes difficult issues such as homelessness, mental ill health and poverty. In 2017/18 the Foundation distributed over £1.2m to support over 359 voluntary and community projects and individuals.An impact assessment is carried out by the Foundation on the outcome and impact of the grants made. Outcome and impact highlights include: 1,530 trees planted as part of environmental grants made; 6,825 people took part in sports, exercise, and leisure activities as part of Health and Well-being projects; 2,615 people engaged in regular volunteering as part of Community Cohesion projects; 239 gained sustainable employment as part of Education and Skills projects; and 7,978 vulnerable or isolated people attended regular social activities.discoverIE has recently made a commitment to support a new fund created by the Foundation, The Step Change Fund. This fund aims to build a sustainable source of funding that will award large grants payable over three years, to enable established community and voluntary sector organisations in Surrey to achieve transformational change in the scope and/or scale of services they provide. Examples of projects which might be supported include the costs of expanding an existing successful initiative, piloting a new programme of activity, expert consultancy to guide and support future developments or organisational changes; and sharing best practice and learning between organisations across the country.46discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018discoverIE AR2018.indd 4614/06/2018 12:21:08 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 847discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018Strategic reportdiscoverIE AR2018.indd 4714/06/2018 12:21:09 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8Creating customised components for growing marketsdiscoverIE’s highly-skilled engineers work closely with customers, developing a deep understanding of their industry, sharing unique expertise and insights, and producing custom electronic solutions to address each challenge; enhancing product performance and reinforcing long term relationships.Watch our Corporate film at: www.discoverIEplc.comdiscoverIE AR2018.indd 4814/06/2018 12:21:10 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8Power convertersCORPORATE GOVERNANCEdiscoverIE AR2018.indd 4914/06/2018 12:21:11 THE BOARD
Malcolm Diamond
MBE
Non-Executive Chairman
Nick Jefferies
Simon Gibbins
Richard Brooman
Group Chief Executive
Group Finance Director
Senior Non-Executive
Director
N
R
G
N
G
A
N
R
Appointment to the
Board
Chairman since April 2017,
Non-Executive Director since
November 2015
Previous experience
Malcolm brings
considerable commercial
and international business
experience to the Board,
as well as City investor
knowledge and expertise.
Prior to joining the Board,
Malcolm was Executive
Chairman and Chief
Executive of Trifast plc and,
among other previous
appointments, was the
Senior Non-Executive
Director of Dechra
Pharmaceuticals Plc and a
Non-Executive Director of
Unicorn AIM VCT plc.
External
appointments
Non-Executive Chairman
of Trifast plc and Flowtech
Fluidpower PLC.
Appointment to the
Board
January 2009
Appointment to the
Board
July 2010
Previous experience
Nick joined discoverIE as
Group Chief Executive
in 2009. Formerly
General Manager for
electronics globally at
Electrocomponents plc,
he started his career as an
electronics design engineer
for Racal Defence (now
part of Thales plc), before
joining Toshiba and then
Hitachi’s European electronic
component businesses.
External
appointments
None
Previous experience
Simon brings significant
financial expertise and
experience gained at
an international level. A
Chartered Accountant, he
was previously Global Head
of Finance and Deputy CFO
at Shire plc. Prior to joining
Shire in 2000, he spent six
years with ICI plc in various
senior finance roles, both
in the UK and overseas. His
earlier career was spent with
Coopers & Lybrand.
External
appointments
None
Appointment to the
Board
Senior Non-Executive
Director since December
2014, Non-Executive Director
since January 2013
Previous experience
Richard brings a wealth
of financial and risk
management experience
to the Board. A Chartered
Accountant, Richard was
Group Finance Director of
Sherwood International
plc and VCI plc during his
executive career and he is a
director or trustee of several
businesses in the third sector.
External
appointments
Non-Executive Director at
Hg Capital Trust plc and
Invesco Perpetual UK Smaller
Companies Investment
Trust plc.
50
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Corporate governance
Tracey Graham
Henrietta Marsh
Bruce Thompson
Non-Executive Director
Non-Executive Director
Non-Executive Director
Joanna Harkus
Madge
Group Company Secretary
A
N
R
A
N
R
G
Appointment to the
Board
November 2015
Appointment to the
Board
May 2013
Appointment to the
Board
February 2018
Appointment to the
Board
April 2017
Previous experience
Tracey brings significant
operational expertise to the
Board. During her executive
career, Tracey was Chief
Executive of Talaris Limited
and Managing Director of
De La Rue Cash Systems.
Among other previous
appointments, she was a
Non-Executive Director at
RPS Group PLC.
External
appointments
Non-Executive Director at
Ibstock plc, at Royal London
Mutual Building Society and
at Link Scheme Limited.
Chairman of Investment
Funds Direct Limited and
Chairman of Link Consumer
Council.
Previous experience
Henrietta has 30 years’
experience in the financial
services industry at Living
Bridge, 3i and Morgan
Stanley. She was the founder
Chairman of the AIM VCT
Managers Group. Henrietta
was responsible for AIM
investment at Living Bridge
EP LLP and was a Director
of 3i plc, where she worked
as a fund manager. She
is an experienced Non-
Executive Director at listed
and AIM traded companies,
having previously been
Non-Executive Director
and Chairman of the
Remuneration Committee
at Alternative Networks plc,
Electric Word plc and Dods
Group plc.
External
appointments
Member nominated trustee
of the 3i plc Pension Fund
and a member of the
London Stock Exchange's
AIM Advisory Group.
Previous experience
Bruce brings a wide range
of strategic and leadership
expertise to the Board
with proven experience
of growing international
industrial businesses. During
his executive career, Bruce
was Chief Executive Officer
of Diploma PLC. Prior to
joining Diploma, Bruce was a
director with the technology
and management consulting
firm Arthur D. Little Inc, both
in the UK and the USA.
External
appointments
None
Previous experience
Joanna joined discoverIE as
Group Company Secretary
Designate in January 2017
and became Group Company
Secretary on 1 April 2017. A
qualified Chartered Secretary,
she previously held that
position at Arle Capital
Partners Limited (formerly
part of Candover Investments
plc). Since joining discoverIE,
Joanna project managed the
rebranding of the Group as
well as organising the Group’s
first Capital Markets Day.
External
appointments
None
Committee Membership
A
G
N
R
Audit Committee
Group Executive Committee
Nomination Committee
Remuneration Committee
Chairman of the Committee
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THE GROUP EXECUTIVE COMMITTEE
Nick Jefferies
Simon Gibbins
Group Chief Executive
Group Finance Director
Joanna Harkus
Madge
Group Company Secretary
For biography see page 50.
For biography see page 50.
For biography see page 51.
Paul Neville
Martin Pangels
Paul Webster
Jeremy Morcom
Group Commercial Director
Group Commercial Director
Martin joined discoverIE in
July 2010 after working as
an advisor to the business.
Prior to joining discoverIE,
he spent nine years at
Electrocomponents plc,
where he was Regional
General Manager for Europe,
and six years with Bain
& Company as a strategy
consultant.
Paul joined discoverIE
in March 2009 and is
responsible for running the
Design & Manufacturing
division. Formerly
responsible for discoverIE’s
M&A programme, Paul
led the acquisition of 13
businesses, ten of which
are now within the D&M
division. He has many years’
experience in both financial
and operational senior
management positions for
listed public companies.
Group Product
Management and
Cross-Selling Director
Group Head of Corporate
Development
Paul joined discoverIE in
June 2010 as Managing
Director, Acal BFi UK,
moving to his current
role in April 2012. He has
many years’ experience
in senior management
roles, including Head of
Product Management
for electronics globally at
Electrocomponents plc. He
began his career as a design
engineer for Plessey Avionics
(now part of BAE Systems).
Jeremy was appointed
Group Head of Corporate
Development in March 2017.
A physicist by background, he
has over 25 years’ experience
in industrial mergers and
acquisitions, initially in
investment banking and
then in industry, leading
the corporate development
programmes at Spectris plc
and Invensys plc.
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Corporate governance
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018
53
DIRECTORS’ REPORT
The Directors present their
Annual Report with the audited
financial statements for the year
ended 31 March 2018
discoverIE Group plc (“discoverIE”, or the “Group”) is an
international group of businesses that designs, manufactures
and supplies innovative components for electronic
applications. The Group provides application-specific
components to original equipment manufacturers (“OEMs”)
internationally. With in-house engineering capability, the
Group is able to design components to meet customer
requirements, which are then manufactured and supplied,
usually on a repeating basis, for their ongoing production
needs. This generates a high level of recurring revenue
and long term customer relationships. By focusing on key
markets which are driven by structural growth and increasing
electronic content, namely renewable energy, transportation,
medical and industrial connectivity, the Group aims to
achieve organic growth that is well ahead of GDP and to
supplement that with targeted complementary acquisitions.
The Business Model is explained in further detail on pages 10
and 11 of the Strategic Report.
The Directors’ Report of the Group for the financial year
ended 31 March 2018 is set out on pages 54 to 57 inclusive. As
permitted by legislation, some of the matters required to be
included in the Directors’ Report have instead been included
in the Strategic Report, which includes the Operating
Review, the Finance Review and the Viability Statement, on
pages 2 to 46, as the Board considers them to be of strategic
importance. Specifically, these are:
Disclosure
Future business
developments
Location
Throughout the Strategic
Report (pages 2 to 46)
Risk management
Risk management
and principal risks and
uncertainties (pages 36
to 41)
Employee involvement
Corporate Social
Responsibility Report
(pages 42 to 46)
Greenhouse gas
Corporate Social
emissions
Responsibility Report
(pages 42 to 46)
The Group’s policies and processes for managing its capital,
its financial risk management objectives, details of its
financial instruments and hedging activities and its exposure
to credit and liquidity risk are disclosed in note 26 to the
Group financial statements on pages 142 and 143.
The Group recognises the importance of its responsibilities in
relation to the environment, to social and community issues
and to business ethics, as well as to its employees. Further
information is included in the Corporate Social Responsibility
statement on pages 42 to 46.
Other information to be disclosed in the Directors’ Report is
given in this section.
Both the Directors’ Report and the Strategic Report have
been drawn up in accordance with, and in reliance upon,
applicable English company law. The liabilities of the
Directors in connection with that report shall be subject to
the limitations and restrictions provided by such law.
Financial results and dividends
The financial statements set out the results of the Group for
the financial year to 31 March 2018 and are shown on pages
110 to 157. The key strategic and performance indicators of the
business are set out in the Strategic Report on pages 21 to 23.
The Directors recommend a final dividend of 6.35p per share
(2016/17: 6.05p) which, together with the interim dividend of
2.65p per share (2016/17: 2.45p), makes a total dividend for
the year of 9.0p per ordinary share (2016/17: 8.50p). Subject
to approval by Shareholders of the recommended final
dividend, the dividend award to Shareholders for 2017/18 will
total £6.4m (2016/17: £5.8m). If approved, the Company will
pay the final dividend on 31 July 2018 to Shareholders on the
register of members at 15 June 2018.
A technical non-compliance issue has been identified with
respect to distributable reserves and the payment of recent
dividends. The Board is confident that there were adequate
reserves in subsidiary companies to meet these dividends
at the time and that this will not impact the Group's ability
to pay future dividends. We expect to remedy the position
by means of appropriate resolutions at a general meeting of
Shareholders and a circular in respect of this will be issued.
54
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Corporate governance
Directors
The membership of the Board and biographical details of the
Directors are given on pages 50 and 51 and are incorporated
into this report by reference. All Directors served throughout
the financial year ended 31 March 2018, other than Bruce
Thompson who joined the Board on 26 February 2018.
Copies of Executive Directors’ service contracts are available
to Shareholders for inspection at the Company’s registered
office and at the Annual General Meeting (“AGM”). Details
of the Directors’ remuneration and service contracts and
their interests in the shares of the Company are included
in the Directors’ Remuneration Report which is set out on
pages 76 to 96.
Directors’ indemnity
The Articles of Association of the Company contain an
indemnity in favour of the Directors, which is a Qualifying Third
Party Indemnity within the meaning of s.236 of the Companies
Act 2006 and is in force at the time of the approval of this
Annual Report. Directors of subsidiary undertakings are also
subject to this Qualifying Third Party Indemnity.
In addition, each Director of the Company has entered into a
Deed of Indemnity with the Company, which operates only
in excess of any right to indemnity that a Director may enjoy
under any such other indemnity or contract of insurance.
The Company has also arranged appropriate insurance cover
in respect of legal action against its Directors and officers.
Powers of the Directors
The Board of Directors is responsible for the management
of the business of the Company and may exercise all the
powers of the Company, subject to the Company’s Articles of
Association (the “Articles”), the Companies Act 2006 and any
directions given by the Shareholders by special resolution.
The Articles may be amended by a special resolution of the
Company’s Shareholders.
Appointment and replacement
of Directors
The Board can appoint a Director but anyone so appointed
must be elected by an ordinary resolution at the next
general meeting. Any Director who has held office for
more than three years since their last appointment must
offer themselves for re-election at the next Annual General
Meeting.
Directors’ conflicts of interest
The Company has procedures in place for managing conflicts
of interest. Should a Director become aware that they, or
any of their connected parties, have interest in an existing
or proposed transaction with discoverIE, they should notify
the Board in writing or at the next Board meeting. Internal
controls are in place to ensure that any related party
transactions involving Directors, or their connected parties,
are conducted on an arm’s length basis. Directors have a
continuing duty to update any changes to these conflicts.
Share capital
As at 31 March 2018, the Company’s issued share capital
consisted of 71,417,857 ordinary shares of 5p each (no shares
are held in treasury).
During the year, 513,235 new ordinary shares were issued
under the Group’s long term incentive schemes.
On 6 February 2018, 223,648 new ordinary shares were issued
and allotted to the vendor of EWAC Holdings BV, as a part of
the acquisition of the Santon Group.
Details of movements in the Company’s issued share capital
can be found on page 145 in note 29 to the Group financial
statements.
Restrictions on transfer of securities in
the Company
There are no restrictions on the transfer of securities in the
Company, except:
that certain restrictions may from time to time be
imposed by laws and regulations (for example, insider
trading laws); and
pursuant to the Listing Rules of the Financial Conduct
Authority, whereby certain employees of the Company
require the approval of the Company to deal in the
Company’s ordinary shares.
The Company is not aware of any agreements between
holders of securities that may result in restrictions on the
transfer of securities.
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55
DIRECTORS’ REPORT
Rights and obligations attaching
to shares
Subject to the Articles, the Companies Act 2006 and other
Shareholders’ rights, shares in the Company may be issued
with such rights and restrictions as the Shareholders may by
ordinary resolution decide, or if there is no such resolution, as
the Board may decide provided it does not conflict with any
resolution passed by Shareholders.
The rights attached to any class of shares can be amended if
approved, either by 75% of Shareholders holding the issued
shares in the class by amount, or by special resolution passed
at a separate meeting of the holders of the relevant class
of shares.
Every member and every duly appointed proxy present at a
general meeting or class meeting has, upon a show of hands,
one vote and every member present in person or by proxy
has, upon a poll, one vote for every share held.
No person holds securities in the Company carrying special
rights with regard to control of the Company.
Substantial shareholdings
As at 31 March 2018, the Company had been notified of the
following major shareholdings equal to, or in excess of, 3% of
the issued share capital:
Holdings
of ordinary
shares (5p)
Canaccord Genuity Group Inc1
7,050,478
Aberdeen Standard
Investments
Unicorn Asset Management
(UK)
Legal & General Investment
Management Ltd (UK)
BlackRock Inc
6,134,808
5,256,435
4,729,511
3,242,721
Chelverton Asset Management
3,093,614
AXA SA
Franklin Resources
2,936,499
2,639,779
%
holding
9.78
8.59
7.36
6.62
4.54
4.33
4.11
3.69
1 Following acquisition of Hargreave Hale Investment Limited
Authority to purchase own shares
At the AGM held on 25 July 2017, Shareholders authorised the
Company to purchase in the market up to 10% of its issued
share capital (7,068,097) ordinary shares and, as at 31 March
2018, the full extent of this authority remained in force and
unused. This authority is renewable annually, and a special
resolution will be proposed at the 2018 AGM to renew it.
The Directors will only purchase the Company’s shares in the
market if they believe it is in the best interest of Shareholders
generally.
Change of control
Details of the Group’s borrowing facilities are provided in the
Finance Review section of the Strategic Report on page 35.
These agreements contain a change of control provision,
which may result in the facility being withdrawn or amended
upon a change of control of the Group. The Group is party
to a number of commercial agreements which, in line with
normal practice in the industry, may be affected by a change
of control following a takeover bid.
There are no agreements between the Company and its
Directors or employees providing for compensation for loss of
office or employment which occurs because of a takeover bid.
Political donations
There were no political donations during the year (2016/17: nil).
Auditor and disclosure of information
to auditor
Following a competitive tender process, the Company
appointed PricewaterhouseCoopers LLP as auditor on
13 September 2017. PricewaterhouseCoopers LLP have
indicated their willingness to continue in office and a
resolution to appoint them will be proposed at the AGM.
In the case of each Director in office, as at the date of this
Report:
so far as the Director is aware, there is no relevant audit
information of which the Group and Company’s auditors
are unaware; and
they have taken all the steps that they ought to have
taken as a Director in order to make themselves aware
of any relevant audit information and to establish that
the Group and Company’s auditors are aware of that
information.
56
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Corporate governance
Annual General Meeting
The Notice of the AGM to be held at 11.00 am on Thursday 26
July 2018 is being sent separately to Shareholders with this
report. The venue for the meeting is 2 Chancellor Court, Occam
Road, Surrey Research Park, Guildford, Surrey, GU2 7AH.
Going concern
The Group’s business activities, together with factors which
may adversely impact its future development, performance
and position, and its viability statement are included in the
Strategic Report on pages 2 to 46. The financial position of
the Group, its cash flows, liquidity position and borrowing
facilities are described in the Finance Review section of the
Strategic Report on pages 30 to 35.
The Group has significant financial resources, well established
contracts with a number of suppliers and a broad and stable
customer base. As a consequence, the Directors believe that
the Group is well placed to manage its principal risks and
uncertainties that are disclosed on pages 38 to 41 of the
Strategic Report.
The Group’s forecasts and projections, taking account of a
sensitivity analysis of changes in trading performance, show
that the Group is well placed to operate within the level of its
current committed facilities for the foreseeable future.
After making due enquiries, the Directors have a reasonable
expectation that the Company and the Group have adequate
resources to continue in operational existence for the
foreseeable future. Accordingly, they continued to adopt
the going concern basis in preparing this Annual Report
and Accounts.
By order of the Board
Joanna Harkus Madge
Group Company Secretary
5 June 2018
2 Chancellor Court
Occam Road
Surrey Research Park
Guildford
Surrey GU2 7AH
Registered number: 02008246
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57
BOARD REPORT ON CORPORATE GOVERNANCE
Chairman’s Governance Overview:
“discoverIE aims to build
an environment of trust,
transparency and accountability
which is necessary for fostering
long term investment, financial
stability and business integrity.”
Malcolm Diamond MBE
Chairman
discoverIE aims to build an environment of trust,
transparency and accountability which is necessary for
fostering long term investment, financial stability and
business integrity. I am pleased to confirm that we have
complied throughout the year with the 2016 Corporate
Governance Code (the “Code”).
The Board is accountable for setting and leading our culture.
It ensures that the correct tone is established from the
top and is embedded in our values, including a culture of
transparency and integrity by all employees. During the
year, a revised Group whistleblowing policy has been issued,
including an external helpline which should aid employee
disclosures. Further information is contained in the Audit
Committee Report on pages 68 to 73.
This year, our remuneration policy is due for reapproval by
the Company’s Shareholders. Your Remuneration Committee
Chairman has been working closely with the Group and its
advisers to produce another clear remuneration policy that
promotes the long term success of the Company. Further
information can be found in the Directors’ Remuneration
Report on pages 76 to 96.
The Nomination Committee’s structure has been an area of
focus this year and I am pleased to report the appointment
of Tracey Graham to the Nomination Committee. The
Nomination Committee also led the recruitment of an
additional Non-Executive Director to the Board, Bruce
Thompson in February 2018. Further information on the
recruitment and induction process is included in the
Nomination Committee Report on pages 74 and 75.
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Corporate governance
Compliance with the UK Corporate Governance Code
discoverIE’s governance framework, which is shaped by the Code, the Companies Act 2006 and secondary legislation and
guidance, sets out standards of good practice in relation to Board leadership and effectiveness, remuneration, accountability
and relations with Shareholders. Each Director has access to all information relating to the Group and to the advice and
services of the Company Secretary and, as required, external advice at the Group’s expense.
Leadership:
"The Non-Executive Board" constructively challenges
and helps develop strategy.
Effectiveness:
The Board regularly evaluates the balance of skills,
experience, independence and knowledge of the
Directors. All new Directors receive a tailored induction
programme and a rigorous evaluation of the Board, the
Committees and the individual Directors is undertaken
annually.
Accountability:
The Board is responsible for determining the nature
and extent of the principal risks it is willing to take
in achieving its strategic objectives. Effective risk
management is critical to achieving our strategy.
Remuneration:
£
Having a formal and transparent policy for developing
policy on executive remuneration and for fixing the
remuneration packages of individual Directors is
crucial. The remuneration policy aims to attract, retain
and motivate by linking reward to performance.
Relations with Shareholders:
Learn more about the Directors' skills
and experience on pages 50 and 51
You can read more about the Board’s
effectiveness on page 64
You can read more about our approach to
Risk management on pages 36 and 37
Further information on our Remuneration
policy is on pages 81 to 87
The Board regularly meets with Shareholders, both
private and institutional, and an active dialogue is
encouraged.
Further information on Shareholder and
stakeholder engagement is on page 66
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59
BOARD REPORT ON CORPORATE GOVERNANCE
Leadership
discoverIE is led by a strong and experienced Board with a broad range of skills, experience and knowledge. Throughout the
year under review, the Board consisted of Malcolm Diamond as Non-Executive Chairman; Richard Brooman, Tracey Graham
and Henrietta Marsh as Non-Executive Directors; Nick Jefferies as Group Chief Executive; and Simon Gibbins as Group Finance
Director. Bruce Thompson, following a formal, rigorous and transparent procedure, was appointed as Non-Executive Director
with effect from 26 February 2018.
The size and composition of the Board is considered to be appropriate to the Group’s business at present, although this is kept
under review by the Nomination Committee.
The Non-Executive Directors constructively challenge management proposals where appropriate and carefully monitor
management performance and reporting throughout the year. Constructive challenge is viewed by the Board as an essential
aspect of good governance.
The Company has both a Chairman and a Group Chief Executive. There is a clear division of responsibilities, which has been
agreed by the Board, and details of their respective roles are available from the Company on request.
Role of the Chairman
Responsible for leading the Board, which includes the
Role of the Group Chief Executive
Leading the development and implementation of
operation of the Board’s overall procedures;
the Group’s strategy;
Providing a forum for constructive discussion and
ensuring receipt of clear and timely information;
Communicating with Shareholders and other
stakeholders;
Overseeing Corporate Governance matters;
Responsible for the day-to-day management of the
Leading the performance evaluations of the Group
Chief Executive, the Non-Executive Directors and the
Board.
The Chairman, in conjunction with the Group Company
Secretary, ensures that Directors receive a full, formal and
tailored induction to the Group and ongoing training
as relevant.
Group’s businesses and reporting their progress to
the Board;
Leading the Group Executive Committee.
The Group Chief Executive is assisted in meeting his
responsibilities by the Group Executive Committee.
Role of the Board
Setting the long term objectives and commercial
strategy;
Maintaining sound internal controls and risk
management systems;
Oversight of the management of discoverIE;
Review of the Group’s overall corporate governance; and
Review of the Key Strategic Indicators and Key
Any litigation of a material nature.
Performance Indicators;
Review of acquisitions and corporate transactions;
Recommending or declaring dividends;
Approval of financial statements, business plans,
financing and treasury matters;
Major capital expenditure and commitments;
As set out on the opposite page, certain matters are
delegated to the Group Executive Committee and to the
Audit, Remuneration and Nomination Committees. The
Board also has a General Purposes Committee, consisting
of any two Directors of the Company, which has delegated
authority to approve certain defined and routine matters
between Board meetings.
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Governance framework
The Board
Chaired by Malcolm Diamond
Meets a minimum of six times a year.
Accountable to Shareholders for the long term success of the Group. This is achieved via a clear division of responsibilities
between the Chairman and Group Chief Executive, the setting of strategic aims and ensuring that the necessary financial
and human resources are in place to achieve that strategy.
Nomination Committee
Chaired by Malcolm Diamond
Audit Committee
Chaired by Richard Brooman
Remuneration Committee
Chaired by Henrietta Marsh
The Nomination Committee
regularly reviews the structure, size
and composition of the Board and
its Committees. It identifies and
nominates suitable candidates to
be appointed to the Board (subject
to Board approval) and considers
diversity, culture, talent and
succession generally.
The Audit Committee has
responsibility for overseeing and
monitoring the Group’s financial
statements, accounting processes,
audit processes (internal and
external), controls and matters
relating to fraud and other reports
received under the whistleblowing
policy.
The Remuneration Committee
reviews and recommends to the
Board the framework and policy for
the remuneration of the Chairman,
the Executive Directors and the
Group Executive Committee.
The Committee ensures that the
remuneration policy of the Group
reflects the Group’s strategy.
Further information on the
Nomination Committee is
on pages 74 to 75
Further information on the
Audit Committee is on
pages 68 to 73
Further information on the
Remuneration Committee
is on pages 76 to 96
Group Executive Committee
The Group Executive Committee comprises: Nick Jefferies, who is the Chairman of the Committee, together with Simon
Gibbins, Joanna Harkus Madge, who is also the Secretary, Jeremy Morcom, Paul Neville, Martin Pangels and Paul Webster.
For their biographies see page 52. During the year to 31 March 2018, there were ten meetings of the Committee. Other
senior managers attend the Committee meetings, by invitation, for specific topics.
The Committee is responsible for the Group’s day-to-day operations, for delivering results and for driving growth
for Shareholders.
The powers delegated to the Committee are contained in its written terms of reference, which are available
on request and are on the Company’s website: www.discoverIEplc.com
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018Corporate governance BOARD REPORT ON CORPORATE GOVERNANCE
Board activities
Topic
Strategy
Key activities and discussions in 2017/18
Reviewed and approved the acquisition of the
Key priorities in 2018/19
Consider acquisitions as identified and
Santon Group
Reviewed financial key strategic indicators
("KSIs") and key performance indicators (“KPIs”)
Considered and approved the Group’s dividend
policy
Considered and approved rebranding of the
Group and FTSE sector reclassification
Reviewed further operational investment in
India, Slovakia and South Korea
Robust assessment of principal risks (see pages
36 to 41)
Monitored compliance with the anti-
bribery and corruption policy and updated
whistleblowing policy
Implemented cyber risk review
determine the appropriate course of action
Keep financial KSIs and KPIs under review
Keep the Group’s dividend policy under review
Review potential impact of Brexit on the Group
Continue to focus on international growth in key
markets
Review key risks and ensure that the Group’s
internal control process remains appropriate
Review results of cyber risk review and
implement appropriate procedures
Risk and risk
management
Governance
Continued focus on the composition, balance
Rectification of technical non-compliance
with regards to distributable reserves and the
payment of recent dividends
Continue to strengthen internal controls and
reporting
Review level of institutional holding and
consider actions to broaden the Group’s
Shareholder base further
Implement, subject to Shareholder approval,
the remuneration policy being presented to
Shareholders at the AGM in 2018
Further understanding and planning actions in
relation to new regulations over the period
and effectiveness of the Board
Succession planning for Board, Group Executive
Committee and senior management
Appointment of Bruce Thompson as Non-
Executive Director
Signed off and published the Group’s second
modern slavery statement
Engaged with institutional Shareholders,
investors and other stakeholders throughout the
year
In partnership with the Audit Committee,
carried out an auditor tender process
and approved the appointment of
PricewaterhouseCoopers LLP
Reviewed and approved the 2016/17 Annual
Report. The Board agreed that, taken as a whole,
the 2016/17 Annual Report was fair, balanced
and understandable
Organisational
capacity
Monitored health and safety performance
across the Group. Regular Board updates
received on actions improving health and safety
Continue to monitor health and safety
performance across the Group
Presentations by senior management on
operating companies, tax, treasury and M&A
strategy
Review of major customers and suppliers
Board
development
Continued focus on the composition, balance
Provide training to the Board to assist with their
and effectiveness of the Board. Reviewed Board
and Committee composition and discussed
and acted on the recommendations of the
Nomination Committee
Undertook an internal evaluation of the Board,
its Committees and individual Directors
continued professional development
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Corporate governance
Board and Board Committee meetings attendance
During the year, attendance by Directors at Board and Committee meetings was as follows:
Board attendance
Richard Brooman
Malcolm Diamond1
Simon Gibbins2
Tracey Graham3
Nicholas Jefferies
Henrietta Marsh
Bruce Thompson4
Committees
Board
Audit Remuneration Nomination
Overall
attendance
%
8/8
7/8
7/8
8/8
8/8
8/8
1/1
4/4
—
—
4/4
—
4/4
—
5/5
5/5
—
5/5
—
5/5
—
4/4
3/4
—
1/1
4/4
4/4
—
100
88
88
100
100
100
100
1 Malcolm Diamond was unable to attend the Board and Nomination Committee meeting on 31 January 2018
2 Simon Gibbins was unable to attend the Board meeting on 22 January 2018
3 Tracey Graham was appointed as a member of the Nomination Committee on 31 January 2018
4 Bruce Thompson was appointed as a member of the Board on 26 February 2018
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63
BOARD REPORT ON CORPORATE GOVERNANCE
Effectiveness
Independence
The independence of the Non-Executive Directors is reviewed
annually. None of the Non-Executive Directors have served
more than six full years on the Board.
The Board considers that all of the Non-Executive Directors
bring strong independent oversight and continue to
demonstrate independence. The Board recognises the
recommended term within the Code. It is mindful of the
need for suitable succession, and therefore maintains a clear
record of the time each Non-Executive Director has served
the Company and the skill set that each provides.
Details and experience of each Director is on
pages 50 and 51
Richard Brooman is the Senior Non-Executive Director and
is available to Shareholders should they have concerns that
cannot be resolved through other channels.
Time allocation
The Board held six scheduled meetings and two ad hoc
meetings during the year. Individual attendance is set out
on page 63. Sufficient time is provided at the start and the
end of each meeting for the Chairman to meet privately with
the Senior Non-Executive Director and the Non-Executive
Directors.
All Directors are aware of the need to allocate sufficient time
to the Company in order to discharge their responsibilities
effectively. The letters of appointment for Non-Executive
Directors set out the time commitment expected to allow
them to perform their duties effectively.
Induction of new Directors
While appointments to the Board are the responsibility of
the full Board, the Nomination Committee has a duty to
ensure that, when making recommendations to the Board on
suitable candidates, it takes into account the Board’s existing
balance of skills and experience and has due regard for
diversity. The process for making Board appointments is fully
described in the Nomination Committee Report set out on
page 74 and 75 of this Annual Report and Accounts.
All new Directors receive induction training on joining the
Board and are expected regularly to update and refresh
their skills and knowledge, with the Company providing the
necessary resources, as required. The induction programme
includes meeting with the Group’s senior management and
visits to key locations, as well as a comprehensive briefing pack.
Induction process:
Step 1:
Understand the discoverIE business
Company structure and strategy including Group
structure, history, strategy, key people, succession plans,
Board procedures including governance framework,
Board Committees, calendars, minutes, and the risk
register.
Step 2:
Meet the management teams
One-on-one meetings with the Group Executive
Committee and senior management.
Step 3:
Visit the discoverIE businesses
Visits to a number of discoverIE businesses, both in the UK
and overseas.
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Corporate governance
Information and professional development
Papers are circulated in advance of Board and Committee
meetings, and Directors are invited to request such further
information as they may require, thereby ensuring that
proper consideration can be given to all matters. Between
scheduled meetings, Directors are kept abreast of progress
through ad hoc meetings and briefings, as and when
required. A procedure is in place whereby Directors may have
access to independent professional advice at the Company’s
expense and Directors have access to the advice and services
of the Company Secretary, who is responsible for advising
the Board, through the Chairman, on all governance matters.
Her responsibilities also include ensuring good information
flows within the Board and its Committees, and between
senior management and the Non-Executive Directors. The
appointment or removal of the Company Secretary is a
matter for the Board as a whole.
Board evaluation
Step 1:
Directors consider their individual performance,
the performance of the Chairman and the overall
performance of the Board and Board Committees by
using questionnaires.
The completed questionnaires are submitted to the
Company Secretary who collates the results and provides
an overall summary to the Board.
Re-election
The Company’s Articles of Association require that, at every
Annual General Meeting, each Director who (a) was appointed
since the previous Annual General Meeting or (b) was
appointed or last reappointed at or before the Annual General
Meeting held at least three years before the current year or (c)
being a Non-Executive Director, as at the date of the Meeting
has held office with the Company for a continuous period of
nine years or more, must retire from office.
At the next Annual General Meeting of the Company,
a resolution will be proposed for the election of Bruce
Thompson and the re-election of Nick Jefferies. Having taken
into account the formal evaluation of their performance, the
Board believes that each makes an effective contribution to
the Board, demonstrates commitment to their role and is
recommended for election and re-election, respectively.
Conflicts of interest
Directors are subject to a statutory duty under the Companies
Act 2006 (the “Act”) to avoid a situation where they have, or
could have, direct or indirect interest that conflicts, or possibly
could conflict, with the Company’s interests. The Act allows
directors of public companies to authorise conflicts and
potential conflicts where appropriate, where the Articles of
Association (the “Articles”) contain a provision to this effect.
The Act also allows the Articles to contain other provisions for
dealing with Directors’ conflicts of interests to avoid a breach
of duty.
The Group has adopted policies and procedures to deal with
conflicts of interests and the Board is satisfied that these
continue to operate effectively.
Step 2:
The results of the evaluation are discussed by the Board
and actions for improvement are decided upon.
As a result of the 2017 Board evaluation, it was decided
that individual Directors should continue to undertake
personal development in order to maintain an updated
level of skills and knowledge in the areas such as
corporate governance and financial reporting.
Step 3:
Individual questionnaires are provided to the Chairman
and Senior Non-Executive Director, as appropriate.
One-on-one discussions are then held between the
Chairman and the Senior Non-Executive Director on the
evaluation of the Chairman, and between the Chairman
and the Non-Executive Directors on their respective
evaluations.
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65
BOARD REPORT ON CORPORATE GOVERNANCE
Accountability
Financial reporting
The Directors have acknowledged in the Directors’
Responsibilities Statement on page 97 their responsibility
for preparing the financial statements of the Company and
the Group. The auditor has included in the audit report a
statement of responsibilities.
The Directors are also responsible for the publication of the
Interim Report of the Group, covering the first six months of
the Company’s financial year, which, in their opinion, provides
a fair, balanced and understandable assessment of the
Group’s financial performance and position. The Directors also
issue regular trading updates during each financial year (four
trading updates were issued during this financial year).
£
Remuneration
The level and make-up of Directors’
remuneration
The level and make-up of the Directors’ remuneration is set
out in the Directors’ Remuneration Report on page 76 to 96.
As this shows, a proportion of an Executive Director’s overall
remuneration is designed to promote the long term success
of the Company by being performance-related through
annual bonus and long term share incentive schemes.
Procedure on Board remuneration
The remuneration of Executive Directors and the Non-
Executive Chairman is the responsibility of the Executive
Directors’ Remuneration Committee, as more fully described
in the Directors’ Remuneration Report. The remuneration
of the Non-Executive Directors is determined by the Non-
Executive Directors’ Remuneration Committee, which
consists of the Chairman and the Executive Directors. No
Director is involved in deciding their own remuneration.
Shareholder and stakeholder
engagement
The Board believes that it is an important part of its
responsibilities to maintain an effective and timely dialogue
with the Company’s Shareholders and institutional investors.
To this end, the Board keeps in touch with Shareholder
opinion in whatever ways it deems to be most practical and
efficient. For example, through direct face-to-face contact,
analysts’ or brokers’ briefings. As mentioned above, four
trading updates were issued during the financial year.
Throughout the year, meetings are held with institutional
Shareholders, as well as stockbroking analysts. These
meetings include discussions on governance and strategy
matters. It is a responsibility of the Chairman to ensure
that Shareholder views are communicated to the Board
as a whole. Frequent communication occurs between the
Company, via the Executive Directors, and Shareholders and
analysts, particularly following results announcements and
trading updates.
Investor relations information, as well
as presentations and news releases, are
made available on the Company’s website:
www.discoverIEplc.com
Members of the Board and the Chairman of each Board
Committee will normally attend the Annual General
Meeting to answer any questions. In addition, the Chairman
of the Remuneration Committee maintains contact, as
required, with the Company’s principal Shareholders about
remuneration. The Company responds to any questions from
Shareholders, generally as they arise.
In order to ensure that members of the Board develop an
understanding of the views of major Shareholders about
the Company, any feedback received by the Company from
meetings with institutional Shareholders and stockbroking
analysts is discussed internally and raised with the Board,
as appropriate. Periodically, the Company’s stockbrokers
and public relations advisers follow up meetings held with
institutional investors and stockbroking analysts in order to try
to obtain feedback on these meetings which may not have
been provided directly to the Company. The results of such
follow-up discussions are circulated to the Board.
In September 2017, the Board visited the Flux facility in
Denmark where they received a presentation from the local
management team, undertook a site visit and held a dinner
with the senior management team.
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018 Board composition
z Female
2
29%
z Male
5
71%
z < 1 year
1
14%
z > 1 year
6
86%
z Executive
2
29%
z Non-Executive
5
71%
GENDER
DIVERSITY
BOARD
TENURE
INDEPENDENCE
Approval
This Board Report on Corporate Governance has been
approved by the Board and signed on its behalf by
Joanna Harkus Madge
Group Company Secretary
5 June 2018
Capital Markets Day
At the Capital Markets Day in March 2018, presentations were
given to Shareholders and other stakeholders on the Group
strategy, the Design & Manufacturing division, cross-selling
and acquisition strategy.
A copy of the presentation is available on the
Company’s website: www.discoverIEplc.com
The day also included an exhibition which featured products
from 20 different businesses and a chance to meet the
management teams of the respective businesses.
Annual General Meeting
The level of proxy voting, together with the
number of votes cast for and against each
resolution and abstentions, will be made
available at the AGM after voting on a show
of hands has been completed and will
be published on the Company’s website :
www.discoverIEplc.com
A separate resolution will be presented on each substantially
separate issue. The proxy form relating to the AGM includes
an option for votes to be withheld. Notice of the Meeting
will be sent to Shareholders at least 20 working days before
the Meeting.
When, in the opinion of the Board, a significant proportion
of votes have been cast against any resolution at any general
meeting, the Company will explain, when announcing the
voting results, what actions it intends to take to understand
the reasons behind the voting result.
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018Corporate governance AUDIT COMMITTEE REPORT
Richard Brooman — CHAIRMAN OF THE AUDIT COMMITTEE
“The Committee is responsible
for assessing the effectiveness
of the Group's risk management
processes and for considering
the appropriateness of the
accounting policies and systems
of internal control of the Group,
as well as the effectiveness and
cost-effectiveness of the audit.”
Member
Richard Brooman
Henrietta Marsh
Tracey Graham
Since
2013
2014
2017
The Group Company Secretary acts as Secretary to the
Committee.
Details of individual Directors' attendance
can be found on page 63
2017/18 Key achievements
Successful audit transition following the competitive
Areas of focus in 2018/19
Roll out of cyber risk review
tender for audit engagement
Implementation of risk management and internal
audit programme for 2017/18
Initiated cyber risk review
Assessment of potential impact of Brexit on the Group
Revised whistleblowing policy, incorporating an
external helpline
Update of anti-bribery and anti-corruption programme
Review of data protection policies and procedures to
achieve compliance with GDPR
Continued focus on internal audit
Finalisation of impact assessment of IFRS 15 (Revenue
Recognition), IFRS 16 (Accounting for Leases) and
IFRS 9 (Financial Instruments)
Continued assessment of potential impact of Brexit on
the Group. Initial assessment indicates that the impact
will not be material
Review and update of Committee terms of reference,
including policy on provision of non-audit services.
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Corporate governance
Dear Shareholder,
I am pleased to report on the activities of the Audit
Committee (“the Committee”) during the year under review.
The Committee and external auditor
During the year, the Audit Committee met four times and
met privately with the external auditor on three occasions. In
addition to the Audit Committee members, the Group Chief
Executive, the Group Finance Director, representatives from
the external auditor, the Group Risk Manager and the Group
Financial Controller attended parts of these meetings by
invitation. As Chairman of the Committee, I maintain direct
communication with the external auditor and the Group
Risk Manager, independently of the management of the
Company.
Meetings of the Committee are scheduled, so as to ensure
the Committee is informed fully, and on a timely basis, on
areas of significant risks and judgement. The Committee
also received sufficient, reliable and timely information from
management on changes to financial accounting standards
and reporting requirements, regulatory and governance
changes and developments around risk management, fraud
prevention and detection and cybersecurity. As Chairman
of the Committee, I report to the Board on any significant
matters arising from the activities of the Committee.
The Committee believes that the issue of non-audit services
to the Company is closely related to external auditor
independence and objectivity. The Committee recognises
that the independence of the external auditor may
reasonably be expected to be compromised if they also act
as the Company's consultants and advisers. Having said that,
the Committee accepts that certain work of a non-audit
nature is best undertaken by the external auditor. To keep
a check on this, the Committee plans to review its policy
during the next financial year to ensure that the provision of
any non-audit services by its external auditor does not impair
its independence or objectivity. No non-audit services were
provided by the external auditor during the financial year.
The Board is satisfied that the members of the Audit
Committee have both recent and relevant experience (as set
out on pages 50 and 51) and that, therefore, the Committee
as a whole has competence in the sector in which the Group
operates. The Audit Committee is satisfied that the Group’s
executive compensation arrangements do not prejudice
robust controls and good stewardship.
Key responsibilities of the Committee:
Consideration of the appropriateness of the accounting
principles, policies and practices adopted in the Group’s
accounts;
External financial reporting and associated
announcements;
Managing the appointment, independence, effectiveness
and remuneration of the Group’s external auditor,
including the policy on the award of non-audit services;
Initiating and supervising a competitive tender process for
the external audit;
Resourcing, planning and effectiveness of the internal
audit function;
The effectiveness of the Group’s risk management
processes and internal controls;
Maintenance and update of the Group Risk Register;
Oversight of the Group’s whistleblowing procedures;
The Group’s compliance with the 2016 UK Corporate
Governance Code.
In addition to the key responsibilities described above,
the Committee has reviewed the financial and narrative
disclosures in this year's Annual Report and Accounts. It
has advised the Board that, in its view, taken as a whole,
the Annual Report and Accounts is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Group's performance, business
model and strategy.
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AUDIT COMMITTEE REPORT
Audit tender
The Committee considers the appointment or reappointment of the external auditor, including the timing of rotation of the
incumbent audit partner, on an annual basis. During the year, with Ernst & Young LLP approaching the end of their term as the
Group’s auditor as at 31 March 2018, the Company carried out a formal competitive tender for the external audit engagement
and appointed PricewaterhouseCoopers LLP. The tender process is detailed below and was carried out in accordance with best
practice guidelines provided by the FRC and the Investment Association.
Pre-steps
Evaluation
Decision making
Key steps
Invitation to
participate and
interview of
lead partners
Request for
proposal
issued and
data room
opened
Site meetings Written
proposals
evaluation
Oral
presentation
to Audit
Committee
Audit Committee
recommendation
Board
decision
May
June
July
August /September
Governance
AC Chair,
Group FD
and Financial
Controller
Outputs
Short-listing
and pre-
selection of
lead partners
Executive and
HO finance
team
Executive and
HO finance
team
Audit
Committee
and Executive
Steering
Group
Audit
Committee
and Executive
Steering
Group
Audit Committee
Board
Knowledge
building by
team
Initial
feedback
shared with
lead partners
as input to
development
and proposals
Proposal
evaluation
and
preparation
of scorecard
for oral
presentations
Debrief
and final
evaluation of
each firm
Recommended
two firms for
appointment,
with a preference
expressed for one
firm
Successful
firm
appointed
with effect
from
13 September
2017
Role of the Committee
The Committee’s role is central in bringing together the Group’s risk management activities and control environment to
ensure the integrity of financial reporting and to maintain a strong risk focused culture. As Chairman of the Audit Committee,
I attend the Group’s Annual General Meeting every year and make myself available for any Shareholder questions on the
Committee’s remit.
The Committee oversees and reviews the management of risk, financial results, and the Group’s internal audit function.
Risk management and internal controls
In fulfilling the Committee’s oversight of the risk management and control environment, a number of key activities are
undertaken during the year, as well as having regular meetings with senior management.
The Audit Committee considered the risk management activities during the year (including particular focus on specific
areas of IT security and Brexit), and reviewed risk reporting to ensure effectiveness and that the balance between risk and
opportunity was in keeping with the Group’s risk appetite.
The Group has a small, separate internal audit function, led by the Group Risk Manager who reports both to the Group
Financial Controller and to me, as Chairman of the Audit Committee.
A programme of internal audit activities has been completed during the year. The scope of work carried out by internal audit
generally focuses on the internal financial controls and risk management procedures operating within each business. Further
internal audit work is outsourced to external providers, where appropriate.
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Corporate governance
Significant matters considered
As part of the monitoring of the integrity of the financial statements, the Committee assesses whether suitable accounting
policies have been adopted and whether management has made appropriate estimates and judgements. Support from the
external auditor is sought when undertaking these assessments.
During the year, the Audit Committee’s review of other significant accounting and financial reporting issues included a focus
on the key areas outlined as follows:
Impairment of goodwill
A consideration of the carrying value of goodwill and the assumptions underlying the
impairment review. The judgements in relation to goodwill impairment largely relate to the
assumptions underlying the calculations of the recoverable amount of the business unit
being tested for impairment, primarily the achievability of long term business plans and
macroeconomic assumptions underlying the valuation process. The assumptions are sensitised
to ensure that there is adequate headroom between the recoverable amount and the carrying
value of the business being tested for impairment.
In particular, disclosure in note 16 of the accounts indicates erosion of the estimated headroom
in Acal BFi UK, given a reasonable change in assumptions.
Accounting for
acquisitions
A review of the accounting for the acquisition of Santon during the year, including the
appropriateness of the assumptions used in assessing the fair value of assets and liabilities
acquired.
Valuation of the legacy
defined benefit pension
scheme
The recognition and
valuation of judgemental
provisions
A review of the appropriateness of the assumptions used in the valuation of the legacy defined
benefit pension scheme under IAS 19 – Employee Benefits.
A determination of the appropriateness of the assumptions used in the recognition and
valuation of judgemental provisions which relate mainly to onerous contracts, inventory,
severance indemnities, acquisition earn out arrangements, long term bonus plans, restructuring
and integration.
Presentation of
underlying profit
adjustments
A review of the appropriateness of items disclosed as acquisition costs, intangible asset
amortisation and legacy IAS 19 costs in the supplementary income statement information and
notes to the consolidated financial statements, in line with the Group’s stated policy.
Revenue recognition
A review of the appropriateness of the accounting for revenue either side of the year end.
Parent Company
impairment assessment
An assessment of the carrying value of the parent company's investment in discoverIE
Management Services Limited was carried out. This resulted in an impairment of £10m.
The Committee was satisfied that each of the matters set out above had been fully and adequately addressed by the Executive
Directors, appropriately tested and reviewed by the external auditor and that the disclosures made in this Annual Report and
Accounts were appropriate.
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71
AUDIT COMMITTEE REPORT
Internal controls
The UK Corporate Governance Code includes a requirement
that the Board maintains sound risk management and
internal controls systems to safeguard Shareholders’
investment and the Company’s assets. This requirement
covers all controls including: operational; compliance and
risk management; and financial controls. Formal guidance
for Directors on internal controls was published by the
Institute of Chartered Accountants in England & Wales
in September 1999 and subsequently revised in October
2005 by The Financial Reporting Council (“FRC”). In 2014,
this was superseded by the FRC’s revised guidance, Risk
Management, Internal Control and Related Financial and
Business Reporting (“the Risk Guidance”). The Board approved
a framework for the implementation of this guidance. The
relevant procedures have been in place throughout the
year under review and up to the date of this Annual Report
and Accounts.
The Board has overall responsibility for the Group’s risk
management and internal controls systems and for reviewing
their effectiveness, at least annually.
While no system of controls can provide absolute assurance
against material misstatement or loss, the Group’s systems
are designed to manage, rather than eliminate, the risk of
failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material
misstatement or loss. In establishing and reviewing the
systems, the Committee, on behalf of the Board, has regard
to the significance of the risks involved, the likelihood and
severity of a risk occurring and the costs of the relevant
controls.
The foundation of the Group’s systems of control is the value
placed on the quality and integrity of its employees. The
principal components of those systems are:
a clearly defined organisation structure with short and
clear reporting lines;
an ongoing process for the identification, regular review
and management of the principal risks and issues
affecting the business, both at Group and operating levels;
in-house and outsourced internal audit activities;
an ongoing review of regulatory compliance;
a regular review of the principal suppliers and customers
of the Group, and how each impacts upon the Group’s
business;
a comprehensive planning process, which starts with a
strategic plan and culminates in an annual budget and a
long term plan;
regular forecasting throughout the year of orders, sales,
profitability, cash flow, working capital and balance
sheets;
a regular review of actual performance against budget
and forecasts;
clearly defined procedures for the authorisation of major
new investments and commitments; and
a requirement for each operating company to maintain
a system of internal controls appropriate to its own local
business environment.
The Finance team is responsible for producing financial
information that is timely, accurate and in accordance with
applicable laws and regulations. In addition, it is responsible
for the timely distribution of financial information, both
internally and externally. Key financial and operational
performance is reported on a timely basis and measured
against both the Board-approved budget, management’s
rolling forecasts and comparable information from prior
periods. A review of the financial statements is completed
by management to ensure that the financial position and
results of the Group are appropriately reflected. All financial
information published externally by the Group is approved by
the Board.
The above procedures apply to discoverIE Group plc and all of
its subsidiary companies.
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The Board receives regular submissions from management
concerning the matters set out above and other matters
relevant to internal controls and the identification, evaluation
and management of risk. In addition, the Committee, on
behalf of the Board, has conducted a specific annual review
of the effectiveness of the Group’s system of internal controls,
including financial, operational and compliance controls and
risk management systems. The Group has embedded risk
management and internal control into the operations of the
business and continues to deal with areas of improvement
which come to the attention of management and the Board.
Internal Audit
The Group’s finance department includes a separate Internal
Audit function. This is led by the Group Risk Manager who is
part of the Group management team and reports both to the
Group Financial Controller and to the Chairman of the Audit
Committee.
A programme of internal audit activities has been completed
during the year, part of which was outsourced to BDO
and Tricor. The scope of work carried out by Internal Audit
generally focuses on the internal financial controls and risk
management procedures operating within each business.
Work is outsourced to external advisers where appropriate.
Terms of reference
The Committee’s terms of reference are
available upon request and are on the
Company’s website: www.discoverIEplc.com
Yours sincerely
Richard Brooman
Chairman of the Audit Committee
5 June 2018
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018Corporate governance NOMINATION COMMITTEE REPORT
Malcolm Diamond MBE —
CHAIRMAN OF THE NOMINATION COMMITTEE
“The Board is committed to
a culture which attracts and
retains talented people to deliver
outstanding performance and
further enhance the success of the
Group.”
Member
Malcolm Diamond
Nick Jefferies
Richard Brooman
Henrietta Marsh
Tracey Graham
Since
2017
2009
2014
2014
2018
Dear Shareholder,
The discoverIE Board has a collective responsibility for
promoting the long term success of the Company for the
benefit of its Shareholders and employees. In leading the
search for new Directors, the Nomination Committee (“the
Committee”) plays an important part in helping to secure
that long term success. At the same time, discoverIE’s
commitment to good governance and compliance with the
requirements of the UK Corporate Governance Code means
that there is in place a formal, rigorous and transparent
procedure for the appointment of new Directors to the Board.
Composition
The majority of the Committee members are independent
Non-Executive Directors. During the year under review, the
Committee was chaired by myself, with Richard Brooman,
Henrietta Marsh, Tracey Graham and Nick Jefferies as
Committee members.
Key responsibilities:
The Committee’s key duties are:
To review the structure, size and composition (including
the skills, knowledge and experience) of the Board and to
recommend changes;
To consider succession planning for the Directors and the
right balance of skills, knowledge, experience and diversity
on the Board;
Details of individual Directors' attendance
can be found on page 63
To identify and nominate candidates to fill Board
vacancies, having previously prepared a description
of the role and capabilities required for a particular
appointment;
To review the leadership needs of the organisation, both
executive and non-executive;
To make recommendations to the Board on the
reappointment of any Non-Executive Director at
the conclusion of their specified term of office and
on appointments to the Audit and Remuneration
Committees; and
To review, as part of the annual assessment exercise, the
time commitment of the Non-Executive Directors to the
role and to their external appointments.
Appointment of Directors
The Committee’s principal role is to make recommendations
to the Board on suitable candidates to fill Board vacancies,
as and when they arise. In managing this process, the
Committee takes into account the Board’s existing balance
of skills, knowledge and experience and has due regard
for diversity. A job specification is prepared and agreed by
the Committee. Unless the appointment is as an Executive
Director, for which a suitable candidate is available from
within the Group, the Committee will consult appropriate
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executive search or other organisations with databases
of candidates before a short-list of suitable candidates is
produced for agreement by the Committee. Candidates
meet all members of the Committee, which then makes
recommendations to the Board. Adopted practice is for all
members of the Board to meet with the relevant candidate
before an appointment is finally made.
During the year, the Committee became aware of the
opportunity to appoint Bruce Thompson. Following
a thorough process which involved both formal and
informal meetings with the Committee, the Committee
recommended his appointment, which was duly approved,
to the Board.
Diversity
The Board is committed to a culture which attracts and
retains talented people to deliver outstanding performance
and further enhance the success of the Group. While the
Board has no set objectives in relation to diversity, it is
mindful of its responsibilities in this regard when making new
appointments to the Board, and for the Group as a whole,
and in relation to Board succession and management and
development.
Succession planning
The Committee is concerned to ensure that a proper
process for succession planning for the Board and senior
management is in place, so that a pipeline of executive talent
is developed.
In November 2017, the Board reviewed succession planning
for (i) the Executive Directors, (ii) the members of the Group
Executive Committee and (iii) other senior managers. The
review covered senior managers, including members of the
Group Executive Committee, across the Group’s businesses
and addressed, in particular:
Both emergency and longer term succession planning;
The evolution of the Group and the identification of future
leaders;
The development of “rising stars” within the Group; and
The impact of acquisitions on the organisation structure.
It is intended to undertake a further succession planning
review during the current financial year.
What the Committee did in the year
under review
During the year, the Committee met formally on four
occasions with all Committee members attending all
meetings. The main focus of its work included the following:
Reviewing the composition and structure of the Board
and the Committees and, following a thorough process,
recommending the appointment, which was duly
approved, of Bruce Thompson as Non-Executive Director;
Recommending to the Board the appointment, which
was duly approved, of Tracey Graham as a member of the
Nomination Committee; and
Recommending to the Board the reappointments, which
were duly approved, of the Non-Executive Directors upon
the conclusion of their specified terms of office.
In each case, the Committee’s recommendation was
made after careful consideration of the individual’s
independence, performance and ability to continue to
contribute to the Board in the light of the knowledge,
skills, commitment and experience required.
Terms of reference
The Committee’s terms of reference are
available upon request and are on the
Company’s website: www.discoverIEplc.com
Malcolm Diamond MBE
Chairman of the Nomination Committee
5 June 2018
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018Corporate governance DIRECTORS’ REMUNERATION REPORT
“An excellent year in which
Shareholders' returns reflected
the long term strategic progress
being made by the Company. ”
Member
Henrietta Marsh (Chair)
Richard Brooman
Malcolm Diamond
Tracey Graham
Since
2014
2014
2017
2016
Henrietta Marsh —
CHAIRMAN OF THE REMUNERATION COMMITTEE
ANNUAL STATEMENT
Information not subject to audit
Dear Shareholder,
On behalf of the Board, it is my pleasure to present our
Directors’ Remuneration Report (the “Report”) for the year
ended 31 March 2018.
During the year, the Committee reviewed the Company’s
remuneration arrangements and the remuneration policy,
which was approved at the 2015 AGM and is due to expire.
Our review took into account:
The Group’s strategy - in particular, the Committee noted
the contribution that acquisitions have made to the
Group’s success;
The Committee consults with the Group Chief Executive who
may attend meetings by invitation of the Chairman, although
he is not involved in deciding his own remuneration. The
Committee is assisted by the Group Company Secretary.
The competitiveness of the Company’s remuneration – the
Committee looked both at other companies in the Small
Cap index as well as a set of comparators that have similar
complexities to discoverIE;
Details of individual Directors’ attendance
can be found on page 63
Key responsibilities
Design of remuneration policy
Remuneration policy implementation
Ensuring the competitiveness of reward
Design of incentive plans
Setting incentive targets and determining award levels
Current and emerging market practice; and
Best practice expectations of institutional investors.
The Committee’s conclusion was that the current structure
works well and remains fit for purpose. It is simple and
consistent, with pay outcomes dependent upon performance
linked to our business strategy. Nevertheless, a number of
changes were thought advisable to incorporate best practice,
to improve the competitiveness of remuneration packages
and to further improve alignment.
These proposals were discussed with major Shareholders,
comprising over 75% of the Shareholder base at the time. We
received feedback from over half of them, representing more
than 30% of the share capital of the Company, as well as
key representative bodies. In the light of the positive support
received, the Committee is now seeking approval for the
revised remuneration policy at the 2018 AGM.
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Corporate governance
Proposed changes to remuneration policy and to implementation
of remuneration arrangements
Policy change
Rationale
Annual bonus policy limit to be increased from 100% of
salary to 125% of salary. Normal bonus opportunities for
the Group Chief Executive will be 125% of salary (from
100%) and for the Group Finance Director, 100% of salary
(no change)
Change in limit provides flexibility for the Committee to
grant a bonus opportunity more typical of the FTSE Small
Cap top half as the business continues to expand
The change in normal bonus opportunity for the Group
Chief Executive is reflective of market
Mandatory deferral of 20% of any bonus earned into
discoverIE shares for a period of three years for all
executives where the bonus opportunity is above 100%
of salary. Same malus and clawback provisions will apply
to deferred bonus as cash bonus
Aligns with best market practice including Investment
Association’s guidelines
Align bonus pay out curves for all Executive Directors
Enhances alignment across the management team
Performance range for bonus targets for FY19 will be ±
12.5% of budget
Normal LTIP grant sizes for the Group Chief Executive
and Group Finance Director to be increased from
125% and 90% of salary to 135% and 100% of salary
respectively. The LTIP policy limit remains at 150% of
salary
LTIP Awards for FY18 of 150% and 125% were made to
the Group Chief Executive and Group Finance Director to
reflect the excellent business performance.
Introduction of EPS as an LTIP measure – 1/3rd is now
dependent on EPS, 1/3rd on absolute TSR and 1/3rd of
relative TSR
Increase in shareholding guideline to 250% of salary after
seven years of service (after five years, shareholding of
200% of salary is required)
Align grant sizes more closely with market practice, and
ensure management are appropriately rewarded for
business growth
Balance internal and external measures of success
Enhance motivational effectiveness of the LTIP
Provide greater stretch in LTIP targets. Recognise
Company’s growth ambitions
Further strengthens alignment of interests with
Shareholders
Further detail on these changes can be found in the remuneration policy and Annual Report on Remuneration.
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DIRECTORS’ REMUNERATION REPORT
Business performance and resulting
remuneration outcomes for the year
ending 31 March 2018
It has been an excellent year for the Company and an
excellent year for Shareholders. As importantly, there were a
number of achievements which we expect to build value over
the longer term. You can read more detail in the Strategic
Report on pages 2 to 46 but some of the highlights are
summarised below.
Strong growth in sales, orders, profits and earnings
Organic growth driven by strong performance from the
Design & Manufacturing division
Highest ever year end order book of £122m (+12% CER)
Acquisition of Santon in February 2018
Other key activities in the year ending
31 March 2018
During the year under review, the Committee held five formal
meetings. As well as the policy review, the Committee also
carried out the following activities:
Reviewed and approved the Executive Directors’
performance against financial and non-financial
objectives for the year ended 31 March 2017 and the 2014
LTIP targets and determined the bonuses payable;
Reviewed the Executive Directors' expected performance
against financial and non-financial objectives for the year
0ended 31 March 2018 and the 2015 LTIP Awards.
Determined 3.5% salary increases for Executive Directors
as well as other GEC members for the year ending
31 March 2019;
Expansion of fibre optic production capacity in Slovakia
Approved the LTIP Awards made on 29 March 2018 and
and magnetics production in India
their performance conditions;
Increased cross-selling from £4.6m to £8.8m
Broadwalk small and mid-cap company of the year award
In light of this performance, the Committee decided to award
annual bonus payments of 63.7% and 53.8% of maximum
to the Group Chief Executive and Group Finance Director.
Further details can be found on pages 89 of this report. In
addition, LTIP Awards of 150% and 125% were made to the
Group Chief Executive and Group Finance Director. Further
details can be found on pages 90 of this report.
It has been particularly pleasing to see, in the last year or so,
recognition of the long term strategic progress being made
by the Company through an improvement in the share price.
This resulted in full vesting of the LTIPs granted in March 2015.
These shares will be subject to a two-year holding period
before they become exercisable.
Details of proposed LTIP rules change
The rules of the 2008 Renewed Long Term Incentive Plan
run for five years. As these rules are due to expire shortly,
the Committee is submitting these to the Shareholders for
renewal at this year’s AGM.
The majority of differences between the proposed and
current plan rules are to improve clarity to the rules and to
reflect current best practice. The revised plan rules will be
available for Shareholders to review at the AGM.
Reviewed and approved the annual bonus structure
for Executive Directors and the GEC for the year ending
31 March 2019;
Approved the use of net settlement for LTIP exercises
which occurred during the year; and
Approved the introduction of an Inland Revenue
endorsed scheme to hedge Employer's National
Insurance payable on LTIP exercise.
Further detail on the above can be found in the Annual
Report on Remuneration.
The Committee strongly believes that the proposed changes
are in the best interest of Shareholders and will help focus
the successful executive team on continuing to drive value
creation for Shareholders over the coming years.
The remuneration policy resolution (resolution 3) and renewal
of the LTIP rules (resolution 16) are subject to a binding vote
at our AGM. The Annual Report on Remuneration explains
how our policy has been implemented during the year and,
along with this letter, will be subject to an advisory vote at our
AGM (resolution 4). We hope that you will support all three
resolutions.
Henrietta Marsh
Chairman of the Remuneration Committee
5 June 2018
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Corporate governance
REMUNERATION AT A GLANCE
Audited information
Executive Directors
In this section, we show the link between corporate performance for the year under review and the remuneration outcomes
for the Executive Directors. The key features of the Executive Directors’ remuneration for the year ended 31 March 2018 are also
shown.
Corporate performance for the year
UNDERLYING PROFIT
BEFORE TAX
UNDERLYING DILUTED
EARNINGS PER SHARE
+27%
+16%
FY18
FY17
£21.9m
£17.2m
FY18
FY17
22.3p
19.2p
FULL YEAR DIVIDEND
PER SHARE
SHARE PRICE
(AS AT 31 MARCH 2018)
+6%
2018
2017
+84.6%
9.00p
8.50p
2018
2017
224.75p
415.00p
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79
DIRECTORS’ REMUNERATION REPORT
Remuneration outcomes for the Executive Directors for the year ended
31 March 2018
Salary FY181
Bonus (£k and as % of salary)
Taxable benefits
Pension benefits/allowance
Value of LTIP vesting
Single figure of total remuneration
Nick
Jefferies
£000
438
279
11
58
1,018
1,803
63.7%
Simon
Gibbins
£000
268
144
11
15
499
937
53.8%
1
The salary figures for FY18 include the additional 2% salary increase, which was conditional upon the achievement of the Group EBIT budget
for the year ending 31 March 2018, which was achieved. The conditional payment is also reflected in the bonus and pension benefits/
allowance figures
LTIP awards of 150% and 125% of salary were made to the Group Chief Executive and the Group Finance Director on 31 March
2018 respectively. These awards reflect the strong financial results in the year. Awards at these percentages of salary levels were
last made in 2015, and in normal years, it is intended that the Group Chief Executive and Group Finance Director will receive
135% and 100% of salary respectively.
Remuneration for the year ending 31 March 2019
The table below sets out a summary of how the proposed remuneration policy will apply during 2018/19.
Possible remuneration outcomes for the Executive Directors for the year ended 31 March 2019 are shown on page 87.
Remuneration element
Base salary
Remuneration for year ending 31 March 20191
Effective 1 April 2018, salary increases of 3.5% in line with workforce increases. Salaries are
now £453,159 for the Group Chief Executive and £277,121 for the Group Finance Director
Pension
Cash equivalent of 15% of salary for Group Chief Executive and 6.5% of salary for Group
Finance Director
Annual bonus
Maximum bonus opportunity of 125% of salary for Group Chief Executive (75% of salary for
target performance) and 100% of salary for Group Finance Director (60% of salary for target
performance)
Performance metrics are based 80% on financial measures, including EBIT and Simplified
Working Capital. The remaining 20% will be based on strategic measures
Mandatory deferral of 20% of any bonus earned into discoverIE shares for a period of three
years if bonus opportunity is above 100% of salary. This means that currently 20% of any
bonus paid to the Group Chief Executive will be deferred into discoverIE shares
LTIP
LTIP awards for FY19 will be made in line with policy, with normal grant sizes of 135% of
salary for Group Chief Executive and 100% of salary for Group Finance Director2
Performance metrics and targets will be the same as FY19 grant – 1/3rd on EPS Growth,
1/3rd on Relative TSR and 1/3rd Absolute TSR
Shareholding guidelines
Shareholding target of 250% of salary for the Group Chief Executive and Group Finance
Director within seven years
1 Some elements are subject to the approval of revised remuneration policy by Shareholders.
2 Additional awards may be granted to the Group Chief Executive and Group Finance Director in return for their bearing the Company’s
liability to Employer's National Insurance arising on the exercise of such grants made to them above. The additional award ensures that the
Group Chief Executive and Group Finance Director are in a neutral position on an after-tax basis, assuming no change in the tax rate.
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Corporate governance
REMUNERATION POLICY
Information not subject to audit
This part of the Directors’ Remuneration Report sets out the remuneration policy that the Committee will be putting forward
for Shareholder approval at the 2018 AGM and will be effective from that date for a maximum of three years. It has been
prepared in accordance with the Companies Act 2006 (the “Act”), The Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013.
The principal changes compared to the previous approved policy are as follows:
Annual bonus policy limit to increase from 100% of salary to 125% of salary
Mandatory deferral of 20% of any bonus earned into discoverIE shares for a period of three years if bonus opportunity is
above 100% of salary. Malus and clawback provisions will apply to deferred bonus (as per cash bonus)
60% of maximum bonus opportunity will be payable for target performance (to align the bonus payout curve of the
Executive Directors)
Maximum pension opportunity for all Executive Directors will be 15% of salary (previously only the Group Chief Executive).
However, for the coming year the Group Finance Director will continue to receive 6.5% of salary
Share ownership guidelines of 250% of salary after seven years
Inclusion to the notes of the policy table on how performance conditions and targets for incentive plans are selected
Removal of detail on remuneration elements which are no longer relevant such as old long term incentive plans
Other minor changes have been made to improve the readability of the report.
Key objectives of our reward policy
The policy aims to deliver a remuneration package that:
Attracts and retains high calibre Executive Directors and senior managers in a challenging and competitive business
environment
Reduces complexity, delivering an appropriate balance between fixed and variable pay for each Executive Director
Encourages long term performance by setting challenging targets linked to sustainable growth
Is aligned to the Group’s objectives and Shareholder interests and to the delivery of sustainable value to Shareholders
Remuneration policy
Element, purpose and
link to strategy
Operation and performance metrics
Base salary
To attract and retain
quality staff.
Benefits
To help retain employees
and remain competitive in
the marketplace.
Salaries are reviewed annually and normally fixed for
12 months, effective 1 April.
The Committee takes into account:
Role, competence and performance;
Average change in broader workforce pay; and
Total organisational salary budgets.
Salaries are also benchmarked against companies
of a comparable size and complexity which operate
internationally, in similar sectors.
Directors, along with other senior UK executives, receive a
car allowance, life assurance and critical illness cover, and
family medical insurance.
Opportunity
Any percentage increases will
ordinarily be in line with those
across the wider workforce.
However, salary increases
may be higher in exceptional
circumstances, such as the need
to retain a critical executive,
or an increase in the scope of
the executive’s role (including
promotion to a more senior role)
and/or in the size of the Group.
Insurance cover based on market
rates.
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DIRECTORS’ REMUNERATION REPORT
Element, purpose and
link to strategy
Pension
To facilitate long term
savings provisions.
Annual bonus
The principal long term
measure of Shareholder
interests is Total
Shareholder Return. The
Committee considers
that this will be enhanced
through the setting and
attainment of various
short-term targets, which
are within the control of
the Executive Directors.
These are incentivised
through the bonus
plan which rewards the
achievement of annual
financial and strategic
business targets.
Operation and performance metrics
Opportunity
Up to 15% of base salary.
Up to 125% of salary payable for
significant over-achievement of
financial and non-financial bonus
objectives.
Up to 60% of the maximum
bonus opportunity will be payable
for targeted and budgeted
financial and non-financial
objectives.
The Company operates a defined contribution pension
scheme. Contributions are benchmarked periodically
against companies of a comparable size and complexity
which operate internationally, in similar sectors.
Executive Directors may take a cash allowance in lieu of
pension contributions.
Targets (financial and non-financial) are determined and
reviewed by the Committee annually and are selected to
be relevant for the year in question.
Actual bonus payable is determined by the Committee
after the financial year end, based on performance against
these targets.
Financial objectives are updated to reflect acquisitions,
disposals and currency movements during the year.
Mandatory deferral of 20% of any bonus earned into
discoverIE shares for a period of three years (if bonus
opportunity is above 100% of salary).
Malus and clawback provisions apply to cash and deferred
elements of the bonus, applying in the event of material
misstatement of information or misconduct.
Performance metrics are based at least 70% on financial
performance. Financial measures may include (but are
not limited to) EBIT and Simplified Working Capital. Non-
financial measures may include strategic measures directly
linked to the Company’s priorities.
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Corporate governance
Element, purpose and
link to strategy
Long Term Incentive Plan
To motivate Executives to
deliver Shareholder value
over the longer term.
Operation and performance metrics
Awards of conditional shares through nil-cost options are
typically granted annually, with vesting dependent on the
achievement of performance conditions over the following
three years.
Opportunity
Up to 150% of salary.
Threshold performance will result
in 25% of the award vesting.
Vested awards are subject to a two-year holding period.
Dividend equivalents will be paid on vested awards.
Part of an LTIP award may be satisfied using an HMRC
approved company share option scheme (CSOP). Other
than this, the Company no longer makes awards of
approved share options to Executive Directors except,
potentially, in the case of new recruits (see recruitment
policy).
Malus and clawback applies to vested and unvested
LTIP awards in the event of material misstatement of
information or misconduct.
Performance metrics reflect strategic goals and
milestones.
The exercise of the award is dependent upon the
individual’s continued employment for a three-year period
from the date of grant, subject to the good and bad leaver
provisions within the Plan rules and the satisfaction by
the Company of certain performance conditions over the
three-year vesting period.
From the financial year ending 31 March 2018, the
conditions are based at least 50% on the Group’s TSR
performance, on a relative and/or absolute basis.
The remainder will be on Group financial performance,
which may include (but not be limited to) Group earnings
or returns over the performance period.
The Company's share schemes are funded through a
combination of shares purchased in the market and
newly-issued shares, as appropriate. The Company
monitors the number of shares issued under the schemes
and their impact on dilution limits.
The Company is committed to remaining within the
Investment Association's 10% dilution limit.
Shareholding guidelines
To further align the
interests of Executives with
those of Shareholders.
Executive Directors will be required to accumulate the
required shareholding requirement within a certain time
period from appointment.
Executives will be required to
hold 200% of salary after five
years and 250% after seven years.
Shares held which are no longer subject to performance
conditions count towards the requirement.
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DIRECTORS’ REMUNERATION REPORT
Notes to the remuneration policy table
Performance Conditions and Target Setting:
Each year, the Committee will determine the weightings, measures and targets as well as timing of grants and payments
for the annual bonus and LTIP plans within the approved remuneration policy and relevant plan rules (or documents). The
Committee considers a number of factors which assist in forming a view. These include, but are not limited to, the strategic
priorities for the Company over the short-to-long term, Shareholder feedback, the risk profile of the business and the
macroeconomic climate.
The Annual Bonus Scheme is measured against a balance of profitability, cash management and the delivery of key strategic
areas of importance for the business. The profitability metric used is EBIT and the cash management metric is Simplified
Working Capital.
The LTIP is assessed against a balance of measures identified as those most relevant to driving sustainable bottom-line
business performance, as well as providing value for Shareholders. For FY18, EPS Growth has been introduced as an equal
measure in addition to Absolute and Relative TSR.
Targets are set against the annual and long term plans taking into account analysts' forecasts, the Company’s strategic plans,
prior year performance, estimated vesting levels and the affordability of pay arrangements. Targets are set to provide an
appropriate balance of risk and reward to ensure that, while being motivational for participants, maximum payments are only
made for exceptional performance.
In exceptional circumstances, the Committee has the discretion to adjust and/or set different targets and performance
conditions for annual bonus and long term incentive plans, provided the new conditions are no tougher or easier than the
original conditions. This includes events where conditions are unable to fulfil their original intended purpose. Awards may also
be adjusted in certain circumstances (e.g. for a rights issue, a corporate restructuring or for special dividends).
Any discretion exercised by the Committee in the adjustment of performance conditions will be fully explained to
Shareholders in the relevant report. If the discretion is material and upwards, the Committee will consult with major
Shareholders in advance. No such discretion was exercised during FY18.
The Committee also has the ability to grant additional LTIP awards to participants in return for their bearing the Company’s
liability to Employer's National Insurance arising on the exercise of such grants made to them above. The additional award
ensures that the participants are in a neutral position on an after tax basis, assuming no change in tax rates.
All historical awards that have been granted before the date this policy comes into effect and still remain outstanding
(including those detailed on pages 88 to 96 of the Annual Report on Remuneration) remain eligible to vest based on their
original award terms, other than for the adjustment made for the rights issue in 2014.
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Corporate governance
Recruitment (and appointment) policy
The remuneration package for a new Executive Director would be set in accordance with the terms of the Company’s
approved remuneration policy in force at the time of appointment. Similar considerations may also apply where a Director is
promoted to the Board from within the Group.
Element
Base salary
Benefits
Pension
Recruitment policy
The Committee will take into account a number of factors, including the current pay for other
Executive Directors, external market forces, skills and current level of pay.
Benefits provision would be in line with normal policy.
The Committee may agree that the Company will meet appropriate relocation costs.
In line with normal policy, i.e. a maximum contribution (or a cash allowance in lieu of
contribution) of no more than 15% of salary.
Annual bonus
Eligible to take part in the annual bonus, with a maximum bonus of up to 125% in line with
policy.
Long Term Incentive Plan A normal award of up to 150% of salary, in line with policy.
In addition, a new recruit may be awarded up to 300% of salary in performance shares, which
would be subject to the same performance measures and rules in force for the LTIPs at the
time of appointment.
Compensation for
forfeited remuneration
The approach in respect of compensation for forfeited remuneration in respect of a previous
employer will be considered on a case-by-case basis taking into account all relevant factors,
such as performance achieved or likely to be achieved, the proportion of the performance
period remaining and the form of the award.
The Committee retains the ability to make use of the relevant Listing Rule to facilitate the
"buy-out". Any "buy-out" awards would have a fair value no higher than the remuneration
forfeited.
Notice period and payment for loss of office
It is the Company’s policy that Executive Directors should have service contracts incorporating a maximum notice period of
one year. However, it may be necessary occasionally to offer longer initial notice periods to new Directors. Under the terms of
their service contracts, any termination payments are not predetermined but are determined in accordance with the Director’s
contractual rights, taking account of the circumstances and the Director’s duty to mitigate loss. The Company’s objective is to
manage its exposure to the risk of a potential termination payment.
Non-Executive Directors have letters of appointment for a term of one year whereupon they are normally renewed, but
generally for no more than nine years in aggregate. Non-Executive Directors are not eligible for payment on termination, other
than payment to the end of their contracts.
Malcolm Diamond
Chairman
28 November 2016
31 March 2019
Date of contract/letter of appointment Expiry of current term
Nick Jefferies
Group Chief Executive
26 November 2008
Simon Gibbins
Group Finance Director
10 June 2010
Richard Brooman
Senior Non-Executive
Director
7 December 2012
Henrietta Marsh
Non-Executive Director
22 April 2013
Tracey Graham
Non-Executive Director
23 October 2015
Bruce Thompson
Non-Executive Director
15 January 2018
12 months by either the
Director or the Company
12 months by either the
Director or the Company
31 December 2018
30 April 2019
31 October 2018
25 February 2019
Other than their service contracts, no contract of significance, to which any member of the discoverIE Group is a party and in
which a Director is or was materially interested, subsisted at the end of, or during, the year.
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DIRECTORS’ REMUNERATION REPORT
Comparison with remuneration policy
for other employees
The Company’s approach to salary reviews is consistent
throughout the Company with consideration given to
responsibility, experience, performance, salary levels in
comparable organisations and the Company’s ability to pay.
Differing bonus arrangements (which are normally
discretionary) operate elsewhere in the organisation and,
subject to role, employees are entitled to benefits such as
healthcare, car allowance (or Company-funded vehicle), life
assurance and critical illness cover.
Fees for Non-Executive Directors
Fees for the Non-Executive Directors are determined
on behalf of the Board by the Non-Executive Directors’
Remuneration Committee, while fees for the Chairman
are determined by the Committee. When determining
fees, due regard is given to fees paid to Non-Executive
Directors in other similarly-sized UK quoted companies,
the time commitment and the responsibilities of the roles.
Non-Executive Directors cannot participate in any of the
Company’s share incentive schemes. As disclosed on page 88
of this Annual Report and Accounts, additional fees, over and
above the base fee payable to the Non-Executive Directors,
are payable for chairing the Audit and Remuneration
Committees and for acting as Senior Non-Executive Director.
Fees are normally reviewed annually to ensure that they
reflect an individual’s time commitment and responsibilities.
External appointments
The Executive Directors are entitled to accept one
appointment outside the Group, provided that the
Chairman’s permission is obtained in advance of accepting
an appointment and specific approval is given by the Board.
Neither of the Executive Directors who served during the year
held any non-executive appointments outside the Group.
Termination payments
On termination, the Company will normally make a payment
in lieu of notice (“PILON”) which is equal to the aggregate of:
the basic salary at the date of termination for the applicable
notice period; the pension allowance over the relevant period
and the cost to the Company of providing all other benefits
(excluding pension allowance) or a sum equal to the amount
of benefits as specified in the Company’s most recent Annual
Report; and a bonus payment calculated in accordance with
the bonus plan agreed by the Committee.
The Company may pay the PILON either as a lump sum
or in equal monthly instalments, from the date on which
the employment terminates until the end of the relevant
period. If alternative employment (paid above a pre-agreed
rate) is commenced, for each month that instalments of the
PILON remain payable, the monthly amount, in aggregate
(excluding the pension payment), may be reduced by half of
one month’s basic salary in excess of the pre-agreed rate.
The treatment of LTIP awards on termination will be in
accordance with the plan rules and, where appropriate, at the
discretion of the Committee.
If identified as a “good leaver” for the purposes of the bonus
plan, the bonus payout will be subject to time pro-rating
to reflect the time period in employment as well as the
achievement of targets to that date.
If identified as a “good leaver” under the LTIPs and share
option schemes’ rules, (including those good leavers
identified as being at the discretion of the Committee),
outstanding awards may be exercised, normally prorata
for service up until the date of leaving and subject to the
outcome of the performance conditions, either on the
normal release or on such earlier date as the Committee may
determine. If, in the judgement of the Committee, greater
progress towards achievement of targets has been made as
a result of the performance of the Executive Director, it may,
at its absolute discretion, decide to vest up to 100% of the
outstanding award. This is under exceptional circumstances
only.
The Committee may also agree to make payments in respect
of statutory employment claims, reasonable legal fees,
outplacement and accrued holiday or sick leave.
Change of control or restructuring
On a change of control, all LTIP awards will be released,
subject to performance requirements and prorated according
to completion of the vesting period. In line with market
practice and the Plan rules, the final treatment of any awards
is subject to the discretion of the Committee.
There are no enhanced bonus provisions on a change
of control.
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Corporate governance
Consideration of employment
conditions elsewhere in the Group
The Policy, which is proposed to be implemented for the
current Executive Directors, is more weighted towards
performance-related pay than for other employees.
The reason for this is to establish a clear link between
remuneration received by the Executive Directors and the
creation of Shareholder value.
As mentioned on page 86 of this Annual Report and
Accounts, when setting the Policy the Committee takes
account of pay and employment conditions elsewhere in
the Group, but has not used any remuneration comparison
measures between the Executive Directors and other
employees.
Consideration of Shareholder views
The Committee’s policy is to receive updates on the views
of Shareholders and their representative bodies on best
practice, and take these into account. It seeks the views of key
Shareholders on matters of remuneration in which it believes
they may be interested.
Illustrations of the application of the
Executive Directors’ remuneration
policy
The bar charts below illustrate some possible outcomes of the
application of the Policy for the year ending 31 March 2019.
Group Chief Executive
Maximum1
Target2
524
566
657
524
340
164
Minimum3
524
Group Finance Director
Maximum1
Target2
304
277
391
304
166
84
Minimum3
304
z Fixed Remuneration
z Bonus
z Long term Incentive Plan
1 Maximum assumes that, subject to Shareholder approval, the
maximum LTIP award vests (150% and 125% of salary for the Group
Chief Executive and Group Finance Director) and the maximum
bonus (125% and 100% of salary for the Group Chief Executive and
Group Finance Director) have been earned as stated in the policy
table on pages 81 to 83
2 Target assumes, subject to Shareholder approval, that 25% of the
Long term Incentive Plan (LTIP) award granted in the year ended 31
March 2018 vests (150% of salary for the Group Chief Executive and
125% of salary for the Group Finance Director) and bonuses have
been earned at the target levels (75% of salary for the Group Chief
Executive and 60% of salary for the Group Finance Director) as
stated in the policy table on pages 81 to 83
3 Minimum in the bar charts above is fixed remuneration only (i.e.
salary, pension and benefits as disclosed in the single figure table)
An additional award of 13,916 shares was made on 29 March 2018 such
that Simon Gibbins is in a net neutral position after tax, assuming
no change in tax rates, as a result of his agreement to take on the
Company’s liability to Employer's National Insurance. The figures for
maximum and target outcomes above exclude the additional award
of 13,916 shares
Projected values also exclude the impact of share price
movements and dividend accrual.
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018
87
DIRECTORS’ REMUNERATION REPORT
ANNUAL REPORT ON REMUNERATION
Information subject to audit
The Committee is responsible for considering and making recommendations to the Board on the remuneration of the
Executive Directors. In doing so, it reports to the Board on how it has discharged its responsibilities and operates within agreed
terms of reference.
The Committee also considers the recommendations of the Group Chief Executive with regard to the members of the Group
Executive Committee (“GEC”) who are not Executive Directors, in determining their remuneration packages, including bonuses,
incentive payments, share options and other share-based awards. The Group Company Secretary provides administrative support.
The table below shows how we have applied the current remuneration policy during FY18. It discloses all the elements of
remuneration received by the Directors during the year.
Single total figure of remuneration for each Director (audited)
The table below sets out the single total figure of remuneration received by each Executive Director for the year ended
31 March 2018 and the prior year:
Nick Jefferies
Simon Gibbins
FY18
FY17
FY18
FY17
Salary
£000
Benefits1
£000
Bonus2
£000
LTIP3
£000
Pension4
£000
438
429
268
263
11
11
11
11
279
187
144
86
1,018
—
499
—
58
57
15
15
Total
£000
1,803
684
937
375
1 Taxable benefits comprise car allowance (£9,000 each) and family medical insurance. The benefits cost the Company £11,035 and £10,947 in
total for Nick Jefferies and Simon Gibbins respectively
2 For performance in the year under review, a bonus of 63.7 percentage and 53.8 percentage of salary is payable to Nick Jefferies and Simon
Gibbins, respectively. Further details can be found on page 89
3 The performance conditions attached to the 2015 LTIP award granted to Nick Jefferies and Simon Gibbins on 31 March 2014 were met and
therefore the options vested in full on 31 March 2018. Further details can be found on page 90
4 Pension in the year under review for Nick Jefferies and Simon Gibbins was paid as cash in lieu of pension and was equal to 15% and 6.5% of
salary (minus Employer's NI contributions) respectively
Single total figure of remuneration for Non-Executive Directors (audited)
Basic fee
Committee chair fees
SID fee
Total
FY18
£
Malcolm Diamond1
118,000
Richard Brooman
Henrietta Marsh
Tracey Graham
Bruce Thompson2
41,000
41,000
41,000
4,269
FY17
£
36,500
36,500
36,500
36,500
—
FY18
£
—
5,000
5,000
—
—
FY17
£
—
5,000
5,000
—
—
FY18
£
—
FY17
£
—
6,000
6,000
—
—
—
—
—
—
FY18
£
118,000
52,000
46,000
41,000
4,269
FY17
£
36,500
47,500
41,500
36,500
—
1 Appointed as Non-Executive Chairman with effect from 1 April 2018
2 Appointed as a Director with effect from 26 February 2018
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Corporate governance
Incentive outcomes for Executive Directors for the year ended 31 March 2018
Annual bonus in respect of performance for the year
The maximum bonus opportunity for the year under review was 100% of salary for both the Group Chief Executive and the
Group Finance Director. Annual bonuses for the year under review were based on a combination of financial and non-financial
performance, with targets set against the annual budget at the start of the year. Financial performance for the year under
review was measured against a combination of Group EBIT performance and Simplified Working Capital (SWC), weighted
65% and 15% respectively, with the remaining 20% based on specific individual objectives and Committee discretion as to the
overall contribution.
Further details, including the targets set and performance against each of the metrics, are provided in the tables below:
Nick Jefferies (audited)
Group EBIT (£m)
Vesting1 (% of max)
SWC
Vesting1 (% of max)
Individual objectives
Overall
1 Vesting between the points is on a straight-line basis
Simon Gibbins (audited)
Group EBIT (£m)
Vesting1 (% of max)
SWC
Vesting1 (% of max)
Individual objectives
Overall
Weighting
85%
Budget
65%
£20.77m
10%
23.6%
0%
15%
20%
Weighting
85%
Budget
65%
£20.77m
0%
23.6%
0%
15%
20%
Budget
£24.44m
30%
22.5%
10%
Budget
£24.44m
20%
22.5%
10%
115%
Budget
£28.11m
65%
21.4%
15%
115%
Budget
£28.11m
65%
21.4%
15%
Actual
£24.5m
30.6%
21.8%
13.1%
20%
63.7%
Actual
£24.5m
20.7%
21.8%
13.1%
20%
53.8%
1 Vesting between the points is on a straight-line basis
Each Executive Director was given a number of individual non-financial objectives, tailored to their role and to business
requirements in the year under review. The Executive Directors achieved full payout for their performance against their non-
financial objectives achieved during the year.
Nick Jefferies
Achieved smooth transition into new leadership structure
Simon Gibbins
Ensured adequacy of Group debt and equity funding to
Began implementation of new five year plan
Achieved successful integration of Variohm
Developed organic growth capabilities
meet expansion plans
Began implementation of Group financial strategy and
operational framework
Delivered audit tender process and implemented audit
Delivered further value-enhancing acquisitions
transition
Successful delivery of plc name and rebranding
Developed options for greater integration of finance and
back office services with D&M
Further developed internal audit & risk management
function including reviews of new and recent acquisitions
Increased analyst coverage and increased time spent on
investor activities outside half-year points. Applied for
sector change
The Committee assessed these achievements against the pre-set personal objectives and in the context of overall business
performance and decided to award Nick Jefferies 20% and Simon Gibbins 20% out of the available 20% for this element of
their bonus. This means that, in total for the year under review, Nick Jefferies received a bonus of 63.7% of his salary and Simon
Gibbins received a bonus of 53.8% of his salary.
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DIRECTORS’ REMUNERATION REPORT
2015 LTIP vesting (audited)
LTIP Awards were granted on 31 March 2015 to Nick Jefferies and Simon Gibbins with vesting dependent on relative TSR
performance against a comparator group made up of constituents of the FTSE Small Cap Index (50%) and absolute TSR in
excess of CPI (50%) from 31 March 2015 to 31 March 2018. The specific targets are as follows:
Relative TSR ranking against the FTSE Small Cap (50% weighting)
Relative TSR ranking against peers
Upper quartile (or above)
% of award vesting
100%
Between median and upper quartile
Straight-line vesting between 25% and 100%
Below median performance
0%
Absolute TSR performance (50% weighting)
Absolute TSR performance
Equal to or above CPI +20ppts
% of award vesting
100%
Between CPI +10ppts and CPI +20ppts
Straight-line vesting between 25% and 100%
Below CPI +10ppts
0%
The TSR is measured by Orient Capital Limited and makes a standard TERP adjustment for the discounted rights issue in June
2014. discoverIE’s TSR performance was +63% from 31 March 2015 to 31 March 2018. discoverIE’s TSR rank was therefore at the
78th percentile against the FTSE Small Cap and 57ppts above CPI growth. This meant that the performance conditions were
met and the award vested in full. The vested awards are subject to a two-year holding period.
Share awards made during the year (audited)
163,371 and 83,255 shares were granted on 31 March 2018 to Nick Jefferies and Simon Gibbins respectively. The following table
contains details of these awards.
Director
Nick Jefferies
Simon Gibbins
Face value
as % of
salary
150%
125%
Face value1
£656,753
£334,668
Number
of shares
163,371
83,255
Threshold
vesting
(% of
face value)
Maximum
vesting
(% of
face value)
25%
100%
End of
performance
period
31 March 2021
31 March 2021
1 Due to the timing of grant of these options at the year end, the face value of options granted has not been audited in the current year.
This will be audited in the year ended 31 March 2019, being the first year a charge is recognised in respect of these options
The number of shares for these awards was calculated using the three-day average closing share price for the three days
immediately prior to the award date of 31 March 2018 of 402p. In addition to the grants set out above, 13,916 shares with a
face value of £55,942 were awarded to Simon Gibbins in return for him bearing the Company’s liability to Employer's National
Insurance arising on the exercise of such grants made to him above. The additional award ensures he is in a neutral position on
an after tax basis, assuming unchanged tax rates.
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Corporate governance
Vesting of these awards is subject to the following performance conditions:
Relative TSR ranking against the FTSE Small Cap (1/3rd weighting)
Relative TSR ranking against peers
Upper quartile (or above)
% of award vesting
100%
Between median and upper quartile
Straight-line vesting between 25% and 100%
Below median performance
0%
Absolute TSR performance (1/3rd weighting)
Absolute TSR performance
Equal to or above CPI +30ppts
% of award vesting
100%
Between CPI +10ppts and CPI +30ppts
Straight-line vesting between 25% and 100%
Below CPI +10ppts
0%
EPS Growth (1/3rd weighting)
EPS Growth
Equal to or above 12ppts per annum
% of award vesting
100%
Between 5ppts and 12ppts per annum
Straight-line vesting between 25% and 100%
Below 5ppts per annum
0%
Performance will be measured over three years from date of grant (i.e. from 31 March 2018 to 31 March 2021) using share
prices averaged over the previous month, for both the start and end of the performance period. In the case of EPS Growth,
performance will be measured from FY18 to FY21. Vested shares will be subject to an additional two-year holding period.
Pension arrangements (audited)
The Company does not operate a defined benefit pension scheme. Pension contributions/cash allowances for the Executive
Directors are set out in the policy table on page 82 of this Report.
Executive share option schemes (“the Option Schemes”) (audited)
Nick Jefferies currently holds vested share options under an approved executive share option scheme, know as the Acal plc
2010 Company Share Option Plan. Movements in the Executive Directors’ holdings of options under the Option Schemes
during the year under review are shown below.
Number
held at
31.03.18
Movements during the year
Granted Vested Exercised Lapsed
Number
held at
31.03.171
Gain on
vesting
date
£0002 When exercisable
Nick Jefferies
18,819
Simon Gibbins
—
—
—
—
—
—
—
—
—
18,819
—
7
Sep 2013 to Sep 2020
n/a
n/a
1 The number of shares granted under the plan was adjusted in 2014 for the Company’s rights issue. Adjustments were calculated using the
recommended HMRC formula
2
These shares, which are in the form of executive share options, vested on 1 September 2013 at a share price of 182.98p and became
exercisable from that date. The share price on grant was 148.00p, producing a gain of £6,583 on the vesting date (the exercise price was £nil)
No Director exercised any executive share options during the year under review, or in the prior year.
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91
DIRECTORS’ REMUNERATION REPORT
Movements of shares under the 2008 long term incentive plan and the 2008
renewed long term incentive plan (“the LTIPs”)
Movements in the Executive Directors’ holdings of nil-cost options under the LTIPs during the year are shown below. The
performance criteria for the LTIPs are set out in the policy table on page 83. The figures below include adjustments made to
holdings during the year ended 31 March 2015 for the Company’s rights issue in June 2014.
Movements during the year
Granted Vested Exercised Lapsed
Number
held at
31.03.17
Vested
but not
exercised
Share
value at
31.03.18
£ When exercisable
Number
held at
31.03.18
—
340,105(v)2
264,593(v)3
233,696(v)4
245,192(v)5
223,567(nv)
242,788(nv)
Nick
Jefferies
Simon
Gibbins
163,371(nv)
163,371
192,431(v)6
122,638(v)7
108,318(v)8
120,192(v)9
98,437(nv)
106,900 (nv)
—
—
—
—
—
—
83,255 (nv)10 83,255
(v)= vested; (nv) = non-vested (l) = lapsed
—
—
—
—
—
—
—
—
— 245,192
—
—
—
—
—
—
—
—
120,192
—
—
—
804,5871
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
804,587
—
—
340,105
340,105
1,411,436 Mar 2013 to Mar 2020
264,593
264,593
1,098,061 Mar 2015 to Mar 2022
233,696
233,696
969,838 Mar 2016 to Mar 2023
245,192
245,192
1,017,547 Mar 2020 to Mar 2025
223,567
242,788
—
927,803 Mar 2021 to Mar 2026
— 1,007,570 Mar 2022 to Mar 2027
—
—
677,990 Mar 2023 to Mar 2028
192,431
192,431
798,589 Jul 2013 to Jul 2020
122,638
122,638
508,948 Mar 2015 to Mar 2022
108,318
108,318
449,520 Mar 2016 to Mar 2023
120,192
120,192
498,797 Mar 2020 to Mar 2025
98,437
106,900
—
—
408,514 Mar 2021 to Mar 2026
443,635 Mar 2022 to Mar 2027
—
— 345,508 Mar 2023 to Mar 2028
1 On 9 February 2018, Nick Jefferies exercised in full his options over 804,587 shares granted on 31 March 2009. After settlement of the PAYE
liability which arose as a result of the exercise, Nick Jefferies acquired 426,431 shares in the Company
2 The award, in the form of a nil-cost option, initially over 269,230 shares in the Company, was made to Nick Jefferies on 31 March 2010. The
performance conditions attached to the award, when measured on the basis of an analysis produced by JP Morgan Cazenove, resulted in
236,759 options vesting on 31 March 2013 and 24,109 options vesting on 1 September 2013, of which 13,678 (18,819 adjusted) are held under
the 2010 Company Share Option Plan (see “Executive share option schemes (“the Option Schemes”)” on page 93). The options were adjusted
to 340,105 as reported above
3
The award, in the form of a nil-cost option over 264,593 shares (as adjusted) in the Company, was made to Nick Jefferies on 28 March 2012.
The performance conditions attached to the award, when measured on the basis of an analysis produced by Orient Capital Limited, resulted
in 100% vesting on 28 March 2015
4 The award, in the form of a nil-cost option over 233,696 shares (as adjusted) in the Company, was made to Nick Jefferies on 31 March 2013.
The performance conditions attached to the award, when measured on the basis of an analysis produced by Orient Capital Limited, resulted
in 100% vesting on 28 March 2016
5
The award, in the form of a nil-cost option over 245,192 shares in the Company was made to Nick Jefferies on 31 March 2015. The performance
conditions attached to the award, when measured on the basis of an analysis provided by Orient Capital Limited, resulted in 100% vesting on
31 March 2018
6 Simon Gibbins holds a nil-cost option over 192,431 shares (as adjusted) in the Company, which vested and became exercisable on 20 July 2013
7 The award, in the form of a nil-cost option over 122,638 shares (as adjusted) in the Company, was made to Simon Gibbins on 28 March 2012.
The performance conditions attached to the award, when measured on the basis of an analysis produced by Orient Capital Limited, resulted
in 100% vesting on 28 March 2015
8
The award, in the form of a nil-cost option over 108,318 shares in the Company, was made to Simon Gibbins on 31 March 2013. The
performance conditions attached to the award, when measured on the basis of an analysis produced by Orient Capital Limited, resulted in
100% vesting on 28 March 2016
9 The award, in the form of a nil-cost option over 120,192 shares in the Company was made to Simon Gibbins on 31 March 2015. The
performance conditions attached to the award, when measured on the basis of an analysis produced by Orient Capital Limited, resulted in
100% vesting on 31 March 2018
10 An additional award of 13,916 shares was made on 29 March 2018 such that Simon Gibbins is in a net neutral position after tax, assuming
unchanged tax rates, as a result of his agreement to take on the Company’s liability to Employer's National Insurance. This is in addition to the
83,255 shares set out above and is subject to the same vesting and exercise conditions
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Corporate governance
Directors’ interests (audited)
The interests of the Directors, who held office as at 31 March 2018 (including family interests) in ordinary shares (fully paid, 5p)
of the Company, were as follows:
Shares held at 31 March 2018
Unencumbered
shares
Nick Jefferies
Simon Gibbins
Richard
Brooman
Henrietta Marsh
Tracey Graham
Malcolm
Diamond
Bruce
Thompson
504,772
33,275
10,272
12,272
6,949
14,545
8,000
Nil cost
options
vested but
not exercised
1,083,586
543,579
—
—
—
—
—
Shares/nil cost
options vested
but subject
to additional
holding period
Shares/nil cost
options subject
to performance
conditions
Unencumbered
shares held at
31 March 2017
Value of current
shareholding
(% of salary)
1,505%
894%
—
—
—
—
—
—
—
629,726
288,592
—
—
—
—
—
78,341
33,275
10,272
12,272
6,818
14,545
—
The interests of the Directors in the shares of the Company at 5 June 2018 are unchanged from those at 31 March 2018. The
values of current shareholdings for Nick Jefferies and Simon Gibbins have been valued using the share price as at 31 March
2018 of 415p. Executive Directors are required to build up/maintain a shareholding of at least 200% of salary, including LTIP
shares where performance conditions no longer apply, within five years. Both of the Executive Directors have met the current
shareholding requirements. In accordance with the proposed remuneration policy, Executive Directors will be required to
build up/maintain a shareholding of at least 250% of salary within seven years. Both of the Executive Directors meet the
proposed shareholding requirements. The figures for shares/nil cost options subject to performance conditions exclude the
additional award to Simon Gibbins in respect of Employer's National Insurance.
Dilution
The Company’s share schemes are funded through a combination of shares purchased in the market and newly-issued shares,
as appropriate. The Company monitors the number of shares issued under the schemes and their impact on dilution limits.
As at 31 March 2018, approximately 4.7m shares (6.6% in the last ten years) have been, or may be, issued to settle awards
made in the last ten years in connection with all share schemes and executive share schemes, respectively. The Company is
committed to remaining within The Investment Association’s 10% dilution limit.
Payments for loss of office (audited)
There were no payments for loss of office during the year.
Payments to past Executive Directors (audited)
There were no payments to past Executive Directors during the year.
This represents the end of the audited section of the Report.
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018
93
DIRECTORS’ REMUNERATION REPORT
Pay for performance
The graph below shows Total Shareholder Return (TSR) in terms of change in value (with dividends deemed to be reinvested
gross on the ex-dividend date) of an initial investment of £100 on 1 April 2009 between that date and 31 March 2018 in
a holding of the Company’s shares, compared with the corresponding TSR in a hypothetical holding of £100 invested in
the FTSE Small Cap Index. This index has been chosen because it is considered to be a reasonable comparator in terms
of the Company’s size and its share liquidity. The accompanying table details the Group Chief Executive’s single figure of
remuneration and actual variable pay outcomes over the same period.
Total Shareholder Return: discoverIE vs. FTSE Small Cap Index
900
800
700
600
500
400
300
200
100
discoverIE Return Index
FTSE Small Cap Return Index
31 March
2009
31 March
2010
31 March
2011
31 March
2012
31 March
2013
31 March
2014
31 March
2015
31 March
2016
31 March
2017
31 March
2018
Note: The Company’s share price was adjusted following the rights issue in June 2014.
Group Chief Executive remuneration
20091
2010
2011
2012
2013
2014
2015
2016
2017
Single figure of total
remuneration (£000)
Salary (£000)
Bonus outcome (% of
maximum)
LTIP outcome (% of
maximum)
Turnover (£m)
EBIT (£m)2
132
70
—
—
165
0
289
259
—
—
120
(2)
590
280
1,613
297
100
10
—
210
6
94
207
7
999
320
20
88
177
5
572
320
55
9
212
7
1 Nick Jefferies joined the Company in January 2009
2 Continuing operations
1,246
330
1,321
425
665
429
2018
1,803
438
59
60
43.5
63.7
100
271
13
100
288
16
—
338
20
100
387.9
24.5
94
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Corporate governance
Percentage increase in the remuneration of the Group Chief Executive
The table below shows the movement in the cash remuneration for the Group Chief Executive between the year under review
and the prior financial year, compared with the movement in the average remuneration (per head) for employees of the
Group, at constant currency, (annualised for acquisitions in both years).
Group Chief Executive
Salary
Benefits
Bonus
Single figure total
Average per UK employee
Salary
Benefits
Bonus
2018
£000
437.8
11.0
278.9
1,803.0
30.4
4.1
2.9
2017
£000
429.5
10.9
186.8
684.2
28.5
4.6
2.4
%
change
2%
1%
49%
163%
7%
–11%
21%
Importance of the spend on pay
The table below shows the importance of the spend on pay for all employees across the globe compared with the returns
distributed to Shareholders, during the year under review and the prior financial year. The information is based on like-for-like
constant currency, and includes annualised prior year acquisitions.
Remuneration paid to or receivable by all employees
Distributions to Shareholders by way of dividends (net of share issues)
2018
£m
76.6
6.2
2017
£m
78.0
5.2
%
change
–1.8%
19%
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95
DIRECTORS’ REMUNERATION REPORT
Statement of implementation of the remuneration policy in the financial year
ending 31 March 2019
The Company intends to, subject to Shareholder approval, implement the policy in the financial year ended 31 March 2019
in the way described in the “Remuneration at a Glance” section and policy table for the Executive Directors on pages 79 and
81 to 84.
The Remuneration Committee has approved salary increases for the Executive Directors for the year ending 31 March 2019 of
3.5%. These salary increases are in line with expected UK salary inflation and lower than the average increase across the Group,
given discoverIE's operations in developing countries.
The Committee has approved performance measures for the annual bonus for the Executive Directors for the year ending
31 March 2019, 80% of which are financial measures with the remainder being individual objectives. Due to the close link
between targets and the long term strategy, the bonus targets for the year ending 31 March 2019 have not been disclosed in
this report due to commercial sensitivity. However, further information on these bonus targets will be disclosed in next year's
annual report and accounts.
The Committee also intends to grant LTIP awards for FY19 in line with the policy, performance measures and targets for FY18.
With effect from 1 April 2018, the fees of the Non-Executive Directors, including the additional fees payable, are as follows:
As at 1 April 2018
Malcolm Diamond
Richard Brooman
Tracey Graham
Henrietta Marsh
Bruce Thompson
Non-Executive
Director fees p.a.
£
£135,000 p.a.
£56,000 p.a.
£45,000 p.a.
£50,000 p.a.
£45,000 p.a.
The basic fee for a Non-Executive Director is £45,000 p.a. In addition, the Committee Chair fee is £5,000 p.a. and the Senior
Non-Executive Director fee is £6,000 p.a.
Advisers
During the year, the Committee received independent advice on executive remuneration from Mercer Kepler. Mercer Kepler
is a signatory to the Remuneration Consultants’ Code of Conduct. Other than in relation to advice on remuneration, neither
Kepler (nor its parent, Mercer) provide other services to the Company. The fees paid to Kepler for advice during the year ended
31 March 2018 were £43,240.
Shareholder voting
2017 AGM resolutions
For1
Against
Withheld2
Approval of the Annual Report on Remuneration
51,077,881 96.66%
1,764,925
3.34%
1,811,537
2015 AGM resolutions
For1
Against
Withheld2
Binding vote on the remuneration policy
27,124,675
79.15%
7,144,963 20.85%
5,415,853
1
Includes votes at the Chairman’s discretion
2 A vote “withheld” is not a vote in law, and is not counted in the calculation of the proportion of votes for and against the resolution
96
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DIRECTORS’ RESPONSIBILITIES STATEMENT
Corporate governance
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law
and regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the
Directors have prepared the Group financial statements in
accordance with International Financial Reporting Standards
(IFRSs), as adopted by the European Union, and the Company
financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 "Reduced
Disclosure Framework", and applicable law). Under company
law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of
the state of the affairs of the Group and the Company and
of the profit or loss of the Group and the Company for that
period. In preparing the financial statements, the Directors
are required to:
Select suitable accounting policies and then apply them
consistently;
State whether applicable IFRSs as adopted by the
European Union have been followed for the Group
financial statements and United Kingdom Accounting
Standards, comprising FRS 101, have been followed for the
Company financial statements, subject to any material
departures disclosed and explained in the financial
statements;
Make judgements and accounting estimates that are
reasonable and prudent; and
Prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group
and Company will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group's and the Company's transactions and disclose,
with reasonable accuracy at any time, the financial position of
the Group and the Company and enable them to ensure that
the financial statements and the Directors' Remuneration
Report comply with the Companies Act 2006 and, as
regards the Group's financial statements, Article 4 of the IAS
Regulation.
The Directors are also responsible for safeguarding the
assets of the Group and the Company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for the maintenance and
integrity of the Company's website. Legislation in the United
Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for Shareholders to assess
the Group's and the Company's performance, business model
and strategy.
Each of the Directors, whose names and functions are
listed on pages 50 to 51, confirm that, to the best of their
knowledge:
The Company financial statements, which have been
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 "Reduced
Disclosure Framework", and applicable law), give a true
and fair view of the assets, liabilities, financial position and
loss of the Company;
The Group financial statements, which have been
prepared in accordance with IFRSs as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
The Strategic Report includes a fair review of the
development and performance of the business and the
position of the Group and the Company, together with a
description of the principal risks and uncertainties that it
faces.
In the case of each Director in office at the date the Directors'
Report is approved:
So far as the Director is aware, there is no relevant audit
information of which the Group's and the Company's
auditors are unaware’; and
They have taken all the steps that they ought to have
taken as a Director in order to make themselves aware of
any relevant audit information and to establish that the
Group's and the Company's auditors are aware of that
information.
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018
97
25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8Creating customised components for growing marketsIn recent years the Group has added significant scale through targeted acquisitions – adding specialist skills and complementary services from leading brands, and extending our international footprint to ensure consistent global supply.Watch our Corporate film at: www.discoverIEplc.comEmbedded computers discoverIE AR2018.indd 9814/06/2018 12:21:43 25971.01 14 June 2018 12:13 PM Proof 825971.01 14 June 2018 12:13 PM Proof 8Embedded displaysFINANCIAL STATEMENTSdiscoverIE AR2018.indd 9914/06/2018 12:21:44 INDEPENDENT AUDITOR’S REPORT
to the members of discoverIE Group plc
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion:
discoverIE Group plc’s Group financial statements and Company financial statements (the “financial statements”) give a
true and fair view of the state of the Group’s and of the Company’s affairs as at 31 March 2018 and of the Group’s profit and
cash flows for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law); and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated statement of
financial position and the Company balance sheet as at 31 March 2018; the Consolidated income statement and Consolidated
statement of comprehensive income, the Consolidated and Company statements of changes in equity, and the Consolidated
statement of cash flows for the year then ended; and the notes to the financial statements, which include a description of the
significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the Group or the Company.
We have provided no non-audit services to the Group or the Company in the period from 1 April 2017 to 31 March 2018.
100
100
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Strategic report
Financial statements
Our audit approach
Overview
Overall Group materiality: £1,095,000, based on 5% of underlying profit before tax.
Overall Company materiality: £900,000, based on 1% of total assets, limited by
Materiality
component materiality allocation.
79% of Group revenue and 71% Group underlying profit before tax covered through full
scope audit procedures.
Nine country operations visited by the Group audit team during the year.
Audit Scope
Goodwill impairment assessment (Group).
Inventory valuation (Group).
Accounting for the acquisition of Santon (Group).
Key Audit
Matters
Presentation of adjustments included in underlying profit before tax (Group).
Carrying value of investments (Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it
operates, and considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud.
We designed audit procedures at Group and significant component level to respond to the risk, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may
involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We focused
on laws and regulations that could give rise to a material misstatement in the Group and Company financial statements,
including, but not limited to, the Companies Act 2006, the Listing Rules, UK tax legislation and equivalent local laws and
regulations applicable to key component teams. Our tests included, but were not limited to, discussing compliance with
internal legal counsel, examining litigation costs incurred by the Group over the financial year and auditing the disclosures that
have been made on page 54 in relation to distributable reserves and recent dividends. There are inherent limitations in the
audit procedures described above and the further removed non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely we would become aware of it.
We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the
risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias
by the directors that represented a risk of material misstatement due to fraud.
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018
101
101
INDEPENDENT AUDITOR’S REPORT
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete
list of all risks identified by our audit.
Key audit matter
Goodwill impairment assessment (Group)
Refer to page 71 (Audit Committee Report), note 2
(Significant accounting estimates) and note 16 for the
related disclosures on goodwill.
The Group carried £81.9 million of goodwill at 31 March 2018
(2017: £72.6 million).
The recoverability of the carrying value of goodwill is
contingent on future cash flows of the underlying cash-
generating units (‘CGUs’) and there is a risk that if these cash
flows do not meet the Directors’ expectations, the goodwill
may be impaired.
No impairment charge was recognised in the year ended
31 March 2018.
We focused our assessment on the Acal BFi UK CGU, which
has a goodwill carrying value of £3.3 million (2017: £3.3
million), since there was a risk that small and reasonably
possible changes in key assumptions could have resulted in
an impairment to Acal BFi UK.
How our audit addressed the key audit matter
Focusing on the Acal BFi UK business, we evaluated and
challenged the Directors’ future cash flow forecasts and
the process by which they were drawn up, and tested
the underlying value in use calculations. We compared
management’s forecasts with the latest Board-approved
budget and found them to be reasonable.
We challenged:
the key assumptions for short and long term growth rates
in the forecasts by comparing them with historical results,
as well as economic and industry forecasts for the UK
market; and
the discount rate used in the calculations by assessing
the cost of capital for the Group and comparable
organisations, and assessed the specific risk premium
applied to the Acal BFi UK CGU.
We performed sensitivity analysis on the key assumptions
within the cash flow forecasts. This included sensitising the
discount rate applied to the future cash flows, and the short
and longer term growth rates and profit margins forecast.
We compared the total value in use calculated in
management’s goodwill models to the Group’s market
capitalisation of £296.4 million at 31 March 2018 to further
support the assumptions within the models.
We ascertained the extent to which a change in these
assumptions, both individually or in aggregate, would result
in a goodwill impairment, and considered the likelihood of
such events occurring. We also considered the sufficiency
and appropriateness of disclosures included in the Group’s
financial statements regarding such events.
Based on the procedures described above, we were satisfied
that the recoverability of the carrying value of goodwill in
respect of Acal BFi UK had been appropriately assessed.
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Strategic report
Financial statements
Key audit matter
Inventory valuation (Group)
Refer to page 68 (Audit Committee Report), note 2
(Significant accounting estimates) and page 137 (note 19
Inventories).
How our audit addressed the key audit matter
We obtained an understanding of management’s inventory
provisioning methodology and how it is applied across the
Group. We recalculated the inventory provision to ensure
mathematical accuracy, and noted no material exceptions.
The balance of gross inventories at 31 March 2018 was
£67.2 million, against which a provision of £6.6 million was
held (2017: a provision of £ 7.1 million was recorded against
gross inventories of £57.2 million).
We assessed the reasonableness of management’s judgement
regarding the obsolescence percentage applied and expected
future sales levels by comparing these assumptions to historic
write-offs and historic sales.
The valuation of the inventory provision was a focus of our
audit for the following reasons:
The Group holds large quantities of inventory comprising
many different types of product, often held for long
periods of time, which raises the risk of inventory
obsolescence;
There is uncertainty about the impact of product life
cycles, the value recoverable from any excess stock, and
future sales levels which require management to make
assumptions based on information available at period
end.
The inventory provision is calculated within the Group’s
accounting systems based on a manual process that
considers the age of the individual items held.
Accounting for acquisition of Santon (Group)
Refer to page 71 (Audit Committee Report), note 2
(Significant Accounting Policies) and page 129 (notes).
The Group completed the acquisition of Santon, a Dutch
switch manufacturer, on 1 February 2018.
Accounting for the acquisition required a provisional fair
value exercise, including valuing separately identifiable
intangible assets.
This can be a particularly judgemental process, given the
range of assumptions that are adopted to determine the
valuations, including the applicable discount rate used in
the fair value calculations.
Based on an exercise performed by management, the
Directors identified £10.5 million of intangibles relating to
Santon’s customer relationships, patents and order book.
We found the assumptions to be reasonable. We also assessed
the reasonableness of the product life cycles by comparing
these against historic life cycles of similar products. We noted
no material exceptions.
In order to test the components of the acquisition, we
performed the following procedures:
Read technical papers prepared by management in
respect of the acquisition and inspected relevant contracts
and information;
Assessed the provisional fair value calculation of the assets
acquired, including assessing the completeness and
quantum of adjustments made by management;
Challenged the key assumptions used in the valuation
model, including the discount rate and assumptions in
relation to contingent consideration;
Assessed whether management’s identification and
valuation of other known and contingent liabilities
associated with Santon was complete; and
Understood what management have done to assess the
control environment of the entity and align accounting
practices;
Based upon the above, we are satisfied that the Directors have
applied reasonable judgements in the provisional accounting
for the acquisition of Santon.
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018
103
103
INDEPENDENT AUDITOR’S REPORT
Key audit matter
How our audit addressed the key audit matter
Presentation of adjustments included in underlying profit
before tax (Group)
Refer to Audit Committee Report (page 68); Accounting
policies (page 115); and note 6 of the Consolidated financial
statements (page 126)
£6.1 million (2017: £12.4 million) of costs incurred in the year
are presented as adjustments to the Group’s underlying
profit before tax. These include:
£0.8 million of acquisition costs;
£4.9 million of amortisation of acquired intangibles; and
£0.4 million in respect of the Group’s IAS 19 pension
charge for the year
The Group presented underlying performance measures on
the face of its consolidated income statement.
Management believes that the presentation of underlying
performance measures provides investors with a means
of evaluating performance of the Group on a consistent
basis, similar to the way in which management evaluates
performance.
The determination of which items are classified as
adjustments to underlying profit is subject to judgement
and therefore users of the financial statements could
be misled if amounts are not classified appropriately or
presented consistently.
We also considered the risk of one-off gains during the
year not being properly identified and therefore presented
inappropriately within underlying profit.
Carrying value of investments (Company)
Refer to Audit Committee Report (page 68); Accounting
policies (page 115); and note 4 of the Company financial
statements (page 161).
The Company holds investments in its subsidiaries of £167.8
million (£177.1m 2017).
We focused on this area due to the size of the investment
balances and the risk of impairment arising in the
Company’s investment of £30.2 million in discoverIE
Management Services Limited (‘DMS’), the Group’s
service company that derives revenue from intercompany
recharges.
Management has performed an assessment of the
recoverable amount of the investment and compared this
to the carrying value using the same cash flow methodology
applied in the impairment test for goodwill described above.
The results showed that an impairment of £10.0 million
was required and this has been recognised in the financial
statements of the Company.
We considered the appropriateness of the adjustments
made to the statutory profit before tax to derive underlying
performance.
In order to do this we considered:
The Group’s accounting policy on exceptional and non-
underlying items;
The application of IFRS, in particular IAS 1; and
European Securities and Markets Authority (“ESMA”)
guidelines on alternative performance measures issued on
3 July 2016.
We challenged management on the appropriateness of the
classification of each item, being mindful that classification
should be balanced between gains and losses, the basis for
the classification clearly disclosed and applied consistently
from one year to the next. Having considered the nature and
quantum of these items, overall we were satisfied that the
presentation of adjustments to the Group’s underlying profit
in the financial statements for the year ended 31 March 2018 is
materially appropriate.
We obtained management’s assessment of the carrying value
of the investments and we challenged:
the key assumptions for short and long term growth rates
in the forecast cash flows for AMS by comparing them
with historical results, as well as challenging the expected
growth in DMS's income arising from its recharge of costs
around the Group; and
the discount rate used in the calculations by assessing
the cost of capital for the Group and comparable
organisations.
We performed sensitivity analysis on the key assumptions
within the cash flow forecasts. This included sensitising the
discount rate applied to the future cash flows, and the short
and longer term growth rates and operating income forecast.
Following the conclusion of our procedures above, we are
satisfied that the carrying value is supported after recording
an impairment of £10.0 million.
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Financial statements
How we tailored the audit scope
We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion on
the financial statements as a whole, taking into account the
structure of the Group and the Company, the accounting
processes and controls, and the industry in which they operate.
The business is structured across two reported segments,
Design and Manufacturing (‘D&M’) and Custom Supply (‘CS’),
operating in 23 countries.
Across the 23 countries, the Group has 57 component
business operations. We performed an audit of the complete
financial information of 21 of these components (“full scope
components”), which were selected based on their size or risk
characteristics. This covered 79% of the Group’s revenue and
71% of the Group’s underlying profit before tax.
We performed audit procedures on the Santon balance sheet
at year end, following the Group’s acquisition of this business
on 1 February 2018. We instructed the Company’s existing
statutory auditors, a local audit firm, to conduct these audit
procedures, and a review of this work was subsequently
performed by a team from our Rotterdam office.
For 13 further components (“specified procedures
components”), we performed tailored audit procedures to
address any significant risk or balances and transactions
items involving judgement and estimates.
The remaining 22 components in aggregate represent
11% of the Group’s underlying profit before tax. For these
components, the Group audit team performed central risk
assessment analytical procedures.
In establishing our overall approach to the Group audit, we
determined the nature of work that needs to be undertaken
at each of the components by us, as the Group audit
engagement team, or by component auditors from PwC
network firms operating under our instruction. Of the 21
full scope components, audit procedures were performed
on 9 components directly by the Group audit team, with
component auditors performing audit procedures over the
remaining 12 components. For the 13 specified procedures
components, where the work was performed by component
auditors, we determined the appropriate level of involvement
to enable us to determine that sufficient audit evidence had
been obtained as a basis for our opinion on the Group as a
whole.
The Group audit team, over the course of the year, visited
those operations in the UK, Germany, France, Italy,
Denmark, Norway and Sweden determined to be full scope
components, as well as operations in Poland and China.
The Group team held regular meetings with the full scope
component audit teams, and also reviewed selected audit
workpapers of each of those teams. This helped to ensure
that the Group audit team was sufficiently involved in both
the planning and the execution of the audit procedures in
these countries.
The Group audit team also joined the audit clearance
meetings for each of the full scope components.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£1,095,000
£900,000
Group financial statements
Company financial statements
How we determined it
5% of underlying profit before tax.
Rationale for
benchmark applied
We believe that underlying profit before
tax provides a consistent year on year basis
for determining materiality and is the most
relevant performance measure to the key
stakeholders of the Group.
1% of total assets, limited by component
materiality allocation.
We believe that total assets is the most
appropriate measure to assess a holding
Company, and is a generally accepted
auditing benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was between £50,000 and £900,000. Certain components were
audited to a local statutory audit materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audits above
£50,000 as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
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105
INDEPENDENT AUDITOR’S REPORT
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw
attention to in respect of the directors’ statement in the financial
statements about whether the directors considered it appropriate to adopt
the going concern basis of accounting in preparing the financial statements
and the directors’ identification of any material uncertainties to the Group’s
and the Company’s ability to continue as a going concern over a period of at
least twelve months from the date of approval of the financial statements.
We are required to report if the directors’ statement relating to Going
Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent
with our knowledge obtained in the audit.
We have nothing material to add or to draw
attention to. However, because not all future
events or conditions can be predicted, this
statement is not a guarantee as to the Group’s
and Company’s ability to continue as a going
concern.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The Directors are responsible for the
other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we
do not express an audit opinion or, except to the extent
otherwise explicitly stated in this report, any form of
assurance thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material
inconsistency or material misstatement, we are required to
perform procedures to conclude whether there is a material
misstatement of the financial statements or a material
misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact. We have nothing to report based on these
responsibilities.
With respect to the Strategic Report, Directors’ report and
Corporate Governance Statement, we also considered
whether the disclosures required by the UK Companies Act
2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, the Companies Act
2006 (CA06), ISAs (UK) and the Listing Rules of the Financial
Conduct Authority (FCA) require us also to report certain
opinions and matters as described below (required by ISAs
(UK) unless otherwise stated).
Strategic Report and Directors’ report
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Strategic Report and
Directors’ report for the year ended 31 March 2018 is consistent
with the financial statements and has been prepared in
accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group
and Company and their environment obtained in the course
of the audit, we did not identify any material misstatements
in the Strategic Report and Directors’ report. (CA06)
Corporate Governance Statement
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Corporate Governance
Report (on pages 58 to 67) about internal controls and risk
management systems in relation to financial reporting
processes and about share capital structures in compliance
with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and
Transparency Rules sourcebook of the FCA (“DTR”) is consistent
with the financial statements and has been prepared in
accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group
and Company and their environment obtained in the course
of the audit, we did not identify any material misstatements
in this information. (CA06)
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Corporate Governance
Report (on pages 58 to 67) with respect to the Company’s
corporate governance code and practices and about its
administrative, management and supervisory bodies and
their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of
the DTR. (CA06)
We have nothing to report arising from our responsibility to
report if a corporate governance statement has not been
prepared by the Company. (CA06)
106
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Financial statements
Other Code Provisions
We have nothing to report in respect of our responsibility to
report when:
The statement given by the Directors, on page 97, that
they consider the Annual Report taken as a whole to
be fair, balanced and understandable, and provides
the information necessary for the members to assess
the Group’s and Company’s position and performance,
business model and strategy is materially inconsistent
with our knowledge of the Group and Company obtained
in the course of performing our audit.
The section of the Annual Report on page 68 describing
the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit
Committee.
The directors’ statement relating to the Company’s
compliance with the Code does not properly disclose a
departure from a relevant provision of the Code specified,
under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
The Directors’ assessment of the prospects of
the Group and of the principal risks that would
threaten the solvency or liquidity of the Group
We have nothing material to add or draw attention to
regarding:
The Directors’ confirmation on page 36 of the Annual
Report that they have carried out a robust assessment of
the principal risks facing the Group, including those that
would threaten its business model, future performance,
solvency or liquidity.
The disclosures in the Annual Report that describe
those risks and explain how they are being managed or
mitigated.
The Directors’ explanation on page 37 of the Annual
Report as to how they have assessed the prospects of
the Group, over what period they have done so and
why they consider that period to be appropriate, and
their statement as to whether they have a reasonable
expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due
over the period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
We have nothing to report having performed a review of
the Directors’ statement that they have carried out a robust
assessment of the principal risks facing the Group and
statement in relation to the longer-term viability of the Group.
Our review was substantially less in scope than an audit
and only consisted of making inquiries and considering the
Directors’ process supporting their statements; checking that
the statements are in alignment with the relevant provisions
of the UK Corporate Governance Code (the “Code”); and
considering whether the statements are consistent with the
knowledge and understanding of the Group and Company
and their environment obtained in the course of the audit.
(Listing Rules)
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107
107
INDEPENDENT AUDITOR’S REPORT
OTHER REQUIRED REPORTING
Companies Act 2006 exception
reporting
Under the Companies Act 2006, we are required to report to
you if, in our opinion:
we have not received all the information and explanations
we require for our audit; or
adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not
been received from branches not visited by us; or
certain disclosures of Directors’ remuneration specified by
law are not made; or
the Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we
were appointed by the Directors on 13 September 2017 to
audit the financial statements for the year ended 31 March
2018 and subsequent financial periods. This is therefore our
first year of uninterrupted engagement.
Richard Porter (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
5 June 2018
Responsibilities for the financial
statements and the audit
Responsibilities of the directors for the financial
statements
As explained more fully in the Directors’ responsibilities
statement set out on page 97, the directors are responsible
for the preparation of the financial statements in accordance
with the applicable framework and for being satisfied
that they give a true and fair view. The Directors are also
responsible for such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and the Company’s
ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either
intend to liquidate the Group or the Company or to cease
operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and for
no other purpose. We do not, in giving these opinions, accept
or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent
in writing.
108
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Financial statements
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109
109
CONSOLIDATED
INCOME STATEMENT
for the year ended 31 March 2018
Revenue
Cost of sales
Gross profit
Selling and distribution costs
Administrative expenses (including underlying adjustments)
Operating profit
Finance income
Finance costs
Profit before tax
Tax expense
Profit for the year
Earnings per share
Basic
Diluted
SUPPLEMENTARY INCOME
STATEMENT INFORMATION
Underlying Performance Measures
Operating profit
Add back: Exceptional items
Acquisition costs
Amortisation of acquired intangible assets
IAS 19 pension administrative charge
Underlying operating profit
Profit before tax
Add back: Exceptional items
Acquisition costs
Amortisation of acquired intangible assets
Total IAS 19 pension charge
Underlying profit before tax
Underlying earnings per share
Basic
Diluted
Notes
4
7
9
9
10
13
7
6
6
17
32
6
6
17
32
13
2018
£m
387.9
(261.2)
126.7
(54.5)
(53.7)
18.5
0.4
(3.1)
15.8
(4.0)
11.8
2017
£m
338.2
(227.2)
111.0
(49.4)
(53.9)
7.7
0.2
(3.1)
4.8
(1.3)
3.5
16.7p
15.8p
5.3p
5.1p
2018
£m
18.5
—
0.8
4.9
0.3
24.5
15.8
—
0.8
4.9
0.4
21.9
2017
£m
7.7
6.4
1.7
3.9
0.3
20.0
4.8
6.4
1.7
3.9
0.4
17.2
23.4p
22.3p
20.0p
19.2p
110
110
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CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the year ended 31 March 2018
Profit for the year
Other comprehensive income:
Items that will not be subsequently reclassified to profit or loss:
Actuarial gain/(loss) on defined benefit pension scheme
Deferred tax (charge)/credit relating to defined benefit pension scheme
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign subsidiaries
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive income for the year, net of tax
Strategic report
Financial statements
Notes
32
10
2018
£m
11.8
2.1
(0.3)
1.8
(3.5)
(3.5)
(1.7)
10.1
2017
£m
3.5
(2.0)
0.3
(1.7)
11.4
11.4
9.7
13.2
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111
111
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
for the year ended 31 March 2018
Non-current assets
Property, plant and equipment
Intangible assets – goodwill
Intangible assets – other
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Cash and cash equivalents2
Total assets
Current liabilities
Trade and other payables1
Other financial liabilities
Current tax liabilities
Provisions1
Non-current liabilities
Trade and other payables1
Other financial liabilities
Pension liability
Provisions1
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium3
Merger reserve3
Currency translation reserve
Retained earnings3
Total equity
Notes
14
15
17
10
19
20
21
28
22
25
28
22
32
25
10
29
2018
£m
23.4
81.9
33.1
5.8
144.2
60.6
82.4
1.3
21.9
166.2
310.4
(81.2)
(6.4)
(4.9)
(0.9)
(93.4)
(6.2)
(67.9)
(3.0)
(2.8)
(7.8)
(87.7)
(181.1)
129.3
3.6
106.9
2.9
3.5
12.4
129.3
2017
£m
16.0
72.6
28.1
5.5
122.2
50.1
77.3
—
21.0
148.4
270.6
(72.3)
(1.0)
(2.6)
(2.2)
(78.1)
(3.3)
(50.0)
(6.4)
(2.5)
(6.5)
(68.7)
(146.8)
123.8
3.5
106.0
2.9
7.0
4.4
123.8
These financial statements were approved by the Board of Directors on 5 June 2018 and signed on its behalf by:
Nick Jefferies
Group Chief Executive
Simon Gibbins
Group Finance Director
Prior Year (2017) reclassifications
1 Contingent consideration payable relating to acquisitions has been reclassified from provisions to trade and other payables
2 £1.2m of debt costs have been reclassified from cash and cash equivalents to other financial liabilities (£0.3m in current liabilities and £0.9m
in non-current liabilities)
3 Refer to the consolidated statement of changes in equity for reclassification changes
112
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Strategic report
Financial statements
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
for the year ended 31 March 2018
At 1 April 2016
Profit for the year
Other comprehensive income
Total comprehensive income
Transfers (to)/from merger reserve1
Shares issued
Share-based payments including tax
Dividends (note 12)
At 31 March 2017
Profit for the year
Other comprehensive loss
Total comprehensive income
Shares issued (note 29)
Notional repurchase of share options (note 31)
Share-based payments including tax
Dividends (note 12)
At 31 March 2018
Attributable to equity holders of the Company
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Currency
translation
reserve
£m
Retained
earnings
£m
3.2
—
—
—
—
0.3
—
—
3.5
—
—
—
0.1
—
—
—
3.6
95.6
—
—
—
(2.9)
13.3
—
—
106.0
—
—
—
0.9
—
—
—
3.0
—
—
—
(0.1)
—
—
—
2.9
—
—
—
—
—
—
—
106.9
2.9
(4.4)
—
11.4
11.4
—
—
—
—
7.0
—
(3.5)
(3.5)
—
—
—
—
3.5
4.5
3.5
(1.7)
1.8
3.0
—
0.3
(5.2)
4.4
11.8
1.8
13.6
—
(1.5)
2.1
(6.2)
12.4
Total
equity
£m
101.9
3.5
9.7
13.2
—
13.6
0.3
(5.2)
123.8
11.8
(1.7)
10.1
1.0
(1.5)
2.1
(6.2)
129.3
On 1 February 2018, the Company issued 223,648 shares (“Consideration Shares”) to the Shareholders of EWAC Holding B.V. in
connection with the acquisition of Santon. The fair value of the shares issued was £0.9m. The difference between the nominal
value of the shares issued and the gross proceeds was credited to the share premium account.
The new shares issued rank pari-passu in all respects with the existing shares issued, including the right to receive all dividends
and other distributions declared, made or paid on the existing Ordinary shares.
Prior year (2017) reclassification
1 £3.0m has been transferred from the merger reserve to the profit and loss account as the business acquisition that gave rise
to the merger relief has been sold subsequently and therefore qualifies for transfer to the profit and loss account.
£2.9m has been transferred from share premium to the merger reserve, this amount reflects the share consideration in relation
to the acquisition of Contour Holdings Limited in the year ended 31 March 2016. The fair value of shares issued over and above
the par value qualifies for merger relief under section 612 of the Companies Act 2006.
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113
113
CONSOLIDATED STATEMENT
OF CASH FLOWS
for the year ended 31 March 2018
Net cash flow from operating activities
Investing activities
Acquisition of shares in subsidiaries (net of cash/(debt) acquired)
Acquisition related contingent consideration
Purchase of property, plant and equipment
Purchase of intangible assets – software
Proceeds from disposal of property, plant and equipment
Interest received
Net cash used in investing activities
Financing activities
Net proceeds from the issue of shares
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Notional repurchase of share options
Net cash generated from/(used in) financing activities
Net decrease in cash and cash equivalents1
Cash and cash equivalents at 1 April
Effect of exchange rate fluctuations
Cash and cash equivalents at 31 March
Reconciliation to cash and cash equivalents in the consolidated statement of
financial position
Net cash and cash equivalents shown above
Add back: bank overdrafts
Cash and cash equivalents presented in current assets in the consolidated
statement of financial position
1 Further information on the consolidated statement of cash flows is provided in notes 23 and 24.
Notes
24
11
9
23
23
12
31
22
21
2018
£m
15.0
(24.6)
(0.8)
(3.7)
(0.6)
—
0.4
(29.3)
—
20.4
(1.5)
(6.2)
(1.5)
11.2
(3.1)
19.8
(0.5)
16.2
16.2
5.7
21.9
2017
£m
14.5
(11.6)
(0.3)
(2.8)
(0.6)
0.1
0.2
(15.0)
13.6
—
(9.2)
(5.2)
—
(0.8)
(1.3)
18.0
3.1
19.8
19.8
1.2
21.0
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Strategic report
Financial statements
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
1. Authorisation of financial statements and statement of compliance with IFRS
The financial statements, which comprise the results of discoverIE Group plc (‘the Company’) and its subsidiaries (collectively
referred to as "the Group”), for the year ended 31 March 2018 were authorised for issue by the Board of Directors on 5 June
2018. discoverIE Group plc is a public limited company incorporated and domiciled in England and Wales. The Company’s
ordinary shares are traded on the London Stock Exchange.
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as
adopted for use in the European Union and as applied in accordance with the provisions of the Companies Act 2006.
The significant accounting policies adopted by the Group are set out in note 2.
2. Accounting policies
Basis of preparation
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”), as
adopted for use in the European Union.
The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest hundred
thousand except as otherwise indicated.
Basis of consolidation
The Group’s financial statements consolidate the results of discoverIE Group plc, entities controlled by the Company (its
subsidiaries) and include the Group’s share of the results of its associates.
Subsidiaries
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries at 31 March 2018.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has
the ability to affect those returns through its control over the investee. Specifically, the Group controls an investee if, and only if,
the Group has:
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
Exposure, or rights, to variable returns from its involvement with the investee; and
The ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee, including:
The contractual arrangement with the other vote holders of the investee;
Rights arising from other contractual arrangements; and
The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee, if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated income statement from the date the Group gains
control until the date the Group ceases to control the subsidiary.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line
with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on consolidation.
Associates
An associate is an undertaking in which the Group has significant influence and which is neither a subsidiary nor a joint
venture. Significant influence is the power and the ability to participate in financial and operating policy decisions, but not to
execute control or joint control of those decisions.
discoverIE’s investments in its associates are accounted for under the equity method of accounting. Under the equity method,
investments in associates are carried in the consolidated statement of financial position at cost plus post-acquisition changes
in the Group’s share of net assets of the associate, less distributions received and less any impairment in value.
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FINANCIAL STATEMENTS
for the year ended 31 March 2018
2. Accounting policies continued
Going concern
The Group’s business activities, together with factors which may adversely impact its future development, performance and
position, are set out in the Strategic Report on pages 2 to 46. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Finance Review section of the Strategic Report on pages 30 to 35.
The Group has significant financial resources, well established distribution contracts with a number of suppliers broad and
stable customer base. As a consequence, the Directors believe that the Group is well placed to manage its principal risks and
uncertainties as disclosed on pages 38 to 41 of the Strategic Report.
The Group’s forecasts and projections, taking account of the sensitivity analysis of changes in trading performance, show that
the Group is well placed to operate within the level of its current committed facilities for the foreseeable future.
After making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for at least 12 months from the date of approval of the financial statements.
Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.
Underlying profits and earnings
These financial statements include alternative performance measures that are not prepared in accordance with IFRS. These
alternative performance measures have been selected by management to assist them in making operating decisions because
they represent the underlying operating performance of the Group and facilitate internal comparisons of performance over time.
Alternative performance measures are presented in these financial statements as management believe they provide investors
with a means of evaluating performance of the Group on a consistent basis, similar to the way in which management
evaluates performance, that is not otherwise apparent on an IFRS basis, given that certain strategic non-recurring, infrequent
or non-cash items that management does not believe are indicative of the underlying operating performance of the Group
are included when preparing financial measures under IFRS. The Directors consider there to be the following alternative
performance measures:
Underlying operating profit
“Underlying operating profit” is defined as operating profit excluding acquisition costs, exceptional items, amortisation of
acquired intangible assets and the IAS19 pension administration charge relating to the Group’s legacy defined benefit
pension scheme.
Acquisition costs comprise all attributable costs in connection with business acquisitions and related integration into the
Group, they include contingent consideration where it is treated as an expense and movement in contingent consideration
where it is treated as purchase price.
Underlying EBITDA
“Underlying EBITDA” is defined as underlying operating profit with depreciation, amortisation and equity settled share-based
payment expense added back.
Underlying profit before tax
“Underlying profit before tax” is defined as profit before tax excluding acquisition costs, exceptional items, amortisation of
acquired intangible assets and the total IAS19 pension charge relating to the Group’s legacy defined benefit pension scheme.
Underlying effective tax rate
“Underlying effective tax rate” is defined as the effective tax rate on underlying profit before tax.
Underlying earnings per share
“Underlying earnings per share” is calculated as underlying profit before tax reduced by the underlying effective tax rate, divided
by the weighted average number of ordinary shares (for diluted earnings per share purposes) in issue during the period.
Operational cash flow
“Operational cash flow” is defined as Underlying EBITDA adjusted for the investment in, or release of, working capital and less
the cash cost of capital expenditure.
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Financial statements
2. Accounting policies continued
Free cash flow
“Free cash flow” is defined as net cash flow before exceptional items, payments to the legacy defined benefit pension scheme,
dividend payments, net proceeds from equity fund raising, the cost of acquisitions and proceeds from business disposals.
Return On Capital Employed (“ROCE”)
“ROCE” is defined as underlying operating profit as a percentage of net assets (including goodwill) plus net debt.
Organic basis
Reference to ‘organic’ basis included in the Chairman’s statement, Operating Review and Finance Review of the Strategic
Report means at constant exchange rates (“CER”), including the equivalent pre-acquisition period of Variohm, which was
acquired last year, and excluding the sales of Acal BFi Spain, which was closed in December 2016, and Santon, which was
acquired on 1 February 2018.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling
interest in the acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate
share of the acquiree’s identifiable net assets is determined on a transaction by transaction basis. Acquisition costs incurred are
expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets acquired and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at
the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration, which is deemed to be an asset or liability, will be
recognised in accordance with IAS 39 ‘Financial instruments: Recognition and Measurement’ either in profit or loss or in other
comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally
settled within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the acquisition-date fair value of the consideration
transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in
stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree) over the net identifiable
amounts of the assets acquired and the liabilities assumed in exchange for the business combination. Assets acquired and
liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships
or post-acquisition remuneration arrangements, are accounted for separately from the business combination in accordance
with their nature and applicable IFRS. Identifiable intangible assets, meeting either the contractual-legal or separability
criterion are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the
acquisition-date fair value can be measured reliably.
If the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-
controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s
previously held equity interest in the acquiree) is lower than the fair value of the assets, liabilities and contingent liabilities and
the fair value of any pre-existing interest held in the business acquired, the difference is recognised in the consolidated income
statement.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-
generating units (or groups of cash-generating units) that are expected to benefit from the business combination, irrespective
of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill
is allocated shall represent the lowest level within the entity at which the goodwill is monitored for internal management
purposes and shall not be larger than an operating segment before aggregation.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill
associated with the disposed of operation is included in the carrying amount of the operation when determining the gain or
loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the
operation disposed of and the portion of the cash-generating unit retained.
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FINANCIAL STATEMENTS
for the year ended 31 March 2018
2. Accounting policies continued
Intangible assets – other
All intangible assets, excluding goodwill arising on a business combination, are stated at their amortised cost or fair value less
any provision for impairment.
(a) Software
The implementation costs of IT systems, and computer software, are amortised on a straight-line basis over their estimated
useful lives which vary from three to ten years depending on the type of software and associated licensing and maintenance
arrangements.
(b) Acquired intangible assets – business combinations
Intangible assets that are acquired as a result of a business combination include customer and supplier relationships and
brands that can be separately identified and measured at fair value on a reliable basis, together with the associated deferred
tax liability. Amortisation is charged to the consolidated income statement on a straight line basis over the expected useful
economic lives as follows.
Customer and supplier relationships
5–10 years
Patents
Brands
Patent term
5 years
(c) Intangible assets – research and development
Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally generated
intangible asset arising from the Group’s development activities is capitalised only if all of the following conditions are met: (a)
an asset is created that can be identified (such as software, new processes and product development costs); (b) it is probable
that the asset created will generate future economic benefits; and (c) the development cost of the asset can be measured
reliably. Internally generated intangible assets are amortised on a straight-line basis over their useful lives between 5 and
10 years. Where no internally generated intangible asset can be capitalised, development expenditure is recognised as an
expense in the period in which it is incurred.
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is provided on a straight-line basis to write off the cost, less residual value, over the estimated useful life at the
following rates:
Land and buildings:
Leasehold improvements
Plant and equipment
Freehold property
Leasehold buildings
Land is not depreciated
2–4% per annum
Shorter of lease term or useful life
10–20% per annum or over the life of the lease
5-33% per annum
Property, plant and equipment is reviewed for impairment in accordance with IAS 36 ‘Impairment’, when there are events or
changes in circumstances that indicate that the carrying value may not be recoverable.
Impairment of assets
At each reporting date, the Group reviews the carrying value of its assets to determine whether there is any indication that
the assets are impaired. If any such indication exists, or when annual impairment testing for an asset is required, such as in
the case of goodwill, the recoverable amount of the asset is estimated in order to determine the extent of the impairment
loss, if any.
Recoverable amount is the higher of fair value, less costs to sell and value in use. If the recoverable amount of an asset (or cash-
generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is
reduced to its recoverable amount and an impairment loss is immediately recognised as an expense.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment
losses may no longer exist or may have decreased. If such an indication exists, an impairment loss is reversed to the extent
that the asset’s carrying value does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised. Such reversals are recognised in the consolidated income statement.
Any impairment charge on goodwill is not reversed.
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Financial statements
2. Accounting policies continued
Financial assets
Loans and receivables are non-derivative financial assets with fixed or determinable payments. They are included in current
assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current
assets. Loans and receivables are presented in trade and other receivables in the consolidated statement of financial position.
Financial assets are assessed for impairment in accordance with IAS 39 ‘Financial instruments: Recognition and Measurement’,
when there are events or changes in circumstances that indicate that the carrying value may not be recoverable.
Inventories
Inventories comprise goods held for resale and work in progress and are stated at the lower of cost and net realisable value
after making allowance for any obsolete or slow moving items. Cost comprises direct materials, inward carriage and, where
applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present
location and condition.
Trade and other receivables
Trade receivables are recognised and carried at original invoice amount less an allowance for any uncollectable amounts.
An estimate for doubtful debts is made when collection of the full amount is no longer probable. The decision to make a
provision for doubtful debts is determined by using profiles, based on past practice in addition to assessment of the credit
worthiness of each customer and related aging of overdue balances. Bad debts are written off when identified. Invoice
discounting and similar non-recourse arrangements are shown as borrowing and not netted off against receivables.
Cash and cash equivalents
Cash and cash equivalents in the consolidated statement of financial position comprise cash at bank and in hand and short-
term deposits with an original maturity of three months or less. For the purpose of the consolidated statement of cash flows,
cash and cash equivalents comprise cash and cash equivalents as defined above, net of outstanding bank overdrafts to the
extent that offsetting agreements are in place
Borrowings
Borrowings are initially recognised at fair value net of any associated issue costs. Borrowings are subsequently recorded at
amortised cost, with any difference between the amount initially recorded and the redemption value recognised in the
consolidated income statement using the effective interest rate method.
Provisions
Provisions for warranties, onerous contracts, retirement benefits and restructuring costs are recognised when the Group has a
present legal or constructive obligation as a result of a past event; it is probable that an outflow of resources will be required
to settle the obligation; and a reliable estimate can be made of the amount of the obligation. In relation to the provision for
onerous contracts, an assessment is made for impairment of any related assets.
Provisions are discounted to present value when the effect is material using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the liability. The amortisation of the discount is recognised as
a finance cost.
Exceptional items
The Group discloses exceptional items by virtue of their nature, size or incidence so as to allow a better understanding of the
underlying trading performance of the Group. The Group includes, where material, the profit or loss on disposal of property,
investments or businesses and other financial assets, asset impairments and significant restructuring costs in exceptional
items.
Foreign currency translation
Transactions in foreign currencies are initially recorded in the functional currency at the exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at
the reporting date and gains or losses on translation are included in the consolidated income statement.
Currency gains and losses arising from the retranslation of the opening net assets of foreign operations are recorded as a
movement on reserves, net of tax. The differences that arise from translating the results of overseas businesses at average rates
of exchange, and their assets and liabilities at closing rates, are dealt with in a separate currency translation reserve. All other
currency gains and losses are dealt within in the consolidated income statement.
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
2. Accounting policies continued
Revenue recognition
Revenue represents the invoiced value of goods, commission and other services provided to third parties, after deducting
discounts, VAT and similar taxes levied overseas. Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured. In particular:
Revenue from the sale of products is recognised upon transfer to the customer of the significant risks and rewards of
ownership. This is generally when goods are dispatched to customers;
Revenue from the rendering of services, which primarily comprise maintenance and outsourcing contracts, is recognised
over the life of the contract reflecting performance of the contractual obligations to the customer;
Interest income is recognised as the interest accrues, using the effective interest method;
Dividend income is recognised when the Shareholders’ right to receive the payment is established.
Segment reporting
Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Board.
Dividends
Dividends are recognised when they meet the criteria for recognition as a liability. In relation to final dividends, this is when the
dividend is approved by the Shareholders in the general meeting, and in relation to interim dividends, when paid.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Rentals payable under operating leases are charged to the consolidated income statement on a straight-line basis over the
term of the relevant lease.
The Group has not entered into any material finance leases.
Borrowing costs
Borrowing costs are recognised as an expense in the period in which they are incurred, in accordance with the effective
interest rate method.
Pensions
Payments to defined contribution pension schemes are charged as an expense as they fall due.
In respect of defined benefit pension schemes, the obligation recognised in the consolidated statement of financial position
represents the present value of the defined benefit obligation, reduced by the fair value of the scheme assets. The cost of
providing benefits is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are
recognised in full in the period in which they occur in the consolidated statement of comprehensive income. Net interest costs
are included in finance costs and pension administration costs are included in administration expenses.
Share based payments
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are
granted, calculated using an option pricing model, and is recognised as an expense over the vesting period, which ends on the
date on which the relevant employees become fully entitled to the award. In valuing equity-settled transactions, no account is
taken of non-market vesting conditions.
At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting
period has expired and management’s best estimate of the achievement or otherwise of non-market conditions and hence
the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting
date is recognised in the consolidated income statement, with a corresponding entry in equity.
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Financial statements
2. Accounting policies continued
Taxation
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or substantively enacted by the reporting date.
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements, with the following exceptions:
where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that
is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;
in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing
of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not
reverse in the foreseeable future; and
deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which
the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the reporting
date.
Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise
income tax is recognised in the consolidated income statement.
Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to foreign exchange risks arising from operational
activities. It principally employs forward foreign exchange contracts to hedge the risks associated with foreign currency
fluctuations relating to certain firm commitments and highly probable forecast transactions. Certain derivative financial
instruments are designated as hedging instruments in line with the Group’s risk management policies. Hedges of foreign
currency exposure on firm commitments and highly probable forecast transactions are accounted for as a cash flow hedge.
The Group does not enter into speculative derivative contracts.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged
items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also
documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. All derivative
financial instruments are initially recognised in the statement of financial position at fair value and are subsequently re-
measured to their fair value at each reporting date. The fair value of forward exchange contracts is calculated by reference to
current forward exchange contracts with similar maturity profiles.
Hedge accounting – cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in
the income statement. Amounts accumulated in equity are recycled in the income statement in the years when the hedged
item affects profit or loss (for example, when the forecast sale that is hedged takes place). When a hedging instrument
expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income
statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity
is immediately transferred to the income statement.
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
2. Accounting policies continued
Significant accounting judgements and estimates
Estimation uncertainty
Key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
The most significant areas in which assumptions are made and estimates used are in determining:
Goodwill impairment
The Group tests annually whether goodwill is impaired in accordance with its accounting policy. The recoverable amounts
of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of
estimates of future cash flows and the selection of suitable discount rates (note 16).
Contingent consideration
The amounts recognised for contingent consideration in relation to business combinations are the Directors’ best estimates
of the actual amounts which will be payable based on the forecast performance of the acquired businesses. Note 11 provides
details of contingent considerations arising from business combinations.
Fair value of assets acquired in a business combination
Judgements and estimates are required in assessment of fair value of the consideration and net assets acquired, including the
identification and valuation of intangible assets. Note 11 provides details on business combinations.
Retirement benefits
The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using
a number of assumptions. The assumptions used in determining the net expense for pensions include the discount rate. Any
changes in these assumptions will impact the carrying amount of retirement benefit obligations. The actuarial assumptions
used in determining the carrying amount at 31 March 2018 are set out in note 32.
Current assets
In the course of normal trading activities, judgement is used to establish the carrying value of various elements of working
capital, principally inventory and trade receivables. Provisions are made against obsolete or slow-moving inventories and
doubtful debts. The provisions are based on the facts available at the time the financial statements are approved and are also
determined by using profiles, based on past practice, applied to certain aged inventory and trade receivables categories.
3. New accounting standards and financial reporting requirements
New standards and interpretations not applied
The following standards and interpretations, which have been issued by the IASB, become effective after the current year end
and have not been early adopted by the Group:
International Accounting Standards (IAS/IFRS/IFRIC)
IFRS 9
IFRS 15
IFRS 16
Financial Instruments: Classification and measurement
Revenue from Contracts with Customers
Leases
1 Period beginning on or after
Effective date1
1 January 2018
1 January 2018
1 January 2019
IFRS 15, ‘Revenue from contracts’ deals with revenue recognition and establishes principles for reporting useful information
to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an
entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has
the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11
‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January
2018, with earlier application permitted. The Group has completed an initial assessment of the impact and, based upon the
work undertaken to date, it is not expected to have a material impact on the Group’s financial statements. This reflects the
relatively non-complex and largely standardised terms and conditions applicable to the Group’s revenue contracts.
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Financial statements
3. New accounting standards and financial reporting requirements continued
IFRS 16, ‘Leases’ will require lessees to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for
virtually all lease contracts. Under IAS 17, lessees are required to make a distinction between a finance lease (on balance sheet)
and an operating lease (off balance sheet). The IASB has included an optional exemption for certain short term leases and
leases of low value assets; however, this exemption can only be applied by lessees. The standard is effective for annual periods
beginning on or after 1 January 2019. The Group will complete its IFRS 16 implementation work over the next six months. The
Group does not intend to early adopt IFRS 16, having already undertaken a preliminary review. The new standard will result in
most of the Group’s current operating leases (as defined under IAS 17) being recognised on balance sheet. As at the reporting
date, the Group had non-cancellable operating lease commitments of £15.8m (as shown in note 30). The Group does not
intend to restate prior year comparators when the new standard is adopted, with lease asset values being set equal to lease
liabilities at the date of transition in line with the ‘simplified approach’ under IFRS 16. The adoption of IFRS16 is expected to
have a significant impact to the Group’s financial statements.
IFRS 9, ‘Financial Instruments’ includes requirements for classification and measurement, impairment and hedge accounting.
It replaces the classification and measurement models for financial instruments in IAS 39 with three classification categories:
amortised cost, fair value through profit or loss and fair value through other comprehensive income. The standard will become
effective for periods ending on or after 1 January 2018, subject to EU endorsement. The Group is in the process of assessing
the impact of IFRS 9 with the main areas of consideration being the impairment of accounts receivables and refinancing
transactions. Due to the non-complex nature of the Group’s financial instruments, the impact of IFRS 9 is not expected to have
a material impact on the Group’s financial statements.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact
on the Group in the current or future reporting periods.
4. Revenue
Group revenue is analysed below:
Sale of goods
Rendering of services
Total revenue
2018
£m
381.4
6.5
387.9
2017
£m
332.9
5.3
338.2
5. Operating segment information
The Group organises its businesses into two divisions, Design & Manufacturing and Custom Supply.
The Design & Manufacturing division manufactures custom electronic products that are uniquely designed or modified
from a standard product for a specific customer requirement. The products are manufactured at one of our in-house
manufacturing facilities or, in some cases, by third party contractors.
The Custom Supply division provides technically demanding, customised electronic, photonic and medical products to the
industrial, medical and healthcare markets, both from a range of high-quality, international suppliers (often on an exclusive
basis) and from discoverIE’s Design & Manufacturing division.
These two divisions have been assessed as the reportable operating segments of the Group. Within each reportable operating
segment are aggregated businesses units with similar characteristics such as the method of acquiring products for sale
(manufacturing versus distribution), the nature of customers and products, risk profile and economic characteristics.
Management monitors the operating results of its business units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance is reported and evaluated based on operating profit
or loss earned by each segment without allocation of central administration costs including directors’ salaries, investment
revenue and finance costs, and income tax expense.
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123
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
5. Operating segment information continued
Segment revenue and results
2018
Revenue
Result
Underlying operating profit/(loss)
Acquisition costs
Amortisation of acquired intangible assets
IAS 19 pension charge
Operating profit/(loss)
2017
Revenue
Result
Underlying operating profit/(loss)
Exceptional items
Acquisition costs
Amortisation of acquired intangible assets
IAS 19 pension charge
Operating profit/(loss)
Segment assets and liabilities
2018
Assets and liabilities
Segment assets (excluding goodwill and other intangible assets)
Goodwill and other intangible assets
Central assets
Cash and cash equivalents
Current and deferred tax assets
Total assets
Segment liabilities
Central liabilities
Other financial liabilities
Pension liability
Current and deferred tax liabilities
Total liabilities
Net assets
Design &
Manufacturing
£m
222.6
Custom
Supply
£m
165.3
24.2
(0.8)
(4.9)
—
18.5
7.5
—
—
—
7.5
Unallocated
£m
—
(7.2)
—
—
(0.3)
(7.5)
Design &
Manufacturing
£m
175.6
20.2
(1.6)
(1.7)
(3.9)
—
13.0
Custom
Supply
£m
162.6
Unallocated
£m
—
5.2
(4.8)
—
—
—
0.4
—
—
—
(0.3)
(5.7)
Design &
Manufacturing
£m
Custom
Supply
£m
117.1
105.4
222.5
48.1
9.2
57.3
(53.0)
(30.5)
(5.4)
20.0
Total
£m
387.9
24.5
(0.8)
(4.9)
(0.3)
18.5
Total
£m
338.2
(6.4)
(1.7)
(3.9)
(0.3)
7.7
Total
£m
165.2
114.6
279.8
1.6
21.9
7.1
310.4
(83.5)
(7.6)
(74.3)
(3.0)
(12.7)
(181.1)
129.3
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Financial statements
5. Operating segment information continued
2017
Assets and liabilities
Segment assets (excluding goodwill and other intangible assets)
Goodwill and other intangible assets
Central assets
Cash and cash equivalents
Deferred tax assets
Total assets
Segment liabilities
Central liabilities
Other financial liabilities
Pension liability
Current and deferred tax liabilities
Total liabilities
Net assets
Design &
Manufacturing
£m
Custom
Supply
£m
88.7
91.0
179.7
53.6
9.0
62.6
(40.5)
(35.9)
Total
£m
142.3
100.0
242.3
1.8
21.0
5.5
270.6
(76.4)
(3.9)
(51.0)
(6.4)
(9.1)
(146.8)
123.8
For the purposes of monitoring segment performance and allocating resources between segments, the Directors monitor the
net assets attributable to each segment. Assets and liabilities are allocated to reportable segments, with the exception of the
pension liability, tax assets and liabilities, cash and all borrowings, central assets (ERP and other Head Office assets) and central
liabilities (Head Office liabilities).
Other segment information
Depreciation and
amortisation1
Additions to
non-current assets1
Design & Manufacturing
Custom Supply
Central
2018
£m
8.2
0.5
0.3
9.0
2017
£m
6.8
0.5
0.3
7.6
2018
£m
32.2
0.5
—
32.7
1
Includes goodwill, acquired intangibles and related amortisation.
Geographical information
The Group’s revenue from external customers based on customer locations and information about its segment assets by
geographical location are detailed below:
UK
Europe
Rest of the World
Revenue from external
customers
Non-current
assets
2018
£m
61.5
252.0
74.4
387.9
2017
£m
58.3
225.4
54.5
338.2
2018
£m
29.1
107.7
7.4
144.2
2017
£m
13.6
0.4
—
14.0
2017
£m
30.6
83.9
7.7
122.2
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125
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
6. Underlying profit before tax
Profit before tax
Add back: Exceptional Items
Acquisition Costs
Amortisation of acquired intangible assets
Total IAS 19 pension charge
Underlying profit before tax
2018
£m
15.8
—
0.8
4.9
0.4
21.9
2017
£m
4.8
6.4
1.7
3.9
0.4
17.2
a.
b.
c.
d.
The tax impact of the underlying profit adjustments above is a credit of £1.3m (2017: £2.8m).
a.
In the prior year, restructuring costs relating to Acal BFi totalling £4.8m, included the closure of the Spanish business,
management headcount reduction and integration of the purchasing department. Restructuring in the Noratel Group
totalling £1.6m included closure of three smaller Noratel production sites, with the production being transferred to other
existing production facilities.
b.
In the year, there were £1.2m acquisition costs relating primarily to the acquisition of Santon, and £0.3m of acquisition
integration cost relating to the manufacturing integration between the Plitron and Noratel business. These costs are
partially offset by a £0.7m net credit adjustment to contingent consideration for acquired businesses.
In the prior year, £0.3m costs were incurred in relation to the acquisition of Variohm. A £0.9m charge was provided for
contingent consideration relating to the acquisitions of the Noratel Group, Foss and Contour. £0.5m relates to acquisition
related integration in Flux.
c. Amortisation charge for intangible assets recognised on acquisition (see note 17).
d. Pension costs related to the Group’s legacy defined benefit pension scheme (see note 32).
7. Operating profit
Amounts charged to the consolidated income statement are as follows:
Employee costs (note 8)
Depreciation of property, plant and equipment (note 14)
Amortisation of other intangible assets (note 17)
Net foreign exchange differences
Inventories (amounts included in cost of sales):
Cost of inventories
Write-down of inventories to net realisable value
Operating lease rentals:
Minimum lease payments recognised as an operating lease expense
Auditors’ remuneration:
Audit of the Group financial statements (including parent company)
Audit of local subsidiary financial statements
2018
£m
78.9
3.5
5.5
0.9
260.8
1.1
6.0
0.2
0.5
2017
£m
73.5
3.0
4.6
0.2
225.7
1.2
5.3
0.2
0.4
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8. Employee costs and Directors’ emoluments
Wages and salaries
Social security costs
Other pension costs
Share-based payments (note 31)
Strategic report
Financial statements
2018
£m
64.4
10.9
2.9
0.7
78.9
2017
£m
60.6
9.9
2.4
0.6
73.5
The average monthly number of employees (including Executive Directors) during the year was as follows:
Sales and marketing
Manufacturing and service
Administration
At 31 March 2018 the Group had 4,061 employees (2017: 3,757).
Directors’ emoluments
Aggregate emoluments in respect of qualifying services
Aggregate contribution to money purchase pension schemes
Highest paid director
Emoluments in respect of qualifying services
Pension contributions to the defined contribution scheme
2018
Number
2017
Number
591
2941
454
3,986
592
2,727
400
3,719
2018
£
1,150,519
73,005
2017
£
986,524
71,574
1,223,524
1,058,098
727,771
57,711
785,482
626,885
56,580
683,465
Retirement benefits are accruing to two directors under a defined contribution pension scheme (2017: two).
Further details of directors’ emoluments are provided in the remuneration report on pages 76 to 98.
9. Finance income/(costs)
Interest receivable and similar income
Finance income
Finance costs on bank loans and overdrafts
Net pension finance charge (note 32)
Finance costs
2018
£m
0.4
0.4
(3.0)
(0.1)
(3.1)
2017
£m
0.2
0.2
(3.0)
(0.1)
(3.1)
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127
127
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
10. Taxation
The major components of the corporation tax expense are summarised below:
Current taxation:
UK corporation tax
UK adjustments in respect of prior years
Overseas tax
Overseas adjustments in respect of prior years
Total current taxation expense
Deferred taxation
Origination and reversal of temporary differences within the UK
Origination and reversal of temporary differences overseas
Adjustment in respect of prior years
Increased recognition of historic losses
Impact of tax rate changes
Total deferred taxation credit
Tax expense reported in the consolidated income statement
Tax recognised in other comprehensive income
Decrease/(increase) in deferred tax asset on pension deficit
Tax reported in other comprehensive income
Tax recognised in equity
Increase/(decrease) in deferred tax asset on share based payments
Tax reported in equity
2018
£m
2017
£m
—
(0.1)
(0.1)
4.3
—
4.3
4.2
0.2
0.2
—
(0.8)
0.2
(0.2)
4.0
2018
£m
0.3
0.3
2018
£m
1.4
1.4
—
0.1
0.1
3.5
(0.9)
2.6
2.7
(0.2)
(0.2)
(0.8)
—
(0.2)
(1.4)
1.3
2017
£m
(0.3)
(0.3)
2017
£m
(0.3)
(0.3)
The effective rate of taxation for the year is higher (2017: higher) than the standard rate of taxation in the UK of 19% (2017: 20%).
A reconciliation of the tax expense applicable to the profit before tax, at the statutory tax rate, to the actual tax expense at the
Group’s effective tax rate for the years ended 31 March 2018 and 31 March 2017 respectively is presented below:
Profit before tax
Profit before taxation multiplied by standard rate of corporation tax in the UK of 19% (2017: 20%)
Effect of:
Different tax rates in overseas companies
Tax losses not recognised
Non-deductible expenses
Adjustments to deferred taxation in respect of prior years
Increased recognition of historic losses
Impact of tax rate changes on deferred tax
Adjustments to current taxation expense in respect of prior years
Total tax reported in the consolidated income statement
2018
£m
15.8
3.0
1.0
0.6
0.1
—
(0.8)
0.2
(0.1)
4.0
2017
£m
4.8
1.0
0.7
0.6
0.8
(0.8)
—
(0.2)
(0.8)
1.3
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10. Taxation continued
Deferred tax
Deferred tax liabilities
Accelerated capital allowances
Intangibles
Other temporary differences
Gross deferred tax liabilities
Deferred tax assets
Decelerated capital allowances
Pensions
Tax losses
Share-based payment plans
Other temporary differences
Gross deferred tax assets
Deferred tax credit in the consolidated income statement
Consolidated income statement
Decelerated capital allowances
Other temporary differences
Strategic report
Financial statements
2018
£m
(0.5)
(6.8)
(0.5)
(7.8)
0.9
0.9
1.2
2.3
0.5
5.8
2018
£m
0.1
(0.3)
(0.2)
2017
£m
(0.5)
(5.4)
(0.6)
(6.5)
1.0
1.0
1.2
1.0
1.3
5.5
2017
£m
(0.3)
(1.1)
(1.4)
At 31 March 2018, the Group had not recognised any deferred tax asset in respect of tax losses of approximately £26.0m
(2017: £28.3m). Deferred tax assets are not recognised where there is insufficient evidence that losses will be utilised.
At 31 March 2018, there was no recognised deferred tax liability (2017: nil) for taxes that would be payable on the remittance of
certain of the Group’s overseas subsidiaries’ unremitted earnings, as the Group has determined that the undistributed profits
of its overseas subsidiaries will not be distributed in the near future where an additional tax charge would arise.
A reduction in the UK corporation tax rate to 17% had been substantively enacted at 1 April 2017 with effect from 1 April 2020.
From 1 April 2017, a, rate of 19% will be applicable, until the 17% rate becomes effective. Rates of 17% and 19% have been
applied in the measurement of the Group’s UK based deferred tax assets and liabilities at 31 March 2018, based on an estimate
of when the UK deferred tax is expected to crystallise.
11. Business combinations
Acquisitions in the year ended 31 March 2018
Acquisition of Santon
On 1 February 2018, the Group announced the acquisition of Santon Group (“Santon”) via the purchase of 100% of the share
capital and voting equity interests of its holding company EWAC Holdings BV.
The initial consideration comprises a payment of £19.4m in cash, funded from the Group’s existing debt facilities, and the issue
to the vendor of new ordinary shares of 5p each in discoverIE (the “New Ordinary Shares”) to the value of £0.9m. In addition,
contingent consideration of up to £19.7m will be payable over the next 3 years subject to Santon achieving certain growth
targets. The fair value of the contingent consideration at the acquisition date was estimated to be £5.5m.
Santon is a Dutch based designer and manufacturer of highly differentiated, patented direct current (“DC”) switches for use in
solar, industrial and transportation markets. Santon operates from Rotterdam in the Netherlands, with sales offices in the UK
and Germany. Santon will operate within the Group’s Design & Manufacturing division.
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129
129
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
11. Business combinations continued
The fair value of the identifiable assets and liabilities of Santon at the date of acquisition were as follows.
Property, plant and equipment
Intangible assets – customer relationships and patents
Inventories
Trade and other receivables
Net debt
Trade and other payables
Current tax liabilities
Deferred tax liabilities (non-current)
Total identifiable net assets
Goodwill arising on acquisition
Total investment
Discharged by
Cash
Shares issued
Contingent consideration
Provisional
fair value
recognised at
acquisition
£m
7.3
10.5
4.5
5.2
(4.4)
(3.7)
(1.0)
(2.5)
15.9
9.9
25.8
19.4
0.9
5.5
25.8
The fair value of the trade receivables is equal to their gross amounts. It is expected that the full contractual amounts of the
trade receivables can be collected.
The goodwill of £9.9 million arising from the acquisition is attributable to the cross-selling synergies and international
expansion expected to arise from operating as part of the Group. None of the goodwill recognised is expected to be
deductible for corporate tax purposes.
Net cash outflows in respect of the acquisition comprise:
Cash consideration
Acquisition costs (included in cash flows from operating activities)1
Net debt acquired
Total
£m
19.4
1.2
4.4
25.0
1 Acquisition costs of £1.2m were expensed as incurred in the year ended 31 March 2018 and were included within administrative expenses
(note 6).
Included in cash flow from investing activities is the cash consideration of £19.4m, the net debt acquired of £4.4m and debt like
items of £0.8m.
From the date of acquisition to 31 March 2018, Santon contributed £3.7m to revenue and £nil to profit after tax of the Group. If
the business combination had taken place at the beginning of the year, the consolidated profit after tax for the Group would
have been £12.9m and the consolidated revenue for the Group would have been £416.5m.
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Strategic report
Financial statements
11. Business combinations continued
Acquisitions in the year ended 31 March 2017
Acquisition of Variohm
On 20 January 2017, the Group completed the acquisition of 100% of the share capital and voting equity interests of Variohm
Holdings Limited (“Variohm”), for a cash consideration of £10.6m. In addition, a contingent consideration of £0.5m is payable
in July 2018, subject to certain conditions and a maximum contingent consideration of up to £1.35m also payable in July 2018,
subject to Variohm achieving agreed performance targets. The fair value of the contingent consideration at the acquisition
date was estimated to be £1.6m. The fair value at 31 March 2018 was estimated to be £1.85m.
Variohm owns 100% of the share capital and voting equity interests of Ixthus Instrumentation Limited, Heason Technology
Limited, Herga Technology Limited and Variohm-Eurosensor Limited, all based in the UK. Variohm is a designer, manufacturer
and distributor of electronic sensors and switches.
The fair value of the identifiable assets and liabilities of Variohm at the date of acquisition were as follows:
Property, plant and equipment
Intangible assets – customer relationships
Inventories
Trade and other receivables
Net debt
Trade and other payables1
Current tax liabilities
Provisions (current)
Deferred tax liabilities (non-current)
Provisions (non-current)
Total identifiable net assets
Goodwill arising on acquisition
Total investment
Discharged by
Cash
Purchase price adjustment
Contingent consideration
Fair value
recognised at
acquisition
£m
0.5
4.4
3.0
3.3
(1.0)
(2.6)
(0.3)
(0.1)
(0.8)
(0.1)
6.3
6.0
12.3
10.6
0.1
1.6
12.3
1 The provisional fair value of trade and other payables was increased by £0.2m during the year ended 31 March 2018.
The fair value of the trade receivables is equal to their gross amounts. It is expected that the full contractual amounts of the
trade receivables can be collected.
Included in the £6.0m of goodwill recognised above are certain intangible assets that cannot be individually separated and
reliably measured from the acquiree, due to their nature. None of the goodwill recognised is expected to be deductible for
corporate tax purposes.
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131
131
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
11. Business combinations continued
Net cash outflows in respect of the acquisition comprise:
Cash consideration
Transaction costs of the acquisition (included in cash flows from operating activities)1
Net debt acquired
Total
£m
10.6
0.3
1.0
11.9
1 Transaction costs of £0.3m were expensed as incurred in the year ended 31 March 2017 and were included within administrative expenses
(note 6).
From the date of acquisition to 31 March 2017, Variohm contributed £4.9m to revenue and £0.4m to profit after tax of the
Group. If the business combination had taken place at the beginning of the year, the consolidated profit after tax for the Group
would have been £3.9m and the consolidated revenue for the Group would have been £354.9m.
12. Dividends
Dividends recognised in equity as distributions to equity holders in the year:
Equity dividends on ordinary shares:
Final dividend for the year ended 31 March 2017 of 6.05p (2016: 5.72p)
Interim dividend for the year ended 31 March 2018 of 2.65p (2017: 2.45p)
Total amounts recognised as equity distributions during the year
Proposed for approval at AGM:
Equity dividends on ordinary shares:
Final dividend for the year ended 31 March 2018 of 6.35p (2017: 6.05p)
Summary
Dividends per share declared in respect of the year
Dividends per share paid in the year
Dividends paid in the year
2018
£m
4.3
1.9
6.2
2018
£m
4.5
2017
£m
3.7
1.5
5.2
2017
£m
4.3
9.0p
8.7p
£6.2m
8.50p
8.17p
£5.2m
A technical non-compliance issue has been identified with respect to distributable reserves and the payment of recent
dividends. The Board is confident that there were adequate reserves in subsidiary companies to meet these dividends at the
time and that this will not impact the Group's ability to pay future dividends. We expect to remedy the position by means of
appropriate resolutions at a general meeting of Shareholders and a circular in respect of this will be issued.
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Strategic report
Financial statements
13. Earnings per share
Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share is the basic earnings per share after allowing for the dilutive effect of the conversion into ordinary
shares of the weighted average number of options outstanding during the year.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Profit for the year attributable to equity holders of the parent:
Weighted average number of shares for basic earnings per share
Effect of dilution – share options
Adjusted weighted average number of shares for diluted earnings per share
Basic earnings per share
Diluted earnings per share
Underlying earnings per share is calculated as follows:
Net profit for the year
Exceptional items
Acquisition costs
Amortisation of acquired intangible assets
IAS 19 pension charge
Tax effect of the above
Underlying earnings
Weighted average number of shares for basic earnings per share
Effect of dilution – share options
Adjusted weighted average number of shares for diluted earnings per share
Underlying basic earnings per share
Underlying diluted earnings per share
2018
£m
11.8
2017
£m
3.5
Number
Number
70,797,217
65,427,064
3,666,253
2,790,308
74,463,470
68,217,372
16.7p
15.8p
2018
£m
11.8
—
0.8
4.9
0.4
(1.3)
16.6
5.3p
5.1p
2017
£m
3.5
6.4
1.7
3.9
0.4
(2.8)
13.1
Number
Number
70,797,217
65,427,064
3,666,253
2,790,308
74,463,470
68,217,372
23.4p
22.3p
20.0p
19.2p
At the year end, there were 4,580,130 ordinary share options in issue that could potentially dilute underlying earnings per
share in the future, of which 3,666,253 are currently dilutive (2017: 4,847,184 in issue and 2,790,308 dilutive).
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133
133
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
14. Property, plant and equipment
Cost
At 1 April 2016
Additions
Disposals
Arising from business combinations
Exchange adjustments
At 31 March 2017
Additions
Disposals
Arising from business combinations
Exchange adjustments
At 31 March 2018
Accumulated depreciation
At 1 April 2016
Charge for the year
Disposals
Exchange adjustments
At 31 March 2017
Charge for the year
Disposals
Exchange adjustments
At 31 March 2018
Net book value at 31 March 2018
Net book value at 31 March 2017
Land and
buildings
£m
Leasehold
improvements
£m
Plant and
equipment
£m
6.9
0.2
—
—
0.6
7.7
0.5
—
3.2
(0.1)
11.3
1.7
0.3
—
0.2
2.2
0.4
—
—
2.6
8.7
5.5
2.7
0.1
(0.2)
—
0.1
2.7
0.4
(0.7)
—
(0.1)
2.3
1.6
0.2
(0.2)
0.1
1.7
0.2
(0.7)
(0.1)
1.1
1.2
1.0
13.5
2.5
(0.7)
0.5
1.3
17.1
3.1
(0.3)
4.1
(0.5)
23.5
5.1
2.5
(0.3)
0.3
7.6
2.9
(0.3)
(0.2)
10.0
13.5
9.5
Total
£m
23.1
2.8
(0.9)
0.5
2.0
27.5
4.0
(1.0)
7.3
(0.7)
37.1
8.4
3.0
(0.5)
0.6
11.5
3.5
(1.0)
(0.3)
13.7
23.4
16.0
Land and buildings includes land with a cost of £0.8m (2017: £0.8m) that is not subject to depreciation.
At 31 March 2018 the Group had capital expenditure commitments for plant and equipment of £1.4m (2017: £nil) for which no
provision has been made.
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15. Intangible assets – goodwill
Cost
At 1 April 2016
Arising from business combinations
Exchange adjustments
At 31 March 2017
Arising from business combinations
Exchange adjustments
At 31 March 2018
Impairment
At 31 March 2017 and 31 March 2018
Net book value at 31 March 2018
Net book value at 31 March 2017
16. Impairment testing of goodwill
The carrying value of goodwill is analysed as follows:
Custom Supply
Acal BFi UK
Compotron
Medical
Design & Manufacturing
Stortech
Hectronic
MTC
Myrra
RSG
Noratel
Foss
Flux
Contour
Plitron
Variohm
Santon
Strategic report
Financial statements
£m
100.4
4.3
4.7
109.4
10.2
(0.9)
118.7
£m
(36.8)
81.9
72.6
2017
£m
3.3
5.1
0.6
3.6
0.6
2.0
5.1
1.2
30.1
5.7
0.6
7.7
1.2
5.8
—
72.6
2018
£m
3.3
5.2
0.6
3.6
0.6
2.0
5.2
1.3
29.2
5.6
0.6
7.7
1.1
6.0
9.9
81.9
Goodwill acquired through business combinations is allocated to cash-generating units (CGUs).
The movement in goodwill compared with prior year relates to the movement in foreign exchange with the exception of
Santon which was acquired in the year and Variohm, where the provisional fair value of acquired net assets was finalised
during the year (refer to note 11 for details).
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135
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
16. Impairment testing of goodwill continued
The recoverable amount of each remaining CGU is based on value in use calculations and management’s view of the
recoverable amount. The key assumptions in these calculations relate to future revenue and margins. Cash flow forecasts
for the five-year period from the reporting date are based on 2019 budget and management projections thereon. Revenue
growth rates in the post-budget management projections between 5% and 10% (2017: between 2.5% and 10%) have been
used depending on size and sector in which the CGU operates. Annual cash flow growth rates beyond the five-year period are
assumed at 2% (2017: 2%-2.5%) for all CGUs in line with the average long term growth rate for the relevant markets.
Discount rates reflect the current market assessment of the risks specific to each CGU. The discount rate was estimated
based on the average percentage of a weighted average cost of capital for the industry and then further adjusted to reflect
management’s assessment of any risk specific to the Group. The pre-tax discount rate applied to the cash flow projections of
CGUs varies from 10% to 15% (2017: 11% to 16%).
Sensitivity to changes in assumptions
The Group has conducted sensitivity analysis on the impairment test of each CGUs carrying value. With regard to all the CGUs
above, the Directors believe that no reasonably possible changes in any of the key assumptions would cause the carrying
value of the CGU to materially exceed its recoverable amount, with the exception of Acal BFi UK. For the Acal BFi UK CGU,
with allocated goodwill of £3.3m, there is a reasonably possible change in the key assumption of revenue growth which could
erode the estimated headroom amount by which the carrying value of the CGU exceeds its recoverable amount. A compound
annual growth rate (CAGR) in revenues of less than 2% for the five-year forecast period would result in the recoverable amount
of the business equalling its carrying value.
17. Intangible assets – other
Cost
At 1 April 2016
Arising from business combinations
Additions
Disposals
Exchange adjustment
At 31 March 2017
Arising from business combinations
Additions
Exchange adjustment
At 31 March 2018
Accumulated amortisation
At 1 April 2016
Disposals
Charge for the year
Exchange adjustment
At 31 March 2017
Charge for the year
Exchange adjustment
At 31 March 2018
Net book value at 31 March 2018
Net book value at 31 March 2017
Acquired intangibles
Software &
Development
£m
Customer/
Supplier
Relationships
£m
Patents &
Brands
£m
10.2
—
0.6
(0.2)
0.2
10.8
—
0.6
0.1
11.5
7.7
(0.2)
0.7
0.1
8.3
0.6
0.2
9.1
2.4
2.5
28.7
5.8
—
—
2.2
36.7
7.9
—
(0.7)
43.9
6.6
—
3.9
0.6
11.1
4.9
(0.2)
15.8
28.1
25.6
0.8
—
—
—
—
0.8
2.6
—
—
3.4
0.8
—
—
—
0.8
—
—
0.8
2.6
—
Total
£m
39.7
5.8
0.6
(0.2)
2.4
48.3
10.5
0.6
(0.6)
58.8
15.1
(0.2)
4.6
0.7
20.2
5.5
—
25.7
33.1
28.1
The computer software capitalised at 31 March 2018 includes the implementation of an ERP system within the Acal BFi
business. This ERP system has a carrying amount of £0.5m (2017: £0.6m).
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Strategic report
Financial statements
18. Investments in associates
Cost
At 31 March 2017 and 31 March 2018
Impairment
At 31 March 2017 and 31 March 2018
Net book amount 31 March 2017 and 31 March 2018
Associates
Scientific Digital Business (Pte) Ltd
£m
5.4
(5.4)
—
Country of incorporation
Singapore
% equity interest
2018 and 2017
40
Impairment of associate investments
In 2009, the Directors took the view that the associate investments should be fully impaired, due to continuing losses in those
businesses. There have been no changes in 2018 that would lead to these impairments being reversed.
19. Inventories
Finished goods and goods for resale
Raw materials and work in progress
Total inventories
As at 31 March 2018, the provision for realisable value against total inventories was £6.6m (2017: £7.1m).
20. Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
2018
£m
38.2
22.4
60.6
2018
£m
74.4
5.2
2.8
82.4
2017
£m
31.0
19.1
50.1
2017
£m
69.1
4.9
3.3
77.3
Trade receivables are non-interest bearing; are generally on 30 to 60 days’ terms and are shown net of a provision for
impairment. As at 31 March 2018, trade receivables of £0.8m (2017: £0.9m) were impaired and fully provided for. Movements in
the provision for impairment of receivables were as follows:
At 1 April
Charge for the year
Amounts written off
Exchange adjustments
At 31 March
2018
£m
0.9
0.1
(0.2)
—
0.8
2017
£m
1.2
0.1
(0.5)
0.1
0.9
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137
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
20. Trade and other receivables continued
As at 31 March, the analysis of trade receivables that were past due but not impaired is as follows:
Neither past
due nor
impaired
£m
62.5
58.9
Total
£m
74.4
69.1
<30
days
£m
9.7
7.3
2018
2017
21. Cash and cash equivalents
Cash at bank and in hand
Past due but not impaired
30–60 days
£m
60–90 days
£m
90–120 days
£m
1.1
1.1
0.5
1.4
0.2
—
2018
£m
21.9
>120
days
£m
0.4
0.4
2017
£m
21.0
Cash at bank earns interest at floating rates, based on daily bank deposit rates. Short-term deposits are made for varying
periods of between one day and three months depending on the immediate cash requirements of the Group and earn
interest at the respective short-term deposit rates. The Group only deposits cash surpluses with major banks of high credit
standing (£16.8m with HSBC; credit rating of AA-, £2.8m with Danske Bank; credit rating of A and the remaining balance of
£2.3m with various financial institutions; credit rating of BBB- or higher) in line with its treasury policy. The fair value of cash and
cash equivalents is £21.9m (2017: £21.0m).
22. Financial liabilities
Bank overdrafts
Unsecured bank loans
Revolving Credit Facility (RCF)
Capitalised debt costs
Total other financial liabilities
Trade and other payables
Total
Effective
interest rate
%
Maturity
Variable On demand
Variable
Variable
Current
Non-current
2018
£m
5.7
1.0
—
(0.3)
6.4
71.0
77.4
2017
£m
1.2
0.1
—
(0.3)
1.0
63.2
64.2
2018
£m
—
0.2
68.3
(0.6)
67.9
6.2
74.1
2017
£m
—
0.1
50.8
(0.9)
50.0
3.3
53.3
Interest on overdrafts is based on floating rates linked to LIBOR.
Included in unsecured bank loans are euro-denominated loans of £0.9m carrying fixed interest rates of between 2% and 8%.
At 31 March 2018, the revolving credit facility drawdowns of £68.3m were denominated primarily in Sterling, US Dollars, Euros
and Norwegian Kroner which bear interest based on LIBOR, USDLIBOR, EURIBOR and NIBOR respectively, plus a facility
margin. The facility is secured against the shares of certain Group subsidiaries.
Trade and other payables above include only contractual obligations.
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Strategic report
Financial statements
2–5
years
£m
67.9
6.2
74.1
2–5
years
£m
50.0
3.3
53.3
2018
£m
14.1
50.8
3.6
5.8
74.3
Total
£m
74.3
77.2
151.5
Total
£m
51.0
66.5
117.5
2017
£m
15.8
23.6
6.0
5.6
51.0
22. Financial liabilities continued
The maturity of the carrying value of the gross contractual financial liabilities is as follows:
At 31 March 2018
Fixed and floating rate
Trade and other payables
At 31 March 2017
Floating rate
Trade and other payables
Within
1 year
£m
6.4
71.0
77.4
Within
1 year
£m
1.0
63.2
64.2
The carrying amount of the Group’s borrowings is denominated in the following currencies:
Sterling
Euro
US dollar
Other currencies
23. Movements in cash and net debt
Year to 31 March 2018
Cash at bank and in hand
Bank overdrafts
Cash and cash equivalents
Bank loans under one year
Bank loans over one year
Capitalised debt costs
Total loan capital
Net debt
1 April
2017
£m
21.0
(1.2)
19.8
(0.1)
(50.9)
1.2
(49.8)
(30.0)
Cash
flow
£m
1.9
(5.0)
(3.1)
(0.9)
(18.0)
—
(18.9)
(22.0)
Non cash
changes
£m
31 March
2018
£m
(1.0)
0.5
(0.5)
—
0.4
(0.3)
0.1
(0.4)
21.9
(5.7)
16.2
(1.0)
(68.5)
0.9
(68.6)
(52.4)
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139
139
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
23. Movements in cash and net debt continued
Bank loans over one year above include £68.3m (2017: £50.8m) drawn down against the Group’s revolving credit facility.
Year to 31 March 2017
Cash at bank and in hand
Bank overdrafts
Cash and cash equivalents
Bank loans under one year
Bank loans over one year
Capitalised debt costs
Total loan capital
Net debt
Supplementary information to the statement of cash flows
Underlying Performance Measure
(Decrease)/increase in net cash
Add: Business combinations
Exceptional cash flow
Legacy pension scheme funding
Dividends paid
Notional repurchase of share options
Less: Net proceeds from share issue
Free cash flow
Net finance costs
Taxation
Operating cash flow
1 April
2016
£m
18.7
(0.7)
18.0
(0.1)
(57.2)
1.2
(56.1)
(38.1)
Cash
flow
£m
Non cash
changes
£m
31 March
2017
£m
(1.2)
(0.1)
(1.3)
0.4
8.8
—
9.2
7.9
3.5
(0.4)
3.1
(0.4)
(2.5)
—
(2.9)
0.2
2018
£m
(22.0)
25.4
1.8
1.7
6.2
1.5
—
14.6
2.6
3.7
20.9
21.0
(1.2)
19.8
(0.1)
(50.9)
1.2
(49.8)
(30.0)
2017
£m
7.9
13.8
6.4
1.6
5.2
—
(13.6)
21.3
2.8
3.0
27.1
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24. Reconciliation of cash flows from operating activities
Profit for the year
Tax expense
Net finance costs
Depreciation of property, plant and equipment
Amortisation of intangible assets – other
Loss on disposal of property, plant and equipment
Acquisition related contingent consideration
Change in provisions
Pension scheme funding
IAS 19 pension administration charge
Equity-settled share-based payment expense
Operating cash flows before changes in working capital
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
(Increase)/decrease in working capital
Cash generated from operations
Interest paid
Income taxes paid
Net cash flow from operating activities
25. Provisions
At 1 April 2017
Arising during the year
Arising from business combinations
Released during the year
Reclassified to other creditors
Utilised
Exchange difference
At 31 March 2018
Analysis of total provisions:
Current
Non-current
Severance and
retirement
indemnity
£m
3.2
0.8
0.1
—
—
(1.1)
(0.1)
2.9
Strategic report
Financial statements
2018
£m
11.8
4.0
2.7
3.5
5.5
—
—
(3.5)
(1.7)
0.3
0.7
23.3
(7.7)
(0.6)
6.7
(1.6)
21.7
(3.0)
(3.7)
15.0
Other
£m
1.5
0.1
0.3
(0.6)
(0.1)
(0.3)
(0.1)
0.8
2018
£m
0.9
2.8
3.7
2017
£m
3.5
1.3
2.9
3.0
4.6
0.2
(1.6)
1.4
(1.6)
0.3
0.6
14.6
(0.1)
(3.8)
9.8
5.9
20.5
(3.0)
(3.0)
14.5
Total
£m
4.7
0.9
0.4
(0.6)
(0.1)
(1.4)
(0.2)
3.7
2017
£m
2.2
2.5
4.7
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141
141
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
25. Provisions continued
Severance and retirement indemnity
The severance provision relates to severance costs payable to employees.
Retirement indemnity provision of £2.1m (2017: £1.9m), relates to retirement and leaving indemnity schemes in Sri Lanka, India,
France and Italy. The schemes are unfunded. The service cost, representing deferred salaries accruing to employees, is included
as an operating expense and determined by reference to local laws and actuarial assumptions where applicable. The key
actuarial assumptions used in relation to valuation of the Sri Lankan scheme comprise of mortality rates, staff turnover (16% up
to age of 50 and nil% thereafter), retirement age (55 years), discount rate (11%) and salary increases (7% to 9%).
Other
Other provisions relate to warranty provisions, onerous contracts, dilapidations and restructuring. The provisions greater than
one year are expected to be utilised within one to three years.
26. Financial risk controls
Management of financial risk
The main financial risks faced by the Group are credit risk, liquidity risk and market risk, which include interest rate risk
and currency risk. The Board regularly reviews these risks and has approved written policies covering the use of financial
instruments to manage these risks.
The Group Finance Director retains the overall responsibility and management of financial risk for the Group. Most of the
Group’s financing and interest rate and foreign currency risk management is carried out centrally at Group head office. The
Board approves policies and procedures setting out permissible funding and hedging instruments, exposure limits and a
system of authorities for the approval of transactions.
Management of interest rate risk
The Group has exposure to interest rate risk arising principally from changes in Euro, Sterling and US Dollar interest rates. The
Group does not hedge against exposure to interest rate risk.
Based on the Group’s debt position at the year end, a 1% increase in interest rates would decrease the Group’s profit before tax
by approximately £0.5m (2017: £0.5m).
Management of foreign exchange risk
The Group’s Shareholders’ equity, earnings and cash flows are exposed to foreign exchange risks, due to the mismatch
between the currencies in which it purchases stock and the final currency of sale to its customers.
It is Group policy to hedge identified significant foreign exchange exposure on its committed operating cash flows. This is
carried out centrally based on forecast orders and sales.
The following table demonstrates the sensitivity to a 10% change in the US Dollar and Euro rates against Sterling with all other
variables remaining constant, of the Group’s profit before tax, due to changes in the fair value of monetary assets and liabilities.
Profit before tax – (loss)/gain
10% appreciation
10% depreciation
£
currency impact
US$
currency impact
Euro
currency impact
2018
£m
(0.3)
0.3
2017
£m
(0.8)
1.0
2018
£m
1.5
(1.6)
2017
£m
1.6
(1.6)
2018
£m
(0.6)
0.7
2017
£m
(0.6)
0.8
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Strategic report
Financial statements
26. Financial risk controls continued
Management of credit risk
Credit risk exists in relation to customers, banks and insurers. Exposure to credit risk is mitigated by maintaining credit control
procedures across a wide customer base.
The Group is exposed to credit risk that is primarily attributable to its trade and other receivables. This is minimised by dealing
with recognised creditworthy third parties who have been through a credit verification process. The maximum exposure to
credit risk is limited to the carrying value of trade and other receivables.
As well as credit risk exposures inherent within the Group’s outstanding receivables, the Group is exposed to counterparty
credit risk arising from the placing of deposits and entering into derivative financial instrument contracts with banks and
financial institutions.
The Group manages exposure to credit risk by entering into financial instrument contracts only with highly credit-rated
authorised counterparties which are reviewed and approved annually by the Board.
Counterparties’ positions are monitored on a regular basis to ensure that they are within the approved limits and that there
are no significant concentrations of credit risks.
Management of liquidity risk
The Group manages its exposure to liquidity risk and maximises its flexibility in meeting changing business needs by
managing the cash generation of its operations, combined with bank borrowings and access to long term debt. In its funding
strategy, the Group’s objective is to maintain a balance between the continuity of funding and flexibility through the use of
overdrafts, bank loans and facilities.
At 31 March 2018, the Group had net cash of £15.5m (2017: £20.0m), excluding long term borrowings of £67.9m (2017: £50.0m).
The Group had total working capital facilities available of £130.3m (2017: £132.6m) with a number of major UK and overseas
banks, of which £128.3m (2017: £128.6m) were committed facilities. The Group had drawn £75.2m against total facilities at 31
March 2018. As part of taking out the committed facilities with a syndicate of three major banks, all of the previous facilities of
the Group were cancelled. The maturity of committed facilities is to 19 July 2021. The facilities are subject to certain financial
covenants, which, following review, had significant headroom at 31 March 2018.
Management of capital
The Group aims to maximise Shareholder value by maintaining an appropriate debt/equity capital structure. It uses a number
of mechanisms to manage debt/equity levels, as appropriate, in the light of economic and trading conditions, and the future
capital investment requirements of the business. Capital is made up entirely of equity and is analysed in the consolidated
statement of changes in equity. Trading capital is made up of net operating assets, which include tangible and intangible
assets (excluding goodwill) plus working capital.
27. Financial assets and liabilities
Fair values
Set out below is a comparison by category of carrying amounts and fair values of the Group’s financial instruments that are
carried in the financial statements.
Financial assets
Cash at bank and in hand
Financial liabilities at amortised cost
Bank overdrafts and short-term borrowings
Non-current interest-bearing loans and borrowings:
Fixed and floating rate borrowings
Contingent consideration
Forward contracts
Carrying
amount
2018
£m
Fair
value
2018
£m
Carrying
amount
2017
£m
Fair
value
2017
£m
21.9
21.9
21.0
21.0
(6.4)
(6.4)
(1.0)
(1.0)
(67.9)
(6.2)
(0.1)
(67.9)
(6.2)
(0.1)
(50.0)
(50.0)
(3.7)
—
(3.7)
—
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143
143
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
27. Financial assets and liabilities continued
The fair value of loans and borrowings has been calculated by discounting future cash flows, where material, at prevailing
market interest rates.
Short-term trade and other receivables, payables and provisions have been excluded from the above table as their book values
approximate fair values.
At 31 March 2018, the Group held forward currency hedging contracts with a realised fair value of £0.1m (2017: £nil) is included
in the income statement. The fair value of the forward contracts at 31 March 2018 has been estimated using an independent
forward pricing present value calculation (level 2).
All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, based on
the lowest level input that is significant to the fair value measurement as a whole, as follows:
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable
Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
All financial instruments above are classified as Level 1 and Level 2 with the exception of contingent consideration which is
classified as Level 3. There were no transfers between Level 1 and Level 2 fair value measurements during the period, and no
transfers into or out of Level 3 fair value measurements during the year.
28. Trade and other payables
Current
Trade payables
Other payables
Accrued expenses and deferred income
2018
£m
51.8
19.2
10.2
81.2
2017
£m
45.8
19.0
7.5
72.3
Trade payables are non-interest bearing and are settled taking into account local best practice. Other payables are non-
interest bearing and are settled throughout the year. Accrued expenses are non-interest bearing and are settled throughout
the year. Deferred income is recognised over the term of the underlying contract. Included in other payables is contingent
consideration of £1.8m which relates to the acquisition of Variohm.
Non-Current
Other payables
2018
£m
6.2
2017
£m
3.3
Included in non-current trade and other payable is contingent consideration on acquired businesses. Of the total £6.2m (2017:
£3.3m) deferred consideration, £5.5m contingent consideration relates to the acquisition of Santon (refer to note 11) and £0.7m
contingent consideration relates to the acquisition of Contour.
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Financial statements
29. Share capital
Allotted, called up and fully paid
Ordinary shares of 5p each
2018
Number
71,417,857
2018
£m
2017
Number
3.6
70,680,974
2017
£m
3.5
On 1 February 2018 the Company issued 223,648 new ordinary shares (“Consideration Shares”) to the Shareholders of the
Santon Group (“Santon”) in connection with the acquisition of Santon. The fair value of the shares issued was £0.9m.
The difference between the nominal value of the shares issued and the gross proceeds has been credited to the share
premium account.
The new shares issued rank pari passu in all respects with the existing shares issued, including the right to receive all dividends
and other distributions declared, made or paid on the existing ordinary shares.
During the year to 31 March 2018, employees exercised 513,235 share options under the terms of the various share option
schemes (2017: 50,098).
30. Commitments and contingencies
Operating lease commitments
The Group leases various buildings under non-cancellable operating lease agreements. The leases have varying terms,
escalation clauses and renewal rights.
The Group also leases certain motor vehicles and items of machinery. These leases have an average life of between three and
five years with no renewal option included in the contracts. There are no restrictions placed upon the lessee by entering into
these leases.
Future minimum rentals payable under non-cancellable operating leases are as follows:
Due within one year
Due after one year but not more than five years
Due after more than five years
2018
£m
5.4
9.8
0.6
15.8
2017
£m
4.6
9.0
1.0
14.6
Future minimum sublease rentals expected to be received over the term of non-cancellable operating leases are £0.1m (2017:
£0.1m).
31. Share-based payment plans
The Group operates various share-based payment plans. The various schemes are explained below and have been separated
into two separate disclosures. The charge to the income statement in respect of each of these schemes is:
a) Approved and Unapproved Executive Share Option Schemes
b) discoverIE Group plc long term incentive plan (“the LTIP”)
2018
£m
—
0.7
0.7
2017
£m
—
0.6
0.6
a) Approved and Unapproved Executive Share Option Schemes
The Group operates an approved and an unapproved executive share option scheme, the rules of which are similar in all
material respects. The grant of options to Executive Directors and senior management is recommended by the Remuneration
Committee on the basis of their contribution to the Group’s success. The options vest after three years.
The exercise price of the options is equal to the closing mid-market price of the shares on the trading day prior to the date of
the grant. Exercise of all options is subject to continued employment. The life of each option granted is seven years. There are
no cash settlement alternatives.
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
31. Share-based payment plans continued
Options are valued using the Black-Scholes option-pricing model. No non-market performance conditions were included in
the fair value calculations.
The fair value per option granted and the assumptions used in the calculation are as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free rate of return
Expected dividends expressed as a dividend yield
Fair value
29 March
2018
31 March
2017
1 August
2016
£2.20
£2.2625
4
£2.13
£2.195
4
35,098
30,394
3
3
£4.15
£4.02
3
14,278
3
32.87%
37.69%
38.12%
10
7
1.11%
2.4%
£0.86
10
7
0.58%
4.07%
£0.54
10
7
0.59%
3.10%
£0.62
The expected volatility is based on historical volatility over the previous five years. The expected life is the average expected
period to exercise. The risk-free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the
assumed option life.
The total charge for the year relating to the approved and unapproved share option schemes was £nil (2017: £nil).
Outstanding share options
A summary of the options over ordinary shares that have been granted under various Group share option schemes and remain
outstanding is given below:
31 March 2018
Outstanding at
1 April 2017
Forfeited
during the year
Exercised
during the year
Granted
during the year
Outstanding at
31 March 2018
Exercise price
(pence)
Exercise
dates
56,457
18,196
15,320
14,331
23,791
35,098
—
163,193
—
—
—
—
—
—
—
—
(18,819)
—
(15,320)
—
—
—
—
(34,139)
—
—
—
—
—
—
14,278
14,278
37,638
18,196
—
14,331
23,791
35,098
14,278
143,332
148.00
201.00
218.00
302.00
226.25
219.50
402.00
2013–2020
2016–2024
2017–2024
2018–2025
2019–2026
2020–2027
2021–2028
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Financial statements
31. Share-based payment plans continued
At 31 March 2017
Outstanding at
1 April 2016
Forfeited
during the year
Exercised
during the year
Granted
during the year
Outstanding at
31 March 2017
Exercise price
(pence)
Exercise
dates
56,457
39,919
21,397
18,842
—
—
136,615
—
—
(6,077)
(4,511)
(6,603)
—
(17,191)
—
(21,723)
—
—
—
—
(21,723)
—
—
—
—
30,394
35,098
65,492
56,457
18,196
15,320
14,331
23,791
35,098
163,193
148.00
201.00
218.00
302.00
226.25
219.50
2013–2020
2016–2024
2017–2024
2018–2025
2019–2026
2020–2027
Changes in share options
A reconciliation of option movements over the year to 31 March 2018 is shown below:
Outstanding at 1 April
Granted
Exercised
Forfeited
Outstanding at 31 March
Exercisable at 31 March
2018
2017
Weighted
average
exercise price
£2.01
£4.02
£1.79
—
£2.26
£1.65
Number
163,193
14,278
(34,139)
—
143,332
55,834
Weighted
average
exercise price
£1.96
£2.23
£2.01
£2.43
£2.01
£1.48
Number
136,615
65,492
(21,723)
(17,191)
163,193
56,457
The weighted average remaining contractual life for the share options outstanding at 31 March 2018 is 6.7 years
(2017: 6.9 years).
The range of exercise prices for options outstanding at the end of the year was £1.48 to £4.02 (2017: £1.48 to £3.02).
b) The LTIP
Since 2008, the Group has operated the LTIP as a principal replacement for the approved and unapproved executive share
option scheme detailed above. The LTIP involves a conditional award of shares on a grant of a nil-cost option. The award of
shares to Executive Directors and senior management is recommended by the Remuneration Committee on the basis of such
factors as their contribution to the Group’s success. The LTIPs are equity settled and there are no cash settled alternatives. The
release of an award is dependent on the individual’s continued employment for a three-year holding period from the date of
grant and the satisfaction by the Company of certain performance conditions.
For awards made in 2017 and 2018, the performance conditions are as follows:
33.3% (2017: 50%) of the award is based on the Company’s comparative total Shareholder return (“TSR”) against a
comparator group made up of the constituents of the FTSE Small Cap Index;
33.3% (2017: 50%) of the award is based on the Company’s absolute total Shareholder return as measured against the
Consumer Price Index (“CPI”); and
33.3% (2017: nil%) of the award is based on the Company’s absolute earnings per share (“EPS”) performance.
Awards are valued using the Monte Carlo Simulation and Discounted Share Price models. No non-market performance
conditions were included in the fair value calculations. The Remuneration Committee approved the 2018 awards on 28 March
2018 and a valuation of these awards was carried out in the year ended 31 March 2018. The fair value per award granted and
the assumptions used in the calculation are as follows:
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147
147
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
31. Share-based payment plans continued
Awards granted in the year ended 31 March 2018:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free rate of return
Expected dividend yield
Fair value
Awards granted in the year ended 31 March 2017:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free rate of return
Expected dividend yield
Fair value
29 March
2018
EPS
29 March
2018
TSR
29 March
2018
CPI
£4.15
£4.15
£4.15
nil
17
nil
17
nil
17
210,814
210,813
210,813
3
3
3
31.24%
31.24%
31.24%
10
5
n/a
2.4%
£3.86
10
5
0.87%
2.4%
£2.54
10
5
0.87%
2.4%
£1.01
31 March
2017
TSR
31 March
2017
CPI
£2.25
£2.25
nil
12
nil
12
394,382
394,383
3
3
31.37%
31.37%
10
5
0.12%
4.07%
£1.22
10
5
0.12%
4.07%
£0.59
The expected volatility is based on historical volatility over a term commensurate with the expected life of each award. The
expected life is the average expected period to exercise. The risk-free rate of return is the yield on zero-coupon UK government
bonds of a term consistent with the assumed option life.
The total charge for the year relating to the LTIP schemes was £0.7m (2017: £0.6m).
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Financial statements
31. Share-based payment plans continued
Outstanding LTIP
A summary of the awards that have been granted under the LTIP and remain outstanding is given below:
31 March 2018
Outstanding at
1 April 2017
Granted during
the year
Forfeited during
the year
Exercised
during the year
Outstanding at
31 March 2018
Exercise
dates
804,587
447,377
271,948
654,469
611,927
649,690
618,421
788,765
—
4,847,184
—
—
—
—
—
—
—
—
632,440
632,440
(378,156)
(426,431)
—
—
—
—
(8,102)
—
—
—
—
—
(52,918)
(33,886)
—
—
—
—
(386,258)
(513,235)
—
447,377
271,948
601,551
578,041
641,588
618,421
788,765
632,440
4,580,131
2012–2019
2013–2020
2014–2021
2015–2022
2016–2023
2020–2025
2021–2026
2022–2027
2023–2028
The 378,156 shares forfeited during the year was a notional repurchase of share options relating to a reduction in the number
of shares issued on the exercise of options awarded under the LTIP, as a consequence of the Group agreeing to settle the PAYE
liability arising on exercise.
31 March 2017
Outstanding at
1 April 2016
Granted
during the year
Forfeited
during the year
Exercised
during the year
Outstanding at
31 March 2017
Exercise
dates
804,587
447,377
271,948
654,469
662,025
478,581
649,690
618,421
—
4,587,098
—
—
—
—
—
—
—
—
788,765
788,765
—
—
—
—
—
(478,581)
—
—
—
—
—
—
—
(50,098)
—
—
—
—
(478,581)
(50,098)
804,587
447,377
271,948
654,469
611,927
—
649,690
618,421
788,765
4,847,184
2012–2019
2013–2020
2014–2021
2015–2022
2016–2023
2017–2024
2020–2025
2021–2026
2022–2027
The weighted average remaining contractual life for the share options outstanding at 31 March 2018 is 6.5 years (2017: 6.0 years).
The range of exercise prices for options outstanding at the end of the year was nil (2017: nil).
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149
149
NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
32. Pensions
Defined contribution schemes
The Group makes payments to various defined contribution pension schemes, the assets of which are held in separately
administered funds. In the United Kingdom, the relevant scheme is the discoverIE Group plc Employee Pension Scheme
(‘the discoverIE scheme’). Contributions by both employees and Group companies are held in externally invested trustee-
administered funds.
The Group contributes a specified percentage of earnings for members of the discoverIE scheme, and thereafter has no
further obligations in relation to the discoverIE scheme. At the year end, 222 employees were active members of the discoverIE
scheme (2017: 208). The total cost charged to the consolidated income statement in relation to the UK-based discoverIE
scheme was £534,000 (2017: £520,000). Employer contributions in respect of other UK-based schemes and overseas pension
schemes were £262,000 (2017: £56,000) and £2,141,000 (2017: £1,907,000) respectively. Total contributions payable in the next
financial year are expected to be at rates broadly similar to those in 2017/18 but based on actual salary levels in 2018/19.
Defined benefit schemes
The acquisition of the Sedgemoor Group in June 1999 brought with it certain defined benefit pension schemes, the principal
one of which was the Sedgemoor Group Pension Fund (together ‘the Sedgemoor Scheme’). The Sedgemoor Scheme is
funded by the Company, provides retirement benefits based on final pensionable salary and its assets are held in a separate
trustee-administered fund.
Following the acquisition of the Sedgemoor Group, the Sedgemoor Scheme was closed to new members. Shortly thereafter,
employees were given the opportunity to join the discoverIE scheme and future service benefits ceased to accrue to members
under the Sedgemoor Scheme.
Contributions to the Sedgemoor Scheme are determined in accordance with the advice of independent, professionally
qualified actuaries and are set based upon funding valuations carried out every three years.
Based upon the results of the triennial funding valuation at 31 March 2015, the Sedgemoor Scheme’s Trustees agreed with
Sedgemoor Limited on behalf of the participating employers to continue the participating employers’ contributions under the
deficit recovery plan agreed at the previous valuation at 31 March 2012. This required contributions of £1.6m p.a. increasing by
3% each April payable over the period to 31 March 2022. These contributions will be reviewed as part of the triennial funding
valuation as at 31 March 2018 being carried out this year.
The estimated amount of employer contributions expected to be paid to the Sedgemoor Scheme during 2018/19 is £1.7m
(2017/18: £1.7m).
The results of the triennial funding valuation as at 31 March 2015 were updated to the accounting date by an independent
qualified actuary in accordance with IAS 19.
The main actuarial assumptions used are set out as follows:
Rate of increase of salaries
Rate of increase of pensions in payment
Discount rate
Inflation assumption – RPI
Inflation assumption – CPI
2018
n/a
2.4%
2.6%
3.2%
2.1%
2017
n/a
2.4%
2.4%
3.2%
2.1%
The discount rate is based on the yields on AA grade sterling corporate bonds at the reporting date.
Pensioner mortality assumptions are based on the ‘S2NA’ table, projected from 2007 and with long term improvement
rates in line with CMI 2017 core projections based on each member’s actual date of birth with a long term annual rate of
improvement of 1.25% for males and for females (last year CMI 2015 core projections were used rather than CMI 2017).
The weighted average duration of the defined benefit obligation at 31 March 2018 was 13 years (2017: 14 years).
The investment strategy is set by the Trustee of the Sedgemoor Scheme in consultation with the Company. The current
strategy is to invest 50% of the assets in equities, property and other return seeking investments and 50% in liability driven
investments, corporate bonds, cash and other bond related instruments. As at 31 March 2018 the investment strategy hedged
60% of interest rate risk and 60% of inflation risk relative to the Sedgemoor scheme’s liability value for cash funding purposes.
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Financial statements
32. Pensions continued
The Sedgemoor Scheme assets are held exclusively within instruments with quoted prices in an active market, other than the
property fund. Re-measurements are recognised immediately through other comprehensive income.
The charges recognised in the consolidated income statement in respect of defined benefit schemes are as follows:
Pension administration costs (recognised in administrative expenses)
Net interest cost on pension scheme deficit (recognised in finance cost)
Total
The charges recognised in the consolidated statement of comprehensive income are as follows:
Re-measurement (losses) / gains:
Return on plan assets (excluding amounts included in net interest expense)
Actuarial changes arising from changes in financial assumptions
Reversal of deferred tax movement on funding surplus under IAS 19 valuation
Actuarial gains/(losses) recorded in the consolidated statement of comprehensive income
2018
£m
0.3
0.1
0.4
2018
£m
(0.2)
1.9
0.4
2.1
2017
£m
0.3
0.1
0.4
2017
£m
2.3
(4.6)
0.3
(2.0)
The fair value of assets and expected rates of return used to determine the amounts recognised in the consolidated statement
of financial position are as follows:
Equities
Bonds
Property
Absolute Return Fund
Diversified Growth Fund
Cash
Liability driven investments
Fair value of scheme assets
Present value of funded defined benefit obligations
Liability recognised in the consolidated statement of financial position
2018
£m
3.4
10.0
3.9
5.7
5.1
2.3
6.2
36.6
(39.6)
(3.0)
2017
£m
4.1
11.6
3.7
5.1
5.4
2.7
3.9
36.5
(42.9)
(6.4)
Included in the pension liability of £3.0m (2017: £6.4m) is deferred tax of £nil (2017: £0.4m) in relation to a funding surplus
under IAS 19 based on the agreed funding plan. Excluding deferred tax liability, the pension liability at the year end was £3.0m
(2017: £6.0m).
Changes in the present value of the defined benefit obligation are as follows:
Opening defined benefit obligation
Net interest cost
Actuarial (gains)/losses due to:
Changes in financial assumptions
Reversal of deferred tax movement on funding surplus under IAS 19 valuation
Benefits paid
Closing defined benefit obligations
2018
£m
42.9
1.0
(1.9)
(0.4)
(2.0)
39.6
2017
£m
39.4
1.2
4.6
(0.3)
(2.0)
42.9
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151
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
32. Pensions continued
Changes in the fair value of the scheme assets are as follows:
Opening fair value of scheme assets
Interest on scheme assets
Actual return on plan assets less interest on plan assets
Pension administration costs
Contributions
Benefits paid
Closing fair value of scheme assets
Sensitivities
The sensitivity of the 2018 pension liabilities to changes in assumptions are as follows:
Assumption
Discount rate
Inflation
Life expectancy
2018
£m
36.5
0.9
(0.2)
(0.3)
1.7
(2.0)
36.6
2017
£m
33.8
1.1
2.3
(0.3)
1.6
(2.0)
36.5
Change in
assumption
Decrease by 0.5%
Increase by 0.5%
Increase by 1 year
Increase in
scheme deficit
£m
2.7
1.1
2.3
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33. Related party disclosures
As at 31 March 2018 the Group’s subsidiaries are set out below. The group holds (directly or indirectly) 100% of the total voting
rights of all subsidiaries.
Name and nature of business
Registered Office
Custom Supply
Acal BFi UK Limited
Acal Central Procurement UK Ltd
Vertec Scientific Limited
Vertec Scientific SA (pty) Ltd
Acal BFi France SAS
3 The Business Centre, Molly Millars Lane,
Wokingham, RG41 2EY
3 The Business Centre, Molly Millars Lane,
Wokingham, RG41 2EY
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
8 Charmaine Avenue, President Ridge, Randburg
2194
4 Allée du Cantal – ZI Petite Montagne Sud –
91090 LISSES
Acal BFi Belgium NV/SA
Lozenberg 4, 1932 Zaventem
Acal BFi Germany GmbH
Assar-Gabrielsson-Straße 1, 63128, Dietzenbach,
Germany
Country of
incorporation
and registration Type of share
England
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
South Africa
Ordinary Shares
France
Ordinary Shares
Belgium
Germany
Ordinary Shares
Ordinary Shares
Acal BFi Nordic AB
P.O. Box 3002, 750 03 Uppsala, Sweden
Sweden
Ordinary Shares
Acal BFi Netherlands BV
Luchthavenweg 53, 5657EA, Eindhoven
Netherlands
Ordinary Shares
Acal BFi Italy Srl
Via Cascina Venina n.20/A, 20090 Assago, Milan
Italy
Ordinary Shares
Design & Manufacturing
Myrra SAS
2 Boulevard de La Haye, 77600 Bussy, Saint
Georges
France
Ordinary Shares
Myrra Poland Sp
Ul Warszawska 1, 05-310 Kaluszyn
Zhongshan Myrra Electronic Co Ltd
39-2 Industrial Road, Xiaolan Industrial Park,
Xiaolan Town 528400, Guandong
Poland
China
Ordinary shares
Ordinary shares
Myrra Hispania Srl
Myrra Germany GmbH
Myrra Hong Kong Ltd
Noratel AS
Noratel UK Ltd
Noratel Spain SL
Noratel Denmark A/S
Noratel Finland OY
Foshan Noratel Electric Co Ltd
c/Mataro 43 Pol. Ind. les Grases, 08980 Saint Feliu
De Llobregat, Barcelona
Spain
Ordinary shares
Lebacher Strabe 4, 66113 Saarbrucken
Germany
Ordinary shares
42/F Central Plaza,18 Harbour Road, Wanchai,
Hong Kong
Postboks 133, Hokksund, 3301
7 George House, Princes Court, Beam Heath Way,
Nantwich, Cheshire CW5 6GD
C/Ramon Gomez de la Serna no. 5, 1E, 29602
Marbella-Malaga
Hong Kong
Ordinary shares
Norway
England
Ordinary shares
Ordinary shares
Spain
Ordinary shares
Kirkebjerg Parkvej 45, Brøndby 2605
Denmark
Ordinary shares
Kiertokatu 5, PB 11, Salo 24280
NO 22-2 Xingye Road, Zone C Shishan Science &
Technology Industrial Park, Nanhai Distric, Foshan
City, Guangdong Providence 528225
Finland
China
Ordinary shares
Ordinary shares
Noratel Germany AG
Elsenthal 53, Grafenau DE-94481
Germany
Ordinary shares
Noratel India Power Components Pvt
Ltd
Nila Techopark, Trivandrum 695581
India
Ordinary shares
Noratel SP Z.o.o
ul. Szczecinska 1K, Dobra Szczecinska PL-72-003
Poland
Ordinary shares
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153
153
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
33. Related party disclosures continued
Name and nature of business
Registered Office
Country of
incorporation
and registration Type of share
Danselbud Noratel Transformator Sp
Zoo
ul. Szczecinska 1K, Dobra Szczecinska PL-72-003
Poland
Ordinary shares
Noratel International Pvt Ltd
P.O Box 15, phase II, Katunayanke KEPZ
Noratel Sweden AB
Lars Lindahlsväg 2, Bo Lars Lindahlsväg 2, Box 108,
Laxå 69522 x 108, Laxå 69522
Noratel North America Inc
# 300. 7731 Little Avenue, Charlotte NC 28226
Noratel Power Engineering Inc
# 1117 East Janis Street, Carson, CA 90746
Foss Fiberoptisk Systemsalg AS
Dansrudveien 45, N-3036 Drammen
Foss Fibre Optics s.r.o
Strojnicka 29, SK-821 05 Bratislava
Flux A/S
Flux International Ltd
Industrivangen 5, 4550 Asnaes
BLK C 5, 41/27 Bangna-Trad KM. 16.5, Bangchalong,
Bangplee
Hectronic AB
P.O. Box 3002, 750 03 Uppsala, Sweden
RSG Electronic Components GmbH
Sprendlinger Landstr. 115, 63069 Offenbach,
Germany
Sri Lanka
Sweden
USA
USA
Norway
Slovakia
Denmark
Thailand
Sweden
Germany
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary Shares
Ordinary Shares
MTC Micro Tech Components GmbH Hausener Straße 9, 89407 Dillingen a.d., Donau
Germany
Ordinary Shares
EMC Innovation Limited
Woolim Lions Valley C-409,
South Korea
Ordinary Shares
Stortech Electronics Limited
Contour Electronics Limited
Contour Electronics Asia Limited
283 Bupyeong-daero, Bupyeong-gu, Incheon
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
Room 601, 6/F Shing Yip Industrial Building, 19-21
Shing Yip Street, Kwun Teng, Kowloon
England
Ordinary Shares
England
Ordinary Shares
Hong Kong
Ordinary shares
Plitron Manufacturing Incorporated
8-601 Magnetic Drive, Toronto, Ontario, M3J 3J2
Canada
Ordinary shares
Ixthus Instrumentation Limited
Heason Technology Limited
Herga Technology Limited
Variohm-Eurosensor Limited
EWAC Holding B.V.
Santon Holland B.V.
Santon Group B.V.
Santon Switchgear Limited
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
England
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
Hekendorpstraat 69, 3079 DX Rotterdam
Netherlands
Ordinary shares
Hekendorpstraat 69, 3079 DX Rotterdam
Netherlands
Ordinary Shares
Hekendorpstraat 69, 3079 DX Rotterdam
Netherlands
Ordinary Shares
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
England
Ordinary Shares
Santon Circuit Breaker Services B.V.
Hekendorpstraat 69, 3079 DX Rotterdam
Netherlands
Ordinary Shares
Santon Hakendorps-traat B.V.
Hekendorpstraat 69, 3079 DX Rotterdam
Netherlands
Ordinary Shares
Santon International B.V.
Hekendorpstraat 69, 3079 DX Rotterdam
Netherlands
Ordinary Shares
Santon GmbH
Oberstrasse 1, Altes Rathaus Hinsbeck,
Postfach 5217, 41334 Nettetal
Germany
Ordinary Shares
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Financial statements
33. Related party disclosures continued
Name and nature of business
Registered Office
Management services
Country of
incorporation
and registration Type of share
discoverIE Management Services
Limited
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
England
Ordinary Shares
Holding companies
Acal Electronic Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
England
Ordinary Shares
Trafo Holding AS
Postboks 133, Hokksund, 3301
discoverIE Nordic Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
Norway
England
Ordinary Shares
Ordinary Shares
discoverIE BV
Luchthavenweg 53, 5657 EA Eindhoven
Netherlands
Ordinary shares
discoverIE Europe Holdings BV
Luchthavenweg 53, 5657 EA Eindhoven
Netherlands
Ordinary shares
Acal GmbH
Oppelner Straße 5, 82194 Gröbenzell, Germany
Germany
Ordinary Shares
Acal France Holdings SAS
Sedgemoor Limited
Contour Holdings Limited
discoverIE Electronics Limited
4 Allée du Cantal – ZI Petite Montagne Sud –
91090 LISSES
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
France
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
Aramys SAS
2 Boulevard de La Haye, 77600 Busy Saint Georges France
Ordinary shares
Variohm Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
England
Ordinary Shares
Dormant companies
Cabcon Ltd
Eurosensor Limited
Acal Supply Chain Limited
Acal BFi Iberia SL
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
C/Anabel Segura, 7, Planta Acceso, 28108
Alcobendas, Madrid
England
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
Spain
Ordinary Shares
EAF Group Holding BV
Luchthavenweg 53, 5657 EA Eindhoven
Netherlands
Ordinary shares
EAF Netherlands BV
Luchthavenweg 53, 5657 EA Eindhoven
Netherlands
Ordinary shares
Acal Electronics Limited
BFi Optilas Ltd
Sedgemoor Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
England
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
Sedgemoor Group Supplementary
Pension Trustees Limited
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
England
Ordinary Shares
Sedgemoor Group Pension Trustees
Limited
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
England
Ordinary Shares
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155
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2018
33. Related party disclosures continued
Name and nature of business
Registered Office
Townsend-Coates Limited
Actech Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
Country of
incorporation
and registration Type of share
England
Ordinary Shares
England
Ordinary Shares
Advanced Crystal Technology Limited 2 Chancellor Court, Occam Road, Surrey Research
England
Ordinary Shares
Bosunmark Limited
Gothic Crellon Limited
Radiatron Holdings Limited
Radiatron Components Limited
Amega Group Limited
Amega Electronics Limited
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford GU2 7AH
England
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
England
Ordinary Shares
All subsidiaries operate in their country of incorporation. All material subsidiaries have a 31 March year end and the shares carry
the same voting rights as their effective interest.
Related parties
Remuneration of key management personnel
The remuneration of the Directors, who are key management personnel of the Group, is set out below in aggregate for each
of the categories specified in IAS 24 ‘Related Party Disclosures’. Further information about the remuneration of individual
Directors is provided in the Directors Remuneration report on pages 76 to 98.
Short-term employee benefits
Share-based payments
2018
£m
1.2
1.5
2.7
2017
£m
1.1
—
1.1
Associate Undertakings
Details of the Group’s investments in associates are provided in note 18.
Terms and conditions of transactions with related parties
All transactions with related parties were on an arm’s length basis. Outstanding balances at year end are unsecured and
settlement occurs in cash.
Transactions with other related parties
Details of transactions with Directors are detailed in the Remuneration report on pages 76 to 98.
156
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Financial statements
34. Events after the reporting date
Dividend
A final dividend of 6.35p per share (2017: 6.05p), amounting to a dividend of £4.5m (2017: £4.3m) and bringing the total
dividend for the year to 9.0p (2017: 8.50p), was declared by the Board on 29 May 2018. The discoverIE Group plc financial
statements do not reflect this dividend.
A technical non-compliance issue has been identified with respect to distributable reserves and the payment of recent
dividends. The Board is confident that there were adequate reserves in subsidiary companies to meet these dividends at the
time and that this will not impact the Group’s ability to pay future dividends. We expect to remedy the position by means of
appropriate resolutions at a general meeting of Shareholders and a circular in respect of this will be issued.
35. Exchange rates
The profit and loss accounts of overseas subsidiaries are translated into sterling at average rates of exchange for the year and
consolidated statement of financial positions are translated at year end rates. The main currencies are the US Dollar and the
Euro. Details of the exchange rates used are as follows:
US Dollar
Euro
Year to 31 March 2018
Year to 31 March 2017
Closing
rate
1.4083
1.1430
Average
rate
1.3261
1.1345
Closing
rate
1.2496
1.1689
Average
rate
1.3096
1.1921
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157
157
COMPANY BALANCE SHEET
as at 31 March 2018
Fixed assets
Investments
Current assets
Debtors
Cash at bank and in hand
Total current assets
Creditors: amounts falling due within one year
Net current liabilities
Non-current liabilities
Other financial liabilities
Other payables1
Net assets
Capital and reserves
Called up share capital
Share premium accounts
Merger reserve
Profit and loss account
Total Shareholders’ funds
Note
4
5
6
7
8
9
2018
£m
167.8
2.9
14.2
17.1
(32.6)
(15.5)
(11.1)
(0.7)
(11.8)
140.5
3.6
106.9
2.9
27.1
140.5
2017
£m
177.1
5.2
1.1
6.3
(22.5)
(16.2)
(12.0)
(1.4)
(13.4)
147.5
3.5
106.0
2.9
35.1
147.5
The loss of the parent company for the financial year was £1.0m (2017: £0.5m loss).
These financial statements were approved by the Board of Directors on 5 June 2018 and signed on its behalf by:
Nick Jefferies
Group Chief Executive
Simon Gibbins
Group Finance Director
1 2017 Contingent consideration related to acquisitions has been reclassified from provisions to other payables
158
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Financial statements
COMPANY STATEMENT OF
CHANGES IN EQUITY
for the year ended 31 March 2018
At 1 April 2016
Loss for the year
Transfers (to)/from merger reserve1
Share-based payments
Shares issued
Dividends
At 31 March 2017
Loss for the year
Notional repurchase of share options
Share-based payments
Shares issued (note 9)
Dividends
At 31 March 2018
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Profit and
loss account
£m
3.2
—
—
—
0.3
—
3.5
—
—
—
0.1
—
3.6
95.6
—
(2.9)
—
13.3
—
106.0
—
—
—
0.9
—
3.0
—
(0.1)
—
—
—
2.9
—
—
—
—
—
106.9
2.9
37.2
(0.5)
3.0
0.6
—
(5.2)
35.1
(1.0)
(1.5)
0.7
—
(6.2)
27.1
Total
£m
139.0
(0.5)
—
0.6
13.6
(5.2)
147.5
(1.0)
(1.5)
0.7
1.0
(6.2)
140.5
Out of £27.1m retained earnings above, £3.5m are available for distribution to the Shareholders.
A technical non-compliance issue has been identified with respect to distributable reserves and the payment of recent
dividends. The Board is confident that there were adequate reserves in subsidiary companies to meet these dividends at the
time and that this will not impact the Group’s ability to pay future dividends. We expect to remedy the position by means of
appropriate resolutions at a general meeting of Shareholders and a circular in respect of this will be issued.
Prior year (2017) reclassification
1 £3.0 m has been transferred from the merger reserve to the profit and loss account as the business acquisition that gave rise
to the merger relief has been sold subsequently and therefore qualifies for transfer to the profit and loss account.
£2.9m has been transferred from share premium to the merger reserve, this amount reflects the share consideration in
relation to the acquisition of Contour Holdings Limited in the year ended 31 March 2016. The fair value of shares issued over
and above the par value qualifies for merger relief under section 612 of the Companies Act 2006.
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159
159
NOTES TO THE COMPANY
FINANCIAL STATEMENTS
for the year ended 31 March 2018
1. Basis of accounting
The separate financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101
‘Reduced Disclosure Framework’ (FRS 101), on the going concern basis and under the historical convention modified for fair
values, and in accordance with the Companies Act 2006 and with applicable accounting standards.
These financial statements and accompanying notes have been prepared in accordance with the Reduced Disclosure
Framework for all periods presented.
A separate profit and loss account dealing with the results of the company has not been presented as permitted by section
408(3) of the Companies Act 2006.
The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements,
in accordance with FRS 101:
The following paragraphs of IAS 1 ‘Presentation of financial statements’
– 10(d) (statement of cash flows)
– 16 (statement of compliance with all IFRS)
– 111 (cash flow statement information)
– 134-136 (capital management disclosures)
IFRS 7 ‘Financial instruments: Disclosures’
IAS 7 ‘Statement of cash flows’
IAS 24 (paragraph 17) ‘Related party disclosures’ (key management compensation)
IAS 24 ‘Related party disclosures’ (the requirement to disclose related party transactions between two or more members of
a group)
For the following disclosures, as the Group financial statements include the equivalent disclosures, the company has taken the
exemptions available under FRS 101:
FRS 2 Share-based payments in respect of group settled equity share-based payments
Certain disclosures required by IFRS 13 Fair Value Measurement and disclosures required by IFRS 7 Financial Instrument
Disclosures
2. Summary of significant accounting policies
Going concern
The Group’s business activities, together with factors which may adversely impact its future development, performance and
position, are set out in the Strategic Report on pages 2 to 46. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Finance Review section of the Strategic Report on pages 30 to 35.
The Group has significant financial resources, well established distribution contracts with a number of suppliers and a broad
and stable customer base. As a consequence, the Directors believe that the Group is well placed to manage its principal risks
and uncertainties as disclosed on pages 38 to 41 of the Strategic Report.
The Group’s forecasts and projections, taking account of the sensitivity analysis of changes in trading performance, show that
the Group is well placed to operate within the level of its current committed facilities for the foreseeable future.
After making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the Annual Report and Accounts.
Income recognition
Dividend income is recognised when the Company’s right to receive payment is established.
Investments
Investments in subsidiary and associate undertakings are stated initially at cost, being the fair value of the consideration given
and including directly attributable transaction costs. The carrying values are reviewed for impairment if events or changes in
circumstances indicate the carrying values may not be recoverable.
160
160
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Financial statements
2. Summary of significant accounting policies continued
Dividends
Dividends are recognised when they meet the criteria for recognition as a liability. In relation to final dividends, this is when
approved by the Shareholders in general meeting, and in relation to interim dividends, when paid.
Borrowing costs
Borrowing costs are recognised as an expense in the period in which they are incurred, in accordance with the effective
interest rate method.
Share-based payments
In preparing the financial statements, the Company has applied IFRS 2 ‘Share-based payments’. Although the Company does
not incur a charge under this standard, the issuance by the Company to its subsidiaries of a grant over the Company’s options
represents additional capital contributions by the Company in its subsidiaries. The additional capital contribution is based on
the fair value of the grant issued, allocated over the underlying grant’s vesting period.
Further information on share based payments is provided in note 31 of the Group accounts.
Taxation
Corporation tax payable is provided on taxable profits at the current rate.
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance
sheet date, where transactions or events that result in an obligation to pay more tax in the future, or a right to pay less tax in
the future, have occurred at the balance sheet date. Deferred tax assets are regarded as recoverable and recognised in the
financial statements when, on the basis of available evidence, it is more likely than not that there will be suitable taxable
profits from which the future reversal of the timing differences can be deducted. Deferred tax assets and liabilities are not
discounted.
3. Profit of the parent company
The loss of the parent company for the financial year was £1.0m (2017: £0.5m loss). By virtue of section 408(3) of the Companies
Act 2006, the Company is exempt from presenting a separate profit and loss account.
4. Investments
At 1 April 2016
Adjustment to investment
Share-based payments
At 31 March 2017
Impairment of investment
Share-based payments
At 31 March 2018
Subsidiary
undertakings
£m
176.6
(0.1)
0.6
177.1
(10.0)
0.7
167.8
Details of all direct and indirect holdings in subsidiaries are provided in note 33 of the Group Financial Statements.
The investment in discoverIE Management Services Ltd was impaired by £10.0m following the annual impairment test.
The adjustment to investment in subsidiaries in the year ended 31 March 2017 relates to Contour Holdings Limited, which was
acquired in 2016.
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161
161
NOTES TO THE COMPANY
FINANCIAL STATEMENTS
for the year ended 31 March 2018
5. Debtors
Amounts falling due within one year:
Amounts owed by subsidiary undertakings
Corporation tax
Deferred tax
Prepayments
The deferred tax asset comprises temporary timing differences.
6. Creditors
Amounts falling due within one year:
Bank loans and overdrafts
Amounts owed to subsidiary undertakings
Other creditors
Accruals and deferred income
2018
£m
1.3
1.4
0.1
0.1
2.9
2018
£m
—
31.3
0.3
1.0
32.6
2017
£m
4.0
0.9
0.1
0.2
5.2
2017
£m
0.7
21.0
0.4
0.4
22.5
7. Other financial liabilities
Other financial liabilities of £11.1m at 31 March 2018 (2017: £12.0m) comprise drawdowns on the Group’s revolving credit facility
(see note 22 to the Group financial statements). The amount is denominated in Sterling and bears interest based on LIBOR.
The facility is secured against the shares of certain Group subsidiaries.
8. Other payables
Other payables
2018
£m
0.7
0.7
2017
£m
1.4
1.4
The balance at 31 March 2018 of £0.7m (2017: £1.4m) relates to contingent consideration in respect of the acquisition
of Contour.
162
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Financial statements
9. Called up share capital
Allotted, called up and fully paid
Ordinary shares of 5p each
2018
Number
71,417,857
2018
£m
2017
Number
3.6
70,680,974
2017
£m
3.5
On 1 February 2018 the Company issued 223,648 new ordinary shares (“Consideration Shares”) to the Shareholders of the
Santon Group (“Santon”) in connection with the acquisition of Santon. The fair value of the shares issued was £0.9m
The difference between the nominal value of the shares issued and the gross proceeds has been credited to the share
premium account.
The new shares issued rank pari passu in all respects with the existing shares issued, including the right to receive all dividends
and other distributions declared, made or paid on the existing ordinary shares.
At 31 March 2018, there were outstanding options for employees of subsidiaries to purchase up to 4,580,130 (2017: 4,847,184)
ordinary shares of 5p each between 2018 and 2028. The range of exercise prices was nil (2017: nil). These are subject to
certain performance conditions as disclosed in note 31 of the Group Financial Statements. During the year to 31 March 2018,
employees exercised 513,235 share options under the terms of the LTIP scheme (2017: 50,098).
10. Related parties
The Company is exempt under the terms of IAS 24 from disclosing related party transactions with wholly-owned entities that
are part of the Group as these transactions are fully eliminated on consolidation.
The Company has given guarantees and offset arrangements to support bank facilities made available to subsidiary
undertakings.
11. Share-based payments
For detailed disclosures of share-based payments granted to the employees of subsidiaries refer to note 31 of the Group
Financial Statements.
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discoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018
163
163
FIVE YEAR RECORD
Group income statement – continuing operations
Revenue
Gross profit
Underlying operating profit
Underlying profit before tax
Profit before tax
Profit for the year from continuing operations
Loss for the year from discontinued operations
Profit for the year
Earnings per share – continuing operations
Underlying diluted earnings per share
Fully diluted earnings per share
Dividend per share
Group statement of financial position
Net (debt)/cash
Non-current assets
Net assets
2018
£m
387.9
126.7
24.5
21.9
15.8
11.8
—
11.8
22.3p
15.8p
9.0p
(52.4)
144.2
129.3
2017
£m
338.2
111.0
20.0
17.2
4.8
3.5
—
3.5
19.2p
5.1p
8.5p
(30.0)
122.2
123.8
2016
£m
287.7
92.6
16.3
14.5
9.4
7.2
—
7.2
17.0p
10.9p
8.05p
(38.1)
108.4
101.9
2015
£m
271.1
84.4
13.4
11.8
4.3
2.9
—
2.9
15.4p
4.8p
7.6p
(19.0)
88.6
92.7
2014
£m
211.6
63.0
7.1
6.3
4.2
3.7
(2.4)
1.3
11.8p
8.1p
6.8p
1.8
33.1
48.5
2014 has been restated on a continuing basis. Earnings per share and dividend per share for 2014 have also been restated to
reflect the bonus element of the rights issue during 2015.
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Other information
PRINCIPAL LOCATIONS
Group head office
Country
Company
United Kingdom
discoverIE Group plc
Custom Supply division
Country
Company
Location
Guildford
Location
United Kingdom
Belgium
Denmark
Finland
France
Germany
Ireland
Italy
Netherlands
Norway
South Africa
Spain
Sweden
Wokingham, Bracknell, Milton Keynes
Acal BFi UK Limited
Acal BFi Central Procurement UK Limited Wokingham
Vertec Scientific Limited
Acal BFi Belgium NV/SA
Acal BFi Nordic AB
Acal BFi Nordic AB
Acal BFi France SAS
Acal BFi Germany GmbH
Acal BFi UK Limited
Acal BFi Italia Srl
Acal BFi Netherlands BV
Acal BFi Nordic AB
Vertec Scientific SA (pty) Ltd
Acal BFi Iberia SL
Acal BFi Nordic AB
Silchester
Brussels
Copenhagen
Helsinki
Evry
Dietzenbach, Munich
Maynooth
Milan
Eindhoven
Honefoss
Johannesburg
Madrid
Stockholm, Uppsala
Design & Manufacturing division
Country
Company
Location
United Kingdom
Canada
China
Denmark
Finland
France
Germany
Hong Kong
India
Netherlands
Norway
Poland
Slovakia
South Korea
Sri Lanka
Sweden
Thailand
USA
Contour Electronics Limited
Heason Technology Limited
Herga Technology Limited
Ixthus Instrumentation Limited
Noratel UK Limited
Santon Switchgear Ltd
Stortech Electronics Limited
Variohm-Eurosensor Limited
Plitron Manufacturing Inc
Foshan Noratel Electric Co Ltd
Zhongshan Myrra Electronic Co Ltd
Noratel Denmark A/S
Flux A/S
Noratel Finland OY
Myrra SAS
MTC Micro Tech Components GmbH
Noratel Germany AG
RSG Electronic Components GmbH
Santon GmbH
Contour Asia Ltd
Noratel India Power Components Pvt Ltd Kerala
Noratel Netherlands BV
Santon Holland BV
Foss AS
Noratel AS
Myrra Poland Sp
Noratel Sp
Foss Fibre Optics, sro
EMC Innovation Ltd
Noratel International Pvt Ltd
Hectronic AB
Noratel Sweden AB
Flux International Ltd
Noratel North America Inc.
Noratel Power Engineering Inc.
Hook
Horsham
Bury St. Edmunds
Towcester
Nantwich
Newport
Harlow
Towcester
Toronto
Foshan City
Zhongshan
Brondby
Asnaes
Salo
Bussy-Saint-Georges
Dillingen
Grafenau, Bremen
Offenbach
Nettetal
Kowloon
Nieuwegein
Rotterdam
Drammen
Hamar
Kaluszyn
Szczecinska
Bratislava
Cheongcheon-Dong
Katunayake
Uppsala
Laxa, Vaxjo
Bangkok
Charlotte
Carson
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SHAREHOLDER NOTES
166
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25971.01 14 June 2018 12:13 PM Proof 8FINANCIAL CALENDAR 2018/19Annual General Meeting26 July 2018Results Interim Report for the six months to 30 September 2018Late November 2018Preliminary announcement for the year to 31 March 2019Early June 2019Annual Report 2019Late June 2019 Dividend payments Final dividend for the year to 31 March 201831 July 2018Interim dividend for the six months to 30 September 2018Late January 2019Final dividend for the year to 31 March 2019Late July 2019CORPORATE INFORMATIONRegistered officediscoverIE Group plc 2 Chancellor Court Occam Road Surrey Research Park Guildford Surrey GU2 7AHTelephone: 01483 544500Incorporated in England and Wales with registered number: 2008246AuditorPricewaterhouseCoopers LLPCorporate solicitorsWhite & Case LLPPrincipal bankersClydesdale Bank plc Danske Bank A/S HSBC Bank plcRegistrarsEquiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DATelephone: 0371 384 2001StockbrokersPeel Hunt LLPdiscoverIE Group plc Annual Report and Accounts for the year ended 31 March 2018Other informationdiscoverIE AR2018.indd 614/06/2018 12:20:16 d
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discoverIE Group plc
2 Chancellor Court
Occam Road
Surrey Research Park
Guildford
Surrey
GU2 7AH
Telephone +44 (0)1483 544500
Fax +44 (0)1483 544550
www.discoverIEplc.com
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