DELIVERING
INNOVATIVE
ELECTRONICS FOR
A SUSTAINABLE
FUTURE
discoverIE Group plc
Annual Report and Accounts
for the year ended 31 March 2020
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Contents
Strategic report
Highlights
Investment case
Group at a glance
Chairman’s statement
Our business model
Market review
Our key markets
Our strategy
Strategy in action
Key Strategic Indicators
Key Performance Indicators
Operating review
Finance review
Risk management
04
05
06
12
16
18
19
20
22
28
29
30
40
46
Viability and going concern statements 48
Principal risks and uncertainties
Sustainability report
Corporate governance
The Board
The Group Executive Committee
Corporate Governance report
Audit and Risk Committee report
Nomination Committee report
Directors’ report
Directors’ remuneration report
Directors’ responsibilities statement
Financial statements
Independent auditor’s report
to the members of discoverIE
Group plc
Consolidated income statement
Supplementary income statement
information
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of
changes in equity
Consolidated statement of cash flows
Notes to the Group financial
statements
Company balance sheet
Company statement of changes
in equity
Notes to the Company
financial statements
Other information
Five year record
Principal locations
Financial calendar 2020/21
Corporate information
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IBC
IBC
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Viability and going concern statements 48
Strategic report
Highlights
Investment case
Group at a glance
Chairman’s statement
Our business model
Market review
Our key markets
Our strategy
Strategy in action
Key Strategic Indicators
Key Performance Indicators
Operating review
Finance review
Risk management
Principal risks and uncertainties
Sustainability report
Corporate governance
The Board
The Group Executive Committee
Corporate Governance report
Audit and Risk Committee report
Nomination Committee report
Directors’ report
Directors’ remuneration report
Directors’ responsibilities statement
Financial statements
Independent auditor’s report
to the members of discoverIE
Group plc
Consolidated income statement
Supplementary income statement
information
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of
changes in equity
Consolidated statement of cash flows
Notes to the Group financial
statements
Company balance sheet
Company statement of changes
in equity
Notes to the Company
financial statements
Other information
Five year record
Principal locations
Financial calendar 2020/21
Corporate information
04
05
06
12
16
18
19
20
22
28
29
30
40
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discoverIE Group plc
WELCOME TO
OUR ANNUAL
REPORT 2020
discoverIE 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.
Our purpose
To create innovative electronics that help to
improve the world and people’s lives.
Our mission
To design and supply innovative customised
electronics that help our customers create ever
better technical solutions around the world.
Visit our investor website
www.discoverieplc.com
It contains a wide range of information of interest to institutional and
private investors, including:
■ Latest news and press releases
■ Reports and presentations
Navigating the report
This icon signposts to content in other sections of the report or
to further information that can be found online.
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Strong
investment case
discoverIE designs, manufactures and supplies
application-specific electronic products that
help customers solve technical challenges, is
focused on attractive growth markets and has
a strong financial position, meaning it is well-
positioned for future growth
Read more on page 05
Consistent and
proven strategy
The Group pursues a clear strategy, investing in
initiatives and businesses that enhance design
opportunities for customised products in
targeted long-term structural growth markets
Read more on pages 20 to 27
Developing
electronics for
a sustainable
future
The Group’s products and services serve
markets that help improve the world and
people’s lives, in areas of continually growing
importance, including in the medical,
renewable energy, mass transportation and
industrial & connectivity sectors
Read more on pages 18 to 19
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
01
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TABLE OF
CONTENTS
Strategic Report
Highlights
Investment case
Group at a glance
Chairman’s statement
Our business model
Market review
Our key markets
Our strategy
Strategy in action
Key Strategic Indicators
Key Performance Indicators
Operating review
Finance review
Risk management
Viability and going concern statements
Principal risks and uncertainties
Sustainability report
04
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22
28
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40
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Medical
The medical industry is one of our key target
markets and is well aligned with the UN
Sustainable Development Goals.
Read more on pages 18 to 19 for
details of our target markets
Read more on page 56 to 57 for our
alignment with the UN SDGs
Contributing to the UN Sustainable
Development Goals
Good health and well-being
The Group works closely with others in
developing innovations that contribute
to better health outcomes to improve
people’s lives
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Fulfilling our purpose
TECHNOLOGICAL
ADVANCEMENTS
TO IMPROVE
PEOPLE’S LIVES
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HIGHLIGHTS
REVENUE
£466.4m
(FY19: £438.9m)
+8%2
UNDERLYING
EPS1
30.2p
(FY19: 27.2p)
+11%
UNDERLYING
OPERATING PROFIT1
REPORTED PROFIT
BEFORE TAX
£37.1m
(FY19: £30.6m)
+23%2
REPORTED FULLY
DILUTED EPS
16.5p
(FY19: 19.4p)
-2.9p
£19.5m
(FY19: £19.3m)
+1%
OPERATING
CASH FLOW5
£39.3m
(FY19: £28.6m)
+37%
■ Strong financial and operating
− Sens-Tech acquired in October
Notes
performance
2019 for £58m
1.
− Group sales increased by 8% CER
− Integrations progressing well
and orders by 6% CER
− Group organic(3) sales grew by 2%
and organic orders by 1%
− Well supported equity placings
in the year raising a combined
net £61m
− D&M(4) organic sales grew by
5% and now account for 64% of
Group sales (FY 2018/19: 61%)
− Underlying operating profit
increased by 23% CER
− Underlying earnings per share
increased by 11%
■ Further good progress on key
strategic and performance targets
− Underlying operating margin
increased by 100bps to 8.0% (FY
2018/19: 7.0%)
− Our D&M target markets are 72%
of sales with 9% organic growth
− Sales beyond Europe increased to
27% of total sales (FY 2018/19: 21%)
− Excellent cash generation with
£39.3m operating cash flow(5), 106%
of underlying operating profit
− ROCE(6) increased to 16.0% (FY
2018/19: 15.4%)
■ Decisive response to COVID-19
− Swift implementation of working
practices to maintain safety and
customer continuity
− In-house technical capability
supports customers with front-
line COVID-19 projects
− Prudent actions to manage cost
and preserve cash, whilst not
limiting capability
− No final dividend proposed to
preserve flexibility
■ Group well positioned for further
growth when conditions improve
− Good level of new project design
wins
− Record year end order book of
£159m (+13% CER)
− Gearing reduced to 1.25x at the
year end with £119m undrawn
under bank facility
■ Three higher margin, international
D&M acquisitions completed
− Strong pipeline of acquisition
opportunities in development
− Hobart and Positek acquired in
April 2019 for a combined £16m
− New strategic targets for the next
5 years.
04
discoverIE Group plc
‘Underlying Operating Profit’, ‘Underlying
EBITDA’, ‘Underlying Operating Costs’,
‘Underlying Profit before Tax’ and
‘Underlying EPS’ are non-IFRS financial
measures used by the Directors to assess
the underlying performance of the Group.
These measures exclude acquisition-
related costs (amortisation of acquired
intangible assets of £9.0m, acquisition
costs of £4.0m, the IAS19 pension charge
relating to a legacy defined benefit
scheme of £0.3m) totalling £13.3m.
Equivalent underlying adjustments
within the FY 2018/19 underlying results
totalled £7.9m.
2. Growth rates at constant exchange
rates (“CER”). The average sterling rate of
exchange strengthened 1% against the
Euro compared with the average rate
for last year and weakened 3% against
the US Dollar while strengthening by
4% on average against the three Nordic
currencies.
3. Organic growth for the Group is calculated
at CER and is shown excluding the first 12
months of acquisitions (Cursor Controls
was acquired last financial year on 16
October 2018; Hobart and Positek were
both acquired on 15 April 2019 and Sens-
Tech was acquired on 16 October 2019).
4. D&M is the Group’s Design &
Manufacturing division.
5. Operating cash flow is defined as
underlying EBITDA adjusted for the
investment in, or release of, working
capital, less the cash cost of capital
expenditure and IFRS16 costs.
6. Return on capital employed (“ROCE”) is
defined as underlying operating profit
as a percentage of net assets plus net
debt, including an annualisation of
acquisitions.
Annual Report and Accounts
Annual Report and Accounts
for the year ended 31 March 2020
for the year ended 31 March 2020
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INVESTMENT CASE
Focus on customised electronics
Highly differentiated electronic products with optimised
performance for the applications of our customers
Read more about our customised
electronics on pages 08 and 09
Attractive markets
Markets with increasing electronic content
Long-term growth driven by both technology trends and
social and economic factors
Read more about our target markets
on pages 18 to 19
Drivers of long-term future performance
■ High level of project wins and new opportunities driving
Strong financials
■ Sustainable, profitable growth
future organic growth
■ Targeting structural growth markets and conducting
business in a responsible and ethical manner provides for
a long-term sustainable business model
■ Excellent cash generation
■ Strong balance sheet
■ Progressive dividend policy
■ High levels of repeating revenue
■ Order book
■ International expansion
■ Low customer concentration
■ Good track record of value-accretive acquisitions, with a
robust acquisition pipeline
Order Book
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
05
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GROUP AT
A GLANCE
Our framework for creating sustainable value
discoverIE is an international group of businesses that designs, manufactures and
supplies innovative components for electronic applications. We offer customers
differentiated products in key growth markets on a global scale.
Our purpose
Our vision
Our mission
Why we exist:
To create innovative
electronics that help to
improve the world and
people’s lives
What we want to be:
To be a leading innovator
in electronics across the
globe
What we set out to do:
To design and supply
innovative customised
electronics that help our
customers create ever
better technical solutions
around the world
“ By focusing on key markets
driven by structural growth
and increasing electronic
content, and by increasing the
international footprint of our
business, the Group is well
placed for future growth.”
Nick Jefferies
Group Chief Executive
We aim to achieve our
mission through a motivated,
entrepreneurial and empowered
workforce that adheres to the
highest ethical and quality
standards. In doing so we expect
to create value for shareholders,
while being seen as an attractive
and responsible employer and a
trusted partner for customers and
suppliers.
Read more on pages 58 to 60
and page 79
06
discoverIE Group plc
Annual Report and Accounts
for the year ended 31 March 2020
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Our strategy
Our values
How we will deliver our mission
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.
Fundamental beliefs that guide
decision-making
■ To operate with the highest ethical standards and
integrity
■ To strive for the highest performance standards, not
accepting of mediocrity
■ To support the protection of the environment through
our products and solutions while minimising our direct
environmental impact
■ To be a responsible employer, with a safe working
The key pillars of our strategy
environment
Our strategy is currently broken down into
four strategic priorities:
■ To respect, empower, engage and develop our employees
in an entrepreneurial environment
■ To add value and be a trusted partner to customers,
suppliers and shareholders
Grow sales well
ahead of GDP
Continue building
revenues in the higher
margin D&M division
Acquire high quality
businesses
Further internationalise
the business
Our culture
The culture we aim to embed across the Group
■ Honest, reliable and trusting
■ Decentralised decision-making close to the customer
■ Open, constructive communication and willingness
to listen
■ Non-political, non-bureaucratic
■ Performance, target and results driven
Read more about our
strategy on pages 20 to 29
Read more on page 79
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
07
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27378 2 July 2020 2:32 pm Proof 9FY17FY18FY19FY20£162.6m£165.3m£172.7m£168.5m£175.6m£222.6m£266.2m£297.9mFY17FY18FY19FY20£5.2m£7.5m£8.6m£7.3m£20.2m£24.2m£29.8m£38.1mGROUP AT A GLANCEOur divisionsdiscoverIE 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.Reported revenueUnderlying operating profitThe 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.Custom SupplyUNDERLYING OPERATING MARGIN4.3%NUMBER OF EMPLOYEES422Watch our Corporate film at: www.discoverIEplc.com Custom SupplyEnd use example: ■Medical systemsEnd use example: ■Internet of things and sensingAcal BFiCommunications, magnetics, power and sensors VertecImaging, biopsy and radiology systemsDesign & ManufacturingAnnual Report and Accountsfor the year ended 31 March 202008discoverIE Group plcdiscoverIE AR 2020.indd 802/07/2020 14:34:20 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.
UNDERLYING
OPERATING MARGIN
NUMBER OF
EMPLOYEES
12.8%
3,896
Contour
Connectors and cable assemblies
Cursor Controls
Keyboards and trackballs
Flux
Magnetics and power supplies
Foss
Fibre optics
End use example:
■ Medical operating
theatres
End use example:
■ Medical equipment
End use example:
■ Trains
End use example:
■ Data centres
Hectronic
Embedded computers
Hobart
Linear transformers
MTC
EMC-shielding
Myrra
Transformers and power supplies
End use example:
■ Transportation
End use example:
■ Solar power
Noratel
Power transformers
Plitron
Toroidal transformers
End use examples:
■ PCs, servers and
peripherals
Positek
Linear transducers,
linear transition sensors
End use example:
■ Electric vehicle chargers
Santon
Switches
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End use example:
■ Wind turbines
End use example:
■ Audio and video
equipment
End use example:
■ Medical products
End use example:
■ Solar panels
Sens-Tech
Sensors and detector boards
Stortech
Cable assemblies, batteries,
switches & CCTV
Variohm
Sensors and transducers
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End use example:
■ Medical (X-Ray)
End use examples:
■ Mobility / Buses
End use example:
■ Agricultural production
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
09
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27378 2 July 2020 2:32 pm Proof 9NAAAAANNMyFlMVeMyFlFoHeSeCuAVeVaVaPlN NHoHoSaStMAAAAANNNNNNNMyCuSaSaCoPoHoHoNMyFoMyCoGROUP AT A GLANCEThe Design & Manufacturing division (“D&M”) has gone from a UK business in 2011 to a global business in 2020 operating in 23 countries. 27% of Group sales for the year were beyond Europe.During the year, the Group acquired new facilities in the USA, Mexico and the UK. We also expanded our magnetics components production facility in China, increasing Myrra’s Asian capacity by around 70%.The Custom Supply division also has a strong international presence. Acal BFi operates across 11 countries in Europe, with logistics centres in Germany, UK and Hong Kong. Each country has its own dedicated sales force and technical support teams.Read more about the internationalisation of our business on pages 27 and 28Our global reach+23COUNTRIES25,000CUSTOMERSCustom Supply Key to locationsAcal BFi AUKGermanyFranceNetherlandsDenmarkFinlandNorwaySwedenItalyBelgiumSpainVertec VeUKSouth AfricaAnnual Report and Accountsfor the year ended 31 March 202010discoverIE Group plcdiscoverIE AR 2020.indd 1002/07/2020 14:34:21 27378 2 July 2020 2:32 pm Proof 9NAAAAANNMyFlMVeMyFlFoHeSeCuAVeVaVaPlN NHoHoSaStMAAAAANNNNNNNMyCuSaSaCoPoHoHoNMyFoMyCoOur global reachDesign & ManufacturingKey to locationsContour CoUKHong KongCursor Controls CuUKBelgiumFlux FlDenmarkThailandFoss FoNorwaySlovakiaHectronic HeSwedenHobart HoUSAMexicoMTC MGermanySouth KoreaMyrra MyFranceChinaPolandGermanyHong KongNoratel NNorwayChinaIndiaSri LankaPolandGermanySwedenUKDenmarkFinlandUSAPlitron PlCanadaPositek PoUKSanton SaNetherlandsUKGermanySens-Tech SeUKStortech StUKVariohm VaUKGermanyOther InformationFinancial StatementsCorporate GovernanceStrategic Reportwww.discoverieplc.comStock Code: DSCVInnovative Electronics11discoverIE AR 2020.indd 1102/07/2020 14:34:21 27378 2 July 2020 2:32 pm Proof 9CHAIRMAN’S STATEMENTDespite the effects of the COVID-19 pandemic in the final quarter, I am pleased to report that the Group has delivered another strong set of results with further growth in sales, underlying profits and underlying earnings. Management continued to make good progress on the Group’s strategic and operational objectives with most nearing or bettering our original targets. Consequently, new strategic targets are being introduced for the coming five years as the Group focuses its strategy on the next stage of development. StrategyThe Group is a customised electronics business operating internationally, focusing on structurally growing markets which are driven by increasing electronic content and where there is an essential need for our products. The Group’s product range is highly differentiated, being customised for specific applications.With key markets being worldwide and major customers operating internationally, the business is expanding beyond Europe (27% of Group sales are now outside Europe), as well as within Europe, building an international electronics group supplying complex, value-added solutions for international customers. Acquisitions are important in building discoverIE, having already made a significant contribution to the development of the D&M division. Over the last 9 years we have acquired 14 specialist, high margin Design & Manufacturing businesses which have been integrated successfully and helped to drive our organic growth. We have a well-developed and disciplined approach to acquisitions and management continue to develop a pipeline of opportunities, ready to proceed when conditions allow. In the year, the Group made three acquisitions, all higher margin D&M businesses, with 70% of combined sales being in international markets beyond Europe. Their characteristics are aligned with the rest of the Group, and each provides scope for further development in our international target markets. The increase in Group profitability, together with our capital expenditure light model, has resulted in further strengthening of our cash generation. As we continue to grow, we will look to reinvest our strong free cash flows into accelerating the strategy and delivering significant value creation for shareholders.2020 HEADLINESGROUP SALES+8% CERUNDERLYING OPERATING PROFIT+23% CER“ The Group has delivered another strong set of results with further growth in sales, underlying profits and underlying earnings.”Malcolm Diamond MBE ChairmanAnnual Report and Accountsfor the year ended 31 March 202012discoverIE Group plcdiscoverIE AR 2020.indd 1202/07/2020 14:34:25 t
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Group Results
Group sales for the year increased by 6% to £466.4m and by
8% at constant exchange rates (“CER”).
the year, the term of the Group’s £180m syndicated bank
facility was extended to June 2024, giving nearly £120m of
undrawn facility.
Underlying operating profit, which excludes any exceptional
items (none this year) and acquisition-related costs,
increased by £6.5m to £37.1m (up by 21% and up by 23%
CER) with underlying profit before tax increasing by £5.6m
to £32.8m (up 21%). The strong growth in D&M helped to
deliver a 100bps increase in underlying operating margins
to 8.0% (FY 2018/19: 7.0%), despite investment to support
future growth.
Underlying earnings per share for the year increased by 11%
to 30.2p (up 3.0p from 27.2p last year). This growth is lower
than the growth in underlying profit before tax of 21% mainly
due to the equity fund raisings during the year which raised
nearly 20% of additional equity share capital.
After underlying adjustments for acquisition-related costs of
£13.3m (FY 2018/19: £7.9m), profit before tax for the year on a
reported basis was £19.5m, in line with last year (FY 2018/19:
£19.3m), with fully diluted earnings per share of 16.5p
(FY 2018/19: 19.4p). Growth in reported profits and earnings
was limited by the higher value of acquisitions this year, with
resulting higher non-tax deductible acquisition costs.
Cash generation was very strong, with operating cash flow
of £39.3m up 37% on last year (FY 2018/19: £28.6m), and
representing 106% of underlying operating profit, well ahead
of our 85% cash conversion target. Net debt at the year
end was £61.3m with a Group gearing ratio of 1.25x. During
In addition, the Group has received confirmation from
the Bank of England that the Group is eligible in principle,
subject to satisfactory documentation, to participate in HM
Treasury’s Covid Corporate Financing Facility. The Group
does not believe it will need to utilise this facility but has the
flexibility if conditions deteriorate materially from current
expectations.
Alongside the acquisitions in April and October 2019, the
balance sheet was further strengthened by way of two
well-supported placings, raising net proceeds of £60.5m.
Together with high operating cash flows, these have
provided the Group with a strong position from which to
manage through the current market uncertainties. On
behalf of the Board, I would like to thank shareholders for
their support.
Read more about our Governance
on pages 76 to 89
Read about strategy in action
on pages 22 to 27
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CHAIRMAN’S
STATEMENT
Acquisitions
On 15 April 2019, the Group acquired Hobart Electronics,
a designer and manufacturer of custom transformers,
inductors and magnetic components, for an initial cash
consideration of $15.2m (£11.5m) on a debt free, cash free
basis with further contingent cash consideration of up to
$4.0m (£3.1m), subject to the achievement of certain growth
targets over the three-year period ended 31 March 2022.
Based in Indiana, US with manufacturing also in Mexico,
Hobart reports to the Noratel Group where operations are
being integrated.
Also on 15 April 2019, the Group acquired Positek, a designer
and manufacturer of customised rugged, high accuracy
sensors for an initial consideration of £4.2m on a debt free,
cash free basis with further contingent cash consideration of
up to £0.4m, payable subject to the achievement of certain
integration and profit targets in the following 18 months.
Based in Cheltenham, UK and supplying international
markets, operationally Positek reports to the Variohm Group.
On 16 October 2019, the Group acquired Sens-Tech, an
Egham, UK based designer, manufacturer and supplier of
specialist sensing and data acquisition modules, for an initial
cash consideration of £58.0m on a debt free, cash free basis
with further contingent cash consideration of up to £12.0m,
payable subject to the achievement of certain profit growth
targets over a three year period.
All three businesses have significant alignment with our core
technologies, market and sector focus and are settling in well.
We are delighted to welcome their employees into the Group.
COVID-19
The Group has responded decisively to the coronavirus
pandemic, prioritising the well-being of employees and
trading partners, supporting customers with fast solutions
in medical markets, maintaining business continuity and
preserving our resources.
As you will read in the Operating Review, changes were
made to operating procedures and I am pleased to report
high levels of operational continuity being achieved with
only a small number of short term site closures, as required
by local government regulations and all of which have since
reopened. At its peak in early April, there were a dozen
confirmed cases of coronavirus amongst our c. 4,400
employees, all of whom have since recovered.
I would like on behalf of the Board to thank all our
employees for their flexibility in adapting so effectively to the
new environment.
The pandemic had a limited effect on fourth quarter
trading when our two sites in China were closed for nearly
a month, rebounding quickly upon reopening. 23% of our
sales in the year were linked to trade with China through our
manufacturing sites, supplying customers or purchasing
from suppliers there, but the effects of the closure were
limited by flexibility in our manufacturing and supply chains,
switching to alternatives where possible.
At the time of writing, and with the virus having spread
internationally, the Group’s dispersed operations are proving
resilient and flexible through the disruption, with first
quarter sales running only 10% down organically on last year.
With its focus on high quality growth markets, the Group is
well positioned for a return to growth as conditions recover.
Board Changes
Richard Brooman and Henrietta Marsh retired as Non-
Executive Directors at the Company’s annual general
meeting on 25 July 2019 after 6 years of service. We thank
them for their significant contributions to the Company’s
development and wish them well.
Bruce Thompson succeeded Richard as Senior Independent
Director of the Group.
Clive Watson joined the Board on 2 September 2019, also
becoming Chair of the Audit and Risk Committee. Clive
retired from Spectris plc in 2019 after thirteen years as Group
Finance Director and also from Spirax-Sarco Engineering plc
where he was Senior Independent Non-Executive Director
and Chair of the Audit and Risk Committee, having joined
in 2009.
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Dividend
Considering current circumstances, the Board has decided
not to propose a final dividend. However, recognising the
importance of dividends to shareholders, the Board will look
to re-introduce distributions later this year subject to trading
conditions at the time.
Summary
By focusing on structural growth markets with complex
customer requirements, the Group has grown into a high
quality business with excellent long-term prospects. To
reflect this, the Group has updated targets for our next
five years.
The customised electronics market remains highly
fragmented, providing scope to build the Group’s
technology capability and extend its geographic coverage
through disciplined acquisitions. Despite the current
challenges posed by COVID-19, the Board and management
are excited by the opportunities ahead to continue building
a global business that attracts and retains high quality
employees, delivers value to our customers, and grows long
term returns for our shareholders.
Malcolm Diamond MBE
Chairman
24 June 2020
An interim dividend of 2.97 pence per share was paid in
January 2020 (H1 2018/19: 2.8 pence per share), an increase of
6%. Over the last ten years, the full dividend has increased by
7% CAGR.
The Board believes that, as an acquisitive growth company,
maintaining a progressive dividend policy with a long
term dividend cover of over 3 times underlying earnings is
appropriate to enable both dividend growth and a higher
level of investment from internally generated resources.
Employees
On behalf of the Board, I would like to thank everybody at
discoverIE for their commitment and hard work, particularly
during this unprecedented situation when their flexibility,
resilience, initiative and support have demonstrated, beyond
all expectations, their quality and capability.
The Group comprises approximately 4,400 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, investment and controls, the Group has created an
ambitious and successful culture.
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OUR
BUSINESS
MODEL
Our inputs
Our model
Our purpose, mission,
values and people
The Group’s purpose, mission and strategy
provide a clear framework for decision-
making, reflecting our desire to make
a positive difference to the world and
people’s lives. Our values guide decision-
making, ensuring we strive for the highest
performance and ethical standards.
This relies upon the dedication, drive,
integrity and ability of our people, many
of whom have a high degree of technical
knowledge. The Group seeks to foster
an open, ambitious and entrepreneurial
culture, within which each of our
approximately 4,400 people are recognised
for their achievements and are made to feel
valued as individuals. They are crucial to the
success of the Group and the outcomes of
its customers.
Design and manufacturing
facilities
Over 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, Thailand, Mexico and the UK.
Long-term customer
relationships
discoverIE’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.
Financial
We use our financial capital to invest in our
businesses and make acquisitions that add
to our expertise.
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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.
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.
Acquisitions
A core part of the Group’s
strategy is the acquisition of
complementary businesses
that bring enhanced value to
the Group and its customers. In
order to achieve this, the Group
has established a dedicated M&A
team focused on developing and
pursuing these opportunities.
Read more about
acquisitions on pages 24
to 26
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Our competitive advantages
Differentiated products
The products that we design and
manufacture are application specific.
We have specialist knowledge in
many niche markets, enabling us to
differentiate our products to match
our customers’ requirements.
Expertise
We have been active in the electronics
market for over 20 years and our
expertise and knowledge has grown
over this time. This allows us to develop
new products in response to changing
technologies.
Global reach
Our global footprint means that we
can meet the location demands of our
customers.
Our model
Value creation
Our customers
Large customer base, spread geographically and
across multiple industries. Our customers are Original
Equipment Manufacturers 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 jointly develop approriate
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 both customers and their end users.
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.
Sample and approvals
Once the quote and design are accepted, 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 can maintain control of the product manufacturing
process, ensuring both high standards and reliability.
Quality is assured through our advanced testing
procedures.
Supply
discoverIE is able to supply the customer consistently
over the lifetime of the project. We do this through
ongoing production and maintaining inventory, be
it in-house or on consignment at the customer.
Customers
■ Improved usability and effectiveness of the
products we design, manufacture and supply
results in enhanced performance of our
customers’ applications, which also benefits
their own customers.
■ We enable customers to differentiate their
own products from their competitors.
■ Cost-efficient.
■ Short lead times.
■ Quality, high standards and reliable
components. We are able to achieve this as
we have control over the end-to-end process
of the production of an electronic solution.
Employees
Employees benefit from the ability to
improve their skills and work in a challenging
and ambitious environment. They get the
opportunity to make a contribution to
world-leading products. We have created an
environment where each employee is able to be
their best.
Shareholders
We generate attractive returns for Shareholders
over the long term.
Communities and the environment
We aim to contribute positively to the
communities and environment in which we
operate.
Suppliers
Our geographical footprint allows us to engage
with suppliers at their locations. We enable
smaller suppliers to expand their global network
via our international supply chain.
Governing bodies and regulators
We aim to create trusted relationships with
governing bodies and regulators, meeting
all legal and regulatory commitments and
requirements.
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MARKET
REVIEW
Targeting growth markets driven by innovation
Long-term technological and economic trends
Target markets
The Group focuses on four target markets, which account
for over two-thirds of Group turnover: renewable energy,
transportation, medical and industrial & connectivity. These
are expected to drive the Group’s organic revenue well
ahead of GDP over the economic cycle and create value-
enhancing opportunities, which are then further bolstered
through acquisitions.
Global macro-trends underpinning
structural growth
Growth in these markets is driven by global macro trends
such as the need for renewable sources of energy, more
energy efficient transportation systems, a growing middle
class population, an ageing affluent population and
expanding infrastructure.
RENEWABLE
ENERGY
TRANSPORTATION
MEDICAL
INDUSTRIAL &
CONNECTIVITY
Target markets1 continue to drive organic growth
Target markets
£318.0m
68%
Other markets
£148.4m
32%
Organic growth
by market2
%
6
+
%
7
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%
2
+
Target markets
Other markets
Total
1. Target markets are renewable energy, transportation, medical and industrial & connectivity
2. Sales growth excluding acquisitions.
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Transportation
Forecast growth in
global market for
smart transportation
(CAGR)
16.3%
(2019-2024)
Source: Research &
Markets
Medical
Medical electronics
market to grow CAGR
8%
(2018-2024)
Source: TechSci
Research
Our key markets
Key facts
Market need
Market drivers
Technology
integration
discoverIE’s
response
discoverIE’s
solution
Renewable energy
Components
that enable
the effective
transformation
of wind and
solar energy
into electricity
Growth in global
electricity production
from renewable
energy sources
70%
(2017 – 2023)
Source: International
Energy Agency
discoverIE invests
significant
resources in
developing
products for this
market, both in
wind power and
solar energy
■ Power inductors
■ Solar inverters
■ Turbine blade
pitch control
■ Airflow
measurement
■ Decarbonisation
■ Increasing
scale of wind
turbines
■ Diversification
of solar
systems
and diversification
■ Geopolitical
consensus
■ Growing public
awareness
■ Legislative and
regulatory regimes
■ Investor pressure
for responsible
investment
■ Cost of energy
Products
required to
assist with mass
transportation
systems and,
at an individual
level, the
charging of
electric vehicles
■ Electrification
and autonomous
vehicles
■ Decarbonisation
■ Safety
■ Convenience
■ Electric
vehicles
■ Mass transit
and route
vehicles
■ Autonomous
vehicles
■ High speed
rail
Working closely
with customers
to develop
bespoke products
that increase
the efficiency
of networks
and individual
products
■ Electric vehicle
chargers
■ Sensing systems
■ Power control
■ Cabin
monitoring and
control
Electronics
that enhance
the quality of
life for people
and improve
the quality of
care delivered
by healthcare
providers
■ Artificial
intelligence,
sensing & analytics
■ Proactive and
preventative
medicine
■ Technological and
biological fusion
■ Predictive analytics
■ Monitoring
and control
■ Automation
and robotics
■ Advanced
surgery
Industrial & Connectivity
Increasing
electronic
content
required in
all forms of
products across
industry and
connectivity in
particular
■ Connectivity and
■ Automation &
robotics
■ “Smart
factories”
■ Artificial
intelligence
industrial “Internet
of things”
■ Operational
efficiency and
flexibility
■ Quality control
■ Increasing use of
the Internet for
remote activities
■ Competition
from technology
companies
Growth in Internet of
Things market (CAGR)
18.7%
(2019-2024)
Source: Markets-and-
Markets
Growth in industrial
market for
Semiconductors
(CAGR)
10.8%
(2018-2022)
Source: PWC
Understanding
customer needs,
discoverIE works
with partners
to provide
solutions that
meet the relevant
requirements
and adhere to the
highest standards
The Group
ensures that it
maintains a range
of products that
satisfy market
requirements
■ Embedded
diagnostics
■ Interface device
and cabling
■ Power systems
■ Wireless
telematics
■ Fibre optic
connectivity
■ AI
communication
■ Wireless
robotics control
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27378 2 July 2020 2:32 pm Proof 9 “ The Group has a clear, sustainable long-term strategy, and the resources and culture to deliver it. We are well positioned for the future.”Nick Jefferies Group Chief ExecutiveRead more about strategy in our Corporate Governance report on pages 76 to 89Our strategic aimTo 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 prioritiesOver recent years, the Group has pursued a clear strategy, investing in initiatives that enhance design opportunities for customised products in targeted growth markets, namely renewable energy, transportation, medical and industrial & connectivity. Our business model is resilient and flexible and the benefits of our approach have been evident in results over recent years.Core to our value proposition is the understanding of our customers’ design challenges and the design and manufacture of engineered products to meet their needs. These are then supplied over the life of the customer’s production, typically five to seven years.In a fragmented market, opportunities exist to consolidate certain manufacturers of customised products for the Group’s common customer base, which ranges from mid-sized original equipment manufacturers to multinational companies operating in multiple locations. Our four target markets are long-term global growth markets driven by excellent fundamentals where our customers depend upon the Group’s products. OUR STRATEGYGrow sales well ahead of GDPAcquire high quality businessesContinue building revenues in the higher margin D&M divisionFurther internationalise the businessAnnual Report and Accountsfor the year ended 31 March 202020discoverIE Group plcdiscoverIE AR 2020.indd 2002/07/2020 14:34:45 Strategic priorities
Progress made
Link to key
strategic
indicators
Link to risks
Grow 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 (typically
>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 and strong operating
margins
Further internationalise
the business
Further internationalise the business
by developing sales in North America
and Asia
C
A
B
A
B
C
D
C
Group revenue grew by 6% to £466.4m
(2019: £438.9m). Organic growth overall
for the Group was 2%.
In the year, target markets represented
68% of Group sales.
Organic sales growth for the year of 5% in
our higher margin D&M division was well
ahead of GDP, reflecting the sustained
focus on higher growth target markets.
In the year, the Group completed three
acquisitions, Hobart and Positek in April
2019 and then Sens-Tech in October 2019.
Further details are provided on pages 24
to 27.
The acquisition of Hobart brought in a
new US business, with facilities in the
USA and Mexico. Approximately 70%
of Sens-Tech’s revenues are from North
America and Asia.
Sales beyond Europe increased to 27% of
total sales.
1
3
4
6
7
2
3
4
5
6
1
2
1
2
6
Key strategic indicators
A
Increase share of Group revenue
from Design & Manufacturing
B
Increase underlying
operating margin
Risks
1
5
Instability in the economic
environment
Technological changes
2
6
Business acquisitions
underperform
Major business
disruption
C
3
7
Build sales beyond
Europe
D Target Market
Sales
Loss of major
customers
Cyber security
4
Loss of major
suppliers
Innovative Electronics
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Stock Code: DSCV
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27378 2 July 2020 2:32 pm Proof 9Long-term growth markets – MedicalVariohm-EurosensorDialysis Patient WeighingThe requirements of the customerTo develop a chair in which patients can be accurately weighed and measured for height, suitable for busy and often space-constrained renal units. Time is limited and the patients that are being measured and weighed are high risk patients and so the equipment deployed must generate very precise results while being simple to use. Procedures being performed include dialysis, periton dialysis, plasmapheresis diagnosis, oncology and chemotherapy.The solution we developedA dual column chair featuring vertical lifting to minimise space requirements, featuring a simple push-button electric operation enabling the user to control movement in all directions. The customer required the integration of four load cells into the chair platform utilising an electric actuator control system. Bespoke development was required in order to interface with the customer’s systems.Benefits to the customerThe bespoke product provides a direct ‘plug and play’ interface, with calibration being completed during both production and upon install. The customer is provided with a site-calibrated product that is quick and easy to set up, while performance generates the accurate and timely results required for active use.STRATEGY IN ACTIONUN Sustainable Development Goals22discoverIE Group plcAnnual Report and Accountsfor the year ended 31 March 2020discoverIE AR 2020.indd 2202/07/2020 14:34:50 STRATEGY
IN ACTION
Continue
building revenues
Differentiated products
Cursor Controls –
Marine Control Panels
Cursor Controls has a number of
differentiated products, including
the widest range of IEC60945
certified keyboards and patented
IP68 trackball modules in the world.
Having become established as
the preferred supplier of trackball
solutions for one of the world’s
leading electronic chart display and
information system manufacturers,
Cursor Controls developed and
manufactured their next generation
primary user interface control panel.
The requirements of the
customer
The priority requirement from
the customer was for the panel
to provide a wide range of new
features in a compact footprint,
consolidating and combining
what had previously been multiple
separate user interface panel
modules into an easy to integrate,
user-friendly, IEC60945 certified
control panel with a single
connection cable.
The solution we developed
Cursor Controls provided a highly
customised, leading-edge solution,
based on their latest generation,
in-house developed keyboard
microprocessor platform. The new
flexible architecture allowed for
the incorporation of a bespoke
keyboard with user-friendly scissor-
switch technology and enhanced
sealing interface, expanded keycode
support, dynamic backlighting
features, integrated USB hub and
the patented IP68 E38 trackball
module, into a compact, easy
to integrate, IEC 60945 certified
control panel.
Benefits to the customer
Along with delivering cost and
system integration efficiency
savings, the control panel solution
provided allows for additional
system functionality, enhances the
ergonomics, workflow and overall
user experience and improves
reliability thanks to the unique
sealing mechanisms that were
designed specifically to protect
against the aggressive salt water
environment.
Only recently released, the control
panel has already proven appealing
to the market and new projects have
been initiated with several other
customers who are keen to harness
the flexibility offered by the Cursor
Controls control panel platform.
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Innovative Electronics
www.discoverieplc.com
www.discoverieplc.com
Stock Code: DSCV
Stock Code: DSCV
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STRATEGY
IN ACTION
Acquire high
quality businesses
Acquisitions
As part of the Group’s proven growth
strategy, the Company actively seeks
opportunities to acquire businesses
with attractive growth prospects that
complement the Group’s existing
businesses.
The strategy is focussed on acquiring
high quality, specialised electronics
businesses with differentiated
capability which is enhancing to the
Group’s overall offering to customers
in its target markets of renewable
energy, transportation, medical
and industrial & connectivity. These
acquisitions can serve as a platform
for further opportunities, whether
that is to further embed cross-selling
across the Group, to grow organically
or to acquire synergistic businesses.
The Company has a dedicated team
of M&A experts with significant
electronics industry knowledge,
as a result of which a number of
businesses have been acquired over
the last several years. Since 2011 the
Group has successfully completed
17 acquisitions in total, including
14 in the D&M division. These have
contributed to growth in revenues
in the division from £15m in FY13
to £298m in FY20, with the Group’s
underlying operating margins
increasing from 3.1% to 8.0% in the
same period.
Global growth of our portfolio
January 2011
June 2011
October 2011
April 2013
August 2013
November
Compotron
Hectronic
MTC
Myrra
(£8m)
YEG
(£2m)
2013
RSG
(£3m)
July 2014
Noratel
(£71m)
January 2015
Foss
(£8m)
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for the year ended 31 March 2020
for the year ended 31 March 2020
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The Company creates value from
acquisitions in a variety of ways but
always with a focus on investing for
the long term. Value creation can
come from cross-selling within the
Group, new product development,
expansion into new territories,
streamlining of business processes,
as well as other opportunities.
The Company’s priority is to help
acquired businesses accelerate
growth and enhance their
operating efficiency.
The Company has a consistent
pipeline of acquisition
opportunities, ranging in size,
scale and geography, and these
are carefully considered on a
regular basis by both the Group
Executive Committee and the
Board. Opportunities are prioritised
and focused upon according to the
Group’s long-term strategy and
anticipated financial returns.
In reviewing potential acquisitions,
we consider the extra value that
can be brought to the business by
becoming part of the discoverIE
Group of companies. Due diligence
is conducted on the business being
acquired and how it will fit into the
Group’s culture and ethos.
Once acquired, a careful balance is
struck between, on the one hand,
retaining an autonomous and
entrepreneurial culture within the
business, ensuring that everyone
within that business continues to
feel valued and, on the other hand,
ensuring that the systems, controls
and procedures in place elsewhere
within the Group are properly
implemented and embedded, so
as to ensure a strong control and
governance framework.
It is important to the Company
that acquired businesses feel part
of the Group, while retaining their
own individual dynamism, and
that external stakeholders have
the confidence that the business
so acquired fits within a properly
structured control environment
that is to be expected from being
part of a listed plc.
The Group’s operating model is
well established and has facilitated
the smooth integration of acquired
businesses, including Hobart and
Positek, which joined discoverIE in
April 2019, as well as Sens-Tech in
October 2019.
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November
January 2016
February 2016
January 2017
January 2018
October 2018
April 2019
October 2019
2015
Flux
(£3m)
Contour
(£17m)
Plitron
(£2m)
Variohm
Holdings
(£12m)
Santon
(£24m)
Cursor
Controls
(£19m)
Sens-Tech
(£58m)
Hobart
(£12m)
Positek
(£4m)
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Innovative Electronics
Innovative Electronics
www.discoverieplc.com
www.discoverieplc.com
Stock Code: DSCV
Stock Code: DSCV
2525
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STRATEGY
IN ACTION
Acquire high
quality businesses
Sens-Tech
Sens-Tech is a UK-headquartered
designer, manufacturer and
supplier of specialist sensing and
data acquisition modules for X-ray
and optical detection applications,
supplying the transport security,
medical, food processing and
industrial markets worldwide.
The acquisition of Sens-Tech
represented a further step in
the Group’s stated strategy. In
particular:
■ The business provides new
organic growth opportunities in
our target markets, particularly
medical, transportation and
industrial & connectivity.
■ The systems provided include a
high proportion of customised
products, in industries with high
regulatory and certification
requirements, such as medical
imaging, safety and security
applications, which naturally lead
to long product life cycles and
high barriers to entry.
Bringing Sens-Tech into the Group
continued the strategy of building a
higher margin, international Group
that designs and manufactures
customised electronics.
In keeping with the Group’s
approach to other acquisitions,
the existing management team,
which has a proven and successful
track record, has remained with
the business and, while it operates
within the D&M division, it retains its
distinct brand identity. Since being
acquired this has been further
enhanced by the support provided
by being part of a wider group.
■ The customer base is
complementary to that of the
other businesses within the
Group, thereby providing further
opportunities.
■ With approximately 70% of
acquired revenues being
generated in North America
and Asia, this acquisition further
internationalises the Group.
■ Financially, the business has high
levels of profitability and cash
generation and the acquisition
enhanced underlying operating
margins for both the D&M division
and the Group as a whole.
26
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STRATEGY
IN ACTION
Further internationalise
the business
Hobart Electronics
In April 2019, the Group acquired
Hobart Electronics, providing a
clear demonstration of the Group’s
strategy to expand the business
beyond Europe.
The business designs and
manufactures customised
transformers, inductors and
magnetic components for niche
applications.
The acquisition of Hobart:
■ Expanded the Group’s
international footprint, with over
80 per cent. of acquired revenues
generated in North America,
increasing overall D&M revenues
from outside Europe;
■ Enhanced underlying operating
margins for both the D&M
division and the Group as a whole.
While Hobart retains its distinct
brand identity, it operates within the
Noratel group of companies.
More details can be found at
www.hobart-electronics.com.
■ Created further organic growth
opportunities in the target
markets of renewable energy,
transportation and industrial
connectivity;
■ Expanded regional
manufacturing with production
facilities in Mexico and created
opportunities for efficiencies;
■ Created cross-selling and synergy
opportunities with the wider
Group; and
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
27
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KEY STRATEGIC INDICATORS
A
B
C
Increase share of Group
revenue from D&M1
Increase underlying
operating margin
Build sales
beyond Europe1
■ Previous mid term target 75%
■ New target(2) >75%
■ Previous mid term target 8.5%
■ New target(2) 12.5%
■ Previous mid term target 30%
■ New target(2) 40%
FY20
FY19
FY18
FY17
FY16
64%
61%
57%
52%
48%
FY20
FY19
FY18
FY17
FY16
8.0%
7.0%
6.3%
5.9%
5.7%
FY20
FY19
FY18
FY17
FY16
27%
21%
19%
19%
17%
Definition
The proportion of total Group revenue
that is derived from business in the
Design & Manufacturing (‘‘D&M’’) division.
Commentary
The higher margin D&M division delivered
64% of Group sales, up 3ppts on last
year (FY 2018/19: 61%), generating 84% of
the Group’s underlying operating profit
contribution up 6ppts on last year (FY
2018/19: 78%). Customer concentration
remains low with no customer accounting
for more than 7% of Group sales.
1. As a percentage of Group revenue
2. New targets for the five-year period to March 2025
Definition
Underlying operating profits as a
percentage of sales.
Commentary
The increasing scale of the D&M division
has helped to improve the Group
operating margin by 1.0ppt in the year
to 8.0% (FY 2018/19: 7.0%). On a proforma
basis, the acquisition of the Sens-Tech
business in October 2019 increases Group
operating margin by a further 0.5ppts to
8.5% in line with our mid-term target.
Over the last two years, we have acquired
businesses with higher margins than
the D&M division. Accordingly, we have
reached our current operating margin
with D&M sales of 64% of Group sales,
rather than the previously modelled
75% which assumed we would acquire
businesses with margins in line with the
division as a whole.
With our previous underlying operating
margin KSI having been achieved on an
annualised basis, we are setting a new
five-year target of 12.5%, from D&M sales
of at least 75%.
1. New targets for the five-year period to March 2025
Definition
Sales in the Americas, Asia and Africa.
Excludes the UK and Europe.
Commentary
Sales beyond Europe for the year
represented 27% of Group revenue (from
21% for FY 2018/19) improving as a result
of the acquisitions of Hobart, Positek and
Sens-Tech (for which c.70% of combined
sales in the year were outside Europe). On
an annualised basis, this rises to 28%. We
continue to seek acquisitions with high
quality international revenues.
1. As a percentage of Group revenue
2. New targets for the five-year period to March 2025
D
Target Market Sales1
■ Previous mid term target New
■ New target(2) 85%
FY20
FY19
FY18
FY17
FY16
68%
66%
62%
56%
n/d
Definition
The proportion of Group revenue that
is derived from sales into our target
markets.
Commentary
We are introducing a new Key Strategic
Indicator this year, to achieve 85% of sales
from our target markets.
1. As a percentage of Group revenue
2. New targets for the five-year period to March 2025
n/d Not previously disclosed
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KEY PERFORMANCE INDICATORS
1
3
5
Sales growth CER1
Underlying EPS growth
■ Target: Well ahead of GDP
■ Target: >10%
FY20
FY19
FY18
FY17
FY16
8%
14%
11%
6%
14%
FY20
FY19
FY18
FY17
FY16
11%
22%
16%
13%
10%
Return on capital employed
(ROCE)1
■ Target: >15%
FY20
FY19
FY18
FY17
FY16
16.0%2
15.4%
13.7%
13.0%
11.6%
Commentary
Strong growth in underlying operating
profit has driven a 0.6ppt increase in
return on capital employed to 16.0%
(including an annualised operating profit
for Sens-Tech which was acquired on 16
October 2019) compared with the return
for FY 2018/19 of 15.4%, comfortably ahead
of our target of exceeding 15%.
1. Defined in note 2 to the Group financial
statements
2.
Includes an annualisation of the results of Sens-
Tech which was acquired on 16 Oct 19.
Commentary
Underlying EPS growth for the year
was 11% (FY 2018/19: 22%), ahead of our
10% annual target, with growth over
the last three years of 57%. This is well
ahead of our annual target and reflects
widespread organic growth, acquisitions
and improved operating efficiency over
the period.
4
Dividend growth
■ Target: Progressive
FY20
FY19
FY18
FY17
FY16
N/A1
6%
6%
6%
6%
6
Operating cash conversion
■ Target: >85% of underlying
operating profit
Commentary
Due to the uncertainty as to the duration
and impact of disruption from COVID-19,
as a precautionary measure, the Board
has decided not to propose a final
dividend. If conditions permit, the Board
intends to continue with its progressive
dividend policy later in the year.
1. 6% increase in the interim dividend; a final
dividend has not been proposed due to COVID-19
FY20
FY19
FY18
FY17
FY16
106%
93%
90%
136%
100%
Commentary
Operating cash flow for the year was 106%
of underlying operating profit, being well
ahead of our 85% target. Operating cash
flow has been consistently strong with
conversion averaging over 100% over the
last six years.
D&M Organic
■ Target: Well ahead of GDP
FY20
FY19
FY18
FY17
FY16
Group Organic
■ Target: Well ahead of GDP
FY20
FY19
FY18
FY17
FY16
5%
10%
11%
-1%
3%
2%
8%
6%
(1)%
3%
Commentary
Organic sales growth for the year of 5% in
our higher margin D&M division was well
ahead of GDP, reflecting the sustained
focus on higher growth target markets.
Organic growth overall for the Group
was 2%.
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.
2
Increase cross-selling
■ Target: £12m pa
FY20
FY19
FY18
FY17
FY16
£11.4m
£10.6m
£8.8m
£4.6m
£3.0m
Commentary
Cross-selling generated £11.4m of Group
sales, an increase of 8% over the prior year.
Our target was increased last year from
£10m p.a. to £12m p.a.
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
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27378 2 July 2020 2:32 pm Proof 9 OPERATING REVIEW“ The benefits of our strategy are evident, with good levels of organic revenue growth, Group underlying profits and underlying earnings per share.”Nick Jefferies Group Chief ExecutiveOverviewThe effects of the COVID-19 pandemic have been felt throughout the Group leading to widespread changes in our operations and our interactions with customers, suppliers and other third parties. As covered on page 37, the business has responded decisively, and embarks upon the challenges with a strong financial position, a clear strategy and performing well. We continue to pursue our successful strategy of focussing on growing opportunities for customised electronic products in targeted growth markets, namely renewable energy, transportation, medical and industrial & connectivity. Despite feeling the effects of the pandemic in the final quarter, the benefits of this strategy are evident with good levels of organic revenue growth in the D&M division helping drive a 21% increase in Group underlying operating profits to £37.1m, and an 11% growth in underlying earnings per share to 30.2p. Group sales increased by 8% CER and 6% on a reported basis to £466.4m including the translation effect of a slightly stronger Sterling in the year. Organic sales grew by 5% in the D&M division and by 2% for the Group overall. Group orders also performed well, growing organically by 4% in the D&M division and by 1% organically for the Group overall to £476.4m with a book to bill ratio of 1.02. This resulted in another record year end order book at 31 March 2020 of £159m (up by 13% CER year-on-year, and up by 7% organically). Project design wins, essential for future organic growth, continued at high levels, with an estimated lifetime revenue value of £260m, having increased by 37% over two years.Group Strategy Our four target markets of renewable energy, transportation, medical and industrial & connectivity, are global in scale and underpinned by long term structural growth factors, customers’ dependence on our products, and a need or opportunity for custom products. Customers choose our components because they help them to create differentiated, innovative designs. 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 and strong operating margins;4. Further internationalise the business by developing in North America and Asia.These underpin a core objective of generating strong cash flows and long term sustainable returns. Annual Report and Accountsfor the year ended 31 March 202030discoverIE Group plcdiscoverIE AR 2020.indd 3002/07/2020 14:35:15 iii) Transportation
Transport markets continue to grow across the world. The
electronics content is rising driven by electrification, safety,
intelligence, automation and convenience. Our focus is on
mass transportation markets particularly rail and buses,
as well as vehicle electrification infrastructure. According
to Research and Markets, the global market for smart
transportation is forecast to grow by 16.3% CAGR 2019 to 2024.
iv) Industrial & Connectivity
Technology is creating opportunities for connectivity
everywhere, and is becoming increasingly important in
industry. A report by the research firm Markets-and-Markets
expects the overall market for global IoT (internet of things)
connections to grow by 18.7% CAGR 2019-24. Another report
by PwC expects the global semiconductor market for
industrial applications to grow by 10.8% CAGR 2018-22. In
addition to our focus on the wireless connectivity of devices
(machine-to-machine) and the associated industrial markets
which benefit from this new connectivity, we have recently
refined our focus in the industrial sector towards new and
sustainable industrial markets with a long-term future such
as smart agriculture and water management.
Target Markets
The four focus target markets, which account for 72% of
D&M turnover and 68% of Group turnover (both up 2ppts
from last year): transportation, medical, renewable energy
and industrial & connectivity are expected to drive the
Group’s organic revenue growth well ahead of GDP over the
economic cycle and create acquisition opportunities. Growth
in these markets is driven by increasing electronic content
and by global macro trends such as an ageing affluent
population and the increasing need for renewable sources
of energy. This year, organic revenue growth for the Group in
target markets was 6%, with other markets reducing by 7%
resulting in overall Group organic growth of 2%. In the D&M
division, organic growth in target markets was 9%, with other
markets reducing by 5% resulting in overall growth of 5%.
i) Medical
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, the medical electronics market is
forecast to grow by 8% CAGR 2018-24 according to TechSci
Research.
ii) Renewable Energy
The increasing global requirement for clean electricity is
leading to the rapid deployment of sustainable energy
generation. So much so that, according to the International
Energy Agency (IEA), 70% of the growth (2017-23) in global
electricity production will come from renewable energy
sources with the proportion of total energy production rising
to 40% globally from 25% currently. Our focus is on Wind and
Solar energy.
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
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OPERATING
REVIEW
Engineering-led Sales Model
Our business model has three core capabilities:
■ Engineering – our primary differentiator. By understanding
our customers’ design challenges we design and create
products that specifically address their needs.
■ Manufacturing – we manufacture on an ongoing basis,
individually designed products to a consistently high
standard at one or more of our production facilities
internationally.
■ Logistics – we supply our manufactured products
internationally to customers’ production locations
repeatedly over the life of their demand, typically for five
to seven years.
We apply these capabilities to develop long term, embedded
relationships with our customers as follows:
Understanding customer needs
■ We help customers solve their technical challenges
to create more effective, efficient, productive and
sustainable equipment and comply with increasingly
stringent environmental, health, safety and performance
requirements.
Enduring customer relationships
■ Our sales model creates a unique understanding of
customers’ needs and builds long term relationships that
last for many years.
Engineering-led solutions
■ By applying our extensive technical knowledge of
applications and design, our engineers create unique
products for customers’ specific needs.
Recurring revenues
■ Our designs are specified into our customers’ system
designs for production, leading to multiple years of
repeated monthly demand, creating stable, recurring
revenue streams.
Regional manufacturing
■ Manufacturing locations in Europe, Asia and the Americas
provides regional supply for customers, reducing transit
times, costs and environmental impact as well as
providing flexibility and reducing risk of disruption.
Additionally, we acquire businesses with similar
characteristics, building our product capability and
international presence. With many customers operating
internationally, it is necessary for us to have a presence in the
major regions of the world and with the market being highly
fragmented, numerous opportunities exist for us to acquire
complementary businesses.
Key Strategic and Performance Indicators
Since 2014, the Group’s progress with its strategic objectives
has been measured through key strategic indicators (“KSIs”),
and progress with its financial performance has been
measured through key performance indicators (“KPIs”).
Our KSIs were mid-term targets over a three to five year
period from November 2016 with KPIs being three year
targets starting in March 2017. With the KSI targets having
been nearly achieved, we have introduced revised strategic
targets for the next five years.
Key Strategic Indicators
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Previous
Mid term
Targets
New
Targets2
1. Increase share of Group
revenue from D&M1
18%
37%
48%
52%
57%
61%
64%
75%
>75%
2. Increase underlying
operating margin
3. Build sales beyond Europe1
4. Target market sales1
3.4%
4.9%
5%
n/d
12%
n/d
5.7%
17%
n/d
5.9%
19%
56%
6.3%
19%
62%
7.0%
21%
66%
8.0%
27%
68%
8.5%
30%
New
12.5%
40%
85%
1. As a proportion of Group revenue
2. New targets for the five-year period to March 2025
n/d: not previously disclosed:
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The Group made good progress towards its strategic
objectives during the year:
■ The higher margin D&M division delivered 64% of
Group sales, up 3ppts on last year (FY 2018/19: 61%),
generating 84% of the Group’s underlying operating
profit contribution up 6ppts on last year (FY 2018/19: 78%);
customer concentration remains low with no customer
accounting for more than 7% of Group sales.
■ The increasing scale of the D&M division has helped to
improve the Group operating margin by 1.0ppt in the
year to 8.0% (FY 2018/19: 7.0%). On a proforma basis, the
acquisition of the Sens-Tech business in October 2019
increases Group operating margin by a further 0.5ppts to
8.5% in line with our mid-term target. Over the last two
years, we have acquired businesses with higher margins
than the D&M division. Accordingly, we have reached our
current operating margin with D&M sales of 64% of Group
sales, rather than the previously modelled 75% which
assumed we would acquire businesses with margins in
line with the division as a whole.
■ Sales beyond Europe for the year represented 27% of
Group revenue (from 21% for FY 2018/19) improving as
a result of the acquisitions of Hobart, Positek and Sens-
Tech (for which c.70% of combined sales in the year were
outside Europe). On an annualised basis, this rises to
28%. We continue to seek acquisitions with high quality
international revenues.
With our underlying operating margin KSI having been
achieved on an annualised basis, we are setting a new
five-year target of 12.5%, from D&M sales of at least 75%.
Additionally, we are introducing a new target of 85% of sales
from target markets.
Key Performance Indicators
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Targets
1. Sales growth
CER
D&M organic
Group organic
17%
3%
2%
36%
9%
3%
14%
3%
3%
6%
(1)%
(1)%
11%
11%
6%
14%
10%
8%
8%
5%
2%
2. Increase cross-selling
£0.3m £0.9m £3.0m
£4.6m £8.8m £10.6m £11.4m
3. Underlying EPS growth
4. Dividend growth
5. ROCE2
6. Operating cash
conversion2
20%
10%
31%
11%
10%
6%
13%
6%
16%
6%
22%
6%
11%
n/a1
15.2%
12.0%
11.6%
13.0%
13.7%
15.4%
16.0%3
100%
104%
100%
136%
90%
93%
106%
1. 6% increase in the interim dividend; a final dividend has not been proposed due to COVID-19.
2. Defined in note 2 to the Group financial statements.
3.
Includes an annualisation of the results of Sens-Tech which was acquired on 16 October 2019.
Well ahead
of GDP
£12m p.a.
>10%
Progressive
>15%
>85% of underlying
operating profit
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The Group has also made further good progress with its KPIs
this year:
■ Organic sales growth for the year of 5% in our higher
margin D&M division was well ahead of GDP, reflecting
the sustained focus on higher growth target markets;
organic growth overall for the Group was 2%.
■ Cross-selling generated £11.4m of Group sales, an increase
of 8% over the prior year. Our target was increased last
year from £10m p.a. to £12m p.a.
■ Underlying EPS growth for the year was 11% (FY 2018/19:
22%) ahead of our 10% annual target, with growth over
the last three years of 57%. This is well ahead of our
annual target and reflects widespread organic growth,
acquisitions and improved operating efficiency over the
period.
■ Due to the uncertainty as to the duration and impact of
disruption from COVID-19, as a precautionary measure,
the Board has decided not to propose a final dividend. If
conditions permit, the Board intends to continue with its
progressive dividend policy later in the year.
■ Strong growth in underlying operating profit has driven
a 0.6ppt increase in return on capital employed to 16.0%
(including an annualised operating profit for Sens-Tech
which was acquired on 16 October 2019) compared with
the return for FY 2018/19 of 15.4%, comfortably ahead of
our target of exceeding 15%.
■ Operating cash flow for the year was 106% of underlying
operating profit, being well ahead of our 85% target.
Operating cash flow has been consistently strong with
conversion averaging over 100% over the last six years.
As we look towards the next five years, we are introducing an
additional KPI, that of free cash flow with a target of being
greater than 85% of underlying profit after tax. This year, we
delivered £27.3m of such cash flow (104% of underlying profit
after tax).
Divisional Results
Divisional and Group performances for the year ended 31 March 2020 are set out and reviewed below.
Design &
Manufacturing
Custom Supply
Unallocated costs
Total
Revenue
£m
297.9
168.5
466.4
FY 2019/20
Underlying
operating
profit1
£m Margin
FY 2018/19
Underlying
operating
profit1
£m Margin
Revenue
£m
Revenue
growth
CER
revenue
growth
Organic
revenue
growth
38.1
7.3
(8.3)
37.1
12.8%
4.3%
266.2
172.7
8.0%
438.9
29.8
8.6
(7.8)
30.6
11.2%
5.0%
12%
(2%)
13%
(1%)
5%
(4%)
7.0%
6%
8%
2%
1. Underlying operating profit excludes acquisition-related costs and exceptional costs.
With approximately 88% of Group sales in non-Sterling currencies, the translation of Group results into Sterling has been slightly
impacted by stronger Sterling year-on-year, with Group revenue growth reducing from 8% CER to 6% on a reported basis.
Order Book
Orders continued to grow well with the order book reaching
a year-end record high of £159m, an increase of 13% CER over
last year and 6% ahead of the half year. On an organic basis,
the Group order book increased by 7% over the prior year,
with the D&M order book growing by 8% organically and the
Custom Supply order book by 6% organically.
Order book growth 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.
By working with high quality customers in our target
markets, we are building an order book that leads to long
term, repeating revenues.
Design wins
Project design wins are a measurement of new business
creation and a proxy for future organic growth. By working
with customers at an early stage in their project design cycle,
we identify opportunities for custom products.
Design opportunities take typically 18 months to reach
conclusion, at which point they become a design win.
Once in production, the design win is expected to create a
recurring revenue stream for several years.
Design wins in the year continued at a high level with an
estimated lifetime sales value of £260m, growing by 37%
over the last two years and with estimated future annual
revenues representing approximately 16% of current revenue.
Over 90% of design wins were within the higher growth
target markets in the D&M division, and 80% for the Group
as a whole.
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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, with the division’s principal manufacturing facilities
being in China, India, Mexico, the Netherlands, Poland,
Slovakia, Sri Lanka, Thailand and the UK.
During the year, the expansion of our magnetic components
production facility in China was completed which
has increased Myrra’s Asian footprint by around 70%.
Additionally, the production facility in Bangalore, India,
which opened two years ago, is being doubled in size, driven
by good levels of domestic market growth as expected, but
also by the relocation of some existing Chinese production
that is destined for the US and which could otherwise be
subject to import tariffs.
The benefit of new revenue from design wins of previous
years and strong demand from our key target markets
delivered good organic growth in the division. Sales grew
organically by 5% with orders growing by 4% organically,
continuing the momentum of previous years with sales and
orders growing organically by around 28% over the last three
years. Growth this year was led by Asia (+26%), followed by
the Nordic region (+7%) and Germany (+6%). North America
was grew by 2% while the UK declined by 4% as Brexit
concerns led to customers destocking, and Rest of Europe
reduced by 9% reflecting the more challenging conditions
experienced during the year. Asia and the US now account
for 37% of D&M revenues (2018/19: 29%), up from 22% four
years ago.
Organic sales growth of 5%, combined with an 8% sales
increase from acquisitions, resulted in overall sales
increasing by 13% CER. Including a 1% reduction in revenue
due to the impact of currency translation, reported divisional
revenue increased by 12% to £297.9m (FY 2018/19: £266.2m).
D&M revenue accounted for 64% of Group revenue (FY
2018/19: 61%) and generated 84% of the Group’s underlying
profit contribution, up 6ppts on last year (FY 2018/19: 78%).
Underlying operating profit of £38.1m was £8.3m (+28%)
higher than last year (FY 2018/19: £29.8m) and up £8.7m CER
(+30%), while the underlying operating margin of 12.8% was
1.6pts higher than last year (FY 2018/19: 11.2%). The increase
in underlying profits and margin was principally driven
by three acquisitions during the year with higher margins
than the Group’s average: Sens-Tech, Positek and Hobart,
together with 6 months profit contribution from Cursor
Controls which was acquired in the prior year.
Hobart Electronics
In April 2019, the Group acquired Hobart Electronics, an
Indiana, US headquartered business founded in 1969
which designs, manufactures, and supplies customised
transformers, inductors and magnetic components for niche
applications. As well as manufacturing sites in Indiana and
Arizona, it has two larger manufacturing sites in Mexico
and employs around 260 people. Over 90% of revenues
are generated from customers in North America. The
markets served by Hobart include energy infrastructure and
industrial, which collectively account for approximately 74%
of sales. Following acquisition, Hobart now operates as part
of Noratel’s US business within the D&M division.
The business was acquired for an initial cash consideration
of $15.2m (£11.5m) on a debt free, cash free basis, with a
further contingent cash consideration of up to $4.0m (£3.1m)
payable subject to the achievement of certain growth
targets over the three year period ended 31 March 2022.
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Positek
Also in April 2019, the Group acquired Positek, a Cheltenham,
UK based designer and manufacturer of rugged, high
accuracy linear, rotary, tilt and submersible sensors,
supplying international markets with 60% of sales into the
Industrial sector. Positek, which was founded in 1992, sells
products worldwide that are renowned for their quality,
precision and robustness. Approximately 50% of revenues are
generated from customers in Europe, 20% from customers
in North America, 15% from customers in Asia Pacific and
15% in the UK. Following acquisition, Positek now operates as
part of the Variohm business within the D&M division.
The business was acquired for an initial cash consideration
of £4.2m on a debt free, cash free basis, with further
contingent cash consideration of up to £0.4m, payable
subject to the achievement of certain integration and profit
targets in the 18 months following acquisition.
Sens-Tech
In October 2019, the Group acquired Sens-Tech, an Egham,
UK based business, originally a spin out from Thorn EMI in
1994, specialising in X-ray detection and data acquisition
modules. These systems are typically used in industries that
have high regulatory and certification requirements, such as
medical imaging, safety and security applications, and leads
to long product life cycles with high barriers to entry. Sens-
Tech sells worldwide, with approximately 51% of its revenues
generated from customers in North America, 29% from
Europe, 17% from Asia with the balancing 3% from the UK
and the rest of the world. Following acquisition, Sens-Tech
operates within the D&M division.
The business was acquired for an initial cash consideration
of £58.0m on a debt free, cash free basis, with a further
contingent cash consideration of up to £12.0m payable
subject to the achievement of certain profit growth targets
over the three year period ending 31 March 2022.
Custom Supply Division
The Custom Supply 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 with
products that are mostly sourced from third party suppliers
rather than manufactured in-house. As such, operating
margins are lower than in D&M. Additionally, the division
acts as a sales channel through which to grow sales from the
D&M division.
The division comprises two businesses, Acal BFi and
Vertec. Acal BFi supplies industrial markets and accounts
for most of Custom Supply divisional revenue. It supplies
products from a 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 and finance, supplier
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. During the year, our smallest business
unit, RSG, was integrated into Acal BFi in the Custom Supply
division from D&M.
The division’s sales in the year were 4% lower organically
with orders 2% lower as market conditions toughened in
the second half, although the book to bill ratio for the year
remained positive at 1.01. The division saw good growth
in Italy and Benelux offset by falls in Germany, France and
the UK.
Including the impact of the transfer of RSG from D&M
and integration into Acal BFi, reported divisional revenue
reduced by 2% to £168.5m (FY 2018/19: £172.7m), and by 1%
CER. Underlying operating profit of £7.3m was £1.3m lower
than last year (FY 2018/19: £8.6m), while the underlying
operating margin was 4.3% compared with 5.0% last year.
Cross-selling
Cross-selling is the sale of products by one discoverIE Group
company to customers of another Group company. For
newly acquired businesses, access to a greater number
of potential new customers provides an effective route to
expanding their customer base and geographic reach.
Typically, it takes three years for cross-selling to become
established within a business unit, due to project lead-in
cycles, and then develops into a significant additional source
of revenue, as evidenced by the Group’s longer standing
acquisitions. This year, cross-selling revenues, which now
account for 2.4% of Group sales, were up 8% to £11.4m from
the previous year (FY 2018/19: £10.6m), compared with our
revised target of £12m.
Acquisitions
Niche electronic components is a highly fragmented market
with many opportunities to acquire and consolidate.
Typically, the businesses we acquire are led by
entrepreneurial leaders who wish to remain following
acquisition. We encourage this as it helps to retain a
decentralised, entrepreneurial culture.
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We acquire businesses that are successful and profitable
with good growth prospects with long-term growth drivers
aligned with the Group’s target markets. We support
investment for growth and develop operational performance
according to the requirements of each business unit.
Depending upon the circumstances, we add value in some
of or all the following areas:
■ Internationalising sales channels and expanding
the customer base, including via Group cross-selling
initiatives (see above);
■ 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;
■ 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 performance
The Group has successfully completed 14 acquisitions in the
D&M division since 2011, which have contributed to growth
in revenues in the division from £15m in FY13 to £298m in
FY20, with Group underlying operating margins increasing
from 3.1% to 8.0% over the same period. The Group’s
operating model is well established and has facilitated the
smooth integration of acquired businesses, including Cursor
Controls, Hobart, Positek and Sens-Tech, all acquired in the
last two years.
We measure acquisition return on investment (“ROI”) as
operating profit attributable to every business each year,
divided by its acquisition cost (including earn outs, expenses
of acquisition and integration costs). The Group, which has
a weighted average cost of capital (“WACC”) of c.9%, targets
an acquisition EBIT ROI of 15% by the end of the third year
of ownership. The ROI of the acquired businesses owned
for at least two years was 18.6%, up 1.4ppts on last year on a
like for like basis, with an average ROI over the life of those
acquisitions of 17%.
COVID-19
The following section outlines the Group’s position and
actions that have been taken in response to the coronavirus
pandemic.
The effects of the virus became evident in the fourth quarter,
initially in China, with our two design and manufacturing
sites in Guangdong province closed for almost a month,
before rebounding quickly upon reopening with only a
limited effect on overall trading. Approximately 23% of
our sales in the year were linked to trade with China, but
the effects of the closures were limited by flexibility in our
manufacturing and supply chains. It is estimated that this
disruption led to a loss of sales in the quarter of £4m in the
D&M division, reducing D&M organic growth in the fourth
quarter by 5ppts, and 3ppts for the Group organically.
Since then, in the first quarter of the new financial year,
COVID-19 has spread internationally and whilst China has
continued its strong recovery, the effects have been felt
across all other regions of the business. Revenues in the
first quarter have been relatively resilient, reducing by 10%
organically to date, better than the wider market and a
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REVIEW
reflection of the specialised products and markets we supply.
The order book remains strong, with the three month order
book in the D&M division remaining at levels consistent with
the prior year. As with previous downturns, the uncertain
conditions led to a reduction in longer term orders, which we
expect to recover as conditions improve.
Operations
Each of our businesses is implementing an operating plan
developed for their business.
The Group comprises 47 operating companies in 23
countries, with 27 manufacturing facilities in 17 of those
countries across Europe, UK, Asia and the Americas. Six
facilities (Sri Lanka, California and two each in China and
India) were required by government mandate to close for
a period. All six have since re-opened with initially limited
but increasing capacity. All other sites have remained
open, several with essential supplier status and a number
operating at reduced capacity during the disruption.
With a decentralised structure, the Group has been able to
adapt quickly to the evolving circumstances and adopt new
ways of working, with each of our businesses implementing
an operating plan developed to suit its local market and
welfare requirements. At its peak, over 650 employees
were working from home and across all our locations there
has been an overriding priority to establish safe working
practices such as split working shifts with no overlap and
appropriate distancing measures. These initiatives include:
■ Increased frequency site cleaning
■ Hand sanitation at entry and exit points
■ Closure of canteens
■ Face to face meetings replaced by calls and video
conferencing
■ Cancellation of all non-essential business travel
Customers
Enormous effort has been deployed supporting customers
in the rapid development and supply of key components
for virus related medical products with over 60 customer
projects having been developed during the March to May
period. For example:
■ Customer ventilator projects: designing and supplying
custom components such as pressure sensors and
switches. For instance, our team of engineers designed-in
a power unit for a ventilator manufacturer taking just one
week from design to receipt of first order;
■ Temperature sensing projects: specifying and supplying
sensors for human temperature screening;
■ Fluid / chemical analysers: key components for the
sensing and analysis of body fluids;
IMAGE
■ Air purification projects: power units for hospital air
purification units;
■ Hospital bed projects: power units and drive controllers
for mechanised hospital beds;
■ Various other projects such as high-performance power
units to ensure hospital power supply continuity in the
event of mains outages.
Cash conservation and cost reduction
Whilst our financial position is strong, we have taken
prudent action to preserve cash and reduce operating
expenses with several initiatives, including:
■ Deferral of non-essential capital expenditure and other
discretionary spend
■ Deferral of bonuses and pay rises, together with a new
hiring freeze
■ 20% salary reduction for the Board and Group Executive
Committee for three months
■ Increased focus on working capital efficiency
■ All acquisitions deferred, but pipeline development
continues
Additionally, the Board is not proposing a final dividend but
intends to re-introduce distributions in respect of the first half
of the new year subject to trading conditions at the time.
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Customer demand remains resilient with first quarter
sales running 10% lower on an organic basis, reflecting the
specialised and critical nature of our products as well as the
benefits of our long term growth sector focus. The order
book remains strong, with the three-month order book in
the D&M division at a level consistent with the prior year. As
with previous downturns, longer term orders have slowed
in the short term, with the first quarter book to bill ratio
running at 0.85:1, and we expect this to recover as conditions
improve. June orders and sales are tracking ahead of those in
May. We remain confident that with the Group’s operational
flexibility, diversified customer base and focus on the growth
sectors of renewable energy, medical, transportation and
industrial & connectivity, we will outperform underlying
markets during this period of disruption.
The discoverIE business model is resilient and flexible,
underpinned by a clear strategy focused on high quality
growth markets. With a strong funnel of design wins and
acquisition targets, the Group is well positioned for a return
to strong growth as conditions recover.
Nick Jefferies
Group Chief Executive
24 June 2020
Balance sheet and liquidity
The Group’s financial position remains strong with a
committed syndicated bank facility of £180m with the term
of that facility being extended to June 2024 during this year.
With year-end net debt of £61.3m, the Group has almost
£120m of undrawn committed facility, gearing of 1.25x and
interest cover of 13.5x. The financial covenants in the facility
are gearing (net debt / underlying EBITDA including pre-
acquisition EBITDA of acquisitions) of not more than three
times and interest cover of not less than four times.
In addition, the Group has received confirmation from
the Bank of England, that the Group is eligible in principle,
subject to satisfactory documentation, to participate in HM
Treasury’s Covid Corporate Financing Facility. The Group
does not believe it will need to utilise this facility but has the
flexibility if conditions deteriorate materially from current
expectations.
Summary and Outlook
Our focus on long term structural growth markets and
strong operational performance, together with our
successful acquisition strategy, has delivered strong results
for the year with a 21% increase in operating profits and a
37% increase in operating cash flow.
In response to the COVID-19 pandemic which became
evident in the final quarter of the year, we have taken swift
action to ensure the safe working of employees and trading
partners whilst maintaining operational continuity. We are
supporting customer needs in the medical sector by quickly
developing and supplying products for a range of virus-
related medical equipment in over 60 different projects.
The Group has a strong financial position, a clear strategy
and is performing well. Gearing at the year-end reduced
to 1.25x with significant headroom under our existing
facilities. We have taken decisive measures to preserve cash
and reduce operating expenditure whilst maintaining our
capability to respond effectively as conditions improve.
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27378 2 July 2020 2:32 pm Proof 9 2020 HEADLINESUNDERLYING EPS 30.2P+11%OPERATING CASH FLOW £39.3M+37%“ The Group’s gross margin has increased by around 7ppts in the last 11 years since the Group’s strategy was introduced, a reflection of the differentiated nature of our products and the significant organic and inorganic growth of our higher margin D&M division.”Simon Gibbins Group Finance DirectorFINANCE REVIEWOrders, Revenue and Gross ProfitGroup revenue for the year increased by 6% over last year to £466.4m, and by 8% CER, the difference reflecting the translation impact of Sterling strength on average since last year. Organic revenue increased by 2% (with D&M increasing 5% partly offset by Custom Supply reducing by 4%), while the acquisitions of Cursor Controls last year, and Hobart, Positek and Sens-Tech this year contributed an additional 6% growth in revenues. £mFY 2019/20FY 2018/19%Reported revenue466.4438.96%FX translation impact(5.1)Underlying revenue (CER)466.4433.88%Acquisitions(25.5)–Organic revenue440.9433.82%Group orders increased by 6% CER with a book to bill ratio of 1.02 (H1: 1.02, H2: 1.02). Organically, orders were up 1% for the year with an increase in D&M of 4% partly offset by a 2% reduction in Custom Supply.With approximately 88% of Group sales in non-Sterling currencies, the translation of Group results into Sterling was impacted by its average strength since last year. While Sterling strengthened 1% against the Euro during the year, and 4% against Nordic currencies on average, it weakened 3% against the US dollar. Gross profit for the year of £156.7m increased by 8% over last year (FY2018/19: £145.0m) with gross margin for the year of 33.6% being 0.6ppts ahead of last year (FY 2018/19: 33.0%). The Group’s gross margin has increased by around 7ppts in the last 11 years since the Group’s strategy was introduced, a reflection of the differentiated nature of our products and the significant organic and inorganic growth of our higher margin D&M division. Annual Report and Accountsfor the year ended 31 March 202040discoverIE Group plcdiscoverIE AR 2020.indd 4002/07/2020 14:35:47 image
Underlying Operating Costs
Reported costs were up 9% as detailed below. Excluding underlying adjustments, Group underlying operating costs
increased by 6% CER. Adjusting for the pre-acquisition costs of Hobart, Positek and Sens-Tech acquired this year, and Cursor
Controls acquired during last year, underlying operating costs increased by 1% organically. This reflects investment in D&M
businesses with a 5% uplift in divisional operating expenses including £1.4m invested to support future growth initiatives,
offset by 5% operating cost savings in Custom Supply where sales reduced by 4% in the year.
As a percentage of sales, underlying operating costs for the year reduced by 0.4ppts to 25.6% (FY 2018/19: 26.0%), a reflection
of ongoing sales growth and tight cost control.
£m
Organic operating costs
Acquisition operating costs
Underlying operating costs (CER)
FX translation
Underlying adjustments
Acquisition-related costs
Amortisation of acquired intangibles
Exceptional items
IAS 19 pension administration cost
Reported operating costs
£m
Selling and distribution costs
Administrative expenses
Reported operating costs
%
1%
6%
FY
2019/20
114.9
4.7
119.6
4.0
9.0
–
0.3
FY
2018/19
113.3
113.3
1.1
1.8
5.9
(0.2)
0.4
132.9
122.3
9%
FY
2019/20
FY
2018/19
58.1
74.8
132.9
57.7
64.6
122.3
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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 below.
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www.discoverieplc.com
Stock Code: DSCV
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FINANCE
REVIEW
Group Operating Profit and Margin
Group underlying operating profit for the year was £37.1m, up £6.5m (+21%) on last year, and up 23% CER, with a Group
underlying operating margin of 8.0%, up 1.0ppt on last year.
Reported Group operating profit for the year (after accounting for the underlying adjustments discussed below) was £23.8m,
an increase of £1.1m (+5%) compared with last year (FY 2018/19: £22.7m). Growth in reported operating profits was lower than
underlying growth due to an increase in the number of acquisitions this year compared with last year (three compared with
one), and so a greater level of acquisition costs and amortisation of acquired intangibles.
£m
Underlying
Underlying adjustments
Acquisition-related costs
Amortisation of acquired intangibles
Exceptional items
IAS 19 pension cost
Reported
FY 2019/20
FY 2018/19
Operating
Profit
Net Finance
Costs
Profit
before tax
Operating
profit
Net Finance
Costs
Profit before
tax
37.1
(4.3)
32.8
30.6
(3.4)
27.2
(4.0)
(9.0)
–
(0.3)
23.8
–
–
–
–
(4.3)
(4.0)
(9.0)
–
(0.3)
19.5
(1.8)
(5.9)
0.2
(0.4)
22.7
–
–
–
–
(3.4)
(1.8)
(5.9)
0.2
(0.4)
19.3
Underlying Adjustments
Underlying adjustments for the year comprise: acquisition-
related costs of £4.0m (FY 2018/19: £1.8m); the amortisation
of acquired intangibles of £9.0m (FY 2018/19: £5.9m); and the
IAS19 legacy pension cost of £0.3m (FY 2018/19: £0.4m).
Acquisition-related costs of £4.0m comprised expenses
related to the acquisition of Hobart and Positek in April
2019 and Sens-Tech in October 2019 of £1.8m, accruals for
contingent consideration of £2.0m in relation to acquired
businesses (mainly Sens-Tech and Cursor Controls)
together with integration costs of £0.2m. The £3.1m
increase in the amortisation charge since last year relates
to the amortisation of intangibles identified as part of the
acquisitions of Hobart, Positek and Sens-Tech this year and
Cursor Controls last year. The total annualised amortisation
cost for next year is expected to be around £11.0m including
a full annualisation of amortisation for Sens-Tech which was
acquired in October 2019.
Net Finance Costs
Net finance costs were £4.3m (FY 2018/19: £3.4m). This year’s
charge comprises underlying finance costs (being interest
and facility fees arising from the Group’s banking facilities) of
£3.7m (FY 2018/19: £3.4m), and an IFRS 16 interest charge of
£0.6m, the first year following its introduction.
Underlying finance costs for the year of £3.7m were £0.3m
higher than last year, due to increased commitment fees
following the extension of our banking facility by £60m
in February 2019, and higher average monthly net debt
following the Sens-Tech acquisition in October 2019.
Underlying interest rates on the overall facility have though
reduced under the terms of the extended facility.
Underlying Tax Rate
The underlying effective tax rate for the year was 20%.
This was approximately 5ppts lower than last year due
mainly to increased profitability in the UK following the UK
acquisitions of Sens-Tech and Positek during the year, and
the use of certain unrecognised losses.
The overall effective tax rate of 27% was higher than the
underlying effective tax rate mainly due to acquisition costs
being largely non-deductible for corporate tax purposes.
42
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Annual Report and Accounts
for the year ended 31 March 2020
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Profit Before Tax and EPS
Underlying profit before tax for the year was £32.8m, an increase of £5.6m (21%) compared with last year. This increase
resulted in underlying diluted earnings per share for the year of 30.2p, up 11% on last year.
After the underlying adjustments discussed above, reported profit before tax of £19.5m was broadly in line with last year
(FY2018/19: £19.3m), with reported fully diluted earnings per share of 16.5p, compared with 19.4p last year. This reduction
related to the c.20% of new equity issued during the year at the time of our three acquisitions.
£m
Underlying
Underlying adjustments
Acquisition-related costs
Amortisation of acquired intangibles
Exceptional items
IAS 19 pension cost
Reported
Working Capital
Working capital at 31 March 2020 was £70.9m (FY2018/19:
£67.2m) equivalent to 14% of annualised final quarter sales at
CER. This ratio was in line with last year despite higher sales
in the D&M division which, as a manufacturer, holds raw
material and more finished goods than in Custom Supply,
due to geographic spread of manufacturing sites and hence
has lower stock turns (3.7 times in D&M compared with
10.9 times in Custom Supply). This in turn results in higher
working capital as a percentage of sales in the D&M division
(18% in D&M compared with 11% in Custom Supply).
Group stock turns were 5.2, 0.1 turns better than last year,
despite the increasing percentage of D&M sales. Group trade
debtor days and trade creditor days outstanding at 31 March
2020 were at 52 days (down 2 days since last year) and 63
days (consistent with last year) respectively.
ROCE for the year (return on capital employed, defined as
underlying operating profit as a percentage of net assets
plus net debt) including an annualisation of our Sens-Tech
acquisition, was 16.0%, up 0.6ppts on last year driven by
increased profitability and operating efficiency. This is ahead
of our target to achieve a ROCE of at least 15%.
FY 2019/20
FY 2018/19
PBT
32.8
(4.0)
(9.0)
–
(0.3)
19.5
EPS
30.2p
16.5p
PBT
27.2
(1.8)
(5.9)
0.2
(0.4)
19.3
EPS
27.2p
19.4p
Cash Flow
Net debt at 31 March 2020 was £61.3m, compared with
£63.3m at 31 March 2019. Excluding acquisition spend during
the year of £75.9m and equity issuance of £60.5m, net debt
reduced by £17.4m during the year, equating to 47% of
underlying operating profits, demonstrating continuing
strong cash generation by the Group.
FY
2019/20
FY
2018/19
Net debt at 1 April
Free cash flow (see table below)
Acquisition-related cash flow
Equity issuance
Dividends
Foreign exchange impact
Net debt at 31 March
(63.3)
27.3
(75.9)
60.5
(8.1)
(1.8)
(61.3)
(52.4)
19.2
(24.2)
0.1
(6.7)
0.7
(63.3)
Net acquisition cash flows, (including associated costs of
acquisitions) of £75.9m comprised £58.4m for the acquisition
of Sens-Tech, £16.5m for the acquisitions of Hobart and
Positek, and an earnout payment in respect of the 2016
Contour acquisition of £1.0m.
Dividend payments increased by £1.4m (+21%) to £8.1m
following the 6% increase of the final dividend last year and
the two c.10% equity placings in April 2019 and October 2019
to maintain a strong balance sheet.
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
43
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FINANCE
REVIEW
Operating cash flow and free cash flow (see definitions
in note 2 to the Group financial statements) for the year
compared with last year are shown below.
£m
Underlying profit before tax
Net finance costs
Non-cash items1
Underlying EBITDA
Working capital
Capital expenditure
IFRS 16
Operating cash flow
Finance costs
Taxation
Legacy pension
Executive Share option
exercises
Net exceptional receipt
Free cash flow
FY
2019/20
FY
2018/19
32.8
4.3
13.5
50.6
1.6
(6.3)
(6.6)
39.3
(3.7)
(6.4)
(1.8)
(0.1)
–
27.3
27.2
3.4
6.4
37.0
(3.2)
(5.2)
–
28.6
(3.4)
(3.8)
(1.7)
(1.6)
1.1
19.2
Banking Facilities
The Group has a revolving credit facility of £180m with a
syndicate of six banks. During February 2020, the Group
exercised its option to extend the term of the facility to
June 2024. In addition, the Group has a £60m accordion
facility which it can use to extend the total facility up to
£240m, subject to banking approval. The syndicated facility
is available both for acquisitions and for working capital
purposes.
With net debt at 31 March 2020 of £61.3m, the Group’s
gearing ratio was 1.25 times (FY 2018/19: 1.7 times), being
defined as net debt divided by underlying EBITDA
(annualised for acquisitions) with our longer term target
gearing range being between 1.5 and 2.0 times. Interest
cover was 13.5 times.
Balance Sheet
Net assets of £200.5m at 31 March 2020 were £65.8m higher
than at the end of the last financial year (31 March 2019:
£134.7m). The increase primarily relates to the two equity
issuances during the year to strengthen the balance sheet
plus the net profit for the year partly offset by the payment of
dividends. The movement in net assets is summarised below:
1. Non-cash items are depreciation, amortisation and share based
payments, plus £6.6m IFRS 16 depreciation for FY 2019/20.
£m
Underlying EBITDA of £50.6m includes the add back of IFRS
16 depreciation of £6.6m; excluding this, it was 18% higher
than last year. Working capital reduced by £1.6m reflecting
£2.0m early payments from customers and a lower growth in
the last quarter. This compares with an investment of £3.2m
last year reflecting the stronger organic growth that year.
Capital expenditure of £6.3m, 1.4% of Group sales (FY2018/19:
1.2%), was £1.1m higher than last year with increased
investment in the D&M division. On a divisional basis, capital
expenditure was 1.9% of divisional sales in D&M and 0.2% of
divisional sales in Custom Supply.
Operating cash flow of £39.3m, which was up 37% on last
year, represents 106% of underlying operating profit, well
ahead of our 85% conversion target. Free cash flow (after
finance costs, taxation, legacy pension and exceptional costs)
was £27.3m, up 42% on last year and at 104% of underlying
profit after tax, was again well ahead of our target of 85%.
We have introduced free cash flow as a new KPI for the next
five-year period, as we look to evolve into a business which is
self-sufficient in the funding of acquisitions.
Net assets at 31 March 2019 (restated)
Net profit after tax
Dividend paid
Currency net assets – translation impact
Gain on defined benefit scheme (inc tax)
Equity issuance
Share based payments (inc tax)
Net assets at 31 March 2020
FY
2019/20
134.7
14.3
(8.1)
(4.6)
1.9
60.5
1.8
200.5
Defined Benefit Pension Scheme
The Group’s IAS19 pension position associated with its
legacy defined benefit pension scheme improved during
the year by £4.3m, from a £2.5m deficit at 31 March 2019 to
a £1.8m surplus at 31 March 2020. This partly results from
contributions of £1.8m made by the Group; and also from
increased corporate bond yields, reductions in future RPI
expectations and updated demographic assumptions
during the year. Annual payments of £1.8m remain payable
(growing by 3% each year in accordance with the plan
agreed with the pension trustees in 2019) until September
2022. The next triennial valuation will be as at 31 March 2021.
44
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for the year ended 31 March 2020
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Brexit Update
discoverIE does not anticipate a material direct tariff impact
from Brexit. As an international Group, only 12% of sales are
in the UK with minimal trade between the UK & Eurozone.
The majority of sales in the UK are of products manufactured
outside the EU, predominantly in Asia and the US, and are
thus unaffected. WTO rules, were they to apply, for products
traded between the EU and the UK and vice versa, would
only be expected to have a minimal effect.
Changes have been made to some warehousing and
logistics to hold a buffer stock in the country of demand to
minimise the effects of any border disruption.
Indirect risk remains in terms of softening customer demand
as a result of ongoing uncertainty, and also from the impact
from a depreciation of Sterling which would increase
import costs.
Risks and Uncertainties
The principal risks faced by the Group are detailed on pages
50 to 55. These risks include the economic environment,
particularly linked to the impact of COVID-19; 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; inventory obsolescence;
product liability; liquidity and debt covenants; exposure to
adverse foreign currency movements; obligations in respect
of a legacy defined benefit pension scheme; loss of key
personnel; and non-compliance with legal and regulatory
requirements.
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 £180m.
Simon Gibbins
Group Finance Director
24 June 2020
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Innovative Electronics
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Stock Code: DSCV
45
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RISK
MANAGEMENT
Governance and culture
The Board of Directors has overall responsibility for the Group’s risk appetite and risk management strategy. Roles and
responsibilities for managing risks across the discoverIE Group have been clearly defined as shown in the diagram below.
Board
■ Overall responsibility for corporate strategy
Audit and Risk Committee
■ Reviews effectiveness of Group’s risk management framework
and risk management
and internal controls
■ Defines the Group’s appetite for risk
■ Oversees effectiveness of Group Internal Audit
Group Executive Committee
■ Management of the Group and delivery of the strategy
■ Monitoring of key risks and compliance with relevant laws
■ Regular reviews of the Group’s risk management framework
Divisional Management
■ Oversight and review of operational risks
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
Group Functions
■ Responsible for the
integration of the risk
management framework
Group Internal Audit
■ Monitors compliance with
the Group’s internal controls
and policies
■ Conducts or commissions
internal audits
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The Company’s risk management framework follows a
three lines of defence model. The first line of defence is
operational management in our businesses. Day-to-day
risk management controls, policies and procedures are
implemented and monitored by the local management
teams with oversight and review by Divisional Management.
Relevant internal control systems are in place to identify,
evaluate and manage the Group’s business risks.
The second line of defence comprises Group functions such
as legal, IT, treasury and tax. This focuses on monitoring
and compliance with risk control systems and processes
implemented by the Group.
The internal audit function provides independent assurance
over the operation of risk management processes, internal
controls and governance, and serves as the third line of
defence. Additional resource this year has led to a significant
increase in the number of internal audits being conducted
across the Group. As well as carrying out full audits on
individual entities, the team conducts thematic audits,
focusing on specific areas across the Group as a whole. During
the Covid-19 outbreak, the team has continued to conduct
audits, identifying those matters that can be reviewed
remotely. This means that the function has continued to serve
and help protect the Group effectively. Other activities carried
out by the Group Internal Audit function include reviewing
and updating Group policies and improving processes and
procedures where opportunities for improvement have been
identified as a result of previous audits.
As noted in the Corporate Governance Report, the Group
operates a decentralised model with a strong culture of
open, constructive communication, a willingness to listen,
being non-political and non-bureaucratic, as well as being
performance, target and results driven. The Group Internal
Audit function plays an inherent part in ensuring that this
culture is embedded throughout the Group.
Recruitment is a thorough process involving Divisional
Management in the appointment of all operating company
management positions. Employees are encouraged to
develop their knowledge and skills and to progress their
careers within discoverIE.
Our Group strategy is clearly defined (see pages 20 to 27
for details of Our Strategy). This sets the context for more
detailed business objectives, which are agreed annually
for the Group as a whole and for each business unit.
Progress against these is then reported on a regular basis
to Divisional and Head Office functional management,
the Group Executive Committee and the Board. Having
a clear understanding of our objectives, and the context
in which our businesses operate, assists with the effective
identification and management of existing or emerging
risks that have the potential to prevent or hinder any of these
objectives from being achieved.
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discoverIE Group plc
Annual Report and Accounts
for the year ended 31 March 2020
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Risk appetite
One of the Group’s core principles is to deliver its strategic
priorities in a sustainable and responsible manner. This
requires that careful consideration is given by the Board
to the nature and level of risks that the Group should
accept in order to grow and develop the business in line
with this strategy, including a certain level of operational
risk. discoverIE is averse to exposing itself to reputational
risk, regulatory and compliance risks, risks arising from
environmental, social or governance (“ESG”) matters, and
risks relating to the security of systems and data, while being
more open to risks relating to the innovation of products,
building our customer base and increasing our competitive
strength in the markets in which the Group operates. The
degree of risk accepted is managed on a day-to-day basis
through the Board’s delegated authority levels.
Enterprise Risk Management
discoverIE applies the Enterprise Risk Management
framework to identify potential events or circumstances that
may affect the Group and manage the associated existing
and emerging risks. The risk management framework is
made up of five steps to identify, assess and mitigate risks.
A risk register detailing the Group’s key risks is regularly
reviewed by Divisional Management and the Group
Executive Committee to identify new or emerging risks and
to assess changes to existing risks. The risk register details
the potential impact and likelihood of the respective risks
on the Group, linking each risk to the Group’s corporate
strategy. The register also includes an evaluation of potential
mitigating actions and controls, and the residual risks
remaining after the application of the Group’s internal
control processes.
Risks are prioritised based on their residual risk and the risk
appetite. Further information on the Group’s principal risks
and uncertainties is detailed on pages 50 to 55. Key risks,
and the internal control processes adopted to address these
risks, are monitored by the Group Executive Committee and
carefully considered and evaluated by the Audit and Risk
Committee.
The Audit and Risk Committee supports the Board by
monitoring the Group’s risk management framework,
identifying areas of risk, challenging control weaknesses and
providing independent assessment of the effectiveness of
the Group’s internal controls and risk management systems.
Further information on the Audit and Risk Committee and
its activities can be found on pages 90 to 94.
discoverIE continually pursues improvements in its
Enterprise Risk Management Framework. During FY20 the
Risk Management Policy was reviewed, and Risk Workshops
were trialled. These will be rolled out further in FY21,
alongside a more integrated approach to risk reporting from
subsidiaries.
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
sustainable strategy
ctiveness
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
47
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VIABILITY
STATEMENT
Viability assessment period
The Directors have concluded that the most appropriate
time period over which to assess the Group’s prospects
for this purpose should be the three-year period ending
31 March 2023. The selection of this period is consistent
with the Group’s strategic planning process; its review of
external credit facilities; and its assessment of the Group’s
principal risks.
Viability Base Case
The financial projections for this three-year period are based
upon the Group’s forecast for the year ending 31 March
2021 taken at the start of May 2020 (the “May Forecast”)
and forecast progression thereon. The May Forecast is a
consolidation of sales, profits, working capital and cash flow
forecasts made by each operating company and head office,
at the start of May, incorporating actual results for April
2020 and factoring in each business’s view of the impact of
COVID-19 for the rest of the FY 2020/21 financial year, and
other associated key risk factors including acquired company
forecast and associated future earnout payments, latest views
on supplier and customer payments impacting working
capital and latest forecast foreign exchange rates. The May
Forecast also incorporates the savings actions previously
announced by the Group including pay and headcount
freezes and deferral of non-essential capital expenditure.
The May Forecast shows a U-shaped recovery incorporating the
current latest reported position with sales running 10% lower in
the first quarter. Future growth for the financial years 2021/22
and 2022/23 assume mid-single digit sales growth rates on
average for those years (in total “The Viability Base Case”).
Banking facilities and headroom
The Group has a syndicated banking facility of £180m
which is committed up to the end of June 2024, beyond
the viability assessment period. In addition, the Group has
a £60m accordion facility which it can use to extend the
total facility up to £240m. The syndicated facility is available
both for acquisitions and for working capital purposes. The
Group’s financial covenants for its banking facility are:–
i) Gearing: net debt to Adjusted EBITDA (being Underlying
EBITDA plus the annualisation of acquisitions) of less than
3.0x and
ii) Interest cover: Adjusted EBITDA to interest greater than 4.0x.
At 31 March 2020, the Group had net debt of £61.3m (giving
undrawn facilities of nearly £120m) and was significantly
inside these covenants with gearing of 1.25x and interest
cover of 13.5x.
The Viability Base Case model shows increasing headroom
with annually reducing levels of net debt and gearing, and
increasing interest cover compared with the position at
31 March 2020.
Downside Sensitivities
The Viability Base Case has been subjected to sensitivity analysis
involving flexing a number of the underlying main assumptions,
both individually and in conjunction. The sensitivities take into
account the principal risks and uncertainties sset out on pages
50 to 55, notably COVID-19 pandemic, economic downturn,
Brexit, loss of key customers and suppliers, underperformance
of acquired businesses, major business disruption, liquidity and
debt covenants and foreign currency.
In respect of COVID-19, the Directors have modelled downside
scenarios to the Viability Base Case. The Directors prepared
these scenarios based on an underlying analysis of the
potential further impact of COVID-19 this year and future years
additional to that already factored into the Viability Base Case.
These downsides include a much longer term, and deeper
impact with a further double-digit organic sales growth
downside to the Viability Base Case in FY2020/21. Downside
sales impact was varied by market sector with organic falls
in the year ranging above 30% in some markets. A further
downside was also applied the following year with FY2021/22
experiencing a mid-single digit organic sales decline below
the downside sales position in FY2020/21. Additionally,
gross margin was materially reduced and working capital
materially increased.
Even after factoring in these significant additional
downsides to the Viability Base Case, there remains good
headroom in our banking covenants. This is supported by
the fact that the Group sells a wide portfolio of different
products across a diverse set of industries and geographies,
has a global supply chain network, and has well-established
relationships with its customers.
Further mitigation actions not included in the Viability Base
Case or sensitivity downsides include further operational
and capital expenditure reductions, including redundancies
and broader pay reductions, agreeing with the Trustees to
defer pension contributions and equity raises. Additionally
the Group has confirmed its eligibility in principle, subject
to satisfactory documentation, to access additional cash
facilities under HM Treasury’s COVID Corporate Financing
Facility, should conditions deteriorate materially.
The Group is also monitoring the risk related to uncertainty
surrounding Brexit and currently does not expect that the
direct impact of Brexit should have a material impact on the
Group’s operations or financial results. 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 have been considered by the Board as part
of the risk management process.
The Strategic Report on pages 04 to 69 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 has a
reasonable expectation that, taking into account the Group’s
current position, having regard to the committed borrowing
facilities available to the Company, and subject to the principal
risks and uncertainties faced by the business as documented
on pages 50 to 55 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.
Going Concern
Based on the assessment outlined above, the Directors also
believe that it is appropriate to continue to adopt the going
concern basis in preparing the Group’s accounts.
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www.discoverieplc.com
Stock Code: DSCV
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PRINCIPAL RISKS AND
UNCERTAINTIES
Focus on principal risks
This section of the Strategic Report provides an overview of the Group’s approach to managing risk, focusing on the
major risk factors to implementing the Group’s strategy and business model. It is not an exhaustive list of all possible
risks. Additional uncertainties exist, some of which may not be known to the Group and could have a negative effect on
the Group’s financial position and performance. The principal risks and uncertainties detailed below were considered in
assessing the long-term viability of the Group. The viability statement can be found on page 48.
Strategic risk
Risk description
Potential impact
Mitigating actions
Change in the year
1
Instability in the economic environment
■ Risk of decline
in financial
performance
due to recession
or geopolitical
changes, including
COVID-19 and
Brexit
■ Reduction in sales
■ Market position as a specialist
■ Lower margins
■ Closure of factories
and suppliers stopping
production
■ Difficulty raising equity
and debt, impacting
growth ability
■ Analysis by the Brexit
Committee as to
the effect of Brexit
concluded that the
direct impact on the
Group should not be
material
■ COVID-19 impact on global
markets
■ The UK has now moved
into the transition phase of
leaving the EU. However, as
noted opposite, the direct
impact of Brexit is expected
to be limited
Link to KSIs:
B C D
Link to KPIs:
1 3 4 5 6
supplier focused on core
target markets with diversified
locations and product offerings
■ Executive team actively
managing impact of
COVID-19, including weekly
rolling trading and cash
forecasts
■ A long-term credit facility
is in place with significant
headroom
■ Careful monitoring of stock
levels in relevant geographies
to identify any issues early
and flexible production and
warehouse facilities to enable
movement of production and
supply to other countries if
required
■ Vigilance entering markets
that are politically or
financially unstable
2 Business acquisitions underperformance
■ Financial impact due
to underperformance
of acquisitions
■ Loss of key employees
and their expertise
■ Expected synergies are
not realised
■ A degree of
uncertainty
exists in valuing
acquisitions
and evaluating
potential synergies
■ Post-acquisition
risks arise due to
change of control
and integration
challenges
■ Hobart and Positek,
acquired in April 2019, and
Sens-Tech, acquired in
October 2019, performed as
expected during FY20
Link to KSIs:
A B C D
Link to KPIs:
1 2 3 5 6
■ Acquisition programme
temporarily on hold while
impact of COVID-19 assessed
■ Operational, financial and
legal due diligence on target
businesses
■ Appropriate warranties and
indemnities from vendors
■ Use of earn-out structures to
incentivise key management
■ Monitoring of the acquired
business performance against
budget
■ Hiring of experienced finance
personnel
■ Specific risk management
programme for first 12 months
post-acquisition
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Operational risk
Risk description
Potential impact
Mitigating actions
Change in the year
3 Loss of major customers
■ A key customer
moves to a
competitor,
significantly
reduces operations
or goes into
insolvency
■ Loss of market share
■ Low dependence on any
■ Increased risk of bad
debt
■ Reduced profitability
and cash flow
single customer (the largest
customer represents less
than 7% of Group revenues)
■ Culture of high-quality
service and long-term
customer relationships
■ Focus on developing
business with SMEs
■ Robust customer quality
management systems
■ COVID-19 increases the
likelihood of customers
reducing activities or facing
financial difficulties
Link to KSIs:
A B D
Link to KPIs:
1 2 3 6
4 Loss of major suppliers
■ A key supplier
undergoes
change of
ownership, suffers
major business
disruption or
quality issues
■ Negative impact on
■ Low dependency on any
production
■ Damaged relationships
with key customers
■ Reduced sales
single supplier (the largest
supplier represents less than
6% of Group revenues)
■ Dual source suppliers in
place where possible
■ Long-term supplier
relationships, enhanced
by strong customer
relationships
■ Monitoring of market and
technological developments,
including input from
customers
■ COVID-19 increases the
likelihood of suppliers being
unable to supply, through
enforced closures or reduced
staffing
Link to KSIs:
A B
Link to KPIs:
1 2 3
5 Technological changes
■ The development
■ Reduced sales
■ Loss of market share
■ Lower margins
of new
technologies
that gives rise to
significant new
competition
or renders our
products obsolete
Key strategic indicators
■ The Group is diversified into
a number of differentiated
technology units
■ Focus on established
technologies with low capital
requirements
■ Group strategy includes
actively pursuing
acquisitions in specialist
technologies
Link to KSIs:
A B
Link to KPIs:
1 3
A
Increase share of Group revenue
from Design & Manufacturing
B
Increase underlying
operating margin
C
Build sales beyond
Europe
D
Target Market
Sales
Key performance indicators
1
Sales
growth
2
Increase
cross-selling
3 Underlying
EPS growth
4
Dividend
growth
5
Return on capital
employed
6 Operating
cash flow
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
51
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PRINCIPAL RISKS AND
UNCERTAINTIES
Risk description
Potential impact
Mitigating actions
Change in the year
6 Major business disruption
■ Sustained
disruption to
production arising
from a major
incident at one or
more sites
■ Insufficient production
to deliver goods on
order
■ Disaster recovery and
business continuity plans
in place
■ Damaged relationships
with key customers
■ Reduced sales
■ Multiple manufacturing sites
and warehousing enabling
movement from one facility
to another
■ Insurance cover
7 Cyber security
■ System downtime
or loss of data due
to internal failure
or external attack
■ Business disruption
■ Central IT security guidance
■ Reduced service to
policy
customers
■ Financial loss
■ Theft of and/or access
to confidential data
■ Robust anti-virus and
anti-spam software and
specialised target threat
protection services
■ Robust backup policies in
place
■ Secure private networking
■ Third-party cyber security
assessments across the
Group completed
■ COVID-19 caused disruption
to our manufacturing
facilities, with closures
starting in February 2020 in
China and, in March 2020,
in India, Sri Lanka and the
US (all since reopened)
and staff absences due
to government-enforced
restrictions on movement
and illness
■ Expansion of manufacturing
facilities in China
■ Acquisition of Hobart, with
facilities in the US and
Mexico
■ Acquisition of Positek and
Sens-Tech with facilities in
the UK
Link to KSIs:
A B C
Link to KPIs:
1 3 4 5 6
■ External cyber assessments
completed December 2019
■ Proposed improvements
continue to be reviewed
Link to KSIs:
B
Link to KPIs:
1 3 5 6
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Risk description
Potential impact
Mitigating actions
Change in the year
8 Loss of key personnel
■ Key employees
■ Loss of expertise
■ Staff development, training
leave, and effective
replacements are
not recruited on a
timely basis
■ Potential business
disruption
■ Insufficient resources
programmes and succession
planning
■ Remuneration based on
personal and business
success
■ Regular remuneration
benchmarking
■ Use of earn-out structures, to
incentivise key management
of acquired companies
Link to KSIs:
B
Link to KPIs:
1 3 5
9 Product liability
■ Non-compliance with
■ Quality inspection controls
quality standards
■ Financial loss
before products are shipped
to customers
■ Reputational damage
■ Standard terms and
Link to KPIs:
1 3 5 6
■ A failure in one
of our products
results in serious
injury, death,
damage to
property or
non-compliance
with product
regulations
10
Inventory obsolescence
■ Stock is held that
has reduced or nil
realisable value
■ Financial loss
conditions limit companies’
liabilities
■ As a number of the Group’s
products are customised for
individual customers, this
reduces the risk relating
to any one product and/or
customer
■ Provisioning and write-off
policies to cover potential
obsolescence
■ Non-cancellable, non-
returnable orders for
customised stock builds
■ Certain supplier stock return
rights (Custom Supply
Division)
■ Purchasing based on reliable
sales forecasts
Link to KPIs:
3 4
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Key strategic indicators
A
Increase share of Group revenue
from Design & Manufacturing
B
Increase underlying
operating margin
C
Build sales beyond
Europe
D
Target Market
Sales
Key performance indicators
1
Sales
growth
2
Increase
cross-selling
3 Underlying
EPS growth
4
Dividend
growth
5
Return on capital
employed
6 Operating
cash flow
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
53
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PRINCIPAL RISKS AND
UNCERTAINTIES
Financial risk
Risk description
Potential impact
Mitigating actions
Change in the year
11 Liquidity and debt covenants
■ There is a breach
of funding terms/
covenants
■ Insufficient cash
■ Undrawn bank facility of
resources to support
the Group’s activities
c. £119m at year end
■ Central treasury function
oversees the Group’s cash
resources and financing
requirements
■ Regular review of headroom
against committed facilities
and financial covenants
■ Working capital controls and
monitoring of key working
capital metrics
■ Issuance of equity from
time to time to support
acquisitions programme
■ Acquiring high margin, high
cash generative businesses
■ COVID-19 impact on the
economic environment and
financial performance could
increase the strain on cash
resources
■ The Group has an existing
revolving credit facility
of £180m, with a £60m
accordion facility which it
can use to extend the total
facility up to £240m. During
the year, the term was
extended to the end of June
2024
■ Raised £61m in net equity
funding to support
acquisitions
■ Strong cash flow in the year
with gearing at 31 March
2020 reducing to 1.25x from
1.7x at 31 March 2019
Link to KPIs:
4 6
12 Foreign currency
■ The Group deals in
many currencies
for both its
purchases and
sales, which differ
to its reporting
currency, and so
the Group has
an exposure to
foreign currency
fluctuations
■ Reduction of the
Group’s reported
results
■ Lower gross and
operating margins
■ Use of forward currency
contracts to hedge
committed and forecast
sales and purchases in
foreign currency
■ COVID-19 has increased
volatility in foreign currency
exchange rates
■ Currency borrowings as a
natural hedge against same
currency assets
Link to KPIs:
3 6
■ Central review of foreign
currency exposures
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Risk description
Potential impact
Mitigating actions
Change in the year
13 Retirement benefit obligations
■ The reported
■ Increased charge to
the income statement
■ Increased level of cash
contributions required
pension deficit
is sensitive to
movements
in actuarial
assumptions
and returns on
investments
■ The scheme is closed to new
members and future service
benefits do not accrue for
existing members
■ A deficit recovery plan has
been agreed, based on
actuarial advice
■ Monitoring of the fund assets
and liabilities
■ Investment strategy reviews
at least every three years
■ Agreed levels of hedging
against inflation and interest
rate risks
■ Impact of COVID-19 on
asset valuations caused by
changes in the economic
environment. However,
the allocation of assets
in the portfolio across
different asset classes and
the existence of hedging
arrangements has meant
that the impact has not been
significant
Link to KPIs:
4 5
Regulatory / compliance risk
Risk description
Potential impact
Mitigating actions
Change in the year
14 Non-compliance with legal and regulatory requirements
■ Unintentional
■ Fines or penalties
■ Reputational damage
failure to comply
with international
and local legal
and regulatory
requirements
■ No significant changes to
new or existing legislation
Link to KPIs:
3 6
■ The Group hires employees
with relevant skills and uses
external advisers to keep
up to date with changes
in regulations and legal
requirements to remain in
compliance
■ Internal control framework
including Group policies,
procedures and training in
risk areas such as bribery and
export controls
■ Ongoing internal audit
reviews assess compliance
with Group policies
■ A whistleblowing hotline is in
place and available for use by
all employees
■ Insurance covers all standard
categories of insurable risk
Key strategic indicators
A
Increase share of Group revenue
from Design & Manufacturing
B
Increase underlying
operating margin
C
Build sales beyond
Europe
D
Target Market
Sales
Key performance indicators
1
Sales
growth
2
Increase
cross-selling
3 Underlying
EPS growth
4
Dividend
growth
5
Return on capital
employed
6 Operating
cash flow
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
55
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27378 2 July 2020 2:32 pm Proof 9As outlined elsewhere in this Report, discoverIE is focused on delivering a long-term strategy and achieving this through a sustainable and ethical approach to business.Our business is based on sound economic principles, focused on target markets that help sustain and improve the world, ensuring that our employees and business partners are treated fairly and with respect, that we contribute positively to the communities within which we operate, and that all of this is within an effective governance framework.Nonetheless, the Board and Group Executive Committee seek to continually improve its approach to sustainability and environmental, social and governance (“ESG”) affairs. This year, the Board and Group Executive Committee have initiated a review of the Company’s approach to ESG matters. The expectation is that this will lead to further improved ESG and sustainability reporting over time.Each member of the Group Executive Committee has remuneration outcomes dependent upon the development of this ESG strategy, in the form of non-financial objectives that must be achieved during FY2021, and sustainability and ESG matters are a standing item in the regular meetings of the Board and Group Executive Committee.The Company has already undertaken a number of exercises to establish the Group’s current position and areas for improvement, and we outline below the steps already taken and the opportunities that these present.Aligning to the UN Sustainable Development Goals“ The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for peace and prosperity for people and the planet, now and into the future. At its heart are the 17 Sustainable Development Goals (“SDGs”), which are an urgent call for action by all countries – developed and developing – in a global partnership. They recognize that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests. The SDGs build on decades of work by countries and the UN.”(https://sustainabledevelopment.un.org/sdgs)The discoverIE Group of companies has the potential to contribute positively to the major global challenges identified in the UN’s SDGs and a summary is set out below.SUSTAINABILITYOur approach to sustainability56discoverIE Group plcAnnual Report and Accountsfor the year ended 31 March 2020discoverIE AR 2020.indd 5602/07/2020 14:36:11 discoverIE’s purpose is to create innovative electronics that help to improve the world and people’s lives and this serves as the
foundation of our our approach to sustainability. Using the UN SDGs as a framework, we focus on the following.
The global goal
discoverIE’s alignment
discoverIE’s medical products directly contribute to the
health and wellbeing of people. The Group’s environmental
focus (noted above) also drives improved health outcomes
for all.
Renewable energy has been one of our target markets for
several years now. We provide key components for wind
turbines and solar inverters.
The Group also contributes to improving efficiencies in
energy use, especially in the mass transportation sector, and
to increasing the attractiveness and ease of use of electric
vehicles.
The Group supplies differentiated innovative products in all
of its target markets. These help provide a better future for
all. This includes connectivity solutions that underpin the
“Internet of Things” that brings people and communities
together.
The Group serves the mass transportation market and
provides charging solutions for electric vehicles, both of
which will help reduce the use of fossil fuels as electrified
transportation increases. Additionally, the Group supplies
components that enable automation and efficiency for
various industries.
The Group’s focus on key markets that reduce or replace
carbon emissions, such as the renewable energy market,
and aiding automation and improving efficiency, assists in
combating climate change.
Good Health & Wellbeing
Ensure healthy lives and promote
well-being for all at all ages
Affordable and Clean Energy
Ensuring access to affordable, reliable,
sustainable and modern energy for all.
Industry, Innovation and Infrastructure
Build resilient infrastructure, promote inclusive and
sustainable industrialization and foster innovation
Sustainable Cities and Communities
Make cities and human settlements inclusive,
safe, resilient and sustainable
Climate Action
Take urgent action to combat
climate change and its impacts
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www.discoverieplc.com
Stock Code: DSCV
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Section 172 Statement
The Board of discoverIE Group plc takes seriously its duties to
act in accordance with legal requirements and appropriate
business and ethical standards. This includes fulfilling the
duties described in Section 172 of the Companies Act 2006
(the “Act”).
Section 172
Duty to promote the success of the company
A director of a company must act in the way they
consider, in good faith, would be most likely to
promote the success of the company for the benefit of
its members as a whole, and in doing so have regard
(amongst other matters) to:
■ The likely consequences of any decision in the long
term;
■ The interests of the company’s employees;
■ The need to foster the company’s business
relationships with suppliers, customers and others;
■ The impact of the company’s operations on the
community and environment;
■ The desirability of the company maintaining a
reputation for high standards of business conduct;
and
■ The need to act fairly as between members of the
company.
The information below describes how the Directors have had
regard to the matters referred to in Section 172 of the Act in
performing their duties and constitutes the Board’s Section
172 Statement for the year ended 31 March 2020. This section
is incorporated by reference into the Strategic Report.
SUSTAINABILITY
The Group promotes policies and procedures across
the Group which consider the interests 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 its workforce, 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
■ Business ethics
■ Health and safety
■ Whistleblowing
Day-to-day responsibility for implementation of these
policies is delegated to the management of discoverIE’s
operating companies, under the supervision of the Group
Executive Committee. Where appropriate, the Group policies
and procedures are supported by the local operating
companies’ policies, all within a framework established by
the Board and Group Executive Committee, intended to
ensure that we operate as a Group to the highest standards.
During the year, the Group policies and procedures were
reviewed to ensure that they remained fit for purpose.
Health and safety processes were updated and additional
steps put in place to mitigate against the risks presented by
Covid-19 in particular.
The Group also 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 are committed to environmental, social and
governance affairs in its actions, and 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.
discoverIE believes that who we are and how we behave
matters not only to our employees but the many other
stakeholders who have an interest in our business.
Stakeholder engagement remains vital to building
a sustainable business and we interact with many
stakeholders at different levels of the Group. Engagement is
carried out by those most relevant to the stakeholder group
or issue. The table on pages 62 and 63 identifies some of our
stakeholders and how discoverIE engages with them.
The following page also sets out the Company’s “section 172
statement”, which provides additional detail.
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Section 172 of the Companies Act 2006
(the “Act”)
Long-term decision-making
(s.172(a))
The Board delegates day-to-day
management and decision-making
to its senior management team, but it
maintains oversight of the Company’s
performance, and reserves to itself
specific matters for approval, including
the strategic direction of the Group,
acquisitions and disposals and entering
into material contracts above set
thresholds.
The Board monitors performance against
strategy and that decision-making is
appropriate by receiving regular updates,
both in Board and Committee meetings
and at other intervals as appropriate.
Processes are in place to ensure that the
Board receives all relevant information to
enable it to make well-judged decisions
for the long-term success of the Company
and its various stakeholders.
Employee Interests
(s. 172(b))
The success of the Group depends upon
a highly-skilled and motivated workforce,
an entrepreneurial and innovative culture,
set within structures that provide fairness
for all.
Relations with external parties
(s. 172(c))
The Group works with a huge number
and variety of customers, suppliers
and other third parties. It is of great
importance that relations with those
parties are appropriate.
Community & Environment
(s. 172(d))
Wherever the Group operates, it forms
a part of its local community and more
broadly, seeks to ensure that it provides a
positive contribution to the environment.
discoverIE’s response
In FY20, the Board:
■ Considered and approved a number of acquisition proposals. The
Board only approves such a transaction if it is satisfied, after full
consideration, that it meets the Section 172(1) requirement that it is
most likely to promote the success of the Company for the benefit of
its members as a whole, and it considers the value forecasted to be
added to the Group by an acquisition, over a defined future period.
This judgement is recorded. The Board also conducts an annual
acquisition review process in which historical acquisitions are reviewed
and the financial performance and strategic rationale for them
revisited.
■ Received presentations on specific business areas and, through
ongoing discussion with the business leaders, determined strategic
priorities for a three-year period, and the development of robust
supporting operating plans.
■ Agreed the Group’s principal risks, considered emerging risks and
received regular risk management and internal control reviews
throughout the year, including specific consideration of risks arising
from the COVID-19 outbreak.
■ Set annual budgets and capital allocation and oversaw business
performance against targets, enabling the Board to confirm the
Company’s outlook for the year ahead, the going concern statement
and its longer-term viability.
In FY20, the Board:
■ Established a Workforce Advisory Panel, to ensure that the
communications between the Board, Group Executive Committee,
individual operating companies and Group staff were optimised.
■ Reviewed Board and Senior Management succession, Remuneration
and employment relations and arrangements across the Group. This is
designed to ensure that both short-term and long-term interests are
aligned between all stakeholder groups and the Company’s values and
culture.
In FY20:
■ The Board regularly considered the marketplaces within which
the Group’s customers operate and the challenges they face, and
opportunities available. This helped shape the way in which resources
were allocated in order to ensure that the Group was well-positioned
to meet customer needs.
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During the year:
■ The Board increased its support for the Community Foundation for
Surrey (see further details on page 61).
■ The Board and Group Executive Committee initiated a review of
its approach to environmental, social and governance (“ESG”) and
sustainability matters. This will be a key focus for the next year and
beyond.
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SUSTAINABILITY
Section 172 of the Companies Act 2006
(the “Act”)
Reputation for high standards
of business conduct (s.172(e))
The Board is responsible for developing a
corporate culture across the Group that
promotes integrity and transparency. It
has established comprehensive systems
of corporate governance and approves
policies and procedures which promote
corporate responsibility and ethical
behaviour.
Acting fairly as
between members
of the Company (s.172(f))
The Board aims to understand the views
of Shareholders and always to act in their
best interests.
discoverIE’s response
In FY20:
■ The Board received regular reports from the Group Risk Manager
designed to strengthen governance and compliance, integration of
new and recent acquisitions into the Group, and the identification and
management of existing and emerging risks.
■ The Board had updates and training on key areas of law and
regulation.
■ The Board approved the Company’s Modern Slavery Act Statement,
describing the steps it had taken to ensure that slavery and human
trafficking were not taking place.
■ Took steps to address and incorporate the requirements of the 2018 UK
Corporate Governance Code, further details of which are provided in
the Corporate Governance Report.
In order to do this the Board:
■ Maintains close relations with its main shareholders through regular
dialogue, both after the publication of full-year and half-year results.
■ Approved value-enhancing acquisitions and the raising of additional
capital through two placings, the first in April 2019 and the second
in October 2019. These enabled the Company to fund targeted
acquisitions that have generated additional shareholder value.
■ Receives Investor Relations updates at every Board meeting and direct
feedback from investors during specific consultation exercises and on
publication of trading results and updates.
Other key activities
■ The Board met regularly throughout the year and, in the year ended 31 March 2020, held six scheduled meetings.
The Board’s agenda considers all relevant matters at scheduled meetings.
■ The Board also held additional meetings, both as required in connection with the Group’s acquisitions and, separately, in
connection with its response to Covid-19. This enabled the Board to stay abreast of the issues facing the Group and those
with whom it interacts.
■ As part of its regular programme of Board activities, the Board also receives reports from the Group Chief Executive, the
Group Finance Director and the Group General Counsel & Company Secretary. This enables the Board to stay properly
informed as to financial performance and regulatory and legal affairs.
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CASE
STUDY
Community
Community Foundation for Surrey
The Group has been a Foundation
Champion of the Community
Foundation for Surrey (CFS) since
2015. The Community Foundation
for Surrey is an independent
charitable trust established
to inspire local giving for local
needs and is part of a national
network of 46 UK Community
Foundations. discoverIE’s support
for CFS is a combination of financial
contributions and staff time such as
mentoring support.
As a Foundation Champion,
discoverIE assists CFS in meeting
some of the support costs it incurs
in administering the 300-400 grants
that it makes across Surrey each year.
While Surrey is a largely affluent
county, this apparent prosperity
masks pockets of high deprivation.
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 2019/20 the Foundation
distributed over £2m to support
charities, community groups, sports
clubs and social enterprises.
Since its inception 14 years ago, the
Foundation has generated a total
of £25m and has awarded over
3,400 grants to support groups
tackling identified needs in areas
of health, education, exclusion, the
environment, sport and the arts, and
also to disadvantaged individuals
needing support with training,
education and employment.
Examples of grants
awarded in 2019/20
Stripey Stork collects donations of
toys, clothes and other essential
items for babies and children and
rehomes them with local families
experiencing hardship.
A grant from the Community
Foundation enabled 100 ‘Stork
Sacks’ (rucksacks filled with items
including stationery, books, toys and
toiletries) to go to children aged 3
to 12 years old who are survivors of
modern slavery.
Elmbridge Rentstart is a
homelessness charity which offers
advice to people who are vulnerably
housed and provides housing
and support to those who are
homeless. Those supported often
have complex needs such as mental
health issues, criminal records and
drug or alcohol problems which
mean that they need support, not
only to find a home, but to establish
themselves and reengage with
society. Funding and mentoring
support from the Community
Foundation are helping with the
expansion of Rentstart’s activities.
Further information on the
Community Foundation for Surrey
and the projects it supports can be
found at www.cfsurrey.org.uk.
DISTRIBUTIONS BY THE
COMMUNITY FOUNDATION
FOR SURREY IN 2019/20
>£2m
TOTAL NUMBER OF
GRANTS SINCE INCEPTION
14 YEARS AGO
>3,400
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Innovative Electronics
www.discoverieplc.com
www.discoverieplc.com
Stock Code: DSCV
Stock Code: DSCV
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SUSTAINABILITY
Stakeholder engagement
Why it is important to engage
Stakeholder key interests
Ways we engage
Our people
Employee engagement is critical
to our success. We work to create a
diverse and inclusive workplace where
employees can reach their full potential.
Engaging with our employees ensures
we can retain and develop the best
talent.
■ Health and safety
■ Workforce advisory panel
■ Reward
■ Career opportunities
■ Listening groups
■ Employee surveys
■ Employee engagement
■ Townhall meetings
■ Training and development
■ Newsletters
■ Wellbeing
■ Reputation
■ Employee events
■ Apprenticeship programme
■ Recognition and reward
■ Product performance and
■ Customer visits, telephone calls,
efficiency
engineering visits
■ Safety, quality and reliability
■ Participation in industry forums
Customers
Understanding the needs of our
customers allows us to provide
application-specific products which
both add value and differentiate our
customers from their competitors. We
engage with our customers to build
trusting relationships from which we
can mutually benefit.
■ Competitiveness
■ Our availability and
responsiveness
■ Relationship
■ Compliance
■ Convenience
■ Range of products
and events
■ Social media and commercial
websites
■ Contract negotiation,
implementation and
management of ongoing
relationships
■ Customer audits of our
manufacturing facilities
■ Customer-specific events
■ Geographical footprint allows us
to meet the customer in their
locations
■ Satisfaction surveys
■ Quality management
■ Joint customer visits
■ Cost-efficiency
■ Employee training
■ Long-term relationships
■ Quarterly business reviews
■ Responsible procurement, trust
and ethics
■ Technological advances,
■ Geographical footprint allows
smaller suppliers to operate
globally
including digital solutions
■ Logistics efficiencies
■ Supplier conferences
Suppliers
Our external supply chain and
our suppliers are critical to our
performance. We engage with our
suppliers to build trusting relationships
from which we can mutually benefit
and to ensure that they are performing
to our standards and conducting
business to our expectations.
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Why it is important to engage
Stakeholder key interests
Ways we engage
■ Growth
■ Regular market updates
■ Financial performance and
■ Investor presentations
economic impact
■ Governance and transparency
■ Individual meetings
■ Investor roadshows
■ Operating and financial
information
■ Confidence in the Group’s
leadership
■ Dividend growth
■ Corporate website, including
dedicated investor section
■ Shareholder consultations
■ Annual reports
■ Annual General Meetings
■ Capital Market Days
■ Local operational impact
■ Charitable donations and
■ Health and safety and
volunteering
environmental performance
■ Corporate and operating
company websites
■ Local environmental initiatives
Shareholders
Access to capital is vital to the long-
term performance of our business. We
ensure that we provide fair, balanced
and understandable information to
Shareholders and investment analysts
and work to ensure that they have a
strong understanding of our strategy,
performance, culture and ambition.
Global communities
We are committed to building positive
relationships with the communities
in which we operate. We support
communities and groups local and
relevant to our operations and consider
the environmental and social impacts
of our operations.
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SUSTAINABILITY
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 businesses. 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.
Gender split
55%
2019: 55%
45%
2019: 45%
Senior managers and executives
76%
2019: 74%
24%
2019: 26%
Directors
83%
2019: 71%
17%
2019: 29%
Male
Female
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. Employees benefit from
the ability to improve their skills and work in a challenging
and ambitious work environment.
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 and a 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. In addition to the
Workforce Advisory Panel that has been established, each
operating company is encouraged to maintain effective
employee engagement arrangements, including keeping
employees aware 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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27378 2 July 2020 2:32 pm Proof 9UN Sustainable Development GoalsProviding solutions to help tackle climate changeMyrraElectric Charging SolutionsOAKSUM, the brand name of the high-power electronics division of the Myrra Group, is a market leading brand, providing power conversion for the power electronics market, in particular the electric vehicle and battery charging sector.Myrra’s global engineering team produces innovative designs and has a history of high quality, reliable products, manufactured to the highest technical and performance standards.The team works closely with customers to design products that specifically suit customer requirements and to bring them to market quickly. These products include customised design options.Electric vehicles are the future of personal transport and will ultimately enable the replacement of vehicles powered using petrol or diesel. It is widely expected that this will lead to a significant reduction in global emissions. However, there are practical challenges with electric vehicles and this is where Myrra helps.The Challenge & SolutionHistorically, it has not been possible to test batteries while simultaneously charging them.During the year, Myrra worked with a third-party to design and manufacture a system that enables batteries to be charged and discharged, while at the same time undertaking diagnostics tests to determine their condition.The result is an electric vehicle charging solution that is ideal for use in car dealerships and repair centres, and which is being rolled out globally in existing franchises.Long-Term and Wider BenefitsThe solution that has been developed has significant wider opportunities, such as charging solutions for larger vehicles (e.g. trucks and buses) and portable charging stations.Similarly, these solutions help address current impediments to the wider adoption of electric vehicles: ■Determining battery quality when buying a second-hand electric vehicle. Being able to test these more thoroughly as part of routine maintenance will help alleviate those concerns. ■There is increasingly greater demand on the electrical supply infrastructure as more vehicles connect to it. The bi-directional technology modules provided by Myrra enable residual power to be transferred back to the power grid, potentially alleviating pressure during periods of peak demand.Such capabilities will help to enhance the attractiveness of electric vehicles to end users, thereby assisting with the global fight against climate change and underpinning this as an area of long-term sustainable growth for the Group.“ Each electric vehicle that displaces a conventional car saves approximately 1.5 tons of CO2 per year.”Source: C40 CitiesCASESTUDYOther InformationFinancial StatementsCorporate GovernanceStrategic Reportwww.discoverieplc.comStock Code: DSCVInnovative Electronics6565www.discoverieplc.comStock Code: DSCVInnovative ElectronicsdiscoverIE AR 2020.indd 6502/07/2020 14:36:32 SUSTAINABILITY
Health and safety
The Group aims to provide clean, healthy and safe working
conditions at all times. In addition to compliance with 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 structure, 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. The following chart summarises the Group’s
accidents and near misses over the last three financial years.
Health & Safety Statistics
0.040
0.030
0.020
0.010
0
8
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9
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F
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2
Y
F
Accidents per employee leading to absence
>5 days (per annum)
Accidents per employee (per annum)
Near misses per employee (per annum)
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.
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 matters can be found on its website:
www.discoverIEplc.com
The Group maintains an external whistleblowing helpline in
addition to the existing internal reporting procedure so that
anyone with a concern is able to raise this in confidence.
The Group’s whistleblowing policy can be found on
the discoverIE website: www.discoverIEplc.com
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.
Global communities
The Group believes that good community relations are
important to the long term development and sustainability
of the operating businesses. 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.
See page 61 for more details.
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SUSTAINABILITY
Environment
In addition to compliance with 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.
Methodology
Emissions data is reported in accordance with the UK
Government’s ‘Environmental reporting guidelines:
including Streamlined Energy and Carbon Reporting
requirements’, using the 2019 emission conversion factors
published by Department for Environment, Food and Rural
Affairs (Defra) and the Department for Business, Energy &
Industrial Strategy (BEIS).
The data for the year ended 31 December 2019 has been
independently assessed by Carbon Footprint Ltd, a leading
carbon and energy management company.
CO2e
Assessed
Organisation
As well as enabling us to report our emissions data, the
process has helped us identify further possible initiatives to
reduce our emissions going forward.
Greenhouse gas emissions
The table below shows our GHG emissions during the
reporting year 1 January 2019 to 31 December 2019. This
reporting period differs from our financial year (1 April
– 31 March) to be consistent with previous emissions
assessments.
Scope
Activity
Tonnes
CO2e Y/E
31/12/19
Tonnes
CO2e Y/E
31/12/18
Scope 1
Company car travel
Site gas
Refrigeration & A/C
Van travel and
distribution
Site gas oil
Site diesel
Site LPG
Leased vehicles
1261.60
907.80
166.52
166.06
124.40
54.19
36.35
25.11
–
–
–
–
–
–
–
–
Scope 1 Sub Total
Scope 2
Electricity
generation
District heating
generation
Scope 2 Sub total
Scope 3
Electricity transmission
& distribution
District heating
distribution
Scope 3 Sub Total
Overall Total
Total kWh
UK based Emissions (%)
Tonnes of CO2e per employee
2,742.03
2,2581
7,245.13
See Note 1
Below
53.42
7,298.55
587.57
2.81
590.38
–
7,225
See Note 1
Below
–
– 2
10,630.973
9,4833
26,731,063
9.36
2.41
–
–
–
Tonnes of CO2e per £M turnover
23.034
21.6
1. Scope 1 and 2 emissions figures for the year ended 31 December
2018 were reported on an aggregate basis and excluded
refrigerants, air conditioning and heat pumps.
2. Scope 3 emissions (other than for flights) are included for 2019 but
were not included in 2018.
3. 2019 figures include the recently acquired companies Hobart
Electronics, Positek and Sens-Tech, as well as the Scope 3
emissions noted above. These account for the increase between
2018 and 2019.
4. The increase in emissions per £M turnover is due to the inclusion
of the Scope 3 emissions.
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Environmental initiatives
During the year under review, several of the Group’s
operating companies have maintained initiatives to
minimise the Group’s impact on the environment.
These initiatives include:
■ Use of wind and hydroelectric renewable energy at
our facilities in Norway and Denmark
■ Introduction of light sensors and LED lighting,
reducing electricity consumption
■ Member of return and recycling system for all
waste products
■ Use of more efficient packing materials to minimise
waste production
■ Campaigns to recycle plastic
■ Continuing to change from petrol and diesel
company cars to electric or hybrid vehicles
■ Careful planning of journeys to reduce mileage
■ Installation of filters to reduce air emissions
■ Planting of trees near our facilities
■ Recycling of packaging materials – cardboard
boxes are shredded and used as packing materials
■ Use of electric forklifts instead of diesel
■ Use of more efficient packing materials to minimise
waste production
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The Strategic Report, as set out on pages 04 to 69, has been
approved by the Board.
On behalf of the Board
Nick Jefferies
Group Chief Executive
24 June 2020
Simon Gibbins
Group Finance Director
24 June 2020
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
69
Link to the UN Sustainable
Development Goals
With its focus on the target market of renewable
energy, and its work in increasing efficiency, in
particular in the electrification of vehicles, the Group
helps combat the effects of global climate change.
Location-based emissions (Scope 1 and 2)
(tonnes of CO2 equivalent) per £m sales and
per £m cost of sales
The graph below illustrates the intensity of the Group’s
GHG emissions in comparison to the Group’s total revenue
and the Group’s total cost of sales in each of the calendar
years shown. The cost of sales directly relates to the physical
activities undertaken by the Group in its operations. The
graph demonstrates the progress made in reducing the
Group’s carbon intensity over recent years.
40
35
30
25
20
15
10
5
0
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Tonnes of CO2e per £m sales
Tonnes of CO2e per £m cost of sales
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TABLE OF
CONTENTS
Corporate Governance
The Board
The Group Executive Committee
Corporate Governance report
Audit and Risk Committee report
Nomination Committee report
Directors’ report
Directors’ remuneration report
Directors’ responsibilities statement
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74
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90
96
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102
122
Renewable energy
Renewable energy is one of our key target
markets and is well aligned with the UN
Sustainable Development Goals.
Read more on pages 18 to 19 for
details of our target markets
Read more on pages 56 to 57 for our
alignment with the UN SDGs
Contributing to the UN Sustainable
Development Goals
Affordable and clean energy
The Group’s focus on key markets that
reduce or replace carbon emissions,
such as the renewable energy market,
and aiding automation and improving
efficiency, assists in combating climate
change.
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Fulfilling our purpose
DEVELOPING
INNOVATIVE
ELECTRONICS FOR A
CLEANER FUTURE
Innovative Electronics
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27378 2 July 2020 2:32 pm Proof 9Malcolm Diamond MBENon-Executive Chairman NRAppointment to the BoardChairman since April 2017, Non-Executive Director since November 2015IndependentYesPrevious experienceMalcolm 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 appointmentsNon-Executive Chairman of Flowtech Fluidpower plc (expected to retire 1 August 2020)Nick Jefferies Group Chief Executive GNAppointment to the BoardJanuary 2009IndependentNoPrevious experienceNick joined discoverIE as Group Chief Executive in 2009. He started his career as an electronics engineer for Racal Defence (now part of Thales plc), before joining Toshiba and then Hitachi’s European electronic component businesses. Prior to discoverIE, he was General Manager for electronics globally at Electrocomponents plc.External appointmentsNoneSimon Gibbins Group Finance Director GAppointment to the BoardJuly 2010IndependentNoPrevious experienceSimon brings significant financial expertise and experience gained at an international level. Prior to joining the Group, he was at Shire plc for nine years, latterly as Global Head of Finance and Deputy CFO, and at ICI plc for six years in various senior finance roles, both in the UK and overseas. His earlier career was spent with Coopers & Lybrand where he qualified as a chartered accountant.External appointmentsNoneTracey Graham Non-Executive Director ANRAppointment to the BoardNovember 2015IndependentYesPrevious experienceTracey 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. Prior to that she was President of Sequoia Voting Systems, Customer Services Director at AXA Insurance and held senior positions at HSBC.External appointmentsNon-Executive Director of Link Scheme Limited, Senior Independent Director of Ibstock plc, and Non-Executive Director of Royal London Mutual Insurance Society. Tracey is also a Member of the City of London Court of Common Council.THE BOARD72discoverIE Group plcAnnual Report and Accountsfor the year ended 31 March 2020discoverIE AR 2020.indd 7202/07/2020 14:37:02 27378 2 July 2020 2:32 pm Proof 9Committee membershipAAudit and Risk CommitteeGGroup Executive CommitteeNNomination CommitteeRRemuneration CommitteeChairman of the CommitteeBruce Thompson Senior Independent Director ANRAppointment to the BoardSenior Independent Director since March 2019, Non-Executive Director since February 2018IndependentYesPrevious experienceBruce 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 appointmentsNon-Executive Director of Avon Rubber plcClive Watson Non-Executive Director ANRAppointment to the BoardSeptember 2019IndependentYesPrevious experienceClive is a Chartered Accountant and brings wide-ranging experience in senior financial roles to the Board. Prior to his retirement from executive roles, Clive spent almost 13 years as Group Finance Director of Spectris plc, having previously held a number of other senior finance positions both in the UK and overseas. Until recently, he served as Senior Independent Director and Audit Committee Chairman of Spirax-Sarco Engineering plc.External appointmentsNon-Executive Director of Breedon Group plc, Non-Executive Director of Kier Group plcGreg Davidson Group General Counsel & Company SecretaryGAppointment to the BoardNovember 2019IndependentNoPrevious experienceGreg joined discoverIE in November 2019 and is responsible for legal and company secretarial affairs. He is a qualified lawyer with extensive experience of technology, corporate and commercial matters. His experience includes five years at Wiggin & Co LLP, with clients focused predominantly in the technology sector and, prior to joining discoverIE, 16 years at RM plc, with seven years as General Counsel & Company Secretary.External appointmentsNone www.discoverieplc.comStock Code: DSCVInnovative Electronics73Other InformationFinancial StatementsCorporate GovernanceStrategic ReportdiscoverIE AR 2020.indd 7302/07/2020 14:37:05 27378 2 July 2020 2:32 pm Proof 9Paul Neville Group Commercial Director 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.Martin Pangels Group Development DirectorMartin 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 Webster Group Director – Acal BFi and Cross-SellingPaul 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 Morcom Group Head of Corporate DevelopmentJeremy 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.Nick Jefferies Group Chief Executive For biography see page 72Simon Gibbins Group Finance Director For biography see page 72Greg Davidson Group General Counsel & Company SecretaryFor biography see page 7374discoverIE Group plcAnnual Report and Accountsfor the year ended 31 March 2020THE GROUP EXECUTIVE COMMITTEEdiscoverIE AR 2020.indd 7402/07/2020 14:37:30 27378 2 July 2020 2:32 pm Proof 9Other InformationFinancial StatementsCorporate GovernanceStrategic Report75www.discoverieplc.comStock Code: DSCVInnovative ElectronicsdiscoverIE AR 2020.indd 7502/07/2020 14:37:41 27378 2 July 2020 2:32 pm Proof 9 During the year ended 31 March 2020, the Company complied with the UK Corporate Governance Code 2018 (the Code), other than provision 38 (alignment of pensions). Further detail describing our compliance with the Code is set out on the pages that follow.I should highlight two key elements in particular: ■During the year, the Board initiated a formal review of the Group’s approach to environmental, social and governance (“ESG”) matters and that review is underway. The review has demonstrated that the Company is well positioned in these areas, already assisting with the global fight against climate change, providing a safe and positive environment for our staff, a good contribution to the communities in which we operate, and having effective governance arrangements, but there is opportunity to do more.More details of our approach to ESG matters, our alignment with the United Nations Sustainable Development Goals, and the ESG review, are provided in the Sustainability report on pages 56 to 69. ■Secondly, the Board has established a Workforce Advisory Panel, in order to further develop relations with our staff, who are key to our success as a Group. Both of these will continue to evolve going forward and will be a key area of focus for the Board in the coming year.More generally, the Board of discoverIE will keep its governance structures and related processes and procedures under constant review, monitoring best practice and striving for the highest standards in all we do.discoverIE is a strong business, with a clear purpose and set of values and we firmly believe that the governance arrangements we have leave us well placed to deliver success over the longer-term for all of our stakeholders.Malcolm Diamond 24 June 2020Chairman’s Governance Overview“ The Board sees good corporate governance as a vital foundation to effective business operations and crucial to ensuring that the culture and values we aspire to are embedded throughout the Group.”Malcolm Diamond MBE ChairmanCORPORATE GOVERNANCE REPORT76discoverIE Group plcAnnual Report and Accountsfor the year ended 31 March 202076discoverIE Group plcdiscoverIE AR 2020.indd 7602/07/2020 14:37:53 t
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Compliance with the UK Corporate Governance Code 2018
Section
Board Leadership and Company Purpose
The Board leads from the front in setting the tone for the business and has established a clear
purpose, set of values and strategy, taking into account the interests of our various stakeholders.
The right resources, structures and processes are in place to ensure that these are implemented
throughout the Group.
Division and Responsibilities
The respective roles and responsibilities of the Executive and Non-Executive Directors are clear and
consistently applied, providing for effective and constructive dialogue and clear accountability.
Further
information
Read more
on pages
78 to 84
Read more
on pages
85 to 86
Composition, Succession and Evaluation
The Group has a strong Board with a good balance of skills, knowledge, and experience. The
appointment process is rigorous and carefully applied, with annual evaluation keeping the
effectiveness of the Board and its Committees under regular review.
Read more
on pages
87 to 88
Audit, Risk and Internal control
The Board has established clear processes and procedures to ensure that risks are carefully
identified, monitored and mitigated against and then reported externally in an open and
transparent manner. This helps ensure that the Company’s financial statements are fair, balanced
and understandable. Effective risk management is critical to achieving our strategy.
Read more
on page 89
Remuneration
Remuneration supports the Company’s strategy and is appropriate to the nature, size, complexity,
and ambitions of the business. The Board aims to report in a clear manner, demonstrating that pay,
performance and wider interests are aligned.
Read more
on page 89
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
77
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CORPORATE
GOVERNANCE
REPORT
Board Leadership and Company Purpose
Current composition and changes to the
Board in the year
Details of the current members of the Board and Group
Executive Committee are set out on pages 72 to 74.
At the annual general meeting in July 2019, Richard
Brooman and Henrietta Marsh stepped down from the
Board. Their contribution to the Board and Company was
greatly appreciated and we wish them well for the future.
As part of Board’s succession planning, and in light of those
changes, Bruce Thompson became Senior Independent
Director and Tracey Graham was appointed Chair of
the Remuneration Committee, both in March 2019, and
Clive Watson joined the Board in September 2019 as an
independent Non-Executive Director and Chair of the Audit
and Risk Committee. Clive brought with him considerable
financial and commercial expertise.
Section 172 Statement
As well as defining the Group’s purpose, values, culture,
vision and strategic priorities as described opposite,
the Board considered its duties to prepare a statement
describing how it has regard to the matters set out in section
172(1) of the Companies Act 2006.
Read our Section 172 statement
on pages 58 to 60
Sustainability
Provision 1 of the Code deals with the Company generating
value over the long term in the context of future risks and
opportunities. This is addressed in the Sustainability Report
and in the Risk Management section.
Read more about Sustainability on
pages 56 to 69
Read more about Risk Management
on pages 46 to 47
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Good governance
Following the introduction of the new Code in 2018, the Board reviewed the Group’s governance frameworks and its
purpose, culture and values.
Our Purpose:
To create innovative electronics that help to improve the world and people’s lives.
Values and Culture
Values
■ To operate with the highest ethical standards and
integrity
■ To strive for the highest performance standards, not
accepting of mediocrity
■ To support the protection of the environment through
our products and solutions while minimising our direct
environmental impact
■ To be a responsible employer, with a safe working
environment
■ To respect, empower, engage and develop our
employees in an entrepreneurial environment
■ To add value and be a trusted partner to customers,
suppliers and shareholders
Culture
■ Honest, reliable and trusting
■ Decentralised decision-making close to the customer
■ Open, constructive communication and willingness to
listen
■ Non-political, non-bureaucratic
■ Performance, target and results driven
Vision:
To be a leading innovator in electronics internationally.
Strategic Priorities:
This strategy comprises four priorities:
Mission:
To design and supply innovative customised electronics
that help our customers create ever better technical
solutions around the world. We aim to achieve this
through a motivated, entrepreneurial and empowered
workforce that adheres to the highest ethical and quality
standards.
In doing so we expect to create value for shareholders,
while being seen as an attractive and responsible
employer and a trusted partner for customers and
suppliers.
Strategy:
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.
■ Grow sales well ahead of GDP over the economic cycle
by focusing on structural growth markets
■ Continue building revenues in the D&M division where
operating margins for our businesses are higher; and
optimise performance in the Custom Supply division to
improve operating margins and develop cross-selling of
D&M division products
■ Acquire businesses with attractive growth markets and
strong operating margins
■ Further internationalise the business by developing
sales in North America and Asia
Progress against our objectives is measured through
our key strategic indicators (KSIs) and key performance
indicators (KPIs), which have recently been refreshed for
the forthcoming five-year period. Details are set out on
pages 28 and 29.
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
79
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CORPORATE
GOVERNANCE
REPORT
Board Leadership and Company Purpose
Our commitment to stakeholder engagement
As detailed on pages 62 to 63 of the Sustainability report,
we engage proactively with all our stakeholder groups.
In addition to those engagements and the detail set out
in those pages, the Board recognises the importance
of engaging with Shareholders. We maintain an active
dialogue with our principal investors, institutional
shareholder advisors and the investment community.
During FY20, we undertook a comprehensive calendar of
events, as shown below. By providing regular forums for
meeting and communicating with Shareholders, their
Shareholder Engagement Calendar FY20
advisors and the investment community, we understand the
views and opinions of our investors and are kept informed of
any concerns that may arise.
We communicate using a variety of forums, including
regulatory news announcements, interviews, investor and
analyst calls, one-to-one meetings, roadshows, site tours and
capital markets events.
At the annual general meeting in 2019, Shareholders were
able to hear from, and put questions to, the Board on a
range of matters.
April 2019
May 2019
June 2019
July 2019
■ Shareholder placing
in connection with
acquisitions of Hobart and
Positek
■ Investor and analyst calls
■ Announcement of FY19
full-year results
■ Analyst and Shareholder
meetings in connection
with FY19 full-year results
■ Engagement with our
■ Investor and analyst calls
■ Publication of full FY19
Annual Reports and
Accounts
■ Investor and analyst calls
■ Trading update
■ Engagement with proxy
advisors ahead of annual
general meeting
■ Investor and analyst calls
■ Annual general meeting
ten largest Shareholders
in relation to FY19
Remuneration report
August 2019
September 2019
October 2019
November 2019
■ Payment of full-year
■ Investor and analyst calls
■ Trading update
■ Publication of FY20
dividend
■ Investor and analyst calls
■ Shareholder placing
in connection with
acquisition of Sens-Tech
■ Investor and analyst calls
interim results
■ Analyst and Shareholder
meetings in connection
with FY20 interim results
■ Investor and analyst calls
December 2019
January 2020
February 2020
March 2020
■ Analyst and Shareholder
meetings in connection
with FY20 interim results
■ Investor and analyst calls
■ Trading update
■ Investor and analyst calls
■ Trading update
■ Payment of interim
dividend
■ Investor and analyst calls
■ Investor and analyst calls
Information on the Company’s share capital, the rights and obligations attaching to the Company’s shares, restrictions
on the transfer of securities in the Company, the Company’s authority to purchase its own shares and the list of those
Shareholders with substantial shareholdings in the capital of the Company, are given in the Directors Report on page 99.
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Employee Engagement
There are a range of employee engagement initiatives in
place across the Group and these include the following:
■ Works Councils and staff representative meetings
■ Town hall meetings
■ Quarterly performance updates
■ Staff surveys
■ Social and team-building events
■ Health and wellbeing reviews
Since 2009, as part of its annual calendar, the Board visits
the Group’s operating sites, meeting management and
employees directly.
In 2017, the Board visited Flux (Copenhagen), in 2018 the
Board visited Myrra and Noratel (in Hong Kong and China
respectively) and, in 2019, the Board visited Cursor Controls
(Newark, UK). Prior to the emergence of COVID-19, plans had
been made for the Board to visit Santon in The Netherlands,
in September 2020.
The Board aims to visit as much of the Group as possible,
visiting facilities in a variety of locations internationally.
The Board gains a deeper understanding of the business,
local complexities, working conditions, the level of skills
and expertise in each facility, the concerns and aspirations
of staff, and any issues that the leadership or staff may
wish to discuss with the Board. The page overleaf shows
photographs of the Board’s visit to Cursor Controls in
October 2019.
In light of the additional employee engagement
mechanisms suggested by the Code, a Workforce Advisory
Panel was established during the year.
The purpose of this Panel is to ensure that the “employee
voice” is heard, that the Board is aware of any issues or
concerns that staff may have and to ensure that their views
are taken into account and influence the Board’s decision-
making, where appropriate. A number of operational
changes have already been implemented as a result of the
interaction.
It is important to the Board that the right balance is
struck between achieving a consistency of approach
across the businesses and retaining local identity and
entrepreneurialism in a decentralised international business.
Board visits
September 2017
Copenhagen, Denmark – Flux
September 2018
October 2019
Foshan, China – Noratel
Zhongshan, China – Myrra
Hong Kong – Myrra
Newark, UK – Cursor Controls
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
81
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BOARD IN
ACTION
Cursor controls visit
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CORPORATE
GOVERNANCE
REPORT
Board activities
Topic
Strategy
Key activities and discussions in 2019/20
Key priorities in 2020/21
■ Reviewed and approved the acquisitions of
Hobart Electronics, Positek and Sens-Tech
■ Reviewed key strategic indicators (“KSIs”) and
key performance indicators (“KPIs”)
■ Consideration of KSIs and KPIs for the next
five-year period
■ Considered the Group’s initial responses to
■ Continued consideration of the Group’s
response to COVID-19
■ Consider acquisitions as identified and
determine the appropriate course of
action
■ Keep KSIs and KPIs under review
■ Keep the Group’s dividend policy under
COVID-19
review
■ Continue to review potential impact of
Brexit on the Group
■ Continue to focus on international
growth in key markets, including
expansion into North America
Risk and risk
management
■ Carried out robust assessment of principal
■ Review key risks and ensure that the
risks (see pages 50 to 55)
■ Strengthened Group Internal Audit and risk
management function
■ Monitored compliance with the anti-bribery
and corruption policy
■ Reviewed initial results of cyber risk review
and approved further testing throughout the
Group
Group’s internal control process remains
appropriate
■ Review results of cyber risk review and
implement appropriate procedures
■ Roll-out of thematic internal audits
■ Implementation of risk workshops
across the business
Governance
■ Completed work to ensure compliance with
the UK Corporate Governance Code 2018
■ Ran tender process for and appointed new
■ Review level of institutional holding and
consider actions to broaden the Group’s
Shareholder base further
remuneration consultants
■ Continued focus on the composition,
balance and effectiveness of the Board
■ Signed off and published the Group’s
modern slavery statement
■ Engaged with institutional Shareholders,
investors and other stakeholders throughout
the year
■ Implemented the remuneration policy,
approved by Shareholders at the 2018 annual
general meeting
■ Reviewed and approved the FY2018/19
Annual Report and Accounts
■ Monitored health and safety performance
across the Group. Regular Board updates
received on actions improving health and
safety
■ Received presentations by senior
management, including on M&A strategy
■ Review of Group’s resources and ability to
respond in light of COVID-19
■ Continue work to ensure ongoing
compliance with the revised 2018 Code
■ Build further understanding and plan
actions in relation to new regulations
over the period
■ Review of Remuneration Policy ahead of
2021 annual general meeting
■ Ensure the Group has appropriate
resources to address COVID-19 impact
■ Continue to monitor health and safety
performance across the Group
■ Improve thematic reporting of health
and safety issues (if any) across the
Group
■ Continued focus on the composition,
■ Provide training to the Board to
balance 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
assist with continued professional
development
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
83
Organisational
capacity
Board
development
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CORPORATE
GOVERNANCE
REPORT
Board Leadership and Company Purpose
Time Allocation, Board and Committee Meetings and Attendance
The Board held eight scheduled meetings during the year. Sufficient time is provided at the start and the end of each
meeting for the Chairman to meet privately with the Senior Independent Director and the Non–Executive Directors. All
Directors are aware of the need to allocate sufficient time to the Company to discharge their responsibilities effectively.
During the year, attendance by Directors at Board and Committee meetings was as follows:
Director
Richard Brooman1
Malcolm Diamond
Simon Gibbins
Tracey Graham
Nick Jefferies
Henrietta Marsh2
Bruce Thompson
Clive Watson3
Board
Audit and Risk
Remuneration
Nomination Overall Attendance %
Committees
3 / 3
8 / 8
8 / 8
8 / 8
7 / 8
0 / 3
8 / 8
5 / 5
1 / 1
–
–
3 / 3
–
–
3 / 3
2 / 2
–
3 / 3
–
3 / 3
–
–
3 / 3
1 / 1
–
3 / 3
–
2 / 2
3 / 3
–
3 / 3
–
100%
100%
100%
100%
91%
0%
100%
100%
1. Richard Brooman retired from the Board on 25 July 2019
2. Henrietta Marsh retired from the Audit and Risk Committee and Remuneration Committee in March 2019 and retired from the Board on
25 July 2019
3.
Clive Watson was appointed to the Board and appointed Chair of the Audit and Risk Committee on 2 September 2019 and was appointed
to the Remuneration Committee in March 2020
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Division and Responsibilities
discoverIE is led by a strong and experienced Board with a
broad range of skills, experience and knowledge.
Role of the Chairman
■ Responsible for leading the Board, which includes the
Throughout the year under review, the Board consisted of
Malcolm Diamond as Non-Executive Chairman, Richard
Brooman (who retired at the annual general meeting in July
2019), Tracey Graham, Henrietta Marsh (who retired at the
annual general meeting in July 2019), Bruce Thompson and
Clive Watson (appointed September 2019) as Non-Executive
Directors, with Nick Jefferies as Group Chief Executive and
Simon Gibbins as Group Finance Director. The composition
of the Board is kept under review by the Nomination
Committee on an annual basis. The Nomination Committee
considers the size and composition of the Board to be
appropriate to the Group’s business and strategy. The Non-
Executive Directors constructively challenge management
proposals where appropriate and carefully monitor
management performance and reporting on an ongoing
basis. Constructive challenge is viewed by the Board as an
essential aspect of good governance.
There is a clear division of responsibilities, which has been
agreed by the Board, and a summary of their respective roles
is described opposite.
operation of the Board’s overall procedures.
■ Providing a forum for constructive discussion and
ensuring receipt of clear and timely information.
■ Overseeing corporate governance matters.
■ 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.
Role of the Group Chief Executive
■ Leading the development and implementation of the
Group’s strategy.
■ Communicating with Shareholders and other
stakeholders.
■ Responsible for the day-to-day management of the
Group’s businesses and reporting on 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.
■ Oversight of the management of discoverIE.
■ Review of the KSIs and KPIs.
■ 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.
■ Maintaining sound internal controls and risk
management systems.
■ Review of the Group’s overall corporate governance.
■ Any litigation of a material nature.
As set out on the opposite page, certain matters are
delegated to the Group Executive Committee and to the
Audit and Risk, Remuneration and Nomination Committees.
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
85
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CORPORATE
GOVERNANCE
REPORT
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
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.
Audit and Risk Committee
Chaired by Clive Watson
Remuneration Committee
Chaired by Tracey Graham
The Audit and Risk 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 96 to 97
Further information on the
Audit and Risk Committee
is on pages 90 to 94
Further information on the
Remuneration Committee
is on pages 102 to 121
Group Executive Committee
The Group Executive Committee comprises: Nick Jefferies, Group Chief Executive, who is the Chairman of the
Committee, together with Simon Gibbins, Group Finance Director, Greg Davidson, Group General Counsel and
Company Secretary, Jeremy Morcom, Group Head of Corporate Development, Paul Neville, Group Commercial Director,
Martin Pangels, Group Development Director and Paul Webster, Group Director for Acal BFi and Cross-selling. For their
biographies see page 74. During the year to 31 March 2020, there were seven meetings of the Committee. Other senior
managers attend the Committee meetings, by invitation, for specific topics.
The Committee is responsible for the Group’s development and day-to-day operations, for delivering results, and for
driving growth, ensuring this is done in a sustainable and ethical manner.
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Composition, succession and evaluation
Current composition and changes to the Board in
the year
The biographies of the current members of the Board and
Group Executive Committee are set out on pages 72 to 74.
As noted on page 85, during the year, Richard Brooman
and Henrietta Marsh stepped down from the Board (at
the annual general meeting in July 2019) and Clive Watson
joined the Board in September 2019. However, the Board,
and the Nominations Committee in particular, keeps the
composition of the Board under regular review.
Work of the Nomination Committee
The Nomination Committee Report, which can be found
on pages 96 to 97 describes the work of the Nomination
Committee in ensuring that the Board continues to have
the right mix of skills, knowledge and experience, as well as
having an effective process for succession planning.
Independence
The independence of the Non-Executive Directors is
reviewed annually. The Board considers that the Non-
Executive Directors bring strong independent oversight
and continue to demonstrate independence. The Board
recognises the recommended term for Non-Executive
Directors as set out in the Code and is mindful of the need
for suitable succession.
Bruce Thompson is the Senior Independent Director and
is available to Shareholders should they have concerns that
cannot be resolved through other channels.
Induction
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.
Board composition
Gender diversity
Female
17%
Male
83%
Independence
Executive
33%
Non-executive
67%
Board tenure
<1 year
17%
>1 year
83%
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
87
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CORPORATE
GOVERNANCE
REPORT
Composition, succession and evaluation
Evaluation
In accordance with the Code, the Board and each of its
Committees undertakes an evaluation each financial year.
Such evaluations were completed during the year ended
31 March 2020 and the process and findings are summarised
below.
Step 1
Each Director considers his or her individual
performance, the performance of the Chairman and
the overall performance of the Board and each of its
Committees by using questionnaires.
The completed questionnaires are submitted to the
Group Company Secretary who collates the results and
provides an overall summary to the Board.
Step 2
The results of the evaluation are discussed by the Board
and actions for improvement are decided upon.
A summary of the 2020 Board evaluation is detailed in
the box opposite.
Step 3
Individual questionnaires are provided to the Chairman
and Senior Independent Director, as appropriate.
One-on-one discussions are then held between the
Chairman and the Senior Independent Director on the
evaluation of the Chairman, and between the Chairman
and the Non-Executive Directors on their respective
evaluations.
Re-election
In accordance with the Code, all Directors stand for
re-election annually at each annual general meeting.
Summary of the 2020 Board evaluation
Board composition
The composition of the Board was positively rated.
Board’s expertise
The Board’s understanding of the views and
requirements of major investors and other
stakeholders was rated positively.
The importance of environmental, social and
governance (“ESG”) matters was noted as an area
where additional insight and knowledge would aid
the Board as a whole. The Board has engaged external
advisors to provide guidance and assistance in these
critical areas.
Board dynamics
The interaction among and between Board members
was rated highly, with there being a positive
atmosphere and strong relationships, set in the
context of proper and constructive challenge.
Management of meetings
The management of meetings and the structure of
the Committees, together with Board support, was
considered appropriate.
Risk management
The effectiveness with which the Board takes risk into
account when making decisions was positively rated.
It was noted that additional work had taken place
during the year to further strengthen the Group’s
identification and management of existing, new and
emerging risks and further details are set out in the
Risk management section of this Annual Report and
Accounts on pages 46 to 47.
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Audit, risk and internal control
Remuneration
The Strategic Report notes that delivering the Group’s
strategic priorities requires careful consideration to be given
by the Board to the nature and level of risks that the Group
should accept.
The Board’s approach to risk generally, including the
identification, management and mitigation of risks
(including internal controls), is described in further detail in
the following sections of this Annual Report and Accounts:
■ Our approach to risk management is described on pages
46 to 47.
■ The Group’s Principal and Risks and Uncertainties are set
out on pages 50 to 55.
■ Finally, the Audit and Risk Committee Report on pages
90 to 94 provides further details as to how the Committee
provides oversight, and supports the Board, in relation
to matters relating to audit, risk and internal controls
generally.
The Board’s approach to remuneration is set out in the
Remuneration report (see pages 102 to 121). In its approach
to remuneration, during the year ended 30 March 2020, the
Company complied fully with the Code, with the exception
of provision 38 of the Code (alignment of pensions). The
Remuneration Committee has decided that, from 1 April
2020, any new or promoted Executive Directors will have an
employer pension contribution rate of 6.5% of salary, which is
in line with the majority of the UK workforce.
Approval
This Corporate Governance Report has been approved by
the Board and signed on its behalf by
Greg Davidson
Group General Counsel & Company Secretary
24 June 2020
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www.discoverieplc.com
Stock Code: DSCV
89
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27378 2 July 2020 2:32 pm Proof 9 “ The Committee’s role is central in bringing together the Group’s risk management activities and control environment.”Clive Watson Chairman of the Audit CommitteeMemberMember SinceClive Watson12019Richard Brooman22013Tracey Graham2017Bruce Thompson20191. Appointed 2 September 20192. Retired 25 July 2019The Group Company Secretary acts as Secretary to the Committee.Details of individual Directors’ attendance can be found on page 84Dear Shareholder,I am pleased to report on the activities of the Audit and Risk Committee (“the Committee”) during the year under review. I joined the Board as a Non-Executive Director of discoverIE Group plc in September 2019 and upon joining became Chair of the Audit and Risk Committee, succeeding Richard Brooman who retired at the annual general meeting in July 2019.MeetingsDuring the year, the Committee met three times and also met privately with the external auditor. The Committee comprised the people shown in the table on the left, all of whom were Non-Executive Directors.In addition to the Committee members, the Group Chief Executive, the Group Finance Director, representatives from the external auditor, the Group Risk and Internal Audit Manager and the Group Financial Controller attended parts of these meetings by invitation. As Chair of the Committee, I maintain direct communication with the external auditor and the Group Risk and Internal Audit 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 risk and judgement. The Committee also received sufficient, reliable and timely information from management on significant changes to financial accounting standards and reporting requirements, regulatory and governance changes and developments concerning risk management, fraud prevention and detection, and cyber security. As Chair of the Committee, I report to the Board on any significant matters arising from the activities of the Committee.The Board is satisfied that the members of the Committee have both recent and relevant experience (as set out on pages 72 and 73) and that, therefore, the Committee as a whole has competence in the sector in which the Group operates. The Committee is satisfied that the Group’s executive compensation arrangements do not prejudice robust controls and good stewardship.AUDIT AND RISK COMMITTEE REPORT10%10%25%20%35%How the Committee spent its timeExternal AuditAnnual ReportFinance ReviewsInternal AuditRisk ManagementAnnual Report and Accountsfor the year ended 31 March 202090discoverIE Group plcdiscoverIE AR 2020.indd 9002/07/2020 14:38:13 Committee activities during FY20
May 2019
■ Reviewed results of the external audit of the FY19 accounts
■ Reviewed the going concern and viability statement
■ Reviewed the Annual Report and Accounts
■ Agreed a risk management and internal audit
programme for FY20
■ Reviewed and approved the internal audit charter
■ Received an update on internal controls implemented in
Noratel Power Engineering following the previous fraud
November 2019
■ Reviewed half year results and judgemental accounting
areas, in particular the impact of the adoption of IFRS16:
Leases
■ Reviewed regulatory update
■ Reviewed the Group Risk Register
January 2020
■ Reviewed external audit planning report for FY20 accounts
(including review and approval of audit scope and fees)
■ Agreed a risk management and internal audit
programme for FY21
Standing items
■ Update on internal audits conducted and progress with
management’s implementation of actions
■ Update on alignment of newly acquired businesses to
group policies and procedures
■ Update on risk management projects, including external
cyber risk assessment across the Group
Role of the Committee
The Committee’s role is central in bringing together the
Group’s risk management activities and control environment
to ensure adherence to policies, the integrity of financial
reporting and the maintenance of a strong risk-focused
culture. As Chair of the Audit and Risk Committee, I attend
the annual general meeting and make myself available for
any Shareholder questions within the Committee’s remit.
The Committee oversees and reviews the management of
risk, financial results, and the Group Internal Audit function.
Key responsibilities of the Committee:
■ Consideration of the appropriateness of the accounting
principles, policies and practices adopted in the Group’s
accounts
■ Review of external financial reporting and associated
announcements to ensure they are fair, balanced and
understandable
■ Managing the appointment, and remuneration of the
Group’s external auditor, together with an assessment
of the effectiveness and independence of the audit,
including the policy on the award of non-audit services
■ Initiating and supervising a competitive tender process
for the external audit, as and when required
■ Oversight of Group Internal Audit
■ Ensuring the effectiveness of the Group’s risk
management processes and internal controls
■ Oversight and update of the Group Risk Register
■ Oversight of the Group’s whistleblowing procedures
■ Monitoring compliance with the UK Corporate
Governance Code
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
91
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AUDIT AND RISK
COMMITTEE
REPORT
Fair, balanced and understandable
The Committee has, at the request of the Board, reviewed this year’s Annual Report and Accounts to assess whether it
presents a fair, balanced and understandable view of the Company’s position and prospects. The Committee’s review
took account of the process by which the Annual Report and Accounts is prepared, which includes analysis of changes to
applicable reporting requirements and standards, and a robust schedule of review and verification by senior management
and external advisers to ensure disclosures are accurate. The Committee is satisfied that, 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 position and performance, business model and strategy and has advised the Board accordingly.
Significant matters considered and decisions taken
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 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.
Specifically, this included a review of the restructuring of RSG during the year, to assess any
potential impact on the carrying value of goodwill.
Accounting for acquisitions
A review of the initial accounting for the acquisitions of Hobart Electronics, Positek and
Sens-Tech 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
Presentation of underlying
profit adjustments
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.
A review of the appropriateness of items disclosed as exceptional items and acquisition-
related costs (including asset amortisation of acquired intangibles and acquisition expenses)
in the Supplementary income statement information and notes to the Group financial
statements, in line with the Group’s stated policy.
Impact of IFRS 16
A review of the impact of IFRS 16 on the financial statements and the application of relevant
policies following the adoption of the standard.
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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Risk management and internal controls
The Board has overall responsibility for the Group’s risk
appetite and risk management. This includes determining
the nature and extent of the risks that it is willing to take
in achieving the Group’s strategy and objectives. The
Board is ultimately responsible for the effectiveness of the
risk management strategy and framework, and internal
controls systems.
Oversight of risk management is undertaken by the
Committee, in accordance with its terms of reference. In
order to ensure the effectiveness of the risk management
and internal control systems, the Committee undertook a
number of key activities during the year, including:
■ Consideration of the risk management activities during
the year (including particular focus on specific areas of
cyber security and financial controls)
■ Review of risk reporting to ensure effectiveness and that
the balance between risk and opportunity was in keeping
with the Group’s risk appetite
■ Regular meetings with members of senior management
and internal audit
■ Review of reports on control matters and challenge of
management’s response to any matters raised
■ Evaluation and challenge of the results and
recommendations of audits undertaken by the Group
Internal Audit function and the external auditor
■ Review of the annual Audit and Risk Committee agenda.
Review of Internal Controls
The Group’s finance department includes a separate
Group Internal Audit function. This is led by the Group
Risk and Internal Audit Manager who is part of the Group
management team and reports both to the Group Finance
Director and, independently, to me, as Chair of the Audit
and Risk Committee. The scale of internal audit work was
increased during the year following the recruitment of an
Internal Auditor in the third quarter, reporting to the Group
Risk and Internal Audit Manager.
Internal Audit
The Group Internal Audit function’s primary purpose is to
provide risk-based and independent assurance, advice and
insight to help improve all aspects of the organisation’s
governance and system of internal control, including
management of risk. The remit of the internal audit function
covers discoverIE Group plc and all of its subsidiaries.
The function consists of two full time staff, supported by
outsourced providers as deemed necessary. The size of the
internal team was determined by a benchmarking exercise
conducted in 2018.
The Audit and Risk Committee has overall responsibility for
reviewing the effectiveness of the Group’s internal control
framework and the Group Internal Audit function. As part of
this, we ensure that the Group Internal Audit function has
unrestricted scope, the necessary resources, and appropriate
access to information, to enable it to perform its function
effectively. The Committee also reviews regular updates
on internal audit work carried out and the actions taken
by management to implement the recommendations of
internal audit reviews.
A programme of internal audit activities has been completed
during the year. The scope of work carried out by the Group
Internal Audit function generally focuses on the internal
financial and operational controls within each business,
particularly in recently acquired businesses. Further internal
audit work is outsourced to external providers, where
appropriate.
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 provide
reasonable, and not absolute, assurance against material
misstatement or loss. As part of the annual review of the
effectiveness of the Group’s internal controls, the Committee,
on behalf of the Board, has regard to the significance of
the risks involved, the likelihood and severity of an event
occurring and the costs associated with any relevant
controls.
The principal components of the Group’s systems of
control are:
■ a clearly defined organisational structure with short and
clear reporting lines
■ recruitment of high-quality staff
■ 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 rolling 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
■ a requirement for each operating company to maintain
a system of internal controls appropriate to its own local
business environment.
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
93
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AUDIT AND RISK
COMMITTEE
REPORT
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 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.
External audit
The Committee is responsible for managing the relationship
with the Group’s external auditor on behalf of the Board
including their appointment, remuneration, independence
and performance.
During the year the Committee’s activities in respect of
external audit were as follows:
■ considering the re-appointment of the external auditor
The Committee believes that the provision 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 risk
becoming compromised if it also acts as the Company’s
consultant and adviser to any material extent. 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 reviewed its policy on
the provision of non-audit services during the year to ensure
that there is no likelihood of any impairment of auditor
independence or objectivity. The non-audit services that
were provided by the external auditor during the financial
year were in line with the policy, were permissible under
Ethical Standards and were not material.
The Company last undertook a tender for external audit
services during 2017 which led to the appointment of PwC.
The Committee recommended to the Board that it proposes
to shareholders that PWC be re-appointed as the Group’s
external auditor at the forthcoming annual general meeting.
Key areas of focus in 2020/21
■ Continue to assess the potential impact of, and the
■ considering and approving the audit approach and scope
Group’s response to, Covid-19 and Brexit
of the audit undertaken by PwC and the related fees
■ agreeing reporting materiality thresholds
■ reviewing reports on audit findings
■ considering and approving letters of representation
issued to the auditor
■ considering the independence of the auditor
■ considering the effectiveness of the auditor taking into
account non-audit work undertaken and the Committee’s
own assessment, including feedback from management.
■ Assess the results of the external cyber risk review
and consider the implementation and monitoring
of any relevant actions
■ Build internal audit capability and delivery
■ Review the accounting for any new acquisitions
Terms of reference
The Committee’s terms of reference are available
upon request and are on the Company’s website:
www.discoverIEplc.com
Clive Watson
Chairman of the Audit Committee
24 June 2020
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
95
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27378 2 July 2020 2:32 pm Proof 9Dear Shareholder,During the year, the Committee met twice, with all Committee members attending. The Committee made recommendations to the Board on the composition and structure of both the Board and its Committees.In each case, the Committee’s recommendation was made after careful consideration of the independence, performance and ability to continue to contribute to the Board of the relevant people, in the light of the knowledge, skills, commitment and experience required.CompositionThe majority of the Committee members are independent Non-Executive Directors. During the year under review, the Committee was chaired by me, with Tracey Graham, Bruce Thompson and Nick Jefferies as Committee members.Key responsibilitiesThe 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 where appropriate. ■To consider succession planning for the Directors and the right balance of skills, knowledge, experience and diversity on the Board. ■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 Risk and Remuneration Committees. ■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. “ The Nomination Committee helps to ensure that the Board maintains the knowledge and skills needed to deliver the Group’s growth ambitions.”Malcom Diamond MBE Chairman of the Nomination CommitteeNOMINATION COMMITTEE REPORTMemberSinceMalcolm Diamond2017Tracey Graham2018Nick Jefferies2009Bruce Thompson2019The Group Company Secretary acts as Secretary to the Committee.Details of individual Directors’ attendance can be found on page 842019/20 key achievements ■Recruitment and induction of Clive Watson as Non-Executive Director and Chair of the Audit and Risk Committee ■Updated succession plans for the Board and the senior management team ■Recommended to the Board the re-appointments of Malcolm Diamond, Tracey Graham and Bruce Thompson, which were duly approved Key areas of focus in 2020/21 ■Continued consideration of the composition of the Board ■Continued evaluation of knowledge and skillsAnnual Report and Accountsfor the year ended 31 March 202096discoverIE Group plcdiscoverIE AR 2020.indd 9602/07/2020 14:38:26 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, or when other changes or
appointments may be desirable. 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 executive search or other organisations with
databases of candidates before a short-list of suitable
candidates is produced for agreement by the Committee.
References from appropriate third parties will then be taken
on the prospective director. 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.
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.
During the year, the Nomination Committee reviewed
succession planning for the Board and the wider Group. 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.
■ The impact of acquisitions on the organisational
structure.
During the year, the Nomination Committee completed
the recruitment of an additional Director to the Board,
Clive Watson, who joined the Board in September 2019 as
a Non-Executive Director and Chair of the Audit and Risk
Committee. A Chartered Accountant, Clive Watson had
recently retired from Spectris plc after 13 years as Group
Finance Director and also from Spirax-Sarco Engineering
plc where he was the Senior Independent Non-Executive
Director and Chair of the Audit and Risk Committee, having
joined in 2009. Clive was a good addition to the Board, which
benefits from his extensive business experience.
The Committee is satisfied that the size, composition and
structure of the Board and its Committees is appropriate for
the size of the Group.
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
24 June 2020
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
97
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DIRECTORS’
REPORT
The Directors’ report for the financial year ended 31 March
2020 is set out below. 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, the Viability statement and Sustainability
sections, on pages 30 to 69, as the Board considers them to
be of strategic importance. Specifically, these are:
Disclosure
Location
Future business
developments
Risk management
Employee involvement
Throughout the Strategic
report (pages 04 to 69)
Risk management
and principal risks and
uncertainties (pages 46 to 55)
Sustainability report
(pages 59 and 62)
Greenhouse gas emissions Sustainability report
Section 172 statement
(pages 68 to 69)
Sustainability report
(pages 58 to 60)
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 27
to the Group financial statements on pages 173 to 174.
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 Sustainability Report
on pages 56 to 69.
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 2020 and are shown on pages
138 to 187. The key strategic and performance indicators of
the business are set out in the Strategic report on pages 28
to 29.
Considering current circumstances, the Board has decided
not to propose a final dividend. However, recognising the
importance of dividends to shareholders, the Board will look
to re-introduce distributions once there is greater clarity of
trading conditions.
An interim dividend of 2.97 pence per share was paid in
January 2020 (H1 2018/19: 2.8 pence per share), an increase of
6%. Over the last ten years, the dividend has increased by 7%
CAGR.
The Board believes that, as an acquisitive growth company,
maintaining a progressive dividend policy with a long
term dividend cover of over 3 times underlying earnings is
appropriate to enable both dividend growth and a higher
level of investment from internally generated resources.
Directors
The membership of the Board and biographical details
of the Directors are given on pages 72 and 73 and are
incorporated into this report by reference.
Copies of Executive Directors’ service contracts are available
to Shareholders for inspection at the Company’s registered
office and at the Annual General Meeting. 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 102
to 121.
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. All Directors offer themselves for re-
election at each 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.
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for the year ended 31 March 2020
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Directors’ indemnity
The Articles of the Company contain an indemnity in favour
of the Directors, which is a Qualifying Third Party Indemnity
within the meaning of s.234 of the Companies Act 2006 and
is in force at the time of the approval of this Annual Report
and Accounts. 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.
Share capital
As at 31 March 2020, the Company’s issued share capital
consisted of 88,705,915 ordinary shares of 5p each (no shares
are held in treasury).
On 15 April 2020, 750,000 new ordinary shares were issued to
the Company’s Employee Benefit Trust to satisfy, inter alia,
exercises of awards under option. Following admission of
these shares, the Company’s issued share capital consisted
of 89,455,915 ordinary shares of 5p each.
Details of movements in the Company’s issued share capital
can be found on page 175 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 such as the Market Abuse Regulation); 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.
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 2020, the Company had been notified of, or
was aware of, the following major shareholdings equal to, or
greater than, 3% of the issued share capital of the Company:
Aberdeen Standard
Investments (Standard Life)
7,311,736
Canaccord Genuity Wealth Mgt
5,902,100
Franklin Templeton
Investments
BlackRock Investment Mgt
Charles Stanley
Montanaro Asset Mgt
4,750,000
4,629,153
4,622,497
4,450,000
Legal & General Investment Mgt
4,107,926
Unicorn Asset Mgt
Tellworth Investments
3,148,176
2,788,973
8.24%
6.65%
5.35%
5.22%
5.21%
5.02%
4.63%
3.55%
3.14%
As at 22 June 2020, the Company had been notified of, or was
aware of, the following changes to those major shareholdings:
7,311,736
8.17%
Aberdeen Standard
Investments (Standard Life)
Franklin Templeton
Investments
BlackRock Investment Mgt
Charles Stanley
Montanaro Asset Mgt
Kempen Capital
Management NV
4,750,000
4,629,153
4,622,497
4,450,000
4,435,739
Canaccord Genuity Wealth Mgt
4,336,208
Legal & General Investment Mgt
4,107,926
Unicorn Asset Mgt
Tellworth Investments
3,148,176
2,788,973
5.31%
5.17%
5.17%
4.97%
4.96%
4.85%
4.59%
3.52%
3.12%
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Authority to purchase own shares
At the annual general meeting held on 25 July 2019,
Shareholders authorised the Company to purchase in
the market up to 10% of its issued share capital (8,066,071
ordinary shares) and, as at 31 March 2020, all of this authority
remained in force and unused. This authority is renewable
annually, and a special resolution will be proposed at the
2020 annual general meeting 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.
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
99
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DIRECTORS’
REPORT
Change of control
Details of the Group’s borrowing facilities are provided in the
Finance review section of the Strategic report on page 44.
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.
Annual General Meeting
The Notice of the annual general meeting to be held at
11.00 am on Wednesday 19 August 2020 will be sent to
Shareholders separately from this report. The venue for the
meeting is 2 Chancellor Court, Occam Road, Surrey Research
Park, Guildford, Surrey, GU2 7AH. Details of the arrangements
for that meeting, especially in light of Covid-19, will be as set
out in the Notice for that meeting.
Going concern
For the reasons explained in the Viability Statement on page
48, the Directors continue to adopt the going concern basis
in preparing this Annual Report and Accounts.
Political donations
There were no political donations during the year (2018/19: nil).
By order of the Board
Auditor and disclosure of information to
auditor
PricewaterhouseCoopers LLP have indicated their
willingness to continue in office and a resolution to appoint
them will be proposed at the annual general meeting.
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.
Greg Davidson
Group General Counsel & Company Secretary
24 June 2020
2 Chancellor Court
Occam Road
Surrey Research Park
Guildford
Surrey GU2 7AH
Registered number: 02008246
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
101
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27378 2 July 2020 2:32 pm Proof 9ANNUAL STATEMENTInformation not subject to auditDear Shareholder,On behalf of the Board, it is my pleasure to present our Directors’ remuneration report (the “Report”) for the year ended 31 March 2020, my first full year since becoming Chair of the Remuneration Committee.The Company’s remuneration philosophy for Executive Directors and senior management is to motivate, retain and, when necessary, attract senior management of the right calibre. To do this, we provide packages which reflect individual experience and performance and take into account the remuneration paid by companies of a similar size and complexity to discoverIE.During the year, the Committee implemented the Company’s remuneration policy, which had been approved at the 2018 annual general meeting. All decisions made were within the policy framework. Following strong “ It has been another strong year for the Company and this is reflected in the Group’s results.”Tracey Graham Chair of the Remuneration CommitteeDIRECTORS’ REMUNERATION REPORTMemberSinceTracey Graham (Chair)2016Malcolm Diamond2017Bruce Thompson2018Clive Watson2020The Committee consults with the Group Chief Executive who may attend meetings by invitation of the Committee Chair, although he is not involved in deciding his own remuneration. The Group Company Secretary acts as Secretary to the Committee.Details of individual Directors’ attendance can be found on page 842019/20 key considerations ■Undertaking a competitive tender exercise to appoint independent advisors to the Remuneration Committee, and the appointment of FIT Remuneration Consultants ■Consideration of the impact of COVID-19 on remuneration outcomes for 2019/20 and our approach to setting pay in 2020/21 ■Setting of appropriate incentive measures and targets for Executive Directors and senior management ■Updating the terms of reference of the Committee to ensure compliance with the 2018 UK Corporate Governance Code (the “Code”) ■A review of other remuneration-related items within the Code and the latest views from investors and proxy voting agencies Key areas of focus in 2020/21 ■Undertake a comprehensive review of the remuneration policy for Shareholder approval at the 2021 annual general meeting ■Consult with leading Shareholders and proxy voting agencies on any material changes to directors’ remuneration ■Review the competitiveness of remuneration for Executive Directors and senior management and its alignment with strategy ■Set incentive targets and determine incentive outcomes for Executive Directors and senior managementAnnual Report and Accountsfor the year ended 31 March 2020102discoverIE Group plcdiscoverIE AR 2020.indd 10202/07/2020 14:38:39 momentum through the year, during the fourth quarter
the Group experienced some isolated disruption to the
business as a result of the outbreak of COVID-19. The impact
of performance during the year on the incentive outcomes
for 2019/20 is set out below. I also set out our approach to
Executive Directors’ remuneration in 2021, the final year of
our existing remuneration policy.
While the Company’s financial position is strong, as part
of the cash preservation initiatives being undertaken, the
Board and Group Executive Committee have voluntarily
reduced their fees and base salaries respectively, by 20%, for
a period of three months commencing from 1 June 2020.
Business performance and resulting
remuneration outcomes for the year
ending 31 March 2020
It has been another good year for the Company. discoverIE
has continued to deliver strong results, with the Group
delivering full-year earnings in line with the Board’s
expectations.
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 04 to 69. Some of the
highlights are summarised below:
■ Strong growth in sales, orders, profits and earnings
■ Excellent cash generation
■ Continued organic growth
■ Further good progress on key performance indicators
and key strategic indicators, with new increased targets
now set
■ Three higher margin D&M acquisitions and a strong
pipeline of further opportunities
■ Successful equity placings on 16 April 2019 and 17 October
2019, raising c.£28m and c. £32m respectively
■ Record year-end order book of £159m (+13% CER)
Based on performance for the year, bonus payments of 62%
of maximum were earnt by both the Group Chief Executive
and Group Finance Director. While the Remuneration
Committee believes these outcomes are a fair reflection of
the financial and operational performance of the Company
during 2019/20, it does not feel it would be appropriate to
pay these earned bonuses at the normal time, in light of
the Board’s decision to not declare a final dividend. Instead,
the Committee has decided to apply discretion and defer
payment of the bonus until October 2020. In line with the
remuneration policy, 20% of the bonus for the CEO will be
delivered in deferred share awards.
The Committee noted that 2,270,315 shares and vested
options are held by the Group Chief Executive and Group
Finance Director, and these equity holdings would have
accrued dividends of c. £98,000 and c. £32,000 respectively,
had a final dividend been paid. The Executive Directors’
significant shareholdings built up over time provides strong
alignment with our shareholders.
It has been particularly pleasing to see continued
recognition of the long-term strategic progress being made
by the Company. This is demonstrated by the relative and
absolute TSR performance of the Company over the last
three financial years:
■ Ranking in the top 2% of the TSR peer group
■ Absolute TSR growth of 122.6% over three years
This performance has resulted in full vesting of the
LTIP awards granted in March 2017. The Remuneration
Committee believes this vesting outcome is warranted
and reflective of the strong performance of the Company
and, therefore, no discretion has been applied to adjust the
formulaic outcomes. These shares will be subject to a two-
year holding period before they become exercisable. The
holding period ensures that the Executive Directors are not
immune to the share price performance of the Company,
particularly in the context of COVID-19.
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
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DIRECTORS’
REMUNERATION
REPORT
Other key activities in the year ending
31 March 2020
During the year under review, the Committee held three
formal meetings. As well as the implementation of the
remuneration policy, 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 2019 to determine
the bonuses payable and reviewed performance against
the 2016 LTIP targets to determine vesting
■ Reviewed the Executive Directors’ expected performance
against the financial and non-financial objectives in the
annual bonus scheme for the year ended 31 March 2020
and the 2017 LTIP Awards
■ Determined salary increases for Executive Directors
as well as other Group Executive members for the
forthcoming year
■ Reviewed and approved the annual bonus structure for
Executive Directors and senior management for the year
ending 31 March 2021
■ Implemented a deferred bonus scheme, in line with the
Company’ remuneration policy
■ Updated the terms of reference of the Committee to
reflect new Code requirements
■ Undertook a competitive tender exercise for new
independent remuneration consultants, with three
companies selected to formally present to the
Committee, with FIT Remuneration Consultants
subsequently being appointed
Application of policy in 2021
In determining the remuneration packages for the Executive
Directors for the forthcoming financial year, the Committee
took into account the following factors:
■ The Group’s overall performance and strategy – in
particular, the Committee noted the strong trading
performance of discoverIE, prior to the pandemic, the
limited impact of COVID-19 on the year ending 31 March
2020 and our response to mitigate any further impact
■ Current and emerging market practice
■ Best practice expectations of institutional investors and
proxy voting agencies
With COVID-19 related challenges likely to continue for much
of the financial year, the Committee has determined that
no salary increases will be awarded to Executive Directors in
FY2021 or the senior leadership team. The bonus measures
will remain unchanged for 2021. As managing cash resources
and establishing tighter working capital controls will be
particularly important in 2021, the bonus measures have
been reweighted to reflect this. 80% of the FY2021 bonus will
continue to be based on financial objectives with 56% on
EBIT and 24% on Simplified Working Capital. The Committee
has also taken the opportunity, in line with guidance in this
area, to apply a 50% payout under each financial measure for
achieving target performance.
LTIP award levels will be 135% of salary for the Group Chief
Executive and 100% of salary for the Group Finance Director
and the measures will remain unchanged. Further details
of the approach for 2021 can be found on page 121 in the
Annual Report on Remuneration.
During the next year, the Committee will conduct a
thorough review of the remuneration policy to ensure
it continues to provide alignment with the Company’s
stakeholders and ensures it is in line with good practice
developments.
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
annual general meeting (resolution 2). We hope that you will
support this resolution.
Tracey Graham
Chair of the Remuneration Committee
24 June 2020
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REMUNERATION AT A GLANCE
Audited information
Corporate performance
for the year
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 2020 are also shown.
Remuneration philosophy
The key principles of our
approach to executive
remuneration are:
■ Align to discoverIE’s purpose,
strategy, risk policies and
risk-taking capacity
■ Incentivise achievement of
discoverIE’s business plan
and longer-term sustainable
growth of the business
■ Recognise the leadership
team by differentiating total
remuneration based on the
relative performance of the
business and the individuals
■ Ensure risk-based
decision-making and good
governance
Executive Director total remuneration
Nick Jefferies
FY20
Simon Gibbins
FY20
£2.093m
£1.057m
Total fixed pay
26%
Bonus
LTIP
17%
57%
Total fixed pay
32%
Bonus
LTIP
18%
50%
FY19
FY19
£1.796m
£881k
Total fixed pay
29%
Total fixed pay
35%
Bonus1
LTIP
22%
49%
Bonus
LTIP
21%
44%
Revenue
+8% CER
FY20
FY19
£466.4m
£438.9m
Underlying Operating
Profit
+23% CER
FY20
FY19
£37.1m
£30.6m
Underlying EPS
+11%
FY20
FY19
30.2p
27.2p
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
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DIRECTORS’
REMUNERATION
REPORT
Remuneration outcomes for the Executive Directors for the year ended 31 March 2020
Salary FY20
Bonus (£k and as % of salary)
Taxable benefits
Pension benefits/allowance
Value of LTIP vesting
Single figure of total remuneration
Nick Jefferies
£000
Simon Gibbins
£000
77.5%
467
362
11
62
1,192
2,093
62.3%
310
193
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18
525
1,057
The annual bonus for the year ending 31 March 2020 was based on the achievement against financial and non-financial
measures. The bonus outcomes for the year were 77.5% of salary for the Group Chief Executive and 62.3% for the Group
Finance Director. The above values reflect the value of the bonus earned. In accordance with the Remuneration Policy, 20%
of Nick Jefferies’ bonus will be in the form of deferred shares. However, as noted above, the Remuneration Committee has
decided that bonuses will not be released until later in the financial year.
LTIP awards were granted to both Executive Directors on 31 March 2017. These awards were based on absolute and relative
TSR conditions measured for the three-year period ending 31 March 2020. The Company’s TSR performance, being in the top
2% of the TSR peer group, and with an Absolute TSR growth of 122.6%, each over that three-year period, has resulted in full
vesting of the award. The values of these awards at the time of vesting are shown in the above table. Awards are subject to a
two-year holding period.
Application of the remuneration policy for the year ending 31 March 2021
The table below sets out a summary of how the remuneration policy will apply during 2020/21.
Possible remuneration outcomes for the Executive Directors for the year ended 31 March 2021 are shown on page 113.
Remuneration element
Remuneration for year ending 31 March 2021
Base salary
The Executive Directors have agreed that there should be no salary review undertaken and that
salaries should remain unchanged for the 2021 financial year. Therefore, salaries for 2021 are:
■ £466,754 for the Group Chief Executive.
■ £310,000 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 (minus the employer’s National Insurance contribution).
■ From 1 April 2020, any new or promoted Executive Directors will have a pension
contribution of 6.5% of salary, which is in line with the majority of the UK workforce.
Annual bonus
■ The maximum bonus opportunity will be 125% of salary for Group Chief Executive and
100% of salary for Group Finance Director.
■ Target bonus opportunity for 2021 is 50% of maximum (rather than the 60% specified in
the Directors’ Remuneration Policy).
■ Performance metrics are based 80% on financial measures and the remaining 20%
will be based on strategic objectives. These include non-financial objectives relating to
environmental, social and governance (“ESG”) matters.
■ 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.
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Remuneration element
Remuneration for year ending 31 March 2021
LTIP
■ LTIP awards for FY21 will be made in line with policy, with grant sizes of 135% of salary for
the Group Chief Executive and 100% of salary for the Group Finance Director1
■ Performance metrics and targets will be based one-third on underlying EPS Growth,
one-third on Relative TSR and one-third on Absolute TSR.
Shareholding
guidelines
■ A shareholding guideline of 200% of salary applies for the Group Chief Executive and
Group Finance Director, to be achieved within five years and 250% after seven years
1. 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.
REMUNERATION POLICY
Information not subject to audit
This part of the Directors’ remuneration report sets out the remuneration policy that Shareholders approved at the
Annual General Meeting in July 2018, which was implemented from that date. It has been prepared in accordance with
the Companies Act 2006 (the “Act”) and the Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013.
The below policy has been updated with data for the year ending 31 March 2021, where relevant. The original policy as
approved by shareholders is available on the Company website. The Committee has reviewed the Executive Directors’
remuneration packages to ensure that they reflect the Company’s own particular circumstances and are aligned with the
Company’s key strategic objectives, as set out in the Strategic Report, and with the long-term interests of its Shareholders.
When implementing the policy, the Committee:
■ Takes account of pay and employment conditions elsewhere in the Group
■ Ensures that incentive arrangements encourage responsible behaviour in all aspects of the Company’s business,
including financial, social, environmental and governance aspects; do not encourage excessive risk-taking; and are
compatible with the Company’s risk policies and procedures. The Committee has the discretion to take these factors into
account when adjudicating bonuses and LTIP outcomes
■ Enters into open dialogue and consults with key Shareholders, when looking to make material changes to the
remuneration policy
■ Considers market practice in terms of the structure and levels of executive remuneration
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
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www.discoverieplc.com
Stock Code: DSCV
107
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DIRECTORS’
REMUNERATION
REPORT
Remuneration policy
Element, purpose
and link to strategy
Base salary
Operation and performance metrics
Opportunity
To attract and retain
quality staff.
Salaries are reviewed annually and normally fixed for
12 months, effective from 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.
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.
Benefits
To help retain employees
and remain competitive
in the marketplace
Directors, along with other senior UK executives, receive a
car allowance, life assurance and critical illness cover, and
family medical insurance.
Insurance cover based on
market rates.
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.
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.
Up to 15% of base salary.
For any new Executive
Directors appointed to the
Board, pension contribution
will be 6.5% of salary, in line
with the majority of the UK
workforce.
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.
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. For
FY2021, payout for on-target
performance will be 50% of
the maximum opportunity.
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Element, purpose
and link to strategy
Operation and performance metrics
Opportunity
Up to 150% of salary.
Threshold performance will
result in 25% of the award
vesting.
Long Term Incentive Plan
To motivate Executives
to deliver Shareholder
value over the longer
term.
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.
Vested awards are subject to a two-year holding period, in
aggregate a five-year period from award to exercise.
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.
The performance 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.
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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.
Shares held which are no longer subject to performance
conditions count towards the requirement.
Executives will be required to
hold 200% of salary after five
years and 250% after seven
years.
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
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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. These measures include EPS Growth, Absolute TSR 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 FY20.
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 came into effect and still remain outstanding
(including those detailed on page 117 of the Annual Report on Remuneration) remain eligible to vest based on their original
award terms.
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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.
Remuneration element
Recruitment policy
Base salary
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
Pension
Benefits provision would be in line with normal policy.
The Committee may agree that the Company will meet appropriate relocation costs.
In a change to the Shareholder-approved policy, any director appointments from 1 April 2020
will have a pension contribution (or a cash allowance in lieu of contribution) of no more than
6.5% 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 three years, subject to re-appointment by Shareholders at each
annual general meeting. In line with the UK Corporate Governance Code, they are generally renewed 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.
Name
Role
Date of original appointment
Expiry of current term
Malcolm Diamond
Chairman
1 November 2015
31 October 2021
Nick Jefferies
Group Chief Executive
26 November 2008
Simon Gibbins
Group Finance Director
10 June 2010
12 months by either Director or
Company
12 months by either Director or
Company
Tracey Graham
Non-Executive Director
1 November 2015
31 October 2021
Bruce Thompson
Non-Executive Director
26 February 2018
25 February 2021
Clive Watson
Non-Executive Director
2 September 2019
1 September 2022
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.
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
111
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DIRECTORS’
REMUNERATION
REPORT
Termination payments for Executive Directors
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 prorating 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 pro rata 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.
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 Remuneration 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 121 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 Risk and Remuneration Committees and for acting as
Senior Independent 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.
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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 2021.
Group Chief Executive (£’000)
Group Finance Director (£’000)
£539
£988
£1,753
£2,068
15%
36%
31%
16%
29%
33%
28%
£2,250
£2,000
£1,750
£1,500
£1,250
£1,000
£750
£500
0
0
0
£
’
£250
100%
55%
31%
26%
£0
0
0
0
£
’
£2,250
£2,000
£1,750
£1,500
£1,250
£1,000
£750
£500
£250
£0
£339
£571
£959
£1,114
14%
28%
32%
32%
28%
36%
30%
14%
27%
59%
100%
Minimum On-target
Maximum
Max with
growth
CEO
Minimum On-target
Maximum
Max with
growth
CFO
Fixed
Annual Bonus
Long-term incentive
Share price growth
1. Minimum in the bar charts above is fixed remuneration only (i.e. salary, pension and benefits as disclosed in the single figure table).
2. Target assumes that 25% of the LTIP award vests (based on an award with a face value of 135% and 100% of salary for the Group Chief
Executive and Group Finance Director respectively) and bonuses have been earned at the target levels (62.5% of salary for the Group Chief
Executive and 50% of salary for the Group Finance Director).
3. Maximum assumes that the Long Term Incentive Plan (“LTIP”) award vests in full (based on an award with a face value of 135% and 100% 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.
4. Maximum plus share price growth – this is based on the maximum scenario set out above but with a 50% share price increase applied to
the value of LTIP awards.
Projected values do not take into account dividend accrual or additional awards granted as a result of any agreement by an
Executive Director to incur the Company’s liability to employers’ National Insurance.
Consideration of employment conditions elsewhere in the Group
The remuneration policy, which has been 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 107 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.
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
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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 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 the total remuneration earned by Executive Directors for the year ended 31 March 2020.
Single total figure of remuneration for each Executive Director (audited)
Salary
£000
Benefits1
£000
Bonus2
£000
LTIP3
£000
Nick Jefferies
Simon Gibbins
FY20
FY19
FY20
FY19
467
453
310
277
11
11
11
11
362
392
193
189
1,192
881
525
388
Pension4
£000
62
60
18
16
Total
£000
2,093
1,796
1,057
881
The table below sets out the single total figure of remuneration received by each Executive Director for the year ended
31 March 2020 and the prior year:
1. Taxable benefits comprise car allowance (£9,000 each) and family medical insurance. The total value of benefits for 2020 were £10,828 and
£11,192 for Nick Jefferies and Simon Gibbins respectively.
2. For performance in the year under review, a bonus of 77.5% and 62.3% of salary is payable to Nick Jefferies and Simon Gibbins, respectively.
Further details can be found on page 115. In accordance with the Remuneration Policy, 20% of Nick Jefferies’ bonus will be in the form of
deferred shares. As noted on page 116, payment of those bonuses will be deferred until later in the year.
3. The performance conditions attached to the 2017 LTIP award granted to Nick Jefferies and Simon Gibbins on 31 March 2017 were met in full
and therefore the options vested in full on 31 March 2020. Further details can be found on page 116. Of the FY20 LTIP values shown in the
table above, £646,423 of Nick Jefferies, and £284,621 of Simon Gibbins, is attributed to share price growth over the vesting period.
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
Malcolm Diamond
140,000
135,000
FY20
£
FY19
£
Richard Brooman1
Henrietta Marsh1
Tracey Graham
Bruce Thompson
Clive Watson2
15,333
15,333
46,000
46,000
26,833
1. Stepped off the Board on 25 July 2019
2. Joined the Board on 2 September 2019
FY20
£
–
2,667
–
8,000
–
–
4,667
45,000
45,000
45,000
45,000
FY19
£
–
5,000
5,000
–
–
–
FY20
£
FY19
£
FY20
£
FY19
£
–
–
–
–
8,000
–
–
140,000
135,000
6,000
–
–
–
–
18,000
15,333
54,000
54,000
31,500
56,000
50,000
45,000
45,000
–
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Incentive outcomes for Executive Directors for the year ended 31 March 2020
Annual bonus in respect of performance for the year
The maximum bonus opportunity for the year under review was 125% and 100% of salary for the Group Chief Executive and
the Group Finance Director respectively. 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 underlying EBIT
Payout1 (% of max)
SWC
Payout1 (% of max)
Individual objectives
Overall (% of salary)
Overall (% of max)
1. Vesting between the points is on a straight-line basis
Simon Gibbins (audited)
Group underlying EBIT
Payout1 (% of max)
SWC
Payout1 (% of max)
Individual objectives
Overall (% of salary)
Overall (% of max)
Weighting
Threshold
Target Maximum
65%
£33.0m
£37.7m
£42.5m
10%
24.2%
0%
37.5%
23.0%
12.5%
81.25%
21.9%
18.75%
15%
20%
Weighting
Threshold
Target Maximum
65%
£33.0m
£37.7m
£42.5m
10%
24.2%
0%
30%
23.0%
10%
65%
21.9%
15%
15%
20%
Actual
£37.1m
33.8%
21.6%
18.75%
25.0%
77.5%
62.0%
Actual
£37.1m
27.3%
21.6%
15.0%
20.0%
62.3%
62.3%
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. Nick Jefferies and Simon Gibbins each earned 100% for their performance against
their non-financial objectives achieved during the year.
Nick Jefferies
Simon Gibbins
■ Grow design opportunities and wins
■ Ensure adequate equity and debt funding to meet
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■ Increase proportion of revenue from D&M
■ Integrate acquisitions in line with objectives
■ Appoint new Audit Committee Chair
■ Develop acquisition opportunity pipeline
■ Develop investor base
expansion plans
■ Further develop internal audit function, including
recruitment of a new Head of Internal Audit
■ Review of control framework and processes.
Implementation of fraud control initiatives and cyber
security work
■ Contingency cost planning and actions in the event of
FY20 downturn
■ Develop improved metrics for tracking movements in
working capital
■ Continue to proactively manage analyst base, including
year-end and FY20 communications
■ Appoint new Audit Committee Chair
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www.discoverieplc.com
Stock Code: DSCV
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DIRECTORS’
REMUNERATION
REPORT
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 25% out of the available 25% 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 earned a bonus of 77.5%
of his salary and Simon Gibbins earned a bonus of 62% of his salary.
Notwithstanding the strong performance over the year, in the light of the Board’s decision to not declare a final year
dividend, the Remuneration Committee has decided to withhold the payment of Executive Directors’ bonuses until later in
the financial year.
2017 LTIP vesting (audited)
LTIP Awards were granted on 31 March 2017 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 2017 to 31 March 2020. The specific targets are as follows:
Relative TSR ranking against the FTSE Small Cap (50% weighting)
Relative TSR ranking against peers
% of award vesting
Upper quartile (or above)
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%
discoverIE’s TSR performance was 122.6% over the three-year period to 31 March 2020. This ranked the Company in the top
2% of the FTSE Small Cap and 116.9% above CPI growth of 5.7% over the period. This strong performance has resulted in full
vesting for this award. The vested awards are subject to a two-year holding period.
Share awards made during the year (audited)
As disclosed in last year’s report, 166,236 and 92,006 LTIP awards were granted on 30 April 2019 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
Face value1
150%
125%
£700,131
£387,500
Number
of shares
166,236
92,006
Threshold
vesting
(% of
face value)
Maximum
vesting
(% of
face value)
25%
100%
End of
performance
period
31 March 2022
31 March 2022
1. The face value of the awards is based on a share price of £4.21, being the three-day average share price directly prior to the grant of the award.
In addition to the grants set out above, 15,379 awards with a face value of £64,746 were granted 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.
Vesting of these awards is subject to the following performance conditions:
Relative TSR ranking against the FTSE Small Cap (one-third weighting)
Relative TSR ranking against peers
% of award vesting
Upper quartile (or above)
100%
Between median and upper quartile
Straight-line vesting between 25% and 100%
Below median performance
0%
Absolute TSR performance (one-third weighting)
Absolute TSR performance
% of award vesting
Equal to or above CPI +30 ppts
100%
Between CPI +10ppts and CPI +30 ppts
Straight-line vesting between 25% and 100%
Below CPI +10 ppts
0%
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EPS Growth (one-third weighting)
EPS Growth
% of award vesting
Equal to or above 12 ppts per annum
100%
Between 5 ppts and 12 ppts per annum
Straight-line vesting between 25% and 100%
Below 5 ppts per annum
0%
Performance will be measured over three years from 31 March 2019 to 31 March 2022 using, for the two TSR measures, 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 FY19 to FY22. 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 for Executive Directors. Pension contributions/cash allowances
for the Executive Directors are set out in the policy table on page 108 of this Report.
Directors’ interests under the Long Term Incentive Plan
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 109.
Movements during the year
Granted
Vested Exercised
Lapsed
Number
held at
31.03.18
Vested
but not
exercised
Share
value at
31.03.19
£
When exercisable
Number
held at
31.03.19
245,192(v)1
223,567(v)2
242,788(v)3
163,371(nv)
Nick Jefferies
Simon Gibbins
–
–
–
–
–
–
242,788
–
–
–
–
106,900
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
245,192
245,192 1,203,893 Mar 2020 to Mar 2025
223,567
223,567 1,097,714 Mar 2021 to Mar 2026
242,788 242,788 1,192,089 Mar 2022 to Mar 2027
163,371
–
–
–
802,152 Mar 2023 to Mar 2028
816,219 Apr 2024 to Apr 2029
120,192
120,192
590,143 Mar 2020 to Mar 2025
98,437
98,437 483,326 Mar 2021 to Mar 2026
106,900 106,900
524,879 Mar 2022 to Mar 2027
83,255
– 408,782 Mar 2023 to Mar 2028
–
–
451,749 Apr 2024 to Apr 2029
166,236(nv)
166,236
120,192(v)4
98,437(v)5
106,900(v)6
83,255(nv)7
–
–
–
–
92,006(nv)8
92,006
(v)= vested; (nv) = non-vested
1. 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 resulted in 100% vesting on 31 March 2018.
2. The award, in the form of a nil-cost option over 223,567 shares in the Company, was made to Nick Jefferies on 31 March 2016.
The performance conditions attached to the award resulted in 100% vesting on 31 March 2019.
3. The award, in the form of a nil-cost option over 242,788 shares in the Company, was made to Nick Jefferies on 31 March 2017.
The performance conditions attached to the award resulted in 100% vesting on 31 March 2020.
4. 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 resulted in 100% vesting on 31 March 2018.
5. The award, in the form of a nil-cost option over 98,437 shares in the Company, was made to Simon Gibbins on 31 March 2016.
The performance conditions attached to the award resulted in 100% vesting on 31 March 2019.
6. The award, in the form of a nil-cost option over 106,900 shares in the Company, was made to Simon Gibbins on 31 March 2017.
The performance conditions attached to the award resulted in 100% vesting on 31 March 2020.
7. An additional award of 13,916 nil-cost options 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 on the
March 2018 award. This is in addition to the 83,255 shares set out above and is subject to the same vesting and exercise conditions.
8. An additional award of 15,379 nil-cost options was made on 30 April 2019 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 on the
April 2019 award. This is in addition to the 92,006 shares set out above and is subject to the same vesting and exercise conditions.
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www.discoverieplc.com
Stock Code: DSCV
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DIRECTORS’
REMUNERATION
REPORT
Directors’ interests (audited)
The interests of the Directors, who held office as at 31 March 2020 (including family interests), in ordinary shares (fully paid,
5p) of the Company, were as follows:
Shares held at 31 March 2020
Nil cost
options
vested but
not exercised
and outside of
holding period
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 2019
245,192
120,192
466,355
205,337
329,607
175,261
–
–
–
–
–
–
–
–
–
–
–
–
960,931
257,670
6,949
19,907
8,000
–
Value of
current
shareholding
(% of salary)
1,775%
939%
Nick Jefferies
Simon Gibbins
Tracey Graham
Malcolm Diamond
Bruce Thompson
Clive Watson
Unencumbered
shares
965,750
267,489
9,358
27,316
25,000
12,500
The interests of all Directors at 24 June 2020 are unchanged from those at 31 March 2020. The values of current
shareholdings for Nick Jefferies and Simon Gibbins have been valued using the share price as at 31 March 2020 of 491p and
include all options that have vested.
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 remuneration policy, Executive Directors are required to build up/
maintain a shareholding of at least 250% of salary within seven years. Both of the Executive Directors meet the shareholding
requirements. The figures for shares/nil cost options subject to performance conditions exclude any additional awards to
Executive Directors 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 2020, approximately 5.46m shares (6.15%) 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% in ten years’ 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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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 2010 between that date and 31 March
2020 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 and as the Company is a constituent of the Index. 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
600
500
400
300
200
100100
0
31 Mar 2010 31 Mar 2011
31 Mar 2012
31 Mar 2013
31 Mar 2014 31 Mar 2015 31 Mar 2016
31 Mar 2017
31 Mar 2018
31 Mar 2019
31 Mar 2020
DiscoverIE Return Index
FTSE Small Cap Return Index
Source: Thomson Reuters
Total Shareholder Return: discoverIE vs. FTSE Small Cap Index
Note: The Company’s share price was adjusted following the rights issue in June 2014.
Single figure of total
remuneration (£’000)
Salary (£’000)
Bonus outcome (% of maximum)
LTIP outcome (% of maximum)
Turnover (£m)
EBIT (£m)1
1. Continuing operations
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
590
280
100
–
210
6
1,613
297
10
94
207
7
999
320
20
88
177
5
572
320
55
9
212
7
1,246
330
59
100
271
13
1,321
425
60
100
288
16
665
429
43.5
–
338
20
1,803
1,796
2,093
438
63.7
100
453
69.2
100
467
62.0
100
387.9
438.9
466.4
24.5
30.6
37.1
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Stock Code: DSCV
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DIRECTORS’
REMUNERATION
REPORT
Group Chief Executive remuneration
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 UK employees
of the Group, on a like-for-like basis (excluding Positek Ltd and Sens-Tech Ltd, which were both acquired during the year).
Group Chief Executive
Salary
Benefits
Bonus1
Single figure total
Average per UK employee
Salary
Benefits
Bonus
2020
£’000
467
11
362
2,093
38.0
4.9
4.1
2019
£’000
%
change
453
11
392
1,796
36.2
5.0
6.7
3.1%
0.0%
-7.7%
16.5%
5.0%
-2.0%
-38.8%
1.
In accordance with the Remuneration Policy, 20% of the Group Chief Executive’s bonus is in the form of deferred shares and the figure for
2020 includes the bonus earned but which has not been paid. As noted on page 116 above, payment of the 2020 bonus has been deferred
until later in the year.
CEO pay ratio
The table below sets out the pay ratios for the Group Chief Executive in relation to the equivalent pay for the lower quartile,
median and upper quartile of the Group’s UK employees (calculated on a full-time basis).
Year
2020
Method
Option B
25th percentile pay ratio Median pay ratio
75th percentile pay ratio
83:1
57:1
40:1
Notes:
1. The Company determined the remuneration figures for the employee at each quartile with reference to a date of 31/3/20.
2. The Company used calculation method B as the Gender Pay Gap data is already collated for UK employees and was
therefore readily available.
3. Following a review, the Committee was satisfied that the three individuals reported on are representative of the lower
quartile, median and upper quartile employees. No adjustments or estimates were used.
Set out in the table below is the total pay and benefits as well as the salary component of remuneration for the employees
identified as being at the relevant percentiles.
£
Salary
Total pay and
benefits
25th percentile
Median
75th percentile
£22,950
£34,543
£45,996
£25,250
£37,096
£52,898
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)
2020
£m
88.1
8.1
2019
£m
86.6
6.7
%
change
1.7%
20.9%
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Statement of implementation of the remuneration policy in the financial year ending
31 March 2021
The Company intends to implement the policy in the financial year ended 31 March 2021 in the way described in the
“Remuneration at a glance” section and policy table for the Executive Directors on pages 105 to 107.
There will be no increase to Executive Directors’ base salaries for the year ending 31 March 2021. As disclosed in the
Committee Chair’s letter introducing this report, the Executive Directors have agreed a temporary 20% reduction in the
salary they will be paid for 3 months from 1 June 2020.
The Committee has approved performance measures for the annual bonus for the Executive Directors for the year ending
31 March 2021, and consistent with last year, 80% is based on financial performance and 20% on personal or strategic
objectives. As managing cash resources and establishing tighter working capital controls will be particularly important in
2021, the bonus measures have been reweighted to reflect this and therefore 56% of the bonus will be based on EBIT, 24% on
Simplified Working Capital (and 20% on personal objectives).
The Committee has also taken the opportunity, in line with guidance in this area, to apply a 50% target payout under each
financial measure. Due to the close link between targets and the long-term strategy, the bonus targets for the year ending
31 March 2021 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 will grant LTIP awards in line with the policy after the announcement of full year results. The award for the
Group Chief Executive will be over shares with a face value of 135% of salary and 100% for the Group Finance Director. The
performance measures will continue to be based on absolute TSR, relative TSR and underlying earnings growth measures. The
Committee considered carefully the EPS target range and has agreed to set a growth range of 4% to 10%p.a.. This growth range
is appropriately challenging against the backdrop of COVID-19 related headwinds and the internal and external outlook.
In line with the Executive Directors, it has been agreed that there will be no increase in fees for the Non-Executive Directors
from the previous year. As such, the fees of the Non-Executive Directors, including the additional fees payable, remain
as follows:
As at 1 April 2020
Malcolm Diamond
Tracey Graham
Bruce Thompson
Clive Watson
Basic fee
£
140,000
46,000
46,000
46,000
Committee
Chair fee
£
–
8,000
SID fee
£
–
–
–
8,000
8,000
–
Total
£
140,000
54,000
54,000
54,000
As disclosed in the Committee Chair’s letter introducing this report, the Chairman and Non-Executive Directors have agreed
a temporary 20% reduction in the fees they will be paid from 1 June 2020.
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 2020 were £3,700.
During the year, the Remuneration Committee decided to undertake a tender exercise and appointed independent advisors,
FIT Remuneration Consultants LLP (FIT). FIT is also a signatory to the Remuneration Consultants’ Code of Conduct. FIT does
not provide any services other than advice to the Remuneration Committee. The fees paid to FIT for advising the Committee
for the period 1 December 2019 to 31 March 2020 were £10,000.
Shareholder voting
AGM resolutions
2018 Binding vote on the
Directors’ Remuneration Policy
2019 Approval of the
Annual Report on Remuneration
1.
Includes votes at the Chairman’s discretion
For1
Against
Withheld2
47,004,246
95.56%
2,186,425
4.44%
9,067
50,304,344
80.27%
12,368,008
19.73%
3,496,123
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
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
121
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STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN RESPECT
OF THE FINANCIAL STATEMENTS
Directors’ confirmations
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 and Company’s position and performance,
business model and strategy.
Each of the Directors, whose names and functions are
listed in on pages 72 to 73 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 Company, together with a
description of the principal risks and uncertainties that
it faces.
The Directors are responsible for preparing the Annual
Report and the 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
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 affairs of the Group and Company
and of the profit or loss of the Group and 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 also responsible for safeguarding the
assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group and Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that the
financial statements and the Remuneration Report comply
with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
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.
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for the year ended 31 March 2020
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
123
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TABLE OF
CONTENTS
Financial statements
Independent auditor’s report
to the members of discoverIE Group plc
Consolidated income statement
Supplementary income statement information
Consolidated statement of comprehensive
income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the Group financial statements
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
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Transportation
The Transportation market is one of our
key target markets, and our focus on mass
transportation and electrification of vehicles in
particular, is well aligned with the UN Sustainable
Development Goals.
Read more on pages 18 to 19 for
details of our target markets
Read more on page 56 to 57 for our
alignment with the UN SDGs
Contributing to the UN Sustainable
Development Goals
Sustainable Cities and Communities
The Group serves the mass transportation
market and provides charging solutions
for electric vehicles, both of which will help
reduce the use of fossil fuels as electrified
transportation increases.
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Fulfilling our purpose
DEVELOPING
ELECTRONICS FOR A
MORE SUSTAINABLE
FUTURE
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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 consolidated 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 2020 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 International Financial Reporting
Standards (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 and Accounts (the “Annual Report”), which
comprise: the Consolidated statement of financial position and the Company balance sheet as at 31 March 2020; 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 and Risk 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.
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for the year ended 31 March 2020
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Our audit approach
Overview
■ Overall Group materiality: £1,679,000 (2019: £1,365,000), based on 5% of Underlying profit
before tax.
■ Overall Company materiality: £1,511,000 (2019: £1,170,000), based on 1% of total assets,
Materiality
limited by component materiality.
■ 78% of Group revenue (2019: 82%) and 77% (2019: 81%) of Group underlying profit before
tax (on an absolute basis) covered through full scope audit procedures.
Audit Scope
■ Goodwill impairment assessment (Group);
■ Accounting for acquisitions during the year (Group);
■ Presentation of adjustments included in underlying profit before tax (Group);
Key Audit
Matters
■ COVID-19 and going concern (Group);
■ Valuation of inventory (Group); and
■ 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.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws
and regulations related to the listing rules, pensions legislation, tax legislation and local laws and regulations applicable
in the territories that the Group operates in, and we considered the extent to which non-compliance might have a
material effect on the financial statements. We also considered those laws and regulations that have a direct impact on
the preparation of the financial statements such as the Companies Act 2006. We evaluated management’s incentives
and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and
determined that the principal risks were related to posting of inappropriate journal entries to improve the results and
application of bias in accounting estimates. The Group engagement team shared this risk assessment with the component
auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures
performed by the Group engagement team and/or component auditors included:
■ Discussions with management, including consideration of known or suspected instances of fraud and non-compliance
with laws and regulation;
■ Consideration of the Group’s controls designed to prevent and detect irregularities;
■ Challenging assumptions and judgements made by the Directors in their significant accounting estimates, in particular
in relation to impairment of goodwill and going concern assessment (see related key audit matter below); and
■ Identifying and testing journal entries based on a risk based sample selection.
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. Also, 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.
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
127
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INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF discoverIE GROUP PLC
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 92 (Audit Committee Report), note 2 (Significant
accounting judgements and estimates) and note 17 for the related
disclosures on goodwill.
The Group carried £117.3 million of goodwill at 31 March 2020 (2019:
£85.3 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.
We focused our assessment on the estimates and judgements used
by management in their impairment model include appropriate
downside sensitivities. In light of the current uncertainties as a result
of the COVID-19 outbreak we have focused on CGUs which had a
material goodwill balance and had a headroom of less than five
times of the carrying value of the CGU.
No impairment charge was recognised in the year ended 31 March
2020 and 31 March 2019.
How our audit addressed the key audit matter
We evaluated and challenged the Directors’ future
cash flow forecasts in the goodwill impairment
model and the process by which they were prepared.
We tested the cash flow forecast by comparing it
with the FY21 forecast prepared and presented to
the Board in March 2020 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 the actual results
for the period after the year end; 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 each CGU.
We performed sensitivity analysis on the key
assumptions within the cash flow forecasts. This
included sensitising the future cash flows using
lower short and longer term growth rates and profit
margins forecast.
We engaged PwC’s valuations experts to assess
the reasonableness of the discounts rates used.
We consider the discount these to be within the
acceptable range.
We compared the total value in use calculated in
management’s goodwill models to the Group’s
market capitalisation of £435.5 million at 31 March
2020 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
not to be plausible.
Based on the procedures described above, we were
satisfied that the recoverability of the carrying value
of goodwill in respect of all the CGUs identified
has been appropriately assessed and that no
impairment exists. In addition, we have audited the
disclosures in respect of goodwill impairment and
are satisfied that they remain appropriate.
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Key audit matter
Accounting for acquisitions during the year (Group)
Refer to page 92 (Audit and Risk Committee Report), note 2
(Accounting Policies) and note 11 (Business combinations).
The Group completed three acquisitions during the year:
■ Hobart, which is a US based designer and manufacturer of
custom transformers, inductors and magnetic components;
■ Positek, which is a UK based designer and manufacturer of
rugged, high accuracy linear rotary tilt and submersible sensors
supplying the international markets; and
■ Sens-Tech, which is a UK based business specialising in X-ray
detection and data acquisition modules supplying international
markets.
Accounting for these acquisitions 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
recorded
■ £5.3 million of goodwill and £5.4 million of intangibles relating to
Hobart’s customer relationships. The total consideration for the
acquisition was £12.5 million.
■ £2.7 million of goodwill and £1.8 million of intangibles relating to
Positek’s customer relationships. The total consideration for the
acquisition was £5.5 million.
■ £27.4 million of goodwill and £32.4 million of intangibles relating
to Sens-Tech’s customer relationships. The total consideration for
the acquisition was £70 million.
How our audit addressed the key audit matter
In order to test the components of the acquisition,
we performed the following procedures:
■ Read technical papers prepared by management
in respect of the acquisitions and inspected
relevant contracts and information including the
Sale and Purchase Agreements;
■ 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 rates and
assumptions used for forecasts;
■ Engaged the PwC’s valuation experts to assess
the reasonableness of the discount rates applied
and the methodology used in the valuation of
intangibles;
■ Assessed whether the Directors’ identification
and valuation of other known and contingent
liabilities associated with acquisitions was
complete; and
■ Inspected the relevant underlying contracts
to assess conclusions reached by the Directors
in respect of the accounting for contingent
consideration.
Based upon the above, we are satisfied that the
Directors have applied reasonable judgements
in the provisional accounting for the acquisitions
during the year.
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www.discoverieplc.com
Stock Code: DSCV
129
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INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF discoverIE GROUP PLC
Key audit matter
Presentation of adjustments included in underlying profit
before tax (Group)
Refer to Audit and Risk Committee Report (page 92); Accounting
policies (note 2); and note 6 (Underlying profit before tax).
£13.3 million (2019: £7.9 million) of net costs incurred in the year are
presented as adjustments to the Group’s underlying profit before
tax. These include:
■ £4.0 million of acquisition costs;
■ £9.0 million of amortisation of acquired intangibles; and
■ £0.3 million in respect of the Group’s IAS 19 pension charge for the
year.
The Group present underlying performance measures on the face of
the consolidated income statement as supplementary information
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 need to be
classified appropriately and presented consistently.
How our audit addressed the key audit matter
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.
We also considered the risk that the Group’s
accounting policy could be manipulated to help
achieve profit targets.
We also considered the risk of one-off gains during
the year not being properly identified and therefore
presented inappropriately within underlying profit.
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 2020 is consistently applied and appropriately
disclosed.
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for the year ended 31 March 2020
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Key audit matter
COVID-19 and going concern (Group)
The COVID-19 pandemic in early 2020 has affected individuals and
businesses across the world. There have been varying impacts on
the countries where the Group operates.
Give the unprecedented nature of the pandemic, the impact on
the Group is difficult to predict and there remains an uncertainty
in the short term and longer term. The Directors have considered
the potential impact of the disruptions caused by the COVID-19
pandemic on the way business is carried out across the Group.
During the year ended 31 March 2020, the Group made a profit after
tax of £14.3 million and had net current assets of £93.8 million at the
year-end. The Group holds a cash and cash equivalent balance (net
off bank overdraft) of £34.8 million. Despite this position at the year
end, due to the impact of COVID-19 outbreak there is an uncertainty
over the expected future cash flows and continuity of business at the
expected levels.
The Directors performed a going concern assessment based on their
base case updated for May 2020 actual cash flow forecasts which
considers the impact of COVID-19 for the rest of the FY21 financial
year, and other associated key risk factors including acquired
company forecast and associated future earn-out payments, latest
views on supplier and customer payments impacting working
capital and latest forecast foreign exchange rates. The May 2020
cash flow forecast also incorporates the savings actions previously
announced by the Group including pay and headcount freezes and
deferral of non-essential capital expenditure. The assessment carried
out by the Directors is for a period of at least twelve months from the
date of approval of these financial statements.
The Directors’ assessment included preparing a severe but plausible
downside scenario including revenue and EBITDA downside trading
sensitivities and identified mitigating actions that could be taken
to reduce cash expenditure if necessary, considering the levels of
funding accessible by
the Group.
The Directors concluded based on these forecasts and sensitivities,
that there was sufficient headroom in respect of covenants and
liquidity beyond the severe but plausible downside scenario, to
prepare the financial statements on a going concern basis.
Directors have also considered the risk of impairment of non-current
assets, increased credit risk on trade receivables, obsolescence of
inventory and working practices across
the Group.
We have focussed on this risk due to the evolving nature of the
pandemic, the uncertainties involved and the magnitude of any
potential impact on the financial statements.
The Directors have included their assessment of the impact of
COVID-19 at various places across the Annual report.
Further details are set out in note 2 to the consolidated financial
statements.
How our audit addressed the key audit matter
In assessing management’s consideration of the
potential impact of COVID-19, we have undertaken
the following audit procedures:
■ We discussed with management and the Board
the critical estimates and judgements applied in
their latest assessments in order to understand
and challenge the rationale underlying the factors
incorporated and the sensitivities applied as a
result of COVID-19;
■ We reviewed the judgements included by
management in their ‘expected credit loss’ model
with respect to the impact of COVID-19. We
considered the position of the trade receivables
subsequent to the year end to assess the
appropriateness of management’s judgements
applied in the model.
In assessing the appropriateness of the going
concern assumption used in preparing the financial
statements, we:
■ Tested the mathematical accuracy of the
Directors’ cash flow forecast and validated the
opening cash position;
■ Validated the underlying cash flow projections
for the Group and assessed the basis of the
judgements applied;
■ Reviewed the sensitivity analysis carried out by
the Directors to assess the impact of the key
assumptions underlying the forecast such as
reduction in sales, increase in working capital and
expected level of operating expenses;
■ Assessed the impact of the Directors’ severe
but plausible downside scenarios on the
headroom available on liquidity and covenants
under the Group’s revolving credit facility of
£180m;Reviewed the Directors’ plan on available
mitigating factors where required and included
within the cash flow forecast; and
We audited the disclosures included in the Annual
Report in respect of this risk, including going
concern, and impairment sensitivities and consider
them reasonable.
Our conclusion in respect of going concern is set out
below on page 135.
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
131
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INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF discoverIE GROUP PLC
Key audit matter
Valuation of inventory (Group)
Refer to page 92 (Audit and Risk Committee Report), note 2
(Significant accounting estimates) and note 20 (Inventories).
The balance of gross inventories at 31 March 2020 was £77.3 million,
against which a provision of £8.9 million was held (2019: gross
inventories£73.4million, provision of £7.2m).
The completeness 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 year end.
■ The output from the Group’s accounting systems is subject to
a manual process that considers the age of the individual items
held to calculate the inventory provision.
Carrying value of investments (Company)
Refer to note 2 and note 5 of the Company financial statements.
The Company holds investments in its subsidiaries of £200.2 million
(2019: £168.9m).
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
£22.6 million in discoverIE Management Services Limited (‘DMS’), the
Group’s service Company that derives revenue from intercompany
recharges. There was a £10 million impairment recorded against the
DMS investment in the current year.
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 million is required.
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 completeness, and noted no material
exceptions.
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; particularly considering the
expected impact of COVID-19 on future sales.
We found the assumptions to be reasonable.
We assessed the aging of the inventory to identify if
there are any individual items which indicates a risk
of obsolescence. We did not identify any material
items which would require additional provision.
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 DMS
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 impairment charge
recorded and the carrying value of the investment in
DMS is appropriate.
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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 & Manufacturing (‘D&M’) and Custom Supply (‘CS’),
operating in 23 countries.
Across the 23 countries, the Group has 61 component business operations. We performed an audit of the complete financial
information of 28 (2019: 25) of these components and one component which includes all consolidation entries (“full scope
components”), which were selected based on their size or risk characteristics. This covered 78% (2019: 82%) of the Group’s
revenue and 77% (2019: 81%) of the Group’s underlying profit before tax (on an absolute basis).
For 9 (2019: 11) further components (“specified procedures components”), we performed tailored audit procedures to address
any significant risk or balances and transactions involving judgement and estimates.
The remaining 24 components in aggregate represent 11% (2019: 14%) of the Group’s underlying profit before tax (on an
absolute basis). 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 needed 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 29 full scope components, audit procedures were performed on 17 components
directly by the Group audit team, with component auditors performing audit procedures over the remaining 12 components.
Of the 9 specified procedures components, 7 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.
Our planned visit to the client’s sites and certain full scope component teams was cancelled due to the travel restrictions as
a result of the COVID-19 outbreak; however no changes were made to the extent of our oversight of the component, nor to
the extent of the work performed by the component. We held numerous meetings with our component teams, including
via video conference, and performed remote reviews of the key working papers associated with the component team’s audit.
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. In the previous financial year the Group audit team visited those entities considered to
be full scope components in UK, US, Netherlands and Norway, however in the current year all the supervision activities over
the component audit teams were through remote arrangements.
The Group audit team also joined the audit clearance meetings for each of the full scope components.
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.
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Stock Code: DSCV
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INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF discoverIE GROUP PLC
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
£1,679,000 (2019: £1,365,000).
£1,511,000 (2019: £1,170,000).
Group financial statements
Company financial statements
How we
determined it
Rationale for
benchmark applied
5% of Underlying profit before tax.
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.
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 £1,511,000. 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 audit above
£84,000 (Group audit) (2019: £68,000) and £84,000 (Company audit) (2019: £68,000) as well as misstatements below those
amounts that, in our view, warranted reporting for qualitative reasons.
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.
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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 Report, 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 2020 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 Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance
Report (on page 89) 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 76 to 89) 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)
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INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF discoverIE GROUP PLC
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 83 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 48 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)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
The statement given by the Directors, on page 122, 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 92 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)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities in Respect of the Financial Statements set out on
page 122, 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.
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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.
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 and Risk 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. The period of total
uninterrupted engagement is 3 years, covering the years ended 31 March 2018 to 31 March 2020.
Richard Porter (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
24 June 2020
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Stock Code: DSCV
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CONSOLIDATED
INCOME STATEMENT
for the year ended 31 March 2020
Revenue
Cost of sales
Gross profit
Selling and distribution costs
Administrative expenses
Operating profit
Finance income
Finance costs
Profit before tax
Tax expense
Profit for the year
Earnings per share
Basic
Diluted
notes
4
7
9
9
10
13
2020
£m
466.4
(309.7)
156.7
(58.1)
(74.8)
23.8
0.6
(4.9)
19.5
(5.2)
14.3
2019
£m
438.9
(293.9)
145.0
(57.7)
(64.6)
22.7
0.5
(3.9)
19.3
(4.7)
14.6
17.0p
16.5p
20.0p
19.4p
SUPPLEMENTARY INCOME
STATEMENT INFORMATION
Underlying Performance Measures
notes
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
7
6
6
18
32
6
6
18
32
2020
£m
23.8
–
4.0
9.0
0.3
37.1
19.5
–
4.0
9.0
0.3
32.8
2019
£m
22.7
(0.2)
1.8
5.9
0.4
30.6
19.3
(0.2)
1.8
5.9
0.4
27.2
Underlying earnings per share
13
30.2p
27.2p
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CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the year ended 31 March 2020
Profit for the year
Other comprehensive income/(loss):
Items that will not be subsequently reclassified to profit or loss:
Actuarial gain on defined benefit pension scheme
Deferred tax charge 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 for the year, net of tax
Total comprehensive income for the year, net of tax
notes
32
10
2020
£m
14.3
2.4
(0.5)
1.9
(4.6)
(4.6)
(2.7)
11.6
2019
£m
14.6
0.1
–
0.1
(1.1)
(1.1)
(1.0)
13.6
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CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
as at 31 March 2020
Non-current assets
Property, plant and equipment
Intangible assets – goodwill
Intangible assets – other
Right of use assets
Defined benefit surplus
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Other financial liabilities
Lease liabilities
Current tax liabilities
Provisions
Non-current liabilities
Trade and other payables
Other financial liabilities
Lease liabilities
Pension liability
Provisions
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Currency translation reserve
Retained earnings
Total equity
notes
14
16
18
15
32
10
20
21
22
29
23
15
26
29
23
15
32
26
10
30
2020
£m
25.2
117.3
64.9
21.1
1.8
6.1
2019
£m
24.4
85.3
34.4
–
–
5.1
236.4
149.2
68.4
90.1
2.1
36.8
197.4
433.8
66.2
88.7
1.3
22.9
179.1
328.3
(87.6)
(87.7)
(4.3)
(5.3)
(5.5)
(0.9)
(1.7)
–
(5.5)
(1.1)
(103.6)
(96.0)
(3.1)
(93.8)
(14.7)
–
(4.7)
(13.4)
(129.7)
(233.3)
200.5
4.4
138.8
22.7
(2.2)
36.8
200.5
(0.2)
(84.5)
–
(2.5)
(2.7)
(7.7)
(97.6)
(193.6)
134.7
3.7
106.9
2.9
2.4
18.8
134.7
The financial statements on pages 138 to 142 were approved by the Board of Directors on 24 June 2020 and signed on its
behalf by:
Nick Jefferies
Group Chief Executive
Simon Gibbins
Group Finance Director
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CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
for the year ended 31 March 2020
Attributable to equity holders of the Company
Share
capital
£m
Share
premium
£m
3.6
106.9
Merger
reserve
£m
2.9
–
–
–
0.1
–
–
3.7
–
–
–
0.7
–
–
–
–
–
–
–
–
–
106.9
–
–
–
31.9
–
–
–
4.4
138.8
–
–
–
–
–
–
2.9
–
–
–
27.9
–
(8.1)
–
22.7
Currency
translation
reserve
£m
Retained
earnings
£m
3.5
–
(1.1)
(1.1)
–
–
–
2.4
–
(4.6)
(4.6)
–
–
–
–
(2.2)
9.9
14.6
0.1
14.7
–
0.9
(6.7)
18.8
14.3
1.9
16.2
–
1.8
8.1
(8.1)
36.8
Total
equity
£m
126.8
14.6
(1.0)
13.6
0.1
0.9
(6.7)
134.7
14.3
(2.7)
11.6
60.5
1.8
–
(8.1)
200.5
At 1 April 2018
Profit for the year
Other comprehensive loss
Total comprehensive income
Shares issued (note 30)
Share-based payments including tax
Dividends (note 12)
At 31 March 2019
Profit for the year
Other comprehensive loss
Total comprehensive income
Shares issued (note 30)
Share-based payments including tax
Transfer to retained earnings
Dividends (note 12)
At 31 March 2020
The £27.9m merger reserve arising during the year is available for distribution and £8.1m was transferred to retained earnings
for the payment of the dividend.
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Stock Code: DSCV
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CONSOLIDATED STATEMENT
OF CASH FLOWS
for the year ended 31 March 2020
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
Payment of lease liabilities
Interest paid on lease liabilities
Dividends paid
Net cash generated from financing activities
Net increase 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 24 and 25.
notes
25
24
24
12
23
22
2020
£m
37.4
(72.6)
(1.0)
(5.3)
(1.0)
–
0.5
(79.4)
60.5
41.9
(31.3)
(6.0)
(0.6)
(8.1)
56.4
14.4
20.8
(0.4)
34.8
34.8
2.0
36.8
2019
£m
22.4
(21.3)
(1.3)
(4.2)
(1.2)
0.2
0.4
(27.4)
0.1
17.2
(1.2)
–
–
(6.7)
9.4
4.4
16.2
0.2
20.8
20.8
2.1
22.9
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
1. Authorisation of financial statements and statement of compliance with IFRS
The consolidated 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 2020 were authorised for issue by the Board
of Directors on 24 June 2020. discoverIE Group plc is a public limited company incorporated and domiciled in the UK with
its registered office situated at 2 Chancellor Court, Occam Road Surrey Research Park, Guildford, Surrey, GU2 7AH. The
Company’s ordinary shares are traded on the London Stock Exchange.
The significant accounting policies adopted by the Group are set out in note 2 and have been applied consistently to all years
presented in these Consolidated financial statements, with the exception of IFRS 16 ‘Leases’ which has been adopted from
1 April 2019.
2. Accounting policies
Basis of preparation
The Group’s consolidated 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. They have been prepared on a historical cost basis except where otherwise stated.
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 2020.
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 the ability to exert significant influence over 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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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
2. Accounting policies continued
Going concern
In line with IAS1 ‘Presentation of financial statements’ and revised guidance on ‘risk management, internal control and
related financial and business reporting’, management has taken into account all available information about the future for
a period of at least, but not limited to, 12 months from the date of approval of the financial statements when assessing the
group’s ability to continue as a 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 04 to 69. 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 40 to 45.
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.
The Viability Base Case, as stated on page 48, has been subjected to sensitivity analysis involving flexing a number of the
underlying main assumptions, both individually and in conjunction. The sensitivities take into account the principal risks and
uncertainties set out on pages 50 to 55, notably COVID-19 pandemic, economic downturn, Brexit, loss of key customers and
suppliers, underperformance of acquired businesses, major business disruption, liquidity and debt covenants and foreign
currency.
In respect of COVID-19, the Directors have modelled ‘severe but plausible’ downside scenarios to the Viability Base Case. The
Directors prepared these scenarios based on an underlying analysis of the potential further impact of COVID-19 this year and
future years additional to that already factored into the Viability Base Case.
These downsides include a much longer term, and deeper impact with a further double-digit organic sales growth downside
to the Viability Base Case in FY2020/21. Downside sales impact was varied by market sector with organic falls in the year
ranging above 30% in some markets. A further downside was also applied the following year with FY2021/22 experiencing
a mid-single digit organic sales decline below the downside sales position in FY2020/21. Additionally, gross margin was
materially reduced and working capital materially increased.
Even after factoring in these significant additional downsides to the Viability Base Case, there remains good headroom in
our banking covenants and significant liquidity. This is supported by the fact that the Group sells a wide portfolio of different
products across a diverse set of industries and geographies, has a global supply chain network, and has well-established
relationships with its customers. As a consequence, the Directors believe that the Group is well placed to manage its
principal risks and uncertainties as disclosed on pages 50 to 55 of the Strategic Report.
The Directors are confident that the Company and the Group have sufficient 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 related expenditure (namely amortisation
of acquired intangible assets, acquisition costs and the IAS19 pension administration charge relating to the Group’s legacy
defined benefit pension scheme) and exceptional items.
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 outside of the 12 month measurement period.
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2. Accounting policies continued
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 related expenditure (namely amortisation
of acquired intangible assets, acquisition costs and the total IAS19 pension charge relating to the Group’s legacy defined
benefit pension scheme) and exceptional items.
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 year.
Operating cash flow
“Operating 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 and IFRS 16 costs.
Free cash flow
“Free cash flow” is defined as net cash flow before 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 plus net debt, including an annualisation for
acquisitions.
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”) and excluding the first 12 months of acquisitions (Cursor Controls was
acquired on 16 October 2018, Hobart and Positek on 15 April 2019 and Sens-Tech on 16 October 2019).
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 IFRS9 ‘Financial Instruments: Classification 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.
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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.
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
2. Accounting policies continued
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.
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
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 in administrative expenses, on a straight-line
basis over the expected useful economic lives as follows.
Customer relationships
Patents
5–10 years
Patent term
(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.
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2. Accounting policies continued
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 non-financial 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.
Financial assets
The Group classifies its financial assets in the following measurement categories:
1. those to be measured at amortised cost; and
2. those to be measured subsequently at fair value through profit or loss.
The classification depends on the Group’s business model for managing the financial assets as well as the contractual terms
of the cash flows of the financial assets.
For assets measured at fair values, gains or losses will either be recorded in profit or loss or other comprehensive income.
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value
through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
2. Accounting policies continued
At subsequent measurement
Financial assets mainly comprise of “trade receivables”, “other current assets (excluding prepayments and VAT receivables)”,
and “cash and cash equivalents” in the statement of financial position.
Financial assets are subsequently measured based on the classification as follows:
Amortised cost: Financial assets that are held for collection of contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortised cost. A gain or loss on a financial asset that is subsequently
measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the asset is
derecognised or impaired. Interest income from these financial assets is included in finance income using the effective
interest rate method.
Fair value through profit or loss (“FVTPL”): Derivative financial instruments that are held for trading as well as those that do
not meet the criteria for classification as amortised cost or fair value through other comprehensive income (“ FVOCI”) are
classified as FVTPL. Movement in fair values and interest income that is not part of a hedging relationship is recognised in
profit or loss in the period in which it arises.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there
is a legally enforceable right to offset and there is an intention to settle on a net basis or realise the asset and the liability
simultaneously
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 amounts due from customers for goods and services sold in the ordinary course of business. They are
held with the object of collecting the contractual cashflows and are measured at amortised cost less expected credit losses.
Trade receivables are assessed for impairment in accordance with IFRS9 ‘Financial instruments’. This requires consideration
of both historical and forward-looking information when considering potential impairment of trade receivables. The Group
has opted to use the simplified approach allowed under IFRS9, which requires the calculation of a lifetime expected credit
loss. A provision matrix has been created to calculate an expected credit loss. This matrix is based upon historical observed
default rates adjusted for forward looking information to create an adjusted default rate. This adjusted default rate is used to
calculate an expected credit loss and is compared with the bad debts written off during the previous 36 months. Expected
credit loss is assessed separately for each of the Group’s trading divisions and is based on each trading division’s three-year
historical credit loss experience.
The following criteria are used to calculate the default rate:
Historical
■ The level of sales written off during the prior 36-month period compared to the credit sales over the same 36-month
period and the aging of receivables.
Forward-Looking
■ Macro-economic factors such as growth rates or interest rates
■ Other material factors such as customer concentration; changes in technologies; Brexit; Covid-19
In addition provision is made where there is objective evidence that a receivable balance may be impaired. Such evidence
may include a significant change in the credit risk profile of a customer, debt that has become significantly overdue or
contract default.
Trade receivables are written off where there is no reasonable expectation of recovery, such as bankruptcy proceedings.
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2. Accounting policies continued
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.
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 unwinding 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 with in the consolidated income statement.
Revenue recognition
Revenue represents the fair value of the consideration received or receivable for goods, commission and other services
provided to third parties, after deducting discounts, VAT and similar taxes levied overseas. 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. In particular:
a. Revenue from the sale of products is recognised upon transfer of control to the customer upon completion of specified
performance obligations. This is generally when goods are dispatched to customers;
b. Revenue from 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;
c. Interest income is recognised as the interest accrues using the effective interest method;
d. 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.
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
2. 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
the dividend is approved by the shareholders in the general meeting, and in relation to interim dividends, when paid.
Leases
Policy applicable from 1 April 2019
Recognition
At inception the Group assesses whether a contract is or contains a lease. This assessment involves the exercise of
judgement about whether it depends on a specific asset, whether the Group obtains substantially all the economic benefits
from the use of that asset and whether the Group has the right to the direct use of the asset. The Group recognises a right of
use (“ROU”) asset and a lease liability at the commencement of the lease.
Short-term and low-value assets
The Group has not made use of the exemptions for leases of low-value assets and short-term leases (leases shorter than 12
months) as such they are recognised at inception.
Non-lease components
Fees for components such as property taxes, maintenance, repairs and other services which are either variable or transfer
benefits separate to the Group’s right to use the asset are separated from lease components based upon their stand-alone
selling price. These components are expensed in the income statement as incurred.
Measurement
Lease liabilities
Lease liabilities are initially measured at the present value of future lease payments at the commencement date. Lease
payments are discounted using the interest rate implicit in the lease, if this rate is readily available. If not, then lessee’s
incremental borrowing rate is used. The incremental borrowing rate is a combination of government bond yields, used as
a proxy for a risk-free rate, calculated over various periods linked to existing lease terms. This rate is adjusted for borrowing
costs and risks specific to each entity. Lease payments include the following payments due within the non-cancellable term
of the lease, as well as the term of any extension options where these are considered reasonably certain to be exercised:
■ Fixed payments
■ Variable payments that depend on an index or rate
■ The exercise price of purchase or termination options if it is considered reasonably certain these will be exercised.
Subsequent to the commencement date, the lease liability is measured at the initial value, plus an interest charge
determined using the incremental borrowing rate, less lease payments made. The interest expense is recorded in finance
costs in the income statement. The liability is remeasured when future lease payments change, when the exercise of
extension or termination options becomes reasonably certain, or when the lease is modified.
Right of use assets
The ROU asset is initially measured at cost, being the value of the lease liability plus initial direct costs and the cost of any
restoration obligations, less any incentives received.
The ROU asset is subsequently measured at cost less accumulated depreciation and impairment losses. The ROU asset is
adjusted for any re-measurement of the lease liability. The ROU asset is subject to testing for impairment where there are
any impairment indicators. ROU assets are depreciated on a straight-line basis over the shorter of the lease term and the
asset’s useful life.
Policy prior to 1 April 2019
Rentals payable under operating leases are charged to the consolidated income statement on a straight-line basis over the
term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on
a straight-line basis over the lease term.
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2. Accounting policies continued
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, any 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. A pension
scheme asset is recognised if the employer has an unconditional right to receive a surplus arising on the wind-up of the
scheme. 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.
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.
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www.discoverieplc.com
Stock Code: DSCV
151
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
2. Accounting policies continued
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.
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 17).
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 2020 are set out in note 32.
Inventories
The carrying amounts of inventories are stated with due allowance for excess, obsolete or slow-moving items. Group
management exercises judgement in assessing net realisable value. Provisions for slow-moving and obsolete inventory are
based on management’s assessment of the nature and condition of the inventory, including assumptions around future
demand and market conditions.
Trade Receivables
The trade receivables impairment provision requires the use of estimation techniques by Group management. The estimate
is made based on the assessments of the credit risk profile of a customer, the ageing profile of receivables, historical
experience, and expectations about future market conditions.
Exceptional Items
The Group aims to be both consistent and clear in its recognition and disclosure of exceptional gains and losses.
Management judgement is required in assessing the nature and amounts of transactions that satisfy the conditions for
classification as an exceptional item.
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2. Accounting policies continued
Leases
Extension and termination options are included in a number of property and equipment leases across the Group. These
terms are used to maximise operational flexibility in terms of managing contracts. The extension and termination options
held are exercisable only by the Group and not by the lessor. In determining the lease term, management considers all
facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination
option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably
certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in
circumstances occurs which affects this assessment and that is within the control of the lessee.
3. New accounting standards and financial reporting requirements
New standards applied
The following standards and interpretations, which have been issued by the IASB, became effective during the current year
end and have been adopted by the Group:
International Accounting Standards (IAS/IFRS/IFRIC)
IFRS 16
Leases
IFRIC 23
Uncertainty over Income Tax Treatments
1. Period beginning on or after
Effective date1
1 January 2019
1 January 2019
IFRS 16, ‘Leases’
IFRS 16 ‘Leases’ replaces IAS 17 and relates to the classification, measurement and recognition of leases. The impact of
adoption of IFRS 16 is material on the consolidated financial statements and is disclosed in note 35.
IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which
there is uncertainty over income tax treatments. The Interpretation requires:
■ The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based
on which approach provides better predictions of the resolution;
■ The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and
■ If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most
likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. This
measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have
a right to examine and have full knowledge of all related information when making those examinations.
The adoption of IFRIC 23 had no material impact on corporate tax liabilities.
New standards not yet applied
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 years.
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4. Revenue
Group revenue is analysed below:
Sale of goods
Rendering of services
Total revenue
2020
£m
454.5
11.9
466.4
2019
£m
428.7
10.2
438.9
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
153
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
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.
Segment revenue and results
2020
Revenue
Result
Underlying operating profit/(loss)
Acquisition costs
Amortisation of acquired intangible assets
IAS 19 pension charge
Operating profit/(loss)
2019
Revenue
Result
Underlying operating profit/(loss)
Exceptional items
Acquisition costs
Amortisation of acquired intangible assets
IAS 19 pension charge
Operating profit/(loss)
Design &
Manufacturing
£m
Custom
Supply
£m
Unallocated
£m
297.9
168.5
–
38.1
(3.8)
(9.0)
–
25.3
7.3
(0.2)
–
–
7.1
(8.3)
–
–
(0.3)
(8.6)
Design &
Manufacturing
£m
266.2
Custom
Supply
£m
172.7
29.8
1.1
(1.8)
(5.9)
–
23.2
8.6
–
–
–
–
8.6
Unallocated
£m
–
(7.8)
(0.9)
–
–
(0.4)
(9.1)
Total
£m
466.4
37.1
(4.0)
(9.0)
(0.3)
23.8
Total
£m
438.9
30.6
0.2
(1.8)
(5.9)
(0.4)
22.7
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5. Operating segment information continued
Segment assets and liabilities
2020
Assets and liabilities
Segment assets (excluding goodwill and other intangible assets)
Goodwill and other intangible assets
Central assets
Cash and cash equivalents
Pension asset
Current and deferred tax assets
Total assets
Segment liabilities
Central liabilities
Other financial liabilities
Current and deferred tax liabilities
Total liabilities
Net assets
2019
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
Custom
Supply
£m
144.4
170.9
315.3
59.2
10.5
69.7
(72.4)
(38.4)
Design &
Manufacturing
£m
Custom
Supply
£m
127.1
109.9
237.0
51.0
9.0
60.0
(54.3)
(32.1)
Total
£m
203.6
181.4
385.0
2.0
36.8
1.8
8.2
433.8
(110.8)
(5.5)
(98.1)
(18.9)
(233.3)
200.5
Total
£m
178.1
118.9
297.0
2.0
22.9
6.4
328.3
(86.4)
(5.3)
(86.2)
(2.5)
(13.2)
(193.6)
134.7
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).
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
155
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
5. Operating segment information continued
Other segment information
Depreciation and
amortisation1
Additions to non current
assets1
Design & Manufacturing
Custom Supply
Central
2020
£m
18.0
2.6
0.4
21.0
2019
£m
10.3
0.5
0.3
11.1
2020
£m
83.7
3.9
0.4
88.0
1.
Includes right of use assets, 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
(excluding pension asset) by geographical location are detailed below:
Revenue from external
customers
Non current
assets
UK
Europe
Rest of the World
6. Underlying profit before tax
Profit before tax
Add back Acquisition Costs
Amortisation of acquired intangible assets
Total IAS 19 pension charge
Exceptional Items
Underlying profit before tax
2020
£m
60.2
281.5
124.7
466.4
2019
£m
65.2
280.8
92.9
438.9
(a)
(b)
(c)
(d)
2020
£m
59.0
152.6
23.0
234.6
2020
£m
19.5
4.0
9.0
0.3
–
32.8
2019
£m
24.8
0.4
0.5
25.7
2019
£m
45.5
96.2
7.5
149.2
2019
£m
19.3
1.8
5.9
0.4
(0.2)
27.2
The tax impact of the underlying profit adjustments above is a credit of £1.4m (2019: £2.0m).
a. In the year there were £4.0m of acquisition costs. Costs of £1.5m were incurred in relation to the acquisition of Hobart,
Positek and Sens-Tech and £0.3m in relation to ongoing acquisitions. Contingent consideration of £2.0m was charged
in relation to current and past acquisitions. Costs of £0.2m were incurred in relation to the integration of RSG into the
Custom Supply division.
In the prior year there were £1.8m of acquisition costs. Costs of £0.9m were incurred in relation to the acquisition of Cursor
Controls. Contingent consideration of £0.5m was charged in relation to past acquisitions. £0.4m was incurred in relation to
the post year-end acquisitions of Hobart and Positek.
b. Amortisation charge for intangible assets recognised on acquisition of £9.0m being amortisation of acquired customer
relationships, patents and brands. The equivalent charge last year was £5.9m. The increase relates to the four acquisitions
during the last two years (Cursor Controls in October 2018, Hobart and Positek in April 2019 and Sens-Tech in October 2019).
c. Pension costs related to the Group’s legacy defined benefit pension scheme (see note 32).
d. There were no exceptional charges this year. Last year there was net exceptional income of £0.2m comprising exceptional
income of £1.1m partly offset by an exceptional charge of £0.9m incurred in relation to the equalisation of Guaranteed
Minimum Pensions (GMPs) in the Sedgemoor Group Pension Fund. The exceptional income of £1.1m related to a fraud,
perpetrated against the Group last year in a small US subsidiary leading to new subsidiary management and tightened
Group controls. Insurance receipts of £2.6m were recovered, offset by the fraud cost incurred during last year of £1.5m (out
of the total cost of the fraud of £4.0m).
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7. Operating profit
Amounts charged/(credited) to the consolidated income statement are as follows:
Employee costs (note 8)
Depreciation of property, plant and equipment (note 14)
Depreciation of right of use assets
Amortisation of other intangible assets (note 18)
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
Auditors’ remuneration:
Audit of the Group financial statements (including parent company)
Audit of local subsidiary financial statements
The fee for non audit services is not material.
8. Employee costs and Directors’ emoluments
Wages and salaries
Social security costs
Other pension costs
Share-based payments (note 31)
Sales and marketing
Manufacturing and service
Administration
At 31 March 2020 the Group had 4,339 employees (2019: 4,283).
Directors’ emoluments
Aggregate emoluments in respect of qualifying services
Aggregate contribution to defined contribution scheme
Highest paid director
Emoluments in respect of qualifying services
Pension contributions to the defined contribution scheme
The average monthly number of employees (including Executive Directors) during the year was as follows:
2020
£m
94.0
4.8
6.6
9.6
(0.3)
2019
£m
88.4
4.6
–
6.5
0.1
309.7
294.0
1.8
–
0.2
0.8
2020
£m
76.4
12.8
3.5
1.3
94.0
2020
544
3,321
529
4,394
2020
£
1.8
6.2
0.2
0.6
2019
£m
71.6
12.3
3.4
1.1
88.4
2019
570
3,236
475
4,281
2019
£
1,353,637
1,332,680
79,230
75,560
1,432,867
1,408,240
839,316
61,523
900,839
855,664
59,731
915,395
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Retirement benefits are accruing to two directors under a defined contribution pension scheme (2019: two).
Further details of directors’ emoluments are provided in the Remuneration report on pages 102 to 121.
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
157
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
9. Finance income/(costs)
Interest receivable and similar income
Finance income
Finance costs on bank loans and overdrafts
Finance costs on lease liabilities
Amortisation of borrowing costs
Finance costs
10. Tax expense
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 expense
Decrease in deferred tax asset on pension deficit
Tax reported in other comprehensive expense
Tax recognised in equity
Increase in deferred tax asset on share based payments
Tax reported in equity
2020
£m
0.6
0.6
(3.8)
(0.6)
(0.5)
(4.9)
2019
£m
0.5
0.5
(3.6)
–
(0.3)
(3.9)
2020
£m
2019
£m
–
(0.1)
(0.1)
6.5
0.3
6.8
6.7
(0.8)
–
–
(0.8)
0.1
(1.5)
5.2
2020
£m
(0.5)
(0.5)
2020
£m
0.5
0.5
–
–
–
5.5
(0.3)
5.2
5.2
0.4
(0.4)
(0.1)
(0.4)
–
(0.5)
4.7
2019
£m
–
–
2019
£m
0.3
0.3
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10. Tax expense continued
The effective rate of taxation for the year is higher (2019: higher) than the standard rate of taxation in the UK of 19% (2019: 19%).
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 2020 and 31 March 2019 respectively is presented below:
Profit before tax
Profit before taxation multiplied by standard rate of corporation tax in the UK of 19% (2019: 19%)
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
Deferred tax
Deferred tax liabilities
Accelerated capital allowances
Intangibles
Pensions
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
2020
£m
19.2
3.6
1.4
(0.6)
1.3
–
(0.8)
0.1
0.2
5.2
2020
£m
(0.4)
(11.5)
(0.3)
(1.2)
(13.4)
0.4
0.3
2.2
2.2
1.0
6.1
2020
£m
–
(1.5)
(1.5)
2019
£m
19.3
3.7
1.0
0.3
0.5
(0.1)
(0.4)
–
(0.3)
4.7
2019
£m
(0.5)
(6.6)
–
(0.6)
(7.7)
0.7
0.6
1.7
1.2
0.9
5.1
2019
£m
(0.3)
(0.2)
(0.5)
At 31 March 2020, the Group had not recognised any deferred tax asset in respect of tax losses of approximately £23.1m (2019:
£28.0m). Deferred tax assets are not recognised where there is insufficient evidence that losses will be utilised.
At 31 March 2020, there was a £0.7m recognised deferred tax liability (2019: £0.1m) for taxes that would be payable on the
remittance of certain of the Group’s overseas subsidiaries’ unremitted earnings. The Group has determined that other than
this £0.7m deferred tax liability, undistributed profits of its overseas subsidiaries will not be distributed in the near future
where an additional tax charge would arise.
Prior to 31 March 2020, the previously enacted reduction in the UK corporation tax rate to 17% had been reversed and hence
the 19% rate will continue to apply from 1 April 2020. The 19% rate has therefore been applied in the measurement of the
Group’s UK based deferred tax assets and liabilities at 31 March 2020.
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
159
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
11. Business combinations
Acquisitions in the year ended 31 March 2020
Acquisition of Hobart
On 15 April 2019, the Group completed the acquisition of 100% of the share capital and voting equity interests of Coil-Tran
Corporation and 85% of the share capital and voting equity interests of Coil-Tran de Mexico SA de CV (trading as Hobart
Electronics). The fair value of the non-controlling interest in Coil-Tran de Mexico is assessed as immaterial.
Hobart Electronics (“Hobart”) was acquired for an initial cash consideration of £11.5m ($15.2m) on a debt free, cash free basis,
before expenses, funded from the Group’s existing debt facilities. In addition, further contingent cash consideration of up
to £3.1m ($4.0m) is payable subject to achieving certain operational and profit growth targets during the three-year period
ending 31 March 2022.
Hobart is a US based designer and manufacturer of custom transformers, inductors and magnetic components.
The provisional fair value of the identifiable assets and liabilities of Hobart at the date of acquisition were:
Property, plant and equipment
Intangible assets – other
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Provisions (current)
Total identifiable net assets
Provisional goodwill arising on acquisition
Total investment
Discharged by
Cash
Contingent consideration
Provisional
fair value
recognised
at acquisition
£m
0.1
5.4
1.9
0.8
0.3
(0.9)
(0.2)
(0.2)
7.2
5.3
12.5
11.5
1.0
12.5
Included in the £5.3m of goodwill recognised above are certain intangible assets that cannot be individually separated and
reliably measured from the acquiree, due to their nature. These include the value of expected operational benefits.
Net cash outflows in respect of the acquisition comprise:
Cash consideration
Transaction costs of the acquisition (included in operating cash flows) 1
Net cash acquired
Total
£m
11.5
0.4
(0.3)
11.6
1. Acquisition costs of £0.2m and £0.3m were expensed as incurred in the years ended 31 March 2020 and 31 March 2019 respectively. These
were included within administrative expenses (note 6).
Included in cash flow from investing activities is the cash consideration of £11.5m and the net cash acquired of £0.3m.
From the date of acquisition to 31 March 2020, Hobart contributed £9.9m to revenue and £0.5m to profit after tax of the Group.
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11. Business combinations continued
Acquisition of Positek
On 15 April 2019, the Group completed the acquisition of 100% of the share capital and voting equity interests of Positek
Limited (“Positek”).
Positek was acquired for an initial cash consideration of £4.2m on a debt free, cash free basis, before expenses, funded from
the Group’s existing debt facilities. In addition, further contingent cash consideration of up to £0.4m is payable subject to
achievement of certain integration objectives and profit target for the 12 month period ending 30 September 2020.
Positek is a UK based designer and manufacturer of rugged, high accuracy linear rotary tilt and submersible sensors
supplying the international markets.
The provisional fair value of the identifiable assets and liabilities of Positek at the date of acquisition were:
Intangible assets – other
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Deferred tax liabilities (non-current)
Total identifiable net assets
Provisional goodwill arising on acquisition
Total investment
Discharged by
Cash
Contingent consideration
Provisional
fair value
recognised
at acquisition
£m
1.8
0.3
0.2
1.1
(0.1)
(0.2)
(0.3)
2.8
2.7
5.5
5.3
0.2
5.5
Included in the £2.7m of goodwill recognised above are certain intangible assets that cannot be individually separated and
reliably measured from the acquiree, due to their nature. These include the value of expected operational benefits. 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
Transaction costs of the acquisition (included in operating cash flows) 1
Net cash acquired
Total
£m
5.3
0.2
(1.1)
4.4
1. Acquisition costs of £0.1m and £ 0.1m were expensed as incurred in the years ended 31 March 2020 and 31 March 2019 respectively. These
were included within administrative expenses (note 6).
Included in cash flow from investing activities is the cash consideration of £5.3m and the net cash acquired of £1.1m.
From the date of acquisition to 31 March 2020, Positek contributed £1.8m to revenue and £0.5m to profit after tax of the Group.
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
161
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
11. Business combinations continued
Acquisition of Sens-Tech
On 16 October 2019, the Group completed the acquisition of 100% of the share capital of Xi-Tech Limited and its subsidiary,
Sens-Tech Limited (“Sens-Tech”).
Sens-Tech was acquired for an initial cash consideration of £58.0m on a debt free, cash free basis, before expenses,
funded from the Group’s existing debt facilities and a placing of shares. In addition, further contingent cash consideration
of up to £12m is payable subject to the achievement of certain profit growth targets over a three year period ending
31 March 2022. The fair value of the contingent consideration will be recognised in the consolidated income statement
over the performance period from the acquisition date.
Sens-Tech, is a UK based business specialising in X-ray detection and data acquisition modules supplying international markets.
The provisional fair value of the identifiable assets and liabilities of Sens-Tech at the date of acquisition were:
Intangible assets – other
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Deferred tax liabilities (non-current)
Total identifiable net assets
Provisional goodwill arising on acquisition
Total investment
Discharged by
Cash
Contingent consideration
Provisional
fair value
recognised
at acquisition
£m
32.4
2.0
2.6
12.8
(1.2)
0.2
(6.2)
42.6
27.4
70.0
70.0
–
70.0
Included in the £27.4m of goodwill recognised above are certain intangible assets that cannot be individually separated and
reliably measured from the acquiree, due to their nature. These include the value of expected operational benefits. 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
Transaction costs of the acquisition (included in operating cash flows) 1
Net cash acquired
Total
£m
70.0
1.2
(12.8)
58.4
1. Acquisition costs of £1.2m were expensed as incurred in the year ended 31 March 2020 and were included within administrative expenses
(note 6).
Included in cash flow from investing activities is the cash consideration of £70.0m and the net cash acquired of £12.8m.
From the date of acquisition to 31 March 2020, Sens-Tech contributed £8.7m to revenue and £1.5m 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 £16.7m and the consolidated revenue for the Group would have been £476.4m.
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11. Business combinations continued
Acquisitions in the year ended 31 March 2019
Acquisition of Cursor Controls
On 16 October 2018, the Group completed the acquisition of Cursor Controls via the purchase of 100% of the share capital and
voting equity interests of its holding company Cursor Controls Holdings (“Cursor Controls”).
Cursor Controls was acquired for a consideration of £19m on a debt free, cash free basis, before expenses, funded from
the Group’s existing debt facilities. The initial cash consideration of £20.8m was adjusted for cash acquired and other net
purchase price adjustments of £1.8m. In addition, a contingent payment of up to £4.0m will be payable subject to Cursor
Controls achieving certain profit growth targets during the three year period ended 31 December 2021.
Cursor Controls is a designer and manufacturer of human to machine interface (“HMI”) products for medical, industrial
and transportation applications, its products comprise trackballs, touchpads and ruggedised keyboards. They are custom
designed for specific applications, and are highly complementary to discoverIE’s existing business. The business, which
is based in Newark, UK, with manufacturing facilities in the UK and Belgium, operates within the Group’s Design &
Manufacturing division whilst retaining its distinct brand identity.
The fair value of the identifiable assets and liabilities of Cursor Controls at the date of acquisition were as follows.
Property, plant and equipment
Intangible assets – customer relationships and patents
Inventories
Trade and other receivables
Net cash
Trade and other payables
Current tax liabilities
Deferred tax liabilities (non-current)
Total identifiable net assets
Goodwill arising on acquisition
Total
Discharged by:
Cash
Fair value
recognised at
acquisition
£m
0.9
9.7
1.4
2.0
1.4
(1.5)
(0.2)
(1.9)
11.8
9.0
20.8
20.8
20.8
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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 £9.0m 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 cash acquired
Total
£m
20.8
0.9
(1.4)
20.3
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1. Acquisition costs of £0.9m were expensed as incurred in the year ended 31 March 2019 and were included within administrative expenses
(note 6).
Included in cash flow from investing activities is the cash consideration of £20.8m, the net cash acquired of £1.4m and debt
like items of £0.1m.
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
163
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
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 2019 of 6.75p (2018: 6.35p)
Interim dividend for the year ended 31 March 2020 of 2.97p (2019: 2.80p)
Total amounts recognised as equity distributions during the year
Proposed for approval at AGM:
Equity dividends on ordinary shares:
2020
£m
5.4
2.7
8.1
2020
£m
2019
£m
4.6
2.1
6.7
2019
£m
Final dividend for the year ended 31 March 2020 of 0.0p (2019: 6.75p)
–
5.4
Summary
Dividends per share declared in respect of the year
Dividends per share paid in the year
Dividends paid in the year
2.97p
9.72p
£8.1m
9.55p
9.15p
£6.7m
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
2020
£m
14.3
2019
£m
14.6
Number
Number
83,997,130
72,979,791
2,878,352
2,419,122
Adjusted weighted average number of shares for diluted earnings per share
86,875,482
75,398,913
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 profit
Weighted average number of shares for basic earnings per share
Effect of dilution – share options
17.0p
16.5p
2020
£m
14.3
–
4.0
9.0
0.3
(1.4)
26.2
20.0p
19.4p
2019
£m
14.6
(0.2)
1.8
5.9
0.4
(2.0)
20.5
Number
Number
83,997,130
72,979,791
2,878,352
2,419,122
Adjusted weighted average number of shares for diluted earnings per share
86,875,482
75,398,913
Underlying earnings per share
30.2p
27.2p
At the year end, there were 3,306,166 ordinary share options in issue that could potentially dilute underlying earnings per
share in the future, of which 2,878,352 are currently dilutive (2019: 2,629,936 in issue and 2,419,122 dilutive).
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14. Property, plant and equipment
Land and
buildings
£m
Leasehold
improvements
£m
Plant and
equipment
£m
Total
£m
Cost
At 1 April 2018
Additions
Disposals
Arising from business combinations
Exchange adjustments
At 31 March 2019
Reclassification
Additions
Disposals
Arising from business combinations
Exchange adjustments
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for the year
Exchange adjustments
At 31 March 2019
Reclassification
Charge for the year
Disposals
Exchange adjustments
At 31 March 2020
Net book value at 31 March 2020
Net book value at 31 March 2019
11.3
0.2
–
0.2
(0.1)
11.6
(0.7)
0.3
–
–
0.2
11.4
2.6
0.5
–
3.1
(0.3)
0.5
–
0.1
3.4
8.0
8.5
2.3
0.4
–
0.1
–
2.8
0.9
0.5
(0.2)
–
–
4.0
1.1
0.3
–
1.4
0.5
0.4
(0.1)
–
2.2
1.8
1.4
23.5
4.6
(0.3)
0.6
(0.2)
28.2
(0.2)
4.5
(0.1)
0.1
0.3
32.8
10.0
3.8
(0.1)
13.7
(0.2)
3.9
(0.1)
0.1
17.4
15.4
14.5
37.1
5.2
(0.3)
0.9
(0.3)
42.6
–
5.3
(0.3)
0.1
0.5
48.2
13.7
4.6
(0.1)
18.2
–
4.8
(0.2)
0.2
23.0
25.2
24.4
Land and buildings includes land with a cost of £0.8m (2019: £0.8m) that is not subject to depreciation.
At 31 March 2020 the Group had capital expenditure commitments for plant and equipment of £0.3m (2019: £0.4m) for which
no provision has been made.
15. Leases
15.1 Leasing arrangements
The Group leases manufacturing and warehousing facilities, offices and various items of plant, machinery, equipment and
vehicles.
Manufacturing and warehouse facilities generally have lease terms between 3 and 10 years. Lease contracts generally
include extension and termination options and variable lease payments, which are discussed further above in ‘Significant
accounting judgements and estimates’ on page 153.
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www.discoverieplc.com
Stock Code: DSCV
165
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
15. Leases continued
15.2 Carrying value of right of use assets
Set out below are the carrying amounts of right-of-use (“ROU”) assets recognised and movements during the year:
At 31 March 2019
Change in accounting policy
At 1 April 2019 (revised)
Additions/modifications
Depreciation charge
Exchange adjustments
At 31 March 2020
Land and
Buildings
£m
Plant and
machinery
£m
–
17.8
17.8
5.8
(5.0)
0.1
18.7
–
2.9
2.9
1.0
(1.6)
0.1
2.4
15.3 Carrying value of lease liabilities
Set out below are the carrying amounts of lease liabilities and the movements during the year:
At 31 March 2019
Change in accounting policy
At 1 April 2019 (revised)
Additions
Lease modifications
Interest for the year
Lease payments
Exchange adjustments
At 31 March 2020
Current liabilities
Non-current liabilities
15.4 Amounts recognised in the consolidated income statement
Depreciation of ROU assets
Interest expense (included in finance cost – see note 9)
31 March
2020
£m
5.3
14.7
20.0
Total
£m
–
20.7
20.7
6.8
(6.6)
0.2
21.1
Total
£m
–
(19.8)
(19.8)
(5.5)
(0.6)
(0.6)
6.6
(0.1)
(20.0)
1 April
2019
£m
5.7
14.1
19.8
2020
£m
6.6
0.6
7.2
15.5 Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the Group. These
terms are used to maximise operational flexibility in terms of managing contracts. For a description of judgements and
estimates associated with extension and termination options, see note 35.4.
Variable lease payments based upon an index or rate are accounted for once rental amounts are changed.
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16. Intangible assets – goodwill
Cost
At 1 April 2018
Arising from business combinations
Exchange adjustments
At 31 March 2019
Arising from business combinations
Exchange adjustments
At 31 March 2020
Impairment
At 31 March 2019 and 31 March 2020
Net book value at 31 March 2020
Net book value at 31 March 2019
17. Impairment testing of goodwill
The carrying value of goodwill is analysed as follows:
Custom Supply
Acal BFi
Medical
Design & Manufacturing
Stortech
Hectronic
MTC
Myrra
Noratel
Foss
Flux
Contour
Variohm
Santon
Cursor Controls
Hobart
Positek
Sens-Tech
£m
113.8
9.0
(0.7)
122.1
35.4
(3.4)
154.1
£m
(36.8)
117.3
85.3
2020
£m
2019
£m
9.9
0.6
3.6
0.6
1.9
5.3
9.6
0.6
3.6
0.6
2.0
5.1
25.9
29.8
5.1
0.6
7.7
6.0
5.3
9.0
5.7
2.7
27.4
117.3
5.6
0.6
7.7
6.0
5.1
9.0
–
–
–
85.3
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Goodwill acquired through business combinations is allocated to cash-generating units (CGUs). Following the integration
of the RSG business into Acal BFI and Plitron business into Noratel, management has reviewed the status of the CGUs and
concluded that both RSG and Plitron are no longer independent CGUs and have therefore allocated the goodwill relating to
RSG and Plitron to Acal BFi and Noratel respectively. Impairment reviews were carried out at this time and no adjustments
were necessary.
The movement in goodwill compared to prior year relates to the movement in foreign exchange with the exception of
Hobart, Positek and Sens-Tech which were acquired in the year (refer to note 11 for details). Hobart was also subject to a
foreign exchange movement.
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www.discoverieplc.com
Stock Code: DSCV
167
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
17. 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 FY2021 forecast made in March 2020 and management
projections thereon. Compound Annual Growth Rate (CAGR) for revenue growth between 2% and 7% (2019: 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% (2019: 2%) for all CGUs in line with the average long-term growth rates.
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 13% to 16% (2019: 10% to 15%).
Sensitivity to changes in assumptions
The Group has conducted sensitivity analysis on the impairment test of each CGUs carrying value. 5 year sales CAGR (2021-
2025) of between 0% and 4% has been applied in the sensitivity analysis, taking into account the latest estimate of the
impact of the Covid-19 pandemic, size of the CGU and the sector in which the CGU operates in. 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.
18. Intangible assets – other
Cost
At 1 April 2018
Arising from business combinations
Additions
Exchange adjustment
At 31 March 2019
Arising from business combinations
Additions
Exchange adjustment
At 31 March 2020
Accumulated amortisation
At 1 April 2018
Charge for the year
Exchange adjustment
At 31 March 2019
Charge for the year
Exchange adjustment
At 31 March 2020
Net book value at 31 March 2020
Net book value at 31 March 2019
Acquired intangibles
Software &
Development
£m
Customer/
Supplier
Relationships
£m
Patents &
Brands
£m
11.5
–
1.2
(0.1)
12.6
–
1.0
(0.1)
13.5
9.1
0.6
(0.1)
9.6
0.6
–
10.2
3.3
3.0
41.4
7.1
–
(0.4)
48.1
39.5
–
(1.5)
86.1
15.8
5.6
(0.3)
21.1
8.5
(1.1)
28.5
57.6
27.0
3.0
2.6
–
(0.1)
5.5
–
–
0.1
5.6
0.8
0.3
–
1.1
0.5
–
1.6
4.0
4.4
Total
£m
55.9
9.7
1.2
(0.6)
66.2
39.5
1.0
(1.5)
105.2
25.7
6.5
(0.4)
31.8
9.6
(1.1)
40.3
64.9
34.4
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19. Investments in associates
Cost
At 31 March 2019 and 31 March 2020
Impairment
At 31 March 2019 and 31 March 2020
Net book amount 31 March 2019 and 31 March 2020
£m
5.4
(5.4)
–
Associates
Scientific Digital Business (Pte) Ltd
Country of incorporation
% equity interest
2020 and 2019
Singapore
40
Impairment of associate investments
In 2009, the Directors took the view that its associate investment should be fully impaired, due to continuing losses in this
business. There have been no changes in 2020 that would lead to this impairment being reversed.
20. Inventories
Finished goods and goods for resale
Raw materials and work in progress
Total inventories
As at 31 March 2020, the provision for realisable value against total inventories was £8.9m (2019: £7.2m).
21. Trade and other receivables
Trade receivables
Other receivables
Prepayments and contract assets
2020
£m
36.0
32.4
68.4
2020
£m
80.3
6.9
2.9
90.1
2019
£m
39.6
26.6
66.2
2019
£m
78.5
7.1
3.1
88.7
Trade receivables are non-interest bearing; are generally on 30 to 60 days’ terms and are shown net of expected credit losses.
As at 31 March 2020, the amount of expected credit losses recorded against trade receivables is £1.1m (2019: £0.8m). The
movements in the expected credit losses during the year were as follows:
At 1 April
Charge for the year
Amounts written off
Exchange adjustment
At 31 March
As at 31 March, the aging analysis of trade receivables net of expected credit losses is as follows:
Total
£m
80.3
78.5
Not due
£m
67.4
63.7
<30
days
£m
9.7
11.8
30–60
days
£m
2.1
1.2
Overdue
60–90
days
£m
0.5
1.3
2020
2019
2020
£m
0.8
0.3
(0.1)
0.1
1.1
90–120
days
£m
0.2
0.1
2019
£m
0.8
0.1
(0.1)
–
0.8
>120
days
£m
0.4
0.4
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
22. Cash and cash equivalents
Cash at bank and in hand
2020
£m
36.8
2019
£m
22.9
Cash at bank earns interest at floating rates, based on daily bank deposit rates. The Group only deposits cash surpluses with
major banks of high credit standing (£28.0m with HSBC; credit rating of AA-, £2.1m with Danske Bank; credit rating of A+ and
the remaining balance of £6.7m with various financial institutions; credit rating of BBB- or higher) in line with its treasury
policy. The Group has offsetting agreements in place with both HSBC and Danske and accordingly cash balances are shown
net of overdrafts held with these banks. The fair value of cash and cash equivalents is £36.8m (2019: £22.9m).
23. Other financial liabilities
Effective
interest rate %
Maturity
Variable On demand
Variable
Variable
Bank overdrafts
Unsecured bank loans
Revolving Credit Facility (RCF)
Capitalised debt costs
Total other financial liabilities
Lease liabilities
Trade and other payables
Total
Current
Non-current
2020
£m
2.0
2.8
–
(0.5)
4.3
5.3
75.0
84.6
2019
£m
2.1
–
–
(0.4)
1.7
–
78.0
79.7
2020
£m
–
0.2
94.8
(1.2)
93.8
14.7
3.1
111.6
2019
£m
–
2.8
83.1
(1.4)
84.5
–
0.2
84.7
Interest on overdrafts is based on floating rates linked to LIBOR.
Included in unsecured bank loans are euro-denominated loans of £0.2m carrying fixed interest rates of 8%.
At 31 March 2020, the RCF drawdowns of £94.8m were denominated in Sterling and Euros which bear interest based on
LIBOR and EURIBOR, plus a facility margin. The RCF is unsecured and runs until June 2024.
Trade and other payables above include only contractual obligations.
The maturity of the carrying value of the gross contractual financial liabilities is as follows:
At 31 March 2020
Fixed and floating rate
Lease liabilities
Trade and other payables
At 31 March 2019
Fixed and floating rate
Trade and other payables
Within
1 year
£m
4.3
5.3
75.0
84.6
2–5
years
£m
93.8
10.4
3.1
107.3
Within
1 year
£m
1.7
78.0
79.7
>5
years
£m
–
4.3
–
4.3
2–5
years
£m
84.5
0.2
84.7
The carrying amount of the Group’s borrowings excluding lease liabilities is denominated in the following currencies:
Total
£m
98.1
20.0
78.1
196.2
Total
£m
86.2
78.2
164.4
2019
£m
42.2
39.2
4.1
0.7
86.2
2020
£m
52.8
40.5
4.4
0.4
98.1
Annual Report and Accounts
for the year ended 31 March 2020
Sterling
Euro
US dollar
Other currencies
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24. Movements in cash and net debt
Year to 31 March 2020
Cash and cash equivalents
Bank overdrafts
Net cash
Bank loans under one year
Bank loans over one year
Capitalised debt costs
Total loan capital
Net debt
1 April
2019
£m
22.9
(2.1)
20.8
–
(85.9)
1.8
(84.1)
(63.3)
Cash flow
£m
Non cash
changes
£m
31 March
2020
£m
13.5
0.9
14.4
(2.7)
(7.9)
–
(10.6)
3.8
0.4
(0.8)
(0.4)
(0.1)
(1.2)
(0.1)
(1.4)
(1.8)
36.8
(2.0)
34.8
(2.8)
(95.0)
1.7
(96.1)
(61.3)
Bank loans over one year above include £94.8m (2019: £83.1m) drawn down against the Group’s revolving credit facility.
Year to 31 March 2019
Cash and cash equivalents
Bank overdrafts
Net cash
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
Increase/(decrease) in net cash
Add: Business combinations
Dividends paid
Less: Net proceeds from share issue
Free cash flow
Net finance costs
Taxation
Legacy pension scheme funding
Executive options issuance
Exceptional cash flow
Operating cash flow
1 April
2018
£m
21.9
(5.7)
16.2
(1.0)
(68.5)
0.9
(68.6)
(52.4)
Cash flow
£m
Non cash
changes
£m
31 March
2019
£m
1.0
3.4
4.4
1.2
(17.2)
–
(16.0)
(11.6)
–
0.2
0.2
(0.2)
(0.2)
0.9
0.5
0.7
2020
£m
3.8
75.9
8.1
(60.5)
27.3
3.7
6.4
1.8
0.1
–
39.3
22.9
(2.1)
20.8
–
(85.9)
1.8
(84.1)
(63.3)
2019
£m
(11.6)
24.2
6.7
(0.1)
19.2
3.4
3.8
1.7
1.6
(1.1)
28.6
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Stock Code: DSCV
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
25. Reconciliation of cash flows from operating activities
Profit for the year
Tax expense
Net finance costs
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible assets – other
Loss on disposal of property, plant and equipment
Change in provisions
Pension scheme funding
IAS 19 pension administration charge
Impact of equity-settled share-based payment expense and associated taxes
Operating cash flows before changes in working capital
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Decrease/(increase) in working capital
Cash generated from operations
Interest paid
Income taxes paid
Net cash flow from operating activities
26. Provisions
At 1 April 2018
Arising during the year
Utilised
At 31 March 2019
Arising during the year
Arising from business combinations
Utilised
Released
Exchange difference
At 31 March 2020
Analysis of total provisions:
Current
Non-Current
2020
£m
14.3
5.2
4.3
4.8
6.6
9.6
0.1
(0.3)
(1.8)
0.3
1.3
44.4
2.7
1.9
(1.0)
3.6
48.0
(4.2)
(6.4)
37.4
2019
£m
14.6
4.7
3.4
4.6
–
6.5
0.1
0.2
(1.7)
1.3
(0.5)
33.2
(6.6)
(4.9)
8.3
(3.2)
30.0
(3.8)
(3.8)
22.4
Severance and
retirement
indemnity
£m
Other
£m
Total
£m
2.9
0.3
(0.3)
2.9
0.6
–
(0.2)
(0.1)
0.1
3.3
0.8
0.3
(0.2)
0.9
1.6
0.2
(0.1)
(0.2)
(0.1)
2.3
2020
£m
0.9
4.7
5.6
3.7
0.6
(0.5)
3.8
2.2
0.2
(0.3)
(0.3)
–
5.6
2019
£m
1.1
2.7
3.8
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26. Provisions continued
Severance and retirement indemnity
The severance provision relates to severance costs payable to employees.
Retirement indemnity provision of £2.8m (2019: £2.5m), 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.
Other
Other provisions relate to dilapidations provisions, warranty provisions, onerous contracts and restructuring. The provisions
greater than one year are expected to be utilised within one to three years.
27. 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, excluding lease liabilities, a 1% increase in interest rates would decrease
the Group’s profit before tax by approximately £0.6m (2019: £0.6m).
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 rates of Sterling against all other currencies, US Dollar
against all other currencies and Euro against all other currencies, 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
2020
£m
(1.0)
1.2
2019
£m
(0.2)
0.3
2020
£m
1.8
(1.8)
2019
£m
1.8
(1.8)
2020
£m
(0.5)
0.7
2019
£m
(1.0)
1.2
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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.
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
27. Financial risk controls continued
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. The Group’s largest customer is approximately 7% of Group sales.
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 2020, the Group had net cash of £34.8m (2019: £20.8m), excluding borrowings of £96.1m (2019: £84.1m). The
Group had total working capital facilities available of £190.6m (2019: £190.2m) with a number of major UK and overseas banks,
of which £180.0m (2019: £180.0m) were committed facilities. The Group had drawn £98.1m against total facilities at 31 March
2020. During the year the Group exercised its option to extended its syndicated banking facility of £180m, by one year to
June 2024. In addition, the Group has a £60m accordion facility which it can use to extend the total facility up to £240m.
The syndicated facility is available both for acquisitions and for working capital purposes. The facilities are subject to certain
financial covenants, which, following review, had significant headroom at 31 March 2020.
Management of capital
The Group’s objective when managing capital is to safeguard its ability to continue as a going concern and to maintain
robust capital ratios to support the development of the business with a view to providing strong returns to shareholders. In
order to maintain or adjust the capital structure, the Group may change the amount of dividends paid to shareholders, issue
new shares or increase bank borrowings.
In respect to this objective, the Group has a target gearing range of between 1.5 and 2.0 times. Gearing at 31 March 2020 was
within this range at 1.25 times. In order to maintain such a gearing range and provide the funding for acquisitions, the Group
issued new shares in April 2019 and October 2019. In February 2020 the Group exercised its option to extend the term of the
facility by a further year to June 2024.
28. 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
Carrying
amount
2020
£m
Fair
value
2020
£m
Carrying
amount
2019
£m
Fair
value
2019
£m
36.8
36.8
22.9
22.9
Bank overdrafts and short-term borrowings
(4.9)
(4.9)
(2.1)
(2.1)
Non-current interest-bearing loans and borrowings:
Fixed and floating rate borrowings
Lease liabilities
Contingent consideration
(93.8)
(20.0)
(3.3)
(93.8)
(20.0)
(3.3)
(84.5)
–
(0.2)
(84.5)
–
(0.2)
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 and payables have been excluded from the above table as their book values
approximate fair values.
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29. Trade and other payables
Current
Trade payables
Other payables
Accrued expenses and contract liabilities
2020
£m
57.1
19.6
10.9
87.6
2019
£m
58.9
17.6
11.2
87.7
Trade payables are non-interest bearing and are settled in accordance with credit terms. Other payables are non-interest
bearing and are settled throughout the year. Accrued expenses are non-interest bearing and are settled throughout the
year. Contract liabilities are recognised over the term of the underlying contract. Included in current year other payables is
contingent consideration of £0.2m which relates to the acquisition of Positek. Prior year includes contingent consideration of
£1.0m relating to the acquisition of Contour.
The Group participates in a supply chain finance arrangement whereby vendors may elect to receive early payment of their
invoices from a bank by factoring their receivable from discoverIE entities. Included within trade payables is £0.5m (2019:
£0.6m) subject to such an arrangement.
Non-Current
Other payables
2020
£m
3.1
Included in non-current trade and other payable is a £3.1m contingent payment relating to the acquisitions of Cursor
Controls, Hobart and Sens-Tech. For 2019, £0.2m related to the acquisition of Cursor Controls.
30. Share capital
Allotted, called up and fully paid
Ordinary shares of 5p each
2020
Number
2020
£m
2019
Number
88,705,915
4.4
73,358,847
2019
£m
0.2
2019
£m
3.7
During the year, 15.3m shares were issued raising £60.5m (of which £0.7m was share capital, with the balance allocated to
share premium account and merger reserve as set out below).
On 18 April 2019, 7,309,867 shares were issued for a gross consideration of £29.2m before costs and £28.2m after costs. The
shares were issued at 400 pence per share, a discount of 3.85 per cent to the closing share price of 416 pence per share on
15 April 2019. The shares were issued under a cash box structure and accordingly, £0.3m was share capital with the balance
of £27.9m being allocated to a merger reserve. This amount is fully available for distribution.
On 17 October 2019, 8,034,840 shares were issued for a gross consideration of £33.3m before costs and £32.3m after costs. The
shares were issued at 415 pence per share, a discount of 3.9 per cent to the closing share price of 432 pence per share on 16
October 2019. £0.4m was share capital with the balance of £31.9m being allocated to share premium account.
During the year to 31 March 2020, employees exercised 2,361 share options under the terms of the various share option
schemes (2019: 1,940,991).
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”)
2020
£m
–
1.3
1.3
2019
£m
–
1.1
1.1
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Stock Code: DSCV
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
31. Share-based payment plans continued
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 ten years. There are
no cash settlement alternatives.
Options are valued using the binomial option-pricing model. No non-market performance conditions were included in the
fair value calculations.
The fair value per option granted during the year 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
30 April
2019
£4.25
£4.02
3
17,433
3
31.35%
10
6.5
0.9%
2.23%
£1.18
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 (2019: £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 2020
Outstanding at
1 April 2019
Forfeited
during the year
Exercised
during the year
Granted
during the year
Outstanding at
31 March 2020
Exercise price
(pence)
2,948
23,791
35,098
14,278
–
76,115
(2,948)
(23,791)
(6,871)
(2,350)
(645)
(36,605)
(1,374)
(2,348)
(3,999)
(7,721)
–
–
17,433
17,433
–
–
26,853
9,580
12,789
49,222
302.00
226.25
219.50
402.00
421.17
Exercise
dates
2018–2025
2019–2026
2020–2027
2021–2028
2022–2029
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31. Share-based payment plans continued
At 31 March 2019
Outstanding at
1 April 2018
Forfeited
during the year
Exercised
during the year
Granted
during the year
Outstanding at
31 March 2019
Exercise price
(pence)
37,638
18,196
14,331
23,791
35,098
14,278
143,332
–
–
–
–
–
–
–
(37,638)
(18,196)
(11,383)
–
–
–
(67,217)
–
–
–
–
–
–
–
–
–
2,948
23,791
35,098
14,278
76,115
148.00
201.00
302.00
226.25
219.50
402.00
Exercise
dates
2013–2020
2016–2024
2018–2025
2019–2026
2020–2027
2021–2028
Changes in share options
A reconciliation of option movements over the year to 31 March 2020 is shown below:
Outstanding at 1 April
Granted
Exercised
Forfeited
Outstanding at 31 March
Exercisable at 31 March
2020
2019
Weighted
average
exercise
price
£2.59
£4.21
£2.46
£3.79
£3.07
£2.20
Number
76,115
17,433
(36,605)
(7,721)
49,222
26,853
Weighted
average
exercise
price
£2.26
–
£2.40
–
£2.59
£3.02
Number
143,332
–
(67,217)
–
76,115
2,948
The weighted average remaining contractual life for the share options outstanding at 31 March 2020 is 7.7 years (2019: 7.9 years).
The range of exercise prices for options outstanding at the end of the year was £2.20 to £4.21 (2019: £2.20 to £4.02).
b) The LTIP
Since 2008, the Group has operated the LTIP as a 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 2020 (2019: no awards), the performance conditions are as follows:
■ 33.3% 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% of the award is based on the Company’s absolute total shareholder return as measured against the Consumer Price
Index (“CPI”); and
■ 33.3% 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 fair value per award granted and the assumptions used in the
calculation are as follows:
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
177
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
31. Share-based payment plans continued
Awards granted in the year ended 31 March 2020:
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
30 April
2019
EPS
£4.25
nil
17
30 April
2019
TSR
£4.25
nil
17
30 April
2019
CPI
£4.25
nil
17
238,384
238,383
238,383
3
n/a
10
5
n/a
2.23%
£3.60
3
32.6%
10
5
0.75%
2.23%
£2.18
3
32.6%
10
5
0.75%
2.23%
£1.66
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. A further 11,912 share awards were granted during the
year which will be valued in the next financial year.
The total charge for the year relating to the LTIP schemes was £1.3m (2019: £1.1m).
Outstanding LTIP
A summary of the awards that have been granted under the LTIP and remain outstanding is given below:
31 March 2020
Outstanding at
1 April 2019
617,935
590,796
788,765
632,440
–
2,629,936
31 March 2019
Outstanding at
1 April 2018
447,381
271,948
601,551
578,041
641,588
618,421
788,765
632,440
4,580,135
Granted
during the year
Forfeited
during the year
Exercised
during the year
Outstanding at
31 March 2020
–
–
–
–
727,062
727,062
–
–
(27,149)
(21,322)
–
(48,471)
(2,361)
–
–
–
–
Exercise
dates
2020–2025
2021–2026
2022–2027
2023–2028
615,574
590,796
761,616
611,118
727,062
2024–2029
(2,361)
3,306,166
Granted
during the year
Forfeited
during the year
Exercised
during the year
Outstanding at
31 March 2019
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9,208)
–
–
(447,381)
(271,948)
(601,551)
(578,041)
(23,653)
(18,417)
–
–
–
–
–
–
617,935
590,796
788,765
632,440
(9,208)
(1,940,991)
2,629,936
Exercise
dates
2013–2020
2014–2021
2015–2022
2016–2023
2020–2025
2021–2026
2022–2027
2023–2028
The weighted average remaining contractual life for the share options outstanding at 31 March 2020 is 7.1 years (2019: 7.5 years).
The range of exercise prices for options outstanding at the end of the year was nil (2019: nil).
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32. Pension
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, 192 employees were active members of the
discoverIE scheme (2019: 223). The total cost charged to the consolidated income statement in relation to the UK-based
discoverIE scheme was £617,000 (2019: £638,000). Employer contributions in respect of other UK-based schemes and
overseas pension schemes were £427,000 (2019: £368,000) and £2,484,000 (2019: £2,425,000) respectively. Total contributions
payable in the next financial year are expected to be at rates broadly similar to those in 2019/20 but based on actual salary
levels in 2020/21.
Defined benefit schemes
The acquisition of the Sedgemoor Group in June 1999 brought with it certain defined benefit pension schemes, 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 2018, 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 2015. This required contributions of £1.8m p.a. over the year to
31 March 2020 with future contributions increasing by 3% each April payable over the period to 30 September 2022. There is a
risk that adverse experience could lead to a requirement for additional contributions to recover any deficit that arises.
A pension scheme asset has been recognised as the employer has an unconditional right to receive a surplus arising on the
wind-up of the scheme.
The estimated amount of employer contributions expected to be paid to the Sedgemoor Scheme during 2020/21 is £1.8m
(2019/20: £1.8m).
The results of the triennial funding valuation as at 31 March 2018 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
2020
n/a
2.1%
2.5%
2.6%
1.8%
2019
n/a
2.4%
2.4%
3.3%
2.2%
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The discount rate is based on the yields on AA grade sterling corporate bonds at the reporting date.
Pensioner mortality assumptions are based on 110% of the ‘S2NA’ table, projected from 2007 and with long-term
improvement rates in line with CMI 2019 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.
The weighted average duration of the defined benefit obligation at 31 March 2020 was 12 years (2019: 13 years).
The investment strategy is set by the Trustee of the Sedgemoor Scheme in consultation with the Company. The current
strategy is to invest 45% of the assets in equities, property, infrastructure and other return seeking investments and 55% in
liability driven investments, corporate bonds and cash. As at 31 March 2020 the investment strategy hedged 75% of interest
rate risk and 70% of inflation risk relative to the Sedgemoor Scheme’s liability value for cash funding purposes.
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www.discoverieplc.com
Stock Code: DSCV
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
32. Pension 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)
Past service cost
Total
2020
£m
0.3
–
0.3
2019
£m
0.4
0.9
1.3
Past Service cost
In October 2018, it was ruled that the trustees of Lloyds Banking Group had a duty to remove inequalities in scheme benefits
that arose under Guaranteed Minimum Pensions (GMPs) being unequal between men and women. As a result of this,
the liabilities of the pension scheme increased by £0.9m with a corresponding past service cost being recognised as an
exceptional charge in the prior year (see note 6).
The charges recognised in the consolidated statement of comprehensive income are as follows:
Re-measurement gains:
Return on plan assets (excluding amounts included in net interest expense)
Actuarial changes arising from changes in financial assumptions
Actuarial gains recorded in the consolidated statement of comprehensive income
2020
£m
0.5
2.3
2.8
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
Diversified Growth Fund
Cash
Liability driven investments
Infrastructure
Fair value of scheme assets
Present value of funded defined benefit obligations
Asset/(liability) recognised in the consolidated statement of financial position
Changes in the present value of the defined benefit obligation are as follows:
Opening defined benefit obligation
Net interest cost
Actuarial losses due to:
Changes in financial assumptions
Benefits paid
Past service costs
Closing defined benefit obligations
2020
£m
2.3
9.4
3.8
4.8
6.0
6.4
4.9
37.6
(35.8)
1.8
2020
£m
39.2
0.9
(2.3)
(2.0)
–
35.8
2019
£m
–
0.1
0.1
2019
£m
3.5
11.5
3.9
5.7
1.7
5.4
5.0
36.7
(39.2)
(2.5)
2019
£m
39.6
1.0
(0.1)
(2.2)
0.9
39.2
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32. Pension 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 2020 pension liabilities to changes in assumptions are as follows:
Assumption
Discount rate
Inflation
Life expectancy
Change in assumption
Decrease by 0.5%
Increase by 0.5%
Increase by 1 year
2020
£m
36.7
0.9
0.5
(0.3)
1.8
(2.0)
37.6
2019
£m
36.6
1.0
–
(0.4)
1.7
(2.2)
36.7
Increase in
scheme deficit
£m
2.3
1.0
2.1
33. Related party disclosures
As at 31 March 2020 the Group’s subsidiaries are set out below. Unless otherwise stated, the Group holds (directly or
indirectly) 100% of the total voting rights of all subsidiaries.
Except where noted, all material subsidiaries have a 31 March year end and the shares carry the same voting rights as their
effective interest.
UK registered subsidiaries exempt from audit: discoverIE Nordic Holdings Ltd (company no. 03118969) and Contour Holdings
Ltd (company no. 06846542) qualify to take the statutory audit exemption as set out within section 479A of the Companies
Act 2006 for the year ended 31 March 2020. discoverIE Group plc will guarantee the debts and liabilities of those companies
at the balance sheet date in accordance with section 479C of the Companies Act 2006. discoverIE Electronics Ltd, Variohm
Holdings Ltd, Cursor Controls Holdings Ltd and Xi-Tech Ltd also qualify to take the statutory audit exemption within section
479A of the Companies Act 2006 for the year ended 31 March 2020.
Name and nature of business
Registered address
Country of
incorporation
and registration
Custom Supply
Acal BFi UK Limited
3 The Business Centre, Molly Millars Lane, Wokingham, RG41 2EY
England
Acal BFi Central Procurement UK Ltd 3 The Business Centre, Molly Millars Lane, Wokingham, RG41 2EY
England
Vertec Scientific Limited
Vertec Scientific SA (pty) Ltd
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
8 Charmaine Avenue, President Ridge, Randburg 2194
Johannesburg
South Africa
Acal BFi France SAS
4 allée du Cantal – ZI Petite Montagne Sud – 91090 Lisses, Evry
France
Acal BFi Belgium NV/SA
Lozenberg 4, 1932 Zaventem, Brussels
Acal BFi Germany GmbH
Assar-Gabrielsson-Straße 1,
63128, Dietzenbach, Germany
Acal BFi Nordic AB
P.O. Box 3002, 750 03 Uppsala, Stockholm
Acal BFi Netherlands BV
Luchthavenweg 53, 5657EA, Eindhoven
Acal BFi Italy Srl
Via Cascina Venina n.20/A, 20090 Assago, Milan
RSG Electronic Components GmbH Sprendlinger Landstr. 115, 63069 Offenbach, Germany
Belgium
Germany
Sweden
Netherlands
Italy
Germany
Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
181
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
Name and nature of business
Registered address
Design & Manufacturing
Myrra SAS
2 Boulevard de La Haye, 77600 Bussy-Saint-Georges
Myrra Power Sp Zoo
Ul Warszawska 1, 05-310 Kaluszyn
Zhongshan Myrra Electronic Co Ltd1
Myrra Hispania Srl
39-2 Industrial Road, Xiaolan Industrial Park, Xiaolan Town,
528400, Zhongshan, Guandong Province
c/Mataro 43 Pol. Ind. les Grases, 08980 Saint Feliu De Llobregat,
Barcelona
Myrra Deutschland GmbH
Lebacher Strabe 4, 66113 Saarbrucken
Myrra Hong Kong Ltd
42/F Central Plaza,18 Harbour Road, Wanchai, Hong Kong
Noratel AS
Noratel UK Ltd
Noratel Denmark A/S
Noratel Finland OY
Foshan Noratel Electric Co Ltd1
Postboks 133, Elektroveien 7, 3300 Hokksund
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
Naverland 15, 2600 Glostrup, Copenhagen
Kiertokatu 5, PB 11, 24280, Salo Helsinki
NO 22-2 Xingye Road, Zone C Shishan Science & Technology
Industrial Park, Nanhai Distric, Foshan City, Guangdong Province
528225
Noratel Germany AG
Elsenthal 53, DE-94481 Grafenau, Bremen
Noratel India Power Components
Pvt Ltd
Nila Technopark, Trivandrum, Kerala, 695581
Noratel SP Z.o.o
ul. Szczecinska 1K, Dobra Szczecinska PL-72-003
Danselbud Noratel Transformator
Sp Zoo
ul. Szczecinska 1K, Dobra Szczecinska PL-72-003
Noratel International Pvt Ltd
P.O Box 15, phase II, Katunayake 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
Odborarska 52, 831 02 Bratislava
Flux A/S
Flux International Ltd
Industrivangen 5, 4550 Asnaes
41/27, 23 Village No. 6, Phuncaroen Lane, Bangna-Trad Km 16.5,
Bang Chalong (Bangkok), Bang Phli District, Samut Prakan
Province, 10540
Hectronic AB
P.O. Box 3002, 750 03 Uppsala, Sweden
MTC Micro Tech Components GmbH Hausener Straße 9, 89407 Dillingen a.d., Donau
EMC Innovation Limited
Woolim Lions Valley C-409,
Country of
incorporation
and registration
France
Poland
China
Spain
Germany
Hong Kong
Norway
England
Denmark
Finland
China
Germany
India
Poland
Poland
Sri Lanka
Sweden
USA
USA
Norway
Slovakia
Denmark
Thailand
Sweden
Germany
South Korea
Stortech Electronics Limited
Contour Electronics Limited
283 Bupyeong-daero, Bupyeong-gu, Cheongcheon-Dong,
Incheon
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
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Name and nature of business
Registered address
Contour Electronics Asia Limited
Room 601, 6/F Shing Yip Industrial Building, 19-21 Shing Yip Street,
Kwun Teng, Kowloon
Plitron Manufacturing Incorporated
8-601 Magnetic Drive, Toronto, Ontario, M3J 3J2
Ixthus Instrumentation Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
Country of
incorporation
and registration
Hong Kong
Canada
England
Heason Technology Limited
Herga Technology Limited
Variohm-Eurosensor Limited
Santon Holland B.V.
Santon Group B.V.
Santon Switchgear Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Hekendorpstraat 69, 3079 DX Rotterdam
Hekendorpstraat 69, 3079 DX Rotterdam
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
Santon Circuit Breaker Services B.V.
Hekendorpstraat 69, 3079 DX Rotterdam
Santon Hekendorpstraat B.V.
Hekendorpstraat 69, 3079 DX Rotterdam
Santon International B.V.
Hekendorpstraat 69, 3079 DX Rotterdam
Netherlands
Netherlands
England
Netherlands
Netherlands
Netherlands
Germany
Santon GmbH
Cursor Controls Limited
NSI bvba
Sens-Tech Limited
Coil-Tran LLC (trading as Hobart
Electronics)
Coil-Mag LLC (trading as IMAG
Electronics)
Coil-Tran de Mexico SA de CV2
Positek Limited
Management services
Oberstrasse 1, Altes Rathaus Hinsbeck,
Postfach 5217, 41334 Nettetal
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Haakstraat 1A, 3740 Bilzen, Belgium
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
160 South Illinois Street, Hobart, Indiana, 46342-4512
160 South Illinois Street, Hobart, Indiana, 46342-4512
Calle Matamoros 124, Colonia Centro, Municipio Agualeguas,
Nuevo Leon, Mexico, CP 65800
Belgium
England
USA
USA
Mexico
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
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discoverIE Management Services
Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Holding companies
Acal Electronic Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Trafo Holding AS
Postboks 133, Hokksund, 3301
discoverIE Nordic Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
discoverIE BV
Luchthavenweg 53, 5657 EA Eindhoven
discoverIE Europe Holding BV
Luchthavenweg 53, 5657 EA Eindhoven
discoverIE GmbH
Oppelner Straße 5, 82194 Gröbenzell, Germany
Norway
England
Netherlands
Netherlands
Germany
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www.discoverieplc.com
Stock Code: DSCV
183
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
Name and nature of business
Registered address
Country of
incorporation
and registration
discoverIE France Holdings SAS
4 Allée du Cantal – ZI Petite Montagne Sud – 91090 Lisses, Evry
France
DiscoverIE US Holdings Inc.
850 New Burton Road, Suite 201, Dover, DE 19904
Sedgemoor Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
USA
England
Contour Holdings Limited
discoverIE Electronics Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Aramys SAS
2 Boulevard de La Haye, 77600 Bussy-Saint-Georges
Variohm Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
EWAC Holding B.V.
Hekendorpstraat 69, 3079 DX Rotterdam
Cursor Controls Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
France
England
Netherlands
England
Xi-Tech Limited
Dormant companies
Cabcon Ltd
Eurosensor Limited
Acal Supply Chain Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Acal BFi Iberia SL
C/Anabel Segura, 7, Planta Acceso, 28108 Alcobendas, Madrid
Spain
Acal Electronics Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
BFi Optilas Denmark A/S
Jernabanegade 238, 4000 Roskilde Copenhagen
BFi Optilas Ltd
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
Denmark
England
Sedgemoor Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Sedgemoor Group Supplementary
Pension Trustees Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Sedgemoor Group Pension Trustees
Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Townsend-Coates Limited
Actech Holdings Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Advanced Crystal Technology
Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Bosunmark Limited
Gothic Crellon Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
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Name and nature of business
Registered address
Country of
incorporation
and registration
Radiatron Holdings Limited
Radiatron Components Limited
Amega Group Limited
Amega Electronics Limited
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
2 Chancellor Court, Occam Road, Surrey Research Park, Guildford
GU2 7AH
England
Phoenix America LLC
850 New Burton Road, Suite 201, Dover, DE 19904
DiscoverIE North America LLC
850 New Burton Road, Suite 201, Dover, DE 19904
USA
USA
1. Zhongshan Myrra Electric Co Ltd and Foshan Noratel Electric Co Ltd have 31 December year ends
2. 15% of Coil-Tran de Mexico SA de CV is owned by local management
Related parties
Remuneration of key management personnel
The Group considers key management personnel as defined in IAS 24 ‘Related Party Disclosures’ to be the members of the
Group Executive Committee as set out on page 74. Remuneration is set out below in aggregate. The charge for share-based
payments of £1.0m (2019: £0.9m) relates to the Group’s LTIP as detailed in note 31.
Short-term employee benefits
Share-based payments
2020
£m
3.2
1.0
4.2
2019
£m
3.2
0.9
4.1
Associate Undertakings
Details of the Group’s investments in associates are provided in note 19.
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 102 to 121.
34. Exchange rates
The profit and loss accounts of overseas subsidiaries are translated into sterling at average rates of exchange for the year and
consolidated statements of financial position are translated at year end rates. The main currencies are the US Dollar, the Euro
and the Norwegian Krone. Details of the exchange rates used are as follows:
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US Dollar
Euro
Norwegian Krone
Year to 31 March 2020
Year to 31 March 2019
Closing
rate
1.2360
1.1281
Average
rate
1.2722
1.1448
12.9847
11.4639
Closing
rate
1.3090
1.1651
11.2536
Average
rate
1.3139
1.1340
10.9175
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Stock Code: DSCV
185
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NOTES TO THE GROUP
FINANCIAL STATEMENTS
for the year ended 31 March 2020
35. Changes in accounting policies
This note explains the impact of the adoption of IFRS 16 Leases on the Group’s financial statements.
35.1 Impact on the consolidated statement of financial position
The change in accounting policy affected the following items in the statement of financial position on 1 April 2019:
Right of use assets
Lease liabilities
There was no impact on retained earnings at 1 April 2019.
Increase
Increase
£m
20.7
19.8
Lease liabilities
On adoption of IFRS 16 the Group recognised liabilities in relation to leases which had previously been classified as operating
leases under the principles of IAS17 Leases. These liabilities were measured at the present value of the remaining lease
payments, discounted using the lessee’s incremental borrowing rate as at 1 April 2019.
The lease liabilities at 31 March 2020 and 1 April 2019 were as follows:
Current liabilities
Non-current liabilities
31 March
2020
£m
(5.3)
(14.7)
(20.0)
1 April
2019
£m
(5.7)
(14.1)
(19.8)
Lease liabilities recorded at 1 April 2019 can be reconciled to operating lease commitments as at 31 March 2019 as follows:
Operating lease commitments as at 31 March 2019
Add: Adjustments as a result of a different treatment of extension and termination options
Gross future lease cash flows
Effect of discounting
Lease liability recognised as at 1 April 2019
1 April 2019
£m
16.4
4.9
21.3
(1.5)
19.8
The Group has not made use of the exemptions for leases of low-value assets and short-term leases (leases shorter than
12 months).
Right of use assets
The Group has not restated prior year comparators, with right of use assets being set equal to lease liabilities at the date
of transition in line with the simplified approach under IFRS 16. Values have been adjusted for the cost of any restoration
obligations and by the amount of prepaid or accrued lease payments relating to leases recognised in the statement of
financial position as at 31 March 2019. These adjustments amounted to £0.9m. There were no onerous lease contracts that
would have required an adjustment to the right of use assets at the date of application.
The recognised right of use assets relate to the following types of assets:
Land and buildings
Plant and equipment
Total
31 March
2020
£m
18.7
2.4
21.1
1 April
2019
£m
17.8
2.9
20.7
Properties are depreciated over the shorter of the lease term or useful life and plant and equipment over periods of two to
five years.
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35. Changes in accounting policies continued
35.2 Impact on the consolidated income statement and earnings per share
For the year ended 31 March 2020 Underlying operating profit was unchanged as a result of applying IFRS 16. Profit before
tax was £0.6m lower due to interest expenses being higher at the beginning of the lease term.
The impact on the income statement and earnings per share for the year was:
Lease expense
Depreciation
Underlying operating profit
Interest
Underlying profit before tax
Underlying EPS
£m
6.6
(6.6)
0.0
(0.6)
(0.6)
(0.7)p
There was no impact on underlying profit by operating segments for the year.
35.3 Impact on the consolidated statement of cash flows
Payments in respect of leases which were previously recognised within cash flows from operating activities are now recorded
within cash flow from financing activities, separated between payment of interest and payment of principal elements. This
has resulted in a net nil impact on cash flow but increased net cash flow from operating activities and decreased net cash
generated from financing activities by £6.6m.
35.4 Judgements and estimates
Extension and termination options are included in a number of property and equipment leases across the Group. These
terms are used to maximise operational flexibility in terms of managing contracts. The extension and termination options
held are exercisable only by the Group and not by the lessor. In determining the lease term, management considers all
facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination
option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably
certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in
circumstances occurs which affects this assessment and that is within the control of the lessee.
35.5 Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
■ Reliance on previous assessments on whether leases were onerous
■ The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease
36. Events after the reporting date
There were no matters arising, between the statement of financial position date and the date on which these financial
statements were approved by the Board of Directors, requiring adjustment in accordance with IAS10, Events after the
reporting period. The following important non-adjusting event should be noted:
COVID-19
The impact of COVID-19 has been fully considered in both the Going Concern assessment of the Group which is included in
note 2 to the Group’s financial statements and in the Viability Statement on page 48. This did not have any impact on the
judgements made in the preparation of the financial statements and conclusions reached as at 31 March 2020.
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www.discoverieplc.com
Stock Code: DSCV
187
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COMPANY
BALANCE SHEET
as at 31 March 2020
Fixed assets
Investments
Current assets
Debtors
Cash at bank and in hand
Total current assets
Creditors: amounts falling due within one year
Net current assets/(liabilities)
Non-current liabilities
Other financial liabilities
Net assets
Capital and reserves
Called up share capital
Share premium accounts
Merger reserve
Profit and loss account
Total shareholders’ funds
notes
2020
£m
2019
£m
5
6
7
8
9
200.2
168.9
23.1
5.6
28.7
(12.8)
15.9
3.1
4.2
7.3
(13.0)
(5.7)
(11.8)
(10.2)
204.3
153.0
4.4
138.8
22.7
38.4
204.3
3.7
106.9
2.9
39.5
153.0
The loss of the parent company for the financial year was £2.4m (2019: £18.5m profit).
These financial statements on pages 188 to 189 were approved by the Board of Directors on 24 June 2020 and signed on its
behalf by:
Nick Jefferies
Group Chief Executive
Simon Gibbins
Group Finance Director
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COMPANY STATEMENT
OF CHANGES IN EQUITY
for the year ended 31 March 2020
At 1 April 2018
Total comprehensive income for the year
Share-based payments
Shares issued (note 9)
Dividends
At 31 March 2019
Total comprehensive loss for the year
Share-based payments
Shares issued (note 9)
Transfer to retained earnings
Dividends
At 31 March 2020
Share
capital
£m
3.6
–
–
0.1
–
3.7
–
–
0.7
–
–
4.4
Share
premium
£m
106.9
Merger
reserve
£m
2.9
–
–
–
–
106.9
–
–
31.9
–
–
138.8
–
–
–
–
2.9
–
–
27.9
(8.1)
–
22.7
Profit and
loss account
£m
27.1
18.5
0.6
–
(6.7)
39.5
(2.4)
1.3
–
8.1
(8.1)
38.4
Total
£m
140.5
18.5
0.6
0.1
(6.7)
153.0
(2.4)
1.3
60.5
–
(8.1)
204.3
The £27.9m merger reserve arising during the year is available for distribution and £8.1m was transferred to retained earnings
for the payment of the dividend.
The above includes £32.6m of reserves available for distribution to shareholders which is comprised of £12.8m out of the
£38.4m Profit and loss account and £19.8m out of the £22.7m Merger reserve as at 31 March 2020.
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Stock Code: DSCV
189
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS
for the year ended 31 March 2020
1. Basis of preparation
The separate financial statements of the Company have been prepared for all periods presented, 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. None of the new standards which became effective in the year had an impact on the Company.
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:
■ IFRS 2 Share-based payments in respect of group settled equity share-based payments
■ Certain disclosures required by IFRS 13 Fair Value Measurement
2. Summary of significant accounting policies
Going concern
The Company acts as a holding company for investments in the subsidiaries and does not engage in any trading activities
directly. The Company holds sufficient net current assets as at 31 March 2020 to continue as a going concern.
The factors considered in the going concern assessment of the Group are considered in note 2 to the Group’s consolidated
financial statements. 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.
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2. Summary of significant accounting policies continued
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.
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 Financial Statements.
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.
Judgment and key sources of estimation uncertainty
The preparation of financial statements requires management to make judgments, estimates and assumptions that affects
the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and
expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates.
Value of investments
Investments in subsidiaries are reviewed annually for impairment when indicators for impairment are identified.
Determining whether the Company’s investments in subsidiaries have been impaired requires estimations of the
investments’ values in use or consideration of the net asset value of the entity. The value in use calculations require the entity
to estimate the future cash flows, expected to arise from the investments and suitable discount rates in order to calculate
present values.
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Stock Code: DSCV
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS
for the year ended 31 March 2020
3. Profit of the parent company
The loss of the parent company for the financial year was £2.4m (2019: £18.5m profit). By virtue of section 408(3) of the
Companies Act 2006, the Company is exempt from presenting a separate profit and loss account.
4. Employees
There were no employees of the Company during the year (2019:nil).
5. Investments
At 1 April 2018
Share-based payments
At 31 March 2019
Investment in subsidiaries
Impairment of investment
Share-based payments
At 31 March 2020
Subsidiary
undertakings
£m
167.8
1.1
168.9
40.0
(10.0)
1.3
200.2
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
recoverable amount of the investment at the reporting date was determined based on discounted cash flow calculations,
using the forecast for FY21 and applying a growth rate of 5% up to FY25. Annual cash flow growth rates beyond the five-year
period are assumed at 2% in line with the average long-term growth rates. The pre-tax discount rate applied to cash flow
projections was 11.5%.
6. Debtors
Amounts falling due within one year:
Amounts owed by subsidiary undertakings
Corporation tax
Deferred tax
Prepayments
2020
£m
21.3
1.6
–
0.2
23.1
Amounts owed by subsidiary undertakings bore interest at a sterling base rate plus a margin of 1.75% or at a nil rate.
The deferred tax asset in the prior year comprises temporary timing differences.
7. Creditors
Amounts falling due within one year:
Bank overdrafts
Amounts owed to subsidiary undertakings
Other payables
Accruals
2020
£m
1.3
10.5
0.3
0.7
12.8
Bank overdrafts bear interest at 1.75% over LIBOR.
Amounts owed to subsidiary undertakings bore interest at a nil rate and are repayable on demand.
2019
£m
–
3.0
–
0.1
3.1
2019
£m
–
10.6
1.2
1.2
13.0
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8. Other financial liabilities
Other financial liabilities of £11.8m at 31 March 2020 (2019: £10.2m) comprise drawdowns on the Group’s revolving credit
facility (see note 23 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.
9. Called up share capital
Allotted, called up and fully paid
Ordinary shares of 5p each
2020
Number
2020
£m
2019
Number
88,705,915
4.4
73,358,847
2019
£m
3.7
During the year, 15.3m shares were issued raising £60.5m (of which £0.7m was share capital, with the balance allocated to
share premium account and retained earnings as set out below).
On 18 April 2019, 7,309,867 shares were issued for a gross consideration of £29.2m before costs and £28.2m after costs. The
shares were issued at 400 pence per share, a discount of 3.85 per cent to the closing share price of 416 pence per share on
15 April 2019. The shares were issued under a cash box structure and accordingly, £0.3m was shares capital with the balance
£27.9m being allocated to retained earnings. This amount is fully available for distribution.
On 17 October 2019, 8,034,840 shares were issued for a gross consideration of £33.3m before costs and £32.3m after costs. The
shares were issued at 415 pence per share, a discount of 3.9 per cent to the closing share price of 432 pence per share on 16
October 2019. £0.4m was share capital with the balance of £31.9m being allocated to share premium account.
At 31 March 2020, there were outstanding nil-priced LTIPs for employees of subsidiaries to purchase up to 3,306,166 (2019:
2,629,936) ordinary shares of 5p each between 2020 and 2029. These are subject to certain performance conditions as
disclosed in note 31 of the Group Financial Statements. During the year to 31 March 2020, employees exercised 2,361 share
options under the terms of the LTIP scheme (2019: 1,940,991).
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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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
193
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TABLE OF
CONTENTS
Other information
Five year record
Principal locations
Financial calendar
Corporate information
196
197
IBC
IBC
Industrial & Connectivity
Industrial & Connectivity is one of our target
markets. Our focus on improving efficiency,
automation and communication is well aligned
with the UN Sustainable Development Goals.
Read more on pages 18 to 19 for
details of our target markets
Read more on page 56 to 57 for our
alignment with the UN SDGs
Contributing to the UN Sustainable
Development Goals
Industry, Innovation and
Infrastructure
The Group works closely with others in
developing innovations that provide for
more efficient energy use and improved
infrastructure for communities of the
future.
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Fulfilling our purpose
INNOVATIVE
ELECTRONICS TO HELP
CREATE INDUSTRIES
AND COMMUNITIES OF
THE FUTURE
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FIVE YEAR
RECORD
Group income statement
Revenue
Gross profit
Underlying operating profit
Underlying profit before tax
Profit before tax
Profit for the year
Earnings per share
Underlying diluted earnings per share
Fully diluted earnings per share
Dividend per share
Group statement of financial position
Net debt
Non-current assets
Net assets
2020
£m
2019
£m
2018
£m
2017
£m
2016
£m
466.4
156.7
37.1
32.8
19.5
14.3
30.2p
16.5p
2.97p
(61.3)
236.4
200.5
438.9
145.0
30.6
27.2
19.3
14.6
27.2p
19.4p
9.55p
(63.3)
149.2
134.7
387.9
126.7
24.5
21.9
14.6
10.6
22.3p
14.2p
9.0p
(52.4)
136.4
126.8
338.2
287.7
111.0
20.0
17.2
4.1
3.5
19.2p
4.1p
8.5p
(30.0)
122.2
122.5
92.6
16.3
14.5
8.8
6.6
17.0p
10.0p
8.05p
(38.1)
108.4
101.3
196
discoverIE Group plc
Annual Report and Accounts
for the year ended 31 March 2020
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PRINCIPAL
LOCATIONS
Group head office
Country
Company
Location
United Kingdom
discoverIE Group plc / discoverIE Management Services Ltd Guildford
Custom Supply division
Country
Company
Location
United Kingdom
Acal BFi UK Limited
Wokingham, Bracknell, Milton Keynes
Acal BFi Central Procurement UK Limited
Belgium
Denmark
Finland
France
Germany
Italy
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 Italia Srl
Netherlands
Acal BFi Netherlands BV
Norway
Acal BFi Nordic AB
South Africa
Vertec Scientific SA (pty) Ltd
Spain
Sweden
Acal BFi Iberia SL
Acal BFi Nordic AB
Design & Manufacturing division
Country
Company
United Kingdom
Contour Electronics Limited
Cursor Controls Ltd
Heason Technology Limited
Herga Technology Limited
Ixthus Instrumentation Limited
Noratel UK Limited
Positek Limited
Santon Switchgear Ltd
Sens-Tech Limited
Stortech Electronics Limited
Variohm-Eurosensor Limited
NSI BVBA
Plitron Manufacturing Inc
Foshan Noratel Electric Co Ltd
Zhongshan Myrra Electronic Co Ltd
Belgium
Canada
China
Wokingham
Silchester
Brussels
Copenhagen
Helsinki
Evry
Dietzenbach, Munich
Milan, Rome
Eindhoven
Honefoss
Johannesburg
Madrid
Stockholm, Uppsala
Location
Hook
Newark
Horsham
Bury St. Edmunds
Towcester
Nantwich
Cheltenham
Newport
Egham
Harlow
Towcester
Bilzen
Toronto
Foshan City
Zhongshan
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F
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Denmark
Noratel Denmark A/S
Brondby, Hadsund
Finland
France
Germany
Flux A/S
Noratel Finland OY
Myrra SAS
MTC Micro Tech Components GmbH
Noratel Germany AG
Santon GmbH n GmbH
Variohm-Eurosensor
Asnaes
Salo
Bussy-Saint-Georges
Dillingen
Grafenau, Bremen
Nettetal
Heidelberg
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Innovative Electronics
www.discoverieplc.com
Stock Code: DSCV
197
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PRINCIPAL
LOCATIONS
Design & Manufacturing division continued
Country
Company
Hong Kong
Contour Asia Ltd
Myrra Hong Kong Limited
Location
Kowloon
Wanchai
India
Mexico
Netherlands
Norway
Poland
Slovakia
South Korea
Sri Lanka
Sweden
Thailand
USA
Noratel India Power Components Pvt Ltd
Kerala and Bangalore
Hobart Electronics
Santon Holland BV
Foss AS
Noratel AS
Myrra Poland Sp Zoo
Noratel Sp Zoo
Foss Fibre Optics, sro
EMC Innovation Ltd
Noratel International Pvt Ltd
Hectronic AB
Noratel Sweden AB
Flux International Ltd
Hobart Electronics
Imag
Noratel North America LLC.
Noratel Power Engineering LLC.
Agualeguas, Nogales
Rotterdam
Drammen
Hokksund, Hamar
Kaluszyn
Szczecinska
Bratislava
Cheongcheon-Dong
Katunayake
Uppsala
Laxa, Vaxjo
Bangkok
Hobart, IN
Tempe, AZ
Charlotte, NC
Carson, CA
198
discoverIE Group plc
Annual Report and Accounts
for the year ended 31 March 2020
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FINANCIAL CALENDAR
2020/21
Annual General Meeting
19 August 2020
Results
Interim results for the six months to 30 September 2020
Late November 2020
Preliminary announcement for the year to 31 March 2021
Early June 2021
Annual Report 2021
Late June 2021
CORPORATE
INFORMATION
Registered office
discoverIE Group plc
2 Chancellor Court
Occam Road
Surrey Research Park
Guildford
Surrey
GU2 7AH
Telephone: 01483 544500
Incorporated in England
and Wales with registered
number: 2008246
Auditors
PricewaterhouseCoopersLLP
Registrars
Equiniti Limited
Corporate solicitors
White & Case LLP
Principal bankers
Bank of Ireland
Clydesdale Bank plc
Citibank NA Inc
Danske Bank A/S
HSBC Bank UK plc
KBC Bank NV
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Telephone: 0371 384 2001
Stockbrokers
Peel Hunt LLP
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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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