NOTES TO THE GROUP CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2026
2. Accounting policies continued
2. Accounting policies continued Basis of consolidation The Group’s consolidated Financial Statements consolidate the results of discoverIE Group plc and entities controlled by the Company (its subsidiaries). The consolidated Financial Statements comprise the Financial Statements of the Group and its subsidiaries for the year ended 31 March 2026. Subsidiaries are entities controlled by the Group. 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 it. In assessing control, the Group takes into account: (i) the power over the investee (i.e. existing rights that give it the current ability to direct its relevant activities); (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii) the ability to use its power over the investee to affect its returns. The Group reassesses whether or not it controls a subsidiary 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 and ceases when the Group loses control of the subsidiary. Assets, liabilities, profits and losses of a subsidiary acquired or disposed of during the year are included in the consolidated Financial Statements from the date control commences until the date control ceases. When necessary, adjustments are made to the Financial Statements of subsidiaries to bring their accounting policies in 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. 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. 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 relevant conditions at the acquisition date. Any contingent consideration payable to the vendor is measured and recognised at fair value through profit and loss (“FVTPL”) at the acquisition date. Subsequent changes to the fair value of the contingent consideration are recognised in accordance with IFRS 9 Financial Instruments in the consolidated Statement of Profit or Loss. 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 over the net identifiable amounts of the fair value of 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 standard. 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. 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 four operating units. Within each of these operating units are aggregated businesses (cash-generating units (“CGUs”) with similar characteristics) that are expected to benefit from the business combination. Each operating unit to which goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes and shall not be larger than any of the Group’s operating segments. Where goodwill forms part of a CGU, and part of the operation within that unit is disposed of, the goodwill associated with the disposed 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 CGU retained.
climate change impact on the valuations. Management review has concluded that there is no material impact and that no further disclosure is required. Going concern In line with IAS 1 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 and Company’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 24 to 33. 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 34 to 37. 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 its current debt facilities of £240m committed up to May 2030, with options to extend to 2032. In addition, the Group has access to an £80m accordion facility, providing the ability to increase the total committed facility to £320m, subject to bank approval. The Group’s financing arrangements are subject to key financial covenants comprising a net leverage covenant of less than 3.5x and an interest cover covenant of greater than 4.0x. As at 31 March 2026, the Group’s net leverage was 1.2x and interest cover was 9.6x. The Viability Base Case, as stated on pages 85 to 86, has been subjected to sensitivity analysis involving flexing a number of the underlying key assumptions, both individually and in conjunction. The sensitivities take into account the principal risks and uncertainties set out on pages 79 to 84, notably instability in the economic environment, under performance of acquired businesses, climate-related risks, loss of key customers and suppliers, major business disruption, liquidity restriction, debt covenants, interest rate increases, the continued impact of US tariffs and counter tariffs, the ongoing impact of the Middle East and Ukraine conflicts and adverse foreign currency movements. Both the viability Base Case and downside sensitivities include the impact of the acquisition of Trival Antene d.o.o completed on 1 April 2026 and 3Gmetalworx announced on 19th May 2026, subject to receipt of regulatory approvals. The most severe but plausible downside scenario assumes a worsening of the economic environment caused by a number of factors including the ongoing conflict in the Middle East, the continued impact of US tariffs and counter tariffs, and significant reduction in customer demand due to continuing inflationary pressures and elevated interest rates. This downside scenario results in a significant decline in the second half sales of FY 2026/27, with FY 2027/28 sales flat on the reduced FY 2026/27 level, and modest growth in FY 2028/29. Additionally, gross margin was reduced, working capital materially increased, significant one-off expenditures included (product quality and liability, major customer insolvency or litigation, irrecoverable customer debt, climate change, cyber-security incident, inventory and technology obsolescence), interest rates increased and the Group effective tax rate increased. After factoring in these significant additional downsides to the Viability Base Case, there remains good headroom both in terms of liquidity and our debt 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 low customer / supplier concentration, a global supply chain network, diverse manufacturing capacity, and has well-established relationships with its customers. These factors are considered important in mitigating many of the risks that could affect the long-term viability of the Group. As a consequence, the Directors believe that the Group is well placed to manage its principal risks and uncertainties as disclosed on pages 79 to 84 of the Strategic Report. Reverse stress testing has also been applied to the most plausible downside scenario to determine the level of additional downside that would be required before the Group would breach its debt covenants or current liquidity headroom during the assessment period. The reverse stress test was conducted on the basis that certain mitigating actions would be undertaken to reduce overheads and capital expenditure during the period as sales declined and, on that basis, a fall in adjusted operating margin to below 6.3% in FY 2026/27 would be required before such a breach occurred. The Board considers the possibility of such a scenario to be remote and further mitigation, such as hiring freezes, pay and bonus reductions, headcount reductions, reduction in planned capital expenditure, equity raises and suspension of dividend payments, would be available if future trading conditions indicated that such an outcome were possible. The Company acts as a holding company for investments in the subsidiaries and does not engage in any trading activities directly and thus is dependent on the trading activities of its subsidiaries. The Company holds sufficient net current assets as at 31 March 2026 to continue as a going concern. 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 Financial Statements.
156
157
discoverIE Group plc Innovative Electronics
Annual Report and Accounts for the year ended 31 March 2026
Made with FlippingBook - professional solution for displaying marketing and sales documents online