STRATEGIC AND OPERATIONAL REVIEW CONTINUED
Five target markets to drive long-term growth Our five target markets (industrial automation & connectivity, medical, renewable energy, security and the electrification of transportation), are attractive and technology-rich sectors underpinned by long term, structural growth drivers. In total, the five target markets account for around 80% of sales. Our focus on these target markets over the last decade has driven the Group’s through-cycle growth well ahead of GDP, attracting higher margins and greater resilience than other markets, and created numerous acquisition opportunities. We expect this to continue. Compelling products for today’s markets The Group has a product and manufacturing footprint that is well suited to today’s technology requirements. ■ Essential products: the Group’s specialist products are essential for customers’ applications and amount to only a small proportion of their overall system cost. This leads to repeating revenues over a long period with robust gross margins. ■ Wide and flexible manufacturing : a decentralised model with manufacturing sites and commercial operations around the world, able to support customers locally and internationally. For example, once our new facility in Bangalore is open, it will have the capacity for several of our Group companies to operate in India. ■ Low energy intensity operations: the large majority of the Group’s energy exposure is electricity and energy costs which represent less than 0.5% of Group revenues, limiting the Group’s exposure to energy price rises and operational disruptions. The cost of oil and gas represents less than 0.1% of Group revenues. Through the installation of solar panels at several of our sites as part of our project to reduce carbon emissions, 85% of our electricity usage is now from renewable sources. Continued progress on key strategic indicators For more than 10 years, the Group’s strategic and financial progress has been measured through key strategic indicators (“KSIs”). Targets are periodically reviewed and increased. For example, the adjusted operating margin target was most recently reviewed in June 2025 and a new five-year target of 17% was set.
The Group’s strategy comprises five elements: 1. Structurally growing markets: Grow well ahead of GDP over the economic cycle by focusing on specialist technologies in high quality markets with long-term growth. By targeting five growth markets, we aim to create consistent, compounding growth with low customer concentration and less cyclical variability. 2. Acquire highly differentiated businesses: Acquire businesses operating in electronic market niches with strongly differentiated products, attractive growth prospects and strong operating margins, either as new platforms or as bolt-ons to existing clusters. 3. Operating margin enhancement: Generate operational efficiencies and improve operating margins through clustering of businesses and increasing product differentiation. 4. Strong cash generation driving disciplined capital allocation: Generate strong cash flows and long-term sustainable returns from a capital-light business model, re-investing free cashflow after dividends into organic growth opportunities and further acquisitions. 5. Minimising environmental impact: Reduce our carbon emissions to achieve net-zero (Scope 1 & 2) by 2030. The Group’s competitive advantage is rooted in deep engineering expertise, application knowledge, and early design engagement, which enable us to co-develop specialised solutions that are embedded within customers’ systems. This creates significant barriers to substitution as replacing components would require redesign, re-testing and re-certification, introducing cost, complexity, delay and operational risk that customers seek to avoid. Barriers to entry are reinforced by the Group’s breadth of technical capability, niche high performance offerings, and strong application knowledge in demanding and regulated markets. Combined with long term supply assurance and strong engineering relationships, these factors support high customer retention, revenue recurrence and pricing resilience, which underpin the Group’s durable and sustainable business model.
Adjusted PBT £51.9m (FY 2024/25: £50.1m)
Strong free cash flow of £36.6m was generated in the year representing 92% of adjusted earnings, comfortably ahead of our 85% target; conversion rates have averaged around 100% for the last decade. Net debt (excluding IFRS16) at 31 March 2026 was £13.8m lower at £80.5m (31 March 2025: £94.3m), reducing gearing to 1.2x. With the recently completed acquisition of Trival and the announced acquisition of 3G, proforma gearing at 31 March 2026 was 2.2x which is forecast to reduce to 1.8x by the end of this new financial year, comfortably within our target range. Dividend and capital allocation The Board is recommending a 4% (0.35 pence) increase in the final dividend to 8.95 pence per share, giving a 4% increase in the full year dividend per share to 13.0 pence (FY 2024/25: 12.5 pence) and an adjusted earnings cover of 3.1 times (FY 2024/25: 3.1 times). The final dividend is payable on 31 July 2026 to Shareholders registered on 26 June 2026 and the final date for Dividend Reinvestment Plan (“DRIP”) elections will be 10 July 2026. The Board believes in maintaining a progressive dividend policy along with a long-term dividend cover of over three times earnings on an adjusted basis. This approach, along with the continued development of the Group, will enable funding of both dividend growth and a higher level of investment in acquisitions from internally generated resources. Share buybacks will be considered if the Group has surplus cash. Currently, the fragmented international market in which we operate provides ample opportunities for accretive acquisitions with excellent growth prospects and the potential for high returns as our recent acquisitions illustrate. As such our capital is currently deployed in this direction, with this policy reviewed periodically.
Free cash flow £36.6m (FY 2024/25: £40.4m)
Proven growth strategy The Group of today has been built by acquiring and growing carefully selected specialist component design & manufacturing businesses over the past 15 years, organised into clusters to derive operational efficiencies. Through this combination of organic growth, operational efficiencies and acquisitions, the Group is building a growth compounding, international electronics specialist. We have a disciplined approach to capital allocation and see significant scope for further expansion, with a pipeline of investment opportunities continually in development. The Group operates in a c.$30bn fragmented market with many smaller players presenting numerous consolidation opportunities.
26
27
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