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discoverIE Group PLC (FRA:9A5) Full Year 2025 Earnings Call Highlights: Navigating Challenges ...
Operating Profit: Up 8% at constant exchange rate.
Margins: Record level of 14.3% for the year, 14.8% in H2.
Sales: 2% lower at constant exchange rate, 3% reported.
Organic Sales: Down 7% overall, with a 10% decline in H1 and 2% in H2.
Q4 Orders: Up 15%.
Adjusted Earnings Per Share (EPS): Up 5%.
Free Cash Flow: Up 9% to GBP40.4 million, with a 106% conversion rate.
Acquisitions: Two acquisitions for GBP29 million.
Net Debt: GBP94 million, down from GBP104 million last year.
Gearing: Reduced from 1.5 to 1.3.
Dividends: Increased by 4%.
Carbon Emissions: Reduced by 59% since base year 2021.
Warning! GuruFocus has detected 4 Warning Signs with FRA:9A5.
Release Date: June 04, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Operating profits increased by 8% at constant exchange rates despite industry-wide destocking pressures.
Margins reached a record level of 14.3% for the year, with a target increase to 17% by FY29/30.
Free cash flow rose by 9% to GBP40.4 million, with a 106% conversion rate, indicating strong cash generation.
Carbon emissions reduced by 59% since 2021, on track for a 65% reduction this year and net zero by 2030.
Two acquisitions were made during the year, with a strong pipeline of acquisition opportunities supported by GBP80 million in funding.
Sales were 2% lower at constant exchange rates, driven by a 7% decrease in organic sales.
Higher interest charges impacted earnings per share, although adjusted EPS still rose by 5%.
The Magnetics and Controls division experienced an 11% decline in organic sales due to destocking.
The US market faced significant destocking, with sales down 16%, impacting overall performance.
The company faces uncertainty due to geopolitical factors, affecting acquisition strategies and market stability.
Q: Have there been any recent changes in trends due to tariffs in the short term? A: Nicholas Jefferies, CEO, noted increased uncertainty and less clarity, with more start-stop activity. However, discoverIE's strong order books have helped smooth out sales output despite these uncertainties.
Q: What is the expected split between organic and inorganic growth for future margin improvements? A: Simon Gibbins, CFO, mentioned that while past improvements have been largely organic, future growth is expected to be two-thirds from acquisitions and one-third organic. However, they will continue to push for efficiencies and improvements organically.
Q: How is the balance between divisions, particularly with S&C's strong performance and M&C's challenges? A: Nicholas Jefferies explained that M&C's softness is due to late-cycle issues, particularly in North America, where medical customers are still burning off inventory. However, the fundamentals remain strong, and recovery is expected as destocking concludes.
Q: How does geopolitics affect your M&A strategy? A: Jefferies stated that they have shifted focus away from US-dependent acquisitions due to tariff uncertainties, instead targeting opportunities with lower US exposure until the situation stabilizes.
Q: Can you explain the 15% order intake growth in Q4 and its sustainability? A: Jefferies attributed the growth to the end of destocking in certain sectors, leading to a strong bounce back in orders. While it was against a weak comparison, it reflects genuine demand recovery rather than a one-off pre-buying effect.
Q: How do you manage cost reintroduction as sales recover? A: Jefferies emphasized a micro, case-by-case approach to cost management, phasing in costs according to market conditions and order intake, ensuring they align with growth opportunities.
Q: What is the expected timeline for order growth to translate into sales growth? A: Jefferies noted a typical four to six-month lag between order and sales growth, with orders already inflecting and sales beginning to catch up.
Q: How do you manage pricing in light of tariffs and inflation? A: Jefferies explained that tariff costs are generally passed through as price increases, and they maintain fair pricing for the value created. This approach has helped maintain steady gross margins despite external conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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