TIDMDPLM
RNS Number : 2550Y
Diploma PLC
16 May 2016
DIPLOMA PLC
12 CHARTERHOUSE SQUARE, LONDON EC1M 6AX
TELEPHONE: +44 (0)20 7549 5700
FACSIMILE: +44 (0)20 7549 5715
FOR IMMEDIATE RELEASE
16 May 2016
ANNOUNCEMENT OF HALF YEAR RESULTS
FOR THE SIX MONTHSED 31 MARCH 2016
"Continued progress with a strong contribution from
acquisitions"
Unaudited Unaudited
Six months Six months
ended ended
31 March 31 March
2016 2015
GBPm GBPm
Revenue 179.1 163.2 +10%
Adjusted operating
profit(1) 30.8 29.6 +4%
Adjusted operating
margin(1) 17.2% 18.1%
Adjusted profit
before tax(1),(2) 30.4 29.3 +4%
Profit before tax 25.6 26.0 -2%
Profit after tax 18.5 18.7 -1%
Free cash flow(3) 23.0 12.4 +85%
Pence Pence
Adjusted earnings
per share(1),(2) 19.5 18.6 +5%
Basic earnings per
share 16.0 16.2 -1%
Interim dividend
per share 6.2 5.8 +7%
(1) Before acquisition related charges.
(2) Before fair value remeasurements.
(3) Before cash payments on acquisitions
and dividends.
Financial Highlights
* Revenue increased by 10%; businesses acquired
contributed 9% and underlying revenue increased by
2%.
* Adjusted operating margin reduced to 17.2% reflecting
continuing transactional currency effects in
Healthcare and initial dilution from acquired
businesses.
* Adjusted profit before tax increased by 4% to
GBP30.4m; adjusted EPS increased by 5% to 19.5p,
helped by slightly lower tax rate.
* Free cash flow increased by 85% to GBP23.0m,
benefitting from lower investment in working capital
and GBP2.3m from sale of legacy properties.
* Acquisition expenditure of ca. GBP30m in first half
(over GBP80m since January 2014).
* Strong financial position; net debt of GBP17.8m at
the end of March 2016 with significant resources
available.
* Interim dividend increased by 7% to 6.2p per share
reflecting confidence in Group's growth prospects.
Operational Highlights
-- Life Sciences revenues increased by 1% on a reported basis;
underlying revenues increased by 6% despite significant budget
pressures in the principal Healthcare markets.
-- Seals revenues increased by 22% on a reported basis,
benefitting from acquisitions of Kubo, Swan Seals and WCIS
completed during the past year; underlying revenues remained
unchanged against a strong comparative.
-- Controls revenues increased by 2% on a reported basis,
benefitting from the acquisitions of Cablecraft and Ascome;
underlying revenues decreased by 1% reflecting ongoing weakness in
UK Industrial markets.
-- Acquisitions of WCIS in Australia, Cablecraft in the UK and
Ascome in France extends the scope of the Seals and Controls
businesses respectively, opening up attractive new growth
opportunities.
Commenting on the results for the period, Bruce Thompson,
Diploma's Chief Executive said:
"The Group has delivered further robust growth in the first half
of the year, despite the weaker macro-economic backdrop and the
adverse impact of foreign exchange, with acquired businesses adding
9% to Group revenues.
These results reinforce the resilience of the Group's proven
business model which aims to deliver "GDP plus" organic revenue
growth, with value-creating acquisitions accelerating the growth to
the target double-digit level. Last year was a record year for
acquisitions and we have continued this momentum into the first
half of this year with acquisition spend of ca. GBP30m.
With challenging trading conditions likely to persist through
the second half of the year, we will continue to take advantage of
our strong financial position to target further acquisition
opportunities to support future growth and deliver shareholder
value."
Note:
1. Diploma PLC uses alternative performance measures as key
financial indicators to assess the underlying performance of the
Group. These include adjusted operating profit, adjusted profit
before tax, adjusted earnings per share, free cash flow and ROATCE.
All references in this Announcement to "underlying" revenues or
operating profits refer to reported results on a constant currency
basis and before any contribution from acquired businesses. The
narrative in this Announcement is based on these alternative
measures and an explanation is set out in note 2 to the
consolidated financial statements in this Announcement.
2. Certain statements contained in this Announcement constitute forward-looking statements. Such forward-looking statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of Diploma PLC, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such statements. Such risks, uncertainties and other factors include, among others, exchange rates, general economic conditions and the business environment.
There will be a presentation of the results to analysts and
investors at 9.00am this morning at Pewterers' Hall, Oat Lane, City
of London, EC2V 7DE. This presentation will be made available as a
webcast from 2.00pm GMT via www.diplomaplc.com
For further information
please contact:
+44 (0)20 7549
Diploma PLC - 5700
Bruce Thompson, Chief Executive
Officer
Nigel Lingwood, Group Finance
Director
+44 (0)20 7353
Tulchan Communications - 4200
David Allchurch
Martin Robinson
NOTE TO EDITORS:
Diploma PLC is an international group of businesses supplying
specialised technical products and services to the Life Sciences,
Seals and Controls industries.
Diploma's businesses are focussed on supplying essential
products and services which are funded by the customers' operating
rather than their capital budgets, providing recurring income and
stable revenue growth.
Our businesses then design their individual business models to
closely meet the requirements of their customers, offering a blend
of high quality customer service, deep technical support and value
adding activities. By supplying essential solutions, not just
products, we build strong long term relationships with our
customers and suppliers, which support attractive and sustainable
margins.
Finally we encourage an entrepreneurial culture in our
businesses through our decentralised management structure. We want
our managers to feel that they have the freedom to run their own
businesses, while being able to draw on the support and resources
of a larger group. These essential values ensure that decisions are
made close to the customer and that the businesses are agile and
responsive to changes in the market and the competitive
environment.
The Group employs ca. 1,500 employees and its principal
operating businesses are located in the UK, Northern Europe, North
America and Australia.
Over the last five years, the Group has grown adjusted earnings
per share at an average of ca. 20% p.a. through a combination of
organic growth and acquisitions. Diploma is a member of the FTSE
250 with a market capitalisation of ca. GBP850m.
Further information on Diploma PLC can be found at
www.diplomaplc.com
HALF YEAR REVIEW TO 31 MARCH 2016
The Group's revenues for the six months ended 31 March 2016
increased by 10% over the prior year comparable period, having
benefited from the good contributions made from businesses acquired
during the past year. The acquired businesses have contributed 9%
to Group revenues, but currency movements have reduced revenues by
1%, despite the weakening of UK sterling since the beginning of the
calendar year. On an underlying basis, after adjusting for
acquisitions and for currency effects on translation, Group
revenues increased by 2%.
In Life Sciences, underlying revenues increased by 6%, with
stronger capital equipment sales in certain businesses against weak
comparatives. Reported revenues in Life Sciences increased by 1%
due to the continuing impact of currency movements on translation
of the results of the Healthcare businesses. In Seals, reported
revenues were 22% ahead of last half year, reflecting the
contribution from the businesses acquired during the past year. On
an underlying basis, revenues were unchanged against the strong
prior year comparable. In Controls, reported revenues increased by
2%, helped by strong growth in the Specialty Fastener business and
with a good initial contribution from the recent Cablecraft
acquisition. The Interconnect and Fluid Controls businesses are
beginning to stabilise and on an underlying basis, Controls
revenues decreased by 1%.
Acquisitions remain an integral part of the Group's growth
strategy and the improving environment experienced last year has
continued into the first half of the current year. During the six
months ended 31 March 2016, the Group has invested GBP30.2m on
acquiring businesses, principally the acquisitions of WCIS in
October 2015 and Cablecraft in March 2016. Since January 2014, the
Group has invested over GBP80m in acquiring new businesses which in
aggregate will now be contributing over 20% to the Group's
annualised revenue.
As anticipated, operating margins reduced by 90bps to 17.2%,
compared with 18.1% in the prior year comparable period. This
reduction was driven principally by the impact on Healthcare
margins from further significant depreciation of the Canadian and
Australian dollars against the US dollar through 2015. Since
January 2016, there are signs that both the Canadian and Australian
currencies may have stabilised at more favourable levels; the
foreign exchange transactional impact on gross margins in the
second half of the year should therefore be modest compared with
the first half year.
Group operating margins have also been impacted by the initial
lower operating margins in businesses acquired since January 2014
and the investments made within these businesses. This impact has
been more than offset by operating leverage in the businesses and
Sector mix.
RESULTS AND DIVIDS
In the six months ended 31 March 2016, Group revenue increased
by 10% to GBP179.1m (2015: GBP163.2m). Adjusted operating profit
increased by 4% to GBP30.8m (2015: GBP29.6m) and adjusted operating
margins were 17.2% (2015: 18.1%). After adjusting for the
incremental contribution from acquisitions and for translational
currency effects, underlying revenues increased by 2%.
Adjusted profit before tax increased by 4% to GBP30.4m (2015:
GBP29.3m) and adjusted earnings per share increased by 5% to 19.5p
(2015: 18.6p), benefitting from a slightly lower tax rate. On a
reported basis, profit before tax was GBP25.6m (2015: GBP26.0m) and
basic earnings per share were 16.0p (2015: 16.2p).
The cash flow from operations in the period increased by 30% to
GBP31.8m (2015: GBP24.4m) after an investment in working capital of
GBP1.0m (2015: GBP6.8m). The Group's free cash flow for the period
increased by GBP10.6m to GBP23.0m (2015: GBP12.4m) due to the lower
investment in working capital and proceeds of GBP2.3m from the sale
of legacy properties. At 31 March 2016, the Group had net debt of
GBP17.8m.
The Group continues to follow a progressive dividend policy,
which targets dividend cover towards two times on an adjusted EPS
basis. The Directors have declared an increased interim dividend up
7% to 6.2p per share (2015: 5.8p), reflecting the Board's
confidence in the Group's growth prospects. The dividend will be
payable on 15 June 2016 to shareholders on the register on 27 May
2016.
OPERATING REVIEW
Life Sciences
The Life Sciences businesses are suppliers of consumables,
instrumentation and related services to the healthcare and
environmental industries.
Half Year
2016 2015
--------------------------- ---------- --------- -----
Revenue GBP52.5m GBP52.0m +1%
Adjusted operating profit GBP9.3m GBP10.3m -10%
Adjusted operating margin 17.7% 19.8%
--------------------------- ---------- --------- -----
On an underlying basis, after adjusting for currency and
acquisitions, Life Sciences revenues increased by 6% over the prior
year comparable period. Reported revenues increased by 1% due to
the continued weakness of the Canadian and Australian dollars,
which reduced revenues by 5% on translation.
Adjusted operating margins reduced by 210bps as gross margins in
the Healthcare businesses continued to be impacted on a
transactional basis by further depreciation of the Canadian and
Australian dollar relative to the US dollar, particularly in the
second half of 2015. Local management has continued to work closely
with suppliers and customers to obtain pricing support, but the
opportunity to mitigate the transactional foreign exchange impact
on gross margins through operating cost management is reducing.
The DHG group of Healthcare businesses, which account for ca.
85% of Life Sciences revenues, increased underlying revenues by 6%
in constant currency terms. In Canada, DHG revenues increased by 4%
despite the significant budget pressures throughout the Provincial
healthcare systems driven by the tough economic environment. Good
growth in revenues in the surgical products businesses, AMT and
Vantage, more than offset reduced revenues in the Somagen clinical
diagnostics business.
AMT continued to face pricing pressures in its core
electrosurgery business from the tender and evaluation processes
introduced by Provincial shared services organisations and
cross-Province group purchasing organisations. However, the
constrained growth in revenues from smoke evacuation products and
electrosurgical accessories has been offset by good growth in the
supply of specialised surgical instruments and devices used in
laparoscopic and other minimally invasive surgical procedures. In
particular, strong growth has been achieved with products sourced
from new suppliers which have been added in recent years and which
have extended AMT into new surgical product segments. Vantage
delivered good double digit growth across its consumable product
lines including argon plasma probes, reprocessor chemicals and
other GI endoscopy accessories, including specialist retrieval
devices. Results were also boosted by strong growth in revenues
across all of Vantage's core capital equipment product lines and in
new cost per procedure deals for endoscope placements; this strong
performance was against a weak prior year comparative which was
constrained last year by delayed budget approvals.
Somagen's core clinical diagnostics business continues to be
impacted by the freeze in capital spending in Quebec while the
Province completes both the creation of integrated Health Centres
under its "Bill 10" legislation and the Optilab reorganisation
program which is designed to achieve cost savings and efficiencies
within Quebec public medical laboratories. Growth has also been
impacted by the introduction of stricter patient testing criteria
in Alberta's colorectal screening program thus constraining the
number of patient tests. To counter these headwinds, Somagen has
generated good revenue growth from its successful a1c diabetes
testing program and has continued to invest in new product
introductions designed to extend Somagen's business into new growth
segments.
The Australian Healthcare sector has experienced similar
economic and budget pressures to Canada, but even against this
background, the BGS and DSL businesses have increased revenues by
13% in local currency terms. BGS continued to grow surgical product
revenues strongly, with smoke evacuation programmes in existing and
new accounts continuing to provide the main driver for growth.
There was also a steady sales performance in electrosurgical
grounding pads, laparoscopic electrodes and the enzymatic products
acquired from Chemzyme. In the DSL clinical diagnostic products
business, the solid growth in revenues has been driven by capital
equipment sales, in particular of capillary electrophoresis
instruments used in testing for multiple myelomas and diabetes.
Consumable product sales were broadly flat, reflecting softer prior
year capital equipment sales from which consumable product demand
is derived.
The TPD business was acquired at the beginning of the prior
financial year and is an established supplier to the Biotechnology,
Clinical Laboratory and Medical markets in Ireland and the UK. TPD
has performed very well since acquisition, posting double digit
revenue growth in its first full year with the Group and continuing
this strong growth into the new financial year. In January 2016,
TPD consolidated and relocated its operations into an adjacent
leased building, which had been refurbished and fitted out to meet
TPD's requirements at a total cost of GBP0.6m. This new facility
consolidates a number of fragmented, less efficient operations into
a single facility and provides significant capacity to support
DHG's growth ambitions in Europe.
The a1-group of Environmental businesses in Europe, which
account for ca. 15% of Sector revenues, saw revenues increase by 3%
in UK sterling terms. The a1-envirosciences business revenues
increased by 18% in Euro terms with strong sales of high end
elemental and trace analysers supplied to petrochemical industry
customers and environmental laboratories; sales of containment
enclosures for the safe weighing of hazardous materials also
delivered strong growth. In the a1-CBISS business, revenues
decreased by 8% in UK sterling terms with stable revenues from long
term service contracts, but reductions in revenues from continuous
emissions monitoring systems (CEMS) and gas detection products. The
sector remains buoyant with new Biomass and Energy from Waste (EFW)
plants an important part of the UK's energy portfolio, but
competition is increasing in new sites controlled by major EPC
contractors. a1-CBISS is responding by focusing on replacement
systems and owner-operator sites where its specialist knowledge and
customised software solutions give competitive advantage.
Seals
The Seals businesses are suppliers of seals, gaskets, filters,
cylinders, components and kits for heavy mobile machinery and
industrial equipment.
Half Year
2016 2015
--------------------------- --------- ---------- -----
Revenue GBP79.2m GBP64.8m +22%
Adjusted operating profit GBP13.4m GBP12.0m +12%
Adjusted operating margin 16.9% 18.5%
--------------------------- --------- ---------- -----
Reported revenues increased by 22% over the prior comparable
period. The Seals acquisitions completed during last year (Kubo and
Swan Seals) along with an initial contribution from the WCIS
acquisition (completed in October 2015), added 20% to Sector
revenues. Currency movements (principally the stronger US dollar
relative to UK sterling) contributed a further 2% to Sector
revenues; on an underlying basis, after adjusting for currency and
acquisitions, revenues were unchanged.
Adjusted operating margins in the Seals businesses decreased by
160bps to 16.9%, as the proportion of acquired businesses with
lower initial operating margins increased to ca. 30% of Sector
revenues.
The North American Seals businesses, which account for ca. 60%
of Seals sector revenues, saw revenues decrease by 3% on a constant
currency basis against strong prior year comparatives.
The HFPG Aftermarket businesses saw revenues decrease by 4%,
with the core Hercules Bulldog seals and gaskets revenues broadly
flat against strong comparatives, but with a substantial reduction
in HKX attachment kit revenues in a depressed market for new
excavators.
In the domestic US market, Hercules Bulldog revenues were
broadly flat, but with a modest recovery in the repair sector in
the second quarter. Specific growth initiatives are also gaining
traction, including the participation in buying portals to sell
seal kits to large rental fleets and contractors and the addition
of new product lines including lifting slings and aftermarket
cylinders for skid-steer equipment. Webstore revenues also continue
to increase and in the first half accounted for ca. 20% of domestic
US Aftermarket seal sales. Sales to smaller specialist
sub-distributors increased in the first half, but this growth was
offset by reduced sales to larger distribution customers who were
actively looking to reduce inventories.
In Canada, Hercules revenues increased by 2% in local currency
terms with improved market conditions in Canadian manufacturing,
offsetting the decline in resource markets. Growth however slowed
in the second quarter as orders reduced from hydraulic cylinder
manufacturing customers. Revenues from international markets
outside North America reduced by 1% with growth in Mexico and Asia
Pacific markets more than offset by reductions in resource
dependent markets in South and Central America.
The HKX attachment kit business experienced a significant
reduction in revenues reflecting the depressed market for new
excavators in the US and Canada. The increased percentage of
factory installed kits continues to impede HKX's standard kit
sales, but HKX continues to respond by marketing lower cost entry
level kits which are upgradeable to provide a more complete range
of capabilities.
The HFPG Industrial OEM businesses in North America (RT Dygert,
All Seals and J Royal) saw revenues reduce by 1% against a
background of generally slow industrial markets, still indirectly
impacted by the weak Oil & Gas sector and with slowing growth
in the Aerospace and Medical sectors. Sales to cylinder
manufacturers reduced as their businesses were impacted by loss of
business to offshore suppliers and sales to catalogue distributors
reduced reflecting again the weaker industrial markets.
The businesses responded by reinforcing their strong position
with their core industrial equipment customers, ensuring high
levels of customer service in support of existing projects, as well
as offering more specialised material and product specifications to
secure new projects with higher added-value. In particular, the
businesses looked for opportunities to deploy higher specification,
regulatory-compliant compounds for the Pharmaceutical, Water and
Food equipment industries and for fuel dispensing applications.
The EMEA Seals businesses, which now account for ca. 40% of
Sector revenues, increased revenues by 4% on an underlying basis,
after adjusting for currency effects and acquisitions.
The FPE Seals business has continued to make progress in
developing a more substantial, broader-based Aftermarket Seals
business in the EMEA region. From the beginning of the year, it has
been fully operational from its new facility in Darlington in the
UK, which now serves as the core operational hub for the further
expansion of FPE Seals across the region. FPE Seals has also taken
full responsibility for the sale of Bulldog branded seal and gasket
products in international markets outside the Americas. FPE Seals
revenues reduced in the half year due to the impact of delayed
product shipments from the Bulldog operation following its
relocation to Tampa in September 2015; however, back orders have
been substantially reduced going into the second half of the
year.
Kentek continued to respond well to challenging economic
conditions in its core markets of Russia and Finland, with
pressures on the region's economy caused by lower global demand in
the Oil & Gas and Mining sectors and from the negative impact
of US and EU sanctions on Russia. Despite these challenges and
further devaluation of the Russian Rouble, Kentek delivered strong
double digit growth in revenues in Euro terms. In Finland, the new
General Manager has given additional structure and impetus to the
sales efforts and in Russia, Kentek has seen good increases in
revenues from its newer sales offices as they establish their
presence across the region. Kentek has also benefited from
increased investment by the Russian government in the agricultural
and general manufacturing sectors and has also won a number of
tenders with key mining customers. During the period, Kentek
introduced a new own-branded filter range which is now gaining
traction.
M Seals delivered solid revenue growth in the half year in its
core markets of Denmark and Sweden. The first quarter performance
was held back by delayed orders from a number of key customers, but
orders started to be released in the second quarter against several
new projects with these customers. The growth in these core
markets, was offset by reduced revenues from the M Seals operations
in the UK, which have traditionally supplied to customers in the
Oil & Gas sector. M Seals has responded by increasing sales
efforts to specialised Industrial OEMs in other sectors.
Since its acquisition in March 2015, Kubo has faced a period of
contraction in its core industrial market in Switzerland, following
the decoupling of the Swiss Franc from the Euro in early 2015.
Against the background of these challenging market conditions, Kubo
has made progress in taking market share from competitors and on a
like-for-like basis, including pre-acquisition revenues, Kubo
revenues have remained broadly unchanged. Investment is being made
in a new seal machining centre which will be installed in May 2016
and will enable Kubo to respond quickly to urgent customer
requirements for specialised seals as well as replacing externally
sourced products. Kubo has also benefited from its prior year
investment in a custom gasket cutting machine in its Austrian
operations; this has delivered improved responsiveness and service
for maintenance and repair customers in process industries.
In October 2015, the Group completed the acquisition of WCIS, a
supplier of gaskets, seals and associated products and services
with operations in Australia and New Caledonia. WCIS has core
capabilities in soft and metallic gaskets and mechanical seals,
used in complex and arduous applications. WCIS is an important
extension of the Group's EMEA Seals activities into the Australasia
region. Since its acquisition, WCIS core customers in the Mining
and Energy sectors have faced difficult market conditions and this
has held back revenues as expected. However, progress has been made
in broadening sales and marketing activities in Australia and
reinforcing relationships with the key customer of WCIS in New
Caledonia.
Controls
The Controls businesses are suppliers of specialised wiring,
connectors, fasteners and control devices for technically demanding
applications.
Half Year
2016 2015
--------------------------- ---------- --------- -----
Revenue GBP47.4m GBP46.4m +2%
Adjusted operating profit GBP8.1m GBP7.3m +11%
Adjusted operating margin 17.1% 15.7%
--------------------------- ---------- --------- -----
Reported revenues increased by 2% against the prior year
comparable period. The acquisitions of Cablecraft and Ascome in
this half year added 3% to Sector revenues and currency effects on
translation were minimal. On an underlying basis, after adjusting
for these acquisitions, underlying revenues decreased by 1%.
Adjusted operating margins have increased by 140bps to 17.1%.
Gross margins have strengthened in the IS-Group and Specialty
Fasteners businesses, while operating costs as a percentage of
revenue have remained broadly stable across these businesses. The
operating margins of the newly acquired Cablecraft business have
also contributed to the improvement in the Sector average.
The Interconnect businesses account for ca. 75% of Sector
revenues. These businesses supply high performance wiring, harness
components, connectors and fasteners, used in technically demanding
applications, often in harsh environments. In the half year,
Interconnect revenues increased by 3% in UK sterling terms; after
adjusting for the Cablecraft and Ascome acquisitions and for
currency effects, underlying revenues decreased by 1%.
The IS-Group UK businesses saw revenues reduce by 9% in UK
sterling terms. Defence & Aerospace and Industrial markets in
the UK continued to be challenging, with the most significant
reductions being in sales to other distributors, both in the UK and
particularly in Continental European markets. Energy revenues also
showed a significant reduction against the prior year, partially
driven by the cut-backs in the Oil & Gas industry which have
impacted sales of harness components to sub-sea cable manufacturers
and other Oil & Gas related markets. In response to these
challenging conditions, sales resources have been realigned and
further business development programmes introduced; these
initiatives have produced a modestly improving trend in the second
quarter that has continued into April. In the US, Motorsport sales
were particularly buoyant and compensated for a small reduction in
Industrial sales.
In Germany, IS-Sommer and Filcon reported a 4% increase in
revenues in local Euro terms. IS-Sommer's sales in Industrial
markets showed modest growth, benefiting from a relatively stable
economic environment and strong business fundamentals. IS-Sommer
also delivered good revenue growth in the Aerospace and Defence
markets which compensated for a weaker performance in Motorsport.
In the Energy sector, IS-Sommer's principal involvement is in the
supply of products used in the repair and maintenance of the low
and medium-voltage Electricity network; these sales have held up
well, as 2016 is an assessment year for the German power network
which typically triggers a cyclical round of investments.
Filcon delivered a strong performance in the half year, driven
by increased sales to the Motorsport and Space industries.
Increased activity is also being seen in the Defence and Military
Aerospace sector, where there is growing pressure on Germany to
upgrade its military capabilities. The increased sales activity has
not yet translated into orders, but prospects for the second half
are more encouraging. In February 2016, Filcon completed the
acquisition of Ascome, a small distributor of specialist connectors
into the Defence and Industrial markets in France. This acquisition
gives critical mass to Filcon's operations in France, provides
credible access to the Defence sector and gives access to new
products and suppliers.
The Specialty Fasteners business (Clarendon and SFC) increased
revenues by 12% over the prior year comparable period. Last year,
Clarendon's deliveries to its key aircraft seating customer were
held back by programme changes, as well as from the implementation
by Clarendon of a new lineside supply project which initially
revealed surplus inventory at the customer. In this half year,
revenues increased strongly as the customer increased production
and deliveries of new inventory were resumed. Clarendon also had
success increasing sales to other aircraft seating and cabin
interiors manufacturers and sub-contractors across Europe.
Motorsport revenues returned to more normal levels after the
reduced development spend in the prior year and SFC continued to
grow sales of fastening solutions to a range of Industrial and
Defence customers.
In March 2016, the Group completed the acquisition of
Cablecraft, a leading supplier of cable accessory products which
are used to identify, connect, secure and protect electrical
cables; own-branded and manufactured products account for ca. 80%
of revenues. The Cablecraft business supplies to wholesalers,
distributors and end-users in a range of industries including
Electrical contracting, Control panels, Rail & signalling and
Energy & Utilities. The acquisition of Cablecraft broadens the
product range of the Controls businesses and the industrial markets
that it serves open up opportunities for cross-selling.
The Hawco Group of Fluid Controls businesses accounts for ca.
25% of Controls sector revenues and supply temperature, pressure
and fluid control products, with a high proportion of its products
being supplied to the Food and Beverage industry. Hawco Group
revenues were flat in UK sterling terms against the prior year
comparable period.
Hawco continues to face challenging market conditions in its
core Refrigeration equipment and Industrial OEM markets in the UK
and is responding by adding new product lines and extending into
export markets, including Turkey and Germany. Hawco saw an upturn
in sales to air conditioning and refrigeration contractors,
serviced increasingly through the company's web-site and through
independent trade counter partners; sourcing and fulfilment
contracts are also being established with major contracting
groups.
Abbeychart continued to achieve growth in revenues in its core
coffee segment, where the company is offering a broad portfolio of
essential parts to service the broad range of espresso type
machines being installed in an increasing number of outlets, as
customers reposition themselves from vending companies to coffee
specialists. In the water segment, revenues reduced as plumbed
water dispensers continue to lose share against individual bottled
water. To offset this decline, Abbeychart has focussed growth
initiatives in the craft brewing and export markets.
FINANCE
Free cash flow
The Group generated strong free cash flow of GBP23.0m (2015:
GBP12.4m) during the half year, maintaining tight control over
working capital in response to the more difficult trading
environment and helped by an incremental GBP2.3m of proceeds from
the sale of surplus legacy properties.
Operating cash flow increased by 30% to GBP31.8m (2015:
GBP24.4m), benefitting from a much lower investment in working
capital of GBP1.0m, compared with an investment of GBP6.8m in the
comparable period. A small seasonal increase in receivables and
inventories was largely offset by increased payables at the period
end. However despite this lower cash outflow into working capital,
the Group's metric of working capital to revenue was 18.0%,
compared with 17.0% at 30 September 2015, when working capital is
generally at its lowest point. Further reductions in working
capital, relative to trailing revenues, will be targeted in the
second half of the year which should bring this metric back to the
longer term average of ca. 17%.
Tax payments in the first half of the year increased to GBP8.7m
(2015: GBP7.3m), including GBP0.3m of tax payments relating to
pre-acquisition tax liabilities of those businesses acquired during
the period. On an underlying basis, the cash tax rate increased to
ca. 27% (2015: ca. 25%) reflecting a much lower benefit in the UK
from tax relief on the exercise of outstanding LTIP awards in 2015.
The Company's contribution to the Diploma Employee Benefit Trust in
connection with outstanding LTIP awards reduced to GBP0.3m compared
with GBP1.7m in the comparable period.
Capital expenditure of GBP1.6m (2015: GBP1.7m) included GBP0.5m
in Life Sciences on completing the refurbishment of the TPD
leasehold facility in Ireland which has now provided TPD with their
own independent and lower cost facility; a further GBP0.4m was
spent on acquiring field equipment in support of customer contracts
at hospitals and GBP0.2m was incurred on upgrading office and IT
facilities in the Canadian Healthcare businesses. In Seals, a new
seal cutting machine was acquired by FPE Seals for their Darlington
facility for GBP0.2m and GBP0.3m was invested on new warehouse
machinery in WCIS, Australia and on IT infrastructure in the US
seals businesses.
In addition to this expenditure, an initial amount of GBP0.2m
was spent on financing the construction of a new warehouse and
office facilities for J Royal, a Seals business based in North
Carolina in the United States. This facility is due to be completed
in January 2017 at a cost of ca. GBP2.0m and it is intended that
this facility will then be sold and leased back to J Royal. A
similar project was completed last year in the UK for FPE Seals, of
which GBP1.1m had been spent on construction in the comparable
period.
Net debt
At 31 March 2016, the Group had net debt of GBP17.8m, comprising
borrowings of GBP40.0m offset by cash balances of GBP22.2m,
compared with net cash of GBP3.0m at 30 September 2015. The
reduction in net cash funds of GBP20.8m was after spending GBP30.2m
(2015: GBP35.0m) on acquisitions and GBP14.4m (2015: GBP13.3m) on
dividends paid to ordinary and minority shareholders.
Acquisition expenditure of GBP30.2m comprised GBP29.5m on
acquiring new businesses and GBP0.7m on deferred consideration, as
described further in notes 10 and 11 to the financial
statements.
These acquisitions were funded out of existing cash resources
and from the utilisation of the Group's existing committed
revolving bank facility. In March 2016, the Group exercised its
accordion option again to increase this bank facility from GBP40m
to a maximum of GBP50m to assist with funding the acquisition of
Cablecraft.
On the basis of current financial projections and after
considering sensitivities, the Directors are confident that the
Group has sufficient resources to fund its operations for the
foreseeable future. The condensed set of consolidated financial
statements has therefore been prepared on a going concern
basis.
Exchange rates
A significant proportion of the Group's revenues (ca. 75%) are
derived from businesses located outside the UK, principally in the
US, Canada, Australia and Northern Europe. During the first quarter
of the financial year, UK sterling was stronger against most of the
major currencies in which the Group operates (other than the US
dollar) compared with last year. This more than offset the impact
from the weakening of UK sterling since January 2016. As a result,
the impact on the Group of translating the results of the Group's
overseas businesses into UK sterling has been to reduce Group
revenues by GBP1.3m and Group adjusted operating profit by GBP0.2m,
compared with the same period last year.
As previously reported, a large proportion of the Healthcare
businesses, which account for ca. 25% of Group revenues, are
impacted by exchange rate movements in the Canadian and Australian
dollars, relative to the currencies in which these businesses
purchase their products, primarily US dollars and Euros. The
substantial depreciation in the exchange rate of these two
currencies which began in late 2013, continued throughout the past
two years before peaking in mid January 2016. The ability of these
businesses to mitigate this transactional impact on gross margins
through a combination of foreign currency hedges, supplier cost
reductions and tight control over operating costs becomes more
limited over time. Accordingly in the period ended 31 March 2016,
there was ca. 400bps reduction in the gross margins of the
Healthcare businesses, compared with the comparable period arising
from further currency depreciation.
Transactional currency exposures in the rest of the Group's
businesses have generally been mitigated by currency hedging
contracts and therefore have not materially impacted the reported
results in this period.
RISKS AND UNCERTAINTIES
The principal risks and uncertainties which may have the largest
impact on performance in the second half of the year are the same
as those described in detail in pages 35-37 of the 2015 Annual
Report & Accounts. In summary these are:
-- Strategic risks - a downturn in major markets, loss of key
suppliers and/or major customers and supplier strategy change;
-- Operational risks - product liability and loss of key personnel; and
-- Financial risks - foreign currency risk and inventory obsolescence.
The Directors consider that the principal risks and
uncertainties have not changed since the publication of the 2015
Annual Report & Accounts and that they remain relevant for the
second half of the financial year. In particular, since a large
proportion of the Group's revenue and profits are generated
overseas, movements in the foreign exchange rates of these
territories remain a principal risk to financial performance.
The Directors have also considered the potential impact on the
Group's businesses from a UK vote in June 2016 to leave the
European Community ("Brexit") and do not believe that this would
materially impact the Group's outlook or viability.
CURRENT TRADING AND OUTLOOK
The Group has delivered further robust growth in the first half
of the year, despite the weaker macro-economic backdrop and the
adverse impact of foreign exchange, with acquired businesses adding
9% to Group revenues.
These results reinforce the resilience of the Group's proven
business model which aims to deliver "GDP plus" organic revenue
growth, with value-creating acquisitions accelerating the growth to
the target double-digit level. Last year was a record year for
acquisitions and we have continued this momentum into the first
half of this year with acquisition spend of ca. GBP30m.
With challenging trading conditions likely to persist through
the second half of the year, we will continue to take advantage of
our strong financial position to target further acquisition
opportunities to support future growth and deliver shareholder
value.
BM Thompson
Chief Executive Officer
16 May 2016
Responsibility Statement of the Directors in respect of the Half
Year Report 2016
We confirm that to the best of our knowledge:
-- the condensed set of consolidated financial statements has
been prepared in accordance with IAS 34 "Interim Financial
Reporting" as adopted by the EU; and
-- the Half Year Report includes a fair review of the information required by:
a) DTR4.2.7R of the Disclosure and Transparency Rules, being an
indication of the important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of consolidated financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
b) DTR4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last Annual Report & Accounts that could do
so.
The Directors of Diploma PLC and their respective
responsibilities are listed in the Annual Report & Accounts for
2015 and on the Company's website at www.diplomaplc.com.
By Order of the Board
BM Thompson NP Lingwood
Chief Executive Officer Group Finance Director
16 May 2016 16 May 2016
Condensed Consolidated Income Statement
For the six months ended 31 March 2016
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2016 2015 2015
Note GBPm GBPm GBPm
------------------------------- -------- ---------- ---------- --------
Revenue 3 179.1 163.2 333.8
Cost of sales (114.4) (103.9) (212.8)
--------------------------------- ------- ---------- ---------- --------
Gross profit 64.7 59.3 121.0
Distribution costs (4.0) (3.5) (6.8)
Administration costs (34.7) (29.9) (61.3)
--------------------------------- ------- ---------- ---------- --------
Operating profit 3 26.0 25.9 52.9
Gain on sale of properties 3 0.3 - -
Financial (expense)/income,
net 4 (0.7) 0.1 (1.1)
Profit before tax 25.6 26.0 51.8
Tax expense 5 (7.1) (7.3) (14.4)
--------------------------------- ------- ---------- ---------- --------
Profit for the period 18.5 18.7 37.4
--------------------------------- ------- ---------- ---------- --------
Attributable to:
Shareholders of the Company 18.1 18.3 36.7
Minority interests 0.4 0.4 0.7
--------------------------------- ------- ---------- ---------- --------
18.5 18.7 37.4
------------------------------- ------- ---------- ---------- --------
Earnings per share
Basic and diluted earnings 6 16.0p 16.2p 32.5p
--------------------------------- ------- ---------- ---------- --------
Alternative Performance 31 March 31 March 30 Sept
Measures (note 2) 2016 2015 2015
Note GBPm GBPm GBPm
------------------------------- ---------- --------- --------- --------
Operating profit 26.0 25.9 52.9
Add: Acquisition related
charges 9 4.8 3.7 7.4
Adjusted operating profit 3 30.8 29.6 60.3
Deduct: Net interest expense 4 (0.4) (0.3) (0.7)
-------------------------------- ---- ---- --------- --------- --------
Adjusted profit before
tax 30.4 29.3 59.6
-------------------------------- ---- ---- --------- --------- --------
Adjusted earnings per share 6 19.5p 18.6p 38.2p
-------------------------------- ---- ---- --------- --------- --------
Condensed Consolidated Statement of Income and Other
Comprehensive Income
For the six months ended 31 March 2016
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2016 2015 2015
GBPm GBPm GBPm
----------------------------------------- ---------- ---------- ---------
Profit for the period 18.5 18.7 37.4
------------------------------------------ ---------- ---------- ---------
Items that will not be reclassified
to the Consolidated Income Statement
Actuarial losses in the defined
benefit pension scheme - - (1.9)
Deferred tax on items that will
not be reclassified - - 0.4
------------------------------------------ ---------- ---------- ---------
- - (1.5)
------------------------------------------ ---------- ---------- ---------
Items that may be reclassified
to the Consolidated Income Statement
Exchange rate gains/(losses)
on foreign currency net investments 13.6 (2.1) (8.2)
(Losses)/gains on fair value
of cash flow hedges (1.1) 1.6 1.5
Net changes to fair value
of cash flow hedges transferred
to the Consolidated Income
Statement - - (0.3)
Deferred tax on items that
may be reclassified 0.3 (0.4) (0.3)
------------------------------------------- ---------- ---------- ---------
12.8 (0.9) (7.3)
----------------------------------------- ---------- ---------- ---------
Total Comprehensive Income for
the period 31.3 17.8 28.6
------------------------------------------ ---------- ---------- ---------
Attributable to:
Shareholders of the Company 30.6 17.8 28.1
Minority interests 0.7 - 0.5
------------------------------------------- ---------- ---------- ---------
31.3 17.8 28.6
----------------------------------------- ---------- ---------- ---------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 March 2016
Share
Share Transl. Hedging Retained -holders' Minority Total
capital reserve reserve earnings equity interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ---------- ---------- ----------- ----------- ----------- ---------
At 1 October 2014 5.7 7.5 0.3 170.9 184.4 2.9 187.3
Total comprehensive
income - (2.1) 1.2 18.7 17.8 - 17.8
Share-based payments - - - 0.4 0.4 - 0.4
Acquisition of
businesses - -- -- -- -- 3.2 3.2
Minority interest
put option - - - (3.2) (3.2) - (3.2)
Minority interest
acquired - - - 1.2 1.2 (1.2) -
Tax on items recognised
directly in equity - - - - - - -
Notional purchase
of own shares - - - (1.7) (1.7) - (1.7)
Dividends - - - (13.1) (13.1) (0.2) (13.3)
-------------------------- ---------- ---------- ---------- ----------- ----------- ----------- ---------
At 31 March 2015
(unaudited) 5.7 5.4 1.5 173.2 185.8 4.7 190.5
Total comprehensive
income - (5.9) (0.3) 16.5 10.3 0.5 10.8
Share-based payments - - - 0.1 0.1 - 0.1
Tax on items recognised
directly in equity - - - - - - -
Notional purchase
of own shares - - - - - - -
Dividends - - - (6.6) (6.6) - (6.6)
-------------------------- ---------- ---------- ---------- ----------- ----------- ----------- ---------
At 30 September
2015 5.7 (0.5) 1.2 183.2 189.6 5.2 194.8
Total comprehensive
income - 13.3 (0.8) 18.1 30.6 0.7 31.3
Share-based payments - - - 0.2 0.2 - 0.2
Tax on items recognised
directly in equity - - - - - - -
Notional purchase
of own shares - - - (0.3) (0.3) - (0.3)
Dividends - - - (14.0) (14.0) (0.4) (14.4)
At 31 March 2016
(unaudited) 5.7 12.8 0.4 187.2 206.1 5.5 211.6
-------------------------- ---------- ---------- ---------- ----------- ----------- ----------- ---------
Condensed Consolidated Statement of Financial Position
As at 31 March 2016
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2016 2015 2015
Note GBPm GBPm GBPm
--------------------------------- ------ ---------- ---------- ---------
Non-current assets
Goodwill 9 109.2 91.3 89.3
Acquisition intangible
assets 9 58.4 43.1 40.2
Other intangible assets 1.1 0.8 1.2
Investment 0.7 0.7 0.7
Property, plant and equipment 22.9 22.7 22.8
Deferred tax assets 0.5 1.4 0.4
----------------------------------- ----- ---------- ---------- ---------
192.8 160.0 154.6
--------------------------------- ----- ---------- ---------- ---------
Current assets
Inventories 64.5 62.7 56.6
Asset in course of construction 3 0.2 1.1 -
Trade and other receivables 59.1 55.5 51.3
Cash and cash equivalents 8 22.2 18.6 23.0
----------------------------------- ----- ---------- ---------- ---------
146.0 137.9 130.9
--------------------------------- ----- ---------- ---------- ---------
Current liabilities
Trade and other payables (53.1) (48.7) (45.1)
Current tax liabilities (3.2) (4.3) (2.9)
Other liabilities 11 (2.3) (1.0) (2.5)
(58.6) (54.0) (50.5)
--------------------------------- ----- ---------- ---------- ---------
Net current assets 87.4 83.9 80.4
----------------------------------- ----- ---------- ---------- ---------
Total assets less current
liabilities 280.2 243.9 235.0
Non-current liabilities
Borrowings 8 (40.0) (33.5) (20.0)
Retirement benefit obligations (10.0) (8.1) (9.8)
Other liabilities 11 (8.3) (5.1) (4.1)
Deferred tax liabilities (10.3) (6.7) (6.3)
----------------------------------- ----- ---------- ---------- ---------
Net assets 211.6 190.5 194.8
----------------------------------- ----- ---------- ---------- ---------
Equity
Share capital 5.7 5.7 5.7
Translation reserve 12.8 5.4 (0.5)
Hedging reserve 0.4 1.5 1.2
Retained earnings 187.2 173.2 183.2
----------------------------------- ----- ---------- ---------- ---------
Total shareholders' equity 206.1 185.8 189.6
Minority interests 5.5 4.7 5.2
----------------------------------- ----- ---------- ---------- ---------
Total equity 211.6 190.5 194.8
----------------------------------- ----- ---------- ---------- ---------
Condensed Consolidated Cash Flow Statement
For the six months ended 31 March 2016
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2016 2015 2015
Note GBPm GBPm GBPm
----------------------------------------- ---------- ---------- ---------
Operating profit 26.0 25.9 52.9
Acquisition related charges 7 4.8 3.7 7.4
Non-cash items 7 2.0 1.6 3.7
Increase in working capital 7 (1.0) (6.8) (1.9)
----------------------------------- ----- ---------- ---------- ---------
Cash flow from operating
activities 31.8 24.4 62.1
Interest paid, net (0.3) (0.2) (0.5)
Tax paid (8.7) (7.3) (15.4)
----------------------------------- ----- ---------- ---------- ---------
Net cash from operating
activities 22.8 16.9 46.2
----------------------------------- ----- ---------- ---------- ---------
Cash flow from investing
activities
Acquisition of businesses
(including expenses) 10 (29.5) (34.1) (36.6)
Deferred consideration paid 11 (0.7) (0.3) (0.6)
Purchase of property, plant
and equipment (1.5) (1.5) (4.0)
Assets in course of construction (0.2) (1.1) -
Purchase of other intangible
assets (0.1) (0.2) (0.3)
Proceeds from sale of property,
plant and equipment 2.3 - 0.1
----------------------------------- ----- ---------- ---------- ---------
Net cash used in investing
activities (29.7) (37.2) (41.4)
----------------------------------- ----- ---------- ---------- ---------
Cash flow from financing
activities
Acquisition of minority
interests 11 - (0.6) (0.6)
Dividends paid to shareholders 12 (14.0) (13.1) (19.7)
Dividends paid to minority
interests (0.4) (0.2) (0.2)
Purchase of own shares by
Employee Benefit Trust - (0.7) (0.7)
Notional purchase of own
shares on exercise of share
options (0.3) (1.0) (1.0)
Proceeds of borrowings,
net 8 20.0 33.5 20.0
Net cash generated/(used)
in financing activities 5.3 17.9 (2.2)
----------------------------------- ----- ---------- ---------- ---------
Net (decrease)/increase
in cash and cash equivalents 8 (1.6) (2.4) 2.6
Cash and cash equivalents
at beginning of period 23.0 21.3 21.3
Effect of exchange rates
on cash and cash equivalents 0.8 (0.3) (0.9)
----------------------------------- ----- ---------- ---------- ---------
Cash and cash equivalents
at end of period 22.2 18.6 23.0
------------------------------------------ ---------- ---------- ---------
Alternative Performance Measures 31 March 31 March 30 Sept
(note 2) 2016 2015 2015
GBPm GBPm GBPm
------------------------------- -------------------------------- --------- ---------------- ----------------
Net (decrease)/increase in
cash and cash equivalents (1.6) (2.4) 2.6
Add: Dividends paid to shareholders 14.0 13.1 19.7
Dividends paid to minority
interests 0.4 0.2 0.2
Acquisition of businesses
and minority interests 29.5 34.7 37.2
Deferred consideration
paid 0.7 0.3 0.6
Proceeds of borrowings,
Less: net (20.0) (33.5) (20.0)
------------------------------- ---------------------------------- --------- ---------------- ----------------
Free cash flow 23.0 12.4 40.3
------------------------------------------------------------------- --------- ---------------- ----------------
Cash and cash equivalents 22.2 18.6 23.0
Borrowings (40.0) (33.5) (20.0)
------------------------------------------------------------------- --------- ---------------- ----------------
Net (debt)/cash (17.8) (14.9) 3.0
------------------------------------------------------------------- --------- ---------------- ----------------
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2016
1. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
Diploma PLC (the "Company") is a company registered and
domiciled in England and Wales. The condensed set of consolidated
financial statements (the "financial statements") for the six
months ended 31 March 2016 comprises the Company and its
subsidiaries (together referred to as the "Group").
The comparative figures for the financial year ended 30
September 2015 are not the Group's statutory accounts for that
financial year within the meaning of section 434 of the Companies
Act 2006. Those accounts have been reported on by the Company's
auditor and delivered to the Registrar of Companies. The report of
the auditor was (i) unqualified, (ii) did not include a reference
to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain
a statement under section 498 (2) or (3) of the Companies Act 2006.
The figures for the six months ended 31 March 2015 were extracted
from the 2015 Half Year Report, which was unaudited.
The Group's audited consolidated financial statements for the
year ended 30 September 2015 are available on the Company's website
(www.diplomaplc.com) or upon request from the Company's registered
office at Diploma PLC, 12 Charterhouse Square, London, EC1M
6AX.
1.1 Statement of compliance
The financial statements included in this Half Year Announcement
for the six months ended 31 March 2016 have been prepared on a
going concern basis and in accordance with IAS 34, Interim
Financial Reporting as adopted by the European Union and the
Disclosure and Transparency Rules of the Financial Conduct
Authority. The financial statements do not include all of the
information required for full annual consolidated financial
statements and should be read in conjunction with the Group's
audited consolidated financial statements for the year ended 30
September 2015.
The Half Year financial statements were approved by the Board of
Directors on 16 May 2016; they have not been audited by the
Company's auditor.
1.2 Significant accounting policies
The accounting policies applied by the Group in this set of
financial statements are the same as those applied by the Group in
its audited consolidated financial statements for the year ended 30
September 2015, except for the amount included in the Half Year
Report in respect of taxation which has been calculated by applying
the Directors' best estimate of the annual rates of taxation to
taxable profits for the period. In the audited consolidated
financial statements for the full year, the taxation balances are
based on draft tax computations prepared for each business within
the Group. No new standards, amendments or interpretations have had
a material impact on the Group's reported results or financial
position.
1.3 Estimates and judgements
The preparation of these financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
The estimates and judgements made by management in applying the
Group's accounting policies and the key sources of uncertainty that
have the most significant effect on the amounts included within
these financial statements, were the same as those that applied to
the Group's audited consolidated financial statements for the year
ended 30 September 2015. These are set out on page 95 of the 2015
Annual Report & Accounts.
2. ALTERNATIVE PERFORMANCE MEASURES
The Group uses a number of alternative (non-Generally Accepted
Accounting Practice ("non-GAAP")) financial measures which are not
defined within IFRS. The Directors use these measures in order to
assess the underlying operational performance of the Group and as
such, these measures are important and should be considered
alongside the IFRS measures. The following non-GAAP measures are
referred to in this Half Year Announcement.
2.1 Adjusted operating profit
At the foot of the Condensed Consolidated Income Statement,
"adjusted operating profit" is defined as operating profit before
amortisation and impairment of acquisition intangible assets,
acquisition expenses, adjustments to deferred consideration
(collectively, "acquisition related charges"), the costs of a
material restructuring or rationalisation of operations and the
profit or loss relating to the sale of businesses or property. The
Directors believe that adjusted operating profit is an important
measure of the underlying operational performance of the Group.
2.2 Adjusted profit before tax
At the foot of the Condensed Consolidated Income Statement,
"adjusted profit before tax" is separately disclosed, being defined
as adjusted operating profit, after finance expenses (but before
fair value remeasurements under IAS 39 in respect of future
purchases of minority interests) and before tax. The Directors
believe that adjusted profit before tax is an important measure of
the underlying performance of the Group.
2.3 Adjusted earnings per share
"Adjusted earnings per share" ("EPS") is calculated as the total
of adjusted profit before tax, less income tax costs, but excluding
the tax impact on the items included in the calculation of adjusted
profit and the tax effects of goodwill in overseas jurisdictions,
less profit attributable to minority interests, divided by the
weighted average number of ordinary shares in issue during the
period. The Directors believe that adjusted EPS provides an
important measure of the underlying earning capacity of the
Group.
2.4 Free cash flow
At the foot of the Condensed Consolidated Cash Flow Statement,
"free cash flow" is reported, being defined as net cash flow from
operating activities, after net capital expenditure on fixed assets
and including proceeds received from business disposals, but before
expenditure on business combinations/investments and dividends paid
to both minority shareholders and the Company's shareholders. The
Directors believe that free cash flow gives an important measure of
the cash flow of the Group, available for future investment or
distribution to shareholders.
3. BUSINESS SECTOR ANALYSIS
Sector information is presented in this Half Year Announcement
in respect of the Group's business Sectors, which is the primary
basis of sector reporting. The business Sector reporting format
reflects the Group's management and internal reporting structure.
The geographic sector reporting represents results by origin. The
Group's financial results have not, historically, been subject to
significant seasonal trends. In the year ended 30 September 2015,
the Group earned 49% of its annual revenues and 49% of its annual
adjusted operating profits in the first six months of the year.
Adjusted operating
Revenue profit Operating profit
31 31 30 31 31 30 31 31 30
Mar Mar Sept Mar Mar Sept Mar Mar Sept
2016 2015 2015 2016 2015 2015 2016 2015 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------ ------ ------ ------- ------ ------ ------- ------ ------
By Sector
Life Sciences 52.5 52.0 103.1 9.3 10.3 21.0 7.9 8.6 17.9
Seals 79.2 64.8 139.6 13.4 12.0 24.8 10.9 10.4 21.2
Controls 47.4 46.4 91.1 8.1 7.3 14.5 7.2 6.9 13.8
---------------- ------ ------ ------ ------- ------ ------ ------- ------ ------
179.1 163.2 333.8 30.8 29.6 60.3 26.0 25.9 52.9
---------------- ------ ------ ------ ------- ------ ------ ------- ------ ------
By Geographic
Area
United Kingdom 43.5 43.8 87.7 6.9 7.0 14.5
Rest of Europe 49.7 34.5 77.1 7.3 5.7 11.7
North America 85.9 84.9 169.0 16.6 16.9 34.1
179.1 163.2 333.8 30.8 29.6 60.3
---------------- ------ ------ ------ ------- ------ ------
In the six months ended 31 March 2016 the newly acquired
businesses of WCIS, Cablecraft and Ascome as described in Note 10,
contributed GBP4.7m to revenue and GBP0.8m to adjusted operating
profit; after acquisition related charges of GBP1.2m, the
contribution to operating profit was a loss of GBP0.4m. The results
of WCIS are included within the Seals Sector and Cablecraft and
Ascome are included within the Controls Sector. Cablecraft is
reported within the Geographic Area of the United Kingdom and WCIS
and Ascome are reported within the Rest of Europe.
Total assets Total liabilities Net assets
31 31 30 31 31 30 31 31 30
Mar Mar Sept Mar Mar Sept Mar Mar Sept
2016 2015 2015 2016 2015 2015 2016 2015 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------ ------ ------ -------- -------- ------- ------- ------- -------
By Sector
Life Sciences 97.3 95.4 89.3 (15.3) (14.6) (14.7) 82.0 80.8 74.6
Seals 132.1 119.9 115.7 (18.5) (22.8) (16.2) 113.6 97.1 99.5
Controls 84.7 56.7 52.6 (18.7) (16.2) (13.5) 66.0 40.5 39.1
Unallocated
assets/(liabilities) 24.7 25.9 27.9 (74.7) (53.8) (46.3) (50.0) (27.9) (18.4)
----------------------- ------ ------ ------ -------- -------- ------- ------- ------- -------
338.8 297.9 285.5 (127.2) (107.4) (90.7) 211.6 190.5 194.8
----------------------- ------ ------ ------ -------- -------- ------- ------- ------- -------
Sector assets exclude cash and cash equivalents, deferred tax
assets and corporate assets that cannot be allocated on a
reasonable basis to a business sector. Sector liabilities exclude
borrowings, retirement benefit obligations, deferred tax
liabilities and corporate liabilities that cannot be allocated on a
reasonable basis to a business sector. These items that cannot be
allocated on a reasonable basis to a business sector are shown
collectively as "unallocated assets/ (liabilities)".
Capital expenditure Depreciation
31 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept
Mar
2016 2015 2015 2016 2015 2015
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------ ------- -------- ------- ------- --------
By Sector
Life Sciences 1.1 0.9 2.5 0.9 0.8 1.7
Seals 0.5 0.6 1.5 0.8 0.4 1.3
Controls - 0.2 0.3 0.3 0.2 0.5
1.6 1.7 4.3 2.0 1.4 3.5
--------------- ------ ------- -------- ------- ------- --------
During the period, GBP0.2m of capital expenditure was also
incurred in connection with the construction of a new facility at J
Royal in North Carolina, US, which is due to be completed in
January 2017. In 2015, GBP1.1m was incurred in connection with
constructing a new facility for FPE Seals in Darlington, UK which
was completed in September 2015. This expenditure has been included
in the Condensed Consolidated Statement of Financial Position as an
"Asset in course of construction".
Properties with a net book value of GBP2.0m were disposed of by
the Group during the six months ended 31 March 2016, resulting in a
net gain on disposal of GBP0.3m (2015: Nil).
4. FINANCIAL INCOME/(EXPENSE), NET
31 March 31 March 30 Sept
2016 2015 2015
GBPm GBPm GBPm
---------------------------------------------------------- --------- --------- --------
Interest expense and similar
charges
- bank facility and commitment
fees (0.1) (0.1) (0.2)
- interest payable on bank
and other borrowings (0.2) (0.1) (0.3)
* notional interest expense on the defined benefit
pension schemes (0.1) (0.1) (0.2)
Interest expense and similar
charges (0.4) (0.3) (0.7)
* fair value remeasurement of put options (note 11) (0.3) 0.4 (0.4)
---------------------------------------------------------- --------- --------- --------
Financial (expense)/income,
net (0.7) 0.1 (1.1)
---------------------------------------------------------- --------- --------- --------
5. TAXATION
31 March 31 March 30 Sept
2016 2015 2015
GBPm GBPm GBPm
------------------------------- --------- --------- --------
UK corporation tax 0.9 1.7 1.5
Overseas tax 6.2 5.6 12.9
Total tax on profit for the
period 7.1 7.3 14.4
------------------------------- --------- --------- --------
Taxation on profits before tax has been calculated by applying
the Directors' best estimate of the annual rates of taxation to
taxable profits for the period. The effective rate of taxation on
profit before tax for the period decreased to 27.7% (2015: 28.1%).
The Group's adjusted effective rate of tax on adjusted profit
before tax decreased to 26.0% (2015: 27.0%) reflecting a larger
contribution to profits before tax this period from the acquired
businesses that are taxed at lower tax rates.
6. EARNINGS PER SHARE
Basic and diluted earnings per share
Basic and diluted earnings per ordinary 5p share are calculated
on the basis of the weighted average number of ordinary shares in
issue during the period of 113,050,602 (2015: 112,995,991) and the
profit for the period attributable to shareholders of GBP18.1m
(2015: GBP18.3m). There were no potentially dilutive shares.
Adjusted earnings per share
Adjusted earnings per share, defined in note 2, are calculated
as follows:
31 31 30 31 31 30
Mar Mar Sept Mar Mar Sept
2016 2015 2015 2016 2015 2015
pence pence pence
per per per
share share share GBPm GBPm GBPm
------------------------------- ------- -------- ------- ------- ------- -------
Profit before tax 25.6 26.0 51.8
Tax expense (7.1) (7.3) (14.4)
Minority interests (0.4) (0.4) (0.7)
------------------------------- ------- -------- ------- ------- ------- -------
Earnings for the period
attributable to
shareholders of the
Company 16.0 16.2 32.5 18.1 18.3 36.7
Acquisition related
charges 4.2 3.3 6.5 4.8 3.7 7.4
Fair value remeasurement
of put options 0.3 (0.4) 0.4 0.3 (0.4) 0.4
Gain on sale of properties (0.3) - - (0.3) - -
Tax effects on acquisition
related charges
and fair value remeasurements (0.7) (0.5) (1.2) (0.8) (0.6) (1.3)
Adjusted earnings 19.5 18.6 38.2 22.1 21.0 43.2
------------------------------- ------- -------- ------- ------- ------- -------
7. RECONCILIATION OF CASH FLOW FROM OPERATING ACTIVITIES
31 March 31 March 30 Sept
2016 2015 2015
GBPm GBPm GBPm
-------------------------------------- --------- --------- --------
Operating profit 26.0 25.9 52.9
Acquisition related charges (note
9) 4.8 3.7 7.4
-------------------------------------- --------- --------- --------
Adjusted operating profit 30.8 29.6 60.3
-------------------------------------- --------- --------- --------
Depreciation or amortisation of
tangible and other intangible
assets 2.0 1.4 3.5
Share-based payments expense 0.2 0.4 0.5
Cash paid into defined benefit
schemes (0.2) (0.2) (0.3)
-------------------------------------- --------- --------- --------
Non-cash items 2.0 1.6 3.7
-------------------------------------- --------- --------- --------
Increase in inventories (2.0) (4.4) -
(Increase)/decrease in trade and
other receivables (1.5) (2.4) 0.2
Increase/(decrease) in trade and
other payables 2.5 - (2.1)
-------------------------------------- --------- --------- --------
Increase in working capital (1.0) (6.8) (1.9)
-------------------------------------- --------- --------- --------
Cash flow from operating activities,
before acquisition expenses 31.8 24.4 62.1
-------------------------------------- --------- --------- --------
8. NET DEBT
The movement in net debt during the period is as follows:
31 March 31 March 30 Sept
2016 2015 2015
GBPm GBPm GBPm
---------------------------- ----------- ----------- ---------------------
Net (decrease)/increase in (1.6) (2.4) 2.6
cash and cash equivalents
Increase in borrowings (20.0) (33.5) (20.0)
---------------------------- ----------- ----------- ---------------------
(21.6) (35.9) (17.4)
Effect of exchange rates 0.8 (0.3) (0.9)
Movement in net debt/cash (20.8) (36.2) (18.3)
Net cash at beginning of
period 3.0 21.3 21.3
---------------------------- ----------- ----------- ---------------------
Net (debt)/cash at end of
period (17.8) (14.9) 3.0
---------------------------- ----------- ----------- ---------------------
Comprising:
Cash and cash equivalents 22.2 18.6 23.0
Borrowings (40.0) (33.5) (20.0)
---------------------------- ----------- ----------- ---------------------
Net (debt)/cash at end of
period (17.8) (14.9) 3.0
---------------------------- ----------- ----------- ---------------------
The Group has a committed multi-currency revolving facility of
GBP50m (2015: GBP40m) which expires on 23 June 2017. On 7 March
2016, the Group exercised its accordion option to increase the
committed bank facility from GBP40m to a maximum facility of
GBP50m. At 31 March 2016, the Group has utilised GBP40.0m (2015:
GBP33.5m) of this increased facility. Interest on this facility is
payable between 120 and 170bps over LIBOR, depending on the ratio
of net debt to EBITDA.
9. GOODWILL AND INTANGIBLE ASSETS
Acquisition
intangible
Goodwill assets
GBPm GBPm
------------------------------------- ----------- ------------
At 1 October 2014 80.2 28.6
Acquisitions 12.6 18.2
Adjustment to acquisitions in prior
year 0.1 0.2
Amortisation charge - (3.3)
Exchange adjustments (1.6) (0.6)
At 31 March 2015 91.3 43.1
Acquisitions 1.1 1.6
Amortisation charge - (3.6)
Exchange adjustments (3.1) (0.9)
------------------------------------- ----------- ------------
At 30 September 2015 89.3 40.2
Acquisitions (note 10) 13.5 19.4
Amortisation charge - (4.2)
Exchange adjustments 6.4 3.0
At 31 March 2016 109.2 58.4
------------------------------------- ----------- ------------
Goodwill of GBP13.5m and acquisition intangible assets of
GBP19.4m arose on the acquisition of businesses in the period and
related to the Seals and Controls Sectors.
Goodwill represents the amount paid for future sales growth from
both new customers and new products, operating cost synergies and
employee know-how. The acquisition intangible assets relate to
supplier and customer relationships and these assets will be
amortised over five to ten years.
Acquisition related charges of GBP4.8m (2015: GBP3.7m), which
are charged to the Consolidated Income Statement, comprised GBP4.2m
(2015: GBP3.3m) of amortisation of acquisition intangible assets
and GBP0.6m (2015: GBP0.4m) of acquisition expenses, net.
10. ACQUISITION OF SUBSIDIARIES
On 12 October 2015 the Group completed the acquisition of 100%
of West Coast Industrial Supplies Pty Limited based in Perth,
Australia and its affiliate company, West Coast Industrial Supplies
New Caledonia SAS based near Noumea in New Caledonia (together
"WCIS" ) for an aggregate maximum consideration of GBP9.8m
(A$20.5m).
The cash paid on acquisition was GBP7.5m (A$15.6m), including
net debt acquired of GBP0.4m (A$0.8m) and before acquisition
expenses of GBP0.3m (A$0.6m). Maximum deferred consideration of up
to GBP1.0m (A$2.0m) is payable based both on the performance of
WCIS during the year ended 30 September 2016 and on the renewal of
specific customer contracts.
On 24 February 2016 the Group acquired 100% of Ascome SARL,
based in Paris, France, for total consideration of GBP0.7m
(EUR0.8m), including cash acquired of GBP0.3m (EUR0.4m); GBP0.6m
(EUR0.7m) was paid on completion and GBP0.1m will be paid in
2018.
On 8 March 2016 the Group acquired 100% of Cablecraft Limited
based in Houghton-Regis, England, together with its trading
subsidiaries Birch Valley Plastics Limited and Krempfast Limited
(together "Cablecraft") for initial consideration of GBP27.2m,
which included the return of GBP6.2m of surplus cash and was before
acquisition expenses of GBP0.5m. Maximum deferred consideration of
up to GBP5.0m is payable based on the performance of Cablecraft for
the 12 months ended 31 March 2017.
Set out below is an analysis of the provisional fair values
relating to these acquisitions:
WCIS Cablecraft Ascome Total
GBPm GBPm GBPm GBPm
------------------------------- --------- ----------- ------- -------
Acquisition intangible
assets 4.8 14.4 0.2 19.4
Deferred tax (1.5) (2.9) (0.1) (4.5)
Property, plant and
equipment 0.5 0.4 - 0.9
Inventories 1.0 1.9 0.1 3.0
Trade and other receivables 1.7 2.9 0.2 4.8
Trade and other payables (1.9) (1.8) (0.1) (3.8)
Net assets acquired 4.6 14.9 0.3 19.8
Goodwill 3.8 9.6 0.1 13.5
8.4 24.5 0.4 33.3
------------------------------- --------- ----------- ------- -------
Cash paid 7.5 27.2 0.6 35.3
Debt acquired 0.6 - - 0.6
Cash acquired (0.2) (6.7) (0.3) (7.2)
Expenses of acquisition 0.3 0.5 - 0.8
------------------------------- --------- ----------- ------- -------
Net cash paid, after
acquisition expenses 8.2 21.0 0.3 29.5
Additional consideration
payable (note 11) 0.5 4.0 0.1 4.6
Less: Expenses of acquisition (0.3) (0.5) - (0.8)
------------------------------- --------- ----------- ------- -------
Total consideration 8.4 24.5 0.4 33.3
------------------------------- --------- ----------- ------- -------
The fair values set out above are provisional and will be
finalised in the second half of the financial year. The provisional
fair value of the net assets acquired, excluding acquisition
intangibles and related deferred tax, is GBP4.9m compared to the
book values on acquisition of GBP5.5m; the reduction of GBP0.6m
relates to the fair value of inventory.
From the date of acquisition to 31 March 2016, the newly
acquired WCIS business contributed GBP3.3m to revenue and GBP0.4m
to adjusted operating profit, the newly acquired Cablecraft
business contributed GBP1.3m to revenue and GBP0.4m to adjusted
operating profit and the newly acquired Ascome business contributed
GBP0.1m to revenue and had a negligible contribution to adjusted
operating profit. If these businesses had been acquired at the
beginning of the financial year, they would in aggregate have
contributed on a pro-rata basis GBP23.0m to revenue and GBP4.0m to
adjusted operating profit. However these amounts should not be
viewed as indicative of the results of these businesses that would
have occurred, if these acquisitions had been completed at the
beginning of the year.
11. OTHER LIABILITIES
31 March 31 March 30 Sept
2016 2015 2015
GBPm GBPm GBPm
------------------------------- --------- --------- --------
Future purchases of minority
interests 6.0 5.1 5.7
Deferred consideration 4.6 1.0 0.9
------------------------------- --------- --------- --------
10.6 6.1 6.6
------------------------------- --------- --------- --------
Analysed as:
Due within one year 2.3 1.0 2.5
Due after one year 8.3 5.1 4.1
------------------------------ --------- --------- --------
The movement in the liability for future purchases of minority
interests is as follows:
31 March 31 March 30 Sept
2016 2015 2015
GBPm GBPm GBPm
---------------------------------- --------- --------- --------
At 1 October 5.7 3.5 3.5
Put option entered into during
the period - 3.2 3.2
Acquisition of minority interest
on exercise of option - (1.2) (1.4)
Unwinding of discount 0.3 0.2 0.5
Fair value movements - (0.6) (0.1)
At end of period 6.0 5.1 5.7
---------------------------------- --------- --------- --------
At 31 March 2016, the Group retained put options to acquire
minority interests in TPD, Kentek and
M Seals.
At 31 March 2016, the estimate of the financial liability to
acquire the outstanding minority shareholdings was reassessed by
the Directors, based on their current estimate of the future
performance of these businesses and to reflect foreign exchange
rates at 31 March 2016.
The put options to acquire the minority interest of 20% held in
TPD are exercisable in tranches between 2016 and 2019; the put
option to acquire the minority interest held of 10% in M Seals is
exercisable in October 2018 and the put option relating to the
remaining Kentek 10% minority interest is exercisable in two
tranches in 2016 and 2018.
At 31 March 2016, deferred consideration of GBP4.6m includes
GBP4.0m payable to the vendors of Cablecraft, GBP0.5m (A$1.0m)
payable to the vendors of WCIS and GBP0.1m (EUR0.1m) payable to the
vendor of Ascome, based on various performance conditions to be
satisfied over the next 12 months.
During the period outstanding deferred consideration of GBP0.6m
(EUR0.8m) was paid to the vendor of Kentek relating to the purchase
of his minority interest last year. In addition, GBP0.1m (US$0.2m)
was paid to the vendor of HPS in respect of the performance of the
business in the year ended 30 September 2015. The balance of
GBP0.2m was not required and has been deducted from acquisition
related charges in Note 9.
12. DIVIDENDS
31 31 30 31 31 30
Mar Mar Sept Mar Mar Sept
2016 2015 2015 2016 2015 2015
pence pence pence
per per per
share share share GBPm GBPm GBPm
------------------------------ ------- ------- ------- ------- ------- -------
- Final dividend of the
prior year, paid in January 12.4 11.6 11.6 14.0 13.1 13.1
- Interim dividend, paid
in June - - 5.8 - - 6.6
------------------------------ ------- ------- ------- ------- ------- -------
12.4 11.6 17.4 14.0 13.1 19.7
------------------------------ ------- ------- ------- ------- ------- -------
The Directors have declared an increased interim dividend of
6.2p per share (2015: 5.8p) which will be paid on 15 June 2016 to
shareholders on the register on 27 May 2016. The total value of the
dividend will be GBP7.0m (2015: GBP6.6m).
13. EXCHANGE RATES
The following exchange rates have been used to translate the
results of the overseas businesses:
Average Closing
31 March 31 March 30 31 March 31 March 30 Sept
Sept
2016 2015 2015 2016 2015 2015
----------------- --------- --------- ------ --------- --------- --------
US dollar
(US$) 1.46 1.54 1.54 1.44 1.48 1.51
Canadian dollar
(C$) 1.97 1.85 1.91 1.86 1.88 2.03
Australian
dollar (A$) 2.02 1.90 1.99 1.87 1.94 2.16
Euro (EUR) 1.34 1.32 1.35 1.26 1.38 1.36
----------------- --------- --------- ------ --------- --------- --------
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SFEFLDFMSEDI
(END) Dow Jones Newswires
May 16, 2016 02:00 ET (06:00 GMT)
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