TIDMDPLM
RNS Number : 0534F
Diploma PLC
15 May 2017
DIPLOMA PLC
12 CHARTERHOUSE SQUARE, LONDON EC1M 6AX
TELEPHONE: +44 (0)20 7549 5700
FACSIMILE: +44 (0)20 7549 5715
FOR IMMEDIATE RELEASE
15 May 2017
ANNOUNCEMENT OF HALF YEAR RESULTS
FOR THE SIX MONTHSED 31 MARCH 2017
"Strong underlying growth further boosted by currency
tailwind"
Unaudited Unaudited
Six months Six months
ended ended
31 March 31 March
2017 2016
GBPm GBPm
Revenue 217.3 179.1 +21%
Adjusted operating
profit(1) 37.4 30.8 +21%
Adjusted operating
margin(1) 17.2% 17.2%
Adjusted profit
before tax(1),(2) 37.1 30.4 +22%
Profit before tax 32.9 25.6 +29%
Profit after tax 24.0 18.5 +30%
Free cash flow(3) 20.5 23.0 -11%
Pence Pence
Adjusted earnings
per share(1),(2) 23.9 19.5 +23%
Basic earnings per
share 21.0 16.0 +31%
Interim dividend
per share 7.0 6.2 +13%
(1) Before acquisition related charges.
(2) Before fair value remeasurements.
(3) Before cash payments on acquisitions
and dividends.
Financial Highlights
* Revenue and adjusted operating profit both increased
by 21%; adjusted operating margin maintained at
17.2%.
* Underlying revenue increased by 6%; currency
movements increased revenues by 14% and businesses
acquired made a net contribution of 1%.
* Adjusted profit before tax increased by 22% to
GBP37.1m; adjusted EPS increased by 23% to 23.9p.
* Strong free cash flow performance; net cash of
GBP14.8m at the end of March 2017 with significant
resources available.
* Two acquisitions completed in April 2017 bring total
acquisition expenditure this year to ca. GBP16m.
* Interim dividend increased by 13% to 7.0p per share
reflecting confidence in Group's growth prospects.
Operational Highlights
* In Life Sciences, underlying revenues increased by 2%,
with strong consumable and service revenues more than
offsetting weaker capital equipment sales in certain
businesses.
* In Seals, underlying revenues increased by 2%, with
strengthening revenues in the North American
Aftermarket partly offset by slower Industrial
markets and reduced demand in certain International
markets.
* In Controls, underlying revenues increased by 16%,
driven by new project activity and recovery in some
end user markets, against the background of
relatively weak comparatives.
Commenting on the results for the period, Bruce Thompson,
Diploma's Chief Executive said:
"The Group has delivered strong underlying growth in the first
half of the year, further boosted by the favourable foreign
exchange impact from the substantial depreciation in UK
sterling.
Whilst the second half of the year will have much less benefit
from currency movements, the global trading environment is expected
to provide opportunities for continued underlying growth in the
Group's key markets. The complementary acquisition of Abacus in
April 2017 adds critical mass and opens up further growth
opportunities for our Healthcare business. Acquisitions remain an
integral part of the Group's growth strategy and the pipeline for
acquisitions remains encouraging.
The trading outlook, together with the benefit from
acquisitions, provide the Board with confidence that the Group will
make further progress this year and will continue its proven track
record of value creation for shareholders."
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 or disposed
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. 1,600 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. 8% p.a. through a combination of
organic growth and acquisitions. Diploma is a member of the FTSE
250 with a market capitalisation of ca. GBP1.2bn.
Further information on Diploma PLC can be found at
www.diplomaplc.com
LEI: 2138000G17VY8FGR19
HALF YEAR REVIEW TO 31 MARCH 2017
The Group's revenues for the six months ended 31 March 2017
increased by 21% over the prior year comparable period, benefiting
from a strong tail-wind from the substantial depreciation in UK
sterling. Currency movements increased revenues by 14% and
acquisitions contributed 1% to the growth in revenues, net of a
small prior year disposal. On an underlying basis, after adjusting
for acquisitions and for currency effects on translation, Group
revenues increased by 6%.
In Life Sciences, underlying revenues increased by 2%, with
strong consumable and service revenues more than offsetting weaker
sales of capital equipment in certain businesses against a strong
prior year comparative. In Seals, underlying revenues were 2% ahead
of last half year, with strengthening revenues in the Aftermarket
business in North America being partly offset by both slower
Industrial markets and reduced demand in certain International end
markets. In Controls, underlying revenues increased by 16%, driven
by a combination of new project activity and recovery in some end
user markets, but also against the background of relatively weak
comparatives.
As anticipated, operating margins have remained unchanged at
17.2%, the same level as that achieved in the prior year comparable
period and in the full 2016 financial year. The Canadian and
Australian dollars broadly stabilised against the US dollar and
Euro in the period under review, limiting further transactional
currency effects in the Healthcare businesses. The Group's UK
businesses have also been able to largely mitigate the impact on
gross margins from the substantial depreciation in UK sterling.
Operating leverage in several of the businesses and Sector mix have
largely offset lower operating margins and investment in businesses
acquired in recent years.
Acquisitions remain an integral part of the Group's growth
strategy and the pipeline for acquisitions remains encouraging. In
the half year, acquisition expenditure was limited to the payment
of GBP0.8m in deferred consideration and expenses. Shortly after
the period end in April 2017, two acquisitions were completed for a
maximum combined consideration of GBP17.1m. Abacus adds critical
mass and opens up further opportunities for our Healthcare business
in Australia and New Zealand. PSP is a small bolt-on acquisition to
our Industrial OEM Seals business in North America.
RESULTS AND DIVIDS
In the six months ended 31 March 2017, Group revenue increased
by 21% to GBP217.3m (2016: GBP179.1m). Adjusted operating profit
increased by 21% to GBP37.4m (2016: GBP30.8m) and adjusted
operating margins were 17.2% (2016: 17.2%). After adjusting for the
net incremental contribution from acquisitions and for
translational currency effects, underlying revenues increased by
6%.
Adjusted profit before tax increased by 22% to GBP37.1m (2016:
GBP30.4m) and adjusted earnings per share increased by 23% to 23.9p
(2016: 19.5p), benefitting from slightly lower minority interests.
On a reported basis, profit before tax was GBP32.9m (2016:
GBP25.6m) and basic earnings per share were 21.0p (2016:
16.0p).
The cash flow from operations in the period increased by 3% to
GBP32.9m (2016: GBP31.8m) after an investment in working capital of
GBP7.1m (2016: GBP1.0m). The Group's free cash flow for the period
decreased by GBP2.5m to GBP20.5m (2016: GBP23.0m) in part due to
the higher investment in working capital, but also reflecting the
proceeds from one-off property sales in last year's figure. At 31
March 2017, the Group had net cash of GBP14.8m.
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
13.0% to 7.0p per share (2016: 6.2p), reflecting the Board's
confidence in the Group's growth prospects. The dividend will be
payable on 14 June 2017 to shareholders on the register on 26 May
2017.
OPERATING REVIEW
Life Sciences
The Life Sciences businesses are suppliers of consumables,
instrumentation and related services to the healthcare and
environmental industries.
Half Year
2017 2016
--------------------------- --------- --------- -----
Revenue GBP57.9m GBP52.5m +10%
Adjusted operating profit GBP10.3m GBP9.3m +11%
Adjusted operating margin 17.8% 17.7%
--------------------------- --------- --------- -----
Reported revenues increased by 10% over the prior year
comparable period. The substantial depreciation in UK sterling
boosted revenues by 15% but this was partly offset by the disposal
of the Medivators business in September 2016, which reduced
revenues by 7%. On an underlying basis, after adjusting for
currency and this disposal, Life Sciences revenues increased by 2%
over the prior year comparable period.
Adjusted operating margins increased by 10bps driven by an
improvement of margins in the Environmental businesses.
Transactional currency pressures on the Healthcare businesses
eased, following a number of years when gross margins were
significantly impacted by the progressive depreciation of the
Canadian and Australian dollars relative to the US dollar and
Euro.
The DHG group of Healthcare businesses, which account for 83% of
Life Sciences revenues, increased underlying revenues by 2% in
constant currency terms, after adjusting for the disposal of the
Medivators business in September 2016. In Canada, DHG underlying
revenues increased by 1% against the background of continuing
budget pressures throughout the Provincial healthcare systems
driven by the challenging economic environment and government
fiscal year-end constraints. Somagen's core clinical diagnostics
business in Canada delivered good growth in revenues as several
capital projects were reactivated after a slow prior year, with
particularly strong uptake in Allergy, Autoimmunity and Histology
applications. This growth was achieved despite the ongoing policy
of integrating diagnostic laboratories in Quebec and the continued
drive for cost savings and efficiencies within many public medical
laboratories.
From the start of the financial year, AMT and Vantage have been
combined into a single, strong Surgical and GI specialty medical
device business in Canada. Vantage is now being managed as a
division of AMT, with integrated warehousing, logistics and back
office functions giving good opportunities for operational leverage
from the increased scale of the combined business. AMT continued to
achieve growth in the supply of specialised surgical instruments
and devices used in laparoscopic and other minimally invasive
surgical procedures. Vantage has also introduced major new product
lines in both flexible and rigid endoscopy. These growth
initiatives have mitigated continuing pricing pressures in the core
electrosurgery business.
In Australia, the Healthcare sector has experienced similar
budget pressures to Canada, but our businesses have delivered good
revenue growth. BGS Surgical product revenues grew strongly, with
smoke evacuation programmes in existing and new accounts continuing
to be the principal driver to growth. There was also a good
performance in sales of other electrosurgical accessories and
enzymatic cleaning products. DSL has also delivered solid revenue
growth in Clinical Diagnostics with strong sales of Protein
Electrophoresis consumables following a number of capital
placements during previous quarters.
In April 2017, the Group completed the acquisition of Abacus, a
long established supplier of clinical diagnostics instrumentation
and consumables to the Pathology and Life Science sectors in
Australia and New Zealand. Abacus has particular strengths in
Immunology and Biochemistry testing, supplying to both the public
and private pathology laboratories. Abacus has a good fit with our
existing Healthcare businesses, with very complementary products
and this acquisition opens up significant new growth opportunities
in the Australian and New Zealand markets.
The TPD business in Ireland and the UK continued to deliver
solid revenue growth in the supply of quality controls to clinical
diagnostic laboratories, specialty medical devices used in
interventional cardiology and digestive health and rapid microbial
testing products used in industrial laboratories. Following the
major facility move completed last year, TPD has made good
improvements in its operational efficiency and has substantial
capacity to support DHG's growth ambitions in Europe.
The a1-group of Environmental businesses in Europe, which
account for 17% of Sector revenues, saw revenues increase by 8% in
UK sterling terms, although revenues were broadly unchanged on a
constant currency basis. In the a1-CBISS business, revenues
increased by 6% in UK sterling terms with strong growth in the
installation of continuous emissions monitoring systems (CEMS) and
increased service contract revenues from CEMS projects delivered in
the last 18 months. The sector remains buoyant with new Energy from
Waste (EFW) plants playing an important part in reducing landfill
waste.
The a1-envirosciences business saw revenues decrease by 5% in
Euro terms compared with the prior period which included a large
mercury detector order. Revenue from containment enclosures for the
safe weighing of hazardous materials and from service operations
both delivered growth. Demand for customised enclosures and high
end trace and elemental analysers from the Environmental,
Petrochemical and Pharmaceutical industries continues to remain
robust.
Seals
The Seals businesses are suppliers of seals, gaskets, filters,
cylinders, components and kits for heavy mobile machinery and
industrial equipment.
Half Year
2017 2016
--------------------------- --------- ---------- -----
Revenue GBP94.8m GBP79.2m +20%
Adjusted operating profit GBP15.4m GBP13.4m +15%
Adjusted operating margin 16.2% 16.9%
--------------------------- --------- ---------- -----
Reported revenues increased by 20% over the prior comparable
period, with currency movements contributing 18% to Sector
revenues. On an underlying basis, after adjusting for currency,
revenues were 2% above the prior year.
Adjusted operating margins in the Seals businesses decreased by
70bps to 16.2%. Operating margins in the North American Seals
businesses were broadly stable with operating leverage offsetting
the increased investment in sales and marketing resources. In the
International Seals businesses, the decrease in operating margins
was driven by transactional currency effects in Kentek and reduced
operational leverage from revenue reductions in the Kubo and WCIS
businesses.
The North American Seals businesses, which account for ca. 60%
of Seals Sector revenues, saw revenues increase by 3% on a constant
currency basis, with growth strengthening in the second
quarter.
The HFPG Aftermarket businesses reported an increase of 6% in
underlying revenues, driven by a stronger performance in the core
Hercules Aftermarket Seals business in the US and a recovery in the
HKX attachment kit business. In the domestic market, Hercules
revenues increased strongly as confidence returns to the Heavy
Construction and Infrastructure sectors. The positive trends in the
Repair and Distributor segments seen in the second half of last
year developed further and sales increased to hydraulic cylinder
manufacturers. The additional investment in the second half of last
year in sales and marketing resources also had a positive impact on
revenues and specific growth initiatives continued to gain
traction, including E-commerce activity which continues to show
growth in terms of both revenues and invoice count.
In Canada, the strengthening construction industry has driven
growth in the repair market with the strongest growth in Ontario.
The modest recovery in the Oil & Gas and Mining sectors has had
a positive impact and sales to hydraulic seals manufacturers have
also seen good growth. In markets outside of North America,
Hercules and Bulldog export revenues increased modestly with
limited growth in South and Central America, but a strong
performance in sales to Mexico.
The HKX attachment kit business returned to modest growth after
two years of significant revenue reductions, reflecting the
severely depressed market for new excavators. Growth was
particularly strong in Canada, driven by some recovery in the Oil
& Gas sector and increased pipeline construction. New
attachment kits have been developed to drive further growth
including quick coupler kits with added safety features.
The HFPG Industrial OEM businesses in North America (RT Dygert,
All Seals and J Royal) reported revenues broadly flat against a
background of generally slow industrial markets, although with an
improving trend in the second quarter. The businesses continue to
maintain strong relationships with core industrial equipment
customers as well as offering a broader range of higher
specification, regulatory-compliant compounds to secure new
projects with higher added-value.
In April 2017, J Royal relocated its operations to a newly
constructed, purpose built facility in Clemmons, North Carolina
with the facility subsequently sold and leased back to the
business. In April 2017, HFPG also completed the acquisition of
PSP, a small bolt-on acquisition based in Centennial, Colorado
which adds complementary new products and strengthens the position
of the Industrial OEM Seals businesses in the Mountain Region of
the US.
The International Seals businesses, which now account for ca.
40% of Sector revenues, reported underlying revenues broadly flat
on a constant currency basis, but with performances in the
individual businesses very dependent on local market
conditions.
The FPE Seals and M Seals businesses, with their principal
operations in the UK, Scandinavia and the Netherlands, together
delivered underlying growth of 13% in revenues. FPE Seals
experienced good growth in its core UK market for Aftermarket
hydraulic seals and metal cylinder parts. The business also
benefited from some recovery in demand from the Oil & Gas
sector for sealing products used in Maintenance, Repair and
Overhaul (MRO) operations and delivered strong growth in several
export markets.
M Seals delivered strong growth in revenues in its core markets
of Denmark and Sweden, where it has built on its strong customer
relationships by developing a number of major new projects. M Seals
has also extended its focus into the Finnish market for seals, by
investing in a sales resource based in Kentek's facility and
benefiting from its operational infrastructure. As with FPE Seals,
M Seals has also seen stronger demand from the Oil & Gas sector
in the UK and continues to target specialised Industrial OEMs in
other sectors of the market.
The Kentek business, with principal operations in Finland and
Russia, saw revenues broadly flat in constant currency terms.
However, the underlying revenue performance of Kentek is best
measured in Euro terms, as pricing of both its US and European
sourced filters sold in Russia (ca. 65% of Kentek's total sales) is
based in Euros. With a strengthening of the Russian Rouble relative
to the Euro of over 15%, Kentek's revenues increased by 11% in Euro
terms. The principal drivers for growth were the strong
agricultural market in Russia, good growth in the newer sales
offices in Russia and a recovery in the Finnish economy in both the
Aftermarket and Industrial OEM sectors.
Kubo and WCIS continue to face significant challenges in their
markets and saw combined revenues reduce by 9% on a constant
currency basis. Kubo continues to face challenging market
conditions in its core industrial market in Switzerland, where the
strong currency has made Swiss manufacturers less competitive. Kubo
is responding by introducing new products, adding sales resources,
improving operational efficiency and leveraging the Group's supply
chain.
WCIS has core capabilities in gaskets and mechanical seals used
in complex and arduous applications and has been significantly
impacted by cut-backs in its core customer base in the Mining
sector. In New Caledonia, WCIS has come under significant pricing
pressure from its core customer, which is focusing strongly on
cost-cutting initiatives in its nickel mining and processing
operations. In Australia, WCIS has invested in additional sales
resources to broaden coverage across a wider range of market
sectors and this initiative is starting to gain some traction,
though as yet the revenues are not sufficient to offset reductions
in the Mining customer base.
Controls
The Controls businesses are suppliers of specialised wiring,
connectors, fasteners and control devices for technically demanding
applications.
Half Year
2017 2016
--------------------------- --------- ---------- -----
Revenue GBP64.6m GBP47.4m +36%
Adjusted operating profit GBP11.7m GBP8.1m +44%
Adjusted operating margin 18.1% 17.1%
--------------------------- --------- ---------- -----
Reported revenues increased by 36% against the prior year
comparable period. The acquisitions of Cablecraft and Ascome,
completed in the first half of the prior year, added 14% to Sector
revenues and currency effects on translation contributed a further
6%. On an underlying basis revenues increased by 16%, although set
against the background of relatively weak prior year
comparatives.
Adjusted operating margins increased by 100bps to 18.1%, driven
by the higher initial operating margin in the Cablecraft
acquisition and improved margins in the Fluid Controls businesses.
Operating margins in the other Interconnect businesses were broadly
stable, with operating leverage from increased revenues offsetting
additional investment in the businesses.
The Interconnect businesses account for ca. 80% 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 45% in UK sterling terms; after
adjusting for the Cablecraft and Ascome acquisitions and for
currency effects, underlying revenues increased by 18%.
The IS-Group continued to implement the business development
programmes initiated last year and designed to position the
business as the European supplier of choice for the full range of
specialised cable harnessing components. Field sales resources have
now been realigned to focus on sectors and customer accounts with
the highest growth potential and internal sales processes have been
refocused to more efficiently process the baseline business.
Further investment has also been made in broadening the product
range and towards developing digital media capabilities.
The IS-Group UK businesses saw revenues increase by 16% in UK
sterling terms. In Defence and Aerospace, the IS-Group reported
good growth in revenues, benefiting from generally improved
activity levels in a broad range of UK electrical harnessing
customers and from specific project wins, including product supply
to armoured vehicles for the UAE armed forces. In Motorsport,
IS-Group increased revenues strongly, benefiting from changes in
Formula 1 regulations, development of new WRC cars and from the
supply to engine manufacturers and upgrades to the GT cars in
Japan. The IS-Group also benefited from good double-digit growth in
revenues from the Industrial sector in the UK and more broadly in
Europe, as the business improved its competitive position under new
sales leadership, following the appointment of a sales director
focused on the EMEA region.
In Germany, IS-Sommer and Filcon reported a 20% increase in
underlying revenues in local Euro terms, with modest growth in
IS-Sommer boosted by major project activity in Filcon. In the
Defence & Aerospace and general Industrial markets, IS-Sommer
delivered solid growth in its key accounts, with a particularly
strong performance in the Space market, supplying connectors and
backshells to the Meteosat Third Generation ("MTG") and Sentinel
satellites. However, revenues were held back in the important
Energy market where weather conditions delayed repair and
maintenance of the electricity network and Motorsport revenues were
impacted by the withdrawal of VW from the WRC Rally Series and Audi
from the WEC Series which includes the Le Mans race.
Filcon delivered a very strong performance in the half year,
increasing revenues by over 50% in Euro terms. The Ascome
acquisition, completed in February 2016, added 7% to Filcon's
revenues, but the primary driver of growth came from major orders
secured in the final quarter of the prior year from key Military
Aerospace and Defence customers. This sector has generally seen
increased activity, with projects delivered for the Tornado
aircraft and the RAM missile program and from growing pressure for
Germany to enhance its military capabilities.
Cablecraft is a leading supplier of cable accessory products
used to identify, connect, secure and protect electric cables and
has made a strong contribution to the Group in the 12 months since
its acquisition in March 2016. Cablecraft has added a range of
own-branded and manufactured products and has extended the markets
served by the Interconnect businesses. In the first half of the
year, Cablecraft increased revenues by 9% on a like-for-like basis,
with good growth generated in its specialist sleeving division and
from the continued focus on end user customers, especially
electrical panel builders and contractors upgrading the UK rail
network.
The Clarendon Specialty Fasteners business increased revenues by
over 30% compared with the prior year, with growth driven
principally by increased demand from customers in the Civil
Aerospace sector. Revenues increased strongly with the ramp up of a
major business class seating programme at a key aircraft seating
customer which Clarendon supplies through its automatic inventory
replenishment system ("Clarendon AIR"). Clarendon also had success
in increasing sales to a range of other aircraft seating and cabin
interiors manufacturers and their sub-contractors across Europe and
introduced Clarendon Air to a number of new customer locations.
Good growth was also achieved in Clarendon's other major markets of
Motorsport and Defence, with more modest growth in the General
Industrial customers.
The Hawco Group of Fluid Controls businesses accounts for ca.
20% of Controls sector revenues and supplies temperature, pressure
and fluid control products, with a high proportion of its products
being supplied to the Food and Beverage industry. Hawco Group
revenues increased by 10% in UK sterling terms against the prior
year comparable period.
Hawco has seen a good upturn in activity in the UK Refrigeration
equipment market, as store refurbishment activity in the UK has
increased and the cabinet display manufacturers have targeted
opportunities outside the UK. Revenues from the Industrial OEM
market have also benefited from an increase in exports to the
European market. Abbeychart has continued to focus on the
specialist coffee market, where growth generated from the
introduction of a catalogue of essential spare parts has offset
reduced revenues from one of its larger OEM customers. Abbeychart
has also increased sales to independent soft drinks suppliers and
has extended its presence further into Continental Europe, building
on its position in supplying spare parts for a branded range of
vending machines.
FINANCE
Free cash flow
The Group generated free cash flow of GBP20.5m (2016: GBP23.0m)
during the half year, after GBP7.1m of cash invested in working
capital this year, compared with GBP1.0m in the comparable period
which was unusually low compared with historical levels. Last
year's free cash flow also included GBP2.3m from exceptional
one-off proceeds from the sale of surplus legacy properties.
Operating cash flow increased by 3% to GBP32.9m (2016: GBP31.8m)
and was constrained by the additional GBP6.1m invested in working
capital during the first half of this year, compared with last
year. This increased investment reflected the stronger trading
environment, combined with the earlier delivery of seasonal stock
builds in some of the Healthcare businesses. It is expected that
this additional investment in working capital will decrease during
the second half of the year which will be consistent with
historical trends and experience.
The Group's metric of working capital to revenue at 31 March
2017 was low at 15.8% (2016: 18.0%), despite this additional
investment in working capital, reflecting stronger revenues in the
previous rolling twelve months.
Tax payments in the first half of the year increased by 2% to
GBP8.9m (2016: GBP8.7m), which included the impact of the
substantial depreciation in UK sterling on translation of tax
payments by overseas businesses. On an underlying basis, the cash
tax rate decreased to ca. 25% (2016: ca. 27%) reflecting in part,
changes in the geographic mix of operating profits and in part a
change in phasing of some tax payments between the first and second
half of the year. The Company's contribution to the Diploma
Employee Benefit Trust in connection with outstanding LTIP awards
increased by GBP0.4m to GBP0.7m (2016: GBP0.3m).
Capital expenditure of GBP1.0m (2016: GBP1.8m) was held back in
the first half of the year by the timing of certain capital
expenditure which will now be incurred during the second half of
the year. In Life Sciences, GBP0.4m was spent on acquiring new
hospital field equipment and a further GBP0.2m was spent in the
Seals businesses on new warehouse tooling and on furniture and
equipment for the new J Royal facility. Various projects on
upgrading office and IT facilities across the Group's businesses
accounted for the remaining GBP0.4m of capital expenditure in the
first half of the year.
In addition to this expenditure, a further GBP1.6m was spent
during the first half of the year on completing the construction of
a new warehouse and office facilities for J Royal, a Seals business
based in North Carolina in the United States. J Royal successfully
relocated into this new facility in early April and the facility
was sold on 21 April 2017 for GBP2.7m and leased back to the
business, as explained in note 10 to the consolidated financial
statements.
Net debt
At 31 March 2017, the Group's net funds had increased by GBP4.2m
to GBP14.8m compared with net funds of GBP10.6m at 30 September
2016. Net funds at 31 March 2017 comprised cash balances of
GBP22.8m less borrowings of GBP8.0m and were after spending GBP0.8m
(2016: GBP30.2m) on acquisitions and GBP15.8m (2016: GBP14.4m) on
dividends paid to ordinary and minority shareholders.
Acquisition expenditure of GBP0.8m included GBP0.6m of deferred
consideration as explained in note 11 to the consolidated financial
statements. Shortly after the period end, the Group spent GBP13.6m
on the acquisition of Abacus and GBP1.4m on the acquisition of PSP,
as described further in note 14 to the consolidated financial
statements.
At 31 March 2017, the Group retained a committed multi-currency
revolving bank facility for GBP50m which will expire on 23 June
2017. It is currently intended that this facility will be replaced
by a similar three year committed facility for GBP30m, together
with both an option to exercise an accordion facility for a further
GBP30m and an option to extend the facility for up to five
years.
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 consolidated financial statements have
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. In the first half of the
financial year, UK sterling was substantially weaker (ca. 15%)
against all of the currencies in which the Group operates compared
with the same period last year. The impact on the Group's results
from translating the results of the Group's overseas businesses
into UK sterling has been significant in this period and has led to
an increase in Group revenues and Group adjusted operating profit
by GBP24.6m and GBP4.4m respectively, compared with the same period
last year.
On a currency transaction basis, the impact on the Group's
adjusted operating profits from the depreciation in UK sterling has
been limited. While many of the UK businesses have faced higher
product costs from the depreciation in UK sterling, they have
successfully managed to mitigate these increases by a combination
of selling price increases, support from suppliers and by switching
some key customer accounts into Euros or US dollars.
As reported in previous years, the margins in the Healthcare
businesses (which account for ca. 20% of Group revenues) have been
significantly impacted by the substantial depreciation in the
Canadian and Australian dollars, relative to the currencies in
which the Healthcare businesses purchase their products, primarily
US dollars and Euros. However in the six month period ended 31
March 2017, the average exchange rates of both the Canadian and
Australian dollars remained much more stable against both the US
dollar and Euro and the impact of these currency effects on Group
margins was negligible.
The Group continues with its policy of mitigating transactional
currency exposures across all of the Group's businesses by
purchasing currency hedging contracts to meet up to 80% of its
currency commitments for periods up to 18 months, where it is
considered appropriate.
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 30-33 of the 2016 Annual
Report & Accounts. In summary these are:
-- Strategic risks - 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 publication of the 2016 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 UK foreign exchange rate against the major global
currencies in which the Group's businesses operate remains a
principal risk to the financial performance of the Group in the
second half of this year.
The potential impact on the Group from the UK's decision to
leave the European Community ("Brexit") was set out on page 29 of
the 2016 Annual Report & Accounts. This assessment remains
unchanged at the date of this Report and the Directors continue to
believe that Brexit will not materially impact the Group's outlook
or viability.
CURRENT TRADING AND OUTLOOK
The Group has delivered strong underlying growth in the first
half of the year, further boosted by the favourable foreign
exchange impact from the substantial depreciation in UK
sterling.
Whilst the second half of the year will have much less benefit
from currency movements, the global trading environment is expected
to provide opportunities for continued underlying growth in the
Group's key markets. The complementary acquisition of Abacus in
April 2017 adds critical mass and opens up further growth
opportunities for our Healthcare business. Acquisitions remain an
integral part of the Group's growth strategy and the pipeline for
acquisitions remains encouraging.
The trading outlook, together with the benefit from
acquisitions, provide the Board with confidence that the Group will
make further progress this year and will continue its proven track
record of value creation for shareholders.
BM Thompson
Chief Executive Officer
15 May 2017
Responsibility Statement of the Directors in respect of the Half
Year Report 2017
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 Guidance 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 Guidance 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
2016 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
15 May 2017 15 May 2017
Condensed Consolidated Income Statement
For the six months ended 31 March 2017
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2017 2016 2016
Note GBPm GBPm GBPm
------------------------------- -------- ---------- ---------- --------
Revenue 3 217.3 179.1 382.6
Cost of sales (139.9) (114.4) (245.4)
--------------------------------- ------- ---------- ---------- --------
Gross profit 77.4 64.7 137.2
Distribution costs (5.2) (4.0) (8.4)
Administration costs (39.1) (34.7) (73.4)
--------------------------------- ------- ---------- ---------- --------
Operating profit 3 33.1 26.0 55.4
Gain on disposal of assets - 0.3 0.7
Financial expense 4 (0.2) (0.7) (2.1)
Profit before tax 32.9 25.6 54.0
Tax expense 5 (8.9) (7.1) (14.9)
--------------------------------- ------- ---------- ---------- --------
Profit for the period 24.0 18.5 39.1
--------------------------------- ------- ---------- ---------- --------
Attributable to:
Shareholders of the Company 23.7 18.1 38.3
Minority interests 0.3 0.4 0.8
--------------------------------- ------- ---------- ---------- --------
24.0 18.5 39.1
------------------------------- ------- ---------- ---------- --------
Earnings per share
Basic and diluted earnings 6 21.0p 16.0p 33.9p
--------------------------------- ------- ---------- ---------- --------
Alternative Performance 31 March 31 March 30 Sept
Measures (note 2) 2017 2016 2016
Note GBPm GBPm GBPm
------------------------------- ---------- --------- --------- --------
Operating profit 33.1 26.0 55.4
Add: Acquisition related
charges 9 4.3 4.8 10.3
Adjusted operating profit 3 37.4 30.8 65.7
Deduct: Net interest expense 4 (0.3) (0.4) (0.8)
-------------------------------- ---- ---- --------- --------- --------
Adjusted profit before
tax 37.1 30.4 64.9
-------------------------------- ---- ---- --------- --------- --------
Adjusted earnings per share 6 23.9p 19.5p 41.9p
-------------------------------- ---- ---- --------- --------- --------
Condensed Consolidated Statement of Income and Other
Comprehensive Income
For the six months ended 31 March 2017
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2017 2016 2016
GBPm GBPm GBPm
--------------------------------------- ---------- ---------- ---------
Profit for the period 24.0 18.5 39.1
---------------------------------------- ---------- ---------- ---------
Items that will not be reclassified
to the Consolidated Income Statement
Actuarial losses in the defined
benefit pension scheme - - (6.6)
Deferred tax on items that will
not be reclassified - - 1.0
---------------------------------------- ---------- ---------- ---------
- - (5.6)
---------------------------------------- ---------- ---------- ---------
Items that may be reclassified
to the Consolidated Income Statement
Exchange rate gains on foreign
currency net investments 4.2 13.6 31.7
Gains/(losses) on fair value
of cash flow hedges 0.1 (1.1) 0.2
Net changes to fair value
of cash flow hedges transferred
to the Consolidated Income
Statement - - (1.5)
Deferred tax on items that
may be reclassified - 0.3 0.3
----------------------------------------- ---------- ---------- ---------
4.3 12.8 30.7
--------------------------------------- ---------- ---------- ---------
Total Comprehensive Income for
the period 28.3 31.3 64.2
---------------------------------------- ---------- ---------- ---------
Attributable to:
Shareholders of the Company 28.0 30.6 62.7
Minority interests 0.3 0.7 1.5
----------------------------------------- ---------- ---------- ---------
28.3 31.3 64.2
--------------------------------------- ---------- ---------- ---------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 March 2017
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 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
Total comprehensive
income - 17.7 (0.2) 14.6 32.1 0.8 32.9
Share-based payments - - - 0.2 0.2 - 0.2
Minority interests
acquired - - - 2.0 2.0 (2.0) -
Tax on items recognised
directly in equity - - - 0.1 0.1 - 0.1
Notional purchase
of own shares - - - - - - -
Dividends - - - (7.0) (7.0) - (7.0)
-------------------------- ---------- ---------- ---------- ----------- ----------- ----------- ---------
At 30 September
2016 5.7 30.5 0.2 197.1 233.5 4.3 237.8
Total comprehensive
income - 4.2 0.1 23.7 28.0 0.3 28.3
Share-based payments - - - 0.4 0.4 - 0.4
Tax on items recognised
directly in equity - - - - - - -
Notional purchase
of own shares - - - (0.7) (0.7) - (0.7)
Dividends - - - (15.6) (15.6) (0.2) (15.8)
At 31 March 2017
(unaudited) 5.7 34.7 0.3 204.9 245.6 4.4 250.0
-------------------------- ---------- ---------- ---------- ----------- ----------- ----------- ---------
Condensed Consolidated Statement of Financial Position
As at 31 March 2017
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2017 2016 2016
Note GBPm GBPm GBPm
--------------------------------- ------ ---------- ---------- ---------
Non-current assets
Goodwill 9 116.8 109.2 115.2
Acquisition intangible
assets 9 50.0 58.4 54.6
Other intangible assets 0.9 1.1 1.0
Investment 0.7 0.7 0.7
Property, plant and equipment 22.3 22.9 23.7
Deferred tax assets 0.1 0.5 0.2
----------------------------------- ----- ---------- ---------- ---------
190.8 192.8 195.4
--------------------------------- ----- ---------- ---------- ---------
Current assets
Inventories 71.9 64.5 66.8
Asset in course of construction 10 2.5 - -
Trade and other receivables 66.5 59.3 59.9
Cash and cash equivalents 8 22.8 22.2 20.6
----------------------------------- ----- ---------- ---------- ---------
163.7 146.0 147.3
--------------------------------- ----- ---------- ---------- ---------
Current liabilities
Trade and other payables (64.0) (53.1) (60.6)
Current tax liabilities (3.8) (3.2) (2.7)
Other liabilities 11 (2.0) (2.3) (1.7)
Borrowings 8 (8.0) - (10.0)
(77.8) (58.6) (75.0)
--------------------------------- ----- ---------- ---------- ---------
Net current assets 85.9 87.4 72.3
----------------------------------- ----- ---------- ---------- ---------
Total assets less current
liabilities 276.7 280.2 267.7
Non-current liabilities
Borrowings 8 - (40.0) -
Retirement benefit obligations (17.1) (10.0) (17.2)
Other liabilities 11 (3.1) (8.3) (5.1)
Deferred tax liabilities (6.5) (10.3) (7.6)
----------------------------------- ----- ---------- ---------- ---------
Net assets 250.0 211.6 237.8
----------------------------------- ----- ---------- ---------- ---------
Equity
Share capital 5.7 5.7 5.7
Translation reserve 34.7 12.8 30.5
Hedging reserve 0.3 0.4 0.2
Retained earnings 204.9 187.2 197.1
----------------------------------- ----- ---------- ---------- ---------
Total shareholders' equity 245.6 206.1 233.5
Minority interests 4.4 5.5 4.3
----------------------------------- ----- ---------- ---------- ---------
Total equity 250.0 211.6 237.8
----------------------------------- ----- ---------- ---------- ---------
Condensed Consolidated Cash Flow Statement
For the six months ended 31 March 2017
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2017 2016 2016
Note GBPm GBPm GBPm
-------------------------------------- ---------- ---------- ---------
Operating profit 33.1 26.0 55.4
Acquisition related charges 7 4.3 4.8 10.3
Non-cash items 7 2.6 2.0 4.6
(Increase)/decrease in working
capital 7 (7.1) (1.0) 6.3
---------------------------------- --- ---------- ---------- ---------
Cash flow from operating
activities 32.9 31.8 76.6
Interest paid (0.2) (0.3) (0.6)
Tax paid (8.9) (8.7) (17.6)
---------------------------------- --- ---------- ---------- ---------
Net cash from operating
activities 23.8 22.8 58.4
---------------------------------- --- ---------- ---------- ---------
Cash flow from investing
activities
Acquisition of businesses
(including expenses) (0.2) (29.5) (30.1)
Deferred consideration paid 11 (0.6) (0.7) (0.7)
Proceeds from sale of business
(net of expenses) - - 2.2
Purchase of property, plant
and equipment (0.9) (1.7) (3.5)
Asset in course of construction 10 (1.6) - -
Purchase of other intangible
assets (0.1) (0.1) (0.2)
Proceeds from sale of property,
plant and equipment - 2.3 2.4
---------------------------------- --- ---------- ---------- ---------
Net cash used in investing
activities (3.4) (29.7) (29.9)
---------------------------------- --- ---------- ---------- ---------
Cash flow from financing
activities
Acquisition of minority
interests - - (1.9)
Dividends paid to shareholders 12 (15.6) (14.0) (21.0)
Dividends paid to minority
interests (0.2) (0.4) (0.4)
Notional purchase of own
shares on exercise of share
options (0.7) (0.3) (0.3)
(Repayment)/proceeds of
borrowings, net 8 (2.0) 20.0 (10.0)
Net cash (used)/generated
in financing activities (18.5) 5.3 (33.6)
---------------------------------- --- ---------- ---------- ---------
Net increase/(decrease)
in cash and cash equivalents 8 1.9 (1.6) (5.1)
Cash and cash equivalents
at beginning of period 20.6 23.0 23.0
Effect of exchange rates
on cash and cash equivalents 0.3 0.8 2.7
---------------------------------- --- ---------- ---------- ---------
Cash and cash equivalents
at end of period 22.8 22.2 20.6
--------------------------------------- ---------- ---------- ---------
Alternative Performance Measures 31 March 31 March 30 Sept
(note 2) 2017 2016 2016
GBPm GBPm GBPm
---------------------------------- -------------------------------- --------- ---------------- --------
Net increase/(decrease) in
cash and cash equivalents 1.9 (1.6) (5.1)
Add: Dividends paid to shareholders 15.6 14.0 21.0
Dividends paid to minority
interests 0.2 0.4 0.4
Acquisition of businesses
and minority interests 0.2 29.5 32.0
Deferred consideration
paid 0.6 0.7 0.7
Repayment/(proceeds) of
borrowings, net 2.0 (20.0) 10.0
---------------------------------- --------- ---------------- --------
Free cash flow 20.5 23.0 59.0
---------------------------------------------------------------------- --------- ---------------- --------
Cash and cash equivalents 22.8 22.2 20.6
Borrowings (8.0) (40.0) (10.0)
---------------------------------------------------------------------- --------- ---------------- --------
Net cash/(debt) 14.8 (17.8) 10.6
---------------------------------------------------------------------- --------- ---------------- --------
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2017
1. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
Diploma PLC (the "Company") is a public limited 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 2017 comprise the Company and its
subsidiaries (together referred to as "the Group").
The comparative figures for the financial year ended 30
September 2016 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 2016 were extracted
from the 2016 Half Year Report, which was unaudited.
The Group's audited consolidated financial statements for the
year ended 30 September 2016 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 2017 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 Guidance 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 2016.
The Half Year financial statements were approved by the Board of
Directors on 15 May 2017; 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 2016, 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 2016. These are set out on page 91 of the 2016
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 including
the tax impact on the items included in the calculation of adjusted
profit, less profit attributable to minority interests, divided by
the weighted average number of ordinary shares in issue during the
year. 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
The Chief Operating Decision Maker ("CODM") for the purposes of
IFRS 8 is the Chief Executive. The financial performance of the
segments are reported to the CODM on a monthly basis and this
information is used to allocate resources on an appropriate
basis.
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 2016,
the Group earned 47% of its annual revenues and 47% of its annual
adjusted operating profits in the first six months of the year.
Sector revenue represents revenue from external customers; there
is no inter-Sector revenue. Sector results, assets and liabilities
include items directly attributable to a Sector, as well as those
that can be allocated on a reasonable basis.
Adjusted operating
Revenue profit Operating profit
31 31 30 31 31 30 31 31 30
Mar Mar Sept Mar Mar Sept Mar Mar Sept
2017 2016 2016 2017 2016 2016 2017 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------ ------ ------ ------- ------ ------ ------- ------ ------
By Sector
Life Sciences 57.9 52.5 109.9 10.3 9.3 19.6 9.0 7.9 16.7
Seals 94.8 79.2 166.6 15.4 13.4 28.2 12.5 10.9 23.2
Controls 64.6 47.4 106.1 11.7 8.1 17.9 11.6 7.2 15.5
---------------- ------ ------ ------ ------- ------ ------ ------- ------ ------
217.3 179.1 382.6 37.4 30.8 65.7 33.1 26.0 55.4
---------------- ------ ------ ------ ------- ------ ------ ------- ------ ------
By Geographic
Area
United Kingdom 57.1 43.5 97.4 10.3 6.9 16.1
Rest of Europe 59.7 49.7 105.6 8.0 7.3 15.6
North America 100.5 85.9 179.6 19.1 16.6 34.0
217.3 179.1 382.6 37.4 30.8 65.7
---------------- ------ ------ ------ ------- ------ ------
Total assets Total liabilities Net assets
31 31 30 31 31 30 31 31 30
Mar Mar Sept Mar Mar Sept Mar Mar Sept
2017 2016 2016 2017 2016 2016 2017 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------ ------ ------ -------- -------- -------- ------- ------- -------
By Sector
Life Sciences 99.1 97.3 98.5 (17.3) (15.3) (17.9) 81.8 82.0 80.6
Seals 146.1 132.1 140.5 (24.7) (18.5) (22.9) 121.4 113.6 117.6
Controls 84.7 84.7 81.3 (22.7) (18.7) (18.8) 62.0 66.0 62.5
Unallocated
assets/(liabilities) 24.6 24.7 22.4 (39.8) (74.7) (45.3) (15.2) (50.0) (22.9)
----------------------- ------ ------ ------ -------- -------- -------- ------- ------- -------
354.5 338.8 342.7 (104.5) (127.2) (104.9) 250.0 211.6 237.8
----------------------- ------ ------ ------ -------- -------- -------- ------- ------- -------
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, acquisition 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
2017 2016 2016 2017 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------ ------- -------- ------- ------- --------
By Sector
Life Sciences 0.5 1.1 1.9 1.0 0.9 2.0
Seals 0.4 0.7 1.4 1.0 0.8 1.9
Controls 0.1 - 0.4 0.4 0.3 0.6
1.0 1.8 3.7 2.4 2.0 4.5
--------------- ------ ------- -------- ------- ------- --------
4. FINANCIAL EXPENSE
31 March 31 March 30 Sept
2017 2016 2016
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 (0.1) (0.2) (0.4)
* notional interest expense on the defined benefit
pension schemes (0.1) (0.1) (0.2)
Interest expense and similar
charges (0.3) (0.4) (0.8)
* fair value remeasurement of put options (note 11) 0.1 (0.3) (1.3)
---------------------------------------------------------- --------- --------- --------
Financial expense (0.2) (0.7) (2.1)
---------------------------------------------------------- --------- --------- --------
5. TAXATION
31 March 31 March 30 Sept
2017 2016 2016
GBPm GBPm GBPm
------------------------------- --------- --------- --------
UK corporation tax 1.4 0.9 1.1
Overseas tax 7.5 6.2 13.8
Total tax on profit for the
period 8.9 7.1 14.9
------------------------------- --------- --------- --------
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 27.1% (2016: 27.7%).
The Group's adjusted effective rate of tax on adjusted profit
before tax increased to 26.4% (2016: 26.0%) reflecting a larger
contribution to profits before tax in this period from businesses
that are taxed at higher 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 113,119,951 (2016: 113,050,602) and the
profit for the period attributable to shareholders of GBP23.7m
(2016: GBP18.1m). 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
2017 2016 2016 2017 2016 2016
pence pence pence
per per per
share share share GBPm GBPm GBPm
------------------------------- ------- -------- ------- ------- ------- -------
Profit before tax 32.9 25.6 54.0
Tax expense (8.9) (7.1) (14.9)
Minority interests (0.3) (0.4) (0.8)
------------------------------- ------- -------- ------- ------- ------- -------
Earnings for the period
attributable to
shareholders of the
Company 21.0 16.0 33.9 23.7 18.1 38.3
Acquisition related
charges 3.8 4.2 9.1 4.3 4.8 10.3
Fair value remeasurement
of put options (0.1) 0.3 1.1 (0.1) 0.3 1.3
Gain on disposal of
assets - (0.3) (0.6) - (0.3) (0.7)
Tax effects on acquisition
related charges
and fair value remeasurements (0.8) (0.7) (1.6) (0.9) (0.8) (1.8)
Adjusted earnings 23.9 19.5 41.9 27.0 22.1 47.4
------------------------------- ------- -------- ------- ------- ------- -------
7. RECONCILIATION OF CASH FLOW FROM OPERATING ACTIVITIES
31 March 31 March 30 Sept
2017 2016 2016
GBPm GBPm GBPm
----------------------------------------- --------- --------- ------------
Operating profit 33.1 26.0 55.4
Acquisition related charges (note
9) 4.3 4.8 10.3
----------------------------------------- --------- --------- ------------
Adjusted operating profit 37.4 30.8 65.7
----------------------------------------- --------- --------- ------------
Depreciation or amortisation of
tangible and other intangible
assets 2.4 2.0 4.5
Share-based payments expense 0.4 0.2 0.4
Cash paid into defined benefit
schemes (0.2) (0.2) (0.3)
----------------------------------------- --------- --------- ------------
Non-cash items 2.6 2.0 4.6
----------------------------------------- --------- --------- ------------
Increase in inventories (3.8) (2.0) (1.3)
Increase in trade and other receivables (5.7) (1.5) (0.3)
Increase in trade and other payables 2.4 2.5 7.9
----------------------------------------- --------- --------- ------------
(Increase)/decrease in working
capital (7.1) (1.0) 6.3
----------------------------------------- --------- --------- ------------
Cash flow from operating activities,
before acquisition expenses 32.9 31.8 76.6
----------------------------------------- --------- --------- ------------
8. NET CASH
The movement in net cash during the period is as follows:
31 March 31 March 30 Sept
2017 2016 2016
GBPm GBPm GBPm
------------------------------------ ----------- ----------- ----------
Net increase/(decrease) in 1.9 (1.6) (5.1)
cash and cash equivalents
Decrease/(increase) in borrowings 2.0 (20.0) 10.0
------------------------------------ ----------- ----------- ----------
3.9 (21.6) 4.9
Effect of exchange rates 0.3 0.8 2.7
Movement in net cash/(debt) 4.2 (20.8) 7.6
Net cash at beginning of
period 10.6 3.0 3.0
------------------------------------ ----------- ----------- ----------
Net cash/(debt) at end of
period 14.8 (17.8) 10.6
------------------------------------ ----------- ----------- ----------
Comprising:
Cash and cash equivalents 22.8 22.2 20.6
Borrowings (8.0) (40.0) (10.0)
------------------------------------ ----------- ----------- ----------
Net cash/(debt) at end of
period 14.8 (17.8) 10.6
------------------------------------ ----------- ----------- ----------
The Group has a committed multi-currency revolving facility of
GBP50m (2016: GBP50m) which expires on 23 June 2017. At 31 March
2017, the Group has utilised GBP8.0m (2016: GBP40.0m) of this
facility. Interest on this facility is payable between 120 and
170bps over LIBOR, depending on the leverage ratio.
It is the current intention to replace this facility by a
similar committed three year facility for GBP30m with an accordion
option to increase this by a further GBP30m up to a maximum of
GBP60m and to extend the facility up to five years. The
documentation relating to this new facility is currently being
finalised and further information will be set out in the 2017
Annual Report & Accounts.
9. GOODWILL AND INTANGIBLE ASSETS
Acquisition
intangible
Goodwill assets
GBPm GBPm
---------------------- ----------- ------------
At 1 October 2015 89.3 40.2
Acquisitions 13.5 19.4
Amortisation charge - (4.2)
Exchange adjustments 6.4 3.0
At 31 March 2016 109.2 58.4
Acquisitions (1.7) (1.0)
Disposals - (1.4)
Amortisation charge - (5.1)
Exchange adjustments 7.7 3.7
---------------------- ----------- ------------
At 30 September 2016 115.2 54.6
Acquisitions - -
Amortisation charge - (5.1)
Exchange adjustments 1.6 0.5
At 31 March 2017 116.8 50.0
---------------------- ----------- ------------
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 fifteen years.
Acquisition related charges of GBP4.3m (2016: GBP4.8m) are
charged to the Consolidated Income Statement. These charges
comprise GBP5.1m (2016: GBP4.2m) of amortisation of acquisition
intangible assets and GBP0.2m (2016: GBP0.6m) of acquisition
expenses, partly offset by a credit of GBP1.0m (2016: GBPNil)
relating to the release of surplus deferred consideration (note
11).
10. ASSET IN COURSE OF CONSTRUCTION
The Group has financed the construction of a new expanded
facility for J Royal, close to their existing facility in North
Carolina, US, with the intention upon completion to sell and lease
back this facility. The new facility was completed at the end of
March and J Royal successfully relocated into the new facility in
early April 2017.
At 31 March 2017, the Group had completed the construction of
this facility for a total cost of GBP2.5m (US$3.1m). During the six
months ended 31 March 2017 the Group paid GBP1.6m (US$2.0m) and
accrued the final tranche of GBP0.4m (US$0.5m) towards the
construction costs. At 31 March 2017 the cost of this facility has
been shown as an "asset in course of construction" in the
Consolidated Statement of Financial Position.
On 21 April 2017, the Group completed the sale and leaseback of
this facility for proceeds of GBP2.7m (US$3.5m).
11. OTHER LIABILITIES
31 March 31 March 30 Sept
2017 2016 2016
GBPm GBPm GBPm
------------------------------- --------- --------- --------
Future purchases of minority
interests 5.0 6.0 5.1
Deferred consideration 0.1 4.6 1.7
------------------------------- --------- --------- --------
5.1 10.6 6.8
------------------------------- --------- --------- --------
Analysed as:
Due within one year 2.0 2.3 1.7
Due after one year 3.1 8.3 5.1
------------------------------ --------- --------- --------
The movement in the liability for future purchases of minority
interests is as follows:
31 March 31 March 30 Sept
2017 2016 2016
GBPm GBPm GBPm
---------------------------------- --------- --------- --------
At 1 October 5.1 5.7 5.7
Acquisition of minority interest
on exercise of option - - (1.9)
Unwinding of discount 0.2 0.3 0.5
Fair value movements (0.3) - 0.8
At end of period 5.0 6.0 5.1
---------------------------------- --------- --------- --------
At 31 March 2017, the Group retained put options to acquire
minority interests in TPD, Kentek and
M Seals.
At 31 March 2017, 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 2017.
The put options to acquire the remaining minority interest of
10% held in TPD are exercisable in November 2017 and November 2019;
the put options to acquire the minority interest of 10% held in M
Seals and the 10% held in Kentek are exercisable in November
2018.
Deferred consideration comprises the following:
31 March 31 March 30 Sept
2017 2016 2016
GBPm GBPm GBPm
------------ --------- --------- --------
WCIS - 0.5 0.6
Cablecraft - 4.0 1.0
Ascome 0.1 0.1 0.1
0.1 4.6 1.7
------------ --------- --------- --------
The amount outstanding at 31 March 2017 is expected to be paid
within the next twelve months.
During the period, outstanding deferred consideration of GBP0.6m
(A$1.0m) was paid to the vendors of WCIS in respect of both the
performance of the business in the year ended 30 September 2016 and
on renewal of specific customer contracts. The deferred
consideration of GBP1.0m relating to Cablecraft was not required
and has been released to the Consolidated Income Statement as part
of acquisition related charges (note 9).
12. DIVIDENDS
31 31 30 31 31 30
Mar Mar Sept Mar Mar Sept
2017 2016 2016 2017 2016 2016
pence pence pence
per per per
share share share GBPm GBPm GBPm
------------------------------ ------- ------- ------- ------- ------- -------
- Final dividend of the
prior year, paid in January 13.8 12.4 12.4 15.6 14.0 14.0
- Interim dividend, paid
in June - - 6.2 - - 7.0
------------------------------ ------- ------- ------- ------- ------- -------
13.8 12.4 18.6 15.6 14.0 21.0
------------------------------ ------- ------- ------- ------- ------- -------
The Directors have declared an increased interim dividend of
7.0p per share (2016: 6.2p) which will be paid on 14 June 2017 to
shareholders on the register on 26 May 2017. The total value of the
dividend will be GBP7.9m (2016: GBP7.0m).
13. EXCHANGE RATES
The following exchange rates have been used to translate the
results of the overseas businesses:
Average Closing
31 March 31 March 30 31 March 31 March 30 Sept
Sept
2017 2016 2016 2017 2016 2016
----------------- --------- --------- ------ --------- --------- --------
US dollar
(US$) 1.24 1.46 1.41 1.25 1.44 1.30
Canadian dollar
(C$) 1.65 1.97 1.87 1.67 1.86 1.71
Euro (EUR) 1.16 1.34 1.28 1.17 1.26 1.16
Swiss franc
(CHF) 1.25 1.46 1.40 1.25 1.38 1.26
Australian
dollar (A$) 1.65 2.02 1.92 1.64 1.87 1.70
----------------- --------- --------- ------ --------- --------- --------
14. SUBSEQUENT EVENTS
On 19 April 2017, the Group completed the acquisition of 100% of
Abacus ALS Pty Ltd ("Abacus") for an aggregate maximum
consideration of GBP15.7m (A$26.0m). Abacus is a long-established
supplier of clinical diagnostics instrumentation and consumables to
the Pathology and Life Sciences sectors. The initial cash paid on
acquisition, including debt acquired but before acquisition
expenses, was GBP13.6m (A$22.5m). This will be subject to minor
adjustment based on net assets at completion. Further deferred
consideration up to a maximum of GBP2.1m (A$3.5m) may be payable in
2017 based on the performance of the business in the year ended 30
June 2017. A review to determine fair values of net assets acquired
will be completed during the second half of the financial year.
On 19 April 2017, the Group also completed the acquisition of
100% of Problem Solving Products, Inc. ("PSP"), a supplier of
specialist seals based in Colorado US, for total consideration of
GBP1.4m (US$1.9m).
Abacus will form part of the Diploma Healthcare Group and will
be reported within the Life Sciences sector; PSP will be part of
the HFPG North American Seals business and will be reported within
the Seals sector.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FMGMKKZDGNZM
(END) Dow Jones Newswires
May 15, 2017 02:00 ET (06:00 GMT)
Diploma (LSE:DPLM)
Historical Stock Chart
From Mar 2024 to Apr 2024
Diploma (LSE:DPLM)
Historical Stock Chart
From Apr 2023 to Apr 2024
