Final Results

Diploma PLC 20 November 2000 DIPLOMA PLC November 20, 2000 PRELIMINARY RESULTS FOR YEAR ENDED 30 SEPTEMBER 2000 HIGHLIGHTS Year ended September 2000 1999 Group sales £93.6m £242.0m Operating profit from continuing businesses, £7.8m £6.4m before exceptionals Profit before tax and before exceptionals £10.4m £11.0m Profit before tax after exceptionals £8.5m £20.2m Earnings per share* 10.5p 32.0p Pro forma earnings per share 23.4p N/A Dividends per share* 12.0p 9.0p Net assets per share* 211p 187p * Operating profit from continuing businesses, before exceptionals, up 22% to £7.8m from £6.4m * Pre-tax margins (before exceptionals) increased to 11.1% from 4.5% * £50.3m returned to shareholders in the year, with £19.1m retained in balance sheet, providing ability to invest in organic growth and acquisitions * Pro forma earnings per share of 23.4p (based on the new capital structure and after removing exceptionals and profits of divested businesses) * Full year dividend of 12.0p per share, approximately 2 times covered by pro forma earnings per share * Per share figures in 1999 are based on the old Diploma PLC's 50.3m issued shares. Per share figures in 2000 reflect the mid-year reduction in the number of shares in issue to 25.2m new Diploma PLC shares as part of the Scheme of Arrangement implemented in April 2000. For further information please contact: Christopher Thomas, Chairman or Bruce Thompson, Chief Executive Officer Diploma PLC 020 7638 0934 PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2000 CHAIRMAN'S STATEMENT We have substantially progressed through a programme of sustained corporate activity aimed at re-focusing the Group on growing, specialised distribution businesses, whilereducing dependency on more mature and cyclical businesses. Over the last 2-3 years, five lower margin, more mature businesses with declining profit trends have been sold for considerations totalling ca £80m, representing an average after tax P/E exit multiple of over 20 times. Over the same period, a total of £62m has been returned to shareholders through share buy-backs and the recent Scheme of Arrangement. £19.1m of cash remains in the balance sheet, capable of funding further investment in organic growth and acquisitions in our new core of Specialised Distribution businesses which are focused on growth markets including Pharmaceutical, Biotechnology, Aerospace, Motorsport and RMO (repair and maintenance operation) supplies. Financials and Corporate Activity Following the major divestments, in the year to 30 September 2000, turnover at £93.6m was less than half that of the comparable period (£242.0m). Operating profit from the continuing activities, before exceptionals, increased to £7.8m (£6.4m). Interest received and profits from divested operations totaled £2.6m (£4.6m), leaving profit before tax, exceptional items and minority interests only slightly reduced at £10.4m (£11.0m). Pre-tax margins (before exceptionals) increased to 11.1% from 4.5%. Cash flow from operating activities was good with continuing businesses producing £-10.3m. During the year, the divestment of the SEI Macro Group and Robert Lee were completed. These divestments generated cash receipts of £43.3m in the year and net exceptional gains of £5.0m. At the end of the financial year, an impairment review was carried out of certain less profitable operations in the Group. As a result, it has been decided to provide a total of £7.0m representing the Director's assessment of the impairment of the goodwill which arose in the original acquisition of these businesses. Since goodwill was written off to reserves at the time of acquisition (under the then applicable accounting standards) this provision has not had any effect on the Group's net assets. Following a review of the Group's Advance Corporation Tax position the Group's ACT recoverable of £1.0m has been provided against. In April 2000, the planned return of surplus capital was completed by means of a Scheme of Arrangement. For every 2 old Diploma shares, shareholders received 1 new Diploma share and £2.00 in cash. This achieved the result of returning £50.3m of capital to shareholders while reducing the number of shares in issue to 25.2m shares. The cost involved in implementing the Scheme was £0.4m. Profit after tax and minority interests was £4.1m (£16.1m). Excluding exceptional items, adjusted earnings after tax and minority interests were £ 7.0m (£6.9m). The mid-year reduction in the number of shares, as a result of the Scheme of Arrangement, makes the earnings per share figure (10.5p for 2000) difficult to compare with the prior year (32.0p). However, by broadly adjusting the results to take out exceptional items, interest received on cash subsequently returned to shareholders and profits in businesses divested in the period, pro forma earnings per share (based on the number of new shares outstanding at the year end) would be 23.4p. We propose a final dividend payment of 7.0p per share on 17th January 2001 to the holders of the 25.2m new Diploma ordinary shares on the register at 22nd December 2000. The total dividend payment for the year of £3.0m, representing 12.0p per new Diploma share, compares with the prior year payment of £4.5m (9.0p per old Diploma share). SPECIALISED DISTRIBUTION This Divisional Grouping comprises the newer Specialised Distribution businesses operating in the three core sectors of Life Sciences, Seals & Components and Interconnect products. Combined sales in the businesses increased by 10% to £63.6m (£57.9m) and operating profits were £9.4m in total (£9.4m). Life Sciences Anachem and a1 Biotech supply analytical instrumentation, consumables and related services to the Life Science research laboratories of the major pharmaceutical andbiotechnology companies, universities and research institutions. During the year, the trading environment has been marked by two significant factors, one negative and one positive. The first and negative factor was the continuing consolidation of the major pharmaceutical companies and in particular the prolonged merger of Glaxo and SmithKline Beecham; as a result sales of Anachem's capital equipment products slowed further from the already reduced levels last year. The second more positive factor was the growth of research in the fields of proteomics and genomics which is projected now to accelerate further following the completion of the Human Genome Project. The demand for different tools to allow scientists to develop the full potential of DNA based research has spawned new, mostly US-based, start-up manufacturers delivering novel instruments and software to a rapidly growing number of biotechnology research organisations. In order to more closely serve this important growth sector, Anachem has created the separate brand identity of a1 Biotech to encompass its portfolio of bio-instrumentation products supplied initially in the UK and Germany. Overall, early sales successes in this emerging bio-instrumentation sector were not sufficient to offset the slowdown in Anachem's larger, more traditional capital equipment sector and Anachem registered flat sales and reduced profitability compared with the prior period. In the second half of the year, internal resources were reviewed and more closely aligned to both current trading levels and future growth prospects within the various segments of the business. a1 Biotech GmbH was formed in 1999 to serve the growing biotechnology industry in Germany. It made significant progress in terms of sales during 2000 and demand for its products remains encouraging. Marketing expenditure and margin constraints, exacerbated by the weakness of the Euro against the US Dollar, dampened profitability but nevertheless, the achievement of a better than breakeven result following only one year of start-up investment was a marked success. Seals & Components Hercules and Fluid Power Equipment distribute hydraulic seals, seal kits and cylinder components to repair and maintenance operations (RMO's) serving a broad range of mobile machinery after-markets. Hercules is the leading catalogue-based distributor of hydraulic seals and seal kits in North America and operates from a recently constructed and purpose-built, 70,000 square feet, call centre and warehouse in Clearwater, Florida. In Canada, Hercules trades from three smaller facilities in Ontario, Quebec and British Columbia. During the year, Hercules delivered solid sales growth through a combination of selling a larger volume and broader range of products into existing customers as well as expanding into new customers. Growth was particularly strong in Hercules' Canadian satellite operations. The growth in activity was mostly absorbed by the capacity and resources added in the prior year when Hercules re-located to its new purpose built facility. As a result, the underlying sales growth of ca 10% was translated into profit growth of 20%. Fluid Power Equipment was acquired by Diploma in April 1999 to serve as a basis for introducing the Hercules business concept into the UK. During the year, Fluid Power invested considerable time and cost in the development of Hercules - style catalogues but with an emphasis on European mobile equipment. The first two catalogues were launched in the second half of the year and a third is planned for the beginning of calendar 2001. Sales continued to grow steadily and profits, although impacted by the planned marketing investments, were in line with expectations. Interconnect Rayfast and Sommer, together trading as the IS Group, are distributors of high performance wiring, thermal shrink fit components and interconnect products supplied into Aerospace, Motorsport and wider Electronics markets. Rayfast performed well during the year, with a stronger second half than the first half, and it was pleasing to see a return to modest sales and profit growth (ca 10%) in the UK based operation. Aerospace and Motorsport both made progress along with sales to continental European distributors, and the order book going into the new year remained healthy. Sommer is located in Stuttgart and currently operates from a centralised call center and several remote storage locations. A single facility, into which operations will be consolidated, is currently under construction and will be operational during 2001. It was another outstanding year for Sommer with sales and profit increases in excess of 30%. A recovery in the German manufacturing sector has undoubtedly assisted the growth and the weak Euro has favoured Sommer's exporting customers. However, the company has consistently made gains across an expanded customer base in Germany. Although current trading conditions remain favourable, growth in the coming year is projected to be more modest. Abacon, the US supplier of telecommunication interconnect products, continued to suffer from the consolidation within its principal customer base of the telephone operating companies, but returned to break-even by the year end. E-commerce While consumer focused, e-commerce operations have experienced much turbulence and mixed fortunes during the year, business-to-business (B2B) e-commerce has increasingly become accepted as an essential business tool, particularly for distributors. While several of Diploma's businesses have had operational web-sites for some time, these have typically been 'Level 1' e-commerce - customer facing web-sites with reasonable functionality but limited by the lack of integration between the front-end web site and back office systems. Over the last year, the lead companies in each of the Specialised Distribution sectors (Anachem, Rayfast and Hercules) have invested in developing full 'Level 2' e-commerce with seamless integration into the back office systems. The development work is now mostly complete and all three systems are currently undergoing customer trials prior to going live before the end of the calendar year 2000. SPECIAL STEELS & BUILDING PRODUCTS In the second half of the year, the continuing Special Steels and Building Products companies reversed the losses of the first half. The year ended with combined sales mostly flat at £25.3m (£26.5m), but with break-even operating performance compared to the loss of £1.6m in the prior period and a positive operating cashflow of £2.5m. The increasing confidence of oil and gas producers has started to translate into increased capital expenditure in the oilfield equipment industry. The upturn has been relatively modest in the year 2000, reflecting the caution generated from past experience. However, oil inventories are reducing globally and increasing demand should work its way through to increasing capital expenditure more broadly throughout the industry. While activity levels are already showing some improvements, particularly in Houston based operations serving the Gulf of Mexico, margins remain tight. DISCONTINUED BUSINESSES The sale of the SEI Macro business was completed in October 1999 for a basic consideration of £37.5m. This yielded a net exceptional gain of £3.9m after deducting goodwill already written off to reserves and pending the finalisation of completion accounts. Certain assets, mainly properties, with a net book value of £3.3m were retained in the group for eventual sale. In January 2000, the sale of Robert Lee was completed for a sum totalling £ 5.2m after adjusting for net assets value following completion. This sale generated a net exceptional gain of £1.6m. Together, these businesses contributed £0.3m of operating profits in the periods prior to sale which are included in our consolidated profits. PROSPECTS The Group, with its smaller structure and capital base, is now more clearly focused on a new core of Specialised Distribution businesses serving industries with long term growth potential and our aim is to further demonstrate progress in the new financial year. We face exciting challenges as the Group emerges from an intense period of re-structuring. We can now concentrate all our efforts on implementing growth strategies in our core businesses and I am sure I can count on the continuing efforts and commitment of the employees who have always represented the differentiating factor in our businesses. Christopher Thomas Chairman 20th November 2000 DIPLOMA PLC - PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 2000 GROUP PROFIT AND LOSS ACCOUNT Before Exceptional Exceptional 2000 1999 Note Items Items Total Total £m £m £m £m TURNOVER 1 Continuing Operations 88.9 - 88.9 84.4 Discontinued Operations 4.7 - 4.7 157.6 ______ ______ ______ ______ 93.6 - 93.6 242.0 ______ ______ ______ ______ OPERATING PROFIT 1 Continuing Operations 2.a.i 9.4 (7.0) 2.4 7.8 Head Office Expenses, net of Rental (1.6) - (1.6) (1.4) Income Discontinued Operations 0.3 - 0.3 4.5 ______ ______ ______ ______ 8.1 (7.0) 1.1 10.9 Non Operating Exceptional items: 2 - 5.1 5.1 9.2 ______ ______ ______ ______ PROFIT BEFORE INTEREST 8.1 (1.9) 6.2 20.1 Net interest income 2.3 - 2.3 0.1 ______ ______ ______ ______ PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 10.4 (1.9) 8.5 20.2 Taxation 2.a.ii & 3 (3.2) (1.0) (4.2) (3.8) ______ ______ ______ ______ PROFIT ON ORDINARY ACTIVITIES AFTER TAX 7.2 (2.9) 4.3 16.4 Minority interests (0.2) - (0.2) (0.3) ______ ______ ______ ______ PROFIT FOR THE FINANCIAL YEAR 7.0 (2.9) 4.1 16.1 ______ ______ Dividends (3.0) (4.5) ______ ______ RETAINED PROFIT 1.1 11.6 ______ ______ EARNINGS PER SHARE: On profit for the financial year 4 10.5p 32.0p ______ ______ Pro forma 5 23.4p N/A ______ ______ DIVIDENDS PER SHARE: 6 12.0p 9.0p ______ ______ DIPLOMA PLC - PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 2000 GROUP BALANCE SHEET 2000 1999 Note £m £m £m £m Intangible fixed assets 1.4 0.8 Tangible fixed assets 16.3 21.1 ______ ______ 17.7 21.9 Current assets Stocks 21.3 39.8 Debtors 16.5 43.2 Cash at bank and on deposit 19.2 24.5 ______ ______ 57.0 107.5 ______ ______ Creditors - amounts falling due within one year Bank overdrafts 0.1 1.7 Bank loan - 2.9 Taxation 2.9 1.7 Dividend payable 1.8 2.2 Other creditors 14.4 23.8 ______ ______ 19.2 32.3 ______ ______ Net current assets 37.8 75.2 ______ ______ 55.5 97.1 Total assets less current liabilities Provisions for liabilities and (0.4) - charges ______ ______ Net assets employed 55.1 97.1 ______ ______ Capital and reserves Called-up share capital 1.3 2.5 Capital redemption reserve - 0.4 Share premium account - 12.7 Profit and loss account 52.0 78.3 ______ ______ Shareholders' funds 7 53.3 93.9 Minority interests 1.8 3.2 ______ ______ 55.1 97.1 ______ ______ DIPLOMA PLC - PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 2000 GROUP CASH FLOW 2000 1999 £m £m £m £m Operating profit 8.1 10.9 Depreciation 2.0 4.0 (Increase)/decrease in stocks (1.0) 4.9 (Increase)/Decrease in debtors (1.5) 1.8 Increase/(Decrease) in creditors 2.7 (0.7) ______ ______ Cash flows from operating activities 10.3 20.9 Investment returns and servicing of finance Net interest (paid)/received 2.3 0.1 ______ 2.3 ______ 0.1 Tax paid (2.3) (5.6) Capital expenditure Purchase of tangible fixed assets (2.7) (5.5) Sale of tangible fixed assets 2.4 0.9 ______ (0.3) ______ (4.6) Acquisitions and disposals Acquisition of subsidiaries (1.1) (1.3) Disposals of subsidiaries 43.3 20.1 Overdrafts/(Cash) in disposals 1.7 (2.2) ______ 43.9 ______ 16.6 Equity dividends paid (3.6) (7.3) ______ ______ 50.3 20.1 Management of liquid resources Sale/(Purchase) of current asset 2.5 (1.0) investments ______ ______ Cash flows before financing 52.8 19.1 Financing Return of capital (50.3) - Return of capital - Exceptional cost (0.4) - Purchase of own share capital - (0.1) Repayment of loan (3.3) - ______ (54.0) ______ (0.1) ______ ______ Movement in funds during the period (1.2) 19.0 Cash and deposits at beginning of 24.5 6.6 period Overdrafts at beginning of period (1.7) (3.8) Bank loans at beginning of period (2.9) (2.8) ______ ______ Net funds at beginning of period 19.9 - Cash from increase in liquid 0.8 1.0 resources Exchange movement on debt (0.4) (0.1) ______ 0.4 ______ 0.9 ______ ______ 19.1 19.9 ______ ______ Cash and deposits at end of period 19.2 24.5 Overdrafts at end of period (0.1) (1.7) Bank loans at end of period - (2.9) ______ ______ ______ ______ Net funds at end of period 19.1 19.9 ______ ______ DIPLOMA PLC - PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 2000 Notes to the Preliminary Results: 1. Segmental analysis before exceptional items 2000 1999 Turnover Profit Turnover Profit £m £m £m £m Continuing Operations Specialised Distribution 63.6 9.4 57.9 9.4 Special Steels and 25.3 - 26.5 (1.6) Building Products ______ ______ ______ ______ Total Continuing Operations 88.9 9.4 84.4 7.8 ______ ______ ______ ______ Discontinued Operations Electronic Components 1.0 0.1 122.5 1.7 Special Steels and 3.7 0.2 35.1 2.8 Building Products ______ ______ ______ ______ Total Discontinued 4.7 0.3 157.6 4.5 Operations ______ ______ ______ ______ Total Turnover 93.6 242.0 ______ ______ Head Office Expenses (1.9) (1.4) Rental income 0.3 - ______ ______ Operating Profit before 8.1 10.9 exceptional items ______ ______ 2. a). Operating exceptional items i. As a result of an impairment review, goodwill previously written off to reserves in respect of certain businesses has been provided against, generating a charge to profit of £7.0m; that amount has been credited to reserves with no net effect on Group net asset value. ii. Following a review of the Group's Advance Corporation Tax position the Group's ACT recoverable of £1.0m has been provided against b) Non-operating exceptional items 2000 1999 £m £m Disposals: - Surplus of proceeds over net asset value 6.4 9.3 - Goodwill previously written off to reserves (1.4) (0.2) ______ ______ Profit on disposals 5.0 9.1 Costs of Scheme of Arrangement (0.4) - Profit on sale of properties 0.5 0.1 ______ ______ Total non-operating exceptional items 5.1 9.2 ______ ______ 3. Taxation 2000 1999 £m £m On Operating Profit and Interest 3.2 3.8 On Exceptional Items - - Exceptional write-off of ACT 1.0 - ______ ______ 4.2 3.8 ______ ______ 4. Earnings per share on profit for the financial year Earnings per share is calculated on profit for the financial year using a weighted average of shares outstanding during the year 5. Pro forma earnings per share a). Pro forma earnings per share for 2000 have been arrived at by: i. the elimination of exceptional items net of tax and minorities, ii. the deduction of operating profit less tax of the disposed subsidiaries up to the date of disposal iii. the addition of notional interest less tax on disposal receipts, up to the date of disposal iv. the deduction of notional interest less tax on the amount of the return of capital from the beginning of the year to the date of the return. b) The calculation is based on the 25.2m shares now in issue. 2000 1999 6. Dividends per share Interim dividend paid 3 July 2000 5.0p 4.5p Proposed final dividend payable on 17 January 2001 to shareholders on the register at 22 December 2000 7.0p 4.5p ______ ______ 12.0p 9.0p ______ ______ 7. Reconciliation of movement in shareholders' funds 2000 1999 £m £m Retained profit 1.1 11.6 Return of Capital (50.3) - Purchase of own share capital - (0.1) Proceeds of shares issued - 0.1 Goodwill written back on disposals 1.4 0.2 Goodwill on impairment review written back 7.0 - Tax on foreign exchange differences (0.6) - Currency translation variances 0.8 0.2 ______ ______ (40.6) 12.0 Shareholders' funds at beginning of period 93.9 81.9 ______ ______ Shareholders' funds at end of period 53.3 93.9 ______ ______ 8. Under the Scheme of Arrangement which came into effect on April 18 2000, Diploma PLC (previously named New Diploma PLC) acquired Diploma Holdings PLC (previously named Diploma PLC). As part of the Scheme of Arrangement, shareholders received in aggregate £50.3m and 25.2 million shares in Diploma PLC in consideration for the 50.2 million shares in Diploma Holdings PLC then outstanding. The directors have adopted merger accounting principles in drawing up these preliminary results (which do not constitute statutory financial statements within the meaning of s.240 of the Companies Act 1985). They are unaudited and have been prepared using the accounting policies set out in the Annual Report and Accounts for the year ended 30 September 1999. The financial information for 1999 has been extracted from the statutory accounts of the Group on which the auditors gave an unqualified report. A copy of those accounts has been filed with the Registrar of Companies. 9. The Annual General Meeting will be held on 10 January 2001. The company's Registered Office is at 20 Bunhill Row, London EC1Y 8UD. Tel. 020 7638 0934 Fax 020 7638 7651 Registered Number 38998481

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