Final Results
Diploma PLC
26 November 2001
DIPLOMA PLC 26 November 2001
Preliminary announcement of audited results for year ended 30 September 2001
2001 2000
Turnover from continuing businesses £68.9m £61.2m
Operating profit from continuing businesses,
before exceptional items and goodwill amortisation £8.9m £7.8m
Profit before tax, exceptional items and goodwill
amortisation £10.9m £10.4m
Profit before tax, after exceptional items £8.7m £8.5m
Adjusted earnings per share 30.2p 18.0p
Pro forma earnings per share n/a 23.4p*
Dividends per share 13.0p 12.0p
Net assets per share 221p 211p
* Pro-forma earnings per share figure for 2000 based on new capital structure
and after removing exceptionals and profits of divested businesses.
* Operating profit from continuing businesses, before exceptionals, up
14.1% to £8.9m from £7.8m. Operating profit margins maintained at 12.9%.
* Adjusted earnings per share 30.2p, an increase of 29% over the pro forma
earnings per share in previous year of 23.4p.
* Full year dividend up from 12.0p to 13.0p per share, 2.3 times covered
by Adjusted earnings per share.
* Strong operating cash flow of £9.4m plus net cash inflow of £8.8m from
divestments; net cash of £31.7m at end of year.
* First phase of corporate restructuring, principally the divestment
programme, now complete following the sale of Special Steels and Abacon.
Total shareholder return of more than 80% over 3 years.
* Group resources now focused on delivering second phase strategy of
investing in core businesses and accelerating growth through acquisition.
In parallel, continuing programme of returning surplus capital to further
enhance value.
For further enquiries please contact:
Bruce Thompson, Chief Executive Officer
Nigel Lingwood, Group Finance Director
Diploma PLC 020 7638 0934
RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2001
CHAIRMAN'S STATEMENT
Excellent progress has been achieved this year in completing the first phase
of our strategy, commenced some three years ago, of divesting the non-core
businesses and refocusing the Group on Specialised Distribution businesses
with the potential for growth and superior margins. This first phase
restructuring has delivered an increase in shareholder value of more than 80%
over the three years through a combination of share price appreciation,
dividends and return of capital to shareholders.
We are now concentrating on the second phase of our strategy, that of
investing in and expanding the new core of businesses. In particular, we are
committing increased resources to the acquisition process in a climate which
is far more receptive than in recent years. This is starting to produce
results with an increasing number of interesting acquisition candidates being
brought forward. The acquisitions of Bulldog (Pevco) and Symonds Cableform
have been completed towards the end of the year and several other good quality
opportunities are at different stages of development. Investment is also being
made in start-up operations such as a1-biotech, Envirotech and IS Motorsport,
where we are expanding current successful operations into new geographies.
The Board believes that there is substantial potential for enhanced
shareholder value by pursuing its strategy of further investment in
Specialised Distribution and accelerating growth through compatible
acquisitions. In parallel, the Board will continue its programme of returning
surplus capital to shareholders to further enhance value.
RESULTS AND DIVIDENDS
Operating profits of the continuing businesses increased 14.1% to £8.9m on
sales up 12.6% to £68.9m. Profit before tax and exceptional items increased to
£10.9m from £10.4m last year.
Adjusted earnings per share increased to 30.2 pence, an increase of 29% over
the 2000
pro forma earnings per share figure of 23.4p. The Group's continued strong
operating cash flow of £9.4m, together with a net cash inflow from divestments
of £8.8m, contributed to the Group's cash funds increasing to £31.7m at the
end of the year.
The Board is encouraged by the overall progress achieved in the year under
review with profits increasing, strong cash generation and a robust balance
sheet. Accordingly, the Directors are recommending an increased final dividend
of 8.0p (7.0p), raising the total payment to 13.0p (12.0p), an increase of
8.3%.
CURRENT TRADING
Continuing the trends from the second half of last year, the Group's core
Specialised Distribution businesses have started the new financial year in
line with budget expectations. Year on year revenue gains are being achieved
although there continue to be pressures on margins in the current challenging
economic and market conditions.
CHIEF EXECUTIVE'S REVIEW
The Group has a clearly defined strategy of investing in Specialised
Distribution businesses with long term growth potential and with the
opportunity for sustainable, superior margins through the quality of customer
service, depth of technical support and value-adding activities. The three
year divestment programme recently completed, has sharpened the focus of the
Group onto the core businesses. The Group is now able to concentrate its full
efforts on investing in and expanding its activities in the three growth
sectors of Life Sciences, Interconnect and Seals & Components.
Organic growth and acquisition strategies have been developed for the
individual businesses, designed to build leading market positions and critical
mass in the three sectors and to accelerate growth. Several strategic themes
underpin these strategies:
Focus on growth markets
We have concentrated resources on targeted initiatives designed to build our
presence in the market sectors with most growth potential. In the Life
Sciences sector, we supply a range of instrumentation, consumables and related
services to the research activities of the Pharmaceutical and Biotechnology
industries. These industries have significant growth potential fuelled by
research in new fields such as Proteomics and Genomics. We have also expanded
our presence in the growing market for Environmental products.
In the Interconnect sector, we supply high performance wiring and interconnect
products into technology intensive applications in a range of industries.
While recent events have depressed the commercial Aerospace market (ca 10% of
Interconnect sales), our companies have significant growth opportunities in
Defence and Motorsport markets as well as in a range of other specialised
Commercial Electronics applications. The establishment of IS Motorsport in
Indianapolis is an example of a specific initiative targeted on a growth
market.
The ultimate end-users for our Seals & Components products are in traditional
industry sectors such as construction, road-building and material handling.
However, our companies offer their next-day delivery service principally to
the Repair & Maintenance Operations (RMOs) which are growing in scale and
importance. The acquisition of Bulldog (Pevco) in September 2001 expands our
position in this sector.
Product line extension
Our focus on specific industry sectors gives us special relationships with
major customers who are generally trying to reduce the number of their
suppliers. A key objective of all our businesses is therefore to sell a
broader range of products into the same customer base.
One way that this can be achieved is by investing in in-house marketing and
product development resources. A good example is Hercules which, at the time
of its acquisition in 1996 by Diploma, marketed some 30,000 product line items
in a single annual catalogue. Now there are over 60,000 line items presented
in 10 different catalogue pieces.
Alternatively, acquisition can provide quicker access to new product lines and
new supplier franchises. The acquisition of Symonds Cableform in September
2001 added a range of braided tapes and adhesives purchased regularly by the
customer base of IS Rayfast.
Added value services
For a specialised distribution business, providing value-added services is
essential for developing strong customer relationships and for justifying
superior margins.
In the sector of Life Sciences for example, Anachem has built a reputation for
developing customised applications for specific applications. The ReactArray
product has been developed by Anachem to enable process optimisation in
pharmaceutical drug development. This workstation incorporates discrete
instruments and robotics provided by our traditional suppliers, but tailored
to the specific application through customised software developed by Anachem.
Across the businesses there are many other examples of added value services
such as just-in-time delivery systems, calibration and maintenance contracts
and kitting services.
Geographic expansion
The businesses currently have different geographic profiles. Life Sciences is
principally a UK business with a small but growing presence in Germany.
Interconnect is present in the UK and Germany with export sales throughout
Europe and a small start-up in the US. Seals & Components is principally based
in the US and Canada with a smaller operation in the UK but with access now
through Bulldog (Pevco) to a range of international markets. The Group has
extensive experience in acquiring and managing businesses in North America and
Europe. It is intended that this experience will be used to fill out the
geographic profile and build critical mass in the growth sectors.
Management, systems and infrastructure
The Group has a proven ability to develop small owner-managed businesses into
more substantial, broader based businesses. A key factor in these
transformations has been the nurturing of management talent. Strong, balanced
management teams are built and given the support, training and incentives
required to manage for growth.
The businesses acquired by the Group also typically have made only limited
investment in infrastructure. At the appropriate stage, we provide resources
to create more efficient, larger scale operations to support accelerated
growth. Last year Hercules relocated to a new purpose built facility and this
year Sommer and FPE have consolidated their operations into new larger
facilities. In addition, the Group's wide experience of e-commerce, back
office systems and IT applications in distribution businesses provides
opportunity for synergies in the development of business systems and
infrastructure. IS Rayfast has this year completed the implementation of a new
IT system and this will be introduced to Sommer during the new financial year.
Further investments are planned in the development of integrated systems for
our Life Sciences and Seals & Components businesses.
REVIEW OF OPERATIONS
LIFE SCIENCES
Our Life Sciences businesses have increased sales by 12% to £28.1m and
increased profits by a similar percentage. Progress has been achieved in each
of the business units that make up Anachem and a1-biotech.
Applied solutions
This business unit within Anachem supplies a range of instrumentation used in
drug development and often configured by Anachem for specific applications.
Large pharmaceutical companies have continued to limit expenditure on the more
traditional capital equipment. However, success in other drug discovery
operations and in university research departments has contributed to
year-on-year growth. Strong sales success has been achieved with the latest
version of ReactArray, a customised product developed by Anachem in
collaboration with GlaxoSmithKline, for process optimisation in pharmaceutical
drug development.
Pipettes and laboratory plastics
Anachem has made gains in the highly competitive pipettes and tips sector
through the premium positioning of performance products. Increased competition
in the servicing sector has resulted in overall static performance in this
business unit, although there have been successes such as a new three year
contract for Pfizer.
a1-biotech
Newer genomic products are supplied under the a1-biotech brand name in the UK
and Germany. Sales revenues grew substantially year on year, albeit at lower
margins than in our traditional sectors. Exceptional first half performance
was boosted by the large DNA screening project for Decode, although slowing
sales were experienced in the second half as the Genomics sector cooled.
Environmental
Strong sales were experienced across all segments served by this new business
unit.
Particular success was achieved in the sale of new portable gas detection
products, and from new product introductions for moisture measurement and
potent powder protection. Several additional franchises were awarded during
the year which will contribute to next year's sales. In particular, the
extension of the Mitsubishi franchise from the UK to Germany and Austria has
provided the impetus for the establishment of Envirotech, a new start-up
operation in Germany focusing on environmental products.
SEALS AND COMPONENTS
Our Seals and Components businesses increased sales by 9% to £21.6m but with
operating profits falling back slightly due to pressure on margins in
increasingly challenging market conditions.
Hercules
The US market for seals and components experienced a significant downturn
compared to the prior year. Hercules improved market share by continuing to
invest in promotional activities, lower freight rates and targeted, rather
than across-the-board, price discounting. As a result, sales were maintained
at last year's levels in US dollar terms. Hercules also worked hard on its
cost structure, exercising tight control of all overhead costs and resourcing
selected product lines to obtain better pricing. During the year, a total of
1800 catalogue pages were created and distributed and 3000 new line items were
added to the portfolio. Overall, a resilient performance in the depressed
North American market.
FPE
The UK market held up better than the US but was still not buoyant. FPE
continued investment in catalogues and increased marketing activity. Sales and
warehousing activities were consolidated into an extended Darlington facility
to improve efficiency and costs. Improved purchasing was achieved through
successful resourcing of products in Asia and joint purchasing with Hercules.
Bulldog (Pevco)
In September 2001, Diploma acquired Bulldog (Pevco), a distributor of seals
and gaskets for use in the repair of mobile heavy duty equipment. The company
markets its products under the trade name of Bulldog and is based in Reno in
the US. The acquisition of Bulldog represents a strategic expansion of our
broader seals and components distribution business. In particular, it
provides access to new customer segments in the US and into the wider
international markets served by Bulldog. Bulldog brings a strong brand
identity and an additional $10m of sales to the Group and was purchased at net
asset value.
INTERCONNECT
Our Interconnect companies increased overall sales by 22% to £16.6m and
increased operating profits by a similar percentage. Strong performances were
delivered by all these businesses but with some slowing down towards the year
end, particularly in Germany.
IS Rayfast
Strong demand was experienced across all market sectors including defence,
aerospace and commercial electronics. During the year, a new Interconnect
catalogue was launched and continued progress was made in the marketing of
specialist printing and marking services for identification of wiring
harnesses. The final stages in the new IT system were successfully
implemented, delivering benefits in customer service, product traceability and
telemarketing.
September 2001 saw the acquisition of Symonds Cableform, a small specialist
distributor of high performance lacing cords, braided tapes and adhesives,
which has now been integrated into IS Rayfast.
IS Motorsport
A new business unit, IS Motorsport, has been created to recognise the success
achieved in supplying interconnect products to Formula 1 and other Motorsport
teams in the UK. To serve the just-in-time needs of the Motorsport teams, a
new Kanban product replenishment service has been introduced. IS Motorsport
established a new start-up operation in Indianapolis in June 2001 to service
the needs of the US Motorsport teams.
Sommer
Growth was generated from several large projects and an increased sales
presence across Germany, with new sales locations established in Munich and
Berlin. The consolidation was completed in March 2001 of several sales and
warehousing operations into a single facility close to Stuttgart airport. It
is intended that the IS Rayfast IT system will be introduced to Sommer during
the new financial year.
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 30 September 2001
30 September 2001 30 September 2000
Before Goodwill Total Before Goodwill Total
goodwill and goodwill and
and exceptional and exceptional
exceptional items exceptional items
items (note 2) items (note 2)
£m £m £m £m £m £m
Turnover (note 1)
Continuing 68.9 68.9 61.2 61.2
operations
Discontinued 18.0 18.0 32.4 32.4
operations
86.9 86.9 93.6 93.6
Operating profit
(note 1)
Continuing 8.9 (0.1) 8.8 7.8 - 7.8
operations
Discontinued 0.8 - 0.8 0.3 (7.0) (6.7)
operations
9.7 (0.1) 9.6 8.1 (7.0) 1.1
Non-Operating items
Continuing
operations -
Profit on disposal - 0.1 0.1 - 0.5 0.5
of fixed assets
Costs of Scheme of - - - - (0.4) (0.4)
Arrangement
Discontinued - (2.2) (2.2) - 5.0 5.0
operations -
(Loss)/profit on sale of
businesses
9.7 (2.2) 7.5 8.1 (1.9) 6.2
Interest income 1.2 - 1.2 2.3 - 2.3
Profit/(loss) on 10.9 (2.2) 8.7 10.4 (1.9) 8.5
ordinary activities
before tax
Taxation (note 3) (3.2) - (3.2) (3.2) (1.0) (4.2)
Profit/(loss) on 7.7 (2.2) 5.5 7.2 (2.9) 4.3
ordinary activities
after tax
Minority interests (0.1) (0.2)
Profit for the 5.4 4.1
financial year
Dividends (3.3) (3.0)
Retained profit for 2.1 1.1
the year
Earnings per 5p
share (note 4)
on basic and 21.5p 10.5p
diluted earnings
on adjusted 30.2p 18.0p
earnings
GROUP BALANCE SHEET
at 30 September 2001
2001 2000
£m £m
Fixed assets
Intangible assets 2.0 1.4
Tangible assets 12.0 16.3
Investments - -
14.0 17.7
Current assets
Stocks 14.3 21.3
Debtors 13.5 16.5
Cash and bank deposits 31.7 19.2
59.5 57.0
Creditors: Amounts falling due within one year (16.2) (19.2)
Net current assets 43.3 37.8
Total assets less current liabilities 57.3 55.5
Provisions for liabilities and charges (1.3) (0.4)
56.0 55.1
Capital and reserves
Called up equity share capital 1.3 1.3
Capital redemption reserve - -
Profit and loss account 54.3 52.0
Shareholders' funds 55.6 53.3
Equity minority interests 0.4 1.8
56.0 55.1
GROUP CASH FLOW STATEMENT
for the year ended 30 September 2001
2001 2001 2000 2000
£m £m £m £m
Net cash inflow from operating activities (note 5) 9.4 10.3
Returns on investments and servicing of finance
Interest received 1.2 2.3
Equity dividends paid to minority interests (0.1) -
1.1 2.3
Taxation
UK corporation tax paid (2.1) (2.1)
Overseas tax paid (0.6) (0.2)
(2.7) (2.3)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1.7) (2.7)
Proceeds from the sale of tangible fixed assets 0.8 2.4
(0.9) (0.3)
Acquisitions and disposals
Proceeds from disposal of businesses 12.9 45.0
Acquisition of businesses (4.1) (1.1)
8.8 43.9
Equity dividends paid (3.0) (3.6)
Cash inflow before use of liquid resources and 12.7 50.3
financing
Management of liquid resources
(Increase)/decrease in short term deposits (28.4) 3.0
Financing
Return of capital - (50.3)
Return of capital - exceptional cost - (0.4)
Repayment of loan - (3.3)
- (54.0)
Decrease in cash in the year (note 6) (15.7) (0.7)
STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 30 September 2001
2001 2000
£m £m
Profit for the financial year
5.4 4.1
Currency translation adjustment on foreign 0.3 0.8
currency net investments
Tax on foreign exchange adjustment (0.1) (0.6)
Total recognised gains and losses for the year 5.6 4.3
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 30 September 2001
2001 2000
£m £m
Profit for the financial year 5.4 4.1
Dividends (3.3) (3.0)
Retained profit for the year 2.1 1.1
Currency translation adjustment on foreign 0.2 0.2
currency net investments, net of tax
Goodwill impaired - 7.0
Goodwill on disposals - 1.4
Return of capital - (50.3)
Net increase/(reduction) in shareholders' funds 2.3 (40.6)
Shareholders' funds at beginning of year 53.3 93.9
Shareholders' funds at end of year 55.6 53.3
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 September 2001
1 ANALYSIS OF RESULTS
Turnover Operating profit/(loss) Profit/(loss) before
before goodwill amortisation, interest and taxation
exceptional items and
taxation
2001 2000 2001 2000 2001 2000
£m £m £m £m £m £m
By Business
Segment
Specialised 66.3 58.5 10.6 9.5 10.5 9.5
Distribution
Other 2.6 2.7 (1.7) (1.7) (1.6) (1.6)
Continuing 68.9 61.2 8.9 7.8 8.9 7.9
operations
Discontinued 18.0 32.4 0.8 0.3 (1.4) (1.7)
operations
Total 86.9 93.6 9.7 8.1 7.5 6.2
By
Geographic
Area
United 42.2 38.6 5.2 4.4 5.2 4.5
Kingdom
Rest of 7.3 4.7 1.5 1.1 1.5 1.1
Europe
United 19.4 17.9 2.2 2.3 2.2 2.3
States of
America
Continuing 68.9 61.2 8.9 7.8 8.9 7.9
operations
Discontinued 18.0 32.4 0.8 0.3 (1.4) (1.7)
operations
Total 86.9 93.6 9.7 8.1 7.5 6.2
Turnover by geographical area is stated by origin which is not materially
different from turnover by destination.
Discontinued operations principally comprise last year's business segment of
Special Steels and Building Products. The Other business segment comprises
the business of Williamson Cliff (previously included in Special Steels and
Building Products) and the Group head office.
Included in Specialised Distribution is turnover of £0.3m which relates to
acquisitions completed shortly before the end of the financial year.
2 GOODWILL AND EXCEPTIONAL ITEMS
Goodwill Exceptional Total Goodwill Exceptional Total
amortisation items amortisation items
2001 2001 2001 2000 2000 2000
£m £m £m £m £m £m
Operating profit
Continuing (0.1) - (0.1) - - -
operations
Discontinued - - - - (7.0) (7.0)
operations(a)
(0.1) - (0.1) - (7.0) (7.0)
Non-operating
items
Profit on sale of - 0.1 0.1 - 0.5 0.5
fixed assets
Costs of Scheme - - - - (0.4) (0.4)
of Arrangement
(Loss)/profit on - (2.2) (2.2) - 5.0 5.0
sale of
businesses(b)
(0.1) (2.1) (2.2) - (1.9) (1.9)
Tax charge on - - - - (1.0) (1.0)
exceptional items
(c)
(0.1) (2.1) (2.2) - (2.9) (2.9)
(a) A charge of £7.0m was made in the previous year to provide against
goodwill previously written off to reserves, following an impairment review.
(b) The loss on the sale of businesses during the year relates to the
disposal in March 2001 of Henry Whitham & Son Limited and Carbon & Alloy Inc
and the disposal of the businesses carried on by AG Alloys Limited and Abacon
Telecommunications Inc in June 2001 and August 2001 respectively. Goodwill
relating to these businesses was charged to profit in the previous year. The
charge of £2.2m includes £0.6m provided against the carrying value of tangible
fixed assets retained on disposal of certain businesses.
(c) A charge of £1.0m was made last year to provide against Advance
Corporation Tax which the Directors considered might not be recoverable within
the foreseeable future.
3 TAXATION
The taxation charge on profit before exceptional items for the year ended 30
September 2001 is £3.2m (2000: £3.2m). The taxation charge includes a prior
year taxation credit of £0.1m. There is no taxation charge associated with
the exceptional items (2000: £1.0m).
4 EARNINGS PER ORDINARY SHARE
Basic and diluted earnings per share
Basic and diluted earnings per ordinary share are calculated on the basis of
the weighted average of ordinary shares in issue during the year of 25,164,345
(2000: 38,915,353) and the profit for the financial year, after minority
interests, of £5.4m (2000: £4.1m). There were no dilutive potential shares.
Adjusted earnings per share
Adjusted earnings per share is shown by reference to earnings before goodwill
amortisation, exceptional items and related tax. The Directors consider that
this gives a clearer indication of the underlying performance of the Group.
Earnings before goodwill amortisation, exceptional items and related tax are
calculated as follows:
2001 2000
£m £m
Profit for the financial year, after minority interests 5.4 4.1
Goodwill amortisation 0.1 -
Exceptional items, net of tax 2.1 2.9
Adjusted earnings 7.6 7.0
5 RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM
OPERATING ACTIVITIES
2001 2000
£m £m
Operating profit 9.6 1.1
Depreciation 1.5 2.0
Amortisation/impairment of goodwill 0.1 7.0
Increase in stocks (1.8) (1.0)
Increase in debtors (1.6) (1.5)
Increase in creditors 0.7 2.7
Increase in provisions 0.9 -
Net cash inflow from operating
activities 9.4 10.3
Cash flow from operating activities includes an inflow of £0.8m relating to
companies sold during the year.
6 RECONCILIATION OF NET CASH FLOWS TO MOVEMENT IN NET FUNDS
2001 2000
£m £m
Decrease in cash in the year (15.7) (0.7)
Increase in liquid resources and decrease in
debt due within one year 28.4 0.3
Change in net funds resulting from cash flows 12.7 (0.4)
Exchange adjustment (0.1) (0.4)
Net funds at start of year 19.1 19.9
Net funds at end of year 31.7 19.1
7 ANALYSIS OF NET FUNDS
1 October Exchange 30
movement September
2000 Cash flow 2001
£m £m £m £m
Cash at bank (15.8) (0.1) 3.3
19.2
Overdrafts (0.1) 0.1 - -
19.1 (15.7) (0.1) 3.3
Money market - 28.4 - 28.4
deposits
Net funds 19.1 12.7 (0.1) 31.7
8 DIVIDENDS
Subject to approval at the Annual General Meeting, a proposed final dividend
of 8.0p per share (2000: 7.0p) will be paid on 23 January 2002 to ordinary
shareholders on the register at the close of business on 21 December 2001.
9 FINANCIAL INFORMATION
The financial information set out in this preliminary announcement does not
constitute the Group's statutory accounts for the years ended 30 September
2001 and 2000. Statutory accounts for the year ended 30 September 2000 have
been delivered to the Registrar of Companies. The statutory accounts for the
year ended 30 September 2001, which were approved by the Directors on 26
November 2001, will be delivered to the Registrar of Companies following the
Company's Annual General Meeting. The auditors have reported on the accounts
for the years ended 30 September 2001 and 2000. The reports were unqualified
and did not contain a statement under Section 237(2) or (3) of the Companies
Act 1985.
The Company's Annual General Meeting will be held at 11.00am on 16 January
2002 in the Members' Room, Chartered Accountants' Hall, Moorgate Place, London
EC2P 2BJ.
Friday, 22nd November 2024
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