Final Results

Diploma PLC 17 November 2003 DIPLOMA PLC 17 November 2003 DIPLOMA PLC ANNOUNCEMENT OF AUDITED PRELIMINARY RESULTS FOR YEAR ENDED 30 SEPTEMBER 2003 2003 2002 Turnover from continuing businesses £77.1m £73.7m Operating profit from continuing businesses, before exceptional items and goodwill amortisation £9.7m £8.9m Profit before tax, exceptional items and goodwill amortisation £10.6m £9.9m Profit before tax £12.7m £10.1m Basic earnings per share 42.8p 31.2p Adjusted earnings per share 32.2p 29.4p Dividends per share 15.0p 14.0p • Profit before tax, exceptional items and goodwill amortisation up 7% to £10.6m from £9.9m; operating margin of 12.6% (2002: 12.1%). • Earnings per share, after adjusting for exceptional items and goodwill amortisation, up 10% at 32.2p; basic earnings per share 42.8p. Full year dividend up by 1.0p to 15.0p, 2.1 times covered by adjusted earnings per share. • Strong operating cash flow of £11.1m and proceeds of £4.2m from sale of land and properties. Net funds of £29.3m at the year end. • Acquisition of Hawco business completed in July for a maximum net cash cost of £6.3m; two month contribution to operating profits of £0.3m on sales of £3.6m. • Implementation of major new IT system across North American operations of Seals & Components for capital cost of £0.9m. • Disposal of first seven acres of Stamford land and of remaining surplus properties contributed to net exceptional profits of £2.4m. Preparation for sale of a further 20 acres continues. • Acquisition of Filcon for a maximum net cash cost of £4.1m, announced today, expands the scope of our Controls & Interconnect business in Germany. Commenting on the results for the year, Bruce Thompson, Diploma's Chief Executive said: 'Our businesses demonstrated their resilience in difficult market conditions. This gives a strong foundation on which we are building more substantial, broader based businesses in our chosen sectors.' Diploma PLC 20 Bunhill Row, London, EC1Y 8UD Telephone: 020 7638 0934 Fax: 020 7638 7651 For further enquiries please contact: Bruce Thompson, Chief Executive Officer 020 7638 0934 Nigel Lingwood, Group Finance Director 020 7448 4875 Ian Seaton, Bankside Consultants 020 7444 4157 Heather Salmond, Bankside Consultants 020 7444 4148 NOTE TO EDITORS: Diploma PLC is a specialised international distribution group operating in three sectors: Life Sciences - supply of Instrumentation, Consumables and Service to the research laboratories of the major pharmaceutical and biotechnology companies, universities and research institutions. Principal companies are Anachem in the UK and a1-envirotech in Germany. Seals & Components - a next day delivery service for hydraulic seal kits, gaskets and cylinder components, supplied to repair and maintenance operations (RMOs) serving a broad range of mobile machinery aftermarkets. Principal companies are Hercules Bulldog Sealing Products in North America and FPE in the UK. Controls & Interconnect - distributors of specialised wiring, connection and control devices into a range of technically demanding applications. Principal companies are IS Rayfast, Clarendon and Hawco in the UK and Sommer in Germany. IS Motorsport, based in the UK, also has a start-up operation in the US. Within each of these sectors, the Diploma businesses serve industry segments 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. RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2003 CHAIRMAN'S STATEMENT The Group has again demonstrated the resilience of its operating businesses despite the difficult market and economic conditions prevailing in most sectors and geographies in which we operate. Against this background, the Group achieved a commendable result. Solid progress was also achieved in delivering the strategy of building more substantial, broader based businesses through a combination of acquisitions and investment in organic growth. Results and Dividends Adjusted earnings per share, after excluding exceptional items and goodwill amortisation, increased by 10% to 32.2 pence compared with 29.4 pence last year. Basic earnings per share were 42.8 pence compared with 31.2 pence last year. The Directors are recommending an increased final dividend of 10.0 pence per share (2002: 9.0 pence), which raises the total dividend payment for the year to 15.0 pence per share (2002: 14.0 pence), an increase of 7%. People It was with great sadness that we learnt in April of the sudden death of our colleague, Bill Reid. Bill had been a Non-executive Director of the Company for nine years and contributed significantly to the substantial restructuring of the Group which has been achieved in recent years. In July we welcomed John Matthews to the Board as a Non-executive Director. We look forward to the contribution he will make to the future development of the Group, given his many years of experience as a Director of a number of public and private companies. After over thirty years as Chairman and Chief Executive of the Company, and in recent years as Non-executive Chairman, I have decided to retire from the Board at the conclusion of the AGM on 7 January 2004. I have derived immense satisfaction from leading the Company through its various phases of development and I am pleased to see it today in robust financial health and poised for its next period of growth. I am confident that the Group will continue to flourish under the new team guided by my successor, John Rennocks. As I reflect, in 1969 the Company had both a net worth and market capitalisation of £370,000. Financed almost exclusively from our own cash flow, we have grown net worth to ca. £60m (including £30m of cash) and market capitalisation to ca. £100m. This has been achieved after returning more than £70m to shareholders in recent years, in addition to our regular and growing dividends. Over the years, our guiding objective has been to focus on positive cashflow and this remains a fundamental principle for the Board, as is demonstrated by the accounts. Finally, I should also like to express my thanks to all my colleagues, both past and present, who have made my time with the Company so rewarding and also to our employees who continue to make a vital contribution to the development of the Group. Current Trading The current trading conditions remain difficult and signs of economic recovery in each of the sectors in which we operate are patchy. However, the businesses have begun the new financial year trading in line with expectations and their inherent resilience to changing trading conditions, together with the recent acquisitions, should allow the Group to make further progress in 2004. CHIEF EXECUTIVE OFFICER'S REVIEW The Group's strategy is to invest in Specialised Distribution businesses with long term growth potential in the UK, Continental Europe and North America. The businesses have a consistent record of sustaining superior margins over the business cycle, under-pinned by the quality of customer service, the depth of technical support and value adding activities. It is these characteristics that have enabled the operating businesses to demonstrate such resilience in their performance in continuing difficult market conditions. Results Sales from the continuing businesses increased by 5% to £77.1m (2002: £73.7m) and operating profits, before goodwill amortisation and exceptional items, increased by 9% to £9.7m (2002: £8.9m). Profit before tax increased by 26% to £12.7m from £10.1m, benefiting from exceptional profits of £3.1m made on the sale of land and properties. After excluding exceptional items and goodwill amortisation, profits of the continuing businesses increased by 7% to £10.6m compared with £9.9m last year. The results benefited from the newly acquired Hawco business which contributed sales and operating profits of £3.6m and £0.3m respectively in the two months since acquisition. Without this contribution however, the operating businesses still managed to maintain sales and move operating profits, before exceptional items, forward by 5% - a creditable performance in testing times. Exceptional items before tax contributed net profits of £2.4m compared with net profits of £0.5m last year. Exceptional profits of £3.1m were earned on the disposal of seven acres of the Group's property in Stamford and on the disposal of the remaining two properties relating to businesses divested in earlier years. Having completed the sale of the first parcel of the Stamford land in November 2002 for £2.6m before expenses, the Group has been granted planning permission for a further eight acre site and is actively pursuing its sale. In addition, planning permission is being sought for the vacant twelve acre brickworks site formerly occupied by Williamson Cliff. At 30 September 2003 the market value of these two parcels of land in their present condition is estimated to be not less than £5.0m before expenses and taxation, compared with a net book value of £0.1m. Exceptional items charged against operating profit were £0.7m and comprised aborted acquisition costs of £0.4m and £0.3m for the implementation of new computer systems in the North American Seals & Components businesses. The Group again generated strong cash flow. Operating cash flow of £11.1m was supplemented by cash proceeds of £4.2m from the sale of surplus properties described above. After spending £6.1m on acquisitions, the Group's net cash funds increased by £2.4m to £29.3m at the end of the year. Strategic Developments We have continued to make progress towards our strategic objective of building more substantial, broader based businesses in our chosen sectors. In Life Sciences, the market for higher value Instrumentation has continued to be weak with pharmaceutical and biotechnology companies hesitant to commit resources. However, the Consumables business has given a solid core to the business and advances have been made in developing further the Service and Environmental businesses. In terms of Service, Anachem has marketed a number of new concepts, such as LeaseSure and Premium Care Contracts and has broadened the range of instruments serviced. The Environmental business has now grown to 20% of sector sales and has strong operations in both the UK and Germany. While this year has very much been one of consolidation in Seals & Components, this sector perhaps best demonstrates our growth model combining organic growth and acquisitions. When Hercules was acquired in 1996, its sales were ca. £10m and operating profit ca. £1m. The sales of the Seals & Components sector are now approaching £30m and profits have more than tripled. The sector has also expanded in terms of geographic spread. While Hercules' sales at the time of acquisition were predominately in the US, 35% of sector sales are now outside the US. The acquisitions of FPE in 1999 and Pevco (Bulldog) in 2001 have accounted for about half of the sector growth, but the balance has come from organic growth. Investment in engineering development has increased the number of product line items by 40,000 since 1996, increasing the total under management to over 90,000. A new main warehouse and office facility was built in March 1999 in Clearwater to increase efficiency and responsiveness. We have also invested this year in an advanced computer system which is operational in all five of the North American locations. This will give a firm foundation to expand the sector further in terms of products, customer base and geography. In Controls & Interconnect, we made further advances in our strategy of building a more substantial, broader based business. Dowatronic, acquired in April 2002, has been successfully integrated with Sommer in Germany and has given a focus for growth in the Munich area and in the space and defence sectors. Our business in Germany has been further expanded by the acquisition, announced today, of Filcon for a maximum net cash cost of £4.1m. This new acquisition, again based near Munich, is a supplier of specialist connectors principally to the defence and aerospace sectors in Germany. Hawco was acquired in July 2003 for a maximum net cash cost of £6.3m. Hawco is a distributor of instrumentation and devices used in the measurement and control of temperature and pressure. This acquisition has further extended our sector coverage in terms of products supplied and customer groups served. Hawco was a private, family owned company with genuine reasons for sale. Under new leadership and with our input of resources and experience, we believe that this new addition can accelerate the profitable growth of the sector. Management and Infrastructure The strategy for the Group is clear and consistent, but to execute it successfully we must continuously develop the human and physical resources. The Group has always held to the belief of having a small head office focused on strategy and financial control. This function is carried out by a team of eight, including the three Executive Directors - Iain Henderson, Nigel Lingwood and myself. This can only work if there are strong, self standing management teams in place in the operating businesses, motivated and rewarded according to their success. The management teams now in place have been further strengthened by the challenges of the year and show a good blend of youthful energy and ambition, but also of experience. To demonstrate this, the Managing Directors of the businesses have an average age of 43, have been in their current positions for three years on average, and have an average length of service within their companies of 14 years. In terms of infrastructure, we have progressively invested in the physical facilities and have sufficient capacity to support substantial further growth. With the investment in the new computer system in Seals & Components we now have common systems with strong capabilities in each of the three sectors, giving a firm foundation on which to build more substantial businesses. Acquisitions Acquisitions remain an important element of our strategy moving forward and it is an area where we have considerable experience. Over the last 10 years, we have completed a total of 17 acquisitions and have generated a 20% pre-tax return on the total investment in these acquisitions. In evaluating our performance against this measure we include all investment including goodwill, investment post acquisition and any net profits or losses if businesses are subsequently divested. In this last year we have completed the acquisition of Hawco and have announced today the acquisition of Filcon. We have also expended significant resource on evaluating other acquisitions which ultimately did not meet our demanding criteria. Though the merger and acquisition market is again becoming competitive, we hope to be successful in completing further acquisitions in the coming year. REVIEW OF OPERATIONS LIFE SCIENCES Sales in our Life Sciences businesses decreased by 7% to £25.0m following the rationalisation of our a1-biotech business. However, the improved gross margins and reduced overheads from this rationalisation led to a 7% increase in operating profits. Consumables and Service The Consumables and Service business continued to produce a steady performance, somewhat insulated from the reduced capital budgets of our customers. Sales of pipettes and tips were broadly flat year on year and pipette servicing matched the record level of sales in 2002. In the second half of the year, the Ultra pipette was launched and early sales have been encouraging. The Ultra is an ergonomically advanced pipette designed for users who are performing repetitive pipetting tasks in the laboratory. Capital service revenues grew by 4% in the year as the range of products serviced was broadened. Anachem continued to develop its innovative service partnership with Pfizer whereby we manage the servicing of Pfizer's research instrumentation on the Sandwich site in Kent. Instrumentation Budget constraints on the purchase of higher value instruments remain a key feature of the pharmaceutical and biotechnology sectors. The severity of the downturn has slowed, however, and Anachem limited its sales shortfall to 10% in traditional chromatography instruments. In the second half of last year, the decision was taken to rationalise the UK and German operations of a1-biotech back into Anachem. This was in response to the dramatic decline in investment in genomic instrumentation by biotechnology companies. Total instrumentation sales in this financial year have therefore reduced, but the margin lost has been more than offset by the benefit of reduced overheads. The Reactarray portfolio of process optimisation products was expanded by the launch of an advanced data management tool, RDM. New application software was also introduced to enable the product to be used on a wider range of analytical equipment. Reactarray products were installed during the year at Bayer, GlaxoSmithKline and Pfizer. Environmental The growing Environmental business increased sales by ca. 20% year on year with particularly strong growth in Continental Europe. There were increased sales of organic carbon analysers and the new range of potent powder enclosures made further advances in the UK and Continental Europe. The a1-envirotech subsidiary in Germany made solid progress and delivered a positive operating performance in only its second full year of operation. SEALS & COMPONENTS Our Seals & Components businesses increased sales by 5% on a constant currency basis, with a modest increase in operating profits. Expressed in sterling terms, sales were 3% lower than the prior year at £27.4m and operating profits were also 3% lower. The year was dominated by the design and implementation of a new computer system which is now operational across all North American locations. Hercules Bulldog Sealing Products (HBSP) The US domestic business was flat year on year reflecting continuing pressures in the US economy, but HBSP maintained its position by continuing to offer value-added services and by providing a time-critical delivery service to its demanding hydraulic equipment repair customers. The operation in Clearwater, Florida deals with up to 900 orders per day, 75% of which are received in the critical period between 4 pm and 7 pm. The orders are then processed, picked, packaged and despatched to meet the 8 pm cut-off deadline of the airfreight couriers. Outside the US, the Canadian operations showed solid growth, helped by access to Bulldog's gasket product line. International customers outside North America also benefited from the combined Hercules and Bulldog product portfolios and selective increases in supporting inventory. Operationally this was a year of significant change and investment for HBSP, with further progress in the merger of the Hercules and Bulldog businesses. The US domestic sales force now has full access to Bulldog's range of gasket and seal kits and to the tractor parts distribution sector. Equally the Bulldog International sales team has been able to offer Hercules' extensive range of hydraulic seals, pumps and 'O' rings to its distribution network in the rest of the world. The implementation of a new Enterprise Resource Planning computer system took place in August 2003 after 12 months of careful design and planning. All of the North American companies are now up and running on the new software and hardware platforms. The new IT platform has the capacity to handle significant growth in transactions and revenues, as well as expansion in the Group's product offering. It also has the capability to support multi-site operations and to integrate new business units. Additional benefits will be gained from accelerated financial and operational reporting within a unified IT structure. This investment will improve our ability to integrate new businesses into the Group and will give a firm and expandable infrastructure to support the next phase of growth. Fluid Power Equipment (FPE) FPE grew sales by over 10% and delivered excellent profit growth. A strong performance in the core seal products was enhanced by the introduction of a specialised range of metal 'hard parts' used in the repair of hydraulic equipment and sold to FPE's existing customers. CONTROLS & INTERCONNECT Our Controls & Interconnect companies increased overall sales by 33% to £24.7m and increased operating profits by 20%. The sector results benefited from an additional two months of Clarendon, acquired in December 2001 and from two months of the new acquisition, Hawco. However, the remaining business still delivered organic growth of over 10% in both sales and operating profits and this was achieved in very demanding market conditions. IS Rayfast Despite the generally subdued UK manufacturing environment, IS Rayfast achieved a 5% growth in sales. Countering the broader sector trends, the growth mainly came from the aerospace sector with some increased sales to military customers, but also to the civil aircraft repair and refurbishment sector. Gross margins came under pressure from the strengthening Euro, but action was taken in the second half to switch the majority of purchases to sterling. IS Motorsport & Clarendon This was a challenging year for the upper tiers of Motorsport with fewer teams competing and new rule changes introduced in Formula 1 to help contain costs. Against this background, our Motorsport operations managed to record modest gains in sales. This was achieved by increasing sales to customers serving the North American Motorsport series, particularly IRL and CART. We also offered added value services such as Kanban and the kitting of parts to help streamline customers' assembly operations. Sommer On a constant currency basis, Sommer grew sales by 15%. Sommer benefited from a full year contribution from Dowatronic, but half of the increased sales came from organic growth in a severely depressed German market. Sommer achieved its success through a focus on niche markets such as high performance wire for specialist medical equipment and connectors for the space and defence sectors. Again, added value activities continued to play an important role in securing longer term business, such as the construction of low volume, prototype length cables using Sommer's purpose built cabling machine. Hawco Hawco, acquired in July 2003, is a distributor of a broad range of instrumentation and devices used in the measurement and control of temperature and pressure. Hawco supplies product to a broad range of applications from chilled cabinets for supermarkets, bars and restaurants to fire detection systems; from air conditioning and domestic appliances to laboratory equipment. Hawco contributed two strong months to the Group's results, experiencing strong demand in the summer, particularly for refrigeration and air conditioning applications. GROUP PROFIT AND LOSS ACCOUNT for the year ended 30 September 2003 30 September 2003 30 September 2002 Before Goodwill and Total Before Goodwill and Total goodwill exceptional goodwill and exceptional and items exceptional items exceptional (note 2) items (note 2) items £m £m £m £m £m £m Turnover (note 1) Continuing operations 73.5 73.5 73.7 73.7 Acquisitions 3.6 3.6 - - 77.1 77.1 73.7 73.7 Discontinued operations 0.6 0.6 1.9 1.9 77.7 77.7 75.6 75.6 Operating profit (note 1) Continuing operations 9.4 (1.0) 8.4 8.9 (0.6) 8.3 Acquisitions 0.3 - 0.3 - - - 9.7 (1.0) 8.7 8.9 (0.6) 8.3 Discontinued operations - - - - - - 9.7 (1.0) 8.7 8.9 (0.6) 8.3 Non-Operating items (note 2) Continuing operations - Profit on disposal of tangible fixed assets - 3.1 3.1 - 1.1 1.1 Discontinued operations - Loss on closure of business - - - - (0.6) (0.6) Profit on sale of businesses - - - - 0.3 0.3 9.7 2.1 11.8 8.9 0.2 9.1 Interest income 0.9 - 0.9 1.0 - 1.0 Profit on ordinary activities before tax 10.6 2.1 12.7 9.9 0.2 10.1 Taxation (note 3) (3.2) 0.3 (2.9) (3.0) 0.2 (2.8) Profit on ordinary activities after tax 7.4 2.4 9.8 6.9 0.4 7.3 Minority interests (0.1) (0.1) Profit for the financial year 9.7 7.2 Dividends (3.4) (3.0) Retained profit for the year 6.3 4.2 Earnings per 5p share (note 4) On basic and diluted earnings 42.8p 31.2p On adjusted earnings 32.2p 29.4p GROUP BALANCE SHEET as at 30 September 2003 2003 2002 £m £m Fixed assets Intangible assets: Goodwill 8.2 4.8 Tangible assets 9.3 9.8 17.5 14.6 Current assets Stocks 16.6 14.8 Debtors 15.9 12.2 Cash and bank deposits 30.5 27.7 63.0 54.7 Creditors: Amounts falling due within one year (22.3) (17.3) Net current assets 40.7 37.4 Total assets less current liabilities 58.2 52.0 Provisions for liabilities and charges (0.5) (0.6) 57.7 51.4 Capital and reserves Called up equity share capital 1.1 1.1 Capital redemption reserve 0.2 0.2 Profit and loss account 55.8 49.6 Equity shareholders' funds 57.1 50.9 Equity minority interests 0.6 0.5 57.7 51.4 GROUP CASH FLOW STATEMENT for the year ended 30 September 2003 2003 2003 2002 2002 £m £m £m £m Net cash inflow from operating activities (note 5) 11.1 9.9 Returns on investments and servicing of finance Interest received 0.9 1.0 Taxation UK corporation tax paid (2.0) (2.1) Overseas tax paid (1.1) (3.1) (0.8) (2.9) Capital expenditure and financial investment Purchase of tangible fixed assets (1.1) (1.3) Proceeds from the sale of tangible fixed assets 4.2 3.1 3.0 1.7 Acquisitions and disposals Acquisition of businesses (6.1) (2.2) Equity dividends paid (3.2) (3.0) Cash inflow before use of liquid resources and 2.7 4.5 financing Management of liquid resources (Increase)/decrease in short term deposits (2.8) 2.6 Financing Return of capital - (8.5) Decrease in cash in the year (note 6) (0.1) (1.4) STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 30 September 2003 2003 2002 £m £m Profit for the financial year 9.7 7.2 Currency translation adjustment on foreign currency net investments (0.1) (0.7) Tax credit on foreign exchange adjustment - 0.3 Total recognised gains and losses for the year 9.6 6.8 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 30 September 2003 2003 2002 £m £m Profit for the financial year 9.7 7.2 Dividends (3.4) (3.0) Retained profit for the year 6.3 4.2 Currency translation adjustment on foreign currency net investments, net of tax (0.1) (0.4) Return of capital - (8.5) Net increase/( reduction) in shareholders' funds 6.2 (4.7) Shareholders' funds at beginning of year 50.9 55.6 Shareholders' funds at end of year 57.1 50.9 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 September 2003 1 ANALYSIS OF RESULTS Turnover Operating profit before Profit/(loss) before goodwill amortisation, interest and taxation exceptional items and taxation 2003 2002 2003 2002 2003 2002 £m £m £m £m £m £m By Business Specialised Distribution 77.1 73.7 9.7 8.9 11.8 9.4 Discontinued operations 0.6 1.9 - - - (0.3) 77.7 75.6 9.7 8.9 11.8 9.1 By Geographic Area United Kingdom 43.4 39.9 6.0 5.5 8.4 6.6 Rest of Europe 8.6 7.6 1.5 0.9 1.5 0.9 North America 25.1 26.2 2.2 2.5 1.9 1.9 Specialised Distribution 77.1 73.7 9.7 8.9 11.8 9.4 Discontinued operations 0.6 1.9 - - - (0.3) 77.7 75.6 9.7 8.9 11.8 9.1 Turnover by geographical area is stated by origin which, with the exception of North America, is not materially different from turnover by destination. In North America, turnover of £3.7m (out of £25.1m) is to customers based outside North America. Included in Specialised Distribution is turnover and operating profit, before and after goodwill amortisation and exceptional items, of £3.6m and £0.3m respectively, which relates to the acquisition of Hawco completed during the financial year. 2 GOODWILL AND EXCEPTIONAL ITEMS Goodwill Exceptional Total Goodwill Exceptional Total amortn. items amortn. items 2003 2003 2003 2002 2002 2002 £m £m £m £m £m £m Operating profit Continuing operations (a) (0.3) (0.7) (1.0) (0.3) (0.3) (0.6) Non-operating items Profit on disposal of tangible - 3.1 3.1 - 1.1 1.1 fixed assets Loss on closure of business (b) - - - - (0.6) (0.6) Profit on sale of businesses (c) - - - - 0.3 0.3 (0.3) 2.4 2.1 (0.3) 0.5 0.2 Tax credit on exceptional items - 0.3 0.3 - 0.2 0.2 (0.3) 2.7 2.4 (0.3) 0.7 0.4 (a) Exceptional costs comprise £0.4m of aborted acquisition costs and £0.3m of costs incurred in connection with the implementation of new IT systems in the Seals & Components' North American businesses. Last year, costs of £0.6m were incurred in restructuring the Group's US operations. In addition a provision of £0.3m retained in respect of certain liabilities relating to a defined benefit scheme was released to profit. There was a tax credit associated with these items of £0.3m (2002: £0.2m). (b) A loss of £0.6m was incurred last year on closing the business of Williamson Cliff, which was announced on 28 February 2002. (c) The profit on sale of businesses last year comprised £0.3m of proceeds received on closure of a pension scheme relating to a divested company. 3 TAXATION The taxation charge on profit before exceptional items and goodwill amortisation for the year ended 30 September 2003 is £3.2m (2002: £3.0m). There is a taxation credit associated with the exceptional items of £0.3m (2002: £0.2m). 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 number of ordinary shares in issue during the year of 22,647,911 (2002: 23,116,726) and the profit for the financial year, after minority interests, of £9.7m (2002: £7.2m). There were no potentially dilutive 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: 2003 2002 2003 2002 pence pence per share per share £m £m Profit for the financial year, after minority interests 42.8 31.2 9.7 7.2 Goodwill amortisation 1.3 1.3 0.3 0.3 Exceptional items, net of tax (11.9) (3.1) (2.7) (0.7) Adjusted earnings 32.2 29.4 7.3 6.8 5 RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES 2003 2002 £m £m Operating profit 8.7 8.3 Depreciation 1.1 1.3 Amortisation of goodwill 0.3 0.3 Decrease/(increase) in stocks 0.7 (0.9) Decrease in debtors 0.1 1.1 Increase in creditors 0.5 0.8 Decrease in provisions (0.1) (0.7) Costs incurred on business closure (0.2) (0.3) Net cash inflow from operating activities 11.1 9.9 The net cash inflow from operating activities of £11.1m (2002: £9.9m) includes an outflow of £0.2m (2002: £nil) relating to discontinued businesses. 6 RECONCILIATION OF NET CASH FLOWS TO THE MOVEMENT IN NET FUNDS 2003 2002 £m £m Decrease in cash in the year (0.1) (1.4) Increase/(decrease) in short term deposits 2.8 (2.6) Change in net funds resulting from cash flows 2.7 (4.0) Increase in debt due within one year (0.4) (0.8) Exchange adjustment 0.1 - Net funds at start of year 26.9 31.7 Net funds at end of year 29.3 26.9 7 ANALYSIS OF NET FUNDS Other 1 October non-cash Exchange 30 Sept 2002 Cash flow movement movement 2003 £m £m £m £m £m Cash at bank and in hand 1.9 (0.1) - - 1.8 Short term deposits 25.8 2.8 - 0.1 28.7 27.7 2.7 - 0.1 30.5 Guaranteed Unsecured Loan Notes 2001-2003 (0.8) - (0.4) - (1.2) Net funds 26.9 2.7 (0.4) 0.1 29.3 8 DIVIDENDS Subject to approval at the Annual General Meeting a proposed final dividend of 10.0p per share (2002: 9.0p) will be paid on 20 January 2004 to ordinary shareholders on the register at the close of business on 5 December 2003. 9 EXCHANGE RATES The following exchange rates have been used to translate the results of the overseas businesses: 30 Sept 2003 30 Sept 2002 US dollar 1.61 1.48 Euro 1.47 1.60 10 FINANCIAL INFORMATION The financial information has been prepared on the basis of the accounting policies set out in the Group's published accounts for the financial year ended 30 September 2002. The financial information set out in this preliminary announcement does not constitute the Group's statutory accounts for the years ended 30 September 2003 and 2002. Statutory accounts for the year ended 30 September 2002 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 September 2003, which were approved by the Directors on 17 November 2003, 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 2003 and 2002. 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 7 January 2004 in the Members' Room, Chartered Accountants' Hall, Moorgate Place, London EC2P 2BJ. This information is provided by RNS The company news service from the London Stock Exchange

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