Final Results - Year Ended 30 September 1999

Diploma PLC 22 November 1999 PRELIMINARY RESULTS FOR YEAR ENDED 30 SEPTEMBER 1999 Diploma plc, the specialised industrial distribution group, today announces its preliminary results for the year ended 30 September 1999. HIGHLIGHTS 1999 1998 Group sales £242.0m £292.9m Profit before tax and £11.0m £18.6m exceptionals Profit before tax after £20.2m £13.0m exceptionals Earnings per share 32.0p 11.1p Adjusted earnings per share 14.0p 21.9p Dividends per share 9.0p 14.5p Net assets per share £1.87 £1.63 - Significant progress in re-focusing the Group towards a tighter core of specialised distribution businesses. - Divestment of IG in August 1999 and the SEI Macro Group in October 1999, part of a £70m divestment programme over two years. - £11.5m already returned to shareholders through share buy-backs. Now considering return of more substantial sum in the region of £50m, equivalent to ca. £1.00 per share. - Investment in new logistics facilities, product development and geographic expansion at Anachem, Hercules and Rayfast to support further growth. Acquisition of Fluid Power Equipment in the UK - Trading profit impacted negatively by reverse in Special Steels businesses but strong cash flow from operating activities of £19.7m and increase in net assets per share to £1.87. For further information, please contact: Christopher Thomas, Chairman, or Bruce Thompson, Chief Executive Diploma PLC 0171 638 0934 CHAIRMAN'S STATEMENT A year of considerable change and significant re-shaping of the Group. We have successfully divested a number of the more mature businesses and have made substantial progress in re-focusing the Group towards a tighter core of specialised distribution businesses. In the year to 30th September 1999, turnover was £242.0m (1998 £292.9m). Operating profit was £10.9m (£19.1m) and profit before taxation, exceptional items and minority interests £11.0m (£18.6m). Over the course of the year we made exceptional gains totalling £9.1m from the various divestments described below. Earnings after tax and minority interests were £16.1m (£6.0m), or expressed in earnings per share terms 32.0p (11.1p). After eliminating exceptional items, adjusted earnings after tax and minority interests were £7.0m (£11.8m) or expressed as adjusted earnings per share, 14.0p (21.9p). Net assets per share rose to £1.87 from £1.63 and operating cash flow for the year was £19.7m positive. During the year we purchased 100,000 of the company's shares at a cost, excluding ACT, of £0.15m. Over the last 2 years we have returned a total of £11.5m to shareholders through share buy-backs. We are now considering the return of a more substantial sum in the region of £50m, equivalent to ca. £1.00 per share. We are currently assessing the various alternatives for cost effectively returning capital to shareholders. Further details will be announced in due course. Following the proposed return of capital, the Group will continue to be in a strong financial position and will be well placed to continue to invest in the new core of specialised distribution businesses. The divestment programme has reduced the scale of the Group's activities and the level of profits and cashflow. We do not therefore believe that maintaining the dividend at historic levels is appropriate at this stage of the Group's development. We therefore propose a final dividend of 4.5p which, following an interim payment of 4.5p, provides 9.0p for the year compared with 14.5p for the prior year. At the half year stage in FY2000, we will review the balance between interim and final dividend payments. STRATEGY/CORPORATE ACTIVITIES During the year we have made significant progress towards our major strategic objective of re-focusing the Group on growing, specialised distribution businesses while reducing dependency on more mature and cyclical businesses. In April 1999, we sold our remaining shareholding in ECS, held since 1992. During the year we also received further proceeds from the prior year disposals of South Hills Datacomm and 2001. In total these generated exceptional gains of £4.1m. In August 1999, we completed the sale of IG for a cash consideration of £17.1m. This represented a premium of £5.85m to the estimated net assets of £11.25m. After accounting for transaction costs, goodwill previously written off to reserves and certain provisions, an exceptional gain of £5.0m is recognised in this year's accounts. Properties with a net book value of £1.1m were also retained in the Group for eventual sale. In October 1999, after the end of our financial year, we completed the sale of the SEI Macro Group for a basic consideration of £37.5m. This should generate a surplus over net assets in FY2000 of ca. £7.0m from which will be deducted £1.4m of goodwill already written off to reserves. Certain assets, principally properties with a net book value of £3.3m, were retained in the Group for eventual sale. The consideration will be increased or decreased by the amount that adjusted net assets were above or below the estimated figure at completion. £1.6m of the consideration has been retained in an interest bearing escrow account which will be released in four tranches over a twelve month period. Over the last two years, businesses which generated combined operating profits in FY1998 of £6.9m and which had been on declining profit trends for several years, have now been sold for considerations totalling ca £70m. Through this divestment programme and new investments we are creating a re-shaped Group, reduced in scope and scale but more tightly focused on a smaller number of specialised distribution businesses with long term growth potential. During the year we continued to invest in this new core of businesses to lay the foundation for future growth. We invested in new logistics facilities at Anachem and Hercules and in new product development across the businesses. In addition we made selective geographic expansions. Anachem commenced a small start-up operation in Germany, A1 Biotech, and expanded in Ireland. Rayfast and Sommer extended coverage in continental Europe and the Hercules business established a beach-head in the UK through the acquisition of Fluid Power Equipment. To reflect the new shape to the Group we have re-cast the segmental analysis. The continuing businesses are now grouped into two Divisions - Specialised Distribution and Special Steels & Building Products. SPECIALISED DISTRIBUTION This divisional grouping comprises the newer specialised distribution businesses, serving industries 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. Combined sales in these businesses totalled £57.9m (£54.9m) and operating profits were £9.4m in total (£9.1m). Life Sciences This business area, centered on Anachem, supplies instrumentation, consumables and related services to the research activities of the pharmaceutical and biotechnology industries and to environmental laboratories. The new name for this segment recognises the increased service content of the Anachem business and its broadening from a predominantly Pharmaceutical industry customer base into Biotechnology and Environmental sectors. Following three years of strong growth, this business area was impacted this year by a softness in the sales of higher value research equipment to the pharmaceutical industry. This can be explained by delayed customer expenditure in anticipation of continuing industry consolidation but also by certain deficiencies in our product offering. A new proprietary automation product for process optimisation was successfully launched during the year and plans have been implemented with our suppliers to refresh the product ranges in several key areas. Long term growth opportunities exist through further product line extension into areas such as molecular biology, drug purification and air and water analysis. We will also continue to target value-adding activities such as premium care contracts, calibration and certification, process optimisation and robotic work stations. Seals and Components Hercules has experienced continued growth this year but at a lower rate than in the prior year. This can be explained at least partly by disruption associated with the relocation of the facilities in mid-year. Hercules is now established in a new purpose built facility in Clearwater, Florida with substantial capacity to support our ambitious growth objectives. Plans are in place aimed at generating growth through targeting customer segments such as mini-excavators, equipment hire chains and industrial OEM's. Added value activities will also be further developed such as re- engineered seal kits for production and after-market uses. A range of new catalogues will be introduced early in the New Year which will reflect the substantial investment in product development. Hercules now offers about 60,000 line items compared with 33,000 line items when acquired three years ago. We believe that there is potential to leverage the Hercules catalogue marketing approach through further geographical expansion and in April 1999 we acquired Fluid Power Equipment Limited, a UK based distributor of hydraulic seals. FPE has performed well since acquisition and plans are in place to launch new catalogues, focused on seals for European plant and equipment, in Spring 2000. Interconnect Rayfast has succeeded in holding its position in difficult market conditions in the core sectors of aerospace, defence and autosport in the UK. Some overall growth has been achieved this year through expansion into continental Europe, selling successfully to smaller European distributors. Future growth is planned under a broader IS (Interconnect System) Group banner through extending the product and service offering in specific end-use industries such as aerospace supply. Sommer has delivered a strong profit contribution since its acquisition, expanding during the year from its narrow regional base to now operating more broadly across Germany. We believe that further opportunities exist to develop sales in selected neighbouring countries and a presence has already been established in Switzerland. Abacon has operated at close to break-even this year and is still in a value rebuilding phase as it re-shapes its business to respond to changes in customer base and product technology. SPECIAL STEELS & BUILDING PRODUCTS The continuing Special Steels and Building Products companies saw a reduction in sales to £38.2m from £52.0m. A combined operating loss of £1.1 m was incurred compared with an operating profit of £4.8m in the prior year. This reversal in performance was principally in the Special Steels businesses. Special Steels The Special Steels businesses of Henry Whitham, AG Alloys and Carbon & Alloy Metals were substantially loss making during the year under review. This was caused by the dramatic down-turn in the oilfield equipment market and reduced margins resulting from customer and competitive pressures. As always at this stage of the cycle, these effects are exacerbated by higher priced inventories working through the system and reductions in high contribution, sub-contract machining and heat treatment business. Rationalisation programmes have been implemented this year generating cost reductions of ca. 20% across the businesses. This drive to reduce costs will be continued into the new financial year but return to profit will be dependent on increased investment in the oilfield equipment produced by our customers. Rising oil prices have improved confidence among oil exploration and production companies but this has not translated into increased investment, since the price rises have been driven by international agreements to restrict supply. We are still assuming an extended downturn in planning the scale of the operations. Building Products Robert Lee has historically been a stable performer through the business cycle. Again this year, although the repair and maintenance market has remained soft, Robert Lee has broadly maintained revenues and margins. DISCONTINUED BUSINESSES Prior to its divestment, IG had experienced some improvement in its new house build market, though competitive intensity and pressure on margins remained. In the 10 months prior to sale, IG contributed £2.3 m to operating profits and £23.4m to sales compared with prior year 12 month figures of £3.3m and £32.5m respectively. As the SEI Macro Group was sold shortly after the year end, accounting standards require us to include this as a discontinued business. There was little let-up in the difficult market conditions and competitive pressures in electronic component distribution. Operating profits for the year reduced to £1.7m (£2.4m) on level sales of £122.5m (£124.4m). PROSPECTS We plan to provide good shareholder value by initially returning ca. £50m of capital. The re-shaped Group with a smaller capital base will then be concentrated on a sound core of activities, where good growth, earnings and cash flow can be expected. After the substantial divestment programme, the effects of which will continue into the New Year and to next year's accounts, we will be able to demonstrate progress through a much narrower, specialised range of operations. I would like to thank all employees who worked so well for us during the year and wish those who are under new ownership good luck and ongoing success. To those who remain with our smaller but vibrant group, I ask for your determined efforts and commitment to help bring further success to your operation and to the Group. Christopher Thomas Chairman DIPLOMA PLC - PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 1999 GROUP PROFIT AND LOSS ACCOUNT 1999 1998 Note £m £m TURNOVER 1 242.0 292.9 OPERATING PROFIT 1 10.9 19.1 Exceptional items: Disposals: -Surplus of proceeds over net asset value 9.3 8.6 -Goodwill previously written off to reserves)(0.2) (13.1) Profit/(loss) on disposals 9.1 (4.5) Closure costs: -Costs of closure - (.2) -Goodwill previously written off to reserves - (1.4) - (1.6) Profit on sale of properties: 0.1 0.5 PROFIT BEFORE INTEREST 20.1 13.5 Net interest receivable/(payable) 0.1 (0.5) PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 20.2 13.0 Taxation 2 (3.8) (6.6) PROFIT ON ORDINARY ACTIVITIES AFTER TAX 16.4 6.4 Minority interests (0.3) (0.4) PROFIT FOR THE FINANCIAL YEAR 16.1 6.0 Dividends (4.5) (7.4) RETAINED PROFIT/(LOSS) 11.6 (1.4) EARNINGS PER SHARE: On profit for the financial year 32.0p 11.1p Elimination of exceptional items, net of tax and minorities (18.0p) 10.8p Adjusted 14.0p 21.9p DIVIDENDS PER SHARE: 3 9.0p 14.5p DIPLOMA PLC - PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 1999 GROUP BALANCE SHEET 1999 1998 £m £m £m £m Note Intangible fixed assets 0.8 - Tangible fixed assets 21.1 27.4 21.9 27.4 Current assets Stocks 39.8 46.7 Debtors 41.7 47.1 Tax recoverable after more than one year 0.3 2.1 Cash at bank and on deposit 24.5 6.6 106.3 102.5 Creditors - amounts falling due within one year Bank overdrafts 1.7 3.8 Taxation 0.5 5.2 Dividend payable 2.2 5.0 Other creditors 23.8 28.4 28.2 42.4 Net current assets 78.1 60.1 Total assets less current liabilities 100.0 87.5 Creditors - amounts falling due after more than one year Bank loans 2.9 2.8 Deferred income - 0.3 (2.9) (3.1) Net assets employed 97.1 84.4 Capital and reserves Called-up share capital 2.5 2.5 Capital redemption reserve 0.4 0.4 Share premium account 12.7 12.5 Profit and loss account 78.3 66.5 Shareholders' funds 4 93.9 81.9 Minority interests 3.2 2.5 97.1 84.4 DIPLOMA PLC - PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 1999 GROUP FUNDS FLOW 1999 1998 £m £m £m £m Operating profit 10.9 19.1 Depreciation 4.0 4.3 (Increase)/decrease in stocks 4.7 (0.3) Decrease in debtors 0.8 1.5 (Decrease) in creditors (0.7) (2.4) Cash flows from operating activities 19.7 22.2 Investment returns and servicing of finance Net interest (paid)/received 0.1 (0.5) 0.1 (0.5) Taxation (5.1) (8.1) Capital expenditure Purchase of tangible fixed assets (5.5) (6.9) Sale of tangible fixed assets 0.9 1.0 Sale of tangible fixed assets - exceptional items - 0.9 (4.6) (5.0) Corporate acquisitions and disposals Acquisition of subsidiaries (1.4) (7.4) Disposals of subsidiaries 20.8 15.3 Overdrafts acquired - (3.3) Cash in disposals (2.2) (0.9) Restructuring - exceptional items - (0.3) 17.2 3.4 Equity dividends paid (7.3) (8.0) Cash flows before financing 20.0 4.0 Financing Purchase of own share capital (0.1) (11.4) Issue of share capital 0.1 - - (11.4) Movement in funds during the period 20.0 (7.4) Cash at beginning of period 6.6 13.9 Overdrafts at beginning of period (3.8) (3.7) Bank loans at beginning of period (2.8) (3.0) Net funds at beginning of period - 7.2 Exchange movement on debt (0.1) 0.2 (0.1) 0.2 Cash at end of period 24.5 6.6 Overdrafts at end of period (1.7) (3.8) Bank loans at end of period (2.9) (2.8) Net funds at end of period 19.9 - DIPLOMA PLC PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 1999 Notes to the Preliminary Results: 1. Segmental analysis 1999 1998 Turnover Profit Turnover Profit £m £m £m £m Continuing Operations Specialised Distribution 56.9 9.2 54.9 9.1 Specialised Distribution - acquisitions 1.0 0.2 - - Special Steels and Building Products 38.2 (1.1) 52.0 4.8 Total Continuing Operations 96.1 8.3 106.9 13.9 Discontinued Operations Electronic Components 122.5 1.7 149.5 3.5 Special Steels and Building Products 23.4 2.3 36.5 3.2 Total Discontinued Operations 145.9 4.0 186.0 6.7 Total Turnover 242.0 292.9 Head Office Expenses (1.4) (1.5) Operating Profit 10.9 19.1 2. Taxation 1999 1998 £m £m On Operating Profit and Interest 3.8 6.4 On Exceptional Items - 0.2 3.8 6.6 3. Dividends per share 1999 1998 Interim dividend paid 1st July 1999 4.5p 4.5p Proposed final dividend payable on 19 January 2000 to shareholders on the register at 24 December 1999 4.5p 10.0p 9.0p 14.5p 4. Reconciliation of movement in shareholders' funds 1999 1998 £m £m Retained profit 11.6 (1.4) Purchase of own share capital (0.1) (11.4) Goodwill written back on disposals 0.2 13.1 Goodwill on acquisitions during the period - (6.0) Proceeds of shares issued 0.1 - Goodwill written back on restructuring - 1.4 Currency translation variances 0.2 (.6) 12.0 (4.9) Shareholders' funds at beginning of period 81.9 86.8 Shareholders' funds at end of period 93.9 81.9 5. These preliminary results are unaudited and have been prepared using the accounting policies set out in the Annual Report and Accounts for the year ended 30 September 1998 except that, in accordance with FRS10, goodwill arising on acquisitions since the beginning of the financial year has been capitalised and amortised over its useful economic life. The financial information for 1998 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. 6. The Annual General Meeting will be held on 12 January 2000. The company's Registered Office is at 20 Bunhill Row, London EC1Y 8UD. Tel. 0171 638 0934 Fax 0171 638 7651 Registered Number 256111

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