Final Results
Diploma PLC
15 November 2004
FOR IMMEDIATE RELEASE 15 November 2004
DIPLOMA PLC
ANNOUNCEMENT OF PRELIMINARY RESULTS
FOR YEAR ENDED 30 SEPTEMBER 2004
2004 2003
Turnover from continuing businesses £100.5m £77.1m
Operating profit,
before exceptional items and goodwill amortisation £12.3m £9.7m
Profit before tax,
exceptional items and goodwill amortisation £13.1m £10.6m
Profit before tax £15.4m £12.7m
Basic earnings per share 52.7p 42.8p
Adjusted earnings per share 41.2p 32.2p
Dividends per share 17.0p 15.0p
• Strong sales and profit growth fuelled by contributions from
Somagen and Filcon acquired this year, and a full year contribution
from Hawco acquired in July 2003.
• Profit before tax, exceptional items and goodwill amortisation up
23.6% to £13.1m from £10.6m; operating margin of 12.2% (2003: 12.6%).
• Exceptional profits of £3.9m realised on the sale of Phase 2 of the
Stamford land; exceptional operating costs of £0.8m incurred on
restructuring the Hawco and Anachem businesses.
• Earnings per share, after adjusting for exceptional items and
goodwill amortisation, up 28% at 41.2p; basic earnings per share
52.7p. Full year dividend up by 2.0p to 17.0p.
• Acquisition spend of £17.3m, includes acquisition of Filcon and 80%
of Somagen.
• Free cash flow of £9.6m includes proceeds of £4.0m from sale of
Phase 2 of the Stamford land. Cash funds at the year end were £17.9m.
Commenting on the results for the year, Bruce Thompson, Diploma's Chief
Executive said:
'We remain focused on our strategic objective of building more substantial,
broader based businesses in our chosen sectors by a combination of organic
growth and acquisitions. Stronger trading activity in our North American
businesses, together with the contributions from recent acquisitions, should
enable the Group to make further progress in 2005.'
www.diplomaplc.com
REGISTERED IN ENGLAND. NUMBER 3899848.
20 BUNHILL ROW, LONDON EC1Y 8UD.
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
NOTE TO EDITORS:
Diploma PLC is a specialised international distribution group operating in three
sectors:
Life Sciences - Distributors of Instrumentation, Consumables and related
Services to research, development and diagnostic laboratories. Principal
companies are Anachem Group in the UK and Germany, and Somagen in Canada.
Seals- Next day delivery of hydraulic seal kits, gaskets and cylinder
components, for the repair and maintenance of mobile machinery. Principal
companies are Hercules Bulldog Sealing Products in North America and FPE in the
UK.
Controls - Distributors of specialised wiring, connectors and control devices
for a range of technically demanding applications. Principal companies are IS
Group in the UK and US, Sommer and Filcon in Germany and Hawco in the UK.
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.
Further information on Diploma PLC can be found at www.diplomaplc.com
RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2004
CHAIRMAN'S STATEMENT
The Group's strong balance sheet and free cash flow give the opportunity to
accelerate growth by investing in earnings enhancing acquisitions. This strategy
has produced growth in earnings this year in excess of 20%. With significant
cash resources still available for investment, the Board remains committed to
building a more substantial and broader based business through a combination of
acquisitions and investment in existing businesses.
Results
Sales from continuing businesses increased by 30% to £100.5m (2003: £77.1m) and
operating profits, before goodwill amortisation and exceptional items, increased
by 27% to £12.3m (2003: £9.7m). Profit before tax increased by 21% to £15.4m
(2003: £12.7m), benefiting from exceptional profits of £3.9m (2003: £3.1m)
earned on the sale of Phase 2 of the Stamford land during the year. Outline
planning permission has now been obtained on Phase 3, comprising the vacant 12
acre former brickworks site at Stamford, and marketing of this land for
residential development is planned to commence in 2005. At 30 September 2004 the
market value of the Stamford land, in its present condition, is estimated to be
not less than £5.5m before expenses and taxation, compared with a net book value
of £0.1m.
The exceptional costs of restructuring the Hawco and Anachem businesses of £0.5m
and £0.3m respectively, both of which were completed during the year, were
charged against operating profit.
After excluding exceptional items and goodwill amortisation, profit before tax
increased by 24% to £13.1m (2003: £10.6m). The Group again generated good cash
flow. Operating cash flow before tax of £10.7m (2003: £11.1m), was supplemented
by cash proceeds of £4.0m (2003: £4.2m) from the sale of land and properties.
During the year, £17.3m was spent on acquisitions, including Filcon and Somagen,
and £3.6m on dividends. The Group's net cash funds reduced to £17.9m from
£29.3m.
Earnings and Dividends
Earnings per share, before exceptional items and goodwill amortisation, grew 28%
to 41.2 pence compared with 32.2 pence last year. Basic earnings per share were
52.7 pence compared with 42.8 pence last year.
The Directors are recommending an increased final dividend of 11.0 pence per
share (2003: 10.0 pence) which increases the total dividend payment for the year
to 17.0 pence (2003: 15.0 pence), an increase of 13%. Subject to approval at
the Annual General Meeting, the final dividend will be paid on 18 January 2005
to shareholders on the register at the close of business on 3 December 2004.
People
Since being appointed Chairman of the Company on 7 January 2004, I have had an
opportunity to gain a more thorough understanding of the strengths of the Group.
I wish to record my thanks and appreciation to Chris Thomas for his diligent
stewardship of the Group over many years. This has allowed me to commence my
tenure, with the Group in strong financial health. I should like to welcome the
employees of Somagen and Filcon to the Group and would also like to express my
thanks to all our employees who continue to make an essential contribution to
the development of the Group.
Current Trading
Our North American businesses have seen a strengthening in trading activity
during 2004 which is continuing into the new financial year. This, together
with the contributions from recent acquisitions, should enable the Group to make
further progress in 2005.
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.
Superior margins are achieved in the businesses through the quality of customer
service, depth of technical support and value adding activities. The objective
is to build more substantial, broader based businesses in our chosen sectors by
investing for organic growth and in acquisitions.
The results this year have benefited from the acquisitions during the year of
Filcon and Somagen, boosting sales and operating profit by £7.1m and £1.0m
respectively. In addition, Hawco acquired in July 2003, made a full year
contribution to the results. However, the Group continued to invest in
strengthening and streamlining the existing businesses and generating organic
growth. Adjusting for the impact of exchange rates and a full year contribution
from Hawco, the Group generated organic sales growth in the year of 6%.
Organic Growth Strategy
Sales in Life Sciences have been broadly flat over the last five years. However,
the decline in sales of capital equipment disguises the fact that significant
advances have been made by investing in other segments of the business. Five
years ago, sales of instrumentation purchased as capital items, mainly
chromatography equipment and bio-instruments, accounted for 35% of Anachem's
sales. Since then, the major pharmaceutical companies have rationalised their
research operations and cut back on capital expenditure. In addition, the wave
of investment by biotechnology companies has mostly passed through the market.
As a result, these instrumentation sales have reduced to only 15% of Anachem's
sales.
Investments in other segments have offset this dramatic decline in capital
equipment sales and changed the mix of the business. The core Bioscience
business has maintained its leadership position in an increasingly competitive
market for pipetting products. This has been achieved by investment in
sophisticated marketing initiatives and new product introductions. The Service
businesses, supporting both instrumentation and consumable sales, have also
contributed solid performances and the range of products serviced has increased
substantially. Additionally, a major investment has been made in building
Anachem's new Environmental business in the UK and Germany. This business has
grown sales by an average of over 15% p.a. over five years and in 2004
represented over 20% of Anachem Group sales.
The Seals sector, in constant currency terms, has doubled sales over the last
five years. Taking out the additional sales acquired through the acquisitions of
FPE and Pevco (Bulldog), organic growth has been an average of 8% p.a. This has
been achieved over a period when the main mobile machinery markets in North
America moved into recession and are only now emerging. The growth has been
generated by a consistent programme of investment in focused catalogue marketing
and product line extension. Significant investment has also been made in new
facilities and in a new computer system. Finally and most importantly, the
senior management team has been progressively strengthened.
Controls is the sector which has shown the most dramatic sales growth over five
years, from £11.8m in 1999 to £47.1m in 2004. A large proportion of this growth
has been through the acquisitions of Clarendon, Dowatronic, Hawco and Filcon.
However, the original companies in the sector, Rayfast and Sommer, have grown by
an average 11% p.a. over the period. This has been achieved against the
background of dramatic change in the core markets of Aerospace, Defence and
Motorsport. With their major markets not providing growth, both Rayfast and
Sommer have invested in extending their businesses. Sommer has expanded its
geographic presence in Germany with new operations in Frankfurt and Hamburg.
Rayfast has invested in a start-up Motorsport operation in the US and has
expanded sales in Continental Europe. Again, investments in strengthening the
management teams have been critical.
Acquisition Strategy
To complement our organic growth strategy, we make selective acquisitions to
accelerate growth. The cash balances and gearing potential of the Group,
supported by good operating cash flow, gives us the resources to support an
active acquisition programme.
We have clear criteria which guide our pro-active acquisition programme. We
search for specialised distribution businesses within our core sectors in the
UK, Continental Europe and North America. They must offer differentiated
products and services and have the potential for growth and superior margins.
Finally, we look for continuing strong leadership in the acquired businesses.
A model we have used successfully in many of our acquisitions is to acquire a
majority shareholding, and to leave owner managers with a minority shareholding
of up to 20% of the shares. This transaction structure gives additional
confidence in the quality of the acquisition and ensures continuing commitment
from key managers.
The three most recent additions to the Group are good examples of our
acquisition strategy in practice.
Hawco, acquired in July 2003, was a second generation, family-owned business
which met most of our acquisition criteria but was under-performing. We saw the
opportunity for sales growth and margin improvement under new leadership and
with an injection of resources and expertise. We identified a new Managing
Director from within one of the subsidiary businesses and he has retained a
minority shareholding in Hawco. He has quickly moved to restructure the business
and strengthen the senior management team, as described in the Controls sector
review. Results are ahead of our initial expectations, with sales increasing
year on year by ca.10% and operating margins increasing by 2%.
Filcon, based in Munich, Germany, was acquired in November 2003 for an initial
cash consideration of £3.5m. Deferred consideration up to a maximum of £0.7m is
payable, depending on the performance of the company in the period ending 31
March 2005. Filcon is a good example of a bolt-on acquisition. The opportunity
was identified and developed by the Managing Director of our Sommer business in
Germany. In this case the joint owners, planning for retirement, agreed a
management transition programme and then to provide services on a consultancy
basis. Increasingly Sommer and Filcon will be managed together and progress has
already been made this year by introducing shared facilities and sales resource.
An 80% shareholding in Somagen, based in Edmonton, Canada, was acquired in July
2004 for an initial cash consideration of £12.4m. Deferred consideration up to a
maximum of £0.8m is payable based on the performance of the company in the year
ending 30 September 2005. The three owner managers have retained a combined 20%
shareholding and are committed to a programme of continued growth. Put and call
options exist to acquire this outstanding 20% share capital over a five year
period. Somagen is an example of targeting an acquisition to open up new
opportunities within a core sector. We had identified the clinical diagnostics
market as a major opportunity for us within the Life Sciences sector, giving
more direct access to the substantial public and private healthcare budgets.
Somagen has already shown a track record of consistent growth in sales and
profit and has established itself as the leading independent distributor of
clinical diagnostic products in Canada. This acquisition should in turn open up
new opportunities for expansion both organically and through acquisition in
North America and Europe.
The total investment to date in these three acquisitions is of the order of
£22m. In 2004, these acquisitions had a positive impact of 6.5p per share on
adjusted earnings and we anticipate a further positive impact in 2005.
Management
The critical factor in the successful implementation of the above strategies is
the quality of management. Our objective is to have strong self-standing
management teams in the operating companies, committed to their businesses and
with the potential to manage aggressive growth strategies. During the year, we
have strengthened the management resources considerably by consolidating
businesses and re-shaping management teams, selective recruitment and by the
quality of managers brought into the Group with our acquisitions. The further
development and strengthening of management in the operating businesses will
remain a priority for us in the coming year.
REVIEW OF OPERATIONS
LIFE SCIENCES
Sales of our Life Sciences businesses increased 4% to £26.0m (2003: £25.0m).
Improved gross margins in the Anachem Group and the contribution from the newly
acquired Somagen, led to a 9% increase in operating profits to £3.5m (2003:
£3.2m).
During the year, the Anachem Group was restructured into three businesses, each
with its own Managing Director, to give more focus to developing activities
which now have different business dynamics. To ensure cost effectiveness, the
three businesses are supported by a central logistics, finance and
administration unit.
The acquisition of Somagen represents an important strategic expansion of the
sector into the clinical diagnostics market in North America, which gives
broader access to public and private healthcare spending. This will open up
further new opportunities for expanding the sector's activities, both
organically and by acquisition, in Europe and North America.
Anachem Group
The Bioscience consumables business supplies a range of pipettes, tips and other
laboratory plastics, with associated validation and calibration services, to
private and public sector research laboratories. Bioscience used its strong
product portfolio to counter a general softness in demand for manual pipettes,
as well as competition from budget-priced product alternatives. Increased sales
were achieved in multi-channel pipettes and associated tips and from bioplastics
such as plastic tubes, caps and multi-well plates. There was also an increase in
the level of marketing promotional activity including the innovative selling of
pipettes with service included.
Anachem's Laboratory Automation business supplies a range of automated work
stations and modules, used principally in the preparation and purification of
samples for analysis in the drug discovery process. The products are supported
by a comprehensive package of maintenance and validation contract services.
Growth was achieved in the Reactarray product line and in the sales of contract
services. However this was not sufficient to offset the continuing decline in
sales of traditional chromatography products to the pharmaceutical sector.
The Environmental business in the UK and Germany, supplies a range of
instrumentation and consumables to environmental testing laboratories in
chemical, petrochemical and other industrial businesses and utilities. Products
include gas detection devices, enclosures for potent powder containment and
specialised analytical instruments for detecting and measuring specific elements
in fluids and gases. The Environmental business continued to generate double
digit growth, with Germany in particular recording strong gains in the sale of
chlorine, sulphur and nitrogen analysers to the petrochemical industry and of
waste water/effluent analysers to chemical companies. The Dusseldorf facility
was recently confirmed as the central European Technical Support laboratory for
one of our key suppliers, Mitsubishi.
Somagen
Somagen, acquired in July 2004, is based in Edmonton, Canada and employs 52
staff. Somagen supplies a range of consumables and instruments used in the
diagnostic testing of blood, tissue and other samples in the 500-600 pathology
laboratories in hospitals across Canada. A large part of Somagen's revenues are
generated from reagent rental contracts with terms ranging from one to five
years. In such contracts, instruments are provided to the customers in return
for commitments to minimum annual purchases of reagent kits. Somagen contributed
two and half months of sales and operating profit in the year, with trading
levels in line with expectations.
In September, as agreed in principle before the acquisition of Somagen, the
Canadian distribution activities of the diagnostics company, Adaltis were
purchased by Somagen. The acquisition was in the form of a purchase of assets
with a total consideration of C$1.3m of which C$0.7m represented goodwill.
SEALS
Our Seals businesses increased sales and operating profits by 11% and 2%
respectively, on a constant currency basis. Expressed in sterling terms, sales
were unchanged at £27.4m (2003: £27.4m) and operating profits 4% lower at £2.4m
(2003: £2.5m).
This year, the focus has been on consolidation to give a strong platform for
further growth. The senior management team has been strengthened, investment has
been made in the operations and the learning curve has been climbed with the new
computer system. Having suffered the growing pains, the sector is now better
positioned to take advantage of the more buoyant market conditions and to
integrate new complementary acquisitions.
Hercules Bulldog Sealing Products
The core Hercules business based in Clearwater, Florida focuses on the next day
delivery of seals and seal kits used in the repair of hydraulic cylinders. The
products are used in heavy mobile machinery in a range of applications including
heavy construction equipment, dump trucks and refuse collection, lift trucks and
fork lifts. The Hercules business continued its double digit growth in the
second half as economic confidence and construction activity increased in the
US. This had a positive knock-on impact on the usage and repair of heavy mobile
equipment and hence the demand for Hercules' products.
The engine gasket and seal kit business, branded as Bulldog, operates from Reno,
Nevada. Bulldog, with an in-house gasket production capability, extends into the
MRO market for heavy duty diesel engines and transmissions, as well as hydraulic
cylinders. Again this business experienced double digit growth in the US and
internationally. International sales account for about 60% of Bulldog sales and
the strong order book for export business was boosted by increasing demand and
the weaker US dollar.
In Canada, sales were broadly flat compared with the prior year, reflecting the
more subdued Canadian economy which was affected by the rising Canadian dollar,
the BSE related cattle ban and the softwood lumber dispute with the US. There
was a confident start by the new Edmonton branch opened in March 2004. It is
trading in line with our expectations and is well positioned to take advantage
of strong oil exploration activity in Alberta.
While there was continued strong growth in overall Hercules Bulldog sales,
operating profits were held back by increased costs. The operational
infrastructure was stretched by the significant increase in monthly order
demand, as well as by the learning curve effects of using the newly installed IT
system. To ensure any impact on customers was minimised, additional logistical
costs had to be incurred as well as labour cost penalties, through the use of
overtime and temporary labour.
In the second half of the year, logistical support was reorganised, higher
capacity gasket cutting equipment was introduced and receiving and despatch
operations were streamlined.
Fluid Power Equipment (FPE)
FPE grew sales by 9%, reflecting the additional investment in sales and
marketing at the beginning of the year. While gains in the UK were modest, the
export business grew strongly and sales of metal parts moved steadily ahead.
In the final quarter of the year, FPE installed its first custom seal making
machine. This will give FPE the capability of offering small volume specialist
seals to customers who would have previously split their orders between FPE and
competitors.
CONTROLS
Our Controls businesses almost doubled sales to £47.1m (2003: £24.7m) with
operating profits up by 60% to £6.4m (£4.0m). Organic growth of 9% in the IS
Group and Sommer was further boosted by strong contributions from the recent
Hawco and Filcon acquisitions.
A principal strategy during the year has been to integrate the subsidiaries into
more streamlined business groups to give better focus for future growth.
Management teams have been restructured and strengthened and formerly discrete
corporate entities have been divisionalised. There are now three, more
integrated businesses, each with strong leadership and a clear strategy.
IS Group
The IS Group comprises Rayfast, IS Motorsport and Clarendon and supplies a range
of high performance wiring, connectors and fasteners to sectors including
Defence, Aerospace and Motorsport.
IS Group sales increased by 11% with military/marine customers providing most of
the gains, with more equipment build business for the Type 45 destroyer and
ongoing refits for the existing fleet. Other military business included the
supply of materials for the prototype build stage of the Bowman communications
system. Sales to the aerospace sector were solid though slightly reduced
compared with the strong prior year. More generally, there were increased sales
to the sub-sea segment of the oil and gas industry and a steady increase in
demand from general UK manufacturing customers.
In Motorsport, the IS Group still managed to achieve modest growth despite a
subdued Formula 1 market and disruptions to the CART open-wheel racing series in
the US. Our UK based business countered the challenges by introducing more
value-added services and extending supply to Formula 1 teams in Continental
Europe. Our US operation achieved growth by consolidating its position within
the Indianapolis motorsport community and expanding its reach to alternative
racing formats.
Sommer/Filcon
Sommer supplies similar wiring and interconnect products to those supplied by
the IS Group, but in Germany. Sommer grew sales organically by 5% in constant
currency terms (4% in sterling terms) by continuing to extend its sales coverage
in Germany. Strong growth in the new sales territories around Frankfurt and
Hamburg added to a solid performance from the more developed territories around
Stuttgart and Munich.
Filcon, acquired in November 2003, supplies specialist connectors principally to
defence and aerospace customers in Germany. The delays in large projects such as
Eurofighter tranche II have focused management on the successful build up of
more regular background business. When the larger projects are approved, they
should give a further boost to sales.
Increasingly Sommer and Filcon will be managed together. During the year the
Munich operations of Sommer were moved into Filcon's facility, Sommer's sales
engineers were cross-trained to sell Filcon products and new joint sales
engineers have been appointed in strategic regions.
Hawco
Hawco's sales increased by about 10% on a year on year basis, with performance
strong across a range of customer segments. Store openings and refurbishments in
the food retail sector boosted sales of components to commercial refrigeration
manufacturers. Demand for air conditioning units and components also continued
to grow as well as sales of thermal cut-outs and pressure transducers used in
domestic appliances.
Operating margins have been increased by 2% since acquisition through a major
programme of restructuring. The senior management team has been reshaped and
strengthened and various corporate entities integrated. All warehousing and
servicing activities have been concentrated in Bolton and three separate sales
offices have been consolidated into a single new facility near Guildford. As a
result, two leasehold properties have been disposed of and one freehold property
sold shortly after the year end.
Group Profit and Loss Account
for the year ended 30 September 2004
30 September 2004 30 September 2003
Before Goodwill and Before Goodwill and
goodwill and exceptional goodwill and exceptional
exceptional items exceptional items
items (note 3) items (note 3)
Total Total
Note £m £m £m £m £m £m
Turnover 1
Continuing operations 93.4 93.4 77.1 77.1
Acquisitions 7.1 7.1 - -
100.5 100.5 77.1 77.1
Discontinued operations - - 0.6 0.6
100.5 100.5 77.7 77.7
Operating profit 1
Continuing operations 11.3 (1.3) 10.0 9.7 (1.0) 8.7
Acquisitions 1.0 (0.3) 0.7 - - -
12.3 (1.6) 10.7 9.7 (1.0) 8.7
Discontinued operations - - - - - -
12.3 (1.6) 10.7 9.7 (1.0) 8.7
Non-Operating Items 3
Continuing operations
Profit on disposal of
tangible fixed assets - 3.9 3.9 - 3.1 3.1
1 12.3 2.3 14.6 9.7 2.1 11.8
Interest income 0.8 - 0.8 0.9 - 0.9
Profit on ordinary activities 13.1 2.3 15.4 10.6 2.1 12.7
before tax
Taxation 4 (3.6) 0.3 (3.3) (3.2) 0.3 (2.9)
Profit on ordinary activities 9.5 2.6 12.1 7.4 2.4 9.8
after tax
Equity minority interests (0.2) (0.1)
Profit for the financial year 11.9 9.7
Dividends 10 (3.8) (3.4)
Retained profit for the year 8.1 6.3
Earnings per 5p share 5
On basic and diluted earnings 52.7p 42.8p
On adjusted earnings 41.2p 32.2p
Group Balance Sheet
as at 30 September 2004
2004 2003
Note £m £m
Fixed assets
Intangible assets: Goodwill 23.5 8.2
Tangible assets 10.6 9.3
34.1 17.5
Current assets
Stocks 20.4 16.6
Debtors 19.3 15.9
Cash and bank deposits 17.9 30.5
57.6 63.0
Creditors: Amounts falling due within one year (24.4) (21.9)
Net current assets 33.2 41.1
Total assets less current liabilities 67.3 58.6
Provisions for liabilities and charges 6 (2.0) (0.9)
65.3 57.7
Capital and reserves
Called up equity share capital 1.1 1.1
Capital redemption reserve 0.2 0.2
Profit and loss account 62.7 55.8
Equity shareholders' funds 64.0 57.1
Equity minority interests 1.3 0.6
2 65.3 57.7
Group Cash Flow Statement
for the year ended 30 September 2004
2004 2003
Note £m £m £m £m
Net cash inflow from operating activities 7 10.7 11.1
Returns on investments and servicing of finance
Interest received 0.8 0.9
Taxation
UK corporation tax paid (2.5) (2.0)
Overseas tax paid (1.4) (3.9) (1.1) (3.1)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1.5) (1.1)
Proceeds from the sale of tangible fixed assets 4.0 4.2
Purchase of own shares (0.5) 2.0 - 3.1
Acquisitions and disposals
Acquisition of businesses (17.3) (6.1)
Equity dividends paid (3.6) (3.2)
Cash (outflow) / inflow before use of liquid resources and
financing (11.3) 2.7
Management of liquid resources
Decrease / (increase) in short term deposits 14.8 (2.8)
Financing
Redemption of Loan Notes (1.2) -
Increase / (decrease) in cash in the year 8 2.3 (0.1)
Statement of Total Recognised Gains and Losses
for the year ended 30 September 2004
2004 2003
£m £m
Profit for the financial year 11.9 9.7
Currency translation adjustments on foreign currency net investments (0.7) (0.1)
Total recognised gains and losses for the year 11.2 9.6
Reconciliation of Movements in Shareholders' Funds
for the year ended 30 September 2004
2004 2003
Note £m £m
Profit for the financial year 11.9 9.7
Dividends (3.8) (3.4)
Retained profit for the year 8.1 6.3
Currency translation adjustments on foreign currency net investments (0.7) (0.1)
Purchase of own shares 11 (0.5) -
Net increase in shareholders' funds 6.9 6.2
Shareholders' funds at beginning of year 57.1 50.9
Shareholders' funds at end of year 64.0 57.1
Notes to the Preliminary Announcement
for the year ended 30 September 2004
1. ANALYSIS OF RESULTS
Operating profit before
goodwill amortisation,
exceptional items and Profit / (loss) before
taxation interest and taxation
Turnover
2004 2003 2004 2003 2004 2003
£m £m £m £m £m £m
By Business
Life Sciences 26.0 25.0 3.5 3.2 3.1 3.2
Seals 27.4 27.4 2.4 2.5 2.3 2.2
Controls 47.1 24.7 6.4 4.0 5.3 3.7
100.5 77.1 12.3 9.7 10.7 9.1
Unallocated items:
Profit on sale of properties - - - - 3.9 3.1
Abortive acquisition costs - - - - - (0.4)
Continuing operations 100.5 77.1 12.3 9.7 14.6 11.8
Discontinued operations - 0.6 - - - -
100.5 77.7 12.3 9.7 14.6 11.8
By Geographic Area
United Kingdom 58.9 43.4 8.3 6.7 10.9 9.1
Rest of Europe 14.6 8.6 2.0 1.3 1.8 1.3
North America 27.0 25.1 2.0 1.7 1.9 1.4
Continuing operations 100.5 77.1 12.3 9.7 14.6 11.8
Discontinued operations - 0.6 - - - -
100.5 77.7 12.3 9.7 14.6 11.8
The results of the Group have been analysed by business sector in 2004, as the
Directors consider that this provides a better understanding of the Group's
performance. The comparatives have been restated accordingly.
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 £4.6m (out of £27.0m) is to customers based outside
North America.
Included in Life Sciences is turnover of £2.0m and operating profit, before
goodwill amortisation and exceptional items of £0.4m (after goodwill
amortisation £0.3m), which relates to the acquisition of Somagen. Controls
includes turnover of £5.1m and operating profit, before goodwill amortisation
and exceptional items of £0.6m (after goodwill amortisation £0.4m), which
relates to the acquisition of Filcon.
2. ANALYSIS OF NET ASSETS
2004 2003
United Rest of North United Rest of North
Kingdom Europe America Kingdom Europe America
Total Total
£m £m £m £m £m £m £m £m
By Business
Life Sciences 3.7 0.4 14.6 18.7 3.8 0.5 - 4.3
Seals 2.1 - 11.8 13.9 2.0 - 11.3 13.3
Controls 10.2 7.0 0.2 17.4 11.7 3.0 0.2 14.9
Head Office (2.7) - - (2.7) (4.2) - - (4.2)
13.3 7.4 26.6 47.3 13.3 3.5 11.5 28.3
Discontinued operations 0.1 - - 0.1 0.1 - - 0.1
Trading Capital Employed 13.4 7.4 26.6 47.4 13.4 3.5 11.5 28.4
Net cash 15.0 1.7 1.2 17.9 26.2 2.0 1.1 29.3
28.4 9.1 27.8 65.3 39.6 5.5 12.6 57.7
3. GOODWILL AND EXCEPTIONAL ITEMS
2004 2003
Goodwill Exceptional Goodwill Exceptional
amortisation items amortisation items
Total Total
Notes £m £m £m £m £m £m
Operating profit
Continuing operations (a) (0.8) (0.8) (1.6) (0.3) (0.7) (1.0)
Non-Operating items
Profit on disposal of
tangible fixed assets
(b) - 3.9 3.9 - 3.1 3.1
(0.8) 3.1 2.3 (0.3) 2.4 2.1
Tax credit on exceptional
items
- 0.3 0.3 - 0.3 0.3
(0.8) 3.4 2.6 (0.3) 2.7 2.4
(a) Costs of £0.5m, of which £0.4m had been spent at 30 September 2004, have been incurred in restructuring the
Control's business of Hawco, acquired in July 2003. Costs of £0.3m were incurred in restructuring the Life
Science business of Anachem. In 2003 exceptional costs comprised £0.4m of aborted acquisition costs and
£0.3m of costs incurred in connection with the implementation of new IT systems in the North American Seals
business.
(b) The profit on disposal of fixed assets arises from the sale of eight acres of land (known as Phase 2) in
Stamford, East Midlands. In 2003 this profit arose on the sale of Phase 1 of land in Stamford and from the
sale of two small freehold properties relating to previously divested businesses. No tax liability arose on
these disposals due to the availability of capital tax losses.
4. TAXATION
The Group's effective tax charge represented 27.5% (2003: 30.2%) of the profit
before tax, goodwill amortisation and exceptional items. The underlying tax
rate, excluding the impact of tax credits arising from the utilisation of
earlier years' start up losses in Germany, was 29.0%. This rate compares
favourably with a corporate tax rate of 30% in the UK and 35% in the US, the
countries in which the Group earns most of its profits. No tax liability arose
on the disposal of land in the year due to the availability of capital tax
losses.
5. 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
22,581,026 (2003: 22,647,911) and the profit for the financial year, after
minority interests, of £11.9m (2003: £9.7m). 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:
2004 2003 2004 2003
pence pence
per share per share £m £m
Profit for the financial year, after minority interests 52.7 42.8 11.9 9.7
Goodwill amortisation 3.5 1.3 0.8 0.3
Exceptional items, net of tax (15.0) (11.9) (3.4) (2.7)
Adjusted earnings 41.2 32.2 9.3 7.3
6. PROVISIONS FOR LIABILITIES AND CHARGES
1 October Charge to Exchange 30 September
2003 profit rate 2004
Utilised On
acquisition adjustments
Deferred taxation - - - - - -
Pensions 0.3 - 0.2 - - 0.5
Onerous lease 0.2 (0.1) - - - 0.1
Deferred consideration 0.4 - - 0.9 0.1 1.4
Total 0.9 (0.1) 0.2 0.9 0.1 2.0
Deferred tax includes a liability of £0.4m (2003: £0.3m) which relates to
capital allowances on fixed assets in excess of depreciation and an asset of
£0.4m (2003: £0.3m) relating to other timing differences. No provision for
deferred taxation has been made for taxation payable on the distribution of
reserves by overseas subsidiary undertakings. No deferred tax asset has been
provided on capital losses of £6.0m (2003: £9.7m).
The pension provisions are held against the Group's principal defined benefit
pension schemes. This will be amortised to profit over the average service life
of the employees. The onerous lease provision is expected to be utilised during
the next year. At 1 October 2003 a provision for deferred consideration of
£0.4m has been reclassified from Other Creditors to Provision for Liabilities
and Charges.
7. RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES
2004 2003
£m £m
Operating profit 10.7 8.7
Depreciation 1.2 1.1
Amortisation of goodwill 0.8 0.3
(Increase) / decrease in stocks (2.3) 0.7
(Increase) / decrease in debtors (1.3) 0.1
Increase in creditors 1.5 0.5
Increase / (decrease) in provisions 0.1 (0.1)
Costs incurred on business closure - (0.2)
Net cash inflow from operating activities 10.7 11.1
The net cash inflow from operating activities of £10.7m (2003: £11.1m) includes
an outflow of £Nil (2003: £0.2m) relating to discontinued businesses.
8. RECONCILIATION OF NET CASH FLOWS TO THE MOVEMENT IN NET FUNDS
2004 2003
£m £m
Increase / (decrease) in cash in the year 2.3 (0.1)
(Decrease) / increase in short term deposits (14.8) 2.8
Change in net funds resulting from cash flows (12.5) 2.7
Decrease / (increase) in debt due within one year 1.2 (0.4)
Exchange adjustment (0.1) 0.1
Net funds at start of year 29.3 26.9
Net funds at end of year 17.9 29.3
9. ANALYSIS OF NET FUNDS
1 October Exchange 30 September
movement 2004
2003 Cash flow
Cash at bank and in hand 1.8 2.3 - 4.1
Short term deposits 28.7 (14.8) (0.1) 13.8
30.5 (12.5) (0.1) 17.9
Guaranteed Unsecured Loan Notes:
2001 - 2003 (1.2) 1.2 - -
Net funds 29.3 (11.3) (0.1) 17.9
10. DIVIDENDS
Subject to approval at the Annual General Meeting, a proposed final dividend of
11.0p per share (2003: 10.0p) will be paid on 18 January 2005 to ordinary
shareholders on the register at the close of business on 3 December 2004.
11. PURCHASE OF OWN SHARES
In January and February 2004, the Diploma Employee Benefit Trust purchased
105,373 ordinary shares in the Company at a cost of £0.5m. These shares were
acquired in connection with potential awards under the Group's Long Term
Incentive Plan and Bonus Share Matching Plan. The purchase of shares has been
treated as a deduction from shareholders' funds in accordance with the
requirements of UITF 38, published in December 2003.
12. EXCHANGE RATES
The following exchange rates have been used to translate the results of the
overseas businesses:
Average Average Closing Closing
2004 2003 2004 2003
US Dollar 1.81 1.61 1.81 1.66
Canadian Dollar 2.34 2.34 2.29 2.24
Euro 1.48 1.47 1.46 1.43
The net effect of currency translation on the results for the year was to
decrease turnover by £3.3m and to reduce operating profit, before goodwill
amortisation and exceptional items, by £0.3m.
13. 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 2003.
The financial information set out in this preliminary announcement, which has
been extracted from the audited accounts, does not constitute the Group's
statutory accounts for the years ended 30 September 2004 and 2003.
Statutory accounts for the year ended 30 September 2003 have been delivered to
the Registrar of Companies. The statutory accounts for the year ended 30
September 2004, which were approved by the Directors on 15 November 2004, 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 2004
and 2003. 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 12.00 midday on 11 January
2005 in the Members' Room, Chartered Accountants' Hall, Moorgate Place, London
EC2P 2BJ. The Notice of Meeting is set out in a separate document issued to
shareholders.
This information is provided by RNS
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