Interim Results
Diploma PLC
21 May 2002
DIPLOMA PLC 21 May 2002
Announcement of Interim Results for Half Year ended 31 March 2002
Unaudited
Half year ended Half year ended Year ended
31 March 2002 31 March 2001 30 Sept 2001
Turnover from continuing businesses £36.6m £33.1m £66.3m
Operating profit from continuing businesses,
before exceptional items and goodwill
amortisation £4.1m £4.8m £8.8m
Profit before tax, exceptional items and
goodwill amortisation £4.6m £6.1m £10.9m
Profit before tax, after exceptional items £4.8m £4.7m £8.7m
Basic earnings per share 15.2p 10.4p 21.5p
Adjusted earnings per share 13.5p 16.0p 30.2p
Dividends per share 5.0p 5.0p 13.0p
Net assets per share 221p 219p 221p
• Sales of continuing business up 10.6% to £36.6m in tough market conditions.
• Operating profit from continuing businesses, before exceptionals, £4.1m
compared to £4.8m last year.
• Profit before tax, after exceptional items of £4.8m compared with £4.7m last
year.
• Basic earnings per share 15.2p; after adjusting for exceptional items
and goodwill amortisation, 13.5p.
• Interim dividend of 5p per share, 2.7 times covered by Adjusted earnings per
share.
• Cash of £8.5m returned to shareholders; operating cash flow of £3.2m; net
funds of £23.6m at end of half year.
• Group resources focused on delivering the second phase of our strategy
of investing in core businesses and accelerating growth through acquisition.
Commenting on the Half Year Results, Bruce Thompson, Diploma's Chief Executive
said:
'With a background of tough market conditions in most sectors, the Group has
continued to make steady progress. The trends of the second half of last year
have continued into the first half of the current year with year on year revenue
gains being achieved in most businesses but with continuing pressures on
margins.
The benefits starting to come through from recent start-up investments, together
with contributions from recently acquired businesses, should allow the Group to
make good progress in the second half of the year'.
For further enquiries please contact:
Bruce Thompson, Chief Executive Officer
Nigel Lingwood, Group Finance Director
Telephone: 020 7638 0934
HALF YEAR REVIEW TO 31 MARCH 2002
In the six months to 31 March 2002 the Group has continued to make steady
progress in developing its businesses against the background of tough market
conditions in most sectors. Sales of the Group's continuing businesses
increased 10.6% to £36.6m from £33.1m. Operating profit of the continuing
businesses, before exceptional items and amortisation of goodwill was £4.1m
compared with £4.8m in the first half last year. After goodwill amortisation
and exceptional items, profit before tax increased to £4.8m from £4.7m last
year.
The trends of the second half of last year have therefore continued into the
first half of the current year with year on year revenue gains being achieved in
most businesses, but with continuing pressure on margins in the current
challenging economic and market conditions. There has been a positive
contribution from Clarendon, acquired in December 2001, but results have been
impacted by investments in the start-up operations of IS Motorsport in the US
and Envirotech in Germany, as well as in the newly acquired Bulldog (Pevco).
At the end of February 2002, the Group announced its intention to cease
production at its building products business, Williamson Cliff. The closure of
this business will be completed during the second half of the financial year and
a provision of £0.6m has been made for the costs associated with closure. These
exceptional costs are offset by profits of £0.9m on the sale of land and
buildings from elsewhere in the Group. The net exceptional profit before tax of
£0.3m compares with a net exceptional loss of £1.4m in the comparable period.
In December 2001, as part of our ongoing programme of returning surplus capital
to shareholders, the Group repurchased and cancelled shares representing 10% of
its issued share capital for a cost of £8.5m, including expenses.
Basic earnings per share were 15.7 pence compared with 10.4 pence in the
comparable period. After excluding exceptional items and goodwill amortisation,
Adjusted earnings per share were 13.5 pence compared with 16.0 pence in the
first half last year.
The Directors have declared an unchanged dividend of 5.0 pence per share payable
on 2 July 2002 to shareholders on the register on 31 May 2002.
BUSINESS DEVELOPMENT
The strategy of the Group is to concentrate its efforts on investing in and
expanding its Specialised Distribution activities in the three growth sectors of
Life Sciences, Seals & Components and Interconnect.
LIFE SCIENCES
The Life Sciences businesses, centred on Anachem, generated sales of £13.6m,
down 6% on sales of £14.5m in the comparable period. While gross margins held
steady, operating profits fell back further than sales due to the increased
costs of investing in the German start-up operations and the ReactArray product
line.
The sales shortfall was principally in the Applied Solutions and a1-biotech
segments of the business which supply mostly capital instrumentation.
Pharmaceutical and Biotechnology customers have been very selective in their
capital expenditure at a time of some uncertainty in the sector. In particular,
last year's strong orders in the first half for Mass Spectrometry systems and
for DNA screening systems have not been repeated this year, although prospects
for these products remain encouraging.
The Pipetting and Laboratory Plastics business segment performed solidly and
showed year on year revenue gains as did the Service businesses. These
activities, often on extended contracts and with more regular purchasing
patterns, were better able to weather the softer market conditions. The
expansion into Germany of our successful environmental products business,
Envirotech, via a start-up in Dusseldorf is proceeding according to plan and the
back office functions in Germany of both Envirotech and a1-biotech have been
combined in the Dusseldorf operation.
SEALS & COMPONENTS
The Seals & Components businesses reported sales of £13.9m, up 35% from the
£10.3m of sales in the comparable period. Operating profits increased, but at
less than the rate of sales increase, since this year's results include circa
£3m of sales from Bulldog (Pevco) at break-even profitability.
Hercules delivered a very creditable performance, maintaining sales and gross
margins at broadly similar levels to last year in a significantly depressed and
uncertain US market.
Despite continued investment in marketing and product line extension, overall
overhead expenses were reduced leading to an overall increase in operating
profits. FPE continued to show growth in sales and profitability, again in
somewhat uncertain UK market conditions.
Bulldog (Pevco) was acquired immediately prior to the start of the year and has
performed close to historical levels, achieving the targets we set for it. Good
progress has been made towards optimising the cross-selling opportunities
between Hercules, FPE and Bulldog in North America and internationally and also
leveraging the increased purchasing power of the group.
INTERCONNECT
Including a contribution for three months from the newly acquired Clarendon, the
Interconnect businesses achieved sales of £9.1m, up 10% compared with the £8.3m
reported last half year. Operating profits fell slightly as a result of
increased pressure on margins and the investment in IS Motorsport in the US.
IS Rayfast, with circa 20% of its sales to the Aerospace market, is the most
exposed of our companies to the downturn in this sector. Despite this exposure
it produced a reasonable performance, advancing sales but with some pressure on
margins.
In December 2001, the Group acquired 100% of Clarendon Engineering Supplies
Limited, a distributor of high performance fasteners, supplying principally to
the Motorsport market in the UK. We have been pleased with the initial
contribution from Clarendon to our growing Motorsport interests and both it and
the start-up IS Motorsport operation in the US have exceeded the targets we set
for them.
Sommer continued to weather the downturn in German manufacturing industry,
delivering sales and profit performance only a little below that of the first
half last year. In early April 2002, Sommer acquired the trading operations of
Dowatronic Kabelsystems, a small interconnect distributor based in Munich and
with a good reputation in the German Defence, Satellite and Aerospace markets.
FINANCE
The Group's operating cash inflow in the half year was £3.2m compared with £4.6m
last year. Working capital increased as businesses took up opportunities to
secure stocks at favourable terms. Interest receivable of £0.5m was unchanged
from last year. Cash proceeds from the disposal of property, net of investment
in tangible fixed assets were £1.6m.
In December 2001, the Group repurchased and cancelled 2,516,434 shares at a cost
of £8.5m, including expenses. During the six month period, the Group also
issued £3.0m of Guaranteed Unsecured Loan Notes 2001-2003 as initial
consideration for the acquisition of Clarendon Engineering Supplies Limited.
At 31 March 2002, the Group had net cash funds of £23.6m, compared with £31.7m
at 30 September 2001. Net assets per share remained at 221 pence per share.
CURRENT TRADING
The Group's businesses continue to face challenging market conditions in most
sectors in which we operate, though with some more positive signals emerging
from the US market.
The benefits starting to come through from start-up investments in the core
businesses, together with contributions from recently acquired businesses,
should allow the Group to make good progress in the second half of the year.
Bruce Thompson
Chief Executive Officer
21 May 2002
GROUP PROFIT AND LOSS ACCOUNT
for the Half Year ended 31 March 2002
31 March 2002 31 March 2001
Before Goodwill and Before Goodwill and Year ended
goodwill and exceptional goodwill and exceptional 30 Sept
exceptional items exceptional items 2001
items (note 2) Total items (note 2) Total Total
£m £m £m £m £m £m £m
Turnover (note 1)
Continuing
operations 35.9 35.9 33.1 33.1 66.3
- Acquisitions 0.7 0.7 - - -
36.6 36.6 33.1 33.1 66.3
Discontinued
operations 1.0 1.0 18.0 18.0 20.6
37.6 37.6 51.1 51.1 86.9
Operating profit (note 1)
Continuing
operations 3.8 (0.1) 3.7 4.8 - 4.8 8.7
- Acquisitions 0.3 - 0.3 - - - -
4.1 (0.1) 4.0 4.8 - 4.8 8.7
Discontinued
operations - - - 0.8 - 0.8 0.9
4.1 (0.1) 4.0 5.6 - 5.6 9.6
Non-Operating items
(note 2)
Continuing operations -
Profit on disposal of fixed
assets - 0.9 0.9 - 0.2 0.2 0.1
Discontinued operations -
Provision for loss on closure of
business - (0.6) (0.6) - - - -
Loss on sale of businesses - - - - (1.6) (1.6) (2.2)
4.1 0.2 4.3 5.6 (1.4) 4.2 7.5
Interest income 0.5 - 0.5 0.5 - 0.5 1.2
Profit/(loss) on ordinary
activities before tax 4.6 0.2 4.8 6.1 (1.4) 4.7 8.7
Taxation (note 3) (1.4) 0.2 (1.2) (1.9) - (1.9) (3.2)
Profit/(loss) on ordinary
activities after tax 3.2 0.4 3.6 4.2 (1.4) 2.8 5.5
Minority interests - (0.1) (0.1)
Profit for the financial
period 3.6 2.7 5.4
Dividends (0.9) (1.3) (3.3)
Retained profit for the period
(note 9) 2.7 1.4 2.1
Earnings per 5p share
(note 4) -
On basic and diluted earnings 15.2p 10.4p 21.5p
On adjusted earnings 13.5p 16.0p 30.2p
GROUP BALANCE SHEET
as at 31 March 2002
31 March 31 March 30 Sept
2002 2001 2001
£m £m £m
Fixed assets
Intangible assets: Goodwill 5.3 1.7 2.0
Tangible assets 10.9 12.8 12.0
16.2 14.5 14.0
Current assets
Stocks 15.6 13.0 14.3
Debtors 14.3 13.5 13.5
Cash and bank deposits 26.6 32.2 31.7
56.5 58.7 59.5
Creditors: Amounts falling due within one year (20.5) (17.1) (16.2)
Net current assets 36.0 41.6 43.3
Total assets less current liabilities 52.2 56.1 57.3
Provisions for liabilities and charges (1.8) (0.4) (1.3)
50.4 55.7 56.0
Capital and reserves (note 9)
Called up equity share capital 1.1 1.3 1.3
Capital redemption reserve 0.2 - -
Profit and loss account 48.7 53.7 54.3
Shareholders' funds 50.0 55.0 55.6
Equity minority interests 0.4 0.7 0.4
50.4 55.7 56.0
GROUP CASH FLOW STATEMENT
for the Half Year ended 31 March 2002
Year ended
31 March 31 March 30 Sept
2002 2002 2001 2001 2001
£m £m £m £m £m
Net cash inflow from operating activities 3.2 4.6 9.4
(note 5)
Returns on investments and servicing of
finance
Interest received 0.5 0.5 1.2
Equity dividends paid to minority interests - - (0.1)
0.5 0.5 1.1
Taxation
UK corporation tax paid (0.7) (1.0) (2.1)
Overseas tax paid - (0.3) (0.6)
(0.7) (1.3) (2.7)
Capital expenditure and financial investment
Purchase of tangible fixed assets (0.6) (0.9) (1.7)
Proceeds from the sale of tangible fixed 0.7 0.8
assets
2.2
1.6 (0.2) (0.9)
Acquisitions and disposals
Proceeds from disposal of businesses - 12.0 12.9
Acquisition of businesses 0.1 (0.8) (4.1)
0.1 11.2 8.8
Equity dividends paid (1.8) (1.8) (3.0)
Cash inflow before use of liquid resources 2.9 13.0 12.7
and financing
Management of liquid resources
Decrease/(increase)in short term deposits 5.5 - (28.4)
Financing
Return of capital (8.5) - -
Issue of Loan Notes 3.0 - -
- - -
Increase/(decrease) in cash in the period 2.9 13.0 (15.7)
(note 6)
STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES
for the Half Year ended 31 March 2002
Year ended
31 March 31 March 30 Sept
2002 2001 2001
£m £m £m
Profit for the financial period 3.6 2.7 5.4
Currency translation adjustment on foreign currency net 0.3 0.6 0.3
investments
Tax on foreign exchange adjustment (0.1) (0.3) (0.1)
Total recognised gains and losses for the period 3.8 3.0 5.6
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the Half Year ended 31 March 2002
Year ended
31 March 31 March 30 Sept
2002 2001 2001
£m £m £m
Profit for the financial period 3.6 2.7 5.4
Dividends (0.9) (1.3) (3.3)
Retained profit for the period 2.7 1.4 2.1
Currency translation adjustment on foreign currency net 0.2 0.3 0.2
investments, net of tax
Return of capital (8.5) - -
Net (reduction)/increase in shareholders' funds (5.6) 1.7 2.3
Shareholders' funds at beginning of year 55.6 53.3 53.3
Shareholders' funds at end of period 50.0 55.0 55.6
NOTES TO THE FINANCIAL STATEMENTS
for the Half Year ended 31 March 2002
1 ANALYSIS OF RESULTS
Operating profit/(loss)
before goodwill
amortisation
exceptional items Profit/(loss) before
Turnover and taxation interest and taxation
31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept
2002 2001 2001 2002 2001 2001 2002 2001 2001
£m £m £m £m £m £m £m £m £m
By Business Segment
Specialised
Distribution 36.6 33.1 66.3 4.8 5.6 10.6 4.7 5.6 10.5
Other - - - (0.7) (0.8) (1.8) 0.2 (0.6) (1.7)
Continuing 36.6 33.1 66.3 4.1 4.8 8.8 4.9 5.0 8.8
operations
Discontinued 1.0 18.0 20.6 - 0.8 0.9 (0.6) (0.8) (1.3)
operations
37.6 51.1 86.9 4.1 5.6 9.7 4.3 4.2 7.5
By Geographic Area
United Kingdom 20.0 20.1 39.6 2.4 3.0 5.1 3.2 3.2 5.1
Rest of Europe 3.7 3.6 7.3 0.5 0.7 1.5 0.5 0.7 1.5
United States 12.9 9.4 19.4 1.2 1.1 2.2 1.2 1.1 2.2
of America
Continuing 36.6 33.1 66.3 4.1 4.8 8.8 4.9 5.0 8.8
operations
Discontinued 1.0 18.0 20.6 - 0.8 0.9 (0.6) (0.8) (1.3)
operations
37.6 51.1 86.9 4.1 5.6 9.7 4.3 4.2 7.5
Turnover by geographical area is stated by origin which is not materially
different from turnover by destination.
Following the announcement on 28 February 2002 to cease production and close the
Williamson Cliff business, the results of this business have been shown as
discontinued in the half year ended 31 March 2002.
Included in Specialised Distribution is turnover of £0.7m and profits of £0.3m
which relate to the acquisition completed during the period.
NOTES TO THE FINANCIAL STATEMENTS
for the Half Year ended 31 March 2002
2 GOODWILL AND EXCEPTIONAL ITEMS
Goodwill Except. Goodwill Except. Goodwill Except.
amortistn items Total amortistn items Total amortistn items Total
31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 30 Sept 30 Sept
2002 2002 2002 2001 2001 2001 2001 2001 2001
£m £m £m £m £m £m £m £m £m
Operating profit
Continuing operations (0.1) - (0.1) - - - (0.1) - (0.1)
Non operating items
Profit on disposal of
fixed assets - 0.9 0.9 - 0.2 0.2 - 0.1 0.1
Provision for loss on
closure of business (a) - (0.6) (0.6) - - - - - -
Loss on sale of businesses (b) - - - - (1.6) (1.6) - (2.2) (2.2)
(0.1) 0.3 0.2 - (1.4) (1.4) (0.1) (2.1) (2.2)
Tax credit on exceptional - 0.2 0.2 - - - - - -
(0.1) 0.5 0.4 - (1.4) (1.4) (0.1) (2.1) (2.2)
(a) A provision of £0.6m has been made to meet the cash costs of closing the
business of Williamson Cliff.
(b) The loss on the sale of businesses during the previous year relates to
the disposal in March 2001 of Henry Whitham & Son Limited and Carbon & Alloy Inc
and the disposal of the businesses carried on by AG Alloys Limited and Abacon
Telecommunications Inc in June 2001 and August 2001 respectively.
3 TAXATION
The taxation charge on profit before exceptional items for the
six months ended 31 March 2002 of £1.4m (2001: £1.9m) is based on the estimated
tax rate for the full year.
There is a taxation credit associated with the exceptional items of £0.2m (2001:
£nil).
4 EARNINGS PER ORDINARY SHARE
Basic and diluted earnings per share
Basic and diluted earnings per ordinary share are calculated on the basis of the
weighted average of ordinary shares in issue during the period of 23,588,117
(2001: 25,164,345) and the profit for the financial period, after minority
interests, of £3.6m (2001: £2.7m). There were no dilutive potential shares.
Adjusted earnings per share
Adjusted earnings per share is shown by reference to earnings before goodwill
amortisation, exceptional items and related tax. The Directors consider that
this gives a clearer indication of the underlying performance of the Group.
Earnings before goodwill amortisation, exceptional items and related tax are
calculated as follows:
31 March 31 March 30 Sept 31 March 31 March 30 Sept
2002 2001 2001 2002 2001 2001
pence per share pence per pence per £m £m £m
share share
Profit for the financial
year, after minority
interests 15.2 10.4 21.5 3.6 2.7 5.4
Goodwill amortisation 0.4 - 0.4 0.1 - 0.1
Exceptional items, net of (2.1) 5.6 8.3 (0.5) 1.4 2.1
tax
Adjusted earnings 13.5 16.0 30.2 3.2 4.1 7.6
NOTES TO THE FINANCIAL STATEMENTS
for the Half Year ended 31 March 2002
5 RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES
31 March 31 March 30 Sept
2002 2001 2001
£m £m £m
Operating profit 4.0 5.6 9.6
Depreciation 0.7 0.9 1.5
Amortisation of goodwill 0.1 - 0.1
Increase in stocks (1.0) (1.4) (1.8)
Increase in debtors (0.5) (2.1) (1.6)
Increase in creditors 0.1 1.6 0.7
(Decrease)/increase in provisions (0.2) - 0.9
Net cash inflow from operating activities 3.2 4.6 9.4
6 RECONCILIATION OF NET CASH FLOWS TO THE MOVEMENT IN NET FUNDS
31 March 31 March 30 Sept
2002 2001 2001
£m £m £m
Increase/(decrease) in cash in the year 2.9 13.0 (15.7)
(Decrease)/increase in short term deposits (5.5) - 28.4
Increase in debt due within one year 3.0 - -
Return of capital (8.5) - -
Change in net funds resulting from cash flows (8.1) 13.0 12.7
Exchange adjustment - 0.1 (0.1)
Net funds at start of year 31.7 19.1 19.1
Net funds at end of period 23.6 32.2 31.7
7 ANALYSIS OF NET FUNDS
1 October Exchange 31 March
movement
2001 Cash flow 2002
£m £m £m £m
Cash at bank and in hand 3.3 0.4 - 3.7
Money market deposits 28.4 (5.5) - 22.9
31.7 (5.1) - 26.6
Guaranteed Unsecured Loan Notes - (3.0) - (3.0)
2001-2003
Net funds 31.7 (8.1) - 23.6
The Guaranteed Unsecured Loan Notes 2001-2003 ('Notes') were issued as
consideration for the acquisition of Clarendon Engineering Supplies Limited. The
Notes bear interest at 0.95% below LIBOR. The Notes are redeemable at par at the
discretion of the Noteholder. All outstanding Notes on 31 December 2003 will be
repaid by the Company.
NOTES TO THE FINANCIAL STATEMENTS
for the Half Year ended 31 March 2002
8 ACQUISITIONS
On 20 December 2001, the Group completed the acquisition of Clarendon
Engineering Supplies Limited for an initial consideration of £3.0m. Further
deferred consideration to a maximum of £0.75m will be payable depending on
profit performance during the year ending 30 September 2002. At 31 March 2002,
provisional goodwill of £3.4m has been capitalised and is being amortised over
20 years. This goodwill, together with appropriate fair value adjustments will
be finalised in the full year accounts.
9 CAPITAL AND RESERVES
On 7 December 2001, the Company repurchased and cancelled 2,516,434 shares of 5
pence each, leaving 22,647,911 shares in issue at 31 March 2002. The shares
were purchased out of retained profits for £8.5m, including expenses. A capital
redemption reserve of £0.2m was set up on redemption.
Capital Profit and loss
redemption account
Share reserve
capital Total
£m £m £m £m
At 1 October 2001 1.3 - 54.3 55.6
Repurchase and cancellation of (0.2) 0.2 (8.5) (8.5)
ordinary shares
Profit for the period - - 2.7 2.7
Exchange, net of tax - - 0.2 0.2
At 31 March 2002 1.1 0.2 48.7 50.0
10 ACCOUNTING POLICIES
The interim 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 2001, except with respect to accounting for deferred
taxation. At 31 March 2002 the Group has adopted Financial Reporting Standard 19
'Deferred Tax'. No material changes have been required to comparative figures as
a consequence of adopting FRS 19.
11 STATUS OF INTERIM REPORT
The Interim Report, which is unaudited, was approved by the Directors on 21 May
2002. It should be read in conjunction with the 2001 Annual Report, which
contains the most recent audited financial statements.
The financial information contained in this report does not constitute statutory
accounts. The figures for the financial year ended 30 September 2001 have been
extracted from the Group's published accounts for that year which have been
reported on by the Company's auditors and delivered to the Registrar of
Companies. The report of the auditors was unqualified and did not contain a
statement under section 237 (2) or (3) of the Companies Act. The figures for the
half year ended 31 March 2001 were extracted from the Interim Report which was
unaudited.
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