TIDMDPLM
RNS Number : 7287Y
Diploma PLC
13 May 2019
DIPLOMA PLC
12 CHARTERHOUSE SQUARE, LONDON EC1M 6AX
TELEPHONE: +44 (0)20 7549 5700
FACSIMILE: +44 (0)20 7549 5715
FOR IMMEDIATE RELEASE
13 May 2019
ANNOUNCEMENT OF HALF YEAR RESULTS
FOR THE SIX MONTHSED 31 MARCH 2019
"Another good performance and on track for further progress in
FY2019"
HY2019 HY2018
GBPm GBPm
Revenue 260.4 234.9 +11%
Underlying revenue growth 6% 7%
Adjusted operating profit(1) 45.6 40.6 +12%
Adjusted operating margin(1) 17.5% 17.3% +20bps
Adjusted profit before
tax(1),(2) 45.5 40.4 +13%
Statutory operating profit 40.1 35.7 +12%
Statutory profit before
tax 40.1 35.4 +13%
Free cash flow(3) 14.0 17.7 -21%
Adjusted earnings per
share(1),(2) 30.5p 26.7p +14%
Basic earnings per share 26.4p 23.0p +15%
Interim dividend per
share 8.5p 7.7p +10%
(1) Before acquisition related charges and previous
Chief Executive Officer transition costs.
(2) Before fair value remeasurements.
(3) Before cash payments on acquisitions and dividends.
Good first half performance across all three Sectors
-- Underlying revenue up 6%, with currency movements adding 1% and acquisitions contributing 4%
-- Adjusted operating margin up 20bps to 17.5%
-- Strong adjusted EPS and dividend growth
Strong trading and operating leverage in Life Sciences
-- Underlying revenues up 5% with good performance across Healthcare businesses
-- Adjusted operating profit up 11% and tight cost management
Further progress in Seals led by strong growth in International
Seals
-- Underlying revenues up 4% despite short-term challenges in North America
-- Adjusted operating profit flat as recent investments offset operating leverage
Excellent performance in Controls
-- Strong underlying revenue growth of 9% with some Brexit
related customer stock building in H1
-- Adjusted operating profit up 31% including good contribution from acquisitions
Strong balance sheet and cash generation
-- Cash funds of GBP22.0m at end of March 2019 and robust balance sheet
-- Free cash flow of GBP14.0m after strategic investment in working capital in H1
Outlook
-- Some early signs of slower activity in the Industrial Seals markets
-- Optimistic about acquisition pipeline although opportunities remain very competitive
-- On track to meet our full year revenue and operating profit expectations
Commenting on the results, Johnny Thomson, Diploma's Chief
Executive Officer said:
"Diploma has delivered another good performance in line with our
expectations. Despite macroeconomic uncertainties, the Group
remains on track to deliver good growth in revenues with modest
margin progression for the full year.
Acquisitions remain an integral part of the Group's growth
strategy and although opportunities are very competitive, we remain
optimistic about acquiring some quality businesses as the year
progresses.
Having visited our businesses in the last few months, I continue
to be impressed by the quality of our teams and their commitment to
excellent customer service. I feel confident that the Group will
deliver another strong financial performance this year and continue
its excellent track record of shareholder value creation."
Note:
1. Diploma PLC uses alternative performance measures as key
financial indicators to assess the underlying performance of the
Group. These include adjusted operating profit, adjusted profit
before tax, adjusted earnings per share, free cash flow and ROATCE.
All references in this Announcement to "underlying" revenues or
operating profits refer to reported results on a constant currency
basis and before any contribution from acquired or disposed
businesses. The narrative in this Announcement is based on these
alternative measures and an explanation is set out in note 2 to the
consolidated financial statements in this Announcement.
2. Certain statements contained in this Announcement constitute forward-looking statements. Such forward-looking statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of Diploma PLC, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such statements. Such risks, uncertainties and other factors include, among others, exchange rates, general economic conditions and the business environment.
There will be a presentation of the results to analysts and
investors at 9.00am this morning at Pewterers' Hall, Oat Lane, City
of London, EC2V 7DE. This presentation will be broadcast live via
webcast at
https://www.diplomaplc.com/investors/financial-presentations. A
replay of the webcast will be available after the event.
For further information please contact:
Diploma PLC - +44 (0)20 7549 5700
Johnny Thomson, Chief Executive Officer
Nigel Lingwood, Group Finance Director
Tulchan Communications - +44 (0)20 7353 4200
Martin Robinson
Guy Bates
NOTE TO EDITORS:
Diploma PLC is an international group of businesses supplying
specialised technical products and services to the Life Sciences,
Seals and Controls industries.
Diploma's businesses are focussed on supplying essential
products and services which are funded by the customers' operating
rather than their capital budgets, providing recurring income and
stable revenue growth.
Our businesses then design their individual business models to
closely meet the requirements of their customers, offering a blend
of high quality customer service, deep technical support and value
adding activities. By supplying essential solutions, not just
products, we build strong long term relationships with our
customers and suppliers, which support attractive and sustainable
margins.
Finally we encourage an entrepreneurial culture in our
businesses through our decentralised management structure. We want
our managers to feel that they have the freedom to run their own
businesses, while being able to draw on the support and resources
of a larger group. These essential values ensure that decisions are
made close to the customer and that the businesses are agile and
responsive to changes in the market and the competitive
environment.
The Group employs ca. 1,800 employees and its principal
operating businesses are located in the UK, Northern Europe, North
America and Australia.
Over the last ten years, the Group has grown adjusted earnings
per share at an average of ca. 13% p.a. through a combination of
organic growth and acquisitions. Diploma is a member of the FTSE
250 with a market capitalisation of ca. GBP1.7bn.
Further information on Diploma PLC can be found at
www.diplomaplc.com
LEI: 2138008OG17VYG8FGR19
HALF YEAR REVIEW TO 31 MARCH 2019
Group revenues benefitted from robust trading across all Sectors
in the six months ended 31 March 2019 and increased by 11% over the
prior year comparable period, with a 1% currency tailwind from a
modest weakening of UK sterling against most major currencies. At
constant exchange rates, Group revenues increased by 10% with
acquisitions, net of disposals, contributing 4% and good underlying
growth of 6%.
In the Life Sciences Sector, reported and underlying revenues
increased by 5% over the comparable period, benefitting from
increased development in the product portfolio across all of the
businesses. The Canadian Surgical and Endoscopy businesses and the
Clinical Diagnostic business in Australia made particularly strong
contributions to revenues. In the Seals Sector, reported revenues
increased by 3%, up 4% on an underlying basis, driven by strong
trading in the International Seals businesses where underlying
revenues increased by 9% against the comparable period last year.
Revenues in the North American Seals business were unchanged from
last year having been impacted by an unusually large influx of new
heavy mobile machine equipment into the US Aftermarket and by
operational difficulties in the implementation of a new ERP system
in the Industrial OEM businesses. The impact of both these factors
is now easing and revenue growth is expected in the second half of
the year, despite some early signs of slower activity in the
Industrial Seals markets. In the Controls Sector, reported revenues
increased strongly by 27% over the comparable period with good
incremental contribution from the businesses acquired during the
last twelve months. On an underlying basis revenue increased by 9%
with a strong contribution from both the Interconnect businesses
and the Clarendon Specialty Fasteners business, with evidence of
some Brexit related inventory building by European customers.
Adjusted operating margins at 17.5% remained in line with the
full 2018 financial year and were 20bps ahead of the comparable
period. A combination of a small improvement in the gross margin
and stronger operating leverage from the increase in revenues
contributed to the improvement.
Free cash flow reduced by 21% to GBP14.0m (2018: GBP17.7m) in
the first half of the year following strategic investment in
working capital.
Diploma has a robust balance sheet and a proven track record of
strong cash generation which the Group seeks to reinvest in both
organic growth and acquiring new businesses to accelerate growth.
The acquisition pipeline has strengthened and is encouraging,
although opportunities remain very competitive.
RESULTS AND DIVIDS
In the six months ended 31 March 2019, Group revenues increased
by 11% to GBP260.4m (2018: GBP234.9m). Adjusted operating profit
increased by 12% to GBP45.6m (2018: GBP40.6m) and adjusted
operating margins improved to 17.5% (2018: 17.3%). Statutory
operating profit also increased by 12% to GBP40.1m. After adjusting
for the incremental contribution from acquisitions and for
translational currency effects, underlying revenues increased by
6%.
Adjusted profit before tax increased by 13% to GBP45.5m (2018:
GBP40.4m) and adjusted earnings per share ("EPS") increased by 14%
to 30.5p (2018: 26.7p) reflecting a full half year benefit to
earnings from last year's reduction in the US Federal corporate
income tax rate. On a statutory basis, profit before tax was
GBP40.1m (2018: GBP35.4m) and basic earnings per share were 26.4p
(2018: 23.0p).
The cash flow from operations in the period decreased to
GBP30.1m (2018: GBP31.9m) after a large investment in working
capital of GBP16.9m (2018: GBP11.2m) which included ca. GBP5m of a
strategic build in inventories as a contingency against both Brexit
uncertainty and specific customer/product requirements. The Group's
free cash flow for the period decreased by GBP3.7m to GBP14.0m
(2018: GBP17.7m) reflecting the higher investment in working
capital and GBP2.9m (2018: GBP2.2m) to fund the Group's incentive
programmes. At 31 March 2019, the Group had cash funds of
GBP22.0m.
The Group continues to follow a progressive dividend policy,
which targets dividend cover towards two times on an adjusted EPS
basis. The Directors have declared an increased interim dividend up
10% to 8.5p per share (2018: 7.7p), reflecting the Board's
confidence in the Group's growth prospects. The dividend will be
payable on 12 June 2019 to shareholders on the register on 24 May
2019.
OPERATING REVIEW
Life Sciences
The Life Sciences businesses are suppliers of consumables,
instrumentation and related services to the healthcare and
environmental industries.
Half Year
2019 2018
--------------------------- --------- ---------- -----
Revenue GBP71.1m GBP67.4m +5%
Adjusted operating profit GBP13.0m GBP11.7m +11%
Adjusted operating margin 18.3% 17.4%
--------------------------- --------- ---------- -----
Life Sciences Sector revenues increased by 5% on both a reported
and an underlying basis. Adjusted operating margins increased by
90bps to 18.3%, reflecting a combination of a favourable sales mix
providing a stronger gross margin, as well as the benefit of
operating leverage from stronger revenues and tight operating cost
management across the Healthcare businesses.
The DHG group of Healthcare businesses represented 85% of the
Sector revenues, reported underlying revenue growth of 6% over the
prior year comparable period.
In Canada, the Healthcare businesses reported underlying
revenues up 9% over the comparable period reflecting the benefit
from increased development in the product portfolio across all of
the businesses. Revenue growth was led by good capital sales in AMT
and Vantage, the Surgical and Gastrointestinal Endoscopy businesses
and from the placement of endoscopy equipment on a CPP basis,
having won a tender from a large new regional customer group.
Growth of specialised, niche, consumable products across the
Surgical, Clinical Diagnostics and Gastrointestinal segments,
contributed ca. 7% growth in underlying revenues compared with the
prior year period. Somagen, the Clinical Diagnostics business
reported another solid increase in consumable revenues and received
confirmation of an award to provide new cancer screening programmes
that will drive incremental consumable revenues in the second half
of the year.
In Australia, underlying revenues grew by 8%, driven by AbacusDx
which again achieved a double-digit increase in revenues from
gaining an increase in its market share in test menus and volumes
across the Clinical Diagnostics business, both in private and
public pathology customer labs. A new five-year contract was also
secured in the first half with one of AbacusDx's largest private
pathology customers. In addition to an already robust product
portfolio, AbacusDx continues to qualify and add new value-add
niche suppliers to its Clinical Diagnostics and Life Sciences
portfolios. The BGS surgical business revenues were down slightly
on the comparable period as the business continues to rebuild its
product portfolio after the loss of a key supplier last year. The
outlook for BGS's key smoke evacuation business remains positive as
evaluations continue to progress towards contracts. BGS is also in
active discussions with several new suppliers to broaden its
specialty Surgical portfolio.
The TPD business in Ireland and the UK saw revenues reduce
against a strong prior year comparable period following the
decision by two key suppliers last year to go direct to market in
the Interventional Cardiology and Digestive Health segments of the
Medical business. Strong capital and related service revenues,
particularly in the Blood Transfusion and Biotech segments has
filled some of the revenue lost, as well as good consumable revenue
growth in the Clinical Controls segment. TPD continues to pursue
new value-add niche suppliers to expand their Medical, Clinical and
Biotech product portfolios.
The Environmental a1-group of businesses increased underlying
revenues by 1% over the prior year comparable period. This
reflected a combination of projects delayed to the second half of
the year, together with the impact in the shorter term from changes
to UK emission legislation delaying the commencement of new
projects in Continuing Emission Monitoring Systems ("CEMS"). In the
UK, the medium term demand for CEMS remains robust, as
Energy-from-Waste and Biomass continues to be a key part of the
UK's strategy to manage municipal waste. Revenues generated from
the Service segment in both businesses remained strong with
revenues growing 5% over the prior year comparable period and
contributing 33% of total revenues. In Germany, the demand for
elemental analysis remains robust across the business and provides
a strong current order backlog.
Seals
The Seals businesses are suppliers of seals, gaskets, filters,
cylinders, components and kits for heavy mobile machinery and
specialised industrial equipment.
Half Year
2019 2018
--------------------------- ---------- ----------- ----
Revenue GBP102.4m GBP99.2m +3%
Adjusted operating profit GBP17.1m GBP17.1m -
Adjusted operating margin 16.7% 17.2%
--------------------------- ---------- ----------- ----
Reported revenues increased by 3% over the prior comparable
period. Underlying revenues increased by 4%, after adjusting for
the disposal of the US Bulldog business in June 2018 and for
currency movements on translation of results to UK sterling.
Adjusted operating margins reduced by 50bps to 16.7%, reflecting
the absence of operating leverage following investment last year to
strengthen management and incremental revenue spend this year on
both new and ongoing ERP projects. Gross margins improved overall
with price increases in the North American Seals Aftermarket
leading to stronger gross margins, although these were partly
offset by slightly weaker gross margins in International Seals.
The North American Seals businesses, which accounted for 60% of
Sector revenues, reported underlying revenues unchanged from a
strong comparative in the last Half Year, after adjusting for the
impact from the disposal of the small Bulldog business.
The HFPG domestic Aftermarket businesses reported underlying
revenues up 1% against the comparable period last year, despite
generally strong construction and infrastructure markets continuing
through the period. The core domestic Hercules US repair business
was impacted by an unusually high influx of new heavy mobile
equipment (under warranty) being delivered to the market over the
past year and replacing older machines which have been sold into
developing markets. The impact on revenues from this dynamic,
together with users pushing existing equipment to total failure has
led to a reduced supply of heavy mobile equipment requiring repair.
This strong demand for new heavy mobile equipment in the US market
has also impacted the HKX kit attachment business where trading
activity has reduced in this Half Year due to the lack of supply of
new equipment into the dealer network. As this new equipment begins
to move out of warranty and deliveries to the dealer network
improve, it is expected that Aftermarket revenues in the domestic
US market will strengthen.
Customer acceptance of the E-commerce platform continued to
expand and this channel now accounts for 27% of Hercules US
revenues. Growth was also achieved in the agricultural machine
repair market and demand increased for machined seals ("seals on
demand"). Good progress was also achieved on Project Cardinal,
which is a US$10m project to provide a major second warehouse
facility for the US Aftermarket business, with the signing of a 15
year lease on a warehouse based in Kentucky. Project activity will
increase in the second half of this year with the objective of it
becoming operational later in the next financial year. The
additional new warehouse will significantly increase capacity and
the ability to provide a next day service to expanded territories
in the US.
In Canada, Hercules underlying revenues grew strongly
benefitting from solid activity across Repair and Cylinder
Manufacturers OEM sectors, where new business has been gained over
the past year. In markets outside of North America, Hercules export
revenues grew 2% with strength in the Mexican and South American
markets being offset by unstable markets in Central America.
The HFPG Industrial OEM businesses reported revenues unchanged
from the comparable period last year reflecting weak revenues in
the first quarter caused by delays in the delivery of orders to
customers. This followed the implementation of a new ERP system in
October 2018 which replaced several disparate legacy IT systems
across the Industrial OEM businesses. Revenues increased by 6% in
the second quarter over the comparable period as technical issues
around the new ERP system were identified and resolved. Work
continues on improving the efficiency and functionality of the ERP
system which, when completed, will allow delivery of a significant
amount of back orders in the second half of the year. Commercially
the business has continued to gain new projects which focus on
leveraging specialty compounds and value-add services across an
established and growing customer base. Towards the end of the six
month period, there were some early signs of slower trading
activity in Industrial OEM businesses.
The International Seals businesses, which accounted for 40% of
Sector revenues, reported a 9% increase in underlying revenues,
after adjusting for a small impact from the disposal of the Bulldog
business and for currency movements.
FPE Seals and M Seals, with their principal operations in the
UK, Scandinavia and the Netherlands, together delivered underlying
growth of 7% on a constant currency basis and after adjustment for
the disposal of the Bulldog business. The FPE Seals business
delivered double-digit growth against a weak prior comparable
period, benefitting from the continuing improvement in the Oil
& Gas market. FPE Seals also achieved good growth in its core
UK Aftermarket hydraulic seals and cylinder part business and
benefitted from further growth with its export customers. M Seals
delivered good growth in revenues in both Scandinavia and the UK.
In Scandinavia, a 4% increase in revenues was achieved from a
strong performance in Denmark driven by new project activity, while
revenues in Sweden remain unchanged against a strong comparable
period last year. M Seals in the UK has also benefitted from the
stronger Oil & Gas market with robust growth from established
customers.
Kubo increased underlying revenues by 6%, benefitting from a new
distribution supply agreement expanding the customer base and
product range in Switzerland and also from a new customer contract
in Austria, initiated in the second half of 2018. Market growth in
Switzerland weakened in the second quarter of the financial year,
as customers looked to reduce inventories against the background of
weaker local demand and a stronger Swiss Franc relative to the
Euro.
The Kentek business increased revenues by 1% in Euro terms,
despite very competitive trading conditions in both Finland and
Russia. The Kentek business in Russia, which accounts for 65% of
Kentek's revenues, saw revenues increase by 2% in Euro terms
supported by stronger global Oil & Gas markets and growth with
Industrial customers. In Finland, Kentek revenues reduced by 3% as
sales to end-users and other distributors were lost to
competitors.
WCIS reported strong double-digit underlying growth in both
Australia and New Caledonia, against a weak comparative. The
strengthened management team has focussed on its core products and
service capabilities and successfully broadened the sales coverage
into complementary markets, adjacent to its historic Mining focus.
WCIS plan to leverage the Diploma Seals supply chain to extend its
product offering in Australia, Asia and Pacific region.
Controls
The Controls businesses are suppliers of specialised wiring,
cable, connectors, fasteners and control devices for technically
demanding applications.
Half Year
2019 2018
--------------------------- --------- ----------- -----
Revenue GBP86.9m GBP68.3m +27%
Adjusted operating profit GBP15.5m GBP11.8m +31%
Adjusted operating margin 17.8% 17.3%
--------------------------- --------- ----------- -----
Reported revenues increased by 27% against the prior year
comparable period, with the acquisitions last year of Clarendon
Specialty Fasteners Inc (formerly, Coast Fabrication), FS Cables
and also Gremtek in October 2018 contributing 17% to Sector
revenues. On an underlying basis, revenues increased by 9%, after
adjusting for the incremental revenue from these acquisitions and
negligible currency movements.
Adjusted operating margins increased by 50bps to 17.8%, driven
largely by operating leverage from stronger revenues, but also
closer attention to strengthen gross margins, which more than
offset the impact of acquired businesses that joined the Sector
with lower operating margins.
The Interconnect businesses accounted for 64% of Sector
revenues. These businesses supply high performance wiring, cable,
harness components and connectors, used in technically demanding
applications, often in harsh environments. Interconnect underlying
revenues increased in the Half Year by 7%, with strong growth from
the IS-Group and Filcon.
The IS-Group delivered underlying growth of 10% with both the UK
and German businesses performing strongly, albeit aided by some
Brexit related stock build by customers based both in the UK and in
Continental Europe. The UK business has continued to benefit from
initiatives to broaden its European customer base with further
penetration of cable harness houses and development of its network
of European sub-distributors, as well as an increase in sales to
the UK Oil & Gas industry where products are supplied for
subsea applications. The IS-Group's German business, IS-Sommer, has
performed strongly across all market segments and in particular in
the Defence and Industrial markets.
In October 2018, the IS-Group acquired Gremtek, a long
established and leading supplier of own branded protective sleeving
and cable identification products based in Paris, France. Gremtek
is in the process of being fully integrated into the IS-Group to
support the strategy of developing a broader Interconnect business
across Europe and has performed in line with expectations since
acquisition.
Filcon saw revenues increase by 14%, against a very weak
comparative, with strong demand from Military Aerospace customers
indicating that pressure to increase German military spending maybe
beginning to have a positive impact on activity in this sector.
After a subdued 18-month period in the German Motorsport segment,
Filcon's sales into the Motorsport sector increased strongly with
investment by the major German car manufacturers in Formula E,
leading to increased demand for connectors.
Cablecraft revenues were broadly unchanged on last year as
spending on projects in the UK Rail industry was postponed because
of the overspend by Network Rail during the five year funding
period which ended on 31 March 2019. The new funding period which
started on 1 April 2019 should boost trading activity in the
sector, as new UK rail projects are commenced. The shortfall in
Rail industry revenues was offset by increased revenues to
wholesaler and panel builder customers. In May 2019, Cablecraft
launched an enhanced E-commerce website which, together with a
refresh of its branding, is targeted at enhancing the customers'
overall purchasing experience.
In August 2018, FS Cables, an established and leading supplier
of specialist cable products, was acquired. The business has
performed in line with expectations with strong Export sales in the
first half of this year, offsetting slightly subdued domestic sales
against the backdrop of a softening in the UK Construction
market.
The Clarendon Specialty Fasteners business accounted for 20% of
Sector revenues. This business supplies specialty aerospace-quality
fasteners to the Civil Aerospace, Motorsport and Industrial &
Defence markets. Clarendon continues to perform very strongly and
increased underlying revenues by 17%. Clarendon has developed
strong relationships in recent years with many of the aircraft
seating and cabin interior manufacturers and their sub-contractors,
with its high levels of service and responsiveness. These
relationships have enabled Clarendon to be chosen as the primary
supplier for new tranches of work as these customers increase
capacity to meet the demand in the buoyant Aerospace market.
Clarendon's recently acquired US operation has enjoyed success in
targeting aircraft cabin interior customers in North America.
The Hawco Group of Fluid Controls businesses accounted for 16%
of Sector revenues and supplies temperature, pressure and fluid
control products, with a high proportion of its products being
supplied to the Food and Beverage industry. Hawco Group revenues
increased by 3% against the prior year comparable period, with
strong trading in its OEM Refrigeration sector. The Refrigeration
sector has benefitted from the continued demand for home food
delivery and from an increase in sales to one of its key OEM
customers that has been successful in winning large orders in North
America. Abbeychart revenues were flat, with increased revenues in
the soft drink dispensing and coffee machine operator markets
offsetting weaker sales to coffee equipment manufacturers.
FINANCE
Free cash flow
The Group generated free cash flow of GBP14.0m (2018: GBP17.7m)
during the Half Year, after GBP16.9m (2018: GBP11.2m) of cash was
invested in working capital and GBP2.9m (2018: GBP2.2m) of funding
was provided to the Company's Employee Benefit Trust. A further
GBP1.3m was spent in connection with the settlement agreement with
the previous Chief Executive Officer who left the Company on 28
August 2018.
Operating cash flow decreased by GBP1.8m to GBP30.1m (2018:
GBP31.9m) largely as a result of the increase in working capital
which was GBP5.7m more than was invested in the first half of last
year. The majority of this increase in working capital was driven
by an investment of GBP14.9m in inventories of which ca. GBP5m
comprised strategic inventory build designed either to mitigate
disruption to trading from a "no-deal" Brexit or to meet specific
customer/product requirements. A further ca. GBP2m of incremental
value was also added to inventory in this half year in the North
American Seals businesses to account for the impact of US tariffs
and for a large consignment of inventory in transit which had been
significantly delayed by snow storms during March.
The substantial increase in working capital led to an increase
in the Group's metric of working capital to revenue to 17.0% at 31
March 2019 (2018: 15.8%), from 15.1% at 30 September 2018.
It is expected that much of the strategic stock build will
unwind in the second half of the year, on top of the seasonal
reduction in working capital which will also be consistent with
historical trends.
Tax payments in the first half of the year remain similar to
last year at GBP9.6m (2018: GBP9.7m). On an underlying basis, the
cash tax rate decreased to 21% (2018: 24%) in part reflecting the
impact from the full half year effect of the reduction in the US
Federal corporate income tax rate from 1 January 2018 and in part
the phasing of Australian tax payments between the first and second
half of the year. The Group also funded the Company's Employee
Benefit Trust with GBP2.9m (2018: GBP2.2m) in connection with the
Company's long term incentive plan.
Capital expenditure increased by GBP1.2m against the comparable
period last year to GBP3.5m in the six month period ended 31 March
2019. In Life Sciences, GBP1.4m was spent on acquiring new field
equipment for placement in hospitals and diagnostic laboratories
and a further GBP0.3m was spent on improvements to the IT and
facility infrastructure. In Seals, GBP0.6m was invested on new ERP
projects in both the UK and Swiss Seals businesses and on
completing the ERP project in the Industrial OEM businesses in
North America. A further GBP0.4m was spent on new tooling equipment
in the Seals businesses. In Controls the majority of the
expenditure related to completing the refurbishment and expansion
of the Sommer facility in Stuttgart, Germany. The total project
cost is expected to be in line with budget at GBP1.8m and the
facility will shortly be sold and leased back to the business.
Cash Funds
At 31 March 2019, the Group's cash funds had decreased by
GBP14.0m to GBP22.0m compared with cash of GBP36.0m at 30 September
2018. During the Half Year, GBP7.5m (2018: GBP3.3m) was spent on
acquisitions and GBP20.5m (2018: GBP18.3m) was paid in dividends to
ordinary and minority shareholders.
Acquisition expenditure of GBP7.5m comprised GBP6.4m on
acquiring Gremtek, a supplier of own branded protective sleeving
and cable identification products based in France and GBP1.1m of
deferred consideration relating to acquisitions completed last
year.
At 31 March 2019, the Group retained a committed multi-currency
revolving bank facility for GBP30m, the term of which has now been
extended by a further two years to June 2022; an option exists to
increase the committed facility by GBP30m to GBP60m. Based on
current financial projections and after considering sensitivities,
the Directors are confident that the Group has sufficient resources
to fund its operations for the foreseeable future and execute
acquisition opportunities. The consolidated financial statements
have therefore been prepared on a going concern basis.
Exchange rates
A significant proportion of the Group's revenues (ca. 70%) are
derived from businesses located outside the UK, principally in the
US, Canada, Australia and Northern Europe. In the first half of the
financial year, UK sterling weakened slightly against the major
currencies (except the Euro and Australian dollar) in which the
Group operates, compared with the same period last year. The impact
on the Group's results from translating the results of the Group's
overseas businesses into UK sterling has led to an increase in
Group revenues and Group adjusted operating profit by GBP2.9m and
GBP0.6m respectively, compared with the same period last year.
On a transactional currency basis, the impact on the UK
businesses adjusted operating profits from currency movements has
been limited with the impact of a slightly weaker UK sterling,
generally being mitigated by the utilisation of hedges taken out
last year.
The margins in the Healthcare businesses (which account for ca.
25% of Group revenues) are impacted by movements in the Canadian
and Australian dollars, relative to the currencies in which the
Healthcare businesses purchase their products, primarily US dollars
and Euros. During the first half of the year the exchange rates of
both the Canadian and Australian dollars have generally been
slightly weaker against the US dollar and the Euro. The overall
impact on Healthcare gross margins from movements in these exchange
rates has been a ca. 50bps reduction in the first half of the year,
after taking account of existing hedges and movements in spot
currency exchange rates.
The Group continues with its policy of mitigating transactional
currency exposures across all of the Group's businesses by
purchasing currency hedging contracts to meet up to 80% of its
currency commitments for periods up to 18 months, where it is
considered appropriate.
RISKS AND UNCERTAINTIES
The principal risks and uncertainties which may have the largest
impact on performance in the second half of the year are the same
as those described in detail in pages 30-33 of the 2018 Annual
Report & Accounts. In summary these are:
-- Strategic risks - downturn/instability in major markets,
supplier concentration/loss of key suppliers and customer
concentration/loss of key customers;
-- Operational risks - cybersecurity/information
technology/business interruption, loss of key personnel and product
liability;
-- Financial risks - foreign currency, transactional and translation; and
-- Accounting risk - inventory obsolescence.
The Directors consider that the principal risks and
uncertainties have not changed since publication of the 2018 Annual
Report & Accounts and that they remain relevant for the second
half of the financial year.
The potential impact on the Group from the UK's decision to
leave the European Union ("Brexit") was set out on page 29 of the
2018 Annual Report & Accounts. This assessment remains
unchanged at the date of this Report, despite the current
uncertainty regarding the eventual Brexit date. As indicated in the
2018 Annual Report & Accounts and confirmed above, the Group's
UK businesses have now increased their depth of the faster moving
lines of inventory to mitigate the impact from a significant
disruption in cross border trade between the UK and Continental
Europe. The Directors continue to believe that Brexit will not
materially impact the Group's outlook or viability.
OUTLOOK
Diploma has delivered another good performance in line with our
expectations. Despite macroeconomic uncertainties, the Group
remains on track to deliver good growth in revenues with modest
margin progression for the full year.
Acquisitions remain an integral part of the Group's growth
strategy and although opportunities are very competitive, we remain
optimistic about acquiring some quality businesses as the year
progresses.
This background, combined with a proven business model, strong
balance sheet and cash generation, provides the Board with
confidence that the Group will deliver another strong financial
performance this year and continue its excellent track record of
shareholder value creation.
J Thomson
Chief Executive Officer
13 May 2019
Responsibility Statement of the Directors in respect of the Half
Year Report 2019
We confirm that to the best of our knowledge:
-- the condensed set of consolidated financial statements has
been prepared in accordance with IAS 34 "Interim Financial
Reporting" as adopted by the EU; and
-- the Half Year Report includes a fair review of the information required by:
a) DTR4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of the important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of consolidated financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
b) DTR4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last Annual Report & Accounts that could do
so.
The Directors of Diploma PLC and their respective
responsibilities are listed in the Annual Report & Accounts for
2018 and on the Company's website at www.diplomaplc.com. Johnny
Thomson was appointed to the Board as Chief Executive Officer on 25
February 2019.
By Order of the Board
J Thomson NP Lingwood
Chief Executive Officer Group Finance Director
13 May 2019 13 May 2019
Condensed Consolidated Income Statement
For the six months ended 31 March 2019
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2019 2018 2018
Note GBPm GBPm GBPm
------------------------------- -------- ---------- ---------- --------
Revenue 3 260.4 234.9 485.1
Cost of sales (166.7) (151.5) (312.2)
--------------------------------- ------- ---------- ---------- --------
Gross profit 93.7 83.4 172.9
Distribution costs (6.4) (5.4) (10.8)
Administration costs (47.2) (42.3) (88.9)
--------------------------------- ------- ---------- ---------- --------
Operating profit 3 40.1 35.7 73.2
Financial expense, net 4 - (0.3) (0.5)
Profit before tax 40.1 35.4 72.7
Tax expense 5 (9.9) (9.1) (18.3)
--------------------------------- ------- ---------- ---------- --------
Profit for the period 30.2 26.3 54.4
--------------------------------- ------- ---------- ---------- --------
Attributable to:
Shareholders of the Company 29.9 26.0 53.8
Minority interests 0.3 0.3 0.6
--------------------------------- ------- ---------- ---------- --------
30.2 26.3 54.4
------------------------------- ------- ---------- ---------- --------
Earnings per share
Basic and diluted earnings 6 26.4p 23.0p 47.5p
--------------------------------- ------- ---------- ---------- --------
Alternative Performance Measures 31 March 31 March 30 Sept
(note 2) 2019 2018 2018
Note GBPm GBPm GBPm
--------------------------------------- ---------- --------- --------- --------
Operating profit 40.1 35.7 73.2
Add: Acquisition related charges 9 5.5 4.7 9.6
Add: Previous Chief Executive Officer
transition costs - 0.2 2.1
Adjusted operating profit 3 45.6 40.6 84.9
Deduct: Interest expense 4 (0.1) (0.2) (0.1)
---------------------------------------- ---- ---- --------- --------- --------
Adjusted profit before tax 45.5 40.4 84.8
---------------------------------------- ---- ---- --------- --------- --------
Adjusted earnings per share 6 30.5p 26.7p 56.4p
---------------------------------------- ---- ---- --------- --------- --------
Condensed Consolidated Statement of Income and Other
Comprehensive Income
For the six months ended 31 March 2019
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2019 2018 2018
GBPm GBPm GBPm
---------------------------------------------------- --------------- ---------- ---------
Profit for the period 30.2 26.3 54.4
----------------------------------------------------- --------------- ---------- ---------
Items that will not be reclassified to
the Consolidated Income Statement
Actuarial losses in the defined benefit
pension scheme - - (1.0)
Deferred tax on items that will not be
reclassified - - 0.2
----------------------------------------------------- --------------- ---------- ---------
- - (0.8)
----------------------------------------------------- --------------- ---------- ---------
Items that may be reclassified to the Consolidated
Income Statement
Exchange rate (losses)/gains on foreign
currency net investments (4.2) (9.6) 0.1
Minority interests share of foreign (0.1) - -
exchange losses
(Losses)/gains on fair value of cash
flow hedges (0.1) 1.1 0.7
Net changes to fair value of cash flow
hedges transferred to the Consolidated
Income Statement - - 0.9
Deferred tax on items that may be reclassified - (0.3) (0.4)
------------------------------------------------------ --------------- ---------- ---------
(4.4) (8.8) 1.3
---------------------------------------------------- --------------- ---------- ---------
Total Comprehensive Income for the period 25.8 17.5 54.9
----------------------------------------------------- --------------- ---------- ---------
Attributable to:
Shareholders of the Company 25.6 17.2 54.2
Minority interests 0.2 0.3 0.7
------------------------------------------------------ --------------- ---------- ---------
25.8 17.5 54.9
---------------------------------------------------- --------------- ---------- ---------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 March 2019
Share
Share Transl. Hedging Retained -holders' Minority Total
capital reserve reserve earnings equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ---------- ---------- ----------- ----------- ------------ ---------
At 1 October 2017 (audited) 5.7 29.7 (0.7) 227.3 262.0 4.8 266.8
Total comprehensive income - (9.6) 0.8 26.0 17.2 0.3 17.5
Share-based payments - - - 0.4 0.4 - 0.4
Minority interests acquired - - - 2.5 2.5 (2.5) -
Minority interest
contribution - - - - - 0.3 0.3
Tax on items recognised
directly in equity - - - - - - -
Notional purchase of
own shares - - - (2.2) (2.2) - (2.2)
Dividends - - - (18.1) (18.1) (0.2) (18.3)
----------------------------- ---------- ---------- ---------- ----------- ----------- ------------ ---------
At 31 March 2018 (unaudited) 5.7 20.1 0.1 235.9 261.8 2.7 264.5
Total comprehensive income - 9.7 0.4 26.9 37.0 0.4 37.4
Share-based payments - - - 0.6 0.6 - 0.6
Tax on items recognised
directly in equity - - - 0.5 0.5 - 0.5
Notional purchase of
own shares - - - - - - -
Dividends - - - (8.7) (8.7) - (8.7)
----------------------------- ---------- ---------- ---------- ----------- ----------- ------------ ---------
At 30 September 2018
(audited) 5.7 29.8 0.5 255.2 291.2 3.1 294.3
Total comprehensive income - (4.2) (0.1) 29.9 25.6 0.2 25.8
Share-based payments - - - 0.4 0.4 - 0.4
Tax on items recognised
directly in equity - - - - - - -
Notional purchase of
own shares - - - (2.9) (2.9) - (2.9)
Dividends - - - (20.2) (20.2) (0.3) (20.5)
At 31 March 2019 (unaudited) 5.7 25.6 0.4 262.4 294.1 3.0 297.1
----------------------------- ---------- ---------- ---------- ----------- ----------- ------------ ---------
Condensed Consolidated Statement of Financial Position
As at 31 March 2019
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2019 2018 2018
Note GBPm GBPm GBPm
--------------------------------------- ------ ---------- ---------- ---------
Non-current assets
Goodwill 9 128.3 118.2 128.5
Acquisition intangible assets 9 50.9 48.4 53.6
Other intangible assets 2.3 1.1 1.8
Investment 0.7 0.7 0.7
Property, plant and equipment 22.9 21.2 23.0
Deferred tax assets 0.5 0.2 0.3
----------------------------------------- ----- ---------- ---------- ---------
205.6 189.8 207.9
--------------------------------------- ----- ---------- ---------- ---------
Current assets
Inventories 98.4 79.1 82.9
Trade and other receivables 85.2 72.0 77.6
Cash and cash equivalents 8 22.0 19.7 36.0
----------------------------------------- ----- ---------- ---------- ---------
205.6 170.8 196.5
--------------------------------------- ----- ---------- ---------- ---------
Current liabilities
Trade and other payables (84.7) (68.1) (80.5)
Current tax liabilities (6.0) (4.3) (4.8)
Other liabilities 11 (4.6) (4.7) (5.6)
Borrowings 8 - (2.0) -
(95.3) (79.1) (90.9)
--------------------------------------- ----- ---------- ---------- ---------
Net current assets 110.3 91.7 105.6
----------------------------------------- ----- ---------- ---------- ---------
Total assets less current liabilities 315.9 281.5 313.5
Non-current liabilities
Retirement benefit obligations (10.3) (9.5) (10.5)
Deferred tax liabilities (8.5) (7.5) (8.7)
----------------------------------------- ----- ---------- ---------- ---------
Net assets 297.1 264.5 294.3
----------------------------------------- ----- ---------- ---------- ---------
Equity
Share capital 5.7 5.7 5.7
Translation reserve 25.6 20.1 29.8
Hedging reserve 0.4 0.1 0.5
Retained earnings 262.4 235.9 255.2
----------------------------------------- ----- ---------- ---------- ---------
Total shareholders' equity 294.1 261.8 291.2
Minority interests 3.0 2.7 3.1
----------------------------------------- ----- ---------- ---------- ---------
Total equity 297.1 264.5 294.3
----------------------------------------- ----- ---------- ---------- ---------
Condensed Consolidated Cash Flow Statement
For the six months ended 31 March 2019
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2019 2018 2018
Note GBPm GBPm GBPm
--------------------------------------------------- ---------- ---------- ---------
Operating profit 40.1 35.7 73.2
Acquisition related charges 7 5.5 4.7 9.6
Previous CEO transition costs, (paid)/unpaid 7 (1.3) 0.2 1.3
Non-cash items 7 2.7 2.5 5.3
Increase in working capital 7 (16.9) (11.2) (5.1)
----------------------------------------------- --- ---------- ---------- ---------
Cash flow from operating activities 30.1 31.9 84.3
Interest paid, net (0.1) - -
Tax paid (9.6) (9.7) (19.0)
----------------------------------------------- --- ---------- ---------- ---------
Net cash from operating activities 20.4 22.2 65.3
----------------------------------------------- --- ---------- ---------- ---------
Cash flow from investing activities
Acquisition of businesses (including
expenses) 10 (6.4) (1.2) (18.1)
Deferred consideration paid 11 (1.1) (0.1) (0.3)
Proceeds for sale of business (net
of expenses) - - 4.0
Purchase of property, plant and
equipment (2.9) (1.8) (5.3)
Purchase of other intangible assets (0.6) (0.5) (1.3)
Net cash used in investing activities (11.0) (3.6) (21.0)
----------------------------------------------- --- ---------- ---------- ---------
Cash flow from financing activities
Acquisition of minority interests 11 - (2.0) (2.0)
Dividends paid to shareholders 12 (20.2) (18.1) (26.8)
Dividends paid to minority interests (0.3) (0.2) (0.2)
Purchase of own shares by Employee
Benefit Trust (1.2) (1.2) (1.2)
Notional purchase of own shares
on exercise of share options (1.7) (1.0) (1.0)
Proceeds of borrowings, net 8 - 2.0 -
Net cash used in financing activities (23.4) (20.5) (31.2)
----------------------------------------------- --- ---------- ---------- ---------
Net (decrease)/increase in cash
and cash equivalents 8 (14.0) (1.9) 13.1
Cash and cash equivalents at beginning
of period 36.0 22.3 22.3
Effect of exchange rates on cash
and cash equivalents - (0.7) 0.6
----------------------------------------------- --- ---------- ---------- ---------
Cash and cash equivalents at end of
period 22.0 19.7 36.0
---------------------------------------------------- ---------- ---------- ---------
Alternative Performance Measures (note 31 March 31 March 30 Sept
2) 2019 2018 2018
GBPm GBPm GBPm
--------------------------------------- -------------------------------- --------- ---------------- --------
Net (decrease)/increase in cash and
cash equivalents (14.0) (1.9) 13.1
Dividends paid to shareholders
Add: and minority interests 20.5 18.3 27.0
Acquisition of businesses and
minority interests 6.4 3.2 20.1
Deferred consideration paid 1.1 0.1 0.3
Proceeds from borrowings, net - (2.0) -
--------------------------------------- ---------------------------------- --------- ---------------- --------
Free cash flow 14.0 17.7 60.5
--------------------------------------------------------------------------- --------- ---------------- --------
Cash and cash equivalents 22.0 19.7 36.0
Borrowings - (2.0) -
--------------------------------------------------------------------------- --------- ---------------- --------
Cash Funds 22.0 17.7 36.0
--------------------------------------------------------------------------- --------- ---------------- --------
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2019
1. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
Diploma PLC (the "Company") is a public limited company
registered and domiciled in England and Wales. The condensed set of
consolidated financial statements (the "financial statements") for
the six months ended 31 March 2019 comprise the Company and its
subsidiaries (together referred to as "the Group").
The condensed information presented for the financial year ended
30 September 2018 does not constitute full statutory accounts as
defined in section 434 of the Companies Act 2006. Those statutory
accounts have been reported on by the Company's auditor and
delivered to the Registrar of Companies. The report of the auditor
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
The figures for the six months ended 31 March 2018 were extracted
from the 2018 Half Year Report, which was unaudited.
The Group's audited consolidated financial statements for the
year ended 30 September 2018 are available on the Company's website
(www.diplomaplc.com) or upon request from the Company's registered
office at Diploma PLC, 12 Charterhouse Square, London, EC1M
6AX.
1.1 Statement of compliance
The financial statements included in this Half Year Announcement
for the six months ended 31 March 2019 have been prepared on a
going concern basis and in accordance with IAS 34, Interim
Financial Reporting as adopted by the European Union and the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority. The financial statements do not include all of the
information required for full annual consolidated financial
statements and should be read in conjunction with the Group's
audited consolidated financial statements for the year ended 30
September 2018.
The Half Year financial statements were approved by the Board of
Directors on 13 May 2019; they have not been audited by the
Company's auditor.
1.2 Significant accounting policies
The accounting policies applied by the Group in this set of
financial statements are the same as those applied by the Group in
its audited consolidated financial statements for the year ended 30
September 2018, except for the amount included in the Half Year
Report in respect of taxation and the application of two new
accounting standards that have become effective during the
period.
As in previous Half Year Announcements, taxation has been
calculated by applying the Directors' best estimate of the annual
rates of taxation to taxable profits for the period. In the audited
consolidated financial statements for the full year, the taxation
balances are based on draft tax computations prepared for each
business within the Group.
IFRS 15 'Revenue from Contracts with Customers' was adopted by
the Group with effect from 1 October 2018. IFRS 15 replaced IAS 18
and introduced a single, principles-based approach to the
recognition and measurement of revenue from all contracts with
customers. The majority of Group revenue is derived from the sale
of products which generally have one performance obligation. The
impact of the application of IFRS 15 is not material to the Group
and no adjustments were required in the comparative consolidated
financial statements.
IFRS 9 'Financial Instruments' has been adopted by the Group
with effect from 1 October 2018. IFRS 9 replaces IAS 39 and relates
to the classification, measurement and de-recognition of financial
assets and financial liabilities. It introduces a model for
"expected credit loss" for the impairment of financial assets and
sets out changes to relationships for hedge accounting. No material
changes were required to the Consolidated Statement of Financial
Position, as the categories of financial instruments were already
being accounted for on the same measurement and valuation
techniques as set out in IFRS 9 and all existing hedge
relationships continue to qualify for hedge accounting under the
new standard. In addition, applying the expected credit loss model
to assess the potential impairment of financial assets, including
trade and other receivables, has not materially impacted the
consolidated financial statements. Accordingly, no adjustments were
required in the comparative consolidated financial statements as a
result of applying this new standard.
1.3 Standards issued but not yet applied by the Group
IFRS 16 'Leases' replaces IAS 17 and will be applied by the
Group in the year ending 30 September 2020. IFRS 16 prescribes a
single lessee accounting model that requires the recognition of an
asset and a corresponding liability for all leases with terms over
twelve months. The liability is measured as the present value of
future lease payments for the lease term; depreciation of the
assets and interest on the corresponding lease liabilities is
recognised in the Income Statement over the lease term. The Group
anticipates that on implementation of IFRS 16, there will be an
increase in the amount of the Group's liabilities with a
corresponding increase in tangible fixed assets. The charge for
operating leases in the Income Statement is unlikely to change
materially, but the classification of this charge will change
reflecting the depreciation charge and interest cost respectively,
in place of the existing lease cost. The expected impact of IFRS 16
will be described further in the financial statements for the year
ending 30 September 2019.
1.4 Estimates and judgements
The preparation of these financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
The accounting estimates and judgements made by management in
applying the Group's accounting policies that have the most
significant effect on the amounts included within these financial
statements, were the same as those that applied to the Group's
audited consolidated financial statements for the year ended 30
September 2018. These are set out on page 93 of the 2018 Annual
Report & Accounts.
2. ALTERNATIVE PERFORMANCE MEASURES
The Group uses a number of alternative (non-Generally Accepted
Accounting Practice ("non-GAAP")) financial measures which are not
defined within IFRS. The Directors use these measures for internal
management reporting in order to assess the operational performance
of the Group on a comparable basis, and as such these measures are
important and should be considered alongside the IFRS measures. The
following non-GAAP measures are referred to in this Half Year
Announcement:
2.1 Adjusted operating profit
At the foot of the Condensed Consolidated Income Statement,
"adjusted operating profit" is defined as operating profit before
amortisation and impairment of acquisition intangible assets,
acquisition expenses, adjustments to deferred consideration
(collectively, "acquisition related charges"), the costs of a
material restructuring (including the incremental cost related
directly to the change of the previous Chief Executive Officer in
2018) or rationalisation of operations and the profit or loss
relating to the sale of businesses or property. The Directors
believe that adjusted operating profit is an important measure of
the operational performance of the Group.
2.2 Adjusted profit before tax
At the foot of the Condensed Consolidated Income Statement,
"adjusted profit before tax" is separately disclosed, being defined
as adjusted operating profit, after finance expenses (but before
fair value remeasurements under IAS 39 in respect of future
purchases of minority interests) and before tax. The Directors
believe that adjusted profit before tax is an important measure of
the operational performance of the Group.
2.3 Adjusted earnings per share
"Adjusted earnings per share" ("EPS") is calculated as the total
of adjusted profit before tax, less income tax costs, but including
the tax impact on the items included in the calculation of adjusted
profit, less profit attributable to minority interests, divided by
the weighted average number of ordinary shares in issue during the
year. The Directors believe that adjusted EPS provides an important
measure of the underlying earning capacity of the Group.
2.4 Free cash flow
At the foot of the Condensed Consolidated Cash Flow Statement,
"free cash flow" is reported, being defined as net cash flow from
operating activities, after net capital expenditure on fixed assets
and including proceeds received from business disposals, but before
expenditure on business combinations/investments and dividends paid
to both minority shareholders and the Company's shareholders. The
Directors believe that free cash flow gives an important measure of
the cash flow of the Group, available for future investment or
distribution to shareholders.
3. BUSINESS SECTOR ANALYSIS
The Chief Operating Decision Maker ("CODM") for the purposes of
IFRS 8 is the Chief Executive Officer. The financial performance of
the Sectors is reported to the CODM on a monthly basis and this
information is used to allocate resources on an appropriate
basis.
Sector information is presented in this Half Year Announcement
in respect of the Group's business Sectors, which is the primary
basis of Sector reporting. The business Sector reporting format
reflects the Group's management and internal reporting structure.
The geographic sector reporting represents results by origin. The
Group's financial results have not, historically, been subject to
significant seasonal trends. In the year ended 30 September 2018,
the Group earned 48.4% of its annual revenues and 47.8% of its
annual adjusted operating profits in the first six months of the
year.
Sector revenue represents revenue from external customers; there
is no inter-Sector revenue. Sector results, assets and liabilities
include items directly attributable to a Sector, as well as those
that can be allocated on a reasonable basis.
Adjusted operating
Revenue profit Operating profit
31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept
2019 2018 2018 2019 2018 2018 2019 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------- ------- -------- ------- ------- -------- ------- ------- --------
By Sector
Life Sciences 71.1 67.4 134.7 13.0 11.7 23.9 11.9 10.4 21.5
Seals 102.4 99.2 208.0 17.1 17.1 36.0 14.6 14.4 31.0
Controls 86.9 68.3 142.4 15.5 11.8 25.0 13.6 10.9 22.8
Previous CEO transition
costs - - - - - - - - (2.1)
------------------------- ------- ------- -------- ------- ------- -------- ------- ------- --------
260.4 234.9 485.1 45.6 40.6 84.9 40.1 35.7 73.2
------------------------- ------- ------- -------- ------- ------- -------- ------- ------- --------
By Geographic Area
United Kingdom 75.6 62.9 130.2 13.7 11.0 23.5
Rest of Europe 62.8 56.0 115.2 9.1 8.9 17.6
North America 102.3 98.0 202.3 20.2 19.1 39.5
Rest of World 19.7 18.0 37.4 2.6 1.6 4.3
------------------------- ------- ------- -------- ------- ------- --------
260.4 234.9 485.1 45.6 40.6 84.9
------------------------- ------- ------- -------- ------- ------- --------
In the six months ended 31 March 2019 and as further described
in note 10, the Group acquired Actios SAS, the parent company of
the Gremtek group ("Gremtek") of companies. This business
contributed GBP4.9m to revenue and GBP0.7m to adjusted operating
profit and operating profit. The results of Gremtek are included
within the Controls Sector and reported within the geographic area
of Rest of Europe.
Total assets Total liabilities Net assets
31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept
2019 2018 2018 2019 2018 2018 2019 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- ------- -------- -------- ------- -------- ------- ------- --------
By Sector
Life Sciences 114.5 111.1 115.4 (22.0) (20.2) (21.6) 92.5 90.9 93.8
Seals 152.0 141.6 142.9 (34.5) (25.9) (32.2) 117.5 115.7 110.7
Controls 120.3 86.5 107.4 (30.3) (21.9) (25.5) 90.0 64.6 81.9
Unallocated assets/(liabilities) 24.4 21.4 38.7 (27.3) (28.1) (30.8) (2.9) (6.7) 7.9
--------------------------------- ------- ------- -------- -------- ------- -------- ------- ------- --------
411.2 360.6 404.4 (114.1) (96.1) (110.1) 297.1 264.5 294.3
--------------------------------- ------- ------- -------- -------- ------- -------- ------- ------- --------
Sector assets exclude cash and cash equivalents, deferred tax
assets and corporate assets that cannot be allocated on a
reasonable basis to a business Sector. Sector liabilities exclude
borrowings, retirement benefit obligations, deferred tax
liabilities, acquisition liabilities and corporate liabilities that
cannot be allocated on a reasonable basis to a business Sector.
These items that cannot be allocated on a reasonable basis to a
business Sector are shown collectively as "unallocated
assets/(liabilities)".
Capital expenditure Depreciation
31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept
2019 2018 2018 2019 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------- ------- -------- ------- ------- --------
By Sector
Life Sciences 1.7 1.2 3.5 1.4 1.2 2.4
Seals 1.0 0.9 2.0 0.9 0.9 1.8
Controls 0.8 0.2 1.1 0.3 0.3 0.6
--------------- ------- ------- -------- ------- ------- --------
3.5 2.3 6.6 2.6 2.4 4.8
--------------- ------- ------- -------- ------- ------- --------
4. FINANCIAL EXPENSE, NET
31 March 31 March 30 Sept
2019 2018 2018
GBPm GBPm GBPm
---------------------------------------------------------- --------- --------- --------
Interest (expense)/income and similar
charges
* bank facility and commitment fees - (0.1) (0.1)
* interest income on bank deposits - - 0.1
* notional interest expense on the defined benefit
pension scheme (0.1) (0.1) (0.1)
Net interest expense and similar charges (0.1) (0.2) (0.1)
* fair value remeasurement of put options (note 11) 0.1 (0.1) (0.4)
---------------------------------------------------------- --------- --------- --------
Financial expense, net - (0.3) (0.5)
---------------------------------------------------------- --------- --------- --------
5. TAXATION
31 March 31 March 30 Sept
2019 2018 2018
GBPm GBPm GBPm
------------------------------------ --------- --------- --------
UK corporation tax 2.1 1.8 3.5
Overseas tax 7.8 7.3 14.8
Total tax on profit for the period 9.9 9.1 18.3
------------------------------------ --------- --------- --------
Taxation on profits before tax has been calculated by applying
the Directors' best estimate of the annual rates of taxation to
taxable profits for the period. The effective rate of taxation on
profit before tax for the period decreased to 24.7% (2018: 25.7%)
and the Group's adjusted effective rate of tax on adjusted profit
before tax decreased to 23.7% (2018: 24.5%).
The reduction in the effective rate of taxation reflects the
impact from the reduction in the US Federal corporate income tax
rate to 21% from 35%, effective from 1 January 2018. The Group's US
businesses account for ca. 24% of Group revenues and ca. 27% of
adjusted operating profit before tax.
6. EARNINGS PER SHARE
Basic and diluted earnings per share
Basic and diluted earnings per ordinary 5p share are calculated
on the basis of the weighted average number of ordinary shares in
issue during the period of 113,171,433 (2018: 113,141,691) and the
profit for the period attributable to shareholders of GBP29.9m
(2018: GBP26.0m). There were no potentially dilutive shares.
Adjusted earnings per share
Adjusted earnings per share, defined in note 2, is calculated as
follows:
31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept
2019 2018 2018 2019 2018 2018
pence pence pence
per per per
share share share GBPm GBPm GBPm
-------------------------------------- ------- ------- -------- ------- ------- --------
Profit before tax 40.1 35.4 72.7
Tax expense (9.9) (9.1) (18.3)
Minority interests (0.3) (0.3) (0.6)
-------------------------------------- ------- ------- -------- ------- ------- --------
Earnings for the period attributable
to
shareholders of the Company 26.4 23.0 47.5 29.9 26.0 53.8
Acquisition related charges 4.9 4.1 8.4 5.5 4.7 9.6
Fair value remeasurement of
put options (0.1) 0.1 0.4 (0.1) 0.1 0.4
Previous Chief Executive Officer
transition costs - 0.2 1.8 - 0.2 2.1
Tax effect on above adjustments (0.7) (0.7) (1.7) (0.9) (0.8) (2.0)
Adjusted earnings 30.5 26.7 56.4 34.4 30.2 63.9
-------------------------------------- ------- ------- -------- ------- ------- --------
7. RECONCILIATION OF OPERATING PROFIT TO CASH FLOW FROM OPERATING ACTIVITIES
31 March 31 March 30 Sept
2019 2018 2018
GBPm GBPm GBPm
--------------------------------------------- --------- --------- --------
Operating profit 40.1 35.7 73.2
Acquisition related charges (note 9) 5.5 4.7 9.6
Previous CEO transition costs - 0.2 2.1
--------------------------------------------- --------- --------- --------
Adjusted operating profit 45.6 40.6 84.9
Previous CEO transition costs paid (1.3) - (0.8)
44.3 40.6 84.1
Depreciation or amortisation of tangible
and other intangible assets 2.6 2.4 4.8
Share-based payments expense 0.4 0.4 1.0
Defined benefit scheme expense (0.3) (0.3) (0.5)
--------------------------------------------- --------- --------- --------
Non-cash items 2.7 2.5 5.3
--------------------------------------------- --------- --------- --------
Increase in inventories (14.9) (7.5) (8.3)
Increase in trade and other receivables (6.9) (3.8) (5.2)
Increase in trade and other payables 4.9 0.1 8.4
--------------------------------------------- --------- --------- --------
Increase in working capital (16.9) (11.2) (5.1)
--------------------------------------------- --------- --------- --------
Cash flow from operating activities, before
acquisition expenses 30.1 31.9 84.3
--------------------------------------------- --------- --------- --------
8. CASH FUNDS
The movement in cash funds during the period is as follows:
31 March 31 March 30 Sept
2019 2018 2018
GBPm GBPm GBPm
------------------------------------- ----------- ----------- ----------
Net (decrease)/increase in cash and
cash equivalents (14.0) (1.9) 13.1
Increase in borrowings - (2.0) -
------------------------------------- ----------- ----------- ----------
(14.0) (3.9) 13.1
Effect of exchange rates - (0.7) 0.6
Movement in cash funds (14.0) (4.6) 13.7
Cash funds at beginning of period 36.0 22.3 22.3
------------------------------------- ----------- ----------- ----------
Cash funds at end of period 22.0 17.7 36.0
------------------------------------- ----------- ----------- ----------
Comprising:
Cash and cash equivalents 22.0 19.7 36.0
Borrowings - (2.0) -
------------------------------------- ----------- ----------- ----------
Cash funds at end of period 22.0 17.7 36.0
------------------------------------- ----------- ----------- ----------
The Group has a committed multi-currency revolving facility of
GBP30.0m. The Group has formally extended the facility for a
further two years to 1 June 2022. The facility has an accordion
option to increase the committed facility by a further GBP30.0m up
to a maximum of GBP60.0m. At 31 March 2019, the Group had utilised
none of this facility (2018: GBP2.0m). Interest on this facility is
payable between 70 and 115bps over LIBOR, depending on the ratio of
net debt to EBITDA.
9. GOODWILL AND ACQUISITION INTANGIBLE ASSETS
Acquisition
intangible
Goodwill assets
GBPm GBPm
------------------------ ----------------- -----------------
At 1 October 2017 122.8 54.0
Acquisitions 0.2 0.5
Amortisation charge - (4.6)
Exchange adjustments (4.8) (1.5)
At 31 March 2018 118.2 48.4
Acquisitions 5.5 8.6
Amortisation charge - (4.7)
Exchange adjustments 4.8 1.3
------------------------ ----------------- -----------------
At 30 September 2018 128.5 53.6
Acquisitions (note 10) 2.3 3.6
Amortisation charge - (5.4)
Exchange adjustments (2.5) (0.9)
At 31 March 2019 128.3 50.9
------------------------ ----------------- -----------------
Goodwill represents the amount paid for future sales growth from
both new customers and new products, operating cost synergies and
employee know-how. The acquisition intangible assets relate to
supplier and customer relationships and these assets will be
amortised over five to fifteen years.
Acquisition related charges of GBP5.5m (2018: GBP4.7m) are
charged to the Consolidated Income Statement. These charges
comprise GBP5.4m (2018: GBP4.6m) of amortisation of acquisition
intangible assets and GBP0.1m (2018: GBP0.1m) of acquisition
expenses.
10. ACQUISITION OF SUBSIDIARIES
On 12 October 2018 the Group acquired 100% of Actios SAS, the
parent company of the Gremtek group ("Gremtek") of companies. The
initial consideration was GBP6.4m (EUR7.2m), including acquisition
expenses of GBP0.1m and net of cash acquired of GBP2.9m (EUR3.2m).
Deferred consideration of GBP0.2m (EUR0.2m) is payable based on the
operating profit achieved in the year ended 31 December 2018.
The provisional fair value of the net assets acquired, excluding
acquisition intangibles and related deferred tax is GBP4.2m;
provisional fair value adjustments of GBP0.3m have been made to
reduce the book value of assets acquired.
From the date of acquisition to 31 March 2019, the newly
acquired Gremtek business contributed GBP4.9m to revenue and
GBP0.7m to adjusted operating profit. If the Gremtek business had
been acquired at the beginning of the financial year, it would in
aggregate have contributed on a pro-rata basis GBP5.2m to revenue
and GBP0.8m to adjusted operating profit. However, these amounts
should not be viewed as indicative of the results of this business
that would have occurred, if this acquisition had been completed at
the beginning of the year.
11. OTHER LIABILITIES
31 March 31 March 30 Sept
2019 2018 2018
GBPm GBPm GBPm
----------------------------------------- --------- --------- --------
Future purchases of minority interests 4.4 4.2 4.5
Deferred consideration 0.2 0.5 1.1
----------------------------------------- --------- --------- --------
4.6 4.7 5.6
----------------------------------------- --------- --------- --------
Analysed as:
Due within one year 4.6 4.7 5.6
Due after one year - - -
---------------------------------------- --------- --------- --------
The movement in the liability for future purchases of minority
interests is as follows:
31 March 31 March 30 Sept
2019 2018 2018
GBPm GBPm GBPm
------------------------------------- --------- --------- --------
At 1 October 4.5 6.1 6.1
Acquisition of minority interest on
exercise of option - (2.0) (2.0)
Unwinding of discount - 0.2 0.2
Fair value remeasurements (0.1) (0.1) 0.2
At end of period 4.4 4.2 4.5
------------------------------------- --------- --------- --------
At 31 March 2019, the Group retained put options to acquire
minority interests of 10% held in each of M Seals and Kentek which
were both exercisable from November 2018. At 31 March 2019, the
estimate of the financial liability to acquire the outstanding
minority shareholdings was reassessed by the Directors, based on
their current estimate of the future performance of these
businesses and to reflect foreign exchange rates at 31 March
2019.
Deferred consideration comprises:
31 March 31 March 30 Sept
2019 2018 2018
GBPm GBPm GBPm
----------- --------- --------- --------
Gremtek 0.2 - -
Edco - 0.4 -
Coast - 0.1 0.1
FS Cables - - 1.0
0.2 0.5 1.1
----------- --------- --------- --------
During the period, outstanding deferred consideration of GBP1.1m
was paid to the vendor of FS Cables (GBP1.0m) and the vendor of
Coast (GBP0.1m). The amount outstanding at 31 March 2019 of GBP0.2m
relates to deferred consideration payable in connection with the
acquisition of Gremtek and is expected to be paid within the next
twelve months.
12. DIVIDENDS
31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept
2019 2018 2018 2019 2018 2018
pence pence pence
per per per
share share share GBPm GBPm GBPm
------------------------------- ------- ------- -------- ------- ------- --------
- Final dividend of the prior
year, paid in January 17.8 16.0 16.0 20.2 18.1 18.1
- Interim dividend, paid in
June - - 7.7 - - 8.7
------------------------------- ------- ------- -------- ------- ------- --------
17.8 16.0 23.7 20.2 18.1 26.8
------------------------------- ------- ------- -------- ------- ------- --------
The Directors have declared an increased interim dividend of
8.5p per share (2018: 7.7p) which will be paid on 12 June 2019 to
shareholders on the register on 24 May 2019. The total value of the
dividend will be GBP9.6m (2018: GBP8.7m).
13. EXCHANGE RATES
The exchange rates used to translate the results of the overseas
businesses were as follows:
Average Closing
------------------------------ ------------------------------
31 March 31 March 30 Sept 31 March 31 March 30 Sept
2019 2018 2018 2019 2018 2018
------------------- --------- --------- -------- --------- --------- --------
US dollar (US$) 1.30 1.37 1.35 1.30 1.40 1.30
Canadian dollar
(C$) 1.72 1.74 1.73 1.74 1.81 1.69
Euro (EUR) 1.14 1.14 1.13 1.16 1.14 1.12
Swiss franc (CHF) 1.29 1.32 1.31 1.30 1.34 1.27
Australian dollar
(A$) 1.81 1.77 1.78 1.83 1.83 1.80
------------------- --------- --------- -------- --------- --------- --------
14. RELATED PARTY TRANSACTIONS
There have been no changes to the related party arrangements or
transactions as reported in the 2018 Annual Report &
Accounts.
Transactions between Group Companies, which are related parties,
have been eliminated on consolidation and are therefore not
disclosed. Other transactions which qualify to be treated as
related party transactions are: those relating to the remuneration
of key management personnel, which are not disclosed in this Half
Year Report, but will be disclosed in the Group's next Annual
Report & Accounts; and transactions between the Group and the
Group's defined benefit pension plan, which are disclosed within
the Consolidated Cash Flow Statement.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FMGMKKGFGLZM
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