TIDMDPLM
RNS Number : 5316L
Diploma PLC
16 May 2022
DIPLOMA PLC 10-11 CHARTERHOUSE SQUARE,
LONDON EC1M 6EE
TELEPHONE: +44 (0)20 7549
5700
FACSIMILE: +44 (0)20 7549
5715
FOR IMMEDIATE RELEASE
16 May 2022
HALF YEAR RESULTS FOR THE SIX MONTHSED 31 MARCH 2022
Strong results.
Successfully executing our strategy for organic growth.
HY 2022 HY 2021 Y/y change
Revenue GBP448.5m GBP365.2m +23%
Underlying revenue growth
(1) 16% 2%
Adjusted operating profit(2) GBP82.5m GBP66.6m +24%
Adjusted operating margin(2) 18.4% 18.2% +20bps
Statutory operating profit GBP58.2m GBP46.3m +26%
Free cash flow(3) GBP37.7m GBP34.3m +10%
Free cash flow conversion(3) 64% 72%
Adjusted earnings per
share(2) 47.0p 38.4p +22%
Basic earnings per share 28.6p 25.5p +12%
Interim dividend per
share 15.0p 12.5p +20%
ROATCE 17.5% 16.5% +100bps
------------------------------ ---------- ---------- -----------
(1) Adjusted for acquisition and disposal contribution and
currency effects; (2) Before acquisition related charges and
acquisition related finance charges; (3) Before cash flows on
acquisitions, disposals and dividends. All alternative performance
measures are defined in note 2 to the condensed Consolidated
Financial Statements
Strong half year financial performance
-- Underlying revenue growth of 16%, driven by organic revenue
initiatives, positive demand and pricing.
-- Pass-through of higher year-on-year copper prices has added
ca. 5% to underlying revenue growth.
-- Reported revenue growth of 23% with a positive contribution from high quality acquisitions.
-- Adjusted operating margin +20bps to 18.4%. Continuing to
successfully navigate supply chain challenges, labour pressures and
inflation, demonstrating the resilience of our value-added service
model.
-- 22% growth in adjusted EPS and 20% increase in interim dividend.
Growth strategy: business revenue diversification activity
driving growth, building scale and increasing resilience
-- Controls +28%: excellent contribution from Windy City Wire
("WCW"); strong growth at International Controls driven by business
diversification activity.
-- Seals +15%: accelerated market share gains in North American
Aftermarket; very positive International Seals performance,
benefiting from organic revenue initiatives.
-- Life Sciences -7%: underlying growth ca. 2% excluding last
year's COVID-related revenues. Short-term growth affected by
Canadian/Australian lockdowns this year. Expect to return to growth
during H2.
Delivering our strategy sustainably: disciplined portfolio
development
-- Strategy: building high quality, scalable businesses for organic growth.
-- Three high quality businesses acquired for a combined consideration of GBP172m.
-- LJR Electronics acquired in January for GBP21m, expanding our
Controls presence into the large, attractive and growing US
interconnect market.
-- R&G Fluid Power Group ("R&G") acquired in April for GBP100m to build scale in UK Seals:
o Value-added aftermarket distributor of a diverse range of
industrial, hydraulic and pneumatic products (including seals and
gaskets).
o Excellent strategic fit, adding scale in the UK and broadening
Seals product portfolio to expand addressable markets.
o Impressive track record with significant organic and inorganic
growth potential.
-- Accuscience, a market-leading life sciences and med-tech distributor in Ireland for GBP51m:
o Increases exposure to the high growth diagnostics segment.
o Adds scale to Life Sciences in Ireland, and continues to build
out the Sector's European pillar.
o Purchase price represents a multiple of ca. 9.5x EBIT,
expected to contribute annualised revenue of ca. GBP35m.
-- Acquisition pipeline is active. We remain highly disciplined,
with ROATCE increasing to 17.5% (2021: 16.5%).
-- Disposal of a1-envirosciences in May for GBP11m, in line with
our disciplined approach to portfolio development.
Delivering Value Responsibly ("DVR"): ESG framework building
momentum
-- Continuing to make progress across our five focus areas.
-- DVR being embedded into commercial and operational strategy.
-- On track to set targets from the next financial year.
Strong free cash flow and deleveraging giving balance sheet
flexibility
-- Strong free cash flow conversion of 64% (2021: 72%) despite
incremental inventory investment to ensure product availability and
support market share gains.
-- Cash flow generation providing balance sheet flexibility to
continue to invest in growth: net debt GBP209.5m at 31 March 2022
(1.2x EBITDA).
Positive and unchanged outlook
-- The second half has started well.
-- Full year outlook is unchanged, confident in our materially upgraded April guidance:
o Low double digit underlying revenue growth, well ahead of our
model. Expect growth to moderate in Q3 as the comparators get
tougher
o Reported revenue growth a little over 20%.
o New acquisition, Accuscience, expected to deliver annualised
revenue of ca. GBP35m.
o Operating margin at the top end of the 18-19% guidance
range.
o Strong cash generation expected to result in net debt/EBITDA
of ca. 1.5x by year end.
-- Whilst the wider geopolitical and macroeconomic outlook is
uncertain, our resilience is underpinned by our increasing revenue
diversification, value-added model and strong balance sheet.
Commenting on the results, Johnny Thomson, Diploma's Chief
Executive said:
" I am delighted with our performance and strategic progress in
the last six months. Thank you to my brilliant colleagues. Our
organic growth and margins have been strong, and we have also
welcomed three important businesses to the Group. We are executing
our strategy by diversifying our business revenues for organic
growth, scale and resilience. We are also continuously improving
our value-add model for sustainable scale. We are not complacent
about the economic outlook, but the second half has started really
well and we are confident in our upgraded full year guidance. "
Notes:
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, net debt
to EBITDA and ROATCE. All references in this Announcement to
"underlying" revenues refer to reported results on a constant
currency basis, and after adjusting for 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 condensed 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 via audio conference call and
webcast. Conference call dial in details:
-- Dial in : +44 (0)330 165 4012
-- Participant access code: 972388
Register your attendance for the webcast at:
https://webcasting.brrmedia.co.uk/broadcast/626173b167e322082fa890b4
This presentation will be available after the conference call
at: https://www.diplomaplc.com/investors/financial-presentations/
.
A replay of the audio will be available on the same link after
the event .
For further information please contact:
Diploma PLC - +44 (0)20 7549 5700
Johnny Thomson, Chief Executive Officer
Barbara Gibbes, Chief Financial Officer
Kellie McAvoy, Head of Investor Relations
Tulchan Communications - +44 (0)20 7353 4200
Martin Robinson
Olivia Peters
NOTE TO EDITORS:
Diploma PLC is an international group supplying specialised
products and services to a wide range of end segments in our three
Sectors of Life Sciences, Seals and Controls.
Diploma's businesses are focused on supplying essential products
and services which are critical to customers' needs, 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. 2,700 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. 12% p.a. through a combination of
organic growth and acquisitions. Diploma is a member of the FTSE
250 with a market capitalisation of ca. GBP3.25bn.
Further information on Diploma PLC can be found at
www.diplomaplc.com
LEI: 2138008OGI7VYG8FGR19
HALF YEAR REVIEW TO 31 MARCH 2022
Strong half year performance
The Group has enjoyed a successful six months, reflecting the
benefits of our strategy, value-added proposition and decentralised
model. These, together with the outstanding commitment of our
colleagues to excellent customer service, have enabled us to
deliver double-digit underlying growth at high teens margins, all
while successfully navigating inflationary pressures and supply
chain challenges.
Revenues in the first half of 2022 were significantly higher, up
23% to GBP448.5m (2021: GBP365.2m). Underlying growth was 16%,
driven by our revenue diversification initiatives, positive demand
and pricing. Growth in the half also benefited from the pass
through of higher copper prices, which added ca. 5% to underlying
growth. Acquisitions net of two small disposals contributed 7% to
reported revenue while foreign exchange translation was broadly
neutral.
We are very pleased with our operating margin performance, with
adjusted operating profit increasing 24% to GBP82.5m (2021:
GBP66.6m) and the adjusted operating margin up 20 basis points to
18.4% (2021: 18.2%). All of our businesses have worked hard to
mitigate inflationary impacts on customers and, where this has not
been possible, our value-add model has enabled us to successfully
pass on cost inflation and protect our margins. Other factors
influencing the operating margin included positive operational
leverage on higher volumes, partially offset by continued
investment in growth. Statutory operating profit rose 26% to
GBP58.2m (2021: GBP46.3m).
Free cash flow conversion of 64% (2021: 72%) has been strong
despite incremental investment in inventory to ensure product
availability and support market share gains. At 31 March 2022, net
debt was GBP209.5m or 1.2x EBITDA (30 September 2021: GBP181.4m and
1.1x). After the period end, we invested an additional ca. GBP151m
in R&G and Accuscience (discussed further below) and realised
proceeds of GBP11m from the disposal of a1-envirosciences. We
expect continued strong free cash flow generation to drive
deleveraging in the second half and provide flexibility to continue
to invest in growth.
Diploma has a progressive dividend policy, targeting dividend
cover of 2x on an adjusted EPS basis. In light of the strong H1
performance and confidence in the Group's prospects, the Directors
have declared a 20% increase in the interim dividend to 15.0p per
share (2021: 12.5p). The dividend is payable on 10 June 2022 to
shareholders on the register on 27 May 2022 with a corresponding
ex-dividend date of 26 May 2022.
Revenue diversification strategy driving organic growth
The Group's strategy is to build high quality, scalable
businesses for organic growth. Our businesses are focused on
revenue diversification to deliver growth, build scale and increase
resilience. Consistent with the Group strategy, all of our
businesses have their own individual plans and initiatives aimed at
capitalising on structurally growing end markets, increasing
penetration of core geographies and expanding addressable markets
through product range extension.
As a diverse Group, no single initiative or end market is
sufficiently large to materially impact Diploma as a whole, but the
collective success of our Sectors' growth initiatives combined with
a positive end market environment and pricing translated into
underlying growth of 16%, with strong trading momentum sustained
throughout the first half.
Revenue GBPm Underlying growth
H1 22 H1 21 Change H1 22 H1 21
--------------- ------- ------ ------- --------- ---------
Controls 224.0 152.8 +47% +28% (1)%
Seals 137.4 123.8 +11% +15% (2)%
Life Sciences 87.1 88.6 (2)% (7)% +14%
--------------- ------- ------ ------- --------- ---------
Group 448.5 365.2 +23% +16% +2%
--------------- ------- ------ ------- --------- ---------
Some examples of how our businesses are delivering underlying
growth are set out below.
Positioning to take advantage of structurally growing end
markets: some of our strongest growth in the first half was driven
by structurally growing end markets. This is also well-aligned with
our ESG framework, which is embedding positive impact into our
commercial strategy. At Windy City Wire, strong double-digit volume
growth reflects the business's exposure to data centres,
distribution centres and digital antenna systems. International
Controls is also enjoying success in energy and emerging markets in
space and urban air mobility. Recent acquisitions are well
positioned, including LJR Electronics where over 50% of revenues
relate to end markets linked to electrification and material
handling/e-commerce.
In Seals, the outlook for US infrastructure spending underpins a
positive outlook for North American Aftermarket while International
Seals has a strong pipeline for new, larger wind turbines. The
structural growth drivers for Life Sciences of ageing populations
and increasing healthcare spend remain very strong. Post-pandemic,
elective surgical backlogs and increasing spend on diagnostics will
be key growth drivers.
End market diversification: having successfully captured growth
in medical last year, International Seals has retained new
customers in this sector while also pivoting to capitalise on
positive momentum in industrial markets. International Controls has
been a diversification success story, with businesses like
Speciality Fasteners reducing reliance on civil aerospace through
expanding in areas such as high-performance vehicles, energy,
industrial and infrastructure.
Penetration of core developed economies: over the last six
months we have made significant progress in the US and Europe. In
particular, the acquisition of LJR Electronics adds scale to
Interconnect in the US, improving the Controls Sector's access to
the developed world's largest interconnect market. The potential
for geographic expansion in North American Aftermarket Seals is
hugely exciting and already delivering revenue growth; we expect
Louisville to drive market share gains in the US for many years to
come. In Europe, the recent acquisition of R&G has materially
added scale in UK Seals while we continue to build out our European
pillar in Life Sciences with the acquisition of Accuscience in
Ireland.
Product range extension: forms an ongoing component of most
businesses' organic growth strategies, including at International
Seals in product adjacencies such as cylinders and gaskets. The
acquisition of Techsil at the end of last year has created an entry
into an exciting new business line and the team are providing great
insight and input into our M&A plans in the adhesives space.
The acquisition of R&G in April marks a major step forward,
broadening the Seals' Sector product capability in the UK, with
potential to take this to other markets.
Strategically important acquisitions to accelerate growth
Acquisitions are an integral part of our growth strategy, with a
disciplined focus on acquiring value-added businesses, with great
management teams, to accelerate our organic growth. So far in
FY2022, we have acquired three high quality businesses for a total
of ca. GBP172m.
In January, we acquired LJR, a value-added distributor of
connectors in the US for ca. GBP21m. Now part of Interconnect
within the Controls Sector, LJR Electronics has expanded our
presence into the large, attractive and growing US interconnect
market. The business is expected to generate annualised revenue of
ca. GBP14m.
In mid-April, we announced the exciting addition of R&G to
build scale in Seals in the UK. R&G is a value-added
aftermarket distributor supplying a diverse range of industrial,
hydraulic and pneumatic products (including seals and gaskets). Its
value-added proposition is based on responsive customer service,
technical advice, breadth of stock and product customisation. Over
time, its management team has built a platform with extensive reach
across the UK. This has included consolidating a number of regional
distributors to extend geographic and product reach. The R&G
historic growth track record, organic and inorganic, has been
impressive.
R&G has significant organic growth potential, including
developing the aftermarket e-commerce channel, continued regional
expansion in the UK, and further product cross-selling and
diversification. The business gives the Seals Sector scale in the
UK and the ability to drive revenue synergies with existing UK
Seals businesses. We are also excited by the broadening of the
Seals product capability, in line with our strategy to expand
addressable markets through product extension, with the potential
to take this to other markets in the future. An active pipeline
also positions R&G well to continue to deliver on acquisition
growth. Acquired for ca. GBP100m (plus deferred consideration of up
to ca. GBP7.5m), R&G is expected to contribute annualised
revenue of ca. GBP65m.
More recently, in early May, we completed the acquisition of
Accuscience, a market-leading life sciences and med-tech
distributor in Ireland. Accuscience has a diverse, high quality
supplier portfolio which includes several tier one manufacturers.
The business also has a proven ability to identify, attract,
develop and grow best in class suppliers. This has translated into
a strong track record on growth and excellent scale across the
island of Ireland. The business's growth prospects are exciting,
underpinned by recent wins and a strong product pipeline. The
acquisition increases our exposure to the high growth diagnostics
segment and further diversifies our product portfolio while also
consolidating our position in the attractive Irish market, and
continuing to build out the Life Sciences' European pillar.
Acquired for ca. GBP51m, Accuscience is expected to contribute
annualised revenue of ca.GBP35m.
We remain disciplined in our approach to acquisitions, and our
pipeline is encouraging.
Portfolio focus
At a Group level, we are focusing our growth around scalable
business lines within the Sectors. As part of a disciplined
approach to portfolio management, in early May, we disposed of
a1-envirosciences, formerly part of the Life Sciences Sector, for
ca. GBP11m. In November last year, we also disposed of Kentek in
Russia for GBP10m.
Delivering our model at scale: investing in our Core
Competencies and Capability
Growth is only one component of our strategy; it is equally
important that we support our businesses on their journey to scale.
There is no 'one-size fits all'; our approach is pragmatic and
incremental as our businesses become more strategic, systematic and
process-oriented.
Our businesses share a common set of Core Competencies which
underpin their value-add. Our operational strategy is focused on
continuous improvement of these competencies to maintain great
customer service at scale, and therefore sustain our pricing power
and attractive margins.
The last two years has emphasised the importance of the Route to
Market competency to support our diversification and growth as well
as Supply Chain management. Against the wider market backdrop of
supply chain challenges, inflation and labour pressures, our
colleagues have worked tirelessly to maintain high levels of
customer service. The trading environment has also underlined the
importance of our focus on developing our Supply Chain competency
and rolling out our Supply Chain Code (see below) to ensure a
supply chain that is resilient, responsible and ethical. Commercial
Discipline - or pricing - has come to the fore - our value-added
solutions give us pricing power, and the integration of pricing
into everyday life has enabled us to protect our margins in an
inflationary environment.
Developing these Core Competencies also requires investment in
capability - Talent, Technology and Facility. Talent is a key
component of our DVR agenda, particularly colleague engagement and
retention in tight labour markets. We are investing across the
Group in commercial, operational and functional roles. In January,
we welcomed Ted Messmer as Sector CEO for North American Seals, an
appointment which completes the Executive Leadership Team. In
Technology, our approach is measured, with a number of small
projects to upgrade capabilities ongoing at any one time, from ERP
upgrades and implementations to barcoding and webstore development
and improvement. The same is true of Facility - Louisville is our
largest recent project, but we are also investing in a number of
other sites including in our Life Sciences Sector in Australia,
which is now completed, as well as a new facility which is underway
for Simonsen & Weel in Denmark.
Alongside this, we continue to develop a shared Diploma culture
and identity, with the Group acting as a conduit for knowledge and
best practice sharing. This includes our DVR agenda (see below).
Louisville has also provided an opportunity to share learnings on
automation and successful execution of a facility move. Finally, we
are all looking forward to our second ever in-person leadership
gathering in Chicago as an opportunity for our leaders to build
their internal networks and share experiences that will be of
benefit as they take their businesses on the journey to scale.
Embedding Delivering Value Responsibly in our growth and
operations
We are very pleased with the progress our businesses are making
with Delivering Value Responsibly ("DVR"), our ESG programme.
Operating within our Group framework, colleagues are implementing
improvement initiatives tailored to their businesses, and which
will support the delivery of their DVR plans. In keeping with the
evolution of a Diploma identity that fosters knowledge and best
practice sharing, we are running Group-wide workshops and training,
helping to drive engagement, raise awareness and provide colleagues
with tools to deliver their DVR objectives.
For Colleagues, we have continued with our focus on learning
& development and engagement. Potential hazard reporting and
training are enhancing our Health & Safety culture, while
increasing awareness and workshops are also helping to further our
Diversity, Equity & Inclusion agenda. Our businesses are at
varying stages of engagement with their Supply Chains on our
Supplier Code. From an Environment perspective, waste has been a
key area of focus with widespread actions to switch waste
providers, increase recycling and use more recycled/recyclable
materials. We are also working on our carbon footprint, with new
facilities offering greater energy efficiency and businesses
installing LED lighting and electric vehicle charging points.
DVR is not a standalone concept - we are embedding it into all
of our strategic priorities, from growth to supply chain and
operational excellence. Having defined our priorities and KPIs for
our five material focus areas last year, our DVR metrics are fully
embedded into our internal reporting and business reviews. We are
now focused on collecting data and developing our baseline in order
to set targets from the start of the next financial year.
Full year outlook unchanged
The Group has delivered a strong first half performance as we
continue to successfully execute our strategy for long-term organic
growth. We continue to manage inflation, supply chain disruption
and labour pressures. The second half has started well, and we are
confident in our materially upgraded guidance provided in
April:
-- Low double-digit underlying revenue growth, well ahead of our
model. We continue to expect growth to moderate in Q3 as the
comparators get tougher.
-- Reported revenue growth a little over 20%.
-- Accuscience, acquired in May, is expected to deliver annualised revenue of ca. GBP35m.
-- Operating margin at the top end of the 18-19% guidance range.
-- Cash conversion in line with financial model (ca.90%).
-- Net debt/EBITDA currently expected to be ca. 1.5x by year end.
Notwithstanding wider macroeconomic uncertainties, our
resilience is underpinned by our value-added model, increasing
diversification and strong balance sheet. We remain confident in
our long-term prospects for continued growth at sustainably high
margins, in line with our financial model.
SECTOR REVIEW: CONTROLS
The Controls Sector businesses supply specialised wiring, cable,
connectors, fasteners, control devices and adhesives for a range of
technically demanding applications.
Half Year
2022 2021 Change
-------------------------- --------- --------- ------
Revenue GBP224.0m GBP152.8m +47%
Underlying revenue growth +28% (1)%
Adjusted operating profit GBP47.0m GBP31.2m +51%
Adjusted operating margin 21.0% 20.4% +60bps
-------------------------- --------- --------- ------
H1 2022 highlights
-- International Controls up 17% off the back of revenue diversification initiatives.
-- Continued excellent WCW contribution; underlying growth 42%,
strong double-digit volume growth.
-- Strategic acquisition of LJR Electronics builds scale and
gives improved access to the large, growing US interconnect
market.
Sector financial performance
Controls Sector revenues during the first six months of the year
were materially higher, up 47% to GBP224.0m (2021: GBP152.8m). This
consisted of underlying revenue growth of 28% and a 19%
contribution from acquisitions; currency was largely neutral.
Adjusted operating profit also increased significantly, 51%
higher at GBP47.0m (2021: GBP31.2m) reflecting both revenue growth
and a 60bps year-on-year increase in the adjusted operating margin
to 21.0% (2021: 20.4%). Both WCW and International Controls
contributed to the overall expansion of the margin, with positive
operating leverage more than offsetting the pass through of higher
copper prices and investment in growth.
International Controls (51% of Controls Sector revenue) started
2022 very well, with underlying growth of 17% reflecting the
success of our revenue initiatives and a positive demand
environment.
Interconnect delivered double-digit underlying growth against a
resilient H1 2021 comparator with strength in Germany in energy and
medical, and in the UK in energy and motorsport. While chip
shortages held back our more automotive-focused French business,
the actions being taken to further diversify revenues will underpin
greater mid-term resilience and growth. The strategic acquisition
of LJR in the US allows us to build scale in the largest developed
interconnect market in the world, cross-sell Interconnect products
and also gives our existing operation in Indianapolis the ability
to leverage the LJR supply chain.
Shoal Group performed well against a strong comparator,
supported by new product introductions and e-commerce; the addition
of SWA has also provided improved access to the electrical
wholesale market. Speciality Fasteners had an excellent first half,
with revenue diversification actions translating into strong
growth, particularly in end markets such as high-performance
vehicles and space. The business is also taking share in recovering
aerospace markets, having been specified onto new programmes and
winning business in new parts of the aircraft, including galleys.
The addition of AHW at the end of last year has added scale in the
US and we are making good progress with plans for revenue and cost
synergies.
Finally, Techsil, our adhesives business line continues to go
from strength to strength while Fluid Controls also enjoyed a very
good first half off the back of continued recovery in demand in its
key hospitality end markets.
Windy City Wire ("WCW") (49% of Controls Sector revenue)
continues to deliver, with underlying revenue growth of 42% in the
period. This was driven by a combination of high-teens volume
growth and the pass through of higher year-on-year copper prices.
The impact of copper moderated towards the end of H1 as we started
to lap stronger comparators.
Volume growth reflects share gains in all markets as a result of
the compelling WCW customer proposition and product availability.
All key end segments have had a strong first half - technology
changes to combat cyber threats have benefited security access;
digital antenna systems are increasingly becoming a requirement in
locations across the US, driving continued growth; and audio visual
is also performing very well, with WCW's excellent customer service
and product offering driving share gains. Additionally, the
business has enjoyed continued success in winning more specified
positions with large, blue chip names, supporting current and
future growth.
Sector review: SEALS
The Seals Sector businesses supply a range of seals, gaskets,
cylinders, components and kits used in heavy mobile machinery and
specialised industrial equipment with Aftermarket, OEM and MRO
applications.
Half Year
2022 2021 Change
-------------------------- --------- -------- -------
Revenue GBP137.4m GBP123.8 +11%
Underlying revenue growth +15% (2)%
Adjusted operating profit GBP25.8m GBP20.7m +25%
Adjusted operating margin 18.8% 16.7% +210bps
-------------------------- --------- -------- -------
H1 2022 highlights
-- Accelerated growth in North American Aftermarket; Louisville driving market share gains.
-- Very positive International Seals performance with underlying
growth 8% against a resilient prior year comparator driven by
revenue diversification.
-- Exciting addition of R&G Fluid Power Group in April builds scale in UK Seals.
Sector financial performance
Seals Sector revenues rose 11% to GBP137.4m (2021: GBP123.8m),
reflecting strong underlying growth of 15% partially offset by the
disposal of Kentek in November 2021. Currency was largely
neutral.
Adjusted operating profit outperformed revenue growth,
increasing 25% to GBP25.8m (2021: GBP20.7m) with a 210bps
year-on-year increase in the adjusted operating margin to 18.8%
(2021: 16.7%). This was primarily due to a step up in the North
American margin which benefited from the end of dual-running costs
and improved efficiency at Louisville, positive operating leverage
and the disposal of the lower margin Kentek business.
For North American Seals (65% of Sector revenue), underlying
growth of 19% reflects strength in all markets - North American
Aftermarket, US Industrial OEM and MRO all delivered double-digit
underlying growth. We are particularly pleased with the performance
of North American Aftermarket, with 20% underlying growth against a
resilient comparator. The investment in our Aftermarket facility in
Louisville, Kentucky is paying off, delivering accelerated growth
and market share gains, particularly in Western states, against a
backdrop of positive demand in key US construction markets.
Elsewhere, US Industrial OEM also delivered double-digit
underlying growth while at MRO, a l ater cycle business, underlying
growth was exceptionally strong, particularly in transportation but
also in the industrial sector. New sales hires and growth
initiatives are translating into market share gains, with VSP
winning new customers and growing sales of new products. As a
business whose value-add lies in a highly technical sale, the
ending of lockdowns and ability to get out into the field has been
an added positive.
International Seals (35% of Sector revenue) delivered underlying
growth of 8% against a very resilient comparator (H1 2021: +5%).
Our UK Seals businesses are benefiting from initiatives to
diversify into product adjacencies and new end markets, while the
higher oil price had led to improving demand in that sector. Kubo
delivered double-digit underlying growth; the business has shown
great agility and, having pivoted to capture growth in medical last
year, it is now capitalising on returning industrial demand.
Product availability has also been a key differentiator for Kubo,
supporting market share gains. MSeals had a slower start to the
half against a strong comparator. The business is winning share and
growing well in the food and pharmaceuticals sectors; while
automotive in Sweden and wind have been quieter, a promising
pipeline means we expect increased demand for seals for wind
turbines in the second half. In Australia, our PumpNSeal business
delivered double digit growth and while FITT Resources has been
impacted by COVID lockdowns in Eastern Australia, a strong backlog
underpins the outlook for the rest of the year.
Sector review: LIFE SCIENCES
The Life Sciences Sector businesses supply a range of medical
devices, consumables, instrumentation and related services to
Healthcare and Environmental end markets.
Half Year
2022 2021 Change
-------------------------- -------- -------- --------
Revenue GBP87.1m GBP88.6m (2)%
Underlying revenue growth (7)% +14%
Adjusted operating profit GBP19.6m GBP21.3m (8)%
Adjusted operating margin 22.5% 24.0% (150)bps
-------------------------- -------- -------- --------
H1 2022 highlights
-- Underlying revenue -7%: +2% excluding last year's
COVID-related revenues; short-term growth also impacted by
Australian and Canadian lockdowns.
-- Exciting mid- to longer-term outlook; encouraging underlying
trends, expect to return to underlying growth during H2.
-- Strategic acquisition of Accuscience in Ireland increases
exposure to high growth diagnostics segment and continues to build
out European pillar.
-- Disciplined portfolio management: disposal of a1-envirosciences in May.
Sector financial performance
Revenues for the Life Sciences Sector fell 2% to GBP87.1m (2021:
GBP88.6m), including a 7% underlying decline. Acquisitions net of
disposals contributed 6%, with the incremental contribution from
Simonsen & Weel and Kungshusen more than offsetting the
disposal of a1-CBISS . Foreign exchange reduced reported revenues
by 1%.
Adjusted operating profit was 8% lower at GBP19.6m (2021:
GBP21.3m). The adjusted operating margin was 22.5% (2021: 24.0%).
Last year's operating margin was untypically high; the first six
months of 2022 have also seen a controlled return of variable
costs.
Excluding last year's non-recurring COVID-related ventilator
sales, underlying revenues increased 2%. Lockdowns in key
Australian and Canadian markets together with hospital staff
shortages also impacted H1 growth. Underlying momentum was
particularly positive in testing and diagnostics, with strong
revenue growth at businesses such as TPD in Ireland and Abacus in
Australia. Last year's Scandinavian acquisitions are now settled
into the Group, and giving rise to cross-selling opportunities,
with Kungshusen winning an important new supplier through an
existing Canadian relationship.
The Sector's mid- to longer-term prospects are exciting. All
businesses have continued to make good progress with bringing new
products into the pipeline. Elective surgical backlogs will take
time to unwind, particularly given capacity constraints and
staffing shortages in hospitals, helping to underpin mid-term
growth at the Sector. We also expect increasing investment in
testing and diagnostics (ca. 45% of Sector revenue); COVID has
reshaped healthcare systems' view of the importance of diagnostic
capabilities, with increasing emphasis on early diagnostics and
intervention - a trend which is already in evidence in our
businesses.
FINANCE
Income statement
Reported revenues increased by 23% to GBP448.5m (2021:
GBP365.2m) with underlying growth of 16% and a 7% contribution from
acquisitions net of two small disposals. Foreign currency movements
were broadly neutral.
Adjusted operating profit increased by 24% to GBP82.5m (2021:
GBP66.6m) reflecting higher revenues and a 20bps year-on-year
improvement in the adjusted operating margin to 18.4% (2021:
18.2%). Statutory operating profit increased 26% to GBP58.2m (2021:
GBP46.3m).
Adjusted profit before tax increased 24% to GBP78.6m (2021:
GBP63.2m). There was an increase in the net interest expense to
GBP3.9m (2021: GBP3.4m), due to increased borrowings used to
finance acquisitions.
Statutory profit before tax was 23% higher year-on-year at
GBP52.3m (2021: GBP42.5m) reflecting the increased revenues and
margin improvements, partly offset by the higher interest charges
discussed above.
The Group's adjusted effective rate of tax on adjusted profit
before tax was 25.1% (September 2021: 25.4%) broadly in line with
the FY2021 rate.
Adjusted earnings per share increased by 22% to 47.0p, compared
with 38.4p in H1 2021.
Free cash flow
Free cash flow represents cash available for acquisitions and
distributions to shareholders. The Group generated free cash flow
of GBP37.7m (2021: GBP34.3m) with the increase in operating profits
being partly offset by an increased working capital investment.
Free cash flow benefited from fixed asset proceeds of GBP9.3m.
Operating cash flow increased by 15% to GBP64.0m (2021:
GBP55.5m) with the stronger adjusted operating profit and current
year benefit of a one-off pension contribution in the prior half
year being partly offset by an increased investment in working
capital.
The investment in working capital of GBP27.3m (2021: GBP14.5m)
was GBP12.8m more than in the prior half year. The increase in
inventories (GBP19.2m) is due to incremental, targeted investment
to support market share gains, ensure product availability and help
manage supply chain constraints. The increase in receivables
(GBP16.3m) is reflective of the robust trading activity especially
towards the end of the first half. We expect strong cash generation
in the second half of the year in line with our historical
trends.
The Group's metric of working capital to revenue increased to
17.7% (2021: 16.0%), driven by increased investment into
inventories and higher trade receivables.
Tax payments in the first half of the year increased by GBP7.4m
to GBP19.9m (2021: GBP12.5m). The underlying cash tax rate
increased to 23% (2021: 20%) due to timing of tax payments with the
prior half year being impacted by COVID-related payment deferrals.
The Group also funded the Company's Employee Benefit Trust with
GBP2.8m (2021: GBP0.6m) in connection with the Company's long term
incentive plan.
Capital expenditure increased by GBP3.1m against the comparable
period last year to GBP5.7m (2021: GBP2.6m) largely consisting of
ongoing investment in new field equipment in the Healthcare
businesses (GBP2.9m), with a similar level of investment expected
to continue in the second half.
Net acquisition expenditure of GBP19.5m (2021: GBP399.4m)
principally comprises of the spend for LJR (GBP21.3m) and
acquisition fees (GBP1.8m), partly offset by the proceeds received
in respect of the disposal of Kentek (GBP4.2m).
The Group paid GBP37.7m (2021: GBP37.6m) in dividends to
ordinary and minority interest shareholders. The prior year payment
included the catch up of the FY2020 interim dividend which had been
deferred in May 2020 due to the uncertainty created by COVID-19 at
that time.
Net bank debt
The Group has a debt facility agreement ("SFA") originally
entered into on 13 October 2020. At 31 March 2022, the SFA
comprised of an amortising term loan for an aggregate principal of
GBP106.7m ($140.8m), a bullet term loan for an aggregate principal
of GBP50.0m ($66.0m) and a committed multi-currency revolving
credit facility for an aggregate principal of GBP255.0m. The SFA is
due to expire in December 2024 and there is an option to extend for
a further 12-month period.
The Group continues to maintain a robust balance sheet with net
bank debt of GBP209.5m (2021: GBP191.1m) comprised of borrowings of
GBP342.0m (2021: GBP216.9m), less cash funds of GBP132.5m (2021:
GBP25.8m). The increased cash funds held at 31 March 2022 were
utilised shortly after the period end to fund the acquisition of
R&G for GBP100m.
At 31 March 2022, net bank debt of GBP209.5m represented 1.2x
EBITDA against a banking covenant of 3x EBITDA. We expect this to
return to ca. 1.5x EBITDA by year end despite the acquisitions of
R&G which completed in April 2022 and Accuscience, which
completed in May.
Going concern
The Directors have assessed the relevant factors surrounding
going concern. The Group has carried out an assessment of its
projected trading for the 18-month period through to the year
ending 30 September 2023. This assessment incorporated a downside
scenario which demonstrates that the Group has sufficient
liquidity, resources and covenant headroom to continue in operation
for the foreseeable future. The Directors confirm there are no
material uncertainties which may cast significant doubt on the
Group's ability to continue as a going concern and these condensed
consolidated financial statements have therefore been prepared on a
going concern basis.
Exchange rates
A significant proportion of the Group's revenues (ca. 80%) are
derived from businesses located outside the UK, principally in the
US, Canada, Australia and Northern Europe. Since 30 September 2021,
UK sterling has weakened against some of the major currencies in
which the Group operates, in particular the US, Canadian, and
Australian dollar, whilst strengthening against the Euro and Danish
krone. Compared with the first half of last year, the average UK
sterling exchange rate is also weaker against the US and Canadian
dollars, though stronger than the Euro, Danish krone, and
Australian dollar. The impact from translating the results of the
Group's overseas businesses into UK sterling has led to a reduction
in Group revenues of ca. GBP0.4m and an increase in the Group's
adjusted operating profit of ca. GBP0.1m, compared with the same
period last year.
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 28-33 of the 2021 Annual
Report & Accounts. In summary these are:
-- Strategic risks - downturn/instability in major markets,
supplier concentration/loss of key suppliers, customer
concentration/loss of key customers, unsuccessful acquisitions and
geopolitical disruptions;
-- Operational risks - health and safety,
cybersecurity/information technology/business interruption, loss of
key personnel, product liability and supply chain disruptions;
-- Financial risks - foreign currency and tax compliance; and
-- Accounting risk - inventory obsolescence.
The Directors confirm that the principal risks and uncertainties
and the processes for managing them have not changed since the
publication of the 2021 Annual Report & Accounts and that they
remain relevant for the second half of the financial year.
Johnny Thomson
Chief Executive Officer 16 May 2022
Responsibility Statement of the Directors in respect of the Half
Year Report 2022
We confirm that to the best of our knowledge:
-- the condensed consolidated financial statements have been
prepared in accordance with UK-adopted International Accounting
Standard 34, 'Interim Financial Reporting'; 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 interim 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
2021 and on the Company's website at www.diplomaplc.com .
By Order of the Board
JD Thomson B Gibbes
Chief Executive Officer Chief Financial Officer
16 May 2022 16 May 2022
Condensed Consolidated Income Statement
For the six months ended 31 March 2022
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2022 2021 2021
Note GBPm GBPm GBPm
------------------------------- -------- ---------- ---------- --------
R evenue 3 448.5 365.2 787.4
Cost of sales (284.6) (231.3) (499.0)
--------------------------------- ------- ---------- ---------- --------
Gross profit 163.9 133.9 288.4
Distribution costs (14.9) (10.7) (23.9)
Administration costs (90.8) (76.9) (160.2)
Operating profit 3 58.2 46.3 104.3
Financial expense, net 4 (5.9) (3.8) (7.7)
Profit before tax 52.3 42.5 96.6
Tax expense 5 (16.4) (10.5) (26.9)
--------------------------------- ------- ---------- ---------- --------
Profit for the period 35.9 32.0 69.7
--------------------------------- ------- ---------- ---------- --------
Attributable to:
Shareholders of the Company 35.6 31.7 69.8
Minority interests 0.3 0.3 (0.1)
--------------------------------- ------- ---------- ---------- --------
35.9 32.0 69.7
------------------------------- ------- ---------- ---------- --------
Earnings per share
Basic earnings 6 28.6p 25.5p 56.1p
Diluted earnings 28.5p 25.4p 55.9p
--------------------------------- ------- ---------- ---------- --------
Alternative Performance Measures 31 March 31 March 30 Sept
(note 2) 2022 2021 2021
Note GBPm GBPm GBPm
----------------------------------- --------- --------- --------- --------
Operating profit 58.2 46.3 104.3
Add: Acquisition related charges 9 24.3 20.3 44.4
Adjusted operating profit 3 82.5 66.6 148.7
Deduct: Net interest expense and 4 (3.9) (3.4) (6.8)
similar charges
------------------------------------ --- ---- --------- --------- --------
Adjusted profit before tax 78.6 63.2 141.9
------------------------------------ --- ---- --------- --------- --------
Adjusted earnings per share 6 47.0p 38.4p 85.2p
------------------------------------ --- ---- --------- --------- --------
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 March 2022
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2022 2021 2021
GBPm GBPm GBPm
--------------------------------------------------- -------------- ---------------- ---------
Profit for the period 35.9 32.0 69.7
---------------------------------------------------- -------------- ---------------- ---------
Items that will not be reclassified
to the Consolidated Income Statement
Actuarial gain/(losses) in the defined
benefit pension scheme - - 7.4
Deferred tax on items that will not
be reclassified - - (0.8)
---------------------------------------------------- -------------- ---------------- ---------
- - 6.6
---------------------------------------------------- -------------- ---------------- ---------
Items that may be reclassified to the
Consolidated Income Statement
Exchange rate gains/(losses) on foreign
currency net investments 15.7 (24.8) (16.2)
Exchange loss on translation of foreign
operations recycled to income statement (2.0) - -
on disposal
(Losses)/gains on fair value of cash
flow hedges (0.5) (1.3) 0.4
Net changes to fair value of cash flow
hedges transferred to the Consolidated
Income Statement - - 0.1
Deferred tax on items that may be reclassified 0.2 0.5 (0.1)
----------------------------------------------------- -------------- ---------------- ---------
13.4 (25.6) (15.8)
--------------------------------------------------- -------------- ---------------- ---------
Total Comprehensive Income for the period 49.3 6.4 60.5
---------------------------------------------------- -------------- ---------------- ---------
Attributable to:
Shareholders of the Company 49.1 6.4 60.8
Minority interests 0.2 - (0.3)
----------------------------------------------------- -------------- ---------------- ---------
49.3 6.4 60.5
--------------------------------------------------- -------------- ---------------- ---------
Condensed Consolidated Statement of C hanges in Equity
For the six months ended 31 March 2022
Share Share Translation Hedging Retained Share Minority Total
capital premium reserve reserve earnings -holders' interests equity
equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- -------------- ------------------ ------------- -------- --------- --------- ------------
At 1 October
2020 (audited) 6.3 188.6 28.3 (0.3) 304.1 527.0 3.7 530.7
Total
comprehensive
income - - (24.5) (0.8) 31.7 6.4 - 6.4
Share-based
payments - - - - 0.7 0.7 - 0.7
Tax on items
recognised
directly in
equity - - - - - - - -
Purchase of own
shares - - - - (0.6) (0.6) - (0.6)
Minority
interest
issued - - - - - - 0.7 0.7
Dividends - - - - (37.3) (37.3) (0.3) (37.6)
--------------- ------- -------------- ------------------ ------------- -------- --------- --------- ------------
At 31 March
2021
(unaudited) 6.3 188.6 3.8 (1.1) 298.6 496.2 4.1 500.3
Total
comprehensive
income - - 8.3 1.3 44.8 54.4 (0.3) 54.1
Share-based
payments - - - - 1.1 1.1 - 1.1
Tax on items
recognised
directly in
equity - - - - 1.0 1.0 - 1.0
Notional
purchase of
own shares - - - - 0.1 0.1 - 0.1
Acquisition of
business - - - - - - 0.9 0.9
Minority
interest put
option - - - - (0.9) (0.9) - (0.9)
Dividends - - - - (15.6) (15.6) - (15.6)
--------------- ------- -------------- ------------------ ------------- -------- --------- --------- ------------
At 30 September
2021
(audited) 6.3 188.6 12.1 0.2 329.1 536.3 4.7 541.0
Total
comprehensive
income - - 13.8 (0.3) 35.6 49.1 0.2 49.3
Share-based
payments - - - - 1.4 1.4 - 1.4
Tax on items
recognised
directly in
equity - - - - - - - -
Notional
purchase of
own shares - - - - (2.8) (2.8) - (2.8)
Disposal of
minority
interest - - - - - - (1.3) (1.3)
Disposal of
minority
interest put
option - - - - 1.2 1.2 - 1.2
Dividends - - - - (37.5) (37.5) (0.2) (37.7)
At 31 March
2022
(unaudited) 6.3 188.6 25.9 (0.1) 327.0 547.7 3.4 551.1
--------------- ------- -------------- ------------------ ------------- -------- --------- --------- ------------
Condensed Consolidated Statement of Financial Position
As at 31 March 2022
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2022 2021 2021
Note GBPm GBPm GBPm
--------------------------------------- ------ ---------- ---------- ---------
Non-current assets
Goodwill 9 269.9 243.5 260.7
Acquisition intangible assets 9 342.2 320.9 344.9
Other intangible assets 3.5 3.2 3.4
Property, plant and equipment 36.4 44.1 35.4
Leases - right of use of assets 11 53.8 42.0 44.9
Deferred tax assets 0.3 0.7 0.4
----------------------------------------- ----- ---------- ---------- ---------
706.1 654.4 689.7
--------------------------------------- ----- ---------- ---------- ---------
Current assets
Inventories 165.1 121.1 139.8
Trade and other receivables 135.4 115.0 117.8
Assets held for sale 2.9 - 11.3
Cash and cash equivalents 8 132.5 25.8 24.8
----------------------------------------- ----- ---------- ---------- ---------
435.9 2 61.9 293.7
--------------------------------------- ----- ---------- ---------- ---------
Current liabilities
Borrowings 8 (21.4) (14.9) (18.0)
Trade and other payables (138.0) (109.1) (127.0)
Current tax liabilities (9.1) (4.4) (10.0)
Other liabilities 12 (5.6) (10.6) (11.7)
Lease liabilities 11 (10.1) (9.9) (9.7)
(184.2) (148.9) (176.4)
--------------------------------------- ----- ---------- ---------- ---------
Net current assets 251.7 113.0 117.3
----------------------------------------- ----- ---------- ---------- ---------
Total assets less current liabilities 957.8 767.4 807.0
Non -current liabilities
( 4.9
Retirement benefit obligations ) ( 12.5) (4.9)
Borrowings 8 (320.6) (202.0) (188.2)
Lease liabilities 11 (50.2) (35.0) (38.6)
Other liabilities 12 (12.1) (0.7) (12.0)
Deferred tax liabilities (18.9) (16.9) (22.3)
----------------------------------------- ----- ---------- ---------- ---------
Net assets 551.1 500.3 541.0
----------------------------------------- ----- ---------- ---------- ---------
Equity
Share capital 6.3 6.3 6.3
Share premium 188.6 188.6 188.6
Translation reserve 25.9 3.8 12.1
Hedging reserve (0.1) (1.1) 0.2
Retained earnings 327.0 298.6 329.1
----------------------------------------- ----- ---------- ---------- ---------
Total shareholders' equity 547.7 496.2 536.3
Minority interests 3.4 4.1 4.7
----------------------------------------- ----- ---------- ---------- ---------
Total equity 551.1 500.3 541.0
----------------------------------------- ----- ---------- ---------- ---------
Condensed Consolidated Cash Flow Statement
For the six months ended 31 March 2022
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2022 2021 2021
Note GBPm GBPm GBPm
---------------------------------------------- ---------- ---------- ---------
Cash flow from operating activities 7 64.0 55.5 145.9
Interest paid, net (2.7) (2.3) (5.6)
Tax paid (19.9) (12.5) (24.2)
----------------------------------------- ---- ---------- ---------- ---------
Net cash from operating activities 41.4 40.7 116.1
----------------------------------------- ---- ---------- ---------- ---------
Cash flow from investing activities
Acquisition of businesses (net of
cash acquired) (21.9) (397.3) (451.4)
Deferred consideration paid 12 (5.4) (6.1) (6.6)
Proceeds from sale of business 4.2 - 11.0
Purchase of property, plant and
equipment (5.2) (2.0) (4.9)
Purchase of other intangible assets (0.5) (0.6) (1.3)
Proceeds from sale of property,
plant and equipment 9.3 0.2 4.8
Net cash used in investing activities (19.5) (405.8) (448.4)
----------------------------------------- ---- ---------- ---------- ---------
Cash flow from financing activities
Proceeds from issue of share capital
(net of fees) - (0.6) (0.6)
Dividends paid to shareholders 13 (37.5) (37.3) (52.9)
Dividends paid to minority interests (0.2) (0.3) (0.3)
Proceeds from minority interests - 0.7 0.7
Lease repayments 11 (6.3) (5.5) (9.5)
Purchase of own shares by Employee - - -
Benefit Trust
Notional purchase of own shares
on exercise of options (2.8) (0.6) (0.6)
Proceeds from borrowings 8 141.7 226.0 215.3
Repayment of borrowings 8 (9.7) (6.3) (12.4)
Net cash from financing activities 85.2 176.1 139.7
----------------------------------------- ---- ---------- ---------- ---------
Net increase/(decrease) in cash
and cash equivalents 8 107.1 (189.0) (192.6)
Cash and cash equivalents at beginning
of period 24.8 206.8 206.8
Effect of exchange rates on cash
and cash equivalents 0.6 8.0 10.6
----------------------------------------- ---- ---------- ---------- ---------
Cash and cash equivalents at end of
period 132.5 25.8 24.8
----------------------------------------------- ---------- ---------- ---------
Alternative Performance Measures 31 March 31 March 30 Sept
(note 2) 2022 2021 2021
GBPm GBPm GBPm
-------------------------------------- ------------------------------------ --------- --------- --------
Net increase/ (decrease) in cash and
cash equivalents 107.1 (189.0) (192.6)
Dividends paid to shareholders
Add: and minority interests 37.7 37.6 53.2
Proceeds from minority interests - (0.7) (0.7)
Acquisition/disposal of businesses
(including net expenses) 19.5 399.4 444.6
Deferred consideration paid 5.4 6.1 6.6
Proceeds from issue of share
capital (net of fees) - 0.6 0.6
Proceeds from bank borrowings,
net (132.0) (219.7) (202.9)
-------------------------------------- --------- --------- --------
Free cash flow 37.7 34.3 108.8
------------------------------------------------------------------------------ --------- --------- --------
Cash and cash equivalents 132.5 25.8 24.8
Bank borrowings (342.0) (216.9) (206.2)
------------------------------------------------------------------------------ --------- --------- --------
Net bank debt (209.5) (191.1) (181.4)
------------------------------------------------------------------------------ --------- --------- --------
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2022
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 2022 comprise the Company and its
subsidiaries (together referred to as "the Group").
The condensed information presented for the financial year ended
30 September 2021 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.
Except where otherwise stated, the figures for the six months ended
31 March 2021 were extracted from the 2021 Half Year Report, which
was unaudited.
The Group's audited consolidated financial statements for the
year ended 30 September 2021 are available on the Company's website
( www.diplomaplc.com ) or upon request from the Company's
registered office at Diploma PLC, 10-11 Charterhouse Square,
London, EC1M 6EE.
1.1 Statement of compliance
The financial statements included in this Half Year Announcement
for the six months ended 31 March 2022 have been prepared on a
going concern basis and in accordance with UK-adopted International
Accounting Standard 34, Interim Financial Reporting 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 2021.
The Half Year financial statements were approved by the Board of
Directors on 16 May 2022; 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 2021, except for the amount included in the Half Year
Report in respect of taxation.
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.
1.3 Risk management
The Group's overall management of financial risks is carried out
by a central team under policies and procedures which are reviewed
by the Board. The financial risks to which the Group is exposed are
those of credit, liquidity, foreign currency, interest rate and
capital management. An explanation of each of these risks and how
the Group manages them is included in the Annual Report &
Accounts for the year ended 30 September 2021. Further explanation
of the Group's principal risks and uncertainties and Going Concern
are set out in the narrative of this Half Year Report.
There is no material difference between the book value and fair
value of the Group's financial assets and financial liabilities as
at 31 March 2022. The basis for determining the fair value is as
follows:
- Derivatives: Forward contracts and interest rate swaps are
designated as level 2 assets (in the fair value hierarchy) and
fair-valued at 31 March 2022 with the gains and losses taken to
equity. The fair value of the forward contracts and interest rate
swaps as at 31 March 2022 amounts to a GBP0.1m liability (2021:
GBP1.3m liability).
- Trade and other receivables: As the majority of the trade and
other receivables have a remaining life of less than 12 months, the
book value is deemed to be reflective of the fair value.
- Lease and other liabilities: The carrying amount represents
the discounted value of the expected liability which is deemed to
reflect the fair value.
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
consolidated financial statements, were the same as those that
applied to the Group's audited consolidated financial statements
for the year ended 30 September 2021 as set out on page 117 of the
2021 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 of key performance indicators ("KPIs") in
order to assess the operational performance of the Group on a
comparable basis against the Group's KPIs, as a key constituent of
the Group's planning process, as well as comprising targets against
which compensation is determined. As such these measures 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 Consolidated Income Statement, "adjusted
operating profit" is defined as operating profit before
amortisation and impairment of acquisition intangible assets or
goodwill, acquisition expenses and adjustments to deferred
consideration (collectively, "acquisition related charges"), the
costs of a material restructuring or rationalisation of operations
and the profit or loss relating to the sale of businesses. The
Directors believe that adjusted operating profit is an important
measure of the operational performance of the Group. Adjusted
operating margin is the Group's adjusted operating profit divided
by the Group's revenue.
2.2 Adjusted profit before tax
At the foot of the Consolidated Income Statement, "adjusted
profit before tax" is separately disclosed, being defined as
adjusted operating profit, after finance expenses (but before
acquisition related finance charges) 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" ("adjusted 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/(loss) 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 earnings capacity
of the Group.
2.4 Free cash flow
At the foot of the Consolidated Cash Flow Statement, "free cash
flow" is reported, being defined as net cash flow from operating
activities, after net capital expenditure on tangible and
intangible assets, and including proceeds received from property
disposals, but before expenditure on business
combinations/investments and proceeds from business disposals,
borrowings received to fund acquisitions 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. Cash conversion is defined as free cash flow over
adjusted earnings after tax as per note 6.
2.5 Net debt to EBITDA
The Net debt to EBITDA ratio is an important metric for the
Group and provides a relevant measure of the gearing level of the
Group. The Group's bank debt covenants stipulate the methodology
upon which the net debt to EBITDA ratio is determined. Net debt is
defined as total bank borrowings, net of cash. EBITDA is defined as
operating profit before adjusting items, depreciation and
amortisation and adjusted for the full year effect of acquisitions
and disposals in the preceding 12-month period.
2.6 Trading capital employed and ROATCE
Return on adjusted trading capital employed ("ROATCE") is
defined as the adjusted operating profit, divided by adjusted
trading capital employed and adjusted for the full year effect of
acquisitions and disposals. "Trading capital employed" is defined
as net assets less cash and cash equivalents ("cash funds") and
after adding back: borrowings (other than lease liabilities);
retirement benefit obligations; deferred tax; and acquisition
liabilities in respect of future purchases of minority interests
and deferred consideration. Adjusted trading capital employed is
reported as being trading capital employed plus goodwill and
acquisition related charges previously written off (net of deferred
tax on acquisition intangible assets). The Directors believe that
ROATCE is an important measure of the profitability of the
Group.
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 monthly 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 2021,
the Group earned 46.4% of its annual revenues and 44.8% of its
annual adjusted operating profits in the first six months of the
year. This phasing between the first and second half was partly
impacted by the timing of acquisitions which favoured the second
half 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.
Adjusted operating
Revenue profit Operating profit
31 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept 31 31 Mar 30 Sept
Mar Mar
2022 2021 2021 2022 2021* 2021 2022 2021* 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------- ------- -------- ------- ------- -------- ------ ------- --------
By Sector
Life Sciences 87.1 88.6 180.4 19.6 21.3 43.2 17.2 19.3 38.6
Seals 137.4 123.8 263.7 25.8 20.7 46.5 17.1 16.2 36.8
Controls 224.0 152.8 343.3 47.0 31.2 72.4 33.8 17.4 42.3
Corporate - - - (9.9) (6.6) (13.4) (9.9) (6.6) (13.4)
-------------------- ------- ------- -------- ------- ------- -------- ------ ------- --------
448.5 365.2 787.4 82.5 66.6 148.7 58.2 46.3 104.3
-------------------- ------- ------- -------- ------- ------- -------- ------ ------- --------
By Geographic Area
United Kingdom 84.0 67.1 142.5 5.6 5.8 10.5
Rest of Europe 79.8 79.7 166.5 15.4 15.4 31.9
North America 250.3 187.7 411.8 56.0 39.9 94.7
Rest of World 34.4 30.7 66.6 5.5 5.5 11.6
-------------------- ------- ------- -------- ------- ------- --------
448.5 365.2 787.4 82.5 66.6 148.7
-------------------- ------- ------- -------- ------- ------- --------
*Re-presented to include central corporate costs separately in
line with presentation at 31 March 2022 and at 30 September 2021.
The corporate costs are not considered to be an operating
segment.
Total assets Total liabilities Net assets
31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept 31 31 Mar 30 Sept
Mar
2022 2021 2021 2022 2021 2021 2022 2021 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- ------- -------- -------- -------- -------- -------- -------- --------
By Sector
Life Sciences 187.2 169.1 179.8 (31.7) (32.5) (30.2) 155.5 136.6 149.6
Seals 250.8 251.9 244.8 (69.2) (57.4) (58.4) 181.6 194.5 186.4
Controls 579.1 471.1 531.4 (78.7) (56.6) (68.1) 500.4 414.5 463.3
Corporate
assets/(liabilities) 124.9 24.2 27.4 (411.3) (269.5) (285.7) (286.4) (245.3) (258.3)
--------------------------- -------- ------- -------- -------- -------- -------- -------- -------- --------
1,142.0 916.3 983.4 (590.9) (416.0) (442.4) 551.1 500.3 541.0
--------------------------- -------- ------- -------- -------- -------- -------- -------- -------- --------
In the six months ended 31 March 2022, the Group acquired LJR
Electronics ("LJR"), which contributed GBP2.5m to revenue and
GBP0.3m to adjusted operating profit. For full details of the
pro-forma contribution, see note 10. The results of LJR are
included within the Controls Sector and reported within the
geographic area of North America. 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 bank 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
"corporate assets/(liabilities)".
Capital expenditure Depreciation
31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept
2022 2021 2021 2022* 2021 2021
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------- ------- -------- ------- ------- --------
By Sector
Life Sciences 2.9 0.9 2.3 1.3 1.2 2.6
Seals 1.1 1.4 2.5 1.3 1.4 2.9
Controls 0.8 0.3 1.1 2.2 2.1 4.1
--------------- ------- ------- -------- ------- ------- --------
Corporate 0.9 - 0.3 0.1 - 0.1
--------------- ------- ------- -------- ------- ------- --------
5.7 2.6 6.2 4.9 4.7 9.7
--------------- ------- ------- -------- ------- ------- --------
*A further GBP6.0m (2021: GBP5.4m) of depreciation was incurred
on right of use assets (note 11).
4. FINANCIAL EXPENSE, NET
31 March 31 March 30 Sept
2022 2021 2021
GBPm GBPm GBPm
--------------------------------------------------------- --------- --------- --------
Interest expense and similar charges
* bank facility and commitment fees (0.4) (0.3) (0.5)
* interest expense on bank borrowings (2.1) (2.0) (4.1)
* notional interest expense on the defined benefit
pension scheme (0.2) (0.2) (0.1)
* amortisation of capitalised borrowing fees (0.1) - (0.3)
* interest on lease liabilities (1.1) (0.9) (1.8)
Net interest expense and similar charges (3.9) (3.4) (6.8)
* acquisition related finance charges (2.0) (0.4) (0.9)
--------------------------------------------------------- --------- --------- --------
Financial expense, net (5.9) (3.8) (7.7)
--------------------------------------------------------- --------- --------- --------
Acquisition related finance charges includes fair value
remeasurements of put options for future minority purchases
(GBP1.0m), unwind of discount on acquisition liabilities (GBP0.4m),
and the amortisation of capitalised borrowing fees on acquisition
related borrowings (GBP0.6m). Further detail on the interest
charged on lease liabilities is included in note 11.
5. TAXATION
31 March 31 March 30 Sept
2022 2021 2021
GBPm GBPm GBPm
------------------------------------ --------- --------- --------
UK corporation tax 1.2 1.0 5.7
Overseas tax 15.2 9.5 21.2
Total tax on profit for the period 16.4 10.5 26.9
------------------------------------ --------- --------- --------
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 Group's adjusted effective rate
of tax on adjusted profit before tax is 25.1% (September 2021:
25.4%).
6. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per ordinary 5p share are calculated on the basis
of the weighted average number of ordinary shares in issue during
the period of 124,520,917 (2021: 124,463,520) and the profit for
the period attributable to shareholders of GBP35.6m (2021:
GBP31.7m). Basic earnings per share is 28.6p (2021: 25.5p). Diluted
earnings per share is 28.5p (2020: 25.4p) and is based on the
average number of ordinary shares (which includes any potentially
dilutive shares) of 124,932,661.
Adjusted earnings per share
Adjusted earnings per share, defined in note 2, is calculated as
follows:
31 Mar 31 Mar 30 Sept
2022 2021 2021
pence pence pence 31
per per per Mar 31 Mar 30 Sept
share share share 2022 2021 2021
GBPm GBPm GBPm
-------------------------------------- ------- --------- -------- ------- ------- --------
Profit before tax 52.3 42.5 96.6
Tax expense (16.4) (10.5) (26.9)
Minority interests (0.3) (0.3) 0.1
-------------------------------------- ------- --------- -------- ------- ------- --------
Earnings for the period attributable
to
shareholders of the Company 28.6 25.5 56.1 35.6 31.7 69.8
Acquisition related charges
and acquisition related finance
charges, net of tax 18.4 12.9 29.1 22.9 16.0 36.3
Adjusted earnings 47.0 38.4 85.2 58.5 47.7 106.1
-------------------------------------- ------- --------- -------- ------- ------- --------
7. RECONCILIATION OF OPERATING PROFIT TO CASH FLOW FROM OPERATING ACTIVITIES
31 March 31 March 30 Sept
2022 2021 2021
GBPm GBPm GBPm
---------------------------------------------- --------- ------------ --------
Operating profit 58.2 46.3 104.3
Acquisition related charges (note 9) 24.3 20.3 44.4
Adjusted operating profit 82.5 66.6 148.7
Depreciation/amortisation of tangible, other
intangible assets and right of use assets 10.9 10.1 20.7
Share-based payments expense 1.4 0.7 1.8
Defined benefit scheme expense (0.2) (5.3) (5.8)
Profit on disposal of assets (1.5) - (2.8)
Acquisition expenses paid (1.8) (2.1) (4.2)
Other non-cash movements - - 0.1
---------------------------------------------- --------- ------------ --------
Non-cash items and other 8.8 3.4 9.8
---------------------------------------------- --------- ------------ --------
Increase in inventories (19.2) (1.7) (13.5)
Increase in trade and other receivables (16.3) (17.7) (16.3)
Increase in trade and other payables 8.2 4.9 17.2
---------------------------------------------- --------- ------------ --------
Increase in working capital (27.3) (14.5) (12.6)
---------------------------------------------- --------- ------------ --------
Cash flow from operating activities 64.0 55.5 145.9
---------------------------------------------- --------- ------------ --------
8. (NET BANK DEBT)/CASH FUNDS
The movement in (net bank debt)/cash funds during the period is
as follows:
31 March 31 March 30 Sept
2022 2021 2021
GBPm GBPm GBPm
----------------------------------- ---- ---------- --- ---------- --- ----------
Net increase/(decrease) in cash 107.1 (189.0) (192.6)
and cash equivalents
Increase in bank borrowings (132.0) (219.7) (202.9)
----------------------------------- ---- ---------- --- ---------- --- ----------
(24.9) (408.7) (395.5)
Effect of exchange rates (3.2) 10.8 7.3
Movement in net bank debt (28.1) (397.9) (388.2)
(Net bank debt)/ cash funds at
beginning of period (181.4) 206.8 206.8
----------------------------------------- ---------- --- ---------- --- ----------
Net bank debt at end of period (209.5) (191.1) (181.4)
----------------------------------------- ---------- --- ---------- --- ----------
Comprising:
Cash and cash equivalents 132.5 25.8 24.8
Bank borrowings:
(188.8) (101.7) (95.1)
* Revolving credit facility (157.1) (118.1) (113.9)
3.9 2.9 2.8
* Term loan (342.0) (216.9) (206.2)
* Capitalised debt fees
----------------------------------------- ---------- --- ---------- --- ----------
Net bank debt at end of period (209.5) (191.1) (181.4)
----------------------------------------- ---------- --- ---------- --- ----------
Analysed as: GBPm GBPm GBPm
Repayable within one year 21.4 14.9 18.0
Repayable after one year 320.6 202.0 188.2
----------------------------------------- ---------- --- ---------- --- ----------
The Group has a debt facility agreement ("SFA") originally
entered into on 13 October 2020. At 31 March 2022 the SFA comprised
of an amortising term loan for an aggregate principal of $140.8m
(2021: $161.5m), a bullet term loan for an aggregate principal of
$66.0m (2021: nil) and a committed multi-currency revolving credit
facility for an aggregate principal of GBP255.0m (2021: GBP135.0m).
The SFA is due to expire in December 2024 and there is an option to
extend for a further 12-month period. Interest on the SFA is
payable between 125-275bps above the applicable interbank or
risk-free rate, depending on the ratio of net debt to EBITDA.
At 31 March 2022, the Group had utilised GBP188.8m of the RCF
(2021: GBP101.7m), comprising GBP16.0m ($21.0m) of US dollars,
GBP30.4m (EUR36.0m) of Euros and GBP142.4m of sterling.
Total debt is GBP269.8m (2021: GBP236.0m) comprising net bank
debt of GBP209.5m (2021: GBP191.1m) and lease liabilities of
GBP60.3m (2021: GBP44.9m). Bank covenants are tested against net
bank debt only.
9. GOODWILL AND ACQUISITION INTANGIBLE ASSETS
Acquisition
intangible
Goodwill assets
GBPm GBPm
----------------------------------- ----------- ------------
At 1 October 2020 159.0 87.2
Acquisitions 94.8 269.7
Amortisation charge - (15.8)
Exchange adjustments (10.3) (20.2)
At 31 March 2021 243.5 320.9
Acquisitions 22.8 37.1
Disposals (3.8) -
Reclassification to held for sale (4.7) (1.5)
Amortisation charge - (17.3)
Exchange adjustments 2.9 5.7
----------------------------------- ----------- ------------
At 30 September 2021 260.7 344.9
Acquisitions 4.2 9.7
Amortisation charge - (18.8)
Exchange adjustments 5.0 6.4
At 31 March 2022 269.9 342.2
----------------------------------- ----------- ------------
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 primarily
relate to supplier relationships, customer relationships, brands
and patents and these assets will be amortised over five to fifteen
years.
Acquisition related charges of GBP24.3m (2021: GBP20.3m) are
charged to the Consolidated Income Statement. These charges
comprise GBP18.8m (2021: GBP15.8m) of amortisation of acquisition
intangible assets, GBP3.9m (2021: GBP4.5m) of acquisition expenses,
and a GBP1.6m charge principally relating to the recycling of
cumulative foreign currency translation losses arising on the
disposal of Kentek Oy ("Kentek").
10. ACQUISITION AND DISPOSAL OF SUBSIDIARIES
Acquisition of LJR Electronics LLC
On 2 February 2022, the Group acquired 100% of LJR Electronics
LLC ("LJR"), a value-add distributor of connectors in the US. The
consideration was GBP21.3m ($28.9m).
The provisional fair value of LJR's net assets acquired
excluding acquisition intangibles, related deferred tax, and cash
is GBP7.5m following fair value adjustments of GBP1.1m. The
principal fair value adjustments relate to an increase in
provisions held against inventory and trade receivables of GBP0.8m
and GBP0.1m.
From the date of acquisition to 31 March 2022, LJR contributed
GBP2.5m to revenue and GBP0.3m to adjusted operating profit. If it
had been acquired at the beginning of the financial year, it would
have contributed on a pro-forma basis GBP7.5m to revenue and
GBP0.9m to adjusted operating profit. However, these amounts should
not be viewed as indicative of the results that would have
occurred, if LJR had been completed at the beginning of the
year.
Disposal of Kentek Oy
On 16 November 2021, the Group disposed of its 90% interest in
Kentek Oy ("Kentek") for proceeds of GBP10.0m.
Asset held for sale
Assets held for sale (GBP2.9m) relates to one Life Sciences
business that was sold on 3 May 2022, as described in note 16.
11. LEASES - RIGHT OF USE ASSETS AND LEASE LIABILITIES
Right of use assets
Land & Plant Motor IT & office Total
buildings & machinery vehicles equipment
GBPm GBPm GBPm GBPm GBPm
-------------------------- ----------- ------------- ----------
At 1 October 2020 28.5 0.4 2.1 0.6 31.6
Additions 24.9 0.1 1.6 0.3 26.9
Disposals (1.6) - (0.2) - (1.8)
Reclassification to held
for sale (0.3) - (0.1) - (0.4)
Exchange adjustments (0.5) - (0.1) - (0.6)
-------------------------- ----------- ------------- ---------- ------------- -------
At 30 September 2021 51.0 0.5 3.3 0.9 55.7
-------------------------- ----------- ------------- ---------- ------------- -------
Depreciation (9.0) (0.1) (1.4) (0.3) (10.8)
At 30 September 2021 42.0 0.4 1.9 0.6 44.9
-------------------------- ----------- ------------- ---------- ------------- -------
Additions 13.4 0.1 0.7 0.3 14.5
Reclassification to held
for sale (0.3) - (0.4) - (0.7)
Exchange adjustments 1.1 - - - 1.1
------------- -------
At 31 March 2022 56.2 0.5 2.2 0.9 59.8
Depreciation (5.0) (0.1) (0.7) (0.2) (6.0)
------------- -------
At 31 March 2022 51.2 0.4 1.5 0.7 53.8
-------------------------- ----------- ------------- ---------- ------------- -------
Right of use assets represent those assets held under operating
leases which IFRS 16 requires to be capitalised.
Lease liabilities
The movement in lease liabilities is set out below:
GBPm
----------------------------------- -------
At 1 October 2020 33.7
Additions 26.9
Disposals (1.9)
Lease repayments (11.3)
Interest on lease liabilities 1.8
Reclassification to held for sale (0.3)
Exchange movement (0.6)
----------------------------------- -------
At 30 September 2021 48.3
----------------------------------- -------
Additions 16.8
----------------------------------- -------
Lease repayments (6.3)
----------------------------------- -------
Interest on lease liabilities 1.1
----------------------------------- -------
Reclassification to held for sale (0.7)
----------------------------------- -------
Exchange movements 1.1
----------------------------------- -------
At 31 March 2022 60.3
----------------------------------- -------
Analysed as: GBPm
Repayable within one year 10.1
Repayable after one year 50.2
----------------------------------- -------
12. OTHER LIABILITIES
31 March 31 March 30 Sept
2022 2021 2021
GBPm GBPm GBPm
----------------------------------------- --------- --------- --------
Future purchases of minority interests 5.0 4.3 5.2
Deferred consideration 12.7 7.0 18.5
----------------------------------------- --------- --------- --------
17.7 11.3 23.7
----------------------------------------- --------- --------- --------
Analysed as:
Repayable within one year 5.6 10.6 11.7
Repayable after one year 12.1 0.7 12.0
---------------------------------------- --------- --------- --------
The movement in the liability for future purchases of minority
interests is as follows:
31 March 31 March 30 Sept
2022 2021 2021
GBPm GBPm GBPm
------------------------------------------ --------- --------- --------
At 1 October 5.2 4.2 4.2
------------------------------------------ --------- --------- --------
Minority interest on acquisition of
subsidiary - - 0.9
Disposal of minority interest subsidiary (1.2) - -
Fair value remeasurements 1.0 0.1 0.1
At end of period 5.0 4.3 5.2
------------------------------------------ --------- --------- --------
At 31 March 2022, the Group retained put options to acquire
minority interests of 10% held in M Seals and 5% in Techsil. During
the period the Group disposed of Kentek, where the Group retained a
put option to acquire 10%. At 31 March 2022, 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 2022.
Deferred consideration comprises:
31 March 31 March 30 Sept
2022 2021 2021
GBPm GBPm GBPm
----------------- --------- --------- --------
Sphere Surgical - 0.8 1.0
CR Systems - 0.4 -
HSP - - 0.1
PDI 0.8 0.7 0.7
S&W - 3.4 3.5
FITT Resources 0.7 1.7 2.2
Biospecifix 0.4 - 0.4
Kungshusen 5.4 - 5.4
Techsil 1.1 - 1.1
AHW 4.3 - 4.1
----------------- --------- --------- --------
12.7 7.0 18.5
----------------- --------- --------- --------
The movement on deferred consideration during the period is as
follows:
1 Oct Discount Foreign 31 March
2021 unwind Revaluation Payments exchange 2022
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------ ----------- -------------- --------- ---------- ---------
Sphere Surgical 1.0 - - (0.9) (0.1) -
HSP 0.1 - - (0.1) - -
PDI 0.7 - - - 0.1 0.8
S&W 3.5 - (0.5) (2.8) (0.2) -
FITT Resources 2.2 - - (1.6) 0.1 0.7
Biospecifix 0.4 - - - - 0.4
Kungshusen 5.4 0.2 - - (0.2) 5.4
Techsil 1.1 - - - - 1.1
AHW 4.1 0.2 - - - 4.3
----------------- ------ ----------- -------------- --------- ---------- ---------
18.5 0.4 (0.5) (5.4) (0.3) 12.7
----------------- ------ ----------- -------------- --------- ---------- ---------
13. DIVIDS
31 31 Mar 30 Sept 31 31 Mar 30 Sept
Mar 2021 2021 Mar 2021 2021
2022 2022
pence pence pence
per per per
share share share GBPm GBPm GBPm
-------------------------------- ------- ------- -------- ------- ------- --------
Final dividend of the prior
year, paid in January 30.0 30.0 30.0 37.5 37.3 37.3
Interim dividend, paid in June 15.0 12.5 12.5 18.7 15.6 15.6
-------------------------------- ------- ------- -------- ------- ------- --------
45.0 42.5 42.5 56.2 52.9 52.9
-------------------------------- ------- ------- -------- ------- ------- --------
The Directors have declared an interim dividend of 15.0p per
share (2021: 12.5p) which will be paid on 10 June 2022 to
shareholders on the register on 27 May 2022. The total value of the
dividend will be GBP18.7m (2021: GBP15.6m). No liability has been
recognised on the balance sheet at 31 March 2022 in respect of the
interim dividend (2021: same).
14. 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
2022 2021 2021 2022 2021 2021
------------------- --------- --------- -------- --------- --------- --------
US dollar (US$) 1.34 1.36 1.37 1.32 1.38 1.35
Canadian dollar
(C$) 1.69 1.74 1.73 1.64 1.73 1.71
Euro (EUR) 1.19 1.13 1.15 1.18 1.17 1.16
Swiss franc (CHF) 1.23 1.23 1.25 1.21 1.30 1.26
Australian dollar
(A$) 1.84 1.81 1.83 1.75 1.81 1.87
------------------- --------- --------- -------- --------- --------- --------
15. RELATED PARTY TRANSACTIONS
There have been no changes to the related party arrangements or
transactions as reported in the 2021 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.
16. POST BALANCE SHEET EVENTS
Acquisition of R&G Fluid Power Group Limited
On 12 April 2022, the Group announced the acquisition of R&G
Fluid Power Group Limited ("R&G"), a value-added distributor of
a diverse range of industrial, hydraulic and pneumatic products
(including seals and gaskets), for consideration of GBP100m.
R&G is headquartered in Preston, and has a geographical
presence across the UK.
The transaction has been funded through existing cash resources
and debt facilities.
An initial accounting and fair value exercise will be completed
in the second half of the year.
Acquisition of Accu-Science Ireland Limited and Medilink
Services (NI) Limited
On 10 May 2022, the Group completed the acquisition of
Accu-Science Ireland Limited and Medilink Services (NI) Limited
(together "Accuscience"), a market-leading life sciences and
med-tech distributor in Ireland, for consideration of GBP51m.
The transaction has been funded through existing cash resources
and debt facilities.
An initial accounting and fair value exercise will be completed
in the second half of the year.
Disposal of a1-envirosciences GmbH and a1-envirosciences
Limited
On 3 May 2022, the Group disposed of 100% of a1-envirosciences
GmbH and a1-envirosciences Limited (together "a1-envirosciences")
for GBP11.0m. At 31 March 2022, the net assets of a1-envirosciences
have been classified as held for sale (GBP2.9m).
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