REG - Diploma PLC - Full Year Results
20/11/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20231120:nRST9032Ta&default-theme=true
RNS Number : 9032T Diploma PLC 20 November 2023
DIPLOMA PLC 10-11 CHARTERHOUSE SQUARE, LONDON EC1M 6EE
TELEPHONE: +44 (0)20 7549 5700
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2023
Sustainable Quality Compounding
FY 2023 FY 2022 Y/y change
Revenue £1,200.3m £1,012.8m +19%
Organic revenue growth ((1)) 8% 15%
Adjusted operating profit ((2)) £237.0m £191.2m +24%
Adjusted operating margin ((2)()) 19.7% 18.9% +80bps
Statutory operating profit £183.3m £144.3m +27%
Free cash flow ((3)) £163.8m £120.4m +36%
Free cash flow conversion ((3)) 100% 90%
Adjusted earnings per share ((2)) 126.5p 107.5p +18%
Basic earnings per share 90.8p 76.1p +19%
Leverage 0.9x 1.4x
Total dividend per share 56.5p 53.8p +5%
ROATCE 18.1% 17.3% +80bps
(1) Adjusted for acquisition and disposal contribution and currency effects;
(2) Before acquisition related and other charges and acquisition related
finance charges; (3) Before cash flows on acquisitions, disposals and
dividends. All alternative performance measures are defined in note 14 to the
Condensed Consolidated Financial Statements.
Excellent financial performance
● Strong organic growth of 8%. Good momentum into FY24, with Q4 volume-led exit
rate of 7%.
● £280m invested in 12 quality acquisitions, supporting reported revenue growth
of 19%.
● Adjusted operating margin up 80 bps to 19.7%, reflecting our value-add
proposition; operational leverage; disciplined cost management; and accretive
acquisitions.
● Delivered with discipline: free cash flow conversion of 100%; ROATCE up 80 bps
to 18.1%; and leverage reduced to 0.9x.
● Confident FY24 guidance with growth in line with our financial model and
consistently high margins.
Commenting, Johnny Thomson, Diploma's Chief Executive said:
"I'd like to thank all my brilliant colleagues who consistently deliver great
service to our customers. Our decentralised culture is special, and preserving
it as we grow is central to sustaining our great track record.
"We've had an excellent year with strong, volume-led organic growth; great
margin progression; and continued double-digit EPS growth, all at strong
returns. We continue to diversify end-market exposures, penetrate core
geographies; and expand addressable markets through product extension to drive
organic growth. We welcomed 12 quality new businesses to the Group. And, we
carefully develop our businesses for scale.
"Diploma has a long track record of double-digit EPS growth at healthy
returns. We are encouraged by momentum into FY24, and we are confident of
continuing to deliver sustainable quality compounding."
Revenue diversification driving organic growth and increasing resilience
● Controls +11%: International Controls benefitted from structural tailwinds and
market share gains in civil aerospace, defence and energy markets. Sustained
strong growth from Windy City Wire (WCW).
● Seals +5%: Growth in International Seals led by contributions from R&G in
the UK and our Australian businesses. In North America, Aftermarket continued
to perform well and take market share. Softer performance in European and US
OEM businesses with customer destocking in some end markets.
● Life Sciences +8%: Good growth resumed in the second half, as expected.
Hospital staffing and surgical procedures have broadly recovered, and clinical
diagnostics continues to benefit from increased investment.
Complementary acquisitions driving future organic growth
● 10 small bolt-ons for £33m; average EBIT multiple below 5x; £33m of annual
revenue; accretive EBIT margins; and 20% year one ROATCE.
● Two strategic platform acquisitions that address some of our "white space"
with strong organic growth potential at accretive operating margins; funded by
equity raise of ca. £232m in March 2023.
○ Acquisition of T.I.E. for ca. £76m, entering the strategically important
industrial automation end market in the US.
○ Acquisition of DICSA for ca. £170m, establishing a scaled platform in fluid
power solutions across the European aftermarket.
● Continued portfolio management discipline: disposed of a non-core, lower
margin heating control business in March for £23m.
● M&A pipeline of ca. £1bn, diversified by Sector, size and geography.
Strength of cash flow and balance sheet provides capacity for disciplined
growth.
Scaling effectively for sustainable growth
● Focused investments in talent, technology and new facilities across our
businesses to continue delivering their customer proposition at scale.
● Evolving our structure, capability and culture to support the development of
the Group.
● Delivered improvements against all our Delivering Value Responsibly targets.
Confident outlook
● Despite the challenging macro environment, the resilience of our model
supports our confidence in the year ahead.
● FY24 growth is expected to be in line with our financial model, albeit with
stronger margins:
○ Organic revenue growth of ca. 5%.
○ Acquisitions announced to date to add ca. 6% to reported revenue growth.
○ Strong operating margin, consistent year-on-year at ca. 19.7%.
○ Free cash flow conversion of ca. 90%.
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, leverage and ROATCE. All references in this
Announcement to "organic" 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 14 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.
A presentation of the results to analysts and investors will be held at 09:00
GMT. This will be streamed live via webcast and audio conference call.
Register your attendance for the webcast at: https://brrmedia.news/DPLM_FY23
(https://brrmedia.news/DPLM_FY23)
Conference call dial in details:
● Dial in: +44 (0) 33 0551 0200 (UK-Wide) / 0808 109 0700 (UK Toll Free)
● Confirmation code: Diploma Full Year
A recording of the presentation will be available after the event on our
website: https://www.diplomaplc.com/investors/financial-presentations/
(https://www.diplomaplc.com/investors/financial-presentations/)
Diploma hosted an Investor Seminar in June 2023. A recording is available on
our website:
https://www.diplomaplc.com/investors/results-reports-presentations/investor-seminar-2023/
For further information please contact:
Diploma PLC - +44 (0)20 7549 5700
Johnny Thomson, Chief Executive Officer
Chris Davies, Chief Financial Officer
Holly Gillis, Head of Investor Relations
Teneo - +44 (0)20 7353 4200
Martin Robinson
Olivia Peters
NOTE TO EDITORS:
Diploma PLC is a decentralised, value-add distribution Group. Our businesses
deliver practical and innovative solutions that keep key industries moving -
from energy and infrastructure to healthcare.
We are a distribution group with a difference. Our businesses have the
technical expertise, specialist knowledge, and long-term relationships
required to deliver value-add products and services that make our customers'
lives easier. These value-add solutions drive customer loyalty, market share
growth and strong margins.
Our decentralised model means our specialist businesses are agile and
empowered to deliver the right solutions for their customers, in their own
way. As part of Diploma, our businesses can also leverage the additional
resources, opportunities and expertise of a large, international and
diversified Group to benefit their customers, colleagues, suppliers and
communities.
We employ c.3,500 colleagues across our three Sectors of Controls, Seals and
Life Sciences. Our principal operating businesses are located in the UK,
Northern Europe, North America and Australia.
Over the last fifteen years, the Group has grown adjusted earnings per share
(EPS) at an average of ca. 15% p.a. through a combination of organic growth
and acquisitions.
Diploma is a member of the FTSE 100.
Further information on Diploma PLC can be found at www.diplomaplc.com
(http://www.diplomaplc.com)
The person responsible for releasing this Announcement is John Morrison,
Company Secretary.
LEI: 2138008OGI7VYG8FGR19
FULL YEAR REVIEW TO 30 SEPTEMBER 2023
Excellent financial performance, delivered with discipline
The Group has delivered another successful year, reflecting the power of our
value-add propositions, our strategy, and our decentralised model. This,
underpinned by the commitment of our colleagues to deliver excellent customer
service, has enabled us again to deliver strong organic growth at high and
growing margins.
Revenue in the year was up 19% to £1.2bn (2022: £1.0bn). Organic growth of
8% was driven by strong volumes. Acquisitions, net of a small disposal,
contributed 8% to reported revenue while foreign exchange translation added a
further 3%.
Our value-add customer propositions enable us to price to offset cost
inflation and then selectively reinvest some of the benefits of positive
operational leverage into scaling our businesses. This 'margin formula',
coupled with disciplined cost control and accretive acquisitions, means that
we have increased adjusted operating margin by 80 bps to a very strong 19.7%
(2022: 18.9%). Our adjusted operating profit increased by 24% to £237.0m
(2022: £191.2m).
Adjusted earnings per share (EPS) grew by 18%, continuing our long-term
compounding track record (15% compound annual growth rate (CAGR) EPS over 15
years).
Our cash-generative business model drove free cash flow conversion of 100%
(2022: 90%), benefitting from targeted inventory reduction. Together with the
equity raise earlier in the year, this led to a reduction in net debt to
£254.7m, reducing leverage to 0.9x at 30 September 2023 (2022: £328.9m and
1.4x). Returns on capital are a key underpin of our compounding financial
model and return on average trading capital employed (ROATCE) improved by 80
bps to 18.1% (2022: 17.3%).
In light of this strong performance and in line with our financial model, the
Board proposes a final dividend of 40.0p per share (2022: 38.8p), bringing the
full year dividend to 56.5p per share (2022: 53.8p), a 5% increase. The final
dividend is payable on 2 February 2024 to shareholders on the register on 19
January 2024, with a corresponding ex-dividend date of 18 January 2024.
Revenue diversification driving organic growth and increasing resilience
The Group's strategy is to build high-quality, scalable businesses for organic
growth.
We drive organic growth in three ways: positioning behind structurally growing
end markets; penetrating further into core developed geographies; and
extending our product range to expand addressable markets. This strategy
drives both sustainable organic growth and increased resilience. Execution of
this strategy across our businesses drove organic growth of 8% in FY23, with
strong trading momentum as we exit the year.
Revenue £m Growth
FY 23 FY 22 Reported Organic
Controls 568.4 492.8 +15% +11%
Seals 419.0 331.4 +26% +5%
Life Sciences 212.9 188.6 +13% +8%
Group 1,200.3 1,012.8 +19% +8%
Some examples of how our businesses are delivering organic growth are set out
below, with further detail provided in the Sector Reviews.
Positioning to take advantage of structurally growing end markets. Across the
Group we have continued to drive growth through expansion in structurally
growing end markets. A number of businesses in our Controls Sector are gaining
share in aerospace, defence and energy markets as well as penetrating the
wider electrification ecosystem. The acquisition of Tennessee Industrial
Electronics (T.I.E.) in March gives us access to the strategically important
industrial automation end-market in the US. Across our Seals businesses, we
are well positioned to benefit from US infrastructure spend and we have
diversified into exciting growing markets such as water treatment and
renewable energy. In Life Sciences, in addition to benefitting from the
recovery of surgical procedures, our businesses are continuing to diversify,
in particular across diagnostic areas such as molecular testing, allergy and
auto-immune testing, haematology, and cancer screening.
Penetration of core developed economies. Over the last year we have made
progress developing our US and European footprint. In Controls, for example,
we continue to win market share in the German energy market delivering very
strong double-digit growth. In Seals, we are continuing to win share in the
western and mid-west states of the US, leveraging the investment in the
facility in Louisville. In the UK, R&G has enjoyed a very strong first
year in the Group, building out our regional position and product offerings to
drive excellent organic growth. The acquisition of Distribuidora Internacional
Carmen S.A.U. (DICSA) in July creates a platform for our fluid power business
in Spain and across Europe, including cross-selling opportunities with
R&G. In Life Sciences, we now have a scaled European platform.
Product range extension. New product development forms an ongoing component of
all our businesses' organic growth strategies.
● Controls has delivered outstanding growth from specialty adhesives, having
entered that segment through the acquisition of Techsil in 2021. The
acquisition of T.I.E. brings expertise in aftermarket and circular economy
solutions for CNC machines and robotics.
● With the acquisition of DICSA, following last year's acquisition of R&G,
Seals continues to diversify from its traditional strength across seals and
gaskets, into wider fluid power products.
● Product development is intrinsic to our Life Sciences businesses. The Canadian
businesses introduced new technology in the gastrointestinal and surgical
segments. The European businesses introduced the single-use endoscope in the
Urology segment, as well as new ultrasound technology, and new products in the
lab and pharmaceutical testing environments.
Complementary acquisitions to accelerate growth
Acquisitions can accelerate our growth strategy. We are disciplined and
selective and will only consider opportunities with the following core
characteristics:
● differentiated value-add customer proposition generating sustainable high
gross margins;
● strong organic growth and scaling potential; and
● capable management teams we can back.
Since 30 September 2022, we have acquired 12 high-quality businesses for a
total of £280m.
In March, we acquired T.I.E. for ca. £76m, entering the strategically
important industrial automation end market in the US. T.I.E. is a high growth,
market-leading value-add distributor of aftermarket parts and repair services
for robotics and CNC machines. It differentiates through speed to market and
superior technical support, driving a strong organic growth track record and
high margins.
In July, we acquired DICSA for ca. £170m, establishing a platform in fluid
power solutions across the European aftermarket. DICSA has significant
customer value-add, based on quality product, breadth of range, technical
service, and speed to market. It adds to our established positions in the US
and UK, expanding our aftermarket fluid power capability and accessing key
strategic markets. Over time we will drive significant revenue and procurement
synergies including cross-selling existing product from R&G through
DICSA's platform into Europe; leveraging our North American Seals Aftermarket
platform to accelerate DICSA's growth in the US; and delivering consolidated
procurement synergies.
Both T.I.E. and DICSA are strategic platform acquisitions, well positioned for
continued strong growth, and are margin and earnings accretive in the first
year.
During the year, we have also completed 10 bolt-on acquisitions for £33m, at
an average earnings before interest and tax (EBIT) multiple of under 5x. These
will add £33m of annual revenue to the Group at accretive EBIT margins,
driving ROATCE of over 20% from their first full year.
Continuing our disciplined approach to portfolio management, we disposed of
the lower growth, lower margin Hawco business (fluid controls within the
Controls Sector) in March for £23m.
In fragmented markets with a well-developed approach and a compelling
proposition to sellers, the Group's acquisition pipeline is strong and
diversified. We remain committed to disciplined investment of capital,
ensuring the Group's acquisitions support our future organic growth and
deliver compounding earnings growth at high returns over the long term.
Scaling the Businesses and the Group
Delivering our strategy of building high-quality businesses for sustainable
organic growth requires that we scale the businesses, developing their
operating models to continue to deliver great customer propositions at scale.
At the same time, we are developing the Group, evolving our structures,
capabilities and culture to support this growth and maintain discipline and
appropriate controls.
Scaling the Businesses
We have a simple, common framework which enables our businesses to deliver
their target operating models. We have a set of core competencies (value-add,
supply chain, operational excellence, commercial discipline, and route to
market) which underpin their model.
As well as developing core competencies, scaling our businesses requires
selective investment in capability, in the form of talent, technology, and
facilities. During the year, we have invested in functional leadership across
a number of our businesses, creating or upgrading roles in areas such as
supply chain management, operations, route to market and support functions.
From a technology perspective, we have Enterprise Resource Planning (ERP)
upgrade projects underway across a number of businesses, as well as automated
warehouse system upgrades in some Seals and Controls businesses. In terms of
facilities, we have upgrades and relocations underway in each of our three
Sectors to drive efficiency and improved customer service as those businesses
continue to grow.
Scaling the Group
We have continued to focus on three principles this year:
First: keep it focused. This means portfolio discipline to ensure a manageable
platform for scale. Despite more than doubling in size, we have moved from 20
to 16 business units in the last four years. For example, during the year we
created new scaled businesses in Life Sciences (Canada and Ireland) and Seals
(Australia) by combining smaller constituent businesses to form integrated
operations that are better able to service their customers at scale.
Second: lean structures with dynamic leaders. This avoids bureaucracy in the
businesses and promotes alignment, agility and execution. We have very lean
Central and Sector teams but require more capability and capacity as we grow.
During the year, we have selectively added capability in Finance, HR,
Sustainability and Risk & Compliance roles. Through our development
processes and programmes, alongside external appointments, we are building
talent and succession across the organisation.
Third: mood - the beat of the organisation. Decentralisation doesn't mean
isolation. Regular individual and collective touchpoints allow us to be agile,
manage pace, and execute better. This year, we have further developed the
'Diploma Identity', strengthening leadership networks, collaboration and best
practice sharing, while preserving our critical differentiated decentralised
culture.
Delivering Value Responsibly
We are making good progress across our businesses with Delivering Value
Responsibly (DVR). During the year we have hired an experienced Group
Sustainability Director and submitted our net zero targets for validation to
the Science Based Targets initiative (SBTi).
DVR, our framework, is focused on six core areas:
● Colleague Engagement increased to 80%, a very strong result particularly for a
decentralised business. We have engagement plans in each of our businesses and
aim to maintain engagement above 70% over the long-term.
● Workshops and listening groups are also helping to further our Diversity,
Equity & Inclusion agenda. Over the last four years our gender diversity
has improved, with women now representing 28% of our Senior Management Team
(SMT) up from 20% in 2019. Our 2030 target is for women to make up 40% of our
SMT.
● Potential hazard reporting and training are enhancing our Health & Safety
culture. In 2023, our Lost time incident (LTI) Rate (LTIs per 1,000 employees)
was 9.5 (2022: 10.6). We target at least a 5% reduction in lost time incidents
every year.
● Our businesses are stepping up engagement with their Supply Chains. Over 70%
of key suppliers are now aligned to our Supplier Code - committing to high
ethical, professional and legal standards.
● Further focus on Climate Action has included energy workshops and implementing
emission-reduction initiatives. We have begun to introduce solar solutions on
our facilities and expect to progress this further in the coming year. Our
target is to achieve net zero across our value chain by 2045, with a 50%
reduction in Scope 1 & 2 emissions by 2030.
● We are making good progress in Waste Reduction, with the volume of waste sent
to landfill down to 32% from 60% in the prior year.
We are also focused on the positive impact that our Group has on society and
the environment by delivering innovative and life-saving healthcare solutions;
playing a role in renewable energy generation; and supporting circular
practices across our aftermarket businesses.
Outlook
Whilst we remain mindful of the uncertain economic outlook, we are confident
in the Group's prospects. Diploma has an excellent track record of compounding
growth and delivering strong financial returns through the cycle. Our model is
resilient, and its resilience has increased over time as we execute our
strategy:
● Our revenue is resilient: Ongoing diversification means we are exposed to
structurally growing end segments.
● Our margins are resilient: Focus on value-add solutions critical to customer
needs supports pricing power.
● Our cash flow is resilient: Our low capital-intensity model is highly
cash-generative, underpinning a strong balance sheet.
At this stage in the year, FY24 growth is expected to be in line with our
long-term financial model, albeit at higher margins:
● Volume-led organic revenue growth of ca. 5%.
● Acquisitions announced to date add ca. 6% (net) to reported revenue growth.
● Strong, operating margin of ca. 19.7%.
● Free cash flow conversion of ca. 90%.
We remain focused on executing our strategy of building high-quality, scalable
businesses for organic growth and are confident in our ability to deliver
long-term growth at sustainably high margins.
SECTOR REVIEW: CONTROLS
The Controls Sector businesses supply specialised wiring, cable, connectors,
fasteners, control devices, adhesives, and CNC and robotic components for a
range of technically demanding applications.
2023 2022 Change
Revenue £568.4m £492.8m +15%
Organic revenue growth +11% +24%
Statutory operating profit £112.9m £75.3m +50%
Adjusted operating profit £136.6m £105.8m +29%
Adjusted operating margin 24.0% 21.5% +250bps
2023 highlights
● Very strong performance in International Controls with organic revenue growth
of 15%.
● Windy City Wire (WCW) delivered organic growth of 7%, building on a very
strong comparative period in FY22.
● Adjusted operating profit increased significantly, 29% higher at £136.6m
(2022: £105.8m) with a 250bps year-on-year increase in adjusted operating
margin to 24.0% (2022: 21.5%). Both WCW and International Controls contributed
to margin expansion driven by positive operating leverage and mix into higher
margin products.
● Strategic acquisition of Tennessee Industrial Electronics (T.I.E.) builds
scale and gives access to the important industrial automation end market.
International Controls (51% of Controls Sector revenue) delivered 15% organic
growth in the year, benefitting from market share gains in recovering civil
aerospace markets and structural tailwinds in UK defence and German energy
markets as investment in these areas remains a critical focus for governments.
The Sector also further penetrated exciting end markets within electric
vehicles (EV), renewables and space. Operating margin increased strongly,
primarily due to positive operating leverage on volume growth, and mix
benefits from the acquisition of T.I.E. and disposal of Hawco.
Windy City Wire (49% of Controls Sector revenue) continues to perform
strongly, with organic revenue growth of 7% in the year, following a very
strong comparative period with 32% organic growth in FY22. Product range
extension and share gains in new end market segments drove volume and a
favourable mix.
Revenue diversification driving organic growth
The Sector continues to diversify its end markets, gaining share in space and
telecoms and benefitting from the wider move to electrification and green
energy as it continues to deliver growth in the EV and renewable energy end
markets.
We delivered strong double-digit organic growth in our Interconnect
businesses, particularly in the German energy end market, driven by share
gains and upgrades to the transmission and distribution network. Other key
growth segments include defence, motorsport, aerospace and medical, where our
businesses benefitted from momentum in these growing end markets and share
gains.
Our Specialty Fasteners businesses delivered very strong double-digit growth
during the year as they continue to win market share and benefit from strong
customer demand in the recovering civil aerospace market in both the US and
UK. We secured key contract wins in seats and cabin hardware and further
diversified end markets with good momentum into space, unmanned aerial
vehicles (UAVs) and electric vertical take-off and landing (eVTOL) aircraft.
Geographic diversification has also been a theme in aerospace, with an
important contract win in France for a major cabin and seating manufacturer.
Specialty Adhesives delivered strong double-digit growth in its key automotive
end market as well as continued share gains in the telecommunications and EV
markets.
WCW continues to drive strong growth and gain share in the high margin petrol
station end-market where its products are essential to the new generation chip
readers used to prevent fraud, and which are being systematically rolled out
across the US.
Targeted acquisitions to accelerate growth
During the year, the Sector completed the acquisition of T.I.E. for ca. £76m,
providing it with access to the important industrial automation end market,
which has been a strategic target end market for some time. T.I.E. also drives
product extension (robotics and CNC machines) as well as deepening geographic
penetration in the key US market.
Two smaller bolt-on acquisitions were completed in the year, with Eurobond
further broadening our product offering in Specialty Adhesives, and Shrinktek
expanding the Sector's offering in UK Wire & Cable.
Building scale
Significant investment in technology and facilities is underway as the Sector
finalises the integration of its UK Wire & Cable locations into one
state-of-the-art facility and a common ERP platform.
Sales resource has been added to the European Fasteners business as part of
the strategy to expand in the civil aerospace market. Focused investments in
sales resources are also being made into the adhesives market to capitalise on
long-term aerospace and defence opportunities.
Outlook
We have made good strategic progress in Controls. Our businesses are
benefitting from initiatives to capture growth in structurally growing end
markets, such as data centres, EV and energy, as well as high-growth emerging
markets, such as space and eVTOL. We are also benefitting from continued
geographic diversification as we continue to build scale in the US and Europe.
We are taking share in markets in which we operate. The Sector has strong
momentum, and we remain very positive about its prospects.
Sector review: SEALS
The Seals Sector businesses supply a range of seals, gaskets, cylinders,
components and kits used in heavy mobile machinery and a diverse range of
fluid power products with Aftermarket, OEM and MRO applications.
2023 2022 Change
Revenue £419.0m £331.4m +26%
Organic revenue growth +5% +14%
Statutory operating profit £55.8m £46.0m +21%
Adjusted operating profit £79.0m £62.6m +26%
Adjusted operating margin 18.9% 18.9% -
2023 highlights
● Strong International Seals performance driven by R&G and Australian Seals.
● Resilient performance in North American Seals, benefitting from returns on the
investment into the Aftermarket facility in Louisville and strong performance
in our MRO business offsetting some destocking in certain OEM customers.
● Adjusted operating profit increased by 26% to £79.0m (2022: £62.6m).
● Invested in scaling projects focusing on automation and supply chain
efficiencies through facilities upgrades.
● Strategic acquisition of Distribuidora Internacional Carmen S.A.U. (DICSA)
builds scale in Europe and broadens the product portfolio into stainless steel
fittings, expanding addressable markets.
International Seals (56% of Sector revenue) delivered strong organic growth of
9%, principally driven by an excellent trading performance from R&G in the
UK and strong recovery of capital projects in Australia.
North American Seals (44% of Sector revenue) delivered organic growth of 1%
against a very strong comparator (2022: +16%) with strong growth in our North
American Aftermarket and MRO businesses, partly offset by some destocking in
some Industrial OEM customers.
Revenue diversification driving organic growth
In International Seals, our UK Aftermarket business, R&G, grew strongly,
benefitting from initiatives to diversify into product adjacencies and new end
markets, such as wastewater treatment and potash mining. R&G has made a
significant contribution to the organic growth of the Sector since
acquisition, driven by strong sales into capital projects, particularly in the
pneumatics and industrial markets, underpinned by solid MRO volumes.
Our Australian Seals businesses delivered very strong growth. This was driven
by share gains and public infrastructure investments on the east coast, strong
demand in anti-corrosion applications in the oil and gas industries, and
continuous strong demand for the mining of raw materials for batteries.
Anti-Corrosion Technology (ACT), which was acquired in late FY22, has more
than doubled since acquisition, capitalising on asset protection projects in
the oil and gas industry.
We saw softer performance in our European OEM businesses where both medical
and industrial end markets suffered some customer destocking. We expect this
to moderate growth in the near term.
North American Aftermarket delivered another year of strong growth. The
investment in our Aftermarket facility in Louisville, extending service hours
and product availability, is continuing to deliver accelerated growth and
market share gains, particularly in western states. Very strong organic growth
in the core repair market was boosted by the continuing focus on US
infrastructure development.
The US MRO business delivered strong organic growth driven by high levels of
demand for our proprietary products in the transportation market.
The US OEM business was softer, driven by destocking in a number of customers.
We expect this to moderate growth in the near term.
Targeted acquisitions to accelerate growth
During the year, the Sector acquired DICSA for ca. £170m, establishing a
scaled platform in fluid power solutions across the European aftermarket. It
adds to our established positions in the US and UK and over time will drive
significant revenue and procurement synergies: cross-selling existing product
from R&G, leveraging the Louisville facility to accelerate DICSA's growth
in the US, and enabling procurement synergies.
Also in International Seals, four bolt-on acquisitions were added into the
R&G Group. Hedley and FPS bring complementary products and geographical
expansion to R&G's Hydraulics division. Valves Online will complement and
strengthen R&G's capabilities in the online route to market, as well as
developing the valve product category. Lantech enhances the end market
capabilities of the Industrial division with its focus on the food &
beverage and pharmaceutical markets.
In North American Seals, VSP acquired two businesses during the year, both
creating cross-selling opportunities. GP&S, which supplies gaskets, seals,
and fasteners; and Hex, which provides bolting and sealing training solutions
to make manufacturing sites safer, more reliable and more profitable. Hercules
OEM completed the bolt-on acquisition of ITG, a distributor of seals and
adhesives for use in electrical connectors, valves, medical devices and
industrial equipment.
Building scale
The Sector is selectively integrating smaller businesses to form better scaled
platforms and during the year, completed the integration of TotalSeal into
FITT Resources in Australia.
Further scaling investments in facilities to establish national hubs are being
made, with the construction of a new M Seals facility in Denmark that will
become the Nordic hub for the Sector. In the UK, we have invested in a
national distribution centre for hydraulic products and a centre of excellence
for hose assemblies to position R&G as the national leader for these
product ranges.
In North American Seals, we have focused on improving the supply chain;
investing in facilities, talent and processes to improve supply-demand
planning and optimise inventory. The Sector continues to make major
investments in warehouse automation and has successfully expanded the
Autostore facility in Louisville.
Outlook
We have made good strategic progress in Seals in the year and the growth
prospects for the Sector remain strong. The Sector is more resilient now than
ever, supported by end segment exposures such as medical, food and beverage
and renewable energy, and DICSA adds a scaled European operation to our
existing US and UK platforms. Customer destocking has continued in our North
American and European industrial OEM businesses, and while we remain confident
in their long term prospects, we do expect this to moderate Seals growth in
the near term. We are well positioned to benefit from the significant
investments into infrastructure projects across the US and Europe, which
create a tailwind for growth across our Aftermarket businesses.
Sector review: LIFE SCIENCES
The Life Sciences Sector sources and supplies technology driven value add
solutions in the In Vitro Diagnostics , Scientific and Medtech segments of the
Global Healthcare market.
2023 2022 Change
Revenue £212.9m £188.6m +13%
Organic revenue growth 8% (4%)
Statutory operating profit £36.4m £42.5m (14%)
Adjusted operating profit £43.2m £41.0m +5%
Adjusted operating margin 20.3% 21.7% (140)bps
2023 highlights
● Organic revenue +8% (2022: -4%): The Sector has returned to growth, with
momentum accelerating, driven by the normalisation of surgical procedure and
diagnostic testing volumes despite ongoing healthcare staffing challenges.
● Positive outlook as governments act to address healthcare staffing shortages
with automation and the associated increase in capital project funding.
● Operating margins remain well ahead of our financial model but declined
year-on-year, as expected, primarily due to a higher proportion of relatively
lower margin capital sales; a full year effect of Accuscience (which has a
lower margin with lower capital intensity); plus ongoing scaling investments.
● Continued investments being made to build scale in the facilities and systems
in Canada and Europe following the successful completion of the scaling
project in Australasia.
Revenue diversification driving organic growth
All businesses in the Sector have successfully diversified revenue streams to
capitalise on the recovery of surgical and operating room procedures, as well
as the increased funding for capital projects. During the year, we have
secured new contracts across all regions as governments and hospitals increase
capacity to clear the surgical backlogs and reinvest in new medical research
laboratories.
New product introduction and the adoption of new technology were the primary
drivers of growth in FY23. Growth has been driven by automated diagnostic
testing in histology; molecular testing in infectious disease; haematology
testing in oncology; AI-assistance in diagnostic & therapeutic endoscopy;
single-use endoscopy in surgical urology procedures; and point of care patient
monitoring and ultrasound.
Our growth in Canada has been driven largely by implementation of technology
and innovation by hospitals to address acute staffing shortages, with
successful expansion in the urology, gynaecology and endoscopy specialties as
well as technological adoption in laboratories and increased focus in
interventional diagnostics testing. The Australian and New Zealand markets
moved out of restrictive business conditions in January, resulting in
increased activities in surgery case numbers (as staff availability improved),
scientific projects and studies, and pathology testing. In Europe, our Irish
and UK businesses continue to see growth in the In Vitro Diagnostics (IVD)
segment and the scientific segments driven by improvement in technologies for
R&D and manufacturing regulations. In the Nordics, we are well positioned
to further expand into the critical care, surgical and gastrointestinal
segments through national tender and contract wins.
Building scale
In Australia, we have successfully combined the operations of our two
businesses to generate operational efficiencies, such as warehouse process
improvements and freight consolidation. Similar projects are underway in the
Canadian and European businesses, focusing on facilities and ERP systems.
Together, these projects will build three scaled platform businesses to enable
the Sector to capitalise on future growth opportunities.
Targeted acquisitions to accelerate growth
In July 2023 we acquired GM Medical in Denmark, distributing consumables and
capital equipment for anaesthesia, critical care, surgery, obstetrics,
neonatology, simulation and sterilisation. GM Medical is highly complementary
to our existing Danish business, Simonsen & Weel.
Outlook
With tailwinds from the recovery in surgical procedures, and increasing
investment in pre-emptive diagnostics, the Sector's growth outlook remains
positive. All businesses in the Sector continue to focus on building their
portfolio of products and services to broaden their value proposition to both
suppliers and customers. FY24 will see a continuation of private and public
laboratories investing to meet the growing demand for expanded diagnostics and
screening utilising new automation and molecular testing; surgical and
critical care capacity being rebuilt and expanded in healthcare systems; and
drug and vaccine research and development, and companion diagnostics fields
accelerating.
Finance rEVIEW
The Group reports under UK-adopted International Accounting Standards and
references alternative performance measures where the Board believes that they
help to effectively monitor the performance of the Group and support readers
of the Financial Statements in drawing comparisons with past performance.
Certain alternative performance measures are also relevant in calculating a
meaningful element of Executive Directors' variable remuneration and our debt
covenants. Alternative performance measures are not considered to be a
substitute for, or superior to, IFRS measures. These are detailed in note 14
to the Condensed Consolidated Financial Statements.
In FY23, the Group has again demonstrated progress against all elements of our
financial model.
Excellent financial performance FY23 Model
Organic growth is our first priority 8% 5%
Total revenue accelerated by quality acquisitions 19% 10%
Value-add drives strong operating margins 19.7% 17%+
Compounding EPS growth 18% double-digit
Delivered with discipline FY23 Model
Capital-light business model drives strong cash conversion 100% 90%+
Capital stewardship focused on strong ROATCE 18.1% High teens
Balance sheet discipline maintains prudent leverage 0.9x <2.0x
Return to shareholders with a progressive dividend 5% 5%
Summary income statement
Our diversified portfolio and growth strategy drive strong, sustainable
revenue growth, and our value-add service propositions drive consistently high
margins.
Year ended 30 September 2023 Year ended 30 September 2022
Adjusted £m Adjustments £m Total Adjusted £m Adjustments Total
£m £m £m
Revenue 1,200.3 - 1,200.3 1,012.8 - 1,012.8
Operating expenses (963.3) (53.7) (1,017.0) (821.6) (46.9) (868.5)
Operating profit 237.0 (53.7) 183.3 191.2 (46.9) 144.3
Financial expense, net (20.4) (7.3) (27.7) (11.6) (3.2) (14.8)
Profit before tax 216.6 (61.0) 155.6 179.6 (50.1) 129.5
Tax expense (52.0) 14.7 (37.3) (45.0) 10.9 (34.1)
Profit for the year 164.6 (46.3) 118.3 134.6 (39.2) 95.4
Earnings per share (p)
Adjusted/Basic 126.5 90.8 107.5 76.1
Reported revenue increased by 19% to £1,200.3m (2022: £1,012.8m), consisting
of organic growth of 8%, an 8% net contribution from acquisitions and
disposals, and a 3% benefit from foreign exchange translation. During the
year, the Group disposed of Hawco, which contributed £15.1m to Group revenues
in FY2023 (2022: £30.7m).
Adjusted operating profit increased by 24% to £237.0m (2022: £191.2m) as the
operational leverage from the increased revenue, disciplined cost management
and accretive acquisitions drove an 80bps year-on-year improvement in the
adjusted operating margin to 19.7% (2022: 18.9%). Statutory operating profit
increased 27% to £183.3m (2022: £144.3m), benefitting from a £12.2m profit
on disposal of Hawco, compared with a net gain on disposal of £7.3m in the
prior year relating to the disposal of Kentek and a1-envirosciences.
Net adjusted finance expense increased to £20.4m (2022: £11.6m), principally
due to the impact of higher interest rates, in particular in the second half
of the year. Average gross debt remained broadly consistent with prior year
with the proceeds from the equity raise in March being utilised, as intended,
to finance acquisitions during the year. The all-in, blended cost of bank debt
increased to 5.6% (2022: 2.8%).
Adjusted profit before tax increased 21% to £216.6m (2022: £179.6m).
Statutory profit before tax was £155.6m (2022: £129.5m) and is stated after
charging acquisition and other related charges, and acquisition related
finance charges. Acquisition and other related charges of £53.7m (2022:
£46.9m) principally comprise of the amortisation of acquisition related
intangible assets of £52.9m (2022: £42.4m), £6.3m of acquisition related
expenses (2022: £10.5m), £5.9m of fair value adjustments to inventory
acquired through acquisition recognised in cost of inventories sold (2022:
£nil) and partly offset by a net gain of £12.2m (2022: £7.3m) from the
disposal of Hawco in the year. Acquisition related finance charges of £7.3m
(2022: £3.2m) principally comprise of fair value remeasurement of put options
for future minority purchases of £1.8m (2022:£1.4m) and amortisation and
write-off of capitalised borrowing fees on acquisition related borrowings of
£5.9m (2022: £1.4m).
We are committed to being a responsible taxpayer and our approach is to comply
with tax laws in the countries in which we operate and to pay our fair share
of tax. The Group's tax strategy was approved by the Board and is published on
our website. The Group's adjusted effective rate of tax on adjusted profit
before tax was 24.0% (2022: 25.0%) reduced from the year ended 30 September
2022 largely due to non-recurring items from the prior year.
Adjusted earnings per share increased by 18% to 126.5p (2022: 107.5p). Basic
earnings per share increased by 19% to 90.8p (2022: 76.1p). An equity raise
was completed in March 2023, resulting in a 7.5% increase (9,350,965 new
shares) in the issued ordinary share capital. As at 30 September 2023, the
average number of ordinary shares (which includes any potentially dilutive
shares) was 130,260,868 (2022: 124,855,007) and the weighted average number of
ordinary shares in issue was 129,675,581 (2022: 124,533,060).
Recommended dividend
The Board has a progressive dividend policy that aims to increase the dividend
each year by 5%. In determining the dividend, the Board considers a number of
factors which include the free cash flow generated by the Group, the future
cash commitments and investment needed to sustain the Group's long-term growth
strategy and the target level of dividend cover.
For FY23, the Board has recommended a final dividend of 40.0p per share,
making the proposed full year dividend 56.5p (2022: 53.8p). This represents a
5% increase in the full year dividend per share, with a dividend cover of 2.2x
EPS, continuing the Group's progressive dividend track record.
Cash Flow
Our capital-light business model, coupled with balance sheet and capital
discipline drives strong and consistent cash conversion and ROATCE and
maintains prudent leverage.
Free cash flow increased by 36% to £163.8m (2022:£120.4m). Statutory cash
flow from operating activities increased by 42% to £257.3m (2022: £180.6m).
Free cash flow conversion for the year was 100% (2022: 90%), ahead of our
targeted 90%+ model, demonstrating the highly cash-generative qualities of our
businesses and the results of targeted inventory reductions.
Year ended Year ended
30 Sep 30 Sep
2023 2022
Funds flow £m £m
Adjusted operating profit 237.0 191.2
Depreciation and other non-cash items 30.5 24.6
Working capital movement (4.2) (25.5)
Interest paid, net (excluding borrowing fees) (17.9) (8.9)
Tax paid (41.4) (39.2)
Capital expenditure, net of disposal proceeds (21.6) (5.5)
Lease repayments (16.7) (13.5)
Notional purchase of own shares on exercise of options (1.9) (2.8)
Free cash flow 163.8 120.4
Acquisition and disposals(1) (255.3) (177.5)
Proceeds from issue of share capital (net of fees) 231.9 -
Acquisition of minority interests - (0.3)
Dividends paid to shareholders and minority interests (70.8) (56.4)
Foreign exchange and other non cash movements 4.6 (33.7)
Net funds flow 74.2 (147.5)
Net debt (254.7) (328.9)
(1) Net of cash acquired/disposed and including acquisition expenses, deferred
consideration, and payments of pre-acquisition debt-like items.
Depreciation and other non-cash items includes £28.6m (2022: £23.9m) of
depreciation and amortisation of tangible, intangible and right of use assets
and £1.9m (2022: £0.7m) of other non-cash items, primarily share-based
payments expense.
Working capital increased by only £4.2m despite a 19% increase in revenue.
This was largely driven by a £10.8m decrease in inventory as a result of
strategic focus in this area as supply chain constraints have eased.
Interest payments increased by £9.0m to £17.9m (2022: £8.9m) in line with
increased interest charges. Tax payments increased by £2.2m to £41.4m (2022:
£39.2m) with the cash tax rate reducing to 19% (2022: 22%) due to the timing
of tax payments. Our effective cash tax rate remains lower than our Group
effective tax rate, mainly due to acquisition goodwill which is deductible for
US tax purposes.
Capital expenditure increased by £16.1m, largely driven by scaling
investments in Shoal Group, Hercules Aftermarket and R&G. FY22 benefitted
from £9.9m of proceeds from disposal of property, plant and equipment.
The Group funded the Company's Employee Benefit Trust with £1.9m (2022:
£2.8m) in connection with the Company's long term incentive plan.
The Group received net proceeds of £231.9m from an equity raise completed in
March 2023, to enable the refinancing of the acquisition of T.I.E., and
provide greater flexibility to execute further acquisitions. Dividends of
£70.8m (2022: £56.4m) were paid to ordinary and minority interest
shareholders.
This strong free cash generation has allowed the Group to deleverage more
quickly than expected. At 30 September 2023, the Group's Net Debt (excluding
IFRS 16 lease liabilities) stood at £254.7m (2022: £328.9m).
Acquisitions accelerate growth
In fragmented markets, we deploy capital selectively and with discipline, to
acquire quality businesses which accelerate strategic execution; build scale;
broaden our portfolio; and accelerate organic growth.
Net cash flow from acquisitions and disposals of £255.3m, which includes
£6.0m of acquisition fees, comprises the spend for DICSA of £159.7m and
T.I.E. of £75.1m; £23.7m principally relating to ten smaller bolt-on
businesses; and £12.3m of deferred consideration relating to previous
acquisitions; partly offset by net proceeds of £21.5m from the disposal of
Hawco, a lower growth, lower margin business.
The Group's acquisition liabilities to shareholders of acquired businesses at
30 September 2023 reduced to £22.6m (2022: £31.4m) and comprised both put
options to purchase outstanding minority shareholdings and deferred
consideration payable to vendors of businesses acquired during the current and
prior years.
● The liability to acquire minority shareholdings outstanding relates to a 10%
interest held in M Seals, 5% interest in Techsil, a 2% interest in R&G and
a 5% interest in Pennine Pneumatic Services. These options are valued at
£9.2m (2022: £7.4m), based on the latest estimate of EBIT when these options
crystallise.
● The liability for deferred consideration payable at 30 September 2023 was
£13.4m (2022: £24.0m). This liability represents the best estimate of any
outstanding payments based on the expected performance of the relevant
businesses during the measurement period. The reduction in the year is
primarily due to the revaluation and settlement of deferred consideration for
Kungshusen and R&G.
Goodwill at 30 September 2023 was £439.1m (2022: £372.3m). Goodwill is
assessed each year to determine whether there has been any impairment in the
carrying value. It was confirmed that there was significant headroom on the
valuation of this goodwill, compared with the carrying value at the year end.
Attractive returns
ROATCE is a key metric used to measure our success in creating value for
shareholders. It is a metric that drives ongoing capital and operating
discipline, adding back amortised intangibles and other factors such as any
impaired goodwill such that any improvement must be driven by true economic
factors. As at 30 September 2023, the Group's ROATCE increased by 80 basis
points to 18.1% (2022: 17.3%). This increase was primarily driven by strong
operating profit growth from the existing businesses, but was supplemented by
the bolt-on acquisitions completed during the year which generate year 1
returns of 20%. This increase in ROATCE was delivered despite the dilutive
impact of the DICSA and T.I.E. acquisitions which, when acquired with a
combined 9x EBIT multiple, naturally constrain year one returns. We expect
both of these acquisitions to reach 20% returns over the medium term.
Improved funding
On 17 July 2023, the Group entered into a new committed multi-currency
revolving credit facility agreement (RCF) with an aggregate principal amount
of £555.0m. The RCF is due to expire in July 2028 with an option to extend
for two further 12 month periods. The RCF replaced the Group's previous debt
facility agreement which as at 30 September 2022 comprised an RCF with an
aggregate principal amount of £359.7m, an amortising term loan for an
aggregate principal amount of £114.2m ($127.5m), a bullet term loan for an
aggregate principal amount of £59.1m ($66.0m) and a further bullet term loan
for an aggregate principal amount of £45.3m.
At 30 September 2023, net debt of £254.7m (2022: £328.9m) represented
leverage of 0.9x (2022: 1.4x) against a banking covenant of 3.5x (2022: 3.0x).
The Group maintains strong liquidity, with year end headroom (comprised of
undrawn committed facilities and cash funds) of £297m (2022: £204m). The
table below outlines the composition of the Group's net debt at 30 September
2023:
Type Currency Amount GBP equivalent Interest rate exposure
RCF USD $200.0m £163.9m SOFR fixed at 3%
RCF EUR €181.0m £157.0m Floating
Overdraft facilities £0.3m Floating
Capitalised debt fees net of accrued interest £(4.1)m
Gross debt drawn at 30 September 2023 £317.1m
Cash & equivalents at year end £(62.4)m
Net debt at 30 September 2023 £254.7m
Pensions
The Group maintains a legacy closed defined benefit pension scheme in the UK.
In the year, the Group funded this scheme with cash contributions of £0.6m
(2022: £0.6m) which increases annually on 1 October by 2%. In Switzerland,
local law requires our Kubo business to provide a contribution-based pension
for all employees, which is funded by employer and employee contributions. The
cash contribution to the scheme was £0.5m (2022: £0.5m). Both schemes are
accounted for in accordance with IAS 19. At 30 September 2023, the UK defined
benefit scheme was in a surplus position of £6.8m (30 September 2022: £6.4m)
reflecting a slight rise in corporate bond yields and a slight fall in the
market's expectation of future inflation. The Kubo scheme is not material.
Exchange rates
A significant proportion of the Group's revenue (ca. 80%) is derived from
businesses located outside the UK, principally in the US, Canada, Australia
and continental Europe. Compared with FY22, the average Sterling exchange rate
is weaker against the US dollar and the Euro, while stronger against the
Canadian and Australian dollars. The impact from translating the results of
the Group's overseas businesses into UK sterling has led to an increase in
Group revenues of £17.5m; an increase in the Group's adjusted operating
profit of £4.1m; and a reduction in net debt of £14.9m, compared with the
same period last year.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in this
announcement and further detailed in the Annual Report & Accounts, which
also includes an assessment of the Group's longer term viability.
The Directors have undertaken a comprehensive review of going concern, taking
into account the updated financing of the Group against a number of economic
scenarios, to consider whether there is a risk that the Group could breach
either its facility headroom or financial covenants.
The Group has modelled a base case and downside case in its assessment of
going concern. The base case is driven off the Group's detailed budget which
is built up on a business by business case and considers both the micro and
macroeconomic factors which could impact performance in the industries and
geographies in which that business operates. The downside case models steep
declines in revenues and operating margins resulting in materially adverse
cash flows. These sensitivities factor in a continued unfavourable impact from
a prolonged downturn in the economy. Both scenarios indicate that the Group
has significant liquidity and covenant headroom on its borrowing facilities to
continue in operational existence for the foreseeable future.
Accordingly, the Directors continue to have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future and continue to adopt the going concern basis in preparing
the Annual Report & Accounts.
PrinciPal RISKS
Effective risk management is a key component of the discipline that underpins
sustainable quality compounding.
The Group's decentralised operating model helps mitigate the potential impact
of our principal risks. The principal risks which have the potential to be
material to the performance, position or future prospects of the Group are
described in more detail in pages 44-48 of the 2023 Annual Report &
Accounts. This includes more detail on our overall approach to risk management
as well as the specific mitigation actions in place for our principal risks.
There have been some changes to the Group's principal risks during the year:
● Two climate-related risks: maximum legislation and maximum impact, have been
added to incorporate our TCFD risk assessment.
● Supply Chain has been disaggregated into 'loss of key suppliers' and 'supply
chain disruption' given the differing nature of the mitigating actions.
● 'Inflationary environment' and 'foreign currency' have been removed from the
register of principal risks as they are part of the underlying operating
environment, managed through standard operating procedures.
The principal risks are summarised below (not ranked):
● Failure to attract retain and develop talent: the loss of key personnel can
have an impact on performance for a limited time period; not having the right
talent or diversity at all levels of the organisation to deliver our strategy,
resulting in reduced financial performance.
● Cyber attack: any disruption or denial of service may delay or impact
decision-making if reliable data is unavailable; poor information handling or
interruption of business may also lead to reduced service to customers;
unintended actions of employees caused by a cyber-attack may also lead to
disruption, including fraud.
● Supply chain disruption: the risk of manufacturing lead times increasing as a
result of supply chain shortages or supply chain partners not operating to the
same ethical standards as Diploma.
● Loss of key supplier: the risk that a key supplier revokes a supply agreement
and accesses the market through a competitor, or chooses to go direct to
market rather than via a distributor.
● Unsuccessful acquisition: the Group may overpay for a target; the acquired
business may experience limited growth post-acquisition; loss of key customers
or suppliers post integration; potential cultural misfit.
● Climate - max legislation: the risk of increasing environmental legislation
that adds cost or complexity to products and services and/or renders some
products obsolete.
● Prolonged market downturn: adverse changes in the major markets that the
businesses operate in could result in slowing revenue growth due to reduced or
delayed demand for products and services, or margin pressures due to increased
competition.
● Geopolitical trade issues: interruption of trade agreements; change of trade
or tariff relationships amongst countries in which we operate; Government
budget spending; political elections.
Consolidated Income Statement
For the year ended 30 September 2023
Note Adjusted(1) Adjustments(1) Total Adjusted1 Adjustments1 Total
2023 £m 2023 2022 £m 2022
£m £m £m £m
Revenue 3,4 1,200.3 - 1,200.3 1,012.8 - 1,012.8
Operating expenses 2 (963.3) (53.7) (1,017.0) (821.6) (46.9) (868.5)
Operating profit 237.0 (53.7) 183.3 191.2 (46.9) 144.3
Financial expense, net 5 (20.4) (7.3) (27.7) (11.6) (3.2) (14.8)
Profit before tax 216.6 (61.0) 155.6 179.6 (50.1) 129.5
Tax expense 6 (52.0) 14.7 (37.3) (45.0) 10.9 (34.1)
Profit for the year 164.6 (46.3) 118.3 134.6 (39.2) 95.4
Attributable to:
Shareholders of the Company 164.0 (46.3) 117.7 133.9 (39.2) 94.7
Minority interests 0.6 - 0.6 0.7 - 0.7
164.6 (46.3) 118.3 134.6 (39.2) 95.4
Earnings per share (p)
Adjusted/Basic earnings 7 126.5p 90.8p 107.5p 76.1p
Adjusted/Diluted earnings 7 125.9p 90.4p 107.3p 75.9p
1 Adjusted figures exclude certain items as detailed in notes 2, 3, 4, 5 and
6. All amounts relate to continuing operations.
The Group has re-presented the Consolidated Income Statement to reflect the
analysis of expenses based on their nature. Together with note 2, this
provides more information that is relevant to the users of the financial
statements and better aligns to how management information is reported
internally.
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2023
Note 2023 2022
£m £m
Profit for the year 118.3 95.4
Items that will not be reclassified to the Consolidated Income Statement
Actuarial (loss)/gain on the defined benefit pension schemes (0.9) 10.6
Deferred tax on items that will not be reclassified 6 0.2 (2.8)
(0.7) 7.8
Items that may be reclassified to the Consolidated Income Statement
Exchange differences on translation of foreign operations (46.3) 76.8
Gains on fair value of cash flow hedges 1.8 4.5
Net changes to fair value of cash flow hedges transferred to the Consolidated (3.8) (0.4)
Income Statement
Deferred tax on items that may be reclassified 6 0.5 (1.1)
(47.8) 79.8
Total Other Comprehensive (Expense)/Income (48.5) 87.6
Total Comprehensive Income for the year 69.8 183.0
Attributable to:
Shareholders of the Company 69.3 182.2
Minority interests 0.5 0.8
69.8 183.0
Consolidated Statement of Changes in Equity
For the year ended 30 September 2023
Note Share Share Translation Hedging Retained Shareholders' Minority Total
premium
capital
£m reserve reserve earnings equity interests equity
£m £m £m £m £m £m £m
At 1 October 2021 6.3 188.6 12.1 0.2 329.1 536.3 4.7 541.0
Total Comprehensive Income - - 76.7 3.0 102.5 182.2 0.8 183.0
Share-based payments - - - - 2.8 2.8 - 2.8
Tax on items recognised directly in equity 6 - - - - 0.4 0.4 - 0.4
Notional purchase of own shares - - - - (2.8) (2.8) - (2.8)
Acquisition of business - - - - - - 2.5 2.5
Disposal of business - - - - - - (1.3) (1.3)
Minority interest put option on acquisition - - - - (1.9) (1.9) - (1.9)
Minority interest put option disposal - - - - 1.2 1.2 - 1.2
Minority interest acquired - - - - - - (0.3) (0.3)
Dividends 12 - - - - (56.2) (56.2) (0.2) (56.4)
At 30 September 2022 6.3 188.6 88.8 3.2 375.1 662.0 6.2 668.2
Total Comprehensive Income - - (46.3) (1.5) 117.1 69.3 0.5 69.8
Issue of share capital 0.5 231.6 - - - 232.1 - 232.1
Share-based payments - - - - 4.1 4.1 - 4.1
Tax on items recognised directly in equity 6 - - - - 0.5 0.5 - 0.5
Notional purchase of own shares - - - - (1.9) (1.9) - (1.9)
Dividends 12 - - - - (70.5) (70.5) (0.3) (70.8)
At 30 September 2023 6.8 420.2 42.5 1.7 424.4 895.6 6.4 902.0
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2023
Note 2023 2022
£m £m
Non-current assets
Goodwill 10 439.1 372.3
Acquisition intangible assets 520.1 455.0
Other intangible assets 4.2 4.1
Property, plant and equipment 59.2 49.6
Leases - right-of-use assets 71.5 62.4
Retirement benefit assets 6.8 6.4
Deferred tax assets 0.2 0.2
1,101.1 950.0
Current assets
Inventories 232.7 217.4
Trade and other receivables 193.1 169.9
Cash and cash equivalents 9 62.4 41.7
488.2 429.0
Current liabilities
Borrowings 9 (0.3) (30.5)
Trade and other payables (191.9) (189.5)
Current tax liabilities 6 (16.6) (11.8)
Other liabilities (12.7) (19.0)
Lease liabilities (15.0) (12.7)
(236.5) (263.5)
Net current assets 251.7 165.5
Total assets less current liabilities 1,352.8 1,115.5
Non-current liabilities
Borrowings 9 (316.8) (340.1)
Lease liabilities (65.2) (56.4)
Other liabilities (9.9) (12.4)
Retirement benefit obligations (0.3) -
Deferred tax liabilities (58.6) (38.4)
(450.8) (447.3)
Net assets 902.0 668.2
Equity
Share capital 6.8 6.3
Share premium 420.2 188.6
Translation reserve 42.5 88.8
Hedging reserve 1.7 3.2
Retained earnings 424.4 375.1
Total shareholders' equity 895.6 662.0
Minority interests 6.4 6.2
Total equity 902.0 668.2
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2023
Note 2023 2022
£m £m
Operating profit 183.3 144.3
Acquisition related and other charges 53.7 46.9
Non-cash items and other 24.5 18.1
Increase in working capital (4.2) (28.7)
Cash flow from operating activities 8 257.3 180.6
Interest paid, net (including borrowing fees) (26.7) (15.0)
Tax paid (41.4) (40.6)
Net cash inflow from operating activities 189.2 125.0
Cash flow from investing activities
Acquisition of businesses (net of cash acquired) (258.5) (173.0)
Deferred consideration paid (12.3) (7.1)
Proceeds from sale of business (net of cash disposed) 11 21.5 13.7
Purchase of property, plant and equipment (21.6) (14.3)
Purchase of other intangible assets (1.5) (1.1)
Proceeds from sale of property, plant and equipment 1.5 9.9
Net cash used in investing activities (270.9) (171.9)
Cash flow from financing activities
Proceeds from issue of share capital 236.1 -
Share issue costs (4.2) -
Dividends paid to shareholders 12 (70.5) (56.2)
Dividends paid to minority interests (0.3) (0.2)
Acquisition of minority interests - (0.3)
Notional purchase of own shares on exercise of share options (1.9) (2.8)
Proceeds from borrowings 579.5 154.8
Repayment of borrowings (617.3) (20.0)
Principal elements of lease payments (13.9) (10.9)
Net cash inflow from financing activities 107.5 64.4
Net increase in cash and cash equivalents 25.8 17.5
Cash and cash equivalents at beginning of year 41.7 24.8
Effect of exchange rates on cash and cash equivalents (5.1) (0.6)
Cash and cash equivalents at end of year 62.4 41.7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2023
1. GENERAL INFORMATION
Diploma PLC is a public company limited by shares incorporated in the United
Kingdom, registered and domiciled in England and Wales and listed on the
London Stock Exchange. The address of the registered office is 10-11
Charterhouse Square, London EC1M 6EE. The consolidated financial statements
comprise the Company and its subsidiaries (together referred to as 'the
Group') and were authorised by the Directors for publication on 20 November
2023. These statements are presented in UK sterling, with all values rounded
to the nearest 100,000, except where otherwise indicated.
The consolidated financial statements of the Group have been prepared in
accordance with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies reporting
under those standards. The accounting policies have been consistently applied
in the current and comparative year.
The financial information set out in this Preliminary Announcement, which has
been extracted from the audited consolidated financial statements, does not
constitute the Group's statutory financial statements for the years ended 30
September 2023 and 2022. Statutory financial statements for the year ended 30
September 2022 have been delivered to the Registrar of Companies and are
available on the website at www.diplomaplc.com. The statutory financial
statements for the year ended 30 September 2023, which were approved by the
Directors on 20 November 2023, will be sent to shareholders in December 2023
and delivered to the Registrar of Companies, following the Company's Annual
General Meeting.
The auditor has reported on the consolidated financial statements for the
years ended 30 September 2023 and 2022. The reports were unqualified, did not
draw attention to any matters by way of emphasis and did not contain a
statement under Section 498 (2) or (3) of the Companies Act 2006.
The Company's Annual General Meeting will be held at 9:00am on 17 January 2024
in The Charterhouse, Charterhouse Square, EC1M 6AN. The Notice of Meeting will
be sent out in a separate Circular to shareholders.
2. ANALYSIS OF OPERATING EXPENSES/INCOME
Adjusted Adjustments Total Adjusted Adjustments Total
2023 £m 2023 2022 £m 2022
£m £m £m £m
Cost of inventories sold 652.1 5.9 658.0 561.3 - 561.3
Employee costs 206.2 3.8 210.0 173.1 4.4 177.5
Depreciation of property, plant and equipment 12.8 - 12.8 10.4 - 10.4
Depreciation of right-of-use assets 14.8 - 14.8 12.7 - 12.7
Amortisation 1.0 52.9 53.9 0.4 42.4 42.8
Net impairment losses on trade receivables 2.5 - 2.5 3.4 - 3.4
Other operating expenses/(income) 73.9 (8.9) 65.0 60.3 0.1 60.4
Operating expenses 963.3 53.7 1,017.0 821.6 46.9 868.5
Adjustments relate to acquisition related and other charges as defined in note
14.2 of £53.7m (2022: £46.9m) and comprise principally of £52.9m (2022:
£42.4m) of amortisation of acquisition intangible assets, £6.3m of
acquisition related expenses (2022: £10.5m), £5.9m of fair value adjustments
to inventory acquired through acquisitions recognised in cost of inventories
sold (2022: £nil) and a £12.2m net gain (2022: £7.3m) on the disposal of
businesses, which is set out in note 11.
3. BUSINESS SECTOR ANALYSIS
The Chief Operating Decision Maker ("CODM") for the purposes of IFRS 8 is the
CEO. The financial performance of the business Sectors is reported to the CODM
on a monthly basis and this information is used to allocate resources on an
appropriate basis.
For management reporting purposes, the Group is organised into three main
reportable business Sectors: Life Sciences, Seals and Controls. These Sectors
are the Group's operating segments as defined by IFRS 8 and form the basis of
the primary reporting format disclosures below. The CODM reviews discrete
financial information at this operating segment level. Sector revenue
represents revenue from external customers; there is no material 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.
Sector assets exclude cash and cash equivalents, deferred tax assets,
acquisition related assets and corporate assets that cannot be allocated on a
reasonable basis to a business Sector. Sector liabilities exclude borrowings
(other than lease liabilities), 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 are shown
collectively in the following analysis as "unallocated assets" and
"unallocated liabilities", respectively.
Life Sciences Seals Controls Corporate Group
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m £m £m £m £m
Revenue - existing 212.0 188.6 387.7 331.4 550.2 492.8 - - 1,149.9 1,012.8
Revenue - acquisitions 0.9 - 31.3 - 18.2 - - - 50.4 -
Revenue 212.9 188.6 419.0 331.4 568.4 492.8 - - 1,200.3 1,012.8
Adjusted operating profit - existing 43.1 41.0 72.2 62.6 131.9 105.8 (21.8) (18.2) 225.4 191.2
Adjusted operating profit - acquisitions 0.1 - 6.8 - 4.7 - - - 11.6 -
Adjusted operating profit 43.2 41.0 79.0 62.6 136.6 105.8 (21.8) (18.2) 237.0 191.2
Acquisition related and other charges (6.8) 1.5 (23.2) (16.6) (23.7) (30.5) - (1.3) (53.7) (46.9)
Operating profit 36.4 42.5 55.8 46.0 112.9 75.3 (21.8) (19.5) 183.3 144.3
Operating assets 75.2 74.0 264.1 207.5 214.9 211.5 - - 554.2 493.0
Goodwill 102.4 106.2 169.4 125.2 167.3 140.9 - - 439.1 372.3
Acquisition intangible assets 66.5 74.9 195.4 100.2 258.2 279.9 - - 520.1 455.0
244.1 255.1 628.9 432.9 640.4 632.3 - - 1,513.4 1,320.3
Unallocated assets:
- Deferred tax assets 0.2 0.2 0.2 0.2
- Cash and cash equivalents 62.4 41.7 62.4 41.7
- Acquisition related assets 3.0 1.8 3.0 1.8
- Retirement benefit obligations 6.8 6.4 6.8 6.4
- Corporate assets 3.5 8.6 3.5 8.6
Total assets 244.1 255.1 628.9 432.9 640.4 632.3 75.9 58.7 1,589.3 1,379.0
Operating liabilities (43.3) (41.7) (119.6) (103.3) (96.1) (92.6) - - (259.0) (237.6)
Unallocated liabilities:
- Deferred tax liabilities (58.6) (38.4) (58.6) (38.4)
- Retirement benefit obligations (0.3) - (0.3) -
- Acquisition related liabilities (22.6) (31.4) (22.6) (31.4)
- Corporate liabilities (29.7) (32.8) (29.7) (32.8)
- Borrowings (317.1) (370.6) (317.1) (370.6)
Total liabilities (43.3) (41.7) (119.6) (103.3) (96.1) (92.6) (428.3) (473.2) (687.3) (710.8)
Net assets/(liabilities) 200.8 213.4 509.3 329.6 544.3 539.7 (352.4) (414.5) 902.0 668.2
Other Sector information
Life Sciences Seals Controls Corporate Group
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m £m £m £m £m
Capital expenditure 7.9 8.0 9.0 3.7 5.9 2.7 0.3 0.9 23.1 15.3
Depreciation and amortisation 4.0 2.9 5.0 3.5 4.6 4.6 0.2 0.2 13.8 11.2
Revenue recognition
- immediately on sale 198.9 176.4 399.6 315.6 563.0 492.8 - - 1,161.5 984.8
- over a period of time 14.0 12.2 19.4 15.8 5.4 - - - 38.8 28.0
212.9 188.6 419.0 331.4 568.4 492.8 - - 1,200.3 1,012.8
Accrued income ("contract assets") at 30 September 2023 of £1.0m (2022:
£0.1m) and deferred revenue ("contract liabilities") of £3.1m at 30
September 2023 (2022: £3.5m) are included in trade and other receivables and
trade and other payables, respectively.
4. GEOGRAPHIC SEGMENT ANALYSIS BY ORIGIN
Revenue Adjusted operating profit Non-current assets(1) Trading capital employed Capital expenditure
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m £m £m £m £m
United Kingdom 267.1 209.7 28.8 21.0 207.3 193.6 195.0 202.2 9.3 3.4
Rest of Europe 210.3 166.7 34.5 29.3 308.1 169.1 354.1 179.8 1.6 1.7
USA 537.6 465.5 132.2 104.6 470.0 464.3 567.9 557.2 4.3 8.9
Rest of world 185.3 170.9 41.5 36.3 106.3 112.0 111.2 119.3 7.9 1.3
1,200.3 1,012.8 237.0 191.2 1,091.7 939.0 1,228.2 1,058.5 23.1 15.3
1 Non-current assets excludes deferred tax assets, derivative assets and
retirement benefit assets.
The Group has re-presented the prior year geographic segment analysis to
reflect USA separately due to the increasing operations in that territory as
this provides more information that is relevant to the users of the financial
statements.
5. FINANCIAL EXPENSE, NET
2023 2022
£m £m
Interest expense/(income) and similar charges
- bank facility and commitment fees 1.6 1.0
- interest income on short term deposits (0.4) (0.1)
- interest expense on bank borrowings 16.6 7.9
- notional interest income on the defined benefit pension scheme (0.4) -
- amortisation of capitalised borrowing fees 0.2 0.2
- interest on lease liabilities 2.8 2.6
Net interest expense and similar charges 20.4 11.6
- acquisition related finance charges, net 7.3 3.2
Financial expense, net 27.7 14.8
Acquisition related finance charges as adjusted in the Consolidated Income
Statement includes fair value remeasurements of put options for future
minority interest purchases of £1.8m charge (2022: £1.4m charge), fair value
movement and unwind of discount on acquisition liabilities of £0.4m charge
(2022: £0.4m charge), £5.9m charge (2022: £1.4m charge) for the
amortisation and write-off of capitalised borrowing fees on acquisition
related borrowings, and interest income on previous disposal of business of
£0.8m (2022: nil). Acquisition related finance charges are adjusted due to
their consistent nature with acquisition related and other charges, as defined
in note 14.2.
6. TAX EXPENSE
2023 2022
£m £m
Current tax
The tax charge is based on the profit for the year and comprises:
UK corporation tax 10.4 10.0
Overseas tax 31.2 30.8
41.6 40.8
Adjustments in respect of prior year:
UK corporation tax 1.2 (0.2)
Overseas tax 0.1 0.1
Total current tax 42.9 40.7
Deferred tax
The net deferred tax credit based on the origination and reversal of timing
differences comprises:
United Kingdom (2.7) (3.1)
Overseas (2.9) (3.5)
Total deferred tax (5.6) (6.6)
Total tax on profit for the year 37.3 34.1
In addition to the above credit for deferred tax included in the Consolidated
Income Statement, a deferred tax credit relating to the retirement benefit
scheme and cash flow hedges of £0.7m was recognised in the Consolidated
Statement of Comprehensive Income (2022: £3.9m charge). A further £0.5m was
credited (2022: £0.4m) to the Consolidated Statement of Changes in Equity.
Factors affecting the tax charge for the year
The difference between the total tax charge calculated by applying the
effective blended rate of UK corporation tax of 22.0% to the profit before tax
of £155.6m and the amount set out above is as follows:
2023 2022
£m £m
Profit before tax 155.6 129.5
Tax on profit at UK effective corporation tax rate of 22.0% (2022: 19.0%) 34.2 24.6
Effects of:
higher tax rates on overseas earnings 3.8 6.7
adjustments in respect of UK and Overseas corporation tax in prior years 1.3 (0.1)
other permanent differences (2.0) 2.9
Total tax on profit for the year 37.3 34.1
Tax effect on adjusting items 14.7 10.9
Adjusted tax expense 52.0 45.0
The tax adjustment in the consolidated income statement of £14.7m (2022:
£10.9m) reflects the tax effect of the acquisition related and other charges,
and acquisition related finance charges.
The Group earns its profits in the UK and overseas. The Group prepares its
consolidated financial statements for the year to 30 September and the blended
statutory tax rate for UK corporation tax in respect of the year ended 30
September 2023 was 22.0% (2022: 19.0%) and this rate has been used for tax on
profit in the above reconciliation.
The Group's net overseas tax rate is higher than that in the UK, primarily
because profits earned in the US, Canada, Germany and Australia are taxed at
higher rates than the UK. The UK deferred tax assets and liabilities at 30
September 2023 have been calculated by reference to the UK corporation tax
rate of 25.0% (2022: 25.0%).
At 30 September 2023, the Group had outstanding tax liabilities of £16.6m
(2022: £11.8m). These amounts are expected to be paid within the next
financial year.
During 2021, the OECD published a framework for the introduction of a global
minimum effective tax rate of 15%, applicable to large multinational groups.
The legislation implementing these 'Pillar Two' rules in the UK was
substantively enacted on 20 June 2023 and will apply to the
Group from the financial year ending 30 September 2025 onwards. The Group is
reviewing the legislation and monitoring the implementation of the rules
outside of the UK to understand the potential impact. We have applied the
temporary exception under IAS 12 from the requirement to recognise and
disclose deferred taxes arising from the implementation of the Pillar Two
rules.
7. EARNINGS PER SHARE
Basic and diluted earnings per share
Basic earnings per ordinary 5p share is calculated on the basis of the
weighted average number of ordinary shares in issue during the year of
129,675,581 (2022: 124,533,060) and the profit for the year attributable to
shareholders of £117.7m (2022: £94.7m). Basic earnings per share is 90.8p
(2022: 76.1p). Diluted earnings per share is 90.4p (2022: 75.9p) and is based
on the average number of ordinary shares (which includes any potentially
dilutive shares) of 130,260,868 (2022: 124,855,007).
An equity placing was completed in March 2023, resulting in the issuance of
9,350,965 (7.5% increase) of 5p ordinary shares at a share price of 2,525
pence per placing share, with corresponding fees of £4.2m.
Adjusted earnings per share
Adjusted EPS, which is defined in note 14, is 126.5p (2022: 107.5p).
2023 2023 2022 2022 2023 2022
pence per share pence per share pence pence £m £m
Basic Diluted per share per share
Basic Diluted
Profit before tax 155.6 129.5
Tax expense (37.3) (34.1)
Minority interests (0.6) (0.7)
Earnings for the year attributable to shareholders of the Company 90.8 90.4 76.1 75.9 117.7 94.7
Acquisition related and other charges and acquisition related finance charges, 35.7 35.5 31.4 31.4 46.3 39.2
net of tax
Adjusted earnings 126.5 125.9 107.5 107.3 164.0 133.9
8. RECONCILIATION OF OPERATING PROFIT TO CASH FLOW FROM OPERATING ACTIVITIES
2023 2022
£m £m
Operating profit 183.3 144.3
Acquisition related and other charges (note 2) 53.7 46.9
Adjusted operating profit 237.0 191.2
Depreciation or amortisation of tangible, other intangible assets and leases - 28.6 23.9
right-of-use assets
Share-based payments expense 4.1 2.8
Defined benefit pension scheme payment in excess of interest (0.6) (0.6)
Profit on disposal of assets (1.1) (1.6)
Acquisition and disposal expenses paid (6.0) (6.5)
Other non-cash movements (0.5) 0.1
Non-cash items and other 24.5 18.1
Operating cash flow before changes in working capital 261.5 209.3
Decrease/(increase) in inventories 10.8 (35.6)
Increase in trade and other receivables (8.8) (10.6)
(Decrease)/increase in trade and other payables (6.2) 17.5
Increase in working capital (4.2) (28.7)
Cash flow from operating activities 257.3 180.6
9. NET DEBT
The movement in net debt during the year is as follows:
2023 2022
£m £m
Net increase in cash and cash equivalents 25.8 17.5
Decrease/(increase) in bank borrowings 43.8 (131.3)
69.6 (113.8)
Effect of exchange rates and other non-cash movements 4.6 (33.7)
Decrease/(increase) in net debt 74.2 (147.5)
Net debt at beginning of year (328.9) (181.4)
Net debt at end of year (254.7) (328.9)
Comprising:
Cash and cash equivalents 62.4
41.7
Bank borrowings:
- Revolving credit facility, including accrued interest (321.1) (201.0)
- Overdraft facilities (0.3) -
- Term loan, including accrued interest - (174.3)
- Capitalised debt fees 4.3 4.7
(317.1) (370.6)
Net debt at end of year (254.7) (328.9)
Analysed as:
Repayable within one year (0.3) (30.5)
Repayable after one year (316.8) (340.1)
On 17 July 2023, the Group entered into a new committed multi-currency
revolving credit facility agreement ("RCF") with an aggregate principal amount
of £555.0m. The RCF is due to expire in July 2028 with an option to extend
for two further 12-month periods. The RCF replaced the Group's previous debt
facility agreement which as at 30 September 2022 comprised an RCF with an
aggregate principal amount of £359.7m, an amortising term loan for an
aggregate principal amount of £114.2m ($127.5m), a bullet term loan for an
aggregate principal amount of £59.1m ($66.0m) and a further bullet term loan
for an aggregate principal amount of £45.3m.
The Group's debt facilities are subject to interest at variable rates. During
FY22 and FY23, the Group entered into interest rate swap contracts with the
effect of fixing the interest rate on $200.0m (£163.9m) of debt. The
effective fixed rate debt was 52% of total debt.
At 30 September 2023, the Group's Net Debt/EBITDA ratio is 0.9x, as
illustrated in note 14.
As at 30 September 2023, the Group has utilised £320.9m of the revolving
facility. There remains £234.1m undrawn on the revolving facility. Borrowings
include £0.2m (2022: £1.0m) of accrued interest and the carrying amount of
capitalised debt fees is £4.3m (2022: £4.7m).
As at 30 September 2023 the Group's net debt is £254.7m (2022: £328.9m) and
excludes lease liabilities of £80.2m (2022: £69.1m).
10. GOODWILL
Life Sciences Seals Controls Total
£m £m £m £m
At 1 October 2021 81.4 60.0 119.3 260.7
Acquisitions 19.0 56.8 5.2 81.0
Exchange adjustments 5.8 8.4 16.4 30.6
At 30 September 2022 106.2 125.2 140.9 372.3
Acquisitions 1.3 48.1 39.5 88.9
Disposals - - (4.3) (4.3)
Exchange adjustments (5.1) (3.9) (8.8) (17.8)
At 30 September 2023 102.4 169.4 167.3 439.1
The Group tests goodwill for impairment at least once a year. For the purposes
of impairment testing, goodwill is allocated to each of the Group's three
cash-generating units ("CGUs"), which are the three operating Sectors: Life
Sciences; Seals; and Controls. This represents the lowest level within the
Group at which goodwill is monitored by management and reflects the Group's
strategy of acquiring businesses to drive synergies across a Sector, rather
than within an individual business. The impairment test requires a 'value in
use' valuation to be prepared for each Sector using discounted cash flow
forecasts. The cash flow forecasts are based on a combination of annual
budgets prepared by each business and the Group's strategic plan.
The key assumptions used to prepare the cash flow forecasts relate to
operating margins, revenue growth rates, the discount rates and climate
related risks. The operating margins are assumed to remain sustainable, which
is supported by historical experience; revenue growth rates generally
approximate to the average rates for the markets in which the business
operates, unless there are particular factors relevant to a business. The cash
flow forecasts use the budgeted figures for FY24, and then the three-year
strategy cash flows for the next two years. From year four onwards a long-term
growth rate of 2% is utilised.
The cash flow forecasts are discounted to determine a current valuation using
market derived pre-tax discount rates; Life Sciences 13.2% (2022: 13.9%),
Seals 13.3% (2022: 13.8%) and Controls 13.2% (2022: 13.8%). The equivalent
post-tax discount rates for FY23 are: Life Sciences 10.0% (2022: 10.4%), Seals
10.1% (2022: 10.3%) and Controls 10.0% (2022: 10.3%). These rates are based on
the characteristics of lower risk, non-technically driven, distribution
businesses operating generally in well-developed markets and with robust
capital structures.
Based on the criteria set out above, no impairment in the value of goodwill in
the CGUs was identified.
11. ACQUISITIONS AND DISPOSALS OF BUSINESSES
Acquisition of Tennessee Industrial Electronics, LLC
On 6 March 2023, the Group acquired 100% of the share capital of Tennessee
Industrial Electronics, LLC ("T.I.E."), a distributor of aftermarket parts and
repair services into the US industrial automation end market. The total
investment, net of cash acquired was £75.1m ($90.3m).
The provisional fair value of T.I.E.'s net assets acquired excluding
acquisition intangibles, related deferred tax and cash is £10.8m following
fair value adjustments of £1.0m. The principal fair value adjustments relate
to a net increase in inventory (£0.2m) and provisions held against trade
receivables (£0.4m), recognition of previously unrecognised liabilities
(£0.3m) and write down of property plant and equipment (£0.5m).
Acquisition expenses of £1.5m have been recognised in respect of this
transaction in the financial year.
From the date of acquisition to 30 September 2023, T.I.E. contributed £16.6m
to revenue and £4.0m 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 £28.3m to revenue and £6.9m to adjusted operating profit. However,
these amounts should not be viewed as indicative of the results that would
have occurred if T.I.E. had been completed at the beginning of the year.
Acquisition of Distribuidora Internacional Carmen, S.A.U.
On 12 July 2023, the Group acquired 100% of the share capital of Distribuidora
Internacional Carmen, S.A.U. ("DICSA"). DICSA, based in Spain, is engaged in
the manufacture and commercialisation of stainless steel fittings and in the
distribution of hydraulic and pneumatic conductions and components. The total
investment, net of cash acquired is £159.7m (€186.6m).
The provisional fair value of DICSA's net assets acquired excluding
acquisition intangibles, related deferred tax and cash is £45.4m following
fair value adjustments of £1.4m. The principal fair value adjustments relate
to a net increase in provisions held against inventory (£0.2m) and trade
receivables (£0.1m), recognition of previously unrecognised liabilities
(£1.0m) and write down of property plant and equipment (£0.1m).
Acquisition expenses of £2.7m have been recognised in respect of this
transaction in the financial year.
From the date of acquisition to 30 September 2023, DICSA contributed £16.5m
to revenue and £4.0m 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 £79.5m to revenue and £19.2m to adjusted operating profit. However,
these amounts should not be viewed as indicative of the results that would
have occurred if DICSA had been completed at the beginning of the year.
Other acquisitions
The Group completed a further ten acquisitions in the year. This comprised the
trade and assets of Shrinktek Polymers International Limited ("Shrinktek") (11
January 2023), Eurobond Adhesives Limited ("Eurobond") (23 March 2023) and
International Technologies Group, LLC ("ITG") (30 March 2023); 100% of the
share capital of Fluid Power Services Limited ("FPS") (3 October 2022), Hedley
DMB Limited ("Hedley") (4 October 2022), Valves Online Limited ("Valves
Online") (14 March 2023), Gaskets, Packings & Seals Enterprises, LLC
("GP&S") (14 April 2023), GM Medical Group A/S ("GM Medical") (11 July
2023), Hex Technology, LLC ("Hex") (17 July 2023) and Lantech Solutions
Limited ("Lantech") (18 September 2023).
The combined initial consideration for these acquisitions was £23.6m, net of
cash acquired of £2.4m. Deferred consideration with a fair value of £7.4m is
payable based largely on the performance of the businesses in the period
subsequent to their acquisitions.
Acquisition expenses of £0.9m have been recognised in respect of these
transactions in the financial year.
The provisional fair value of the total net assets acquired excluding
intangibles, related deferred tax and cash is £5.4m.
The following table summarises the consideration paid for the acquisitions
completed in the year and fair value of assets acquired and liabilities
assumed, with fair values being provisional pending completion of a final
valuation of T.I.E. and DICSA.
T.I.E. DICSA Others Total
Book value Fair value Book value Fair value Book value Fair value Book value £m Fair value
£m
£m
£m
£m £m £m £m
Acquisition intangible assets(1) - 25.9 - 99.7 - 18.2 - 143.8
Deferred tax - - - (24.9) - (2.0) - (26.9)
Property, plant and equipment 1.3 0.8 4.7 4.6 0.8 0.8 6.8 6.2
Inventories 11.2 11.4 35.4 35.2 3.3 3.4 49.9 50.0
Trade and other receivables 4.3 3.9 18.8 18.7 4.9 4.8 28.0 27.4
Trade and other payables (5.0) (5.3) (12.1) (13.1) (3.4) (3.6) (20.5) (22.0)
Net assets acquired 11.8 36.7 46.8 120.2 5.6 21.6 64.2 178.5
Goodwill - 38.4 - 39.5 - 9.4 - 87.3
Minority interests - - - - - - - -
Cash paid 79.6 174.3 26.0 279.9
Cash acquired (4.5) (14.6) (2.4) (21.5)
258.4
Deferred consideration - - 7.4 7.4
Total investment 75.1(2) 159.7 31.0 265.8
1 On the acquisitions completed in the current year, acquired intangibles
relate to customer relationships (£136.8m), brand (£6.2m) and technology
(£0.8m).
2 Diploma acquired T.I.E. on a cash free/debt free basis. The total
investment amounts to £75.1m being cash paid net of cash acquired. Of the
initial cash paid, the vendor directed the funds in escrow to settle
outstanding debt of £11.7m, which is excluded from the purchase consideration
in accordance with IFRS 3.
Acquisitions revenue and adjusted operating profit
From the date of acquisition to 30 September 2023, each acquired business
contributed the following to Group revenue and adjusted operating profit:
Acquisition date Revenue Adjustments(2) Pro forma Operating Adjustments(2) Pro forma
£m £m revenue profit(1) £m operating
£m £m profit(1)
£m
FPS 03 Oct 2022 3.0 - 3.0 0.7 - 0.7
Hedley 04 Oct 2022 3.7 - 3.7 0.5 - 0.5
Shrinktek 11 Jan 2023 1.0 0.4 1.4 0.3 0.1 0.4
T.I.E. 06 Mar 2023 16.6 11.7 28.3 4.0 2.9 6.9
Valves Online 14 Mar 2023 1.9 1.6 3.5 0.4 0.3 0.7
Eurobond 23 Mar 2023 0.6 0.5 1.1 0.4 0.3 0.7
ITG 30 Mar 2023 0.4 0.4 0.8 0.1 - 0.1
GP&S 14 Apr 2023 5.6 6.6 12.2 1.1 1.3 2.4
GM Medical 11 Jul 2023 0.9 3.4 4.3 0.1 0.4 0.5
DICSA 12 Jul 2023 16.5 63.0 79.5 4.0 15.2 19.2
Hex 17 Jul 2023 0.1 0.4 0.5 - - -
Lantech 18 Sep 2023 0.1 2.7 2.8 - 0.8 0.8
50.4 90.7 141.1 11.6 21.3 32.9
1 Adjusted operating profit.
2 Pro forma revenue and adjusted operating profit has been extrapolated (as
prescribed under IFRS) from the actual results reported since acquisition to
indicate what these businesses would have contributed if they had been
acquired at the beginning of the financial year on 1 October 2022. These
amounts should not be viewed as confirmation of the results of these
businesses that would have occurred if these acquisitions had been completed
at the beginning of the year.
Disposals
On 31 March 2023, the Group disposed of its interest in Hawco Limited
("Hawco") for total proceeds of £24.5m. Cash of £21.5m was received, net of
cash disposed of £2.0m and with a further £1.0m deferred for 12 months.
12. DIVIDENDS
2023 2022 2023 2022
pence per share pence £m £m
per share
Interim dividend, paid in June 16.5 15.0 22.1 18.7
Final dividend of the prior year, paid in February 38.8 30.1 48.4 37.5
55.3 45.1 70.5 56.2
The Directors have proposed a final dividend in respect of the current year of
40.0p per share (2022: 38.8p), which will be paid on 2 February 2024 subject
to approval by shareholders at the Annual General Meeting (AGM) on 17 January
2024. The total dividend for the current year, subject to approval of the
final dividend, will be 56.5p per share (2022: 53.8p).
During the year, the Directors became aware that approximately £2.5m of the
FY21 interim dividend declared on 17 May 2021 was paid other than in
accordance with the technical requirements of the Companies Act 2006. This was
because interim accounts had not been filed at Companies House prior to the
declaration of the dividend. It is intended that this technical issue, which
has no impact on the Company's financial position, be ratified by a
shareholders' resolution to be proposed at the Annual General Meeting to be
held on 17 January 2024. The approach that the Company is proposing with
regard to this matter is consistent with the approach taken by other UK quoted
and listed companies that have, similarly, made distributions otherwise than
in accordance with the Act.
The Diploma PLC Employee Benefit Trust holds 67,431 (2022: 71,033) shares,
which are ineligible for dividends.
13. EXCHANGE RATES
The exchange rates used to translate the results of the overseas businesses
are as follows:
Average Closing
2023 2022 2023 2022
US dollar (US$) 1.23 1.27 1.22 1.12
Canadian dollar (C$) 1.66 1.63 1.65 1.53
Euro (€) 1.15 1.18 1.15 1.14
Swiss franc (CHF) 1.13 1.20 1.12 1.10
Australian dollar (AUD) 1.85 1.79 1.89 1.74
14. ALTERNATIVE PERFORMANCE MEASURES
The Group reports under International Financial Reporting Standards (IFRS) and
references alternative performance measures where the Board believes that they
help to effectively monitor the performance of the Group and support readers
of the Financial Statements in drawing comparisons with past performance.
Certain alternative performance measures are also relevant in calculating a
meaningful element of Executive Directors' variable remuneration and our debt
covenants. Alternative performance measures are not considered to be a
substitute for, or superior to, IFRS measures.
14.1 Revenue Growth
As a multi-national Group of companies who trade in a large number of
currencies and also acquire and sometimes dispose of companies, organic
performance is also referred to throughout the Annual Report. These strip out
the effects of the movement in exchange rates and of acquisitions and
disposals. The Board believe that this allows users of the financial
statements to gain a better understanding of how the Group has performed.
A reconciliation of the movement in revenue compared to the prior year is
given below.
£m %
September 2022 Reported revenue 1,012.8
Organic 87.8 8
Acquisitions and Disposals 82.1 8
Exchange 17.6 3
September 2023 Reported revenue 1,200.3 19
The Organic revenue growth percentage is the incremental revenue generated
under Diploma's ownership compared to the revenue in the same period prior to
acquisition, at prior period exchange rates.
The impact of acquisitions on growth is the revenue of the acquiree prior to
the acquisition by Diploma for the comparable period at prior year exchange
rates. The impact of disposals on growth is the removal of the revenue of the
disposed entity in the comparable post disposal period at prior year exchange
rates. The Acquisitions and Disposals growth percentage is calculated as the
impact of acquisition and disposals divided by the reported revenue in the
prior period.
Exchange translation movements are assessed by re-translating current year
reported values to prior year exchange rates.
14.2 Adjusted operating profit and adjusted operating margin
Adjusted operating profit is the operating profit before adjusting items that
would otherwise distort operating profit, currently and more recently being
amortisation of acquisition intangible assets or goodwill, acquisition
expenses, post-acquisition related remuneration costs and adjustments to
deferred consideration, the costs of a significant restructuring or
rationalisation and the profit or loss relating to the sale of businesses.
These are treated as adjusting items (referred to as acquisition related and
other charges) as they are considered to be significant in nature and/or
quantum and where treatment as an adjusting item provides all our stakeholders
with additional useful information to assess the year-on-year trading
performance of the Group on a like-for-like basis. Adjusted operating margin
is the Group's adjusted operating profit divided by the Group's reported
revenue.
A reconciliation between operating profit as reported under IFRS and adjusted
operating profit is given below:
Note 2023 2022
£m £m
Revenue 1,200.3 1,012.8
Operating profit as reported under IFRS 183.3 144.3
Add: Acquisition related and other charges 53.7 46.9
Adjusted operating profit 2,3 237.0 191.2
Adjusted operating margin 19.7% 18.9%
14.3 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 of 129,675,581
(2022: 124,533,060), as set out in note 7. The Directors believe that adjusted
EPS provides an important measure of the earnings capacity of the Group.
14.4 Free cash flow and free cash flow conversion
Free cash flow is defined as net cash flow from operating activities, less net
capital expenditure on tangible and intangible assets, and including proceeds
received from property disposals, but before expenditure on business
combinations/investments (including any pre-acquisition debt like items such
as pensions or tax settled post-acquisition) and proceeds from business
disposals, borrowings received to fund acquisitions, net proceeds from issues
of share capital and dividends paid to both minority shareholders and the
Company's shareholders. "Free cash flow conversion" reflects free cash flow as
a percentage of adjusted earnings. 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.
Note 2023 2022
£m £m
Net increase in cash and cash equivalents 25.8 17.5
Add: Dividends paid to shareholders and minority interests 70.8 56.4
Acquisition of minority interests - 0.3
Acquisition/disposal of businesses (including net expenses) 243.0 170.4
Deferred consideration paid 12.3 7.1
Proceeds from issue of share capital (net of fees) (231.9) -
Net repayment of/(proceeds from) borrowings (including borrowing 43.8 (131.3)
fees)
Free cash flow 163.8 120.4
Adjusted earnings(1) 7 164.0 133.9
Free cash flow conversion 100% 90%
¹ Adjusted earnings is shown on the face of the condensed consolidated income
statement as profit for the year attributable to shareholders of the Company.
14.5 Leverage
Leverage is net debt, defined as cash and cash equivalents and borrowings
translated at average exchange rates for the reporting period, divided by
EBITDA as defined in the Group's external facility covenants, which is the
Group's adjusted operating profit adjusting for depreciation and amortisation
of tangible and other intangible assets, the share of adjusted operating
profit attributable to minority interests and the annualisation of EBITDA for
acquisitions and disposals made during the financial year, excluding the
impact of IFRS 16 (Leases). The Directors consider this metric to be an
important measure of the Group's financial position.
Note 2023 2022
£m £m
Cash and cash equivalents 9 62.4 41.7
Borrowings 9 (317.1) (370.6)
Re-translation at average exchange rates 1.2 23.1
Net debt at average exchange rates (253.5) (305.8)
Adjusted operating profit 14.2 237.0 191.2
Depreciation and amortisation of tangible and other intangible assets 2 13.8 11.2
IFRS 16 impact (1.7) 1.2
Minority interest share of adjusted operating profit (0.8) (1.1)
Pro forma adjustments(1) 21.0 10.2
EBITDA 269.3 212.7
Leverage 0.9x 1.4x
1 Annualisation of adjusted EBITDA, including that of acquisitions and
disposals in the year.
14.6 Trading Capital Employed and ROATCE
Trading capital employed is defined as net assets less cash and cash
equivalents and retirement benefit assets, after adding back borrowings (other
than lease liabilities), deferred tax, retirement benefit obligations and net
acquisition liabilities in respect of future purchases of minority interests,
deferred consideration payable on acquisitions, and acquisition receivables in
respect of previously completed disposals. Adjusted trading capital employed
is reported as being trading capital employed plus goodwill and acquisition
related charges previously charged to the income statement (net of deferred
tax on acquisition intangible assets) and re-translated at the average
exchange rates for the reporting period. Return on adjusted trading capital
employed ("ROATCE") is defined as the pro forma adjusted operating profit,
divided by adjusted trading capital employed, where pro forma adjusted
operating profit is the annualised adjusted operating profit including that of
acquisitions and disposals in the period. The Directors believe that ROATCE is
an important measure of the profitability of the Group.
Note 2023 2022
£m £m
Net assets as reported under IFRS 902.0 668.2
Add/(deduct):
- Deferred tax, net 58.4 38.2
- Retirement benefit assets, net (6.5) (6.4)
- Net acquisition related liabilities 19.6 29.6
- Net debt 9 254.7 328.9
Trading capital employed 1,228.2 1,058.5
- Historic goodwill and acquisition related charges, net of deferred tax and 189.4 99.6
currency movements
Adjusted trading capital employed 1,417.6 1,158.1
Adjusted operating profit 14.2 237.0 191.2
Pro forma adjustments¹ 19.4 9.7
Pro forma adjusted operating profit 256.4 200.9
ROATCE 18.1% 17.3%
1 Annualisation of adjusted operating profit, including that of acquisitions
and disposals in the year.
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 (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR EAKFNFENDFFARecent news on Diploma
See all newsREG - Diploma PLC - Holding(s) in Company
AnnouncementREG - Diploma PLC - Holding(s) in Company
AnnouncementREG - Diploma PLC - Acquisition
AnnouncementREG - Diploma PLC - Holding(s) in Company
AnnouncementREG - Diploma PLC - Result of AGM
Announcement