REG - Diploma PLC - Half-year Report
15/05/2023 07:00
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RNS Number : 3310Z Diploma PLC 15 May 2023
DIPLOMA PLC 10-11 CHARTERHOUSE SQUARE, LONDON EC1M 6EE
TELEPHONE: +44 (0)20 7549 5700
FACSIMILE: +44 (0)20 7549 5715
This announcement contains inside information
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2023
Strong first half, upgrading full year guidance
HY 2023 HY 2022 Y/y change
Revenue £582.8m £448.5m +30%
Organic revenue growth ((1)) 10% 16%
Adjusted operating profit ((2)) £109.7m £82.5m +33%
Adjusted operating margin ((2)) 18.8% 18.4% +40bps
Statutory operating profit £92.5m £58.2m +59%
Free cash flow ((3)) £51.8m £37.7m +37%
Free cash flow conversion ((3)) 70% 64%
Adjusted earnings per share ((2)) 59.1p 47.0p +26%
Basic earnings per share 47.3p 28.6p +65%
Leverage 0.7x 1.2x
Interim dividend per share 16.5p 15.0p +10%
ROATCE 17.8% 17.5%
(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 13 to the
condensed consolidated financial statements.
Strong half year financial performance
· Continued strong organic revenue growth of 10%, mainly volume driven
by our revenue diversification activity.
· Reported revenue growth of 30% with a 12% contribution from
acquisitions and positive FX benefit of 8%.
· Very strong adjusted operating margin: up 40 bps to 18.8%,
reflecting our value-add proposition, and benefiting from operational leverage
net of continued scaling investments.
· Free cash flow conversion of 70%, ahead of last year.
· ROATCE improved to 17.8%, after an investment of £66m in
acquisitions, net of disposals, during the period.
· 26% growth in adjusted EPS, continuing our long term track record of
double-digit growth.
· Leverage reduced to 0.7x following the recent placing.
Revenue diversification driving organic growth, building scale and increasing
resilience
· Controls +13%: Sustained double-digit growth at Windy City Wire
("WCW") and excellent International Controls momentum. International Controls
benefiting from structural tailwinds and market share gains in civil
aerospace, defence and energy markets.
· Seals +8%: Double-digit growth in International Seals led by a great
contribution from R&G. In North America, Aftermarket again delivered very
strong geographical market share gains.
· Life Sciences +4%: Momentum accelerating as hospital staffing and
surgical procedures continue to recover and we benefit from normalising
clinical diagnostics investment post-pandemic.
Targeted acquisitions accelerate organic growth
· Acquired Tennessee Industrial Electronics ("TIE") for £76m,
entering the strategically important Industrial Automation end market in the
US. Strong organic growth potential at accretive operating margins.
· Small bolt-ons to our core business lines. Completed seven for total
consideration of £23m (one of which was completed in April 2023); average
EBIT multiple under 5x; £24m of annual revenue; accretive EBIT margins; and
20% year one ROATCE.
· Continued portfolio management discipline: disposed of a non-core,
lower margin heating control business in March, for total consideration of
£23m.
· Strong near-term M&A pipeline with c.£1bn of active
opportunities; we remain disciplined.
Strong cash flow and balance sheet provides further capacity for growth
· Low capital intensity, cash-generative business model delivering
strong free cash flow with conversion of 70%, ahead of last year.
· Working capital as a percentage of revenue reduced by 60 bps to 17.1%
as inventory levels reduce.
· Net debt reduced to £154m and Leverage to 0.7x following £233m of
cash generated from the recent capital raise.
Scaling effectively for sustainable growth
· In the businesses: developing target operating models to deliver
customer proposition at scale, supported by investments in talent, management
systems and new facilities in a number of businesses.
· As a Group: evolving our structure, capability and culture to
support the development of an expanding Group.
· Submitted net zero targets for SBTi validation.
Increasing full year guidance
· We have delivered a strong first half and the second half has
started positively.
· As we enter the second half we face a very strong comparative
performance period, particularly Q3.
· Our continued strong growth and increasing resilience, however, give
us the confidence to increase our guidance for the full year:
o We expect organic revenue growth of c.7% for the full year, and a
further c.7% growth from acquisitions, net of disposals.
o We expect operating margin to be at the top of our previously guided
range, c.19%.
o Free cash flow conversion of c.90% which would drive year end leverage
to less than 0.4x before any future acquisition investment.
Commenting, Johnny Thomson, Diploma's Chief Executive said:
"I thank all my brilliant Diploma colleagues for their dedication to
consistently improving our businesses and to delivering great service to our
customers. We have had an excellent first half. The strong performance, with
volume-led growth, encouraging margin progress and +26% EPS, builds on
Diploma's long term compounding track record. Our upgrade for the full year
underscores our increasing resilience as well as the strength of the business
model.
Strategically, we focus on building high quality scalable businesses for
sustainable organic growth. And we have made great progress, continuing to
diversify our organic growth through exciting end market exposures,
penetrating core geographies, and expanding addressable market with product
extension.
We also welcomed eight great new businesses which will help drive that future
organic growth, while incrementally investing in scaling the businesses and
our Group. Our very significant potential for growth, as we strengthen our
business model and margins, gives us confidence in delivering further
resilient quality compounding in the future. We remain very positive about our
short and long term prospects."
Investor Seminar 2023
On 27(th) June 2023 Diploma will host an Investor Seminar for analysts and
institutional investors in Central London. The event will provide an
opportunity to hear from members of the senior management team who will
provide insight into Diploma's differentiated value-add business model, why
they are excited about the Group's organic growth potential, and how they
scale their businesses and the Group to ensure sustainable long-term delivery.
The event will be broadcast live at www.diplomaplc.com
(http://www.diplomaplc.com) from 14:00 BST. Those wishing to attend in person
are requested to email ava.jarman@teneo.com (mailto:ava.jarman@teneo.com) for
further details.
This announcement contains inside information
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2023
Strong first half, upgrading full year guidance
HY 2023 HY 2022 Y/y change
Revenue £582.8m £448.5m +30%
Organic revenue growth ((1)) 10% 16%
Adjusted operating profit ((2)) £109.7m £82.5m +33%
Adjusted operating margin ((2)) 18.8% 18.4% +40bps
Statutory operating profit £92.5m £58.2m +59%
Free cash flow ((3)) £51.8m £37.7m +37%
Free cash flow conversion ((3)) 70% 64%
Adjusted earnings per share ((2)) 59.1p 47.0p +26%
Basic earnings per share 47.3p 28.6p +65%
Leverage 0.7x 1.2x
Interim dividend per share 16.5p 15.0p +10%
ROATCE 17.8% 17.5%
(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 13 to the
condensed consolidated financial statements.
Strong half year financial performance
· Continued strong organic revenue growth of 10%, mainly volume driven
by our revenue diversification activity.
· Reported revenue growth of 30% with a 12% contribution from
acquisitions and positive FX benefit of 8%.
· Very strong adjusted operating margin: up 40 bps to 18.8%,
reflecting our value-add proposition, and benefiting from operational leverage
net of continued scaling investments.
· Free cash flow conversion of 70%, ahead of last year.
· ROATCE improved to 17.8%, after an investment of £66m in
acquisitions, net of disposals, during the period.
· 26% growth in adjusted EPS, continuing our long term track record of
double-digit growth.
· Leverage reduced to 0.7x following the recent placing.
Revenue diversification driving organic growth, building scale and increasing
resilience
· Controls +13%: Sustained double-digit growth at Windy City Wire
("WCW") and excellent International Controls momentum. International Controls
benefiting from structural tailwinds and market share gains in civil
aerospace, defence and energy markets.
· Seals +8%: Double-digit growth in International Seals led by a great
contribution from R&G. In North America, Aftermarket again delivered very
strong geographical market share gains.
· Life Sciences +4%: Momentum accelerating as hospital staffing and
surgical procedures continue to recover and we benefit from normalising
clinical diagnostics investment post-pandemic.
Targeted acquisitions accelerate organic growth
· Acquired Tennessee Industrial Electronics ("TIE") for £76m,
entering the strategically important Industrial Automation end market in the
US. Strong organic growth potential at accretive operating margins.
· Small bolt-ons to our core business lines. Completed seven for total
consideration of £23m (one of which was completed in April 2023); average
EBIT multiple under 5x; £24m of annual revenue; accretive EBIT margins; and
20% year one ROATCE.
· Continued portfolio management discipline: disposed of a non-core,
lower margin heating control business in March, for total consideration of
£23m.
· Strong near-term M&A pipeline with c.£1bn of active
opportunities; we remain disciplined.
Strong cash flow and balance sheet provides further capacity for growth
· Low capital intensity, cash-generative business model delivering
strong free cash flow with conversion of 70%, ahead of last year.
· Working capital as a percentage of revenue reduced by 60 bps to 17.1%
as inventory levels reduce.
· Net debt reduced to £154m and Leverage to 0.7x following £233m of
cash generated from the recent capital raise.
Scaling effectively for sustainable growth
· In the businesses: developing target operating models to deliver
customer proposition at scale, supported by investments in talent, management
systems and new facilities in a number of businesses.
· As a Group: evolving our structure, capability and culture to
support the development of an expanding Group.
· Submitted net zero targets for SBTi validation.
Increasing full year guidance
· We have delivered a strong first half and the second half has
started positively.
· As we enter the second half we face a very strong comparative
performance period, particularly Q3.
· Our continued strong growth and increasing resilience, however, give
us the confidence to increase our guidance for the full year:
o We expect organic revenue growth of c.7% for the full year, and a
further c.7% growth from acquisitions, net of disposals.
o We expect operating margin to be at the top of our previously guided
range, c.19%.
o Free cash flow conversion of c.90% which would drive year end leverage
to less than 0.4x before any future acquisition investment.
Commenting, Johnny Thomson, Diploma's Chief Executive said:
"I thank all my brilliant Diploma colleagues for their dedication to
consistently improving our businesses and to delivering great service to our
customers. We have had an excellent first half. The strong performance, with
volume-led growth, encouraging margin progress and +26% EPS, builds on
Diploma's long term compounding track record. Our upgrade for the full year
underscores our increasing resilience as well as the strength of the business
model.
Strategically, we focus on building high quality scalable businesses for
sustainable organic growth. And we have made great progress, continuing to
diversify our organic growth through exciting end market exposures,
penetrating core geographies, and expanding addressable market with product
extension.
We also welcomed eight great new businesses which will help drive that future
organic growth, while incrementally investing in scaling the businesses and
our Group. Our very significant potential for growth, as we strengthen our
business model and margins, gives us confidence in delivering further
resilient quality compounding in the future. We remain very positive about our
short and long term prospects."
Investor Seminar 2023
On 27(th) June 2023 Diploma will host an Investor Seminar for analysts and
institutional investors in Central London. The event will provide an
opportunity to hear from members of the senior management team who will
provide insight into Diploma's differentiated value-add business model, why
they are excited about the Group's organic growth potential, and how they
scale their businesses and the Group to ensure sustainable long-term delivery.
The event will be broadcast live at www.diplomaplc.com
(http://www.diplomaplc.com) from 14:00 BST. Those wishing to attend in person
are requested to email ava.jarman@teneo.com (mailto:ava.jarman@teneo.com) for
further details.
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 13 to the condensed
consolidated financial statements in this Announcement.
2. Certain statements contained in this Announcement constitute
forward-looking statements. Such forward-looking statements involve risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of Diploma PLC, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such statements. Such risks, uncertainties and other
factors include, among others, exchange rates, general economic conditions and
the business environment.
There will be a presentation of the results to analysts and investors at 9:00
BST this morning via audio conference call and webcast. Conference call dial
in details:
· Dial in: +44 (0) 33 0551 0200 (UK-Wide)
· Confirmation code: Diploma Half Year Results
Register your attendance for the webcast at:
https://brrmedia.news/diploma_plc_hyresults
(https://protect-eu.mimecast.com/s/BStaCL9OPTV9r3SByQEL?domain=brrmedia.news)
This presentation will be available after the conference call at:
https://www.diplomaplc.com/investors/financial-presentations/
(https://www.diplomaplc.com/investors/financial-presentations/) .
A replay of the audio will be available on the same link after the event.
For further information please contact:
Diploma PLC - +44 (0)20 7549 5700
Johnny Thomson, Chief Executive Officer
Chris Davies, Chief Financial Officer
Kellie McAvoy, 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.3,000 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 c.15% p.a. through a combination of organic growth and
acquisitions. Diploma is a member of the FTSE 250 with a market capitalisation
of c.£3.6bn.
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
HALF YEAR REVIEW TO 31 MARCH 2023
Strong half year performance
The Group has once again delivered a successful six months, reflecting the
benefits of our strategy, value-add proposition and decentralised model.
These, underpinned by the commitment of our colleagues to deliver excellent
customer service, have enabled us again to deliver double-digit organic growth
at high teens margins.
Revenue in the first half of 2023 was up 30% to £582.8m (2022: £448.5m).
Organic growth was 10%, mainly volume, driven by our revenue diversification
initiatives. Acquisitions, net of a small disposal, contributed 12% to
reported revenue while foreign exchange translation added a further 8%.
Positive operational leverage, strong pricing and cost management have enabled
us to invest in scaling our businesses, while still increasing adjusted
operating margin to a strong 18.8% (2022: 18.4%). Our adjusted operating
profit increased by 33% to £109.7m (2022: £82.5m). Statutory operating
profit rose 59% to £92.5m (2022: £58.2m).
Adjusted EPS grew by 26%, continuing our long-term compounding track record
(15% CAGR EPS over 15 years).
Our cash-generative business model supported strong first half free cash flow
conversion of 70% (2022: 64%). Together with the recent equity raise, this led
to net debt of £154.0m or 0.7x leverage at 31 March 2023 (31 March 2022:
£209.5m and 1.2x). Returns on capital are a central underpin of our
compounding financial model and we were pleased to report another strong
period with ROATCE of 17.8% (2022: 17.5%).
In light of the strong H1 performance and our confidence in the Group's
prospects, we have declared a 10% increase in the interim dividend to 16.5p
per share (2022: 15.0p). The dividend is payable on 9 June 2023 to
shareholders on the register on 26 May 2023 with a corresponding ex-dividend
date of 25 May 2023.
Revenue diversification strategy driving organic growth
The Group's strategy is to build high quality, scalable businesses for organic
growth. All of our businesses drive this growth in three ways: capitalising on
structurally growing end markets; increasing penetration of core geographies;
and expanding addressable markets through product range extension. The
collective success of our businesses' growth initiatives drove organic growth
of 10%, with strong trading momentum sustained throughout the first half.
Revenue £m Organic growth
H1 23 H1 22 Change H1 23 H1 22
Controls 278.8 224.0 +24% +13% +28%
Seals 198.4 137.4 +44% +8% +15%
Life Sciences 105.6 87.1 +21% +4% (7)%
Group 582.8 448.5 +30% +10% +16%
Some examples of how our businesses are delivering organic growth are set out
below, with further detail provided in the Sector reviews on pages 8 to 12.
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, energy and telecoms markets as well as penetrating the
wider electrification ecosystem. Across our Seals businesses, we are well
exposed to US infrastructure spend and we have diversified into exciting
growing markets such as water treatment and renewable energy. In Life
Sciences, in addition to benefiting from the recovery of surgical procedures
to c.90% of pre-pandemic levels, 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 six months we have made
progress developing our US and European exposure. 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 winning market share in the
western and mid-west states of the US, leveraging the investment in the
facility in Louisville. R&G has enjoyed a very strong first year in the
Group, building out our UK regional position and product offerings to drive
excellent organic growth. In Life Sciences, we now have a scaled European
platform following the integration of Accuscience, which better positions us
for recovering healthcare markets.
Product range extension. New product development forms an ongoing component of
all our businesses' organic growth strategies.
· Controls has delivered outstanding growth from speciality adhesives
having entered that segment through the acquisition of Techsil in 2021, and
Windy City Wire continues to innovate products to diversify into new markets,
leveraging its scaled business model and strong customer relationships.
· Following the acquisition of R&G last year, Seals continues to
diversify into wider fluid power products from its traditional strength across
seals and gaskets.
· Product development is an intrinsic component of our Life Sciences
businesses. The Canadian businesses saw significant growth through the
introduction of new technology in the gastrointestinal and surgical segments.
The European businesses saw similar new product successes with the single use
endoscope in the Urology segment, the introduction of new ultrasound
technology and new product introductions in the lab and pharmaceutical testing
environments.
Strategically important acquisitions to accelerate growth
Acquisitions are an integral part of our growth strategy. We are disciplined
and selective in our acquisition strategy and will only consider opportunities
that display the following core characteristics:
· differentiated value-add customer proposition generating
sustainable high gross margins;
· strong organic growth and scale potential; and
· capable management teams we can back.
Since 30 September 2022, we have acquired eight high quality businesses for a
total of £98m (one of which was completed in April 2023).
In March, we acquired Tennessee Industrial Electronics ("TIE") for £76m,
entering the strategically important Industrial Automation end market in the
US. TIE 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 strong margins. The business is growth,
margins and earnings accretive in the first year.
Since 30 September 2022, we have also completed seven bolt-on acquisitions for
a total consideration of £23m (one of which was completed in April 2023), at
an average EBIT multiple of under 5x EBIT. These will add £24m 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 (heating controls within the
Controls Sector) in March, for a total consideration of £23m.
The Group's acquisition pipeline is very strong and reflects the Group's focus
in recent years to take a more strategic and structured approach to developing
a pipeline across our businesses. This pipeline is made up of small and
mid-sized opportunities totalling c.£1bn in value and with an average target
size of c.£20m. In fragmented markets, the pipeline is well diversified by
sector and geography. We remain committed to disciplined investment of capital
and are excited about the opportunities in this pipeline, which will support
the Group's future organic growth, and deliver compounding earnings growth at
high returns over the long term.
Scaling the Businesses and the Group
To deliver 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;
and at the same time, develop the Group, optimising structures and practices
to support this growth.
Scaling the Businesses
We have a framework which allows our businesses to make the journey towards
their future stated target operating model. We have a common set of core
competencies (supply chain, operational excellence, commercial discipline,
value-add and route to market) which underpin their model. We engage leaders
from around the Group in a bespoke development programme - leadership at scale
- where they benefit from best practice sharing in each of these competency
areas.
As well as developing core competencies, scaling our businesses requires
selective investment in capability, in the form of talent, technology, and
facilities. Incrementally reinvesting some of the benefits we gain from
operational leverage and performance improvement as we grow is a critical
aspect of our financial model. During the period, 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. Across each of our Sectors, we are integrating smaller
businesses to create scale platforms such as an integrated Australian Life
Sciences business or an integrated UK Wire & Cable business. From a
technology perspective, we have ERP upgrade projects underway across a number
of businesses as well as automated warehouse system upgrades in a number of
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
Portfolio discipline is key to ensuring the Group scales sustainably. The
right acquisitions, effective integration, and selective disposals have meant
that while the Group has doubled in size in the last four years, our business
unit verticals have reduced from 20 to 16.
We have clear Group-wide strategic and performance frameworks which allows us
to align through the Sectors and business units. With a lean, upskilled
Executive, Head Office and Senior Leadership Team, this allows effective
execution of our objectives as the Group scales.
We have brilliant people. We operate the Group through a decentralised
culture, empowering our management teams to own their people, service, culture
and strategic/performance delivery. Increasingly we complement this with the
benefits of the Diploma Group. This provides access to a network, to a body of
best practice, to leadership development, all of which together continuously
improve our business.
Delivering Value Responsibly
We are making good progress across our businesses with Delivering Value
Responsibly ("DVR"), our Environmental, Social, and Governance (ESG)
programme. During the period we have hired an experienced Group Sustainability
Director and submitted our net zero targets for validation from the Science
Based Targets initiative (SBTi).
DVR is focused on five core areas.
· We have strong levels of Colleague Engagement at 79%. We have
engagement plans in each of our businesses.
· Potential hazard reporting and training are enhancing our Health
& Safety culture.
· 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 females now representing 28% of our senior team
(20% in 2019).
· Our businesses are stepping up engagement with their Supply Chains on
our Supplier Code.
· Further focus on the Environment, including energy workshops, has
seen our businesses diverting waste from landfill and putting new actions in
place across facilities to reduce emissions such as LED lighting and
efficiency initiatives. We have started to implement solar solutions on our
facilities and expect to progress this further in the coming 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 or contributing to a circular
business model both in the way we partner externally with our customers and
suppliers as well as the way we operate internally.
Increasing full year guidance
We have delivered a strong first half and the second half has started
positively. As we enter the second half we face a very strong comparative
performance period, particularly Q3. Our continued strong growth and
increasing resilience, however, give us the confidence to increase our
guidance for the full year:
· We expect organic revenue growth of c.7% for the full year, and a
further c.7% growth from acquisitions, net of disposals.
· We expect operating margin to be at the top of our previously guided
range, c.19%.
· Free cash flow conversion of c.90% which would drive year end
leverage to less than 0.4x before any future acquisition investment.
SECTOR REVIEW: CONTROLS
The Controls Sector businesses supply specialised wiring, cable, connectors,
fasteners, control devices and adhesives for a range of technically demanding
applications.
Half Year
2023 2022 Change
Revenue £278.8m £224.0m +24%
Organic revenue growth +13% +28%
Statutory operating profit £57.7m £33.8m +71%
Adjusted operating profit £64.3m £47.0m +37%
Adjusted operating margin 23.1% 21.0% +210bps
H1 2023 highlights
· Very strong performance in International Controls with organic
revenue growth of 15%.
· Windy City Wire ("WCW") delivered organic growth of 10%, building on
a very strong comparative period in H1 FY22.
· Adjusted operating profit increased significantly, 37% higher at
£64.3m (2022: £47.0m) with a 210bps year-on-year increase in adjusted
operating margin to 23.1% (2022: 21.0%). Both WCW and International Controls
contributed to margin expansion driven by positive operating leverage and mix
into higher margin products.
· Strategic acquisition of TIE 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 half, benefiting 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.
Windy City Wire (49% of Controls Sector revenue) continues to perform
strongly, with organic revenue growth of 10% in the period, following a very
strong comparative period of 42% organic growth. This was driven by a
favourable mix of higher value products.
Revenue diversification driving organic growth
The Sector continues to diversify its end markets, gaining share in Space and
Telecoms and benefiting from the wider move to electrification and green
energy as it continues to deliver growth in the electric vehicles ("EV") and
renewable energy end markets.
Interconnect continues to win market share in structurally growing end markets
across the UK and Europe such as energy, defence and automotive which are all
benefiting from increased investment and easing supply chain constraints.
The Sector's Fasteners business continues to win market share and benefit from
strong customer demand in the recovering civil aerospace market in both the UK
and US. The business also secured key contract wins in seats and cabin
hardware and has also seen further diversification of its end markets with
good momentum into space and unmanned aerial vehicles ("UAVs").
Adhesives delivered strong double-digit growth in the period in its key
automotive end markets as well as continued share gains in the
telecommunications and EV markets.
Targeted acquisitions to accelerate growth
During the period, the Sector completed the acquisition of TIE for £76m
providing it with access to the important Industrial Automation end market,
which has been a strategic target end market for some time. TIE 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 period, with Eurobond
further broadening our product offering in the Adhesives sector and Shrinktek
expanding the sector's offering into the UK Wire and Cable markets.
Building scale
Significant investment in technology and facilities is underway as the sector
seeks to combine two of its UK Wire and 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 and capitalise on the
ongoing strong recovery. Focused investments in sales resources are also being
made into the adhesives market to capitalise on long-term aerospace and
defence opportunities.
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 OEM, Aftermarket and MRO applications.
Half Year
2023 2022 Change
Revenue £198.4m £137.4m +44%
Organic revenue growth +8% +15%
Statutory operating profit £29.3m £17.1m +71%
Adjusted operating profit £35.7m £25.8m +38%
Adjusted operating margin 18.0% 18.8% -80bps
H1 2023 highlights
· Very strong International Seals performance with strong organic growth
from R&G following acquisition.
· Robust performance in North American Seals, benefiting from returns on
the investment into the Aftermarket facility in Louisville; and very strong
performance in our MRO business.
· Adjusted operating profit increased by 38% to £35.7m (2022: £25.8m).
· Invested in scaling projects focusing on automation and supply chain
efficiencies through facilities upgrades.
International Seals (48% of Sector revenue) delivered very strong organic
growth of 12%, principally driven by an excellent trading performance from
R&G in the UK and strong recovery of capital projects in Australia.
North American Seals (52% of Sector revenue) delivered robust organic growth
of 4% against a very strong comparator (2022: +19%) with strong growth in our
North American Aftermarket and MRO businesses partly offset by some destocking
in industrial OEM end markets.
Revenue diversification driving organic growth
In International Seals, our UK businesses benefited 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 pump businesses delivered
strong growth fuelled by investments in infrastructure such as tunnels and
wastewater. Anti-Corrosion Technology ("ACT"), which was acquired in late
FY22, has doubled since acquisition, capitalising on asset protection projects
in the oil and gas industry.
North American Aftermarket delivered strong growth in the repair segment,
driven by increased infrastructure spending. The investment in our Aftermarket
facility in Louisville, Kentucky is continuing to deliver accelerated growth
and market share gains, particularly in western states, and this is supported
by positive demand in the US infrastructure sector. Our MRO business delivered
strong double-digit growth with the introduction of new value added products
focused on late cycle opportunities in the transportation sector.
Targeted acquisitions to accelerate growth
In International Seals, three bolt-on acquisitions were added into the R&G
Group. Hedley Hydraulics and Fluid Power Services bring complementary
products, capabilities and geographical expansion to R&G's Hydraulics
sector. Valves Online will complement and strengthen R&G's capabilities in
the online route to market.
In North American Seals, 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. ITG is highly complementary
and presents the opportunity to capitalise on operational synergies.
Building scale
The Sector is selectively integrating smaller businesses to form better scaled
platforms and during the period completed the integration of TotalSeal into
FITT Resources in Australia.
Further scaling investments in facilities to establish national hubs are being
made, with examples including a national distribution hub for R&G and the
construction of a new M Seals facility in Denmark that will become the Nordic
hub for the Sector.
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 is currently progressing work to
expand the Autostore in Louisville.
Sector review: LIFE SCIENCES
The Life Sciences Sector businesses supply a range of equipment, consumables,
instrumentation and related services to the Healthcare industry.
Half Year
2023 2022 Change
Revenue £105.6m £87.1m +21%
Organic revenue growth 4% (7)%
Statutory operating profit £16.7m £17.2m (3)%
Adjusted operating profit £20.9m £19.6m +7%
Adjusted operating margin 19.8% 22.5% (270)bps
H1 2023 highlights
· Organic revenue +4% (2022:(7%)): The Sector has returned to growth, with
momentum accelerating, driven by the recovery of surgical and operating room
procedures to c.90% of pre-Covid levels.
· Exciting outlook as governments act to address the surgical/diagnostics
backlogs and increase funding of capital projects.
· As expected, the operating margin for the Sector has declined, primarily
due to the acquisition of Accuscience which has a lower margin with lower
capital intensity, plus 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
The Sector's mid to longer-term prospects are exciting. 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 period, we have secured contracts
across Canada, the Nordics and Australia as governments and hospitals increase
capacity to clear the surgical backlogs and reinvest in new medical research
laboratories. Growth opportunities remain positive with a good trajectory of
surgical and operating room procedures fully recovering towards pre-Covid
levels as capacity constraints and staffing shortages in hospitals continue to
ease.
It is also pleasing to see an increasing number of projects won in early
diagnostics and intervention. This was a trend that was identified early on by
the Sector and is now coming to fruition, as healthcare systems increasingly
recognise the importance of testing and diagnostics capabilities and
continually increase investment into areas such as molecular infectious
disease testing and molecular oncology diagnostics. The Canadian businesses
saw significant growth through the introduction of new technology in the
gastrointestinal and surgical segments. The European businesses saw similar
new product successes with the single use endoscope in the Urology segment,
the introduction of new ultrasound technology and new product introductions in
the lab and pharmaceutical testing environments.
Looking forward to the product pipeline for H2 and beyond, the Canadian
businesses expect to benefit from the introduction of pathology automation
technology that will bring positive impacts to laboratory workflow. There is
an equally exciting product pipeline for the European businesses with the
entry into a new segment in Haematology testing and further growth in
diagnostic technologies.
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.
FINANCE
Summary income statement
Six months to 31 March 2023 Six months to 31 March 2022
Adjusted((1)) Adjust-ments((1)) Total Adjusted((1)) Adjust-ments((1)) To
ta
l
£m £m £m £m £m
£m
Revenue 582.8 - 582.8 448.5 - 448.5
Operating expenses (473.1) (17.2) (490.3) (366.0) (24.3) (390.3)
Operating profit 109.7 (17.2) 92.5 82.5 (24.3) 58.2
Financial expense, net (11.0) (2.8) (13.8) (3.9) (2.0) (5.9)
Profit before tax 98.7 (20.0) 78.7 78.6 (26.3) 52.3
Tax expense (24.2) 5.2 (19.0) (19.8) 3.4 (16.4)
Profit for the period 74.5 (14.8) 59.7 58.8 (22.9) 35.9
Earnings per share (p)
Adjusted/Basic 59.1p (11.8p) 47.3p 47.0p (18.4p) 28.6p
(1) 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. These are detailed in note
13 to the Condensed Consolidated Financial Statements.
Reported revenue increased by 30% to £582.8m (2022: £448.5m), consisting of
organic growth of 10%, a 12% net contribution from acquisitions and disposals,
and an 8% benefit from foreign exchange translation.
Adjusted operating profit increased by 33% to £109.7m (2022: £82.5m) as the
operational leverage from the increased revenue, net of continued investment
in scaling projects across the Group, drove a 40bps year-on-year improvement
in the adjusted operating margin to 18.8% (2022: 18.4%). Statutory operating
profit increased 59% to £92.5m (2022: £58.2m), benefiting from a £12.2m
profit on disposal of Hawco at the end of the period, compared with a small
loss of £1.6m in the prior year relating to the disposal of Kentek.
Adjusted profit before tax increased 26% to £98.7m (2022: £78.6m). Net
adjusted interest expense increased to £11.0m (2022: £3.9m), driven both by
increased average gross debt, as borrowings increased to finance acquisitions
prior to the share placing in March, and higher interest rates. The all-in,
blended cost of bank debt increased to 5.5% (2022: 2.1%). Statutory profit
before tax was 50% higher year-on-year at £78.7m (2022: £52.3m).
The Group's adjusted effective rate of tax on adjusted profit before tax was
24.5% (September 2022: 25.0%) marginally reduced from the year ended 30
September 2022.
Adjusted earnings per share increased by 26% to 59.1p (2022: 47.0p). Basic
earnings per share increased by 65% to 47.3p (2022: 28.6p). An equity placing
was completed in March 2023, resulting in a 7.5% increase (9,350,965 new
shares) in the issued ordinary share capital. As at 31 March 2023, the average
number of ordinary shares (which includes any potentially dilutive shares) was
125,927,286 (2022: 124,932,661) and the weighted average number of ordinary
shares in issue was 125,360,523 (2022: 124,520,917).
Cash management
Free cash flow increased by 37% to £51.8m (2022:£37.7m). Statutory cash flow
from operating activities increased by 53% to £98.1m (2022: £64.0m).
Six months ended Six months ended
31 March 31 March
2023 2022
Funds flow £m £m
Adjusted operating profit 109.7 82.5
Depreciation and other non-cash items 15.2 10.6
Working capital movement (22.8) (27.3)
Interest paid, net (excluding borrowing fees) (9.8) (2.7)
Tax paid (22.2) (19.9)
Capital expenditure, net of disposal proceeds (9.5) 3.6
Lease repayments (6.9) (6.3)
Notional purchase of own shares on exercise of options (1.9) (2.8)
Free cash flow 51.8 37.7
Acquisition and disposals (net of cash acquired/disposed) including (75.9) (24.9)
acquisition expenses and deferred consideration
Proceeds from issue of share capital (net of fees) 232.5 -
Dividends paid to shareholders and minority interests (48.6) (37.7)
Foreign exchange 15.1 (3.2)
Net funds flow 174.9 (28.1)
Net debt (154.0) (209.5)
Working capital increased by £22.8m, driven by an increase in inventories of
£11.5m and an increase in receivables of £17.8m, both reflective of the
revenue growth during the period.
Depreciation and other non-cash items includes £13.4m (2022: £10.9m) of
depreciation and amortisation of tangible, intangible and right of use assets
and £1.8m (2022: deduction of £0.3m) of non-cash items, primarily
share-based payments expense.
Interest payments increased by £7.1m to £9.8m (2022: £2.7m) in line with
increased interest charges. Tax payments in the first half of the year
increased by £2.3m to £22.2m (2022: £19.9m) with the cash tax rate reducing
marginally to 22% (2022: 23%).
Capital expenditure increased by £4.5m, largely driven by facility
investments in Shoal Group and Hercules Aftermarket. The prior period
benefited from £9.3m 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 generated free cash flow of £51.8m (2022: £37.7m) a very strong
37% increase on the prior year, resulting in free cash flow conversion of 70%
(2022: 64%).
Net total acquisition expenditure of £75.9m (2022: £24.9m) comprises the
cash spend for TIE (£75.1m), the cash spend for other acquisitions (£10.3m),
acquisition fees (£4.0m), and payments in respect of acquisitions completed
in prior periods (£8.0m) partially offset by the proceeds received, net of
cash disposed, in respect of the disposal of Hawco (£21.5m).
The Group received net proceeds of £232.5m from the equity placing completed
in March 2023. Dividends of £48.6m (2022: £37.7m) were paid to ordinary and
minority interest shareholders.
Net debt
The Group has a debt facility agreement ("SFA") originally entered into on 13
October 2020. At 31 March 2023, the SFA comprises a committed multi-currency
revolving facility for an aggregate principal amount of £359.7m, an
amortising term loan for an aggregate principal amount of £89.3m ($110.5m), a
bullet term loan for an aggregate principal amount of £53.3m ($66.0m) and a
further bullet term loan for an aggregate principal amount of £45.3m. The SFA
was recently extended until December 2025.
The Group continues to maintain a robust balance sheet with net debt
(excluding IFRS 16 liabilities) of £154.0m (2022: £209.5m) comprised of
borrowings of £226.1m (2022: £342.0m), less cash funds of £72.1m (2022:
£132.5m). The equity placing completed in March 2023 drove the reduction in
the Group's borrowings.
At 31 March 2023, net debt of £154.0m (2022: £209.5m) represented leverage
of 0.7x (2022: 1.2x) against a banking covenant of 3.0x. The Group maintains
strong liquidity, with period end headroom (comprised of undrawn committed
facilities and cash funds) of £390m (2022: £199m).
The table below outlines the composition of the Group's net debt at 31 March
2023:
Type Currency Amount GBP equivalent Interest rate exposure
Term loan USD $176.5m £142.6m SOFR fixed at 3%
RCF USD $29.0m £23.4m
Term loan GBP £45.3m Floating
RCF EUR €21.0m £18.5m Floating
Capitalised debt fees net of accrued interest £(3.7)m
Gross debt drawn at 31 March 2023 £226.1m
Cash & equivalents at period end £(72.1)m
Net debt at 31 March 2023 £154.0m
Defined Benefit Pension
The Group maintains a legacy closed defined benefit pension scheme in the UK.
In the period, the Group funded this scheme with cash contributions of £0.3m
(2022: £0.2m) 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 £0.2m (2022:
£0.2m).
Both the UK defined benefit scheme and the Kubo contribution scheme are
accounted for in accordance with IAS 19 (revised). At 31 March 2023, the
aggregate accounting pension surplus in these two schemes was £8.8m, compared
to a £6.4m surplus as at 30 September 2022, reflecting higher returns on the
Scheme's assets, partly offset by a fall in corporate bond yields over the
period. The next formal triennial funding valuation of the UK scheme is
expected to be completed in the second half of FY2023.
Exchange rates
A significant proportion of the Group's revenues (c.75%) are derived from
businesses located outside the UK, principally in the US, Canada, Australia
and Northern Europe. Since 30 September 2022, Sterling has strengthened
against some of the major currencies in which the Group operates, in
particular the US, Canadian, and Australian dollar, whilst weakening
marginally against the Euro and Danish krone. Compared with the first half of
last year, the average Sterling exchange rate is weaker against all of the
major currencies in which the Group operates. The impact from translating the
results of the Group's overseas businesses into UK sterling has led to an
increase in Group revenues of £32.7m; an increase in the Group's adjusted
operating profit of £7.3m; and an increase in net debt of £9.9m, compared
with the same period last year.
Going concern
The Directors have assessed the relevant factors surrounding going concern.
The Group continues to operate against a backdrop of macroeconomic disruption,
including widespread global inflation and rising interest rates. Accordingly,
the Directors have again considered a comprehensive going concern view. The
Group has carried out an assessment of its projected trading for the 18-month
period through to the year ending 30 September 2024. This assessment
incorporated a downside scenario which demonstrates that the Group has
sufficient liquidity, resources and covenant headroom to continue in operation
for the foreseeable future.
The Group has considerable financial resources, together with a broad spread
of customers and suppliers across different geographic areas and sectors,
often secured with longer term agreements. As a consequence, the Directors
believe that the Group is well placed to manage its business risks
successfully. The Directors confirm there are no material uncertainties which
may cast significant doubt on the Group's ability to continue as a going
concern and these condensed consolidated financial statements have therefore
been prepared on a going concern basis.
RISKS AND UNCERTAINTIES
The principal risks and uncertainties which may have the largest impact on
performance in the second half of the year are the same as those described in
detail in pages 82-88 of the 2022 Annual Report & Accounts. In summary
these are:
· Downturn/instability in major markets: 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.
· Supply Chain: the risk that existing distribution agreements are
cancelled, therefore losing access to key distribution channels; a supplier
taking away exclusivity; lead times increasing as a result of supply chain
shortages.
· Inflationary environment: significant or unexpected cost increases by
suppliers due to the pass through of higher commodity prices or other price
increases, higher trade tariffs and/or foreign currency fluctuations, could
adversely impact profits if businesses are unable to pass on such cost
increases to customers.
· 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.
· Geopolitical disruptions: interruption of trade agreements; tariffs;
change of trade relationships amongst countries in which we operate;
Government budget spending; political elections.
· Health & safety: our businesses are exposed to health &
safety risks in the environment in which their employees, contractors,
customers, and suppliers operate.
· Technology & cyber: 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.
· Talent & diversity: 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.
· Product liability: products supplied by a Group business may fail in
service, which could lead to a claim (notwithstanding the fact that the Group
has liability insurance in place providing cover for each business).
· Foreign currency: transactional foreign exchange risk arises
principally with respect to the Group's Canadian and Australian businesses,
where a large proportion of purchases are denominated in US dollars and Euros.
· Non-compliance with laws: the Group's businesses are affected by
various statutes, regulations and standards in the countries and markets in
which they operate. Diploma PLC itself is a listed entity subject to
regulation and governance requirements.
The Directors confirm that the principal risks and uncertainties and the
processes for managing them have not changed materially since the publication
of the 2022 Annual Report & Accounts and that they remain relevant for the
second half of the financial year.
Chris Davies
Chief Financial
Officer
15 May
2023
Responsibility Statement of the Directors in respect of the Half Year Report
2023
The directors confirm that Condensed Consolidated Financial Statements have
been prepared in accordance with UK adopted International Accounting Standard
34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority and that
the interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the
first six months and their impact on the condensed set of financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
· material related-party transactions in the first six months and any
material changes in the related-party transactions described in the last
annual report.
The Directors of Diploma PLC and their respective responsibilities are listed
in the Annual Report & Accounts for 2022 and on the Company's website at
www.diplomaplc.com (http://www.diplomaplc.com) .
By Order of the Board
JD Thomson C Davies
Chief Executive Officer Chief Financial Officer
15 May 2023 15 May 2023
Independent review report to Diploma PLC
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Diploma PLC's condensed consolidated interim financial
statements (the "interim financial statements") in the Half Year Report 2023
of Diploma PLC for the 6 month period ended 31 March 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Condensed Consolidated Statement of Financial Position as at
31 March 2023;
· the Condensed Consolidated Income Statement and Condensed Consolidated
Statement of Comprehensive Income for the period then ended;
· the Condensed Consolidated Cash Flow Statement for the period then
ended;
· the Condensed Consolidated Statement of Changes in Equity for the period
then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Year Report 2023 of
Diploma PLC have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Half Year Report 2023 and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half Year Report 2023, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Half Year Report 2023 in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the Half Year Report 2023, including
the interim financial statements, the directors are responsible for assessing
the group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Half Year Report 2023 based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
15 May 2023
Condensed Consolidated Income Statement
For the six months ended 31 March 2023
Unaudited Unaudited Audited
Six months to 31 March 2023 Six months to 31 March 2022 Year to 30 Sept 2022
Adjusted(1) Adjust- Total Adjusted(1) Adjust- Total Total
ments(1) ments(1)
Note £m £m £m £m £m £m £m
Revenue 3 582.8 - 582.8 448.5 - 448.5 1,012.8
Operating expenses 2 (473.1) (17.2) (490.3) (366.0) (24.3) (390.3) (868.5)
Operating profit 109.7 (17.2) 92.5 82.5 (24.3) 58.2 144.3
Financial expense, net 4 (11.0) (2.8) (13.8) (3.9) (2.0) (5.9) (14.8)
Profit before tax 98.7 (20.0) 78.7 78.6 (26.3) 52.3 129.5
Tax expense 5 (24.2) 5.2 (19.0) (19.8) 3.4 (16.4) (34.1)
Profit for the period 74.5 (14.8) 59.7 58.8 (22.9) 35.9 95.4
Attributable to:
Shareholders of the Company 6 74.1 (14.8) 59.3 58.5 (22.9) 35.6 94.7
Minority interests 0.4 - 0.4 0.3 - 0.3 0.7
74.5 (14.8) 59.7 58.8 (22.9) 35.9 95.4
Earnings per share (p)
Adjusted / Basic 6 59.1p (11.8p) 47.3p 47.0p (18.4p) 28.6p 76.1p
Adjusted / Diluted 58.8p (11.7p) 47.1p 46.9p (18.4p) 28.5p 75.9p
¹Adjusted figures exclude certain items as set out and explained in the
Financial Review and as detailed in Notes 2, 3, 4, 5 and 6. All amounts relate
to continuing operations.
The Group has re-presented the Condensed 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.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 March 2023
Unaudited Unaudited Audited
31 March 31 March 30 Sept 2022
2023 2022
£m £m £m
Profit for the period 59.7 35.9 95.4
Items that will not be reclassified to the Consolidated Income Statement
Actuarial gains in the defined benefit pension scheme 2.0 - 10.6
Deferred tax on items that will not be reclassified (0.6) - (2.8)
1.4 - 7.8
Items that may be reclassified to the Consolidated Income Statement
Exchange rate (losses)/gains on foreign currency net investments
(49.2) 13.7 76.8
(Losses)/gains on fair value of cash flow hedges (0.3) (0.5) 4.5
Net changes to fair value of cash flow hedges transferred to the Consolidated
Income Statement
(0.7) - (0.4)
Deferred tax on items that may be reclassified 0.2 0.2 (1.1)
(50.0) 13.4 79.8
Total Comprehensive Income for the period 11.1 49.3 183.0
Attributable to:
Shareholders of the Company 10.7 49.1 182.2
Minority interests 0.4 0.2 0.8
11.1 49.3 183.0
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 March 2023
Share capital Share premium Transl-ation reserve Hedging reserve Retained earnings Share-holders' equity Minority Total
interests equity
£m £m £m £m £m £m £m £m
At 1 October 2021 (audited) 6.3 188.6 12.1 0.2 329.1 536.3 4.7 541.0
Total comprehensive income - - 13.8 (0.3) 35.6 49.1 0.2 49.3
Share-based payments - - - - 1.4 1.4 - 1.4
Notional purchase of own shares - - - - (2.8) (2.8) - (2.8)
Disposal of business - - - - - - (1.3) (1.3)
Minority interest put option disposal - - - - 1.2 1.2 - 1.2
Dividends - - - - (37.5) (37.5) (0.2) (37.7)
At 31 March 2022 (unaudited) 6.3 188.6 25.9 (0.1) 327.0 547.7 3.4 551.1
Total comprehensive income - - 62.9 3.3 66.9 133.1 0.6 133.7
Share-based payments - - - - 1.4 1.4 - 1.4
Tax on items recognised directly in equity - - - - 0.4 0.4 - 0.4
Acquisition of business - - - - - - 2.5 2.5
Minority interest put option on acquisition - - - - (1.9) (1.9) - (1.9)
Minority interest acquired - - - - - - (0.3) (0.3)
Dividends - - - - (18.7) (18.7) - (18.7)
At 30 September 2022 (audited) 6.3 188.6 88.8 3.2 375.1 662.0 6.2 668.2
Total comprehensive income - - (49.2) (0.8) 60.7 10.7 0.4 11.1
Issue of share capital (note 6) 0.5 231.6 - - - 232.1 - 232.1
Share-based payments - - - - 2.1 2.1 - 2.1
Notional purchase of own shares - - - - (1.9) (1.9) - (1.9)
Dividends - - - - (48.3) (48.3) (0.3) (48.6)
At 31 March 2023 (unaudited) 6.8 420.2 39.6 2.4 387.7 856.7 6.3 863.0
Condensed Consolidated Statement of Financial Position
As at 31 March 2023
Unaudited Unaudited Audited
31 March 31 March 2022 30 Sept
2023 2022
Note £m £m £m
Non-current assets
Goodwill 9 374.6 269.9 372.3
Acquisition intangible assets 9 451.5 342.2 455.0
Other intangible assets 4.1 3.5 4.1
Property, plant and equipment 49.3 36.4 49.6
Leases - right of use of assets 54.6 53.8 62.4
Retirement benefit assets 8.8 - 6.4
Deferred tax assets 0.4 0.3 0.2
943.3 706.1 950.0
Current assets
Inventories 216.3 165.1 217.4
Trade and other receivables 173.7 135.4 169.9
Assets held for sale - 2.9 -
Cash and cash equivalents 8 72.1 132.5 41.7
462.1 435.9 429.0
Current liabilities
Borrowings 8 (29.1) (21.4) (30.5)
Trade and other payables (180.2) (138.0) (189.5)
Current tax liabilities (11.6) (9.1) (11.8)
Other liabilities (14.4) (5.6) (19.0)
Lease liabilities (12.3) (10.1) (12.7)
(247.6) (184.2) (263.5)
Net current assets 214.5 251.7 165.5
Total assets less current liabilities 1,157.8 957.8 1,115.5
Non-current liabilities
Retirement benefit obligations - (4.9) -
Borrowings 8 (197.0) (320.6) (340.1)
Lease liabilities (49.3) (50.2) (56.4)
Other liabilities (11.4) (12.1) (12.4)
Deferred tax liabilities (37.1) (18.9) (38.4)
Net assets 863.0 551.1 668.2
Equity
Share capital 6.8 6.3 6.3
Share premium 420.2 188.6 188.6
Translation reserve 39.6 25.9 88.8
Hedging reserve 2.4 (0.1) 3.2
Retained earnings 387.7 327.0 375.1
Total shareholders' equity 856.7 547.7 662.0
Minority interests 6.3 3.4 6.2
Total equity 863.0 551.1 668.2
Condensed Consolidated Cash Flow Statement
For the six months ended 31 March 2023
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2023 2022 2022
Note £m £m £m
Cash flow from operating activities 7 98.1 64.0 180.6
Interest paid, net (including borrowing fees) (11.3) (2.7) (15.0)
Tax paid (22.2) (19.9) (40.6)
Net cash from operating activities 64.6 41.4 125.0
Cash flow from investing activities
Acquisition of businesses (net of cash acquired) (85.4) (21.9) (173.0)
Deferred consideration paid (8.0) (5.4) (7.1)
Proceeds from sale of business (net of cash disposed) 21.5 4.2 13.7
Purchase of property, plant and equipment (9.4) (5.2) (14.3)
Purchase of other intangible assets (0.8) (0.5) (1.1)
Proceeds from sale of property, plant and equipment 0.7 9.3 9.9
Net cash used in investing activities (81.4) (19.5) (171.9)
Cash flow from financing activities
Proceeds from issue of share capital 236.1 - -
Share issue costs (3.6) - -
Dividends paid to shareholders 11 (48.3) (37.5) (56.2)
Dividends paid to minority interests (0.3) (0.2) (0.2)
Acquisition of minority interests - - (0.3)
Lease repayments (6.9) (6.3) (10.9)
Notional purchase of own shares on exercise of options (1.9) (2.8) (2.8)
Proceeds from borrowings 8 45.3 141.7 154.8
Repayment of borrowings 8 (171.6) (9.7) (20.0)
Net cash from financing activities 48.8 85.2 64.4
Net increase in cash and cash 8 32.0 107.1 17.5
equivalents
Cash and cash equivalents at beginning of period 41.7 24.8 24.8
Effect of exchange rates on cash and cash equivalents (1.6) 0.6 (0.6)
Cash and cash equivalents at end of period 72.1 132.5 41.7
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2023
1. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
Diploma PLC (the "Company") is a public limited company registered and
domiciled in England and Wales. The condensed set of consolidated financial
statements (the "financial statements") for the six months ended 31 March 2023
comprise the Company and its subsidiaries (together referred to as "the
Group").
The condensed information presented for the financial year ended 30 September
2022 does not constitute full statutory accounts as defined in section 434 of
the Companies Act 2006. Those statutory accounts have been reported on by the
Company's auditor and delivered to the Registrar of Companies. The report of
the auditor was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis without
qualifying their report, and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006. Except where otherwise stated, the
figures for the six months ended 31 March 2022 were extracted from the 2022
Half Year Report, which was unaudited.
The Group's audited consolidated financial statements for the year ended 30
September 2022 are available on the Company's website (www.diplomaplc.com
(http://www.diplomaplc.com) ) or upon request from the Company's registered
office at Diploma PLC, 10-11 Charterhouse Square, London, EC1M 6EE.
1.1 Statement of compliance
The financial statements included in this Half Year Announcement for the six
months ended 31 March 2023 have been prepared on a going concern basis and in
accordance with UK-adopted International Accounting Standard 34, Interim
Financial Reporting and the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority. The financial statements do not include all of
the information required for full annual consolidated financial statements and
should be read in conjunction with the Group's audited consolidated financial
statements for the year ended 30 September 2022.
The Half Year financial statements were approved by the Board of Directors on
15 May 2023; they have not been audited by the Company's auditor.
1.2 Significant accounting policies
The accounting policies applied by the Group in this set of financial
statements are the same as those applied by the Group in its audited
consolidated financial statements for the year ended 30 September 2022, except
for the amount included in the Half Year Report in respect of taxation.
As in previous Half Year Announcements, taxation has been calculated by
applying the Directors' best estimate of the annual rates of taxation to
taxable profits for the period. In the audited consolidated financial
statements for the full year, the taxation balances are based on draft tax
computations prepared for each business within the Group.
1.3 Risk management
The Group's overall management of financial risks is carried out by a central
team under policies and procedures which are reviewed by the Board. The
financial risks to which the Group is exposed are those of credit, liquidity,
foreign currency, interest rate and capital management. An explanation of each
of these risks and how the Group manages them is included in the Annual Report
& Accounts for the year ended 30 September 2022. Further explanation of
the Group's principal risks and uncertainties and Going Concern are set out in
the narrative of this Half Year Report.
There is no material difference between the book value and fair value of the
Group's financial assets and financial liabilities as at 31 March 2023. The
basis for determining the fair value is as follows:
- Derivatives: Forward contracts and interest rate swaps are
designated as level 2 assets (in the fair value hierarchy) and fair-valued at
31 March 2023 with the gains and losses taken to equity. The fair value of the
forward contracts and interest rate swaps as at 31 March 2023 amounts to a
£3.5m asset (30 September 2022: £4.4m).
- Trade and other receivables: As the majority of the trade and other
receivables have a remaining life of less than 12 months, the book value is
deemed to be reflective of the fair value.
- Lease and other liabilities: The carrying amount represents the
discounted value of the expected liability which is deemed to reflect the fair
value.
1.4 Estimates and judgements
The preparation of these financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
The accounting estimates and judgements made by management in applying the
Group's accounting policies that have the most significant effect on the
amounts included within these consolidated financial statements, were the same
as those that applied to the Group's audited consolidated financial statements
for the year ended 30 September 2022 as set out on page 175 of the 2022 Annual
Report & Accounts.
2. ANALYSIS OF OPERATING EXPENSES / INCOME
Unaudited Unaudited Audited
Six months to 31 March 2023 Six months to 31 March 2022 Year to 30 Sept 2022
Adjusted(1) Adjust-ments(1) Total Adjusted(1) Adjust-ments(1) Total Total
£m £m £m £m £m £m £m
Cost of goods sold (319.4) - (319.4) (247.8) - (247.8) (561.3)
Employee costs (102.0) (1.9) (103.9) (77.7) (1.9) (79.6) (177.5)
Depreciation of property, plant and equipment (6.3) (6.3) (4.6) (4.6) (10.4)
- -
Depreciation of right-of-use assets (6.7) - (6.7) (6.0) - (6.0) (12.7)
Amortisation (0.4) (25.3) (25.7) (0.3) (18.8) (19.1) (42.8)
Acquisition and other related items - 10.0 10.0 - (3.6) (3.6) (4.5)
Net impairment (losses)/reversals on trade receivables (1.1) (1.1) (0.1) (0.1) (3.4)
- -
Other operating expenses (37.2) - (37.2) (29.5) - (29.5) (55.9)
Operating (expenses) / income (473.1) (17.2) (490.3) (366.0) (24.3) (390.3) (868.5)
¹The adjustments to operating expenses are made in relation to acquisition
related and other charges totalling £17.2m (2022: £24.3m) and comprise
£25.3m (2022: £18.8m) of amortisation of acquisition intangible assets,
£4.1m (2022: £3.9m) of acquisition expenses, of which £1.9m (2022:£1.9m)
relates to WCW deferred remuneration, offset by a £12.2m (2022: £1.6m net
charge) gain on the disposal of businesses, which is set out in note 10.
3. BUSINESS SECTOR ANALYSIS
The Chief Operating Decision Maker ("CODM") for the purposes of IFRS 8 is the
Chief Executive Officer. The financial performance of the Sectors is reported
to the CODM monthly and this information is used to allocate resources on an
appropriate basis.
Sector information is presented in this Half Year Announcement in respect of
the Group's business Sectors. The business Sector reporting format reflects
the Group's management and internal reporting structure. The geographic sector
reporting represents results by origin. The Group's financial results have
not, historically, been subject to significant seasonal trends. In the year
ended 30 September 2022, the Group earned 44.3% of its annual revenues and
43.1% of its annual adjusted operating profits in the first six months of the
year. This phasing between the first and second half was partly impacted by
the timing of acquisitions which favoured the second half of the year.
Sector revenue represents revenue from external customers; there is no
inter-Sector revenue. Sector results, assets and liabilities include items
directly attributable to a Sector.
Revenue Adjusted operating profit
Operating profit
6 mths 6 mths 31 Mar 12 mths 30 Sept 6 mths 31 Mar 6 mths 12 mths 6mths 31 Mar 6 mths 31 Mar 12 mths 30 Sept
31 Mar 31 Mar 30 Sept
£m 2023 2022 2022 2023 2022 2022 2023 2022 2022
By Sector
Life Sciences 105.6 87.1 188.6 20.9 19.6 41.0 16.7 17.2 42.5
Seals 198.4 137.4 331.4 35.7 25.8 62.6 29.3 17.1 46.0
Controls 224.0 492.8 64.3 47.0 105.8 57.7 33.8 75.3
278.8
Corporate - - - (11.2) (9.9) (18.2) (11.2) (9.9) (19.5)
582.8 448.5 1,012.8 109.7 82.5 191.2 92.5 58.2 144.3
By Geographic Area
United Kingdom 137.2 84.0 209.7 14.4 5.6 21.0
Rest of Europe 97.7 79.8 166.7 15.3 15.4 29.3
North America 308.6 250.3 561.0 73.6 56.0 129.5
Rest of World 39.3 34.4 75.4 6.4 5.5 11.4
582.8 448.5 1,012.8 109.7 82.5 191.2
Total assets Total liabilities
Net assets
31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept
£m 2023 2022 2022 2023 2022 2022 2023 2022 2022
By Sector
Life Sciences 245.9 187.2 255.1 (45.9) (31.7) (41.7) 200.0 155.5 213.4
Seals 423.3 250.8 432.9 (96.5) (69.2) (103.3) 326.8 181.6 329.6
Controls 643.1 579.1 632.3 (79.7) (78.7) (92.6) 563.4 500.4 539.7
Corporate assets/(liabilities) 93.1 124.9 58.7 (320.3) (411.3) (473.2) (227.2) (286.4) (414.5)
1,405.4 1,142.0 1,379.0 (542.4) (590.9) (710.8) 863.0 551.1 668.2
Sector assets exclude cash and cash equivalents, deferred tax assets and
corporate assets that cannot be allocated on a reasonable basis to a business
Sector. Sector liabilities exclude bank borrowings, retirement benefit
obligations, deferred tax liabilities, acquisition liabilities and corporate
liabilities that cannot be allocated on a reasonable basis to a business
Sector. These items that cannot be allocated on a reasonable basis to a
business Sector are shown collectively as "corporate assets/(liabilities)".
Capital expenditure Depreciation
31 Mar 31 Mar 30 Sept 31 Mar 31 Mar 30 Sept
£m 2023 2022 2022 2023 2022 2022
By Sector
Life Sciences 3.5 2.9 8.0 1.9 1.3 2.9
Seals 3.8 1.1 3.7 2.3 1.3 3.5
Controls 2.7 0.8 2.7 2.4 2.2 4.6
Corporate 0.2 0.9 0.9 0.1 0.1 0.2
10.2 5.7 15.3 6.7 4.9 11.2
A further £6.7m (2022: £6.0m) of depreciation was incurred on right of use
assets (note 2). Depreciation also includes amortisation of other intangible
assets, largely software.
4. FINANCIAL EXPENSE, NET
31 March 31 March 30 Sept
2023 2022 2022
£m £m £m
Interest expense and similar charges
- bank facility and commitment fees (0.7) (0.4) (1.0)
- interest income on short term deposits 0.2 - 0.1
- interest expense on bank borrowings (9.2) (2.1) (7.9)
- notional interest income/(expense) on the defined benefit pension scheme 0.2 (0.2) -
- amortisation of capitalised borrowing fees (0.1) (0.1) (0.2)
- interest on lease liabilities (1.4) (1.1) (2.6)
Net interest expense and similar charges (11.0) (3.9) (11.6)
- acquisition related finance charges (2.8) (2.0) (3.2)
Financial expense, net (13.8) (5.9) (14.8)
Acquisition related finance charges includes fair value remeasurements of put
options for future minority purchases (£1.4m (2022: £1.0m)), unwind of
discount on and remeasurement of acquisition liabilities (£0.9m (2022:
£0.4m)) and the amortisation of capitalised borrowing fees on acquisition
related borrowings (£0.9m (2022: £0.6m)), net of interest income on deferred
receivables from disposals (£0.4m (2022: nil)).
5. TAXATION
31 March 31 March 30 Sept
2023 2022 2022
£m £m £m
UK tax 7.2 1.2 6.7
Overseas tax 11.8 15.2 27.4
Total tax on profit for the period 19.0 16.4 34.1
Taxation on profits before tax has been calculated by applying the Directors'
best estimate of the annual rates of taxation to taxable profits for the
period. The Group's adjusted effective rate of tax on adjusted profit before
tax is 24.5% (September 2022: 25.0%).
6. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per ordinary 5p share are calculated on the basis of the
weighted average number of ordinary shares in issue during the period of
125,360,523 (2022: 124,520,917) and the profit for the period attributable to
shareholders of £59.3m (2022: £35.6m). Basic earnings per share is 47.3p
(2022: 28.6p). Diluted earnings per share is 47.1p (2022: 28.5p) and is based
on the average number of ordinary shares (which includes any potentially
dilutive shares) of 125,927,286 (2022: 124,932,661). 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 earnings per share, defined in note 13, is calculated as follows:
31 Mar 2023 31 Mar 2022 30 Sept
2022
pence pence pence 31 Mar 31 Mar 30 Sept
per share per share per share 2023 £m 2022 £m 2022 £m
Profit before tax 78.7 52.3 129.5
Tax expense (19.0) (16.4) (34.1)
Minority interests (0.4) (0.3) (0.7)
Earnings for the period attributable to
shareholders of the Company 47.3 28.6 76.1 59.3 35.6 94.7
Acquisition related and other charges and acquisition related finance charges,
net of tax
11.8 18.4 31.4 14.8 22.9 39.2
Adjusted earnings (Note 13.4) 59.1 47.0 107.5 74.1 58.5 133.9
7. RECONCILIATION OF OPERATING PROFIT TO CASH FLOW FROM
OPERATING ACTIVITIES
31 March 31 March 30 Sept
2023 2022 2022
£m £m £m
Operating profit 92.5 58.2 144.3
Acquisition related and other charges (note 2) 17.2 24.3 46.9
Adjusted operating profit 109.7 82.5 191.2
Depreciation/amortisation of tangible, other intangible assets and right of
use assets
13.4 10.9 23.9
Share-based payments expense 2.1 1.4 2.8
Defined benefit scheme expense (0.3) (0.2) (0.6)
Profit on disposal of assets - (1.5) (1.6)
Acquisition expenses paid (4.0) (1.8) (6.5)
Other non-cash movements - - 0.1
Non-cash items and other 11.2 8.8 18.1
Increase in inventories (11.5) (19.2) (35.6)
Increase in trade and other receivables (17.8) (16.3) (10.6)
Increase in trade and other payables 6.5 8.2 17.5
Increase in working capital (22.8) (27.3) (28.7)
Cash flow from operating activities 98.1 64.0 180.6
8. NET DEBT
The movement in net debt during the period is as follows:
31 March 31 March 30 Sept
2023 2022 2022
£m £m £m
Net increase in cash and cash equivalents 32.0 107.1 17.5
Decrease /(Increase) in bank borrowings 127.8 (132.0) (131.3)
159.8 (24.9) (113.8)
Effect of exchange rates and other non-cash movements 15.1 (3.2) (33.7)
Decrease/(increase) in net debt 174.9 (28.1) (147.5)
Net debt at beginning of period (328.9) (181.4) (181.4)
Net debt at end of period (154.0) (209.5) (328.9)
Comprising:
Cash and cash equivalents 72.1 132.5 41.7
Bank borrowings:
- Revolving credit facility, including accrued interest (41.9) (188.8) (201.0)
- Term loan, including accrued interest
(189.0)
(157.1)
(174.3)
- Capitalised debt fees 4.8 3.9 4.7
(226.1)
(342.0)
(370.6)
Net debt at end of period (154.0) (209.5) (328.9)
Analysed as:
Repayable within one year 29.1 21.4 30.5
Repayable after one year 197.0 320.6 340.1
The Group has a debt facility agreement ("SFA") originally entered into on 13
October 2020. At 31 March 2023, the SFA comprises a committed multi-currency
revolving facility for an aggregate principal amount of £359.7m, an
amortising term loan for an aggregate principal amount of £89.3m ($110.5m), a
bullet term loan for an aggregate principal amount of £53.3m ($66.0m) and a
further bullet term loan for an aggregate principal amount of £45.3m. The SFA
was recently extended until December 2025. Interest on the SFA is payable
between 125-275bps above the applicable interbank or risk-free rate, depending
on the ratio of net debt to EBITDA.
At 31 March 2023, the Group had utilised £41.9m of the RCF (2022: £188.8m),
comprising £23.4m ($29.0m) of US dollars and £18.5m (€21.0m) of Euros.
Total debt is £215.6m (2022: £269.8m) comprising net debt of £154.0m (2022:
£209.5m) which excludes lease liabilities of £61.6m (2022: £60.3m). Bank
covenants are tested against net debt, as defined in Note 13.5.
9. GOODWILL AND ACQUISITION INTANGIBLE ASSETS
Goodwill Acquisition intangible assets
£m £m
At 1 October 2021 260.7 344.9
Acquisitions 4.2 9.7
Amortisation charge - (18.8)
Exchange adjustments 5.0 6.4
At 31 March 2022 269.9 342.2
Acquisitions 76.8 86.2
Amortisation charge - (19.6)
Exchange adjustments 25.6 46.2
At 30 September 2022 372.3 455.0
Acquisitions 25.7 51.9
Disposals (4.3) -
Amortisation charge - (25.3)
Exchange adjustments (19.1) (30.1)
At 31 March 2023 374.6 451.5
Goodwill represents the amount paid for future sales growth from both new
customers and new products, operating cost synergies and employee know-how.
The acquisition intangible assets primarily relate to supplier relationships,
customer relationships, brands and patents and these assets will be amortised
over five to fifteen years.
10. ACQUISITION AND DISPOSAL OF SUBSIDIARIES
Acquisition of Tennessee Industrial Electronics LLC
On 6 March 2023, the Group acquired 100% of the share capital of Tennessee
Industrial Electronics LLC ("TIE"), a distributor of aftermarket parts and
repair services into the US industrial automation end market for an enterprise
value of £76m on a debt free cash free basis. The total investment, net of
cash acquired was £75.1m ($90.3m).
The provisional fair value of TIE's net assets acquired excluding acquisition
intangibles, related deferred tax and cash is £9.3m following fair value
adjustments of £2.7m. The principal fair value adjustments relate to
reductions in inventory (£1.7m) and trade receivables (£0.2m), recognition
of previously unrecognised liabilities (£0.7m) and write down of property
plant and equipment (£0.1m). From the date of acquisition to 31 March 2023,
TIE contributed £2.4m to revenue and £0.6m 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 £14.4m to revenue and £3.4m to adjusted
operating profit. However, these amounts should not be viewed as indicative of
the results that would have occurred if TIE had been completed at the
beginning of the year.
Other acquisitions
The Group completed a further six other acquisitions in the period. 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 Products Limited ("FPS") (3 October
2022), Hedley DMB Limited ("Hedley") (4 October 2022) and Valves Online
Limited ("Valves Online") (14 March 2023). The combined initial consideration
for these acquisitions was £10.3m, net of cash acquired of £1.8m. Deferred
consideration of up to £2.6m is payable based largely on the performance of
the businesses in the period subsequent to their acquisitions. The provisional
fair value of the total net assets acquired excluding intangibles, related
deferred tax and cash is £2.2m.
Acquisition expenses
Acquisition expenses of £2.7m have been recognised in respect of the
acquisitions completed in the period.
Fair value of net assets acquired
The fair values of net assets acquired during the period, including the
allocation of the surplus over the fair value of the net assets acquired are
provisional, subject to reviews up to the end of the measurement period of
each acquisition.
TIE Others Total
Book value Fair value Book value Fair value Book value Fair value
£m £m £m £m £m £m
Acquisition intangible assets1 - 44.7 - 7.2 - 51.9
Deferred tax - - - (1.1) - (1.1)
Property, plant and equipment 0.9 0.8 0.2 0.2 1.1 1.0
Inventories 11.2 9.5 1.1 1.1 12.3 10.6
Trade and other receivables 4.3 4.1 2.4 2.4 6.7 6.5
Trade and other payables (4.4) (5.1) (1.5) (1.5) (5.9) (6.6)
Net assets acquired 12.0 54.0 2.2 8.3 14.2 62.3
Goodwill - 21.1 - 4.6 - 25.7
Minority interests - - - - - -
Cash paid 79.6 12.1 91.7
Cash acquired (4.5) (1.8) (6.3)
75.1 10.3 85.4
Deferred consideration - 2.6 2.6
Total investment 75.12 12.9 88.0
(1) On the acquisitions completed in the current year, acquired intangibles
relate primarily to customer relationships.
(2) Diploma acquired TIE 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.
Acquisitions revenue and adjusted operating profit
From the date of acquisition to 31 March 2023, each acquired business
contributed the following to Group revenue and adjusted operating profit:
Acquisition date Revenue Adj.1 Pro forma revenue Adjusted operating Adj.1 Pro forma adjusted operating
£m £m £m profit £m profit
£m £m
FPS 3 Oct 2022 1.4 - 1.4 0.3 - 0.3
Hedley 4 Oct 2022 1.9 - 1.9 0.3 - 0.3
Shrinktek 11 Jan 2023 0.3 0.4 0.7 0.1 0.2 0.3
TIE 6 Mar 2023 2.4 12.0 14.4 0.6 2.8 3.4
Valves Online 14 Mar 2023 - 1.7 1.7 - 0.3 0.3
Eurobond 23 Mar 2023 - 0.7 0.7 - 0.1 0.1
ITG 30 Mar 2023 - 0.7 0.7 - 0.2 0.2
6.0 15.5 21.5 1.3 3.6 4.9
1 Pro forma revenue and adjusted operating profit has been extrapolated
(as prescribed under IFRS) from the results reported since acquisition to
indicate what these businesses would have contributed if they had been
acquired at the beginning of the period 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.
Disposal of Hawco
On 31 March 2023, the Group disposed of its 100% interest in Hawco Limited
("Hawco") for total proceeds of £24.5m. Cash of £21.5m was received, net of
cash disposed of £2.0m with a further £1.0m deferred for 12 months.
11. DIVIDENDS
31 Mar 2023 31 Mar 2022 30 Sept 31 Mar 2023 31 Mar 2022 30 Sept
2022 2022
pence pence pence
per share per per
share share £m £m £m
Final dividend of the prior year, paid in January 38.8 30.1 30.1 48.3 37.5 37.5
Interim dividend, paid in June 16.5 15.0 15.0 22.1 18.7 18.7
55.3 45.1 45.1 70.4 56.2 56.2
Subsequent to the period end, the Directors have declared an interim dividend
of 16.5 per share (2022: 15.0p) which will be paid on 9 June 2023 to
shareholders on the register on 26 May 2023. The total value of the dividend
will be £22.1m (2022: £18.7m). No liability has been recognised on the
balance sheet at 31 March 2023 in respect of the interim dividend (2022:
same). During the period, 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 in due course.
12. EXCHANGE RATES
The exchange rates used to translate the results of the overseas businesses
were as follows:
Average Closing
31 March 31 March 30 Sept 31 March 31 March 30 Sept
2023 2022 2022 2023 2022 2022
US dollar (US$) 1.20 1.34 1.27 1.24 1.32 1.12
Canadian dollar (C$) 1.63 1.69 1.63 1.68 1.64 1.53
Euro (€) 1.14 1.19 1.18 1.13 1.18 1.14
Swiss franc (CHF) 1.13 1.23 1.20 1.13 1.21 1.10
Australian dollar (A$) 1.79 1.84 1.79 1.85 1.75 1.74
13. 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.
13.1 Revenue Growth
As we are a multi-national Group of companies who trade in a large number of
currencies and also acquire and sometimes dispose of companies, we also refer
to organic performance measures 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 accounts to gain a
better understanding of how the Group has performed.
A reconciliation of the movement in revenue compared to the prior period is
given below.
%
£m
March 2022 Reported revenue 448.5
Organic 47.8 10%
Acquisitions and Disposals 53.8 12%
Exchange 32.7 8%
March 2023 Reported revenue 582.8 30%
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 period 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 period
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 period
reported values to prior period exchange rates.
13.2 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 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
period-on-period 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 31 Mar 2023 31 Mar 2022 30 Sep 2022
£m £m £m
Revenue 582.8 448.5 1,012.8
Operating profit as reported under IFRS 92.5 58.2 144.3
Add: Acquisition related and other charges 17.2 24.3 46.9
Adjusted operating profit 2,3 109.7 82.5 191.2
Adjusted operating margin 2,3 18.8% 18.4% 18.9%
13.3 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 period of 125,360,523
(2022: 124,520,917), as set out in Note 6. The Directors believe that adjusted
EPS provides an important measure of the earnings capacity of the Group.
13.4 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 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 31 Mar 2023 31 Mar 2022 30 Sep 2022
£m £m £m
Net increase in cash and cash equivalents 32.0 107.1 17.5
Add: Dividends paid to shareholders and minority interests 48.6 37.7 56.4
Acquisition of minority interests - - 0.3
Acquisition/disposal of businesses (including net expenses) 67.9 19.5 170.4
Deferred consideration paid 8.0 5.4 7.1
Proceeds from issue of share capital (net of fees) (232.5) - -
Net repayment of/(proceeds from) borrowings (including borrowing fees) 127.8 (132.0) (131.3)
Free cash flow 51.8 37.7 120.4
Adjusted earnings(1) 6 74.1 58.5 133.9
Free cash flow conversion 70% 64% 90%
¹ Adjusted earnings is shown on the face of the condensed consolidated income
statement as profit for the period attributable to shareholders of the
company.
13.5 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 31 Mar 2023 31 Mar 2022 30 Sep 2022
£m £m £m
Cash and cash equivalents 8 72.1 132.5 41.7
Borrowings 8 (226.1) (342.0) (370.6)
Re-translation at average exchange rates (4.0) - 23.1
Net debt at average exchange rates (158.0) (209.5) (305.8)
Adjusted operating profit 13.2 109.7 82.5 191.2
Depreciation and amortisation of tangible and other intangible assets 2 6.7 4.9 11.2
IFRS 16 impact (0.8) (0.6) 1.2
Minority interest share of adjusted operating profit (0.6) (0.4) (1.1)
Pro forma adjustments1 121.3 91.3 10.2
EBITDA 236.3 177.7 212.7
Leverage 0.7x 1.2x 1.4x
1Annualisation of adjusted EBITDA, including that of acquisitions and
disposals in the period.
13.6 Trading Capital Employed and ROATCE
Trading capital employed is defined as net assets less cash and cash
equivalents (cash funds) after adding back borrowings (other than lease
liabilities), retirement benefit obligations, deferred tax, acquisition
liabilities in respect of future purchases of minority interests and deferred
consideration. Adjusted trading capital employed is reported as being trading
capital employed plus goodwill and acquisition related charges previously
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 31 Mar 2023 31 Mar 2022 30 Sep 2022
£m £m £m
Net assets as reported under IFRS 863.0 551.1 668.2
Add/(deduct):
- Deferred tax, net 36.7 18.6 38.2
- Retirement benefit (assets)/obligations (8.8) 4.9 (6.4)
- Net acquisition related liabilities/assets (net) 23.1 17.7 29.6
- Net debt 8 154.0 209.5 328.9
Trading capital employed 1,068.0 801.8 1,058.5
- Historic goodwill and acquisition related charges, net of deferred tax and 193.4 153.2 99.6
currency movements
Adjusted trading capital employed 1,261.4 955.0 1,158.1
Adjusted operating profit 13.2 109.7 82.5 191.2
Pro forma adjustments¹ 115.3 84.8 9.7
Pro forma adjusted operating profit 225.0 167.3 200.9
ROATCE 17.8% 17.5% 17.3%
(1) Annualisation of adjusted operating profit, including that of acquisitions
and disposals in the period.
13.7 Alternative performance measures
Measure Closest IFRS measure Definition and reconciliation Purpose
Organic Growth Reported Revenue Increase Organic Growth strips out the effects of the movement in exchange rates and of Allows users of the accounts to gain understanding of how the Group has
acquisitions and disposals. performed on a like-for-like basis, excluding the effects of exchange rates
and of acquisitions and disposals.
Adjusted Operating Profit Operating profit Statutory operating profit excluding separately disclosed items and can be Adjusted Operating Profit is a key
found on the face of the Group Income Statement in the Adjusted column.
performance measure for the Executive Directors' annual bonus structure and
management remuneration.
It also provides all stakeholders with additional useful information to assess
the period-on-period trading performance of the Group.
Adjusted Operating Margin Operating profit divided by revenue Adjusted operating profit/(loss) divided by revenue. Adjusted Operating Margin is a measure used to assess and compare
profitability.
It also allows for ongoing trends and performance of the Group to be measured
by the Directors, management and interested stakeholders.
Adjusted earnings per share Basic earnings per share Adjusted Earnings (being adjusted profit after tax attributable to equity Adjusted earnings per share is widely used by external stakeholders,
shareholders) for the period attributable to shareholders of the Company particularly in the investment community.
divided by the weighted average number of shares in issue, excluding those
held in the Employee benefit trust which are treated as cancelled.
A reconciliation of statutory profit to adjusted profit for the purpose of
this calculation is provided within note 6 of the financial statements.
Return on Adjusted Total Capital Employed (ROATCE) Operating profit and net assets Pro-forma Adjusted Operating Profit (being the annualised adjusted operating ROATCE gives an indication of the Group's capital efficiency and is an element
profit including that of acquisitions and disposals) divided by Adjusted of a performance measure for the Executive Directors' remuneration.
Trading Capital Employed. Adjusted Trading Capital Employed is reported as
being trading capital employed plus goodwill and acquisition related charges
previously written off (net of deferred tax on acquisition intangible assets)
and re-translated at the average exchange rates for the reporting period.
Free cash flow Net cash generated from The cash flow equivalent of Adjusted Profit After Tax. Free cash flow allows us and external parties to evaluate the cash generated
by the Group's operations and is also a key performance measure for the
operating activities Executive Directors' annual bonus structure and management remuneration.
A reconciliation of cash and cash equivalents to free cash flow is set out in
note 13.4.
Net Debt Borrowings less cash Cash and cash equivalents (cash overnight deposits, other short-term deposits) Net Debt is the measure by which the Group and interested stakeholders
offset by borrowings which compose of bank loans, excluding lease liabilities. assesses its level of overall indebtedness.
Earnings Before Interest and Tax plus Depreciation and Amortisation Operating profit EBITDA is calculated by taking Adjusted Operating Profit and adding back EBITDA is used as a key measure to understand profit and cash generation
("EBITDA") depreciation and amortisation. before the impact of investments (such as capital expenditure and working
capital). It is also used to derive the Group's gearing ratio.
Leverage No direct equivalent The ratio of Net Debt to EBITDA over the last 12 months, after making the The leverage ratio is considered a key measure of balance sheet strength and
following adjustments to EBITDA: including any annualised EBITDA for financial stability by which the Group and interested stakeholders assesses
businesses acquired by the Group during that period; the reversal of IFRS 16 its financial position.
accounting; the exclusion of any EBITDA businesses disposed by the Group
during that period; and the exclusion of the profit or loss attributable to
minority interest.
14. RELATED PARTY TRANSACTIONS
There have been no changes to the related party arrangements or transactions
as reported in the 2022 Annual Report & Accounts.
Transactions between Group companies, which are related parties, have been
eliminated on consolidation and are therefore not disclosed. Other
transactions which qualify to be treated as related party transactions are:
those relating to the remuneration of key management personnel, which are not
disclosed in this Half Year Report, but will be disclosed in the Group's next
Annual Report & Accounts; and transactions between the Group and the
Group's defined benefit pension plan, which are disclosed within the
Consolidated Cash Flow Statement.
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