TIDMDPLM
RNS Number : 9775G
Diploma PLC
21 November 2022
DIPLOMA PLC 10-11 CHARTERHOUSE SQUARE,
LONDON EC1M 6EE
TELEPHONE: +44 (0)20 7549
5700
FACSIMILE: +44 (0)20 7549
5715
21 November 2022
PRELIMINARY RESULTS FOR THE YEARED 30 SEPTEMBER 2022
Very strong results.
Building high quality, scalable businesses for sustainable organic
growth.
FY 2022 FY 2021 Y/y change
Revenue GBP1,012.8m GBP787.4m +29%
Organic revenue growth
(1) 15% 12%
Adjusted operating profit(2) GBP191.2m GBP148.7m +29%
Adjusted operating margin(2) 18.9% 18.9% -
Statutory operating profit GBP144.3m GBP104.3m +38%
Free cash flow(3) GBP120.4m GBP108.8m +11%
Free cash flow conversion(3) 90% 103%
Adjusted earnings per
share(2) 107.5p 85.2p +26%
Basic earnings per share 76.1p 56.1p +36%
Total dividend per share 53.8p 42.6p +26%
Net debt/EBITDA 1.4x 1.1x
ROATCE 17.3% 17.4%
------------------------------ ------------ ---------- -----------
(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
A very strong financial performance
-- Organic growth of 15% driven by our revenue initiatives, positive demand, and pricing:
o Controls +24%: excellent Windy City Wire performance;
International Controls accelerating growth in attractive end
segments while broadening US and European exposure.
o Seals +14%: accelerated market share gains in North American
Aftermarket and broad-based growth in International Seals.
o Life Sciences -4%: returned to growth in Q4 as expected;
excluding last year's COVID-related revenues, organic growth in the
year was 2%, moderated by hospital staffing shortages.
-- Reported revenues +29%: positive contribution from high
quality acquisitions and 5% foreign exchange benefit.
-- Adjusted operating margin 18.9%: resilient value-added
service model and pricing offsetting inflation.
-- Adjusted EPS +26%; total dividend also +26%, demonstrating
continued confidence in the strategy.
-- Free cash flow conversion in-line with our model at 90%,
including targeted investment in inventory.
-- Attractive returns: ROATCE 17.3%.
-- Resilient balance sheet to support growth: net debt/EBITDA of
1.4x and 50% of gross debt at fixed interest rates.
Revenue diversification driving organic growth, building scale
and increasing resilience
-- Positioning our businesses behind structurally growing end
markets: e.g. technology, renewable energy, infrastructure and
diagnostics.
-- Further penetrating core developed economies: e.g. excellent
progress in the US in International Controls and Seals; continuing
to build scale in Europe in Life Sciences.
-- Extending product ranges to expand addressable markets: e.g.
the acquisition of R&G broadens our fluid power offering within
Seals.
-- M&A to accelerate organic growth:
o GBP187m invested in seven strategically important
acquisitions, including R&G Fluid Power Group and Accuscience
which are trading well.
o Accretive bolt-ons: since our H1 results, GBP19m invested in
six bolt-ons (two post-year end) at an average multiple of 5x and
year 1 ROATCE >20%.
o Encouraging acquisition pipeline; maintaining financial
discipline given wider market uncertainties.
Scaling effectively for sustainable growth: building scale in
our value-added businesses and the Group
-- In the businesses: developing target operating models to
deliver customer proposition at scale, underpinned by continuous
improvement of our core competencies and selective investment in
talent, technology and facility.
-- As a Group: evolving our structure, capability and culture to
support the development of a rapidly expanding Group.
Embedding ESG in our strategy and culture through Delivering
Value Responsibly ("DVR")
-- Building momentum: ingrained in our strategic activity and
culture, now driving improvement initiatives.
-- Launched targets across our five focus areas: Colleague
Engagement; Health & Safety; Diversity, Equity & Inclusion;
Supply Chain and Environment.
-- Committed to net zero in our own operations (Scope 1 & 2)
by 2040; on the path to setting SBTi-approved net zero target
across our entire value chain (Scope 1, 2 & 3) by 2050.
Increasing resilience underpins our outlook
-- Mindful of the uncertain economic outlook and the prospect of a tougher demand environment.
-- Successful long-term track record of performance delivery and
compounding growth through the cycle.
-- Our resilience is based on: increasing revenue
diversification and scale; value-added products and services,
critical to customers' operating needs, supporting sustainable
margins; highly cash generative model and robust balance sheet.
-- At this stage, FY 2023 expected to be positive and in-line with our long-term model:
o Organic revenue growth: mid-single digit (likely to be
weighted to H1).
o Acquisitions announced to date add ca.6% to reported revenue
growth.
o Strong, resilient operating margin, in the range of
18-19%.
o For now, the foreign exchange benefit from weaker sterling and
higher interest costs are expected to be neutral to adjusted
EPS.
-- FY 2023 has started well, consistent with our guidance.
Commenting on the results, Johnny Thomson, Diploma's Chief
Executive said:
"We've made excellent progress this year, with our very strong
performance building on an exceptional long-term track record of
organic growth, margin and EPS delivery. The management team and
all my Diploma colleagues do a brilliant job - thank you.
Our organic growth strategy is working as we continue to execute
on fantastic opportunities to diversify and scale. The seven
exciting businesses we welcomed to the Group in the year will
complement our future organic growth. We are scaling our businesses
and our Group effectively to sustain our customer proposition and
margins for the long-term. Finally, I am delighted with our
progress on DVR: it's embedded in the strategy and culture so we
can now get on with making a meaningful difference.
While the economic environment is uncertain, our business model
is resilient, our strategy is working, and our performance momentum
is encouraging. We remain confident in the Group's outlook and
long-term prospects."
Notes:
1. Diploma PLC uses alternative performance measures as key
financial indicators to assess the underlying performance of the
Group. These include adjusted operating profit, adjusted profit
before tax, adjusted earnings per share, free cash flow, net debt
to EBITDA and ROATCE. All references in this Announcement to
"organic" revenues refer to reported results on a constant currency
basis, before acquired or disposed businesses (ex-growth basis) and
include growth generated by acquisitions under our ownership. 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 meeting for analysts today at Farmers &
Fletchers, 3 Cloth Street, London EC1A 7DL at 09:00 (UK). The
presentation will also be webcast at
https://secure.emincote.com/client/diploma/diploma001
This presentation will be available after the conference call
at: https://www.diplomaplc.com/investors/financial-presentations/
.
A replay of the webcast 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
Tulchan Communications - +44 (0)20 7353 4200
Martin Robinson
Olivia Peters
NOTE TO EDITORS:
Diploma PLC is an international group supplying specialised
products and services to a wide range of end segments in our three
Sectors of Life Sciences, Seals and Controls.
Diploma's businesses are focused on supplying essential products
and services which are critical to customers' needs, providing
recurring income and stable revenue growth.
Our businesses design their individual business models, with the
support of the Group, to closely meet the requirements of their
customers, offering a blend of high-quality customer service, deep
technical support and value adding activities. By supplying
essential solutions, not just products, we build strong long-term
relationships with our customers and suppliers, which support
attractive and sustainable margins. We encourage an entrepreneurial
culture in our businesses through our decentralised management
structure. We want our managers to have the freedom to run their
own businesses, while being able to draw on the support and
resources of a larger group. These essential values ensure that
decisions are made close to the customer and that the businesses
are agile and responsive to changes in the market and the
competitive environment. The Group employs ca. 3,000 employees and
its principal operating businesses are located in the UK, Northern
Europe, North America and Australia.
Over the last ten years, the Group has grown adjusted earnings
per share at an average of ca. 13% p.a. through a combination of
organic growth and acquisitions. Diploma is a member of the FTSE
250 with a market capitalisation of ca. GBP3.3bn.
Further information on Diploma PLC can be found at
www.diplomaplc.com
LEI: 2138008OGI7VYG8FGR19
Chair's statement
It is a great pleasure to present my first statement as Chair of
Diploma. As you will see throughout this report, my first year has
covered a period of considerable achievement and strategic
progress. When I was appointed, I felt proud to be joining an
organisation with exciting opportunities, a differentiated
value-added model delivering sustainable growth and great people.
During my first year, I have not been disappointed - I have been
impressed by the power of our decentralised model and the pride our
employees take in their jobs. Our businesses have strong cultures,
but share the same inherent values - they are accountable,
entrepreneurial and empowered to deliver critical services and
products for their customers.
Very strong financial performance, excellent strategic
progress
The Group has delivered another very strong financial
performance, with double-digit organic revenue growth and
consistent strong operating margins translating into 26% growth in
adjusted earnings per share (EPS). Our 15% organic growth shows
that our strategy and growth frameworks continue to produce
results. We are also seeing growth in a number of areas aligned
with positive impact, demonstrating that our businesses are
embedding Delivering Value Responsibly, our ESG programme, into
their commercial strategies. It has been another busy year for
acquisitions, with seven high-quality businesses joining the Group;
these will accelerate our future organic growth. In particular, I
am very pleased to welcome Accuscience and R&G Fluid Power
Group, both exciting additions.
Given the challenges of the external operating environment,
sustaining our adjusted operating margin at 18.9% is a great
achievement and reflects both our differentiated value-added
servicing model and the hard work of colleagues across the
Group.
Ensuring the sustainability of our growth is paramount, and the
team has continued to build scale, investing across our businesses
and the Group to ensure we can continue to deliver for customers as
we grow. Throughout this, we remain financially disciplined,
maintaining high-teens ROATCE of 17.3%, and our strong balance
sheet allows us to invest in growth. I would like to thank the
management team and all of our businesses for another great year at
Diploma.
Colleagues and culture
As a customer-service organisation, our colleagues are critical
to our success. Since joining, I have really enjoyed visiting the
businesses and meeting colleagues. I have been impressed by their
commitment to their customers, and the great sense of loyalty they
feel for their businesses. This is underlined by the very positive
results of this year's Colleague Engagement Survey. The Board
remains committed to ensuring Diploma is a diverse and inclusive
organisation and is pleased to have set targets for 2023 that we
will continue to evolve and drive forward. I look forward to
meeting more of our people in the year ahead.
Our Group Colleague Engagement Survey continues to show
excellent levels of engagement. The learnings from this survey will
inform future actions and activity to ensure colleagues continue to
view Diploma as a great place to work. The results and learnings
were also discussed by the Board, helping to shape and inform our
views on culture and diversity.
Diploma's culture continues to be critical to accelerating our
strategy, aligning decentralised businesses and providing
competitive advantage. The Board is very conscious of its role in
fostering and monitoring this positive culture. Although, as a
decentralised Group, there isn't one, single culture, all of our
businesses share core values. Alongside our strong, local cultures,
we are steadily building Diploma networks based on best practice
and knowledge sharing.
While we have much more to do, we are increasingly leveraging
the collective power of the Group whilst maintaining local
agility.
Board changes
After nearly nine years on the Board, John Nicholas stepped down
from the role of Chair and the Board in January 2022. The Board and
I would like to thank John for his support, and I look forward to
building on all that he achieved during his tenure.
Barbara Gibbes stepped down from the Board and the role of Chief
Financial Officer on 30 September 2022. On behalf of the Board, I
would like to thank Barbara for her leadership and dedication. The
Nomination Committee led a thorough selection process and, in
August 2022, we announced the appointment of Chris Davies as Chief
Financial Officer. Chris joined us on 1 November 2022, bringing a
wealth of experience and an excellent track record of leadership in
decentralised, service-led, multinational organisations.
Two of our independent Non-Executive Directors, Anne Thorburn
and Andy Smith, are due to retire from the Board in 2024 at the end
of their third and final terms. As per our standing succession
planning, we have already commenced the search to ensure successors
are appointed in time for an orderly handover. Further information
on this and the diversity of the Board can be found in the
Nomination Committee Report. It remains our intention that the
diversity of the Board will increase over time.
Dividends
The Board has a progressive dividend policy that aims to
increase the dividend each year, broadly in line with growth in
adjusted EPS. The combination of very strong results and free cash
generation, supported by a robust balance sheet, has led the Board
to recommend a 29% increase in the final dividend to 38.8p (2021:
30.1p) taking the total dividend to 53.8p (2021: 42.6p). This
represents dividend cover of 2x. Subject to shareholder approval at
the Annual General Meeting, this dividend will be paid on 3
February 2023 to shareholders on the register at 20 January 2023
(ex-div 19 January 2023).
Outlook
The Group started the new financial year from a position of
strength. While the wider backdrop is one of macroeconomic
uncertainty and volatility, the achievements of the last three
years mean that our Group is larger, more diverse and therefore
more resilient than ever. We have a differentiated, value-added
business model, a proven strategy for delivering sustainable
growth, and great teams.
On behalf of the Board, I would like to take this opportunity to
thank all of our colleagues for their welcome contribution to our
success over the last year and, personally, for giving me such a
warm welcome.
David Lowden
Chair
CEO statement
Very strong results and excellent strategic progress
I am delighted with our 2022 financial performance and strategic
progress, proving the strength of our model and continuing our long
track record of growth and value creation. Our colleagues have been
brilliant, and the team has really risen to the challenges
presented by the external environment.
Our execution has been very strong. Organic growth is the
Group's number one priority, so I am particularly pleased that we
have delivered 15% this year. We have also successfully maintained
our adjusted operating margin at 18.9%, with our resilient
value-added service model and pricing enabling us to offset
inflation. We have invested GBP187m in seven strategically
important acquisitions, which will accelerate future organic
growth, and build scale in key business lines.
Growth is only one part of the strategy; our future success also
depends on effectively scaling our businesses and the Group to
ensure growth is sustainable. For our businesses, we are steadily
developing their target operating models and continuously improving
the core competencies of our value-added model. At a Group level,
we continue to quietly evolve our structures, capability and
culture for scale.
One of the most exciting aspects of 2022 has been the way in
which our businesses and colleagues have embraced Delivering Value
Responsibly (DVR), our ESG programme. Our businesses are executing
initiatives aligned with our five DVR focus areas, we have embedded
our framework into our commercial strategy and culture, and we are
announcing ESG targets to drive continuous improvement in material
areas.
A very strong financial performance
Financial results for the year were very strong across the key
metrics of our model. Organic growth of 15% reflects the success of
our revenue diversification initiatives, positive demand and
pricing:
-- Controls +24%: excellent Windy City Wire (WCW) performance;
International Controls accelerating growth in exciting end segments
while broadening US and European exposure.
-- Seals +14%: accelerated market share gains in North American
Aftermarket and broad-based growth in International Seals against a
robust comparator.
-- Life Sciences -4%: return to growth in Q4 as expected;
organic growth of 2%, excluding last year's Covid-related revenues,
was moderated by hospital staffing shortages.
Reported revenue growth was 29%, including a positive
contribution from high-quality acquisitions and a 5% benefit from
foreign exchange movements.
We are very pleased to have maintained our adjusted operating
margin at 18.9% (2021: 18.9%) despite a challenging operating
environment and inflationary pressures. This was driven by pricing
initiatives across the Group together with the benefits of our
value-added model. We grew adjusted earnings per share by 26%.
Our H2 cash performance was strong; free cash flow conversion
was in-line with our model at 90%. This has resulted in good
deleveraging in the second half; year end net debt was 1.4x EBITDA
(2021: 1.1x), underpinning our resilience and providing good
flexibility to continue to invest in growth. We have good liquidity
with undrawn facilities of GBP204m; 50% of our gross debt is at
fixed interest rates (ca. 3%) ([1]) .
Sustainable organic growth strategy: revenue diversification
driving growth, building scale and increasing resilience
The Group's strategy is to build high-quality, scalable
businesses for organic growth. All of our businesses have fantastic
opportunities and our strategy is focused on growing, diversifying
and scaling in three ways:
1. Positioning behind high growth end segments: many of which
are also linked to our focus on end markets with a positive
impact.
-- Technology investment, including in data centres, digital
antenna systems, telecommunications and electrification is creating
exciting opportunities, particularly in Controls.
-- Renewable energy and infrastructure investment in the US and
elsewhere is benefiting Seals and Controls.
-- Accelerating diagnostics spending: ageing populations and
rising healthcare spending remain fundamental drivers for Life
Sciences; moreover, we are also well-positioned to capitalise on
changing healthcare spending priorities post-pandemic, particularly
in clinical diagnostics.
2. Geographic penetration of core developed economies: we remain
relatively underpenetrated in our core developed markets of North
America, Europe and Australia.
-- We are already benefiting from accelerated market share gains
in North American Aftermarket and the potential in previously
untapped Western and Midwestern states is hugely exciting.
-- Geographic diversification in the US and Europe at
International Controls, both organically and through acquisitions,
creating a more balanced geographic revenue mix.
-- The acquisition of Anti-Corrosion Technology (ACT) in
Australia marks further progress in Australian Seals where, over
the last three years, we have built a much bigger, higher quality
business.
-- We continue to build scale in Europe in Life Sciences with the acquisition of Accuscience.
3. Product range extension to expand addressable markets: we do
this incrementally, within the businesses, and at portfolio
level.
-- The acquisition of R&G Fluid Power Group (R&G)
represents a step change for Seals in the UK, broadening Seals'
fluid power offering.
-- Continued development of our exciting Adhesives business line
in Controls: Techsil, acquired last year, has delivered impressive
organic growth, and the tuck-in acquisition of Silicone Solutions
further strengthens our position in the UK.
-- Across our portfolio, incremental product adjacency
initiatives formed a key part of growth in the year with future
plans including: supplier diversification in International
Controls; proprietary product development in US MRO; initiatives
across Seals relating to O-rings, cylinders and gaskets; and
ongoing Life Sciences product pipeline development in new,
innovative technologies, for example leveraging artificial
intelligence, and in diagnostics.
Focused portfolio development
Focused portfolio development is key to the sustainability of
our organic growth. As the Group grows, we must focus on business
lines that best represent our model and for which we are the right
owners to grow and scale. This means being disciplined about
acquisitions and disposals.
Acquisitions to accelerate organic growth
Acquisitions are a key part of our growth strategy, with a
disciplined focus on businesses with strong value-add distribution
characteristics and high gross margins, and with organic growth
potential and great management teams. During 2022, we acquired
seven high-quality businesses for a total of GBP187m, deploying
capital across all three Sectors:
-- LJR Electronics (Controls): acquired in February for GBP21m
(annualised revenue ca. GBP16m) to give Interconnect improved
access to the large, attractive and growing US interconnect
market.
-- R&G (Seals): a value-added aftermarket distributor of a
diverse range of industrial, hydraulic and pneumatic products,
including seals and gaskets, acquired in April for GBP101m
(annualised revenue ca. GBP69m). The business has added scale in
the UK and broadened the Seals product portfolio to expand
addressable markets.
-- Accuscience (Life Sciences): a market-leading life sciences
and med-tech distributor in Ireland, acquired in May for GBP51m
(annualised revenue ca. GBP28m), adding scale in Ireland,
continuing the build out of the European pillar of Life Sciences
and giving access to the exciting diagnostics segment.
-- ACT (Seals): a specialist provider of sustainable materials
engineering and corrosion control solutions. Acquired in July for
GBP7m (annualised revenue ca. GBP4m), highly complementary, and a
further step in building a high-quality, scalable Australian
platform for growth.
-- Silicone Solutions (Controls): acquired for GBP3m in
September (annualised revenue ca. GBP2m), continuing to build out
and diversify our new adhesives business line.
-- Two small bolt-ons at R&G (Seals): R&G continues to
consolidate smaller regional players, acquiring two businesses for
GBP4m (annualised revenue ca. GBP5m).
Our acquisition pipeline is encouraging, albeit given the wider
market uncertainties, we will maintain our strict financial
discipline. Nonetheless, we continue to invest in value-accretive
bolt-ons at very attractive multiples. Since our H1 results, and
prior to year end, we invested GBP14m in four bolt-ons; since year
end R&G has completed a further two bolt-on acquisitions for
GBP5m. These businesses were acquired for a 5x blended average
multiple.
Portfolio discipline
As part of a disciplined approach to portfolio management, we
made two small, non-core disposals in the year. In early May, we
disposed of a1-envirosciences, formerly part of the Life Sciences
Sector for GBP11m (annualised revenue ca. GBP13m). In November last
year, we also disposed of Kentek, our Russian filters business, for
GBP10m (annualised revenue ca. GBP23m).
Scaling our value-added businesses and the Group
Scaling our value-added businesses
As our businesses grow and scale, they need to evolve their
operating models to continue to deliver their value-add customer
proposition. All of our businesses have defined their future target
operating models, and the strategy to achieve this.
As part of this, we seek to continuously improve the Core
Competencies of our model:
-- Supply chain: development of a more structured and proactive
approach, including category management techniques and evaluation
of partners on a fuller set of criteria, including location,
flexibility, environmental and employment practices, not just
quality and cost. While we have much more to do, management of our
supply chain has been a differentiator in 2022; in some cases
better product availability, particularly at WCW, has enabled
market share gains.
-- Commercial discipline (or pricing): the combination of
improving pricing processes and the value we deliver for customers
has enabled us to protect our operating margins. We have more to
learn and more we can do with better data, through working with our
suppliers and greater forward planning with customers to deliver
the right pricing outcomes.
-- Operational excellence: another focus area this year as we
improve warehouse processes across the portfolio; as our businesses
scale, they are making increasing use of automation. Through our
network of best practice, we are also working to standardise
processes.
We support the development of these Core Competencies through
reinvesting in capability - Talent, Technology and Facility:
-- Talent: investment in talent remains a key driver for future
growth, with a number of important appointments made in the year -
these range from 25 functional appointments in Finance, Operations,
Supply Chain and Commercial, to a newly created role heading up the
Life Sciences European pillar. We remain focused on retention and
have made important progress with the training and development
available to colleagues and business leaders.
-- Our approach to Technology is incremental, and success is
dependent on having the right people in place to successfully
implement change. We have a number of small upgrade projects
ongoing at any one time, and many businesses are developing their
webstore capabilities.
-- Our investments in Facility support the growth of our
businesses as well as providing opportunities to reduce emissions
and to improve colleague working environments. During the year, we
opened new facilities in Life Sciences in Australia and Europe; and
we are in the planning stages for a further two new facilities over
the next 18 months.
Scaling the Group
We continue to quietly evolve the structures, capability and
culture of the Group. Over the last three years, we have evolved
the Group's organisational structure around core, scalable business
lines and developed our strategic and performance frameworks. At
Group centre, we retain a lean head office focused on providing a
service to the businesses, also selectively investing in upskilling
functions such as Finance, Legal, Corporate Development and
Internal Audit.
Alongside our powerful decentralised approach and strong local
cultures, we continue to develop a complementary shared Diploma
culture and identity based on best practice sharing.
Delivering Value Responsibly: embedding into our commercial
strategy and culture
Over the past year, there has been a real step change in
momentum with DVR, our ESG programme. Our colleagues and businesses
are executing initiatives aligned with our five focus areas. We
have improved reporting with metrics now embedded, supported by
strong governance at Group, Sector and business level. Looking
ahead, new targets will drive further progress in 2023, and we are
well on the way to submitting net zero targets to the Science Based
Targets initiative.
Key performance highlights of the year include:
-- Excellent and consistent colleague engagement score : 79%
(2021: 79%), and a very high response rate of 86%. This is a
brilliant achievement given the challenging operating environment,
and I am delighted with how leaders across the Group have worked
hard to engage colleagues and leverage last year's engagement
survey feedback.
-- Increasing the diversity of our Senior Management Team (SMT)
: female representation at SMT increased to 27% (2021: 24%), driven
by external recruitment (40% female) which more than offset the
impact of acquisitions (SMT talent additions from acquisitions
>90% male).
-- Carbon emissions flat despite 15% organic revenue growth :
due to business initiatives and our investments in facility.
We are also announcing DVR targets aligned to our five focus
areas. We are committed to net zero emissions across our value
chain by 2050 at the latest, and have set an interim 50% reduction
target for Scope 1 & 2 by 2030. We are currently calculating
our Scope 3 emissions in order to submit net zero targets to the
Science Based Targets initiative (SBTi) in 2023.
Increasing resilience underpins our outlook
While we are mindful of the uncertain economic outlook and
prospect of a tougher demand environment, we remain confident in
the Group's increasing resilience.
Diploma has an excellent track record of compounding growth and
delivering strong financial returns through the cycle. Our model is
resilient, and our strategic activity makes us more so over time as
we diversify and scale. Increasing revenue diversification means we
are exposed to exciting, structurally growing end segments. Our
focus on value-added products and solutions critical to customer
needs and predominantly serving opex budgets, together with our
service component, fosters sticky customer relationships and
pricing power and supports sustainable margins. Our highly
cash-generative model and strong balance sheet underpin our
resilience.
At this stage, FY 2023 is expected to be in line with our
long-term model:
-- Organic revenue growth: mid-single digit, consistent with our
model and likely to be weighted to H1.
-- Acquisitions announced to date are expected to add ca. 6% to reported revenue growth.
-- Strong, resilient operating margin, in a range of 18-19%.
-- At this stage, the foreign exchange benefit from weaker
sterling and higher interest costs are expected to be neutral to
adjusted EPS.
FY 2023 has started well, consistent with our guidance. We
remain focused on executing our strategy of building high-quality,
scalable businesses for organic growth and are confident in our
ability to deliver long-term growth at sustainably high
margins.
Johnny Thomson
Chief Executive Officer
Sector Review: Controls
The Controls Sector businesses supply specialised wiring, cable,
connectors, fasteners, control devices and adhesives for a range of
technically demanding applications.
Change in the
FY 2022 FY 2021 year
Revenue GBP492.8m GBP343.3m +44%
Organic growth revenue +24% +16%
Adjusted operating
profit GBP105.8m GBP72.4m +46%
Adjusted operating
margin 21.5% 21.1% +40bps
======================== ========== ========== ==============
FY 2022 highlights
-- Share gains in high growth end markets and compelling
customer proposition driving an excellent WCW performance: organic
revenue growth 32%, including double digit volume growth
-- International Controls organic growth 18%, with accelerating
growth in attractive end segments while also broadening US and
European exposure
-- Product extension: excellent organic growth in our new
Adhesives business line, with a bolt-on acquisition to add scale
and diversify end markets
Sector financial performance
The Controls Sector delivered a very strong full year
performance, with reported revenues materially higher, up 44% to
GBP492.8m (2021: GBP343.3m). This consisted of organic growth of
24%, an 11% contribution from acquisitions and a 9% foreign
exchange tailwind.
Adjusted operating profit increased 46% to GBP105.8m (2021:
GBP72.4m), with the adjusted operating margin 40bps higher
year-on-year at 21.5%. Both International Controls and WCW
contributed to this margin expansion, with scale benefits and
performance more than offsetting investment in growth and mix
effects.
International Controls (50% of Sector revenue [2] ) enjoyed a
successful year as a result of organic revenue initiatives and
market share gains in buoyant end markets, particularly civil
aerospace. This translated into organic growth of 18%, with
sustained momentum throughout the year and double-digit growth
across all business lines. Positive pricing contributed, but volume
growth was the primary driver of organic growth. The overall
International Controls margin increased slightly, with positive
operating leverage on volume growth partially diluted by investment
in growth and mix effects, including acquisitions.
The International Controls Wire & Cable business, Shoal
Group, performed very well against a strong comparator. This
reflects supportive end markets and revenue initiatives to drive
growth in new products, through ecommerce and in new markets
including electric vehicles, distribution centres, data centres and
renewables. The addition of SWA last year has also improved access
to the electrical wholesale market and creates cross-selling
opportunities.
Double-digit organic growth at Interconnect reflects strength
across the board, particularly our German energy activities where
organic growth was over 30%, helped by upgrades to the transmission
and distribution network. Other key growth segments include
motorsport, aerospace and medical. Interconnect's recent US
acquisition, LJR, has also made an excellent start delivering
double digit organic revenue growth, with its superior service
levels and customer proximity underpinning market share gains. The
business is investing in sales resource to sustain this momentum.
The only area of weakness was Gremtek, a more automotive-focused
French business whose customer base has been impacted by
semi-conductor chip shortages.
Specialty Fasteners delivered very strong growth, taking share
in recovering aerospace end markets and benefiting from
diversification into new and exciting end segments. AHW, the US
business acquired last year, has now been integrated into our
existing operation; the combined business is winning new contracts
and capitalising on recovering aerospace demand. Geographic
diversification has also been a theme in aerospace, with growth in
Asia and an important contract win in France for a major seating
manufacturer. Newer end markets such as space are growing rapidly,
while growth in high performance road vehicles and Formula One rule
changes have also contributed.
Fluid Controls had another good year, delivering strong
double-digit growth and capitalising on the recovering food and
beverage market.
In Adhesives, Techsil continued to perform extremely well, with
broad-based growth in key automotive end markets where adhesives
have many applications. The business has particularly benefited
from the diversity of its customer footprint and is winning new
projects with customers supplying into the EV and
telecommunications markets. In September, we completed a small
adhesives bolt-on, acquiring the trade and assets of Silicone
Solutions (GBP3m) to add scale and diversify end markets.
Windy City Wire (50% of Sector revenue [3] ) (WCW) had another
excellent year, building on its strong track record. Organic growth
was 32%, with double-digit volume growth against strong
comparators, as well as the pass through of higher year-on-year
copper prices. The impact of copper moderated through the middle of
the year as we started to lap stronger comparators. The business
has benefited from its exposure to high growth end markets in areas
related to building automation, security access, data centres and
digital antenna systems. Over and above this, WCW has taken market
share as a result of its compelling customer proposition and
superior product availability, underpinned by a secure and stable
supply chain.
Volume growth combined with a well invested platform has
translated into very strong operating leverage and operating
margins above the Group average. Over the last two years, WCW has
doubled its operating profit and significantly outperformed its
acquisition case, generating high-teens ROATCE in year two, well
ahead of expectations.
Strategic progress
Delivering on our growth strategy:
-- Our Controls businesses are benefiting from initiatives to
capture growth in structurally growing end segments - from data
centres and digital antenna systems at WCW to electric vehicles and
energy in International Controls which is also pushing into
emerging markets such as space and unmanned aerial vehicles.
-- Continued geographic diversification of International
Controls, building scale outside the UK - our German energy
business has delivered excellent growth; Fasteners is winning share
in Asia and Europe; and acquisitions in Fasteners and Interconnect
are now delivering strong organic growth in the US.
-- Product adjacencies remain an incremental component of our
businesses' growth including through supplier diversification and
cross-selling.
-- M&A to accelerate organic growth:
o Strategic acquisition of LJR Electronics in February for
GBP21m to build scale in the world's largest developed interconnect
market, also giving our existing operation in Indianapolis the
ability to leverage LJR's supply chain.
o Continued build out of our new adhesives business line with
the acquisition of Silicone Solutions for GBP3m, further
diversifying end markets.
Building scale in our value-added businesses:
-- Acquired last year, we have fully integrated AHW into our
existing US Fasteners operation, merging our facilities at Long
Beach and Huntingdon Beach. The US business is now a single,
combined entity under one management team and on a single ERP
system.
-- Continued progress with the project to move our UK cable
businesses towards a single management structure and ERP.
-- Ongoing investment in talent, including sales hires to drive
growth and supply chain and operations directors to support the
execution of our core competencies.
-- Incremental investment in technology and facility, including
barcoding in Interconnect in the UK and a number of smaller ERP
projects.
We have made good strategic progress in Controls as we diversify
end segments to increase resilience, and broaden our geographic and
product addressable markets. The Sector has good momentum, and we
are positive about its future prospects.
Sector Review: Seals
The Seals Sector businesses supply a range of seals, gaskets,
cylinders, components and kits used in heavy mobile machinery and a
diverse range of fluid power products with Aftermarket, OEM and MRO
applications.
Change in the
FY 2022 FY 2021 year
Revenue GBP331.4m GBP263.7m +26%
Organic growth revenue +14% +7%
Adjusted operating
profit GBP62.6m GBP46.5m +35%
Adjusted operating
margin 18.9% 17.6% +130bps
======================== ========== ========== ==============
FY 2022 highlights
-- Geographic penetration: Louisville giving access to
previously untapped Western and Midwestern states, driving
accelerated market share gains in North American Aftermarket
-- Diversification in growth end segments: International Seals
organic growth 11% with broad-based growth against a strong
comparator
-- Product extension: strategic acquisition of R&G in April
to build scale in the UK and broaden the Seals product portfolio
into pneumatics, expanding addressable markets
-- Building scale: acquisition of ACT, a supplier of innovative
anti-corrosion products and solutions, adds further scale to the
high quality platform for growth we have built in Australia over
the last three years
Sector financial performance
Reported revenues increased 26% to GBP331.4m (2021: GBP263.7m),
reflecting 14% organic growth, a 6% contribution from acquisitions
and a 6% benefit from foreign exchange translation.
Adjusted operating profit outperformed revenue growth,
increasing 35% to GBP62.6m (2021: GBP46.5m) with the adjusted
operating margin 130bps higher year-on-year at 18.9% (2021: 17.6%).
This was primarily due to a step up in the North American margin
which benefited from the end of dual-running costs and improved
efficiency at Louisville, as well as gains in MRO. The Sector
margin has also benefited from positive operating leverage on
higher volumes and the disposal of the lower margin Kentek
business, partially offset by the acquisition of R&G.
North American Seals (53% of Sector revenue [4] ) delivered
organic growth of 16%, reflecting very strong growth in our MRO and
Aftermarket businesses. North American Aftermarket had a highly
successful year, with Louisville's better location, extended
service hours and expanded next day delivery footprint enabling
accelerated market share gains in previously untapped Midwestern
and Western states. This has been coupled with commercial
initiatives, including investment in sales and marketing, to build
brand recognition in newer locations. Organic growth in the US was
over 26%; growth in some Western states was higher still. The
International Aftermarket businesses also had a good year, with
double digit organic growth, as they continue to diversify into new
markets, especially industrial and non-hydraulic repair.
Organic growth was very strong for MRO, driven by revenue
diversification initiatives and positive end market demand.
Investment in broadening the business's value-add capabilities and
new proprietary products is translating into new customer wins and
market share capture. The end market backdrop was positive, with
sustained momentum in industrial markets and a tailwind from strong
growth in the later cycle transportation market.
US Industrial OEM had a solid year, and remains focused on
driving organic growth through customer and market diversification.
The business saw some softening of demand in housing and
consumer-related end markets towards the end of the year, but most
industrial end segments remain robust. The business has effectively
deployed its sales team to diversify its opportunity pipeline;
investments in technology and talent in supply chain and operations
have enhanced value-added services and improved supply chain
capabilities. This leaves the business well-positioned for the year
ahead.
International Seals (47% of Sector revenue [5] ) had another
strong year, with organic growth of 11%, building on a track record
of resilience and consistency that reflects the business's diverse
profile.
In the UK, FPE delivered double digit organic growth against a
strong comparator; excellent service and better stock availability
has enabled the business to capitalise on demand in construction
and the recovering oil & gas segment. The acquisition of
R&G in April has been transformational, materially increasing
scale in the UK. Following a successful onboarding, R&G's
organic growth performance has been strong. This is a result of
excellent customer service, a strong product portfolio and
exploiting cross-selling opportunities within the business to drive
value from bolt-on M&A. Its roll-up M&A programme has
continued, with a further four bolt-on acquisitions since April,
with two completing post year end.
Elsewhere, Kubo had another solid year, with high single digit
organic growth against a strong comparator. Having successfully
captured the growth in medical in FY 2021, the Swiss business
successfully pivoted to industrial; better product availability
versus competitors also underpinned market share gains. Double
digit growth in Austria reflects recovering end markets as well as
geographic penetration gains in Germany.
Similarly, high single digit organic growth at M Seals reflected
strength in Sweden and the UK, offsetting slower Danish and Chinese
demand. Growth in Sweden was driven by sales activity to develop
key accounts as well as the resumption of projects put on hold
during the pandemic. The business is investing in organic growth in
Germany, while the newly combined UK operation is now capitalising
on the benefits of co-ordinated commercial activity to drive
growth. M Seals has recently invested in ecommerce and new
machining capabilities to drive growth in Scandinavian markets.
Following a slower start to the year due to extended Covid
lockdowns and supply chain bottlenecks, our Australian Seals
businesses had a strong second half, converting backlogs and
capitalising on buoyant mining, water treatment and infrastructure
end markets.
Strategic progress
Delivering on our growth strategy:
-- Revenue diversification underpins the Sector's consistency.
For most businesses, this reflects incremental benefits from
revenue diversification initiatives focused on growth segments,
geographic penetration and product extension.
-- Additionally, our facility in Louisville has delivered a step
change for North American Aftermarket with the team successfully
converting the opportunity into accelerated share gains. The
facility is also delivering clear quality and efficiency
improvements; we plan to invest in expanding the autostore to
increase capacity in the year ahead.
-- M&A to accelerate organic growth:
o Acquisition of R&G in April for GBP101m: a key milestone
not just for the UK, but the Seals Sector as a whole. A value-added
aftermarket distributor, R&G has added scale in the UK and
significantly broadened the Seals product portfolio, expanding
addressable markets.
o Bolt-on acquisition of ACT in July for GBP7m, a specialist
provider of sustainable materials engineering and corrosion control
solutions. It is highly complementary to our existing Australian
Seals business with potential revenue and cost synergies.
Building scale in our value-added businesses:
-- Completion of the integration of DMR into M Seals and
rebranding; the combined business is now leveraging a single
go-to-market strategy and co-ordinated commercial activity to drive
growth.
-- Integration of TotalSeal and facility expansion in Australia.
Over the last three years, we have transformed Australian Seals
through acquisitions to add scale and structuring the business into
two strong pillars in the East and West, creating a high-quality
platform for growth.
-- Across the Sector, all businesses continue on their journey
to scale with incremental investment in talent, automation
solutions and capabilities, including new machining capability to
support product innovation.
We have made really good strategic progress in Seals in the
year. The Sector is more resilient now than ever, supported by end
segment exposures such as medical, food and beverage and renewable
energy, as well as the impetus from greater infrastructure
investment through the cycle in the US. We are optimistic about the
Sector's prospects.
Sector Review: Life Sciences
The Life Sciences Sector businesses supply a range of equipment,
consumables, instrumentation and related services to the Healthcare
industry.
Change in the
FY 2022 FY 2021 year
Revenue GBP188.6m GBP180.4m +5%
Organic growth revenue (4)% +14%
Adjusted operating
profit GBP41.0m GBP43.2m (5)%
Adjusted operating
margin 21.7% 23.9% (220)bps
======================== ========== ========== ==============
FY 2022 highlights
-- Organic revenue growth was 2% excluding last year's
Covid-related revenues and was moderated by hospital staffing
shortages; returned to organic growth in Q4 as expected
-- Strong diagnostics and endoscopy performance
-- Sector well-positioned for growth: exposed to rising
diagnostics spend and significant elective surgical backlogs
-- Strategic acquisition of Accuscience: increases exposure to
high growth testing, diagnostics and medical segments; continues
the build out of our European footprint
-- Disciplined portfolio management: disposal of a1-envirosciences
Sector financial performance
In FY 2022, Life Sciences Sector revenues increased 5% to
GBP188.6m (2021: GBP180.4m), with organic revenues 4% lower
year-on-year. Acquisitions net of disposals added 7%, with the
contribution from Accuscience and last year's Scandinavian
acquisitions more than offsetting the disposals of
a1-envirosciences in May and a1-CBISS last year. Foreign exchange
movements increased reported revenues by 2%.
Excluding last year's non-recurring Covid-related ventilator
sales, the Sector delivered 2% organic revenue growth. Growth was
also somewhat moderated by lockdowns and hospital staffing
shortages in our key Canadian and Australian surgical markets.
Adjusted operating profit was 5% lower year-on-year at GBP41.0m
(2021: GBP43.2m). The adjusted operating margin fell 220bps to
21.7% against an untypically strong comparator (2021: 23.9%). This
reflects operating leverage on lower volumes, mix effects including
the impact of acquisitions, and a controlled return of variable
costs.
Underlying momentum was very positive in testing and
diagnostics, with businesses such as TPD in Ireland and Abacus in
Australia delivering high single-digit organic growth against
strong FY 2021 comparators. While COVID-related testing volumes
have eased, our businesses have successfully captured growth
elsewhere as laboratories shift their focus to clearing backlogs,
and as our teams have regained access to customers. Accuscience,
acquired in May, is settling into the Group well with exciting
prospects in high growth segments such as molecular
diagnostics.
Our surgical businesses were impacted by extended lockdowns in
Canada and Australia together with hospital capacity constraints,
reducing sales teams' access and demand for consumables. Both AMT
in Canada and BGS in Australia experienced organic revenue declines
with surgical throughput running well below pre-COVID levels. We
expect throughput to slowly improve in the year ahead, with some
unwinding of elective surgical backlogs, but hospital capacity
constraints are likely to persist in the near-term.
In critical care - primarily Simonsen & Weel in Denmark -
while organic revenue growth was negative, this reflects the
non-recurring ventilator sales mentioned above. Our other medical
businesses focused on GI endoscopy (Vantage in Canada and
Kungshusen in Sweden) had a very good year with some exciting new
product introductions. Outpatients have also been much less
impacted by COVID, with sales of capital and consumables driving
double digit organic growth.
Strategic progress
Delivering on our growth strategy:
-- Exciting organic growth potential: while FY 2022 has been a
more challenging year, this largely reflects short-term factors.
The Sector's prospects remain as positive as ever, underpinned by
elective surgical backlog recovery: rising diagnostics spending and
our product pipeline. Across the Sector, businesses have been
investing in their portfolios, seeking out new suppliers developing
innovative products which will enable us to capitalise on the
post-pandemic shifts in healthcare spending
-- M&A to accelerate organic growth:
o Strategic acquisition of Accuscience in Ireland for GBP51m: a
market-leading IVD, life sciences and med-tech distributor. The
acquisition increases our exposure to the high growth diagnostics
segment, including molecular diagnostics. The business also adds
scale to Life Sciences in Ireland, and continues to build out the
Sector's European pillar.
Building scale in our value-added businesses:
-- Completion of a multi-year project to create a scalable
Australian platform on a single distribution site in Brisbane. The
consolidation of operations and relocation of our Australian
businesses to new, modern facilities will create efficiencies and
reduce our environmental footprint as well as enable future
growth.
-- Investing in capability and talent in key functional areas, including Finance and Operations.
-- Developing regional leadership structures, including
appointment of new heads for Europe and Australia.
-- New Simonsen & Weel facility in Denmark to support
growth, improve energy and waste efficiency and provide colleagues
with a better working environment.
Disciplined portfolio management:
-- Disposal of a1-envirosciences in May.
We have made great strategic progress in Life Sciences, and the
Sector in itself provides balance, and therefore resilience, to our
portfolio. We are carrying improving momentum into the new year,
and the medium-term outlook is exciting, with the likely unwinding
of elective surgical backlogs as well as increasing diagnostics
investment.
Finance Review
Diploma has delivered a very strong set of results,
demonstrating the strength of our financial model.
Financial highlights
-- Organic growth 15%, more than half of which was volume growth
-- Reported revenue growth 29%: very positive 9% net
contribution from acquisitions and disposals, and a 5% foreign
exchange benefit
-- Consistent, high margin: 18.9% operating margin, unchanged on
the prior year, with our resilient value-added service model
enabling us to continue to navigate supply chain challenges and
offset inflation
-- Full year free cash flow conversion 90%, including targeted
investment in inventory to support growth
-- 26% growth in adjusted EPS
Financial Highlights
Reported results Adjusted results
====== ======================= =====================
FY FY % FY FY %
2022 2021 change 2022 2021 change
========================== ====== ======= ===== ======= ===== ===== =======
Revenue GBPm 1,012.8 787.4 +29%
========================== ====== ======= ===== ======= ===== ===== =======
Operating profit GBPm 144.3 104.3 +38% 191.2 148.7 +29%
========================== ====== ======= ===== ======= ===== ===== =======
Free cash flow conversion % 90 103
========================== ====== ======= ===== ======= ===== ===== =======
Earnings per share pence 76.1 56.1 +36% 107.5 85.2 +26%
========================== ====== ======= ===== ======= ===== ===== =======
Total dividend per
share pence 53.8 42.6 +26%
========================== ====== ======= ===== ======= ===== ===== =======
Double digit organic growth
Reported revenues increased by 29% to GBP1,012.8m (2021:
GBP787.4m), consisting of organic growth of 15%, a 9% net
contribution from acquisitions and disposals, and a 5% benefit from
foreign exchange translation. During the year, the Group disposed
of Kentek (November), and a1-envirosciences (May), which together
contributed GBP9.9m to Group revenues in FY 2022.
Attractive, high teens margins
Adjusted operating profit increased 29% to GBP191.2m (2021:
GBP148.7m), with the operating margin unchanged on the prior year
at 18.9%. This reflects margin expansion at both Controls and
Seals, offset by a lower margin in Life Sciences, which was
principally due to the benefit from one-off Covid-related revenues
in the prior year and mix effects from acquisitions. The increase
in central costs primarily relates to talent as part of our
investment in scaling the Group.
Adjusted operating profit by Sector
Adjusted operating profit Adjusted operating margin
============================= =============================
2022 2021 % 2022 2021 bps
GBPm GBPm change % % change
============== ======== ======= ========== ======= ======= ===========
Controls 105.8 72.4 +46% 21.5 21.1 +40
============== ======== ======= ========== ======= ======= ===========
Seals 62.6 46.5 +35% 18.9 17.6 +130
============== ======== ======= ========== ======= ======= ===========
Life Sciences 41.0 43.2 (5)% 21.7 23.9 (220)
============== ======== ======= ========== ======= ======= ===========
Central costs (18.2) (13.4) +36%
============== ======== ======= ========== ======= ======= ===========
Group 191.2 148.7 18.9 18.9 -
============== ======== ======= ========== ======= ======= ===========
Higher financing costs
The interest expense increased to GBP11.6m (2021: GBP6.8m),
principally due to increased borrowings to finance acquisitions and
the impact of higher interest rates, and in particular in the
second half of the year.
Profit before tax
Adjusted profit before tax increased by 27% to GBP179.6m (2021:
GBP141.9m). Statutory profit before tax was GBP129.5m (2021:
GBP96.6m) and is stated after charging acquisition related costs of
GBP46.9m (2021: GBP44.4m), principally comprising the amortisation
of acquisition related intangible assets of GBP42.4m (2021:
GBP33.1m) and GBP10.5m of acquisition related costs (2021: GBP9.7m)
in respect of the seven acquisitions completed during the year and
partly offset by a net gain of GBP7.3m (2021: charge of GBP1.6m)
from two disposals in the year.
Effective tax rate broadly unchanged
The Group's effective tax charge on adjusted profit was 25.0%
(2021: 25.4%) broadly in line with prior year.
We are committed to being a responsible taxpayer and our
approach is to comply with tax laws in the countries in which we
operate and to pay our fair share of tax. We recognise the impact
tax has on wider society and we always factor the Group's
reputation and corporate and social responsibilities into tax
considerations. Tax legislation is not always prescriptive and the
impact of a transaction or item can give rise to more than one
interpretation of the law. The Group assesses all such exposures
and, where it is considered probable that further tax will be
payable, an uncertain tax provision is recognised. The provision is
estimated based on the expected value method. The Group's tax
strategy was approved by the Board and is published on our
website.
26% growth in adjusted EPS and total dividend
Adjusted EPS increased by 26% to 107.5p (2021: 85.2p). The
adjusted EPS growth is marginally lower than the adjusted operating
profit growth due to increased interest charges.
For FY 2022, the Board has recommended a final dividend of 38.8p
per share, making the proposed full year dividend 53.8p (2021:
42.6p). This represents a 26% increase in the total dividend with
dividend cover at 2.0x EPS, continuing the Group's progressive
dividend track record.
The Board has a progressive dividend policy that aims to
increase the dividend each year broadly in line with the growth in
adjusted EPS. In determining the dividend in any one year, the
Board also considers a number of factors which include the strength
of the free cash flow generated by the Group, the future cash
commitments and investment needed to sustain the Group's long-term
growth strategy and the target level of dividend cover. The ability
of the Board to maintain future dividend policy will be influenced
by the principal risks identified below that could adversely impact
the performance of the Group.
Free cash flow conversion 90%
Free cash flow represents cash available to invest in growth
through value-enhancing acquisitions or to return to shareholders.
Free cash flow increased 11% in the year to GBP120.4m (2021:
GBP108.8m). Free cash flow conversion for the year was 90% (2021:
103%), in-line with our targeted 90%+, demonstrating the highly
cash-generative qualities of the business model despite very strong
organic revenue growth and targeted investment in inventory. Free
cash flow benefited from fixed asset disposal proceeds of GBP9.9m
(2021: GBP4.8m).
The working capital outflow of GBP28.7m (2021: GBP12.6m outflow)
was driven by increased inventory and receivables, reflecting the
strong growth in trading activity and targeted investment in
inventory to support customer service in the year. We are focused
on ensuring optimal levels of inventory, taking into account
working capital management and customer service. The Group's
working capital to revenue at 30 September 2022 improved to 15.6%
(2021: 15.8%).
Group tax payments increased by GBP16.4m to GBP40.6m (2021:
GBP24.2m). On an underlying basis, cash tax payments increased to
22% (2021: 17%) of adjusted profit before tax. Our effective cash
tax rate is lower than our Group effective tax rate, mainly due to
acquisition goodwill which is deductible for US tax purposes. Our
cash tax rate is higher than last year both due to capital gains
during the period and the benefits from enhanced deductions on
capital spend in the prior year.
The Group's capital expenditure was higher this year at GBP15.4m
(2021: GBP6.2m) largely consisting of ongoing investment in new
field equipment in the Healthcare businesses of GBP6.8m (2021:
GBP2.0m), which directly supports revenue growth. Excluding this,
capital expenditure increased GBP4.4m to GBP8.6m, consisting of
infrastructure and equipment spend to scale up efficiently for
growth (GBP5.9m), and improvements or replacements of legacy IT
systems plus investments into newly acquired businesses
(GBP2.7m).
The Group spent GBP186.6m (2021: GBP462.2m) on acquisitions and
GBP56.4m (2021: GBP53.2m) on paying dividends to both Company and
minority shareholders.
Acquisitions to accelerate our growth
Acquisition spend of GBP186.6m, which includes fees, mainly
comprises the initial spend for R&G (GBP91.7m) and Accuscience
(GBP49.9m), as well as an additional GBP31.4m principally relating
to five smaller businesses. The total spend also includes GBP6.5m
of acquisition fees and deferred consideration of GBP7.1m. We
remain highly disciplined in our approach with all of these
high-quality, value-add acquisitions offering our Sectors
opportunities to accelerate their organic growth and create
value.
Goodwill at 30 September 2022 was GBP372.3m (2021: GBP260.7m).
Goodwill is assessed each year to determine whether there has been
any impairment in the carrying value. It was confirmed that there
was significant headroom on the valuation of this goodwill,
compared with the carrying value at the year end.
Disciplined portfolio management
The Group completed two disposals in the year - the disposal of
a1-envirosciences in May 2022 for proceeds of GBP11.4m, and the
sale of its 90% interest in Kentek in November 2021 for proceeds of
GBP10.0m. a1-envirosciences and Kentek generated revenues of
GBP7.0m and GBP2.9m in the year respectively. The proceeds are not
included in free cash flow and the net profit on disposal of
GBP7.3m is not included in adjusted operating profit.
Liabilities to shareholders of acquired businesses
The Group's liability to shareholders of acquired businesses at
30 September 2022 increased by GBP7.7m to GBP31.4m (2021: GBP23.7m)
and comprises both put options to purchase outstanding minority
shareholdings and deferred consideration payable to vendors of
businesses acquired during the current and prior year.
The liability to acquire minority shareholdings outstanding at
30 September 2022 relates to a 10% interest held in M Seals, 5%
interest in Techsil and a 2% interest in R&G. These options are
valued at GBP7.4m (2021: GBP5.2m), based on the Directors' latest
estimate of the earnings before interest and tax (EBIT) of these
businesses when these options crystallise.
The liability for deferred consideration payable at 30 September
2022 was GBP24.0m (2021: GBP18.5m). This liability represents the
Directors' best estimate of any outstanding amounts likely to be
paid to the vendors of businesses, based on the expected
performance of these businesses during the measurement period. The
increase in the year is primarily due to the acquisition of
R&G.
ROATCE: strong returns
ROATCE is a key metric used to measure our success in creating
value for shareholders. As at 30 September 2022, the Group's ROATCE
was 17.3% (2021: 17.4%), in-line with our high-teens target. The
full year outcome reflects a number of moving parts with the
temporary dilution from recent acquisitions and targeted inventory
investment partially offset by WCW continuing to outperform its
acquisition case. Subject to future acquisition activity, we expect
ROATCE to increase in FY 2023.
Adjusted trading capital employed is defined in note 13.
Strong balance sheet
Strong free cash generation has allowed the Group to deleverage
more quickly than expected. At 30 September 2022, the Group's Net
Debt (excluding IFRS 16 lease liabilities) stood at GBP328.9m. The
Group continues to maintain a robust balance sheet with net bank
debt comprised of borrowings of GBP370.6m, less cash funds of
GBP41.7m.
On 13 October 2020, the Group entered into a debt facility
agreement (SFA) which comprised a three-year term loan for an
aggregate principal amount of GBP136.0m ($170.0m) and a committed
multi-currency revolving facility for an aggregate principal amount
of GBP135.0m, which was increased to GBP185.0m during the previous
financial year.
During the year the Group has amended the SFA to increase the
total facility size. As at 30 September 2022, the SFA comprises a
committed multi-currency revolving facility for an aggregate
principal amount of GBP359.7m, an amortising term loan for an
aggregate principal amount of GBP114.2m ($127.5m), a bullet term
loan for an aggregate principal amount of GBP59.1m ($66.0m) and a
further bullet term loan for an aggregate principal amount of
GBP45.3m. The SFA is due to expire in December 2024 and there is an
option to extend for a further 12-month period.
The Group's debt facilities are subject to interest at variable
rates. During the year, the Group entered into interest rate swap
contracts with the effect of fixing the interest rate on $100m
(GBP89.6m) of debt. The effective fixed rate debt was 24% as a
proportion of total debt. Subsequent to the year end, the Group
entered into further interest rate swap contracts with the effect
of fixing the interest rate on an additional $100m of debt.
At 30 September 2022, the Group's Net Debt/EBITDA was 1.4x. We
have strong liquidity, with year end headroom of GBP204m.
Interest rate
Type Currency Amount GBP equivalent exposure
============ =========== ============== ================
Fixed at ca.3%
Term loan USD $193.5m GBP173.3m [6]
============= ============ =========== ============== ================
RCF USD $8.0m GBP7.2m
============= ============ =========== ============== ================
RCF GBP GBP122.2m Floating
============= ============ =========== ============== ================
RCF EUR EUR81.6m GBP71.6m Floating
============= ============ =========== ============== ================
Capitalised debt fees net of accrued
interest GBP(3.7)m
======================================== ============== ================
Gross debt drawn at year end GBP370.6m
============== ================
Cash & equivalents at year end GBP(41.7)m
======================================== ============== ================
Net debt at year end GBP328.9m
======================================== ============== ================
Employee pension obligations
Pension benefits to existing employees, both in the UK and
overseas, are provided through defined contribution schemes at an
aggregate cost in FY 2022 of GBP6.6m (2021: GBP5.5m).
The Group maintains a legacy closed defined benefit pension
scheme in the UK. The Group is currently funding this scheme with
cash contributions of GBP0.6m (2021: GBP5.8m) 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. This pension plan is managed
for Kubo through a separate multi-employer plan of non-associated
Swiss companies, which pools the funding risk between participating
companies. In Switzerland, Kubo's annual cash contribution to the
pension scheme was GBP0.5m (2021: GBP0.5m).
Both the UK defined benefit scheme and the Kubo contribution
scheme are accounted for in accordance with IAS 19 (revised). At 30
September 2022, the aggregate accounting pension surplus/deficit in
these two schemes moved from a deficit of GBP4.9m to a surplus of
GBP6.4m, reflecting the sharp increase in bond yields as at 30
September 2022, which in turn reduced the value of the schemes'
liabilities. The next formal triennial funding valuation of the UK
scheme is due as at 30 September 2022, with completion expected in
the second half of FY 2023.
FX tailwind and interest headwind largely offsetting
Whilst there cannot be any certainty over future interest rates
and exchange rates, looking ahead to 2023, it is likely that
exchange rates, especially Sterling-Dollar will provide a boost to
reported earnings whilst increasing interest rates will increase
costs. With around 50% of the Group's debt floating, should USD-GBP
rates remain at current levels, we would expect these effects to
largely offset each other.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in this announcement. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities
are described in the Finance Review. In addition, the Annual Report
& Accounts include the Group's objectives, policies and
processes for managing its capital; its financial risk management
objectives; details of its financial instruments and hedging
activities; and its exposures to credit risk and liquidity
risk.
The Group continues to operate against a backdrop of
macroeconomic disruption, including widespread global inflation,
rising interest rates and the continued uncertainty of the Covid-19
pandemic, in particular its lasting impact on global supply chains.
Accordingly, the Directors have again considered a more
comprehensive going concern view than in previous years. 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.
Liquidity and financing position
On 13 October 2020, the Group entered into a debt facility
agreement (SFA) which comprised a three-year term loan for an
aggregate principal amount of GBP136.0m ($170.0m) and a committed
multi-currency revolving facility (RCF) for an aggregate principal
amount of GBP135.0m, which was increased to GBP185.0m during the
previous financial year.
During the year the Group has amended the SFA to increase the
total facility size. As at 30 September 2022 the SFA comprises a
committed RCF for an aggregate principal amount of GBP359.7m, an
amortising term loan for an aggregate principal amount of GBP114.2m
($127.5m), a bullet term loan for an aggregate principal amount of
GBP59.1m ($66.0m) and a further bullet term loan for an aggregate
principal amount of GBP45.3m. The SFA is due to expire in December
2024 and there is an option to extend for a further 12-month
period.
The Group's debt facilities are subject to interest at variable
rates. During the year the Group entered into interest rate swap
contracts with the effect of fixing the interest rate on $100.0m
(GBP89.6m) of debt. The effective fixed rate debt was 24% of total
debt. Subsequent to year end, the Group has entered into further
interest rate swap contracts with the effect of fixing the interest
rate on an additional $100.0m of debt.
At 30 September 2022, the Group's Net Debt/EBITDA ratio is 1.4x,
as illustrated in note 13.
As at 30 September 2022, the term loans have an aggregate
outstanding principal amount of GBP173.3m ($193.5m) and the Group
has utilised GBP201.0m of the revolving facility. There remains
GBP158.7m undrawn on the revolving facility and GBP45.3m undrawn on
the bullet term loan. Borrowings include GBP1.0m (2021: GBP0.4m) of
accrued interest and the carrying amount of capitalised debt fees
of GBP4.7m (2021: GBP2.8m).
As at 30 September 2021, under the SFA the Group had a drawn
term loan with an aggregate principal amount of GBP113.5m ($153.0m)
and drawings of GBP95.1m under the revolving facility. As at 30
September 2021 the undrawn revolving facility amount was
GBP89.9m.
Total net debt is GBP398.0m (2021: GBP229.7m) comprising cash
funds of GBP41.7m (2021: GBP24.8m), borrowings of GBP370.6m (2021:
GBP206.2m), and lease liabilities of GBP69.1m (2021: GBP48.3m).
Bank covenants are tested against net debt funds only (i.e.
excluding lease liabilities).
Financial modelling
The Group has modelled a base case and downside case in its
assessment of going concern. The base case is driven off the
Group's detailed budget which is built up on a business by business
case and considers both the micro and macroeconomic factors which
could impact performance in the industries and geographies in which
that business operates. The downside case models steep declines in
revenues and operating margins as well as materially adverse
working capital movements. These sensitivities factor in a
continued unfavourable impact from a prolonged downturn in the
economy.
The purpose of this exercise is to consider if there is a
significant risk that the Group could breach either its facility
headroom or financial covenants. Both scenarios indicate that the
Group has significant liquidity and covenant headroom on its
borrowing facilities to continue in operational existence for the
foreseeable future.
Going concern basis
Accordingly and after making enquiries, the Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future and
they continue to adopt the going concern basis in preparing the
Annual Report & Accounts.
Principal risks and uncertainties
The Group's decentralised operations, which have different
Sectors and geographical spread, helps mitigate the potential
impact of these principal risks.
Set out in this section of the Strategic report are the
principal risks and uncertainties affecting the Group. These have
been determined by the Board, using the robust risk evaluation
described on the previous page, to have the greatest potential
impact on the Group's future viability.
The principal risks are each classified as either
macro/external, strategic or operational and are not presented in
order of probability or impact.
The risks summarised below represent the principal risks and
uncertainties faced by the Group, and the steps taken to mitigate
such risks. These risks are considered to be material to the
development, performance, position or future prospects of the
Group. However, these risks do not comprise all of the risks that
the Group may face and accordingly this summary is not intended to
be exhaustive.
There have been some changes to the Groups principal risks
arising from the evolved risk identification process together with
the increased scale of the Group and revenue diversification
strategies being successfully implemented:
-- Customer Concentration and Inventory Obsolescence are no
longer considered to be principal risks, although will continue to
be monitored and evaluated.
-- Inflationary Environment has been recategorised to be a
principal risk, previously being considered an emerging risk.
-- Supplier Concentration/Loss of Key Suppliers and Supply Chain
disruptors have been amalgamated into Supply Chain, which will also
include the risk of supplier disintermediation.
-- Loss of key personnel has evolved to Talent & Diversity
and will also cover the risk of having wrong talent or lack of/poor
diversity, failure to attract/retain staff and inadequate
development.
-- Tax Compliance has evolved into Non-compliance with Laws and
Regulations, which also covers non-compliance with environmental
regulation and the increasing international compliance alignment
burden.
Principal Risk Risk Description & Assessment Mitigation
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Downturn/instability
in
major markets
Risk category Adverse changes in the The businesses identify key
Macro/external risk major markets that the market drivers and monitor trends
businesses operate in and forecasts, as well as maintaining
Board risk appetite can result in slowing close relationships with key
Averse revenue growth due to customers who may give an early
reduced or delayed demand warning of slowing demand.
Change in risk for products and services, A number of characteristics
No change or margin pressures due of the Group's businesses moderate
to increased competition. the impact of economic and business
This risk remains cycles:
at a similar level * The Group's businesses operate in three different
to last year and Sectors with different characteristics and across a
is addressed number of geographic markets.
continuously
in our risk
management * The businesses offer specialised products and
process. services, which are often specific to their
application, increasing customers' switching costs.
* A high proportion of the Group's revenue comprises
consumable products, which are purchased as part of
the customer's operating budget, rather than throug
h
capital budgets.
* In many cases the products are used in repair,
maintenance and refurbishment applications, rather
than original equipment manufacture.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Supply Chain
Risk category The ability to service Management continues to pursue
Strategic risk our customers in a timely diversification strategies and
manner is a key part regularly seeks alternative
Board risk appetite of our value-added proposition. sourcing.
Cautious For manufacturer-branded Long-term, multi-year exclusive
products, there is the contracts have been signed with
Change in risk risk that existing distribution suppliers with change of control
No change agreements and vertical clauses, where applicable, for
integration of suppliers protection or compensation in
Supply chain is cancelled, therefore the event of acquisition.
disruption losing access to key We maintain strong relationships
has reduced since distribution channels. with suppliers and keep customers
last year but There is also the risk updated in the event of change
operational of: to retain key business.
interruptions at * A supplier taking away exclusivity. Meeting with key customers regularly
customers and to gain insight into their product
suppliers requirements and market developments.
continue. * Manufacturing lead times increasing as a result of We work with our supply chain
supply chain shortages. We have experienced this, partners to help them meet our
particularly with suppliers based in Asia, in the standards of acceptable working
current year. conditions, financial stability,
ethics and technical competence.
If they are unable to meet these
* Supply chain partners not operating to the same standards then we will source
ethical standards as Diploma product elsewhere.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Inflationary
Environment
Significant or unexpected Improved pricing processes and
Risk category cost increases by suppliers the value-added activities undertaken
Macro/external risk due to the pass through by the businesses mean we are
of higher commodity prices better able to pass cost increases
Board risk appetite or other price increases, to customers.
Cautious higher trade tariffs A number of characteristics
and/or foreign currency of the Group's businesses moderate
Change in risk fluctuations, could adversely the impact of economic and business
New risk for 2022 impact profits if businesses cycles:
are unable to pass on * The Group's businesses operate in three different
such cost increases to Sectors with different characteristics and across a
customers. number of geographic markets.
* The businesses offer specialised products and
services, which are often specific to their
application, increasing customers' switching costs.
* A high proportion of the Group's revenue comprises
consumable products, which are purchased as part of
the customer's operating budget, rather than through
capital budgets.
* In many cases the products are used in repair,
maintenance and refurbishment applications, rather
than original equipment manufacture.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Unsuccessful
acquisition
Diploma has a strong A clearly defined acquisition
Risk category history of disciplined strategy is in place with a
Strategic risk acquisitions. The business disciplined approach, including
model of the Group is financial return hurdles, to
Board risk appetite based on successful acquisitions bringing high-quality, value-enhancing
Tolerant in large and developed businesses into the Group.
markets and sectors. An experienced Corporate Development
Change in risk The following are the team is responsible for seeking
No change key risks of an acquisition and evaluating new acquisition
process: opportunities with the Corporate
The acquisition * The Group may overpay for a target. Development Director reporting
pipeline remains to the CEO.
healthy and Diploma A formal due diligence process
retains its * The acquired business may experience limited growth is followed for every acquisition,
disciplined post acquisition. with close supervision by the
approach to bringing CEO and relevant Group senior
high-quality, management. A formal governance
value-enhancing * Loss of key customers or suppliers post integration process is in place up to Board
businesses into . level.
Diploma. A disciplined post-acquisition
integration process covers operational,
* Potential cultural misfit as smaller businesses are financial, governance, legal
faced with the new requirements of a listed Company and reporting matters.
. The Board reviews performance
of recent acquisitions annually.
The above may be the
result of inadequate
due diligence, poor integration
or unrealistic assumptions
used in the investment
case.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Geopolitical
disruptions
Diploma operates in established We continue to diversify our
Risk category economies with stable supply base and invest in product
Macro/external risk political and legal systems. range development to mitigate
Geopolitical events that exposure to any single market
Board risk appetite could disrupt the Group's or region.
Averse operations are mainly Whenever possible, we capitalise
related to: on Group synergies and leverage
Change in Risk * Interruption of trade agreements. inter-company trading.
Increase
This risk remains * Tariffs.
elevated in certain
geographies,
including * Change of trade relationships amongst countries in
due to ongoing which we operate (e.g. Brexit).
events
such as the conflict
in Ukraine. * Government budget spending.
* Political elections.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Health & Safety
Risk category Some Diploma businesses The Covid-19 pandemic placed
Operational risk are exposed to Health a greater focus on Health &
& Safety risks, including Safety and preventive measures
Board risk appetite via the environment in to limit the spread of Covid-19.
Averse which their employees, Implementing and continuously
contractors, customers, evolving these measures has
Change in risk and suppliers operate, improved Health & Safety across
Decrease or through the products the Group.
they sell. Additionally, management continues
Relative to FY 2021 to promote mental health and
there has been a wellbeing, offering support
significant decrease to colleagues and access to
in Health & Safety an employee assistance programme.
risk as a result
of the conclusion
of the Covid-19
pandemic and
improvements
in processes arising
from the pandemic.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Technology & Cyber
Risk category Group and operating business The decentralised nature of
Operational risk management depend critically the Group, including stand-alone
on timely and reliable IT systems for each business,
Board risk appetite information from their limits the potential impact
Cautious IT systems to run their to any individual business.
businesses and serve There is good support and back-up
Change in risk their customers' needs. built into local IT systems.
No change Any disruption or denial All businesses in the Group
of service may delay have a robust cybersecurity
The risk of or impact decision-making programme and we regularly engage
cyber-attacks if reliable data is unavailable. with cybersecurity experts to
remained high in Poor information handling continuously improve and strengthen
2022. or interruption of business our IT systems.
may also lead to reduced A formalised ERP approval and
The businesses service to customers. implementation process ensures
maintained Unintended actions of businesses have the most suitable
a high standard employees caused by a IT systems to effectively manage
of cybersecurity cyber-attack may also their business.
whilst accommodating lead to disruption, including Business continuity plans exist
remote working fraud. for each business with ongoing
practices testing.
in territories where
strict lockdowns
were in place as
a response to the
Covid-19 pandemic.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Talent & Diversity
The success of the Group Contractual terms such as notice
Risk category is built on strong, self-standing periods and non-compete clauses
Operational risk management teams in the can mitigate the risk in the
operating businesses, short term.
Board risk appetite committed to the success The Group places very high importance
Cautious of their respective businesses. on planning development, motivation
As a result, the loss and reward:
Change in risk of key personnel can * Ensuring a challenging working environment where
Increase have an impact on performance managers feel they have control over, and
for a limited time period. responsibility for, their businesses.
This risk has Not having the right
increased talent or diversity at
in the year, mainly all levels of the organisation * Implementing a structured talent review process for
due to current to deliver our strategy, the development, retention and succession of key
market resulting in reduced personnel.
labour conditions financial performance.
with the tightening
of labour markets * Offering balanced and competitive compensation
affecting candidate packages with a combination of salary, annual bonus
availability and and long-term cash or share incentive plans.
retention, upward
pressure on wage
levels in certain * Giving the freedom, encouragement, financial
geographies and resources and strategic support for managers to
changing pursue ambitious growth plans.
expectations
of working
environments.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Product liability
There is a risk that Technically qualified personnel
Risk category products supplied by and control systems are in place
Operational risk a Group business may to ensure products meet quality
fail in service, which requirements. The Group's businesses
Board risk appetite could lead to a claim are required to undertake product
Averse under product liability. risk assessments and comprehensive
The Group may be exposed supplier quality assurance assessments.
Change in risk to legal costs and potential The businesses, in their terms
No change damages if the claim and conditions of sale with
succeeds and the supplier customers, will typically mirror
This risk remains fails to meet its liabilities the terms and conditions of
at a similar level for whatever reason. purchase from the suppliers
to last year. In situations where a to limit any liabilities.
Group business is selling
own-branded products
and cannot subrogate
the liability to a supplier,
the business will be
liable for failure of
the product.
The Group has liability
insurance in place providing
appropriate cover for
each business.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Foreign currency
The Group is exposed The Group operates across a
Risk category to two types of financial number of diverse geographies
Financial risk risk caused by currency but does not hedge translational
volatility: translational exposure of operating profit
Board risk appetite exposure, on translating and net assets.
Cautious the results of overseas The Group's businesses may hedge
subsidiaries into UK up to 80% of forecast (for a
Change in risk sterling; and transactional maximum of 18 months) foreign
No change exposure, due to operating currency transactional exposures
businesses' revenues using forward foreign exchange
This risk has or product costs being contracts.
remained denominated in a currency Rolling monthly forecasts of
at a similar level other than their local currency exposures are reviewed
to last year. currency. on a regular basis.
Translational foreign Details of average exchange
exchange risk arises rates used in the translation
primarily with respect of overseas earnings and of
to the US dollar, the year end exchange rates used
Canadian dollar, the in the translation of overseas
Australian dollar and balance sheets, for the principal
the Euro. currencies used by the Group,
A strengthening of UK are shown in note 12 to these
sterling by 10% against condensed consolidated financial
all the currencies in statements.
which the Group does
business, would reduce
adjusted operating profit
by approximately GBP17.0m
(9%), due to currency
translation. Similarly,
a strengthening of UK
sterling by 10% against
all the non-UK sterling
capital employed would
reduce shareholders'
funds by GBP31.6m (5%).
Transactional foreign
exchange risk arises
principally with respect
to US dollars and Euros.
The majority of the Group's
Canadian and Australian
businesses' purchases
are denominated in US
dollars and Euros. The
Group's US businesses
do not have any material
foreign currency transactional
risk.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Non-compliance
with laws The Group's businesses The board of each business is
Risk category are affected by various accountable for identifying
Operational risk statutes, regulations and monitoring what laws are
and standards in the relevant to their business,
Board risk appetite countries and markets including any emerging or changing
Averse in which they operate. legislation, and for ensuring
Diploma PLC itself is commercial legal risks are appropriately
Change in risk a listed entity subject managed.
Increase to regulation and governance The Head of Legal advises on
requirements. legislative and regulatory changes
Laws governing relevant to the Group as a listed
businesses company and has oversight of
continue to increase all material transactions including
in volume, scope acquisitions.
and complexity.
As the Group scales,
businesses are
increasingly
subject to the
regulations
of multiple
jurisdictions
that may not all
align with one
another.
Our businesses are
facing a large
number
of regulatory
changes
over the coming
years in respect
of environmental
commitments and
controls.
--------------------- ------------------------------------------------------------- ----------------------------------------------------------------
Consolidated Income Statement
For the year ended 30 September 2022
2022 2021
Note GBPm GBPm
============================== ==== ======= =======
Revenue 2,3 1,012.8 787.4
---- ------- -------
Cost of sales (638.3) (499.0)
============================== ==== ======= =======
Gross profit 374.5 288.4
---- ------- -------
Distribution costs (25.9) (23.9)
---- ------- -------
Administration costs (204.3) (160.2)
============================== ==== ======= =======
Operating profit 2 144.3 104.3
---- ------- -------
Financial expense, net 4 (14.8) (7.7)
============================== ==== ======= =======
Profit before tax 129.5 96.6
---- ------- -------
Tax expense 5 (34.1) (26.9)
============================== ==== ======= =======
Profit for the year 95.4 69.7
============================== ==== ======= =======
Attributable to:
---- ------- -------
Shareholders of the Company 94.7 69.8
---- ------- -------
Minority interests 0.7 (0.1)
============================== ==== ======= =======
95.4 69.7
============================== ==== ======= =======
Earnings per share
---- ------- -------
Basic earnings 6 76.1p 56.1p
---- ------- -------
Diluted earnings 6 75.9p 55.9p
============================== ==== ======= =======
Alternative Performance Measures(1)
2022 2021
Note GBPm GBPm
======================================================= ==== ====== =====
Operating profit 144.3 104.3
------------------------------------------------------- ---- ------ -----
Add: Acquisition related and other charges included
in administration costs 2 46.9 44.4
======================================================= ==== ====== =====
Adjusted operating profit 2,3 191.2 148.7
------------------------------------------------------- ---- ------ -----
Deduct: Net interest and similar charges 4 (11.6) (6.8)
======================================================= ==== ====== =====
Adjusted profit before tax 179.6 141.9
======================================================= ==== ====== =====
Adjusted earnings per share 6 107.5p 85.2p
======================================================= ==== ====== =====
1 The adjusted numbers set out above are non-statutory
measures which are defined and reconciled in note
13 of the financial statements
------------------------------------------------------- ---- ------ -----
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2022
2022 2021
Note GBPm GBPm
========================================================== ==== ===== ======
Profit for the year 95.4 69.7
========================================================== ==== ===== ======
Items that will not be reclassified to the Consolidated
Income Statement
---- ----- ------
Actuarial gain on the defined benefit pension schemes 10.6 7.4
---- ----- ------
Deferred tax on items that will not be reclassified 5 (2.8) (0.8)
========================================================== ==== ===== ======
7.8 6.6
========================================================== ==== ===== ======
Items that may be reclassified to the Consolidated
Income Statement
---- ----- ------
Exchange differences on translation of foreign operations 76.8 (16.2)
---- ----- ------
Gains on fair value of cash flow hedges 4.5 0.4
---- ----- ------
Net changes to fair value of cash flow hedges transferred
to the Consolidated Income Statement (0.4) 0.1
---- ----- ------
Deferred tax on items that may be reclassified 5 (1.1) (0.1)
========================================================== ==== ===== ======
79.8 (15.8)
========================================================== ==== ===== ======
Total Other Comprehensive Income 87.6 (9.2)
========================================================== ==== ===== ======
Total Comprehensive Income for the year 183.0 60.5
========================================================== ==== ===== ======
Attributable to:
---- ----- ------
Shareholders of the Company 182.2 60.8
---- ----- ------
Minority interests 0.8 (0.3)
========================================================== ==== ===== ======
183.0 60.5
========================================================== ==== ===== ======
Consolidated Statement of Changes in Equity
For the year ended 30 September 2022
Share Share Translation Hedging Retained Shareholders' Minority Total
capital premium reserve reserve earnings equity interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
====================== ==== ======== ======== =========== ======== ========= ============= ========== =======
At 1 October 2020 6.3 188.6 28.3 (0.3) 304.1 527.0 3.7 530.7
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Total Comprehensive
Income - - (16.2) 0.5 76.5 60.8 (0.3) 60.5
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Share-based payments - - - - 1.8 1.8 - 1.8
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Tax on items
recognised
directly in equity 5 - - - - 1.0 1.0 - 1.0
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Notional purchase
of own shares - - - - (0.5) (0.5) - (0.5)
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Acquisition of
business - - - - - - 0.9 0.9
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Minority interest
put option on
acquisition - - - - (0.9) (0.9) - (0.9)
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Minority interest
issued - - - - - - 0.7 0.7
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Dividends 11 - - - - (52.9) (52.9) (0.3) (53.2)
====================== ==== ======== ======== =========== ======== ========= ============= ========== =======
At 30 September
2021 6.3 188.6 12.1 0.2 329.1 536.3 4.7 541.0
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Total Comprehensive
Income - - 76.7 3.0 102.5 182.2 0.8 183.0
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Share-based payments - - - - 2.8 2.8 - 2.8
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Tax on items
recognised
directly in equity 5 - - - - 0.4 0.4 - 0.4
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Notional purchase
of own shares - - - - (2.8) (2.8) - (2.8)
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Acquisition of
business - - - - - - 2.5 2.5
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Disposal of business - - - - - - (1.3) (1.3)
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Minority interest
put option on
acquisition - - - - (1.9) (1.9) - (1.9)
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Minority interest
put option disposal - - - - 1.2 1.2 - 1.2
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Minority interest
acquired - - - - - - (0.3) (0.3)
---- -------- -------- ----------- -------- --------- ------------- ---------- -------
Dividends 11 - - - - (56.2) (56.2) (0.2) (56.4)
====================== ==== ======== ======== =========== ======== ========= ============= ========== =======
At 30 September
2022 6.3 188.6 88.8 3.2 375.1 662.0 6.2 668.2
====================== ==== ======== ======== =========== ======== ========= ============= ========== =======
Consolidated Statement of Financial Position
As at 30 September 2022
2022 2021
Note GBPm GBPm
====================================== ==== ======= =======
Non-current assets
---- ------- -------
Goodwill 9 372.3 260.7
---- ------- -------
Acquisition intangible assets 455.0 344.9
---- ------- -------
Other intangible assets 4.1 3.4
---- ------- -------
Property, plant and equipment 49.6 35.4
---- ------- -------
Leases - right-of-use assets 62.4 44.9
---- ------- -------
Retirement benefit assets 6.4 -
---- ------- -------
Deferred tax assets 0.2 0.4
====================================== ==== ======= =======
950.0 689.7
====================================== ==== ======= =======
Current assets
---- ------- -------
Inventories 217.4 139.8
---- ------- -------
Trade and other receivables 169.9 117.8
---- ------- -------
Assets held for sale - 11.3
---- ------- -------
Cash and cash equivalents 8 41.7 24.8
====================================== ==== ======= =======
429.0 293.7
====================================== ==== ======= =======
Current liabilities
---- ------- -------
Borrowings 8 (30.5) (18.0)
---- ------- -------
Trade and other payables (189.5) (127.0)
---- ------- -------
Current tax liabilities 5 (11.8) (10.0)
---- ------- -------
Other liabilities (19.0) (11.7)
---- ------- -------
Lease liabilities (12.7) (9.7)
====================================== ==== ======= =======
(263.5) (176.4)
====================================== ==== ======= =======
Net current assets 165.5 117.3
====================================== ==== ======= =======
Total assets less current liabilities 1,115.5 807.0
---- ------- -------
Non-current liabilities
---- ------- -------
Retirement benefit obligations - (4.9)
---- ------- -------
Borrowings 8 (340.1) (188.2)
---- ------- -------
Lease liabilities (56.4) (38.6)
---- ------- -------
Other liabilities (12.4) (12.0)
---- ------- -------
Deferred tax liabilities (38.4) (22.3)
====================================== ==== ======= =======
Net assets 668.2 541.0
====================================== ==== ======= =======
Equity
---- ------- -------
Share capital 6.3 6.3
---- ------- -------
Share premium 188.6 188.6
---- ------- -------
Translation reserve 88.8 12.1
---- ------- -------
Hedging reserve 3.2 0.2
---- ------- -------
Retained earnings 375.1 329.1
====================================== ==== ======= =======
Total shareholders' equity 662.0 536.3
====================================== ==== ======= =======
Minority interests 6.2 4.7
====================================== ==== ======= =======
Total equity 668.2 541.0
====================================== ==== ======= =======
Consolidated Cash Flow Statement
For the year ended 30 September 2022
2022 2021
Note GBPm GBPm
====================================================== ==== ======= =======
Operating profit 144.3 104.3
---- ------- -------
Acquisition related and other charges 46.9 44.4
---- ------- -------
Non-cash items and other 18.1 9.8
---- ------- -------
Increase in working capital (28.7) (12.6)
====================================================== ==== ======= =======
Cash flow from operating activities 7 180.6 145.9
---- ------- -------
Interest paid, net (including borrowing fees) (15.0) (5.6)
---- ------- -------
Tax paid (40.6) (24.2)
====================================================== ==== ======= =======
Net cash from operating activities 125.0 116.1
====================================================== ==== ======= =======
Cash flow from investing activities
---- ------- -------
Acquisition of businesses (net of cash acquired) 10 (173.0) (451.4)
---- ------- -------
Deferred consideration paid (7.1) (6.6)
---- ------- -------
Proceeds from sale of business (net of cash disposed) 13.7 11.0
---- ------- -------
Purchase of property, plant and equipment (14.3) (4.9)
---- ------- -------
Purchase of other intangible assets (1.1) (1.3)
---- ------- -------
Proceeds from sale of property, plant and equipment 9.9 4.8
====================================================== ==== ======= =======
Net cash used in investing activities (171.9) (448.4)
====================================================== ==== ======= =======
Cash flow from financing activities
---- ------- -------
Proceeds from issue of share capital (net of fees) - (0.6)
---- ------- -------
Dividends paid to shareholders 11 (56.2) (52.9)
---- ------- -------
Dividends paid to minority interests (0.2) (0.3)
---- ------- -------
Proceeds from minority interests - 0.7
---- ------- -------
Acquisition of minority interests (0.3) -
---- ------- -------
Purchase of own shares by Employee Benefit Trust - -
---- ------- -------
Notional purchase of own shares on exercise of
share options (2.8) (0.6)
---- ------- -------
Proceeds from borrowings 8 154.8 215.3
---- ------- -------
Repayment of borrowings 8 (20.0) (12.4)
---- ------- -------
Principal elements of lease payments (10.9) (9.5)
====================================================== ==== ======= =======
Net cash from financing activities 64.4 139.7
====================================================== ==== ======= =======
Net increase/(decrease) in cash and cash equivalents 17.5 (192.6)
---- ------- -------
Cash and cash equivalents at beginning of year 24.8 206.8
---- ------- -------
Effect of exchange rates on cash and cash equivalents (0.6) 10.6
====================================================== ==== ======= =======
Cash and cash equivalents at end of year 41.7 24.8
====================================================== ==== ======= =======
Alternative Performance Measures(1)
===== ======= =======
2022 2021
Note GBPm GBPm
=================================================== ===== ======= =======
Free cash flow 13 120.4 108.8
=================================================== ===== ======= =======
Adjusted earnings 13 133.9 106.1
=================================================== ===== ======= =======
Free cash flow conversion % 13 90% 103%
=================================================== ===== ======= =======
1 The adjusted numbers set out above are non-statutory measures which
are defined and reconciled in note 13 of the financial statements
Notes to the Consolidated Financial Statements
For the year ended 30 September 2022
1. General information
Diploma PLC is a public company limited by shares incorporated
in the United Kingdom, registered and domiciled in England and
Wales and listed on the London Stock Exchange. The address of the
registered office is 10-11 Charterhouse Square, London EC1M 6EE.
The consolidated financial statements comprise the Company and its
subsidiaries (together referred to as 'the Group') and were
authorised by the Directors for publication on 21 November 2022.
These statements are presented in UK sterling, with all values
rounded to the nearest 100,000, except where otherwise
indicated.
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
International Accounting Standards, with future changes being
subject to endorsement by the UK Endorsement Board. Diploma PLC
transitioned to UK-adopted International Accounting Standards in
its consolidated financial statements on 1 October 2021. This
change constitutes a change in accounting framework. However, there
is no impact on recognition, measurement or disclosure in the
period reported as a result of the change in framework. The
consolidated financial statements of the Group have been prepared
in accordance with UK-adopted International Accounting Standards
and with the requirements of the Companies Act 2006 as applicable
to companies reporting under those standards. The accounting
policies have been consistently applied in the current and
comparative year.
The financial information set out in this Preliminary
Announcement, which has been extracted from the audited
consolidated financial statements, does not constitute the Group's
statutory financial statements for the years ended 30 September
2022 and 2021. Statutory financial statements for the year ended 30
September 2022 have been delivered to the Registrar of Companies
and are available on the website at www.diplomaplc.com. The
statutory financial statements for the year ended 30 September
2022, which were approved by the Directors on 21 November 2022,
will be sent to shareholders in December 2022 and delivered to the
Registrar of Companies, following the Company's Annual General
Meeting.
The auditor has reported on the consolidated financial
statements for the years ended 30 September 2022 and 2021. The
reports were unqualified, did not draw attention to any matters by
way of emphasis and did not contain a statement under Section 498
(2) or (3) of the Companies Act 2006.
The Company's Annual General Meeting will be held at 9:00am on
18 January 2023 in The Charterhouse, Charterhouse Square, EC1M 6AN.
The Notice of Meeting will be sent out in a separate Circular to
shareholders.
2. Business Sector analysis
The Chief Operating Decision Maker ("CODM") for the purposes of
IFRS 8 is the CEO. The financial performance of the business
Sectors is reported to the CODM on a monthly basis and this
information is used to allocate resources on an appropriate
basis.
For management reporting purposes, the Group is organised into
three main reportable business Sectors: Life Sciences, Seals and
Controls. These Sectors are the Group's operating segments as
defined by IFRS 8 and form the basis of the primary reporting
format disclosures below. The CODM reviews discrete financial
information at this operating segment level. Sector revenue
represents revenue from external customers; there is no
inter-Sector revenue. Sector results, assets and liabilities
include items directly attributable to a Sector, as well as those
that can be allocated on a reasonable basis.
Sector assets exclude cash and cash equivalents, deferred tax
assets, retirement benefit assets, acquisition related assets and
corporate assets that cannot be allocated on a reasonable basis to
a business Sector. Sector liabilities exclude borrowings (other
than lease liabilities), retirement benefit obligations, deferred
tax liabilities, acquisition related liabilities and corporate
liabilities that cannot be allocated on a reasonable basis to a
business Sector. These items are shown collectively in the
following analysis as "unallocated assets" and "unallocated
liabilities", respectively.
Life Sciences Seals Controls Corporate Group
================ ====================== =============== ================= ================== ================
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Revenue -
existing 178.0 180.4 294.4 263.7 481.9 343.3 - - 954.3 787.4
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
Revenue -
acquisitions 10.6 - 37.0 - 10.9 - - - 58.5 -
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Revenue 188.6 180.4 331.4 263.7 492.8 343.3 - - 1,012.8 787.4
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Adjusted
operating
profit -
existing 39.7 43.2 57.0 46.5 104.0 72.4 (18.2) (13.4) 182.5 148.7
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
Adjusted
operating
profit -
acquisitions 1.3 - 5.6 - 1.8 - - - 8.7 -
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Adjusted
operating
profit 41.0 43.2 62.6 46.5 105.8 72.4 (18.2) (13.4) 191.2 148.7
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
Acquisition
related
and other
charges 1.5 (4.6) (16.6) (9.7) (30.5) (30.1) (1.3) - (46.9) (44.4)
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Operating profit 42.5 38.6 46.0 36.8 75.3 42.3 (19.5) (13.4) 144.3 104.3
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Operating assets 74.0 51.2 207.5 134.4 211.5 164.8 - - 493.0 350.4
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
Goodwill 106.2 81.4 125.2 60.0 140.9 119.3 - - 372.3 260.7
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
Acquisition
intangible
assets 74.9 47.2 100.2 50.4 279.9 247.3 - - 455.0 344.9
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
255.1 179.8 432.9 244.8 632.3 531.4 - - 1,320.3 956.0
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
Unallocated
assets:
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
- Deferred tax
assets 0.2 0.4 0.2 0.4
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
- Cash and cash
equivalents 41.7 24.8 41.7 24.8
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
- Acquisition
related
assets 1.8 - 1.8 -
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
- Retirement
benefit
assets 6.4 - 6.4 -
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
- Corporate
assets 8.6 2.2 8.6 2.2
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Total assets 255.1 179.8 432.9 244.8 632.3 531.4 58.7 27.4 1,379.0 983.4
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Operating
liabilities (41.7) (30.2) (103.3) (58.4) (92.6) (68.1) - - (237.6) (156.7)
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
Unallocated
liabilities:
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
- Deferred tax
liabilities (38.4) (22.3) (38.4) (22.3)
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
- Retirement
benefit
obligations - (4.9) - (4.9)
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
- Acquisition
related
liabilities (31.4) (23.7) (31.4) (23.7)
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
- Corporate
liabilities (32.8) (28.6) (32.8) (28.6)
---------------- ---------- ---------- ------- ------ -------- ------- -------- -------- ------- -------
- Borrowings (370.6) (206.2) (370.6) (206.2)
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Total
liabilities (41.7) (30.2) (103.3) (58.4) (92.6) (68.1) (473.2) (285.7) (710.8) (442.4)
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Net assets 213.4 149.6 329.6 186.4 539.7 463.3 (414.5) (258.3) 668.2 541.0
================ ========== ========== ======= ====== ======== ======= ======== ======== ======= =======
Acquisition related and other charges are GBP46.9m (2021:
GBP44.4m) and comprise GBP42.4m (2021: GBP33.1m) of amortisation of
acquisition intangible assets, GBP10.5m of acquisition expenses as
defined in note 13 (2021: GBP9.7m), a GBP7.3m (2021: GBP1.6m net
charge) net gain on the disposal of businesses, which is set out in
note 10, and one-off restructuring costs of GBP1.3m associated with
the transition of the Group's Chief Financial Officer.
Other Sector information
Life Sciences Seals Controls Corporate Group
=================== ====================== ============== ================= ================== ==============
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ========== ========== ====== ====== ======== ======= ======== ======== ======= =====
Capital expenditure 8.0 2.3 3.7 2.5 2.7 1.1 0.9 0.3 15.3 6.2
---------- ---------- ------ ------ -------- ------- -------- -------- ------- -----
Depreciation and
amortisation 2.9 2.6 3.5 2.9 4.6 4.1 0.2 0.3 11.2 9.9
=================== ========== ========== ====== ====== ======== ======= ======== ======== ======= =====
Revenue recognition
---------- ---------- ------ ------ -------- ------- -------- -------- ------- -----
- immediately on
sale 176.4 164.2 315.6 260.1 492.8 343.3 - - 984.8 767.6
---------- ---------- ------ ------ -------- ------- -------- -------- ------- -----
- over a period
of time 12.2 16.2 15.8 3.6 - - - - 28.0 19.8
=================== ========== ========== ====== ====== ======== ======= ======== ======== ======= =====
188.6 180.4 331.4 263.7 492.8 343.3 - - 1,012.8 787.4
=================== ========== ========== ====== ====== ======== ======= ======== ======== ======= =====
Accrued income ("contract assets") at 30 September 2022 of
GBP0.1m (2021: GBP0.8m) and deferred revenue ("contract
liabilities") of GBP3.5m at 30 September 2022 (2021: GBP2.5m) are
included in trade and other receivables and trade and other
payables, respectively.
3. Geographic segment analysis by origin
Adjusted Trading
operating Non-current capital Capital
Revenue profit assets(1) employed expenditure
========= ================ ====================== ==================== =================== =======================
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========= ========= ===== ======== ============ ========= ========= ======== ========= ======== =============
United
Kingdom 209.7 142.5 21.0 10.5 193.6 82.5 202.2 83.4 3.4 0.5
--------- ----- -------- ------------ --------- --------- -------- --------- -------- -------------
Rest of
Europe 166.7 166.5 29.3 31.9 169.1 115.3 179.8 140.3 1.7 0.8
--------- ----- -------- ------------ --------- --------- -------- --------- -------- -------------
North
America 561.0 411.8 129.5 94.7 519.2 443.7 614.2 496.1 8.9 4.1
--------- ----- -------- ------------ --------- --------- -------- --------- -------- -------------
Rest of
world 75.4 66.6 11.4 11.6 57.1 47.8 62.3 53.1 1.3 0.8
========= ========= ===== ======== ============ ========= ========= ======== ========= ======== =============
1,012.8 787.4 191.2 148.7 939.0 689.3 1,058.5 772.9 15.3 6.2
========= ========= ===== ======== ============ ========= ========= ======== ========= ======== =============
1 Non-current assets excludes deferred tax assets, derivative
assets and the retirement benefit asset.
4. Financial expense, net
2022 2021
GBPm GBPm
=========================================================== ====== =====
Interest (expense)/income and similar charges
------ -----
- bank facility and commitment fees (1.0) (0.5)
------ -----
- interest income on short term deposits 0.1 -
------ -----
- interest expense on bank borrowings (7.9) (4.1)
------ -----
- notional interest expense on the defined benefit pension
scheme - (0.1)
------ -----
- amortisation of capitalised borrowing fees (0.2) (0.3)
------ -----
- interest on lease liabilities (2.6) (1.8)
=========================================================== ====== =====
Net interest expense and similar charges (11.6) (6.8)
------ -----
- acquisition related finance charges (3.2) (0.9)
=========================================================== ====== =====
Financial expense, net (14.8) (7.7)
=========================================================== ====== =====
Acquisition related finance charges includes fair value
remeasurements of put options for future minority purchases of
GBP1.4m debit
(2021: GBP0.1m debit), unwind of discount on acquisition
liabilities of GBP0.4m debit (2021: GBPnil), and GBP1.4m debit
(2021: GBP0.8m debit) for the amortisation of capitalised borrowing
fees on acquisition related borrowings.
5. Tax expense
2022 2021
GBPm GBPm
========================================================= ===== =====
Current tax
----- -----
The tax charge is based on the profit for the year and
comprises:
----- -----
UK corporation tax 10.0 5.5
----- -----
Overseas tax 30.8 21.5
========================================================= ===== =====
40.8 27.0
----- -----
Adjustments in respect of prior year:
----- -----
UK corporation tax (0.2) 2.1
----- -----
Overseas tax 0.1 0.5
========================================================= ===== =====
Total current tax 40.7 29.6
========================================================= ===== =====
Deferred tax
----- -----
The net deferred tax credit based on the origination and
reversal of timing differences comprises:
----- -----
United Kingdom (3.1) (1.9)
----- -----
Overseas (3.5) (0.8)
========================================================= ===== =====
Total deferred tax (6.6) (2.7)
========================================================= ===== =====
Total tax on profit for the year 34.1 26.9
========================================================= ===== =====
In addition to the above credit for deferred tax included in the
Consolidated Income Statement, a net deferred tax charge relating
to the retirement benefit scheme and cash flow hedges of GBP3.9m
was debited (2021: GBP0.9m debit) to the Consolidated Statement of
Comprehensive Income. A further GBP0.4m was credited (2021: GBP1.0m
credit) to the Consolidated Statement of Changes in Equity,
comprising current tax of GBP0.4m (2021: GBP0.8m) with nil deferred
tax in the current year (2021: GBP0.2m), the prior year relates to
share-based payments.
Factors affecting the tax charge for the year
The difference between the total tax charge calculated by
applying the effective rate of UK corporation tax of 19.0% to the
profit before tax of GBP129.5m and the amount set out above is as
follows:
2022 2021
GBPm GBPm
====================================================== ===== =====
Profit before tax 129.5 96.6
====================================================== ===== =====
Tax on profit at UK effective corporation tax rate of
19.0% (2021: 19.0%) 24.6 18.4
----- -----
Effects of:
----- -----
- higher tax rates on overseas earnings 6.7 4.7
----- -----
- adjustments in respect of prior years (0.1) 2.6
----- -----
- change to future tax rate in the United Kingdom - 0.5
----- -----
- other permanent differences 2.9 0.7
====================================================== ===== =====
Total tax on profit for the year 34.1 26.9
====================================================== ===== =====
The Group earns its profits in the UK and overseas. The Group
prepares its consolidated financial statements for the year to 30
September and the statutory tax rate for UK corporation tax in
respect of the year ended 30 September 2022 was 19.0% (2021: 19.0%)
and this rate has been used for tax on profit in the above
reconciliation.
The Group's net overseas tax rate is higher than that in the UK,
primarily because profits earned in the US, Canada, Germany and
Australia are taxed at higher rates than the UK. The UK deferred
tax assets and liabilities at 30 September 2022 have been
calculated by reference to the future UK corporation tax rate of
25.0% (2021: 25.0%), as substantively enacted to be effective from
1 April 2023.
At 30 September 2022, the Group had outstanding tax liabilities
of GBP11.8m (2021: GBP10.0m) of which GBP1.9m (2021: GBP2.7m)
related to UK tax liabilities and GBP9.9m (2021: GBP7.3m) related
to overseas tax liabilities. These amounts are expected to be paid
within the next financial year.
6. Earnings per share
Basic and diluted 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 year of 124,533,060 (2021: 124,468,210) and the profit for the
year attributable to shareholders of GBP94.7m (2021: GBP69.8m).
Basic earnings per share is 76.1p (2021: 56.1p). Diluted earnings
per share is 75.9p (2021: 55.9p) and is based on the average number
of ordinary shares (which includes any potentially dilutive shares)
of 124,855,007 (2021: 124,794,473).
Adjusted earnings per share
Adjusted EPS, which is defined in note 13, is 107.5p (2021:
85.2p).
2022 2021
pence pence per 2022 2021
per share share GBPm GBPm
========================================== ========== ========== ====== ======
Profit before tax 129.5 96.6
---------- ---------- ------ ------
Tax expense (34.1) (26.9)
---------- ---------- ------ ------
Minority interests (0.7) 0.1
========================================== ========== ========== ====== ======
Earnings for the year attributable to
shareholders of the Company 76.1 56.1 94.7 69.8
---------- ---------- ------ ------
Acquisition related and other charges
and acquisition related finance charges,
net of tax 31.4 29.1 39.2 36.3
========================================== ========== ========== ====== ======
Adjusted earnings 107.5 85.2 133.9 106.1
========================================== ========== ========== ====== ======
Reconciliation of operating profit to cash flow from operating
activities
2022 2022 2021 2021
GBPm GBPm GBPm GBPm
=================================================== ====== ====== ====== ======
Operating profit 144.3 104.3
------ ------ ------ ------
Acquisition related and other charges
(note 2) 46.9 44.4
=================================================== ====== ====== ====== ======
Adjusted operating profit 191.2 148.7
------ ------ ------ ------
Depreciation or amortisation of tangible,
other intangible assets and leases - right-of-use
assets 23.9 20.7
------ ------ ------ ------
Share-based payments expense 2.8 1.8
------ ------ ------ ------
Defined benefit pension scheme payment
in excess of interest (0.6) (5.8)
------ ------ ------ ------
Profit on disposal of assets (1.6) (2.8)
------ ------ ------ ------
Acquisition and disposal expenses paid (6.5) (4.2)
------ ------ ------ ------
Other non-cash movements 0.1 0.1
=================================================== ====== ====== ====== ======
Non-cash items and other 18.1 9.8
=================================================== ====== ====== ====== ======
Operating cash flow before changes in
working capital 209.3 158.5
------ ------ ------ ------
Increase in inventories (35.6) (13.5)
------ ------ ------ ------
Increase in trade and other receivables (10.6) (16.3)
------ ------ ------ ------
Increase in trade and other payables 17.5 17.2
------ ------ ------ ------
Increase in working capital (28.7) (12.6)
=================================================== ====== ====== ====== ======
Cash flow from operating activities 180.6 145.9
=================================================== ====== ====== ====== ======
8. (Net debt)/cash funds
The movement in (net debt)/cash funds during the year is as
follows:
Exchange Other non-cash 30 Sep
1 Oct 2021 Cash flow(1) movements movements 2022
GBPm GBPm GBPm GBPm GBPm
========================== ========== ============ ========== ============== =======
Cash and cash equivalents 24.8 17.5 (0.6) - 41.7
---------- ------------ ---------- -------------- -------
Borrowings (206.2) (131.3) (30.9) (2.2) (370.6)
========================== ========== ============ ========== ============== =======
Net debt (181.4) (113.8) (31.5) (2.2) (328.9)
========================== ========== ============ ========== ============== =======
Exchange Other non-cash 30 Sep
1 Oct 2020 Cash flow movements movements 2021
GBPm GBPm GBPm GBPm GBPm
========================== ========== ========= ========== ============== =======
Cash and cash equivalents 206.8 (192.6) 10.6 - 24.8
---------- --------- ---------- -------------- -------
Borrowings - (202.9) (1.8) (1.5) (206.2)
========================== ========== ========= ========== ============== =======
Cash funds/(net debt) 206.8 (395.5) 8.8 (1.5) (181.4)
========================== ========== ========= ========== ============== =======
(1) The borrowings cash flow includes GBP3.5m of debt fees which
have been capitalised and are included within interest paid in the
Consolidated Cash Flow Statement.
On 13 October 2020, the Group entered into a debt facility
agreement ("SFA") which comprised a three-year term loan for an
aggregate principal amount of GBP136.0m ($170.0m) and a committed
multi-currency revolving facility ("RCF") for an aggregate
principal amount of GBP135.0m, which was increased to GBP185.0m
during the previous financial year.
During the year, the Group has amended the SFA to increase the
total facility size. As at 30 September 2022, the SFA comprises a
committed multi-currency revolving facility ("RCF") for an
aggregate principal amount of GBP359.7m, an amortising term loan
for an aggregate principal amount of GBP114.2m ($127.5m), a bullet
term loan for an aggregate principal amount of GBP59.1m ($66.0m)
and a further bullet term loan for an aggregate principal amount of
GBP45.3m. The SFA is due to expire in December 2024 and there is an
option to extend for a further 12-month period.
The Group's debt facilities are subject to interest at variable
rates. During the year the Group entered into interest rate swap
contracts with the effect of fixing the interest rate on $100.0m
(GBP89.6m) of debt. The effective fixed rate debt was 24% of total
debt. Subsequent to year end, the Group has entered into further
interest rate swap contracts with the effect of fixing the interest
rate on an additional $100.0m of debt.
At 30 September 2022, the Group's Net Debt/EBITDA ratio is 1.4x,
as illustrated in note 13.
As at 30 September 2022, the term loans have an aggregate
outstanding principal amount of GBP173.3m ($193.5m) and the Group
has utilised GBP201.0m of the revolving facility. There remains
GBP158.7m undrawn on the revolving facility and GBP45.3m undrawn on
the bullet term loan. Borrowings include GBP1.0m (2021: GBP0.4m) of
accrued interest and the carrying amount of capitalised debt fees
is GBP4.7m (2021: GBP2.8m).
As at 30 September 2021, under the SFA the Group had a drawn
term loan with an aggregate principal amount of GBP113.5m ($153.0m)
and drawings of GBP95.1m under the revolving facility. As at 30
September 2021 the undrawn revolving facility amount was
GBP89.9m.
Total net debt is GBP398.0m (2021: GBP229.7m) comprising cash
funds of GBP41.7m (2021: GBP24.8m), borrowings of GBP370.6m (2021:
GBP206.2m), and lease liabilities of GBP69.1m (2021: GBP48.3m).
Bank covenants are tested against net debt funds only (i.e.
excluding lease liabilities).
Goodwill
Life Sciences Seals Controls Total
GBPm GBPm GBPm GBPm
============= ===== ======== =====
At 30 September 2020 62.0 60.5 36.5 159.0
------------- ----- -------- -----
Acquisitions 24.1 6.8 86.7 117.6
------------- ----- -------- -----
Disposals (3.8) - - (3.8)
------------- ----- -------- -----
Reclassification to held for sale - (4.7) - (4.7)
------------- ----- -------- -----
Exchange adjustments (0.9) (2.6) (3.9) (7.4)
================================== ============= ===== ======== =====
At 30 September 2021 81.4 60.0 119.3 260.7
------------- ----- -------- -----
Acquisitions 19.0 56.8 5.2 81.0
------------- ----- -------- -----
Exchange adjustments 5.8 8.4 16.4 30.6
================================== ============= ===== ======== =====
At 30 September 2022 106.2 125.2 140.9 372.3
================================== ============= ===== ======== =====
The Group tests goodwill for impairment at least once a year.
For the purposes of impairment testing, goodwill is allocated to
each of the Group's three cash-generating units ("CGUs"), which are
the three operating Sectors: Life Sciences; Seals; and Controls.
This represents the lowest level within the Group at which goodwill
is monitored by management and reflects the Group's strategy of
acquiring businesses to drive synergies across a Sector, rather
than within an individual business. The impairment test requires a
"value in use" valuation to be prepared for each Sector using
discounted cash flow forecasts. The cash flow forecasts are based
on a combination of annual budgets prepared by each business and
the Group's strategic plan.
The key assumptions used to prepare the cash flow forecasts
relate to operating margins, revenue growth rates, working capital
movements and the discount rate and climate related risks (based on
an initial high level assessment which will be further refined in
FY 2023). The operating margins are assumed to remain sustainable,
which is supported by historical experience; revenue growth rates
generally approximate to the average rates for the markets in which
the business operates, unless there are particular factors relevant
to a business, such as start-ups; working capital movements are
projected to remain consistent as a percentage of revenue. The cash
flow forecasts use the budgeted figures for 2023, and then the
three-year strategy cash flows for the next two years. From year
four onwards a long-term growth rate of 2% is utilised.
The cash flow forecasts are discounted to determine a current
valuation using market derived pre-tax discount rates; Life
Sciences 13.9% (2021: 10.6%), Seals 13.8% (2021: 11.3%) and
Controls 13.8% (2021: 11.7%). These rates are based on the
characteristics of lower risk, non-technically driven, distribution
businesses operating generally in well-developed markets and
geographies and with robust capital structures.
Based on the criteria set out above, no impairment in the value
of goodwill in the CGUs was identified.
The Directors have also carried out sensitivity analysis on the
key assumptions noted above to determine whether a "reasonably
possible adverse change" in any of these assumptions would result
in an impairment of goodwill. The analysis indicates that a
"reasonably possible adverse change" would not give rise to an
impairment charge to goodwill in any of the three CGUs.
10. Acquisitions and disposals of businesses
Acquisition of R&G Fluid Power Group Limited
On 6 April 2022, the Group completed the acquisition of 98% of
the share capital of R&G Fluid Power Group Limited ("R&G"),
a value-added aftermarket distributor of a diverse range of
industrial, hydraulic and pneumatic products in the United Kingdom.
The initial cash payment was GBP91.7m, net of cash acquired of
GBP1.7m. Deferred consideration of up to GBP7.4m is payable based
on the acquired business achieving certain performance targets in
the period up to 31 December 2022.
Acquisition expenses of GBP2.3m have been recognised in FY
2022.
The provisional fair value of R&G net assets acquired
excluding acquisition intangibles, related deferred tax, and cash
is GBP13.3m following fair value adjustments of GBP1.3m. The
goodwill represents the technical expertise of the acquired
workforce and the opportunity to leverage any revenue synergies
through cross-selling within other businesses. The principal fair
value adjustments relate to an increase in the provisions held
against inventory (GBP0.6m) and recognition of a dilapidations
provision (GBP0.5m). The intangible assets of GBP47.6m relates to
customer relationships (GBP43.9m) and brand (GBP3.7m).
Minority interests of GBP2.5m have been recognised at fair value
upon acquisition of R&G, comprising the 2% minority interest
held in R&G, as well as the 10% minority interest stake in
Pneumatic Services Limited, a company for which R&G owned 90%
of the share capital at the time of acquisition by the Group.
Acquisition of Accuscience
On 10 May 2022, the Group completed the acquisition of 100% of
the share capital of Medilink Services (NI) Limited and
Accu-Science Ireland Limited, (collectively "Accuscience") a
market-leading life sciences and med-tech distributor in Ireland,
for consideration of GBP49.9m (EUR58.2m), net of cash acquired of
GBP3.2m (EUR3.8m).
Acquisition expenses of GBP1.0m have been recognised in FY
2022.
The provisional fair value of Accuscience net assets acquired
excluding acquisition intangibles, related deferred tax, and cash
is
GBP2.2m (EUR2.3m) following fair value adjustments of GBP0.8m
(EUR0.9m). The provisions held against inventory and trade
receivables were increased by GBP0.6m (EUR0.7m) and GBP0.2m
(EUR0.2m), respectively.
Other acquisitions
The Group completed a further five other acquisitions during the
year. This comprised the purchase of the trade and assets of
Silicone Solutions Limited ("Silicone Solutions") (9 September
2022); 100% of the share capital of LJR Electronics, LLC ("LJR") (2
February 2022), Anti Corrosion Technology Pty Limited ("ACT") (29
July 2022), Hydraproducts Limited ("Hydraproducts") (12 May 2022)
and AMG Sealing Limited ("AMG") (19 May 22).
The combined initial consideration for these acquisitions was
GBP30.6m, net of cash acquired of GBP1.2m. Deferred consideration
of up to GBP3.6m is payable based on the performance of the
businesses.
Acquisition expenses of GBP0.7m have been recognised in respect
of these transactions in the financial year.
The provisional fair value of the combined net assets acquired
excluding acquisition intangibles, related deferred tax, and cash
is GBP9.2m following fair value adjustments of GBP1.2m. Fair value
adjustments principally relate to an increase in provisions held
against inventory of GBP0.9m.
The following table summarises the consideration paid for the
acquisitions completed in the period and fair value of assets
acquired and liabilities assumed, with fair values being
provisional pending completion of a final valuation. Given the
limited time between the acquisitions and signing of these
accounts, the fair valuation of acquired assets and liabilities
(principally intangible assets and working capital provisions) is
incomplete at the date of these financial statements.
During the year an additional GBP0.8m was paid out in relation
to completion account adjustments on previous transactions.
R&G Accuscience Others Total
============================ ====================== ====================== ====================== ==============
Book Fair
Book value Fair value Book value Fair value Book value Fair value value value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ========== ========== ========== ========== ========== ========== ====== ======
Acquisition intangible
assets(1) - 47.6 - 33.1 - 17.5 - 98.2
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Deferred tax (0.7) (12.5) - (4.3) - (1.7) (0.7) (18.5)
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Property, plant and
equipment 5.9 5.9 0.7 0.7 0.1 0.1 6.7 6.7
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Inventories 14.4 13.8 4.7 4.1 9.1 8.2 28.2 26.1
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Trade and other receivables 14.4 14.3 5.5 5.3 2.8 2.7 22.7 22.3
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Trade and other payables (19.4) (20.0) (7.9) (7.9) (1.6) (1.8) (28.9) (29.7)
============================ ========== ========== ========== ========== ========== ========== ====== ======
Net assets acquired 14.6 49.1 3.0 31.0 10.4 25.0 28.0 105.1
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Goodwill - 52.5 - 18.9 - 9.2 - 80.6
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Minority interests - (2.5) - - - - - (2.5)
============================ ========== ========== ========== ========== ========== ========== ====== ======
Cash paid 93.4 53.1 31.8 178.3
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Cash acquired (1.7) (3.2) (1.2) (6.1)
============================ ========== ========== ========== ========== ========== ========== ====== ======
91.7 49.9 30.6 172.2
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Deferred consideration 7.4 - 3.6 11.0
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Total investment 99.1(2) 49.9 34.2 183.2
============================ ========== ========== ========== ========== ========== ========== ====== ======
1 On the acquisitions completed in the current year, acquired
intangibles relate to customer relationships (GBP94.5m) and brand
(GBP3.7m).
2 Diploma acquired R&G on a cash free/debt free basis. The
total investment amounts to GBP99.1m (being cash paid (net of cash
acquired) of GBP91.7m and deferred consideration of GBP7.4m). Of
the initial cash paid, the vendor directed the funds in escrow to
settle outstanding debt of GBP11.7m. The table below details this
flow of funds:
GBPm
Total investment 99.1
Debt settled (11.7)
Net consideration 87.4
Acquisitions revenue and adjusted operating profit
From the date of acquisition to 30 September 2022, each acquired
business contributed the following to Group revenue and adjusted
operating profit:
Pro forma
Pro forma Operating operating
Acquisition Revenue Adj.(2) revenue profit(1) Adj.(2) profit(1)
date GBPm GBPm GBPm GBPm GBPm GBPm
=================== ============ ======= ======= ========= ========== ======= ==========
LJR 2 Feb 2022 10.8 5.4 16.2 1.8 0.9 2.7
------------ ------- ------- --------- ---------- ------- ----------
R&G 6 Apr 2022 34.3 34.3 68.6 4.8 4.9 9.7
------------ ------- ------- --------- ---------- ------- ----------
10 May
Accuscience 2022 10.6 17.6 28.2 1.3 2.0 3.3
------------ ------- ------- --------- ---------- ------- ----------
12 May
Hydraproducts 2022 1.6 2.5 4.1 0.4 0.6 1.0
------------ ------- ------- --------- ---------- ------- ----------
19 May
AMG 2022 0.5 0.9 1.4 0.1 0.2 0.3
------------ ------- ------- --------- ---------- ------- ----------
29 July
ACT 2022 0.6 3.0 3.6 0.3 1.5 1.8
------------ ------- ------- --------- ---------- ------- ----------
Silicone Solutions 9 Sep 2022 0.1 2.1 2.2 0.0 0.8 0.8
=================== ============ ======= ======= ========= ========== ======= ==========
58.5 65.8 124.3 8.7 10.9 19.6
================================ ======= ======= ========= ========== ======= ==========
1 Adjusted operating profit.
2 Pro forma revenue and adjusted operating profit have 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
financial year on 1 October 2021. These amounts should not be
viewed as confirmation of the results of these businesses that
would have occurred if these acquisitions had been completed at the
beginning of the year.
Disposals
On 16 November 2021, the Group disposed of its 90% interest in
Kentek Oy ("Kentek") for proceeds of GBP10.0m. A charge of GBP1.6m
has been recognised within administration costs principally
relating to the recycling of cumulative foreign currency
translation losses arising on the disposal of Kentek.
On 3 May 2022, the Group disposed of its 100% interest in
a1-envirosciences Limited and a1-envirosciences GmbH (collectively
"a1-envirosciences") for proceeds of GBP11.4m. A gain of GBP8.9m
has been recognised within administration costs comprising the
profit on disposal of GBP8.7m and the recycling of cumulative
foreign currency translation gains of GBP0.2m.
Deferred Consideration
Deferred consideration was GBP24.0m (2021: GBP18.5m) as at 30
September 2022 and principally relates to R&G, AHW, Kungshusen
and ACT. During the year GBP7.1m was paid.
11. Dividends
2022 2021
pence pence per 2022 2021
per share share GBPm GBPm
======================================= ========== ========== ===== =====
Interim dividend, paid in June 15.0 12.5 18.7 15.6
---------- ---------- ----- -----
Final dividend of the prior year, paid
in February 30.1 30.0 37.5 37.3
======================================= ========== ========== ===== =====
45.1 42.5 56.2 52.9
======================================= ========== ========== ===== =====
The Directors have proposed a final dividend in respect of the
current year of 38.8p per share (2021: 30.1p), which will be paid
on 3 February 2023 subject to approval by shareholders at the
Annual General Meeting ("AGM") on 18 January 2023. The total
dividend for the current year, subject to approval of the final
dividend, will be 53.8p per share (2021: 42.6p).
The Diploma PLC Employee Benefit Trust holds 71,033 (2021:
90,640) shares, which are ineligible for dividends.
12. Exchange rates
The exchange rates used to translate the results of the overseas
businesses are as follows:
Average Closing
======================== ================ ================
2022 2021 2022 2021
======================== ======= ======= ======= =======
US dollar (US$) 1.27 1.37 1.12 1.35
------- ------- ------- -------
Canadian dollar (C$) 1.63 1.73 1.53 1.71
------- ------- ------- -------
Euro (EUR) 1.18 1.15 1.14 1.16
------- ------- ------- -------
Swiss franc (CHF) 1.20 1.25 1.10 1.26
------- ------- ------- -------
Australian dollar (AUD) 1.79 1.83 1.74 1.87
======================== ======= ======= ======= =======
13. Alternative performance measures
The Group uses a number of alternative (non-Generally Accepted
Accounting Practice ("non-GAAP")) financial measures which are not
defined within IFRS. The Directors use these measures for internal
management reporting of key performance indicators ("KPIs") in
order to assess the operational performance of the Group on a
comparable basis against the Group's KPIs, as a key constituent of
the Group's planning process, as well as comprising targets against
which compensation is determined. As such these measures should be
considered alongside the IFRS measures. The following non-GAAP
measures are referred to in this Annual Report & Accounts:
13.1 Adjusted operating profit and adjusted operating margin
"Adjusted operating profit" is defined as operating profit
before amortisation and impairment of acquisition intangible assets
or goodwill, acquisition expenses, post-acquisition related
remuneration costs and adjustments to deferred consideration, the
costs of a material restructuring or rationalisation of operations
and the profit or loss relating to the sale of businesses. The
Directors believe that adjusted operating profit is an important
measure of the operational performance of the Group. Adjusted
operating margin is the Group's adjusted operating profit divided
by the Group's revenue.
2022 2021
Note GBPm GBPm
==================================================== ==== ======= =====
Revenue 1,012.8 787.4
---- ------- -----
Operating profit 144.3 104.3
---- ------- -----
Add: Acquisition related and other charges included
in administration costs 46.9 44.4
==================================================== ==== ======= =====
Adjusted operating profit 2,3 191.2 148.7
==================================================== ==== ======= =====
Adjusted operating margin 18.9% 18.9%
==================================================== ==== ======= =====
13.2 Adjusted profit before tax
"Adjusted profit before tax" is defined as adjusted operating
profit, after net finance expenses (but before acquisition related
finance charges) and before tax. The Directors believe that
adjusted profit before tax is an important measure of the
operational performance of the Group.
2022 2021
GBPm GBPm
================================================= === ====== =====
Adjusted operating profit 2,3 191.2 148.7
--- ------ -----
Deduct: Net interest expense and similar charges 4 (11.6) (6.8)
================================================= === ====== =====
Adjusted profit before tax 179.6 141.9
================================================= === ====== =====
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 year of 124,533,060 (2021: 124,468,210).
The Directors believe that adjusted EPS provides an important
measure of the earnings capacity of the Group.
2022 2021
pence pence per 2022 2021
per share share GBPm GBPm
========================================== ========== ========== ====== ======
Profit before tax 129.5 96.6
---------- ---------- ------ ------
Tax expense (34.1) (26.9)
---------- ---------- ------ ------
Minority interests (0.7) 0.1
========================================== ========== ========== ====== ======
Earnings for the year attributable to
shareholders of the Company 76.1 56.1 94.7 69.8
---------- ---------- ------ ------
Acquisition related and other charges
and acquisition related finance charges,
net of tax 31.4 29.1 39.2 36.3
========================================== ========== ========== ====== ======
Adjusted earnings 107.5 85.2 133.9 106.1
========================================== ========== ========== ====== ======
13.4 Free cash flow and free cash flow conversion
"Free cash flow" is defined as net cash flow from operating
activities, after net capital expenditure on tangible and
intangible assets, and including proceeds received from property
disposals, but before expenditure on business
combinations/investments (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.
2022 2021
Note GBPm GBPm
===== ================================================= ==== ======= =======
Net increase/(decrease) in cash and cash equivalents 17.5 (192.6)
---- ------- -------
Add: Dividends paid to shareholders 11 56.2 52.9
------------------------------------------------- ---- ------- -------
Dividends paid to minority interests 0.2 0.3
------------------------------------------------------- ---- ------- -------
Acquisition of minority interests 0.3 -
------------------------------------------------------- ---- ------- -------
Proceeds from minority interests - (0.7)
------------------------------------------------------- ---- ------- -------
Acquisition of businesses and payments of
pre-acquisition debt-like items (net of cash
acquired) 177.6 451.4
------------------------------------------------------- ---- ------- -------
Acquisition and disposal expenses paid 7 6.5 4.2
------------------------------------------------------- ---- ------- -------
Proceeds from sale of business (net of expenses) 10 (13.7) (11.0)
------------------------------------------------------- ---- ------- -------
Proceeds from issue of share capital (net
of fees) - 0.6
------------------------------------------------------- ---- ------- -------
Deferred consideration paid 7.1 6.6
------------------------------------------------------- ---- ------- -------
(Proceeds from)/repayment of borrowings (net) 8 (131.3) (202.9)
======================================================= ==== ======= =======
Free cash flow 120.4 108.8
======================================================== ==== ======= =======
Adjusted earnings 133.9 106.1
======================================================== ==== ======= =======
Free cash flow conversion 90% 103%
======================================================== ==== ======= =======
13.5 Trading capital employed and ROATCE
The below reconciliation includes "trading capital employed",
being defined as net assets less cash and cash equivalents ("cash
funds") and after adding back: borrowings (other than lease
liabilities); retirement benefit obligations; deferred tax; and
acquisition liabilities in respect of future purchases of minority
interests and deferred consideration. Adjusted trading capital
employed is reported as being trading capital employed plus
goodwill and acquisition related charges previously written off
(net of deferred tax on acquisition intangible assets) and
re-translated at 12 month average exchange rates. 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
adjusted operating profit adjusted for the full year effect of
acquisitions and disposals. The Directors believe that ROATCE is an
important measure of the profitability of the Group.
2022 2021
GBPm GBPm
========================================================= ======= =====
Net assets 668.2 541.0
------- -----
Add/(deduct):
------- -----
- Deferred tax, net 38.2 21.9
------- -----
- Retirement benefit (assets)/obligations (6.4) 4.9
------- -----
- Acquisition related liabilities/assets, net 29.6 23.7
------- -----
- Net debt 328.9 181.4
------- -----
Reported trading capital employed 1,058.5 772.9
------- -----
- Historic goodwill and acquisition related charges, net
of deferred tax and currency movements 99.6 129.6
========================================================= ======= =====
Adjusted trading capital employed 1,158.1 902.5
------- -----
Adjusted operating profit 191.2 148.7
------- -----
Pro forma adjustments(1) 9.7 8.7
========================================================= ======= =====
Pro forma adjusted operating profit 200.9 157.4
========================================================= ======= =====
ROATCE 17.3% 17.4%
========================================================= ======= =====
1 Adjustment for annualisation of adjusted operating profit of acquisitions and disposals.
13.6 Net debt to EBITDA
Net debt to EBITDA is the net debt, defined as cash and cash
equivalents and borrowings translated at 12 month average exchange
rates, 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 EBITDA attributable to
minority interests, the annualisation of EBITDA for acquisitions
and disposals made during the financial year and to remove the
impact of IFRS 16 (Leases). The Directors consider this metric to
be an important measure of the Group's financial position.
2022 2021
Note GBPm GBPm
============================================== ==== ======= =======
Cash and cash equivalents 8 41.7 24.8
---- ------- -------
Borrowings 8 (370.6) (206.2)
---- ------- -------
Re-translation at average exchange rates 23.1 1.6
============================================== ==== ======= =======
Net debt (average exchange rates) (305.8) (179.8)
============================================== ==== ======= =======
Adjusted operating profit 191.2 148.7
---- ------- -------
Depreciation and amortisation of tangible and
other intangible assets 11.2 9.9
---- ------- -------
IFRS 16 impact 1.2 (0.5)
---- ------- -------
Minority interest share of adjusted EBITDA (1.1) (0.8)
---- ------- -------
Pro forma adjustments(1) 10.2 8.3
============================================== ==== ======= =======
EBITDA 212.7 165.6
============================================== ==== ======= =======
Net debt to EBITDA 1.4x 1.1x
============================================== ==== ======= =======
1 Adjustment for annualisation of adjusted EBITDA of acquisitions and disposals.
13.7 Dividend cover
Dividend cover is adjusted earnings per share (as per note 13.3)
divided by the total dividend for the year (interim and final
proposed).
Note 2022 2021
=============================================== ==== ===== ====
Adjusted earnings per share 6 107.5 85.2
---- ----- ----
Total dividend for the year (interim and final
proposed) 11 53.8 42.6
=============================================== ==== ===== ====
Dividend cover 2.0 2.0
=============================================== ==== ===== ====
([1]) Approximately half fixed post-year end.
[2] (Pro forma adjusted for acquisitions and disposals completed
during the year)
[3] Pro forma adjusted for acquisitions and disposals completed
during the year.
[4] Pro forma adjusted for acquisitions and disposals completed
during the year
[5] Pro forma adjusted for acquisitions and disposals completed
during the year
[6] Approximately half fixed post-year end.
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END
FR FLFETLALTLIF
(END) Dow Jones Newswires
November 21, 2022 02:00 ET (07:00 GMT)
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