TIDMDPLM
RNS Number : 9032T
Diploma PLC
20 November 2023
DIPLOMA PLC 10-11 CHARTERHOUSE SQUARE, LONDON
EC1M 6EE
TELEPHONE: +44 (0)20 7549 5700
PRELIMINARY RESULTS FOR THE YEARED 30 SEPTEMBER 2023
Sustainable Quality Compounding
FY 2023 FY 2022 Y/y change
------------ ------------ -----------
Revenue GBP1,200.3m GBP1,012.8m +19%
Organic revenue growth (1) 8% 15%
Adjusted operating profit
(2) GBP237.0m GBP191.2m +24%
Adjusted operating margin
(2 () 19.7% 18.9% +80bps
Statutory operating profit GBP183.3m GBP144.3m +27%
Free cash flow (3) GBP163.8m GBP120.4m +36%
Free cash flow conversion
(3) 100% 90%
Adjusted earnings per share
(2) 126.5p 107.5p +18%
Basic earnings per share 90.8p 76.1p +19%
Leverage 0.9x 1.4x
Total dividend per share 56.5p 53.8p +5%
ROATCE 18.1% 17.3% +80bps
----------------------------- ------------ ------------ -----------
(1) Adjusted for acquisition and disposal contribution and
currency effects; (2) Before acquisition related and other charges
and acquisition related finance charges; (3) Before cash flows on
acquisitions, disposals and dividends. All alternative performance
measures are defined in note 14 to the Condensed Consolidated
Financial Statements.
Excellent financial performance
-- Strong organic growth of 8%. Good momentum into FY24, with Q4 volume-led
exit rate of 7%.
-- GBP280m invested in 12 quality acquisitions, supporting reported
revenue growth of 19%.
-- Adjusted operating margin up 80 bps to 19.7%, reflecting our value-add
proposition; operational leverage; disciplined cost management;
and accretive acquisitions.
-- Delivered with discipline: free cash flow conversion of 100%; ROATCE
up 80 bps to 18.1%; and leverage reduced to 0.9x.
-- Confident FY24 guidance with growth in line with our financial
model and consistently high margins.
Commenting, Johnny Thomson, Diploma's Chief Executive said:
"I'd like to thank all my brilliant colleagues who consistently
deliver great service to our customers. Our decentralised culture
is special, and preserving it as we grow is central to sustaining
our great track record.
"We've had an excellent year with strong, volume-led organic
growth; great margin progression; and continued double-digit EPS
growth, all at strong returns. We continue to diversify end-market
exposures, penetrate core geographies; and expand addressable
markets through product extension to drive organic growth. We
welcomed 12 quality new businesses to the Group. And, we carefully
develop our businesses for scale.
"Diploma has a long track record of double-digit EPS growth at
healthy returns. We are encouraged by momentum into FY24, and we
are confident of continuing to deliver sustainable quality
compounding."
Revenue diversification driving organic growth and increasing
resilience
-- Controls +11% : International Controls benefitted from structural
tailwinds and market share gains in civil aerospace, defence and
energy markets. Sustained strong growth from Windy City Wire (WCW).
-- Seals +5% : Growth in International Seals led by contributions
from R&G in the UK and our Australian businesses. In North America,
Aftermarket continued to perform well and take market share. Softer
performance in European and US OEM businesses with customer destocking
in some end markets.
-- Life Sciences +8% : Good growth resumed in the second half, as
expected. Hospital staffing and surgical procedures have broadly
recovered, and clinical diagnostics continues to benefit from increased
investment.
Complementary acquisitions driving future organic growth
-- 10 small bolt-ons for GBP33m; average EBIT multiple below 5x; GBP33m
of annual revenue; accretive EBIT margins; and 20% year one ROATCE.
-- Two strategic platform acquisitions that address some of our "white
space" with strong organic growth potential at accretive operating
margins; funded by equity raise of ca. GBP232m in March 2023.
-- Acquisition of T.I.E. for ca. GBP76m, entering the strategically
important industrial automation end market in the US.
-- Acquisition of DICSA for ca. GBP170m, establishing a scaled platform
in fluid power solutions across the European aftermarket.
-- Continued portfolio management discipline: disposed of a non-core,
lower margin heating control business in March for GBP23m.
-- M&A pipeline of ca. GBP1bn, diversified by Sector, size and geography.
Strength of cash flow and balance sheet provides capacity for disciplined
growth.
Scaling effectively for sustainable growth
-- Focused investments in talent, technology and new facilities across
our businesses to continue delivering their customer proposition
at scale.
-- Evolving our structure, capability and culture to support the development
of the Group.
-- Delivered improvements against all our Delivering Value Responsibly
targets.
Confident outlook
-- Despite the challenging macro environment, the resilience of our
model supports our confidence in the year ahead.
-- FY24 growth is expected to be in line with our financial model,
albeit with stronger margins:
-- Organic revenue growth of ca. 5%.
-- Acquisitions announced to date to add ca. 6% to reported revenue
growth.
-- Strong operating margin, consistent year-on-year at ca. 19.7%.
-- Free cash flow conversion of ca. 90%.
Notes:
1. Diploma PLC uses alternative performance measures as key
financial indicators to assess the underlying performance of the
Group. These include adjusted operating profit, adjusted profit
before tax, adjusted earnings per share, free cash flow, leverage
and ROATCE. All references in this Announcement to "organic"
revenues refer to reported results on a constant currency basis,
and after adjusting for any contribution from acquired or disposed
businesses. The narrative in this Announcement is based on these
alternative measures and an explanation is set out in note 14 to
the Condensed Consolidated Financial Statements in this
Announcement.
2. Certain statements contained in this Announcement constitute forward-looking statements. Such forward-looking statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of Diploma PLC, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such statements. Such risks, uncertainties and other factors include, among others, exchange rates, general economic conditions and the business environment.
A presentation of the results to analysts and investors will be
held at 09:00 GMT. This will be streamed live via webcast and audio
conference call.
Register your attendance for the webcast at:
https://brrmedia.news/DPLM_FY23
Conference call dial in details:
-- Dial in: +44 (0) 33 0551 0200 (UK-Wide) / 0808 109 0700 (UK Toll
Free)
-- Confirmation code: Diploma Full Year
A recording of the presentation will be available after the event
on our website: https://www.diplomaplc.com/investors/financial-presentations/
Diploma hosted an Investor Seminar in June 2023. A recording is
available on our website:
https://www.diplomaplc.com/investors/results-reports-presentations/investor-seminar-2023/
For further information please contact:
Diploma PLC - +44 (0)20 7549 5700
Johnny Thomson, Chief Executive Officer
Chris Davies, Chief Financial Officer
Holly Gillis, Head of Investor Relations
Teneo - +44 (0)20 7353 4200
Martin Robinson
Olivia Peters
NOTE TO EDITORS:
Diploma PLC is a decentralised, value-add distribution Group.
Our businesses deliver practical and innovative solutions that keep
key industries moving - from energy and infrastructure to
healthcare.
We are a distribution group with a difference. Our businesses
have the technical expertise, specialist knowledge, and long-term
relationships required to deliver value-add products and services
that make our customers' lives easier. These value-add solutions
drive customer loyalty, market share growth and strong margins.
Our decentralised model means our specialist businesses are
agile and empowered to deliver the right solutions for their
customers, in their own way. As part of Diploma, our businesses can
also leverage the additional resources, opportunities and expertise
of a large, international and diversified Group to benefit their
customers, colleagues, suppliers and communities.
We employ c.3,500 colleagues across our three Sectors of
Controls, Seals and Life Sciences. Our principal operating
businesses are located in the UK, Northern Europe, North America
and Australia.
Over the last fifteen years, the Group has grown adjusted
earnings per share (EPS) at an average of ca. 15% p.a. through a
combination of organic growth and acquisitions.
Diploma is a member of the FTSE 100.
Further information on Diploma PLC can be found at
www.diplomaplc.com
The person responsible for releasing this Announcement is John
Morrison, Company Secretary.
LEI: 2138008OGI7VYG8FGR19
FULL YEAR REVIEW TO 30 SEPTEMBER 2023
Excellent financial performance, delivered with discipline
The Group has delivered another successful year, reflecting the
power of our value-add propositions, our strategy, and our
decentralised model. This, underpinned by the commitment of our
colleagues to deliver excellent customer service, has enabled us
again to deliver strong organic growth at high and growing
margins.
Revenue in the year was up 19% to GBP1.2bn (2022: GBP1.0bn).
Organic growth of 8% was driven by strong volumes. Acquisitions,
net of a small disposal, contributed 8% to reported revenue while
foreign exchange translation added a further 3%.
Our value-add customer propositions enable us to price to offset
cost inflation and then selectively reinvest some of the benefits
of positive operational leverage into scaling our businesses. This
'margin formula', coupled with disciplined cost control and
accretive acquisitions, means that we have increased adjusted
operating margin by 80 bps to a very strong 19.7% (2022: 18.9%).
Our adjusted operating profit increased by 24% to GBP237.0m (2022:
GBP191.2m).
Adjusted earnings per share (EPS) grew by 18%, continuing our
long-term compounding track record (15% compound annual growth rate
(CAGR) EPS over 15 years).
Our cash-generative business model drove free cash flow
conversion of 100% (2022: 90%), benefitting from targeted inventory
reduction. Together with the equity raise earlier in the year, this
led to a reduction in net debt to GBP254.7m, reducing leverage to
0.9x at 30 September 2023 (2022: GBP328.9m and 1.4x). Returns on
capital are a key underpin of our compounding financial model and
return on average trading capital employed (ROATCE) improved by 80
bps to 18.1% (2022: 17.3%).
In light of this strong performance and in line with our
financial model, the Board proposes a final dividend of 40.0p per
share (2022: 38.8p), bringing the full year dividend to 56.5p per
share (2022: 53.8p), a 5% increase. The final dividend is payable
on 2 February 2024 to shareholders on the register on 19 January
2024, with a corresponding ex-dividend date of 18 January 2024.
Revenue diversification driving organic growth and increasing
resilience
The Group's strategy is to build high-quality, scalable
businesses for organic growth.
We drive organic growth in three ways: positioning behind
structurally growing end markets; penetrating further into core
developed geographies; and extending our product range to expand
addressable markets. This strategy drives both sustainable organic
growth and increased resilience. Execution of this strategy across
our businesses drove organic growth of 8% in FY23, with strong
trading momentum as we exit the year.
Revenue GBPm Growth
FY 23 FY 22 Reported Organic
--------------- -------- -------- --------- --------
Controls 568.4 492.8 +15% +11%
Seals 419.0 331.4 +26% +5%
Life Sciences 212.9 188.6 +13% +8%
--------------- -------- -------- --------- --------
Group 1,200.3 1,012.8 +19% +8%
--------------- -------- -------- --------- --------
Some examples of how our businesses are delivering organic
growth are set out below, with further detail provided in the
Sector Reviews.
Positioning to take advantage of structurally growing end
markets. Across the Group we have continued to drive growth through
expansion in structurally growing end markets. A number of
businesses in our Controls Sector are gaining share in aerospace,
defence and energy markets as well as penetrating the wider
electrification ecosystem. The acquisition of Tennessee Industrial
Electronics (T.I.E.) in March gives us access to the strategically
important industrial automation end-market in the US. Across our
Seals businesses, we are well positioned to benefit from US
infrastructure spend and we have diversified into exciting growing
markets such as water treatment and renewable energy. In Life
Sciences, in addition to benefitting from the recovery of surgical
procedures, our businesses are continuing to diversify, in
particular across diagnostic areas such as molecular testing,
allergy and auto-immune testing, haematology, and cancer
screening.
Penetration of core developed economies. Over the last year we
have made progress developing our US and European footprint. In
Controls, for example, we continue to win market share in the
German energy market delivering very strong double-digit growth. In
Seals, we are continuing to win share in the western and mid-west
states of the US, leveraging the investment in the facility in
Louisville. In the UK, R&G has enjoyed a very strong first year
in the Group, building out our regional position and product
offerings to drive excellent organic growth. The acquisition of
Distribuidora Internacional Carmen S.A.U. (DICSA) in July creates a
platform for our fluid power business in Spain and across Europe,
including cross-selling opportunities with R&G. In Life
Sciences, we now have a scaled European platform.
Product range extension. New product development forms an
ongoing component of all our businesses' organic growth
strategies.
-- Controls has delivered outstanding growth from specialty adhesives,
having entered that segment through the acquisition of Techsil
in 2021. The acquisition of T.I.E. brings expertise in aftermarket
and circular economy solutions for CNC machines and robotics.
-- With the acquisition of DICSA, following last year's acquisition
of R&G, Seals continues to diversify from its traditional strength
across seals and gaskets, into wider fluid power products.
-- Product development is intrinsic to our Life Sciences businesses.
The Canadian businesses introduced new technology in the gastrointestinal
and surgical segments. The European businesses introduced the single-use
endoscope in the Urology segment, as well as new ultrasound technology,
and new products in the lab and pharmaceutical testing environments.
Complementary acquisitions to accelerate growth
Acquisitions can accelerate our growth strategy. We are
disciplined and selective and will only consider opportunities with
the following core characteristics:
-- differentiated value-add customer proposition generating sustainable
high gross margins;
-- strong organic growth and scaling potential; and
-- capable management teams we can back.
Since 30 September 2022, we have acquired 12 high-quality
businesses for a total of GBP280m.
In March, we acquired T.I.E. for ca. GBP76m, entering the
strategically important industrial automation end market in the US.
T.I.E. is a high growth, market-leading value-add distributor of
aftermarket parts and repair services for robotics and CNC
machines. It differentiates through speed to market and superior
technical support, driving a strong organic growth track record and
high margins.
In July, we acquired DICSA for ca. GBP170m, establishing a
platform in fluid power solutions across the European aftermarket.
DICSA has significant customer value-add, based on quality product,
breadth of range, technical service, and speed to market. It adds
to our established positions in the US and UK, expanding our
aftermarket fluid power capability and accessing key strategic
markets. Over time we will drive significant revenue and
procurement synergies including cross-selling existing product from
R&G through DICSA's platform into Europe; leveraging our North
American Seals Aftermarket platform to accelerate DICSA's growth in
the US; and delivering consolidated procurement synergies.
Both T.I.E. and DICSA are strategic platform acquisitions, well
positioned for continued strong growth, and are margin and earnings
accretive in the first year.
During the year, we have also completed 10 bolt-on acquisitions
for GBP33m, at an average earnings before interest and tax (EBIT)
multiple of under 5x. These will add GBP33m of annual revenue to
the Group at accretive EBIT margins, driving ROATCE of over 20%
from their first full year.
Continuing our disciplined approach to portfolio management, we
disposed of the lower growth, lower margin Hawco business (fluid
controls within the Controls Sector) in March for GBP23m.
In fragmented markets with a well-developed approach and a
compelling proposition to sellers, the Group's acquisition pipeline
is strong and diversified. We remain committed to disciplined
investment of capital, ensuring the Group's acquisitions support
our future organic growth and deliver compounding earnings growth
at high returns over the long term.
Scaling the Businesses and the Group
Delivering our strategy of building high-quality businesses for
sustainable organic growth requires that we scale the businesses,
developing their operating models to continue to deliver great
customer propositions at scale. At the same time, we are developing
the Group, evolving our structures, capabilities and culture to
support this growth and maintain discipline and appropriate
controls.
Scaling the Businesses
We have a simple, common framework which enables our businesses
to deliver their target operating models. We have a set of core
competencies (value-add, supply chain, operational excellence,
commercial discipline, and route to market) which underpin their
model.
As well as developing core competencies, scaling our businesses
requires selective investment in capability, in the form of talent,
technology, and facilities. During the year, we have invested in
functional leadership across a number of our businesses, creating
or upgrading roles in areas such as supply chain management,
operations, route to market and support functions. From a
technology perspective, we have Enterprise Resource Planning (ERP)
upgrade projects underway across a number of businesses, as well as
automated warehouse system upgrades in some Seals and Controls
businesses. In terms of facilities, we have upgrades and
relocations underway in each of our three Sectors to drive
efficiency and improved customer service as those businesses
continue to grow.
Scaling the Group
We have continued to focus on three principles this year:
First: keep it focused. This means portfolio discipline to
ensure a manageable platform for scale. Despite more than doubling
in size, we have moved from 20 to 16 business units in the last
four years. For example, during the year we created new scaled
businesses in Life Sciences (Canada and Ireland) and Seals
(Australia) by combining smaller constituent businesses to form
integrated operations that are better able to service their
customers at scale.
Second: lean structures with dynamic leaders. This avoids
bureaucracy in the businesses and promotes alignment, agility and
execution. We have very lean Central and Sector teams but require
more capability and capacity as we grow. During the year, we have
selectively added capability in Finance, HR, Sustainability and
Risk & Compliance roles. Through our development processes and
programmes, alongside external appointments, we are building talent
and succession across the organisation.
Third: mood - the beat of the organisation. Decentralisation
doesn't mean isolation. Regular individual and collective
touchpoints allow us to be agile, manage pace, and execute better.
This year, we have further developed the 'Diploma Identity',
strengthening leadership networks, collaboration and best practice
sharing, while preserving our critical differentiated decentralised
culture.
Delivering Value Responsibly
We are making good progress across our businesses with
Delivering Value Responsibly (DVR). During the year we have hired
an experienced Group Sustainability Director and submitted our net
zero targets for validation to the Science Based Targets initiative
(SBTi).
DVR, our framework, is focused on six core areas:
-- Colleague Engagement increased to 80%, a very strong result particularly
for a decentralised business. We have engagement plans in each
of our businesses and aim to maintain engagement above 70% over
the long-term.
-- Workshops and listening groups are also helping to further our
Diversity, Equity & Inclusion agenda. Over the last four years
our gender diversity has improved, with women now representing
28% of our Senior Management Team (SMT) up from 20% in 2019. Our
2030 target is for women to make up 40% of our SMT.
-- Potential hazard reporting and training are enhancing our Health
& Safety culture. In 2023, our Lost time incident (LTI) Rate (LTIs
per 1,000 employees) was 9.5 (2022: 10.6). We target at least a
5% reduction in lost time incidents every year.
-- Our businesses are stepping up engagement with their Supply Chains.
Over 70% of key suppliers are now aligned to our Supplier Code
- committing to high ethical, professional and legal standards.
-- Further focus on Climate Action has included energy workshops and
implementing emission-reduction initiatives. We have begun to introduce
solar solutions on our facilities and expect to progress this further
in the coming year. Our target is to achieve net zero across our
value chain by 2045, with a 50% reduction in Scope 1 & 2 emissions
by 2030.
-- We are making good progress in Waste Reduction, with the volume
of waste sent to landfill down to 32% from 60% in the prior year.
We are also focused on the positive impact that our Group has on
society and the environment by delivering innovative and
life-saving healthcare solutions; playing a role in renewable
energy generation; and supporting circular practices across our
aftermarket businesses.
Outlook
Whilst we remain mindful of the uncertain economic outlook, we
are confident in the Group's prospects. Diploma has an excellent
track record of compounding growth and delivering strong financial
returns through the cycle. Our model is resilient, and its
resilience has increased over time as we execute our strategy:
-- Our revenue is resilient: Ongoing diversification means we are
exposed to structurally growing end segments.
-- Our margins are resilient: Focus on value-add solutions critical
to customer needs supports pricing power.
-- Our cash flow is resilient: Our low capital-intensity model is
highly cash-generative, underpinning a strong balance sheet.
At this stage in the year, FY24 growth is expected to be in line
with our long-term financial model, albeit at higher margins:
-- Volume-led organic revenue growth of ca. 5%.
-- Acquisitions announced to date add ca. 6% (net) to reported revenue
growth.
-- Strong, operating margin of ca. 19.7%.
-- Free cash flow conversion of ca. 90%.
We remain focused on executing our strategy of building
high-quality, scalable businesses for organic growth and are
confident in our ability to deliver long-term growth at sustainably
high margins.
SECTOR REVIEW: CONTROLS
The Controls Sector businesses supply specialised wiring, cable,
connectors, fasteners, control devices, adhesives, and CNC and
robotic components for a range of technically demanding
applications.
2023 2022 Change
--------------------------- --------- --------- -------
Revenue GBP568.4m GBP492.8m +15%
Organic revenue growth +11% +24%
Statutory operating profit GBP112.9m GBP75.3m +50%
Adjusted operating profit GBP136.6m GBP105.8m +29%
Adjusted operating margin 24.0% 21.5% +250bps
--------------------------- --------- --------- -------
2023 highlights
-- Very strong performance in International Controls with organic
revenue growth of 15%.
-- Windy City Wire (WCW) delivered organic growth of 7%, building
on a very strong comparative period in FY22.
-- Adjusted operating profit increased significantly, 29% higher at
GBP136.6m (2022: GBP105.8m) with a 250bps year-on-year increase
in adjusted operating margin to 24.0% (2022: 21.5%). Both WCW and
International Controls contributed to margin expansion driven by
positive operating leverage and mix into higher margin products.
-- Strategic acquisition of Tennessee Industrial Electronics (T.I.E.)
builds scale and gives access to the important industrial automation
end market.
International Controls (51% of Controls Sector revenue)
delivered 15% organic growth in the year, benefitting from market
share gains in recovering civil aerospace markets and structural
tailwinds in UK defence and German energy markets as investment in
these areas remains a critical focus for governments . The Sector
also further penetrated exciting end markets within electric
vehicles (EV), renewables and space. Operating margin increased
strongly, primarily due to positive operating leverage on volume
growth, and mix benefits from the acquisition of T.I.E. and
disposal of Hawco.
Windy City Wire (49% of Controls Sector revenue) continues to
perform strongly, with organic revenue growth of 7% in the year,
following a very strong comparative period with 32% organic growth
in FY22. Product range extension and share gains in new end market
segments drove volume and a favourable mix.
Revenue diversification driving organic growth
The Sector continues to diversify its end markets, gaining share
in space and telecoms and benefitting from the wider move to
electrification and green energy as it continues to deliver growth
in the EV and renewable energy end markets.
We delivered strong double-digit organic growth in our
Interconnect businesses, particularly in the German energy end
market, driven by share gains and upgrades to the transmission and
distribution network. Other key growth segments include defence,
motorsport, aerospace and medical, where our businesses benefitted
from momentum in these growing end markets and share gains.
Our Specialty Fasteners businesses delivered very strong
double-digit growth during the year as they continue to win market
share and benefit from strong customer demand in the recovering
civil aerospace market in both the US and UK. We secured key
contract wins in seats and cabin hardware and further diversified
end markets with good momentum into space, unmanned aerial vehicles
(UAVs) and electric vertical take-off and landing (eVTOL) aircraft.
Geographic diversification has also been a theme in aerospace, with
an important contract win in France for a major cabin and seating
manufacturer.
Specialty Adhesives delivered strong double-digit growth in its
key automotive end market as well as continued share gains in the
telecommunications and EV markets.
WCW continues t o drive strong growth and gain share in the high
margin petrol station end-market where its products are essential
to the new generation chip readers used to prevent fraud, and which
are being systematically rolled out across the US.
Targeted acquisitions to accelerate growth
During the year, the Sector completed the acquisition of T.I.E.
for ca. GBP76m, providing it with access to the important
industrial automation end market, which has been a strategic target
end market for some time. T.I.E. also drives product extension
(robotics and CNC machines) as well as deepening geographic
penetration in the key US market.
Two smaller bolt-on acquisitions were completed in the year,
with Eurobond further broadening our product offering in Specialty
Adhesives, and Shrinktek expanding the Sector's offering in UK Wire
& Cable.
Building scale
Significant investment in technology and facilities is underway
as the Sector finalises the integration of its UK Wire & Cable
locations into one state-of-the-art facility and a common ERP
platform.
Sales resource has been added to the European Fasteners business
as part of the strategy to expand in the civil aerospace market.
Focused investments in sales resources are also being made into the
adhesives market to capitalise on long-term aerospace and defence
opportunities.
Outlook
We have made good strategic progress in Controls. Our businesses
are benefitting from initiatives to capture growth in structurally
growing end markets, such as data centres, EV and energy, as well
as high-growth emerging markets, such as space and eVTOL. We are
also benefitting from continued geographic diversification as we
continue to build scale in the US and Europe. We are taking share
in markets in which we operate. The Sector has strong momentum, and
we remain very positive about its prospects.
Sector review: SEALS
The Seals Sector businesses supply a range of seals, gaskets,
cylinders, components and kits used in heavy mobile machinery and a
diverse range of fluid power products with Aftermarket, OEM and MRO
applications.
2023 2022 Change
--------------------------- --------- --------- ------
Revenue GBP419.0m GBP331.4m +26%
Organic revenue growth +5% +14%
Statutory operating profit GBP55.8m GBP46.0m +21%
Adjusted operating profit GBP79.0m GBP62.6m +26%
Adjusted operating margin 18.9% 18.9% -
--------------------------- --------- --------- ------
2023 highlights
-- Strong International Seals performance driven by R&G and Australian
Seals.
-- Resilient performance in North American Seals, benefitting from
returns on the investment into the Aftermarket facility in Louisville
and strong performance in our MRO business offsetting some destocking
in certain OEM customers.
-- Adjusted operating profit increased by 26% to GBP79.0m (2022: GBP62.6m).
-- Invested in scaling projects focusing on automation and supply
chain efficiencies through facilities upgrades.
-- Strategic acquisition of Distribuidora Internacional Carmen S.A.U.
(DICSA) builds scale in Europe and broadens the product portfolio
into stainless steel fittings, expanding addressable markets.
International Seals (56% of Sector revenue) delivered strong
organic growth of 9%, principally driven by an excellent trading
performance from R&G in the UK and strong recovery of capital
projects in Australia.
North American Seals (44% of Sector revenue) delivered organic
growth of 1% against a very strong comparator (2022: +16%) with
strong growth in our North American Aftermarket and MRO businesses,
partly offset by some destocking in some Industrial OEM
customers.
Revenue diversification driving organic growth
In International Seals, our UK Aftermarket business, R&G,
grew strongly, benefitting from initiatives to diversify into
product adjacencies and new end markets, such as wastewater
treatment and potash mining. R&G has made a significant
contribution to the organic growth of the Sector since acquisition,
driven by strong sales into capital projects, particularly in the
pneumatics and industrial markets, underpinned by solid MRO
volumes.
Our Australian Seals businesses delivered very strong growth.
This was driven by share gains and public infrastructure
investments on the east coast, strong demand in anti-corrosion
applications in the oil and gas industries, and continuous strong
demand for the mining of raw materials for batteries.
Anti-Corrosion Technology (ACT), which was acquired in late FY22,
has more than doubled since acquisition, capitalising on asset
protection projects in the oil and gas industry.
We saw softer performance in our European OEM businesses where
both medical and industrial end markets suffered some customer
destocking. We expect this to moderate growth in the near term.
North American Aftermarket delivered another year of strong
growth. The investment in our Aftermarket facility in Louisville,
extending service hours and product availability, is continuing to
deliver accelerated growth and market share gains, particularly in
western states. Very strong organic growth in the core repair
market was boosted by the continuing focus on US infrastructure
development.
The US MRO business delivered strong organic growth driven by
high levels of demand for our proprietary products in the
transportation market.
The US OEM business was softer, driven by destocking in a number
of customers. We expect this to moderate growth in the near
term.
Targeted acquisitions to accelerate growth
During the year, the Sector acquired DICSA for ca. GBP170m,
establishing a scaled platform in fluid power solutions across the
European aftermarket. It adds to our established positions in the
US and UK and over time will drive significant revenue and
procurement synergies: cross-selling existing product from R&G,
leveraging the Louisville facility to accelerate DICSA's growth in
the US, and enabling procurement synergies.
Also in International Seals, four bolt-on acquisitions were
added into the R&G Group. Hedley and FPS bring complementary
products and geographical expansion to R&G's Hydraulics
division. Valves Online will complement and strengthen R&G's
capabilities in the online route to market, as well as developing
the valve product category. Lantech enhances the end market
capabilities of the Industrial division with its focus on the food
& beverage and pharmaceutical markets.
In North American Seals, VSP acquired two businesses during the
year, both creating cross-selling opportunities. GP&S, which
supplies gaskets, seals, and fasteners; and Hex, which provides
bolting and sealing training solutions to make manufacturing sites
safer, more reliable and more profitable. Hercules OEM completed
the bolt-on acquisition of ITG, a distributor of seals and
adhesives for use in electrical connectors, valves, medical devices
and industrial equipment.
Building scale
The Sector is selectively integrating smaller businesses to form
better scaled platforms and during the year, completed the
integration of TotalSeal into FITT Resources in Australia.
Further scaling investments in facilities to establish national
hubs are being made, with the construction of a new M Seals
facility in Denmark that will become the Nordic hub for the Sector.
In the UK, we have invested in a national distribution centre for
hydraulic products and a centre of excellence for hose assemblies
to position R&G as the national leader for these product
ranges.
In North American Seals, we have focused on improving the supply
chain; investing in facilities, talent and processes to improve
supply-demand planning and optimise inventory. The Sector continues
to make major investments in warehouse automation and has
successfully expanded the Autostore facility in Louisville.
Outlook
We have made good strategic progress in Seals in the year and
the growth prospects for the Sector remain strong. The Sector is
more resilient now than ever, supported by end segment exposures
such as medical, food and beverage and renewable energy, and DICSA
adds a scaled European operation to our existing US and UK
platforms. Customer destocking has continued in our North American
and European industrial OEM businesses, and while we remain
confident in their long term prospects, we do expect this to
moderate Seals growth in the near term. We are well positioned to
benefit from the significant investments into infrastructure
projects across the US and Europe, which create a tailwind for
growth across our Aftermarket businesses.
Sector review: LIFE SCIENCES
The Life Sciences Sector sources and supplies technology driven
value add solutions in the In Vitro Diagnostics , Scientific and
Medtech segments of the Global Healthcare market.
2023 2022 Change
--------------------------- --------- --------- --------
Revenue GBP212.9m GBP188.6m +13%
Organic revenue growth 8% (4%)
Statutory operating profit GBP36.4m GBP42.5m (14%)
Adjusted operating profit GBP43.2m GBP41.0m +5%
Adjusted operating margin 20.3% 21.7% (140)bps
--------------------------- --------- --------- --------
2023 highlights
-- Organic revenue +8% (2022: -4%): The Sector has returned to growth,
with momentum accelerating, driven by the normalisation of surgical
procedure and diagnostic testing volumes despite ongoing healthcare
staffing challenges.
-- Positive outlook as governments act to address healthcare staffing
shortages with automation and the associated increase in capital
project funding.
-- Operating margins remain well ahead of our financial model but
declined year-on-year, as expected, primarily due to a higher proportion
of relatively lower margin capital sales; a full year effect of
Accuscience (which has a lower margin with lower capital intensity);
plus ongoing scaling investments.
-- Continued investments being made to build scale in the facilities
and systems in Canada and Europe following the successful completion
of the scaling project in Australasia.
Revenue diversification driving organic growth
All businesses in the Sector have successfully diversified
revenue streams to capitalise on the recovery of surgical and
operating room procedures, as well as the increased funding for
capital projects. During the year, we have secured new contracts
across all regions as governments and hospitals increase capacity
to clear the surgical backlogs and reinvest in new medical research
laboratories.
New product introduction and the adoption of new technology were
the primary drivers of growth in FY23. Growth has been driven by
automated diagnostic testing in histology; molecular testing in
infectious disease; haematology testing in oncology; AI-assistance
in diagnostic & therapeutic endoscopy; single-use endoscopy in
surgical urology procedures; and point of care patient monitoring
and ultrasound.
Our growth in Canada has been driven largely by implementation
of technology and innovation by hospitals to address acute staffing
shortages, with successful expansion in the urology, gynaecology
and endoscopy specialties as well as technological adoption in
laboratories and increased focus in interventional diagnostics
testing. The Australian and New Zealand markets moved out of
restrictive business conditions in January, resulting in increased
activities in surgery case numbers (as staff availability
improved), scientific projects and studies, and pathology testing.
In Europe, our Irish and UK businesses continue to see growth in
the In Vitro Diagnostics (IVD) segment and the scientific segments
driven by improvement in technologies for R&D and manufacturing
regulations. In the Nordics, we are well positioned to further
expand into the critical care, surgical and gastrointestinal
segments through national tender and contract wins.
Building scale
In Australia, we have successfully combined the operations of
our two businesses to generate operational efficiencies, such as
warehouse process improvements and freight consolidation. Similar
projects are underway in the Canadian and European businesses,
focusing on facilities and ERP systems. Together, these projects
will build three scaled platform businesses to enable the Sector to
capitalise on future growth opportunities.
Targeted acquisitions to accelerate growth
In July 2023 we acquired GM Medical in Denmark, distributing
consumables and capital equipment for anaesthesia, critical care,
surgery, obstetrics, neonatology, simulation and sterilisation. GM
Medical is highly complementary to our existing Danish business,
Simonsen & Weel.
Outlook
With tailwinds from the recovery in surgical procedures, and
increasing investment in pre-emptive diagnostics, the Sector's
growth outlook remains positive. All businesses in the Sector
continue to focus on building their portfolio of products and
services to broaden their value proposition to both suppliers and
customers. FY24 will see a continuation of private and public
laboratories investing to meet the growing demand for expanded
diagnostics and screening utilising new automation and molecular
testing; surgical and critical care capacity being rebuilt and
expanded in healthcare systems; and drug and vaccine research and
development, and companion diagnostics fields accelerating.
Finance rEVIEW
The Group reports under UK-adopted International Accounting
Standards and references alternative performance measures where the
Board believes that they help to effectively monitor the
performance of the Group and support readers of the Financial
Statements in drawing comparisons with past performance. Certain
alternative performance measures are also relevant in calculating a
meaningful element of Executive Directors' variable remuneration
and our debt covenants. Alternative performance measures are not
considered to be a substitute for, or superior to, IFRS measures.
These are detailed in note 14 to the Condensed Consolidated
Financial Statements.
In FY23, the Group has again demonstrated progress against all
elements of our financial model.
Excellent financial performance FY23 Model
------ -------------
Organic growth is our first priority 8% 5%
Total revenue accelerated by quality acquisitions 19% 10%
Value-add drives strong operating margins 19.7% 17%+
Compounding EPS growth 18% double-digit
Delivered with discipline FY23 Model
------ -----------
Capital-light business model drives strong
cash conversion 100% 90%+
Capital stewardship focused on strong ROATCE 18.1% High teens
Balance sheet discipline maintains prudent 0.9x <2.0x
leverage
Return to shareholders with a progressive dividend 5% 5%
Summary income statement
Our diversified portfolio and growth strategy drive strong,
sustainable revenue growth, and our value-add service propositions
drive consistently high margins.
Year ended 30 September 2023 Year ended 30 September
2022
------------------------
Adjusted Adjustments Total Adjusted Adjustments Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------------ ------------ ---------- --------- ------------ --------
R evenue 1,200.3 - 1,200.3 1,012.8 - 1,012.8
Operating expenses (963.3) (53.7) (1,017.0) (821.6) (46.9) (868.5)
---------------------------- -------- ------------ ---------- --------- ------------ ----------
Operating profit 237.0 (53.7) 183.3 191.2 (46.9) 144.3
Financial expense, net (20.4) (7.3) (27.7) (11.6) (3.2) (14.8)
---------------------------- -------- ------------ ---------- --------- ------------ ----------
Profit before tax 216.6 (61.0) 155.6 179.6 (50.1) 129.5
Tax expense (52.0) 14.7 (37.3) (45.0) 10.9 (34.1)
---------------------------- -------- ------------ ---------- --------- ------------ ----------
Profit for the year 164.6 (46.3) 118.3 134.6 (39.2) 95.4
---------------------------- -------- ------------ ---------- --------- ------------ ----------
Earnings per share (p)
------------------------ -------- ------------ ---------- --------- ------------ ----------
Adjusted/Basic 126.5 90.8 107.5 76.1
---------------------------- -------- ------------ ---------- --------- ------------ ----------
Reported revenue increased by 19% to GBP1,200.3m (2022:
GBP1,012.8m), consisting of organic growth of 8%, an 8% net
contribution from acquisitions and disposals, and a 3% benefit from
foreign exchange translation. During the year, the Group disposed
of Hawco, which contributed GBP15.1m to Group revenues in FY2023
(2022: GBP30.7m).
Adjusted operating profit increased by 24% to GBP237.0m (2022:
GBP191.2m) as the operational leverage from the increased revenue,
disciplined cost management and accretive acquisitions drove an
80bps year-on-year improvement in the adjusted operating margin to
19.7% (2022: 18.9%). Statutory operating profit increased 27% to
GBP183.3m (2022: GBP144.3m), benefitting from a GBP12.2m profit on
disposal of Hawco, compared with a net gain on disposal of GBP7.3m
in the prior year relating to the disposal of Kentek and
a1-envirosciences.
Net adjusted finance expense increased to GBP20.4m (2022:
GBP11.6m), principally due to the impact of higher interest rates,
in particular in the second half of the year. Average gross debt
remained broadly consistent with prior year with the proceeds from
the equity raise in March being utilised, as intended, to finance
acquisitions during the year. The all-in, blended cost of bank debt
increased to 5.6% (2022: 2.8%).
Adjusted profit before tax increased 21% to GBP216.6m (2022:
GBP179.6m). Statutory profit before tax was GBP155.6m (2022:
GBP129.5m) and is stated after charging acquisition and other
related charges, and acquisition related finance charges.
Acquisition and other related charges of GBP53.7m (2022: GBP46.9m)
principally comprise of the amortisation of acquisition related
intangible assets of GBP52.9m (2022: GBP42.4m), GBP6.3m of
acquisition related expenses (2022: GBP10.5m), GBP5.9m of fair
value adjustments to inventory acquired through acquisition
recognised in cost of inventories sold (2022: GBPnil) and partly
offset by a net gain of GBP12.2m (2022: GBP7.3m) from the disposal
of Hawco in the year. Acquisition related finance charges of
GBP7.3m (2022: GBP3.2m) principally comprise of fair value
remeasurement of put options for future minority purchases of
GBP1.8m (2022:GBP1.4m) and amortisation and write-off of
capitalised borrowing fees on acquisition related borrowings of
GBP5.9m (2022: GBP1.4m).
We are committed to being a responsible taxpayer and our
approach is to comply with tax laws in the countries in which we
operate and to pay our fair share of tax. The Group's tax strategy
was approved by the Board and is published on our website. The
Group's adjusted effective rate of tax on adjusted profit before
tax was 24.0% (2022: 25.0%) reduced from the year ended 30
September 2022 largely due to non-recurring items from the prior
year.
Adjusted earnings per share increased by 18% to 126.5p (2022:
107.5p). Basic earnings per share increased by 19% to 90.8p (2022:
76.1p). An equity raise was completed in March 2023, resulting in a
7.5% increase (9,350,965 new shares) in the issued ordinary share
capital. As at 30 September 2023, the average number of ordinary
shares (which includes any potentially dilutive shares) was
130,260,868 (2022: 124,855,007) and the weighted average number of
ordinary shares in issue was 129,675,581 (2022: 124,533,060).
Recommended dividend
The Board has a progressive dividend policy that aims to
increase the dividend each year by 5%. In determining the dividend,
the Board considers a number of factors which include the free cash
flow generated by the Group, the future cash commitments and
investment needed to sustain the Group's long-term growth strategy
and the target level of dividend cover.
For FY23, the Board has recommended a final dividend of 40.0p
per share, making the proposed full year dividend 56.5p (2022:
53.8p). This represents a 5% increase in the full year dividend per
share, with a dividend cover of 2.2x EPS, continuing the Group's
progressive dividend track record.
Cash Flow
Our capital-light business model, coupled with balance sheet and
capital discipline drives strong and consistent cash conversion and
ROATCE and maintains prudent leverage.
Free cash flow increased by 36% to GBP163.8m (2022:GBP120.4m).
Statutory cash flow from operating activities increased by 42% to
GBP257.3m (2022: GBP180.6m). Free cash flow conversion for the year
was 100% (2022: 90%), ahead of our targeted 90%+ model,
demonstrating the highly cash-generative qualities of our
businesses and the results of targeted inventory reductions.
Year ended Year ended
30 Sep 30 Sep
2023 2022
Funds flow GBPm GBPm
-------------------------------------------- ------------ ------------- -----------
Adjusted operating profit 237.0 191.2
Depreciation and other non-cash items 30.5 24.6
Working capital movement (4.2) (25.5)
Interest paid, net (excluding borrowing
fees) (17.9) (8.9)
Tax paid (41.4) (39.2)
Capital expenditure, net of disposal
proceeds (21.6) (5.5)
Lease repayments (16.7) (13.5)
Notional purchase of own shares on exercise
of options (1.9) (2.8)
Free cash flow 163.8 120.4
-------------------------------------------------- ------ ------------- -----------
Acquisition and disposals(1) (255.3) (177.5)
Proceeds from issue of share capital 231.9 -
(net of fees)
Acquisition of minority interests - (0.3)
Dividends paid to shareholders and minority
interests (70.8) (56.4)
Foreign exchange and other non cash movements 4.6 (33.7)
Net funds flow 74.2 (147.5)
-------------------------------------------------- ------ ------------- -----------
Net debt (254.7) (328.9)
-------------------------------------------------- ------ ------------- -----------
(1) Net of cash acquired/disposed and including acquisition
expenses, deferred consideration, and payments of pre-acquisition
debt-like items.
Depreciation and other non-cash items includes GBP28.6m (2022:
GBP23.9m) of depreciation and amortisation of tangible, intangible
and right of use assets and GBP1.9m (2022: GBP0.7m) of other
non-cash items, primarily share-based payments expense.
Working capital increased by only GBP4.2m despite a 19% increase
in revenue. This was largely driven by a GBP10.8m decrease in
inventory as a result of strategic focus in this area as supply
chain constraints have eased.
Interest payments increased by GBP9.0m to GBP17.9m (2022:
GBP8.9m) in line with increased interest charges. Tax payments
increased by GBP2.2m to GBP41.4m (2022: GBP39.2m) with the cash tax
rate reducing to 19% (2022: 22%) due to the timing of tax payments.
Our effective cash tax rate remains lower than our Group effective
tax rate, mainly due to acquisition goodwill which is deductible
for US tax purposes.
Capital expenditure increased by GBP16.1m, largely driven by
scaling investments in Shoal Group, Hercules Aftermarket and
R&G. FY22 benefitted from GBP9.9m of proceeds from disposal of
property, plant and equipment.
The Group funded the Company's Employee Benefit Trust with
GBP1.9m (2022: GBP2.8m) in connection with the Company's long term
incentive plan.
The Group received net proceeds of GBP231.9m from an equity
raise completed in March 2023, to enable the refinancing of the
acquisition of T.I.E., and provide greater flexibility to execute
further acquisitions. Dividends of GBP70.8m (2022: GBP56.4m) were
paid to ordinary and minority interest shareholders.
This strong free cash generation has allowed the Group to
deleverage more quickly than expected. At 30 September 2023, the
Group's Net Debt (excluding IFRS 16 lease liabilities) stood at
GBP254.7m (2022: GBP328.9m).
Acquisitions accelerate growth
In fragmented markets, we deploy capital selectively and with
discipline, to acquire quality businesses which accelerate
strategic execution; build scale; broaden our portfolio; and
accelerate organic growth.
Net cash flow from acquisitions and disposals of GBP255.3m,
which includes GBP6.0m of acquisition fees, comprises the spend for
DICSA of GBP159.7m and T.I.E. of GBP75.1m; GBP23.7m principally
relating to ten smaller bolt-on businesses; and GBP12.3m of
deferred consideration relating to previous acquisitions; partly
offset by net proceeds of GBP21.5m from the disposal of Hawco, a
lower growth, lower margin business.
The Group's acquisition liabilities to shareholders of acquired
businesses at 30 September 2023 reduced to GBP22.6m (2022:
GBP31.4m) and comprised both put options to purchase outstanding
minority shareholdings and deferred consideration payable to
vendors of businesses acquired during the current and prior
years.
-- The liability to acquire minority shareholdings outstanding relates
to a 10% interest held in M Seals, 5% interest in Techsil, a 2%
interest in R&G and a 5% interest in Pennine Pneumatic Services.
These options are valued at GBP9.2m (2022: GBP7.4m), based on the
latest estimate of EBIT when these options crystallise.
-- The liability for deferred consideration payable at 30 September
2023 was GBP13.4m (2022: GBP24.0m). This liability represents the
best estimate of any outstanding payments based on the expected
performance of the relevant businesses during the measurement period.
The reduction in the year is primarily due to the revaluation and
settlement of deferred consideration for Kungshusen and R&G.
Goodwill at 30 September 2023 was GBP439.1m (2022: GBP372.3m).
Goodwill is assessed each year to determine whether there has been
any impairment in the carrying value. It was confirmed that there
was significant headroom on the valuation of this goodwill,
compared with the carrying value at the year end.
Attractive returns
ROATCE is a key metric used to measure our success in creating
value for shareholders. It is a metric that drives ongoing capital
and operating discipline, adding back amortised intangibles and
other factors such as any impaired goodwill such that any
improvement must be driven by true economic factors. As at 30
September 2023, the Group's ROATCE increased by 80 basis points to
18.1% (2022: 17.3%). This increase was primarily driven by strong
operating profit growth from the existing businesses, but was
supplemented by the bolt-on acquisitions completed during the year
which generate year 1 returns of 20%. This increase in ROATCE was
delivered despite the dilutive impact of the DICSA and T.I.E.
acquisitions which, when acquired with a combined 9x EBIT multiple,
naturally constrain year one returns. We expect both of these
acquisitions to reach 20% returns over the medium term.
Improved funding
On 17 July 2023, the Group entered into a new committed
multi-currency revolving credit facility agreement (RCF) with an
aggregate principal amount of GBP555.0m. The RCF is due to expire
in July 2028 with an option to extend for two further 12 month
periods. The RCF replaced the Group's previous debt facility
agreement which as at 30 September 2022 comprised an RCF with an
aggregate principal amount of 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.
At 30 September 2023, net debt of GBP254.7m (2022: GBP328.9m)
represented leverage of 0.9x (2022: 1.4x) against a banking
covenant of 3.5x (2022: 3.0x). The Group maintains strong
liquidity, with year end headroom (comprised of undrawn committed
facilities and cash funds) of GBP297m (2022: GBP204m). The table
below outlines the composition of the Group's net debt at 30
September 2023:
Type Currency Amount GBP equivalent Interest rate exposure
RCF USD $200.0m GBP163.9m SOFR fixed at 3%
-------------- --------------- --------------- -----------------------
RCF EUR EUR181.0m GBP157.0m Floating
-------------- --------------- --------------- -----------------------
Overdraft facilities GBP0.3m Floating
--------------- -----------------------
Capitalised debt fees net of accrued GBP(4.1)m
interest
--------------- -----------------------
Gross debt drawn at 30 September GBP317.1m
2023
--------------- -----------------------
Cash & equivalents at year end GBP(62.4)m
--------------- -----------------------
Net debt at 30 September 2023 GBP254.7m
--------------- -----------------------
Pensions
The Group maintains a legacy closed defined benefit pension
scheme in the UK. In the year, the Group funded this scheme with
cash contributions of GBP0.6m (2022: GBP0.6m) which increases
annually on 1 October by 2%. In Switzerland, local law requires our
Kubo business to provide a contribution-based pension for all
employees, which is funded by employer and employee contributions.
The cash contribution to the scheme was GBP0.5m (2022: GBP0.5m).
Both schemes are accounted for in accordance with IAS 19. At 30
September 2023, the UK defined benefit scheme was in a surplus
position of GBP6.8m (30 September 2022: GBP6.4m) reflecting a
slight rise in corporate bond yields and a slight fall in the
market's expectation of future inflation. The Kubo scheme is not
material.
Exchange rates
A significant proportion of the Group's revenue (ca. 80%) is
derived from businesses located outside the UK, principally in the
US, Canada, Australia and continental Europe. Compared with FY22,
the average Sterling exchange rate is weaker against the US dollar
and the Euro, while stronger against the Canadian and Australian
dollars. The impact from translating the results of the Group's
overseas businesses into UK sterling has led to an increase in
Group revenues of GBP17.5m; an increase in the Group's adjusted
operating profit of GBP4.1m; and a reduction in net debt of
GBP14.9m, compared with the same period last year.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in this announcement and further detailed in the Annual
Report & Accounts, which also includes an assessment of the
Group's longer term viability.
The Directors have undertaken a comprehensive review of going
concern, taking into account the updated financing of the Group
against a number of economic scenarios, to consider whether there
is a risk that the Group could breach either its facility headroom
or financial covenants.
The Group has modelled a base case and downside case in its
assessment of going concern. The base case is driven off the
Group's detailed budget which is built up on a business by business
case and considers both the micro and macroeconomic factors which
could impact performance in the industries and geographies in which
that business operates. The downside case models steep declines in
revenues and operating margins resulting in materially adverse cash
flows. These sensitivities factor in a continued unfavourable
impact from a prolonged downturn in the economy. Both scenarios
indicate that the Group has significant liquidity and covenant
headroom on its borrowing facilities to continue in operational
existence for the foreseeable future.
Accordingly, the Directors continue to have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future and continue to
adopt the going concern basis in preparing the Annual Report &
Accounts.
PrinciPal RISKS
Effective risk management is a key component of the discipline
that underpins sustainable quality compounding.
The Group's decentralised operating model helps mitigate the
potential impact of our principal risks. The principal risks which
have the potential to be material to the performance, position or
future prospects of the Group are described in more detail in pages
44-48 of the 2023 Annual Report & Accounts. This includes more
detail on our overall approach to risk management as well as the
specific mitigation actions in place for our principal risks.
There have been some changes to the Group's principal risks
during the year:
-- Two climate-related risks: maximum legislation and maximum impact,
have been added to incorporate our TCFD risk assessment.
-- Supply Chain has been disaggregated into 'loss of key suppliers'
and 'supply chain disruption' given the differing nature of the
mitigating actions.
-- 'Inflationary environment' and 'foreign currency' have been removed
from the register of principal risks as they are part of the underlying
operating environment, managed through standard operating procedures.
The principal risks are summarised below (not ranked):
-- Failure to attract retain and develop talent : the loss of key
personnel can have an impact on performance for a limited time
period; not having the right talent or diversity at all levels
of the organisation to deliver our strategy, resulting in reduced
financial performance.
-- Cyber attack : any disruption or denial of service may delay or
impact decision-making if reliable data is unavailable; poor information
handling or interruption of business may also lead to reduced service
to customers; unintended actions of employees caused by a cyber-attack
may also lead to disruption, including fraud.
-- Supply chain disruption : the risk of manufacturing lead times
increasing as a result of supply chain shortages or supply chain
partners not operating to the same ethical standards as Diploma.
-- Loss of key supplier : the risk that a key supplier revokes a
supply agreement and accesses the market through a competitor,
or chooses to go direct to market rather than via a distributor.
-- Unsuccessful acquisition : the Group may overpay for a target;
the acquired business may experience limited growth post-acquisition;
loss of key customers or suppliers post integration; potential
cultural misfit.
-- Climate - max legislation : the risk of increasing environmental
legislation that adds cost or complexity to products and services
and/or renders some products obsolete.
-- Prolonged market downturn : adverse changes in the major markets
that the businesses operate in could result in slowing revenue
growth due to reduced or delayed demand for products and services,
or margin pressures due to increased competition.
-- Geopolitical trade issues : interruption of trade agreements;
change of trade or tariff relationships amongst countries in which
we operate; Government budget spending; political elections.
Consolidated Income Statement
For the year ended 30 September 2023
Adjusted(1) Total Adjusted1 Total
2023 Adjustments(1) 2023 2022 Adjustments1 2022
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---- ----------- -------------- --------- --------- ------------ -------
Revenue 3,4 1,200.3 - 1,200.3 1,012.8 - 1,012.8
---- ----------- -------------- --------- --------- ------------ -------
Operating expenses 2 (963.3) (53.7) (1,017.0) (821.6) (46.9) (868.5)
---------------------------- ---- ----------- -------------- --------- --------- ------------ -------
Operating profit 237.0 (53.7) 183.3 191.2 (46.9) 144.3
---- ----------- -------------- --------- --------- ------------ -------
Financial expense,
net 5 (20.4) (7.3) (27.7) (11.6) (3.2) (14.8)
---------------------------- ---- ----------- -------------- --------- --------- ------------ -------
Profit before tax 216.6 (61.0) 155.6 179.6 (50.1) 129.5
---- ----------- -------------- --------- --------- ------------ -------
Tax expense 6 (52.0) 14.7 (37.3) (45.0) 10.9 (34.1)
---------------------------- ---- ----------- -------------- --------- --------- ------------ -------
Profit for the year 164.6 (46.3) 118.3 134.6 (39.2) 95.4
---------------------------- ---- ----------- -------------- --------- --------- ------------ -------
Attributable to:
---- ----------- -------------- --------- --------- ------------ -------
Shareholders of the
Company 164.0 (46.3) 117.7 133.9 (39.2) 94.7
---- ----------- -------------- --------- --------- ------------ -------
Minority interests 0.6 - 0.6 0.7 - 0.7
---------------------------- ---- ----------- -------------- --------- --------- ------------ -------
164.6 (46.3) 118.3 134.6 (39.2) 95.4
---------------------------- ---- ----------- -------------- --------- --------- ------------ -------
Earnings per share
(p)
---- ----------- -------------- --------- --------- ------------ -------
Adjusted/Basic earnings 7 126.5p 90.8p 107.5p 76.1p
---- ----------- -------------- --------- --------- ------------ -------
Adjusted/Diluted earnings 7 125.9p 90.4p 107.3p 75.9p
---------------------------- ---- ----------- -------------- --------- --------- ------------ -------
1 Adjusted figures exclude certain items as detailed in notes 2,
3, 4, 5 and 6. All amounts relate to continuing operations.
The Group has re-presented the Consolidated Income Statement to
reflect the analysis of expenses based on their nature. Together
with note 2, this provides more information that is relevant to the
users of the financial statements and better aligns to how
management information is reported internally.
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2023
2023 2022
Note GBPm GBPm
---------------------------------------------------------- ---- ------ -----
Profit for the year 118.3 95.4
---------------------------------------------------------- ---- ------ -----
Items that will not be reclassified to the Consolidated
Income Statement
---- ------ -----
Actuarial (loss)/gain on the defined benefit pension
schemes (0.9) 10.6
---- ------ -----
Deferred tax on items that will not be reclassified 6 0.2 (2.8)
---------------------------------------------------------- ---- ------ -----
(0.7) 7.8
---------------------------------------------------------- ---- ------ -----
Items that may be reclassified to the Consolidated
Income Statement
---- ------ -----
Exchange differences on translation of foreign operations (46.3) 76.8
---- ------ -----
Gains on fair value of cash flow hedges 1.8 4.5
---- ------ -----
Net changes to fair value of cash flow hedges transferred
to the Consolidated Income Statement (3.8) (0.4)
---- ------ -----
Deferred tax on items that may be reclassified 6 0.5 (1.1)
---------------------------------------------------------- ---- ------ -----
(47.8) 79.8
---------------------------------------------------------- ---- ------ -----
Total Other Comprehensive (Expense)/Income (48.5) 87.6
---------------------------------------------------------- ---- ------ -----
Total Comprehensive Income for the year 69.8 183.0
---------------------------------------------------------- ---- ------ -----
Attributable to:
---- ------ -----
Shareholders of the Company 69.3 182.2
---- ------ -----
Minority interests 0.5 0.8
---------------------------------------------------------- ---- ------ -----
69.8 183.0
---------------------------------------------------------- ---- ------ -----
Consolidated Statement of Changes in Equity
For the year ended 30 September 2023
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 2021 6.3 188.6 12.1 0.2 329.1 536.3 4.7 541.0
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Total Comprehensive
Income - - 76.7 3.0 102.5 182.2 0.8 183.0
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Share-based payments - - - - 2.8 2.8 - 2.8
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Tax on items
recognised
directly in equity 6 - - - - 0.4 0.4 - 0.4
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Notional purchase
of own shares - - - - (2.8) (2.8) - (2.8)
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Acquisition of
business - - - - - - 2.5 2.5
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Disposal of business - - - - - - (1.3) (1.3)
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Minority interest
put option on
acquisition - - - - (1.9) (1.9) - (1.9)
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Minority interest
put option disposal - - - - 1.2 1.2 - 1.2
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Minority interest
acquired - - - - - - (0.3) (0.3)
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Dividends 12 - - - - (56.2) (56.2) (0.2) (56.4)
--------------------- ---- -------- -------- ----------- -------- --------- ------------- ---------- --------
At 30 September
2022 6.3 188.6 88.8 3.2 375.1 662.0 6.2 668.2
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Total Comprehensive
Income - - (46.3) (1.5) 117.1 69.3 0.5 69.8
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Issue of share
capital 0.5 231.6 - - - 232.1 - 232.1
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Share-based payments - - - - 4.1 4.1 - 4.1
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Tax on items
recognised
directly in equity 6 - - - - 0.5 0.5 - 0.5
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Notional purchase
of own shares - - - - (1.9) (1.9) - (1.9)
---- -------- -------- ----------- -------- --------- ------------- ---------- --------
Dividends 12 - - - - (70.5) (70.5) (0.3) (70.8)
--------------------- ---- -------- -------- ----------- -------- --------- ------------- ---------- --------
At 30 September
2023 6.8 420.2 42.5 1.7 424.4 895.6 6.4 902.0
--------------------- ---- -------- -------- ----------- -------- --------- ------------- ---------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2023
2023 2022
Note GBPm GBPm
-------------------------------------- ---- ------- -------
Non-current assets
---- ------- -------
Goodwill 10 439.1 372.3
---- ------- -------
Acquisition intangible assets 520.1 455.0
---- ------- -------
Other intangible assets 4.2 4.1
---- ------- -------
Property, plant and equipment 59.2 49.6
---- ------- -------
Leases - right-of-use assets 71.5 62.4
---- ------- -------
Retirement benefit assets 6.8 6.4
---- ------- -------
Deferred tax assets 0.2 0.2
-------------------------------------- ---- ------- -------
1,101.1 950.0
-------------------------------------- ---- ------- -------
Current assets
---- ------- -------
Inventories 232.7 217.4
---- ------- -------
Trade and other receivables 193.1 169.9
---- ------- -------
Cash and cash equivalents 9 62.4 41.7
-------------------------------------- ---- ------- -------
488.2 429.0
-------------------------------------- ---- ------- -------
Current liabilities
---- ------- -------
Borrowings 9 (0.3) (30.5)
---- ------- -------
Trade and other payables (191.9) (189.5)
---- ------- -------
Current tax liabilities 6 (16.6) (11.8)
---- ------- -------
Other liabilities (12.7) (19.0)
---- ------- -------
Lease liabilities (15.0) (12.7)
-------------------------------------- ---- ------- -------
(236.5) (263.5)
-------------------------------------- ---- ------- -------
Net current assets 251.7 165.5
-------------------------------------- ---- ------- -------
Total assets less current liabilities 1,352.8 1,115.5
---- ------- -------
Non-current liabilities
---- ------- -------
Borrowings 9 (316.8) (340.1)
---- ------- -------
Lease liabilities (65.2) (56.4)
---- ------- -------
Other liabilities (9.9) (12.4)
---- ------- -------
Retirement benefit obligations (0.3) -
---- ------- -------
Deferred tax liabilities (58.6) (38.4)
-------------------------------------- ---- ------- -------
(450.8) (447.3)
-------------------------------------- ---- ------- -------
Net assets 902.0 668.2
-------------------------------------- ---- ------- -------
Equity
---- ------- -------
Share capital 6.8 6.3
---- ------- -------
Share premium 420.2 188.6
---- ------- -------
Translation reserve 42.5 88.8
---- ------- -------
Hedging reserve 1.7 3.2
---- ------- -------
Retained earnings 424.4 375.1
-------------------------------------- ---- ------- -------
Total shareholders' equity 895.6 662.0
-------------------------------------- ---- ------- -------
Minority interests 6.4 6.2
-------------------------------------- ---- ------- -------
Total equity 902.0 668.2
-------------------------------------- ---- ------- -------
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEARED 30 SEPTEMBER 2023
2023 2022
Note GBPm GBPm
------------------------------------------------------ ---- ------- -------
Operating profit 183.3 144.3
Acquisition related and other charges 53.7 46.9
Non-cash items and other 24.5 18.1
Increase in working capital (4.2) (28.7)
------------------------------------------------------ ---- ------- -------
Cash flow from operating activities 8 257.3 180.6
Interest paid, net (including borrowing fees) (26.7) (15.0)
Tax paid (41.4) (40.6)
------------------------------------------------------ ---- ------- -------
Net cash inflow from operating activities 189.2 125.0
------------------------------------------------------ ---- ------- -------
Cash flow from investing activities
Acquisition of businesses (net of cash acquired) (258.5) (173.0)
Deferred consideration paid (12.3) (7.1)
Proceeds from sale of business (net of cash disposed) 11 21.5 13.7
Purchase of property, plant and equipment (21.6) (14.3)
Purchase of other intangible assets (1.5) (1.1)
Proceeds from sale of property, plant and equipment 1.5 9.9
------------------------------------------------------ ---- ------- -------
Net cash used in investing activities (270.9) (171.9)
------------------------------------------------------ ---- ------- -------
Cash flow from financing activities
Proceeds from issue of share capital 236.1 -
Share issue costs (4.2) -
Dividends paid to shareholders 12 (70.5) (56.2)
Dividends paid to minority interests (0.3) (0.2)
Acquisition of minority interests - (0.3)
Notional purchase of own shares on exercise of
share options (1.9) (2.8)
Proceeds from borrowings 579.5 154.8
Repayment of borrowings (617.3) (20.0)
Principal elements of lease payments (13.9) (10.9)
------------------------------------------------------ ---- ------- -------
Net cash inflow from financing activities 107.5 64.4
------------------------------------------------------ ---- ------- -------
Net increase in cash and cash equivalents 25.8 17.5
Cash and cash equivalents at beginning of year 41.7 24.8
Effect of exchange rates on cash and cash equivalents (5.1) (0.6)
------------------------------------------------------ ---- ------- -------
Cash and cash equivalents at end of year 62.4 41.7
------------------------------------------------------ ---- ------- -------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2023
1. GENERAL INFORMATION
Diploma PLC is a public company limited by shares incorporated
in the United Kingdom, registered and domiciled in England and
Wales and listed on the London Stock Exchange. The address of the
registered office is 10-11 Charterhouse Square, London EC1M 6EE.
The consolidated financial statements comprise the Company and its
subsidiaries (together referred to as 'the Group') and were
authorised by the Directors for publication on 20 November 2023.
These statements are presented in UK sterling, with all values
rounded to the nearest 100,000, except where otherwise
indicated.
The consolidated financial statements of the Group have been
prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as
applicable to companies reporting under those standards. The
accounting policies have been consistently applied in the current
and comparative year.
The financial information set out in this Preliminary
Announcement, which has been extracted from the audited
consolidated financial statements, does not constitute the Group's
statutory financial statements for the years ended 30 September
2023 and 2022. Statutory financial statements for the year ended 30
September 2022 have been delivered to the Registrar of Companies
and are available on the website at www.diplomaplc.com. The
statutory financial statements for the year ended 30 September
2023, which were approved by the Directors on 20 November 2023,
will be sent to shareholders in December 2023 and delivered to the
Registrar of Companies, following the Company's Annual General
Meeting.
The auditor has reported on the consolidated financial
statements for the years ended 30 September 2023 and 2022. The
reports were unqualified, did not draw attention to any matters by
way of emphasis and did not contain a statement under Section 498
(2) or (3) of the Companies Act 2006.
The Company's Annual General Meeting will be held at 9:00am on
17 January 2024 in The Charterhouse, Charterhouse Square, EC1M 6AN.
The Notice of Meeting will be sent out in a separate Circular to
shareholders.
2. ANALYSIS OF OPERATING EXPENSES/INCOME
Adjusted Total Adjusted Total
2023 Adjustments 2023 2022 Adjustments 2022
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- -------- ----------- ------- -------- ----------- -----
Cost of inventories sold 652.1 5.9 658.0 561.3 - 561.3
-------- ----------- ------- -------- ----------- -----
Employee costs 206.2 3.8 210.0 173.1 4.4 177.5
-------- ----------- ------- -------- ----------- -----
Depreciation of property,
plant and equipment 12.8 - 12.8 10.4 - 10.4
-------- ----------- ------- -------- ----------- -----
Depreciation of right-of-use
assets 14.8 - 14.8 12.7 - 12.7
-------- ----------- ------- -------- ----------- -----
Amortisation 1.0 52.9 53.9 0.4 42.4 42.8
-------- ----------- ------- -------- ----------- -----
Net impairment losses on
trade receivables 2.5 - 2.5 3.4 - 3.4
-------- ----------- ------- -------- ----------- -----
Other operating expenses/(income) 73.9 (8.9) 65.0 60.3 0.1 60.4
---------------------------------- -------- ----------- ------- -------- ----------- -----
Operating expenses 963.3 53.7 1,017.0 821.6 46.9 868.5
---------------------------------- -------- ----------- ------- -------- ----------- -----
Adjustments relate to acquisition related and other charges as
defined in note 14.2 of GBP53.7m (2022: GBP46.9m) and comprise
principally of GBP52.9m (2022: GBP42.4m) of amortisation of
acquisition intangible assets, GBP6.3m of acquisition related
expenses (2022: GBP10.5m), GBP5.9m of fair value adjustments to
inventory acquired through acquisitions recognised in cost of
inventories sold (2022: GBPnil) and a GBP12.2m net gain (2022:
GBP7.3m) on the disposal of businesses, which is set out in note
11.
3. BUSINESS SECTOR ANALYSIS
The Chief Operating Decision Maker ("CODM") for the purposes of
IFRS 8 is the CEO. The financial performance of the business
Sectors is reported to the CODM on a monthly basis and this
information is used to allocate resources on an appropriate
basis.
For management reporting purposes, the Group is organised into
three main reportable business Sectors: Life Sciences, Seals and
Controls. These Sectors are the Group's operating segments as
defined by IFRS 8 and form the basis of the primary reporting
format disclosures below. The CODM reviews discrete financial
information at this operating segment level. Sector revenue
represents revenue from external customers; there is no material
inter-Sector revenue. Sector results, assets and liabilities
include items directly attributable to a Sector, as well as those
that can be allocated on a reasonable basis.
Sector assets exclude cash and cash equivalents, deferred tax
assets, acquisition related assets and corporate assets that cannot
be allocated on a reasonable basis to a business Sector. Sector
liabilities exclude borrowings (other than lease liabilities),
retirement benefit obligations, deferred tax liabilities,
acquisition liabilities and corporate liabilities that cannot be
allocated on a reasonable basis to a business Sector. These items
are shown collectively in the following analysis as "unallocated
assets" and "unallocated liabilities", respectively.
Life Sciences Seals Controls Corporate Group
--------------------------- --------------- ---------------- -------------- ---------------- ----------------
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Revenue - existing 212.0 188.6 387.7 331.4 550.2 492.8 - - 1,149.9 1,012.8
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Revenue - acquisitions 0.9 - 31.3 - 18.2 - - - 50.4 -
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Revenue 212.9 188.6 419.0 331.4 568.4 492.8 - - 1,200.3 1,012.8
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Adjusted operating profit
- existing 43.1 41.0 72.2 62.6 131.9 105.8 (21.8) (18.2) 225.4 191.2
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Adjusted operating profit
- acquisitions 0.1 - 6.8 - 4.7 - - - 11.6 -
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Adjusted operating profit 43.2 41.0 79.0 62.6 136.6 105.8 (21.8) (18.2) 237.0 191.2
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Acquisition related and
other charges (6.8) 1.5 (23.2) (16.6) (23.7) (30.5) - (1.3) (53.7) (46.9)
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Operating profit 36.4 42.5 55.8 46.0 112.9 75.3 (21.8) (19.5) 183.3 144.3
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Operating assets 75.2 74.0 264.1 207.5 214.9 211.5 - - 554.2 493.0
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Goodwill 102.4 106.2 169.4 125.2 167.3 140.9 - - 439.1 372.3
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Acquisition intangible
assets 66.5 74.9 195.4 100.2 258.2 279.9 - - 520.1 455.0
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
244.1 255.1 628.9 432.9 640.4 632.3 - - 1,513.4 1,320.3
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Unallocated assets:
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
- Deferred tax assets 0.2 0.2 0.2 0.2
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
- Cash and cash equivalents 62.4 41.7 62.4 41.7
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
- Acquisition related
assets 3.0 1.8 3.0 1.8
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
- Retirement benefit
obligations 6.8 6.4 6.8 6.4
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
- Corporate assets 3.5 8.6 3.5 8.6
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Total assets 244.1 255.1 628.9 432.9 640.4 632.3 75.9 58.7 1,589.3 1,379.0
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Operating liabilities (43.3) (41.7) (119.6) (103.3) (96.1) (92.6) - - (259.0) (237.6)
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Unallocated liabilities:
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
- Deferred tax liabilities (58.6) (38.4) (58.6) (38.4)
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
- Retirement benefit
obligations (0.3) - (0.3) -
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
- Acquisition related
liabilities (22.6) (31.4) (22.6) (31.4)
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
- Corporate liabilities (29.7) (32.8) (29.7) (32.8)
------- ------ ------- ------- ------ ------ ------- ------- ------- -------
- Borrowings (317.1) (370.6) (317.1) (370.6)
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Total liabilities (43.3) (41.7) (119.6) (103.3) (96.1) (92.6) (428.3) (473.2) (687.3) (710.8)
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Net assets/(liabilities) 200.8 213.4 509.3 329.6 544.3 539.7 (352.4) (414.5) 902.0 668.2
--------------------------- ------- ------ ------- ------- ------ ------ ------- ------- ------- -------
Other Sector information
Life Sciences Seals Controls Corporate Group
------------------------------ --------------- ------------ ------------ ------------ ----------------
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ------ ----- ----- ----- ----- ----- ----- ------- -------
Capital expenditure 7.9 8.0 9.0 3.7 5.9 2.7 0.3 0.9 23.1 15.3
------- ------ ----- ----- ----- ----- ----- -----
Depreciation and amortisation 4.0 2.9 5.0 3.5 4.6 4.6 0.2 0.2 13.8 11.2
------------------------------ ------- ------ ----- ----- ----- ----- ----- ----- ------- -------
Revenue recognition
------- ------ ----- ----- ----- ----- ----- ----- ------- -------
- immediately on sale 198.9 176.4 399.6 315.6 563.0 492.8 - - 1,161.5 984.8
------- ------ ----- ----- ----- ----- ----- ----- ------- -------
- over a period of time 14.0 12.2 19.4 15.8 5.4 - - - 38.8 28.0
------------------------------ ------- ------ ----- ----- ----- ----- ----- ----- ------- -------
212.9 188.6 419.0 331.4 568.4 492.8 - - 1,200.3 1,012.8
------------------------------ ------- ------ ----- ----- ----- ----- ----- ----- ------- -------
Accrued income ("contract assets") at 30 September 2023 of
GBP1.0m (2022: GBP0.1m) and deferred revenue ("contract
liabilities") of GBP3.1m at 30 September 2023 (2022: GBP3.5m) are
included in trade and other receivables and trade and other
payables, respectively.
4. GEOGRAPHIC SEGMENT ANALYSIS BY ORIGIN
Revenue Adjusted operating Non-current Trading capital Capital expenditure
profit assets(1) employed
--------------- ---------------- -------------------- -------------- ----------------- ---------------------
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------- ------- --------- --------- ------- ----- -------- ------- ---------- ---------
United Kingdom 267.1 209.7 28.8 21.0 207.3 193.6 195.0 202.2 9.3 3.4
------- ------- --------- --------- ------- ----- -------- ------- ---------- ---------
Rest of
Europe 210.3 166.7 34.5 29.3 308.1 169.1 354.1 179.8 1.6 1.7
------- ------- --------- --------- ------- ----- -------- ------- ---------- ---------
USA 537.6 465.5 132.2 104.6 470.0 464.3 567.9 557.2 4.3 8.9
------- ------- --------- --------- ------- ----- -------- ------- ---------- ---------
Rest of
world 185.3 170.9 41.5 36.3 106.3 112.0 111.2 119.3 7.9 1.3
--------------- ------- ------- --------- --------- ------- ----- -------- ------- ---------- ---------
1,200.3 1,012.8 237.0 191.2 1,091.7 939.0 1,228.2 1,058.5 23.1 15.3
--------------- ------- ------- --------- --------- ------- ----- -------- ------- ---------- ---------
1 Non-current assets excludes deferred tax assets, derivative
assets and retirement benefit assets.
The Group has re-presented the prior year geographic segment
analysis to reflect USA separately due to the increasing operations
in that territory as this provides more information that is
relevant to the users of the financial statements.
5. FINANCIAL EXPENSE, NET
2023 2022
GBPm GBPm
---------------------------------------------------------- ----- -----
Interest expense/(income) and similar charges
----- -----
- bank facility and commitment fees 1.6 1.0
----- -----
- interest income on short term deposits (0.4) (0.1)
----- -----
- interest expense on bank borrowings 16.6 7.9
----- -----
- notional interest income on the defined benefit pension
scheme (0.4) -
----- -----
- amortisation of capitalised borrowing fees 0.2 0.2
----- -----
- interest on lease liabilities 2.8 2.6
---------------------------------------------------------- ----- -----
Net interest expense and similar charges 20.4 11.6
----- -----
- acquisition related finance charges, net 7.3 3.2
---------------------------------------------------------- ----- -----
Financial expense, net 27.7 14.8
---------------------------------------------------------- ----- -----
Acquisition related finance charges as adjusted in the
Consolidated Income Statement includes fair value remeasurements of
put options for future minority interest purchases of GBP1.8m
charge (2022: GBP1.4m charge), fair value movement and unwind of
discount on acquisition liabilities of GBP0.4m charge (2022:
GBP0.4m charge), GBP5.9m charge (2022: GBP1.4m charge) for the
amortisation and write-off of capitalised borrowing fees on
acquisition related borrowings, and interest income on previous
disposal of business of GBP0.8m (2022: nil). Acquisition related
finance charges are adjusted due to their consistent nature with
acquisition related and other charges, as defined in note 14.2.
6. TAX EXPENSE
2023 2022
GBPm GBPm
--------------------------------------------------------- ----- -----
Current tax
----- -----
The tax charge is based on the profit for the year and
comprises:
----- -----
UK corporation tax 10.4 10.0
----- -----
Overseas tax 31.2 30.8
--------------------------------------------------------- ----- -----
41.6 40.8
----- -----
Adjustments in respect of prior year:
----- -----
UK corporation tax 1.2 (0.2)
----- -----
Overseas tax 0.1 0.1
--------------------------------------------------------- ----- -----
Total current tax 42.9 40.7
--------------------------------------------------------- ----- -----
Deferred tax
----- -----
The net deferred tax credit based on the origination and
reversal of timing differences comprises:
----- -----
United Kingdom (2.7) (3.1)
----- -----
Overseas (2.9) (3.5)
--------------------------------------------------------- ----- -----
Total deferred tax (5.6) (6.6)
--------------------------------------------------------- ----- -----
Total tax on profit for the year 37.3 34.1
--------------------------------------------------------- ----- -----
In addition to the above credit for deferred tax included in the
Consolidated Income Statement, a deferred tax credit relating to
the retirement benefit scheme and cash flow hedges of GBP0.7m was
recognised in the Consolidated Statement of Comprehensive Income
(2022: GBP3.9m charge). A further GBP0.5m was credited (2022:
GBP0.4m) to the Consolidated Statement of Changes in Equity.
Factors affecting the tax charge for the year
The difference between the total tax charge calculated by
applying the effective blended rate of UK corporation tax of 22.0%
to the profit before tax of GBP155.6m and the amount set out above
is as follows:
2023 2022
GBPm GBPm
-------------------------------------------------------- ----- -----
Profit before tax 155.6 129.5
-------------------------------------------------------- ----- -----
Tax on profit at UK effective corporation tax rate of
22.0% (2022: 19.0%) 34.2 24.6
----- -----
Effects of:
----- -----
higher tax rates on overseas earnings 3.8 6.7
----- -----
adjustments in respect of UK and Overseas corporation
tax in prior years 1.3 (0.1)
----- -----
other permanent differences (2.0) 2.9
-------------------------------------------------------- ----- -----
Total tax on profit for the year 37.3 34.1
-------------------------------------------------------- ----- -----
Tax effect on adjusting items 14.7 10.9
-------------------------------------------------------- ----- -----
Adjusted tax expense 52.0 45.0
-------------------------------------------------------- ----- -----
The tax adjustment in the consolidated income statement of
GBP14.7m (2022: GBP10.9m) reflects the tax effect of the
acquisition related and other charges, and acquisition related
finance charges.
The Group earns its profits in the UK and overseas. The Group
prepares its consolidated financial statements for the year to 30
September and the blended statutory tax rate for UK corporation tax
in respect of the year ended 30 September 2023 was 22.0% (2022:
19.0%) and this rate has been used for tax on profit in the above
reconciliation.
The Group's net overseas tax rate is higher than that in the UK,
primarily because profits earned in the US, Canada, Germany and
Australia are taxed at higher rates than the UK. The UK deferred
tax assets and liabilities at 30 September 2023 have been
calculated by reference to the UK corporation tax rate of 25.0%
(2022: 25.0%).
At 30 September 2023, the Group had outstanding tax liabilities
of GBP16.6m (2022: GBP11.8m). These amounts are expected to be paid
within the next financial year.
During 2021, the OECD published a framework for the introduction
of a global minimum effective tax rate of 15%, applicable to large
multinational groups. The legislation implementing these 'Pillar
Two' rules in the UK was substantively enacted on 20 June 2023 and
will apply to the Group from the financial year ending 30 September
2025 onwards. The Group is reviewing the legislation and monitoring
the implementation of the rules outside of the UK to understand the
potential impact. We have applied the temporary exception under IAS
12 from the requirement to recognise and disclose deferred taxes
arising from the implementation of the Pillar Two rules.
7. EARNINGS PER SHARE
Basic and diluted earnings per share
Basic earnings per ordinary 5p share is calculated on the basis
of the weighted average number of ordinary shares in issue during
the year of 129,675,581 (2022: 124,533,060) and the profit for the
year attributable to shareholders of GBP117.7m (2022: GBP94.7m).
Basic earnings per share is 90.8p (2022: 76.1p). Diluted earnings
per share is 90.4p (2022: 75.9p) and is based on the average number
of ordinary shares (which includes any potentially dilutive shares)
of 130,260,868 (2022: 124,855,007).
An equity placing was completed in March 2023, resulting in the
issuance of 9,350,965 (7.5% increase) of 5p ordinary shares at a
share price of 2,525 pence per placing share, with corresponding
fees of GBP4.2m.
Adjusted earnings per share
Adjusted EPS, which is defined in note 14, is 126.5p (2022:
107.5p).
2023 2023 2022 2022
pence pence pence pence
per share per share per share per share 2023 2022
Basic Diluted Basic Diluted GBPm GBPm
-------------------------------------- ---------- ---------- ---------- ---------- ------ ------
Profit before tax 155.6 129.5
---------- ---------- ---------- ---------- ------ ------
Tax expense (37.3) (34.1)
---------- ---------- ---------- ---------- ------ ------
Minority interests (0.6) (0.7)
-------------------------------------- ---------- ---------- ---------- ---------- ------ ------
Earnings for the year attributable
to shareholders of the Company 90.8 90.4 76.1 75.9 117.7 94.7
---------- ---------- ---------- ---------- ------ ------
Acquisition related and other charges
and acquisition related finance
charges, net of tax 35.7 35.5 31.4 31.4 46.3 39.2
-------------------------------------- ---------- ---------- ---------- ---------- ------ ------
Adjusted earnings 126.5 125.9 107.5 107.3 164.0 133.9
-------------------------------------- ---------- ---------- ---------- ---------- ------ ------
8. RECONCILIATION OF OPERATING PROFIT TO CASH FLOW FROM
OPERATING ACTIVITIES
2023 2022
GBPm GBPm
------------------------------------------------------------- ----- ------
Operating profit 183.3 144.3
----- ------
Acquisition related and other charges (note 2) 53.7 46.9
------------------------------------------------------------- ----- ------
Adjusted operating profit 237.0 191.2
------------------------------------------------------------- ----- ------
Depreciation or amortisation of tangible, other intangible
assets and leases - right-of-use assets 28.6 23.9
----- ------
Share-based payments expense 4.1 2.8
----- ------
Defined benefit pension scheme payment in excess of interest (0.6) (0.6)
----- ------
Profit on disposal of assets (1.1) (1.6)
----- ------
Acquisition and disposal expenses paid (6.0) (6.5)
----- ------
Other non-cash movements (0.5) 0.1
------------------------------------------------------------- ----- ------
Non-cash items and other 24.5 18.1
------------------------------------------------------------- ----- ------
Operating cash flow before changes in working capital 261.5 209.3
----- ------
Decrease/(increase) in inventories 10.8 (35.6)
----- ------
Increase in trade and other receivables (8.8) (10.6)
----- ------
(Decrease)/increase in trade and other payables (6.2) 17.5
----- ------
Increase in working capital (4.2) (28.7)
------------------------------------------------------------- ----- ------
Cash flow from operating activities 257.3 180.6
------------------------------------------------------------- ----- ------
9. NET DEBT
The movement in net debt during the year is as follows:
2023 2022
GBPm GBPm
---------------------------------------------------------- ------- -------
Net increase in cash and cash equivalents 25.8 17.5
------- -------
Decrease/(increase) in bank borrowings 43.8 (131.3)
---------------------------------------------------------- ------- -------
69.6 (113.8)
------- -------
Effect of exchange rates and other non-cash movements 4.6 (33.7)
---------------------------------------------------------- ------- -------
Decrease/(increase) in net debt 74.2 (147.5)
------- -------
Net debt at beginning of year (328.9) (181.4)
---------------------------------------------------------- ------- -------
Net debt at end of year (254.7) (328.9)
---------------------------------------------------------- ------- -------
Comprising:
------- -------
Cash and cash equivalents 62.4 41.7
------- -------
Bank borrowings:
------- -------
- Revolving credit facility, including accrued interest (321.1) (201.0)
------- -------
- Overdraft facilities (0.3) -
------- -------
- Term loan, including accrued interest - (174.3)
------- -------
- Capitalised debt fees 4.3 4.7
------- -------
(317.1) (370.6)
---------------------------------------------------------- ------- -------
Net debt at end of year (254.7) (328.9)
---------------------------------------------------------- ------- -------
Analysed as:
------- -------
Repayable within one year (0.3) (30.5)
------- -------
Repayable after one year (316.8) (340.1)
---------------------------------------------------------- ------- -------
On 17 July 2023, the Group entered into a new committed
multi-currency revolving credit facility agreement ("RCF") with an
aggregate principal amount of GBP555.0m. The RCF is due to expire
in July 2028 with an option to extend for two further 12-month
periods. The RCF replaced the Group's previous debt facility
agreement which as at 30 September 2022 comprised an RCF with an
aggregate principal amount of 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 Group's debt facilities are subject to interest at variable
rates. During FY22 and FY23, the Group entered into interest rate
swap contracts with the effect of fixing the interest rate on
$200.0m (GBP163.9m) of debt. The effective fixed rate debt was 52%
of total debt.
At 30 September 2023, the Group's Net Debt/EBITDA ratio is 0.9x,
as illustrated in note 14.
As at 30 September 2023, the Group has utilised GBP320.9m of the
revolving facility. There remains GBP234.1m undrawn on the
revolving facility. Borrowings include GBP0.2m (2022: GBP1.0m) of
accrued interest and the carrying amount of capitalised debt fees
is GBP4.3m (2022: GBP4.7m).
As at 30 September 2023 the Group's net debt is GBP254.7m (2022:
GBP328.9m) and excludes lease liabilities of GBP80.2m (2022:
GBP69.1m).
10. GOODWILL
Life Sciences Seals Controls Total
GBPm GBPm GBPm GBPm
--------------------- ------------- ----- -------- ------
At 1 October 2021 81.4 60.0 119.3 260.7
------------- ----- -------- ------
Acquisitions 19.0 56.8 5.2 81.0
------------- ----- -------- ------
Exchange adjustments 5.8 8.4 16.4 30.6
--------------------- ------------- ----- -------- ------
At 30 September 2022 106.2 125.2 140.9 372.3
------------- ----- -------- ------
Acquisitions 1.3 48.1 39.5 88.9
------------- ----- -------- ------
Disposals - - (4.3) (4.3)
------------- ----- -------- ------
Exchange adjustments (5.1) (3.9) (8.8) (17.8)
--------------------- ------------- ----- -------- ------
At 30 September 2023 102.4 169.4 167.3 439.1
--------------------- ------------- ----- -------- ------
The Group tests goodwill for impairment at least once a year.
For the purposes of impairment testing, goodwill is allocated to
each of the Group's three cash-generating units ("CGUs"), which are
the three operating Sectors: Life Sciences; Seals; and Controls.
This represents the lowest level within the Group at which goodwill
is monitored by management and reflects the Group's strategy of
acquiring businesses to drive synergies across a Sector, rather
than within an individual business. The impairment test requires a
'value in use' valuation to be prepared for each Sector using
discounted cash flow forecasts. The cash flow forecasts are based
on a combination of annual budgets prepared by each business and
the Group's strategic plan.
The key assumptions used to prepare the cash flow forecasts
relate to operating margins, revenue growth rates, the discount
rates and climate related risks. The operating margins are assumed
to remain sustainable, which is supported by historical experience;
revenue growth rates generally approximate to the average rates for
the markets in which the business operates, unless there are
particular factors relevant to a business. The cash flow forecasts
use the budgeted figures for FY24, and then the three-year strategy
cash flows for the next two years. From year four onwards a
long-term growth rate of 2% is utilised.
The cash flow forecasts are discounted to determine a current
valuation using market derived pre-tax discount rates; Life
Sciences 13.2% (2022: 13.9%), Seals 13.3% (2022: 13.8%) and
Controls 13.2% (2022: 13.8%). The equivalent post-tax discount
rates for FY23 are: Life Sciences 10.0% (2022: 10.4%), Seals 10.1%
(2022: 10.3%) and Controls 10.0% (2022: 10.3%). These rates are
based on the characteristics of lower risk, non-technically driven,
distribution businesses operating generally in well-developed
markets and with robust capital structures.
Based on the criteria set out above, no impairment in the value
of goodwill in the CGUs was identified.
11. ACQUISITIONS AND DISPOSALS OF BUSINESSES
Acquisition of Tennessee Industrial Electronics, LLC
On 6 March 2023, the Group acquired 100% of the share capital of
Tennessee Industrial Electronics, LLC ("T.I.E."), a distributor of
aftermarket parts and repair services into the US industrial
automation end market. The total investment, net of cash acquired
was GBP75.1m ($90.3m).
The provisional fair value of T.I.E.'s net assets acquired
excluding acquisition intangibles, related deferred tax and cash is
GBP10.8m following fair value adjustments of GBP1.0m. The principal
fair value adjustments relate to a net increase in inventory
(GBP0.2m) and provisions held against trade receivables (GBP0.4m),
recognition of previously unrecognised liabilities (GBP0.3m) and
write down of property plant and equipment (GBP0.5m).
Acquisition expenses of GBP1.5m have been recognised in respect
of this transaction in the financial year.
From the date of acquisition to 30 September 2023, T.I.E.
contributed GBP16.6m to revenue and GBP4.0m to adjusted operating
profit. If it had been acquired at the beginning of the financial
year, it would have contributed on a pro forma basis GBP28.3m to
revenue and GBP6.9m to adjusted operating profit. However, these
amounts should not be viewed as indicative of the results that
would have occurred if T.I.E. had been completed at the beginning
of the year.
Acquisition of Distribuidora Internacional Carmen, S.A.U.
On 12 July 2023, the Group acquired 100% of the share capital of
Distribuidora Internacional Carmen, S.A.U. ("DICSA"). DICSA, based
in Spain, is engaged in the manufacture and commercialisation of
stainless steel fittings and in the distribution of hydraulic and
pneumatic conductions and components. The total investment, net of
cash acquired is GBP159.7m (EUR186.6m).
The provisional fair value of DICSA's net assets acquired
excluding acquisition intangibles, related deferred tax and cash is
GBP45.4m following fair value adjustments of GBP1.4m. The principal
fair value adjustments relate to a net increase in provisions held
against inventory (GBP0.2m) and trade receivables (GBP0.1m),
recognition of previously unrecognised liabilities (GBP1.0m) and
write down of property plant and equipment (GBP0.1m).
Acquisition expenses of GBP2.7m have been recognised in respect
of this transaction in the financial year.
From the date of acquisition to 30 September 2023, DICSA
contributed GBP16.5m to revenue and GBP4.0m to adjusted operating
profit. If it had been acquired at the beginning of the financial
year, it would have contributed on a pro forma basis GBP79.5m to
revenue and GBP19.2m to adjusted operating profit. However, these
amounts should not be viewed as indicative of the results that
would have occurred if DICSA had been completed at the beginning of
the year.
Other acquisitions
The Group completed a further ten acquisitions in the year. This
comprised the trade and assets of Shrinktek Polymers International
Limited ("Shrinktek") (11 January 2023), Eurobond Adhesives Limited
("Eurobond") (23 March 2023) and International Technologies Group,
LLC ("ITG") (30 March 2023); 100% of the share capital of Fluid
Power Services Limited ("FPS") (3 October 2022), Hedley DMB Limited
("Hedley") (4 October 2022), Valves Online Limited ("Valves
Online") (14 March 2023), Gaskets, Packings & Seals
Enterprises, LLC ("GP&S") (14 April 2023), GM Medical Group A/S
("GM Medical") (11 July 2023), Hex Technology, LLC ("Hex") (17 July
2023) and Lantech Solutions Limited ("Lantech") (18 September
2023).
The combined initial consideration for these acquisitions was
GBP23.6m, net of cash acquired of GBP2.4m. Deferred consideration
with a fair value of GBP7.4m is payable based largely on the
performance of the businesses in the period subsequent to their
acquisitions.
Acquisition expenses of GBP0.9m have been recognised in respect
of these transactions in the financial year.
The provisional fair value of the total net assets acquired
excluding intangibles, related deferred tax and cash is
GBP5.4m.
The following table summarises the consideration paid for the
acquisitions completed in the year and fair value of assets
acquired and liabilities assumed, with fair values being
provisional pending completion of a final valuation of T.I.E. and
DICSA.
T.I.E. DICSA Others Total
------------------------------ --------------- -------------- -------------- --------------
Book Fair Book Fair Book Fair Book Fair
value value value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ------- ------ ------ ------ ------ ------ ------
Acquisition intangible
assets(1) - 25.9 - 99.7 - 18.2 - 143.8
------ ------- ------ ------ ------ ------ ------ ------
Deferred tax - - - (24.9) - (2.0) - (26.9)
------ ------- ------ ------ ------ ------ ------ ------
Property, plant and equipment 1.3 0.8 4.7 4.6 0.8 0.8 6.8 6.2
------ ------- ------ ------ ------ ------ ------ ------
Inventories 11.2 11.4 35.4 35.2 3.3 3.4 49.9 50.0
------ ------- ------ ------ ------ ------ ------ ------
Trade and other receivables 4.3 3.9 18.8 18.7 4.9 4.8 28.0 27.4
------ ------- ------ ------ ------ ------ ------ ------
Trade and other payables (5.0) (5.3) (12.1) (13.1) (3.4) (3.6) (20.5) (22.0)
------------------------------ ------ ------- ------ ------ ------ ------ ------ ------
Net assets acquired 11.8 36.7 46.8 120.2 5.6 21.6 64.2 178.5
------ ------- ------ ------ ------ ------ ------ ------
Goodwill - 38.4 - 39.5 - 9.4 - 87.3
------ ------- ------ ------ ------ ------ ------ ------
Minority interests - - - - - - - -
------------------------------ ------ ------- ------ ------ ------ ------ ------ ------
Cash paid 79.6 174.3 26.0 279.9
------ ------- ------ ------ ------ ------ ------ ------
Cash acquired (4.5) (14.6) (2.4) (21.5)
------ ------- ------ ------ ------ ------ ------ ------
258.4
------ ------- ------ ------ ------ ------ ------ ------
Deferred consideration - - 7.4 7.4
------ ------- ------ ------ ------ ------ ------ ------
Total investment 75.1(2) 159.7 31.0 265.8
------------------------------ ------ ------- ------ ------ ------ ------ ------ ------
1 On the acquisitions completed in the current year, acquired
intangibles relate to customer relationships (GBP136.8m), brand
(GBP6.2m) and technology (GBP0.8m).
2 Diploma acquired T.I.E. on a cash free/debt free basis. The
total investment amounts to GBP75.1m being cash paid net of cash
acquired. Of the initial cash paid, the vendor directed the funds
in escrow to settle outstanding debt of GBP11.7m, which is excluded
from the purchase consideration in accordance with IFRS 3.
Acquisitions revenue and adjusted operating profit
From the date of acquisition to 30 September 2023, each acquired
business contributed the following to Group revenue and adjusted
operating profit:
Pro forma
Pro forma Operating operating
Acquisition Revenue Adjustments(2) revenue profit(1) Adjustments(2) profit(1)
date GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------------ ------- -------------- --------- ---------- -------------- ----------
03 Oct
FPS 2022 3.0 - 3.0 0.7 - 0.7
------------ ------- -------------- --------- ---------- -------------- ----------
04 Oct
Hedley 2022 3.7 - 3.7 0.5 - 0.5
------------ ------- -------------- --------- ---------- -------------- ----------
11 Jan
Shrinktek 2023 1.0 0.4 1.4 0.3 0.1 0.4
------------ ------- -------------- --------- ---------- -------------- ----------
06 Mar
T.I.E. 2023 16.6 11.7 28.3 4.0 2.9 6.9
------------ ------- -------------- --------- ---------- -------------- ----------
14 Mar
Valves Online 2023 1.9 1.6 3.5 0.4 0.3 0.7
------------ ------- -------------- --------- ---------- -------------- ----------
23 Mar
Eurobond 2023 0.6 0.5 1.1 0.4 0.3 0.7
------------ ------- -------------- --------- ---------- -------------- ----------
30 Mar
ITG 2023 0.4 0.4 0.8 0.1 - 0.1
------------ ------- -------------- --------- ---------- -------------- ----------
14 Apr
GP&S 2023 5.6 6.6 12.2 1.1 1.3 2.4
------------ ------- -------------- --------- ---------- -------------- ----------
11 Jul
GM Medical 2023 0.9 3.4 4.3 0.1 0.4 0.5
------------ ------- -------------- --------- ---------- -------------- ----------
12 Jul
DICSA 2023 16.5 63.0 79.5 4.0 15.2 19.2
------------ ------- -------------- --------- ---------- -------------- ----------
17 Jul
Hex 2023 0.1 0.4 0.5 - - -
------------ ------- -------------- --------- ---------- -------------- ----------
18 Sep
Lantech 2023 0.1 2.7 2.8 - 0.8 0.8
-------------- ------------ ------- -------------- --------- ---------- -------------- ----------
50.4 90.7 141.1 11.6 21.3 32.9
--------------------------- ------- -------------- --------- ---------- -------------- ----------
1 Adjusted operating profit.
2 Pro forma revenue and adjusted operating profit has been
extrapolated (as prescribed under IFRS) from the actual results
reported since acquisition to indicate what these businesses would
have contributed if they had been acquired at the beginning of the
financial year on 1 October 2022. These amounts should not be
viewed as confirmation of the results of these businesses that
would have occurred if these acquisitions had been completed at the
beginning of the year.
Disposals
On 31 March 2023, the Group disposed of its interest in Hawco
Limited ("Hawco") for total proceeds of GBP24.5m. Cash of GBP21.5m
was received, net of cash disposed of GBP2.0m and with a further
GBP1.0m deferred for 12 months.
12. DIVIDS
2023 2022
pence pence 2023 2022
per share per share GBPm GBPm
--------------------------------------- ---------- ---------- ----- -----
Interim dividend, paid in June 16.5 15.0 22.1 18.7
---------- ---------- ----- -----
Final dividend of the prior year, paid
in February 38.8 30.1 48.4 37.5
--------------------------------------- ---------- ---------- ----- -----
55.3 45.1 70.5 56.2
--------------------------------------- ---------- ---------- ----- -----
The Directors have proposed a final dividend in respect of the
current year of 40.0p per share (2022: 38.8p), which will be paid
on 2 February 2024 subject to approval by shareholders at the
Annual General Meeting (AGM) on 17 January 2024. The total dividend
for the current year, subject to approval of the final dividend,
will be 56.5p per share (2022: 53.8p).
During the year, the Directors became aware that approximately
GBP2.5m of the FY21 interim dividend declared on 17 May 2021 was
paid other than in accordance with the technical requirements of
the Companies Act 2006. This was because interim accounts had not
been filed at Companies House prior to the declaration of the
dividend. It is intended that this technical issue, which has no
impact on the Company's financial position, be ratified by a
shareholders' resolution to be proposed at the Annual General
Meeting to be held on 17 January 2024. The approach that the
Company is proposing with regard to this matter is consistent with
the approach taken by other UK quoted and listed companies that
have, similarly, made distributions otherwise than in accordance
with the Act.
The Diploma PLC Employee Benefit Trust holds 67,431 (2022:
71,033) shares, which are ineligible for dividends.
13. EXCHANGE RATES
The exchange rates used to translate the results of the overseas
businesses are as follows:
Average Closing
------------------------ ---------- ----------
2023 2022 2023 2022
------------------------ ---- ---- ---- ----
US dollar (US$) 1.23 1.27 1.22 1.12
---- ---- ---- ----
Canadian dollar (C$) 1.66 1.63 1.65 1.53
---- ---- ---- ----
Euro (EUR) 1.15 1.18 1.15 1.14
---- ---- ---- ----
Swiss franc (CHF) 1.13 1.20 1.12 1.10
---- ---- ---- ----
Australian dollar (AUD) 1.85 1.79 1.89 1.74
------------------------ ---- ---- ---- ----
14. ALTERNATIVE PERFORMANCE MEASURES
The Group reports under International Financial Reporting
Standards (IFRS) and references alternative performance measures
where the Board believes that they help to effectively monitor the
performance of the Group and support readers of the Financial
Statements in drawing comparisons with past performance. Certain
alternative performance measures are also relevant in calculating a
meaningful element of Executive Directors' variable remuneration
and our debt covenants. Alternative performance measures are not
considered to be a substitute for, or superior to, IFRS
measures.
14.1 Revenue Growth
As a multi-national Group of companies who trade in a large
number of currencies and also acquire and sometimes dispose of
companies, organic performance is also referred to throughout the
Annual Report. These strip out the effects of the movement in
exchange rates and of acquisitions and disposals. The Board believe
that this allows users of the financial statements to gain a better
understanding of how the Group has performed.
A reconciliation of the movement in revenue compared to the
prior year is given below.
GBPm %
-------------------------------- -------
September 2022 Reported revenue 1,012.8
-------
Organic 87.8 8
-------
Acquisitions and Disposals 82.1 8
-------
Exchange 17.6 3
-------
September 2023 Reported revenue 1,200.3 19
-------------------------------- -------
The Organic revenue growth percentage is the incremental revenue
generated under Diploma's ownership compared to the revenue in the
same period prior to acquisition, at prior period exchange
rates.
The impact of acquisitions on growth is the revenue of the
acquiree prior to the acquisition by Diploma for the comparable
period at prior year exchange rates. The impact of disposals on
growth is the removal of the revenue of the disposed entity in the
comparable post disposal period at prior year exchange rates. The
Acquisitions and Disposals growth percentage is calculated as the
impact of acquisition and disposals divided by the reported revenue
in the prior period.
Exchange translation movements are assessed by re-translating
current year reported values to prior year exchange rates.
14.2 Adjusted operating profit and adjusted operating margin
Adjusted operating profit is the operating profit before
adjusting items that would otherwise distort operating profit,
currently and more recently being amortisation of acquisition
intangible assets or goodwill, acquisition expenses,
post-acquisition related remuneration costs and adjustments to
deferred consideration, the costs of a significant restructuring or
rationalisation and the profit or loss relating to the sale of
businesses. These are treated as adjusting items (referred to as
acquisition related and other charges) as they are considered to be
significant in nature and/or quantum and where treatment as an
adjusting item provides all our stakeholders with additional useful
information to assess the year-on-year trading performance of the
Group on a like-for-like basis. Adjusted operating margin is the
Group's adjusted operating profit divided by the Group's reported
revenue.
A reconciliation between operating profit as reported under IFRS
and adjusted operating profit is given below:
2023 2022
Note GBPm GBPm
------------------------------------------- ---- ------- -------
Revenue 1,200.3 1,012.8
---- ------- -------
Operating profit as reported under IFRS 183.3 144.3
---- ------- -------
Add: Acquisition related and other charges 53.7 46.9
------------------------------------------- ---- ------- -------
Adjusted operating profit 2,3 237.0 191.2
------------------------------------------- ---- ------- -------
Adjusted operating margin 19.7% 18.9%
------------------------------------------- ---- ------- -------
14.3 Adjusted earnings per share
Adjusted earnings per share ("adjusted EPS") is calculated as
the total of adjusted profit before tax, less income tax costs, but
including the tax impact on the items included in the calculation
of adjusted profit, less profit/(loss) attributable to minority
interests, divided by the weighted average number of ordinary
shares in issue during the year of 129,675,581 (2022: 124,533,060),
as set out in note 7. The Directors believe that adjusted EPS
provides an important measure of the earnings capacity of the
Group.
14.4 Free cash flow and free cash flow conversion
Free cash flow is defined as net cash flow from operating
activities, less net capital expenditure on tangible and intangible
assets, and including proceeds received from property disposals,
but before expenditure on business combinations/investments
(including any pre-acquisition debt like items such as pensions or
tax settled post-acquisition) and proceeds from business disposals,
borrowings received to fund acquisitions, net proceeds from issues
of share capital and dividends paid to both minority shareholders
and the Company's shareholders. "Free cash flow conversion"
reflects free cash flow as a percentage of adjusted earnings. The
Directors believe that free cash flow gives an important measure of
the cash flow of the Group, available for future investment or
distribution to shareholders.
2023 2022
Note GBPm GBPm
-------------------------------------------------------------- ---- ------- -------
Net increase in cash and cash equivalents 25.8 17.5
---- ------- -------
Add: Dividends paid to shareholders and minority
interests 70.8 56.4
---- ------- -------
Acquisition of minority interests - 0.3
---- ------- -------
Acquisition/disposal of businesses (including
net expenses) 243.0 170.4
---- ------- -------
Deferred consideration paid 12.3 7.1
---- ------- -------
Proceeds from issue of share capital (net of
fees) (231.9) -
---- ------- -------
Net repayment of/(proceeds from) borrowings (including
borrowing fees) 43.8 (131.3)
-------------------------------------------------------------- ---- ------- -------
Free cash flow 163.8 120.4
-------------------------------------------------------------- ---- ------- -------
Adjusted earnings(1) 7 164.0 133.9
-------------------------------------------------------------- ---- ------- -------
Free cash flow conversion 100% 90%
-------------------------------------------------------------- ---- ------- -------
(1) Adjusted earnings is shown on the face of the condensed
consolidated income statement as profit for the year attributable
to shareholders of the Company.
14.5 Leverage
Leverage is net debt, defined as cash and cash equivalents and
borrowings translated at average exchange rates for the reporting
period, divided by EBITDA as defined in the Group's external
facility covenants, which is the Group's adjusted operating profit
adjusting for depreciation and amortisation of tangible and other
intangible assets, the share of adjusted operating profit
attributable to minority interests and the annualisation of EBITDA
for acquisitions and disposals made during the financial year,
excluding the impact of IFRS 16 (Leases). The Directors consider
this metric to be an important measure of the Group's financial
position.
2023 2022
Note GBPm GBPm
---------------------------------------------- ---- ------- -------
Cash and cash equivalents 9 62.4 41.7
---- ------- -------
Borrowings 9 (317.1) (370.6)
---- ------- -------
Re-translation at average exchange rates 1.2 23.1
---------------------------------------------- ---- ------- -------
Net debt at average exchange rates (253.5) (305.8)
---------------------------------------------- ---- ------- -------
Adjusted operating profit 14.2 237.0 191.2
---- ------- -------
Depreciation and amortisation of tangible and
other intangible assets 2 13.8 11.2
---- ------- -------
IFRS 16 impact (1.7) 1.2
---- ------- -------
Minority interest share of adjusted operating
profit (0.8) (1.1)
---- ------- -------
Pro forma adjustments(1) 21.0 10.2
---------------------------------------------- ---- ------- -------
EBITDA 269.3 212.7
---------------------------------------------- ---- ------- -------
Leverage 0.9x 1.4x
---------------------------------------------- ---- ------- -------
1 Annualisation of adjusted EBITDA, including that of
acquisitions and disposals in the year.
14.6 Trading Capital Employed and ROATCE
Trading capital employed is defined as net assets less cash and
cash equivalents and retirement benefit assets, after adding back
borrowings (other than lease liabilities), deferred tax, retirement
benefit obligations and net acquisition liabilities in respect of
future purchases of minority interests, deferred consideration
payable on acquisitions, and acquisition receivables in respect of
previously completed disposals. Adjusted trading capital employed
is reported as being trading capital employed plus goodwill and
acquisition related charges previously charged to the income
statement (net of deferred tax on acquisition intangible assets)
and re-translated at the average exchange rates for the reporting
period. Return on adjusted trading capital employed ("ROATCE") is
defined as the pro forma adjusted operating profit, divided by
adjusted trading capital employed, where pro forma adjusted
operating profit is the annualised adjusted operating profit
including that of acquisitions and disposals in the period. The
Directors believe that ROATCE is an important measure of the
profitability of the Group.
2023 2022
Note GBPm GBPm
----------------------------------------------------- ---- ------- -------
Net assets as reported under IFRS 902.0 668.2
---- ------- -------
Add/(deduct):
---- ------- -------
- Deferred tax, net 58.4 38.2
---- ------- -------
- Retirement benefit assets, net (6.5) (6.4)
---- ------- -------
- Net acquisition related liabilities 19.6 29.6
---- ------- -------
- Net debt 9 254.7 328.9
---- ------- -------
Trading capital employed 1,228.2 1,058.5
---- ------- -------
- Historic goodwill and acquisition related charges,
net of deferred tax and currency movements 189.4 99.6
----------------------------------------------------- ---- ------- -------
Adjusted trading capital employed 1,417.6 1,158.1
---- ------- -------
Adjusted operating profit 14.2 237.0 191.2
---- ------- -------
Pro forma adjustments(1) 19.4 9.7
----------------------------------------------------- ---- ------- -------
Pro forma adjusted operating profit 256.4 200.9
----------------------------------------------------- ---- ------- -------
ROATCE 18.1% 17.3%
----------------------------------------------------- ---- ------- -------
1 Annualisation of adjusted operating profit, including that of
acquisitions and disposals in the year.
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END
FR EAKFNFENDFFA
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