REG - Diploma PLC - Half Year Results
13/05/2024 07:00
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RNS Number : 0701O Diploma PLC 13 May 2024
DIPLOMA PLC 10-11 CHARTERHOUSE SQUARE, LONDON EC1M 6EE
TELEPHONE: +44 (0)20 7549 5700
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2024
Strong first half, full year upgrade
H1 24 H1 23 Change
Revenue £638.3m £582.8m +10%
Organic revenue growth 5% 10%
Adjusted operating profit £125.4m £109.7m +14%
Adjusted operating margin 19.6% 18.8% +80bps
Statutory operating profit((1)) £88.0m £92.5m (5%)
Free cash flow £66.3m £51.8m +28%
Free cash flow conversion 76% 70% +6ppts
Adjusted earnings per share 65.1p 59.1p +10%
Basic earnings per share((1)) 43.1p 47.3p (9%)
Leverage 0.9x 0.7x
Interim dividend per share 17.3p 16.5p +5%
ROATCE 18.0% 17.8% +20bps
All alternative performance measures are defined in note 13 to the Condensed
Consolidated Financial Statements.
(1) Statutory operating profit and basic earnings per share in the prior year
include an exceptional gain on the disposal of Hawco of £12.2m.
• Organic revenue growth of 5%, volume-led with good momentum into the second
half.
• Double digit reported revenue growth includes 8% from acquisitions and an
adverse 3% impact of foreign exchange translation.
• Adjusted operating margin up 80 bps to 19.6%, reflecting our value-add
proposition; operational leverage; disciplined cost management; and accretive
acquisitions.
• Delivered with discipline: ROATCE up 20bps to 18.0%; free cash flow conversion
up 6ppts to 76%, and leverage at 0.9x.
• Ca. £284m invested in six quality acquisitions, including Peerless for ca.
£236m and PAR Group for ca. £38m, which completed after the period end.
• Upgrading guidance: we now expect FY24 constant currency revenue growth of ca.
16% (comprising 6% organic growth and 10% from acquisitions), and an operating
margin of ca. 20.5%. Strong underlying performance and recent acquisitions
contribute equally to the upgrade to operating margin.
Commenting, Johnny Thomson, Diploma's Chief Executive said:
"Thank you to all my brilliant colleagues for their continued dedication and
passion for serving our customers and driving our performance. We've delivered
another strong first half with good volume-led organic growth in a more
challenging market environment. Our momentum is encouraging going into the
second half, underpinning our upgrade to full year guidance.
"We have welcomed six new quality businesses into the Group since the start of
the year. They include Peerless and PAR Group - two founder-owned businesses
with great organic growth credentials and strong value-add business models.
"Diploma has a long track record of double-digit EPS growth at healthy
returns. Our current performance and upgrade reaffirms our confidence in
delivering sustainable quality compounding."
Revenue diversification driving organic growth and increasing resilience
• Controls +7%: Strong growth in International Controls with structural
tailwinds and market share gains. Windy City Wire delivered sustained,
volume-led growth in line with Group average.
• Seals +1%: Resilient performance against a backdrop of customer destocking.
Normal ordering patterns are starting to resume and we expect a stronger
second half.
• Life Sciences +5%: End market dynamics are now largely normalised
post-pandemic, underpinning strong performance in Canada and Australia.
Complementary acquisitions driving future organic growth
• Acquisition of US-based Peerless Aerospace Fastener LLC ("Peerless") for ca.
£236m, extending our established position in aerospace specialty fasteners
and accelerating organic growth through product and geographic expansion. It
is expected to deliver 15% ROATCE and 8% EPS accretion in year one.
• Acquisition of UK-based Plastic and Rubber Group Holdings Limited ("PAR
Group") for ca. £38m adds scale to R&G's Seals & Gaskets division. It
is expected to deliver 14% ROATCE and 1% EPS accretion in year one.
• Four small bolt-ons for £10m; average EBIT multiple around 4x; £10m of
annual revenue; and year one ROATCE of over 20%.
• Strong M&A pipeline diversified by Sector, size and geography. Strong cash
flow and balance sheet provides capacity for disciplined acquisitive growth.
Scaling effectively for sustainable growth
• Expansion of the 'Leadership at Scale' management development programme.
• Three new state-of-the-art facilities opened to support future growth in the
UK and Europe.
• Delivered improvements against all our Delivering Value Responsibly targets.
• Strengthened balance sheet through the refinancing of the Group's facilities
with a structured Revolving Credit Facility ("RCF") and debut US Private
Placement ("USPP") providing ca. £770m of committed facilities with a blend
of maturities out to 2036.
Upgrading full year 2024 guidance
• The momentum in our underlying business, combined with the contribution from
recent acquisitions, drives an upgrade to previous guidance for FY24:
○ Constant currency revenue growth of ca. 16%, up 5ppts from previous guidance,
comprising ca. 6% organic revenue growth and growth from acquisitions of ca.
10%.
○ Strong operating margin of ca. 20.5%, up 80bps from previous guidance. Strong
underlying performance and recent acquisitions contribute equally to the
upgrade.
○ EPS growth of ca. 15%, reflecting strong underlying performance and the
contribution of acquisitions.
○ Free cash flow conversion of ca. 90% and leverage of 1.3x.
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2024
Strong first half, full year upgrade
H1 24 H1 23 Change
Revenue £638.3m £582.8m +10%
Organic revenue growth 5% 10%
Adjusted operating profit £125.4m £109.7m +14%
Adjusted operating margin 19.6% 18.8% +80bps
Statutory operating profit((1)) £88.0m £92.5m (5%)
Free cash flow £66.3m £51.8m +28%
Free cash flow conversion 76% 70% +6ppts
Adjusted earnings per share 65.1p 59.1p +10%
Basic earnings per share((1)) 43.1p 47.3p (9%)
Leverage 0.9x 0.7x
Interim dividend per share 17.3p 16.5p +5%
ROATCE 18.0% 17.8% +20bps
All alternative performance measures are defined in note 13 to the Condensed
Consolidated Financial Statements.
(1) Statutory operating profit and basic earnings per share in the prior year
include an exceptional gain on the disposal of Hawco of £12.2m.
• Organic revenue growth of 5%, volume-led with good momentum into the second
half.
• Double digit reported revenue growth includes 8% from acquisitions and an
adverse 3% impact of foreign exchange translation.
• Adjusted operating margin up 80 bps to 19.6%, reflecting our value-add
proposition; operational leverage; disciplined cost management; and accretive
acquisitions.
• Delivered with discipline: ROATCE up 20bps to 18.0%; free cash flow conversion
up 6ppts to 76%, and leverage at 0.9x.
• Ca. £284m invested in six quality acquisitions, including Peerless for ca.
£236m and PAR Group for ca. £38m, which completed after the period end.
• Upgrading guidance: we now expect FY24 constant currency revenue growth of ca.
16% (comprising 6% organic growth and 10% from acquisitions), and an operating
margin of ca. 20.5%. Strong underlying performance and recent acquisitions
contribute equally to the upgrade to operating margin.
Commenting, Johnny Thomson, Diploma's Chief Executive said:
"Thank you to all my brilliant colleagues for their continued dedication and
passion for serving our customers and driving our performance. We've delivered
another strong first half with good volume-led organic growth in a more
challenging market environment. Our momentum is encouraging going into the
second half, underpinning our upgrade to full year guidance.
"We have welcomed six new quality businesses into the Group since the start of
the year. They include Peerless and PAR Group - two founder-owned businesses
with great organic growth credentials and strong value-add business models.
"Diploma has a long track record of double-digit EPS growth at healthy
returns. Our current performance and upgrade reaffirms our confidence in
delivering sustainable quality compounding."
Revenue diversification driving organic growth and increasing resilience
• Controls +7%: Strong growth in International Controls with structural
tailwinds and market share gains. Windy City Wire delivered sustained,
volume-led growth in line with Group average.
• Seals +1%: Resilient performance against a backdrop of customer destocking.
Normal ordering patterns are starting to resume and we expect a stronger
second half.
• Life Sciences +5%: End market dynamics are now largely normalised
post-pandemic, underpinning strong performance in Canada and Australia.
Complementary acquisitions driving future organic growth
• Acquisition of US-based Peerless Aerospace Fastener LLC ("Peerless") for ca.
£236m, extending our established position in aerospace specialty fasteners
and accelerating organic growth through product and geographic expansion. It
is expected to deliver 15% ROATCE and 8% EPS accretion in year one.
• Acquisition of UK-based Plastic and Rubber Group Holdings Limited ("PAR
Group") for ca. £38m adds scale to R&G's Seals & Gaskets division. It
is expected to deliver 14% ROATCE and 1% EPS accretion in year one.
• Four small bolt-ons for £10m; average EBIT multiple around 4x; £10m of
annual revenue; and year one ROATCE of over 20%.
• Strong M&A pipeline diversified by Sector, size and geography. Strong cash
flow and balance sheet provides capacity for disciplined acquisitive growth.
Scaling effectively for sustainable growth
• Expansion of the 'Leadership at Scale' management development programme.
• Three new state-of-the-art facilities opened to support future growth in the
UK and Europe.
• Delivered improvements against all our Delivering Value Responsibly targets.
• Strengthened balance sheet through the refinancing of the Group's facilities
with a structured Revolving Credit Facility ("RCF") and debut US Private
Placement ("USPP") providing ca. £770m of committed facilities with a blend
of maturities out to 2036.
Upgrading full year 2024 guidance
• The momentum in our underlying business, combined with the contribution from
recent acquisitions, drives an upgrade to previous guidance for FY24:
○ Constant currency revenue growth of ca. 16%, up 5ppts from previous guidance,
comprising ca. 6% organic revenue growth and growth from acquisitions of ca.
10%.
○ Strong operating margin of ca. 20.5%, up 80bps from previous guidance. Strong
underlying performance and recent acquisitions contribute equally to the
upgrade.
○ EPS growth of ca. 15%, reflecting strong underlying performance and the
contribution of acquisitions.
○ Free cash flow conversion of ca. 90% and leverage of 1.3x.
Notes:
1. Diploma PLC uses alternative performance measures as key
financial indicators to assess the underlying performance of the Group. These
include revenue and organic growth, adjusted operating profit/adjusted
operating margin, adjusted earnings per share, free cash flow/free cash flow
conversion, leverage and ROATCE. The narrative in this Announcement is based
on these alternative measures and an explanation is set out in note 13 to the
Condensed Consolidated Financial Statements in this Announcement.
2. Certain statements contained in this Announcement constitute
forward-looking statements. Such forward-looking statements involve risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of Diploma PLC, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such statements. Such risks, uncertainties and other
factors include, among others, exchange rates, general economic conditions and
the business environment.
A presentation of the results to analysts and investors will be held at 09:00
GMT via audio conference call and webcast. Register your attendance for the
webcast at: https://brrmedia.news/DPLM_HY24 (https://brrmedia.news/DPLM_HY24)
Conference call dial in details:
• Dial in: UK-Wide: +44 (0) 33 0551 0200 / UK Toll Free: 0808 109 0700
• Password: Diploma Half Year
A recording of the presentation will be available after the event on our
website: https://www.diplomaplc.com/investors/financial-presentations/
(https://www.diplomaplc.com/investors/financial-presentations/)
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
Camilla Cunningham
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 ca. 3,500 colleagues across our three Sectors of Controls, Seals and
Life Sciences. Our principal operating businesses are located in the UK,
Northern Europe, North America and Australia.
Over the last fifteen years, the Group has grown adjusted earnings per share
("EPS") at an average of ca. 15% p.a. through a combination of organic growth
and acquisitions.
Diploma is a member of the FTSE 100.
Further information on Diploma PLC can be found at www.diplomaplc.com
(http://www.diplomaplc.com)
The person responsible for releasing this Announcement is John Morrison,
Company Secretary.
LEI: 2138008OGI7VYG8FGR19
BUSINESS REVIEW
Strong first half performance
The Group has delivered a strong first half performance as we continue to
execute our strategy of building high quality scalable businesses for
sustainable organic growth.
Revenue diversification driving organic growth and increasing resilience
Revenue in the year grew 10% to £638.3m (H1 23: £582.8m). Organic growth of
5% was volume-led, with growth across all three Sectors. Acquisitions added a
further 8% to reported revenue, partially offset by the adverse 3% impact of
foreign exchange translation.
Revenue £m Organic growth
H1 24 H1 23 Change H1 24 H1 23
Controls 288.1 278.8 +3% +7% +13%
Seals 241.2 198.4 +22% +1% +8%
Life Sciences 109.0 105.6 +3% +5% +4%
Group 638.3 582.8 +10% +5% +10%
This strong revenue performance was replicated across all our key financial
metrics:
• Operating margins rose 80bps to 19.6% (H1 23: 18.8%), supported by operational
leverage, disciplined cost control and accretive acquisitions. Adjusted
operating profit was up 14% to £125.4m (H1 23: £109.7m).
• Adjusted earnings per share ("EPS") grew 10% to 65.1p (H1 23: 59.1p),
continuing our long-term compounding track record of double-digit growth (15%
CAGR EPS growth over 15 years).
• Cash conversion improved year on year to 76% (H1 23: 70%) reflecting continued
disciplined working capital management.
• Return on capital is a key underpin of our compounding financial model. In the
period, return on adjusted trading capital employed ("ROATCE") rose 20bps to
18.0% (H1 23: 17.8%).
In line with our policy, we have declared a 5% increase in the interim
dividend to 17.3p per share (H1 23: 16.5p), payable on 7 June 2024 to
shareholders on the register on 24 May 2024, with a corresponding ex-dividend
date of 23 May 2024.
Positioning behind structurally growing end markets
We continue to drive growth through expansion in structurally growing end
markets. In Controls, we have increased our position in aerospace, organically
and through the recent acquisition of Peerless Aerospace Fastener LLC
("Peerless") and have also seen strong growth in space, motorsport, defence,
medical, energy and data centres. In Seals, we continue to see growth in
markets benefiting from sustained infrastructure investment, as well as energy
markets and the mining of minerals for batteries required for electrification.
In Life Sciences, continued investment in In Vitro Diagnostics from health
authorities has driven growth across a range of applications.
Penetration of core developed economies
In Controls, the acquisition of Peerless extends our geographic reach in the
US from the West Coast to national coverage, and also extends our capabilities
in Europe. In Seals, we have begun to explore opportunities to leverage our
sales platforms and distribution networks across our businesses. Our European
and UK fluid power businesses, DICSA and R&G, are collaborating to expand
their respective markets, and in the US, DICSA is working with Hercules
Aftermarket to enhance its distribution capability out of the Louisville
Autostore. We are in the early stages of these collaborations but believe they
will yield exciting opportunities. In Life Sciences we have a scaling
programme underway in Canada that will see the creation of eastern and western
hubs, enabling better customer coverage across the country.
Product range extension
In the first half, our product offering has grown organically, as we source
and develop new products, and through acquisition. In Controls, Windy City
Wire ("WCW") introduced Audio/Visual ("AV") cabling to its product range
driving growth from existing and new customers. Interconnect expanded its
offering of motorsport connectors which was a strong driver of growth in the
period. In Seals, R&G has continued to extend its range into adjacent
product lines, including DICSA stainless steel fittings, and VSP increased its
position in industrial and transportation markets through product
developments. In Life Sciences, the continued adoption of new technologies in
areas including urology, gynaecology and endoscopy has created opportunities
for product expansion and we are increasingly leveraging products between
geographies.
Complementary acquisitions to accelerate growth
Future organic growth is also supported by selective acquisitions. Since 30
September 2023, we have acquired six high-quality businesses for a total of
£284m.
During the period, we completed four quality bolt-on acquisitions for £10m,
with an EBIT multiple of around 4x and year one ROATCE exceeding 20%. These
acquisitions include Controls and Seals businesses in the UK and Europe with
more details included in the Sector reviews.
On 1 May, we completed the acquisition of US-based Peerless for ca. £236m.
This former family-owned business extends our established position in the
aerospace specialty fasteners market, in the Controls Sector, accelerating
organic growth through product and geographic expansion. This is highly
complementary to our existing Specialty Fasteners business, extending our
capabilities from the interior of the aircraft cabin, to the airframe.
Acquired at a multiple of ca. 7x FY24 earnings before interest and tax
("EBIT"), Peerless is expected to deliver 15% ROATCE and 8% EPS accretion in
year one.
On 30 April, we acquired UK-based PAR Group for ca. £38m. This founder-led
business will join the R&G family of companies in our Seals Sector, adding
scale to its Seals & Gaskets division. Acquired at ca. 7x FY24 EBIT, PAR
Group is expected to deliver 14% ROATCE and 1% EPS accretion in year one.
Given the completion dates of both Peerless and PAR Group, there is no impact
from either in the first half results.
Our acquisition pipeline remains strong with active opportunities across our
core geographies and in all three Sectors.
The recent acquisitions demonstrate the compelling proposition Diploma offers
to owners selling their businesses. Finding the right home is often an
important part of their decision and we have a strong track record of
preserving legacies; promoting autonomy and accountability; supporting growth
through investment and expertise; and welcoming new colleagues into our
network through which we all benefit from shared experience.
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 takes many forms across the Group and is an ongoing journey. From the
upgrade of systems and facilities, such as new state-of-the-art facilities in
UK Wire and Cable (Controls), UK Aftermarket and European OEM (Seals), to
enhancing sales capabilities, such as in Interconnect and Industrial
Automation (Controls) we are continually investing in scaling our businesses.
In Life Sciences, we are increasingly collaborating across geographies to
leverage strong supplier and product relationships from one business to bring
new and improved customer offers to other regions. Through our Leadership at
Scale programme, we are developing internal senior talent and building
succession, and are investing in growing talent through our apprenticeship
programmes across the Group.
Delivering Value Responsibly
We have made good progress in the period across all aspects of DVR:
• In Q1 we launched a Groupwide Health & Safety framework, alongside the
introduction of an external Health & Safety audit program to support our
businesses in driving continuous improvement.
• In December, our Net Zero targets were validated by SBTi. We are targeting a
50% reduction in Scope 1&2 emissions and 30% reduction in Scope 3 by 2030,
leading to net zero by 2045.
• We continue to focus on gender equality across all our businesses and in the
first half of the year we had gender parity across all hires into our senior
leadership teams.
Outlook and full year guidance
We have delivered a strong first half with good momentum going forward. The
positive momentum from our underlying business, combined with the contribution
from new acquisitions drives an upgrade to previous guidance for FY24:
• Constant currency revenue growth of ca. 16%, up 5ppts from previous guidance,
comprising ca. 6% organic revenue, and growth from acquisitions of ca. 10%.
• Strong operating margin of ca. 20.5%, up 80bps from previous guidance. Strong
underlying performance and recent acquisitions contribute equally to the
upgrade.
• EPS growth of ca. 15% reflecting strong underlying performance and the
contribution of acquisitions.
• Free cash flow conversion of ca. 90% and leverage of 1.3x.
SECTOR REVIEW: CONTROLS
The Controls Sector businesses supply specialised wiring, cable, connectors,
fasteners, control devices, adhesives, and Computer Numerical Control ("CNC")
and robotic components for a range of technically demanding applications.
H1 24 H1 23 Change
Revenue £288.1m £278.8m +3%
Organic revenue growth +7% +13%
Statutory operating profit £53.7m £57.7m (7%)
Adjusted operating profit £69.9m £64.3m +9%
Adjusted operating margin 24.3% 23.1% +120bps
H1 24 highlights
• Share gains in fast growing end markets in the US, UK and Europe drove strong
7% organic revenue growth.
• Adjusted operating profit of £69.9m grew 9%, with a 120bps year-on-year
increase in adjusted operating margin to 24.3%. Margin expansion was driven by
product mix, operating leverage and margin accretive acquisitions in the prior
year.
• Strategic acquisition of Peerless builds scale and expands Specialty
Fasteners' presence in key US and European civil aerospace and defence
markets.
International Controls (61% of Controls Sector revenue(1)) delivered 10%
organic growth in the period, continuing to benefit from market share gains
and strong commercial delivery in civil aerospace and space markets, and
enduring tailwinds in UK and European defence and energy markets as investment
in these areas remains a prime focus for governments. International Controls
continues to diversify its end markets, gaining share in space and medical and
benefiting from the wider move to electrification and green energy as it
continues to deliver growth in the electric vehicle ("EV") and renewable
energy end markets. Operating margin improved considerably, principally due to
positive operating leverage on volume growth and mix benefits from the
acquisition of Industrial Automation business, T.I.E., and the disposal of
Hawco, in the prior year. Reported revenue in H1 23 included £15.1m
contribution from Hawco, prior to its disposal in March 2023.
(1) Including proforma revenue for Peerless which completed after the period
end
Windy City Wire ("WCW") (39% of Controls Sector revenue) continues to deliver
growth in its core building automation end market, benefiting during the
period from the expansion in datacentres behind AI growth, which we expect to
provide longer term growth impetus. Organic growth of 4% was supported by the
continued acceleration of growth in newer applications, including Distributed
Antenna Systems ("DAS"), AV and the roll-out of chip-and-pin terminals to gas
stations across the US. Operating margin improved further, driven by positive
operating leverage and mix benefits of moving into higher margin end markets
and products.
Revenue diversification driving organic growth
We delivered high single-digit organic growth in our Interconnect businesses,
driven by robust demand in the defence, motorsport and civil aerospace
markets. Revenues in the German energy market also grew, driven by share gains
and ongoing upgrades to the transmission and distribution network. Other key
growth segments include medical and US industrial, where we are gaining market
share as these end markets recover post-pandemic.
Our Specialty Fasteners businesses continued to deliver strong double-digit
growth during the first half, winning further market share and continuing to
benefit from strong customer demand in the civil aerospace market in the US,
Europe and the UK. Further geographic diversification has been achieved via
key aerospace contract wins in Germany and through strengthening our presence
in the US space market with new key account wins. End market diversification
was supported by good momentum into motorsport, industrial and electric
vertical take-off and landing ("eVTOL") aircraft.
In UK Wire and Cable the impact of softer demand in UK construction and
wholesale end markets was partially mitigated by increased exposure to major
infrastructure projects. Momentum built towards the end of the period, and we
expect a stronger second half performance.
With the acquisition of T.I.E. during FY23, we entered the attractive
Industrial Automation end market. Since acquisition, we have invested in
enhancing the commercial operation of the business, including expansion of the
sales team to drive geographic diversification across the US. Whilst strike
action in the automotive market moderated growth at the start of the year, a
favourable mix shift supported margin improvement and operating profit
performance was in line with our expectations.
Targeted acquisitions to accelerate growth
Two small bolt-on acquisitions were completed in the period, with Cable and
Tubing Solutions further broadening our medical offering in our German
Interconnect business and supporting growth in this attractive end market; and
Technisil expanding our Specialty Adhesives penetration in Germany.
The strategic acquisition of Peerless completed on 1 May. The addition of this
US-based value-add aerospace fasteners business, enables us to build scale and
expand our presence and capabilities in the attractive aerospace and defence
end markets in the US and Europe. Supplying fasteners into the airframe of
aircraft, Peerless is highly complementary to our existing Specialty Fasteners
business, Clarendon, which supplies products into aircraft cabins and seats.
There is no impact of Peerless in these first half results.
Building scale
Significant investment in technology and facilities continues as the Sector
finalises the integration of its three UK Wire & Cable locations into one
state-of-the-art automated facility and onto a common ERP platform. In
addition to delivering operational efficiencies, there is a commercial benefit
from this new, integrated structure via enhanced cross-selling capabilities
across previously separate sales teams.
Supporting end market penetration, we have invested in specialist sales
resource in Interconnect, enabling expansion in medical, rail and defence
markets, and in Specialty Adhesives to maximise long-term aerospace and
defence opportunities.
Outlook
We have made good strategic progress in Controls. Our businesses are
benefiting from initiatives to capture growth in structurally growing end
markets, such as medical, energy and EVs, as well as high-growth emerging
markets, such as space and eVTOL. We are also benefiting from continued
geographic diversification as we continue to build scale in the US and Europe.
The Sector has strong momentum into the second half of the year, and will be
boosted further by the addition of the high growth, high margin Peerless
business. We remain very positive about its outlook.
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, Original Equipment Manufacturing (OEM)
and Maintenance, Repair and Overhaul (MRO) applications.
H1 24 H1 23 Change
Revenue £241.2m £198.4m +22%
Organic revenue growth +1% +8%
Statutory operating profit £27.8m £29.3m (5%)
Adjusted operating profit £44.3m £35.7m +24%
Adjusted operating margin 18.4% 18.0% +40bps
H1 24 highlights
• Organic revenue growth of 1% driven by resilient performance against backdrop
of customer destocking. Signs of normalisation into the second half with
typical ordering patterns starting to resume.
• Adjusted operating profit increased by 24% to £44.3m, driven by operational
leverage and contribution from DICSA.
• Acquisition of PAR Group into R&G expanding capabilities and further
diversifying UK Aftermarket's customer base and end market.
International Seals (57% of Seals Sector revenue(2)) delivered organic growth
of 1% against strong prior year comparatives; continued destocking by OEM and
reseller customers; and short term market challenges in Europe. Reported
revenue growth was 42%, reflecting prior year acquisitions, particularly DICSA
in the second half of FY23.
(2) Including proforma revenue for PAR Group which completed after the period
end.
North American Seals (43% of Seals Sector revenue) delivered organic growth of
1% and a further 6% contribution from prior year acquisitions, as strong
growth in MRO mitigated continued destocking by OEM and reseller customers.
Revenue diversification driving organic growth
In International Seals, our UK Aftermarket business, R&G benefited from
diversification into product adjacencies increasing penetration across its end
markets, organically and through targeted acquisitions. Our Australian Seals
businesses delivered excellent growth, as its strong customer proposition
drove share gains in markets benefiting from sustained infrastructure
investments and continuous strong demand for the mining of the minerals
required for electrification. European OEM businesses continued to be impacted
by customer destocking during the first half, with signs of normalisation
emerging with the resumption of typical ordering patterns in some areas. In
European Aftermarket, DICSA performed in line with expectations following its
acquisition in the second half of FY23 with good growth in its core stainless
steel fittings that was partially offset by the impact of destocking in some
channels.
In North American Seals, MRO delivered strong organic growth. We have
increased our position in industrial and transportation markets through
product development and geographical expansion. Prior year acquisitions also
achieved strong organic growth in the period driven by cross-selling products
and services. The US Aftermarket business, Hercules, delivered a resilient
performance following a period of strong growth in the prior year, supported
by high demand for repairs. The US OEM business was resilient in the face of
continued customer destocking, as product extension and end market expansion
delivered growth. There are signs of more typical customer buying patterns
into the second half.
During the period, the Sector began to explore intercompany opportunities in
fluid power arising from the acquisition of DICSA. Collaboration is underway
between R&G and DICSA, to expand reach across their respective established
core markets in the UK and Europe. In addition, DICSA and Hercules Aftermarket
are working together to distribute DICSA product from the Louisville
Autostore, leveraging Hercules' sales and logistics capabilities. We are in
the early stages of these developments but we see exciting growth
opportunities ahead.
Targeted acquisitions to accelerate growth
R&G added two bolt-on acquisitions during the first half. Fast Gaskets, a
distributor of soft gaskets and rubber sheets, is an approved supplier to the
UK defence industry, and a specialist solution provider into the food &
beverage and pharmaceutical & chemical end markets. Abbey Hose, a
specialist hydraulic and industrial hose distributor, extends R&G's
geographical reach within the UK and creates access to key infrastructure
projects and customers.
We acquired UK-based PAR Group into R&G on 30 April 2024. It is a very
complementary business, significantly expanding our UK Aftermarket seals &
gaskets capabilities and further diversifying R&G's customer base and end
market exposure. The acquisition presents strong opportunities for organic
growth, synergies and cross-selling.
Building scale
During the period, we opened our new European OEM M Seals facility in Denmark.
The low-emission, state-of the-art facility creates a Nordic hub for the
Sector, providing improved warehousing capabilities and a wide range of
value-add services to support future growth. In UK Aftermarket, we created a
National Distribution Centre in Lincoln that will act as the main stocking
location for all our R&G Hydraulics businesses. We also introduced a hose
assembly Centre of Excellence in Liverpool. Our scaling journey continues in
Australia as we near completion of the integration of three, previously
standalone, businesses to form one larger business.
In North American Seals, our continued focus on the supply chain is yielding
positive results in optimising inventory levels and delivering process
improvements within operations and commercial execution. Investments in seal
machining, webstore enhancements and new products position the Aftermarket
business well for continued growth as US infrastructure projects accelerate.
Outlook
The Seals Sector has been resilient through challenging trading conditions,
and continues to make strategic progress, strengthening its presence across
attractive end markets, building cross-selling opportunities and scaling our
operations. We are well positioned to benefit from the significant investments
into infrastructure projects across the US and Europe. As we continue to see
the resumption of more typical buying patterns across our OEM and reseller
customer bases, we expect a stronger performance in the second half of the
year.
SECTOR REVIEW: LIFE SCIENCES
The Life Sciences Sector sources and supplies technology driven value add
solutions in the In Vitro Diagnostics ("IVD"), Scientific and Medtech segments
of the Global Healthcare market.
H1 24 H1 23 Change
Revenue £109.0m £105.6m +3%
Organic revenue growth 5% 4%
Statutory operating profit £16.9m £16.7m +1%
Adjusted operating profit £21.6m £20.9m +3%
Adjusted operating margin 19.8% 19.8% -
H1 24 highlights
• Organic revenue growth of 5% with continued momentum led by strong performance
and market share gains in Australia and Canada.
• Adjusted operating profit was up 3%, with foreign exchange headwinds partially
offsetting organic growth. Margins were flat year-on-year.
• Significant investments in scaling to support future growth in Canada and
Europe.
Revenue diversification driving organic growth
In the first half of the year, adoption of new technology in healthcare
settings and continued diversification through new product introductions have
been the primary drivers of growth. We are increasingly collaborating across
geographies to leverage strong supplier and product relationships from one
business to bring new and improved customer offers to other regions. As we aim
to scale our Scientific business, we see medium-term growth opportunities
across pharmaceutical, biotech and food and beverage end markets driven
respectively by development of new patient treatment modalities such as cell
and gene therapy, as well as increased food production quality control
regulations.
In Canada, we have seen continued adoption and implementation of new
technologies by hospitals within the urology, gynaecology and endoscopy
specialties creating opportunities to broaden our product range and grow
market share. IVD testing has grown in this market reflecting ongoing
investment. In Australia, growth has been driven by the increased demand for
genetic preconception screening supported by increased government investment
and continued growth of our IVD business. Growth in allergy and autoimmunity
testing has been driven by the extension of our service to existing customers
through expanded offerings. In Europe, organic growth was broadly flat.
Continued growth in IVD and critical care portfolios in the UK and Ireland,
and tender wins in the Nordics drove good growth. This was offset by the
timing of capital projects; product portfolio optimisation to phase out some
lower margin products; and a supplier contract concluding during the period.
Building scale
Following the successful integration of our Australian businesses in FY23, we
have invested in scaling our Canadian business. In combining and relocating
sites, and upgrading facilities across Canada, we will improve customer
service; reduce shipment times; deliver operational improvements and
efficiencies; and increase our access to talent.
In Europe, we completed the integration of our Nordic Life Sciences businesses
enhancing our customer proposition through the expansion of products and
services.
Outlook
The outlook for the full year remains positive as we see continued
opportunities in new technology adoption in Canada; expanding the array of
diagnostic testing in Australia; and increased funding of capital projects in
Europe.
FINANCE review
Summary income statement
Six months ended 31 March 2024 Six months ended 31 March 2023
Adjusted(1) £m Adjustments(1) £m Total £m Adjusted(1) £m Adjustments(1) £m Total £m
Revenue 638.3 - 638.3 582.8 - 582.8
Operating expenses (512.9) (37.4) (550.3) (473.1) (17.2) (490.3)
Operating profit 125.4 (37.4) 88.0 109.7 (17.2) 92.5
Financial expense, net (10.2) - (10.2) (11.0) (2.8) (13.8)
Profit before tax 115.2 (37.4) 77.8 98.7 (20.0) 78.7
Tax expense (27.6) 7.9 (19.7) (24.2) 5.2 (19.0)
Profit for the period 87.6 (29.5) 58.1 74.5 (14.8) 59.7
Earnings per share (p)
Adjusted/Basic 65.1p (22.0p) 43.1p 59.1p (11.8p) 47.3p
(¹) 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 13
to the Condensed Consolidated Financial Statements.
Reported revenue increased by 10% to £638.3m (H1 23: £582.8m), consisting of
organic growth of 5%, an 8% net contribution from acquisitions and disposals,
partly offset by the adverse 3% impact from foreign exchange translation.
Adjusted operating profit increased by 14% to £125.4m (H1 23: £109.7m) as
the operational leverage from increased revenue, disciplined cost management
and accretive acquisitions drove a 80bps year-on-year improvement in the
adjusted operating margin to 19.6% (H1 23: 18.8%).
Statutory operating profit is £88.0m. The prior year, at £92.5m, benefitted
from an exceptional gain on the disposal of Hawco of £12.2m.
Adjusted profit before tax increased 17% to £115.2m (H1 23: £98.7m). Net
adjusted interest expense decreased to £10.2m (H1 23: £11.0m), driven
largely by the structure and mix of debt facilities. The all-in, blended cost
of our borrowing facilities decreased to 5.2% (H1 23: 5.5%). Statutory profit
before tax is £77.8m, with prior year of £78.7m benefiting from the
exceptional gain on the disposal of Hawco.
The Group's adjusted effective rate of tax on adjusted profit before tax for
the period was 24.0% (FY23: 24.0%), comparable with the year ended 30
September 2023.
Adjusted earnings per share increased by 10% to 65.1p (H1 23: 59.1p). Basic
earnings per share is 43.1p, with prior year of 47.3p benefiting from 9.7p due
to the exceptional gain on the disposal of Hawco. As at 31 March 2024, the
average number of ordinary shares (which includes any potentially dilutive
shares) was 134,328,842 (H1 23: 125,927,286) and the weighted average number
of ordinary shares in issue was 134,009,865 (H1 23: 125,360,523).
Cash management
Free cash flow increased by 28% to £66.3m (H1 23: £51.8m). Statutory cash
flow from operating activities increased by 20% to £77.7m (H1 23: £64.7m).
Six months ended Six months ended
31 March 31 March
2024 2023
Funds flow £m £m
Adjusted operating profit 125.4 109.7
Depreciation and other non-cash items 15.8 15.3
Working capital movement (17.1) (22.8)
Interest paid, net (excluding borrowing fees) (8.2) (9.8)
Tax paid (33.3) (22.2)
Capital expenditure, net of disposal proceeds (4.2) (9.5)
Lease repayments (9.9) (7.0)
Notional purchase of own shares on exercise of options (2.2) (1.9)
Free cash flow 66.3 51.8
Acquisition and disposals (net of cash acquired/disposed) including (21.6) (75.9)
acquisition expenses and acquisition related deferred (payments)/receipts
Proceeds from issue of share capital (net of fees) - 232.5
Dividends paid to shareholders and minority interests (53.8) (48.7)
Foreign exchange 5.2 15.2
Net funds flow (3.9) 174.9
Net debt (258.6) (154.0)
Working capital increased by £17.1m, driven by an increase in receivables of
£16.4m, reflective of the revenue growth during the period.
Depreciation and other non-cash items includes £15.6m (H1 23: £13.4m) of
depreciation and amortisation of tangible, intangible and right-of-use assets
and £0.2m (H1 23: £1.9m) of non-cash items, primarily share-based payments
expense largely offset by profit on disposal of tangible assets.
Interest payments decreased by £1.6m to £8.2m (H1 23: £9.8m) driven largely
by the structure and mix of debt facilities, in line with the movement of
interest in the income statement. Tax payments in the first half of the year
were higher by £11.1m at £33.3m (H1 23: £22.2m) due to the increase in the
UK corporation tax rate and acquisitions made in 2023.
Net capital expenditure was £5.3m lower than prior year, benefiting from
£5.5m of proceeds from the disposal of property, plant and equipment. The
Group funded the Company's Employee Benefit Trust with £2.2m (H1 23: £1.9m)
in connection with the Company's long term incentive plan.
The Group generated free cash flow of £66.3m (H1 23: £51.8m) a very strong
28% increase on the prior year, resulting in free cash flow conversion of 76%
(H1 23: 70%).
Net total acquisition expenditure of £21.6m (H1 23: £75.9m) comprises the
cash spend on four bolt-on acquisitions (£7.2m), acquisition fees (£2.0m),
and acquisition related deferred payments (£13.4m) which largely relate to
WCW deferred remuneration, partially offset by the deferred consideration
received in respect of the disposal of Hawco (£1.0m).
Dividends of £53.8m (H1 23: £48.7m) were paid to ordinary and minority
interest shareholders.
Net debt
The Group has a multi-currency Revolving Credit Facility agreement ("RCF")
with an aggregate principal amount of £555.0m which was originally entered
into on 17 July 2023. The RCF is due to expire in July 2028 with an option to
extend for two further 12-month periods. At 31 March 2024, the Group had
utilised £108.7m of the RCF (2023: £41.8m), comprising £30.0m of the GBP
RCF and £78.7m (€92.0m) of EUR RCF. £446.3m of the revolving facility
remains undrawn.
The Group issued private placement ("PP") notes for an aggregate principal
amount of £213.5m (€250.0m) on 20 March 2024. The PP notes have maturities
of 7 years (€75m), 10 years (€100m) and 12 years (€75m).
The Group continues to maintain a robust balance sheet with net debt
(excluding IFRS 16 liabilities) of £258.6m (H1 23: £154.0m) comprised of
borrowings of £318.1m (H1 23: £226.1m), less cash funds of £59.5m (H1 23:
£72.1m). This represented leverage of 0.9x (H1 23: 0.7x) against a Board
policy of below 2.0x and lending covenants of below 3.5x. The Group maintains
strong liquidity, with period end headroom (comprised of undrawn committed
facilities and cash funds) of £506m (H1 23: £390m).
The table below outlines the composition of the Group's net debt at 31 March
2024:
Type Currency Amount GBP equivalent Interest rate exposure
PP 7 year maturity EUR €75.0m £64.1m Fixed 4.18%
PP 10 year maturity EUR €100.0m £85.5m Fixed 4.27%
PP 12 year maturity EUR €75.0m £64.1m Fixed 4.38%
RCF EUR €92.0m £78.7m Floating
RCF GBP £30.0m £30.0m Floating
Capitalised debt fees net of accrued interest (£4.3m)
Gross debt drawn at 31 March 2024 £318.1m
Cash & equivalents at period end (£59.5m)
Net debt at 31 March 2024 £258.6m
Defined Benefit Pension
Both the UK defined benefit scheme and the Kubo contribution scheme are
accounted for in accordance with IAS 19 (revised).
The Group maintains a legacy closed defined benefit pension scheme in the UK.
In the period, the Group funded this scheme with cash contributions of £0.4m
(H1 23: £0.3m).
On 26 March 2024, the Trustees completed a buy-in of the remaining pensioner
liabilities in the Scheme with Just Retirement Limited. The Scheme paid
£25.1m to Just Retirement Limited on 26 March 2024 to fund 100% of the buy-in
premium. As at 31 March 2024, the Group's financial statements include a net
asset of £1.4m (30 September 2023: £6.8m) in respect of the Group's UK
pension scheme. As at 31 March 2024, 95% of the scheme assets are concentrated
in the buy-in policy and we expect to make no further funding payments.
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 pension deficit in the Swiss scheme was £0.3m (30
September 2023: £0.3m). The cash contribution to the scheme was £0.2m (H1
23: £0.2m).
Exchange rates
A significant proportion of the Group's revenues (ca. 80%) are derived from
businesses located outside the UK, principally in the US, Canada, Australia
and Europe. Compared with the first half of last year, the average Sterling
exchange rate is stronger against most of the major currencies in which the
Group operates. The impact from translating the results of the Group's
overseas businesses into UK sterling has led to a decrease in Group revenues
of £20.0m; a decrease in the Group's adjusted operating profit of £4.5m; and
a decrease in net debt of £1.3m, compared with the same period last year.
Going concern
The Directors have assessed the relevant factors surrounding going concern.
The Group continues to operate against a backdrop of macroeconomic disruption,
including widespread global inflation and rising interest rates. Accordingly,
the Directors have again considered a comprehensive going concern view. The
Group has carried out an assessment of its projected trading for the 18-month
period through to the year ending 30 September 2025. This assessment
incorporated a severe but plausible downside scenario and the cash
consideration for Peerless and PAR Group after the period end, which
demonstrates that the Group has sufficient liquidity, resources and covenant
headroom to continue in operation for the foreseeable future.
The Group has considerable financial resources, together with a broad spread
of customers and suppliers across different geographic areas and Sectors,
often secured with longer term agreements. As a consequence, the Directors
believe that the Group is well placed to manage its business risks
successfully. The Directors confirm there are no material uncertainties which
may cast significant doubt on the Group's ability to continue as a going
concern and these condensed consolidated financial statements have therefore
been prepared on a going concern basis.
RISKS AND UNCERTAINTIES
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.
The principal risks are summarised below (not ranked):
• 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.
• 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.
• 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 and political elections.
The Directors confirm that the principal risks and uncertainties and the
processes for managing them have not changed materially since the publication
of the 2023 Annual Report & Accounts and that they remain relevant for the
second half of the financial year.
Chris Davies
Chief Financial
Officer
13 May 2024
Responsibility Statement of the Directors in respect of the Half Year Report
2024
The directors confirm that Condensed Consolidated Financial Statements have
been prepared in accordance with UK adopted International Accounting Standard
34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority and that
the interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
• an indication of important events that have occurred during the first six
months and their impact on the condensed set of financial statements, and a
description of the principal risks and uncertainties for the remaining six
months of the financial year; and
• material related-party transactions in the first six months and any material
changes in the related-party transactions described in the last annual report.
The Directors of Diploma PLC and their respective responsibilities are listed
in the Annual Report & Accounts for 2023 and on the Company's website at
www.diplomaplc.com (http://www.diplomaplc.com) .
By Order of the Board
JD Thomson C Davies
Chief Executive Officer Chief Financial Officer
13 May 2024 13 May 2024
Independent review report to Diploma PLC
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Diploma PLC's condensed consolidated interim financial
statements (the "interim financial statements") in the Half Year Report 2024
of Diploma PLC for the 6-month period ended 31 March 2024 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34,''Interim Financial Reporting'' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
• the Condensed Consolidated Statement of Financial Position as at 31 March
2024;
• the Condensed Consolidated Income Statement and Condensed Consolidated
Statement of Comprehensive Income for the period then ended;
• the Condensed Consolidated Cash Flow Statement for the period then ended;
• the Condensed Consolidated Statement of Changes in Equity for the period then
ended; and
• the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Year Report 2024 of
Diploma PLC have been prepared in accordance with UK adopted International
Accounting Standard 34,''Interim Financial Reporting'' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Half Year Report 2024 and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half Year Report 2024, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Half Year Report 2024 in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the Half Year Report 2024, including
the interim financial statements, the directors are responsible for assessing
the group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Half Year Report 2024 based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
13 May 2024
Condensed Consolidated Income Statement
For the six months ended 31 March 2024
Unaudited Unaudited Audited
Six months ended 31 Mar 2024 Six months ended 31 Mar 2023 Year ended 30 Sep 2023
Adjusted(1) Adjust- Total Adjusted(1) Adjust- Total Total
ments(1) ments(1)
Note £m £m £m £m £m £m £m
Revenue 3 638.3 - 638.3 582.8 - 582.8 1,200.3
Operating expenses 2 (512.9) (37.4) (550.3) (473.1) (17.2) (490.3) (1,017.0)
Operating profit 125.4 (37.4) 88.0 109.7 (17.2) 92.5 183.3
Financial expense, net 4 (10.2) - (10.2) (11.0) (2.8) (13.8) (27.7)
Profit before tax 115.2 (37.4) 77.8 98.7 (20.0) 78.7 155.6
Tax expense 5 (27.6) 7.9 (19.7) (24.2) 5.2 (19.0) (37.3)
Profit for the period 87.6 (29.5) 58.1 74.5 (14.8) 59.7 118.3
Attributable to:
Shareholders of the Company 6 87.2 (29.5) 57.7 74.1 (14.8) 59.3 117.7
Minority interests 0.4 - 0.4 0.4 - 0.4 0.6
87.6 (29.5) 58.1 74.5 (14.8) 59.7 118.3
Earnings per share (p)
Adjusted / Basic 6 65.1p (22.0p) 43.1p 59.1p (11.8p) 47.3p 90.8p
Adjusted / Diluted 6 64.9p (21.9p) 43.0p 58.8p (11.7p) 47.1p 90.4p
(¹) Adjusted figures exclude certain items as set out and explained in the
Financial Review and as detailed in Notes 2, 3, 4, 5 and 6. All amounts relate
to continuing operations.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 March 2024
Unaudited Unaudited Audited
31 Mar 31 Mar 30 Sep
2024 2023 2023
£m £m £m
Profit for the period 58.1 59.7 118.3
Items that will not be reclassified to the Consolidated Income Statement
Actuarial (loss)/gain on the defined benefit pension schemes (6.0) 2.0 (0.9)
Deferred tax on items that will not be reclassified 1.5 (0.6) 0.2
(4.5) 1.4 (0.7)
Items that may be reclassified to the Consolidated Income Statement
Exchange differences on translation of foreign operations (21.0) (49.2) (46.3)
Net investment hedge - net loss (0.2) - -
(Losses)/gains on fair value of cash flow hedges (0.3) (0.3) 1.8
Net changes to fair value of cash flow hedges transferred to the Consolidated
Income Statement
(2.1) (0.7) (3.8)
Deferred tax on items that may be reclassified 0.6 0.2 0.5
(23.0) (50.0) (47.8)
Total Comprehensive Income for the period 30.6 11.1 69.8
Attributable to:
Shareholders of the Company 30.2 10.7 69.3
Minority interests 0.4 0.4 0.5
30.6 11.1 69.8
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 March 2024
Share capital Share premium Transl-ation reserve Hedging reserve Retained earnings Share-holders' equity Minority Total
interests equity
£m £m £m £m £m £m £m £m
At 1 October 2022 (audited) 6.3 188.6 88.8 3.2 375.1 662.0 6.2 668.2
Total comprehensive income - - (49.2) (0.8) 60.7 10.7 0.4 11.1
Issue of share capital 0.5 231.6 - - - 232.1 - 232.1
Share-based payments - - - - 2.2 2.2 - 2.2
Notional purchase of own shares - - - - (1.9) (1.9) - (1.9)
Dividends - - - - (48.4) (48.4) (0.3) (48.7)
At 31 March 2023 (unaudited) 6.8 420.2 39.6 2.4 387.7 856.7 6.3 863.0
Total comprehensive income - - 2.9 (0.7) 56.4 58.6 0.1 58.7
Share-based payments - - - - 1.9 1.9 - 1.9
Tax on items recognised directly in equity - - - - 0.5 0.5 - 0.5
Dividends - - - - (22.1) (22.1) - (22.1)
At 30 September 2023 (audited) 6.8 420.2 42.5 1.7 424.4 895.6 6.4 902.0
Total comprehensive income - - (21.2) (1.8) 53.2 30.2 0.4 30.6
Share-based payments - - - - 3.5 3.5 - 3.5
Tax on items recognised directly in equity - - - - 0.5 0.5 - 0.5
Notional purchase of own shares - - - - (2.2) (2.2) - (2.2)
Dividends - - - - (53.6) (53.6) (0.2) (53.8)
At 31 March 2024 (unaudited) 6.8 420.2 21.3 (0.1) 425.8 874.0 6.6 880.6
Condensed Consolidated Statement of Financial Position
As at 31 March 2024
Unaudited Unaudited Audited 30 Sep 2023
31 Mar 2024 31 Mar 2023
Note £m £m £m
Non-current assets
Goodwill 9 432.7 374.6 439.1
Acquisition intangible assets 9 486.9 451.5 520.1
Other intangible assets 3.5 4.1 4.2
Property, plant and equipment 59.0 49.3 59.2
Leases - right-of-use of assets 77.6 54.6 71.5
Retirement benefit assets 1.4 8.8 6.8
Deferred tax assets 0.3 0.4 0.2
1,061.4 943.3 1,101.1
Current assets
Inventories 223.9 216.3 232.7
Trade and other receivables 201.3 173.7 193.1
Cash and cash equivalents 8 59.5 72.1 62.4
484.7 462.1 488.2
Current liabilities
Borrowings 8 - (29.1) (0.3)
Trade and other payables (180.2) (180.2) (191.9)
Current tax liabilities (5.9) (11.6) (16.6)
Other liabilities (13.7) (14.4) (12.7)
Lease liabilities (14.2) (12.3) (15.0)
(214.0) (247.6) (236.5)
Net current assets 270.7 214.5 251.7
Total assets less current liabilities 1,332.1 1,157.8 1,352.8
Non-current liabilities
Borrowings 8 (318.1) (197.0) (316.8)
Lease liabilities (70.0) (49.3) (65.2)
Other liabilities (9.0) (11.4) (9.9)
Retirement benefit obligations (0.3) - (0.3)
Deferred tax liabilities (54.1) (37.1) (58.6)
(451.5) (294.8) (450.8)
Net assets 880.6 863.0 902.0
Equity
Share capital 6.8 6.8 6.8
Share premium 420.2 420.2 420.2
Translation reserve 21.3 39.6 42.5
Hedging reserve (0.1) 2.4 1.7
Retained earnings 425.8 387.7 424.4
Total shareholders' equity 874.0 856.7 895.6
Minority interests 6.6 6.3 6.4
Total equity 880.6 863.0 902.0
Condensed Consolidated Cash Flow Statement
For the six months ended 31 March 2024
Unaudited 31 Mar 2024 Unaudited 31 Mar 2023 Audited 30 Sep 2023
Note £m £m £m
Cash flow from operating activities 7 122.1 98.2 257.3
Interest paid, net (including borrowing fees) (11.1) (11.3) (26.7)
Tax paid (33.3) (22.2) (41.4)
Net cash inflow from operating activities 77.7 64.7 189.2
Cash flow from investing activities
Acquisition of businesses (net of cash acquired) (7.2) (85.4) (258.5)
Acquisition related deferred payments/receipts, net (12.4) (8.0) (12.3)
Proceeds from sale of business (net of cash disposed) - 21.5 21.5
Purchase of property, plant and equipment (9.4) (9.4) (21.6)
Purchase of other intangible assets (0.3) (0.8) (1.5)
Proceeds from sale of property, plant and equipment 5.5 0.7 1.5
Net cash used in investing activities (23.8) (81.4) (270.9)
Cash flow from financing activities
Proceeds from issue of share capital - 236.1 236.1
Share issue costs - (3.6) (4.2)
Dividends paid to shareholders 11 (53.6) (48.4) (70.5)
Dividends paid to minority interests (0.2) (0.3) (0.3)
Notional purchase of own shares on exercise of options (2.2) (1.9) (1.9)
Proceeds from borrowings 213.5 45.3 579.5
Repayment of borrowings (205.6) (171.6) (617.3)
Principal elements of lease payments (7.9) (6.9) (13.9)
Net cash (outflow)/inflow from financing activities (56.0) 48.7 107.5
Net (decrease)/increase in cash and cash 8 (2.1) 32.0 25.8
equivalents
Cash and cash equivalents at beginning of period 62.4 41.7 41.7
Effect of exchange rates on cash and cash equivalents (0.8) (1.6) (5.1)
Cash and cash equivalents at end of period 8 59.5 72.1 62.4
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
1. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
Diploma PLC (the "Company") is a public limited company registered and
domiciled in England and Wales. The condensed set of consolidated financial
statements (the "financial statements") for the six months ended 31 March 2024
comprise the Company and its subsidiaries (together referred to as "the
Group").
The condensed information presented for the financial year ended 30 September
2023 does not constitute full statutory accounts as defined in section 434 of
the Companies Act 2006. Those statutory accounts have been reported on by the
Company's auditor and delivered to the Registrar of Companies. The report of
the auditor was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis without
qualifying their report, and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006. Except where otherwise stated, the
figures for the six months ended 31 March 2023 were extracted from the 2023
Half Year Report, which was unaudited.
The Group's audited consolidated financial statements for the year ended 30
September 2023 are available on the Company's website (www.diplomaplc.com
(http://www.diplomaplc.com) ) or upon request from the Company's registered
office at Diploma PLC, 10-11 Charterhouse Square, London, EC1M 6EE.
1.1 Statement of compliance
The financial statements included in this Half Year Announcement for the six
months ended 31 March 2024 have been prepared on a going concern basis and in
accordance with UK-adopted International Accounting Standard 34, Interim
Financial Reporting and the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority. The financial statements do not include all of
the information required for full annual consolidated financial statements and
should be read in conjunction with the Group's audited consolidated financial
statements for the year ended 30 September 2023.
The Half Year financial statements were approved by the Board of Directors on
13 May 2024; they have not been audited by the Company's auditor.
1.2 Significant accounting policies
The accounting policies applied by the Group in this set of financial
statements are the same as those applied by the Group in its audited
consolidated financial statements for the year ended 30 September 2023, except
for the amount included in respect of taxation and the application of hedge
accounting for foreign currency hedges and net investment hedges. The adoption
of the new policies in respect of hedging did not have a material impact over
the interim financial statements.
As in previous Half Year Announcements, taxation has been calculated by
applying the Directors' best estimate of the annual rates of taxation to
taxable profits for the period. In the audited consolidated financial
statements for the full year, the taxation balances are based on draft tax
computations prepared for each business within the Group.
1.3 Risk management
The Group's overall management of financial risks is carried out by a central
team under policies and procedures which are reviewed by the Board. The
financial risks to which the Group is exposed are those of credit, liquidity,
foreign currency, interest rate and capital management. An explanation of each
of these risks and how the Group manages them is included in the Annual Report
& Accounts for the year ended 30 September 2023. Further explanation of
the Group's principal risks and uncertainties and Going Concern are set out in
the narrative of this Half Year Report.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
1.3 Risk management (Continued)
There is no material difference between the book value and fair value of the
Group's financial assets and financial liabilities as at 31 March 2024. The
basis for determining the fair value is as follows:
- Derivatives: Forward contracts and interest rate swaps are designated as level
2 assets (in the fair value hierarchy) and fair-valued at 31 March 2024 with
the gains and losses taken to equity. The fair value of the forward contracts
and interest rate swaps as at 31 March is £nil (30 September 2023: £2.4m
asset).
- Trade and other receivables: As the majority of the trade and other
receivables have a remaining life of less than 12 months, the book value is
deemed to be reflective of the fair value.
- Lease and other liabilities: The carrying amount represents the discounted
value of the expected liability which is deemed to reflect the fair value.
1.4 Estimates and judgements
The preparation of these financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
The accounting estimates and judgements made by management in applying the
Group's accounting policies that have the most significant effect on the
amounts included within these consolidated financial statements, were the same
as those that applied to the Group's audited consolidated financial statements
for the year ended 30 September 2023 as set out on page 179 - 180 of the 2023
Annual Report & Accounts.
2. ANALYSIS OF OPERATING EXPENSES / (INCOME)
Unaudited Unaudited Audited
Six months to 31 Mar 2024 Six months to 31 Mar 2023 Year to 30 Sep 2023
Adjusted(1) Adjust-ments(1) Total Adjusted(1) Adjust-ments(1) Total Total
£m £m £m £m £m £m £m
Cost of inventories sold 345.7 5.4 351.1 319.4 - 319.4 658.0
Employee costs 112.8 - 112.8 102.0 1.9 103.9 210.0
Depreciation of property, plant and equipment 7.4 7.4 6.3 6.3 12.8
- -
Depreciation of right-of-use assets 7.7 7.7 6.7 6.7 14.8
- -
Amortisation 0.5 28.2 28.7 0.4 25.3 25.7 53.9
Net impairment losses on trade receivables 0.6 0.6 1.1 1.1 2.5
- -
Other operating expenses 38.2 3.8 42.0 37.2 (10.0) 27.2 65.0
Operating expenses 512.9 37.4 550.3 473.1 17.2 490.3 1,017.0
( )
(1) The adjustments to operating expenses are made in relation to acquisition
related and other charges, as defined in note 13.3, totalling £37.4m (2023:
£17.2m) and comprise £5.4m (2023: £nil) of fair value adjustments to
inventory acquired through acquisitions recognised in cost of inventories
sold, £28.2m (2023: £25.3m) of amortisation of acquisition intangible assets
and £3.8m (2023 £4.1m) of acquisition expenses. During the period ended 31
March 2024, the gain on disposal of businesses was £nil (2023: £12.2m).
( )
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
( )
3. BUSINESS SECTOR ANALYSIS
The Chief Operating Decision Maker ("CODM") for the purposes of IFRS 8 is the
Chief Executive Officer. The financial performance of the Sectors is reported
to the CODM monthly and this information is used to allocate resources on an
appropriate basis.
Sector information is presented in this Half Year Announcement in respect of
the Group's business Sectors. The business sector reporting format reflects
the Group's management and internal reporting structure. The geographic sector
reporting represents results by origin. The Group's financial results have
not, historically, been subject to significant seasonal trends. In the year
ended 30 September 2023, the Group earned 48.6% of its annual revenues and
46.3% of its annual adjusted operating profits in the first six months of the
year. This phasing between the first and second half was partly impacted by
the timing of acquisitions which favoured the second half of the year.
Sector revenue represents revenue from external customers; there is no
inter-sector revenue. Sector results, assets and liabilities include items
directly attributable to a Sector.
Revenue Adjusted operating profit Operating profit
6 mths 31 Mar 6 mths 31 Mar 12 mths 30 Sep 6 mths 31 Mar 6 mths 31 Mar 12 mths 30 Sep 6mths 31 Mar 6 mths 31 Mar 12 mths 30 Sep
£m 2024 2023 2023 2024 2023 2023 2024 2023 2023
By Sector
Controls 288.1 278.8 568.4 69.9 64.3 136.6 53.7 57.7 112.9
Seals 241.2 198.4 419.0 44.3 35.7 79.0 27.8 29.3 55.8
Life Sciences 109.0 105.6 212.9 21.6 20.9 43.2 16.9 16.7 36.4
Corporate - - - (10.4) (11.2) (21.8) (10.4) (11.2) (21.8)
638.3 582.8 1,200.3 125.4 109.7 237.0 88.0 92.5 183.3
By Geographic Area
United Kingdom 130.8 137.2 267.1 13.9 14.4 28.8
Rest of Europe 134.6 97.7 210.3 24.6 15.3 34.5
USA 278.3 256.5 537.6 67.7 60.3 132.2
Rest of World 94.6 91.4 185.3 19.2 19.7 41.5
638.3 582.8 1,200.3 125.4 109.7 237.0
The Group has re-presented the comparative for the period ended 31 March 2023
in relation to the geographic segment analysis to reflect USA separately. This
is due to the increasing operations in that territory and provides more
information that is relevant to the users of the financial statements.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
3. BUSINESS SECTOR ANALYSIS (Continued)
Total assets Total liabilities Net assets
31 Mar 31 Mar 30 Sep 31 Mar 31 Mar 30 Sep 31 Mar 31 Mar 30 Sep
£m 2024 2023 2023 2024 2023 2023 2024 2023 2023
By Sector
Controls 622.2 643.1 640.4 (93.5) (79.7) (96.1) 528.7 563.4 544.3
Seals 608.1 423.3 628.9 (112.1) (96.5) (119.6) 496.0 326.8 509.3
Life Sciences 250.7 245.9 244.1 (52.7) (45.9) (43.3) 198.0 200.0 200.8
Corporate assets/(liabilities) 65.1 93.1 75.9 (407.2) (320.3) (428.3) (342.1) (227.2) (352.4)
1,546.1 1,405.4 1,589.3 (665.5) (542.4) (687.3) 880.6 863.0 902.0
Sector assets exclude cash and cash equivalents, deferred tax assets and
corporate assets that cannot be allocated on a reasonable basis to a business
Sector. Sector liabilities exclude bank borrowings, retirement benefit
obligations, deferred tax liabilities, acquisition liabilities and corporate
liabilities that cannot be allocated on a reasonable basis to a business
Sector. These items that cannot be allocated on a reasonable basis to a
business Sector are shown collectively as "corporate assets/(liabilities)".
Capital expenditure Depreciation
31 Mar 31 Mar 30 Sep 31 Mar 31 Mar 30 Sep
£m 2024 2023 2023 2024 2023 2023
By Sector
Controls 3.3 2.7 5.9 2.4 2.4 4.6
Seals 3.2 3.8 9.0 3.2 2.3 5.0
Life Sciences 3.1 3.5 7.9 2.2 1.9 4.0
Corporate 0.1 0.2 0.3 0.1 0.1 0.2
9.7 10.2 23.1 7.9 6.7 13.8
A further £7.7m (2023: £6.7m) of depreciation was incurred on right-of-use
assets (note 2). Depreciation also includes amortisation of other intangible
assets, largely software.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
4. FINANCIAL EXPENSE, NET
31 Mar 31 Mar 30 Sep
2024 2023 2023
£m £m £m
Interest (income)/ expense and similar charges
- bank facility and commitment fees 0.7 0.7 1.6
- interest income on short term deposits (0.1) (0.2) (0.4)
- interest expense on bank borrowings 7.8 9.2 16.6
- notional interest income on the defined benefit pension schemes (0.2) (0.2) (0.4)
- amortisation of capitalised borrowing fees - 0.1 0.2
- interest on lease liabilities 2.0 1.4 2.8
Net interest expense and similar charges 10.2 11.0 20.4
- acquisition related finance charges, net - 2.8 7.3
Financial expense, net 10.2 13.8 27.7
Acquisition related finance charges includes unwind of discount on and
remeasurement of acquisition liabilities of £0.4m expense (2023: £0.9m
expense) and the amortisation of capitalised borrowing fees on acquisition
related borrowings of £0.4m expense (2023: £0.9m expense), net of interest
income on deferred receivables from disposals of £0.2m income (2023: £0.4m
income) and fair value remeasurements of put options for future minority
purchases of £0.6m income (2023: £1.4m expense).
5. TAXATION
31 Mar 31 Mar 30 Sep
2024 2023 2023
£m £m £m
UK tax 7.7 7.2 8.9
Overseas tax 12.0 11.8 28.4
Total tax on profit for the period 19.7 19.0 37.3
Taxation on profits before tax has been calculated by applying the Directors'
best estimate of the annual rates of taxation to taxable profits for the
period. The Group's adjusted effective rate of tax on adjusted profit before
tax is 24.0% (September 2023: 24.0%).
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
6. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per ordinary 5p share are calculated on the basis of the
weighted average number of ordinary shares in issue during the period of
134,009,865 (2023: 125,360,523) and the profit for the period attributable to
shareholders of £57.7m (2023: £59.3m). Basic earnings per share is 43.1p
(2023: 47.3p). Diluted earnings per share is 43.0p (2023: 47.1p) and is based
on the average number of ordinary shares (which includes any potentially
dilutive shares) of 134,328,842 (2023: 125,927,286).
Adjusted earnings per share
Adjusted earnings per share, defined in note 13, is calculated as follows:
31 Mar 2024 31 Mar 2023 30 Sep
2023
pence pence pence 31 Mar 31 Mar 30 Sep
per share per share per share 2024 £m 2023 £m 2023 £m
Profit before tax 77.8 78.7 155.6
Tax expense (19.7) (19.0) (37.3)
Minority interests (0.4) (0.4) (0.6)
Earnings for the period attributable to
shareholders of the Company 43.1 47.3 90.8 57.7 59.3 117.7
Acquisition related and other charges and acquisition related finance charges,
net of tax
22.0 11.8 35.7 29.5 14.8 46.3
Adjusted earnings (Note 13.4) 65.1 59.1 126.5 87.2 74.1 164.0
7. RECONCILIATION OF OPERATING PROFIT TO CASH FLOW FROM
OPERATING ACTIVITIES
31 Mar 31 Mar 30 Sep
2024 2023 2023
£m £m £m
Operating profit 88.0 92.5 183.3
Acquisition related and other charges (note 2) 37.4 17.2 53.7
Adjusted operating profit 125.4 109.7 237.0
Depreciation/amortisation of tangible, other intangible assets and leases -
right-of-use assets
15.6 13.4 28.6
Share-based payments expense 3.5 2.2 4.1
Defined benefit pension scheme payment in excess of interest (0.4) (0.3) (0.6)
Profit on disposal of assets (2.9) - (1.1)
Acquisition and disposal expenses paid (2.0) (4.0) (6.0)
Other non-cash movements - - (0.5)
Non-cash items and other 13.8 11.3 24.5
Operating cash flow before changes in working capital 139.2 121.0 261.5
(Increase)/Decrease in inventories (0.1) (11.5) 10.8
Increase in trade and other receivables (16.4) (17.8) (8.8)
(Decrease)/Increase in trade and other payables (0.6) 6.5 (6.2)
Increase in working capital (17.1) (22.8) (4.2)
Cash flow from operating activities 122.1 98.2 257.3
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
8. NET DEBT
The movement in net debt during the period is as follows:
31 Mar 31 Mar 30 Sep
2024 2023 2023
£m £m £m
Net (decrease)/increase in cash and cash equivalents (2.1) 32.0 25.8
(Increase)/decrease in bank borrowings (7.0) 127.7 43.8
(9.1) 159.7 69.6
Effect of exchange rates and other non-cash movements 5.2 15.2 4.6
(Increase)/decrease in net debt (3.9) 174.9 74.2
Net debt at beginning of period (254.7) (328.9) (328.9)
Net debt at end of period (258.6) (154.0) (254.7)
Comprising:
Cash and cash equivalents 59.5 72.1 62.4
Bank borrowings:
- Revolving credit facility, including accrued interest (108.9) (41.9) (321.1)
- Overdraft facilities - - (0.3)
- Term loan, including accrued interest - (189.0) -
- Capitalised debt fees 4.8 4.8 4.3
- Private placement, including accrued interest (214.0) - -
(318.1) (226.1) (317.1)
Net debt at end of period (258.6) (154.0) (254.7)
Analysed as:
Repayable within one year - (29.1) (0.3)
Repayable after one year (318.1) (197.0) (316.8)
The Group has a multi-currency revolving credit facility agreement ("RCF")
with an aggregate principal amount of £555.0m which was originally entered
into on 17 July 2023. The RCF is due to expire in July 2028 with an option to
extend for two further 12-month periods.
At 31 March 2024, the Group had utilised £108.7m of the RCF (2023: £41.9m),
comprising £30.0m of the GBP RCF and £78.7m (€92.0m) of EUR RCF. £446.3m
of the revolving facility remains undrawn. The RCF balance includes £0.2m
(2023: £0.1m) of accrued interest.
On 20 March 2024, the Group issued private placement ("PP") notes for an
aggregate principal amount of £213.5m (€250.0m) with maturities of 7 years
(€75m), 10 years (€100m) and 12 years (€75m). The PP balance includes
£0.3m of accrued interest.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
8. NET DEBT (Continued)
Capitalised debt fees includes £4.0m (2023: £4.8m) in relation to the RCF
and £0.8m (2023: £nil) in relation to the PP notes.
The RCF is subject to interest at variable rates while the PP notes are at
fixed rate. At 31 March 2024, fixed rate debt was 67% of total debt.
Total debt is £342.8m (2023: £215.6m) comprising net debt of £258.6m (2023:
£154.0m) which excludes lease liabilities of £84.2m (2023: £61.6m). Debt
covenants are tested against net debt, as defined in Note 13.6.
9. GOODWILL AND ACQUISITION INTANGIBLE ASSETS
Goodwill Acquisition intangible assets
£m £m
At 1 October 2022 372.3 455.0
Acquisitions 25.7 51.9
Disposals (4.3) -
Amortisation charge - (25.3)
Exchange adjustments (19.1) (30.1)
At 31 March 2023 374.6 451.5
Acquisitions 63.2 88.1
Amortisation charge - (23.3)
Exchange adjustments 1.3 3.8
At 30 September 2023 439.1 520.1
Acquisitions 3.7 6.2
Amortisation charge - (28.2)
Exchange adjustments (10.1) (11.2)
At 31 March 2024 432.7 486.9
Goodwill represents the amount paid for future sales growth from both new
customers and new products, operating cost synergies and employee know-how.
The acquisition intangible assets primarily relate to supplier relationships,
customer relationships, brands and patents and these assets will be amortised
over five to sixteen years.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
10. ACQUISITION AND DISPOSAL OF SUBSIDIARIES
Acquisitions
The Group completed four acquisitions in the period. This comprised 100% of
the share capital of Fast Gaskets and Parts Limited ("Fast Gaskets") (04
October 2023), Abbey Hose Company Limited ("Abbey Hose") (22 December 2023)
and Technisil GmbH ("Technisil") (28 February 2024), and the trade and assets
of Cable and Tubing Solutions GmbH ("CTS") (20 November 2023). The combined
initial consideration for these acquisitions was £7.2m, net of cash acquired
of £0.8m. Deferred consideration of up to £2.7m is payable based largely on
the performance of the businesses in the period subsequent to their
acquisitions.
Acquisition expenses
Acquisition expenses of £0.5m (2023:£2.7m) have been recognised in respect
of the acquisitions completed in the period.
Fair value of net assets acquired
The fair values of net assets acquired during the period, including the
allocation of the surplus over the fair value of the net assets acquired are
provisional, subject to reviews up to the end of the measurement period of
each acquisition.
Total Acquisitions
Book value £m Fair value £m
Acquisition intangible assets1 - 6.2
Deferred tax - (1.1)
Property, plant and equipment 0.1 0.1
Inventories 0.9 1.0
Trade and other receivables 0.8 1.1
Trade and other payables (0.9) (1.1)
Net assets acquired 0.9 6.2
Goodwill - 3.7
Minority interests - -
Cash paid 8.0
Cash acquired (0.8)
7.2
Deferred consideration 2.7
Total Consideration 9.9
(1) On the acquisitions completed in the current period, acquired intangibles
relate primarily to customer relationships.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
10. ACQUISITION AND DISPOSAL OF SUBSIDIARIES (Continued)
Acquisitions revenue and adjusted operating profit
From the date of acquisition to 31 March 2024, each acquired business
contributed the following to Group revenue and adjusted operating profit:
Acquisition date Revenue Adj.1 Pro forma revenue Adjusted operating Adj.1 Pro forma adjusted operating
£m £m £m profit £m profit
£m £m
Fast Gaskets 04 Oct 2023 0.5 - 0.5 0.1 - 0.1
CTS 20 Nov 2023 1.5 0.4 1.9 0.4 0.2 0.6
Abbey Hose 22 Dec 2023 1.2 1.2 2.4 0.3 0.3 0.6
Technisil 28 Feb 2024 - 0.1 0.1 - - -
3.2 1.7 4.9 0.8 0.5 1.3
(1) Pro forma revenue and adjusted operating profit have been extrapolated (as
prescribed under IFRS) from the results reported since acquisition to indicate
what these businesses would have contributed if they had been acquired at the
beginning of the period on 1 October 2023. 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 period.
11. DIVIDENDS
31 Mar 2024 31 Mar 2023 30 Sep 31 Mar 2024 31 Mar 2023 30 Sep
2023 2023
pence pence pence
per share per per
share share £m £m £m
Final dividend of the prior year, paid in February 40.0 38.8 38.8 53.6 48.4 48.4
Interim dividend, paid in June 17.3 16.5 16.5 23.2 22.1 22.1
57.3 55.3 55.3 76.8 70.5 70.5
Subsequent to the period end, the Directors have declared an interim dividend
of 17.3p per share (2023: 16.5p) which will be paid on 7 June 2024 to
shareholders on the register on 24 May 2024. The total value of the dividend
will be £23.2m (2023: £22.1m). No liability has been recognised on the
balance sheet at 31 March 2024 in respect of the interim dividend (2023:
same).
12. EXCHANGE RATES
The exchange rates used to translate the results of the overseas businesses
were as follows:
Average Closing
31 Mar 31 Mar 30 Sep 31 Mar 31 Mar 30 Sep
2024 2023 2023 2024 2023 2023
US dollar (US$) 1.26 1.20 1.23 1.26 1.24 1.22
Canadian dollar (C$) 1.70 1.63 1.66 1.71 1.68 1.65
Euro (€) 1.16 1.14 1.15 1.17 1.13 1.15
Swiss franc (CHF) 1.10 1.13 1.13 1.14 1.13 1.12
Australian dollar (A$) 1.92 1.79 1.85 1.94 1.85 1.89
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
13. ALTERNATIVE PERFORMANCE MEASURES
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 debt
covenants. Alternative performance measures are not considered to be a
substitute for, or superior to, IFRS measures.
13.1 Alternative performance measures
Measure Closest IFRS measure Definition and reconciliation Purpose
Organic growth Reported revenue increase Organic growth strips out the effects of the movement in exchange rates and of Allows users of the accounts to gain understanding of how the Group has
acquisitions and disposals. performed on a like-for-like basis, excluding the effects of exchange rates
and of acquisitions and disposals.
Adjusted operating profit Operating profit Statutory operating profit excluding separately disclosed items and can be Adjusted operating profit is a key performance measure for the Executive
found on the face of the Group Income Statement in the Adjusted column. Directors' annual bonus structure and management remuneration.
It also provides all stakeholders with additional useful information to assess
the period-on-period trading performance of the Group.
Adjusted operating margin Operating profit divided by revenue Adjusted operating profit/(loss) divided by revenue. Adjusted operating margin is a measure used to assess and compare
profitability.
It also allows for ongoing trends and performance of the Group to be measured
by the Directors, management and interested stakeholders.
Adjusted earnings per share Basic earnings per share Adjusted earnings (being adjusted profit after tax attributable to equity Adjusted earnings per share is widely used by external stakeholders,
shareholders) for the period attributable to shareholders of the Group divided particularly in the investment community.
by the weighted average number of shares in issue, excluding those held in
the Employee benefit trust which are treated as cancelled.
A reconciliation of statutory profit to adjusted profit for the purpose of
this calculation is provided within the notes to the financial statements.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
13.1 Alternative performance measures (continued)
Return On Adjusted Trading Capital Employed (ROATCE) Operating profit and net assets Pro forma adjusted operating profit (being the annualised adjusted operating ROATCE gives an indication of the Group's capital efficiency and is an element
profit including that of acquisitions and disposals) divided by adjusted of a performance measure for the Executive Directors' remuneration.
trading capital employed. Adjusted trading capital employed is reported as
being trading capital employed plus goodwill and acquisition related charges
previously written off (net of deferred tax on acquisition intangible assets)
and re-translated at the average exchange rates that are consistent with the
pro forma adjusted operating profit.
Free cash flow Net cash generated from The cash flow equivalent of adjusted profit after tax. Free cash flow allows us and external parties to evaluate the cash generated
by the Group's operations and is also a key performance measure for the
operating activities Executive Directors' annual bonus structure and management remuneration.
Net debt Borrowings less cash Cash and cash equivalents (cash overnight deposits, other short-term deposits) Net debt is the measure by which the Group and interested stakeholders
offset by borrowings which compose of bank loans, excluding lease liabilities. assesses its level of overall indebtedness.
Earnings Before Interest and Tax plus Depreciation and Amortisation Operating profit EBITDA is calculated by taking adjusted operating profit and adding back EBITDA is used as a key measure to understand profit and cash generation
("EBITDA") depreciation and amortisation. before the impact of investments (such as capital expenditure and working
capital). It is also used to derive the Group's gearing ratio.
Leverage No direct equivalent The ratio of net debt to EBITDA over the last 12 months (with net debt The leverage ratio is considered a key measure of balance sheet strength and
translated at the average exchange rates that are consistent with EBITDA), financial stability by which the Group and interested stakeholders assesses
after making the following adjustments to EBITDA: including any annualised its financial position.
EBITDA for businesses acquired by the Group during that period; the reversal
of IFRS 16 accounting; the exclusion of any EBITDA businesses disposed by the
Group during that period; and the exclusion of the profit or loss attributable
to minority interest.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
13.2 Revenue Growth
As a multi-national group of businesses which trades in a large number of
currencies, and acquires and sometimes disposes of companies, organic growth
is a key performance measure and is referred to throughout our reporting.
Organic growth excludes the effects of the movement in exchange rates and of
acquisitions and disposals. The Board believes that this allows users of the
financial statements to gain a better understanding of the Group's
performance.
A reconciliation of the movement in reported revenue compared to the prior
period and the calculation of organic growth is shown below:
%
£m
H123 Reported revenue (basis for Acquisitions and Disposals / Exchange Rates 582.8
impacts)
Acquisitions and Disposals (1) 46.6 8%
Basis for organic growth impact 629.4
Organic growth (2) 28.9 5%
Exchange rates (3) (20.0) (3%)
H124 Reported revenue 638.3
(1) The impact of acquisitions is the revenue of the acquiree prior to the
acquisition by Diploma for the comparable period at prior period exchange
rates. The impact of disposals is the removal of the revenue of the disposed
entity in the comparable post disposal period at prior period exchange rates.
(2) Organic growth measures the change in revenue compared to the prior period, at
prior period exchange rates. For acquisitions, this includes incremental
revenues generated under Diploma's ownership compared to the revenue in the
same period prior to acquisition, at prior period exchange rates.
(3) Exchange rates movements are assessed by re-translating current period
reported values to prior period exchange rates.
13.3 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 period-on-period trading
performance of the Group on a like-for-like basis. Adjusted operating margin
is the Group's adjusted operating profit divided by the Group's reported
revenue.
A reconciliation between operating profit as reported under IFRS and adjusted
operating profit is given below:
Note 31 Mar 2024 31 Mar 2023 30 Sep 2023
£m £m £m
Revenue 638.3 582.8 1,200.3
Operating profit as reported under IFRS 88.0 92.5 183.3
Add: Acquisition related and other charges 2 37.4 17.2 53.7
Adjusted operating profit 3 125.4 109.7 237.0
Adjusted operating margin 19.6% 18.8% 19.7%
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
13.4 Adjusted earnings per share
Adjusted earnings per share ("adjusted EPS") is calculated as the total of
adjusted profit before tax, less income tax costs, but including the tax
impact on the items included in the calculation of adjusted profit, less
profit/(loss) attributable to minority interests, divided by the weighted
average number of ordinary shares in issue during the period of 134,009,865
(2023: 125,360,523), as set out in note 6. The Directors believe that adjusted
EPS provides an important measure of the earnings capacity of the Group.
13.5 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 issue
of share capital and dividends paid to both minority shareholders and the
Company's shareholders. "Free cash flow conversion" reflects free cash flow as
a percentage of adjusted earnings. The Directors believe that free cash flow
gives an important measure of the cash flow of the Group, available for future
investment or distribution to shareholders.
Note 31 Mar 2024 31 Mar 2023 30 Sep 2023
£m £m £m
Net increase in cash and cash equivalents 8 (2.1) 32.0 25.8
Add: Dividends paid to shareholders and minority interests 53.8 48.7 70.8
Acquisition/disposal of businesses (including net expenses) 9.2 67.9 243.0
Acquisition related deferred payments/receipts, net 12.4 8.0 12.3
Proceeds from issue of share capital (net of fees) - (232.5) (231.9)
Net (proceeds from)/repayment of borrowings (including borrowing fees) 8 (7.0) 127.7 43.8
Free cash flow 66.3 51.8 163.8
Adjusted earnings(1) 6 87.2 74.1 164.0
Free cash flow conversion 76% 70% 100%
(¹) Adjusted earnings is shown on the face of the condensed consolidated
income statement as profit for the period attributable to shareholders of the
company.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
13.6 Leverage
Leverage is net debt, defined as cash and cash equivalents and borrowings
(translated at average exchange rates that are consistent with EBITDA),
divided by EBITDA as defined in the Group's external debt covenants, which is
the Group's adjusted operating profit adjusting for depreciation and
amortisation of tangible and other intangible assets, the share of adjusted
operating profit attributable to minority interests and the annualisation of
EBITDA for acquisitions and disposals made during the financial year,
excluding the impact of IFRS 16 (Leases). The Directors consider this metric
to be an important measure of the Group's financial position.
Note 31 Mar 2024 31 Mar 2023 30 Sep 2023
£m £m £m
Cash and cash equivalents 8 59.5 72.1 62.4
Borrowings 8 (318.1) (226.1) (317.1)
Re-translation at average exchange rates (0.3) (4.0) 1.2
Net debt at average exchange rates (258.9) (158.0) (253.5)
Adjusted operating profit 13.3 125.4 109.7 237.0
Depreciation and amortisation of tangible and other intangible assets 2 7.9 6.7 13.8
IFRS 16 impact (0.4) (0.8) (1.7)
Minority interest share of adjusted operating profit (0.5) (0.6) (0.8)
Pro forma adjustments1 141.1 121.3 21.0
EBITDA 273.5 236.3 269.3
Leverage 0.9x 0.7x 0.9x
1 Annualisation of adjusted EBITDA, including that of acquisitions and
disposals in the period.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
13.7 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 that are consistent with the pro forma adjusted operating
profit. Return on Adjusted Trading Capital Employed (ROATCE) is defined as the
pro forma adjusted operating profit, divided by adjusted trading capital
employed, where pro forma adjusted operating profit is the annualised adjusted
operating profit including that of acquisitions and disposals in the period.
The Directors believe that ROATCE is an important measure of the profitability
of the Group.
Note 31 Mar 2024 31 Mar 2023 30 Sep 2023
£m £m £m
Net assets as reported under IFRS 880.6 863.0 902.0
Add/(deduct):
- Deferred tax, net 53.8 36.7 58.4
- Retirement benefit assets, net (1.1) (8.8) (6.5)
- Acquisition related liabilities/assets, net 20.9 23.1 19.6
- Net debt 8 258.6 154.0 254.7
Trading capital employed 1,212.8 1,068.0 1,228.2
- Historic goodwill and acquisition related charges, net of deferred tax and 234.9 193.4 189.4
currency movements
Adjusted trading capital employed 1,447.7 1,261.4 1,417.6
Adjusted operating profit 13.3 125.4 109.7 237.0
Pro forma adjustments¹ 134.8 115.3 19.4
Pro forma adjusted operating profit 260.2 225.0 256.4
ROATCE 18.0% 17.8% 18.1%
(1) Annualisation of adjusted operating profit, including that of acquisitions
and disposals in the period.
14. REtirement Benefit asset and obligationS
On 26 March 2024, the Trustees completed a buy-in of the remaining pensioner
liabilities in the Scheme with Just Retirement Limited. The Scheme paid
£25.1m to Just Retirement Limited on 26 March 2024 to fund 100% of the buy-in
premium. As at 31 March 2024, the Group's financial statements include a net
asset of £1.4m (30 September 2023: £6.8m) in respect of the Group's UK
pension scheme. As at 31 March 2024, 95% of the scheme assets are concentrated
in the buy-in policy.
15. RELATED PARTY TRANSACTIONS
There have been no changes to the related party arrangements or transactions
as reported in the 2023 Annual Report & Accounts.
Transactions between Group companies, which are related parties, have been
eliminated on consolidation and are therefore not disclosed. Other
transactions which qualify to be treated as related party transactions are:
those relating to the remuneration of key management personnel, which are not
disclosed in this Half Year Report, but will be disclosed in the Group's next
Annual Report & Accounts; and transactions between the Group and the
Group's defined benefit pension plan, which are disclosed within the
Consolidated Cash Flow Statement.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 31 March 2024
16. POST BALANCE SHEET EVENTS
Acquisition of Peerless Aerospace Fastener LLC
On 27 March 2024, the Group announced the proposed acquisition of 100% of the
membership interests of Peerless Aerospace Fastener LLC ("Peerless"), a
market-leading distributor of specialty fasteners into the US and European
aerospace markets for an initial cash consideration of $289.5m (£228m) on a
cash-free and debt-free basis. A remaining 3.5% deferred consideration will be
paid to management based on Peerless's FY27 performance, some of which is
employment linked. The conditions to achieve completion of the acquisition of
Peerless were satisfied after period end, resulting in the completion taking
place on 1 May 2024. A purchase price allocation exercise is currently being
performed to determine the fair value of the acquired net assets and goodwill
arising on this acquisition.
Acquisition of Plastic and Rubber Group Holdings Limited
On 30 April 2024, the Group acquired 100% of the share capital of Plastic and
Rubber Group Holdings Limited, a UK-based gaskets specialist for a total
consideration of £37.5m on a cash-free and debt-free basis. A purchase price
allocation exercise is currently being performed to determine the fair value
of the acquired net assets and goodwill arising on this acquisition.
END
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