Diploma Regulatory News (DPLM)

14 Nov 2005 07:00

Diploma PLC14 November 2005 DlPLOMA PLC 20 BUNHILL ROW, LONDON EC1Y 8UD TELEPHONE: +44 (0)20 7638 0934 FACSIMILE: +44 (0)20 76387651 FOR IMMEDIATE RELEASE 14 November 2005 ANNOUNCEMENT OF PRELIMINARY RESULTS FOR YEAR ENDED 30 SEPTEMBER 2005 2005 2004 ---- ---- Turnover from continuing businesses £111.3m £100.5m Operating profit, before exceptional items and goodwill amortisation £15.9m £12.3m Profit before tax, exceptional items and goodwill amortisation £16.6m £13.1m Profit before tax £15.3m £15.4m Adjusted earnings per share 52.4p 41.2p Basic earnings per share 46.6p 52.7p Dividends per share 20.0p 17.0p • Strong sales and profit growth driven by the full year contribution from Somagen and a strong performance by Hercules Bulldog. • Profit before tax, exceptional items and goodwill amortisation up 27% to £16.6m from £13.1m; operating margin of 14.3% (2004: 12.2%) boosted by Somagen acquisition and recovery in Seals' margins. • Earnings per share, before exceptional items and goodwill amortisation, up 27% at 52.4p; basic earnings per share 46.6p. Full year dividend up 18% to 20.0p (2004: 17.0p). • Free cash flow of £11.9m; prior year free cash flow of £9.6m benefited from sale of Phase 2 of the Stamford land. Cash funds at 30 September 2005 were £25.7m. Commenting on the results for the year, Bruce Thompson, Diploma's Chief Executive said: "The markets in North America remain positive and continue to show growth. Market conditions in the UK and Germany remain tough and competitive. We areconfident that our focus on improving operational performance, together with ourstrategy of investing for organic growth and pursuing acquisitions, willcontinue to deliver value for Diploma shareholders in 2006." www.diplomaplc.com REGISTERED IN ENGLAND. NUMBER 3899848.20 BUNHILL ROW, LONDON EC1Y 8UD. For further enquiries please contact: Bruce Thompson, Chief Executive Officer 020 7638 0934Nigel Lingwood, Group Finance Director 020 7448 4875Ian Seaton, Bankside Consultants 020 7367 8891 NOTE TO EDITORS: Diploma PLC is a specialised international distribution group operating in threesectors: Life Sciences - Distributors of Instrumentation, Consumables and relatedServices to research, development and diagnostic laboratories. Principalcompanies are Anachem Group in the UK and Germany, and Somagen in Canada. Seals- Next day delivery of hydraulic seal kits, gaskets and cylindercomponents, for the repair and maintenance of mobile machinery. Principalcompanies are Hercules Bulldog Sealing Products in North America and FPE in theUK. Controls - Distributors of specialised wiring, connectors and control devicesfor a range of technically demanding applications. Principal companies are ISGroup in the UK and US, Sommer and Filcon in Germany and Hawco in the UK. Within each of these sectors, the Diploma businesses serve industry segmentswith long term growth potential and with the opportunity for sustainablesuperior margins through the quality of customer service, depth of technicalsupport and value adding activities. Further information on Diploma PLC can be found at www.diplomaplc.com RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2005 CHAIRMAN'S STATEMENT The Group delivered another strong set of results in 2005, achieving a secondconsecutive year of double digit profit growth and strong free cash flow. Each of our business sectors delivered a solid performance which demonstratesthe momentum in the Group as a result of targeted initiatives implemented duringthe past five years. Strong Results Sales increased by 11% to £111.3m (2004: £100.5m) and operating profits, beforegoodwill amortisation and exceptional items, increased by 29% to £15.9m (2004:£12.3m). The operating results benefited from the full year contribution fromSomagen acquired in July 2004 and a strong performance from Hercules Bulldog.Both businesses took full advantage of favourable market conditions in NorthAmerica. The Group's operating margin, before goodwill amortisation, increasedfrom 12.2% in 2004 to 14.3% in 2005. Profit before tax, goodwill amortisation and exceptional items increased by 27%to £16.6m (2004: £13.1m). There were no exceptional items this year, while lastyear's results benefited from exceptional profits of £3.9m on the sale of land.As a result, profit before tax was £15.3m compared with £15.4m last year. The Group's free cash flow was exceptionally strong this year at £11.9m (2004:£9.6m) benefiting from a continuing close focus on working capital. Last year'sfree cash flow included cash proceeds of £4.0m from the sale of land andproperties. The Group' cash funds increased by £7.8m during the year to £25.7mat 30 September 2005. Earnings and Dividends Earnings per share, before exceptional items and goodwill amortisation, grew 27%to 52.4 pence compared with 41.2 pence last year. Basic earnings per share were46.6 pence compared with 52.7 pence last year. The Directors are recommending an increased final dividend of 13.0 pence pershare (2004: 11.0 pence). This increases the total dividend payment for the yearto 20.0 pence (2004: 17.0 pence), an increase of 18%. Subject to approval at theAnnual General Meeting, the final dividend will be paid on 18 January 2006 toshareholders on the register at the close of business on 2 December 2005. People On behalf of shareholders and the Board, I would like to acknowledge thededication of our people across all our operations whose hard work andcommitment have been key to achieving the progress made in 2005. Current Trading The outlook for our markets in 2006, together with wider macro-economicindicators, is somewhat mixed. The markets in North America remain positive andcontinue to show growth. Market conditions in the UK and Germany remain toughand competitive. We are confident that our focus on improving operationalperformance, together with our strategy of investing for organic growth andpursuing acquisitions, will continue to deliver value for Diploma shareholdersin 2006. CHIEF EXECUTIVE OFFICER'S REVIEW The Group's strategy is to invest in specialised distribution businesses withlong term growth potential in the UK, Continental Europe and North America.Superior margins are achieved in the businesses through the quality of customerservice, depth of technical support and value adding activities. The objectiveis to build more substantial broader based businesses in our chosen sectorsthrough a combination of organic growth and acquisitions. Reviewing the last five years of the Group's development, adjusted earnings pershare (before exceptional items and goodwill amortisation) has grown from 23.4pper share to the current level of 52.4p per share; an average growth rate of 18%p.a. Underpinning this strong performance has been the growth of the corecontinuing businesses which have grown both sales and operating profits (beforehead office expenses) by 15% p.a over the same period. Acquisitions have contributed strongly to this growth and include Bulldog(Pevco), Dowatronic, Hawco, Filcon and most recently Somagen. However, over thesame five year period, removing these acquired earnings, organic growth in salesand operating profits has been 5% p.a and 7.5% p.a. respectively. Sector Development - Life Sciences The longest standing business in the Life Sciences sector has been Anachem,whose core UK business focuses on pipetting products, instruments and relatedservices supplied to public and private sector research laboratories. Throughthe 1990s Anachem benefited from the high levels of research and developmentinvestment by the major pharmaceutical companies and grew sales by 10-15% p.a.The initial wave of biotechnology investment then gave a further short termboost to sales in 2000 and 2001. Since then, the core Anachem business has come under increasing pressure on bothrevenues and margins. Although public research funding has grown steadily, majorpharmaceutical companies have progressively rationalised their researchoperations and cut back on both capital and operating expenditure. To date therehas been no second wave of investment by biotechnology companies. Two strategic initiatives have been implemented in the sector to diversify thebusiness and re-introduce growth. Firstly, Anachem has extended into theenvironmental business, serving environmental testing laboratories and healthand safety professionals in a range of industries across Europe. The newlybranded a1 envirosciences group now accounts for 16% of sector sales and hasmore than 40% of its business outside the UK. The acquisition of Somagen Diagnostics in Canada further extended the sectoractivities into hospital pathology laboratories which are benefiting fromincreasing public healthcare expenditure. Somagen gave an immediate boost toresults but has also grown organically since acquisition. In 2005 sales growthexceeded 25% and operating margins, already strong, have improved further. With these initiatives, the sector has returned to growth and is more stronglypositioned strategically, with greater focus on growing segments and a broaderbase in terms of customers and geographies served. Sector Development - Seals The Seals sector has seen sales growth at an average of 10% p.a. over the lastfive years. This has been achieved over a period when the main mobile machinerymarkets in North America moved into recession, only emerging in early 2004.Taking out the additional sales acquired with Bulldog in 2001, organic growthhas been 5% p.a. over the same five year period. More importantly, organicgrowth in sector operating profits has been at an average of 15% p.a. Strategically, the sector activities have been broadened and strengthened.Investment in product development has increased the seal and seal kit range toca. 75,000 product lines from a figure of only 30,000 when Hercules wasoriginally acquired. Bulldog has further extended the product portfolio of thecombined group to include gaskets for heavy duty specialised diesel engines andtransmissions. Additionally, a range of hard parts has been introduced in FPEand a new range of lightweight cylinders has been sourced from China. The international elements of Bulldog's business, together with the acquisitionof FPE in the UK and the organic growth of Hercules Bulldog Canada, havecombined to extend the business geographically; as a result 39% of the sectorsales are now outside the US compared with 26% in 2000. The infrastructure has also been substantially upgraded to give a strongplatform for future growth. A total of US$4.2m has been invested in property andwarehouse equipment to ensure that Hercules Bulldog is operating from modern,efficient distribution facilities with capacity for expansion. Bulldog's gasketproduction facility in Reno has benefited from further investment of US$0.8m innew and more efficient equipment. Most importantly, the major investment ofUS$2.1m in information technology in 2004 is now bringing benefits in terms ofprocess efficiency and again is adaptable and expandable as the group grows.Hercules Bulldog is now well positioned to take advantage of positive marketconditions and to integrate new, complementary acquisitions. Sector Development - Controls The Controls sector has shown the most dramatic growth over the last five years.Total growth in sales and operating profits has been 28% p.a. and 24% p.a.respectively. The majority of this growth has come from acquisitions includingClarendon, Filcon and Hawco. However, organic growth in sales and operatingprofits has still been 9% p.a. and 13% p.a. respectively. This organic growth has been achieved over a period when economic and marketconditions in Germany and more recently the UK have been very sluggish. It hasalso been a time of dramatic change in the key markets of Aerospace, Defence andMotorsport. The core companies in this sector have been IS-Rayfast and Sommer. Thesebusinesses have been broadened and strengthened by the complementaryacquisitions of Clarendon and Filcon. Clarendon has reinforced IS-Rayfast'sposition in the UK Motorsport market and added a range of aerospace qualityfasteners. The addition of Filcon has given Sommer a range of connectors and amore substantial presence in the Military and Aerospace markets in Germany. The IS Group in the UK and Sommer/Filcon in Germany are now strong, well managedbusinesses which have successfully integrated the acquisitions and have goodopportunities for further expansion. Hawco is the third of the Controls businesses and has extended the sector into anew range of customers and applications. Hawco supplies a range ofinstrumentation and control devices used in the sensing, measurement and controlof temperature and pressure. Since acquisition, Hawco has quickly moved torestructure the business, improve operating margins and strengthen the seniormanagement team. Having established and consolidated these changes, Hawco is nowready to take the next step forward. Management Development Our management philosophy is to build strong self standing management teams inthe operating companies, committed to and rewarded according to the short andlong term success of their businesses and with the potential to manageaggressive growth strategies. During the year we have further strengthened ourmanagement resources by broadening the roles and responsibilities for talentedyoung managers already within the businesses and through selective externalrecruitment. The group of 30 managers, who together make up the senior management cadre inthe operating businesses, demonstrate a good blend of energy, ambition andexperience. The average age of these managers is 43 and they have an averagelength of service within their companies of 9 years. Further development and strengthening of management in the operating businesseswill remain a priority for us and is key to the successful implementation of ourstrategies. REVIEW OF OPERATIONS LIFE SCIENCES The Anachem Group and Somagen supply instrumentation, consumables and relatedservices to research, development and diagnostic laboratories. Sales of our Life Sciences businesses increased by 33% to £34.7m (2004: £26.0m).Operating profits increased by 34% to £4.7m (2004: £3.5m) giving operatingmargins of 13.6% (2004: 13.5%). Somagen made a very strong contribution in its first full year in the Group. Ona like for like basis, sales growth over the prior year exceeded 25% andoperating margins improved further. Somagen Somagen supplies a range of consumables and instruments used in the diagnostictesting of blood, tissue and other samples in hospital pathology laboratoriesacross Canada. Capital equipment sales were particularly strong in the year as new instrumentranges were introduced and pent-up healthcare budgets were released. A broaderportfolio of Immunology products was launched and the bolt-on acquisition ofAdaltis was quickly integrated into the Somagen business. Somagen is now consolidating its position after effectively achieving two yearsof planned growth in a single year. Resources were added in the second half ofthe year to ensure service levels are maintained with the increased level ofcapital equipment sales and to cope with pressures from Health Canada on productcompliance. Anachem Group The core Bioscience consumables business is the market leader in supplyingpipetting products in the UK and Ireland. It supplies pipettes, tips and otherlaboratory plastics along with associated validation and calibration services topublic and private sector research laboratories. Anachem maintained its leadership position by increasing field sales coverageand introducing new complementary products and services. Increased resourceswere also applied to direct marketing, with regular promotions featuring specialoffers and "bundles" of products such as the very successful Pipetman Starterkit. E-commerce sales increased by over 50% in the year and electronic orderingnow accounts for more than 20% of the sales of single channel pipettes. Although operating margins have been squeezed, Anachem is well positioned withan experienced sales force, new product introductions and a sustained andinnovative programme of promotional activity. Anachem's Instruments business supplies a range of laboratory automationproducts used in sample preparation and analysis. The products are supported bya comprehensive package of maintenance and validation services. The Pharmaceutical and Biotechnology sectors remain subdued, with tightlycontrolled capital expenditure budgets. Publicly funded research however hasbeen more robust and Anachem's sales of instruments have stabilised afterseveral years of decline. The launch of the new "Trilution" software hasimproved the competitiveness of the product offering. With new laboratoryautomation and Reactarray products also introduced, Anachem is better placed toupgrade the installed base of equipment, as well as to service newinstallations. The service business competed well in its specialised segment, despite facingincreased competition from more generalist outsourcing companies. The teamsuccessfully retained the flagship maintenance contract for Pfizer's site atDeal. The environmental business, now branded as the a1 envirosciences group, suppliesa range of instrumentation, consumables and related services to environmentaltesting laboratories and to health and safety professionals across a range ofindustries. Products include gas detection devices, containment enclosures forpotent powder handling and specialised instruments for detecting and measuringspecific elements in liquids, solids and gases. The gas detection and powder handling business (branded as a1 safetech)continued to grow in the UK benefiting from increasing regulation to protectlaboratory technicians. The business further expanded with a small subsidiaryoperation established in Switzerland and sales resource added in Germany andFrance. The environmental analysis business in the UK and Germany (branded as a1envirotech) was boosted by strong second half demand from the Petrochemicalsector for analytical equipment to accurately measure the levels of nitrogen,sulphur and chlorine in fuels. SEALS Hercules Bulldog and FPE offer a next day delivery service for hydraulic sealkits, gaskets and cylinder components supplied to maintenance and repairoperations (MROs) serving a broad range of mobile machinery aftermarkets. Our Seals businesses increased sales and operating profits by 9% and 73%respectively on a constant currency basis and adjusted to exclude freightrevenues. Expressed in sterling terms, sales were £27.6m (2004: £27.4m) andoperating profits increased by 67% to £4.0m (2004: £2.4m). Operating marginsincreased to 14.5% (2004: 8.8%). Hercules Bulldog took full advantage of the favourable economic environment inNorth America. In particular, Hercules Bulldog Canada achieved a record year,also benefiting from a strong Canadian dollar. The major investments made in2004 in the operations and in establishing the new IT infrastructure led toincreased service levels and operating efficiency. As a result operating marginsimproved substantially. Hercules The core Hercules business based in Clearwater, Florida provides a next daydelivery service for seals and seal kits used in the repair of hydrauliccylinders. The products are used in heavy mobile machinery in a range ofapplications including heavy construction equipment, dump trucks and refusecollection, lift trucks and fork lifts. Hercules in the US produced a strong performance, taking good advantage of thefavourable economy. Significant improvements in ex-stock availability, customerservice and warehouse efficiency allowed Hercules to cope with the salesincrease without adding significant resources. Hercules took advantage of the buoyant market conditions to exit the sale ofless profitable heavy hydraulic cylinders. The reduced sales were more thanoffset by the continued development of new lightweight, competitively pricedcylinders imported from China. In two years, this product line has grown fromzero to over US$2m in annual sales at significantly improved margins. Furthernew product introductions are planned for 2006. Bulldog Bulldog operates its distribution business from Reno, Nevada where it also hasan in-house gasket production capability. Bulldog supplies a range of gasketsand seals for heavy duty specialised diesel engines, transmission and hydrauliccylinders. Bulldog made good progress in delivering capacity increases and productivityimprovements from investment in product design and manufacturing equipment.Bulldog now has the capability and inventory required to turn round large ordersin competitive timescales. Sales and marketing resources have been strengthened with the recruitment of anindustry experienced senior manager and the focus is now turning to businessdevelopment. New customers in the US and internationally will be developed toreduce dependence on larger customers with irregular purchasing patterns. International In Canada, Hercules took full advantage of a strengthening economy and goodinventory availability to grow its business. A further boost to margins camefrom the strength of the Canadian dollar since most products are purchased fromthe US or in US$ denominated currencies. A good mix of OEM and aftermarket demand boosted sales in Quebec and the newEdmonton operation took advantage of the booming Alberta oil industry to makegood progress. FPE worked hard to produce modest growth in a sluggish UK economy. A majorcatalogue update has been completed in 2005 and will be launched in the newyear. CONTROLS The IS Group, Sommer/Filcon and Hawco supply specialised wiring, connectors andcontrol devices for a range of technically demanding applications. Sales of our Controls businesses increased by 4% to £49.0m (2004: £47.1m) withoperating profits up by 13% to £7.2m (2004: £6.4m). Operating margins increasedto 14.7% (2004: 13.6%). The Sommer and Filcon businesses in Germany performed strongly in the coremarkets of Automotive Diagnostics, Aerospace and Medical Equipment. Continuedgeographic expansion, new products and cross-selling between Sommer and Filconall contributed to the strong performance. The IS Group and Hawco worked hard to maintain sales and profits in difficult UKmarkets. Sommer and Filcon Sommer and Filcon supply a range of high performance wiring and connectors tosectors including Defence, Aerospace, Automotive Diagnostics and MedicalEquipment. Together the businesses achieved strong double digit growth in salesand operating profits. Sommer continued its steady geographic expansion within Germany and successfullyintroduced a new range of aerospace wires. Growth was also achieved in theAutomotive Diagnostic and Medical Equipment sectors. Filcon continued to support important military projects including the Tornadoupgrade, the tail end of tranche 1 of the Eurofighter, as well as several Tankprogrammes and larger Helicopter programmes including NH90 and Tiger. Filcon isalso well positioned to gain connector business as the Eurofighter tranche 2build programme starts to generate orders in 2006. Sommer and Filcon have mostly maintained separate identities with customers andsuppliers but are increasingly managed together and cross selling opportunitiesare actively nurtured. Success has been achieved in the year with Sommer'sproducts being introduced to Filcon's military aerospace customers and Filconextending its customer relationships into Motorsport with support from Sommer. Both companies have also improved their quality programmes during the year.Filcon achieved EN9120 approval and Sommer is in the final stages of ISO EN9001:2000 approval. IS Group The IS Group comprises IS-Rayfast, IS-Motorsport and Clarendon. It supplies highperformance wiring and interconnect products, similar to Sommer and Filcon, butit also supplies aerospace quality fasteners. The core IS-Rayfast business experienced a generally sluggish UK manufacturingenvironment, but the more specialised defence markets have proved moreresilient. The main focus for the business has been on preparing for theprojected demand from major defence contracts. Major stocking programmes havebeen put in place to ensure that customer service levels are maintained and toensure that IS-Rayfast is well positioned to benefit from sales now starting toflow through. The product offering has also been strengthened with the signingof the Otto switch franchise for the UK. The Motorsport sector has stabilised and has been boosted by the launch of thenew A1 Grand Prix series. Both IS-Rayfast and Clarendon have benefited withincreased sales. The IS-Motorsport operation in the US has also continued togrow and expand into new Motorsport series. It has recently signed the DeutschMotorsport connector franchise for the US. Hawco Hawco supplies a range of instrumentation and control devices used in thesensing, measurement and control of temperature and pressure. Applications rangefrom chilled cabinets for supermarkets, bars and restaurants to fire detectionsystems. Hawco achieved modest growth in the Refrigeration and Cooling sector, acreditable performance given general industry conditions. Demand fromrefrigeration manufacturers and contractors held up well, though sales of airconditioning equipment were dampened by the mediocre summer weather. The morebroadly based Controls business was exposed to the general slow down in UKmanufacturing. In common with many UK suppliers, Hawco faces the dual challenge of UKmanufacturing moving offshore and increased competition from Far Easternsuppliers. Hawco has demonstrated an ability to compete for new business andsource products itself from Asia Pacific to meet the demands of its customers. STAMFORD LAND During the summer the Group concluded a Section 106 Agreement with the localplanning authorities for residential development of the 12 acre formerbrickworks site at Stamford, referred to as Phase 3 of our Stamford land. TheGroup is now actively marketing this site for sale, which it hopes to completein the first half of the new financial year. At 30 September 2005 the estimated market value of the Stamford land, in itspresent condition, has increased by £3.5m and is expected to be not less than£9.0m before expenses and taxation. The net book value of this land is £0.1m. The Group continues to own a substantial acreage of agricultural land atStamford, some of which may eventually also be realised for residentialdevelopment. However the timescale for such development is unlikely to be lessthan five years. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) It is now mandatory for the consolidated financial statements of all EuropeanUnion listed companies to be reported in accordance with International FinancialReporting Standards (IFRS) for periods commencing on or after 1 January 2005.The move to IFRS will not change how the Group is managed and will have noimpact on cash flow. The Group is now prepared for the adoption of IFRS. Both net assets and profitare impacted by changes to the accounting treatment of goodwill amortisation,other intangibles, share based remuneration, pension costs and deferred tax.However the amounts will not be significant. The financial statements for the year ending 30 September 2006 will be reportedunder IFRS, as will the interim results for the six months ending 31 March 2006. Group Profit and Loss Accountfor the year ended 30 September 2005 30 September 2005 30 September 2004 Before Goodwill and Before Goodwill and goodwill and exceptional goodwill and exceptional exceptional items exceptional items items items (note 3) (note 3) Total Total Note £m £m £m £m £m £m_________________________________________________________________________________________________________________Turnover 1Continuing operations 111.3 111.3 100.5 100.5_________________________________________________________________________________________________________________ Operating profit 1Continuing operations 15.9 (1.3) 14.6 12.3 (1.6) 10.7 Non-Operating Items 3Continuing operations Profit on disposal of tangible fixed assets - - - - 3.9 3.9 1 15.9 (1.3) 14.6 12.3 2.3 14.6_________________________________________________________________________________________________________________Interest income 0.7 - 0.7 0.8 - 0.8 Profit on ordinary activitiesbefore tax 16.6 (1.3) 15.3 13.1 2.3 15.4Taxation 4 (4.4) - (4.4) (3.6) 0.3 (3.3)_________________________________________________________________________________________________________________Profit on ordinary activitiesafter tax 12.2 (1.3) 10.9 9.5 2.6 12.1Equity minority interests (0.4) (0.2)_________________________________________________________________________________________________________________Profit for the financial year 10.5 11.9Dividends 10 (4.5) (3.8)_________________________________________________________________________________________________________________Retained profit for the year 6.0 8.1_________________________________________________________________________________________________________________ Earnings per 5p share 5On basic and diluted earnings 46.6p 52.7pOn adjusted earnings 52.4p 41.2p_________________________________________________________________________________________________________________ Group Balance Sheetas at 30 September 2005 2005 2004 Note £m £m__________________________________________________________________________________________________Fixed assetsIntangible assets: Goodwill 23.3 23.5Tangible assets 10.4 10.6__________________________________________________________________________________________________ 33.7 34.1__________________________________________________________________________________________________Current assetsStocks 21.3 20.4Debtors 20.3 19.3Cash and bank deposits 25.7 17.9__________________________________________________________________________________________________ 67.3 57.6__________________________________________________________________________________________________Creditors: Amounts falling due within one year (25.2) (24.4)__________________________________________________________________________________________________Net current assets 42.1 33.2__________________________________________________________________________________________________Total assets less current liabilities 75.8 67.3 Provisions for liabilities and charges 6 (1.6) (2.0)__________________________________________________________________________________________________ 74.2 65.3__________________________________________________________________________________________________Capital and reservesCalled up equity share capital 1.1 1.1Capital redemption reserve 0.2 0.2Profit and loss account 71.2 62.7__________________________________________________________________________________________________Equity shareholders' funds 72.5 64.0 Equity minority interests 1.7 1.3__________________________________________________________________________________________________ 2 74.2 65.3__________________________________________________________________________________________________ Group Cash Flow Statementfor the year ended 30 September 2005 2005 2005 2004 2004 Note £m £m £m £m________________________________________________________________________________________________________________Net cash inflow from operating activities 7 16.4 10.7 Returns on investments and servicing of financeInterest received 0.7 0.8 TaxationUK corporation tax paid (1.7) (2.5)Overseas tax paid (2.0) (3.7) (1.4) (3.9)________________________________________________________________________________________________________________Capital expenditure and financial investmentPurchase of tangible fixed assets (1.4) (1.5)Proceeds from the sale of tangible fixed assets 0.4 4.0Purchase of own shares (0.5) (1.5) (0.5) 2.0________________________________________________________________________________________________________________Acquisitions and disposalsAcquisition of businesses (0.3) (17.3) Equity dividends paid (4.1) (3.6)________________________________________________________________________________________________________________ Cash inflow /(outflow) before use of liquid resources andfinancing 7.5 (11.3) Management of liquid resources(Increase)/ decrease in short term deposits (5.8) 14.8 FinancingRedemption of Loan Notes - (1.2)________________________________________________________________________________________________________________Increase in cash in the year 8 1.7 2.3________________________________________________________________________________________________________________ Statement of Total Recognised Gains and Lossesfor the year ended 30 September 2005 2005 2004 £m £m_________________________________________________________________________________________________________Profit for the financial year 10.5 11.9Exchange rate adjustments on foreign currency net investments 2.2 (0.7)_________________________________________________________________________________________________________Total recognised gains and losses for the year 12.7 11.2_________________________________________________________________________________________________________ Reconciliation of Movements in Equity Shareholders' Fundsfor the year ended 30 September 2005 2005 2004 Note £m £m_________________________________________________________________________________________________________Profit for the financial year 10.5 11.9Dividends (4.5) (3.8)_________________________________________________________________________________________________________Retained profit for the year 6.0 8.1 Exchange rate adjustments on foreign currency net investments 2.2 (0.7)Purchase of own shares 11 (0.5) (0.5)Cost of employee share schemes 0.8 -_________________________________________________________________________________________________________Net increase in equity shareholders' funds 8.5 6.9 Equity shareholders' funds at beginning of year 64.0 57.1_________________________________________________________________________________________________________ Equity shareholders' funds at end of year 72.5 64.0_________________________________________________________________________________________________________ Notes to the Preliminary Announcementfor the year ended 30 September 2005 1. ANALYSIS OF RESULTS Operating profit before goodwill amortisation, exceptional items and taxation Profit before interest and taxation Turnover 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m________________________________________________________________________________________________________________By BusinessLife Sciences 34.7 26.0 4.7 3.5 4.1 3.1Seals 27.6 27.4 4.0 2.4 3.9 2.3Controls 49.0 47.1 7.2 6.4 6.6 5.3________________________________________________________________________________________________________________ 111.3 100.5 15.9 12.3 14.6 10.7Unallocated items: Profit on sale of properties - - - - - 3.9________________________________________________________________________________________________________________ 111.3 100.5 15.9 12.3 14.6 14.6________________________________________________________________________________________________________________ By Geographic AreaUnited Kingdom 55.7 58.9 7.2 8.3 6.8 10.9Rest of Europe 17.0 14.6 2.7 2.0 2.5 1.8North America 38.6 27.0 6.0 2.0 5.3 1.9________________________________________________________________________________________________________________ 111.3 100.5 15.9 12.3 14.6 14.6________________________________________________________________________________________________________________ In 2005 the Group revised its definition of turnover to exclude recovery offreight costs from customers. Recovered freight costs are now deducted fromdistribution costs. Total recovered freight costs in 2005 were £3.0m (LifeSciences £0.6m; Seals £2.1m; Controls £0.3m). This adjustment has not impactedoperating profit or retained profit. The prior year comparatives have not beenrestated. Turnover by geographical area is stated by origin, which with the exception ofNorth America, is not materially different from turnover by destination. InNorth America, turnover of £4.7m (out of £38.6m) is to customers based outsideNorth America. 2. ANALYSIS OF NET ASSETS 2005 2004 United Rest of North United Rest of North Kingdom Europe America Kingdom Europe America Total Total £m £m £m £m £m £m £m £m__________________________________________________________________________________________________________________By BusinessLife Sciences 5.0 0.6 15.5 21.1 3.7 0.4 14.6 18.7Seals 2.2 - 12.1 14.3 2.1 - 11.8 13.9Controls 11.4 6.9 0.2 18.5 10.2 7.0 0.2 17.4Head Office (5.5) - - (5.5) (2.7) - - (2.7)__________________________________________________________________________________________________________________ 13.1 7.5 27.8 48.4 13.3 7.4 26.6 47.3Discontinued operations 0.1 - - 0.1 0.1 - - 0.1__________________________________________________________________________________________________________________Trading capital employed 13.2 7.5 27.8 48.5 13.4 7.4 26.6 47.4 Cash and bank deposits 16.6 3.4 5.7 25.7 15.0 1.7 1.2 17.9__________________________________________________________________________________________________________________ 29.8 10.9 33.5 74.2 28.4 9.1 27.8 65.3__________________________________________________________________________________________________________________ 3. GOODWILL AND EXCEPTIONAL ITEMS 2005 2004 Goodwill Exceptional Goodwill Exceptional amortisation items amortisation items Total Total Notes £m £m £m £m £m £m_________________________________________________________________________________________________________________Operating profitContinuing operations (a) (1.3) - (1.3) (0.8) (0.8) (1.6) Non-Operating itemsProfit on disposal of tangiblefixed assets (b) - - - - 3.9 3.9_________________________________________________________________________________________________________________ (1.3) (1.3) (0.8) 3.1 2.3Tax credit on exceptionalitems - - - - 0.3 0.3_________________________________________________________________________________________________________________ (1.3) - (1.3) (0.8) 3.4 2.6_________________________________________________________________________________________________________________ (a) In 2004 costs of £0.5m were incurred in restructuring the Control's business of Hawco, acquired in July 2003. Costs of £0.3m were also incurred in restructuring the Life Science business of Anachem. (b) The profit on disposal of fixed assets arose from the sale of eight acres of land (known as Phase 2) in Stamford, East Midlands. No tax liability arose on this disposal due to the availability of capital tax losses. 4. TAXATION The Group's effective tax charge represented 28.8% (2004: 29.3%) of the profitbefore tax and exceptional items. The underlying tax rate, excluding the impactof prior year tax credits was 30.7%. This rate compares favourably with thecorporate tax rate of 30% in the UK and approximately 36% on profits earned inNorth America and Germany. A net deferred tax asset of £0.6m (2004: £Nil) has been recognised and includedwithin Debtors resulting in a credit to the profit and loss account of £0.6m.The net deferred tax asset is made up of gross deferred tax assets of £0.6m(2004: £0.4m) relating to timing differences in respect of the LTIP, definedbenefit pension schemes and other timing differences and deferred taxliabilities relating to capital allowances on fixed assets in excess ofdepreciation of £Nil (2004: £0.4m). No provision for deferred taxation has been made for taxation payable on thedistribution of reserves by overseas subsidiary undertakings. No deferred taxasset has been recognised on capital losses of £6.0m (2004: £6.0m). 5. EARNINGS PER ORDINARY SHARE Basic and Diluted earnings per share Basic and diluted earnings per ordinary share are calculated on the basis of theweighted average number of ordinary shares in issue during the year of22,513,603 (2004: 22,581,026) and the profit for the financial year, afterminority interests, of £10.5m (2004: £11.9m). There were no potentiallydilutive shares. Adjusted earnings per share Adjusted earnings per share is shown by reference to earnings before goodwillamortisation, exceptional items and related tax. The Directors consider thatthis gives a clearer indication of the underlying performance of the Group.Earnings before goodwill amortisation, exceptional items and related tax arecalculated as follows: 2005 2004 2005 2004 pence pence per share per share £m £m______________________________________________________________________________________________________________Profit for the financial year, after minority interests 46.6 52.7 10.5 11.9Goodwill amortisation 5.8 3.5 1.3 0.8Exceptional items, net of tax - (15.0) - (3.4)______________________________________________________________________________________________________________Adjusted earnings 52.4 41.2 11.8 9.3______________________________________________________________________________________________________________ 6. PROVISIONS FOR LIABILITIES AND CHARGES 1 October Charge to On Exchange rate 30 September 2004 Utilised profit acquisition adjustments 2005 £m £m £m £m £m £m______________________________________________________________________________________________________________Pensions 0.5 - 0.1 - - 0.6Onerous lease 0.1 (0.1) - - - -Deferred consideration 1.4 (0.3) - (0.2) 0.1 1.0______________________________________________________________________________________________________________ Total 2.0 (0.4) 0.1 (0.2) 0.1 1.6______________________________________________________________________________________________________________ In May 2005 deferred consideration of £0.3m (€0.4m) was paid to the vendors ofFilcon Electronic GmbH. As a result of this payment, excess deferredconsideration of £0.2m was released and goodwill adjusted accordingly. Deferredconsideration of £1.0m (C$2.0m) was paid in November 2005 to the vendors ofSomagen Diagnostics Inc. as final settlement of their performance payment. Pension provisions are held in the respect of the Group's principal definedbenefit pension schemes. These will be amortised to profit over the averageservice life of the employees. 7. RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES 2005 2004 £m £m_____________________________________________________________________________________________________Operating profit 14.6 10.7Depreciation 1.5 1.2Amortisation of goodwill 1.3 0.8Cost of employee share schemes 0.8 -(Increase) in stocks (0.6) (2.3)Decrease /(increase) in debtors 0.6 (1.3)(Decrease)/increase in creditors (1.8) 1.5Increase in provisions - 0.1_____________________________________________________________________________________________________Net cash inflow from operating activities 16.4 10.7_____________________________________________________________________________________________________ 8. RECONCILIATION OF NET CASH FLOWS TO THE MOVEMENT IN CASH AND BANK DEPOSITS 2005 2004 £m £m_______________________________________________________________________________________________________Increase in cash in the year 1.7 2.3Increase/(decrease) in short term deposits 5.8 (14.8)_______________________________________________________________________________________________________Change in cash and bank deposits resulting from cash flows 7.5 (12.5)Decrease in debt due within one year - 1.2Exchange rate adjustments 0.3 (0.1)Cash and bank deposits at beginning of year 17.9 29.3_______________________________________________________________________________________________________Cash and bank deposits at end of year 25.7 17.9_______________________________________________________________________________________________________ 9. ANALYSIS OF CASH AND BANK DEPOSITS 1 October Exchange 30 September 2004 Cash flow movement 2005 £m £m £m £m_____________________________________________________________________________________________________________Cash at bank 4.1 1.7 0.3 6.1Short term deposits 13.8 5.8 - 19.6_____________________________________________________________________________________________________________Cash and bank deposits 17.9 7.5 0.3 25.7_____________________________________________________________________________________________________________ 10. DIVIDENDS Subject to approval at the Annual General Meeting, a proposed final dividend of13p per share (2004: 11.0p) will be paid on 18 January 2006 to ordinaryshareholders on the register at the close of business on 2 December 2005. 11. PURCHASE OF OWN SHARES In May 2005 the Diploma Employee Benefit Trust ("the Trust") purchased a further77,656 ordinary shares in the Company at a cost of £0.5m. These shares wereacquired in connection with potential awards under the Group's Long TermIncentive Plan and Bonus Share Matching Plan. The purchase of own shares hasbeen deducted in arriving at shareholder's funds in accordance with UITF 38. At30 September 2005 the Trust held 183,029 (2004: 105,373) ordinary shares in theCompany representing 0.8% of the called up share capital. The market value ofthese shares at 30 September 2005 was £1.3m (2004: £0.6m). On 26 October 200517,506 of these shares were transferred out of the Trust following vesting ofawards under the Bonus Share Matching Plan. 12. EXCHANGE RATES The following exchange rates have been used to translate the results of theoverseas businesses: Average Average Closing Closing 2005 2004 2005 2004____________________________________________________________________________________________________US Dollar 1.84 1.81 1.77 1.81Canadian Dollar 2.27 2.34 2.05 2.29Euro 1.46 1.48 1.47 1.46____________________________________________________________________________________________________ In comparison to the prior year, the net effect of currency translation on theresults for the year was to decrease turnover by £0.1m and to reduce operatingprofit, before goodwill amortisation and exceptional items, by £Nil. 13. FINANCIAL INFORMATION The financial information has, with the exception of accounting for turnover,been prepared on the basis of the accounting policies set out in the Group'spublished accounts for the financial year ended 30 September 2004. With effectfrom 1 October 2004 turnover excludes freight income recoverable from customers.This amendment has not impacted operating profit or retained profit. Thecomparative figures have not been restated. The financial information set out in this preliminary announcement, which hasbeen extracted from the audited accounts, does not constitute the Group'sstatutory accounts for the years ended 30 September 2005 and 2004. Statutory accounts for the year ended 30 September 2004 have been delivered tothe Registrar of Companies. The statutory accounts for the year ended 30September 2005, which were approved by the Directors on 14 November 2005, willbe delivered to the Registrar of Companies following the Company's AnnualGeneral Meeting. The auditors have reported on the accounts for the years ended 30 September 2005and 2004. The reports were unqualified and did not contain a statement underSection 237(2) or (3) of the Companies Act 1985. The Company's Annual General Meeting will be held at 12.00 midday on 11 January2006 in the Members' Room, Chartered Accountants' Hall, Moorgate Place, LondonEC2P 2BJ. The Notice of Meeting will be set out in a separate document issuedto shareholders. This information is provided by RNS The company news service from the London Stock Exchange