Final Results

Diploma PLC 14 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 Â£111.3m Â£100.5m Operating profit, before exceptional items and goodwill amortisation Â£15.9m Â£12.3m Profit before tax, exceptional items and goodwill amortisation Â£16.6m Â£13.1m Profit before tax Â£15.3m Â£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 â€¢ Strong sales and profit growth driven by the full year contribution from Somagen and a strong performance by Hercules Bulldog. â€¢ Profit before tax, exceptional items and goodwill amortisation up 27% to Â£16.6m from Â£13.1m; operating margin of 14.3% (2004: 12.2%) boosted by Somagen acquisition and recovery in Seals' margins. â€¢ 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). â€¢ Free cash flow of Â£11.9m; prior year free cash flow of Â£9.6m benefited from sale of Phase 2 of the Stamford land. Cash funds at 30 September 2005 were Â£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 are confident that our focus on improving operational performance, together with our strategy of investing for organic growth and pursuing acquisitions, will continue 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 0934 Nigel Lingwood, Group Finance Director 020 7448 4875 Ian Seaton, Bankside Consultants 020 7367 8891 NOTE TO EDITORS: Diploma PLC is a specialised international distribution group operating in three sectors: Life Sciences - Distributors of Instrumentation, Consumables and related Services to research, development and diagnostic laboratories. Principal companies are Anachem Group in the UK and Germany, and Somagen in Canada. Seals- Next day delivery of hydraulic seal kits, gaskets and cylinder components, for the repair and maintenance of mobile machinery. Principal companies are Hercules Bulldog Sealing Products in North America and FPE in the UK. Controls - Distributors of specialised wiring, connectors and control devices for a range of technically demanding applications. Principal companies are IS Group 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 segments with long term growth potential and with the opportunity for sustainable superior margins through the quality of customer service, depth of technical support 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 second consecutive year of double digit profit growth and strong free cash flow. Each of our business sectors delivered a solid performance which demonstrates the momentum in the Group as a result of targeted initiatives implemented during the past five years. Strong Results Sales increased by 11% to Â£111.3m (2004: Â£100.5m) and operating profits, before goodwill amortisation and exceptional items, increased by 29% to Â£15.9m (2004: Â£12.3m). The operating results benefited from the full year contribution from Somagen acquired in July 2004 and a strong performance from Hercules Bulldog. Both businesses took full advantage of favourable market conditions in North America. The Group's operating margin, before goodwill amortisation, increased from 12.2% in 2004 to 14.3% in 2005. Profit before tax, goodwill amortisation and exceptional items increased by 27% to Â£16.6m (2004: Â£13.1m). There were no exceptional items this year, while last year's results benefited from exceptional profits of Â£3.9m on the sale of land. As a result, profit before tax was Â£15.3m compared with Â£15.4m last year. The Group's free cash flow was exceptionally strong this year at Â£11.9m (2004: Â£9.6m) benefiting from a continuing close focus on working capital. Last year's free cash flow included cash proceeds of Â£4.0m from the sale of land and properties. The Group' cash funds increased by Â£7.8m during the year to Â£25.7m at 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 were 46.6 pence compared with 52.7 pence last year. The Directors are recommending an increased final dividend of 13.0 pence per share (2004: 11.0 pence). This increases the total dividend payment for the year to 20.0 pence (2004: 17.0 pence), an increase of 18%. Subject to approval at the Annual General Meeting, the final dividend will be paid on 18 January 2006 to shareholders 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 the dedication of our people across all our operations whose hard work and commitment have been key to achieving the progress made in 2005. Current Trading The outlook for our markets in 2006, together with wider macro-economic indicators, is somewhat mixed. The markets in North America remain positive and continue to show growth. Market conditions in the UK and Germany remain tough and competitive. We are confident that our focus on improving operational performance, together with our strategy of investing for organic growth and pursuing acquisitions, will continue to deliver value for Diploma shareholders in 2006. CHIEF EXECUTIVE OFFICER'S REVIEW The Group's strategy is to invest in specialised distribution businesses with long term growth potential in the UK, Continental Europe and North America. Superior margins are achieved in the businesses through the quality of customer service, depth of technical support and value adding activities. The objective is to build more substantial broader based businesses in our chosen sectors through a combination of organic growth and acquisitions. Reviewing the last five years of the Group's development, adjusted earnings per share (before exceptional items and goodwill amortisation) has grown from 23.4p per 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 core continuing businesses which have grown both sales and operating profits (before head 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 the same five year period, removing these acquired earnings, organic growth in sales and 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 related services supplied to public and private sector research laboratories. Through the 1990s Anachem benefited from the high levels of research and development investment by the major pharmaceutical companies and grew sales by 10-15% p.a. The initial wave of biotechnology investment then gave a further short term boost to sales in 2000 and 2001. Since then, the core Anachem business has come under increasing pressure on both revenues and margins. Although public research funding has grown steadily, major pharmaceutical companies have progressively rationalised their research operations and cut back on both capital and operating expenditure. To date there has been no second wave of investment by biotechnology companies. Two strategic initiatives have been implemented in the sector to diversify the business and re-introduce growth. Firstly, Anachem has extended into the environmental business, serving environmental testing laboratories and health and safety professionals in a range of industries across Europe. The newly branded a1 envirosciences group now accounts for 16% of sector sales and has more than 40% of its business outside the UK. The acquisition of Somagen Diagnostics in Canada further extended the sector activities into hospital pathology laboratories which are benefiting from increasing public healthcare expenditure. Somagen gave an immediate boost to results but has also grown organically since acquisition. In 2005 sales growth exceeded 25% and operating margins, already strong, have improved further. With these initiatives, the sector has returned to growth and is more strongly positioned strategically, with greater focus on growing segments and a broader base 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 last five years. This has been achieved over a period when the main mobile machinery markets in North America moved into recession, only emerging in early 2004. Taking out the additional sales acquired with Bulldog in 2001, organic growth has been 5% p.a. over the same five year period. More importantly, organic growth 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 to ca. 75,000 product lines from a figure of only 30,000 when Hercules was originally acquired. Bulldog has further extended the product portfolio of the combined group to include gaskets for heavy duty specialised diesel engines and transmissions. Additionally, a range of hard parts has been introduced in FPE and a new range of lightweight cylinders has been sourced from China. The international elements of Bulldog's business, together with the acquisition of FPE in the UK and the organic growth of Hercules Bulldog Canada, have combined to extend the business geographically; as a result 39% of the sector sales are now outside the US compared with 26% in 2000. The infrastructure has also been substantially upgraded to give a strong platform for future growth. A total of US$4.2m has been invested in property and warehouse equipment to ensure that Hercules Bulldog is operating from modern, efficient distribution facilities with capacity for expansion. Bulldog's gasket production facility in Reno has benefited from further investment of US$0.8m in new and more efficient equipment. Most importantly, the major investment of US$2.1m in information technology in 2004 is now bringing benefits in terms of process efficiency and again is adaptable and expandable as the group grows. Hercules Bulldog is now well positioned to take advantage of positive market conditions 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 including Clarendon, Filcon and Hawco. However, organic growth in sales and operating profits has still been 9% p.a. and 13% p.a. respectively. This organic growth has been achieved over a period when economic and market conditions in Germany and more recently the UK have been very sluggish. It has also been a time of dramatic change in the key markets of Aerospace, Defence and Motorsport. The core companies in this sector have been IS-Rayfast and Sommer. These businesses have been broadened and strengthened by the complementary acquisitions of Clarendon and Filcon. Clarendon has reinforced IS-Rayfast's position in the UK Motorsport market and added a range of aerospace quality fasteners. The addition of Filcon has given Sommer a range of connectors and a more 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 managed businesses which have successfully integrated the acquisitions and have good opportunities for further expansion. Hawco is the third of the Controls businesses and has extended the sector into a new range of customers and applications. Hawco supplies a range of instrumentation and control devices used in the sensing, measurement and control of temperature and pressure. Since acquisition, Hawco has quickly moved to restructure the business, improve operating margins and strengthen the senior management team. Having established and consolidated these changes, Hawco is now ready to take the next step forward. Management Development Our management philosophy is to build strong self standing management teams in the operating companies, committed to and rewarded according to the short and long term success of their businesses and with the potential to manage aggressive growth strategies. During the year we have further strengthened our management resources by broadening the roles and responsibilities for talented young managers already within the businesses and through selective external recruitment. The group of 30 managers, who together make up the senior management cadre in the operating businesses, demonstrate a good blend of energy, ambition and experience. The average age of these managers is 43 and they have an average length of service within their companies of 9 years. Further development and strengthening of management in the operating businesses will remain a priority for us and is key to the successful implementation of our strategies. REVIEW OF OPERATIONS LIFE SCIENCES The Anachem Group and Somagen supply instrumentation, consumables and related services to research, development and diagnostic laboratories. Sales of our Life Sciences businesses increased by 33% to Â£34.7m (2004: Â£26.0m). Operating profits increased by 34% to Â£4.7m (2004: Â£3.5m) giving operating margins of 13.6% (2004: 13.5%). Somagen made a very strong contribution in its first full year in the Group. On a like for like basis, sales growth over the prior year exceeded 25% and operating margins improved further. Somagen Somagen supplies a range of consumables and instruments used in the diagnostic testing of blood, tissue and other samples in hospital pathology laboratories across Canada. Capital equipment sales were particularly strong in the year as new instrument ranges were introduced and pent-up healthcare budgets were released. A broader portfolio of Immunology products was launched and the bolt-on acquisition of Adaltis was quickly integrated into the Somagen business. Somagen is now consolidating its position after effectively achieving two years of planned growth in a single year. Resources were added in the second half of the year to ensure service levels are maintained with the increased level of capital equipment sales and to cope with pressures from Health Canada on product compliance. Anachem Group The core Bioscience consumables business is the market leader in supplying pipetting products in the UK and Ireland. It supplies pipettes, tips and other laboratory plastics along with associated validation and calibration services to public and private sector research laboratories. Anachem maintained its leadership position by increasing field sales coverage and introducing new complementary products and services. Increased resources were also applied to direct marketing, with regular promotions featuring special offers and 'bundles' of products such as the very successful Pipetman Starter kit. E-commerce sales increased by over 50% in the year and electronic ordering now accounts for more than 20% of the sales of single channel pipettes. Although operating margins have been squeezed, Anachem is well positioned with an experienced sales force, new product introductions and a sustained and innovative programme of promotional activity. Anachem's Instruments business supplies a range of laboratory automation products used in sample preparation and analysis. The products are supported by a comprehensive package of maintenance and validation services. The Pharmaceutical and Biotechnology sectors remain subdued, with tightly controlled capital expenditure budgets. Publicly funded research however has been more robust and Anachem's sales of instruments have stabilised after several years of decline. The launch of the new 'Trilution' software has improved the competitiveness of the product offering. With new laboratory automation and Reactarray products also introduced, Anachem is better placed to upgrade the installed base of equipment, as well as to service new installations. The service business competed well in its specialised segment, despite facing increased competition from more generalist outsourcing companies. The team successfully retained the flagship maintenance contract for Pfizer's site at Deal. The environmental business, now branded as the a1 envirosciences group, supplies a range of instrumentation, consumables and related services to environmental testing laboratories and to health and safety professionals across a range of industries. Products include gas detection devices, containment enclosures for potent powder handling and specialised instruments for detecting and measuring specific 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 protect laboratory technicians. The business further expanded with a small subsidiary operation established in Switzerland and sales resource added in Germany and France. The environmental analysis business in the UK and Germany (branded as a1 envirotech) was boosted by strong second half demand from the Petrochemical sector 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 seal kits, gaskets and cylinder components supplied to maintenance and repair operations (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 freight revenues. Expressed in sterling terms, sales were Â£27.6m (2004: Â£27.4m) and operating profits increased by 67% to Â£4.0m (2004: Â£2.4m). Operating margins increased to 14.5% (2004: 8.8%). Hercules Bulldog took full advantage of the favourable economic environment in North America. In particular, Hercules Bulldog Canada achieved a record year, also benefiting from a strong Canadian dollar. The major investments made in 2004 in the operations and in establishing the new IT infrastructure led to increased service levels and operating efficiency. As a result operating margins improved substantially. Hercules The core Hercules business based in Clearwater, Florida provides a next day delivery service for seals and seal kits used in the repair of hydraulic cylinders. The products are used in heavy mobile machinery in a range of applications including heavy construction equipment, dump trucks and refuse collection, lift trucks and fork lifts. Hercules in the US produced a strong performance, taking good advantage of the favourable economy. Significant improvements in ex-stock availability, customer service and warehouse efficiency allowed Hercules to cope with the sales increase without adding significant resources. Hercules took advantage of the buoyant market conditions to exit the sale of less profitable heavy hydraulic cylinders. The reduced sales were more than offset by the continued development of new lightweight, competitively priced cylinders imported from China. In two years, this product line has grown from zero to over US$2m in annual sales at significantly improved margins. Further new product introductions are planned for 2006. Bulldog Bulldog operates its distribution business from Reno, Nevada where it also has an in-house gasket production capability. Bulldog supplies a range of gaskets and seals for heavy duty specialised diesel engines, transmission and hydraulic cylinders. Bulldog made good progress in delivering capacity increases and productivity improvements from investment in product design and manufacturing equipment. Bulldog now has the capability and inventory required to turn round large orders in competitive timescales. Sales and marketing resources have been strengthened with the recruitment of an industry experienced senior manager and the focus is now turning to business development. New customers in the US and internationally will be developed to reduce dependence on larger customers with irregular purchasing patterns. International In Canada, Hercules took full advantage of a strengthening economy and good inventory availability to grow its business. A further boost to margins came from the strength of the Canadian dollar since most products are purchased from the US or in US$ denominated currencies. A good mix of OEM and aftermarket demand boosted sales in Quebec and the new Edmonton operation took advantage of the booming Alberta oil industry to make good progress. FPE worked hard to produce modest growth in a sluggish UK economy. A major catalogue update has been completed in 2005 and will be launched in the new year. CONTROLS The IS Group, Sommer/Filcon and Hawco supply specialised wiring, connectors and control devices for a range of technically demanding applications. Sales of our Controls businesses increased by 4% to Â£49.0m (2004: Â£47.1m) with operating profits up by 13% to Â£7.2m (2004: Â£6.4m). Operating margins increased to 14.7% (2004: 13.6%). The Sommer and Filcon businesses in Germany performed strongly in the core markets of Automotive Diagnostics, Aerospace and Medical Equipment. Continued geographic expansion, new products and cross-selling between Sommer and Filcon all contributed to the strong performance. The IS Group and Hawco worked hard to maintain sales and profits in difficult UK markets. Sommer and Filcon Sommer and Filcon supply a range of high performance wiring and connectors to sectors including Defence, Aerospace, Automotive Diagnostics and Medical Equipment. Together the businesses achieved strong double digit growth in sales and operating profits. Sommer continued its steady geographic expansion within Germany and successfully introduced a new range of aerospace wires. Growth was also achieved in the Automotive Diagnostic and Medical Equipment sectors. Filcon continued to support important military projects including the Tornado upgrade, the tail end of tranche 1 of the Eurofighter, as well as several Tank programmes and larger Helicopter programmes including NH90 and Tiger. Filcon is also well positioned to gain connector business as the Eurofighter tranche 2 build programme starts to generate orders in 2006. Sommer and Filcon have mostly maintained separate identities with customers and suppliers but are increasingly managed together and cross selling opportunities are actively nurtured. Success has been achieved in the year with Sommer's products being introduced to Filcon's military aerospace customers and Filcon extending 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 high performance wiring and interconnect products, similar to Sommer and Filcon, but it also supplies aerospace quality fasteners. The core IS-Rayfast business experienced a generally sluggish UK manufacturing environment, but the more specialised defence markets have proved more resilient. The main focus for the business has been on preparing for the projected demand from major defence contracts. Major stocking programmes have been put in place to ensure that customer service levels are maintained and to ensure that IS-Rayfast is well positioned to benefit from sales now starting to flow through. The product offering has also been strengthened with the signing of the Otto switch franchise for the UK. The Motorsport sector has stabilised and has been boosted by the launch of the new A1 Grand Prix series. Both IS-Rayfast and Clarendon have benefited with increased sales. The IS-Motorsport operation in the US has also continued to grow and expand into new Motorsport series. It has recently signed the Deutsch Motorsport connector franchise for the US. Hawco Hawco supplies a range of instrumentation and control devices used in the sensing, measurement and control of temperature and pressure. Applications range from chilled cabinets for supermarkets, bars and restaurants to fire detection systems. Hawco achieved modest growth in the Refrigeration and Cooling sector, a creditable performance given general industry conditions. Demand from refrigeration manufacturers and contractors held up well, though sales of air conditioning equipment were dampened by the mediocre summer weather. The more broadly based Controls business was exposed to the general slow down in UK manufacturing. In common with many UK suppliers, Hawco faces the dual challenge of UK manufacturing moving offshore and increased competition from Far Eastern suppliers. Hawco has demonstrated an ability to compete for new business and source 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 local planning authorities for residential development of the 12 acre former brickworks site at Stamford, referred to as Phase 3 of our Stamford land. The Group is now actively marketing this site for sale, which it hopes to complete in the first half of the new financial year. At 30 September 2005 the estimated market value of the Stamford land, in its present condition, has increased by Â£3.5m and is expected to be not less than Â£9.0m before expenses and taxation. The net book value of this land is Â£0.1m. The Group continues to own a substantial acreage of agricultural land at Stamford, some of which may eventually also be realised for residential development. However the timescale for such development is unlikely to be less than five years. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) It is now mandatory for the consolidated financial statements of all European Union listed companies to be reported in accordance with International Financial Reporting 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 no impact on cash flow. The Group is now prepared for the adoption of IFRS. Both net assets and profit are 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 reported under IFRS, as will the interim results for the six months ending 31 March 2006. Group Profit and Loss Account for 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 Â£m Â£m Â£m Â£m Â£m Â£m _________________________________________________________________________________________________________________ Turnover 1 Continuing operations 111.3 111.3 100.5 100.5 _________________________________________________________________________________________________________________ Operating profit 1 Continuing operations 15.9 (1.3) 14.6 12.3 (1.6) 10.7 Non-Operating Items 3 Continuing 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 activities before tax 16.6 (1.3) 15.3 13.1 2.3 15.4 Taxation 4 (4.4) - (4.4) (3.6) 0.3 (3.3) _________________________________________________________________________________________________________________ Profit on ordinary activities after tax 12.2 (1.3) 10.9 9.5 2.6 12.1 Equity minority interests (0.4) (0.2) _________________________________________________________________________________________________________________ Profit for the financial year 10.5 11.9 Dividends 10 (4.5) (3.8) _________________________________________________________________________________________________________________ Retained profit for the year 6.0 8.1 _________________________________________________________________________________________________________________ Earnings per 5p share 5 On basic and diluted earnings 46.6p 52.7p On adjusted earnings 52.4p 41.2p _________________________________________________________________________________________________________________ Group Balance Sheet as at 30 September 2005 2005 2004 Note Â£m Â£m __________________________________________________________________________________________________ Fixed assets Intangible assets: Goodwill 23.3 23.5 Tangible assets 10.4 10.6 __________________________________________________________________________________________________ 33.7 34.1 __________________________________________________________________________________________________ Current assets Stocks 21.3 20.4 Debtors 20.3 19.3 Cash 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 reserves Called up equity share capital 1.1 1.1 Capital redemption reserve 0.2 0.2 Profit 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 Statement for the year ended 30 September 2005 2005 2005 2004 2004 Note Â£m Â£m Â£m Â£m ________________________________________________________________________________________________________________ Net cash inflow from operating activities 7 16.4 10.7 Returns on investments and servicing of finance Interest received 0.7 0.8 Taxation UK corporation tax paid (1.7) (2.5) Overseas tax paid (2.0) (3.7) (1.4) (3.9) ________________________________________________________________________________________________________________ Capital expenditure and financial investment Purchase of tangible fixed assets (1.4) (1.5) Proceeds from the sale of tangible fixed assets 0.4 4.0 Purchase of own shares (0.5) (1.5) (0.5) 2.0 ________________________________________________________________________________________________________________ Acquisitions and disposals Acquisition of businesses (0.3) (17.3) Equity dividends paid (4.1) (3.6) ________________________________________________________________________________________________________________ Cash inflow /(outflow) before use of liquid resources and financing 7.5 (11.3) Management of liquid resources (Increase)/ decrease in short term deposits (5.8) 14.8 Financing Redemption of Loan Notes - (1.2) ________________________________________________________________________________________________________________ Increase in cash in the year 8 1.7 2.3 ________________________________________________________________________________________________________________ Statement of Total Recognised Gains and Losses for the year ended 30 September 2005 2005 2004 Â£m Â£m _________________________________________________________________________________________________________ Profit for the financial year 10.5 11.9 Exchange 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' Funds for the year ended 30 September 2005 2005 2004 Note Â£m Â£m _________________________________________________________________________________________________________ Profit for the financial year 10.5 11.9 Dividends (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 Announcement for 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 Â£m Â£m Â£m Â£m Â£m Â£m ________________________________________________________________________________________________________________ By Business Life Sciences 34.7 26.0 4.7 3.5 4.1 3.1 Seals 27.6 27.4 4.0 2.4 3.9 2.3 Controls 49.0 47.1 7.2 6.4 6.6 5.3 ________________________________________________________________________________________________________________ 111.3 100.5 15.9 12.3 14.6 10.7 Unallocated items: Profit on sale of properties - - - - - 3.9 ________________________________________________________________________________________________________________ 111.3 100.5 15.9 12.3 14.6 14.6 ________________________________________________________________________________________________________________ By Geographic Area United Kingdom 55.7 58.9 7.2 8.3 6.8 10.9 Rest of Europe 17.0 14.6 2.7 2.0 2.5 1.8 North 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 of freight costs from customers. Recovered freight costs are now deducted from distribution costs. Total recovered freight costs in 2005 were Â£3.0m (Life Sciences Â£0.6m; Seals Â£2.1m; Controls Â£0.3m). This adjustment has not impacted operating profit or retained profit. The prior year comparatives have not been restated. Turnover by geographical area is stated by origin, which with the exception of North America, is not materially different from turnover by destination. In North America, turnover of Â£4.7m (out of Â£38.6m) is to customers based outside North America. 2. ANALYSIS OF NET ASSETS 2005 2004 United Rest of North United Rest of North Kingdom Europe America Kingdom Europe America Total Total Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m __________________________________________________________________________________________________________________ By Business Life Sciences 5.0 0.6 15.5 21.1 3.7 0.4 14.6 18.7 Seals 2.2 - 12.1 14.3 2.1 - 11.8 13.9 Controls 11.4 6.9 0.2 18.5 10.2 7.0 0.2 17.4 Head Office (5.5) - - (5.5) (2.7) - - (2.7) __________________________________________________________________________________________________________________ 13.1 7.5 27.8 48.4 13.3 7.4 26.6 47.3 Discontinued 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 Â£m Â£m Â£m Â£m Â£m Â£m _________________________________________________________________________________________________________________ Operating profit Continuing operations (a) (1.3) - (1.3) (0.8) (0.8) (1.6) Non-Operating items Profit on disposal of tangible fixed assets (b) - - - - 3.9 3.9 _________________________________________________________________________________________________________________ (1.3) (1.3) (0.8) 3.1 2.3 Tax credit on exceptional items - - - - 0.3 0.3 _________________________________________________________________________________________________________________ (1.3) - (1.3) (0.8) 3.4 2.6 _________________________________________________________________________________________________________________ (a) In 2004 costs of Â£0.5m were incurred in restructuring the Control's business of Hawco, acquired in July 2003. Costs of Â£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 profit before tax and exceptional items. The underlying tax rate, excluding the impact of prior year tax credits was 30.7%. This rate compares favourably with the corporate tax rate of 30% in the UK and approximately 36% on profits earned in North America and Germany. A net deferred tax asset of Â£0.6m (2004: Â£Nil) has been recognised and included within Debtors resulting in a credit to the profit and loss account of Â£0.6m. The net deferred tax asset is made up of gross deferred tax assets of Â£0.6m (2004: Â£0.4m) relating to timing differences in respect of the LTIP, defined benefit pension schemes and other timing differences and deferred tax liabilities relating to capital allowances on fixed assets in excess of depreciation of Â£Nil (2004: Â£0.4m). No provision for deferred taxation has been made for taxation payable on the distribution of reserves by overseas subsidiary undertakings. No deferred tax asset has been recognised on capital losses of Â£6.0m (2004: Â£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 the weighted average number of ordinary shares in issue during the year of 22,513,603 (2004: 22,581,026) and the profit for the financial year, after minority interests, of Â£10.5m (2004: Â£11.9m). There were no potentially dilutive shares. Adjusted earnings per share Adjusted earnings per share is shown by reference to earnings before goodwill amortisation, exceptional items and related tax. The Directors consider that this gives a clearer indication of the underlying performance of the Group. Earnings before goodwill amortisation, exceptional items and related tax are calculated as follows: 2005 2004 2005 2004 pence pence per share per share Â£m Â£m ______________________________________________________________________________________________________________ Profit for the financial year, after minority interests 46.6 52.7 10.5 11.9 Goodwill amortisation 5.8 3.5 1.3 0.8 Exceptional 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 Â£m Â£m Â£m Â£m Â£m Â£m ______________________________________________________________________________________________________________ Pensions 0.5 - 0.1 - - 0.6 Onerous 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 Â£0.3m (â‚¬0.4m) was paid to the vendors of Filcon Electronic GmbH. As a result of this payment, excess deferred consideration of Â£0.2m was released and goodwill adjusted accordingly. Deferred consideration of Â£1.0m (C$2.0m) was paid in November 2005 to the vendors of Somagen Diagnostics Inc. as final settlement of their performance payment. Pension provisions are held in the respect of the Group's principal defined benefit pension schemes. These will be amortised to profit over the average service life of the employees. 7. RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES 2005 2004 Â£m Â£m _____________________________________________________________________________________________________ Operating profit 14.6 10.7 Depreciation 1.5 1.2 Amortisation of goodwill 1.3 0.8 Cost 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) 1.5 Increase 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 Â£m Â£m _______________________________________________________________________________________________________ Increase in cash in the year 1.7 2.3 Increase/(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 - 1.2 Exchange 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 Â£m Â£m Â£m Â£m _____________________________________________________________________________________________________________ Cash at bank 4.1 1.7 0.3 6.1 Short 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 of 13p per share (2004: 11.0p) will be paid on 18 January 2006 to ordinary shareholders 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 further 77,656 ordinary shares in the Company at a cost of Â£0.5m. These shares were acquired in connection with potential awards under the Group's Long Term Incentive Plan and Bonus Share Matching Plan. The purchase of own shares has been deducted in arriving at shareholder's funds in accordance with UITF 38. At 30 September 2005 the Trust held 183,029 (2004: 105,373) ordinary shares in the Company representing 0.8% of the called up share capital. The market value of these shares at 30 September 2005 was Â£1.3m (2004: Â£0.6m). On 26 October 2005 17,506 of these shares were transferred out of the Trust following vesting of awards under the Bonus Share Matching Plan. 12. EXCHANGE RATES The following exchange rates have been used to translate the results of the overseas businesses: Average Average Closing Closing 2005 2004 2005 2004 ____________________________________________________________________________________________________ US Dollar 1.84 1.81 1.77 1.81 Canadian Dollar 2.27 2.34 2.05 2.29 Euro 1.46 1.48 1.47 1.46 ____________________________________________________________________________________________________ In comparison to the prior year, the net effect of currency translation on the results for the year was to decrease turnover by Â£0.1m and to reduce operating profit, before goodwill amortisation and exceptional items, by Â£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's published accounts for the financial year ended 30 September 2004. With effect from 1 October 2004 turnover excludes freight income recoverable from customers. This amendment has not impacted operating profit or retained profit. The comparative figures have not been restated. The financial information set out in this preliminary announcement, which has been extracted from the audited accounts, does not constitute the Group's statutory accounts for the years ended 30 September 2005 and 2004. Statutory accounts for the year ended 30 September 2004 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 September 2005, which were approved by the Directors on 14 November 2005, will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on the accounts for the years ended 30 September 2005 and 2004. The reports were unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. The Company's Annual General Meeting will be held at 12.00 midday on 11 January 2006 in the Members' Room, Chartered Accountants' Hall, Moorgate Place, London EC2P 2BJ. The Notice of Meeting will be set out in a separate document issued to shareholders. This information is provided by RNS The company news service from the London Stock Exchange

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