Financial Highlights

For the year ended 30 september 2018

Strong results with double-digit earnings growth

Revenue £485.1m 2017: £451.9M +7%
Statutory operating profit £73.2m 2017: £68.5m +7%
Statutory profit before tax £72.7m 2017: £66.8m +9%
Adjusted operating profit1 £84.9m 2017: £78.2m +9%
Adjusted operating margin1 17.5% 2017: 17.3% +20bps
Adjusted profit before tax1,2 £84.8m 2017: £77.5m +9%
Free cash flow3 £60.5m 2017: £55.7M +9%
Acquisition spend £20.4m 2017: £20.1m
ROATCE 24.5% 2017: 24.0% +50bps
  1. Before acquisition related charges and Chief Executive Officer transition costs.
  2. Before fair value remeasurements.
  3. Before cash payments on acquisitions and dividends.
Financial highlights (PDF, 0.04MB)

Chairman's Statement

John Nicholas Chairman

Resilient business, consistent delivery, strong results

Principal corporate objectives
  • Achieve double-digit growth in adjusted eps over the business cycle
  • Generate TSR growth in the upper quartile of the FTSE 250
  • Deliver progressive dividend growth with two times dividend cover
Principal corporate objectives
  • Achieve double-digit growth in adjusted eps over the business cycle
  • Generate TSR growth in the uper quartile of the FTSE 250
  • Deliver progressive dividend growth with two times dividend cover
  1. Ten-year compound.
Chairman's Statement (PDF, 0.13MB)

Group at a glance

Well diversified by geography and business area

Primary growth drivers

  • Public and private healthcare spending
  • Population ageing and increasing life expectancy
  • Health & Safety and Environmental regulation
Healthcare (85% of revenues)

Clinical diagnostic instrumentation, consumables and services supplied to hospital pathology and life sciences laboratories for the testing of blood, tissue and other samples.

Surgical medical devices and related consumables and services supplied to hospital operating rooms, GI/Endoscopy suites and clinics.

Environmental (15% of revenues)

Surgical medical devices and related consumables and services supplied to hospital operating rooms, GI/Endoscopy suites and clinics.

  • Group revenue 28%
  • Employees 426

Primary growth drivers

  • General economic growth
  • Activity and spending levels in Heavy Construction and Infrastructure
  • Growth in industrial production
  • MRO expenditure in Mining and process industries
North America – Aftermarket (31% of revenues)

Next day delivery of seals, sealing products and cylinder components for the repair of heavy mobile machinery.

North America – Industrial OEM (29% of revenues)

Sealing products, custom moulded and machined parts supplied to manufacturers of specialised industrial equipment.

International (40% of revenues)

Sealing products and filters supplied outside North America to Aftermarket and Industrial OEM customers as well as to Maintenance, Repair and Overhaul (“MRO”) operations.

  • Group revenue 43%
  • Employees 821

Primary growth drivers

  • General growth in the industrial economy
  • Activity and spending levels in Aerospace, Defence, Motorsport, Energy, Medical and Rail
  • Equipment installation & maintenance in Food & Beverage and Catering
Interconnect (59% of revenues)

Wiring, cable, harness components and cable accessories used in specialised technical applications in Aerospace, Defence, Motorsport, Energy, Medical, Rail and Industrial.

Specialty Fasteners (21% of revenues)

Specialty aerospace-quality fasteners supplied to Civil Aerospace, Motorsport, Industrial and Defence markets.

Fluid Controls (20% of revenues)

Temperature, pressure and fluid control products used in Food & Beverage and Catering industries.

  • Group revenue 29%
  • Employees 542
Group at a glance (PDF, 0.6MB)

Our year in review

Another year of robust growth in revenue and earnings

The group’s strategy, consistently applied, delivers strong growth in earnings and shareholder value.

In 2018, the Group delivered another year of robust growth in revenue and earnings benefiting from strong industrial economies in the US and Europe and from the reduction in the US Federal corporate income tax rate.

The Group’s reported revenues increased by 7%, with currency headwinds decreasing revenues by 3% and acquisitions, net of a small disposal this year, contributing 3% to revenue growth. On an underlying basis, after adjusting for acquisitions, the disposal, and for the currency effects on translation, Group revenues increased by 7%.

Our Year in Review (PDF, 0.13MB)

Business Model

Making us essential to our customers

Our business model is built on the three "essentials" - products, solutions and values
What we put in

Our businesses focus on supplying essential products and services funded by customers’ operating rather than capital budgets and supplied across a range of specialised industry segments.

The majority of the Group’s revenues are generated from consumable products. In many cases, the products will be used in repair and maintenance applications and refurbishment and upgrade programmes, rather than supplied to original equipment manufacturers.

How we've made progress

Performance is measured by the underlying growth in revenue, after adjusting for currency and acquisitions/disposals:

  • This year, the underlying growth has been +7%.
  • Over five years, the average has been 5% p.a.
What we put in

Our businesses design their individual business models to provide solutions that closely meet the requirements of their customers:

  • Highly responsive customer service, such as the next day delivery from stock of essential, but low value items.
  • Deep technical support, where we work closely with our customers in designing our products into their specific applications.
  • Added value services which, if we did not provide these services, customers would have to pay others to provide or would require investment in additional resources of their own.
How we've made progress

Performance is measured by the level and stability over time of gross and operating margins:

  • Gross margins have remained broadly stable over many years, excluding shorter term currency effects.
  • This year, adjusted operating margin improved 20bps to 17.5%.
  • Over five years, the average adjusted operating margin has been 17.7%.
What we put in

We encourage an entrepreneurial culture across our businesses, through a decentralised management structure.

We want our managers to feel that they have the freedom to run their own businesses, while being able to draw upon the support and resources of a larger group where this is beneficial.

Within our businesses we have strong, self-standing management teams who are committed to and rewarded according to the success of their businesses.

How we've made progress

Performance is more difficult to measure directly, but non-financial KPIs can give an indication of organisational stability and health. Over the last five years:

  • Average length of service for all employees has been ca. 7 years (ca. 11 years for the senior management cadre).
  • Number of working days lost to sickness has consistently been ca. 1% a year.

What we get out

Reccuring income and stable revenue growth

Our focus on essential products and services contributes to the Group’s record of stable revenue growth over the business cycle.

Our businesses target "GDP plus" levels of underlying revenue growth over the economic cycle, with higher growth rates achieved at the Group level, through carefully selected value enhancing acquisitions.

Sustainable and attractive margins

By supplying solutions, not just products, we build strong long term relationships with our customers and suppliers, supporting sustainable and attractive margins.

Our businesses achieve sustainable and attractive gross margins by offering strongly differentiated products and customer focused solutions within specialised market segments. By running efficient operations, these gross margins are converted into healthy operating margins.

Agility and responsiveness

Our decentralised organisational model ensures that decisions are made close to the customer and that the businesses are agile and responsive to changes in the market and the competitive environment.

Agility and responsiveness in the businesses ensure close management of operating costs and working capital and deliver strong free cash flow.

Business Model (PDF, 0.2MB)

Compounding growth through acquisitions

Growth is accelerated by investing in value enchancing acquisitions
What we put in

Clear business criteria have been established to guide the Group’s acquisition programme:

  • Fit with the Group's business model;
  • marketing led with strong customer relationships;
  • secure supply of high quality, differentiated products;
  • capable management.

The principal financial criteria are:

  • Track record of stable, profitable growth and cash generation.
  • Exceed post-tax IRR threshold of 13% to ensure 20%+ pre-tax return on investment.
What we get out

Acquisitions give entry into new but related markets and thereby extend the reach of the existing businesses and bring new growth opportunities.

The Group applies a consistent level of effort and resources to identifying and developing acquisition opportunities. However, the output in terms of acquisitions completed, ebbs and flows depending on the acquisition environment.

To achieve the Group’s objective of strong double-digit growth, acquisition spend of at least £30m p.a. is targeted.

How we've made progress


In October 2017, Clarendon Specialty Fasteners acquired the business and assets of Coast Fabrication Inc, a small specialty fastener distributor based in California, US. Coast has a strong reputation in US Motorsport which complements Clarendon’s strong Motorsport presence in Europe. Coast also provides a US base to expand Clarendon’s existing aircraft interiors business in this large market and allows Clarendon to access the major US fasteners suppliers. Revenues of Clarendon, including Coast, grew by 25% in 2018.

What we put in

The acquisitions we make are of businesses that are already successful and with a good track record. However, these businesses have typically reached the point where additional resources are needed to take them to the next level of growth.

Working with management, we provide the investment required to build a solid foundation to allow the business to move to a new level of growth. The investment we make in new acquisitions will normally be in new facilities and IT systems, increased but better managed working capital and additional management resource.

What we get out

Except in the case of smaller bolt-on acquisitions, the acquired companies maintain their distinct sales and marketing identity and strong independent management teams.

Where there are opportunities for synergies with other Group businesses, these are managed in larger business clusters. Synergies typically include:

  • Cross-selling between the businesses
  • Joint purchasing between the businesses
  • Shared operational infrastructure and shared back-office functions

How we've made progress

Abacus dx

Since being acquired in 2017, the business has been integrated with our existing DS business and has invested in expanded shared service facilities in Melbourne, Sydney and Brisbane, whilst cross-training technical and applications support personnel at both the global supplier and local level. As a result Abacus dx was able to sell and service over 90 diagnostic instrument placements in 2018 and benefit from the associated pull-through in consumable sales. Revenues of Abacus dx grew by 9% on a like-for-like basis in 2018.

What we put in

Once the acquisition is integrated into the Group, with a solid platform established, the focus is on delivering stable, profitable growth.

The results of the Acquire, Build, Grow strategy can be seen in the improving revenue growth and operating margins post-acquisition.

What we get out

By the third year post-acquisition, underlying revenue growth for the acquired businesses is typically higher than the Group average and operating margins have improved by 200–300bps on average.

These improvements in financial performance ensure that the Group creates value through its acquisition programme and maintains ROATCE above the 20% threshold.

How we've made progress

US industrial OEM seals

After clustering these businesses under a single senior management team, an ERP system was implemented in 2018 to replace a number of legacy systems. This will allow the management team to consolidate back-office processes to improve visibility of customer activity, inventory and supplier information, and finance. Each location will continue to maintain its own distinct identity, but the ERP system will allow the business to service customers using shared knowledge and products that will increase the value to the customer. Revenues of this business cluster grew by 13% in 2018.

Growth Strategy (PDF, 0.31MB)

Sector review

Building a larger broader-based life sciences business

  • Sector revenue growth of 7%; underlying growth of 5% after adjusting for currency and an acquisition completed last year
  • In Canada, DHG underlying revenues increased by 8% with strong consumable revenues from its leading products; the Surgical and Endoscopy products lines at the Vantage business reported strong revenues from the introduction of new premium products
  • In Australia and New Zealand, underlying revenues increased by 4%; Abacus ALS acquired in April 2017 reported strong growth across its portfolio of products, which more than offset reduced revenues in the Surgical Products business following the acquisition of a key supplier by a large industry player
  • TPD revenues were broadly flat in Ireland and the UK with new suppliers and product segments replacing suppliers moving to a direct supply model
  • The Environmental businesses reported unchanged underlying revenues with strong revenue growth in Germany, offset by reduced revenues in the UK from delays in order placement
2018 2017
Revenue £134.7m £125.9m +7%
Adjusted operating profit £23.9m £23.3m +3%
Adjusted operating margin 17.7% 18.5% -80bps
Free cash flow £17.3m £17.0m +2%
ROATCE 19.1% 19.7% -60bps
2018 2017
£134.7m £125.9m +7%
Adjusted operating profit
2018 2017
£23.9m £23.3m +3%
Adjusted operating margin
2018 2017
17.7% 18.5% -80bps
Free cash flow
2018 2017
£17.3m £17.0m +2%
2018 2017
19.1% 19.7% -60bps
  • Increase share of specialised segments of Healthcare markets in Canada, Australia and UK/Ireland
  • Leverage DHG product portfolio across existing businesses and extend into other medical disciplines
  • Pursue further Healthcare acquisition opportunities in Northern Europe and Asia-Pacific
  • Continue to develop product and geographic spread of Environmental businesses

Building a larger broader-based seals business

  • Sector revenue growth of 7%; underlying growth of 10% after adjusting for currency and the net impact from acquisitions and a disposal completed during the past two years
  • In North America, Aftermarket underlying revenues increased by 9%, driven by strong markets in the core Hercules business and continued robust growth in the HKX business
  • Industrial OEM underlying revenues in North America increased by 13% in a very strong US Industrial market, supported by healthy manufacturing PMI data
  • Implementation of a new ERP system in the industrial OEM businesses in the US, following the establishment of a senior management team last year to manage this cluster of businesses
  • International Seals businesses increased underlying revenues by 7% with stronger trading across all businesses in the second half of the year
2018 2017
Revenue £208.0m £195.3m +7%
Adjusted operating profit £36.0m £31.9m +13%
Adjusted operating margin 17.3% 16.3% +100bps
Free cash flow £25.9m £24.9m +4%
ROATCE 25.3% 22.8% +250bps
2018 2017
£208.0m £195.3m +7%
Adjusted operating profit
2018 2017
£36.0m £31.9m +13%
Adjusted operating margin
2018 2017
17.3% 16.3% +100bps
Free cash flow
2018 2017
£25.9m £24.9m +4%
2018 2017
25.3% 22.8% +250bps
  • Continue to gain share in Aftermarket Seals in North America through superior marketing and new products
  • Leverage E-commerce best practice from North America across International Seals businesses
  • Build and expand the group of Industrial OEM Seals businesses in North America and leverage procurement activities with the International Seals businesses
  • Explore opportunities more broadly in Industrial Distribution in North America
  • Build larger, broader-based International Seals business in the EMEA and Asia-Pacific regions

Building a larger, broader-based controls business

  • Sector revenue growth of 9%; underlying growth of 5% after adjusting for currency and acquisitions completed this year
  • The Interconnect businesses delivered underlying growth of 7%; the FS Cables acquisition brings a range of own-branded specialist wire and cable products
  • Clarendon increased underlying revenues by over 8%, with growth driven by broadening its range of customers in Civil Aerospace; US market targeted through the acquisition of Coast
  • Fluid Controls revenues reduced by 4% reflecting the decision to focus on higher margin business and the absence of a large one-off project
2018 2017
Revenue £142.4m £130.7m +9%
Adjusted operating profit £25.0m £23.0m +9%
Adjusted operating margin 17.6% 17.6% -
Free cash flow £19.8m £18.6m +6%
ROATCE 29.8% 32.2% -240bps
2018 2017
£142.4m £130.7m +9%
Adjusted operating profit
2018 2017
£25.0m £23.0m +9%
Adjusted operating margin
2018 2017
17.6% 17.6% -
Free cash flow
2018 2017
£19.8m £18.6m +6%
2018 2017
29.8% 32.2% -240bps
  • In Interconnect, create a broader-based European cable harnessing components business and extend product range with own-branded products
  • In Interconnect develop cross-selling opportunities between Cablecraft and FS Cables to drive future growth
  • In Specialty Fasteners, build on strong positions in Civil Aerospace and Motorsport, with a particular focus on the US and Asian markets
  • In Fluid Controls, target the business to grow export markets in the Food & Beverage industry
Full sector review (PDF, 0.34MB)

Finance Review

Nigel Lingwood Group finance director
The group delivered another year of strong underlying revenue growth of 7%
The group delivered another year of strong underlying revenue growth of 7%
Adjusted Operating margin +17.5%
Free cash flow £60.5m
ROATCE 24.5%.
Finance Review (PDF, 0.14MB)