16th May 2016 12:12
LONDON (Alliance News) - Technical products supplier Diploma PLC on Monday posted lower pretax profit despite higher revenue for the first half amid mixed conditions in its markets and currency hits from its operations in Canada and Australia.
The FTSE 250-listed firm said pretax profit for the six months to March 31 was GBP25.6 million, down 2.0% year-on-year from GBP26.0 million. Revenue grew 10% to GBP179.1 million from GBP163.2 million, but the group's adjusted operating margin shrunk to 17.2% from 18.1%.
The margin squeeze was driven by costs related to acquisitions Diploma made in the half and from a deterioration in margins in its healthcare business caused by the weakness in the Canadian dollar and the Australian dollar against the US dollar.
Diploma said its management teams have been working with suppliers and customers to get some pricing support amid the currency effects, but the group said the opportunity to mitigate these effects through controlling costs is reducing.
Diploma has three operating divisions, covering life sciences, seals and controls. The life sciences arm makes medical devices and consumables for the healthcare sector. The seals arm makes hydraulic seals, gaskets and cylinders for the industrial market, and the controls units makes specialised wiring, connectors and fasteners for a range of industries.
Life Sciences revenue in the half grew 1.0%, though this was held back by the aforementioned weakness in the Canadian and Australian dollars. In constant currencies, revenue for the division grew 6.0%.
Still, Diploma said Healthcare revenue in Canada grew 4.0% in the half, despite pressures on provincial budgets driven by the tough economic environment, in particular a freeze on capital spending in Quebec. This growth came from good trading for surgical products which offset some weakness in clinical diagnostics.
The Healthcare business faced similar pressures in Australia to those in Canada, though surgical product revenue grew strongly particularly from smoke evacuation programmes. UK & Ireland-focused pharmaceutical and medical supplies business TGL, acquired in the previous financial year, performed well in the half, Diploma said.
Revenue for the Seals division, Diploma's largest revenue contributor, grew 22% in the first half, entirely thanks to acquisitions the group made. Sales excluding those acquisitions were flat. Revenue was boosted by Swiss gaskets and moulded rubber parts company Kubo and Scottish o-rings and gaskets firm Swan Seals, acquired in the previous financial year, and by Australian titanium products supplier WCIS, bought in October.
North American seals revenue fell, primarily on lower sales of HKX attachment kits amid a depressed market for new excavating equipment. The Europe, Middle East and Africa seals unit saw revenue growth, helped by progress made on developing a larger aftermarket business, a solid performance in the Kentek business in Russia and Finland and good growth for the M Seals unit in Denmark and Sweden.
For the Controls unit, revenue grew 2.0% year-on-year, against boosted by acquisitions as underlying revenue declined 1.0%. Interconnect, which supplies high performance wiring, harness components, connectors and fasteners, saw underlying revenue decline marginally amid continued challenges in the UK defence, aerospace and industrial markets. In particular, Diploma saw a decline in sales to other distributors in these markets.
"With challenging trading conditions likely to persist through the second half of the year, we will continue to take advantage of our strong financial position to target further acquisition opportunities to support future growth and deliver shareholder value," said Diploma Chief Executive Bruce Thompson.
Shares in Diploma were up 1.0% to 760.5p.
By Sam Unsted; [email protected]; @SamUAtAlliance
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