Diploma PLC (LON:DPLM) reported solid half-year growth but warned of “some early signs of slower activity” in the industrial seals market.
Revenues for six-months to 31 March of £260.4mln were up 11% on a year ago, of which 6% was organic, 4% from acquisitions and 1% from a weakening of the pound in the period. Adjusted profit before tax was up 13% to £45.5mln and adjusted earnings per share up 14% to 30.5p.
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In the Seals Sector, revenues rose 3% to £102.4mln, or 4% on an underlying basis, thanks to 9% growth for the International Seals businesses. North American seals sales were flat due to an “unusually large” influx of new machine equipment into the US aftermarket and “operational difficulties” in the implementation of a new software system.
“The impact of both these factors is now easing and revenue growth is expected in the second half of the year, despite some early signs of slower activity in the industrial seals markets,” Diploma said. This softness was part of the cause of flat profits at £17.1mln, with margins down 50 basis points to 16.7% despite higher prices.
Analysts commented that this was partly due to a wider slowdown, consistent with commentary seen across the sector.
The controls sector increased revenues 27% to £86.9mln and profit 31% to £15.5mln as incremental contributions were made by acquisitions from the past last twelve months. Underlying revenue increased 9% with a strong contribution from the Interconnect businesses, Clarendon Specialty Fasteners and Brexit-related stockbuilding by European customers.
In the life sciences sector, revenues increased 5% to £71.1mln as the benefits of the widening product portfolio fed through across the businesses. Operating profits were up 11% to £13mln helped by margins improvements.
Although free cash flow was down 21% to £14mln following investment in working capital, the interim dividend was lifted 10% to 8.5p per share.
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New chief executive Johnny Thomson, who started in February, said: “Despite macroeconomic uncertainties, the group remains on track to deliver good growth in revenues with modest margin progression for the full year.”
He said acquisitions remained an “integral part” of the growth strategy and while opportunities are “very competitive”, he remained optimistic about completing more deals in the second half.
Broker Peel Hunt felt all three divisions performed well, though standout growth from controls was helped by some Brexit-related stockbuilding.
“Whilst this is a strong set of numbers, and tracking slightly ahead of our FY forecast, we are leaving our numbers unchanged. The outlook is robust overall but there are some signs of slower activity in Industrial Seals partly due to new machinery (which is therefore under warranty) coming into the market, and partly due to a wider slowdown, consistent with commentary we have seen across the sector.”
Diploma shares were down 1% to 1,515p after just over an hour of trading on Monday.