Diploma warns on tough European markets

Specialist technical products and services provider Diploma said overall trading continues to be in line with company expectations despite the challenging macroeconomic backdrop, particularly in Europe.

The FTSE 250 group said revenues are expected to be around 10% higher than the same time last year, boosted by contributions from businesses acquired during the past year.

On an underlying basis, after adjusting for currency effects and acquisitions, revenues are expected to increase by roughly 3% on the previous year.

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The main contribution to revenue growth has been from Life Sciences where revenues were bolstered from both the acquisition of DSL in June last year and from strong growth in consumable and service revenues across the businesses, which reflects the resilience of the Healthcare markets, Diploma explained.

In Seals, revenues were lifted by the acquisition of J Royal in December 2011, but underlying revenue growth is likely to be limited, the group warned, given the very strong prior year comparatives, particularly in the Aftermarket businesses.

In Controls, revenues benefited from the small acquisitions completed during the past year, however the continuing weak trading conditions in Europe are likely to lead to a small decline in underlying revenue in the first half of the year, Diploma said.

Operating margins have reduced, in line with expectations, from record levels last year, reflecting the impact of implementing the board's programme of planned investments to support the future growth of the business.

"This programme has included additional management resource to accelerate and broaden the acquisition programme. Acquisitions are an integral part of the Group's growth strategy and the pipeline of opportunities remains promising, although the current uncertain economic background has lengthened the transaction processes," it said in a company statement.

"With a resilient business model, a good geographic spread of activities and contributions from acquisitions, the Board remains confident that further progress will be made in the second half of the year."

At March 31st 2013 Diploma said it will be in a strong net cash position, after payments of £1.5m on acquisitions during the half year, seasonal working capital outflows and capital investment in the businesses.

CJ