Sales growth slows at Diploma

The seals business in North America was the star performer in the first half of the fiscal year of specialised technical products and services provider Diploma, but the group's top-line growth eased off in the second quarter.

Revenue in the six months ended March 31st rose 13% to £127.1m from £112.6m at the interim stage last year. That represents a slow-down from the 16% increase in group revenue in the first three months of the reporting period.

Adjusted operating profit improved 19% to £26.4m from £22.1m the year before while the adjusted operating margin rose to a record high of 20.8%, up from 19.6% the year before, driven by the strong operational leverage in the Seals After-market in North America.

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Adjusted profit before tax rose 20% to £26.2m from £21.9m in the corresponding period of the previous year, while the statutory profit before tax figure rose 21% to £23.3m from £19.3m.

Free cash flow improved by a third to £9.7m from £7.3m the year before, despite adverse phasing of tax payments and increases in working capital and capital expenditure. Strong free cash flow is forecast by the company for the second half of its financial year.

Net debt of at the end of March stood at £3.0m, after significant cash investment of £15.5m in acquisitions; a further net cash investment of £3.1m was made in acquisitions after the half year end.

Adjusted earnings per share rose 22% to 16.1p from 13.2p, paving the way for a 20% hike in the interim dividend to 4.2p from 3.5p the year before.

Looking at the divisional breakdown, revenue was up 8% year-on-year in the Life Sciences business, up 28% in the Seals division while the Controls unit saw its revenue rise 3%.

Adjusted operating profit was 8% higher in the Life Sciences division and 4% higher in the Controls arm, but the Seals unit was the star performer, with underlying operating profit up 50% to £9.9m from £6.6m the year before.

The North American Seals businesses continue to perform strongly, particularly in the after-market, Diploma Chief Executive Officer Bruce Thompson noted.

The Healthcare businesses continue to benefit from steady and growing funding in Canada and Australia, with opportunities to develop into new, but related markets. In Controls and Environmental, the UK businesses continue to deliver a robust performance in specialised market segments, though Continental European markets remain challenging, Thompson admitted.

"The group has a resilient business model, a strong balance sheet and is well diversified by geography and business area. With continuing robust trading activity in the group's major business areas, combined with contributions from new acquisitions, the board is confident that the group should make further progress in the second half of the year," Thompson revealed.

JH