Diploma Regulatory News (DPLM)

17 Mar 2009 07:00



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FOR IMMEDIATE RELEASE

17 March 2009

DIPLOMA PLC

TRADING UPDATE

Diploma PLC, the international group of businesses supplying specialised technical products and services, is today issuing a trading update, ahead of going into close period at 31 March 2009.

The Group's performance during the first half of the year has been impacted by a weakening in the general trading environment across all sectors and particularly in the Seals businesses in North America. At the same time, the continued weakness of UK sterling, relative to all other major currencies, has had a strong positive impact on the Group's results from translation of the results of the overseas businesses.

Against this background, the Group expects reported revenue for the six months ended 31 March 2009 to be a little ahead of the comparable period last year and, on a constant currency basis, down approximately 8-10%.

Operating profits have benefited from currency translation, as well as from the initial contribution of RT Dygert, acquired in January 2009. On a transaction basis, however, currency effects have had a negative effect on gross margins, particularly in the UK and Canadian businesses. Combined with pressures from the generally weaker trading conditions, reported operating profits are likely to be 5-7% below the comparable period last year.

In Life Sciences, the Canadian businesses have continued to make progress in markets where overall funding remains steady, but increased focus is being placed by customers on cost efficiency. The European businesses have experienced some reduction in revenues and have responded by reducing their cost base.

In Seals, the weaker trading conditions seen in the broader US industrial markets towards the end of 2008 have continued and similar effects are now being seen in the European and other international markets. While the Aftermarket businesses have shown some resilience, there has been a more marked slowdown in those businesses supplying to industrial OEMs and construction equipment dealers. Cost reduction programmes have been, and continue to be, implemented across the Seals businesses, but these inevitably lag the revenue reduction and will not fully offset the negative impact from operational leverage.

The Controls businesses have mostly proved to be more buoyant than the general economies in which they operate, due to their focus on technically driven markets. However, some softening in UK revenues has been seen in recent months, particularly in those businesses more exposed to manufacturing markets. Similarly, weaker trading activity is now being experienced in Germany, particularly with those customers who are dependent on export markets. Again cost reduction programmes are being implemented to help mitigate the impact from reducing revenues.

The Group's businesses have responded well in taking action to reduce working capital in response to the reduction in revenues and the Group continues to maintain a strong financial position. After the payment in January 2009 of both the final dividend of 5.0p (£5.6m) and the initial consideration of US$14.4m (£9.5m) for RT/Dygert, the Group will have positive net cash funds at 31 March 2009. Strong operating cash flow is expected in the second half of the year and the Group also maintains committed bank facilities of £20.0m. The ungeared balance sheet and strong cash flow provides a secure platform to support the continued development of the Group.

The Directors will provide an update on trading prospects for the year on Monday, 11 May 2009, as part of their announcement of the Group's results for the six months ended 31 March 2009. 

NOTE TO EDITORS:

Diploma PLC is an international group of businesses supplying specialised technical products and services to the Life Sciences, Seals and Controls industries.

Diploma achieves stable growth and attractive margins from its focus on supplying specialised technical products to markets which value high levels of customer service, technical support and value adding activities. A high proportion of revenues are generated from essential products and services funded by operating, rather than capital budgets.

The Group employs ca. 1,000 employees and its principal operating businesses are located in the UK, Germany, US and Canada.

In the last five years ended 30 September 2008, the Group has grown adjusted earnings per share at an average of ca. 21% p.a. through a combination of organic growth and acquisitions. The current market capitalisation is ca. £110m.