Shares in healthcare and industrial equipment supplier Diploma (DPLM) gained 1% to £17.88 after it posted higher revenues and earnings for the six months to 31 March, thanks to a significant contribution from recent acquisitions.

Group sales in the first half were £283.6m, an increase of 9%, but underlying sales were either slightly higher, flat or lower across its three business units, and all of the gains came from newly-acquired operations in the Seals business in the US after the company went on a spending spree last year.

UNDERLYING GROWTH WEAK

The Life Sciences unit, which supplies consumables and instruments to the healthcare and environmental industries, posted revenues of £72.4m in the first half, up just 2% on an underlying basis.

An increase in sales in Australia, thanks to another acquisition, was offset almost entirely by falling revenue in Europe due to the loss of a major contract tender and delayed spending by biotech companies.

The Seals business, which supplies kit to manufacturers of heavy equipment used in mining, construction and agriculture, as well as after-market sales to customers, posted revenue of £123m against £102.4m the previous year, a 20% increase.

However, stripping out the contribution from VSP Technologies, which was acquired last July and therefore wasn’t included in last year’s first half, underlying sales were actually flat.

North American Seals registered a 3% fall in underlying sales due to weaker demand from manufacturers in the US and from distributors in Canada.

The International Seals business registered flat underlying sales although the headline figure was lifted by acquisitions.

Finally the Controls business reported a 1% increase in sales to £88.2m, but again underlying sales were flat after stripping out acquisitions.

RELIANCE ON ACQUISITIONS

Concerning the second half of the financial year, chief executive JD Thomson described the outlook as ‘highly uncertain’ as actions taken to counter the spread of the coronavirus ‘continue to impact our businesses in many of our markets.’

However, he insisted that acquisitions ‘will continue to be an integral part of the group’s growth strategy’ and remained ‘optimistic about acquiring some quality businesses once the pandemic is past’ in order to grow the top line.

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Issue Date: 11 May 2020