Investors in life sciences, seals and controls distributor Diploma (DPLM) seemed less than thrilled after the firm posted what it called a ‘resilient’ set of full year results for the period to the end of September and forecast ‘a year of significant progress with exciting prospects ahead’, sending the shares down 1.7% to £22.56.

Group turnover slipped 1% to £538.4 million, although the firm said all three of its divisions saw ‘improving revenue momentum’ in the fourth quarter which it expects to continue into 2021.

ORGANIC GROWTH DISAPPOINTS

On a like-for-like basis, stripping out acquisitions and a small negative currency effect, the fall was actually 7% caused by a 14% drop in sales at the Controls division.

The firm has been working to reposition the Controls business and the acquisition of Windy City Wire last month, which generated considerable investor interest, should provide a sizeable boost to revenues this year.

Life sciences revenues dropped 4%, but saw a ‘rapid and sustained recovery’ during the second half, and are expected to register positive growth this year as hospital and lab activity improves and the backlog of elective procedures unwinds.

The Seals division ‘traded well throughout the year’ with revenues down 5%, as sales in the North American market were helped by the acquisition of Virginia Sealing Products in July.

RECOVERY HOPES

Despite ongoing cost control measures, operating profits dropped 10% to £87.1 million meaning a fall of 1.6% in the operating margin.

The firm is looking for revenues and margins to recover this year, driven not least by the Windy City deal which will increase group revenues by around 25%.

Diploma has stepped up its investment in technology and automation in recent years, spending $8 million on a ‘state-of-the-art’ warehouse in Kentucky to replace its existing Florida facility, which will be closed and sold off.

The AI-driven automation system at its Louisville site uses robots to pick orders, providing a faster service and making better use of the space, thereby increasing inventory capacity. The site is also next to a UPS hub so parts can be delivered across a wider area of the US with a later cut-off time for customer orders.

The firm says it is sticking to its long-term GDP-plus organic growth model, but what these results seem to demonstrate is most of its growth currently relies on acquisitions.

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Issue Date: 16 Nov 2020