Diploma PLC (LON:DPLM), the international group supplying specialised technical products and services, has today issued a trading update for the six months ending 31 March 2020, ahead of entering its close period and provides an update on its business following the outbreak of the COVID-19 pandemic.
Since the outbreak began, Diploma has taken measures to protect the health and wellbeing of our colleagues. In doing so, we continue to focus on servicing our customers and operating with our suppliers. We have implemented responsible working practices for this environment. We have established appropriate governance and communication structures to enable decision making, focus on the right priorities, and share learnings. Our culture is based on accountable, commercial and agile local business leadership, allowing us to effectively deploy and adapt our mandatory policies to local environments. Together with a resilient business model, this provides a solid platform from which to manage through this period.
As of today all of the Group’s business facilities are open and operating effectively.
Group trading
Diploma performed well and in line with expectations. Prior to the week beginning 16 March 2020 the Group saw very limited impact from COVID-19 and expected to report positive results for the first half in line with expectations:
- Revenues for the six months ending 31 March 2020 were expected to be 11% ahead of the comparable period. At constant exchange rates, Group revenues were also expected to increase by 11%, with acquisitions completed last year contributing 9% and underlying growth of 2%, with a softer industrial environment and against a strong comparative.
- Group operating margin, pre IFRS16, was expected to be broadly in line with the first half comparable period last year, after the planned investment in one-off/dual running costs on the new distribution facility for the US Aftermarket Seals business in Louisville, Kentucky.
However, the outbreak of COVID-19 has led to a rapid change in market conditions, affecting Diploma’s trading from around 16 March 2020, particularly, until now, in Continental Europe where public mobility has been most restricted, and in sectors most affected by the crisis such as Civil Aerospace.
Whilst it is difficult to draw precise conclusions from a single week of trading, the Group now expects to report for the first half of the year an overall performance slightly weaker than that described above. This change in market conditions as a result of COVID-19 is now affecting trading in many of our businesses. However, it remains too early to assess the impact that this unfolding situation will have on trading for the full year.
Diploma has a resilient and proven business model, with a robust balance sheet and healthy liquidity. The Group is well placed to manage the challenges presented by COVID-19, as outlined below.
Sector trading
Life Sciences
Based on the Group’s trading to the week beginning 16 March 2020, reported and underlying revenues for the first half were expected to be up ca. 4% reflecting strong consumable revenues and additional revenues generated from a new surgical Service line introduced in Canada this year. As expected, capital revenues also increased strongly in the second quarter.
Our Canadian, Australian and Irish Healthcare businesses in recent days have been impacted by hospitals and private laboratories prohibiting access and reallocating surgical and diagnostic resources to the COVID-19 situation. Diploma fully supports these decisions and will be assisting customers in this process as much as possible through this period.
Seals
Based on the Group’s trading to the week beginning 16 March 2020, reported revenues were expected to be up ca. 20%, benefitting from a strong contribution from businesses acquired in the past year, in particular VSP Technologies. Underlying revenues were expected to remain broadly unchanged from a strong first half last year. North American Aftermarket Seals revenues showed further solid underlying growth in the second quarter. However, this was offset by a combination of continuing soft demand and competitive pricing in the US Industrial OEM business, driven by US trade disputes. VSP has made an excellent contribution, with double-digit revenue growth in the period. In International Seals, underlying revenues were expected to reduce slightly against a very strong comparative, reflecting challenging trading conditions in most European markets.
While our North American Seals businesses continue to trade well for the moment, demand has dropped in our International Seals businesses over the past week, as social restrictions and customer closures have impacted order patterns.
Controls
Based on the Group’s trading to the week beginning 16 March 2020, reported revenues were expected to be up ca. 3% against a strong comparative last year which benefitted from customer’s Brexit stock building. Underlying revenues were expected to be up ca. 2% with another solid performance from Clarendon Specialty Fasteners, offsetting the impact of softer industrial and construction markets in the UK in the second quarter.
In Controls, social restrictions in Europe and the impact of stressed end segments such as Civil Aerospace have led to reduced demand in most businesses in the past week.
Liquidity and Resilience
The Group’s balance sheet is strong and working capital is well controlled. On a pre IFRS16 basis, net debt at 31 March 2020 will be ca. £35m representing ca. 0.3X EBITDA, against a covenant of 2X EBITDA. The Group’s cash resources are ca. £55m, comprising current cash balances of ca. £15m and unused bank facilities of £40m.
The Group is acting to conserve cash and all discretionary revenue and capital expenditure has been restricted. The Group’s businesses are also reviewing options to manage our employees effectively through this period, including utilising appropriate government assistance programmes.
Johnny Thomson, Diploma plc Group CEO commented:
“In light of the robust trading to 16 March 2020 and progress on our strategic objectives, we had intended to confirm our full-year profit outlook for FY2020. However, with the dynamic situation unfolding with COVID-19, it is too early to quantify its impact on current trading or on results for the year ending 30 September 2020. Our immediate priority is to safeguard the health and wellbeing of our colleagues, and to continue to serve our customers and operate effectively with our suppliers.
Diploma has a resilient and proven business model, as well as an accountable, commercial and agile culture which is responding admirably to this challenge. We enter this uncertain period in a robust financial position, with a strong balance sheet and liquidity position and we are acting to conserve cash so that we remain well placed for long term success. We continue to work closely with all our businesses to manage our response to the outbreak of COVID-19 as effectively as possible.”
The results for the six months ending 31 March 2020 are currently expected to be released on 11 May 2020.
Notes:
- This trading update is based upon unaudited management accounts and has been prepared solely to provide additional information on trading to the shareholders of Diploma PLC. It should not be relied on by any other party for other purposes. Certain statements made in this update are forward-looking statements. Such statements have been made by the Directors in good faith using information available up until the date that they approved this Statement. Forward-looking statements should be regarded with caution because of the inherent uncertainties in economic trends and business risks.
- Diploma PLC uses alternative performance measures as key financial indicators to assess the underlying performance of the Group. All references in this Statement to “underlying” revenues refer to reported results on a constant currency basis and before any contribution from acquired or disposed businesses.
- A copy of this Statement, together with further information about Diploma PLC, may be viewed on its website at www.diplomaplc.com
