Diploma sales remain resilient but currencies soften up margins

Diploma's revenues were up 6% in the first quarter due to strong currency headwinds but profit margins were weaker than the same period last year due to weakening of the Canadian and Australian dollars.

The depreciation of these two currencies against their US counterpart squeezed margins in the healthcare businesses that makes up around a quarter of group revenues, exacerbated by lower initial margins in acquired businesses.

Though while margins are softer than last year, the company insisted operating margin remained in line with expectations.

House broker Numis said guidance for the full year was for a 40-50 basis point reduction in group operating margin, versus the 18.1% delivered in 2015.

Life sciences revenues, from the company's sales of medical devices and related consumables and services, were 4% below the comparable period last year due to the currency effect, with underlying sales actually increasing 7% thanks to stronger sales of capital equipment and good performances in the Irish and Australian businesses.

Industrial seals revenues increased by 22%, or 1% ahead on an underlying basis, benefitting from the Kubo and Swan Seals businesses acquired last year and from WCIS acquired at the beginning of this financial year. October's £9.8m acquisition of West Coast Industrial seals will boost this division.

The controls division suffered from continued weak activity at the Interconnect and Fluid Controls businesses, with reported revenues down 3% on last year or 2% down on an underlying basis. The Specialty Fastener business achieved good growth in the period as anticipated.

Across the group, underlying sales rose 11% in the three months to 31 December when excluding forex swings, with acquisitions in previous periods contributing 9% and underlying organic growth of 2%.

Strong free cash flow of roughly £9m was generated in the period, leaving net cash at £3.9m at period end.

Numis said the performance was 'resilient' against a tough comparator and challenging economic backdrop, making no changes to its forecasts.