Diploma's double-digit profit growth under controls

Industrial component distributor Diploma grew annual pre-tax profit 19% and upped its dividend 15%, principally driven by increased activity in its controls unit.

Diploma, which operates via its controls, seals and life sciences divisions, posted an adjusted pre-tax profit of £77.5m for the year ended 30 September on revenue of £451.9m, an 18% improvement on the previous year's figures.

In controls, underlying revenue increased 14%, with new project activity, recovery in some end-user markets and targeted investment in sales resources helping bring about the stronger showing.

Within the controls unit, Diploma's interconnect business benefited from increased project work, delivering strong underlying growth of 8%, and increased customer demand in civil aerospace and motorsport helped boost Clarendon revenues more than 30%.

Full-year contributions from Cablecraft and Ascome, acquired in the first half of 2016, added a further £6.4m, or 6%, to sector revenues.

Diploma's Life Sciences wing posted a 4% increase in revenues thanks to the introduction of new technology and the reactivation of several delayed projects in the laboratory diagnostics sector. The Seals division grew revenues 4% as strong growth in the UK and Scandinavia was offset by more challenging conditions in Switzerland, Russia and Australia.

Operating margins remained steady, moving to 17.3% from 17.2% twelve months earlier as stronger gross margins in recent acquisitions and transactional currency pressures in the healthcare businesses eased during the year.

Diploma's free cash flow dropped 6% to £55.7m at the end of the period, but despite having expenditures of £20.1m on acquisitions throughout the course of the year, cash funds grew from £10.6m at £22.3m.

Chief executive Bruce Thompson said, "Diploma reported another strong performance in 2017, delivering strong double-digit growth in revenue and earnings. All of the group's sectors contributed to this growth with a particularly strong performance from controls.

"With a proven business model, broad geographic spread of businesses, robust balance sheet and consistently strong free cash flow, the board is confident that further progress will be made in the next financial year," he added.

Earnings per share also saw a 19% boost to 49.8p and total dividend payments increased 15% to 23.0p.

On Monday morning, while changing Diploma's rating from 'add' to 'buy', Numis raised its target price for Diploma to 1,300p from 1,190p, and boosted its 2018-19 financial year pre-tax profit and earning per share forecasts by 5%.

As of 0910 GMT, shares had gained 3.18% to 1,104p.