REG - Diploma PLC - Trading Statement

DiplomaAnnouncement

12/04/2022 07:00

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RNS Number : 0289I  Diploma PLC  12 April 2022

 

DIPLOMA PLC

 
           10-11 CHARTERHOUSE SQUARE, LONDON EC1M 6EE

TELEPHONE: +44 (0)20 7549 5700

 

 

12 APRIL 2022

 

DIPLOMA PLC

STRONG TRADING PERFORMANCE AND EXCITING ACQUISITION DRIVE MATERIAL INCREASE TO
FULL YEAR GUIDANCE

 

Diploma PLC, the international group distributing specialised products and
services, today issues an update on trading, recent acquisitions and full year
trading outlook.

Our thoughts are with all those who have been affected by the situation in
Ukraine. The Group has no direct exposure to Ukraine or Russia. Our priority
is to support colleagues who have been personally impacted, and to contribute
to disaster relief funding.

Trading ahead of expectations

The Group's trading performance so far this year has been strong, with double
digit underlying growth in Q2 (consistent with Q1) driven by our organic
revenue initiatives, market share gains and robust demand:

 * Controls: very strong performance, with International Controls benefiting from
our business diversification activity while Windy City Wire continues to make
an excellent contribution.

 * Seals: accelerated growth reflecting geographic market share gains in North
American Aftermarket and International Seals benefiting from our revenue
diversification activity.

 * Life Sciences: short-term growth has been impacted by Canadian/Australian
lockdowns this year and last year's COVID inflated revenues. Encouraging
underlying trading means we expect to return to growth in the second half.

 

Our operating margin performance is very encouraging as we continue to
navigate inflation, supply chain challenges and tight labour markets.

Acquisitions to accelerate our strategy

The Group's strategy is to build high quality, scalable businesses for organic
growth. Acquisitions are an integral part of the strategy, with a disciplined
focus on acquiring value-added businesses, with great management teams, to
accelerate our organic growth. We have recently acquired two high quality
businesses for a combined consideration of ca. £121m.

R&G Fluid Power - a very exciting addition to build scale in Seals in the
UK

We are pleased to announce the acquisition of R&G Fluid Power ("R&G"),
a high quality aftermarket distribution business for our Seals Sector in the
UK, for ca. £100m.

R&G is a value-added distributor of a diverse range of industrial,
hydraulic and pneumatic products (including seals and gaskets). Its
value-added proposition is based on responsive customer service, technical
advice, breadth of stock and product customisation. Over time, the management
team has built a platform with extensive reach across the UK.  This has
included consolidating a number of regional distributors to extend geographic
and product reach. The R&G historic growth track record, organic and
inorganic, has been impressive.

R&G has significant organic growth potential, including: developing the
aftermarket e-commerce channel, continued regional expansion in the UK, and
further product cross-selling and diversification. The business gives the
Seals Sector scale in the UK and the ability to drive revenue synergies with
existing UK Seals businesses. We are also excited by the broadening of the
Seals product capability, in line with our strategy to expand addressable
markets through product extension, with the potential to take this to other
markets in the future.  An active pipeline also positions R&G well to
continue to deliver on acquisition growth. Following the acquisition,
R&G's experienced and highly capable management team will remain with the
business.

The purchase price of ca. £100m represents a multiple of ca. 9.5x EBIT and
the business is expected to contribute annualised revenue of ca. £65m.
Further deferred consideration of up to ca. £7.5m is payable within 9 months
subject to the completion of certain acquisitions advanced in the pipeline;
payment in full would result in an overall transaction multiple of ca. 9x. The
transaction completed in early April and has been funded through existing cash
resources and debt facilities.

Acquisition of LJR Electronics - continuing to build out Controls in the US

Additionally, in January, the Group acquired LJR Electronics ("LJR"), a
value-added distributor of connectors in the US for ca. £21m. The acquisition
forms part of our Interconnect business within the Controls Sector, and has
expanded our presence into the large, attractive and growing US interconnect
market. LJR is expected to generate annualised revenue of ca. £14m.

Outlook

While the situation in Ukraine and Russia has not directly impacted our
businesses, we are closely monitoring the wider economic trading environment.
Our strong trading to date, acquisitions and confidence in our prospects mean
we now expect full year performance to materially exceed our previous
guidance:

·    Underlying revenue growth is expected to be low double digit, well
ahead of our model. This reflects our expectation that growth will moderate in
the second half, particularly as comparators become more demanding.

·     On this basis, and including recent acquisitions, reported revenue
growth is expected to be a little over 20%.

·      Our operating margin expectation is at the top end of the 18-19%
range.

·     Our balance sheet remains strong and we currently expect continued
cash generation to drive net debt/EBITDA below 1.5x by year end.

Our next scheduled update will be the publication of half year results on 16
May 2022.

 

 

 

 Enquiries:

 Diploma PLC                                +44 (0)20 7549 5700
 Johnny Thomson, Chief Executive Officer
 Barbara Gibbes, Chief Financial Officer
 Kellie McAvoy, Head of Investor Relations

 Tulchan Communications                     +44 (0)20 7353 4200
 Martin Robinson
 Olivia Peters

 

Further information on Diploma PLC can be found at www.diplomaplc.com
(http://www.diplomaplc.com)

 

 

Notes:

 

1.   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.

 

2.   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, before acquired or disposed businesses (ex-growth
basis) and include growth generated by acquisitions under our ownership.

 

3.   A copy of this Statement, together with further information about
Diploma PLC, may be viewed on its website at www.diplomaplc.com
(http://www.diplomaplc.com/)

 

 LEI: 2138008OGI7VYG8FGR19

 

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