UPDATE 1-Diploma Plc says strong pound to hurt results, shares fall

Mon Mar 24, 2014 9:36am EDT

Related Topics

* First-half revenue to grow 5 pct on underlying basis

* Controls business revenue to grow 10 pct on underlying basis

* Shares fall as much as 14.5 pct (Adds details, analyst comments and updates share movement)

By Tasim Zahid

March 24 (Reuters) - British industrial wiring and component maker Diploma Plc estimated its first-half revenue growth would halve from a year earlier and said a strong pound would continue to hurt its results.

Shares in Diploma, which supplies products ranging from hydraulic seals to components for Formula 1 cars, fell as much as 14.5 percent on Monday morning and were among the biggest percentage loser on the London Stock Exchange.

Diploma, which gets about three-quarters of its revenue from outside the UK, also said on Monday that weakening Canadian and Australian dollars would also hurt its healthcare businesses.

"As a result of FX (rates) we anticipate that adjusted EPS for FY14 and beyond will move down by mid-single digits," Jefferies analyst Will Kirkness said in a note.

Current exchange rates for the pound would have reduced Diploma's revenue by about 14 million pounds in the year through Sept. 30, the company said.

Full-year adjusted operating profits would have been hurt by 3 million pounds.

Diploma reported an adjusted operating profit of 54.2 million pounds on 285.5 million pounds in revenue for the year ended September.

The pound has risen 1.85 percent against the U.S. dollar since then up to Friday's close.

"Their hedging book runs out in the second half and they will refilling that hedge book with higher prices," Peel Hunt analyst Henry Carver told Reuters.

British capital goods companies such as Smith Group, Melrose, Spectris and Fenner, - with a large exposure to non-UK markets - have all flagged the impact of strengthening sterling on their businesses.

Diploma said group revenue was likely to grow about 5 percent for the six months ending March 31. The company had posted a 10 percent revenue growth in the year-ago period.

"Significant movements in exchange rates have adversely impacted the results of the overseas businesses when translated into UK sterling," the company said in a trading update on Monday.

Diploma sources material from U.S. and Europe and sells in Australia and Canada. The Australian and Canadian dollars have been extremely weak, Carver said.

The company said it expects revenue from its controls business to increase about 10 percent on an underlying basis, helped by sales in UK and Germany.

Diploma estimates first-half adjusted profit before tax to be similar to year-ago levels.

The company reported revenue of 139.7 million pound ($230.43 million) and a pretax profit of 23.8 million pounds in the six months ended March 2013.

The company said it had spent about 12 million pounds on acquisitions, but said lengthy transaction and due diligence processes continued to delay the completion of opportunities.

Diploma shares were down near 11 percent at 674 pence at 1332 GMT. ($1 = 0.6063 British Pounds) (Reporting by Tasim Zahid in Bangalore; Editing by Joyjeet Das)

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