Potential impact of Brexit, building of inventory levels to mitigate disruption in trade between UK and Continental Europe

Diploma PLC – Annual report – 30 September 2018

Industry: distribution



At an operational level, the impact on the Group’s businesses from the current uncertainty over the process and timing of the UK’s exit from the European Union is not expected to be significant in terms of the Group’s overall profitability. UK based revenues account for only 26% of the Group’s overall revenues and the UK businesses, as well as those based in Continental Europe, are substantially “in country” industrial suppliers of goods with limited cross border sales activity.

The Group’s financial results may be impacted by macroeconomic instability arising from a delayed or disruptive exit from the European Union, such as a depressed UK economy or a substantial depreciation in UK sterling. In such a scenario, there may be a reduction in the Group’s UK revenues and operating profits, although Group net assets would benefit from translating the results of the Group’s overseas businesses into UK sterling. It is also likely that a depreciation in UK sterling would lead to stronger inflation in supplier costs for the Group’s UK based businesses, which would need to be managed robustly to maintain gross margins.

The Board will continue to monitor closely developments in the Brexit plans on its UK businesses. A prolonged disruption at the UK’s borders has the potential to impact the supply chain of the Group’s UK businesses; however the businesses maintain a strong depth of inventories and have begun to build inventory levels of their faster moving product lines which would mitigate the impact on their activities from a significant disruption in cross border trade between the UK and Continental Europe.