Potential impact of Brexit, potential supply chain disruption, no current intention to rebuild inventory levels.

Diploma PLC – Annual report – 30 September 2019

Industry: distribution

Finance Review (extract)
Impact of Brexit
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 28% 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 this year have been slightly impacted by macroeconomic instability caused by the delayed and uncertain timing of the intended exit from the European Union. This uncertainty has contributed to a weaker UK economy and to a substantial depreciation in UK sterling, particularly in the second half of the year. This has had a negative impact on the Group’s operating profits, although the overall Group results this year have benefited on the translation of the results of the Group’s overseas businesses into UK sterling.

A prolonged disruption at the UK’s borders as a result of Brexit has the potential to impact the supply chain of the Group’s UK businesses. In the first half of the year the Group’s UK businesses extended the depth of inventories by ca. £2m from building inventory levels of their faster moving product lines which was successfully unwound by 30 September 2019. The Board will continue to monitor closely developments in the Brexit plans, but currently has no intention to rebuild inventory levels.