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Will Diploma Get a Passing Grade This Year?

LONDON -- Diploma  (LSE: DPLM  ) , a supplier of specialized technical products and services, today reported a modest increase in pre-tax profit for the first half of the year, reflecting higher revenues overall.

For the six-month period, Diploma posted pre-tax profits of £23.8 million compared with £23.3 million in the same period last year -- while profit after tax increased only slightly to £16.7 million (from £15.8 million). On a per share basis, earnings per share for the period were 14.7 pence compared with 13.9 pence at the same time last year.

Diploma's revenues generated during the first half of the year increased to £139.7 million from the prior year's figure of £127.1 million. Underlying revenue increased by just 2%, after adjusting for currency effects and acquisitions, the company said in a statement.

Free cash flow increased by 25% to £12.1 million, Diploma reported, despite higher capital expenditure of £2.6 million from ongoing investment in its internal growth program (facilities, IT infrastructure, and management).

Diploma made a series of acquisitions last year across its three operating divisions, including: U.S.-based J Royal in the Seals division, Amfast and Abbeychart here in the U.K. under the Controls division, and Australia-based DSL in the Life Sciences group.

Bruce Thompson, Diploma's chief executive, said they're seeing positive contributions from these purchases and continues to eye additional acquisition opportunities. He commented:

The Life Sciences businesses are continuing to perform strongly and the Seals businesses are expected to make further progress in the second half of the year, as comparatives become less demanding. Underlying trading activity in the Controls businesses is likely to continue to be challenging, while European markets remain subdued. The pipeline of acquisition opportunities remains promising and is growing with the additional resources, although the current uncertain economic background has lengthened transaction processes and is delaying completion of target acquisitions.

Diploma's interim dividend increased by 19% to 5 pence per share. This reflects the board's decision to increase the interim dividend as a proportion of the total dividend paid to shareholders per year.

Shares of Diploma are up more than 55% in the past 12 months, a time when the tech industry as a whole has performed well. (Perhaps the beloved Apple is the main exception in this space.)

With performance like that, Diploma's shareholders have reason to smile but now must keep an eye on how the firm will continue to grow from here. Despite an increasingly diversified business, Diploma could be hurt -- particularly in its Controls business -- by prolonged economic troubles in Europe.

Commenting on the future, however, Thompson said that "... despite the challenging economic environment, the investments being made in the business to provide the platform for growth, both organically and by acquisition, will allow [Diploma] to deliver further progress in the second half of the year and in the longer term."

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