Diploma building inventory ahead of possible rocky Brexit

(Reuters) - Industrial component distributor Diploma Plc (DPLM.L) said on Monday it was building inventory for some products to counter any significant disruption in cross border trade due to Britain's exit from the European Union.

There is little clarity over Britain's future relationship with the world's biggest trading block, creating a headache for companies that rely on the smooth flow of goods and parts across borders.

Diploma, which supplies a range of products from hydraulic seals to engine-repair gadgets for Formula 1 cars, said prolonged disruption at the UK's borders could hurt the supply chain of the group's UK businesses.

"However the businesses have begun to build inventory levels of their faster moving product lines," Diploma said in a statement.

The company also said its financial results may be hurt by macro-economic instability arising from a delayed or disruptive Brexit.

Prime Minister Theresa May unveiled a draft divorce deal with the European Union last Wednesday. Several ministers, including her Brexit minister, resigned and some of her own members of parliament are seeking to oust her.

Diploma, however, said its UK businesses, as well as those based in Continental Europe, have limited cross border sales activity.

The UK accounts for 26 percent of the group's revenue and Diploma said any impact from the impending Brexit is not expected to be a big hit on its overall profitability.

But Diploma said its financial results may be hurt by a depressed British economy or a substantial drop in the value of the pound.

"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," the company added.

The fall in the pound's value would also increase supplier costs for its British business, Diploma said, adding this would need to be "managed robustly" to maintain gross margins.

Diploma also reported a 9 percent rise in adjusted pretax profit to 84.8 million pounds for the year ended September.

(Reporting by Noor Zainab Hussain and Tanishaa Nadkar in Bengaluru; Editing by Bernard Orr)