corporate presentation...contents corporate presentation 01 group overview sector review - life...

CORPORATE PRESENTATION

July 2019

CONTENTS


01

Group Overview

Sector Review

- Life Sciences

- Seals

- Controls

Appendix: 2019 Half Year

Results

GROUP OVERVIEW


02

DIPLOMA PLC

• Business model based on supplying

specialised products for a diverse range of

end customers

• Diploma’s focus is to provide value-added,

technical servicing – allowing us to

differentiate ourselves in the supply chain

and add real value to our customers

• The model is resilient, with our products

playing more to customers’ operating

needs rather than capital budgets


03

AN INTERNATIONAL GROUP SUPPLYING SPECIALISED TECHNICAL PRODUCTS & SERVICES

GROUP OVERVIEW

Supplying technical products and services to the following industries:

BALANCED GROUP OF BUSINESSES

LIFE SCIENCES CONTROLS

Suppliers of consumables,

instrumentation and

related services to the

healthcare and

environmental industries.

SEALS

Suppliers of seals, gaskets,

filters, cylinders, components

and kits for heavy mobile

machinery and industrial

equipment.

Suppliers of specialised wiring,

cable, connectors, fasteners

and control devices for

technically demanding

applications.


04

Revenue by Sector

Life Sciences Seals Controls

Revenue by Geography*

North America Europe Rest of World

05

THE GROUP

28% 39% 33% 39% 50% 11%

WELL DIVERSIFIED BY SECTOR AND GEOGRAPHY

*By destination


THE DIPLOMA INVESTMENT CASE CLEARLY DEFINED STRATEGY, CONSISTENT TRACK RECORD

We focus on essential productsand services, funded by customers’ operating rather than capital budgets, giving resilience to revenues

GDP PLUS UNDERLYING REVENUE GROWTH

Our attractive operating marginsare sustained through the quality of customer service, the depth of technical support and value adding activities

ATTRACTIVE MARGINS

We encourage an entrepreneurialculture in our businesses throughour decentralised organisation

AGILE AND RESPONSIVE ORGANISATION

Carefully selected, value enhancing acquisitions accelerate the organicgrowth and take us into relatedstrategic markets

ACQUISITIONS TO ACCELERATE GROWTH

STRONG CASH FLOWAn ungeared balance sheet andstrong cash flow fund our growthstrategy while providing healthyand growing dividends

We aim to create value by consistently exceeding20% ROATCE

VALUE CREATION


06

LifeSciences

Seals Controls

Acquisition spend 2018 • Coast – US

• FS Cables – UK

Acquisition spend 2017 • Abacus – Australia & New Zealand

• PSP – US

• Edco - UK

Acquisition spend 2016 • WCIS – Australia& New Caledonia

• Cablecraft – UK

• Ascome – France

Acquisition spend 2015 • TPD – Ireland • Kubo – Switzerland& Austria

• Swan Seals – UK

Acquisition spend 2014 • Chemzyne – Australia • Kentek – Finland,Russia & Baltic States

• Ramsay; AB Seals – UK

• SFC – UK

• Sacee – France

ACQUIRE, BUILD, GROWBUILDING LARGER, BROADER-BASED BUSINESSES

£20.4m

£20.1m

£32.7m

£37.8m


07

£16.5m

CONSISTENT DELIVERYTRACK RECORD OF DELIVERING STRONG RETURNS FOR SHAREHOLDERS

1 Ten-year compound

14.8

18.9

27.9 33.1

34.8

36.1

38.2 41.9 4

9.8 5

6.4

09 10 11 12 13 14 15 16 17 18

ADJUSTED EPS GROWTH (PENCE)

+13%p.a.1

121

207

240

371 5

25

568

560 7

60 9

39

1,2

76

09 10 11 12 13 14 15 16 17 18

TSR GROWTH (TSR INDEX 2008 = 100)

+29%p.a.1

DIVIDEND GROWTH (PENCE)

+13%p.a.1

7.8 9.0 1

2.0 14.4

15.7

17.0

18.2 20.0 23.0 25.5

09 10 11 12 13 14 15 16 17 18


08

INITIAL IMPRESSIONS

STRONG FOUNDATIONS

• People: open, passionate, accountable, customer-centric

• Niche value-add model

• Strong positions in attractive markets

• M&A history

• Excellent financial performance

• Strong balance sheet


09

EXCITING OPPORTUNITIES

• Retain successful foundations

• Leverage common capabilities

• Talent development

• Strategic organic growth plans

• Opportunities to develop infrastructure and technology

• Developing the portfolio around scalable markets


10

FINANCIAL KPISFIVE YEAR TRENDS

2014 2015 2016 2017 2018

Revenue £305.8m £333.8m £382.6m £451.9m £485.1m

Total growth +7% +9% +15% +18% +7%

Underlying growth +8% +1% +3% +7% +7%

Operating margin 18.5% 18.1% 17.2% 17.3% 17.5%

Working capital (% revenues) 17.2% 17.0% 16.6% 15.0% 15.1%

Free cash flow £37.8m £40.3m £59.0m £55.7m £60.5m

Cash conversion (%) 93% 93% 124% 99% 95%

ROATCE 25.8% 23.9% 21.1% 24.0% 24.5%

Average over

five years:

Free cash flow conversion

101%ROATCE

24%

CAGR revenuegrowth

11% p.a.

Operatingmargins

18%

MARKET CONSENSUS AND FINANCIAL CALENDAR

Upcoming eventsFull year ending 30

Sept

2018Actual

2019Consensus*

Revenues £485.1m £530.8m +9%

Operating Margin 17.5% 17.6% +10 bps

Adjusted PBT £84.8m £93.3m +10%

Adjusted EPS 56.4p 62.3p +11%

Dividend per share 25.5p 28.6p +12%

Trading Update

28 August 2019

Full Year Results

18 November 2019

*Compiled from the latest analyst forecasts as of 14 June 2019


11

LIFE SCIENCES SECTOR


12


13

LIFE SCIENCES SEGMENTATION

Clinical diagnostic instrumentation, consumables and services supplied to hospital pathology and life sciences laboratories for the testing of blood, tissue and other samples.

Surgical medical devices and related consumables and services supplied to hospital operating rooms, GI/Endoscopy suites and clinics.

HEALTHCARE

Environmental analysers, containment enclosures and emissions monitoring systems.

ENVIRONMENTAL

85% OF REVENUES 15% OF REVENUES

PRIMARY GROWTH DRIVERS

• Public and private healthcare

spending

• Population ageing and

increasing life expectancy

• Health & Safety and

Environmental regulation

HEALTHCARE

14

ClinicalDiagnostics GI/Endoscopy BiotechnologyElectro-Surgery MI Surgery

Use of imaging equipment to diagnose and treat conditions of the gastrointestinal tract

Operations completed with modern scalpels using high-frequency electric current to cut and coagulate tissue

How doctors determine disease and monitor health through blood and tissue testing

Surgeons employ new technologies for imaging and surgical access to improve patient outcomes

Rapid testingfor microbial contamination in food, dairy, waterand pharmaceuticals

Specialty Surgical

Market leading positions in well defined niches within broader medical device markets


FOCUS ON NICHE MARKET SEGMENTS

HEALTHCARE

– Focus on markets which value specialised distribution – Canada; Australasia;

Ireland & UK

– Quality manufacturer-branded products sourced under long term distribution

agreements

– Multi-year customer contracts for consumables and service underpin

ca. 70% of revenues

– Full service solutions provided by highly qualified technical specialists

– Financing of capital equipment

– Network of trained service engineers to

maintain instrumentation

– Cost-effective route to market for

medium-sized, medical device manufacturers

15


COMPETITIVE POSITIONING

LIFE SCIENCES

• Underlying Sector revenue growth of 5%

• Strong Clinical Diagnostics performance, particularly in Australia

• Surgical and Endoscopy growth in Canada

• Pleasing margin progression in a cost conscious end market

• Product life cycle management is key to success


16

STRONG TRADING AND OPERATING LEVERAGE

Half Year ended 31 March 2019 2018

Revenue £71.1m £67.4m +5%

Adjusted operating profit £13.0m £11.7m +11%

Adjusted operating margin 18.3% 17.4% +90bps

SEALS SECTOR


17

SEALS


18

SEGMENTATION

NORTH AMERICAAFTERMARKET

31% OF REVENUES

Next day delivery of seals, sealing products and cylinder components for the repair of heavy mobile machinery.

NORTH AMERICAINDUSTRIAL OEM

29% OF REVENUES

Sealing products, custom moulded and machined parts supplied to manufacturers of specialised industrial equipment.

INTERNATIONAL

40% OF REVENUES

Sealing products and filters supplied outside North Americato Aftermarket and IndustrialOEM customers as well as toMRO operations.


• General economic growth

• Activity and spending levelsin Heavy Construction and Infrastructure

• Growth in industrial production

• MRO expenditure in Mining and process industries

AFTERMARKET SEALS

19

Principal market driver: Heavy Construction & Infrastructure investment

Next day delivery of seals, seal kits, O-rings, gaskets, filters and cylinder components for

the repair of heavy mobile machinery, e.g:

‒ Bulldozers & excavators

‒ Dump trucks

‒ Agricultural tractors

HIGH SERVICE MODEL FOR RESILIENT REPAIR AND MAINTENANCE MARKET

‒ Refuse collection trucks

‒ Fork lifts


AFTERMARKET SEALS

– One-stop source for replacement seals and seal kits for

all brands of heavy mobile machinery

– Next day delivery from central warehouse in

Clearwater, Florida using UPS and Fedex – order by 8pm,

delivery by 10.30am the following morning

– Advanced e-commerce capabilities including

“Webstore” and customer portals

– Seals typically sourced from the same seal

manufacturers who supply original equipment

manufacturers (“OEMs”)

– High customer service and very competitive pricing

compared to OEM dealer network

20



INDUSTRIAL OEM SEALS

– Partnering with customersto establish a full understanding of their requirements

– Customers generally not sealing specialists and require technical adviceand guidance

21

– Design engineering of sealing solution in conjunction with OEM

– Sourcing of appropriate compound to meetcustomer specification

– Selection of seal manufacturer

– Material testing and

characterisation

– Product testing and

approval process

– Quality control and

regulatory compliance

– Ex-stock availability of

seals and sub-

assemblies

to match production

schedules

– Vendor managed

inventory programs

tailored to meet

customer needs

Customerapplication

Compound selectionand product design

Testing andapproval

Supply toOEM customer

SEALING SOLUTIONS FOR SPECIALISED INDUSTRIAL EQUIPMENT MANUFACTURERS

An essential partner in the product development process


SEALS


• International businesses progressing well with 9% increase in underlying revenue

• NA Aftermarket temporarily slower in H1

• NA OEM affected by ERP launch in H1

• Operating margins down 50bps as we invest in management and infrastructure

• Short term market trends uncertain

• Long term outlook for the Sector very positive


22

FURTHER PROGRESS LED BY STRONG GROWTH IN INTERNATIONAL SEALS


Revenue £102.4m £99.2m +3%

Adjusted operating profit £17.1m £17.1m -

Adjusted operating margin 16.7% 17.2% -50bps

CONTROLS SECTOR


23


24

CONTROLSSEGMENTATION

INTERCONNECT

59% OF REVENUES

Wiring, cable, harness componentsand cable accessories used in specialised technical applications in Aerospace, Defence, Motorsport, Energy, Medical, Rail and Industrial.

FLUID CONTROLS

20% OF REVENUES

Temperature, pressure and fluid control products used in Food, Beverage and Catering industries.

SPECIALTY FASTENERS

21% OF REVENUES

Specialty aerospace-quality fasteners supplied to Civil Aerospace, Motorsport,Industrial and Defence markets.


• General growth in the industrial economy

• Activity and spending levels in Aerospace, Defence, Motorsport, Energy, Medical and Rail

• Equipment installation and maintenance in Food, Beverage and Catering

INTERCONNECT

25

Aerospace& Defence

Industrial Motorsport Energy &

Infrastructure

Medical

& Scientific

31% 45% 12% 9% 3%

SPECIALISED WIRING, CABLE, HARNESS COMPONENTS AND CABLE ACCESSORIES

Meeting the demands of diverse, technically challenging end markets


INTERCONNECT

– High performance, manufacturer-branded products, sourced

under long term distribution agreements

– Strong technical knowledge to specify products for customer

applications

– Ex-stock availability and full range of value-added services

– Focus on refurbishment, upgrade and maintenance programmes

for equipment in service

– Support for major new build programmes where smaller

quantities are required quickly

26



SPECIALTY FASTENERS

27


– Specialty aerospace-quality fasteners supplied to Civil Aerospace, Motorsport,

Industrial and Defence markets

– Well integrated with key customers, able to deliver automated inventory

replenishment from within the customers’ own production cells

– Broadening customer base of major aircraft

seating and cabin interior manufacturers and their

sub-contractors across Europe and Asia

– Strong technical knowledge to specify products for

customer applications

– Preassembled and captive fasteners and bespoke

engineered solutions


CONTROLS


• Acquisitions of FS Cables and Gremtek contributed growth of 14%

• Interconnect business expansion into Germany and France progressing well

• Exciting developments in our Fastener business, with product and market expansion

• Positive margin progression as we successfully leverage our scale

• Some Brexit stocking benefit

• Outlook remains strong for the second half


28

EXCELLENT PERFORMANCE IN POSITIVE END MARKETS


Revenue £86.9m £68.3m +27%



APPENDIXFINANCIALRESULTS

29


OVERVIEW OF RESULTS

x


30

HALF YEAR ENDED 31 MARCH

2019 2018

Revenue £260.4m £234.9m +11%



Adjusted profit before tax £45.5m £40.4m +13%

Free cash flow £14.0m £17.7m - 21%

Acquisition spend £7.5m £3.3m

Cash funds £22.0m £17.7m

Adjusted earnings per share 30.5p 26.7p +14%

Total dividend per share 8.5p 7.7p +10%

PROFIT BEFORE TAX

x


31

HALF YEAR ENDED 31 MARCH 2019

2019£m

2018£m

Revenue 260.4 234.9 +11%

Adjusted operating profit 45.6 40.6 +12%

Adjusted operating margin (%) 17.5% 17.3%

Interest expense (0.1) (0.2)

Adjusted profit before tax 45.5 40.4 +13%

Previous CEO transition costs - (0.2)

Acquisition related charges (5.5) (4.7)

Fair value remeasurements 0.1 (0.1)

Statutory profit before tax 40.1 35.4 +13%

FREE CASH FLOW


32

HALF YEAR ENDED 31 MARCH

2019£m

2018£m

Adjusted operating profit 45.6 40.6

Depreciation 2.6 2.4

Working capital (16.9) (11.2)

Previous CEO transition costs paid (1.3) -

Pension and share schemes, net 0.1 0.1

Operating cash flow, before acquisition expenses 30.1 31.9 -6%

Interest paid, net (0.1) -

Tax paid (9.6) (9.7)

Capital expenditure (3.5) (2.3)

EBT – share scheme funding (2.9) (2.2)

Free cash flow 14.0 17.7 -21%

Cash conversion 41% 59%

SHAREHOLDERS’ FUNDS

x


33

31 Mar 2019£m

30 Sept 2018£m

Tangible assets and investments 25.9 25.5

Goodwill and acquisition intangible assets 179.2 182.1

Net working capital 92.9 75.2

Trading capital employed - reported 298.0 282.8

Working capital (% of revenue) 17.0% 15.1%

ROATCE 24.2% 24.5%

Retirement benefit obligations (10.3) (10.5)

Acquisition liabilities (4.6) (5.6)

Cash funds 22.0 36.0

Minority interests and deferred tax, net (11.0) (11.5)

Total shareholders’ equity 294.1 291.2

12 Charterhouse Square

London EC1M 6AX

Tel: +44 (0) 20 7549 5700

Email: [email protected]

Web: www.diplomaplc.com

Tulchan Communications

Martin Robinson

David Allchurch

Tel: +44 (0) 20 7353 4200

Email: [email protected]

Johnny Thomson

Chief Executive Officer

Nigel P Lingwood

Group Finance Director

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