CORPORATE PRESENTATION
July 2019
CONTENTS
CORPORATE PRESENTATION
01
Group Overview
Sector Review
- Life Sciences
- Seals
- Controls
Appendix: 2019 Half Year
Results
GROUP OVERVIEW
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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.
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
11
LIFE SCIENCES SECTOR
CORPORATE PRESENTATION
12
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
17
SEALS
CORPORATE PRESENTATION
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.
PRIMARY GROWTH DRIVERS
• 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
CORPORATE PRESENTATION
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
COMPETITIVE POSITIONING
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
SEALS
• Underlying Sector revenue growth of 4%
• 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
CORPORATE PRESENTATION
22
FURTHER PROGRESS LED BY STRONG GROWTH IN INTERNATIONAL SEALS
Half Year ended 31 March 2019 2018
Revenue £102.4m £99.2m +3%
Adjusted operating profit £17.1m £17.1m -
Adjusted operating margin 16.7% 17.2% -50bps
CONTROLS SECTOR
CORPORATE PRESENTATION
23
CORPORATE PRESENTATION
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.
PRIMARY GROWTH DRIVERS
• 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
CORPORATE PRESENTATION
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
COMPETITIVE POSITIONING
CORPORATE PRESENTATION
SPECIALTY FASTENERS
27
CORPORATE PRESENTATION
– 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
COMPETITIVE POSITIONING
CONTROLS
• Underlying Sector revenue growth of 9%
• 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
CORPORATE PRESENTATION
28
EXCELLENT PERFORMANCE IN POSITIVE END MARKETS
Half Year ended 31 March 2019 2018
Revenue £86.9m £68.3m +27%
Adjusted operating profit £15.5m £11.8m +31%
Adjusted operating margin 17.8% 17.3% +50bps
APPENDIXFINANCIALRESULTS
29
CORPORATE PRESENTATION
OVERVIEW OF RESULTS
x
CORPORATE PRESENTATION
30
HALF YEAR ENDED 31 MARCH
2019 2018
Revenue £260.4m £234.9m +11%
Adjusted operating profit £45.6m £40.6m +12%
Adjusted operating margin 17.5% 17.3% +20bps
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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
CORPORATE PRESENTATION
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