CORPORATE PRESENTATION
July 2019 01 CORPORATE PRESENTATION
CONTENTS
Group Overview Sector Review - Life Sciences - Seals - Controls Appendix: 2019 Half Year Results 02 CORPORATE PRESENTATION
GROUP OVERVIEW 03 CORPORATE PRESENTATION
DIPLOMA PLC AN INTERNATIONAL GROUP SUPPLYING SPECIALISED TECHNICAL PRODUCTS & SERVICES
• 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 04 CORPORATE PRESENTATION
GROUP OVERVIEW BALANCED GROUP OF BUSINESSES
Supplying technical products and services to the following industries:
LIFE SCIENCES SEALS CONTROLS
Suppliers of consumables, Suppliers of seals, gaskets, Suppliers of specialised wiring, instrumentation and filters, cylinders, components cable, connectors, fasteners related services to the and kits for heavy mobile and control devices for healthcare and machinery and industrial technically demanding environmental industries. equipment. applications. 05 CORPORATE PRESENTATION
THE GROUP WELL DIVERSIFIED BY SECTOR AND GEOGRAPHY
Revenue by Sector Revenue by Geography*
Life Sciences Seals Controls North America Europe Rest of World 28% 39% 33% 39% 50% 11%
*By destination 06 CORPORATE PRESENTATION
THE DIPLOMA INVESTMENT CASE CLEARLY DEFINED STRATEGY, CONSISTENT TRACK RECORD
GDP PLUS UNDERLYING ACQUISITIONS TO REVENUE GROWTH ACCELERATE GROWTH We focus on essential products Carefully selected, value enhancing and services, funded by customers’ acquisitions accelerate the organic operating rather than capital budgets, growth and take us into related giving resilience to revenues strategic markets
ATTRACTIVE MARGINS STRONG CASH FLOW Our attractive operating margins An ungeared balance sheet and are sustained through the quality of strong cash flow fund our growth customer service, the depth of technical strategy while providing healthy support and value adding activities and growing dividends
AGILE AND RESPONSIVE VALUE CREATION ORGANISATION We encourage an entrepreneurial We aim to create value by culture in our businesses through consistently exceeding our decentralised organisation 20% ROATCE 07 CORPORATE PRESENTATION
ACQUIRE, BUILD, GROW BUILDING LARGER, BROADER-BASED BUSINESSES
Life Seals Controls Sciences Acquisition spend 2018 • Coast – US £20.4m • FS Cables – UK Acquisition spend 2017 • Abacus – Australia & • PSP – US £20.1m New Zealand • Edco - UK Acquisition spend 2016 • WCIS – Australia • Cablecraft – UK & New Caledonia £32.7m • Ascome – France Acquisition spend 2015 • TPD – Ireland • Kubo – Switzerland & Austria £37.8m • Swan Seals – UK Acquisition spend 2014 • Chemzyne – Australia • Kentek – Finland, • SFC – UK Russia & Baltic States • Sacee – France £16.5m • Ramsay; AB Seals – UK 08 CORPORATE PRESENTATION
CONSISTENT DELIVERY TRACK RECORD OF DELIVERING STRONG RETURNS FOR SHAREHOLDERS
ADJUSTED EPS GROWTH (PENCE) TSR GROWTH (TSR INDEX 2008 = 100) DIVIDEND GROWTH (PENCE)
+13%p.a.1 +29%p.a.1 +13%p.a.1
56.4
1,276
49.8
25.5
23.0
939
41.9
38.2
20.0
36.1
34.8
760
18.2
33.1
17.0
15.7
27.9
14.4
568
560
525
12.0
207
121
9.0
18.9
7.8
371
14.8 240 09 10 11 12 13 14 15 16 17 18 09 10 11 12 13 14 15 16 17 18 09 10 11 12 13 14 15 16 17 18
1 Ten-year compound 09 CORPORATE PRESENTATION
INITIAL IMPRESSIONS
STRONG FOUNDATIONS EXCITING OPPORTUNITIES
• People: open, passionate, • Retain successful foundations accountable, customer-centric • Leverage common capabilities • Niche value-add model • Talent development • Strong positions in attractive markets • Strategic organic growth plans
• M&A history • Opportunities to develop infrastructure and technology • Excellent financial performance • Developing the portfolio around • Strong balance sheet scalable markets 10 CORPORATE PRESENTATION
FINANCIAL KPIS FIVE 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%
CAGR revenue Operating Free cash flow Average over growth margins ROATCE conversion five years: 11% p.a. 18% 24% 101% 11 CORPORATE PRESENTATION
MARKET CONSENSUS AND FINANCIAL CALENDAR
Full year ending 30 2018 2019 Sept Actual Consensus* Upcoming events
Revenues £485.1m £530.8m +9% Trading Update 28 August 2019
Operating Margin 17.5% 17.6% +10 bps Full Year Results 18 November 2019 Adjusted PBT £84.8m £93.3m +10%
Adjusted EPS 56.4p 62.3p +11%
Dividend per share 25.5p 28.6p +12%
*Compiled from the latest analyst forecasts as of 14 June 2019 12 CORPORATE PRESENTATION
LIFE SCIENCES SECTOR 13 CORPORATE PRESENTATION
LIFE SCIENCES SEGMENTATION
HEALTHCARE ENVIRONMENTAL
85% OF REVENUES 15% OF REVENUES Clinical diagnostic instrumentation, Environmental analysers, consumables and services supplied containment enclosures and to hospital pathology and life emissions monitoring systems. sciences laboratories for the testing of blood, tissue and other samples. PRIMARY GROWTH DRIVERS
Surgical medical devices and • Public and private healthcare related consumables and services spending supplied to hospital operating • Population ageing and rooms, GI/Endoscopy suites and increasing life expectancy clinics. • Health & Safety and Environmental regulation 14 CORPORATE PRESENTATION
HEALTHCARE FOCUS ON NICHE MARKET SEGMENTS
Specialty Surgical Clinical Diagnostics Electro-Surgery MI Surgery GI/Endoscopy Biotechnology
How doctors determine Operations completed Surgeons employ new Use of imaging Rapid testing disease and monitor with modern scalpels technologies for equipment to for microbial health through blood using high-frequency imaging and surgical diagnose and treat contamination in and tissue testing electric current to cut access to improve conditions of the food, dairy, water and coagulate tissue patient outcomes gastrointestinal tract and pharmaceuticals
Market leading positions in well defined niches within broader medical device markets 15 CORPORATE PRESENTATION
HEALTHCARE COMPETITIVE POSITIONING
– 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 16 CORPORATE PRESENTATION
LIFE SCIENCES 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
• 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 17 CORPORATE PRESENTATION
SEALS SECTOR 18 CORPORATE PRESENTATION
SEALS SEGMENTATION
NORTH AMERICA NORTH AMERICA AFTERMARKET INDUSTRIAL OEM
31% OF REVENUES 29% OF REVENUES Next day delivery of seals, sealing Sealing products, custom moulded products and cylinder components and machined parts supplied to for the repair of heavy mobile manufacturers of specialised machinery. industrial equipment.
INTERNATIONAL PRIMARY GROWTH DRIVERS • General economic growth % OF REVENUES • Activity and spending levels 40 in Heavy Construction and Sealing products and filters Infrastructure supplied outside North America • Growth in industrial production to Aftermarket and Industrial • MRO expenditure in Mining and OEM customers as well as to process industries MRO operations. 19 CORPORATE PRESENTATION
AFTERMARKET SEALS HIGH SERVICE MODEL FOR RESILIENT REPAIR AND MAINTENANCE MARKET
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 ‒ Refuse collection trucks ‒ Dump trucks ‒ Fork lifts ‒ Agricultural tractors 20 CORPORATE PRESENTATION
AFTERMARKET SEALS COMPETITIVE POSITIONING
– 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 21 CORPORATE PRESENTATION
INDUSTRIAL OEM SEALS SEALING SOLUTIONS FOR SPECIALISED INDUSTRIAL EQUIPMENT MANUFACTURERS
Customer Compound selection Testing and Supply to application and product design approval OEM customer
– Partnering with – Design engineering of – Material testing and – Ex-stock availability of customers sealing solution in characterisation seals and sub- to establish a full conjunction with OEM – Product testing and assemblies understanding of their – Sourcing of requirements approval process to match production appropriate compound schedules – Customers generally to meet – Quality control and not sealing specialists customer specification regulatory compliance – Vendor managed and require technical inventory programs advice – Selection of seal manufacturer tailored to meet and guidance customer needs
An essential partner in the product development process 22 CORPORATE PRESENTATION
SEALS 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
• 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 23 CORPORATE PRESENTATION
CONTROLS SECTOR 24 CORPORATE PRESENTATION
CONTROLS SEGMENTATION
INTERCONNECT FLUID CONTROLS
59% OF REVENUES 20% OF REVENUES Wiring, cable, harness components Temperature, pressure and fluid and cable accessories used in control products used in Food, specialised technical applications in Beverage and Catering industries. Aerospace, Defence, Motorsport, Energy, Medical, Rail and Industrial. PRIMARY GROWTH DRIVERS SPECIALTY FASTENERS • General growth in the industrial economy 21% OF REVENUES • Activity and spending levels in Specialty aerospace-quality Aerospace, Defence, Motorsport, Energy, Medical and Rail fasteners supplied to Civil Aerospace, Motorsport, • Equipment installation and Industrial and Defence markets. maintenance in Food, Beverage and Catering 25 CORPORATE PRESENTATION
INTERCONNECT SPECIALISED WIRING, CABLE, HARNESS COMPONENTS AND CABLE ACCESSORIES
Aerospace Industrial Motorsport Energy & Medical & Defence Infrastructure & Scientific 31% 45% 12% 9% 3%
Meeting the demands of diverse, technically challenging end markets 26 CORPORATE PRESENTATION
INTERCONNECT COMPETITIVE POSITIONING
– 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 27 CORPORATE PRESENTATION
SPECIALTY FASTENERS COMPETITIVE POSITIONING
– 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 28 CORPORATE PRESENTATION
CONTROLS 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
• 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 29 CORPORATE PRESENTATION
APPENDIX FINANCIAL RESULTS 30 CORPORATE PRESENTATION
OVERVIEW OF RESULTS HALF YEAR ENDED 31 MARCH
x 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% 31 CORPORATE PRESENTATION
PROFIT BEFORE TAX HALF YEAR ENDED 31 MARCH 2019
2019 2018 x £m £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% 32 CORPORATE PRESENTATION
FREE CASH FLOW HALF YEAR ENDED 31 MARCH
2019 2018 £m £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% 33 CORPORATE PRESENTATION
SHAREHOLDERS’ FUNDS
x 31 Mar 2019 30 Sept 2018 £m £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 Johnny Thomson Chief Executive Officer
Nigel P Lingwood Group Finance Director
Tel: +44 (0) 20 7549 5700 Email: [email protected] Web: www.diplomaplc.com
12 Charterhouse Square London EC1M 6AX
Tulchan Communications Martin Robinson David Allchurch Tel: +44 (0) 20 7353 4200 Email: [email protected]