Corporate Presentation
June 2016 Contents
Life sciences Seals Controls
1. Group Overview
2. Sector Review – Life Sciences
3. Sector Review - Seals
4. Sector Review - Controls
5. Strategy and Outlook
Appendix: FY2016 - Half Year Results
01 1. Group Overview Group Overview Balanced portfolio of businesses
Diploma PLC is an international group of specialised businesses supplying technical products and services to the following industries:
Life sciences 31% of revenues Seals 42% of revenues Controls 27% of revenues
FY 2015 figures
03 Group Overview Well diversified by geography
North America Europe Rest of World
Life Sciences 25% US 23% UK % % % Seals 46 46 Continental 8 Controls 1 1 1 of revenues 21% Canada of revenues 23% Europe of revenues ¹By destination
FY 2015 figures
04 Our Business Model We want to make ourselves essential to our customers
Essential Products Essential Solutions Essential Values = recurring income and = sustainable and = agility and responsiveness stable revenue growth attractive margins
• Focus on essential • Highly responsive • Entrepreneurial culture products and services customer service • Decentralised • Funded by customers’ • Deep technical management model operating rather than knowledge and support • Decisions made close capital budgets • Value adding activities to the customer • “GDP plus” organic revenue growth
05 Financial KPIs Five Year Trends
2011 2012 2013 2014 2015 Revenue £230.6m £260.2m £285.5m £305.8m £333.8m Total growth +26% +13% +10% +7% +9% Organic growth +17% +6% +4% +8% +1% Operating margin 19.6% 20.3% 19.0% 18.5% 18.1%
Working capital (% revenues) 16.1% 16.5% 16.7% 17.2% 17.0% Free cash flow £25.0m £32.7m £31.6m £37.8m £40.3m Cash conversion (%) 80% 88% 81% 93% 93% ROATCE 25.4% 26.6% 25.8% 25.8% 23.9%
Average over CAGR REVENUE OPERATING ROATCE FREE CASH FLOW GROWTH MARGINS five years: CONVERSION 13% p.a. 18-19% 26% 87%
0906 Our Growth Strategy Value enhancing acquisitions accelerate growth
ACQUIRE BUILD GROW
• Fit with Group’s • Investment to build • Businesses maintain their business model a solid foundation distinct sales and • Marketing led with strong for growth: marketing identity customer relationships – New facilities • Synergies managed • Track record of stable and IT systems within business clusters: profitable growth and – Increased working – Cross-selling cash generation capital – Joint purchasing • Capable management – Strengthened – Shared back-office • Target of 20% plus management operations pre-tax ROI
07 Acquisitions Total expenditure exceeds £80m since January 2014
Financial year Acquisition spend Life Sciences Seals Controls
WCIS - Australia Cablecraft – UK 2016 £30.2m Ascome - France
TPD - Ireland Kubo – Switzerland & 2015 £37.8m Austria Swan Seals – UK
Chemzyme – Australia Kentek – Finland, SFC – UK 2014 £16.5m Russia & Baltic States Sacee – France Ramsay – UK AB Seals – UK
08 Our Corporate Objectives Track record of delivering strong returns for shareholders
STRONG DOUBLE-DIGIT UPPER QUARTILE PROGRESSIVE DIVIDEND GROWTH EPS GROWTH TSR GROWTH
2015 38.2 2015 270270 2015 18.2
2014 36.1 2014 274 2014 17.0
2013 34.8 2013 253 2013 15.7 p.a. p.a. p.a. 2012 33.1 2012 179 2012 14.4
2011 27.9 2011 116 2011 12.0 +22% +15% +15%
0Adjusted 1020304050 EPS in pence TSR0 index, end 100 Sept 2010 200 = 100 300 0.0Dividends 5.0 10.0in pence 15.0 20.0
09 2. Sector Review - Life Sciences Life Sciences Segmentation
Healthcare 85% 31% of group revenues Diploma Healthcare Group (“DHG”) supplies medical devices and related consumables and services to the healthcare industries in Canada, 387 employees Australia and Ireland & the UK
Environmental 59% Canada The a1-group supplies environmental 15% 28% Europe analysers, containment enclosures, emissions monitoring systems and 13% Australia/NZ gas detection devices
FY2015 figures
85% of revenues from steadily growing healthcare markets
11 Healthcare 16 Principal Businesses
Clinical Diagnostics ElectrosurgeryMI Surgery GI/Endoscopy
How doctors Where surgeons Where surgeons Where surgeons use determine disease operate with modern employ new imaging equipment and monitor health scalpels that use technologies for to diagnose and through blood and high-frequency imaging and surgical treat conditions of tissue testing. electric current to access to improve the gastrointestinal minimise bleeding. patient outcomes. tract.
Focus on growing, niche Healthcare markets
12 Life Sciences Business Model
> 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
> Network of trained service engineers to maintain instrumentation
> A very cost effective route to market for medium sized, medical device manufacturers
Market leading positions in well defined niches within broader medical device markets
13 Life Sciences Potential for Growth
> Increase share of specialised segments of Healthcare markets in Canada and Australia LIFE SCIENCES > Build presence in the UK and Ireland from TPD base and explore opportunities more broadly in Europe
> Extend into other specialised medical disciplines with new products and technologies
> Continue to develop product and geographic spread of Environmental businesses
14 TPD Acquisition Extending DHG into Europe
• DHG acquired 80% of Technopath Distribution (“TPD”) for ca. £11m in October 2014; owner managers retain 20% with put and call options
• TPD is an established supplier to Biotech, Clinical and Medical markets in Ireland and the UK with revenues of ca. €18m
• TPD shares key suppliers with DHG in Canada and also adds new products and suppliers
• Important first step in building DHG presence and critical mass in Ireland and the UK
• Strong performance since acquisition with double digit revenue growth on a like-for-like basis
15 3. Sector Review -Seals Seals Segmentation
Aftermarket 55% of group revenues Next day delivery of seals, seal kits, 42% O-rings, gaskets, filters and cylinder components for the repair of heavy mobile machinery 764 employees
Industrial OEMs 63% North America Supply of seals, O-rings and custom moulded and machined parts 45% 37% EMEA Region to manufacturers of specialised (incl. Australasia) industrial equipment FY2015figures
Two resilient revenue streams
17 Aftermarket 20 Products & Applications
AFTERMARKET Products Next day delivery of seals, seal kits, O rings, gaskets, filters and cylinder components for the repair of heavy mobile machinery, eg: > Bulldozers & excavators Applications > Dump trucks > Agricultural tractors > Refuse collection trucks > Fork lifts
18 Aftermarket Business Model
> One-stop source for replacement seals and seal kits for all main brands of heavy mobile machinery
> Next day delivery from central Clearwater, Florida warehouse using UPS and Fedex – order by 8pm, delivery by 10.30am the following morning
> Seals typically sourced from same seal manufacturers who supply original equipment manufacturers (“OEMs”)
> High customer service and very competitive pricing compared to OEM dealer network and seals available for all brands of machinery
High service model for resilient repair and maintenance market
19 Industrial OEMs Products & Applications
PRODUCTS APPLICATIONS
Small engines Water meters Paint spray equipment
Irrigation Household Medical equipment appliances equipment
> Seals > O-rings > Custom moulded and machined parts
Essential products for specialised industrial applications
20 Industrial OEMs Business Model
> Design engineering of seals in conjunction with OEM
> Sourcing of proper compound, quality manufacturing, adherence to specifications, competitive cost
> Product testing and approval process
> Ex-stock availability of seals and sub-assemblies to match production schedules
> Vendor managed inventory programs tailored to meet customer needs
Using our technical expertise to develop specialised, purpose-built solutions for customers
21 Seals Potential for Growth
> In Aftermarket, continue to gain share in the North American market through superior marketing and product development SEALS > Build and expand the group of Industrial OEM Seals businesses in North America and internationally
> Build larger, broader-based Seals businesses in the EMEA and Asia Pacific regions
> Explore opportunities more broadly in Industrial Distribution in North America
22 Kubo Acquisition Extending EMEA Seals into Switzerland and Austria
• Acquired Kubo in March 2015 for net cash consideration of ca. £23m • Long established, leading supplier of seals, O-Rings, gaskets and moulded rubber parts • Large and diverse base of industrial customers in Switzerland and Austria • Kubo specialises in high value products for harsh environments and complex applications • Kubo’s high precision manufactured parts extend product line • Kubo opens up cross-selling opportunities for Diploma’s other EMEA Seals businesses
23 WCIS Acquisition Extending EMEA Seals into the Australasia region
• Acquired WCIS in Australia in October 2015 for maximum consideration of ca. £10m • Established supplier of sealing products and associated services used in complex and arduous applications • Core product capability in soft and metallic gaskets and mechanical seals • In-country operations serving nickel ore refining companies in New Caledonia • Important extension of the Group’s Seals activities into the Australasia region
24 4. Sector Review - Controls Controls Segmentation
Interconnect 75% Wiring, harness components and 27% of group revenues fasteners used in specialised applications in Aerospace, Defence, Motorsport, Energy, Medical 334 employees and Industrial Fluid Controls 60% UK
Temperature, pressure and fluid 32% Europe control products used in the Food, 25% Beverage and Catering industries 8% Rest of World FY2015 figures
A broad range of specialised, high performance products
26 Controls 26 Markets
Aerospace & 27% Defence Food & 19% Beverage
Motorsport 15%
Energy & 8% Utilities Medical & 4% Scientific
Industrial 27%
Focus on technically demanding applications
27 Controls 27 Interconnect Products
1. Specialised wiring 1 2 3 4 2. Moulded parts 3. Fasteners 4. Multicore cables 5. Identification 6. Relays & switches 5 6 7 8 7. Tubing 8. Termination devices 9. Connectors 10. Backshells 9 10 11 12 11. Screening braid 12. Bonding leads
A broad range of specialised, high performance products
28 Controls 28 Added value Services
Connector assembly Ident sleeve printing Kitting
Cable prototyping Tube cutting Wire spooling
Added value services cement relationships with customers
29 Controls Business Model
> Focus on refurbishment, upgrade and maintenance programmes for equipment in service
> Support major new build programmes where smaller quantities are required from stock e.g. for prototype or initial build stages
> 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 added value services
Full service support for equipment in service
30 Controls Potential for Growth
> Extend Interconnect product line and further penetrate specialised markets in Europe > In Specialty Fasteners build on strong positions in Civil CONTROLS Aerospace and Motorsport and expand in niche industrial markets > Continue to reposition Fluid Controls business towards growth segments of the Food & Beverage industry > Expand geographic reach outside the UK and Northern Continental Europe
31 Cablecraft Acquisition Extension of Interconnect activities
• Acquired Cablecraft in March 2016 for maximum net cash consideration of £26m
• Leading supplier of cable accessory products used to identify, connect, secure and protect electrical cables
• Supplies to range of industries including Electrical contracting, Control panels, Rail and signalling, Energy & Utilities
• Own-branded and manufactured products account for 70-80% of revenues
• Acquisition broadens the product range of the Controls businesses and industrial markets served and opens up opportunities for cross-selling
32 Specialty Fasteners Specialty Fasteners business is being built within Controls
Clarendon building a strong position in Civil Aircraft seating and interiors:
• Innovative VMI solution installed within production cells of major customer • Supply contract extended to additional manufacturing site with same customer • Business now broadening with sales to other customers across EMEA region
SFC acquisition has extended the scope of the Specialty Fasteners business: • Gives access to wider range of smaller, niche manufacturers • Adds own-brand fastener products (e.g. Aerocatch) for Motorsport applications
33 5. Strategy and Outlook The Diploma Investment Case Clearly defined strategy, consistent track record
GDP+ ORGANIC We focus on essential products and services, funded by customers’ REVENUE GROWTH operating rather than capital budgets, giving resilience to revenues
Our attractive operating margins are sustained through the ATTRACTIVE quality of customer service, the depth of technical support MARGINS and value adding activities
ACQUISITIONS TO Carefully selected, value enhancing acquisitions accelerate ACCELERATE GROWTH the organic growth and take us into related strategic markets
An ungeared balance sheet and strong cash flow fund STRONG CASH FLOW £ our growth strategy while providing healthy and growing dividends
VALUE CREATION We aim to create value by consistently exceeding 20% ROATCE
35 Current Trading and Outlook Continued headwinds to organic growth, strong contribution from acquisitions
GDP+ ORGANIC Organic growth hard won in challenging markets and low REVENUE GROWTH inflation environment
ATTRACTIVE Operating margins held back by transactional currency effects MARGINS in Healthcare businesses
ACQUISITIONS TO Encouraging acquisition environment, further opportunities ACCELERATE GROWTH targeted
Free cash flow remains very strong as working capital is STRONG CASH FLOW £ released
VALUE CREATION ROATCE remains above 20%
36 Appendix: FY2016 – Half Year Results Half Year Results Six months ended 31 March
x 2016 2015
Revenue £179.1m £163.2m +10%
Adjusted operating profit £30.8m £29.6m +4% Adjusted operating margin 17.2% 18.1%
Adjusted profit before tax £30.4m £29.3m +4%
Free cash flow £23.0m £12.4m +85% Acquisition spend £30.2m £35.0m Net debt £17.8m £14.9m
Adjusted earnings per share 19.5p 18.6p +5%
Total dividends per share 6.2p 5.8p +7%
38 Profit Before Tax Six Months ended 31 March
x 2016 2015 £m £m Revenue 179.1 163.2
Adjusted operating profit 30.8 29.6 Adjusted operating margin (%) 17.2% 18.1% Net interest expense (0.4) (0.3) Adjusted profit before tax 30.4 29.3 Acquisition related charges (4.8) (3.7) Gain on sale of properties 0.3 - Fair value remeasurements (0.3) 0.4 Reported profit before tax 25.6 26.0
39 Revenue Bridge Six Months ended 31 March
40 Foreign Exchange Volatility of UK£ continues to impact results on translation
Translational Impact (base currency GBP)
Change over Change over 1 year 3 years 2.2000 USD (3.2%) (5.3%) 2.0000 CAD (1.1%) 20.5%
EUR (8.7%) 6.7% 1.8000 Rates
USD AUD (3.8%) 28.3% 1.6000 CAD EUR Exchange 1.4000 AUD
1.2000
1.0000 Sep Sep Sep Sep Sep Mar 2011 2012 2013 2014 2015 2016
41 Adjusted Operating Margin Bridge Six Months ended 31 March
18.5%
18.0% 18.1%
17.5%
17.2% 17.0% -110bps +20bps -10bps +10bps
16.5%
16.0%
15.5% HY15 Transactional FX Acquisitions Sector mix Operating leverage HY16 FY15 & HY16
42 Foreign Exchange Healthcare gross margins impacted by weakening CAD and AUD against US$
Transactional Impact (base currency USD)
Change over Change over 1.5000 1 year 3 years
CAD 2.1% 27.3% 1.4000
AUD (0.7%) 35.5% 1.3000
1.2000 CAD
Exchange Rates AUD 1.1000
1.0000
0.9000 Sep Sep Sep Sep Sep Mar 2011 2012 2013 2014 2015 2016
43 Free Cash Flow Six Months ended 31 March
2016 2015 £m £m Adjusted operating profit 30.8 29.6 Depreciation 2.0 1.4 Working capital (1.0) (6.8) Pension and share schemes, net - 0.2 Operating cash flow, before acquisition expenses 31.8 24.4 +30% Interest paid, net (0.3) (0.2) Tax paid (8.7) (7.3) Capital expenditure (1.8) (2.8) Proceeds from sale of legacy properties 2.3 - EBT – share scheme funding (0.3) (1.7) Free cash flow 23.0 12.4 +85% Cash conversion 104% 59%
44 Net Debt Six Months ended 31 March
x 2016 2015 £m £m Free cash flow 23.0 12.4 Acquisition cash paid (29.5) (34.7) Deferred consideration (0.7) (0.3) Dividends (14.4) (13.3) (21.6) (35.9) Net cash brought forward 3.0 21.3 Exchange adjustments 0.8 (0.3) Net Debt at 31 March (17.8) (14.9) Comprising: Cash balances 22.2 18.6 Borrowings (40.0) (33.5)
45 Shareholders’ Funds
31 Mar 30 Sept x 2016 2015 £m £m Tangible assets and investments 24.7 24.7 Goodwill and intangible assets 167.6 129.5 Net working capital 67.5 59.9 Trading capital employed - reported 259.8 214.1
Working capital (% revenues) 18.0% 17.0% ROATCE 21.2% 23.9%
Retirement benefit obligations (10.0) (9.8) Acquisition liabilities (10.6) (6.6) Net (debt)/cash (17.8) 3.0 Minority interests and deferred tax (15.3) (11.1) Total shareholders’ equity 206.1 189.6
46 Market Consensus and Financial Calendar
Year ending 30 Sept 2014 2015 2016 Actual Actual Consensus* Upcoming events Trading Update Revenues £306m £334m £372.5m 31 August 2016
Operating Margin 18.5% 18.1% 17.2% Full Year Results 21 November 2016
Adjusted PBT £56.2m £59.6m £63.1m AGM 18 January 2017
Adjusted EPS 36.1p 38.2p 40.5p
Dividend per share 17.0p 18.2p 19.5p
*Compiled from the latest analyst forecasts as of 17 May 2016
47 Tel: +44 (0) 20 7549 5700 Bruce M Thompson Fax: +44 (0) 20 7549 5715 Chief Executive Officer Email: [email protected] Web: www.diplomaplc.com Nigel P Lingwood 12 Charterhouse Square Group Finance Director London EC1M 6AX
Tulchan Communications David Allchurch Martin Robinson Tel: +44 (0) 20 7353 4200 Email: [email protected]