Our purpose is to Essential Products consistently deliver value, empowering our people to service our customers and reward our stakeholders every day Value-add distribution Diploma’s strong and successful model distribution business model is developed around the proposition of Essential Products, Essential Solutions and Essential Values. The Essential Products that are distributed are critical to customers’ needs. The Essential Core Competencies Solutions – deep technical support in Life Sciences, responsive customer lue-ad service in Seals and value-add servicing Va d in Controls – differentiate the Group from its competitors and drive customer loyalty. The Essential Values focus on empowering our employees, who are best placed to understand and Supply chain deliver to their customers’ needs Product management The Group’s value-add distribution model is built on strong foundations and supported by its Core Competencies and Organisational Capability The Group will grow by focusing on its core developed markets and products, both organically and by acquisition. This strategy will continue to deliver Organisational Capability strong and consistent financial returns for shareholders Talent Essential Solutions Essential Values Diploma PLC is an international group supplying specialised products and services to a wide range of end segments in our three Sectors of Life Sciences, Seals and Controls End Markets lue-ad Va d Supply chain Operational Route to Commercial management excellence market discipline V alue-add Technology Facility Diploma PLC Annual Report & Accounts 2019 01 Financial Highlights Year ended 30 September 2019 Strong double-digit growth in revenues and earnings Revenue Statutory operating profit Statutory profit before tax £544.7m £84.1m £83.5m 2018: £485.1m 2018: £73.2m 2018: £72.7m +12% +15% +15% Adjusted operating profit1 Adjusted operating margin Adjusted profit before tax1,2 £97. 2m 17.8% £96.5m 2018: £84.9m 2018: 17.5% 2018: £84.8m +14% +30bps +14% Free cash flow3 Acquisition spend ROATCE £56.5m £78.3m 22.9% 2018: £60.5m 2018: £20.4m 2018: 24.5% 2019 2018 pence pence Adjusted earnings per share1,2 64.3 +14% 56.4 Basic earnings per share 54.7 +15% 47.5 Total dividend per share 29.0 +14% 25.5 Free cash flow per share3 49.9 -7% 53.5 1 Before acquisition related charges and Chief Executive Officer transition costs in 2018. 2 Before fair value remeasurements. 3 Before cash payments on acquisitions and dividends. Diploma PLC uses alternative performance measures as key financial indicators to assess the underlying performance of the Group. These include adjusted operating profit, adjusted profit before tax, adjusted earnings per share, free cash flow, trading capital employed and return on adjusted trading capital employed (“ROATCE”). All references in this Annual Report & Accounts to “underlying” revenues or operating profits refer to reported results on a constant currency basis and before any contribution from acquired or disposed businesses. The narrative in the Annual Report & Accounts is based on these alternative measures and an explanation is set out in notes 2 and 3 to the consolidated financial statements. Diploma PLC 02 Annual Report & Accounts 2019 Group at a Glance We focus on supplying essential products and services across a range of specialised industry Well diversified Sectors by geography and business area Life Sciences Seals The Life Sciences Sector Group revenue Employees The Seals Sector businesses businesses supply a range of supply a range of seals, gaskets, consumables, instrumentation 437 filters, cylinders, components and related services to the and kits used in heavy mobile healthcare and environmental machinery and specialised industries. 27% industrial equipment. Healthcare (85% of revenue): clinical North American Seals (61% of revenue): diagnostic instrumentation, consumables Aftermarket: next-day delivery of seals, and services supplied to hospital pathology sealing products and cylinder components and life sciences laboratories for the testing Primary growth drivers for the repair of heavy mobile machinery. of blood tissue and other samples. Surgical • Public and private medical devices, consumables and services healthcare spending Industrial OEM: sealing products, supplied to hospital operating rooms, GI/ custom-moulded and machined parts Endoscopy suites and clinics. • Ageing population and supplied to manufacturers of specialised increasing life expectancy industrial equipment. Environmental (15% of revenue): • Health & Safety and environmental analysers, containment MRO: high-quality gaskets and fluid sealing enclosures and continuous emissions Environmental regulation products supplied to end users with critical monitoring systems. services in high-cost failure applications. International Seals (39% of revenue): sealing products and filters supplied outside North America to Aftermarket and Industrial OEM customers as well as to Maintenance, Repair and Overhaul (“MRO”) operations. Diploma PLC Annual Report & Accounts 2019 03 North American European Rest of World revenue revenue revenue (by destination) by Sector (by destination) by Sector (by destination) by Sector Group revenue Group revenue Group revenue 40% 49% 11% 23% 17% 24% 25% UK US Rest of Canada Europe Locations Locations Locations Life Sciences Seals Controls Controls Group revenue Employees The Controls Sector businesses Group revenue Employees supply specialised wiring, cable, 1,007 connectors, fasteners and 601 control devices used in a range of technically demanding 40% applications. 33% Interconnect (63% of revenue): wiring, cable, harness components and cable accessories used in specialised technical Primary growth drivers applications in Aerospace, Defence, Primary growth drivers • General economic growth Motorsport, Energy, Medical, Rail and • General growth in the • Activity and spending levels Industrial. industrial economy in Heavy Construction and Specialty Fasteners (21% of revenue): • Activity and spending levels in Infrastructure specialty aerospace-quality fasteners Aerospace, Defence, Motorsport, • Growth in industrial supplied to Civil Aerospace, Motorsport, Energy, Medical and Rail Industrial and Defence markets. production • Equipment installation • Capital expansion projects at Fluid Controls (16% of revenue): and maintenance in Food & major customers temperature, pressure and fluid control Beverage and Catering products used in Food & Beverage and Catering industries. Diploma PLC 04 Annual Report & Accounts 2019 Chairman’s Statement which the Board has approved and which Adjusted operating profit increased by Our principal corporate has excellent potential to create further 14% to £97.2m (2018: £84.9m) reflecting objectives are to achieve shareholder value in the years ahead. the strong growth in revenues and an increase of 30bps in adjusted operating double-digit growth in Shortly after the year end Nigel Lingwood, margins to 17.8% (2018: 17.5%). Adjusted Group Finance Director, announced his profit before tax and adjusted EPS also adjusted EPS over the decision to retire from the Board at the close increased by 14% to £96.5m (2018: £84.8m) of the next financial year. Nigel joined the and 64.3p (2018: 56.4p), respectively. business cycle; generate Group in 2001 and has played a significant TSR growth in the upper role in pursuing the current strategy that On a statutory basis, the Group’s operating over the past 18 years has delivered double- profit was 15% ahead of last year at £84.1m quartile of the FTSE 250; digit growth in earnings and dividends. This (2018: £73.2m) after £13.1m (2018: £9.6m) has led to a growth in market capitalisation of acquisition related charges, largely and deliver progressive from £60m to over £1.9bn today. We look comprising amortisation of acquired forward to working with Nigel during his intangible assets. Last year’s statutory dividend growth final year with the Group, before wishing operating profit included one-off charges him a long and restful retirement. of £2.1m with respect to the previous targeting two times CEO transition process. Statutory profit dividend cover. Results before tax increased by 15% to £83.5m Group revenues increased in 2019 by 12% (2018: £72.7m) and statutory EPS was 15% to £544.7m (2018: £485.1m), benefiting up on last year at 54.7p (2018: 47.5p). Diploma has delivered another strong from both a strong 5% contribution from financial performance in 2019. The Group acquisitions and a currency tailwind of 2% The Group’s free cash flow remained robust again achieved double-digit growth in from translating the results of the overseas at £56.5m (2018: £60.5m); last year’s free adjusted earnings per share, generated businesses, caused by the sharp depreciation cash flow included £4.0m from the sale of strong free cash flow and maintained in UK sterling in the second half of the year. a small non-core US gasket business. The a robust balance sheet, despite having outflow of cash to support working capital invested a record amount in acquiring After adjusting for the contribution from increased this year to £9.4m (2018: £5.1m) new businesses this year. The results acquisitions completed both this year and was largely driven by the investment demonstrate the resilience of the Group’s and last year, net of a small disposal required in the US Industrial OEM business, businesses and the consistent delivery last year and for the currency effects on following implementation of a new ERP against the Group’s strategy that has translation, Group revenues