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Corporate Presentation
February 2018
Contents
01
Group Overview
Life Sciences Sector
Seals Sector
Controls Sector
Appendix: 2017 Full Year Results
Group Overview
Group Overview
Diploma PLC is an international group of specialised businesses
supplying technical products and services to the following industries:
03
Balanced portfolio of businesses
Life sciences Controls
28%of revenues
29%of revenues
Suppliers of consumables,
instrumentation and related
services to the healthcare and
environmental industries.
Seals
43%of revenues
Suppliers of seals, gaskets,
filters, cylinders, components and
kits for heavy mobile machinery
and industrial equipment.
Suppliers of specialised
wiring, connectors, fasteners
and control devices for technically
demanding applications.
04
Group OverviewWell diversified by geography
North America revenues
(by destination) by sector
European revenues
(by destination) by sector
Rest of World revenues
(by destination) by sector
41%of revenues
48%of revenues
11%of revenues
Life Sciences Seals Controls
23% US
18% Canada
22% UK
26%ContinentalEurope
The Diploma Investment Case
05
Clearly defined strategy, consistent track record
We focus on essential products and services, funded by customers’ operating rather than capital budgets, giving resilience to revenues
GDP plus underlying revenue growth
Our attractive operating margins are sustained through the quality of customer service, the depth of technical support and value adding activities
Sustainable, attractive margins
We encourage an entrepreneurial culture in our businesses through our decentralised organisation
Agile and responsive organisation
Carefully selected, value enhancing acquisitions accelerate the organic growth and take us into related strategic markets
Acquisitions to accelerate growth
Strong cash flowAn ungeared balance sheet and strong cash flow fund our growth strategy while providing healthy and growing dividends
We aim to create value by consistently exceeding 20% ROATCE
Value creation
LifeSciences
Seals Controls
Acquisition spend 2017 • Abacus – Australia & New Zealand
• PSP – US
• Edco - UK
Acquisition spend 2016 • WCIS – Australia & NewCaledonia
• Cablecraft – UK
• Ascome – France
Acquisition spend 2015 • TPD – Ireland • Kubo – Switzerland& Austria
• Swan Seals – UK
Acquisition spend 2014 • Chemzyme – Australia • Kentek – Finland, Russia & Baltic States
• Ramsay – UK
• AB Seals – UK
• SFC – UK
• Sacee – France
Acquire, Build, Grow Building larger, broader-based businesses
£20.1m
£32.7m
£37.8m
£16.5m
06
07
Ten Year DevelopmentConsistent delivery against our corporate objectives
1 Ten-year compound
16.0
14.8 18.9
27.9 3
3.1
34.8
36.1
38.2 41.9
49.8
08 09 10 11 12 13 14 15 16 17
Adjusted EPS growth (pence)
+14%p.a.1
72
87
148
172
265
375
406
401
543
672
08 09 10 11 12 13 14 15 16 17
TSR growth (TSR index 2007 = 100)
+21%p.a.1
Dividend growth (pence)
+16%p.a.1
7.5
7.8
9.0
12.0 1
4.4 15.7 17.0 18.2 20.0
23.0
08 09 10 11 12 13 14 15 16 17
Market capitalisation ca. £200m
January 2008
ca. £1.3bnJanuary 2018
Strong growth in
shareholder value
09
Financial KPIsFive Year Trends
2013 2014 2015 2016 2017
Revenue £285.5m £305.8m £333.8m £382.6m £451.9m
Total growth +10% +7% +9% +15% +18%
Underlying growth +4% +8% +1% +3% +7%
Operating margin 19.0% 18.5% 18.1% 17.2% 17.3%
Working capital (% revenues) 16.7% 17.2% 17.0% 16.6% 15.0%
Free cash flow £31.6m £37.8m £40.3m £59.0m £55.7m
Cash conversion (%) 81% 93% 93% 124% 99%
ROATCE 25.8% 25.8% 23.9% 21.1% 24.0%
Average over
five years:
Free cash flow conversion
98%ROATCE
24%
08
CAGR revenuegrowth
12% p.a.
Operatingmargins
18%
Market Consensus and Financial Calendar
Upcoming eventsYear ending 30 Sept 2017
Actual
2018Consensus*
Revenues £451.9m £479.8m +6.2%
Operating Margin 17.3% 17.4% +10 bps
Adjusted PBT £77.5m £83.0m +7.1%
Adjusted EPS 49.8p 53.6p +7.6%
Dividend per share 23.0p 25.3p +10%
Trading Update 28 March 2018
Half Year Results
14 May 2018
Trading Update
29 August 2018
Full Year Results
19 November 2018
*Compiled from the latest analyst forecasts as of 14/02/2018
09
Life Sciences Sector
Life Sciences
11
Segmentation
Healthcare (84% of revenues)
Environmental (16% of revenues)
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 devises and related consumables and services supplied to hospital operating rooms, GI/Endoscopy suites and clinics.
Environmental analysers, containment enclosures and emissions monitoring systems.
Primary growth drivers• Public and private healthcare spending in Canada,
Australasia and Ireland & UK
• Population ageing and increasing life expectancy
• Health & Safety and Environmental regulation
Healthcare
12
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
13
Competitive positioning
Life Sciences
> Increase share of specialised segments of Healthcare
markets in Canada, Australia and UK/Ireland
> Leverage product portfolio across existing businesses and
extend into other specialised medical disciplines
> Pursue further acquisition opportunities in Europe and Asia
Pacific
> Continue to develop product and geographic spread of
Environmental businesses
LIFE SCIENCES
14
Potential for growth
Seals Sector
Seals
16
Segmentation
North America Aftermarket (32% of revenues)
North America Industrial OEM (29% of revenues)
Next day delivery of seals, sealing products and cylinder components for the repair of heavy mobile machinery.
Sealing products, custom moulded and machined parts supplied to manufacturers of specialised industrial equipment
International (39% of revenues)
Sealing products and filters supplied outside North America to Aftermarket and Industrial OEM customers as well as to MRO operations.
Primary growth drivers• General economic growth
• Activity and spending levels in Heavy Construction
and Infrastructure
• Growth in industrial production
• MRO expenditure in Mining and process industries
Aftermarket Seals
17
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
18
Competitive positioning
Industrial OEM Seals
– Partnering with customersto establish a full understanding of their requirements
– Customers generally not sealing specialists and require technical adviceand guidance
19
– 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 ofseals and sub-assembliesto 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
SEALS
> In Aftermarket Seals, continue to gain share in the North
American market through superior marketing, “Webstore”
e-commerce and new products
> Build and expand the group of Industrial OEM Seals
businesses in North America
> Explore opportunities more broadly in Industrial Distribution
in North America
> Build larger, broader-based International Seals business in
the EMEA and Asia Pacific regions
20
Potential for growth
Controls Sector
Interconnect (59% of revenues)
Fluid Controls (23% of revenues)
Wiring, harness components and cable
accessories used in specialised technical
applications in Aerospace, Defence, Motorsport,
Energy, Medical, Rail and Industrial.
Temperature, pressure and fluid
control products used in Food,
Beverage and Catering industries.
Controls
22
Segmentation
Speciality Fasteners (18% of revenues)
Speciality aerospace-quality fasteners
supplied to Civil Aerospace, Motorsport,
Industrial and Defence markets. Primary growth drivers• General growth in UK and Continental European
industrial economies (>90% of Sector revenues)
• Activity and spending levels in Aerospace,
Defence, Motorsport, Energy, Medical and Rail
• Equipment installation and maintenance in Food,
Beverage and Catering
Interconnect
23
Aerospace& Defence
Industrial Motorsport Energy &
Infrastructure
Medical
& Scientific
36% 29% 18% 15% 2%
Specialised wiring, cable harness components and fasteners
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
24
Competitive positioning
Controls
CONTROLS
> In Interconnect create a broader-based European cable
harnessing business and extend product range with own-
branded products
> In Specialty Fasteners build on strong positions in Civil
Aerospace and Motorsport and expand in niche industrial
markets
> Continue to reposition Fluid Controls business towards
growth segments of the Food & Beverage industry
> Explore opportunities outside the UK and Northern
Continental Europe
25
Potential for growth
Appendix:2017 Full Year Results
Overview of Results
x
27
Year ended 30 September
2017 2016
Revenue £451.9m £382.6m +18%
Adjusted operating profit £78.2m £65.7m +19%
Adjusted operating margin 17.3% 17.2% +10bps
Adjusted profit before tax £77.5m £64.9m +19%
Free cash flow £55.7m £59.0m -6%
Acquisition spend £20.1m £32.7m
Net cash funds £22.3m £10.6m
Adjusted earnings per share 49.8p 41.9p +19%
Total dividend per share 23.0p 20.0p +15%
Revenue Bridge
£382.6m
£451.9m+£34.9m +£8.5m
+£25.9m
200
250
300
350
400
450
500
FY16 Translational FX Acquisitions/DisposalsFY16 & FY17
Underlying FY17
28
Year ended 30 September
£m
Foreign Exchange
700
750
800
850
900
950
1000
1050
GBP vs G10 currency basket securities
29
Large depreciation in UK sterling provided translation gains
Sep 15 Sep 16 Sep 17
Profit Before Tax
x
30
Year ended 30 September
2017£m
2016£m
Revenue 451.9 382.6 +18%
Adjusted operating profit 78.2 65.7 +19%
Adjusted operating margin (%) 17.3% 17.2%
Interest expense (0.7) (0.8)
Adjusted profit before tax 77.5 64.9 +19%
Acquisition related charges (9.7) (10.3)
Fair value remeasurements (1.0) (1.3)
Gain on disposal of assets - 0.7
Reported profit before tax 66.8 54.0 +24%
Foreign Exchange
31
Impact on Healthcare gross margins from weakening of CAD and AUD against US$
0.9
1
1.1
1.2
1.3
1.4
1.5
Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 17
Transactional impact-base currency (US$)
C$ A$
Change over
1 year
Change over
3 years
C$ +5% -12%
A$ +2% -12%
Free Cash Flow
32
Year ended 30 September
2017£m
2016£m
Adjusted operating profit 78.2 65.7
Depreciation 4.7 4.5
Working capital (4.0) 6.3
Pension and share schemes, net 0.4 0.1
Operating cash flow, before acquisition expenses 79.3 76.6 +4%
Interest paid, net (0.4) (0.6)
Tax paid (19.3) (17.6)
Capital expenditure (3.3) (3.7)
Proceeds from sale of assets 0.1 4.6
EBT – share scheme funding (0.7) (0.3)
Free cash flow 55.7 59.0 -6%
Cash conversion 99% 124%
Free Cash Flow Conversion
33
Year ended 30 September
0
10
20
30
40
50
60
2012 2013 2014 2015 2016 2017
Free cash flow conversion (£m)
Free cash flow Adjusted earnings
88% 81% 93% 93% 124% 99%
Net Cash
x
34
Year ended 30 September
2017£m
2016£m
Free cash flow 55.7 59.0
Acquisition cash paid (19.5) (32.0)
Deferred consideration (0.6) (0.7)
Dividends (23.7) (21.4)
11.9 4.9
Net cash brought forward 10.6 3.0
Exchange adjustments (0.2) 2.7
Net cash funds at 30 September 22.3 10.6
Comprising:
Cash balances 22.3 20.6
Borrowings - (10.0)
Shareholders’ Funds and ROATCE
x
35
As at 30 September
2017£m
2016£m
Tangible assets and investments 24.0 25.4
Goodwill and intangible assets 176.8 169.8
Net working capital 68.4 63.4
Trading capital employed - reported 269.2 258.6
Working capital (% of revenue) 15.0% 16.6%
ROATCE 24.0% 21.1%
Retirement benefit obligations (9.9) (17.2)
Acquisition liabilities (6.6) (6.8)
Net cash funds 22.3 10.6
Minority interests and deferred tax (13.0) (11.7)
Total shareholders’ equity 262.0 233.5
12 Charterhouse Square
London EC1M 6AX
Tel: +44 (0) 20 7549 5700
Fax: +44 (0) 20 7549 5715
Email: [email protected]
Web: www.diplomaplc.com
Tulchan Communications
David Allchurch
Martin Robinson
Tel: +44 (0) 20 7353 4200
Email: [email protected]
Bruce M Thompson
Chief Executive Officer
Nigel P Lingwood
Group Finance Director