Diploma Plc · LSE:DPLM
Diploma — FY2015 Earnings Presentation
45 slides from Diploma's earnings presentation, Nov 16, 2015
Slide 1: Preliminary Announcement
Preliminary Announcement Year ended 30 September 2015 16 November 2015
Slide 2: Contents
Contents Life sciences Seals Controls 1. Introduction and Overview 2. Financial Results 3. Business Review 4. Outlook and Prospects Preliminary Announcement 01
Slide 3: 1. Introduction and Overview
1. Introduction and Overview
Slide 4: 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 Preliminary Announcement 03
Slide 5: Group Overview: Well diversified by geography
Group Overview Well diversified by geography North America Europe Rest of World 46 25 46 23 23 8% % US % UK Life Sciences % % Seals Continental Controls of revenues1 21% Canada of revenues1 % Europe of revenues1 ¹By destination Preliminary Announcement 04
Slide 6: The Diploma Investment Case
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
Slide 7: Overview of 2015
Overview of 2015 Robust performance, acquisition led growth • Solid underlying revenue growth in challenging markets: – Economic headwinds constrained growth in North America and Europe – Adverse foreign exchange impact on translational basis • Robust operating margin performance despite transaction
Slide 8: Executive Management Group
Executive Management Group Building a broader leadership team • Executive Management Group (“EMG”) to be established over the course of 2016 • EMG will report to the CEO and comprise key senior managers of the main business clusters and certain Group functions • Iain Henderson’s COO responsibilities
Slide 9: 2. Financial Results
2. Financial Results
Slide 10: Overview of Results
Overview of Results Year ended 30 September x 2015 2014 Revenue £333.8m £305.8m +9% Adjusted operating profit £60.3m £56.7m +6% Adjusted operating margin 18.1% 18.5% Adjusted profit before tax £59.6m £56.2m +6% Free cash flow £40.3m £37.8m +7% Acquisition spend £37.8m £16.5m Net cash funds £3.0m £21
Slide 11: Financial Highlights
Financial Highlights Robust performance bolstered by strong contribution from acquisitions • Revenue and adjusted operating profit increased by 9% and 6% respectively; adjusted EPS increased by 6% • Acquisitions added 11% to Group revenues; currency movements reduced revenues by 3%; underlying reven
Slide 12: Profit Before Tax
Profit Before Tax Year ended 30 September x 2015 2014 £m £m Revenue 333.8 305.8 +9% Adjusted operating profit 60.3 56.7 +6% Adjusted operating margin (%) 18.1% 18.5% Net interest expense (0.7) (0.5) Adjusted profit before tax 59.6 56.2 +6% Acquisition related charges (7.4) (6.4) Fair value remeasure
Slide 13: Revenue Bridge
Revenue Bridge Year ended 30 September £m 340 +£3.7m +£32.4m 330 £333.8m 320 310 300 £305.8m -£8.1m 290 280 270 260 250 240 FY 14 Exchange Acquisitions Underlying FY 15 FY14 & FY15 Preliminary Announcement 12
Slide 14: Adjusted Operating Margin Bridge
Adjusted Operating Margin Bridge Year ended 30 September 18.5% 18.5% +60bps 18.0% -20bps 18.1% -50bps +30bps 17.5% -60bps 17.0% 16.5% 16.0% FY 14 Transactional FX Transactional Acquisitions Sector mix Operating Seals Seals restructure FY 15 FX leverage reorganisation Preliminary Announcement 13
Slide 15: Taxation and Earnings per Share
Taxation and Earnings per Share Year ended 30 September x 2015 2014 Adjusted profit before tax (£m) £59.6m £56.2m Reported taxation (14.4) (13.7) Adjustments (1.3) (1.1) Adjusted tax (15.7) (14.8) Effective adjusted tax rate 26.3% 26.3% Earnings per share (pence) Adjusted 38.2p 36.1p +6% Basic (Repo
Slide 16: Free Cash Flow
Free Cash Flow Year ended 30 September 2015 2014 £m £m Adjusted operating profit 60.3 56.7 Depreciation 3.5 2.5 Working capital (1.9) (4.6) Pension and share schemes, net 0.2 0.4 Operating cash flow, before acquisition expenses 62.1 55.0 +13% Interest paid, net (0.5) (0.3) Tax paid (15.4) (13.0) Cap
Slide 17: Cash
Cash Year ended 30 September x 2015 2014 £m £m Free cash flow 40.3 37.8 Acquisition cash paid (37.2) (16.4) Deferred consideration (0.6) (0.1) Dividends (19.9) (18.4) (17.4) 2.9 Cash brought forward 21.3 19.3 Exchange adjustments (0.9) (0.9) Net cash funds at 30 September 3.0 21.3 Comprising: Cash b
Slide 18: Acquisitions
Acquisitions Strong acquisition performance and promising pipeline • Acquisitions are an integral part of the Group’s growth strategy • £37.8m spent on acquisitions during the year: – £11.2m on 80% of TPD – extending the Healthcare business to European markets – £22.9m on 100% of Kubo – building a s
Slide 19: Acquisitions: A record year for acquisition spend
Acquisitions A record year for acquisition spend Acquisition Spend (£) 37.8m Life Sciences – TPD (80%) Seals – Kubo (100%); Swan Seals (100%); Kentek (10%) Preliminary Announcement 18
Slide 20: Shareholders’ Funds and ROATCE
Shareholders’ Funds and ROATCE As at 30 September x 2015 2014 £m £m Goodwill 89.3 80.2 Acquisition intangible assets 40.2 28.6 Tangible assets and investments 24.7 14.6 Net working capital 59.9 54.2 Trading capital employed - reported 214.1 177.6 Retirement benefit obligations (9.8) (4.3) Deferred t
Slide 21: 3. Business Review
3. Business Review
Slide 22: Our Sectors
Our Sectors Revenue by Sector and Destination LIFE SCIENCES SEALS CONTROLS 387 employees 764 employees 334 employees 31% of group revenues 42% of group revenues 27% of group revenues Canada Europe Rest of World North America Europe Rest of World UK Continental Europe Rest of World 13% 7% 8% 30% 32%
Slide 23: Life Sciences: Segmentation
Life Sciences Segmentation Healthcare 85% Diploma Healthcare Group (“DHG”) supplies medical devices and related consumables and services to the healthcare industries in Canada, Australia and Ireland & the UK Environmental The a1-group supplies environmental 15% analysers, containment enclosures, emi
Slide 24: Life Sciences: Operating Results
Life Sciences Operating Results Year ended 30 Sept 2015 2014 Revenue £103.1m £91.4m +13% Adjusted operating profit £21.0m £19.7m +7% Adjusted operating margin 20.4% 21.6% • Underlying revenues increased by 4% after adjusting for currency and acquisitions • TPD and Chemzyme added 15% to revenues but
Slide 25: Life Sciences: Sector Developments
Life Sciences Sector Developments • Pressure on Healthcare budgets from softer economic environment in Canada and Australia • Solid revenue growth from DHG’s Canadian businesses; Life sciences stronger second half of year as delayed capital equipment orders released • In Australia, double digit grow
Slide 26: TPD Acquisition
TPD Acquisition Strong performance since acquisition • 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 o
Slide 27: Seals: Segmentation
Seals Segmentation Aftermarket 55% Next day delivery of seals, seal kits, O-rings, gaskets, filters and cylinder components for the repair of heavy mobile machinery Industrial OEMs Supply of seals, O-rings and custom moulded and machined parts 45% to manufacturers of specialised industrial equipment
Slide 28: Seals: Operating Results
Seals Operating Results Year ended 30 Sept 2015 2014 Revenue £139.6m £119.8m +17% Adjusted operating profit £24.8m £21.7m +14% Adjusted operating margin 17.8% 18.1% • Acquisitions added 13% to revenue – Kentek, Kubo and four small UK bolt-ons • Underlying revenue growth of 4% adjusting for acquisiti
Slide 29: Seals: Sector Developments
Seals Sector Developments • In North America, slower trading activity in second half, impacted indirectly by cutbacks in Oil & Gas and Mining • Continued investment in e-commerce and seal machining Seals centres; Bulldog operations relocated to Tampa; new branch operation in Houston • In Europe, str
Slide 30: Kubo Acquisition
Kubo Acquisition Acquisition integrating well • 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 i
Slide 31: WCIS Acquisition
WCIS Acquisition Acquisition shortly after the year end • 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 gasket
Slide 32: Controls: Segmentation
Controls Segmentation Interconnect 75% Wiring, harness components and fasteners used in specialised applications in Aerospace, Defence, Motorsport, Energy, Medical and Industrial Fluid Controls Temperature, pressure and fluid control products used in the Food, 25% Beverage and Catering industries A
Slide 33: Controls: Operating Results
Controls Operating Results Year ended 30 Sept 2015 2014 Revenue £91.1m £94.6m -4% Adjusted operating profit £14.5m £15.3m -5% Adjusted operating margin 15.9% 16.2% • Underlying revenues decreased by 5% after adjusting for currency and SFC acquisition • Gross margins remained resilient across Control
Slide 34: Controls: Sector Development
Controls Sector Development • Interconnect businesses faced challenging industrial markets in the UK and Continental Europe and strong comparatives in Civil Aerospace and Motorsport Controls • Continued growth in specialised segments in Germany, including the Energy and Space satellite sectors • In
Slide 35: Specialty Fasteners
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 this year within production cells of major customer • Supply contract also extended to additional manufact
Slide 36: 4. Outlook and Prospects
4. Outlook and Prospects
Slide 37: Current Trading and Outlook
Current Trading and Outlook Continued headwinds to organic growth, favourable acquisition environment • The Group has a strong and proven business model and growth strategy which aims to deliver: – “GDP plus” levels of organic revenue growth and sustainable attractive margins – Carefully selected, v
Slide 38: Appendix
Appendix
Slide 39: Our Business Model
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 cu
Slide 40: Our Growth Strategy
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 faci
Slide 41: Our Corporate Objectives
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 270 270 2015 18.2 2014 36.1 2014 274 2014 17.0 2013 34.8 2013 253 2013 15.7 +15% p.a. +22% p.a. +15% p.a. 2012 33.1
Slide 42: Financial KPIs: Five Year Trends
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 £2
Slide 43: Foreign Exchange: Translational Impact
Foreign Exchange Strengthening of UK£ continues to impact results on translation Translational Impact (base currency GBP) Change over Change over 1 year 3 years 2.2 USD (7%) (6%) 2.0 CAD 12% 28% EUR 6% 8% 1.8 USD AUD 16% 39% CAD Exchange Rates 1.6 EUR 1.4 AUD 1.2 1.0 Sep Sep Sep Sep Sep Sep 2010 201
Slide 44: Foreign Exchange: Transactional Impact
Foreign Exchange Healthcare gross margins impacted by weakening CAD and AUD against US$ Transactional Impact (base currency USD) 1.50 Change over Change over 1 year 3 years CAD 20% 36% 1.40 AUD 25% 48% 1.30 Exchange Rates 1.20 CAD AUD 1.10 1.00 0.90 Sep Sep Sep Sep Sep Sep 2010 2011 2012 2013 2014 2
Slide 45: Contact Details
Tel: +44 (0) 20 7549 5700 Bruce M Thompson Fax: +44 (0) 20 7549 5715 Chief Executive Officer Email: investors@diplomaplc.com 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 7