Diploma Plc · LSE:DPLM
Diploma — H1 2014 Earnings Presentation
39 slides from Diploma's earnings presentation, May 12, 2014
Slide 1: Half Year Announcement
Half Year Announcement Six Months ended 31 March 2014 12 May 2014
Slide 2: Contents
02 Contents 1. Overview of Results LIFE SCIENCES 2. Half Year Highlights 3. Financial Results SEALS 4. Business Review and Outlook CONTROLS 5. Appendix: Group Overview
Slide 3: 1. Overview of Results
1. Overview of Results
Slide 4: The Diploma Investment Case
04 The Diploma Investment Case We focus on essential products and services, funded by GDP+ ORGANIC customers’ operating rather than capital budgets, giving REVENUE GROWTH resilience to revenues Our attractive operating margins are sustained through the ATTRACTIVE quality of customer service, the dep
Slide 5: Overview of Half Year
05 Overview of Half Year > Strong underlying performance across all three Sectors > Significant currency headwinds from exchange rate movements: > Strengthening of UK sterling has impacted the results of the overseas businesses (75% of Group revenues) on a translational basis > Weakening of C$ and A
Slide 6: 2. Half Year Highlights
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Slide 7: Half Year Results
07 Half Year Results Six Months ended 31 March 2014 2013 Revenue £148.6m £139.7m +6% Adjusted operating profit £27.8m £27.0m +3% Adjusted operating margin 18.7% 19.3% Adjusted profit before tax £27.6m £26.9m +3% Free cash flow £13.0m £12.1m +7% Adjusted earnings per share 17.5p 17.0p +3% Total divid
Slide 8: Financial Highlights
08 Financial Highlights > Underlying revenue and adjusted operating profit up by 9% and 7% respectively, after adjusting for currency effects and acquisitions > Significant strengthening in UK sterling limited growth in reported revenue and adjusted operating profit to 6% and 3%, respectively > Adju
Slide 9: Foreign Exchange
09 Foreign Exchange Average rates in UK Sterling H1 2014 H1 2013 US$ 1.65 1.58 +4% C$ 1.78 1.58 +13% Euro 1.20 1.20 +0% A$ 1.82 1.52 +20% > Translational impact on Half Year results has been to reduce Group revenues and adjusted operating profit by £7.3m and £1.8m respectively
Slide 10: Operational Highlights
10 Operational Highlights > Life Sciences underlying revenues up by 10% with good growth in both Healthcare and European Environmental businesses > Seals underlying revenues up by 5% reflecting strong performance from Industrial OEM businesses and modest growth in Aftermarket businesses > Acquisitio
Slide 11: Acquisitions
11 Acquisitions > Acquisitions remain an integral part of the Group’s growth strategy > £11m spent on acquisitions in Half Year: > Kentek Oy - extension of Aftermarket Seals into Finland, Russia and Baltic States > Ramsay Services & AB Seals – small bolt-on acquisitions in Seals > Sacee – small bolt
Slide 12: Acquisition Spend
12 Acquisition Spend £31.6m £28.2m £22.3m £12.2m £11.0m £11.4m £8.0m £7.9m £0.3m £2.2m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Half year
Slide 13: 3. Financial Results
3. Financial Results
Slide 14: Profit Before Tax
14 Profit Before Tax Six Months ended 31 March 2014 2013 £m £m Revenue 148.6 139.7 +6% Adjusted operating profit 27.8 27.0 +3% Operating margin 18.7% 19.3% Net interest expense (0.2) (0.1) Adjusted profit before tax 27.6 26.9 +3% Acquisition related charges (3.4) (2.8) Fair value remeasurements - (0
Slide 15: Underlying Results
15 Underlying Results Six Months ended 31 March Adjusted Revenue operating profit £m £m As reported – HY2014 148.6 27.8 Forex Translation 7.3 1.8 Acquisitions Kentek, Ramsay, AB Seals, Sacee (3.9) (0.5) Rayquick (0.2) (0.1) Underlying – HY2014 151.8 29.0 As reported - HY2013 139.7 27.0 Increase in u
Slide 16: Taxation
16 Taxation Six Months Ended 31 March 2014 2013 £m £m Adjusted profit before tax 27.6 26.9 Reported taxation (7.2) (7.1) Adjustments (0.5) (0.5) Adjusted tax (7.7) (7.6) Effective adjusted tax rate 27.9% 28.3% Earnings per share Adjusted 17.5p 17.0p +3% Basic (Reported) 14.9p 14.7p +1%
Slide 17: Free Cash Flow
17 Free Cash Flow Six Months ended 31 March 2014l 2013 £ml £m Adjusted operating profit 27.8 27.0 Depreciation 1.2 1.2 Working capital (6.6) (4.2) Pension and share schemes, net 0.2 0.4 Operating cash flow 22.6 24.4 -7% Interest paid, net (0.1) (0.2) Taxation (7.0) (8.9) Capital expenditure, net (0.
Slide 18: Net Funds
18 Net Funds Six Months ended 31 March 2014 2013l £m £ml Free cash flow 13.0 12.1 Acquisition cash paid (11.3) (1.5) Deferred consideration (0.1) - Dividends (12.2) (11.7) (10.6) (1.1) Net funds brought forward 19.3 7.9 Exchange adjustments (0.7) 0.5 Net funds 8.0 7.3 Comprising: Cash funds 13.0 14.
Slide 19: Shareholders’ Funds
19 Shareholders’ Funds 31 Mar 2014i 30 Sept 2013 £mi £m Goodwill 78.8 78.5 Acquisition intangible assets 29.7 26.7 Investment 0.7 0.7 Tangible assets 13.8 14.7 123.0 120.6 Net working capital 54.3 47.8 Trading capital employed 177.3 168.4 Retirement benefit obligations (4.5) (4.7) Deferred tax, net
Slide 20: 4. Business Review and Outlook
4. Business Review and Outlook
Slide 21: Our Sectors: Revenue by Sector and Destination
21 Our Sectors Revenue by Sector and Destination LIFE SCIENCES SEALS CONTROLS 31% of group revenues 37% of group revenues 32% of group revenues 338 employees 632 employees 305 employees 68% Canada 71% North America 57% UK 19% Europe 20% Europe 34% Europe 13% Rest of World 9% Rest of World 9% Rest of
Slide 22: Life Sciences Segmentation
22 Life Sciences Segmentation Healthcare Diploma Healthcare Group (“DHG”) 80% supplies medical devices and related consumables and services to the healthcare industries in Canada and Australia Environmental 20% The a1-group supplies environmental analysers, containment enclosures, emissions monitori
Slide 23: Life Sciences Operating Results
23 Life Sciences Operating Results Six months ended 31 March 2014 2013 Revenue £46.6m £46.7m - Operating profit £10.6m £11.0m - 4% Operating margin 22.7% 23.6% > Underlying revenues increased by 10% after adjusting for currency > Good growth in both Healthcare and Environmental businesses > Gross ma
Slide 24: Life Sciences Sector Developments
24 Life Sciences Sector Developments > Very strong growth in consumable and service sales across all Healthcare businesses > Somagen the strongest performer – growth with all key suppliers, boosted by roll-out of colorectal cancer screening programmes > Good progress in implementing major new ERP pr
Slide 25: Seals Segmentation
25 Seals Segmentation Aftermarket 55% Next day delivery of seals, seal kits, O-rings, gaskets and cylinder components for the repair of heavy mobile machinery Industrial OEMs Supply of seals, O-rings and custom 45% moulded and machined parts to manufacturers of specialised industrial equipment TWO R
Slide 26: Seals Operating Results
26 Seals Operating Results Six Months ended 31 March 2014 2013 Revenue £54.9m £50.5m +9% Operating profit £9.3m £9.1m +2% Operating margin 16.9% 18.0% > Underlying revenues increased by 5% after adjusting for currency and acquisitions: > Aftermarket businesses up by 2% > Industrial OEM businesses up
Slide 27: Seals Sector Developments
27 Seals Sector Developments > In Aftermarket, modest revenue growth in North America, constrained by extreme weather and re- equipping of rental fleets > In Europe, good organic growth in recovering markets; emerging markets in South and Central America and the Middle East weaker > Kentek acquisiti
Slide 28: Kentek Acquisition
28 Kentek Acquisition > Kentek Oy acquisition completed in January 2014 following approval of Russian competition authorities > Kentek is a specialised distributor of filters and related products; based in Helsinki Finland with operations in Russia and the St Petersburg Baltic States Tallinn Moscow
Slide 29: Controls Segmentation
29 Controls Segmentation Interconnect 70% Wiring, harness components and fasteners used in specialised applications in Aerospace, Defence, Motorsport, Energy, Medical and Industrial Fluid Controls Temperature, pressure and fluid 30% control products used in the Food, Beverage and Catering industries
Slide 30: Controls Operating Results
30 Controls Operating Results Six Months ended 31 March 2014 2013 Revenue £47.1m £42.5m +11% Operating profit £7.9m £6.9m +14% Operating margin 16.8% 16.2% > Underlying revenues also increased by 11% after adjusting for currency and acquisitions > Operating margins increased by 60bps to 16.8%. Gross
Slide 31: Controls Sector Developments
31 Controls Sector Developments > In Interconnect, underlying revenue increased by 10%, benefiting from improving industrial economies in the UK and Germany > Boost to Motorsport revenues from new F1 regulations and scheduled replacement of NASCAR harnesses > Building position as leading supplier of
Slide 32: Current Trading and Outlook
32 Current Trading and Outlook Group Life Sciences Seals > Strong underlying > 10% underlying revenue > 5% underlying revenue performance across all growth growth three Sectors > Good growth in both > Strong Industrial OEM > Resilient business model Healthcare and performance > Strong balance sheet
Slide 33: 5. Appendix: Group Overview
DIPLOMA PLC om 8 | GD rt 5 Appendix: Group Overview C) KS) (ia) )
Slide 34: Our Business Model
34 Our Business Model 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 > Dec
Slide 35: Our Sectors
35 Our Sectors Diploma PLC is an international group of specialised businesses supplying technical products and services to the following industries: LIFE SCIENCES SEALS CONTROLS 31% of revenues 37% of revenues 32% of revenues A BALANCED AND DIVERSE PORTFOLIO OF BUSINESSES BY SECTOR
Slide 36: Our Geography
36 Our Geography North America Europe Rest of World 50% 42% 8% of revenues¹ of revenues¹ of revenues¹ 26% US 23% UK 24% Canada 19% Continental Europe Life Sciences Seals Controls Healthcare Aftermarket Controls Environmental Industrial OEM ¹By destination
Slide 37: Our Growth Strategy
37 Our Growth Strategy ACQUIRE BUILD GROW > Fit with Group’s > Investment to build > Businesses maintain business model a solid foundation their distinct sales > Marketing led with for growth: and marketing identity strong customer > New facilities > Synergies managed relationships and IT systems wi
Slide 38: Our Corporate Objectives
38 Our Corporate Objectives STRONG DOUBLE-DIGIT UPPER QUARTILE PROGRESSIVE DIVIDEND EPS GROWTH TSR GROWTH GROWTH 2013 34.8 2013 525 2013 15.7 2012 33.1 2012 371 2012 14.4 2011 27.9 2011 240 2011 12.0 +16% p.a. +17% p.a. +39% p.a. 2010 18.9 2010 207 2010 9.0 2009 14.8 2009 121 2009 7.8 Adjusted0EPS i
Slide 39: Contact
Contact Bruce M Thompson Tel: +44 (0) 20 7549 5700 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