Diploma PLC · LSE:DPLM
Diploma — Investor Presentation (June 2016)
49 slides from Diploma's investor presentation, June 2016
Slide 1: Corporate Presentation June 2016
Corporate Presentation June 2016
Slide 2: Contents
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
Slide 3: 1. Group Overview
1. Group Overview
Slide 4: Group Overview: Balanced portfolio of businesses
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
Slide 5: 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 FY 2015 figures 04
Slide 6: 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 7: Financial KPIs
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 8: 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 9: Acquisitions
Acquisitions Total expenditure exceeds £80m since January 2014 Financial year Acquisition spend Life Sciences Seals Controls 2016 £30.2m WCIS - Australia Cablecraft – UK Ascome - France 2015 £37.8m TPD - Ireland Kubo – Switzerland & Austria Swan Seals – UK 2014 £16.5m Chemzyme – Australia Kentek – F
Slide 10: 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 11: 2. Sector Review - Life Sciences
2. Sector Review - Life Sciences
Slide 12: Life Sciences Segmentation
Life Sciences Segmentation Healthcare Diploma Healthcare Group (“DHG”) 85% 31% of group revenues supplies medical devices and related consumables and services to the healthcare industries in Canada, Australia and Ireland & the UK 387 employees Environmental 59% Canada The a1-group supplies environme
Slide 13: Healthcare Principal Businesses
Healthcare 16 Principal Businesses Clinical Diagnostics Electrosurgery MI 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
Slide 14: Life Sciences Business Model
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 train
Slide 15: Life Sciences Potential for Growth
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 p
Slide 16: TPD Acquisition
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
Slide 17: 3. Sector Review - Seals
3. Sector Review - Seals
Slide 18: Seals Segmentation
Seals Segmentation Aftermarket Next day delivery of seals, seal kits, 55% 42% of group revenues 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
Slide 19: Aftermarket Products & Applications
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 >
Slide 20: Aftermarket Business Model
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 s
Slide 21: Industrial OEMs Products & Applications
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
Slide 22: Industrial OEMs Business Model
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 sche
Slide 23: Seals Potential for Growth
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 businesse
Slide 24: Kubo Acquisition
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
Slide 25: WCIS Acquisition
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 metal
Slide 26: 4. Sector Review - Controls
4. Sector Review - Controls
Slide 27: Controls Segmentation
Controls Segmentation Interconnect Wiring, harness components and 75% 27% of group revenues fasteners used in specialised applications in Aerospace, Defence, Motorsport, Energy, Medical and Industrial 334 employees Fluid Controls 60% UK Temperature, pressure and fluid 32% Europe control products use
Slide 28: Controls Markets
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
Slide 29: Interconnect Products
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
Slide 30: Added value Services
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
Slide 31: Controls Business Model
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 und
Slide 32: Controls Potential for Growth
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 t
Slide 33: Cablecraft Acquisition
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 Electr
Slide 34: 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 within production cells of major customer • Supply contract extended to additional manufacturing site with
Slide 35: 5. Strategy and Outlook
5. Strategy and Outlook
Slide 36: 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 37: Current Trading and Outlook
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 Health
Slide 38: Appendix: FY2016 – Half Year Results
Appendix: FY2016 – Half Year Results
Slide 39: 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
Slide 40: Profit Before Tax
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
Slide 41: Revenue Bridge
Revenue Bridge Six Months ended 31 March 40
Slide 42: Foreign Exchange
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% Exchange Rates EUR (8.7%) 6.7% 1.8000 USD AUD (3.8%) 28.3% CAD 1.6000 EUR 1.4000 AUD 1.2000 1
Slide 43: Adjusted Operating Margin Bridge
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
Slide 44: Foreign Exchange
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% Exchange Rates 1.3000 1.2000 CAD AUD 1.1000 1.0000 0.9000 Sep Sep Sep Sep Sep Mar 2011
Slide 45: Free Cash Flow
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) Capit
Slide 46: Net Debt
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: C
Slide 47: Shareholders’ Funds
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 oblig
Slide 48: Market Consensus and Financial Calendar
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 A
Slide 49: 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