Diploma Plc · LSE:DPLM
Diploma — H1 2017 Earnings Presentation
41 slides from Diploma's earnings presentation, May 15, 2017
Slide 1: Half Year Announcement
15 May 2017 Half Year Announcement Six months ended 31 March 2017
Slide 2: Contents
Contents Introduction and Overview Financial Results Business Review and Outlook Appendix Half Year Announcement 01
Slide 3: Introduction and Overview
DIPLOMA PLC Introduction and Overview
Slide 4: The Diploma Investment Case
The Diploma Investment Case Clearly defined strategy, consistent track record We focus on essential products and services, funded by GDP+ Organic customers’ operating rather than capital budgets, giving revenue growth resilience to revenues Attractive Our attractive operating margins are sustained
Slide 5: Overview of Half Year
Overview of Half Year Strong underlying growth further boosted by currency tailwind • Revenue, adjusted profit and adjusted EPS increased by over 20% • Strong underlying revenue growth, further boosted by currency tailwind • Strong free cash flow performance supports our growth strategy and healthy
Slide 6: Financial Results
DIPLOMA PLC Financial Results
Slide 7: Half Year Results
Half Year Results Six months ended 31 March 2017 2016 Revenue £217.3m £179.1m +21% Adjusted operating profit £37.4m £30.8m +21% Adjusted operating margin 17.2% 17.2% Adjusted profit before tax £37.1m £30.4m +22% Free cash flow £20.5m £23.0m -11% Acquisition spend £0.8m £30.2m Net cash/(debt) £14.8m
Slide 8: Financial Highlights
Financial Highlights Strong underlying growth boosted further by currency headwinds • Revenue and adjusted profit before tax increased by 21% and 22% respectively; adjusted EPS increased by 23% • Acquisitions net of disposals added 1% to Group revenues; currency movements increased revenues by 14%;
Slide 9: Revenue Bridge
Revenue Bridge Six Months ended 31 March 220 +£11.1m +£6.4m £217.3m +£24.6m -£3.9m 190 £179.1m 160 130 100 HY16 Exchange Acquisitions Disposal Underlying HY17 translation FY16 FY16 Half Year Announcement 08
Slide 10: Profit Before Tax
Profit Before Tax Six Months ended 31 March 2017 2016 £m £m Revenue 217.3 179.1 Adjusted operating profit 37.4 30.8 Adjusted operating margin (%) 17.2% 17.2% Interest expense (0.3) (0.4) Adjusted profit before tax 37.1 30.4 Acquisition related charges (4.3) (4.8) Gain on disposal of assets - 0.3 Fai
Slide 11: Adjusted Operating Margin Bridge
Adjusted Operating Margin Bridge Six Months ended 31 March +10bps 17.5% +20bps 17.2% -30bps 17.2% 17.0% 16.5% 16.0% 15.5% 15.0% HY16 Acquisitions Sector mix Operating HY17 FY16 leverage Half Year Announcement 10
Slide 12: Taxation and Earnings per Share
Taxation and Earnings per Share Six Months ended 31 March 2017 2016 Adjusted profit before tax (£m) 37.1 30.4 Reported taxation (8.9) (7.1) Adjustments (0.9) (0.8) Adjusted tax (9.8) (7.9) Effective adjusted tax rate 26.4% 26.0% Earnings per share (pence) Adjusted 23.9p 19.5p +23% Basic (Reported) 2
Slide 13: Free Cash Flow
Free Cash Flow Six Months ended 31 March 2017 2016 £m £m Adjusted operating profit 37.4 30.8 Depreciation 2.4 2.0 Working capital (7.1) (1.0) Pension and share schemes, net 0.2 - Operating cash flow, before acquisition expenses 32.9 31.8 +3% Interest paid (0.2) (0.3) Tax paid (8.9) (8.7) Capital exp
Slide 14: Net Cash
Net Cash Six Months ended 31 March 2017 2016 £m £m Free cash flow 20.5 23.0 Acquisition cash paid (0.2) (29.5) Deferred consideration (0.6) (0.7) Dividends (15.8) (14.4) 3.9 (21.6) Net cash brought forward 10.6 3.0 Exchange adjustments 0.3 0.8 Net Cash/(Debt) at 31 March 14.8 (17.8) Comprising: Cash
Slide 15: Acquisitions
Acquisitions Further acquisitions and encouraging pipeline • Acquisitions are an integral part of the Group’s growth strategy • £0.8m spent on acquisitions during the period, comprising £0.6m of deferred consideration and £0.2m on acquisition fees • In April 2017, a further £15.0m invested: – £13.6m
Slide 16: Acquisitions: Building larger, broader-based businesses
Acquisitions Building larger, broader-based businesses Life Seals Controls Sciences Acquisition spend 2017 • Abacus – Australia & • PSP – US New Zealand £15.8m Acquisition spend 2016 • WCIS – Australia & New • Cablecraft – UK Caledonia • Ascome – France £32.7m Acquisition spend 2015 • TPD – Ireland
Slide 17: Shareholders' Funds
Shareholders’ Funds 31 Mar 30 Sept 2017 2016 £m £m Tangible assets and investments 26.4 25.4 Goodwill and intangible assets 166.8 169.8 Net working capital 70.6 63.4 Trading capital employed - reported 263.8 258.6 Working capital (% revenues) 15.8% 16.6% ROATCE 23.0% 21.1% Retirement benefit obligat
Slide 18: Business Review
DIPLOMA PLC Business Review
Slide 19: Life Sciences Segmentation
Life Sciences Segmentation Healthcare 83% 57% Diploma Healthcare Group (“DHG”) supplies medical devices and related consumables and services to hospitals, private clinics and laboratories 13% 17% Environmental 30% The a1-group supplies environmental analysers, containment enclosures, Canada emission
Slide 20: Life Sciences Operating Results
Life Sciences Operating Results Six months ended 31 March 2017 2016 Revenue £57.9m £52.5m +10% Adjusted operating profit £10.3m £9.3m +11% Adjusted operating margin 17.8% 17.7% • Underlying revenues up 2%, with strong consumable and service revenues offsetting weaker capital equipment sales in certa
Slide 21: Life Sciences Sector Developments
Life Sciences Sector Developments • In Canada, good progress despite continuing budget pressures throughout the Provincial healthcare systems: – Core clinical diagnostics business delivered good growth as several capital projects were reactivated – AMT and Vantage combined into a single, strong surg
Slide 22: Abacus acquisition
Abacus acquisition Adds critical mass to Healthcare • Acquired Abacus in April 2017 for maximum consideration of A$26.0m (£15.7m) • Leading supplier of clinical diagnostics instrumentation and consumables to the Pathology and Life Sciences sectors • Strengths in Immunology and Biochemistry testing,
Slide 23: Seals Segmentation
Seals Segmentation Aftermarket 53% 56% Next day delivery of seals, seal kits, O-rings, gaskets, filters and cylinder components for the repair of heavy mobile machinery 10% Industrial OEMs 34% 47% Supply of sealing products and custom moulded and machined N.America parts to manufacturers of speciali
Slide 24: Seals Operating Results
Seals Operating Results Six months ended 31 March 2017 2016 Revenue £94.8m £79.2m +20% Adjusted operating profit £15.4m £13.4m +15% Adjusted operating margin 16.2% 16.9% • Underlying revenues increased by 2% after adjusting for currency on translation • Adjusted operating margins decreased by 70bps:
Slide 25: Seals Sector Developments – North America
Seals Sector Developments – North America • Aftermarket revenues increased by 6% as confidence returns to the Heavy Construction and Infrastructure sectors in the US • Positive impact from investment in sales and marketing resources; growth initiatives continue to gain traction including E-commerce
Slide 26: Seals Sector Developments – International
Seals Sector Developments – International • In Europe, FPE Seals and M Seals delivered strong growth in the core markets of UK, Scandinavia and the Netherlands • Good growth in both Aftermarket and Industrial OEM sectors; some recovery in demand from Oil & Gas markets; extension into Finland • Kente
Slide 27: Controls Segmentation
Controls Segmentation Interconnect 60% 76% Wiring, harness components and fasteners used in specialised applications in Aerospace, Defence, Motorsport, Energy, Medical and Industrial 9% Fluid Controls 24% 31% Temperature, pressure and fluid control products used in the Food, UK Beverage and Catering
Slide 28: Controls Operating Results
Controls Operating Results Six months ended 31 March 2017 2016 Revenue £64.6m £47.4m +36% Adjusted operating profit £11.7m £8.1m +44% Adjusted operating margin 18.1% 17.1% • Underlying revenues increased by 16%, although against background of weak comparatives • Acquisitions of Cablecraft and Ascome
Slide 29: Controls Sector Developments
Controls Sector developments • The Interconnect businesses increased underlying revenues by 18% • IS-Group sales resources were realigned and investment made in broadening the product range and developing digital media capabilities • In the UK, the IS-Rayfast delivered strong growth in its core Defe
Slide 30: Controls Sector Developments
Controls Sector developments • The Clarendon specialty fasteners business increased revenues by over 30% with growth strongly driven by Civil Aerospace • Ramp up of major business class seating programme at key customer, supplied though the “Clarendon AIR” replenishment system • Increased sales to o
Slide 31: Current Trading and Outlook
Current Trading and Outlook Robust underlying growth, further acquisition opportunities targeted • The Group has a proven business model and growth strategy: – Resilient “GDP plus” organic revenue growth and sustainable attractive margins – Carefully selected, value-enhancing acquisitions accelerate
Slide 32: Appendix
DIPLOMA PLC Appendix
Slide 33: 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 Seals Controls 29% of revenues 44% of revenues 27% of revenues Suppliers of consumables, Suppliers of s
Slide 34: Group Overview: Well diversified by geography
Group Overview Well diversified by geography North America revenues European revenues Rest of World revenues (by destination) by sector (by destination) by sector (by destination) by sector 42% of revenues 23% US 19% Canada 48% of revenues 23% UK 25 Continental % Europe 10% of revenues Life Sciences
Slide 35: 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 stable revenue growth attractive margins responsiveness • Focus on essential • Highly responsive • Entrepreneurial pr
Slide 36: Our Growth Strategy
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 strong customer – New facilities identity relationships and IT systems • Synergies managed • Tra
Slide 37: Our Corporate Objectives
Our Corporate Objectives Track record of delivering strong returns for shareholders Strong EPS growth Upper quartile TSR growth Progressive dividend growth 2016 41.9 2016 316 316 2016 20.0 2015 38.2 2015 233 2015 18.2 2014 36.1 2014 236 2014 17.0 +26% p.a. +11% p.a. +8% p.a. 2013 34.8 2013 218 2013
Slide 38: Financial KPIs: Five Year Trends
Financial KPIs Five Year Trends 2012 2013 2014 2015 2016 Revenue £260.2m £285.5m £305.8m £333.8m £382.6m Total growth +13% +10% +7% +9% +15% Organic growth +6% +4% +8% +1% +3% Operating margin 20.3% 19.0% 18.5% 18.1% 17.2% Working capital (% revenues) 16.5% 16.7% 17.2% 17.0% 16.6% Free cash flow £32
Slide 39: Foreign Exchange: Translational Impact
Foreign Exchange Volatility of UK£ continues to impact results on translation Translational Impact (base currency GBP) 2.20 Change over Change over 1 year 3 years 2.00 USD 13.0% 25.0% CAD 10.3% 9.4% 1.80 EUR 7.3% 3.3% USD AUD 12.3% 8.9% CAD 1.60 EUR AUD 1.40 1.20 1.00 Sep-12 Sep-13 Sep-14 Sep-15 Sep
Slide 40: Foreign Exchange: Transactional Impact
Foreign Exchange Healthcare gross margins impacted by weakening CAD and AUD against US$ Transactional Impact (base currency USD) Change over Change over 1.50 1 year 3 years CAD 3.1% 20.8% 1.40 AUD 0.8% 21.5% 1.33 1.30 1.31 CAD 1.20 AUD 1.10 1.00 0.90 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Mar-17 Half Ye
Slide 41: 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