Corporate Presentation Contents Group Overview Life Sciences - - PowerPoint PPT Presentation

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%

• f revenues

29%

• f revenues

Suppliers of consumables, instrumentation and related services to the healthcare and environmental industries.

Seals

43%

• f 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 Overview

Well 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%

• f revenues

48%

• f revenues

11%

• f revenues

Life Sciences Seals Controls

23% US 18% Canada 22% UK 26% Continental

Europe

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

• rganisation

Carefully selected, value enhancing acquisitions accelerate the organic growth and take us into related strategic markets

Acquisitions to accelerate growth Strong cash flow

An 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

Life Sciences Seals Controls

Acquisition spend 2017

• Abacus – Australia &

New Zealand

• PSP – US
• Edco - UK

Acquisition spend 2016

• WCIS – Australia & New

Caledonia

• 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 Development

Consistent delivery against our corporate objectives

1 Ten-year compound

16.0 14.8 18.9 27.9 33.1 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 14.4 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. £1.3bn

January 2018

Strong growth in shareholder value

09

Financial KPIs

Five 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 revenue growth

12% p.a.

Operating margins

18%

Market Consensus and Financial Calendar

Upcoming events

Year ending 30 Sept 2017

Actual

2018

Consensus*

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

Clinical Diagnostics GI/Endoscopy Biotechnology Electro-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 testing for microbial contamination in food, dairy, water and 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 customers to establish a full understanding of their requirements – Customers generally not sealing specialists and require technical advice and guidance 19 – Design engineering of sealing solution in conjunction with OEM – Sourcing of appropriate compound to meet customer specification – Selection of seal manufacturer – Material testing and characterisation – Product testing and approval process – Quality control and regulatory compliance – Ex-stock availability of seals and sub- assemblies to match production schedules – Vendor managed inventory programs tailored to meet customer needs

Customer application Compound selection and product design Testing and approval Supply to OEM 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/Disposals FY16 & 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

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: investors@diplomaplc.com Web: www.diplomaplc.com Tulchan Communications David Allchurch Martin Robinson Tel: +44 (0) 20 7353 4200 Email: diploma@tulchangroup.com

Bruce M Thompson Chief Executive Officer Nigel P Lingwood Group Finance Director