February 2018 Corporate Presentation
Contents Group Overview Life Sciences Sector Seals Sector Controls Sector Appendix: 2017 Full Year Results 01
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 Seals Controls 29 % 28 % 43 % of revenues of revenues of revenues Suppliers of consumables, Suppliers of seals, gaskets, Suppliers of specialised instrumentation and related filters, cylinders, components and wiring, connectors, fasteners services to the healthcare and kits for heavy mobile machinery and control devices for technically environmental industries. and industrial equipment. demanding applications. 03
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 41 % 48 % 11 % 23 % US 22 % UK 26 % Continental 18 % Canada of revenues of revenues Europe of revenues Life Sciences Seals Controls 04
The Diploma Investment Case Clearly defined strategy, consistent track record GDP plus underlying Acquisitions to revenue growth accelerate growth Carefully selected, value enhancing We focus on essential products and acquisitions accelerate the organic growth services, funded by customers’ operating and take us into related strategic markets rather than capital budgets, giving resilience to revenues Sustainable, attractive margins Strong cash flow An ungeared balance sheet and strong Our attractive operating margins are cash flow fund our growth strategy while sustained through the quality of providing healthy and growing dividends customer service, the depth of technical support and value adding activities Agile and responsive Value creation organisation We aim to create value by consistently exceeding 20% ROATCE We encourage an entrepreneurial culture in our businesses through our decentralised organisation 05
Acquire, Build, Grow Building larger, broader-based businesses Life Seals Controls Sciences • Abacus – Australia & • PSP – US Acquisition spend 2017 New Zealand £20.1m • Edco - UK • WCIS – Australia & New • Cablecraft – UK Acquisition spend 2016 Caledonia • Ascome – France £32.7m • TPD – Ireland • Kubo – Switzerland Acquisition spend 2015 & Austria £37.8m • Swan Seals – UK • Chemzyme – Australia • Kentek – Finland, • SFC – UK Acquisition spend 2014 Russia & Baltic States • Sacee – France £16.5m • Ramsay – UK • AB Seals – UK 06
Ten Year Development Consistent delivery against our corporate objectives Adjusted EPS growth (pence) TSR growth (TSR index 2007 = 100) Dividend growth (pence) +14% p.a. 1 +21% p.a. 1 +16% p.a. 1 23.0 672 49.8 20.0 41.9 18.2 543 17.0 38.2 36.1 15.7 34.8 33.1 14.4 406 401 375 27.9 12.0 9.0 265 18.9 16.0 7.5 7.8 14.8 72 87 172 148 08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17 Strong growth in Market ca. £1.3bn ca. £200m shareholder value capitalisation January 2018 January 2008 1 Ten-year compound 07
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% CAGR revenue Operating Free cash flow Average over growth margins ROATCE conversion five years: 12 % p.a. 18 % 24 % 98% 08 09
Market Consensus and Financial Calendar Year ending 30 Sept 2017 2018 Upcoming events Actual Consensus* Trading Update Revenues £451.9m £479.8m +6.2% 28 March 2018 Half Year Results Operating Margin 17.3% 17.4% +10 bps 14 May 2018 Adjusted PBT £77.5m £83.0m Trading Update +7.1% 29 August 2018 Adjusted EPS 49.8p 53.6p +7.6% Full Year Results 19 November 2018 Dividend per share 23.0p 25.3p +10% *Compiled from the latest analyst forecasts as of 14/02/2018 09
Life Sciences Sector
Life Sciences Segmentation Healthcare (84% 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 Primary growth drivers suites and clinics. Public and private healthcare spending in Canada, • Australasia and Ireland & UK Environmental (16% of revenues) Population ageing and increasing life expectancy • Environmental analysers, containment • Health & Safety and Environmental regulation enclosures and emissions monitoring systems. 11
Healthcare Focus on niche market segments Specialty Surgical Clinical Electro-Surgery MI Surgery GI/Endoscopy Biotechnology Diagnostics How doctors determine Operations completed Surgeons employ new Use of imaging Rapid testing disease and monitor with modern scalpels technologies for equipment to for microbial health through blood using high-frequency imaging and surgical diagnose and treat contamination in and tissue testing electric current to cut access to improve conditions of the food, dairy, water and coagulate tissue patient outcomes gastrointestinal tract and pharmaceuticals Market leading positions in well defined niches within broader medical device markets 12
Healthcare Competitive positioning – 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
Life Sciences Potential for growth > Increase share of specialised segments of Healthcare markets in Canada, Australia and UK/Ireland LIFE SCIENCES > 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 14
Seals Sector
Seals Segmentation North America Aftermarket (32% of revenues) Next day delivery of seals, sealing products and cylinder components for the repair of heavy mobile machinery. North America Industrial OEM (29% of revenues) Sealing products, custom moulded and machined parts supplied to manufacturers of specialised industrial equipment Primary growth drivers General economic growth • International (39% of revenues) Activity and spending levels in Heavy Construction • and Infrastructure Sealing products and filters supplied outside • Growth in industrial production North America to Aftermarket and Industrial • MRO expenditure in Mining and process industries OEM customers as well as to MRO operations. 16
Aftermarket Seals High service model for resilient repair and maintenance market 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 ‒ Refuse collection trucks ‒ Dump trucks ‒ Fork lifts ‒ Agricultural tractors 17
Aftermarket Seals Competitive positioning – 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
Industrial OEM Seals Sealing solutions for specialised industrial equipment manufacturers Customer Compound selection Testing and Supply to application and product design approval OEM customer Partnering with Design engineering of Ex-stock availability of – – Material testing and – – customers sealing solution in seals and sub- characterisation to establish a full conjunction with OEM assemblies – Product testing and understanding of their to match production – Sourcing of approval process requirements schedules appropriate compound – Customers generally – Quality control and to meet – Vendor managed not sealing specialists customer specification inventory programs regulatory compliance and require technical tailored to meet – Selection of seal advice customer needs manufacturer and guidance An essential partner in the product development process 19
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