Diploma PLC Corporate Presentation - FINAL. 14 …...supplies medical devices and related...
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Corporate Presentation June 2016
Transcript of Diploma PLC Corporate Presentation - FINAL. 14 …...supplies medical devices and related...
Corporate Presentation
June 2016
Contents
01
1. Group Overview
2. Sector Review – Life Sciences
3. Sector Review - Seals
4. Sector Review - Controls
Life sciences Seals Controls
Appendix: FY2016 - Half Year Results
5. Strategy and Outlook
1. GroupOverview
Group Overview
Diploma PLC is an international group of specialised businessessupplying technical products and services to the following industries:
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Balanced portfolio of businesses
Lifesciences
Seals
Controls
31%of revenues
42%of revenues
27%of revenues
FY 2015 figures
04
Group OverviewWell diversified by geography
¹By destination
North America Europe Rest of World
46%of revenues1
46%of revenues1
8%of revenues1
25% US
21% Canada
23% UK
23% ContinentalEurope
Life Sciences
Seals
Controls
FY 2015 figures
• Entrepreneurial culture• Decentralised
management model• Decisions made close
to the customer
Our Business Model
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• Focus on essential products and services
• Funded by customers’ operating rather than capital budgets
• “GDP plus” organic revenue growth
Essential Products= recurring income and stable revenue growth
• Highly responsive customer service
• Deep technical knowledge and support
• Value adding activities
Essential Solutions= sustainable andattractive margins
Essential Values= agility and responsiveness
We want to make ourselves essential to our customers
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Financial KPIsFive Year Trends
2011 2012 2013 2014 2015
Revenue £230.6m £260.2m £285.5m £305.8m £333.8mTotal 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 £25.0m £32.7m £31.6m £37.8m £40.3mCash conversion (%) 80% 88% 81% 93% 93%
ROATCE 25.4% 26.6% 25.8% 25.8% 23.9%
Average over five years:
CAGR REVENUE GROWTH
13% p.a.
OPERATING MARGINS
18-19%
FREE CASH FLOW CONVERSION
87%
ROATCE
26%
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• Fit with Group’s business model
• Marketing led with strong customer relationships
• Track record of stable profitable growth and cash generation
• Capable management• Target of 20% plus
pre-tax ROI
• Investment to build a solid foundation for growth:– New facilities
and IT systems– Increased working
capital– Strengthened
management
• Businesses maintain their distinct sales and marketing identity
• Synergies managed within business clusters:– Cross-selling– Joint purchasing– Shared back-office
operations
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Our Growth Strategy
BUILD GROWACQUIRE
Value enhancing acquisitions accelerate growth
Acquisitions
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 – Finland, Russia & Baltic States
Ramsay – UK
AB Seals – UK
SFC – UK
Sacee – France
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Total expenditure exceeds £80m since January 2014
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179
253
274
270
0 100 200 300
2011
2012
2013
2014
2015
09
Our Corporate Objectives
STRONG DOUBLE-DIGITEPS GROWTH
UPPER QUARTILE TSR GROWTH
PROGRESSIVE DIVIDEND GROWTH
12.0
14.4
15.7
17.0
0.0 5.0 10.0 15.0 20.0
2011
2012
2013
2014
2015
Dividends in pence
+15%
p.a.
TSR index, end Sept 2010 = 100
+22%
p.a.
270
27.9
33.1
34.8
36.1
38.2
0 10 20 30 40 50
2011
2012
2013
2014
2015
Adjusted EPS in pence
+15%
p.a.
18.2
Track record of delivering strong returns for shareholders
2. Sector Review - Life Sciences
85%
15%
Life Sciences Segmentation
Healthcare
Environmental
Diploma Healthcare Group (“DHG”) supplies medical devices and related consumables and services to the healthcare industries in Canada,Australia and Ireland & the UK
The a1-group supplies environmental analysers, containment enclosures, emissions monitoring systems and gas detection devices
85% of revenues from steadily growing healthcare markets
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31% of group revenues
387 employees
59% Canada
28% Europe
13% Australia/NZ
FY2015 figures
Healthcare 16
Where surgeons use imaging equipment to diagnose and treat conditions of the gastrointestinal tract.
Where surgeons operate with modern scalpels that use high-frequency electric current to minimise bleeding.
How doctors determine disease and monitor health through blood and tissue testing.
Clinical Diagnostics Electrosurgery GI/Endoscopy
Where surgeons employ new technologies for imaging and surgical access to improve patient outcomes.
MI Surgery
Focus on growing, niche Healthcare markets
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Principal Businesses
> 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 trained service engineers to maintain instrumentation
> A very cost effective route to market for medium sized, medical device manufacturers
Life SciencesBusiness Model
Market leading positions in well defined niches within broader medical device markets
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Life Sciences
> Increase share of specialised segments of Healthcare markets in Canada and Australia
> 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 products and technologies
> Continue to develop product and geographic spread of Environmental businesses
LIFE SCIENCES
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Potential for Growth
TPD Acquisition
• 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 ofca. €18m
• TPD shares key suppliers with DHG in Canada and alsoadds new products and suppliers
• Important first step in building DHG presence and critical mass in Ireland and the UK
• Strong performance since acquisition with double digit revenue growth on a like-for-like basis
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Extending DHG into Europe
3. Sector Review - Seals
55%
45%
Seals Segmentation
Aftermarket
Industrial OEMs
Next day delivery of seals, seal kits, O-rings, gaskets, filters and cylinder components for the repair of heavy mobile machinery
Supply of seals, O-rings and custom moulded and machined partsto manufacturers of specialised industrial equipment
Two resilient revenue streams
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42% of group revenues
764 employees
63% North America
37% EMEA Region (incl. Australasia)
FY2015figures
Aftermarket 20
Next day delivery of seals, seal kits, O rings, gaskets, filters and cylinder components for the repair of heavy mobile machinery, eg:
> Bulldozers & excavators
> Dump trucks
> Agricultural tractors
> Refuse collection trucks
> Fork lifts
AFTERMARKET Products
Applications
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Products & Applications
> 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 same seal manufacturers who supply original equipment manufacturers (“OEMs”)
> High customer service and very competitive pricing compared to OEM dealer network and seals available for all brands of machinery
AftermarketBusiness Model
High service model for resilient repair and maintenance market
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Industrial OEMs
Essential products for specialised industrial applications
PRODUCTS APPLICATIONS
> Seals> O-rings> Custom moulded and
machined parts
Small engines Water meters Paint sprayequipment
Irrigationequipment
Householdappliances
Medicalequipment
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Products & Applications
> 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 schedules
> Vendor managed inventory programs tailored to meet customer needs
Industrial OEMsBusiness Model
Using our technical expertise to develop specialised, purpose-built solutions for customers
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Seals
SEALS
> In Aftermarket, continue to gain share in the North American market through superior marketing and product development
> Build and expand the group of Industrial OEM Seals businesses in North America and internationally
> Build larger, broader-based Seals businesses in the EMEA and Asia Pacific regions
> Explore opportunities more broadly in Industrial Distribution in North America
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Potential for Growth
Kubo Acquisition
• 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
• Kubo specialises in high value products for harsh environments and complex applications
• Kubo’s high precision manufactured parts extend product line
• Kubo opens up cross-selling opportunitiesfor Diploma’s other EMEA Seals businesses
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Extending EMEA Seals into Switzerland and Austria
WCIS Acquisition
• 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 metallic gaskets and mechanical seals
• In-country operations serving nickel ore refining companies in New Caledonia
• Important extension of the Group’s Seals activities into the Australasia region
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Extending EMEA Seals into the Australasia region
4. Sector Review - Controls
Interconnect
Fluid Controls
Wiring, harness components and fasteners used in specialised applications in Aerospace, Defence, Motorsport, Energy, Medical and Industrial
Temperature, pressure and fluid control products used in the Food, Beverage and Catering industries
ControlsSegmentation
A broad range of specialised, high performance products
75%
25%
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27% of group revenues
334 employees
60% UK
32% Europe
8% Rest of World
FY2015 figures
Controls 26
Focus on technically demanding applications
Aerospace & Defence 27%
Food & Beverage 19%
Motorsport 15%
Energy & Utilities 8%
Medical & Scientific
4%
Industrial 27%
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Markets
Controls 27
1. Specialised wiring
2. Moulded parts
3. Fasteners
4. Multicore cables
5. Identification
6. Relays & switches
7. Tubing
8. Termination devices
9. Connectors
10. Backshells
11. Screening braid
12. Bonding leads
1 2 3 4
5 6 7 8
9 10 11 12
A broad range of specialised, high performance products
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Interconnect Products
Connector assembly Ident sleeve printing Kitting
Cable prototyping Tube cutting Wire spooling
Controls 28
Added value services cement relationships with customers
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Added value Services
> 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 under long term distribution agreements
> Strong technical knowledge to specify products for customer applications
> Ex-stock availability and full range of added value services
ControlsBusiness Model
Full service support for equipment in service
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Controls
CONTROLS
> Extend Interconnect product line and further penetrate specialised markets in Europe
> 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
> Expand geographic reach outside the UK and Northern Continental Europe
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Potential for Growth
Cablecraft Acquisition
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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 Electrical contracting, Control panels, Rail and signalling, Energy & Utilities
• Own-branded and manufactured products account for 70-80% of revenues
• Acquisition broadens the product range of the Controls businesses and industrial markets served and opens up opportunities for cross-selling
Specialty Fasteners
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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 same customer
• Business now broadening with sales to other customers across EMEA region
SFC acquisition has extended the scope of the Specialty Fasteners business:
• Gives access to wider range of smaller, niche manufacturers
• Adds own-brand fastener products (e.g. Aerocatch) for Motorsport applications
Specialty Fasteners business is being built within Controls
5. Strategy and Outlook
The Diploma Investment Case
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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+ ORGANIC REVENUE GROWTH
Carefully selected, value enhancing acquisitions acceleratethe organic growth and take us into related strategic markets
ACQUISITIONS TO ACCELERATE GROWTH
An ungeared balance sheet and strong cash flow fundour growth strategy while providing healthy and growing dividendsSTRONG CASH FLOW£We aim to create value by consistently exceeding 20% ROATCEVALUE CREATION
Our attractive operating margins are sustained through thequality of customer service, the depth of technical supportand value adding activities
ATTRACTIVE MARGINS
Current Trading and Outlook
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Continued headwinds to organic growth, strong contribution from acquisitions
Organic growth hard won in challenging markets and low inflation environment
GDP+ ORGANIC REVENUE GROWTH
Encouraging acquisition environment, further opportunities targeted
ACQUISITIONS TO ACCELERATE GROWTH
Free cash flow remains very strong as working capital is releasedSTRONG CASH FLOW£ROATCE remains above 20%VALUE CREATION
Operating margins held back by transactional currency effects in Healthcare businesses
ATTRACTIVE MARGINS
Appendix: FY2016 – Half Year Results
Half Year Results
x
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Six months ended 31 March
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
Adjusted earnings per share 19.5p 18.6p +5%
Total dividends per share 6.2p 5.8p +7%
Profit Before Tax
x
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Six Months ended 31 March
2016£m
2015£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 -
Fair value remeasurements (0.3) 0.4
Reported profit before tax 25.6 26.0
Revenue Bridge
40
Six Months ended 31 March
Foreign Exchange
41
Translational Impact (base currency GBP)
Change over1 year
Change over3 years
USD (3.2%) (5.3%)
CAD (1.1%) 20.5%
EUR (8.7%) 6.7%
AUD (3.8%) 28.3%
Volatility of UK£ continues to impact results on translation
1.0000
1.2000
1.4000
1.6000
1.8000
2.0000
2.2000
Sep2011
Sep2012
Sep2013
Sep2014
Sep2015
Mar2016
Exchange Rates
USD
CAD
EUR
AUD
Adjusted Operating Margin Bridge
18.1%
17.2%
15.5%
16.0%
16.5%
17.0%
17.5%
18.0%
18.5%
HY15 Transactional FX AcquisitionsFY15 & HY16
Sector mix Operating leverage HY16
42
Six Months ended 31 March
-110bps-10bps +10bps
+20bps
Foreign Exchange
43
Transactional Impact (base currency USD)
Change over1 year
Change over3 years
CAD 2.1% 27.3%
AUD (0.7%) 35.5%
Healthcare gross margins impacted by weakening CAD and AUD against US$
0.9000
1.0000
1.1000
1.2000
1.3000
1.4000
1.5000
Sep2011
Sep2012
Sep2013
Sep2014
Sep2015
Mar2016
Exch
ange
Rat
es
CAD
AUD
Free Cash Flow
44
Six Months ended 31 March
2016£m
2015£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)
Capital expenditure (1.8) (2.8)
Proceeds from sale of legacy properties 2.3 -
EBT – share scheme funding (0.3) (1.7)
Free cash flow 23.0 12.4 +85%
Cash conversion 104% 59%
Net Debt
x
45
Six Months ended 31 March
2016£m
2015£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:
Cash balances 22.2 18.6
Borrowings (40.0) (33.5)
Shareholders’ Funds
x
46
31 Mar 2016
£m
30 Sept2015
£mTangible assets and investments 24.7 24.7Goodwill and intangible assets 167.6 129.5Net working capital 67.5 59.9Trading capital employed - reported 259.8 214.1
Working capital (% revenues) 18.0% 17.0%ROATCE 21.2% 23.9%
Retirement benefit obligations (10.0) (9.8)
Acquisition liabilities (10.6) (6.6)
Net (debt)/cash (17.8) 3.0Minority interests and deferred tax (15.3) (11.1)Total shareholders’ equity 206.1 189.6
Market Consensus and Financial Calendar
Upcoming eventsYear ending 30 Sept 2014
Actual2015Actual
2016Consensus*
Revenues £306m £334m £372.5m
Operating Margin 18.5% 18.1% 17.2%
Adjusted PBT £56.2m £59.6m £63.1m
Adjusted EPS 36.1p 38.2p 40.5p
Dividend per share 17.0p 18.2p 19.5p
Trading Update 31 August 2016
Full Year Results21 November 2016
AGM18 January 2017
*Compiled from the latest analyst forecasts as of 17 May 2016
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12 Charterhouse SquareLondon EC1M 6AX
Tel: +44 (0) 20 7549 5700Fax: +44 (0) 20 7549 5715Email: [email protected]: www.diplomaplc.com
Tulchan Communications
David AllchurchMartin Robinson
Tel: +44 (0) 20 7353 4200Email: [email protected]
Bruce M ThompsonChief Executive Officer
Nigel P LingwoodGroup Finance Director
