Diploma PLC

Good morning and welcome everyone to our trading update. Thanks for joining. I'm here as usual with Chris. I'll say a few words of summary and then we'll move swiftly on to Q&A. First, a few words on our performance. It's been a strong performance in quarter three, adding to our long-term track record of sustainable quality compounding. For the full year, we're upgrading our organic growth from 8% to 10%. And year-to-date, our organic growth grew by 10%. In controls, we continue to have great end-market support, aerospace, defense, energy, etc. And we're making good progress with market share, too. Windy City is doing very well in data centers. Peerless continues to do very well in aerospace. In life sciences, we continue to deliver well, consistent with the first half. And importantly, we're now seeing sequential improvement in seals as the second half progresses. Reported revenue for the year to date was 12%, 4% from acquisitions partly offset by FX. And operating margins are still strong in line with our full year guidance of 22%. Now a few words on acquisitions. We welcomed two new exciting businesses to the group, spending nearly 40 million at a blended eight times multiple. Hagenson we acquired. last month for 11 million pounds. It's a quality sealing solutions business, which will combine well with our existing M-seals business in Denmark. In life sciences, we acquired Alpha Laboratories for 28 million pounds. It's an important platform getting us into high-growth IVD end markets in the UK. It specializes in screening for bowel cancer and disease. And importantly, it allows us to bring our extensive IVD experience from elsewhere into the UK market. These businesses will contribute well to our future organic growth and at great returns. Overall, the acquisition pipeline is in very good shape. So we're pleased with the performance. We're confident it's going to be a great year for us. And we're feeling good about delivering sustainable quality compounding for the long term too. And we'll hand over for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question on today's call, please signal by pressing star 1 on your telephone keypad. Again, that is star 1 for your questions today. And our first question today comes from Anneliese Vermeulen from Morgan Stanley. Please go ahead, your line is open.

Good morning, Jenny. Morning, Chris. Two, hopefully, brief questions from me. So, firstly, the acquisitions that you've made, can you comment at all on what kind of growth those businesses are doing today and what is the upside opportunity? You've talked about the combination with sales for the Danish business, for example, but are there revenue synergies, cross-selling, etc.? Is that the usual diploma playbook you expect to execute on those deals? And then secondly, just on DIXA, when we spoke in May, you were talking about seeing an improvement through the first half. How has that trended through Q3? And has that continued to improve as well as, you know, alongside your improving U.S. sales business? Thank you.

Yes. Thanks, Annalise. Taking them in order. I mean, the growth rates for these businesses we expect to be high single digits for both of them, actually. So they'll be good contributors to our organic growth for the future. You asked about synergistic value to us, and both of them will have, but for quite different reasons. We have recently upgraded our facility in our existing MCLs business near Copenhagen, And that facility serves the Nordics and into Germany as well. And the acquisition of this business will allow us to lift and shift the facility for Hagenson into that new state-of-the-art facility. So as well as providing broader opportunities for growth, it also provides some kind of cost synergy for us as well. So overall, we're very pleased with that. The Alpha Laboratories, you know, we're pleased with it. healthcare acquisition actually we've done for a while. So we're very pleased and we're also pleased to get into the UK in a meaningful way. The most important thing is we continue to invest behind the exciting IVD markets. And we've got some real specialism in that space, Canada, Ireland, the Nordics and Australia. So it gets us into that space with a platform in the UK. And what I'm excited about is it will allow us on top of its existing business, it will allow us to push some of our expertise from elsewhere. through that business over the long term and into the UK market. Those kind of things don't happen overnight in the healthcare space, but over the long term, it gives us a platform entry for all of that expertise, so it should be exciting for growth for the life sciences sector. You asked about DIXA. We're very pleased with DIXA. When we bought it a few years ago, we did know that it was going to be slow for a while with the European markets. But the last two or three quarters have really picked up. We've transitioned in the process of most of the way through transitioning from family run to professional management team. Very happy with that management team. They're doing a great job. And the growth rates have been steadily picking up into kind of mid single digit range over the last few quarters. So we're really, really excited about the prospects ahead for Dixit.

Very clear. Thank you for the detail.

Thank you. And our next question now comes from William Blunt from Redburn. Please go ahead.

Good morning, both. Thank you for taking my question. The first question I have is about a comment you made at the interims where you noted that some improvements, you'd seen some improvements in the trading environment in industrial end markets in the US. Have these trends continued and would you call out any other of the sort of more industrial end markets that are performing well? Thanks. And then the second question I have is you previously said that the number of active negotiations you were in for M&A deals was higher than ever before. Obviously, you've completed two deals in this quarter. Would you say this is indicative of some broader changes you've seen from sellers generally? Thanks.

I'll take the last one first. Actually, what we've said at the interims wasn't that the short-term active deals pipeline was as high as ever. What we said was the long-term pipeline was as high as it's ever been. The overall markets, I think, for acquisitions has been a little slow, I would say, over the last six months. The obvious uncertainties in the market mean that sellers of good businesses are just hold back for a while. So it's been a fraction slow. Having said that, the long-term pipeline continues to go up. And I would say maybe, I don't know, it's probably a bit early to call a trend here, but it feels like the last kind of weeks, months or two, we've just seen a bit of movement, particularly in the US, getting a little better on the deal flow. So let's see if that's a trend that will continue. We continue to be disciplined, but at the same time, for the long term, we continue to be very positive about it. We have fragmented markets, good long term, pipeline, we've got good acquisition processes and we continue to have competitive advantage as a buyer of choice. So I'm not worried about it and I think for the long term we're in good shape on the acquisition front. Chris, do you want to say anything about industrial markets?

I guess the closest we've got as a barometer is our North American aftermarket sales business. And as Johnny said earlier, that has ticked up sequentially over the last probably two or three quarters quite nicely now. So where we are operating, we are seeing positive trends.

Great. Thank you so much.

Thank you.

from deutsche numis we now have david brockton with our next question please go ahead thanks um i was just wondering if you can give a bit more insight into how the controls um businesses performing um i guess i'm most interested in windy city wire that seemed to show an improvement um as you worked your way through the year has that continued thanks um yes windy cities winston is doing very well uh very pleased with it um it's continued

You know, it's the trends from the first half of the year, fairly, a fairly consistent way. Doing very well in data centers, which gets a lot of the headlines, but they're also doing well in other fast-growing markets like digital antenna systems, as an example. So, very pleased with how they're going. And across the rest of the controls sector, you know, obviously Peerless is doing well, but alongside that, Clarendon, our other aerospace fasteners business, doing very, very well. To our IS group, which has aerospace and defense exposure, going very, very well. We've still got more work to do on TIE, our acquisition from a few years ago into the automation space, making progress from a management perspective, but more to do to get that into decent growth. But overall, As I said at the top of the show, the control sector has got very good end market support, but also executing very well in this opportunity.

So we're pleased with how that's progressing. Thank you.

Thank you. And we're now moving on to a question from Sam Dindal from Stiefel. Please go ahead.

Morning, guys. Couple questions from me, please. Firstly, on the M&A, are you able to give sort of the revenue pre-deal just so we can sort of get that in our models and get a sense of the base there? And then secondly, I think you kindly, the H1 gave the organic growth ex-peerless. So I don't know if you'd be able to give a similar number for that this time. That'd be very helpful. Thank you.

Hi, Sam. Look, broadly speaking, the two deals together are kind of 30-ish million of revenue and five or six million of profit, that kind of area. In terms of what we said, ex-peerless, what we said before was the rest of the portfolio is trending in line with the financial model. And that continues. Obviously, we've hinted, we've told you Seals is a bit stronger. So, you know, we're slightly better than the model. That's as much as I'm going to give you this morning, Sam.

That's great. Thank you.

Thank you. And as a brief reminder, that is star one for your questions today. Up next, we move to question from Ryan Flight from Jefferies. Please go ahead.

Yeah, good morning all. Ryan Flight from Jefferies here, and free from me if I may. First of all, I wonder if you could give us any more color on the SEALs improving trajectory if there's any kind of end markets or anything in particular you'd point out, and if there has been any kind of deviation there as a result of the divestments that were in the first half. Second question, PLS is obviously still performing very well from a revenue growth perspective, but I wondered if you could also comment, is the margin still very strong there? And then the third and final question, just if you comment on copper prices, clearly there's quite a lot of volatility there. Is that just a straight pass-through cost for Windy City Wire? Is there anything else you'd note? Thank you.

I'll let Chris do copper in a second. Just taking your other two questions. I mean, like Seals, as we've said a couple of times now, sequentially we're just seeing some improvements. I think it's too early for us to raise the flag and celebrate at this stage. There's still lots of work for us to do. We've made quite a few changes in the US and we're really seeing the fruits of that now. Chris hinted maybe the market there is a little bit better than it was some months ago, but certainly we're also getting a bit better too. So the North American SEALs sector is leading the charge, if you like, in terms of the recovery. I guess we're seeing some recovery in PMIs in Europe, maybe a little bit more stability for us to operate in there. And as I said before, we're also doing better with our DXA management and execution. The UK is still tough for seals. I think that's just a broad comment on the UK market industrially right now. It's pretty tough. So we've still got a lot of work to do to get our R&G business in the UK into the shape that we want. But overall... We're seeing quarter by quarter some improvement, and I'm hoping, therefore, for some pretty good momentum as we break into the new year. You asked about Peerless. We're in great shape with Peerless. They continue to do well. It's been a great acquisition for us. The market is still very good, that aerospace market, if you're in the right space. Their proposition is excellent in winning them share, and our team are doing a great job So overall, it's been a great acquisition for us. Markets are still strong, as I said, but inevitably things will start to slow and it'll return to some kind of normality, which is what we bought it off, but still very good performance, probably something like 10% growth at mid-30s margin. The margin, that to your question, is a little bit higher still at the moment. But our working assumption is by the time we get into the early part of next year, it will have normalized.

Yeah, and copper, you're right, copper is very, very noisy at the moment. There's still a little unclarity over or lack of clarity on exactly what the latest announcement means, i.e. does it apply at all to wire or to cathode or to ore is still unclear. Notwithstanding that, the U.S. copper price, of course, reacted on the back of the tariffs. Now, Windy City basically just built that into their pricing model. So the working assumption is it is a straight pass through.

Thank you.

Thank you. And as a final reminder, that is Star 1 for your questions this morning. We will pause for a brief moment. There currently appears to be no further questions at this time. So I'd like to hand the call back over to you, Mr. Thompson, for any additional or closing remarks.

No more remarks to make. Thank you everyone for joining and we'll see you again in November. Thanks.