Good day and welcome to the Diploma Half-Year Results 2025 Webcast and Conference Call. At this time, I would like to turn the conference over to Johnny Thomson, Chief Executive Officer. Please go ahead.
Thank you. Good morning, everyone, and welcome to our first half results update. I'm joined, as usual, by our CFO, Chris Davies. It is the usual agenda. I'll start with an overview, and then Chris will take you through the numbers before I come back to talk about the business's questions and answers, as usual, at the end. Let's get straight into it. We're making good progress this year, and I'm really pleased with a very strong performance again in the half. Sustainable quality compounding, in my mind, is about the ambition to grow our earnings primarily through great organic growth, together with the disciplines that make it sustainable, primarily measured by returns, and to deliver these in the good times and the bad. Earnings growth of 23% at 19% returns in the half demonstrates well these compounding credentials.
The environment is, of course, a bit uncertain, but the quality and diversification of our portfolio, together with our differentiated local business model, allow us to navigate these times successfully. For these reasons, and with positive trading momentum into the second half, we're confident in upgrading our full-year expectations. Stepping back a little, I feel we're just getting started. I'm really excited about our ability to continue compounding for the long term, too. It's been a very strong performance across all of our metrics. We're ambitious about organic growth. It's our priority, so I'm really pleased with 9% in the half. Total revenue was up 14%. We increased operating margin by nearly 2 percentage points to 21.5%. As a result, EPS grew by 23%, continuing our long-term track record.
It's been a disciplined performance, too: 78% cash conversion, significant balance sheet headroom with leverage at 1.1 times, and improved return on capital to 19.1%. Overall, it's a very strong performance, and we've started the second half in the same manner. I'd like to thank all of my brilliant colleagues. The skill, energy, and passion that they bring to their businesses and the group every day is what drives our success. Building our capability is the most important part of my job. We invest in developing our people and build capability further by bringing in new talent. Our differentiated culture of commerciality, accountability, and continuous improvement is thriving. The mood is positive and energized. Have a look at this short clip from the Sales Excellence event we hosted last month. Seventy-five colleagues from all of our businesses came together in London. I think it really captures that positive energy.
Our people, they are our biggest asset. The engagement that we have, the mobilized workforce and colleagues that we have, is a huge part of our success. It's a competitive advantage.
Now hand over to Chris to take you through the numbers.
Good morning, everyone. I am delighted to present such a strong set of results once again. Our diversified portfolio and growth strategy are designed to drive strong, sustainable revenue growth, and this has been another strong half year. We have delivered 9% organic growth, and we are up 14% overall after acquisitions and FX. Controls increased organically by 16% as we continue to benefit from market share gains in the growing aerospace, defense, energy, and data center markets. Life Sciences delivered another strong half with 6% growth driven by particularly strong performance in our Canadian and Australian businesses. Seals was flat overall, with North America delivering a little growth, a resilient performance given ongoing market softness. That 9% organic number has been boosted a little by the strong growth of Peerless under our ownership. Excluding Peerless, organic growth remains strong and in line with our long-term financial model.
Acquisitions, net of the disposals we announced previously, added a further 7% revenue growth, and FX has impacted us by 2 percentage points. I now move to operating profit. We delivered an excellent 25% operating profit growth to GBP 157 million. This is driven both by the strong revenue growth I just outlined and, importantly, by ongoing margin improvement. We have improved operating margin by a further 190 basis points versus the first half of 2024 to a very strong 21.5%. Volume growth has, as usual, contributed more than pricing to that margin expansion, which you can see here, our ability to price confidently more than covering inflation. Accretive acquisitions, in particular Peerless, made a strong contribution to the group's operating margin.
Our businesses expand their margins through operating leverage as they grow, and we selectively reinvest a proportion of this to scale the businesses, building out management teams, enhancing systems, and upgrading facilities. We also invest to scale the group, and during this period, we have invested across a number of group teams to ensure we have got the right structures and capabilities to support future growth. Just to round off in a couple of points on the P&L, net interest expense increased to GBP 14 million, driven by the increase in average debt having self-funded last year's acquisitions. Adjusted profit before tax increased by 24% to GBP 143 million. With a tax rate of 24.5%, a little higher than last year, earnings per share increased by 23% to 80.2 pence, continuing our long-term track record of strong double-digit growth.
In line with our financial model, we've proposed a 5% increase in the dividend to 18.2 pence per share, continuing our long track record of progressive dividend growth, whilst conserving a larger proportion of the EPS growth for reinvestment. Now let's turn to the discipline side of sustainable quality compounding. Asset-light business model, coupled with capital discipline, drives strong and consistent cash conversion, and this half is no exception, with 78% conversion generating free cash flow of GBP 84 million. Just to remind you, our cash conversion is always a little lower in the first half of the year, primarily driven by the timing of some annual payments. This cash conversion has been delivered despite working capital increasing by GBP 38 million. That was driven primarily by increased inventory following the acquisition of Peerless.
After a net M&A inflow of GBP 30 million, driven by those three small disposals and paying GBP 57 million in dividends, that has driven a decrease in net debt to GBP 374 million, with leverage down to 1.1 times. If we touch now on capital returns, effective capital stewardship is central to sustainable quality compounding. Our returns metric, ROACI, is a fully loaded return on invested capital that removes any accounting distortions, i.e., we add back things like amortization of intangibles, and that keeps us honest to generate returns on the total cash originally invested. Clear capital allocation priorities, organic investment to scale our businesses around 2% of revenue, targeted acquisitions to accelerate growth, a progressive 5% dividend growth, and balance sheet discipline to manage leverage below 2 times EBITDA. We target ROACI in the high teens, and over the last five years, we've delivered average returns of 18%.
That's a testament to the quality of the acquisitions we've made over the years. We're particularly pleased with our performance this half, adding 110 basis points versus the first half of 2024 to achieve 19.1% ROACI, nearly twice our cost of capital. I'd now like to say a word or two on tariffs. Of course, the dynamics around tariffs continue to evolve, but as we stand here today, we are well positioned. There are inherent characteristics in our model which, when coupled with proactive action our businesses have taken, mitigate the impact of tariffs for them and may even confer a degree of competitive advantage. Most importantly, the fundamentals of our businesses position us well for these types of challenges.
Our value-add solutions, low component costs with a service wrapper into critical end applications, mean that input price inflation is proportionately less of an issue, and we can pass on those costs to customers. Our businesses are mostly local, with around 85% of purchase and sales across the group made in the same country. In particular, we have limited exposure to China, having deliberately pivoted away a number of years ago to shorten our supply chains. Where we do have imports into the U.S., the vast majority of these are covered by the U.S., Mexico, Canada agreement and hence tariff-exempt. Before handing back to Johnny, let me end on our increased guidance for the year. Diploma has an excellent track record of compounding growth and strong returns, and this performance is underpinned by the quality and diversification of our portfolio, coupled with our value-add local business models.
Add to that the strong first half and strong momentum into the second half, we are raising both organic growth and margin expectations for the year. We expect to deliver full-year organic growth of 8%, up from 6% previously guided, and we expect to deliver full-year operating margin of 22%, up from 21%. Taken together, that gives a meaningful EPS upgrade versus previous guidance. With that, I'll hand back to Johnny to give you a little bit more color.
Thanks, Chris. Before moving on to our businesses, I'd like to spend some time reminding you of our strategy. In summary, it's about building high-quality, scalable businesses for sustainable organic growth. We drive organic growth in what I call our three buckets: positioning behind structurally growing end markets, penetrating further in core developed geographies, and extending our product range to expand addressable markets. Small concentrated businesses stepping out of their niche, taking their specialized proposition to new places. They all have fantastic opportunities to grow. This strategy drives exciting sustainable organic growth, scale, and increased resilience. This is complemented by selective high-quality acquisitions that drive future organic growth at great returns. Our acquisitions add to the quality and diversification of the portfolio. Our value-add model and our powerful decentralized culture are our key differentiators.
As we go from small to large, we naturally have to do things differently while always preserving these differentiators. Building effective scale is key to the strategy, developing our businesses and group to become better and not just bigger, and as such to sustain long-term delivery. The financial outcome of this strategy is sustainable quality compounding, ambitious earnings growth sustained through disciplined returns in the good times and the bad. Over the next few slides, I'll explain why I feel we're just getting started. Sustainable quality compounding has to be led by organic growth, and the group has a long history of healthy 5%. Our runway ahead is significant. Our products and services lend themselves well to many exciting structurally growing end markets such as aerospace and defense, energy, automation, data centers, renewables, water, infrastructure, IVD, and many others. All of these provide growth, tailwind, and resilience.
Our businesses are still small and have massive geographic and product white space. We're now better at identifying and prioritizing these opportunities. To execute on them, we're focused on combining our traditional key account skill set with more business development. The sales excellence event you saw earlier is an example of us working on sales structure, process, capability, and mindset. Our organic growth numbers over more recent years show that we're making progress, and it's exciting that we have a long runway of opportunity and that we can get even better at execution. Acquisitions are important to the strategy too. They accelerate our organic growth, and together with selective disposals, they build the quality and the diversification of the portfolio. We've accelerated capital deployment into acquisitions with GBP 1.3 billion spent on 42 in the last six years. It can't be just any business at any price.
Discipline is critical to sustaining our compounding, represented by our 19% returns. Discipline also means that our progress with acquisitions will not always be linear, and that is okay. Over the long term, the fundamentals support a healthy deal flow. It is a fragmented market, and our pipeline is as strong as ever. Our process works, and we continue to be the buyer of choice. The prospects are therefore very good. Our organic growth and acquisition strategy have built quality and diversification into the group's portfolio, and this means far greater resilience. With many end market exposures at any given time, some will do better than others. That is natural. For us, healthcare was tough a few years ago, manufacturing now, but aerospace, defense, energy, data centers have been strong.
These end markets' dynamics will inevitably change, but as our strategy plays out, the diversification of the portfolio means that the group's organic growth becomes more structural. With a two-speed economy right now, our results for the first half demonstrate that resilience. The businesses themselves are also resilient. The critical nature of our products and services builds sticky relationships. The local supply chains helping us through the tariff world and the increasingly diversified revenue streams makes them more resilient as they scale. Diploma has always had strong fundamentals, and over the last five or six years, we've built from that a bigger and better group, more ambition, more quality, more diversification, more resilience, more discipline, and as a result, more dependable long-term compounding outcomes. A few words now on the sectors. Performance and controls has been excellent with organic growth of 16%.
Windy City delivered double-digit organic growth with core building automation performing well, complemented by accelerated growth in digital antenna systems and data centers. Our international controls businesses delivered 19% organic growth as we continue to increase market share in growing end markets. TIE has been slower than I would like with a surprisingly soft automation market. In the current markets, I would expect that to improve. I've been really pleased with how Clarendon and IS Group have done in recent times, both high-quality businesses with strong teams operating successfully in markets such as aerospace, defense, energy, and medical. It's a little over a year since we acquired Peerless, and the performance of the business has been fantastic. More on that in a second. Excellent margin progression in the sector reflects Peerless accretion, good pricing, and operational leverage.
Controls has great momentum into the second half, and I feel very confident in the sector's outlook. Peerless has been a great addition to the portfolio. It plays a critical role in the aerospace value chain. As such, it is subject to really encouraging demand dynamics with a long backlog of new builds and an active refer market. With challenging supply chains, Peerless is well positioned with quality and availability of inventory. The management team are brilliant, and it's been a great first year, returns now passing 20%. The first half of this year has been exceptional, stronger than we'd expected, with particularly difficult supply chains accentuating our competitive advantage. This will ease in time, and our performance will naturally moderate towards the long-term track record of high single-digit growth at accretive margins. Some end markets for seals have been tougher in recent times, manufacturing and construction particularly.
In that context, the performance has been resilient with flat organic growth in the half, modestly improving in Q2. The reported results are impacted by two small disposals made in Q1. In North America, VSP has been performing well, and we're starting to see improvements in our Hercules seals aftermarket and OEM businesses. Demand appears to be a bit better for now in the U.S. In international seals, Europe has been tough. DICSA has done well to increase market share since we bought it, and we're seeing some early signs of a return to growth. The U.K. has been particularly hard in the last six months or so in construction and agriculture, but I'm encouraged by the work we're doing in R&G and expect sequential improvements to come. Margins in the sector have improved by 30 basis points on the back of price mix and disciplined cost management.
We always like to use the tougher moments to invest in accelerating the scaling journey and be better businesses when markets improve. We have been doing that in seals. We are developing our management team really well. The sector is well- positioned for long-term investment in markets such as infrastructure, renewables, and water. We are expanding our product capability into fluid power to grow our addressable market too. I expect the performance to improve as the second half progresses, and I am really positive about the longer-term prospects. Life sciences performed strongly in the first half with organic growth of 6%. Market conditions in our core IVD and med tech spaces have been gradually improving as healthcare systems recover their investments and resource. I spoke about our investment in seals during more challenging market conditions.
A few years ago, we did the same in life sciences in the subdued trading environment post-pandemic. We strengthened management and brought previously standalone businesses together in new state-of-the-art facilities, and we're now reaping the benefits. The team's work on business development, life cycle management, and product cross-pollination is supporting strong performance and prospects. In Canada, we've completed the integration of three businesses. We've seen great progress in our endoscopy business, and we continue to build a very healthy pipeline. In ANZ, the group, the growth has been excellent for the last 18 months as they benefit from a very healthy and diversified product portfolio. We've done particularly well recently in New Zealand. In Europe, we've been exiting some low-performing parts of the product portfolio with intense business development activity starting to improve growth and margin. The longer-term prospects remain exciting.
Our chosen markets of IVD, med tech, and scientific have encouraged encouraging investment trends, and I'm pleased with the work the team are doing to grow market share. To summarize, it's been a very strong first half performance. We have good momentum into the second half. Our differentiated local business models give us confidence in this uncertain environment, and the increasing quality and diversification of our portfolio makes the group's organic growth more structural. The acquisition pipeline is good, and we'll execute it with discipline. We're upgrading our numbers for the year, and I'm excited about our long-term prospects for sustainable quality compounding. That will hand over to your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We will pause for a brief moment while waiting for them to queue in. Thank you. We will now take our first question from David Brockton of Deutsche Numis. Your line is open. Please go ahead.
Good morning. Two questions, please. Firstly, on the U.S. more generally, there has obviously been lots of political changes in the U.S. over the past few months. Can you just talk about what you are seeing on the ground, whether you have seen any sort of discernible changes in customer activity and how you are feeling, I guess, across the businesses and particularly the North American seals businesses as we look forward? Secondly, in terms of the acquisition pipeline, it has been quite a half for acquisition spend. I just wondered if you can just touch on how opportunities are progressing through the pipeline and give a bit more detail there, please. Thank you.
Yeah. Sure. Okay. So I'll start with thanks for that, Dave. I'll start with that on the U.S. Look, we remain really, really positive about the U.S. I have to say, of course, that you have to understand that our lens hits very specific sectors and not necessarily everywhere in the U.S. From where I stand, we remain very, very positive short, medium, and long term. In the short term, actually, we've seen, as I said a few minutes ago, we've seen trading environment improve a little in the short term. Now, of course, we're in very strong underlying markets like data centers and aerospace. Even in the more industrial markets and our North American seals businesses, as I alluded to earlier, we've seen some improvement in the trading environment in those more industrial markets as well, which has been really encouraging.
In the medium term, whatever you think about what's going on at the moment politically over there, I guess if the objective is to bring more business onshore to the U.S., more manufacturing, more industry, etc., that can only be of benefit to us across the group and particularly in North American seals. Over the long, long term, look, for me, this remains the biggest and best market. The scale, the growth, the service nature of it, the homogenous nature of it means that it will continue to be our number one market. You asked about acquisitions. Yeah, look, I mean, I guess we've been a bit spoiled because we've done a hell of a lot over the last four or five years, probably way more than our financial model. We've done it with a good track record, driving good organic growth and great returns.
Also, as I said, building the quality of the portfolio. It has been a very successful five or six years. Of course, discipline is always key to that because it is not just about quantum, it is about quality. As a result of that, I have said many, many times, our acquisition flow will not always be linear. We are not going to force it to do any old acquisition to satisfy a model. It is about the quality. If the quality is not there in the market at any given period of time, that is okay. We have great organic growth to see as our priority anyway. We are not going to force it, and we are not going to make mistakes. The track record is based on really, really good discipline. What I would say, though, is in closing, the fundamentals, as I said a minute ago, are really, really good.
There's nothing to stop us from continuing on our deal flow over the years ahead. Fragmented markets and the pipeline is as big as ever. Our acquisition process is really robust. Pleased with that. As a buyer of choice, we have a real competitive advantage too. I'm not worried, and you shouldn't be worried about the fact that the first half may have been a bit slower. I'm very, very confident in the long term, we'll continue to deliver not just a healthy volume of deals, but high-quality deals.
Thanks very much.
Thank you. We will now take our next question from Daniel Cowan of HSBC. Please go ahead.
Good morning. Good morning, guys. I've got a question, please, on central costs. You've made some investment in the center there, and I was curious as to which areas you've beefed up and what you'd expect the impact of that to be. The second question is on the working capital investment in the first half from Peerless and how that might then unwind second half of the year.
Thanks, Dan. Look, I'll take both of those. Central costs, there's three factors there, really. One is, and we've always talked about scaling the group as well as scaling the businesses. You've got something of the law of small numbers going on here. We take teams of one and turn them into teams of two. That can be across things like treasury. It can be in elements of HR. It's all part of staying pace with the expansion of the group. This is a million miles from trying to grow a big center. When you start very small, incremental changes make a difference. The second factor is on things like LTIPs, the long-term incentive payments that we hold for not just the people here, but some of the senior folk across the group. There's been a slight expansion in who is eligible.
Of course, as we deliver strong results, that number goes up a bit. Thirdly, there are some one-off issues such as the video you saw earlier, the once, well, for us, once in three years leadership event. Rest assured, we're not trying to build some kind of central palace here. On working cap, yeah, we went up in the half. Some of that is natural working capital growth as the business grows, but inventory is up a bit. Primarily, that is Peerless. That is, of course, fundamental to their business model, as Johnny was saying earlier. Having that consistency of availability in a very choppy supply chain is a critical aspect of why they're doing so well. As to whether there's any particular unwind in the second half, nothing structural. I wouldn't get carried away with that.
It's just a core to continue to serve their growing customer base. Got you. Thank you.
Thank you. We will now move on to our next question from Annelies Vermeulen of Morgan Stanley. Line is open. Please go ahead.
Hi, good morning, Johnny. Good morning, Chris. Three questions, please. Firstly, I wanted to ask about your decentralized model in the context of the current environment. Given how quickly the landscape is changing on an almost daily basis, how do you think about balancing the decentralized nature of the group and the relative autonomy that your businesses have versus perhaps the need to maintain more oversight than usual, given some of the volatility in some of your end markets? Secondly, just as a follow-up on the earlier question on acquisitions, the number of targets and active opportunities has gone up versus November. What's driving that? Are you seeing more deals coming to market? Have you widened your scope? If you could comment on that. Lastly, just a short one on DICSA. You mentioned early signs of returning to growth.
Just wondering what's driving that, what's behind that, and do you expect that to further accelerate in the second half? Thank you.
Okay. That's a lot in there. Thank you, Annelies. Your first question is a great question. It's probably going to take me a couple of minutes to answer that question because there's quite a bit to it, and it's a very, very important question. If you'll just bear with me on it, we'll come to two and three in a second. First of all, for us, our culture is a key differentiator, and it's what makes our compounding sustainable. That culture and how we approach running the group, you mentioned volatility. It doesn't really change how we approach things, whether we're in the good times or the bad. We have a decentralized approach, which means that we have really fantastic, brilliant local management teams. They're very accountable people, very commercial, humble, and focused on continuous improvements, and therefore very good at execution. It makes them dynamic.
It makes them agile, and therefore they tend to do very well in volatile times as a result of that. I mean, I saw that clearly through the pandemic. If you take the scope out a little bit to a more group perspective, look, I mean, I've grown up in large decentralized service-led groups and learned a few lessons along the way. The first thing I'd say about it is that sometimes people get confused and think that decentralization means isolation, and it absolutely does not. You can have local accountability and all the benefits of that that I've just talked about, but you can also have that with a group that's very, very close to those businesses and providing the right oversight and direction. We get, for example, weekly financials that come through. We have very, very frequent touchpoints across the group.
I always know at any given time for every single business what the strategic performance and people points are at all times. Just touching for a second on some of those principles that I mentioned that I believe help us to execute in a big decentralized organization. I mean, the first one is you have got to keep it simple and very, very focused. We tend to have strategic and performance frameworks that are very simple. I talked about them 10 minutes ago, and that makes it easier across a group to execute. Secondly, you have got to have a span of control which allows great communication. There is only one person between me and each business, and those people have to be supremely upskilled, great executive team.
That means that with that good communication, you can align the organization much, much better, much, much clearer, and that makes execution much crisper. The final point I'd say on it in terms of principles is you might have heard me talk about this before, is how we balance the rational and the emotional. Really, really important. What I mean by that is we're very, very close to the businesses, and we're managing through standard business reviews all the time, as you would expect, twice a year, three times a year, sometimes even more. That helps us to drive performance execution. However, being very close to the emotion of the business, the mood of the business, the individuals, the collective, to get a sense of what's going on out there in a big decentralized group allows you to course correct, to adjust, to accelerate, to decelerate.
Therefore, it allows you to react that much better to volatility and changing circumstances and therefore to execute better in our world of today. This, for me, is really about a performance culture in a large decentralized group. I've seen it in action in a 20 or 30 billion group over 50 countries. I know for damn well sure that we can make it happen in this group now and in the future. That means good times and bad. You asked about number of deals. Yes, the number of deals in the long-term hopper has gone up, I think, from about 3,000 to about 3 and a half, I think, something like that. There is nothing magical in that, Annelise. It's just hard work. I mean, we do not for a second believe that we have got absolute visibility of every single target that could potentially be out there.
We're constantly working to build out our knowledge and our understanding. As we do that, more and more comes into the hopper. That just gives me confidence that over time, stuff will be coming down to the sharp end. Importantly, as I talked about, it gives us optionality. It allows us to maintain discipline. It is not just a numbers game. It is a quality game as well. The more that is in that hopper, the more chances we have of doing good deals and high-quality deals. Finally, you asked about DCSA. I think when we bought DCSA, whatever it was now, 18 months ago, no, probably a bit more than that now, nearly two years, I think we said at the time it was going to be flat for a period.
I mean, we knew the European kind of more industrial markets were a bit tougher. I've been really, really pleased. I guess it's testament to the quality of the business that they've kept their head above water at roughly flat for most of that time, winning market share in quite tough environments. I guess what we're seeing now is a couple of things. We're seeing not necessarily improving European markets, but certainly they're not getting any worse. That gives us a stable platform from which to play. We've also made some nice changes to the management team there with the new CEO and CFO who've come in over the last 12 or months or so.
Really, really pleased with the work they're starting to do, particularly getting a lot sharper with our sales and sales excellence, which I think is just starting to bring us into some growth. It's too early for us to declare long-term victory at this point, but I certainly suspect that over the course of the rest of this year, we'll start to see modest improvement in the growth rates.
Thank you very much, Johnny, for the detail. Strategy is clearly working very well. Thank you.
Thanks, Annelies.
Thank you. We'll now take our next question from Ryan Flight of Jefferies. The line is open. Please go ahead.
Good morning. Oh, Ryan Flight from Jefferies here. Just three from me, if I may. The first one on disposals, it looks like it is three in the first half. I wondered if you could give us some kind of direction on the decision-making behind those disposals and the way we think about that on an ongoing basis. Number two, I wondered if you could also comment on the data center theme. I know you have kind of previously noted a bit of a centralized effort to push the data center growth, and it is clearly working. I wondered if you could give us some color there. And then just a final question. I wondered on Peerless. I know it is clearly doing very, very well, but I wondered if you could quantify it. So growth rate, margin, and what exactly it contributed in the half. That would be really useful. Thank you.
Thanks. Thanks for that. I guess I'll take the first two. Chris, do you want to take the first one?
Yeah.
Just on disposals, yeah, I think we announced at the year-end, in January, sorry, at the first quarter, we disposed of three very small businesses, one in controls and two in seals. I think that brings our total over the last five years to seven, if memory serves me right. It is just a good part of portfolio discipline. I was talking to Annelise's question earlier about keeping things simple and keeping things focused. Part of that is making sure your portfolio is neat and tidy and focused. The reason we look to dispose businesses to preserve that portfolio focus is not necessarily because of short-term performance, because that is our job to fix that. The reason we look at disposing businesses is because, one, it might not be our business model. Maybe it is too manufacturing, or maybe it is commoditized rather than value-add products, etc., etc.
If it's not our business model, then we're not keen. Secondly, and very importantly, we've got to have a right to grow it. Sometimes you can be in a particular space, and there's others that are just far, far bigger, commanding, etc., etc., and they might be in a better position to take that business forward. We have to recognize that with maturity and move on. Those would be the reasons why we dispose of businesses. I feel like we've done most of what we have to do. The quality on the portfolio is excellent. There might be one every now and again. Who knows? For now, I certainly feel satisfied with what we've done. On data centers, yeah, look, I mean, with data centers, they've contributed really, really nicely to Windy City's growth. It's still not a huge part of the group.
The group's subject to so many end markets, but it's made a nice contribution to Windy City over the last year or two, and we're very, very pleased with that. Windy City continues to expand their market share in data centers, which is great. We have started to bring some of that expertise to Europe, particularly to the U.K. It's still early days at the moment, so I'm not claiming that it's making a meaningful impact to numbers at this stage, but we're starting to get a bit of headway in the U.K., particularly through our Shoreline wire and cable business in the U.K. I think that's going to be exciting for them over the medium term as well. Peerless, Chris.
Yeah. I just want to start before going directly to your question, just with the fundamentals underpinning Peerless. I think before we talk about a couple of months of performance, as Johnny said earlier, the fundamentals of this aviation market, the quality that Peerless brings, the advantaged supply that we have mean that we're very, very confident of years and years and years of high single-digit growth at very accretive margins. Now, you're right, of course, that at the moment, we are benefiting not only from that, but from some exceptional performance in the spot market. We operate a portfolio, Ryan, so I'm not going to give you the exact numbers. What I would say is last year, when we did publish Peerless numbers, margin was in the sort of mid-40s. It's broadly the same now.
I would say that the rest of the portfolio is running in line with our model. If you back out from that, you'll get a number in the high 20s for Peerless. That's great.
Thank you very much. Appreciate it.
Thank you. We will now take our next question from James Rose of Barclays. The line is open. Please go ahead.
Hi. I've got two pleas if I may. One is on Windy City-wide data centers. I would have thought you're up against sort of bigger competitors here, and you're pitching to bigger customers, perhaps with bigger RFP processes as well. Does growth in data centers come with a lower margin profile, or is Windy City managing to manage that? Secondly, just on tariffs as well, I just wondered through sort of April, May, what activity from customers you've specifically seen or that they've told you about? Any particular influx of new customer inquiries, people looking to resource, or any obvious pull forward of orders, or anything you can comment on there?
Yeah. Thanks, James. I'll take those. Data center margin structure is there or thereabouts for our business in line with Windy City's underlying margin structure. There are lots and lots of aspects of cabling that go into data centers. We do not do the sort of high-voltage, large-format cabling that the big, big boys do. We do fire suppression, AV, access control, high-quality custom-designed fit to spec. We are in our usual niche, but you are right to say that they are bigger sales than the typical one. Windy has evolved a little bit its sales process to get specced into drawings and specced in. If you win one with Microsoft, you get a few, do you not? We are expecting that to be a little stickier, but margin profile is fine, and Windy City's in its same old niche.
In terms of tariffs, I mean, the key thing here is just to remind you that there's not a lot of this in our business. Mostly, our businesses are carrying on operating local for local. Of course, where we've got it around the edges, we have priced. We're seeing bits and pieces of suppliers passing on things to us. For the most part, and again, this is such a small fraction of our business. For the most part, that makes sense, and we're taking that and then passing it on. Just around the edges, you see a few things that aren't quite right. There is a bit of an administrative job of work to go through here, but the key thing I'd bring you back to, it's right on the margins of our business.
Great. Thanks, Chris. Thank you.
Thank you. Once again, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We will now move on to our next question from William Blunt of Redburn Atlantic. The line is open. Please go ahead.
Hi. Good morning, both. Thank you for taking my questions. The first one is just on the updated four-year guide. It obviously implies a slight sequential organic slowdown in H2. Is this sort of driven by an expectation that the macro conditions are going to get slightly worse, or is it just a normalization of some of the outsized performance you've had in H1, coupled with some sort of tougher comparisons, obviously, of H2 last year? The second question, a quick question on the life sciences on sort of the M&A pipeline. You've previously talked about a possible opportunity of the life sciences expanding into the U.S. markets or maybe the U.K. markets. Is this still an area of focus for you, or have the market dynamics shifted away from that slightly? Thank you.
I'll take the first one. Look, there's a number of factors, as ever, in giving guidance, and I don't want to try and be too precise here because there are 4 or 5 or 10 different ways in which we might get to 8%. Perhaps the biggest single thing to call out, though, is Peerless is beginning to lap itself, isn't it? We've passed the one-year anniversary. Just on life sciences, yeah, we have called out U.S. and U.K. in the past as potentials, but without any real necessary commitment, I would say. Funny because, I suppose, as you would expect, post-pandemic, life sciences pipeline just slowed down a little bit. Tougher healthcare markets mean that sellers just hold on to their assets for a bit longer. So we did see slightly slower times with the pipeline in healthcare.
Interestingly, that has picked up quite a bit over the last, I'd say, year or so. Our pipeline in life sciences is looking better. Yes, some of that might be in the U.K. and U.S. We are looking at that. It is very, very important, again, that we remain disciplined. It has to be in very specialized segments of those markets to avoid the kind of large-scale direct type of business. Over time, it is possible, yes, that we might get into those markets. Let's see.
All right. Thank you very much.
Thank you. We will now take our next question from Samuel Dindol of Stifel. The line is open. Please go ahead.
Morning, guys. A couple of questions from me, please. Firstly, given the strong financial performance across organic growth and margins, is there sort of upside to the medium-term sort of targets over time, do you think? I mean, is the business now just structurally higher margin post-Peerless, and hence the 20% plus maybe could be a bit higher? Secondly, given the cash-generative nature of the business, if there are no bigger deals in the next 12 months, would you consider cash returns? Or given your pipeline, would you let leverage get very low, but still think M&A is the best sort of use of capital? Thank you.
Let me pick up the first one of those. It's a good try, my friend. It's a good try. If you recall, we updated our financial model to where it is now. One of the factors for that was our understanding of having bought Peerless. It made us structurally slightly better, and we upped our financial model from high teens to 20s. My answer is we've already incorporated that. Just on the cash returns, I mean, the answer to that question is no, we won't consider any returns above the dividend, certainly not for the foreseeable future anyway. That's on the basis that we have significant potential for growth, and we can invest our capital in growth over the long term. We have loads of opportunity, as I was talking about a minute ago, in terms of our pipeline specifically.
That might not come in a linear way. Again, we shouldn't get excited about the fact that we don't do any deals for six months. It will ebb and flow, and that's just the nature of doing acquisitions. That means that net debt might go up a little bit or down a bit, depending on our particular M&A spend. Over the long term, we will deploy the right amount of capital on M&A, and therefore, there will be no need to make returns over and above our dividend.
Brilliant. Thank you.
Thank you. There are no further questions in here. I will now hand it back to Johnny Thomson for closing remarks.
I don't really have anything else to say other than thank you very much for attending.