Good morning, everyone. Welcome to Diploma's 2025 results update. Thank you for being here. I'm joined by Wilson Ng. After various senior finance roles, Wilson joined Diploma about three years ago, and he's been an important member of our senior team since. He's doing a great job stepping up as our acting CFO, and I'm delighted that he's here today. He's going to take you through the numbers in a second. Before that, I'll give you a bit of an overview, and then I'll come back and do a strategy and business update at the end. We'll have Q&A as normal. Do you guys want to take a seat? Great. Let's get started. It's been another great year for Diploma. We've delivered a very strong performance across all our key financial metrics and ahead of expectations, building on our long-term compounding track record.
We continue to balance ambitious earnings growth with disciplined returns, key to sustainable success. The quality and diversity of our portfolio gives us exposure to attractive end markets, providing structural support for long-term organic growth. We accelerate organic growth with acquisitions that further compound our growth. We've got great momentum, having completed six since the start of quarter four. We have a strong pipeline and significant balance sheet capacity. The new year has started well, and we're confident in delivering another year of sustainable quality compounding. A moment now to reflect. Diploma has been delivering compounded double-digit revenue and earnings growth for decades and a great return on capital too. Over the last seven years, we've developed the strategy, injected more ambition, improved our execution. The compounding has accelerated with a step up in both organic growth and acquisitions. What is really exciting is that we're only just getting started.
The group's future is promising. The foundations in the differentiated business model are robust. The growth potential is significant based on our exciting end market opportunities and our geographic and product white space. The quality and diversification of our portfolio makes our group growth more structural. To sustain that compounding, we combine our ambition with ruthless discipline. For us, that's about an intense returns mentality: cash generation, effective capital allocation, modest balance sheets. It's about strategic performance and portfolio focus, and it's about great execution, sustainable quality compounding. It's our people and our culture that deliver this every day. They make it sustainable. I'd like to thank all of my brilliant Diploma colleagues. Their skill, energy, and passion every day is what drives our success. Building our capability is the most important part of my job.
We invest in developing our people, our new graduate program being a great example. We are currently investing in new resources into our end market development, into our financial controls, and into our general management capability. Our differentiated culture of commerciality, accountability, and continuous improvement is thriving across the business. We complement that with our connectivity and a performance ownership mentality across the group. The mood feels energized. Now I'll hand over to Wilson to do the numbers.
Thank you, Johnny. Good morning. It's great to be here. Turning to FY2025, it's been another strong performance ahead of expectations across all of our key metrics. We're ambitious about organic growth. It's our priority, so I am really pleased to announce 11% growth. Total revenue was up 12%, including a 3% contribution from net acquisitions. We have again increased our operating margin this year by 160 basis points to 22.5%. As a result, EPS grew by 21%, continuing our long-term track record. Discipline is key to long-term compounding success. 105% cash conversion, significant balance sheet headroom with leverage at 0.8 times, and return on capital has increased by 180 basis points to 20.9%, reflecting particularly the quality of the acquisitions we've made over the last seven years, combined with the more modest investment in the year.
In line with our policy, we have grown the dividend by 5%. Summing it all up, I'm very pleased with this very strong performance. The quality and diversity of our portfolio allow the group to deliver structural and sustainable revenue growth, and this has been another great year. We have delivered 11% volume-led organic growth, boosted by the strong growth of Peerless. Excluding Peerless, the organic growth remains ahead of our financial model. Revenue is up 12% overall after a 3% contribution from acquisitions, net of disposals we've announced previously, and some FX headwind. Controls increased organically by 20%. Windy City Wire delivered double-digit growth with strong execution and tailwinds in some markets, including data centers. Peerless' performance was exceptional with favorable aerospace market dynamics. Excluding Peerless, international controls performed strongly, driven by market share gains across growing aerospace, defense, and energy markets.
Seals has been tough over the last few years, with industrial and OEM markets soft, but we've been pleased to see sequential improvement in H2, resulting in 2% growth in the year. Life Sciences delivered 6% growth, the third consecutive year of strong growth, driven by market share gains in medtech and diagnostics markets in Canada and Australia. I'll now move on to operating profit. We have improved operating margin by 160 basis points to 22.5%, very pleasing ahead of expectations. Our volume growth has, as usual, contributed more than pricing to margin expansion. Our ability to pass on input cost increases through price is a key measure of our value-add model and the solutions we bring to our customers. Our businesses expand their margins through operating leverage as they grow, and we selectively reinvest to develop and improve the businesses.
During the year, we have invested in building out management teams, enhancing systems, and upgrading facilities, all to ensure that we can continue to deliver our value-add solutions at scale. Going into FY2026, we have plans to invest strategically in business development resources to accelerate our ambitions in high-growth end markets, talent and succession to drive that ambition, and governance and assurance to support that ambition. Overall, we grew operating profit by 20% in the year to GBP 343 million. Now, to round off on the rest of the ambition side of sustainable quality compounding, I will turn to EPS growth. Net interest expense was flat, reflecting the more modest investment in acquisitions during the year. Our all-in blended cost of debt has remained consistent at 5.3%.
Our effective tax rate was 25%, a little higher than last year, reflecting a greater proportion of profits arising from the group's US businesses. Earnings per share increased by 21% to 176 pence, continuing our long track record of strong double-digit growth. Now let's turn to capital allocation. Disciplined capital stewardship is key to sustainable quality compounding, and we measure our performance principally through return on capital. We have clear capital allocation priorities, selective organic investment to scale our businesses, CapEx of around 2% of revenue, targeted acquisitions to accelerate growth and occasionally disposals, progressive 5% dividend growth, and balance sheet discipline to manage leverage around two times EBITDA. This is a key recipe in driving high teens returns. Now on to cash conversion. Our capital-light business model and disciplined execution allows us to drive strong and consistent cash conversion, and this year is no exception.
We achieved 105% cash conversion ahead of our financial model, delivering free cash flow of nearly GBP 250 million, and maintained our discipline with careful networking capital investments of GBP 4.6 million, principally to fund inventory for growth. M&A outflow was GBP 30 million, principally driven by five acquisitions in the financial year, net of small disposals. We paid GBP 81 million in dividends, continuing our long track record of progressive dividend growth whilst conserving a larger proportion of the EPS growth for reinvestment. Taking all this together, net debt has reduced to just under GBP 300 million and leverage down to 0.8 times, well within our policy of two times and significantly below three and a half times covenant thresholds. I will now move on to what this means in terms of our capacity to fund future growth.
Over the past 18 months, we have secured close to GBP 900 million of funding termed in tranches out to 2036. This included the group's first US private placement. As we end the year with 0.8 times leverage, we have ample capacity to invest in further growth with cash and undrawn facilities of circa GBP 600 million. To ensure that we have sufficient financial firepower to fund our future growth ambitions, we intend to raise further finance in FY2026, ensuring we have the capacity to leverage towards our two times policy if required. I'd now like to talk to you about how we've been putting our balance sheet to use in recent months. Having completed a small adhesives acquisition in H1, we are now seeing a great pickup in momentum. Since the start of Q4, we have completed a further six acquisitions for GBP 92 million.
Haagensen, a Danish business adding great gasket capability and more scale in the Nordics, Alpha Labs, which is our first IVD platform in the U.K., Electramed adding to our medtech footprint in Ireland, Astro Industries, a US wire and cable specialist into aerospace and defense, and two more in the new year, Spring Solutions, specialty fasteners mainly into aerospace and defense, and WDS supplying machine accessories and parts globally. We have also made some small disposals during the year. We do not often dispose of businesses, but we view it as a key to responsible stewardship of capital and portfolio discipline to find new homes for businesses that no longer align with our strategy or business model. The net impact of these acquisitions and disposals on FY2026 will be 2% revenue growth and GBP 8 million of incremental operating profit. Now on to returns.
Delivering disciplined returns is critical to strong compounding results. Just as a reminder, our returns metric, ROACI, is a fully loaded return on invested capital that removes any accounting distortions and keeps us honest to generate returns on the total cash originally invested. We are particularly pleased with our performance this year, adding 180 basis points to ROACI to achieve 20.9%, more than twice our cost of capital. This strong result was driven by the combination of strong performance, especially in Peerless, and lower investment in acquisitions than in recent years. We believe our optimal returns range is high teens whilst deploying capital with discipline. At times, this may be a little higher if we deploy less capital like this year. Generally, and as shown by our track record, we expect to land in the high teens range. Now on to our guidance for the year ahead.
It's been a strong start to the year. We expect organic growth of 6%, slightly ahead of our financial model. Important to note that this will be significantly first half weighted with a particularly strong Q1, as we're lapping some very strong comps in H2. The exceptional growth delivered by Peerless is expected to normalize throughout the year. Acquisitions, net of disposals, will contribute 2% to acquisitions growth in FY2026. Of course, if we buy more businesses throughout the year, this number will increase. We are maintaining operating margin at 22.5%, reflecting my earlier comments around planned strategic investments. Summing it all up, we're looking forward to another great year. Our prospects for the long term are exciting too. Before I hand back to Johnny, I want to take a moment to remind you of the principles behind our financial compounding model.
We drive ambitious earning growth through strong organic growth, quality acquisitions, and high margins. We are obsessed about returns delivered with discipline. This is through strong cash conversion and prudent leverage. We underpin our commitment to shareholders with a progressive dividend. Diploma has an excellent record of compounding growth at strong returns. The combination of ambitious growth and disciplined returns delivers long-term sustainable quality compounding. I will now hand back to Johnny.
Okay. Strategy and business update. Let's start with a quick reminder of our strategy. It is about building high-quality, scalable businesses for sustainable organic growth. We drive our organic growth in what I call our three buckets: positioning behind structurally growing end markets, expanding 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 therefore increased resilience. This is complemented by selective, high-quality acquisitions that drive future organic growth and at great returns. Our acquisitions add to the quality and diversification of the portfolio, which in turn have made the group's organic growth more structural. 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 a little differently while always preserving these differentiators. Building effective scale is key to the strategy, developing our businesses and group to become better, not just bigger, and as such to sustain long-term delivery. The financial outcome of this strategy is sustainable quality compounding, ambitious earnings growth combined with disciplined returns in the good times and the bad.
Taking the first of our three growth buckets, over the last few years, we have considerably increased our exposure to attractive end markets. Our products and services fit really well into these. Some examples on the slide. In markets where we already have an established presence, aerospace, defense, infrastructure, IVD, for example, we are progressing opportunities to extend the footprint. Markets in earlier stages of development, like data centers, automation, clean energy, scientific, we are building to make these a bit more meaningful. Some exploratory markets too, water, energy storage, for example. These present us with really exciting opportunities to expand where we have little or no footprint today. These markets provide structural support for our long-term growth, and there is a lot to go for, so I am excited about it. Now let's look at the significant white space opportunity in the other two buckets, geographic penetration and product extension.
Geographically, we're focused on the core developed economies. As you can see, penetration is still very small today in our product verticals across the U.S., Europe, and the U.K. We don't need to go to higher risk developing markets for our growth. We can also add new product verticals. We don't want to go crazy with that. Portfolio focus is important to us, but we'll selectively ensure it suits our business model and we have the right to scale. There is plenty of white space for us to go after. As we know, acquisitions are important to the strategy too. They accelerate our organic growth, and together with selective disposals, they build the quality and diversification of the portfolio. We've accelerated capital deployment into acquisitions, with nearly GBP 1.5 billion spent on 48 in the last seven years, significantly above our financial model.
It cannot be just any business at any price. Discipline is critical to sustaining our compounding, represented by our 20% returns. Our discipline means that our progress with acquisitions will not always be linear, and that is okay. Over the long term, the fundamentals do support a healthy deal flow. It is a fragmented market, and our pipeline is stronger than ever. Our processes work, and we continue to be the buyer of choice. The short-term pipeline is looking encouraging, and I am feeling optimistic about it. We talk a lot about being the buyer of choice. There is not anyone better to hear that from than the people who have sold their businesses to us. Here are a few of them.
I think Diploma is a fantastic fit to build on your legacy. Diploma was the right fit for us. We felt it was a better home for us.
We felt that it was a longer-term proposition which would culturally fit better for VSP and our employees. From day one, they made it very clear that they wanted to come in to Peerless and let us do what we've done for so many years, improve and support our efforts in growing with the company in the years to come. They wanted to let the employees know that they were safe and they would have a great career with Diploma. I'm surrounded by an A team. Starting off in my garage, now I can proudly say that we have offices in Brisbane and in Perth, Darwin, in Sydney now with Fit Resources. We're part of a bigger family now.
The entire Diploma team honored your commitment by doing everything you said you would. This has been critical in maintaining the trust and loyalty of our customers, vendors, and employees. Okay.
A few words now on the sectors. Performance in controls has again been excellent, with organic growth of 20%. Windy City delivered double-digit organic growth, with core building automation performing well, complemented by great performances in digital antenna systems and in data centers. In international controls, strong execution coupled with market tailwinds also delivered double-digit growth. Peerless has performed exceptionally through the year. More on that in a minute. Our controls businesses have benefited from exposure to aerospace, defense, energy, and data center markets. TIE has been slower than we would have liked, but it's now showing positive signs under new leadership. Four acquisitions across the U.S. and the U.K. increase our exposure to attractive growth markets, particularly aerospace and defense. Controls has started the new year well, and I'm very positive about the prospects for the sector. Peerless had an exceptional year.
The market dynamics remain unchanged, and the quality of the business model and the team allow us to excel. We expect to see strong performance continue, but the growth rates will normalize in the second half, simply due to strong competitors. We fully expect a soft landing for Peerless with continued revenue and profit growth. Seals' organic growth has been more modest, operating in some challenging markets like manufacturing and construction. We're encouraged by sequential improvement in the second half. North American Seals has new leadership and had a strong second half of the year, led by the performance in the aftermarket business, benefiting from increased infrastructure investment. VSP has continued to perform well, and we're excited about their developing nuclear business. International Seals has revenue declined slightly in the year. The U.K. has been particularly hard in the last 12 months or so.
I'm very pleased with Dixon's progress under new leadership, now firmly into mid-single-digit growth in Europe. Portfolio discipline is important. We made some small disposals earlier in the year, which impacted the reported performance, and one acquisition in the Nordics, which strengthened our European business. The sector is well positioned for long-term investment in markets like infrastructure, renewables, nuclear, water. We're expanding our product capability into fluid power to grow the addressable market, and we continue to strengthen our management capability. I feel very positive about the sector in 2026 and over the long term too. We're pleased to report another year of 6% organic growth in life sciences, outpacing underlying healthcare market growth. IVD markets attract structural investment, and medtech surgical markets have returned to normal levels.
The investments that we have made in management capability and in our distribution footprint, together with the quality of our commercial teams, have helped to drive market share gains. We've made two small acquisitions this year, strengthening our position in the U.K. and Ireland IVD and medtech spaces. Margins are down a little in the year, predominantly driven by FX and mix reflecting the stage in our product lifecycle. I'm confident we'll see margins progressing again in the year ahead. In general, healthcare markets aren't easy, but increasing market investment in technology, innovation, and efficiency will support long-term growth. Our businesses and management teams are in a strong position, and we feel confident in the future prospects of the sector. Finally, summarizing, it's been a very strong performance, continuing the long-term track record. The group's organic growth runway is massive and promising end market structural support.
We'll continue to acquire businesses that add to the quality and diversification of the group. We're intensely returns-focused. Discipline is important, and our management team is delivering in a thriving culture. We feel that we're just getting started. Sustainable quality compounding. We'll take your questions. Annalise, go for it.
Hi, good morning. Annelies Vermeulen from Morgan Stanley. Two questions, please. Johnny, I just wanted to come back on, I think it was slide 22 where you talked about some of those structural growth drivers and the opportunities there. You've spoken, or we've spoken a lot about A&D and data centers and so on, but what else on that slide are you most excited about and do you think is most underappreciated?
As a follow-up to that, how much of that expansion into those segments can you do from your existing portfolio, or are you relying on further acquisitions there? The second one, maybe more one for Wilson. On that first half, second half dynamic of stronger growth in the first half, beyond comp effects, could you talk a little bit about the moving parts across the divisions, what your assumptions are around ongoing strength in Windy City, ongoing recovery in Seals, and how you expect that to pan out? Thank you. Great.
Wilson can do that, but second, on the end markets, look, we feel it's such an important part of our long-term growth dynamic. Having structural support is so, so important, and it's not something that we've just started.
As we've talked about many times, we've been moving the group more and more into these end markets over many, many years. I guess I feel we want to get a bit, not feel, we are getting a bit bolder about how we do that now, and we're putting some investment behind it. That investment is predominantly resource, specialized resource with specific market expertise. It might also be about a dedicated facility or specific inventory requirements in a particular market. It might, as you say, also be about acquisitions. Maybe if I can just give you a couple of examples to give you some color on it. I mean, we've talked about data centers before, so I won't talk about that now.
On the defense side, if you look at it to your question, organic and inorganic, we have just opened a new facility in the Czech Republic with dedicated inventory targeting the supply chain into the European defense markets. At the same time, we have just completed, as you have heard, an acquisition, Spring Solutions, which is predominantly defense-focused in the U.K. There is a combination of both there. On the aerospace side, I will not say too much about it. It is commercially sensitive, but we have significant plans ahead to increase our exposure in continental Europe, particularly to Airbus, combining both Clarendon and Peerless's capability there. We have some plans there. If I look at some of the more early cycle end markets, I am really excited about nuclear. I mentioned it in the presentation.
I mean, the numbers are a rounding error at the moment, but we started in VSP, who are often a hotbed for some of our innovation and market development. We've got some thermonuclear physicists, would you believe? Frightened the hell out of me. We are starting to make some really good inroads into the US nuclear market, which, as we know, is pretty significant. I am excited about that. Maybe water is another good one to mention. You heard on the video from Simon at ACT, they are a predominant water business today, and they do a lot of water corrosion and sealing products in Australia. We are looking now at how we can bring that capability more broadly to support water treatment and infrastructure. There is a lot. These are just a few examples. I just want to emphasize the point that we will always be diversified.
We're not picking any one of these markets. The exciting thing is that there's many, many of them, not just on that slide, but beyond that slide. That's what makes this really exciting for us because we've got lots of end markets that have structural growth potential for us, and we're putting some money behind it. I think it's going to be great for Diploma's long-term growth rates.
Yeah. Thanks, Annalise, for that question. Just to frame it, we've done 11% growth this year, and it was 9% in H1. Those of you who've done the math will work out that it was 14% in H2. I think we can all agree 14% is a very exceptional growth in H2. It's a very tough compare to LAP in FY2026. We do expect H1 to be strong, particularly Q1, double-digit growth.
But as always, I'm not going to guide by sector, by quarters, by halves. Just to try and be helpful, I think Peerless will continue to be strong next year. We do expect recovery in Seals. It may not always be linear. Controls will continue to be strong as well. Definitely, if you put H2 this year and H2 next year and take the average of the two, I think it will still be above the financial model. I think that's the way to think about it.
Thank you. Dave.
Good morning. It's David Brockton from Deutsche Numis. I've actually just got one questionnaire, which is on margins. You've delivered a very strong improvement in margins in the year that's just completed, and you're holding that guidance for the year ahead.
Looking forwards, how should we think about that margin in the context of the continued investment that you've clearly set out today? I guess you've got some strong performers that will moderate, but to what extent is there opportunity to improve that elsewhere across the business? I guess looking more further longer term, does it raise the hurdle for new businesses joining Diploma, or do you think more holistically around that? Thanks.
Thanks, David. Yeah, just to set the scene, I think 22.5% margin this year, 160 basis points improvement. We are all very pleased with it. As I've guided, 22.5% is where we feel comfortable with next year. How will we achieve that? Our businesses will continue to scale. Peerless will continue to grow, and we'll continue to grow profits as well. We expect controls to be strong.
We expect Seals to continue on their margin progression, and similar with Life Sciences with a recovery in the margin. All that means that we are going to generate continued operating leverage within the portfolio, and that then supports the investments that we are going to make into capabilities in end markets, talent and resources, and also governance and assurance going forwards. If I can just...
Good answer. If I can just add, I mean, we are making probably a bit more investment than we have made holistically over the last three or four years, which is perhaps why we are calling it out a bit more. I think I feel quite strongly that it is an important part of the next phase of the group's development. You will see and understand from the different buckets of what we are investing in that end market and growth, obviously, as I have talked about, very important.
To Wilson's point, building the kind of financial controls infrastructure of the group just feels really, really important. It's not to say we're in a bad situation. We're not, but we want to make sure we're secure for the future. We're always building the capability of the group for the future. Don is over there, our HR Director, doing a great job on helping us to build the capability for the next phase. It feels like we're doing a bit more than we've done over the last three or four years, which is absolutely the right thing to do. The strength of the business model comes through, really, doesn't it? We can still absorb that within what we think is a stable and high margin.
Hi there. It's James Rose from Barclays. I've got two, please.
Sort of building on David's question, really, I mean, the first is on Peerless. I think in the past, we've talked about the margin of that business in the medium term, perhaps going down to back towards the mid-30s. Is that still your thinking in the longer term, or is that no longer the case? Secondly, just sort of reiterating the investment, the reinvestment point as well. Could you just flesh out a few more of the buckets you plan to prioritize sort of over this year on reinvestment? Where you plan specifically to focus on over this year?
I think that's the question I've just answered, isn't it? The end markets, I talked about to Annalise's question, the financial control piece, and the general management capability. Those are the areas that we plan to invest in.
Fair to say it's more of a central governance spend rather than in specific businesses? It's really across all of the businesses. I mean, we don't hold all of that investment in the center. Some of it might be. Some of the financial resource might be in Wilson's team, for example. Certainly, we like to push investment into the businesses, and the general management capability would be very much about in the businesses and the sectors. You asked about Peerless. Maybe I should just take Peerless holistically and talk about how Peerless is doing because I'm sure it's a question for everybody more generally. As I said earlier, Peerless had a tremendous first year. The second half of the year was particularly eye-watering, and we're absolutely expecting them, therefore, to normalize in the second half of this year.
I think the first half will still be very strong, but the second half will be normal. Just, I guess, for reassurance that we do expect Peerless to return to revenue and profit growth, if you like. That kind of soft landing, for want of a better expression, is what we'd expect from the second half of the year. I expect to your question specifically, therefore, that the growth rates will moderate towards some kind of historic norm, and they've been kind of, I guess, high single-digit kind of range. The margins will not be as high as they have been, but I don't think they're necessarily going to either return to what they were either. I expect the answer will be somewhere in the middle. Thank you.
Morning both. James Bayliss from Berenberg. Two questions, if I may.
On the free cash flow conversion number, I think that's the third consecutive year you've run it kind of at that 100% plus mark. The story previously there has been about working capital optimization in acquired businesses. Obviously, you were a bit lighter on M&A activity in 2025. What's the story driving that performance in 2025? How should we be thinking about the kind of the working capital dynamics to support your growth ambition in 2026? Perhaps just focusing in on TIE. That's had a few tougher years since its acquisition, but your commentary suggests you're starting to see positive progress there. Can you just give us a bit more color if that's more about the management team you've recently installed or just the market backdrop normalizing? Thanks.
Yeah, I'll take that first, and then Wilson can pick up on the free cash flows. Thanks, James.
TIE, we've had for a couple of years now. It's a great business. I think I've said a few times, we were probably a bit surprised by, A, the market dynamics of automations in the period since we've bought it, which have been a lot softer than we would have anticipated. B, more pertinent to your question, we didn't feel the management team that we inherited was quite where we thought it was as part of the acquisition. We were a bit surprised by that as well. It's taken us a bit of time, but we've started to build out a new management team now. We've got a new president, a new finance director over the last six months or so. They started very, very well. Certainly not declaring victory at this stage, but we're starting to see some slightly better numbers coming out of them.
More importantly, much, much more confidence about the journey that they're on, the action that they're delivering. I feel good about that. It is just worth expanding that a little bit to say not every acquisition we do is a Peerless or a Windy City, and some of them are harder to work. That is normal when you do 50-odd acquisitions. We are pleased with Dixon. I have mentioned Dixon before as being quite tough, and we are pleased that, again, with some much more management strength, that business has now in continental Europe recovered into mid-single-digit growth. Still a hell of a lot of work to do and a long journey to go, but I feel very good about that as well. There are some acquisitions out there that naturally we just have to work a bit harder at.
These both TIE and Dixon will be great contributors to the future of the group. Wilson.
Just on free cash conversion, I'm really glad you mentioned it. 105% cash conversion this year is very pleasing, but it does not just happen. It boils down to discipline and capital allocation priorities. In this year particular, we have driven hard on our focus on working capital and capital recycling. Hence, with the growth that we have made, we have only invested just over GBP 4 million into working capital. In this year as well, you will see that CapEx spend was slightly lower at 1%. It does not mean that every year it will be this low. It just depends on our scaling priorities. Some years it might be CapEx, some years it might be OpEx.
The way you should think about it going forward, particularly in the medium term, is to stay true to our model. 90% cash conversion, that's the right way to think about it.
Lydia Kenny, Investec. Just a quick one on M&A. Firstly, the pipeline 4,000 seems, I think it's a larger number than you've previously quoted. Could you maybe tell us where that's sort of weighted to and what the opportunities are like? Also, just, again, maybe it's just a coincidence, of the six acquisitions you mentioned, Wilson, three of them are in the U.K. Is the U.K. valuations coming down here? What's the environment like here as well? Two of them are also in controls. Could you give us a bit more details on that? Thank you.
Yeah, look, Steve's here. Steve leads our M&A team, done a great job for us over the years.
It has been a slightly slower environment over the last 12 or 18 months, but the team have been working incredibly hard to keep building that number. Yes, you're right, it has been getting bigger and bigger. Of course, it is a little bit arbitrary, is it not? 4,000. It does not tell you anything about the short-term dynamics. What it does mean is that it is a demonstration of the fact that the market is very dynamic, is very fragmented, and that we have got lots to go for, and we keep working at it to build that long-term pipeline. That is pleasing. The balance of what is in there is pleasing as well. There is quite a nice balance, nice balance between U.S., U.K., Europe, a nice balance between the different sectors at the moment, which is pleasing.
The average size of the pipeline remains broadly consistent with what we would expect it to see, kind of 20-30 million, with occasionally a bigger one in there. The pipeline has not really changed from that perspective either. The valuations piece that you mentioned, I suppose over the last 12 months or so, it has been a bit slower, probably mainly in the U.S., I'd say. The kind of tariff uncertainty just put a bit of a freeze on things. As I've said before in this forum, we are very disciplined about it. We are not going to buy any old business at any old time for any old price. We have not seen much of quality coming out of the U.S. over the last 12 months. We have, to your point, though, been able to operate successfully under the radar, particularly in the U.K. and Europe.
Some of the small deals that we've done over the last quarter or two have been mainly U.K. and Europe, I think, haven't they? Yes. There's one in the U.S., but mainly U.K. and Europe. Look, as we look forward, I'm feeling really optimistic about it. I mean, who knows what's going to happen with the market? I suppose in a kind of perfect environment, the tariffs have kind of gone. The expectation, maybe bankers are always talking about it, is that we're going to see a bit more deal flow. I suppose from our perspective, Steve, we've started to see things maybe just ticking up a little bit, which is good. Regardless of that, the short-term small bolt-on pipeline still looks really encouraging. We're delighted with the six that we've done since the quarter four.
I'm hopeful that we can keep tucking a few away over the months and quarters ahead. I feel really optimistic about it.
It's just a couple from the webcast. Please, can you explain what will drive the margin improvement in life sciences in fiscal year 2026 and beyond? On organic growth, it was very strong, but acquired growth appears to be below your longer-term aspirations. How should we think about the contribution from acquisitions to group revenue over the next one to two years?
I will take that first, Wilson. You can touch on life sciences margin, if that's okay. I think to some degree, I've partially answered the question about acquisitions. The market has been a bit slower over the last 12 months or so. I think we should just take a step back from it.
Look, we've done so much in the last five or six years. I mean, we've done, I don't know how much more than the financial model, but we've done way more than the financial model over the last five or six years. Some people, I keep reminding ourselves internally, some people are now kind of understandably, but comparing anything we do against that backdrop, we just have to keep our feet on the ground and recognize that we've done a hell of a lot. You might have a year where things are a little bit slower. That's okay. We're not in this to play a quarterly numbers game with acquisitions. We'll do the right deals at the right time. If the market's a bit slower, Steve and team are going to keep working hard at it, and deals will come at the right time.
I'm not in any way worried about having a lower acquisition contribution. And to be quite frank, if you're growing organically at 10%, you don't really need to be margins.
Life sciences, I guess just to maybe put it into context as to why we've seen a bit of a dip in margin this year, it's partly because of FX. As we know, the Canadian and Australian currencies have weakened two years consecutively. Secondly, life science, as we all know, is a life cycle business. We've had parts of that portfolio that are a bit more mature, hence weakening the margin slightly. More importantly, what are we doing to improve the margins going forward? We're investing in business development capabilities. We are strengthening our relationships with our supply base.
Most importantly, we are seeking new technologies, new medical technologies that our customers want and having that first mover advantage with the high margins as we go into market with new technologies.
Morning, Dylan Jones from Kepler Cheuvreux. Just circling back to PLS, I appreciate that you have obviously set out that you expect that to sort of normalize and you fully expect to deliver on that soft landing. If you can maybe elaborate a little bit on what is within that PLS control, what are the levers they can pull to deliver on that outcome, particularly H2 2026, but then in FY2027 and beyond, particularly around the pricing environment that you are seeing there as well.
Just on some of the acquisitions, particularly in the fourth quarter, if you could elaborate on some of the value-add opportunities that the point of sale and the service that's been captured in some of those companies that you've acquired.
Okay, do you want to take the second one, Wilson? I'll take the first one. Look, the market dynamics in aerospace haven't really changed that much. The long order book of new aircraft is, if anything, getting bigger. Therefore, the kind of consequential impact on a very hot refurbishment spot market remains the same. Peerless continues to experience the benefits of that kind of double demand, if you like, and the spot market is still particularly strong. That's the first thing to say. We don't expect that to change anytime soon.
The dynamics there are unchanged. As we look forward and getting you asked about what the confidence about the soft landing, I suppose, outside of the spot market, of course, we continue to build the underlying growth and the structure of the business. For example, winning longer-term contract business will just secure the sustainability of their growth. Over the last six months or so, we have had some very good new contract wins, which will kick in over the next three to six months or so. That will underpin a next level of growth for Peerless. Secondly, I mentioned earlier our desire to do a bit more in continental Europe, particularly into the Airbus supply chain. We will be working with Peerless and with Clarendon, but particularly with Peerless to support their ambitions in getting more market share in Europe.
That, again, will be another avenue for a step change in their organic growth over the medium term. I feel very confident that we have many levers, even outside of the strong market dynamics, to continue on the Peerless journey.
Just to continue on kind of the bolt-ons that you've mentioned, it's a continuation of what Johnny's just said. We're seeing a lot of market tailwinds, particularly in aerospace. The build backlog of planes is just massive at the moment. We've had opportunities in Astro, Spring, WDS, all furthering our ambitions into aerospace and defense. Not forgetting life sciences, where particularly things like Alpha Labs gives us a strong platform into the U.K. medical market as well.
Morning, Joseph, head producer at Bank Sabadell. First of all, congratulations for the results. Here's a question, please.
Do you know that in the last model, we have new tariffs in the international market due to the Trump tariffs? How does this point affect your business, please?
Tariffs, your question is about tariffs and how much it affects our business. I mean, I do not want to sound complacent with this comment in any way, but our business is predominantly local to local. So around 85%, particularly in the US, of what we source is local and what we sell. That does not mean, of course, that we are immune. By no stretch are we immune, but it does limit what we have to do in reaction to tariffs. Now, we still have to do a little bit of resourcing, and we still have to do a little bit of pricing, of course. But it is all manageable.
I do not think in any way that it has had a material effect on either our operation or our performance in the year.
Just to add to that as well, on the contrary, we have made it into a competitive advantage. For example, Windy City Wire has taken the opportunity to fully locally source their copper. That has given us great competitive advantage in H2. As you can see, Windy City Wire has done 11% growth during the year. Any more? I think we are done. Thank you all for joining us this morning. Thank you for your time and your questions. Have a good day.