Earnings Call: Q3 2025

Jul 17, 2025

Earnings release

Welcome to Diploma PLC's 2025 Q3 results conference call. I will now hand over to Chief Executive Officer Johnny Thomson. Please go ahead, sir. 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 and 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. 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. Importantly, we're now seeing sequential improvement in fields 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. Haagensen A/S we acquired last month for £11 million as 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. 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. 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. 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 STAR1 on your telephone keypad. That is STAR1 for your questions today. Our first question today comes from Anneliese Vermeulen from Morgan Stanley. Please go ahead. Your line is open. Good morning, Johnny. Morning, Chris. 2. Hopefully brief questions from me. 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 Haagensen A/S, the Danish business, for example, but are there revenue synergies, cross selling, etc. Is that the usual Diploma PLC playbook you expect to execute on those deals? 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 alongside your improving U.S. serial business? Thank you. Yes, thanks, Anneliese. Taking them in order, I mean the growth rates for these businesses, we expect to be high single digits for both of them actually. They'll be good contributors to our organic growth for the future. You asked about kind of synergistic value to it and both of them will have, but for quite different reasons. We have recently upgraded our facility and our existing M-Seals business near Copenhagen and that facility serves the Nordics and into Germany as well. The acquisition of this business will allow us to lift and shift the facility for Haagensen into that new state-of-the-art facility. As well as providing broader opportunities for growth, it also provides some kind of cost synergy for us as well. Overall we're very pleased with that. The Alpha Laboratories, we're pleased with this first 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 market and we've got some real specialism in that space. Canada, Ireland, the Nordics and Australia. It gets us into that space with a platform in the UK. 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. 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 say we didn't know that it was going to be slow for a while with the European market, 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. We're really, really excited about the prospects ahead for Dixa. Very good. Thank you for the detail. Thank you. 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've seen some improvements in the trading environment in industrial end markets in the U.S. Have these trends continued, and would you call out any other of the more industrial end markets that are performing well? Thanks. The second question I have is you previously said that the number of active negotiations your M&A deals have been was higher than ever before. Obviously you've completed two deals in this quarter. Would you say this is indicative of some changes you've seen from sellers generally? Thanks. I'll take the last one first. Actually, what we said at the interims wasn't that the short term active pipeline was as high as ever. What we said was the long term pipeline was as high as it's ever been. The overall market, 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 just hold back for a while. It has been a fraction slow. Having said that, the long term pipeline has continued 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, month or two, we've just seen a bit of movement, particularly in the U.S. getting a little better on the deal flow. 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. I'm not worried about it. I think for the long term we're in good shape on the acquisition front. Do you want to say anything about industrial markets? Yeah, I mean, I guess the closest. We've got as a barometer is our North American aftermarket seals business. As Johnny said earlier, that has picked up sequentially over the last probably two or three quarters quite nicely now. 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. I was just wondering if you can give a bit more insight into how the controls business is performing. I guess I'm most interested in Windy City Wire. That seemed to show an improvement as. You work your way through the year. Has that continued? Thanks. Yes, Windy City Wire is doing very well, very pleased with it. It's continued the trends from the first half of the year in a fairly consistent way. Doing very well in data centers, which gets a lot of the headlines. They're also doing well in other fast growing markets like digital antenna systems as an example. Very pleased with how they're going. Across the rest of the control sector, obviously Peerless is doing well, but alongside that Clarendon, our other aerospace passengers business, is doing very, very well too. Our IS group, which has aerospace and defense exposure, is 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. 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 its opportunities. We're pleased with how that's progressing. Thank you. Thanks David. Thank you. We're now moving on to a question from Sam Bindle from Stifel. Please go ahead. Morning guys. Couple of 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 in H1 gave the organic growth ex Peerless. 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. Thanks, Dan. Broadly speaking, the two deals together. Are kind of $30 million of revenue and $5 or $6 million of profit. That kind of area in terms of what we said, that's 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 told you seals is a bit stronger so we're slightly better than Easter models. That's as much as I'm going to give you this morning, sir. That's great. Thank you. Thank you. As a brief reminder, that is Star one for your questions today. Up next, we move to a question from Ryan Flight from Jefferies. Please go ahead. Good morning, all. Ryan Flight from Jeffries here and three from me, if I may. First of all, I wondered 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 highlight. If there has been any kind of deviation there as a result of the divestments that were in the first half. Second question, Peerless 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? The third and final question, just if you could comment on copper prices. 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 speaking of your other two questions, I mean, Luxeel's, as you 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 U.S. 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. The North American fuels sector is leading the charge, if you like, in terms of the recovery. Europe, I guess we're seeing some recovery in PMIs in Europe, maybe a little bit more stability for us to operate in there. As I said before, we're also doing better with our Dixon 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 is pretty tough, so we've still got a lot of work to do to get our RNG business in the UK into the shape that we want. 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 ask 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 and William Share and our team are doing a great job. 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 will return to some kind of normality, which is what we bought it off, but still very good performance, probably something like 10% growth, mid-30s margin. The margin to your question is a little bit higher still at the moment. Our working assumption is by the time we get into the early part of next year, it will abnormalize. Yeah. And copper, you're right, copper is very. Very noisy at the moment. There's still a little unclarity or lack of clarity on exactly what the latest announcement means. That is, 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 announcement. Windy City Wire basically just builds that into their pricing model. The working assumption is it is a straight pass-through. Thank you. Thank you. As a final reminder, that is Star Wars for your questions this morning. We will pause for a brief moment. There currently appears to be no further questions at this time. I would like to hand the call back over to you, Mr. Thomson, 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. Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.