Good day, welcome to the Diploma half year results call. This meeting is being recorded. At this time, I'd like to hand the call over to Johnny Thomson, Chief Executive Officer. Please go ahead.
Thank you. Good morning, everyone. Great to have you with us today. Thanks for joining. I'm here, as usual, with our CFO, Chris Davies. From agenda, I'll start with an overview, and then Chris will take you through the numbers, and I'll come back to discuss the businesses. At the end, there'll be questions as usual. Let's get started. It's been another very positive half for Diploma. We've delivered a strong performance across all of our key financial metrics, building on our long-term compounding track record, and we're executing on our strategy of building high-quality, scalable businesses for sustainable organic growth. Diversifying our specialized businesses is driving organic growth, scale, and resilience. We continue to develop our business' value add model for scale, and we are encouraged by good margin progress this half too.
While we're mindful of the environment, the upgrade to our full year guidance reflects our strong first half performance, the resilience of the model, and good momentum into the second half. In fragmented markets, we can acquire quality businesses to accelerate organic growth. During the last four years, we have done so with good results. We acquired a further eight so far this year, including TIE and seven small bolt-ons. Maintaining discipline, we disposed of a small non-core business too. I would like to thank shareholders for their support as we raised capital in March to maintain a flexible balance sheet in light of an encouraging acquisition pipeline. Our environmental and social framework, delivering value responsibly, is progressing well. We have a new sustainability director. I'm pleased to have submitted our net zero plans to SBTi for validation. An overview of our performance.
Organic growth of 10% was volume-led and reflects the diversification of our businesses into structurally growing end markets, penetrating further core geographies and extending our product capability. Our strong reported growth of 30% includes 12% contribution from the quality acquisitions made in the last year. Encouragingly, our margin progressed by 40 basis points to 18.8%. We've worked hard on pricing and cost control, taking advantage of scale and partially reinvested in the scaling activity of the businesses and the group. EPS grew by an excellent 26%, outpacing our long-term track record of 15%, and we've declared a progressive dividend growing at 10%. Financial discipline is key to long-term compounding success. Our balance sheet is strong, reflecting the proceeds of the capital raise, and return on capital has increased by 30 basis points to 17.8%.
We feel very positive about our short and long-term prospects. Chris will give you some detail on this year's upgrade shortly. For now, looking briefly at the longer-term picture, the group has compounded revenue and EPS growth at 14% and 15% respectively over many years. In recent years and this half, we've accelerated that. Our massive potential for growth as we strengthen our business model and sustain great margins gives us confidence in continuing to deliver resilient quality compounding in the future. In a service-led, decentralized group like ours, it's the people that make this kind of track record happen. I'd like to thank all of my brilliant Diploma colleagues for their dedication to delivering great service to our customers and for continuously striving to improve our businesses.
We benefit from deep-rooted local communities in our businesses. We focus on creating a healthy and inclusive environment for our colleagues to thrive in. As a result, we have high levels of engagement. This is a significant competitive advantage for Diploma. Our value add business model lends itself to a decentralized management approach. This promotes an empowered culture of commerciality and accountability, agility and open-mindedness, rigor and continuous improvement. There is common purpose and values, therefore across the group, around which we are able to structure, build capability, and promote networks of best practice. The combination of our decentralized culture and the power of the group is also a differentiator for us now and in the future. Over to Chris for the first half numbers.
Thanks, Johnny. Good morning, everyone. I am delighted to be talking to you for the first time as Diploma CFO and even more delighted to be presenting such a strong set of results. I'm gonna take you through some financial highlights now before handing back to Johnny for a little more strategic color. I'm gonna start with revenue. This has been a great first half. We've delivered 10% organic revenue growth, and we're up 30% overall after acquisitions and FX. That strong organic growth was broad-based across all sectors and importantly, was volume-driven with less dependency on price. This demonstrates the resilience of our revenue diversification strategy. Controls increased organically by 13%, with sustained double-digit growth at Windy City Wire in the U.S., an excellent international momentum benefiting from market share gains in growing civil aerospace, defense, and energy markets.
Seals was up 8% with a great first year from RNG, driving double-digit growth in International . North America was boosted by aftermarket share gains as it extends its geographic reach. Life Sciences was up 4% with accelerating momentum. Q2 organic growth was up 11%. Hospital staffing, surgical procedures, and investment levels continue to normalize. This strong organic growth was then boosted by a further 12% from acquisitions in their first year, and FX contributed a further 8% to drive overall revenue growth of 30%. We now turn to operating profit. We delivered very strong operating profit growth of 33%. This is driven both by the strong revenue growth I just discussed and importantly, by ongoing margin improvement. We've improved operating margin by 40 basis points in the period to a very strong 18.8%.
I'd like to make two points on this slide. The first point is about value add. I said on the last slide that our revenue growth was volume driven, but we do continue to manage prices to cover off input cost inflation. This is a key measure of our value add model and the solutions we bring to our customers, and has driven margin resilience over the long term. The second point is to remind you of our margin formula. Clearly, we benefit from performance improvements and operational leverage as we grow, but we continue to selectively reinvest to scale the businesses, building out management teams, enhancing systems, and upgrading facilities to ensure we can continue to deliver our value add solutions at scale. Johnny will talk a bit more about this later. Let me just round off the rest of the P&L.
Net interest expense increased to GBP 11 million in the period. This was driven both by increased borrowings to finance acquisitions and higher interest rates. Average borrowings in the first half of 2023 were up about 50% compared with last year, and our blended cost of borrowings was 5.5% this year, compared with a little over 2% last year. After the capital raise and with lower net debt, that interest charge will moderate materially in the second half, although that is, of course, subject to acquisitions in the balance of the year. Net of this, adjusted profit before tax increased 26% to GBP 98.7 million.
With a tax rate of 24.5%, a little lower than last year, and with a 7.5% increase in issued shares following the equity placing in March, earnings per share increased by 26% to 59.1%. The base on that strong H1 performance and our confidence in the road ahead, we have declared a 10% increase in the interim dividend to 16.5%, continuing our long track record of progressive dividend growth. Now let's turn to cash. Combination of strong free cash flow and the recent share placing have driven a reduction in net debt to GBP 154 million, driving leverage down to 0.7x EBITDA.
I should note here that the group's cash delivery profile is always H2 weighted, so 70% cash conversion is a very strong first half result, and we remain well on track for a 90% for the full year. Our free cash flow generation is another pillar of the group's resilience, and before considering any further conversion of our acquisition pipeline, would drive leverage below 0.4 x for the full year. Turning back to the first half, we're continually continuing to carefully reduce inventory in the context of a strongly growing business, and that working capital increase of GBP 23 million is reflective of this growth, net of a consistent inventory reduction through the second quarter.
Total acquisition expenditure of GBP 76 million comprises the cash spent for TIE and the smaller bolt-ons, as well as acquisition fees and deferred consideration payments, partially offset by the proceeds received for the disposal of Hawco, a non-core lower margin temperature control business for GBP 23 million. The group received net proceeds of GBP 233 million from the equity placing completed in March. I now want to say a couple of words on financial capacity. We recently extended the maturities of our existing bank facilities to December 2025. We have no imminent financing needs. Financial risk is well managed. 70% of our drawn debt is hedged against interest rate movements. We have in place a 24-month rolling FX hedging program. Our pension is in surplus.
We have ample capacity to invest with cash and undrawn facilities of nearly GBP 400 million and significant headroom to any covenant. This is a fast growing group, I'm currently reviewing the right balance sheet structure to take us forward to the next stage of our journey. I'd like to turn quickly now to acquisitions. As Johnny says, the group has a long track record of successful acquisitions, driving accelerated organic growth. Since 2019, we have invested around GBP 840 million in acquisitions to build geographic scale, access new end markets, and increase our product offering. These have performed strongly under our ownership. On average, organic growth since acquisition has been a very strong 15%. They're already averaging ROATCE of 16%, this continues to grow every year.
During the first half, we acquired TIE for GBP 76 million, entering the strategically important industrial automation market in the U.S. TIE has a strong track record of organic growth, and we expect this to continue at accretive operating margins. We've also continued to add small bolt-ons to our core business units. So far this year, we've completed seven of these for a total consideration of GBP 23 million, representing an average EBIT multiple under 5 x. They are expected to deliver GBP 24 million of annual revenue at accretive EBIT margins and will deliver 20% year one ROATCE. We've also continued to demonstrate portfolio management discipline with the Hawco disposal.
The net of those small bolt-ons and that disposal is increased growth at increased margin for zero net outlay. Investment discipline is an important factor in retaining high returns with group ROATCE up 30 basis points in the period to 17.8%. Looking forward, we have a strong near-term M&A pipeline with around GBP 1 billion of active opportunities. Let me just finish with a word or two on guidance. We have delivered a strong first half, and the second half has started positively. We're conscious of macro uncertainty and the potential impact on some markets, and we also cycle a very strong comparative performance, especially in quarter three, but our businesses are demonstrating increased resilience. I've discussed three pillars of resilience today. Firstly, diversification through our three growth buckets drives revenue resilience.
Secondly, value add at the core of our customer offer drives margin resilience. Thirdly, our asset-light business model drives resilient cash generation. Our continued strong growth and resilience gives us the confidence to increase our guidance for the full year. We now expect organic revenue growth of around 7% for the full year and a further 7% growth from acquisitions. We expect operating margin to be at the top of our previously guided range, around 19%, and free cash flow conversion of around 90%, which would drive year-end leverage to less than 0.4x before any further acquisition investment. In summary, we've delivered a great first half, and we are increasing our guidance for the year. With that, I'll hand back to Johnny Thomson to give you a little bit more color behind those numbers.
Okay. Thank you, Chris. Now to review our businesses. First, a reminder of our strategy, which is to build high-quality, scalable businesses for sustainable organic growth. The group has massive potential for growth. We diversify and scale in three buckets, positioning behind structurally growing end markets, penetrating further in core developed geographies, and extending our product range to expand addressable markets. All of our businesses have fantastic organic growth opportunities, and we continually improve our capability to execute. By diversifying our revenues, we will grow organically, build scale, and increase resilience, as Chris said. As a group, we focus the portfolio around key scalable business units. This means acquiring businesses which complement and accelerate this organic strategy. Occasionally, there may be the odd disposal as we tidy up the portfolio. Our value-add distribution business model underpins everything we do.
It drives customer loyalty and therefore resilient growth, pricing power, and therefore attractive margins. We have a framework for our businesses to journey towards their target operating model of the future, to continuously improve their core competencies and capability so that they can deliver their value add proposition at scale. We are also scaling our decentralized group effectively, evolving the structures, capability, and culture to sustain our success for the long term. Delivering value responsibly has become central to our commercial and operational strategy. It's a source of value creation for all of our stakeholders. We're making really good progress delivering this strategy. We're only just getting started, and I feel as excited now as I've ever done about Diploma's prospects. More on this at our investor seminar in June. A few words now on the sectors. The progress in Controls this half has been excellent.
Organic growth was 13% and reported growth 24%. Windy City Wire has delivered another strong performance with organic growth of 10%. Volume growth has naturally moderated through the half against very tough comparators. Having doubled profit in the first two years in the group, Windy City will deliver fantastic profit growth this year too, and the returns on that investment will surpass 20% in this third year. The prospects are really exciting. Structurally growing end markets, differentiated customer proposition, well-invested operating platform, and a winning team and culture. International Controls has delivered an excellent performance with 15% organic growth. The sector is benefiting from structurally growing end markets such as energy, defense, aerospace, and our growing exposure to electrification. We now have much better geographic presence with small and fast-growing positions in Europe and the U.S. across our principal business units now established.
We've extended our product capability with further bolt-ons into the textiles Specialty Adhesives business units and entry into automation through the TIE acquisition. Scale benefits and performance improvements have increased margins by more than 200 basis points. Controls has again made excellent progress and the momentum is exciting. During March, we announced the acquisition of TIE, a market-leading value-add distributor of aftermarket parts and repair services into the fast-growing U.S. industrial automation end market. TIE is a Diploma-style business with a really strong value-add proposition based on deep technical expertise, breadth of product offering, and speed to market, all of which result in high levels of repeat business from a large and loyal customer base. Its focus on refurbishment and life cycle product support means it contributes nicely to a circular manufacturing economy, enhancing its ESG characteristics too.
The business is completely aligned to our three buckets for future organic growth. For example, industrial automation is an attractive, fast-growing end segment that we have been looking at for some time, underpinned by the onshoring of U.S. manufacturing, tight labor markets, and a growing and aging base of installed CNC machines and robots. Secondly, we can support TIE with geographic penetration within the U.S. beyond their Tennessee base with access to our OEM customer base in other regions. Finally, TIE expands our addressable market through product extension. We can continue to add to its product capability over time. The business' growth, margin, and EPS accretive in year one. Seals has been our most resilient sector through and beyond the pandemic and has progressed really well again.
Organic growth was a resilient 8% and reported growth 44%, the latter reflecting the acquisition of RNG last year, as well as a number of bolt-ons since. International Seals has delivered another great performance with 12% organic growth. We see the increasing benefits of exposure across a wide range of end segments, including wind, water, F&B and medical. RNG had a fantastic first full year in the group, delivering scale for Seals in the U.K., broadening our fluid power product offering and delivering 15% organic growth since acquisition, 13% specifically in this first half. We've also completed five RNG bolt-ons in the last year. Following a fantastic 2022, our North American Seals business delivered 4% organic growth. Our industrial OEM business has been a little slower, mainly due to the rundown of inventory in certain consumer-facing appliance manufacturers.
We expect this to pick up as the year progresses. We remain very excited about North American aftermarket and its attractive exposure to U.S. mobile machinery repair markets that will increasingly benefit from U.S. infrastructure investment. We continue to drive market share gains in this business. Our U.S. MRO business acquired in 2019 is performing very well too. We provide highly technical sealing solutions that reduce customers costs and improve environmental performance. Their quality and safety record provides significant market share potential. Margins in the sector came down this half as expected, mainly driven by the dilutive effect of RNG's first year in the group. As the year progresses, however, we will see the benefits of RNG's improving margins and of scale and performance improvements across the sector as a whole. I'm very optimistic about the future for Seals.
The momentum in Life Sciences is really encouraging. As I said in November, we expected Life Sciences to grow modestly for a quarter or two, with healthcare markets still disrupted by staffing shortages and the impact on surgical procedures. That has been the case. However, elective surgical procedures are returning closer to pre-pandemic levels, and investment into medical equipment and diagnostics has also improved. We've worked hard to drive the strategy and performance, and we're seeing some of the benefits come through earlier than we anticipated. Growth in the second quarter has been strong, and this will continue into the second half. Margins have been extremely strong in the sector in recent years, albeit moderating in this period. In part, this is driven by some dilution from the Accuscience acquisition done this time last year.
It also makes related with more capital this half, which will translate into more consumables and margin strength going forward. We're excited about Life Sciences for the medium and longer term. We will benefit from the catch-up in surgical procedure backlog and increased investment in clinical diagnostics. We've expanded our geographical presence in Europe and continue to build our product portfolio. The sector is very well-positioned for long-term growth. Acquisitions are an important part of the strategy. As Diploma has always done, we look for businesses that satisfy three core characteristics: value-add distribution with strong growth margins, organic growth potential, and management teams that we can back. We have, over the last four years, complemented this with a more strategic and structured approach to developing a pipeline across our businesses and in our three core organic growth buckets.
Our pipeline is as strong as it's ever been, roughly 50 targets in the medium term with an EV of around GBP 1 billion. In fragmented markets, the pipeline is well-diversified by sector and geography, and with an average target size of GBP 20 million, the pipeline is consistent with the typical Diploma style deals. We'll continue to do the small bolt-ons which accelerate the business unit organic strategy at fantastic returns, and we will occasionally do slightly bigger ones that satisfy more group or portfolio strategic needs. I believe that this approach can continue to support organic growth, compound our earnings and at high returns over the long term. Delivering value responsibly, our ESG platform, is at the center of our strategy and our culture. We have a clear framework and measures.
It's embedded in our commercial activity, and we're starting to see the early stages of improvement across the businesses as they start to implement their plans. We've recently submitted our net zero plans to SBTi for validation. These anticipate net zero by 2045. We have some bold plans to reduce our emissions in the next few years. As I mentioned earlier, our people are critical to our success. We have great engagement, but we are not complacent. We ensure that we have a healthy, inclusive and developmental environment for our colleagues to thrive in. Diploma is and can be fantastically positioned for the new sustainable and circular economy. Our products and services face into global investment trends such as wind and renewable energy, decarbonization and electrification, water management and engineered fluid sealing solutions, and of course, preventative social medical care.
Sustainable growth, sustainable group. To help drive these efforts, we've appointed a highly experienced sustainability director who has joined our executive team, reporting to me. In summary, we've had a strong first half performance, and the upgraded guidance for the full year demonstrates our resilience and our trading momentum into the second half. We're excited about the massive potential for organic growth ahead and our strong acquisition pipeline to support that. We're focused on scaling the businesses and the group to sustain our value add model and margin for the long term. I feel confident in continuing to deliver quality compounding in the future. We'll move to Q&A shortly, but before we do, I want to remind you of our investor seminar on 20th of June at 2:00 P.M. at Numis' head office.
The event will provide an opportunity to hear from members of the senior management team who will provide insights into Diploma's differentiated value add business model, why we are so excited about our organic growth potential, and how we scale the businesses and the group to ensure sustainable long-term delivery. Look forward to seeing you there. Now we'll hand over to questions.
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. If you wish to cancel your request, please press star two. Again, please press star one to ask a question. Our first question comes from Keane Martin from Jefferies. Please go ahead.
Thanks. Morning, all. I've got two. Forgive me if it's mentioned in the release, but do you share the revenue, EBIT and ROATCE of Hawco anywhere? When we're thinking about sort of considerations to exit sort of non-core, is it really as simple as, you know, those businesses maybe not delivering the model KPIs that you have targeted for the medium term? Then secondly, just your comments, Johnny Thomson, on sort of the North American Seals sort of destocking and the sort of the consumer facing. Are there any pockets in the business where maybe higher interest rates and economic uncertainty is starting to impact client behavior or anywhere maybe where you're seeing elasticity of demand starting to bite as you pass through inflation?
Okay. Well, I'll talk about that first, and then we'll talk about disposals, and Chris can answer the point on Hawco specifically. Look, yeah, as I mentioned, I mean, first of all, the growth has been pretty good, and as Chris said in his presentation, pretty broad-based across all the sectors and the geographies. We're pleased with that, and we're seeing good momentum into the second half. You know, as I think we touched on, we will see our growth moderating naturally. We can't keep up 10%, 12%, 15% growth rates. It'll moderate a little bit with price being less a component as we go on and of course, tougher comparators.
Where we're seeing some movements in end markets, I would say principally the OEM businesses, and where we're seeing as we expected, and I think we talked about in January, a little bit of inventory rundown in some of our customers in some of those OEM markets. You can see that, as I mentioned in the North American Seals, and there's a little bit of that in our European OEM businesses as well. I mean, that's the main place that we're seeing it. I think beyond that, I mean, we just got so much great end market exposure, which is still structurally very sound. I mean, diagnostics and surgical, as I mentioned on Life Sciences and their last quarter and second half is looking very good. Our markets in energy, defense, civil aerospace, even electrification, very strong.
Digital antenna, Windy City, water and renewables in Seals. We haven't yet seen much of the infrastructure investment coming through in the U.S., but we're expecting that to do so over the coming months and years. Yeah, I think the main area is that OEM inventory unwind. I think that will have a limited shelf life before we start to see those businesses come back to growth. Overall, the portfolio is in very good shape. We still have very strong end markets. Of course, we still have lots to go for ourselves in terms of geographical and product activity. We feel that the group is increasingly revenue re-resilient, and that'll underpin this year and future years.
Yeah.
Yeah. Keane, we don't, we don't disclose Hawco, you know, the acquisitions, the bolt-ons we put on, were about, we can see in the notes, GBP 21 .5 million of revenue and GBP 4.9 million of profit. Hawco had a little less than that in profit and a little more than that in revenue, importantly, was slower growing. That should give you enough. Oh, ROATCEs, it was there or there about group average. Just on the point on disposals you asked about more generally. I think what we've said about the portfolio, as the group gets bigger, of course, portfolio discipline is massively important. Maybe four or five years ago, not so much. Now much, much more so.
As we'll talk about in the investor seminar, we've made a big effort to really, I guess, consolidate our business units into those core ones that we want to grow on scale. Part of that, of course, has been disposals. When I first joined four years ago, I looked at all of the businesses according to both their value add proposition, the business model, and secondly, our right to grow and scale it. Because of the excellent work of the last management team, there wasn't a lot there that didn't fit into those two definitions. Over the last couple of years, we've just tidied up four now that we felt didn't quite fit there. I think we're getting towards the end of it, quite frankly.
There might be one more, maybe two, but we're getting towards the end of it. I wouldn't expect too many more. If they are, they're gonna be very, very small.
Very clear. Thanks, Johnny
Our next question comes from Oscar Val from J.P. Morgan. Please go ahead.
Yes, good morning, Johnny and Chris. Just three questions from my side. The first one on, I guess, Controls. You mentioned defense and aerospace as being kind of diversification drivers. Could you just give us a sense of how large defense and aerospace are? The second one is a small one on pricing. You said that it's mainly volume in H1. Could you give us a bit more color there on pricing and how do you expect pricing in the second half? The final question is specifically on Windy City Wire. You've talked about, I think, a bit lower volumes over the course of H1. Can you just remind us what you're seeing in terms of exposure to commercial real estate or, what do you expect for Windy City Wire for the, for the second half? Thank you.
Yep. Okay. I'll touch on that. I'll let Chris do pricing volume, and then I'll come back and do Controls in a sec. I mean, I would just be a little careful on wording there. We're not seeing lower volumes, we're just seeing lower growth of volumes. That's coming from a place where their volumes have been double-digit for the last few years, but also for the last decade. It's just slightly slower growth. You know, that's to be expected. They can't carry on the kind of growth that they were delivering on volumes over the last few years. It's not too much of a surprise. We still see, you know, fairly good behaviors across the patches on the building automation and the commercial real estate point that you made.
Lots of digital antenna infrastructure work still going on. Data center rollouts, probably not going quite as fast as they were, but still growing. It's not a disaster, but they're still in very good shape from a volume perspective. I'd say more generally, the second half of the year, where the growth won't be as much as it was in the early quarters, I think, but it'll still be good growth. More importantly, the profit growth will be extremely strong for this year as well. As I said in the presentation, it's gonna be another fantastic year for Windy City, and we'll surpass the 20% return this year.
The one thing to remember that I, you know, always try and remind people of, you know, whether you think about it in halves or full years or whatever, this is a phenomenal business in a great marketplace. You know, not only the U.S., but it's in structurally growing end markets. Its customer proposition is winning market share. It's got a well invested operating platform. Margins now are above 25%. It's got a winning management team and culture. You know, that's a combination which is gonna continue to deliver for Diploma over many years in the future. Chris, do you want to talk about volume and price?
Yeah, sure. Look, in the first half, as we said, it's a little more price than volume. You know, on the order of magnitude of kind of 60/40, 2/3 to 1/3, that kind of level. Going forward into the second half, there's not a lot of price to come in H2. We would expect a bit more in the following year, but there's not a lot more to come through in H2. What I would point to in the second half is we do have some mixed benefits coming our way. I mean, Johnny alluded to in Life Sciences, we've had a, you know, a half one that was heavier on capital sales, which precede the consumable sales that come through at higher margins.
You know, like for like price, not a lot to come through, but I'm looking forward to a bit of mix in the second half.
I guess you asked a question at the start, Oscar, about control.
Yeah.
I think the important point to make on this is that, you know, there isn't any one end market that is massively material to the group, and that's part of our, you know, the power of the diversified revenue stream and therefore the resilience of the group. Some of those that you mentioned, like civil aerospace and defense are 2% or 3%, you know, kind of level. Energy as well, 2% or 3% kind of level across the group. You know, they're a bit more in terms of their exposure to Controls. From a group perspective, they're not massively material, which again, as I say, is part of the power of our diversified revenue streams.
Oscar, I think I just said 60/40, price volume. I clearly meant to say 60/40 volume price.
Yep. Great. Thanks a lot, both.
Thank you. We'll now take our next question from James Rolls from Barclays. Please go ahead.
Hi there. Good morning. I've got two, please. First, on RNG. I mean, could you expand on how that's doing so well at the moment? Is it a function of its own end markets, or are you starting to see revenue synergies come through already in that business? Secondly, on all the large investments which are, you know, well documented going into the U.S. across infrastructure, energy, reshoring, et cetera, what exposure do you think Diploma has to that? Could Windy City Wire get involved with these projects a bit further down the line?
Sorry, James. Can you just ask the second part of that question again? I missed it.
The second one's on the big investments going into the U.S., so-called mega projects.
Yeah.
What exposure does Diploma have to those? Is it something Windy City Wire could get involved with further down the line?
Yeah. Yeah, yeah. Okay, fine. Well, look, I mean, taking those in order, RNG has done fantastically. I mean, you know, we talk a lot about Windy City Wire as the performance of our biggest acquisition. RNG was our second biggest acquisition, and it's grown at 15% since we bought it organically. We're really, really excited about what the guys there have done. Some of that is about geographical penetration into different regions of the U.K., which is something we highlighted when we bought it. We are also cross-selling different fluid power products through their network. We're getting some growing addressable market through product extension from them as well.
I think the other thing, of course, is that since we acquired it, we've done five bolt-on acquisitions at between 3 and 4 times multiples, and clearly driving not just growth potential, but obviously fantastic returns for RNG as well. We're really, really happy about the way RNG has delivered since it came into the group. On the U.S., yeah, I mean, look, there's gonna be, you know, we all hope and we all see, and if we believe what the bills have passed and the funding, there's gonna be lots of investment into the U.S., which is fantastic. Some might talk about, you know, short-term slowing, et cetera, but it's the biggest market. It's a homogeneous market, and it's the fastest-growing market over the long term.
For us, it's also the greatest service-based market too, which makes it a great place to be. If this investment, as it turns out, comes into that market, then it's gonna be great for us too. I think as you mentioned, you know, commercial investment and infrastructural investment around data and communications will benefit Windy City Wire. Construction, of course, around ports, bridges, motorways, whatever else will, of course, help our Seals businesses too. Increasingly, we've got platforms in some of our other Controls businesses in business units in there as well. The likes of specialty fasteners now have a platform there. Interconnect now have a platform too. That investment will support the growth of those business units as well.
you know, regardless of whether the U.S. is slightly more modest, let's say, in its growth in the short term, but the long term, I feel, you know, massively positive about it.
Great. Thanks very much.
Our next question comes from Henry Carver from Peel Hunt. Please go ahead.
Thanks. Yeah, morning, guys. Just one on margins for me, pretty straightforward, but, you know, clearly, they're, you know, running pretty well at the moment and guiding to 19% for the full year. Just reading the commentary in the individual subsectors, you know, are we looking to margins, at least in the sort of short to medium term, progressing a lot further than sort of 19 and perhaps above the 20 level? Have I read that wrongly, and in fact, there'll be other investments that will sort of keep that paired back to the sort of 19%-20%? Just any more color around sort of medium-term margin expectation would be great. Thanks.
Yeah. Thanks, Henry. I mean, let's just take stock a second. I mean, 18.8% first half margin is the strongest we've been for a decade in this group. This is a, you know, this is a fabulous margin level that we're starting from. Our financial model remains 17%. You know, we've got an ambition to do better than that, but I don't want. You shouldn't be running away with that now. If you look at it sort of, segment by segment, clearly there's some movement that we would expect up from, you know, Life Sciences, perhaps to offset with some moderation elsewhere. No, let's rejoice at 18.8% before we run too far ahead, please.
Up with Controls and I think was what Chris was trying to say, Controls sectors. I think, you know, just to add to that, you know, we've got a margin formula, and of course, we're gonna see benefits from scale and performance improvements. As we've said, we'll keep reinvesting in the sustainability of the group for the long term, and that's really, really important for this equity story. That might mean for certain periods, the margin goes up a little bit. It might mean that in some sectors it goes up, but in others, it just moderates depending on timing of investment, et cetera. Overall, you know, we feel that we can sustain very, very good margins for the long term.
Okay. No, understood. Thanks.
Our next question comes from David Brockton from Numis. Please go ahead.
Good morning. Can I ask two, please? Firstly, in respect to the Life Sciences business, I think you flagged a clear acceleration that you saw in the second quarter. I just wonder if you could just touch on whether that is almost all being driven by the sort of recovery in elective procedures. Maybe if you could just elaborate on what you're seeing from a sort of diagnostic spend in that division, please. The second question just relates to, I guess, the labor market backdrop that you're seeing as a business. I think maybe a year or so ago, you were flagging it was very sort of tight in North America, in particular.
Can you just maybe just touch on how you've performed from a retention perspective through the half and whether you're seeing any sort of broadening or improvement in your ability to hire and also the investments you're making, to what extent does that improve your attractiveness as an organization? Thanks.
I mean, the Life Sciences piece, I mean, I think it's a number of factors that we're seeing coming through. I mean, clearly the staffing shortages have affected surgical procedures for some time now, and that, as we said a bit earlier, it has improved quite a bit. It's not necessarily all the way back to pre-pandemic levels, but it's certainly a good chunk of the way back, which of course is very helpful. There are other factors going on here as well. You know, for some time, a number of years, of course, much of the focus, resource focus, as well as financial focus was on pandemic and pandemic solutions.
Of course, it's taken a little bit of time post-pandemic for the healthcare environment to get back into reinvesting, and therefore we're starting to see much more investment now being released into medical and medical equipment, which is why you see a bit more capital, I guess, in our first half. I think the final point is that the diagnostics investment has been increasing for some years now, and we're seeing that continuing beyond the second half. Getting clear of COVID, of course, to my previous comment, helps that a little as well. We're certainly feeling very excited about not just the second half for Life Sciences, but beyond into the years ahead. You asked about labor markets.
I mean, to be honest with you, I think labor markets for us were really tight probably summer last year into autumn. That's when we felt it hardest. You know, wage increases, salary inflation, et cetera, towards the end of last year. By the end of last year and into early part of this year, we certainly felt the labor markets were much more manageable. We certainly haven't had the pressures that we had a year or so ago. Of course, I suppose more people have come back to work. Savings levels dropped. Not so much of the subsidized support, et cetera. More people have come back into the market and therefore we feel good about it.
I think the other thing to say is that we are a great employer. I do think, you know, my point earlier about Diploma being differentiated from an employment perspective is a really important one. We have great levels of engagement. Some of that is because of how we value our people, but some of it is also because of the history of the businesses and the close-knit local community that has been bred and brought up through the development of these businesses over many decades. We do feel that that's a standout competitive advantage for us.
Very much.
Our next question comes from Daniel Cowan from HSBC. Please go ahead.
Morning, guys. Two and a half questions from me. First one, Chris, on balance sheet structure. You were sort of reviewing that. I was just wondering if you can give us an idea of sort of what you're thinking about there. Then sort of appended to that is about dividend, and how you're thinking about dividend going forward, you know, in the sort of context of that progressive dividend policy. Then the last question is about the M&A pipeline. You're saying it's GBP 1 billion roughly now. It was I think when you first mentioned it back in March, you were talking about GBP 800 million.
I was just curious as to what the what has changed there if anything. Is there anything you can point to that might explain that difference, please?
Yeah. Well, I'll pick up on that point first, and then I'll let Chris talk about balance sheet and dividend in a second. I mean, look, the pipeline is really good. It's very encouraging. You know, the pipeline changes all the time, of course, as you would expect. It's always a moving target. The great thing for us, of course, is that we have been over the last three or four years, taking a more structured and strategic proactive approach to building that pipeline. I hope that over time, it generally goes up. It has moved on a little bit in the last few months which is great. The important thing is not necessarily the size. The important thing is that it's well diversified across geography and sector.
It's of the typical Diploma size. You know, GBP 1 billion, at about 50 assets tells you that it's about GBP 20 million size. You know, it's predominantly taken up with typical Diploma size deals, maybe the occasional slightly bigger one for portfolio or strategic reasons, as I said. It's a very not just a decent size, but it's also a healthy pipeline. Over the next, you know, months, and years, of course, we hope to be able to deploy some of our capital against that pipeline. We won't do it all. We retain a lot of discipline. We've got to get the right businesses. The three characteristics that I mentioned earlier, you know, value add distribution, organic growth management teams, et cetera, really important. Organic growth around the three buckets, really important.
Managing the portfolio, in a structured and sustainable way, very important. Financial returns leverage, very important. Of course, for us also, management bandwidth and making sure that we're thoughtful about that too. You know, we're very optimistic about the pipeline. We're hoping that we'll be able to deploy some capital against it, but we'll also do so in a disciplined way. Chris?
Yeah. Dan, look, firstly, balance sheet structure. I mean, if we just take ourselves back two or three years, this business was bank funded and kind of pre-Windy City, was, you know, had a teeny-weeny little balance sheet. We find ourselves now in a kind of interim stage where, you know, we've got a decent amount of facilities, but it's all bank. You know, we've extended it, but it's still kind of bank maturities out to 2025. I would imagine going forward, we will put in a piece of, you know, debt capital management that will give me something longer term as a sort of stable underpin, over which, you know, bank facilities would then manage the variability.
Nothing, you know, nothing untoward, just what you'd expect from a, you know, a business of our size and growth. In terms of dividend, look, there's probably 3 points to make here. You know, firstly, as a board, as a management team, we are very committed to a progressive dividend. And, you know, we feel 10% is a good number in the first half. You know, secondly, as Johnny was talking there, you know, any dividend decision is taken in the context of a broader capital allocation policy. That's something that companies and management look at, you know, from time to time. Thirdly, look, it's the first half.
Don't read anything into the difference between EPS and DPS growth in the first half. It's a double-digit progressive dividend.
Oh, yeah. Thanks. Thanks, guys.
Thank you.
As there are no further questions in the queue, that concludes today's question and answer session. With this, I'd like to hand the call back over to Johnny Thomson for any additional or closing remarks. Over to you, sir.
Thank you very much, everyone, for joining. We're very pleased with the performance so far. Importantly, we've got good momentum into the second half, and we feel the group has great resilience, hence our upgrade. We've got massive organic growth potential that we're excited about, and we're diversifying our businesses into that potential. We're scaling our businesses and our group for sustainable long-term delivery. I'm feeling very confident, more confident than I've ever been in continuing to deliver on our long-term quality compounding in the future. We look forward to seeing you in June. Thank you very much. Have a good day.
Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.