Welcome. For those of you in the room, it won't have escaped your notice that, I am here on my own. Johnny had his appendix removed last night. He's been busily emailing me all morning with pointers, and it's the best I could—all I've been able to do to keep him recuperating. So I'm sure we'll see him back in a couple of days, but this morning, you've just got to deal with me, I'm afraid. So I'm going to cover off three things this morning. I'm going to give you a brief overview of the results. I'll then deep dive into the numbers, and then I'll come back and talk a little bit about the strategy that drove the numbers. So it, it's been a great year for Diploma.
We've delivered an excellent performance across all of our key metrics, building on our long-term compounding track record, and we have really encouraging momentum into the new year. We're executing on our strategy of building high quality, scalable businesses for organic growth. This will ensure sustainable quality compounding for the long term. Diversifying our specialized businesses into structurally growing end markets, penetrating further core geographies, and extending our product capability is driving organic growth, scale, and resilience, and we continue to develop our business' value add model for scale, improving our customer proposition and our margins. In fragmented markets, we acquire quality businesses that accelerate that organic growth at great returns. A further 12 businesses joined us this year, 10 smaller bolt-ons and two strategic platforms in TIE and DICSA.
And we continue to focus on our environmental and social framework, delivering value responsibly, and we're making encouraging progress towards all of our targets. So overall, another great year. As I said, our performance was excellent. Organic growth of 8% was volume-led, and we're really pleased with the Q4 exit rate of 7%. Momentum is encouraging into 2024. Our strong reported growth of 19% included 8% contribution from the acquisitions made in the year, and our margin progressed by 80 basis points to 19.7%. We've worked hard on cost control. We've taken advantage of scale and the improved mix of higher margin new businesses in the portfolio, partially reinvesting in scaling the businesses in the group. So adjusted EPS grew by an excellent 18%, outpacing our long-term track record of 15%. But financial discipline is key to long-term compounding success.
Our cash generation was really good. Our ROATCE improved again to 18.1%, reflecting the quality of the acquisitions made over the last 5 years, and our balance sheet is in great shape, giving us flexibility for further investment. So overall, an excellent performance. So let's look briefly at the longer term. This group has compounded revenue and EPS growth at 14% and 15% respectively over many years, and in recent years, we've accelerated that. As we outlined in our investor seminar in June, we have a differentiated business model, a clear strategy, and a powerful decentralized culture that together will sustain this quality compounding over the long term. Our business model is resilient. We typically deliver critical products at low component cost into our customers' OpEx budgets, supporting high-value end applications, and that's always underpinned Diploma's resilience.
But the continued diversification of our revenue streams, accelerated over the last five years, increases this further. The value-add nature of our products and services drives margin resilience, too. And finally, our low capital intensity drives resilient cash flows, and this is why we have such confidence in our ability to deliver sustainable quality compounding into the future. But it's the people and culture that make that kind of track record happen. So on behalf of Johnny and the management team, I'd like to thank all of our brilliant Diploma colleagues for their dedication to delivering great service to their customers. At our seminar in June, we talked about how our value add business model lends itself to a decentralized management approach, an empowered culture of commerciality and accountability, agility and open-mindedness, rigor and continuous improvement.
This is our secret sauce, and preserving it as we scale is critical. So how do we do that? Firstly, we keep it focused with portfolio discipline and simple strategic performance frameworks. Next, we maintain lean structures with exceptional dynamic leaders. While we review businesses' progress regularly, we also actively manage the mood of the organization to ensure agility, pace, and execution. Finally, whilst preserving our decentralized culture, we can enjoy the benefits of a bigger group by creating networks and sharing best practice to become more than the sum of our parts. So I'll go into a little bit more detail on the numbers now. As I said earlier, our diversified portfolio and growth strategy drives strong, sustainable revenue growth, and this has been a great year.
We delivered 8% organic revenue growth ahead of expectations, and we were up 19% overall after acquisitions and FX. This strong organic growth was broad-based across all sectors and importantly, was driven by volume. Controls increased organically by 11%, driven by excellent double-digit growth in international, where we benefited from market share gains in the growing civil aerospace, defense, and energy markets. Windy City Wire delivered another excellent performance against very strong comparatives. In Seals, our aftermarket-focused businesses in the U.K., Australia, and the U.S. continued to grow strongly. Despite softer performances across the U.S. and European OEM businesses due to some customer destocking, the sector overall grew at 5%. Life Sciences grew strongly in the second half, as expected, to finish the year up 8% as hospital staffing, surgical procedures, and investment levels continued to normalize.
So we have good momentum coming into this year, with fourth quarter organic revenue growth ahead of our financial model at 7%, with about 5% of that driven by volume. So I now move to operating profit. We delivered operating profit growth of 24%, and that is driven both by the strong revenue growth I just outlined and importantly, by ongoing margin improvement, and we drive margin in two ways, as shown on the chart. So while price only accounted for a small portion of our revenue growth, it is a key measure of our value add and the solutions we bring to our customers, and we continue to manage price to cover off input cost inflation.
In addition, as they grow, our businesses benefit from performance improvements and operational leverage, and we'll selectively reinvest a portion of this to scale the businesses, building out management teams, enhancing systems, and upgrading facilities to ensure that we can continue to deliver our value-add solutions at scale. And the net impact of this in the year was an 80 basis point improvement in operating margin to a very strong 19.7%, ahead of the upper end of our guidance range. So let me just finish off with the rest of the P&L. Net interest expense increased to GBP 20.4 million, driven solely by higher interest rates as average gross debt remained broadly consistent year-over-year.
Our all-in blended cost of debt has increased from just under 3% last year to 5.6% this year and remains very manageable at this level, and I anticipate a similar level of interest charge in 2024. So with a tax rate of 24% and a 7.5% increase in issued shares following the equity placing in March, earnings per share increased by 18% to [GBP 126.5] So in line with our financial model, and as we outlined in the seminar in June, we've proposed a 5% increase in the dividend to [GBP 56.5] per share, continuing our long track record of progressive dividend growth. So let me turn to cash.
As I said earlier, our capital-light business model, coupled with financial discipline, drives strong and consistent cash conversion, and this year is no exception. 100% conversion is ahead of our financial model and drove free cash flow of GBP 164 million. Capital expenditure of GBP 21.6 million is driven by scaling investments in facilities and system upgrades across a number of our businesses. This represents a little under 2% of revenue, a level at which we expect to sustain over time. Working capital increased by only GBP 4 million, despite a 19% increase in revenue. Now, this is largely driven by a GBP 10.8 million reduction in inventory as a result of our strategic focus in this area as supply chain constraints have ceased.
During the year, we acquired DICSA, TIE, and 10 quality bolt-on acquisitions, as well as paying GBP 12 million in deferred consideration relating to acquisitions made previously. Continuing our disciplined approach to portfolio management, we disposed of the lower growth, lower margin Hawco business for GBP 23 million, and the net of all of this is acquisition cash flow of GBP 255 million. The combination of this strong free cash flow and the equity raise have driven a reduction in net debt to GBP 255 million, driving leverage down to 0.9x , which gives us significant investment headroom and flexibility. Let me just round off in the balance sheet. We've strengthened our balance sheet this year. We've restructured our banking facilities and extended the maturities to July 2028, with options to 2030.
So we have ample capacity to invest in further growth with cash and undrawn facilities of about GBP 300 million. We're currently evaluating facilities to develop our balance sheet further in line with our growing business and to diversify our sources of funding. So I now want to remind you of how we allocate that capital. As you know, our first priority is organic growth. We are a capital-light business, but we will maintain a reinvestment rate of around 2% of revenue to scale our businesses. Our second priority is to accelerate this growth through acquisitions. We target 20% ROATCE for all acquisitions, with smaller bolt-ons achieving this in year one and the bigger deals typically getting there in three to five years. Next, we will continue our progressive dividend policy and expect to increase the dividend by 5% each year.
And finally, underlying all of this is balance sheet discipline, and we aim to maintain leverage below 2x EBITDA. As I said earlier, in 2023, we've managed it to under 1x. Net effect of all of this is an 80 basis points improvement in ROATCE to a very strong 18.1%. This is an outstanding outcome in the context of the capital outlay on DICSA and TIE, still in their very early days in the group, and we fully expect those to reach the above-average returns that Windy City and R&G are now delivering. Let me say a bit more on those acquisitions. As I said earlier, in fragmented markets, we deploy capital selectively to acquire quality businesses which accelerate strategic execution, build scale, broaden our portfolio, and accelerate organic growth. We have stringent criteria that drive discipline.
Any target must have a true value-add customer proposition. It must have strong organic growth potential, and it must have a great management team that we can back. Our business model and culture make us an attractive proposition to small business owners. We preserve their legacy and their heritage, and we're in it for the long term. So as I said, we made another 10 bolt-ons this year, generating GBP 33 million of annualized revenue. We've now done over 20 of those since 2019 at an average price of under GBP 4 million, an average multiple of under 5x, and with 20% returns in year one. We would like to keep doing more. Occasionally, we'll make larger, more strategic acquisitions. This year we acquired two, TIE and DICSA, accessing strategically important markets.
TIE Industrial for GBP 76 million and DICSA for GBP 170 million, both at about 9x EBIT multiples. I'm going to come back to both in a few minutes. The group has a long track record of successful application, acquisitions and a billion plus pipeline of attractive opportunities for this year and beyond. I'm going to close this section with some guidance for the year ahead. As I said, 2023 was a great year, and 2024 has started positively. While we remain mindful of the uncertain economic outlook, we are confident in the group's prospects. Diploma has an excellent track record of compounding growth and delivering strong financial returns through the cycle. Our model is resilient, and its resilience has increased over time as we execute our strategy. Diversification through our group's three growth buckets drives revenue resilience.
Value add, at the core of our customer office, offer, drives margin resilience, and our asset-light business model drives resilient cash generation. So despite the more challenging environment, this resilience means we expect to deliver organic growth this year in line with our long-term financial model and at higher margins. Therefore, our 2024 outlook is for volume-led organic revenue growth of about 5%, contribution from 2023 acquisitions to add a further 6%, strong operating margin of around 19.7% in line with 2023, and free cash conversion to remain strong at around 90%. The year has started well, and we are excited about the future. So let me give you a little more color behind the numbers. Our strategy is clear, and it's working. So a quick refresher.
We drive organic growth in what we call our three buckets: positioning behind structurally growing end markets, penetrating further in core developed geographies, and extending our product range to expand addressable markets. Small businesses stepping out of their niche, taking their specialized proposition to new places, and they all have fantastic opportunities. This strategy drives exciting, sustainable organic growth, scale, and increased resilience. We complement our organic strategy with bolt-on acquisitions that accelerate organic growth at great returns. We have a strong track record of value-creating acquisitions, as I said earlier, and a healthy pipeline of opportunities. That we scale those, 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, whilst always preserving those key differentiators.
So building effective scale is key to the strategy, developing our businesses and our group to become better, not just bigger, to sustain that long-term delivery. And finally, Diploma's products and services are well-positioned for the sustainable economy. Our environmental and social platform, delivering value responsibly, is embedded in our culture and our commercial activity, and through it, we can make a meaningful difference. So if you now look at our three growth buckets, one of the really exciting opportunities is to access structural end market investment trends. Our products and services fit really well into these, and we are working to develop our exposure further. This approach will increase our revenue resilience, as well as actively positioning us in the sustainable economy, what we call positive impact revenue. And as we look ahead, these markets should grow by anything between 5% and 10%.
With market share potential too, increasing our exposure can potentially add 1% or 2% tailwind to our group's organic growth over time. Now, you've seen this before, but now let's look at the significant white space opportunity in the other two buckets: geographic penetration and product extension. Geographically, we are focused on the core developed economies, and as you can see, penetration is still very small. We don't need to go to higher-risk developing markets for our growth. We have little or no market share in most of our product verticals across the U.S., Europe, and the U.K., but we can change that. Our recent acquisition of DICSA, for example, has given us access to fluid power in Europe, following on from the success of R&G in the U.K., and we can also add new product verticals. We don't want to go crazy with this.
As I said earlier, portfolio focus is important to us, but we'll selectively invest to ensure that it suits our business model and we have the right to scale. Specialty adhesives and automation in Controls in the last few years are good examples of this. So we believe that geographic penetration and product extension can also add 1%-2% to our group organic growth over time. So let me update you now on our sectors. Starting with Controls, progress has been excellent. Organic growth was 11%, reported growth 15%. Windy City has delivered another strong performance, with organic growth of 7% through a combination of volume and positive product mix, and this drove strong margin expansion and hence profit growth was again excellent at 24%.
This performance is especially pleasing in a tougher market and against strong comparators, and again, demonstrates the quality of the business, its exposure to structurally growing end markets and differentiated proposition, a well-invested operating platform and a winning team. International Controls has delivered truly excellent performance with 15% organic growth. We are winning market share in structurally growing end markets such as energy, defense, aerospace, and growing our exposure to electrification. We have extended our product capability with entry into automation through TIE. Operating margin improved significantly, primarily due to positive operating leverage and mix benefits from the acquisition of TIE and the disposal of Hawco, and this momentum continues into the new year. So let me make a couple of points on TIE.
We acquired TIE back in March, a market-leading value-add distributor of aftermarket parts and repair services into the fast-growing U.S. industrial automation end market. And TIE is a true diploma-style business, technical, customer-focused, value-add business with fantastic growth potential and strong accretive margins. And there is a long runway for growth, with onshoring of manufacturing in tight labor markets supporting automation. We are investing in sales capabilities to take advantage of those structural growth trends. We've started to connect TIE with some of our other U.S. businesses, and we see big customer penetration potential over time, and we're really encouraged by the progress and the opportunities ahead. So turning to Seals. Seals has delivered another good performance. This sector has been our most resilient through and beyond the pandemic, a great example of our diversification strategy in action.
Organic growth was 5% and reported growth 26%, the latter principally reflecting the two fluid power acquisitions over the last 18 months. International Seals delivered another great performance with 9% organic growth. We are seeing the increasing benefits of exposure across a wide range of end segments: wind, water, food and beverage, medical. R&G had a fantastic first full financial 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. We've also completed four R&G bolt-ons in the year, and by the way, one more since. DICSA joined the sector in July, giving similar fluid power capability in Europe, and more on that in a minute. Following a really strong 2022, our North American Seals business delivered 1% organic growth.
The aftermarket delivered another year of strong growth, and this business will increasingly benefit from U.S. infrastructure investment through its attractive exposure to U.S. mobile machinery repair, and we continue to drive market share gains. Now, we have continued to see some destocking in our industrial OEM customers across North America and Europe, and while we remain confident in the long-term prospects of these businesses, we do expect this to moderate sales growth in the near term. As indicated, margins improved in the second half. The continued improvement in R&G margin and the mixed benefit of DICSA will support this into 2024. So while growth will be slower in the coming few quarters, we are very optimistic about the medium and long-term outlook for Seals.
So DICSA, we acquired DICSA in July, a scaled platform in fluid power solutions across the European aftermarket. It has an excellent management team that's been built over many, many years, and the business has significant customer value add, specialized product, range and availability of product, technical service, and speed to market. Those drive accretive margins. It accesses our white space in Europe and, alongside R&G in the U.K., expands our fluid power capability. Now, the continental European industrial market is a little slower for now. However, DICSA has an impressive organic track record and has significant potential to grow in its existing markets of Spain, France, and Germany, and then right across Europe. We see exciting opportunities to collaborate across the group.
We can cross-sell existing products from R&G through DICSA's European platform and vice versa, as well as taking some procurement synergy, and there may well be potential with our North American businesses too. So Life Sciences. As expected, Life Sciences returned to very good growth this year, with a strong second half, driving 8% organic growth for the year overall and strong momentum into this year. Elective surgical procedures are returning closer to pre-pandemic levels, and there is a significant backlog, which is a tailwind for us in the years ahead. Investment into medical equipment has also now normalized, and we continue to see increased diagnostic investment as a significant long-term trend. All of these are helpful drivers of sustainable growth. We continue to develop our product portfolio and pipeline. That's the key factor in long-term success in Life Sciences.
We've also been using this time to develop our three regions for better customer servicing and for scale. That includes building out the management capability and consolidating regional facilities and systems. Margins have been extremely strong in the sector over recent years, well ahead of our financial model. We've seen some moderation in this year, in part due to the reinvestments for scale. But we are really excited about Life Sciences. The sector is well positioned for long-term growth. Now, delivering value responsibly. We have a clear DVR framework, excuse me, and measures. It's embedded in our commercial activity, and we are seeing good progress against all of our targets, as the slide shows. As a distributor, we look to work with partners who can support our emissions targets. As a service organization, we ensure our workplace is safe, inclusive, and engaging for our colleagues.
As I said earlier, our products and services are well positioned for the sustainable economy. We can make a meaningful difference. To conclude, our business model and our strategy continue to deliver quality compounding outcomes. Our brilliant teams and powerful decentralized culture enable sustainable execution, and we've had another excellent performance, and we're pleased with our strategic progress, too. We're excited about the massive potential for organic growth ahead and our strong acquisition pipeline to support that. Importantly, we're focused on scaling the businesses and the group to sustain our value-add model for the long term. Markets seem a little tougher, and we're never complacent, but our business is resilient, and our momentum into this year is really encouraging. We are confident in delivering sustainable quality compounding. With that, I will open for your questions.
Annelies, [you're in]
Don't worry about that. Hi, it's Annelies Vermeulen from Morgan Stanley. I have three. So firstly, on your 19.7% margin guidance, given all the things you've talked about at your investor seminar, about the operational leverage and unlocking organic growth and margin progression from your businesses, should we think about 19.7% as the floor going forward, not just for 2024 and 2025 and beyond? And actually, given if you expect that operational leverage to continue, could you actually do a little bit better than that, than that 19.7%? I'll do them one by one.
Fine. Well, first of all, we're really thrilled with 19.7%, and, yeah, an 80 basis point improvement is fabulous. It is structural. I mean, the key driver of that margin improvement was the operational leverage of the existing businesses, with a little bit of tailwind from the acquisition mix. But I don't want to get ahead of ourselves. Let's just stay with that for now. I want to keep a bit of flexibility. You know, you never know when we might want to invest in a great opportunity that could come in at lower-than-average margins, at least in its early years, like we did with R&G. So, I'm comfortable with that for 2024. Let's just park that for now.
Fair enough. Then just on Seals. So you've talked about destocking, moderating, Seals growth for this year. Are you able to quantify what that means relative to your 5% guidance organic for the group? Should we think about a sort of low single-digit number for Seals? Also, what the phasing of that will look like through the year. Do you expect Q1 and Q2 to be softer relative to Q3 and Q4?
Yeah, look, I mean, I don't have a crystal ball, but clearly, we are close to our, to our customers and talking to them sort of week in, week out. So we do think we're through the worst, and we do think we'll see this improve in the coming quarters. I suspect that the next quarter or so will be weaker than thereafter. It doesn't dent our confidence in the group guidance of 5%. Does that mathematically mean Seals might be a little less than that? Yeah, it probably does.
Okay. And then just lastly, on your acquisition pipeline, so you talked about GBP 1 billion at your seminar earlier in the year. I think you talked about GBP 1 billion again today. Is that pipeline continuing to grow? And, you know, can we, can we confidently expect to see more deals closing in this quarter and in this financial year?
Sure. The pipeline has grown a little bit. It's still there or thereabouts, GBP 1 billion. It might be a touch bigger than it was at the seminar. It had gone relatively quiet in recent weeks, and we've had a bit of a flurry of incoming ahead of sort of calendar Q1. What's really exciting, though, is the number of bolt-on opportunities in that pipeline. We've already picked up one or two in the first six weeks of this year. So I think directionally, it's as healthy as it ever was.
Perfect. Thank you.
Good morning. It's David Brockton from Deutsche Numis. Can I ask two questions, please? Firstly, in respect of Windy City Wire, clearly it was a sort of a good, good year and coming off the back of some stellar years for that business. I just wondered if you can touch on the sort of demand outlook that you're seeing in the current year, maybe to sort of draw out any sort of particular product areas or sectors that are sort of contributing this year. That's the first question. And then the second question relates to sort of DICSA. I just wondered if you can just touch on how your views are evolving for the opportunity for cross-sell within that business, sort of post-purchase? That'd be really useful. Thank you.
Yep. Look, on Windy City, I need to be careful. I've only been here a year. Windy City is probably one of the best businesses I've ever seen. This business has grown consistently over 30 years. It's just had a record month in October, by the way, as well. I think the core market and the core proposition, you know, is so important to customers that, you know, if they try it, they stick with it. And as I think we talked about at the seminar, we're also diversifying into new end markets, such as the radio frequency channels for emergency services, et cetera, et cetera. So, yeah, Windy City is, you know, just going great guns. DICSA, look, it's early days, very early days.
Very, very happy with what we've got. In particular, to your question on cross-sell, they have now met. There's been sort of top-to-top meetings between R&G and DICSA. That was very fruitful. The R&G management team, I was talking with them last week. They're very enthused by the opportunities, and I think we've just put in place the meeting with the North American team. Early days, but certainly both our existing business management teams and the DICSA teams are seeing that potential at least as strongly as we saw it when we bought it.
Hi, James Bayliss from Berenberg. Two questions, if I may. You referenced the disposal of Hawco, given its lower margin, lower growth. Given you've continued to build out the portfolio, targeting higher margin, higher structural growth, operating companies and end markets, does the logic then follow that there are some other legacy operating companies that now fall into a band you might consider disposing of them? And then my second question is just on the inventory management piece. You talked to the fact you unwound about GBP 10 million of excess inventory over FY 2023. Is that now where you want it to be, for the group overall, or is there anything more you can do on that front?
Thanks, James. Yeah, and thank you for that question. Portfolio management is really important to us. And Hawco isn't a bad business. It just no longer had the defendable value add and the great growth opportunities and the scalability that we require in a business. Now, could there be more of that as the business grows? You know, does the hurdles come up a bit? Does the water level go down a bit? Yeah, potentially, yes. You know, we're not looking every day, are we? But, you know, most every year through the strategy process, we'll screen on, you know, growth, scale, and ask exactly your question. So look, might there be one or two runny edges? Yeah, potentially, but nothing, nothing major.
Inventory, I think we're broadly happy with where we are now. You know, might there be a little bit more to come out? Possibly, but nothing material. No more in the room. Got any online?
Yeah. So we've got a question around: Can you give a rough split of the 80 basis points year-on-year margin expansion, please, and how much you'd attribute to mix, volume, operating leverage, and cost control?
Very little is price. Price covers inflation, so very little is price. Operating leverage is the single biggest element. I'm not going to get mathematical about breaking down the 80. You know, cost played a part, but in order operating leverage and performance benefits from the existing businesses, then probably equal cost management and a bit of leverage from the new M&A, and with price, a distant third. And that's it. No more questions from the room? No more questions online. Thank you all very much.