Diploma Stock

Good morning, everyone. Thanks for joining us. I'm here, as usual, with our CFO, Wilson Ng. I'll say a few words on quarter 3, and then we'll move as usual to Q&A. It's been another great quarter for us, 15% organic growth, continuing the momentum from the first half of the year. The sector trends are broadly the same as they were in the first half. Controls, very strong broad-based growth, IS Group, Clarendon, Peerless, Windy still growing double digits, taking good market share in fast-growing end markets. Life Sciences, conversely, markets are tougher. We're going through a little bit of product cycle -- product life cycle refresh. I'm really, really pleased with what we're doing in Life Sciences, what the team are doing, but we will expect low single-digit growth for the year.

Seals, we've seen some acceleration in quarter 3, and we're expecting a good quarter 4, too, not celebrating. International is a bit better, but patchy and North American Seals is still doing very well. So look, overall, we're really happy with the quality, with the performance of the portfolio. Peerless continues to perform fantastically, taking share in really good market conditions. Growth is moderating in the second half as we expected against very big comps. And that will continue to moderate into next year until we return to the track record of high single-digit, 10-ish percent growth. And we're managing margin down modestly, and we'll continue to see good profit growth going forward. Very, very pleased with the rest of the portfolio. Organic growth now up at 10% for the year, excluding Peerless.

We spoke in May about CDM, an acquisition we’ve now completed, $170 million deal, $80-odd million of revenue.

It’s a great interconnect business for us, platform for them in the U.S., an attractive exposure to the U.S. defense markets. It’s got a great team. They’re settling in well. We did five deals actually in quarter three, although they were all announced at the half year in May. That makes 15 new businesses in the last 12 months, a record number actually for us. Deals, of course, won’t always be linear. But our pipeline is strong, diversified and we’ve got plenty of balance sheet capacity. Just a few words on the full year outlook. We’re increasing guidance, as you can see, a further 7% upgrade. Organic growth guidance increased to 14%. No change to acquisition guidance at 6%. Margins up to 26.5%. Altogether, that represents 7% upgrade to profit growth for the year of a little over 40%. So Overall, we’re in very good shape.

The momentum is encouraging. Loads of opportunity ahead. The mood is buzzing. We’re feeling good about continuing our successful long-term track record of sustainable quality compounding and with that, I’ll hand back for questions.

Thank you very much Mr. Thomson. [Operator Instructions] Our very first question this morning is coming from Annelies Vermeulen, calling from Morgan Stanley. Please go ahead.

I have two questions, please. Firstly, you’ve upgraded guidance yet again for full year '26, but could you comment a little bit on what this means for full year '27 as we start to approach the year end? And then secondly, related, given where you’re running at now in terms of growth and margins, could we possibly expect an update to your medium-term financial model when you report in November? Thank you.

Great, Annelies, thank you for that. I mean I'll try to take all of those in one go, if I can. I suppose you're asking about a change in the financial model. You made a comment about upgrades and looking forward into next year. So I'll try and take them all together, if I can. First of all, on the financial model, look, as I said before, if we can deliver our financial model forever, it will drive incredible shareholder returns over the long term. Of course, we've got the ambition to beat it. But I think it's healthy for us to stay grounded, not get too greedy, and I see absolutely no reason, therefore, to upgrade our financial model.

On the upgrades, I think we've had too many this year, if I'm honest. Part of that is because it's been a much, much bigger year way, way, way beyond what we -- our track record. Secondly, a bit because the circumstances earlier in the year with a war kicking off in the Middle East, et cetera, we were just a bit cautious about the journey through our upgrading. So I would say that I wouldn't get used to please this level of upgrading as we go forward. And the last point that you asked about was guidance for next year. We don't normally guide at this point. We'll obviously be a bit more specific when we get to November. But as I was saying, just a few words on it, this is not a normal year for us. We're not going to be delivering 45% EPS growth, that kind of mid-20% return on capital every single year, are we, obviously? And we won't be doing 15% organic growth every year either, particularly, as I said, as Peerless just moderates a fraction over the months ahead.

Having said all that, we've got many decades of great compounding. We're feeling really good about our prospects. We're confident in our ability to keep compounding from this base. So practically speaking, as usual, you should expect that we'll revert back towards our financial model for next year, which is broadly where market consensus is right now.

Yeah, too many upgrades, at least that’s a quality problem in this market.

Our next question will be coming from David Brockton of Deutsche Numis. Please go ahead. Your line is open.

Can I ask a question on Peerless, please? You described how the business is lapping tougher comps and you’re managing the margin down modestly. Can you give an update on the demand trends you’re still seeing in that business today? And is that sort of margin moderation deliberate price action on your part, and what volume trends you’re seeing? And then as you look to sort of next year and beyond, how your broader growth initiatives are developing for that business. Thank you.

Yes. Look, I mean, I don't want the fact that we're talking about moderation to get in the way of the fact that it continues to do fantastically well. I mean it's been knocked out over the last few years as we know, and it continues to deliver well above the group averages and well above their own track record as well. So it continues to be fantastic. We're just trying to obviously be transparent about the fact that the tough comps will mean that the top line will moderate a little bit. And we're deliberately just easing off the margin, not aggressively, but just easing off the margin a little bit, taking a little bit of the heat out of some of the spot pricing and driving a little bit more volume as well. And as I said a minute ago, you'll still see very good profit growth going forward.

To answer specifically your question, market demand is unchanged. Market circumstances in general are unchanged. We still see, of course, a healthy backlog of new builds. We still see a healthy refurbishment environment and spot market and the characteristics of the supply chain constraints remain as they were as we expected they would be. So nothing is really new, David, from the market perspective. What is important, I think, to point out to your question is that we are driving, of course, our own initiatives. And that involves a little bit of, as I said, moderating spot prices to drive a bit more spot volume. We're putting more business development resource into both the U.S. and Europe to drive the kind of base level of contract volume. We're broadening a little bit our product capability. And we're investing a little bit more in inventory to do these things.

And you'll see that, I think, play out when we get to the full year and beyond into next year as well. So look, all of these are initiatives which are going to support sustaining great performance at their kind of level -- track record level for the long term. So growth will moderate a little bit back towards that 10%-ish. Margins will ease down a fraction. They're probably going to remain structurally above what we bought at, but a bit below where we're at today. But overall, as I say, you should expect good profit growth going forward. So all in all, fantastic performance, and we're just managing now the kind of exit into a sustainable delivery.

[Operator Instructions] we’ll now go to Virginia Montorsi of Bank of America. Please go ahead.

I know everyone always talks about Peerless, but I think what you guys are doing in defense is equally as interesting. Can you talk a little bit more about potentially first, could you tell us how much is defense right now as a percentage of group revenues, broadly speaking? Where do you see, given the current deals you’ve done this year, defense as an opportunity expanding? Are you thinking about doing maybe a bit more in the U.S.? Are you thinking about land versus air? Is there anything about the conflict that has made you maybe identify some opportunities? Yeah, just how are you thinking about it medium term?

Yes. Look, we're quite good in defense actually. If you include CDM on kind of, I guess, a pro forma basis, it's now about 6% or 7% of our revenues. So -- and we've got quite a lot of activity going around to drive great growth from it. And certainly, when you look at the performances of IS Group, particularly, but also a bit of Clarendon and Peerless as well, there's a bit of that defense growth in there. So we're pretty pleased with that. Traditionally, we have been very European-based. And traditionally, we have been very air defense based because it morphed out of our aerospace capability.

What we've been looking to do, of course, is to double down on those two areas, but also expand. So by doubling down, I mean we've put some new facility resource and inventory into Eastern Europe, for example, in -- to address that kind of East of Europe into the Nordics defense market. We bought a small business earlier this year called Spring Solutions, which is a U.K.-based defense business. And Clarendon have been doing a lot on air defense in Europe as well. So we've been kind of doubling down on that European and air piece. But then what we've also been doing, of course, is expanding our capability and firstly, going into the U.S. and hence, the CDM acquisition, which we're very pleased about, and that's our first major piece of business for defense in the U.S. But secondly, we're starting to move from air into land defense as well.

A bit of that is coming through the work that we're doing out of Eastern Europe and with new product capability. And a bit of that is also coming out of CDM's expertise as well because they are a bit more land than air. So overall, we're pushing and getting a broader range, both geographically and in terms of the market as well. There's loads for us to go for still. So I think it's going to be a good market for us going forward. Last thing I'd say on it is we are putting in a bit more investment behind these kind of things. We talked about it, I think, in November, and we talked about it again in May, not just defense, but end market exposures and the kind of end markets that we want to be in, we are putting just a fraction more investment into these kind of things, particularly resource, but also a bit of inventory. And hopefully, also occasionally the odd acquisition as well. And that will be prevalent in our numbers as we go forward.

We’ll now go to Daniel Cowan of BNP Paribas. Please go ahead.

Just one question for me, please. On Windy City Wire, -- apologies if you've already spoken about this i joined a bit late. But can you just give us an idea of how that went in the quarter? Is growth accelerating there? Or was it about the same as it was in H1, please?

Yeah. Windy’s in great shape. Thanks for the question, Daniel. Windy’s in really, really good shape. They’ve had a great year. They had a very strong quarter, mid-teens kind of growth rate, which is fantastic. Of course, they’re doing very well in data centers, but they’re also doing well in other areas as well, petroleum, digital antenna systems, expanding their product capability. And again we’re investing in Windy City, particularly in sales resource for the future too. So very, very happy with how they’ve been progressing.

[Operator Instructions] We’ll now go to Sam Dindol of Stifel. Please go ahead, sir. Your line is open.

Just first on the operating margin, obviously, a significant step up in the year to 26.5% guidance. Just given your commentary on a little bit of easing in Peerless and the opportunities to invest in the business, is there any other factors we should think about when thinking about the margin going forward, just because it’s such a big step up year-on-year and clearly well above your 20% target? Thank you.

I’ll take that. Well, first of all, we’re very, very pleased with where the margin is this year, 26.5%. With our business and the strong top-line growth, obviously we’ve seen a lot of operating leverage benefit. Peerless, as Johnny alluded to, has continued to perform very well. And it started H2 better than expected, and therefore it has been very accretive to margin. As I’ve said before, the feeling is that the margin is sort of at the top end. We do expect some moderation next year, mainly driven by the continued investments that we’re making, particularly to continue sustaining the business in terms of end market, the organizational development, and the assurance platform. But also we are, as Johnny mentioned, carefully moderating the margin of Peerless to continue maintaining it as a sustainable business, and that will moderate margins a bit.

And finally, with acquisitions, and also the ones that we’ve already done, there will be some dilutive impact. Look, I’m not going to go into specifics today. It’s not the right time to guide today. The overall message is the margins will continue to be strong, but it will moderate a bit next year.

We do have another question just came in now. It is from Emanuele Sartori of Kepler Cheuvreux. Please go ahead.

I just wanted to touch quickly on Windy City Wire again, just on the data center mention, just how material is the data center demand today? Is the growth still accelerating? Just curious if you could share any percentage of exposure that you have there, and should we think of this as a structural AI data center infrastructure tailwind, or more as a broader commercial construction momentum? Thank you.

Okay. So data center is a pretty small proportion of the group. It's about 15% of Windy, about 3% of the group, something like that. As we look forward from what -- I don't -- I hope I'm addressing your question here. But as we move forward, from what we can see, there's still very, very, very broad-based investment around data center development. So there's still plenty of runway and plenty for us to go for on that and at the same time, we're kind of broadening our exposure and thinking mainly about the kind of MRO, more sustainable elements of data center and infrastructure support.

And so we're doing quite a lot more in, for example, seals and gaskets into the data center refurbishment market, both in the U.S. and in the U.K., and that's starting to develop for us. And that, of course, will be sustainable beyond the new build phase, if you like. And that's a very, very important part for me to make sure that we're creating something which is sustainable. In the meantime, the work that we're doing, particularly through Windy on the new business development, new data center development is pretty modest, but I suspect will sustain for quite some years to go.

As we have no further questions, Mr. Thomson, I’d like to Oh, I’m very sorry, sir, to interrupt you. Sir, we just have one that came in now. It’s from James Bayliss of Berenberg. Please go ahead.

Sorry to dive in at the last minute. I just wondered if you had any comments on leadership at the group, if you’ve made any changes. I think we saw Dexia leadership change over half one. You talked around the fact you were seeing progress off the back of that. I think there was a change in Australia as well. Just any comments as a catchall, really, on if you’ve made any kind of investment in headcount or leadership that’s going to help drive that growth profile more sustainably. Thanks.

Yes. I mean, if you're asking about leadership, you're not really asking about leadership at the top level, if you're asking about Australia and Dexia, that's kind of leadership within the businesses. And of course, -- we're always working all the time to develop our leaders across the business. We have from time to time as we had in Australia and indeed in Spain and Dexia some retirements. So yes, we had a few -- we had a new -- two new general managers in there. What I would say is more generally across the group is we're working very, very hard on leadership development as part of our sustainable capability and therefore, execution. We're working very hard, as I said to you before, particularly on internal succession and driving towards a more build your own model, if you like, over the years ahead. So that's a big part of what we're focused on internally.

And we're working very hard on the leadership development, specifically of our general managers to support them as their businesses grow up. And that's a constant for us. So particularly, I would say, at the moment, as I've said, we do like to invest in businesses when times are tougher, the end markets are a bit tougher. And maybe that's where your question is going a little bit. A few years ago, we invested quite a bit in Life Sciences, and we're really pleased with the way the management has developed in Life Sciences. We've done a little bit of the same in Seals starting in North America and more recently in International Seals. So I feel we're getting a stronger bench set across the seals sector, and that will put us in a very good position for the future.

Mr. Thomson, at this time, we have no further questions, sir.

Thank you, everyone, for taking the time, and we’ll see you in November.

Thank you. Ladies and gentlemen, that will conclude today’s conference, and thank you for your attendance. You may disconnect. Have a good day and goodbye.

Good morning, everyone. Thanks for joining. Great to have you with us today. I'm here, as usual, with our CFO, Wilson Ng. I'm going to start with an overview of performance. Wilson will take you through the numbers, and then I'll come back to talk about strategy and the businesses. Questions as usual at the end. Let's get started.

It's been a great first half. We've delivered a very strong performance across all our key financial metrics, building on our long-term compounding track record. We balanced ambitious earnings growth, 36% in the half with disciplined returns, 23% in the half and together, key to sustainable compounding success.

The quality and diversity of our portfolio gives us exposure to attractive end markets, which supports structural long-term organic growth, 15% in the half and 10% on average over the last 5 years. It also gives us resilience in uncertain times. We accelerate organic growth with targeted acquisitions. We've done 15 deals in the last 12 months, including 7 since we updated at Q1. The pipeline remains healthy with plenty of balance sheet capacity. We're upgrading guidance again today, adding a further 6%, meaning expected operating profit growth of over 30%, and we're looking forward to another year of sustainable quality compounding.

Diploma has been delivering compounded double-digit revenue and earnings growth for decades and at great returns on capital.

We've developed the strategy, injected more ambition, improved our execution, the compounding has accelerated. And what's really exciting is that we're just getting started. The group's future is very promising. We balance ambition with discipline. Our business model is robust. Our growth potential with structural support is massive.

We focus on cash, capital allocation and returns, and we're intensely execution orientated. I'm really excited about our future. Our people and our culture deliver this. They make it sustainable. I'd like to thank all of my brilliant colleagues. Their skill, energy and passion drives our success. Our differentiated culture of commerciality, accountability and continuous improvement is thriving across the businesses, and we complement that with a connectivity and performance ownership mindset across the group. We spend a great few days together in Nashville last month. And we asked some of our business leaders how they would describe our culture. And this is what they said...

I'll hand over to Wilson to take you through the numbers.

Thank you, Johnny. Good morning, everyone. So turning to H1 '26. We've delivered another very strong performance across all of our key metrics. Organic growth is our priority. So I am really pleased with the 15% growth in H1. And total revenue was up 17%, including a 3% contribution from net acquisitions. We've delivered a 300 basis point increase in operating margin to 24.5% in turn, driving strong EPS growth of 36%, continuing our long-term track record.

Strong cash conversion of 76%, ahead of our typical half year performance, significant balance sheet headroom with leverage at 0.8x at half year. Return on capital increased 360 basis points to 22.7%. In line with our policy, we have grown the dividend by 5%.

So summing all that up, I am very pleased to be reporting another very strong performance. We have built a high-quality and diversified portfolio that enables us to consistently deliver strong revenue growth. In H1, we delivered 15% organic growth. Controls increased organically by 26%, driven by excellent execution in favorable market conditions.

This included great performances from Clarendon, IS Group and Windy City Wire and another outstanding performance from Peerless. Seals achieved organic growth of 2% despite conditions remaining challenging in international Seals market, particularly in the U.K. Life Sciences delivered a consistent performance, 4% organic growth in challenging health care market. If we were to exclude Peerless, the rest of the portfolio grew organically at high single digits, well ahead of our financial model. Total revenue is up 17% overall after a 3% contribution from acquisitions, net of the disposals in H1 '25 and some FX headwind.

I will now move to operating profit. Following a strong performance in FY '25, we have again improved operating margin, up 300 basis points in H1 to 24.5%. As a result, operating profit grew 33% in the half to GBP 209 million.

Our volume growth has, as usual, been a strong driver of margin expansion, driving significant operating leverage benefits. Our ability to pass on input cost increases and inflation through pricing is a key measure of our value-add model and the solutions we bring to our customers.

Over the last few years, our operating margins have expanded significantly. This has been driven by: a, operating leverage as our businesses grow; b, continuous performance improvement through strong discipline and execution; and c, structurally improving the portfolio through high-quality acquisition.

Margins feel like they are towards the top end as we look to sustain growth by selectively reinvesting in OpEx and complementing our organic growth through acquisitions, which may not always be accretive to our high margin. Now on to EPS growth. Interest expense was a little higher year-on-year as acquisition momentum stepped up, reflecting the timing of acquisitions, including several after the period end.

We expect this to step up slightly again in H2. Our all-in blended cost of debt remained consistent at 5.3%. Our effective tax rate was 25%, consistent with FY '25. Earnings per share increased by 36% to 109.2p, continuing our long track record of strong double-digit growth. Now let's turn to cash.

Our capital-light business model and disciplined execution allows us to drive strong and consistent cash conversion. We achieved 76% conversion, broadly consistent with last year and higher than our typical half year cash conversion, delivering free cash flow of GBP 110 million.

We see inventory investment as an important tool to unlock growth when executed carefully and with discipline. In line with this, we have deployed almost GBP 60 million on selective net working capital investments, and we will continue to do more of this across the group. Acquisition outflow was GBP 92 million, reflecting the step-up in deal momentum. Deals totaling a further GBP 170 million have taken place in the early part of H2. We paid GBP 60 million in dividends, continuing our long track record of progressive dividend growth.

Taking all this together, net debt increased to GBP 344 million with leverage maintained at 0.8x, well within policy of 2x.

Reflecting deals we've done in the early part of H2, leverage would be slightly over 1x. Now let me talk about those acquisitions. Acquisition momentum continued through the period. Over the last 12 months, we have done 15 deals across all 3 sectors.

At our Q1 announcement, we mentioned 8 of these acquisitions completed across 2 quarters with a combined investment of GBP 130 million.

Since then, we have committed a further GBP 180 million on 7 acquisitions. In total, therefore, deploying GBP 310 million on the 15 acquisitions, contributing GBP 40 million of annualized operating profit, equating to an average EBIT multiple of 8x. These acquisitions support future organic growth. They expand our presence in attractive markets. CDM, FC Lane and Syneis increase our defence exposure in the U.S., U.K. and Europe.

And C&C Packing brings expertise in water infrastructure. Acquisitions also extend our geographic footprint. Modul Nordic in Norway adds to our European Life Sciences footprint following the recent acquisitions of Electromed in Ireland and Alpha Labs in the U.K. Abbey Seals marks R&G's entry into Ireland and Cel-Win supports IS Group's interconnect solutions offering across broad markets in the U.K. Now on to returns.

Delivering disciplined returns is critical to sustainable compounding results. Following a strong performance in FY '25, we've delivered another step-up in returns, adding 360 basis points to ROATCE to achieve 22.7%. Now this is a little ahead of our optimal high teens range, reflecting the strength of our performance and the quality of the acquisitions we've made over the last 7 years, more than offsetting the investments in the year.

I've already mentioned some planned investments for growth in OpEx and working capital. With our strong acquisition pipeline, we also hope to bring more businesses into the group. With these investments, we would expect returns to moderate back to our optimal high teens range. Now on to our updated guidance. We are upgrading our expectations for the full year. H1 performance has been very strong. H2 is off to a great start. And despite macro uncertainty, we have confidence in our outlook. We expect organic growth of 12%, up from the 9% previously guided. The shape of organic growth across the year remains consistent with our previous guidance with some mathematical moderation of growth rate in H2 due to strong comps.

Acquisitions will now contribute 6% to growth in FY '26, up from 3% previously guided. We are maintaining operating margin for the year at 25%. So summing up, another great year. I will now hand back to Johnny.

Great. Thanks, Wilson. A reminder of our strategy. It's about building high-quality, scalable businesses for sustainable organic growth. We drive organic growth in what I call our 3 buckets: positioning behind structurally growing end markets, expanding further in core developed geographies and extending our product range to grow addressable market.

Small concentrated businesses stepping out of their niche, taking their specialized proposition to new places, they all have fantastic opportunities to grow. This strategy drives exciting sustainable organic growth, scale and increased resilience. This is complemented by selective high-quality acquisitions that drive future organic growth at great returns. Our acquisitions add to the quality and diversification of the portfolio, 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 bit differently while always preserving these differentiators.

So 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. Let's just spend a minute on growth.

Our geographic and product white space potential is huge. Have a look at the slide in the appendix. Our products and services are relevant to so many attractive end markets, our first bucket. They give us growth tailwinds and resilience.

A few examples of recent progress. In defence, we already have well-established positions, particularly in air defence in U.K. and Europe. Over the last year, we've brought in specialist resource. We've opened a new facility in Czech Republic to service air, land and marine supply chains in Europe. We've acquired Spring Solutions to strengthen our U.K. position, and we've just signed the acquisition of CDM, our first step into the U.S. defence market. More on that shortly. We're accelerating our growth in data centres. Windy City has done incredibly well to build a material exposure with premium cabling solutions for the high-performance environment.

We're also growing our cabling business into data centers in the U.K., and we're building out new MRO opportunities, too, including seals, gaskets and hoses for cooling systems.

Nuclear is still early for us, but potentially very exciting, too, given the power requirements to support AI. VSP, our U.S. gasket MRO business specialises in solutions for high-risk, high regulated environments and is making great strides in supporting nuclear development in the U.S.

There is much more ahead for us on that. Overall, we're making progress across all the markets on this slide and others too. We're investing behind them for the years ahead. We're looking forward to welcoming CDM to the group. Based in Philadelphia, CDM is a high-quality family-led interconnect business supplying custom connectors and cable assemblies into the U.S. defence market. We will pay $170 million once we've received regulatory approval to close the deal. The business has been growing at double digit over many years and now has revenue of $80 million with high teens margins. We're excited about supporting their continued success in the U.S. and the potential development in Europe, too.

The management team, Mark D'Leo and Lori Sanchez have done a tremendous job and will stay with us. We're really pleased to be partnering with them, and we're excited about the future growth potential. It's a great example of our end market strategy and it also demonstrates our progress this year with acquisitions. And acquisitions are important to the strategy.

They accelerate our organic growth and together with selective disposals, they build the quality and the diversification of the portfolio. We've accelerated capital deployment with $1.6 billion spent on 57 in the last 7 years, significantly above our financial model. But it can't 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 won't always be linear, and that's fine. Over the long term, the fundamentals support a healthy deal flow. It's 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 encouraging, and I'm feeling optimistic. On to the sectors.

Controls delivered another excellent performance with organic growth of 26%. Structural tailwinds across a number of attractive end markets were complemented by really good market share execution. More on this in a moment. Since the start of the year, we've welcomed 6 new businesses to the sector. CDM will make it 7.

These deals give us great end market exposures, mainly in aerospace and defence, extending our existing capabilities and geographic footprints. Growth rates will, of course, moderate a touch as we lap tougher comparators, but we're confident of continued strong performance through this year and into next.

Spotlighting our 4 largest controls businesses for a minute, they're all doing fantastically well. Clarendon Specialty Fasteners is growing double digit with aerospace and defence tailwinds and positive new contract wins. They've recently welcomed Spring and Swift bolt-ons in these 2 markets as well. IS Group organic growth has been double digit, too, with exposure to defence, aerospace and energy markets in the U.K., Europe and increasingly the U.S. It's grown inorganically as well with the additions of Cel-Win, FC Lane and CDM. Peerless continues to deliver outstanding performance. The dynamics of the market and supply chain show no signs of changing, and we continue to win new business both in the U.S. and now focusing increasingly in Europe, too.

Windy City has been exceptional for many years and delivers long-term growth average of over 10%. Their business in data centers and digital antenna systems has been strong and positions them very well for the future. So overall, performance has been great.

The market dynamics are favorable with strong teams executing brilliantly. We're in great shape for the future. Seals' organic growth was 2% North America has benefited from new leadership, delivering growth of 7%. Our aftermarket business is doing well in U.S. as U.S. infrastructure investment continues.

We welcomed a new business, C&C Packings into OEM, adding water infrastructure experience, and we're excited about our MRO business, VSP's potential in data centers and nuclear. International Seals has been tougher, mainly in the U.K. We've been investing in management capability. The businesses are well set to make progress in the second half. We welcomed new businesses, HSA in Australia and Abbey Seals in Ireland. The short-term prospects for Seals are looking better, and I'm very positive about the long term, too.

With many attractive end markets to go after. We're expanding our fluid power product capability, and we've invested in capabilities to strengthen our execution. It's an exciting time ahead for Seals. Life Sciences delivered a consistent performance.

IVD markets attract structural investment and medtech surgical markets have returned to normal levels. The investments we've made in management capability and in our distribution footprint, together with the quality of our commercial teams have helped drive market share gains.

We've successfully onboarded the acquisitions of Alpha Labs and Electromed from late last year in the U.K. and Ireland, and we've welcomed Modul Nordic in Norway, continuing to build out our European platform. So we've invested in management, in business development and in our distribution footprint. There's lots to go for, and I'm very positive about the outlook for Life Sciences. Summarizing, it's been a great first half. Earnings growth was 36% and a 23% return on capital, building on our long-term track record. The group's organic growth runway is massive with promising end market structural support. We'll continue to acquire businesses that add to the quality and diversification of the group.

We have a healthy pipeline and balance sheet capacity. We're feeling good about the year, increasing our guidance by a further 6%, expecting operating profit growth of over 30%. We're just getting started, sustainable quality compounding. We'll take your questions.

We're going to take our first question from Annelies Vermeulen from Morgan Stanley.

I have 2 questions, please. So firstly, just thinking back to those investments into the business at your full year in November. You touched upon it today, but could you update on the progress you've made there and what the priorities are for the remainder of the year, whether it's by service line or division? And Wilson, as part of that, you mentioned some investments into working capital.

So could you elaborate on those? And then secondly, just on Seals, we've been speaking for a while about Seals starting to recover, but international Seals, in particular, looked a bit softer sequentially. So do you think that recovery has been pushed to the right? Or are you seeing some green shoots and signs of recovery into the second half? You mentioned some new management in the U.K. So how confident are you on the outlook for that business?

Thanks, Annelies. Wilson is going to answer on Seals, and then I'll come back and do the investments one.

Thanks, Annelies. I think, yes, we -- let me just take Seals in totality. So in North American Seals, we've continued to see very good momentum, high single-digits growth continuing from what they did in H2 last year. So we're very pleased with the performance there and expect that to continue into H2.

For International Seals, obviously, minus 1% for H1. However, we have seen sort of positive growth and a better exit run rate as we finish Q2. So we are seeing green shoots in businesses like DICSA in particular, and working very hard in investing in businesses like R&G, and we're quietly confident with regards to its prospects going into H2.

Great. Just coming back to the investment question, Annelies. Look, I don't want to overplay it in any way. it's just more of a kind of a reminder, if you like. The investments we make will be very much incremental and within the context of the financial model.

But it's important that we continue to make investments because this kind of compounding doesn't come about. You can't make it sustainable unless you're really thinking about the future as well. If you think about the context here, you saw my track record slide. We've got decades of compounding. The last 5 years have accelerated. It's really our job to make sure that continues. So yes, we'll be incrementally putting a bit more behind resource, particularly growth-enabled resource, end markets resource. We talked about that.

Inventory can be quite a big driver of growth for us as well, putting in selective or new inventory types to open up and unlock growth opportunities. So we'll probably be doing a little bit more of that. And we just want to make the point about acquisitions.

As Wilson said, we're probably above our normal returns rates at the moment. And if we do deploy over the next year or 2 a bit more capital, then you'll see those settling back down. So I think it's more than anything else, just a reminder for us and for everybody that we do need to continue to put a little bit of money back in.

And the year that you're seeing this year is a bit of an exceptional year. And as we go forward, our objective is to continue to compound at the rates we've been compounding over decades on the back of this year, and that just requires selective incremental investment, and that's all we're signaling.

We'll go to our next question, which is from David Brockton from Deutsche Numis.

Two questions from me as well. One on cross-sell and one on Life Sciences. Just focusing on the first one on cross-sell. I appreciate cross-sell is sort of cherry on top for the business model. But I was intrigued that you said that VSP was looking at data centers.

And I wonder whether that's an opportunity that Windy City Wire can help with? And also, is there sort of any other natural cross-sell between CDM and your other interconnect businesses? That's the first question.

And then the second question in respect of Life Sciences. It's clearly still a tough market, although the business is delivering. Could you just touch on whether that challenge spans across IVD and medtech? And what are you seeing in terms of sort of the end market backdrop and whether there's any sign of improvement?

Yes. Thanks for that, David. I'll take the question on cross-selling, and then Wilson can pick up on Life Sciences. I mean you kind of put the words out of my mouth in terms of cherry on the cake. Each of our businesses have so many fantastic opportunities for themselves, and that's what we focus our sales execution upon.

But of course, we are -- we encourage and foster cross-selling as well. And as the group gets bigger and we expand the portfolio, then those cross-selling opportunities come thicker and faster.

I mean VSP, you mentioned, I mean, in some of these end markets, of course, we're putting in some end market specialism, which can help foster across businesses, the right kind of business development opportunities. VSP is definitely leaning on that resource expertise to help it in its data center. And it's also leaning on some of the expertise that we've got from Windy, who know data centers better than anyone else in the group. So the answer to that is absolutely yes. CDM is another good example. I mean, of course, it's not even in the door yet. But as we look at it, excited, it's done great double-digit growth. There's so much for us to go for developing the U.S. market, but we can also support other businesses like Peerless, for example, in the defence space.

And we can use our network in European defense to bring some of the CDM products across the Atlantic into the European market as well. So yes, there's lots of opportunities across the group for us to foster that cross-selling.

Right. And I'll take the Life Sciences question. So just to put it into context, in the backdrop of very challenging health care markets, our Life Science business has managed to do 6% organic growth in the last 3 years and 4% in H1 this year.

It's about bringing good technology into the market and being -- having that first-mover advantage. And this is a very exciting year for the sector with some portfolio refreshes in the products in certain areas. So we do see lots of opportunities and do expect the full year to still achieve sort of broadly mid-single-digit margin -- mid-single-digit organic growth with further margin improvements.

We'll take our next question from Daniel Cowen, who is from BNP Paribas.

Two questions, please. First one on the U.S. aerospace aftermarket. Can you give us some commentary, please, on how that's been panning out? And any commentary on competition, et cetera, et cetera?

And then the second question on CDM sounds very interesting. Can you give us an idea perhaps of when that might close in your view? And also, any thoughts, please, on bringing margin there up into the -- up into sort of into the 20s, perhaps matching group average? Those are my questions, please.

Yes. Thanks, Dan. U.S. aerospace, I mean, nothing has really changed from our recent update, if I'm honest with you. I guess, probably stating the blindingly obvious that the new build pipeline is still 10 to 15 years, whatever the number is today, significant. And of course, that then fosters a very healthy aftermarket repair business as well. And that hasn't really changed that much. From a competition perspective, we don't really see that having changed much either.

The key to success in this environment, of course, is having the access to quality product to be able to service the growth within both the new build and the aftermarket business and Peerless is obviously well positioned for that.

And Clarendon is doing increasingly well in that, too, as I said a minute ago as well. So there's not really any new news on that. The market still is vibrant. On the CDM question, yes, look, we're delighted with it. It's strategically -- I mean, I suppose, first of all, just to make sure everyone understands what it is, it's in our kind of interconnect space, which we already know very, very well from our IS Group businesses.

CDM does a lot of servicing and cabling and harness distribution solutions. So very much what we know. Strategically, though, very important for IS Group as the first major platform into the U.S. We have some other business, but this is the first major platform for them into the U.S. And of course, strategically, the defence sector play is very important.

I would say on that, from a defence perspective, historically, we've been mainly Europe and historically, we've been predominantly air defence. So CDM gives us U.S. and it also is more land than air. So it also balances us from that perspective, too. So we're very, very happy. We're happy with the team, fantastic team who've done a brilliant job, and they'll be staying with us. Just on the margins, yes, I mean, I think we alluded to it earlier, when your margins are at 25%, if we were to say to you, we're only going to buy businesses that are accretive to the group's margin, then we'd never do any deals.

So you would expect margins in the acquisitions that we do will be slightly dilutive to the group's margin. And that's okay because we can still drive great shareholder value out of them. Of course, we'll be aiming, as we always do, to bring CDM's margins up. But the first priority for us will be great organic growth as it always is.

Our next question is from William Blunt from Rothschild & Redburn.

Could you first please maybe go into a bit more detail on the component performances within the Controls division. You saw double-digit growth from 4 of the businesses there, but would you call out any in particular that have seen further acceleration since the March update and has led to the upgraded guidance today? And then my second question is on the margin performance of Peerless.

You mentioned previously the success you're having in transitioning Peerless customers from the spot market on to contracts at higher margins. Have you seen this trend continue? And could you give your thoughts on whether you think this has lifted the structural floor for group margins going forward?

Can you just repeat the first question? I wasn't sure I understood exactly what you were looking at.

Sure. Yes. So obviously, the guidance has been upgraded this morning, mostly, I think, derived from better performance in the Controls division. I just want a bit more detail on sort of where you've seen the most acceleration in that versus the update we had in March.

Well, the first thing I'd say is that our upgrade isn't necessarily just because of one division. Our upgrade is group-wide. As Wilson alluded to, I just answered a little bit earlier in my script, we're feeling good about the forward momentum in Seals as well.

So it's not just about controls. So that would be the first thing. The second thing is that, as I went through a bit earlier in my slide, there's broad-based performance within the controls sector. I'll come on to Peerless in a second. But Windy City is doing terrifically. IS Group have been growing organically at double digit as well as bringing on new acquisitions, Clarendon as well. So it's been fairly broad-based across all of the businesses within Controls.

And of course, we're feeling good about it, as I said in the presentation because we've got great end market support, and we've got great teams executing on market share as well. So we expect great growth levels to continue. For them, it might not stay at 26%. I mean the laws of mathematics and lapping last year mean it might come off a little bit. But regardless of that, we're expecting great growth for them through the second half of this year and into next.

You asked about margin performance in Peerless. Yes. So I won't talk about the market dynamics because I did that a second ago. But if you translate what I said into the margin, we're still seeing great margins. I suppose the way to think about it is over time, we're driving the spot MRO repair volumes by managing down a little bit the spot prices.

So we'll probably see the spot side of the business margins come down a little bit, but growing our volume in that business. At the same time, we're winning new contract business at slightly higher margins. So there's a bit of a balance there. I'd say that we bought Peerless on a margin of around about 35-ish percent. It's obviously been a lot higher than that, 50% plus.

I suppose over the long term, and don't get too excited about this in the short term. But over the long term, you kind of expect the current margin to moderate a little bit. but I'm still expecting it to settle at structurally a higher level than it was when we bought it. So the answer over the long term is probably somewhere in between.

[Operator Instructions] Our next question is from Virginia Montorsi from Bank of America.

I just had 2 quick questions on A&D. The first one on defence. Have you seen any change in demand coming from the Middle East conflict? I'm thinking one of the big takeaways since the start of the conflict has been a rise in demand and a bigger focus on air defence, which is obviously quite big for you, as you mentioned. So anything that we should keep in mind as a consequence of the Middle East? And then on aerospace, can you help us understand a little bit more? I know you've touched on this before, but what's the balance in terms of demand strength between OEM and aftermarket?

On the defence side, look, I mean, I suppose my answer to that would be, I don't think we necessarily see a Middle East conflict start and then -- or a conflict of any description start and then a month or 2 later, direct demand consequences for defence.

It doesn't really correlate quite as quickly as that. A lot of the defence work is on kind of longer-term contract basis. So what I would say, however, is over a number of years, of course, with the changing geopolitical framework and I guess, increased conflict around different locations, then, of course, yes, you start to see defence spend as a percentage of GDP increasing.

And that, of course, then does pass through over time into defence spend. So I'd say it's more of a long-term burn than a short-term reaction. But of course, all of that being said, then yes, the defence business has definitely been picking up over the last year or 2, that's for sure. On the aerospace, as I said a minute ago, nothing has really changed from our point of view on the aerospace demand.

The long-term dynamics of a pipeline of new contract builds has remained pretty consistent. Airbus, particularly and Boeing and others continue to deliver on that long-term pipeline. And at the same time, as I said, it delivers an MRO repair market as well.

So I can't really say that there's been any change in that since we last updated. It remains just as buoyant as it was. But as I said a second ago, the key thing is, are you in the right place and doing the right things. If you have, as we do, great products, great teams with long-term relationships, then, of course, being in that supply chain and being the quality, reliable, trustworthy partner in that supply chain is the key important factor.

We'll now move to questions from the webcast. First question is, despite your accelerating volume growth in controls leading to increased inventory levels, can -- your cash conversion remains very strong. How should we think about cash conversion going forward?

Thank you. I'll take this one. So we have a model that states that our cash conversion is 90%, and we hold true to that. We remain very disciplined with the way we manage the group and manage our growth.

So in line with what we've talked about previously about capital recycling and ensuring that we're disciplined with regard to how we execute and very, very carefully add inventory, we believe that we can maintain that 90% cash conversion over the long term.

But if you look at the last 5 years, just to add to Wilson's answer, if you look at the last 5 years, our free cash conversion has been closer to 100%. I think what we're signaling is that just a reminder of the model at 90% because we'd like to just put a little -- a fraction more inventory in than we have done to support the organic growth ambitions for the future.

We have our next question, which is from Henry Carver from Singer Capital Markets.

You picked out nuclear as a growing exciting space at the moment. Are you able to give any more color?

Yes. I mean, look, not a lot more than what I said in my presentation, but it's clearly going to be an exciting market to have to power the technology boom, predominantly in the U.S., but actually probably elsewhere as well.

We have great products and services that are highly applicable into that space. And while it's not necessarily our only business, VSP has such a fantastic product and solution for high regulated high-risk environments, which they already provide in chemical and petroleum environments. So they're very, very well suited for these kind of environments.

We started to make some penetration into that space. It's only a handful of millions at the moment. So it's nothing to get necessarily massively excited about, but we are putting a lot more capability behind it -- and I'd expect it to become a bigger part of VSP's portfolio and eventually to lead to other business opportunities for other products as well over time.

It's clearly going to be a market that has some investment behind it to sustain the power requirements for the technology's future, and we'll be a big part of that.

Thank you. We have no further questions at the moment. So Johnny, if I can hand back to you for any closing remarks.

Yes. Thanks. Look, we're in great shape. The numbers are good. There's lots for us to go for. We've got a long runway ahead of us. The mood in the camp is positive and energized, and we're very focused on delivering more sustainable quality compounding. Thank you for joining us today and look forward to seeing you soon.

Good morning, and welcome to the Diploma Trading Update Conference Call. I will now hand the call over to CEO, Johnny Thomson. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us at late notice. I really appreciate that. Wilson and I are here together in our pajamas in the U.S. And hopefully, by now, you will have seen that we issued an upgrade to our trading expectations for the year. Half 1 has been very strong, and we're confident in our momentum into the second half too.

So for the year now, our organic growth guidance has increased from 6% to 9%. Acquisitions for now remain at 3%. Our margins are up from 22.5% to 25% for the year, and this equates broadly to a 13% increase to consensus operating profit. A little bit of color. Peerless continues to trade very well. The positive market dynamics are sustainable, and we're winning share. Half 1 is looking incredibly strong again.

And as we previously said, it will moderate a little in the second half against the strong comparator, but we will land into very good revenue and profit growth. I'm really pleased with progress elsewhere. The group's growth, excluding Peerless, is running at high single digits, well above our model. Some of the controls businesses, IS Group and Clarendon don't often get the limelight, but are doing brilliantly in energy, defense, aerospace markets, both delivering double-digit growth and meaningful margin improvement.

Windy is also having a great year. Their exposure to data centers and digital antenna systems supporting strong growth and good momentum into the second half. Seals is running fairly consistent with last year. North America doing well with support from infrastructure and early progress in nuclear. On the international side, particularly RNG in the U.K., it has still been pretty tough, and that will hold the sector growth for half 1 broadly in line with the full year last year.

And finally, Life Sciences is continuing stable at mid-single-digit growth. It is pretty tough in health care at the moment, but I'm really pleased with the work the team are doing, and we'll deliver market share gains to sustain decent levels of growth. Overall, across the group, margins are strong, supported by peerless performance, of course, but also by good incremental leverage and performance improvements across the rest of the group.

We've had some great new businesses join us over recent quarters, as we've talked about in January, 8 acquisitions for a total spend of GBP 130 million, and the short-term pipeline looks very healthy. So with these upgraded numbers, we're expecting earnings to be up again this year by over 20% at strong returns on capital, another year of sustainable quality compounding. I'll hand over now for your questions.

[Operator Instructions] We will now take our first question from Annelies Vermeulen of Morgan Stanley.

I have 2 questions, please. So firstly, on the sort of what sounds like relatively broad-based strength in controlled beyond the ongoing outstanding performance in Peerless, which parts of controls have performed particularly stronger than you expected relative to the start of the year?

You mentioned IS, Clarendon, et cetera. And I'd love to hear what's behind that. So what's driving that better-than-expected performance? And then secondly, more of a topical question while we have you. So on what's going on in the Middle East.

I appreciate you don't have any exposure there, but are you seeing any change in tone of conversations with your customers or any signs of -- early signs of your suppliers planning to raise prices as a result of higher energy costs, perhaps anything to call out there?

Thank you, Annelies. I'll take them in reverse order, if I can. Of course, we're conscious, obviously, of what's going on in the Middle East. I mean it's worth just underlining that for us, there's no direct impact, if you like. We don't have any business into the Middle East, and we have minimal sourcing out of the Middle East.

So there's really no direct impact for us. And of course, we're very diversified, as you know, by our kind of end market exposures, which gives us some protection in these scenarios. So at the moment, we don't really see anything particular. We're obviously keeping our eye out, particularly for us to make sure that the supply chains and logistics are operating normally and to see whether there's any pricing inflation coming through on the back of increased energy costs.

We can see a little bit of the latter, but it's very, very patchy at the moment. And of course, we feel well positioned to be able to respond to that. from a pricing perspective, we've been able to pass on prices pretty effectively in the past based on our customer service model, et cetera. So at the moment, there's not a lot to see, keeping our eyes on it and expect to be able to manage it. On the first question, yes, we're really, really pleased.

I just want to kind of highlight a bit more the fact that I suppose I feel like it's easy to think that Controls is all about Peerless and Windy City. And of course, they are a big part of it have done very, very well. But sometimes some of our other bigger businesses in Controls don't quite get the limelight that they deserve. We've got a big business, interconnect business, IS Group, which has been doing very well actually for a number of years.

This year, particularly well with double-digit growth and great margin progress. They've got really good exposures into energy transition, into defense, a little bit of aerospace in the U.S., the U.K. and Europe, and that's, of course, helping them, but they're winning some great market share as well. So very, very pleased with IS Group. And then Clarendon, which is another fasteners business into aerospace, they've been progressing really, really well and growing double digit for a number of years now.

They're principally into aerospace, again, into Europe and into the U.S. great organic growth. We've just done a couple of small bolt-ons in the last year to support their growth as well, and that's all going very, very well. So there are 2 pretty big businesses and controls that are having a great time right now.

And we'll now take our next question from David Brockton of Deutsche Bank.

Look, very impressive update this morning. I'd like to ask a Peerless question, please. Just keen to understand your sense of what the market looks like.

And I guess it's broader as well for Clarendon as well in terms of outlook and whether this is share gain or market strength and any different trends in contract or spot we should be aware of?

Yes. Thank you, Dave. Look, I think from a market perspective, broadly speaking, the themes are very, very consistent from the last few times that we've updated. The demand environment remains very, very consistent and thriving. Of course, as we know, there's a big backlog of new builds, and there is consequently a significant refurbishment market as well.

The supply chain constraints, if you like, haven't really changed. And I think we've also been saying to you for some time that we don't expect that to change anytime soon, and that remains the case. We're looking out at 1, 2, 3 years and not really expecting any change in the supply chain. So overall, the market dynamics are very favorable and we believe sustainable. For us, this isn't just a market story, though.

Of course, we've got a great business with a great team in a very good, strong market. So that's a great place to be. But the team are doing a fantastic job to deliver market share gains for us as well. And there's lots for us to go for, which makes me excited about the sustainability of the Peerless story. For example, there's more market share potential for us in the U.S., and we're investing behind that.

The Peerless team already do some business into the aerospace supply chain, but we're looking at how we can invest behind that and do a bit more there. We're looking also to help them broaden their end markets with defense and space opportunities and even some product expansion as well. So there's loads for us to go for, and the team are very focused on that. And that will give us not only a favorable market, but even more market share gains in the future, too.

So doing incredibly well. It's going to be another fantastic first half of the year from them and very, very confident that as it moderates through the second half that it will moderate into a very, very strong, consistent long-term performance.

And we'll now take our next question from Virginia Montorsi of Bank of America.

I actually had 2. One is on your exposure to defense. Could you talk -- because we always talk a lot about civil aerospace, but could you talk a little bit about how much of the growth we're seeing in your Aerospace and Defense businesses is actually driven by stronger performance on the defense side. I know you're building a facility in Czech Republic to sustain the demand on the Eastern European side.

So could you just give us a sense of how to think about that for the second half of this year? And then on Life Sciences, could you give us a little bit more color on the market and how to think about your market share gains potentially and the performance in MedTech?

Yes. Okay. I'll take those in order. So I think a general observation at [ MedTech ] Virginia is remember that the group is incredibly diversified. And that's one of our strengths is that while we have really exciting exposures to lots of end markets, there's nothing binary in all of this. So the likes of the defense market will only be a few percent of the group's revenue, albeit a big opportunity.

But one of the exciting things is that we have so many end markets, and that makes our opportunities here to drive into these markets, not binary, but kind of diversified and therefore, very, very attractive. On the defense side, we've been in defense for some time. So we have established some expertise particularly in the U.K. But over recent times, we've been expanding that.

And actually, I should mention it's the kind of the background to this has really been through the IS Group business that I was talking about earlier, but it's now starting to expand into some of our other businesses, too. We put -- as we said, I think at the full year, we've been putting a bit more investment into some of these end markets.

And David Goode, our CEO of International Controls has been leading the charge on this, and we put some investment behind some qualified expertise in the defense sector that's helping us to access new market share opportunities, which is great. We have, as you said, just opened a new facility in Czech Republic. I was down there last week having a look at it, and that's really helping us to get into the supply chain, into European defense, and we're making good ground with that. So I'm excited about the future there.

And we also bought one of the 8 businesses I mentioned, we bought a business called Spring Solutions, which is principally a defense-based business in the U.K., but expanding itself out into the U.S. and Europe, too. So a small percentage of the group, but a very exciting part of our end market focus and give us great tailwind for the future and a lot of resilience. So we're pretty pleased with how we're progressing on defense.

Life Sciences, yes, it's obviously a smaller part of the group. But I'm really, really pleased with the way Life Sciences has been progressing. 3, 4, 5 years ago when post-COVID markets were tough. We put a lot of time and effort, and we developed our management teams and developed our business development capability. And I think we're seeing the fruits of that. The markets are still quite hard yards.

So we're having to win quite a lot of market share to remain in that kind of mid-single-digit territory, some good market share gains in MedTech, seeing some really good progress in IVD in U.K. and Ireland, particularly in this half. But overall, very, very happy with what the team are doing, the business development that we're working on and the market share that we're seeing coming through. You should expect somewhere around 4%, 5%, 6% type of percent for the half year.

[Operator Instructions] And we'll now take our next question from Jane Sparrow of JPMorgan.

Two questions, please. Just first one on organic growth, the 3 percentage point increase in your guidance there. Can you just confirm that is primarily coming from a better volume environment? Or is there a bit of pricing in there as well? And then the second one on M&A. You obviously feel fairly optimistic about that this year. Can I just ask what is driving that optimism?

Is this people who deferred decisions last year, deciding they just need to get on with it? Or is that your own actions to fill the pipeline with more opportunities paying off a bit?

Yes. I'll answer the question on M&A, and then I'll let Wilson answer on the organic growth point. Look, we're feeling pretty good about the momentum on acquisitions. I suppose a bit of a general comment, but I suppose we felt the market conditions over the last 12 months or so have been better suited to the small kind of bilateral diploma style deals that we've always done.

And we've seen very good momentum on that. As I mentioned earlier, we did 8 at the back end of last year and into quarter 1 of this year. So that was a good start into the year. And we're feeling very confident about that short-term pipeline ahead of us as well. So we've got very, very good momentum on that smaller stuff. And it just really, really helps us accelerate the growth potential in and around all of our businesses as they get into the right end markets or penetrate geographically or expand their product capability.

So we're excited that there's more of that to come ahead of us. I suppose on the slightly bigger stuff, it has been a quieter time for the last whatever a year, 18 months, perhaps. Maybe some signs that that's easing a little bit. So we'll see if that turns into anything more tangible. I'm always very conscious of making sure that we evolve the way that we do things in a competitive environment. So -- we do have well-established team processes, capabilities, et cetera.

But we're working very, very hard, particularly around the origination to make sure that we've got a very, very big pipeline, lots of optionality, ability, therefore, to be discerning and do high quality, not just high volume of deals. And so over the months ahead, I feel pretty confident about it. But over the longer term, we've still got fragmented markets and a good pipeline.

The processes, as I say, we're constantly sharpening. And I feel we've got a good competitive advantage as a home of choice. So our prospects, I think, short and long term on the acquisition side are pretty encouraging, Wilson.

Yes. So thank you, James. So on the organic growth, absolutely, Diploma, as you know, is a volume story. And the organic growth that we've seen so far and will continue to drive will be volume led.

Just an example, even on Peerless, we said that we would moderate the prices of spot volumes, and that has generated a lot of volume for us as well to make it into a sustainable business going forward. So yes, it's a volume story.

And we'll now take our next question from Colin Grant of Davy.

I just have one question to do with -- it's probably one more for Wilson to do with the shape of organic growth as we work our way through the year. You've obviously moved from a 6% guidance on a full year basis to 9%. And I'm just wondering about the shape of that in H1 and H2. If you give us a kind of a sense of what's moving.

Is it moved from 9% to 11% in H1? Or are you leaving your kind of H1 assumptions unchanged and the upgrade effectively relates greater optimism for H2? If you could just give some color on that, it would be really helpful.

So, that would be helpful here. So obviously, we're still in the process of going to H1. But all I can say is the momentum that we've seen from Q1 has continued into Q2.

When we originally guided, we said that this year, because of the tougher compares in H2 last year that H2 this year would mathematically moderate, and that will be sort of the same shape of the year just everything being raised effectively.

And we'll now take our next question from Sam Dindol of Stifel.

Congratulations on the update. Just one question for me, please. On the operating margin increase of 25%, if we assume no more M&A, is that a sustainable level going forward? Or is the momentum is that slightly higher than you'd expect over the medium term?

Right. So I'll take that question. So maybe just to put it into context, I understand why you're asking that question. So in the last few years, we've seen quite a significant step-up in our margin, and that's driven by very good operating leverage as we continue to scale the group.

We've also acquired a few very good quality companies that have been accretive to margin. So that's established us a very good margin that we're guiding to today. Going forward, I think the algorithm continues with regard to the operating leverage, but we will sort of see a bit of moderation from the Peerless margins, albeit just to qualify that absolute profit will still continue to grow. Specifically to your question, we can't be expected to continue to only acquire companies that are over 25% margin.

So we would expect some dilution from future acquisitions going forward. But overall, what do I think? I feel like the margin is at the top end at the moment. But regardless, going forward, we are a sustainable quality compounder, and we do expect absolute profit to continue to grow in the future regardless of the margin.

With no further questions on the line, I will now hand it back to Johnny for closing remarks.

Thanks again, everyone, for joining at short notice. The group is in very good shape. It's looking like a fantastic year and the prospects ahead for sustainable quality compounding are very encouraging. Thank you again. Have a good day.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.

Good morning, everyone. Happy New Year to you all. Thank you very much for joining us. I'm delighted to be here with our newly promoted CFO, Wilson. Congratulations to him. A few words on our quarter 1 performance, and then we'll quickly get on to Q&A. We've made a great start to the year in quarter 1, double-digit organic growth and exciting acquisition momentum. Starting, first of all, with the organic side. As expected, we've had a strong quarter 1. volume-led organic growth of 14%, similar shape to what we saw towards the end of last year. Peerless remains strong. Controls have done very well with some solid end market exposures like aerospace, defense, energy. Windy City is doing well, particularly with data centers and digital antenna systems.

Seals fairly consistent with what we were seeing at the end of last year. North American Seals doing well. Good progress in Europe and International Seals, U.K. still quite tough. And we're happy in a tougher environment, I would say, in Life Sciences and the health care space that Life Sciences is delivering at or around about our financial model. The margins are good and in line with what we would have expected. If I move on secondly to acquisitions. We're really pleased with the momentum in acquisitions. And as we know, they support our future organic growth at great returns. We've done another 4 in the quarter, spending around GBP 75 million at a roughly 7x multiple.

And that makes 8 now in the last 2 quarters for about EUR 130 million of investment, and I expect those 8 to generate annualized profit of around about EUR 20 million. The majority of our M&A, as you know, is naturally gravitates towards the smaller bolt-on deals. And occasionally, we do a slightly bigger one. But we're very happy with the profile of the deals that we're seeing. The pipeline looks very good. But as always, we will maintain our discipline on M&A. Returns are very, very important to us. And so the deal flow, we would never expect to be linear. But the acquisition momentum feels really, really good. Finally, a few words on the full year outlook. Organic growth guidance is unchanged at 6%. As we said in November, we expect this year to be first half weighted.

Margin guidance also unchanged at 22.5%. Obviously, revenue from acquisitions is up a little given what I've just said. And of course, if we were to do more, this would increase over time. So overall, we're feeling good about the year, good start, and we're feeling good about continuing our successful long-term track record of sustainable quality compounding. And with that, we'll hand over to questions.

[Operator Instructions] We will now take our first question from Annelies Vermeulen of Morgan Stanley.

Two relatively quick ones, both on the acquisitions. So as you say, last couple of quarters showing some increasing momentum in acquisitions, and I appreciate deals can be lumpy, but I'm wondering if there's anything driving that, that you would call out? Have you seen a change in the environment or improved availability of assets, et cetera? And perhaps you could comment on how the more near-term pipeline looks for as we head into Q2? And then secondly, of those businesses that you've acquired, could you comment on what kind of growth they're doing today and anywhere in particular that you feel there's a lot of upside to unlock in line with your playbook?

All right. I'll let Wilson say a few words on the specific acquisitions in a second. I mean, I suppose more generally, yes, we're very pleased with the way that the smaller deals are progressing. I think in some ways, when you get to the kind of the average size of a deal for us would be about GBP 20 million, GBP 25 million. And when you're in that kind of bracket, it tends to not really follow the kind of more macro M&A cycle. We've been working hard on the pipeline, obviously, as we always do, and we just happen to have seen a lot more coming to fruition over the last 6 months or so.

As I said, we very, very occasionally do a bigger one, but we don't necessarily search for that, and we certainly don't need to do that. In actual fact, the profile of these smaller ones suits us very, very well. They quietly add to the diversity of the group. They add and accelerate our organic growth across different aspects of the business. They extend into various different end markets. And generally speaking, at the kind of multiples that we're buying them for, they drive great returns. So I'm very, very happy with that. The profile of the pipeline looks the same as it's kind of done for quite a while. I'm quite encouraged by it. I would expect and hope that we can continue to deliver some very good smaller deals.

And who knows, maybe there is a slightly bigger one down the line, but we certainly don't search for that, and we certainly don't need that. At the rate we're going at the moment, I would expect that we'll be delivering M&A above our financial model, which is going to be great. So we feel good about it. The pipeline is in good shape. And hopefully, there will be a few more to come.

Wilson?

Yes. Thanks Annelies. So yes, these businesses have been in the group for a relatively short period of time. But in that period of time, they're already tracking to plan. So very pleased with their performance so far. I guess the very recent ones, SWIFT and Spring in particular, are bolt-ons to Clarendon and SWIFT in particular, expands our footprint into European aerospace, which will then strategically benefit Peerless in the medium term to allow Peerless to come into Europe as well. And Spring, in particular, expands our end market growth in aerospace into the defense market, expanding into large customers such as BAE and Thales.

HSA, one more to mention, Hydraulic Steels Australia. That gives us a strategic geographical expansion. It's basically a twin to the North American Seals aftermarket business, but it gives us expansion into the East Coast of Australia and also product expansion to the aftermarket seals for our Diploma Australia Seals business. Hopefully, that answers your question.

And we'll now take our next question from David Brockton of Deutsche Numis.

Two from me as well and actually partly related to the last question, but both around Civil Aerospace. Firstly, from an organic perspective, can you just touch on whether that sort of glide path of normalization that you envisage at some stage is starting to materialize or is materializing as you expect? And then from an acquisitive perspective, you touched on there in terms of what Swift can do. Am I right, therefore, I think it looks more like the Peerless business but in Europe, and therefore, the sort of the growth synergy is really going to come from a revenue synergy perspective there, please?

Yes. Okay. So I mean, I guess your first question organically, you're talking specifically about Peerless with... Yes. I mean it's just worth noting that we do have other businesses exposed to aerospace. But yes, with Peerless Look, I don't think anything has really changed from what we said in November. The performance of Peerless in the quarter has been really, really strong. So very pleased about that, perhaps not quite at the exceptional growth rates that it was in the second half, but still incredibly strong. The market dynamics haven't changed. We're working pretty hard on a number of different fronts. I mean we're just managing quite carefully the price volume dynamic in the spot business to make sure we're driving great volumes consistently.

We've had some great contract wins over the last few months, which are really, really important to build the base of that business for the long term. And as I'll touch on in a second, the European bits, we're quite excited about. I'll come back to that. So as it stands, quarter 1 was kind of what we would have expected, still super strong and doing very well. And we absolutely continue to expect to land towards a steady good growth, good margin, half 2 forward type of performance. So nothing really changes from the Peerless perspective. I'll just flip on to the Swift. Yes, I mean, we're excited about the Swift acquisition. I mean I should just say before we move on to the kind of revenue synergies base, it's a good business in its own right.

And so we're very, very happy to have it on board. It's a business we've been looking at for quite a few years and dancing with for a while. So we're very, very happy to have them on board. You're right in saying that in profile, it's a little bit more like Peerless than it is, say, like our Clarendon business in nature with the kind of fuselage fastening aspect. And while Peerless already does some business into Europe, there is opportunity to use Swift based in Toulouse to really accelerate what we hope will be a combination of Swift and Peerless into the Airbus supply chain.

It would be -- I have to also mention though that this is quite an important opportunity for Clarendon as well. Clarendon will manage the Swift business, and they have significant opportunities in Europe as well. And Swift through their relationship network will help Clarendon on their side of the business as well. So a good business that gives us lots to spring off from.

And we'll now take our next question from William Blunt of Rothschild & Co Redburn.

Just the first one, please. In your prepared remarks, you mentioned that the environment in Life Sciences was perhaps sequentially a bit tougher. Please, could you maybe just give your thoughts on what's driving that and if there's any difference across your different geographies? And then my second question is just a quick follow-up on the M&A strategy more broadly. At the full year results, you called out some end markets, including water treatment and nuclear where your market share was currently quite small, but you're aiming to expand your presence going forward. Given that all 4 of the acquisitions so far this quarter have been within your more established end markets, is this something we should expect to see a larger focus on going forward? Or is that more of a medium-term sort of direction?

Okay. I'll take the last one first. I mean, can I just remind you, it's been 2 months since we spoke in November. So you're unlikely to have seen necessarily a significant steps on strategic execution in that 2-month period. You're right, of course, that the few acquisitions that we've done since then have been more in the more established end markets, I agree. I would just point out that I'm very, very happy with some of the organic progress we're making in those more, let's say, early-stage end markets. The nuclear side in our VSP businesses from a small base progressing very, very well. We just added some more resource into it, and we're pretty excited about what we can do with that.

And we're making -- we've done quite a lot of business in water, water treatment and infrastructure in some of our international seals businesses, and we're starting to get into that now very early stages organically in North America as well. So some of these things will be organic, some will be inorganic. To the extent that they're inorganic, of course, timing can be tricky to manage. But I don't -- I think we feel just as excited as we did a couple of months when we spoke about it. So that's that point. Coming back to Life Sciences. Yes, I don't think -- I didn't mean to suggest that it was sequentially tougher.

I suppose I think I highlighted or Mike Wilson might have even said it in November, we did highlight that the health care markets in general just have been quite hard. It's a scrap out there. And I think many people in the health care environment would probably, I hope, agree with that. We feel pleased, therefore, to be able to deliver mid-single-digit growth in that kind of environment. And as I said in November, we put a lot of work into developing the team, establishing more consolidated higher-performing distribution capability and most importantly, investing in our business development and cross-border efforts. And as a result of that, I think we're probably doing at least that, if not a little bit better than the broader market.

My comments were really just to say, it does feel quite tough, but we're very happy to be hanging on to great single figure -- single -- mid-single-digit growth.

And just to add to that, you've seen that we've continued to invest in the Life Sciences sector, 2 of the last 8 acquisitions, Alfa and Electromed are actually in Life Science.

[Operator Instructions] And we will now move on to our next question from Virginia Montorsi of Bank of America.

I had just 2 quick ones. One would be, could you please disclose any -- or could you please give us any color on FX and how -- what you're seeing so far? And then the second one would be on defense. We've seen obviously European countries ramping up their defense budget since 2022 and most of the European Union countries are at the point where they're almost at a 2% of GDP to be spent in defense kind of NATO guidance, but we've also seen some of the countries going way above that. Could you maybe help us understand a little bit more where you see the opportunities in defense as well? I know we always talk about civil aerospace, but I just wanted to talk a little bit more on this side.

Yes. Thanks for that. I'll let Wilson answer on FX in a second. I'll just pick up on your second question on defense. Yes. I mean, thanks. You're absolutely right. We do get because of peers quite a lot of questions on aerospace. So it's a good question to ask about defense. And it's a great opportunity, as you alluded to in terms of the macro trends around defense is clearly good. We have well-established expertise in the defense sector, both in the U.K. and in Continental Europe. So we have a good base of understanding and business in it. And as we talked about in the previous question, it is one of the more established markets that we're willing to put a bit of investment behind as well.

So over the course of the last few months, we have organically invested in a new facility in the Czech Republic. And that facility will help us to 1 or 2 of our businesses to penetrate into the Eastern European supply chain that feeds into much of the European defense market. So we've now established that facility. We've got the products we need in there and the management and business development down there. So we're hopeful that over the next year or 2, that's going to really kick on in terms of our contribution to defense. The other thing I'd say is we bought a business called Spring, which is one of the 4 we bought in the last quarter. U.K.-based.

And I think Wilson mentioned it a little bit earlier, that's one of the businesses that serves into some of the big defense contractors like BAE, et cetera. So they bring with them quite a lot of additional expertise that we hope will help us to synergize and grow our defense revenues as well. Probably from a profile perspective, we've been more into air defense. But I think over time and with some of these organic and inorganic activities, we would hope to expand that into land as well. And therefore, we feel, particularly in the U.K. and Europe that we have lots of opportunity in defense.

So on FX, so translationally, we saw a minus 2% on the revenue line, offsetting the 2% acquisition growth in the quarter. But more importantly, transactionally, we've got a good hedging program in place. So in the quarter, there's nothing material to the group.

And we'll now take our next question from Colin Grant of Davy.

Congrats on an excellent first quarter. My question is really just concern the guidance. You've given guidance on 3 areas: the organic revenue growth for the full year, the impact of the acquisitions on your top line growth and also on margins. I just want to go through those, if I can. So if I just think about the phasing of organic growth, you're guiding 6% on a full year basis, but you've obviously just done 14% in Q1. That would suggest a step down in the organic growth rate in the remaining 3 quarters of the year to kind of 3 and a bit percent. Can you just kind of help us understand the phasing of how you see growth taking place across the remaining 3 quarters of the year?

That would be the first area. The second question really is to do with the acquisition impact. I think you've just indicated an additional 1% growth expected on revenues from the deals you've announced in Q1. And you've also told us that you're buying businesses at 7x earnings, and you spent EUR 75 million on those deals in Q1. So that would suggest about EUR 15 million of upside on revenues. and about EUR 10 million on EBITDA, if I take the EUR 75 million and apply a 7x multiple, which would suggest a margin of 2/3, which sounds a bit too high. So I'm just wondering if you could kind of square off what's happening in terms of the impact of the acquisitions in terms of revenues and earnings on a full year basis.

And the last question is just on your margins. So you're indicating margins are going to be flat at 22.5% at a group level in fiscal '26. And I'm just wondering if you can kind of run through why you see margins being flat given the strength of organic growth that you're generating and the accretion that looks like it's coming from the acquisitions.

Thank you for your question. I guess I'll answer them. So in terms of the organic growth. I mean, one quarter doesn't make a year. And look, I'm not going to guide by quarter, by sector, et cetera. What I would say is that we guided 7 weeks ago to a very strong quarter 1, and we have achieved a strong quarter 1. But more importantly, if you look at sort of the quarter 2, quarter 3, quarter 4 organic growth in the prior year, we will start to be lapping a double-digit growth in the prior quarter 2 and then 14% in H2 last year. So mathematically, we are going to start to see weaker comps.

As I said, one quarter doesn't make a year, there's still a long way to go. So for now, we're happy with the 6% guidance for the full year. That's how we should think about it. In terms of the acquisition operating profit, remember that within the 2%, we've already included some of the acquisitions that were announced previously. And remember that the operating profit that we -- well, we're disclosing a nice number. And finally, with regards to margin, look, our businesses are trading in line with expectation. very strong across the group. But as I said in 7 weeks ago, along with that margin progression from operating leverage, we are going to be investing into end market growth, into people and organization structure into strengthening our assurance platform.

So for now, again, I would say 22.5% is what we're happy with, and it's the way to think about it.

Maybe I can just add to that. I mean, look, at the end of the day, I know you've got a model. We're running a business and a crazy volatile world out there. It's been 1 quarter, right? So there's not really much point in getting into decimal places about quarters or margins or all that. The reality is we've had a very good quarter. Of course, we recognize why you're asking the question. Of course, we do. But the reality is it's 1 quarter, and there's a lot going on out there. So let's just see how we get on, and then we'll see how we get on and when we talk to you in May.

There are no further questions in queue. I will now hand it back to John for closing remarks.

Thank you very much for joining, and I look forward to speaking to you again in May.

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 3 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.

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 4. 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 7 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. But what's really exciting is that we're only just getting started.

And so 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 sheet, 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. And we're currently investing in new resource 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. And we complement that with a 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. So turning to FY '25. 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. And 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 0.8x. 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 7 years, combined with a more modest investment in the year. In line with our policy, we have grown the dividend by 5%. So summing it all up, I'm very pleased with this very strong performance.

The quality and diversity of our portfolio allowed 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. And 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. And going into FY '26, 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 U.S. businesses. Earnings per share increased by 21% to 176p, 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 2x 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 net working 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 0.8x, well within our policy of 2x and significantly below 3.5x 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 U.S. private placement. As we end the year with 0.8x 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 FY '26, ensuring we have the capacity to leverage towards our 2x 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 6 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 U.S. 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 don't 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 FY '26 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, ROATCE, 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. And we are particularly pleased with our performance this year, adding 180 basis points to ROATCE 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. But 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 FY '26. 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. So 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 earnings growth through strong organic growth, quality acquisitions and high margins. We're obsessed about returns, delivered with discipline. This is through strong cash conversion and prudent leverage, and 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'll now hand back to Johnny.

Okay. Strategy and business update. I'll start with a quick reminder of our strategy. It's 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. And as we go from small to large, we naturally have to do things a little differently while always preserving these differentiators. So 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've 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're progressing opportunities to extend the footprint. Markets in earlier stages of development like data centers, automation, clean energy, scientific, we're building to make these a bit more meaningful. And 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's a lot to go for. So I'm 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 will 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 7 years, significantly above our financial model.

But it can't 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 won't always be linear, and that's okay. Over the long term, the fundamentals do support a healthy deal flow. It's 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'm feeling optimistic about it.

We talk a lot about being the buyer of choice. There isn't anyone better to hear that from than the people who have sold their businesses to us. Here are a few of them.

[Presentation]

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. increased 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 comparators. 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 DICSA'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 health care 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 life cycle. I'm confident we'll see margins progressing again in the year ahead.

In general, health care 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.

Annelies, go for it.

Annelies Vermeulen from Morgan Stanley. So two questions, please. So 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. So 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? And 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?

And then the second one, maybe more one for Wilson. On that first half, second half dynamic of stronger growth in the first half beyond comp effect, 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?

Wilson can do that bit 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 talked about many times, we've been moving the group more and more into these end markets over many, many years. But I guess I feel we want to get a bit -- or feel we are getting a bit bolder about how we do that now, and we're putting some investment behind it. And that investment is predominantly resourced, specialized resourced with specific market expertise. It might also be about dedicated facility or specific inventory requirements in a particular market. It might, as you say, also be about acquisitions.

So 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've just completed, as you've heard, an acquisition, Spring Solutions, which is predominantly defense focused in the U.K. So there's a combination of both there.

On the aerospace side, I won't say too much about it, commercially sensitive, but we've got significant plans ahead to increase our exposure in Continental Europe, particularly to Airbus, combining both Clarendon and Peerless' capability there. So we've got some plans there. If I look at some of the more early cycle end markets, I'm 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 thermal nuclear physicists, would you believe, frightens the hell out of me. But we're starting to make some really good run -- inroads with them into the U.S. nuclear market, which, as we know, is pretty significant. So I'm excited about that.

Maybe water is another good one to mention. You heard on the video from Simon at ACT, they're a predominant water business today, and they do a lot of water corrosion and sealing products in Australia, and we're looking now at how we can bring that capability more broadly to support water treatment and infrastructure.

So there's a lot -- and these are just a few examples. And I just want to emphasize the point that we will always be diversified. So 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. And that's what makes us 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. And I think it's going to be great for Diploma's long-term growth rates.

Thanks, Annelies, for that question. So just to frame it, we've done 11% growth this year, and it was 9% in H1. And those of you who have done the math will work out that it was 14% in H2. And I think we can all agree, 14% is a very exceptional growth in H2. And it's a very tough compare to lap in FY '26.

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. But 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. And Controls will continue to be strong as well. But 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. And I think that's the way to think about it.

Dave.

It's David Brockton from Deutsche Numis. I've actually just got one question area, 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 forward, 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? And 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, David. Yes, just to set the scene, I think, 22.5% margin this year, 160 basis points improvement. We are all very pleased with it. And 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 operating -- continued operating leverage within the portfolio, and that then supports the investments that we're going to make into capabilities in end markets, talent and resources and also governance and assurance going forward.

Good answer. If I can just add, I mean, we are making probably a bit more investment than we've made holistically over the last 3 or 4 years, which is perhaps why we're calling it out a bit more. And I think I feel quite strongly that it's an important part of the next phase of the group's development. And you'll see and understand from the different buckets of what we're investing in that end market and growth, obviously, as I've 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 hard to say we're in a bad situation, we're not, but we want to make sure we're secure for the future. And we're always building the capability of the group for the future. And Donna is over there, our HR Director, doing a great job on helping us to build the capability for the next phase.

So it feels that we're doing a bit more than we've done over the last 3 or 4 years, which is absolutely the right thing to do. But it's the strength of the business model comes through really doesn't it because we can still absorb that within what we think is a stable and high margin.

It's James Rosenthal from Barclays. I've got two, please. And 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?

And then 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 just answered, isn't that? The end markets I talked about to Annelies question, the financial control piece and the general management capability, those are the areas that we plan to invest in.

Is fair to say it's more of a central government spend rather than in specific businesses?

Well, 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 Wilsons' team, for example. But 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 half of 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, the first half will still be very strong, but the second half will be normal.

But just, I guess, for reassurance that we do expect Peerless to return to revenue and profit growth, if you like. And 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. And 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.

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. So what's the story driving that performance in 2025? And how should we be thinking about the kind of the working capital dynamics to support your growth ambition in 2026?

And then 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?

Yes. I'll take that first, and then Wilson can pick up on the free cash flow. 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're probably a bit surprised by, a, the market dynamics of automation in the period since we bought it, which have been a lot softer than we would have anticipated. And 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. So we're a bit surprised by that as well.

So it's taken a bit of time, but we've started to build out a new management team now. We've got a new President and a new Finance Director in -- over the last 6 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. And more importantly much, much more confidence about the journey that they're on, the action that they're delivering. So I feel good about that. And it's just worth expanding that a little bit to say not every acquisition we do is a Peerless sort of Windy City and some of them are hard at work. It's just -- that's normal when you do 50-odd acquisitions.

We're pleased with DICSA. I've mentioned DICSA before as being quite tough, and we're pleased that, again, with some much more management strength, that business is now in Continental Europe recovered into mid-single-digit growth. Still a hell of a lot of work to do in a long journey to go, but I feel very good about that as well. So there are some acquisitions out there that naturally we just have to work a bit harder at. But these -- both TIE and DICSA will be great contributors to the future of the group. Wilson.

Just on free cash conversion, I'm really glad you mentioned that 105% cash conversion this year is very pleasing. But it doesn't just happen. It boils down to discipline and capital allocation priorities.

In this year, in particular, we've driven hard on our focus on working capital and capital recycling. Hence, with the growth that we've made, we've only invested just over GBP 4 million into working capital. And in this year as well, you'll see that CapEx spend was slightly lower at 1%. Now it doesn't mean that every year, it will be slow. It just depends on our scaling priorities. In some years, it might be CapEx, some years, it might be OpEx. But 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 previously quoted. Could you maybe tell us where that's sort of weighted to and what the opportunities are like?

And then also just, again, maybe just a coincidence of the six acquisitions you mentioned, Wilson, three of them are in the U.K. Is the U.K. are valuations coming down here? What's the environment like here as well? Two of them are also in Controls. So could you give us a bit more details on that?

Yes. Look, Steve is here. Steve leads our M&A team, done a great job for us over the years. And it's 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. And yes, you're right, it has been getting bigger and bigger.

Of course, it's a little bit arbitrary, isn't it 4,000. And it doesn't tell you anything about the short-term dynamics. What it does mean is that it's a demonstration of the fact that the market is very dynamic. It's very fragmented and that we've got lots to go for, and we keep working at it to build that long-term pipeline. So that's pleasing.

The balance of what's in there is pleasing as well. There's 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 GBP 20 million, GBP 30 million was occasionally a bigger one in there. So the pipeline hasn't 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. And as I've said before in this forum, we're very disciplined about it. So we're not going to buy any old business at any old time for any old price. And so we haven't 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 and some of the small deals that we've done over the last quarter or 2 have been mainly U.K. and Europe, I think, aren't they?

Yes.

There's one in the U.S., but mainly U.K. and Europe.

So -- and look, as we look forward, I feel 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. So the expectation maybe bankers are always talking about it is that we're going to see a bit more deal flow. And I suppose from our perspective, Steve, we 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. And we're delighted with the 6 that we've done since the quarter 4, and I'm hopeful that we can keep tucking a few away over the months and quarters ahead. So I feel really optimistic about it.

Just a couple from the webcast. Please, can you explain what will drive the margin improvement in Life Sciences in FY '26 and beyond? And then 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 1 to 2 years?

Okay. I'll take that first, Wilson, and then you can touch on Life Sciences margin, if that's okay? Well, 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. But I think we should just take a step back from it. We've done so much in the last 5 or 6 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 5 or 6 years. And some people -- I keep reminding ourselves internally, some people are now kind of understandably, but comparing everything 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 is 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...

On 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 2 years consecutively. And secondly, Life Sciences, as we all know, is a life cycle business. And we've had parts of that portfolio that are a bit more mature, hence, weakening the margin slightly. But more importantly, what are we doing to improve the margins going forward?

Well, we're investing in business development capabilities. We are strengthening our relationships with our supplier base. And 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.

Dylan Jones from Kepler Cheuvreux. Just circling back to Peerless, I appreciate that you've obviously set out that you expect that to sort of normalize and you sort of fully expect to deliver on that soft landing. Just if you can maybe elaborate a little bit on what's sort of within that Peerless control? What are the levers they can pull to sort of deliver on that sort of outcome in particularly H2 2026, but then in FY '27 and beyond, particularly sort of around the pricing environment that you're seeing there as well?

And then just on some of the acquisitions, particularly in the fourth quarter, if you could just sort of elaborate on some of the value-add opportunities that the sort of point of sale and the service that sort of 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. So look, the market dynamics in aerospace haven't really changed that much. So the long order book of new aircraft is, if anything, getting bigger. And therefore, the kind of consequential impact on a very hot refurbishment spot market remain the same. And therefore, Peerless continues to experience the benefit of that kind of double demand, if you like, and the spot market is still particularly strong. So that's the first thing to say.

And we don't expect that to change anytime soon. So the dynamics there are unchanged. As we look forward and getting -- you asked about how do we -- what's 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. So for example, winning longer-term contract business will just secure the sustainability of their growth. And over the last 6 months or so, we've had some very good new contract wins, which will kick in over the next 3 to 6 months or so, and 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'll be working with Peerless and with Clarendon, but particularly with Peerless to support their ambitions in getting more market share in Europe. And that, again, will be another avenue for a step change in their organic growth over the medium term. So 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 just said. We're seeing a lot of market tailwinds, particularly in aerospace. The build backlog of planes are just massive at the moment. So 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.

[indiscernible], Banco Sabadell. First of all, congratulations for the results. Here's a question, please. Do you know that in the last month, we have new tariffs in the international market due to Trump tariff. How does this point affect your business, please?

Tariffs, the question is about tariffs and how much it affects our business. I mean, I don't want to sound complacent with this comment in any way, but our business is predominantly local to local. So around 85%, particularly in the U.S. of what we source is local and what we sell. That doesn't mean, of course, that we're immune and 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's all manageable. And I don't think in any way that it's 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've made it into a competitive advantage. For example, Windy City Wire has taken the opportunity to fully locally source their copper, and that's given us great competitive advantage in H2. And as you can see, Windy City Wire has done 11% growth during the year.

Anymore? 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.

Good morning. Today, we announced Diploma's full year 2025 results, and it's been another great year for the group. I want to start by thanking all my brilliant Diploma colleagues for their skill, for their dedication and for their passion. You make all the difference. We've delivered a great performance across all of our key financial metrics ahead of our expectations and building on our long-term track record. We're ambitious about growing our earnings.

Our organic growth was a strong 11%. Our margins are up to well over 20%. And as a result of that, our earnings grew by an encouraging 20% in the year. We marry that ambition with discipline, the discipline of great delivery. Our return on capital was 20%. Our cash was very strong, and our balance sheet, therefore, remains at sensible and modest leverage, giving us capacity for the future. So when we deliver ambition together with discipline, and we do so in the good times and the bad, that's when we continue to deliver sustainable quality compounding.

And I feel really optimistic about the future. The quality and diversity of our portfolio of businesses gives us access to fantastic structurally growing end markets. We also have amazing opportunities in geography and product to grow our white space. Together, therefore, we are very excited about our organic growth in the future. We can accelerate that organic growth by bringing new businesses into the group, too.

In fact, we brought 6 excellent new businesses in since July this year, and the pipeline for the future is looking very healthy, too. The most important success factor for our future, though, is you, our people. And I want to make sure we continue to invest in developing great capability for our future. We have fantastic engagement, the culture is thriving, and that's a massive advantage for us in the future. We're just getting started.