Diploma PLC (DPLM) Earnings Call Transcript & Summary

All right. Good afternoon, everyone, and welcome to Diploma's Capital Markets seminar, Diploma Delivers. I want to thank you very much for coming today. I also want to say thanks, everyone, for joining on the webcast. I hope you can see and hear us loud and clear. The team are all here, and we're really pleased to be able to share our story with you today. My name is Johnny Thomson. I've been Chief Executive of Diploma for a little over 4 years now. Many of you I know well. I just want to say a word of thanks and gratitude to you for the support you've shown me and the group over the last few years. And for those of you who are a little newer to our story, I hope this is a good opportunity for you to get to know us. And I look forward to speaking to you hopefully after the event. I'll start by saying that I have a great job, and I really love it. And I want to share with you, first, my first message is there are 3 really important things, very important messages that I want to share with you that make Diploma very special. The first one is that we have a differentiated value-add service distribution model. The second is that it's delivered every day by brilliant people in an empowered, decentralized culture. And today, we're going to explain a bit about what we mean by these differentiators and importantly, how we're going to develop our businesses and the group to be able to deliver them sustainably at greater scale. And the third thing I want to leave you with or as a key message is that we have massive growth potential. And we're really excited about that, and we're going to share today how we drive that. So those are 3 key messages that for us, have delivered quality financial compounding over decades. But here's the thing, we're really excited because we're just getting started. And therefore, I'm more excited today, I think, than I've ever been about Diploma's prospects. 4 years ago, we didn't have an executive team, and now we do, and they're on the screen and they're here today. We have the CEO of International Seals, Alessandro Lala, North American Seals, Ted Messmer, International controls over here, David Goode. Our Life Sciences sector is run by Dan Brown and is today represented by our North American Head of Life Sciences, Elena LoCastro, over here. And you'll hear from Windy City Wire, Chief Executive, Rich Galgano by video. The group team, obviously, also here, CFO, Chris Davies, our Corporate Development Director, Steve Sargeant, and our new Sustainability Director over there, Phil Pratt. Jill Tennant, our HR Director, is also here. Jill will be moving to a new job as our Strategy Director shortly, and will be replaced by Donna [indiscernible], who is, I hope, maybe somewhere in the audience, there she is, gives a wave, there you go. I'm really, really proud of this team. They've come together from inside the organization and from outside. They developed through the pandemic and are now managing a growing and scaling group. So I do want to say just a massive thank you to them for the fantastic job that they do every single day. The agenda for today. We will cover the 3 key messages that I just mentioned, and we'll hope to give you some color with some examples from businesses across the group. So after an introduction from me, you'll hear from the team on a little more color on that value-add distribution model that I mentioned. And we'll then talk about the exciting growth opportunities. We'll have a session on how we are developing our businesses and our group for greater scale. Phil is going to take us through our environmental and social platform, delivering value responsibly. And then Chris will finish this off with a session on our financial compounding model. There'll be questions and answers, of course, as usual at the end. And after that, we have a few drinks, we hope you can join us, have a look at our products outside and meet the team more informally. So let's get started. The foundations. The foundations of the group are very strong, created from an inspired idea, fostered with discipline and delivered consistently. We're a value-add distribution group, as I said, a group of small-ish businesses, value-add products and customer service is the consistent core delivered by a brilliant team in an empowered decentralized culture and with an impressive and resilient track record of growth at attractive margins. Now I inherited these foundations, and they're also the basis of our future success, but we have moved the group on to the next phase. We have ambition. We're transitioning from niche GDP plus businesses to specialized high-growth businesses. We have cohesion, direction and execution across clear, strategic and performance objectives. And we're building a diversified and resilient platform for scale, enabling our businesses and our group to deliver for the long-term. Our value-add business model is our key differentiator, as I mentioned. We're a service business as much as a distribution business. And while we do some light assembly, we're not a manufacturer. Our products are specialized and always with a customer service wrapper too. We create solutions to make our customers' lives easier in some way. And the value we create is far in excess of the cost of the product. What we do is critical to our customers' value chain. And every day, we live and breathe this. The business model drives what I call the Rule of 6. Loyalty and share of wallet, reputation and market share potential, pricing power and, therefore, strong margins. You'll hear some examples from Ted and the team on this in a minute, but preserving this value-add as our businesses scale is critical to our success. So that's a bit about the model. Now I'll explain a bit about who we are. Our purpose is to create, innovate and deliver value-add solutions for a better future, for our colleagues, customers, suppliers, we believe in ownership at the front of the organization, decentralized, why? Because our customers, our value propositions, our management, performance, strategy, they're all local. Success happens for us at the front end. And that also defines how we behave, too. We're commercial, accountable, open-minded and collaborative, driven and resilient. We're not about politics, ego and hierarchy. We believe that this decentralized culture is also a differentiator for us. It's a way of working that we all love and thrive off and preserving this secret sauce as we scale is one of the most important parts of my job. Strategy. Our strategy is to build high-quality, scalable businesses for sustainable organic growth. Now we drive organic growth in what I call our 3 buckets: positioning behind structurally growing end markets, penetrating further in core developed geographies and extending our product range to expand addressable markets. We're small, concentrated businesses stepping out of their niche, taking their specialized proposition to new places. They all have fantastic opportunities which we focus around these 3 buckets. And this strategy, therefore, drives exciting organic growth. It drives scale and it drives increased resilience. As a group, we focus the portfolio around key scalable business units. So we complement our organic strategy with bolt-on acquisitions that accelerate organic growth at great returns. We have a strong track record for this and a healthy pipeline to keep going. Our value-add model and our powerful decentralized culture are our key differentiators, as I said. And as we go from small to large, we may naturally have to do things a bit differently while always preserving these differentiators. So building effective scale is therefore key to the strategy, developing our businesses and the group to become better and not just bigger and as such, to sustain long-term delivery. And finally, Diploma's products and services are fantastically positioned for the sustainable economy. Our environmental and social platform, delivering value responsibly is embedded in our culture and commercial activity. And through it, we can make a meaningful difference. We've made great progress in the last 4 years. We've doubled the size of the group. We've diversified the portfolio, and we built a group for scale. From a growth perspective, we're building positions in structurally growing end markets, as you'll hear shortly. Geographically, we moved the U.S. from 25% to 45% of the group. And we've materially extended our product capability, adding 3 new verticals to the portfolio. We have developed a more strategic and structured approach to acquisitions, bringing in 30 new businesses. Our largest acquisition, Windy City Wire will have tripled its profits and delivered returns of over 20% in this -- its third year in the group. Keeping the portfolio focused, we disposed off 4 small non-core businesses, too. We're developing our businesses incrementally for greater scale, and we've transformed the way we run the group too, and I'll say more on that in a minute. But finally, for now, performance, our growth has accelerated. Our margins are strong and compound EPS has accelerated to nearly 20%, all at great returns on capital. But looking forward now, let's talk about growth. Over decades, Diploma has delivered 5% organic growth, but we're aiming to do a bit better. How do we do that? Well, first, let's consider our end market bucket. One of the really exciting opportunities is to access structural investment trends. Our products and services face really well into these high-growth markets. We've increased our exposure, but we still have very small shares. So we'll keep developing this. And this approach will increase our revenue resilience as well as actively positioning us in the sustainable economy, what we call positive impact revenues. These markets should grow by anything between 5% and 10%, and with market share potential, too, increasing exposure can potentially add 1% to 2% tailwind to our group organic growth over time. Now let's look at the significant white space opportunity in the other 2 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. So we don't need to go to higher risk developing markets for our growth. We have either no or small market shares in most of our product verticals across the U.S., Europe and the U.K. We can also add new product verticals, we don't want to go crazy with this. Portfolio focus is important to us, but we'll selectively ensure it suits our business model and we have the right to scale. We started on this with adhesives, automation and fluid power in the last few years. We believe that this geographic penetration and product extension can also add 1% to 2% to our group organic growth over time, too. We can use our capital to accelerate our organic growth with bolt-on acquisitions. We buy quality small- to medium-sized businesses that drive future organic growth in the 3 buckets at great returns. With a strong track record in the last 4 years, we've deployed GBP 840 million on 30 businesses that have grown organically at 15% and with returns of 16% and rising. Looking forward, we expect this to continue. We have fragmented markets, a well-developed approach and a compelling proposition to sellers and the pipeline, therefore, looks very healthy. Discipline is really important to us, is the underpin to successful long-term compounding. So there may be times when we do a little less. And that's okay. We're not buying any old rubbish. However, with a healthy pipeline, we can continue to add quality businesses or strategic value with great growth and attractive returns. You will hear a lot more on growth from David, Steve and the team shortly. You'll also hear about our scaling journey for the businesses and the group from Jill. For now, I just want to touch on how we run the group. We have 3 management sectors; Controls, Seals and Life Sciences run by 5 sector leaders. And we have 15 business units where the customer proposition, performance, strategy all live. Now having grown up and scaled decentralized service organizations, I understand principles and the pitfalls of this journey. So let me touch on a few principles. First, keep it focused. This means portfolio discipline to ensure a manageable platform for scale. Despite doubling in size, we've moved from 20 to 15 business units in the last 4 years. We have simple and clear strategic and performance frameworks around which the group can mobilize. This way, we can preserve local ownership but ensure alignments to the group's objectives, too. Second, lean structures with dynamic leaders. A lean structure avoids bureaucracy in the businesses, it promotes alignment, agility, execution. The head [ office ] is 25. Our sectors are generally CEO plus a few, and there's one layer between myself and the businesses. Now naturally, we need a bit more structure as we scale, and we carefully plan this ahead. To operate this way, you need a great management team. We have a brilliant leadership team, I believe, through our development processes and our programs alongside external recruits, we're building quality and succession across the organization. And finally, mood, the beat of the organization. decentralization doesn't mean isolation. We visit and review all of the businesses and sectors regularly, as you would expect, to ensure alignment and execution. But outside of the formality, I am always actively managing the mood. Regular individual and collective touch points allow us to be agile to manage pace and therefore, to execute better. And within all of this, we always preserve our differentiated decentralized culture. It's our secret sauce, but we can do that while enjoying the benefits of a big group. We call it the Diploma Identity, and that's creating leadership networks, collaboration, best practice sharing. We become more than the sum of our parts. Delivering value responsibly is an important part of our culture. We like to do things the right way. It will also be a big part of our commercial success, too. Our products and services are well positioned for the sustainable economy. [ As a distributor, we look to work with partners who can support with our emissions targets. ] As a service organization, we ensure our workplace is safe, inclusive and engaging for our colleagues. We can make a meaningful difference. We have a framework, and we're making great progress against our targets, as Phil will show you a bit later. And finally then, what can you expect Diploma to deliver? We have a long-term track record of quality compounding with 15% compound EPS growth. We have a clear and attractive financial model, and we've been outperforming it in recent years. For the future, as I said earlier, we're excited about our prospects. We have massive organic growth potential and ambition beyond the 5% model, a proven acquisition track record, enhancing growth at great returns and with a healthy pipeline to keep that going. Our strong margins are sustainable. In fact, I would expect that over time, they may even edge up a fraction as the benefit of scale and performance outweigh investment. We believe discipline is a critical underpin for the long-term delivery. Strategic discipline around portfolio management bandwidth, financial discipline around cash, capital allocation, returns and a conservative balance sheet. And finally, as I said, we have a strong leadership team. So what can you expect? Well, we're only just getting started. And so you should expect sustainable quality compounding into the future, too. That's enough for me, I think. I now hand over to Ted, who is going to take us through a session on the value-add model.

Thank you, Johnny. Good afternoon. My name is Ted Messmer, and I am the sector CEO for North America Seals. I joined Diploma 1.5 years ago after 20-plus years of experience in global industrial businesses to include Corning, Danaher and Carlisle. One of the first things that struck me about Diploma was how much value we bring to the market without the huge R&D budgets and capital investments of my previous companies, and by the way, delivering higher margins than most of them. The purpose of this session is to explain our value proposition to showcase it with some examples and clearly demonstrate how we provide a unique customer experience. Providing value-add is our core. Everything about Diploma is based on this fundamental. It's how we think, it's why we exist. Our businesses serve multiple types of industries. They range from highly technical needs of healthcare, chemical processing, and speed demands of hydraulic repair and cable installation. We aim to make our customers' lives easier and to solve their problems. There are 2 aspects to our value-add. First, we distribute specialized products, which are critical components in our customers' value chains. They have low costs relative to their overall spend and usually fall into their operating expenses rather than capital budget. Second, we supplement these products with a service wrapper with technical expertise and other aspects that increase convenience or reduce costs for our customers. So let me start with product. Just a few examples of what we do. We ensure customers use the proper fasteners to assemble aircraft and Formula One cars. We specify highly engineered gaskets and torque settings for transporting toxic materials. And we guarantee delivery of laboratory products needed for cancer diagnosis. In other words, our products cannot fail and they must be delivered on time. We thrive in offering solutions which meet technical specifications or can survive harsh demanding conditions. This translates into very tangible value-add by increasing our customers' uptime and decreasing the risks of failure. At the same time, our products are generally at low cost compared to their overall operating budget, which is why customers are happy to pay us a little bit more for our products and services. Now let's look at the service wrapper, many of our businesses offer deep technical support, allowing customers to tap into our extensive product knowledge and application expertise. This might be obvious in Life Sciences where a technical sales team sell cutting-edge products to surgeons. But it's not just there. In our Seals, for example, our chemical engineers develop proprietary materials that meet a broad array of industrial applications. We also save our customers time and money with some of those innovative kitting and packaging solutions in the distribution industry, such as Windy City Wires RackPack solution, which has proven to reduce labor 20% to 30%. Responsive customer service is the foundation of success in all our businesses. Our decentralized model keeps us close to customers and responsive to their needs. In a little over a year, I've heard many a story of employees driving through the night with their trucks to get a critical product to a customer. It's that passion for what we do and who we serve, which drives Diploma's value-add every day. That differentiated value-add proposition is at the heart of each of our businesses, and it delivers 3 important outcomes. First, loyalty and therefore, share of wallet. We build great customer retention by offering the service they simply cannot get anywhere else which then often expands beyond their initial product requirement. You'll hear in a minute from VSP who have successfully expanded beyond gaskets, introduce sealing and fluid conveyance applications. Second, a strong reputation and therefore, growing market share. For example, the reputation of Hercules aftermarket has spread far beyond its Eastern U.S. routes and doubled its position in the Midwest and West Coast by delivering continued reputation for service excellence. And finally, pricing power, and therefore, gross margins. Customers recognize and appreciate the value we provide and are willing to pay us for that value. Our value-add is not homogeneous. Every business is unique. So let's bring the value-add to life with some examples, starting with my own Seals sector. To put the Seals sector into context, we've historically concentrated on hydraulic seals as our primary product. The acquisition of VSP in 2019 allowed us to expand into gasket applications. And then in 2022, we acquired R&G which brought an industrial and hydraulic hoses as well as pneumatic products, giving us a much broader fluid power portfolio. Our services are varied. They can be technical, such as designing proprietary seals or they can be about customer convenience, inventory availability, kitting and speed to market. We have 6 clearly defined business units. Around 2/3 of the sector is OpEx-driven in our aftermarket MRO. Our U.S. MRO business represents 13% of the sector and it's where I'm going to focus next. VSP is a perfect example of Diploma's value-add solutions. We acquired the business in 2019 and has been a great success story. Today, revenues are GBP 44 million, up 21% since 2019 and with strong gross margins. Historically, VSP sold custom gaskets used in chemical processing, power generation and other heavy industries. Since our acquisition, they have successfully broadened their flow control product lines. Cross-selling [ o-rings ] and hoses from other sector businesses into their existing customers. And what they do is special, they're selling a solution that reduces leakage and downtime in mission-critical and hazard environments, such as rail transportation of toxic materials. Their solutions reduce customer operating costs and they have tangible environmental benefits too. But let me hand you over to Tyler, who runs the business, and we'll tell you more. [Presentation]

As you can see, VSP is a great example of Diploma's value-add model. I'm truly inspired by the way they continue to bring innovative product and service solutions to the market while at the same time expanding into new regions across the U.S. Moreover, the push for increased safety regulation will only benefit VSP's quality proposition. Altogether, VSP is a very bright and high-growth future. With that, I'd like to turn it over to Elena, who will tell you about our Life Sciences value-add story.

Thank you, Ted. Good afternoon, everyone. My name is Elena LoCastro and I'm delighted to be here this afternoon, representing the Life Sciences sector. My current role is Senior VP Life Sciences for North America, and I'm based in Canada. I'm new to the Senior VP role. However, I've been part of the Diploma organization for 20-plus years. In 2004, Diploma acquired Somagen Diagnostics, which is the company where I spent many years of my career. And before my current role, I was the Managing Director at Somagen for just over 12 years. My background is medical laboratory science, and my passion is healthcare and innovative technologies. To begin, I'd like to share an overview of the Life Sciences value-add model. Simplistically, our Life Sciences sector provides value-add products and services in 3 distinct areas. The first is med-tech, this includes products used in surgical procedures in operating theaters and endoscopy. The second is diagnostics. This is where we provide testing equipment and services for clinical laboratories. And the third is scientific, which includes products for biopharma, food safety as well as research-oriented products. Our customers are typically hospitals, clinical labs and research facilities. Our suppliers are generally small to medium-sized, highly specialized manufacturers. Across our business, we generally operate a capital and consumables model that is selling, installing our equipment and then benefiting from an exclusive ongoing consumables revenue stream. The key to our business is our technical value add. We provide scientific focus, clinical expertise and consultative support. Let's discuss our role in the healthcare value chain. So Life Sciences plays a vital role in understanding and defining current and emerging medical needs and then matching those to our innovative products. Our products can be anything from surgical systems to endoscopes to instruments and consumables used in diagnostic testing. For customers, we're a trusted and valued supplier. We give our customers unsurpassed technical support and access to a portfolio of best-in-class products. Our relationships are with surgeons, clinicians and medical lab professionals, they are our buyers. Our suppliers -- our manufacturers of high-quality products for whom we are a trusted partner, providing a cost-effective route to market with local regulatory, operational, commercial and technical scientific expertise. We partner under long-term exclusive distribution agreements within defined geographies and 4 specific products. And because of this, we are tightly embedded in the value chain. Let's now take a closer look at Life Sciences Canada. We are Canada's largest distributor of specialty diagnostics and specialized medical devices. We provide a broad range of surgical endoscopy and diagnostic solutions through our businesses that is AMT Vantage and Somagen. Canada is a public healthcare system and delivery is managed by each province and territory. Our commercial relationships, strategy and operational delivery, therefore, address the customer base spread across a relatively large geography. We have a fantastic team of 93 in the field commercial and technical group and we service over 800 customers. We have approximately 7,000 active products with over 150 in the pipeline today. And today, we also have 112 supply partners. Over the next few minutes, I will take you through our Canadian diagnostics business, that is Somagen. This slide sets out the product areas which we represent. I won't go through all of these, but I would like to take out a few. The first is cancer. We're all aware that early detection of cancer leads to improved patient outcomes. We've partnered with a fit supplier to offer a range of laboratory products, which are used within provincial colorectal cancer screening programs. Allergy, most of us have heard of cases where children suffer from severe allergies such as peanut butter. Our allergy component tests provide diagnostic information to help discriminate between a genuine food allergy and across reaction to another allergens such as pollen. These tests are therefore critical as they contribute to identifying a patient's allergic severity and treatment options, which would impact their overall quality of life. [ Core Lab ], everyone is familiar with diabetes and the life-changing impacts when dealing with this disease. Through precise diagnostics, our clinical chemistry products provide quality results which contribute to the treatment and management of this disease. Cellular pathology. Our pathology solutions enable the production of high-quality standardized tissue slides for the assessment of surgically removed biopsy tissues. The tissue slides are produced by the pathology lab using a sequence of histology or specialized equipment and consumables which are provided by Somagen. Once produced, these slides are reviewed by a pathologist who will focus on the unique microscopic structures and stating patterns to assist clinicians with the accurate diagnosis, staging or prognosis for various diseases. In all of these areas, we provide solutions that are critical to a patient's healthcare journey. The great examples of product solutions that we've just seen together with our technical support, provide great value, but also these create strong relationships. Long-term relationships with our customers and suppliers are, in fact, key to our success. On the customer side, our long-term relationships are based on trust, which we built over decades. Customers want to work with us because of several factors. The first, we have technical salespeople. They are the specialists who help customers identify what specific products fit their specific needs. We have best-in-class products. We're also established and reliable with customer reach from coast to coast. And we follow all of that up with great service from national logistics and inventory management to post-sale technical service and support, which is critical in the healthcare industry. We also have great supplier relationships. Many lasting for several decades. Suppliers provide us with innovative products, and in return, they get several benefits. The first is customer access. And as we grow, scale is increasingly important, making us the route to market. Market access, our suppliers benefit from our local market knowledge and expertise, including the procurement process. They also get support through the commercialization process, which also includes clearing complex regulatory hurdles and scale distribution and logistics capability. To conclude, the diagnostic space is very dynamic. Our passion is improving patient outcomes. We are at the forefront of exciting developments in urology, gene therapy, next-generation diagnostic solutions and advanced molecular diagnostics. We have a great product portfolio, and we have an encouraging pipeline to fuel our future growth. Finally, our people. They are the value-add. They drive the proposition and they drive the growth. Now I'll hand over to David to talk about Value-add and Controls.

Thank you, Elena, and good afternoon, everybody. My name is David Goode, and I'm the sector CEO for controls. I joined Diploma around 4 years ago. Before that, I was with the [ Centro ], lately heading up their European components business. I'm responsible for the Diploma Controls businesses in the U.S., Europe and the U.K. And the last 4 years have seen a tremendous transformation in my sector. Throughout the growth journey though, one thing has remained central and that thing has been value-add. The Control Sector operates in growing markets such as civil aerospace, energy, infrastructure, defense and motorsports. In those markets, we offer a range of products from interconnect solutions to wire and cable, specialty fasteners, adhesives and most recently, automation solutions. The one thing that all of our products have in common is value-add. Now that might be technical support, repairs and servicing, customer convenience or product configuration. But where we have a product, we will always seek to offer a value-add service. I'd now like to talk about our most recent acquisition, TIE. Automation is a segment that we've been targeting for some time. We'd carefully mapped the market searching for an attractive entry point. And in TIE, we found a customer service, value-add business with strong margins and entry into the attractive automation space with accretive organic growth potential and all at attractive multiples. TIE is a market-leading value-add distributor of aftermarket parts and repair services into the fast-growing U.S. industrial automation and market. It's headquartered in Nashville and then it has 2 further branches near Detroit. It generates revenues of around GBP 30 million with strong gross margins and it offers a range of services from distribution of hard-to-find parts to full reconditioning of robots and CNC machines. It's a real circular economy business. TIE offers a broad range of products and services into the robotic and CNC machine markets. It provides refurbished industrial robots configured by TIE and there's one sitting outside in the foyer. It supplies around 100,000 spare parts for robots and CNC machines, and it repairs industrial electronic components and server motors. So back to the core question, what is TIE's value-add? First, unrivaled inventory, including older vintages and hard-to-find parts; second, repairing out-of-warranty equipment, TIE's inventory exchange program allows customers to send in their old machine and receive a reconditioned machine in exchange. TIE then harvest the parts, which reinforces their parts availability advantage. And finally, TIE offers great technical support with team of trained technicians able to identify issues and design solutions for breakdowns. What all of this means is that the value to the customer is vastly in excess of the cost of the solution. The value-add significantly reduces downtime, increases the asset life and ROI and does so at an attractive price point. From a competitive perspective, TIE occupies a sweet spot in the market focused on older out-of-warranty machines below where the OEMs operate and above where smaller competitors can effectively challenge. In many ways, the value-add that TIE offers mirrors our Seals aftermarket proposition. It's a model that we like. The success of TIE's model is shown clearly in its results. They have outstanding customer loyalty, 96% of revenues are from repeat customers in a growing business. A little like Windy City Wire or maybe Hercules aftermarket, once they have a customer, they keep them. They, therefore, have a large base of repeat customers. Their reputation is driving market share gains with revenue growth well ahead of market growth. And operating margins are among the strongest in the group at 24%. So in conclusion, TIE has a differentiated aftermarket capability and a clear value-add proposition. The business has great circular economy credentials, keeping older machines running and recycling parts, and it has a long growth runway ahead from an aging installed base as well as structural growth in automation, which has been driven by onshoring of U.S. manufacturing and tight labor pools. We can also help support TIE's penetration across more industrial regions of the U.S. TIE is a fantastic diploma style business. It's the start of our journey in automation, and it's a journey that we're excited to be on. Now I'm going to turn back to Ted.

Thank you, David, and Elena those are great examples. The combination of specialized product and service or value-add, it's distribution with a difference. It sets Diploma apart. It underpins our growth, our resilience and our margins. It means our customers are loyal and our businesses have great track records of increasing share of customer wallets. It builds reputation that drives market share gains. And it shows up in our strong margins as we can price for the solution that we provide, not just the product. Hopefully, that has brought our value-add to life for you. And we're going to move on to growth, and I'll hand it back over to David.

Thank you, Ted. When it comes to growth, organic growth is our #1 priority. Our revenue diversification strategy focuses growth into 3 buckets: structurally growing markets, geographic penetration and product expansion. This diversification not only drives growth and scale, it increases our resilience. All of our businesses have fantastic opportunities which means that our growth is not reliant on any one factor, but sustainable in the long term. In fragmented markets, acquisitions can also play a role in driving our future organic growth, and Steve will talk to this later. Our success as a group is built around growth. Johnny mentioned earlier that he's as excited as he's ever been about it, and we all are, and I hope by the end of today, you'll understand why that is. So to recap on what you've heard earlier, our growth strategy is to diversify our revenues across 3 buckets. And let me just put a little color around each of them. Firstly, in structurally growing end markets, we've positioned the group into end markets with 5-year CAGR forecast of 7% or over. In 2018, 20% of our revenues are into these markets. It's now 35%, and it is growing. We are still committed to the areas we've been traditionally strong in, such as defense, aerospace and surgical. But by pushing into these high-growth end markets, it allows us to increase our tailwind and resilience while also adding to our positive impact. The second bucket is around penetrating core geographies. We have already talked to the point that our market share is still very small in the verticals we're present in. The U.S. has been and continues to be a focus. It has increased from 25% to 45% of the group. Europe will play an important part of our future plans as well. We have almost 0 market share in the big European economies and we'd love to establish quality positions with businesses that can drive market share there. Put simply, we can grow in our core territories within our existing product verticals at pace for many years to come. The last bucket is around extending product capability. This could be by improving our value-add, cross-sell or by adding new product verticals. We do this selectively and strategically. In controls, we have recently added specialty adhesives and industrial automation. Of course, any new vertical needs to support value-add distribution, and we have to be able to grow and scale it. While we position our activities across the 3 buckets, it's also important that we deliver maximum value from the growth opportunities. With this in mind, there is a journey to better execution, which is consistent across the group. We are transitioning from niche GDP plus to specialized high-growth businesses. And this means that we need to complement our existing technical care account management with business development or hunting capabilities. This transition will drive our organic growth progress in all 3 buckets. We are also taking advantage of our growing group. We're starting to coordinate at sector level to unify approaches with certain market opportunities and to cross-sell. And with Jill moving into the newly created group strategy role, we will continue to provide greater support and coordination to accelerate our exposure to high-growth end segments. We are still near the start of our journey. We are improving, but there is much more to do. Let me try and bring some of this to life now looking across the sectors, starting with my own, Controls. Controls is a near GBP 500 million sector today with operating margins of over 20%. We have diversified behind structurally growing end markets, we've improved geographic diversification, particularly in the U.S. but also in Europe, and we've broadened our product capability with entry into automation and specialty adhesives. Windy City Wire was a significant milestone establishing a platform for wire and cable in the U.S. and extending our reach into building automation and data. Control serves diverse end markets, industrial automation, civil aerospace, defense, medical, energy and other structurally growing end segments. Geographically, we have transformed. In 2018, it was predominantly a U.K. business. And today, over half of the revenues are from the U.S., and we've grown in Europe, too. We have 6 streamlined product business units. Three of these have been in the group for some time, but are now diversifying and scaling, and we've added 2 new verticals in Industrial Automation and specialty adhesives. More on these later. Mindful of portfolio discipline, we also disposed of one business line this year. The streamlined structure ensures we are focused and allows for greater coordination between businesses to maximize their potential moving forward, including through enhanced cross-sell. Now let me talk about end markets. We've made great progress and have successfully pivoted into structurally growing end markets such as data and digital infrastructure, electrification and automation. We have driven outstanding growth in adhesives through the sales into electrical vehicles market and an interconnect through sales into clean energy. In Windy City, we have won business in the 5G rollout and data center expansion. In automation, we see significant opportunity from U.S. onshoring and acquired TIE to take advantage of these emerging trends. We've made a start, but there is still lots to go after. We are now well placed in the 3 core markets of the U.S., Europe and the U.K. The U.S. is a great opportunity for us. We have good national presence through Windy City Wire, yet still have a small market share. In the wider sector, we are only just starting in the U.S. in interconnect fasteners and automation and our journey in Europe is still in its infancy. We have little presence in interconnect and fasteners and nothing in wire and cable, adhesives or automation. This is massive white space. And finally, in the U.K. We have good positions in both interconnect and specialty fasteners with further market share potential, but we're small in wire and cable and have nothing in automation. In short, geographically, we have matters of potential to grow. There are broadly 3 ways in which we increase our product ranges. Firstly, we could add new verticals like adhesives and automation. I'm sure these won't be the last. Second, we are continuously innovating to keep our value-add offers current, and Rich will tell you more about this later. And third, we are increasing our cross-sell opportunity. For example, in our Specialty Fasteners business, we have quoted on new tenders and one business for our aerospace customer base selling adhesives. The close working relationship between specialty fasteners and Techsil has meant that we've been able to meet the customer need to the benefit of both businesses. And of course, what all of this does is expand our addressable markets. Let's take a look now at a specific example where there are opportunities in all 3 buckets: Specialty Adhesives. Techsil was acquired in August '21. Revenues were GBP 10 million and have grown strongly to GBP 13 million last year. It's a U.K.-based distributor selling specialty silicons, adhesives and sealants, and it adds value through technical sales and support own branding and technical specification. Techsil has been a fantastic success, and it has so much potential. The business is well aligned with structurally growing end markets such as EVs providing solutions for battery bonding and circuit board encapsulation to name just 2. It serves telecoms and defense. This has helped drive an organic CAGR of 20% since acquisition. It has a strong management team and a business model, which has enabled us to add 2 bolt-on acquisitions for GBP 5 million at 4x multiples. As lift and shift acquisitions, the deal returns are fantastic. However, more importantly, they gave us greater exposure to additional end markets such as aerospace. Today, based on H1 run rates, the business is on track to have doubled in size to around GBP 20 million under our ownership and all at 30% operating margins. Techsil has significant opportunity across all 3 of our growth buckets. U.K. consolidation, geographic white space in the U.S. and Europe, and exceptional end market potential. You're now going to hear from [ Rich Galgano ] on his business, Windy City Wire. Windy City has a great track record of double-digit organic growth and its prospects are just as compelling. [Presentation]

Well, what a great video. I'm going to hand over to Ted now, who's going to tell you a little bit more about sales.

Thank you, David. The Seals Sector has delivered an impressive 15% CAGR over the last 3 years and continues to generate very attractive operating margins. It's also worth noting that Seals was the most resilient sector throughout the pandemic. Our success is directly attributable to the team's efforts to diversify end markets, create better geographical positions and broaden our product offering. If we look back, even just a few years ago, the Seals Sector was very narrowly focused, lack diversification and scale. We're heavily concentrated on Seals, products sold into the U.S. construction market. Our U.K. and Australian businesses were subscale and we're exposed to a tenuous Russian market. Today, the sector is in a much better position to generate future growth. We have diversified well beyond the construction space. Our geographic footprint is much stronger after exiting Russia, consolidating businesses in Australia, building scale in U.K. and bolstering our position in the U.S. Our product range has been transformed with additions of VSP and R&G. And while this is all great news, we're only getting started. The Seal Sector has increased its exposure and participation in several robust, high-growth markets to include renewable energy, water, manufacturing and infrastructure projects. Just to give you a few exciting examples. Our M Seals business won the Vestas contract putting us on the biggest wind turbine ever deployed. We've built a very strong water management portfolio in Australia, which we believe will open up opportunities in other regions. In the U.S., we're well positioned to benefit from the a trillion dollar infrastructure investment as well as the resurgence of onshore manufacturing. The Seal sector has also made excellent strides in expanding its geographical position. Our Louisville facility has not only improved our quality, delivery and productivity it has opened the door for our Hercules aftermarket to take significant share in Central and Western U.S. Our OEM and MRO businesses are still very concentrated and have tremendous opportunities to grow positions in large industrial regions they don't serve today. And we have significant room to expand our position in Continental Europe. When it comes to product, we have a much broader offering as we continue to diversify our flow control and our fluid power portfolio. With more products in our arsenal and deep customer relationships, we're seeing huge opportunities to increase share of wallet. In parallel, we are scaling our commercial capabilities and synergies through robust sales processes, coordinated cross-selling and investments in e-commerce, digital marketing and commercial talent. [ Alessandro ] will now share another example of our sector's growth potential.

Thanks, Ted. My name is Alessandro Lala, an engineer by background and I've been with Diploma for over 17 years. I've been in my current role as CEO of International Seals since 2019 and to echo what Ted had just said, the factor has come a really long way since then. I'll talk more about what we have done in Australia a little later. But now I'd like to give you some more color on our U.K. aftermarket business, which is essentially R&G Fluid Power, which we acquired last year. R&G is the group's second largest acquisition and strategically transformed the sector. First of all, it provides an opportunity to diversify our product range, moving from the traditional fierce and gasket business to the wider fluid power portfolio products like fittings, industrial and hydraulic cases, and customized assemblies. It give us scale in the U.K. where we had a small presence, brought us a team of young talent individuals, led indeed by the Managing Director, Richard Davis, who stayed on to run the business. And finally, as you will hear from Steve in a minute, it also met all of our financial criteria. It's been a great success story between 2021 and 2023, R&G has grew revenue from GBP 78 million to GBP 100 million. And this margin have increased by 400 basis points. Next year, we could be at GBP 150 million in revenue. And we have done this through a combination of organic growth and bolt-on acquisitions. The company organic growth track record is very strong, high single digits pre acquisition and 15% since the joint group. And I've been impressed by the commercial drive and how their neutral entrepreneurial spirit allows them to continue penetrating regions in of the U.K. and push product diversification through their first channel. Also, I'm very proud of how we successfully and quickly merge the existing FPE sales business a company that has been with Diploma for more than 20 years into the R&G Group. And so creating a coherent more than GBP 20 million Seals and gaskets aftermarket business in the U.K. The R&G bolt-on acquisition strategy acquiring small businesses at 3 or 4x multiples has also driven revenue growth. They require bolt-ons to extend their footprint in the U.K. and their product capability. And quite often, these are more of a lift and shift bringing new products for customers into R&G and then leveraging the cross-selling opportunities. The acquisition pipeline is very healthy. They have delivered the 5 bolt-ons at excellent returns under our ownership and there are lots more to come in the next months. Looking ahead, R&G as exciting prospects in all 3 of our growth buckets. Firstly, the company maintains a clear focus on the U.K. aftermarket and targets mainly different end market segments. Then they have a great geographical potential. R&G will continue to take share in and consolidate the fragmented U.K. market. The opportunity to build out the product offering across Europe and U.S. is usually exciting. There is a significant number of product cross-selling opportunities across existing businesses, [ Rubber ] Seals is being a primary example and recent Bolton acquisitions. And finally, we have only started developing our e-commerce strategy, and this has a huge potential. We are working to streamline the business effectively for greater scale and growing margin. For example, we have just opened a new national distribution center for hydraulic products in Lincoln and create the center of excellence for hose assemblies in Liverpool. R&G has been a great addition to the group. We are delighted with how the team has integrated and how the business is delivering. And we are looking forward to more of the same. Now we are going to move on to growth in Life Sciences. And here's Elena.

Great. Thank you, Alessandro. So in Life Sciences, we're very proud of the strategic progress that we've made in the Life Sciences Sector over the last 4 years. That is increased exposure to high-growth end markets, a more diversified geographic footprint and a more streamlined portfolio. But perhaps the most important area of progress relates to the product pipeline. This is the sector's lifeblood and I'm going to talk a little bit more about how we've stepped up the gear in this area. The sector is developing and well positioned in a fast-changing environment. We feel very positive about our future prospects. To begin, let's touch on some of the achievements of the last 4 years. First, we really broadened our end markets, particularly our exposure to and expertise in the high-growth clinical diagnostic space. Additionally, surgical backlogs will continue to provide multiyear tailwind across all of our geographies. And we're really excited about new generation technologies in areas like molecular diagnostics and minimally invasive surgery. Second, we've diversified our geographic footprint by building out our European pillar with acquisitions in Scandinavia and Ireland, and there is more to do here. And we've made fantastic progress with product pipeline management. Since 2018, we launched 500 products, including some in new areas such as urology, hematology, critical care, therapeutic drug monitoring and gynecology. And the pipeline today is stronger than it has ever been. Let's take a closer look at end markets. On this slide, I've set out 3 of the key growth end markets. In some cases, it might be because they are new, innovative while others, particularly scientific, are well established, but new for Diploma. First is IVDs that is In Vitro Diagnostics, which is what we do at Somagen and Abacus. This involves test kits and instrument systems used in clinical laboratories to test the patient's blood or some other biological fluid. We're very successful in the IVD space as we've mentioned earlier. In addition, we're exploring opportunities in newer areas such as precision medicine, which is where we take a patient's genetic information, and we use this to specifically target the right treatment for the right patient. Then there's the med tech market which we operate in through AMT Vantage in Canada and through Simonsen & Weel in the Nordics. This market is rapidly responding to new challenges such as labor shortages. Increased efficiencies, automation and improved patient outcomes are key customer priorities, generating demand and therefore, growth potential. One growth area within med tech is minimally invasive surgery. It's in demand because it improves patient care while reducing overall cost to health care systems. This is a focus area with continued investment. Our clinical experts have even provided master classes where our customers can learn modern techniques directly from their peers. And the third area is scientific, which is consumables and instrument systems for use in biopharma, clinical research and food safety. Scientific is new to Diploma, and we're really excited to build out our strategy in this area. As mentioned earlier, we diversified our geographic footprint. What's really exciting is that our geographic penetration opportunity continues to be huge. Despite being well established, we're far from finished in our core Canadian and Australian markets, where there are opportunities, particularly from a product perspective. For example, hematology in Australia or next-generation laboratory automation in Canada. We built scale in Europe with Simonsen & Weel, [indiscernible] and Accuscience, and there's more to reach for in diagnostics and med tech. And finally, the U.K. and the U.S., both huge markets are a possibility. We're still in evaluation mode, but we're examining whether there's a role a value-add distributor in the highly specialized areas in which we already operate. Let's turn to our product pipeline which is stronger than ever as we continue to invest in business development and new technology expertise. We group our portfolio into 3 main categories: first, is our well-established portfolio where we have great experience and expertise. This area includes endoscopes surgical smoke evacuation technologies, laboratory tests for cancer, pathology equipment as well as technologies used in fertility clinics. This part of the portfolio might be well established but it is also growing. Second is our early growth portfolio. This is areas with scope to increase market share and where investment is increasing. This includes products such as critical care equipment, laboratory molecular diagnostics and specialized surgical laparoscopes. We invest in staff training, marketing and more frequent opportunities to demonstrate the technology directly to our customers. We anticipate steep growth in these areas. And then there's future potential. Some of the new and most exciting and innovative areas of investment, such as newborn streaming for life-threatening diseases as well as emerging neurology biomarkers. I'd like to share a case study from our Canadian Life Science Business. This time on the medical side of the sector, which is over half of the revenues for the Canadian Life Sciences Businesses. The Canadian medical business is a leader in surgical specialty technologies. Another focus area is endoscopy. This is where we use high-tech scopes, combined with cameras and softwares which gastroenterologists will use to look at structures inside a patient's body. In Canada, we have a strong market position in endoscopy. This team has deep clinical expertise and customer relationships, selling into 95% of Canadian hospitals. We work with several OEMs, including a 15-year relationship with Fuji. The latest Fuji endoscope technology is the innovative ELUXEO platform with the CAD EYE artificial intelligence technology. Simplified, this improves the detection and characterization of lesions that are typically hard to discover during routine endoscopy. Note that detecting these lesions is a very, very high clinical value. Our Canadian team quickly responded to this new technology opportunity by creating clinical and commercial strategies to demonstrate the AI power of the system directly in the hands of the GI specialists. We successfully implemented the scope system in many hospitals across Canada and we expect continued growth and demand. This technology opportunity extends beyond Canada to Scandinavia, where we leveraged our strong relationships with Fuji to obtain distribution rights for Simonsen & Weel, who is now the exclusive partner for Fuji in Denmark. We've made so much progress, and there's so much -- so many more exciting things to come. And with this, I will hand over to Steve, who will talk to you about acquisitions.

Hi, everyone. Good to see you here today. I'm Steve Sargent , and I'm the Group Corporate Development Director. Responsible for all our acquisitions. I've been in M&A for over 20 years, starting on the investment banking side and then moving into corporate development, first with Bunzl and then with Cisco Corporation. 3 years ago, I saw the fantastic opportunity that existed at Diploma to significantly accelerate M&A activity and take advantage of the huge growth potential. And that's what I'm going to talk about today. Complementary acquisitions to drive future organic growth. I'll spend a few minutes going through our track record, driving great returns by buying high-quality businesses and helping them grow and develop. And then we'll look forward covering the vast opportunity we have in front of us, an opportunity that's driven by significant white space and fragmented markets, capability improvements and being a buyer of choice generating a healthy pipeline. So let's start with our strong track record. We make acquisitions to accelerate our organic growth. Our acquisitions can help our businesses accelerate behind an exciting end market penetrate a given geography or add product capability. Acquisitions help us build scale and resilience with a low capital intensity business model, we drive great returns with our capital. There are other benefits, too, like new talent and expertise to enhance our management capability. We have stringent criteria for what an attractive target looks like. It's important that every business we bring into the group meets our business, strategic and financial objectives. We acquire high-quality companies. This is consistent with how we've always done acquisitions at Diploma. The core characteristics we look for are the same as ever. What's the value-add proposition? Does the business have organic growth potential? And does it have a great management team we can back. Well, the target allow us to accelerate organic growth in 1 or more of our 3 organic growth buckets. Portfolio management is important, too. We need to ensure that businesses we acquire fit into our focused portfolio. We've disposed of 4 businesses in the last 2 years that did not meet our strategic objectives. And of course, the financial returns need to be attractive without overstretching our balance sheet. We buy quality businesses. And then within the structure of our decentralized model, we develop them. We provide overarching management expertise, both at sector and group level. We professionalized the sales approach, usually putting more structure around driving organic growth in our 3 buckets. For example, after acquiring VSP in 2019, we developed its capabilities in our [ Rings kits ]. And in 2 years, it converted 98% of its customer base for buying just gasket kits to gasket and [ Ring Kts ], generating an additional $6 million of annual revenue. Our broad network of companies allows us to provide introductions to other members of the group to generate cross-selling synergies. TIE has already helped our interconnect group access some industrial automation customers, and it's also received introductions from Hercules OEM into its customer base. As most of our acquisitions are from owner managers there's usually an opportunity to improve margins and cash management, which, of course, drives better returns for the group. ESG is not usually a focus for small owner-managed businesses, and we can often make a material difference to environmental and social outcomes. Acquiring high-quality businesses and helping them improve further has led to a track record over the last 4 years of significant value creation. Firstly, we've significantly accelerated the deal flow with a more strategic, structured and proactive approach. Historically, Diploma completed around 2 acquisitions per year. Since 2019, we've averaged 8 a year but more importantly, we've maintained good discipline and generated great returns during that acceleration. Average organic growth since acquisition is 15% and with an average return on GBP 840 million of capital deployed of 16% and rising. Our biggest acquisition to date, Windy City Wire has been a phenomenal success. It has given us a strong U.S. presence and controls in great end markets. Returns were above our cost of capital, and it's been earnings enhancing both from year 1. And since then, we've almost tripled EBIT and grown [ ASI ] to over 20% in 3 years, considerably quicker than expected. Our next biggest acquisition, R&G Fluid Power has been with Diploma for just over a year now, and it's been a great start. As you heard from Alessandro, it's provided our sales sector with important scale in the U.K., and it's broadened our product offering from seals and gaskets into the wider fluid power space. As with Windy City, returns are above our cost of capital, and it's been earnings enhancing both from year 1. Organic growth in its first year within Diploma is 15% and in addition to that, we've invested in 5 highly accretive bolt-ons with plenty more to go after. Those larger deals are great, but the smaller ones are just as important. We've done 20 of the sub-GBP 10 million value acquisition since 2019 with an average price of GBP 4 million, average multiple of 5x and 20% return on capital in year 1. As well as generating great returns themselves, they've also helped us develop platforms to accelerate future growth. Techsil is a great example, as David has already explained. Quality core business, great organic growth, 2 small bolt-ons at low multiples. [ Claren ] and Specialty Fasteners is a slightly different situation. That business was heavily U.K. focused within a very international aerospace market. We acquired 1 German and 1 Californian business to provide more global reach, be more attractive to global aerospace customers and accelerate organic growth. There are loads of examples across the group. More of our businesses like R&G and Techsil are building the capability to deliver small bolt-ons. We want to do more of these. So that's a bit about the success we've had in the past, which we're really, really proud of but we're even more excited about the future. You've seen this slide already today, and it's very relevant for acquisitions. We have a vast amount of white space to go after. The U.S. continues to be an important market. It's so fragmented, and we have small shares in our markets. And we're underpenetrated in Continental Europe. We currently have very little in Germany or France and nothing in Spain. We've developed our capabilities and processes over the past couple of years. When I arrived at Diploma in 2020, there were 3 people in the M&A team, and we've gradually built out capability and resource. We're now 7 strong, allowing us to accelerate while still maintaining discipline and strategic focus. We source our deals from various channels, a blend of internally generated ideas from the businesses and corporate development supplemented by an ever-increasing stream of incoming opportunities. We have clearly defined processes managed by corporate development and in full collaboration with the sectors and the businesses who need to sponsor, own and be accountable for the deal. We're not bound by any one transaction structure. We flex based on the specific goals of the transaction to drive the right behaviors usually related to retaining and incentivizing key people. And we have strict governance rules with a clear approval process while still being agile. Our business model and culture make us attractive to a small business owner. We seek to preserve the legacy and heritage and we're in it for the long term, too. These are clear differentiators compared with private equity and many strategic buyers. We spend a lot of time considering the emotional journey that business owners go through when they decide to sell their business, helping them to understand what life of deployment would be like. We believe all this gives us a competitive advantage in processes where price is not the only decision driver. Along with the testimonials on the slide, I'd like to play you a short video where Tyler Ragsadale and Rich Galgano from Windy City explain why they chose Diploma as the right home for their businesses. [Presentation]

Thanks, Rich and Tyler for expressing our winning proposition so clearly. This proposition is why over 2/3 of our businesses have retained their leaders post acquisition. The white space and fragmented markets are strong processes and winning proposition to business owners have led to a growing and healthy pipeline containing over 2,000 names. We're currently working on around 50 active opportunities at various stages along the year life cycle. Encouragingly, the pipeline is healthy, average sized in the typical deployment range of GBP 20 million and well diversified by geography and sector, so not to put pressure on any one management team in the group. We know that discipline is key to continued success. That discipline is about the core business model characteristics, it's about portfolio, management bandwidth, and of course, it's about returns. With a bigger pipeline, we can be more selective, and we walk away from far, far more than we complete. So a quick recap. Acquisitions are a core part of Diploma strategy. They drive future organic growth. We've deployed GBP 840 million over the last 4 years returns of 16% and growing. Looking forward, we have so much white space to go after in fragmented markets. We've invested in the team and developed our processes. We have a competitive advantage, sellers like us. And all this means we have huge potential, a total pipeline of over 2,000 targets that keeps growing. The future is very exciting. And now I'll hand back to David, who will wrap up the growth section.

Thank you, Steve. So to conclude, Organic growth is our #1 priority. We have made a great start, but we're really only at the beginning. We have so much to go for across all of our businesses. In growth end markets, geographically and through product extension. And as you've just heard, we can complement this with acquisitions to drive future growth. Today, the growth is better positioned than it ever has been. And we have multiple growth opportunities, which we are strategically focusing on. This is an exciting time to be part of Diploma. I'm sure you can all see why. And with that, we're going to take a break. So please do help yourself to tea and coffee just outside and the event is being webcast live. So if I can ask, can you be back at 4:00 p.m. sharp, that would be great. Thank you very much. [Break]

My name is Jill Tennant, and I'm currently the HR Director. So as Johnny mentioned, I'm soon to move into a new role of Strategy Director. I joined Diploma in 2019 with 25 years of experience in a mix of FTSE and private equity businesses. I love working at Diploma, it's intense but rewarding. Our business model and our culture are special. I'm proud of the business that I joined, proud of what we've delivered over the last 4 years and I'm excited about the future. And today, I'm going to explain how important scaling is to our strategy. You've heard all about growth. This session is just as important because it's about how we sustain delivery for the long term. Our differentiators are our value-add business model and our secret sauce, our decentralized culture. As our businesses get significantly bigger, we have to both preserve and enhance the customer proposition we have to deliver our business models differently. Similarly, as the group gets bigger, we want to preserve the decentralized culture, the secret sauce, but simultaneously managed successfully at greater scale. And we can do even better where we complement the decentralized culture with the network and the best practice of the group. This is what we describe as the Diploma identity and I'm going to be touching on that quite a bit during this session. We call all of this scaling. Scaling is a journey. It's carefully planned, and it's part of our strategy, and it guarantees our delivery for the long term. This is how we will do it. For our businesses to scale successfully, they design their operating model of the future, the processes or the core competencies that underpin it and the capability for us that talent, technology facility that they need to deliver. For the group, we have some principles to running a decentralized group at scale. And around these, we need to have the right structure, capability and culture, which includes the Diploma identity that I mentioned a few minutes ago. We begin with our businesses and how they're scaling their value-add models. I'll explain our approach and then I'm going to bring it to life with some examples. Running a GBP 200 million business is very different to running a GBP 10 million business. It's a careful balance. Smaller businesses have many great qualities, customer responsiveness, family culture, accountability and quick decisions. However, they tend to be manual, informal, tactical, reliant on one person, the owner takes his or her top 5 customers out after the trade show, takes their orders next morning, picks the seals from the storage room and post them out in an envelope. Bigger business requires a different approach, strategic, structured management, broad management team, great processes and technology. The art is to retain the essence of what made the business successful when it was small and deliver value add at scale. Scaling is much more than just hiring a few people and leasing some extra warehouse space. And to help our businesses, we have a simple scaling framework. It starts by setting out a vision and an ambition for the business. Then the business management team builds their target operating model, how they will operate their business to be successful at scale. This enables them to create scaling plans, which map out improvements in core competencies and key capabilities. Their plans, of course, have to make financial sense using the benefits of scale to reinvest and therefore, sustain operating margins. The day-to-day running of the business can't be affected. So we have to get the pace and the resourcing right so that we can scale and grow at the same time. We'll take you through some examples of how we've done this because whilst each business is unique, consistency between them enables us to learn faster and improve execution. That's the power of the Diploma identity. Whilst our businesses have different customer propositions and operating models. The core competence as shown here are common to all of our businesses, strengthening them means becoming more strategic, structured, systematic improving customer service and performance. For example, we're developing supply chain competency across North American Seals with a new supply chain director focusing on improving capability across all 3 business lines, driving improvements in customer service and resilience. In our U.K. Wire and Cable business, previously stand-alone businesses have been integrated, and we're moving to a new facility with much better technology and automation. And the recent inflationary environment has proved our commercial discipline. Our businesses moved quickly to leverage the pricing power of the value-add model. For us, building capability means talent, technology and facility. Let's start with talent. It's such an important topic, and Johnny and I spend a lot of time on it. Our first focus is our general managers. They are key to our success, and we are delighted with them. When they come together, the atmosphere is electric. We've been fortunate enough that some have come to us through acquisition. We've hired strategically, and we make huge efforts to develop the talent for this cohort. Our second focus area has been building functional capability. As the businesses grow, we need capability in key functions such as sales, finance, operations, supply chain, technical and HR. And we've really moved the dial here in the last couple of years. As we develop, we want to build more internal capability and rely less on the outside. We have development programs in place across our leadership. We call it leadership at scale. Our managers are enjoying the journey. And in a few weeks, we will be hosting the graduation for 35 of our leaders who have completed the 2023 development program. Management attrition is below 10% and tenure averages over 7 years. As a service business, strong colleague engagement is a key competitive advantage. Our businesses have a community feel. We prioritize safety, diversity, well-being and opportunity. We communicate extensively to motivate, align and engage and hot off the press we've just received our 2023 engagement survey results. We had an outstanding 86% response rate. And despite the pressures of growth, scaling and the macro environment, for the third year in a row, our engagement levels have held at 79%. Moving on to technology. It's important to note that technology will play more of a role in some of our businesses than others. Life Sciences scientific relationship model does not lend itself to technology as much as the more transactional value-add models like North American Seals aftermarket. In the latter shown in the slide here, we have advanced e-commerce platforms, automated operational technology and fit-for-purpose ERPs. It's a business-by-business approach. Having said that, we have implemented more than 15 ERP and warehouse management systems and around 10 e-commerce solutions over the last few years. E-commerce solutions are not right for all of our businesses, but where they are, we are investing, and we have small but growing web stores in our North American and U.K. aftermarket Seals businesses. The right facility is also key. Apart from ensuring capacity for growth, improved processes and automated solutions deliver better customer outcomes more economically. We also look to create better environmental outcomes and improved workplaces. Our biggest facility move was the North American Seals aftermarket switch from Clearwater, Florida to Louisville, Kentucky in 2020. This has really improved our growth prospects and the AutoStore automated distribution capability alongside better proximity to a key [ UPS ] hub has driven next day customer fulfillment to 99.5%. We've also made a further 14 facility moves over the last few years, all of which have developed our capabilities. And as we scale, the economics of all of this make it an even more attractive investment. Now we would like to present some case studies of our businesses, scaling their value-add model, starting with Alessandro in the Seals sector. Alessandro?

Thank you, Jill. Australian Seals sits within my patch in International Seals. The business to date is about GBP 32 million in revenue and sells at a diverse range of sales, pumps, valves and filling products, together with technical advice and repair services, providing customers with cost-effective solutions. More recently, we have added anti-corrosion products, thanks to the acquisition of the ACT business in Brisbane. Many of our solutions play a key role in leak prevention, including toxic leaks and asset protection across a diverse range of end markets like wastewater, [indiscernible] and mining. The Australian Seals business in 2018 generated revenues of AUD 12 million and was low quality with almost no profit. We have since acquired 3 quality businesses, which we have merged to create a strong business platform with a compelling value-add proposition and good margins. We have renovated and expanded our facilities in Perth and on the East Coast, relocating the old businesses to the improved premises. And then we are focused on improving our route to market operations and supply chain performance. Despite the distance and the impossibility to travel due to pandemic, we have managed to onboard and develop a quality management team that has defined a diversified growth strategy across Australia with exciting end markets like water management and dewatering. We have now scaled to bid one holistic platform, now a AUD 70 million with exciting prospects, led indeed by Greg Fowler, who was the owner and founder of one of the acquired businesses. This is our scaling journey in Australia. So Jill back to you.

Thanks, Alessandro. So our next example is also from Australia, and we're going to be looking at the Australian Life Sciences team. I'd like to introduce them now to explain their scaling journey. [Presentation]

Our most developed example of scale is WindyCity Wire and here is Rich to tell you all about it. [Presentation]

So to conclude this section, we've shown you the importance of scaling our value-add business models, and we've explained our approach continuing to scale our businesses will sustain our performance for the long term. Just as important as scaling the businesses is scaling the group. And I'm going to spend a few minutes on this now, outlining our decentralized values, what Johnny described as our secret sauce, how we scale the decentralized group, the role and benefits of the group and the Diploma identity, which complements the decentralized culture. So what is it exactly that makes our decentralized culture so powerful? It's the fact that we have aligned purpose and values and clear guiding principles. It's values led not a rule book, our values are rooted both in the clarity of local accountability and execution. So if I'm a general manager for a Diploma business, then my mission is to add value to my customers and help them grow. I'm fully accountable for the performance of my business, and I'm empowered to make decisions and lead my team. And I feel really good to be part of Diploma leadership. I have a network of brilliant colleagues who I can call for advice. This guidance for me to follow from Diploma but I make decisions, which I believe in. And finally, I'm confident and I backed my business to perform, but my feet are firmly on the ground because whilst I had strong performance in the last period, I know I have to keep delivering. It's a really powerful formula. How we scale our powerful decentralized group is guided by some clear principles. We believe in the ownership at the front of the organization, so we push commercial decision-making down to the local business where managers are accountable and empowered to make decisions and drive the business. But all of this happens within a framework, which sets context and insurers control. It requires goals and targets, which are tightly aligned between the group and the businesses and a consistent rhythm to how we manage against them. Together, these drive agility, pace and great execution. But above all, we keep it focused. First is portfolio discipline to ensure we have a manageable group. The sector structure is really just a management construct and below which we operate 15 business units. These business units have been built from consolidating smaller businesses to create scaled platforms with a single leadership team and integrated facilities and technology. Overall, this means that we are now operating a GBP 1.2 billion turnover group through 15 business units when 4 years ago, we were running a group less than half of that size through 20 business units. The second example of keeping it focused relates to our consistent simple frameworks. These cover growth in the 3 buckets that you've seen and heard about today. The business scaling framework that I've discussed earlier. We also have a financial framework that Chris will speak to, a DVR framework that Phil will cover as well as frameworks for talent development. For our businesses, all of this means that they're focused on a handful of things that really matter. And for the group, we have great visibility and control over the businesses but without stifling them. It makes our decision-making really agile. We have a very lean group center about 25 people. And the ethos is to support the businesses not command and control. The center has some really clearly defined roles. We define the overall group strategy, and we cascade it down to the businesses. We developed the frameworks to govern the business that I laid out on the last slide, as well as validating that governance through roles such as internal audit. We drive performance through a weekly, monthly, quarterly rhythm of structured review points that keeps us close to our businesses. And then we join the dots. We help our businesses take advantage of the commercial synergy of being part of the group. We developed talent. We foster the mood for great execution. This should not be underestimated, and I'll expand on that a little more over the next couple of slides. We help people lift their heads and it's a healthy mix of challenge and support and it creates real tangible benefits for each of our businesses. We talk about mood a lot internally and we believe that it comes from a combination of rigorous governance and emotional connection. Decentralized doesn't mean isolated. Our businesses may be empowered and accountable, but they operate within a set of frameworks and rigorous governance, as I said earlier. Organizational mood is forged through constant communication, strong connection with our managers. And this allows us to feel the individual and the collective momentum and adjust focus, adjust pace and ensure positive energy. All of that combination drives momentum and execution. I hope we've explained why our decentralized culture matters, and why we are so focused on preserving it. Our businesses really value each other and they value being part of Diploma. Group incentives help reinforce the power of the collective and we've expanded our group share plan to include general managers. They remain incentivized for the delivery of their business performance, but also benefit from group performance. We are fostering all of this with sensitivity and over time. The combination of decentralized with the Diploma identity is rare and very powerful. So to conclude, our decentralized culture is our secret sauce and preserving it is key. We have clear principles to how we scale the group, and we can do even better when we complement the decentralized culture with the network and best practice of the group. Scaling is a vital part of our strategy and it will sustain our performance for the long term. And now on to our sustainability strategy, and here's Phil.

Thanks so much, Jill. Good afternoon, everyone. I'm Phil Pratt, Group Sustainability Director. My role, along with Johnny and the executive team is to define and deliver a progressive and sustainable strategy. A strategy not only about doing the right thing, but also about creating commercial value. I spent 15 years of sustainability roles. Prior to joining Diploma, I was Chief Sustainability Officer at THG; and before that, European Head of Sustainability and Corporate Affairs at Danone, the French food business. During the next 10 minutes, I want to share with you where and how we believe we can make a meaningful difference. What our sustainability framework is, we call it DVR, delivering value responsibly and what's our progress to date has been and importantly, what our future priorities will be. We're determined to make a difference. That means having objectives that they're clearly linked to our business models. It also means ensuring that our objectives are embedded in our business strategy and commercial or operational activities. As a distributor, by far, the biggest impact we can have is where we sell to and where we buy from. Where we sell to means ensuring that our products and resources are contributing to a sustainable future that has positive impact, positive impact revenue. Where we buy from means ensuring we have an excellent supply chain and that we're focusing on key environmental and social issues such as managing down our emissions to net zero in a sensible time frame. As a service organization, too, our people are absolutely critical to our success. And we promote a safe, inclusive and supportive culture where all our colleagues can thrive. Let's start with positive impact revenue. Our businesses are already delivering positive impact to revenue. For example, in renewables, I recently visited MSLs in Denmark and saw firsthand the enormous 3-meter wide shaft seals that they design and supply to Vestas for installation in wind turbines. Fit resources in Australia provide technical advice and pumps to the Snowy 2.0 hydro project, generating enough power for approximately 0.5 million homes. Again, in Australia, Abacus, one of our health care businesses has worked closely with supplier to bring to market a lung cancer diagnostic test that reduced time from biopsy to detection from 18 days to just 2. And in transport, Techsil in U.K. with works with supply electrical vehicle manufacturers with specialty coatings that insulate and anticipate heat from car batteries. These fast-growing growth pools offer exciting commercial opportunities for Diploma, be that through Electrification and Controls, Wind and Water and Seals or Diagnostics and Life Sciences. And as you heard from David and the rest of the team here, tapping into these sorts of structurally growing end markets is a key part of our growth strategy. It's estimated that the sectors where Diploma operates or could operate have the potential to be worth more than $4 trillion by 2030, and we're only just getting started. The other element of positive impact revenue is the circular economy. And to be honest, it's something that we haven't spoken much about in the past. This is a business model that involves the leasing, reusing, repairing, refurbishing and recycling of existing products and materials. These solutions extend product life cycles and deliver efficiency gains, whilst at the same time reducing resource consumption and therefore, ecological impact. Across all regions, many of our businesses are already contributing to the circular economy. TIE in the U.S. keeps aging automation machinery in operation and reduces scrappage through its inventory exchange program. R&G Fluid Power in the U.K. is the largest supplier of replacement hoses for hydraulic industrial machinery. This enables repair and continued use of this equipment. And again, in Australia, the disposable product line carried by Big Green Surgical reduces operating theaters to waste by up to 70% by providing reusable products that have smaller disposable elements. These businesses that support the repair and aftermarket similar to Hercules in the U.S., keep machinery running for longer and reduce emissions and waste. The outcome is less impact on climate change, less use of the earth's resources and importantly, less overall cost for our consumers. And we aim to do more of this as we expand our Aftermarket and Repair businesses. As a distributor, we know we play a vital role in the supply chain, delivering outstanding service for our customers while also ensuring that we're acting responsibly. We recently submitted our net zero targets to the science-based target initiative and hope to have them validated by the end of this calendar year. Our annual footprint across all scopes is just over 205,000 tonnes of CO2 equivalent with Scope 3 representing 97% of that. As you can see, our own Scope 1 and 2 emissions are relatively small, but we take our responsibility seriously. Similarly, though, we have to act and address Scope 3 across our value chain, and we're going to work with our suppliers to develop reduction plans. Our net zero targets are a 50% reduction in Scope 1 and 2 emissions by 2030, a 30% reduction in Scope 3 emissions by 2030 and to achieve net zero across all scopes by 2045 latest. This isn't new for us, though. We've been addressing greenhouse gas emissions for a long time. And there are already several initiatives already in progress. But setting net zero targets means that we can step up further as we develop reduction pathways and engage truly with our suppliers. Our people are the foundation of our business. They deliver value-add to our customers, they execute against our strategy, and they're absolutely essential for ongoing success. Our targets focus on diversity, equity, inclusion and colleague engagement, and we've made good progress against each. We've increased female representation in the senior management team from 20% to 28% since 2020, but we need to do better, and we know it. And we've conducted female focus groups across the whole group to understand the challenges women and our businesses may be facing, what we can do to support them and help them excel. We pride ourselves on colleague engagement. And as Jill just mentioned, our latest survey results are again high and stable at 79%. And for us, it's an absolute definite competitive advantage. Many colleagues have grown up in the business and with each other, and they have tremendous loyalty. We make sure that remains the case by contingently communicating with them, ensuring we create safe and diverse environments in which they can thrive. The safety of our colleagues is paramount, and we work closely and continue to drive a proactive health and safety culture across the group. Our North American Seals business launched recently a safety network to share best practice and learnings. The result was injury days reduced by 59% and lost time incidents reduced by 66%. So how do we manage DVR in the business strategy, activity and culture. As Jill just mentioned, we have a framework. It consists of 3 strategic priorities: delivering for the environment, delivering for our people and doing business responsibly. And as you can see, each strategic priority had 2 key focus areas. As I mentioned earlier, DVR is not just about doing the right thing. It's also important that it drives business value. And so delivering positive impact revenue underpins our framework. The framework itself is purposely simple and lean, ensuring that we're focusing on what is right and more importantly, to make sure we deliver against it. Given the nature and power of our decentralized model, this simplicity and focus is absolutely vital. Behind the framework, sits our 2030 targets. And there are just 6, ensuring that we remain focused on what's important. Our 2030 targets are reducing our Scope 1 and 2 emissions by 50%, zero-waste landfill, having a gender-balanced senior management team made up of at least 40% women, maintaining our employee engagement scores at above 70%, having all our key suppliers aligned to our ethical code and working to constantly reduce our lost time accident rate by at least 5% year-on-year. Let's now look at our full set of DVR targets and the progress we made against each. This is our DVR scorecard. What it shows is that we've made real progress across the board. I won't go through it all now, but just to highlight a few areas I haven't already touched already. Between 2021 and 2022, we reduced our Scope 1 and 2 greenhouse gas emissions intensity by 16%. An example of how we achieved this with the upgrading consolidation of the logistics center of Hercules aftermarket business in the U.S. into one facility based in Louisville. This resulted in a 30% reduction in energy usage and a 30% reduction in Scope 2 emissions. Another area of progress in our supply chain, we've identified 600 key suppliers across all our businesses. And to date, almost 70% of them have signed up and are aligned to our ethical code. Turning now to how we actually govern DVR. We have a clear governance framework designed to maximize the impact of our decentralized model and delivery by our businesses. The Board have regular updates on DVR strategy in progress. And we have a DVR steering committee, which meets monthly and is chaired by Johnny. We also have monthly DVR performance meetings, which Johnny and other members of the Exec also attend, where we review overall business and sector performance, highlighting good practices, but also identifying hotspots which may require close oversight or action. We get buying from the businesses through participation in training, workshops and sharing of insights. This is what facilitates them being embedded into the commercial and operational plans of our businesses. It's in the businesses though, where the action really happens, and this is where the accountability for delivery rightly lies. One thing I have learned in my short time since joining Diploma is that once our people will get their teeth into something, they really do make it happen. A great example of this being incorporated into a business is in our [indiscernible] pneumatics business. They supply large-scale integrated compressed air systems, maintenance and service support. And they now talk to customers about emissions and net zero alongside any reduction in cost savings as a primary component of their value-add proposition. So to close, I want to reemphasize that we see huge potential in driving positive impact revenue through the green, clean opportunity and participating in the circular economy. And like any other well-run business, we are absolutely committed to doing business the right way across all areas of our business. We have clear priorities. We set clear goals, and we've embedded them in the business. As we look ahead, we'll be focusing on driving positive impact on circular revenue, managing towards significant emissions reductions by 2030, and driving improvement across our DVR framework. Thank you. Now over to Chris, who's going to take you through the numbers.

Cheers, Phil. Good afternoon, everybody. For those of you who don't know me, I am Chris Davies, the CFO, and I'm going to spend 10 or 15 minutes trying to summarize everything we've been through this afternoon into financial outcomes and how it drives our sustainable quality compounding outcomes. The slide -- this slide that you'll soon see, thank you. This slide shows how we think about quality compounding. So what you've seen throughout the day so far is the evidence of the business model and strategy at the bottom of this slide. I'm now going to show you how this continues to generate quality compounding financial outcomes, consistent, strong organic revenue growth, accelerated by acquisitions, sustainable high margins, consistently converting to strong free cash flow and high ROATCE. But alongside this, resilience in revenue, in margins and in cash. I'll remind you of our financial model, which will continue to deliver strong shareholder value even before our ambition to beat it. I'll emphasize why discipline and the right controls environment is a critical underpin to this. So let's start with organic growth. As you've heard a number of times today, organic growth is the #1 priority at Diploma, and we have grown revenue organically and volume-led by around 5% for the last 15 years. This is resilient and accelerating. So let's start with resilience. I've shown three 5-year time periods on this chart. One of them includes the financial crisis. One of them includes the pandemic. And you can see the consistency of delivery even through those macro shocks. And during the financial crisis, revenue dropped by about 12% in a single reporting period before bouncing straight back. During the pandemic, that dip reduced to 7% with a more diversified business, and we have flattened that curve further since then. We are becoming more revenue resilient. And our organic growth is accelerating through the 3 buckets we have talked about today. We've got a tailwind as we pivot into those more structurally growing end markets, and we boost this as we become even better at geographic and product extension. So organic growth has ticked up to 7% over the last 3 years. Now our financial model sets out organic growth at 5%. But clearly, our current performance and our ambition is to do a little more than that. And we believe we've got the opportunities to do that, and we've taken you through those today. Now acquisitions accelerate that organic growth. In fragmented markets, there is plenty of white space, as you've seen today. And with our improved processes and capability, many opportunities for us to continue to expand into it. And as well as boosting overall revenue from day 1, those acquisitions, the ones we've completed in the last 4 years have grown organically by 15% under our ownership and at great returns already at 16%, nearly double our cost of capital and growing. So net, our total revenue growth has averaged 14% over the last 15 years, accelerating to 23% over the last 3. But importantly, our acquisition processes are very disciplined. Portfolio discipline, are we acquiring businesses that would drive the strategy? Organizational discipline, do we have the right management bandwidth to execute? And of course, financial discipline, an unerring focus on driving ROATCE and managing balance sheet leverage. We've got a healthy near-term pipeline, so we are confident about that continued delivery. Let me turn to margins. The combination of strong growth and value add drives high margins with group operating margin at least 17%. And we think about that margin in 2 stages. The first is value add. Offering products and services that our customers truly value enables us to confidently price to cover inflation across every aspect of our cost base. The second, we call our margin formula. As our businesses grow, they deliver operational leverage and performance improvements. We then selectively invest into scaling, adding talent, facilities and technology that enable them to continue to offer that value-add services as they grow. And I should note here, our margins are resilient too. They stayed above 16% throughout the global financial crisis and the pandemic. Our financial model sets our operating margin at 17%. But again, our ambition is a little higher than that as the operating leverage and performance benefits outweigh the investments needs over the medium term. And by the way, today, we're delivering 19%. So cash flow. This is a low capital intensity business with CapEx expenditure typically around 2% of revenue as we selectively invested upgrading facilities and systems to scale the business. And that drives sustainably high cash flow with cash conversion of around 90%. So after paying a progressive dividend, that would naturally delever the balance sheet at around 0.5 turn of EBITDA before any acquisition investment. So with net debt currently below 1x EBITDA and a policy ceiling of 2, we, therefore, have significant capacity for self-funded inorganic growth. And our cash flow is resilient, too. During the financial crisis and the pandemic, free cash conversion exceeded 100%. So let me now turn to our capital allocation framework. So hopefully by now you know our first priority is organic growth. As I just said, we are a capital-light group. Importantly though, where we do invest, we generate strong returns. As an example, the move to our Louisville facility generated an internal rate of return of 32% or put another way, ROATCE of over 100% last year. Our second priority is to accelerate this growth through acquisitions. We target 20% ROATCE with smaller bolt-ons achieving that in year 1 and the bigger deal is getting there in 3 to 5 years. So let me say a few words on ROATCE as it's not the most common of returns metric. It's basically a fully loaded return on invested capital that removes any of the accounting distortions and keeps us honest to generate returns on the total cash originally invested. We target ROATCE in the high teens. Now this is as much art as it is science. There's a little point in having ROATCE in the mid-20s whilst not deploying capital. We believe that high teens hits the right balance between putting our capital to work and maintaining a high level of balance sheet discipline. And then we balance those highly attractive growth opportunities available to us with a growing dividend for our shareholders as we've done for over 20 years. We will continue our progressive dividend policy and expect to increase the ordinary dividend by 5% every year. Finally, underlying all of this is balance sheet discipline and will maintain leverage below 2x EBITDA. So we focused a lot on growth today, but I want to point out our business model is resilient, too. So as you've heard, we typically deliver critical products at low component costs into our customers' OpEx budgets, supporting high-value end applications. That drives resilience. So let me remind you of the 3 pillars of resilience I've highlighted so far in this section. Firstly, ongoing diversification into the 3 buckets we've discussed today drives revenue resilience. You saw that in the shallowing of the curve from the global financial crisis to the pandemic, and we further diversified since then. Second, the value-add nature of our products and services drives margin resilience. Our margin stayed about 16% even through the lowest point of those macro shocks. And third, our low capital intensity drives resilient cash flows. Cash conversion exceeded 100% through those periods. And this is a very important point. Diploma has consistently demonstrated strong profitable growth and resilience. Now I'd like to say a few words on controls as we believe this is a critical aspect of quality compounding. In a fast-paced, high-growth decentralized business and appropriate safety net of discipline and controls is key to balancing the commercial and performance drive of the businesses. And it all starts with tone at the top and the culture set by the people presenting today. Of course, we drive for growth performance, but we're constantly reinforcing the need for discipline in decision-making and execution. We leverage a set of simple fit-for-purpose tools and frameworks, which set requirements for risk management, core financial controls, delegated authorities and such like. I have good weekly visibility right across the group to ensure we are appropriately balancing good control with commercial accountability. Too much, and we risk stifling the business. Too little, and we open ourselves up to risk. And we've invested to resource up in this area. We've upskilled finance teams across the businesses in recent years as they form the critical first line of defense operating most of our key controls. Our group finance team and our sector CFOs operate as a second line of defense, monitoring how the businesses are operating and stepping in where necessary. Now in my experience across a number of global organizations, I feel we've got the balance about right here. But fundamentally, this is like any other aspect of scaling we've discussed today. It's an ongoing journey, and we'll continue to evolve -- and we will continue to evolve the controls environment as we grow. So to pull all of this back together, everything we've talked about today drives a compelling set of financial outcomes, and we call that our financial model. Now this financial model is not a forecast. It is there to give you a sense of what you could expect to see in terms of sustained delivery. Now in and of itself, this would drive great shareholder value and our ambition is to beat it. We are ambitious. Our financial model sets out organic growth of 5%, but we'd like to do a little bit better than that, and we believe we have the opportunities to do so. We complement this with quality acquisitions for double-digit reported growth. Our financial model sets out 17% operating margins. But again, we'd like to do a little bit better than that as we've done so for the last few years. And all of this will lead to double-digit compounding EPS growth. But we balance that with discipline. Our business is a capital-light and highly cash generative, generating cash conversion of 90%. That helps us to keep leverage below 2x even as we invest for growth. And we are obsessive about returns. ROATCE is our #1 measure of sustainable success and high teens is about right. We're committed to a progressive dividend, and we intend to grow it 5% every year. And I've mentioned a number of nonfinancial aspects of discipline over the last few minutes from the strategic and organizational discipline underpinning our investment decisions to the accountable culture we have fostered. And with this balance of ambition and discipline, we will continue to deliver sustainable quality compounding for years to come. I'll now hand over to Johnny for Q&A. Thanks.

Okay. Thank you very much and well done to all our presenters. As Chris said, we're going to do some Q&A now. So for the next half hour or so, you're welcome to stick up your hand and wait for the microphone to be passed to you. I'm going to compare the session and pass your questions on to the relevant person in the team. So if you could just say your name and institution and try and limit your questions to 3. Otherwise, it will be a bit difficult for me to work it through. I would very much appreciate it, and we'll take it away with our host, Mr. Brockton from Numis.

Just one question, please. You've clearly set out a lot of white space for the business. And as you seek to infill within your regions, I just wonder if you can just touch on how you plan to prioritize that and also from a view with respect to product extension as well.

Chris, do you want to have a go at that one?

I mean the good news is we have a lot of opportunities. This is a very high-quality problem. What we tried to set out in the white space slide was that we -- within our core geographies and our business units that we have at the moment, the products we have at the moment, if you do that little matrix, there's a lot of space in there. We don't specifically prioritize -- we don't have a ranked list. But we like North America. We like Continental Europe. We like the U.K. We don't intend to go any further geographically. We like the product verticals we have. We've added 1 or 2 selectively. We don't envisage going out and adding a load more anytime soon. And then between that, amongst the balance there, we're looking for growth accretion, margin accretion, the ability to drive 20% ROATCE. And then the sort of the art on top of the science there is balancing out across the organization so that we're not sort of pushing too much into any one of the businesses or any one of the sectors. So not a particularly scientific answer, I'm afraid, but we don't really have favorite children within the scope of that white space.

One of the exciting things, I think, as Chris is saying about this opportunity is that it is incremental and across so many businesses, and that's what makes it sustainable. Next, yes, Henry?

Henry Carver from Peel Hunt. Just a couple. First of all, the sort of end market exposures you gave were the slightly better growth here when you said 35% of the business is exposed to them at the moment, up from 20% in 2018. Is there any sort of margin mix to be aware of with that exposure, obviously, that's growing slightly better than the group, but I just wondered anything to be aware of there? And a second one, just around the average annual spend and the deals per year, there's a slide on that where the move from 2015 to '18 to date. What's the sort of equivalent progression in free cash flow in adjusted free cash flow over that sort of time frame, presumably is a similar quantum of growth? I should know that probably.

I'll let Chris answer the free cash flow one. And I'll answer the end markets one, which is there is no margin. You don't need to think about margin within it. There's nothing different within those end markets that anything scientific to answer there. Chris, free cash?

Yes. Free cash conversion has been pretty consistent about 90%. So just take EBIT over those periods and -- or take PPT and do a 90% conversion on it. It's grown linearly with profit.

That's great. And then the last one was just on the slide with the average organic growth since acquisition of 15%. Did that include Windy City Wire because I think you excluded it in some of the other slides that is...

We've given on all of the -- first 3 acquisitions we've done in the last 4 years have been investment of GBP 840 million, and that includes Windy City. Organic growth, 15%, and that includes Windy City and returns of 16% and growing, including Windy City.

Oscar?

It's Oscar from JPMorgan. So 2 questions. The first one, I guess, going back on the decentralized model and specifically how you incentivize the business unit heads on kind of the more medium and long term. You gave examples of companies tripling in size. How would the business unit manager get incentivized in the medium term? Then the second question on Life Sciences. You've hinted that you could potentially expand into the U.S., but obviously, it's a bit of a different market, Canada and Australia versus the U.S. Could you just comment on what the opportunity there is given it's a different business model?

Sure. I'll let Jill answer on decentralized in a second. It would be unfair of me to ask Elena to answer on that question on Life Sciences. So I'll take it and say I suppose when I started 4 years ago, the assumption was that for us, health care distribution only worked in specific markets with great health care spend per capita and low levels of population density. And therefore, the likes of the U.S. and the U.K. were ruled out. I suppose what I and we have seen over the last 3 or 4 years, there's a lot of evidence that there are great businesses, providing fantastic value-add distribution in health care within the U.S. and the U.K. Now when tomorrow, you're going to see an acquisition on that, what we are saying is we've opened our minds and we're evaluating it. And we've seen some businesses that we've -- that give us evidence to suggest that it's possible. But just to take it easy on that and as much as it won't be tomorrow. Jill, do you want to add to the point on decentralized?

Yes, sure. I mean I think incentivization is actually a really good example of where we are working within our decentralized framework. And it's an area where we've really actually make quite a lot of evolution, I would say, in the last few years. So a couple of key points. First of all, we have really clear alignment. So from Johnny all the way down to our leadership team, we have very high performance orientated program where we are really incentivizing stretching performance. And the last thing I would say is it's really about the bundle of measures that we talked about. So you talked about that kind of medium term. So we have our long-term incentives and the long-term incentives for the group plan are about the growth in EPS with that clear ROATCE underpin of Chris [indiscernible] returns. And we have a bit of a balance there on shareholder return as well. And then for the general managers themselves, they are incentivized around the growth of their individual profit for their businesses but they do also have that element of the group incentive in there that I just talked through. And then we've got the annual bonus plan, which is really where we're pushing harder every year, every year, every year. So we have -- we set our budgets and then we set the maximum bonus to deliver the stretch above the budget. So every year, as we lift ourselves up and we grow more, we lift those targets up even higher. So I think that combination of high performance rewards for growth, but balanced amongst the bundle of incentives and that clear alignment that goes from Johnny all the way down through the management of the organization is actually working really well for us and really supports the strategy that we've talked through today.

Just a question around M&A. Given the current sort of macro uncertainties, maybe if you can comment whether there's sort of any change in the motivation of the sellers or the prices that they're looking for, perhaps? And also from your perspective, I mean, you obviously talked about the resilience of the business. But in terms of looking at M&A, would you feel comfortable kind of pushing towards the top end of the leverage range given the uncertain macro backdrop? Or does that just come down to the sort of the quality of the opportunities that you're seeing? And maybe a final comment on the quality of that pipeline of opportunities.

Okay. I'll let Steve say a few words on motivation of sellers and perhaps the quality of the pipeline? And maybe, Chris, you can finish it off with something on leverage.

I don't think we ever see a marked difference in terms of the motivations of sellers. They always want to get the best for their business. Different types of sellers look for different things. We talked about the fact that we are an extremely good home for an owner-managed business. And that's something that we really, really doubled down on in terms of when we build that relationship with those owners. So for them, it's about value, but it's also about finding the right home for their businesses. They've been developing these businesses for their whole lives. They're finding the right home. Someone that's going to maintain that legacy, that heritage, not just change the name above the door on day 1 is incredibly important for them. That motivation never changes. In terms of the quality of the of the pipeline. Look, it's extremely healthy. It's not just in terms of numbers. It's important to have a full pipeline, given how very selective we are in terms of what we look at. High-growth, high-margin businesses don't grow on trees. So we have to have a huge number of businesses in the top of the hopper to ensure that we can continue a good track record, a good cadence of activity. And we're pleased that the average size is healthy. We're pleased that it's spread across our sectors, spread across our geographies and it's high quality.

And on leverage, our range is designed to operate through the cycle. It's not -- it doesn't chop and change as rates chop and change. That said, clearly in times like this where rates are a little more elevated, you pause and think a little bit more. It's not a scientific thing. Again, it's an art to balance with the science. Does it raise some of the hurdles a little bit? Does it raise some of the barriers a little bit? Does it make us think a little bit more about the top end of that range? Yes -- naturally, yes, but it's a range that is designed to work through the cycle.

I mean I would just add that we say no to a hell of a lot more than we say yes to. And at times like these, as you would expect, as we are incredibly disciplined about how we look at the multiples and the projections given short-term uncertainty. And of course, we reflect that. We are long-term buyers. But of course, we reflect that in how we negotiate and what we expect to pay.

It's Kean Marden from Jefferies. Can we just maybe come back to the scalability of TIE. So I guess if we look at the installed base of industrial robots around the world, there's obviously quite a substantial one in the states, but there's a large one in Asia, but that doesn't feel like a natural target for your business. So can you scale TIE across sort of the U.S.? Or is there any opportunity to move that into the U.K. and Europe? And then you touched on mood quite a few times, Johnny, not just today, but over the last few years. What sort of mood shift normally requires your sort of guiding hand to help correct internally?

Okay. David, do you want to answer on TIE, then I'll cover on mood.

Yes. So firstly, touching on TIE. I think the first thing to say is there is tremendous opportunity for this business in the U.S. Their share is probably overweighed in the Midwest, and there's plenty of opportunity geographically for them to do more. So that's the first thing I'd say. Also from a scalability point of view, we've bought a business that is around GBP 30 million in revenue, there's a lot of runway for it. I think there's a lot of opportunity we talked about. Do we move to a more hunting sales culture. I think TIE, there's definitely opportunity for that. Is there opportunity for better process, better discipline in the business? Yes, I should expect from a smaller business coming through the risk. So are there opportunities outside the U.S. Yes, there are. But I think our #1 priority is to grow that business within its current geography.

Yes, thank you for the question on mood. I think as you rightly point out, I think it's an incredibly important part of managing an organization like this. And I feel that we can all put in, as we do the rigors of review, governance, drive execution. But in order to sustain it for the long time, having a connection emotionally with the individuals within the business and the business as a whole to be able to manage pace in a decentralized organization to course correct in a decentralized organization is really, really important. So my connection individually into the business. Jill and everyone here is the same. We're always connecting and touching in and touching back on these things, and we're always measuring what the mood sense is for all of us across the business to be able to do that and pandemic is obviously an example of that. But also in our world where we're growing, as you see, quite quickly, being able to sense the pressure points of that pace and to be able to respond to them and say, we're a bit harsh over here. Come on, let's just put our arms around this sector or this business or this individual or whatever and just make sure that we're helping them through. These are the kind of things that we're talking about all the time. And as I say, we talk about it a lot. And if we can continue to do that, we measure the easy bit, the rational governance with the emotional connectivity that ensures consistency and therefore, sustainability of decentralized as it grows up.

It's Charlie Huggins from Wealth Club. Just first question, sort of what are the biggest challenges you faced in your journey to scale the group. Obviously, a big change from the previous culture that existed? Secondly, just sort of long-term margin ambitions in terms of a scale platform, should that be able to deliver more in the way of margin improvement as we've seen for example, from Windy City -- should the group as a whole be able to deliver something akin to Windy City say in 10 years' time once you've got that scale platform? And then just on Windy City, what's the secret source of that business? Why can't it be copied, it seems like a relatively commoditized product to look at? Why can't the competition do similar?

Okay. I'll ask Chris to do the margins one. I suppose, I'll do the scaling of the group and probably the Windy City one. Just on how do we scale and what are the challenges to scale? I think what do I spend most of my time thinking about and worrying about? It's about organizational development. Yes, I spend my time thinking about the macro environment and how we respond to that. But I feel comforted that we have a resilient model, a great team and an agile environment to be able to respond well. Of course, I worry about making sure we get acquisition decisions correct. That's a CEO pitfall, isn't it? So we worry about that. And I hope you've heard today that there is pretty tight discipline and process around that. And I think our track record demonstrates that we get it right. What I spent most of my time was what was Jill's thinking about organizational development, and that's why I spent so much time in the presentation on exactly this point. Our biggest success factor is making sure we get that right, measuring pace, but you're being able to put in the right structures, making sure that we have the right capability, keeping the discipline around the portfolio and driving that simple framework into the businesses consistently to make sure that the beat is there. And as I said a minute ago, to Kean's question, managing the mood as well. And that's what I spend most of my pie chart worrying about and thinking about and planning for. And I think it's our biggest success factor. On Windy City, often the simplest things are the best. And actually, it's not just their business, but some of our other businesses, Hercules Aftermarket, similar business model and the value proposition isn't necessarily always the most complex or technical. In fact, the gross margins in what you would see is our most simple businesses like Windy City or even Hercules Aftermarket are the highest in the group. The value proposition is valued by our customers there more so even in the technical end of our value spectrum. And that tells you that it's about what the customer values. And therefore, simplicity but delivered in a brilliant way, as I think Windy City do is very, very powerful. And for me, that business has great end markets, as we talked about, really special customer proposition. And as Rich talked about in the video, an operating platform, which is well invested and really working and a strong team and culture. And that combination, we've really struck gold with has delivered fantastically for us. And I'm absolutely convinced it continues to do so. It might not triple its profits every 3 years, but it will continue to drive great outcomes. Chris, do you want to talk about margins?

Charlie, I mean it's [indiscernible], isn't it? We delivered well above 18% last year. We've guided for 19% this year. And clearly, as I outlined earlier, we have a margin formula that says over the medium term, we would absolutely expect the performance benefits and the operational leverage to exceed our need to reinvest. The reason you won't see us reflecting that back into the financial model is to give ourselves a little bit of flexibility for a point in time in the portfolio. There are times when we may choose to add a fundamentally great business that is at a lower point of its margin cycle. R&G would be a good example of something that came into the group on a lower margin. Day 1, that's margin dilutive. That margin is marching up nicely as we speak. But -- so the simple answer to your question is, yes, and we'd like to. But we just need the flexibility to allow us to breathe within the growth of the portfolio.

Great. Very quick follow-up on central costs of the center. To what extent is that scalable now over the next 5 to 10 years? Do you see that doubling in size again over the next 5, 10 years? Or is it -- are you now in a position where you think we can now...

We've got 25 people in the head office. We're not going to sustain that forever, but it's the principal, isn't it? That 25 is not going to become 200. But of course, we have to add some capability and some muscle as the group gets bigger. And as the burdens of bureaucracy and complexities fall upon us, then of course, we'll have to add a few more. But over the last, what, 4 years, we've doubled in size. And I think when I started, the head office was 16. So that should give you some perspective on that journey. It'd be nice to have some more business questions, not just for Chris and I, but for the business people. [indiscernible] and get these guys every time.

I'll see what I can do. [indiscernible] from Morgan Stanley. I just have one. I wanted to follow up on the 15% organic growth post acquisition for the deals you've done, I think, since 2019. I'm just wondering about the phasing of that. So how much of that do you see within the first couple of years after acquisition where you put the business on to the deployment platform and you use the ERP systems and sort of take out or rather benefit from the low-hanging fruit, if you want to call it that? And then what does the trajectory of that look like as you continue to invest in those businesses and scale them? I'm just wondering what happens to that 15% a few years down the line based on what you've seen in the past.

There is one -- every acquisition is different. And we look to model out the 10-year horizon on every acquisition, every business that we buy. Some of those we look for that double-digit growth in the early years, and we expect it to tail off. We're not expecting everything to grow at 15% a year every year. That's unrealistic. But it really is different for every opportunity. There are some that we think are going to be a slightly slow burn, and they will need investments, and they will take time for us to help improve them and to take advantage of cross-selling revenues, et cetera. So it really is different for every single opportunity.

It's interesting quite often when you buy a business, especially one of these small businesses, you've had a slightly constrained small business mentality. And suddenly, that's unlocked. And we tend to see a bit of an acceleration even just for emotional reasons in the year or 2 afterwards. Yes, Dan?

Dan Cowan from HSBC. I've got a question for Life Sciences. These exclusive contracts, how often do they come up for discussion? How often do you get to renegotiate terms? Is this an ongoing thing? Are they re-tendered on a periodical basis? And then the second question, which is perhaps a more general one to your business I would say. How do you balance the sort of farming and the relationship management with this sort of accelerated business development, those sort of the switch to something more hunter like in terms of your sales approach?

Okay. Well, maybe, Elena can say a few words on the Life Sciences' exclusive contracts. And then I'll ask Ted to say a few words on farming and business development.

Sure. With respect to the supplier exclusive agreements, typically, we have contracts that can be 5, 7, 10 years in length. And typically, we negotiate extensions and renewals well in advance to resecure the mine. So once we hold a really strong market share with suppliers that are seeing the benefits of having a scale business, market access, regulatory hurdles that are looked after, it really becomes a very valuable proposition. And within our space, oftentimes stability, access to the customer, having those customer relationships is really prime. So we do a great job, and we put a lot of effort in developing relationships with our key opinion leaders in the market. So our customers trust us and our suppliers are happy to see that stability. So we've had contracts that we've held since the late '90s that just get perpetually extended. They never actually expire. So it's just a perpetual extension. That's very typical. Thank you.

Thank you.

Yes. On the question of sales and how we're developing that. Like Johnny, I spent a lot of time on organizational structure and thinking about what is the potential of our business through that structure, through the talent and the processes and sales is a big one. Because you'd naturally expect that a lot of these businesses have deep relationships and they do spend an enormous amount of time with that current customer base. And so we challenge a bit of where are we going to get our growth and how much is there potential beyond just within that customer base that they currently have. And so in some cases, there's people within the organization that are really fit and have that prospecting business development DNA. And as other cases, we need to add to that talent base and bring in new sales people. But also, it's the processes is having good account management, territory management and business development processes, so -- and a lot of the businesses, they didn't have that. And so you add that training, that capability with the talent, and you start to see new growth levers that weren't there before.

I'm Jamie Mariani from Trillium Asset Management. I've heard a lot about diversity and decentralization today. And so I'm kind of keen to better understand the culture of the company and how decisions get made. As you said, Johnny, I've got the opportunity to speak to some of the business heads that is directed at you. Perhaps you can share an example each of you of where you've worked with Johnny as CEO or Chris as CFO to solve a problem in the last couple of months, not from several years ago, but in the last couple of months, that will really give me a sense of how this business operates? And then while you're providing that example, perhaps a second example would be really helpful, too, if you don't like the first of how you've worked with each other as business heads? Do you feel there's any value of being part of a wider group?

Very good question. Alessandro, I've given you the least time to think about that. Go for it.

So probably I'm the right person because I've been with this company for 17 years. So I live and breathe the Diploma's culture. Starting with the -- just the end of your question, how we cooperate, how we coordinate between business leaders. We talk regularly and we have a lot of topics that we have to face as a team. So one example would be we had, for example, the [indiscernible] in Europe and U.S. It's a specific compound used in particular type of products. We faced the same situation. So we share intelligence and we talk about it. The same thing we do with David, for example, when it comes to the way how we want to attack the European market. There's a lot of common ground and we talk a lot about it. So it's not formalized, it's not structured, but it's a very open and transparent communication channel, always available to you with everybody in Diploma. In terms of the example of a situation, a problem or an investment case, we are considering and the way how decision making is really tangible in the business. It's very simple. For example, new CNC machines for producing seals in one of the businesses. The business leader in the company will call me and say, look, we are thinking about it because we feel an opportunity in the market, say fine. Why don't you produce a couple of pages. Tell me what is your business case? How do you see -- how much it's going to cost? How many people you need? And what is -- what we can expect in terms of incremental growth in the next few years? So at Diploma, we are very data-driven. We are factual. We don't -- it's not about politics, it's not about preference. We really assess the business case. Then, I will speak with Chris or with Johnny and say, okay, look, this is coming to you because I checked and I believe it actually there is a very strong opportunity here to do something together. And it's a matter of 1 or 2 days, come back to me, sourced, done, we go for it. So it's very fast.

David, have you got any thoughts you want to share?

I'll come back on an example, if I can. I mean, first of all, I think the -- there was a slide up there about low ego. And what I would say is amongst the team that are here, the communication is excellent. I speak to Johnny regularly, to Chris regularly and to the other members of the team. I think one really good example that we're going through at the moment, we're going through a site move, ERP upgrades, some automation in our U.K. wire and cable business. Within that, myself and Neil, my CFO in the sector, we're working very closely with the business. So this is a high priority project for us. So that is an example where I've asked Chris, Johnny to help us to get involved in the project and to support us through that. Now that isn't on everything. But when it's high in a priority and it's high enough impact, I don't think it's right to draw on the other people within the group.

Yes, I think it's not just across the different sectors. But I think the collaboration with functional leadership at the group is really powerful. And we continue to scale those functional capabilities. And as we're trying to do it within our sector, because that's really where we want to grow it and develop it. A lot of the ideas and collaboration that we do within HR, within M&A, about how to do it, what the group can provide, whether that be training, talent development or other skill sets. So it's a pretty powerful formula in terms of -- it's always about getting it right at the point of impact, but it's leveraging up and down and across both functional and the business sectors.

So we started our scaling journey in Canada about 1.5 years ago. And throughout this experience, which was relatively new to me, I can say that I was very, very pleased with the level of support and guidance that I received in general from the group, whether it was having discussions with Jill, on how we deal on the people and talent speaking with Dan on some of the more operational structures and getting advice all the way through some good discussions with Chris on how we make the dollars and cents work. And then, of course, Johnny has always been there to support and just to give good advice. So again, I'll beat you, Alessandro. It's 20 years for me. And it's -- the culture is in my DNA as well, but I have to say that the support and the guidance has always been very, very, very good.

Great question. We've got lean structures. We've got good people who are communicating constantly. There's never surprises, and we're all mobilized across key decisions, and that makes us agile. Is there some questions from the webcast? Fantastic.

Yes. So there's a couple on the webcast on M&A. There's a flat, when do acquisitions go wrong, but also slightly more subtle. What are the sorts of things that can go wrong and how do you fix them as you go?

Steve?

In terms of what could go wrong, lots of things could go wrong in acquisitions. That's why we do a ton of diligence. We have a lot of people internally focused on diligence for every single acquisition. We have fantastic external advisers that help us throughout there. Really, the main thing it comes down to is people, and that's -- if there's anything that I've learned over the last 3 years doing acquisitions, if you get the people element of it right, the acquisition will go right. And that's probably the biggest thing that we focus on during our diligence. Sorry, and the first one was?

When do acquisitions go wrong or when have they rather?

I think we've been pretty fortunate. Well, fortunate, we've been very disciplined. I wouldn't say any of our acquisitions have gone wrong. Some are shooting the lights out, like Windy City, like R&G, they're performing way above their investment case. Some are there or thereabouts, about where we thought they'd be. Some are a bit slower. They're going to take a little bit of time to catch up and to generate that 20% ROATCE that we always target. With a little bit more support, they'll get there. But I wouldn't say that any have gone wrong so far.

And then one on organic growth. You talked about the huge opportunity. It seems you have the right team, it seems to have lots of capital available. So what stops you from being more aggressive about organic growth?

Who would ask that question. I think the answer to that is don't be greedy. Look, there's a limit to how much you want to grow, isn't there? We've got to think about making this sustainable. It's not about 1 year or 2 years or 3 years, it's about 10 years or 20 years or 30 years. I don't want to be growing at 100% 1 year just for the organization to collapse the next. We've got to measure pace. And I think actually, if you look at the numbers, we've doubled in size in 3 or 4 years. That's already pretty significant. So I'm comfortable at this kind of pace, I have to say, and we're building the organization around it to be able to sustain it and we've got opportunities that we don't need all tomorrow. And that's what's great about this, it's incremental and it's sustainable growth and, therefore, sustainable compounding for the long term, not just for tomorrow.

And last one on dividend. Why not cut the payout ratio further? Why pay us money and then ask for a back-through capital raise as you're such a good capital allocator from my perspective, lower the payout the better?

You were expecting that question the other way around, weren't you?

I was expecting it the other way around. Look, it's a balance. It's a balance and I'm sorry, I think I've said this 4 times now, the art and science, but this is another art and science one. We appreciate that there is a value in a steady, progressive, growing dividend to a number of shareholders. We balance that with a very healthy portfolio, a very healthy pipeline of investment opportunities, organic and inorganic that we can typically at least double our cost of capital. I'm not going to get into the maths of it. There are enough shareholders out there who appreciate the growing dividend. We think it's part of the discipline that underpins compounding growth. We think it's all part of the equation of the type of business we want to be. We've done it for 20 years, and we're proud of continuing to do that.

Okay. I think that wraps us up. We're timed out, I think, is that right? Okay. Thank you very much. Can I just say thank you very much to all of you for coming. Thank you very, very much to all of our presenters who've done a fantastic job today. Thank you very, very, very, very much to Kellie and her team to Emily and to Sarah. We all know these things take a hell of a lot of work to put together. And Kellie has done an outstanding job with the team as our commander in chief over the last few months. So thank you for that and enjoy a drink. We're going to have a drink, and I hope you'll join us. You've got lots of more questions, I'm sure, informally to ask the team. So please, please, please do join us for that. I'm going to see a few words to wrap up. And after I do, for those of you who want to, you can stay on and we've got a 5-minute video of our Hercules Aftermarket business, one of our scaled businesses, which is a real success story and end-to-end across growth and scaling and everything we've been talking about today. So if you want to sit through that for 5 minutes, please, please do. I think it's a really great story, and I'm sure you'll enjoy it. And then we'll meet outside for a drink thereafter. I'll just leave you with the key messages that I did at the beginning. We've got a differentiated value-add service distribution model. We have -- we have -- we deliver it through brilliant people in a really powerful decentralized culture. And we feel really enthusiastic and excited about how we're developing our businesses and our group to be able to deliver these differentiators sustainably at scale. And we're so excited about all the growth that we've got in front of us. And therefore, as I said at the beginning, we feel like we're only just getting started and you should expect from us a sustainable quality compounds in the future. Thank you very, very much for your time.