Diploma PLC ($DPLM)

Good morning, everyone. Thanks for joining. Great to have you with us today. I'm here, as usual, with our CFO, Wilson Ng. I'm going to start with an overview of performance. Wilson will take you through the numbers, and then I'll come back to talk about strategy and the businesses. Questions as usual at the end. Let's get started. It's been a great first half. We've delivered a very strong performance across all our key financial metrics, building on our long-term compounding track record. We balanced ambitious earnings growth, 36% in the half with disciplined returns, 23% in the half and together, key to sustainable compounding success. The quality and diversity of our portfolio gives us exposure to attractive end markets, which supports structural long-term organic growth, 15% in the half and 10% on average over the last 5 years. It also gives us resilience in uncertain times. We accelerate organic growth with targeted acquisitions. We've done 15 deals in the last 12 months, including 7 since we updated at Q1. The pipeline remains healthy with plenty of balance sheet capacity. We're upgrading guidance again today, adding a further 6%, meaning expected operating profit growth of over 30%, and we're looking forward to another year of sustainable quality compounding. Diploma has been delivering compounded double-digit revenue and earnings growth for decades and at great returns on capital. We've developed the strategy, injected more ambition, improved our execution, the compounding has accelerated. And what's really exciting is that we're just getting started. The group's future is very promising. We balance ambition with discipline. Our business model is robust. Our growth potential with structural support is massive. We focus on cash, capital allocation and returns, and we're intensely execution orientated. I'm really excited about our future. Our people and our culture deliver this. They make it sustainable. I'd like to thank all of my brilliant colleagues. Their skill, energy and passion drives our success. Our differentiated culture of commerciality, accountability and continuous improvement is thriving across the businesses, and we complement that with a connectivity and performance ownership mindset across the group. We spend a great few days together in Nashville last month. And we asked some of our business leaders how they would describe our culture. And this is what they said... I'll hand over to Wilson to take you through the numbers.

Thank you, Johnny. Good morning, everyone. So turning to H1 '26. We've delivered another very strong performance across all of our key metrics. Organic growth is our priority. So I am really pleased with the 15% growth in H1. And total revenue was up 17%, including a 3% contribution from net acquisitions. We've delivered a 300 basis point increase in operating margin to 24.5% in turn, driving strong EPS growth of 36%, continuing our long-term track record. Strong cash conversion of 76%, ahead of our typical half year performance, significant balance sheet headroom with leverage at 0.8x at half year. Return on capital increased 360 basis points to 22.7%. In line with our policy, we have grown the dividend by 5%. So summing all that up, I am very pleased to be reporting another very strong performance. We have built a high-quality and diversified portfolio that enables us to consistently deliver strong revenue growth. In H1, we delivered 15% organic growth. Controls increased organically by 26%, driven by excellent execution in favorable market conditions. This included great performances from Clarendon, IS Group and Windy City Wire and another outstanding performance from Peerless. Seals achieved organic growth of 2% despite conditions remaining challenging in international Seals market, particularly in the U.K. Life Sciences delivered a consistent performance, 4% organic growth in challenging health care market. If we were to exclude Peerless, the rest of the portfolio grew organically at high single digits, well ahead of our financial model. Total revenue is up 17% overall after a 3% contribution from acquisitions, net of the disposals in H1 '25 and some FX headwind. I will now move to operating profit. Following a strong performance in FY '25, we have again improved operating margin, up 300 basis points in H1 to 24.5%. As a result, operating profit grew 33% in the half to GBP 209 million. Our volume growth has, as usual, been a strong driver of margin expansion, driving significant operating leverage benefits. Our ability to pass on input cost increases and inflation through pricing is a key measure of our value-add model and the solutions we bring to our customers. Over the last few years, our operating margins have expanded significantly. This has been driven by: a, operating leverage as our businesses grow; b, continuous performance improvement through strong discipline and execution; and c, structurally improving the portfolio through high-quality acquisition. Margins feel like they are towards the top end as we look to sustain growth by selectively reinvesting in OpEx and complementing our organic growth through acquisitions, which may not always be accretive to our high margin. Now on to EPS growth. Interest expense was a little higher year-on-year as acquisition momentum stepped up, reflecting the timing of acquisitions, including several after the period end. We expect this to step up slightly again in H2. Our all-in blended cost of debt remained consistent at 5.3%. Our effective tax rate was 25%, consistent with FY '25. Earnings per share increased by 36% to 109.2p, continuing our long track record of strong double-digit growth. Now let's turn to cash. Our capital-light business model and disciplined execution allows us to drive strong and consistent cash conversion. We achieved 76% conversion, broadly consistent with last year and higher than our typical half year cash conversion, delivering free cash flow of GBP 110 million. We see inventory investment as an important tool to unlock growth when executed carefully and with discipline. In line with this, we have deployed almost GBP 60 million on selective net working capital investments, and we will continue to do more of this across the group. Acquisition outflow was GBP 92 million, reflecting the step-up in deal momentum. Deals totaling a further GBP 170 million have taken place in the early part of H2. We paid GBP 60 million in dividends, continuing our long track record of progressive dividend growth. Taking all this together, net debt increased to GBP 344 million with leverage maintained at 0.8x, well within policy of 2x. Reflecting deals we've done in the early part of H2, leverage would be slightly over 1x. Now let me talk about those acquisitions. Acquisition momentum continued through the period. Over the last 12 months, we have done 15 deals across all 3 sectors. At our Q1 announcement, we mentioned 8 of these acquisitions completed across 2 quarters with a combined investment of GBP 130 million. Since then, we have committed a further GBP 180 million on 7 acquisitions. In total, therefore, deploying GBP 310 million on the 15 acquisitions, contributing GBP 40 million of annualized operating profit, equating to an average EBIT multiple of 8x. These acquisitions support future organic growth. They expand our presence in attractive markets. CDM, FC Lane and Syneis increase our defence exposure in the U.S., U.K. and Europe. And C&C Packing brings expertise in water infrastructure. Acquisitions also extend our geographic footprint. Modul Nordic in Norway adds to our European Life Sciences footprint following the recent acquisitions of Electromed in Ireland and Alpha Labs in the U.K. Abbey Seals marks R&G's entry into Ireland and Cel-Win supports IS Group's interconnect solutions offering across broad markets in the U.K. Now on to returns. Delivering disciplined returns is critical to sustainable compounding results. Following a strong performance in FY '25, we've delivered another step-up in returns, adding 360 basis points to ROATCE to achieve 22.7%. Now this is a little ahead of our optimal high teens range, reflecting the strength of our performance and the quality of the acquisitions we've made over the last 7 years, more than offsetting the investments in the year. I've already mentioned some planned investments for growth in OpEx and working capital. With our strong acquisition pipeline, we also hope to bring more businesses into the group. With these investments, we would expect returns to moderate back to our optimal high teens range. Now on to our updated guidance. We are upgrading our expectations for the full year. H1 performance has been very strong. H2 is off to a great start. And despite macro uncertainty, we have confidence in our outlook. We expect organic growth of 12%, up from the 9% previously guided. The shape of organic growth across the year remains consistent with our previous guidance with some mathematical moderation of growth rate in H2 due to strong comps. Acquisitions will now contribute 6% to growth in FY '26, up from 3% previously guided. We are maintaining operating margin for the year at 25%. So summing up, another great year. I will now hand back to Johnny.

Great. Thanks, Wilson. A reminder of our strategy. It's about building high-quality, scalable businesses for sustainable organic growth. We drive organic growth in what I call our 3 buckets: positioning behind structurally growing end markets, expanding further in core developed geographies and extending our product range to grow addressable market. Small concentrated businesses stepping out of their niche, taking their specialized proposition to new places, they all have fantastic opportunities to grow. This strategy drives exciting sustainable organic growth, scale and increased resilience. This is complemented by selective high-quality acquisitions that drive future organic growth at great returns. Our acquisitions add to the quality and diversification of the portfolio, which in turn have made the group's organic growth more structural. Our value-add model and our powerful decentralized culture are our key differentiators. As we go from small to large, we naturally have to do things a bit differently while always preserving these differentiators. So building effective scale is key to the strategy, developing our businesses and group to become better, not just bigger, and as such to sustain long-term delivery. The financial outcome of this strategy is sustainable quality compounding, ambitious earnings growth combined with disciplined returns in the good times and the bad. Let's just spend a minute on growth. Our geographic and product white space potential is huge. Have a look at the slide in the appendix. Our products and services are relevant to so many attractive end markets, our first bucket. They give us growth tailwinds and resilience. A few examples of recent progress. In defence, we already have well-established positions, particularly in air defence in U.K. and Europe. Over the last year, we've brought in specialist resource. We've opened a new facility in Czech Republic to service air, land and marine supply chains in Europe. We've acquired Spring Solutions to strengthen our U.K. position, and we've just signed the acquisition of CDM, our first step into the U.S. defence market. More on that shortly. We're accelerating our growth in data centres. Windy City has done incredibly well to build a material exposure with premium cabling solutions for the high-performance environment. We're also growing our cabling business into data centers in the U.K., and we're building out new MRO opportunities, too, including seals, gaskets and hoses for cooling systems. Nuclear is still early for us, but potentially very exciting, too, given the power requirements to support AI. VSP, our U.S. gasket MRO business specialises in solutions for high-risk, high regulated environments and is making great strides in supporting nuclear development in the U.S. There is much more ahead for us on that. Overall, we're making progress across all the markets on this slide and others too. We're investing behind them for the years ahead. We're looking forward to welcoming CDM to the group. Based in Philadelphia, CDM is a high-quality family-led interconnect business supplying custom connectors and cable assemblies into the U.S. defence market. We will pay $170 million once we've received regulatory approval to close the deal. The business has been growing at double digit over many years and now has revenue of $80 million with high teens margins. We're excited about supporting their continued success in the U.S. and the potential development in Europe, too. The management team, Mark D'Leo and Lori Sanchez have done a tremendous job and will stay with us. We're really pleased to be partnering with them, and we're excited about the future growth potential. It's a great example of our end market strategy and it also demonstrates our progress this year with acquisitions. And acquisitions are important to the strategy. They accelerate our organic growth and together with selective disposals, they build the quality and the diversification of the portfolio. We've accelerated capital deployment with $1.6 billion spent on 57 in the last 7 years, significantly above our financial model. But it can't be just any business at any price. Discipline is critical to sustaining our compounding represented by our 20% returns. Our discipline means that our progress with acquisitions won't always be linear, and that's fine. Over the long term, the fundamentals support a healthy deal flow. It's a fragmented market, and our pipeline is stronger than ever. Our processes work, and we continue to be the buyer of choice. The short-term pipeline is encouraging, and I'm feeling optimistic. On to the sectors. Controls delivered another excellent performance with organic growth of 26%. Structural tailwinds across a number of attractive end markets were complemented by really good market share execution. More on this in a moment. Since the start of the year, we've welcomed 6 new businesses to the sector. CDM will make it 7. These deals give us great end market exposures, mainly in aerospace and defence, extending our existing capabilities and geographic footprints. Growth rates will, of course, moderate a touch as we lap tougher comparators, but we're confident of continued strong performance through this year and into next. Spotlighting our 4 largest controls businesses for a minute, they're all doing fantastically well. Clarendon Specialty Fasteners is growing double digit with aerospace and defence tailwinds and positive new contract wins. They've recently welcomed Spring and Swift bolt-ons in these 2 markets as well. IS Group organic growth has been double digit, too, with exposure to defence, aerospace and energy markets in the U.K., Europe and increasingly the U.S. It's grown inorganically as well with the additions of Cel-Win, FC Lane and CDM. Peerless continues to deliver outstanding performance. The dynamics of the market and supply chain show no signs of changing, and we continue to win new business both in the U.S. and now focusing increasingly in Europe, too. Windy City has been exceptional for many years and delivers long-term growth average of over 10%. Their business in data centers and digital antenna systems has been strong and positions them very well for the future. So overall, performance has been great. The market dynamics are favorable with strong teams executing brilliantly. We're in great shape for the future. Seals' organic growth was 2% North America has benefited from new leadership, delivering growth of 7%. Our aftermarket business is doing well in U.S. as U.S. infrastructure investment continues. We welcomed a new business, C&C Packings into OEM, adding water infrastructure experience, and we're excited about our MRO business, VSP's potential in data centers and nuclear. International Seals has been tougher, mainly in the U.K. We've been investing in management capability. The businesses are well set to make progress in the second half. We welcomed new businesses, HSA in Australia and Abbey Seals in Ireland. The short-term prospects for Seals are looking better, and I'm very positive about the long term, too. With many attractive end markets to go after. We're expanding our fluid power product capability, and we've invested in capabilities to strengthen our execution. It's an exciting time ahead for Seals. Life Sciences delivered a consistent performance. IVD markets attract structural investment and medtech surgical markets have returned to normal levels. The investments we've made in management capability and in our distribution footprint, together with the quality of our commercial teams have helped drive market share gains. We've successfully onboarded the acquisitions of Alpha Labs and Electromed from late last year in the U.K. and Ireland, and we've welcomed Modul Nordic in Norway, continuing to build out our European platform. So we've invested in management, in business development and in our distribution footprint. There's lots to go for, and I'm very positive about the outlook for Life Sciences. Summarizing, it's been a great first half. Earnings growth was 36% and a 23% return on capital, building on our long-term track record. The group's organic growth runway is massive with promising end market structural support. We'll continue to acquire businesses that add to the quality and diversification of the group. We have a healthy pipeline and balance sheet capacity. We're feeling good about the year, increasing our guidance by a further 6%, expecting operating profit growth of over 30%. We're just getting started, sustainable quality compounding. We'll take your questions.

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

I have 2 questions, please. So firstly, just thinking back to those investments into the business at your full year in November. You touched upon it today, but could you update on the progress you've made there and what the priorities are for the remainder of the year, whether it's by service line or division? And Wilson, as part of that, you mentioned some investments into working capital. So could you elaborate on those? And then secondly, just on Seals, we've been speaking for a while about Seals starting to recover, but international Seals, in particular, looked a bit softer sequentially. So do you think that recovery has been pushed to the right? Or are you seeing some green shoots and signs of recovery into the second half? You mentioned some new management in the U.K. So how confident are you on the outlook for that business?

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

Thanks, Annelies. I think, yes, we -- let me just take Seals in totality. So in North American Seals, we've continued to see very good momentum, high single-digits growth continuing from what they did in H2 last year. So we're very pleased with the performance there and expect that to continue into H2. For International Seals, obviously, minus 1% for H1. However, we have seen sort of positive growth and a better exit run rate as we finish Q2. So we are seeing green shoots in businesses like DICSA in particular, and working very hard in investing in businesses like R&G, and we're quietly confident with regards to its prospects going into H2.

Great. Just coming back to the investment question, Annelies. Look, I don't want to overplay it in any way. it's just more of a kind of a reminder, if you like. The investments we make will be very much incremental and within the context of the financial model. But it's important that we continue to make investments because this kind of compounding doesn't come about. You can't make it sustainable unless you're really thinking about the future as well. If you think about the context here, you saw my track record slide. We've got decades of compounding. The last 5 years have accelerated. It's really our job to make sure that continues. So yes, we'll be incrementally putting a bit more behind resource, particularly growth-enabled resource, end markets resource. We talked about that. Inventory can be quite a big driver of growth for us as well, putting in selective or new inventory types to open up and unlock growth opportunities. So we'll probably be doing a little bit more of that. And we just want to make the point about acquisitions. As Wilson said, we're probably above our normal returns rates at the moment. And if we do deploy over the next year or 2 a bit more capital, then you'll see those settling back down. So I think it's more than anything else, just a reminder for us and for everybody that we do need to continue to put a little bit of money back in. And the year that you're seeing this year is a bit of an exceptional year. And as we go forward, our objective is to continue to compound at the rates we've been compounding over decades on the back of this year, and that just requires selective incremental investment, and that's all we're signaling.

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

Two questions from me as well. One on cross-sell and one on Life Sciences. Just focusing on the first one on cross-sell. I appreciate cross-sell is sort of cherry on top for the business model. But I was intrigued that you said that VSP was looking at data centers. And I wonder whether that's an opportunity that Windy City Wire can help with? And also, is there sort of any other natural cross-sell between CDM and your other interconnect businesses? That's the first question. And then the second question in respect of Life Sciences. It's clearly still a tough market, although the business is delivering. Could you just touch on whether that challenge spans across IVD and medtech? And what are you seeing in terms of sort of the end market backdrop and whether there's any sign of improvement?

Yes. Thanks for that, David. I'll take the question on cross-selling, and then Wilson can pick up on Life Sciences. I mean you kind of put the words out of my mouth in terms of cherry on the cake. Each of our businesses have so many fantastic opportunities for themselves, and that's what we focus our sales execution upon. But of course, we are -- we encourage and foster cross-selling as well. And as the group gets bigger and we expand the portfolio, then those cross-selling opportunities come thicker and faster. I mean VSP, you mentioned, I mean, in some of these end markets, of course, we're putting in some end market specialism, which can help foster across businesses, the right kind of business development opportunities. VSP is definitely leaning on that resource expertise to help it in its data center. And it's also leaning on some of the expertise that we've got from Windy, who know data centers better than anyone else in the group. So the answer to that is absolutely yes. CDM is another good example. I mean, of course, it's not even in the door yet. But as we look at it, excited, it's done great double-digit growth. There's so much for us to go for developing the U.S. market, but we can also support other businesses like Peerless, for example, in the defence space. And we can use our network in European defense to bring some of the CDM products across the Atlantic into the European market as well. So yes, there's lots of opportunities across the group for us to foster that cross-selling.

Right. And I'll take the Life Sciences question. So just to put it into context, in the backdrop of very challenging health care markets, our Life Science business has managed to do 6% organic growth in the last 3 years and 4% in H1 this year. It's about bringing good technology into the market and being -- having that first-mover advantage. And this is a very exciting year for the sector with some portfolio refreshes in the products in certain areas. So we do see lots of opportunities and do expect the full year to still achieve sort of broadly mid-single-digit margin -- mid-single-digit organic growth with further margin improvements.

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

Two questions, please. First one on the U.S. aerospace aftermarket. Can you give us some commentary, please, on how that's been panning out? And any commentary on competition, et cetera, et cetera? And then the second question on CDM sounds very interesting. Can you give us an idea perhaps of when that might close in your view? And also, any thoughts, please, on bringing margin there up into the -- up into sort of into the 20s, perhaps matching group average? Those are my questions, please.

Yes. Thanks, Dan. U.S. aerospace, I mean, nothing has really changed from our recent update, if I'm honest with you. I guess, probably stating the blindingly obvious that the new build pipeline is still 10 to 15 years, whatever the number is today, significant. And of course, that then fosters a very healthy aftermarket repair business as well. And that hasn't really changed that much. From a competition perspective, we don't really see that having changed much either. The key to success in this environment, of course, is having the access to quality product to be able to service the growth within both the new build and the aftermarket business and Peerless is obviously well positioned for that. And Clarendon is doing increasingly well in that, too, as I said a minute ago as well. So there's not really any new news on that. The market still is vibrant. On the CDM question, yes, look, we're delighted with it. It's strategically -- I mean, I suppose, first of all, just to make sure everyone understands what it is, it's in our kind of interconnect space, which we already know very, very well from our IS Group businesses. CDM does a lot of servicing and cabling and harness distribution solutions. So very much what we know. Strategically, though, very important for IS Group as the first major platform into the U.S. We have some other business, but this is the first major platform for them into the U.S. And of course, strategically, the defence sector play is very important. I would say on that, from a defence perspective, historically, we've been mainly Europe and historically, we've been predominantly air defence. So CDM gives us U.S. and it also is more land than air. So it also balances us from that perspective, too. So we're very, very happy. We're happy with the team, fantastic team who've done a brilliant job, and they'll be staying with us. Just on the margins, yes, I mean, I think we alluded to it earlier, when your margins are at 25%, if we were to say to you, we're only going to buy businesses that are accretive to the group's margin, then we'd never do any deals. So you would expect margins in the acquisitions that we do will be slightly dilutive to the group's margin. And that's okay because we can still drive great shareholder value out of them. Of course, we'll be aiming, as we always do, to bring CDM's margins up. But the first priority for us will be great organic growth as it always is.

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

Could you first please maybe go into a bit more detail on the component performances within the Controls division. You saw double-digit growth from 4 of the businesses there, but would you call out any in particular that have seen further acceleration since the March update and has led to the upgraded guidance today? And then my second question is on the margin performance of Peerless. You mentioned previously the success you're having in transitioning Peerless customers from the spot market on to contracts at higher margins. Have you seen this trend continue? And could you give your thoughts on whether you think this has lifted the structural floor for group margins going forward?

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

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

Well, the first thing I'd say is that our upgrade isn't necessarily just because of one division. Our upgrade is group-wide. As Wilson alluded to, I just answered a little bit earlier in my script, we're feeling good about the forward momentum in Seals as well. So it's not just about controls. So that would be the first thing. The second thing is that, as I went through a bit earlier in my slide, there's broad-based performance within the controls sector. I'll come on to Peerless in a second. But Windy City is doing terrifically. IS Group have been growing organically at double digit as well as bringing on new acquisitions, Clarendon as well. So it's been fairly broad-based across all of the businesses within Controls. And of course, we're feeling good about it, as I said in the presentation because we've got great end market support, and we've got great teams executing on market share as well. So we expect great growth levels to continue. For them, it might not stay at 26%. I mean the laws of mathematics and lapping last year mean it might come off a little bit. But regardless of that, we're expecting great growth for them through the second half of this year and into next. You asked about margin performance in Peerless. Yes. So I won't talk about the market dynamics because I did that a second ago. But if you translate what I said into the margin, we're still seeing great margins. I suppose the way to think about it is over time, we're driving the spot MRO repair volumes by managing down a little bit the spot prices. So we'll probably see the spot side of the business margins come down a little bit, but growing our volume in that business. At the same time, we're winning new contract business at slightly higher margins. So there's a bit of a balance there. I'd say that we bought Peerless on a margin of around about 35-ish percent. It's obviously been a lot higher than that, 50% plus. I suppose over the long term, and don't get too excited about this in the short term. But over the long term, you kind of expect the current margin to moderate a little bit. but I'm still expecting it to settle at structurally a higher level than it was when we bought it. So the answer over the long term is probably somewhere in between.

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

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

On the defence side, look, I mean, I suppose my answer to that would be, I don't think we necessarily see a Middle East conflict start and then -- or a conflict of any description start and then a month or 2 later, direct demand consequences for defence. It doesn't really correlate quite as quickly as that. A lot of the defence work is on kind of longer-term contract basis. So what I would say, however, is over a number of years, of course, with the changing geopolitical framework and I guess, increased conflict around different locations, then, of course, yes, you start to see defence spend as a percentage of GDP increasing. And that, of course, then does pass through over time into defence spend. So I'd say it's more of a long-term burn than a short-term reaction. But of course, all of that being said, then yes, the defence business has definitely been picking up over the last year or 2, that's for sure. On the aerospace, as I said a minute ago, nothing has really changed from our point of view on the aerospace demand. The long-term dynamics of a pipeline of new contract builds has remained pretty consistent. Airbus, particularly and Boeing and others continue to deliver on that long-term pipeline. And at the same time, as I said, it delivers an MRO repair market as well. So I can't really say that there's been any change in that since we last updated. It remains just as buoyant as it was. But as I said a second ago, the key thing is, are you in the right place and doing the right things. If you have, as we do, great products, great teams with long-term relationships, then, of course, being in that supply chain and being the quality, reliable, trustworthy partner in that supply chain is the key important factor.

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

Thank you. I'll take this one. So we have a model that states that our cash conversion is 90%, and we hold true to that. We remain very disciplined with the way we manage the group and manage our growth. So in line with what we've talked about previously about capital recycling and ensuring that we're disciplined with regard to how we execute and very, very carefully add inventory, we believe that we can maintain that 90% cash conversion over the long term.

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

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

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

Yes. I mean, look, not a lot more than what I said in my presentation, but it's clearly going to be an exciting market to have to power the technology boom, predominantly in the U.S., but actually probably elsewhere as well. We have great products and services that are highly applicable into that space. And while it's not necessarily our only business, VSP has such a fantastic product and solution for high regulated high-risk environments, which they already provide in chemical and petroleum environments. So they're very, very well suited for these kind of environments. We started to make some penetration into that space. It's only a handful of millions at the moment. So it's nothing to get necessarily massively excited about, but we are putting a lot more capability behind it -- and I'd expect it to become a bigger part of VSP's portfolio and eventually to lead to other business opportunities for other products as well over time. It's clearly going to be a market that has some investment behind it to sustain the power requirements for the technology's future, and we'll be a big part of that.

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

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