Hello, welcome to the Diploma's Q3 and Acquisition Trading Update call. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen only. You will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Johnny Thomson, Chief Executive Officer, and Chris Davies, Chief Financial Officer, to begin today's conference. Thank you. Morning, everyone. Thanks for joining. I'm here as usual with our CFO, Chris Davies. We have two RNSs out today, one on our quarter three trading, and a second one on an exciting European fluid power acquisition to update you on. I'll say a few words now on both of those, and then, of course, we'll open up to questions as usual at the end. Starting with the Q3 trading, we've had another strong quarter. Year-to-date, organic growth is now 9%. Importantly, as we said at the half year, remaining volume-led, principally. As expected, the growth is still strong but moderated a little as competitors get a little tougher. All sectors are trading well. The underlying trends being similar to what we saw in the first half. Reported revenue growth year-to-date is now 21%, with a good 8% from acquisitions and still a 4% benefit from foreign exchange through the 9 months. Our operating margins have remained very, very good in the period again, driven by, as we talked about in the seminar a few days ago, the differentiated value-add business model, benefits of scale, some good management around price and costs, and of course, the support of some accretive acquisitions, too. That's all I want to say on the trading update for now. I'll come on to talking about Dixa, our new acquisition. We're delighted with it. Strategically important, market-leading European fluid power aftermarket distributor, for GBP 170 million. It's a very strong value-add proposition based on specialized products, broad range of product, technical expertise, speed to market. In many respects, similar to some of our other Seals businesses that we like, Hercules Aftermarket in the U.S., R&G in the U.K. We're pleased with that. It's got an impressive track record, organic compound, organic growth of 11% over many, many years, and margins above 20%. Strategically, it's important for us, it gets us into continental Europe, part of the white space that we showed you at the seminar a few weeks ago. Around 30% of Dixa's revenues are in Spain, followed by France, Germany, and across much of Europe. What this is really the quality business with small shares of very big markets, and therefore huge potential to keep growing at these historic rates. It ticks all the boxes that we look for. I'd say, first of all, it's an aftermarket business, which, as I mentioned earlier, is a model we like. You can see the quality of the value add in the strong margins, over 20%. It's got a great organic growth track record, a high caliber management team. We spent a lot of time with them, getting to know them. Our CEO, Daniel Carman, and his team, we've been really impressed. They're our kind of people, I would say, and we're delighted that they're all gonna be staying on with the business under our ownership. On top of that track record, you know, it's interesting to note that we see some synergies across the group on the basis of the Dixa acquisition. There's some revenue opportunities, particularly cross-selling some of R&G's products into Europe through Dixa's platform. That might be particularly seals and gaskets. We also see that Dixa has a small presence in the U.S. that we can leverage, obviously, our businesses, Louisville, et cetera, to help them accelerate their growth in the U.S., too. I think, you know, finally, there'll be a bit of cost synergy as well, with some product read across between R&G and Dixa. There'll be some nice synergies that we can see over the medium term as well. We believe. Well, you know, we've got a good deal here. We captured discipline. The purchase price is a multiple of 9 x 2023 EBITDA, which we think is a great value for a business that's gonna be accretive to our organic growth and margin. Of course, there'll be the synergies on top of that, which will help us, you know, accelerate to a faster 20% return on capital. In summary, it's a great acquisition for us, strategically accessing European markets, attractive fluid power markets, exciting growth track record in its own right, but with some opportunities to add to that with synergy. The last words on what the, all of this means, Q3 and Dixa, what it means for our outlook for this year. You know, obviously, we had another strong Q3 trading, which really just emphasizes our confidence in the guidance we gave you at the half year for the full year. The acquisition of Dixa covers our cost of capital, straight off the bat in year one, and we expect it to add around 5% to earnings in its first full year. Clearly, a little bit of that will be this year, and most of it will be into our next fiscal year. The balance sheet remains strong. We expect net debt to EBITDA of around 1 x at the year-end, assuming no other acquisitions. Returns will be strong and high again, probably around the 18% mark. The acquisition pipeline is active, but as you would expect, the bar is raised given the current environment, so we'll keep very disciplined. All in all, therefore, been a good three months trading. We've made a good strategic acquisition, and we're feeling very confident about the outcome for this year and our prospects to carry on, delivering quality compounding in the future. I'll take questions. Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We will now take our first question from Annelies Vermeulen at Morgan Stanley. Your line is open. Please go ahead. Good morning, Johnny and Chris, thank you for the update. I have two questions, please, both of them on the deal. Firstly, on that 11% organic CAGR over the last decade, you know, you talked a lot at the investor seminar about unlocking further growth potential from your acquisitions. Would you say that's the case here as well, you know, given some of those synergies that you've outlined? Or could it be more limited to that sort of, I think, 15% you gave at the seminar, given, you know, this is already a business of quite significant scale. Secondly, again, you've, you know, at the seminar you talked a lot about structural growth drivers for across the business, be it sustainability or infrastructure spend, automation, et cetera. How does this business that you've acquired fit into those themes, and how could it benefit from them? Thank you. Well, I'll take the last one first, if I can. I mean, I think the good thing, as we've seen with our other fluid power businesses, is that the end markets tend to be quite diverse. That has tended to make our fluid power businesses pretty resilient through cycles, which is great. On top of that, there is clearly some upside that we see from increasing infrastructure spend. We see that very clearly, of course, in the U.S., as a massive opportunity there. Sometimes we forget that there are significant initiatives in the U.K. and Europe on infrastructure investment, too, and I've no doubt that that will underpin great growth in DICSA as well. Your first question, I suppose let's start at the beginning and say, if this business, as we think it can do, continues to deliver 11% organic growth, we'll all be very, very happy indeed. That would be fantastic. As we're indicating, we think there's opportunity for us to add to that. I'm not going to sit here and give you a committed number as to what that might be, I think compounding double-digit growth in the foreseeable future is definitely something that we'll be aiming for. That's great. Thank you very much. Thank you, and we'll move on to our next question from Kean Marden at Jefferies. Your line is open. Please go ahead. Thank you. Morning, all. Just before I get to the acquisition, can I just check the inevitable Q3 organic revenue growth math? Obviously, there are dangers with the sort of trying to back out the third quarter due to rounding and others. With that math gets you to about 7%. Is that a sensible calculation, first of all? Then just looking at Dixa, so it's got an EBIT margin of 23%. I think I'm right in thinking that R&G's EBIT margin was sort of low teens, maybe mid-teens. Maybe you can help us understand the reason for the differential between the two. Secondly, Sorry, finally, on Dixa, if you get to looking at the sort of the ROACE calculations, my initial math, and apologies because there's quite a lot on this morning. I think your EBIT from Dixa might need to increase to about GBP 55 million to get to a 20% ROACE, unless there's anything you're doing with the denominator there, which looks quite a step up from sort of the GBP 20 million the business delivered in December 2022. Just helping me understand the math on that, and if it is gonna grow that rapidly, you know, what the drivers are to support that, please? Shall I take one and three? Yes, go for it, Kean. Yeah, look, it is hard to back out Q3. It's closer to six than seven. You know, it's pretty high 5s to low 6s. ROACE, I saw your note. Look, year 1 is higher, then you've got it. It's double digit off the bat. I understand your question, that obviously we are driving to get to 20. You know, the number is the number, but this is a business. When you do the math on the compounding, the double digits, it does grow quite heavily. There are synergies that we will deliver elsewhere, e.g., in R&G, that would, you know, frankly be counted as part of that. I'm not going to give you years to 20% ROACE, but we can see it. It's, you know, it's not a million years away. This business can grow rapidly. Maybe, to help with that bridge, Do you have an insight into what it's tracking to deliver for December 2023? I think you've given us the December 2022 numbers in the statement. That might help us understand the bridge a bit better. Yeah. I'm not going to give that out at the moment. It's you kind of infer it actually, Kean, from the notes. Yeah. 23 profit growth is decent. It's kind of mid-single digits. What you've got there is there's a little bit of upfront investment, like for like profit growth would be, you know, much stronger than that. This isn't about the first year, though. This, you know, you think about the compounding model as thing accelerates, like Windy City, like any of our acquisitions. I'm not sure I recognize the GBP 55 million number, Kean, you know, what I would say is that our typical acquisitions would get to our kind of more strategic acquisitions, let's say, would typically get to returns in the kind of 3%- 5% range. I think what we're saying here is that with the synergies, we can expect that to be closer to 3% than to 5%. Okay. I'll follow up on those. Then just the reason between the margin difference between R&G and Dixa? Yeah, I mean, there's a slight difference in the, at the moment, in the, in the route to market, in as much as Dixa is a bit more, a bit more like our, U.S., Aftermarket business, Hercules, with a kind of, platform out of Zaragoza that kind of feeds the market in from Spain and France. R&G is a bit less mature and is still building, with smaller businesses around the country, which over time we will be able to bring together. Therefore, when we bought R&G, the margins, as you said, were around 15%. They're already significantly higher than that after one year and will continue to grow. I think what you're really identifying is the opportunity within R&G to expand the margin. Yeah, absolutely. Okay. Thanks very much, guys. Cheers. Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll move on to our next question from David Brockton at Numis. Your line is open. Please go ahead. Good morning. Two questions, please. Firstly, I just wondered if you could talk about the process to buy Dixa, how competitive was it, and how important was the sort of the Diploma proposition to them? The second question, just picking up on that last question about the sort of the platform that the business offers here. Can you just touch on how well invested you feel that platform is? Yeah Room for growth that it still offers? Thanks. Room for growth. Sorry, David, can you just ask that last bit again? I missed that. Room for growth. Well, just, yeah, how much before you would need to sort of further invest in the platform? Yeah You know, to deliver the growth opportunity? Yeah. Thanks. Okay, no, okay, fine. I mean, I'll take them in order. I mean, process-wise, look, it's a family business. We've known of it and tracked it for many years. In fact, I'm aware that before my time, there was a few conversations between us some years ago, so it's been kind of on the radar. The family, for various personal reasons, no longer directly involved in running the business and with a few other personal interests they want to pursue, have decided that this was a great time. They have run a competitive process. You know, I don't know everything about the others involved, of course, but aware of the fact that it was principally private equity, as is normally the case with us. What I can say, regardless of pricing, et cetera, is that, you know, we very, very quickly formed a very, very close bond with them. You know, I'm fairly familiar with Latin environments and with Spain, as is Chris Davies, and our CEO of International Seals of the seminar, Alessandro Lala, Italian, not the same thing, is it? You know, we've been able to build quite a bond with them, and clearly there's some read across which they can see as opportunity, as well as us. We're very, very happy with the relationship that we've built, and we think it's gonna be a great partnership. In terms of the platform, it's fairly well invested. I mean, they've got, you know, they've got a facility in Zaragoza, in Spain, which basically distributes direct across Spain and France. They've got some small facilities in Germany and Italy, which help them with other European markets. I think it's... They've got very good technology. Their technology is actually an attractive part of the proposition as far as we're concerned, both e-commerce and logistics technology, which we really, really like. They have put quite a bit of money into it, and we certainly don't see in the short to medium term any significant capital obligations as a result of doing this. I think what will happen is that, you know, we'll probably end up putting a bit of investment behind accelerating growth, behind some of the synergies I was talking about. You know, making sure we can access markets like Germany a little better, for example, making sure we can put a bit of sales resource behind how they accelerate in North America, for example. You know, some resource to support the cross-selling between R&G and Dixa, for example. I think there's some great opportunities for us to just put a bit of selective investment in to realize, to realize the potential here. As I said, a little earlier on with Kean's question, you know, I really feel that this is one that, you know, for different reasons, like Windy City, we can see accelerated return on capital. Thank you very much. Thank you. We'll move on to our next question from Ben Wild at Deutsche Bank. Your line is open. Please go ahead. Good morning, Johnny and Chris. Thanks for taking my questions. Two from me. Just firstly, on the integration process of this business, clearly you're talking about synergies, which I don't think you've done before, in your time at the company during previous M&A or acquisitions. What does the integration process here look like? Is it different to previous deals that you've done? Secondly, on the capacity for further deals, obviously, the balance sheet is in great shape, but connected to the first question, you spent a lot of time at a seminar talking about the disciplined approach to the compounding model. How do you think about management capacity for further M&A going forward, and allied to that with the pipeline? Maybe I'll leave it there and follow up if there's any scope to. Management capacity. Okay, well, look, the first one on integration. At this kind of strategic level, this is more of like a platform for us. You know, you saw the white space chart at the seminar. We don't have anything really in continental Europe, so this is a platform for us. Of course, there's the usual bringing them into our financial systems. Outside of that, there isn't any heavy integration. Where I was just talking in the last question about, was actually putting a bit of resource into helping them accelerate in some countries or in some spaces where we think we can help. That's not really integration, that's about driving cross-selling opportunity. Actually, you're right, in as much as it's not been necessarily a material part of acquisition strategy that we've signaled in the past. As we said at the seminar, that doesn't mean we're not doing cross-selling in the businesses we buy. I mean, we talked in the seminar about VSP, for example, which is a relatively recent acquisition, and we're cross-selling seals and hoses and other things into that. We are doing it. It's just that, I guess, and we're highlighting that in this case, there could be a fairly significant upside. The point on management capacity, again, you know, there isn't heavy integration. Of course, this will consume quite a bit of time for our International CEO Alessandro Lala. You know, we feel there's plenty of bandwidth for him to be able to focus on that, along with his team within the sector. He has no other acquisitions ongoing. As we said at the seminar, we're very careful about the acquisition pipeline and very happy that the pipeline is a healthy spread across geography and sector, because it allows us, therefore, to make sure that there is no undue strain on any one part of the business. Therefore, you know, quite obviously, you wouldn't expect us to be doing another big international CEO acquisition anytime soon for that very reason. So we feel pretty comfortable from a management bandwidth perspective. If you think about it, you know, it's a long answer, but if you think about it, the only other strategic acquisition we've done this year, TIE and Automation, very different part of the group in the U.S., in controls under David Goode, very different, very different area of the group. Of course, we consider it, but we're not worried about it. Great. Maybe just to follow up, is there scope for this business to replicate the R&G bolt-on model that business has been so successful driving? Is there any history of that kind of process in Dixa's past? No, Dixa's development has been all organic, which is part of the appeal. I wouldn't say that there's no zero potential for bolt-ons into Dixa. I think first and foremost, given the platform that they've established, I can see that they can access the markets organically. Therefore, while the R&G model is very, very attractive, it's three or four times multiples, accessing these markets with a little bit of sales investments, infrastructure investment will be even more attractive, I would suggest. I don't think it's either or, I think in this case it will be predominantly organic. Okay, thank you very much. Thank you. We'll take our next question from James Rose at Barclays. Your line is open. Please go ahead. Hi there. Good morning. I've got three, please. First, could you share with us how Windy City Wire has performed during the quarter? Second, on the acquisition, can you give us an idea of the mix of the customer base, please? Lastly, I mean, on the website, Dixa talked about manufacturing capabilities, technical and commercial assessments, quality management systems. Could you sort of bring to life what it sort of value add beyond normal distribution dinosaurs? Thank you. Okay, I'll let Chris talk about Dixa's customers and value add in a second. I'll just answer on, you know, Windy City. I mean, Windy City has had another good quarter. I mean, I think as we indicated at the half year, you know, the volumes, the volume growth has moderated during the course of the last 12 months for all the reasons you would expect, and principally driven by incredibly strong competitors. Volumes moderated, still positive, but moderated. However, their profitability and profit growth is still very, very strong and a big contributor to our performance with excellent margins. It's been another very, very good quarter. We're very pleased with how it's progressing. Dixa, I mean, they've got a very, very large customer base, as you might imagine. There's about 4,500 customers. They split broadly into little distributors, kind of like the people that R&G feed, and then repair shops, kind of like the people that Hercules Aftermarket feed. Slightly different proportion in different markets, but the biggest customers, kind of, the top 15 is 8%. You've got no customer concentration, and you've got the types of, you know, the types of customers we feed in R&G and Hercules. In terms of I do think you're right. If you look on their website, they do talk quite a bit about manufacture. They've got a bit of light assembly and manufacture as part of their value add. They do make custom stainless steel fittings, which are very high quality, and then they do some assembly, which is hoses with those fittings. They have, some sort of patented drawings that they, you know, they then outsource the manufacture of. It is very much in the same way as a Windy City Wire or some of our other businesses. It's light manufacturer to guide and drive the value add of a distribution model. Thanks very much. Thank you. We'll take our next question from Oscar Val at JP Morgan. Your line is open. Please go ahead. Morning, Johnny Thomson and Chris Davies. A lot of my questions have been asked. Just one from my side. Can we talk about, I guess Q3 organic by division? You've given some color on Windy City Wire. Can you just touch on life sciences and seals? Are they growing in line with that 6%-ish that you talked about Q3 at a group level, or below or above that? Thank you. Yeah, I mean, I think, as I said in the, at the top of the call, you know, broadly speaking, the trends are quite similar to what we saw and what we talked about at the half year. You know, if I can give you the balance around the portfolio, I suppose the OEM destocking that we talked about at the half year is still happening. You know, it just moderated some of our growth rates in those OEM businesses in the U.S. and Europe, particularly in seals. You probably see seals is a bit below that 6% average at the moment. On the flip side, you know, as we know, this is a very resilient revenue resilient business, increasingly so. On the flip side, your life sciences is doing very well. Had a strong quarter and prospects for another strong quarter in quarter 4. It may be a bit lumpy over the short to medium term, but it's definitely picked up over the last quarter and into next quarter. Life sciences is now acting as we hoped as a good support. On top of that, on the control side, I've talked about Windy City doing well, but more broadly across controls, we've got some very good tailwinds still supporting us in things like energy, defense, aerospace, et cetera, et cetera. The new acquisitions in controls doing well as well. The controls sector is very, very good too, so they would probably be slightly above the average. I mean, that just gives you a bit more color. Not that different from what we saw at the half year. Same kinds of trends. Great. Thanks a lot. Thank you. There are no further questions in queue. I will now hand it back to Johnny Thomson for closing remarks. Thank you. Yeah, we're very pleased with the quarter. We're very pleased with the way we're trading. We're extremely happy with Dixa. We think it's a quality business right in the sweet spot in our aftermarket fluid power space, accessing Europe as we wanted to. Overall, we think we're progressing well, and we're very positive about the full year performance, and excited about our prospects, and we thank you very much for joining the call.