Hello and welcome to the Diploma Conference 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. However, 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, to begin today's conference. Thank you. Good morning. Thank you, everyone, for joining us. Chris and I are here in New York, and we're delighted to announce the acquisition of Peerless, which is a U.S.-based, family-owned specialty fastener business that we've acquired for $300 million. Of course, subject, as we say in the RNS, to regulatory approval that we would expect over the course of the next month or so. Peerless is a distributor delivering quality specialty fasteners with value-add solutions. It does so predominantly into civil aerospace airframes, and that can be either new builds or, indeed, into the maintenance and repair markets. Its customers are generally 80 or so Tier 1 and Tier 2 subcontractors across all of the major OEMs. Most of the business is U.S., but they do also have an established presence in continents [inaudible] Europe. We know well. England does specialty fasteners into aerospace too, but solely into interiors, so it's very complementary. It's a business that we know well too. We've been tracking for a long time, with very good relationships with the management team. Peerless has a long track record of exceptional performance delivery, which is basically on two things. Firstly, value-add products and services. It's a quality product. It's a technical service. They have breadth of inventory and speed to market, so it's our kind of business, really. They hold a critical spot in the aerospace value chain, the reputation for quality, which, of course, drives loyalty, pricing power, and very strong 30% margins. The second thing about their performance is the strong growth track record. Of course, they have structurally growing end markets, but they also have a quality proposition, as I've just been saying, winning market share, and that's sustained 9% organic growth. We're really excited about the strategic fit, and the opportunity to sustain that growth level in the future. As in any growth bucket, markets, geography, and product, I mean, first of all, we know the end markets well. It has very strong, sound structural growth dynamics around increasing passenger numbers, a very big backlog of manufactured aircraft delivery. It has supply constraints which drive an MRO market too, so there's a good tailwind from the end markets. And secondly, it hits on our core geographic priorities too, the U.S., of course, but also to Europe. And then finally, the product adjacency, that I've just mentioned earlier, which increases our addressable market too. Specifically, when we look about how we will grow it, there's lots more to go for in terms of penetrating into the U.S. with further market share gains. They're only just getting started, really, in Europe, so there's more to go for there. Relative to Clarendon, Peerless has quite a small MRO presence, and we'd look to expand that. And finally, I'd say, we have lots of opportunity too for synergies between Peerless and Clarendon, on both continents and in both directions. So we're very confident that there's lots of opportunity for sustaining that good growth rate. It's a very good cultural fit with Diploma. Family run for many, many, many years, but the family have been silent for, for a long, long time now, and it's been run by Bill Wei and Dan Russo for 30 or so years. We're delighted that they're gonna stay on with the business for at least the next 3.5 years. It really feels to us like a proper Diploma type of business. And finally, the financials. You're looking at it through our sustainable quality compounding lens. We look at these things from a perspective of ambition and underpinned by discipline. And from an ambition perspective, as I said, we believe there's real sustainable 9% organic growth here and at strong margins, 30%+. The year one EPS accretion on this deal in the first 12 months is 8%. And from a discipline perspective, the return on capital in year one will be 15%, so well in excess of our cost of capital. It leaves us in a sensible leverage position, and therefore, we can carry on with our bolt-on strategy. Yeah. We have a long track record now for delivering on acquisitions with great growth and great returns, and I have absolutely no doubt that Peerless will enhance that record. With that, I'll hand back for 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'll take our first question from Annelies Vermeulen with Morgan Stanley. Your line is open. Please go ahead. Hi. Good morning, Johnny and Chris. I have three questions, please. Regarding the 9% organic growth, it sounds like we should expect a similar level going forward. Diploma has a strong track record in terms of unlocking additional organic growth from the businesses you acquire, so I'm wondering if that's the case here as well and how should we think about that organic opportunity going forward. You've obviously mentioned cross-selling, etc., so I'm assuming it will also lift growth in the Clarendon business. Any comments you can give there would be helpful. Secondly, given Peerless supplies to all the leading OEM subcontractors, I'm assuming that includes supplying fasteners to Boeing as well. Given the headlines surrounding Boeing at the moment, how should we think about Peerless and their position in Boeing's value chain, and are there any risks or other considerations we should take into account there? And then lastly, just a quick one, I think you've mentioned the business is mostly U.S., if you've got a s plit of the mix of U.S. and European revenues or profits, that would be helpful. Thank you. Okay. Lots of questions there, Annelies. Thank you for that. I'll take one on, on Boeing and, and on growth. And Chris, maybe you can do something on US and Europe if that's okay. Yeah, in terms of the, the Boeing question, of course, you know, as you know, you know, obviously, that was the first thing for us to get comfortable with in the due diligence process. I mean, I've just stated very clearly and categorically there's no implications on, on Peerless from what's going on in the headlines around, around Boeing. Peerless is renowned for its quality products, and, of course, has nothing to do with any, maintenance or service-related, issues that, that may be ongoing. I'd also say that, the business is pretty well diversified. I mean, we have 80 subcontractors, across all of the, the OEMs. And so, we feel like we're quite well diversified, but also, with regard to Boeing specifically, with these kind of backlogs, I do feel that no one can really afford for Boeing to fail. So, of course, there's some short-term focus on Boeing, but we believe that the fundamentals of the markets and, indeed, all of the OEMs are very strong. In terms of growth rates, look, you know, they've done brilliantly with 9% organic growth. I hope you can tell that, you know, there's lots of reasons why we believe that that can continue. Who knows? Can we do a bit better? That would be crazy to promise, but we're, we feel pretty excited. As I said earlier, there's lots of opportunity to penetrate further in the U.S. I mean, Peerless is obviously on the East Coast. Our existing business with Clarendon is on the West. And it's not all about geography, but that does generate some customer opportunities. There's much more for us to go for in Europe. Let Chris talk about that in a second. And as I said also, the MRO market is something which Peerless doesn't do as much as we do in Clarendon, so I think there's some opportunity there. Of course, there's gonna be synergies in this deal. I like to think of them as the icing on the cake as opposed to the fundamentals of Peerless's success. But it's really quite exciting because, of course, they're very similar but completely adjacent product ranges, and that opens up all sorts of opportunities with existing customers in, as I said, in U.S. and Europe and synergies going in both directions. So we hope that at least underpins the 9% growth for the future. Yeah. And in terms of the geographic split, I mean, it's currently, broadly speaking, 60% US, 25% Europe, and 15% international. And as Johnny said, that Europe piece, in particular, we've got opportunities to widen the product offer to OEMs in Europe, to Peerless customers, but also to our existing customers in France, U.K., Italy, Germany with products that we just can't supply to them at the moment. So you know, opportunities to broaden that European footprint. That's very helpful. Thank you both for the detail. Thank you. We'll now move on to our next question from Kean Marden with Jefferies. Your line is open. Please go ahead. Thanks. Morning, all. I've got quite a few as well. Can I kick off just, first of all, with the route to the 15% [inaudible], please? I don't know whether you're anticipating the EBIT margin to move further ahead from here. It sort of feels like a pretty good margin, and comparable to, if some of the margins of the better quality businesses that you've bought, more recently. If revenue is sort of doing the heavy lifting here, you know, it looks like revenue needs to increase by about 35%, over the next two years to get you to an EBIT number of about $45 million and hit that 15% target, unless there's anything you can do on the denominator and particularly the inventory turn. First question, just trying to help, with those moving parts, please. Do you want to go? Yeah. Yeah. I mean, the simplest, the quickest answer, Kean, is, straight off the bat, you've got the inverse of the 7x multiple paid, which, you know, broadly, is your answer. Your EBIT number is there or thereabouts, right? Maybe a bit choppy, but, I mean, it really is the inverse of the 7x multiple. There's more to it than that. But that's the simplest way of thinking about this. Yeah. I'm sorry. I guess my question is, is a business that did $33.5 in September 2023, yeah, going to $45 over two years, so 9% revenue growth wouldn't get you there? I don't think you need to get to 45 to get 15% royalty. I mean, we can take it offline if you like. It's not a million, your number's not a million miles out. But if this business continues exactly at the track record that we put in the release, so 9% growth with those margins, you get there reasonably comfortably. Well, we'll pick it up afterwards, Kean. Okay. No problem. Then, just wondering whether there's an RNS or anything deferred, on top of the initial consideration for this transaction. Yeah. There's some deferred consideration out of the $300 million or so, about 3.5%. Exactly 3.5% has been deferred for 3.5 years, by Bill and Don, for them to retain skin in the game. Is that on top of the 300, Johnny, or, or is that part of the 300? No. That's, that's within the 300. Yeah. Okay. Thank you very much. And then a couple of quick ones. Would you mind giving an insight into the civil-military split here? So I was interested in spotting the DoD relationship, and whether that adds something to the broader Diploma group. And then just looking at their website, they seem to have, like, a kitting offer, which is quite bespoke, which reminded me a little bit of Windy City. I was just wondering if there was any knowledge overlap that you could exploit there between the two businesses. Do you wanna pick up on civil and defense, Chris? Yeah. Yeah. I mean, it's, it's about, it's pushing 75/25 at the moment, so that, you know, clearly higher into civil. The defense piece gives a nice, nice underpin of credentials. I mean, clearly, the, you know, the level of certification and quality control you've got to get to sort of anchor those is quite a useful, quite a useful cert, to use with the civil guys as well. But about 75/25 at the moment. It was interesting also you picked up Windy City there. I, I don't think there's anything necessarily from a kind of, you know, complementary cross-selling synergistic, perspective. But, but again, it is a model that's not completely dissimilar, in many respects. And indeed, the financials are not completely dissimilar either. You know, you have a quality you have a quality product, breadth of inventory, speed to market, technical service, etc. I mean, you know, between, this business, you know, the likes of Windy City, the likes of Hercules aftermarket, they're quite consistent with businesses that we know and love. Great stuff. Understood. Chris, if I can grab you on the financials, post this, that'd be really helpful. Yeah. No problem. Thank you. Thank you. We'll now take our next question from James Bayliss with Berenberg. Your line is open. Please go ahead. Morning, both. Yeah. A few of my questions are already answered. So, just kind of honing in on one. If we think about seven times EBIT in the context of those fundamentals for Peerless, it almost feels too good to be true. I'm not saying that's a bad thing, obviously, but can you just give us a bit more color on how the deal came about? You mentioned you've had a relationship there. And who else was in competition for the asset, if anyone? Thanks. Yeah. Thank you very much. It was a competitive process. And as usual, James, and we've said this before, we were not necessarily the top bidder from a price perspective. But we do believe, and we've talked about this before, we do believe that we have a good competitive advantage, particularly against private equity when it comes to being a great home for people, especially family-owned businesses. We're long-term holders that invest, that preserve the heritage but invest and develop the business. In this particular case, as I said earlier, we have a strong relationship with the team. And of course, like us, they also recognize the potential that we have, working together here. So, I think we were a very good home for Peerless, which, of course, helps. I think the final thing to say, and we've talked about this, we believe very, very strongly in the you know, the quality compounding space, that discipline on acquisitions is fundamentally you know, is critical. And therefore, you know, we manage our returns on these deals very, very closely. And for that reason, you know, we've ended up with the financials that you mentioned. Great. Thanks very much. Thank you. We'll now move on to our next question from David McCann with Deutsche Numis. Your line is open, David. Please go ahead. Good morning. Two from me, please. First one just on sort of lead times and backlog. Is this a business where you've got a degree of visibility as to sort of the immediate term? And obviously, the sort of civil markets benefited from a strong recovery post-COVID. Just wondered if you could just touch on that and sort of the level of comfort you've got around the backlog looking forwards. And then the second question, [inaudible] just up on that investment point, you know, given that Diploma does like to sort of invest behind businesses that it buys, can you just touch on sort of any areas that you can help them, obviously, over and beyond the sort of the Clarendon cross-sell point to invest in and further scale the business? Thanks. Yeah. Okay. I mean, I'll take the second one first. This is a well, well-run business, you know, so I don't sit here and with a list of things that we're gonna have to fix or we're gonna have to immediately invest in. I mean, over time, of course, with the management team, with Bill and Dan, we'll be talking about and looking about, at how we might invest, whether that's, and that, you know, that's most likely to be resources to keep, sustaining the performance that we've talked about. But in the short term, we don't believe that there's anything that we need to do to, to invest immediately or to fix. In terms of the backlog, David, yeah, it is a business that's got some visibility for obvious reasons. As you would expect, we've looked at that very closely, and we feel very optimistic about the way that they're trading today and the order books that they have ahead of them. Okay. Thank you. Thank you. We'll take our next question from Sam Dindol with Stifel. Your line is open. Please go ahead. Yeah. Morning, guys. Congratulations on the deal. A couple of questions from me, please. Firstly, on the margin, which is obviously very impressive, can you give us a sense of how that's progressed over the last five years, and do you think there's more sort of offering leverage to come as you deliver good organic growth? And then secondly, on the cross-selling opportunity. I appreciate you've got to get your hands on the business, etc., but is that something you'd look to sort of start doing in sort of 6-12 months, or, or any color on that would be, would be great. Thank you. Yeah. Well, I think that would Chris, maybe if you can pick up on the margin point. Yeah, look, I mean, I find I think that, you know, it's quite easy to get excited about the synergistic opportunities that we have. I would just say, first off, though, that the, you know, the core opportunity here is in continuing to drive the core Peerless business. And that's the way we have to look at this, sort of first and foremost, the market share potential in the U.S., the European platform that they're establishing, and, you know, and potentially some MRO opportunity too. So I would really think about it first and foremost as those being the underpin of growth. But of course, yes, we are excited about the synergy. We haven't yet put the teams together for obvious confidentiality and process reasons. But we expect that over the coming months, once the dust has settled, we'll start to do that. Might you see some benefits coming through over a 6-12-month period? Potentially, but I certainly wouldn't be quantifying them or suggesting that they'll, they'll be material that quickly. I would think that over the next three years, then they'll start to become a little bit more meaningful. Yeah. And in terms of the margin, I mean, it's, you know, it's been a strong, you know, in the mid- to high-20s%, into the 30s%, back to mid- to high-20s%, you know, in that kind of area over the long term, if you sort of look back over the last 5 to 10. Some of that, as you rightly say, is operating leverage as the business has grown. Some of that is the benefit of gross margin accretion through sort of better business mix. But just like Johnny's answer there, I certainly wouldn't be banking on, you know, any rapid improvement to that. We're quite comfortable with that where it is for now. Brilliant. Thank you very much. Thank you. We'll now move on to our next question from Daniel Cohen with HSBC. Your line is open. Please go ahead. Morning, Johnny. I've got some questions. First one, on the MRO versus new build mix. Can you give us an idea of what that is currently at Peerless and what that might be at Clarendon? Just to get a sense of the direction of travel there, please. And just, coming back to the question of investment, how are you getting a sense this is a pretty well-invested business that you've bought, from your comments? Is this a bit like Windy City Wire, you know, it was coming off, or this is coming off a sort of investment cycle of its own? And you're sort of buying it at quite an opportune moment with regard to that investment phase? Those are my two questions, please. Well, I mean, you know, I just don't think we should try and draw those comparisons to Windy City. Completely different business, completely different moment. I don't see it in the same light in terms of where it is in its investment cycle. It's probably not a business that has quite the same investment needs that Windy City has had. And therefore, as I said earlier, we haven't sat here with, you know, them having made many millions of investment over the last few years. And I don't think we'll be in a position of having to do that with Peerless over the next few years, either. I think the investment that we'll make will be incremental into resources to support Bill and Dan to continue to grow and drive the business. So I don't think it's in any way related to Windy City's situation. Chris, do you wanna pick up on MRO? Yeah. Sure. I mean, it's not a question we can answer with utter precision, as some of the business goes through subcontractors. And you know, it's not exactly sure the exactly where that gets to. But, Clarendon is more MRO-focused, and Peerless is materially more OEM-focused. And stretching those back to a sort of median both directions is indeed part of the synergy opportunity over time. Okay. Well done. Thanks, James. All the best. Thank you. Thanks, John. Ladies and gentlemen, once again, as a reminder, if you would like to ask a question, please press star 1 and your telephone keypad. Thank you. We'll now move on to our next question from James Rose with Barclays. Your line is open. Please go ahead. Hi. Good morning. I've got three, please. First, to be on margins. Yeah. 30% really, really strong margin for a distribution business. Can you sort of talk through what is the core value to customers which gets presumably gross margin high enough to support that? And does the business have some of its own sort of manufacturing or, or bespoke, capabilities? Secondly, could you even walk us through the last three years of trading? And there's been quite a few movements sort of post-COVID, you know, supply chain constraints and inflation. How has the business fared, organically during that period? And then thirdly as well, if Don and Bill were on the call, what would you say you know, how would they describe the reasons for Peerless being so strong versus its peers over the many decades? Yeah. Okay. Well, thank you for those, James. I'll take that last one. Chris, maybe if you can pick up on margins and trading. If Dan and Bill were here on the call, we went through there with some last night. As I said a bit earlier, absolutely, our kind of people I think, you know, the focus that they have on quality and on customer service, much like the rest of our businesses, it is intense. And this is a market and a business where quality, you know, is rewarded, and being able to deliver a quality, especially given current situations, but B, in a kind of supply-constrained type of, you know, with delays and deliveries, that the breadth of product and the speed to market is a real value driver for them, as well. So I think that value-add proposition puts them in a really strong position in the civil aerospace value chain. And that's what drives their performance. Chris? Yep. And, you know, a great question on the last two or three years. And I guess behind your question, kind of, you know, COVID, it's really important here to differentiate between an airline and the, you know, a value-add distributor of fasteners into subcontractors into the airline industry. You know, when planes were grounded, MRO continued. When planes were grounded, the backlog was worked through. And if I look through their kind of progression from 2019, 2020, 2021, you know, those troublesome years we all remember, you know, revenue was pretty, pretty resilient. So, you know, the you've got a teeny dip in 2020 in the back end of 2020, but, you know, very, very, very small. And we liked that as a signal of, you know, backwards-looking factual resilience that, you know, we would expect to see, going forwards. In terms of, you know, what it is they do to, to support those margins, I mean, this is I feel like Johnny's been saying throughout this, it's very much like a very Diploma model here. So you've got you've got the OEM producers of these highly specialized components who need to have a large manufacturing run, for their, you know, efficiencies. There's a backlog on a lot of the materials. These are you, you know, so you've got a supply side that wants to produce in bulk. You've got a, sort of 80 or so Tier 1 to subcontractors who want to be buying exactly what they need when they need and to one of the first questions, would like that kitted. So if you're building an airplane, your bill of materials is thousands and thousands and thousands long, you know, there can be up to, you know, $1 million and 1 million units worth of fasteners on a plane. And somebody wants to outsource that problem. Go find me what I need when I need it, you know, up to and including, VMI solutions that these guys do. And that, you know, managing that interface is, is the core to the value add. No, I'm just to complement that. I I mean, there's no manufacturing or anything in this business. So, you know, it's not a manufactured margin. You know, I would just complement what Chris has said by saying that, yes, of course, 30% is a very healthy and respectable margin, but, you know, we do have other businesses in Diploma that have something similar. So it's not entirely unusual for us in models with such a strong value proposition as this one. Okay. Thanks very much. Thank you. As a final reminder, if you would like to ask a question, please press star one and your telephone keypad. Thank you. I see there are no further questions in queue. Thank you all for joining today's call. Stay safe. You may now disconnect.