Diploma PLC
Q3 Trading Update 2026
16th July 2026
Transcript
Disclaimer
This transcript is derived from a recording of the event. Every possible effort
has been made to transcribe accurately. However, neither Diploma PLC nor
BRR Media Limited shall be liable for any inaccuracies, errors, or omissions.
Johnny Thomson:
Good morning, everyone. Thanks for joining us. I'm here as usual
with our CFO Wilson Ng. I'll say a few words on quarter three and
then we'll move as usual to Q&A. It's been another great quarter
for us, 15% organic growth continuing the momentum from the
first half of the year. The sector trends are broadly the same as
they were in the first half. Controls, very strong, broad-based
growth. IS Group, Clarendon, Peerless, Windy, still growing
double digits, taking good market share in fast growing end
markets. Life Sciences, conversely, markets are tougher. We're
going through a little bit of product lifecycle refresh. I'm really,
really pleased with what we're doing in life sciences, what the
team are doing, but we will expect low single digit growth for the
year. Seals, we've seen some acceleration in quarter three. We're
expecting a good quarter for two, not celebrating. International
is a bit better, but and North American seals still doing very well.
So look, overall, we're really happy with the quality, with the
performance of the portfolio. Peerless continues to perform
fantastically, taking share in really good market conditions.
Growth is moderating in the second half as we expected against
very big comps. And that will continue to moderate into next
year until we return to the track record of high single digit 10-ish
percent growth. We're managing margin down modestly and
we'll continue to see good profit growth going forward. Very,
very pleased with the rest of the portfolio. Organic growth now
up at 10% for the year, excluding Peerless. We've spoke in May
about CDM, an acquisition we've now completed. $170 million
deal, $80 odd million of revenue. It's a great interconnect
business for us platform for them in the US and attractive
exposure to the US defence markets. It's got a great team and
they're settling in well.
We did five deals actually in quarter three, although they were all
announced at a half year in May and that makes 15 new
businesses in the last 12 months, a record number actually for us.
Deals of course won't always be linear, but our pipeline is strong,
diversified, and we've got plenty of balance sheet capacity. Just
a few words on the full year outlook. We're increasing guidance
as you can see a further 7% upgrade. Organic growth guidance
increased to 14%. No change to acquisition guidance at 6%.
Margins up to 26.5%. And altogether that represents 7%
upgrades to profit growth for the year of a little over 40%. So
overall, we're in very good shape. Momentum's encouraging
loads of opportunity ahead. The mood is buzzing. We're feeling
good about continuing successful long-term track records of
sustainable quality compounding. And with that, I'll hand back
four questions.
Operator:
And thank you very much, Mr. Thomson. Ladies and gentlemen, if
you'd like to ask a question, please press star one on your
telephone keypad and just make sure that your line is unmuted
to allow the signal to reach your equipment. That's star one for
questions. Our very first question this morning is coming from
Annelies calling from Morgan Stanley. Please go ahead.
Annelies Vermeulen: Morning, Johnny. Morning, Wilson. Thank you for the update. I
have two questions please. So firstly, you've upgraded guidance
yet again for full year 26, but could you comment a little bit on
what this means for full year 27 as we start to approach the year
end? And then secondly, related, given where you're running at
now in terms of growth and margins, could we possibly expect
an update to your medium term financial models when you
report in November? Thank you.
Johnny Thomson:
Great Annalise. Thank you for that. I mean, I'll try to take all of
those in one go if I can. I suppose you're asking about a change
in financial model. You made a comment about upgrades and
looking forward into next year. So I'll try and take them all
together if I can. First of all, on the financial model, look, as I've
said before, if we can deliver our financial model forever, it'll
drive incredible shareholder returns over the long term. Of
course, we've got the ambition to beat it, but I think it's healthy
for us to stay grounded. It's not get too greedy. And I see
absolutely no reason therefore to upgrade our financial model.
On the upgrades, I think we've had too many this year, if I'm
honest. Part of that is because it's been a much, much bigger
year way, way, way beyond our track record.
Secondly, a bit because the circumstances earlier in the year
with a war kicking off in the Middle East, et cetera, we were just
a bit cautious about the journeys through our upgrading. So I
would say that I wouldn't get used to please this level of
upgrading as we go forward. And the last point you asked about
was guidance for next year. We don't normally guide at this
point. We'll obviously be a bit more specific when we get to
November. But as I was saying, just a few words on it, this is not
a normal year for us. We're not going to be delivering 45% EPS
growth, that kind of mid 20% return on capital every single year,
are we? Obviously. And we won't be doing 15% organic growth
every year either, particularly as I said, as Peerless just
moderates a fraction over the months ahead.
Having said all that, we've got many decades of great
compounding. We're feeling really good about our prospects.
We're confident in our ability to keep compounding from this
base. So practically speaking, as usual, you should expect that
we'll revert back towards our financial model for next year, which
is broadly where market consensus is right now.
Annelies Vermeulen: Perfect. Thank you, Johnny. And yeah, too many upgrades, at
least that's a quality problem in this market.
Operator:
Thank you very much, ma'am. Our next question will be coming
from David Brockton of Deutsche Numis. Please go ahead. Elian
is open.
David Brockton:
Thank you very much. Good morning. Can I ask a question on
Peerless, please? You described how the business is lapping
tougher comps and you're managing the margin down modestly.
Can you give an update on the demand trends you're still seeing
in that business today? And is that sort of margin moderation
deliberate price action on your part or on what volume trends
you're seeing? And then as you look to next year and beyond,
how your broader growth initiatives are developing for that
business. Thank you.
Johnny Thomson:
Yeah. Look, I don't want the fact that we're talking about
moderation to get in the way of the fact that it continues to do
fantastically well. I mean, it's been knocked out over the last few
years as we know, and it continues to deliver well above the
group averages and well above their own track record as well.
So it continues to be fantastic. We're just trying to obviously be
transparent about the fact that the tough comps will mean that
the top line will moderate a little bit. And we're deliberately just
easing off the margin, not aggressively, but just easing off the
margin a little bit, taking a little bit of the heat out of some of the
spot pricing and driving a little bit more volume as well. And as I
said a minute ago, you'll still see very good profit growth going
forward. To answer specifically your question, market demand is
unchanged.
Market circumstances in general are unchanged. We still see of
course a healthy backlog of new builds. We still see a healthy
refurbishment environment and spot market and the
characteristics of the supply chain constraints remain as they
were as we expected they would be. So nothing is really new,
David, from the market perspective. What is important, I think, to
point out to your question is that we are driving, of course, our
own initiatives. And that involves a little bit of, as I said,
moderating spot prices to drive a bit more spot volume. We're
putting more business development resource into both the US
and Europe to drive the kind of base level of contract volume.
We're broadening a little bit our product capability and we're
investing a little bit more in inventory to do these things. And
you'll see that I think play out when we get to the full year and
beyond into next year as well.
So look, all of these are initiatives which are going to support
sustaining great performance at their kind of track record level
for the long term. So growth will moderate a little bit back
towards that 10%ish. Margins will ease down a fraction. They're
probably going to remain structurally above what we bought it
at, but a bit below where we're at today. But overall, as I say, you
should expect good profit growth going forward. So all in all,
fantastic performance and we're just managing now the kind of
exit into a sustainable delivery.
David Brockton:
Thank you very much.
Operator:
Thank you for your question, sir. Ladies and gentlemen, as a
reminder, if you have any questions or follow-up questions,
please press star one. We'll now go to Virginia Montorsi of Bank
of America. Please go ahead.
Virginia Montorsi:
Good morning. Thank you for taking my question. I know
everyone always talks about Peerless, but I think what you guys
are doing in defence is equally as interesting. So can you talk a
little bit more about, potentially first, could you tell us how much
is defence right now as a percentage of group revenues broadly
speaking? And where do you see, given the current deals you've
done this year, defence as an opportunity expanding? Are you
thinking about doing maybe a bit more in the US? Are you
thinking about land versus air? Is there anything about the
conflict that has made you maybe identify some opportunities?
And yeah, just how are you thinking about it medium term?
Johnny Thomson:
Yeah, look, we're quite good in defence actually. If you include
CDM on a, I guess a proforma basis, it's now about 6 or 7% of
our revenues. And we've got quite a lot of activity going around
to drive great growth from it. And certainly when you look at the
performances of IS Group particularly, but also a bit of
Clarendon and Peerless as well, there's a bit of that defence
growth in there. So we're pretty pleased with that. Traditionally,
we have been very European based and traditionally we have
been very air defence based because it morphed out of our
aerospace capability. What we've been looking to do, of course,
is to double down on those two areas, but also expand. So by
doubling down, I mean we've put some new facility resource and
inventory into Eastern Europe, for example, to address that kind
of East of Europe into the Nordics defence market.
We bought a small business earlier this year called Spring
Solutions, which is a UK-based defence business. And
Clarendon have been doing a lot on air defence in Europe as
well. So we've been kind of doubling down on that European
and air piece. But then what we've also been doing, of course, is
expanding our capability and firstly going into the US and hence
the CDM acquisition, which we're very pleased about. And that's
our first major piece of business for defence in the US. But
secondly, we're starting to move from air into land defence as
well. A bit of that is coming through the work that we're doing
out of Eastern Europe and with new product capability. And a bit
of that is also coming out of CDM's expertise as well because
they're a bit more land than air. So overall, we're pushing at
getting a broader range both geographically and in terms of the
market as well.
There's loads for us to go for still. So I think it's going to be a
good market for us going forward. Thank you very much. Last
thing I'd say on is we are putting a bit more investment behind
these kind of things. We talked about it I think in November and
we talked about it again in May, not just defence, but end
markets exposures and the kind of end markets that we want to
be in. We are putting just a fraction more investment into these
kind of things, particularly resource, but also a bit of inventory
and hopefully also occasionally the odd acquisition as well. And
that'll be prevalent in our numbers as we go forward.
Virginia Montorsi:
Thank you very much. Very helpful. Thank you very
Operator:
Much, ma'am. We'll now go to Daniel Cowan of BNP Paribas,
please go ahead.
Daniel Cowan:
Good morning guys. Just one question for me please on Windy
City. Why apologies if you've already spoken about this I joined
a bit late, but can you just give us an idea of how that went in the
quarter? Is growth accelerating there or is it about the same as it
was in H1, please?
Johnny Thomson:
Yeah, Windy's in great shape. Thanks for the question, Daniel.
Windy's in really, really good shape. They've had a great year.
They had a very strong quarter, mid-teens kind of growth rate,
which is fantastic. Of course they're doing very well in data
centres, but they're also doing well in other areas as well,
petroleum, digital antenna systems, expanding their product
capability. And again, we're investing in Windy City, particularly in
sales resource for the future too. So very, very happy with how
they've been progressing.
Daniel Cowan:
Good to hear. Thank you.
Operator:
Thank you very much, sir. Ladies and gentlemen, as a final
reminder, if you have any questions or follow-up questions,
please press star one at this time. Now go to Sam Dindol of
Stifel. Please go ahead, sir. Your line is open.
Sam Dindol:
Morning guys, just one from me please. Just first on the
operating margin, obviously a significant step up in the year to a
6.5% guidance. Just given your commentary on a little bit of
easing and peerless and the opportunity to invest in the
business, is there any other factors we should think about when
you think about the margin going forward, just because it's such
a big step up year on year and clearly well above your 20%
target? Thank you.
Wilson Ng:
I'll take that. Well, first of all, we are very, very pleased with where
the margin is this year, 26.5%. With our business and the strong
top line growth, obviously we've seen a lot of operating leverage
benefit. Here, as Johnny alluded to, has continued to perform
very well and it started H2 better than expected and therefore it
has been very accretive to margin. So as I said before, the
feeling is that the margin is sort of at the top end. We do expect
some moderation next year, mainly driven by the continued
investments that we're making, particularly to continue
sustaining the business in terms of end market, the
organisational development and the assurance platform. But
also we are, as Johnny mentioned, carefully moderating the
margin of Peerless to continue maintaining it as a sustainable
business and that will moderate margins a bit. And finally, with
acquisitions and also the ones that we've already done, there will
be some dilutive impact.
Look, I'm not going to go into specifics today. It's not the right
time to guide today, but the overall message is the margins will
continue to be strong, but it will moderate a bit next year.
Sam Dindol:
Brilliant. Thank you.
Operator:
Thank you, Mr. Dindol. We do have another question that just
came in now and it is from Emanuele Sartori of Kepler
Cheuvreux, please go ahead.
Emanuele Sartori:
Hi, good morning all. Thank you for taking my question. I just
wanted to touch quickly on Windy City again, just on the data
centre mentioned just how material is the data centre demand
today? Is that growth still accelerating? Just curious if you could
share any percentage of exposure that you have there. And
should we think of this as a structure AI data centre
infrastructure pain wind or more as a broader commercial
construction momentum? Thank you.
Johnny Thomson:
Okay. So data centres, pretty small proportion of the group. It's
about 15% of Windy, about 3% of the group, something like that.
I suppose if we look forward from what... I hope I'm addressing
your question here, but as we move forward, from what we can
see, there's still very, very, very broad-based investment around
data centre development. So there's still plenty of runway and
plenty for us to go for on that. At the same time, we're
broadening our exposure and thinking mainly about the MRO,
more sustainable elements of data centre and infrastructure
support. So we're doing quite a lot more in, for example, seals
and gaskets into the data centre refurbishment market both in
the US and in the UK. And that's starting to develop for us. And
that of course will be sustainable beyond the new build phase, if
you like. And that's a very, very important part for me to make
sure that we're creating something which is sustainable.
In the meantime, the work that we're doing, particularly three
windy and the new business development, new data centre
development is pretty modest, but I suspect we'll sustain for
quite some years to go.
Emanuele Sartori:
Perfect. Thank you. Thank
Operator:
Thank you for your question. As we have no further questions, Mr.
Thompson, I'd like to call back. Oh, very sorry to interrupt you.
So we just have one in now is from James Bayliss of Berenberg.
Please go ahead.
James Bayliss:
Hi guys. Sorry to dive in at the last minute. I just wondered if you
had any comments on leadership at the group, if you've made
any changes. I think we saw Dicsa leadership change over half
one and you talked around the fact you were seeing progress
off the back of that. I think that was a change in Australia as well.
Just any comments as a catchall really on if you've made any
kind of investment in headcount or leadership that's going to
help drive that growth profile more sustainably? Thanks.
Johnny Thomson:
Yeah. I mean, if you're asking about leadership, you're not really
asking about leadership at the top level. If you're asking about
Australia and Dicsa, that's going to leadership within the
businesses. And of course we're always working all the time to
develop our leaders across the business. We have from time to
time as we had in Australia and indeed in Spain and Dicsa some
retirements. So yes, we had two new general managers in there.
What I would say more generally across the group is we're
working very, very hard on leadership development as part of our
sustainable capability and therefore execution. We're working
very hard, as I've said to you before, particularly on internal
succession and driving towards a more build your own model, if
you like, over the years ahead. So that's a big part of what we're
focused on internally.
And we're working very hard on the leadership development
specifically of our general managers to support them as their
businesses grow up. And that's a constant for us. So particularly
I would say at the moment, as I've said, we do like to invest in
businesses when maybe times are tougher and markets are a bit
tougher. And maybe that's where your question's going a little
bit. A few years ago we invested quite a bit in life sciences and
we're really pleased with the way the management has
developed in life sciences. We've done a little bit of the same in
seals starting in North America and more recently in international
seals. So I feel we're getting a stronger bench set across the
seals sector and that'll put us in a very good position for the
future.
Operator:
Thank you, sir. Mr. Thompson, at this time, we have no further
questions, sir.
Johnny Thomson:
Thank you everyone for taking the time and we'll see you in
November.
