Diploma LON: DPLM reported what management described as a “very strong” first half for the six months ended March 31, 2026, with double-digit organic growth, higher margins and upgraded full-year expectations.
Chief Executive Officer Johnny Thomson said the company delivered “a very strong performance across all our key financial metrics,” citing 36% earnings growth in the half and return on capital of 23%. He said the group benefited from the “quality and diversity” of its portfolio, exposure to attractive end markets and continued acquisition activity.
“We’re upgrading guidance again today, adding a further 6%, meaning expected operating profit growth of over 30%,” Thomson said. “We’re looking forward to another year of sustainable quality compounding.”
Revenue Growth Led by Controls
Chief Financial Officer Wilson Ng said total revenue rose 17% in the first half, including a 3% contribution from net acquisitions, while organic revenue grew 15%. Operating profit increased 33% to £209 million, and operating margin expanded by 300 basis points to 24.5%.
Ng said the Controls segment delivered organic growth of 26%, driven by “excellent execution in favorable market conditions.” He highlighted strong performances from Clarendon, IS-Group and Windy City Wire, along with what he called “another outstanding performance” from Peerless.
Seals posted 2% organic growth, with North America growing 7%, while conditions remained challenging in international seals markets, particularly in the U.K. Life Sciences grew organically by 4% despite challenging healthcare markets.
Ng said that excluding Peerless, the rest of the portfolio grew organically at a high-single-digit rate, which he said was “well ahead” of the company’s financial model.
Margins, Cash Flow and Returns Improve
Diploma’s first-half operating margin rose to 24.5%, with Ng attributing the improvement to volume growth, operating leverage, pricing discipline, continuous performance improvement and higher-quality acquisitions. He cautioned, however, that margins “feel like they are towards the top end” as the company selectively reinvests in operating expenses and pursues acquisitions that may not always be accretive to its current margin level.
Earnings per share increased 36% to £1.092. Ng said interest expense was higher year over year due to stepped-up acquisition momentum, while the company’s blended cost of debt remained 5.3%. The effective tax rate was 25%, consistent with fiscal 2025.
Free cash flow was £110 million, with cash conversion of 76%, ahead of Diploma’s typical half-year performance. Ng said the company invested almost £60 million in selective net working capital, describing inventory as an “important tool to unlock growth when executed carefully and with discipline.”
Return on average capital employed rose 360 basis points to 22.7%. Ng said that level was ahead of the company’s optimal high-teens range, reflecting strong performance and the quality of acquisitions made over the last seven years. He said returns could moderate back toward the target range as the company continues to invest and acquire businesses.
Acquisition Activity Accelerates
Diploma completed or committed to 15 acquisitions across all three sectors over the last 12 months, deploying £310 million in total. Ng said those businesses contribute £40 million of annualized operating profit, equating to an average EBIT multiple of eight times.
The company completed eight acquisitions previously disclosed at its first-quarter update, representing £130 million of investment, and has since committed a further £180 million on seven additional deals.
Management said recent acquisitions broaden the company’s end-market exposure and geographic reach. CDM, FC Lane and Synnis increase exposure to defense markets in the U.S., U.K. and Europe. CNC Packings adds water infrastructure expertise. Modal Nordic expands Diploma’s European Life Sciences footprint in Norway, following the acquisitions of ElectroMed in Ireland and Alpha Labs in the U.K. Abbey Seals marks R&G’s entry into Ireland, while Selwyn supports IS-Group’s interconnect offering in the U.K.
Thomson highlighted CDM, a Philadelphia-based interconnect business that supplies custom connectors and cable assemblies to the U.S. defense market. Diploma will pay $170 million after regulatory approval. Thomson said CDM has grown at a double-digit rate over many years and has $80 million of revenue with high-teens margins.
“We’re excited about supporting their continued success in the U.S. and their potential development in Europe too,” Thomson said, adding that CDM’s management team, Mark DiLeo and Laurie Sanchez, will remain with the business.
Guidance Raised for Fiscal 2026
Diploma raised its full-year expectations, with Ng saying first-half performance was very strong and the second half was “off to a great start” despite macroeconomic uncertainty.
Organic growth is now expected to be 12%, up from prior guidance of 9%.
Acquisitions are expected to contribute 6% to fiscal 2026 growth, up from 3% previously.
The company maintained its full-year operating margin expectation at 25%.
Management expects operating profit growth of more than 30%.
Ng said the shape of organic growth across the year remains consistent with previous guidance, with some moderation in the second half due to tougher comparisons.
Management Sees Structural Growth Opportunities
Thomson said Diploma’s strategy remains focused on building “high quality, scalable businesses” for sustainable organic growth, supported by acquisitions. He pointed to three organic growth priorities: positioning behind structurally growing end markets, expanding in core developed geographies and extending product ranges.
In Controls, Thomson said structural tailwinds across aerospace, defense, data centers and energy were supported by market share execution. Clarendon is growing at a double-digit rate, helped by aerospace and defense demand and contract wins. IS-Group has also grown organically at a double-digit rate, with exposure to defense, aerospace and energy markets. Peerless continued to perform strongly in aerospace, while Windy City Wire benefited from data center and digital antenna systems demand.
In Seals, management said North America continues to show momentum, while international markets remain more challenging. During the question-and-answer session, Ng said International Seals posted a 1% decline in the first half but showed “positive growth and a better exit run rate” at the end of the second quarter. He said the company is “quietly confident” about the second half.
In Life Sciences, Ng said the business has delivered 6% organic growth over the last three years and 4% in the first half, despite challenging healthcare markets. He said the company expects broadly mid-single-digit organic growth for the full year, with further margin improvement.
Thomson also cited emerging opportunities in nuclear, tied to power requirements for technology and artificial intelligence. He said VSP, the company’s U.S. gasket MRO business, has products suited to highly regulated and high-risk environments and has begun making progress in nuclear, though the opportunity is currently “only a handful of millions.”
“We’re in great shape,” Thomson said in closing. “The numbers are good. There’s lots for us to go for. We’ve got a long runway ahead of us.”
About Diploma LON: DPLM
Diploma PLC, together with its subsidiaries, supplies specialized technical products and services in the United Kingdom, Continental Europe, North America, and internationally. It operates through three business sectors: Life Sciences, Seals, and Controls. The Life Sciences sector supplies technology-enabled products used in surgical procedures in operating theatres and endoscopy; testing equipment and services for clinical laboratories; and bio-pharma, food safety and testing, and other research-oriented products.
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