Worldwide All Cap

Arista Networks’ software and hardware connects networks, data centres and cloud-computing nodes.

Arista was founded in 2004 by three engineers who recognised that the market for networking switches was dominated by sleepy incumbents churning out predictable products with minimal upgrades. They set out to disrupt this industry by creating high-performance, low-latency ethernet switches specifically designed for cloud computing and data centres. Having experienced firsthand how Cisco Systems operated, they knew that they could create a company that did things differently in its focus on innovation, in its operating model, and in its culture.

At the time of its launch in 2010, the company’s first product had five times the throughput of its closest competitor.² It then enhanced its lead by pursuing a programme of innovation and improvement, made possible by investing heavily in research and development.

Two early decisions taken by the company’s founders provided a platform for its subsequent growth. The first was to integrate a proprietary operating system, Arista EOS, into its hardware. This allows its customers to see what is happening across their networks in a single image and to fix issues seamlessly and with minimal network downtime. Arista built that software using open-source (Linux) code, allowing new best-of-breed software to be incorporated as it becomes available.

Their second key decision was to use microchips made by third parties rather than developing their own. By using off-the-shelf components and outsourcing manufacturing to local fulfilment centres, Arista can keep costs down, bring new innovations to market quickly, and benefit from industry-wide improvements in chip size, power usage and computing capacity.

Although two of the company’s three founders remain involved today, they made an early decision to hire a chief executive to run it. Jayshree Ullal joined in 2008, two years before Arista’s first product launch and six years before its IPO (initial public offering). She has been the key to establishing and nurturing its culture of customer focus, innovation, frugality, and flat hierarchies. This combination of a longstanding chief executive supported by the company’s founders has created an ownership mentality that has cascaded through the workforce, helped by its flat structure and lean workforce. Employees are accountable and empowered to openly address and fix problems.

One part of that culture is a refusal to sacrifice quality for speed; Arista will not ship a new product until its engineers are happy that it will operate as expected. This maintains its reputation for reliability, helps it to win repeat business, and supports its long-term partnerships with its two largest customers, Microsoft and Meta, who together account for approximately a third of its revenues.³ And although that means it faces a degree of concentration risk, it also makes it a direct beneficiary of the investments these companies are making in building artificial intelligence (AI) data centres.

Arista is taking steps to mitigate that concentration risk by diversifying its customer base within the US, which currently accounts for approximately three quarters of its revenues, as well as by expanding overseas.⁴ For example, it recently launched a ‘Make in India’ initiative, through which it is investing in local manufacturing, developing skills, and building centres of excellence in ‘AI for networking’ across the country.

Arista’s strong cash-flow generation, its high profit margins and low debts give it the financial firepower to continue investing in research and development while also acquiring companies to benefit from their technology and engineering expertise. This continual reinvestment in innovation should help it to stay ahead of the pack while exploiting the significant areas of potential growth in front of it.

The clearest risk is posed by customer concentration; any difficulties in Arista’s relationships with either Microsoft or Meta could lead to a fall in its revenues and potential reputational issues. Ongoing price deflation, meanwhile, means that it must innovate continually – and run harder – to increase sales and profits. Finally, there is always the risk that an acquisition goes badly, affecting the company’s culture and causing it to lose its leadership in innovation.

[1] Source: FactSet as at 1 October 2025.

[2] Source: Arista: Arista 7500 - Sets New Standard for 10 Gigabit Ethernet Networking https://www.arista.com/en/company/news/press-release/280-pr-20100419-01.

[3] Source: Arista Networks 10-Q 6 August 2025.

[4] Source: FactSet as of 1 October 2025.

While based in the UK, Diploma is an international group of businesses supplying specialised technical products and services across three core segments: controls, seals, and life sciences. With operations in over 30 countries and more than 3,000 employees, Diploma plays a critical role in supporting a range of industries, from healthcare and environmental technologies through to aerospace and industrial manufacturing².

As supply chains worldwide come under increasing pressure, Diploma has made itself useful by supplying essential components and consumables. These are often critical to the functioning of its customers’ operations but typically represent only a small portion of their total costs. This means Diploma’s products are deeply embedded in its customers’ workflows and demand for them tends to be robust. Its global footprint is extensive, with strong presences in North America, Europe, and Australasia. This reach is complemented by deep local expertise and technical support, which help to build customer loyalty and win sales.

Its portfolio is diversified across three areas:

• Seals: supplying sealing solutions for the heavy machinery used in the construction, mining, and energy sectors.
• Controls: providing connectors, fasteners, and control devices for applications in aerospace, defence, and the medical field.
• Life sciences: delivering medical devices and consumables to healthcare providers and laboratories, supporting diagnoses and treatment.

By empowering its operating units to make their own decisions, Diploma fosters entrepreneurial spirit and accountability and allows them to respond quickly to the needs of their customers. At the same time, it takes a patient approach, giving businesses across the group time and financial support they need to grow. Under the leadership of CEO Johnny Thompson, who took the helm in 2019, and CFO Chris Davies, who joined in 2022, Diploma has delivered impressive results. Since 2019, its sales have more than doubled, while its profits have tripled³.

In making acquisitions, it looks for complementary businesses that can enhance its existing capabilities, strengthen its technical expertise, deepen its customer relationships and so accelerate its growth.

The company’s sustainability framework, Delivering Value Responsibly, places a strong emphasis on talent and culture, viewing both as essential. A clear sense of identity and its disciplined approach to growth are reinforced by a thoughtful remuneration structure that aligns incentives with long-term performance.

The main risks facing Diploma include problems acquiring and then integrating good businesses. Some parts of its business, meanwhile, sell into industries that are sensitive to wider economic conditions. This could mean growth in its profits would slow in the event of a downturn.

[1] Source: S&P Capital IQ as of 30 June 2025.

[2] Source: Diploma Annual Report 2024.

[3] Source: S&P Capital IQ as of 30 June 2025.

Halma is a global group of companies who develop innovative safety, health and environmental technologies aimed at enhancing quality of life and protecting people and the planet. Its stated purpose is “to grow a safer, cleaner, healthier future for everyone, every day.”

In a world in which the importance of health and safety is rightly receiving increased attention, a relatively unknown UK engineering company has been quietly innovating and saving lives for more than 50 years. It has also consistently reinvested cashflows and generated compound returns for its shareholders. Since its foundation in 1972 by David Barber and Mike Arthur, Halma has combined strategic long-term vision with underlying purpose – a combination that still holds true today.

From its early years, Halma has focused on developing innovative safety solutions for industry. Not only has it gained a reputation for quality and reliability, it has also developed a distinctive business model along the way. Key to that business model is the acquisition of niche companies. Halma is a disciplined buyer, targeting well-run small-to-medium-sized companies whose technologies are helping solve some of the world’s most pressing challenges and keeping people safer, cleaner and healthier. Over 50 years on from its founding, Halma consists of nearly 50 companies and employs over 8000 people in over 20 countries.²

• In safety… businesses include Firetrace, which automatically detects and suppresses fires in high-risk equipment.
• In environmental analysis… businesses include Deep Trekker, whose cutting-edge underwater robotics make maintaining offshore wind farms easier.
• In healthcare… businesses include PeriGen, which monitors more than 600,000 births a year, tracking foetal heart rate and labour progression to provide early warnings if things start going wrong. According to the WHO, over 800 women and one million newborns die each year due to preventable causes during pregnancy and childbirth³. After the PeriGen technology was introduced into a regional hospital in central Africa, the mortality rate was reduced by more than 80%.⁴

By supporting the management of the businesses it acquires and allowing a brand to grow even after the original founder steps away, Halma has steadily built a reputation as a ‘good owner’. This has helped make it the preferred buyer for many founders. This, in turn, has supported Halma’s organic growth and given its shareholders access to the cashflows of businesses that would otherwise have remained in private hands.

Halma’s focus is on growing the market and providing value to its customers by acquiring niche companies, rather than trying to take market share from competitors. Using its internal cashflows to buy companies in areas in which it is already an expert, reduces risk and increases the chances of generating enduring returns. Over the past 20 years, it has grown its cashflows by 12% per annum and its earnings per share by 13% per annum⁵, as it continues to make good on its long-term vision.

With future growth supported by structural developments such as growing safety regulation, increasing demand for healthcare and clean water and efforts to address climate change and pollution, we see no reason why Halma’s growth can’t continue for at least another 50 years.

The chief risks facing Halma include the levels of debt on its balance sheet, a degradation of its ability to acquire good companies and the potential for product-related failures.

[1] Source: S&P Capital IQ as of 31 March 2025.

[2] https://www.halma.com/who-we-are

[3] https://www.who.int/news-room/fact-sheets/detail/maternal-mortality

[4] https://www.halma.com/our-impact/protecting-mothers-and-babies-during-childbirth

[5] Halma annual accounts between March 2004 and March 2024 as reported by FactSet.

WEG manufactures electrical products, including energy efficient motors, transformers, turbines and generators. They have production facilities in 17 countries and produce around 19 million motors every year.²

In 1961, a young electrician, mechanic and administrator founded the electric motor company to which they lent their initials: Werner Ricardo Voigt, Eggon João da Silva and Geraldo Werninghaus.

Today, WEG produces electrical products, including motors, for customer markets from industrial automation and power generation and distribution to large electric vehicles. The second generation of the three founding families are majority shareholders and the company is run by an experienced management team. The new Chief Executive Officer, Alberto Yoshikazu Kuba, is only the fourth in WEG’s history. He joined the business in 2002, aged 24 and demonstrates how much of WEG’s success comes from a culture built over 65 years.

WEG is a vertically integrated company. This means that they make every element of every product themselves, and even source packaging from their own forest. This helps them supply customers with more customised, hard-to-replace motors. Although it is less efficient than outsourcing and slows the rate that they can expand capacity, it provides a crucial advantage for WEG: it enables them to capture a larger share of the market when competitors are blocked by supply chain disruptions. WEG’s self-sufficiency is helping them supply transformers to data centres which require large amounts of electricity, while competitors face long delays building additional capacity.³

Doing more with less, under their own steam, is key to what WEG do. Vertical integration also makes WEG more efficient in their operations by helping to limit production waste. In Brazil, WEG collect and recycle older motors at the end of their life. They recycle the motors and the production scrap metal. WEG’s motors also help customers reduce their energy requirements and reduce their greenhouse gas emissions. One example of where they are used for a sustainability solution is the Kaleshwaram Lift Irrigation Project which helps address water shortages in India. WEG’s motors will help move 240 thousand million cubic feet of water over 500 kilometres into northern India.⁴ This amount is greater than the volume of Lake Michigan, one of the Great Lakes in North America.

WEG's strong focus on excellent operational processes helps it deliver steady profit levels, even with some ups and downs in sales growth. The company has a healthy cash balance, which allows it to buy raw materials when supply chains are strained and to grow by buying new companies in their international business. We are excited to see where WEG’s cautious approach and ongoing innovation take the company in the future.

Risks facing WEG include raw material prices, competition from Chinese and Indian manufacturers, and customer markets which are sensitive to economic cycles.

[1] As of 7.1.25.

[2] 2023 integrated report - https://api.mziq.com/mzfilemanager/v2/d/50c1bd3e-8ac6-42d9-884f-b9d69f690602/b96ceffc-95bf-5115-8eec-72fbc563ea72?origin=1. Production facilities as of 31.12.23; WEG in Numbers | WEG.

[3] World’s largest transformer maker warns of supply crunch’; Financial Times article, 3.11.24.

[4] WEG supply for Kaleshwaram irrigation project. 240 thousand cubic feet = 1.63 cubic miles. Lake Michigan is 1,180 cubic miles by volume: Lake Michigan: How Big Is It? - The Environmental Literacy Council.