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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Halma Plc | LSE:HLMA | London | Ordinary Share | GB0004052071 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 41.00 | 1.88% | 2,219.00 | 2,216.00 | 2,218.00 | 2,223.00 | 2,182.00 | 2,196.00 | 951,775 | 16:35:18 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Electrical Machy, Equip, Nec | 1.85B | 234.5M | 0.6212 | 35.69 | 8.37B |
TIDMHLMA
RNS Number : 8716H
Halma PLC
13 June 2017
Hot Features
Premium
13 JUNE 2017
HALMA plc
RESULTS FOR THE 52 WEEKS TO 1 APRIL 2017
Fourteenth year of record revenue and profit
Halma, the leading safety, health and environmental
technology group, today announces its full year
results for the 52 weeks to 1 April 2017 (2016:
53 weeks to 2 April 2016).
Highlights
Continuing Operations 2017 2016 Change
Revenue GBP961.7m GBP807.8m +19%
Adjusted Profit before
Taxation(1) GBP194.0m GBP166.0m +17%
Adjusted Earnings per
Share(2) 40.21p 34.26p +17%
Statutory Profit before
Taxation GBP157.7m GBP136.3m +16%
Statutory Earnings
per Share 34.25p 28.76p +19%
Total Dividend per
Share(3) 13.71p 12.81p +7%
Return on Sales(4) 20.2% 20.6%
Return on Total Invested
Capital(5) 15.3% 15.6%
Net Debt GBP196.4m GBP246.7m
-- Revenue up 19% with Adjusted(1) pre-tax
profit up 17%. Revenue and profit growth
of 4% on an organic constant currency(5)
basis.
-- Revenue and profit growth in all four sectors.
Organic constant currency(5) growth in Infrastructure
Safety, Medical and Environmental & Analysis;
improved performance in Process Safety.
-- Revenue growth in all major regions. Strong
growth in the USA, Mainland Europe and Asia
Pacific, with solid progress in the UK.
-- High returns maintained with Return on Sales(4)
of 20.2% and ROTIC(5) of 15.3%.
-- Sustained strategic investment, supported
by good cash generation and a strong balance
sheet; R&D spend increased to 5.3% of revenue.
-- Acquisition pipeline benefiting from greater
depth and breadth in M&A resources across
all four sectors.
-- Final dividend up 7%. 38(th) consecutive
year of dividend per share increases of
5% or more.
Andrew Williams, Chief Executive of Halma, commented:
"Halma performed strongly over the past year,
achieving its fourteenth consecutive year of
record revenue and profit. We have a clear growth
strategy, simple financial model and a unique
organisational structure, which is customer-focused
and enables us to adapt quickly to market changes.
We have exciting opportunities for growth in
a diverse range of markets. Since the period
end, order intake has continued to be ahead
of revenue and order intake last year. We expect
to make further progress in the year ahead in
line with our expectations."
Notes:
1 Adjusted to remove the amortisation and impairment
of acquired intangible assets, acquisition
items, restructuring costs and profit or loss
on disposal of operations, totalling GBP36.3m
(2016: GBP29.7m). See note 2 to the Results.
2 Adjusted to remove the amortisation and impairment
of acquired intangible assets, acquisition
items, restructuring costs, profit or loss
on disposal of operations and the associated
taxation thereon. See note 6 to the Results.
3 Total dividend paid and proposed per share.
4 Return on Sales is defined as adjusted(1) profit
before taxation from continuing operations
expressed as a percentage of revenue from continuing
operations.
5 Organic growth rates and Return on Total Invested
Capital (ROTIC) are non-GAAP performance measures
used by management. See note 11 to the Results.
For further information,
please contact:
Halma plc
Andrew Williams,
Chief Executive
Kevin Thompson, Finance
Director +44 (0)1494 721 111
MHP Communications
Rachel Hirst / Andrew
Jaques +44 (0)20 3128 8100
A copy of this announcement, together with other
information about Halma, may be viewed on its
website: www.halma.com.
NOTE TO EDITORS
1. Halma develops and markets products used worldwide
to protect life and improve the quality of life.
The Group comprises four business sectors:
-- Process Safety Products which protect people
and assets at work.
-- Infrastructure Products and services that improve
Safety the safety and mobility of people
and protect commercially and publicly
owned infrastructure.
-- Medical Products which enhance the quality
of life for patients and improve
the quality of care delivered
by providers.
-- Environmental Products and technologies for
& Analysis analysis in environmental safety
and life sciences markets.
The key characteristics of Halma's businesses
are specialist technology and application knowledge
for markets offering strong long term growth
potential. Many Group businesses are market
leaders in their specialist field.
2. High resolution photos of Halma senior management,
including Chief Executive Andrew Williams, and
images illustrating Halma business activities
can be downloaded from its website: www.halma.com.
Click on the 'News & Media' link, then 'Media
Gallery'.
3. You can view or download copies of this announcement
and the latest Half Year and Annual Reports
from the website at www.halma.com or request
free printed copies by contacting halma@halma.com.
4. A copy of the Annual Report and Accounts will
be made available to shareholders on 21 June
2017 either by post or online at www.halma.com
and will be available to the general public
online or on written request to the Company's
registered office at Misbourne Court, Rectory
Way, Amersham, Bucks HP7 0DE, UK.
5. This announcement contains certain forward-looking
statements which have been made by the Directors
in good faith using information available up
until the date they approved the announcement.
Forward-looking statements should be regarded
with caution as by their nature such statements
involve risk and uncertainties relating to events
and circumstances that may occur in the future.
Actual results may differ from those expressed
in such statements, depending on the outcome
of these uncertain future events.
Strategic Review
Halma makes a positive difference to people's
lives worldwide
Halma's purpose is to protect life and improve
the quality of life through innovative safety,
health and environmental solutions. This provides
us with exciting opportunities for growth in a
diverse range of markets and with a strong motivation
to make a positive difference to people's lives
worldwide.
We have a clear growth strategy, a simple financial
model and a unique organisational structure, which
is customer-focused and enables us to adapt quickly
to market changes.
Halma has had a well-established financial target
that aims to double our earnings every five years,
without becoming highly geared or seeking further
equity, provided there are similar rates of organic,
acquisitive and dividend growth. This aspiration
pushes our businesses to deliver sustainable revenue
growth by increasing investment in innovation,
talent and international expansion rather than
limiting their focus only on operational efficiency
and short-term profitability.
Over the past five years, we have achieved compound
annual growth rates of 10% for revenue and 11%
for profit with a good balance between organic,
acquisition and dividend growth. This strong performance
reflects not only our sound growth strategy but
also the exceptional commitment, abilities and
dedication of talented individuals in every part
of Halma. I thank all of them for their contribution
to this financial success and, in the process,
realising our shared purpose and making a positive
difference to people's lives worldwide.
Record revenue and profit
Halma performed strongly over the past year, achieving
its fourteenth consecutive year of record revenue
and profit.
Revenue increased by 19% to GBP962m (2016: GBP808m)
including 4% organic constant currency growth
and 10% favourable currency impact. Adjusted(1)
profit increased by 17% to GBP194m (2016: GBP166m),
also including 4% organic constant currency growth
and 10% favourable currency impact. There were
52 weeks trading in this year compared with 53
weeks trading last year.
Returns were maintained at a high level with Return
on Sales of 20.2% (2016: 20.6%) well within our
targeted range of 18% to 22%. Return on Capital
Employed for our operating companies remained
high at 72% (2016: 72%). The Group's Return on
Total Invested Capital was 15.3% (2016: 15.6%).
Cash generation and balance sheet supports future
growth
Cash generation was good and we ended the year
with net debt of GBP196m (2016: GBP247m) after
spending GBP10m on current year acquisitions (2016:
GBP193m), GBP24m on capital expenditure (2016:
GBP24m), GBP50m on dividends to shareholders (2016:
GBP47m), and paying GBP33m of tax (2016: GBP27m).
With gearing at the year-end (net debt to EBITDA)
of 0.86 times (2016: 1.27 times), we have a strong
balance sheet which can support further strategic
investment. In November 2016, we increased and
extended our revolving credit facilities from
GBP360m until 2018 to GBP550m until 2021.
Final dividend to increase by 7%
The Board is recommending a final dividend increase of 7%, giving a final dividend of 8.38p (2016: 7.83p) and a total dividend for the year of 13.71p (2016: 12.81p). The final dividend per share is subject to approval by shareholders at the AGM on 20 July 2017 and will be paid on 16 August 2017 to shareholders on the register on 14 July 2017. Growth in all major regions A major benefit for businesses within Halma is the support they receive to build their business in key export markets. This year, once again, this was reflected in the widespread revenue growth achieved in both developing and developed regions. There was impressive growth in Asia Pacific where revenue increased 21% to GBP152m (2016: GBP125m), including 9% organic constant currency growth. Revenue from China was up by 25% to GBP68m (2016: GBP54m), with 11% organic constant currency growth. Revenue from Other regions grew by 16% to GBP99m (2016: GBP86m) with good growth in Canada. Revenue from Mainland Europe grew by 17% to GBP210m (2016: GBP179m) including 6% organic constant currency growth while UK revenue was up by 7% to GBP155m (2016: GBP145m) with 5% organic constant currency growth. The USA remained our largest regional market with revenue increasing by 27% to GBP345m (2016: GBP273m) and 1% organic constant currency growth. Growth in all four sectors There was revenue and profit growth in all four sectors. All sectors achieved record revenue and all, except Process Safety, also generated record profit. The Medical sector became our largest profit sector for the first time, with profit(2) up by 29% to GBP66.7m (2016: GBP51.7) including 6% organic constant currency growth. Revenue grew by 31% to GBP261m (2016: GBP199m) with organic constant currency growth of 4%. Return on Sales remained strong at 25.6% (2016: 26.0%). Regionally, the highest rate of organic constant currency revenue growth was in Asia Pacific and there was good progress in China. There were lower rates of organic growth in the UK and the USA, which is the largest region representing 52% of the sector. There was a small organic constant currency decline in Mainland Europe. Visiometrics and CenTrak, acquired in December 2015 and February 2016 respectively, delivered improved performances as the year progressed. Infrastructure Safety profit(2) grew by an impressive 17% to GBP65.1m (2016: GBP55.6m) and revenue rose by 19% to GBP315m (2016: GBP265m). Both included organic constant currency growth of 7%. Return on Sales was 20.7% (2016: 21.2%). There was strong organic constant currency revenue growth in Asia Pacific, the UK and Mainland Europe (the largest region at 30% of the sector) supported by excellent progress from our Fire and Door Safety businesses. There was organic constant currency revenue decline in the USA, partly due to a weaker performance from our Fire businesses, including Firetrace which we acquired in October 2015. We have continued to strengthen Firetrace's management team from within Halma and we expect its performance to improve as we move through 2017. We remain confident in its longer-term growth potential, especially in international markets. The Environmental & Analysis sector increased profit(2) substantially by 21% to GBP41.7m (2016: GBP34.5m), which continued the excellent progress made last year and included 6% organic constant currency growth. Revenue grew by 16% to GBP219m (2016: GBP189m) with organic constant currency growth of 4%. Return on Sales improved from 18.3% to 19.0%. The highest rates of organic constant currency revenue growth were achieved in Asia Pacific, with China achieving double-digit growth and now contributing 12% of sector revenue. There was good growth in the USA and solid progress in the UK. Mainland Europe saw organic revenue decline after weaker demand from certain OEM customers headquartered in the region. During the year we completed the restructuring of our photonics coatings business, Pixelteq. The exceptional costs associated with this project were reported in our first half results. The profitability benefits started to emerge in the final quarter of 2016/17 and are expected to make a positive contribution to profit growth in the 2017/18 financial year, despite the small revenue reduction arising from this consolidation. The Process Safety sector's performance improved as the year progressed, benefiting from sustained increased investment in market diversification and improving demand from the US onshore energy market in the second half of the year. Revenue increased by 7% to a record GBP167m (2016: GBP155m) with a relatively encouraging 1% organic constant currency growth. Profit(2) rose by 2% to GBP40.2m (2016: GBP39.6m). Although there was a 4% organic constant currency decline for the full year, there was organic constant currency profit growth of 4% in the second half of the year. Return on Sales for the year remained strong at 24.1% (2016: 25.7%). There was impressive organic constant currency growth in the Near and Middle East and modest improvements in the USA and Mainland Europe. There was a small organic revenue decline in the UK and reduced demand in our pipeline management sub-sector contributed to organic revenue decline in Asia Pacific. In overall terms this was an encouraging year and Process Safety is now much better placed to sustain growth, with less reliance on energy and resources markets, than a year ago. One acquisition completed; M&A resource strengthened Our core acquisition strategy is to find privately-owned businesses operating in niches within safety, health or environmental markets. Our search efforts are typically focused on our core, or closely adjacent, market niches although each Halma sector has the freedom to find new niches which possess the right product, market and financial characteristics. In almost all cases we acquire 100% of an entity but we will consider a minority investment to gain access to potentially valuable intellectual property, if an outright purchase is not appropriate or possible. Our sector-focused organisation model gives us the scalability to continue acquiring small-to-medium sized businesses to achieve our strategic growth objectives. We are also able to sell and merge businesses relatively easily should specific market dynamics change. This active portfolio management has meant the number of companies within Halma has been relatively stable, reducing the potential for concerns over management's increasing span-of-control as we grow. In 2007, Halma had revenue of GBP355m from 39 operating companies while today, we have revenue of GBP962m and 42 operating companies. During the year, we added further M&A resource to our four sector boards and the benefits of this are becoming apparent in the improved balance of our acquisition pipeline across sectors and in the increasing number of visits made to targeted businesses. The M&A market continues to be competitive with high multiples being paid for businesses in many of our attractive market niches. This highlights the need for us to build strong relationships with business owners, sometimes over a number of years, so that they already see Halma as a great home for their business when they eventually decide to sell. Every transaction is approved by the Group Chief Executive and Group Finance Director, with all deals GBP10m or over requiring Halma plc Board approval. In January 2017, we acquired FluxData, a New York based manufacturer of advanced multi-spectral and digital imaging systems for multiple market segments including industrial and medical applications. FluxData builds on multi-spectral imaging capabilities that already exist in our Environmental & Analysis sector. Joining Halma offers FluxData the opportunity to access new niches and regions for safety, health and environmental markets. The consideration paid was US$12m (GBP9.9m) with further contingent consideration of up to US$15.5m (GBP12.8m) based on its performance to 31 March 2019. Increasing strategic investment for growth and the 4(th) Industrial Revolution We have a clear understanding of how we want our businesses to benefit from being part of Halma. We demonstrate this by making targeted central investments and building a strong collaborative culture. Over the past decade, our primary focus has been on Talent Development, Innovation and International Expansion. These central investments have led to individual sector initiatives targeted at opportunities and challenges which are particularly relevant to that sector. Increasingly, we are seeing the opportunities and challenges of the '4(th) Industrial Revolution' and we are gaining a better appreciation of the influential role that we can play in the development of our safety, health and environmental markets. Many of our businesses have been using or experimenting with technologies such as robotics and 3D printing for some time. Increasingly our products are sensing, analysing and communicating data either as part of a larger connected system or as stand-alone solutions. In order to be successful in this changing world the ability to combine technologies is increasingly important and we are relentlessly improving our collaborative capabilities. We have completed the search for the new role of Chief Innovation and Digital Officer for the Halma Executive Board and are pleased to announce that Inken Braunschmidt will be joining the Group in early July 2017. Inken joins us from innogy SE, a renewables energy company based in Essen,
Germany and spun out of RWE in 2016. In recent
years, Inken led the innovation and digital transformation
at RWE with a customer and people-centred approach.
Prior to that, Inken was MD of RWE's Strategy
and Management Consultancy practice. Her role
at Halma will similarly be critical in both accelerating
the development of innovative digital strategies
and in building a stronger collaborative community
both inside the Group and with external partners.
In April 2017, we held our biennial innovation,
collaboration and experimentation event, HITEx
in San Diego, USA. Board members from all Halma
companies attended a three-day event which included
sessions focused on harnessing new technologies,
developing more ambitious growth strategies and
understanding the value of strategic partnerships.
As always, the event highlighted the impressive
capabilities and growth potential of our businesses
but also reminded us of the need to constantly
improve and change in order to be successful in
the future.
R&D spend increased to 5.3% of revenue
New product innovation is a vital component of
creating organic growth and enables each Halma
company to increase its revenue and profitability
through market share gain and market expansion.
Our investment in new product development increased
substantially, with a record R&D spend up by 23%
to GBP50.6m (2016: GBP41.2m). This was a 13% increase
at constant currency and represented 5.3% of Group
revenue (2016: 5.1%), also a new record.
The decentralised nature of Halma means that each
Halma company determines its own R&D spend according
to its market opportunity. All four sectors increased
R&D spend with the relative investment levels
ranging from 3.6% of revenue for Process Safety
up to 6.9% for Environmental & Analysis.
We track the effectiveness of this investment
in a variety of ways including the proportion
of revenue generated from new products launched
in the past three years. Over the past four years,
the average contribution to Group revenue from
products launched in the past three years has
been around 22% although the individual company
metrics range from single digit to over 50%.
Since 2004, the best examples of innovation in
Halma have been celebrated and recognised each
year through the Halma Annual Innovation Awards.
All employees are able to enter, offering them
a first prize of GBP20,000. This year the winner
of the New Product award was BEA's Flatscan laser
sensor, which has transformed safety in swinging
doors as well as promising further growth opportunities
in other markets. First prize in the Process award
was Fortress Interlocks' online interactive tool
which helps customers easily configure and order
customised products from a standard product platform.
The Collaboration category was won by Ocean Optics
and Fiberguide who co-developed a product to test
the authenticity of bank notes in China.
Corporate responsibility and sustainability is
at Halma's core
Halma's core strategy is to protect life and improve
quality of life for people worldwide. Our primary
market growth drivers mean that Halma companies
operate in markets in which their products contribute
positively to the wider community. These market
characteristics and our commitment to health and
safety, the environment and people development
are reflected in the values held by our employees
and our operating culture.
A detailed report on our approach to Corporate
Responsibility (including our CO(2) emissions
reduction performance) is set out in the Annual
Report and Accounts 2017.
Outlook
Halma operates in a diverse range of market niches
where demand is supported by resilient long-term
growth drivers. We are able to grow faster than
our markets through sustainable and increasing
investment in innovation, international expansion
and strategy-led talent management. Our growth
mindset extends to our M&A activity where we buy
businesses to increase investment for growth rather
than reduce costs.
Since the period end, order intake has continued
to be ahead of revenue and order intake last year.
We expect to make further progress in the year
ahead in line with our expectations.
Andrew Williams, Chief Executive
(1) See Highlights.
(2) See note 2 to the Results.
Financial Review
Continued investment delivering growth
Our objective is to achieve long-term sustainable
growth. We continue to invest in our businesses
to deliver organic growth and we target value-adding
acquisitions.
Record results
Halma achieved record revenue and profit for the
fourteenth consecutive year. Revenue increased
by 19.0% to GBP961.7m (2016: GBP807.8m) and adjusted(1)
profit was up by 16.9% to GBP194.0m (2016: GBP166.0m).
Our balance sheet remains strong with increased
financial capacity to invest in growth and to
acquire. The Board is proposing a dividend increase
of 7%, the 38(th) consecutive year of 5% or more
dividend growth.
The 19.0% (GBP153.9m) increase in revenue included
4.3% organic constant currency revenue growth.
Acquisitions contributed 4.9% to growth. There
was a significant 9.8% positive currency translation
impact.
The adjusted(1) profit increase of 16.9% (GBP28.0m)
included 3.6% organic constant currency profit
growth. Acquisitions contributed 2.8% to growth.
There was a 10.5% positive currency translation
impact.
Revenue and profit growth from organic operations
at constant currency plus contribution from acquisitions
was 9.2% and 6.4% respectively.
Statutory profit before taxation increased by
15.7% to GBP157.7m (2016: GBP136.3m). Statutory
profit is calculated after charging the amortisation
and impairment of acquired intangible assets of
GBP43.9m (2016: GBP23.1m) and after crediting
acquisition related items, including revisions
to provision for acquisition contingent consideration
and related foreign exchange movements, of GBP9.5m
(2016: GBP7.2m charge) arising from current and
prior year acquisitions. The reduction in forecast
acquisition contingent consideration, and the
related impairment of acquired intangible assets
are primarily attributable to Visiometrics and
are discussed in the Acquisition section below.
There was a gain on disposal of GBP0.6m in the
prior year. Statutory profit is also after charging
GBP1.9m for the restructuring of Pixelteq, within
the Environmental & Analysis sector, in the first
half of 2016/17. The amount is less than the figure
of GBP2.1m included in the Half Year report.
There were 52 weeks in 2016/17 compared with 53
weeks in the prior year. The extra week fell in
the first half of the prior year. We are revising
the accounting calendar so that future accounting
periods will run from 1 April to 31 March.
Revenue grew by 16.5% in the first half increasing
to 21.3% in the second half. There was a significant
positive contribution from currency translation
in both halves, but this was greater in the second
half. Organic revenue growth at constant currency
was 2.1% in the first half increasing to 6.2%
in the second half with particularly good growth
in the two safety sectors.
Adjusted(1) profit growth was also higher in the
second half at 20.8% compared to 12.0% in the
first half. The contribution to profit from currency
translation was greater in the second half. Organic
profit growth at constant currency was 2.0% in
the first half increasing to 5.0% in the second
half. The first half/second half split of adjusted(1)
profit was 43%/57% slightly more weighted to the
second half than our more typical 45%/55% pattern.
All four sectors delivered revenue and profit
growth. Process Safety grew strongly in the second
half as expected, to deliver revenue and profit
growth following a decline in the first half.
The highest rates of revenue and profit growth
were in the Medical sector boosted by the contribution
from acquisitions and currency. Infrastructure
Safety grew by less in the second half than in
the first half although delivered a strong result
for the year. Environmental & Analysis built on
the strong performance in the prior year, with
high profit growth in the second half.
At organic constant currency all sectors achieved
revenue growth. All except Process Safety delivered
profit growth for the year, although it did deliver
profit growth in the second half.
Central administration costs were GBP10.5m (2016:
GBP8.3m). As expected there was an increase in
investment in talent development, international
expansion and improvements in cyber security.
In the prior year there was a profit on sale of
a Group freehold property. We expect a further
increase in the underlying costs in 2017/18 as
we continue to invest in the growth of the Group.
Revenue and profit growth
Percentage growth
----------------------------------
Organic
growth(2)
2017 2016 Increase Organic at constant
GBPm GBPm GBPm Total growth(2) currency
------------- ------ ------ --------- ------ ----------- -------------
Revenue 961.7 807.8 153.9 19.0% 14.1% 4.3%
Adjusted(1)
profit 194.0 166.0 28.0 16.9% 14.1% 3.6%
------------- ------ ------ --------- ------ ----------- -------------
Widespread growth
There was strong revenue growth in all regions.
Widespread organic growth was boosted by positive
currency impacts and the benefit of acquisitions.
The USA continues to be our largest revenue destination
increasing by 27% to contribute 36% (2016: 34%)
of Group revenue. All sectors grew in the USA
with the largest increase in the Medical sector.
In Mainland Europe revenue increased by 17% and
all sectors grew, with a particularly strong performance
by Infrastructure Safety. Asia Pacific was up
21%, with all except Process Safety growing strongly.
Asia Pacific revenue is now only 2% lower than
revenue in the UK, where revenue rose by 7%. Africa,
Near and Middle East grew by 9% and Other countries
increased by 29% with good growth in Canada and
some recovery in South and Central America.
Revenue from territories outside UK/Mainland Europe/USA
grew by 19%, ahead of our 10% growth target. This
was in line with growth in revenue in UK/Mainland
Europe/USA.
Due to the significant currency and acquisition
impacts the underlying performance is better understood
when measured at organic constant currency. The
USA grew in the year by 1% at organic constant
currency with Infrastructure Safety showing a
decline. Some larger contracts towards the end
of the second half of the prior year did not repeat
contributing to a flat second half performance
in the USA in 2016/17 for the Group. Mainland
Europe grew by 6% in the year, well ahead of the
2% growth in the first half with Infrastructure
Safety delivering very strong second half growth.
The UK grew by 5% in the year following 1% first
half growth again with Infrastructure Safety performing
well in the second half together with a good performance
in Environmental & Analysis.
Asia Pacific grew by 9% at organic constant currency
ahead of the 7% first half growth, with strong
growth in Medical and good growth in Environmental
& Analysis and Infrastructure Safety. China grew
by 11% with growth in all sectors. Africa, Near
and Middle East performance was mixed with Process
Safety up and Environmental & Analysis down. There
was organic constant currency growth in all four
sectors in Other countries.
Geographic revenue growth
2017 2016
------ ----------- ------ -----------
% organic growth at
GBPm % of total GBPm % of total Change GBPm % growth constant currency
------------------------ ------ ----------- ------ ----------- ------------ --------- -----------------------
United States of
America 345.3 36% 272.9 34% 72.4 27% 1%
Mainland Europe 210.4 22% 179.3 22% 31.1 17% 6%
United Kingdom 154.9 16% 144.8 18% 10.1 7% 5%
Asia Pacific 151.6 16% 125.0 15% 26.6 21% 9%
Africa, Near and Middle
East 60.8 6% 55.7 7% 5.1 9% (1%)
Other countries 38.7 4% 30.1 4% 8.6 29% 10%
------------------------ ------ ----------- ------ ----------- ------------ --------- -----------------------
961.7 100% 807.8 100% 153.9 19% 4%
------------------------ ------ ----------- ------ ----------- ------------ --------- -----------------------
Continued high returns
Halma's Return on Sales(2) has exceeded 16% for
32 consecutive years. We aim to deliver Return
on Sales in the range of 18-22%. This year Return
on Sales was 20.2% (2016: 20.6%). Return on Sales
for Process Safety reduced this year but strengthened
in the second half and remains at the high rate
of 24%. Medical and Infrastructure Safety sectors
remained broadly in line with last year. Environmental
& Analysis improved profitability, building on
the increase in the prior year and achieved 19%
Return on Sales. Higher financing costs and lower
Return on Sales from recent acquisitions contributed
to the slightly reduced Return on Sales for the
Group.
Adjusted(1) gross margin (revenue less direct
material and direct labour costs) remained steady
at 64.5% (2016: 64.2%) continuing a long trend
of stability and reflecting strong management
of pricing and input costs.
Return on Total Invested Capital(2) (ROTIC), the
post-tax return on the Group's total assets including
all historic goodwill, remained at the high level
of 15.3% (2016: 15.6%).
ROTIC is a relentless metric. Every year the addition
of prior year retained earnings to Total Invested
Capital mean that high rates of organic constant
currency profit and acquisition growth are needed
just to maintain ROTIC. Currency movements also
have an impact on ROTIC. Total Invested Capital,
which includes significant US Dollar and Euro
assets, has typically been affected by currency
movements more than the post-tax return.
Our objective is to continue to invest in our
businesses to deliver growth whilst maintaining
a high level of ROTIC. At 15.3% ROTIC was once
again ahead of our target of 12% and well in excess
of Halma's Weighted Average Cost of Capital (WACC),
estimated to be 7.1% (2016: 8.1%).
Significant currency impacts
Halma reports its results in Sterling. Our other
key trading currencies are the US Dollar, Euro
and to a lesser extent the Swiss Franc. Over 45%
of Group revenue is denominated in US Dollars
and approximately 15% in Euros.
The Group has both translational and transactional
currency exposure. Translational exposures arise
on the consolidation of overseas company results
into Sterling. Translational exposures are not
hedged.
Transactional exposures arise where the currency
of sale or purchase transactions differs from
the functional currency in which each company
prepares its local accounts. After matching currency
of revenue with currency costs wherever practical,
forward exchange contracts are used to hedge a
proportion (up to 75%) of the remaining forecast
net transaction flows where there is a reasonable
certainty of an exposure.
We hedge up to 12 months and, in certain specific
circumstances, up to 24 months forward. At 1 April
2017 over 50% of our next 12 months' currency
trading transactions were hedged. There is a good
degree of natural hedging within the Group in
US Dollars but we typically spend less in Euros
than we sell and so have a net exposure of approximately
EUR40m at any time.
We saw continued volatility in currencies throughout
the year and this had a significant impact on
the results. Average exchange rates are used to
translate results in the Income Statement. Sterling
weakened in the first half of the year, in particular
following the result of the EU referendum in the
UK, by an average 11% relative to the US Dollar
and 12% against the Euro. For the year as a whole
Sterling was on average 13% weaker against both
the US Dollar and the Euro. Currency translation
therefore had a positive impact of 9.8% on revenue
and 10.5% on adjusted(1) profit for 2016/17.
Weighted average Exchange rates
rates used in used to
the Income Statement translate the
Balance Sheet
------ ------------------------ --------------------
2017 2016 2017 2016
------ ----------- ----------- --------- ---------
First Full year Full year Year end Year end
half
------ ------ ----------- ----------- --------- ---------
US$ 1.36 1.31 1.51 1.25 1.42
Euro 1.21 1.19 1.37 1.17 1.25
------ ------ ----------- ----------- --------- ---------
Based on the current mix of currency denominated
revenue and profit, a 1% movement in the US Dollar
relative to Sterling changes revenue by GBP4.4m
and profit by GBP0.8m. Similarly, a 1% movement
in the Euro changes revenue by GBP1.2m and profit
by GBP0.3m.
We expect currency rates to continue to be volatile.
If currency rates through the 2017/18 year were
as follows: US Dollar 1.30/Euro 1.15 relative
to Sterling, and assuming a constant mix of currency
results, we would expect approximately 1% positive
currency translation impact on revenue and profit
in 2017/18 compared with 2016/17. On this basis
there would be a positive impact in the first
half of the year, mostly reversing in the second
half of the year.
Increased financing cost
The net financing cost in the Income Statement
of GBP9.3m was higher than the prior year (2016:
GBP7.1m). The average cost of financing was higher
due to the increased interest rate on long-term
borrowing following the US Private Placement completed
in January 2016. Average debt for the year was
also higher, following acquisition expenditure
made in the second half of the prior year (see
the 'Average debt and interest rates' table below
for more information).
Interest cover (EBITDA as a multiple of net interest
expense as defined by our revolving credit facility)
was 30 times (2016: 46 times) which was well in
excess of the four times minimum required in our
banking covenants.
The net pension financing charge under IAS 19
is included within the net financing cost. This
year it decreased to GBP1.6m (2016: GBP2.0m) due
to a combination of a lower net pension deficit
at the start of the year and lower discount rate
than the prior year.
Steady group tax rate
The Group's approach to tax is to ensure compliance
with the tax regulations in all of the countries
in which it operates. The key features of this
are: (1) Tax compliance - Halma is committed to
maintaining good relationships with tax authorities
based on cooperation, transparency and paying
in full the tax due in each jurisdiction; (2)
Tax strategy - our tax arrangements have an underlying
business purpose and, where possible, we consider
mitigating tax in compliance with local legislation;
and (3) Tax policy - the Board of Directors is
regularly updated, either directly or through
the Audit Committee, on the Group's Tax policy
and management of tax risks.
The Group has major operating subsidiaries in
10 countries so the Group's effective tax rate
is a blend of these national tax rates applied
to locally generated profits. A significant proportion
(approximately one quarter) of Group profit is
generated and taxed in the UK. The Group's effective
tax rate on adjusted profit was just below the
prior year at 21.5% (2016: 21.9%).
We benefit from widely claimed R&D related tax
incentives, exemptions and reliefs (for example
under the UK 'Patent Box' rules).
There remains significant uncertainty over potential
tax legislation changes in the USA, our largest
region. Such changes are not expected to be imminent.
We would benefit from a reduction in the rate
of corporation tax but the overall impact on Halma
would depend on the package of changes. We continue
to monitor the position closely.
Strong cash generation
Cash generation is an important component of the
Halma model underpinning further investment in
our businesses, supporting value enhancing acquisitions
and funding an increasing dividend. Our cash conversion
in 2016/17 was strong. Adjusted operating cash
flow was GBP175.5m (2016: GBP148.3m) and represented
86% (2016: 86%) of adjusted operating profit,
ahead of our cash conversion KPI target of 85%.
Operating cash flow summary
2017 2016
GBPm GBPm
------------------------------------- ------- -------
Operating profit 167.1 142.9
Net acquisition costs and
contingent consideration
fair value adjustments (9.5) 7.2
Amortisation and impairment
of acquisition-related
acquired intangible assets 43.9 23.1
Loss on restructuring of
operations 1.9 -
------------------------------------- ------- -------
Adjusted operating profit 203.4 173.2
Depreciation and other amortisation 26.3 21.8
Working capital movements (13.9) (5.8)
Capital expenditure net
of disposal proceeds (23.1) (22.1)
Additional payments to pension
plans (10.2) (7.7)
Other adjustments (7.0) (11.1)
------------------------------------- ------- -------
Adjusted operating cash
flow 175.5 148.3
------------------------------------- ------- -------
Cash conversion % 86% 86%
------------------------------------- ------- -------
Non-operating cash flow
and reconciliation to net
debt
2017 2016
GBPm GBPm
----------------------------------- -------- --------
Adjusted operating cash
flow 175.5 148.3
Tax paid (33.2) (27.2)
Acquisition of businesses
including cash/debt acquired (10.2) (202.6)
Net movement in loan notes 0.2 0.1
Net finance costs and arrangement
fees (9.5) (4.7)
Dividends paid (49.8) (46.5)
Own shares purchased/issue
of shares (2.4) (3.0)
Adjustment for cash outflow
on share awards not settled
by own shares (3.3) (2.5)
Disposal of operations - 0.9
Effects of foreign exchange (17.0) (8.6)
----------------------------------- -------- --------
Movement in net debt 50.3 (145.8)
Opening net debt (246.7) (100.9)
Closing net debt (196.4) (246.7)
----------------------------------- -------- --------
Net debt to EBITDA
2017 2016
GBPm GBPm
--------------------------------- ------ ------
Adjusted operating profit 203.4 173.2
Depreciation and amortisation
(excluding acquired intangible
assets) 26.3 21.8
--------------------------------- ------ ------
EBITDA 229.7 195.0
--------------------------------- ------ ------
Net debt to EBITDA 0.86 1.27
--------------------------------- ------ ------
A summary of the year's cash flow is shown in
the table above. The largest outflows in the year
were in relation to dividends and taxation paid.
Working capital outflow, comprising changes in
inventory, receivables and creditors, totalled
GBP13.9m (2016: GBP5.8m). This outflow was higher
than typical following strong revenue growth in
the final quarter leading to increased year end
debtor balances. Debtor days remain in line with
the prior year and outstanding debtor balances
are actively reviewed as part of our year end
process.
Dividends totalling GBP49.8m (2016: GBP46.5m)
were paid to shareholders in the year. Taxation
paid was GBP33.2m (2016: GBP27.2m).
Capital allocation and funding
Halma aims to deliver high returns, measured by
Return on Total Invested Capital (ROTIC), well
in excess of our cost of capital. Future earnings
growth and strong cash returns underpin ROTIC
and our capital allocation as follows:
Investment for organic growth
Organic growth is our priority and is driven by
investment in our businesses, in particular through
capital expenditure, innovation of new products,
international expansion and the development of
our people.
Regular and increasing returns to shareholders
We have maintained a long-term progressive dividend
policy as our preferred route for delivering cash
returns to shareholders.
Value enhancing acquisitions
We supplement organic growth with acquisitions
in related markets. This brings new technology
and Intellectual Property into the Group and can
expand our market reach.
Investment for organic growth
All sectors continue to innovate and invest in
new products with R&D spend determined by each
individual Halma company. This year R&D expenditure
grew by 23% with increased investment through
the year, in particular in the Infrastructure
Safety sector. Excluding currency impacts, R&D
expenditure increased by 13%. R&D expenditure
as a percentage of revenue increased to 5.3% (2016:
5.1%). In the medium term we expect R&D expenditure
to increase broadly in line with revenue.
Under IFRS accounting rules we are required to
capitalise certain development projects and amortise
the cost over an appropriate period, which we
determine as three years. In 2016/17 we capitalised
GBP10.7m (2016: GBP8.6m), and amortised GBP6.8m
(2016: GBP5.0m). This results in an asset carried
on the Consolidated Balance Sheet, after GBP1.4m
of foreign exchange gain, of GBP28.8m (2016: GBP23.5m).
All R&D projects and particularly those requiring
capitalisation, are subject to rigorous review
and approval processes.
Capital expenditure on property, plant and computer
software this year was GBP24.4m (2016: GBP24.1m).
The prior year included additional investment
of GBP4m in Group properties. The underlying increase
in fixed assets was spread across the four sectors
supporting our operating capability, capacity
and growth. We anticipate increased capital expenditure
in the coming year.
Regular and increasing returns for shareholders
Adjusted(1) earnings per share increased by 17%
to 40.21p (2016: 34.26p). Statutory earnings per
share increased by 19% to 34.25p (2016: 28.76p).
We deliver shareholder value via consistent growth
in earnings per share and this is reflected in
our senior management share-based incentives.
The Board is recommending a 7.0% increase in the
final dividend to 8.38p per share (2016: 7.83p
per share), which together with the 5.33p per
share interim dividend gives a total dividend
of 13.71p (2016: 12.81p), up 7.0%. This year dividend
cover (the ratio of adjusted profit after tax
to dividends paid and proposed) is 2.93 times
(2016: 2.67 times).
The final dividend for 2016/17 is subject to approval
by shareholders at the AGM on 20 July 2017 and
will be paid on 16 August 2017 to shareholders
on the register at 14 July 2017.
We continue with a long-term progressive dividend
policy, maintaining a prudent level of dividend
cover. The aim is to deliver consistent, sustainable
and affordable dividend growth. Dividend growth
has been an important contributor to our Total
Shareholder Return over many years.
The Board's determination of recommended annual
dividend increases takes into account the medium-term
rate of organic constant currency growth, organic
investment needs and acquisition opportunities,
while maintaining moderate debt levels.
One acquisition in the year
Acquisitions and disposals are an important part
of our growth strategy. We buy businesses already
successful in, or adjacent to, the niches in which
we operate. Sector acquisition resources to support
this strategy have been further increased in the
year.
In January 2017 we acquired FluxData, based in
New York State, which joins our Environmental
& Analysis sector. The initial consideration was
US$12m (GBP9m). Deferred contingent consideration
of up to US$15.5m (GBP12m) is payable for growth
to March 2019. Our current estimate is that US$11m
(GBP9m) will be paid in deferred contingent consideration
and this has been provided for in the accounts.
There were three acquisitions completed in the
second half of 2015/16. In the first half of 2016/17
in aggregate these contributed less to revenue
and profit than their run rates at acquisition.
As expected their contribution increased in the
second half of this year with contracts in place
at acquisition progressing to plan. An increased
contribution is anticipated in the coming year
and we expect a good performance from these acquisitions
over the long term.
The acquisition of Visiometrics S.L. in the prior
year was structured with a high element of deferred
contingent consideration to reduce the financial
risk to the Group if the vendor's growth forecast
targets were not met. Deferred contingent consideration
previously provided for of GBP10m has been released
in 2016/17 relating to a specific customer where
sales targets will not be achieved. Offsetting
this is the GBP12m impairment of the customer
related intangible asset attributable to the same
customer. Both of these items are included in
the adjustments to profit detailed in Note 2 to
the Results. Our current estimate is that GBP12.0m
remains to be paid in deferred contingent consideration
on this acquisition and this amount is provided
for in the accounts.
Funding capacity increased
Halma operations are inherently cash generative
and the Group has access to competitively priced
debt finance providing good liquidity for the
Group. Group treasury policy is conservative and
no speculative transactions are undertaken. We
continue to fund organic and acquisition growth
through our strong cash flow and use of debt facilities.
In November 2016 we increased our Revolving Credit
Facility from GBP360m to GBP550m for five years
to 2021 on favourable terms. This supplements
the US$250m US Private Placement drawn down in
January 2016 which provided diversification of
Group funding.
At the year end net debt was GBP196.4m (2016:
GBP246.7m), a combination of GBP265.2m of debt
and GBP68.8m of cash held around the world to
finance local operations. The gearing ratio at
year end (net debt to EBITDA) reduced to 0.86
times (2016: 1.27 times) following cash inflows
this year. We are comfortable operating at this
level of gearing and would increase to 2 times
gearing if the timing of acquisitions required
it. Net debt represents 5% (2016: 7%) of the Group's
year end market capitalisation. The Group continues
to operate well within its banking covenants with
significant headroom under each financial ratio.
These sources of funding provide Halma with the
financial resources to operate within its existing
business model for the medium term, continuing
investment in our business and with substantial
capacity for further acquisitions.
Average debt and interest
rates
2017 2016
------------------------------ ------ ------
Average gross debt (GBPm) 300.5 208.1
Weighted average interest
rate on gross debt 2.00% 1.54%
Average cash balances (GBPm) 67.3 57.7
Weighted average interest
rate on cash 0.32% 0.38%
Average net debt (GBPm) 233.3 150.4
Weighted average interest
rate on net debt 2.49% 1.99%
------------------------------ ------ ------
Pensions update
We closed the two UK defined benefit (DB) plans
to new members in 2002. In December 2014 we ceased
future accrual within these plans with future
pension benefits earned within the Group's Defined
Contribution (DC) pension arrangements. These
changes have reduced Group risk.
The Group accounts for post-retirement benefits
in accordance with IAS 19 Employee Benefits. The
Consolidated Balance Sheet reflects the net deficit
on our pension plans at 1 April 2017 based on
the market value of assets at that date and the
valuation of liabilities using year end AA corporate
bond yields.
On an IAS 19 basis the deficit on the Group's
DB plans at the 2016/17 year end has increased
to GBP74.9m (2016: GBP52.3m) before the related
deferred tax asset. The value of plan assets increased
to GBP265.0m (2016: GBP221.9m). In total, about
50% of plan assets are invested in return seeking
assets providing a higher expected level of return
over the longer term. Plan liabilities increased
to GBP339.9m (2016: GBP274.2m) primarily due to
the reduction in the discount rate from 3.4% to
2.5%.
The plan's actuarial valuation reviews, rather
than the accounting basis, determine any cash
deficit payments by Halma. Following the most
recent triennial actuarial valuation of the two
UK pension plans, cash contributions aimed at
eliminating the deficit were agreed with the trustees.
In 2016/17 these contributions amounted to GBP10.2m
(2016: GBP7.7m) with agreed modest future increases.
The next triennial valuations are due in late
2017 and early 2018 and following these appropriate
revised contribution rates will be set as necessary.
Risk management
Halma has a well-established business and financial
model which has delivered success consistently
over the long term. The model is based on considerable
autonomy and accountability at operating company
and sector level, within a robust strategic framework
supported by strong policies and clear procedures.
In the year we have continued to develop risk
and control capability within each sector and
we recruited a Director of Risk and Internal Audit
at Group level to help support growth of our businesses
and our proactive approach to risk management.
Risk is managed closely and is spread across well-resourced
companies, each of which manages risk to its individual
level of materiality. There are extensive review
processes in place including peer financial review
and risk-based internal audit. The principal Group
risks have been referenced below and in the Chief
Executive's Strategic Review and Sector Reviews.
In addition principal risks are highlighted in
the Audit Committee Report and Auditor's Report
in the Annual Report and Accounts 2017.
The UK Corporate Governance Code issued by the
Financial Reporting Council (FRC) requires regular
monitoring of risk by the Board. As noted above,
for many years we have had comprehensive and regular
review of risk taking place at many levels throughout
the organisation and this is discussed more fully
in the Strategic Report and Governance sections
within the Annual Report.
The UK referendum decision in June 2016 to leave
the European Union has added a new dimension to
the uncertainties surrounding global economic
growth. In 2016/17, approximately 10% of Group
revenue came from direct sales between the UK
and Mainland Europe. Our decentralised model with
businesses in diverse markets and locations enables
each Halma company to adapt quickly to changing
trading conditions, such as weaker Sterling, offering
competitive pricing opportunities for exports
from the UK.
Halma has formed an executive working group that
is tasked with assessing and monitoring the impacts
on our business and to communicate updates and
guidance as the Brexit process evolves. To date,
the following risks have been identified as having
an actual and/or potential impact on our business:
* Economic conditions - increased overall uncertainty
including the specific impacts on growth, inflation,
interest and currency rates
* Defined benefit pension liability - movements in bond
yields affecting discount rates which may increase
the liability
* Laws and regulations - potential changes to UK and EU
based law and regulation including product approvals,
patents and import/export tariffs
Cyber security represents an ongoing risk to our
businesses. This year, in addition to continuing
our online employee awareness programme, we have
further strengthened the proactive monitoring
of threats and our system resilience. We continue
to extend our international team and also continue
to design cyber security into our products.
The Board considers all of the above factors in
its review of 'Going Concern' as described below.
In addition the Viability Statement is presented
in an abridged form below, and in full in the
Annual Report and Accounts 2017, extending the
Board's review over a three year period. Both
reviews have been concluded satisfactorily.
The Annual Report and Accounts is prepared in
line with the latest requirements for integrated
reporting and the Board has taken care to ensure
that it is 'fair, balanced and understandable'.
The Audit Committee took a key role in assessing
compliance with reporting requirements supported
by robust management processes.
Kevin Thompson, Finance Director
(1) In addition to those figures reported under IFRS
Halma uses adjusted figures as key performance
indicators as management believe these measures
enable them to better assess the underlying trading
performance of the business. Adjusted profit
excludes the amortisation and impairment of acquired
intangible assets; acquisition items, restructuring
cost and profit or loss on disposal of operations.
All of these are included in the statutory figures.
Note 11 to the Results gives further details
with the calculation and reconciliation of adjusted
figures.
(2) See Highlights.
Process Safety Sector Review
Products which protect people and assets at work.
Specialised interlocks that control critical processes
safely. Instruments that detect flammable and
hazardous gases. Explosion protection and pressure
relief systems, and corrosion monitoring products.
Philippe Felten, Sector Chief Executive, Process
Safety
Sector progress summary
The sector has delivered both revenue and profit
growth in difficult market conditions.
In the first half of the year our major market,
energy, was still impacted by low oil prices.
The second half saw improvements with a combination
of stabilised oil prices and positive progress
in our diversification strategy.
These factors and investment made during the year
have positioned the sector to continue to grow
in 2017/18.
Market trends and growth drivers
Population growth and economic development drive
demand for life-critical resources. The industrial
processes supporting this development are at risk
from accidents caused by explosions, radiation,
fire, corrosion and other hazards. Workers and
assets are exposed to these dangers.
Every year, industrial accidents have significant
human, environmental and economic consequences.
These accidents have many causes, including component
failure, human error or procedure deviations.
The consequences vary in severity from minor (such
as loss of production) to major (serious injury,
death, closure of business).
The companies in Halma's Process Safety sector
have a deep understanding of our customers' safety
challenges. We offer innovative and reliable products
and technology that reduce accidents and enhance
the efficiency of industrial processes by isolating,
detecting or removing hazards.
Our end markets are diverse and our products can
be found in energy (mainly oil and gas), chemical,
pharmaceutical, food and beverage, automotive,
transport and logistics installations across the
globe.
The underlying long term drivers in our Process
Safety markets remain relatively unchanged, despite
some sectors, such as oil and gas, having faced
economic challenges over the last 18 months.
Our main drivers are:
* increasing health, safety and environmental
regulations
* industrialisation and population growth, stimulating
rising energy demand
* increasing development, complexity and geographic
spread of energy resources and their safety
requirements
* automation and digitalisation, requiring connected
safety controls systems
Governments continue to support increased health
and safety regulations to protect people and the
environment. This drives the demand for our products
at rates that are higher than general economic
growth. In a challenging oil and gas environment,
the Process Safety sector delivered performance
in 2016/17 that demonstrated the robustness of
our growth drivers.
Oil prices fell from a high in 2014 due to oversupply
and reduced demand as economic growth slowed.
The reduction in capital expenditure by the oil
majors was significant in the upstream segment,
and to a lesser extent in the midstream segment.
The sector started to see the impact of this in
mid-2015. Chemicals and petrochemicals processing
benefited from the low oil price and, in those
markets, we saw more resilient demand.
In the first half of 2016/17, market conditions
did not change significantly. Oil price stability
offered some comfort, but overall, capital expenditure
in upstream and midstream markets remained subdued.
In the second half of 2016/17 the oil and gas
market was more active, with oil price stability,
cost-efficiency efforts, and non-conventional
oil extraction in the US creating a slightly more
positive environment for our businesses. Although
upstream capital expenditure remained tightly
controlled, the need to upgrade and maintain safety
products led to higher activity levels. These
improvements were, however, modest relative to
levels seen a couple of years earlier.
In these challenging and complex market conditions,
we adapted our strategy by diversifying into non-oil
and gas end markets. This demonstrated our flexibility
and deep understanding of the applications in
which our products can be used. This ability to
use our technologies for new applications and
new end markets has been a key factor in our improved
performance.
Geographic trends
Revenue increased in most major regions. The US
revenue grew by 12% helped by the gradual increase
in non-conventional oil extraction in the second
half of the year.
Europe revenue rose as we diversified our explosion
protection business into chemical and pharmaceutical
applications, while our safety interlocks businesses
saw good momentum in the automotive, food, beverage
and transport/logistics markets. UK market activities
were flat compared to last year, with continuing
low activity in the North Sea.
In China, our business grew by 18% with good progress
in the gas detection and machine automation/sequential
safety sub sectors. Stricter safety regulations
continue to be enforced, creating growing demand
for our products in China.
Sales in the Middle East grew strongly by 37%
as oil and gas production has been maintained
at reasonable levels.
In South America, economic conditions were still
depressed. Supported by our Brazil sector hub,
we were able to achieve some growth, mainly in
the explosion protection market.
We saw good growth in India particularly in our
pipeline management sub-sector.
Strategy
Our strategy of investing in new products in order
to diversify our end markets and meet specific
local requirements has delivered improving results.
We reduced costs in some of our oil and gas-exposed
businesses and were able to focus our activities
on new application niches in non-oil and gas markets.
At the start of the year we combined some of our
businesses in order to raise operating efficiency
and support diversification. This strategy has
led to faster product innovation, increased geographic
market reach and improved customer service. Combining
these businesses also allowed us to offer customers
an extended product portfolio.
Investment in innovation and application engineering
capabilities was increased, providing local markets
with quick product adaptation for specific requirements.
Our companies embrace globalisation, diversification
and the need to develop connected technology.
We are upgrading and developing talent across
our businesses.
Greater emphasis has been placed on strategic
marketing, with our companies researching new
market opportunities.
Our acquisition strategy is to focus on businesses
that will reinforce our diversification, accelerate
our digital transformation, and contribute to
our geographic expansion.
Performance
Sector revenues grew by 7% to GBP167m (2016: GBP155m)
and profit(1) grew by 2% to GBP40m (2016: GBP40m).
At constant currency, organic revenue was up by
1% and profit down 4%. Return on Sales was 24.1%.
The first half of the year was challenging while
the second half saw some positive signs in the
non-conventional oil market. This welcome increase
in activity, combined with our restructuring efforts
aimed at increasing diversification, delivered
revenue and profit growth through the second half
of the year.
Our machine automation, sequential safety and
gas safety companies enjoyed good levels of demand
for existing safety products, while offering innovative
solutions in new, specific niche applications.
The newly combined sequential safety businesses
delivered excellent performance thanks to strong
regional activity and centrally-located innovation.
Our machine automation business continues to perform
well, with good progress in North America and
China. The gas detection business also made good
progress in China.
Our pressure management companies performed better
in the second half due to efforts in chemical
and pharmaceutical markets and a slight recovery
in the US oil industry.
Our pipeline management businesses had mixed results.
The corrosion monitoring business delivered flat
profit while our valve interlock businesses faced
difficult market conditions, as their products
come late in the cycle when capital expenditures
are released. Efforts to grasp new opportunities
with valve drive units and valve monitoring solutions
have started to improve results.
New products (not older than three years) accounted
for 29% of sector revenues. R&D spend has remained
at good levels, providing new products and innovations
to support our growth ambitions.
Outlook
Overall industrial production is expected to increase
on the three major continents, with China and
the US leading this growth. In parallel, the food
and beverage, automotive, and transport and logistics
industries will continue to be attractive markets
for the sector.
Non-conventional US oil extraction is set to rebound
in 2017 and we will benefit from this increased
activity. The chemical market will continue to
develop further mainly in the USA.
The evolution of smart factories using the internet
of things and cloud computing will continue to
drive the demand for safety products. We see the
possibility to offer extended capabilities as
we move to digitalise our products.
We will continue to push on our diversification
strategy, constantly looking at specific niche
applications.
The combination of market diversification, our
newly-combined businesses, and a slow economic
improvement in the oil and gas industry will enable
us to make further progress in the coming year.
(1) See note 2 to the Results.
Infrastructure Safety Sector Review
Products and services that improve the safety
and mobility of people and protect commercially
and publicly owned infrastructure. Fire detection
systems, smoke detectors, specialist fire suppression
systems, people and vehicle flow solutions, security
systems and elevator safety products.
Paul Simmons, Sector Chief Executive, Infrastructure
Safety
Sector progress summary
The Infrastructure Safety sector delivered strong
organic revenue and profit growth with revenue
growth across all geographic regions and most
sub-sectors. Record results in the Fire detection
and People and vehicle flow sub-sectors more than
compensated for a more challenging year for the
Fire suppression sub-sector.
Return on Sales and Return on Capital Employed
remained comfortably above the Group's targets
with good cash generation. Investment in R&D in
absolute terms and as a percentage of sales continued
to increase. New sensing technologies, increased
product functionality and inter-connectivity were
the predominant themes in building the sector's
new product pipeline.
Market trends and growth drivers
The long-term growth drivers of global population
growth, urbanisation and increasing health and
safety regulation worldwide remain central to
our strategy. We are also increasingly focusing
on two additional drivers:
* the need for increased efficiency in buildings and
people movement
* the need for protection from increasing threats to
security
These growth drivers provide the potential for
each of our sub-sectors to grow at a faster rate
than their wider markets.
Technology trends across all sector businesses
include the increasing inter-connectivity of devices
and systems, wireless technology and an increase
in the use of cloud based applications to share
data and facilitate data analysis.
The combined effect of the market growth drivers
and technology trends are reflected in each sub-sector's
market growth rates:
* the global elevator market is expected to grow at
around 6% per year. The elevator refurbishment market
is forecast to grow above that due to an
ever-increasing installed base. Due to the high cost
of fixed telephone lines, mobile telecommunications
technology is increasingly being utilised to connect
elevator cars to call centres for emergency
communications and to facilitate data transmission
for applications such as predictive maintenance
* the fire detection market is forecast to grow at over
5% annually with premium products such as
multi-function sensors, wireless detectors and
networked panels expected to grow beyond the general
market growth rate. Increased regulation continues to
be important in the fire market. For example, China's
fire regulator (CCCF) will introduce more stringent
standards in the next few years. A change to
Underwriter Laboratories' (UL) fire regulation
requirements to deal with new types of fire and to
eliminate nuisance alarms will increase detector
specifications in 40% of the global market by 2020.
The global fire suppression market is expected to
grow at 5% per year
* the core of our People and vehicle flow sub-sector is
pedestrian sensing. Our strategy of diversification
into other applications such as vehicle sensing and
people counting is reducing our dependence on the 4%
growth global door market and providing higher growth
opportunities
* increasingly home owners are looking to integrate
their home security systems with the automation of
other functions of property management, all
controlled and monitored from smart phones. These
connected systems are poised to deliver annual growth
of 9% as part of the total security market growth of
5% annually
Geographic trends
While all sub-sectors enjoy positive market growth
worldwide, there are regional variations. These
are driven by specific local opportunities (for
example vehicle inspection in China), local changes
in regulations (for example fire regulations changes)
or regional economic growth rates. For example,
the fire detection market is due to grow 12% per
year in India, 7% in China and below 5% in the
USA and Europe.
The sector's regional companies can see changes
within a geographic market. For example, the Chinese
elevator OEM supply market is very large but highly
competitive. The elevator service and refurbishment
market in China is much less mature and offers
both higher margin and higher growth opportunities.
Another example is the opportunity created for
people flow technologies created by China's significant
investment in its high-speed rail network.
Strategy
The Infrastructure Safety sector is focused on
improving the safety and mobility of people and
protecting commercially and publicly owned infrastructure
worldwide. We target high return, niche markets
that have low cyclicality and have high barriers
to entry. We build our business globally by developing
products and services within our sector companies
or by acquiring companies that are already leaders
in targeted, adjacent markets.
The trend towards the interconnectivity of devices
to form more intelligent systems is playing an
increasingly important part in the sector's strategic
actions, with the opportunity to offer customers
broader solutions than simply detecting hazards.
Many sector companies are well placed to generate
data and data analysis through their sensor technologies.
This trend is driving increased collaboration
between our companies as they co-operate on joint
development programmes.
Geographic expansion remains a priority. We continue
to strengthen our teams and our product offerings
in China, India and South East Asia. These geographies
are particularly attractive due to their higher
growth rates and the support that the Halma hub
infrastructure can provide.
Our key strategic objectives to drive growth include:
* acquiring companies to strengthen our core
technologies
* acquiring companies in adjacent niche markets
* launching new products to create additional value in
existing and new applications
* developing new products to expand our offerings along
the digital value chain
* establishing R&D capabilities close to our customers
* developing top talent and hiring a capable and
diverse team to meet the changing challenges in our
markets
* operational excellence and the sharing of best
practice to sustain growth in existing product areas
and market segments
Performance
Revenue grew by 19% to GBP315m (2016: GBP265m)
and profit(1) by 17% to GBP65m (2016: GBP56m).
Organic constant currency revenue and organic
constant currency profit growth were both 7%.
All geographic regions contributed strongly to
revenue growth. Mainland Europe grew by 29%, the
US grew by 16% and the UK increased by 11%. Growth
outside these established markets was particularly
encouraging at 20%.
The Fire detection and People and vehicle flow
sub-sectors performed very well. The Security
and Elevator sub-sectors delivered a solid performance,
while the Fire suppression sub-sector declined.
New products played an important role in driving
revenue growth. A new generation laser product
achieved rapid success in the People and vehicle
flow sub-sector and a new fire detection platform,
consisting of multiple products complete with
a new operating protocol, was launched.
Our recent acquisitions made a significant impact
on the sector's results. Advanced Electronics
(Fire detection), acquired in 2014, performed
above expectations. In 2015 we acquired Firetrace,
our specialist Fire suppression company. The company's
performance was below expectations and we made
senior management changes to position the business
for growth.
Return on Capital Employed remained high and well
ahead of the Halma minimum target of 45%. There
was significant investment in capitalised R&D
programmes and substantial spend on targeted automation
of our manufacturing processes. The benefits of
the investment in automation contributed immediately
in increased capacity and increased labour efficiency.
Gross margins were maintained and Return on Sales
was 20.7%, after increased investment in R&D.
Cash generation was strong.
Outlook
The strategic growth drivers of population growth,
urbanisation and increasing regulation remain
key to the sector. Our new product pipeline is
strong, with significant products due to be launched
across multiple sub-sectors in the next year.
As devices are becoming increasingly interconnected,
new opportunities are being created which we are
positioned to exploit. Consequently, in the medium-term
we expect all sub-sectors to grow at, or better
than, market rates through the increased penetration
of core markets and geographic expansion.
The level of acquisition activity has increased.
We expect acquisitions to both enhance our technology
offering in our core markets and accelerate our
regional growth in core sub-sectors. Acquisitions
also provide an opportunity to build platforms
in adjacent sub-sectors. The sector is positioned
to make further progress in the year ahead.
(1) See note 2 to the Results.
Medical Sector Review
Products which enhance the quality of life for
patients and improve the quality of care delivered
by providers. Devices that assess eye health,
assist with eye surgery and primary care applications.
Critical fluidic components used by medical diagnostic
OEMs and laboratories. Sensor technologies used
in hospitals to track assets and support patient
and staff safety.
Adam Meyers, Sector Chief Executive, Medical
Sector progress summary
The Medical sector delivered record revenue and
profit on both an as reported and organic constant
currency basis. Revenue grew in all our major
geographies.
Including recent acquisitions and currency movement,
the sector achieved 31% revenue growth and 29%
profit growth. Medical has averaged greater than
15% growth in both revenue and profit since it
began reporting as a sector in 2013.
On an organic constant currency basis, revenue
grew 4% and profit was ahead 6%.
R&D spending increased again by more than GBP2m,
with continued investment in our core businesses
and investment in recent acquisitions adding new
capabilities to our research teams.
We continued to focus on talent development, investing
in our key people both at the sector level and
throughout our subsidiaries.
Return on Sales remained flat at 26% and Return
on Capital Employed and cash production continue
to be strong.
The performance of our recent acquisitions improved
in the second half and we continued to focus on
acquiring new businesses.
Market trends and growth drivers
The Medical sector growth driver of increasing
demand for healthcare is underpinned by:
* worldwide population ageing and increasing life
expectancy
* increasing prevalence of diabetes, obesity and
hypertension
* increasing healthcare access in developing economies
* new medical diagnostic technologies
* new or improved surgical and pharmaceutical therapies
Global healthcare spending is forecast to rise
over 4% per year through to 2020 with higher rates
in Asia Pacific.
The world population is expected to increase by
1 billion by 2025 with 300 million of that increase
predicted to come from people over 65. Because
eyesight problems and high blood pressure are
both age-related, population ageing is a key driver
for our businesses, especially in ophthalmology
and hypertension management.
With the continued growth of the middle class
in developing economies, it is forecast that 65%
of the global population will be middle class
by 2025. Coupled with increased urbanisation,
rising affluence is likely to lead to more sedentary
lifestyles which increases obesity and hypertension-related
illness and diabetes-related eye disorders.
Currently, one in every three US adults has high
blood pressure and only half of these individuals
have their condition under control. A further
one third have prehypertension which means they
should continue to have their blood pressure monitored
by the type of products made by our patient assessment
companies.
Cataract surgery is one of the most frequent surgical
operations carried out worldwide at more than
25 million annually. Continued growth in the number
of cataract surgeries and an ongoing shift towards
disposable instrumentation will drive global spending
on ophthalmic surgical instrumentation over 5%
per year through to 2022.
In addition to the prevalence of eye disease with
ageing, demand is increasing for improved visual
outcomes and premium procedures due to people's
lifestyles. By 2020, premium cataract procedures
are expected to account for 34% of total cataract
surgery revenue as wealthier and younger patients
are demanding perfect vision at every stage in
life. This market for high-revenue, personal payment
premium procedures is of increasing importance
to our ophthalmic companies which focus on improved
patient outcomes.
Hospitals remain under pressure to improve patient
outcomes, reduce costs, improve throughput and
ensure safety of staff and patients. The global
market for the real time location systems that
we recently added to our portfolio, is forecast
to grow at 24% per year between 2016 and 2022.
The increasing prevalence of lifestyle-connected
and chronic disease, along with a growing acceptance
of molecular diagnostics in personalised medicine,
is driving growth in the in vitro diagnostics
and laboratory markets served by our diagnostic
companies. This market is projected to grow at
5.5% through to 2021.
We are starting to see other macro trends around
healthcare delivery impacting our markets and
offering growth opportunities. Telemedicine is
growing at almost 19% annually as it offers dramatically
different ways to deliver healthcare by sharing
information and data across a wide range of service
providers. One of our ophthalmology companies
is using remote diagnosis via telecoms to help
prevent blindness in diabetic patients.
Trends like increasing global healthcare costs
are putting pressure on product pricing and government
expenditure, increasing market volatility in some
geographies.
Globally regulated markets continue to shift as
increased medical product and procedure approvals
delay product launches, especially in geographies
such as China and Brazil, and more recently Europe.
Recent changes suggest India is introducing tighter
regulation too. Overall, our strong channels and
regulatory experience position us well to navigate
this environment and provide barriers to entry
for new entrants.
Geographic trends
There continues to be considerable geographic
variation in the global medical device market
due to local economic conditions, government spending
programmes and currency fluctuations. Our growth
strategies will continue to vary by region.
The global medical device market is expected to
continue to grow 5% through to 2021. North America
will remain the largest market for medical device
technologies, growing at 4%. In the Asia Pacific
market growth is forecast to continue above 7%,
with Europe recovering at 5% through to 2021.
US healthcare expenditure continues to have the
highest spending per capita, but we may see significant
change under the new political administration.
Hospitals are seeing relief from covering the
uninsured as more Americans benefit from health
insurance through the Affordable Care Act, allowing
them to invest in new technologies, although,
this may change. We expect continued growth for
our single-use surgical devices in the USA and
growing demand in Europe.
The Chinese ophthalmology market could double
by 2021 and we continue to expand our engineering,
sales and marketing staff to drive the development
and commercialisation of local products. Changing
government restrictions from pricing controls
to regulatory tightening continue to make this
a dynamic market.
The Latin American market continues to experience
volatility although should continue to grow on
average across the region. The in vitro diagnostic
business, a focus of our diagnostic companies
in the region, is forecast to grow 7% annually
to 2020.
Strategy
The Medical sector is focused on enhancing the
quality of life for patients and improving the
quality of care delivered by providers.
We serve niche applications in global markets.
By investing in our current portfolio, and acquiring
additional companies, we aim to continue to deliver
growth rates at, or above, Group targets.
We organise our medical businesses into two segments:
Patient care and Provider solutions. Patient care
includes businesses that develop and market devices
to monitor and improve the health of patients.
Current focus areas include ophthalmology and
patient assessment.
Provider solutions features products sold to diagnostic
equipment manufacturers, laboratories and hospitals.
Current focus areas include critical fluidic components
for instruments such as blood analysers, finished
devices for laboratories, and sensor technologies
that track assets in healthcare facilities and
support patient and staff safety.
Key sector strategic initiatives to increase growth
organically and via acquisition include:
* improving talent and increasing diversity
* increasing collaboration to drive geographic
expansion and product development
* increasing R&D investment to adapt to quickly
changing market needs and respond to consumerisation
of healthcare globally
* empowering regional leaders to expand geographic
penetration and increase local manufacturing and R&D
* acquisitions in both core and adjacent market niches
We continue to seek and develop higher calibre
talent. We have increased our gender and international
diversity to drive innovation, collaboration and
better meet market needs.
Collaboration between our Medical sector businesses
continues to increase with shared R&D projects
reaching commercialisation and sales and marketing
projects like shared service technicians in Brazil.
R&D spending increased by GBP2.4m to 4.3% of revenue,
which is above Group target.
This is a 27% increase over last year and 68%
higher than two years ago. The increase has come
throughout our core businesses as well as new
acquisitions.
Our R&D focuses on components and instruments
that will be readily accepted by our existing
customer base as well as technologies that will
advance patient care, reduce cost and improve
outcomes. Efforts continue in emerging markets
to better satisfy local customer needs including
expanding local resources and increasing local
R&D and manufacturing capability.
During 2017 we will expand our collaborative efforts
in China, jointly marketing a wider range of ophthalmic
and diagnostic products.
Performance
The Medical sector grew revenue by 31% to GBP261m
(2016: GBP199m) and profit(1) by 29% to GBP67m
(2016: GBP52m). This includes a favourable currency
impact of 14%. Organic constant currency revenue
growth and organic constant currency profit growth
were 4% (2016: 10%) and 6% (2016: 9%) respectively.
We delivered revenue growth in all major regions
with the USA ahead 43%, Europe up 13%, the UK
13% higher and Asia Pacific ahead 36%.
Growth outside the UK, USA and Europe was 29%,
contributing 25% of sector revenue.
The sector continues to deliver high returns.
Return on Sales remained high at 25.6% (2016:
26.0%). Return on Capital Employed and cash generation
remained strong.
We did not complete any acquisitions in 2016/17,
but continued the integration of the three businesses
acquired in the prior year. These businesses delivered
strong second half performances and will continue
to contribute to sector growth in the year ahead.
Outlook
In the medium term, we expect our Patient care
and Provider solutions segments to outperform
the market with rising revenue driven by export
growth, new products, increased penetration in
existing markets and acquisitions.
We will continue to build our acquisition targets
pipeline within existing and adjacent niches,
and expect continued growth from the businesses
acquired in 2015/16.
(1) See note 2 to the Results.
Environmental & Analysis Sector Review
Products and technologies for analysis in environmental
safety and life sciences markets. Market-leading
opto-electronic technology and sensors. Flow measurement
instruments and gas conditioning products. Products
for environmental data recording, water quality
testing and water distribution network monitoring,
and UV water treatment.
Chuck Dubois, Sector Chief Executive, Environmental
& Analysis
Sector progress summary
The Environmental & Analysis sector achieved record
results with good organic revenue and profit growth,
continuing the progress made last year.
Global emphasis on climate change and pollution
monitoring continues to strengthen the position
of our environmental applications. We grew significantly
in emerging markets, particularly in the Asia
Pacific region, led by environmental monitoring
applications. Our water businesses had a successful
year with a strong performance in North America.
Our photonics businesses continued to find new
applications in a variety of diversified markets
and industries.
The acquisition of FluxData strengthened our technological
capabilities, greatly increasing the number of
opportunities for the sector in spectral imaging
and sensing.
We completed the restructuring of our photonics
coating business, Pixelteq, by transferring key
technologies and assets into Ocean Optics, while
Ocean Optics Asia was folded back into the Ocean
group under a strong leadership team and coordinated
strategy. We expect to see the benefits of this
restructuring in the coming financial year.
Market trends and growth drivers
The Environmental & Analysis sector's long-term
growth is sustained by three key drivers:
* rising demand for life-critical resources such as
energy, water and food
* increasing environmental monitoring and regulations
* worldwide population growth, urbanisation and rising
standards of living
Globally, water demand is predicted to increase
significantly over the coming decades in all sectors
from agriculture and industry to energy production.
Accelerated urbanisation and the expansion of
municipal water supply and sanitation systems,
particularly in developing regions, also contribute
to the rising demand. At the same time, limited
water resources are increasingly stressed by over
abstraction, pollution and climate change.
Two thirds of the world's population currently
live in areas that experience water scarcity for
at least one month a year. About 500 million people
live in areas where water consumption exceeds
the locally renewable water resources by a factor
of two. Our products monitor surface, municipal
and waste water conditions, helping improve water
conservation both in developing and developed
countries.
Water quality testing applications use our products
to assess the presence of faecal coliforms, which
originate from human and animal excreta, and are
used as an indicator of the presence of all potential
pathogens in surface waters. This is especially
important in developing countries and rural areas.
It is estimated that severe pathogen pollution
affects around one third of all river stretches
in Africa, Asia and Latin America, putting the
health of millions of people at risk.
Population growth has outpaced gains in sanitation
and drinking water coverage, especially in urban
areas. Only 26% of urban sanitation and wastewater
services effectively prevent human contact with
contaminants along the entire sanitation chain.
Our water testing systems help identify the contaminants
in these water networks, while our UV systems
disinfect drinking and waste water in major cities
around the world as well as being the primary
method of disinfection for many bottled water
plants.
Outdoor air pollution is a major environmental
health risk affecting everyone in developing and
developed countries alike. In 2014, 92% of the
world population lived in places where the World
Health Organization air quality guidelines levels
were not met, and ambient air quality (outdoor
air pollution) in both cities and rural areas
was estimated to cause three million premature
deaths worldwide. For example, in China only 25
of 190 cities studied could meet the country's
National Ambient Air Quality Standards.
We provide systems that assist in the precise
detection of contaminants as well as other products
that aid in the calibration of pollution monitoring
equipment. Further, our gas conditioning equipment
is ideally suited for stack emission monitoring
of gases such as SO(2) and NO(x) as well as for
measuring the fine particles (PM(2.5) ) which
are believed to be the greatest risk to health.
These applications are also beginning to find
success in India, which overtook China in air
pollution levels in cities in 2015.
Our recent acquisition of FluxData has strengthened
our position in spectroscopy and spectral specific
imaging. By looking at specific spectral bands,
they provide much more information in far less
time than traditional methods, thus allowing for
higher efficiency and decreased waste.
Applications include inspection during industrial
processes including the production of food and
beverages, pharmaceuticals and agriculture. The
non-invasive nature of the technology is also
best suited for security applications such as
detection of explosive or hazardous chemicals,
non-invasive medical diagnostics, and environmental
and remote sensing applications. Process spectroscopy
is forecasted to grow at 6% annually until 2020,
but some of the newer technologies that we employ
such as Raman spectroscopy and spectral imaging
are forecast to grow at even faster rates.
Geographic trends
We sell into a wide variety of diverse market
niches. These niches exhibit different characteristics
that vary according to each specific country's
requirements, their economy and their regulatory
environment.
The China National 13(th) Five-Year Plan is having
a profound impact on the environmental landscape
of China. Stricter compliance measures for urban
air quality, standardisation of the regulations
around industrial pollutant emissions and ultra-low
emissions of coal-fired power plants are all aimed
at improving the quality of air, especially in
urban areas. Similarly, other control plans are
being enacted for water and soil pollution. For
example, there is continued emphasis on improving
rural access to clean water and improving the
water distribution network and wastewater treatment.
In India, emissions monitoring and concerns over
air pollution are increasing and we have designed
products that specifically address the needs of
this market. We expect that stronger water monitoring
protocols are next. We are ready to supply products
suited to their needs, benefiting from our experience
in China.
We continue to grow well in the developed countries.
While growth in pollution monitoring in some regions
might not be as significant as in the emerging
markets, there are other niches that we continue
to serve through a variety of technologies. Performance
in the USA was particularly strong this year,
as our life science and research products continued
to grow sales, as did some of our water monitoring
businesses. Designing products in, and for, emerging
markets is important to our growth, although we
continue to develop products for our core markets
too.
Strategy
Our products improve the quality of air, water
and food for everyone on the planet. They enable
the development and manufacture of products that
improve our health and well-being. Our growth
strategy centres on market-led new product development,
geographic expansion and collaboration between
the companies in the sector. Through this we will
enhance our ability to help solve the problems
our world faces.
We continue to seek, foster and invest for growth
in emerging markets. Revenue from countries outside
the UK, the USA and Europe has grown 55% in the
past five years, as we have captured larger opportunities
thanks to more stringent regulations driven by
a demand for environmental protection, safer food
and water, and better health and sanitation.
Most of our companies provide sensors that are
a data collection point. Data availability has
dramatically changed in the last few years, and
our companies are increasing their efforts in
exploring new ways to capture, manage, manipulate
and utilise data.
Talent management and development has been a major
contributor to the continued success of the sector.
The introduction of a Sector Talent Director has
supported our sector-level initiative to achieve
stronger and more diverse company boards across
the sector.
We are targeting acquisitions in segments that
tie to our existing technologies and/or market
knowledge, have good long-term growth drivers
and defensible positions through regulations or
intellectual property. For example, our most recent
acquisition, FluxData, extends our spectroscopic
capability into spectral imaging to provide more
valuable information to our customers.
Performance
The sector grew revenue by 16% to GBP219m (2016:
GBP189m) and profit(1) by 21% to GBP42m (2016:
GBP34m). At constant currency, organic revenue
growth was 4% and organic profit growth was 6%.
Return on Sales improved to 19.0% (2016: 18.3%)
and was within the Group target range.
This year, and following the geographic consolidation
of our photonics coatings business (Pixelteq)
in 2014/15, we transferred its core technology
and assets to Ocean Optics. This restructuring
benefited the sector's full year adjusted profit
by GBP0.5m in 2016/17 and will also add GBP1.5m
in 2017/18, while simultaneously improving key
returns metrics. This restructuring resulted in
exceptional costs amounting to GBP1.9m, which
are included within the adjustments to the Income
Statement.
The acquisition of FluxData during the year opens
up many new growth opportunities. Prior to joining
Halma, FluxData worked with two of our existing
businesses and we expect that number to rise as
they become fully integrated.
Outlook
Global population growth, population ageing and
increasing standards of living will continue to
drive demand for basic energy resources, cleaner
air, safer water and food, and improved health.
Our products and companies are well-positioned
to continue to take advantage of these long-term
growth drivers both in developing and developed
countries.
We will continue to improve collaboration between
our sector companies in terms of technology, processes,
and sales and marketing, to improve efficiency,
innovation and performance.
Our acquisition pipeline is growing and we expect
to add complementary businesses in the coming
years.
(1) See note 2 to the Results.
Principal Risks and Uncertainties
Halma's principal risks and uncertainties are detailed
below and are supported by the robust risk management
and internal control systems and procedures noted
in the Annual Report and Accounts 2017.
Risk description Potential Mitigation
impact
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Globalisation * Weakening of financial, tax, audit and legal control * Control is exercised locally in accordance with the
The global and divergence from overall Group strategy in remote Group's policy of autonomous management. We seek to
interconnectedness operations, leading to businesses taking on more employ local high-quality experts.
of operations risks than intended or unexpected financial outcomes.
poses wide-ranging
challenges * The increasing geographic diversity of operating
across the * Failure to comply with local laws and regulations in personnel emphasises the importance the Group places
Group especially unfamiliar territories, leading to reputational on local knowledge and experience.
where businesses issues and legal or regulatory disputes.
manage operational
matters via * The Group's acquisition model supports retention of
remote locations; * Continued international growth increases risk. management and staff in acquired businesses, meaning
the increasing that local expertise is retained.
global spread
of our businesses, * Missed opportunities due to failure to mobilise
particularly resources efficiently. * Sector Chief Executives ensure that overall Group
in China, strategy is fulfilled through ongoing review of the
requires additional businesses. The right balance between autonomy and
vigilance adherence to the overall objectives of the Group is a
over communication, key function of the Sector Chief Executives, Sector
culture, training Vice Presidents and Senior Finance Executives.
and export
controls/sanctions
in order to * Regular visits to remote operations and maintenance
anticipate of key adviser relationships by senior management,
and contain finance staff and Internal Audit support local
any vulnerabilities. control.
* The Group's geographic and product diversity reduces
risk.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Competition * Loss of market share due to price pressure and * By empowering and resourcing innovation in local
The Group changing markets. operations to respond to changing market needs, the
faces competition potential adverse impact of downward price pressure
in the form and competition can be mitigated and growth
of pricing, * Reduced financial performance arising from maintained.
service, reliability competitive threats both from third parties and
and substitution. customers bringing production in-house.
* We recognise the competitive threat coming from
emerging economies and by operating within these
economies, typically using local staff, we are better
placed to make fast progress ourselves.
* The Group operates in specialised global niche
markets offering high barriers to entry.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Economic conditions * Reduced financial performance. * Risks are primarily managed at the operating company
In times of level where local knowledge is situated. The
uncertain financial strength and availability of pooled
economic conditions, * Loss of market share. finances within the Group mitigates local risks faced
businesses by operating companies as does the robust credit
face additional management processes in place across the Group.
or elevated * Unforeseen liabilities.
levels of
risk. These * The Halma Executive Board identifies any wider trends
include market * Disruption of service to customers. which require action.
and customer
risk, customer
default, fraud, * Breaches of legal or regulatory requirements * A Brexit Committee has been created to assess,
supply chain resulting in fines/ penalties impacting the Group monitor and publish guidance on potential impacts due
risk and liquidity financially and reputationally. to Brexit. The agility of Group operations is
risk. The expected to help mitigate any adverse impacts of
decision made Brexit.
in the UK * Potential impairment of goodwill.
to leave the
EU (Brexit) * The Group's geographic diversity limits its exposure
creates additional to economic risk arising in any one territory. The
uncertainty. Group does not have significant operations, cash
deposits or sources of funding in economically
uncertain regions.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Financial * Constraints on trading and/or acquiring new companies * The strong cash flow generated by the Group provides
Funding limiting the Group's growth aspirations. financial flexibility. Cash needs are monitored
A key risk regularly. Gearing has reduced during the year.
is that the
Group may * Availability of additional funding in traditional
run out of debt markets. * The Group increased its funding capacity in January
cash or not 2016 via a US$250m US Private Placement. In addition
have access to short-term overdraft facilities, the Group renewed
to adequate * Permanent loss of shareholders' funds and/or and increased to GBP550m its five-year revolving
funding. In restrictions on dividend payments. credit facility in November 2016 providing security
addition, of funding and sufficient headroom for its current
cash deposits needs.
are required
to be held
in a secure * Cash deposits are monitored centrally and spread
form and location. amongst a number of high credit-rated banks.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Treasury * Volatile financial performance arising from * The risk has increased because more of the Group's
Breaches of translation of earnings from the Group's increasing profits are derived from non-Sterling currencies.
banking/US proportion of overseas operations or poorly-managed Currency profits are not hedged. Currency hedging
Private Placement foreign exchange exposures. must fit with the commercial needs of the business
covenants and we have in place a hedging strategy to manage
and foreign Group exposures. This requires the hedging of a
currency risk * Deviation from core strategy through the use of substantial proportion of expected future
are the most speculative or overly complex financial instruments. transactions up to 12 months (and in exceptional
significant cases 24 months) ahead. Longer-term currency trends
treasury-related can only be covered through a wide geographic spread
risks for * Financial penalties, reputational damage and of operations.
the Group. withdrawal of facilities arising from breach of
In times of banking/ US Private Placement covenants.
increased * The Group does not use overly complex derivative
volatility financial instruments and no speculative treasury
this can have * Increased interest rate risk on higher borrowings. transactions are undertaken.
a significant
impact on
performance. * Currency markets continue to be volatile causing * We closely monitor performance against the financial
The Group uncertainty. covenants on our revolving credit facility and US
is exposed Private Placement and operate well within these
to a lesser covenants.
extent to
other treasury
risks such
as interest
rate risk
and liquidity
risk.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Pension deficit * Excessive consumption of cash, limiting investment in * There is regular dialogue with pension fund trustees
To meet our operations. and pension strategy is a regular Halma Board agenda
pension obligations, item. The Group's strong cash flows and access to
we must adequately adequate borrowing facilities mean that the pensions
fund our closed * Unexpected variability in the Company's financial risk can be adequately managed.
UK defined results.
benefit pension
plans. * The Group has maintained additional pension
contributions with the overall objective of paying
off the deficit in line with the Actuary's
recommendations over an appropriate period.
Alternative means of reducing pension risk is
evaluated in light of the best long-term interest of
shareholders.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Cyber * Delay or impact on decision making through lack of * There is substantial redundancy and back-up built
security/Information availability of sound data or disruption in/denial of into Group-wide systems and the spread of business
Technology/Business service. offers good protection from individual events.
interruption/Natural
disasters
Group and * Reduced service to customers due to poor information * A small central resource, Halma IT Services, assists
operational handling or interruption of business. Group companies with strategic IT needs and ensures
management adequate IT security policies are used across the
depend on Group.
timely and * Loss of commercially sensitive and/or personal
reliable information information.
from our IT * An IT security committee exists, comprising central
systems to and subsidiary IT personnel.
run their * Intended and unintended actions of employees cause
businesses. disruption, including fraud.
We seek to * Halma IT is ISO 27001 certified for its information
ensure continuous security management systems.
availability,
security and
operation * Regular IT health checks of all companies are
of those information conducted by the Group IT team. Comprehensive IT
systems. systems monitoring is in place.
Cyber threats
continue to
show an increasing * Cyber risk and security is a regular Board agenda
trend. We item addressing the landscape as it evolves.
also aim to
have wider
business continuity * External penetration testing is utilised and a
plans in place centralised IT disaster recovery solution is in place
should one to supplement local processes.
or more of
our premises
suddenly became * Business continuity plans exist for each business
unavailable. unit with ongoing testing.
* Education/awareness of cyber threats continues to
ensure Group employees protect themselves and Group
assets.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Acquisitions * Failure to attract sufficient numbers of high-quality * The sector management teams provide resource to focus
The identification businesses to meet our strategic growth target. on M&A activities, including a dedicated M&A Director
and purchase for each sector. Such resources remain under constant
of suitable review.
businesses * Failure to deliver expected results resulting from
which are poor acquisition selection.
an important * We acquire businesses whose technology and markets we
part of our know well or who operate in adjacent markets.
strategy for * Failure to identify new markets in which to expand.
developing
the Group, * Sector Chief Executives are responsible for finding
as is ensuring * Reduced financial performance arising from failure to and completing acquisitions in their business sectors,
the new businesses integrate acquisitions into the Group. subject to Board approval, supported by sector and
are rapidly central resources, as necessary. We employ detailed
integrated post-acquisition integration plans.
into the Group. * Unforeseen liabilities arising from a failure to
understand acquisition targets fully.
* Thorough due diligence is performed by a combination
of in-house and external experts to ensure that a
comprehensive appraisal of the commercial, legal and
financial position of every target is obtained.
* Incentives are aligned to encourage acquisitions
which are value-enhancing from day one.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Laws and regulations * Unfavourable changes in laws and regulations that * The Group's emphasis on excellent internal controls,
Group operations restrict the export of our products. high ethical standards, the deployment of
are subject high-quality management resources and the strong
to wide-ranging focus on quality control over products and processes
laws and regulations * Reputational damage and/or loss arising from in each operating business help to protect us from
including non-compliance. product failure, litigation, fraudulent activities
business conduct, and contractual issues.
employment,
export * Diversion of management resources resulting in lost
controls/sanctions, opportunities. * Each operating company has a health and safety
environmental manager responsible for compliance and our
and health performance in this area is good. Health and Safety
and safety * Penalties arising from breach of laws and policies, guidance and monthly reporting requirements
legislation. regulations. are updated to reflect changing reporting and
There is also governance requirements and to enhance compliance.
exposure to Our well-established policies on bribery and
product litigation * Loss of revenue and profit associated with corruption have been maintained during the year to
and contractual contractual disputes. ensure continued compliance with best practice
risk. The internally, via the Group Code of Conduct and
laws and regulations externally, via appropriate clauses included in
we are exposed third-party agreements.
to as our
businesses
expand around * Comprehensive insurance covers all standard
the world categories of insurable risk. Contract review and
increase each approval processes mitigate exposure to contractual
year. liability.
* The Group's whistleblowing policy and externally
facilitated hotline assist the timely identification
of potential problem areas.
* Continued investment in international markets may
introduce additional risk while we develop the
appropriate commercial infrastructure necessary to
build a direct presence.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Talent and * Failure to recruit and to retain key staff leading to * Group development programmes are under continuous
diversity reduced innovation and progress in the business. review to ensure they deliver enhanced skills for
Group performance executives and middle managers as needed in their
is dependent current and future roles.
on having * Acquisition growth limited due to our organisation's
high-quality and leaders' inability to effectively manage
talent and acquisition integration. * Comprehensive recruitment and ongoing evaluation
diversity processes assist high-quality hiring and development.
at all levels
of the organisation * International growth increasing the need for
allowing us high-quality local talent. * The Group regularly surveys staff to assess the
to continue alignment of individuals with Group values.
to grow through
acquisition
as well as * The Group Talent Director assists the identification
driving organic and development of Group executives.
growth.
* Ongoing focus on increasing the diversity of our
employees worldwide to better meet our markets' needs
and provide sufficient opportunities for advancement
as well as clear succession planning.
* Considerable time spent assessing senior management
talent and establishing better processes to improve
the talent pipeline has advanced our succession
planning and talent quality.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Research & * Loss of market share resulting from product * Devolving control of product development to the
Development obsolescence and failure to innovate to meet customer autonomous operating businesses spreads risk and
and Intellectual needs. ensures that the people best placed to service the
Property strategy customers' needs are driving innovation.
New, high-quality
products are * Loss of market share resulting from a failure to
critical to protect key intellectual property. * New product development 'best practice' is shared
our organic between Group companies and return on investment of
growth and past and future innovation projects is tracked
underpin our * Diversion of resources to address related matters. monthly. This ensures that the collective experience
ability to and expertise of the Group can be utilised to maximum
earn high effect.
margins and
high returns
over the long * Large R&D projects, especially those which are
term. capitalised, require Head Office approval, ensuring
that the Group's significant projects are aligned to
overall strategy.
* Workforce quality and retention is a central
objective. This focus ensures that intangible
resources stay and grow within the business.
* Operating businesses are actively encouraged to
develop and protect know-how in local jurisdictions.
* Innovation is encouraged and fostered throughout the
Group and recognised at Halma's Annual Innovation
Awards.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Product quality * Loss of market share resulting from product quality * Strict product development and testing procedures in
The quality issues including the necessity to recall/replace place to ensure quality of products and compliance
and reliability product. with appropriate regulations.
of our products
is vital to
meet the needs * Reputational damage and financial loss due to * Rigorous testing of products during development and
of our customers unexpected liability for injuries, fatalities and/or also during the manufacturing process.
and ensure damage to property.
compliance
with regulations. * Terms and conditions of sale limit liability as much
as practically possible. Insurance is in place.
---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------
Going Concern Statement
The Group's business activities, together with
the main trends and factors likely to affect its
future development, performance and position,
and the financial position of the Group, its cash
flows, liquidity position and borrowing facilities,
are set out herein.
The Group has considerable financial resources
(including a GBP550m five-year revolving credit
facility, of which GBP469m was undrawn at 1 April
2017) together with contracts with a diverse range
of customers and suppliers across different geographic
areas and industries. No one customer accounts
for more than 2% of Group turnover. As a consequence,
the Directors believe that the Group is well placed
to manage its business risks successfully.
After conducting a formal review of the Group's
financial resources, the Directors have a reasonable
expectation that the Company and the Group have
adequate resources to continue in operational
existence for the foreseeable future. For this
reason, they continue to adopt the going concern
basis in preparing the Annual Report and Accounts.
Longer-term Viability
During the year, the Board carried out a robust
assessment of the principal risks affecting the
Company, including those that would threaten its
business model, future performance, solvency or
liquidity. The Board has assessed the viability
of the Company over a three-year period, taking
into account the Group's current position and
the potential impact of the principal risks and
uncertainties. Whilst the Board has no reason
to believe that the Group will not be viable over
a longer period, it has determined that three
years is an appropriate period, as it is aligned
with the Group's strategic planning process and
therefore provides greater certainty over forecasting
and, therefore, increases reliability in the modelling
and stress testing of the Company's viability.
In making their assessment, the Board carried
out a comprehensive exercise of financial modelling
and stress-tested the model with various scenarios
based on the principal risks identified in the
Group's annual risk assessment process. In each
scenario, the effect on the Group's KPIs and borrowing
covenants was considered, along with any mitigating
factors.
Based on this assessment, the Board confirms that
they have a reasonable expectation that the Company
will be able to continue in operation and meet
its liabilities as they fall due over the three-year
period to 31 March 2020. The full Viability Statement
is set out in the Annual Report and Accounts 2017.
Responsibility Statement of the Directors
on the Annual Report and Accounts
The responsibility statement below has been prepared
in connection with the Company's full Annual Report
and Accounts for the 52 weeks to 1 April 2017.
Certain parts thereof are not included within
these Results.
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance
with International Financial Reporting Standards
as adopted by the EU, give a true and fair view
of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole;
- the Strategic Report includes a fair review
of the development and performance of the business
and the position of the Company and the undertakings
included in the consolidation taken as a whole,
together with a description of the principal
risks and uncertainties that they face; and
- the Annual Report and financial statements,
taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders
to assess the Company's position, performance,
business model and strategy.
This responsibility statement was approved by the
Board of Directors on 13 June 2017 and is signed
on its behalf by:
A J Williams K J Thompson
Chief Executive Finance Director
Results for the 52 weeks to 1 April 2017
Consolidated Income Statement
52 weeks to 1 April
2017 53 weeks to 2 April 2016
------------------------------------- -------------------------------------
Adjustments* Adjustments*
Before (note Before (note
adjustments* 2) Total adjustments* 2) Total
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ ----- ------------- ------------ -------- ------------- ------------ --------
Continuing operations
Revenue 2 961,662 - 961,662 807,805 - 807,805
------------------------ ----- ------------- ------------ -------- ------------- ------------ --------
Operating profit 203,371 (36,301) 167,070 173,225 (30,282) 142,943
Share of results
of associate (81) - (81) (159) - (159)
Profit on disposal
of operations 9 - - - - 556 556
Finance income 3 494 - 494 217 - 217
Finance expense 4 (9,780) - (9,780) (7,269) - (7,269)
------------------------ ----- ------------- ------------ -------- ------------- ------------ --------
Profit before
taxation 194,004 (36,301) 157,703 166,014 (29,726) 136,288
Taxation 5 (41,734) 13,720 (28,014) (36,373) 8,926 (27,447)
------------------------ ----- ------------- ------------ -------- ------------- ------------ --------
Profit for the
year attributable
to equity shareholders 2 152,270 (22,581) 129,689 129,641 (20,800) 108,841
------------------------ ----- ------------- ------------ -------- ------------- ------------ --------
Earnings per share 6
From continuing
operations
Basic and diluted 40.21p 34.25p 34.26p 28.76p
Dividends in respect
of the year 7
Paid and proposed
(GBP000) 51,916 48,449
Paid and proposed
per share 13.71p 12.81p
------------------------ ----- ------------- ------------ -------- ------------- ------------ --------
* Adjustments include the amortisation and impairment
of acquired intangible assets; acquisition items; restructuring
costs; profit or loss on disposal of operations; and
the associated taxation thereon.
Consolidated Statement of Comprehensive Income and Expenditure
52 weeks 53 weeks
to 1 to
April 2 April
2017 2016
GBP000 GBP000
-------------------------------------------------- -------- --------
Profit for the year 129,689 108,841
--------------------------------------------------- -------- --------
Items that will not be reclassified subsequently
to the Consolidated Income Statement:
Actuarial (losses)/gains on defined benefit
pension plans (31,059) 8,841
Tax relating to components of other comprehensive
income that will not be reclassified 6,082 (2,304)
Items that may be reclassified subsequently
to the Consolidated Income Statement:
Effective portion of changes in fair value of cash flow hedges 1,197 (990) Exchange gains on translation of foreign operations and net investment hedge 74,810 30,036 Exchange losses transferred to Income Statement on disposal of operation - 22 Tax relating to components of other comprehensive income that may be reclassified (233) 209 --------------------------------------------------- -------- -------- Other comprehensive income for the year 50,797 35,814 --------------------------------------------------- -------- -------- Total comprehensive income for the year attributable to equity shareholders 180,486 144,655 --------------------------------------------------- -------- -------- The exchange gain of GBP74,810,000 (2016: gain of GBP30,036,000) includes gains of GBP21,305,000 (2016: gains of GBP9,336,000) which relate to net investment hedges as described in the Annual Report and Accounts 2017.
Consolidated Balance Sheet
(Restated)*
1 April 2 April
2017 2016
GBP000 GBP000
--------------------------------- --------- -----------
Non-current assets
Goodwill 603,553 542,097
Other intangible assets 234,430 235,654
Property, plant and equipment 106,016 96,562
Interest in associate 3,553 3,722
Deferred tax asset 56,866 44,424
---------------------------------- --------- -----------
1,004,418 922,459
--------------------------------- --------- -----------
Current assets
Inventories 118,780 105,283
Trade and other receivables 212,236 184,126
Tax receivable 124 190
Cash and bank balances 66,827 53,938
Derivative financial instruments 598 1,131
---------------------------------- --------- -----------
398,565 344,668
--------------------------------- --------- -----------
Total assets 1,402,983 1,267,127
---------------------------------- --------- -----------
Current liabilities
Trade and other payables 134,816 122,791
Borrowings 1,351 4,748
Provisions 6,776 4,789
Tax liabilities 16,055 15,158
Derivative financial instruments 315 2,196
---------------------------------- --------- -----------
159,313 149,682
--------------------------------- --------- -----------
Net current assets 239,252 194,986
---------------------------------- --------- -----------
Non-current liabilities
Borrowings 261,918 295,908
Retirement benefit obligations 74,856 52,323
Trade and other payables 11,221 10,153
Provisions 16,917 19,355
Deferred tax liabilities 100,121 93,366
---------------------------------- --------- -----------
465,033 471,105
--------------------------------- --------- -----------
Total liabilities 624,346 620,787
---------------------------------- --------- -----------
Net assets 778,637 646,340
---------------------------------- --------- -----------
Equity
Share capital 37,965 37,965
Share premium account 23,608 23,608
Own shares (7,263) (8,219)
Capital redemption reserve 185 185
Hedging reserve 354 (610)
Translation reserve 150,197 75,387
Other reserves (6,323) (5,831)
Retained earnings 579,914 523,855
---------------------------------- --------- -----------
Shareholders' funds 778,637 646,340
---------------------------------- --------- -----------
* Comparatives have been restated, as required by
IFRS 3 (revised) Business Combinations, for material
changes arising on the provisional accounting for
prior period acquisitions. See note 8.
Consolidated Statement of Changes in Equity
Share Capital
Share premium Own redemption Hedging Translation Other Retained
capital account shares reserve reserve reserve reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- -------- -------- ------- ----------- -------- ----------- --------- --------- --------
At 2 April 2016 37,965 23,608 (8,219) 185 (610) 75,387 (5,831) 523,855 646,340
Profit for the
year - - - - - - - 129,689 129,689
Other comprehensive
income and expense:
Exchange differences
on translation
of foreign
operations - - - - - 74,810 - - 74,810
Actuarial losses
on defined benefit
pension plans - - - - - - - (31,059) (31,059)
Effective portion
of changes in
fair value of
cash flow hedges - - - - 1,197 - - - 1,197
Tax relating
to components
of other
comprehensive
income - - - - (233) - - 6,082 5,849
--------------------- -------- -------- ------- ----------- -------- ----------- --------- --------- --------
Total other
comprehensive
income and expense - - - - 964 74,810 - (24,977) 50,797
Dividends paid - - - - - - - (49,788) (49,788)
Share-based payment
charge - - - - - - 6,076 - 6,076
Deferred tax
on share-based
payment transactions - - - - - - 65 - 65
Excess tax deductions
related to
share-based
payments on
exercised
awards - - - - - - - 1,135 1,135
Purchase of Own
shares - - (2,368) - - - - - (2,368)
Performance share
plan awards vested - - 3,324 - - - (6,633) - (3,309)
--------------------- -------- -------- ------- ----------- -------- ----------- --------- --------- --------
At 1 April 2017 37,965 23,608 (7,263) 185 354 150,197 (6,323) 579,914 778,637
--------------------- -------- -------- ------- ----------- -------- ----------- --------- --------- --------
Own shares are ordinary shares in Halma plc purchased
by the Company and held to fulfil the Company's obligations
under the Group's share plans. At 1 April 2017 the
number of treasury shares held was 462,188 (2016: 940,421)
and the number of shares held by the Employee Benefit
Trust was 512,417 (2016: 311,444). The market value
of Own shares was GBP9,980,000 (2016: GBP11,417,000).
The Translation reserve is used to record the difference
arising from the retranslation of the financial statements
of foreign operations. The Hedging reserve is used
to record the portion of the cumulative net change
in fair value of cash flow hedging instruments that
are deemed to be an effective hedge.
The Capital redemption reserve was created on repurchase
and cancellation of the Company's own shares. The Other
reserves represent the provision for the value of the
Group's equity-settled share plans.
Share Capital
Share premium Own redemption Hedging Translation Other Retained
capital account shares reserve reserve reserve reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- -------- -------- ------- ----------- -------- ------------- --------- --------- --------
At 28 March 2015 37,965 23,608 (8,450) 185 171 45,329 (4,073) 454,213 548,948
Profit for the
year - - - - - - - 108,841 108,841
Other comprehensive
income and expense:
Exchange
differences
on translation
of foreign
operations - - - - - 30,036 - - 30,036
Exchange losses
transferred to
Income Statement
on disposal of
operations - - - - - 22 - - 22
Actuarial gains
on defined benefit
pension plans - - - - - - - 8,841 8,841
Effective portion
of changes in fair value of cash flow hedges - - - - (990) - - - (990) Tax relating to components of other comprehensive income - - - - 209 - - (2,304) (2,095) ------------------- -------- -------- ------- ----------- -------- ------------- --------- --------- -------- Total other comprehensive income and expense - - - - (781) 30,058 - 6,537 35,814 Dividends paid - - - - - - - (46,473) (46,473) Share-based payment charge - - - - - - 3,845 - 3,845 Deferred tax on share-based payment transactions - - - - - - 109 - 109 Excess tax deductions related to share-based payments on exercised awards - - - - - - - 737 737 Purchase of Own shares - - (3,003) - - - - - (3,003) Performance share plan awards vested - - 3,234 - - - (5,712) - (2,478) At 2 April 2016 37,965 23,608 (8,219) 185 (610) 75,387 (5,831) 523,855 646,340 ------------------- -------- -------- ------- ----------- -------- ------------- --------- --------- --------
Consolidated Cash Flow Statement
52 weeks 53 weeks
to to
1 April 2 April
2017 2016
Notes GBP000 GBP000
------------------------------------------ ----- --------- ---------
Net cash inflow from operating activities 10 172,493 149,273
------------------------------------------ ----- --------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (21,875) (22,418)
Purchase of computer software (2,479) (1,669)
Purchase of other intangibles (281) (535)
Proceeds from sale of property, plant
and equipment 1,495 2,364
Proceeds from sale of capitalised
development costs - 166
Development costs capitalised (10,731) (8,579)
Interest received 211 217
Acquisition of businesses, net of
cash acquired 8 (9,972) (202,575)
Disposal of operations, net of cash
disposed 9 - 907
------------------------------------------ ----- --------- ---------
Net cash used in investing activities (43,632) (232,122)
------------------------------------------ ----- --------- ---------
Financing activities
Dividends paid (49,788) (46,473)
Purchase of Own shares (2,368) (3,003)
Interest paid (7,023) (4,149)
Loan arrangement fee paid (2,656) (770)
Proceeds from bank borrowings - 74,788
Repayment of bank borrowings 10 (54,761) (97,000)
Proceeds on issue of loan notes - 167,473
------------------------------------------ ----- --------- ---------
Net cash (used in)/generated from
financing activities (116,596) 90,866
------------------------------------------ ----- --------- ---------
Increase in cash and cash equivalents 10 12,265 8,017
Cash and cash equivalents brought
forward 49,526 39,525
Exchange adjustments 3,846 1,984
------------------------------------------ ----- --------- ---------
Cash and cash equivalents carried
forward 65,637 49,526
------------------------------------------ ----- --------- ---------
52 weeks 53 weeks
to 1 to
April 2 April
2017 2016
Notes GBP000 GBP000
--------------------------------------------- ----- --------- ---------
Reconciliation of net cash flow to
movement in net debt
Increase in cash and cash equivalents 12,265 8,017
Net cash outflow from repayment of
bank borrowings 10 54,761 22,212
Proceeds from issue of loan notes - (167,473)
Loan notes issued in respect of acquisitions - (288)
Loan notes repaid in respect of acquisitions 10 241 367
Exchange adjustments (16,991) (8,659)
--------------------------------------------- ----- --------- ---------
50,276 (145,824)
Net debt brought forward (246,718) (100,894)
--------------------------------------------- ----- --------- ---------
Net debt carried forward (196,442) (246,718)
============================================= ===== ========= =========
Notes to the Results
1 Basis of preparation
General Information
The Results are based on the Company's financial statements which are prepared in
accordance with International Financial Reporting Standards (IFRS) adopted for use
in the European Union (EU) and therefore comply with Article 4 of the EU IAS legislation
and with those parts of the Companies Act 2006 that are applicable to companies reporting
under IFRS. The financial statements have also been prepared in accordance with IFRS
and International Financial Reporting Interpretations Committee (IFRIC) interpretations
issued and effective at the time of preparing these accounts.
With the exception of the new standards adopted in the year, as discussed below,
there have been no significant changes in accounting policies from those set out
in Halma plc's Annual Report and Accounts 2016. The accounting policies have been
applied consistently throughout the years ended 1 April 2017 and 2 April 2016 other
than those noted below.
The financial information set out in these Results does not constitute the Group's
statutory accounts for the years ended 1 April 2017 and 2 April 2016 but is derived
from those accounts. Statutory accounts for 2016 have been delivered to the Registrar
of Companies and those for 2017 will be delivered following the Company's Annual
General Meeting. The auditor's reports on the 2016 and the 2017 accounts were unqualified,
did not draw attention to any matters by way of emphasis without qualifying their
report and did not contain a statement under section 498(2) or (3) of the Companies
Act 2006.
The following Standards with an effective date of 1 January 2016 have been adopted
without any significant impact on the amounts reported in these financial statements:
* IAS 16 and IAS 38 (amended) 'Clarification of
Acceptable Methods of Depreciation and Amortisation';
* Annual Improvements 2012-2014 Cycle, specifically
amendments to IAS 34 'Interim Financial Reporting';
* Amendments to IAS 1;
* Amendments to IAS 27 'Equity Method in Separate
Financial Statements'; and
* Amendments to IFRS 11 'Accounting for Acquisitions of
Interests in Joint Operations'.
These Results were approved by the Board of Directors on 13 June 2017.
2 Segmental analysis
Sector analysis
The Group has four reportable segments (Process Safety, Infrastructure Safety, Medical,
and Environmental & Analysis), which are defined by markets rather than product type.
Each segment includes businesses with similar operating and marketing characteristics.
These segments are consistent with the internal reporting as reviewed by the Chief
Executive.
Segment revenue and results Revenue
(all continuing
operations)
------------------
52 weeks 53 weeks
to to
1 April 2 April
2017 2016
GBP000 GBP000
---------------------------- -------- --------
Process Safety 167,007 155,467
Infrastructure Safety 315,219 264,843
Medical 260,576 198,715
Environmental & Analysis 219,118 188,928
Inter-segmental sales (258) (148)
---------------------------- -------- --------
Revenue for the year 961,662 807,805
---------------------------- -------- --------
Inter-segmental sales are charged at prevailing market
prices and have not been disclosed separately by segment
as they are not considered material. Revenue derived
from the rendering of services was GBP39,011,000 (2016:
GBP25,134,000). All revenue was otherwise derived from
the sale of products.
Profit
(all continuing
operations)
------------------
52 weeks 53 weeks
to 1 to
April 2 April
2017 2016
GBP000 GBP000
------------------------------------------------- -------- --------
Segment profit before allocation of adjustments*
Process Safety 40,243 39,557
Infrastructure Safety 65,129 55,579
Medical 66,704 51,695
Environmental & Analysis 41,698 34,527
------------------------------------------------- -------- --------
213,774 181,358
------------------------------------------------- -------- --------
Segment profit after allocation of adjustments*
Process Safety 36,243 36,095
Infrastructure Safety 60,342 50,376
Medical 45,804 34,747
Environmental & Analysis 35,084 30,413
------------------------------------------------- -------- --------
Segment profit 177,473 151,631
Central administration costs (10,484) (8,291)
Net finance expense (9,286) (7,052)
------------------------------------------------- -------- --------
Group profit before taxation 157,703 136,288
Taxation (28,014) (27,447)
------------------------------------------------- -------- --------
Profit for the year 129,689 108,841
------------------------------------------------- -------- --------
* Adjustments include the amortisation and impairment of acquired intangible assets;
acquisition items; restructuring costs; and profit or loss on disposal of operations.
The accounting policies of the reportable segments are the same as the Group's accounting
policies. Acquisition transaction costs, adjustments to contingent consideration
and release of fair value adjustments to inventory (collectively 'acquisition items')
are recognised in the Consolidated Income Statement. Segment profit, before these
acquisition items and the other adjustments, is disclosed separately above as this
is the measure reported to the Chief Executive for the purpose of allocation of resources
and assessment of segment performance. These adjustments are analysed as follows:
52 weeks to 1 April 2017
------------------------------------------------------------------------------------
Acquisition items
------------------------------------------
Disposal
Release Total of
Amortisation of amortisation operations
and impairment fair charge and
of acquired Adjustments value and restructuring
intangible Transaction to contingent adjustments acquisition (note
assets costs consideration to inventory items 9) Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- --------------- ----------- -------------- ------------- ------------- --------------- --------
Process Safety (4,000) - - - (4,000) - (4,000)
Infrastructure
Safety (4,784) (3) - - (4,787) - (4,787)
Medical (30,702) (95) 10,687 (790) (20,900) - (20,900)
Environmental
& Analysis (4,412) (265) 14 (41) (4,704) (1,910) (6,614)
--------------- --------------- ----------- -------------- ------------- ------------- --------------- --------
Total Segment
& Group (43,898) (363) 10,701 (831) (34,391) (1,910) (36,301)
--------------- --------------- ----------- -------------- ------------- ------------- --------------- --------
Included within amortisation and impairment of acquired intangible assets in the
Medical sector is GBP12,429,000 impairment to a customer relationship asset of Visiometrics
S.L. (Visiometrics), acquired in the prior year. Related to this impairment, included
within the Medical sector, there is a credit arising from a revision to the estimate
of the associated deferred contingent consideration payable for Visiometrics of GBP10,087,000
(EUR12,002,000). The majority of this revision relates to deferred contingent consideration
payable on sales to the related customer.
The transaction costs arose mainly on the acquisition of FluxData, Inc. (FluxData)
on 6 January 2017.
The GBP10,701,000 credit to contingent consideration comprises mainly the revision
to estimate of the payable for Visiometrics discussed above. The remaining credit
relates to the change in estimate to the payable for Value Added Solutions LLC (VAS)
by GBP356,000 from GBP704,000 (US$1,000,000) to GBP427,000 (US$535,000), and for
ASL Holdings Limited (ASL) by GBP14,000 on final settlement of the payable, and a
credit of GBP244,000 arising from exchange differences on the Visiometrics payable
which is denominated in Euros.
The GBP831,000 charge relates to the release of the fair value adjustment on revaluing
the inventories of CenTrak Inc. (CenTrak) (GBP790,000) and FluxData (GBP41,000) on
acquisition. All amounts have now been released in relation to CenTrak.
The GBP1,910,000 charge relates to inventory and fixed asset write downs and severance
costs arising on the restructuring of non-core operations in one of the Group's subsidiaries,
Pixelteq, Inc. (Pixelteq).
53 weeks to 2 April 2016
------------ ----------- ----------------------------- ---------------------------------------
Acquisition items
------------------------------------------
Disposal
Release Total of
of amortisation operations
Amortisation fair charge and
of acquired Adjustments value and restructuring
intangible Transaction to contingent adjustments acquisition (note
assets costs consideration to inventory items 9) Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ------------ ----------- -------------- ------------- ------------- -------------- --------
Process Safety (3,462) - - - (3,462) - (3,462)
Infrastructure
Safety (2,398) (1,101) (827) (842) (5,168) (34) (5,202)
Medical (13,018) (2,926) (826) (768) (17,538) 590 (16,948)
Environmental
& Analysis (4,225) - 111 - (4,114) - (4,114)
--------------- ------------ ----------- -------------- ------------- ------------- -------------- --------
Total Segment
& Group (23,103) (4,027) (1,542) (1,610) (30,282) 556 (29,726)
--------------- ------------ ----------- -------------- ------------- ------------- -------------- --------
The transaction costs arose mainly on the acquisitions of VAS, Firetrace USA, LLC
(Firetrace), Visiometrics, and CenTrak.
The GBP827,000 charge in the Infrastructure Safety sector related to a revision in
the estimate of the remaining contingent consideration payable on Advanced Electronics
Limited (Advanced). The GBP826,000 charge in the Medical sector related to exchange
differences arising on the revaluation of Visiometric's contingent consideration
which is denominated in Euros. The remaining GBP111,000 credit to contingent consideration
related to a revision in the estimate of the remaining payable on a prior year acquisition
(ASL) from GBP197,000 to GBP86,000.
The release of fair value adjustments to inventory arose from revaluing the inventories
of Firetrace and CenTrak at acquisition.
The GBP590,000 profit on disposal in the Medical sector relates to the disposal of
8.8% of the Group's ownership interest in Optomed Oy (Optomed).
Geographic information
The Group's revenue from external customers (by location of customer) is detailed
below:
Revenue by destination
------------------------
52 weeks 53 weeks
to to
1 April 2 April
2017 2016
GBP000 GBP000
----------------------------- ----------- -----------
United States of America 345,295 272,933
Mainland Europe 210,342 179,290
United Kingdom 154,920 144,821
Asia Pacific 151,626 124,992
Africa, Near and Middle East 60,765 55,712
Other countries 38,714 30,057
----------------------------- ----------- -----------
961,662 807,805
----------------------------- ----------- -----------
3 Finance income
52 weeks 53 weeks
to to
1 April 2 April
2017 2016
GBP000 GBP000
-------------------------------------------- -------- --------
Interest receivable 211 217
Fair value movement on derivative financial
instruments 283 -
-------------------------------------------- -------- --------
494 217
-------------------------------------------- -------- --------
4 Finance expense 52 weeks 53 weeks
to to
1 April 2 April
2017 2016
GBP000 GBP000
------------------------------------------------ -------- --------
Interest payable on borrowings 6,977 4,104
Amortisation of finance costs 1,040 561
Net interest charge on pension plan liabilities 1,553 2,013
Other interest payable 126 45
------------------------------------------------ -------- --------
9,696 6,723
Fair value movement on derivative financial
instruments 53 508
Unwinding of discount on provisions 31 38
------------------------------------------------ -------- --------
9,780 7,269
------------------------------------------------ -------- --------
5 Taxation 52 weeks 53 weeks
to to
1 April 2 April
2017 2016
GBP000 GBP000
-------------------------------------------------- -------- --------
Current tax
UK corporation tax at 20% (2016: 20%) 9,282 9,093
Overseas taxation 27,525 25,014
Adjustments in respect of prior years (2,041) (3,422)
-------------------------------------------------- -------- --------
Total current tax charge 34,766 30,685
-------------------------------------------------- -------- --------
Deferred tax
Origination and reversal of timing differences (7,365) (4,833)
Adjustments in respect of prior years 613 1,595
-------------------------------------------------- -------- --------
Total deferred tax credit (6,752) (3,238)
-------------------------------------------------- -------- --------
Total tax charge recognised in the Consolidated
Income Statement 28,014 27,447
-------------------------------------------------- -------- --------
Reconciliation of the effective tax rate:
Profit before tax 157,703 136,288
Tax at the UK corporation tax rate of 20%
(2016: 20%) 31,541 27,258
Overseas tax rate differences 9,230 9,970
Effect of intra-group financing (6,095) (3,062)
Tax incentives, exemptions and credits (including
patent box, R&D and High-Tech status) (3,461) (2,902)
Permanent differences (1,773) (1,990)
Adjustments in respect of prior years (1,428) (1,827)
-------------------------------------------------- -------- --------
28,014 27,447
-------------------------------------------------- -------- --------
Effective tax rate 17.8% 20.1%
-------------------------------------------------- -------- --------
52 weeks 53 weeks
to to
1 April 2 April
2017 2016
GBP000 GBP000
---------------------------------------------- ---------- ---------
Adjusted* profit before tax 194,004 166,014
Total tax charge on adjusted* profit 41,734 36,373
---------------------------------------------- ---------- ---------
Effective tax rate 21.5% 21.9%
---------------------------------------------- ---------- ---------
* Adjustments include the amortisation and impairment
of acquired intangible assets; acquisition items; restructuring
costs; and profit or loss on disposal of operations.
The Group's future Effective Tax Rate (ETR) will mainly
depend on the geographic mix of profits and whether
there are any changes to tax legislation in the Group's
most significant countries of operations. Phased reductions
in the UK corporation tax rate to 19% (from 1 April
2017) and 17% (from 1 April 2020) have been substantively
enacted which we would expect to impact the ETR in
due course. In the US, proposed tax reform measures
include a reduction in the US corporate income tax
rate from 35% to as low as 15%. The US rate change
is a proposal only at this stage and the Group is actively
monitoring developments to evaluate its potential impact.
No reliable estimate of the impact of these tax reform
proposals can be made at this time. The Group does
not expect the future rate to be materially impacted
by the changes to the international tax landscape resulting
from the package of measures developed under the OECD
Base Erosion and Profit Shifting project and the investigations
and proposals of the European Commission.
6 Earnings per ordinary share
Basic and diluted earnings per ordinary share are calculated using the weighted average
of 378,685,730 shares in issue during the year (net of shares purchased by the Company
and held as Own shares) (2016: 378,412,359). There are no dilutive or potentially
dilutive ordinary shares.
Adjusted earnings are calculated as earnings from continuing operations excluding
the amortisation and impairment of acquired intangible assets; acquisition items;
restructuring costs; profit or loss on disposal of operations; and the associated
taxation thereon. The Directors consider that adjusted earnings, which constitute
a non-GAAP measure, represent a more consistent measure of underlying performance.
A reconciliation of earnings and the effect on basic and diluted earnings per share
figures is as follows:
Per ordinary
share
------------------
52 weeks 53 weeks 52 weeks 53 weeks
to to to to
1 April 2 April 1 April 2 April
2017 2016 2017 2016
GBP000 GBP000 pence pence
----------------------------------------- -------- -------- -------- --------
Earnings from continuing operations 129,689 108,841 34.25 28.76
Amortisation of acquired intangible
assets (after tax) 21,452 16,102 5.66 4.26
Impairment of acquired intangible
assets (after tax) 9,322 - 2.46 -
Acquisition transaction costs
(after tax) 240 2,941 0.06 0.78
Release of fair value adjustments
to inventory (after tax) 569 998 0.15 0.26
Adjustments to contingent consideration
(after tax) (10,650) 1,315 (2.81) 0.35
Disposal of operations and restructuring
(after tax) 1,648 (556) 0.44 (0.15)
----------------------------------------- -------- -------- -------- --------
Adjusted earnings 152,270 129,641 40.21 34.26
----------------------------------------- -------- -------- -------- --------
Per ordinary
7 Dividends share
------------------
52 weeks 53 weeks 52 weeks 53 weeks
to to to to
1 April 2 April 1 April 2 April
2017 2016 2017 2016
pence pence GBP000 GBP000
------------------------------------ -------- -------- -------- --------
Amounts recognised as distributions
to shareholders in the year
Final dividend for the year to
2 April 2016 (28 March 2015) 7.83 7.31 29,605 27,629
Interim dividend for the year
to 1 April 2017 (2 April 2016) 5.33 4.98 20,183 18,844
------------------------------------ -------- -------- -------- --------
13.16 12.29 49,788 46,473
------------------------------------ -------- -------- -------- --------
Dividends declared in respect
of the year
Interim dividend for the year
to 1 April 2017 (2 April 2016) 5.33 4.98 20,183 18,844
Proposed final dividend for the
year to 1 April 2017 (2 April
2016) 8.38 7.83 31,733 29,605
------------------------------------ -------- -------- -------- --------
13.71 12.81 51,916 48,449
------------------------------------ -------- -------- -------- --------
The proposed final dividend is subject to approval by shareholders at the Annual
General Meeting on 20 July 2017 and has not been included as a liability in these
financial statements.
The Company offers a Dividend Reinvestment Plan ('DRIP') to enable shareholders to
elect to have their cash dividends reinvested in Halma shares. Shareholders who wish
to elect for the DRIP for the forthcoming final dividend, but have not already done
so, should return a DRIP mandate form to the Company's Registrars no later than 26
July 2017.
8 Acquisitions
In accounting for acquisitions, adjustments are made to the book values of the net
assets of the companies acquired to reflect their fair values to the Group. Acquired
inventories are valued at fair value adopting Group bases and any liabilities for
warranties relating to past trading are recognised. Other previously unrecognised
assets and liabilities at acquisition are included and accounting policies are aligned
with those of the Group where appropriate.
Below are summaries of the assets acquired and liabilities assumed and the purchase
consideration of:
a) the total of FluxData Inc. and adjustments to prior year acquisitions;
b) FluxData Inc., on a stand-alone basis;
c) the adjustments to prior year acquisitions, on a stand-alone basis; and
d) the total of FluxData Inc. and adjustments to prior year acquisitions, allocated
between restated and not restated.
Due to their contractual dates, the fair value of receivables acquired (shown below)
approximate to the gross contractual amounts receivable. The amount of gross contractual
receivables not expected to be recovered is immaterial.
There are no material contingent liabilities recognised in accordance with paragraph
23 of IFRS 3 (revised).
The combined fair value adjustments made for the acquisition of FluxData and for
prior year acquisitions within the goodwill measurement window under IFRS 3, excluding
acquired intangible assets recognised and deferred tax thereon, resulted in net adjustments
to goodwill of negative GBP541,000.
As at the date of approval of the financial statements, the acquisition accounting
for all prior year acquisitions is complete. The accounting for FluxData is provisional;
relating to finalisation of the valuation of acquired intangibles and the initial
consideration, which is subject to agreement of the net tangible asset adjustment.
a) Total of FluxData Inc. and adjustments Total
to prior year acquisitions GBP000
-------------------------------------------------- -------
Non-current assets
Intangible assets 17,366
Property, plant and equipment 217
Current assets
Inventories 340
Trade and other receivables 512
Total assets 18,435
Current liabilities
Trade and other payables (464)
Provisions (453)
Non-current liabilities
Provisions (834)
Deferred tax (1,016)
---------------------------------------------------- -------
Total liabilities (2,767)
---------------------------------------------------- -------
Net assets of businesses acquired 15,668
---------------------------------------------------- -------
Initial cash consideration paid 9,878
Initial cash consideration payable* 77
Initial consideration adjustment on
prior year acquisitions (555)
Contingent purchase consideration
estimated to be paid (FluxData) 9,407
---------------------------------------------------- -------
Total consideration 18,807
---------------------------------------------------- -------
Goodwill arising on acquisitions (current
year & prior year (not restated)) 5,273
Goodwill arising on prior year acquisitions
(restated) (2,134)
---------------------------------------------------- -------
Total goodwill 3,139
---------------------------------------------------- -------
* Estimate in respect of net tangible asset adjustments.
Analysis of cash outflow in the Consolidated 52 weeks 53 weeks
Cash Flow Statement to 1 to
April 2 April
2017 2016
GBP000 GBP000
---------------------------------------------- -------- --------
Initial cash consideration paid 9,878 187,601
Cash acquired on acquisitions - (1,830)
Initial cash consideration adjustment on
prior year acquisitions (496) -
Contingent consideration paid in relation
to current year acquisitions - 6,558
Contingent consideration paid and loan notes
repaid in cash in relation to prior year
acquisitions* 590 10,246
---------------------------------------------- -------- --------
Net cash outflow relating to acquisitions
(per Consolidated Cash Flow Statement) 9,972 202,575
---------------------------------------------- -------- --------
* The GBP590,000 comprises GBP241,000 loan notes and
GBP349,000 contingent consideration paid in respect
of prior period acquisitions all of which had been
provided in the prior period's financial statements.
b) FluxData Inc. Total
GBP000
------------------------------------------------- --------
Non-current assets
Intangible assets 13,515
Property, plant and equipment 217
Current assets
Inventories 456
Trade and other receivables 711
Total assets 14,899
Current liabilities
Trade and other payables (458)
Provisions (21)
Total liabilities (479)
--------------------------------------------------- --------
Net assets of businesses acquired 14,420
--------------------------------------------------- --------
Initial cash consideration paid 9,878
Additional cash consideration payable* 77
Contingent purchase consideration
estimated to be paid 9,407
--------------------------------------------------- --------
Total consideration 19,362
--------------------------------------------------- --------
Goodwill arising on acquisition 4,942
--------------------------------------------------- --------
* Estimate in respect of net tangible asset adjustments.
The Group acquired the entire share capital of FluxData
Inc. on 6 January 2017 for an initial cash consideration
of US$12,000,000 (GBP9,878,000). The maximum contingent
consideration payable is US$15,500,000 (GBP12,759,000).
The current provision of US$11,428,000 (GBP9,407,000)
represents the fair value of the estimated payable
based on performance to date and the expectation of
future cash flows. The earn out is payable on gross
margin in excess of a target threshold for the period
ending March 2017 and then annually until March 2019.
FluxData designs and manufactures advanced multispectral
and digital imaging systems across multiple sectors
including industrial and medical applications. Based
in New York State, USA, it has become part of the Environmental
& Analysis sector, building on the existing multispectral
imaging capabilities within those companies. Existing
management will remain in place.
The excess of the fair value of the consideration paid
over the fair value of the assets acquired is represented
by customer related intangibles of GBP7,240,000; and
technology related intangibles of GBP6,250,000; with
residual goodwill arising of GBP4,942,000. The goodwill
represents:
a) the technical expertise of the acquired workforce;
b) the ability to exploit the Group's existing customer
base; and
c) the opportunity to leverage the technical expertise
across Halma's businesses and through new products.
The FluxData acquisition contributed GBP1,017,000 of
revenue and GBP213,000 of profit after tax for the
year ended 1 April 2017.
If this acquisition had been held since the start of
the financial year, it is estimated that the Group's
reported revenue and profit after tax would have been
GBP3,518,000 and GBP928,000 higher respectively.
GBP17,798,000 of goodwill arising on the FluxData acquisition
is expected to be deductible for tax purposes.
c) Adjustments to prior year acquisitions Total
GBP000
------------------------------------------- -------
Non-current assets
Intangible assets 3,851
Current assets
Inventories (116)
Trade and other receivables (199)
Total assets 3,536
Current liabilities
Trade and other payables (6)
Provisions (432)
Non-current liabilities
Provisions (834)
Deferred tax (1,016)
--------------------------------------------- -------
Total liabilities (2,288)
--------------------------------------------- -------
Net assets of businesses acquired 1,248
--------------------------------------------- -------
Initial cash consideration adjustment (555)
--------------------------------------------- -------
Goodwill arising on acquisition (1,803)
--------------------------------------------- -------
During the year adjustments were made to the fair values
of acquired assets and liabilities included in the
provisional accounting for the prior year acquisitions
of Firetrace, Visiometrics and CenTrak.
The provisional accounting was updated for the external
valuation of the acquired intangibles of CenTrak which
was incomplete at the prior year end, for changes to
certain provisions and inventory valuations across
all three acquisitions, and for adjustments to the
related deferred tax balances. The initial consideration
for CenTrak was also adjusted following the finalisation
of the working capital adjustment payable. The combined
adjustments made for each acquisition resulted in a
net adjustment to goodwill of GBP1,803,000.
The net increase of GBP3,851,000 in intangible assets
arising on the acquisition of CenTrak included a decrease
in the technology asset by GBP7,198,000 and an increase
in the customer relationship asset and trademark asset
by GBP4,851,000 and GBP6,198,000 respectively.
All adjustments to the provisional accounting were
made within the goodwill measurement period, relevant
to each acquisition, as defined by IFRS 3 (revised)
Business Combinations. As required by IFRS 3, comparatives
have been restated to reflect the changes to the fair
values of assets acquired and liabilities assumed for
CenTrak which, totalling a net adjustment to goodwill
of negative GBP2,134,000, are considered material,
as if they'd occurred at the date of acquisition. The
comparatives have not been restated for the non-material
changes to Firetrace and Visiometrics, totalling a
net adjustment to goodwill of GBP331,000. The table
below sets out the total assets acquired and liabilities
assumed arising on current acquisitions and adjustments
to prior year acquisitions split between those which
have been treated as current year adjustments and those
as prior year for which comparatives have been restated.
d) The total of FluxData Inc. and adjustments to prior
year acquisitions, allocated between restated and not
restated
Not restated Restated Total
GBP000 GBP000 GBP000
------------------------------------ ------------ -------- -------
Non-current assets
Intangible assets 13,515 3,851 17,366
Property, plant and equipment 217 - 217
Current assets
Inventories 375 (35) 340
Trade and other receivables 554 (42) 512
Total assets 14,661 3,774 18,435
Current liabilities
Trade and other payables (464) - (464)
Provisions (105) (348) (453)
Non-current liabilities
Provisions - (834) (834)
Deferred Tax (15) (1,001) (1,016)
------------------------------------ ------------ -------- -------
Total liabilities (584) (2,183) (2,767)
------------------------------------ ------------ -------- -------
Net assets of businesses acquired 14,077 1,591 15,668
------------------------------------ ------------ -------- -------
Initial cash consideration paid 9,878 - 9,878
Initial cash consideration payable* 77 - 77
Initial consideration adjustment on
prior year acquisitions (12) (543) (555)
Contingent purchase consideration
estimated to be paid (FluxData) 9,407 - 9,407
------------------------------------ ------------ -------- -------
Total consideration 19,350 (543) 18,807
------------------------------------ ------------ -------- -------
Goodwill arising on acquisition 5,273 (2,134) 3,139
------------------------------------ ------------ -------- -------
* Estimate in respect of net tangible asset adjustments.
9 Disposal of operations and restructuring
During the year the Group restructured non-core operations in its subsidiary, Pixelteq.
The GBP1,910,000 loss on restructuring included in operating profit comprises fixed
asset and inventory write downs and severance costs.
The total profit on disposal of operations shown in the prior year of GBP556,000
comprises a charge of GBP34,000 related to the previous disposal of Monitor Elevator
Products, Inc arising from a claim under the warranty arrangement, and GBP590,000
credit for the partial disposal of shares in the Group's associate, Optomed. The
Group disposed of 9,176 shares in Optomed, representing 8.8% of its ownership interest
in the associate. Consideration received was EUR1,236,000 (GBP907,000). Further details
are provided on page 158 of the Annual Report and Accounts 2016.
10 Notes to the Consolidated Cash Flow 52 weeks 53 weeks
Statement to to
1 April 2 April
2017 2016
GBP000 GBP000
-------------------------------------------------- -------- --------
Reconciliation of profit from operations
to net cash inflow from operating activities:
Profit on continuing operations before
finance income and expense, share of results
of associate and profit on disposal of
operations 167,070 142,943
Depreciation of property, plant and equipment 17,798 15,245
Amortisation of computer software 1,432 1,348
Amortisation of capitalised development
costs and other intangibles 6,947 5,202
Impairment of intangibles 98 -
Amortisation of acquired intangible assets 31,469 23,103
Impairment of acquired intangible assets 12,429 -
Share-based payment expense in excess
of amounts paid 1,880 1,899
Additional payments to pension plans (10,213) (7,728)
Loss on restructuring of operations 1,252 -
Loss/(profit) on sale of property, plant
and equipment and computer software 138 (1,345)
Operating cash flows before movement in
working capital 230,300 180,667
Increase in inventories (5,406) (4,809)
Increase in receivables (14,262) (8,786)
Increase in payables and provisions 5,750 7,844
Revision to estimate of, and exchange
differences arising on, contingent consideration
payable (10,701) 1,543
-------------------------------------------------- -------- --------
Cash generated from operations 205,681 176,459
Taxation paid (33,188) (27,186)
-------------------------------------------------- -------- --------
Net cash inflow from operating activities 172,493 149,273
-------------------------------------------------- -------- --------
52 weeks 53 weeks
to to
1 April 2 April
2017 2016
GBP000 GBP000
-------------------------------------------- -------- --------
Analysis of cash and cash equivalents
Cash and bank balances 66,827 53,938
Overdrafts (included in current borrowings) (1,190) (4,412)
-------------------------------------------- -------- --------
Cash and cash equivalents 65,637 49,526
-------------------------------------------- -------- --------
At Loan At
2 April Cash notes Exchange 1 April
2016 Reclass flow repaid adjustments 2017
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- --------- ------- ------- ------- ------------ ---------
Analysis of net debt
Cash and bank balances 53,938 - 9,043 - 3,846 66,827
Overdrafts (4,412) - 3,222 - - (1,190)
-------------------------- --------- ------- ------- ------- ------------ ---------
Cash and cash equivalents 49,526 - 12,265 - 3,846 65,637
Loan notes falling
due within one year (336) (66) - 241 - (161)
Loan notes falling
due after more than
one year (172,112) 66 - - (9,111) (181,157)
Bank loans falling
due after more than
one year (123,796) - 54,761 - (11,726) (80,761)
-------------------------- --------- ------- ------- ------- ------------ ---------
Total net debt (246,718) - 67,026 241 (16,991) (196,442)
-------------------------- --------- ------- ------- ------- ------------ ---------
The net cash outflow from loan notes relates to GBP241,000 repayment of existing
loan notes issued in relation to the previous acquisition of Advanced.
11 Non-GAAP measures
The Board uses certain non-GAAP measures to help it effectively monitor the performance
of the Group. These measures include Return on Total Invested Capital, Return on
Capital Employed, Organic growth at constant currency, Adjusted operating profit
and Adjusted operating cash flow.
Return on Total Invested Capital (Restated)*
1 April 2 April
2017 2016
GBP000 GBP000
----------------------------------------------- --------- -----------
Post-tax profit before adjustments(2) 152,270 129,641
----------------------------------------------- --------- -----------
Total shareholders' funds 778,637 646,340
Add back retirement benefit obligations 74,856 52,323
Less associated deferred tax assets (13,947) (9,619)
Cumulative amortisation of acquired intangible
assets 168,031 112,478
Historical adjustments to goodwill(3) 89,549 89,549
----------------------------------------------- --------- -----------
Total Invested Capital 1,097,126 891,071
----------------------------------------------- --------- -----------
Average Total Invested Capital(1) 994,099 833,616
----------------------------------------------- --------- -----------
Return on Total Invested Capital (ROTIC) 15.3% 15.6%
----------------------------------------------- --------- -----------
Return on Capital Employed (Restated)*
1 April 2 April
2017 2016
GBP000 GBP000
-------------------------------------------------------- ---------- -----------
Operating profit before adjustments(2) ,
but after share of results of associate 203,290 173,066
-------------------------------------------------------- ---------- -----------
Computer software costs within intangible
assets 4,466 3,215
Capitalised development costs within intangible
assets 28,782 23,540
Other intangibles within intangible assets 1,111 903
Property, plant and equipment 106,016 96,562
Inventories 118,780 105,283
Trade and other receivables 212,236 184,126
Trade and other payables (135,257) (122,791)
Current provisions (6,776) (4,789)
Net tax liabilities (15,931) (14,968)
Non-current trade and other payables (10,780) (10,153)
Non-current provisions (16,917) (19,355)
Add back contingent purchase consideration 16,444 17,075
-------------------------------------------------------- ---------- -----------
Capital Employed 302,174 258,648
-------------------------------------------------------- ---------- -----------
Average Capital Employed(1) 280,411 238,898
-------------------------------------------------------- ---------- -----------
Return on Capital Employed (ROCE) 72.5% 72.4%
-------------------------------------------------------- ---------- -----------
(1) The ROTIC and ROCE measures are expressed as a
percentage of the average of the current period's and
prior year's Total Invested Capital and Capital Employed
respectively. Using an average as the denominator is
considered to be more representative. The March 2015
Total Invested Capital and Capital Employed balances
were GBP776,160,000 and GBP219,148,000 respectively.
(2) Adjustments include the amortisation and impairment
of acquired intangible assets; acquisition items; restructuring
costs; and profit or loss on disposal of operations.
(3) Includes goodwill amortised prior to 3 April 2004
and goodwill taken to reserves.
* Comparatives have been restated as described in note
8.
Organic growth
Organic growth measures the change in revenue and profit
from continuing Group operations. This measure equalises
the effect of acquisitions by:
i. removing from the year of acquisition their entire
revenue and profit before taxation, and
ii. in the following year, removing the revenue and
profit for the number of months equivalent to the pre-acquisition
period in the prior year.
The resultant effect is that the acquisitions are removed
from organic results for one full year of ownership.
The results of disposals are removed from the prior
period reported revenue and profit before taxation.
The effects of currency changes are removed through
restating the current year revenue and profit before
taxation at the prior year exchange rates.
Organic growth at constant currency has been calculated
for the Group as follows:
Group Adjusted profit*
Revenue before taxation
----------------------------- -----------------------------
52 weeks 53 weeks 52 weeks 53 weeks
to to to to
1 April 2 April 1 April 2 April
2017 2016 2017 2016
GBP000 GBP000 % growth GBP000 GBP000 % growth
---------------------- -------- -------- --------- -------- -------- ---------
Continuing operations 961,662 807,805 194,004 166,014
Acquired and disposed
revenue/profit (40,303) (4,544)
---------------------- -------- -------- --------- -------- -------- ---------
Organic growth 921,359 807,805 14.1% 189,460 166,014 14.1%
Constant currency
adjustment (78,982) (17,427)
---------------------- -------- -------- --------- -------- -------- ---------
Organic growth at
constant currency 842,377 807,805 4.3% 172,033 166,014 3.6%
---------------------- -------- -------- --------- -------- -------- ---------
Sector Organic growth at constant currency
Organic growth at constant currency is calculated for
each segment using the same method as described above.
Adjusted* segment
Process Safety Revenue profit
----------------------------- -----------------------------
52 weeks 53 weeks 52 weeks 53 weeks
to to to to
1 April 2 April 1 April 2 April
2017 2016 2017 2016
GBP000 GBP000 % growth GBP000 GBP000 % growth
--------------------------- -------- -------- --------- -------- -------- ---------
Continuing operations 167,007 155,467 40,243 39,557
Acquisition and currency
adjustments (10,317) (2,406)
--------------------------- -------- -------- --------- -------- -------- ---------
Organic growth at
constant currency 156,690 155,467 0.8% 37,837 39,557 (4.3%)
--------------------------- -------- -------- --------- -------- -------- ---------
Adjusted* segment
Infrastructure Safety Revenue profit
----------------------------- -----------------------------
52 weeks 53 weeks 52 weeks 53 weeks
to to to to
1 April 2 April 1 April 2 April
2017 2016 2017 2016
GBP000 GBP000 % growth GBP000 GBP000 % growth
--------------------------- -------- -------- --------- -------- -------- ---------
Continuing operations 315,219 264,843 65,129 55,579
Acquisition and currency
adjustments (32,050) (5,549)
--------------------------- -------- -------- --------- -------- -------- ---------
Organic growth at
constant currency 283,169 264,843 6.9% 59,580 55,579 7.2%
--------------------------- -------- -------- --------- -------- -------- ---------
Adjusted* segment
Medical Revenue profit
----------------------------- -----------------------------
52 weeks 53 weeks 52 weeks 53 weeks
to to to to
1 April 2 April 1 April 2 April
2017 2016 2017 2016
GBP000 GBP000 % growth GBP000 GBP000 % growth
--------------------------- -------- -------- --------- -------- -------- ---------
Continuing operations 260,576 198,715 66,704 51,695
Acquisition and currency
adjustments (53,335) (11,908)
--------------------------- -------- -------- --------- -------- -------- ---------
Organic growth at
constant currency 207,241 198,715 4.3% 54,796 51,695 6.0%
--------------------------- -------- -------- --------- -------- -------- ---------
Adjusted* segment
Environmental & Analysis Revenue profit
----------------------------- -----------------------------
52 weeks 53 weeks 52 weeks 53 weeks
to to to to
1 April 2 April 1 April 2 April
2017 2016 2017 2016
GBP000 GBP000 % growth GBP000 GBP000 % growth
--------------------------- -------- -------- --------- -------- -------- ---------
Continuing operations 219,118 188,928 41,698 34,527
Acquisition and currency
adjustments (23,583) (5,140)
--------------------------- -------- -------- --------- -------- -------- ---------
Organic growth at
constant currency 195,535 188,928 3.5% 36,558 34,527 5.9%
--------------------------- -------- -------- --------- -------- -------- ---------
* Adjustments include the amortisation and impairment of acquired intangible assets;
acquisition items; restructuring costs; and profit or loss on disposal of operations.
Adjusted operating profit 52 weeks 53 weeks
to to 2
1 April April
2017 2016
GBP000 GBP000
------------------------------------------- -------- --------
Operating profit 167,070 142,943
------------------------------------------- -------- --------
Add back:
Acquisition items (9,507) 7,179
Loss on restructuring 1,910 -
Amortisation of acquired intangible assets 31,469 23,103
Impairment of acquired intangible assets 12,429 -
------------------------------------------- -------- --------
Adjusted operating profit 203,371 173,225
------------------------------------------- -------- --------
Adjusted operating cash flow 52 weeks 53 weeks
to to 2
1 April April
2017 2016
GBP000 GBP000
---------------------------------------------------- -------- --------
Net cash from operating activities (note
10) 172,493 149,273
---------------------------------------------------- -------- --------
Add back:
Net acquisition costs 363 -
Taxes paid 33,188 27,186
Proceeds from sale of property, plant and
equipment 1,495 2,364
Proceeds from sale of capitalised development
costs - 166
Share awards vested not settled by own shares* 3,309 2,478
Less:
Purchase of property, plant and equipment (21,875) (22,418)
Purchase of computer software and other intangibles (2,760) (2,204)
Development costs capitalised (10,731) (8,579)
---------------------------------------------------- -------- --------
Adjusted operating cash flow 175,482 148,266
---------------------------------------------------- -------- --------
Cash conversion % (adjusted operating cash
flow/adjusted operating profit) 86% 86%
---------------------------------------------------- -------- --------
* See Consolidated Statement of Changes in Equity
12 Events after the balance sheet date
There were no events after the balance sheet date.
13 Related party transactions
Trading transactions
1 April 2 April
2017 2016
GBP000 GBP000
-------------------------------------- ------- -------
Associated companies
Purchases from associated companies 384 1,254
Amounts due to associated companies 51 153
Amounts due from associated companies - -
-------------------------------------- ------- -------
Other related parties
Rent charged by other related parties - 121
Amounts due to other related parties - 2
-------------------------------------- ------- -------
Other related parties in the prior year comprised
one company with a Halma employee on the board and
from which the Halma subsidiary rented property. All
the transactions above are on an arm's length basis
and on standard business terms.
Remuneration of key management personnel
The remuneration of the Directors and Executive Board
members, who are the key management personnel of the
Group,
is set out below in aggregate for each of the categories
specified in IAS 24 'Related Party Disclosures'. Further
information about the remuneration of individual Directors
is provided in the audited part of the Directors'
Remuneration Report in the Annual Report and Accounts
2017.
52 weeks 53 weeks
to 1 to
April 2 April
2017 2016
GBP000 GBP000
--------------------------- -------- --------
Wages and salaries 4,886 5,658
Pension costs 112 180
Share-based payment charge 2,470 2,341
--------------------------- -------- --------
7,468 8,179
--------------------------- -------- --------
Cautionary note
These Results contain certain forward-looking statements
which have been made by the Directors in good faith
using information available up until the date they
approved the announcement. Forward-looking statements
should be regarded with caution as by their nature
such statements involve risk and uncertainties relating
to events and circumstances that may occur in the
future. Actual results may differ from those expressed
in such statements, depending on the outcome of these
uncertain future events.
FR OKBDNOBKDAAD
(END) Dow Jones Newswires
June 13, 2017 02:00 ET (06:00 GMT)
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