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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| -22.00 | -1.00% | 2,178.00 | 2,177.00 | 2,178.00 | 2,196.00 | 2,175.00 | 2,191.00 | 37,070 | 09:54:45 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Electrical Machy, Equip, Nec | 1.85B | 234.5M | 0.6212 | 35.11 | 8.23B |
From Apr 2022 to Apr 2024
TIDMHLMA
RNS Number : 0608P
Halma PLC
16 June 2022
HALMA plc
FULL YEAR RESULTS 2022
Record profit for 19(th) consecutive year
Halma, the global group of life-saving technology companies focused on growing a safer, cleaner and healthier future for everyone, every day, today announces its full year results for the 12 months to 31 March 2022.
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Highlights
Change 2022 2021
Revenue +16% GBP1,525.3m GBP1,318.2m
Adjusted Profit before Taxation(1) +14% GBP316.2m GBP278.3m
Adjusted Earnings per Share(2) +12% 65.48p 58.67p
Statutory Profit before Taxation +20% GBP304.4m GBP252.9m
Statutory Basic Earnings per Share +20% 64.54p 53.61p
Total Dividend per Share(3) +7% 18.88p 17.65p
Return on Sales(4) 20.7% 21.1%
Return on Total Invested Capital(5) 14.6% 14.4%
Net Debt GBP274.8m GBP256.2m
-- Record revenue, up 16%, and 17% on an organic constant currency(6) basis.
-- 19(th) consecutive year of record profit: Adjusted(1) Profit before Taxation up 14%; 15% on an organic constant currency(6) basis
-- Statutory Profit before Taxation up 20%; includes a GBP34.0m gain on the Texecom disposal.
-- Strong organic constant currency(6) revenue and profit growth in all three sectors and all major regions.
-- Continued strong returns: Return on Sales(4) of 20.7% and ROTIC(5) of 14.6% -- Substantially increased strategic investment to support our future growth:
o R&D expenditure up 21%, representing 5.6% of revenue
o 13 acquisitions completed in the year for a total maximum consideration of GBP164m; one further acquisition completed since the period end for GBP37m; a healthy acquisition pipeline across all sectors.
-- Solid cash conversion of 84% and a strong balance sheet, with net debt/EBITDA of 0.74x (2021: 0.76x), supporting investment in organic growth and acquisitions.
-- Total dividend per share for the year up 7%; 43(rd) consecutive year of dividend growth of 5% or more.
Andrew Williams, Group Chief Executive of Halma, commented:
"This was a year of notable achievements for Halma, with revenue exceeding GBP1.5bn and profit GBP300m for the first time. We delivered our 19(th) consecutive year of record profit, and our 43(rd) consecutive year of dividend growth of 5% or more, while substantially increasing strategic investment including further strengthening our leadership, teams and culture to support our future growth.
Halma's Sustainable Growth Model enabled our companies to act with agility to address new market opportunities and to respond rapidly to the multiple operational and economic challenges they faced during the year. Our strong performance reflects huge credit on the dedication of our people across the business, and was underpinned by our empowering purpose and culture, our focus on niche markets with long-term, fundamental growth drivers and the high value of the solutions we provide to our customers.
We have made a positive start to the new financial year. We have a strong order book, and order intake in the year to date is ahead of revenue and in line with the very strong intake in the same period of the prior year. We expect to deliver continued growth and maintain high returns in the 2022/23 financial year, with good single digit percentage organic constant currency revenue growth and a Return on Sales similar to the second half of the 2021/22 financial year. We are well positioned to make further progress in the full year and in the longer-term."
Notes:
1 Adjusted to remove the amortisation of acquired intangible
assets, acquisition items and profit or loss on disposal of
operations, totalling GBP11.8m (2020/21: GBP25.4m). See note
1 to the Results for details.
2 Adjusted to remove the amortisation of acquired intangible
assets, acquisition items, profit or loss on disposal of operations
and the associated taxation thereon and, in 2022, the increase
in the UK's corporation tax rate from 19% to 25%. See note
2 to the Results for details.
3 Total dividend paid and proposed per share, comprising interim
dividend of 7.35p per share and proposed final dividend of
11.53p 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 Return on Total Invested Capital (ROTIC) is defined as post-tax
Adjusted(1) Profit as a percentage of average Total Invested
Capital.
6 Organic constant currency measures exclude the effect of movements
in foreign exchange rates on the translation of revenue and
profit(1) into Sterling, as well as acquisitions in the year
following completion and disposals.
7 Adjusted(1) Profit before Taxation, Adjusted(2) Earnings per
Share, organic growth rates, Return on Sales and ROTIC are
alternative performance measures used by management. See notes
1, 2 and 3 to the Results for details.
For further information, please contact:
Halma plc
Andrew Williams, Group Chief
Executive
Marc Ronchetti, Chief Financial +44 (0)1494 721 111
Officer
Charles King, Head of Investor
Relations
Clayton Hirst, Director of +44 (0)7776 685948
Corporate Affairs +44 (0)7834 796 013
MHP Communications
Andrew Jaques/Rachel Farrington +44 (0)20 3128 8404
A copy of this announcement, together with other information
about Halma, may be viewed on its website: www.halma.com . The
webcast of the results presentation will be available on the
Halma website later today: www.halma.com
NOTE TO EDITORS
1. Halma is a global group of life-saving technology companies,
focused on growing a safer, cleaner and healthier future for
everyone, every day. Its purpose defines the three broad market
areas where it operates:
Protecting life as populations grow and
* Safety protecting worker safety.
Addressing the impacts of climate change,
* Environment pollution and waste, protecting life-critical
resources and supporting scientific research.
Meeting rising healthcare demand as growing
* Medical populations age and lifestyles change.
Halma employs over 7,000 people in more than 20 countries,
with major operations in the UK, Mainland Europe, the USA and
Asia Pacific. Halma is listed on the London Stock Exchange
(LON: HLMA) and is a constituent of the FTSE 100 index.
In January 2022, Halma was named one of Britain's Most Admired
Companies by Management Today.
2. 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
.
3. 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 Report
A year of notable achievements
This has been a year of notable achievements for Halma. We delivered record profit for the 19th consecutive year, our revenue exceeded GBP1.5 billion and profit GBP300 million for the first time, and our companies successfully addressed multiple economic and geopolitical challenges including the ongoing effects of the COVID pandemic and more recently the conflict in Ukraine. At the same time, we substantially increased investment in our digital and innovation activities while also making further progress on our Key Sustainability Objectives.
Our achievements reflect the relevance of our purpose in addressing our customers' needs and consequently many key challenges facing our planet and society. They were enabled by Halma's Sustainable Growth Model, built on a culture and organisational model which allows our companies to respond with agility to changes in their markets and the wider world.
However, all of this is brought to life through the commitment of our employees worldwide who rose to the challenges and lived Halma's purpose of growing a safer, cleaner, healthier future for everyone, every day. I would like to thank them for their dedication and their contributions over the past year.
A strong financial performance
Revenue grew by 16% to GBP1,525.3m and Adjusted(1) profit before taxation increased by 14% to GBP316.2m. Statutory profit before taxation increased by 20% to GBP304.4m.
Growth was broadly spread across our sectors, regions and companies. All sectors delivered double digit rates of revenue and profit growth on an organic constant currency basis. There was double digit organic constant currency revenue growth in all major regions, and approximately 80% of our companies delivered double digit organic constant currency revenue growth.
Returns remained strong, with Return on Sales(1) well within our target range of 18-22% and Return on Total Invested Capital over double our estimated weighted average cost of capital of 7.1%. Cash conversion was solid, which reflected strong underlying cash generation and working capital control, but also the effect of some selective working capital investment to support the strong growth in the period. Our continued cash generation and strong balance sheet underpin our investment in future organic growth, as well as providing capacity to fund acquisitions and our progressive dividend policy.
The Board is recommending a 7% increase in the final dividend to 11.53p per share (2021: 10.78p per share). Together with the 7.35p per share interim dividend, this would result in a total dividend for the year of 18.88p (2021: 17.65p), up 7%, making this the 43rd consecutive year of dividend per share growth of 5% or more.
Organisational model and DNA enable our strong performance
Our Sustainable Growth Model, and in particular our organisational model and our DNA, have been critical in delivering our strong performance this year.
At its core is our purpose, which not only continues to motivate us, as demonstrated by our high employee engagement scores, but is also proving to be an important asset in attracting new talent.
Our organisational model gives our companies the resources, agility and authority to respond to changes in their markets and the global operating environment, led by their local management team. It also has inherent scalability, allowing us to use M&A to expand our opportunities for growth, without adding further complexity to our structures and decision making or to divest when growth opportunities become more limited. As we have grown, we have deliberately developed a more collaborative culture. This has allowed our companies to address opportunities and solve common issues together, benefiting from the Group's increasing scale, while still retaining the advantages of being small, agile companies, close to their markets. This has been crucial during the COVID pandemic and will continue to be so as we address the further opportunities and challenges ahead.
Our organisational design and DNA means that companies have short spans of control and the autonomy to act in their best interests without seeking approval first. A good example of this in action has been the different actions they have taken to address the wide range of operational challenges they have faced during the past year. These include:
- introducing radically different shift patterns and increasing employee engagement in response to increased demand and labour market shortages, which has also added capacity and flexibility for further growth;
- collaborating to source alternative supplies, share component inventories or leverage the Group's scale to address shortages and delays of critical components in supply chains;
- rapidly redesigning products to use alternative components or making components themselves, using
cross-functional groups to achieve fast times to market; and
- leveraging their close relationships with their customers to ensure that we continue to deliver value to them as well as to address increasing costs by price changes.
Increased strategic investment to support future growth
One of Halma's key strengths is the ability to deliver strong performance in the shorter-term, while simultaneously making substantial investments to support sustainable growth over the longer-term.
We invested over a quarter of a billion pounds in aggregate in this financial year. This investment broadened our opportunities for growth both organically and through acquisition, ensured our products continue to create value for our customers and further strengthened our infrastructure across the Group.
Increasing these investments reflects our confidence in the long-term growth drivers we see in our markets. Our products and services have never been more relevant than today, as health, safety and environmental regulations continue to increase, demand for healthcare grows and the world addresses expanding demands on life-critical resources including the urgent need to tackle climate change, waste and pollution.
Increased strategic investment in new products and technology
Our companies increased investment in new product development above the rate of revenue growth, reflecting their own confidence in their long-term growth prospects. R&D expenditure grew by GBP15m to GBP85m, which represented 5.6% of revenue, up from 5.3% in the prior year.
Investment in our technology infrastructure was GBP11m, to support future growth and modernise ways of working across Halma. We are upgrading our operational technologies to simplify the way in which central functions collect the data required from our companies' systems, with the objectives of increasing automation, improving accuracy and control, and facilitating deeper data insights. We are largely complete in the rollout of our global Treasury Management solution and have commenced implementation of our new Finance and Talent Management platforms. We are also investing significantly in upgrading our global security architecture, which has already brought the added benefits of more secure connectivity between our companies and locations. We are assisting each of our companies in considering how their core business opportunities and challenges can be addressed through improved technology solutions.
Our Digital and Technology teams have been active in supporting the advancement of digital solutions across our companies' product portfolios. Revenue from digital products and solutions increased by 15% in the year, and represents over 40% of Group revenue, with revenue from IoT solutions and from software and services both up by more than 40% year-on-year.
We are making steady progress in establishing a common technology core to support our ongoing IoT product development, with companies trialling a number of potential solutions addressing areas such as telemedicine, fire detection, and critical asset tracking and management.
As our companies increasingly incorporate connected technologies into their products, we are helping to accelerate their IoT / digital product development through a number of initiatives. Examples include diagnostic and design clinics which help companies devise their digital solutions; digital incubators to help companies rapidly prototype and test their new concepts; and strategic partnerships with third-party digital technology platforms and software development partners to assist companies in scaling and launching products to market.
These activities were supported by a range of initiatives which encourage collaboration and by our innovation network. They included an Innovation & Digital Summit, which brought together over 100 participants from across the Group to share their experiences and learn from external experts, a regular Innovation & Digital newsletter, and the release of a self-learning resource through our Innovation & Digital Champions Network.
13 acquisitions completed across all three sectors
Our M&A strategy is focused on acquiring businesses with valuable intellectual property, which operate in market niches aligned with our purpose of growing a safer, cleaner, healthier future for everyone, every day.
Our lean organisational model is scalable and gives us the ability to continue acquiring small-to-medium sized businesses to add new capabilities and supplement our underlying organic growth.
We are also able to sell and merge businesses relatively easily should market dynamics change, enabling us to maintain a purpose-driven, growth-oriented portfolio without it becoming significantly more complex to manage. The benefit of this active portfolio management is reflected in the number of companies within Halma remaining relatively stable, whilst we have grown and maximised value for our shareholders. For example, in 2012, Halma had revenue of GBP580m from 38 operating companies, and today we are delivering revenue of over GBP1.5bn from only 44 operating companies.
We made 13 acquisitions in the year, for a maximum total consideration of GBP164m, while disposing of one business for GBP65m. The acquisitions were spread across our three sectors, with five acquisitions each in the Environmental & Analysis and Medical sectors and three in the Safety sector. They were broadly spread geographically, with acquisitions made in the UK, the USA, a number of countries in Mainland Europe, and in Australia.
It is particularly pleasing to see the acquisition momentum in the Environmental & Analysis sector increasing, following the formation of the new sector leadership team at the beginning of the year including a dedicated M&A team.
Three of the acquisitions made in the year will be standalone companies within the Group. They are:
- PeriGen, Inc., whose advanced technology protects mothers and their unborn babies during childbirth by alerting doctors, midwives and nurses to potential problems. PeriGen was acquired for a cash consideration of US$57.3m (approximately GBP40.1m) on a cash and debt-free basis;
- The Ramtech group of companies, a UK-based supplier of wireless fire systems for temporary sites, which was purchased for a cash consideration of GBP15.7m, on a cash and debt-free basis; and
- Sensitron S.r.L., an Italian gas detection company, which was acquired for a cash consideration of EUR20.1m (GBP17.1m), on a cash and debt-free basis.
An increasing number of our companies now have the size and capability to grow their businesses through acquisition as well as organically, and 10 of the acquisitions in the year were made by our companies as bolt-ons to enhance their technologies and market reach. Details of these transactions are contained in the notes to the Accounts.
Since the period end, we have acquired Deep Trekker, a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance. It will be a stand-alone company within our Environmental & Analysis sector. It serves markets including aquaculture, renewable energy and ocean science and research, and was acquired for a cash consideration of C$60m (approximately GBP36.6m) on a cash and debt-free basis.
We have also continued to develop our external partnerships through our Halma Ventures programme, that offers Halma access to new technology and capabilities via minority ownership, and have a good pipeline of further potential opportunities. Since the year end, we have made one further investment in VAPAR, whose AI technology enables faster and more accurate condition assessment of wastewater infrastructure.
Talent and Executive Board changes
The quality and diversity of our leaders and teams is a critical component of Halma's success, and their continued commitment to bringing our purpose to life was reflected in our global engagement survey. This had a high response rate of 85% and an engagement score of 76%, with improvements across all dimensions compared to 2020. This result was supported by the ability of our companies to act quickly to look after their employees' wellbeing in response to events such as the ongoing pandemic and the invasion of Ukraine.
We are committed to maximising the quality of talent available to us by ensuring that Halma is an inclusive organisation, thereby also ensuring a diversity of voices and experiences within our leadership teams.
Diversity, Equity and Inclusion is one of our Key Sustainability Objectives, and one measure of inclusion is gender diversity. We have introduced a target of achieving 40-60% gender balance on all company boards by March 2024. Although this is a stretching goal, we made progress towards it in the year, increasing female representation from 22% last year to 26% at 31 March 2022.
We manage the development and diversity of our leadership teams to ensure that we have robust succession plans for senior positions within the Group and that we have the appropriate capabilities in our teams to support the Group's future growth.
Since the beginning of the year, we have been operating and reporting as three sectors, to better align with our purpose and our focus on safety, health and environmental markets. Each sector team includes a Sector Chief Executive, a Chief Financial Officer, a team to support M&A activity as well as legal and talent management resource, to deliver its growth strategy.
The new dedicated sector team created for the Environmental & Analysis sector has brought increased focus on the significant opportunities we see in its markets. Its new M&A team, for example, has already benefited the sector, with five acquisitions completed in the year, and Deep Trekker acquired after the year end.
We are also investing in our leadership team in Asia-Pacific, reflecting the substantial organic and inorganic growth potential in the region over the longer term. This team is led by Aldous Wong, who was one of our Divisional Chief Executives (DCEs), as President of Halma Asia Pacific and an advisor to Halma's Executive Board. We made one further change to the Executive Board in the year, with Steve Brown also being promoted from DCE to succeed Laura Stoltenberg as the Sector Chief Executive for the Medical sector.
Good progress on our Key Sustainability Objectives
Following the introduction of our Sustainability Framework in the prior year, each of our companies is creating its own plan to set out how they will contribute to the Group's goals and ambitions for our Key Sustainability Objectives (KSOs) - Climate Change, Diversity, Equity and Inclusion (DEI), and Circular Economy. Achieving these objectives will add to the positive impact delivered through our purpose-aligned growth.
In addition, we advanced our work to enable us to report against the recommendations from the Task Force for Climate-related Financial Disclosures (TCFD). This further highlighted not only the challenges but also the significant opportunities for Halma arising from the transition to a lower carbon world and from global efforts to address climate change. The ways in which our companies can address these opportunities are diverse. These include solutions to reduce greenhouse gas (GHG) emissions; helping customers in energy-transitioning industries to increase safety and reduce costs; providing products with a lower carbon footprint; and helping customers and societies adapt to the worsening physical impacts of climate change. We will be supporting our companies in identifying and assessing relevant opportunities as part of their strategic growth plans, as well as continuing to assess these opportunities as part of our M&A strategy.
We have several targets already in place for our Climate Change KSO. We have made progress towards our 2040 Net Zero and 2030 1.5 degree aligned targets for Scope 1 & 2 emissions, with a 35% reduction in GHG emissions from our 2020 baseline, compared to 14% reported revenue growth over those two years. We have rapidly increased our use of renewable electricity from 8% of consumption in 2020 to 42% in 2022, which is on the way to our target of 80% renewable electricity by 2025. From FY23, we have also introduced a new target of at least 4% annual growth in energy productivity to support our Scope 1 & 2 goals.
We recognise that Scope 1 & 2 is only a small portion of our total carbon footprint and that we need to work towards Net Zero for our entire value chain. We have made progress during the year in estimating our full Scope 3 footprint. We will be looking to show strong progress towards setting appropriate Scope 3 goals and targets during the coming financial year.
Our new annual energy productivity metrics have been incorporated into our executive remuneration for FY23, alongside the gender diversity targets mentioned above. Performance against stretching annual targets is required for participants to achieve 10% of the maximum annual bonus. We consider this change in our remuneration as a good starting point; in the future we will consider further metrics as well as evolving the scope and type of sustainability-linked remuneration.
Summary and Outlook
Halma's Sustainable Growth Model enabled our companies to act with agility to address new market opportunities and to respond rapidly to the multiple operational and economic challenges they faced during the year. Our strong performance reflects huge credit on the dedication of our people across the business, and was underpinned by our empowering purpose and culture, our focus on niche markets with long-term, fundamental growth drivers and the high value of the solutions we provide to our customers.
We have made a positive start to the new financial year. We have a strong order book, and order intake in the year to date is ahead of revenue and in line with the very strong intake in the same period of the prior year. We expect to deliver continued growth and maintain high returns in the 2022/23 financial year, with good single digit percentage organic constant currency revenue growth and a Return on Sales similar to the second half of the 2021/22 financial year. We are well positioned to make further progress in the full year and in the longer-term.
Andrew Williams
Group Chief Executive
(1) See Highlights
Financial Review
Record profit
Halma reported a strong financial performance in the period. We delivered record profit for the 19th consecutive year, while substantially increasing investment to support future growth. Our Sustainable Growth Model enabled our companies to respond with agility to new opportunities in their end markets and to benefit from recovery in a number of markets that had been affected by the COVID pandemic. It also allowed them to act rapidly to address multiple economic and geopolitical challenges including the ongoing effects of the pandemic and, in the fourth quarter of the year, from the conflict in Ukraine. The increased investment in the year was supported by the continued strength of our financial position and solid cash flow, and will underpin our growth over the longer term as our companies address the significant opportunities in their markets.
Revenue for the year to 31 March 2022 was GBP1,525.3m (2021: GBP1,318.2m), up 15.7%, which principally reflected a strong organic performance. There was also a benefit from recent acquisitions (net of the effect of a disposal in the year), and a negative effect from currency translation. The increase in Adjusted(1) profit before taxation of 13.6% to GBP316.2m (2021: GBP278.3m) reflected the increase in revenue and the return of discretionary variable overhead costs in the second half of the year as the effects of the pandemic eased. It also included a net benefit of GBP3m, comprising a GBP5m release of a centrally-held provision for the risk of customer bad debt as a result of the COVID pandemic, offset in part by an increase of GBP2m in provisions in relation to bad debt and contract risk relating to our decision to cease trading with Russia. As a result of the continued strong performance, we were able to increase investment to support future growth, including further resources for our central Growth Enabler teams, and GBP7m increase in expenditure to upgrade our information technology infrastructure. Statutory profit before taxation increased by 20.4% to GBP304.4m (2021: GBP252.9m).
Revenue growth of 15.7% was driven by a 17.4% increase in organic constant currency revenue. The contribution from acquisitions was a positive 4.8% (1.6% net of disposals), and there was a negative effect from currency translation of 3.3%. The 13.6% increase in Adjusted(1) profit comprised a 15.4% increase in organic constant currency profit, a 3.6% contribution from acquisitions (1.7% net of disposals), and a negative effect from currency of 3.5%.
Statutory profit before taxation of GBP304.4m is calculated after charging the amortisation of acquired intangible assets of GBP42.7m (2021: GBP42.3m), a GBP34.0m gain on disposals (2021: GBP22.1m), and other items of a net GBP3.1m (2021: GBP5.2m). Further detail on these items is given in note 1 to these Accounts.
Cash conversion was solid at 84%, reflecting good underlying working capital control, partially offset by selective investment by our companies in their stock of components and raw materials to ensure continuity of production and to manage price increases. Our financial position remained strong, despite significant organic investment and acquisition spend, with net debt (on an IFRS 16 basis which includes lease commitments) increasing by only GBP18.6m to GBP274.8m, and representing gearing (net debt to EBITDA) of 0.74 times.
Strong revenue and profit performance
Revenue grew by 19.2% in the first half of the year and by 12.6% in the second half, with second half revenue 6.9% higher than revenue in the first. Constant currency organic revenue increased by 17.4%, comprising a 23.2% increase in the first half and growth of 12.2% in the second half. There was a negative effect of 6.2% from currency translation in the first half, and of 0.7% in the second half, giving a negative effect of 3.3% for the year as a whole.
Adjusted(1) profit increased by 27.0% in the first half and grew by 3.2% in the second half. This resulted in a first half/second half split of adjusted profit of 49%/51%, compared to our typical 45%/55% pattern. Organic profit at constant currency increased by 31.7% in the first half, and by 2.6% in the second half, resulting in growth of 15.4% for the year. Growth in the second half of the year included an investment of GBP6m in information technology infrastructure (out of GBP7m in the year as a whole), and a net GBP3m benefit from the release of provisions relating to the risk of customer bad debt and our decision this year to cease trading with Russia as described above.
Revenue and profit change
---------------------------------------------------------------------------------------------
Organic Organic
2022 2021 Change Total growth(2) growth(2)
at constant
currency
GBPm GBPm GBPm % % %
-------------------- -------- -------- -------- ------- ------------ --------------
Revenue 1,525.3 1,318.2 207.1 15.7 14.1 17.4
-------------------- -------- -------- -------- ------- ------------ --------------
Adjusted(1) profit
before taxation 316.2 278.3 37.9 13.6 11.9 15.4
Statutory profit
before taxation 304.4 252.9 51.5 20.4 - -
-------------------- -------- -------- -------- ------- ------------ --------------
(1) In addition to those figures reported under IFRS, Halma uses alternative performance measures as key performance indicators, as management believe these measures enable them to better assess the underlying trading performance of the business by removing non-trading items that are not closely related to the Group's trading or operating cash flows. Adjusted profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs and profit or loss on disposal of operations. All of these are included in the statutory figures. Notes 1 and 3 to the Accounts give further details with the calculation and reconciliation of adjusted figures.
(2) See Highlights.
Strong revenue and profit growth in all sectors
All sectors delivered strong revenue and profit growth, both on a reported and organic constant currency basis, and all sectors grew revenue and profit in both the first half and the second half of the year.
The Environmental & Analysis sector delivered the strongest performance. Revenue increased 22.6% driven by strong organic constant currency growth of 24.5%, with all regions reporting growth on an organic constant currency basis. Profit grew 23.0%, or by 23.3% on an organic constant currency basis. The sector's strong revenue growth principally reflected a recovery in customer demand, including a number of larger contracts, as the effects of the COVID pandemic eased, and its operational agility in spite of supply chain disruptions. Acquisitions, net of disposals, contributed growth of 1.6% to revenue, and 3.5% to profit. Return on Sales was marginally higher at 24.8% (2021: 24.7%). There was a reduction in gross margin as a result of product mix, in addition to increased sector costs following the creation of a new dedicated sector leadership team (rather than one shared with the Medical sector, as in the previous year). These factors were mitigated by continued strong overhead control. Absolute expenditure on R&D increased to GBP22.8m (2021: GBP20.6m) although that represented a reduction in R&D expenditure as a percentage of sales from 5.7% to 5.1%. Looking ahead, while there are continued risks from supply chain disruptions and a robust comparative (notably in the first half), we expect the sector to make further strong progress, supported by a substantial order book and a contribution from recent acquisitions.
The Medical sector also grew strongly, with revenue growth of 19.1%, including an organic constant currency increase of 13.0% and a contribution from acquisitions of 10.1%. Growth was broad-based across the sector, with the majority of companies delivering double digit growth as a result of strong increases in customer demand as the effects of the COVID pandemic abated and healthcare systems began to normalise. This was partially offset by a small number of companies which had seen significant increases in demand as a result of the pandemic seeing a decline in sales. Profit grew 15.0% (10.5% on an organic constant currency basis) and Return on Sales was 22.5% (2021: 23.3%). This included a substantial increase in R&D expenditure to GBP26.9m, representing 6.1% of revenue (2021: GBP18.8m; 5.1% of revenue), given an intensification of new product development and new product launches in the year. It also reflected the allocation of the full cost of a dedicated sector leadership team following the creation of a separate team for the Environmental & Analysis sector. These effects were partly offset by strong control of overheads. While risks remain of further supply chain disruptions and delays to customer orders, the sector is anticipated to deliver good growth in the year ahead, supported by a strong order book.
The Safety sector also saw strong growth, with revenue increasing by 15.9% on an organic constant currency basis. Reported revenue growth was 9.3% and included negative effects of 5.2% from the disposal of Texecom in the first half of the year and 2.7% from foreign exchange translation, which were partly offset by a benefit from recent acquisitions of 1.3%. Sector growth was driven by double digit revenue growth in all but two (smaller) subsectors, reflecting our companies' agility in responding to the recovery in customer demand as the effects of the COVID pandemic eased, and was achieved despite increased supply chain, logistics and labour market disruption during the year. Profit increased 8.1%, or 13.3% on an organic constant currency basis, and Return on Sales was 22.8% (2021: 23.0%), reflecting higher technology costs and an increase in R&D spend to 5.6% of revenue (2021: 5.2%), partly offset by strong overhead control and the effect of the disposal of Texecom during the year. While there are risks from continued inflationary, operational and supply chain challenges, the sector is expected to deliver a strong organic constant currency performance in the year ahead.
Central administration costs, which include our Growth Enabler functions, increased to GBP30.9m. These had declined in 2021 to GBP22.9m from GBP26.3m in 2020, as a result of the discretionary cost reduction measures implemented at the beginning of the COVID pandemic. The increase reflected the partial return of discretionary variable overhead costs as our business activity recovered, investment in our governance and compliance teams given the increased scale of the Group and planned investment in technology and our Growth Enabler teams to support our future growth. In 2023, we expect the same factors, principally technology investment, to result in central administration costs being approximately GBP40m.
Sector revenue change
2022 2021
-------- --------- ------- ----------
% organic
% growth growth(2) at
% of constant
GBPm total GBPm % of total Change GBPm currency
------------------ -------- --------- -------- ------------- -------------- ------------- ----------------
Safety 641.4 42 587.0 45 54.4 9.3 15.9
------------------ -------- --------- -------- ------------- -------------- ------------- ----------------
Environmental &
Analysis 442.9 29 361.1 27 81.8 22.6 24.5
------------------ -------- --------- -------- ------------- -------------- ------------- ----------------
Medical 442.3 29 371.3 28 71.0 19.1 13.0
------------------ -------- --------- -------- ------------- -------------- ------------- ----------------
Inter-segment
sales (1.3) (1.2) (0.1)
------------------ -------- --------- -------- ------------- -------------- ------------- ----------------
1,525.3 100 1,318.2 100 207.1 15.7 17.4
------------------ -------- --------- -------- ------------- -------------- ------------- ----------------
Sector profit change
2022 2021
-------------------- --------------------
% organic
growth(2)
Change at constant
GBPm % of total GBPm % of total GBPm % growth currency
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Safety 146.2 41 135.3 43 10.9 8.1 13.3
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Environmental
& Analysis 109.8 31 89.3 29 20.5 23.0 23.3
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Medical 99.5 28 86.6 28 12.9 15.0 10.5
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Sector profit(3) 355.5 100 311.2 100 44.3
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Central administration
costs (30.9) (22.9) (8.0)
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Net finance expense (8.4) (10.0) 1.6
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Adjusted(4) profit
before tax 316.2 278.3 37.9 13.6 15.4
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
(3) Sector profit before allocation of adjustments. See Note 1 to the Financial Statements.
(4) Adjusted profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations. All of these are included in the statutory figures. Note 3 to the Financial Statements gives further details with the calculation and reconciliation of adjusted figures.
Strong revenue growth in all major regions
The Group's four major regions delivered a strong revenue performance on a reported and organic constant currency basis, and all of them grew on an organic constant currency basis.
Revenue in the USA increased by 17.4%, and the USA remains our largest revenue destination, accounting for 39% of Group revenue, the same as in the prior year. Organic constant currency revenue grew by 19.8%. All sectors performed well, with the Environmental & Analysis sector reporting very strong growth, driven by Environmental Monitoring and Optical Analysis. The Safety sector also performed strongly, with a recovery in customer demand following the pandemic resulting in strong growth in a number of subsectors including emergency communication in Elevator Safety, Fire Detection, Pressure Management and Industrial Access Control. The Medical sector performed well, with many companies seeing substantial growth as elective procedure volumes increased, together with a positive contribution from recent acquisitions, principally PeriGen. This was partly offset, however, by a decline in demand for products supporting the diagnosis or treatment of COVID.
Mainland Europe revenue was 11.6% higher, or 12.8% on an organic constant currency basis. Reported revenue included a modest contribution from acquisitions (net of the impact of disposals), and a negative effect from foreign exchange translation. The Environmental & Analysis sector delivered a very strong performance, driven by the Water Analysis and Treatment subsector and also benefiting from the acquisition of Sensitron in the year. Medical sector growth was also strong, reflecting momentum in the Healthcare Assessment subsector. The Safety sector also performed well, with strong performances in People and Vehicle Flow and Fire Detection, although more mixed in the rest of the sector.
UK revenue was 25.0% higher, which included a small positive contribution from acquisitions, including Static Systems and Ramtech, net of the disposal of Texecom. Organic constant currency revenue growth was 24.8%. The Medical sector saw strong organic constant currency growth following a sharp decline in the prior year as a result of the COVID-19 pandemic, and additionally benefited from the acquisition of Static Systems in the year. The Environmental & Analysis sector saw good growth, driven by strong demand for pipeline inspection and maintenance solutions in the Water Analysis and Treatment subsector and good momentum in gas detection within Environmental Monitoring. Growth in the Safety sector was strong, and reflected high rates of organic growth, driven by a strong performance in Fire Detection, more than compensating for the negative impact from the disposal.
Revenue from territories outside the UK/Mainland Europe/the USA grew by 10.4%, in line with our 10% KPI growth target. This comprised a strong performance in Asia Pacific and a small decline in revenue in other regions.
Asia Pacific revenue increased 16.0%, or 18.3% on an organic constant currency basis. Revenue in China, our largest market in the region at approximately 7% of Group revenue, grew at a similar rate to the Asia Pacific region overall. The Environmental & Analysis and Medical sectors delivered strong performances, supported by our companies' alignment with the major elements of the Chinese government's Five Year Plan. Elsewhere in the region, the other larger markets of Australasia, India, Japan, South Korea and Singapore delivered double digit revenue growth, and, in the smaller markets, only Malaysia and Indonesia saw a decline. The net effect of acquisitions and disposals was broadly neutral.
Other regions, which represent less than 7% of Group revenue, reported revenue 1.4% lower on a reported basis, principally as a result of foreign exchange translation. There was a 2.1% increase on an organic constant currency basis, which reflected modest organic growth in Africa, Near and Middle East and a wide range of performances in other countries. There was a strong performance in the Environmental & Analysis sector and good growth in Medical, while Safety sector revenue was lower.
Geographic revenue
2022 2021
------------------- -------------------
% of % of Change % organic growth at
GBPm total GBPm total GBPm % change constant currency
--------------------- -------- --------- -------- --------- ------- ----------- -----------------------
United States of
America 597.2 39 508.8 39 88.4 17.4 19.8
--------------------- -------- --------- -------- --------- ------- ----------- -----------------------
Mainland Europe 308.1 20 276.0 21 32.1 11.6 12.8
--------------------- -------- --------- -------- --------- ------- ----------- -----------------------
United Kingdom 267.0 18 213.6 16 53.4 25.0 24.8
--------------------- -------- --------- -------- --------- ------- ----------- -----------------------
Asia Pacific 250.8 16 216.1 16 34.7 16.0 18.3
--------------------- -------- --------- -------- --------- ------- ----------- -----------------------
Africa, Near and
Middle East 53.6 4 54.1 4 (0.5) (0.9) 3.0
--------------------- -------- --------- -------- --------- ------- ----------- -----------------------
Other countries 48.6 3 49.6 4 (1.0) (2.0) 1.2
--------------------- -------- --------- -------- --------- ------- ----------- -----------------------
1,525.3 100 1,318.2 100 207.1 15.7 17.4
--------------------- -------- --------- -------- --------- ------- ----------- -----------------------
Currency effects
Weighted average rates used in the Income Exchange rates used to translate the Balance
Statement Sheet
---------------------------------------------- ----------------------------------------------
2022 2021 2022 2021
First half Full year Full year Year end Year end
------ ----------- ---------------------- ---------------------- ---------------------- ----------------------
US$ 1.388 1.367 1.308 1.315 1.378
------- ----------- ---------------------- ---------------------- ---------------------- ----------------------
Euro 1.165 1.176 1.121 1.183 1.174
------- ----------- ---------------------- ---------------------- ---------------------- ----------------------
Continued high returns
Halma's Return on Sales (2) has exceeded 16% for 37 consecutive years. Our KPI target is to deliver Return on Sales in the range of 18-22% and this year Return on Sales was 20.7%, or 20.5% when the benefit of GBP3m from a net decrease in customer bad debt and Russia-related provisions is excluded. This compares to an unusually high level of 21.1% in 2021, which had benefited from the stringent cost reduction measures we decided to take during the COVID-19 pandemic.
We successfully achieved our objective of continuing to invest in our businesses while delivering growth and we maintained a high level of Return on Total Invested Capital (ROTIC) (2) , the post-tax return on the Group's total assets including all historical goodwill. This year, ROTIC increased to 14.6% (2021: 14.4%), with the change principally reflecting the higher level of constant currency growth in the year, partially offset by the negative effect of currency movements. Our ROTIC remains well ahead of our KPI target of 12% and more than double Halma's Weighted Average Cost of Capital (WACC), estimated to be 7.1% (2021: 6.7%).
Currency effects well managed
Halma reports its results in Sterling. Our other key trading currencies are the US Dollar, Euro and to a lesser extent the Swiss Franc, the Chinese Renminbi and the Australian Dollar. Over 46% of Group revenue is denominated in US Dollars, approximately 28% in Sterling and approximately 12% in Euros.
The Group has both translational and transactional currency exposure. Translational exposures are not hedged. Transactional exposures, after matching currency of revenue with currency costs wherever practical, are hedged using forward exchange contracts for 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 forward.
Sterling strengthened on average in the year, principally in the first half. This gave rise to a negative currency translation impact of 3.3% on revenue and 3.5% on profit for the full year.
Based on the current mix of currency denominated revenue and profit, a 1% movement in the US Dollar relative to Sterling changes revenue by GBP7.1m and profit by GBP1.6m. Similarly, a 1% movement in the Euro changes revenue by GBP1.8m and profit by GBP0.4m.
If currency rates for the financial year to the end of March 2023 were US Dollar 1.260/ Euro 1.190 relative to Sterling, and assuming a constant mix of currency results, we would expect approximately a GBP59m positive revenue and a GBP13m positive profit impact compared to financial year to the end of March 2022, with the majority of the impact in the first half of the year.
Financing cost decreased
The net financing cost in the Income Statement of GBP8.4m was lower than the prior year (2021: GBP10.0m). This principally reflected a lower weighted average interest rate in the year (see the "Average debt and interest rates'" table below for more information).
We expect the net financing cost for the 2023 financial year to be approximately GBP14m, if no further acquisitions are made. This reflects a forecast higher weighted average interest rate in the year, following the completion of a new Private Placement issuance (for details, see the "Substantial funding capacity and liquidity" section below). This issuance results in an increased proportion of fixed coupon debt on the Group's balance sheet, and secures debt financing sufficient to meet the Group's likely medium-term requirements.
The net pension financing impact under IAS 19 is included within the net financing cost. This year the Group recognised a charge of GBP0.3m (2021: gain of GBP0.1m).
Group tax rate increased
The Group has major operating subsidiaries in a number of countries and the Group's effective tax rate is a blend of these national tax rates applied to locally generated profits.
The Group's effective tax rate on adjusted profit was higher than in the prior year at 21.6% (2021: 20.1%). This was mainly due to changes in tax laws reducing the benefits from intra-group financing arrangements. Based on the latest forecast mix of adjusted profits for the year to 31 March 2023 we currently anticipate the Group effective tax rate to be broadly stable at approximately 22% of adjusted profits.
On 2 April 2019, the European Commission (EC) published its final decision that the UK controlled Finance Company Partial Exemption (FCPE) constituted State Aid. In common with many other UK companies, Halma has benefited from the FCPE and had appealed against the European Commission's decision, as had the UK Government. The EU General Court delivered its decision on 8 June 2022. The ruling was in favour of the European Commission but the UK Government and the taxpayer have the option to appeal this decision. Following receipt of charging notices from HM Revenue & Customs (HMRC) we made a payment in February 2021 of GBP13.9m to HMRC in respect of tax, and in May 2021 made a further payment of approximately GBP0.8m in respect of interest.
Whilst the EU General Court was in favour of the EC, our assessment is that there are strong grounds for appeal and we would expect such appeals to be successful. As a result we continue to recognise a receivable of GBP14.7m in the balance sheet.
Solid cash generation
Cash generation is an important component of the Halma model, underpinning further investment in organic growth, supporting value-enhancing acquisitions and funding an increasing dividend to shareholders.
Cash generated from operations was GBP293.4m (2021: GBP331.4m) and adjusted operating cash flow, which excludes operating cash adjusting items, and includes net cash capital expenditure, was GBP273.2m (2021: GBP300.3m) which represented 84% (2021: 104%) of adjusted operating profit. While this was below our cash conversion KPI target of 90%, it included the impact of selective investment by our companies in their stock of components and raw materials to ensure continuity of production and manage price increases. This had an impact on working capital, with an outflow of GBP62.7m, comprising changes in inventory, receivables and creditors (2021: inflow of GBP2.8m), which also reflected the strong revenue growth in the period. These effects would have been more significant were it not for the continued strong underlying control of working capital by our companies. Adjusted operating cash flow is defined in note 3 to the Accounts.
A summary of the year's cash flow is shown in the tables at the end of this review. The largest outflows in the year were in relation to acquisitions, dividends and taxation paid. Acquisition of businesses including cash and debt acquired and fees increased to GBP164.4m (2021: GBP48.8m), reflecting the higher levels of M&A activity in the year. Dividends totalling GBP68.7m (2021: GBP63.7m) were paid to shareholders in the year. Taxation paid increased to GBP56.0m (2021: GBP53.8m).
Capital allocation and funding priorities
Halma aims to deliver high returns, measured by ROTIC(2), well in excess of our cost of capital. We invest to deliver the future earnings growth and strong cash returns which enable us to achieve this aim on a sustainable basis, and our capital allocation priorities remain as follows:
- Investment for organic growth: Organic growth is our first priority and is driven by investment in our existing businesses, including through capital expenditure, innovation in digital growth and new products, international expansion and the development of our people.
- Value-enhancing acquisitions: We supplement organic growth with acquisitions in current and adjacent market niches, aligned with our purpose. This brings new technology, intellectual property and talent into the Group and expands our market reach, keeping Halma well-positioned in growing markets over the long term.
- Regular and increasing returns to shareholders: We have maintained a progressive dividend policy for over 40 years and this is our preferred route for delivering regular cash returns to shareholders without impacting on our investment to grow our business.
Continued investment for organic growth
All sectors continue to innovate and invest in new products, with R&D spend determined by each individual Halma company. R&D expenditure as a percentage of revenue remained well above our KPI target of 4% at 5.6% (2021: 5.3%). In absolute terms, this meant that R&D expenditure increased by 21% to GBP85.4m (2021: GBP70.3m), which was ahead of revenue growth. This increasing investment reflects our companies' confidence in the growth prospects of their respective markets. In the medium term we expect R&D expenditure to continue to increase broadly in line with revenue growth.
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. This year we capitalised GBP13.4m (2021: GBP15.4m), impaired GBP2.9m (2021: GBP1.9m) and amortised GBP7.0m (2021: GBP7.9m). The closing intangible asset carried on the Consolidated Balance Sheet, after a GBP1.3m gain (2021: GBP2.0m loss) relating to foreign exchange was GBP41.7m (2021: GBP38.9m). All R&D projects, and particularly those requiring capitalisation, are subject to rigorous review and approval processes by the relevant sector board.
Capital expenditure on property, plant, equipment and vehicles, computer software and other intangible assets was GBP26.6m (2021: GBP26.4m), with both years reflecting a lower spend as a result of pandemic constraints. Expenditure was principally on plant, equipment and vehicles. We anticipate capital expenditure to increase to approximately GBP34m in the coming year, reflecting investment in the expansion of manufacturing facilities and automation to support future growth.
We are also investing in automation and technology upgrades. Technology spend totalled GBP11m in the 2022 financial year, reflecting increased investment of GBP7m, and we expect expenditure in the financial year ending 31 March 2023 to be approximately GBP20m. This Group-wide investment includes enhanced security, improved data and analytics capabilities and support for our companies in upgrading their operating technology and creating new digital models in line with our Halma 4.0 growth strategy.
Lease right-of-use asset additions were GBP23.0m (2021: GBP24.3m). This included additions of GBP4.6m as a result of acquisitions made in the year, and the commencement of new leases and extensions or renewals of existing leases.
Value-enhancing acquisitions and investments
Acquisitions and disposals are a key component of our sustainable growth strategy, as they keep our portfolio of companies focused on markets which have strong growth opportunities over the medium and long term.
In the year we made 13 acquisitions at a cost of GBP154.3m (net of cash acquired of GBP18.2m and including acquisition costs). In addition, we paid GBP14.2m in contingent consideration and other payments for acquisitions made in prior years, giving a total spend of GBP168.5m. We also divested Texecom Limited, for GBP62.0m, net of disposal costs.
The acquisitions completed in the current and prior year contributed to revenue this year in line with expectations overall, and we expect a good performance from these acquisitions in the future.
Details of the acquisitions and investments made in the year are given in the sector reviews in the Annual Report and Accounts 2022 and in note 8 to the Financial Statements.
Since the year end, we have made one further acquisition, of Deep Trekker, a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance, for a cash consideration of C$60m (approximately GBP36.6m), on a cash and debt-free basis.
Regular and increasing returns for shareholders
Adjusted earnings per share increased by 11.6% to 65.48p (2021: 58.67p) and statutory basic earnings per share, which included a gain on disposal of Texecom Limited, increased by 20.4% to 64.54p (2021: 53.61p).
The Board is recommending a 7.0% increase in the final dividend to 11.53p per share (2021: 10.78p per share), which together with the 7.35p per share interim dividend gives a total dividend per share of 18.88p (2021: 17.65p), up 7.0% in total.
Dividend cover (the ratio of adjusted profit after tax to dividends paid and proposed) is 3.47 times (2021: 3.33 times).
The final dividend for the financial year ended March 2022 is subject to approval by shareholders at the AGM on 21 July 2022 and, if approved, will be paid on 18 August 2022 to shareholders on the register at 15 July 2022.
We aim to increase dividends per share each year, while maintaining a prudent level of dividend cover, and declare approximately 35-40% of the anticipated total dividend as an interim dividend. The Board's determination of the proposed final dividend increase this year took into account the Group's financial performance, economic and geopolitical uncertainty including the effects of the COVID pandemic and the war in Ukraine, the Group's continued balance sheet strength and medium-term organic constant currency growth.
Substantial funding capacity and liquidity
Halma's operations have continually been cash generative and the Group has access to competitively priced committed debt finance, providing good liquidity for the Group. Group treasury policy remains conservative and no speculative transactions are undertaken.
We have a strong balance sheet, solid cash generation, and substantial available liquidity. Shortly after the year end, we refinanced our syndicated revolving credit facility. The new facility remains at GBP550m and matures in May 2027, and there are two one-year extension options. In addition, we completed a new Private Placement issuance of c.GBP330m in May 2022. The issuance consists of Sterling, Euro, US Dollar and Swiss Franc tranches and matures in July 2032, with an amortisation profile giving it a seven year average life. Once the January 2023 tranche of our existing Private Placement has matured this will give us additional funding capacity of GBP260m.
The financial covenants on these facilities are for leverage (net debt/ adjusted EBITDA) to not be more than three and a half times and for adjusted interest cover to be not less than four times. The Group continues to operate well within its banking covenants with significant headroom under each financial ratio.
At 31 March 2022, net debt was GBP274.8m, a combination of GBP360.1m of debt, GBP72.1m of IFRS 16 lease liabilities and GBP157.4m of cash held around the world to finance local operations. Net debt at 31 March 2021 was GBP256.2m.
The gearing ratio at the year-end (net debt to EBITDA) was 0.74 times (2021: 0.76 times). Net debt represented 3% (2021: 3%) of the Group's year-end market capitalisation.
Operating cash flow summary
2022 2021
GBPm GBPm
--------------------------------------------------- ------ ------
Operating profit 278.9 240.8
--------------------------------------------------- ------ ------
Net acquisition costs and contingent consideration
fair value adjustments 3.1 5.2
--------------------------------------------------- ------ ------
Amortisation and impairment of acquisition-related
acquired intangible assets 42.7 42.3
--------------------------------------------------- ------ ------
Adjusted operating profit 324.7 288.3
--------------------------------------------------- ------ ------
Depreciation and other amortisation 49.1 50.8
--------------------------------------------------- ------ ------
Working capital movements (62.7) 2.8
--------------------------------------------------- ------ ------
Capital expenditure net of disposal proceeds (25.5) (25.9)
--------------------------------------------------- ------ ------
Additional payments to pension plans (12.2) (13.0)
--------------------------------------------------- ------ ------
Other adjustments (0.2) (2.7)
--------------------------------------------------- ------ ------
Adjusted operating cash flow 273.2 300.3
--------------------------------------------------- ------ ------
Non-operating cash flow and reconciliation to net debt
2022 2021
GBPm GBPm
------------------------------------------------------- ------- -------
Adjusted operating cash flow 273.2 300.3
------------------------------------------------------- ------- -------
Tax paid (56.0) (53.8)
------------------------------------------------------- ------- -------
Acquisition of businesses including cash/debt acquired
and fees (164.4) (48.8)
------------------------------------------------------- ------- -------
Purchase of equity investments (0.7) (3.4)
------------------------------------------------------- ------- -------
Disposal of businesses 57.5 26.1
------------------------------------------------------- ------- -------
Net finance costs and arrangement fees (excluding
lease interest) (5.7) (7.0)
------------------------------------------------------- ------- -------
Net lease liabilities additions (21.5) (23.7)
------------------------------------------------------- ------- -------
Dividends paid (68.7) (63.7)
------------------------------------------------------- ------- -------
Own shares purchased (19.3) (16.2)
------------------------------------------------------- ------- -------
Adjustment for cash outflow on share awards not
settled by own shares (7.1) (7.8)
------------------------------------------------------- ------- -------
Effects of foreign exchange (5.9) 17.1
------------------------------------------------------- ------- -------
Movement in net debt (18.6) 119.1
------------------------------------------------------- ------- -------
Opening net debt (256.2) (375.3) ------------------------------------------------------- ------- ------- Closing net debt (274.8) (256.2) ------------------------------------------------------- ------- -------
Net debt to EBITDA
2022 2021
GBPm GBPm
-------------------------------------------------- ----- -----
Adjusted operating profit 324.7 288.3
-------------------------------------------------- ----- -----
Depreciation and amortisation (excluding acquired
intangible assets) 49.1 50.8
-------------------------------------------------- ----- -----
EBITDA 373.8 339.1
-------------------------------------------------- ----- -----
Net debt to EBITDA 0.74 0.76
-------------------------------------------------- ----- -----
Average debt and interest rates
2022 2021
--------------------------------------------- ----- -----
Average gross debt (GBPm) 426.8 445.5
--------------------------------------------- ----- -----
Weighted average interest rate on gross debt 1.90% 2.32%
--------------------------------------------- ----- -----
Average cash balances (GBPm) 143.1 148.8
--------------------------------------------- ----- -----
Weighted average interest rate on cash 0.16% 0.51%
--------------------------------------------- ----- -----
Average net debt (GBPm) 283.7 296.7
--------------------------------------------- ----- -----
Weighted average interest rate on net debt 2.78% 3.22%
--------------------------------------------- ----- -----
Pensions update
The Group accounts for post-retirement benefits in accordance with IAS 19 Employee Benefits. The Consolidated Balance Sheet reflects the net accounting surplus on our pension plans as at 31 March 2022 based on the market value of assets at that date and the valuation of liabilities using discount rates derived from year end AA corporate bond yields. Lane Clark & Peacock LLP assist the Company in setting assumptions, and valuation work is performed by Mercer Limited.
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 two plans represent over 95% of consolidated plan liabilities.
On an IAS 19 basis, before deferred taxes, the Group's DB plans at 31 March 2022 had a surplus of GBP30.5m (2021: GBP22.5m deficit). The value of plan assets increased to GBP347.6m (2021: GBP333.1m). Plan liabilities decreased to GBP317.1m (2021: GBP355.6m) due to the increase in the discount rate (1.95% to 2.80%) being greater than the increase in the long-term inflation rate (3.2% to 3.6%). Mortality assumptions have been aligned to updated actuarial information.
The plans' actuarial valuation reviews, rather than the accounting basis, determine any cash deficit payments. This year these contributions amounted to GBP11.8m, slightly lower than expected due to a delay in agreement of the revised schedule of contributions. Following a triennial actuarial valuation of the two UK pension plans in this financial year, cash contributions increasing at 7% per annum aimed at eliminating the deficit were agreed with the trustee, and in FY23 we expect contributions to be GBP14.6m. In the unlikely event that these payments result in a surplus on winding up of the schemes, the Group has an unconditional right to a refund under the plan rules.
Conclusion
We delivered a strong financial performance, despite the challenges arising from economic and geopolitical uncertainty including the COVID pandemic and, more recently, the conflict in Ukraine. We delivered record revenue and profit and solid cash flow, while substantially increasing our investment in future growth opportunities and maintaining a strong balance sheet. My colleagues in our finance and risk teams have helped our companies to successfully respond to the opportunities and challenges that have arisen in the year, through actionable insights and strong control. I would like to thank them for their hard work and commitment throughout the year.
Marc Ronchetti
Chief Financial Officer
Safety Sector Review
Sector overview and growth drivers
The Safety sector makes the world a safer place by protecting people, assets and infrastructure and enabling safe movement in a wide range of environments, including public and commercial spaces, and industrial and logistics operations. Many of the sector's products and services also make the world cleaner and improve efficiency.
The long-term growth of the sector continues to be driven by increasing safety and environmental regulation, and growing, urbanising and ageing populations. In recent years, increasing automation and accelerating demand for connected industrial and infrastructure systems have further underpinned the sector's growth prospects, as our customers have sought to benefit from the greater efficiency and safety that can be derived from these innovations.
The COVID pandemic and the urgent need to address the causes and impacts of climate change have further enhanced the opportunities available to our companies. We are already seeing effects in a number of our businesses. For example, we are seeing increasing demand for automated access solutions to both increase efficiency, including by minimising heat loss in commercial and industrial premises, and to enhance hygiene, for example through touchless operation. We are also supporting the drive towards renewable and cleaner energy sources, including through installing our fire suppression technology in wind turbines, or increasing the efficiency of industrial processes and repurposing technology towards areas such as carbon capture and hydrogen energy sources in our businesses which serve industrial customers.
Performance in the year
The Safety sector delivered a strong performance, benefiting from the substantial increase in customer demand following the easing of lockdown restrictions, and the agility of its companies in successfully responding to new opportunities in their markets whilst addressing supply chain and other challenges. Growth was broadly spread across the majority of subsectors, with most delivering double-digit revenue growth, and across all major regions.
Revenue of GBP641.4m (2021: GBP587.0m) was 9.3% higher than in the prior year, and up 15.9% on an organic constant currency basis. This included a very strong performance in the first half of the year (and particularly in the first quarter), with organic constant currency growth of 25.3%, against a weaker comparative. The second half of the year saw a more normal level of revenue growth, with organic constant currency revenue increasing by 7.6%.
This strong performance was led by substantial growth in Fire Detection, which had been most affected in the first half of last year by lockdown restrictions and the furloughing of customer employees, with the subsector benefiting from the easing of lockdown restrictions and the resumption of construction activity.
People and Vehicle Flow also grew strongly. Continued demand for its touchless and automated entry devices, driven by changing customer needs as a result of the pandemic, supported good growth at BEA, and the successful execution of significant road safety contracts drove strong growth at Navtech. Elevator Safety also grew well, benefiting from a strong market in emergency communication.
Growth in a number of other subsectors reflected our companies' ability to respond rapidly to changing customer needs, for example identifying and meeting strong demand from logistics customers for our interlock products in Industrial Access Control, and prioritising technologies supporting the decarbonisation of energy sources in Pressure Management.
Across the sector, the agility of our companies also enabled them to manage ongoing disruption in their supply chains, through a range of initiatives including diversifying supplies, redesigning products and selectively holding higher inventory levels to ensure continued production.
The smaller Safe Storage and Transfer and Fire Suppression subsectors are, respectively, seeing delays to larger infrastructure projects, and weakness in specific markets such as aerospace (partly offset by solid growth in other markets such as clean energy and critical infrastructure).
The sector's revenue performance by region reflected these themes. The UK saw the strongest revenue growth, led by Fire Detection and People and Vehicle Flow, which included the road safety contract mentioned above. Revenue growth in the USA was also strong and broadly spread by sector, with the principal drivers being Fire Detection, logistics within Industrial Access Control, Pressure Management and emergency communication within Elevator Safety. Asia Pacific also grew strongly, with organic constant currency revenue growth across all subsectors, and very strong growth in People and Vehicle Flow and in Industrial Access Control. Overall revenue growth in Mainland Europe was good, although there was a more mixed performance by subsector, with strong progress in Fire Detection and Industrial Access Control, more modest gains in some other subsectors and declines in Safe Storage and Transfer and Fire Suppression. Other regions, accounting for around 7% of sector revenue, saw a decline, principally reflecting delays to some larger infrastructure projects in the Middle East, a change in delivery location for a large customer, and the continuing impact of the COVID pandemic in specific countries.
Profit grew by 8.1% to GBP146.2m (2021: GBP135.3m), or by 13.3% on an organic constant currency basis. There was a modest decline in Return on Sales to 22.8% (2021: 23.0%). This reflected increased investment to support future growth, in research and development, which rose to 5.6% of revenue (2021: 5.2% of revenue), and in technology (including ongoing enterprise systems at some of the sector's larger companies), as well as a return of discretionary variable overhead costs. These effects were partly offset by strong overhead control and the effect of the disposal of Texecom, which had a lower margin, in the year. Gross margin remained broadly unchanged compared to the prior year.
There were three acquisitions in the year for an aggregate consideration of approximately GBP16.5m: the Ramtech group of companies and two small bolt-on acquisitions for Fortress Safety and Argus. In August 2021, Texecom, a UK-based provider of electronic security systems, was sold for a total cash consideration of GBP65m on a cash and debt-free basis. The impact of acquisitions was a positive effect of 1.3% on revenue and 0.4% on profit, while the disposal of Texecom had a negative effect of 5.2% on revenue and 3.3% on profit. Currency exchange movements had a negative effect of 2.7% on revenue and 2.3% on profit.
Environmental & Analysis Sector Review
Sector overview and growth drivers
The Environmental & Analysis sector is focused on growing a safer, cleaner and healthier future by improving the quality and availability of life-critical natural resources such as air, water and food and by delivering high-technology solutions in a wide variety of end markets based on our digital, optical and optoelectronic expertise. The sector's valuable solutions are technically differentiated through strong application knowledge, supported by high levels of customer responsiveness.
The sector's long-term growth is sustained by rising demand for life-critical resources, the impact of climate change, increasing environmental regulations and worldwide population growth with rising standards of living. It is underpinned by our ability to design, develop and manufacture innovative, high-technology detection and analysis solutions with applications in a wide range of sectors. These include water and waste water management and treatment (including water utilities); gas analysis and detection; food, beverage, medical and bio-medical; communications; research and science; and a variety of industrial markets.
The increasingly urgent need to address climate change is creating new opportunities in many of the sector's markets. It is driving new policies globally, including national, state and city initiatives to meet Net Zero commitments through energy transition and sectoral decarbonisation plans, as well as plans to increase adaptation and resilience. Combined with the biodiversity crisis and an increasing focus on plastics and waste, it is also driving new regulatory initiatives to preserve life-critical resources. These include initiatives such as, in the UK, Ofwat's investigations into wastewater treatment and internal sewer flooding to prevent environmental degradation. These and similar initiatives are creating growing long-term opportunities for our companies to help their customers, for example, to prevent emissions, detect leaks and analyse air and water quality, and to support new technologies to address these issues, such as renewable energy and storage, sustainable food systems and mobility in cities.
Performance in the year
The Environmental & Analysis sector delivered a very strong performance, driven by a recovery in customer orders as the effects of the COVID pandemic eased, and benefiting from its agility in executing these orders in spite of supply chain disruptions. Growth was broadly spread, with all subsectors and all regions delivering double digit revenue growth.
Revenue of GBP442.9m (2021: GBP361.1m) was 22.6% higher, and up 24.5% on an organic constant currency basis. Acquisitions (net of disposals) contributed 1.6% to revenue growth. The sector's growth was led by a strong recovery in gas detection within Environmental Monitoring, reflecting higher activity (including some larger contracts) as the effects of the pandemic abated, and an increasing customer focus on protecting the environment and scarce natural resources. This also supported greater demand within Water Analysis & Treatment, although revenue in clean water leak detection was lower, given an absence of large project tenders from UK utilities.
Within Optical Analysis, photonics also performed strongly, as it continued to benefit from increasing demand for technologies that support the building of digital and data capabilities.
By region, the USA accounts for nearly half of the sector's revenue, and reported the strongest organic constant currency growth, driven by further growth in photonics within Optical Analysis, and in gas detection, which benefited from post-pandemic recovery and large new customer orders in the second half of the year. Asia Pacific also grew strongly, benefiting from customer demand for products supporting new fuel cell technology, from investment in talent to support the development of gas detection businesses, and from recovery in the pharmaceutical and beverage markets. Mainland Europe reported strong growth on an organic constant currency basis, driven by good performances in Water Analysis and Treatment, and also benefited from acquisitions, notably those of Sensitron, Orca and Dancutter. Strong growth in Africa, Near and Middle East was mainly attributable to a post COVID recovery in the oil and gas sector, which benefited our gas detection companies. The UK reported the slowest growth given lower order intake in clean water technologies from UK utilities, although this was partly offset by a larger contract win in waste water infrastructure and the acquisition of Anton Industrial Services within gas detection.
Profit grew by 23.0% to GBP109.8m (2021: GBP89.3m), or by 23.3% on an organic constant currency basis, and Return on Sales was marginally higher at 24.8% (2021: 24.7%). This reflected a reduction in gross margin as a result of product mix offset by continued strong overhead control. While there was a reduction in R&D expenditure as a percentage of sales from 5.7% to 5.1%, this was in part driven by product mix, and absolute expenditure on R&D increased to GBP22.8m (2021: GBP20.6m).
There were five acquisitions in the sector during the year, and a further acquisition, of Deep Trekker, was made shortly after the year end. This good momentum reflected the investment made in a dedicated M&A team, as part of the new Environmental & Analysis sector team, and the increasing ability of our individual companies to make bolt-on acquisitions to enhance their technological capabilities and market reach. The acquisitions made in the year were (all considerations were in cash and are given on a cash and debt-free basis):
- Anton Industrial Services, Crowcon's UK flue gas analyser distribution partner, for GBP1.9m;
- Sensitron S.R.L., an Italian gas detection company, for EUR20.1m (approximately GBP17.1m), as a standalone company in the sector;
- Dancutter A/S, a Danis0h designer and manufacturer of trenchless pipeline rehabilitation equipment, for EUR17.6m (approximately GBP15.0m), for Minicam;
- Orca GmbH, a German manufacturer of ultraviolet disinfection systems, for EUR8.1m (approximately GBP7.0m), for the UV Group of companies; and
- International Light Technologies, a leading developer of technical lighting sources and light measurement systems, for US$26.3m (approximately GBP19.4m), for Ocean Insight.
Since the year end, there has been one further acquisition in the sector, Deep Trekker, of C$60.0m (approximately GBP36.6m), which will be a stand-alone company. Deep Trekker is a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance.
Acquisitions (net of disposals) had a positive effect of 1.6% on revenue and 3.5% on profit. Currency exchange movements had a negative effect of 3.5% on revenue and 3.8% on profit.
Medical Sector Review
Sector overview and growth drivers
The Medical sector is focused on growing a healthier future by enhancing the quality of life for patients and improving the quality of care delivered by healthcare providers. We serve niche applications in global markets providing critical components, devices, systems and therapies which are embedded in the standard of care. We look for markets where our products and technologies are critical to the function or management of care, for example cataract surgery or cardiac monitoring. We also often participate in niches where there is a connection between medical conditions and chronic illnesses, thereby driving potentially higher rates of demand on a sustained basis.
The sector's long-term growth is supported by demographic trends, technological innovation, and aspirations to improve the standard of care and increase efficiency.
The global population is expected to reach nearly 10 billion by 2050, an increase of around 2 billion from current levels, and the proportion of the world's population aged over 60 is forecast to increase from 12% to 22%. This is expected to lead to an increased prevalence of chronic conditions, driving demand for diagnosis and treatment of a wide variety of long-term illnesses. These factors are key growth drivers for our Therapeutic Solutions businesses, given their presence in the ophthalmic surgery device, respiratory therapy and bone replacement markets.
Technological innovations are also driving growth. They are increasing the capabilities of healthcare professionals to prevent, diagnose and treat conditions. They are also helping healthcare providers to improve the standards of care and increase efficiency, including by treating more people remotely through telemedicine. These innovations are enabling better, earlier and faster diagnosis and treatment of patients, providing healthcare providers with new tools to tackle the backlog of conditions caused by the COVID pandemic. At the same time, new products and services are enabling them to provide more healthcare for less, and improving hygiene compliance. These factors are strong growth drivers for our diagnostics businesses, and also for businesses such as PeriGen, in helping to prevent complications during childbirth, and CenTrak, with its real-time location services which improve safety and efficiency in healthcare facilities.
Globally, we also see rising demand, from both patients and healthcare providers, for improvements to the quality and responsiveness of healthcare services. The COVID pandemic has shown the importance of robust healthcare systems and the long-term benefits of investing in the health of populations. It is still too early to predict the eventual outcomes of the pandemic on healthcare spending, but increased utilisation of assets and rising demand seem likely to support increases in the future.
From 16 June 2022, the sector has been renamed Healthcare, to reflect the breadth of these growth drivers, and our wider aspiration to support patient diagnosis and treatment, as well as healthcare providers in improving the delivery of patient-centred care.
Performance in the year
The sector delivered a strong performance. Revenue of GBP442.3m (2021: GBP371.3m) was 19.1% higher, and up 13.0% on an organic constant currency basis. Acquisitions contributed 10.1% to revenue growth. Overall, sector companies successfully responded to variations in customer demand and to continuing operational challenges in their supply chains, in labour markets, and in their ability to access customer premises. All but three sector companies delivered double digit growth as a result of strong increases in customer demand as the effects of the COVID pandemic abated and medical systems began to normalise.
There was double digit revenue growth across all major regions. The USA accounts for half of the sector's revenue. There was good growth in the region on an organic constant currency basis, reflecting increased customer demand and a strong order book. On a reported basis, there was also a benefit from recent acquisitions, including PeriGen. A small number of companies which had seen very strong demand through the COVID pandemic saw reduced customer demand, and there was also some impact from continued delays to elective surgeries.
Mainland Europe and Asia Pacific grew strongly, principally reflecting recovery from the effects of the pandemic. The UK saw very strong growth, particularly in ophthalmology, and also benefited from the acquisition of Static Systems in the prior year, to reach just under 10% of sector revenue. Other regions, which represent a small percentage of sector revenue, grew more modestly.
Profit grew by 15.0% to GBP99.5m (2021: GBP86.6m), or by 10.5% on an organic constant currency basis, and Return on Sales was 22.5% (2021: 23.3%). This included a substantial increase in R&D expenditure to GBP26.9m, representing 6.1% of revenue (2021: GBP18.8m; 5.1% of revenue), given an intensification of new product development and new product launches in the year. It also reflected the allocation of the full cost of a sector team following the creation of a separate team for the Environmental & Analysis sector. These effects were partly offset by an increase in gross margin as most sector companies successfully managed pressures resulting from supply chain disruptions, and by ongoing strong overhead control.
There were five acquisitions in the sector during the year. These comprised PeriGen, which will be a new standalone company in the sector, and four bolt-on acquisitions to enhance the capabilities of existing sector companies. The acquisitions were:
- PeriGen, whose advanced technology protects mothers and their unborn babies during childbirth, was acquired for a cash consideration of US$57.3m (approximately GBP40.1m) on a cash and debt-free basis;
- Assets and intellectual property associated with RNK's digital stethoscope, for Riester, for a consideration of US$3.0m (approximately GBP2.1m);
- Meditech Kft, a Hungarian manufacturer of ambulatory blood pressure monitors and ECG Holter devices, for a maximum total consideration of EUR5.7m (approximately GBP5.0m), which will be integrated with our SunTech business;
- Infinite Leap, a healthcare consulting and services provider for real-time location technologies, which will enhance CenTrak's capabilities. The cash consideration was US$30.8m (approximately GBP22.9m). There are additional contingent earn-out considerations of up to an aggregate maximum of US$17m (approximately GBP12.9m); and
- Clayborn Lab, a provider of custom heat tape solutions, for an initial cash consideration of US$4.5m (approximately GBP3.3m) with an additional earn-out consideration of US$1.5m (approximately GBP1.1m).
Acquisitions had a positive effect of 10.1% on revenue and 8.9% on profit. Currency exchange movements had a negative effect of 4.0% on revenue and 4.4% on profit.
Principal Risks and Uncertainties
1. Innovation & Digital
Risk Owner: Inken Braunschmidt
Gross risk level: High
Change: No Change
Risk appetite: Seeking
Growth enablers
-- Digital Growth Engines -- Innovation Network -- M&A -- Strategic Communications and Brand
Risk and impact
-- Failing to innovate to create new high-quality products to meet customer needs, or failure to adequately protect intellectual property, resulting in a loss of market share and poor financial performance.
How do we manage the risk?
-- Product development is devolved to our companies who are closest to the customer.
-- Chief Innovation and Digital Officer supports sectors to promote and accelerate innovation by our companies.
-- Digital innovation strategy focuses on incubation and acceleration of innovation. Supported by a champions network and partnerships.
-- Education of our companies around customer centricity and voice of the customer to feed our innovation and ideation.
-- Promotion of active collaboration of ideas and best practices between companies. -- Focus on talent and retention to ensure there is sufficient expertise within the business.
-- Review of R&D budgets and projects by sectors to ensure they are being spent most effectively in the markets where we want to participate.
-- Halma senior management approval of all large R&D projects to ensure alignment with strategy. -- Companies are encouraged to develop and protect intellectual property.
-- Conferences and development programmes help spread ideas and best practice across the Group. Innovation awards reward and encourage innovation.
-- M&A activity is targeted to help address innovation and R&D gaps, in line with sector specific initiatives.
-- Monitoring of key R&D and innovation metrics to measure positive impact.
-- Regular promotion, training and monitoring of agile or lean start-up ways of working in companies.
2. Talent and Diversity
Risk Owner: Jennifer Ward
Gross risk level: High
Change: Increased
Risk appetite: Open
Growth enablers
-- Digital Growth Engines -- Innovation Network -- International Expansion -- Strategic Communications and Brand -- Talent & Culture
Risk and impact
-- Not having the right talent and diversity at all levels of the organisation to deliver our strategy, resulting in reduced financial performance. The increased risk reflects retention risks emerging due to our rapid escalation through the FTSE 100, increased profile and track record of success. This risk includes the talent needed to effectively manage a low-carbon transition.
How do we manage the risk?
-- Annual Performance and Development Review process for Sector and Executive Board members. Nomination Committee annual review of succession and development plans.
-- DE&I strategy in place and targets for Executive Board. Quarterly review of diversity metrics (gender, ethnicity and nationality), used to drive action plans at each level.
-- Annual employee engagement survey to provide insight into employee sentiment including alignment between strategy and objectives and clarity to employees about their contribution towards achieving objectives.
-- Comprehensive recruitment processes to recruit the best and brightest talent. -- Ongoing climate related talent identification and upskilling.
-- Development of talent and diversity across our companies, including development programmes, to give us competitive advantage and ensure we have motivated leaders to deliver our strategy.
-- Annual strategic review of sector board and company leadership talent to identify and develop future leaders. Defined competency and potential model used.
-- Future Leaders programme to develop graduates.
-- Senior Management reward structure aligned with strategic priorities of companies, sectors and Group. Work is continuing in this area to ensure that our reward packages are competitive, reflect our high long-term growth and are benchmarked to market.
3. Acquisitions and Investments
Risk Owner: Andrew Williams
Gross risk level: High
Change: No Change
Risk appetite: Open
Growth enablers
-- Finance, Legal & Risk -- International Expansion -- M&A -- Strategic Communications and Brand -- Talent & Culture
Risk and impact
-- Failing to achieve our strategic growth target for acquisitions and investments due to insufficient opportunities being identified, poor due diligence or poor integration, resulting in erosion of shareholder value. Our three sectors are now aligned according to our purpose and reorganising the sectors enabled us to increase our M&A team by 50%.
How do we manage the risk?
-- Clear strategy and agile business model that allows us to take advantage of new growth opportunities as they arise.
-- Acquisition of companies in our existing or adjacent markets.
-- Dedicated M&A Directors with Group Chief Executive, Chief Financial Officer and plc Board oversight, scrutiny and approval of all acquisitions.
-- As our companies scale, they are now more able to take on bolt-on acquisitions to accelerate their growth.
-- Regular reporting of the acquisition pipeline to the Executive and plc Boards. -- Careful due diligence by experienced staff who bring in specialist expertise as required.
-- Strategic transformation plans in place for new acquisitions to seek to ensure they achieve their growth potential.
-- Clear process in place to ensure successful integration from a control and compliance perspective.
-- Internal Audit review within 12 months of acquisition to review minimum expected controls.
-- Post-acquisition reviews are performed for all acquisitions after 12 months to ensure strategic objectives are being met and to identify learnings for future acquisitions.
-- Investment framework and model in place to capture process, approvals and oversight for minority equity investments. Lessons learnt review following each investment to improve future processes. Regular review by the Investment Committee.
-- A climate related low-carbon transition risk and opportunity review has been built into our standalone M&A process.
4. Cyber
Risk Owner: Catherine Michel
Gross risk level: High
Change: Increased
Risk appetite: Averse
Growth enablers
-- Digital Growth Engines -- Finance, Legal & Risk -- International Expansion -- Talent & Culture
Risk and impact
-- Loss of digital intellectual property/data or ability to operate systems or connected devices due to internal failure or external attack. There is resulting loss of information or ability to continue operations, and therefore financial and reputational damage. The continued increase in this risk reflects the growing threat generally from cyber-crime around the world.
How do we manage the risk?
-- Clear ownership of cyber risk, with Board level expertise. -- Cyber risk policies and procedures in place. -- Halma approved services available to all companies to help them manage their cyber risks. -- Cyber threat reporting every two months for all parts of the Group. -- IT disaster recovery and back-up plans in place, required to be tested regularly.
-- Regular online IT awareness training provided for all employees who use computers. Central and local IT expertise.
-- Six monthly Internal Control Certifications submitted by companies include the most critical IT controls.
-- All employees are required to read and sign up to the IT Acceptable Use policy. -- Periodic assurance reviews by Internal Audit. -- Crisis communications plan and access to cyber expertise should a cyberattack occur.
5. Organic Growth
Risk Owner: Andrew Williams
Gross risk level: High
Change: No change
Risk appetite: Open
Growth enablers
-- Digital Growth Engines -- Finance, Legal & Risk -- Innovation Network -- International Expansion -- Strategic Communications and Brand -- Talent & Culture
Risk and impact
-- Failing to deliver desired organic growth, resulting in missed expected strategic growth targets and erosion of shareholder value. Whilst the overall gross risk level is unchanged, our companies have been managing supply chain and labour shortage risks and well as inflationary pressures. The risk includes potential impacts from the net zero transition on our supply chain and operations.
How do we manage the risk?
-- Clear Group strategy to achieve organic growth targets, supported by detailed company strategies and seven Halma Growth Enablers with Executive Board owners. Clear Halma DNA.
-- Sector management ensure that the Group strategy is fulfilled through ongoing review and chairing of companies.
-- Regional hubs, for example in China and India, support local strategic growth initiatives for all companies.
-- Annual strategic planning and budgeting process with rolling 12 month forecasting and a focus on good P&L and balance sheet control.
-- Remuneration of company executives and above is based on profit growth.
-- Continued investment in R&D to drive innovation and growth with KPIs monitored at Board level.
-- Innovation rewarded through Innovation Awards at leadership conferences.
-- Agile business model and culture of innovation to take advantage of new growth opportunities as they arise.
-- Potential new acquisitions, partnerships and investments assessed for future organic growth prospects to align to strategy.
-- Focus on having the best talent on board to deliver strategy and therefore organic growth. -- Climate-risk and opportunity review processes and governance are in place.
-- Ongoing climate related upskilling of company and sector boards to help us manage the low-carbon transition.
6. Business Model and its Communication
Risk Owner: Andrew Williams
Gross risk level: High
Change: No Change
Risk appetite: Open
Growth enablers
-- Digital Growth Engines -- Finance, Legal & Risk -- International Expansion -- M&A -- Strategic Communications and Brand
Risk and impact
-- Failing to clearly articulate or adapt our business model as Halma grows through exploring and implementing additional or new business models, resulting in missed growth opportunities and erosion of shareholder value. This risk includes meeting increasing or shifting stakeholder expectations around climate change.
How do we manage the risk?
-- Clear communication of Halma's business model and any new developments disclosed in the Annual Report and Accounts and at investor events. Regular external and internal communications to reinforce business model understanding.
-- Comprehensive expert reviews of existing and potential new markets to identify strategies with significant growth potential.
-- Identification of companies with products or markets that would have a good strategic fit for Halma. This includes start-ups, service and software companies that could help accelerate the growth of existing companies.
-- Monitoring of market trends, including customer preferences, emerging technologies and competitors.
-- Developing collaboration capabilities of every company to take advantage of identified opportunities.
-- Post-acquisition monitoring to ensure that the objective for acquiring each business has been achieved and learning opportunities identified.
-- Strategic reviews of business model at Board level to consider the strengths and weakness of the existing business model and alternative business models.
-- Sector and Executive Boards perform reviews to identify opportunities which may require a new organisational approach. -- Sustainability governance and structure to accelerate action in place.
-- Continued development of climate and sustainability-related information available to investors and stakeholders, including TCFD disclosures.
7. Economic and Geopolitical Uncertainty
Risk Owner: Andrew Williams
Gross risk level: High
Change: Increased
Risk appetite: Cautious
Growth enablers
-- Finance, Legal & Risk -- International Expansion -- Talent & Culture
Risk and impact
-- Failure to anticipate or adapt to geopolitical changes or a recession, resulting in a decline in financial performance and an impact on the carrying value of goodwill and other assets. This risk remains elevated in certain geographies due to the COVID pandemic and also other geopolitical events such as the conflict in Ukraine and USA/ China trade relations.
How do we manage the risk?
-- Diverse portfolio of companies across the sectors, in multiple countries and in relatively non-cyclical global niche markets help to minimise the impact of any single event operating in one market.
-- Regular monitoring and assessment of potential risks and opportunities relating to economic or geopolitical uncertainties.
-- Identification of any wider trends by the Halma Executive Board that require action. -- Risk managed at local company level and they have the autonomy to rapidly adjust to changing circumstances.
-- Financial strength and availability of pooled resources in Group as well as robust credit management processes in place across the Group.
-- Operations, cash deposits and sources of funding in uncertain regions are kept to a minimum. -- Knowledge and monitoring of global regulatory requirements. -- Financial warning signs KPIs give earlier indications of potential problems.
-- Active reduction of key customer or market concentration through new product and market diversification for both core and acquired businesses.
-- Monitoring of any changes in corporate and government investment due to macroeconomic factors.
-- Periodic assessment of the carrying value of goodwill and other assets.
8. Natural Hazards, including Climate Change
Risk Owner: Funmi Adegoke
Gross risk level: Medium
Change: No change
Risk appetite: Averse
Growth enablers
-- Finance, Legal & Risk -- M&A -- International Expansion -- Strategic Communications and Brand -- Talent & Culture
Risk and impact
-- There is a risk we are unable to respond to large scale disasters or natural catastrophes such as hurricanes, floods, fires or pandemics, as well as longer term changes to the climate such as increasing water scarcity and temperatures, resulting in the inability of one or more of our businesses to operate, causing financial loss and reputational damage. The impact of physical climate change is likely to increase the risks to our operations and supply chain due to increasingly severe and/or frequent weather events.
How do we manage the risk?
-- Halma operates in end markets with strong long-term growth drivers and lower risks of shocks due to natural hazards.
-- Sustainability is a regular agenda item for the Executive and plc Boards.
-- A Sustainability Network is in place which raises the awareness of sustainability issues, including climate change, in our companies.
-- TCFD compliance work is helping to evaluate the potential impacts of climate-related risks and opportunities and determine the appropriate strategic actions.
-- All parts of the Group are required to have business continuity plans in place which are tailored to manage the specific risks they are most likely to face and these are required to be tested periodically.
-- The geographical diversity of Halma's companies reduces the impact of any single event and Halma has manufacturing capability in multiple locations which provides flexibility.
-- There is a culture of support to affected businesses from other Halma companies if the need arises.
-- Group level oversight of IT communications infrastructure.
-- A crisis management plan exists to manage communications and the reputational risk for Halma and/or its companies.
-- Business interruption insurance is in place where possible and appropriate to limit any financial loss that may occur.
-- Climate-risk and opportunity review processes and governance are in place. -- Ongoing climate related upskilling of company and sector boards.
9. Product Failure or Non-compliance
Risk Owner: Andrew Williams
Gross risk level: Medium
Change: Increased
Risk appetite: Averse
Growth enablers
-- Innovation Network -- Strategic Communications and Brand -- Talent & Culture
Risk and impact
-- A failure of one of our products results in serious injury, death or damage to property, including due to non-compliance with product regulations, resulting in financial loss and reputational damage. The risk is increasing due to a trend of increasing regulation and also the current pressures in the supply chain around the world, leading to a greater number of alternative sourcing solutions being required.
How do we manage the risk?
-- The board of each company is accountable for complying with product regulatory requirements.
-- Analysis of market requirements, including safety, are made during a product design phase to ensure compliance with all regulatory requirements and customer needs.
-- Companies have strict product development and testing procedures in place to ensure product quality and regulatory compliance.
-- Rigorous testing of products during development and also during the manufacturing process.
-- Clear requirements for suppliers, including those providing alternative sourcing in the current climate, to ensure safety and quality.
-- Checks are performed on product received from suppliers.
-- Monitoring of defects and warranty returns to identify any potential safety defect which can then be rectified.
-- Traceability of product so that batches can be identified where appropriate. -- Product compliance with regulations is checked as part of due diligence for any acquisition.
-- Terms and conditions of sale limit liability as much as practically possible and liability insurance is in place.
-- A crisis management plan exists to manage communications and the reputational risk for Halma and/or its companies.
10. Non-compliance with Laws and Regulations
Risk Owner: Funmi Adegoke
Gross risk level: High
Change: No Change
Risk appetite: Averse
Growth enablers
-- Finance, Legal & Risk -- International Expansion -- Strategic Communications and Brand -- Talent & Culture
Risk and impact
-- We are not fully compliant with relevant laws and regulations, resulting in fines, reputational damage and possible criminal liability for Halma senior management.
How do we manage the risk?
-- The board of each company is accountable for identifying and monitoring what laws are relevant to their business, including any emerging or changing legislation, and for ensuring commercial legal risks are appropriately managed.
-- Group Legal advises on legislative and regulatory changes relevant to the Group as a listed company and that could have a material impact.
-- An approved list of legal suppliers exists to ensure our companies can access high quality legal advice directly.
-- Group policies, procedures and guidance are in place, setting out the Group's requirements from a compliance and regulatory perspective, and context for the Group's risk appetite.
-- All employees are required to sign to confirm that they have read and understood the Halma Code of Conduct.
-- Ongoing training and advisory programme for Group and companies. -- Appropriate levels of Group insurance cover are maintained.
-- A third party whistleblowing hotline is in place and available for use by all employees and third parties to raise any issues of concern or non-compliance.
-- Six monthly Internal Control Certifications submitted by companies include the most critical legal and regulatory compliance controls.
-- Deputy General Counsel sit on the sector boards and help facilitate both formal and informal reviews of sector legal and regulatory compliance.
-- Thorough legal due diligence and acquisition support process in place.
-- Claims and litigation risks are reported by all companies every six months. Material legal issues and risks are reported to and discussed by the plc board every quarter.
-- A crisis management plan exists to manage communications and the reputational risk for Halma and/or its companies.
-- Periodic assurance reviews by Internal Audit.
11. Financial Controls
Risk Owner: Marc Ronchetti
Gross risk level: Medium
Change: No Change
Risk appetite: Averse
Growth enablers
-- Finance, Legal & Risk -- International Expansion -- Talent & Culture
Risk and impact
-- Failure in financial controls either on its own or via a fraud which takes advantage of a weakness, resulting in financial loss and/or misstated reported financial results.
How do we manage the risk?
-- Local directors have legal, as well as operational, responsibility as they are statutory directors of their companies. This fits with Halma's decentralised model to ensure an effective financial control environment is in place.
-- Group policies, procedures and guidance are in place for expected financial controls.
-- Onboarding of new finance teams and members, together with ongoing training of Halma's financial control framework and its implementation.
-- Six monthly Internal Control Certifications submitted by companies include the most critical financial compliance controls. These include segregation of duties, delegation of authorities and financial accounts preparation checks.
-- Sector and Group Finance teams perform regular reviews of financial reporting and indicators.
-- Six monthly peer reviews of reported results for each company are performed to provide independent challenge.
-- Periodic assurance reviews by Internal Audit.
-- A third party whistleblowing hotline is in place and available for use by all employees and third parties to raise any issues of concern or non-compliance.
12. Liquidity
Risk Owner: Marc Ronchetti
Gross risk level: Medium
Change: No change
Risk appetite: Averse
Growth enablers
-- Finance, Legal & Risk -- International Expansion
Risk and impact
-- There is a risk that the Group's cash/funding resources are inadequate to support its activities or there is a breach of funding terms. There continues to be some risk due to the impact of the COVID pandemic but this is being managed effectively at Group and company level.
How do we manage the risk?
-- A clear financial model and conservative balance sheet strategy exists.
-- The strong cash flow generated by the Group provides financial flexibility, together with a revolving credit facility.
-- Cash needs are monitored regularly through review of the Group cash position and a 12 month rolling forecast.
-- Liquidity forecasts are prepared covering the next three years and are updated and reviewed at least every six months.
-- Treasury policy and procedures provide comprehensive guidance to companies on banking and transactions.
-- Monthly monitoring of current and forecast covenant compliance.
-- All drawdowns and all new or renewed sources of funding are subject to approval by the Chief Financial Officer and Head of Group Treasury.
-- The currency mix of debt is reviewed annually, and on acquiring or disposing of a business.
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 as at 31 March 2022, its cash flows, liquidity position and borrowing facilities are set out in the Strategic Report. In addition, the Annual Report and Accounts 2022 contains further information concerning the security, currency, interest rates and maturity of the Group's borrowings.
The financial statements have been prepared on a going concern basis. In adopting the going concern basis the Directors have considered all of the above factors, including potential scenarios and its principal risks set out above. Under the potential scenarios considered, which includes a severe but plausible downside scenario, the Group remains within its debt facilities and the attached financial covenants for the foreseeable future and the Directors therefore believe, at the time of approving the financial statements, that the Company is well placed to manage its business risks successfully and remains a going concern. The key facts and assumptions in reaching this determination are summarised below.
Our financial position remains robust with committed facilities at the balance sheet date totalling approximately GBP670m which includes a GBP550m Revolving Credit Facility (RCF). In May 2022 the RCF was refinanced and now matures in May 2027 with two one-year extension options. During May 2022, the Group also entered into a Note Purchase Agreement which provides access to loan notes totalling GBP330m, to be drawn in various currencies in July 2022 subject to certain conditions. The Group is confident that these conditions will be satisfied and thus the GBP330m loan notes form part of the available facilities in the Group's Going Concern and Viability assessments. The financial covenants across the facilities are for leverage (net debt/adjusted EBITDA) of not more than three and a half times and for adjusted interest cover of not less than four times.
Our base case scenario has been prepared using forecasts from each of our Operating Companies as well as cash outflows on acquisitions in line with pre COVID-19 levels. In addition, a severe but plausible downside scenario has been modelled showing a decline in trading for the year ending 31 March 2023 to below levels seen for the year ended 31 March 2022. This reduction in trading could be caused by further significant, unexpected COVID-19 impacts or another significant downside event. In mitigating the impacts of the downside scenario there are actions that can be taken which are entirely discretionary to the business such as acquisitions spend and dividend growth rates. In addition, the Group has demonstrated strong resilience and flexibility during the COVID pandemic in managing overheads which could be used to further mitigate the impacts of the downside scenario. The scenarios modelled cover a period of greater than 12 months from the date of the financial statements.
Neither the base case nor severe but plausible downside scenarios result in a breach of the Group's available debt facilities or the attached covenants and, accordingly, the Directors believe there is no material uncertainty in the use of the going concern assumption and, therefore, deem it appropriate to continue to adopt the going concern basis of accounting for at least the next 12-month period.
Viability Statement
During the year, the Board carried out a robust assessment of the principal risks affecting the Group, including those that would threaten its business model (as set out earlier in the Strategic Report), future performance, solvency or liquidity. The principal risks and uncertainties, including an analysis of the potential impact and mitigating actions are set out above.
The Board has assessed the viability of the Group over a three-year period, taking into account the Group's current position and the potential impact of the principal risks and uncertainties. While 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. In drawing its conclusion, the Board has aligned the period of viability assessment with the Group's strategic planning process (a three-year period). The Board believes that this approach provides greater certainty over forecasting and, therefore, increases reliability in the modelling and stress testing of the Company's viability. In addition, a three-year horizon is typically the period over which we review our external bank facilities and is also the performance-based period over which awards granted under Halma's share-based incentive plan are measured.
In reviewing the Company's viability, the Board has identified the following factors which they believe support their assessment:
1. The Group operates in diverse and relatively non-cyclical markets.
2. There is considerable financial capacity under current facilities and the ability to raise further funds if required.
3. The decentralised nature of our Group ensures that risk is spread across our businesses and sectors, with limited exposure to any particular industry, market, geography, customer or supplier.
4. There is a strong culture of local responsibility and accountability within a robust governance and control framework.
5. An ethical approach to business is set from the top and flows throughout our business.
In making their assessment, the Board carried out a comprehensive exercise of financial modelling and stress-tested the model with a downside scenario based on the principal risks identified in the Group's annual risk assessment process. The scenarios modelled used the same assumptions as for the going concern review, as set out above. The base case reflects the latest forecasts and strategic plans of the business. The downside scenario included a reduction in trading for the year ending 31 March 2023 to below levels seen for the year ended 31 March 2022, and also included a significant downside event arising from the impacts of the Group's other principal risks such as litigation or product failure. For the years ending 31 March 2024 and 31 March 2025 the downside scenario reflects expected base case revenue growth more than halving with the growth rate applied to the 2023 downside scenario revenue. In both scenarios, the effect on the Group's KPls and borrowing covenants was considered, and significant headroom remained. Based on this assessment, the Board confirms that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period to 31 March 2025.
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 year to 31 March 2022. Certain parts thereof are not included within these Results.
Each of the Directors, whose names and functions are listed in the Annual Report and Accounts 2022, confirm that, to the best of their knowledge:
-- the Group financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group;
-- the company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets, liabilities and financial position of the company; and
-- the Strategic Report and the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and company, together with a description of the principal risks and uncertainties that it faces.
This responsibility statement was approved by the Board of Directors on 16 June 2022.
Andrew Williams Marc Ronchetti Group Chief Executive Chief Financial Officer
Results for the year to 31 March 2022
Consolidated Income Statement
Year ended 31 March Year ended 31 March
2022 2021
------------------------------------ ------------------------------------
Adjustments* Adjustments*
Before (note Before (note
adjustments* 1) Total adjustments* 1) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Continuing operations
Revenue 1 1,525.3 - 1,525.3 1,318.2 - 1,318.2
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Operating profit 324.7 (45.8) 278.9 288.3 (47.5) 240.8
Share of loss of associate (0.1) - (0.1) - - -
Profit on disposal
of operations 9 - 34.0 34.0 - 22.1 22.1
Finance income 4 0.6 - 0.6 1.0 - 1.0
Finance expense 5 (9.0) - (9.0) (11.0) - (11.0)
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Profit before taxation 316.2 (11.8) 304.4 278.3 (25.4) 252.9
Taxation 6 (68.3) 8.1 (60.2) (55.8) 6.2 (49.6)
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Profit for the year 1 247.9 (3.7) 244.2 222.5 (19.2) 203.3
--------------------------- ----- ------------- ------------ ------- ------------- ------------ ------- Attributable to: Owners of the parent 244.4 203.4 Non-controlling interests (0.2) (0.1) --------------------------- ----- ------------- ------------ ------- ------------- ------------ ------- Earnings per share 2 From continuing operations Basic 65.48p 64.54p 58.67p 53.61p Diluted 64.42p 53.50p Dividends in respect of the year 7 Paid and proposed (GBPm) 71.5 66.8 Paid and proposed per share 18.88p 17.65p --------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
* Adjustments include the amortisation of acquired intangible assets; acquisition items; significant restructuring costs, and profit or loss on disposal of operations; and the associated taxation thereon. Note 3 provides more information on alternative performance measures.
Consolidated Statement of Comprehensive Income and Expenditure
Year ended Year ended
31 March 31 March
2022 2021
Notes GBPm GBPm
------------------------------------------------------ ----- ---------- ----------
Profit for the year 244.2 203.3
Items that will not be reclassified subsequently
to the Consolidated Income Statement:
Actuarial gains/(losses) on defined benefit pension
plans 41.6 (30.6)
Tax relating to components of other comprehensive
income that will not be reclassified 6 (9.6) 5.9
Changes in the fair value of equity investments
at fair value through other comprehensive income (1.7) -
Items that may be reclassified subsequently to
the Consolidated Income Statement:
Effective portion of changes in fair value of
cash flow hedges (1.5) 1.0
Deferred tax in respect of cash flow hedges accounted
for in the hedging reserve 6 0.4 (0.2)
Exchange gains/(losses) on translation of foreign
operations and net investment hedge 43.9 (72.7)
Exchange gains on translation of foreign operations
recycled to the income statement on disposal - (2.8)
Other comprehensive income/(expense) for the year 73.1 (99.4)
------------------------------------------------------ ----- ---------- ----------
Total comprehensive income for the year 317.3 103.9
------------------------------------------------------ ----- ---------- ----------
Attributable to
Owners of the parent 317.5 104 .0
Non-controlling interests (0.2) (0.1)
------------------------------------------------------ ----- ---------- ----------
The exchange gains of GBP43.9m (2021: losses of GBP72.7m) includes losses of GBP8.6m (2021: gains of GBP19.9m) which relate to net investment hedges.
Consolidated Balance Sheet
31 March 31 March
2022 2021
GBPm GBPm
--------------------------------------------- -------- --------
Non-current assets
Goodwill 908.7 808.5
Other intangible assets 325.2 290.0
Property, plant and equipment 194.0 180.8
Interest in associates and other investments 8.2 9.3
Retirement benefit asset 31.1 -
Tax receivable 14.7 13.9
Deferred tax asset 2.4 1.3
--------------------------------------------- -------- --------
1,484.3 1,303.8
--------------------------------------------- -------- --------
Current assets
Inventories 228.8 167.8
Trade and other receivables 325.1 268.0
Tax receivable 0.7 2.5
Cash and bank balances 157.4 134.1
Derivative financial instruments 0.7 1.7
--------------------------------------------- -------- --------
712.7 574.1
--------------------------------------------- -------- --------
Total assets 2,197.0 1,877.9
--------------------------------------------- -------- --------
Current liabilities
Trade and other payables 242.7 186.7
Borrowings 72.5 3.0
Lease liabilities 15.5 13.3
Provisions 20.7 35.4
Tax liabilities 11.6 8.9
Derivative financial instruments 0.9 0.7
--------------------------------------------- -------- --------
363.9 248.0
--------------------------------------------- -------- --------
Net current assets 348.8 326.1
--------------------------------------------- -------- --------
Non-current liabilities
Borrowings 287.6 322.3
Lease liabilities 56.6 51.7
Retirement benefit obligations 0.6 22.5
Trade and other payables 19.0 16.8
Provisions 7.7 8.4
Deferred tax liabilities 58.5 40.6
--------------------------------------------- -------- --------
430.0 462.3
--------------------------------------------- -------- --------
Total liabilities 793.9 710.3
--------------------------------------------- -------- --------
Net assets 1,403.1 1,167.6
--------------------------------------------- -------- --------
Equity
Share capital 38.0 38.0
Share premium account 23.6 23.6
Own shares (30.7) (20.9)
Capital redemption reserve 0.2 0.2
Hedging reserve (0.4) 0.7
Translation reserve 117.1 73.2
Other reserves (19.9) (13.6)
Retained earnings 1,274.8 1,065.8
--------------------------------------------- -------- --------
Equity attributable to owners of the Company 1,402.7 1,167.0
--------------------------------------------- -------- --------
Non-controlling interests 0.4 0.6
--------------------------------------------- -------- --------
Total equity 1,403.1 1,167.6
--------------------------------------------- -------- --------
The financial statements of Halma plc, company number 00040932, were approved by the Board of Directors on 16 June 2022.
Andrew Williams Marc Ronchetti Director Director
Consolidated Statement of Changes in Equity
Share Capital Non-
Share premium Own redemption Hedging Translation Other Retained controlling
capital account shares reserve reserve reserve reserves earnings interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------- ------- ------- ---------- -------- ------------ --------- --------- ----------- -------
At 1 April
2021 38.0 23.6 (20.9) 0.2 0.7 73.2 (13.6) 1,065.8 0.6 1,167.6
Profit for the
year - - - - - - - 244.4 (0.2) 244.2
Other
comprehensive
income and
expense - - - - (1.1) 43.9 (1.7) 32.0 - 73.1
-------------- -------- ------- ------- ---------- -------- ------------ --------- --------- ----------- -------
Total
comprehensive
income and
expense - - - - (1.1) 43.9 (1.7) 276.4 (0.2) 317.3
Dividends paid - - - - - - - (68.7) - (68.7)
Share-based
payment
charge - - - - - - 12.2 - - 12.2
Deferred tax
on
share-based
payment
transactions - - - - - - (0.2) - - (0.2)
Excess tax
deductions
related to
share-based
payments on
exercised
awards - - - - - - - 1.3 - 1.3
Purchase of
own
shares - - (19.3) - - - - - - (19.3)
Performance
share
plan awards
vested - - 9.5 - - - (16.6) - - (7.1)
-------------- -------- ------- ------- ---------- -------- ------------ --------- --------- ----------- -------
At 31 March
2022 38.0 23.6 (30.7) 0.2 (0.4) 117.1 (19.9) 1,274.8 0.4 1,403.1
-------------- -------- ------- ------- ---------- -------- ------------ --------- --------- ----------- -------
Share Capital Non-
Share premium Own redemption Hedging Translation Other Retained controlling
capital account shares reserve reserve reserve reserves earnings interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------- ------- ------- ---------- -------- ------------ --------- --------- ----------- --------
At 1 April
2020 38.0 23.6 (14.3) 0.2 (0.1) 148.7 (7.7) 949.2 (0.7) 1,136.9
Profit for the
year - - - - - - - 203.4 (0.1) 203.3
Other
comprehensive
income and
expense - - - - 0.8 (75.5) - (24.7) - (99.4)
-------------- -------- ------- ------- ---------- -------- ------------ --------- --------- ----------- --------
Total
comprehensive
income and
expense - - - - 0.8 (75.5) - 178.7 (0.1) 103.9
Dividends paid - - - - - - - (63.7) - (63.7)
Share-based
payment
charge - - - - - - 11.9 - - 11.9
Deferred tax
on
share-based
payment
transactions - - - - - - (0.4) - - (0.4)
Excess tax
deductions
related to
share-based
payments on
exercised
awards - - - - - - - 1.6 - 1.6
Purchase of
own
shares - - (16.2) - - - - - - (16.2)
Performance
share
plan awards
vested - - 9.6 - - - (17.4) - - (7.8)
Adjustments to
non-
controlling
interest
arising
on
acquisition - - - - - - - - 1.4 1.4
-------------- -------- ------- ------- ---------- -------- ------------ --------- --------- ----------- --------
At 31 March
2021 38.0 23.6 (20.9) 0.2 0.7 73.2 (13.6) 1,065.8 0.6 1,167.6
-------------- -------- ------- ------- ---------- -------- ------------ --------- --------- ----------- --------
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 31 March 2022 the number of shares held by the Employee Benefit Trust was 1,175,080 (2021: 891,622).
The market value of own shares was GBP29.5m (2021: GBP21.2m).
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.
Consolidated Cash Flow Statement
Year ended Year ended
31 March 31 March
2022 2021
Notes GBPm GBPm
---------------------------------------------------- ----- ---------- ----------
Net cash inflow from operating activities 10 237.4 277.6
---------------------------------------------------- ----- ---------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment -
owned assets (25.2) (22.8)
Purchase of computer software (0.9) (2.8)
Purchase of other intangibles (0.5) (1.2)
Proceeds from sale of property, plant and equipment
and capitalised development costs 1.1 0.9
Development costs capitalised (13.4) (15.4)
Interest received 0.2 0.8
Acquisition of businesses, net of cash acquired 8 (152.8) (46.4)
Disposal of business, net of cash disposed 9 57.5 26.1
Purchase of equity investments (0.7) (3.4)
---------------------------------------------------- ----- ---------- ----------
Net cash used in investing activities (134.7) (64.2)
---------------------------------------------------- ----- ---------- ----------
Cash flows from financing activities
Dividends paid (68.7) (63.7)
Purchase of own shares (19.3) (16.2)
Interest paid (8.2) (10.0)
Proceeds from bank borrowings 10 161.4 129.4
Repayment of bank borrowings 10 (132.5) (136.7)
Repayment of loan notes 10 - (72.2)
Repayment of lease liabilities, net of interest (14.6) (14.1)
---------------------------------------------------- ----- ---------- ----------
Net cash used in financing activities (81.9) (183.5)
---------------------------------------------------- ----- ---------- ----------
Increase in cash and cash equivalents 10 20.8 29.9
Cash and cash equivalents brought forward 131.1 105.4
Exchange adjustments 4.8 (4.2)
---------------------------------------------------- ----- ---------- ----------
Cash and cash equivalents carried forward 10 156.7 131.1
---------------------------------------------------- ----- ---------- ----------
Year ended Year ended
31 March 31 March
2022 2021
Notes GBPm GBPm
---------------------------------------------------- ----- ---------- ----------
Reconciliation of net cash flow to movement
in net debt
Increase in cash and cash equivalents 20.8 29.9
Net cash (inflow)/outflow from (drawdown)/repayment
of bank borrowings 10 (28.9) 7.3
Loan notes repaid 10 - 72.2
Lease liabilities additions and accretion of
interest (19.0) (25.0)
Lease liabilities acquired (4.6) (0.5)
Lease liabilities disposed of 2.1 1.8
Lease liabilities and interest repaid 10 16.8 16.4
Exchange adjustments (5.8) 17.0
---------------------------------------------------- ----- ---------- ----------
(Increase)/decrease in net debt (18.6) 119.1
---------------------------------------------------- ----- ---------- ----------
Net debt brought forward (256.2) (375.3)
---------------------------------------------------- ----- ---------- ----------
Net debt carried forward (274.8) (256.2)
---------------------------------------------------- ----- ---------- ----------
Accounting Policies
Basis of presentation
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. Halma transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 April 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.
The consolidated financial statements of Halma have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.
The principal Group accounting policies are explained below and have been applied consistently throughout the years ended 31 March 2022 and 31 March 2021, other than those noted below.
The Group accounts have been prepared under the historical cost convention, except as described below under the headings 'Derivative financial instruments and hedge accounting', 'Financial assets at fair value through other comprehensive income (FVOCI)', 'Pensions' and 'Business combinations and goodwill'.
New Standards and Interpretations applied for the first time in the year ended 31 March 2022
The following Standards with an effective date of 1 January 2021 and 1 April 2021 respectively, have been adopted without any significant impact on the amounts reported in these financial statements:
- Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
- COVID-19 Related Rent Concessions - Amendment to IFRS 16
In April 2021 the IFRS IC published its final agenda decision on Configuration and Customisation ('CC') costs in a Cloud Computing Arrangement. The agenda decision considers how a customer accounts for configuration or customisation costs where an intangible asset is not recognised in a cloud computing arrangement. The agenda decision impacts the Group in respect of the current year with the updated policy for software costs included under the Other intangible assets accounting policy below. There was no impact on the numbers reported in the prior year.
New Standards and Interpretations not yet applied
At the date of authorisation of these financial statements, the following Standards and Interpretations that are potentially relevant to the Group, and which have not been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the UK):
- Reference to the Conceptual Framework - Amendments to IFRS 3
- Property, Plant and Equipment: Proceeds before intended use - Amendments to IAS 16
- Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37
- IFRS 17 Insurance Contracts
- Classification of Liabilities as Current or Non-current - Amendments to IAS 1
- Definition of Accounting Estimates - Amendments to IAS 8
- Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2
- Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.
Use of Alternative performance measures (APMs)
In the reporting of the financial information, the Group uses certain measures that are not required under IFRS, the Generally Accepted Accounting Principles (GAAP) under which the Group reports. The Directors believe that Return on Total Invested Capital (ROTIC), Return on Capital Employed (ROCE), Organic growth at constant currency, Adjusted profit and earnings per share measures and Adjusted operating cash flow provide additional and more consistent measures of underlying performance to shareholders by removing non-trading items that are not closely related to the Group's trading or operating cash flows. These and other alternative performance measures are used by the Directors for internal performance analysis and incentive compensation arrangements for employees. The terms ROTIC, ROCE, organic growth at constant currency and 'adjusted' are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures.
The principal items which are included in adjusting items are set out below in the Group's accounting policy and in note 1. The term 'adjusted' refers to the relevant measure being reported for continuing operations excluding adjusting items.
Definitions of the Group's material alternative performance measures along with reconciliation to their IFRS equivalent measure are included in note 3.
Key accounting policies
Below we set out our key accounting policies, with a list of all other accounting policies thereafter.
Going concern
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 as at 31 March 2022, its cash flows, liquidity position and borrowing facilities are set out in the Strategic Report. In addition, the Annual Report and Accounts 2022 contains further information concerning the security, currency, interest rates and maturity of the Group's borrowings.
The financial statements have been prepared on a going concern basis. In adopting the going concern basis the Directors have considered all of the above factors, including potential scenarios and its principal risks set out above. Under the potential scenarios considered, which includes a severe but plausible downside scenario, the Group remains within its debt facilities and the attached financial covenants for the foreseeable future and the Directors therefore believe, at the time of approving the financial statements, that the Company is well placed to manage its business risks successfully and remains a going concern. The key facts and assumptions in reaching this determination are summarised below.
Our financial position remains robust with committed facilities at the balance sheet date totalling approximately GBP670m which includes a GBP550m Revolving Credit Facility (RCF). In May 2022 the RCF was refinanced and now matures in May 2027 with two one-year extension options. During May 2022, the Group also entered into a Note Purchase Agreement which provides access to loan notes totalling GBP330m, to be drawn in various currencies in July 2022 subject to certain conditions. The Group is confident that these conditions will be satisfied and thus the GBP330m loan notes form part of the available facilities in the Group's Going Concern and Viability assessments. The financial covenants across the facilities are for leverage (net debt/adjusted EBITDA) of not more than three and a half times and for adjusted interest cover of not less than four times.
Our base case scenario has been prepared using forecasts from each of our Operating Companies as well as cash outflows on acquisitions in line with pre COVID-19 levels. In addition, a severe but plausible downside scenario has been modelled showing a decline in trading for the year ending 31 March 2023 to below levels seen for the year ended 31 March 2022. This reduction in trading could be caused by further significant, unexpected COVID-19 impacts or another significant downside event. In mitigating the impacts of the downside scenario there are actions that can be taken which are entirely discretionary to the business such as acquisitions spend and dividend growth rates. In addition, the Group has demonstrated strong resilience and flexibility during the COVID pandemic in managing overheads which could be used to further mitigate the impacts of the downside scenario. The scenarios modelled cover a period of greater than 12 months from the date of the financial statements.
Neither the base case nor severe but plausible downside scenarios result in a breach of the Group's available debt facilities or the attached covenants and, accordingly, the Directors believe there is no material uncertainty in the use of the going concern assumption and, therefore, deem it appropriate to continue to adopt the going concern basis of accounting for at least the next 12-month period.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group measures goodwill at the acquisition date as:
- the fair value of the consideration transferred; plus
- the recognised amount of any non-controlling interests in the acquiree measured at the proportionate share of the value of net identifiable assets acquired; plus
- the fair value of the existing equity interest in the acquiree; less
- the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Any contingent consideration payable may be accounted for as either:
a) Consideration transferred, which is recognised at fair value at the acquisition date. If the contingent purchase consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent purchase consideration are recognised in the Consolidated Income Statement; or
b) Remuneration, which is expensed in the Consolidated Income Statement over the associated period of service. An indicator of such treatment includes when payments to employees of the acquired company are contingent on a post-acquisition event, but may be automatically forfeited on termination of employment.
For acquisitions between 4 April 2004 (the date from which the financial statements were reported under IFRS) and 2 April 2010, goodwill represents the difference between the cost of the acquisition, including acquisition costs and the fair value of the net identifiable assets acquired. Goodwill has an indefinite expected useful life and is not amortised, but is tested annually for impairment.
Goodwill is recognised as an intangible asset in the Consolidated Balance Sheet. Goodwill therefore includes non-identified intangible assets including business processes, buyer-specific synergies, know-how and workforce-related industry-specific knowledge and technical skills. Negative goodwill arising on acquisitions would be recognised directly in the Consolidated Income Statement. On closure or disposal of an acquired business, goodwill would be taken into account in determining the profit or loss on closure or disposal.
As permitted by IFRS 1, the Group elected not to apply IFRS 3 'Business Combinations' to acquisitions prior to 4 April 2004 in its consolidated accounts. As a result, the net book value of goodwill recognised as an intangible asset under UK GAAP at 3 April 2004 was brought forward unadjusted as the cost of goodwill recognised under IFRS at 4 April 2004 subject to impairment testing on that date; and goodwill that was written off to reserves prior to 28 March 1998 under UK GAAP will not be taken into account in determining the profit or loss on disposal or closure of previously acquired businesses from 4 April 2004 onwards.
Payments for contingent consideration are classified as investing activities within the Consolidated Cash Flow Statement, except for amounts paid in excess of that estimated in the acquisition balance sheets which are recognised in the net cash inflow from operating activities in the year together with movements in contingent consideration provisions charged/credited to the Consolidated Income Statement which is included as a reconciling item between operating profit and cash inflow from operating activities.
Intangible assets
(a) Acquired intangible assets
An intangible resource acquired with a subsidiary undertaking is recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights, is expected to generate future economic benefits and its fair value can be measured reliably. Acquired intangible assets, comprising trademarks, technology and know-how and customer relationships, are amortised through the Consolidated Income Statement on a straight-line basis over their estimated economic lives of between four and 20 years. The carrying value of intangible assets is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.
(b) Product development costs
Research expenditure is charged to the Consolidated Income Statement in the financial year in which it is incurred.
Development expenditure is expensed in the financial year in which it is incurred, unless it relates to the development of a new or substantially improved product, is incurred after the technical feasibility and economic viability of the product has been proven and the decision to complete the development has been taken, and can be measured reliably. Such expenditure, meeting the recognition criteria of IAS 38 'Intangible Assets', is capitalised as an intangible asset in the Consolidated Balance Sheet at cost and is amortised through the Consolidated Income Statement on a straight-line basis over its estimated economic life of three years.
Pensions
The Group makes contributions to various pension plans.
For defined benefit plans, the asset or liability recorded in the Consolidated Balance Sheet is the difference between the fair value of the plan's assets and the present value of the defined obligation at that date. The defined benefit obligation is calculated separately for each plan on an annual basis by independent actuaries using the projected unit credit method.
Actuarial gains and losses are recognised in full in the period in which they occur and are taken to other comprehensive income.
Current and past service costs, along with the impact of any settlements or curtailments, are charged to the Consolidated Income Statement. The net interest expense on pension plans' liabilities and the expected return on the plans' assets is recognised within finance expense in the Consolidated Income Statement.
Contributions to defined contribution plans are charged to the Consolidated Income Statement in the period the expense relates to.
Impairment of trade and other receivables
The Group assesses on a forward-looking basis the expected credit losses associated with its trade and other receivables carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
The Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. In order to estimate the expected lifetime losses, the Group categorises its customers into groups with similar risk profiles and determines the historic rates of impairment for each of those categories of customer. The Group then adjusts the risk profile for each group of customers by using forward looking information, such as the government risk of default for the country in which those customers are located, and determines an overall probability of impairment for the total trade and other receivables at the balance sheet date.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of Group accounts in conformity with IFRS requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experiences and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
In preparing the Consolidated Financial Statements management has considered the impact of climate change, particularly in the context of the disclosures included in the Strategic Report and the stated net zero ambitions. These considerations did not have a material impact on the financial reporting judgements and estimates in the current year. Climate change is not expected to have a significant impact on the Group's going concern assessment as at March 2022 nor the viability of the Group over the next three years.
The following areas of critical accounting judgement and key estimation uncertainty have been identified as having significant risk of causing a material adjustment to the carrying amounts of assets and liabilities:
Critical accounting judgements
Goodwill impairment CGU groups
Determining whether goodwill is impaired requires management's judgement in assessing cash generating unit (CGU) groups to which goodwill should be allocated. Management allocates a new acquisition to a CGU group based on which one is expected to benefit most from that business combination. The allocation of goodwill to existing CGU groups is generally straightforward and factual, however over time as new businesses are acquired and management reporting structures change management reviews the CGU groups to ensure they are still appropriate. There have been no changes to the CGU groups in the current year.
Recoverability of non-current taxation assets
In the current year, determining the recoverability of tax assets requires management's judgement in assessing the amounts paid in relation to group financing partial exemption applicable to UK controlled foreign companies as a result of the decision by the European Commission that this constitutes state aid. Management's assessment is that this represents a contingent liability and that the GBP14.7m paid to HM Revenue & Customs (HMRC) in the current and prior year, included within non-current assets on the Consolidated Balance Sheet, will ultimately be recovered.
Key sources of estimation uncertainty
Contingent consideration changes in estimates
Determining the value of contingent consideration recognised as part of the acquisition of a business requires management to estimate the expected performance of the acquired business and the amount of contingent consideration that will therefore become payable. Initial estimates of expected performance are made by the management responsible for completing the acquisition and form a key component of the financial due diligence that takes place prior to completion. Subsequent measurement of contingent consideration is based on the Directors' appraisal of the acquired business's performance in the post-acquisition period and the agreement of final payments.
Intangible assets
IFRS 3 (revised) 'Business Combinations' requires that goodwill arising on the acquisition of subsidiaries is capitalised and included in intangible assets. IFRS 3 (revised) also requires the identification and valuation of other separable intangible assets at acquisition. The assumptions involved in valuing these intangible assets require the use of management estimates.
IAS 38 'Intangible Assets' requires that development costs, arising from the application of research findings or other technical knowledge to a plan or design of a new or substantially improved product, are capitalised, subject to certain criteria being met. Determining the technical feasibility and estimating the future cash flows generated by the products in development requires the use of management estimates.
The estimates made in relation to both acquired intangible assets and capitalised development costs include identification of relevant assets, future growth rates, expected inflation rates and the discount rate used. Management also make estimates of the useful economic lives of the intangible assets. Management engages third party specialists to assist with the valuation assumption in respect of acquired intangible assets.
Goodwill impairment future cash flows
The 'value in use' calculation used to test for impairment of goodwill involves an estimation of the present value of future cash flows of CGU groups. The future cash flows are based on annual budgets and forecasts of CGUs, as approved by the Board, to which management's expectation of market-share and long-term growth rates are applied. The present value is then calculated based on management's estimate of future discount and growth rates. The Board reviews these key assumptions (operating assumption, long-term growth rates, and discount rates) and the sensitivity analysis around these assumptions. Management believes that there is no reasonably possible change in any of the key assumptions that would cause the carrying value of any CGU group to exceed its recoverable amount.
Defined benefit pension plan liabilities
Determining the value of the future defined benefit asset/obligation requires estimation in respect of the assumptions used to calculate present values of plan liabilities. The significant assumptions utilised in the calculations are future mortality, discount rate and inflation. Management determines these assumptions in consultation with an independent actuary.
Other accounting policies
Basis of consolidation
The Group accounts include the accounts of Halma plc and all of its subsidiary companies made up to 31 March 2022, adjusted to eliminate intra-Group transactions, balances, income and expenses. The results of subsidiary companies acquired or disposed are included from the month of their acquisition or to the month of their disposal.
Segmental reporting
An operating segment is a distinguishable component of the Group that is engaged in business activities from which it may earn revenues and incur expenses, and whose operating results are reviewed regularly by the Chief Operating Decision Maker (the Group Chief Executive) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
Reportable segments are operating segments that either meet the thresholds and conditions set out in IFRS 8 or are considered by the Board to be appropriately designated as reportable segments. Segment result represents operating profits and includes an allocation of Head Office expenses. Segment result excludes tax and financing items. Segment assets comprise goodwill, other intangible assets, property, plant and equipment and Right-of-Use assets (excluding land and buildings), inventories, trade and other receivables. Segment liabilities comprise trade and other payables, provisions and other payables. Unallocated items represent land and buildings (including Right-of-Use assets), corporate and deferred taxation balances, defined benefit plan asset/obligation, contingent purchase consideration, all components of net cash/borrowings, lease liabilities and derivative financial instruments.
From 1 April 2021, the Group aligned its organisational structure and financial reporting with its purpose and focus on safety, environmental and health markets. The Group now has three main reportable segments (Safety, Environmental & Analysis and Medical), which are defined by markets rather than product type. Each segment includes businesses with similar operating and market characteristics and are consistent with the internal reporting as reviewed by the Group Chief Executive.
Revenue
The Group's revenue streams are the sale of goods and services in the specialist safety, environmental technologies and health markets. The revenue streams are disaggregated into three sectors, that serve like markets. Those sectors are Safety, Environmental & Analysis and Medical.
Revenue is recognised at the point of the transfer of control over promised goods or services to customers in an amount that reflects the amount of consideration specified in a contract with a customer, to which the Group expects to be entitled in exchange for those goods or services.
It is the Group's judgement that in the majority of sales there is no contract until such time as the Operating Company satisfies its performance obligation, at which point the contract becomes the Operating Company's terms and conditions resulting from the supplier's purchase order. Where there are Master Supply Arrangements, these are typically framework agreements and do not contain clauses that would result in a contract forming under IFRS 15 until a Purchase Order is issued by the customer.
Revenue represents sales, net of estimates for variable consideration, including rights to returns, and discounts, and excluding value added tax and other sales related taxes. The amount of variable consideration is not considered to be material to the Group as a whole. The transaction price is allocated to each performance obligation on a relative standalone selling price basis.
Performance obligations are unbundled in each contractual arrangement if they are distinct from one another. There is judgement in identifying distinct performance obligations where the product could be determined to be a system, or where a combination of products and services are provided together. For the majority of the Group's activities the performance obligation is judged to be the component product or service rather than the system or combined products and services. The contract price is allocated to the distinct performance obligations based on the relative standalone selling prices of the goods or services.
The way in which the Group satisfies its performance obligations varies by business and may be on shipment, delivery, as services are rendered or on completion of services depending on the nature of product and service and terms of the contract which govern how control passes to the customer. Revenue is recognised at a point in time or over time as appropriate.
Where the Group offers warranties that are of a service nature, revenue is recognised in relation to these performance obligations over time as the services are rendered. In our judgement we believe the associated performance obligations accrue evenly across the contractual term and therefore revenue is recognised on a pro-rated basis over the length of the service period.
In a small number of instances across the Group, products have been determined to be bespoke in nature, with no alternative use. Where there is also an enforceable right to payment for work completed, the criteria for recognising revenue over time have been deemed to have been met. Revenue is recognised on an input basis as work progresses. Progress is measured with reference to the actual cost incurred as a proportion of the total costs expected to be incurred under the contract. This is not a significant part of the Group's business as for the most part, where goods are bespoke in nature, it is the Group's judgement that the product can be broken down to standard component parts with little additional cost and therefore has an alternate use, or there is no enforceable right to payment for work performed. In these cases, the judgement is made that the requirements for recognising revenue over time are not met and revenue is recognised when control of the finished product passes to the customer.
The Group applies the practical expedient in IFRS 15 (paragraph 63) and does not adjust the promised amount of consideration for the effects of a significant financing component if the Group expects, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Operating profit
Operating profit is presented net of direct production costs, production overheads, selling costs, distribution costs and administrative expenditure. Operating profit is stated after charging restructuring costs but before the share of results of associates, profit or loss on disposal of operations, finance income and finance costs.
Adjusting items
When items of income or expense are material and they are relevant to an understanding of the entity's financial performance, they are disclosed separately within the financial statements. Such adjusting items include costs or reversals arising from acquisitions or disposals of businesses, including acquisition costs, creation or reversals of provisions related to changes in estimates for contingent consideration on acquisition, amortisation of acquired intangible assets, and other significant one-off items that may arise.
Deferred government grant income
Government grant income that is linked to capital expenditure is deferred to the Consolidated Balance Sheet and credited to the Consolidated Income Statement over the life of the related asset. In addition, the Group claims research and development expenditure credits arising on qualifying expenditure and shows these 'above the line' in operating profit. Where the credits arise on expenditure that is capitalised as part of internally generated capitalised development costs, the income is deferred to the Consolidated Balance Sheet and credited to the Consolidated Income Statement over the life of the related asset in line with the policy stated above.
Finance income and expenses
The Group recognises interest income or expense using the effective interest rate method. Finance income and finance costs include:
- Interest payable on loans and borrowings.
- Net interest charge on pension plan liabilities.
- Amortisation of finance costs.
- Interest receivable in respect of cash and cash equivalents.
- Unwinding of the discount on provisions.
- Fair value movements on derivative financial instruments.
Taxation
Taxation comprises current and deferred tax. Tax is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in Total equity, in which case it too is recognised in Total equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, along with any adjustment to tax payable in respect of previous years. Taxable profit differs from net profit as reported in the Consolidated Income Statement because it excludes items that are never taxable or deductible.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes and is accounted for using the balance sheet liability method, apart from the following differences which are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates and laws, which are expected to apply in the year when the liability is settled, or the asset is realised. Deferred tax assets are only recognised to the extent that recovery is probable.
Foreign currencies
The Group presents its accounts in Sterling. Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates prevailing at that date. Non-monetary assets and liabilities denominated in foreign currencies are measured in terms of historical costs using the exchange rate at the date of the initial transaction. Any gain or loss arising on monetary assets and liabilities from subsequent exchange rate movements is included as an exchange gain or loss in the Consolidated Income Statement.
Net assets of overseas subsidiary companies are expressed in Sterling at the rates of exchange ruling at the end of the financial year, and trading results and cash flows at the average rates of exchange for the financial year. Goodwill arising on the acquisition of a foreign business is treated as an asset of the foreign entity and is translated at the rate of exchange ruling at the end of the financial year. Exchange gains or losses arising on these translations are taken to the Translation reserve within Total equity.
In the event that an overseas subsidiary is disposed of or closed, the profit or loss on disposal or closure will be determined after taking into account the cumulative translation difference held within the Translation reserve attributable to that subsidiary. As permitted by IFRS 1, the Group has elected to deem the translation to be GBPnil at 4 April 2004. Accordingly, the profit or loss on disposal or closure of foreign subsidiaries will not include any currency translation differences which arose before 4 April 2004.
Other intangible assets
(a) Computer software
Computer software that is not integral to an item of property, plant or equipment is recognised separately as an intangible asset and is amortised through the Consolidated Income Statement on a straight-line basis from the point at which the asset is ready to use over its estimated economic life of between three and five years.
Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets where the following criteria are met:
- it is technically feasible to complete the software so that it will be available for use;
- management intends to complete the software and use or sell it;
- there is an ability to use or sell the software;
- it can be demonstrated how the software will generate probable future economic benefits;
- adequate technical, financial and other resources to complete the development and to use or sell the software are available; and
- the expenditure attributable to the software during its development can be reliably measured.
Where the Group enters into a SaaS cloud computing arrangement to access software, there are limited cases for capitalisation of attributable implementation costs. If the arrangement contains a lease as defined by IFRS 16, lease accounting rules apply including capitalisation of directly attributable costs. Alternatively, directly attributable software costs can create an intangible asset if the software can be controlled by the entity, either through the option to be run on the entity's or a third-party's infrastructure or where the development of the software creates customised software that the entity has exclusive rights to.
(b) Other intangibles
Other intangibles are amortised through the Consolidated Income Statement on a straight-line basis over their estimated economic lives of between three and ten years.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less provisions for accumulated impairment and accumulated depreciation which, with the exception of freehold land which is not depreciated, is provided on a straight-line basis over each asset's estimated economic life. The principal annual rates used for this purpose are:
Freehold property 2%
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Shorter of 2% or period
Leasehold improvements of lease
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Plant, equipment and vehicles 8% to 33.3%
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Investments in associates
An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but without control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the Consolidated Balance Sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any deficiency of the cost of acquisition below the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition (i.e. discount on acquisition) is credited in profit or loss in the year of acquisition.
Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provisioning is made for impairment.
Where the Group disposes of its entire interest in an associate a gain or loss is recognised in the income statement on the difference between the amount received on the sale of the associate less the carrying value and costs of disposal.
Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income (FVOCI) comprise equity securities which are not held for trading, and which the Group has irrevocably elected at initial recognition to recognise as FVOCI. The Group considers this classification relevant as these are strategic investments.
Financial assets at FVOCI are adjusted to the fair value of the asset at the balance sheet date with any gain or loss being recognised in other comprehensive income and held as part of other reserves. On disposal any gain or loss is recognised in other comprehensive income and the cumulative gains or losses are transferred from other reserves to retained earnings.
Impairment of non-current assets
All non-current assets are tested for impairment whenever events or circumstances indicate that their carrying value may be impaired. Additionally, goodwill and capitalised development expenditure relating to a product that is not yet in full production are subject to an annual impairment test.
An impairment loss is recognised in the Consolidated Income Statement to the extent that an asset's carrying value exceeds its recoverable amount, which represents the higher of the asset's 'fair value less costs to dispose' and its 'value in use'. An asset's 'value in use' represents the present value of the future cash flows expected to be derived from the asset or from the cash generating unit to which it relates. The present value is calculated using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks specific to the asset concerned.
Impairment losses recognised in previous periods for an asset other than goodwill are reversed if there has been a change in the estimates used to determine the asset's recoverable amount, but only to the extent that the carrying amount of the asset does not exceed its carrying amount had no impairment loss been recognised in previous periods. Such reversals are recognised in the Consolidated Income Statement. Impairment losses in respect of goodwill are not reversed.
Inventories
Inventories and work in progress are included at the lower of cost and net realisable value. Cost is calculated either on a 'first in, first out' or an average cost basis and includes direct materials and the appropriate proportion of production and other overheads considered by the Directors to be attributable to bringing the inventories to their location and condition at the year end. Net realisable value represents the estimated selling price less all estimated costs to complete and costs to be incurred in marketing, selling and distribution.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits with an initial maturity of less than three months, and bank overdrafts that are repayable on demand.
Contract assets and liabilities
A contract asset is recognised when the Group's right to consideration is conditional on something other than the passage of time, for example the completion of future performance obligations under the terms of the contract with the customer.
In some instances, the Group receives payments from customers based on a billing schedule, as established in the contract, which may not match with the pattern of performance under the contract. A contract liability is only recognised on non-cancellable contracts that provide unconditional rights to payment from the customer for products and services that the Group has not yet completed providing or that it will provide in the near future. Where performance obligations are satisfied ahead of billing then a contract asset will be recognised.
Contract assets are recognised within Trade and other receivables and are assessed for impairment on a forward-looking basis using the expected lifetime losses approach, as required by IFRS 9 ('Financial Instruments').
Costs to obtain or fulfil a contract
The incremental costs of obtaining a contract with a customer are capitalised as an asset if the Group expects to recover them. Costs such as sales commissions may be incurred when the Group enters into a new contract. Costs to obtain or fulfil a contract are presented in the Consolidated Balance Sheet as assets until the performance obligation to which they relate has been met. These assets are amortised on consistent basis with how the related revenue is recognised.
The Group applies the practical expedient in IFRS 15 (paragraph 94) and recognises incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the Group would otherwise have recognised is one year or less.
Trade payables
Trade payables are non-interest bearing and are stated at amortised cost.
Interest bearing loans and borrowings
Interest bearing loans and borrowings are initially recognised in the Consolidated Balance Sheet at fair value less directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method.
Provisions and contingent liabilities
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of the cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received, and the amount of the receivable can be measured reliably.
Contingent liabilities are disclosed where a possible obligation dependent on uncertain future events exists as at the end of the reporting period or a present obligation for which payment either cannot be measured or is not considered to be probable is noted. Contingent liabilities are not accrued for and no contingent liability is disclosed where the possibility of payment is considered to be remote.
Derivative financial instruments and hedge accounting
The Group enters into derivative financial instruments to manage its exposure to foreign exchange rate risk using forward exchange contracts. The Group continues to apply the requirements of IAS 39 for hedge accounting.
Derivative financial instruments are classified as fair value through profit and loss (held for trading) unless they are in a designated hedge relationship.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in the Consolidated Income Statement, unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the Consolidated Income Statement depends on the nature of the hedge relationship. The Group designates certain derivatives as hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign operations.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
Cash flow hedge accounting
The Group designates certain hedging instruments as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument has been or is expected to be highly effective in offsetting changes in fair values or cash flows of the hedged item.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion as a result of being over hedged is recognised immediately in the Consolidated Income Statement.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to the Consolidated Income Statement in the periods when the hedged item is recognised in the Consolidated Income Statement. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income at that time is accumulated in equity and is recognised, when the forecast transaction is ultimately recognised, in the Consolidated Income Statement. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in the Consolidated Income Statement.
Net investment hedge accounting
The Group uses foreign currency denominated borrowings as a hedge against the translation exposure on the Group's net investment in overseas companies. Where the hedge is fully effective at hedging, the variability in the net assets of such companies caused by changes in exchange rates and the changes in value of the borrowings are recognised in the Consolidated Statement of Comprehensive Income and accumulated in the Translation reserve. The ineffective part of any change in value caused by changes in exchange rates is recognised in the Consolidated Income Statement.
Leases
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Where the Group determines the contract is, or contains, a lease a right-of-use asset and a lease liability is recognised at the lease commencement date.
The lease term is determined from the commencement date of the lease and covers the non-cancellable term. If the Group has an extension option, which it considers reasonably certain to exercise, then the lease term will be considered to extend beyond that non-cancellable period. If the Group has a termination option, which it considers it reasonably certain to exercise, then the lease term will be considered to be until the point the termination option will take effect. The group deem that it is not reasonably certain to exercise an extension option or a termination option with an exercise date past the planning horizon of five years.
The right-of-use asset is initially measured at cost, comprising the initial amount of the lease liability plus any initial direct costs incurred and an estimate of costs to restore the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term unless the right-of-use asset is deemed to have a useful life shorter than the lease term. The Group has taken the practical expedient to not separate lease and non-lease components and so account for both as a single lease component.
The right-of-use assets are also subject to impairment testing under IAS 36. Refer to the previous section on Impairment of non-current assets for further details.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the incremental borrowing rate. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees are not material to the group. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. The lease liability is measured at amortised cost using the effective interest method by increasing the carrying amount to reflect interest on the lease liability and by reducing the carrying amount to reflect the lease payments made. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or a rate or a change in the Group's assessment of whether it will exercise an extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the right-of-use asset.
Payments associated with short-term leases or low-value assets are recognised on a straight-line basis as an expense in the Consolidated Income Statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets mostly comprise of IT equipment and small items of office furniture. Lease payments for short-term leases, low-value assets and variable lease payments not included in the measurement of the lease liability are classified as cash flows from operating activities within the consolidated cash flow statement. The Group has classified the principal and interest portions of lease payments within financing activities.
Employee share plans
Share-based incentives are provided to employees under the Group's share incentive plan, the performance share plan and the executive share plan.
(a) Share incentive plan
Awards of shares under the share incentive plan are made to qualifying employees depending on salary and service criteria. The shares awarded under this plan are purchased in the market by the plan's trustees at the time of the award, and are then held in trust for a minimum of three years. The costs of this plan are recognised in the Consolidated Income Statement over the three-year vesting period of the awards.
(b) Executive share plan
Under the Executive share plan, awards of shares are made to Executive Directors and certain senior employees participate. Grants under this plan are in the form of Performance Awards or Deferred Share Awards.
Performance Awards are subject to non-market-based vesting criteria, and Deferred Share Awards are subject only to continuing service of the employee. Share awards are equity-settled. The fair value of the awards at the date of grant, which is estimated to be equal to the market value, is charged to the Consolidated Income Statement on a straight-line basis over the vesting period, with appropriate adjustments being made during this period to reflect expected and actual forfeitures. The corresponding credit is to Other reserves within Total equity.
(c) Cash-settled
For cash-settled awards, a liability equal to the portion of the services received is recognised at the current fair value determined at each balance sheet date.
Dividends
Dividends payable to the Company's shareholders are recognised as a liability in the period in which the distribution is approved by the Company's shareholders.
Notes to the Accounts
1 Segmental analysis and revenue from contracts with customers
Sector analysis and disaggregation of revenue
From 1 April 2021, the Group aligned its organisational structure and financial reporting with its purpose and focus on safety, environmental and health markets. The Group now has three main operating and reportable segments (Safety, Environmental & Analysis and Medical), which are defined by markets rather than product type. Each segment includes businesses with similar operating and market characteristics. These segments are consistent with the internal reporting as reviewed by the Group Chief Executive.
Nature of goods and services
The following is a description of the principal activities - separated by reportable segments, which are defined by markets rather than product type - from which the Group generates its revenue.
Further disaggregation of sector revenue by geography and by the pattern of revenue recognition depicts how economic factors affect the timing and uncertainty of the Group's revenues.
Safety sector generates revenue from providing products that protect people, property and assets and enable safe movement in public spaces. Products include: fire detection systems; specialist fire suppression systems; elevator safety systems; security sensors; people and vehicle flow technologies; specialised interlocks that control critical processes safely; and explosion protection and corrosion monitoring systems. Products are generally sold separately, with contracts typically less than one year in length. Warranties are typically of an assurance nature. Revenue is recognised as control passes on delivery or despatch.
Payment is typically due within 60 days of invoice, except where a retention is held for documentation.
Environmental & Analysis generates revenue providing products and technologies that monitor and protect the environment, ensuring the quality and availability of life-critical resources, and use optical and imaging technologies in materials analysis. Products include: market-leading optical, optoelectronic and spectral imaging systems; water, air and gases monitoring technologies; instruments that detect hazardous gases and analyse air quality and systems for water analysis and treatment. Products and services are generally sold separately. Warranties are typically of an assurance nature, but some companies within the Group offer extended warranties. Depending on the nature of the performance obligation, revenue may be recognised as control passes on delivery, despatch or as the service is delivered. Contracts are typically less than one year in length, but some companies have contracts where certain service-related performance obligations are delivered over a number of years; this can result in contract liabilities where those performance obligations are invoiced ahead of performance.
Payment is typically due within 60 days of invoice.
Medical sector generates revenue from providing products and services that enhance the quality of life for patients and improve quality of care delivered by healthcare providers. Products include: critical fluidic components used by medical diagnostics and Original Equipment Manufacturers (OEMs), laboratory devices and systems that provide valuable information to understand patient health and enable providers to make decisions across the continuum of care; technologies and solutions to enable in-vitro diagnostic systems and life-science discoveries and development; and technologies that enable positive outcomes across clinical specialties. Products are generally sold separately, and warranties are typically of an assurance nature. Depending on the nature of the performance obligation, revenue is recognised as control passes on delivery or despatch or as the service is delivered. Contracts are typically less than one year in length, but a limited number of companies have contracts where certain service-related performance obligations are delivered over a number of years; this can result in contract liabilities where those performance obligations are invoiced ahead of performance.
Payment is typically due within 60 days of invoice.
Segment revenue disaggregation (by location of external customer)
Year ended 31 March 2022
Revenue by sector and destination (all continuing operations)
Africa,
Near and
United States Mainland United Middle Other
of America Europe Kingdom Asia Pacific East countries Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------- -------- -------- ------------ --------- ---------- -------
Safety 164.6 180.0 147.0 101.8 29.4 18.6 641.4
Environmental
& Analysis 209.6 56.7 77.6 78.4 12.3 8.3 442.9
Medical 224.3 71.4 42.4 70.6 11.9 21.7 442.3
Inter-segmental
sales (1.3) - - - - - (1.3) ---------------- ------------- -------- -------- ------------ --------- ---------- ------- Revenue for the year 597.2 308.1 267.0 250.8 53.6 48.6 1,525.3 ---------------- ------------- -------- -------- ------------ --------- ---------- -------
Year ended 31 March 2021
Revenue by sector and destination (all continuing operations)
Restated*
Africa,
Near and
United States Mainland United Middle Other
of America Europe Kingdom Asia Pacific East countries Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------- -------- -------- ------------ --------- ---------- -------
Safety 143.7 170.8 124.9 90.9 34.1 22.6 587.0
Environmental
& Analysis 165.1 44.2 70.1 65.9 9.2 6.6 361.1
Medical 200.6 61.0 19.2 59.3 10.8 20.4 371.3
Inter-segmental
sales (0.6) - (0.6) - - - (1.2)
---------------- ------------- -------- -------- ------------ --------- ---------- -------
Revenue for the
year 508.8 276.0 213.6 216.1 54.1 49.6 1,318.2
---------------- ------------- -------- -------- ------------ --------- ---------- -------
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 GBP69.9m (2021: GBP52.6m). All revenue was otherwise derived from the sale of products.
* Restated to reflect the new reporting segments
Year ended 31 March 2022
Revenue
Revenue recognised
recognised at a point Total
over time in time Revenue
GBPm GBPm GBPm
------------------------- ------------------ --------------- ----------------
Safety 8.2 633.2 641.4
Environmental & Analysis 99.8 343.1 442.9
Medical 49.6 392.7 442.3
Inter-segmental sales - (1.3) (1.3)
------------------------- ------------------ --------------- ----------------
Revenue for the year 157.6 1,367.7 1,525.3
------------------------- ------------------ --------------- ----------------
Year ended 31 March 2021
Restated*
Revenue
Revenue recognised
recognised at a point Total
over time in time Revenue
GBPm GBPm GBPm
-------------------------------------------------
Safety 3.4 583.6 587.0
Environmental & Analysis 69.8 291.3 361.1
Medical 20.6 350.7 371.3
Inter-segmental sales - (1.2) (1.2)
------------------------------------------------- ----------------- ---------------- ---------------
Revenue for the year 93.8 1,224.4 1,318.2
------------------------------------------------- ----------------- ---------------- ---------------
* Restated to reflect the new reporting segments
Year ended 31 March 2022
Revenue
from Revenue
performance from
obligations Revenue performance
entered previously obligations
into and included satisfied
satisfied as in
in the contract previous Total
year liabilities periods Revenue
GBPm GBPm GBPm GBPm
------------------------- ------------ ------------ ------------ --------
Safety 638.1 3.3 - 641.4
Environmental & Analysis 436.3 6.6 - 442.9
Medical 432.8 5.6 3.9 442.3
Inter-segmental sales (1.3) - - (1.3)
------------------------- ------------ ------------ ------------ --------
Revenue for the year 1,505.9 15.5 3.9 1,525.3
------------------------- ------------ ------------ ------------ --------
Year ended 31 March 2021
Restated*
Revenue
from Revenue
performance from
obligations Revenue performance
entered previously obligations
into and included satisfied
satisfied as in
in the contract previous Total
year liabilities periods Revenue
GBPm GBPm GBPm GBPm
-------------------------
Safety 585.6 1.4 - 587.0
Environmental & Analysis 354.4 6.7 - 361.1
Medical 365.8 5.2 0.3 371.3
Inter-segmental sales (1.2) - - (1.2)
------------------------- ------------ ------------ ------------ --------
Revenue for the year 1,304.6 13.3 0.3 1,318.2
------------------------- ------------ ------------ ------------ --------
* Restated to reflect the new reporting segments
The Group has unsatisfied (or partially satisfied) performance obligations at the balance sheet date with an aggregate amount of transaction price as follows. The time bands represented present the expected timing of when the remaining transaction price will be recognised as revenue.
Aggregate transaction price allocated to unsatisfied performance obligations
31 March
2022 Recognised Recognised Recognised
Total < 1 year 1-2 years > 2 years
GBPm GBPm GBPm GBPm
------------------------- -------- ---------- ---------- ----------
Safety 27.0 15.2 4.5 7.3
Environmental & Analysis 15.3 7.0 3.4 4.9
Medical 14.4 12.9 1.5 -
Inter-segmental sales - - - -
------------------------- -------- ---------- ---------- ----------
Total 56.7 35.1 9.4 12.2
------------------------- -------- ---------- ---------- ----------
Aggregate transaction price allocated to unsatisfied performance obligations
Restated*
31 March
2021 Recognised Recognised Recognised
Total < 1 year 1-2 years > 2 years
GBPm GBPm GBPm GBPm
------------------------- -------- ---------- ---------- ----------
Safety 18.0 13.3 0.5 4.2
Environmental & Analysis 15.6 6.6 3.0 6.0
Medical 6.7 6.3 0.4 -
Inter-segmental sales - - - -
------------------------- -------- ---------- ---------- ----------
Total 40.3 26.2 3.9 10.2
------------------------- -------- ---------- ---------- ----------
* Restated to reflect the new reporting segments
Segment results
Profit (all continuing operations)
Year ended Year ended
31 March 31 March
2022 2021
Restated**
GBPm GBPm
-------------------------------------------------------- ----------------- -----------------------
Segment profit before allocation of adjustments* Safety
Environmental & Analysis 146.2 135.3
Medical 109.8 89.3
99.5 86.6
-------------------------------------------------------- ----------------- -----------------------
355.5 311.2
-------------------------------------------------------- ----------------- -----------------------
Segment profit after allocation of adjustments*
Safety 163.5 117.3
Environmental & Analysis 96.9 101.7
Medical 83.3 66.8
-------------------------------------------------------- ----------------- -----------------------
Segment profit 343.7 285.8
Central administration costs (30.9) (22.9)
Net finance expense (8.4) (10.0)
-------------------------------------------------------- ----------------- -----------------------
Group profit before taxation 304.4 252.9
Taxation (60.2) (49.6)
-------------------------------------------------------- ----------------- -----------------------
Profit for the year 244.2 203.3
-------------------------------------------------------- ----------------- -----------------------
* Adjustments include the amortisation of acquired intangible assets; acquisition items; and significant restructuring costs and profit or loss on disposal of operations. Note 3 provides more information on alternative performance measures.
** Restated to reflect the new reporting segments.
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 Group Chief Executive for the purpose of allocation of resources and assessment of segment performance. These adjustments are analysed as follows:
Year ended 31 March 2022
Acquisition
items
-------------------- ------------- ----------- -------------- -------------------------------
Release
of Total Disposal
fair amortisation of
Amortisation value charge operations
of acquired Adjustments adjustments and and
intangible Transaction to contingent to acquisition restructuring
assets Costs consideration inventory items (note 9) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------------- ----------- -------------- ----------- ------------ ---------------- ----------
Safety (14.9) (0.5) - (1.3) (16.7) 34.0 17.3
Environmental &
Analysis (10.3) (1.6) 0.1 (1.1) (12.9) - (12.9)
Medical (17.5) (2.1) 4.4 (1.0) (16.2) - (16.2)
-------------------- ------------- ----------- -------------- ----------- ------------ ---------------- ----------
Total Segment &
Group (42.7) (4.2) 4.5 (3.4) (45.8) 34.0 (11.8)
-------------------- ------------- ----------- -------------- ----------- ------------ ---------------- ----------
The transaction costs arose mainly on the acquisitions during the year. In Safety, they related to the acquisition of Ramtech (GBP0.4m) and IBIT (GBP0.1m). In Environmental & Analysis, they related to the acquisition of Dancutter (GBP0.3m), Sensitron (GBP0.4m), Orca (GBP0.1m), Anton (GBP0.1m) and ILT (GBP0.2m) in the current year and Deep Trekker (GBP0.5m) that was acquired in April 2022. In Medical, they related to the acquisition of PeriGen (GBP1.4m), Infinite Leap (GBP0.3m), Clayborn Lab (GBP0.1m), Meditech (GBP0.1m) and RNK (GBP0.1m), in the current year and the acquisition of Visiometrics in a previous year (GBP0.1m).
The GBP4.5m adjustment to contingent consideration comprised of a credit of GBP0.1m in Environmental & Analysis arising from a decrease in the estimate of the payables for Invenio (GBP0.3m) offset by an increase in the estimate of the payable for Orca (GBP0.2m) and a credit of GBP4.4m in Medical arising from a decrease in estimates of the payables for NovaBone (GBP1.3m), NeoMedix (GBP3.0m) and Spreo (GBP0.1m) partially offset by an increase in the estimate of the payable for Infowave (GBP0.3m) and a credit of GBP0.3m arising from exchange differences on balances denominated in Euros.
The GBP3.4m release of fair value adjustments to inventory related to Ramtech (GBP1.3m) in Safety; Dancutter (GBP0.1m), Orca (GBP0.6m) Sensitron (GBP0.2m) and ILT (GBP0.2m) in Environmental & Analysis; and Meditech (GBP1.0m) in Medical. All amounts have been released in relation to Dancutter, Ramtech, Orca and Sensitron.
Year ended 31 March 2021
Restated*
Acquisition items
------------------------------------------
Disposal
Total of
Release amortisation operations
Amortisation of charge and
of acquired Adjustments fair value and restructuring
intangible Transaction to contingent adjustments acquisition (note
assets Costs consideration to inventory items 9) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- -------------- ----------- -------------- ------------- ------------- ---------------- ------
Safety (15.6) - (2.4) - (18.0) - (18.0)
Environmental &
Analysis (10.2) - 1.3 (0.8) (9.7) 22.1 12.4
Medical (16.5) (1.9) 0.4 (1.8) (19.8) - (19.8)
----------------- -------------- ----------- -------------- ------------- ------------- ---------------- ------
Total Segment &
Group (42.3) (1.9) (0.7) (2.6) (47.5) 22.1 (25.4)
----------------- -------------- ----------- -------------- ------------- ------------- ---------------- ------
* Restated to reflect the new reporting segments
In the prior year, the transaction costs arose on the acquisition of Static Systems (GBP0.5m) during the year and costs relating to Visiometrics (GBP1.4m), both in the Medical sector.
The GBP0.7m adjustment to contingent consideration comprised: a charge of GBP2.4m in Safety arising from an increase in the estimate of the payables for Navtech (GBP1.5m) and FireMate (GBP0.9m); a credit of GBP1.3m in Environmental & Analysis arising from a decrease in estimate of the payables for Invenio (GBP0.8m) and Enoveo (GBP0.5m), and a credit of GBP0.4m in Medical arising from a decrease in the estimated payable for NeoMedix (GBP1.7m), offset by an increase in estimate of the payable for Infowave (GBP0.9m) and Spreo (GBP0.2m), and a charge of GBP0.2m arising from exchange differences on balances denominated in Euros.
The GBP2.6m release of fair value adjustments to inventory relates to Sensit (GBP0.8m) in Environmental & Analysis and NovaBone (GBP1.3m), Maxtec (GBP0.2m) and Static Systems (GBP0.3m) in Medical. As at the prior year end all amounts had been released in relation to Sensit, NovaBone, Maxtec and Static Systems.
Information about major customers
No single customer accounts for more than 10% (2021: 10%) of the Group's revenue.
2 Earnings per ordinary share
Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to the equity shareholders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to the ordinary equity shareholders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation of acquired intangible assets; acquisition items; profit or loss on disposal of operations and the associated taxation thereon and in the current year the increase in the UK's corporation tax rate from 19% to 25%. The Directors consider that adjusted earnings, which constitute an alternative performance measure, represent a more consistent measure of underlying performance as it excludes amounts not directly linked with trading. A reconciliation of earnings and the effect on basic and diluted earnings per share figures is as follows:
Basic earnings per share
Per ordinary share
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
GBPm GBPm pence pence
------------------------------------------------- ---------- ---------- ---------- ----------
Earnings from continuing operations attributable
to owners of the parent 244.4 203.4 64.54 53.61
Amortisation of acquired intangible assets
(after tax) 33.1 32.0 8.73 8.44
Acquisition transaction costs (after tax) 3.8 1.6 0.99 0.43
Adjustments to contingent consideration
(after tax) (4.5) 0.7 (1.19) 0.20
Release of fair value adjustments to inventory
(after tax) 2.6 2.0 0.70 0.52
Disposal of operations and restructuring
(after tax) (34.0) (17.1) (8.98) (4.53)
Impact of UK rate change 2.6 - 0.69 -
------------------------------------------------- ---------- ---------- ---------- ----------
Adjusted earnings attributable to owners
of the parent 248.0 222.6 65.48 58.67
------------------------------------------------- ---------- ---------- ---------- ----------
Weighted average number of ordinary shares
in issue for basic earnings per share, million 378.7 379.2
------------------------------------------------- ---------- ---------- ---------- ----------
Diluted earnings per ordinary share
Per ordinary
share
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
GBPm GBPm pence pence
------------------------------------------------- ---------- ----------
Earnings from continuing operations attributable
to owners of the parent 244.4 203.4 64.42 53.50
------------------------------------------------- ---------- ---------- ---------- ------------
Weighted average number of ordinary shares
in issue for basic earnings per share, million 378.7 379.2
------------------------------------------------- ---------- ---------- ---------- ------------
Dilutive potential ordinary shares - share
awards, million 0.7 0.8
------------------------------------------------- ---------- ---------- ---------- ------------
Weighted average number of ordinary shares
in issue for diluted earnings per share,
million 379.4 380.0
------------------------------------------------- ---------- ---------- ---------- ------------
3 Alternative performance measures
The Board uses certain alternative performance measures to help it effectively monitor the performance of the Group. The Directors consider that these represent a more consistent measure of underlying performance by removing non-trading items that are not closely related to the Group's trading or operating cash flows. These measures include Return on Total Invested Capital (ROTIC), Return on Capital Employed (ROCE), Organic growth at constant currency, Adjusted operating profit and Adjusted operating cash flow. Note 1 provides further analysis of the adjusting items in reaching adjusted profit measures.
Return on Total Invested Capital
31 March 31 March
2022 2021
GBPm GBPm
---------------------- ------------ --------
Profit 244.2 203.3
after
tax
A 3.7 19.2
d
j
u
s
t
m
e
n
t
s
1
---------------------- ------------ --------
Adjusted
profit
after
t
a
x
1 247.9 222.5
---------------------- ------------ --------
Total
equity 1,403.1 1,167.6
(Less)/add
back
net
retirement
benefit
(assets)/obligations (30.5) 22.5
Deferred
tax
(liabilities)/assets
on
retirement
benefits 7.7 (4.0)
Investment
fair
value
adjustments
through
other
comprehensive
income 1.7 -
Cumulative
amortisation
of
acquired
intangible
assets 345.7 297.2
Historical
adjustments
to
goodwill
2 89.5 89.5
---------------------- ------------ --------
Total
Invested
Capital 1,817.2 1,572.8
---------------------- ------------ --------
Average
Total
Invested
Capital
3 1,695.0 1,543.7
---------------------- ------------ --------
Return
on
Total
Invested
Capital
(ROTIC)
4 14.6% 14.4%
---------------------- ------------ --------
Return on Capital Employed
31 March 31 March
2022 2021
GBPm GBPm
------------------------------------------------------- ----------- --------
Profit before tax 304.4 252.9
Adjustments(1) 11.8 25.4
Net finance costs 8.4 10.0
Lease interest (2.3) (2.3)
------------------------------------------------------- ----------- --------
Adjusted operating profit (1) after share of results
of associates and lease interest 322.3 286.0
------------------------------------------------------- ----------- --------
Computer software costs within intangible assets 4.2 6.0
Capitalised development costs within intangible assets 41.7 38.9
Other intangibles within intangible assets 3.6 3.4
Property, plant and equipment 194.0 180.8
Inventories 228.8 167.8
Trade and other receivables 325.1 268.0
Current trade and other payables (242.7) (186.7)
Current lease liabilities (15.5) (13.3)
Current provisions (20.7) (35.4)
Net tax receivable 3.8 7.5
Non-current trade and other payables (19.0) (16.8)
Non-current provisions (7.7) (8.4)
Non-current lease liabilities (56.6) (51.7)
Add back contingent purchase consideration 15.2 29.4
------------------------------------------------------- ----------- --------
Capital Employed 454.2 389.5
------------------------------------------------------- ----------- --------
Average Capital Employed(3) 421.9 403.2
------------------------------------------------------- ----------- --------
Return on Capital Employed (ROCE) 4 76.4% 70.9% ------------------------------------------------------- ----------- --------
1 Adjustments include the amortisation of acquired intangible assets; acquisition items; and significant restructuring costs and profit or loss on disposal of operations. Where after-tax measures, these also include the associated taxation on adjusting items. Note 1 provides more information on these items.
2 Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves.
3 The ROTIC and ROCE measures are expressed as a percentage of the average of the current and prior year's Total Invested Capital and Capital Employed respectively. Using an average as the denominator is considered to be more representative. The 1 April 2020 Total Invested Capital and Capital Employed balances were GBP1,514.6m and GBP416.9m respectively.
4 The ROTIC and ROCE measures are calculated as Adjusted profit after tax divided by Average Total Invested Capital and Adjusted operating profit after share of results of associates and lease interest divided
by Average Capital Employed respectively.
Organic growth at constant currency
Organic growth measures the change in revenue and profit from continuing Group operations. This measure equalises the effect of acquisitions by:
a. removing from the year of acquisition their entire revenue and profit before taxation;
b. in the following year, removing the revenue and profit for the number of months equivalent to the pre-acquisition period in the prior year; and
c. removing from the year prior to acquisition, any revenue generated by sales to the acquired company which would have been eliminated on consolidation had the acquired company been owned for that period.
The results of disposals are removed from the prior period reported revenue and profit before taxation.
Constant currency measures the change in revenue and profit excluding the effects of currency movements. The measure restates the current year's revenue and profit at last year's exchange rates.
Organic growth at constant currency has been calculated for the Group as follows:
Group
Adjusted* profit before
Revenue taxation
---------- ---------- -------- --------------------------------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------- ---------- ---------- -------- ---------- ---------- --------
Continuing operations 1,525.3 1,318.2 15.7% 316.2 278.3 13.6%
Acquired and disposed revenue/profit (63.5) (37.4) (9.9) (4.6)
===================================== ========== ========== ======== ========== ========== ========
Organic growth 1,461.8 1,280.8 14.1% 306.3 273.7 11.9%
Constant currency adjustment 42.1 - 9.5 -
------------------------------------- ---------- ---------- -------- ---------- ---------- --------
Organic growth at constant
currency 1,503.9 1,280.8 17.4% 315.8 273.7 15.4%
------------------------------------- ---------- ---------- -------- ---------- ---------- --------
Sector Organic growth at constant currency
Organic growth at constant currency is calculated for each segment using the same method as described above.
Safety
Adjusted* segment
Revenue profit
------------------------------------ ---------- ----------- -------- ---------------------------------------------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
Restated** Restated**
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------ ---------- ----------- -------- ---------- ----------------------- --------
Continuing operations 641.4 587.0 9.3% 146.2 135.3 8.1%
Acquisition and currency adjustments 7.2 (27.2) 2.4 (4.1)
------------------------------------ ---------- ----------- -------- ---------- ----------------------- --------
Organic growth at constant
currency 648.6 559.8 15.9% 148.6 131.2 13.3%
------------------------------------ ---------- ----------- -------- ---------- ----------------------- --------
Environmental & Analysis
Adjusted* segment
Revenue profit
------------------------------------ ---------- ----------- -------- ---------------------------------------------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
Restated** Restated**
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------ ---------- ----------- -------- ---------- ----------------------- --------
Continuing operations 442.9 361.1 22.6% 109.8 89.3 23.0%
Acquisition and currency adjustments (6.0) (10.2) (0.4) (0.5)
------------------------------------ ---------- ----------- -------- ---------- ----------------------- --------
Organic growth at constant
currency 436.9 350.9 24.5% 109.4 88.8 23.3%
------------------------------------ ---------- ----------- -------- ---------- ----------------------- --------
Medical
Adjusted* segment
Revenue profit
------------------------------------- ---------- ---------- -------- --------------------------------------------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------- ---------- ---------- -------- ---------- ---------------------- --------
Continuing operations 442.3 371.3 19.1% 99.5 86.6 15.0%
Acquisition and currency adjustments (22.6) - (3.9) -
------------------------------------- ---------- ---------- -------- ---------- ---------------------- --------
Organic growth at constant
currency 419.7 371.3 13.0% 95.6 86.6 10.5%
------------------------------------- ---------- ---------- -------- ---------- ---------------------- --------
* Adjustments include in the current and prior year the amortisation of acquired intangible assets; acquisition items and significant restructuring costs and profit or loss on disposal of operations.
** Restated to reflect the new reporting segments
Adjusted operating profit
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
------------------------------------------- ---------- ----------
Operating profit 278.9 240.8
Add back:
Acquisition items (note 1) 3.1 5.2
Amortisation of acquired intangible assets 42.7 42.3
------------------------------------------- ---------- ----------
Adjusted operating profit 324.7 288.3
------------------------------------------- ---------- ----------
Adjusted operating cash flow
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
----------------------------------------------------------- ------------ ----------
Net cash from operating activities 237.4 277.6
Add back:
Net acquisition costs paid 4.1 2.4
Taxes paid 56.0 53.8
Proceeds from sale of property, plant and equipment and
capitalised development costs 1.1 0.9
Share awards vested not settled by own shares 7.1 7.8
Deferred consideration paid in excess of payable estimated
on acquisition 7.5 -
Less:
Purchase of property, plant and equipment (excluding Right
of use assets) (25.2) (22.8)
Purchase of computer software and other intangibles (1.4) (4.0)
Development costs capitalised (13.4) (15.4)
----------------------------------------------------------- ------------ ----------
Adjusted operating cash flow 273.2 300.3
----------------------------------------------------------- ------------ ----------
Cash conversion % (adjusted operating cash flow/adjusted
operating profit) 84% 104%
----------------------------------------------------------- ------------ ----------
4 Finance income
Year Year ended
ended 31 March
31 March 2021
2022 GBPm
GBPm
--------------------------------------------------------- ------------- ---------------
Interest receivable 0.2 0.8
Net interest credit on pension plan liabilities - 0.1
Fair value movement on derivative financial instruments 0.4 0.1
--------------------------------------------------------- ------------- ---------------
0.6 1.0
--------------------------------------------------------- ------------- ---------------
5 Finance expense
Year Year ended
ended 31 March
31 March 2021
2022 GBPm
GBPm
-------------------------------------------------------- ------------- --------------
Interest payable on borrowings 5.6 7.7
Interest payable on lease obligations 2.3 2.3
Amortisation of finance costs 0.7 0.7
Net interest charge on pension plan liabilities 0.3 -
Other interest payable 0.1 0.1
-------------------------------------------------------- ------------- --------------
9.0 10.8
Fair value movement on derivative financial instruments - 0.2
-------------------------------------------------------- ------------- --------------
9.0 11.0
-------------------------------------------------------- ------------- --------------
6 Taxation
Recognised in the Consolidated Income Statement
Year Year ended
ended 31 March
31 March 2021
2022 GBPm
GBPm
--------------------------------------------------------- ------------- --------------
Current tax
UK corporation tax at 19% (2021: 19%) 16.7 11.5
Overseas taxation 46.0 40.7
Adjustments in respect of prior years 0.5 1.7
--------------------------------------------------------- ------------- --------------
Total current tax charge 63.2 53.9
--------------------------------------------------------- ------------- --------------
Deferred tax
Origination and reversal of timing differences (5.7) (4.4)
Adjustments in respect of prior years 0.1 0.1
Changes in tax rates - UK 2.6 -
--------------------------------------------------------- ------------- --------------
Total deferred tax credit (3.0) (4.3)
--------------------------------------------------------- ------------- --------------
Total tax charge recognised in the Consolidated Income
Statement 60.2 49.6
--------------------------------------------------------- ------------- --------------
Reconciliation of the effective tax rate:
Profit before tax 304.4 252.9
Tax at the UK corporation tax rate of 19% (2021: 19%) 57.8 48.1
Profit on disposal of business (6.5) -
Overseas tax rate differences 6.2 6.3
Effect of intra-group financing - (6.5)
Tax incentives, exemptions and credits (including patent
box, R&D and High-Tech status) (4.2) (4.4)
Changes in tax rates - UK 2.6 -
Permanent differences 3.7 4.3
Adjustments in respect of prior years 0.6 1.8
--------------------------------------------------------- ------------- --------------
Total tax charge recognised in the Consolidated Income
Statement 60.2 49.6
--------------------------------------------------------- ------------- --------------
Effective tax rate 19.8% 19.6%
--------------------------------------------------------- ------------- --------------
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
-------------------------------------
Adjusted* profit before tax 316.2 278.3
Total tax charge on adjusted* profit 68.3 55.8
------------------------------------- -------------- ------------
Effective tax rate 21.6% 20.1%
------------------------------------- -------------- ------------
* Adjustments include the amortisation of acquired intangible assets, acquisition items, significant restructuring costs and profit or loss on disposal of operations. Note 3 provides more information on alternative performance measures.
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. The Finance Bill 2021 received Royal Assent on 10 June 2021 and included the increase in the UK corporation tax rate from 19% to 25% from 1 April 2023. Accordingly, our UK deferred tax balances have been restated to 25%, resulting in a GBP2.6m charge to the profit and loss account, included as an adjusting item .
Recognised in the Consolidated Statement of Comprehensive Income and Expenditure
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
--------------------------------------------------------- -------------- ------------
Current tax
Retirement benefit obligations Deferred tax (2.3) (2.5)
Retirement benefit obligations
Effective portion of changes in fair value of cash flow 11.9 (3.4)
hedges
(0.4) 0.2
--------------------------------------------------------- -------------- ------------
9.2 (5.7)
--------------------------------------------------------- -------------- ------------
Recognised directly in equity
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
------------------------------------------------------- -------------- ------------
Current tax
Excess tax deductions related to share-based payments
on exercised awards
Deferred tax (1.3) (1.6)
Change in estimated excess tax deductions related to
share-based payments 0.2 0.4
------------------------------------------------------- -------------- ------------
(1.1) (1.2)
------------------------------------------------------- -------------- ------------
7 Dividends
Per ordinary share
Year Year ended Year Year ended
ended 31 March ended 31 March
31 March 2021 31 March 2021
2022 pence 2022 GBPm
pence GBPm
---------------------------------------------- ------------- -------------- ------------- --------------
Amounts recognised as distributions to
shareholders in the year
Final dividend for the year ended 31 March 10.78 9.96 40.8 37.7
2021 (31 March 2020)
Interim dividend for the year ended 31 March 7.35 6.87 27.9 26.0
2022 (31 March 2021)
---------------------------------------------- ------------- -------------- ------------- --------------
18.13 16.83 68.7 63.7
---------------------------------------------- ------------- -------------- ------------- --------------
Dividends declared in respect of the year
Interim dividend for the year ended 31 March
2022 (31 March 2021) 7.35 6.87 27.9 26.0
Proposed final dividend for the year ended
31 March 2022 (31 March 2021) 11.53 10.78 43.6 40.8
---------------------------------------------- ------------- -------------- ------------- --------------
18.88 17.65 71.5 66.8
---------------------------------------------- ------------- -------------- ------------- --------------
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 21 July 2022 and has not been included as a liability in these financial statements.
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. Other previously unrecognised assets and liabilities at acquisition are included and accounting policies are aligned with those of the Group where appropriate.
During the year ended 31 March 2022, the Group made 13 acquisitions namely:
- Dancutter A/S;
- Orca GmbH;
- PeriGen, Inc.;
- Ramtech Electronics Limited;
- Sensitron S.R.L.;
- Infinite Leap Inc.;
- International Light Technologies Inc.;
- Meditech Kft;
- Anton Industrial Services Limited;
- Certain trade and assets of FluidSentry Pty;
- Certain trade and assets of RNK Products Inc.;
- Certain trade and assets of IBIT S.R.L.;
- Certain trade and assets of Clayborn Lab.
Set out on the following pages are summaries of the assets acquired and liabilities assumed and the purchase consideration of:
a) the total of acquisitions; b) Dancutter A/S; c) Orca GmbH; d) PeriGen, Inc.; e) Ramtech Electronics Limited; f) Sensitron S.R.L.; g) Infinite Leap Inc.; h) International Light Technologies Inc.; i) Other acquisitions.
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 acquisitions contributed GBP39.9m of revenue and GBP7.4m of profit after tax for year ended 31 March 2022.
If these acquisitions 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 GBP23.0m and GBP3.3m higher respectively.
As at the date of approval of the financial statements, the accounting for all current year acquisitions is provisional; relating to finalisation of the valuation of acquired intangible assets, the initial consideration, which is subject to agreement of certain contractual adjustments, and certain other provisional balances.
a) Total of acquisitions
Total
GBPm
----------------------------------------------------------------- -------
Non-current assets
Intangible assets 67.8
Property, plant and equipment 8.2
Deferred tax 5.3
Current assets
Inventories 10.0
Trade and other receivables 15.5
Tax 0.4
Cash and cash equivalents 18.2
----------------------------------------------------------------- -------
Total assets 125.4
----------------------------------------------------------------- -------
Current liabilities
Payables (19.3)
Borrowings and lease liabilities (0.7)
Provisions (0.2)
Tax (0.8)
Non-current liabilities
Borrowings and lease liabilities (3.9)
Deferred tax (12.3)
----------------------------------------------------------------- -------
Total liabilities (37.2)
----------------------------------------------------------------- -------
Net assets of businesses acquired 88.2
----------------------------------------------------------------- -------
Initial cash consideration paid 151.2
Other adjustments 13.1
Other amounts to be paid 0.3
Contingent purchase consideration including retentions estimated
to be paid 3.8
----------------------------------------------------------------- -------
Total consideration 168.4
----------------------------------------------------------------- -------
Total goodwill 80.2
----------------------------------------------------------------- -------
Analysis of cash outflow in the Consolidated Cash Flow Statement
Year Year ended
ended 31 March
31 March 2021
2022 GBPm
GBPm
------------------------------------------------------- ------------- ------------
Initial cash consideration paid 151.2 37.0
Cash acquired on acquisitions (18.2) (7.9)
Initial cash consideration adjustment on current year
acquisitions 13.1 6.9
Contingent consideration paid and loan notes repaid in
cash in relation to prior year acquisitions 14.2 10.4
------------------------------------------------------- ------------- ------------
Net cash outflow relating to acquisitions 160.3 46.4
------------------------------------------------------- ------------- ------------
Included in cash flows from operating activities 7.5 -
Included in cash flows from investing activities 152.8 46.4
------------------------------------------------------- ------------- ------------
Contingent consideration included in cash flows from operating activities reflect amounts paid in excess of that estimated in the acquisition balance sheets.
b) Dancutter A/S
GBPm
---------------------------------- ------
Non-current assets
Intangible assets 8.8
Property, plant and equipment 1.3
Current assets
Inventories 0.5
Trade and other receivables 0.5
Cash and cash equivalents 0.9
---------------------------------- ------
Total assets 12.0
---------------------------------- ------
Current liabilities
Payables (0.5)
Borrowings and lease liabilities (0.1)
Provisions (0.1)
Tax (0.1)
Non-current liabilities
Borrowings and lease liabilities (1.1)
Deferred tax (1.9)
---------------------------------- ------
Total liabilities (3.8)
---------------------------------- ------
Net assets of businesses acquired 8.2
---------------------------------- ------
Initial cash consideration paid 15.0
Other adjustments 0.5
Retention amount 0.4
---------------------------------- ------
Total consideration 15.9
---------------------------------- ------
Total goodwill 7.7
---------------------------------- ------
On 24 June 2021, the Group acquired the entire share capital of Dancutter A/S and Repipe Lining Systems A/S (together 'Dancutter') for consideration of EUR18.1m (GBP15.5m), which comprised the purchase price of EUR18.0m (GBP15.4m) plus net cash/(debt) adjustments of EUR0.6m (GBP0.5m) less a retention amount of EUR0.5m (GBP0.4m). The retention amount, held in place of escrow balances, is due 18 months from the date of acquisition. There is no contingent consideration payable. The maximum total cash consideration, excluding cash and debt acquired, is GBP15.0m.
Dancutter, located in Denmark, is a designer and manufacturer of trenchless pipeline rehabilitation equipment. This is used to maintain and extend the life of wastewater networks, reducing blockages and leakage and ultimately reducing environmental contamination. Dancutter will be managed as part of Halma's MiniCam business and will become part of Halma's Environmental & Analysis sector. Key members of Dancutter's leadership team will remain with the business and it will continue to operate in its current facility.
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 GBP6.4m; trade name of GBP0.7m and technology related intangibles of GBP1.7m; with residual goodwill arising of GBP7.7m.
The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
Dancutter contributed GBP2.7m of revenue and GBP0.4m of profit after tax for the year ended 31 March 2022. 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 GBP1.1m higher and GBP0.2m higher respectively.
Acquisition costs totalling GBP0.3m were recorded in administrative expenses in the Consolidated Income Statement.
The goodwill arising on this acquisition is not expected to be deductible for tax purposes.
c) Orca GmbH
GBPm
------------------------------------------------------- -----
Non-current assets
Intangible assets 2.4
Property, plant and equipment 0.1
Current assets
Inventories 1.1
Trade and other receivables 0.4
Cash and cash equivalents 1.0
------------------------------------------------------- -----
Total assets 5.0
------------------------------------------------------- -----
Current liabilities
Payables (0.2)
Tax (0.5)
Non-current liabilities
Deferred tax (0.9)
------------------------------------------------------- -----
Total liabilities (1.6)
------------------------------------------------------- -----
Net assets of business acquired 3.4
------------------------------------------------------- -----
Initial cash consideration paid 5.4
Other adjustments 0.5
Contingent purchase consideration estimated to be paid 0.4
------------------------------------------------------- -----
Total consideration 6.3
------------------------------------------------------- -----
Total goodwill 2.9
------------------------------------------------------- -----
On 3 May 2021, the Group acquired the entire share capital of Orca GmbH ('Orca'), for EUR6.8m (GBP5.9m), which comprised the purchase price of EUR6.2m (GBP5.4m) plus net cash/(debt) adjustments of EUR0.6m (GBP0.5m). The maximum contingent consideration payable is EUR2.5m (GBP2.1m) based on profit-based targets for the years ending 31 March 2022, 31 March 2023 and 31 March 2024. The maximum total consideration, excluding cash and debt acquired, is GBP7.0m.
Orca is a German manufacturer of ultraviolet disinfection systems, primarily for the food and beverage sector. Orca has joined the Group as part of UV Group, part of the Group's Environmental & Analysis sector.
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 GBP0.7m; trade name of GBP0.1m and technology related intangibles of GBP1.6m; with residual goodwill arising of GBP2.9m.
The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
Orca contributed GBP2.7m of revenue and GBP0.5m of profit after tax for the year ended 31 March 2022. 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 GBP0.3m and GBP0.1m higher respectively. .
Acquisition costs totalling GBP0.1m were recorded in administrative expenses in the Consolidated Income Statement.
The goodwill arising on the Orca acquisition is not expected to be deductible for tax purposes.
d) PeriGen, Inc.
GBPm
---------------------------------- ------
Non-current assets
Intangible assets 16.5
Property, plant and equipment 2.0
Deferred tax 5.0
Current assets
Inventories 0.2
Trade and other receivables 5.2
Tax 0.4
Cash and cash equivalents 6.2
---------------------------------- ------
Total assets 35.5
---------------------------------- ------
Current liabilities
Payables (8.3)
Borrowings and lease liabilities (0.3)
Non-current liabilities
Borrowings and lease liabilities (1.6)
Deferred tax (4.3)
---------------------------------- ------
Total liabilities (14.5)
---------------------------------- ------
Net assets of businesses acquired 21.0
---------------------------------- ------
Initial cash consideration paid 40.6
Other adjustments 5.4
Other amounts to be paid 0.3
---------------------------------- ------
Total consideration 46.3
---------------------------------- ------
Total goodwill 25.3
---------------------------------- ------
On 27 April 2021, the Group acquired the entire share capital of PeriGen, Inc., ('PeriGen') for an initial cash consideration of US$58.0m (GBP40.6m). Additional amounts determined in respect of working capital adjustments were determined to be US$8.2m (GBP5.7m). The maximum total consideration, excluding cash and debt acquired, is GBP40.1m.
PeriGen, based in North Carolina, USA offers innovative perinatal software solutions, and its advanced technology protects mothers and their unborn babies by alerting doctors, midwives and nurses to potential problems during childbirth. The company continues to run under its own management team and has become part of the Group's Medical sector.
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 GBP6.4m; trade name of GBP1.8m and technology related intangibles of GBP8.3m; with residual goodwill arising of GBP25.3m.
The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
PeriGen contributed GBP14.7m of revenue and GBP4.1m of profit after tax for the year ended 31 March 2022. 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 GBP1.0m and GBP0.2m higher respectively.
Acquisition costs totalling GBP1.4m were recorded in administrative expenses in the Consolidated Income Statement.
The goodwill arising on the PeriGen acquisition is not expected to be deductible for tax purposes.
e) Ramtech Electronics Limited
GBPm
---------------------------------- ------
Non-current assets
Intangible assets 4.6
Property, plant and equipment 1.4
Current assets
Inventories 3.2
Trade and other receivables 1.5
Cash and cash equivalents 3.9
---------------------------------- ------
Total assets 14.6
---------------------------------- ------
Current liabilities
Payables (2.5)
Non-current liabilities
Deferred tax (1.5)
---------------------------------- ------
Total liabilities (4.0)
---------------------------------- ------
Net assets of businesses acquired 10.6
---------------------------------- ------
Initial cash consideration paid 15.5
Other adjustments 4.1
---------------------------------- ------
Total consideration 19.6
---------------------------------- ------
Total goodwill 9.0
---------------------------------- ------
On 29 July 2021, the Group acquired the Ramtech group of companies ('Ramtech'), for an initial cash consideration of GBP15.5m, adjustable for cash acquired. Additional amounts paid in respect of cash acquired and other adjustments were determined to be
GBP4.1m. The maximum total consideration, excluding cash and debt acquired, is GBP15.7m.
Ramtech is headquartered in Nottingham, UK and supplies wireless fire systems for temporary sites, primarily in the construction and leisure markets. The company continues to run under its own management team and has become part of the Group's Safety sector.
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 GBP1.4m; trade name of GBP0.8m and technology related intangibles of GBP2.4m; with residual goodwill arising of GBP9.0m.
The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
Ramtech contributed GBP7.3m of revenue and GBP0.6m of profit after tax for the year ended 31 March 2022. 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 GBP3.7m and GBP0.3m higher respectively.
Acquisition costs totalling GBP0.4m were recorded in administrative expenses in the Consolidated Income Statement.
The goodwill arising on the Ramtech acquisition is not expected to be deductible for tax purposes.
f) Sensitron S.R.L.
GBPm
---------------------------------- ------
Non-current assets
Intangible assets 9.5
Property, plant and equipment 0.6
Deferred tax 0.1
Current assets
Inventories 1.4
Trade and other receivables 2.9
Cash and cash equivalents 4.3
---------------------------------- ------
Total assets 18.8
---------------------------------- ------
Current liabilities
Payables (3.4)
Borrowings and lease liabilities (0.1)
Tax (0.1)
Non-current liabilities
Borrowings and lease liabilities (0.3)
Deferred tax (2.7)
---------------------------------- ------
Total liabilities (6.6)
---------------------------------- ------
Net assets of business acquired 12.2
---------------------------------- ------
Initial cash consideration paid 21.4
---------------------------------- ------
Total consideration 21.4
---------------------------------- ------
Total goodwill 9.2
---------------------------------- ------
On 29 July 2021, the Group acquired the entire share capital of Sensitron S.R.L. ('Sensitron') for a cash consideration of EUR25.0m (GBP21.4m). The maximum total consideration, excluding cash and debt acquired, is GBP17.1m.
Sensitron, located in Milan, Italy, is a gas detection company whose devices, which include detectors for hazardous locations and for new refrigerant gases, enhance safety by detecting the release of gases harmful to people and the environment. Sensitron will continue to run under its own management team and will become part of Halma's Environmental & Analysis sector.
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 GBP4.2m; trade name of GBP1.3m and technology related intangibles of GBP4.0m; with residual goodwill arising of GBP9.2m.
The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
Sensitron contributed GBP5.9m of revenue and GBP0.8m of profit after tax for the year ended 31 March 2022. 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 GBP3.5m and GBP0.6m higher respectively.
Acquisition costs totalling GBP0.4m were recorded in administrative expenses in the Consolidated Income Statement.
The goodwill arising on this acquisition is not expected to be deductible for tax purposes.
g) Infinite Leap Inc.
GBPm
------------------------------------------------------- -------
Non-current assets
Intangible assets 11.9
Deferred tax 0.1
Current assets
Trade and other receivables 3.0
------------------------------------------------------- -------
Total assets 15.0
------------------------------------------------------- -------
Current liabilities
Payables (2.8)
------------------------------------------------------- -------
Total liabilities (2.8)
------------------------------------------------------- -------
Net assets of business acquired 12.2
------------------------------------------------------- -------
Initial cash consideration paid 22.3
Other adjustments 0.6
Contingent purchase consideration estimated to be paid 2.0
------------------------------------------------------- -------
Total consideration 24.9
------------------------------------------------------- -------
Total goodwill 12.7
------------------------------------------------------- -------
On 18 November 2021, the Group acquired the entire share capital of Infinite Leap Inc. ('Infinite Leap') for an initial cash consideration of $30.0m (GBP22.3m). The maximum contingent consideration payable is $17.0m (GBP12.9m) based on profit-based targets for the financial periods ending 30 September 2022 and 30 September 2023. The maximum total consideration, excluding cash and debt acquired, is GBP35.8m.
Infinite Leap has joined the Group as part of CenTrak, part of the Group's Medical sector. Infinite Leap is a healthcare consulting and services provider for real-time location technologies, based in Fargo, North Dakota, USA, which is also developing unique new hardware and software solutions for applications adjacent to CenTrak's core market.
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 GBP10.0m; trade name of GBP0.1m and technology related intangibles of GBP1.8m; with residual goodwill arising of GBP12.7m.
The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
Infinite Leap contributed GBP1.8m of revenue and GBP0.3m of profit after tax for the year ended 31 March 2022. 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 GBP2.6m and GBP0.2m higher respectively.
Acquisition costs totalling GBP0.3m were recorded in administrative expenses in the Consolidated Income Statement.
The goodwill arising on this acquisition is expected to be deductible for tax purposes.
h) International Light Technologies Inc.
GBPm
---------------------------------- ------
Non-current assets
Intangible assets 8.4
Property, plant and equipment 1.2
Deferred tax 0.1
Current assets
Inventories 1.4
Trade and other receivables 0.8
---------------------------------- ------
Total assets 11.9
---------------------------------- ------
Current liabilities
Payables (0.7)
Borrowings and lease liabilities (0.2)
Non-current liabilities
Borrowings and lease liabilities (0.9)
---------------------------------- ------
Total liabilities (1.8)
---------------------------------- ------
Net assets of business acquired 10.1
---------------------------------- ------
Initial cash consideration paid 19.6
Other adjustments (0.2)
---------------------------------- ------
Total consideration 19.4
---------------------------------- ------
Total goodwill 9.3
---------------------------------- ------
On 18 February 2022, the Group acquired the entire share capital of International Light Technologies Inc. ('ILT') for a cash consideration of $26.6m (GBP19.6m) on a cash and debt free basis. The maximum total consideration, excluding cash and debt acquired, is GBP19.4m.
ILT has joined the Group as a subsidiary of Ocean Insight, part of the Group's Environmental & Analysis sector. ILT, based in Peabody, Massachusetts, USA, is a leading developer of technical lighting sources and light measurement systems, which are used in biomedical, environmental, agricultural, food and beverage, and industrial applications. 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 GBP4.0m; trade name of GBP0.9m and technology related intangibles of GBP3.5m; with residual goodwill arising of GBP9.3m. The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
ILT contributed GBP0.9m of revenue and GBP0.2m of profit after tax for the year ended 31 March 2022. 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 GBP7.6m and GBP1.4m higher respectively.
Acquisition costs totalling GBP0.2m were recorded in administrative expenses in the Consolidated Income Statement.
The goodwill arising on this acquisition is expected to be deductible for tax purposes.
i) Other acquisitions
GBPm
----------------------------------------------------------------- ------
Non-current assets
Intangible assets 5.7
Property, plant and equipment 1.6
Current assets
Inventories 2.2
Trade and other receivables 1.2
Cash and cash equivalents 1.9
----------------------------------------------------------------- ------
Total assets 12.6
----------------------------------------------------------------- ------
Current liabilities
Payables (0.9)
Provisions (0.1)
Tax (0.1)
Non-current liabilities
Deferred tax (1.0)
----------------------------------------------------------------- ------
Total liabilities (2.1)
----------------------------------------------------------------- ------
Net assets of businesses acquired 10.5
----------------------------------------------------------------- ------
Initial cash consideration paid 11.4
Additional amounts paid in respect of cash acquired and
other adjustments 2.2
Contingent purchase consideration including retentions estimated
to be paid 1.0
----------------------------------------------------------------- ------
Total consideration 14.6
----------------------------------------------------------------- ------
Total goodwill 4.1
----------------------------------------------------------------- ------
On 1 April 2021, Fortress Interlocks Pty Limited, an industrial access control company in the Group's Safety sector, bought the assets and IP associated with monitored safety valves from FluidSentry Pty in Australia for consideration of A$0.6m (GBP0.3m).
On 26 April 2021, Argus Security S.R.L., a fire safety company in the Group's Safety sector, purchased the trade and assets of its Italian distributor, IBIT, for consideration of EUR0.6m (GBP0.5m).
On 30 April 2021, the Group acquired Anton Industrial Services Limited (Anton), the UK flue gas analyser distribution partner of Crowcon Detection Instruments Limited, a company in the Group's Environmental & Analysis sector, for consideration of GBP1.9m, adjustable for cash acquired. Additional amounts paid in respect of cash acquired and other adjustments was determined to be GBP1.3m. The consideration includes a retention amount of GBP0.2m held in place of escrow balances and is due 18 months from the date of acquisition. The maximum total consideration, excluding cash and debt acquired, is GBP1.9m.
On 7 May 2021, Rudolf Riester GmbH, a company in the Group's Medical sector acquired the trade and assets of RNK, a US-based digital stethoscope company, for consideration of US$3.0m (GBP2.1m).
On 1 September 2021, the Group acquired Meditech Kft, a Hungarian manufacturer of ambulatory blood pressure monitors and ECG devices, for total consideration of EUR5.6m (GBP4.8m); this includes an amount paid for working capital adjustments of EUR0.4m (GBP0.3m). The maximum contingent consideration payable is EUR1.0m (GBP0.8m) based on profit-based targets for one year post acquisition. The company has become part of the Group's Medical sector. The maximum total consideration, excluding cash and debt acquired, is GBP5.0m.
On 26 October 2021, Perma Pure, a company in the Group's Medical sector acquired certain trade and assets of Clayborn Lab, a US-based provider of custom heat tape solutions, for an initial consideration of US$4.5m (GBP3.3m). The consideration includes a retention amount of US$0.5m (GBP0.4m) held in place of escrow balances and is due 15 months from the date of acquisition. The maximum contingent consideration payable is US$1.5m (GBP1.1m) determined by revenue-based targets for the years ending 30 September 2022 and 30 September 2023. The maximum total consideration, excluding cash and debt acquired, is GBP4.4m.
In respect of these acquisitions, 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 GBP3.5m; trade name of GBP0.3m and technology related intangibles of GBP1.9m; with residual goodwill arising of GBP4.1m.
These acquisitions contributed GBP3.7m of revenue and GBP0.5m of profit after tax cumulatively for the year ended 31 March 2022. If these acquisitions 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 GBP2.8m and GBP0.3m higher respectively.
Acquisition costs totalling GBP0.5m were recorded in administrative expenses in the Consolidated Income Statement.
The goodwill arising on these acquisitions are not expected to be deductible for tax purposes.
9 Disposal of operations
During the current year the Group recognised a profit on disposal of operations of GBP34.0m (2021: GBP22.1m), which comprised the following:
On 10 August 2021, the Group disposed of its entire interest in Texecom Limited to a third party for proceeds of GBP64.8m. This transaction resulted in the recognition of a gain in the Consolidated Income Statement as follows:
GBPm
-------------------------------------- ------
Proceeds of disposal 64.8
Less: net assets on disposal (19.0)
Less: allocation of goodwill disposed (9.0)
Less: costs of disposal (2.8)
-------------------------------------- ------
Profit on disposal 34.0
-------------------------------------- ------
The carrying amounts of assets and liabilities at the date of the sale were
GBPm
--------------------------------------------- ------
Non-current assets
Intangible assets 0.8
Property, plant and equipment 6.3
Current assets
Inventories 7.3
Trade and other receivables 10.6
Cash and cash equivalents 4.5
--------------------------------------------- ------
Total assets 29.5
--------------------------------------------- ------
Current liabilities
Payables (8.4)
Lease liabilities (0.3)
Non-current liabilities
Lease liabilities and dilapidation provision (1.8)
Total liabilities (10.5)
--------------------------------------------- ------
Net assets of business disposed 19.0
--------------------------------------------- ------
Cash received on disposal of operations in the year of GBP57.5m comprised proceeds from the sale of Texecom Limited of GBP64.8m, less GBP4.5m of cash disposed and GBP2.8m of disposal costs.
In the prior year, in December 2020, the Group disposed of its entire interest in Fiberguide Industries, Inc. to a third party for sale proceeds of GBP27.6m less disposal costs of GBP1.1m. Disposal costs of GBP0.4m relating to the spin-out and partial disposal of OneThird B.V. were also paid.
10 Notes to the Consolidated Cash Flow Statement
Year Year ended
ended 31 March
31 March 2021
2022 GBPm
GBPm
------------------------------------------------------------- ------------- --------------
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 278.9 240.8
Depreciation and impairment of property, plant and equipment 36.1 37.8
Amortisation and impairment of computer software 2.5 2.8
Amortisation of capitalised development costs and other
intangibles 7.6 8.3
Impairment of capitalised development costs 2.9 1.9
Amortisation of acquired intangible assets 42.7 42.3
Share-based payment expense in excess of amounts paid 5.0 3.7
Payments to defined benefit pension plans net of service
costs (11.7) (13.1)
Loss on sale of property, plant and equipment, capitalised
development costs and computer software 0.8 0.7
------------------------------------------------------------- ------------- --------------
Operating cash flows before movement in working capital 364.8 325.2
Increase in inventories (51.9) (6.7)
(Increase)/decrease in receivables (43.6) 4.3
Increase in payables and provisions 36.1 7.9
Revision to estimate and exchange difference on contingent
consideration payable less amounts paid in
excess of payable estimated on acquisition (12.0) 0.7
------------------------------------------------------------- ------------- --------------
Cash generated from operations 293.4 331.4
Taxation paid (56.0) (53.8)
------------------------------------------------------------- ------------- --------------
Net cash inflow from operating activities 237.4 277.6
------------------------------------------------------------- ------------- --------------
Year Year ended
ended 31 March
31 March 2021
2022 GBPm
GBPm
--------------------------------------------- ------------- --------------
Analysis of cash and cash equivalents
Cash and bank balances 157.4 134.1
Overdrafts (included in current borrowings) (0.7) (3.0)
--------------------------------------------- ------------- --------------
Cash and cash equivalents 156.7 131.1
--------------------------------------------- ------------- --------------
Net Net
31 cash/(debt) (cash)/debt Additions Exchange 31
March Cash acquired disposed and adjustments March
2021 flow GBPm GBPm reclassifications GBPm 2022
GBPm GBPm GBPm GBPm
------------ ------- ------ -------------------- -------------------- ------------------------------- ---------------- -------
Analysis of
net debt
Cash and
bank
balances 134.1 4.8 18.2 (4.5) - 4.8 157.4
Overdrafts (3.0) 2.3 - - - - (0.7)
------------ ------- ------ -------------------- -------------------- ------------------------------- ---------------- -------
Cash and
cash
equivalents 131.1 7.1 18.2 (4.5) - 4.8 156.7
Loans notes
falling
due within
one year - - - - (71.2) - (71.2)
Loan notes
falling
due after
more than
one year (105.3) - - - 71.2 (0.9) (35.0)
Bank loans
falling
due within
one year - - - - (0.6) - (0.6)
Bank loans
falling
due after
more than
one year (217.0) (28.9) - - 0.6 (7.3) (252.6)
Lease
liabilities (65.0) 16.8 (4.6) 2.1 (19.0) (2.4) (72.1)
------------ ------- ------ -------------------- -------------------- ------------------------------- ---------------- -------
Total net
debt (256.2) (5.0) 13.6 (2.4) (19.0) (5.8) (274.8)
------
The net increase in cash and cash equivalents of GBP20.8m comprised cash inflow of GBP7.1m, cash acquired of GBP18.2m and cash disposed of GBP4.5m.
During the period, the Group changed the presentation of the proceeds from and the repayments of bank borrowings in the Consolidated Cash Flow Statement. In the year ended 31 March 2021, these were presented as net repayments of GBP7.3m, which has been updated to proceeds of GBP129.4m and repayments of GBP136.7m.
Reconciliation of movements of the Group's liabilities from financing activities
Liabilities from financing activities are those for which cash flows were, or will be, classified as cash flows from financing activities in the Consolidated Cash Flow Statement.
Trade
and other
Total payables
liabilities falling
from financing due with
Borrowings Leases Overdraft activities one year
GBPm GBPm GBPm GBPm GBPm
At 1 April 2020 419.2 61.5 0.9 481.6 186.7
Cash flows from financing
activities (79.5) (16.4) - (95.9) (7.8)
Acquisition/disposal of
subsidiaries - (1.3) - (1.3) 2.7
Exchange adjustments (17.4) (3.8) - (21.2) (5.2)
Other changes* - 25.0 2.1 27.1 10.3
At 31 March 2021 322.3 65.0 3.0 390.3 186.7
Cash flows from financing activities 28.9 (16.8) - 12.1 (5.9)
Acquisition/disposal of subsidiaries - 2.5 - 2.5 11.7
Exchange adjustments 8.2 2.4 - 10.6 7.3
Other changes* - 19.0 (2.3) 16.7 42.9
--------
At 31 March 2022 359.4 72.1 0.7 432.2 242.7
--------
* Other changes include movements in overdraft which is treated as cash, interest accruals, reclassifications from non-current to current liabilities, lease additions and other movements in working capital balances.
11 Contingent liabilities
Group financing exemptions applicable to UK controlled foreign companies
On 24 November 2017, the European Commission (EC) published an opening decision that the United Kingdom controlled foreign company (CFC) group financing partial exemption (FCPE) constitutes State Aid. On 2 April 2019, the EC's final decision concluded that the FCPE rules, as they applied up to 31 December 2018, constitute State Aid. As previously reported, the Group has benefitted from the FCPE with the total benefit for the periods from 1 April 2013 to 31 December 2018 being approximately GBP15.4m in respect of tax.
Appeals had been made by the UK government, the Group and other UK-based groups to annul the EC decision. The EU General Court delivered its decision on 8 June 2022. The ruling was in favour of the European Commission but the UK Government and the taxpayer have the option to appeal this decision.
Notwithstanding these appeals, under EU law, the UK government is required to commence collection proceedings. In January 2021, the Group received a Charging Notice from HM Revenue & Customs (HMRC) for GBP13.9m assessed for the period from 1 April 2016 to 31 December 2018. The Group has appealed against the notice but as there is no right of postponement the amount charged was paid in full in February 2021. In February 2021, the Group received confirmation from HMRC that it was not a beneficiary of State Aid for the period from 1 April 2013 to 31 March 2016.
Whilst the EU General Court was in favour of the EC, our assessment is that there are strong grounds for appeal and we would expect such appeals to be successful. As a result, we continue to recognise a receivable of GBP14.7m on the Consolidated Balance Sheet within non-current assets to reflect the Group's view that the amount paid will ultimately be recovered.
In April 2021, a Charging Notice for GBP0.8m was received. The GBP0.8m comprised interest on the GBP13.9m assessment noted above and the interest was paid in May 2021.
The Group's maximum potential exposure at 31 March 2022 in respect of recoverability of non-current assets is GBP14.7m (31 March 2021: GBP13.9m).
Other contingent liabilities
The Group has widespread global operations and is consequently a defendant in legal, tax and customs proceedings incidental to those operations. In addition, there are contingent liabilities arising in the normal course of business in respect of indemnities, warranties and guarantees. These contingent liabilities are not considered to be unusual or material in the context of the normal operating activities of the Group. Provisions have been recognised in accordance with the Group accounting policies where required. None of these claims are expected to result in a material gain or loss to the Group.
12 Events subsequent to end of reporting period
On 13 April 2022, the Group acquired the entire share capital of Deep Trekker Inc. (Deep Trekker), based in Ontario, Canada for a cash consideration of C$60.0m (GBP36.6m) on a cash and debt free basis. Deep Trekker is a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance. Deep Trekker will be part of Halma's Environmental & Analysis sector. A detailed purchase price allocation exercise is currently being performed to calculate the goodwill arising on acquisition.
In May 2022, the Revolving Credit Facility was refinanced. The new facility remains at GBP550m and matures in May 2027 with two one-year extension options. In addition, in May 2022, a new Private Placement of GBP330m was completed. The issuance consists of Sterling, Euro, US Dollar and Swiss Franc tranches and matures in July 2032, with an amortisation profile giving it a seven year average life.
There were no other known material non-adjusting events which occurred between the end of the reporting period and prior to the authorisation of these financial statements on 16 June 2022.
13 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 Annual Remuneration Report in the Annual Report and Accounts 2022.
Year Year ended
ended 31 March
31 March 2021
2022 GBPm
GBPm
------------- --------------
Wages and salaries 11.9 6.1
Pension costs 0.1 0.1
Share-based payment charge 5.0 4.4
------------- --------------
17.0 10.6
------------- --------------
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.
LEI number: 2138007FRGLUR9KGBT40
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