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HALMA plc
HALF YEAR RESULTS 2020/21
Resilient performance and continued dividend growth
Halma, the global group of life-saving technology companies focused on growing a safer, cleaner and healthier future, today announces its half year results for the 6 months to 30 September 2020. |
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Change |
2020 |
2019 |
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Revenue |
-5% |
£618.4m |
£653.7m |
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Adjusted1 Profit before Taxation |
-5% |
£122.0m |
£128.8m |
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Adjusted2 Earnings per Share |
-6% |
25.54p |
27.20p |
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Statutory Profit before Taxation |
-9% |
£96.3m |
£105.8m |
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Statutory Earnings per Share |
-9% |
20.37p |
22.40p |
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Interim Dividend per Share3 |
+5% |
6.87p |
6.54p |
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Return on Sales4 |
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19.7% |
19.7% |
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Return on Total Invested Capital5 |
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12.6% |
14.8% |
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Net Debt |
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£315.0m |
£310.4m |
· A resilient performance with a continued focus on the long-term sustainability of our business supported by our positive purpose, the strength of our culture and our agile business model.
· Revenue and Adjusted1 Profit before Taxation declined by 5%, both including a 6% positive contribution from prior year acquisitions. Statutory Profit before Taxation reduced by 9%.
· Organic constant currency6 (OCCY) revenue was 11% lower, reflecting the net negative impact of the COVID-19 pandemic; revenue momentum improved during the period and has continued into the second half to date.
· High level of returns maintained: discretionary cost reductions of over £20m in Q1 and ongoing overhead control contributed to Return on Sales4 remaining flat at 19.7%. Return on Total Invested Capital5 of 12.6% was in excess of our KPI and significantly above the Group's cost of capital.
· Revenue growth in the Environmental & Analysis and Medical sectors. Safety sectors' revenue declined, although trends improved during the half year.
· Revenue growth in the USA. Moderate declines in Mainland Europe and Asia Pacific, despite growth in China, and a weaker performance in the UK.
· Strong cash generation with good working capital management. A robust balance sheet with net debt of £315.0m (net debt to EBITDA of 1.02 times) and significant liquidity. No furlough or debt funding sought, or received, from the UK Government.
· Continued investment in future growth. R&D expenditure increased to 5.6% of revenue and more M&A search activity and engagement from Q2 onwards.
· Interim dividend increased by 5%, reflecting the Board's continued confidence in the Group's resilience and long-term growth prospects.
· Notwithstanding the continued uncertainty in the Group's major markets, including in relation to the current COVID-19 pandemic and the wider macroeconomic environment, the Board now expects Adjusted profit before tax for FY 2020/21 to be around 5% below FY 2019/20, compared to prior guidance of 5% to 10% below FY 2019/20.
Andrew Williams, Group Chief Executive of Halma, commented:
"Halma's proven strategic, financial and organisational model has contributed to a resilient performance in testing circumstances, with our financial performance improving as the first half progressed. Throughout the pandemic, we have maintained our focus on employee safety and wellbeing, while working hard to ensure the continued delivery of critical safety, health and environmental solutions for our customers. This was achieved thanks to the tremendous commitment and capability of our colleagues across the Group. Our rapid response to the many new challenges of recent months enabled Halma to not only weather the storm, but to be well positioned to meet the challenges and opportunities ahead.
We have had a good start to the second half, with order intake ahead of revenue and up on the same period last year. Our improving trading performance, together with our strong cash position, will enable us to accelerate strategic investments in the second half of the year. As a result of our progress so far this year, we now expect Adjusted profit before tax for FY 2020/21 to be around 5% below FY 2019/20, compared to prior guidance of 5% to 10% below FY 2019/20."
Notes:
1 Adjusted to remove the amortisation of acquired intangible assets, acquisition items, restructuring costs, and profit or loss on disposal of operations, totaling £25.7m (2019/20: £23.0m). See note 2 to the Condensed Interim Financial Statements for details.
2 Adjusted to remove the amortisation of acquired intangible assets, acquisition items, restructuring costs, profit or loss on disposal of operations and the associated taxation thereon. See note 2 to the Condensed Interim Financial Statements for details.
3 Interim dividend paid and declared per share.
4 Return on Sales is defined as Adjusted1 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 Adjusted1 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 profit1 into Sterling, as well as acquisitions and disposals for the year following completion.
7 Adjusted1 Profit before Taxation, Adjusted2 Earnings per Share, organic growth rates, Return on Sales and ROTIC are alternative performance measures used by management. See notes 2, 6 and 9 to the Condensed Interim Financial Statements for details.
For further information, please contact:
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Halma plc Investor Relations
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+44 (0)1494 721 111
+44 (0)7469 851962 |
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MHP Communications |
+44 (0)20 3128 8788 |
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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
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NOTE TO EDITORS |
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1. |
Halma is a global group of life-saving technology companies, focused on growing a safer, cleaner and healthier future for everyone, every day. Our innovative products and solutions address many of the key issues facing the world today. The Group comprises four business sectors:
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· Process Safety |
Technologies that protect people and assets at work.
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· Infrastructure Safety |
Technologies that save lives, protect infrastructure and enable safe movement in public spaces.
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· Environmental & Analysis |
Technologies to improve environmental protection and the security of life-critical resources.
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· Medical |
Technologies which enhance the quality of life for patients and improve the quality of care delivered by healthcare providers.
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The key characteristics of Halma's businesses are specialist technology and application knowledge for niches within markets offering strong long-term growth potential. Many Group businesses are market leaders in their specialist fields.
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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.
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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. |
Review of Operations
Resilient results and improving momentum
Halma delivered a resilient performance in the first half of the year, which included periods of lockdown in most of our major regions due to the COVID-19 pandemic. This performance reflects our flexible and agile business model and the benefits of our diverse portfolio, focused on markets with long-term growth drivers, and the essential nature of many of our products and services.
The challenges faced by our individual companies varied widely. This was a reflection of significant changes in demand in individual end markets and geographies, as well as the additional production, sales and distribution resources required to adapt to safe working requirements and the limitations on physical access to customer sites.
Once these initial operational challenges were understood and acted upon, the trading pattern across all four Group sectors steadily improved as the period progressed. This was also reflected in most companies consistently exceeding their short-term forecasts and gaining greater confidence in their prospects for the year ahead and the longer term. Many of the significant variances reported in each sector against prior year performances were due to greater volatility in last year's trading pattern rather than current year performance.
Revenue decreased by 5% in the period to £618.4m (2019/20: £653.7m), including an improvement in Q2 with revenue up 11% on Q1. Good overhead control and discretionary variable cost savings, in both operating companies and central functions, resulted in an Adjusted1 Profit before Taxation decrease of 5% to £122.0m (2019/20: £128.8m). Statutory Profit before Taxation was down 9% to £96.3m (2019/20: £105.8m).
The reported revenue decline included an 11% reduction in organic constant currency revenue (13% reduction in Q1 and 9% reduction in Q2), a 6% contribution from acquisitions completed last year, and a small negative currency translation effect of 0.4%. The 5% decline in Adjusted1 Profit before Taxation included an organic constant currency decline of 11%, a 6% contribution from acquisitions completed last year and a small negative currency translation effect of 0.3%.
Return on Sales1 was flat on last year at 19.7%, reflecting discretionary cost reductions of over £20m in Q1 compared to the previous Q4 run rate, ongoing overhead control and continued strategic investment for future growth. Our companies' R&D expenditure was £34.4m, representing 5.6% of Group revenue (2019/20: 5.3%).
We ended the period with net debt of £315.0m and available liquidity of £493.7m. This robust balance sheet position supports continued investment in future organic growth, gives us substantial capacity for acquisitions and sustains our progressive dividend policy.
The Board has declared an increase of 5% in the interim dividend to 6.87p per share (2019/20: 6.54p per share). The interim dividend will be paid on 5 February 2021 to shareholders on the register on 29 December 2020.
An effective and agile response to COVID-19 and continued strategic progress
In response to the emergence of COVID-19 in early 2020 and the related ongoing economic downturn, we acted quickly to reduce costs. These actions resulted in a cost reduction (net of the cost of implementation) of more than £20m in Q1, compared to the previous Q4 run rate. We implemented a significant reduction in all discretionary overheads and ensured that our companies continued to manage their working capital effectively.
Throughout the pandemic, we have maintained productive relationships with customers and suppliers. To date, we have recorded very little bad debt and have continued to pay our suppliers on a timely basis, with our trade creditor days remaining in line with the prior period at 36 days. We limited capital investment to R&D and essential projects only and decided not to complete any acquisitions during the first half of this financial year.
A freeze on hiring and promotions was implemented, while company, sector and Group employees agreed to temporary salary reductions from 1 April 2020 for a three-month period, including a 20% reduction in salaries or fees for the Board and Executive Board. During the second quarter, we were able to progressively remove the most stringent restrictions, while continuing to control costs and working capital to protect profit and ensure good cash generation.
At the outset of the pandemic, we decided that the resilience of our business meant that we should self-fund the small percentage of our workforce who were furloughed by their companies, without any support from the UK Government's Coronavirus Job Retention Scheme. Additionally, we provided enhanced financial support to those companies and employees that were affected by unavoidable redundancies due to significant declines in demand in certain markets. The impact of these employee support programmes was approximately £4m in the first half.
We progressively increased our M&A search activity during the first half, following our early decision in March 2020 not to complete any acquisitions until the impact of COVID-19 on our trading and balance sheet was better understood. We believe that our strategy of focusing 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" will only grow in significance as the ongoing impact of the global pandemic on the world becomes more apparent.
From 1 April 2021, we will operate and report as three sectors to reflect the increasing importance of environmental and healthcare issues and align with our purpose and focus on safety, health and environmental markets. As set out in more detail below, we will combine our two Safety sectors under a single Sector CEO and appoint a separate Sector CEO and M&A team for each of our Medical and Environmental & Analysis sectors.
The pandemic has also accelerated the trend towards the increasing use of digital technologies in how we operate, as well as in the solutions we provide to our end-customers. At the start of the year, we were already committed to increasing investment in our operational and customer-facing technology, such as helping our companies take a standardised approach to building Internet-of-things based solutions. In the second half of the year, we will be accelerating this technology investment programme, under the guidance of our Chief Technology Officer, Catherine Michel, who joined us last year. The overall scale of this investment is expected to be around £10m over the next three years.
Revenue growth in the USA, declines in other regions
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External revenue by destination |
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Half year 2020 |
Half year 2019 |
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£m |
% of total |
£m |
% of total |
Change |
% |
% organic growth1 at constant currency |
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United States of America |
255.1 |
41% |
248.8 |
38% |
6.3 |
2% |
(7)% |
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Mainland Europe |
127.2 |
21% |
135.5 |
21% |
(8.3) |
(6)% |
(9)% |
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United Kingdom |
87.6 |
14% |
105.2 |
16% |
(17.6) |
(17)% |
(18)% |
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Asia Pacific |
100.0 |
16% |
106.8 |
16% |
(6.8) |
(6)% |
(14)% |
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Other regions |
48.5 |
8% |
57.4 |
9% |
(8.9) |
(16)% |
(15)% |
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618.4 |
100% |
653.7 |
100% |
(35.3) |
(5)% |
(11)% |
All our major regions were adversely affected by the impact of COVID-19 during the period. We delivered revenue growth in the USA and moderate revenue declines in Mainland Europe and Asia Pacific, despite growth in China. There was a weaker performance in the UK, although trends have been improving.
The USA remains our largest sales destination and contributed 41% of total Group revenue. Revenue in the USA increased by 2% in the period, a decline of 7% on an organic constant currency basis. This was driven by a strong organic performance in Environmental & Analysis and a positive contribution from acquisitions in the Medical and Process Safety sectors. This progress was partially offset by organic revenue declines in Medical and the two Safety sectors.
Mainland Europe revenue fell by 6%, a reduction of 9% on an organic constant currency basis. A good organic revenue performance in Process Safety was offset by organic declines in Infrastructure Safety and Environmental & Analysis. Medical saw revenue grow in Mainland Europe, mainly due to prior year acquisitions.
The UK was our weakest region with revenue 17% lower, or 18% down on an organic constant currency basis. This was largely driven by declines in the two largest sectors in the region, Environmental & Analysis and Infrastructure Safety, while Process Safety demonstrated a more resilient performance.
Asia Pacific's revenue was 6% below last year, including a 14% organic constant currency decline and a contribution of 9% from acquisitions, primarily the Ampac acquisition, which was completed in July 2019. There was revenue growth in China of 1% compared with last year, although sequential growth in China was stronger with Q2 revenue 16% higher than Q1. However, this was offset by sharp falls in India, Malaysia and Singapore, which were all affected to some extent by the timing of large projects.
In Other regions, which represent 8% of the Group, revenue fell by 16%, which was 15% lower on an organic constant currency basis. There was a positive performance in Canada, offset by declines in Africa, Brazil and the Middle East, partially reflecting the timing of project-based business.
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Significant market variations within each sector
Infrastructure Safety Revenue decreased by 13% to £201.5m (2019/20: £232.9m), with a 16% organic constant currency decline. There was a marginal negative effect from currency translation and a 3% positive contribution from the acquisitions of Ampac and FireMate in the prior financial year.
People and Vehicle Flow delivered a resilient performance with a substantial shift in product mix away from sliding door sensors, which are predominantly associated with construction work and retail refurbishment, towards sensors which can be retrofitted to make swing doors operate automatically and other touchless entry activation devices. This mix shift varied by market and was a great example of how Halma's agile business model allows operating companies, which are closest to the customer, to respond quickly to new challenges and capture new opportunities.
Fire, Security and Elevator Safety were the most impacted by the challenge of customers gaining physical access to installation sites during lockdowns and the furloughing of UK-based installation customers, particularly during Q1. Some of our operating companies were able to focus more on recurring revenue streams to offset reduced project business by launching leasing models, accelerating online training and remote installation support or adapting resources to segments with the strongest regulatory environments, such as Area of Refuge communication systems in the USA. Q2 saw demand improving as lockdown restrictions eased, installers returned to work and distribution channels restocked.
The USA and Mainland Europe performed relatively well, with revenue declining 12% and 13% respectively on an organic constant currency basis, compared to the UK and Asia Pacific, which were down 19% and 22% respectively organically. The UK, which historically has accounted for around a quarter of sector revenue, was particularly impacted by site access and customer furlough constraints. Aside from the impact of COVID-19, the organic decline in Asia Pacific was mainly driven by the timing of large projects, and the implementation of our decisions to exit lower margin business in Elevator Safety last year. Prior year acquisitions, both based in Australia, made an excellent contribution to growth in Asia Pacific, restricting the region's total revenue decline to just 1%.
Profit2 was 12% lower at £46.0m (2019/20: £52.3m) including a 15% organic constant currency decline, a marginal negative effect from currency translation and a 4% contribution from acquisitions in the prior year. Return on Sales improved to 22.8% (2019/20: 22.5%), supported by strong overhead control and higher margins due to effective management of product and geographic mix. R&D expenditure of £12.2m was maintained at a good level and represented 6.1% of revenue (2019/20: 6.1%).
The sector is expected to make further progress in the second half and deliver a resilient full-year performance with continued strategic investment in longer-term growth opportunities. Due to the timing of prior year acquisitions, their inorganic impact on the sector's overall growth rate will be minimal in the second half.
Process Safety Revenue reduced by 10% to £91.1m (2019/20: £101.3m), including an organic constant currency decline of 17%, a very small 0.2% negative effect from currency translation and a positive contribution of 7% from the acquisition of USA-based Sensit Technologies in the prior year.
Revenue growth in Europe of 6% was driven by Safe Storage and Transfer fulfilling significant projects, some of which had been in the order book prior to the start of the financial year. The UK delivered a resilient performance, while it was more challenging in Asia Pacific where there was a slowing of large project approvals. Revenue declined 16% in the USA, or 34% on an organic constant currency basis. This resulted from a fall in demand for safety products in onshore oil and gas related businesses as a result of the lower oil price, which particularly impacted Pressure Management, and Industrial Access Control's strong prior year comparative, which included a large logistics contract.
Profit2 declined by 33% to £16.6m (2019/20: £24.9m) including a 37% organic constant currency decline, a negligible negative effect from currency translation and a 4% positive contribution from the Sensit acquisition. Return on Sales decreased from 24.5% to 18.2%, although this remained within the Group's strategic KPI of 18%-22%.
The significant reduction in profitability was driven by a combination of the major decline in high-margin USA onshore oil and gas revenue and one-off restructuring costs of £1.7m. Against that backdrop, R&D investment was maintained at a healthy level of £4.5m, which equated to 4.9% of revenue (2019/20: 3.5%), as the sector continued to invest in key areas for the future such as connected safety monitoring solutions.
Despite the continuing challenges, especially in the oil and gas market, Process Safety is expected to continue the gradual improvement in trading delivered as the first half progressed. Its continued investment in connected technologies and diversification away from the oil market is expected to improve its performance in the longer term.
Environmental & Analysis Revenue increased to £154.0m (2019/20: £153.1m3), comprising 1% organic constant currency growth and a small 0.5% negative effect from currency translation.
Strong growth in Photonics contributed to growth in the USA of 10%, which represents over half of the sector's revenue. In particular, growth was driven by the phasing of a continuing large contract in the USA, which is an example of how our Photonics companies are increasingly seeing demand for their technology in applications related to building digital/data capabilities for the digital age. Progress in the USA also benefited from one of our gas flowmeter businesses, Alicat, rapidly adapting its technology to make components to meet urgent new requirements from ventilator manufacturers in response to COVID-19.
Growth in the USA was offset by declines in all other major regions, with the Water and Spectroscopy businesses also reporting reduced revenue. Revenue from the UK was down by 14%, with the Water businesses experiencing delayed demand from the UK water utilities due to the start of a new five-year Asset Management Plan investment cycle and disruption caused by COVID-19. Mainland Europe and Asia Pacific revenues declined by 8% and 7% respectively, with gradual improvement in both following the impacts of COVID-19.
Profit2 increased by an impressive 22% to £38.3m (2019/20: £31.4m3). Organic constant currency profit growth was 23% and there was a 0.7% negative effect from currency translation. Return on Sales improved from 20.5% to 24.9%, primarily due to proactive cost management, including in response to COVID-19 in the first quarter, with all companies across the Group contributing to the response to the wider challenges faced by the Group. R&D expenditure of £8.3m was maintained at a good level, although this was a reduction to 5.4% of sales (2019/20: 6.1%3).
The sector is expected to perform well over the full year, although a very strong prior year comparator will mean that growth rates will be reduced compared to the levels achieved in the first half. Return on Sales in the second half is expected to return to recent historic levels. While water markets should continue to recover, we expect lower demand for ventilator components and the timing of Photonics projects to moderate growth for the full year.
Medical Revenue increased by 3% to £172.4m (2019/20: £166.5m3). Organic constant currency revenue growth was down 11%, with a small 0.5% negative effect from currency translation and a large 15% positive contribution from acquisitions in the prior year.
During the period, the sector experienced significant increases in demand for products and services related to the diagnosis or treatment of COVID-19, with dramatic decreases in products and services related to elective healthcare procedures. Consequently, our Health Assessment businesses saw strong growth in general health diagnostics, including monitoring of vital signs. There was strong growth in businesses supporting the oxygenation of patients, including last year's Maxtec acquisition (now part of Perma Pure), which saw significant demand for its respiratory therapy products.
Ophthalmology revenue declined due to reduced patient demand for elective surgery and discretionary ophthalmic diagnosis procedures, as did Life Sciences, while Sensors & Analytics was adversely impacted by a lack of access to hospitals in Q1.
The USA and Mainland Europe, the sector's first and second largest regions, grew revenue by 14% and 6% respectively, mainly due to the location of prior year acquisitions and our companies with COVID-19 related products. There were declines in the other major regions, with UK revenue 21% lower and Asia Pacific down 6%, with Asia Pacific particularly impacted by contraction in the in vitro diagnostics industry.
Profit2 declined by 3% to £38.2m (2019/20: £39.3m3). Return on Sales of 22.1% was lower than the 23.7% reported last year, primarily driven by mix as revenue for lower gross margin products grew, while revenue for higher gross margin therapeutic products declined. Profit also benefited from a reduction in reorganisation charges, that principally related to the rationalisation of product development strategies in the prior year. R&D spend of £9.4m increased to 5.5% of revenue (2019/20: 4.6%3), demonstrating the confidence of our medical businesses in the long-term growth prospects of their market niches.
As the financial year has progressed, we have seen a gradual improvement in demand for products and services related to elective healthcare procedures. Although the demand for COVID-19 products is expected to moderate, the sector is expected to deliver a resilient performance in the second half. Due to the timing of acquisitions in the prior year, acquisitions are expected to have a smaller inorganic impact on the sector's overall growth rate in the second half.
Continued strengthening of the Executive Board to drive growth strategy The global pandemic has reaffirmed the value of our growth strategy and strengthened our commitment to our purpose to grow a safer, cleaner, healthier future for everyone, every day. Fulfilling this purpose has become even more relevant during the period, which has motivated us to go faster and to increase our organisational focus to drive growth in our key markets.
We announced two changes to Halma's Executive Board in the first half. In September 2020, we welcomed Funmi Adegoke as Group General Counsel, succeeding Ruwan De Soyza. We were also pleased to retain Adam Meyers as interim Safety Sector Chief Executive over the period of the COVID-19 crisis until his planned retirement in 2021, following the departure of Paul Simmons.
From 1 April 2021, we will align our organisational structure and financial reporting with our purpose and core market focus of Safety, Health and the Environment. The three sectors will be called Safety, Environmental & Analysis, and Medical. Each sector will be led by a Sector CEO and small sector support team, following the same model we have successfully developed since 2014. Process Safety will be combined with Infrastructure Safety to form a single Safety sector, with the exception of our two Gas sensor companies (Crowcon and Sensit), which will move from Process Safety to Environmental & Analysis.
Laura Stoltenberg, currently Sector CEO of the combined Medical and Environmental sectors, will continue as Sector CEO of our Medical sector. Two of our Divisional CEOs, Wendy McMillan and Constance Baroudel will be promoted to Sector Chief Executive for the Safety and Environmental & Analysis sectors respectively. These organisational, leadership and reporting changes demonstrate the agility of Halma's operating model and our commitment to developing our internal talent to ensure we have a strong leadership pipeline for the future.
Sustainability and living our purpose Our approach to sustainability is defined by our purpose of growing a safer, cleaner, healthier future for everyone, every day. We aim to play a positive role in society over the long term, both through the beneficial effects of our products and services, and by behaving responsibly. Many of our technologies enable other companies to achieve their own sustainability commitments around protection of natural resources or reduction of carbon emissions. Our four chosen UN Sustainable Development Goals (SDG 3 Good health and wellbeing, SDG 6 Clean water and sanitation, SDG 9 Industry, innovation and infrastructure and SDG 11 Sustainable cities and communities), alongside our purpose, provide a framework for some of our initiatives.
During this financial year, we are continuing to work towards a number of our environmental commitments, including setting Science-Based Targets to reduce our greenhouse gas emissions, disclosing in line with the recommendations of the Task Force on Climate-Related Financial Disclosures by 2022, moving our UK sites to renewable electricity and green gas and reviewing the Group's strategy around electronic waste.
The COVID-19 pandemic and social movements including #blacklivesmatter have highlighted the importance of the social aspect of sustainability. During the period, the success of the Board's focus on diversity and inclusion has continued with 63% female representation on our Executive Board and 44% gender balance among our Divisional Chief Executives at 30 September 2020. This progress was further recognised in September 2020 when our CEO Andrew Williams was named an advocate for women in business in the "HERoes 50 Advocates List". We have also launched additional initiatives during the half year to increase gender and ethnic diversity, including our global shared parental leave policy and the rollout of Accelerate Inclusion, our group-based, online programme offering actionable bite-sized learning on key diversity and inclusion topics.
We carefully consider all stakeholder groups, including our employees and the communities and societies in which we operate, in our efforts to grow a safer, cleaner, healthier future for everyone, every day. In recent months, we have increased our focus on the mental health of our employees, as well as their physical health and safety. A new employee assistance programme, available in the US and the UK, offers a safe and confidential space for staff to speak to specialists about workplace mental health issues as well as challenges at home, including access to financial or legal support. We have also created a dedicated portal on our internal communications platform, HalmaHub, offering guidance and tools for managing stress, anxiety and uncertainty; learning resources for parenting in uncertain times; and help for leaders to support employee mental health, manage a remote workforce and other challenges. Alongside this, we have launched new online training and development tools for employees seeking to enhance their capabilities during furlough or lockdowns, and in response to the expected increased level of working from home in the future.
In October 2020, we were excited to launch our Water for Life partnership with the international non-profit organisation WaterAid, which is aligned with our purpose and one of our chosen UN Sustainable Development Goals, SDG 6 Clean water and sanitation. Through this partnership, we will highlight the global issue of access to safe water by providing 8,000 people in India with clean drinking water. To help WaterAid make sure the water supplies in these villages are free of dangerous contaminants, we are contributing a number of specialised testing kits from Palintest, one of our UK-based operating companies, as well as donating a minimum of £200,000 including monies raised by employees across the Group. While Halma is not a large consumer of water relative to most manufacturing businesses, we will also be aiming to further reduce water consumption and wastewater emissions within our operations.
Currency effects We report our results in Sterling with 51% of Group revenue denominated in US Dollars and 12% in Euros during the period. Average exchange rates are used to translate results in the Income Statement. Sterling weakened against the US Dollar and the Euro during the first half of 2020/21. This resulted in a 0.4% negative currency translation effect on Group revenue and a 0.3% negative effect on profit in H1 2020/21 relative to H1 2019/20. If exchange rates remain at current levels, we expect a small positive currency translation effect in H2 2020/21, resulting in a broadly neutral impact for the year.
Pension deficit On an IAS 19 basis, the deficit on the Group's defined benefit plans at the half year end increased to £45.0m
Group tax rate The Group's effective tax rate on adjusted profit was 20.6%. This is based on the forecast effective tax rate for the year as a whole, and is higher than in the Full Year 2019/20 (18.5%) mainly due to the reversal of one off credits in the prior year and a change in the expected mix of profits arising from increased profits in higher tax jurisdictions.
On 2 April 2019, the European Commission published its final decision that the UK-controlled Finance Company Partial Exemption (FCPE) partially constituted State Aid. In common with other UK companies, Halma has benefited from the FCPE, which was a plan approved by the UK Government, and the total benefit to date is approximately £15.4m (in respect of tax) and approximately £1.4m (in respect of interest). Halma has appealed against the European Commission's decision, as has the UK Government and several other UK companies. In the meantime, the UK Government is required to pursue collection proceedings and therefore it is expected that the Group will have to make a payment in the second half of up to £17m. Based on its current assessment, the Group believes that no provision is required in respect of this issue.
Cash flow and funding Cash conversion (adjusted operating cash flow as a percentage of adjusted operating profit - see note 9) was 111% (2019/20: 82%), above our cash conversion target of 85%. The exceptionally high cash conversion for the period reflects a continued focus on working capital management, in addition to UK and US Government COVID-19 initiatives permitting the deferral of £4.1m of VAT (until H2 2020/21) and £3.6m of Employer payroll taxes (to FY 2021/22 and FY 2022/23). Working capital reduced by £6.4m during the period (2019/20: increase of £25.2m), principally reflecting a combination of good debt collections across the Group, the deferrals outlined above, and an overall reduction in debtors and creditors due to the decrease in revenue. We do not expect H2 cash conversion to remain at the exceptional levels seen in H1, with cash conversion at the full year expected to be above our KPI of 85%.
Dividend payments increased this half year with payments of £37.7m (2019/20: £36.4m). Tax payments decreased to £14.0m (2019/20: £27.3m), mainly due to changes in the timing of tax payments and one-off tax refunds of £2.2m. Expenditure on acquisitions, which include acquisition costs and contingent consideration for acquisitions made in prior years, was £8.2m (2019/20: £88.3m). Capital expenditure reduced to £11.1m (2019/20: £13.7m) reflecting our actions to limit capital investment to essential projects and R&D only. However, given our strong balance sheet and trading performance, we continue to expect capital expenditure for the full year to be around £30m.
Net debt at the end of the period was £315.0m (31 March 2020: £375.3m). Gearing (the ratio of net debt to EBITDA) at half year end was 1.02 times (31 March 2020: 1.13 times), which is within our typical operating range of up to two times and included the effect of IFRS 16.
Principal risks and uncertainties A number of potential risks and uncertainties exist, which could have a material impact on the Group's performance over the second half of the financial year and cause actual results to differ materially from expected and historical results. The Group has processes in place for identifying, evaluating and managing risk. Our principal risks, together with a description of our approach to mitigating them, are set out on pages 48 to 53 of the Annual Report and Accounts 2020, which is available on the Group's website at www.halma.com. See note 15 to the Condensed Interim Financial Statements for further details.
We have continued to assess the changing level of risk related to the ongoing COVID-19 global pandemic, and have communicated the changing situation and guidance through our central and regional COVID-19 support groups. The benefits arising from the agility that our business model gives us has continued to be demonstrated throughout the pandemic, and we expect our companies to continue to be able to respond and adapt to the local market situations they are facing.
We continue to closely monitor and assess any potential effects from the UK's exit from the European Union. While we have completed a significant amount of work within operating companies, in areas such as gaining new product certifications, we have not seen any material effects to date and consider that our decentralised model, with businesses in diverse markets and locations, enables our companies to adapt quickly to changing trading conditions. We expect that our companies' agility, and the support we are providing from across the Group to share best practice, will help us to prepare for these changes, to mitigate any potential effects, and enable us to take advantage of new opportunities that arise.
Going concern The condensed interim financial statements have been prepared on a going concern basis. In adopting the going concern basis, the Directors have considered the financial position and performance over the half year and the principal risks set out above.
As at 30 September 2020, our financial position remains robust with committed facilities totalling approximately £750m which includes a £550m Revolving Credit Facility maturing in November 2023. The amount undrawn on this facility has increased from £313.6m at 31 March 2020 to £358.3m at 30 September 2020. The earliest maturity in these facilities is for £74m in January 2021, with the remaining maturities from January 2023 onwards. The financial covenants on these facilities are for leverage (net debt/adjusted EBITDA) of not more than three times and for adjusted interest cover of not less than four times. Net debt and adjusted EBITDA are measured on a pre-IFRS 16 basis for covenant purposes. At 30 September 2020, leverage and adjusted interest cover (both measured according to covenant definitions) were 0.79 times and 36 times respectively.
As at 31 March 2020, a base case scenario was prepared including revised budgets and three-year plans which considered the challenges and opportunities faced by each of our operating companies. Details of this scenario are set out on page 120 of the Annual Report and Accounts 2020.
In assessing the updated base case scenario to support the use of the going concern basis at 30 September 2020, we updated the assumptions to 31 March 2022 using the latest management forecasts. These forecasts took into account the resilient cash and trading performance of the Group in dealing with the challenges from COVID-19 and reduction in net debt in the first half of the year. The base case also allowed for the resumption of M&A activity in the second half of the year. In addition, a severe but plausible downside scenario has been modelled showing a significant reduction in trading for the duration of the period to 31 March 2022, which could be caused by a greater impact of COVID-19 and the potential for a slower than anticipated recovery in the Group's major markets.
Neither of these scenarios resulted 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.
Outlook Halma's proven strategic, financial and organisational model has contributed to a resilient performance in testing circumstances, with our financial performance improving as the first half progressed. Throughout the pandemic, we have maintained our focus on employee safety and wellbeing, while working hard to ensure the continued delivery of critical safety, health and environmental solutions for our customers. This was achieved thanks to the tremendous commitment and capability of our colleagues across the Group. Our rapid response to the many new challenges of recent months enabled Halma to not only weather the storm, but to be well positioned to meet the challenges and opportunities ahead.
We have had a good start to the second half, with order intake ahead of revenue and up on the same period last year. Our improving trading performance, together with our strong cash position, will enable us to accelerate strategic investments in the second half of the year. As a result of our progress so far this year, we now expect Adjusted profit before tax for FY 2020/21 to be around 5% below FY 2019/20, compared to prior guidance of 5% to 10% below FY 2019/20.
Andrew Williams Marc Ronchetti Group Chief Executive Chief Financial Officer |
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1 See Highlights, page 1.
2 See note 2 to the Condensed Interim Financial Statements. Profit is Adjusted1 operating profit before central administration costs after share of associate.
3 Perma Pure, one of the Group's gas conditioning businesses, was transferred from the Environmental & Analysis sector into the Medical sector in the second half of the prior year, given that the majority of its revenues now come from medical uses following the Group's acquisition of Maxtec. Historical comparatives have been restated to reflect this change.
Independent review report of Halma plc
Report on the Consolidated Interim Financial Statements
Our conclusion
We have reviewed Halma plc's consolidated interim financial statements (the "interim financial statements") in the Half Year Report of Halma plc for the six-month period ended 30 September 2020 (the "period").
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
- the Consolidated Balance Sheet as at 30 September 2020;
- the Consolidated Income Statement and Consolidated Statement of Comprehensive Income and Expenditure for the period then ended;
- the Consolidated Cash Flow Statement for the period then ended;
- the Consolidated Statement of Changes in Equity for the period then ended; and
- the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Year Report of Halma plc have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half Year Report, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Half Year Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Half Year Report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half Year Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
19 November 2020
Half year results 2020/21
Condensed INTERIM Financial Statements
Consolidated Income Statement
|
|
|
|
|
Unaudited Six months to |
|
|
Unaudited Six months to |
Audited |
|
|
Notes |
Before adjustments* £m |
Adjustments* (note 2) |
Total |
Before adjustments* £m |
Adjustments* (note 2) |
Total |
Total |
|
Continuing operations |
|
|
|
|
|
|
|
|
|
Revenue |
2 |
618.4 |
- |
618.4 |
653.7 |
- |
653.7 |
1,338.4 |
|
Operating profit |
|
127.8 |
(25.7) |
102.1 |
134.6 |
(23.0) |
111.6 |
233.4 |
|
Share of results of associates |
|
- |
- |
- |
(0.1) |
- |
(0.1) |
(0.1) |
|
Gain on disposal of operations |
2 |
- |
- |
- |
- |
- |
- |
2.9 |
|
Finance income |
3 |
1.0 |
- |
1.0 |
0.4 |
- |
0.4 |
0.6 |
|
Finance expense |
4 |
(6.8) |
- |
(6.8) |
(6.1) |
- |
(6.1) |
(12.7) |
|
Profit before taxation |
|
122.0 |
(25.7) |
96.3 |
128.8 |
(23.0) |
105.8 |
224.1 |
|
Taxation |
5 |
(25.1) |
6.1 |
(19.0) |
(25.6) |
4.8 |
(20.8) |
(39.7) |
|
Profit for the period attributable to equity shareholders |
|
96.9 |
(19.6) |
77.3 |
103.2 |
(18.2) |
85.0 |
184.4 |
|
Earnings per share from continuing operations |
6 |
|
|
|
|
|
|
|
|
Basic and diluted |
|
25.54p |
|
20.37p |
27.20p |
|
22.40p |
48.66p |
|
Dividends in respect of the period |
7 |
|
|
|
|
|
|
|
|
Dividends paid and proposed (£m) |
|
|
|
26.1 |
|
|
24.8 |
62.5 |
|
Per share |
|
|
|
6.87p |
|
|
6.54p |
16.50p |
* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; significant restructuring costs; profit or loss on disposal of operations; and the associated taxation thereon. Note 9 provides more information on alternative performance measures.
Consolidated Statement of Comprehensive Income and Expenditure
|
|
Unaudited |
Unaudited |
Audited |
|
Profit for the period |
77.3 |
85.0 |
184.4 |
|
Items that will not be reclassified subsequently to the Income Statement: |
|
|
|
|
Actuarial (losses)/gains on defined benefit pension plans |
(46.3) |
6.0 |
22.5 |
|
Tax relating to components of other comprehensive income that will not be reclassified |
8.8 |
(1.1) |
(4.0) |
|
Items that may be reclassified subsequently to the Income Statement: |
|
|
|
|
Effective portion of changes in fair value of cash flow hedges |
(0.6) |
(0.4) |
(0.5) |
|
Deferred tax in respect of cash flow hedges accounted for in the hedging reserve |
0.1 |
(0.1) |
0.1 |
|
Exchange (losses)/gains on translation of foreign operations and net investment hedge |
(14.9) |
43.2 |
29.1 |
|
Exchange gain on translation of foreign operations recycled on disposal |
- |
- |
0.1 |
|
Other comprehensive (expense)/income for the period |
(52.9) |
47.6 |
47.3 |
|
Total comprehensive income for the period attributable to equity shareholders |
24.4 |
132.6 |
231.7 |
The exchange losses of £14.9m (six months to 30 September 2019: £43.2m gain; year to 31 March 2020: £29.1m gain) include gains of £4.2m (six months to 30 September 2019: £8.0m losses; year to 31 March 2020: £11.9m losses), which relate to net investment hedges.
Consolidated Balance Sheet
|
|
Notes |
Unaudited |
Unaudited £m |
Audited |
|
Non-current assets |
|
|
|
|
|
Goodwill |
|
829.8 |
765.5 |
838.4 |
|
Other intangible assets |
|
303.8 |
272.4 |
328.4 |
|
Property, plant and equipment |
|
184.7 |
171.7 |
184.3 |
|
Interests in associates and other investments |
|
4.8 |
5.5 |
4.8 |
|
Retirement benefit asset |
12 |
- |
- |
5.4 |
|
Deferred tax asset |
|
5.6 |
1.4 |
1.3 |
|
|
|
1,328.7 |
1,216.5 |
1,362.6 |
|
Current assets |
|
|
|
|
|
Inventories |
|
175.8 |
162.9 |
170.6 |
|
Trade and other receivables |
|
245.3 |
275.2 |
286.6 |
|
Tax receivable |
|
6.5 |
4.8 |
10.7 |
|
Cash and bank balances |
|
125.5 |
83.2 |
106.3 |
|
Derivative financial instruments |
11 |
0.4 |
0.9 |
1.0 |
|
|
|
553.5 |
527.0 |
575.2 |
|
Total assets |
|
1,882.2 |
1,743.5 |
1,937.8 |
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
|
158.7 |
157.9 |
186.7 |
|
Borrowings |
|
76.1 |
1.7 |
75.1 |
|
Lease liabilities |
|
13.0 |
12.3 |
13.0 |
|
Provisions |
|
30.5 |
20.5 |
28.0 |
|
Tax liabilities |
|
11.3 |
13.4 |
9.4 |
|
Derivative financial instruments |
11 |
0.9 |
0.7 |
1.0 |
|
|
|
290.5 |
206.5 |
313.2 |
|
Net current assets |
|
263.0 |
320.5 |
262.0 |
|
Non-current liabilities |
|
|
|
|
|
Borrowings |
|
300.0 |
334.9 |
345.0 |
|
Lease liabilities |
|
51.4 |
44.7 |
48.5 |
|
Retirement benefit obligations |
12 |
45.0 |
27.6 |
10.6 |
|
Trade and other payables |
|
16.3 |
13.3 |
13.3 |
|
Provisions |
|
14.3 |
7.9 |
21.6 |
|
Deferred tax liabilities |
|
41.7 |
41.1 |
48.7 |
|
|
|
468.7 |
469.5 |
487.7 |
|
Total liabilities |
|
759.2 |
676.0 |
800.9 |
|
Net assets |
|
1,123.0 |
1,067.5 |
1,136.9 |
|
Equity |
|
|
|
|
|
Share capital |
|
38.0 |
38.0 |
38.0 |
|
Share premium account |
|
23.6 |
23.6 |
23.6 |
|
Own shares |
|
(5.2) |
(6.6) |
(14.3) |
|
Capital redemption reserve |
|
0.2 |
0.2 |
0.2 |
|
Hedging reserve |
|
(0.6) |
(0.2) |
(0.1) |
|
Translation reserve |
|
133.8 |
162.7 |
148.7 |
|
Other reserves |
|
(18.9) |
(11.8) |
(7.7) |
|
Retained earnings |
|
952.8 |
861.6 |
949.2 |
|
Equity attributable to owners of the Company |
|
1,123.7 |
1,067.5 |
1,137.6 |
|
Non-controlling interests |
|
(0.7) |
- |
(0.7) |
|
Total equity |
|
1,123.0 |
1,067.5 |
1,136.9 |
Consolidated Statement of Changes in Equity
|
|
|
For the six months to 30 September 2020 |
||||||||
|
|
Share |
Share |
Own |
Capital |
Hedging |
Translation |
Other |
Retained |
Non-controlling interest |
Total |
|
At 1 April 2020 (audited) |
38.0 |
23.6 |
(14.3) |
0.2 |
(0.1) |
148.7 |
(7.7) |
949.2 |
(0.7) |
1,136.9 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
77.3 |
- |
77.3 |
|
Other comprehensive income and expense: |
|
|
|
|
|
|
|
|
|
|
|
Exchange differences on translation of foreign operations |
- |
- |
- |
- |
- |
(14.9) |
- |
- |
- |
(14.9) |
|
Actuarial losses on defined benefit pension plans |
- |
- |
- |
- |
- |
- |
- |
(46.3) |
- |
(46.3) |
|
Effective portion of changes in fair value of cash flow hedges |
- |
- |
- |
- |
(0.6) |
- |
- |
- |
- |
(0.6) |
|
Tax relating to components of other comprehensive income and expense |
- |
- |
- |
- |
0.1 |
- |
- |
8.8 |
- |
8.9 |
|
Total other comprehensive income and expense |
- |
- |
- |
- |
(0.5) |
(14.9) |
- |
(37.5) |
- |
(52.9) |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
- |
(37.7) |
- |
(37.7) |
|
Share-based payments charge |
- |
- |
- |
- |
- |
- |
5.0 |
- |
- |
5.0 |
|
Deferred tax on share-based |
- |
- |
- |
- |
- |
- |
0.4 |
- |
- |
0.4 |
|
Excess tax deductions related to share-based payments on exercised awards |
- |
- |
- |
- |
- |
- |
- |
1.5 |
- |
1.5 |
|
Performance share plan awards vested |
- |
- |
9.1 |
- |
- |
- |
(16.6) |
- |
- |
(7.5) |
|
At 30 September 2020 (unaudited) |
38.0 |
23.6 |
(5.2) |
0.2 |
(0.6) |
133.8 |
(18.9) |
952.8 |
(0.7) |
1,123.0 |
Own shares are ordinary shares in Halma plc purchased by the Company and held to fulfil the Company's obligations under the Company's share plans. As at 30 September 2020 the number of shares held by the Employee Benefit Trust was 262,551 (30 September 2019: 393,672 and 31 March 2020: 760,894).
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.
|
|
For the six months to 30 September 2019 |
||||||||
|
|
Share |
Share |
Own |
Capital |
Hedging |
Translation |
Other |
Retained |
Total |
|
At 1 April 2019 (audited) |
38.0 |
23.6 |
(4.7) |
0.2 |
0.3 |
119.5 |
(5.6) |
810.1 |
981.4 |
|
Impact of changes in accounting policies: |
|
|
|
|
|
|
|
|
|
|
IFRS 16 |
- |
- |
- |
- |
- |
- |
- |
(3.3) |
(3.3) |
|
Restated balance at |
38.0 |
23.6 |
(4.7) |
0.2 |
0.3 |
119.5 |
(5.6) |
806.8 |
978.1 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
85.0 |
85.0 |
|
Other comprehensive income and expense: |
|
|
|
|
|
|
|
|
|
|
Exchange differences on translation of foreign operations |
- |
- |
- |
- |
- |
43.2 |
- |
- |
43.2 |
|
Actuarial gains on defined benefit pension plans |
- |
- |
- |
- |
- |
- |
- |
6.0 |
6.0 |
|
Effective portion of changes in fair value of cash flow hedges |
- |
- |
- |
- |
(0.4) |
- |
- |
- |
(0.4) |
|
Tax relating to components of other comprehensive income and expense |
- |
- |
- |
- |
(0.1) |
- |
- |
(1.1) |
(1.2) |
|
Total other comprehensive income and expense |
- |
- |
- |
- |
(0.5) |
43.2 |
- |
4.9 |
47.6 |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
- |
(36.4) |
(36.4) |
|
Share-based payments charge |
- |
- |
- |
- |
- |
- |
5.2 |
- |
5.2 |
|
Deferred tax on share-based |
- |
- |
- |
- |
- |
- |
0.8 |
- |
0.8 |
|
Excess tax deductions related to share-based payments on exercised awards |
- |
- |
- |
- |
- |
- |
- |
1.3 |
1.3 |
|
Purchase of own shares |
- |
- |
(8.5) |
- |
- |
- |
- |
- |
(8.5) |
|
Performance share plan awards vested |
- |
- |
6.6 |
- |
- |
- |
(12.2) |
- |
(5.6) |
|
At 30 September 2019 (unaudited) |
38.0 |
23.6 |
(6.6) |
0.2 |
(0.2) |
162.7 |
(11.8) |
861.6 |
1,067.5 |
|
|
|
For the six months to 31 March 2020 |
||||||||
|
|
Share |
Share |
Own |
Capital |
Hedging |
Translation |
Other |
Retained |
Non-controlling interest £m |
Total |
|
At 1 April 2019 (audited) |
38.0 |
23.6 |
(4.7) |
0.2 |
0.3 |
119.5 |
(5.6) |
810.1 |
- |
981.4 |
|
Impact of changes in accounting policies: |
|
|
|
|
|
|
|
|
|
|
|
IFRS 16 |
- |
- |
- |
- |
- |
- |
- |
(4.0) |
- |
(4.0) |
|
Restated balance at |
38.0 |
23.6 |
(4.7) |
0.2 |
0.3 |
119.5 |
(5.6) |
806.1 |
- |
977.4 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
184.4 |
- |
184.4 |
|
Other comprehensive income and expense: |
|
|
|
|
|
|
|
|
|
|
|
Exchange differences on translation of foreign operations |
- |
- |
- |
- |
- |
29.1 |
- |
- |
- |
29.1 |
|
Exchange loss on translation of foreign operations recycled to income statement on disposal |
- |
- |
- |
- |
- |
0.1 |
- |
- |
- |
0.1 |
|
Actuarial gains on defined benefit pension plans |
- |
- |
- |
- |
- |
- |
- |
22.5 |
- |
22.5 |
|
Effective portion of changes in fair value of cash flow hedges |
- |
- |
- |
- |
(0.5) |
- |
- |
- |
- |
(0.5) |
|
Tax relating to components of other comprehensive income and expense |
- |
- |
- |
- |
0.1 |
- |
- |
(4.0) |
- |
(3.9) |
|
Total other comprehensive income and expense |
- |
- |
- |
- |
(0.4) |
29.2 |
- |
18.5 |
- |
47.3 |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
- |
(61.2) |
- |
(61.2) |
|
Share-based payments charge |
- |
- |
- |
- |
- |
- |
10.5 |
- |
- |
10.5 |
|
Deferred tax on share-based |
- |
- |
- |
- |
- |
- |
0.5 |
- |
- |
0.5 |
|
Excess tax deductions related to share-based payments on exercised awards |
- |
- |
- |
- |
- |
- |
- |
1.4 |
- |
1.4 |
|
Purchase of own shares |
- |
- |
(16.7) |
- |
- |
- |
- |
- |
- |
(16.7) |
|
Performance share plan awards vested |
- |
- |
7.1 |
- |
- |
- |
(13.1) |
- |
- |
(6.0) |
|
Non-controlling interest arising on acquisition |
- |
- |
- |
- |
- |
- |
- |
- |
(0.7) |
(0.7) |
|
At 31 March 2020 (audited) |
38.0 |
23.6 |
(14.3) |
0.2 |
(0.1) |
148.7 |
(7.7) |
949.2 |
(0.7) |
1,136.9 |
Consolidated Cash Flow Statement
|
|
Notes |
Unaudited |
Unaudited |
Audited |
|
Net cash inflow from operating activities |
8 |
137.1 |
95.6 |
255.5 |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Purchase of property, plant and equipment |
|
(10.2) |
(12.0) |
(31.2) |
|
Purchase of computer software |
|
(0.5) |
(1.5) |
(2.6) |
|
Purchase of other intangibles |
|
(0.9) |
(0.2) |
(0.3) |
|
Proceeds from sale of property, plant and equipment and capitalised development costs |
|
0.5 |
0.3 |
1.9 |
|
Development costs capitalised |
|
(7.0) |
(6.3) |
(14.7) |
|
Interest received |
|
0.1 |
0.3 |
0.5 |
|
Acquisition of businesses, net of cash acquired |
10 |
(6.7) |
(84.5) |
(232.8) |
|
Disposal of business |
|
- |
0.8 |
7.6 |
|
Payments for financial assets at fair value through other comprehensive income |
|
- |
(1.8) |
(4.8) |
|
Net cash used in investing activities |
|
(24.7) |
(104.9) |
(276.4) |
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
Dividends paid |
7 |
(37.7) |
(36.4) |
(61.2) |
|
Purchase of own shares |
|
- |
(8.5) |
(16.7) |
|
Interest paid |
|
(5.7) |
(5.2) |
(11.1) |
|
Proceeds from bank borrowings |
|
9.1 |
91.9 |
308.1 |
|
Repayment of bank borrowings |
|
(52.7) |
(18.4) |
(151.7) |
|
Repayment of lease liabilities |
|
(7.1) |
(6.7) |
(13.7) |
|
Net cash (used in)/from financing activities |
|
(94.1) |
16.7 |
53.7 |
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
18.3 |
7.4 |
32.8 |
|
Cash and cash equivalents brought forward |
|
105.4 |
72.1 |
72.1 |
|
Exchange adjustments |
|
(0.3) |
2.0 |
0.5 |
|
Cash and cash equivalents carried forward |
|
123.4 |
81.5 |
105.4 |
|
|
Unaudited |
Unaudited |
Audited |
|
Reconciliation of net cash flow to movement in net debt |
|
|
|
|
Increase in cash and cash equivalents |
18.3 |
7.4 |
32.8 |
|
Net cash outflow/(inflow) from repayment/(drawdown) of bank borrowings |
43.6 |
(73.5) |
(156.4) |
|
Loan notes repaid in respect of acquisitions |
- |
0.1 |
0.1 |
|
Lease liabilities additions |
(11.9) |
(9.0) |
(18.1) |
|
Lease liabilities acquired |
- |
(3.6) |
(8.2) |
|
Lease liabilities and interest repaid |
8.2 |
7.7 |
15.8 |
|
Exchange adjustments |
2.1 |
(7.5) |
(9.3) |
|
Decrease/(increase) in net debt |
60.3 |
(78.4) |
(143.3) |
|
Net debt brought forward |
(375.3) |
(181.7) |
(181.7) |
|
Impact of changes in accounting policies - IFRS 16 |
- |
(50.3) |
(50.3) |
|
Restated net debt brought forward |
(375.3) |
(232.0) |
(232.0) |
|
Net debt carried forward |
(315.0) |
(310.4) |
(375.3) |
Notes to the Condensed Interim Financial Statements
1 Basis of preparation
General information
The Half Year Report, which includes the Interim Management Report and Condensed Interim Financial Statements for the six months to 30 September 2020, was approved by the Directors on 19 November 2020.
Basis of preparation
The Report has been prepared solely to provide additional information to shareholders as a body to assess the Board's strategies and the potential for those strategies to succeed. It should not be relied on by any other party or for any other purpose.
The Report 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 Report. 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.
The Report has been prepared in accordance with International Accounting Standard 34, applying the accounting policies and presentation that were applied in the preparation of the Group's statutory accounts for the year to 31 March 2020, with the exception of the policy for taxes on income, which in the interim period is accrued using the effective tax rate that would be applicable to expected total income for the financial year.
The figures shown for the year to 31 March 2020 are based on the Group's statutory accounts for that period and do not constitute the Group's statutory accounts for that period as defined in Section 434 of the Companies Act 2006. These statutory accounts, which were prepared under International Financial Reporting Standards, have been filed with the Registrar of Companies. The audit report on those accounts was not qualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying the report, and did not contain statements under Sections 498 (2) or (3) of the Companies Act 2006.
Going concern
The financial statements have been prepared on a going concern basis. In adopting the going concern basis the Directors have considered the business activities as set out on pages 1 to 9 and the principal risks set out on page 35 of the Half Year Report.
As at 30 September 2020, our financial position remains robust with committed facilities totalling approximately £750m which includes a £550m Revolving Credit Facility maturing in November 2023. The amount undrawn on this facility has increased from £313.6m at the year end to £358.3m at 30 September 2020. The earliest maturity in these facilities is for £74m in January 2021, with the remaining maturities from January 2023 onwards. The financial covenants on these facilities are for leverage (net debt/adjusted EBITDA*) of not more than three times and for adjusted interest cover of not less than four times.
* Net debt and adjusted EBITDA are on a pre-IFRS 16 basis for covenant purposes.
As at 31 March 2020, a base case scenario was prepared which was based on a revised budget and three year plan which considered both the challenges and opportunities faced by each of our Operating companies. Details of this scenario are set out on page 120 of the Annual Report and Accounts 2020.
In assessing the updated base case scenario as at 30 September 2020 to support the use of the going concern basis, we have updated the assumptions to 31 March 2022 using updated management forecasts. These forecasts take into account the resilient performance of the Group in dealing with the challenges from COVID-19 and reduction in net debt in the first half of the year. The base case also assumes the resumption of M&A activity in the second half of the year. In addition, a severe but plausible downside scenario has been modelled showing a significant reduction in trading for the duration of the period to 31 March 2022, which could be caused by a greater impact of COVID-19 and the potential for a slower than anticipated recovery in the Group's major markets.
Neither of these 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.
New accounting standards and policies
The following Standards with an effective date of 1 January 2020 have been adopted without any significant impact on the amounts reported in these financial statements:
- Amendments to IAS 1 and IAS 8: Definition of Material
- Amendments to IFRS 3: Definition of a Business
- Amendments to References to the Conceptual Framework in IFRS Standards
- Amendments to IFRS 16: COVID-19-Related Rent Concessions
2 Segmental analysis and revenue from contracts with customers
Sector analysis
The Group has four main reportable segments (Process Safety, Infrastructure 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 Chief Executive.
During the prior year, following an acquisition in the second half of the year, that materially changed its customer focus, one of the operating companies was moved from the Environmental & Analysis sector to the Medical sector. The prior year segmental disclosures for the six months to 30 September 2019 have been restated to reflect this change which moved £10.6m of revenue and £3.7m of profit from Environmental & Analysis to Medical. There was no change in the total Group revenue or profit from this change.
Segment revenue disaggregation (by location of external customer)
|
|
Unaudited Six months to 30 September 2020 |
||||||
|
|
Revenue by sector and destination (all continuing operations) |
||||||
|
|
United States of America |
Mainland Europe |
United Kingdom |
Asia Pacific |
Africa, |
Other |
Total |
|
Process Safety |
29.9 |
20.3 |
12.4 |
14.3 |
10.4 |
3.8 |
91.1 |
|
Infrastructure Safety |
48.3 |
62.2 |
43.1 |
33.0 |
7.5 |
7.4 |
201.5 |
|
Environmental & Analysis |
81.1 |
15.7 |
26.7 |
24.9 |
2.9 |
2.7 |
154.0 |
|
Medical |
96.2 |
29.0 |
5.6 |
27.8 |
4.0 |
9.8 |
172.4 |
|
Inter-segmental sales |
(0.4) |
- |
(0.2) |
- |
- |
- |
(0.6) |
|
Revenue for the period |
255.1 |
127.2 |
87.6 |
100.0 |
24.8 |
23.7 |
618.4 |
|
|
Unaudited Six months to 30 September 2019 |
||||||
|
|
Revenue by sector and destination (all continuing operations) |
||||||
|
|
Restated |
||||||
|
|
United States |
Mainland |
United |
Asia Pacific |
Africa, |
Other |
Total |
|
Process Safety |
35.4 |
19.2 |
13.4 |
17.3 |
10.7 |
5.3 |
101.3 |
|
Infrastructure Safety |
55.5 |
71.8 |
53.9 |
33.3 |
11.8 |
6.6 |
232.9 |
|
Environmental & Analysis |
73.3 |
17.1 |
30.8 |
26.7 |
2.5 |
2.7 |
153.1 |
|
Medical |
84.7 |
27.4 |
7.1 |
29.5 |
5.7 |
12.1 |
166.5 |
|
Inter-segmental sales |
(0.1) |
- |
- |
- |
- |
- |
(0.1) |
|
Revenue for the period |
248.8 |
135.5 |
105.2 |
106.8 |
30.7 |
26.7 |
653.7 |
|
|
Audited year end 31 March 2020 |
||||||
|
|
Revenue by sector and destination (all continuing operations) |
||||||
|
|
United States |
Mainland |
United |
Asia Pacific |
Africa, |
Other |
Total |
|
Process Safety |
67.0 |
39.7 |
28.7 |
33.2 |
21.8 |
9.6 |
200.0 |
|
Infrastructure Safety |
105.5 |
142.9 |
109.9 |
70.9 |
22.6 |
14.7 |
466.5 |
|
Environmental & Analysis |
157.3 |
34.3 |
67.2 |
51.9 |
7.1 |
7.2 |
325.0 |
|
Medical |
180.7 |
59.6 |
15.4 |
57.3 |
11.7 |
22.5 |
347.2 |
|
Inter-segmental sales |
(0.2) |
(0.1) |
- |
- |
- |
- |
(0.3) |
|
Revenue for the period |
510.3 |
276.4 |
221.2 |
213.3 |
63.2 |
54.0 |
1,338.4 |
Inter-segmental sales are charged at prevailing market prices and have not been disclosed separately by segment as they are not considered material. The Group does not analyse revenue by product group. Revenue derived from the rendering of services was £21.3m (six months to 30 September 2019: £26.6m; year to 31 March 2020: £53.1m). All revenue was otherwise derived from the sale of products.
The majority of the Group's revenue is recognised when control passes at a point in time.
Segment results
|
|
Profit (all continuing operations) |
||
|
|
Unaudited
|
Unaudited Restated |
Audited
|
|
Segment profit before allocation of adjustments* |
|
|
|
|
Process Safety |
16.6 |
24.9 |
43.9 |
|
Infrastructure Safety |
46.0 |
52.3 |
107.7 |
|
Environmental & Analysis |
38.3 |
31.4 |
69.4 |
|
Medical |
38.2 |
39.3 |
84.4 |
|
|
139.1 |
147.9 |
305.4 |
|
Segment profit after allocation of adjustments* |
|
|
|
|
Process Safety |
12.9 |
22.9 |
38.6 |
|
Infrastructure Safety |
39.3 |
43.0 |
83.4 |
|
Environmental & Analysis |
33.8 |
26.6 |
62.6 |
|
Medical |
27.4 |
32.4 |
77.9 |
|
Segment profit |
113.4 |
124.9 |
262.5 |
|
Central administration costs |
(11.3) |
(13.4) |
(26.3) |
|
Net finance expense |
(5.8) |
(5.7) |
(12.1) |
|
Group profit before taxation |
96.3 |
105.8 |
224.1 |
|
Taxation |
(19.0) |
(20.8) |
(39.7) |
|
Profit for the period |
77.3 |
85.0 |
184.4 |
* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; significant restructuring costs; and profit or loss on disposal of operations. Note 9 provides more information on alternative performance measures.
The accounting policies of the reportable segments are the same as the Group's accounting policies. Acquisition transaction costs, adjustments to contingent consideration and release of fair value adjustments to inventory (collectively "acquisition items") are recognised in the Consolidated Income Statement. Segment profit before these acquisition items and 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:
|
|
Unaudited for the Six months to 30 September 2020 |
||||||
|
|
|
|
|
Acquisition items |
|
|
|
|
|
Amortisation |
Transaction |
Adjustments |
Release of |
Total |
Disposal of |
Total |
|
Process Safety |
(2.8) |
- |
- |
(0.9) |
(3.7) |
- |
(3.7) |
|
Infrastructure Safety |
(5.8) |
- |
(0.9) |
- |
(6.7) |
- |
(6.7) |
|
Environmental & Analysis |
(4.5) |
- |
- |
- |
(4.5) |
- |
(4.5) |
|
Medical |
(8.5) |
(0.6) |
(0.2) |
(1.5) |
(10.8) |
- |
(10.8) |
|
Total Segment & Group |
(21.6) |
(0.6) |
(1.1) |
(2.4) |
(25.7) |
- |
(25.7) |
The transaction costs relate to the acquisition of Visiometrics in a previous year.
The £1.1m adjustment to contingent consideration comprised: a charge of £0.9m in Infrastructure Safety arising from an increase in estimates of the payable for FireMate (£0.9m); and a charge of £0.2m in Medical arising from an increase in estimate of the payable for Infowave (£0.7m), a decrease in the estimate payable for NeoMedix (£1.0m) and a charge of £0.5m arising from exchange differences on balances denominated in Euros.
The £2.3m release of fair value adjustments to inventory relates to Sensit (£0.9m) in Process Safety and NovaBone (£1.3m) and Maxtec (£0.2m) in Medical. All amounts have now been released in relation to Sensit and Maxtec.
|
|
Unaudited for the Six months to 30 September 2019 |
||||||
|
|
|
|
|
Acquisition items |
|
|
|
|
|
Amortisation |
Transaction |
Adjustments |
Release of |
Total |
Disposal of |
Total |
|
Process Safety |
(2.0) |
- |
- |
- |
(2.0) |
- |
(2.0) |
|
Infrastructure Safety |
(5.2) |
(2.2) |
- |
(1.9) |
(9.3) |
- |
(9.3) |
|
Environmental & Analysis |
(4.6) |
(0.2) |
- |
- |
(4.8) |
- |
(4.8) |
|
Medical |
(6.5) |
(0.5) |
0.1 |
- |
(6.9) |
- |
(6.9) |
|
Total Segment & Group |
(18.3) |
(2.9) |
0.1 |
(1.9) |
(23.0) |
- |
(23.0) |
The transaction costs arose mainly on the acquisitions during the year. In Infrastructure Safety, they related to Ampac (£2.2m). In Environmental & Analysis, they related to the acquisitions of Invenio (£0.1m) and Enoveo (£0.1m). In Medical, they mainly related to the acquisition of Visiometrics in a previous year (£0.3m).
The £1.9m release of fair value adjustments to inventory relates to Navtech Radar (£0.4m) and Ampac (£1.5m). All amounts have now been released in relation to Navtech Radar.
|
|
|
Audited for the year to 31 March 2020 |
|||||
|
|
|
|
|
Acquisition items |
|
|
|
|
|
Amortisation |
Transaction |
Adjustments |
Release of |
Total |
Disposal of |
Total |
|
Process Safety |
(4.2) |
(0.7) |
- |
(0.4) |
(5.3) |
- |
(5.3) |
|
Infrastructure Safety |
(11.0) |
(2.3) |
(8.2) |
(2.8) |
(24.3) |
- |
(24.3) |
|
Environmental & Analysis |
(9.2) |
(0.2) |
2.6 |
- |
(6.8) |
- |
(6.8) |
|
Medical |
(13.9) |
(2.7) |
8.1 |
(0.9) |
(9.4) |
2.9 |
(6.5) |
|
Total Segment & Group |
(38.3) |
(5.9) |
2.5 |
(4.1) |
(45.8) |
2.9 |
(42.9) |
The transaction costs arose mainly on the acquisitions during the year. In Process Safety they related to the acquisition of Sensit (£0.7m). In Infrastructure Safety, they related to the acquisition of Ampac (£2.1m) and FireMate (£0.2m). In Environmental & Analysis, they related to the acquisition of Invenio (£0.1m) and Enoveo (£0.1m). In Medical, they related to the acquisition of Infowave (£0.1m), NeoMedix (£0.1m), NovaBone (£1.7m), Spreo (£0.1m) and Maxtec (£0.3m) in the current year and the acquisition of Visiometrics in a previous year (£0.4m).
The £2.5m adjustment to contingent consideration comprised: a debit in Infrastructure Safety of £8.2m arising from an increase in the estimate of the payable for Navtech; a credit of £2.6m in Environmental & Analysis arising from decreases in estimates of the payables for Mini-Cam (£2.6m) and Invenio (£0.1m), offset by an increase in estimates of the payable for Enoveo (£0.1m); and a credit of £8.1m in Medical arising from a decrease in estimates of the payables for NovaBone (£8.0m) and Infowave (£1.1m) offset by an increase in the estimate of the payable for NeoMedix (£1.0m).
The £4.1m release of fair value adjustments to inventory related to Sensit (£0.4m) in Process Safety, Navtech (£0.4m) and Ampac (£2.4m) in Infrastructure Safety; and NeoMedix (£0.3m), NovaBone (£0.5m), and Maxtec (£0.1m) in Medical. All amounts have been released in relation to Navtech, Ampac and NeoMedix.
The £2.9m gain on disposal of operations and restructuring related to the sale of the Group's interest in Optomed Oy to third parties for proceeds of €8.6m (£7.2m).
3 Finance income
|
|
Unaudited |
Unaudited |
Audited |
|
Interest receivable |
0.1 |
0.3 |
0.6 |
|
Fair value movement on derivative financial instruments |
0.9 |
0.1 |
- |
|
|
1.0 |
0.4 |
0.6 |
4 Finance expense
|
|
Unaudited |
Unaudited |
Audited |
|
Interest payable on loans and overdrafts |
4.5 |
3.7 |
8.7 |
|
Interest payable on lease obligations |
1.2 |
1.0 |
2.1 |
|
Amortisation of finance costs |
0.3 |
0.4 |
0.7 |
|
Net interest charge on pension plan liabilities |
- |
0.4 |
0.8 |
|
Other interest payable |
- |
0.1 |
0.2 |
|
|
6.0 |
5.6 |
12.5 |
|
Fair value movement on derivative financial instruments |
0.8 |
0.2 |
0.2 |
|
Unwinding of discount on provisions |
- |
0.3 |
- |
|
|
6.8 |
6.1 |
12.7 |
5 Taxation
The total Group tax charge for the six months to 30 September 2020 of £19.0m (six months to 30 September 2019: £20.8m; year to 31 March 2020: £39.7m) comprises a current tax charge of £22.0m (six months to 30 September 2019: £23.3m; year to 31 March 2020: £39.9m) and a deferred tax credit of £3.0m (six months to 30 September 2019: £2.5m; year to 31 March 2020: £0.2m). The tax charge is based on the estimated effective tax rate for the year, for profit before tax before adjustments. The tax rates applied to the adjustments are established on an individual basis for each adjustment.
The current tax charge includes £20.0m (six months to 30 September 2019: £19.6m; year to 31 March 2020: £30.5m) in respect of overseas tax.
6 Earnings per ordinary share
Basic and diluted earnings per ordinary share are calculated using the weighted average of 379,092,489 (30 September 2019: 379,134,587; 31 March 2020: 379,086,833) shares in issue during the period (net of shares purchased by the Company and held as Employee Benefit Trust shares). There are no dilutive or potentially dilutive ordinary shares.
Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation of acquired intangible assets; acquisition items; significant restructuring costs; profit or loss on disposal of operations; and the associated taxation thereon.
The Directors consider that adjusted earnings represent a more consistent measure of underlying performance as it excludes amounts not directly linked to trading. A reconciliation of earnings and the effect on basic earnings per share figures is as follows:
|
|
Unaudited |
Unaudited |
Audited |
|
Earnings from continuing operations |
77.3 |
85.0 |
184.4 |
|
Amortisation of acquired intangible assets (after tax) |
16.4 |
14.1 |
30.3 |
|
Acquisition transaction costs (after tax) |
0.5 |
2.8 |
5.3 |
|
Adjustments to contingent consideration (after tax) |
1.0 |
(0.1) |
(2.5) |
|
Release of fair value adjustments to inventory (after tax) |
1.7 |
1.4 |
3.0 |
|
Disposal of operations and restructuring (after tax) |
- |
- |
(2.9) |
|
Adjusted earnings |
96.9 |
103.2 |
217.6 |
|
|
Per ordinary share |
||
|
|
Unaudited |
Unaudited |
Audited |
|
Earnings from continuing operations |
20.37 |
22.40 |
48.66 |
|
Amortisation of acquired intangible assets (after tax) |
4.30 |
3.72 |
7.98 |
|
Acquisition transaction costs (after tax) |
0.14 |
0.75 |
1.41 |
|
Adjustments to contingent consideration (after tax) |
0.27 |
(0.04) |
(0.66) |
|
Release of fair value adjustments to inventory (after tax) |
0.46 |
0.37 |
0.78 |
|
Disposal of operations and restructuring (after tax) |
- |
- |
(0.78) |
|
Adjusted earnings |
25.54 |
27.20 |
57.39 |
7 Dividends
|
|
Per ordinary share |
||
|
|
Unaudited |
Unaudited |
Audited |
|
Amounts recognised as distributions to shareholders in the period |
|
|
|
|
Final dividend for the year to 31 March 2020 (31 March 2019) |
9.96 |
9.60 |
9.60 |
|
Interim dividend for the year to 31 March 2020 |
- |
- |
6.54 |
|
|
9.96 |
9.60 |
16.14 |
|
Dividends in respect of the period |
|
|
|
|
Proposed interim dividend for the year to 31 March 2021 (31 March 2020) |
6.87 |
6.54 |
6.54 |
|
Final dividend for the year to 31 March 2020 |
- |
- |
9.96 |
|
|
6.87 |
6.54 |
16.50 |
|
|
Unaudited |
Unaudited |
Audited |
|
Amounts recognised as distributions to shareholders in the period |
|
|
|
|
Final dividend for the year to 31 March 2020 (31 March 2019) |
37.7 |
36.4 |
36.4 |
|
Interim dividend for the year to 31 March 2020 |
- |
- |
24.8 |
|
|
37.7 |
36.4 |
61.2 |
|
Dividends in respect of the period |
|
|
|
|
Proposed interim dividend for the year to 31 March 2021 (31 March 2020) |
26.1 |
24.8 |
24.8 |
|
Final dividend for the year to 31 March 2020 |
- |
- |
37.7 |
|
|
26.1 |
24.8 |
62.5 |
8 Notes to the Consolidated Cash Flow Statement
|
|
Unaudited |
Unaudited |
Audited |
|
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 associates and profit or loss on disposal of operations |
102.1 |
111.6 |
233.4 |
|
Financial instruments at fair value through profit or loss |
- |
- |
0.1 |
|
Depreciation of property, plant and equipment |
18.5 |
17.0 |
35.8 |
|
Amortisation of computer software |
1.5 |
1.1 |
2.2 |
|
Amortisation of capitalised development costs and other intangibles |
3.7 |
4.1 |
8.4 |
|
Impairment of capitalised development costs |
2.3 |
2.0 |
5.2 |
|
Amortisation of acquired intangible assets |
21.6 |
18.3 |
38.3 |
|
Share-based payment expense less amounts paid |
(2.0) |
0.2 |
4.8 |
|
Payments to defined benefit pension plans net of charge |
(6.5) |
(6.2) |
(12.5) |
|
Loss/(profit) on sale of property, plant and equipment and computer software |
0.1 |
0.1 |
(0.1) |
|
Operating cash flows before movement in working capital |
141.3 |
148.2 |
315.6 |
|
Increase in inventories |
(7.2) |
(6.5) |
(5.1) |
|
Decrease/(increase) in receivables |
36.5 |
(2.3) |
(9.0) |
|
(Decrease)/increase in payables and provisions |
(20.6) |
(16.4) |
8.9 |
|
Revision to estimate of contingent consideration payable |
1.1 |
(0.1) |
(2.5) |
|
Cash generated from operations |
151.1 |
122.9 |
307.9 |
|
Taxation paid |
(14.0) |
(27.3) |
(52.4) |
|
Net cash inflow from operating activities |
137.1 |
95.6 |
255.5 |
|
|
Unaudited |
Unaudited |
Audited |
|
Analysis of cash and cash equivalents |
|
|
|
|
Cash and bank balances |
125.5 |
83.2 |
106.3 |
|
Overdrafts (included in current borrowings) |
(2.1) |
(1.7) |
(0.9) |
|
Cash and cash equivalents |
123.4 |
81.5 |
105.4 |
|
|
At |
Cash flow |
Lease liabilities additions £m |
Exchange |
At |
|
Analysis of net debt |
|
|
|
|
|
|
Cash and bank balances |
106.3 |
19.5 |
- |
(0.3) |
125.5 |
|
Overdrafts |
(0.9) |
(1.2) |
- |
- |
(2.1) |
|
Cash and cash equivalents |
105.4 |
18.3 |
- |
(0.3) |
123.4 |
|
Loan notes falling due within one year |
(74.2) |
- |
- |
0.2 |
(74.0) |
|
Loan notes falling due after more than one year |
(108.6) |
- |
- |
0.3 |
(108.3) |
|
Bank loans falling due after more than one year |
(236.4) |
43.6 |
- |
1.1 |
(191.7) |
|
Lease liabilities |
(61.5) |
8.2 |
(11.9) |
0.8 |
(64.4) |
|
Total net debt |
(375.3) |
70.1 |
(11.9) |
2.1 |
(315.0) |
Overdrafts and Loan notes falling due within one year are included as current borrowings in the Consolidated Balance Sheet. Loan notes and Bank loans falling due after more than one year are included as non-current borrowings.
9 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, Adjusted operating cash flow and Return on Sales.
Note 2 provides further analysis of the adjusting items in reaching adjusted profit measures.
Return on Total Invested Capital (ROTIC)
|
|
Unaudited |
Unaudited |
Audited |
|
Profit after tax |
77.3 |
85.0 |
184.4 |
|
Adjustments1 |
19.6 |
18.2 |
33.2 |
|
Adjusted profit after tax1 |
96.9 |
103.2 |
217.6 |
|
Total equity |
1,123.0 |
1,067.5 |
1,136.9 |
|
Add back retirement benefit obligations |
45.0 |
27.6 |
5.2 |
|
Less associated deferred tax assets |
(8.1) |
(4.7) |
(0.5) |
|
Cumulative amortisation of acquired intangible assets |
300.6 |
264.8 |
283.5 |
|
Historical adjustments to goodwill2 |
89.5 |
89.5 |
89.5 |
|
Total Invested Capital |
1,550.0 |
1,444.7 |
1,514.6 |
|
Average Total Invested Capital3 |
1,532.3 |
1,391.5 |
1,426.5 |
|
Return on Total Invested Capital (annualised)4 |
12.6% |
14.8% |
15.3% |
Return on Capital Employed (ROCE)
|
|
Unaudited |
Unaudited |
Audited |
|
Profit before tax |
96.3 |
105.8 |
224.1 |
|
Adjustments1 |
25.7 |
23.0 |
42.9 |
|
Net finance costs |
5.8 |
5.7 |
12.1 |
|
Lease interest |
(1.2) |
(1.0) |
(2.1) |
|
Adjusted operating profit1 after share of results of associates |
126.6 |
133.5 |
277.0 |
|
Computer software costs within intangible assets |
4.8 |
6.0 |
5.9 |
|
Capitalised development costs within intangible assets |
36.7 |
34.7 |
36.1 |
|
Other intangibles within intangible assets |
3.8 |
3.3 |
3.1 |
|
Property, plant and equipment |
184.7 |
171.7 |
184.3 |
|
Inventories |
175.8 |
162.9 |
170.6 |
|
Trade and other receivables |
245.3 |
275.2 |
286.6 |
|
Trade and other payables |
(158.7) |
(157.9) |
(186.7) |
|
Lease liabilities |
(13.0) |
(12.3) |
(13.0) |
|
Provisions |
(30.5) |
(20.5) |
(28.0) |
|
Net current tax liabilities |
(4.8) |
(8.6) |
1.3 |
|
Non-current trade and other payables |
(16.3) |
(13.3) |
(13.3) |
|
Non-current provisions |
(14.3) |
(7.9) |
(21.6) |
|
Non-current lease liabilities |
(51.4) |
(44.7) |
(48.5) |
|
Add back contingent purchase consideration |
34.5 |
19.4 |
40.1 |
|
Capital Employed |
396.6 |
408.0 |
416.9 |
|
Average Capital Employed3 |
406.8 |
383.5 |
387.9 |
|
Return on Capital Employed (annualised)4 |
62.2% |
69.6% |
71.4% |
1 Adjustments include the amortisation of acquired intangible assets; acquisition items; significant restructuring costs and profit or loss on disposal of operations. These also include the associated taxation on adjusting items where after-tax measures.
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 period's and prior year's Total Invested Capital and Capital Employed respectively. Using an average as the denominator is considered to be more representative. The March 2019 Total Invested Capital and Capital Employed balances were £1,338.3m and £358.9m respectively.
4 The ROTIC and ROCE measures are calculated as annualised Adjusted profit after tax divided by Average Total Invested Capital and annualised Adjusted operating profit after share of results of associates divided by Average Capital Employed respectively.
Organic growth and constant currency
Organic growth measures the change in revenue and profit from continuing Group operations. The 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 resultant effect is that the acquisitions are removed from organic results for one full year of ownership.
The results of disposals are removed from the prior period reported revenue and profit before taxation.
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 as follows:
Organic growth at constant currency
|
|
Revenue |
Adjusted profit* before taxation |
||||
|
|
Unaudited |
Unaudited |
% growth |
Unaudited |
Unaudited |
% growth |
|
Continuing operations |
618.4 |
653.7 |
(5.4) |
122.0 |
128.8 |
(5.3) |
|
Acquired and disposed revenue/profit |
(40.8) |
(1.5) |
|
(7.8) |
0.1 |
|
|
Organic growth |
577.6 |
652.2 |
(11.4) |
114.2 |
128.9 |
(11.4) |
|
Constant currency adjustment |
2.6 |
- |
|
0.4 |
- |
|
|
Organic growth at constant currency |
580.2 |
652.2 |
(11.0) |
114.6 |
128.9 |
(11.1) |
*Adjustments include the amortisation of acquired intangible assets; significant acquisition items; restructuring costs; and profit or loss on disposal of operations.
Sector organic growth at constant currency
Organic growth at constant currency is calculated for each segment using the same method as described above.
Process Safety
|
|
Revenue |
Adjusted* segment profit |
||||
|
|
Unaudited |
Unaudited |
% growth |
Unaudited |
Unaudited |
% growth |
|
Continuing operations |
91.1 |
101.3 |
(10.1) |
16.6 |
24.9 |
(33.2) |
|
Acquisition and currency adjustments |
(7.1) |
- |
|
(0.9) |
- |
|
|
Organic growth at constant currency |
84.0 |
101.3 |
(17.1) |
15.7 |
24.9 |
(36.7) |
Infrastructure Safety
|
|
Revenue |
Adjusted* segment profit |
||||
|
|
Unaudited |
Unaudited |
% growth |
Unaudited |
Unaudited |
% growth |
|
Continuing operations |
201.5 |
232.9 |
(13.5) |
46.0 |
52.3 |
(12.0) |
|
Acquisition and currency adjustments |
(7.5) |
(1.5) |
|
(1.7) |
- |
|
|
Organic growth at constant currency |
194.0 |
231.4 |
(16.2) |
44.3 |
52.3 |
(15.3) |
Environmental & Analysis
|
|
Revenue |
Adjusted* segment profit |
||||
|
|
Unaudited |
Unaudited |
% growth |
Unaudited |
Unaudited |
% growth |
|
Continuing operations |
154.0 |
153.1 |
0.6 |
38.3 |
31.4 |
22.2 |
|
Acquisition and currency adjustments |
0.4 |
- |
|
0.3 |
- |
|
|
Organic growth at constant currency |
154.4 |
153.1 |
0.9 |
38.6 |
31.4 |
23.0 |
Medical
|
|
Revenue |
Adjusted* segment profit |
||||
|
|
Unaudited |
Unaudited |
% growth |
Unaudited |
Unaudited |
% growth |
|
Continuing operations |
172.4 |
166.5 |
3.5 |
38.2 |
39.3 |
(3.2) |
|
Acquisition and currency adjustments |
(24.1) |
- |
|
(7.3) |
0.1 |
|
|
Organic growth at constant currency |
148.3 |
166.5 |
(10.9) |
30.9 |
39.4 |
(21.8) |
*Adjustments include the amortisation of acquired intangible assets; significant acquisition items; restructuring costs; and profit or loss on disposal of operations.
Adjusted operating profit
|
|
Unaudited |
Unaudited |
Audited |
|
Operating profit |
102.1 |
111.6 |
233.4 |
|
Add back: |
|
|
|
|
Acquisition items |
4.1 |
4.7 |
7.5 |
|
Amortisation of acquired intangible assets |
21.6 |
18.3 |
38.3 |
|
Adjusted operating profit |
127.8 |
134.6 |
279.2 |
Adjusted operating cash flow
|
|
Unaudited |
Unaudited |
Audited |
|
Net cash from operating activities (note 8) |
137.1 |
95.6 |
255.5 |
|
Add back: |
|
|
|
|
Net acquisition costs |
1.5 |
2.0 |
5.2 |
|
Taxes paid |
14.0 |
27.3 |
52.4 |
|
Proceeds from sale of property, plant and equipment |
0.5 |
0.3 |
1.9 |
|
Share awards vested not settled by own shares* |
7.5 |
5.6 |
6.0 |
|
Less: |
|
|
|
|
Purchase of property, plant and equipment |
(10.2) |
(12.0) |
(31.2) |
|
Purchase of computer software and other intangibles |
(1.4) |
(1.7) |
(2.9) |
|
Development costs capitalised |
(7.0) |
(6.3) |
(14.7) |
|
Adjusted operating cash flow |
142.0 |
110.8 |
272.2 |
|
Cash conversion % (adjusted operating cash flow/adjusted operating profit) |
111% |
82% |
97% |
*See Consolidated Statement of Changes in Equity.
Return on Sales
Group Return on Sales is defined as Adjusted Profit before Taxation as a percentage of revenue. For the sectors, Return on Sales is defined as Adjusted segment profit as a percentage of segment revenue. Adjusted Profit before Taxation and Adjusted segment profit is as defined in note 2.
10 Acquisitions
Analysis of cash outflow in the Consolidated Cash Flow Statement
|
|
Unaudited |
Unaudited |
Audited |
|
Initial cash consideration paid |
- |
78.2 |
226.2 |
|
Cash acquired on acquisitions |
- |
(6.8) |
(8.0) |
|
Initial cash consideration adjustment on current year acquisitions |
- |
3.1 |
4.1 |
|
Contingent consideration paid and loan notes repaid in cash in relation to prior year acquisitions |
5.7 |
10.0 |
10.4 |
|
Other amounts paid in relation to prior year acquisitions |
1.0 |
- |
0.1 |
|
Net cash outflow relating to acquisitions (per Consolidated Cash Flow Statement) |
6.7 |
84.5 |
232.8 |
11 Fair values of financial assets and liabilities
As at 30 September 2020, with the exception of the Group's fixed rate loan notes, there were no significant differences between the book value and fair value (as determined by market value) of the Group's financial assets and liabilities.
The fair value of floating rate borrowings approximates to the carrying value because interest rates are reset to market rates at intervals of less than one year.
The fair value of the Group's fixed rate loan notes arising from the United States Private Placement completed in January 2016 is estimated to be £187.7m, against a carrying value of £182.4m.
The fair value of financial instruments is estimated by discounting the future contracted cash flow using readily available market data and represents a level 2 measurement in the fair value hierarchy under IFRS 7.
As at 30 September 2020, the total forward foreign currency contracts outstanding were £47.8m. The contracts mostly mature within one year and therefore the cash flows and resulting effect on profit and loss are expected to occur within the next 12 months.
The fair values of the forward contracts are disclosed as a £0.4m (30 September 2019: £0.9m; 31 March 2020: £1.0m) asset and £0.9m (30 September 2019: £0.7m; 31 March 2020: £1.0m) liability in the Consolidated Balance Sheet.
Any movements in the fair values of the forward contracts are recognised in equity until the hedge transaction occurs, when gains/losses are recycled to finance income or finance expense.
12 Retirement benefits
At 30 September 2020, the Group has IAS 19 Retirement benefit obligations totalling £45.0m (30 September 2019: net obligation of £27.6m; 31 March 2020: net obligation of £5.2m). The net obligation has increased from 31 March 2020 primarily due to changes in the financial assumptions, with the largest impacts being the decrease in discount rate and increase in inflation rate in the UK defined benefit plans from 2.55% and 2.50% at 31 March 2020, to 1.50% and 2.80% at 30 September 2020 respectively, partially offset by additional employer contributions made to the UK defined benefit plans of £6.6m.
13 Contingent liability
Group financing exemptions applicable to UK controlled foreign companies
As previously reported, on 24 November 2017 the European Commission 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 European Commission's final decision concluded that the FCPE rules, as they applied up to 31 December 2018, constitute State Aid. On 12 June 2019, the UK Government applied to annul the EC decision. The Group's application to annul the EC decision on the CFC FCPE was registered in the General Court on 9 September 2019 and has been stayed pending the outcome of the UK Government's appeal. The UK Government is required to commence collection proceedings in this respect. Consequently, the Group, in common with other affected taxpayers, is in correspondence with HMRC on this matter. The most recent correspondence in the period was in July when the Group provided the analyses requested by HMRC. At present it is not possible to determine the amount that the UK Government will seek to collect. The Group has benefited from the FCPE and the total benefit to date at 30 September 2020 was approximately £15.4m (30 September 2019: £15.4m; 31 March 2020: £15.4m) in respect of tax and approximately £1.4m (30 September 2019: £0.9m; 31 March 2020: £1.2m) in respect of interest. Based on its current assessment, the Group believes no provision is required at this time.
Other contingent liabilities
The Group has widespread global operations and is consequently a defendant in many 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 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.
14 Other matters
Seasonality
The Group's financial results have not historically been subject to significant seasonal trends.
Equity and borrowings
Issues and repurchases of Halma plc's ordinary shares and drawdowns and repayments of borrowings are shown in the Consolidated Cash Flow Statement.
Related party transactions
There were no significant changes in the nature and size of related party transactions for the period to those reported in the Annual Report and Accounts 2020.
15 Principal risks and uncertainties
A number of potential risks and uncertainties exist that could have a material impact on the Group's performance over the second half of the financial year and could cause actual results to differ materially from expected and historical results.
The Group has in place processes for identifying, evaluating and managing key risks. These risks, together with a description of the approach to mitigating them, are set out on pages 48 to 53 in the Annual Report and Accounts 2020, which is available on the Group's website at www.halma.com. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report and Accounts.
The principal risks and uncertainties relate to:
- Cyber
- Organic growth
- Making and integrating acquisitions
- Talent and diversity
- Innovation
- Competition
- Economic and geopolitical uncertainty
- Natural disasters
- Communications
- Non-compliance with laws and regulations
- Financial controls
- Treasury management
- Product failure
16 Responsibility statement
We confirm that to the best of our knowledge:
a) these Condensed Interim Financial Statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union and the ASB's 2007 statement on half-yearly reports;
b) this Half Year Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule (DTR) 4.2.7R (indication of important events during the period and description of principal risks and uncertainties for the remainder of the financial year); and
c) this Half Year Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).
By order of the Board
Andrew Williams Marc Ronchetti
Group Chief Executive Chief Financial Officer
19 November 2020
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