This extract from the Halma plc 2016 Annual Report & Accounts has not been updated since publication in June 2016.
The Group’s business activities, together with the main trends and factors likely to affect its future development, performance and position, and the financial position of the Group, its cash flows, liquidity position and borrowing facilities, are set out in the Strategic Report. In addition, note 26 to the financial statements includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposures to currency and liquidity risks.
The Group has considerable financial resources (including a £360m five-year revolving credit facility, of which £236m was undrawn at 2 April 2016) together with contracts with a diverse range of customers and suppliers across different geographic areas and industries. No one customer accounts for more than 2% of Group turnover. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.
After conducting a formal review of the Group’s financial resources, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.
In accordance with the UK Corporate Governance Code, the Board has considered the Company’s longer term viability and sets out its Viability Statement below.
During the year, the Board carried out a robust assessment of the principal risks affecting the Company, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks and uncertainties, including an analysis of the potential impact and mitigating actions, are set out on pages 30 to 33 of the Strategic Report.
The Board has assessed the viability of the Company over a three year period, taking into account the Group’s current position and the potential impact of the principal risks and uncertainties. Whilst the Board has no reason to believe that the Group will not be viable over a longer period, it has determined that three years is an appropriate period. In drawing its conclusion, the Board has aligned the period of viability assessment with the Group’s strategic planning process (a three year period). The Board believes that this approach provides greater certainty over forecasting and, therefore, increases reliability in the modelling and stress testing of the Company’s viability. In addition, a three year horizon is typically the period over which we review our external bank facilities, and is also the performance period over which awards granted under Halma’s share-based incentive plan are measured.
In reviewing the Company’s viability, the Board has identified the following factors which they believe support their assessment:
- the Group operates in diverse but relatively non-cyclical markets;
- there is considerable financial capacity under current facilities and the ability to raise further funds;
- the decentralised nature of our Group ensures that risk is spread across our businesses and sectors, with limited exposure to any particular industry or market;
- there is a strong culture of local responsibility and accountability within a robust governance and control framework; and
- an ethical approach to business is set from the top and flows throughout our business.
In making their assessment, the Board carried out a comprehensive exercise of financial modelling and stress-tested the model with various scenarios based on the principal risks identified in the Group’s annual risk assessment process. In each scenario, the effect on the Group’s KPIs and borrowing covenants was considered, along with any mitigating factors. Based on this assessment, the Board confirms that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 March 2019.