Press Releases - Half year report for the 27 weeks to 3 October 2009

Half year report for the 27 weeks to 3 October 2009

03 December 2009

Half year results reflect Halma’s resilience

Halma, the leading safety, health and sensor technology group, today announces its half year results for the 27 weeks to 3 October 2009.

Highlights include:

• Revenue from continuing operations held steady at £222.1m (2008/09: £221.7m).
• Pre-tax profit from continuing operations* down 2% at £38.1m (2008/09: £39.0m) after incurring £1.7m of restructuring costs.
• Positive currency translation benefited revenue by 8% and profit* by 9%.
• Order intake in the first half 2% ahead of revenue.
• High level of returns maintained with return on sales of 17.1% (2008/09: 17.6%). Benefits of recent cost reduction actions already showing through with improved profitability towards the end of this first half.
• Increased profits in Infrastructure Sensors and in Health and Analysis sectors. Industrial Safety continues to experience difficult market conditions but product margins remain strong.
• Adjusted earnings per share from continuing operations** down 2% at 7.37p (2008/09: 7.52p). Statutory earnings per share 6.87p (2008/09: 6.85p).
• Robust financial position with net debt reduced to £21m at the period end (March 2009: £51m). Substantial headroom on bank facilities (in place until 2013) to support acquisitive and organic growth plans.
• Very strong cash generation supports another 5% increase in the interim dividend, reflecting the Board’s continuing confidence in Halma’s long term growth prospects.

* Adjusted to remove the amortisation of acquired intangible assets of £2.7m (2008/09: £3.4m).
** Adjusted to remove the amortisation of acquired intangible assets and the associated tax. See note 4 for details.

Commenting on the results, Andrew Williams, Chief Executive of Halma, said:

"We are not assuming any recovery in our markets in the remainder of this financial year, although order intake during the first half was slightly ahead of revenue. After a solid first half and with our reduced cost base, if current demand levels remain stable, we have the opportunity to achieve an improved performance in the second half."

Note to editors

1. Halma develops and markets products used worldwide to protect life and improve the quality of life. The Group comprises three business sectors:

   • Infrastructure Sensors
     Products which detect hazards to protect assets and people in public and commercial buildings.
   • Health and Analysis
     Components and products used to improve personal and public health. We also develop technologies and products which are used for analysis in safety, environmental and leisure related markets including Water.
   • Industrial Safety
     Products which protect assets and people at work.

   The key characteristics of Halma's businesses are that they are based on advanced technology and offer strong growth potential. Many Group businesses are clear market leaders in their specialist field and, in a number of cases, are the dominant world supplier.

2. High resolution photos of Halma senior management, including Chief Executive Andrew Williams, and images illustrating Halma business activities can be downloaded from here: Image Gallery. Photo queries: David Waller +44 (0)20 8205 0038, e-mail: [email protected].

3. You can view or download copies of this announcement and our latest Half year and Annual reports from here: Reports, or request free printed copies by contacting [email protected].

4. 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.

HALMA p.l.c.

Half year results for the 27 weeks to 3 October 2009

Financial highlights

Pro-forma information:

1. Adjusted to remove the amortisation of acquired intangible assets of £2.7m (2008/09: £3.4m).
2. Adjusted to remove the amortisation of acquired intangible assets and the associated tax. See note 4 for details.
3. Return on sales is defined as adjusted⁽¹⁾ profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.
4. Organic growth rates, Return on total invested capital (ROTIC) and Return on capital employed (ROCE) are non-GAAP performance measures used by management in measuring the returns achieved from the Group’s asset base. See note 7 for details.

Chairman's statement

Geoff Unwin, Chairman of Halma, said:

Half year results reflect Halma’s resilience

Halma: What we do and our strategy
Our business is to make products which protect lives and improve the quality of life for people worldwide. We do this through continuous innovation in market-leading products, which meet the increasing demands for improvements to health, safety and the environment. We build strong positions in markets where the demand is global. Our businesses are autonomous and highly entrepreneurial.

Results
For the first half, revenue from continuing operations was level compared with the prior year (2009/10: £222.1m; 2008/09: £221.7m) and adjusted* profit before tax from continuing operations decreased 2% to £38.1m (2008/09: £39.0m). Statutory profit before tax decreased by 1% to £35.4m. Organic revenue* was 1% lower and 9% lower than the prior year at constant currency. Organic profit* was 3% lower; down 12% at constant currency. Return on total invested capital* was 12.6% (2008/09: 14.7%). Cash flow was very strong in the half year, reducing net debt to £21.4m from £51.2m at March 2009.

Dividends
The Board declares an interim dividend of 3.31 pence per share, an increase of 5%, which will be paid on 10 February 2010 to shareholders on the register at 8 January 2010. This increase reflects the Board’s confidence in Halma’s long-term growth prospects.

Progress
Despite the turbulent economic conditions the world has faced, Halma has performed well and relative to the market as a whole, even better. In part, this has been helped by favourable currency trends, particularly the weakness of Sterling against the major currencies. Internally we have worked hard to improve our effectiveness and are delivering against our stated objectives which are to deliver fixed cost savings of £15m on an annualised basis relative to our overhead base during the second half of 2008/09; and to achieve £5m of product cost savings – however we are not being penny-wise and pound-foolish, we continue to invest strongly in products, markets and people.

Outlook
Our visibility of short-term demand is better than 12 months ago but it is still too early to claim that our customers have anything like their normal levels of visibility and hence confidence for the medium term. Given this market uncertainty, our actions to reduce costs and maintain targeted investment give us even greater resilience as we go into the second half together with the opportunity for improving performance.

* See Financial highlights

Chief Executive’s review

Andrew Williams, Chief Executive of Halma, said:

Strong margins maintained with investment for the future

A solid first half
We have continued to achieve a resilient performance in the six-month period to September 2009 and are well placed to continue this through the second half of the year.

Revenues for the 27-week period were flat at £222.1m (2008/09: £221.7m) assisted by a 1% contribution from recent acquisitions (net of disposals) and 8% positive impact from currency translation. Therefore, the underlying trend was organic revenue decline of 9%. Order intake in the first half was 2% ahead of revenue.

Profit* reduced slightly by 2% to £38.1m (2008/09: £39.0m). Recent acquisitions (net of disposals) boosted profit* by 1% and there was a currency translation benefit of 9%. Organic profit at constant currency was therefore 12% lower than last year.

Strong operational management maintains good margins
Profit* in the first half was reduced by £1.7m (4%) as a result of the reorganisation actions across the Group targeted at reducing annualised operating costs by £15m compared with the run-rate through the second half of 2008/09. In addition, we have continued to improve our manufacturing efficiencies. The benefits of these cost reductions started to show through with improved profitability towards the end of this first half.

Our success in reducing costs is reflected in the stability of our margins with Return on sales remaining strong at 17% (2008/09: 18%) – well within our stated 16% to 20% target range. We have the opportunity to edge up our Return on sales % in the second half, should the current demand levels remain stable.

In anticipation of the current demand levels, reducing our cost base has been an important priority for management throughout 2009. I have been impressed by their response in tackling this difficult task which, inevitably, involves some headcount reduction. Their success in reducing resources quickly and cost-effectively reflects both our flexible approach to manufacturing and our decentralised organisational structure. Keeping decision making and management action at the subsidiary board level encourages faster responses which are appropriate to the specific business needs. Clearly this will also be advantageous when resource needs to be selectively added to address future growth opportunities.

Strong cash generation
Cash generation exceeded expectations, which was especially pleasing as it was a key priority given to management at the start of the year. Excellent control of working capital, lower tax payments and some benefit from currency exchange rate movement has reduced our net debt to £21.4m compared to £51.2m at the end of March 2009.

Sector performances
Whilst our diversity has ensured overall resilience, a feature of trading over the past 12 months has been the increased variation in conditions across our different market sectors and world regions.

As expected, Infrastructure Sensors delivered a solid performance with profits up 2% to £16.6m (2008/09: £16.2m) on revenue down by 1% to £91.3m (2008/09: £92.3m). Return on sales increased from 17.6% to 18.2%. Strong performances from Automatic Door Sensors and Elevator Safety compensated for a weaker performance in Fire Detection and continued tough conditions in Security Sensors.

Encouragingly Health and Analysis performed ahead of expectations, growing profit by 12% to £15.9m (2008/09: £14.2m). Revenue of £83.6m was 9% ahead (2008/09: £76.4m), ensuring that Return on sales improved from 18.6% to 19.0%. Health Optics, Fluid Technology and Photonics all made good progress with Photonics, in particular, benefiting from the action taken to reduce overhead costs earlier in 2009. We expect the performance of our Water businesses to improve in 2010/11 as the UK water utilities begin their next 5-year investment cycle.

Industrial Safety had a tougher first half, achieving revenue of £47.2m (2008/09: £53.3m) - a decline of 11%. Despite aggressive cost cutting, profit was down by 29% to £8.4m (2008/09: £11.7m), although this still represented a very satisfactory Return on sales of 17.7%. All four businesses within this sector had reduced profit with particularly challenging market conditions in Asset Monitoring (North Sea oil and gas) and Bursting Disks (European and US process industries). If the current levels of trading persist we expect profitability to improve in the second half due to our lower cost base.

Geographic revenue trends
As with our sectors, the geographic performance trends were also mixed but broadly consistent with the underlying trends we have reported previously in 2009.

The UK remained the weakest region with 11% revenue decline whilst revenue from the USA was more resilient, growing by 16%. Mainland Europe revenue dropped by 2% with the major adverse impact coming from the Industrial Safety sector.

Although combined revenue from markets outside the UK, USA and Mainland Europe was down by 3%, the underlying trend was more positive since last year’s comparative included revenue from the two small business disposals we completed early in 2009. Excluding this, underlying revenue from these markets increased by 4% boosted by continued momentum in China where revenue grew by an impressive 52% to £7.9m (2008/09: £5.2m).

Continued investment in strategic growth initiatives
Despite the significant action taken to reduce operating costs, we are determined that investment in innovation, people development and geographic expansion continues to ensure growth in the medium term:

• Strong expenditure in R&D was maintained at £10.9m (2008/09: £11.0m) representing 4.9% of revenue;
• The Halma Innovation and Technology Exposition held in May 2009 has increased the collaboration and networking between subsidiaries across all business sectors;
• A full schedule of management development programmes has continued and we are launching a new programme targeted at developing our technical and engineering staff in 2010;
• Four additional companies now have a direct technical or sales presence in India through our Halma hub in Mumbai adding to the two companies already there; and
• We now have over 220 employees located in China and by the end of the financial year, seven sub-sectors, within our three sectors, will have established local manufacturing.

Focused search for acquisitions
We are in a strong position to seek further acquisitions although our criteria remain the same, focused on businesses operating in our existing market niches with good long-term track records. Compared to a year ago, we have a clearer understanding of what a ‘good’ performance means in the current economic climate. This, in turn, provides greater clarity to our selection and valuation processes. We would be willing to invest in making bolt-on acquisitions in all three sectors, although Health and Analysis remains the sector where we see the greatest scope for activity.

Risks and uncertainties
There are no significant changes to the risks and uncertainties outlined in the 2009 Annual report. These are summarised in Note 9 in this Half year report.

As stated previously, during the first half of this year, favourable currency translation benefited revenue by 8% and profit by 9%. If the exchange rates at the start of the second half persisted, the full year-on-year benefit will be lower than the first half, although still positive overall.

Outlook
Our current operational priorities are to maintain strong cash generation, consolidate the cost savings already made and continue to invest in new products, people development and geographic market expansion. As planned, a further reorganisation charge of £0.8m is expected in the second half to achieve our overall cost saving objectives.

We are not assuming any recovery in our markets in the remainder of this financial year, although order intake during the first half was slightly ahead of revenue. After a solid first half and with our reduced cost base, if current demand levels remain stable, we have the opportunity to achieve an improved performance in the second half.

* See Financial highlights

Responsibility statement

We confirm that to the best of our knowledge:

1. these Condensed financial statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting';
2. this Half year report includes a fair review of the information required by Disclosure 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
3. 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, Chief Executive
Kevin Thompson, Finance Director

3 December 2009

Further financial data (Consolidated income statement, Consolidated statement of comprehensive income and expenditure, Consolidated statement of changes in equity, Consolidated balance sheet, Consolidated cash flow statement and Notes to the condensed financial statements) is available online here: HTML version of the report. It is also available in a PDF file (1.54MB). To download, right click on the link next to the red PDF symbol below and select 'Save Target As...'.

For further information, please contact:

Halma p.l.c.
Andrew Williams, Chief Executive
Kevin Thompson, Finance Director
Tel: +44 (0)1494 721111

Hogarth Partnership Limited
Rachel Hirst / Andrew Jaques
Tel: +44 (0)20 7357 9477

A copy of the Half year report will be available to the general public on written request to the Company's registered office at: Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE.

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