Press Releases - Half year report for the 26 weeks to 2 October 2010

Half year report for the 26 weeks to 2 October 2010

30 November 2010

Record profit growth of 29 per cent at the half year

Halma, the leading safety, health and sensor technology group, today announces its half year results for the 26 weeks to 2 October 2010.

Highlights include:

• Pre-tax profit from continuing operations¹ up 29% to £49.3m (2009/10: £38.1m) on revenue up 12% at £249.1m (2009/10: £222.1m).
• Organic growth² at constant currency: Profit up 28%, Revenue up 10%.
• High and increased level of returns achieved with Return on Sales³ of 19.8% (2009/10: 17.1%).
• All three sectors reported growth in revenue and profit with strong growth in Health & Analysis, solid progress in Infrastructure Sensors and significantly improved profitability in Industrial Safety.
• Revenue outside of the UK/Europe and USA reaches 23% of total revenue, in line with the Group’s strategic objective of international expansion with a focus on Asia.
• Adjusted earnings per share from continuing operations⁴ up 32% at 9.75p (2009/10: 7.37p). Statutory earnings per share up 37% at 9.38p (2009/10: 6.87p).
• Order intake in the first half in line with revenue.
• Increase in the interim dividend of 7%, reflecting the Board’s continued confidence in Halma’s long-term growth prospects.
• Strong balance sheet with significant headroom for M&A. Solid cash generation resulting in net cash of £27.6m. Acquisition of Alicat Scientific for $25.2m (£15.7m) completed since the period end.

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

"We have seen increased revenue and profit in each of our sectors, continuing the earnings momentum we maintained throughout the financial downturn. Market conditions are much steadier than they have been over the previous two years and, therefore, this year we expect a much more evenly balanced split between first half and second half trading. We made an attractive acquisition following the period end and continue our search for high quality opportunities within our existing markets."

Notes:

1. Adjusted to remove the amortisation of acquired intangible assets of £2.0m (2009/10: £2.7m).
2. Organic growth rates are non-GAAP measures used by management to assess underlying performance. See note 9 of the Half Year Report for details.
3. Return on Sales is defined as adjusted¹ profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.
4. Adjusted to remove the amortisation of acquired intangible assets and the associated tax. See note 6 of the Half Year Report for details.

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 26 weeks to 2 October 2010

Financial highlights

Pro-forma information:

1. Adjusted to remove the amortisation of acquired intangible assets of £2.0m (2009/10: £2.7m).
2. Adjusted to remove the amortisation of acquired intangible assets and the associated tax. See note 6 of the Half Year Report for details.
3. Return on Sales is defined as adjusted¹ 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 9 of the Half Year Report for details.

Chairman's statement

Geoff Unwin, Chairman of Halma, said:

Half year results maintain momentum

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 market niches where the demand is global. Our businesses are autonomous and highly entrepreneurial.

Results
For the first half, revenue from continuing operations of £249.1m was 12% up compared with the prior year (2009/10: £222.1m); organic revenue¹ growth was 12% and, at constant currency, was 10%.

Adjusted¹ profit before tax from continuing operations increased 29% to £49.3m (2009/10: £38.1m), almost entirely organic growth, and including 1% benefit from currency translation. Statutory profit before tax increased by 34% to £47.3m.

Return on Total Invested Capital¹ was 15.5% (2009/10: 12.6%). Cash flow continued to be strong in the half year, resulting in a net cash balance of £27.6m compared with £9.1m at 3 April 2010.

Dividends
The Board declares a 7% increase in the interim dividend to 3.54 pence per share, maintaining the higher rate of dividend increase established last year. This dividend will be paid on 9 February 2011 to shareholders on the register at 7 January 2011. This increase reflects the Board’s continuing confidence in Halma’s long-term growth prospects.

Progress
Halma’s half year results reflect the efforts of our employees over the past 18+ months to improve our effectiveness, controlling costs yet still delivering revenue growth. This is demonstrated by the 2.7% improvement in the Group’s half-year Return on Sales to 19.8% (2009/10: 17.1%).

We invest strongly in products, markets and people and expect to continue to see the results of these investments, particularly in new products and in China, in the short to medium term.

Acquisition
Earlier this month, Halma purchased Alicat Scientific, Inc. for $25.2m (£15.7m). Alicat provides Halma with complementary technology for its Fluid Technology sub-sector and is a first step in investing some of the £100m we identified as available for acquisitions.

Outlook
After the volatility of the past two years, there is greater stability in our markets although customer visibility is still shorter-term than before the credit crunch. Prospects for the deployment of further capital in quality acquisitions continue to improve.

Looking at our performance sequentially, following a strong second half last year (£48.1m adjusted profit), we have continued to make progress in the first half of this year (£49.3m adjusted¹ profit). We are well placed to perform equally strongly in the second half of 2010/11.

1 See Financial highlights in the Half Year Report

Chief Executive’s review

Andrew Williams, Chief Executive of Halma, said:

Growth in every sector and all geographic regions

Record performance with strong organic growth
Halma performed strongly during the first half year, achieving record revenue and profit with growth in every sector and all geographic regions. We achieved revenue growth of 12% and this, together with continued good control of costs, enabled us to deliver adjusted¹ profit growth of 29%. There was only a small positive contribution from currency exchange movement and acquisitions. Therefore, underlying organic revenue and profit growth at constant currency was impressive, at 10% and 28% respectively.

We have continued to achieve record levels of performance throughout the downturn. After the significant volatility experienced in 2009, there was a clear change in demand levels at the start of 2010. We saw both a step-up in order intake and greater month-to-month stability. This has continued throughout the year. We expect to make further progress in the second half, with a more evenly balanced first half to second half trading pattern than we saw last year.

High and increased levels of return
All three sectors increased Return on Sales1, which for the Group improved to 19.8% (2009/10: 17.1%). Our companies maintained product margins even though some experienced raw material cost rises whilst certain suppliers struggled to ramp-up their output to keep pace with rapidly increasing demand. Overhead costs grew more slowly than revenue and we will continue to balance this cost control with the need for investment to ensure we meet our longer-term strategic growth objectives.

Solid cash generation reflected good operational discipline by our subsidiary management teams. Return on Capital Employed¹ increased to 72% (2009/10: 52%) whilst Return on Total Invested Capital¹ was 15.5% (2009/10: 12.6%) – both excellent performances given the level of revenue growth achieved. We ended the first half with net cash of £27.6m and our financial position remains strong.

Growth in all sectors
All three sectors grew revenue and profit at the interim stage.

Infrastructure Sensors made solid progress, growing revenue 5% to £96.0m (2009/10: £91.3m) and profit² by 8% to £17.9m (2009/10: £16.6m). All four sub-sector businesses, Fire Detection, Security Sensors, Automatic Door Sensors and Elevator Safety increased revenue. Unsurprisingly, this good performance across the sector was driven by growth in developing regions. Outside UK/USA/Mainland Europe revenue was up by 24%, more than compensating for flat revenue in these developed markets. We will continue to increase resources and investment in faster growing countries like China and India.

Health and Analysis performed very impressively becoming our largest sector, with revenue up 22% to £102.4m (2009/10: £83.6m) and profit² up 39% to £22.1m (2009/10: £15.9m). All four sub-sector businesses increased revenue and profit. There were particularly strong performances in Photonics, Fluid Technology and Water whilst Health Optics made steady progress. Encouragingly, the geographic growth trends were good in both developed and developing regions. There was double-digit revenue growth in both the UK and the USA whilst Mainland Europe was slightly ahead of the prior year. Outside of these regions, revenue grew by 40% with Far East and Australasia revenue rising by 48%. Here our photonics businesses are achieving high levels of growth, benefiting from the fast growing market in low energy lighting and displays.

Industrial Safety grew revenue by 8% to £50.8m (2009/10: £47.2m) and, impressively, increased profit² by 36% to £11.4m (2009/10: £8.4m). All four sub-sector businesses grew revenue and profit. Gas Detection, Bursting Disks and Asset Monitoring performed strongly, whilst Safety Interlocks made steadier progress. These businesses delivered 8% revenue growth in UK/USA/Mainland Europe combined and 5% growth elsewhere. Clearly, the regional trends in Industrial Safety are different to our other two sectors since industrial Health and Safety regulation tends to be introduced later in the growth cycle in developing countries than, for example, basic healthcare. However, we remain committed to investing in these new territories and working with our customers towards improving safety in the workplace.

Growth in all major geographic regions
The strong performance in Health and Analysis boosted the Group’s total revenue from the USA by 15% and the UK by 6%. Revenue from Mainland Europe rose by 4% with the major contributor being improved demand for our Industrial Safety products.

Outside of UK/USA/Mainland Europe, revenue increased 26% to £58.1m (2009/10: £46.2m) contributing 23% to total Group revenue (2009/10: 21%). This improvement is in line with our goal for these regions to represent over 30% of the Group by 2015.

In China revenue increased by 34% to £10.6m, double that of two years ago although still only a step towards our objective of it being 10% of the Group by 2015. We continue to look at new ways to help our companies grow faster here.

Greater investment in strategic growth initiatives
We have successfully maintained investment for growth throughout the downturn and are clearly seeing the benefit of this in our financial performance. We are committed to further increased investment aligned with our key strategic objectives. Notable features of the first half included:

• High rate of innovation – our R&D expenditure increased in line with revenue growth by 12% to £12.2m (2009/10: £10.9m). At 4.9% of revenue, this is well above our minimum 4% KPI target level.
• International expansion with focus on Asia – we opened new China regional offices in Chengdu (western China) and Guangzhou (southern China) supplementing our existing presence in Shanghai and Beijing. A further regional office in Shenyang for northern China will become operational before the year end.
• Management development – 20 engineers and scientists from our subsidiary companies started the first module of the new Halma Certificate in Applied Technology (HCAT) training programme in June 2010. HCAT will develop engineering talent across the Group with a particular focus on improving the return from our investment in innovation.

Acquisition completed, stronger pipeline of opportunities
Following the period end, in November 2010, we acquired Alicat Scientific, Inc. for $25.2m (£15.7m). Based in Arizona, USA, Alicat adds new precision flow control technology to our Fluid Technology sub-sector within Health and Analysis. In their last unaudited accounts for the financial year to end of September 2010, Alicat produced operating profit of $3.2m and has sustained a Return on Sales above our 18% - 22% target range for the past five years.

We have a stronger pipeline of acquisition opportunities than a year ago and vendor valuation expectations are becoming better aligned with our own.

Risks and uncertainties
There are no significant changes to the risks and uncertainties outlined in our Annual Report and on our website, www.halma.com. These are summarised in note 11 of this Half Year Report.

Outlook
We have seen increased revenue and profit in each of our sectors, continuing the earnings momentum we maintained throughout the financial downturn. Market conditions are much steadier than they have been over the previous two years and, therefore, this year we expect a much more evenly balanced split between first half and second half trading. We made an attractive acquisition following the period end and continue to search for other high quality opportunities within our existing markets.

1 See Financial Highlights in the Half Year Report
2 See note 2 to the Condensed Financial Statements in the Half Year Report

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’ as adopted by the European Union;
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

30 November 2010

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: Interactive version of the report. It is also available in a PDF file (649KB). 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

MHP Communications
Rachel Hirst / Andrew Jaques
Tel: +44 (0)20 3128 8100

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.

Interactive version

Interactive Half Year Report for the 26 Weeks to 2 October 2010

File Download

Half Year Report for the 26 Weeks to 2 October 2010
(649KB PDF)