Press Releases - Half year report for the 26 weeks to 1 October 2011

Half year report for the 26 weeks to 1 October 2011

22 November 2011

Record revenue and profit growth with increased returns

Halma, the leading safety, health and sensor technology group, today announces its half year results for the 26 weeks to 1 October 2011.

Highlights include:

• Pre-tax profit from continuing operations1 up 17% to £57.5m (2010/11: £49.3m) on revenue up 12% at £280m (2010/11: £249m). Adjusted earnings per share from continuing operations2 up 21% at 11.75p (2010/11: 9.75p).
• Organic growth3 at constant currency: Profit up 4.5%, Revenue up 5.8%.
• High and increased level of returns achieved with Return on Sales4 of 20.5% (2010/11: 19.8%).
• All three sectors increased revenue and profit with strong performances in Health & Analysis and Industrial Safety which both delivered pre-tax profit growth of 20% or more.
• Order intake slightly ahead of revenue with a closing order book 5% higher than the start of the period.
• Revenue outside the UK/Europe and USA increased to £65.5m, 23% of total revenue (2010/11: £58.1m), in line with our strategic objective of international expansion with a focus on Asia.
• Statutory pre-tax profit up 8.5% to £51.3m (2010/11:£47.3m). Statutory earnings per share up 12% at 10.52p (2010/11: 9.38p).
• Increase in the interim dividend of 7%.
• Successful acquisition of Avo Photonics, Inc. for an initial payment of £5.7m and Kirk Key Interlock Company, LLC for £8.8m.
• Strong balance sheet with significant headroom for acquisitions. Solid cash generation resulting in net debt of £56m.
• New £260m 5-year revolving credit facility in place, replacing previous £165m facility.

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

"Halma remains on track to make further progress in the second half. The diversity of our niche end-markets and our operational structure of locally managed, agile businesses have proved to be major strengths during challenging circumstances. We will continue to focus on achieving growth and high returns in the short term whilst maintaining investment to support growth in the medium term."

Notes:

1. Adjusted to remove the amortisation of acquired intangible assets and acquisition costs (including transaction costs and movement on contingent consideration) of £6.2m (2010/11: £2.0m).
2. Adjusted to remove the amortisation of acquired intangible assets and acquisition costs, and the associated tax. See note 6 for details.
3. Organic growth rates are non-GAAP performance measures used by management to assess underlying performance. See note 9 for details.
4. Return on Sales is defined as adjusted1 profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.

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:
   1. Health and Analysis
      Products used to improve personal and public health. We develop technologies for analysis in safety, life sciences and environmental markets.
   2. Infrastructure Sensors
      Products which detect hazards to protect assets and people in public and commercial buildings
   3. 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)1494 721111, e-mail: [email protected].
3. You can view or download copies of 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 1 October 2011

Financial highlights

Pro-forma information:

1. Adjusted to remove the amortisation of acquired intangible assets and acquisition costs (including transaction costs and movement on contingent consideration) of £6.2m (2010/11: £2.0m).
2. Adjusted to remove the amortisation of acquired intangible assets and acquisition costs, and the associated tax. See note 6 for details.
3. Interim dividend 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. 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 for details.

Chairman's statement

Geoff Unwin, Chairman of Halma, said:

Halma remains on track

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 £280m was 12% up compared with the prior year (2010/11: £249m); organic revenue1 growth was 4.7% and, at constant currency, was 5.8%.

Adjusted1 profit before tax from continuing operations increased 17% to £57.5m (2010/11: £49.3m), with organic growth of 4.5% at constant currency. Statutory profit before tax increased by 8% to £51.3m.

Return on Total Invested Capital1 was 16.9% (2010/11: 15.5%). Cash flow was solid in the half year and we completed two acquisitions for initial payments totalling £14.5m, including £1.1m of debt (2010/11: £nil). This contributed to net debt of £56m at the end of the period compared with £37m at 2 April 2011.

Dividends

The Board declares a 7% increase in the interim dividend to 3.79 pence per share, maintaining the higher rate of dividend increase established last year. This dividend will be paid on 8 February 2012 to shareholders on the register at 6 January 2012. This increase reflects the Board’s continuing confidence in Halma’s long-term growth prospects.

Progress

Halma's half year results reflect the continuing efforts of our employees to improve our effectiveness, controlling costs yet still delivering revenue growth. In addition, we have acquired businesses over the past year which have strong product, market and financial characteristics. This is demonstrated by the 0.7% improvement in the Group’s half year Return on Sales1 to 20.5% (2010/11: 19.8%).

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.

Acquisitions

During the first half, Halma purchased Kirk Key Interlock Company, LLC for $14.5m (including $1.8m of debt) and Avo Photonics, Inc. for $9.1m (plus a contingent payment of up to $11m based on future profit growth). These businesses add to our existing strength in the Safety Interlocks and Photonics markets respectively.

Governance

I am delighted that Daniela Barone Soares has joined the Halma Board.The Board continually keeps the appropriateness of its composition under review particularly in terms of relevant experience and diversity in its widest sense. Daniela's experience demonstrates this commitment threefold - geographically, in terms of gender and by way of executive experience. Daniela will certainly add to the Board's debate on value creation with her unique perspective.

Outlook

Although there are significant global economic uncertainties, our structure of decentralised management and the underpinning of demand from fundamental growth drivers have proved to be resilient in difficult markets. Halma remains on track to make further progress in the second half.

• See Financial Highlights

Chief Executive’s Review

Andrew Williams, Chief Executive of Halma, said:

Record revenue and profit with increased returns

Halma made good progress during the first half year, achieving record revenue and profit in every sector. There was widespread growth geographically, with an especially strong performance in China where sales grew by 29%.

Revenue grew by 12% to £280m (2010/11: £249m) and adjusted1 profit by 17% to £57.5m (2010/11: £49.3m). The organic growth rates of 5.8% for revenue and 4.5% for profit (at constant currency), reflected increased investment in our three pillars of strategic growth: Innovation, International Expansion and People Development. Return on Sales1 increased to 20.5% (2010/11: 19.8%). It was pleasing to see order intake growth maintained, resulting in an order book at the end of the period 5% higher than at the start.

Return on Total Invested Capital1 was excellent at 16.9% (2010/11: 15.5%) whilst Return on Capital Employed1 was also strong at 69% (2010/11: 72%). Both these ratios reflect the good operational management by our subsidiary management teams as does the solid cash generation which continued throughout the period. We ended the first half with net debt of £56m (March 2011: net debt £37m).

Halma is in a strong financial position and we have acted to ensure that continues. In October 2011, we negotiated a new £260m syndicated revolving credit facility with a core group of well-established banks which runs to October 2016. It replaces the previous £165m facility which was due to end in February 2013.

Growth and higher returns in all three sectors

All three main sectors reported record revenue and profit and increased Return on Sales.

Health and Analysis saw revenue up by 17% to £121m (2010/11: £104m), and profit2 up by 26% to £28.0m (2010/11: £22.1m). Return on Sales improved to 23.1% (2010/11: 21.3%). Water, Photonics, Health Optics and Fluid Technology all reported revenue and profit growth with the latter benefiting significantly from the impact of acquisitions. Water had a particularly strong performance in the UK, due to increased investment in water network monitoring devices by the UK water utilities. In Fluid Technology, further customer consolidation and some changes in the market shares amongst the major OEM players in medical diagnostic systems had an adverse impact on our organic performance. We expect to see the impact of these factors ease as we move through 2012.

Infrastructure Sensors had another solid performance, growing revenue by 5% to £101m (2010/11: £96m) and profit2 by 8% to £19.4m (2010/11: £17.9m). Return on Sales was 19.2% (2010/11: 18.7%). Fire Detection and Automatic Door Sensors increased revenue whilst strengthening their global operations, particularly in Asia and the USA. Elevator Safety had flat revenue and Security Sensors reported revenue marginally lower than last year with tough conditions in Europe and the USA for both businesses.

Industrial Safety had a particularly impressive first half, increasing revenue by 17% to £58m (2010/11: £49m) and profit2 by 20% to £13.6m (2010/11: £11.3m). Return on Sales improved to 23.4% (2010/11: 22.9%). Gas Detection, Bursting Disks, Safety Interlocks and Asset Monitoring all achieved double-digit growth in revenue and profit.

Revenues increased in all major geographic regions

UK revenue was up by 18% whilst Mainland Europe also performed strongly with growth of 15%. The challenges faced by our Fluid Technology and Elevator Safety sub-sectors contributed to lower growth in the USA of 6%. China continued to make good progress, growing by 29%, despite lower growth in Automatic Door Sensors caused by the recent disruption to the state-sponsored High Speed Train investment programme.

Halma completed two acquisitions in the period

In May 2011, we acquired Kirk Key Interlock Company, LLC based in Ohio, USA for $14.5m (including $1.8m of debt) to give us a stronger presence in the US Safety Interlock market. In July 2011, we acquired Avo Photonics, Inc. based in Pennsylvania, USA for an initial consideration of $9.1m and a contingent payment of up to $11m based on profit growth achieved up to March 2012. Avo adds advanced design and manufacturing capabilities to Halma’s successful Photonics businesses. The integration of both businesses into the Group has proceeded well.

We remain focused on identifying acquisition opportunities that add value by strengthening our market positions and technological capabilities.

Increased investment in product innovation, international expansion and people development

R&D spend increased by 10% to £13.4m (2010/11: £12.2m) demonstrating our commitment to generating growth through product Innovation. As reported in our recent Annual Report, in May 2011 we held a successful Halma Innovation and Technology Exposition in Orlando, Florida, which gave all Halma companies the opportunity to share knowledge and technology. I am also encouraged by the steady increase in the number of products specifically designed for developing markets such as China. Our ability to tailor products for local markets is increasingly important in driving revenue growth and market share in developing regions.

Investment in our International Expansion strategic initiative continues apace with our five commercial offices in China now fully operational and our manufacturing hub in Shanghai attracting more Halma companies. Our headcount in India is growing steadily and we plan to move to larger offices in Mumbai with light assembly and technical support facilities in the second half. Two Halma sub-sectors now have a direct presence in South America, with a further four sub-sectors making progress towards that goal in 2012.

People Development is essential to our sustained success. We have launched new advanced training programmes for previous Halma Executive Development Programme delegates and we are increasing our focus on developing local management talent in Asia. We are making good progress towards the launch of the first Halma Graduate Development Programme in 2012. We are committed to increasing the diversity of our management talent and, in addition to our initiatives in Asia, we are identifying new ways in which we can encourage improvement in gender diversity.

Risks and uncertainties

There are no significant changes to the risks and uncertainties in the Annual Report and on this website, www.halma.com. These are summarised in note 12 of this Half Year Report.

Summary

Halma remains on track to make further progress in the second half. The diversity of our niche end-markets and our operational structure of locally managed, agile businesses have proved to be major strengths during challenging circumstances. We will continue to focus on achieving growth and high returns in the short term whilst maintaining investment to support growth in the medium term.

• See Financial Highlights
• See note 2 to the Condensed Financial Statements

Responsibility statement

We confirm that to the best of our knowledge:

• these Condensed Financial Statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union;
• 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
• 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

22 November 2011

Further financial data (Consolidated income statement, Consolidated statement of comprehensive income and expenditure, Consolidated balance sheet, Consolidated statement of changes in equity, Consolidated cash flow statement and Notes to the condensed financial statements) is available in a PDF file (1.42 MB). 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.

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 Half Year Report for the 26 Weeks to 1 October 2011 (1.32 MB PDF)