Press Releases - Preliminary Results for the 52 Weeks to 31 March 2012

Preliminary Results for the 52 Weeks to 31 March 2012

14 June 2012

Record results and continued dividend growth

Halma, the leading safety, health and environmental technology group, today announces its preliminary results for the 52 weeks to 31 March 2012.

Highlights include:

• Pre-tax profit⁽¹⁾ from continuing operations up 15% to £120.5m (2011: £104.6m) on revenue up 12% at £579.9m (2011: £518.4m).
• Organic growth⁽²⁾ at constant currency: Profit up 5%, Revenue up 6%.
• High and increased level of returns achieved, Return on Sales⁽³⁾ of 20.8% (2011: 20.2%), Return on Total Invested Capital⁽²⁾ of 16.8% (2011: 15.5%) and Return on Capital Employed⁽²⁾ of 74.7% (2011: 71.9%).
• Strong revenue growth in developed regions, with UK up 18%, Europe up 12% and US up 8%. Revenue from markets in the rest of the world up 11% including 25% growth in China.
• All three sectors reported increased revenue and profit, with particularly strong performances in Health and Analysis and Industrial Safety.
• Adjusted earnings per share⁽⁴⁾ from continuing operations up 19% to 24.46p (2011: 20.49p). Statutory earnings per share up 20% to 23.01p (2011: 19.23p).
• A final dividend of 5.95p per share, making a record total dividend of 9.74p per share for the year. The increase of 7% marks the 33rd consecutive year of dividend increases of 5% or more.
• Two acquisitions and one disposal completed during the year with three further acquisitions completed since the year end.
• Good cash generation resulting in year-end net debt of £18.7m (2011: £37.1m). Strong balance sheet with borrowing facilities of £260m in place until 2016 providing significant financial capacity for further organic growth and value adding acquisitions.

Andrew Williams, Chief Executive of Halma, commented:

"Our focus on safety, health and environmental technology is continuing to provide opportunities for growth in both developed and developing regions. The combination of strong local operational management and active portfolio management ensures that we are able to deliver short-term financial performance and invest for growth in the longer term. These qualities are reflected in this year's performance and in Halma's track record of growth and high returns over a long period. We expect to continue to make progress in the year ahead."

1. Adjusted to remove the amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration and profit on disposal of continuing operations of £8.5m (2011: £6.3m).
2. 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 10 to the Preliminary Announcement.
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. Adjusted to remove the amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration, profit on disposal of continuing operations and the associated tax. See note 6 to the Preliminary Announcement.

For further information, please contact:

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

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

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:
   
   
   • Health and Analysis
     Products used to improve personal and public health. We develop technologies for analysis in safety, life sciences and environmental markets.
   • Infrastructure Sensors
     Products which detect hazards to protect assets and people in public, commercial and industrial buildings.
   • Industrial Safety
     Products which protect assets and people in industry.
   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 the Image library on this website. Photo queries: David Waller +44 (0)1494 721111, e-mail: [email protected].
3. You can view or download copies of this announcement and our latest Half Year and Annual reports from this website or request free printed copies by contacting [email protected].
4. A copy of the Annual Report and Accounts will be made available to shareholders on 25 June 2012 either by post or on-line at www.halma.com and will be available to the general public on-line or on written request to the Company's registered office at Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE, UK.
5. 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.

Group results for the 52 weeks to 31 March 2012

Group Highlights

Pro-forma information:

1. Adjusted to remove the amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration and profit on disposal of operations of £8.5m (2011: £6.3m). See note 2 to the Preliminary Announcement.
2. Adjusted to remove the amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration, profit on disposal of operations and the associated tax. See note 6 to the Preliminary Announcement.
3. Total dividend paid and proposed per share.
4. Return on Sales is de?ned as adjusted¹ pro?t before taxation from continuing operations expressed as a percentage of revenue from continuing operations.
5. Organic growth rates, Return on Total Invested Capital and Return on Capital Employed are non-GAAP performance measures used by management in measuring the returns achieved from the Group's asset base. See note 10 to the Preliminary Announcement.

Chairman's Statement

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 niche markets where the demand is global. Our businesses are autonomous and highly entrepreneurial.

Strategically we aim to grow profit and revenue in excess of 5% p.a. organically, to have Return on Sales in the region of 18% to 22% and generate post-tax Return on Total Invested Capital of more than 12%. As a result, we are highly cash generative and reinvest in our businesses through people, product and market development, continue to acquire more companies with similar characteristics and strive to give annual dividend growth of 5% or more to our shareholders.

Performance
Full year revenue increased by 12% to £579.9m (2011: £518.4m), organic revenue growth¹ was 5%, and 6% at constant currency. Profit before tax, amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration and profit on disposal of operations increased by 15% to £120.5m (2011: £104.6m), organic profit growth was 5% and the same at constant currency. Statutory profit before tax increased by 14% to £112.0m. Return on Total Invested Capital¹ increased to 16.8% (2011: 15.5%), Return on Capital Employed at the operating level increased to 74.7% (2011: 71.9%). Return on Sales¹ edged up to 20.8% compared to 20.2% the previous year. Net debt at the year end was £18.7m having spent £14.5m (including £1.1m of debt) on two acquisitions during the year, and received the first element of the disposal proceeds for Volumatic.

As a result the Board is recommending a final dividend of 5.95p per share giving a total dividend of 9.74p for the year, an increase of 7%. The final dividend is subject to approval by shareholders at the AGM on 24 July 2012 and will be paid on 22 August 2012 to shareholders on the register at 20 July 2012. This marks the 33rd consecutive year of dividend increases of 5% or more.

We also signed a new five-year banking facility of £260m (see the Financial Review).

Acquisitions/divestiture
During the year we purchased Kirk Key Interlock Company for US$14.5m, including US$1.9m of debt, which strengthened our position in the US interlock market; and Avo Photonics for US$9.1m (plus a contingent payment of up to US$11m based on future profit growth).

At the year end we divested Volumatic, a cash handling business, for £4.4m with an additional contingent consideration of up to £3.9m.

At the start of the 2012/13 financial year, we announced two further acquisitions in our Health and Analysis sector: Sensorex which manufactures electro-chemical sensors for water analysis applications for US$37.5m and Accutome which designs and manufactures surgical and diagnostic instruments for the ophthalmic market place for a cash consideration of US$20m, including US$2.3m of debt, plus a contingent performance payment of up to US$5m.

At the end of May 2012 we acquired SunTech Medical Group for an initial cash consideration of US$46m for the share capital and US$5m for cash retained in the business, plus a contingent performance payment of up to US$6m. SunTech, which also joins the Health and Analysis sector, is a pre-eminent supplier of clinical grade non-invasive blood pressure monitoring products.

So one can see that we continue to manage the portfolio actively and continue to seek out growth opportunities.

Geographic market development
One of our strategic aims is to have 30% of our revenue coming from markets outside the UK, USA and Mainland Europe by 2015. In 2006 the figure was 18%, last year we achieved 24% so we are well on our way. This reflects the focus and investments we have made over the recent years, and this year sales in China grew 25%.

Innovation
Technical and application innovation is at the heart of what we do, listening to our customers and imaginatively responding to their needs. You will see many examples in this report. During the year we held a hugely successful internal Innovation and Technology Exposition, where all our companies showcased their latest innovative applications. This, in turn, spawned many new ideas for using new technologies in different applications.

People
We continue to invest in new programmes to develop our people further, exposing them to new ideas, techniques and markets. We are also giving strong encouragement to diversity in all its aspects. The buzz between people at the Halma Innovation and Technology Exposition was palpable.

To everyone in the Group, sincere thanks for all you have done in producing these record results and building for the future.

Governance
During the year we responded to the consultation document from the Financial Reporting Council on Gender Diversity on Boards. In summary, our response was that we supported diversity on the Board but not just gender; we also seek a variety of experiences which will help accelerate growth in our business sectors in all geographies. Our strong preference is to develop policies and actions which support our aims rather than simply establish targets and quotas in this area. We believe the former evolves into part of our corporate culture more readily than simply setting a target.

I am delighted that Daniela Barone Soares has joined the Board and is bringing her extensive experience to bear in and around the Board.

Outlook
Many of the economic uncertainties that we saw at the beginning of the year are still with us. Our performance over the last year shows that we can make progress even in uncertain markets and we look forward to doing the same in the coming year.

Geoff Unwin, Chairman

1. See Group Highlights.

Strategic Review

Halma has made good progress this year, continuing to create value for shareholders through organic growth, successful acquisitions and increasing dividends.

Growth in all three sectors and all major regions
Revenue growth was achieved in all three sectors and in all major geographic regions and increased by 12% to £580m (2011: £518m). Adjusted¹ profit grew to £120.5m, an increase of 15% (2011: £104.6m). Organic revenue growth and organic profit growth were both 5%, increasing to 6% for continuing operations excluding the figures for Volumatic which we sold just before the year end.

Revenue grew in both developed and developing regions, demonstrating the resilience of the underlying growth drivers in our chosen markets of safety, health and environmental technology. UK was up by 18% to £126m (2011: £106m), whilst US increased 8% to £162m (2011: £150m). Revenue from Mainland Europe contributed £154m (2011: £138m), an increase of 12%. Revenue from outside these territories was up by 11%, representing 24% of the Group total (2011: 24%). This included 15% growth from Far East and Australasia. China revenue improved by 25% and represents slightly over 5% of Group revenue.

Health and Analysis performed well, increasing revenue by 16% to £254m (2011: £218m), contributing 44% of the Group (2011: 42%). Profit² grew substantially by 25% to £57.8m (2011: £46.1m), 46% of Group operating profit² (2011: 42%). Return on Sales grew strongly to 22.8% (2011: 21.1%). All four sub-sectors, Water, Photonics, Health Optics and Fluid Technology increased revenue with organic growth boosted significantly by acquisitions made in 2010/11. Following a tough first half year, Fluid Technology had a much steadier performance in the second half with revenue slightly ahead of the first six months. Water had a very good year gaining significant market share for water network monitoring instruments in the UK.

Infrastructure Sensors had a solid year increasing revenue by 4% to £204m (2011: £197m), 35% of the total (2011: 38%). Profit² was marginally ahead of last year at £39.1m (2011: £39.0m), which is 31% of Group operating profit² (2011: 36%). Return on Sales was 19.1% (2011: 19.8%). Fire Detection, Automatic Door Sensors and Security Sensors all increased revenue whilst Elevator Safety revenue was flat. A significant management reorganisation within Elevator Safety started in November 2011 and will be complete by mid-2012. This will reduce profitability in Elevator Safety by around £1m during the first half of 2012/13 but is expected to have delivered significant benefits to more than cover this charge by the end of the full year.

Industrial Safety performed strongly with revenue increasing by 19% to £122m (2011: £103m), which is 21% of the Group (2011: 20%). Profit² increased by 20% to £29.2m (2011: £24.4m), which is 23% of Group operating profit² (2011: 22%). The four sub-sectors of Gas Detection, Safety Interlocks, Bursting Disks and Asset Monitoring all increased revenue with demand underpinned by Health and Safety regulations and positive end-markets including Oil and Gas. Return on Sales in Industrial Safety remained the highest in the Group at 23.9% (2011: 23.7%).

Our three major measures of returns improved
Return on Sales improved to a new record of 20.8% (2011: 20.2%) with acquisitions improving margins in Health and Analysis and organic growth edging up Industrial Safety's performance. Infrastructure Sensors was a little lower than the prior year, albeit well within our 18% to 22% target range.

A high Return on Capital Employed is a key metric for Halma companies and is a characteristic we look for when considering acquisition prospects. This year it improved to 74.7% from an already very high level of 71.9% last year.

Return on Total Invested Capital is the post-tax return Halma has generated on all our assets including all historical goodwill. It is, therefore, an important long-term measure of how efficiently we deploy capital to grow our business both organically and through acquisition thereby creating value for shareholders. This year it increased to 16.8% (2011: 15.5%), well above our weighted average cost of capital, estimated to be around 8%.

Good cash generation and a strong balance sheet
Clearly, high returns are an indicator of a business' ability to generate cash. We aim to grow organically and through acquisition without becoming a highly geared business. This year cash generated was 104% of adjusted¹ profit (2011: 108%) and we ended the year in a strong position with net debt of £19m (2011: £37m).

In October 2011, we decided to renew and increase our bank credit facilities which were due to terminate in February 2013. We have put in place a £260m five-year revolving credit facility which gives us greater certainty over our medium-term funding and a greater freedom to complete acquisitions when suitable opportunities arise.

Strategic growth priorities
We have a clear strategy to generate sustained organic growth, actively manage our portfolio and deliver growing dividends. The medium-term rate of organic growth determines the rate at which we can acquire businesses and increase dividends. Our management reward structures are clearly aligned with our objectives of delivering sustained growth and high returns. We actively manage our business portfolio through acquiring in (or adjacent to) our existing markets, merging as market needs change and selling businesses where we do not see the medium-term prospects for sustaining high returns or growth.

We drive organic growth through a focus on investing in the three areas of: Innovation, People Development and International Expansion.

Innovation
Our businesses build market leadership, gain market share or create new market opportunities through innovation in products and processes. Within Halma, companies have great opportunities to collaborate and share know-how with their sister companies. We are creating a culture and environment to encourage this behaviour in a variety of ways including ensuring a diverse mix of representation at Halma training programmes and holding a biennial Halma Innovation and Technology Exposition. Network groups and forums focused on specific functional areas such as manufacturing and IT have also been established to foster regular benchmarking and continuous improvement.

Innovation by individual employees is formally recognised in Halma through a monthly Eureka award (top prize £1,000) and the Halma Annual Innovation Awards (top prize £20,000).

In 2012, the Halma Innovation Award was won by a team from Oseco in Oklahoma, USA, who designed a new Bursting Disk product which improves safety in Oil and Gas exploration. The runners-up were a team from HWM-Water in Cwmbran, UK, who developed a software platform which gives customers a 'data-gateway' to easily integrate their control systems with HWM's water monitoring technology. In third place was a team from Ocean Thin Films in Colorado, USA, who created a spectral imaging camera which enables scientists to analyse target objects in real-time video through a range of discrete specialist optical filters simultaneously.

R&D expenditure increased by 7% to £27.4m (2011: £25.7m) representing 4.7% of Group revenue (2011: 5.0%), well above our 4% KPI target. Underlying growth in R&D spend was in line with revenue growth so the slight decline in spend as a percentage of revenue was due to the lower rate of R&D investment of companies recently acquired. One of the ways we aim to add value to newly acquired businesses is by increasing their rate of innovation through investment in new products.

People development
Halma's decentralised operating structure relies upon having capable local managers empowered to make timely decisions in the best interests of their business. R&D, manufacturing, sales and administrative resources are controlled by local subsidiary boards who have an intimate knowledge of market dynamics and customer needs. Strategic objectives, annual performance goals and management incentives are aligned with a strong commitment to attract and develop high quality talent at all levels.

Halma offers a range of training programmes for employees including the Halma Executive Development Programmes (HEDP and HEDP+), Halma Management Development Programmes (HMDP and HMDP+) and Halma Certificate in Applied Technology (HCAT) programmes. During 2011/12, 166 employees attended these Halma-run programmes and many more benefited from training provided by their subsidiary company. The value of this investment is shown both in our excellent financial performance and succession planning. In April 2012, Philippe Felten the CEO of BEA, our Automatic Door Safety business, was promoted to the Halma Executive Board and took on the additional responsibility of our Security Sensors sub-sector.

In 2012, we launched the Halma Graduate Development Programme (HGDP) with the first group of UK and US graduates due to start in early Autumn 2012. Through HGDP, we aim to increase the depth of talent coming through our management ranks and also expect it to increase management diversity in the longer term. Graduates will work at Group companies in different global regions and attend residential training modules. Halma is an attractive employer for new graduates offering the chance to work in diverse markets, gaining international experience and providing a genuine opportunity for significant early career progression.

International expansion
We have made great strides in recent years growing our business in developing markets. In the process, we have learned a lot about these markets and have improved our understanding of the growth opportunities, both organic and through acquisitions. In the future, we expect to find a greater number of acquisition opportunities in developing markets and we are building the resources to support this objective.

Our strategic objective is for at least 30% of revenue to come from outside the UK, USA and Mainland Europe by 2015 and we maintained that metric at 24% this year even with the acquisition of two US-focused businesses in the year (2011: 24%). By 2015 China is targeted to be 10% of the Group total.

This year, good momentum was maintained in China with revenue increasing by 25% to £29.5m (2011: £23.6m) which is slightly over 5% of total revenue. This compares with £6.6m in 2006 when we set up our first hubs in Shanghai and Beijing. In 2012, the number of employees based in China represents 10% of the total Halma workforce.

A number of Halma businesses are investing in building stronger channels to market in South America either directly or by developing trading relationships with local businesses. Revenue from South America increased by 23% to £11.2m (2011: £9.1m).

In India, there was slower progress, with revenue increasing by 8% to £7.0m (2011: £6.4m). We are adding both sales and technical resource in Mumbai and during the year moved to larger premises. However, it is clear that India is not currently offering us the same rate of revenue growth as China, South-East Asia and South America.

Acquisitions and disposals
During the year, we completed two acquisitions and one disposal. Following the year end, we acquired a further three businesses. For these five acquisitions we paid £80m, including £3m of debt acquired, (plus potential for £14m of earn-outs) and received an initial payment of £4.4m for the disposal. All transactions, except the Kirk Key acquisition, were within our Health and Analysis sector.

In May 2011, we acquired Kirk Key Interlocks, based in Ohio, USA for US$14.5m (£8.8m), including US$1.9m of debt. Kirk Key was our most significant competitor for Safety Interlocks in the US market and is a strong addition to our group of market leading interlock businesses within the Industrial Safety sector.

In July 2011, we bought Avo Photonics, based in Pennsylvania, USA for US$9.1m (£5.7m) plus a one-year earn-out of up to US$11.0m dependent on profit growth. Avo adds significant new technology and manufacturing know-how to our Photonics businesses. Their expertise in miniature electro-optic design and manufacturing has potential applications across many other Halma sub-sectors.

In March 2012, we sold Volumatic, based in Coventry, UK to a private equity fund, for £4.4m plus performance based earn-outs of up to £3.9m. The end-markets for their cash counting products are retail and banking which do not have the long-term growth drivers we seek. This disposal is a further example of our ability to divest businesses for sensible prices where the longer-term returns and growth prospects do not meet our objectives. Volumatic was the only Halma business whose products and activities were not related to any of our 12 sub-sectors.

In April 2012, we paid US$37.5m (£23.4m) to acquire Sensorex, a manufacturer of water quality test sensors based in California, USA. Sensorex is very complementary to our existing water test business, Palintest, and joins the Water sub-sector.

In April 2012, we acquired Accutome for US$20m (£12.6m), including US$2.3m of debt, plus an earn-out of up to US$5m based on future profit growth. Accutome adds new products and greater sales and distribution strength in the USA for our Health Optics businesses. Based in Pennsylvania, USA, it already trades with our ophthalmic instrument businesses Keeler and Volk.

In May 2012, we acquired SunTech for US$46m (£29.6m) plus US$5m for cash retained in the business with a potential earn-out of US$6m. Their blood pressure monitoring technology is a perfect complement to Riester's own clinical grade blood pressure monitoring devices.

Our current acquisition prospect pipeline is strong. We are looking for successful businesses in, or closely related to, our existing sub-sectors. Although most of our transactions in recent years have been in the Health and Analysis sector, we continue to look for opportunities in our safety-related sectors too. This combination gives Halma a great balance between sustainable growth and strong returns.

Macro-economic, regulatory and competitive environment
With our focus on the supply of safety, health and environmental related products, Halma businesses are positioned in relatively non-cyclical markets that have clear, long-term growth prospects. Most of our markets are underpinned by regulatory drivers where customer spending is often non-discretionary. Our businesses benefit from strong market positions providing upgrade and replacement sales opportunities. These factors combine to create genuine resilience in tough economic conditions and enable us to achieve organic growth above prevailing market growth rates.

With demand for our products increasingly stimulated by regulation, we can invest for the longer term with confidence. Our competitive environment is heavily influenced by global, regional and national product approvals or technical validations. Compliance with product regulations is a steadily increasing overhead and a technical challenge but our focus on this area enables us to build competitive advantage. We are exposed to a very diverse range of niche markets, each with its own unique competitive environment. Our strategy is to empower local management to respond to changing market conditions by controlling their own competitive strategy. More details are given in the sector reviews.

In the current macro-economic environment each of our businesses is experiencing very different challenges and opportunities according to their particular market and geographic exposure. In 2012/13, we expect the macro-economic and political circumstances in Europe and the Middle East to remain challenging with the USA maintaining a relatively low rate of growth. We believe that the broader socio-economic development of developing regions like Asia and South America will continue to incr