Press Releases - Half Year Report 2012

Half Year Report 2012

20 November 2012

Record results and continued dividend growth

Halma, the leading safety, health and environmental technology group, today announces its half year results for the 26 weeks to 29 September 2012.

Highlights include:

• Adjusted pre-tax profit from continuing operations¹ up 6% to £60.8m (2011/12: £57.5m) on revenue up 6% at £298.1m (2011/12: £280.0m).

• Organic growth² at constant currency: Profit up 3%, Revenue up 3%.

• Strong growth in Asia Pacific and Australasia with revenue up 17% including 32% growth in China. Good overall revenue performance in developed regions, with USA up 19% offsetting weaker demand in UK and Europe.

• Health and Analysis and Industrial Safety Sectors performed strongly with double-digit profit growth. Infrastructure Sensors profit marginally lower – Elevator Safety reorganisation completed on schedule.

• High level of returns maintained: Return on Sales³ of 20.4% (2011/12: 20.5%), Return on Total Invested Capital of 16.4% (2011/12: 16.9%) and Return on Capital Employed of 71.6% (2011/12: 68.8%).

• Three acquisitions and one disposal completed during the period, acquisition pipeline remains healthy.

• Adjusted earnings per share from continuing operations⁴ up 5% to 12.34p (2011/12: 11.75p). Statutory earnings per share up 25% to 13.14p (2011/12: 10.52p).

• Interim dividend of 4.06p per share, up 7% (2011/12: 3.79p).

• Net debt of £74m at period end (March 2012: £19m). 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:

“Halma made good progress during the period, achieving record revenue and profit and strong returns. Our focus on building strong positions in markets with sustainable, long-term growth drivers such as Health and Safety regulation, increasing demand for healthcare and the need for life-critical resources (including energy and water) is providing both resilience and opportunities to grow. Order intake continues to be slightly ahead of revenue and Halma remains on track to make further progress in the second half of the year.”

Notes:

1. Adjusted to remove the amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration and profit on disposal of operations of £1.4m credit (2011/12: £6.2m charge). See note 2 for details.
2. Organic growth rates are non-GAAP performance measures used by management to assess underlying performance. See note 9 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, acquisition transaction costs, movement in contingent consideration, profit on disposal of operations and the associated tax. See note 6 for details.

For further information, please contact:

Halma plc
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. Photo queries: David Waller +44 (0)1494 721111, e-mail: [email protected].

3. You can view or download copies of this announcement and the latest Half Year and Annual reports from the website 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 plc

Half year results for the 26 weeks to 29 September 2012

Financial 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 £1.4m credit (2011/12: £6.2m charge). See note 2 for details.
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 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 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 9 for details.

Chairman’s Statement

Geoff Unwin, Chairman of Halma, said:

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 safety, health and the environment. Our businesses are autonomous and entrepreneurial, building strong positions in market niches where the demand is global.

Half year results
In the first half, revenue from continuing operations of £298.1m increased by 6% compared with the prior year (2011/12: £280.0m); this included a net 4% contribution from acquisitions less disposals, and a negative currency impact of 1%, giving organic revenue¹ growth at constant currency of 3%. Adjusted¹ profit before tax from continuing operations also increased by 6% to £60.8m (2011/12: £57.5m), with organic growth of 3% at constant currency. Statutory profit before tax increased by 21% to £62.2m (2011/12: £51.3m). Return on Total Invested Capital¹ was 16.4% (2011/12: 16.9%).

We spent £65.6m (excluding £3.5m of cash but including £1.4m of debt acquired) on three acquisitions (2011/12: £14.5m) and £15.8m on earnouts for acquisitions made in previous years (2011/12: £5.4m). We also disposed of a business for £21.8m including £2.1m of deferred consideration. This resulted in a net debt of £74.1m at the end of the period compared with £18.7m at 31 March 2012. Our financial position remains strong.

Dividends
The Board declares a 7% increase in the interim dividend to 4.06 pence per share which will be paid on 6 February 2013 to shareholders on the register at 4 January 2013. This increase reflects the Board’s continuing confidence in Halma’s long-term growth prospects.

Progress
Despite weak economic growth and uncertainties in both Europe and the USA, Halma has made further progress, thanks to the continuous efforts of our employees to innovate. Return on Sales¹ was virtually unchanged at 20.4% (2011/12: 20.5%). Our investment in China again produced good results with sales growth of 32%. We continue to actively manage our portfolio of companies in line with our strategic objectives as illustrated by the following summary of acquisitions and disposals.

Acquisitions and disposals
During the first half year, Halma made three acquisitions: Accutome, a manufacturer of ophthalmic instruments, for US$20m (including US$2.3m of bank loans) plus an earnout of up to US$5m; Sensorex, a manufacturer of water analysis sensors, for US$38m; and Suntech Medical Group, a supplier of non-invasive blood pressure monitoring devices, for US$46m (plus US$5m for cash retained in the business) and up to US$6m earnout. We also sold Tritech (subsea asset monitoring equipment) for £21.8m, following the disposal at the very end of 2011/12 of Volumatic (cash counting equipment).

Outlook
Despite continuing global economic uncertainties, our structure of decentralised, market responsive management and the underpinning of demand from fundamental growth drivers have once more proved resilient in challenging markets. Halma remains on track to make further progress in the second half of the year.

1. See Financial Highlights

Chief Executive’s Review

Andrew Williams, Chief Executive of Halma, said:

Halma made good progress during the period, achieving record revenue and profit and strong returns. Our focus on safety, health and environmental markets with long-term growth drivers is enabling us to continue to find growth opportunities.

Trading trends
We achieved strong revenue growth of 17% in Asia Pacific and Australasia including 32% revenue growth in China. Revenue growth of 6% in Africa, Near and Middle East and the Americas (ex-USA) contributed to the proportion of revenue from outside the UK/Europe/USA increasing to 25% of the Group total (2011/12: 23%), making further progress towards our goal of 30% by 2015. In absolute terms, half of our revenue growth during the period was generated from those regions.

There was a resilient trading performance in developed markets. Revenue grew by 19% in the USA which offset the performances in Europe and the UK, where revenue was down by 3% and 6% respectively. Acquisitions, disposals and currency rate changes had a significant impact on these figures. Taking these factors into account, we estimate that the underlying organic¹ growth rates at constant currency were as follows: USA up 2%, Europe up 0.3% and UK down 2%.

Order intake in the first half was slightly ahead of revenue – a trading pattern which has continued into the second half.

Sector performances
Health and Analysis grew revenue by 12% to £135.2m (2011/12: £121.1m) and profit by 10% to £30.9m (2011/12: £28.0m). Return on Sales remained strong at 22.9% (2011/12: 23.1%). Our Water and Health Optics sub-sectors performed well, although we expect growth in Water to slow in the second half as UK water utilities move into the latter phases of their 5-year budget cycle. As forecast, Fluid Technology achieved a steady recovery as we progressed through 2012, although this was in contrast to Photonics where strong growth in Asia was insufficient to fully mitigate the impact of lower demand from US government research customers.

Infrastructure Sensor revenue was 1% lower at £100.5m (2011/12: £101.1m) whilst profit was down by 2% at £18.9m (2011/12: £19.4m). Return on Sales was slightly lower at 18.8% (2011/12: 19.2%). As forecast, there were one-off costs of £1m during the period, predominantly to complete the reorganisation of our European and Asian Elevator Safety businesses. This was completed on schedule in September 2012 so we expect to see the benefit of these changes emerge more strongly during the second half. Fire Detection, Elevator Safety and Security Sensors all achieved modest revenue increases whilst our Automatic Door Sensors business saw lower revenue due to weakness in European markets.

Industrial Safety had another strong performance with revenue increasing by 8% to £62.5m (2011/12: £58.0m) and profit up by 13% to £15.3m (2011/12: £13.6m). Return on Sales of 24.5% (2011/12: 23.4%) remained the highest of our three sectors. Gas Detection, Safety Interlocks and Bursting Disks all performed strongly and it was pleasing to see higher growth from regions outside the UK/Europe/USA. The disposal of our Asset Monitoring business in August 2012 (see details below) will further increase the proportion of this sector’s revenues from developing markets. In the longer term, this will be boosted further by the increased internal collaboration to serve Industrial customers in South America.

Acquisitions and disposals
During the period we spent £66m (plus up to £7m in earn-outs based on future growth) acquiring three companies for our Health and Analysis sector, details of which were given in Halma’s Annual Report 2012 and this Half Year Report. All three businesses are trading well, with Accutome and SunTech already progressing new opportunities through collaboration with our other Health Optics companies and Sensorex continuing to grow sales of its water quality sensors.

In August 2012, we sold our Asset Monitoring business, Tritech, to a UK subsidiary of Moog Inc. for a total consideration of £21.8m. We acquired Tritech in 2006 as our first entry into the subsea asset market and, whilst it has performed well, we believe we can create greater shareholder value by reallocating resources to other sub-sectors. Moog’s presence in marine energy markets will enable Tritech to make strong progress under their ownership. A gain of £8.2m has been recognised in the Group Income Statement after accounting for the disposal of these assets, including the associated goodwill.

Although the first half was a busy period for M&A, our search for acquisition opportunities continues. We are aiming to increase the number of prospects within our two safety-related sectors (Infrastructure Sensors and Industrial Safety) although currently the majority of opportunities in our pipeline are still within our Medical and Environmental related sector (Health and Analysis).

Cash generation and financial resources
There was good cash generation during the first half year, when dividend payments tend to be greater than those made in the second half. We ended the period with net debt of £74.1m (March 2012: £18.7m) after funding acquisitions (net of disposals) of £62.5m (2011/12: £19.9m) and capital expenditure of £8.1m (2011/12: £8.4m). We have a £260m 5-year revolving credit facility in place until October 2016 so we are in a strong financial position to support our future investment.

Investment for growth
Halma increased investment in each of the three strategic initiatives which underpin the sustainability of our growth and high returns:

• Investment in Innovation increased across all three sectors. R&D expenditure grew by 11% to £14.9m (2011/12: £13.4m).

• In October 2012, a group of graduates started the first Halma Graduate Development Programme (HGDP) underpinning our commitment to People Development. This programme will provide them with a series of six-month placements in Halma companies across the world. The first group of nine technical graduates includes a mix from leading universities in the UK and USA. Recruitment for the 2013 HGDP is already underway.

• Halma companies are working together to accelerate the pace of International Expansion. In China, our Fluid Technology companies have created a combined manufacturing company, whilst in Brazil our Industrial Safety businesses are together establishing a trading company to serve key Oil, Gas and Process industry customers in that region.

Risks and uncertainties
There are no significant changes to the risks and uncertainties in the Annual Report and on this website. These are summarised in note 13 of this Half Year Report.

Summary
To meet the challenge of sustaining growth and high returns, the need to create competitive advantage is more critical than ever. Halma’s business model is to operate with a diverse group of global businesses. Each has a management team empowered to adapt and allocate resources as the needs of their niche markets change leaving them well positioned to succeed.

Our focus on building strong positions in markets with sustainable, long-term growth drivers such as Health and Safety regulation, increasing demand for healthcare and the need for life-critical resources (including energy and water) is providing both resilience and opportunities to grow. Order intake continues to be slightly ahead of revenue and Halma remains on track to make further progress in the second half of the year.

1. 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’ 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

20 November 2012

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 (1.4 MB). To download, right click on the link next to the red PDF symbol below and select 'Save Target As...'.

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Half Year Report for the 26 Weeks to 29 September 2012 (1.4 MB PDF)