Press Releases - Half Year Report 2013/14

Half Year Report 2013/14

19 November 2013

Record first half 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 28 September 2013.

Highlights include:

• Revenue from continuing operations up 12% to £333.1m (2012/13: £298.1m) and adjusted profit¹ up 9% at £65.1m (2012/13: £59.7m²).
• Organic growth³: revenue up 8%, profit up 5% (at constant currency up 6% and 2% respectively).
• Widespread revenue growth: Asia Pacific up 15%, including 32% in China, USA up 15%, UK up 9% and Europe up 8%. Organic growth in all regions.
• Revenue growth in all four sectors, excluding prior year disposal. Good profit growth in Process Safety, Infrastructure Safety and Medical. Environmental & Analysis reorganisation on track, to be completed in the second half.
• Adjusted earnings per share from continuing operations⁴ up 7% to 12.99p (2012/13: 12.12p). Statutory earnings per share down 13% to 11.28p (2012/13: 12.93p²) as prior year benefited from significant gain on disposal.
• Interim dividend of 4.35p per share, up 7% (2012/13: 4.06p).
• Net debt of £110m (March 2013: £110m). Strong financial position underpinned by good operating cashflow. Financial capacity for further organic growth and acquisitions. Acquisition pipeline remains healthy.

Andrew Williams, Chief Executive of Halma, commented:

"Halma made strong progress during the period, achieving record revenue and profit, while continuing to increase investment in Innovation, People Development and International Expansion. Order intake since the period end has continued to be slightly ahead of revenue and in line with our expectations. 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 £9.1m charge (2012/13: £1.4m credit). See note 2 to the Condensed Financial Statements.

2. The Group adopted IAS 19 (revised) in 2013/14, which changed the accounting for defined benefit pension plans. The prior period has been restated resulting in a £1.1m reduction in its adjusted profit¹. The consequent change to the prior period’s adjusted earnings per share⁴ is shown in note 1 to the Condensed Financial Statements.

3. Organic growth rates are non-GAAP performance measures used by management to assess underlying performance. See note 9 to the Condensed Financial Statements.

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 to the Condensed Financial Statements.

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 four business sectors:

   • Process Safety
     Products which protect assets and people at work.

   • Infrastructure Safety
     Products which detect hazards to protect assets and people in public spaces and commercial buildings.

   • Medical
     Products used to improve personal and public health.

   • Environmental & Analysis
     Products and technologies for analysis in safety, life sciences and environmental markets.

   The key characteristics of Halma's businesses are that they are based on specialist technology and application knowledge, offering strong growth potential. Many Group businesses are market leaders in their specialist field.

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 2013 either by post or online at www.halma.com and will be available to the general public online 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 plc

Half year results for the 26 weeks to 28 September 2013

Financial Highlights

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 £9.1m charge (2012/13: £1.4m credit). See note 2 to the Condensed Financial Statements for details.

2. The decrease in statutory figures is primarily due to the prior period benefiting from a £8.2m gain on disposal of operations. See notes 2, 6 and 11 to the Condensed Financial Statements for details.

3. 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 Condensed Financial Statements for details.

4. Interim dividend declared per share.

5. Return on Sales is defined as adjusted¹ profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.

6. 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 to the Condensed Financial Statements for details.

7. The Group adopted IAS 19 (revised) in 2013/14, which changed the accounting for defined benefit pension plans. The prior period has been restated resulting in a £1.1m reduction in its adjusted profit¹. The consequent change to the prior period's adjusted earnings per share³ is shown in note 1 to the Condensed Financial Statements.

Review of operations

Halma made strong progress during the period, achieving record revenue and profit while continuing to increase investment in Innovation, People Development and International Expansion.

Strong half year results
Revenue growth was encouraging. Total revenue increased by 12% to £333m (2012/13: £298m) with organic growth¹ of 8% including a 2% positive benefit from currency movements. Excluding disposed companies, total revenue growth was 14%.

Adjusted¹ profit before tax increased by 9% to £65.1m (2012/13: £59.7m) with organic growth of 5% including a 3% positive benefit from currency movements. Excluding disposed companies, profit growth was 11%. Statutory profit before tax was lower at £55.9m (2012/13: £61.1m), due to the £8m gain on the disposal in 2012/13 of our Asset Monitoring business, Tritech (see note 11 to the Condensed Financial Statements for details).

Return on Sales¹ remained strong at 19.5% (2012/13: 20.0%) albeit marginally lower than the prior year mainly due to increasing strategic investment to support future growth. This included the Halma Innovation & Technology Exposition (HITE) 2013, the second-year roll out of the Halma Graduate Development Programme and expansion in Brazil and China.

As flagged in the 2013 Annual Report and Accounts, IAS 19 (revised) 'Employee Benefits' has been adopted amending the accounting for pensions, in particular, within the Consolidated Income Statement. We have restated the prior year figures to reflect this change. In broad terms, IAS 19 has reduced 2013/14 first half adjusted profit by £1.2m (2012/13 restatement: £1.1m reduction) when compared with the previous basis of accounting and the full year profit impact is expected to be a £2.4m reduction (2013 restatement: £2.1m reduction). Further details are given in note 1 to the Condensed Financial Statements.

Increasing Dividends
The Board declares a 7% increase in the interim dividend to 4.35 pence per share which will be paid on 5 February 2014 to shareholders on the register at 3 January 2014. This increase reflects the Board’s ongoing confidence in Halma's long-term growth prospects.

Organic revenue growth in all regions
Revenue from Asia Pacific increased by 15% to £56m (2012/13: £49m) including 32% growth in China. Revenue from outside our traditional home markets in the USA, Mainland Europe and UK contributed 25.2% of the Group total (2012/13: 24.8%). However, growth within the USA, Mainland Europe and UK was also encouraging. In the USA, revenue grew by 15% to £108m (2012/13: £93m) whilst Mainland Europe and UK revenue was up by 8% and 9% respectively. Organic revenue growth at constant currency was 6% in the USA, 4% in Mainland Europe and 6% in the UK.

Organic revenue growth in all sectors
Process Safety revenue from continuing operations (excluding the prior year disposal) increased by 8% to £62m (2012/13: £57m) including 7% organic growth at constant currency. Profit from continuing operations (excluding the prior year disposal) improved 11% to £16.1m (2012/13: £14.5m). Strong growth in the USA, Asia Pacific and Near/Middle East more than compensated for lower growth in the UK and Mainland Europe. All major product lines made good progress with a particularly strong performance from our Bursting Disk explosion protection businesses. We are seeing good opportunities in the oil and gas markets as operators seek to improve the safety of their processes.

Infrastructure Safety revenue grew by 7% to £107m (2012/13: £101m) including 4% organic growth at constant currency. Profit improved by 10% to £20.6m (2012/13: £18.8m). Revenue was up in all geographic regions with the highest rates of growth in the USA and Mainland Europe. All major product lines contributed to growth supported by strengthening Health and Safety regulation and increasing Halma investment to diversify into new market niches both organically and through acquisition.

Our Medical sector achieved another strong performance boosted by recent acquisitions. Revenue increased by 36% to £81m (2012/13: £60m) including 11% organic growth at constant currency. Profit grew by 27% to £19.6m (2012/13: £15.4m). Profit growth was below revenue growth due to a combination of increased investment in international expansion and recent acquisitions having slightly lower net margins than the sector. Growth was delivered in all regions with the highest growth in the USA, Asia Pacific and Near/Middle East. Although there have been some macro-economic headwind factors in our largest market, the USA, the performance of our recent acquisitions has been good. Our Chinese based business Longer Pump, acquired in January 2013, is trading in line with expectations.

Environmental & Analysis revenue increased by 9% to £83m (2012/13: £75m) with organic growth at constant currency of 3%. Profit reduced by 3% to £15.0m (2012/13: £15.5m) predominantly due to the previously announced restructuring within our Photonics companies and the cost of addressing a supplier component quality issue within our Water Monitoring business. The Photonics reorganisation, which includes both consolidation in the USA and the creation of a new standalone company in China, is proceeding satisfactorily with completion now expected by the end of the financial year. Taking these adverse factors into account, the rate of revenue growth within the Environmental & Analysis sector during the first half has been encouraging, and we believe we will end the year well placed to resume profit growth.

Good cash generation
Our operating companies maintained good cash generation in line with the typical pattern we see in the first half of the year. Cash conversion (adjusted operating cash flow as a % of adjusted operating profit – see note 9 to the Condensed Financial Statements for details) was 86% (2012/13: 81%) which, together with investment, dividend and tax payments, resulted in net debt of £109.8m (2012/13: £74.1m) at the end of the period. We remain in a strong financial position and our objective is to keep headroom within our financial resources for investment, with moderate levels of gearing relative to the size of our business. We aim to operate with net debt of up to 1.25x EBITDA giving flexibility should suitable investment opportunities arise.

Healthy acquisition pipeline
Following the six acquisitions completed in 2012/13, the first half of 2013/14 was quieter with one small bolt-on deal completed.

In April 2013, we acquired Talentum Developments Limited for an initial consideration of £2.6m. Talentum, based in the UK, manufactures flame detectors and is being merged with our fire beam detector business, Fire Fighting Enterprises. This adds a new product line to our Fire business which forms part of the Infrastructure Safety sector.

Our search effort for new additions to the Group has been maintained and, as targeted, we are finding more opportunities in our Safety sectors and in Asia. Our pipeline is good in both quality and quantity, providing sufficient opportunities for further acquisitions to meet our medium-term growth objectives.

Investment for organic growth
Within our financial and business model, organic growth is the factor which determines our sustainable rate of shareholder return over the long term. Although from year to year the relative rates of revenue and profit growth might fluctuate, our goal is to increase profits by growing revenue while maintaining our already high rate of return. This requires a sustained investment in people, products and markets. Highlights of this investment during the half year included:

• Investment in innovation grew across all four sectors with total R&D expenditure up by 10% to £16.4m (2012/13: £14.9m). HITE 2013, held in Orlando, was attended by over 250 subsidiary company employees and demonstrated clearly the increased technical, commercial and operational collaboration embedded within Halma’s culture. Notable areas of significant technical collaboration included wireless technology and optical sensing.

• Following a successful launch in October 2012, the second intake of nine graduates for the Halma Graduate Development Programme has joined us and commenced their two-year programme of six-month placements in Halma businesses across the world. Our first graduate intake has made a very positive impact on our organisation and they are starting to set their sights on potential permanent opportunities within our business starting in the second half of 2014.

• The new Medical sector and Process Safety sector hubs in Brazil are operational while in China, subsidiaries are recruiting new engineers under the Halma China R&D subsidy programme launched in April 2013. Here, Halma supports the cost of companies employing additional engineers for two years to work on developing new products targeted specifically at local customers.

Risks and uncertainties
A number of potential risks and uncertainties exist which could have a material impact on the Group’s performance over the second half of the financial year and could cause actual results to differ materially from expected and historical results. The Group has in place processes for identifying, evaluating and managing key risks. These risks, together with a description of the approach to mitigating them, are set out on pages 53 to 55 in the 2013 Annual Report and Accounts, which is available on the Group’s website at www.halma.com. The principal risks and uncertainties relate to operational, strategic, legal, financial and economic issues. See note 14 to the Condensed Financial Statements for further details. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the 2013 Annual Report and Accounts and that they remain relevant for the second half of the financial year. However macro-economic uncertainty and movements in foreign exchange rates remain a risk to financial performance.

Going concern
After conducting a review of the Group's financial resources, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Condensed Financial Statements.

Board changes
In April 2013, we welcomed Paul Walker to the Board and he assumed the role of Chairman following Geoff Unwin’s retirement after the AGM in July 2013. Paul’s induction has proceeded very well including his attendance at HITE 2013, Halma subsidiary site visits and supporting our People Development programmes.

Outlook
We operate in markets which offer us the opportunity to sustain growth and high returns providing we implement our strategy effectively. To do so requires us to maintain a balance between growth and investment and, as such, we have made good progress during the first half of the year. Order intake since the period end has continued to be slightly ahead of revenue and in line with our expectations. Halma remains on track to make further progress in the second half of the year.

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

1 see Financial Highlights

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Half Year Report for the 26 weeks to 28 September 2013 (1.9 MB, PDF)