TIDMHLMA
RNS Number : 8826S
Halma PLC
14 July 2020
HALMA plc
FULL YEAR RESULTS 2020
Halma, the global group of life-saving technology companies
focused on growing a safer, cleaner and healthier future, today
announces its full year results for the 12 months to 31 March
2020.
Highlights
Change 2020 2019
Continuing Operations
Revenue +11% GBP1,338.4m GBP1,210.9m
Adjusted Profit before Taxation(1) +9% GBP267.0m GBP245.7m
Adjusted Earnings per Share(2, 3) +9% 57.39p 52.74p
Statutory Profit before Taxation +8% GBP224.1m GBP206.7m
Statutory Earnings per Share +9% 48.66p 44.78p
Total Dividend per Share(4) +5% 16.50p 15.71p
Return on Sales(5) 19.9% 20.3%
Return on Total Invested Capital(3) 15.3% 16.1%
Net Debt(6) GBP375.3m GBP232.0m
-- Record revenue and profit for the 17(th) consecutive year.
-- Good growth with revenue up 11%, Adjusted(1) profit before
tax up 9% and statutory profit before tax up 8%.
-- Solid organic constant currency revenue growth(3) of 5%;
organic constant currency(3) Adjusted(1) profit before tax growth
of 2%, or 4% excluding GBP5.0m of COVID-19-related customer bad
debt provisions.
-- Widespread growth: All sectors delivered revenue growth and
three out of four sectors grew Adjusted(1) operating profit.
Revenue grew in all major regions on a reported and organic
constant currency basis(3) .
-- Strong contribution from acquisitions, adding 5% to revenue
and Adjusted(1) profit before tax growth; ten acquisitions
completed and healthy acquisition pipeline.
-- Continued increased investment while maintaining high Return
on Sales(5) and ROTIC(3) . R&D expenditure up 14%, representing
5.4% of revenue.
-- Strong cash generation, with cash conversion of 97%, and
robust balance sheet and liquidity position with gearing (net debt
to EBITDA) at the year-end of 1.1 times.
-- Total dividend for the year(7) up 5%, the 41(st) consecutive
year of dividend per share increases of 5% or more.
-- Resilient Q1 FY2021 trading: revenue 4% lower than in Q1
FY2020 reflecting the 'non-discretionary' demand for many Halma
products; good cash generation; order intake ahead of revenue and
the same period last year.
-- Timing and profile of recovery remains uncertain; currently
expect Adjusted(1) profit before tax for FY2021 to be 5%-10% below
FY2020, and more weighted to the second half than in previous
years.
Andrew Williams, Group Chief Executive of Halma, commented:
"Halma delivered a record financial performance in the past
year, and trading in the first quarter has been resilient despite
the effects of the COVID-19 pandemic. This reflects our clear
purpose and focused strategy, our flexible and agile organisation,
and the resilient, long-term growth drivers in our chosen markets.
We expect these strengths, combined with the quality of our people
and our increasing investment in innovation and technology, to
enable us to continue to create value for all of our key
stakeholders in the years ahead."
Notes
1 Adjusted to remove the amortisation of acquired intangible assets,
acquisition items, significant restructuring costs, profit or
loss on disposal of operations and in the prior year the effect
of equalising pension benefits for men and women in the defined
benefit pension plans, totaling GBP42.9m (2019: GBP39.0m). See
note 1 to the Results for details.
2 Adjusted to remove the amortisation of acquired intangible assets,
acquisition items, significant restructuring costs, profit or
loss on disposal of operations, in the prior year the effect
of equalising pension benefits for men and women in the defined
benefit pension plans and the associated taxation thereon. See
note 2 to the Results for details.
3 Adjusted(1) Profit before Taxation, Adjusted(1) Earnings per
Share, organic growth rates, Return on Sales(5) and Return on
Total Invested Capital (ROTIC) are alternative performance measures
used by management. See notes 1 , 2 and 3 to the Results for
details.
4 Total dividend paid and proposed per share.
5 Return on Sales is defined as Adjusted(1) Profit before Taxation
from continuing operations expressed as a percentage of revenue
from continuing operations.
6 Includes IFRS 16 lease liabilities of GBP61.5m (2019: GBP50.3m).
7 Comprising interim dividend of 6.54p and proposed final dividend
of 9.96p.
For further information, please contact:
Halma plc
Andrew Williams, Group Chief
Executive
Marc Ronchetti, Chief Financial +44 (0)1494 721 111
Officer
Charles King, Head of Investor
Relations +44 (0)7776 685948
MHP Communications
Rachel Hirst/Andrew Jaques/Giles
Robinson +44 (0)20 3128 8788
A copy of this announcement, together with other information
about Halma, may be viewed on the Group's website: www.halma.com
. A webcast of today's results presentation will be available
on the same website later today.
NOTE TO EDITORS
1. Halma is a global group of life-saving technology companies,
focused on growing a safer, cleaner and healthier future for
everyone, every day. Our innovative products and solutions address
many of the key issues facing the world today. The Group comprises
four business sectors:
-- Process Safety Technologies that protect people and assets
at work.
-- Infrastructure Safety Technologies that save lives, protect infrastructure
and enable safe movement in public spaces.
-- Environmental & Technologies to improve environmental protection
Analysis and the security of life-critical resources.
-- Medical Technologies which enhance the quality
of life for patients and improve the quality
of care delivered by healthcare providers.
The key characteristics of Halma's businesses are specialist
technology and application knowledge for niches within markets
offering strong long-term growth potential. Many Group businesses
are market leaders in their specialist fields.
2. You can view or download copies of this announcement and the
latest Half Year and Annual Reports from the website at www.halma.com
.
3. 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 .
Strategic Review
Halma's purpose is to grow a safer, cleaner, healthier future,
for everyone, every day. We play a positive role in society by
addressing some of the world's most fundamental needs and
challenges, from safer work and public spaces, to a cleaner, more
sustainable environment, and improved medical care.
We have a clear and sustainable growth strategy, with a
disciplined approach to choosing the markets in which we invest.
This is supported by a flexible and agile organisation which means
we can rapidly evolve and adapt to the changing needs of our
customers. We attract talented people, who are aligned with our
purpose, share our values and fit well into our inclusive culture
of collaboration, entrepreneurialism and integrity.
These elements have supported our further progress in the year,
and particularly in our response to COVID-19 which emerged in the
final quarter. Importantly, I also believe that they have become
increasingly vital in positioning Halma to meet the new challenges
and opportunities which are emerging, as we continue to create
value for all our stakeholders.
Halma has a long track record of successfully adapting to
societal shifts and evolving markets. Increased awareness of the
profound and global nature of the challenges we all face, whether
specifically from the COVID-19 pandemic or longer-term trends such
as climate change and growing, ageing and urbanising populations,
has further reinforced the importance of our purpose, as well as
our business model which can adapt swiftly to changing market
needs. In recent years, we have also been increasing our organic
and inorganic investment in digital technologies, which is likely
to be accelerated further in the future.
In recent months, our focus has been the safety and well-being
of all our stakeholders, and I am proud of the way in which
everyone at Halma has addressed the challenges they have faced,
both personally and professionally. They have ensured the continued
supply of life-critical products to our customers, contributed
directly and indirectly to the global fight against COVID-19, while
protecting the health and safety of their colleagues and
communities. I would like to thank them all for their hard work,
dedication and determination in such challenging circumstances.
In this review, I will first look back at Halma's performance
during the last financial year and then take a deeper dive into our
response to the COVID-19 pandemic, our performance since the
year-end and our prospects for the future.
Review of the 2019/2020 financial year
Record revenue and profit with strong returns
We delivered another record year for revenue and profit driven
by solid organic growth and a record year for acquisitions.
Revenue increased by 11% to GBP1,338m (2019: GBP1,211m),
including 5% organic constant currency revenue growth and a
contribution from acquisitions of 5% (4% net of disposals). There
was a benefit to revenue growth of 2% from currency translation,
which principally arose in the first half of the year. We estimate
that the adverse impact of COVID-19 during the final quarter was a
reduction of approximately 1% on full year revenue.
Adjusted(1) profit rose by 9% to GBP267.0m (2019: GBP245.7m).
This comprised 2% organic constant currency growth, or 4% excluding
GBP5.0m of bad debt provisions in the second half of the year given
the possible impacts of COVID-19. There was a 5% contribution from
acquisitions (also 5% net of disposals) and a 2% benefit from
currency translation.
Statutory profit before taxation increased by 8% to GBP224.1m
(2019: GBP206.7m).
Returns remained at a high level. Return on Sales(1) was 19.9%
(2019: 20.3%), within our target range of 18% - 22%. The post-tax
Return on Total Invested Capital(1) was 15.3% (2019: 16.1%), well
above our estimated Weighted Average Cost of Capital of 7.7%. This
slight reduction reflected a lower level of constant currency
earnings growth than in the prior year, the increase in provisions,
and also the weakening of Sterling against foreign currencies,
which has a greater proportional effect on capital employed than on
returns.
We completed a record 10 acquisitions during the year spread
across all four sectors. Annualised profit growth acquired equated
to around 6% of Halma's earnings, ahead of our KPI of acquiring
growth of 5% or more. This reflected our investment in increased
M&A capability at the sector and company level in
recent years.
Strong cash generation and robust balance sheet and
liquidity
Cash generation was strong with cash conversion of 97% (2019:
88%). This excellent performance was primarily driven by good
working capital control, and by the positive effects on cash
conversion of the implementation of IFRS 16, the leasing accounting
standard (a 5% benefit), and the increase in provisions (a 2%
benefit).
The year ended with net debt of GBP375.3m, which included for
the first time GBP61.5m of lease liabilities as a result of the
implementation of IFRS 16. Excluding these lease liabilities, net
debt increased to GBP313.8m (2019: GBP181.7m), after spending
GBP242.6m on current year acquisitions (2019: GBP68.1m) and
GBP32.3m on capital expenditure, as well as paying dividends to
shareholders of GBP61.2m and tax of GBP52.4m.
Our balance sheet and liquidity position remain robust. Gearing
(net debt to EBITDA) at the year-end was 1.13 times (2019: 0.63
times), at the lower end of our targeted range of 1-2 times, and we
have committed facilities totalling approximately GBP 750m (at
year-end exchange rates). The earliest maturity in these facilities
is for GBP74m (at year-end exchange rates) in January 2021, with
the remaining maturities from 2023 onward. We therefore do not
intend to access funding from the UK Government's Covid Corporate
Financing Facility (CCFF).
Annual dividend to increase by 5%
The Board is recommending a 3.8% increase in the final dividend
to 9.96p per share (2019: 9.60p per share). Together with the 6.54p
per share interim dividend, this would result in a total dividend
for the year of 16.50p (2019: 15.71p), up 5%, making this the 41st
consecutive year of dividend per share growth of 5% or more.
The final dividend for 2020 is subject to approval by
shareholders at the AGM on 4 September 2020 and is expected to be
paid on 1 October 2020 to shareholders on the register as at 28
August 2020.
Revenue growth in all major regions
We delivered revenue growth in all major regions, on a reported
and organic constant currency basis, reflecting the global nature
of the growth opportunities in our chosen markets of safety, health
and the environment.
The USA, the UK and Asia Pacific performed strongly. The USA,
our largest region, and the UK each delivered their second
consecutive year of double-digit revenue growth, with increases of
15% and 10% respectively. Both regions achieved organic constant
currency revenue growth of 8%.
Asia Pacific delivered the strongest reported growth, of 16%,
principally driven by a good contribution from the acquisition of
Ampac, based in Australia, which we completed in July 2019. Organic
growth in Asia Pacific was more modest at 4%, in part reflecting a
decline of 4% in China mainly as a result of the impact of the
COVID-19 pandemic for most of the final quarter of the year. There
was good organic growth in most other major markets in the
region.
Mainland Europe grew revenue by 4%, including 1% organic
constant currency growth, against a strong performance last year
which had benefited from some large contracts. In the Rest of the
World, revenue was ahead overall, with a reduction in Africa, Near
and Middle East more than offset by growth in Other countries,
which included a strong performance in Canada.
Revenue growth in all sectors
All sectors delivered record revenue, and three out of four
sectors delivered record Adjusted (1) profit. This widespread
growth represented a good performance given strong prior year
comparatives and the effects, later in the year, of the COVID-19
pandemic. The following is a brief summary of each sector's
performance with further details set out below in the sector
reviews.
The Environmental & Analysis sector delivered a strong
performance for the third consecutive year, supported by some large
Optical Analysis projects together with continued new product
development and increasing regulatory requirements in the UK water
market, with profit growth consistent with that of revenue. Return
on Sales was similar to last year.
Infrastructure Safety also performed strongly, with reported
revenue growth benefiting from recent acquisitions, notably Ampac
in Australia. Although organic revenue growth slowed in the second
half, the benefit of recent investments in automation and improved
mix management towards higher margin products resulted in stronger
organic profit growth. There was also an improvement in Return on
Sales, despite a GBP2.1m increase in provisions for the risk of
COVID-19 related customer bad debts.
The Medical sector reported good revenue growth, with solid
contributions from both organic growth and recent acquisitions. The
reported profit increase was more modest, resulting in a decline in
Return on Sales. There was higher R&D investment to generate
future growth and a net charge of GBP2.5m reported in the first
half of the year principally related to the rationalisation of
product development strategies in two ophthalmic companies to
improve their growth and profitability over the medium term. The
sector's results also included a GBP1.1m increase in provisions for
the risk of COVID-19 related customer bad debts, resulting in a
decrease in organic profit growth.
Process Safety reported a small increase in revenue, including
the benefit of the Sensit acquisition and further good progress in
the USA from a large logistics contract. However, unfavourable
conditions in the US onshore oil and gas market, together with some
customer project delays and a temporary site closure in California
in the fourth quarter due to COVID-19, resulted in a decline in
organic revenue, profit and Return on Sales.
Ten acquisitions completed across all four sectors
Halma's decentralised organisational model gives us the ability
to continue acquiring small- to medium-sized businesses to achieve
our strategic objectives. We are also able to sell and merge
businesses relatively easily, should specific market dynamics
change, enabling us to maintain a growth-oriented portfolio without
becoming significantly more complex to manage. For example, in 2010
Halma had revenue of GBP 459m from 36 operating companies, while
today we have revenue of over GBP1.3bn from 44 operating
companies.
Our core acquisition strategy is to find privately owned
businesses operating in niches which are aligned with our purpose
and which demonstrate long-term structural market growth. We focus
most of our search efforts on our core, or closely adjacent, market
niches although each sector board has the freedom to find new
niches which might have the right product, market and financial
characteristics. Every transaction is approved by the Group Chief
Executive and Chief Financial Officer, with all deals over GBP 10m
requiring Board approval.
We have a healthy acquisition pipeline and, with increased
capability added at the sector and company level in recent years,
this translated into a record 10 acquisitions being completed in
the year for a total initial cash consideration (including fees) of
GBP 231m. These were spread across all four sectors, with
performance in line with expectations during the year and we expect
good contributions from them in the future. Full details of the
acquisitions made in the year are given in note 9 to the Financial
Statements.
In 2019, we added new expertise to manage and support small,
minority investments that can bring new technology and capabilities
to Halma without us taking full ownership. During the year we made
two small strategic investments, totalling GBP 4.8m, in Valencell,
which provides wearable biometric solutions and Owlytics, focused
on wearable-based analytics technology. In the period, we also sold
our interest in Optomed Oy, a manufacturer of handheld fundus
cameras, at the time of its IPO in December 2019, for GBP 6.8m (net
of disposal costs) with a small net gain on our investment of GBP
2.9m.
For reasons of financial prudence during the COVID-19 pandemic,
we do not plan to complete any acquisitions in the first half of
financial year 2020/21. However, our M&A search efforts are
continuing, and we have a good pipeline of potential acquisitions
should conditions become more favourable in the second half.
We continue to build long-term relationships with business
owners so that they see Halma as the right home for their business
when they decide to sell, or as a strong strategic partner to help
them grow their businesses.
Investment in central and Growth Enabler teams to support our
growth strategy
With the rapid growth and evolution of the Group, we made
further investments in the year in our central and Growth Enabler
resources, which provide high level expertise and resources to our
companies to support their growth. We made further good progress on
our Halma 4.0 strategy, through which our companies are addressing
the diverse challenges and opportunities presented by the digital
age.
We increased strategic investment in our IT capabilities, to
ensure that we have a future-ready technology infrastructure and
digital architecture to support both our decentralised operational
needs and the development of our digital growth initiatives. This
will be an area of increased focus in the coming year, given the
opportunities arising as a result of the COVID-19 pandemic, for
example in enabling remote monitoring of safety and environmental
systems, as well as in ensuring hygiene and facilitating remote
diagnosis in healthcare.
We continued to strengthen our finance, internal audit, risk and
legal teams to support continued strong governance, compliance and
reporting as the Group grows. We also invested in our other Growth
Enablers, for example in adding M&A capabilities in
Asia-Pacific, and strengthening our Talent, Innovation and Digital
Growth teams. These increased resources have already supported the
purchase of several companies with digital business models, which
this year included FireMate in Australia and Invenio in the UK.
Our companies increased their investment to support core growth,
for example in new product development, with R&D spend up 14%
to GBP 72m (2019: GBP 63m). Having achieved a major cultural
mindset shift over the past three years, our innovation and digital
accelerator programmes were re-focused from ideas generation onto
the commercialisation of ideas and improving the speed and cost of
innovation.
We launched a new Digital Execution Accelerator programme and an
Agile NPD (New Product Development) Engine to help our companies
shorten the time from investment to revenue, by addressing specific
areas of challenge, such as the development of new routes to market
and new technology. Approximately 7% of our revenues are currently
derived from digital solutions and services or connected products
(products which can transmit data wirelessly, for example through
Wi-Fi or a cellular network, without the need for a further gateway
device). In total, we currently have over 20 Digital and Agile NPD
projects involving all four sectors.
To leverage the existing capabilities within Halma companies, we
created a Digital Champions Network, to share expertise and to
further embed innovation and digital programmes and tools across
the Group. We also continued to build our external partnerships,
with our collaboration with Hitachi's Centre of Excellence in
Lisbon currently supporting the development of seven projects.
Examples include: the remote monitoring of fire systems; remote
diagnosis and telemedicine for vital signs monitoring and
ophthalmology; and monitoring the shelf life of fresh produce to
reduce food waste.
Our Convergence Accelerator, which combines our existing
capabilities and technologies to create new solutions and business
models has had another productive year. An example is a new
integrated warehouse safety solution, called SCOPE, which combines
technologies and capabilities from companies in three sectors. It
combines expertise from people and vehicle flow (Infrastructure
Safety), safety interlocks (Process Safety), and real-time location
monitoring technology (Medical). We expect field trials of
prototype SCOPE systems to begin in the next year.
Talent and Executive Board changes
The quality and diversity of our leaders and teams is a critical
component of Halma's success. Their commitment and dedication have
played a key role in our resilient response to the challenges
presented by COVID-19.
We are committed to ensuring that Halma is an inclusive
organisation, thereby maximising the pool of talent available to us
and ensuring we recruit and retain the best people for each role.
We are actively addressing the need for increasing diversity within
our subsidiary companies' leadership teams by embedding strong
diversity and inclusion principles.
One measure of inclusion is gender diversity, which on the Board
has improved from 18% female six years ago to 40% today. We are
also making encouraging progress in executive leadership with both
our Executive Board roles and the Divisional Chief Executives on
our Sector Boards on track to achieve gender parity in the next
year. Neither of these groups had any female representation six
years ago.
We fully recognise the value of having a variety of voices,
backgrounds and experiences within our leadership teams and realise
that we have more work to do to increase ethnic diversity. Our
recruitment patterns will be actively influenced by recognising the
growing talent pool of ethnically diverse candidates and by
leveraging the role models we already have within our business. We
acknowledge that many of our stakeholders, including investors,
customers and employees, regard leadership diversity as an
important factor in facing up to the challenges of the modern
world. We have begun to measure national and ethnic diversity
across our workforce, to provide a benchmark on which we can
demonstrate our progress in the future.
Several changes to the Executive Board in the past year have
added important new capabilities and increased diversity, aligned
with the needs of our growth strategy.
- In September 2019, Catherine Michel joined Halma's Executive
Board as our first Chief Technology Officer, with global
responsibility for IT and digital architecture, working closely
with Inken Braunschmidt in her role of driving the execution of
Halma's Digital and Innovation growth strategy.
- In October 2019, as planned, Laura Stoltenberg succeeded Adam
Meyers as Sector Chief Executive for the Medical &
Environmental sectors, which was followed by an extensive handover
period up to March.
- In July 2020, Adam Meyers succeeded Paul Simmons as Sector
Chief Executive of our Safety sectors, following the announcement
in April 2020 that Paul will leave Halma to join Hill & Smith
plc as Chief Executive Designate. Adam has agreed to defer his
retirement from Halma until 2021, to allow an orderly succession
process to be completed.
Later in 2020, we look forward to welcoming Funmi Adegoke to
Halma's Executive Board as our General Counsel, replacing Ruwan De
Soyza who resigned from Halma early in the year. Mark Jenkins has
been re-appointed as Company Secretary.
Further progress in sustainability and living our purpose
Our purpose of growing a safer, cleaner, healthier future for
everyone, every day is the foundation for our approach to
sustainability. To meet the ambition which is embodied in our
purpose, it is critical that our companies remain sustainable over
the long term, since the issues that we help our customers address,
in ensuring safety and protecting health and the environment, are
likely to persist. Sustainable business is a core part of Halma's
DNA, and we seek to demonstrate it in not just our financial
performance but also in terms of the positive role we can play in
society, and by behaving responsibly in the markets and communities
we serve.
Our further progress in the year in advancing our ESG agenda was
evident across a wide range of initiatives. These ranged from
reducing our carbon footprint and improving our CDP rating from
"Awareness C" to "Management B", to identifying Modern Slavery
risks within our supply chain, and supporting and improving
diversity and inclusion in the Group. I was also immensely pleased
with the result of our first ever group-wide charitable campaign,
Gift of Sight, and although the COVID-19 pandemic has delayed our
next campaign, we intend to launch it later this year. Further
detail on our progress in 2020 is given in the Sustainability
review of the Annual Report and Accounts 2020.
Our response to the COVID-19 pandemic
Following the initial outbreak of COVID-19 in China in January
2020, we acted quickly to support our companies, to ensure the
safety of our people, and to mitigate the potential adverse impacts
on our businesses. As this regional outbreak evolved rapidly into a
global pandemic, with health and economic challenges beyond what
any of us have experienced in our lifetimes, it has become clear
that it has some unique characteristics compared with previous
downturns which Halma is relatively well positioned to address.
Firstly, Halma's agility and diversity has proved to be a major
asset. Over many years, we have built an organisation and culture
which has been created for fast, decentralised decision making by
those closest to our stakeholders, accompanied with clear lines of
accountability.
Secondly, from an early stage it was clear that our ability to
respond rapidly needed to be tempered with the understanding that
major decisions had to be taken with a holistic view, balancing the
positive and negative impacts across all of Halma's key
stakeholders. These include our employees, suppliers, customers,
debt holders, shareholders and a wide range of community
stakeholders, including Government. I believe the actions we have
taken so far have achieved that objective and, importantly,
positioned Halma to create even greater value for all of them in
the future.
To support our companies, we created both central and regional
COVID-19 support groups, the first of which was established in
January 2020. This enabled each of our 44 companies to implement an
operating plan to suit its market and local circumstances across
our 54 principal operating facilities in the UK, the USA, Mainland
Europe and Asia Pacific. Over 30 of our companies deliver critical
safety, healthcare and environmental protection solutions and
received a mandate, or permission, from their regional or national
authorities to continue to operate during shutdown restrictions.
Only three facilities have had to implement extended shutdown
periods since the end of March and, as at the date of this report,
all our facilities are operational.
Our priority throughout the pandemic has been to ensure a safe
working environment for all Halma employees. In addition to working
from home wherever possible, measures taken have included increased
spacing between workstations, appropriate protective equipment,
staggered shifts and breaks, enhanced cleaning processes and
contingency planning, plus a ban on non-essential travel and
visitors to facilities.
Given these challenges, it was impressive to see the efforts
which many Halma employees across the world made to re-purpose
their resources and capabilities in order to manufacture personal
protective equipment for healthcare providers. Colleagues from at
least 11 Halma companies worked around the clock, individually and
collaboratively, to contribute to their national effort and
demonstrated a key characteristic of Halma's culture, which enables
our companies to do the right thing without having to seek
permission first.
As in previous downturns, we acted quickly to reduce costs,
optimise cash flow, protect liquidity and, where necessary, change
how we operate. These actions resulted in a cost reduction (net of
the cost of implementation) of over GBP20m in the first quarter of
the new financial year, compared to the previous fourth quarter's
run-rate. We implemented a significant reduction in all
discretionary overheads. We also ensured that our companies
continued to manage their working capital effectively, while
maintaining productive relationships with customers and suppliers.
We limited capital investment to essential projects and R&D
only and did not complete any acquisitions during the first quarter
of the current financial year.
We also implemented a freeze on hiring and promotions, while
company, sector and Group employees agreed to temporary salary
reductions from 1 April 2020 for a three-month period. This helped
to absorb a significant proportion of the cost savings necessary to
protect ongoing operations in the face of tremendous uncertainty,
demonstrating their support for, and commitment to, their companies
and their colleagues across Halma. The Board and Executive Board
also agreed to a 20% reduction in salaries or fees for a 3 month
period, from 1 April 2020.
Whilst a small percentage of our workforce have been furloughed
by their companies, Halma has funded this in the UK at our own
expense, without any support from the UK Government's Coronavirus
Job Retention Scheme. Unfortunately, given the significant declines
in current and forecast demand in certain businesses, it is likely
that there will be a small number of redundancies during the year
though Halma has committed to providing additional financial
support to those companies and employees which are affected. The
estimated cost of these furlough and support programmes is
approximately GBP 5m, to be taken in the first half of 2020/21.
Current trading
Trading in the first quarter of the current financial year, from
1 April 2020 to 30 June 2020, has reflected the resilience of our
business model and the essential nature of many of our products and
services. Our order book has remained strong, with order intake
ahead of revenue and ahead of the same period last year. Cash
generation remains good and we continue to have a strong balance
sheet and liquidity position. This has enabled us to alleviate some
of the more stringent cost saving measures implemented in the first
quarter.
Group revenues in the first quarter were 4% lower than the prior
year, and 13% lower on an organic constant currency basis. This
resilient performance, achieved during a period of lockdown in most
of our major regions, also highlighted the benefits of having a
diverse portfolio and agile organisational model. There was a wide
variation of performances in our companies, reflecting significant
changes in demand in individual end markets, as well as additional
production, sales and distribution challenges due to safe working
requirements and limitations on physical access to customer
sites.
These revenue trends were partially offset by the savings in
variable costs referred to above. We expect our companies to
continue to actively manage their cost bases for the remainder of
the year according to their individual market conditions.
In the Safety sectors, Infrastructure Safety saw the largest
decline in revenue, particularly in the UK, which accounts for
around a quarter of its revenue. The challenges of gaining physical
access to installation sites and the actions of customers in
furloughing a large proportion of installers of our products during
the period had a significant adverse impact. We expect this trend
to improve as lockdown restrictions ease and installers return to
work. Revenue in Process Safety also reduced, primarily driven by a
fall in demand for safety products in its oil and gas related
businesses as a result of the lower oil price.
In the Medical sector, a number of our companies, notably those
supporting the monitoring of vital signs and the oxygenation of
patients, saw strong increases in demand, while companies
supporting elective surgery and discretionary ophthalmic diagnosis
procedures experienced significant reductions, leading to an
overall decline in revenue. We expect the high demand in vital
signs and oxygenation products to moderate over the coming months,
and the demand in markets supporting elective procedures and
discretionary diagnosis to recover as healthcare systems attempt to
normalise.
The Environmental & Analysis sector achieved continued
revenue growth, with solid performances in Environmental Monitoring
and Water Analysis & Treatment and strong growth in Optical
Analysis.
Summary and Outlook
Halma's performance reflects our clear purpose, focused
strategy, agile organisational model and the resilient, long-term
growth drivers in our chosen markets. Our continued and accelerated
investment in great talent, innovation and digital technologies
will enable us to create value for all our key stakeholders in the
future.
We have previously announced that the COVID-19 pandemic was
expected to have a net adverse impact on our markets and our full
year financial results to 31 March 2021, and for those results to
have a significant second half weighting. This remains our view,
with the increased second half weighting in part due to the costs
of our employee support programmes in the second quarter.
We have delivered a resilient financial performance in the first
quarter of the new financial year, despite the initial effects of
the COVID-19 pandemic. Although the timing and profile of recovery
remains uncertain, based on recent trading and internal forecasts,
we currently expect Adjusted(1) profit before tax for the year to
31 March 2021 to be 5%-10% below that achieved in the 2020
financial year. We will provide further updates as we progress
through the current year.
Andrew Williams
Group Chief Executive
(1) See Highlights
Financial Review
Record results
Halma made good progress in the period, delivering record
revenue and profit for the 17th consecutive year, despite the
effects from the COVID-19 pandemic in the fourth quarter of the
financial year. We continued to execute well against our growth
strategy and our key performance indicators, benefiting from the
clarity of our purpose, our strong culture, our agile and
responsive business model, and our robust financial position.
Revenue for the year to 31 March 2020 increased by 10.5% to GBP
1,338.4m (2019: GBP 1,210.9m) which reflected a solid contribution
from organic growth and the benefit of recent acquisitions.
Adjusted(1) profit grew 8.7% to GBP 267.0m (2019: GBP 245.7m) and
statutory profit before taxation increased by 8.4% to GBP
224.1m
(2019: GBP 206.7m).
The Board is recommending a 3.8% increase in the final dividend
(2019: 7%), which would result in a 5.0% (2019: 7%) increase in the
total dividend for the year. This reflects our performance in the
year, our resilience in the first quarter of the current financial
year, our continued confidence in the future growth prospects of
the Group, and an equitable approach in relation to the Group's
stakeholders given the effects of the COVID-19 pandemic. The
proposed final dividend, if approved, would result in Halma
delivering the 41st consecutive year of dividend per share growth
of 5% or more.
The revenue growth of 10.5% included a 4.8% increase in organic
constant currency revenue, with acquisitions also contributing a
4.8% increase (4.1% net of disposals), and a positive currency
impact of 1.6%. The Adjusted(1) profit increase of 8.7% included
charges totalling GBP 5.0m for provisions in the second half of the
year, reflecting the increased risk of customer bad debt in all
sectors given the effects of the COVID-19 pandemic. Organic
constant currency profit growth was 2.2%, with acquisitions
contributing 4.9% to adjusted profit growth (4.7% net of
disposals), and currency 1.8%.
Statutory profit before taxation of GBP 224.1m is calculated
after charging the amortisation of acquired intangible assets of
GBP 38.3m (2019: GBP 35.6m), and other items of a net GBP 4.6m
(2019: GBP 3.4m). Further detail on these items is given in note 1
to the Financial Statements.
Cash conversion was excellent at 97%, reflecting a strong
underlying cash performance, primarily driven by good working
capital control, and also benefiting from the effects of the
implementation of IFRS 16 'Leases' and the increase in provisions.
Our financial position remained robust, with net debt excluding
lease commitments at 31 March 2020 of GBP 313.8m, or GBP 375.3m on
an IFRS 16 basis which includes lease commitments (31 March 2019:
GBP 181.7m) and committed facilities of GBP 750m.
Revenue and profit growth
Revenue grew by 11.7% in the first half and 9.5% in the second
half. There was a 3.2% effect from currency translation in the
first half which, with no material effect in the second half, gave
a benefit of 1.6% for the year as a whole. Organic revenue growth
at constant currency in the first half was 5.4% slowing to 4.3% in
the second half of the year, partly reflecting the effects of the
COVID-19 pandemic, giving a solid 4.8% growth rate for the year as
a whole.
Adjusted(1) profit growth was 14.1% in the first half. Growth in
the second half was 4.1% (7.8% excluding the customer bad debt
provision). As with revenue, there was a benefit from currency
translation in the first half, and no material effect in the second
half. As a result, the first half/second half split of adjusted
profit was 48%/52%, compared to our typical 45%/55% pattern.
Organic profit growth at constant currency was 6.5% in the first
half, but declined 1.5% in the second half (growth of 2.3%
excluding the customer bad debt provision), reflecting the mix of
performances across the sectors as detailed below, and resulting in
modest growth of 2.2% for the year as a whole.
Revenue and profit
growth
Percentage growth
--------------------------
Organic
growth(2)
2020 2019 Increase Organic at constant
GBPm GBPm GBPm Total growth(2) currency
-------------------- -------- -------- --------- ------ ----------- -------------
Revenue 1,338.4 1,210.9 127.5 10.5% 6.4% 4.8%
-------------------- -------- -------- --------- ------ ----------- -------------
Adjusted(1) profit
before taxation 267.0 245.7 21.3 8.7% 4.0% 2.2%
Statutory profit
before taxation 224.1 206.7 17.4 8.4% - -
-------------------- -------- -------- --------- ------ ----------- -------------
(1) In addition to those figures reported under IFRS Halma uses
alternative performance measures as key performance indicators, as
management believe these measures enable them to better assess the
underlying trading performance of the business by removing
non-trading items that are not closely related to the Group's
trading or operating cash flows. Adjusted profit excludes the
amortisation and impairment of acquired intangible assets;
acquisition items; restructuring costs; profit or loss on disposal
of operations; and, in the prior year only, the effect of
equalisation of benefits for men and women in the defined benefit
pension plans. All of these are included in the statutory figures.
Notes 1 and 3 to the Accounts give further details with the
calculation and reconciliation of adjusted figures.
(2) See highlights.
Revenue growth in all sectors
All sectors delivered revenue growth and three out of four
sectors reported adjusted profit growth against strong prior year
comparatives in those sectors. On an organic constant currency
basis, three out of four sectors grew revenue in both the first and
the second half.
The Environmental & Analysis sector delivered a strong
performance, with revenue growth of 16.1% and profit growth of
15.4%, driven by organic growth. All three subsectors delivered
revenue and profit growth, with strong performances in the
Environmental Monitoring subsector, supported by new product
development and by regulatory requirements in the UK water market,
and in Optical Analysis, which benefited from the delivery of some
larger projects. Return on Sales was broadly stable at 21.4% (2019:
21.5%), with a lower gross margin driven by business mix and a
GBP0.9m increase in additional provisions for the increased risk of
customer bad debt given the effects of the COVID-19 pandemic being
balanced by good control of overhead and research and development
expenditure.
Infrastructure Safety performed strongly, with recent
acquisitions being the principal driver behind revenue growth of
14.2%. Organic constant currency revenue growth was modest, at
3.1%, largely reflecting planned reductions in lower margin
business in the second half of the year. Return on Sales was higher
at 23.1% (2019: 21.8%), despite additional provisions of GBP 2.1m
for the increased risk of customer bad debt given the effects of
the COVID-19 pandemic. This reflected a higher gross margin as a
result of the reduction in lower margin business, good underlying
overhead control and benefits from recent investments in
automation. Together with the increases in revenue, this resulted
in reported profit growth of 21.0%, and 6.6% on an organic constant
currency basis.
The Medical sector delivered good revenue growth of 6.8%, which
included an organic contribution of 3.3% against a strong
comparative of 10% organic constant currency growth in the 2019
financial year. There were mixed trends across its subsectors.
Profit growth was more modest at 1.5%, principally reflecting
increased investment in research and development and a charge of
GBP 2.5m in the first half of the year due to portfolio
rationalisation, both of which we expect to support future growth,
partly offset by good control of overheads. There were also
additional provisions of GBP 1.1m for the increased risk of
customer bad debt given the effects of the COVID-19 pandemic. As a
result, Return on Sales decreased by 1.3% to 24.3%.
Process Safety delivered a small increase in reported revenue of
1.2%. There was good progress in the Industrial Access Control and
Gas Detection subsectors, and the sector also benefited from the
recent acquisition of Sensit. However, Pressure Management revenue
and profit declined, reflecting a challenging US onshore oil and
gas market, and Safe Storage and Transfer suffered from customer
project delays in the second half of the year and a temporary site
closure in California in the fourth quarter of the year due to
COVID-19. As a result, on an organic constant currency basis,
revenue declined by 1.7% for the year as a whole. Profit decreased
by 3.5% (6.1% on an organic constant currency basis), mainly as a
result of a decline in the higher margin US onshore oil and gas
business and additional provisions of GBP 0.9m for the increased
risk of customer bad debt given the effects of the COVID-19
pandemic, and Return on Sales was lower, at 21.9% (2019:
23.0%).
Central administration costs, which include Growth Enabler
costs, increased to GBP 26.3m (2019: GBP 22.0m). This principally
reflected increased investment, both in governance and compliance
as the Group grows (including in our Finance, IT and Legal teams),
and in support for our companies' growth over the medium-term, in
the talent, strategic communications, digital transformation and
innovation Growth Enablers. We expect central costs to decrease in
2021 to approximately GBP 20m, mainly reflecting the cost reduction
measures implemented in the first quarter of the year.
Sector revenue growth
2020 2019
-------- ----------- --------
GBPm % of total GBPm % of total Change GBPm % growth % organic
growth(2) at
constant
currency
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Process Safety 200.0 15% 197.5 16% 2.5 1.2% (1.7)%
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Infrastructure
Safety 466.5 35% 408.6 34% 57.9 14.2% 3.1%
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Environmental &
Analysis 325.0 24% 280.0 23% 45.0 16.1% 13.6%
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Medical 347.2 26% 325.2 27% 22.0 6.8% 3.3%
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Inter-segment
sales (0.3) (0.4) 0.1
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
1,338.4 100% 1,210.9 100% 127.5 10.5% 4.8%
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Sector profit growth
2020 2019
-------------------- --------------------
GBPm % of total GBPm % of total Change % growth % organic % organic
GBPm growth(2) growth(2)
at constant at constant
currency currency
excluding
bad debt
provisions(5)
-------------------- ------- ----------- ------- ----------- ------- --------- ------------- ---------------
Process Safety 43.9 14% 45.5 16% (1.6) (3.5)% (6.1)% (4.2)%
-------------------- ------- ----------- ------- ----------- ------- --------- ------------- ---------------
Infrastructure
Safety 107.7 35% 88.9 32% 18.8 21.0% 6.6% 8.9%
-------------------- ------- ----------- ------- ----------- ------- --------- ------------- ---------------
Environmental &
Analysis 69.4 23% 60.1 22% 9.3 15.4% 13.0% 14.5%
-------------------- ------- ----------- ------- ----------- ------- --------- ------------- ---------------
Medical 84.4 28% 83.2 30% 1.2 1.5% (2.6)% (1.3)%
-------------------- ------- ----------- ------- ----------- ------- --------- ------------- ---------------
Sector profit(3) 305.4 100% 277.7 100% 27.7 9.9% 3.1% 5.0%
-------------------- ------- ----------- ------- ----------- ------- --------- ------------- ---------------
Central
administration
costs (26.3) (22.0) (4.3)
-------------------- ------- ----------- ------- ----------- ------- --------- ------------- ---------------
Net finance expense (12.1) (10.0) (2.1)
-------------------- ------- ----------- ------- ----------- ------- --------- ------------- ---------------
Adjusted(4) profit
before tax 267.0 245.7 21.3 8.7% 2.2% 4.2%
-------------------- ------- ----------- ------- ----------- ------- --------- ------------- ---------------
(3) Sector profit before allocation of adjustments. See Note
1
(4) Adjusted profit excludes the amortisation and impairment of
acquired intangible assets; acquisition items; restructuring costs;
profit or loss on disposal of operations; and, in the prior year,
the effect of equalisation of benefits for men and women in the
defined benefit pension plans. All of these are included in the
statutory figures. Note 3 to the Accounts gives further details
with the calculation and reconciliation of adjusted figures.
(5) Provisions totalling GBP 5.0m for the increased risk of
customer bad debt given the effects of the COVID-19 pandemic.
Revenue growth in all major regions
All major regions delivered revenue growth, on a reported and an
organic constant currency basis. Of our four major regions, three
(the UK, USA and Asia Pacific) achieved double digit percentage
increases. The UK and the USA also delivered good revenue growth on
an organic constant currency basis, while organic constant currency
revenue growth in Asia Pacific was modest. Mainland Europe's
revenue growth was principally driven by recent acquisitions. In
the smaller regions, Africa, Near and Middle East revenue growth
slowed, and Other countries delivered a strong performance.
The USA delivered strong growth of 15.2%, and remains our
largest revenue destination, accounting for 38% of Group revenue,
an increase of one percentage point compared to the prior year. All
sectors performed well, with Environmental & Analysis and
Infrastructure Safety growing very strongly, the latter principally
driven by recent acquisitions. Process Safety and Medical delivered
good growth, which also included the benefit of recent
acquisitions.
UK revenue increased by 10.1%, with all sectors except Process
Safety, which accounts for less than 15% of UK revenue, delivering
growth on a reported and organic constant currency basis.
Environmental & Analysis grew very strongly, benefiting from
new product development and increasing regulatory requirements in
the UK water market. Process Safety revenue declined, reflecting a
strong prior year comparative which had benefited from some larger
contracts. Other sectors made good progress, which included the
benefit of recent acquisitions.
Mainland Europe revenue increased by 3.8%, principally as a
result of recent acquisitions. Organic constant currency revenue
growth of 0.8% included a solid performance in Infrastructure
Safety, which accounts for more than half of Mainland Europe
revenue, but weaker trends in Process Safety, given the
non-recurrence of some larger contracts which had benefited the
prior year. The Medical and Environmental & Analysis sectors
delivered a mixed performance, with small revenue declines on an
organic constant currency basis.
Asia Pacific grew 15.8%, with very strong growth in
Infrastructure Safety, driven by the recent Ampac acquisition, and
good growth in the Process Safety and Medical sectors. On an
organic constant currency basis, revenue growth was 3.6%, which
included a 4% decrease in China, reflecting the impact of the
COVID-19 pandemic in the final quarter of the year. In the region's
other major markets, there was strong reported growth in
Australasia, driven by the Ampac acquisition, but modest organic
growth, and India, Japan and Singapore delivered good
performances.
In the rest of the world, revenue grew in aggregate, with a
decline in Africa, Near and Middle East revenue, principally
reflecting a planned reduction in lower margin business in
Infrastructure Safety, more than offset by strong growth in Other
countries, which was broadly spread across all four sectors.
Revenue from territories outside the UK/Mainland Europe/the USA
grew by 10.0%, in line with our 10% KPI growth target.
Geographic revenue growth
2020 2019
----------------------- ----------- --------------
GBPm % of total GBPm % of total Change % growth % organic
GBPm growth at
constant
currency
---------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
United States
of America 510.3 38% 443.2 37% 67.1 15.2% 7.8%
---------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
Mainland Europe 276.4 21% 266.3 22% 10.1 3.8% 0.8%
---------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
United Kingdom 221.2 16% 200.9 16% 20.3 10.1% 8.3%
---------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
Asia Pacific 213.3 16% 184.0 15% 29.3 15.8% 3.6%
---------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
Africa, Near
and Middle
East 63.2 5% 70.8 6% (7.6) (10.7)% (11.9)%
---------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
Other countries 54.0 4% 45.7 4% 8.3 18.3% 15.0%
---------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
1,338.4 100% 1,210.9 100% 127.5 10.5% 4.8%
---------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
Continued high returns
Halma's Return on Sales(2) has exceeded 16% for 35 consecutive
years. Our KPI target is to deliver Return on Sales in the range of
18-22%. This year Return on Sales remained strong at 19.9% (2019:
20.3%), with the change principally reflecting the increase in
provisions for the increased risk of customer bad debt.
We successfully achieved our objective of continuing to invest
in our businesses while delivering growth. This enables us to
maintain a high level of Return on Total Invested Capital (ROTIC),
the post-tax return on the Group's total assets including all
historical goodwill. ROTIC was 15.3% (2019: 16.1%), with the change
reflecting a lower level of constant currency earnings growth than
in the prior year, and the weakening of Sterling against foreign
currencies which has a negative effect on ROTIC as it has a greater
proportional effect on capital employed than on returns. Our ROTIC
remains well ahead of our KPI target of 12% and substantially in
excess of Halma's Weighted Average Cost of Capital (WACC),
estimated to be 7.7% (2019: 7.9%).
Currency effects well managed
Halma reports its results in Sterling. Our other key trading
currencies are the US Dollar, Euro and to a lesser extent the Swiss
Franc, the Chinese Renminbi and the Australian Dollar. Over 45% of
Group revenue is denominated in US Dollars and approximately 12% in
Euros.
The Group has both translational and transactional currency
exposure. Translational exposures are not hedged, while, for
transactional exposures, after matching currency of revenue with
currency costs wherever practical, forward exchange contracts are
used to hedge a proportion (up to 75%) of the remaining forecast
net transaction flows where there is a reasonable certainty of an
exposure.
We hedge up to 12 months forward. At 31 March 2020 approximately
68% of our next 12 months' currency trading transactions were
hedged.
Sterling weakened on average in the year, principally in the
first half. This gave rise to a positive currency translation
impact of 1.6% on revenue and 1.8% on profit for the year as a
whole.
Based on the current mix of currency denominated revenue and
profit, a 1% movement in the US Dollar relative to Sterling changes
revenue by GBP 6.3m and profit by GBP 1.3m. Similarly, a 1%
movement in the Euro changes revenue by GBP 1.6m and profit by GBP
0.3m.
If currency rates for the financial year 2021 were US Dollar
1.25/Euro 1.13 relative to Sterling, and assuming a constant mix of
currency results, we would expect approximately a GBP 13m positive
revenue and a GBP 3m positive profit impact compared to financial
year 2020, the majority of which would be in the second half of
the year.
Weighted average rates Exchange rates used
used in to
the Income Statement translate the Balance
Sheet
------------------------- -------------------------
2020 2019 2020 2019
First Full year Full year Year end Year end
half
------ ------ ------------ ----------- ------------ -----------
US$ 1.26 1.27 1.31 1.25 1.30
------ ------ ------------ ----------- ------------ -----------
Euro 1.13 1.14 1.14 1.13 1.16
------ ------ ------------ ----------- ------------ -----------
Increased financing cost
The net financing cost in the Income Statement of GBP 12.1m was
above the prior year (2019: GBP 10.0m). This was as a result of
higher average net borrowings in the year, given expenditure on
acquisitions, and the inclusion of lease financing costs as a
result of IFRS 16. These effects were partly offset by the average
cost of financing which was lower given reductions in interest
rates (see the 'Average debt and interest rates' table below and in
the Annual Reports and Accounts 2020 for more information).
Interest cover (EBITDA as a multiple of net interest expense as
defined by our Revolving Credit Facility) was 40 times (2019: 38
times) which was well in excess of the four times minimum required
in our banking covenants.
The net pension financing charge under IAS 19 is included within
the net financing cost. This year the cost decreased to GBP 0.8m
(2019: GBP 1.2m), reflecting the reduction in the deficit on our
defined benefit plans.
Group tax rate
The Group has major operating subsidiaries in 10 countries and
the Group's effective tax rate is a blend of these national tax
rates applied to locally generated profits. A significant
proportion (approximately one fifth) of Group profit is generated
and taxed in the UK.
The Group's effective tax rate on adjusted profit was similar to
the prior year at 18.5% (2019: 18.6%). This was lower than
expected, principally as a result of US Federal tax changes. For
the year to 31 March 2021 we currently anticipate (based on the
forecast mix of adjusted profits) the Group effective tax rate on
adjusted profits to be broadly stable at approximately 19% of
adjusted profits.
On 2 April 2019, the European Commission published its final
decision that the UK controlled Finance Company Partial Exemption
(FCPE) constituted State Aid. In common with a number of other UK
companies, Halma has benefited from the FCPE, and the total benefit
in 2020 and prior periods is approximately GBP 15.4m in respect of
tax and approximately GBP 1.2m in respect of interest. Halma has
appealed against the European Commission's decision, as has the UK
Government and a number of other UK companies. In the meantime, the
UK Government is required to commence collection proceedings and it
is currently expected that the Group will have to make a payment in
the second half of the year ending 31 March 2021 of up to GBP
16.9m. Based on its current assessment, the Group believes that no
provision is required in respect of this issue.
Strong cash generation
Cash generation is an important component of the Halma model,
underpinning further investment in our businesses, supporting
value-enhancing acquisitions and funding an increasing dividend.
Our cash conversion in 2020 was strong.
Cash generated from operations was GBP 307.9m (2019: GBP 259.6m)
and adjusted operating cash flow was GBP 272.2m (2019: GBP 225.2m)
which represented 97% (2019: 88%) of adjusted operating profit.
This was significantly ahead of our cash conversion KPI target of
85%, reflecting a strong underlying performance primarily driven by
good working capital control, as well as benefits from the effects
of the implementation of IFRS 16, which replaces a lease rental
charge with charges for depreciation and financing costs (a 5%
benefit), and from the additional provisions made in the year,
which reduce operating profit but have no effect on cash generation
(a 2% benefit).
A summary of the year's cash flow is shown in the table below
and in the Annual Report and Accounts 2020. The largest outflows in
the year were in relation to acquisitions, dividends and taxation
paid. Working capital outflow, comprising changes in inventory,
receivables and creditors, reduced to GBP 9.3m (2019: GBP 16.3m),
principally reflecting an improvement in debtor collection prior to
the impact of the COVID-19 pandemic, and good control of stock and
creditors.
Dividends totalling GBP 61.2m (2019: GBP 57.2m) were paid to
shareholders in the year.
Taxation paid increased to GBP 52.4m (2019: GBP 40.6m), as a
result of increased profitability and the acceleration of the
payment timetable for UK Corporation Tax payments for larger
companies which resulted in a one-off increase in cash taxation
payable of approximately GBP 5m.
In the financial year to 31 March 2021, we expect to defer the
payment of tax liabilities, principally Value-Added Tax (VAT) in
the UK and the employers' share of quarterly social security tax
deposits in the USA, as permitted by governments as a result of the
COVID-19 pandemic. The deferral of VAT payments will result
in the payment of a cash tax liability of approximately GBP 4m
being deferred from the first half of the financial year to March
2021 to the second half. There will therefore be no cash tax
benefit from VAT deferral in the year as a whole. The Employer
Payroll Tax deferral will result in a cash tax liability of
approximately US$6m
( GBP 5m) relating to the period 27 March 2020 to 31 December
2020 being deferred, with half of this amount due by 31 December
2021 and the remainder by 31 December 2022, resulting in a modest
benefit to our cash flow in the 2021 financial year.
Operating cash flow summary
2020 2019
GBPm GBPm
----------------------------------------------------- ----------- -------
Operating profit 233.4 217.8
Net acquisition costs and contingent consideration
fair value adjustments 7.5 0.3
Defined benefit pension charge - 2.1
Amortisation and impairment of acquisition-related
acquired intangible assets 38.3 35.6
----------------------------------------------------- ----------- -------
Adjusted operating profit 279.2 255.8
Depreciation and other amortisation 51.5 31.3
Working capital movements (9.3) (16.3)
Capital expenditure net of disposal proceeds (32.2) (29.7)
Additional payments to pension plans (12.5) (11.4)
Other adjustments (4.5) (4.5)
----------------------------------------------------- ----------- -------
Adjusted operating cash flow 272.2 225.2
----------------------------------------------------- ----------- -------
Cash conversion % 97% 88%
----------------------------------------------------- ----------- -------
Non-operating cash flow and reconciliation
to net debt
2020 2019
GBPm GBPm
--------------------------------------------------- -------- --------
Adjusted operating cash flow 272.2 225.2
--------------------------------------------------- -------- --------
Tax paid (52.4) (40.6)
--------------------------------------------------- -------- --------
Acquisition of businesses including cash/debt
acquired and fees (238.0) (68.1)
--------------------------------------------------- -------- --------
Purchase of equity investments (4.8) -
--------------------------------------------------- -------- --------
Disposal of businesses 7.6 3.1
--------------------------------------------------- -------- --------
Net movement in loan notes 0.1 0.1
--------------------------------------------------- -------- --------
Net finance costs and arrangement fees (excluding
lease interest) (8.5) (8.3)
--------------------------------------------------- -------- --------
Lease liabilities additions (26.3) -
--------------------------------------------------- -------- --------
Dividends paid (61.2) (57.2)
--------------------------------------------------- -------- --------
Own shares purchased (16.7) (3.8)
--------------------------------------------------- -------- --------
Adjustment for cash outflow on share awards
not settled by own shares (6.0) (4.9)
--------------------------------------------------- -------- --------
Effects of foreign exchange (9.3) (6.9)
--------------------------------------------------- -------- --------
Movement in net debt (143.3) 38.6
--------------------------------------------------- -------- --------
Lease Liabilities on adoption of IFRS 16 'leases' (50.3) -
--------------------------------------------------- -------- --------
Opening net debt (181.7) (220.3)
--------------------------------------------------- -------- --------
Closing net debt (375.3) (181.7)
--------------------------------------------------- -------- --------
Net debt to EBITDA
2020 2019
GBPm GBPm
--------------------------------------------------- -------- --------
Adjusted operating profit 279.2 225.8
--------------------------------------------------- -------- --------
Depreciation and amortisation (excluding acquired
intangible assets) 51.5 31.4
--------------------------------------------------- -------- --------
EBITDA 330.7 287.2
--------------------------------------------------- -------- --------
Net debt to EBITDA 1.13 0.63
--------------------------------------------------- -------- --------
Lease liabilities (61.5)
--------------------------------------------------- -------- --------
Net debt pre IFRS 16 (313.8)
--------------------------------------------------- -------- --------
Lease payments (as an approximation of operating
lease rentals) (15.8)
--------------------------------------------------- -------- --------
Estimated EBITDA pre IFRS 16 314.9
--------------------------------------------------- -------- --------
Estimated Adjusted net debt to EBITDA pre IFRS
16 1.00
--------------------------------------------------- -------- --------
Average debt and interest rates
Excluding IFRS 16 lease liabilities 2020 2019
---------------------------------------------- ------ ------
Average gross debt (GBPm) 332.7 282.6
---------------------------------------------- ------ ------
Weighted average interest rate on gross debt 2.72% 2.97%
---------------------------------------------- ------ ------
Average cash balances (GBPm) 88.3 80.4
---------------------------------------------- ------ ------
Weighted average interest rate on cash 0.63% 0.50%
---------------------------------------------- ------ ------
Average net debt (GBPm) 244.4 202.2
---------------------------------------------- ------ ------
Weighted average interest rate on net debt 3.48% 3.95%
Including IFRS 16 lease liabilities 2020
---------------------------------------------- ------ ------
Average gross debt (GBPm) 388.4
---------------------------------------------- ------ ------
Weighted average interest rate on gross debt 2.86%
---------------------------------------------- ------ ------
Average cash balances (GBPm) 88.3
---------------------------------------------- ------ ------
Weighted average interest rate on cash 0.63%
---------------------------------------------- ------ ------
Average net debt (GBPm) 300.1
---------------------------------------------- ------ ------
Weighted average interest rate on net debt 3.52%
---------------------------------------------- ------ ------
Capital allocation and funding
Halma aims to deliver high returns, measured by ROTIC(2) , well
in excess of our cost of capital. We invest to deliver the future
earnings growth and strong cash returns which underpin this aim,
and our capital allocation priorities are as follows:
- Investment for organic growth: Organic growth is our first
priority and is driven by investment in our existing businesses,
including through capital expenditure, innovation for digital
growth and in new products, international expansion and the
development of our people.
- Value-enhancing acquisitions: We supplement organic growth
with acquisitions in current and adjacent market niches. This
brings new technology, intellectual property and talent into the
Group and expands our market reach, keeping Halma well-positioned
in growing markets over the long-term.
- Regular and increasing returns to shareholders: We have
maintained a progressive dividend policy for over 40 years and this
is our preferred route for delivering regular cash returns to
shareholders.
Increased investment for organic growth
All sectors continue to innovate and invest in new products,
with R&D spend determined by each individual Halma company.
This year R&D expenditure grew by 14.5%, ahead of revenue
growth, reflecting our companies' investment in their future
growth. R&D expenditure as a percentage of revenue was 5.4%
(2019: 5.2%), well in excess of our KPI target of 4% or more. In
the medium term we expect R&D expenditure to continue to
increase broadly in line with revenue growth.
Under IFRS accounting rules we are required to capitalise
certain development projects and amortise the cost over an
appropriate period, which we determine as three years. In the 2020
financial year we capitalised and acquired GBP 15.6m (2019: GBP
11.6m), impaired GBP 5.2m (2019: GBP 0.7m) and amortised GBP 7.9m
(2019: GBP 8.5m). This results in an asset carried on the
Consolidated Balance Sheet, after a GBP 0.5m gain (2019: GBP 0.5m
gain) relating to foreign exchange, of GBP 36.1m (2019: GBP 33.1m).
All R&D projects, and particularly those requiring
capitalisation, are subject to rigorous review and approval
processes.
Capital expenditure on property, plant, equipment and vehicles,
computer software and other intangible assets was GBP 34.1m (2019:
GBP 31.3m). The expenditure on fixed assets was spread across all
four sectors and the Group functions, supporting our operating
capability, capacity and growth including investment in IT and
systems upgrades. We anticipate capital expenditure of
approximately GBP 30m in the coming year, reflecting further
investment across our sectors to support our future growth,
including in facility expansions and automation, balanced by good
control of discretionary expenditure given the effects of the
COVID-19 pandemic.
Lease right-of-use asset additions, a new asset category as a
result the adoption of IFRS 16, were GBP 21.9m. These included
additions of GBP 5.8m as a result of acquisitions made in the year,
and extensions or renewals of existing leases.
Value-enhancing acquisitions and investments
Acquisitions and disposals are an important part of our growth
strategy, as they keep our portfolio of companies focused on
markets which have strong growth opportunities over the medium and
long-term.
In the year we spent GBP 227.5m on ten acquisitions (net of cash
acquired of GBP 8.0m including acquisition costs). In addition, we
paid GBP 10.5m in contingent consideration for acquisitions made in
prior years, giving a total spend of GBP 238.0m. We also made two
small strategic minority investments in the healthcare sector,
totalling GBP 4.8m, and sold our interest in Optomed Oy at the
time of its IPO in December 2019, for GBP 6.8m, net of disposal
costs.
Details of the acquisitions and investments made in the year are
given in the sector reviews and in note 9.
The acquisitions completed in the current and prior year
contributed to revenue in 2020 in line with expectations and we
expect a good performance from these acquisitions in the
future.
Regular and increasing returns for shareholders
Adjusted earnings per share increased by 8.8% to 57.39p (2019:
52.74p) and statutory earnings per share increased by 8.7% to
48.66p (2019: 44.78p).
The Board is recommending a 3.8% increase in the final dividend
to 9.96p per share (2019: 9.60p per share), which together with the
6.54p per share interim dividend gives a total dividend per share
of 16.50p (2019: 15.71p), up 5.0% in total. Dividend cover (the
ratio of adjusted profit after tax to dividends paid and proposed)
is 3.48 times (2019: 3.36 times).
The final dividend for 2020 is subject to approval by
shareholders at the AGM on 4 September 2020 and will be paid on 1
October to shareholders on the register at 28 August.
We aim to increase the per share dividend amount each year,
while maintaining a prudent level of dividend cover, with
approximately 35-40% of the anticipated total dividend being
declared as an interim dividend. The Board's determination of the
proposed final dividend increase has taken into account the effects
of the COVID-19 pandemic on our stakeholders, while considering the
Group's medium-term rate of organic constant currency growth and
the financial resources required in executing our strategy,
including organic investment needs and acquisition opportunities,
with the aim of maintaining moderate debt levels.
Funding capacity and liquidity
Halma operations are cash generative and the Group has access to
competitively priced committed debt finance providing good
liquidity for the Group. Group treasury policy remains conservative
and no speculative transactions are undertaken.
We have a robust financial position, strong cash generation, and
substantial available liquidity. In the final quarter of the
financial year, we consulted with our lending groups following the
outbreak of the COVID-19 pandemic to assess the availability of
further funding should this be required and as part of our scenario
planning. Our lending groups were supportive, and under the
potential scenarios considered as part of our going concern review,
we remain within our debt facilities and the attached financial
covenants for the foreseeable future. We therefore do not currently
intend to utilise the UK government's Covid Corporate Financing
Facility.
At the year-end, our committed facilities totalled approximately
GBP 750m, based on exchange rates at that time. The earliest
maturity in these facilities is for GBP 74m (at year-end exchange
rates) in January 2021, with the remaining maturities from 2023
onwards. The financial covenants on these facilities are for
leverage (net debt/adjusted EBITDA on a pre-IFRS 16 basis) to not
be more than three times and for adjusted interest cover to be not
less than four times.
At the year-end, net debt was GBP 375.3m, a combination of GBP
420.1m of debt, GBP 61.5m of IFRS 16 lease liabilities and GBP
106.3m of cash held around the world to finance local operations.
Net debt at 31 March 2019, which excluded IFRS 16 lease liabilities
of GBP 50.3m, was GBP 181.7m.
The gearing ratio at the year-end (net debt to EBITDA) was 1.13
times (2019: 0.63 times, or 0.85 times had IFRS 16 been applied).
Excluding the impact of IFRS 16, the gearing ratio at the year-end
would have been 1.00 times. Net debt represented 5% (2019: 3%) of
the Group's year-end market capitalisation. The Group continues to
operate well within its banking covenants with significant headroom
under each financial ratio.
Pensions update
We closed the two UK defined benefit (DB) plans to new members
in 2002. In December 2014 we ceased future accrual within these
plans with future pension benefits earned within the Group's
Defined Contribution (DC) pension arrangements.
The Group accounts for post-retirement benefits in accordance
with IAS 19 Employee Benefits. The Consolidated Balance Sheet
reflects the net deficit on our pension plans at 31 March 2020
based on the market value of assets at that date and the valuation
of liabilities using year-end AA corporate bond yields.
On an IAS 19 basis the deficit on the Group's DB plans at the
2020 year-end had decreased to GBP 5.2m (2019: GBP 39.2m) before
the related deferred tax asset. The value of plan assets increased
to GBP 298.8m (2019: GBP 292.2m). Plan liabilities decreased to GBP
304.0m (2019: GBP 331.4m) due to movements in the discount rate and
inflation rate. The discount rate increased from 2.4% to 2.55%,
largely as result of the impact of the COVID-19 pandemic on bond
yields at the year-end. The inflation rate reduced from 3.2% to
2.5% reflecting economic conditions at the balance sheet date.
The plans' actuarial valuation reviews, rather than the
accounting basis, determine any cash deficit payments by Halma. In
2020 these contributions amounted to GBP 12.8m, consistent with our
expectations, following a triennial actuarial valuation of the two
UK pension plans in 2017/18, after which cash contributions
increasing at 7% per annum aimed at eliminating the deficit were
agreed with the trustees. In the unlikely event that these payments
result in a surplus on winding up, the Group has an unconditional
right to a refund under the Plan rules.
New accounting standards
The Group adopted required new accounting standards and
interpretations with effect from 1 April 2019. There has been no
material impact on the Group's financial statements, with the
exception of IFRS 16 'Leases', which brings leases, principally for
land and buildings, on to the balance sheet. IFRS 16 resulted in a
small reduction in net assets at the start of the year of GBP 4.0m,
comprising an increase in assets of GBP 45.4m, recognising a
right-of-use asset, and an increase in liabilities (principally
from the lease liability) of GBP 49.4m. The net effect on the
Group's profit and loss account has been immaterial, with operating
lease costs of approximately GBP 15.6m being replaced by a
depreciation charge of GBP 13.2m and a financing expense of GBP
2.1m, resulting in a benefit to operating profit of GBP 2.4m and to
Profit before tax of GBP 0.3m. There has been no impact on the
Group's cash flows. Further details of all new accounting standards
adopted, and their application to the Group's accounts, can be
found in the Accounting Policies section of the Financial
Statements.
Finance and Risk: supporting our companies' performance
Our finance and risk teams play a crucial role in supporting our
companies and enabling agile commercial decisions by providing
actionable and insightful data, maintaining strong financial
controls and assessing and managing risk appropriately. I would
like to thank all of my colleagues in these teams for their hard
work in the year, and particularly for the commitment they have
shown in helping our companies to adapt to the challenges and
opportunities arising from the COVID-19 pandemic, in ensuring
continued high standards of insight and control, and in preparing
these year-end accounts in difficult circumstances.
Conclusion
We delivered a good financial performance, despite the effects
of the COVID-19 pandemic in the fourth quarter of the year. Our
focus in the year ahead will be to ensure Halma's long-term
sustainability as we continue to adapt to challenges and
opportunities, including those arising from the COVID-19 pandemic
and potential changes to international trade as a result of Brexit
and revisions to cross-border tariffs. The clarity of our purpose
and strategy, our agile business model and disciplined focus on
critical safety, health and environmental niches, combined with a
robust financial and liquidity position and continued strong cash
generation, should enable us to deliver a resilient financial
performance in the shorter-term and to benefit from the
opportunities that our markets offer over the medium and longer
term.
Marc Ronchetti
Chief Financial Officer
Process Safety Sector Review
Process Safety's technologies protect people and assets at work,
across a range of critical industrial and logistics operations.
Performance
KPIs 2020 Group target
---------------------------------------------- ----- ------------
Revenue growth(1) 1% -
---------------------------------------------- ----- ------------
Organic revenue growth(1) (constant currency) (2)% >=5%
---------------------------------------------- ----- ------------
Profit growth(1) (3)% -
---------------------------------------------- ----- ------------
Organic profit growth(1) (constant currency) (6)% >=5%
---------------------------------------------- ----- ------------
Return on Sales(2) 21.9% >=18%
---------------------------------------------- ----- ------------
R&D % of Revenue(3) 3.7% >=4%
---------------------------------------------- ----- ------------
(1) Revenue and adjusted operating profit are compared to the
equivalent prior year figures.
(2) Return on Sales is defined as adjusted operating profit
expressed as a percentage of revenue.
(3) R&D expenditure expressed as a percentage of
revenue.
Overview
The sector delivered a small increase in revenue, and a slight
reduction in profitability. The lower profit was principally driven
by product mix, and particularly a decline in the high-margin USA
onshore oil and gas market, although there was also increased
investment in R&D and strengthening leadership talent.
Industrial Access Control and Gas Detection both performed well.
However, lower global oil prices and the deterioration in the USA
onshore oil and gas market resulted in lower profits in Pressure
Management and in Safe Storage and Transfer, with the latter also
impacted by customer project delays and a site closure in the USA
during the fourth quarter due to COVID-19.
There was one acquisition in the year, of Sensit Technologies, a
US-based gas leak detection company. Its products protect workers
in the natural gas distribution industry, ensure compliance with
regulatory standards, and reduce climate change impacts by
monitoring emissions of methane. Further details are given in note
9 in the Financial statements.
Strategy
Process Safety has a key part to play in making critical
industrial processes safer and cleaner.
Our strategy of investing both organically and by acquisition is
ensuring that our businesses are providing innovative and
increasingly digitally connected products to address our customers'
needs around the world. For example, we have made good progress in
developing new odour monitoring solutions which are gaining
traction in China, and in creating new products and services that
combine several Halma companies' capabilities. These include
developing solutions to increase safety and efficiency in
warehouses, which utilises technologies from companies in three
Halma sectors. Both of these examples of early stage businesses
have been developed through our digital growth enabler
programmes.
We also continuously look for opportunities for acquisitions in
new subsectors and of new applications. Our criteria are that they
should have a strong fit to our purpose, be underpinned by strong
long-term growth drivers, provide high value to our customers, and
have high barriers to entry. These activities are led by our
Divisional Chief Executives, supported by a small sector M&A
team and also by our operating company leaders for bolt-ons to
existing businesses. The increased organic and inorganic investment
in this sector in recent years has resulted in greater end market
diversity and less dependency on the energy markets which now
represent approximately one third of sector revenue, down from
around 50% five years ago.
Market trends and growth drivers
The longer-term growth prospects for our Process Safety
businesses are supported by increasing health and safety regulation
and associated legal risks, and growing industrialisation and
automation. With an estimated 340 million injuries and 2.3 million
workplace-related fatalities each year, it is likely that workplace
health and safety regulations will continue to tighten. Our ability
to find new applications in adjacent industrial markets is
broadening our growth opportunities, both organically and through
acquisition.
In Gas Detection, market growth over the longer-term is being
driven by ongoing industrialisation, increased regulation, greater
demand for continuous monitoring of harmful substances to protect
worker safety, and the accelerated use of wireless sensors and
connected devices.
Increasing automation and need for remote safety monitoring is
becoming a stronger growth driver for our Industrial Access
Control, Pressure Management and Safe Storage and Transfer
businesses which serve a diverse range of industrial end
markets.
Several of our businesses, notably in Pressure Management,
operate in markets driven by the increasing need for energy and
other critical resources. While the COVID-19 pandemic has resulted
in a recent reduction in energy consumption, longer-term forecasts
are that global energy demand is expected to
grow by nearly 50% between 2018 and 2050, with most of this
growth coming from non-OECD countries, particularly in Asia. The
diversification of energy resources means we are repurposing our
solutions to segments of the energy market where we expect good
growth, for example in renewables.
Performance
Revenue grew by 1% to GBP 200.0m (2019: GBP 197.5m), while
profit declined by 3% to GBP 43.9m (2019: GBP 45.5m). On an organic
constant currency basis, revenue and profit declined by 2% and 6%
respectively. Return on Sales was 21.9% (2019: 23.0%), reflecting a
small reduction in gross margin, an increase of GBP 0.9m in the
second half of the year in COVID-19 related bad debt provisions,
and a 7% increase in R&D investment to GBP 7.5m (2019: GBP
7.0m).
Industrial Access Control performed well, with further progress
in a large US logistics contract, while Gas Detection benefited
from the Sensit acquisition, which is performing in line with
expectations. The unfavourable conditions in the USA market
resulted in lower Pressure Management revenue, with a decline in
profitability partially mitigated by proactive control of costs. As
mentioned above, Safe Storage and Transfer profits were also lower
because of customer project delays and a site closure in California
during the fourth quarter due to COVID-19.
There was strong growth in Asia Pacific driven by Gas
Detection's investment in stronger sales resources. Despite the
challenges in energy markets, there was good growth in the USA,
which benefited from the Sensit acquisition and good progress in a
large US logistics contract. The UK and Mainland Europe were weaker
mainly due to the non-repeat of large customer contracts in the
prior year. Africa, Near & Middle East declined, with weaker
Pressure Management revenue partially offset by a good performance
in Gas Detection, while other countries delivered a strong
performance which was broadly based across all subsectors.
Infrastructure Safety Sector Review
Infrastructure Safety's technologies save lives, protect
infrastructure and enable safe movement
Performance
KPIs 2020 Group target
---------------------------------------------- ----- ------------
Revenue growth(1) 14% -
---------------------------------------------- ----- ------------
Organic revenue growth(1) (constant currency) 3% >=5%
---------------------------------------------- ----- ------------
Profit growth(1) 21% -
---------------------------------------------- ----- ------------
Organic profit growth(1) (constant currency) 7% >=5%
---------------------------------------------- ----- ------------
Return on Sales(2) 23.1% >=18%
---------------------------------------------- ----- ------------
R&D % of Revenue(3) 6.1% >=4%
---------------------------------------------- ----- ------------
(1) Revenue and adjusted operating profit are compared to the
equivalent prior year figures.
(2) Return on Sales is defined as adjusted operating profit
expressed as a percentage of revenue.
(3) R&D expenditure expressed as a percentage of
revenue.
Overview
The sector delivered a strong performance, with revenue and
profit growth including a significant contribution from recent
acquisitions, and an increase in gross margins partly reflecting
investments in automation.
The three largest subsectors, Fire Detection, People and Vehicle
Flow and Elevator Safety, delivered the highest rates of growth.
There was lower organic growth from the sector in the second half,
reflecting a planned elimination of lower margin business in the
Elevator Safety and Fire Suppression subsectors. There was
increased investment in both R&D and leadership talent,
including adding more sector management resources in Asia
Pacific.
There were two acquisitions in the year, both in the Fire
Detection subsector, extending geographical reach and adding new
highly complementary technologies. We acquired the Ampac Group, a
leading fire and evacuation systems supplier in the Australasian
market, and 70% of Australia-based FireMate, which provides
cloud-based maintenance and approval software to fire contractors.
Further detail on these acquisitions is given in note 9 to the
Financial Statements.
Strategy
The Infrastructure Safety sector makes the world a safer place
by protecting commercial, industrial and public buildings and
spaces and enabling safe movement. Our products and services
address increasing life safety concerns, more stringent regulatory
requirements and accelerating demand for connected infrastructure
systems globally.
Our strategy is to focus on less cyclical, niche markets, with
high barriers to entry. We acquire companies with technological
expertise, strength in new geographies and presences in adjacent
markets. We grow them through leveraging Halma's growth enablers,
with a particular focus in recent years on leadership talent and
increasing product and digital innovation. We seek to expand our
geographic footprint both organically, leveraging Halma's
international hubs, and through acquisitions, such as the recent
Ampac and FireMate acquisitions.
Market trends and growth drivers
Growth in our Infrastructure Safety markets is supported by
expanding and ageing populations, increasing urbanisation, tighter
safety regulation, and an increasing demand for remote monitoring
and efficiency through digital innovation and connected products. A
recent UN report projects that 68% of the world's population will
live in urban areas by 2050, increasing from 55% in 2018, adding
around 2.5 billion people to urban populations. We expect this to
drive demand for better, safer and more connected infrastructure
and for transportation safety and security products and systems, as
more people live in more densely populated areas.
Although the COVID-19 pandemic has resulted in a reduction of
demand in some markets in the short-term, we expect these long-term
trends to continue to drive growth across our Infrastructure Safety
markets. For example, in global fire detection and suppression
equipment, growth is expected to be sustained by even more
stringent regulation and greater demand for connected, intelligent
building systems.
The medium-term forecasts for the global elevator market also
reflect the trends of rising urbanisation, increasing spending on
maintenance and modernisation of existing equipment, with emerging
opportunities to enhance efficiency through remote monitoring and
preventative maintenance. Similarly, we expect a greater need to
manage health and safety concerns as a result of the COVID-19
pandemic to present new opportunities for our People and Vehicle
Flow businesses in addressing congestion, increasing the capacity
of existing infrastructure and enhancing safety through automated
access solutions as people move around.
Performance
Revenue increased by 14% to GBP 466.5m (2019: GBP 408.6m),
including 3% organic constant currency growth and a 10%
contribution from acquisitions. Profit grew by 21% to GBP 107.7m
(2019: GBP 88.9m), which included 7% organic constant currency
growth and a 14% contribution from acquisitions, and additional
provisions for COVID-19 related bad debt of GBP 2.1m. Return on
Sales increased to 23.1% (2019: 21.8%), even after 14% growth in
R&D investment to GBP 28.3m (2019: GBP 24.9m), principally
reflecting the benefit to gross margins from automation and the
planned elimination of selected lower margin business.
The three largest subsectors, Fire Detection, People and Vehicle
Flow and Elevator Safety, delivered double digit revenue and profit
growth, principally driven by acquisitions. However, there was also
strong organic growth in People and Vehicle Flow, driven by new
product innovation and good progress in Fire Detection. In the
smaller subsectors, Security Sensors' profit grew strongly from a
stable revenue base, reflecting efficiency gains from automation,
while Fire Suppression revenue declined as a result of the
above-mentioned reduction in lower margin business.
The sector's four largest geographic regions performed well.
There was strong revenue growth in the USA and Asia Pacific,
principally as a result of the benefit from recent acquisitions.
There were good rates of growth in the UK and Mainland Europe, with
the Fire Detection and People and Vehicle Flow businesses being key
contributors to this improvement. The Africa, Near and Middle East
region, which accounts for only 5% of sector revenue, declined,
while the small Other countries segment grew strongly, driven by a
strong performance in the Fire businesses.
Environmental & Analysis Sector Review
Environmental & Analysis' technologies are used to preserve,
monitor and protect the environment, ensure the availability,
quality and sustainability of natural resources, and to analyse
materials in a wide range of applications.
Performance
KPIs 2020 Group target
---------------------------------------------- ----- ------------
Revenue growth(1) 16% -
---------------------------------------------- ----- ------------
Organic revenue growth(1) (constant currency) 14% >=5%
---------------------------------------------- ----- ------------
Profit growth(1) 15% -
---------------------------------------------- ----- ------------
Organic profit growth(1) (constant currency) 13% >=5%
---------------------------------------------- ----- ------------
Return on Sales(2) 21.4% >=18%
---------------------------------------------- ----- ------------
R&D % of Revenue(3) 6.0% >=4%
---------------------------------------------- ----- ------------
(1) Revenue and adjusted operating profit are compared to the
equivalent prior year figures.
(2) Return on Sales is defined as adjusted operating profit
expressed as a percentage of revenue.
(3) R&D expenditure expressed as a percentage of
revenue.
Overview
The sector delivered an excellent performance. All three
subsectors grew revenue and profit, including exceptionally strong
growth in Optical Analysis, which included the delivery of some
larger projects in the second-half of the year. Good growth in
Environmental Monitoring was driven by new product development and
by the continuing regulatory requirements in the UK water
market.
Two smaller bolt-on acquisitions were completed in the year. HWM
in the UK acquired Invenio, a market leader in customer-side water
leak detection, and Hydreka, a water resource management business
in France, acquired Enoveo, which added expertise in
biotechnologies and real-time pollution monitoring.
Perma Pure, one of the Group's gas conditioning businesses, was
transferred from the Environmental & Analysis sector into the
Medical sector, given that the majority of its revenues now come
from medical uses following Halma's acquisition of Maxtec; historic
comparatives have been restated to reflect this change.
Further detail on the acquisitions made in the year is given in
note 9 to the Financial Statements.
There was increased investment in R&D as well as in
leadership at both the sector and company board levels. The planned
Sector Chief Executive succession process was completed
successfully.
Strategy
The Environmental & Analysis sector is focused on growing a
safer, cleaner and healthier future by improving the quality and
availability of life-critical natural resources such as air, water
and food, and by protecting the environment and wellbeing. Our
valuable solutions are technically differentiated through strong
application knowledge, supported by high quality and customer
responsiveness.
We grow by developing new market-led solutions (current examples
under development include deploying novel sensing techniques to
help reduce food waste by accurately predicting the shelf life of
perishable fruits, and pairing core knowledge with new techniques
and a digital service model to enhance the capability of
earth-imaging satellites and airborne platforms), and by increasing
our geographical reach and expansion into new niches both
organically and through acquisitions or partnerships.
Our increasing R&D investment includes developing new
sensors that capture accurate and effective environmental and
scientific information. We are enhancing this technology by
investing in digital systems that provide real-time and remote
management information since increasingly our offerings are, or are
components of, digital solutions.
We continually seek to attract, develop and promote high
quality, talented people. We ensure that our teams represent our
diverse end markets and are constantly enhanced to match existing
and emerging strategic capability needs.
Market trends and growth drivers
The Environmental & Analysis sector's long-term growth is
sustained by rising demand for life-critical resources, increasing
environmental regulations and worldwide population growth with
rising standards of living.
Population growth continues to outpace the availability of key
resources. According to the United Nations, nearly half the global
population are already living in potential areas of water scarcity
for at least one month per year and this could increase to some
4.8-5.7 billion people in 2050. This drives demand for our water
testing and disinfection technologies, and our water network
monitoring solutions which help to ensure integrity of
networks.
Air pollution is a growing health risk in both developing and
developed countries and is a top cause of premature deaths in the
EU, contributing to an estimated 400,000 deaths in 2016. Our
spectroscopy systems assist in the precise detection of
contaminates, while our environmental companies support emissions
and air quality monitoring and calibrate pollution monitoring
equipment.
According to the World Health Organization, one in ten people
fall ill each year from eating contaminated food and 420,000 people
die each year as a result. Some of our more recent development
activities are focused on ensuring the quality of the food supply
chain.
Performance
Revenue increased by 16% to GBP325.0m (2019: GBP280.0m) and
profit grew by 15% to GBP69.4m (2019: GBP60.1m), with revenue
growth of 14% and profit growth of 13% on an organic constant
currency basis. Acquisitions had a marginal positive effect on both
revenue growth and profit growth. Currency exchange movements had a
positive effect of 2.1% on revenue and 2.3% on profit. Profit
included GBP 0.9m in additional provisions for the increased risk
of customer bad debt given the effects of the COVID-19
pandemic.
Return on Sales was stable at 21.4% (2019: 21.5%). There was a
slightly lower gross margin, mainly due to the changing mix of
business in Optical Analysis, balanced by good control of costs.
R&D expenditure remained above the Group average as a
percentage of sales at 6.0% (2019: 6.3%), increasing by 9%
to GBP19.3m (2019: GBP17.8m), driven by rises in both
Environmental Monitoring and Water Analysis and Treatment.
There was strong growth in the USA and the UK, led by,
respectively, Optical Analysis and Environmental Monitoring.
Revenue in the Mainland Europe, which only accounts for
approximately 10% of sector revenue, was stable. Asia Pacific
revenue saw a small decline, principally as a result of slower than
expected Environmental Monitoring market penetration in China.
There was strong growth in the Africa, Near & Middle East and
Other countries, led by the Water Analysis and Treatment
subsector.
Medical Sector Review
Medical's technologies enhance the quality of life for patients
and improve the quality of care delivered by
healthcare providers.
Performance
KPIs 2020 Group target
---------------------------------------------- ----- ------------
Revenue growth(1) 7% -
---------------------------------------------- ----- ------------
Organic revenue growth(1) (constant currency) 3% >=5%
---------------------------------------------- ----- ------------
Profit growth(1) 1% -
---------------------------------------------- ----- ------------
Organic profit growth(1) (constant currency) (3)% >=5%
---------------------------------------------- ----- ------------
Return on Sales(2) 24.3% >=18%
---------------------------------------------- ----- ------------
R&D % of Revenue(3) 4.8% >=4%
---------------------------------------------- ----- ------------
(1) Revenue and adjusted operating profit are compared to the
equivalent prior year figures.
(2) Return on Sales is defined as adjusted operating profit
expressed as a percentage of revenue.
(3) R&D expenditure expressed as a percentage of
revenue.
Overview
The sector delivered a solid performance, which included the
benefit of recent acquisitions, against a strong organic 2019
comparative. Profit growth was modest, principally reflecting
increased strategic investment for growth, and a portfolio
rationalisation charge of GBP 2.5m reported in the first half of
the year. There was increased investment in R&D as well as in
leadership at both the sector and company board levels. The planned
Sector Chief Executive succession process was completed
successfully.
The sector completed five acquisitions in the year. The
acquisitions of NeoMedix, a bolt-on to MST, and NovaBone enhanced
our Therapeutic Solutions offering, adding new market niches in
minimally-invasive glaucoma surgery and synthetic bone graft
products respectively. In Health Assessment, CenTrak acquired two
small businesses, InfoWave and Spreo, to further expand its
addressable market and enhance its technological and data
capabilities. Two small strategic minority investments were made:
in Valencell, which provides wearable biometric solutions; and in
Owlytics, focused on wearable-based analytics technology. The
Group's interest in Optomed Oy was also sold at the time of its IPO
in December 2019.
Perma Pure, was transferred into the Medical sector from the
Environmental & Analysis sector, given that the majority of its
combined revenues now come from medical uses following the
acquisition of Maxtec, a leader in oxygen analysis and delivery
products. The integration of these acquisitions, on which
further
detail is given in note 9 to the Financial Statements, is
progressing well, and we expect them to contribute to sector growth
in the years ahead.
While a number of sector companies within the Health Assessment
sub-sector saw higher demand for their products in the last weeks
of the year as a result of the COVID-19 pandemic, we estimate that
the overall effect on the sector was marginally negative due to
order delays and deferrals of our products
serving surgical procedures.
Strategy
The Medical sector is focused on growing a healthier future by
enhancing the quality of life for patients and improving the
quality of care delivered by providers.
We serve niche applications in global markets providing critical
components, devices, systems and therapies which are embedded in
the standard of care. We look for niches where there is a
'non-discretionary' element to long-term demand, for example
cataract surgery or cardiac monitoring, or where there is a
connection between medical conditions and chronic illnesses,
thereby driving potentially higher rates of demand on a sustainable
basis.
We are known for our brands, differentiated technologies and
customer centricity. We build upon these positions of strength to
enter new geographies, expand our product portfolios and leverage
our technology in new and innovative ways. We are well diversified
across the continuum of care in diagnostics, monitoring and
therapies. This enables us to withstand individual market
fluctuations and take advantage of emerging needs such as digital
care models, as an example.
Market trends and growth drivers
The sector's long-term growth is supported by increasing demand
due to worldwide population growth and ageing, and the greater
prevalence of chronic illnesses such as diabetes, respiratory
diseases, obesity, and hypertension.
According to a recent United Nations report, the world's
population is expected to increase by two billion in the next 30
years, and by 2050 one in six people in the world is projected to
be over age 65, up from one in 11 in 2019, increasing the
prevalence of significant health risk factors. A growing elderly
population is a key growth driver for our Therapeutic Solutions
businesses, given their presence in the cataract and glaucoma
surgery devices markets and the market for bone replacement
products.
In Healthcare Assessment, we expect the rising prevalence of
cardiac, circulatory, respiratory and ophthalmic disorders,
increased health awareness and availability of healthcare to drive
growth over the longer term. In addition, healthcare facilities are
seeking to improve outcomes, reduce costs and ensure the safety of
patients and staff, which is driving the global market for our
real-time location services business.
In Life Sciences, the market for our critical fluidic components
is being driven by more directed and personalised diagnostic
methods combined with increased testing efficiency. North America
and Europe continue to be our largest markets, with Asia Pacific
exhibiting the fastest growth rate.
Performance
Revenue increased by 7% to GBP347.2m (2019: GBP325.2m),
including 3% organic constant currency growth and an 1%
contribution from acquisitions. Profit grew by 1% to GBP84.4m
(2019: GBP83.2m), with organic constant currency profit declining
3%. Overhead spend out-paced revenue growth due to research and
development investment growing by 28% to GBP16.5m (2019:
GBP12.9m), and a net charge of GBP2.5m in the first half of the
year principally related to the portfolio rationalisation of two
ophthalmic companies. Profit also included additional provisions of
GBP1.1m for the increased risk of customer bad debt given the
effects of the COVID-19 pandemic. Gross margin was stable and
Return on Sales decreased to 24.3% (2019: 25.6%).
The Life Sciences subsector performed well, driven by a strong
performance in fluidics sold to our major OEM customers. Health
Assessment's performance was mixed, with growth in location
services for healthcare facilities and weaker trends in ophthalmic
diagnostics and segments of diagnostic patient devices. Therapeutic
Solutions benefited from the acquisitions of NovaBone and
Maxtec.
The USA, the sector's largest region, delivered good revenue
growth, which also benefited from recent acquisitions. There was
modest revenue growth in Mainland Europe, with good progress in
diagnostics, gases and sensor technology offset by weaker trends in
ophthalmology within Health Assessment. Other
regions grew in aggregate, led by CenTrak, our real-time
location services business within Health Assessment.
Principal Risks and Uncertainties
1. Cyber
Risk Owner: Catherine Michel
Gross risk level: High
Change: Increased
Risk appetite: Averse
Growth enablers
-- International Expansion
-- Talent & Culture
-- Financial, Legal & Risk
-- Digital Growth Engines
Risk and impact
-- Loss of digital intellectual property/data or ability to
operate systems or connected devices due to internal failure or
external attack. There is resulting loss of information or ability
to continue operations, and therefore financial and reputational
damage. The increase in this risk reflects the growing threat
generally from cyber-crime around the world and also a specific
increase as a result of cyber-criminals seeking to take advantage
of the COVID-19 pandemic.
How do we manage the risk?
-- Clear ownership of cyber risk, with Board level expertise. IT
function reports into Chief Technology Officer.
-- Development of digital framework, including digital growth, cyber and data.
-- Minimum required IT controls defined. All companies certify
compliance every six months. Any gaps are tracked until
addressed.
-- Monthly cyber KRI/KPI reporting in place across the Group.
-- Regular online IT awareness training for all employees using computers.
-- IT disaster recovery and back-up plans in place, required to be tested regularly.
-- Additional support provided by Group IT to companies to help
them implement any changes due to COVID-19.
-- Regular reviews by Group IT and Internal Audit.
2. Organic Growth
Risk Owner: Andrew Williams
Gross risk level: High
Change: Increased
Risk appetite: Open
Growth enablers
-- International Expansion
-- Talent & Culture
-- Financial, Legal & Risk
-- Digital Growth Engines
-- Innovation Network
-- Strategic Marketing & Communications
Risk and impact
-- Failing to deliver desired organic growth, resulting in
missed expected strategic growth targets and erosion of shareholder
value. The increase in this risk is a result of the higher levels
of economic uncertainty due to COVID-19 and includes the impact of
local government restrictions around the world.
How do we manage the risk?
-- Clear Group strategy to achieve organic growth targets,
supported by detailed company strategies and seven Halma Growth
Enablers with Executive Board owners.
-- Sector management ensure that the Group strategy is fulfilled
through ongoing review and chairing of companies.
-- Continued investment in R&D and innovation with KPIs monitored at Board level.
-- Regional hubs, for example in China and India, support local
growth strategic initiatives for all companies.
-- Agile business model and culture of innovation to take
advantage of new growth opportunities as they arise.
-- Regular monitoring of financial performance at all levels, including by the Board.
-- Remuneration of company executives and above is based on profit growth.
-- Specific focus to protect operations during COVID-19 and
manage costs to ensure Halma is able to invest for growth going
forward.
3. Making and Integrating Acquisitions
Risk Owner: Andrew Williams
Gross risk level: High
Change: Increased
Risk appetite: Open
Growth enablers
-- M&A
-- International Expansion
-- Talent & Culture
-- Financial, Legal & Risk
-- Strategic Marketing & Communications
Risk and impact
-- Missing our strategic growth target for acquisitions due to
insufficient acquisitions being identified or poor due diligence or
poor integration, resulting in erosion of shareholder value.
COVID-19 has increased this risk in terms of our ability make
acquisitions and also to ensure they are fairly valued. On the
flip-side, there may be an increase in the number of acquisition
opportunities in the short to medium term.
How do we manage the risk?
-- Acquisition of companies in existing or adjacent markets that are well known.
-- Dedicated M&A Directors with Group Chief Executive, Chief
Financial Officer and plc Board scrutiny and approval of all
acquisitions.
-- Regular reporting of the acquisition pipeline to the Executive and plc Board.
-- Careful due diligence by experienced staff who bring in specialist expertise as required.
-- Valuation model used for all acquisitions to ensure the price paid is appropriate.
-- Strategic transformation plans in place for new acquisitions
to seek to ensure they achieve their growth potential.
-- Integration checklist covering control and compliance areas
used to ensure consistent high quality and efficient integration
into Halma.
-- Clarity of strategy and agile business model to take
advantage of new growth opportunities as they arise.
4. Talent and Diversity
Risk Owner: Jennifer Ward
Gross risk level: High
Change: Increased
Risk appetite: Open
Growth enablers
-- International Expansion
-- Talent & Culture
-- Digital Growth Engines
-- Innovation Network
-- Strategic Marketing & Communications
Risk and impact
-- Not being able to recruit, develop and retain the calibre and
diversity of talent at all levels of the organisation to deliver
our strategy, resulting in reduced financial performance. The
increased risk reflects retention risks emerging due to our rapid
escalation through the FTSE100, increased profile and track record
of success.
How do we manage the risk?
-- Comprehensive recruitment processes to recruit the best and brightest talent.
-- Development of talent and diversity across companies,
including through development programmes, to create competitive
advantage and motivated leaders to deliver the strategy.
-- Succession planning process to identify and develop future leaders.
-- Future leaders programme to develop graduates.
-- Ongoing focus to increase employee diversity at all levels
worldwide. Diversity metrics are monitored by the Board.
-- We need to ensure that our reward packages are competitive,
reflect our high long term growth and are benchmarked to
market.
5. Innovation
Risk Owner: Inken Braunschmidt
Gross risk level: High
Change: No change
Risk appetite: Seeking
Growth enablers
-- M&A
-- Talent & Culture
-- Digital Growth Engines
-- Innovation Network
-- Strategic Marketing & Communications
Risk and impact
-- Failing to innovate to create new high-quality products to
meet customer needs or failure to adequately protect intellectual
property, resulting in a loss of market share and poor financial
performance.
How do we manage the risk?
-- Product development is devolved to the companies who are
closest to the customer, with support and guidance provided by
sector management.
-- Chief Innovation & Digital Officer promotes and
accelerates innovation by companies, with support from sector
management.
-- Digital strategy is in place relating to innovation, with
focus on four areas: 1. Digital execution, 2. Champions Network, 3.
Agile new product development engines, 4. External
Partnerships.
-- Active collaboration of ideas and best practices between companies.
-- Head Office approval of all large R&D projects to ensure alignment with strategy.
-- Halma Innovation Awards encourage and reward innovation.
-- Companies are encouraged to develop and protect intellectual property.
6. Competition
Risk Owner: Andrew Williams
Gross risk level: Medium
Change: No change
Risk appetite: Open
Growth enablers
-- International Expansion
-- Talent & Culture
-- Digital Growth Engines
-- Innovation Network
-- M&A
Risk and impact
-- Failing to adapt to market and technological changes, either
through organic or M&A activity, resulting in reduced financial
performance.
How do we manage the risk?
-- Focus on niche markets with high barriers to entry and seek
to achieve strong market positions.
-- Halma's decentralised business model enables operational
resources to be closer to customers, and companies are empowered to
monitor, anticipate and respond to changing market needs.
-- Regular company and sector board meetings which review
markets, competition and product innovation.
-- Ongoing discussions with customers and monitoring of market
and technological changes to identify new opportunities.
-- Halma Chief Innovation & Digital Officer provides
leadership and oversight for digital innovation and arranges
Innovation "Go & See" visits for Halma leaders to see
disruption examples in action.
7. Economic and Geopolitical Uncertainty
Risk Owner: Andrew Williams
Gross risk level: High
Change: Increased
Risk appetite: Cautious
Growth enablers
-- International Expansion
-- Talent & Culture
-- Finance, Legal & Risk
Risk and impact
-- Risk of decline in financial performance due to recession or
geopolitical changes and its potential impact on the carrying value
of goodwill. The increase in risk reflects increased economic and
political uncertainty around COVID-19 and also other areas such as
Brexit and USA/China trade relations.
How do we manage the risk?
-- Diverse portfolio of companies across the four sectors, in
multiple countries and in relatively non-cyclical global niche
markets helps to minimise the impact of any single event operating
in one market.
-- Regular monitoring and assessment of potential risks and
opportunities relating to economic or geopolitical
uncertainties.
-- Identification of any wider trends by the Halma Executive Board that require action.
-- Local companies have the autonomy to rapidly adjust to changing circumstances.
-- Periodic assessment of the carrying value of goodwill
8. Natural Disasters
Risk Owner: Andrew Williams
Gross risk level: High
Change: Increased
Risk appetite: Cautious
Growth enablers
-- M&A
-- International Expansion
-- Talent & Culture
-- Finance, Legal & Risk
Risk and impact
-- Being unable to respond to large-scale events or natural
catastrophes such as hurricanes, floods, fire, or pandemics
resulting in inability of one or more parts of our business to
operate, therefore causing financial loss and reputational damage.
This risk has been updated to specifically include pandemics and
the risk has increased due to COVID-19.
How do we manage the risk?
-- All parts of the Group are required to have business
continuity plans in place which are tailored to manage the specific
risks they are most likely to face and these are required to be
tested periodically.
-- Partnering with our central and regional COVID-19 support
groups, our companies have implemented operational plans to suit
their local markets and circumstances.
-- The geographic diversity of companies limits the impact of
most single events and Halma has manufacturing capability in
multiple locations which provides flexibility.
-- Business interruption insurance is in place to limit any financial loss that may occur.
9. Communications
Risk Owner: Jennifer Ward
Gross risk level: High
Change: No change
Risk appetite: Open
Growth enablers
-- Talent & Culture
-- Innovation Network
-- Strategic Marketing & Communications
Risk and impact
-- Missed opportunities for growth and attainment of our
strategy should we not clearly articulate our value propositions to
potential partners, customers, employees or acquisition targets.
The risk remains high, reflecting the need to ensure effective
communication to all stakeholders during the COVID-19 pandemic.
How do we manage the risk?
-- Halma plc Board members with responsibility for Communications and Investor Relations.
-- Clear brand and communications strategy to enable clear
understanding and alignment with Group strategy.
-- Proactive brand and communications approach to reach existing
and potential audiences to attract and engage them to drive new
growth opportunities.
-- Development of pitch books, purpose and strategy impact
stories, product-solution case studies, and investment collateral
that are delivered to the appropriate targets via direct, indirect,
social media and investor channels.
-- Monitoring of external, social and investor media to gauge
sentiment, brand health and protect reputation.
-- Periodic employee engagement survey to gain feedback on the
effectiveness of internal communication.
-- Communication platform to facilitate rapid collaboration and
information sharing across the Group.
-- Company MD network enabling rapid collaboration during
COVID-19, supported by group and sector teams where escalation is
required.
10. Non-compliance with Laws and Regulations
Risk Owner: Marc Ronchetti
Gross risk level: High
Change: No change
Risk appetite: Averse
Growth enablers
-- International Expansion
-- Talent & Culture
-- Finance, Legal & Risk
-- Strategic Marketing & Communications
Risk and impact
-- Failing to comply with laws and regulations resulting in
damage to reputation and/or fines/penalties.
How do we manage the risk?
-- High-quality management resources who implement controls to
monitor and comply with legal requirements in all countries we
operate.
-- Companies ensure high product quality and compliance with legal standards.
-- High ethical standards which are captured in Halma's Code of
Conduct. All employees are required to read and sign up to it.
-- Employees across the Group perform regular online compliance training.
-- All parts of the Group complete six-monthly control
self-certifications which include legal compliance.
-- A whistleblowing hotline is in place and available for use by all employees.
11. Financial Controls
Risk Owner: Marc Ronchetti
Gross risk level: High
Change: No change
Risk appetite: Averse
Growth enablers
-- International Expansion
-- Talent & Culture
-- Finance, Legal & Risk
Risk and impact
-- Failure in financial controls either on its own or via a
fraud which takes advantage of a weakness, resulting in financial
loss and/or misstated reported financial results.
How do we manage the risk?
-- Local directors have legal, as well as operational,
responsibility as they are statutory directors of their companies.
This fits with Halma's decentralised model to ensure an effective
financial control environment is in place.
-- To mirror the decentralised model, Halma Group Finance
prescribes the minimum expected financial controls to be in place
and requires companies to certify every six months that these
controls are operating effectively. These include segregation of
duties, delegation of authorities and financial accounts
preparation checks.
-- Six-monthly peer reviews of reported results for each company
are performed to provide independent challenge. Internal Audit also
performs periodic risk-based reviews.
-- A whistleblowing hotline is in place and available for use by all employees.
-- All companies have reviewed their financial controls to
ensure they remain effective during COVID-19, for example when home
working has been required.
12. Treasury Management
Risk Owner: Marc Ronchetti
Gross risk level: High
Change: Increased
Risk appetite: Averse
Growth enablers
-- International Expansion
-- Finance, Legal & Risk
Risk and impact
-- There is a risk that the Group's cash resources are
inadequate to support its activities or there is a breach of
funding terms/covenants. There is a risk of volatility on the
Group's Sterling reported result due to unhedged exposure to
foreign currency movements. Geopolitical uncertainty, including the
impact of COVID-19, has increased the risk of foreign exchange
fluctuations and pressure on financial resources.
How do we manage the risk?
-- A long-term Revolving Credit Facility is in place.
-- Sources of funding, headroom and liquidity forecasts are regularly assessed and monitored.
-- Funding terms are built into company policies and
requirements, including restrictions on trading with sanctioned
countries.
-- A Group Treasury Policy includes hedging and there is regular
monitoring of foreign currency exposure at local company and Group
level.
-- The Finance teams have been performing additional cash
forecasting and stress testing to ensure Halma has sufficient
liquidity, not just to survive the current COVID-19 crisis but also
to ensure Halma can invest for growth going forward, whether
organically or through acquisition.
13. Product Failure
Risk Owner: Andrew Williams
Gross risk level: High
Change: No change
Risk appetite: Averse
Growth enablers
-- Talent & Culture
-- Finance, Legal & Risk
-- Innovation Network
-- Strategic Marketing & Communications
Risk and impact
-- A failure in one of our products results in serious injury,
death or damage to property, including due to non-compliance with
product regulations, resulting in financial loss and reputational
damage.
How do we manage the risk?
-- Companies have strict product development and testing
procedures in place to ensure quality of products and compliance
with appropriate regulations.
-- Rigorous testing of products during development and also during the manufacturing process.
-- Terms and conditions of sale limit liability as much as
practically possible and liability insurance is in place.
-- Product compliance with regulations is checked as part of due diligence for any acquisition
Going Concern Statement
The Group's business activities, together with the main trends
and factors likely to affect its future development, performance
and position, and the financial position of the Group as at 31
March 2020, its cash flows, liquidity position and borrowing
facilities are set out in the Strategic Report. In addition, note
27 of the Annual Report and Accounts contains further information
concerning the security, currency, interest rates and maturity of
the Group's borrowings.
The financial statements have been prepared on a going concern
basis. In adopting the going concern basis the Directors have
considered all of the above factors, including potential scenarios
arising from the COVID-19 pandemic and from its other principal
risks as set out in the Principal Risks and Uncertainties Section.
Under the potential scenarios considered, which are severe but
plausible, the Group remains within its debt facilities and the
attached financial covenants for the foreseeable future and the
Directors therefore believe, at the time of approving the financial
statements, that the Company is well placed to manage its business
risks successfully and remains a going concern. The key facts and
assumptions in reaching this determination are summarised
below.
Our financial position remains robust with committed facilities
totalling approximately GBP750m which includes a GBP550m Revolving
Credit Facility, maturing in November 2023, of which GBP313.6m
remains undrawn at the date of this report. The earliest maturity
in these facilities is for GBP74m in January 2021, with the
remaining
maturities from January 2023 onwards. The financial covenants on
these facilities are for leverage (net debt/adjusted EBITDA*) of
not more than three times and for adjusted interest cover of not
less than four times.
* net debt and adjusted EBITDA are on a pre-IFRS 16 basis for
covenant purposes
Our base scenario has been prepared using forecasts from each of
our Operating Companies, with each considering both the challenges
and opportunities they are facing as a consequence of COVID-19.
Whilst these are varied, we have made assumptions in the following
key areas:
- The impact of government lockdown restrictions: physical
lockdown of either our own or our suppliers, distributors or
customers operations have a direct impact on our revenue. This has
impacted the Safety Sectors in particular with the challenges of
physical access and our customers' ability to install products at
end customer sites. We have assumed a gradual recovery of these
sectors from Q2 with trading returning to more normal trading
levels by the end of FY21.
- The impact of the pandemic on elective surgery and
discretionary ophthalmic diagnosis procedures: as health services
have focussed on addressing the additional demand from the
pandemic, certain businesses in the Medical sector have experienced
reduced demand for their products in these end markets. We have
assumed a gradual recovery from Q2 as healthcare systems normalise,
returning to more normal trading levels by Q3.
- The effect on essential businesses: a number of our businesses
are considered essential in nature either as they make products
that are critical to life or protect critical infrastructure. A
small number of these businesses have experienced an increase in
demand as a result of global efforts to fight COVID-19. We have
assumed that the current high demand in these businesses is short
term and moderates over the coming months, returning to more normal
levels by Q4.
Mitigating actions assumed in the base case:
- Cost reductions which have already been implemented in Q1 of
the 2021 financial year including temporary salary reductions,
hiring freezes and a significant reduction in discretionary
overhead spending. We have assumed appropriate and achievable
further reductions in overheads where this is required for
individual companies to "right size" their cost base for the medium
term.
- Reduction of capital expenditure: we have assumed a reduction
of non-essential capital expenditure for the rest of the financial
year.
- Suspension of M&A activity: we have assumed that we will
not make any acquisitions for the balance of FY21, resuming a
normal level of activity during FY22.
Further severe but plausible downside sensitivities modelled
include:
- A delay in the recovery of the impacted businesses from the effects of COVID-19.
- A second wave of COVID-19 infection and corresponding
government restrictions in the second half of FY21.
A reverse stress test scenario has been modelled which is
considered remote in likelihood of occurring, which includes a
combination of these scenarios with the addition of impacts from
other of the Group's principal risks.
None of these scenarios result in a breach of the Group's
available debt facilities or the attached covenants and accordingly
the Directors believe there is no material uncertainty in the use
of the going concern assumption.
Viability Statement
During the year, the Board carried out a robust assessment of
the emerging and principal risks affecting the Group, including
those that would threaten its business model, future performance,
solvency or liquidity. The principal risks and uncertainties,
including an analysis of the potential impact and mitigating
actions are set out in the Principal Risks and Uncertainties
section.
The Board has assessed the viability of the Group over a
three-year period, taking into account the Group's current position
and the potential impact of the principal risks and uncertainties.
While the Board has no reason to believe that the Group will not be
viable over a longer period, it has determined that three years is
an appropriate period. In drawing its conclusion, the Board has
aligned the period of viability assessment with the Group's
strategic planning process (a three-year period). The Board
believes that this approach provides greater certainty over
forecasting and, therefore, increases reliability in the modelling
and stress testing of the Group's viability. In addition, a
three-year horizon is typically the period over which we review our
external bank facilities and is also the performance-based period
over which awards granted under Halma's share-based incentive plan
are measured.
In reviewing the Company's viability, the Board has identified
the following factors which they believe support their
assessment:
1. The Group operates in diverse and relatively non-cyclical
markets.
2. There is considerable financial capacity under current
facilities and the ability to raise further funds if required.
3. The decentralised nature of our Group ensures that risk is
spread across our businesses and sectors, with limited exposure to
any particular industry, market, geography, customer or
supplier.
4. There is a strong culture of local responsibility and
accountability within a robust governance and control
framework.
5. An ethical approach to business is set from the top and flows
throughout our business.
In making their assessment, the Board carried out a
comprehensive exercise of financial modelling and stress-tested the
model with various scenarios based on the principal risks
identified in the Group's annual risk assessment process. The
scenarios modelled used the same assumptions as for the Going
Concern Statement, as set out above, for the years ending 31 March
2021 and 31 March 2022 with further assumptions applied for the
year ending 31 March 2023. These scenarios included a delay in the
recovery of the impacted businesses from the effects of COVID-19, a
second wave of COVID-19 infection and corresponding government
restrictions in the second half of year ended 31 March 2021 and a
combination of these scenarios with the addition of impacts from
other of the Group's principal risks such as litigation or product
failure. In each scenario, the effect on the Group's KPls and
borrowing covenants was considered, along with any mitigating
factors. Based on this assessment, the Board confirms that they
have a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due
over the three-year period to 31 March 2023.
Shareholders and stakeholder engagement
The Board oversees the Company's dialogue with shareholders. The
Group Chief Executive and Chief Financial Officer have regular
contact with investors and analysts. Reports prepared for the Board
by the Head of Investor Relations outline the Company's dialogue
with investors and analysts on financial, operational,
environmental, social and governance matters. The Chairman is
available to meet with shareholders throughout the year and the
Senior Independent Director provides an alternative channel for
shareholders to raise concerns, independent of the executive
management and the Chairman. The Board attends the AGM which gives
individual shareholders the opportunity to engage directly with the
Directors and raise questions about the Company both formally and
informally. While for 2020 we will be holding a closed AGM, we have
made arrangements for shareholders to ask questions ahead of the
meeting. The Board's engagement with other stakeholders is set out
in the Annual Report and Accounts 2020.
Responsibility Statement of the Directors on the Annual Report
and Accounts
The responsibility statement below has been prepared in
connection with the Company's full Annual Report and Accounts for
the year to 31 March 2020. Certain parts thereof are not included
within these Results.
Each of the Directors, whose names and functions are listed in
the Annual Report and Accounts 2020, confirm that, to the best of
their knowledge:
- The Company financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101
"Reduced Disclosure Framework" and applicable law), give a true and
fair view of the assets, liabilities, financial position and profit
of the Company.
- The Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group.
- The Directors' Report includes a fair review of the
development and performance of the business and the position of the
Group and Company, together with a description of the principal
risks and uncertainties that it faces.
This responsibility statement was approved by the Board of
Directors on 14 July 2020
Andrew Williams Marc Ronchetti
Group Chief Executive Chief Financial Officer
Results for the year to 31 March 2020
Consolidated Income Statement
Year ended 31 March Year ended 31 March
2020 2019
------------------------------------ ------------------------------------
Adjustments* Adjustments*
Before (note Before (note
adjustments* 1) Total adjustments* 1) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Continuing operations
Revenue 1 1,338.4 - 1,338.4 1,210.9 - 1,210.9
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Operating profit 279.2 (45.8) 233.4 255.8 (38.0) 217.8
Share of loss of associate (0.1) - (0.1) (0.1) - (0.1)
Profit/(loss) on disposal
of operations 11 - 2.9 2.9 - (1.0) (1.0)
Finance income 4 0.6 - 0.6 0.5 - 0.5
Finance expense 5 (12.7) - (12.7) (10.5) - (10.5)
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Profit before taxation 267.0 (42.9) 224.1 245.7 (39.0) 206.7
Taxation 6 (49.4) 9.7 (39.7) (45.7) 8.8 (36.9)
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Profit for the year
attributable to equity
shareholders 1 217.6 (33.2) 184.4 200.0 (30.2) 169.8
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Earnings per share 2
From continuing operations
Basic and diluted 57.39p 48.66p 52.74p 44.78p
Dividends in respect
of the year 7
Paid and proposed
(GBPm) 62.5 59.6
Paid and proposed
per share 16.50p 15.71p
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
* Adjustments include the amortisation of acquired intangible
assets; acquisition items; significant restructuring costs, profit
or loss on disposal of operations and in the prior year only the
effect of equalisation of pension benefits for men and women in the
defined benefit plans; and the associated taxation thereon. Note 3
provides more information on alternative performance measures.
Consolidated Statement of Comprehensive Income and
Expenditure
Year ended Year ended
31 March 31 March
2020 2019
Notes GBPm GBPm
----------------------------------------------------- ----- ---------- ----------
Profit for the year 184.4 169.8
Items that will not be reclassified subsequently
to the Consolidated Income Statement:
Actuarial gains on defined benefit pension plans 22.5 6.5
Tax relating to components of other comprehensive
income that will not be reclassified 6 (4.0) (1.6)
Items that may be reclassified subsequently
to the Consolidated Income Statement:
Effective portion of changes in fair value of
cash flow hedges (0.5) -
Deferred tax in respect of cash flow hedges
accounted for in the hedging reserve 6 0.1 -
Exchange gains on translation of foreign operations
and net investment hedge 29.1 32.5
Exchange loss/(gain) on translation of foreign
operations recycled to income statement on disposal 0.1 (0.3)
Other comprehensive income for the year 47.3 37.1
----------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the year attributable
to equity shareholders* 231.7 206.9
----------------------------------------------------- ----- ---------- ----------
The exchange gain of GBP29.1m (2019: gain of GBP32.5m) includes
losses of GBP11.9m (2019: losses of GBP7.9m) which relate to net
investment hedges.
* The amount of income relating to non-controlling interests for
non-wholly owned subsidiaries during the year was GBPnil (2019:
GBPnil).
Consolidated Balance Sheet
31 March 31 March
2020 2019
Restated*
Notes GBPm GBPm
--------------------------------------------- ----- -------- ----------
Non-current assets
Goodwill 838.4 694.0
Other intangible assets 328.4 245.2
Property, plant and equipment 184.3 112.4
Interest in associates and other investments 4.8 3.9
Retirement benefit asset 5.4 -
Deferred tax asset* 1.3 1.4
--------------------------------------------- ----- -------- ----------
1,362.6 1,056.9
--------------------------------------------- ----- -------- ----------
Current assets
Inventories 170.6 144.3
Trade and other receivables 8 286.6 259.6
Tax receivable 10.7 0.2
Cash and bank balances 106.3 81.2
Derivative financial instruments 1.0 0.9
--------------------------------------------- ----- -------- ----------
575.2 486.2
--------------------------------------------- ----- -------- ----------
Total assets 1,937.8 1,543.1
--------------------------------------------- ----- -------- ----------
Current liabilities
Trade and other payables 186.7 164.8
Borrowings 75.1 9.2
Lease liabilities 13.0 -
Provisions 28.0 25.4
Tax liabilities 9.4 13.4
Derivative financial instruments 1.0 0.3
--------------------------------------------- ----- -------- ----------
313.2 213.1
--------------------------------------------- ----- -------- ----------
Net current assets 262.0 273.1
--------------------------------------------- ----- -------- ----------
Non-current liabilities
Borrowings 345.0 253.7
Lease liabilities 48.5 -
Retirement benefit obligations 10.6 39.2
Trade and other payables 13.3 11.6
Provisions 21.6 10.9
Deferred tax liabilities* 48.7 33.2
--------------------------------------------- ----- -------- ----------
487.7 348.6
--------------------------------------------- ----- -------- ----------
Total liabilities 800.9 561.7
--------------------------------------------- ----- -------- ----------
Net assets 1,136.9 981.4
--------------------------------------------- ----- -------- ----------
Equity
Share capital 38.0 38.0
Share premium account 23.6 23.6
Own shares (14.3) (4.7)
Capital redemption reserve 0.2 0.2
Hedging reserve (0.1) 0.3
Translation reserve 148.7 119.5
Other reserves (7.7) (5.6)
Retained earnings 949.2 810.1
--------------------------------------------- ----- -------- ----------
Equity attributable to owners of the Company 1,137.6 981.4
--------------------------------------------- ----- -------- ----------
Non-controlling interests (0.7) -
--------------------------------------------- ----- -------- ----------
Total equity 1,136.9 981.4
--------------------------------------------- ----- -------- ----------
* As part of a review of deferred tax balances some balances
were identified that were previously presented gross but should
have been netted off as they are in the same jurisdiction and there
is a legally enforceable right to set off current tax assets
against current tax liabilities.
The financial statements of Halma plc, company number 00040932,
were approved by the Board of Directors on 14 July 2020 .
Andrew Williams Marc Ronchetti
Director Director
Consolidated Statement of Changes in Equity
Share Capital
Share premium Own redemption Hedging Translation Other Retained Non-controlling
capital account shares reserve reserve reserve reserves earnings interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
At 1 April 2019 38.0 23.6 (4.7) 0.2 0.3 119.5 (5.6) 810.1 - 981.4
Impact of
changes
in
Accounting
policies:
IFRS 16 'Leases' - - - - - - - (4.0) - (4.0)
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
Restated balance
at
1 April 2019 38.0 23.6 (4.7) 0.2 0.3 119.5 (5.6) 806.1 - 977.4
Profit for the
year - - - - - - - 184.4 - 184.4
Other
comprehensive
income and
expense:
Exchange gain on
translation of
foreign
operations and
net
investment
hedge - - - - - 29.1 - - - 29.1
Exchange loss on
translation of
foreign
operations
recycled
to income
statement
on disposal - - - - - 0.1 - - - 0.1
Actuarial gains
on defined
benefit
pension plans - - - - - - - 22.5 - 22.5
Effective
portion
of changes in
fair
value of cash
flow
hedges - - - - (0.5) - - - - (0.5)
Tax relating to
components of
other
comprehensive
income
and expense - - - - 0.1 - - (4.0) - (3.9)
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
Total other
comprehensive
income and
expense - - - - (0.4) 29.2 - 18.5 - 47.3
Dividends paid - - - - - - - (61.2) - (61.2)
Share-based
payment
charge - - - - - - 10.5 - - 10.5
Deferred tax on
share-based
payment
transactions - - - - - - 0.5 - - 0.5
Excess tax
deductions
related to
share-based
payments on
exercised
awards - - - - - - - 1.4 - 1.4
Purchase of Own
shares - - (16.7) - - - - - - (16.7)
Performance
share
plan awards
vested - - 7.1 - - - (13.1) - - (6.0)
Non-controlling
interest
arising
on acquisition - - - - - - - - (0.7) (0.7)
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
At 31 March 2020 38.0 23.6 (14.3) 0.2 (0.1) 148.7 (7.7) 949.2 (0.7) 1,136.9
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
Own shares are ordinary shares in Halma plc purchased by the
Company and held to fulfil the Company's obligations under the
Group's share plans. At 31 March 2020 the number of shares held by
the Employee Benefit Trust was 760,894 (2019: 370,354). The market
value of Own shares was GBP14.6m (2019: GBP6.2m).
The Translation reserve is used to record the difference arising
from the retranslation of the financial statements of foreign
operations. The Hedging reserve is used to record the portion of
the cumulative net change in fair value of cash flow hedging
instruments that are deemed to be an effective hedge.
The Capital redemption reserve was created on repurchase and
cancellation of the Company's own shares. The Other reserves
represent the provision for the value of the Group's equity-settled
share plans.
Share Capital
Share premium Own redemption Hedging Translation Other Retained
capital account shares reserve reserve reserve reserves earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---------------- ------- ---------------- ---------------- ------- ----------- -------- -------- ------
At 1 April
2018 38.0 23.6 (6.3) 0.2 0.3 87.3 (5.9) 691.2 828.4
Impact of
changes
in
Accounting
policies:
IFRS 9 - - - - - - - 0.1 0.1
IFRS 15 - - - - - - - (0.2) (0.2)
-------------- ---------------- ------- ---------------- ---------------- ------- ----------- -------- -------- ------
Restated
balance
at
1 April 2018 38.0 23.6 (6.3) 0.2 0.3 87.3 (5.9) 691.1 828.3
Profit for the
year - - - - - - - 169.8 169.8
Other
comprehensive
income and
expense:
Exchange
differences
on
translation
of
foreign
operations - - - - - 32.5 - - 32.5
Exchange gains
on
translation
of foreign
operations
recycled
on disposal - - - - - (0.3) - - (0.3)
Actuarial
gains
on defined
benefit
pension plans - - - - - - - 6.5 6.5
Effective
portion
of changes in
fair
value of cash
flow
hedges - - - - - - - - -
Tax relating
to
components of
other
comprehensive
income - - - - - - - (1.6) (1.6)
-------------- ---------------- ------- ---------------- ---------------- ------- ----------- -------- -------- ------
Total other
comprehensive
income and
expense - - - - - 32.2 - 4.9 37.1
Dividends paid - - - - - - - (57.2) (57.2)
Share-based
payment
charge - - - - - - 9.7 - 9.7
Deferred tax
on
share-based
payment
transactions - - - - - - 0.9 - 0.9
Excess tax
deductions
related to
share-based
payments on
exercised
awards - - - - - - - 1.5 1.5
Purchase of
Own
shares - - (3.8) - - - - - (3.8)
Performance
share
plan awards
vested - - 5.4 - - - (10.3) - (4.9)
-------------- ---------------- ------- ---------------- ---------------- ------- ----------- -------- -------- ------
At 31 March
2019 38.0 23.6 (4.7) 0.2 0.3 119.5 (5.6) 810.1 981.4
-------------- ---------------- ------- ---------------- ---------------- ------- ----------- -------- -------- ------
Consolidated Cash Flow Statement
Year ended Year ended
31 March 31 March
2020 2019
Notes GBPm GBPm
------------------------------------------------------- ----- ---------- ----------
Net cash inflow from operating activities 10 255.5 219.0
------------------------------------------------------- ----- ---------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment - owned
assets (31.2) (26.4)
Purchase of computer software (2.6) (2.4)
Purchase of other intangibles (0.3) (2.5)
Proceeds from sale of property, plant and equipment
and capitalised development costs 1.9 1.6
Development costs capitalised (14.7) (10.8)
Interest received 0.5 0.4
Acquisition of businesses, net of cash acquired 9 (232.8) (67.0)
Disposal of business 11 7.6 3.1
Purchase of equity investments (4.8) -
------------------------------------------------------- ----- ---------- ----------
Net cash used in investing activities (276.4) (104.0)
------------------------------------------------------- ----- ---------- ----------
Cash flows from financing activities
Dividends paid (61.2) (57.2)
Purchase of Own shares (16.7) (3.8)
Interest paid (11.1) (8.2)
Loan arrangement fee paid - (0.5)
Proceeds from bank borrowings 10 308.1 66.4
Repayment of bank borrowings 10 (151.7) (110.3)
Repayment of lease liabilities (13.7) -
------------------------------------------------------- ----- ---------- ----------
Net cash generated from/(used in) financing activities 53.7 (113.6)
------------------------------------------------------- ----- ---------- ----------
Increase in cash and cash equivalents 10 32.8 1.4
Cash and cash equivalents brought forward 72.1 69.7
Exchange adjustments 0.5 1.0
------------------------------------------------------- ----- ---------- ----------
Cash and cash equivalents carried forward 10 105.4 72.1
------------------------------------------------------- ----- ---------- ----------
Year ended Year ended
31 March 31 March
2020 2019
Notes GBPm GBPm
---------------------------------------------------- ----- ---------- ----------
Reconciliation of net cash flow to movement in
net debt
Increase in cash and cash equivalents 32.8 1.4
Net cash (inflow)/outflow from (drawdown)/repayment
of bank borrowings 10 (156.4) 43.9
Loan notes repaid in respect of acquisitions 10 0.1 0.1
Lease liabilities - additions (18.1) -
Lease liabilities - arising on acquisition (8.2) -
Repayment of lease liabilities including interest 15.8 -
Exchange adjustments (9.3) (6.8)
---------------------------------------------------- ----- ---------- ----------
(Increase)/decrease in net debt (143.3) 38.6
Net debt brought forward (181.7) (220.3)
Impact of changes in accounting policies - IFRS
16 'Leases' (50.3) -
---------------------------------------------------- ----- ---------- ----------
Restated net debt brought forward (232.0) (220.3)
---------------------------------------------------- ----- ---------- ----------
Net debt carried forward (375.3) (181.7)
---------------------------------------------------- ----- ---------- ----------
Accounting Policies
Basis of accounting
As the UK is still in the transition stage of its departure from
the European Union, the financial statements continue to be
prepared in accordance with International Financial Reporting
Standards (IFRS) adopted for use in the European Union (EU). They
therefore comply with Article 4 of the EU IAS legislation and with
those parts of the Companies Act 2006 that are applicable to
companies reporting under IFRS. The financial statements have also
been prepared in accordance with IFRS and IFRS Interpretations
Committee (IFRS IC) interpretations issued and effective at the
time of preparing these financial statements.
The principal Group accounting policies are explained below and
have been applied consistently throughout the years ended 31 March
2020 and 31 March 2019, other than those noted below.
The Group accounts have been prepared under the historical cost
convention, except as described below under the heading 'Derivative
financial instruments and hedge accounting' and under the heading
'Business combinations and goodwill'.
New Standards and Interpretations applied for the first time in
the year ended 31 March 2020
IFRS 16 'Leases'
With effect from 1 April 2019 the Group has adopted IFRS 16
'Leases' and applied the modified retrospective approach. IFRS 16
provides a single on-balance sheet accounting model for lessees
which recognises a right-of-use asset, representing its right to
use the underlying asset, and a lease liability, representing its
obligations to make payment in respect of the use of the underlying
asset. The distinction between finance and operating leases for
lessees is removed. Comparatives for the prior year have not been
restated and the reclassifications and adjustments arising from the
new leasing standard are therefore recognised in the opening
balance sheet on 1 April 2019 as follows:
1 April
2019
GBPm
------------------------------------------------------- -------
Non-current assets
Property, plant and equipment (right of use assets) 45.4
Total assets 45.4
------------------------------------------------------- -------
Current liabilities
Trade and other payables 0.3
Lease liabilities (10.7)
Non-current liabilities
Lease liabilities (39.6)
Provisions (0.3)
Deferred tax liability 0.9
Total liabilities (49.4)
------------------------------------------------------- -------
Total movement in retained earnings as at 1 April 2019 (4.0)
------------------------------------------------------- -------
On adoption of IFRS 16, the Group recognised liabilities for
leases which had been classified as operating leases under previous
accounting standards. The lease liability has been measured at the
present value of the remaining lease payments, discounted using the
incremental borrowing rate as at 1 April 2019. The weighted average
lessee's incremental borrowing rate applied to the lease
liabilities on 1 April 2019 was 3.7%.
1 April
2019
GBPm
------------------------------------------------------------------ -------
Operating lease commitments as disclosed at 31 March 2019 52.5
Reconciling items
- Effect of discounting (at incremental borrowing rate as
a 1 April 2019) (4.8)
- Short-term leases recognised on a straight-line basis as
expense (0.4)
- Low-value leases recognised on a straight-line basis as
expense (0.3)
- Recognition differences on new leases and extension assumptions 3.3
------------------------------------------------------------------ -------
Lease liability recognised as at 1 April 2019 50.3
------------------------------------------------------------------ -------
Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
- Relied on previous assessments of whether leases are
onerous
- Excluded initial direct costs for the measurement of
right-of-use assets at the date of the initial application
- Used hindsight in determining the lease term where the
contract contains options to extend or terminate the lease
- Where practicable arrangements containing both lease
components and non-lease components are accounted for as though
they comprise a single lease component
Additionally, on transition the Group elected not to reassess
whether a contract is, or contains, a lease, instead relying on the
assessment already made applying IAS 17 'Leases' and IFRIC 4
'Determining whether an Arrangement contains a Lease'.
Impact on the income statement
The impact on the income statement for the year ended 31 March
2020 is to increase operating profit by approximately GBP2.4m where
the operating lease payments are replaced by a depreciation charge
and increase finance costs by GBP2.1m, resulting in an increase in
profit before tax of GBP0.3m.
Impact on the cash flow statement
There has been a change to the classification of cash flows in
the cash flow statement, with operating lease payments previously
categorised as net cash used in operations now being split between
the principal element, included as repayment of lease liabilities
within financing activities and the interest element, included as
interest paid within financing activities. In the year ended 31
March 2020 there are GBP15.8m of lease payments within financing
activities, comprising GBP13.7m of repayment of lease liabilities
and GBP2.1m of interest paid.
Other new accounting standards and interpretations applied for
the first time
The following Standards with an effective date of 1 January 2019
have been adopted without any significant impact on the amounts
reported in these financial statements:
- Amendments to IAS 19: Plan amendment, Curtailment of Settlement
- Annual improvements 2015-2017 cycle
- IFRIC Interpretation 23: Uncertainty over Income Tax Treatments
- Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures
New Standards and Interpretations not yet applied
At the date of authorisation of these financial statements, the
following Standards and Interpretations that are potentially
relevant to the Group, and which have not been applied in these
financial statements, were in issue but not yet effective (and in
some cases had not yet been adopted by the EU):
- Amendments to IFRS 3: Definition of a Business
- Amendments to IFRS 10 and IAS 28: Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture
- Amendments to IAS 1 and IAS 8: Definition of Material
- Conceptual Framework: Amendments to References to the Conceptual Framework in IFRS Standards
The Directors anticipate that the adoption of these Standards
and Interpretations in future periods will have no material impact
on the financial statements of the Group.
Use of Alternative performance measures (APMs)
In the reporting of the financial information, the Group uses
certain measures that are not required under IFRS, the Generally
Accepted Accounting Principles (GAAP) under which the Group
reports. The Directors believe that Return on Total Invested
Capital (ROTIC), Return on Capital Employed (ROCE), Organic growth
at constant currency, adjusted profit and earnings per share
measures and adjusted operating cash flow provide additional and
more consistent measures of underlying performance to shareholders
by removing non-trading items that are not closely related to the
Group's trading or operating cash flows. These and other
alternative performance measures are used by the Directors for
internal performance analysis and incentive compensation
arrangements for employees. The terms ROTIC, ROCE, Organic growth
at constant currency and 'adjusted' are not defined terms under
IFRS and may therefore not be comparable with similarly titled
measures reported by other companies. They are not intended to be a
substitute for, or superior to, GAAP measures.
The principal items which are included in adjusting items are
set out below in the Group's accounting policy and in note 1. The
term 'adjusted' refers to the relevant measure being reported for
continuing operations excluding adjusting items.
Definitions of the Group's material alternative performance
measures along with reconciliation to their IFRS equivalent measure
are included in note 3.
Key accounting policies
Below we set out our key accounting policies, with a list of all
other accounting policies thereafter.
Going concern
The Group's business activities, together with the main trends
and factors likely to affect its future development, performance
and position, and the financial position of the Group as at 31
March 2020, its cash flows, liquidity position and borrowing
facilities are set out in the Strategic Report. In addition, note
27 of the Annual Report and Accounts contains further information
concerning the security, currency, interest rates and maturity of
the Group's borrowings.
The financial statements have been prepared on a going concern
basis. In adopting the going concern basis the Directors have
considered all of the above factors, including potential scenarios
arising from the COVID-19 pandemic and from its other principal
risks set out in the Principal Risks and Uncertainties section.
Under the potential scenarios considered, which are severe but
plausible, the Group remains within its debt facilities and the
attached financial covenants for the foreseeable future and the
Directors therefore believe, at the time of approving the financial
statements, that the Company is well placed to manage its business
risks successfully and remains a going concern. The key facts and
assumptions in reaching this determination are summarised
below.
Our financial position remains robust with committed facilities
totalling approximately GBP750m which includes a GBP550m Revolving
Credit Facility maturing in November 2023 of which GBP313.6m
remains undrawn at the date of this report. The earliest maturity
in these facilities is for GBP74m in January 2021, with the
remaining maturities from January 2023 onwards. The financial
covenants on these facilities are for leverage (net debt/adjusted
EBITDA*) of not more than three times and for adjusted interest
cover of not less than four times.
* net debt and adjusted EBITDA are on a pre-IFRS 16 basis for covenant purposes
Our base scenario has been prepared using forecasts from each of
our Operating Companies, with each considering both the challenges
and opportunities they are facing as a consequence of COVID-19.
Whilst these are varied, we have made assumptions in the following
key areas:
- The impact of government lockdown restrictions: physical
lockdown of either our own or our suppliers, distributors or
customers operations have a direct impact on our revenue. This has
impacted the Safety Sectors in particular with the challenges of
physical access and our customers' ability to install products at
end customer sites. We have assumed a gradual recovery of these
sectors from Q2 with trading returning to more normal trading
levels by the end of FY21.
- The impact of the pandemic on elective surgery and
discretionary ophthalmic diagnosis procedures: as health services
have focussed on addressing the additional demand from the
pandemic, certain businesses in the Medical sector have experienced
reduced demand for their products in these end markets. We have
assumed a gradual recovery from Q2 as healthcare systems normalise,
returning to more normal trading levels by Q3.
- The effect on essential businesses: a number of our businesses
are considered essential in nature either as they make products
that are critical to life or protect critical infrastructure. A
small number of these businesses have experienced an increase in
demand as a result of global efforts to fight COVID-19. We have
assumed that the current high demand in these businesses is short
term and moderates over the coming months, returning to more normal
levels by Q4.
- Mitigating actions assumed in the base case:
- Cost reductions which have already been implemented in Q1 of
the 2021 financial year including temporary salary reductions,
hiring freezes and a significant reduction in discretionary
overhead spending. We have assumed appropriate and achievable
further reductions in overheads where this is required for
individual companies to "right size" their cost base for the medium
term.
- Reduction of capital expenditure: we have assumed a reduction
of non-essential capital expenditure for the rest of the financial
year.
- Suspension of M&A activity: we have assumed that we will
not make any acquisitions for the balance of FY21, resuming a
normal level of activity during FY22.
Further severe but plausible downside sensitivities modelled
include:
- A delay in the recovery of the impacted businesses from the effects of COVID-19.
- A second wave of COVID-19 infection and corresponding
government restrictions in the second half of FY21.
A reverse stress test scenario has been modelled which is
considered remote in likelihood of occurring, which includes a
combination of these scenarios, with the addition of impacts from
the Group's other principal risks.
None of these scenarios result in a breach of the Group's
available debt facilities or the attached covenants and accordingly
the Directors believe there is no material uncertainty in the use
of the going concern assumption.
Pensions
The Group makes contributions to various pension plans.
For defined benefit plans, the asset or liability recorded in
the Consolidated Balance Sheet is the difference between the fair
value of the plan's assets and the present value of the defined
obligation at that date. The defined benefit obligation is
calculated separately for each plan on an annual basis by
independent actuaries using the projected unit credit method.
Actuarial gains and losses are recognised in full in the period
in which they occur and are taken to other comprehensive
income.
Current and past service costs, along with the impact of any
settlements or curtailments, are charged to the Consolidated Income
Statement. The net interest expense on pension plans' liabilities
and the expected return on the plans' assets is recognised within
finance expense in the Consolidated Income Statement.
Contributions to defined contribution plans are charged to the
Consolidated Income Statement when they fall due.
Business combinations and goodwill
Business combinations are accounted for using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the Group. The Group measures goodwill at
the acquisition date as:
- the fair value of the consideration transferred; plus
- the recognised amount of any non-controlling interests in the
acquiree measured at the proportionate share of the value of net
identifiable assets acquired; plus
- the fair value of the existing equity interest in the acquiree; less
- the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
Costs related to the acquisition, other than those associated
with the issue of debt or equity securities, are expensed as
incurred. Any contingent consideration payable may be accounted for
as either:
a) Consideration transferred, which is recognised at fair value
at the acquisition date. If the contingent purchase consideration
is classified as equity, it is not remeasured and settlement is
accounted for within equity. Otherwise, subsequent changes to the
fair value of the contingent purchase consideration are recognised
in the Consolidated Income Statement; or
b) Remuneration, which is expensed in the Consolidated Income
Statement over the associated period of service. An indicator of
such treatment includes when payments to employees of the acquired
company are contingent on a post-acquisition event, but may be
automatically forfeited on termination of employment.
For acquisitions between 4 April 2004 (the date from which the
financial statements were reported under IFRS) and 2 April 2010,
goodwill represents the difference between the cost of the
acquisition, including acquisition costs and the fair value of the
net identifiable assets acquired. Goodwill has an indefinite
expected useful life and is not amortised, but is tested annually
for impairment.
Goodwill is recognised as an intangible asset in the
Consolidated Balance Sheet. Goodwill therefore includes
non-identified intangible assets including business processes,
buyer-specific synergies, know-how and workforce-related
industry-specific knowledge and technical skills. Negative goodwill
arising on acquisitions would be recognised directly in the
Consolidated Income Statement. On closure or disposal of an
acquired business, goodwill would be taken into account in
determining the profit or loss on closure or disposal.
As permitted by IFRS 1, the Group elected not to apply IFRS 3
'Business Combinations' to acquisitions prior to 4 April 2004 in
its consolidated accounts. As a result, the net book value of
goodwill recognised as an intangible asset under UK GAAP at 3 April
2004 was brought forward unadjusted as the cost of goodwill
recognised under IFRS at 4 April 2004 subject to impairment testing
on that date; and goodwill that was written off to reserves prior
to 28 March 1998 under UK GAAP will not be taken into account in
determining the profit or loss on disposal or closure of previously
acquired businesses from 4 April 2004 onwards.
Intangible assets
(a) Acquired intangible assets
An intangible resource acquired with a subsidiary undertaking is
recognised as an intangible asset if it is separable from the
acquired business or arises from contractual or legal rights, is
expected to generate future economic benefits and its fair value
can be measured reliably. Acquired intangible assets, comprising
trademarks, technology and know-how and customer relationships, are
amortised through the Consolidated Income Statement on a
straight-line basis over their estimated economic lives of between
four and twenty years.
(b) Product development costs
Research expenditure is written off in the financial year in
which it is incurred.
Development expenditure is written off in the financial year in
which it is incurred, unless it relates to the development of a new
or substantially improved product, is incurred after the technical
feasibility and economic viability of the product has been proven
and the decision to complete the development has been taken, and
can be measured reliably. Such expenditure is capitalised as an
intangible asset in the Consolidated Balance Sheet at cost and is
amortised through the Consolidated Income Statement on a
straight-line basis over its estimated economic life of three
years.
Impairment of trade and other receivables
The Group assesses on a forward-looking basis the expected
credit losses associated with its trade and other receivables
carried at amortised cost. The impairment methodology applied
depends on whether there has been a significant increase in credit
risk.
The Group applies the simplified approach permitted by IFRS 9,
which requires expected lifetime losses to be recognised from
initial recognition of the receivables. In order to estimate the
expected lifetime losses, the Group categorises its customers into
groups with similar risk profiles and determines the historic rates
of impairment for each of those categories of customer. The Group
then adjusts the risk profile for each group of customers by using
forward looking information, such as the government risk of default
for the country in which those customers are located, and
determines an overall probability of impairment for the total trade
and other receivables at the balance sheet date.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of Group accounts in conformity with IFRS
requires the Directors to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experiences and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The following areas of critical accounting judgement and key
estimation uncertainty have been identified as having significant
risk of causing a material adjustment to the carrying amounts of
assets and liabilities:
Critical accounting judgements
Goodwill impairment CGU groups
Determining whether goodwill is impaired requires management's
judgement in assessing cash generating unit (CGU) groups to which
goodwill should be allocated. Management allocates a new
acquisition to a CGU group based on which one is expected to
benefit most from that business combination. The allocation of
goodwill to existing CGUs is generally straightforward and factual,
however over time as new businesses are acquired and management
reporting structures change management reviews the CGU groups to
ensure they are still appropriate. During the current year,
management has reviewed its CGU groups and made changes to the
groups within the Medical and Environmental & Analysis
sectors.
Changes to contingent consideration within 12 months of
acquiring a business
Where the Group's expectations of future profit levels on which
contingent consideration provisions are based change within 12
months of acquiring a business, judgement is required to assess
whether those changes reflect post-acquisition events or
measurement period events. Changes in contingent consideration that
are determined to be as a result of post-acquisition events in the
first 12 months following the acquisition are recognised in the
Consolidated Income Statement whereas changes related to events
that were known at the acquisition date are measurement period
events and should be adjusted against goodwill. For all
acquisitions in the year made prior to 11 March 2020, the date on
which COVID-19 was declared a pandemic, the Group has determined
changes in expectations arising from COVID-19 to be
post-acquisition events.
Provisions for taxation
In the current year, determining the provision for taxation
requires management's judgement in assessing the provision required
in relation to group financing partial exemption applicable to UK
controlled foreign companies as a result of the decision by the
European Commission that this constitutes state aid. Management's
assessment is that this represents a contingent liability and no
provision is required at this time. Further details are provided in
note 12.
Key sources of estimation uncertainty
Estimation of future cash flows
The Group uses estimates of future cash flows in a number of
areas described below as required by IFRS. Estimates are made based
on the latest available information by management closest to the
related assets and end markets. The COVID-19 pandemic has increased
the level of estimation uncertainty as the impact on countries and
markets continues to be uncertain, however, the Group has modelled
a range of scenarios to consider the impact on the carrying value
of its assets as described in the going concern statement above and
within each relevant note indicated below.
Contingent consideration changes in estimates
Determining the value of contingent consideration recognised as
part of the acquisition of a business requires management to
estimate the expected performance of the acquired business and the
amount of contingent consideration that will therefore become
payable. Initial estimates of expected performance are made by the
management responsible for completing the acquisition and form a
key component of the financial due diligence that takes place prior
to completion. Subsequent measurement of contingent consideration
is based on the Directors' appraisal of the acquired business's
performance in the post-acquisition period and the agreement of
final payments.
Intangible assets
IFRS 3 (revised) 'Business Combinations' requires that goodwill
arising on the acquisition of subsidiaries is capitalised and
included in intangible assets. IFRS 3 (revised) also requires the
identification and valuation of other separable intangible assets
at acquisition. The assumptions involved in valuing these
intangible assets require the use of management estimates.
IAS 38 'Intangible Assets' requires that development costs,
arising from the application of research findings or other
technical knowledge to a plan or design of a new or substantially
improved product, are capitalised, subject to certain criteria
being met. Determining the technical feasibility and estimating the
future cash flows generated by the products in development requires
the use of management estimates. The estimates made in relation to
both acquired intangible assets and capitalised development costs
include identification of relevant assets, future growth rates,
expected inflation rates and the discount rate used. Management
also make estimates of the useful economic lives of the intangible
assets.
Goodwill impairment future cash flows
The value in use calculation used to test for impairment of
goodwill involves an estimation of the present value of future cash
flows of CGUs. The future cash flows are based on annual budgets
and forecasts, as approved by the Board, to which management's
expectation of market-share and long-term growth rates are applied.
The present value is then calculated based on management's estimate
of future discount and growth rates. The Board reviews these key
assumptions (market-share, long-term growth rates, and discount
rates) and the sensitivity analysis around these assumptions.
Defined benefit pension plan liabilities
Determining the value of the future defined benefit obligation
requires estimation in respect of the assumptions used to calculate
present values. These include future mortality, discount rate and
inflation. Management determines these assumptions in consultation
with an independent actuary.
Trade and other receivables impairment
Determining the provision for impairment of trade and other
receivables requires estimation of the expected lifetime losses.
Management makes these estimates using forward looking information
to determine the overall probability of impairment. Details of the
estimates made in calculating the provision for impairment of trade
and other receivables are disclosed in note 8.
Other accounting policies
Basis of consolidation
The Group accounts include the accounts of Halma plc and all of
its subsidiary companies made up to 31 March 2020, adjusted to
eliminate intra-Group transactions, balances, income and expenses.
The results of subsidiary companies acquired or discontinued are
included from the month of their acquisition or to the month of
their discontinuation.
Investments in associates
An associate is an entity over which the Group is in a position
to exercise significant influence, but not control or joint
control, through participation in the financial and operating
policy decisions of the investee. Significant influence is the
power to participate in the financial and operating policy
decisions of the investee but without control or joint control over
those policies.
The results and assets and liabilities of associates are
incorporated in these financial statements using the equity method
of accounting. Investments in associates are carried in the
Consolidated Balance Sheet at cost as adjusted by post-acquisition
changes in the Group's share of the net assets of the associate,
less any impairment in the value of individual investments. Losses
of an associate in excess of the Group's interest in that associate
(which includes any long-term interests that, in substance, form
part of the Group's net investment in the associate) are recognised
only to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the
associate.
Any excess of the cost of acquisition over the Group's share of
the fair values of the identifiable net assets of the associate at
the date of acquisition is recognised as goodwill. The goodwill is
included within the carrying amount of the investment and is
assessed for impairment as part of that investment. Any deficiency
of the cost of acquisition below the Group's share of the fair
values of the identifiable net assets of the associate at the date
of acquisition (i.e. discount on acquisition) is credited in profit
or loss in the year of acquisition.
Where a Group company transacts with an associate of the Group,
profits and losses are eliminated to the extent of the Group's
interest in the relevant associate. Losses may provide evidence of
an impairment of the asset transferred in which case appropriate
provision is made for impairment.
Where the Group disposes of its entire interest in an associate
a gain or loss is recognised in the Income Statement on the
difference between the amount received on the sale of the associate
less the carrying value and costs of disposal.
Financial assets at fair value through other comprehensive
income
Financial assets at fair value through other comprehensive
income (FVOCI) comprise equity securities which are not held for
trading, and which the Group has irrevocably elected at initial
recognition to recognise as FVOCI. The Group considers this
classification relevant as these are strategic investments.
Financial assets at FVOCI are adjusted to the fair value of the
asset at the balance sheet date with any gain or loss being
recognised in other comprehensive income and held as part of other
reserves. On disposal any gain or loss is recognised in other
comprehensive income and the cumulative gains or losses are
transferred from other reserves to retained earnings.
Other intangible assets
(a) Computer software
Computer software that is not integral to an item of property,
plant or equipment is recognised separately as an intangible asset,
and is amortised through the Consolidated Income Statement on a
straight-line basis over its estimated economic life of between
three and five years.
(b) Other intangibles
Other intangibles are amortised through the Consolidated Income
Statement on a straight-line basis over their estimated economic
lives of between three and five years.
Impairment of non-current assets
All non-current assets are tested for impairment whenever events
or circumstances indicate that their carrying value may be
impaired. Additionally, goodwill and capitalised development
expenditure relating to a product that is not yet in full
production are subject to an annual impairment test.
An impairment loss is recognised in the Consolidated Income
Statement to the extent that an asset's carrying value exceeds its
recoverable amount, which represents the higher of the asset's fair
value less costs to dispose and its value in use. An asset's value
in use represents the present value of the future cash flows
expected to be derived from the asset or from the cash generating
unit to which it relates. The present value is calculated using a
pre-tax discount rate that reflects the current market assessment
of the time value of money and the risks specific to the asset
concerned.
Impairment losses recognised in previous periods for an asset
other than goodwill are reversed if there has been a change in the
estimates used to determine the asset's recoverable amount, but
only to the extent that the carrying amount of the asset does not
exceed its carrying amount had no impairment loss been recognised
in previous periods. Impairment losses in respect of goodwill are
not reversed.
Segmental reporting
An operating segment is a distinguishable component of the Group
that is engaged in business activities from which it may earn
revenues and incur expenses, and whose operating results are
reviewed regularly by the Chief Operating Decision Maker (the Group
Chief Executive) to make decisions about resources to be allocated
to the segment and assess its performance, and for which discrete
financial information is available.
Reportable segments are operating segments that either meet the
thresholds and conditions set out in IFRS 8 or are considered by
the Board to be appropriately designated as reportable segments.
Segment result represents operating profits and includes an
allocation of Head Office expenses. Segment result excludes tax and
financing items. Segment assets comprise goodwill, other intangible
assets, property, plant and equipment & Right of Use assets
(excluding land and buildings), inventories, trade and other
receivables. Segment liabilities comprise trade and other payables,
provisions and other payables. Unallocated items represent land and
buildings (including Right of Use assets), corporate and deferred
taxation balances, defined benefit plan liabilities, contingent
purchase consideration, all components of net cash/borrowings,
lease liabilities and derivative financial instruments.
Inventories
Inventories and work in progress are included at the lower of
cost and net realisable value. Cost is calculated either on a
'first in, first out' or an average cost basis and includes direct
materials and the appropriate proportion of production and other
overheads considered by the Directors to be attributable to
bringing the inventories to their location and condition at the
year end. Net realisable value represents the estimated selling
price less all estimated costs to complete and costs to be incurred
in marketing, selling and distribution.
Revenue
The Group's revenue streams are the sale of goods and services
in the specialist safety, environmental technologies and health
markets. The revenue streams are disaggregated into four sectors,
that serve like markets. Those sectors are Process Safety,
Infrastructure Safety, Environmental & Analysis and
Medical.
Revenue is recognised to depict the transfer of control over
promised goods or services to customers in an amount that reflects
the amount of consideration specified in a contract with a
customer, to which the Group expects to be entitled in exchange for
those goods or services.
It is the Group's judgement that in the majority of sales there
is no contract until such time as the Company performs, at which
point the contract becomes the supplier's purchase order governed
by the Company's terms and conditions. Where there are Master
Supply Arrangements, these are typically framework agreements and
do not contain clauses that would result in a contract forming
under IFRS 15 until a Purchase Order is issued by the customer.
Revenue represents sales, net of estimates for variable
consideration, including rights to returns, and discounts, and
excluding value added tax and other sales related taxes. The amount
of variable consideration is not considered to be material to the
Group as a whole.
Performance obligations are unbundled in each contractual
arrangement if they are distinct from one another. There is
judgement in identifying distinct performance obligations where the
product could be determined to be a system, or where a combination
of products and services are provided together. For the majority of
the Group's activities the performance obligation is judged to be
the component product or service rather than the system or combined
products and services. The contract price is allocated to the
distinct performance obligations based on the relative standalone
selling prices of the goods or services.
The way in which the Group satisfies its performance obligations
varies by business and may be on shipment, delivery, as services
are rendered or on completion of services depending on the nature
of product and service and terms of the contract which govern how
control passes to the customer. Revenue is recognised at a point in
time or over time as appropriate.
Where the Group offers warranties that are of a service nature,
revenue is recognised in relation to these performance obligations
over time as the services are rendered. In our judgement we believe
the associated performance obligations accrue evenly across the
contractual term and therefore revenue is recognised on a pro-rated
basis over the length of the service period.
In a small number of instances across the Group, products have
been determined to be bespoke in nature, with no alternative use.
Where there is also an enforceable right to payment for work
completed, the criteria for recognising revenue over time have been
deemed to have been met. Revenue is recognised on an input basis.
This is not a material part of the Group's business as for the most
part, where goods are bespoke in nature, it is the Group's
judgement that the product can be broken down to standard component
parts with little additional cost and therefore has an alternate
use, or there is no enforceable right to payment for work
performed. In these cases, the judgement is made that the
requirements for recognising revenue over time are not met and
revenue is recognised when control of the finished product passes
to the customer.
Contract assets and liabilities
A contract asset is recognised when the Group's right to
consideration is conditional on something other than the passage of
time, for example the completion of future performance obligations
under the terms of the contract with the customer.
In some instances, the Group receives payments from customers
based on a billing schedule, as established in the contract, which
may not match with the pattern of performance under the contract.
Where payment is received ahead of performance a contract liability
will be created and where performance obligations are satisfied
ahead of billing then a contract asset will be recognised.
Contract assets are recognised within Trade and other
receivables and are assessed for impairment on a forward-looking
basis using the expected lifetime losses approach, as required by
IFRS 9 ('Financial Instruments').
Adjusting items
When items of income or expense are material and they are
relevant to an understanding of the entity's financial performance,
they are disclosed separately within the financial statements. Such
adjusting items include material costs or reversals arising from
acquisitions or disposals of businesses, including acquisition
costs, creation or reversals of provisions related to changes in
estimates for contingent consideration on acquisition, amortisation
of acquired intangible assets, and other significant one-off items
that may arise.
Taxation
Taxation comprises current and deferred tax. Tax is recognised
in the Consolidated Income Statement except to the extent that it
relates to items recognised directly in Total equity, in which case
it too is recognised in Total equity. Current tax is the expected
tax payable on the taxable income for the year, using tax rates
enacted or substantively enacted at the balance sheet date, along
with any adjustment to tax payable in respect of previous years.
Taxable profit differs from net profit as reported in the
Consolidated Income Statement because it excludes items that are
never taxable or deductible.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes and is
accounted for using the balance sheet liability method, apart from
the following differences which are not provided for: goodwill not
deductible for tax purposes; the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit; and
differences relating to investments in subsidiaries to the extent
they will probably not reverse in the foreseeable future. The
amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amounts of assets and
liabilities, using tax rates and laws, which are expected to apply
in the year when the liability is settled, or the asset is
realised. Deferred tax assets are only recognised to the extent
that recovery is probable.
Foreign currencies
The Group presents its accounts in Sterling. Transactions in
foreign currencies are recorded at the rate of exchange at the date
of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are reported at the
rates prevailing at that date. Any gain or loss arising from
subsequent exchange rate movements is included as an exchange gain
or loss in the Consolidated Income Statement.
Net assets of overseas subsidiary companies are expressed in
Sterling at the rates of exchange ruling at the end of the
financial year, and trading results and cash flows at the average
rates of exchange for the financial year. Goodwill arising on the
acquisition of a foreign business is treated as an asset of the
foreign entity and is translated at the rate of exchange ruling at
the end of the financial year. Exchange gains or losses arising on
these translations are taken to the Translation reserve within
Total equity.
In the event that an overseas subsidiary is disposed of or
closed, the profit or loss on disposal or closure will be
determined after taking into account the cumulative translation
difference held within the Translation reserve attributable to that
subsidiary. As permitted by IFRS 1, the Group has elected to deem
the translation to be GBPnil at 4 April 2004. Accordingly, the
profit or loss on disposal or closure of foreign subsidiaries will
not include any currency translation differences which arose before
4 April 2004.
Interest bearing loans and borrowings
Interest bearing loans and borrowings are initially recognised
in the balance sheet at fair value less directly attributable
transaction costs and are subsequently measured at amortised cost
using the effective interest rate method.
Trade payables
Trade payables are non interest bearing and are stated at
amortised cost.
Derivative financial instruments and hedge accounting
The Group enters into derivative financial instruments to manage
its exposure to foreign exchange rate risk using forward exchange
contracts. The Group continues to apply the requirements of IAS 39
for hedge accounting.
Derivative financial instruments are classified as fair value
through profit and loss (held for trading) unless they are in a
designated hedge relationship.
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently remeasured
to their fair value at each balance sheet date. The resulting gain
or loss is recognised in the Consolidated Income Statement, unless
the derivative is designated and effective as a hedging instrument,
in which event the timing of the recognition in the Consolidated
Income Statement depends on the nature of the hedge relationship.
The Group designates certain derivatives as hedges of highly
probable forecast transactions or hedges of foreign currency risk
of firm commitments (cash flow hedges), or hedges of net
investments in foreign operations.
A derivative with a positive fair value is recognised as a
financial asset whereas a derivative with a negative fair value is
recognised as a financial liability. A derivative is presented as a
non-current asset or a non-current liability if the remaining
maturity of the instrument is more than 12 months and it is not
expected to be realised or settled within 12 months. Other
derivatives are presented as current assets or current
liabilities.
Cash flow hedge accounting
The Group designates certain hedging instruments as cash flow
hedges.
At the inception of the hedge relationship, the entity documents
the relationship between the hedging instrument and the hedged
item, along with its risk management objectives and its strategy
for undertaking various hedge transactions. Furthermore, at the
inception of the hedge and on an ongoing basis, the Group documents
whether the hedging instrument has been or is expected to be highly
effective in offsetting changes in fair values or cash flows of the
hedged item.
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income. The gain or loss relating
to the ineffective portion as a result of being over hedged is
recognised immediately in the Consolidated Income Statement.
Amounts previously recognised in other comprehensive income and
accumulated in equity are reclassified to the Consolidated Income
Statement in the periods when the hedged item is recognised in the
Consolidated Income Statement. However, when the forecast
transaction that is hedged results in the recognition of a
non-financial asset or a non-financial liability, the gains and
losses previously accumulated in equity are transferred from equity
and included in the initial measurement of the cost of the
non-financial asset or non-financial liability.
Hedge accounting is discontinued when the Group revokes the
hedging relationship, the hedging instrument expires or is sold,
terminated or exercised, or no longer qualifies for hedge
accounting. Any gain or loss recognised in other comprehensive
income at that time is accumulated in equity and is recognised,
when the forecast transaction is ultimately recognised, in the
Consolidated Income Statement. When a forecast transaction is no
longer expected to occur, the gain or loss accumulated in equity is
recognised immediately in the Consolidated Income Statement.
Net investment hedge accounting
The Group uses foreign currency denominated borrowings as a
hedge against the translation exposure on the Group's net
investment in overseas companies. Where the hedge is fully
effective at hedging, the variability in the net assets of such
companies caused by changes in exchange rates and the changes in
value of the borrowings are recognised in the Consolidated
Statement of Comprehensive Income and accumulated in the
Translation reserve. The ineffective part of any change in value
caused by changes in exchange rates is recognised in the
Consolidated Income Statement.
Employee share plans
Share-based incentives are provided to employees under the
Group's share incentive plan, the performance share plan and the
executive share plan.
(a) Share incentive plan
Awards of shares under the share incentive plan are made to
qualifying employees depending on salary and service criteria. The
shares awarded under this plan are purchased in the market by the
plan's trustees at the time of the award, and are then held in
trust for a minimum of three years. The costs of this plan are
recognised in the Consolidated Income Statement over the three-year
vesting period of the awards.
(b) Executive share plan
During the year ended 2 April 2016, Halma plc introduced the
Executive Share Plan, in which executive Directors and certain
senior employees participate. Grants under this Plan are in the
form of Performance Awards or Deferred Share Awards.
Performance Awards are subject to non-market-based vesting
criteria, and Deferred Share Awards are subject only to continuing
service of the employee. Share awards are equity-settled. The fair
value of the awards at the date of grant, which is estimated to be
equal to the market value, is charged to the Consolidated Income
Statement on a straight-line basis over the vesting period, with
appropriate adjustments being made during this period to reflect
expected and actual forfeitures. The corresponding credit is to
other reserves within Total equity.
(c) Cash settled
For cash-settled awards, a liability equal to the portion of the
services received is recognised at the current fair value
determined at each balance sheet date.
Provisions and contingent liabilities
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the
cash flows estimated to settle the present obligation, its carrying
amount is the present value of the cash flows.
When some or all of the economic benefits required to settle a
provision are expected to be recovered from a third party, a
receivable is recognised as an asset if it is virtually certain
that reimbursement will be received, and the amount of the
receivable can be measured reliably.
Contingent liabilities are disclosed where a possible obligation
dependent on uncertain future events exists as at the end of the
reporting period or a present obligation for which payment either
cannot be measured or is not considered to be probable is noted.
Contingent liabilities are not accrued for and no contingent
liability is disclosed where the possibility of payment is
considered to be remote.
Deferred government grant income
Government grant income that is linked to capital expenditure is
deferred to the Consolidated Balance Sheet and credited to the
Consolidated Income Statement over the life of the related asset.
In addition, the Group claims research and development expenditure
credits arising on qualifying expenditure in its UK-based
subsidiaries and shows these 'above the line' in Operating profit.
Where the credits arise on expenditure that is capitalised as part
of internally generated capitalised development costs, the income
is deferred to the Consolidated Balance Sheet and credited to the
Consolidated Income Statement over the life of the related asset in
line with the policy stated above.
Operating profit
Operating profit is presented net of direct production costs,
production overheads, selling costs, distribution costs and
administrative expenditure. Operating profit is stated after
charging restructuring costs but before the share of results of
associates, profit or loss on disposal of operations, finance
income and finance costs.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits with
an initial maturity of less than three months, and bank overdrafts
that are repayable on demand.
Dividends
Dividends payable to the Company's shareholders are recognised
as a liability in the period in which the distribution is approved
by the Company's shareholders.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less
provisions for impairment and depreciation which, with the
exception of freehold land which is not depreciated, is provided on
a straight-line basis over each asset's estimated economic life.
The principal annual rates used for this purpose are:
Freehold property 2%
-------------------------------------------- ---------------
Leasehold properties and improvements:
Long leases (more than 50 years unexpired) 2%
Short leases (less than 50 years unexpired) Period of lease
-------------------------------------------- ---------------
Plant, equipment and vehicles 8% to 33.3%
-------------------------------------------- ---------------
Leases
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date.
The right-of-use asset is initially measured at cost, comprising
the initial amount of the lease liability plus any initial direct
costs incurred and an estimate of costs to restore the underlying
asset, less any lease incentives received. The right-of-use asset
is subsequently depreciated using the straight-line method from the
commencement date to the earlier of the end of the useful life of
the asset or the end of the lease term.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the incremental borrowing rate. The lease
liability is measured at amortised cost using the effective
interest method by increasing the carrying amount to reflect
interest on the lease liability and by reducing the carrying amount
to reflect the lease payments made. The lease liability is
remeasured when there is a change in future lease payments arising
from a change in an index or a rate or a change in the Group's
assessment of whether it will exercise an extension or termination
option. When the lease liability is remeasured, a corresponding
adjustment is made to the right-of-use asset.
Payments associated with short-term leases or low-value assets
are recognised on a straight-line basis as an expense in the
Consolidated Income Statement. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets mostly comprise
of IT equipment and small items of office furniture.
The Group has applied IFRS 16 using the modified retrospective
approach and therefore the comparative information has not been
restated and continues to be under IAS 17 'leases'. The accounting
policy under IAS 17 is as disclosed in the Annual Report and
Accounts 2019. A description of the changes impacting the Group has
been disclosed above under New standards and interpretations
applied for the first time.
Finance income and expenses
The Group recognises Interest income or expense using the
effective interest rate method. Finance income and finance costs
include:
- Interest payable on loans and borrowings
- Net interest charge on pension plan liabilities
- Amortisation of finance costs
- Interest receivable in respect of cash and cash equivalents
- Unwinding of the discount on provisions
- Fair value movements on derivative financial instruments
Notes to the Accounts
1 Segmental analysis and revenue from contracts with
customers
Sector analysis and disaggregation of revenue
The Group has four reportable segments (Process Safety,
Infrastructure Safety, Environmental & Analysis and Medical)
which are defined by markets rather than product type. Each segment
includes businesses with similar operating and marketing
characteristics. These segments are consistent with the internal
reporting reviewed each month by the Group Chief Executive.
During the current year, following an acquisition that has
materially changed its customer focus, one of the operating
companies has been moved from the Environmental & Analysis
sector to the Medical sector. The prior year segmental disclosures
have been restated to reflect this change which moved GBP19.1m of
revenue, GBP6.3m of profit, GBP6.5m of assets and GBP1.2m of
liabilities from Environmental & Analysis to Medical. There was
no change in the total group revenue, profit or net assets from
this change.
Nature of goods and services
The following is a description of the principal activities -
separated by reportable segments, which are defined by markets
rather than product type - from which the Group generates its
revenue.
Further disaggregation of sector revenue by geography and by the
pattern of revenue recognition depicts how economic factors affect
the timing and uncertainty of the Group's revenues.
Process Safety sector generates revenue from providing products
that protect assets and people at work across a range of critical
industrial and logistics operations. Products include: specialised
interlocks that control critical processes safely; instruments that
detect flammable and hazardous gases; and explosion protection and
corrosion monitoring systems. Products are generally sold
separately, with contracts less than one year. Warranties are
typically of an assurance nature. Revenue is typically recognised
as control passes on delivery or despatch.
Payment is typically due within 60 days of invoice, except where
a retention is held for documentation.
Infrastructure Safety sector generates revenue from providing
products that protect people, property and assets and enable safe
movement in public spaces. Products include: fire detection
systems, specialist fire suppression systems, elevator safety
systems and people and vehicle flow technologies. Products are
generally sold separately, with contracts less than one year.
Warranties are typically of an assurance nature. Revenue is
recognised as control passes on delivery or despatch.
Payment is typically due within 60 days of invoice.
Environmental & Analysis generates revenue providing
products and technologies that monitor and protect the environment,
ensuring the quality and availability of life-critical resources,
and use optical and imaging technologies in materials analysis..
Products include: market-leading opto-electronic technology and
sensors, flow gap measurement instruments and gas conditioning
products, and solutions for environmental data recording, water
quality testing, water distribution network monitoring, and UV
water treatment. Products and services are generally sold
separately. Warranties are typically of an assurance nature, but
some companies offer extended warranties. Depending on the nature
of the performance obligation, revenue may be recognised as control
passes on delivery, despatch or as the service is delivered.
Contracts are typically less than one year in length, but some
companies have contracts where certain service related performance
obligations are delivered over a number of years, this can result
in contract liabilities where those performance obligations are
invoiced ahead of performance.
Payment is typically due within 60 days of invoice.
Medical sector generates revenue from providing products and
services that enhance the quality of life for patients and improve
quality of care delivered by healthcare providers. Products
include: critical fluidic components used by medical diagnostics
and Original Equipment Manufacturers ('OEMs'), laboratory devices
and systems that provide valuable information to understand patient
health and enable providers to make decisions across the continuum
of care, and technologies that enable positive outcomes across
clinical specialties. Products are generally sold separately, and
warranties are typically of an assurance nature. Depending on the
nature of the performance obligation, revenue is recognised as
control passes on delivery or despatch or as the service is
delivered. Contracts are typically less than one year in length,
but a limited number of companies have contracts where certain
service related performance obligations are delivered over a number
of years, this can result in contract liabilities where those
performance obligations are invoiced ahead of performance.
Payment is typically due within 60 days of invoice.
Segment revenue disaggregation (by location of external
customer)
Year ended 31 March 2020
Revenue by sector and destination (all continuing
operations)
-----------------------------------------------------------------------------
Africa,
United Near and
States Mainland United Middle Other
of America Europe Kingdom Asia Pacific East countries Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================= =========== ======== ======== ============ ========= ========== =======
Process Safety 67.0 39.7 28.7 33.2 21.8 9.6 200.0
Infrastructure Safety 105.5 142.9 109.9 70.9 22.6 14.7 466.5
Environmental & Analysis 157.3 34.3 67.2 51.9 7.1 7.2 325.0
Medical 180.7 59.6 15.4 57.3 11.7 22.5 347.2
Inter-segmental sales (0.2) (0.1) - - - - (0.3)
------------------------- ----------- -------- -------- ------------ --------- ---------- -------
Revenue for the year 510.3 276.4 221.2 213.3 63.2 54.0 1,338.4
========================= =========== ======== ======== ============ ========= ========== =======
Year ended 31 March 2019
Revenue by sector and destination (all continuing
operations)
Restated
-----------------------------------------------------------------------------
United Africa,
States Near and
of America Mainland United Middle Other
GBPm Europe Kingdom Asia Pacific East countries Total
GBPm GBPm GBPm GBPm GBPm GBPm
========================= =========== ======== ======== ============ ========= ========== =======
Process Safety 61.3 42.1 32.6 29.6 23.2 8.7 197.5
Infrastructure Safety 87.8 131.2 101.4 48.6 28.4 11.2 408.6
Environmental & Analysis 117.6 38.0 53.6 58.2 6.0 6.6 280.0
Medical 176.8 55.0 13.4 47.6 13.2 19.2 325.2
Inter-segmental sales (0.3) - (0.1) - - - (0.4)
------------------------- ----------- -------- -------- ------------ --------- ---------- -------
Revenue for the year 443.2 266.3 200.9 184.0 70.8 45.7 1,210.9
========================= =========== ======== ======== ============ ========= ========== =======
Inter-segmental sales are charged at prevailing market prices
and have not been disclosed separately by segment as they are not
considered material. Revenue derived from the rendering of services
was GBP53.1m (2019: GBP39.2m). All revenue was otherwise derived
from the sale of products.
Year ended 31 March
2020
==================================
Revenue
Revenue recognised
recognised at a point Total
over time in time Revenue
GBPm GBPm GBPm
========================= =========== =========== ========
Process Safety 0.7 199.3 200.0
Infrastructure Safety 1.6 464.9 466.5
Environmental & Analysis 67.3 257.7 325.0
Medical 13.0 334.2 347.2
Inter-segmental sales - (0.3) (0.3)
------------------------- ----------- ----------- --------
Revenue for the year 82.6 1,255.8 1,338.4
========================= =========== =========== ========
Year ended 31 March
2019
Restated
==================================
Revenue
Revenue recognised
recognised at a point Total
over time in time Revenue
GBPm GBPm GBPm
========================= =========== =========== ========
Process Safety - 197.5 197.5
Infrastructure Safety 0.9 407.7 408.6
Environmental & Analysis 38.5 241.5 280.0
Medical 6.3 318.9 325.2
Inter-segmental sales - (0.4) (0.4)
------------------------- ----------- ----------- --------
Revenue for the year 45.7 1,165.2 1,210.9
========================= =========== =========== ========
Year ended 31 March 2020
--------------------------------------------------
Revenue
from Revenue
performance from
obligations Revenue performance
entered previously obligations
into and included satisfied
satisfied as in
in the contract previous Total
year liabilities periods Revenue
GBPm GBPm GBPm GBPm
========================= ============ ============ ============ ========
Process Safety 199.3 0.7 - 200.0
Infrastructure Safety 465.3 1.2 - 466.5
Environmental & Analysis 320.8 4.1 0.1 325.0
Medical 336.2 11.0 - 347.2
Inter-segmental sales (0.3) - - (0.3)
------------------------- ------------ ------------ ------------ --------
Revenue for the year 1,321.3 17.0 0.1 1,338.4
========================= ============ ============ ============ ========
Year ended 31 March 2019
Restated
--------------------------------------------------
Revenue
from Revenue
performance from
obligations Revenue performance
entered previously obligations
into and included satisfied
satisfied as in
in the contract previous Total
year liabilities periods Revenue
GBPm GBPm GBPm GBPm
========================= ============ ============ ============ ========
Process Safety 196.7 0.8 - 197.5
Infrastructure Safety 406.2 2.4 - 408.6
Environmental & Analysis 273.0 6.8 0.2 280.0
Medical 315.1 9.8 0.3 325.2
Inter-segmental sales (0.4) - - (0.4)
------------------------- ------------ ------------ ------------ --------
Revenue for the year 1,190.6 19.8 0.5 1,210.9
========================= ============ ============ ============ ========
The Group has unsatisfied (or partially satisfied) performance
obligations at the balance sheet date with an aggregate amount of
transaction price as follows. The time bands represented present
the expected timing of when the remaining transaction price will be
recognised as revenue.
Aggregate transaction price
allocated to
unsatisfied performance obligations
==========================================
31 March 2023 and
2020 2021 2022 beyond
GBPm GBPm GBPm GBPm
========================= ============ ======= ====== ===========
Process Safety 1.9 1.8 0.1 -
Infrastructure Safety 4.0 3.8 0.2 -
Environmental & Analysis 15.2 6.1 2.4 6.7
Medical 5.8 4.9 0.7 0.2
Inter-segmental sales - - - -
------------------------- ------------ ------- ------ -----------
Total 26.9 16.6 3.4 6.9
========================= ============ ======= ====== ===========
Aggregate transaction price
allocated to
unsatisfied performance obligations
==========================================
31 March 2022 and
2019 2020 2021 beyond
GBPm GBPm GBPm GBPm
========================= ============ ======= ====== ===========
Process Safety 0.1 0.1 - -
Infrastructure Safety 4.7 4.3 0.3 0.1
Environmental & Analysis 16.9 10.1 1.6 5.2
Medical 5.5 3.5 0.9 1.1
Inter-segmental sales - - - -
------------------------- ------------ ------- ------ -----------
Total 27.2 18.0 2.8 6.4
========================= ============ ======= ====== ===========
Segment results
Profit (all continuing
operations)
========================
Year ended Year ended
31 March 31 March
2020 2019
Restated
GBPm GBPm
------------------------------------------------- ----------- -----------
Segment profit before allocation of adjustments*
Process Safety 43.9 45.5
Infrastructure Safety 107.7 88.9
Environmental & Analysis 69.4 60.1
Medical 84.4 83.2
305.4 277.7
------------------------------------------------- ----------- -----------
Segment profit after allocation of adjustments*
Process Safety 38.6 41.5
Infrastructure Safety 83.4 79.1
Environmental & Analysis 62.6 53.8
Medical 77.9 66.4
Segment profit 262.5 240.8
Central administration costs (26.3) (24.1)
Net finance expense (12.1) (10.0)
------------------------------------------------- ----------- -----------
Group profit before taxation 224.1 206.7
Taxation (39.7) (36.9)
------------------------------------------------- ----------- -----------
Profit for the year 184.4 169.8
------------------------------------------------- ----------- -----------
* Adjustments include in the current and prior year the
amortisation of acquired intangible assets; acquisition items;
significant restructuring costs and profit or loss on disposal of
operations and in the prior year the effect of equalisation of
pension benefits for men and women in the defined benefit plans,
see overleaf for more details. Note 3 provides more information on
alternative performance measures.
The accounting policies of the reportable segments are the same
as the Group's accounting policies. Acquisition transaction costs,
adjustments to contingent consideration and release of fair value
adjustments to inventory (collectively 'acquisition items') are
recognised in the Consolidated Income Statement. Segment profit,
before these acquisition items and the other adjustments, is
disclosed separately on the previous page as this is the measure
reported to the Group Chief Executive for the purpose of allocation
of resources and assessment of segment performance. These
adjustments are analysed as follows:
Year ended 31
March 2020
-------------- ------------------------------------------
Acquisition items
-------------- ------------------------------------------
Disposal
Total of
Release amortisation operations
Amortisation of charge and
of acquired Adjustments fair value and restructuring
intangible Transaction to contingent adjustments acquisition (note
assets costs consideration to inventory items 11) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- -------------- ----------- -------------- ------------- ------------- ---------------- ------
Process Safety (4.2) (0.7) - (0.4) (5.3) - (5.3)
Infrastructure
Safety (11.0) (2.3) (8.2) (2.8) (24.3) - (24.3)
Environmental &
Analysis (9.2) (0.2) 2.6 - (6.8) - (6.8)
Medical (13.9) (2.7) 8.1 (0.9) (9.4) 2.9 (6.5)
----------------- -------------- ----------- -------------- ------------- ------------- ---------------- ------
Total Segment &
Group (38.3) (5.9) 2.5 (4.1) (45.8) 2.9 (42.9)
----------------- -------------- ----------- -------------- ------------- ------------- ---------------- ------
The transaction costs arose mainly on the acquisitions during
the year. In Process Safety they related to the acquisition of
Sensit (GBP0.7m). In Infrastructure Safety, they related to the
acquisition of Ampac (GBP2.1m) and FireMate (GBP0.2m). In
Environmental & Analysis, they related to the acquisition of
Invenio (GBP0.1m) and Enoveo (GBP0.1m). In Medical, they mainly
related to the acquisition of Infowave (GBP0.1m), NeoMedix
(GBP0.1m), NovaBone (GBP1.7m), Spreo (GBP0.1m) and Maxtec
(GBP0.3m).
The GBP2.5m adjustment to contingent consideration comprised: a
debit in Infrastructure Safety of GBP8.2m arising from an increase
in the estimate of the payable for Navtech; a credit of GBP2.6m in
Environmental & Analysis arising from decreases in estimates of
the payables for Mini-Cam (GBP2.6m) and Invenio (GBP0.1m), offset
by an increase in estimates of the payable for Enoveo (GBP0.1m);
and a credit of GBP8.1m in Medical arising from a decrease in
estimates of the payables for NovaBone (GBP8.0m) and Infowave
(GBP1.1m) offset by an increase in the estimate of the payable for
NeoMedix (GBP1.0m).
The GBP4.1m release of fair value adjustments to inventory
relates to Sensit (GBP0.4m) in Process Safety, Navtech (GBP0.4m)
and Ampac (GBP2.4m) in Infrastructure Safety; and NeoMedix
(GBP0.3m), NovaBone (GBP0.5m), and Maxtec (GBP0.1m) in Medical. All
amounts have now been released in relation to Navtech, Ampac and
NeoMedix.
Year ended 31 March 2019
------------- ----------- ------------- ----------- ----------------------------------------------
Acquisition items
------------- ---------------------------------------
Release Total
of amortisation Disposal
Amortisation fair value charge Defined of
of acquired Adjustments adjustments and benefit operations
intangible Transaction to contingent to acquisition pension and
assets costs consideration inventory items charge restructuring Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------------- ----------- ------------- ----------- ------------ -------- -------------- ------
Process Safety (4.0) - - - (4.0) - - (4.0)
Infrastructure
Safety (6.8) (0.4) - (2.6) (9.8) - - (9.8)
Environmental
& Analysis (9.1) (0.1) 3.0 (0.1) (6.3) - - (6.3)
Medical (15.7) (0.6) 0.5 - (15.8) - (1.0) (16.8)
--------------- ------------- ----------- ------------- ----------- ------------ -------- -------------- ------
Total Segment (35.6) (1.1) 3.5 (2.7) (35.9) - (1.0) (36.9)
Unallocated - - - - - (2.1) - (2.1)
--------------- ------------- ----------- ------------- ----------- ------------ -------- -------------- ------
Total Segment
& Group (35.6) (1.1) 3.5 (2.7) (35.9) (2.1) (1.0) (39.0)
--------------- ------------- ----------- ------------- ----------- ------------ -------- -------------- ------
In the prior year, the transaction costs arose mainly on the
acquisitions during that year. In Infrastructure Safety, they
mainly related to LAN Control Systems Limited (GBP0.1m), Limotec
(GBP0.1m), Navtech (GBP0.4m) and Business Marketers Group (trading
as Rath Communications) (GBP0.1m) and a credit from a previous
acquisition. In Environmental & Analysis, they related to the
acquisition of FluxData in a previous year (GBP0.1m). In Medical,
they mainly related to the acquisition of Visiometrics in a
previous year (GBP0.5m).
The GBP3.5m adjustment to contingent consideration comprised: a
credit of GBP3.0m in Environmental & Analysis arising from
decreases in estimates of the payable for FluxData (GBP2.7m) and
Mini-Cam (GBP0.3m); and a credit of GBP0.5m in Medical arising from
an increase in estimate of the payable for CasMed NIBP (GBP0.1m)
offset by a credit of GBP0.6m arising from exchange differences on
the payable for Visiometrics which is denominated in Euros.
The GBP2.7m release of fair value adjustments to inventory
related to Firetrace (GBP1.4m), Limotec (GBP0.3m), Navtech
(GBP0.6m) and Rath (GBP0.3m) in Infrastructure and Safety; and
Mini-Cam (GBP0.1m) within Environmental & Analysis. All amounts
have been released in relation to Firetrace, Limotec, Rath and
Mini-Cam.
The GBP2.1m defined benefit pension charge related to the
estimate of Guaranteed Minimum Pension equalisation for men and
women.
Information about major customers
No single customer accounts for more than 5% (2019: 3%) of the
Group's revenue.
2 Earnings per ordinary share
Basic and diluted earnings per ordinary share are calculated
using the weighted average of 379,086,833 shares in issue during
the year (net of shares purchased by the Company and held as Own
shares) (2019: 379,159,755). There are no dilutive or potentially
dilutive ordinary shares.
Adjusted earnings are calculated as earnings from continuing
operations excluding the amortisation of acquired intangible
assets; acquisition items; restructuring costs; profit or loss on
disposal of operations; in the prior year, the effect of
equalisation of defined pension benefits for men and women; and the
associated taxation thereon. The Directors consider that adjusted
earnings, which constitute an alternative performance measure,
represent a more consistent measure of underlying performance as it
excludes amounts not directly linked with trading. A reconciliation
of earnings and the effect on basic and diluted earnings per share
figures is as follows:
Per ordinary
share
----------------------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2020 2019 2020 2019
GBPm GBPm pence pence
----------------------------------------------- ---------- ---------- ---------- ----------
Earnings from continuing operations 184.4 169.8 48.66 44.78
Amortisation of acquired intangible assets
(after tax) 30.3 27.5 7.98 7.25
Acquisition transaction costs (after tax) 5.3 1.0 1.41 0.27
Adjustments to contingent consideration
(after tax) (2.5) (2.9) (0.66) (0.75)
Release of fair value adjustments to inventory
(after tax) 3.0 2.1 0.78 0.55
Defined benefit pension charge (after tax) - 1.7 - 0.44
Disposal of operations and restructuring
(after tax) (2.9) 0.8 (0.78) 0.20
Adjusted earnings 217.6 200.0 57.39 52.74
----------------------------------------------- ---------- ---------- ---------- ----------
3 Alternative performance measures
The Board uses certain alternative performance measures to help
it effectively monitor the performance of the Group. The Directors
consider that these represent a more consistent measure of
underlying performance by removing non-trading items that are not
closely related to the Group's trading or operating cash flows.
These measures include Return on Total Invested Capital (ROTIC),
Return on Capital Employed (ROCE), organic growth at constant
currency, Adjusted operating profit and Adjusted operating cash
flow.
Note 1 provides further analysis of the adjusting items in
reaching adjusted profit measures.
Return on Total Invested Capital
31 March 31 March
2020 2019
GBPm GBPm
------------------------------------------------------ -------- --------
Profit after tax 184.4 169.8
Adjustments(1) 33.2 30.2
------------------------------------------------------ -------- --------
Adjusted profit after tax(1) 217.6 200.0
------------------------------------------------------ -------- --------
Total equity 1,136.9 981.4
Add back net retirement benefit obligations 5.2 39.2
Less associated deferred tax assets (0.5) (7.0)
Cumulative amortisation of acquired intangible assets 283.5 235.2
Historical adjustments to goodwill(2) 89.5 89.5
------------------------------------------------------ -------- --------
Total Invested Capital 1,514.6 1,338.3
------------------------------------------------------ -------- --------
Average Total Invested Capital(3) 1,426.5 1,245.7
------------------------------------------------------ -------- --------
Return on Total Invested Capital (ROTIC)(4, 5) 15.3% 16.1%
------------------------------------------------------ -------- --------
Return on Capital Employed
31 March 31 March
2020 2019
GBPm GBPm
------------------------------------------------------- -------- --------
Profit before tax 224.1 206.7
Adjustments(1) 42.9 39.0
Net finance costs 12.1 10.0
Lease interest (2.1) -
======================================================= ======== ========
Adjusted operating profit(1) after share of results
of associates and lease interest 277.0 255.7
------------------------------------------------------- -------- --------
Computer software costs within intangible assets 5.9 5.5
Capitalised development costs within intangible assets 36.1 33.1
Other intangibles within intangible assets 3.1 3.1
Property, plant and equipment 184.3 112.4
Inventories 170.6 144.3
Trade and other receivables 286.6 259.6
Trade and other payables (186.7) (164.8)
Lease liabilities (13.0) -
Provisions (28.0) (25.4)
Net current tax receivable/(liabilities) 1.3 (13.2)
Non-current trade and other payables (13.3) (11.6)
Non-current provisions (21.6) (10.9)
Non-current lease liabilities (48.5) -
Add back contingent purchase consideration 40.1 26.8
======================================================= ======== ========
Capital Employed 416.9 358.9
------------------------------------------------------- -------- --------
Average Capital Employed(3) 387.9 340.4
------------------------------------------------------- -------- --------
Return on Capital Employed (ROCE)(4, 5) 71.4% 75.1%
------------------------------------------------------- -------- --------
1 Adjustments include in the current and prior year the
amortisation of acquired intangible assets; acquisition items;
significant restructuring costs and profit or loss on disposal of
operations and, in the prior year only, the effect of equalisation
of pension benefits for men and women in the defined benefit plans.
Where after-tax measures, these also include the associated
taxation on adjusting items. Note 1 provides more information on
these items.
2 Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves.
3 The ROTIC and ROCE measures are expressed as a percentage of
the average of the current and prior year's Total Invested Capital
and Capital Employed respectively. Using an average as the
denominator is considered to be more representative. The 1 April
2018 Total Invested Capital and Capital Employed balances were
GBP1,153.0m and GBP321.9m respectively.
4 The ROTIC and ROCE measures are calculated as Adjusted profit
after tax divided by Average Total Invested Capital and Adjusted
operating profit after share of results of associates divided by
Average Capital Employed respectively.
5 The ROTIC and ROCE measures as at 31 March 2020 are after the
adoption of IFRS 16 whereas the measures at 31 March 2019 are on a
pre-IFRS 16 basis. The impact on the Group balance sheet on
adoption of IFRS 16 is insignificant (reduction in net assets of
GBP4.0m), and as such there has been no significant impact in the
measurement of ROTIC or ROCE.
Organic growth at constant currency
Organic growth measures the change in revenue and profit from
continuing Group operations. This measure equalises the effect of
acquisitions by:
a. removing from the year of acquisition their entire revenue
and profit before taxation;
b. in the following year, removing the revenue and profit for
the number of months equivalent to the pre-acquisition period in
the prior year; and
c. removing from the year prior to acquisition any revenue
generated by sales to the acquired company which would have been
eliminated on consolidation had the acquired company been owned for
that period.
The results of disposals are removed from the prior period
reported revenue and profit before taxation.
Constant currency measures the change in revenue and profit
excluding the effects of currency movements. The measure restates
the current year's revenue and profit at last year's exchange
rates.
Organic growth at constant currency has been calculated for the
Group as follows:
Group
Adjusted*
profit
before
Revenue taxation
---------- ---------- -------- ---------- ---------- ---------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2020 2019 2020 2019
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Continuing operations 1,338.4 1,210.9 10.5% 267.0 245.7 8.7%
Acquired and disposed revenue/profit (58.0) (7.3) (12.1) (0.6)
===================================== ========== ========== ======== ========== ========== =========
Organic growth 1,280.4 1,203.6 6.4% 254.9 245.1 4.0%
Constant currency adjustment (18.8) - (4.4) -
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Organic growth at constant
currency 1,261.6 1,203.6 4.8% 250.5 245.1 2.2%
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Sector Organic growth at constant currency
Organic growth at constant currency is calculated for each
segment using the same method as described above.
Process Safety Adjusted*
segment
Revenue profit
---------- ---------- -------- ---------- ---------- ---------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2020 2019 2020 2019
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Continuing operations 200.0 197.5 1.2% 43.9 45.5 (3.5)%
Acquisition and currency adjustments (5.8) - (1.2) -
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Organic growth at constant
currency 194.2 197.5 (1.7)% 42.7 45.5 (6.1)%
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Infrastructure Safety Adjusted*
segment
Revenue profit
---------- ---------- -------- ---------- ---------- ---------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2020 2019 2020 2019
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Continuing operations 466.5 408.6 14.2% 107.7 88.9 21.0%
Acquisition and currency adjustments (49.1) (3.7) (12.8) -
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Organic growth at constant
currency 417.4 404.9 3.1% 94.9 88.9 6.6%
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Environmental & Analysis Adjusted*
segment
Revenue profit
---------- ---------- -------- ---------- ---------- ---------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2020 2019** 2020 2019**
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Continuing operations 325.0 280.0 16.1% 69.4 60.1 15.4%
Acquisition and currency adjustments (7.0) - (1.5) -
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Organic growth at constant
currency 318.0 280.0 13.6% 67.9 60.1 13.0%
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Medical Adjusted*
segment
Revenue profit
---------- ---------- -------- ---------- ---------- ---------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2020 2019** 2020 2019**
GBPm GBPm % growth GBPm GBPm % growth
----------------------------- ---------- ---------- -------- ---------- ---------- ---------
Continuing operations 347.2 325.2 6.8% 84.4 83.2 1.5%
Acquisition and disposal and
currency adjustments (14.9) (3.6) (3.9) (0.6)
----------------------------- ---------- ---------- -------- ---------- ---------- ---------
Organic growth at constant
currency 332.3 321.6 3.3% 80.5 82.6 (2.6)%
----------------------------- ---------- ---------- -------- ---------- ---------- ---------
* Adjustments include in the current and prior year the
amortisation of acquired intangible assets; acquisition items;
significant restructuring costs and profit or loss on disposal of
operations and in the prior year the effect of equalisation of
pension benefits for men and women in the defined benefit
plans.
** Sector growth rates are calculated using revenue and profit
figures restated for the effect of moving an operating company from
Environmental & Analysis to Medical. See note 1.
Adjusted operating profit
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
------------------------------------------- ---------- ----------
Operating profit 233.4 217.8
Add back:
Acquisition items (note 1) 7.5 0.3
Defined benefit pension charge - 2.1
Amortisation of acquired intangible assets 38.3 35.6
Adjusted operating profit 279.2 255.8
------------------------------------------- ---------- ----------
Adjusted operating cash flow
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
--------------------------------------------------------- ---------- ----------
Net cash from operating activities (note 10) 255.5 219.0
Add back:
Net acquisition costs paid 5.2 1.2
Taxes paid 52.4 40.6
Proceeds from sale of property, plant and equipment 1.9 1.6
Share awards vested not settled by Own shares* 6.0 4.9
Less:
Purchase of property, plant and equipment (31.2) (26.4)
Purchase of computer software and other intangibles (2.9) (4.9)
Development costs capitalised (14.7) (10.8)
========================================================= ========== ==========
Adjusted operating cash flow 272.2 225.2
--------------------------------------------------------- ---------- ----------
Cash conversion % (adjusted operating cash flow/adjusted
operating profit) 97% 88%
--------------------------------------------------------- ---------- ----------
* See Consolidated Statement of Changes in Equity
4 Finance income
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
-------------------------------------------------------- ---------- ----------
Interest receivable 0.6 0.4
Fair value movement on derivative financial instruments - 0.1
-------------------------------------------------------- ---------- ----------
0.6 0.5
-------------------------------------------------------- ---------- ----------
5 Finance expense
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
-------------------------------------------------------- ---------- ----------
Interest payable on borrowings 8.7 7.6
Interest payable on lease obligations 2.1 -
Amortisation of finance costs 0.7 0.9
Net interest charge on pension plan liabilities 0.8 1.2
Other interest payable 0.2 0.5
-------------------------------------------------------- ---------- ----------
12.5 10.2
Fair value movement on derivative financial instruments 0.2 0.2
Unwinding of discount on provisions - 0.1
-------------------------------------------------------- ---------- ----------
12.7 10.5
-------------------------------------------------------- ---------- ----------
6 Taxation
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
--------------------------------------------------------- ---------- ----------
Current tax
UK corporation tax at 19% (2019: 19%) 12.3 10.9
Overseas taxation 30.5 33.6
Adjustments in respect of prior years (2.9) 0.2
--------------------------------------------------------- ---------- ----------
Total current tax charge 39.9 44.7
--------------------------------------------------------- ---------- ----------
Deferred tax
Origination and reversal of timing differences (0.4) (7.4)
Adjustments in respect of prior years 0.2 (0.4)
--------------------------------------------------------- ---------- ----------
Total deferred tax credit (0.2) (7.8)
--------------------------------------------------------- ---------- ----------
Total tax charge recognised in the Consolidated Income
Statement 39.7 36.9
--------------------------------------------------------- ---------- ----------
Reconciliation of the effective tax rate:
Profit before tax 224.1 206.7
Tax at the UK corporation tax rate of 19% (2019: 19%) 42.6 39.3
Overseas tax rate differences 6.1 9.4
Effect of intra-group financing (6.2) (8.7)
Tax incentives, exemptions and credits (including patent
box, R&D and High-Tech status) (3.8) (3.9)
Permanent differences 3.7 1.0
Adjustments in respect of prior years (2.7) (0.2)
--------------------------------------------------------- ---------- ----------
39.7 36.9
--------------------------------------------------------- ---------- ----------
Effective tax rate 17.7% 17.9%
--------------------------------------------------------- ---------- ----------
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
------------------------------------- ---------- ----------
Adjusted* profit before tax 267.0 245.7
Total tax charge on adjusted* profit 49.4 45.7
------------------------------------- ---------- ----------
Effective tax rate 18.5% 18.6%
------------------------------------- ---------- ----------
* Adjustments include, in the current and prior year, the
amortisation of acquired intangible assets; acquisition items;
significant restructuring costs and profit or loss on disposal of
operations and, in the prior year only, the effect of equalisation
of pension benefits for men and women in the defined benefit plans.
Note 3 provides more information on alternative performance
measures.
The Group's future Effective Tax Rate (ETR) will mainly depend
on the geographic mix of profits and whether there are any changes
to tax legislation in the Group's most significant countries of
operations.
In addition to the amount charged to the Consolidated Income
Statement, the following amounts relating to tax have been
recognised directly in the Consolidated Statement of Comprehensive
Income and Expenditure:
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
-------------------------------------------------------- ---------- ----------
Deferred tax
Retirement benefit obligations 4.0 1.6
Effective portion of changes in fair value of cash flow
hedges (0.1) -
3.9 1.6
-------------------------------------------------------- ---------- ----------
In addition to the amounts charged to the Consolidated Income
Statement and the Consolidated Statement of Comprehensive Income
and Expenditure, the following amounts relating to tax have been
recognised directly in equity:
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
----------------------------------------------------------- ---------- ----------
Current tax
Excess tax deductions related to share-based payments
on exercised awards (1.4) (1.5)
Deferred tax
Change in estimated excess tax deductions related to
share-based payments (0.5) (0.9)
Impact of changes in accounting policies: IFRS 16 'Leases' (0.9) -
----------------------------------------------------------- ---------- ----------
(2.8) (2.4)
----------------------------------------------------------- ---------- ----------
7 Dividends
Per ordinary
share
----------------------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2020 2019 2020 2019
pence pence GBPm GBPm
---------------------------------------------------- ---------- ---------- ---------- ----------
Amounts recognised as distributions to shareholders
in the year
Final dividend for the year ended 31 March
2019 (31 March 2018) 9.60 8.97 36.4 34.0
Interim dividend for the year ended 31 March
2020 (31 March 2019) 6.54 6.11 24.8 23.2
---------------------------------------------------- ---------- ---------- ---------- ----------
16.14 15.08 61.2 57.2
---------------------------------------------------- ---------- ---------- ---------- ----------
Dividends declared in respect of the year
Interim dividend for the year ended 31 March
2020 (31 March 2019) 6.54 6.11 24.8 23.2
Proposed final dividend for the year ended
31 March 2020 (31 March 2019) 9.96 9.60 37.7 36.4
---------------------------------------------------- ---------- ---------- ---------- ----------
16.50 15.71 62.5 59.6
---------------------------------------------------- ---------- ---------- ---------- ----------
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting on 4 September 2020 and
has not been included as a liability in these financial
statements.
8 Trade and other receivables
31 March 31 March
2020 2019
GBPm GBPm
----------------------------- -------- --------
Trade receivables 249.8 226.7
Allowance for doubtful debts (12.7) (5.0)
----------------------------- -------- --------
237.1 221.7
Other receivables 11.0 10.2
Prepayments 18.3 18.6
Contract assets 20.2 9.1
286.6 259.6
----------------------------- -------- --------
Other receivables comprise various financial assets across the
Group, including sales tax receivables and other non-trade
balances. In the prior year it also included acquisition
consideration receivables and disposal consideration still to be
received (note 11).
Receivables greater than 1 year comprise of GBP0.3m (2019:
GBP0.4m) in trade receivables and GBP2.2m in other receivables
(2019: GBPnil).
The movement in the allowance for doubtful debts in respect of
trade receivables during the year was as follows :
31 March 31 March
2020 2019
GBPm GBPm
-------------------------------------------------------- -------- --------
At beginning of the year 5.0 4.6
Restatement for adoption of IFRS 9 - (0.1)
Transfer to trade and other payables following adoption
of IFRS 15 - (0.1)
Net impairment loss recognised 8.3 1.4
Amounts recovered against trade receivables previously
written down/amounts utilised (0.9) (0.9)
Recognition of provisions for businesses acquired 0.2 -
Exchange adjustments 0.1 0.1
-------------------------------------------------------- -------- --------
At end of the year 12.7 5.0
-------------------------------------------------------- -------- --------
The Group assesses on a forward-looking basis the expected
credit losses associated with its trade and other receivables
carried at amortised cost. As a result of the COVID-19 pandemic,
the Group has assessed that there has been an increase in credit
risk and this is the main reason for the increase in the allowance
for doubtful debts in respect of trade receivables as at 31 March
2020.
The Group assessed that no provisions or impairments were
required in relation to contract assets (2019: GBPnil).
The fair value of trade and other receivables approximates to
book value due to the short-term maturities associated with these
items. There is no impairment risk identified with regards to
prepayments or other receivables where no amounts are past due.
The ageing of trade receivables was as follows:
Trade receivables
net of doubtful
Gross trade receivables debts
------------------------- -------------------
31 March 31 March 31 March 31 March
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------------------------------------- ------------ ----------- --------- --------
Not yet due 181.4 172.2 181.1 171.7
Up to one month overdue 34.6 28.5 34.3 28.5
Between one and two months overdue 10.5 8.8 10.5 8.8
Between two and three months overdue 5.0 5.0 4.5 5.0
Over three months overdue 18.3 12.2 6.7 7.7
------------------------------------- ------------ ----------- --------- --------
249.8 226.7 237.1 221.7
------------------------------------- ------------ ----------- --------- --------
9 Acquisitions
In accounting for acquisitions, adjustments are made to the book
values of the net assets of the companies acquired to reflect their
fair values to the Group. Acquired inventories are valued at fair
value adopting Group bases and any liabilities for warranties
relating to past trading are recognised. Other previously
unrecognised assets and liabilities at acquisition are included and
accounting policies are aligned with those of the Group where
appropriate.
During the year ended 31 March 2020, the Group made ten
acquisitions namely:
- Invenio Systems Limited;
- Enoveo SARL;
- Ampac Group;
- Infowave Solutions Inc.;
- Certain trade and assets of NeoMedix Corporation;
- FireMate Software Pty. Ltd.;
- NovaBone Products, LLC;
- Sensit Technologies, LLC;
- Certain trade and assets of Spreo LLC;
- Maxtec, LLC.
Below are summaries of the assets acquired and liabilities
assumed and the purchase consideration of:
a) the total of acquisitions;
b) Invenio Systems Limited and Enoveo SARL;
c) Ampac Group;
d) Infowave Solutions Inc. and certain trade and assets of Spreo
LLC;
e) Certain trade and assets of NeoMedix Corporation;
f) FireMate Software Pty. Ltd.;
g) NovaBone Products, LLC;
h) Sensit Technologies, LLC;
i) Maxtec, LLC;
j) The aggregate adjustments arising on prior year
acquisitions.
Due to their contractual dates, the fair value of receivables
acquired (shown below) approximate to the gross contractual amounts
receivable. The amount of gross contractual receivables not
expected to be recovered is immaterial.
There are no material contingent liabilities recognised in
accordance with paragraph 23 of IFRS 3 (revised).
The combined fair value adjustments made for the acquisitions
above under IFRS 3, excluding acquired intangible assets recognised
and deferred taxation thereon, increased the goodwill recognised by
GBP2.7m (2019: GBP2.0m increase).
The acquisitions contributed GBP36.8m of revenue and GBP6.9m of
profit after tax for the year ended 31 March 2020.
If these acquisitions had been held since the start of the
financial year, it is estimated that the Group's reported revenue
and profit after tax would have been GBP53.7m higher and GBP6.9m
higher respectively.
As at the date of approval of the financial statements, the
acquisition accounting for all prior year acquisitions is complete.
The accounting for all current year acquisitions is provisional;
relating to finalisation of the initial consideration, which is
subject to agreement of certain contractual adjustments, and
certain other provisional balances.
a) Total of acquisitions
Total
GBPm
------------------------------------------------------------------ ------
Non-current assets
Intangible assets 114.3
Property, plant and equipment 12.4
Investments 0.4
Deferred tax 0.4
Current assets
Inventories 18.1
Trade and other receivables 13.2
Cash and cash equivalents 8.0
------------------------------------------------------------------ ------
Total assets 166.8
------------------------------------------------------------------ ------
Current liabilities
Trade and other payables (11.4)
Lease liabilities (1.3)
Provisions (0.3)
Corporation tax (0.1)
Non-current liabilities
Lease liabilities (6.9)
Provisions (0.1)
Deferred tax (13.8)
------------------------------------------------------------------ ------
Total liabilities (33.9)
------------------------------------------------------------------ ------
Net assets of businesses acquired 132.9
------------------------------------------------------------------ ------
Non-controlling interest (0.7)
------------------------------------------------------------------ ------
Initial cash consideration paid 226.2
Additional amounts paid in respect of cash acquired 3.1
Amounts owed to vendors* 1.4
Contingent purchase consideration estimated to be paid in respect
of current year acquisitions 25.8
Total consideration 256.5
================================================================== ======
Goodwill arising on acquisitions (current year) 122.5
Goodwill arising on acquisitions (prior year) 0.4
Total goodwill 122.9
------------------------------------------------------------------ ------
* In respect of net tangible asset adjustments and various
contractual adjustments relating to current year acquisitions of
which GBP1.0m was paid in the current year.
Analysis of cash outflow in the Consolidated Cash Flow
Statement
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
----------------------------------------------------------------- ---------- ----------
Initial cash consideration paid 226.2 63.0
Cash acquired on acquisitions (8.0) (5.3)
Initial cash consideration adjustment and other amounts
paid to vendors on current year acquisitions 4.1 5.7
Initial cash consideration adjustment on prior year acquisitions - (0.1)
Contingent consideration paid and loan notes repaid in
cash in relation to prior year acquisitions* 10.5 3.7
----------------------------------------------------------------- ---------- ----------
Net cash outflow relating to acquisitions (per Consolidated
Cash Flow Statement) 232.8 67.0
----------------------------------------------------------------- ---------- ----------
* The GBP10.5m comprises GBP0.1m loan notes and GBP10.4m
contingent consideration paid in respect of prior period
acquisitions all of which had been provided in the prior period's
financial statements.
b) Invenio Systems Limited ('Invenio') and Enoveo SARL
('Enoveo')
Total
GBPm
------------------------------------------------------- -----
Non-current assets
Intangible assets 2.1
Property, plant and equipment 0.3
Current assets
Trade and other receivables 1.1
Cash and cash equivalents 0.2
------------------------------------------------------- -----
Total assets 3.7
======================================================= =====
Current liabilities
Trade and other payables (0.6)
Non-current liabilities
Deferred tax (0.4)
------------------------------------------------------- -----
Total liabilities (1.0)
------------------------------------------------------- -----
Net assets of businesses acquired 2.7
------------------------------------------------------- -----
Initial cash consideration paid 2.9
Additional amounts paid in respect of cash acquired 0.1
Additional amounts owed to vendors* 0.5
Contingent purchase consideration estimated to be paid 2.1
======================================================= =====
Total consideration 5.6
------------------------------------------------------- -----
Goodwill arising on acquisitions 2.9
------------------------------------------------------- -----
* Relates mainly to other receivables from third parties
acquired which are due to the vendors under the terms of the sale
and purchase agreement when these balances are received.
Invenio
The Group acquired the entire share capital of Invenio Systems
Limited ('Invenio') on 2 July 2019 for an initial cash
consideration of GBP2.8m adjustable for cash acquired. The
adjustment was determined to be GBP0.1m. The maximum contingent
consideration payable is GBP3.0m.
The contingent purchase consideration recognised represents the
estimated amount payable, based on profit-based targets, for each
of the three annual earnout periods, commencing 1 April 2019.
Invenio, located in Durham, UK, is a market leader in
customer-side leak detection, offering innovative, non-intrusive
detection solutions for household leaks. Invenio has joined the
Group as part of HWM, creating a global leader in leakage reduction
within the Group's Environmental & Analysis sector.
The excess of the fair value of the consideration paid over the
fair value of the assets acquired is represented by technology
related intangibles of GBP1.3m and customer relationship
intangibles of GBP0.4m; with residual goodwill arising of GBP2.5m.
The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of
Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer
base.
Invenio contributed GBP1.0m of revenue for the year ended 31
March 2020.
Acquisition costs totalling GBP0.1m were recorded in the
Consolidated Income Statement.
The goodwill arising on the acquisition is not expected to be
deductible for tax purposes.
Enoveo
The Group also acquired the entire share capital of Enoveo on 1
July 2019 for an initial cash consideration of EUR0.2m (GBP0.1m).
The maximum contingent consideration payable is EUR1.0m
(GBP0.9m).
Enoveo, based in Lyon, France, provides services and monitoring
tools for natural, urban or industrial aquatic environments. Enoveo
has joined the Group as a bolt-on to Hydreka within the
Environmental & Analysis sector.
The excess of the fair value of the consideration paid over the
fair value of the assets acquired is represented by acquired
intangibles of GBP0.4m, with residual goodwill arising of
GBP0.4m.
There is no material impact on the Group's income statement for
the year ended 31 March 2020 arising from the acquisition.
Acquisition costs totalling GBP0.1m were recorded in the
Consolidated Income Statement.
The goodwill arising on the acquisition is not expected to be
deductible for tax purposes.
c) Ampac Group
Total
GBPm
---------------------------------------------------- ------
Non-current assets
Intangible assets 33.7
Property, plant and equipment 5.8
Deferred tax 0.4
Current assets
Inventories 7.4
Trade and other receivables 5.3
Cash and cash equivalents 6.6
---------------------------------------------------- ------
Total assets 59.2
==================================================== ======
Current liabilities
Trade and other payables (4.6)
Lease liabilities (0.8)
Provisions (0.1)
Corporation tax payable (0.1)
Non-current liabilities
Lease liabilities (5.2)
Provisions (0.1)
Deferred tax (10.4)
---------------------------------------------------- ------
Total liabilities (21.3)
---------------------------------------------------- ------
Net assets of business acquired 37.9
---------------------------------------------------- ------
Initial cash consideration paid 75.2
Additional amounts paid in respect of cash acquired 3.0
==================================================== ======
Total consideration 78.2
---------------------------------------------------- ------
Goodwill arising on acquisition 40.3
---------------------------------------------------- ------
On 15 July 2019, the Group acquired the Ampac group ('Ampac')
for an initial cash consideration of A$135.0m (GBP75.2m),
adjustable for cash acquired. The adjustment was determined to be
A$5.4m (GBP3.0m). The acquisition comprised of the trade and assets
of Ampac Technologies Pty Ltd, Ampac Distributors Pty Ltd and Ampac
Pacific Ltd and the entire share capital of Ampac Europe Ltd and
Cranford Controls Ltd.
Ampac, headquartered in Perth, Australia with offices in
Australia, New Zealand and the UK is a leading fire and evacuation
systems supplier in the Australian and New Zealand markets. The
company continues to run under its own management team and has
become part of the Group's Infrastructure Safety sector.
The excess of the fair value of the consideration paid over the
fair value of the assets acquired is represented by customer
related intangibles of GBP19.0m; trade name of GBP6.9m and
technology related intangibles of GBP7.3m; with residual goodwill
arising of GBP40.3m. The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of
Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
Ampac contributed GBP24.3m of revenue and GBP4.6m of profit
after tax for the year ended 31 March 2020.
If this acquisition had been held since the start of the
financial year, it is estimated that the Group's reported revenue
and profit after tax would have been GBP8.8m higher and GBP1.2m
higher respectively.
Acquisition costs totalling GBP2.1m were recorded in the
Consolidated Income Statement.
The goodwill arising on the Ampac acquisition is not expected to
be deductible for tax purposes.
d) Infowave Solutions Inc. and certain trade and assets of Spreo
LLC
Total
GBPm
------------------------------------------------------- -----
Non-current assets
Intangible assets 3.4
Current assets
Trade and other receivables 0.5
Cash and cash equivalents 0.1
------------------------------------------------------- -----
Total assets 4.0
------------------------------------------------------- -----
Current liabilities
Trade and other payables (1.1)
Non-current liabilities
Deferred tax (0.4)
------------------------------------------------------- -----
Total liabilities (1.5)
------------------------------------------------------- -----
Net assets of businesses acquired 2.5
------------------------------------------------------- -----
Initial cash consideration paid 7.2
Contingent purchase consideration estimated to be paid 1.3
======================================================= =====
Total consideration 8.5
------------------------------------------------------- -----
Goodwill arising on acquisitions 6.0
------------------------------------------------------- -----
On 2 October 2019, the Group acquired the entire share capital
of Infowave Solutions Inc. ('Infowave') for an initial cash
consideration of US$8.3m (GBP6.8m). Maximum contingent purchase
consideration payable is US$4.0m (GBP3.3m).
On 12 February 2020, the Group acquired certain trade and assets
of Spreo LLC ('Spreo') for an initial cash consideration of US$0.5m
(GBP0.4m). Maximum contingent consideration payable is US$5.0m
(GBP3.8m).
Infowave, located in Indiana, USA, and certain trade and assets
of Spreo have joined the Group as part of CenTrak within the
Medical sector, complementing CenTrak's hardware capabilities with
software, data and navigation capabilities.
The current contingent consideration payable represents, for
Infowave the fair value of the estimated amounts payable for each
of two annual consecutive earnout periods, commencing 1 April 2020,
and for Spreo the fair value of the estimated amounts payable for
each of three annual consecutive earnout periods, commencing 1
April 2020. The earnout in each period is calculated by reference
to the relevant earnings for the period compared to the target for
the period.
The excess of the fair value of the consideration paid over the
fair value of the assets acquired is represented by customer
related intangibles of GBP1.2m; trade name of GBP0.4m and
technology related intangibles of GBP1.8m; with residual goodwill
arising of GBP6.0m. The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of
Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer
base.
Infowave and Spreo contributed GBP1.4m of revenue and GBP0.6m of
profit after tax for the year ended 31 March 2020.
If these acquisitions had been held since the start of the
financial year, it is estimated that the Group's reported revenue
and profit after tax would have been GBP2.2m higher and GBP0.5m
higher respectively.
Acquisition costs totalling GBP0.2m were recorded in the
Consolidated Income Statement.
The goodwill arising on these acquisitions is expected to be
deductible for tax purposes.
e) Certain trade and assets of NeoMedix Corporation
Total
GBPm
------------------------------------------------------- -----
Non-current assets
Intangible assets 10.6
Current assets
Inventories 0.8
Total assets 11.4
------------------------------------------------------- -----
Non-current liabilities
Deferred tax (0.2)
------------------------------------------------------- -----
Total liabilities (0.2)
------------------------------------------------------- -----
Net assets of business acquired 11.2
======================================================= =====
Initial cash consideration paid 6.5
Amounts owed to vendor* 0.5
Contingent purchase consideration estimated to be paid 9.4
Total consideration 16.4
------------------------------------------------------- -----
Goodwill arising on acquisition 5.2
------------------------------------------------------- -----
* Relates to additional payments to the vendor under the
contractual arrangements in the sale and purchase agreement.
On 4 October 2019, the Group acquired certain trade and assets
of NeoMedix Corporation ('NeoMedix') for an initial cash
consideration of US$8.0m (GBP6.5m). Maximum contingent
consideration payable is US$17.0m (GBP14.0m).
The current contingent consideration payable represents the fair
value of the estimated amounts payable for each of three annual
consecutive earnout periods, commencing on the acquisition date.
The earnout in each period is calculated by reference to the
relevant revenue for the period compared to the target for the
period, with the third earnout period only effective if the earnout
for periods one and two exceed US$12.0m.
The glaucoma-related business and assets of NeoMedix were
acquired by MicroSurgical Technology within the Medical sector to
enhance the Company's offering in this area of expertise.
The excess of the fair value of the consideration paid over the
fair value of the assets acquired is represented by technology
related intangibles of GBP10.6m; with residual goodwill arising of
GBP5.2m. The goodwill represents the ability to exploit the Group's
existing customer base.
NeoMedix contributed GBP1.2m of revenue for the year ended 31
March 2020.
If this acquisition had been held since the start of the
financial year, it is estimated that the Group's reported revenue
would have been GBP1.4m higher.
Acquisition costs totalling GBP0.1m were recorded in the
Consolidated Income Statement.
The goodwill arising on this acquisition is expected to be
deductible for tax purposes.
f) FireMate Software Pty. Ltd.
Total
GBPm
------------------------------------------------------- -----
Non-current assets
Intangible assets 2.8
Property, plant and equipment 0.1
Current assets
Cash and cash equivalents 0.6
Total assets 3.5
------------------------------------------------------- -----
Current liabilities
Trade and other payables (0.4)
Non-current liabilities
Deferred tax (0.8)
------------------------------------------------------- -----
Total liabilities (1.2)
------------------------------------------------------- -----
Net assets of business acquired 2.3
======================================================= =====
Non-controlling interest 0.7
------------------------------------------------------- -----
Initial cash consideration paid 6.3
Contingent purchase consideration estimated to be paid 2.6
Total consideration 8.9
------------------------------------------------------- -----
Goodwill arising on acquisition 5.9
------------------------------------------------------- -----
On 13 January 2020, the Group acquired 70% of the share capital
of FireMate Software Pty. Ltd. ('FireMate') for an initial cash
consideration of A$11.8m (GBP6.3m). Maximum contingent
consideration payable is A$6.4m (GBP3.3m). There is also an option
for the Group to purchase the remaining 30% of FireMate,
exercisable in the six months from 31 March 2025 based on a
multiple of EBIT for the financial year ending 31 March 2025.
The current contingent consideration payable represents the fair
value of the estimated amounts payable based on performance to 30
June 2022. The earnout is calculated by reference to the relevant
monthly subscription revenue for the period compared to the
target.
FireMate, located in Brisbane, Australia, provides cloud-based
fire protection management software to fire contractors and will
further strengthen the Group's capabilities in connected and
integrated fire systems internationally. The company will continue
to run under its own management team and will become part of the
Group's Infrastructure Safety sector.
The excess of the fair value of the consideration paid over the
fair value of the assets acquired is represented by customer
related intangibles of GBP1.7m; trade name of GBP0.4m and
technology related intangibles of GBP0.7m; with residual goodwill
arising of GBP5.9m.
The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of
Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer
base.
There is no material impact on the Group's income statement for
the year ended 31 March 2020 arising from this acquisition.
If this acquisition had been held since the start of the
financial year, it is estimated that the Group's reported revenue
would have been GBP1.3m higher.
Acquisition costs totalling GBP0.2m were recorded in the
Consolidated Income Statement.
The goodwill arising on this acquisition is not expected to be
deductible for tax purposes.
g) NovaBone Products, LLC
Total
GBPm
------------------------------------------------------- -----
Non-current assets
Intangible assets 35.6
Investments 0.4
Property, plant and equipment 1.9
Current assets
Inventories 3.2
Trade and other receivables 2.4
Cash and cash equivalents 0.1
Total assets 43.6
------------------------------------------------------- -----
Current liabilities
Trade and other payables (1.2)
Lease liabilities (0.1)
Non-current liabilities
Lease liabilities (0.1)
Deferred tax (0.6)
------------------------------------------------------- -----
Total liabilities (2.0)
------------------------------------------------------- -----
Net assets of business acquired 41.6
======================================================= =====
Initial cash consideration paid 73.6
Amounts owed to vendor* 0.4
Contingent purchase consideration estimated to be paid 10.4
Total consideration 84.4
------------------------------------------------------- -----
Goodwill arising on acquisition 42.8
------------------------------------------------------- -----
* In respect of an investment held on acquisition of GBP0.4m,
sold in March 2020 and repaid to vendors in April 2020.
On 24 January 2020, the Group acquired the entire members'
interests of NovaBone Products, LLC ('NovaBone') for an
initial cash consideration of US$96.5m (GBP73.6m). The initial
cash consideration comprised the purchase price of US$97.0m
(GBP74.0m) plus the purchase of freehold property of US$1.7m
(GBP1.3m) less working capital adjustments of US$0.5m (GBP0.4m) and
US$1.7m (GBP1.3m) held as holdback amounts in place of escrow
balances. Maximum contingent consideration payable is US$40.0m
(GBP30.5m) plus the holdback amounts.
The current contingent consideration payable (excluding holdback
amounts) represents the fair value of the estimated amounts payable
for each of two annual consecutive earnout periods, commencing 1
April 2020. The earnout in each period is calculated by reference
to the relevant earnings for the period compared to the target for
the period.
NovaBone, located in Florida, USA, produces products that are
used to accelerate bone regeneration, primarily for orthopaedic and
dental surgical procedures in the USA. It has strong technology and
knowhow within the fast-growing biologics segment, developing
biomaterials that harness the body's natural healing process to
accelerate bone growth. The company continues to run under its own
management team and has become part of the Group's Medical
sector.
The excess of the fair value of the consideration paid over the
fair value of the assets acquired is represented by customer
related intangibles of GBP8.9m; trade name of GBP3.0m and
technology related intangibles of GBP23.7m; with residual goodwill
arising of GBP42.8m. The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of
Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer
base.
NovaBone contributed GBP2.3m of revenue and GBP0.5m of profit
after tax for the year ended 31 March 2020.
If this acquisition had been held since the start of the
financial year, it is estimated that the Group's reported revenue
and profit after tax would have been GBP12.3m higher and GBP3.1m
higher respectively.
Acquisition costs totalling GBP1.7m were recorded in the
Consolidated Income Statement.
The goodwill arising on this acquisition is expected to be
deductible for tax purposes.
h) Sensit Technologies, LLC
Total
GBPm
-------------------------------- -----
Non-current assets
Intangible assets 18.3
Property, plant and equipment 2.2
Current assets
Inventories 4.4
Trade and other receivables 2.0
Cash and cash equivalents 0.4
Total assets 27.3
-------------------------------- -----
Current liabilities
Trade and other payables (1.6)
Lease liabilities (0.2)
Provisions (0.1)
Non-current liabilities
Lease liabilities (0.8)
Deferred tax (0.5)
-------------------------------- -----
Total liabilities (3.2)
-------------------------------- -----
Net assets of business acquired 24.1
================================ =====
Initial cash consideration paid 39.2
Total consideration 39.2
-------------------------------- -----
Goodwill arising on acquisition 15.1
-------------------------------- -----
On 4 February 2020, the Group acquired the entire members'
interests of Sensit Technologies, LLC ('Sensit') for an initial
cash consideration of US$51.5m (GBP39.2m). There is no contingent
consideration.
Sensit, located in Indiana, USA, manufactures products that
enable natural gas utilities to detect leaks in their pipes,
reducing climate change effects by minimising emissions of methane,
protecting workers in the natural gas distribution industry, and
ensuring compliance with regulatory standards. Its technologies are
also used in emergency response situations by firefighters entering
burning buildings to ensure that they do not face explosion risk
due to leaking natural gas. The company continues to run under its
own management team and has become part of the Group's Process
Safety sector.
The excess of the fair value of the consideration paid over the
fair value of the assets acquired is represented by customer
related intangibles of GBP6.6m; trade name of GBP2.9m and
technology related intangibles of GBP8.5m; with residual goodwill
arising of GBP15.1m.
The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of
Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer
base.
Sensit contributed GBP3.9m of revenue and GBP0.5m of profit
after tax for the year ended 31 March 2020.
If this acquisition had been held since the start of the
financial year, it is estimated that the Group's reported revenue
and profit after tax would have been GBP14.5m higher and GBP1.6m
higher respectively.
Acquisition costs totalling GBP0.7m were recorded in the
Consolidated Income Statement.
The goodwill arising on this acquisition is expected to be
deductible for tax purposes.
i) Maxtec, LLC
Total
GBPm
-------------------------------- -----
Non-current assets
Intangible assets 7.8
Property, plant and equipment 2.1
Current assets
Inventories 2.3
Trade and other receivables 1.9
Total assets 14.1
-------------------------------- -----
Current liabilities
Trade and other payables (1.9)
Lease liabilities (0.2)
Provisions (0.1)
Non-current liabilities
Lease liabilities (0.8)
Deferred tax (0.1)
-------------------------------- -----
Total liabilities (3.1)
-------------------------------- -----
Net assets of business acquired 11.0
================================ =====
Initial cash consideration paid 15.3
Total consideration 15.3
-------------------------------- -----
Goodwill arising on acquisition 4.3
-------------------------------- -----
On 20 February 2020, the Group acquired the entire members'
interests of Maxtec, LLC ('Maxtec') for an initial cash
consideration of US$20.0m (GBP15.3m). There is no contingent
consideration payable.
Maxtec, located in Utah, USA, is a leader in the design,
manufacture and distribution of oxygen analysis and delivery
products for use in medical and non-medical applications. Maxtec
specialises in innovative products for respiratory care, including
oxygen sensors and analysers for use in hospital acute care units.
Maxtec has joined Perma Pure within the Medical sector, whose
medical dehydration products are also used in acute care units. Key
members of Maxtec's leadership team remain with the business and it
continues to operate in its current facility.
The excess of the fair value of the consideration paid over the
fair value of the assets acquired is represented by customer
related intangibles of GBP3.7m; trade name of GBP1.5m and
technology related intangibles of GBP2.5m; with residual goodwill
arising of GBP4.3m.
The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of
Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer
base.
Maxtec contributed GBP2.1m of revenue and GBP0.3m of profit
after tax for the year ended 31 March 2020.
If this acquisition had been held since the start of the
financial year, it is estimated that the Group's reported revenue
and profit after tax would have been GBP12.7m higher and GBP0.7m
higher respectively.
Acquisition costs totalling GBP0.3m were recorded in the
Consolidated Income Statement.
The goodwill arising on this acquisition is expected to be
deductible for tax purposes.
j) Adjustments in respect of prior year acquisitions
Total
GBPm
---------------------------------------------------------------- -----
Non-current liabilities
Deferred tax (0.4)
Total liabilities (0.4)
---------------------------------------------------------------- -----
Net adjustments to assets of businesses acquired in prior years (0.4)
---------------------------------------------------------------- -----
Adjustment to goodwill 0.4
---------------------------------------------------------------- -----
In finalising the acquisition accounting for the prior year
acquisition of Navtech, adjustments of GBP0.4m were made to
increase the deferred tax liability resulting in a corresponding
increase in goodwill of GBP0.4m.
The adjustment was not material and as such the comparative
balance sheet was not restated; instead the adjustments have been
made through the current year.
10 Notes to the Consolidated Cash Flow Statement
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
------------------------------------------------------------- ---------- ----------
Reconciliation of profit from operations to net cash
inflow from operating activities:
Profit on continuing operations before finance income
and expense, share of results of associate
and loss on disposal of operations 233.4 217.8
Financial instruments at fair value through profit or
loss 0.1 (0.1)
Depreciation of property, plant and equipment 35.8 20.0
Amortisation of computer software 2.2 1.8
Amortisation of capitalised development costs and other
intangibles 8.4 8.8
Impairment of capitalised development costs 5.2 0.7
Amortisation of acquired intangible assets 38.3 35.6
Share-based payment expense in excess of amounts paid 4.8 4.7
Payments to defined benefit pension plans, net of charge (12.5) (9.3)
Profit on sale of property, plant and equipment and computer
software (0.1) (0.6)
------------------------------------------------------------- ---------- ----------
Operating cash flows before movement in working capital 315.6 279.4
Increase in inventories (5.1) (9.2)
Increase in receivables (9.0) (15.3)
Increase in payables and provisions 8.9 8.2
Revision to estimate of, and exchange differences arising
on, contingent consideration payable (2.5) (3.5)
------------------------------------------------------------- ---------- ----------
Cash generated from operations 307.9 259.6
Taxation paid (52.4) (40.6)
------------------------------------------------------------- ---------- ----------
Net cash inflow from operating activities 255.5 219.0
------------------------------------------------------------- ---------- ----------
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
-------------------------------------------- ---------- ----------
Analysis of cash and cash equivalents
Cash and bank balances 106.3 81.2
Overdrafts (included in current borrowings) (0.9) (9.1)
-------------------------------------------- ---------- ----------
Cash and cash equivalents 105.4 72.1
-------------------------------------------- ---------- ----------
Restatement
for changes
in Restated
accounting as at Net cash/
1 April standards 1 April Cash (debt) Loan notes Reclassification Exchange 31 March
2019 IFRS 16 2019 flow acquired repaid and additions adjustments 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------- ----------- --------- ------- --------- ---------- ---------------- ----------- --------
Analysis of
net debt
Cash and
bank
balances 81.2 - 81.2 16.6 8.0 - - 0.5 106.3
Overdrafts (9.1) - (9.1) 8.2 - - - - (0.9)
------------ ------- ----------- --------- ------- --------- ---------- ---------------- ----------- --------
Cash and
cash
equivalents 72.1 - 72.1 24.8 8.0 - - 0.5 105.4
Loan notes
falling due
within one
year (0.1) - (0.1) - - 0.1 (74.2) - (74.2)
Loan notes
falling due
after more
than one
year (179.3) - (179.3) - - - 74.2 (3.5) (108.6)
Bank loans
falling due
after more
than one
year (74.4) - (74.4) (156.4) - - - (5.6) (236.4)
Lease
liabilities - (50.3) (50.3) 15.8 (8.2) - (18.1) (0.7) (61.5)
------------ ------- ----------- --------- ------- --------- ---------- ---------------- ----------- --------
Total net
debt (181.7) (50.3) (232.0) (115.8) (0.2) 0.1 (18.1) (9.3) (375.3)
------------ ------- ----------- --------- ------- --------- ---------- ---------------- ----------- --------
The net increase in cash and cash equivalents of GBP32.8m
comprised cash inflow of GBP24.8m and cash acquired of GBP8.0m.
The net cash inflow from bank loans of GBP156.4m comprised
drawdowns of GBP308.1m offset by repayments of GBP151.7m.
The net cash outflow from loan notes relates to GBP0.1m
repayment of existing loan notes issued in relation to the previous
acquisition of Advanced Electronics Limited.
Reconciliation of movements of the Group's liabilities from
financing activities
Liabilities from financing activities are those for which cash
flows were, or will be, classified as cash flows from financing
activities in the Consolidated Cash Flow Statement.
Restatement
for changes Changes Effects
in accounting from of
1 April standards financing Acquisition Other foreign 31 March
2019 IFRS 16 cash flows of subsidiaries changes(*) exchange 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------- -------------- ----------- ---------------- ----------- --------- --------
Loan notes falling
due within one year 0.1 - (0.1) - 74.2 - 74.2
Overdraft 9.1 - - - (8.2) - 0.9
Lease liabilities - 10.7 (15.8) 1.3 16.8 - 13.0
--------------------------- ------- -------------- ----------- ---------------- ----------- --------- --------
Borrowings and lease
liabilities (current) 9.2 10.7 (15.9) 1.3 82.8 - 88.1
--------------------------- ------- -------------- ----------- ---------------- ----------- --------- --------
Loan notes falling
due after more than
one year 179.3 - - - (74.2) 3.5 108.6
Bank loans falling
due after more than
one year 74.4 - 156.4 - - 5.6 236.4
Lease liabilities - 39.6 - 6.9 1.3 0.7 48.5
--------------------------- ------- -------------- ----------- ---------------- ----------- --------- --------
Borrowings and lease
liabilities (non-current) 253.7 39.6 156.4 6.9 (72.9) 9.8 393.5
--------------------------- ------- -------------- ----------- ---------------- ----------- --------- --------
Total liabilities from
financing activities 262.9 50.3 140.5 8.2 9.9 9.8 481.6
--------------------------- ------- -------------- ----------- ---------------- ----------- --------- --------
Trade and other payables:
falling due within
one year 164.8 - (9.0) 11.4 19.0 0.5 186.7
--------------------------- ------- -------------- ----------- ---------------- ----------- --------- --------
* Other changes include movements in overdraft which is treated
as cash, interest accruals, reclassifications from non-current to
current liabilities and other movements in working capital
balances.
11 Disposal of operations
In January 2020, following its IPO, the Group disposed of its
entire interest in Optomed Oy to third parties for proceeds of
EUR8.6m (GBP7.2m). This transaction resulted in the recognition of
a gain in the Consolidated Income Statement as follows:
GBPm
------------------------------------------------------------ -----
Proceeds of disposal 7.2
Less: carrying amount of investment on disposal (3.8)
Less: costs of disposal (0.4)
Less: foreign exchange loss recycled to income statement on
disposal (0.1)
------------------------------------------------------------ -----
Profit on disposal 2.9
------------------------------------------------------------ -----
Cash received on disposal of operations in the year of GBP7.6m
comprised of proceeds from the sale of Optomed Oy of GBP7.2m, less
GBP0.4m of disposal costs, plus GBP0.8m received from escrow
relating to the sale of Accudynamics in the prior year.
In the prior year, on 30 June 2018, the Group sold the trade and
assets of Accudynamics Inc, part of the Fluid Technology CGU group,
for sale proceeds of GBP4.2m less disposal costs of GBP0.3m, of
which GBP3.1m was received during the prior year, and GBP0.8m in
the current year. The net assets on disposal were GBP4.4m
comprising plant and equipment, inventory and trade receivables and
payables, which together with the disposal of related goodwill of
GBP0.8m and disposal costs of GBP0.3m, offset by the recycling of
foreign exchange gains of GBP0.3m, resulted in a net loss on
disposal (before taxation) of GBP1.0m.
12 Contingent liabilities
Group financing exemptions applicable to UK controlled foreign
companies
As previously reported, on 24 November 2017 the European
Commission published an opening decision that the United Kingdom
controlled foreign company ("CFC") group financing partial
exemption ("FCPE") constitutes State Aid. On 2 April 2019, the
European Commission's final decision concluded that the FCPE rules,
as they applied up to 31 December 2018, constitute State Aid. On 12
June 2019, the UK government applied to annul the EC decision. The
Group's application to annul the EC decision on the CFC FCPE was
registered in the General Court on 9 September 2019 and has been
stayed pending the outcome of the UK government's appeal. The Group
has benefitted from the FCPE and the total benefit to date at 31
March 2020 was approximately GBP15.4m (2019: GBP15.4m) in respect
of tax and approximately GBP1.2m (31 March 2019: GBP0.6m) in
respect of interest. Based on its current assessment, the Group
believes no provision is required at this time.
Other contingent liabilities
The Group has widespread global operations and is consequently a
defendant in many legal, tax and customs proceedings incidental to
those operations. In addition, there are contingent liabilities
arising in the normal course of business in respect of indemnities,
warranties and guarantees. These contingent liabilities are not
considered to be unusual in the context of the normal operating
activities of the Group. Provisions have been recognised in
accordance with the Group accounting policies where required. None
of these claims are expected to result in a material gain or loss
to the Group.
13 Events subsequent to end of reporting period
There were no known material non-adjusting events which occurred
between the end of the reporting period and prior to the
authorisation of these financial statements on 14 July 2020.
14 Related party transactions
Trading transactions
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
--------------------------------------- ---------- ----------
Associated companies
Transactions with associated companies
Purchases from associated companies 1.0 1.3
Balances with associated companies
Amounts due to associated companies - 0.2
--------------------------------------- ---------- ----------
Other related parties
Balances with other related parties
Amounts due to other related parties - -
--------------------------------------- ---------- ----------
All the transactions above are on an arm's length basis and on
standard business terms.
Remuneration of key management personnel
The remuneration of the Directors and Executive Board members,
who are the key management personnel of the Group, is set out below
in aggregate for each of the categories specified in IAS 24
'Related Party Disclosures'. Further information about the
remuneration of individual Directors is provided in the audited
part of the Remuneration Report in the Annual Report and
Accounts.
Year ended Year ended
31 March 31 March
2020 2019
GBPm GBPm
--------------------------- ---------- ----------
Wages and salaries 7.8 6.8
Pension costs 0.2 0.2
Share-based payment charge 4.3 3.3
--------------------------- ---------- ----------
12.3 10.3
--------------------------- ---------- ----------
Cautionary note
These Results contain 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.
LEI number: 2138007FRGLUR9KGBT40
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KKNBKDBKBKOD
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