REG - Halma PLC - Final Results <Origin Href="QuoteRef">HLMA.L</Origin> - Part 5
06/09/2014 02:14
- Part 5: For the preceding part double click ID:nRSL4050Jd
29,845 26,949
Deferred tax
Origination and reversal of timing differences 2,626 (548)
Adjustments in respect of prior years (121) 129
Total deferred tax charge/ (credit) 2,505 (419)
Total tax charge recognised in the Consolidated Income Statement 32,350 26,530
Reconciliation of the effective tax rate:
Profit before tax 138,677 120,136
Tax at the UK corporation tax rate of 23% (2013: 24%) 31,896 28,833
Overseas tax rate differences 5,665 5,413
Permanent differences (4,598) (7,667)
Adjustments in respect of prior years (613) (49)
32,350 26,530
Effective tax rate after adjustments** 23.3% 22.1%
2014 2013
£000 £000
Profit before tax and adjustments** 140,249 128,543
Total tax charge on profit before adjustments** 32,685 31,162
Effective tax rate 23.3% 24.2%
* Details of the restatement are disclosed in note 1 to the Preliminary Statement. ** Adjustments include the amortisation of acquired intangible assets; acquisition items; the effects of closure to future benefit accrual of the defined benefit pension schemes net of associated costs; and profit or loss on disposal of operations.
6 Earnings per ordinary share Basic earnings per ordinary share are calculated using the weighted average of 377,805,248 shares in issue during the year (net of shares purchased by the Company and held as treasury shares) (2013: 377,597,126). Diluted earnings per ordinary share are calculated using the weighted average of 378,035,662 shares (2013: 378,009,506), which includes dilutive potential ordinary shares of 230,414 (2013: 412,380). Dilutive potential ordinary shares are calculated from those
exercisable share options where the exercise price is less than the average price of the Company's ordinary shares during the year. Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation of acquired intangible assets; acquisition items; the effects of closure to future benefit accrual of the defined benefit pension schemes net of associated costs; profit or loss on disposal of operations; and associated tax thereon. The Directors consider that adjusted earnings
represent a more consistent measure of underlying performance. A reconciliation of earnings and the effect on basic earnings per share figures is as follows:
Per ordinary share
2014£000 (Restated)*2013£000 2014pence (Restated)*
2013£000
Earnings from continuing operations 106,327 93,606 28.14 24.79
Cessation of DB pension accrual (after tax) (3,040) - (0.80) -
Amortisation of acquired intangible assets (after tax) 11,820 9,978 3.14 2.64
Acquisition transaction costs (after tax) 91 2,252 0.02 0.60
Adjustments to contingent consideration (after tax) (8,104) (385) (2.15) (0.10)
Loss/ (profit) on disposal of operations (after tax) 470 (8,070) 0.12 (2.14)
Adjusted earnings 107,564 97,381 28.47 25.79
* The effect on the prior year of the adoption of IAS 19 (revised) on earnings and adjusted earnings per ordinary share was a reduction to both of 0.43p. See note 1 to the Preliminary Statement.
7 Dividends
Per ordinary share
2014pence 2013pence 2014£000 2013£000
Amounts recognised as distributions to shareholders in the year
Final dividend for the year to 30 March 2013 (31 March 2012) 6.37 5.95 24,049 22,425
Interim dividend for the year to 29 March 2014 (30 March 2013) 4.35 4.06 16,436 15,340
10.72 10.01 40,485 37,765
Dividends declared in respect of the year
Interim dividend for the year to 29 March 2014 (30 March 2013) 4.35 4.06 16,436 15,340
Proposed final dividend for the year to 29 March 2014 (30 March 2013) 6.82 6.37 25,762 24,049
11.17 10.43 42,198 39,389
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 24 July 2014 and has not been included as a liability in these financial statements. If approved, the final dividend for 2013/14 will be paid on 20 August 2014 to shareholders on the register at the close of business on 18 July 2014. The Company offers a Dividend Reinvestment Plan ('DRIP') to enable shareholders to elect to have their cash dividends reinvested in Halma shares. Shareholders who wish to elect
for the DRIP for the forthcoming final dividend, but have not already done so, should return a DRIP mandate form to the Company's Registrars no later than 30 July 2014.
8 Acquisitions The Group made one acquisition during the year, Talentum Developments Limited (Talentum). Below are summaries of the assets and liabilities acquired and the purchase consideration of: a) The total of Talentum and adjustments to prior year acquisitions; andb) Talentum, on a stand-alone basis.
(A) Total of Talentum and adjustments to prior year acquisitions
Book value£000 Fair valueadjustments£000 Total£000
Non-current assets
Intangible assets - 1,444 1,444
Property, plant and equipment 196 - 196
Current assets
Inventories 308 (432) (124)
Trade and other receivables 649 (25) 624
Cash and cash equivalents 754 - 754
Deferred tax - 291 291
Total assets 1,907 1,278 3,185
Current liabilities
Trade and other payables (180) (125) (305)
Provisions - (734) (734)
Corporation tax (143) (69) (212)
Non-current liabilities
Deferred tax (16) (339) (355)
Total liabilities (339) (1,267) (1,606)
Net assets of businesses acquired 1,568 11 1,579
Initial cash consideration paid (Talentum) 3,315
Initial cash consideration adjustment (prior year acquisition) (337)
Deferred purchase consideration to be paid (Talentum) 250
Total consideration 3,228
Goodwill arising on current year acquisitions 1,032
Goodwill arising on prior year acquisitions 617
1,649
In the provisional accounting, adjustments are made to the book values of the net assets of the companies acquired to reflect their provisional fair values to the Group. Acquired inventories are valued at the lower of cost and net realisable 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 financial year ended 29 March 2014 adjustments were made to the fair values of acquired assets and liabilities included in the provisional accounting for the following prior year acquisitions: a) MicroSurgical Technology, Inc.;b) Thinketron Precision Equipment Company Limited (and its main trading subsidiary, Baoding Longer Precision Pump Co., Ltd); andc) ASL Holdings Limited. The provisional accounting was updated for non-material changes to certain provisions, inventory valuations and deferred
tax balances. The combined adjustments made for each acquisition resulted in a net adjustment to goodwill of £617,000. All adjustments to the provisional accounting were made within the goodwill measurement period, relevant to each acquisition, as defined by IFRS 3 (revised) 'Business Combinations'. As at the date of approval of these financial statements, the accounting for all current and prior year acquisitions is completed. Due to their contractual dates, the fair value of receivables acquired (shown
above) approximates 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). None of the goodwill arising on acquisitions in the year is expected to be deductible for tax purposes. Talentum, the one acquisition in the year, contributed £2,132,000 of revenue and £576,000 of profit after tax for the period ended 29 March 2014.
If this acquisition had been held since the start of the financial year, it is estimated the Group's reported revenue and profit after tax would have been £52,000 and £13,000 higher respectively.
Analysis of cash outflow in the Consolidated Cash Flow Statement
2014£000 2013£000
Initial cash consideration paid 3,315 133,060
Initial cash consideration adjustment (prior year acquisition) (337) -
Cash acquired on acquisitions (754) (7,869)
Overdrafts acquired on acquisitions - 869
Contingent consideration paid in relation to current year acquisitions - 3,810
Contingent consideration paid in relation to prior year acquisitions* 14,461 15,771
Net cash outflow relating to acquisitions (per Consolidated cash flow statement) 16,685 145,641
Bank loans acquired - 2,406
Net movement in cash and debt, including bank loans acquired 16,685 148,047
* Of the £14,461,000 (2013: £15,771,000) contingent purchase consideration payment £14,461,000 (2013: £15,771,000) had been provided in the prior year's financial statements.
(B) Talentum Developments Limited
Book value£000 Fair valueadjustments£000 Total£000
Non-current assets
Intangible assets - 1,444 1,444
Property, plant and equipment 196 - 196
Current assets
Inventories 308 (101) 207
Trade and other receivables 649 - 649
Cash and cash equivalents 754 - 754
Total assets 1,907 1,343 3,250
Current liabilities
Trade and other payables (180) - (180)
Provisions - (60) (60)
Corporation tax (143) - (143)
Non-current liabilities
Deferred tax (16) (318) (334)
Total liabilities (339) (378) (717)
Net assets of businesses acquired 1,568 965 2,533
Cash consideration 3,315
Contingent purchase consideration 250
Total consideration 3,565
Goodwill arising on acquisition 1,032
The Group made one acquisition during the year. The entire share capital of Talentum Developments Limited (Talentum) was acquired on 11 April 2013 for an initial cash consideration of £2,590,000. This was subsequently adjusted by an additional £725,000 which was paid in June 2013 based on the final level of agreed working capital at the acquisition date. Deferred consideration of £250,000 was paid in April 2014 after the seller provided certain pre-agreed technical information and know-how to the Group.
Talentum forms part of the Infrastructure Safety sector and specialises in the design and manufacture of flame detector products for a range of industries, which protect property from the risk of fire. 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 £806,000; marketing and technology related intangibles of £638,000; with residual goodwill arising of £1,032,000. The goodwill represents: a) the technical
expertise of the acquired workforce;b) the opportunity to leverage this expertise across some of Halma's businesses; and c) the ability to exploit the Group's existing customer base.
9 Disposal of business On 22 August 2012, the Group disposed of its Asset Monitoring businesses, comprising Tritech Holdings Limited and its subsidiary Tritech International Limited (together known as Tritech). Tritech was sold for an initial cash consideration of £18,900,000. A further £839,000 was received in October 2012 in respect of cash and working capital held in the business at the time of sale. In addition £2,100,000 was retained in escrow and was released to Halma in August 2013. Net assets
disposed of as part of the transaction included goodwill of £8,009,000. The £1,917,000 cash inflow from disposal of businesses shown in the Consolidated Cash Flow Statement represents the £2,100,000 released from escrow less disposal transaction costs of £183,000. The loss on disposal of £483,000 comprises £183,000 costs and a £300,000 loss on the 2012 disposal of Volumatic Limited, following a revision to the remaining contingent consideration receivable from £300,000 to £nil. No further consideration is
due to the Group in relation to either the Tritech or Volumatic Limited disposals. The profit on disposal of £8,070,000, and cash inflow of £19,608,000, for the 52 weeks to 30 March 2013 related almost entirely to the disposal of Tritech.
9 Disposal of business
On 22 August 2012, the Group disposed of its Asset Monitoring businesses, comprising Tritech Holdings Limited and its
subsidiary Tritech International Limited (together known as Tritech). Tritech was sold for an initial cash consideration of
£18,900,000. A further £839,000 was received in October 2012 in respect of cash and working capital held in the business at
the time of sale. In addition £2,100,000 was retained in escrow and was released to Halma in August 2013. Net assets
disposed of as part of the transaction included goodwill of £8,009,000. The £1,917,000 cash inflow from disposal of
businesses shown in the Consolidated Cash Flow Statement represents the £2,100,000 released from escrow less disposal
transaction costs of £183,000. The loss on disposal of £483,000 comprises £183,000 costs and a £300,000 loss on the 2012
disposal of Volumatic Limited, following a revision to the remaining contingent consideration receivable from £300,000 to
£nil. No further consideration is due to the Group in relation to either the Tritech or Volumatic Limited disposals. The
profit on disposal of £8,070,000, and cash inflow of £19,608,000, for the 52 weeks to 30 March 2013 related almost entirely
to the disposal of Tritech.
10 Notes to the Consolidated Cash Flow Statement
2014£000 (Restated)*2013£000
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 associates and loss/ (profit) on disposal of operations 143,571 117,297
Depreciation of property, plant and equipment 13,625 12,684
Amortisation of computer software 1,168 1,402
Amortisation of capitalised development costs and other intangibles 4,002 3,578
Disposals/retirements of capitalised development costs - 264
Amortisation of acquired intangible assets 17,515 14,235
Share-based payment expense in excess of amounts paid 3,470 2,482
Additional payments to pension schemes (5,892) (7,195)
Profit on sale of property, plant and equipment and computer software (26) (163)
Effects of closure to future benefit accruals on defined benefit pension schemes (4,246) -
Operating cash flows before movement in working capital 173,187 144,584
Increase in inventories (5,127) (2,693)
Increase in receivables (9,111) (9,210)
Increase in payables and provisions 3,334 1,015
Revision to estimate of contingent consideration payable (12,394) -
Cash generated from operations 149,889 133,696
Taxation paid (28,351) (25,452)
Net cash inflow from operating activities 121,538 108,244
2014£000 2013£000
Analysis of cash and cash equivalents
Cash and bank balances 34,531 49,723
Overdrafts (included in current borrowings) (1,405) -
Cash and cash equivalents 33,126 49,723
At 30 March 2013£000 Cash flow£000 Net cash acquired£000 Loan notes issued£000 Loan notesrepaid£000 Exchangeadjustments£000 At 29 March2014£000
Analysis of net debt
Cash and bank balances 49,723 (13,997) 754 - - (1,949) 34,531
Overdrafts - (1,405) - - - - (1,405)
Cash and cash equivalents 49,723 (15,402) 754 - - (1,949) 33,126
Loan notes falling due within one year (2,515) - - (2,731) 2,515 - (2,731)
Bank loans falling due within one year (2,632) 2,516 - - - 116 -
Bank loans falling due after more than one year (154,866) 47,777 - - - 2,198 (104,891)
Total net debt (110,290) 34,891 754 (2,731) 2,515 365 (74,496)
* Details of the restatement are disclosed in note 1 to the Preliminary Statement.The net cash outflow from bank loans in 2014 comprised repayments of £57,791,000 offset by drawdowns of £7,498,000 (2013: net cash inflow comprising drawdowns of £92,298,000 offset by repayments of £2,942,000). The £754,000 cash and cash equivalents acquired comprised cash only. The net of the above £15,402,000 cash outflow and of £754,000 net cash acquired is equal to the decrease in cash and cash equivalents (£14,648,000)
in the Consolidated Cash Flow Statement.
11 Non-GAAP measures The Board uses certain non-GAAP measures to help it effectively monitor the performance of the Group. These measures include Return on Capital Employed, Return on Total Invested Capital, Organic growth, Adjusted operating profit and Adjusted operating cash flow.
11 Non-GAAP measures
The Board uses certain non-GAAP measures to help it effectively monitor the performance of the Group. These measures
include Return on Capital Employed, Return on Total Invested Capital, Organic growth, Adjusted operating profit and
Adjusted operating cash flow.
Return on Capital Employed
2014£000 (Restated)*
2013£000
Operating profit before adjustments**, but after share of results of associates 144,967 133,422
Computer software costs within intangible assets 2,810 2,383
Capitalised development costs within intangible assets 12,981 11,977
Other intangibles within intangible assets 8 146
Property, plant and equipment 74,417 76,725
Inventories 71,034 69,713
Trade and other receivables 135,177 133,605
Trade and other payables (88,291) (87,073)
Current provisions (4,482) (16,276)
Net tax liabilities (11,168) (11,262)
Non-current trade and other payables (3,564) (2,993)
Non-current provisions (6,777) (21,756)
Add back contingent purchase consideration 7,562 33,512
Capital employed 189,707 188,701
Return on Capital Employed (ROCE) 76.4% 70.7%
* The effect on the prior year of the adoption of IAS 19 (revised) on the Return on Capital Employed (ROCE) measure was a reduction in ROCE of 0.6%. This change arose due to the reduction in operating profit. See note 1 to the Preliminary Statement for further details.
Return on Total Invested Capital
2014£000 (Restated)*
2013£000
Post-tax profit before adjustments** 107,564 97,381
Total shareholders' funds 486,000 453,267
Add back retirement benefit obligations 36,849 47,172
Less associated deferred tax assets (7,372) (10,851)
Cumulative amortisation of acquired intangibles 61,324 46,150
Historical adjustments to goodwill*** 89,549 89,549
Total invested capital 666,350 625,287
Return on Total Invested Capital (ROTIC) 16.1% 15.6%
* The effect on the prior year of the adoption of IAS 19 (revised) on the Return on Total Invested Capital (ROTIC) measure was a reduction in ROTIC of 0.2% due to a reduction in post-tax profit. See note 1 to the Preliminary Statement for further details.** Adjustments include the amortisation of acquired intangible assets; acquisition items; the effects of closure to future benefit accrual of the defined benefit pension schemes net of associated costs; and profit or loss on disposal of operations. ***
Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves.
Organic growthOrganic growth measures the change in revenue and profit
from continuing Group operations. The effect of acquisitions and
disposals made during the prior financial year, and acquisitions made in
the current financial year has been equalised by adjusting the current
year results for pro-rated contributions based on their revenues and
profits before taxation at the dates of acquisition and disposal. The
results of disposals made in the prior financial year have been removed
from the prior year reported revenue and profit before taxation. Organic
growth has been calculated as follows:
Revenue Profit** before taxation
2014£000 2013£000 % growth 2014£000 (Restated)*2013£000 % growth
Continuing operations 676,506 619,210 140,249 128,543
Acquired and disposed revenue/profit (26,413) (5,088) (5,379) (915)
650,093 614,122 5.9% 134,870 127,628 5.7%
5.7%
* Details of the restatement are disclosed in note 1 to the Preliminary Statement.
** Profit before adjustments, which include the amortisation of acquired intangible assets; acquisition items; the effects of the closure to future benefit accrual of the defined benefit pension schemes net of associated costs; and profit or loss on disposal of operations.
Adjusted operating profit
2014£000 (Restated)*
2013£000
Operating profit 143,571 117,297
Add back:
Acquisition items (12,478) 2,242
Effects of closure to future benefit accrual of defined benefit pension schemes (3,948) -
Amortisation of acquired intangible assets 17,515 14,235
Adjusted operating profit 144,660 133,774
Adjusted operating cash flow
2014£000 (Restated)*2013£000
Net cash from operating activities (note 10) 121,538 108,244
Add back:
Taxes paid 28,351 25,452
Proceeds from sale of property, plant and equipment 1,708 917
Less:
Purchase of property, plant and equipment (15,838) (14,472)
Purchase of computer software and other intangibles (1,529) (1,053)
Development costs capitalised (5,196) (5,443)
Adjusted operating cash flow 129,034 113,645
Cash conversion % (adjusted operating cash flow/adjusted operating profit) 89% 85%
* Details of the restatement are disclosed in note 1 to the Preliminary Statement.The effect on the prior year of the adoption of IAS 19 (revised) was an increase of 1% in the cash conversion %.
12 Events after the balance sheet date
On 2 May 2014 the Group acquired Plasticspritzerei AG (Plasticspritzerei), located in Wolfhalden, Switzerland at the same facility as another Group company, Medicel AG (Medicel). An initial cash consideration of CHF 8,000,000 was paid to acquire the trade and assets of the business. The Group then immediately sold the industrial segment of the business to a third party, resulting in a net cash cost to the Group of CHF 4,800,000 (£3,200,000). These transactions have resulted in the Group owning only those
assets which support Medicel's business. Plasticspritzerei will be operated by Medicel's management within Halma's Medical sector, further expanding the Group's manufacturing excellence in ophthalmic diagnostic and surgical instrumentation. Due to the proximity of the acquisition date to the date of approval of the Annual Report, it is impracticable to provide further information. As part of the transaction in which the Group acquired Plasticspritzerei AG, the Group disposed of its 50% ownership interest in
its associate, PSRM Immobilien AG (PSRM), for cash consideration of CHF 500,000. Due to the proximity of the transaction date to the date of approval of the Annual Report, it is impracticable to provide further information. On 14 May 2014 the Group acquired the entire share capital of Advanced Electronics Limited (Advanced) for an initial cash consideration of £14,100,000. A further £1,369,000 was paid to acquire the net cash in the business at the completion date. The initial cash consideration is
adjustable based on the final level of agreed working capital and cash at closing. Contingent consideration of up to £10,100,000 is payable in two tranches on or around July 2014 and July 2015 respectively, subject to the company achieving certain profit targets. Advanced will operate as a stand-alone business within Halma's Infrastructure Safety sector and specialises in the manufacture of networked fire detection and control systems. Advanced's controllers can be integrated into system solutions using
field devices and products from a broad spectrum of suppliers, meeting the increasing diversity of regulatory requirements across the world. Its main manufacturing facility is located near Newcastle in the UK with a dedicated electronics and software development facility in Barnsley. It has additional commercial offices in the UK, USA and Dubai. Advanced will add complementary products that will help capture the international growth opportunity in the increasingly regulated Fire market. Due to the proximity
of the acquisition date to the date of approval of the Annual Report, it is impracticable to provide further information. On 30 May 2014 the Group acquired Rohrback Cosasco Systems Inc. (RCS) and associated companies, headquartered in California, USA. RCS also operates in Canada, UK, UAE, Singapore, China, Australia and Texas, USA. An initial cash consideration of $108,000,000 (£64,700,000) was paid for the entire share capital of RCS and its associate companies. A further $8,000,000 (£4,800,000) was paid
to acquire the net cash in the business at the completion date. The initial cash consideration is adjustable based on the final level of agreed working capital and cash at closing. RCS is a world leader in the design, manufacture and sale of pipeline corrosion monitoring products and systems into diverse industries including oil, gas, petrochemical, pharmaceutical and utilities. The acquisition of RCS expands Halma's portfolio of critical safety products which are sold into the Energy and Utility markets to
protect life and operational assets. The existing RCS management team will remain in place and will continue to operate the business which already operates in the same industries with similar long-term market growth drivers, including increasing safety requirements. Due to the proximity of the acquisition date to the date of the approval of the Annual Report it is impracticable to provide further information. On 30 May 2014, the Group disposed of Monitor Elevator Products Inc. (Monitor) from its
Infrastructure Safety sector. The total consideration was $6,000,000 (£3,600,000), of which $5,100,000 was received in cash at completion and $900,000 was retained in escrow to be released to Halma on the second anniversary of the transaction subject to any valid warranty/indemnity claims being made by the purchaser. Consideration is adjustable by the amount that closing net assets are calculated to be more or less than $2,500,000 at the time of completion. An additional $400,000 was received in cash at
closing representing the initial estimate of the excess closing net asset value. The Directors estimate that the entire $900,000 held in escrow will be received. The profit on disposal is estimated to be approximately £1m being the total equivalent Sterling consideration stated above less £2.5m of net assets disposed and transaction costs. No goodwill was disposed of or impaired as a result of this transaction. Monitor has not been separately disclosed as a discontinued operation as defined by IFRS 5 due
to its nature and size.
13 Related party transactions
Trading transactions
2014£000 2013£000
Associated companies
Purchases from associated companies 524 519
Amounts due to associated companies 56 3
Amounts due from associated companies 128 200
Other related parties
Rent charged by other related parties 115 360
Amounts due to other related parties - -
Other related parties comprise two companies with Halma employees on the Boards and from which two Halma subsidiaries rent property. All the transactions above are on an arm's length basis and on standard business terms. Remuneration of key management personnelThe 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 Directors' Remuneration Report in the Annual Report and Accounts 2014.
2014£000 2013£000
Wages and salaries 4,353 4,185
Pension costs 130 165
Share-based payment charge 1,908 1,643
6,391 5,993
Cautionary note This Preliminary Statement 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.
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