REG - Halma PLC - Full Year Results
15/06/2023 07:00
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RNS Number : 8279C Halma PLC 15 June 2023
HALMA plc
FULL YEAR RESULTS 2023
Record profit for 20(th) consecutive year
Halma, the global group of life-saving technology companies focused on growing
a safer, cleaner and healthier future for everyone, every day, today announces
its full year results for the 12 months to 31 March 2023.
Highlights
Change 2023 2022
Revenue +21% £1,852.8m £1,525.3m
Adjusted Profit before Taxation(1) +14% £361.3m £316.2m
Adjusted Earnings per Share(2) +17% 76.34p 65.48p
Statutory Profit before Taxation (4)% £291.5m £304.4m
Statutory Earnings per Share (4)% 62.04p 64.54p
Total Dividend per Share(3) +7% 20.20p 18.88p
Return on Sales(4) 19.5% 20.7%
Return on Total Invested Capital(5) 14.8% 14.6%
Net Debt(6) £596.7m £274.8m
Record revenue, Adjusted(1) Profit, and strategic investment
· Record revenue, up 21%, and 10% on an organic constant
currency(7) basis.
· 20(th) consecutive year of record profit: Adjusted(1)
Profit before Taxation up 14%; up 3% on an organic constant currency(7) basis.
· Statutory Profit before Taxation down 4%; principally
reflected non-recurrence of a gain on disposal of £34.0m in the prior year;
up 8% excluding this gain.
· Broad-based revenue growth in all sectors and regions,
including on an organic constant currency(7) basis; Adjusted(1) profit growth
in all sectors.
· Continued high returns: Return on Sales(4) of 19.5% and
ROTIC(5) of 14.8%. Expect FY 2024 Return on Sales(4) to increase to
approximately 20%.
· Cash conversion of 78% (90% in the second half of the
year); strong balance sheet, with net debt/EBITDA of 1.38x (2022: 0.74x),
underpins investment in organic growth and acquisitions.
· Record strategic investment of over half a billion
pounds to support our future growth:
o Seven acquisitions completed in the year for a maximum total consideration
of £397m; two further acquisitions completed since the period end for a
maximum total consideration of approximately £57m; a healthy acquisition
pipeline across all sectors.
o R&D expenditure up by £17m to £103m, representing 5.5% of revenue
o Increased investment in technology by £7m to £18m
· Total dividend per share for the year up 7%; 44(th)
consecutive year of dividend growth of 5% or more.
Marc Ronchetti, Group Chief Executive of Halma, commented:
"2023 was a successful year for Halma, reflecting the contributions and
continued commitment to our purpose of everyone at Halma. We delivered record
revenue and profit, achieving our 20(th) consecutive year of profit growth and
our 44(th) consecutive year of dividend per share growth of 5% or more. At the
same time, we substantially increased strategic investment to record levels,
increasing our opportunities for future growth through organic investment and
strategic acquisitions, while maintaining a strong balance sheet.
We have made a positive start to the new financial year. We have a strong
order book, and order intake in the year to date is broadly in line with
revenue and ahead of the comparable period last year. Based on current market
conditions, we expect to deliver good organic constant currency(7) revenue
growth in the year ahead, and Return on Sales(4) to increase to approximately
20%. We are well positioned to make further progress this year and in the
longer term."
Notes:
1 Adjusted to remove the amortisation and impairment of acquired intangible
assets, acquisition items and profit or loss on disposal of operations,
totalling £69.8m (2021/22: £11.8m). See note 1 to the Results for details.
2 Adjusted to remove the amortisation and impairment of acquired intangible
assets, acquisition items, profit or loss on disposal of operations and the
associated taxation thereon and, in 2022, the increase in the UK's corporation
tax rate from 19% to 25%. See note 2 to the Results for details.
3 Total dividend paid and proposed per share, comprising interim dividend of
7.86p per share and proposed final dividend of 12.34p per share.
4 Return on Sales is defined as adjusted(1) profit before taxation from
continuing operations expressed as a percentage of revenue from continuing
operations.
5 Return on Total Invested Capital (ROTIC) is defined as post-tax Adjusted(1)
Profit as a percentage of average Total Invested Capital.
6 Net debt is defined as Borrowings plus lease liabilities net of Cash and bank
balances.
7 Organic constant currency measures exclude the effect of movements in foreign
exchange rates on the translation of revenue and profit(1) into Sterling, as
well as acquisitions in the year following completion and disposals.
8 Adjusted(1) profit before taxation, Adjusted(2) Earnings per Share, organic
growth rates, Return on Sales(4), ROTIC(5) and net debt(6) are alternative
performance measures used by management. See notes 1, 2 and 3 to the Results
for details.
9
Adjusted(1) operating profit before central administration costs after share
of associate.
For further information, please contact:
Halma plc +44 (0)1494 721 111
Marc Ronchetti, Group Chief Executive
Steve Gunning, Chief Financial Officer
Charles King, Head of Investor Relations +44 (0)7776 685948
Clayton Hirst, Director of Corporate Affairs +44 (0)7834 796 013
MHP
Oliver Hughes/Rachel Farrington/Ollie Hoare
+44 (0)20 3128 8622 / 8613 / 8276
A copy of this announcement, together with other information about Halma, is
available at www.halma.com (http://www.halma.com) . The webcast of the results
presentation will be available on the Halma website later today: www.halma.com
(http://www.halma.com)
NOTE TO EDITORS
1. Halma is a global group of life-saving technology companies, focused on
growing a safer, cleaner, healthier future for everyone, every day. Its
purpose defines the three broad markets it operates in:
· Safety Protecting people's safety and the environment as populations grow, and
enhancing worker safety.
· Environment Addressing the impacts of climate change, pollution and waste, protecting
life-critical resources and supporting scientific research.
· Health Meeting the increasing demand for better healthcare as chronic illness rises,
driven by growing and ageing populations and lifestyle changes.
Halma employs over 7,500 people in more than 20 countries, with major
operations in the UK, Mainland Europe, the USA and Asia Pacific. Halma is
listed on the London Stock Exchange (LON: HLMA) and is a constituent of the
FTSE 100 index.
Halma is named as one of Britain's Most Admired Companies and has retained its
No. 1 ranking in the Engineering sector over the past four years.
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 (http://www.halma.com) or
request free printed copies by contacting halma@halma.com
(mailto:halma@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 Report
Record revenue, and record profit for the 20th consecutive year
In this, my first review as Group Chief Executive, I am pleased to report
record revenue and Adjusted(1) profit, and Halma's 20th year of consecutive
profit growth. We delivered strong revenue growth, continued high returns,
well above our cost of capital, and solid cash generation, while at the same
time investing record amounts, both organically and in acquisitions,
to support our growth over the medium term.
Our performance in the year reflects the strength of our Sustainable Growth
Model and the hard work and dedication of our people. I would like to thank
everyone at Halma for their contributions to our success and their commitment
to growing a safer, cleaner, healthier future for everyone, every day.
Driven by our purpose
It is a huge privilege to be leading a business with such a strong sense of
purpose and inclusive culture, and that has a positive impact on millions of
lives every day.
Halma's ability to deliver resilient growth reflects the strength of our
Sustainable Growth Model. Our purpose sits at the heart of this. It unites and
motivates us to help our customers address many of the key challenges facing
society and helps us attract talented people who share our values.
Our Sustainable Growth Model gives us the agility and entrepreneurialism
to respond rapidly to changes in the markets we serve and the wider world,
and ensures we take a disciplined approach to investing in markets with
long-term, fundamental and highly sustainable growth drivers. It also provides
a clear financial framework, of strong organic growth and margins, high
returns and cash generation, and continuous reinvestment to expand our
opportunities for growth.
Over the last 20 years, our profit before tax (on a statutory basis) has
increased by over six times, at a 10% compound annual growth rate. This is a
substantial achievement given that this period includes major economic and
geopolitical shocks, such as the Global Financial Crisis and Brexit, and, more
recently, the COVID pandemic and the war in Ukraine.
For most of the last 20 years, Halma was led by Andrew Williams, who stepped
down as Group Chief Executive at the end of March after 18 years. Over that
time, he has led the evolution of Halma to become an organisation with ever
greater ambitions, considerable strengths and substantial growth
opportunities. I would like to thank him for his leadership, the success he
has created and for his investment in me personally as part of the Group Chief
Executive transition, and wish him all the best after retiring from Halma.
I am excited by the opportunities in front of us and believe that we are
well-positioned to address them. We have a resilient business model and clear
growth strategy, diverse and high quality leadership teams, and a proven
ability to adapt and evolve with agility to a rapidly changing world. Our
robust financial model is underpinned by significant growth momentum and
is enabling us to invest record amounts to help our customers address some of
the biggest challenges facing the world today, and continue our track record
of long-term growth.
A strong financial performance
We delivered a strong financial performance in the year. Revenue in the year
grew by 21% to £1,852.8m, Adjusted1 profit before taxation increased by 14%
to £361.3m and Adjusted1 earnings per share was up 17%, well above our 10%
target. The decrease in Statutory profit before taxation of 4% to £291.5m
principally reflected the non-recurrence of a gain on disposal of a Safety
Sector business in the prior year.
Growth was broadly spread across our sectors, regions and companies. We
delivered revenue growth in all our sectors and regions, including on organic
constant currency basis, and Adjusted1 profit growth in all sectors.
We delivered continued high returns. Return on Sales1 was 19.5%, within our
KPI target range of 18-22%. This compared to an unusually high level (within
our target range) of 20.7% in the prior year, which had benefited from the
cost reduction measures implemented during the COVID pandemic. Return on Total
Invested Capital1 of 14.8% (2022: 14.6%) remained ahead of our KPI target of
12% and well above our estimated weighted average cost of capital of
8.9% (2022: 7.1%).
Cash conversion for the year was solid at 78%, compared to our KPI target of
90%, and was improved and in line with our target at 90% in the second half
of the year. Our continued cash generation allows us to maintain
a strong balance sheet, while making substantial investments to support our
future growth. Our gearing ratio (net debt to EBITDA) at the year end was
1.38 times (2022: 0.74 times), well within our operating range of up to two
times. Together, our cash generation and balance sheet strength underpin our
investment in growth and provide capacity to fund acquisitions and our
progressive dividend policy.
The Board is recommending a 7% increase in the final dividend to 12.34p per
share (2022: 11.53p per share). Together with the 7.86p per share interim
dividend, this would result in a total dividend for the year of 20.20p (2022:
18.88p), also up 7%, making this the 44th consecutive year of dividend per
share growth of 5% or more.
Record strategic investment to support future growth
One of Halma's key strengths is the ability to deliver strong performance in
the shorter-term and maintain a strong balance sheet, while simultaneously
making substantial investments to support sustainable growth over the
longer-term. We invested a record sum of over half a billion pounds in this
financial year, to support our future growth. This included investment to
expand our growth opportunities through acquisitions and organic investment in
product research and development, technology infrastructure, and our people
and culture so that we can continue to attract, develop, retain, and engage
the high performing teams that are critical to our success.
Substantially increased investment in organic growth
During the year, we further increased investment supporting organic growth,
for example in new product development. R&D expenditure increased
by £17m to a record £103m and represented 5.5% of revenue (2022: 5.6%),
remaining well ahead of our 4% KPI. We also increased investment in our
technology infrastructure by £7m to £18m to improve our security, data and
operating technology, both at the company level and centrally.
The increase in these investments reflects our companies' confidence in the
substantial growth prospects they see in their markets. Our products and
services have never been more relevant than today, as health, safety
and environmental regulations continue to increase, demand for healthcare
grows and the world addresses ever greater demands on life-critical resources
and the urgent need to tackle climate change, waste, and pollution.
Seven acquisitions completed across all three sectors
We further expanded our opportunities for growth through a record investment
of £397m in acquisitions (maximum total consideration), acquiring the
equivalent of 5.5% of our prior year profit (after interest), ahead of our 5%
KPI target. We made seven acquisitions, each highly aligned to our purpose.
Of these seven acquisitions, four are standalone companies with the Group,
and three are bolt-ons to enhance our companies' technologies and market
reach.
The acquisitions were spread geographically across North America, Mainland
Europe and the UK and across our three sectors, with four acquisitions in
Safety, two in Environmental & Analysis and one in Healthcare. Details of
the individual acquisitions are contained in the relevant sector reviews and
in the notes to the Accounts.
We are particularly pleased to see this strong momentum in M&A combined
with an overall increase in the scale of acquisitions, supported by
investment in our three sector M&A teams over the past 18 months. This
activity has continued since the period end, with two further acquisitions
completed in the new financial year for a maximum total consideration of
approximately £57m.
Investing in our talent and culture
People are at the heart of the Group's and our individual companies' growth
strategies. We are committed to supporting their development and ensuring that
Halma's culture is highly inclusive. In this way, we can recruit, develop
and retain the very best talent and have a wide diversity of voices
and experience within our leadership teams.
During the year, we increased investment in the development of our leaders,
introducing three new leadership development programmes, with over 200 leaders
participating in face-to-face learning events and 750 participating online.
We also recognise that the current environment continues to present
challenges and we therefore invested in support for our people's wellbeing,
including through our Employee Assistance Programme and through flexible
working practices and enhanced benefits.
One measure of inclusion is gender diversity. Last year, we introduced a
stretching goal of achieving 40-60% gender balance on all company boards by
March 2024, equivalent to the balance already achieved on the Group, Executive
and sector boards. While female representation on our company boards has
increased from 22% in 2021 to 29% at 31 March 2023, we recognise that we need
to accelerate the pace of change. We launched a number of initiatives to
support this, including promoting diverse sourcing strategies and inclusive
hiring practices, and incorporating progress towards our target in the
bonus element of remuneration for our senior leaders. Alongside gender
equality, we also want to grow our ethnic diversity relative to the markets we
operate in and remove barriers to leadership for ethnic minority groups, and
launched a number of initiatives to support this aim.
Our seventh global employee engagement survey reflected the progress made in
the year. Given the pressures our people continued to face, I was pleased that
we continued to have a strong response rate of 85% and that our overall
engagement score remained stable at 76%, reflecting the ongoing actions taken
by our companies to support their people and nurture inclusive workplace
cultures. We saw our biggest improvement in companies providing opportunities
for our people to learn and grow, and our drive to build inclusive businesses
was reflected in high engagement scores on colleagues feeling they are treated
fairly and respectfully (83%) and can be their authentic self at work (80%).
I am also proud of the engagement our companies and our people have with the
communities where they operate, and the positive impact we have
through charitable initiatives. This year, for example, we continued to
support the humanitarian relief effort for Ukraine through raising and
matching employee donations and providing online support for our colleagues.
We also completed our Water for Life campaign, which, together with our
partner WaterAid, has provided access to safe, clean water for over 10,000
villagers in India and sustainable water infrastructure, supported by Halma
fund raising of over £400,000.
Executive Board changes
With Andrew Williams retiring as Group Chief Executive at the end of the year,
and my appointment to that role, we were delighted to welcome Steve Gunning to
Halma as Chief Financial Officer on 16 January 2023. He brings a tremendous
breadth of experience as a FTSE 100 Chief Financial Officer and I look
forward to working with him as part of my leadership team.
Shortly after the year end, we announced internally that, after five years
with Halma, Wendy McMillan, Safety Sector Chief Executive, had decided to
leave Halma to pursue leadership opportunities elsewhere. Drawing from the
strength and depth in our leadership team, we were delighted to be able to
appoint Funmi Adegoke, currently Group General Counsel and Chief
Sustainability Officer and a member of the Executive Board, to lead the Safety
Sector from early July. Funmi brings strong strategic, commercial and business
acumen and considerable experience across multiple industries to the Safety
Sector Chief Executive role. As a result of this move, we were also pleased
that Constance Baroudel, Environmental & Analysis Sector Chief Executive,
will take on the additional role of Chief Sustainability Officer.
We also made the decision to restructure the digital growth support for our
companies. As part of this restructure we announced that we would be
disbanding the central Innovation and Digital team. This reflects its
achievement over the last six years in embedding greater innovation and
digital capabilities in our companies, and the resultant evolution of our
companies' needs towards greater go-to-market support which will now be
provided by our Technology team. As a result, we announced that Inken
Braunschmidt, Chief Innovation and Digital Officer, will leave Halma at the
end of June.
I would like to thank Wendy and Inken for their significant contribution to
Halma and wish them every success in the future.
Our Executive Board comprises a highly experienced team, drawn from different
backgrounds, with diverse talents and capabilities. I am excited to be working
with them in leading the next stage of Halma's success.
Increasing sustainability opportunities
Sustainability has always been at the heart of our Sustainable Growth Model
and our purpose. In recent years, the scale and urgency of global
sustainability challenges, for example, in terms of the changing climate,
preserving the environment, or protecting human health, have grown. We are
responding by increasing investment in products and solutions which help our
customers address these issues, and by ensuring that we operate in a
sustainable way.
We see substantial growth prospects for our companies in sustainability and
are increasing the support we give to them in understanding
sustainability-related trends, and in identifying opportunities arising from
them to grow their businesses. We are also excited by acquisitions that
deliver on our purpose and long-term growth drivers and additionally have
significant, long-term sustainability opportunities, and it is pleasing that
so many of our standalone acquisitions this year, such as FirePro, WEETECH
and Deep Trekker, fit this profile.
We are also contributing by operating in a sustainable manner, to ensure that
we can continue to grow over the long term. During the year, we continued to
make progress on the two areas identified in 2021 as the most important in
our own value chain: supporting our people and protecting our environment.
Each of our companies has now set their own bottom-up targets and action plans
to support the Group's goals in these areas. The goals ensure we are focused
on the substantial growth opportunities for our companies and translate simply
into a challenge to "do more good" and "do less harm". In terms of protecting
our environment, we were pleased to see our operational greenhouse gas
emissions continue to reduce, with a 47% reduction since our FY20 baseline and
renewable electricity reaching 62% of total consumption, thereby exceeding our
targets.
These direct operational emissions are a small part of our broader emissions
footprint. The majority of our environmental footprint arises within our
wider value chain and we have focused this year on estimating indirect (Scope
3) emissions baselines so that we can set appropriate reduction targets in
the future. It is encouraging that we are already seeing actions in a number
of companies to reduce Scope 3 emissions, including through supplier
engagement programmes and an increasing focus on sustainable design.
For the first time this year, our executive remuneration incorporated annual
energy productivity metrics alongside the gender diversity targets mentioned
above. We consider these metrics aligned to remuneration as a good starting
point from which they will no doubt evolve and it is pleasing to see them
driving a focus on gender balance and energy conservation within our
companies.
Summary and Outlook
2023 was a successful year for Halma, reflecting the contributions and
continued commitment to our purpose of everyone in the Group. We delivered
record revenue and Adjusted1 profit, achieving our 20th consecutive year of
profit growth and our 44th consecutive year of dividend per share growth of 5%
or more. At the same time, we substantially increased strategic investment to
record levels, increasing our opportunities for future growth through organic
investment and acquisitions, while maintaining a strong balance sheet.
We have made a positive start to the new financial year. We have a strong
order book, and order intake in the year to date is broadly in line with
revenue and ahead of the comparable period last year. Based on current market
conditions, we expect to deliver good organic constant currency1 revenue
growth in the year ahead, and Return on Sales1 to increase to approximately
20%. We are well positioned to make further progress this year and in the
longer term.
Marc Ronchetti
Group Chief Executive
(1) See Highlights
Chief Financial Officer's Review
A strong financial performance
I am pleased to report that the Group delivered a strong financial
performance for the year, which included record revenue, record profit(1) for
the 20th consecutive year, and continued high returns.
This performance was supported by strong and broadly-based demand for our
products and services, and enabled by our Sustainable Growth Model which
gives our companies considerable autonomy and agility, allowing them to
respond quickly to new growth opportunities and to act rapidly to
address operational challenges when they arise.
At the same time, we were able to make substantial investments, of over half a
billion pounds in aggregate, to support our future growth. These included
record levels of expenditure on research and development, technology
infrastructure, and acquisitions to expand our market opportunities.
These investments were supported by the strength of our balance sheet, and by
our continued cash generation. We expect our strong financial position
and high levels of cash conversion to underpin our growth over the longer
term as our companies address the significant opportunities in their markets.
Record revenue and profit
Revenue for the year to 31 March 2023 was £1,852.8m (2022: £1,525.3m), up
21.5%, which included a strong organic performance with organic constant
currency(2) revenue growth up by 10.2%. There was a positive effect from
currency translation of 8.1%, due to the weakness in Sterling, and a benefit
from recent acquisitions (net of disposals) of 3.2%. Investment in our
products and services to ensure they continue to address our customers' needs
enabled us to deliver a resilient price performance, which offset the
majority of cost increases, resulting in only a small decrease in gross
margin. We estimate that price increases accounted for approximately four
percentage points of our revenue growth, broadly evenly spread across
the sectors.
Adjusted(1) profit before taxation grew by 14.2% to £361.3m (2022: £316.2m).
This reflected the increase in revenue, partially offset by the reduction in
Return on Sales(2) to 19.5% from the unusually high level of 20.7% in the
prior year. Adjusted(1) profit growth comprised a 3.1% increase in organic
constant currency(2) profit, a 2.1% contribution from acquisitions (net of
disposals), and a positive effect from currency of 9.0% due to the weakening
of Sterling.
Statutory profit before taxation of £291.5m (2022: £304.4m) was 4.2% lower;
excluding the gain on disposal of a Safety Sector business in the prior year,
Statutory profit before tax would have increased by 7.8%. There were no
disposals made during this financial year. Statutory profit before taxation is
calculated after charging the amortisation and impairment of acquired
intangible assets of £56.5m (2022: £42.7m) and other items of a net £13.3m
(2022: £3.1m). There were no gains on disposals (2022: £34.0m). Further
detail on these items is given in note 1 to the Accounts.
Performance broadly based across sectors and regions
Our results reflected high levels of demand for our products and services,
with this demand broadly spread across our sectors and regions. This resulted
in strong revenue growth in all sectors, both on a reported and organic
constant currency(2) basis. While there was more variability in sector
profitability, all sectors grew Adjusted(1) profit, and only
the Safety Sector saw a small decline on an organic constant currency(2)
basis.
Our two largest regions, the USA and Mainland Europe grew strongly on both a
reported and organic constant currency(2) basis. Growth in the UK was
slower, but compared with an exceptionally strong performance in the prior
year, while momentum in Asia Pacific was affected by lockdowns in China.
There was strong growth in the smaller other regions.
Further information on regional and sector performance is given in the
individual sector reviews later in this announcement.
Revenue and profit change 2023 2022 Change Total Organic Organic
£m £m £m growth % growth(2) % growth(2) at
constant
currency %
Revenue 1,852.8 1,525.3 327.5 21.5 18.3 10.2
Adjusted(1) profit before taxation 361.3 316.2 45.1 14.2 12.1 3.1
Statutory profit before taxation 291.5 304.4 (12.9) (4.2) - -
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. Adjusted¹ profit
excludes the amortisation and impairment of acquired intangible assets;
acquisition items; restructuring costs and profit or loss on disposal of
operations. 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.
Sector revenue change 2023 2022
£m % of total £m % of total Change % % organic
£m growth growth(2) at
constant
currency
Safety 745.6 40 641.4 42 104.2 16.2 11.2
Environmental & Analysis 552.1 30 442.9 29 109.2 24.7 9.1
Healthcare 556.4 30 442.3 29 114.1 25.8 9.8
Inter-segment sales (1.3) (1.3)
1,852.8 100 1,525.3 100 327.5 21.5 10.2
Sector profit(3) change
2023 2022
£m % of total £m % of total Change % % organic
£m growth growth(2) at
constant
currency
Safety 152.5 37 146.2 41 6.3 4.3 (1.1)
Environmental & Analysis 134.2 32 109.8 31 24.4 22.2 7.1
Healthcare 130.1 31 99.5 28 30.6 30.8 14.0
Sector profit(3) 416.8 100 355.5 100 61.3
Central administration costs (38.6) (30.9) (7.7)
Net finance expense (16.9) (8.4) (8.5)
Adjusted(4) profit before tax 361.3 316.2 45.1 14.2 3.1
Return on Sales 19.5% 20.7%
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. Adjusted¹ profit
excludes the amortisation and impairment of acquired intangible assets;
acquisition items; restructuring costs and profit or loss on disposal of
operations. 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
3 Sector profit before allocation of adjustments. See note 1 to the
Accounts.
4 Adjusted¹ profit excludes the amortisation and impairment of
acquired intangible assets; acquisition items; restructuring costs; and profit
or loss on disposal of operations. 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.
Continued high returns
Halma's Return on Sales(2) has exceeded 16% for 38 consecutive years(5). This
year's Return on Sales(2) was 19.5%, within our KPI target range of 18-22%.
This year's performance compared to the unusually high levels of 20.7% in 2022
and 21.1% in 2021, which had benefited from lower spend on overheads such as
travel and marketing during the COVID pandemic and the cost reduction measures
we decided to take at the onset of the pandemic.
Our Return on Sales(2) performance in 2023 reflected the impact of increased
finance costs given higher average levels of indebtedness and rises in
interest rates. It also included the effect, mainly in the second half
of the year, of supply chain disruptions in a number of companies,
principally in the Safety Sector. We currently expect these disruptions to
ease during the 2024 financial year and for Return on Sales(2) in the
2024 financial year to be approximately 20%.
We successfully achieved our objective of continuing to invest in our
businesses while delivering growth, with record organic and inorganic
investment in the year to support our future growth. We maintained a high
level of Return on Total Invested Capital (ROTIC)(2), the post-tax return on
the Group's total assets including all historical goodwill. This year,
ROTIC(2) increased to 14.8% (2022: 14.6%), with the change principally
reflecting a benefit from exchange rate movements, offsetting the effect of a
lower level of constant currency earnings growth than in the prior year. Our
ROTIC remains within our target range of 12% - 17%. It is also substantially
above Halma's Weighted Average Cost of Capital (WACC), which is estimated to
be 8.9% (2022: 7.1%), with the increase mainly a result of higher interest
rates.
Record investment to support future growth
All sectors continue to innovate and invest in new products, reflecting our
companies' confidence in the future growth prospects of their respective
markets. R&D expenditure as a percentage of revenue remained well above
our KPI target of 4% at 5.5% (2022: 5.6%), increasing by 20% to £102.8m
(2022: £85.4m), in line with revenue growth.
We are also continuing to invest group-wide in automation and technology
upgrades, including enhanced security, improved data and analytics
capabilities and upgrades to operating technology both at the company level
and centrally. Technology spend totalled £18m in the 2023 financial year,
reflecting increased investment of £7m.
In the year we made a record investment in acquisitions of £391.5m (net of
cash acquired of £10.1m and including acquisition costs). These seven
acquisitions were broadly spread by both sector and geography. The
acquisitions completed in the current and prior year contributed to revenue
this year in line with expectations overall, and we expect a good performance
from them in the future.
Solid cash generation and strong financial position
Cash generation is an important component of the Halma model, underpinning
further investment in organic growth, supporting value-enhancing acquisitions
and funding an increasing dividend to shareholders.
We have a KPI target for cash conversion of 90%. For the year as a whole,
cash conversion was solid at 78% (2022: 84%), reflecting continued good
underlying working capital control, but also including strategic investment
in inventory by a number of companies to support supply chain resilience,
which resulted in cash conversion of 63% in the first half of the year.
Cash conversion in the second half of the year was improved at 90%; we
currently expect to deliver a strong cash performance in 2024.
Our financial position remains strong, with gearing (net debt to EBITDA) of
1.38 times at the year end. This was despite significant increases in both
organic investment and acquisition spend, which resulted in net debt (on an
IFRS 16 basis which includes lease commitments) increasing by £321.9m to
£596.7m.
We have substantial available liquidity. In the first half of the year, we
refinanced our syndicated credit facility, which remains at £550m. It now
matures in May 2028, following the exercise, after the year end, of one of
two options to extend its maturity for one year. We also completed a new
Private Placement of c.£330m with a seven year average life. Further detail
on cash generation and our financial position is given below.
Cash conversion and net debt
2023 2022
Cash conversion 78% 84%
Closing net debt £(596.7)m £(274.8)m
Net debt to EBITDA 1.38x 0.74x
Conclusion
Halma is a company I have known and admired for many years. Since I joined in
January, I have been impressed by the clear priority that is given to creating
value over the longer term, guided by our Sustainable Growth Model. Balanced
with this is the determination to deliver a strong financial performance every
year. This year's results are further testimony both to the longer term
decisions that have been made, and that determination.
I am excited by both the opportunities ahead for the Company and by the
strength of the Halma team that will seek to convert them. The finance team
will continue to play an important role in providing insights to support our
sustained delivery of growth and high returns. I would like to thank all my
colleagues for their warm welcome and support, and congratulate them
on another successful year.
Steve Gunning
Chief Financial Officer
Financial Review
Revenue growth in all regions
Our revenue performance by region reflected broadly-based demand for the
Group's products and services, with all regions delivering revenue growth on
both a reported and an organic constant currency basis. Reported growth rates
in each region were impacted to differing extents by acquisitions (net of
disposals), and, outside the UK, positive effects from foreign currency
translation, given the relative weakness of Sterling. On an organic constant
currency basis, there was strong growth in our two largest regions,
the USA and Mainland Europe, good growth in the UK against a strong prior
year comparative, and a solid performance in Asia despite weakness in China
as a result of lockdowns. The smaller other regions performed strongly.
Strong and broadly-based growth in the USA
Revenue in the USA increased by 30.7%, and the USA remains our largest revenue
destination, accounting for 42% of Group revenue, an increase of three
percentage points compared to the prior year. Reported revenue included a 4.6%
contribution from acquisitions (net of disposals), and a positive effect of
14.0% from foreign exchange translation. Organic constant currency revenue
increased 12.3%, with growth evenly spread across the three sectors,
reflecting good momentum in the vast majority of subsectors.
Strong growth in Mainland Europe, led by Safety and Healthcare Sectors
Mainland Europe revenue was 22.2% higher, or up 13.5% on an organic constant
currency basis. Reported revenue included a 5.0% contribution from
acquisitions (net of disposals), and a positive effect of 3.7% from foreign
exchange translation.
There was strong growth in the Safety Sector, led by the two largest
subsectors, Fire Safety and Urban Safety, and in the Healthcare Sector, with a
notably strong performance in the ophthalmology market within Therapeutic
Solutions. Growth in the Environmental & Analysis Sector was more modest,
with a strong performance in Environmental Monitoring partly offset by weaker
trends in Water Analysis and Treatment.
Good organic growth in the UK
UK revenue was 4.4% higher, or up 6.0% on an organic constant currency basis.
There was a negative effect on reported revenue from the prior year disposal,
which was only partly offset by the benefit from acquisitions. The largest
sector, Safety, delivered good growth, led by its largest subsector, Fire
Safety. In the smaller Safety subsectors, while there was only marginal growth
in Urban Safety following the end of a significant road safety contract, there
was strong momentum in the Industrial Safety subsector. Healthcare grew
strongly, reflecting demand for our communication technologies within the
Healthcare Assessment & Analytics subsector. There was only modest growth
within the Environmental & Analysis Sector, given lower order intake from
UK utilities in Water Analysis and Treatment, and weaker demand in Gas
Detection.
Strong growth in other regions despite weakness in China
Revenue from territories outside the UK/Mainland Europe/the USA grew by 18.1%,
which was ahead of our 10% KPI growth target.
Asia Pacific revenue increased 12.6%, but by only 3.3% on an organic constant
currency basis. This reflected an organic constant currency revenue decline
in China, our largest market in the region at approximately 6% of Group
revenue, mainly as a result of COVID lockdowns. This was partly offset by
strong growth in India and Australasia, the second and third largest markets
in the region. Performance by sector was mixed, with good organic constant
currency growth in the Safety Sector and a strong performance by the
Environmental & Analysis Sector. In Healthcare, however, organic constant
currency revenue declined. Reported revenue included a 2.1% contribution from
acquisitions (net of the impact of disposals), and a positive effect of 7.2%
from foreign exchange translation.
Other regions, which represent 8% of Group revenue, reported revenue 31.5%
higher on a reported basis, and up 15.6% on an organic constant currency
basis reflecting strong growth in all sectors.
2023 2022
£m % of £m % of Change % % change
total total £m Change organic at
constant
currency
United States of America 780.8 42 597.2 39 183.6 30.7 12.3
Mainland Europe 376.4 20 308.1 20 68.3 22.2 13.5
United Kingdom 278.9 15 267.0 18 11.9 4.4 6.0
Asia Pacific 282.4 15 250.8 16 31.6 12.6 3.3
Africa, Near and Middle East 63.6 4 53.6 4 10.0 18.6 13.2
Other countries 70.7 4 48.6 3 22.1 45.7 18.1
1,852.8 100 1,525.3 100 327.5 21.5 10.2
First and second half profit performance
Revenue grew by 18.8% in the first half of the year and by 24.0% in the second
half, with second half revenue 11.6% higher than revenue in the first. Organic
constant currency revenue increased by 10.2%, comprising a 9.5% increase in
the first half and growth of 10.9% in the second half. There was a positive
effect of 8.3% from currency translation in the first half, and of 7.9% in the
second half, giving a positive effect of 8.1% for the year as a whole.
Acquisitions (net of disposals) had a positive effect of 3.2%, comprising a
1.0% positive effect in the first half and 5.2% in the second half.
Adjusted(1) profit increased by 10.9% in the first half and by 17.5% in the
second half. There was a first half/second half split of Adjusted(1) profit of
48%/52%, compared to our typical 45%/55% pattern. Organic profit at constant
currency increased by 1.9% in the first half, and by 4.3% in the second half,
resulting in growth of 3.1% for the year.
Central costs, which include our Growth Enabler functions, increased from
£30.9m in 2022 to £38.6m below our previous guidance as a result of strong
cost control and revisions to the phasing of technology project spend.
The increase reflected investment in our Growth Enabler teams, technology
infrastructure and talent to support our future growth, and investment in
reconnecting our Halma networks. In 2024, we expect central costs to be
approximately £44m, including the revised phasing of technology spend
referred to above.
Currency effects on reported revenue and profit
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. Almost 50% of Group revenue is
denominated in US Dollars, approximately 26% in Sterling and approximately 12%
in Euros.
The Group has both translational and transactional currency exposure.
Translational exposures are not hedged, except for net investment hedges.
Transactional exposures, after matching currency of revenue with currency
costs wherever practical, are hedged using forward exchange contracts for 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.
Sterling weakened on average in the year, principally in the first half. This
gave rise to a positive currency translation impact of 8.1% on revenue and
9.0% on profit for the full year.
Based on the current mix of currency denominated revenue and profit, a 1%
movement in the US Dollar relative to Sterling changes revenue by
approximately £9m and profit by approximately £2m. Similarly, a
1% movement in the Euro changes revenue by approximately £2m and profit by
approximately £0.5m. If Sterling weakens against foreign currencies, this has
a positive impact on revenue and profit as overseas earnings are translated
into Sterling.
If currency rates for the financial year to the end of March 2024 were US
Dollar 1.237/ Euro 1.138 relative to Sterling respectively, and assuming a
constant mix of currency results, driven by the strengthening of Sterling
versus the US Dollar, we would expect approximately a £20m negative revenue
and a £4m negative profit impact compared to the financial year to the end
of March 2023, with the majority of the impact in the first half of
the year.
Weighted average rates Exchange rates used to
used in the income statement translate the Balance sheet
First half 2023 2022 2023 2022
Full Year Full year Year end Year end
US$ 1.216 1.205 1.367 1.237 1.315
Euro 1.174 1.158 1.176 1.138 1.183
Solid cash generation
Halma's operations have continually been cash generative. Cash generated from
operations in the year was £325.2m (2022: £293.4m) and adjusted operating
cash flow, which excludes operating cash adjusting items, and includes net
cash capital expenditure, was £293.2m (2022: £273.2m) which represented a
cash conversion of 78% (2022: 84%) of Adjusted operating profit(1).
Cash conversion was 63% in the first half of the year, reflecting strategic
investment in inventory to support supply chain resilience, but was stronger
at 90% in the second half of the year.
Overall, the strategic investment in inventory had an impact on working
capital, with an outflow of £95.7m, comprising changes in inventory,
receivables and creditors (2022: outflow of £62.7m), which also reflected the
strong revenue growth in the period. These effects would have been more
significant were it not for the continued good underlying control of working
capital by our companies. Adjusted operating cash flow is defined in note 3 to
the Accounts.
A summary of the year's cash flow is shown in the tables below. The largest
outflows in the year were in relation to acquisitions, dividends and taxation
paid. Acquisition of businesses including cash and debt acquired and fees
increased to £391.5m (2022: £164.4m), reflecting the record M&A
investment in the year. Dividends totalling £73.3m (2022: £68.7m) were paid
to shareholders in the year. Taxation paid increased to £67.2m (2022:
£56.0m).
Operating cash flow summary
2023 2022
£m £m
Operating profit 308.4 278.9
Acquisition items 13.3 3.1
Amortisation and impairment of acquisition-related acquired intangible assets 56.5 42.7
Adjusted operating profit 378.2 324.7
Depreciation and other amortisation 53.5 49.1
Working capital movements (95.7) (62.7)
Capital expenditure net of disposal proceeds (27.1) (25.5)
Additional payments to pension plans (15.2) (12.2)
Other adjustments (0.5) (0.2)
Adjusted operating cash flow 293.2 273.2
Cash conversion % 78% 84%
Non-operating cash flow and reconciliation to net debt
2023 2022
£m £m
Adjusted operating cash flow 293.2 273.2
Tax paid (67.2) (56.0)
Acquisition of businesses including cash/debt acquired and fees (391.5) (164.4)
Purchase of equity investments (6.7) (0.7)
Disposal of businesses - 57.5
Net finance costs and arrangement fees (excluding lease interest) (18.0) (5.7)
Net lease liabilities additions (34.1) (21.5)
Dividends paid (73.3) (68.7)
Own shares purchased (22.3) (19.3)
Adjustment for cash outflow on share awards not settled by own shares (4.5) (7.1)
Effects of foreign exchange 2.5 (5.9)
Movement in net debt (321.9) (18.6)
Opening net debt (274.8) (256.2)
Closing net debt (596.7) (274.8)
Substantial funding capacity and liquidity; financing cost well managed
The Group has access to competitively priced committed debt finance, providing
good liquidity. Group treasury policy remains conservative and no speculative
transactions are undertaken.
We have a strong balance sheet and substantial available liquidity. At the
beginning of the 2023 financial year, we refinanced our syndicated
revolving credit facility. The new facility remains at £550m. It now matures
in May 2028, following the exercise after the year end of one of two one-year
extension options. In addition, we completed a new Private Placement
issuance of c.£330m in May 2022. The issuance consists of Sterling, Euro, US
Dollar and Swiss Franc tranches and matures in July 2032, with an
amortisation profile giving it a seven year average life.
The financial covenants on these facilities are for leverage (net debt
/adjusted EBITDA) to not be more than three and a half times and for adjusted
interest cover to be not less than four times. The Group continues to operate
well within its banking covenants with significant headroom under each
financial ratio.
At 31 March 2023, net debt was £596.7m, a combination of £677.3m of debt,
£87.9m of IFRS 16 lease liabilities and £168.5m of cash held around the
world to finance local operations. Net debt at 31 March 2022 was £274.8m.
The gearing ratio at the year-end (net debt to EBITDA) was 1.38 times (2022:
0.74 times). Net debt represented 7% (2022: 3%) of the Group's
year-end market capitalisation.
The net financing cost in the Income Statement of £16.9m was higher than the
prior year (2022: £8.4m). This reflected a higher weighted average interest
rate in the year and a higher average level of indebtedness due to
acquisitions. The Private Placement issuance has resulted in an increased
proportion of fixed coupon debt on the Group's balance sheet (at 56% at 31
March 2023, compared to 30% at 31 March 2022, excluding leases), which
positions us well ahead of any increases in interest rates, and
secures debt financing sufficient to meet the Group's likely medium-term
requirements. We would expect the net financing cost for the 2024 financial
year to be approximately £29m, if no further acquisitions were to be made.
This reflects higher average net debt and a forecast higher weighted average
interest rate in the year.
The net pension financing impact under IAS 19 is included in the net financing
costs. This year the Group recognised a gain of £1.1m (2022: charge of
£0.3m).
Group tax rate decreased
The Group has major operating subsidiaries in a number of countries and the
Group's effective tax rate is a blend of these national tax rates applied
to locally generated profits.
The Group's effective tax rate on adjusted profit was lower than the prior
year at 20.2% (2022: 21.6%) due to one-off credits. Based on the latest
forecast mix of adjusted profits for the year to 31 March 2024 we currently
anticipate the Group effective tax rate to be higher at approximately 22% of
adjusted profits, reflecting the increase in the UK corporation tax
rate to 25% from 1 April 2023.
On 2 April 2019, the European Commission (EC) published its final decision
that the UK controlled Finance Company Partial Exemption (FCPE) constituted
State Aid. In common with many other UK companies, Halma has benefited from
the FCPE and had appealed against the European Commission's decision, as had
the UK Government. The EU General Court delivered its decision on 8 June
2022. The ruling was in favour of the European Commission but in August 2022
the UK Government and the taxpayer have appealed this decision. Following
receipt of charging notices from HM Revenue & Customs (HMRC) we made a
payment in February 2021 of £13.9m to HMRC in respect of tax, and in May
2021 made a further payment of approximately £0.8m in respect of interest.
Whilst the EU General Court was in favour of the EC, our assessment is that
there are strong grounds for appeal and the appeal is expected to be
successful. As a result, and given the appeal process is expected to take
more than a year, we continue to recognise a non-current receivable of
£14.7m in the balance sheet.
Capital allocation and funding priorities
Halma aims to deliver high returns, measured by ROTIC², well in excess of our
cost of capital. We invest to deliver the future earnings growth and strong
cash returns which enable us to achieve this aim on a sustainable basis, and
our capital allocation priorities remain 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 in digital growth and 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, aligned with our purpose.
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 without
impacting on our investment to grow our business.
Continued investment for organic growth
All sectors continue to innovate and invest in new products, with R&D
spend determined by each individual Halma company. R&D expenditure as a
percentage of revenue remained well above our KPI target of 4% at 5.5% (2022:
5.6%). In absolute terms, this meant that R&D expenditure increased by
£17.4m to £102.8m (2022: £85.4m), and grew in line with revenue. This
increasing investment reflects our companies' confidence in the growth
prospects of their respective markets. 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. This year we capitalised £15.8m (2022: £13.4m), impaired
£0.5m (2022: £2.9m) and amortised £8.5m (2022: £7.0m). The closing
intangible asset carried on the Consolidated Balance Sheet, after a £1.2m
gain (2022: £1.3m gain) relating to foreign exchange was £49.6m (2022:
£41.7m). All R&D projects requiring capitalisation are subject to
rigorous review and approval processes by the relevant sector board and Group
financial control.
Capital expenditure on property, plant, equipment and vehicles, computer
software and other intangible assets was £30.1m (2022: £26.6m), with last
year reflecting a lower spend as a result of pandemic constraints.
Expenditure was principally on plant, equipment and vehicles. We anticipate
capital expenditure to increase to approximately £40m in the coming year,
reflecting investment in the expansion of manufacturing facilities and
automation to support future growth.
Lease right-of-use asset additions and remeasurements were £32.2m
(2022: £23.0m). This included additions of £9.3m as a result of
acquisitions made in the year, and the commencement of new leases and
extensions or renewals of existing leases.
Net debt to EBITDA
2023 2022
£m £m
Adjusted operating profit 378.2 324.7
Depreciation and amortisation (excluding acquired intangible assets) 53.5 49.1
EBITDA 431.7 373.8
Net debt to EBITDA 1.38 0.74
Average debt and interest rates
2023 2022
Average gross debt (£m) 602.5 426.8
Weighted average interest rate on gross debt 2.74% 1.90%
Average cash balances (£m) 170.3 143.1
Weighted average interest rate on cash 0.40% 0.16%
Average net debt (£m) 432.2 283.7
Weighted average interest rate on net debt 3.67% 2.78%
Value-enhancing acquisitions and investments
Acquisitions and disposals are a key component of our Sustainable Growth
Model, 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 made seven acquisitions at a cost of £386.9m (net of cash
acquired of £10.1m and including acquisition costs). In addition, we paid
£4.6m in contingent consideration for acquisitions made in prior years,
giving a total spend of £391.5m. We also made two small strategic minority
investments totalling £6.7m, including an incremental funding round for a
minority investment in the Safety Sector. We made two further acquisitions
following the year end, for a maximum total consideration of approximately
£57m.
Details of the acquisitions and investments made in the year are given in the
sector reviews below.
Regular and increasing returns for shareholders
Adjusted earnings per share increased by 16.6% to 76.34p (2022: 65.48p).
Statutory basic earnings per share decreased by 3.9% to 62.04p (2022:
64.54p), as the prior year included a gain on the disposal of
a Safety Sector business.
The Board is recommending a 7.0% increase in the final dividend to 12.34p per
share (2022: 11.53p per share), which together with the 7.86p per share
interim dividend gives a total dividend per share of 20.20p (2022: 18.88p),
up 7.0% in total.
Dividend cover (the ratio of adjusted profit after tax to dividends paid and
proposed) is 3.78 times (2022: 3.47 times).
The final dividend for the financial year ended March 2023 is subject to
approval by shareholders at the Annual General Meeting on 20 July 2023 and,
if approved, will be paid on 18 August 2023 to shareholders on the register
at 14 July 2023.
We aim to increase dividends per share each year, while maintaining a prudent
level of dividend cover, and declare approximately 35-40% of the anticipated
total dividend as an interim dividend. The Board's determination of the
proposed final dividend increase this year took into account the Group's
financial performance, economic and geopolitical uncertainty, the Group's
continued balance sheet strength and medium-term organic constant currency
growth.
Pensions update
The Group accounts for post-retirement benefits in accordance with IAS 19
Employee Benefits. The Consolidated Balance Sheet reflects the net accounting
surplus on our pension plans as at 31 March 2023 based on the market value of
assets at that date and the valuation of liabilities using discount rates
derived from year end AA corporate bond yields. Lane Clark & Peacock LLP
assist the Company in setting assumptions, and the valuation work is performed
by Mercer Limited.
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. These two plans represent over 95% of consolidated plan
liabilities.
On an IAS 19 basis, before deferred taxes, the Group's DB plans at 31 March
2023 had a net surplus of £37.9m (2022: £30.5m surplus). The value of plan
assets decreased to £284.7m (2022: £347.6m). Plan liabilities decreased to
£246.8m (2022: £317.1m) due to the increase in the discount rate (2.80% to
4.75%) being greater than the decrease in the long-term inflation rate (3.6%
to 3.3%). Mortality assumptions include this year an assumption for post
pandemic mortality experience in line with market practices.
The plans' actuarial valuation reviews, rather than the accounting basis, are
used to evaluate the level of any cash payments into the plan. This year these
contributions amounted to £15.6m. Following a triennial actuarial valuation
of the two UK pension plans in the 2021/22 financial year, the cash
contributions were agreed with the trustees aimed at eliminating the deficit.
During the 2022/23 financial year the aggregate payments made since the last
triennial actuarial valuation, coupled with the performance of the plan assets
and movement in the liabilities resulted in the Halma Group Pension Plan being
funded over the trustees' secondary funding target and close to the expected
current valuation on a solvency basis. As a result, it has been agreed with
the trustees of the Halma Group Pension Plan that contributions will be
suspended until 1 April 2025, when they will either fall due or be superseded
by cash contributions agreed with the trustees in respect of the latest
triennial actuarial valuation.
We therefore expect contributions to the schemes in the 2023/24 financial year
to be £4.2m. In the event that these payments result in a surplus on winding
up of the schemes, the Group has an unconditional right to a refund under the
plan rules.
Steve Gunning
Chief Financial Officer
Safety Sector Review
What the Safety Sector does
Our Safety Sector companies protect people, assets and infrastructure and
enable safe movement. Many of their products also make the world cleaner and
enhance efficiency. Their technologies are used in public and commercial
spaces and in industrial and logistics operations.
The Safety Sector comprises companies which provide solutions to a number of
fundamental and enduring safety issues. These are: fire safety, through fire
detection and fire suppression solutions; safe movement in public, commercial
and industrial spaces; elevator safety; communications in emergencies; control
of access in potentially hazardous industrial and commercial environments;
electrical safety; and the safe management of pipelines and storage assets.
The Safety Sector has diverse end markets and a wide range of customers. Its
products and solutions are used to enhance safety and efficiency in a broad
spectrum of applications and end markets including in: many different types
of commercial buildings, for example, shops and restaurants, healthcare
facilities, offices and stadiums; industrial and logistics assets; public
spaces and critical infrastructure, including roads, tunnels
and transportation hubs; and aerospace, rail and automotive applications.
The Safety Sector's long-term growth drivers
The long-term growth of the sector continues to be driven by increasing safety
and environmental regulation, and by growing, ageing and urbanising
populations. Increasing automation and accelerating demand for connected
industrial and infrastructure systems further underpin the sector's growth
prospects, as its customers have sought to benefit from the
greater efficiency and safety that can be derived from these innovations.
The increasingly urgent need to address the causes and impacts of climate
change continue to further enhance the growth opportunities available to
Safety Sector companies. This includes, for example, increased demand for
automated access solutions to both increase efficiency, including by
minimising heat loss in commercial and industrial premises. Sector companies
are also supporting the drive towards renewable and cleaner energy sources
and uses, including through fire suppression in renewable energy facilities,
electrical testing of electric vehicles (EVs) and mass transit systems, and
increasing the efficiency of industrial processes. They are also repurposing
technology towards areas such as carbon capture and hydrogen energy sources
in sector businesses which serve industrial customers.
Safety Sector performance in the year
The Safety Sector delivered a solid performance. Revenue growth was very
strong. Return on sales(1) was however lower than historic norms as a
consequence of supply chain impacts related to electronic components.
Investment in future growth continued, including through increased R&D
spend and acquisitions.
Revenue of £745.6m (2022: £641.4m) was 16.2% higher than in the prior year.
Year-on-year revenue growth on an organic constant currency(1) basis was
strong at 11.2%, with double digit growth in both halves of the year. Growth
was broadly spread, with all but two companies delivering organic constant
currency(1) revenue growth. Sector companies continued to be agile in
responding to customer demand while addressing supply chain challenges,
although disruptions in a number of companies contributed to a small decline
in Adjusted(1) profit on an organic constant currency(1) basis.
Revenue growth on an organic constant currency(1) basis was broadly spread
across all four subsectors, with three achieving double-digit growth.
Industrial Safety's performance reflected strong execution in two subsector
companies and Power Safety saw strong demand for interlock products in the
electrical sector. Growth on a reported basis also benefited from acquisitions
including WEETECH Holding GmbH (WEETECH) during the year. The largest
subsector, Fire Safety continued to grow strongly, having seen substantial
growth in the prior year, supported by organic constant currency(1) revenue
growth in all companies. Urban Safety organic constant currency(1) revenue
growth was good overall, although performance was mixed with strong demand for
automatic access solutions and elevator systems partially offset by the end of
a significant road safety contract.
The sector's revenue performance by geography reflected these themes. There
was strong growth in the sector's largest two geographies, the USA and
Mainland Europe, both on a reported and organic constant currency(1) basis.
This included strong growth in Industrial Safety in the USA, with Fire Safety
and Urban Safety performing strongly in Mainland Europe. The UK saw good
growth on an organic constant currency(1) basis led by its largest subsector,
Fire Safety, and there was strong momentum in Industrial Safety. Urban Safety
delivered a more mixed performance with the effect of the end of the road
safety contract mentioned above offsetting good performance elsewhere. On a
reported basis, UK growth was lower, due to the non-recurrence of revenue from
a disposal in the prior year. Asia Pacific also saw good growth on an organic
constant currency(1) basis, led by a strong performance in Fire Safety, which
more than offset a decline in Urban Safety principally as a result
of lockdowns, and a non-recurring road safety contract in China.
Profit(1) grew by 4.3% to £152.5m (2022: £146.2m), and decreased by 1.1% on
an organic constant currency(1) basis. Return on Sales(1) decreased by 230
basis points to 20.5% (2022: 22.8%). This reflected a strong comparator, which
had benefited from cost savings made during the pandemic, and supply chain
disruptions in a number of companies. These resulted in higher costs for
electronic components used in devices with current regulatory approvals, and
costs in recertifying devices to use alternative components. We expect these
disruptions to ease over the current financial year. R&D expenditure of
£41.0m remained at a good level, representing 5.5% of revenue (2022: £35.6m;
5.6% of revenue).
The sector made four acquisitions in the year for an aggregate consideration
of approximately £207m (on a cash and debt free basis and excluding
acquisition costs). These included two new standalone companies within the
sector: WEETECH, which designs and manufactures critical electrical testing
technology, purchased in October 2022; and FirePro Systems Limited, a designer
and manufacturer of aerosol-based fire suppression systems, which was acquired
shortly before the financial year end. Sector companies also made two bolt-on
acquisitions: Apollo Fire Detectors acquired Thermocable (Flexible Elements)
Ltd, a developer and manufacturer of linear heat detectors; and Sentric
purchased ZoneGreen Limited, a provider of rail depot protection solutions.
The impact of acquisitions was a positive effect of 2.4% on revenue and 2.3%
on profit. The disposal of Texecom in the first half of the prior year had a
negative effect of 2.6% on revenue and 1.4% on profit. Currency exchange
movements had a positive effect of 5.2% on revenue and 4.5% on profit.
Environmental & Analysis Sector Review
What the Environmental & Analysis Sector does
Our Environmental & Analysis Sector companies provide high-technology
solutions, that monitor the environment and improve the quality and
availability of life-critical natural resources such as air, water and food,
and analyse materials in a wide range of applications.
Their valuable solutions are technically differentiated through strong levels
of application knowledge in environmental monitoring, water and waste water
analysis and treatment, gas analysis and detection, and optical analysis.
They are supported by high levels of customer responsiveness and often
leverage digital, optical and optoelectronic expertise.
They serve a wide variety of end markets with applications across a very broad
range of sectors and customers. Their end markets include: water and waste
water management and treatment, including for water utilities; gas analysis
and detection; food, beverage, medical and bio-medical; communications;
aquaculture; research and science; inspection and maintenance of
infrastructure in water, for example, dams and offshore wind turbines; and a
variety of industrial markets.
The Environmental & Analysis Sector's long-term growth drivers
The sector's long-term growth is sustained by rising demand for life-critical
resources, the impact of climate change, increasing environmental regulations
and worldwide population growth with rising standards of living. It is
underpinned by our ability to design, develop and manufacture innovative,
high-technology detection and analysis solutions.
The increasingly urgent need to address climate change is creating new
opportunities in many of the sector's markets. It is driving new policies
globally, including initiatives to meet Net Zero commitments through energy
transition and sectoral decarbonisation plans, as well as plans to increase
adaptation and resilience. Combined with the biodiversity crisis and an
increasing focus on plastics and waste, it is also driving new regulatory
initiatives to preserve life-critical resources. These include initiatives
such as, in the UK, Ofwat's investigations into waste water treatment and
internal sewer flooding to prevent environmental degradation.
These and similar initiatives are creating growing long-term opportunities for
our companies to help their customers, for example, to prevent emissions,
detect leaks and analyse air and water quality, and to support new
technologies to address these issues, such as renewable energy and storage,
sustainable food systems and mobility in cities.
Environmental & Analysis Sector performance in the year
The Environmental & Analysis Sector delivered a good performance. Revenue
of £552.1m (2022: £442.9m) was 24.7% higher than in the prior year, and up
9.1% on an organic constant currency(1) basis. Sector growth was driven by
increasing demand and supported by strong execution, in particular from the
sector's largest companies.
All subsectors grew revenue on an organic constant currency(1) basis. Organic
constant currency(1) growth was led by Environmental Monitoring, where growth
on a reported basis also benefited from the acquisition of Deep Trekker, Inc.
(Deep Trekker) during the year. Organic constant currency(1) revenue growth
was also strong in our gas detection companies, supported by increasing demand
for products addressing the minimisation of emissions. Both the Optical
Analysis and the Water Analysis & Treatment subsectors saw good organic
constant currency(1) revenue growth, with Photonics within Optical Analysis
continuing to benefit from increasing demand for technologies that support the
building of digital and data capabilities; and within the Water Analysis
& Treatment subsector, revenue grew more strongly in the second half of
the year following a pick-up in project tenders from UK utilities, which
offset lower order intake in our water testing and disinfection companies,
principally relating to products related to consumer discretionary
end-markets.
By region, the USA accounts for half of the sector's revenue, and reported the
highest organic constant currency(1) growth at 12%. Performance was strong
across all four subsectors, supported by further growth in a continuing large
photonics contract within Optical Analysis, increased demand including larger
customer orders in our gas detection companies, in products supporting the
transition to new sources of energy in Environmental Monitoring, and
international expansion from our water infrastructure companies within Water
Analysis & Treatment. Asia Pacific also grew strongly, at 10%
on an organic constant currency(1) basis, driven by substantial growth in
the flow and pressure control market within Environmental Monitoring in India
and China. Organic constant currency(1) revenue growth was more modest in the
UK and Mainland Europe, with growth reflecting strengthening UK water project
spend in the second half of the year, and strong demand in our gas detection
companies in Mainland Europe.
In the other regions which represent about 6% of the sector's revenue, our
gas detection companies continued to benefit from a recovery in the energy
sector, which drove strong organic growth in Africa, Near & Middle East,
and there was a good contribution to reported revenue growth in the other
smaller regions from the acquisition of Deep Trekker.
Profit(1) grew by 22.2% to £134.2m (2022: £109.8m), or by 7.1% on an organic
constant currency(1) basis. Return on Sales(1) decreased by 50 basis points to
24.3% (2022: 24.8%). This reflected a return to a level similar to the years
before the pandemic. Gross margin was marginally higher, driven by business
mix and good management of pricing. R&D expenditure of £28.6m was
maintained at a good level at 5.2% of revenue (2022: £22.8m; 5.1% of
revenue).
The sector made one standalone acquisition during the year for a
consideration of approximately £38m: Deep Trekker, which is a market-leading
manufacturer of remotely operated underwater robots used for inspection,
surveying, analysis and maintenance, was purchased in April 2022. Ocean
Insight also made a small bolt-on acquisition. Since the year end, there
have been two further acquisitions in the sector for a maximum total
consideration of approximately £57m: Sewertronics Sp. Z o.o., which designs
and manufactures equipment and associated consumables for wastewater pipeline
rehabilitation, was purchased as a standalone company in May 2023; and Visual
Imaging Resources LLC, which distributes and services wastewater inspection
equipment in North America, was purchased in April 2023 as a bolt-on to
Minicam. This good momentum reflects the investment made in a dedicated
M&A team for the Environmental & Analysis Sector, and the increasing
ability of our individual companies to make bolt-on acquisitions to enhance
their technological capabilities and market reach.
The impact of acquisitions during the year contributed growth of 6.6% to
revenue, and 5.9% to profit. Currency exchange movements had a positive effect
of 9.0% on revenue and 9.2% on profit.
Healthcare Sector Review
What the Healthcare Sector does
Our Healthcare Sector companies' technologies and digital solutions help
providers improve the care they deliver and enhance the quality of patients'
lives. Their products and technologies are components, devices, systems and
therapies critical to delivering the required standards of care for patients.
Our Healthcare Sector companies deliver advanced technologies and solutions in
high value niches. These include: eye health, where they support both
diagnostics and surgical treatment; monitoring and support of vital signs,
including blood pressure and respiration; products to assist with
interventional radiology and oncology and image guided surgery; synthetic bone
grafts for clinical applications; and artificial intelligence (AI) based early
warning systems and clinical decision support tools for childbirth.
Sector companies also supply critical fluidic components for diagnostic and
analytical instruments, and sensor technologies to track assets, increase
efficiency, and support patient and staff safety.
The Healthcare Sector operates across a wide range of healthcare segments and
settings, including ophthalmology, dentistry, orthopedics, perinatal
care, surgical intervention, diagnostics and analytics. Its customers range
from individual healthcare professionals to large healthcare systems and
medical device original equipment manufacturers.
The Healthcare Sector's long-term growth drivers
The sector's long-term growth is supported by demographic trends,
technological innovation, and improving the standard of care and increased
efficiency.
Most countries in the world are experiencing growth in both the size of
population and the proportion of older people. By 2050, the world's population
of people aged 60 years and older is estimated to double to 2.1 billion. The
number of people aged 80 years or older is forecast to triple by 2050 to reach
426 million. This is expected to lead to an increased prevalence of chronic
conditions, driving demand for diagnostics and treatment. These factors are
key growth drivers for our Therapeutic Solutions businesses, given their
presence in the ophthalmic surgery, respiratory therapy, bone replacement,
interventional radiology, oncology and image-guided surgery markets.
Technological innovations drive growth, by increasing the capabilities of
healthcare professionals to prevent, diagnose and treat conditions, including
remotely through telemedicine. They contribute to improving standards of care
and increasing efficiency by enabling better, earlier, faster and more
cost-effective diagnosis and treatment of patients. This in turn leverages the
skills and availability of increasingly scarce healthcare staff. These factors
are strong growth drivers for our Patient Assessment & Analytics
businesses, such as PeriGen, whose AI-powered algorithms prevent
complications during childbirth, or CenTrak, whose real-time location
services improve safety, asset utilisation and efficiency in healthcare
facilities.
Rising patient demand, workforce shortages, and disruptions as a result of
the COVID pandemic have created substantial backlogs of patients, which
are likely to persist for many years. Our Healthcare companies, through
their innovative technologies and deep application knowledge, are helping to
address these global health challenges.
Healthcare Sector performance in the year
The Healthcare Sector delivered a strong performance. Revenue of £556.4m
(2022: £442.3m) was 25.8% higher, and up 9.8% on an organic constant
currency(1) basis. Sector growth continued to be supported by a strong order
book, reflecting high patient caseload levels and order backlogs, and by
generally strong execution by sector companies, with all but three companies
delivering organic constant currency(1) revenue growth, and five achieving
organic constant currency(1) revenue growth of 15% or more.
All subsectors grew revenue on an organic constant currency(1) basis. Growth
was led by Healthcare Assessment & Analytics, which benefited from demand
in vital signs monitoring, clinical ophthalmology, and communication and
software systems for healthcare facilities. There was good organic constant
currency(1) growth in Therapeutic Solutions, supported by high patient
caseload levels in eye surgery; subsector growth on a reported basis also
benefited from the acquisition of IZI Medical Products, LLC (IZI) during the
year. There was only marginal growth on an organic constant currency(1) basis
in the smaller Life Sciences subsector, however, principally reflecting the
impact of lockdown restrictions in China.
All regions except Asia Pacific reported double digit increases in revenue, on
both a reported and organic constant currency(1) basis. On a reported basis,
growth was strongest in the USA, which accounts for more than half of sector
revenues. This was led by strong organic growth in communication and software
systems for healthcare facilities, and the region also benefited from the
positive effect of currency translation and the acquisition of IZI. There was
also strong revenue growth on an organic constant currency(1) basis in
Mainland Europe and the UK, driven by a substantial backlog of demand for
eye surgery products and for communication systems for healthcare facilities
respectively. However, revenue in Asia Pacific declined on an organic constant
currency(1) basis, reflecting lockdowns in China, which represents close to
half of the region's revenues.
Profit(1) grew by 30.8% to £130.1m (2022: £99.5m), or by 14.0% on an
organic constant currency basis. Return on Sales(1) improved by 90 basis
points to 23.4% (2022: 22.5%). This reflected a stable gross margin, which
included a beneficial product mix and good management of pricing and material
costs, and operational efficiencies. R&D expenditure increased
to £33.1m, representing 5.9% of revenue (2022: £26.9m; 6.1% of revenue),
reflecting continued high levels of investment in new product development.
The sector made one acquisition during the year: IZI was purchased in
September 2022 for a maximum total consideration of £151m. IZI is a US-based
designer, manufacturer and distributor of medical consumable devices which are
mainly used by interventional radiologists and surgeons in a range of acute,
hospital based diagnostic and therapeutic procedures.
Acquisitions had a positive effect of 4.7% on revenue and 4.0% on profit.
Currency exchange movements had a positive effect of 11.3% on revenue and
12.8% on profit.
Principal Risks and Uncertainties
01. Innovation & Digital
Risk Owner: Risk and impact How do we manage the risk?
Chief Innovation and Digital Officer Failing to innovate to create new high-quality products to meet Halma's digital innovation strategy focuses on the education of our companies
customer needs whilst capturing digital and sustainability growth around customer centricity and the incubation and acceleration of innovation
Inherent risk level: Critical opportunities, or failure to adequately protect intellectual property, across the companies. This includes regular promotion, training
resulting in a loss of market share and poor financial performance. and monitoring of agile or lean start-up ways of working in companies. As
the I&D team execute on their strategy over time, we expect that the
Risk evolution companies will develop greater capabilities on innovation and digital as they
Residual risk level: High
drive their product strategies.
The risk score was minimally adjusted during the year based on a new estimate
of the missed opportunity of failing to innovate. The strategy delivery is supported by an innovation champions network and
partnerships, conferences, development programmes and innovation awards which
Residual risk change: help spread and reward ideas across the Group. Sectors also play a key
role in promoting active collaboration between companies to share ideas and
Marginal increase experiences and reviewing R&D budgets and projects to ensure that the
spend effectively supports the growth strategy in targeted markets. Sector
Risk appetite: Seeking M&A activity is also targeted to help address innovation and R&D
gaps, in line with sector-specific initiatives. Key R&D and innovation
metrics are periodically reviewed to measure positive impact.
Product development is devolved to our companies who are closest to the
customer. Companies are encouraged to develop and protect intellectual
property, and focus on talent and retention to ensure there is sufficient
expertise within the business.
02. Talent and Diversity
Risk Owner: Risk and impact How do we manage the risk?
Group Talent, Culture and Communications Director Not having the right talent and diversity at all levels of the organisation to We have comprehensive recruitment processes to recruit the brightest talent,
deliver our strategy, resulting in reduced financial performance. including the "Future Leaders" programme to attract and develop graduates into
Inherent risk level: High
future leadership roles.
Risk evolution
The Senior Management reward structure is aligned with strategic priorities of
During the year, a number of initiatives started in 2022 were finalised and companies, sectors and Group and DEI targets. Periodic review of reward
Residual risk level: High fully implemented, such as a diversity, equity and inclusion target for the packages to ensure competitiveness, benchmark with the market
Managing Director level. The year saw the Group Chief Executive and Chief and alignment with high long-term growth.
Financial Officer transitions, which, although brings an inherent risk, have
been extensively planned, significantly mitigating the risk. Overall the risk An Annual Performance and Development Review process is in place for sector
Residual risk change: level remains in line with the prior year. and Executive Board members. The Nomination Committee reviews succession and
development plans annually. A strategic review of sector board and company
No change leadership talent is performed annually to identify and develop future
leaders.
Risk appetite: Open
Programmes to develop talent and enhance skills (including climate and
sustainability-related skills) are in place across our companies.
An annual employee engagement survey is carried out to provide insight into
employee sentiment, including alignment between strategy and objectives and
clarity to employees about their contribution towards achieving objectives.
03. Acquisitions and Investments
Risk Owner: Risk and impact How do we manage the risk?
Group Chief Executive Failing to achieve our strategic growth target for acquisitions and Acquisitions are a core element of Halma's sustainable growth model; hence the
investments due to insufficient opportunities being identified, poor due Group has a clear strategy that allows us to take advantage of new growth
Inherent risk level: Critical diligence or poor integration, resulting in erosion of shareholder value. opportunities through the acquisition of companies in our existing or adjacent
markets.
Risk evolution
Regular reporting of the acquisition pipeline to the Executive Board and the
Residual risk level: High During the year, the risk level rose due to the increasingly challenging Board. All acquisitions are reviewed and approved by the Group Chief
macroeconomic (i.e. increased cost of capital and debt) and geopolitical Executive, Chief Financial Officer and Board.
environment. The highly volatile external environment increases the complexity
of finding deals that are able to deliver on our inorganic growth strategy and Dedicated M&A Directors who support the sectors in their acquisition
Residual risk change: are at the right level of risk appetite. Given their role in the acquisition strategy, from pipeline development to the delivery of the acquisition. A
strategy, we recognise that the Group Chief Executive and Chief Financial robust due diligence process is carried out for all acquisitions by
Increased Officer combined change might be seen as introducing a certain level of risk. experienced staff who bring in specialist expertise as required, and
This potential risk is adequately mitigated by the strength of well low-carbon transition risk and opportunity reviews are built into our
Risk appetite: Open established end-to-end M&A processes led by experienced teams. standalone M&A process.
Furthermore, the Group Chief Executive and the Group Financial Offer have
extensive M&A experience gained both internally to Halma and externally, Strategic transformation plans and clear processes are in place for new
which further mitigates this risk. acquisitions to enable them to achieve their growth potential whilst
integrating into the Group (including from a control framework and compliance
perspective).
Internal Audit reviews are performed within 12 months of acquisition to assess
the effectiveness of the required control framework for standalone
acquisitions. Post-acquisition reviews are performed for all acquisitions
after 12 months to ensure strategic objectives are being met and to identify
learnings for future acquisitions.
Minority equity investments are assessed through the lenses of Halma's
investment framework and executed in line with an established acquisition
process which ensures an appropriate level of assessment and oversight.
Minority investments are regularly reviewed by the Investment committee, and
"Lessons learnt reviews" are carried out to improve the existing processes.
04. Cyber
Risk Owner: Risk and impact How do we manage the risk?
Chief Technology Officer Loss of digital intellectual property/ Cyber risk is owned by the CTO at an executive level, who periodically updates
data or ability to operate systems or connected devices due to internal the Board and Audit Committee.
Inherent risk level: Critical failure or external attack. There is resulting loss of information or ability
to continue operations, and therefore financial and reputational damage. All employees are required to comply with the IT Acceptable Use Policy.
Regular online IT awareness training is provided for all employees who use
Risk evolution computers.
Residual risk level: Medium
The inherent risk level increased during the year due to the continuously A group-wide IT framework is in place, periodically reviewed and includes
evolving landscape of external cyber threats, however it is mitigated by the Cyber risk policies and procedures. Companies confirm the effectiveness of
delivery of investments to upgrade the cybersecurity defence. The finalisation their most critical IT controls (including documented and tested disaster
Residual risk change: of the current initiatives is crucial to keep the risk within the recovery plans for critical systems and infrastructure) every six months
risk appetite. through the Internal Control Certification process. The
Marginal increase Internal Audit & Assurance Team periodically and independently tests
these controls.
Risk appetite: Averse
There are central and local IT resources maintaining and sharing updated
technical knowledge. The central technology resources are available to
companies to help them better manage cyber risk.
Cyber threats are monitored and reported upon every two months for all parts
of the Group.
Group-wide Incident Management Policy and Crisis communications plans are in
place. Access to cyber expertise is available should a cyberattack occur.
05. Economic and Geopolitical Uncertainty
Risk Owner: Risk and impact How do we manage the risk?
Group Chief Executive Failure to anticipate or adapt to macroeconomic and geopolitical changes, The diverse portfolio of companies across the sectors, in multiple countries
resulting in a decline in financial performance and an impact on the carrying and in relatively non-cyclical global niche markets with secular long-term
Inherent risk level: Critical value of goodwill and other assets. This risk remains elevated in certain growth drivers helps to minimise the impact of any single event.
geographies due to geopolitical events such as the conflict in Ukraine and US/
China trade relations. Monitoring mechanisms are established at Group, sector and company levels,
including:
Residual risk level: Medium Risk evolution
· Regular monitoring and assessment of emerging trends and potential
During the year, the overall risk level increased, triggered by the higher risks and opportunities relating to economic or geopolitical uncertainties.
level of inherent risk due to the macroeconomic situation and increasing
Residual risk change: geopolitical complexities. During the year, a deep dive risk assessment was · Monitoring of end market exposure and changes in key end markets
carried out to assess the Group's exposure to key macroeconomic and due to macroeconomic factors.
Increased geopolitical risks, which resulted in an enhanced monitoring process for
relevant geopolitical risk factors. Halma remains resilient to macroeconomic · Financial warning signs KPIs give earlier indications of potential
Risk appetite: Cautious volatility due to growth drivers linked to highly regulated markets, demand problems, and half-yearly assessments of the carrying value of goodwill and
for healthcare and life-critical resources, and growing efforts to address other assets are performed.
climate change, waste and pollution.
In line with Halma's model, the risk is managed at the local company level
through decentralised decision-making and autonomy to rapidly adjust to
changing circumstances. The companies have robust credit management processes
in place and operations, cash deposits and sources of funding in uncertain
regions are kept to a minimum.
The Group provides continuous support to company boards and DCEs to navigate
geopolitical changes (including when these changes are triggered by disorderly
low-carbon transition scenarios). Halma's financial strength and availability
of pooled resources in the Group can be deployed, if needed, to further
mitigate the risk.
06. Non-compliance with Laws and Regulations
Risk Owner: Risk and impact How do we manage the risk?
Group General Counsel & Chief Sustainability Officer We are not fully compliant with relevant laws and regulations, resulting in Legal compliance is owned by the Group General Counsel & Chief
fines, reputational damage and possible criminal liability for Halma senior Sustainability Officer at an executive level, who periodically updates the
Inherent risk level: Critical management. Board and Audit Committee. Group policies, procedures and guidance
are in place, setting out the Group's requirements from a compliance and
Risk evolution regulatory perspective. Companies confirm the effectiveness of their most
critical legal compliance controls every six months through the Internal
Residual risk level: Low The marginal increase in the risk likelihood is primarily driven by the Control Certification process. The Internal Audit & Assurance Team
increasing complexity of the regulatory environment and the growth of our periodically and independently tests these controls. Group Legal,
companies and the Group. Effective mitigating controls are in place to Sustainability & Governance (LSG) Team advises on legislative and
mitigate the current risk and take a proactive approach to this increasingly regulatory changes relevant to the Group as a listed company. All employees
Residual risk change: challenging context. are required to sign to confirm that they have read and understood the Halma
Code of Conduct. An ongoing compliance training programme is in place for
Marginal increase Group and its companies. A whistleblowing hotline is available to all
employees and third parties to raise concerns over the lack of compliance and
Risk appetite: Averse misconduct. These are independently followed up and investigated. The Group
LSG Team resources, including the Deputy General Counsels, who sit on the
sector boards, and a panel of high-quality external legal advisors, are
available to sectors and companies to help them better manage legal compliance
risks, including during due diligence processes.
The board of each company is accountable for identifying and monitoring what
laws are relevant to their business, including any emerging or changing
legislation, and for ensuring commercial legal risks are appropriately
managed. Claims and litigation risks are reported to Group by all companies
every six months. Material legal issues and risks are reported to and
discussed by the Board every quarter. Appropriate levels of Group insurance
cover are maintained. A crisis management plan exists to manage
communications and the reputational risk for Halma and/or its companies.
07. Natural Hazards, including Climate Change
Risk Owner: Risk and impact How do we manage the risk?
Group General Counsel & Chief Sustainability Officer There is a risk we are unable to respond to large scale disasters or natural Halma operates in end markets with strong long-term growth drivers
catastrophes such as hurricanes, floods, fires or pandemics, as well as contributing to a low-carbon economy and lower risks of disruptions due to
Inherent risk level: Medium longer term changes to the climate such as increasing water scarcity and natural hazards. Our business model is expected to be resilient to
temperatures, resulting in the inability of one or more of our businesses to climate-related risks, due to Halma's highly diversified portfolio of
operate, causing financial loss and reputational damage. This risk companies and agile business model, which enable our companies to quickly
includes potential impacts from physical climate change on our address challenges caused by natural hazards and climate change.
Residual risk level: Low supply chains.
The geographical diversity of Halma's companies reduces the impact of any
Risk evolution single event, and the companies' manufacturing capabilities can be
leveraged, in case of need, to provide flexibility to support the companies
Residual risk change: The reassessment of the climate-related risks and opportunities confirmed the affected.
risk level to be in line with the prior year. More information is available
No change in our TCFD Statement in the Annual Report & Accounts. All companies are required to have business continuity and disaster recovery
plans in place which are tested periodically and tailored to manage the
Risk appetite: Averse specific risks they are most likely to face. The Group has a crisis management
plan to manage communications and the reputational risk for Halma and/or its
companies.
Business interruption insurance is in place to mitigate any financial loss
that may occur from natural hazards. Climate risk and opportunity review
processes and governance are in place, and we continue to work with our
companies to help them manage disruption risks within their supply chains.
More information on climate-related risks is available in the TCFD Statement
in the Annual Report & Accounts.
08. Organic Growth
Risk Owner: Risk and impact How do we manage the risk?
Group Chief Executive Failing to deliver desired organic growth, resulting in missed expected Halma has a clear Group strategy to achieve growth targets through the organic
strategic growth targets and erosion of shareholder value. growth of Halma's companies, which is accelerated by the Halma Growth Enablers
Inherent risk level: Critical
and the Halma DNA. The remuneration of companies' executives and above
This risk includes potential impacts from the Net Zero transition on our is based on profit growth.
supply chain.
Companies achieve organic growth through the continuous focus on the
Residual risk level: Low Risk evolution development of an agile business model and a culture of innovation to take
advantage of new growth opportunities as they arise.
During the year, the delivery of the organic growth targets has
been continuously challenged by the economic and geopolitical environment, Company strategies are reviewed and challenged by the sector to ensure they
Residual risk change: however the ability to fulfil strategic growth targets remains strong. are aligned with the Group strategy and organic growth targets. Sector
management ensures that the Group strategy is fulfilled through ongoing review
No change and chairing of companies. Regional hubs, for example those located in
China and India, support local strategic growth initiatives for all
Risk appetite: Open companies. Potential new partnerships and investments are comprehensively
assessed for future organic growth prospects.
Companies continuously focus on attracting and developing the best talent to
deliver Halma's organic growth strategy effectively.
At a Group level, the annual strategic planning process, the annual budget and
the monthly 12-month rolling forecast enable a review of the effectiveness of
the delivery of the organic growth strategy through control over the Balance
Sheet and the Profit & Loss.
Climate risk and opportunity review processes and governance are in place, and
we continue to work with our companies to help them manage transition risks
within their supply chains.
09. Business Model and its Communication
Risk Owner: Risk and impact How do we manage the risk?
Group Chief Executive Failing to clearly articulate or adapt our business model as Halma grows The Halma Sustainable Growth Model is at the core of the Group strategy and a
through exploring and implementing additional or new business models, key success factor underpinning the Group's ability to deliver returns for its
Inherent risk level: High resulting in missed growth opportunities and erosion of shareholder value. stakeholders.
This risk includes meeting increasing or shifting shareholder expectations The sector and Executive Boards perform periodic reviews to identify
around climate change and sustainability. opportunities which may require a new organisational approach or evolutions of
Residual risk level: Low
the existing approach.
Risk evolution
The current model is challenged through the lenses of the learnings from past
During the year, the risk appetite has been reassessed and reduced from "Open" experience and through the continuous search and exploration of innovative
Residual risk change: to "Cautious" to capture the fact that although Halma's sustainable growth ideas and opportunities to grow and scale the Group as the global economic
model is constantly challenged and fine-tuned to ensure that it enables the environment evolves.
No change companies to grow, these evolutions are carefully thought through, and a low
level of risk is sought. The Board performs strategic reviews of the business model to consider the
Risk appetite: Cautious
strengths and weaknesses of the existing model and the need to make changes.
The inherent and residual risk level remains in line with the prior year.
The Group has a clear strategy to communicate its business model to internal
and external stakeholders, which is crucial to the successful execution of the
Group's sustainable growth strategy.
Regular communications and updates on the business model underpin the delivery
of the communication strategy. These target Group, sector and company boards
throughout the year and are integral to the recruiting and onboarding process.
Sustainability, including climate change, is integral to Halma's strategy at
all levels. Sustainability strategies are regularly reviewed and discussed in
the companies, sectors and, Executive Board as well as at the Board.
Sustainability networks are in place to share learnings and promote awareness
in our companies. There are central growth-enabling resources with
sustainability-related knowledge which are available to sectors and companies
to help them better manage sustainability risks and opportunities.
10. Product Failure or Non-compliance
Risk Owner: Risk and impact How do we manage the risk?
Group Chief Executive A failure in one of our products, including due to non-compliance with product Our companies manufacture and assemble a wide variety of product types across
regulations, may result in severe injuries, death, financial loss and different geographies and end markets. They are, therefore, experts in their
Inherent risk level: High reputational damage, which might be amplified in cases of large contracts. trade and carry the responsibility for complying with relevant product safety
and quality requirements, obtaining relevant accreditations and all necessary
Risk evolution product certifications.
Residual risk level: Low During the year, the risk likelihood saw a marginal increase to reflect the Halma's companies have adopted customised sets of controls to achieve
current/historical cases' frequency and the potential challenge posed by the high-quality standards - these might include but are not limited to:
Medical Device Regulation (MDR) to achieve regulatory compliance for some of
the products of our Healthcare Sector companies produced for the European · Strict product development and rigorous testing procedures.
Residual risk change: market. MDR is a key focus within the Healthcare Sector which is coordinating
several risk-mitigating initiatives (e.g. regulatory monitoring, knowledge · Clear requirements for suppliers to ensure safety and quality.
Marginal increase sharing amongst companies).
· Quality checks on products received from suppliers.
Risk appetite: Averse
· Monitoring of defects and warranty returns.
· Traceability of product.
· Obtaining ISO 9001 certification, where relevant.
· Product compliance with regulations is checked as part of due diligence
for any new acquisition.
· Ensuring employees have appropriate quality-related skills.
Furthermore, potential liabilities are limited as much as possible through
terms and conditions of sale and liability insurance cover.
11. Liquidity
Risk Owner: Risk and impact How do we manage the risk?
Chief Financial Officer There is a risk that the Group's cash/funding resources are inadequate to A clear liquidity management strategy is a core pillar of the Halma financial
support its activities or there is a breach of funding terms. model.
Inherent risk level: Critical
Risk evolution The strong cash flow generated by the Group provides financial flexibility,
together with a revolving credit facility.
Due to the strength of Halma's cash-generation model and the tight controls
Residual risk level: Low over liquidity, the residual risk remains low, in line with the prior year. We Treasury policy and procedures provide comprehensive guidance to the Group and
renewed our syndicated credit facility during the year, which remains at companies on banking and transactions, including required approvals for
£550m, and now matures in May 2028 and completed a new Private Placement of drawdowns and all new or renewed sources of funding.
£330m with a seven year average life.
Residual risk change: Cash needs and the Group cash position are monitored regularly through the
review of the 12-month rolling forecast, of the three-years liquidity forecast
No change and of current and forecast covenant compliance. The currency mix of debt is
reviewed annually, and on acquiring or disposing of a business.
Risk appetite: Averse
12. Financial Controls
Risk Owner: Risk and impact How do we manage the risk?
Chief Financial Officer Failure in financial controls either on its own or via a fraud which takes Group policies, procedures and guidance are in place, setting out the Group's
advantage of a weakness, resulting in financial loss and/or misstated requirements for financial controls. Companies confirm the effectiveness of
Inherent risk level: High reported financial results. their most critical financial controls (including segregation of duties,
delegation of authorities and financial accounts reconciliations) every
Risk evolution six months through the Internal Control Certification process. The Internal
Audit & Assurance Team periodically and independently tests these
Residual risk level: Very low No significant risk factors have been identified at both inherent and residual controls.
risk levels during the year.
Sector and Group finance teams perform regular reviews of financial reporting
We continuously challenge, review and enhance our financial controls and the and indicators. Six-monthly peer reviews of reported results for each company
Residual risk change: processes across the Group, which ensure these are effective whilst we are performed to provide an independent challenge.
continue to closely monitor the developments of the UK Corporate Governance
No change Code. Ongoing training of finance personnel (including finance teams of newly
acquired companies) on Halma's policies and financial control framework.
Risk appetite: Averse
Companies' directors have legal and operational responsibilities as they are
statutory directors of their companies. This fits with Halma's decentralised
model and contributes to ensuring an effective financial control environment
is in place.
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 2023, its cash flows,
liquidity position and borrowing facilities are set out in the Strategic
Report. In addition, the Annual Report and Accounts 2023 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 and its principal risks set out
above. Under the potential scenarios considered, which includes a severe but
plausible downside scenario, 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.
The base case scenario has been prepared using forecasts from each operating
company as well as cash outflows on acquisitions in line with pre Covid
pandemic levels. In addition, a severe but plausible downside scenario has
been modelled showing a decline in trading for the year ending 31 March 2024.
This reduction in trading could be caused by events such as a significant
resurgence in COVID-19 lockdowns beyond China or continued macroeconomic
volatility leading to further inflation and interest rate increases. In
mitigating the impacts of the downside scenario there are actions that can be
taken which are entirely discretionary to the business such as reducing
acquisition spend and dividend growth rates. In addition, the Group has
demonstrated strong resilience and flexibility to manage its overheads and
adapt its supply chains during the COVID pandemic and more recent global
economic uncertainty.
Neither the base case nor severe but plausible downside 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 and, therefore, deem it appropriate to
continue to adopt the going concern basis of accounting for at least
the next 12-month period.
Our financial position remains robust with committed facilities at the balance
sheet date totalling approximately £931m which includes a £550m Revolving
Credit Facility (RCF). The undrawn committed facilities as at 31st March 2023
amounted to £255.7m. In May 2022, the RCF was refinanced and now matures in
May 2028, the first of two one-year extension options having been exercised
post year-end. During May 2022, the Group also entered into a new Note
Purchase Agreement which provided access to loan notes totalling £330m, which
were drawn in various currencies in July 2022. The financial covenants across
the facilities are for leverage (net debt/adjusted EBITDA) of not more than
three and a half times and for adjusted interest cover of not less than four
times.
Viability Statement
During the year, the Board carried out a robust assessment of the 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 above.
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 Company'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 2 3 4 5
The Group operates in diverse and relatively non-cyclical markets with long There is considerable financial capacity under current facilities and the The decentralised nature of our Group ensures that risk is spread across our There is a strong culture of local responsibility and accountability within a An ethical approach to business is set from the top and flows throughout our
term growth drivers. ability to raise further funds if required. businesses and sectors, with limited exposure to any particular industry, robust governance and control framework. business.
market, geography, customer or supplier.
In making their assessment, the Board carried out a comprehensive exercise of
financial modelling and stress-tested the model with a downside scenario 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 review, as set out above, for the years ending 31 March 2024 and 31
March 2025 with further assumptions applied for the year ending 31 March 2026.
The base case reflects the latest forecasts and strategic plans of the
business. The downside scenario included a reduction in trading for the year
to 31 March 2024 which could be caused by a significant downside event with
the addition of impacts from other of the Group's principal risks such
as litigation or product failure.
For the years ending 31 March 2025 and 31 March 2026 the downside scenario
reflects growth at half the rate modelled in the base case. In both scenarios,
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 2026.
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 2023.
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 2023, confirm that, to the best of their knowledge:
· the Group financial statements, which have been prepared in accordance
with UK-adopted international accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit of the Group;
· the company financial statements, which have been prepared in
accordance with United Kingdom Accounting Standards, comprising FRS 101, give
a true and fair view of the assets, liabilities and financial position of the
company; and
· the Strategic Report and 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 15
June 2023.
Marc Ronchetti Steve Gunning
Group Chief Executive Chief Financial Officer
Results for the year to 31 March 2023
Consolidated Income Statement
Year ended 31 March 2023 Year ended 31 March 2022
Notes Adjusted* Adjustments* Total Adjustments* Total
£m (note 1) £m Adjusted* (note 1) £m
£m £m £m
Continuing operations
Revenue 1 1,852.8 - 1,852.8 1,525.3 - 1,525.3
Operating profit 378.2 (69.8) 308.4 324.7 (45.8) 278.9
Share of loss of associate - - - (0.1) - (0.1)
Profit on disposal of operations 9 - - - - 34.0 34.0
Finance income 4 1.8 - 1.8 0.6 - 0.6
Finance expense 5 (18.7) - (18.7) (9.0) - (9.0)
Profit before taxation 361.3 (69.8) 291.5 316.2 (11.8) 304.4
Taxation 6 (72.9) 15.7 (57.2) (68.3) 8.1 (60.2)
Profit for the year 1 288.4 (54.1) 234.3 247.9 (3.7) 244.2
Attributable to:
Owners of the parent 234.5 244.4
Non-controlling interests (0.2) (0.2)
Earnings per share 2
From continuing operations
Basic 76.34p 62.04p 65.48p 64.54p
Diluted 61.86p 64.42p
Dividends in respect of the year 7
Paid and proposed (£m) 76.3 71.5
Paid and proposed per share 20.20p 18.88p
* Adjustments include the amortisation and impairment of acquired intangible
assets; acquisition items; significant restructuring costs, and profit or loss
on disposal of operations; and the associated taxation thereon. Note 3
provides more information on alternative performance measures.
Consolidated Statement of Comprehensive Income and Expenditure
Notes Year ended Year ended
31 March 31 March
2023 2022
£m £m
Profit for the year 234.3 244.2
Items that will not be reclassified subsequently to the Consolidated Income
Statement:
Actuarial (losses)/gains on defined benefit pension plans (8.8) 41.6
Tax relating to components of other comprehensive income that will not be 6 1.2 (9.6)
reclassified
Unrealised changes in the fair value of equity investments at fair value 6.1 (1.7)
through other comprehensive income
Items that may be reclassified subsequently to the Consolidated Income
Statement:
Effective portion of changes in fair value of cash flow hedges 1.3 (1.5)
Deferred tax in respect of cash flow hedges accounted for in the hedging 6 (0.3) 0.4
reserve
Exchange gains on translation of foreign operations and net investment hedge 45.1 43.9
Other comprehensive income for the year 44.6 73.1
Total comprehensive income for the year 278.9 317.3
Attributable to
Owners of the parent 279.2 317.5
Non-controlling interests (0.3) (0.2)
The exchange gains of £45.1m (2022: gains of £43.9m) includes losses of
£7.4m (2022: losses of £8.6m) which relate to net investment hedges.
Consolidated Balance Sheet
31 March 31 March
2023 2022
£m £m
Non-current assets
Goodwill 1,120.5 908.7
Other intangible assets 472.3 325.2
Property, plant and equipment 222.9 194.0
Interest in associates and other investments 21.0 8.2
Retirement benefit asset 38.4 31.1
Tax receivable 14.7 14.7
Deferred tax asset 3.0 2.4
1,892.8 1,484.3
Current assets
Inventories 312.4 228.8
Trade and other receivables 410.7 325.1
Tax receivable 1.5 0.7
Cash and bank balances 169.5 157.4
Derivative financial instruments 1.5 0.7
895.6 712.7
Total assets 2,788.4 2,197.0
Current liabilities
Trade and other payables 280.7 242.7
Borrowings 1.0 72.5
Lease liabilities 19.2 15.5
Provisions 21.0 20.7
Tax liabilities 18.4 11.6
Derivative financial instruments 0.9 0.9
341.2 363.9
Net current assets 554.4 348.8
Non-current liabilities
Borrowings 677.3 287.6
Lease liabilities 68.7 56.6
Retirement benefit obligations 0.5 0.6
Trade and other payables 21.9 19.0
Provisions 9.7 7.7
Deferred tax liabilities 70.2 58.5
848.3 430.0
Total liabilities 1,189.5 793.9
Net assets 1,598.9 1,403.1
Equity
Share capital 38.0 38.0
Share premium account 23.6 23.6
Own shares (46.1) (30.7)
Capital redemption reserve 0.2 0.2
Hedging reserve 0.6 (0.4)
Translation reserve 162.3 117.1
Other reserves* 4.4 (1.7)
Retained earnings* 1,415.8 1,256.6
Equity attributable to owners of the parent 1,598.8 1,402.7
Non-controlling interests 0.1 0.4
Total equity 1,598.9 1,403.1
*See footnote to the Consolidated Statement of Changes in Equity below.
The financial statements of Halma plc, company number 00040932, were approved
by the Board of Directors on 15 June 2023.
Marc Ronchetti Steve Gunning
Director
Director
Consolidated Statement of Changes in Equity
Share Share Own Capital Hedging Translation Other Retained Non- Total
capital premium shares redemption reserve reserve reserves earnings controlling £m
£m account £m reserve £m £m £m £m interest
£m £m £m
At 1 April 2022 38.0 23.6 (30.7) 0.2 (0.4) 117.1 (1.7) 1,256.6 0.4 1,403.1
Profit for the year - - - - - - - 234.5 (0.2) 234.3
Other comprehensive income and expense - - - - 1.0 45.2 6.1 (7.6) (0.1) 44.6
Total comprehensive income and expense - - - - 1.0 45.2 6.1 226.9 (0.3) 278.9
Dividends paid - - - - - - - (73.3) - (73.3)
Share-based payment charge - - - - - - - 17.7 - 17.7
Deferred tax on share-based payment transactions - - - - - - - (0.7) - (0.7)
Excess tax deductions related to share-based payments on vested awards - - - - - - - - - -
Purchase of own shares - - (22.3) - - - - - - (22.3)
Performance share plan awards vested - - 6.9 - - - - (11.4) - (4.5)
At 31 March 2023 38.0 23.6 (46.1) 0.2 0.6 162.3 4.4 1,415.8 0.1 1,598.9
Share Share Own Capital Hedging Translation Other Retained Non- Total
capital premium shares redemption reserve reserve reserves earnings controlling £m
£m account £m reserve £m £m £m £m interest
£m £m £m
At 1 April 2021 38.0 23.6 (20.9) 0.2 0.7 73.2 (13.6) 1,065.8 0.6 1,167.6
Transfer between reserves* - - - - - - 13.6 (13.6) - -
Restated at 1 April 2021 38.0 23.6 (20.9) 0.2 0.7 73.2 - 1,052.2 0.6 1,167.6
Profit for the year - - - - - - - 244.4 (0.2) 244.2
Other comprehensive income and expense - - - - (1.1) 43.9 (1.7) 32.0 - 73.1
Total comprehensive income and expense - - - - 43.9 (1.7) 276.4 (0.2) 317.3
(1.1)
Dividends paid - - - - - - - (68.7) - (68.7)
Share-based payment charge - - - - - - - 12.2 - 12.2
Deferred tax on share-based payment transactions - - - - - - - (0.2) - (0.2)
Excess tax deductions related to share-based payments on vested awards - - - - - - - 1.3 - 1.3
Purchase of own shares - - (19.3) - - - - - - (19.3)
Performance share plan awards vested - - 9.5 - - - - (16.6) - (7.1)
At 31 March 2022 38.0 23.6 (30.7) 0.2 (0.4) 117.1 (1.7) 1,256.6 0.4 1,403.1
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.
The market value of own shares was £42.4m (2022: £29.5m).
The Capital redemption reserve was created on repurchase and cancellation of
the Company's own shares. 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 Translation reserve is used to record the difference arising from the
retranslation of the financial statements of foreign operations, offset by net
investment hedges with a carrying value of £33.9m (2022: £26.5m). The Other
reserves represent the cumulative fair value adjustments on equity instruments
held at fair value through other comprehensive income.
* Effective for the year ended 31 March 2022, the share-based payment
reserve, which was previously presented in Other reserves has been amalgamated
with Retained earnings, in the Consolidated Statement of Changes in Equity and
the Consolidated Balance Sheet as permitted by IFRS 2. This resulted in the
£13.6m debit in brought forward Other reserves at 1 April 2021 being
transferred to Retained earnings. There is no change in Total equity from this
change, nor the amounts charged or credited to the reserves during the period,
which represents a change in presentational accounting policy only.
Consolidated Cash Flow Statement
Notes Year ended Year ended
31 March 31 March
2023 2022
£m £m
Net cash inflow from operating activities 10 258.0 237.4
Cash flows from investing activities
Purchase of property, plant and equipment - owned assets (29.0) (25.2)
Purchase of computer software (0.8) (0.9)
Purchase of other intangibles (0.3) (0.5)
Proceeds from sale of property, plant and equipment and capitalised 3.1 1.1
development costs
Development costs capitalised (15.8) (13.4)
Interest received 0.7 0.2
Acquisition of businesses, net of cash acquired 8 (320.1) (152.8)
Disposal of business, net of cash disposed 9 - 57.5
Purchase of equity investments (6.7) (0.7)
Net cash used in investing activities (368.9) (134.7)
Cash flows from financing activities
Dividends paid (73.3) (68.7)
Purchase of own shares (22.3) (19.3)
Interest paid (17.5) (8.2)
Loan arrangement fees (4.1) -
Proceeds from bank borrowings 10 451.8 161.4
Repayment of bank borrowings 10 (394.2) (132.5)
Repayment of acquired debt on acquisition 10 (65.1) -
Drawdown of loan notes 10 338.1 -
Repayment of loan notes 10 (74.4) -
Repayment of lease liabilities, net of interest (18.0) (14.6)
Net cash from/(used in) financing activities 121.0 (81.9)
Increase in cash and cash equivalents 10 10.1 20.8
Cash and cash equivalents brought forward 156.7 131.1
Exchange adjustments 1.7 4.8
Cash and cash equivalents carried forward 10 168.5 156.7
Notes Year ended Year ended
31 March 31 March
2023 2022
£m £m
Reconciliation of net cash flow to movement in net debt
Increase in cash and cash equivalents 10.1 20.8
Net cash inflow from bank borrowings and loan notes 10 (256.1) (28.9)
Net debt acquired 10 (65.1) -
Lease liabilities additions and accretion of interest (24.9) (19.0)
Lease liabilities acquired (9.3) (4.6)
Lease liabilities disposed of - 2.1
Lease liabilities and interest repaid 20.9 16.8
Exchange adjustments 2.5 (5.8)
Increase in net debt (321.9) (18.6)
Net debt brought forward (274.8) (256.2)
Net debt carried forward (596.7) (274.8)
Accounting Policies
Basis of presentation
The consolidated financial statements of Halma are prepared in accordance with
UK-adopted International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards.
The principal Group accounting policies are explained below and have been
applied consistently throughout the years ended 31 March 2023 and 31 March
2022, other than those noted below.
The Group accounts have been prepared under the historical cost convention,
except as described below under the headings 'Derivative financial instruments
and hedge accounting', 'Financial assets at fair value through other
comprehensive income (FVOCI)', 'Pensions' and 'Business combinations and
goodwill'.
New Standards and Interpretations applied for the first time in the year ended
31 March 2023
The following Standards with an effective date of 1 January 2022, have been
adopted without any significant impact on the amounts reported in these
financial statements:
· Reference to the Conceptual Framework - Amendments to IFRS 3
· Property, Plant and Equipment: Proceeds before Intended Use -
Amendments to IAS 16
· Onerous Contracts - Costs of Fulfilling a Contract - Amendments
to IAS 37
· Annual Improvements to IFRS 2018- 2020
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 UK):
· IFRS 17 Insurance Contracts
· Classification of Liabilities as Current or Non-current -
Amendments to IAS 1 - Not yet endorsed by the UK
· Definition of Accounting Estimates - Amendments to IAS 8
· Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
· Deferred Tax related to Assets and Liabilities arising from a
Single Transaction - Amendments to IAS 12
· Lease Liability in a Sale and Leaseback - Amendments to IFRS 16
· Classification of Liabilities as Current or Non-current and
Non-current Liabilities with Covenants - Amendments to IAS 1 -
Not yet endorsed by the UK
· Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial
Instruments: Disclosures - Not yet endorsed by the UK
· Amendments to IAS 12 International Tax Reform Pillar Two Model
Rule - Not yet endorsed by the UK
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,
net debt, cash conversion and Adjusted operating cash flow provide additional
and more consistent measures of underlying performance to shareholders by
removing 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 2023, its cash flows, liquidity
position and borrowing facilities are set out in the Strategic Report. In
addition, the Annual Report and Accounts 2023 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 and its principal risks set out
above. Under the potential scenarios considered, which includes a severe but
plausible downside scenario, 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.
The base case scenario has been prepared using forecasts from each Operating
Company as well as cash outflows on acquisitions in line with pre Covid
pandemic levels. In addition, a severe but plausible downside scenario has
been modelled showing a decline in trading for the year ending 31 March 2024.
This reduction in trading could be caused by events such as a significant
resurgence in the Covid pandemic lockdowns beyond China or continued
macroeconomic volatility leading to further inflation and interest rate
increases. In mitigating the impacts of the downside scenario there are
actions that can be taken which are entirely discretionary to the business
such as reducing acquisition spend and dividend growth rates. In addition, the
Group has demonstrated strong resilience and flexibility to manage its
overheads and adapt its supply chains during the COVID pandemic and more
recent global economic uncertainty.
Neither the base case nor severe but plausible downside 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 and, therefore, deem it appropriate to
continue to adopt the going concern basis of accounting for at least the next
12-month period.
Our financial position remains robust with committed facilities at the balance
sheet date totalling approximately £931m which includes a £550m Revolving
Credit Facility (RCF). The undrawn committed facilities as at 31 March 2023
amounted to £255.7m. In May 2022, the RCF was refinanced and now matures in
May 2028, the first of two one-year extension options having been exercised
post year-end. During May 2022, the Group also entered into a new Note
Purchase Agreement which provided access to loan notes totalling £330m, which
were drawn in various currencies in July 2022. The financial covenants across
the facilities are for leverage (net debt/adjusted EBITDA) of not more than
three and a half times and for adjusted interest cover of not less than four
times.
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.
Payments for contingent consideration are classified as investing activities
within the Consolidated Cash Flow Statement, except for amounts paid in excess
of that estimated in the acquisition balance sheets which are recognised in
the net cash inflow from operating activities in the year together with
movements in contingent consideration provisions charged/credited to the
Consolidated Income Statement which is included as a reconciling item between
operating profit and cash inflow from operating activities.
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 three and
20 years. The carrying value of intangible assets is reviewed for impairment
if events or changes in circumstances indicate the carrying value may not be
recoverable.
(b) Product development costs
Research expenditure is charged to the Consolidated Income Statement in the
financial year in which it is incurred.
Development expenditure is expensed 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,
meeting the recognition criteria of IAS 38 'Intangible Assets', 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.
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 in the period the expense relates to.
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.
In preparing the Consolidated Financial Statements management has considered
the impact of climate change, particularly in the context of the disclosures
included in the Strategic Report and the stated Net Zero ambitions. These
considerations did not have a material impact on the financial reporting
judgements and estimates in the current year. Climate change is not expected
to have a significant impact on the Group's going concern assessment as at
March 2023 nor the viability of the Group over the next three years.
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 CGU groups 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. There have been no changes to the CGU groups in the
current year.
Recoverability of non-current taxation assets
In the current year, determining the recoverability of tax assets requires
management's judgement in assessing the amounts paid 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 that the £14.7m paid to HM Revenue & Customs (HMRC) in previous
years, included within non-current assets on the Consolidated Balance Sheet,
will ultimately be recovered.
Key sources of estimation uncertainty
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
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. Management engages third party specialists to assist with the
valuation of acquired intangible assets for significant acquisitions.
Depending on the nature of the assets the Group uses different valuation
methodologies to arrive at the fair value including the excess earnings
method, the relief from royalty method and the cost savings method. Financial
projections are based on market participants' expectations and are discounted
to their present value using rates of return which reflects the risk of the
investment and the time value of money.
Goodwill and acquired intangibles impairment future cash flows
The 'value in use' calculation used to test for impairment of goodwill and
acquired intangibles involves an estimation of the present value of future
cash flows. For annual impairment testing of goodwill, the future cash flows
of the CGU Group are based on annual budgets and forecasts of each relevant
CGU, 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 (operating assumptions, long-term
growth rates, and discount rates) and the sensitivity analysis around these.
Management believes that there is no reasonably possible change in any of the
key assumptions that would cause the carrying value of any CGU group to exceed
its recoverable amount.
Acquired intangibles are assessed each reporting period for any indicators of
impairment, both qualitative and quantitative, including as a result of our
assessments of climate-related risks. If there are deemed to be any indicators
of impairment a 'value in use' calculation is performed over the remaining
useful life of the asset to identify if any impairment is needed. Where
required, in calculating the 'value in use', future cash flows are based on
annual budgets and forecasts for the relevant business. The present value is
then calculated based on management's estimate of future discount and growth
rates. The Board and management reviews these key assumptions (operating
assumptions, growth rates, and discount rates) and the sensitivity analysis
around these.
Defined benefit pension plan liabilities
Determining the value of the future defined benefit asset/obligation requires
estimation in respect of the assumptions used to calculate present values of
plan liabilities. The significant assumptions utilised in the calculations are
future mortality, discount rate and inflation. Management determines these
assumptions in consultation with an independent actuary.
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 2023, adjusted to eliminate intra-Group
transactions, balances, income and expenses. The results of subsidiary
companies acquired or disposed are included from the month of their
acquisition or to the month of their disposal.
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 and 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 asset/obligation, contingent purchase consideration, all
components of net cash/borrowings, lease liabilities and derivative financial
instruments.
From 1 April 2022, the Group aligned its organisational structure and
financial reporting with its purpose and focus on safety, environmental and
health markets. The Group now has three main operating and reportable segments
(Safety, Environmental & Analysis and Healthcare), which are defined by
markets rather than product type. Each segment includes businesses with
similar operating and market characteristics and are consistent with the
internal reporting as reviewed by the Group Chief Executive.
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 three sectors, that serve like markets. Those
sectors are Safety, Environmental & Analysis and Healthcare.
Revenue is recognised at the point of 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 Operating Company satisfies its performance obligation,
at which point the contract becomes the Operating Company's terms and
conditions resulting from the supplier's purchase order. 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. The transaction price is
allocated to each performance obligation on a relative standalone selling
price basis.
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 as work progresses. Progress is measured with reference to the
actual cost incurred as a proportion of the total costs expected to be
incurred under the contract. This is not a significant 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.
The Group applies the practical expedient in IFRS 15 (paragraph 63) and does
not adjust the promised amount of consideration for the effects of a
significant financing component if the Group expects, at contract inception,
that the period between the transfer of a promised good or service to a
customer and when the customer pays for that good or service will be one year
or less.
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.
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. This provides additional and more
consistent measures of underlying performance to shareholders by removing
items that are not closely related to the Group's trading or operating cash
flows. Such adjusting items include 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 and impairment of acquired
intangible assets, and other significant one-off items that may arise.
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
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.
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, borrowings and lease obligations.
· 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.
The Group has classified interest income and expenses within financing
activities in the Consolidated Cash Flow Statement.
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.
Non-monetary assets and liabilities denominated in foreign currencies are
measured in terms of historical costs using the exchange rate at the date of
the initial transaction. Any gain or loss arising on monetary assets and
liabilities 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 £nil 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.
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 from the
point at which the asset is ready to use over its estimated economic life of
between three and five years.
Development costs that are directly attributable to the design and testing of
identifiable and unique software products controlled by the Group are
recognised as intangible assets where the following criteria are met:
· it is technically feasible to complete the software so that it
will be available for use;
· management intends to complete the software and use or sell it;
· there is an ability to use or sell the software;
· it can be demonstrated how the software will generate probable
future economic benefits;
· adequate technical, financial and other resources to complete the
development and to use or sell the software are available; and
· the expenditure attributable to the software during its
development can be reliably measured.
Where the Group enters into a SaaS cloud computing arrangement to access
software, there are limited cases for capitalisation of attributable
implementation costs. If the arrangement contains a lease as defined by IFRS
16, lease accounting rules apply including capitalisation of directly
attributable costs. Alternatively, directly attributable software costs can
create an intangible asset if the software can be controlled by the entity,
either through the option to be run on the entity's or a third-party's
infrastructure or where the development of the software creates customised
software that the entity has exclusive rights to.
(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
ten years.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less provisions for
accumulated impairment and accumulated 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 buildings and improvements Shorter of 2% or period of lease
Plant, equipment and vehicles 8% to 33.3%
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 provisioning 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.
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. Such reversals are
recognised in the Consolidated Income Statement. Impairment losses in respect
of goodwill are not reversed.
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.
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.
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. A contract liability is only
recognised on non-cancellable contracts that provide unconditional rights to
payment from the customer for products and services that the Group has not yet
completed providing or that it will provide in the near future. 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').
Costs to obtain or fulfil a contract
The incremental costs of obtaining a contract with a customer are capitalised
as an asset if the Group expects to recover them. Costs such as sales
commissions may be incurred when the Group enters into a new contract. Costs
to obtain or fulfil a contract are presented in the Consolidated Balance Sheet
as assets until the performance obligation to which they relate has been met.
These assets are amortised on a consistent basis with how the related revenue
is recognised.
The Group applies the practical expedient in IFRS 15 (paragraph 94) and
recognises incremental costs of obtaining a contract as an expense when
incurred if the amortisation period of the asset that the Group would
otherwise have recognised is one year or less.
Trade payables
Trade payables are non-interest bearing and are stated at amortised cost.
Interest bearing loans and borrowings
Interest bearing loans and borrowings are initially recognised in the
Consolidated Balance Sheet at fair value less directly attributable
transaction costs and are subsequently measured at amortised cost using the
effective interest rate method.
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.
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.
Leases
The Group assesses at contract inception whether a contract is, or contains, a
lease. That is, if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration. Where the
Group determines the contract is, or contains a lease, a right-of-use asset
and a lease liability is recognised at the lease commencement date.
The lease term is determined from the commencement date of the lease and
covers the non-cancellable term. If the Group has an extension option, which
it considers reasonably certain to exercise, then the lease term will be
considered to extend beyond that non-cancellable period. If the Group has a
termination option, which it considers reasonably certain to exercise, then
the lease term will be considered to be until the point the termination option
will take effect. The Group deem that it is not reasonably certain to exercise
an extension option or a termination option with an exercise date past the
planning horizon of five years.
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 end of the lease term
unless the right-of-use asset is deemed to have a useful life shorter than the
lease term. The Group has taken the practical expedient to not separate lease
and non-lease components and so account for both as a single lease component.
The right-of-use assets are also subject to impairment testing under IAS 36.
Refer to the previous section on Impairment of non-current assets for further
details.
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 payments include fixed payments
(including in-substance fixed payments) less any lease incentives receivable,
variable lease payments that depend on an index or a rate, and amounts
expected to be paid under residual value guarantees. Variable lease payments
that depend on an index or a rate, and amounts expected to be paid under
residual value guarantees are not material to the Group. The lease payments
also include the exercise price of a purchase option reasonably certain to be
exercised by the Group and payments of penalties for terminating the lease, if
the lease term reflects the Group exercising the option to terminate. Variable
lease payments that do not depend on an index or a rate are recognised as
expenses (unless they are incurred to produce inventories) in the period in
which the event or condition that triggers the payment occurs. 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.
Lease payments for short-term leases, low-value assets and variable lease
payments not included in the measurement of the lease liability are classified
as cash flows from operating activities within the Consolidated Cash Flow
Statement. The Group has classified the principal and interest portions of
lease payments within financing activities.
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
Under the Executive share plan, awards of shares are made to Executive
Directors and certain senior employees. 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 Retained
earnings within Total equity. Effective for the year ended 31 March 2022, the
share-based payment reserve, which was previously presented as Other reserves
has been amalgamated with Retained earnings, in the Consolidated Statement of
Changes in Equity and the Consolidated Balance Sheet as permitted by IFRS 2.
This resulted in the £13.6m debit in brought forward Other reserves at 1
April 2021 being transferred to Retained earnings. There is no change in Total
equity from this change, nor the amounts charged or credited to the reserves
during the period, which represents a change in presentational accounting
policy only.
(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.
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.
Notes to the Accounts
1 Segmental analysis and revenue from contracts with customers
Sector analysis and disaggregation of revenue
The Group has three main operating and reportable segments (Safety,
Environmental & Analysis and Healthcare), which are defined by markets
rather than product type. Each segment includes businesses with similar
operating and market characteristics. These segments are consistent with the
internal reporting as reviewed by the Group Chief Executive.
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.
Safety sector generates revenue by providing products that protect people,
assets and infrastructure, enabling safe movement and enhancing efficiency.
The technologies are used in public and commercial spaces and in industrial
and logistics operations. Markets include: Fire Safety Technologies that
protect people and assets from fire; Power Safety Technologies that increase
the integrity and safety of electrical systems in a range of industries;
Industrial Safety Technologies that protect people and assets in industrial
environments; and Urban Safety Technologies that protect people and assets in
urban environments. Products are generally sold separately, with contracts
typically less than one year in length. 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, except where a retention
is held for documentation.
Environmental & Analysis generates revenue by providing products and
technologies that monitor the environment, that ensure the quality and
availability of life-critical resources, and analyse materials in a wide range
of applications. Markets include: Optical Analysis Technologies that provide
world-class optical, optoelectronic and spectral imaging systems that use
light to analyse materials in a wide range of applications; Water Analysis and
Treatment Systems to sustainably improve water quality and availability; and
Environmental Monitoring Technologies that detect hazardous gases and analyse
air quality, gases and water to monitor the quality of our environment.
Products and services are generally sold separately. Warranties are typically
of an assurance nature, but some companies within the Group 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.
Healthcare sector generates revenue by providing products and services that
help providers improve the care they deliver and enhance the quality of
patients' lives. Markets include: Life Sciences technologies and solutions to
enable in-vitro diagnostic systems and accelerate life-science discoveries and
development; Healthcare Assessment & Analytics components, devices and
systems that provide valuable information and analytics so providers can
better understand patient health and make decisions across the continuum of
care; and Therapeutic Solutions Technologies, materials and solutions that
enable treatment across key 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.
Year ended 31 March 2023
Revenue by sector and destination (all continuing operations)
United States Mainland United Asia Pacific Africa, Other Total
of America Europe Kingdom £m Near and countries £m
£m £m £m Middle East £m
£m
Safety 205.1 217.1 151.4 112.7 33.2 26.1 745.6
Environmental & Analysis 277.0 67.3 79.5 96.7 15.5 16.1 552.1
Healthcare 298.8 92.0 49.2 73.0 14.9 28.5 556.4
Inter-segmental sales (0.1) - (1.2) - - - (1.3)
Revenue for the year 780.8 376.4 278.9 282.4 63.6 70.7 1,852.8
Year ended 31 March 2022
Revenue by sector and destination (all continuing operations)
United States Mainland United Asia Pacific Africa, Other Total
of America Europe Kingdom £m Near and countries £m
£m £m £m Middle East £m
£m
Safety 164.6 180.0 147.0 101.8 29.4 18.6 641.4
Environmental & Analysis 209.6 56.7 77.6 78.4 12.3 8.3 442.9
Healthcare 224.3 71.4 42.4 70.6 11.9 21.7 442.3
Inter-segmental sales (1.3) - - - - - (1.3)
Revenue for the year 597.2 308.1 267.0 250.8 53.6 48.6 1,525.3
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 £105.4m (2022 represented:
£81.1m). The 2022 comparative has been represented to reflect £11.2m of
service revenue previously classified as product revenue. All revenue was
otherwise derived from the sale of products.
Year ended 31 March 2023
Revenue Revenue Total
recognised recognised Revenue
over time at a point £m
£m in time
£m
Safety 7.1 738.5 745.6
Environmental & Analysis 121.5 430.6 552.1
Healthcare 67.1 489.3 556.4
Inter-segmental sales - (1.3) (1.3)
Revenue for the year 195.7 1,657.1 1,852.8
Year ended 31 March 2022
Revenue Revenue Total
recognised recognised Revenue
over time at a point £m
£m in time
£m
Safety 8.2 633.2 641.4
Environmental & Analysis 99.8 343.1 442.9
Healthcare 49.6 392.7 442.3
Inter-segmental sales - (1.3) (1.3)
Revenue for the year 157.6 1,367.7 1,525.3
Year ended 31 March 2023
Revenue from Revenue Revenue from Total
performance previously performance Revenue
obligations included as obligations £m
entered into contract satisfied in
and satisfied liabilities previous
in the year £m periods
£m £m
Safety 741.7 3.9 - 745.6
Environmental & Analysis 545.0 7.1 - 552.1
Healthcare 542.8 13.4 0.2 556.4
Inter-segmental sales (1.3) - - (1.3)
Revenue for the year 1,828.2 24.4 0.2 1,852.8
Year ended 31 March 2022
Revenue from Revenue Revenue from Total
performance previously performance Revenue
obligations included as obligations £m
entered into contract satisfied in
and satisfied liabilities previous
in the year £m periods
£m £m
Safety 638.1 3.3 - 641.4
Environmental & Analysis 436.3 6.6 - 442.9
Healthcare 432.8 5.6 3.9 442.3
Inter-segmental sales (1.3) - - (1.3)
Revenue for the year 1,505.9 15.5 3.9 1,525.3
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 Recognised Recognised Recognised
2023 < 1 year 1-2 years > 2 years
Total £m £m £m
£m
Safety 19.7 9.6 2.8 7.3
Environmental & Analysis 16.9 8.5 3.5 4.9
Healthcare 21.6 20.8 0.8 -
Inter-segmental sales - - - -
Total 58.2 38.9 7.1 12.2
Aggregate transaction price allocated
to unsatisfied performance obligations
31 March Recognised Recognised Recognised
2022 < 1 year 1-2 years > 2 years
Total £m £m £m
£m
Safety 27.0 15.2 4.5 7.3
Environmental & Analysis 15.3 7.0 3.4 4.9
Healthcare 14.4 12.9 1.5 -
Inter-segmental sales - - - -
Total 56.7 35.1 9.4 12.2
Segment results
Profit (all continuing operations)
Year ended
Year ended 31 March
31 March 2022
2023 £m
£m
Segment profit before allocation of adjustments*
Safety 152.5 146.2
Environmental & Analysis 134.2 109.8
Healthcare 130.1 99.5
416.8 355.5
Segment profit after allocation of adjustments*
Safety 123.9 163.5
Environmental & Analysis 121.5 96.9
Healthcare 101.6 83.3
Segment profit 347.0 343.7
Central administration costs (38.6) (30.9)
Net finance expense (16.9) (8.4)
Group profit before taxation 291.5 304.4
Taxation (57.2) (60.2)
Profit for the year 234.3 244.2
* Adjustments include the amortisation and impairment of acquired intangible
assets; acquisition items; significant restructuring costs and profit or loss
on disposal of operations. Note 3 provides more information on alternative
performance measures.
Acquisition transaction costs, adjustments to contingent consideration and
release of fair value adjustments to inventory (collectively 'acquisition
items'), amortisation and impairment of acquired intangible assets and profit
on disposal of operations 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 2023
Acquisition items
Amortisation and impairment Transaction Adjustments Release of Total Disposal of Total
of acquired costs to contingent fair value amortisation and impairment operations and £m
intangible £m consideration adjustments charge and restructuring
assets £m to inventory acquisition (note 9)
£m £m items £m
£m
Safety (25.1) (3.1) - (0.4) (28.6) - (28.6)
Environmental & Analysis (11.4) (0.9) 0.2 (0.6) (12.7) - (12.7)
Healthcare (20.0) (1.9) (3.9) (2.7) (28.5) - (28.5)
Total Segment & Group (56.5) (5.9) (3.7) (3.7) (69.8) - (69.8)
The transaction costs arose mainly on the acquisitions during the year. In
Safety, they related to the acquisition of FirePro (£1.6m), WEETECH (£1.0m),
Thermocable (£0.4m) and Zonegreen (£0.1m). In Environmental & Analysis,
they related to the acquisition of Deep Trekker (£0.5m) in the current year
and Sewertronics (£0.4m) that was acquired in May 2023. In Healthcare, they
related to the acquisition of IZI (£1.6m) in the current year, and the
acquisition of Visiometrics in a previous year (£0.3m).
The £3.7m adjustment to contingent consideration comprised of a credit of
£0.2m in Environmental & Analysis arising from a decrease in the estimate
of the payables for Orca (£0.2m) and a debit of £3.9m in Healthcare arising
from an increase in estimates of the payables for Infinite Leap (£2.7m), IZI
(£1.4m) and Meditech (£0.3m), partially offset by a decrease in the estimate
of the payable for Clayborn Lab (£0.3m) and Spreo (£0.2m).
The £3.7m release of fair value adjustments to inventory related to WEETECH
(£0.3m) and Thermocable (£0.1m) in Safety; Deep Trekker (£0.3m) and
International Light Technologies (£0.3m) in Environmental & Analysis; and
IZI (£2.7m) in Healthcare. All amounts have been released in relation to
International Light Technologies and Deep Trekker.
Year ended 31 March 2022
Acquisition items
Amortisation Transaction Adjustments Release of Total Disposal of Total
of acquired costs to contingent fair value amortisation operations and £m
intangible £m consideration adjustments charge and restructuring
assets £m to inventory acquisition (note 9)
£m £m items £m
£m
Safety (14.9) (0.5) - (1.3) (16.7) 34.0 17.3
Environmental & Analysis (10.3) (1.6) 0.1 (1.1) (12.9) - (12.9)
Healthcare (17.5) (2.1) 4.4 (1.0) (16.2) - (16.2)
Total Segment & Group (42.7) (4.2) 4.5 (3.4) (45.8) 34.0 (11.8)
The transaction costs arose on the acquisitions made in the prior year. In
Safety, they related to the acquisition of Ramtech (£0.4m) and IBIT (£0.1m).
In Environmental & Analysis, they related to the acquisition of Dancutter
(£0.3m), Sensitron (£0.4m), Orca (£0.1m), Anton (£0.1m), International
Light Technologies (£0.2m) in the year and Deep Trekker (£0.5m) that was
acquired in April 2022. In Healthcare, they related to the acquisition of
PeriGen (£1.4m), Infinite Leap (£0.3m), Clayborn Lab (£0.1m), Meditech
(£0.1m) and RNK (£0.1m) in the year, and the acquisition of Visiometrics in
a previous year (£0.1m).
The £4.5m adjustment to contingent consideration comprised of a credit of
£0.1m in Environmental & Analysis arising from a decrease in the
estimate of the payables for Invenio (£0.3m) offset by an increase in the
estimate of the payable for Orca (£0.2m) and a credit of £4.4m in
Healthcare arising from a decrease in estimates of the payables for NovaBone
(£1.3m), NeoMedix (£3.0m) and Spreo (£0.1m) partially offset by an increase
in the estimate of the payable for Infowave (£0.3m) and a credit of £0.3m
arising from exchange differences on balances denominated in Euros.
The £3.4m release of fair value adjustments to inventory related to Ramtech
(£1.3m) in Safety; Dancutter (£0.1m), Orca (£0.6m), Sensitron (£0.2m) and
International Light Technologies (£0.2m) in Environmental & Analysis; and
Meditech (£1.0m) in Healthcare. All amounts have been released in relation
to Dancutter, Ramtech, Orca and Sensitron.
Other segment information
Depreciation, amortisation
and impairment
31 March 31 March
2023 2022
£m £m
Safety 39.6 29.0
Environmental & Analysis 19.3 19.3
Healthcare 28.2 24.7
Total segment depreciation, amortisation and impairment 87.1 73.0
Unallocated 22.8 18.8
Total Group 109.9 91.8
During the year impairment losses of £8.4m were recognised on Property, plant
and equipment and other intangible assets, of which £8.0m was recognised in
Safety, £0.1m was recognised in Environmental & Analysis and £0.3m was
recognised in Healthcare (2022: £3.2m comprising £1.0m in Safety, £1.7m in
Environmental & Analysis, £0.5m in Healthcare). Impairment losses mainly
related to acquired intangible assets, due to changes in expected future cash
flows, and to capitalised development costs recorded as a result of changes
in the expected outcome of projects.
Information about major customers
No single customer accounts for more than 10% (2022: 10%) of the Group's
revenue.
2 Earnings per share
Basic earnings per share amounts are calculated by dividing the net profit for
the year attributable to the equity shareholders of the parent by the
weighted average number of shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit
attributable to the equity shareholders of the parent by the weighted average
number of shares outstanding during the year plus the weighted average number
of shares that would be in issue on the conversion of all the dilutive
potential shares.
The weighted average number of shares used to calculate both basic and diluted
earnings per share exclude shares held in the employee benefit trust.
Adjusted earnings are calculated as earnings from continuing operations
excluding the amortisation and impairment of acquired intangible assets;
acquisition items; significant restructuring costs, profit or loss on disposal
of operations and the associated taxation thereon and in the prior year the
increase in the UK's corporation tax rate from 19% to 25%. 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:
Basic earnings per share
Per share
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£m £m pence pence
Earnings from continuing operations attributable to owners of the parent 234.5 244.4 62.04 64.54
Amortisation and impairment of acquired intangible assets (after tax) 42.3 33.1 11.19 8.73
Acquisition transaction costs (after tax) 5.3 3.8 1.41 0.99
Adjustments to contingent consideration (after tax) 3.8 (4.5) 1.00 (1.19)
Release of fair value adjustments to inventory (after tax) 2.7 2.6 0.70 0.70
Disposal of operations and restructuring (after tax) - (34.0) - (8.98)
Impact of UK tax rate change - 2.6 - 0.69
Adjusted earnings attributable to owners of the parent 288.6 248.0 76.34 65.48
Weighted average number of shares in issue for basic earnings per share, 378.0 378.7
million
Diluted earnings per share
Per share
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£m £m pence pence
Earnings from continuing operations attributable to owners of the parent 234.5 244.4 61.86 64.42
Adjusted earnings attributable to owners of the parent 288.6 248.0
Weighted average number of shares in issue for basic earnings per 378.0 378.7
share, million
Dilutive potential shares - share awards, million 1.1 0.7
Weighted average number of shares in issue for diluted earnings per share, 379.1 379.4
million
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
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, net debt,
Adjusted operating profit, cash conversion and Adjusted operating cash flow.
Note 1 provides further analysis of the adjusting items in reaching adjusted
profit measures. Net debt is defined as Borrowings plus Lease liabilities net
of Cash and bank balances, note 10 provides an analysis of net debt for the
year.
Return on Total Invested Capital
31 March 31 March
2023 2022
£m £m
Profit after tax 234.3 244.2
Adjustments(1) 54.1 3.7
Adjusted profit after tax(1) 288.4 247.9
Total equity 1,598.9 1,403.1
Less net retirement benefit assets (37.9) (30.5)
Deferred tax liabilities on retirement benefits 9.6 7.7
Cumulative fair value adjustments on equity investments through other (4.4) 1.7
comprehensive income
Cumulative amortisation and impairment of acquired intangible assets 418.1 345.7
Historical adjustments to goodwill(2) 89.5 89.5
Total Invested Capital 2,073.8 1,817.2
Average Total Invested Capital(3) 1,945.5 1,695.0
Return on Total Invested Capital (ROTIC)(4) 14.8% 14.6%
Return on Capital Employed
31 March 31 March
2023 2022
£m £m
Profit before tax 291.5 304.4
Adjustments(1) 69.8 11.8
Net finance costs 16.9 8.4
Lease interest (2.9) (2.3)
Adjusted operating profit(1) after share of results of associates and lease 375.3 322.3
interest
Computer software costs within other intangible assets 3.2 4.2
Capitalised development costs within other intangible assets 49.6 41.7
Other intangibles within other intangible assets 3.4 3.6
Property, plant and equipment 222.9 194.0
Inventories 312.4 228.8
Trade and other receivables 410.7 325.1
Current trade and other payables (280.7) (242.7)
Current lease liabilities (19.2) (15.5)
Current provisions (21.0) (20.7)
Net tax (payable)/receivable (2.2) 3.8
Non-current trade and other payables (21.9) (19.0)
Non-current provisions (9.7) (7.7)
Non-current lease liabilities (68.7) (56.6)
Add back contingent purchase consideration 16.4 15.2
Capital Employed 595.2 454.2
Average Capital Employed(3) 524.7 421.9
Return on Capital Employed (ROCE)(4) 71.5% 76.4%
1 Adjustments include the amortisation and impairment of acquired intangible
assets; acquisition items; and significant restructuring costs and profit or
loss on disposal of operations. 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 2021 Total Invested Capital and Capital Employed
balances were £1,572.8m and £389.5m 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 and lease interest divided by Average Capital
Employed, respectively.
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
Revenue Adjusted* profit before taxation
Year ended Year ended % growth Year ended Year ended % growth
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£m £m £m £m
Continuing operations 1,852.8 1,525.3 21.5% 361.3 316.2 14.2%
Acquired and disposed revenue/profit (65.6) (14.9) (9.0) (2.0)
Organic growth 1,787.2 1,510.4 18.3% 352.3 314.2 12.1%
Constant currency adjustment (122.9) (28.3)
Organic growth at constant currency 1,664.3 1,510.4 10.2% 324.0 314.2 3.1%
Sector Organic growth at constant currency
Organic growth at constant currency is calculated for each segment using the
same method as described above.
Safety
Revenue Adjusted* segment profit
Year ended Year ended % growth Year ended Year ended % growth
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£m £m £m £m
Continuing operations 745.6 641.4 16.2% 152.5 146.2 4.3%
Acquisition and currency adjustments (48.6) (14.6) (9.9) (2.0)
Organic growth at constant currency 697.0 626.8 11.2% 142.6 144.2 (1.1)%
Environmental & Analysis
Revenue Adjusted* segment profit
Year ended Year ended % growth Year ended Year ended % growth
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£m £m £m £m
Continuing operations 552.1 442.9 24.7% 134.2 109.8 22.2%
Acquisition and currency adjustments (69.3) (0.4) (16.6) -
Organic growth at constant currency 482.8 442.5 9.1% 117.6 109.8 7.1%
Healthcare
Revenue Adjusted* segment profit
Year ended Year ended % growth Year ended Year ended % growth
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£m £m £m £m
Continuing operations 556.4 442.3 25.8% 130.1 99.5 30.8%
Acquisition and currency adjustments (70.7) - (16.7) -
Organic growth at constant currency 485.7 442.3 9.8% 113.4 99.5 14.0%
* Adjustments include in the current and prior year the amortisation and
impairment of acquired intangible assets; acquisition items; significant
restructuring costs and profit or loss on disposal of operations.
Adjusted operating profit
Year ended Year ended
31 March 31 March
2023 2022
£m £m
Operating profit 308.4 278.9
Add back:
Acquisition items (note 1) 13.3 3.1
Amortisation and impairment of acquired intangible assets (note 1) 56.5 42.7
Adjusted operating profit 378.2 324.7
Adjusted operating cash flow
Year ended Year ended
31 March 31 March
2023 2022
£m £m
Net cash from operating activities (note 10) 258.0 237.4
Add:
Net acquisition costs paid 4.6 4.1
Taxes paid 67.2 56.0
Proceeds from sale of property, plant and equipment and capitalised 3.1 1.1
development costs
Share awards vested not settled by own shares 4.5 7.1
Deferred consideration paid in excess of payable estimated on acquisition 1.7 7.5
Less:
Purchase of property, plant and equipment (excluding Right of use assets) (29.0) (25.2)
Purchase of computer software and other intangibles (1.1) (1.4)
Development costs capitalised (15.8) (13.4)
Adjusted operating cash flow 293.2 273.2
Cash conversion % (adjusted operating cash flow/adjusted operating profit) 78% 84%
4 Finance income
Year ended Year ended
31 March 31 March
2023 2022
£m £m
Interest receivable 0.7 0.2
Net interest credit on pension plan assets 1.1 -
Fair value movement on derivative financial instruments - 0.4
1.8 0.6
5 Finance expense
Year ended Year ended
31 March 31 March
2023 2022
£m £m
Interest payable on borrowings 14.5 5.6
Interest payable on lease obligations 2.9 2.3
Amortisation of finance costs 0.8 0.7
Net interest charge on pension plan liabilities - 0.3
Other interest payable 0.1 0.1
Fair value movement on derivative financial instruments 0.4 -
18.7 9.0
6 Taxation
Recognised in the Consolidated Income Statement
Year ended Year ended
31 March 31 March
2023 2022
£m £m
Current tax
UK corporation tax at 19% (2022: 19%) 14.8 16.7
Overseas taxation 61.9 46.0
Adjustments in respect of prior years (3.0) 0.5
Total current tax charge 73.7 63.2
Deferred tax
Origination and reversal of timing differences (17.5) (5.7)
Adjustments in respect of prior years 1.0 0.1
Changes in tax rates - UK - 2.6
Total deferred tax credit (16.5) (3.0)
Total tax charge recognised in the Consolidated Income Statement 57.2 60.2
Reconciliation of the effective tax rate:
Profit before tax 291.5 304.4
Tax at the UK corporation tax rate of 19% (2022: 19%) 55.4 57.8
Profit on disposal of business - (6.5)
Overseas tax rate differences 9.0 6.2
Tax incentives, exemptions and credits (including patent box, R&D and (6.8) (4.2)
High-Tech status)
Changes in tax rates - UK - 2.6
Permanent differences 1.6 3.7
Adjustments in respect of prior years (2.0) 0.6
Total tax charge recognised in the Consolidated Income Statement 57.2 60.2
Effective tax rate 19.6% 19.8%
Year ended Year ended
31 March 31 March
2023 2022
£m £m
Adjusted* profit before tax 361.3 316.2
Total tax charge on adjusted* profit 72.9 68.3
Effective tax rate 20.2% 21.6%
* Adjustments include the amortisation and impairment of acquired intangible
assets, acquisition items, significant restructuring costs and profit or loss
on disposal of operations. 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. The Finance Bill 2021
received Royal Assent on 10 June 2021 and included the increase in the UK
corporation tax rate from 19% to 25% from 1 April 2023.
On 23 March 2023, the UK Government issued further draft legislation
applicable to large multinational groups in relation to a new tax framework
(part of the Organisation for Economic Co-operation and Development (OECD)
BEPS initiative), which introduces a global minimum effective tax rate of 15%
effective for accounting periods beginning on or after 31 December 2023. The
Group monitors income tax developments in the territories in which it
operates, as well as the applicable accounting standards, to understand their
potential future impacts.
Recognised in the Consolidated Statement of Comprehensive Income and
Expenditure
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
2023 2022
£m £m
Current tax
Retirement benefit obligations (1.8) (2.3)
Deferred tax
Retirement benefit obligations 0.6 11.9
Effective portion of changes in fair value of cash flow hedges 0.3 (0.4)
(0.9) 9.2
Recognised directly in equity
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
2023 2022
£m £m
Current tax
Excess tax deductions related to share-based payments on vested awards - (1.3)
Deferred tax
Change in estimated excess tax deductions related to share-based payments 0.7 0.2
0.7 (1.1)
7 Dividends
Per ordinary share
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
pence pence £m £m
Amounts recognised as distributions to shareholders in the year
Final dividend for the year ended 31 March 2022 (31 March 2021) 11.53 10.78 43.6 40.8
Interim dividend for the year ended 31 March 2023 (31 March 2022) 7.86 7.35 29.7 27.9
19.39 18.13 73.3 68.7
Dividends declared in respect of the year
Interim dividend for the year ended 31 March 2023 (31 March 2022) 7.86 7.35 29.7 27.9
Proposed final dividend for the year ended 31 March 2023 (31 March 2022) 12.34 11.53 46.6 43.6
20.20 18.88 76.3 71.5
The proposed final dividend is subject to approval by shareholders at the
Annual General Meeting on 20 July 2023 and has not been included as a
liability in these financial statements.
8 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. 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 2023, the Group made seven acquisitions namely:
· Deep Trekker Inc.;
· IZI Healthcare Products, LLC;
· WEETECH Holdings GmbH;
· Certain trade and assets of Rigaku Corporation;
· Thermocable (Flexible Elements) Limited;
· Zone Green 2013 Ltd; and
· FirePro Group.
Set out on the following pages are summaries of the assets acquired and
liabilities assumed and the purchase consideration of:
a) the total of acquisitions;
b) Deep Trekker Inc.;
c) IZI Healthcare Products, LLC;
d) WEETECH Holding GmbH;
e) Thermocable (Flexible Elements) Limited;
f) FirePro Group;
g) Other acquisitions; and
h) adjustments arising on prior year acquisitions.
Due to their contractual dates, the fair value of receivables acquired
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 acquisitions contributed £41.0m of
revenue and £7.9m of profit after tax for year ended 31 March 2023.
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 £51.6m and £14.9m higher respectively.
As at the date of approval of the financial statements, with the exception of
Deep Trekker, the accounting for all other current year acquisitions is
provisional; relating to the finalisation of the valuation of acquired
intangible assets, the initial consideration, which is subject to agreement of
certain contractual adjustments, and certain other provisional balances.
a) Total of acquisitions
Total
£m
Non-current assets
Intangible assets 192.4
Property, plant and equipment 14.4
Deferred tax 1.1
Current assets
Inventories 23.1
Trade and other receivables 19.9
Cash and cash equivalents 10.1
Total assets 261.0
Current liabilities
Payables (10.4)
Borrowings (65.1)
Lease liabilities (1.5)
Tax liabilities (1.9)
Non-current liabilities
Lease liabilities (7.8)
Provisions (0.4)
Deferred tax liabilities (25.4)
Total liabilities (112.5)
Net assets of businesses acquired 148.5
Initial cash consideration paid 321.0
Other adjustments to consideration 6.3
Contingent purchase consideration including retentions estimated to be paid 1.5
Total consideration 328.8
Total goodwill 180.3
Total goodwill of £180.3m comprises £180.0m relating to current year
acquisitions and £0.3m relating to the prior year acquisition of
International Light Technologies Inc..
Analysis of cash outflow in the Consolidated Cash Flow Statement
Year ended Year ended
31 March 31 March
2023 2022
£m £m
Initial cash consideration paid 321.0 151.2
Cash acquired on acquisitions (10.1) (18.2)
Initial cash consideration adjustments on current year acquisitions 6.3 13.1
Contingent consideration paid 4.6 14.2
Net cash outflow relating to acquisitions 321.8 160.3
Included in cash flows from operating activities 1.7 7.5
Included in cash flows from investing activities 320.1 152.8
Other adjustments are primarily adjustments for acquired working capital once
balances are fully reconciled, forming part of the contractual payment
mechanisms.
Contingent consideration included in cash flows from operating activities
reflect amounts paid in excess of that estimated in the acquisition balance
sheets.
b) Deep Trekker Inc.
£m
Non-current assets
Intangible assets 14.9
Property, plant and equipment 2.2
Deferred tax 0.6
Current assets
Inventories 3.3
Trade and other receivables 1.1
Cash and cash equivalents 2.7
Total assets 24.8
Current liabilities
Payables (2.1)
Borrowings (4.7)
Lease liabilities (0.4)
Tax liabilities (0.2)
Non-current liabilities
Lease liabilities (1.2)
Deferred tax liabilities (3.9)
Total liabilities (12.5)
Net assets of business acquired 12.3
Initial cash consideration paid 31.9
Other adjustments to consideration 1.9
Total consideration 33.8
Total goodwill 21.5
On 13 April 2022, the Group acquired the entire share capital of Deep Trekker
Inc. (Deep Trekker) for total consideration £33.8m (C$55.5m), which comprised
initial cash consideration of £31.9m (C$52.4m) and net cash/debt adjustments
and working capital adjustments of £1.9m (C$3.1m). The initial consideration
reflects a gross purchase price of £36.6m (C$60.0m) less debt acquired of
£4.7m (C$7.6m) which was settled immediately post-acquisition. There is no
contingent consideration payable.
Deep Trekker, based in Ontario, Canada, is a market-leading manufacturer of
remotely operated underwater robots used for inspection, surveying, analysis
and maintenance. Deep Trekker continues to run under its own management team
and has joined the Environmental & Analysis sector.
On acquisition, acquired intangibles were recognised relating to customer
related intangibles (£2.8m); trade name (£3.5m) and technology related
intangibles (£8.6m). The residual goodwill of £21.5m 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.
Deep Trekker contributed £15.1m of revenue and £2.1m of profit after tax for
the year ended 31 March 2023. 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 £0.3m higher and £0.0m higher
respectively.
Acquisition costs totalling £0.5m were recorded in the Consolidated Income
Statement.
The goodwill arising on this acquisition is not expected to be deductible for
tax purposes.
c) IZI Healthcare Products, LLC
£m
Non-current assets
Intangible assets 64.4
Property, plant and equipment 5.6
Deferred tax 0.4
Current assets
Inventories 9.9
Trade and other receivables 5.3
Cash and cash equivalents 1.3
Total assets 86.9
Current liabilities
Payables (2.9)
Borrowings (53.8)
Lease liabilities (0.6)
Tax liabilities (0.1)
Non-current liabilities
Lease liabilities (3.9)
Deferred tax liabilities (2.4)
Total liabilities (63.7)
Net assets of business acquired 23.2
Initial cash consideration paid 84.1
Other adjustments to consideration 1.9
Deferred contingent purchase consideration 1.5
Total consideration 87.5
Total goodwill 64.3
On 30 September 2022, the Group acquired the entire share capital of IZI
Medical Products, LLC (IZI), for total consideration of £87.5m (US$97.4m).
The initial consideration of £84.1m comprised a gross price of £137.9m
(US$153.5m) less debt acquired of £53.8m (US$59.9m) which was settled
immediately on acquisition. Other adjustments to consideration reflected
adjustments for acquired working capital of £1.9m (US$2.1m). For the
acquisition the maximum contingent consideration payable was £13.0m
(US$14.5m) based on profit-based targets for the year ending 31 March 2023, of
which £1.5m (US$1.8m) was estimated as the payable at the acquisition date.
IZI, based in Baltimore, Maryland, USA, is a leading designer, manufacturer
and distributor of medical devices used across a range of diagnostic and
therapeutic procedures. IZI continues to run under its own management team and
has joined the Healthcare sector.
On acquisition, acquired intangibles were recognised relating to customer
related intangibles (£19.9m); trade names (£2.6m) and technology related
intangibles (£41.9m).
The residual goodwill of £64.3m 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.
IZI contributed £15.1m of revenue and £3.2m of profit after tax for the year
ended 31 March 2023. 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 £14.2m and £2.5m higher respectively.
Acquisition costs totalling £1.6m were recorded in the Consolidated Income
Statement.
The goodwill arising on the IZI acquisition is expected to be deductible for
tax purposes.
d) WEETECH Holding GmbH
£m
Non-current assets
Intangible assets 17.8
Property, plant and equipment 2.2
Deferred tax 0.1
Current assets
Inventories 3.0
Trade and other receivables 6.4
Cash and cash equivalents 2.3
Total assets 31.8
Current liabilities
Payables (2.4)
Borrowings (6.6)
Lease liabilities (0.1)
Tax liabilities (1.1)
Non-current liabilities
Lease liabilities (1.1)
Deferred tax liabilities (5.1)
Total liabilities (16.4)
Net assets of business acquired 15.4
Initial cash consideration paid 46.1
Other adjustments to consideration 0.9
Total consideration 47.0
Total goodwill 31.6
On 4 October 2022, the Group acquired the entire share capital of WEETECH
Holding GmbH (WEETECH), for total consideration of £47.0m (€53.8m), which
comprised initial cash consideration of £46.1m (€52.8m) and subsequent
working capital adjustments of £0.9m (€1.0m). The initial consideration of
£46.1m reflects a gross purchase price of £50.2m (€57.5m) less debt
acquired of £6.6m (€7.6m) which was settled immediately post-acquisition
plus other debt-like adjustments of £2.5m (€2.9m). There is no contingent
consideration payable.
WEETECH, headquartered in Wertheim, Germany, designs and manufactures
safety-critical electrical testing technology for the aviation, rail,
automotive and engineering sectors. Its products ensure high and low voltage
electric systems remain compliant with increasing safety regulation. WEETECH
continues to run under its own management team and has joined the Safety
sector.
On acquisition, acquired intangibles were recognised relating to customer
related intangibles (£10.9m); trade names (£2.1m) and technology related
intangibles (£4.6m).
The residual goodwill of £31.6m 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.
WEETECH contributed £8.7m of revenue and £1.8m of profit after tax for the
year ended 31 March 2023. 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 £9.3m and £1.4m higher respectively.
Acquisition costs totalling £1.0m were recorded in the Consolidated Income
Statement.
The goodwill arising on the WEETECH acquisition is not expected to be
deductible for tax purposes.
e) Thermocable (Flexible Elements) Limited
£m
Non-current assets
Intangible assets 13.0
Property, plant and equipment 1.2
Current assets
Inventories 1.8
Trade and other receivables 0.7
Cash and cash equivalents 0.8
Total assets 17.5
Current liabilities
Payables (0.6)
Tax liabilities (0.2)
Non-current liabilities
Deferred tax liabilities (3.6)
Total liabilities (4.4)
Net assets of business acquired 13.1
Initial cash consideration paid 22.0
Other adjustments to consideration 0.5
Total consideration 22.5
Total goodwill 9.4
On 31 January 2023, the Group acquired the entire share capital of Thermocable
(Flexible Elements) Limited (Thermocable) for £22.5m, which comprised the
purchase price of £22.0m and net cash/debt adjustments of £0.5m. There is no
contingent consideration payable.
Thermocable, based in Bradford, UK, is a leading developer and manufacturer of
Linear Heat Detectors (LHDs). LHDs are temperature sensitive cables, installed
in areas at risk of overheating and fire, which trigger an alert when they
detect a change of temperature. Thermocable has joined the Group as part of
the Safety sector fire detection business, Apollo.
On acquisition, acquired intangibles were recognised relating to customer
related intangibles (£8.7m); trade name (£1.6m) and technology related
intangibles (£2.7m). The residual goodwill of £9.4m 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.
Thermocable contributed £1.3m of revenue and £0.5m of profit after tax for
the year ended 31 March 2023. 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 £5.3m higher and £1.5m higher
respectively.
Acquisition costs totalling £0.4m were recorded in the Consolidated Income
Statement.
The goodwill arising on this acquisition is not expected to be deductible for
tax purposes.
f) FirePro Group
£m
Non-current assets
Intangible assets 81.0
Property, plant and equipment 2.9
Current assets
Inventories 4.3
Trade and other receivables 6.0
Cash and cash equivalents 1.9
Total assets 96.1
Current liabilities
Payables (1.8)
Lease liabilities (0.4)
Tax liabilities (0.3)
Non-current liabilities
Lease liabilities (1.5)
Deferred tax liabilities (10.1)
Total liabilities (14.1)
Net assets of business acquired 82.0
Initial cash consideration paid 132.0
Other adjustments to consideration 1.2
Total consideration 133.2
Total goodwill 51.2
On 27 March 2023, the Group acquired the FirePro Group (FirePro) for total
consideration of £133.2m (€151.3m), which comprised the cash and debt-free
purchase price of £132.0m (€150.0m) and other adjustments of £1.2m
(€1.3m). There is no contingent consideration payable. Directly or through
another company acquired, the acquisition comprised the entire share capital
of Skyterra Investments Ltd, Nisolio Investments Ltd, P.J.K.A Investments Ltd,
FirePro Systems Ltd, Celanova Limited and I.D. Infinity Developments Cyprus
Ltd.
FirePro, based in Cyprus, is a leading designer and manufacturer of
aerosol-based fire suppression systems. FirePro continues to run under its own
management team and has joined the Safety sector.
On acquisition, acquired intangibles were recognised relating to customer
related intangibles (£44.9m); trade name (£7.1m) and technology related
intangibles (£29.0m). The residual goodwill of £51.2m 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.
FirePro contributed £0.4m of revenue and £0.1m of profit after tax for the
year ended 31 March 2023. 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 £19.8m higher and £9.2m higher
respectively.
Acquisition costs totalling £1.6m were recorded in the Consolidated Income
Statement.
The goodwill arising on this acquisition is not expected to be deductible for
tax purposes.
g) Other acquisitions
£m
Non-current assets
Intangible assets 1.3
Property, plant and equipment 0.3
Current assets
Inventories 0.8
Trade and other receivables 0.4
Cash and cash equivalents 1.1
Total assets 3.9
Current liabilities
Payables (0.6)
Lease liabilities -
Non-current liabilities
Lease liabilities (0.1)
Provisions (0.1)
Deferred tax liabilities (0.3)
Total liabilities (1.1)
Net assets of businesses acquired 2.8
Initial cash consideration paid 4.9
Other adjustments to consideration (0.1)
Total consideration 4.8
Total goodwill 2.0
On 21 November 2022, Ocean Optics Inc., a photonics technology company in the
Group's Environment and Analysis sector, bought the assets and IP associated
with laser-induced breakdown spectroscopy from Rigaku Analytical Devices Inc.,
and Rigaku Americas Holding Inc., in the United States for consideration of
£1.0m (US$1.1m).
On 8 March 2023, the Group acquired the entire share capital of Zonegreen 2013
Ltd and its subsidiary company, Zone Green Ltd, for total cash consideration
of £3.8m. Zonegreen, based in Sheffield, is renowned for its Rail Depot
Personnel Protection System (DPPS™) and has joined the Group company
Sentric, within the Safety sector.
In respect of these acquisitions, 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 £0.3m; trade name of £0.3m and technology
related intangibles of £0.7m; with residual goodwill arising of £2.0m.
These acquisitions contributed £0.4m of revenue and £0.2m of profit after
tax cumulatively for the year ended 31 March 2023. 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 £2.7m and
£0.3m higher respectively.
Acquisition costs totalling £0.2m were recorded in administrative expenses in
the Consolidated Income Statement. The goodwill arising on these acquisitions
is not expected to be deductible for tax purposes.
h) Adjustments arising on prior year acquisitions
£m
Non-current liabilities
Provisions (0.3)
Total liabilities (0.3)
Net adjustment to assets of business acquired in prior years (0.3)
Adjustment to goodwill 0.3
In finalising the acquisition accounting for the prior year acquisition of
International Light Technologies Inc., an adjustment of £0.3m was made to
include a provision for sales tax on pre-acquisition sales. This resulted in
an increase in goodwill of £0.3m.
The adjustment is not material and as such the comparative balance sheet was
not restated; instead, the adjustments have been made through the current
year.
9 Disposal of operations
In the prior year, in August 2021, the Group disposed of its entire interest
in Texecom Limited. Cash received on disposal of operations in the prior year
of £57.5m comprised proceeds from the sale of £64.8m, less £4.5m of cash
disposed and £2.8m of disposal costs. The Group recognised a profit on
disposal of operations of £34.0m.
10 Notes to the Consolidated Cash Flow Statement
Year ended Year ended
31 March 31 March
2023 2022
£m £m
Reconciliation of profit from operations to net cash inflow from operating
activities:
Profit on continuing operations before finance income and expense, share of 308.4 278.9
results of associate and profit on disposal of operations
Non-cash movement on hedging instruments 0.1 -
Depreciation and impairment of property, plant and equipment 41.5 36.1
Amortisation and impairment of computer software 2.2 2.5
Amortisation of capitalised development costs and other intangibles 9.2 7.6
Impairment of capitalised development costs 0.5 2.9
Amortisation of acquired intangible assets 48.7 42.7
Impairment of acquired intangible assets 7.8 -
Share-based payment expense in excess of amounts paid 12.9 5.0
Payments to defined benefit pension plans net of service costs (15.1) (11.7)
(Profit)/loss on sale of property, plant and equipment, capitalised (0.8) 0.8
development costs and computer software
Operating cash flows before movement in working capital 415.4 364.8
Increase in inventories (54.9) (51.9)
Increase in receivables (52.4) (43.6)
Increase in payables and provisions 15.1 36.1
Revision to estimate and exchange difference on contingent consideration 2.0 (12.0)
payable less amounts paid in excess of payable estimated on acquisition
Cash generated from operations 325.2 293.4
Taxation paid (67.2) (56.0)
Net cash inflow from operating activities 258.0 237.4
Year ended Year ended
31 March 31 March
2023 2022
£m £m
Analysis of cash and cash equivalents
Cash and bank balances 169.5 157.4
Overdrafts (included in current borrowings) (1.0) (0.7)
Cash and cash equivalents 168.5 156.7
31 March Cash flow Net Additions and reclassifications Exchange 31 March
2022 £m cash/(debt) £m adjustments 2023
£m acquired £m £m
£m
Analysis of net debt
Cash and bank balances 157.4 0.3 10.1 - 1.7 169.5
Overdrafts (0.7) (0.3) - - - (1.0)
Cash and cash equivalents 156.7 _ 10.1 - 1.7 168.5
Loan notes falling due within one year (71.2) 74.4 - - (3.2) -
Loan notes falling due after more than one year (35.0) (338.1) - - (3.8) (376.9)
Bank loans falling due within one year (0.6) 65.7 (65.1) - - -
Bank loans falling due after more than one year (252.6) (58.1) - - 10.3 (300.4)
Lease liabilities (72.1) 20.9 (9.3) (24.9) (2.5) (87.9)
Total net debt (274.8) (235.2) (64.3) (24.9) 2.5 (596.7)
The net increase in cash and cash equivalents of £10.1m comprised net cash
inflow of £nil and cash acquired of £10.1m.
The movement in bank loans in the year represents the proceeds and repayments
of bank borrowings and the borrowings acquired as a result of acquisition.
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.
Borrowings* Leases Overdraft Total liabilities Trade
£m £m £m from financing and other
activities payables
£m falling
due within
one year
£m
At 1 April 2021 322.3 65.0 3.0 390.3 186.7
Cash flows from financing activities 28.9 (16.8) - 12.1 (5.9)
Acquisition/disposal of subsidiaries - 2.5 - 2.5 11.7
Exchange adjustments 8.2 2.4 - 10.6 7.3
Other changes** - 19.0 (2.3) 16.7 42.9
At 31 March 2022 359.4 72.1 0.7 432.2 242.7
Cash flows from financing activities 256.1 (20.9) - 235.2 (14.4)
Acquisition/disposal of subsidiaries 65.1 9.3 - 74.4 8.7
Exchange adjustments (3.3) 2.5 - (0.8) 12.7
Other changes** - 24.9 0.3 25.2 31.0
At 31 March 2023 677.3 87.9 1.0 766.2 280.7
* Excluding overdrafts
** Other changes include movements in overdraft which is treated as cash,
interest accruals, reclassifications from non-current to current liabilities,
lease additions and other movements in working capital balances.
11 Contingent liabilities
Group financing exemptions applicable to UK controlled foreign companies
On 2 April 2019, the European Commission (EC) published its final decision
that the United Kingdom controlled Foreign Company Partial Exemption (FCPE)
constitutes State Aid. As previously reported, the Group has benefited from
the FCPE, which amounts to £15.4m of tax for the period from 1 April 2013 to
31 December 2018.
Appeals had been made by the UK Government, the Group and other UK-based
groups to annul the EC decision. On 8 June 2022, the EU General Court
delivered its decision in favour of the EC. In August 2022, the UK Government
appealed this decision.
Notwithstanding this appeal, under EU law, the UK Government is required to
commence collection proceedings. In January 2021, the Group received a
Charging Notice from HM Revenue & Customs (HMRC) for £13.9m assessed for
the period from 1 April 2016 to 31 December 2018. The Group appealed against
the notice but, as there is no right of postponement, the amount charged was
paid in full in February 2021 with a further £0.8m of interest paid in May
2021. In February 2021, the Group received confirmation from HMRC that it was
not a beneficiary of State Aid for the period from 1 April 2013 to 31 March
2016.
Whilst the EU General Court was in favour of the EC, the Group's assessment is
that there are strong grounds for appeal and the appeal is expected to be
successful. As the amounts paid are expected to be fully recovered, and given
the appeal process is expected to take more than a year, the Group continues
to recognise a receivable of £14.7m (31 March 2022: £14.7m) on the
Consolidated Balance Sheet within non-current assets.
Other contingent liabilities
The Group has widespread global operations and is consequently a defendant in
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 or material 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.
12 Events subsequent to end of reporting period
On 24 April 2023, Minicam Inc., a company in the Group's Environmental &
Analysis sector purchased its US service and distribution partner, Visual
Imaging Resources LLC, for initial consideration of c.£2.3m (US$2.8m), and an
earnout based on gross margin of a maximum of £1.0m (US$1.2m) per year for
three years.
On 4 May 2023, completing on 11 May 2023, the Group acquired the entire share
capital of Sewertronics Sp. Z o.o. (Sewertronics), based in Rzeszów, Poland
for a cash consideration of c.£36m (€41m) on a cash and debt-free basis.
Additional consideration of up to c.£16m (€18m) may be payable in cash,
based on the fulfilment of certain conditions. Sewertronics' technology
repairs and rehabilitates wastewater pipelines without the need to dig a
trench, by inserting a lining into the pipe, which is then cured using its
innovative and patented ultraviolet (UV) LED technology. Sewertronics will be
part of Halma's Environmental & Analysis sector. As part of the
acquisition a drawdown was made from the Group's Revolving Credit Facility of
£26.7m (€30.3m).
A detailed purchase price allocation exercise is currently being performed to
calculate the goodwill arising on these acquisitions.
There were no other known material non-adjusting events which occurred between
the end of the reporting period and prior to the authorisation of these
financial statements on 15 June 2023.
13 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 Annual Remuneration Report in the Annual Report and
Accounts 2023.
Year ended Year ended
31 March 31 March
2023 2022
£m £m
Wages and salaries 10.8 11.9
Pension costs - 0.1
Share-based payment charge 6.7 5.0
17.5 17.0
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
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