REG - Halma PLC - Half-year Report <Origin Href="QuoteRef">HLMA.L</Origin> - Part 3
22/11/2016 07:05
- Part 3: For the preceding part double click ID:nRSV7434Pb
2015) 29,628 27,630 27,629
Interim dividend for the year to 2 April 2016 - - 18,844
29,628 27,630 46,473
Dividends in respect of the period
Interim dividend for the year to 1 April 2017 (2 April 2016) 20,196 18,855 18,844
Final dividend for the year to 2 April 2016 - - 29,628
20,196 18,855 48,472
8 Notes to the Consolidated Cash Flow Statement
Unaudited 26 weeks to 1 October 2016£000 Unaudited 27 weeks to 3 October 2015£000 Audited 53 weeks to 2 April 2016 £000
Reconciliation of profit from operations to net cash inflow from operating activities
Profit on continuing operations before finance income and expense, share of results of associates and profit or loss on disposal of operations 70,159 66,653 142,943
Depreciation of property, plant and equipment 8,743 7,387 15,245
Amortisation of computer software 696 610 1,348
Amortisation of capitalised development costs and other intangibles 3,508 2,347 5,202
Amortisation of acquired intangible assets 15,192 10,403 23,103
Share-based payment expense (less than)/in excess of amounts paid (695) (1,052) 1,899
Additional payments to pension plans (5,104) (3,241) (7,728)
Loss on restructuring of operation 2,057 - -
Loss/(profit) on sale of property, plant and equipment and computer software 14 35 (1,345)
Operating cash flows before movement in working capital 94,570 83,142 180,667
Increase in inventories (2,350) (4,525) (4,809)
Decrease/(increase) in receivables 12,680 11,661 (8,786)
(Decrease)/increase in payables and provisions (18,104) (12,398) 7,844
Revision to estimate of contingent consideration payable 323 339 1,543
Cash generated from operations 87,119 78,219 176,459
Taxation paid (16,774) (16,333) (27,186)
Net cash inflow from operating activities 70,345 61,886 149,273
Unaudited1 October 2016£000 Unaudited3 October 2015£000 Audited2 April 2016£000
Analysis of cash and cash equivalents
Cash and bank balances 76,093 133,716 53,938
Overdrafts (included in current Borrowings) (1,825) - (4,412)
Cash and cash equivalents 74,268 133,716 49,526
At 2 April 2016 £000 Reclass £000 Cash flow £000 Loan notes repaid£000 Exchange adjustments £000 At 1 October 2016 £000
Analysis of net debt
Cash and bank balances 53,938 - 18,442 - 3,713 76,093
Overdrafts (4,412) - 2,587 - - (1,825)
Cash and cash equivalents 49,526 - 21,029 - 3,713 74,268
Loan notes falling due within one year* (336) (241) - 241 - (336)
Loan notes falling due after more than one year* (172,112) 241 - - (7,644) (179,515)
Bank loans falling due after more than one year (123,796) - - - (7,942) (131,738)
Total net debt (246,718) - 21,029 241 (11,873) (237,321)
* £241,000 of the £577,000 loan notes outstanding at the beginning of the period was converted at par into cash on 14 May 2016. The remaining loan notes are outstanding. The loan notes, which attract interest of 1%, are convertible into cash by the holder at par on each anniversary of the acquisition date until 14 May 2019.
9 Additional performance measuresReturn on Total Invested Capital (ROTIC)
Unaudited 26 weeks to 1 October 2016£000 Unaudited 27 weeks to 3 October2015£000 Audited53 weeks to2 April2016£000
Post-tax profit before adjustments** 65,232 57,487 129,641
Shareholders' funds 690,568 566,856 646,340
Add back retirement benefit obligations 94,024 51,405 52,323
Less associated deferred tax assets (17,506) (10,000) (9,619)
Cumulative amortisation of acquired intangible assets 136,963 93,137 112,478
Historical adjustments to goodwill*** 89,549 89,549 89,549
Total Invested Capital 993,598 790,947 891,071
Average Total Invested Capital* 942,335 783,554 833,616
Return on Total Invested Capital (annualised) 13.8% 14.7% 15.6%
Return on Capital Employed (ROCE)
Unaudited 26 weeks to 1 October 2016£000 Unaudited 27 weeks to 3 October 2015£000 Audited 53 weeks to 2 April 2016 £000
Operating profit before adjustments**, but after share of results of associates 88,521 77,578 173,066
Computer software costs within intangible assets 3,353 2,981 3,215
Capitalised development costs within intangible assets 25,985 17,397 23,540
Other intangibles within intangible assets 1,099 453 903
Property, plant and equipment 103,417 86,000 96,562
Inventories 113,757 83,014 105,318
Trade and other receivables 179,659 143,144 183,619
Trade and other payables (109,841) (90,721) (122,791)
Provisions (5,571) (2,179) (4,437)
Net tax liabilities (11,972) (9,431) (14,968)
Non-current trade and other payables (11,387) (4,058) (10,153)
Non-current provisions (18,859) (2,534) (18,510)
Add back contingent purchase consideration 18,500 841 17,075
Capital Employed 288,140 224,907 259,373
Average Capital Employed* 273,757 222,028 239,261
Return on Capital Employed (annualised) 64.7% 69.9% 72.3%
* The ROTIC and ROCE measures are expressed as a percentage of the average of the current period's and prior year's Total Invested Capital and Capital Employed respectively. Using an average as the denominator is considered to be more representative. The March 2015 Total Invested Capital and Capital Employed balances were £776,160,000 and £219,148,000 respectively.
** Adjustments include the amortisation of acquired intangible assets, acquisition items and profit or loss on disposal of operations and restructuring.
*** Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves.
Organic growthOrganic growth measures the change in revenue and profit from continuing Group operations. The calculation equalises the effect of acquisitions by: i. removing from the year of acquisition their entire revenue and profit before taxation, andii. in the following year, removing the revenue and profit for the number of months equivalent to the pre-acquisition period in the prior year. The resultant effect is that the acquisitions are removed from organic results for one full year of
ownership. The results of disposals are removed from the prior period reported revenue and profit before taxation. The effects of currency changes are removed through restating the current year revenue and profit before taxation at the prior year exchange rates. Organic growth at constant currency has been calculated as follows:
Organic growth
Organic growth measures the change in revenue and profit from continuing Group
operations. The calculation equalises the effect of acquisitions by: i.
removing from the year of acquisition their entire revenue and profit before
taxation, andii. in the following year, removing the revenue and profit for
the number of months equivalent to the pre-acquisition period in the prior
year. The resultant effect is that the acquisitions are removed from organic
results for one full year of ownership. The results of disposals are removed
from the prior period reported revenue and profit before taxation. The effects
of currency changes are removed through restating the current year revenue and
profit before taxation at the prior year exchange rates. Organic growth at
constant currency has been calculated as follows:
Revenue Adjusted profit* before taxation
Unaudited26 weeks to 1 October 2016 £000 Unaudited27 weeks to 3 October 2015 £000 % growth Unaudited26 weeks to 1 October 2016£000 Unaudited27 weeks to 3 October 2015£000 % growth
Continuing operations 442,121 379,657 16.5% 83,630 74,657 12.0%
Acquired and disposed revenue/profit (25,428) - (1,510) -
Organic growth 416,693 379,657 9.8% 82,120 74,657 10.0%
Constant currency adjustment (29,072) - (5,978) -
Organic growth at constant currency 387,621 379,657 2.1% 76,142 74,657 2.0%
* Adjustments include the amortisation of acquired intangible assets, acquisition items, and profit or loss on disposal of operations and restructuring.
Adjusted operating profit
Unaudited26 weeks to 1 October 2016£000 Unaudited27 weeks to 3 October 2015£000 Audited53 weeks to 2 April 2016 £000
Operating profit 70,159 66,653 142,943
Add back:
Acquisition items 1,113 601 7,179
Loss on restructuring of operations 2,100 - -
Amortisation of acquired intangible assets 15,192 10,403 23,103
Adjusted operating profit 88,564 77,657 173,225
Adjusted operating cash flow
Unaudited26 weeks to 1 October 2016£000 Unaudited27 weeks to 3 October 2015£000 Audited53 weeks to 2 April 2016£000
Net cash from operating activities (note 8) 70,345 61,886 149,273
Add back:
Taxation paid 16,774 16,333 27,186
Proceeds from sale of property, plant and equipment 287 468 2,364
Proceeds from sale of capitalised development costs - - 166
Share awards vested not settled by Own shares* 3,310 2,477 2,478
Less:
Purchase of property, plant and equipment (10,728) (8,244) (22,418)
Purchase of computer software and other intangibles (911) (859) (2,204)
Development costs capitalised (4,814) (3,990) (8,579)
Adjusted operating cash flow 74,263 68,071 148,266
Cash conversion % (adjusted operating cash flow/adjusted operating profit) 84% 88% 86%
* See Consolidated Statement of Changes in Equity.
10 Acquisitions In the provisional accounting for acquisitions, adjustments are made to the book values of the net assets of the companies acquired to reflect their provisional fair values to the Group. Acquired inventories are valued at fair value adopting Group bases and any liabilities for warranties relating to past trading are recognised. Other previously unrecognised assets and liabilities at acquisition are included and accounting policies are aligned with those of the Group where appropriate.
During the period ended 1 October 2016 adjustments were made to the fair values of acquired assets and liabilities included in the provisional accounting for the prior year acquisitions of Firetrace and Visiometrics. The provisional accounting was updated for non-material changes to certain provisions and inventory valuations and for adjustments to the related deferred tax balances. The initial consideration for CenTrak was also adjusted following the finalisation of the working capital adjustment payable.
The combined adjustments made for each acquisition resulted in a net adjustment to goodwill of £230,000. All adjustments to the provisional accounting were made within the goodwill measurement period, relevant to each acquisition, as defined by IFRS 3 (revised) Business Combinations. As at the date of approval of these Condensed Financial Statements the accounting for Firetrace is complete. The accounting for Visiometrics and CenTrak remains provisional. The measurement window for these acquisitions expires
in December 2016 and February 2017 respectively.
Adjustments on prior year acquisitions
Fair valueadjustments £000
Current assets
Inventories (103)
Trade and other receivables (123)
Total assets (226)
Current liabilities
Provisions (84)
Non-current liabilities
Deferred tax (15)
Total liabilities (99)
Net assets of businesses acquired (325)
Initial consideration adjustment (555)
Goodwill arising on prior year acquisition (230)
Analysis of cash outflow in the Consolidated Cash Flow Statement
Unaudited 26 weeks to 1 October 2016£000 Unaudited 27 weeks to 3 October 2015£000 Audited 53 weeks to 2 April 2016£000
Initial cash consideration paid - 3,228 187,601
Initial cash consideration adjustment on prior year acquisitions (166) - -
Cash acquired on acquisitions - - (1,830)
Deferred contingent consideration paid in relation to current year acquisitions - - 6,558
Deferred contingent consideration paid and loan notes repaid in cash in relation to prior year acquisitions* 314 9,674 10,246
Net cash outflow relating to acquisitions (per Consolidated Cash Flow Statement) 148 12,902 202,575
* The £314,000 comprises £241,000 loan notes and £73,000 contingent consideration paid in respect of prior period acquisitions all of which had been provided in the prior period's financial statements.
11 Retirement benefits The Group's significant defined benefit plans are for the qualifying employees of its UK subsidiaries. The defined benefit obligation at 1 October 2016 of £94,024,000 (3 October 2015: £51,405,000; 2 April 2016: £52,323,000) has been estimated based on the latest triennial actuarial valuations updated to reflect current assumptions regarding discount rates, inflation rates and asset values. The latest triennial valuations were carried out at 1 December 2014 for the Halma Group
Pension Plan and 1 April 2015 for the Apollo Pension and Life Assurance Plan. The discount rate assumption was set at 2.3% (3 October 2015: 3.75%; 2 April 2016: 3.4%). All other assumptions are materially unchanged. In addition, the defined benefit plan assets have been updated to reflect deficit reduction payments in the period totalling £5,160,000 (3 October 2015: £3,300,000; 2 April 2016: £7,800,000). The UK plans are closed to future accrual.
12 Fair values of financial assets and liabilities As at 1 October 2016, with the exception of the Group's fixed rate loan notes, there were no significant differences between the book value and fair value (as determined by market value) of the Group's financial assets and liabilities. The fair value of floating rate borrowings approximate to the carrying value because interest rates are reset to market rates at intervals of less than one year. The fair value of the Group's fixed rate loan notes arising
from the United States Private Placement completed in January 2016 is estimated to be £186,023,000. The fair value is estimated by discounting the future contracted cash flow using readily available market data and represents a level 2 measurement in the fair value hierarchy under IFRS 7. The fair value of derivative financial instruments is estimated by discounting the future contracted cash flow using readily available market data and represents a level 2 measurement in the fair value hierarchy under IFRS
7. As at 1 October 2016, the total forward foreign currency contracts outstanding were £28,876,000. The contracts mostly mature within one year and therefore the cash flows and resulting effect on profit and loss are expected to occur within the next 12 months. The fair values of the forward contracts are disclosed as a £135,000 (3 October 2015: £173,000; 2 April 2016: £1,131,000) asset and £1,920,000 (3 October 2015: £270,000; 2 April 2016: £2,196,000) liability in the Consolidated Balance Sheet. Any
movements in the fair values of the contracts are recognised in equity until the hedge transaction occurs, when gains/losses are recycled to finance income or finance expense.
13 Subsequent events On 4 November 2016 the Group completed the refinancing of its £360,000,000 multi-currency revolving credit facility (RCF). The facility which was due to expire in November 2018 is increased to £550,000,000 in Sterling, US Dollar, Euro and Swiss Franc and runs to October 2021 with the potential for a further two years extension with the agreement of the syndicate of banks.
14 Other matters SeasonalityThe Group's financial results have not historically been subject to significant seasonal trends. Equity and borrowingsIssues and repurchases of Halma plc's ordinary shares and drawdowns and repayments of borrowings are shown in the Consolidated Cash Flow Statement. Related party transactionsThere were no significant changes in the nature and size of related party transactions for the period to those reported in the Annual Report and Accounts 2016.
Seasonality
The Group's financial results have not historically been subject to
significant seasonal trends.
Equity and borrowings
Issues and repurchases of Halma plc's ordinary shares and drawdowns and
repayments of borrowings are shown in the Consolidated Cash Flow Statement.
Related party transactions
There were no significant changes in the nature and size of related party
transactions for the period to those reported in the Annual Report and
Accounts 2016.
15 Principal risks and uncertainties A number of potential risks and uncertainties exist that could have a material impact on the Group's performance over the second half of the financial year and could cause actual results to differ materially from expected and historical results. The Group has in place processes for identifying, evaluating and managing key risks. These risks, together with a description of the approach to mitigating them, are set out on pages 30 to 33 in the Annual Report and Accounts
2016, which is available on the Group's website at www.halma.com. The principal risks and uncertainties relate to: · Globalisation· Competition· Economic conditions· Funding, treasury and pension deficit· Cyber security/Information Technology/Business interruption· Acquisitions· Laws and regulations· Succession planning and staff quality· Research & Development and Intellectual Property strategy The United Kingdom's referendum decision on 23 June 2016 to leave the European Union
has added an increased level of uncertainty to global economic growth. The Group has formed an executive working group that is tasked with assessing and monitoring the impacts and communicating updates and guidance as matters progress. The following principal risks have been, and are likely to continue to be impacted following the Referendum result: a) Economic conditions - increased uncertainty, potential impact on growth and inflation, with variability in interest and FX rates b) Defined benefit
pension liability - increased risk as a consequence of the movements in bond yields affecting discount rates which may increase the liability c) Laws and regulations - potential changes to UK and EU based law and regulation including product approvals, patent regulations and import/export tariffs Approximately 10% of Group revenue comes from direct sales between the UK and Mainland Europe. Our decentralised model, with businesses in diverse markets and locations together with our autonomous, close-to
-market decision making enables our companies to adapt more quickly than many of our competitors, for example with a weaker Sterling offering pricing opportunities for exports from the UK. Weak Sterling is also generally positive for the Group with the translation of non-Sterling revenues into Sterling for reporting purposes. Although the Group uses forward foreign exchange contracts to mitigate its transactional currency exposure risk, it does not hedge the translation of its currency profits. In the first
half of the year, Sterling weakened on average by 11% relative to the US Dollar, and by 12% against the Euro, resulting in an 8% positive currency impact on reported revenue and 8% on reported profit.
16 Responsibility statement We confirm that to the best of our knowledge:
a) these Condensed Financial Statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union;
b) this Half Year Report includes a fair review of the information required by Disclosure and Transparency Rule (DTR) 4.2.7R (indication of important events during the period and description of principal risks and uncertainties for the remainder of the financial year); and
c) this Half Year Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).
By order of the Board Andrew WilliamsChief Executive 22 November 2016 Kevin ThompsonFinance Director
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