REG - Halma PLC - Half Yearly Report <Origin Href="QuoteRef">HLMA.L</Origin> - Part 1
RNS Number : 2493XHalma PLC18 November 2014
HALMA plc
HalF YEAR RESULTS 2014/15
Record first half results and continued dividend growth
Halma, the leading safety, health and environmental technology group, today announces its half year results for the 26 weeks to 27 September 2014.
Financial Highlights
Change
2014
2013
Continuing Operations
Revenue
+ 2%
340.9m
333.1m
Adjusted Profit before Taxation1
+ 6%
69.0m
65.1m
Statutory Profit before Taxation
+ 9%
61.2m
55.9m
Adjusted Earnings per Share2
+ 8%
14.05p
12.99p
Statutory Earnings per Share
+ 11%
12.57p
11.28p
Interim Dividend per Share3
+ 7%
4.65p
4.35p
Return on Sales4
20.2%
19.5%
Return on Total Invested Capital5
15.3%
15.6%
Return on Capital Employed5
69.5%
71.3%
Net Debt
136.3m
109.8m
Organic growth5 at constant currency: profit up 7%, revenue up 4%.
Growth with higher returns: adjusted1 pre-tax profit up 6%, revenue up 2%, with adverse currency translation impact of 5% on revenue and profit. Return on Sales4 increased to 20.2%.
Organic constant currency revenue growth in all regions. Good performance in the USA; steady progress in the UK, Asia Pacific and Europe.
Strong profit growth maintained in Process Safety, Infrastructure Safety and Medical. Lower profit in Environmental & Analysis with improvement expected in the second half of the year.
87m net cash spend on three acquisitions. Acquisition pipeline remains healthy. One disposal completed at a small gain.
Strong cash flow and significant financial capacity for investment in organic growth and value-adding acquisitions. Net debt of 136m (March 2014: 74m).
Interim dividend up 7% to 4.65p.
New Executive Board structure operating well, with an initial focus on sector growth strategies and development of management talent.
Andrew Williams, Chief Executive of Halma, commented:
"Halma has made strong progress in the first half, achieving record revenue and profit despite the varied market conditions and adverse currency translation impact. We are particularly pleased to report organic constant currency revenue growth across each of our regions. Order intake since the period end has continued to be ahead of revenue and order intake last year. Halma remains on track to make further progress in the second half of the year in line with our expectations."
Notes:
1
Adjusted to remove the amortisation of acquired intangible assets, acquisition items, the effects of closure to future benefit accrual of the Defined Benefit pension plans net of associated costs, and profit or loss on disposal of operations of 7.8m charge (2013/14:9.1m charge). See note 2 to the Condensed Financial Statements for details.
2
Adjusted to remove the amortisation of acquired intangible assets, acquisition items, the effects of closure to future benefit accrual of the Defined Benefit pension plans net of associated costs, profit or loss on disposal of operations, and the associated taxation thereon. See note 6 to the Condensed Financial Statements for details.
3
Interim dividend declared per share.
4
Return on Sales is defined as adjusted1 profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.
5
Organic growth rates, Return on Total Invested Capital and Return on Capital Employed are non-GAAP performance measures used by management in measuring the returns achieved from the Group's asset base. See note 9 to the Condensed Financial Statements for details.
For further information, please contact:
Halma plc
Andrew Williams, Chief Executive
Kevin Thompson, Finance Director+44 (0)1494 721 111
MHP Communications
Rachel Hirst/Andrew Jaques+44 (0)20 3128 8100
A copy of this announcement, together with other information about Halma, may be viewed on its website: www.halma.com.
NOTE TO EDITORS
1.
Halma develops and markets products used worldwide to protect life and improve the quality of life. The Group comprises four business sectors:
Process Safety
Products which protect assets and people at work.
Infrastructure Safety
Products which detect hazards to protect assets and people in public spaces and commercial buildings.
Medical
Products used to improve personal and public health.
Environmental & Analysis
Products and technologies for analysis in safety, life sciences and environmental markets.
The key characteristics of Halma's businesses are that they are based on specialist technology and application knowledge, offering strong growth potential. Many Group businesses are market leaders in their specialist field.
2.
High resolution photos of Halma senior management, including Chief Executive Andrew Williams, and images illustrating Halma business activities can be downloaded from its website: www.halma.com. Click on the 'News' link, then 'Image Library'. Photo queries: David Waller +44 (0)1494 721111, e-mail: dwaller@halmapr.com.
3.
You can view or download copies of this announcement and the latest Half Year and Annual Reports from the website at www.halma.com or request free printed copies by contacting halma@halma.com.
4.
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.
Review of Operations
Record half year results
Revenue for the half year increased by 2% to 341m (2013/14: 333m) after an adverse currency translation impact of 5%. Acquisition and disposal activity contributed 3% to revenue and therefore organic revenue growth at constant currency was 4%.
Adjusted1 profit before taxation increased by 6% to a record level of 69.0m (2013/14: 65.1m) also after an adverse currency translation impact of 5%. Organic constant currency profit growth was 7%.
Profitability increased with Return on Sales1 growing to 20.2% (2013/14: 19.5%), well within our 18% to 22% target range. Gross margin (revenue less direct material and direct labour) remained strong across the Group.
These results once again demonstrate Halma's ability to sustain growth and high returns with demand for our products underpinned by the long-term market growth drivers of increasing safety regulation, increasing demand for healthcare and increasing demand for life-critical resources such as energy and water.
7% dividend increase
The Board declares an increase of 7% in the interim dividend to 4.65p per share (2013/14: 4.35p per share). The interim dividend will be paid on 4 February 2015 to shareholders on the register on 30 December 2014. For the past 35 years we have increased our full year dividend by 5% or more each year.
Organic constant currency revenue growth in all regions
The table below shows the pattern of revenue growth in each region including the underlying rates of organic growth at constant currency which are calculated by excluding the effect of currency, acquisitions and disposals. Despite varied market conditions we achieved underlying revenue growth in all regions. The USA performed strongly and increased by 7% with Mainland Europe, the UK and Asia Pacific all showing steady progress.
Revenue from outside our traditional home markets in the USA, Mainland Europe and the UK increased to 26.5% of total revenue (2013/14: 25.2%) boosted by recent acquisitions, representing another step toward our target of 30% by 2015.
External revenue by destination
Half year 2014/15
Half year 2013/14
m
% of total
m
% of total
Change
m%
growth% organic growth at constant currency
United States of America
104.1
31%
107.6
32%
(3.5)
(3%)
7%
Mainland Europe
79.2
23%
79.3
24%
(0.1)
-
1%
United Kingdom
67.2
20%
62.2
19%
5.0
8%
2%
Asia Pacific
56.3
16%
56.0
17%
0.3
1%
2%
Other countries
34.1
10%
28.0
8%
6.1
22%
9%
340.9
100%
333.1
100%
7.8
2%
4%
Sector performances
Our Process Safety, Infrastructure Safety and Medical sectors all achieved organic revenue growth at constant currency during the period with the Environmental & Analysis sector seeing a small decline. At the headline revenue level, the two Safety sectors benefited from M&A during the period, with the other two sectors being hardest hit by currency impacts due to the largest element of their operations being US-based.
External revenue by sector
Half year 2014/15
Half year 2013/14
m
m
Change
m%
growth% organic growth at constant currency
Process Safety
73.6
62.2
11.4
18%
8%
Infrastructure Safety
112.7
107.3
5.4
5%
6%
Medical
78.4
81.1
(2.7)
(3%)
4%
Environmental & Analysis
76.2
82.5
(6.3)
(8%)
(2%)
Total Group
340.9
333.1
7.8
2%
4%
Process Safety revenue increased by 18% to 74m (2013/14: 62m) including 8% organic growth at constant currency. Profit2 improved by an impressive 27% to 20.4m (2013/14: 16.1m) including 17% organic growth at constant currency. Return on Sales improved to 27.8% (2013/14: 26.0%). The acquisition of Rohrback Cosasco Systems Inc. (RCS) in May 2014 further boosted a strong underlying performance, particularly in the USA where the oil and gas market continues to provide good opportunities. Excellent progress was also made in South America following the establishment of a commercial hub office for this sector in Brazil last year.
Infrastructure Safety revenue was up by 5% to 113m (2013/14: 107m) with organic constant currency growth of 6%. Profit2 growth was even healthier, increasing by 11% on last year to 22.8m (2013/14: 20.6m). Despite an adverse currency translation impact of 4%, strong organic constant currency profit growth of 12% and the acquisition of Advanced Electronics Limited in May 2014 ensured a very positive first half performance. Return on Sales improved to 20.3% (2013/14: 19.2%). This sector achieved organic constant currency revenue growth in all regions with an encouraging recovery in the UK market across almost all businesses. We expect to see a continuation of this sector's well-established balance between growth in developed and developing markets.
Medical sector revenue was 3% lower than last year at 78m (2013/14: 81m) due to a 7% adverse currency impact. Underlying organic constant currency revenue growth was 4% with momentum improving as the period progressed. Profit2 improved by 6% from 19.6m to 20.9m with excellent organic constant currency growth of 12% more than offsetting a 7% adverse currency impact. Excellent operational cost control ensured that Return on Sales improved from 24.2% to 26.6%. A useful recovery in the US market contrasted with weaker performances in the UK and Mainland Europe. There was modest growth outside these three developed markets at constant currency.
Environmental & Analysis had a disappointing first half year, particularly in profitability terms. Revenue was 8% lower than last year at 76m (2013/14: 83m) with an organic constant currency decline of less than 2% and an adverse currency impact of 6%. Profit2 reduced to 11.9m from 15.0m, a reduction of 21% of which 15% represented an organic constant currency decline. Return on Sales was 15.6% (2013/14: 18.2%). As expected, there was lower demand from the UK water utilities as this is the final year of their five-year investment cycle; we expect this market to pick up as we progress through 2015. In addition, the final transfer of certain customer contracts into our new consolidated photonics coating facility in Florida from Colorado was delayed resulting in increased costs. This transfer is now complete and therefore we expect profitability to recover in the second half. The revenue decline in the USA, UK and Mainland Europe contrasted with a more encouraging 10% organic constant currency revenue growth outside these markets. Overall, based on management actions already taken, we expect significant improvement in the second-half performance, broadly in line with last year.
Significant currency impact
Halma reports its results in Sterling with approximately 40% of Group revenue denominated in US Dollars and 15% in Euros. In the half year, Sterling strengthened on average by 9% relative to the US Dollar and 6% against the Euro, resulting in a 5% adverse currency translation impact on revenue and profit as noted above. In recent weeks, the US Dollar has strengthened relative to Sterling. If exchange rates continue at current levels, our latest estimate is that there will be an adverse impact of 3% on full year revenue and profit.
Strong cash generation
Cash generation was very good with cash conversion (adjusted operating cash flow as a % of adjusted operating profit - see note 9 to the Condensed Financial Statements for details) of 87% (2013/14: 86%), ahead of our 85% target. Good control of working capital, increased organic investment, acquisition expenditure and increased dividend and taxation payments, resulted in net debt of 136m (March 2014: 74m) at the end of the period. We remain in a strong financial position with our 360m revolving credit facility in place until 2018 and we have good capacity to make further value-adding acquisitions as well as continuing investment in organic growth.
Three acquisitions and one disposal completed
In the first half we spent 87m (excluding 1m of loan notes issued and debt acquired) (2013/14: 17m) purchasing three new companies and also paying earn-outs of 6m (2013/14: 14m) for the growth of acquisitions made in current and prior years. We completed a small disposal continuing our active approach to portfolio management.
We are continuing to refine our M&A search efforts. In particular we are providing improved support to our Sector Chief Executives appointed in April 2014 to ensure that we have resources appropriately focused in each sector covering a wide range of key regional markets. The acquisition pipeline remains healthy.
All transactions during the half year were completed in May 2014:
Plasticspritzerei AG, a strategic supplier to one of our businesses in the Medical sector, was acquired for a net cash consideration of CHF6m (4m).
Advanced Electronics Limited, a manufacturer of networked fire detection and control systems, was acquired for our Infrastructure Safety sector. We paid an initial consideration of 14m (excluding cash and debt acquired of 2m) and a contingent consideration of up to 10.1m is payable on earnings growth for the period to March 2015.
Rohrback Cosasco Systems Inc. (RCS), a manufacturer of pipeline corrosion monitoring products and systems, was acquired for US$108m (64m), net of cash acquired of US$9m (5m). RCS adds valuable new technology and application know-how to the Process Safety sector.
We sold Monitor Elevator Products Inc., a business within the Infrastructure Safety sector, for a consideration of US$6m (4m). A gain of 1m before tax resulted from the transaction. Monitor's narrow regional sales focus in the increasingly competitive US elevator maintenance market meant that we were no longer confident in its ability to sustain good growth and returns under Halma ownership.
Pension plan changes
Following consultation with all stakeholders, we announced in March 2014 that the Defined Benefit (DB) sections of the Group's UK pension plans will cease future accrual as at 1 December 2014. Members will earn future benefits within the Group's Defined Contribution (DC) section of the pension plan with agreed transitional arrangements. This change reduces Group risk for the future.
Strategic investment for growth
In April 2014, we reorganised our Executive Board to align it with our four reporting sectors and continued with strategic investment in talent development, innovation and international expansion. The new structure is operating well, with an initial focus on developing and communicating new sector growth strategies together with improving the ways we identify, attract and develop management talent. This streamlined board with clearer accountability is also starting to improve collaboration both within and between sector companies.
We continue to increase investment in line with our focus on sustained long-term growth and returns. Our companies increased R&D expenditure by 4% (when measured at constant currency) to 16.4m, representing 4.8% of revenue, which is well above our 4% KPI target. In addition, capital investment in operations increased by 26% to 9.9m (2013/14: 7.9m) in line with guidance given at the start of the year.
Risks and uncertainties
A number of potential risks and uncertainties exist which could have a material impact on the Group's performance over the second half of the financial year and could cause actual results to differ materially from expected and historical results. The Group has in place processes for identifying, evaluating and managing key risks. These risks, together with a description of the approach to mitigating them, are set out on pages 30 to 33 of the 2014 Annual Report and Accounts, which is available on the Group's website at www.halma.com. The principal risks and uncertainties relate to operational, strategic, legal, financial, people and economic issues. See note 14 to the Condensed Financial Statements for further details. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the 2014 Annual Report and Accounts and confirm that they remain relevant for the second half of the financial year. As part of their ongoing assessment of risk throughout the period the Directors have considered the above risks in the context of the new Executive Board structure and the Group's delivery of its financial objectives. Macro-economic uncertainty and movements in foreign exchange rates continue to remain a risk to financial performance.
Going concern
After conducting a review of the Group's financial resources the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Condensed Financial Statements.
Board changes
Roy Twite, an executive director of IMI plc, was appointed as a non-executive Director effective 24 July 2014. Roy brings a wealth of relevant experience to the Board, having worked in all sectors of this multi-industry FTSE 100 company.
On 8 August 2014, we welcomed Tony Rice to the Board as a non-executive Director. Tony was formerly CEO of Cable & Wireless Communications plc and brings to us strong commercial, financial and international experience.
Outlook
Halma has made strong progress in the first half, achieving record revenue and profit despite varied market conditions and adverse currency translation impact. We are particularly pleased to report organic constant currency revenue growth across each of our regions. Order intake since the period end has continued to be ahead of revenue and order intake last year. Halma remains on track to make further progress in the second half of the year in line with our expectations.
Andrew Williams Kevin Thompson
Chief Executive Finance Director1 See Financial Highlights.
2 See note 2 to the Condensed Financial Statements.
Half year results 2014/15
Condensed Financial Statements
Consolidated Income Statement
Unaudited 26 weeks to 27 September 2014
(Restated)**Unaudited 26 weeks to 28 September 2013
Audited
52 weeks to
29 March
2014
Notes
Before
adjustments*
000Adjustments*
(note 2)
000Total
000Before
adjustments*
000Adjustments*
(note 2)
000Total
000Total
000Continuing operations
Revenue
2
340,903
-
340,903
333,066
-
333,066
676,506
Operating profit
71,425
(9,275)
62,150
67,586
(8,941)
58,645
143,571
Share of results of associates
65
-
65
(215)
-
(215)
307
Profit/(loss) on disposal of operations
-
1,430
1,430
-
(175)
(175)
(483)
Finance income
3
64
-
64
474
-
474
622
Finance expense
4
(2,536)
-
(2,536)
(2,787)
-
(2,787)
(5,340)
Profit before taxation
69,018
(7,845)
61,173
65,058
(9,116)
55,942
138,677
Taxation
5
(15,874)
2,243
(13,631)
(16,003)
2,678
(13,325)
(32,350)
Profit for the period attributable to equity shareholders
53,144
(5,602)
47,542
49,055
(6,438)
42,617
106,327
Earnings per share
6
From continuing operations
Basic
14.05p
12.57p
12.99p
11.28p
28.14p
Diluted
12.56p
11.27p
28.13p
Dividends in respect
of the period7
Dividends (000)
17,612
16,436
42,236
Per share
4.65p
4.35p
11.17p
*
**
Adjustments include the amortisation of acquired intangible assets, acquisition items, the effects of closure to future benefit accrual of the Defined Benefit pension plans net of associated costs, profit or loss on disposal of operations, and the associated taxation thereon.
In accordance with IAS 19 (revised) the Defined Benefit pension plan interest and expense have been shown net in finance expenses. Previously the gross interest income and expense were shown (see note 3 for further details).
Consolidated Statement of Comprehensive Income and Expenditure
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Profit for the period
47,542
42,617
106,327
Items that will not be reclassified subsequently to the income statement:
Actuarial (losses)/gains on Defined Benefit pension plans
(9,663)
4,331
2,060
Tax relating to components of other comprehensive income that will not be reclassified
1,865
(2,138)
(1,570)
Items that may be reclassified subsequently to the income statement:
Effective portion of changes in fair value of cash flow hedges
4
651
499
Exchange losses on translation of foreign operations
(2,587)
(18,874)
(31,379)
Tax relating to components of other comprehensive income that may be reclassified
(1)
(157)
(129)
Other comprehensive expense for the period
(10,382)
(16,187)
(30,519)
Total comprehensive income for the period attributable to equity shareholders
37,160
26,430
75,808
The exchange loss of 2,587,000 (26 weeks to 28 September 2013: loss of 18,874,000; 52 weeks to 29 March 2014: loss of 31,379,000) comprises gains of 103,000 (26 weeks to 28 September 2013: gains of 127,000; 52weeksto 29 March 2014: losses of 2,200,000) which relate to net investment hedges.
Consolidated Balance Sheet
Unaudited
27 September
2014
000(Restated)*
Unaudited
28 September
2013
000Audited
29 March
2014
000Non-current assets
Goodwill
385,593
341,586
335,278
Other intangible assets
138,686
122,800
112,754
Property, plant and equipment
78,359
75,421
74,417
Interests in associates
4,216
4,571
5,088
Deferred tax asset
22,020
24,886
20,677
628,874
569,264
548,214
Current assets
Inventories
77,720
72,500
71,034
Trade and other receivables
135,225
123,968
135,177
Tax receivable
703
567
172
Cash and cash equivalents
49,177
41,141
34,531
Derivative financial instruments
622
499
496
263,447
238,675
241,410
Total assets
892,321
807,939
789,624
Current liabilities
Trade and other payables
85,004
77,355
88,291
Borrowings
5,225
2,939
4,136
Provisions
11,003
10,613
4,482
Tax liabilities
12,382
13,419
11,340
Derivative financial instruments
338
28
167
113,952
104,354
108,416
Net current assets
149,495
134,321
132,994
Non-current liabilities
Borrowings
180,228
147,969
104,891
Retirement benefit obligations
44,209
40,754
36,849
Trade and other payables
3,335
2,914
3,564
Provisions
1,631
13,944
6,777
Deferred tax liabilities
51,310
45,491
43,127
280,713
251,072
195,208
Total liabilities
394,665
355,426
303,624
Net assets
497,656
452,513
486,000
Equity
Share capital
37,960
37,901
37,902
Share premium account
23,548
22,762
22,778
Treasury shares
(4,885)
(5,264)
(7,054)
Capital redemption reserve
185
185
185
Hedging and translation reserve
11,779
26,992
14,363
Other reserves
(6,468)
(5,120)
(2,745)
Retained earnings
435,537
375,057
420,571
Shareholders' funds
497,656
452,513
486,000
* Contingent purchase consideration has been reclassified from Trade and other payables to Provisions.
Consolidated Statement of Changes in Equity
For the 26 weeks ended 27 September 2014
Share
capital
000Share
premium
account
000Treasury
shares
000Capital
redemption
reserve
000Hedging
and
translation
reserve
000Other
reserves
000Retained
earnings
000Total
000At 29 March 2014 (audited)
37,902
22,778
(7,054)
185
14,363
(2,745)
420,571
486,000
Profit for the period
-
-
-
-
-
-
47,542
47,542
Other comprehensive income and expense:
Exchange differences on translation of foreign operations
-
-
-
-
(2,587)
-
-
(2,587)
Actuarial losses on Defined Benefit pension plans
-
-
-
-
-
-
(9,663)
(9,663)
Effective portion of changes in fair value of cash flow hedges
-
-
-
-
4
-
-
4
Tax relating to components
of other comprehensive income-
-
-
-
(1)
-
1,865
1,864
Total other comprehensive income
and expense-
-
-
-
(2,584)
-
(7,798)
(10,382)
Share options exercised
58
770
-
-
-
-
-
828
Dividends paid
-
-
-
-
-
-
(25,800)
(25,800)
Share-based payments
-
-
-
-
-
(3,282)
-
(3,282)
Deferred tax on share-based
payment transactions-
-
-
-
-
(441)
-
(441)
Excess tax deductions related to share-based payments on exercised options
-
-
-
-
-
-
1,022
1,022
Net movement in treasury shares
-
-
2,169
-
-
-
-
2,169
At 27 September 2014 (unaudited)
37,960
23,548
(4,885)
185
11,779
(6,468)
435,537
497,656
For the 26 weeks ended 28 September 2013
Share
capital
000Share
premium
account
000Treasury
shares
000Capital
redemption
reserve
000Hedging
and
translation
reserve
000Other
reserves
000Retained
earnings
000Total
000At 30 March 2013 (audited)
37,888
22,598
(4,534)
185
45,372
(1,484)
353,242
453,267
Profit for the period
-
-
-
-
-
-
42,617
42,617
Other comprehensive income and expense:
Exchange differences on translation of foreign operations
-
-
-
-
(18,874)
-
-
(18,874)
Actuarial gains on Defined Benefit pension plans
-
-
-
-
-
-
4,331
4,331
Effective portion of changes in fair value of cash flow hedges
-
-
-
-
651
-
-
651
Tax relating to components
of other comprehensive income-
-
-
-
(157)
-
(2,138)
(2,295)
Total other comprehensive income
and expense-
-
-
-
(18,380)
-
2,193
(16,187)
Share options exercised
13
164
-
-
-
-
-
177
Dividends paid
-
-
-
-
-
-
(24,049)
(24,049)
Share-based payments
-
-
-
-
-
(3,316)
-
(3,316)
Deferred tax on share-based
payment transactions-
-
-
-
-
(320)
-
(320)
Excess tax deductions related to share-based payments on exercised options
-
-
-
-
-
-
1,054
1,054
Net movement in treasury shares
-
-
(730)
-
-
-
-
(730)
At 28 September 2013 (unaudited)
37,901
22,762
(5,264)
185
26,992
(5,120)
375,057
452,513
For the 52 weeks ended 29 March 2014
Share
capital
000Share
premium
account
000Treasury
shares
000Capital
redemption
reserve
000Hedging
and
translation
reserve
000Other
reserves
000Retained
earnings
000Total
000At 30 March 2013 (audited)
37,888
22,598
(4,534)
185
45,372
(1,484)
353,242
453,267
Profit for the period
-
-
-
-
-
-
106,327
106,327
Other comprehensive income
and expense:
Exchange differences on translation of foreign operations
-
-
-
-
(31,379)
-
-
(31,379)
Actuarial gains on Defined Benefit
pension plans-
-
-
-
-
-
2,060
2,060
Effective portion of changes in fair value of cash flow hedges
-
-
-
-
499
-
-
499
Tax relating to components of other comprehensive income
-
-
-
-
(129)
-
(1,570)
(1,699)
Total other comprehensive income
and expense-
-
-
-
(31,009)
-
490
(30,519)
Share options exercised
14
180
-
-
-
-
-
194
Dividends paid
-
-
-
-
-
-
(40,485)
(40,485)
Share-based payments
-
-
-
-
-
(1,556)
-
(1,556)
Deferred tax on share-based
payment transactions-
-
-
-
-
295
-
295
Excess tax deductions related to share-based payments on exercised options
-
-
-
-
-
-
997
997
Net movement in treasury shares
-
-
(2,520)
-
-
-
-
(2,520)
At 29 March 2014 (audited)
37,902
22,778
(7,054)
185
14,363
(2,745)
420,571
486,000
Consolidated Cash Flow Statement
Notes
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Net cash inflow from operating activities
8
61,924
55,934
121,538
Cash flows from investing activities
Purchase of property, plant and equipment
(9,419)
(7,266)
(15,838)
Purchase of computer software
(473)
(585)
(1,529)
Purchase of other intangibles
(268)
(4)
-
Proceeds from sale of property, plant and equipment
543
271
1,708
Development costs capitalised
(3,239)
(2,447)
(5,196)
Interest received
64
116
252
Acquisition of businesses, net of cash acquired
10
(87,145)
(16,669)
(16,685)
Disposal of business, net of cash disposed
11
4,221
1,925
1,917
Net cash used in investing activities
(95,716)
(24,659)
(35,371)
Financing activities
Dividends paid
(25,800)
(24,049)
(40,485)
Proceeds from issue of share capital
828
177
194
Purchase of treasury shares
(3,042)
(5,715)
(7,515)
Interest paid
(1,499)
(1,390)
(2,716)
Proceeds from borrowings
152,435
7,434
7,498
Repayment of borrowings
(77,367)
(15,329)
(57,791)
Net cash from/(used in) financing activities
45,555
(38,872)
(100,815)
Increase/(decrease) in cash and cash equivalents
11,763
(7,597)
(14,648)
Cash and cash equivalents brought forward
33,126
49,723
49,723
Exchange adjustments
(329)
(1,193)
(1,949)
Cash and cash equivalents carried forward
44,560
40,933
33,126
Unaudited
27 September
2014
000Unaudited
28 September
2013
000Audited
29 March
2014
000Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash and cash equivalents
11,763
(7,597)
(14,648)
Cash (inflow)/outflow from (drawdowns)/repayment of borrowings
(75,068)
7,895
50,293
Net debt acquired
(468)
-
-
Loan notes issued*
(608)
(2,731)
(2,731)
Loan notes repaid*
2,731
2,515
2,515
Exchange adjustments
(130)
441
365
(61,780)
523
35,794
Net debt brought forward
(74,496)
(110,290)
(110,290)
Net debt carried forward
(136,276)
(109,767)
(74,496)
*
The 2,731,000 loan note issued on 3 June 2013 was converted at par into cash on 2 June 2014. Loan notes totalling 608,000 were issued on 14May2014 and 3 September 2014 as part of the consideration payable in relation to the acquisition of Advanced Electronics Limited on 14 May 2014. These loan notes, which attract interest of 1%, are convertible into cash at par on each anniversary of the acquisition date until 14 May 2019.
Notes to the Condensed Financial Statements
1 Basis of preparation
General information
The Half Year Report, which includes the Interim Management Report and Condensed Financial Statements for the 26weeks to 27September2014, has not been audited or reviewed by the Group's Auditor and was approved by the Directors on 18 November 2014.
The Report has been prepared in accordance with International Accounting Standard 34, applying the accounting policies andpresentation that were applied in the preparation of the Group's statutory accounts for the 52 weeks to 29March2014.
The figures shown for the 52 weeks to 29 March 2014 are based on the Group's statutory accounts for that period and do not constitute the Group's statutory accounts for that period as defined in Section 434 of the Companies Act 2006. These statutory accounts, which were prepared under International Financial Reporting Standards, have been filed with the Registrar of Companies. The audit report on those accounts was not qualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying the report, and did not contain statements under Sections 498 (2) or (3) of the Companies Act 2006.
The Report has been prepared solely to provide additional information to shareholders as a body to assess the Board's strategies and the potential for those strategies to succeed. It should not be relied on by any other party or for any other purpose.
The Report 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 Report. 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. Actualresults may differ from those expressed in such statements, depending on the outcome of these uncertain future events.
The Directors believe the Group is well placed to manage its business risks successfully. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities, which includes a 360m five-year revolving credit facility due to expire in November 2018.
The Directors are aware of the requirements of the updated UK Corporate Governance Code. These apply to reporting periods beginning on or after 1 October 2014 and will impact the reporting of the Group's assessment of going concern and require the inclusion of a separate long-term viability statement in the Annual and Interim Reports issued for periods ending after that date. The Directors intend to incorporate the requirements, including the new viability statement, in the period ending 2 April 2016, the first period in which the updated guidance will apply to the Group.
In accordance with the UK Corporate Governance Code as it currently applies to the Group, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the Half Year Report.
2 Segmental analysis
Sector analysis
The Group has four main reportable segments (Process Safety, Infrastructure Safety, Medical and Environmental & Analysis), 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 Chief Executive.
Segment revenue and results
Revenue (all continuing operations)
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Process Safety
73,579
62,173
126,704
Infrastructure Safety
112,693
107,299
220,254
Medical
78,464
81,062
163,181
Environmental & Analysis
76,256
82,607
166,547
Inter-segmental sales
(89)
(75)
(180)
Revenue for the period
340,903
333,066
676,506
Inter-segmental sales are charged at prevailing market prices and have not been disclosed separately by segment as they are not considered material. The Group does not analyse revenue by product group and has no material revenue derived from the rendering of services.
Profit (all continuing operations)
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Segment profit before allocation of adjustments*
Process Safety
20,439
16,137
34,878
Infrastructure Safety
22,821
20,608
44,445
Medical
20,847
19,586
41,826
Environmental & Analysis
11,861
15,005
31,740
75,968
71,336
152,889
Segment profit after allocation of adjustments*
Process Safety
18,187
15,692
34,125
Infrastructure Safety
23,165
20,399
45,010
Medical
15,227
13,358
41,554
Environmental & Analysis
11,590
12,771
27,574
Segment profit
68,169
62,220
148,263
Central administration costs excluding the effects of closure to future benefit accrual of the Defined Benefit pension plan net of associated costs**
(4,478)
(3,965)
(7,922)
Effects of closure to future benefit accrual of the Defined Benefit pension plan net of associated costs**
(46)
-
3,054
Net finance expense
(2,472)
(2,313)
(4,718)
Group profit before taxation
61,173
55,942
138,677
Taxation
(13,631)
(13,325)
(32,350)
Profit for the period
47,542
42,617
106,327
* Adjustments include the amortisation of acquired intangible assets, acquisition items, the effects of closure to future benefit accrual of the Defined Benefit pension plan net of associated costs, and profit or loss on disposal of operations.
** The Defined Benefit plan referred to here is the Halma Group Pension Plan only, which is not practical to allocate by segment.
The accounting policies of the reportable segments are the same as the Group's accounting policies. For acquisitions after 3April2010, acquisition transaction costs and adjustments to contingent purchase consideration are recognised in the Consolidated Income Statement. Segment profit before these acquisition costs, the amortisation of acquired intangible assets and the profit or loss on disposal of continuing operations is disclosed separately above as this is the measure reported to the Chief Executive for the purpose of allocation of resources and assessment of segment performance.
These adjustments are analysed as follows:
For the 26 weeks ended 27 September 2014
Acquisition items
Amortisation
of acquired
intangibles
000Transaction
costs
000Adjustments
to contingent
consideration
000Total
amortisation
charge and
acquisition
items
000Disposal of
operations
(note 11)
000Effects of closure to future benefit accrual of Defined Benefit pension
plans*
000
Total
000Process Safety
(1,344)
(908)
-
(2,252)
-
-
(2,252)
Infrastructure Safety
(354)
(386)
-
(740)
1,084
-
344
Medical
(5,962)
(4)
-
(5,966)
346
-
(5,620)
Environmental & Analysis
(1,935)
-
1,664
(271)
-
-
(271)
Total Segment
(9,595)
(1,298)
1,664
(9,229)
1,430
-
(7,799)
Central administration costs
-
-
-
-
-
(46)
(46)
Total Group
(9,595)
(1,298)
1,664
(9,229)
1,430
(46)
(7,845)
* The loss of 46,000 relates to the closure to future benefit accrual of the Halma Group Pension Plan as decided in the prior period.
The transaction costs arose on the acquisitions of Rohrback Cosasco Systems Inc., 908,000; Advanced Electronics Limited, 386,000; and Plasticspritzerei AG, 4,000.
The 1,664,000 credit to contingent consideration related to the revision of the estimate of the remaining ASL Holdings Limited payable from 2,500,000 to 836,000, after payment of 1,000,000 in May 2014.
Within the Infrastructure Safety segment, the 1,084,000 profit relates to the disposal, on 30 May 2014, of Monitor Elevator Products, Inc. Within the Medical segment, the 346,000 profit comprises the disposal, on 2 May 2014, of the Group's 50% ownership interest in PSRM Immobilien AG (131,000) and, on 14 July 2014, of 11% of its ownership interest in Optomed Oy (215,000). See note 11 for further details.
For the 26 weeks ended 28 September 2013
Acquisition items
Amortisation
of acquired
intangibles
000Transaction
costs
000Adjustments
to contingent
consideration
000Total
amortisation
charge and
acquisition
items
000Disposal of
operations
(note 11)
000Total
000Process Safety
(309)
-
-
(309)
(136)
(445)
Infrastructure Safety
(72)
(98)
-
(170)
(39)
(209)
Medical
(6,402)
(2)
176
(6,228)
-
(6,228)
Environmental & Analysis
(2,184)
(50)
-
(2,234)
-
(2,234)
Total Group
(8,967)
(150)
176
(8,941)
(175)
(9,116)
For the 52 weeks ended 29 March 2014
Acquisition items
Amortisation
of acquired
intangibles
000Transaction
costs
000Adjustments
to contingent
consideration
000Total
amortisation
charge and
acquisition
items
000Disposal of
operations
(note 11)
000Effects of closure to future benefit accrual of Defined Benefit pension
plans*
000
Total
000Process Safety
(598)
-
(17)
(615)
(138)
-
(753)
Infrastructure Safety
(144)
(140)
-
(284)
(45)
894
565
Medical
(12,530)
102
12,456
28
(300)
-
(272)
Environmental & Analysis
(4,243)
(53)
130
(4,166)
-
-
(4,166)
Total Segment
(17,515)
(91)
12,569
(5,037)
(483)
894
(4,626)
Central administration costs
-
-
-
-
-
3,054
3,054
Total Group
(17,515)
(91)
12,569
(5,037)
(483)
3,948
(1,572)
* The effects of closure to future benefit accrual of Defined Benefit pension plans, which were gains of 894,000 and 3,054,000, arose on the closure of the
ApolloPension and Life Assurance Plan and Halma Group Pension Plan respectively. It is not practical to apportion the latter gain by segment.The 12,456,000 credit to contingent consideration related mainly to a revision in the estimate of the MST payable from US$25,000,000 to US$6,504,000.
The total assets of the Process Safety sector were 144,783,000 at 27 September 2014 (68,423,000 at 28 September 2013; 68,428,000 at 29 March 2014) and of the Infrastructure Safety sector were 187,523,000 at 27 September 2014 (169,356,000 at 28 September 2013; 170,540,000 at 29 March 2014).The increase in assets in the period for both sectors was primarily due to additional goodwill and acquired intangible assets arising from acquisitions (see note 10).The other two sectors' total assets have not been disclosed as there have been no material changes to those disclosed in the 2014 Annual Report and Accounts.
Geographical information
The Group's revenue from external customers (by location of customer) is as follows:
Revenue by destination
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000United States of America
104,110
107,597
214,493
Mainland Europe
79,216
79,304
163,707
United Kingdom
67,225
62,215
127,877
Asia Pacific
56,248
55,965
111,572
Africa, Near and Middle East
19,055
16,219
33,037
Other countries
15,049
11,766
25,820
Group revenue
340,903
333,066
676,506
3 Finance income
Unaudited
26 weeks to
27September
2014
000(Restated)*
Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Interest receivable
64
116
252
Fair value movement on derivative financial instruments
-
358
370
64
474
622
* The return and interest charge on pension plan assets and liabilities of 3,930,000 and 4,915,000 respectively, previously shown gross, are disclosed as a net 985,000 expense in note 4 in accordance with IAS 19 (revised). Further details regarding the IAS 19 restatement can be found on page 102 of the 2014 Annual Report and Accounts.
4 Finance expense
Unaudited
26 weeks to27 September
2014
000(Restated)*
Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Interest payable on bank loans and overdrafts
1,499
1,384
2,691
Amortisation of finance costs
265
317
599
Net interest charge on pension plan liabilities
701
985
1,875
Other interest payable
-
4
25
2,465
2,690
5,190
Fair value movement on derivative financial instruments
49
-
-
Unwinding of discount on provisions
22
97
150
2,536
2,787
5,340
* See note 3 for details regarding the restatement.
5 Taxation
The total Group tax charge for the 26 weeks to 27 September 2014 of 13,631,000 (26 weeks to 28 September 2013: 13,325,000; 52 weeks to 29 March 2014: 32,350,000) comprises a current tax charge of 14,608,000 (26 weeks to 28September2013: 14,951,000; 52 weeks to 29 March 2014: 29,845,000) and a deferred tax credit of 977,000 (26weeks to 28September2013: credit of 1,626,000; 52 weeks to 29 March 2014: charge of 2,505,000). The tax charge is based on the estimated effective tax rate for the year.
The tax charge includes 10,620,000 (26 weeks to 28 September 2013: 10,708,000; 52 weeks to 29 March 2014: 20,872,000) in respect of overseas tax.
6 Earnings per ordinary share
Basic earnings per ordinary share are calculated using the weighted average of 378,115,425 (28September2013: 377,750,281; 29March 2014: 377,805,248) shares in issue during the period (net of shares purchased by the Company and held as treasury shares). Diluted earnings per ordinary share are calculated using 378,383,111 (28September2013: 378,101,945; 29 March 2014: 378,035,662) shares which includes dilutive potential ordinary shares of 267,686 (28September2013: 351,664; 29 March 2014: 230,414). Dilutive potential ordinary shares are calculated from those exercisable share options where the exercise price isless than the average price of the Company's ordinary shares during the period.
Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation of acquired intangible assets, acquisition items, the effects of closure to future benefit accrual of the Defined Benefit pension plans net of associated costs, profit or loss on disposal of operations, and the associated taxation thereon.
The Directors consider that adjusted earnings represent a more consistent measure of underlying performance. A reconciliation of earnings and the effect on basic earnings per share figures is as follows:
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Earnings from continuing operations
47,542
42,617
106,327
Cessation of DB pension accrual (after tax)
36
-
(3,040)
Amortisation of acquired intangible assets (after tax)
6,801
6,249
11,820
Acquisition transaction costs (after tax)
1,286
150
91
Adjustments to contingent consideration (after tax)
(1,664)
(136)
(8,104)
(Profit)/loss on disposal of operations (after tax)
(857)
175
470
Adjusted earnings
53,144
49,055
107,564
Per ordinary share
Unaudited
26 weeks to
27 September
2014
penceUnaudited
26 weeks to
28 September
2013
penceAudited
52 weeks to
29 March
2014
penceEarnings from continuing operations
12.57
11.28
28.14
Cessation of DB pension accrual (after tax)
0.01
-
(0.80)
Amortisation of acquired intangible assets (after tax)
1.80
1.66
3.14
Acquisition transaction costs (after tax)
0.34
0.04
0.02
Adjustments to contingent consideration (after tax)
(0.44)
(0.04)
(2.15)
Profit/(loss) on disposal of operations (after tax)
(0.23)
0.05
0.12
Adjusted earnings
14.05
12.99
28.47
7 Dividends
Per ordinary share
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Amounts recognised as distributions to shareholders in the period
Final dividend for the year to 29 March 2014 (30 March 2013)
6.82
6.37
6.37
Interim dividend for the year to 29 March 2014
-
-
4.35
6.82
6.37
10.72
Dividends in respect of the period
Interim dividend for the year to 28 March 2015 (29 March 2014)
4.65
4.35
4.35
Final dividend for the year to 29 March 2014
-
-
6.82
4.65
4.35
11.17
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Amounts recognised as distributions to shareholders in the period
Final dividend for the year to 29 March 2014 (30 March 2013)
25,800
24,049
24,049
Interim dividend for the year to 29 March 2014
-
-
16,436
25,800
24,049
40,485
Dividends in respect of the period
Interim dividend for the year to 28 March 2015 (29 March 2014)
17,612
16,436
16,436
Final dividend for the year to 29 March 2014
-
-
25,800
17,612
16,436
42,236
8 Notes to the Consolidated Cash Flow Statement
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Reconciliation 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)/loss on disposal of operations
62,150
58,645
143,571
Depreciation of property, plant and equipment
6,822
6,761
13,625
Amortisation of computer software
568
595
1,168
Amortisation of capitalised development costs and other intangibles
2,829
1,860
4,002
Amortisation of acquired intangible assets
9,595
8,967
17,515
Share-based payment expense in excess of amounts paid
2,079
1,813
3,470
Additional payments to pension plans
(3,250)
(3,072)
(5,892)
Profit on sale of property, plant and equipment and computer software
(114)
(54)
(26)
Effects of closure to future benefit accrual of Defined Benefit pension plans
-
-
(4,246)
Operating cash flows before movement in working capital
80,679
75,515
173,187
Increase in inventories
(3,037)
(4,973)
(5,127)
Decrease/(increase) in receivables
6,073
4,458
(9,111)
(Decrease)/increase in payables and provisions
(7,318)
(6,619)
3,334
Revision to estimate of contingent consideration payable
(1,664)
-
(12,394)
Cash generated from operations
74,733
68,381
149,889
Taxation paid
(12,809)
(12,447)
(28,351)
Net cash inflow from operating activities
61,924
55,934
121,538
Unaudited
27 September
2014
000Unaudited
28 September
2013
000Audited
29 March
2014
000Analysis of cash and cash equivalents
Cash and bank balances
49,177
41,141
34,531
Overdrafts (included in current Borrowings)
(4,617)
(208)
(1,405)
Cash and cash equivalents
44,560
40,933
33,126
At 29 March 2014
000Cash flow
000Net cash/
(debt)
acquired000
Loan notes issued
000Loan notes repaid
000
Exchange adjustments
000At 27 September 2014
000Analysis of net debt
Cash and bank balances
34,531
5,356
9,619
-
-
(329)
49,177
Overdrafts
(1,405)
(3,212)
-
-
-
-
(4,617)
Cash and cash equivalents
33,126
2,144
9,619
-
-
(329)
44,560
Loan notes falling due within one year*
(2,731)
-
-
(608)
2,731
-
(608)
Bank loans falling due after
more than one year(104,891)
(75,068)
(468)
-
-
199
(180,228)
Total net debt
(74,496)
(72,924)
9,151
(608)
2,731
(130)
(136,276)
* The 2,731,000 loan note issued in the prior period was converted at par into cash on 2 June 2014. Loan notes totalling 608,000 were issued on 14 May 2014 and 3September 2014 as part of the acquisition of Advanced Electronics Limited and are convertible at par into cash.
Cash flows attributable to bank loans falling due after more than one year comprise drawdowns of 152,435,000 and repayments of 77,367,000.
9 Non-GAAP measures
Return on Capital Employed (ROCE)
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Operating profit before adjustments*, but after share
of results of associates71,490
67,371
144,967
Computer software costs within intangible assets
2,862
2,307
2,810
Capitalised development costs within intangible assets
15,150
12,469
12,981
Other intangibles within intangible assets
404
99
8
Property, plant and equipment
78,359
75,421
74,417
Inventories
77,720
72,500
71,034
Trade and other receivables
135,225
123,968
135,177
Trade and other payables
(85,004)
(77,355)
(88,291)
Provisions
(11,003)
(10,613)
(4,482)
Net tax liabilities
(11,679)
(12,852)
(11,168)
Non-current trade and other payables
(3,335)
(2,914)
(3,564)
Non-current provisions
(1,631)
(13,944)
(6,777)
Add back accrued contingent purchase consideration
8,700
19,855
7,562
Capital employed
205,768
188,941
189,707
Return on Capital Employed (annualised)
69.5%
71.3%
76.4%
* Adjustments include the amortisation of acquired intangible assets, acquisition items, the effects of closure to future benefit accrual of the Defined Benefit pension plans net of associated costs, and profit or loss on disposal of operations.
Return on Total Invested Capital (ROTIC)
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Post-tax profit before adjustments*
53,144
49,055
107,564
Total shareholders' funds
497,656
452,513
486,000
Add back retirement benefit obligations
44,209
40,754
36,849
Less associated deferred tax assets
(8,718)
(8,234)
(7,372)
Cumulative amortisation of acquired intangible assets
70,080
53,793
61,324
Historical adjustments to goodwill**
89,549
89,549
89,549
Total invested capital
692,776
628,375
666,350
Return on Total Invested Capital (annualised)
15.3%
15.6%
16.1%
* Adjustments include the amortisation of acquired intangible assets, acquisition items, the effects of closure to future benefit accrual of the Defined Benefit pension plans net of associated costs, and profit or loss on disposal of operations, and the associated taxation thereon.
** Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves.
Organic growth
Organic growth measures the change in revenue and profit from continuing Group operations. The effect of acquisitions and disposals made during the prior financial period, and acquisitions made in the current financial period is equalised by adjusting the current period results for pro-rated contributions based on their revenue and profit before taxation at the dates of acquisition and disposal. The results of disposals made in the prior financial period are removed from the prior period reported revenue and profit before taxation.
Adjusted operating profit
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Operating profit
62,150
58,645
143,571
Add back:
Acquisition items
(366)
(26)
(12,478)
Effects of closure to future benefit accrual of Defined Benefit pension plans
46
-
(3,948)
Amortisation of acquired intangible assets
9,595
8,967
17,515
Adjusted operating profit
71,425
67,586
144,660
Adjusted operating cash flow
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Net cash from operating activities (note 8)
61,924
55,934
121,538
Add back:
Taxes paid
12,809
12,447
28,351
Proceeds from sale of property, plant and equipment
543
271
1,708
Less:
Purchase of property, plant and equipment
(9,419)
(7,266)
(15,838)
Purchase of computer software and other intangibles
(741)
(589)
(1,529)
Development costs capitalised
(3,239)
(2,447)
(5,196)
Adjusted operating cash flow
61,877
58,350
129,034
Cash conversion % (adjusted operating cash flow/adjusted operating profit)
87%
86%
89%
10 Acquisitions
In the provisional accounting, adjustments are made to the book values of the net assets of the companies acquired to reflect their provisional fair values to the Group. Acquired inventories are valued at 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.
The Group made three acquisitions during the period: Rohrback Cosasco Systems Inc. (RCS); Advanced Electronics Limited (Advanced); and Plasticspritzerei AG (Plasticspritzerei). Below are summaries of the assets and liabilities acquired and the purchase consideration of:
a) The total of RCS, Advanced and Plasticspritzerei;
b) RCS, on a standalone basis;
c) Advanced, on a standalone basis; and
d) Plasticspritzerei, on a standalone basis.
(A) Total of RCS, Advanced and Plasticspritzerei
Book value
000Fair value adjustments
000Total
000Non-current assets
Intangible assets
3,508
31,057
34,565
Property, plant and equipment
2,286
187
2,473
Current assets
Inventories
5,340
(1,075)
4,265
Trade and other receivables
9,777
(1,613)
8,164
Corporation tax
251
89
340
Cash and cash equivalents
9,515
104
9,619
Deferred tax
-
453
453
Total assets
30,677
29,202
59,879
Current liabilities
Trade and other payables
(3,916)
682
(3,234)
Provisions
(763)
(659)
(1,422)
Corporation tax
(686)
327
(359)
Non-current liabilities
Provisions
-
(17)
(17)
Bank loans
(468)
-
(468)
Retirement benefit obligations
-
(234)
(234)
Deferred tax
(28)
(9,626)
(9,654)
Total liabilities
(5,861)
(9,527)
(15,388)
Net assets of businesses acquired
24,816
19,675
44,491
Initial consideration paid (RCS, Advanced and Plasticspritzerei)*
91,286
Contingent purchase consideration paid (Advanced)*
2,105
Contingent purchase consideration estimated to be paid (Advanced)
3,949
Total consideration
97,340
Goodwill arising on current year acquisitions
52,849
* The initial and contingent purchase considerations paid in cash were 90,828,000 and 1,955,000 respectively. The remainder was satisfied by the issue of 608,000 of loan notes.
Due to their contractual dates, the fair value of receivables acquired (shown above) 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).
None of the goodwill arising on acquisitions in the year is expected to be deductible for tax purposes.
The three acquisitions in the year contributed 14,594,000 of revenue and 2,426,000 of profit after tax for the period ended 27 September 2014. If these acquisitions had been held since the start of the financial period, it is estimated the Group's reported revenue and profit after tax would have been 5,640,000 and 987,000 higher respectively.
The combined fair value adjustments made for each acquisition resulted in net adjustments to goodwill, which exclude acquired intangibles recognised and deferred taxation thereon, of 3,636,000.
As at the date of approval of this Report, the initial acquisition accounting for RCS, Advanced and Plasticspritzerei is provisional. It is common for certain provisions, inventory valuations, intangible asset valuations and deferred tax balances to be revised during the goodwill measurement period, which expires in May 2015 for all three acquisitions. Revisions are made only if new information about conditions existing at the acquisition date becomes available during the measurement period, as defined by IFRS 3 (revised) 'Business Combinations'. The accounting for all prior period acquisitions is completed.
Analysis of cash outflow in the Consolidated Cash Flow Statement
Unaudited
26 weeks to
27 September
2014
000Unaudited
26 weeks to
28 September
2013
000Audited
52 weeks to
29 March
2014
000Initial cash consideration paid
90,828
3,315
3,315
Initial cash consideration adjustment (prior year acquisition)
-
(337)
(337)
Cash acquired on acquisitions
(9,619)
(754)
(754)
Contingent consideration paid in relation to current year acquisitions
1,955
-
-
Contingent consideration paid and loan notes repaid in cash in relation to prior year acquisitions*
3,981
14,445
14,461
Net cash outflow relating to acquisitions (per Consolidated Cash Flow Statement)
87,145
16,669
16,685
* The 3,981,000 comprises 2,731,000 loan notes and 1,250,000 contingent purchase consideration paid in respect of prior period acquisitions, all of which had been provided in the prior year's financial statements.
(B) Rohrback Cosasco Systems Inc.
Book value
000Fair value adjustments
000Total
000Non-current assets
Intangible assets
420
25,146
25,566
Property, plant and equipment
441
204
645
Current assets
Inventories
4,098
(891)
3,207
Trade and other receivables
4,191
(142)
4,049
Cash and cash equivalents
5,441
-
5,441
Deferred tax
-
453
453
Corporation tax
251
-
251
Total assets
14,842
24,770
39,612
Current liabilities
Trade and other payables
(868)
(3)
(871)
Provisions
(653)
(291)
(944)
Non-current liabilities
Deferred tax
(28)
(7,670)
(7,698)
Total liabilities
(1,549)
(7,964)
(9,513)
Net assets of businesses acquired
13,293
16,806
30,099
Initial consideration (all cash)
69,681
Total consideration
69,681
Goodwill arising on acquisition
39,582
The Group acquired the entire share capital of Rohrback Cosasco Systems Inc. and associated companies (RCS) on 30 May 2014 for an initial cash consideration of US$116,000,000 (69,341,000). This was subsequently adjusted by an additional US$569,000 (340,000) which was paid in July 2014 based on the final agreed value of the net tangible assets at the acquisition date.
RCS forms part of the Process Safety sector and specialises in the design, manufacture and sale of pipeline corrosion monitoring products and systems into diverse industries including oil, gas, petrochemical, pharmaceutical and utilities. The acquisition of RCS expands Halma's portfolio of critical safety products which are sold into the Energy and Utility markets to protect life and operational assets. The existing RCS management team remains in place and will continue to operate the business. 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 14,697,000; marketing and technology related intangibles of 10,869,000; with residual goodwill arising of 39,582,000. The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses; and
c) the ability to exploit the Group's existing customer base.
The RCS acquisition contributed 8,555,000 of revenue and 1,395,000 of profit after tax for the period ended 27September2014.
If this acquisition had been held since the start of the financial period, it is estimated that the Group's reported revenue and profit after tax would have been 4,426,000 and 772,000 higher respectively.
(C) Advanced Electronics Limited
Book value
000Fair value adjustments
000Total
000Non-current assets
Intangible assets
3,088
5,911
8,999
Property, plant and equipment
1,834
(573)
1,261
Current assets
Inventories
1,161
(148)
1,013
Trade and other receivables
4,990
(1,507)
3,483
Corporation tax
-
89
89
Cash and cash equivalents
2,259
104
2,363
Total assets
13,332
3,876
17,208
Current liabilities
Trade and other payables
(2,759)
703
(2,056)
Provisions
-
(364)
(364)
Corporation tax
(582)
582
-
Non-current liabilities
Bank loans
(468)
-
(468)
Deferred tax
-
(1,956)
(1,956)
Total liabilities
(3,809)
(1,035)
(4,844)
Net assets of businesses acquired
9,523
2,841
12,364
Initial consideration
15,927
Contingent purchase consideration paid
2,105
Contingent purchase consideration estimated to be paid
3,949
Total consideration
21,981
Goodwill arising on acquisition
9,617
The Group acquired the entire share capital of Advanced Electronics Limited (Advanced) on 14 May 2014 for an initial consideration of 15,927,000 (458,000 of which was satisfied by loan notes). Contingent consideration is payable over a two-year period based on the profits of the company for the twelve months to April 2014 and eleven months to March 2015. The total estimated payable is 6,054,000, of which 1,955,000 has been paid in cash and 150,000 in loan notes in the period. A further 696,000 has been agreed and is due to be paid in November 2014 and the remainder, subject to actual performance, in July 2015. The maximum contingent consideration payable is 10,100,000 and the current provision represents management's best estimate of the likely payable based on performance observed to date.
Advanced forms part of the Infrastructure Safety sector and specialises in the manufacture of networked fire detection and control systems. Advanced's controllers can be integrated into system solutions using field devices and products from a broad spectrum of suppliers, meeting the increasingly diverse regulatory requirements across the world. Its main manufacturing facility is located near Newcastle in the UK with a dedicated electronics and software development facility in Barnsley. It has additional commercial offices in the UK, the USA and Dubai. Advanced brings to Halma complementary products that help capture the international growth opportunity in the increasingly regulated Fire market. 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 5,306,000; marketing and technology related intangibles of 1,463,000; with residual goodwill arising of 9,617,000. Included in the 5,911,000 fair value adjustment to intangible assets shown above is a reduction of 858,000 to the carrying value of capitalised development costs resulting from the application of Halma accounting policies to the acquisition date balance. The residual goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses; and
c) the ability to exploit the Group's existing customer base.
The Advanced acquisition contributed 6,039,000 of revenue and 660,000 of profit after tax for the period ended 27September2014. If this acquisition had been held since the start of the financial period, it is estimated that the Group's reported revenue and profit after tax would have been 1,214,000 and 163,000 higher respectively.
(D) Plasticspritzerei AG
Book value
000Fair value adjustments
000Total
000Non-current assets
Property, plant and equipment
11
556
567
Current assets
Inventories
81
(36)
45
Trade and other receivables
596
36
632
Cash and cash equivalents
1,815
-
1,815
Total assets
2,503
556
3,059
Current liabilities
Trade and other payables
(289)
(18)
(307)
Provisions
(110)
(4)
(114)
Corporation tax
(104)
(255)
(359)
Non-current liabilities
Provisions
-
(17)
(17)
Retirement benefit obligations
-
(234)
(234)
Total liabilities
(503)
(528)
(1,031)
Net assets of businesses acquired
2,000
28
2,028
Initial cash consideration
5,678
Total consideration
5,678
Goodwill arising on acquisition
3,650
On 2 May 2014 the Group acquired Plasticspritzerei AG (Plasticspritzerei), located in Wolfhalden, Switzerland at the same facility as another Group company, Medicel AG (Medicel). Initial consideration paid for the trade and assets of the business was CHF8,403,000 (5,678,000) including the consideration of CHF917,000 (620,000) received for the Group's disposal of its 50% ownership interest in its associate PSRM Immobilien AG (PSRM). The Group then immediately sold the industrial segment of Plasticspritzerei for CHF2,673,000 (1,806,000) to a third party, resulting in a net cash cost to the Group of CHF4,813,000 (3,252,000) (CHF5,730,000 (3,872,000) excluding the proceeds from the PSRM disposal). These transactions have resulted in the Group owning only those assets which support Medicel's business. Plasticspritzerei will be operated by Medicel's management within Halma's Medical sector, further expanding the Group's manufacturing excellence in ophthalmic diagnostic and surgical instrumentation.
No customer relationship intangibles were recognised as part of this transaction because Medicel is the sole customer for the Plasticspritzerei business acquired and the fair value of any customer relationship is therefore eliminated from a Group perspective. Goodwill of 3,650,000 was recognised as part of this transaction, representing the excess of the fair value of consideration transferred over the fair value of the assets acquired and is attributable to:
a) the technical expertise of the acquired workforce;
b) the opportunity to secure and advance the supply chain of Medicel AG; and
c) the ability to exploit the Group's existing customer base.
The Plasticspritzerei acquisition resulted in intercompany sales to Medicel of 971,000 for the period ended 27 September 2014and contributed 371,000 to profit after tax for the Group for the same period. If this acquisition had been held since the start of the financial period, it is estimated that the Group's reported revenue and profit after tax would have been nil and 52,000 higher respectively.
11 Disposal of subsidiary and interests in associates
On 30 May 2014, the Group disposed of Monitor Elevator Products, Inc. (Monitor) from its Infrastructure Safety sector. The total consideration was US$6,243,000 (3,716,000), of which US$5,514,000 (3,282,000) was received in cash at completion, and subsequently reduced by US$171,000 (102,000) for the final agreed closing net asset value. The remaining US$900,000 was retained in escrow to be released to Halma on the second anniversary of the transaction subject to any valid warranty/indemnity claims being made by the purchaser. The Directors estimate that the entire US$900,000 held in escrow will be received.
The profit on disposal was US$1,821,000 (1,084,000), which is net of 189,000 of cumulative foreign exchange losses reclassified to the Income Statement and 294,000 of disposal costs. Net assets disposed were US$3,610,000 (2,149,000). No goodwill was disposed of or impaired as a result of this transaction.
On 14 July 2014 the Group disposed of 28,570 shares in Optomed Oy (Optomed), representing 11% of its shareholding in the associate. Consideration received was 876,000 (695,000). This transaction, after disposal costs of 8,000 resulted in a profit on disposal of 215,000. The Group's residual interest in Optomed is 34%. As one of the largest shareholders, the Group continues to exercise significant influence, but not control, over the company and so continues to apply the equity method of accounting for its interest in Optomed.
The Group's disposal of its 50% ownership interest in PSRM Immobilien AG (PSRM) for CHF917,000 (620,000) resulted in a fair value gain being recognised in the Income Statement of 131,000. This represented the excess of the fair value of the Group's interest in the associate over its carrying value.
The 4,221,000 cash inflow on disposal of businesses shown in the Consolidated Cash Flow Statement represents the 695,000, 620,000 and 3,180,000 proceeds from the sale of the shares in Optomed, PSRM and Monitor respectively plus the 28,000 overdraft in Monitor less the combined disposal costs of 302,000.
The total profit on disposal of operations shown in note 2 of 1,430,000 comprises 1,084,000 for the disposal of Monitor, 215,000 for the partial disposal of shares in Optomed and 131,000 for the fair value gain recognised in relation to the disposal of PSRM.
In the prior period the loss on disposal relates to the disposal by the Group, in 2012, of its Asset Monitoring businesses, comprising Tritech Holdings Limited and its subsidiary Tritech International Limited, and Volumatic Limited. Further details are provided on page 143 of the 2014 Annual Report and Accounts.
12 Fair values of financial assets and liabilities
As at 27 September 2014 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 and fixed 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 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 27 September 2014, the total forward foreign currency contracts outstanding were 17,728,000. 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 622,000 (28 September 2013: 499,000; 29 March 2014: 496,000) asset and 338,000 (28 September 2013: 28,000; 29 March 2014: 167,000) 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 Other matters
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 intheConsolidated 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 inthe2014 Annual Report and Accounts.
14 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 ofthe approach to mitigating them, are set out on pages 30 to 33 of the 2014 Annual Report and Accounts, which is available on the Group's website at www.halma.com.
The principal risks and uncertainties relate to:
Remoteness of operations and 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 Directors consider that the principal risks and uncertainties noted above continue to be relevant to the Group. As part of their ongoing assessment of risk throughout the period the Directors have considered the above risks in the context of the new Executive Board structure and the Group's delivery of its financial objectives. Movements in foreign exchange rates also remain a risk to financial performance. We mitigate the risk to demand by operating in markets underpinned by regulatory drivers (where customer spending is often non-discretionary), maintaining a diverse product portfolio and targeting continued growth in developing markets. In addition, Halma's model of autonomy allows local management to change strategy quickly when reacting to variable market conditions.
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, the US Dollar, Euro and Swiss Franc were 9%, 6% and 4% weaker respectively relative to Sterling than in the first half of the previous year. The net result was a 5% negative impact on reported profit.
15 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 Williams
Chief Executive
18 November 2014
Kevin Thompson
Finance Director
This information is provided by RNSThe company news service from the London Stock ExchangeENDIR MMMMMVNKGDZM
Recent news on Halma
See all newsREG - Halma PLC - Acquisition
AnnouncementREG - Halma PLC - Director/PDMR Shareholding
AnnouncementREG - Halma PLC - Trading Update
AnnouncementREG - Halma PLC - Acquisition
AnnouncementREG - Halma PLC - Director/PDMR Shareholding
Announcement