REG - Halma PLC - Half Yearly Report <Origin Href="QuoteRef">HLMA.L</Origin> - Part 3
17/11/2015 07:01
- Part 3: For the preceding part double click ID:nRSQ9083Fb
Final dividend for the year to 28 March 2015 (29 March 2014) 27,630 25,800 25,800
Interim dividend for the year to 28 March 2015 - - 17,599
27,630 25,800 43,399
Dividends in respect of the period
Interim dividend for the year to 2 April 2016 (28 March 2015) 18,855 17,599 17,599
Final dividend for the year to 28 March 2015 - - 27,630
18,855 17,599 45,229
8 Notes to the Consolidated Cash Flow Statement
Unaudited 27 weeks to 3 October 2015£000 Unaudited 26 weeks to 27 September 2014 £000 Audited 52 weeks to 28 March 2015 £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 on disposal of operations 66,653 62,150 137,063
Depreciation of property, plant and equipment 7,387 6,822 14,005
Amortisation of computer software 610 568 1,211
Amortisation of capitalised development costs and other intangibles 2,347 2,829 5,505
Impairment of capitalised development costs - - 236
Amortisation of acquired intangible assets 10,403 9,595 19,954
Share-based payment expense (less than)/in excess of amounts paid (1,052) 2,079 3,803
Additional payments to pension plans (3,241) (3,250) (6,560)
Loss/(profit) on sale of property, plant and equipment and computer software 35 (114) (590)
Operating cash flows before movement in working capital 83,142 80,679 174,627
Increase in inventories (4,525) (3,037) (1,097)
Decrease/(increase) in receivables 11,661 6,073 (10,656)
(Decrease)/increase in payables and provisions (12,398) (7,318) 5,801
Revision to estimate of contingent consideration payable 339 (1,664) (620)
Cash generated from operations 78,219 74,733 168,055
Taxation paid (16,333) (12,809) (30,824)
Net cash inflow from operating activities 61,886 61,924 137,231
Unaudited3 October 2015£000 Unaudited27 September 2014£000 Audited28 March 2015 £000
Analysis of cash and cash equivalents
Cash and bank balances 133,716 49,177 41,230
Overdrafts (included in current Borrowings) - (4,617) (1,705)
Cash and cash equivalents 133,716 44,560 39,525
At 28 March 2015 £000 Cash flow £000 Loan notes issued£000 Loan notes repaid£000 Exchange adjustments £000 At 3 October 2015 £000
Analysis of net debt
Cash and bank balances 41,230 92,255 - - 231 133,716
Overdrafts (1,705) 1,705 - - - -
Cash and cash equivalents 39,525 93,960 - - 231 133,716
Loan notes falling due after more than one year* (657) - (263) 368 - (552)
Bank loans falling due after (139,762) (87,000) - - 211 (226,551)
more than one year
Total net debt (100,894) 6,960 (263) 368 442 (93,387)
* £368,000 of the £657,000 loan notes issued in the prior period was converted at par into cash on 17 July 2015. The remaining loan notes are outstanding. Loan notes totalling £263,000 were issued on 15 April 2015 and 16 July 2015 as part of the consideration payable in relation to the acquisition of Advanced Electronics Limited on 14 May 2014. 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. Cash
flows attributable to bank loans falling due after more than one year comprise drawdowns of £87,000,000 and repayments of £nil.
9 Non-GAAP measuresReturn on Total Invested Capital (ROTIC)
Unaudited 27 weeks to 3 October2015£000 (Restated)* Unaudited26 weeks to27 September2014£000 Audited52 weeks to28 March2015£000
Post-tax profit before adjustments** 57,487 53,144 117,912
Shareholders' funds 566,856 497,656 548,948
Add back retirement benefit obligations 51,405 44,209 66,790
Less associated deferred tax assets (10,000) (8,718) (13,085)
Cumulative amortisation of acquired intangible assets 93,137 70,080 83,958
Historical adjustments to goodwill*** 89,549 89,549 89,549
Total Invested Capital 790,947 692,776 776,160
Average Total Invested Capital 783,554 679,563 721,255
Return on Total Invested Capital (annualised) 14.7% 15.6% 16.3%
Return on Capital Employed (ROCE)
Unaudited 27 weeks to 3 October 2015£000 (Restated)*Unaudited 26 weeks to 27 September 2014 £000 Audited 52 weeks to 28 March 2015 £000
Operating profit before adjustments**, but after share of results of associates 77,578 71,490 158,564
Computer software costs within intangible assets 2,981 2,862 2,835
Capitalised development costs within intangible assets 17,397 15,150 15,865
Other intangibles within intangible assets 453 404 450
Property, plant and equipment 86,000 78,359 86,303
Inventories 83,014 77,720 79,734
Trade and other receivables 143,144 135,225 156,464
Trade and other payables (90,721) (85,004) (102,717)
Provisions (2,179) (11,003) (11,746)
Net tax liabilities (9,431) (11,679) (12,385)
Non-current trade and other payables (4,058) (3,335) (3,756)
Non-current provisions (2,534) (1,631) (1,549)
Add back contingent purchase consideration 841 8,700 9,650
Capital Employed 224,907 205,768 219,148
Average Capital Employed 222,028 197,738 204,428
Return on Capital Employed (annualised) 69.9% 72.3% 77.6%
* The ROTIC and ROCE measures are now 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 2014 Total Invested Capital and Capital Employed balances were £666,350,000 and £189,707,000 respectively.
** Adjustments include the amortisation of acquired intangible assets, acquisition items, and profit or loss on disposal of operations.
*** Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves.
Organic growthOrganic growth measures the change in revenue and profit from continuing Group operations. The effect of current and prior period acquisitions 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. The results of disposals made 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 effect of current and prior period acquisitions 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. The
results of disposals made 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
Unaudited27 weeks to 3 October 2015 £000 Unaudited26 weeks to 27 September 2014£000 % growth Unaudited27 weeks to 3 October 2015£000 Unaudited 26 weeks to 27 September 2014£000 % growth
Continuing operations 379,657 340,903 74,657 69,018
Acquired and disposed revenue/profit (6,139) (1,094) (1,273) 64
Organic growth 373,518 339,809 9.9% 73,384 69,082 6.2%
Constant currency adjustment (9,192) - (1,703) -
Organic growth at constant currency 364,326 339,809 7.2% 71,681 69,082 3.8%
* Adjustments include the amortisation of acquired intangible assets, acquisition items, and profit or loss on disposal of operations.
Adjusted operating profit
Unaudited27 weeks to 3 October 2015£000 Unaudited26 weeks to 27 September 2014 £000 Audited52 weeks to 28 March 2015 £000
Operating profit 66,653 62,150 137,063
Add back:
Acquisition items 601 (366) 1,483
Costs to close the defined benefit pension plan to future accrual - 46 -
Amortisation of acquired intangible assets 10,403 9,595 19,954
Adjusted operating profit 77,657 71,425 158,500
Adjusted operating cash flow
Unaudited27 weeks to 3 October 2015£000 Unaudited26 weeks to 27 September 2014 £000 Audited52 weeks to 28 March 2015 £000
Net cash from operating activities (note 8) 61,886 61,924 137,231
Add back:
Taxation paid 16,333 12,809 30,824
Proceeds from sale of property, plant and equipment 468 543 1,411
Share awards vested not settled by own shares* 2,477 - -
Less:
Purchase of property, plant and equipment (8,244) (9,419) (22,164)
Purchase of computer software and other intangibles (859) (741) (1,403)
Development costs capitalised (3,990) (3,239) (7,213)
Adjusted operating cash flow 68,071 61,877 138,686
Cash conversion % (adjusted operating cash flow/adjusted operating profit) 88% 87% 87%
* See Consolidated Statement of Changes in Equity.
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. On 19 May 2015 the
Group acquired the entire membership interest of Value Added Solutions, LLC (VAS) for an initial consideration of $5,000,000. Below is the summary of the assets and liabilities acquired and the purchase consideration.
Value Added Solutions, LLC
Book value £000 Fair valueadjustments £000 Total £000
Non-current assets
Intangible assets 2 1,808 1,810
Property, plant and equipment 26 212 238
Current assets
Inventories 22 7 29
Trade and other receivables 193 (8) 185
Total assets 243 2,019 2,262
Current liabilities
Trade and other payables (23) (6) (29)
Provisions (9) (2) (11)
Total liabilities (32) (8) (40)
Net assets of businesses acquired 211 2,011 2,222
Initial consideration paid (all cash) 3,228
Deferred contingent purchase consideration estimated to be paid 645
Total consideration 3,873
Goodwill arising on current year acquisition 1,651
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). The goodwill arising on acquisition is expected to be deductible for tax purposes. The maximum deferred contingent consideration payable is $1,500,000 (£968,000). The
current provision represents management's best estimate of the likely payable based on performance observed to date. The deferred contingent consideration is payable based on annualised gross margin for an eighteen month performance period to 1 October 2016. VAS will operate as a 'bolt-on' to Diba Industries Inc., within Halma's Medical sector. Diba Industries creates innovative fluid handling solutions that are invaluable to device OEMs, while VAS specialises in precision plastic machining, production of
thermally bonded manifolds, and fluid component integrations. VAS will add complementary expertise, capabilities, and products that will allow Diba to provide broader solutions to its existing customers, as well as expand its customer base. VAS's production facility is located in Berlin, Connecticut, USA, approximately one hour from Diba Industries' headquarters. VAS contributed £322,000 of revenue and £11,000 of profit after tax for the period ended 3 October 2015. If it 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 £158,000 and £22,000 higher respectively. The fair value adjustments made resulted in net adjustments to goodwill, which exclude acquired intangibles recognised and deferred tax thereon, of £207,000. 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 £1,107,000; technology-related intangibles of £701,000; with
residual goodwill arising of £1,651,000. The goodwill represents: a) the technical expertise of the acquired workforce;b) the opportunity to leverage this expertise across some of Halma's businesses; andc) the ability to exploit the Group's existing customer base. As at the date of approval of this Report, the initial acquisition accounting for VAS 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 2016. 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 27 weeks to 3 October 2015£000 Unaudited 26 weeks to 27 September 2014 £000 Audited 52 weeks to 28 March 2015£000
Initial cash consideration paid 3,228 90,828 90,828
Cash acquired on acquisitions - (9,619) (9,619)
Deferred contingent consideration paid in relation to current year acquisitions - 1,955 2,601
Deferred contingent consideration paid and loan notes repaid in cash in relation to prior year acquisitions* 9,674 3,981 3,933
Net cash outflow relating to acquisitions (per Consolidated Cash Flow Statement) 12,902 87,145 87,743
* The £9,674,000 comprises £368,000 loan notes and £9,306,000 contingent purchase consideration paid in respect of prior period acquisitions, all but £339,000 of which had been provided in the prior year's financial statements.
11 Disposal of subsidiary and interests in associates On 26 August 2015 the Group disposed of 9,176 shares in Optomed Oy (Optomed), representing 8.8% of its ownership interest in the associate. Consideration received was E1,236,000 (£908,000). This transaction resulted in a profit on disposal of £592,000. The Group's residual interest in Optomed is 28.6%. 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. In the prior periods the profit on disposal related to the disposal by the Group, of its subsidiary Monitor Elevator Products, Inc., its 50% ownership interest in PSRM Immobilien AG and another partial disposal of Optomed Oy. Further details are provided on page 149 of the 2015 Annual Report and Accounts.
12 Fair values of financial assets and liabilities As at 3 October 2015 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 3 October 2015, the total forward foreign currency contracts outstanding were £98,389,000. 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 £173,000 (27 September 2014: £622,000; 28 March 2015: £1,069,000) asset
and £270,000 (27 September 2014: £338,000; 28 March 2015: £636,000) 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 Acquisition of Firetrace USA, LLCOn 5 October 2015, the Group acquired the entire interest in Firetrace USA, LLC and its subsidiary companies for cash consideration of $110,000,000, adjustable based on the closing date net assets. No deferred contingent consideration is payable. Firetrace, based in Scottsdale, Arizona, USA, designs and manufactures automatic fire detection and suppression systems for installation in small enclosed environments to protect people and critical assets. It
will continue to operate out of its current facilities and existing management will remain in place. Firetrace will become part of the Infrastructure Safety sector and further extends the Group's product offering within the fire protection industry. Due to the proximity of the acquisition to the date of the approval of this Half Year Report it is impractical to provide further information, including full IFRS 3 'Business Combinations' disclosures. United States Private PlacementOn 2 November 2015, the Group
completed a United States Private Placement of $250,000,000. The Placement will take effect on 6 January 2016. The Placement includes Sterling, Euro and US Dollar borrowings at a weighted average fixed interest rate of 2.5%. The bonds mature at five, seven and ten year intervals.
Acquisition of Firetrace USA, LLC
On 5 October 2015, the Group acquired the entire interest in Firetrace USA,
LLC and its subsidiary companies for cash consideration of $110,000,000,
adjustable based on the closing date net assets. No deferred contingent
consideration is payable. Firetrace, based in Scottsdale, Arizona, USA,
designs and manufactures automatic fire detection and suppression systems for
installation in small enclosed environments to protect people and critical
assets. It will continue to operate out of its current facilities and existing
management will remain in place. Firetrace will become part of the
Infrastructure Safety sector and further extends the Group's product offering
within the fire protection industry. Due to the proximity of the acquisition
to the date of the approval of this Half Year Report it is impractical to
provide further information, including full IFRS 3 'Business Combinations'
disclosures.
United States Private Placement
On 2 November 2015, the Group completed a United States Private Placement of
$250,000,000. The Placement will take effect on 6 January 2016. The Placement
includes Sterling, Euro and US Dollar borrowings at a weighted average fixed
interest rate of 2.5%. The bonds mature at five, seven and ten year
intervals.
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 2015 Annual Report and Accounts.
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 2015 Annual Report and
Accounts.
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 28 to 31 in the 2015 Annual Report and
Accounts, 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 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, Sterling weakened on average by 8% relative to the US Dollar, and strengthened 12% against the Euro, resulting
in a 3% positive currency impact on reported revenue and 2% 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 17 November 2015 Kevin ThompsonFinance Director
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