Half Yearly Report

RNS Number : 2493X
Halma PLC
18 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 Director

 

1 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*
£000
 

Adjustments*
(note 2)
£000
 

Total 
£000
 

Before 
adjustments*
£000
 

Adjustments*
(note 2)
£000
 

Total   
£000
   

Total   
£000
   

Continuing 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 period

7








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 
£000
 

Unaudited 

26 weeks to 
28 September 
2013 
£000
 

Audited 

52 weeks to 
29 March 
2014 
£000
 

Profit 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

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; 52 weeks to 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 
£000
 

 

Audited 
29 March
 
2014
 
£000
 

Non-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
£000

Share
premium
account
£000

Treasury 
shares
 
£000
 

Capital
redemption
reserve
£000

Hedging 
and
 
translation
 
reserve
 
£000
 

Other 
reserves
 
£000 

Retained 
earnings
 
£000 

Total 
£000 

At 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 

-

-

- 

-

(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
£000

Share
premium
account
£000

Treasury 
shares
 
£000
 

Capital
redemption
reserve
£000

Hedging 
 and 
 translation 
 reserve 
£000 

Other 
reserves
 
£000
 

Retained 
earnings 
£000 

Total 
£000 

At 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 

-

-

- 

-

(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
£000

Share
premium
account
£000

Treasury 
shares
 
£000
 

Capital
redemption
 reserve
£000

Hedging 
and
 
translation
 
reserve
 
£000
 

Other 
reserves
 
£000
 

Retained 
earnings
 
£000 

Total 
£000
 

At 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 

-

-

- 

-

(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 

-

-

(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
 
£000
 

Unaudited 
26 weeks to
 
28 September
 
2013
 
£000
 

Audited 
52 weeks to
 
29 March
 
2014
 
£000
 

Net 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
 
£000
 

Unaudited 
28 September
 
2013
 
£000
 

Audited 
29 March
 
2014
 
£000
 

Reconciliation 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 14 May 2014 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 26 weeks to 27 September 2014, 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 and presentation that were applied in the preparation of the Group's statutory accounts for the 52 weeks to 29 March 2014.

 

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. Actual results 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 
£000
 

Unaudited 
26 weeks to
 
28 September
 
 2013 
£000
 

Audited 
52 weeks to
 
29 March
 
 2014 
£000
 

Process 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 
£000
 

Unaudited 
26 weeks to
 
28 September
 
 2013 
£000
 

Audited 
52 weeks to
 
29 March
 
 2014 
£000
 

Segment 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 3 April 2010, 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
£000

Transaction 
costs
 
£000 

Adjustments 
to contingent
 
consideration
 
£000
 

Total 
 amortisation 
 charge and 
 acquisition 
 items 
£000 

Disposal of 
operations 
(note 11)
£000 

Effects of closure to future benefit accrual of Defined Benefit pension

 plans*

£000

Total 
£000 

Process 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 
£000 

Transaction
costs
£000

Adjustments 
to contingent 
consideration 
£000 

Total 
amortisation 
charge and 
acquisition 
items 
£000 

Disposal of 
operations 
(note 11)
£000 

Total 
£000 

Process 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
£000

Transaction 
costs 
£000 

Adjustments
to contingent
consideration
£000

Total
amortisation
charge and
acquisition
items
£000

Disposal of 
operations 
(note 11)
£000 

Effects of closure to future benefit accrual of Defined Benefit pension

 plans*

£000

Total
£000

Process 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
Apollo Pension 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
£000

Unaudited
26 weeks to
28 September

 2013
£000

Audited
52 weeks to
29 March

 2014
£000

United 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
27 September
2014
£000

(Restated)*

Unaudited 
26 weeks to
 
28 September
 
2013
 
£000
 

Audited
52 weeks to
29 March
2014
£000

Interest 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 to

27 September
2014
£000

(Restated)*

Unaudited
26 weeks to
28 September
2013
£000

Audited
52 weeks to
29 March
2014
£000

Interest 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 28 September 2013: £14,951,000; 52 weeks to 29 March 2014: £29,845,000) and a deferred tax credit of £977,000 (26 weeks to 28 September 2013: 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 (28 September 2013: 377,750,281; 29 March 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 (28 September 2013: 378,101,945; 29 March 2014: 378,035,662) shares which includes dilutive potential ordinary shares of 267,686 (28 September 2013: 351,664; 29 March 2014: 230,414). Dilutive potential ordinary shares are calculated from those exercisable share options where the exercise price is less than the average price of the Company's ordinary shares during the 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
£000

Unaudited
26 weeks to
28 September

 2013
£000

Audited
52 weeks to
29 March

 2014
£000

Earnings 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
pence

Unaudited
26 weeks to
28 September

 2013
pence

Audited
52 weeks to
29 March

 2014
pence

Earnings 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 
£000
 

Unaudited 
26 weeks to
 
28 September
 
 2013 
£000
 

Audited 
52 weeks to
 
29 March
 
 2014 
£000
 

Amounts 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 
£000
 

Unaudited 
26 weeks to
 
28 September
 
 2013 
£000
 

Audited 
52 weeks to
 
29 March
 
 2014 
£000
 

Amounts 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 
£000
 

Unaudited 
26 weeks to
 
28 September
 
 2013 
£000
 

Audited 
52 weeks to
 
29 March
 
 2014 
£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)/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

- 

(12,394)

Cash generated from operations

74,733 

68,381 

149,889 

Taxation paid

(12,447)

(28,351)

Net cash inflow from operating activities

55,934 

121,538 

 

 


Unaudited 
27 September
 
 2014 
£000
 

Unaudited 
28 September
 
 2013 
£000
 

Audited 
29 March
 
 2014 
£000
 

Analysis 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
£000

Cash flow
£000

Net cash/ 
(debt)
acquired 

£000 

Loan notes issued
£000

Loan notes repaid
£000


Exchange adjustments
£000

At 27 September 2014
£000

Analysis 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 3 September 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 
£000
 

Unaudited 
26 weeks to
 
28 September
 
 2013 
£000
 

Audited 
52 weeks to
 
29 March
 
 2014 
£000
 

Operating profit before adjustments*, but after share
of results of associates

71,490 

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 
£000
 

Unaudited 
26 weeks to
 
28 September
 
 2013 
£000
 

Audited 
52 weeks to
 
29 March
 
 2014 
£000
 

Post-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
£000

Unaudited

26 weeks to
28 September

 2013
£000

Audited 
52 weeks to
 
29 March 
 2014 
£000
 

Operating 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
£000

Unaudited

26 weeks to
28 September

 2013
£000

Audited 
52 weeks to
 
29 March 
 2014 
£000
 

Net 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
£000

Fair value adjustments
£000

Total
£000

Non-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 
£000
 

Unaudited 
26 weeks to
 
28 September
 
 2013 
£000
 

Audited 
52 weeks to
 
29 March
 
 2014 
£000
 

Initial 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
£000

Fair value adjustments
£000

Total
£000

Non-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 27 September 2014.

 

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
£000

Fair value adjustments
£000

Total
£000

Non-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 27 September 2014. 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
£000

Fair value adjustments
£000

Total
£000

Non-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 2014 and 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 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 2014 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 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:

 

·    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 RNS
The company news service from the London Stock Exchange
 
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Companies

Halma (HLMA)
UK 100

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