11 June 2019
| HALMA plc
FULL YEAR RESULTS 2019
Record revenue and profit for the 16th consecutive year
Halma, the global group of life-saving technology companies focused on growing a safer, cleaner and healthier future, today announces its full year results for the 12 months to 31 March 2019. |
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Change |
2019 |
2018 |
| Continuing Operations |
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| Revenue | +13% | £1,210.9m | £1,076.2m |
| Adjusted Profit before Taxation1,3 | +15% | £245.7m | £213.7m |
| Adjusted Earnings per Share2,3 | +17% | 52.74p | 45.26p |
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| Statutory Profit before Taxation | +20% | £206.7m | £171.9m |
| Statutory Earnings per Share | +10% | 44.78p | 40.69p |
| Total Dividend per Share4 | +7% | 15.71p | 14.68p |
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| Return on Sales5 |
| 20.3% | 19.9% |
| Return on Total Invested Capital3 |
| 16.1% | 15.2% |
| Net Debt |
| £181.7m | £220.3m |
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· Strong growth with Revenue up 13%, Adjusted1 profit before tax up 15% and statutory profit before tax up 20%.
· Organic constant currency revenue growth3 up 10% for the second consecutive year, and organic constant currency3 Adjusted1 profit before tax growth of 11%.
· All four sectors grew revenue and Adjusted1 profit before tax on an organic constant currency basis3, with three out of four sectors delivering double digit increases.
· Revenue growth in all major regions. Strong performance in the USA and the UK, with good growth in Mainland Europe and a solid performance in Asia Pacific.
· Increased returns, with Return on Sales5 of 20.3% and ROTIC3 of 16.1%. R&D expenditure up 11%, representing 5.2% of revenue.
· Strong cash generation, with cash conversion of 88%; and a robust balance sheet, supporting sustained investment in organic growth and acquisitions.
· Four acquisitions and two small asset purchases completed during the financial year.
· Proposed final dividend up 7%, the 40th consecutive year of dividend per share increases of 5% or more.
| Andrew Williams, Group Chief Executive of Halma, commented:
"Halma had a successful year, achieving record revenue and profit, delivering our 40th consecutive year of dividend per share growth of 5% or more and making further increased strategic investment supported by our strong balance sheet. We have a strong purpose, culture and growth strategy focused on niches in a diverse range of markets where demand is supported by resilient long-term growth drivers, offering us both organic and acquisition growth opportunities.
The new financial year has started well, and order intake has continued to be ahead of both revenue and order intake for the comparable period last year. We expect to make good progress in the year ahead."
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| Notes:
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| 1 | Adjusted to remove the amortisation of acquired intangible assets, acquisition items, significant restructuring costs, profit or loss on disposal of operations and the effect of equalising pension benefits for men and women in the defined benefit pension plans, totalling £39.0m (2018: £41.8m). See note 1 to the Results for details.
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| 2 | Adjusted to remove the amortisation of acquired intangible assets, acquisition items, significant restructuring costs, profit or loss on disposal of operations, the effect of equalising pension benefits for men and women in the defined benefit pension plans and the associated taxation thereon. See note 2 to the Results for details.
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| 3 | Adjusted1 Profit before Taxation, Adjusted1 Earnings per Share, organic growth rates and Return on Total Invested Capital (ROTIC) are alternative performance measures used by management. See notes 1, 2 and 3 to the Results for details.
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| 4 | Total dividend paid and proposed per share |
| 5 | Return on Sales is defined as adjusted1 profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.
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| For further information, please contact: |
| Halma plc Charles King, Head of Investor Relations
| +44 (0)1494 721 111
+44 (0)7776 685948 |
| MHP Communications | +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. The webcast of the results presentation will be available on the Halma website later today: www.halma.com
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| NOTE TO EDITORS |
| 1. | Halma is a global group of life-saving technology companies, focused on creating a safer, cleaner and healthier future for everyone, every day. Our innovative products and solutions address many of the key issues facing the world today. The Group comprises four business sectors:
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| · Process Safety | Technologies that protect people and assets at work.
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| · Infrastructure Safety | Technologies that save lives, protect infrastructure and enable safe movement in public spaces.
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| · Environmental & Analysis | Technologies to improve environmental protection and the security of life-critical resources.
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| · Medical | Technologies which enhance the quality of life for patients and improve the quality of care delivered by healthcare providers.
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| The key characteristics of Halma's businesses are specialist technology and application knowledge for markets offering strong long-term growth potential. Many Group businesses are market leaders in their specialist fields. |
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| 2. | You can view or download copies of this announcement and the latest Half Year and Annual Reports from the website at www.halma.com or request free printed copies by contacting [email protected].
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| 3. | This announcement contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events. |
| Strategic Review We have achieved record revenue and profit for the 16th consecutive year, and double digit-organic constant currency revenue growth for the second year running. Our strategic investment is wide-ranging, including creating innovative new technology, products and services, extending our international reach, strengthening our talent base, and acquiring strong businesses in, or adjacent to, our existing markets. Halma's purpose is to grow a safer, cleaner and healthier future for everyone, every day. Consequently, we address some of the world's most fundamental needs and challenges: safety at work and in public spaces; a cleaner, more sustainable environment; and improved medical care. These needs are both global and long-term in nature, and they will continue to gain importance as populations increase, urbanise and age, and as regulation continues to tighten. We expect these factors to drive demand for our solutions far into the future. We have a clear and focused growth strategy of growing and acquiring businesses in niche markets with global reach in our chosen market areas of safety, health and the environment. We also have a simple financial model, with strong organic growth, high returns and cash generation allowing us to continuously increase investment to drive future organic and acquired growth, while providing progressive dividends for shareholders. We set ourselves challenging targets, aspiring to double our earnings every five years, while maintaining modest levels of financial gearing without being reliant on seeking further equity. Halma's definitive organisational model and culture have provided a stable foundation for over 40 years. They are becoming increasingly important as Halma continues to grow and expand internationally, and as our businesses constantly evolve and adapt to address changing market needs. I believe it is crucial that we are clear on how our purpose, strategy, organisation and culture interact, and how they continue to be the foundation of our success. A description is set out in the Annual Report and Accounts 2019 and on www.halma.com, so that all our stakeholders can understand how our organisation and culture are at the heart of ensuring that we align our purpose with continued strong performance. |
| Record revenue and profit with higher returns Revenue increased by 13% to £1,211m (2018: £1,076m), including 10% organic constant currency revenue growth for the second consecutive year. Adjusted1 profit rose by 15% to £245.7m (2018: £213.7m) including 11% organic constant currency growth. Acquisitions contributed 3% to revenue growth (2% net of disposals) and 3% to adjusted profit growth (4% net of disposals). There was a small benefit to revenue and profit from currency in the full year, with a negative impact in the first half more than offset by a positive effect in the second half. Statutory profit before taxation increased by 20% to £206.7m (2018: £171.9m). Returns remained at a high level. Return on Sales1 increased to 20.3% (2018: 19.9%), within our target range of 18% - 22%. The post-tax Return on Invested Capital improved to 16.1% (2018: 15.2%), well above our estimated Weighted Average Cost of Capital of 7.9%, with the increase primarily reflecting the strong earnings growth achieved. Strong cash generation and balance sheet to support future investment Cash generation was excellent and resulted in net debt reducing to £182m (2018: £220m) after spending £68m on acquisitions and £31m on capital expenditure, as well as paying dividends of £57m to shareholders and £41m of tax. Gearing (net debt to EBITDA) reduced to 0.63 times from 0.87 times. This is lower than our targeted range of 1-2 times, and therefore our balance sheet has significant capacity to support investment in both organic and acquisitive growth, in line with our strategic objectives. |
| Final dividend to increase by 7% The Board is recommending a 7% increase in the final dividend to 9.60p per share (2018: 8.97p per share). The final dividend for 2019 is subject to approval by shareholders at the AGM on 25 July 2019 and is expected to be paid on 14 August 2019 to shareholders on the register at 12 July 2019. Together with the 6.11p per share interim dividend, this would result in a total dividend for the year of 15.71p (2018: 14.68p), also up 7%, making this the 40th consecutive year of dividend per share growth of 5% or more. Revenue growth in all major regions We delivered revenue growth in all major regions, reflecting the sustainable and global growth opportunities offered by safety, environmental and health markets. Our companies are increasingly leveraging our regional hubs, and collaborating with other companies to develop new products and services and to expand internationally. The USA, Mainland Europe and the UK performed strongly. Our largest region, the USA, achieved the strongest revenue growth of 18%, both on a reported and on an organic constant currency basis. Mainland Europe and the UK grew revenue by 12% and 16% respectively (6% and 11% on an organic constant currency basis). Asia Pacific growth was slower, at 5%, against a strong performance last year which benefited from some large contracts. In our major markets in the region, China grew 8% following 20% growth last year, and Australasia improved by 16%. We continue to see good growth potential in Asia Pacific, by leveraging our growth hubs in the region, and we continue to strengthen our local management teams. In the Rest of the World, performance was mixed. Revenue was broadly flat overall, with a challenging second half following good first half growth. In the larger markets, Africa and Brazil delivered good growth, while Near and Middle East and Canada were broadly flat. |
| Revenue and profit growth in all sectors Revenue and profit increased in all sectors, with three out of four sectors reporting double digit organic revenue and profit growth. Process Safety delivered good growth, although reorganisations in our Industrial Access Control and Safe Storage and Transfer businesses, to improve their competitive position and performance, softened profit growth. Revenue increased 7% to £198m (2018: £185m), while profit grew 5% to £45.5m (2018: £43.3m). Organic constant currency growth for revenue and profit was also 7% and 5% respectively, given a minimal currency effect and no acquisitions in the year. Revenue growth was slower in the second half, primarily due to less favourable conditions in the US energy sector. Return on Sales remained strong at 23.0% (2018: 23.5%), with the decline in the year reflecting the reorganisation costs. R&D spend increased by 10% to £7.0m (2018: £6.3m). The Gas Detection and Industrial Access Control businesses performed strongly, while the performance of Pressure Management was challenged by adverse end market conditions and profit mix, but nonetheless delivered flat revenue. Our Safe Storage and Transfer businesses reported a single-digit decline in revenue during their period of restructuring which included strengthening their leadership and consolidating manufacturing operations. There was strong organic constant currency growth in the USA supported by a major logistics contract for our Industrial Access Control subsector, despite less favourable energy market conditions. The UK also performed well, with good progress in Gas Detection and Industrial Access Control. There was solid progress in Asia Pacific and Mainland Europe, while other regions declined, including in energy related markets in the Middle East. Process Safety will continue to invest in broadening its markets and improving its product innovation and leadership. We expect this to make it less sensitive to changes in its largest market, oil and gas, and deliver more consistent growth in the future. |
| Infrastructure Safety had a very impressive year, with strong organic growth and a significant contribution from acquisitions. Revenue increased by 17% to £409m (2018: £349m), including 11% organic constant currency growth and a 6% contribution from acquisitions. Profit grew by 21% to £88.9m (2018: £73.3m), which included 16% organic constant currency growth and a 5% contribution from acquisitions. Return on Sales increased to 21.8% (2018: 21.0%). R&D spend increased by 22% to £24.9m (2018: £20.4m). The sector's strong performance was broadly-based, with all five subsectors performing well. There was exceptionally strong growth in the USA, partly reflecting a recovery from last year's weaker performance. The sector's Fire businesses were key contributors to this improvement. The Africa, Near and Middle East region also performed strongly, and there were good rates of growth in the UK and Mainland Europe. Growth in Asia Pacific was slower. The Other regions, which accounts for around 3% of sector revenue, saw a decline as larger contracts, which contributed to last year's strong performance, came to an end. Given the widespread growth, and a full year contribution from this year's acquisitions, Infrastructure Safety is expected to make good progress in the coming year. |
| The Environmental & Analysis sector achieved strong organic growth, and also benefited from the acquisition of Mini-Cam in 2018.
Revenue grew by 15% to £299m (2018: £259m) which included organic constant currency growth of 11% and a 3% contribution from acquisitions. Profit increased by 21% to £66.4m (2018: £55.0m) including organic constant currency growth of 13% and a 7% contribution from acquisitions. There was a benefit from currency to both revenue and profit of just under 1%. Return on Sales improved to 22.2% (2018: 21.2%). R&D spend increased by 8% to £19.2m (2018: £17.8m). All three subsectors delivered good revenue and profit growth, with a particularly strong contribution from the Environmental Monitoring subsector, which benefited from double-digit organic growth and the acquisition of Mini-Cam. There was impressive revenue growth in the UK and also in the USA, the sector's largest market, which benefited from large Spectroscopy and Photonics projects. Mainland Europe grew well, while Asia Pacific saw more modest growth. Other regions, which account for only 4% of sector revenue, reported a decline.
With continued investment to drive collaboration, technology and the extension of its digital and data management capabilities, the Environmental & Analysis sector is expected to make further progress in the year ahead. |
| The Medical sector achieved a good performance, with revenue growing in all subsectors and all major geographic regions.
Revenue increased by 8% to £306m (2018: £284m), including 10% organic constant currency growth. Profit grew by 15% to £76.9m (2018: £67.1m), including 13% organic constant currency growth. There was a small benefit to revenue and profit from acquisitions. The disposal of Accudynamics in the year had an adverse effect on revenue but benefited profit. Return on Sales increased to 25.1% (2018: 23.6%). R&D spend declined by 3% to £11.5m (2018: £11.8m) but grew by 2% excluding the effect of the disposal of Accudynamics during the year.
The Diagnostics subsector performed very well, after adjusting for the Accudynamics disposal. The Ophthalmology and Sensor Technology subsectors delivered strong growth, the former through continued international expansion, and the latter from further penetration into their core market of location services in acute care facilities in the USA.
There was a strong revenue performance in the USA, the sector's largest region, with Mainland Europe and Asia Pacific also delivering good growth. There was solid growth in the UK, with Other regions showing a small decline following a strong increase last year. The Medical sector is expected to make continued progress in the coming year, through increased penetration into developing markets, further product and service development and continued investment in talent. |
| Four acquisitions and one disposal completed Halma's sector-focused organisational model gives us the scalability to continue acquiring small-to-medium-sized businesses to achieve our strategic growth objectives. We are also able to sell and merge businesses relatively easily should specific market dynamics change. This enables us to continue to grow rapidly without becoming significantly more complex. For example, in 2009, Halma had revenue of £502m from 38 operating companies, while today we have revenue of over £1.2bn from 42 operating companies. Our core acquisition strategy is to find privately owned businesses operating in niches which are aligned with our purpose of "Growing a safer, cleaner, healthier future for everyone, every day". We focus the majority of our search efforts on our core, or closely adjacent, market niches although each sector board has the freedom to find new niches which might have the right product, market and financial characteristics. In most cases we acquire 100% of an entity but we also consider minority investments to gain access to potentially valuable intellectual property if an outright purchase is not appropriate or possible. Every transaction is approved by the Group Chief Executive and Chief Financial Officer, with all deals £10m or over requiring Halma plc Board approval. We entered the year with a healthy acquisition pipeline and this translated into four acquisitions being completed in the Infrastructure Safety sector, as well as two small asset purchases in the Medical sector, for a total initial cash consideration of £66.1m. We made one small disposal in the year, of Accudynamics, as it no longer had the future growth and returns characteristics we require. These acquisitions contributed in line with expectations during the year and we expect good performances from them in the future. Full details are given in the Financial Review and in the notes to the Financial Statements.
I am pleased with the number of acquisitions made during the year and with the high levels of prospecting activity in our sector M&A teams. Although we did not meet our KPI of acquiring profit of 5% or more, delivering 3.2% (excluding the effect of the Accudynamics disposal), this was more than compensated for by strong organic growth. However, increasing the contribution from acquisitions will be a focus for improvement. Consequently, we have increased our capability, with new talent at the Divisional Chief Executive and Managing Director levels and the addition of further resources to our sector M&A teams. We have also added expertise to support minority investments that can bring new capabilities to Halma without taking 100% ownership. We continue to build long-term relationships with business owners so that they see Halma as the right home for their business when they decide to sell, or as a strong investment partner to help them grow their businesses, and have a good pipeline for the year ahead. |
| Further investment in our Growth Enablers Our Growth Enablers are resources available to our companies to help them to grow. Our strong progress in the year was supported by their further development, for example in the expansion of the resources in our M&A teams, as discussed above, and the strengthening of the leadership teams in our international hubs. We also increased our Innovation and Digital programmes, and set out a new vision for how Finance & Risk can enable our companies to grow. Our Strategic Communications team has been active in supporting our companies in telling their story, thereby better connecting them with their customers.
This month we are launching a new brand design and website to better communicate the Halma story to our stakeholders, particularly how we are accomplishing our purpose through our unique culture.
Talent and culture are critical components of every business' success. The change we made at the end of 2017 to streamline our Executive Board, reducing the number of Sector Chief Executive roles from four to two, has been a great success. It has re-established the importance of the Divisional Chief Executive (DCE) role, reduced complexity, shortened lines of communication, improved decision-making and eased networking across Halma. This has enabled us to attract stronger talent with greater autonomy and responsibility. Our DCEs now play a more significant leadership role in Halma with increased interaction with the Executive Board. |
| Good progress on executing our strategy It is over a year since we launched our Halma 4.0 strategy, which provided our companies with a clear strategic framework including how to address the diverse challenges and opportunities presented by the digital age. We have made good progress in developing our digital growth strategies, although their current contribution to revenue growth is modest. We expect them to play a more significant role in the future. We have three elements to our growth strategy: - Core growth, for example, through new product development or the international expansion of existing companies, remains our main focus. We have continued to increase investment to support it, with R&D spend up by 11% to £63m (2018: £57m). - Convergence growth helps Halma companies to unlock value by creating new solutions, and often new business models, by combining the capabilities and technologies of more than one Halma company, or by a Halma company doing the same through an external partnership. During the year, nine projects involving over 20 Halma companies went through our Convergence Accelerator programme and the commercialisation of some of them will continue in the coming year. - Edge growth is created from new digital business opportunities via partnerships with external companies which have many leading-edge capabilities that we do not wish to acquire. We have been very active in building these partnerships, with discussions initiated by companies across all our sectors from a number of events in Singapore and Israel (the latter in collaboration with OurCrowd, an equity crowdfunding platform). We have also launched a collaboration with Hitatchi to help us to scale and execute some of our digital business ideas, with two Halma companies already participating and further projects being planned. We will continue to refine our digital strategy and policies to create a robust framework for our digital growth. This will include how we will organise and share data, define its ownership and comply with regulatory requirements with a structured and systematic approach. We are developing key performance indicators to track our Innovation & Digital progress and will report on these in the coming year. Outlook Halma had a successful year, achieving record revenue and profit, delivering our 40th consecutive year of dividend per share growth of 5% or more and making further increased strategic investment supported by our strong balance sheet. We have a strong purpose, culture and growth strategy focused on niches in a diverse range of markets where demand is supported by resilient long-term growth drivers, offering us both organic and acquisition growth opportunities.
The new financial year has started well, and order intake has continued to be ahead of both revenue and order intake for the comparable period last year. We expect to make good progress in the year ahead.
Andrew Williams Group Chief Executive
1 See highlights.
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| Financial Review
Record results Halma made strong progress in the period, delivering record revenue and profit for the 16th consecutive year. We continued to execute well against our growth strategy and our key performance indicators, leveraging our sustainable financial model and organisational structure across our global niche markets.
Revenue increased by 12.5% to £1,210.9m (2018: £1,076.2m), and adjusted1 profit was up by 15.0% to £245.7m (2018: £213.7m), while statutory profit before taxation increased by 20.2% to £206.7m (2018: £171.9m). Cash generation was strong, and our financial position remains robust, allowing us to continue to support investment in growth, both organically and by acquisition. The Board is proposing a further dividend increase of 7%, the 40th consecutive year of dividend per share growth of 5% or more.
The revenue growth of 12.5% included a 10.0% increase in organic constant currency revenue. Acquisitions contributed 3.1% to growth (2.1% net of disposals).
The adjusted profit increase of 15.0% included 11.1% organic constant currency profit growth. Both organic revenue and adjusted profit growth were substantially ahead of our KPI target of 5% growth or more, and more than compensated for the rate of growth from acquisitions, which, at 3.2% (3.6% net of disposals), was lower than our KPI of 5% growth or more.
There was a small net currency translation impact on revenue and adjusted profit, with revenue benefiting by 0.4% and adjusted profit by 0.3%.
Statutory profit before taxation of £206.7m is calculated after charging the amortisation of acquired intangible assets of £35.6m (2018: £34.7m), and other items of a net £3.4m (2018: £7.1m), which included a charge of £2.1m in relation to the equalisation of pension benefits for men and women in the Group's defined benefit pension plans (see "Pension update" below). Further detail on these items is given in note 1. |
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| 2019 £m | 2018 £m | Increase £m | Total | Organic growth2 | Organic growth2 at constant currency | |
| Revenue | 1,210.9 | 1,076.2 | 134.7 | 12.5% | 10.4% | 10.0% | |
| Adjusted1 profit before taxation | 245.7 | 213.7 | 32.0 | 15.0% | 11.4% | 11.1% | |
| Statutory profit before taxation | 206.7 | 171.9 | 34.8 | 20.2% | - | - | |
| Strong revenue and profit growth Revenue grew by 15.6% in the first half and 9.7% in the second half. There was a 1.8% negative effect from currency translation in the first half which reversed in the second half to give a small benefit of 0.4% for the year. Organic revenue growth at constant currency was an exceptionally strong 14.2% in the first half reflecting good performances across all four of our sectors as well as a benefit from the phasing of the delivery of some large orders received in the second half of the prior year. As expected, we also delivered good organic constant currency growth rate of 6.3% in the second half to give an impressive 10.0% growth rate for the year as whole. Adjusted profit growth was 19.4% in the first half and 11.5% in the second half. As with revenue, the negative effect from currency translation in the first half reversed in the second half, giving a small benefit of 0.3% for the year. Organic profit growth at constant currency was again exceptionally strong at 16.1% in the first half and, at 7.2% in the second half, was slightly ahead of our expectations at the half year. The first half/second half split of adjusted profit was 46%/54%, compared to our typical 45%/55% pattern, reflecting the strong first half performance and a better risk profile for the year. Growth in all four sectors All four sectors delivered revenue and profit growth, both on a reported and organic constant currency basis. All sectors grew revenue on an organic constant currency basis in both the first and the second half.
We delivered double-digit organic constant currency profit growth in three of our four sectors. Infrastructure Safety was the strongest performer, with profit growth accelerating in the second half. Environmental & Analysis and Medical delivered strong growth, which comprised a slower second half following an exceptionally good first half. Process Safety achieved mid-single-digit growth, which included reorganisation costs of £1.5m to improve its competitive position and performance in the future.
Central and growth enabler costs increased, as expected, to £22.0m (2018: £15.3m) excluding the one-off charge of £2.1m for equalising pension benefits between men and women. This principally reflected increased investment to support our companies' growth over the medium-term, mainly in the digital transformation and innovation Growth Enablers, as well as in governance and compliance. We expect a further increase, albeit at a lower rate, in 2019/20, principally in Growth Enabler costs, and in the medium-term, these costs are expected to grow no faster than revenue.
Growth in our major regions All major regions reported revenue growth, with the USA, Mainland Europe and the UK, performing strongly, with double-digit percentage increases. Following strong performances in 2018, growth in Asia Pacific and Africa, Near and Middle East slowed, with Other regions showing a small decline.
The USA delivered very strong growth of 18.5%, and remains our largest revenue destination, accounting for 37% of Group revenue, an increase of two percentage points compared to the prior year.
All sectors performed well, with Infrastructure Safety growing very strongly and Process Safety and Environmental & Analysis also delivering excellent growth. Mainland Europe revenue increased by 12.0%, driven by good performances in Infrastructure Safety and Environmental & Analysis. The UK also grew well with revenue increasing by 16.0% and all sectors except Medical, which accounts for only 7% of UK revenues, growing at a double-digit percentage rate.
Asia Pacific grew 5.2%, with good growth in Process Safety, Infrastructure Safety and Medical, while Environmental & Analysis growth was slower following a strong performance last year. Our largest markets in the region grew well, with revenue in China increasing 8% against a tough comparative of 20% growth last year, and Australasia growing 16%. Performance in smaller markets was variable.
In the rest of the world, performance was mixed and revenue was broadly flat overall. In Africa, Near and Middle East, Infrastructure Safety grew strongly, but this was offset by declines in the other three sectors, notably in Environmental & Analysis. Other regions saw challenging conditions for the Safety sectors, but growth in Environmental & Analysis and Medical. Of the larger markets in the rest of the world, Brazil delivered good growth.
Revenue from territories outside the UK/ Mainland Europe/the USA grew by 3.2%, below our 10% KPI growth target. Delivering more consistent growth in these regions will be a key focus in 2019/20, even though we achieved 16.0% growth in revenue in the UK/Mainland Europe/the USA to deliver a strong overall result.
On an organic constant currency basis, the USA was the fastest growing region, with 18.3% revenue growth with all sectors delivering double-digit organic revenue growth. Mainland Europe grew revenue by 6.5%. The UK grew 11.5%, with all sectors except Medical growing by more than 10%. Asia Pacific growth was 4.5%, while Africa, Near and Middle East and Other regions had a challenging second half across the sectors resulting in flat revenue and a decline, respectively, for the full year.
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| £m | % of total |
| £m | % of total | Change £m | % growth | % organic growth at constant currency |
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| United States of America | 443.2 | 37% |
| 374.0 | 35% | 69.2 | 18.5% | 18.3% | |||||
| Mainland Europe | 266.3 | 22% |
| 237.7 | 22% | 28.6 | 12.0% | 6.5% | |||||
| United Kingdom | 200.9 | 16% |
| 173.3 | 16% | 27.6 | 16.0% | 11.5% | |||||
| Asia Pacific | 184.0 | 15% |
| 174.9 | 16% | 9.1 | 5.2% | 4.5% | |||||
| Africa, Near and Middle East | 70.8 | 6% |
| 69.7 | 7% | 1.1 | 1.5% | (0.6)% | |||||
| Other countries | 45.7 | 4% |
| 46.6 | 4% | (0.9) | (2.1)% | (6.1)% | |||||
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| 1,210.9 | 100% |
| 1,076.2 | 100% | 134.7 | 12.5% | 10.0% | |||||
| Increased returns Halma's Return on Sales has exceeded 16% for 34 consecutive years. Our KPI target is to deliver Return on Sales in the range of 18-22%. This year Return on Sales increased to 20.3% (2018: 19.9%), with an improvement in all sectors except Process Safety, where Return on Sales remained strong at 23.0%, even though there was a decline of 0.5% due to reorganisation costs. We successfully achieved our objective of continuing to invest in our businesses while delivering growth. This enables us to maintain a high level of Return on Total Invested Capital (ROTIC), the post-tax return on the Group's total assets including all historical goodwill. ROTIC improved to 16.1% (2018: 15.2%), once again well ahead of our KPI target of 12% and substantially in excess of Halma's Weighted Average Cost of Capital (WACC), estimated to be 7.9% (2018: 7.7%). Currency impacts well managed Halma reports its results in Sterling. Our other key trading currencies are the US Dollar, Euro and to a lesser extent the Swiss Franc and Chinese Renminbi. Over 45% of Group revenue is denominated in US Dollars and approximately 13% in Euros. The Group has both translational and transactional currency exposure. Translational exposures are not hedged, while, for transactional exposures, after matching currency of revenue with currency costs wherever practical, forward exchange contracts are used to hedge a proportion (up to 75%) of the remaining forecast net transaction flows where there is a reasonable certainty of an exposure. We hedge up to 12 months and, in certain specific circumstances, up to 24 months forward. At 31 March 2019 approximately 68% of our next 12 months' currency trading transactions were hedged. There is a good degree of natural hedging within the Group in US Dollars but we spend less in Euros than we sell and this year had a net exposure of approximately €35m. We saw continued volatility in currencies throughout the year although by year end this had a relatively limited impact on the Consolidated Income Statement. Sterling strengthened on average in the first half of the year, giving rise to a negative currency translation impact of 1.8% on revenue and 2.2% on profit. However, Sterling was weaker on average in the second half of the year, and for the year as a whole, currency translation had a small positive effect of 0.4% on revenue and 0.3% on adjusted profit. |
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| Weighted average rates used in the Income Statement | Exchange rates used to | ||
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| 2019 | 2018 | 2019 | 2018 |
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| First half | Full year | Full year | Year end | Year end |
| US$ | 1.33 | 1.31 | 1.33 | 1.30 | 1.41 |
| Euro | 1.13 | 1.14 | 1.13 | 1.16 | 1.14 |
| Based on the current mix of currency denominated revenue and profit, a 1% movement in the US Dollar relative to Sterling changes revenue by £5.5m and profit by £1.1m. Similarly, a 1% movement in the Euro changes revenue by £1.5m and profit by £0.3m. If currency rates through the 2019/20 year were US Dollar 1.30/Euro 1.16 relative to Sterling, and assuming a constant mix of currency results, we would expect no material effect on revenue and profit in 2019/20 compared with 2019. On this basis there would be a positive effect in the first half of the year, which would broadly reverse in the second half. Increased financing cost The net financing cost in the Income Statement of £10.0m was slightly above the prior year (2018: £9.7m). Average net borrowings were marginally lower this year, despite acquisition expenditure, but the average cost of financing was higher due to the currency mix of debt and higher US dollar interest rates (see the 'Average debt and interest rates' in the table below. Interest cover (EBITDA as a multiple of net interest expense as defined by our Revolving Credit Facility) was 33 times (2018: 32 times) which was well in excess of the four times minimum required in our banking covenants. The net pension financing charge under IAS 19 is included within the net financing cost. This year the cost decreased to £1.2m (2018: £1.7m), reflecting the reduction in the deficit on our defined benefit plans. |
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| Group tax rate The Group has major operating subsidiaries in 10 countries and the Group's effective tax rate is a blend of these national tax rates applied to locally generated profits. A significant proportion (approximately one fifth) of Group profit is generated and taxed in the UK. The Group's effective tax rate on adjusted profit was lower than the prior year at 18.6% (2018: 19.7%) mainly due to the decrease in the US federal tax rate in addition to some one-off credits in the year. For the year to 31 March 2020 we currently anticipate (based on the forecast mix of adjusted profits) a Group effective tax rate on adjusted profits of approximately 20%, with the increase compared to this financial year mainly driven by the mix of adjusted profits, including the full year effect of prior year acquisitions, and lower interest deductibility relative to profits. On 2 April 2019, the European Commission published its final decision that the UK controlled Finance Company Partial Exemption (FCPE) constituted State Aid. In common with a number of other UK companies, Halma has benefited from the FCPE, and the total benefit in 2019 and prior periods is approximately £15.4m in respect of tax and approximately £0.6m in respect of interest. We are currently evaluating whether to appeal the European Commission's decision and the UK Government may also appeal, and therefore at present we believe that no provision is required in respect of this issue, although a cash payment of some, or all of, the amount due may be required in the next year which we would expect to be refundable in the event of a successful appeal. |
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| Strong cash generation Cash generation is an important component of the Halma model, underpinning further investment in our businesses, supporting value-enhancing acquisitions and funding an increasing dividend. Our cash conversion in 2019 was strong. Cash generated from operations was £259.6m (2018: £214.4m) and adjusted operating cash flow was £225.2m (2018: £190.4m) which represented 88% (2018: 85%) of adjusted operating profit, ahead of our cash conversion KPI target of 85%. |
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| Operating cash flow summary
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| 2019 £m | 2018 £m | |||
| Operating profit | 217.8 | 181.2 | |||
| Net acquisition costs and contingent consideration fair value adjustments | 0.3 | 7.7 | |||
| Defined benefit pension charge | 2.1 | - | |||
| Amortisation and impairment of acquisition-related acquired intangible assets | 35.6 | 34.7 | |||
| Adjusted operating profit | 255.8 | 223.6 | |||
| Depreciation and other amortisation | 31.3 | 28.4 | |||
| Working capital movements | (16.3) | (24.4) | |||
| Capital expenditure net of disposal proceeds | (29.7) | (20.5) | |||
| Additional payments to pension plans | (11.4) | (10.8) | |||
| Other adjustments | (4.5) | (5.9) | |||
| Adjusted operating cash flow | 225.2 | 190.4 | |||
| Cash conversion % | 88% | 85% | |||
| Non-operating cash flow and reconciliation to net debt |
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| 2019 £m | 2018 £m |
| Adjusted operating cash flow | 225.2 | 190.4 |
| Tax paid | (40.6) | (41.1) |
| Acquisition of businesses including cash/debt acquired and fees | (68.1) | (117.6) |
| Disposal of businesses | 3.1 | - |
| Net movement in loan notes | 0.1 | 0.2 |
| Net finance costs and arrangement fees | (8.3) | (7.3) |
| Dividends paid | (57.2) | (53.4) |
| Own shares purchased | (3.8) | (2.6) |
| Adjustment for cash outflow on share awards not settled by own shares | (4.9) | (3.3) |
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| Effects of foreign exchange | (6.9) | 10.8 |
| Movement in net debt | 38.6 | (23.9) |
| Opening net debt | (220.3) | (196.4) |
| Closing net debt | (181.7) | (220.3) |
| Net debt to EBITDA |
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| 2019 £m | 2018 £m |
| Adjusted operating profit | 225.8 | 223.7 |
| Depreciation and amortisation (excluding acquired intangible assets) |
31.3 | 28.4 |
| EBITDA |
287.2 | 252.1 |
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Net debt to EBITDA |
0.63 |
0.87 |
| A summary of the year's cash flow is shown in the table above. The largest outflows in the year were in relation to acquisitions, dividends and taxation paid. Working capital outflow, comprising changes in inventory, receivables and creditors, totalled £16.3m (2018: £24.4m) and debtor days have reduced year-on-year, reflecting our continuing focus on cash management.
Dividends totalling £57.2m (2018: £53.4m) were paid to shareholders in the year. Taxation paid was £40.6m (2018: £41.1m). In the 2019/20 financial year, an acceleration of the payment timetable for UK Corporation Tax payments for larger companies will result in a one-off increase in cash taxation payable of approximately £5m.
Capital allocation and funding Halma aims to deliver high returns, measured by ROTIC, well in excess of our cost of capital. We invest to deliver the future earnings growth and strong cash returns which underpin this ambition, and our capital allocation priorities are as follows: Investment for organic growth Organic growth is our first priority and is driven by investment in our existing businesses, including through capital expenditure, innovation for digital growth and in new products, international expansion and the development of our people. Value-enhancing acquisitions We supplement organic growth with acquisitions in current and adjacent market niches. This brings new technology, intellectual property and talent into the Group and expands our market reach, keeping Halma well-positioned in growing markets over the long-term. Regular and increasing returns to shareholders We have maintained a progressive dividend policy for over 40 years and this is our preferred route for delivering regular cash returns to shareholders. Increased investment for organic growth All sectors continue to innovate and invest in new products, with R&D spend determined by each individual Halma company. This year R&D expenditure grew by 11.2%, a similar rate to revenue growth. R&D expenditure as a percentage of revenue was 5.2% (2018: 5.2%), well in excess of our KPI target of 4% or more. In the medium term we expect R&D expenditure to continue to increase broadly in line with revenue growth. Under IFRS accounting rules we are required to capitalise certain development projects and amortise the cost over an appropriate period, which we determine as three years. In 2019 we capitalised and acquired £11.6m (2018: £9.7m), impaired £0.7m (2018: £0.7m) and amortised £8.5m (2018: £6.9m). This results in an asset carried on the Consolidated Balance Sheet, after a £0.6m gain (2018: £1.0m loss) relating to foreign exchange, of £33.1m (2018: £30.0m). All R&D projects and particularly those requiring capitalisation, are subject to rigorous review and approval processes. Capital expenditure on property, plant, equipment, computer software and other intangible assets was £31.3m (2018: £22.1m) or £29.1m excluding the Awarepoint and Elpas asset purchases made in the year. The expenditure on fixed assets was spread across all four sectors, supporting our operating capability, capacity and growth including investment in IT and systems upgrades. There was increased spend in three of our sectors with reduced spend only in Environmental & Analysis which had the highest spend in the prior year. In addition, we expanded our head office space this year to accommodate the increased investment in Growth Enablers. We anticipate capital expenditure of £35m in the coming year, reflecting significant new operating site, plant and equipment and IT investment in Infrastructure Safety and new operating capability in Environmental & Analysis. Value-enhancing acquisitions Acquisitions and disposals are an important part of our growth strategy, as they keep our portfolio focused on growing markets over the medium and long-term.
In the year we spent £64.5m on four acquisitions (net of cash acquired of £5.3m including acquisition costs). In addition, we paid £3.6m in contingent consideration for acquisitions made in prior years, giving a total spend of £68.1m. We made one disposal, realising £3.1m, net of transaction costs.
In addition to the four business acquisitions, our Medical division acquired various assets from Awarepoint and Elpas for total consideration of £2.6m to expand CenTrak's technology and market reach.
In our half year results, we reported on three acquisitions in the Infrastructure Safety sector: LAN Control Systems Limited, a relatively small technologically driven bolt-on for an initial cash consideration of £1.0m; Limotec bvba for a cash consideration of €9.3m (£8.2m), on a cash and debt-free basis; and Navtech Radar Limited for an initial cash consideration of £21m on a cash and debt-free basis, with further earn-out considerations, capped at a total of £18m in cash, payable dependent on profit growth in each of the three financial years to the end of March 2021.
In January 2019, we acquired Business Marketers Group Inc., trading as Rath Communications, a provider of emergency communication systems for areas of refuge in the USA, for a cash consideration of US$42.4m (£32.8m), on a cash- and debt-free basis.
There was one disposal in the period. In June 2018, the Medical sector sold the Accudynamics Fluid Technology business for US$5.4m (£4.2m), resulting in a small loss on disposal of US$1.2m (£1.0m). The original US$31.8m consideration on acquisition in December 2010 primarily related to goodwill and customer intangibles, which have now been successfully retained within the Group to strengthen the product offering and market positions of other Halma Diagnostic device businesses.
The acquisitions completed in the current and prior year contributed to revenue in 2019 in line with expectations. We expect a good performance from these acquisitions in the coming year and in the long term.
Regular and increasing returns for shareholders Adjusted earnings per share increased by 16.5% to 52.74p (2018: 45.26p). Statutory earnings per share increased by 10% to 44.78p (2018: 40.69p), lower than the increase in Adjusted earnings per share largely as a result of the one-off credit last year arising from revisions to US taxation rates. The Board is recommending a 7.0% increase in the final dividend to 9.60p per share (2018: 8.97p per share), which together with the 6.11p per share interim dividend gives a total dividend per share of 15.71p (2018: 14.68p), up 7.0% in total. Dividend cover (the ratio of adjusted profit after tax to dividends paid and proposed) is 3.36 times (2018: 3.08 times). The final dividend for 2019 is subject to approval by shareholders at the AGM on 25 July 2019 and will be paid on 14 August 2019 to shareholders on the register at 12 July 2019. We aim to increase the per share dividend amount each year, while maintaining a prudent level of dividend cover, with approximately 35-40% of the anticipated total dividend being declared as an interim dividend. The Board's determination of recommended annual dividend increases takes into account the medium-term rate of organic constant currency growth and the financial resources required in executing our strategy, including organic investment needs and acquisition opportunities, whilst maintaining moderate debt levels. |
| Funding capacity extended Halma operations are cash generative and the Group has access to competitively priced debt finance providing good liquidity for the Group. Group treasury policy remains conservative and no speculative transactions are undertaken.
In October 2018 we extended the £550m Revolving Credit Facility, put in place in November 2016, by a further year to 2023. The combination of good cash generation, a healthy balance sheet and committed external financial resources provides us with the capacity we need to invest in organic growth and acquisitions to meet our growth objectives as well as to sustain our progressive dividend policy.
At the year end, net debt was £181.7m (2018: £220.3m), a combination of £262.9m of debt and £81.2m of cash held around the world to finance local operations. The gearing ratio at year end (net debt to EBITDA) was 0.63 times (2018: 0.87 times). Although we are comfortable operating at this level of gearing, we would increase to two times gearing if the timing of acquisitions required it. Net debt represented 3% (2018: 5%) of the Group's year-end market capitalisation. The Group continues to operate well within its banking covenants with significant headroom under each financial ratio. Pensions update We closed the two UK defined benefit (DB) plans to new members in 2002. In December 2014 we ceased future accrual within these plans with future pension benefits earned within the Group's Defined Contribution (DC) pension arrangements. The Group accounts for post-retirement benefits in accordance with IAS 19 Employee Benefits. The Consolidated Balance Sheet reflects the net deficit on our pension plans at 31 March 2019 based on the market value of assets at that date and the valuation of liabilities using year end AA corporate bond yields. On an IAS 19 basis the deficit on the Group's DB plans at the 2019 year end had decreased to £39.2m (2018: £53.9m) before the related deferred tax asset. The value of plan assets increased to £292.2m (2018: £271.7m). In total, over 55% of plan assets are invested in return seeking assets providing a higher expected level of return over the longer term. Plan liabilities increased to £331.4m (2018: £325.6m) due to the impact of equalisation of guaranteed minimum pension contributions for men and women and an increase in the inflation rate, partly offset by updated member experience data. The plans' actuarial valuation reviews, rather than the accounting basis, determine any cash deficit payments by Halma. In 2019 these contributions amounted to £11.7m and following a triennial actuarial valuation of the two UK pension plans, cash contributions increasing at 7% per annum aimed at eliminating the deficit were agreed with the trustees, consistent with our expectations. On 26 October 2018, the High Court reached a judgment in relation to Lloyds Banking Group's defined benefit pension schemes which concluded that the schemes should equalise pension benefits for men and women as regards Guaranteed Minimum Pension benefits. The judgement has resulted in a one-off charge of £2.1m to the Income Statement which has been treated as an exceptional item and so excluded from adjusted profit. |
| Average debt and interest rates |
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| 2019 | 2018 |
| Average gross debt (£m) | 282.6 | 284.5 |
| Weighted average interest rate on gross debt | 2.47% | 2.16% |
| Average cash balances (£m) | 80.4 | 76.5 |
| Weighted average interest rate on cash | 0.50% | 0.33% |
| Average net debt (£m) | 202.2 | 208.0 |
| Weighted average interest rate on net debt | 3.26% | 2.83% |
| New accounting standards The Group adopted a number of new accounting standards and interpretations with effect from 1 April 2018, including IFRS 15 'Revenue from Contracts with Customers' and IFRS 9 'Financial Instruments'. There has been no material effect on the Group's accounts from these changes.
Further new standards and interpretations will be adopted for the Group's financial year commencing 1 April 2019. We do not expect their adoption to have any material impact on the Group's financial statements, with the exception of IFRS 16 'Leases', the most significant effect of which will be to bring the Group's land and building leases on to the balance sheet. IFRS 16 is expected to result in a small reduction in net assets of approximately £4m, comprising an increase in assets of approximately £45m, and an increase in liabilities (from the lease liability) of approximately £49m. Due to the varying time left to run-off the leases, we expect the net effect on the Group's profit and loss account to be immaterial, and there will be no impact on the Group's cash flow.
Further details of these new accounting standards and their application to the Group's accounts can be found in the notes to the financial statements in the Annual Report and Accounts 2019. |
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Update on Brexit and USA/China tariff increases We continue to closely monitor and assess any potential effects from the UK's exit from the European Union, and from tariff increases on certain goods by the USA and China. In 2019, approximately 9% of Group revenue came from direct sales between the UK and Mainland Europe, and approximately 4% between the USA and China. We have not seen any material effects to date, and consider that our decentralised model, with businesses in diverse markets and locations, enables our companies to adapt quickly to changing trading conditions. We expect that our companies' agility, and the support we are providing from the centre to help them prepare for these changes, will help them to mitigate any potential effects, as well as enabling them to take advantage of opportunities that arise. |
| Finance and Risk as a Growth Enabler We have delivered a strong financial performance this year, and in my first year as Chief Financial Officer, I am also pleased with the further development of the Finance and Risk function within Halma.
During the year, we reset our expectations, to be a team which not only ensures excellent financial controls and risk management but also truly enables the Halma 4.0 growth strategy.
We will achieve this through having the best talent, providing insightful and actionable data, maintaining appropriate risk frameworks and controls, supporting M&A activity, and ensuring we maximise the benefits from our external advisors and the use of new technology.
I would like to thank all my colleagues in Finance and Risk for their hard work which has contributed to another successful year for Halma.
Marc Ronchetti Chief Financial Officer
1 In addition to those figures reported under IFRS Halma uses alternative performance measures as key performance indicators, as management believe these measures enable them to better assess the underlying trading performance of the business by removing non-trading items that are not closely related to the Group's trading or operating cash flows. Adjusted profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; profit or loss on disposal of operations; and the effect of equalisation of benefits for men and women in the defined benefit pension plans. All of these are included in the statutory figures. Note 3 to the Accounts gives further details with the calculation and reconciliation of adjusted figures. 2 See highlights. |
| Process Safety Sector Review
Sector progress summary The sector delivered good revenue and profit growth while investing for improved performance. Revenue growth was 7%, on both a reported and organic constant currency basis, with the UK and the USA performing well, somewhat offset by a decline in the Africa, Near and Middle East region. With stable gross margins and investments to strengthen the sector's competitive position and improve performance, profit increased 5% on both a reported and organic constant currency basis. Return on Sales remained strong, although there was a decline as a result of reorganisation costs.
Gas Detection and Industrial Access Control performed strongly. Pressure Management's profit growth was affected by a combination of end market conditions and product mix. Safe Storage and Transfer underwent a reorganisation, including the addition of strong leadership and the consolidation of manufacturing operations. These steps position the sector for growth in 2019/20 and beyond.
Early in the year, the sector M&A strategy was reviewed to ensure better alignment with our purpose and key market growth drivers, resulting in a redefinition of our subsectors. Subsequently, we have developed a stronger pipeline of prospects.
Strategy Process Safety plays an important part in delivering Halma's purpose of making the world safer and cleaner in critical industrial operations.
We are investing in Core growth to develop new, differentiated products that address specific needs in selected industry sectors. Examples include connected gas detection products that allow our customers access to safety-critical data, and the launch of a high temperature H2S detector specifically addressing needs of Middle Eastern customers in the Oil and Gas industry. We are expanding into adjacent markets, for example through new pressure safety units focused on the food, pharmaceutical and industrial markets.
Partnerships are playing an increasingly important role in our strategy. In Gas Detection, we are utilising Halma's Convergence Accelerator and working with external partners to generate revenue from an early stage venture in China, focused on air quality and odour monitoring solutions. Industrial Access Control is augmenting its mechanical and electromechanical products with software and data solutions to meet the safety and productivity needs of warehouse operators and factory production lines.
We have invested in our M&A capability to fuel growth into new, adjacent subsectors which are aligned with Halma's purpose and have strong long-term growth drivers. Increasingly there is the potential for digitisation, through technology enhancements to our existing portfolio, and for international growth, with Asia as a key focus.
Market trends and growth drivers Our Process Safety businesses continue to benefit from increasing health and safety regulation, a growing population and urbanisation. With an estimated 340 million injuries and 2.3 million fatalities in the workplace each year, it is likely that health and safety regulations will continue to tighten. Our ability to find new applications in adjacent industrial markets is broadening our growth opportunities, both organically and through acquisition.
Several of our businesses, notably in Pressure Management, operate in markets driven by the increasing need for energy and other critical resources. Global energy demand is expected to grow by over 25% between 2017 and 2040, with developing country demand expected to increase by 45%. The diversification of energy resources means we are repurposing our solutions to alternative energy markets, where we expect good growth: the global renewable energy market is expected to grow at a compound annual growth rate of 4.9% between 2017 and 2025.
In Gas Detection, the market is expected to grow by over 7% pa to 2025, driven by ongoing industrialisation, increased regulation, greater demand for continuous monitoring of harmful substances to protect worker safety, and the accelerated use of wireless sensors and connected devices. |
| Performance Revenue grew by 7% to £198m (2018: £185m). Profit grew by 5% to £46m (2018: £43m). On an organic constant currency basis, revenue and profit grew by 7% and 5% respectively. In Industrial Access Control, progress was very strong, particularly in US logistics. We expect further growth to come from that industry's focus on safety and productivity. We have also invested in sales and marketing resources in Asia to accelerate the potential adoption of our products in the region. In Gas Detection, we delivered strong growth in China, from both our traditional gas detectors and from a newly developed odour monitoring solution. We made significant investments in product development and people, while maintaining strong returns. Pressure Management delivered revenue similar to last year with a small decline in profit. US oil and gas market conditions were not favourable, particularly in the second half, due to pipeline constraints in the Permian Basin. Safe Storage and Transfer has invested in streamlining operations and leadership to build a stronger platform for growth in this solid market. Return on Sales was 23.0%, a decline from 23.5% in 2018 as a result of reorganisation costs, and Return on Capital Employed remained strong. R&D investment increased by 10.2% to £7.0m (2018: £6.3m).
Outlook Process Safety continues to benefit from its long-term market growth drivers, and diversity of its end markets, and has strengthened the leadership in many of its businesses.
Increasing innovation, stronger marketing activity, together with increased strength in leadership, are expected to deliver further progress in the coming year.
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| Infrastructure Safety Sector Review
Infrastructure Safety's technologies save lives, protect infrastructure and enable safe movement.
Sector progress summary The sector delivered a very strong performance with revenue growing 17% and profit 21%. All subsectors delivered double-digit revenue and profit growth, with progress in all major geographical regions. Together with a small improvement in gross margins, this led to higher Return on Sales even after an increase in R&D investment.
The sector made four acquisitions in a productive year for M&A. Navtech Radar has enhanced our People and Vehicle Flow business, building on our radar technology expertise. The Elevator Safety subsector, already benefiting from last year's Microkey acquisition, was further enhanced by the purchase of Rath Communications, which moves it into high growth adjacent markets such as 'area of refuge'. The Fire Detection subsector added Limotec, a leading Belgian fire control panel manufacturer and system seller, together with LAN Controls, a software focused business that enables remote monitoring of fire systems and ensures their correct maintenance.
Strategy Infrastructure Safety makes the world a safer place by protecting commercial, industrial and public buildings and spaces. It addresses increasing life safety concerns, more stringent regulatory requirements and accelerating demand for connected infrastructure systems globally both by product and digital innovation, and by acquiring companies with technological expertise, strength in new geographies and a presence in adjacent markets. Our focus is on less cyclical, niche applications, with high barriers to entry.
We seek to expand our geographic footprint organically, utilising hubs in Asia Pacific, and through acquisitions, such as the Limotec and Rath Communications acquisitions.
Our strategy is supported by relentlessly focusing on talent, both by developing our people and attracting new talent from outside.
Our companies make excellent use of the Digital Growth Engines. This includes the Convergence Accelerator programme to drive new business concepts, particularly in connected systems. This will move us up the digital value chain and provide opportunities to deliver value from data. By leveraging the Microkey acquisition, we are providing new connected elevator solutions that bring together insights gained from data generated by the many safety components we supply to elevator manufacturers and maintenance companies. We are also acquiring companies with digital business models and knowhow, such as LAN Controls.
Market trends and growth drivers Our Infrastructure Safety markets are driven by an expanding and ageing population, urbanisation and increasing regulation, with increasing demand for digital innovation. According to a recent UN report, the world's urban population is expected to increase by 2.5 billion by 2050. We expect this to drive demand for better infrastructure and transportation safety and security, as more people live in more densely populated areas. These long-term trends are particularly relevant in developing economies. For example, the fire detection market is forecast to grow at 4% pa globally between 2017 and 2022, with a greater increase of 8% pa in India and 5% pa in China. The growth of intelligent building solutions offers further opportunities. The market is expected to more than quadruple by 2027, as digital technology allows building owners to have greater access to data across all building services at a lower cost. Our Fire and Security businesses are well placed to take advantage of this trend, with their fast-developing data, remote monitoring and control capabilities. The elevator maintenance market is faster growing with higher profitability than the OEM elevator market which continues to be highly competitive. Growth is driven by increasing urbanisation and regulation. There are opportunities to enhance efficiency through remote monitoring and preventative maintenance. We also see strong growth opportunities in related niches, such as the 'area of refuge' market we entered with the Rath Communications acquisition. Similar trends are creating new opportunities for our People and Vehicle Flow companies. An example is the greater demand being placed on road infrastructure, where the limited scope to physically expand capacity is driving the demand for Navtech Radar's technology to improve road safety and capacity. |
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| Performance Revenue grew by 17% to £409m (2018: £349m) and profit by 21% to £89m (2018: £73m). Organic constant currency revenue grew by 11% and profit by 16%. There were strong performances in the UK, Europe, USA and the Africa, Near and Middle East region, with lower growth in Asia Pacific. Acquisitions accounted for 6% of revenue and profit growth. Currency had a positive effect on both revenue and profit growth. Return on Sales improved to 21.8% (2018: 21.0%) and Return on Capital Employed remained above Group targets. R&D investment increased by 22% to £24.9m (2018: £20.4m). The People and Vehicle Flow business was particularly buoyant in Europe and Asia. This subsector also benefited from the Navtech Radar acquisition. Fire Detection made good progress in all geographies, with double-digit growth in the UK, Europe and Asia Pacific. The addition of LAN Controls brought new connected technology capability. Fire Suppression and Security Sensors both contributed good growth, with Elevator Safety continuing its transition to becoming a partner which makes elevators smarter, simpler and safer. Rath Communications strengthens our position in the USA and provides access to a new niche, the regulation driven 'area of refuge' market. Outlook Our growth drivers of increasing regulation, population growth, urbanisation and digitisation are expected to sustain growing demand for our products and services worldwide. We enter the year with good momentum and a solid M&A pipeline.
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| Environmental & Analysis Sector Review Environmental & Analysis provides technologies that monitor and protect the environment and ensure the quality and availability of life-critical resources.
Sector progress summary The sector achieved record results, with strong revenue growth of 15% and profit increasing 21%. Organic constant currency revenue and profit growth were a very good 11% and 13% respectively. There was strong growth in the USA and UK, and good growth in Mainland Europe. Return on Sales increased from 21.2% to 22.2%, as we extended our product and solutions range and invested in markets that benefit from long-term growth drivers.
Strategy Our solutions improve the availability and quality of life-critical natural resources such as air, water and food, and improve the environment and wellbeing. Leveraging Halma's Growth Enablers, we focus on developing new market-led solutions and increasing our geographical reach organically and through partnerships, especially in emerging markets.
Our R&D effort includes developing new sensors that capture accurate and effective environmental and scientific information. We are enhancing this technology by investing in digital systems that provide real-time and remote management information.
We continually seek to attract, develop and promote high quality, talented people and ensure that our teams represent our diverse end markets and are enhanced to match our strategic capability needs.
Market trends and growth drivers The Environmental & Analysis sector's long-term growth is sustained by three key drivers: - rising demand for life-critical resources such as air, water and food. - increasing environmental monitoring and regulations. - worldwide population growth, urbanisation and rising standards of living. |
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| Population growth continues to outpace the availability of key resources. By 2050, water shortages are expected to affect over 50% of the global population and this will be exacerbated by increasing urbanisation. We expect these trends to drive demand for our water testing and disinfection technologies, and our water network monitoring solutions which help to ensure integrity of networks.
Air pollution is a growing health risk in both developing and developed countries. Airborne particulates are a top cause of premature deaths in the EU, contributing to an estimated 391,000 deaths in 2016. Our spectroscopy systems assist in the precise detection of contaminates, while our environmental companies support emissions and air quality monitoring and calibrate pollution monitoring equipment.
According to the World Health Organisation, one in ten people fall ill each year from eating contaminated food and 420,000 people die each year as a result. Some of our more recent development activities are focused on ensuring the quality of the food supply chain.
Environmental regulations and actions move at a different pace around the world. Differential rates of growth in governmental and academic research spend cause the near-term dynamics of regional/market segments to vary. We continue to invest globally and across our segments in anticipation of sustained growth over the medium-term, even if we experience some short-term volatility. |
| Performance Revenue grew by 15% to £299m (2018: £259m) and profit by 21% to £66m (2018: £55m). At constant currency, organic revenue growth was 11% and organic profit growth was 13%. Acquisitions made in the prior year accounted for 3% of revenue growth and 7% of profit growth. Currency had a small positive effect of 1% on both revenue and profit.
Return on Sales improved to 22.2% (2018: 21.2%) as we generated operating leverage from strong revenue growth and gross margins, while continuing a focused investment strategy. Return on Capital Employed was strong.
First half performance was very strong, with growth of 23% in revenue and 33% in profit. This included a contribution from Mini-Cam, acquired in late 2017, and delivery of some larger Photonics projects. There was a more typical performance in the second half, with good growth of 9% in revenue and 10% in profit.
There was revenue and profit growth in all three subsectors, with the Environmental subsector contributing strongly due to a combination of very good organic growth and the Mini-Cam acquisition. We saw significant progress in the USA, which benefited from the larger Photonics projects, and also the UK. There was good growth in Mainland Europe and more moderate growth elsewhere, which was expected given a particularly strong prior year in Asia Pacific. We have continued to invest in the quality and diversity of our teams to allow us to better address the evolving needs of our markets and customers.
We further increased R&D spending which remains well above the Group average as a percentage of sales. This is spread across our core business, as well as developing new Convergence and Edge opportunities. This included the development and commercialisation of more digital sensors and solutions in our Water and Environmental subsectors, which will continue to generate growth in the future. There was also investment in some internal startups focusing on digital applications with good growth potential.
Outlook We will continue to increase investment to drive collaboration, technology development, and development of digital and data management capabilities that have begun to demonstrate commercial success through some new business models.
Our acquisition pipeline is growing as we have improved engagement with businesses complementary, or adjacent, to our existing portfolio.
We expect to continue to deliver revenue and profit growth, while maintaining our existing high level of returns, as our solutions are increasingly focused on the long-term growth drivers in our markets.
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| Medical Sector Review Medical's technologies enhance the quality of life for patients and improve the quality of care delivered by healthcare providers.
Sector progress summary The sector achieved record results, with strong growth. Revenue increased 8% and profit 15% (10% and 13% respectively on an organic constant currency basis), and there was growth in all major geographies and all subsectors. Return on Sales increased, even though there was increased investment in talent and new capabilities, with further underlying growth in R&D spend.
Strategy The Medical sector is focused on growing a healthier future by enhancing the quality of life for patients and improving the quality of care delivered by providers. We serve niche applications in global markets. We aim to continue growing by investing in our existing portfolio and acquiring additional companies. Key strategic initiatives to support this growth include: - increasing collaboration to drive geographic expansion and product and service innovation, with an increasing focus on data and digital solutions. - increasing R&D investment to adapt to quickly changing market needs and population trends. - acquiring businesses in both existing and adjacent market niches. - recruiting and retaining high-calibre, diversified talent.
Market trends and growth drivers The sector's long-term growth is supported by increasing demand due to worldwide population growth and ageing, increasing life expectancy, and the greater prevalence of chronic illnesses such as diabetes, obesity, hypertension and cancer. The development and availability of new medical diagnostic and surgical technologies are important market trends, as is the increasing access to healthcare in developing economies.
The world's population is expected to increase by almost one billion in the next 30 years, and the number of people aged over 60 is expected to double, increasing the prevalence of significant health risk factors.
An ageing population is a key driver for our ophthalmology and hypertension management businesses. Cataract surgery is one of the most frequent operations carried out worldwide, with more than 25 million operations annually, creating ongoing demand for our surgical instruments. In China, about 325 million adults have high blood pressure, with only one-third treating it.
The market for our critical fluidic components is projected to grow 6% annually, in part being led by more directed and personalised diagnostic methods combined with increased testing efficiency. North America and Europe continue to be our largest markets, with Asia exhibiting the fastest growth rate.
Healthcare facilities are seeking to improve patient outcomes, reduce costs and ensure the safety of patients and staff. This is driving the global market for our real-time location Sensor Technology business.
The growth of the global medical device market is resulting in further regulatory tightening, especially in China and Europe. Our regulatory experience and our niche focus allow us to adjust to these trends and direct resources towards areas that provide the best opportunity for sustained growth. |
| Performance Revenue grew by 8% to £306m (2018: £284m). Organic constant currency revenue growth was 10%. Profit grew to £77m (2018: £67m), an increase of 14.8%. This included a 13% organic constant currency increase. Following a very strong first half with revenue growth of 10% and profit growth of 22%, as expected we delivered a more typical rate of growth in the second half, with revenue up 6% and profit ahead 10%. Return on Sales improved from 23.6% to 25.1%, due to an improvement in gross margin and good control of overheads. We continued to increase our investment in new product development, and in digital growth engine projects aimed at adding data and services capabilities. R&D spend declined by 2.6% to £11.5m (2018: £11.8m) but grew by 1.7% excluding Accudynamics. Return on Capital Employed remained strong, and above Group targets.
We saw revenue growth in all subsectors, with Diagnostics performing very well, benefiting from new OEM customer product launches. The Ophthalmology and Sensor Technology subsectors also delivered strong growth; the former through continued international expansion and growth in core products and the latter from greater penetration into its core market of real-time location services, particularly in acute care facilities.
There were revenue increases in all major regions, with strong growth in the USA, our largest geographic market. We also saw good growth in the UK, Mainland Europe and Asia Pacific.
We made two small asset acquisitions for CenTrak, adding new technology and improved distribution capabilities in the USA and Mainland Europe. We sold Accudynamics, one of our Diagnostics businesses.
We have continued to improve the calibre and diversity of our leadership talent at both our operating company and sector management levels, to support delivery in our core markets as well as adding new capability for growth in adjacent niches. |
| Outlook Strong demographic trends, and continued advances in diagnostic and surgical techniques are driving demand for our products and services. Through increased penetration into developing markets, continued new product and service development and investment in our talent, we expect to continue to outperform the market. The pressure to reduce healthcare costs coupled with changing payor systems and outcome measures provide ongoing challenges.
Our acquisition pipeline is improving as we continue to assess targets adjacent to, and within, our existing niches. The combination of acquisitions and continued organic revenue and profit growth momentum positions us well for continued progress.
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| Principal Risks and Uncertainties
Halma's principal risks and uncertainties are detailed below and are supported by the robust risk management and internal control systems and procedures noted in the Annual Report and Accounts 2019.
1. Cyber Risk Owner: Inken Braunschmidt Gross risk level: High Change: Increased Risk appetite: Averse
Growth enablers · Digital Growth Engines · Finance & Risk · International Expansion · Talent and Culture
Risk and impact · Loss of digital intellectual property/data or ability to operate systems due to internal failure or external attack. There is resulting loss of information or ability to continue operations, and therefore financial and reputational damage. The increase in this risk reflects the growing threat from cyber crime around the world.
How do we manage the risk? · Clear ownership of cyber risk, with Board level expertise. IT function reports into Chief Innovation & Digital Officer. · Development of digital framework, including digital growth and cyber risks. · Minimum required IT controls defined. All companies certify compliance every six months. Any gaps are tracked until addressed. · Monthly cyber KRI/KPI reporting in place across the Group. · Regular online IT awareness training for all employees using computers. · Disaster recovery and back-up plans in place, required to be tested regularly. · Regular reviews by Group IT and Internal Audit.
2. Organic Growth Risk Owner: Andrew Williams Gross risk level: High Change: No change Risk appetite: Open
Growth enablers · International Expansion · Talent & Culture · Digital Growth Engines · Innovation Network · Strategic Communications · Finance & Risk
Risk and impact · Failing to deliver desired organic growth, resulting in missed expected strategic growth targets and erosion of shareholder value.
How do we manage the risk? · Clear Group strategy to achieve organic growth targets, supported by detailed company strategies and seven Halma growth enablers with Executive Board owners. · Sector management ensure that the Group strategy is fulfilled through ongoing review and chairing of companies. · Continued investment in R&D and innovation with KPIs monitored at Board level. · Regional hubs, for example in China and India, support local growth strategic initiatives for all companies. · Agile business model and culture of innovation to take advantage of new growth opportunities as they arise. · Regular monitoring of financial performance at all levels, including by the Board. · Remuneration of company executives and above is based on profit growth. 3. Making and Integrating Acquisitions Risk Owner: Andrew Williams Gross risk level: High Change: Increased Risk appetite: Open
Growth enablers · Talent & Culture · Mergers & Acquisitions · Finance & Risk · International Expansion · Strategic Communications
Risk and impact · Missing our strategic growth target for acquisitions due to insufficient acquisitions being identified or poor due diligence or poor integration, resulting in erosion of shareholder value. The increase in this risk reflects the current competitive market and also the need to acquire more to achieve our target as Halma continues to grow.
How do we manage the risk? · Acquisition of companies in existing or adjacent markets that are well known. · Dedicated M&A Directors with Group Chief Executive, Chief Financial Officer and plc Board scrutiny and approval of all acquisitions. · Regular reporting of the acquisition pipeline to the Executive and plc Board. · Careful due diligence by experienced staff who bring in specialist expertise as required. · Valuation model used for all acquisitions to ensure price paid is appropriate. · Integration checklist covering control and compliance areas used to ensure consistent high quality and efficient integration into Halma. · Clarity of strategy and agile business model to take advantage of new growth opportunities as they arise.
4. Talent and Diversity Risk Owner: Jennifer Ward Gross risk level: Medium Change: No change Risk appetite: Open
Growth enablers · Talent & Culture · Digital Growth Engines · Innovation Network · Strategic Communications · International Expansion
Risk and impact · Not having the right talent and diversity at all levels of the organisation to deliver our strategy, resulting in reduced financial performance.
How do we manage the risk? · Comprehensive recruitment processes to recruit the best and brightest talent. · Development of talent and diversity across companies, including through development programmes, to create competitive advantage and motivated leaders to deliver the strategy. · Succession planning process to identify and develop future leaders. · Future leaders programme to develop graduates. · Ongoing focus to increase employee diversity at all levels worldwide. Diversity metrics are monitored by the Boards. · Senior management reward structure is aligned with the strategic priorities of the companies, sectors and Group.
5. Innovation Risk Owner: Inken Braunschmidt Gross risk level: High Change: Increased Risk appetite: Seeking
Growth enablers · Talent & Culture · Digital Growth Engines · Innovation Network · Strategic Communications · Mergers & Acquisitions
Risk and impact · Failing to innovate to create new high-quality products to meet customer needs or failure to adequately protect intellectual property, resulting in a loss of market share and poor financial performance. The increasing speed of innovation and potential for disruption has increased this risk.
How do we manage the risk? · Product development is devolved to the companies who are closest to the customer, with support and guidance provided by sector management. · Chief Innovation & Digital Officer promotes and accelerates innovation by companies, with support from sector management. · Digital strategy in place relating to innovation, with a consistent language for growth and innovation. (Implementation is via four growth engines: 1. Growth sprints, 2. Convergence Accelerator, 3. Digital Edge Hub, 4. Innovation Hot Spots). · Active collaboration of ideas and best practices between companies. · Head Office approval of all large R&D projects to ensure alignment with strategy. · Halma Innovation Awards reward and encourage innovation. · Companies are encouraged to develop and protect intellectual property.
6. Competition Risk Owner: Andrew Williams Gross risk level: Medium Change: Increased Risk appetite: Open
Growth enablers · International Expansion · Talent & Culture · Digital Growth Engines · Innovation Network · Mergers & Acquisitions
Risk and impact · Failing to adapt to market and technological changes, either through organic or M&A activity, resulting in reduced financial performance. Just as our innovation risk has increased, the threat of disruption from competitors has increased.
How do we manage the risk? · Focus on niche markets with high barriers to entry and seek to achieve strong market positions. · Halma's decentralised business model enables operational resources to be closer to customers, and companies are empowered to monitor, anticipate and respond to changing market needs. · Regular company and sector board meetings which review markets, competition and product innovation. · Ongoing discussions with customers and monitoring of market and technological changes to identify new opportunities. · Halma Chief Innovation & Digital Officer provides leadership and oversight for digital innovation and arranges Innovation Hotspot visits for Halma leaders to see disruption examples in action.
7. Economic and Geopolitical Uncertainty Risk Owner: Andrew Williams Gross risk level: High Change: Increased Risk appetite: Cautious
Growth enablers · International Expansion · Finance & Risk · Talent & Culture
Risk and impact · Risk of decline in financial performance due to recession or geopolitical changes and its potential impact on the carrying value of goodwill. The increase in risk reflects increased political uncertainty, including Brexit and USA/China trade relations.
How do we manage the risk? · Diverse portfolio of companies across the four sectors, in multiple countries and in relatively non-cyclical specialised global niche markets helps to minimise the impact of any single event operating in one market. · Regular monitoring and assessment of potential risks and opportunities relating to geopolitical or economic uncertainties. A Brexit Committee is in place to monitor developments and support companies. · Identification of any wider trends by the Halma Executive Board that require action. · Local companies have the autonomy to rapidly adjust to changing circumstances. · Annual assessment of the carrying value of goodwill.
8. Natural Disasters Risk Owner: Andrew Williams Gross risk level: Medium Change: No change Risk appetite: Cautious
Growth enablers · Finance & Risk · Talent & Culture · Mergers & Acquisitions · International Expansion
Risk and impact · Being unable to respond to large scale events or natural catastrophes such as hurricanes, floods or fire, resulting in inability of one or more parts of our business to operate, therefore causing financial loss and reputational damage.
How do we manage the risk? · All parts of the Group are required to have business continuity plans in place which are tailored to manage the specific risks they are most likely to face and these are required to be tested periodically. · The geographic diversity of companies limits the impact of any single event and Halma has manufacturing capability in multiple locations which provides flexibility. · Business interruption insurance is in place to limit any financial loss that may occur.
9. Communications Risk Owner: Jennifer Ward Gross risk level: High Change: No change Risk appetite: Open
Growth enablers · Strategic Communications · Talent & Culture · Innovation Network
Risk and impact · Missed opportunities for growth and attainment of our strategy should we not clearly articulate our value propositions to potential partners, customers, employees or acquisition targets.
How do we manage the risk? · Halma plc Board members for Communications and Investor Relations. · Clear brand and communications strategy to enable clear understanding and alignment with Group strategy. · Proactive brand and communications approach to reach existing and potential audiences to attract and engage them to drive new growth opportunities. · Development of pitch books, purpose and strategy impact stories, product - solution case studies, and investment collateral that are delivered to the appropriate targets via direct, indirect, social media and investor channels. · Monitoring of external, social and investor media to gauge sentiment, brand health and protect reputation. · Periodic employee engagement survey to gain feedback on the effectiveness of internal communication. · Communication platform to enable rapid collaboration and information sharing.
10. Non-compliance with Laws and Regulations Risk Owner: Marc Ronchetti Gross risk level: High Change: No change Risk appetite: Averse
Growth enablers · Finance & Risk · Talent & Culture · International Expansion · Strategic Communications
Risk and impact · Failing to comply with laws and regulations resulting in damage to reputation and/or fines/penalties.
How do we manage the risk? · High-quality management resources who implement controls to monitor and comply with legal requirements in all countries we operate. · Companies ensure high product quality and compliance with legal standards. · High ethical standards which are captured in Halma's Code of Conduct. All employees are required to read and sign up to it. · Employees across the group perform regular online compliance training. · A whistleblowing hotline is in place and available for use by all employees. · All parts of the group complete six-monthly control self-certifications which include legal compliance. · Completion of a coordinated project to achieve compliance with GDPR.
11. Financial Controls Risk Owner: Marc Ronchetti Gross risk level: Medium Change: Decreased Risk appetite: Averse
Growth enablers · Finance & Risk · Talent & Culture · International Expansion
Risk and impact · Failure in financial controls either on its own or via a fraud which takes advantage of a weakness, resulting in financial loss and/or misstated reported financial results. This risk has reduced following an update of the minimum expected controls for companies and a coordinated focus to address the most common financial control gaps identified.
How do we manage the risk? · Local directors have legal, as well as operational, responsibility as they are statutory directors of their companies. This fits with Halma's decentralised model to ensure an effective financial control environment is in place. · To mirror the decentralised model, Halma Group Finance prescribes the minimum expected financial controls to be in place and requires companies to certify every six months that these controls are operating effectively. These include segregation of duties, delegation of authorities and financial accounts preparation checks. · Six-monthly peer reviews of reported results for each company to provide independent challenge. Internal Audit also performs periodic risk-based reviews. · A whistleblowing hotline is in place and available for use by all employees.
12. Treasury Management Risk Owner: Marc Ronchetti Gross risk level: Medium Change: Increased Risk appetite: Averse
Growth enablers · Finance & Risk · International Expansion
Risk and impact · There is a risk that the Group's cash resources are inadequate to support its activities. There is an inadvertent breach of funding terms/covenants or that there is volatility on the Group's Sterling reported result due to unhedged exposure to foreign currency movements. Geopolitical uncertainty has increased the risk of foreign exchange fluctuations.
How do we manage the risk? · A long-term Revolving Credit Facility is in place. · Sources of funding, headroom and liquidity forecasts are regularly assessed and monitored. · Funding terms are built into company policies and requirements, including export controls to sanctioned countries. · A Group Treasury Policy includes hedging and there is regular monitoring of foreign currency exposure at local company and Group level.
13. Product Failure Risk Owner: Andrew Williams Gross risk level: Medium Change: No change Risk appetite: Averse
Growth enablers · Finance & Risk · Innovation Network · Talent & Culture · Strategic Communications
Risk and impact · A failure in one of our products results in serious injury, death or damage to property, including due to non-compliance with product regulations, resulting in financial loss and reputational damage.
How do we manage the risk? · Companies have strict product development and testing procedures in place to ensure quality of products and compliance with appropriate regulations. · Rigorous testing of products during development and also during the manufacturing process. · Terms and conditions of sale limit liability as much as practically possible and liability insurance is in place. · Product compliance with regulations is checked as part of due diligence for any acquisition.
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| Going Concern Statement The Group's business activities, together with the main trends and factors likely to affect its future development, performance and position, and the financial position of the Group, its cash flows, liquidity position and borrowing facilities, are set out in the Strategic Report. In addition, the financial statements in the Annual Report and Accounts 2019 includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposure to currency and liquidity risks. 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 £550m Revolving Credit Facility running until November 2023 of which £476m remains undrawn at the date of this report. The Group contracts with a diverse range of customers and suppliers across different geographic areas and industries and no one customer accounts for more than 3% of Group turnover. With the factors above in mind, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future and continue to adopt the going concern basis in preparing the annual financial statements. |
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| Viability Statement During the year, the Board carried out a robust assessment of the principal risks affecting the Company, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks and uncertainties, including an analysis of the potential impact and mitigating actions, are set out in the Strategic Report of the Annual Report and Accounts 2019. The Board has assessed the viability of the Company over a three-year period, taking into account the Group's current position and the potential impact of the principal risks and uncertainties. Whilst the Board has no reason to believe that the Group will not be viable over a longer period, it has determined that three years is an appropriate period. In drawing its conclusion, the Board has aligned the period of viability assessment with the Group's strategic planning process (a three-year period). The Board believes that this approach provides greater certainty over forecasting and, therefore, increases reliability in the modelling and stress testing of the Company's viability. In addition, a three-year horizon is typically the period over which we review our external bank facilities and is also the performance period over which awards granted under Halma's share-based incentive plan are measured. In reviewing the Company's viability, the Board has identified the following factors which they believe support their assessment: 1. The Group operates in diverse and relatively non-cyclical markets. 2. There is considerable financial capacity under current facilities and the ability to raise further funds if required. 3. The decentralised nature of our Group ensures that risk is spread across our businesses and sectors, with limited exposure to any particular industry, market, geography, customer or supplier. 4. There is a strong culture of local responsibility and accountability within a robust governance and control framework. 5. An ethical approach to business is set from the top and flows throughout our business.
In making their assessment, the Board carried out a comprehensive exercise of financial modelling and stress-tested the model with various scenarios based on the principal risks identified in the Group's annual risk assessment process. Scenarios modelled included increases and decreases in the level of acquisitions, major events such as litigation or product failure and a significant increase in pension deficit payments. Combinations of the above scenarios were also modelled. In each scenario, the effect on the Group's KPls and borrowing covenants was considered, along with any mitigating factors. Based on this assessment, the Board confirms that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period to 31 March 2022. |
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Relations with Shareholders and Other Stakeholders
The Board oversees the Company's dialogue with shareholders. The Group Chief Executive and Chief Financial Officer have regular contact with investors and analysts. Reports prepared by the Head of Investor Relations are reviewed by the Board regarding the Company's dialogue with investors and analysts on financial, operational, environmental, social and governance matters. The Chairman is available to meet with shareholders throughout the year and the Senior Independent Director provides an alternative channel for shareholders to raise concerns, independent of the executive management and the Chairman. The Board attends the AGM which gives individual shareholders the opportunity to engage directly with the Directors and raise questions about the Company both formally and informally. The Board's engagement with other stakeholders is set out in the Annual Report and Accounts 2019. |
| Responsibility Statement of the Directors on the Annual Report and Accounts
The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year to 31 March 2019. Certain parts thereof are not included within these Results. Each of the Directors, whose names and functions are listed in the Annual Report and Accounts 2019, confirm that, to the best of their knowledge: | |
| - | The Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework" and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company. |
| - | The Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group. |
| - | The Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces. |
| This responsibility statement was approved by the Board of Directors on 11 June 2019 and is signed on its behalf by: |
| Andrew Williams Group Chief Executive | Marc Ronchetti Chief Financial Officer |
Results for the year to 31 March 2019
Consolidated Income Statement
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| Year ended 31 March 2019 | Year ended 31 March 2018 | ||||
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| Notes | Before adjustments* £m | Adjustments* (note 1) £m | Total | Before adjustments* £m | Adjustments* (note 1) £m | Total £m |
| Continuing operations |
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| Revenue | 1 | 1,210.9 | - | 1,210.9 | 1,076.2 | - | 1,076.2 |
| Operating profit |
| 255.8 | (38.0) | 217.8 | 223.6 | (42.4) | 181.2 |
| Share of results of associate |
| (0.1) | - | (0.1) | (0.2) | - | (0.2) |
| (Loss)/profit on disposal of operations | 10 | - | (1.0) | (1.0) | - | 0.6 | 0.6 |
| Finance income | 4 | 0.5 | - | 0.5 | 0.3 | - | 0.3 |
| Finance expense | 5 | (10.5) | - | (10.5) | (10.0) | - | (10.0) |
| Profit before taxation |
| 245.7 | (39.0) | 206.7 | 213.7 | (41.8) | 171.9 |
| Taxation | 6 | (45.7) | 8.8 | (36.9) | (42.1) | 24.4 | (17.7) |
| Profit for the year attributable to equity shareholders | 1 | 200.0 | (30.2) | 169.8 | 171.6 | (17.4) | 154.2 |
| Earnings per share | 2 |
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| From continuing operations |
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| Basic and diluted |
| 52.74p |
| 44.78p | 45.26p |
| 40.69p |
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|
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|
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| Dividends in respect of the year | 7 |
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| Paid and proposed (£m) |
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| 59.6 |
|
| 55.7 |
| Paid and proposed per share |
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| 15.71p |
|
| 14.68p |
* Adjustments include the amortisation of acquired intangible assets; acquisition items; significant restructuring costs; profit or loss on disposal of operations; the effect of equalisation of pension benefits for men and women in the defined benefit plans; and the associated taxation thereon. Note 3 provides more information on alternative performance measures.
Consolidated Statement of Comprehensive Income and Expenditure
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| Notes | Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Profit for the year |
| 169.8 | 154.2 |
| Items that will not be reclassified subsequently to the Consolidated Income Statement: |
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| Actuarial gains on defined benefit pension plans |
| 6.5 | 11.8 |
| Tax relating to components of other comprehensive income that will not be reclassified | 6 | (1.6) | (2.4) |
| Items that may be reclassified subsequently to the Consolidated Income Statement: |
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| Effective portion of changes in fair value of cash flow hedges |
| - | (0.1) |
| Exchange gains / (losses) on translation of foreign operations and net investment hedge |
| 32.5 | (62.9) |
| Exchange gains on translation of foreign operations recycled on disposal |
| (0.3) | - |
| Other comprehensive income/(expense) for the year |
| 37.1 | (53.6) |
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| Total comprehensive income for the year attributable to equity shareholders |
| 206.9 | 100.6 |
The exchange gain of £32.5m (2018: loss of £62.9m) includes losses of £7.9m (2018: gains of £13.3m) which relate to net investment hedges.
Consolidated Balance Sheet
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| 31 March 2019 £m | 31 March 2018 £m |
| Non-current assets |
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| Goodwill |
| 694.0 | 632.1 |
| Other intangible assets |
| 245.2 | 234.6 |
| Property, plant and equipment |
| 112.4 | 103.7 |
| Interest in associate |
| 3.9 | 4.0 |
| Deferred tax asset |
| 42.1 | 37.0 |
|
|
| 1,097.6 | 1,011.4 |
| Current assets |
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|
| Inventories |
| 144.3 | 128.0 |
| Trade and other receivables |
| 259.6 | 235.2 |
| Tax receivable |
| 0.2 | 0.8 |
| Cash and bank balances |
| 81.2 | 70.7 |
| Derivative financial instruments |
| 0.9 | 0.7 |
|
|
| 486.2 | 435.4 |
| Total assets |
| 1,583.8 | 1,446.8 |
| Current liabilities |
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|
|
| Trade and other payables |
| 164.8 | 149.6 |
| Borrowings |
| 9.2 | 1.1 |
| Provisions |
| 25.4 | 8.8 |
| Tax liabilities |
| 13.4 | 12.2 |
| Derivative financial instruments |
| 0.3 | 0.2 |
|
|
| 213.1 | 171.9 |
| Net current assets |
| 273.1 | 263.5 |
| Non-current liabilities |
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|
|
| Borrowings |
| 253.7 | 289.9 |
| Retirement benefit obligations |
| 39.2 | 53.9 |
| Trade and other payables |
| 11.6 | 12.6 |
| Provisions |
| 10.9 | 23.1 |
| Deferred tax liabilities |
| 73.9 | 67.0 |
|
|
| 389.3 | 446.5 |
| Total liabilities |
| 602.4 | 618.4 |
| Net assets |
| 981.4 | 828.4 |
| Equity |
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| Share capital |
| 38.0 | 38.0 |
| Share premium account |
| 23.6 | 23.6 |
| Own shares |
| (4.7) | (6.3) |
| Capital redemption reserve |
| 0.2 | 0.2 |
| Hedging reserve |
| 0.3 | 0.3 |
| Translation reserve |
| 119.5 | 87.3 |
| Other reserves |
| (5.6) | (5.9) |
| Retained earnings |
| 810.1 | 691.2 |
| Total equity |
| 981.4 | 828.4 |
Consolidated Statement of Changes in Equity
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| Share capital £m | Share premium account £m | Own shares £m | Capital redemption reserve £m | Hedging reserve £m | Translation reserve £m | Other reserves £m | Retained earnings £m | Total £m |
| At 31 March 2018 | 38.0 | 23.6 | (6.3) | 0.2 | 0.3 | 87.3 | (5.9) | 691.2 | 828.4 |
| Impact of changes in Accounting policies: |
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| IFRS 9 | - | - | - | - | - | - | - | 0.1 | 0.1 |
| IFRS 15 | - | - | - | - | - | - | - | (0.2) | (0.2) |
| Restated balance at 31 March 2018 | 38.0 | 23.6 | (6.3) | 0.2 | 0.3 | 87.3 | (5.9) | 691.1 | 828.3 |
| Profit for the year | - | - | - | - | - | - | - | 169.8 | 169.8 |
| Other comprehensive income and expense: |
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| Exchange differences on translation of foreign operations | - | - | - | - | - | 32.5 | - | - | 32.5 |
| Exchange gains on translation of foreign operations recycled on disposal | - | - | - | - | - | (0.3) | - | - | (0.3) |
| Actuarial gains on defined benefit pension plans | - | - | - | - | - | - | - | 6.5 | 6.5 |
| Effective portion of changes in fair value of cash flow hedges | - | - | - | - | - | - | - | - | - |
| Tax relating to components of other comprehensive income | - | - | - | - | - | - | - | (1.6) | (1.6) |
| Total other comprehensive income and expense | - | - | - | - | - | 32.2 | - | 4.9 | 37.1 |
| Dividends paid | - | - | - | - | - | - | - | (57.2) | (57.2) |
| Share-based payment charge | - | - | - | - | - | - | 9.7 | - | 9.7 |
| Deferred tax on share-based payment transactions | - | - | - | - | - | - | 0.9 | - | 0.9 |
| Excess tax deductions related to share-based payments on exercised awards | - | - | - | - | - | - | - | 1.5 | 1.5 |
| Purchase of Own shares | - | - | (3.8) | - | - | - | - | - | (3.8) |
| Performance share plan awards vested | - | - | 5.4 | - | - | - | (10.3) | - | (4.9) |
| At 31 March 2019 | 38.0 | 23.6 | (4.7) | 0.2 | 0.3 | 119.5 | (5.6) | 810.1 | 981.4 |
Own shares are ordinary shares in Halma plc purchased by the Company and held to fulfil the Company's obligations under the Group's share plans. At 31 March 2019 the number of treasury shares held was nil (2018: 3,990) and the number of shares held by the Employee Benefit Trust was 370,354 (2018: 631,991). The market value of Own shares was £6.2m (2018: £7.5m).
The Translation reserve is used to record the difference arising from the retranslation of the financial statements of foreign operations. The Hedging reserve is used to record the portion of the cumulative net change in fair value of cash flow hedging instruments that are deemed to be an effective hedge.
The Capital redemption reserve was created on repurchase and cancellation of the Company's own shares. The Other reserves represent the provision for the value of the Group's equity-settled share plans.
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|
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| Share capital £m | Share premium account £m | Own shares £m | Capital redemption reserve £m | Hedging reserve £m | Translation reserve £m | Other reserves £m | Retained earnings £m | Total £m |
| At 2 April 2017 | 38.0 | 23.6 | (7.3) | 0.2 | 0.4 | 150.2 | (6.4) | 579.9 | 778.6 |
| Profit for the year | - | - | - | - | - | - | - | 154.2 | 154.2 |
| Other comprehensive income and expense: |
|
|
|
|
|
|
|
|
|
| Exchange differences on translation of foreign operations | - | - | - | - | - | (62.9) | - | - | (62.9) |
| Actuarial gains on defined benefit pension plans | - | - | - | - | - | - | - | 11.8 | 11.8 |
| Effective portion of changes in fair value of cash flow hedges | - | - | - | - | (0.1) | - | - | - | (0.1) |
| Tax relating to components of other comprehensive income | - | - | - | - | - | - | - | (2.4) | (2.4) |
| Total other comprehensive income and expense | - | - | - | - | (0.1) | (62.9) | - | 9.4 | (53.6) |
| Dividends paid | - | - | - | - | - | - | - | (53.4) | (53.4) |
| Share-based payment charge | - | - | - | - | - | - | 7.9 | - | 7.9 |
| Deferred tax on share-based payment transactions | - | - | - | - | - | - | (0.5) | - | (0.5) |
| Excess tax deductions related to share-based payments on exercised awards | - | - | - | - | - | - | - | 1.1 | 1.1 |
| Purchase of Own shares | - | - | (2.6) | - | - | - | - | - | (2.6) |
| Performance share plan awards vested | - | - | 3.6 | - | - | - | (6.9) | - | (3.3) |
| At 31 March 2018 | 38.0 | 23.6 | (6.3) | 0.2 | 0.3 | 87.3 | (5.9) | 691.2 | 828.4 |
Consolidated Cash Flow Statement
|
| Notes | Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Net cash inflow from operating activities | 9 | 219.0 | 173.3 |
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|
|
|
| Cash flows from investing activities |
|
|
|
| Purchase of property, plant and equipment |
| (26.4) | (20.2) |
| Purchase of computer software |
| (2.4) | (1.9) |
| Purchase of other intangibles |
| (2.5) | (0.1) |
| Proceeds from sale of property, plant and equipment and capitalised development costs |
| 1.6 | 1.7 |
| Development costs capitalised |
| (10.8) | (9.4) |
| Interest received |
| 0.4 | 0.2 |
| Acquisition of businesses, net of cash acquired | 8 | (67.0) | (111.7) |
| Disposal of business | 10 | 3.1 | - |
| Net cash used in investing activities |
| (104.0) | (141.4) |
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
| Dividends paid |
| (57.2) | (53.4) |
| Purchase of Own shares |
| (3.8) | (2.6) |
| Interest paid |
| (8.2) | (7.2) |
| Loan arrangement fee paid |
| (0.5) | (0.4) |
| Proceeds from bank borrowings | 9 | 66.4 | 119.2 |
| Repayment of bank borrowings | 9 | (110.3) | (81.4) |
| Net cash used in financing activities |
| (113.6) | (25.8) |
|
|
|
|
|
| Increase in cash and cash equivalents | 9 | 1.4 | 6.1 |
| Cash and cash equivalents brought forward |
| 69.7 | 65.6 |
| Exchange adjustments |
| 1.0 | (2.0) |
| Cash and cash equivalents carried forward |
| 72.1 | 69.7 |
|
| Notes | Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Reconciliation of net cash flow to movement in net debt |
|
|
|
| Increase in cash and cash equivalents |
| 1.4 | 6.1 |
| Net cash outflow/(inflow) from repayment/(drawdown) of bank borrowings | 9 | 43.9 | (37.8) |
| Net debt acquired | 9 | - | (3.1) |
| Loan notes repaid in respect of acquisitions | 9 | 0.1 | 0.2 |
| Exchange adjustments |
| (6.8) | 10.7 |
|
|
| 38.6 | (23.9) |
| Net debt brought forward |
| (220.3) | (196.4) |
| Net debt carried forward |
| (181.7) | (220.3) |
Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU) and therefore comply with Article 4 of the EU IAS legislation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. The financial statements have also been prepared in accordance with IFRS and IFRS Interpretations Committee (IFRS IC) interpretations issued and effective at the time of preparing these accounts.
The principal Group accounting policies are explained below and have been applied consistently throughout the years ended 31 March 2019 and 31 March 2018, other than those noted below.
The financial information set out in these Results does not constitute the Group's statutory accounts for the years ended 31 March 2019 and 31 March 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's Annual General Meeting. The auditor's reports on the 2018 and the 2019 accounts were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The Group accounts have been prepared under the historical cost convention, except as described below under the heading 'Derivative financial instruments and hedge accounting' and under the heading 'Business combinations and goodwill'.
New Standards and Interpretations applied for the first time in the year ended 31 March 2019
The following Standards and Interpretations applied for the first time, with effect from 1 April 2018, and have been adopted in the preparation of these Group Accounts.
- IFRS 9 'Financial Instruments: Classification and Measurement'.
- IFRS 15 'Revenue from Contracts with Customers'.
- Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions.
- Annual Improvements 2014-2016 Cycle.
- IFRIC Interpretation 22: Foreign Currency Transactions and Advance Consideration.
Of the above mentioned new Standards and Interpretations, only the adoption of IFRS 9 and IFRS 15 have affected the Group's results, although not materially. Further information on the impact of the adoption of IFRS 9 and IFRS 15 is given below.
IFRS 9 'Financial Instruments'
For the Group, transition to IFRS 9 was effective from 1 April 2018. IFRS 9 provides a new expected losses impairment model for financial assets, including trade receivables, and includes amendments to classification and measurement of financial instruments. An accounting policy choice is available with regards to applying the new hedge accounting requirements or retaining IAS 39. The Group has elected to retain IAS 39.
The Group completed a transition exercise which was described in the Annual Report and Accounts 2018.
The Group's use of financial instruments is limited to short-term trading balances such as receivables and payables, borrowings and derivatives used for hedging foreign exchange risks. Therefore, the standard impacts the Group's classification of financial instruments and the measurement of impairment of short-term financial assets.
The Group has applied the new standard in accordance with the transition rules. As the impact on the Group's results is not material, totalling £0.1m, the Group has elected to apply the limited exemption in IFRS 9 paragraph 7.2.15, relating to transition for classification, measurement and impairment. As a result, the comparatives for the year ended 31 March 2018 have not been restated. The impact of transition has been reflected in the restatement of opening retained earnings as at 1 April 2018, as shown in the Consolidated Statement of Changes in Equity.
(i) Classification
From 1 April 2018, the Group classifies its financial assets in the following measurement categories:
- those that are measured subsequently at fair value (either through other comprehensive income of through profit or loss); and
- those that are measured at amortised cost.
The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.
|
| Original classification under IAS 39 | New classification under IFRS 9 | Original carrying amount under IAS 39 £m | New carrying amount under IFRS 9 £m |
| Financial assets |
|
|
|
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| Cash and bank balances | Loans & receivables | Amortised cost | 70.7 | 70.7 |
| Trade and other receivables | Loans & receivables | Amortised cost | 235.2 | 235.3 |
| Foreign forward exchange contracts | Fair value - hedging instrument | Fair value - hedging instrument | 0.7 | 0.7 |
| Total financial assets |
|
| 306.6 | 306.7 |
| Financial liabilities |
|
|
|
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| Trade and other payables | Other financial liabilities | Other financial liabilities | 162.2 | 162.2 |
| Contingent purchase consideration | Fair value through profit or loss | Fair value through profit or loss | 25.0 | 25.0 |
| Other provisions | Other financial liabilities | Other financial liabilities | 6.9 | 6.9 |
| Bank overdrafts | Other financial liabilities | Other financial liabilities | 1.0 | 1.0 |
| Banks loans | Other financial liabilities | Other financial liabilities | 289.9 | 289.9 |
| Loan notes | Other financial liabilities | Other financial liabilities | 0.1 | 0.1 |
| Foreign forward exchange contracts | Fair value - hedging instrument | Fair value - hedging instrument | 0.2 | 0.2 |
| Total financial liabilities |
|
| 485.3 | 485.3 |
In respect of financial hedges, on initial application of IFRS 9, an entity may choose, as its accounting policy, to continue to apply the hedge accounting requirements of IAS 39 instead of the hedge accounting requirements of IFRS 9. The Group has elected to apply the IAS 39 hedge accounting requirements, and therefore hedging instruments are not considered under IFRS 9.
(ii) Impairment
From 1 April 2018, the Group assesses on a forward-looking basis the expected credit losses associated with its trade and other receivables carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
The Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. In order to estimate expected lifetime losses, the Group categorises its customers into groups with similar risk profiles and determines the historic rates of impairment for each of those categories of customer. The Group then adjusts the risk profile for each group of customers by using forward looking information, such as the government risk of default for the country in which those customers are located, and determines an overall probability of impairment for the total trade and other receivables at the balance sheet date.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 sets out the requirements for recognising revenue from contracts with customers. The standard requires entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a stand-alone selling price basis, based on a five-step model.
The Group completed a transition exercise which was described in the Annual Report and Accounts 2018. Based on the work undertaken, most of the Group's companies are unaffected, but have implemented process changes to comply with IFRS 15 now and in the future. A small number of the Group's companies have individually material adjustments to their balance sheets through acceleration or deferral of revenue on the opening balance sheet. In Environmental & Analysis, revenue was deferred in one company relating to warranties that were service in nature and in another company, where revenues related to data hosting services is now recognised over time based on a straight-line method. Revenue was accelerated in one company due to unbundling of distinct performance obligations and the recognition of revenue on one of those performance obligations earlier than under previous IFRS. In Process Safety, revenue was deferred in one company relating to warranties that were service in nature. These are not material to the Group as a whole as at 1 April 2018, resulting in a net credit of £0.2m to net assets, with a corresponding debit to retained earnings as analysed below.
| All figures in £m | 1 April 2018 |
| Retained earnings |
|
| Warranties of a service nature | (0.3) |
| Deferral of data hosting revenues | (0.3) |
| Separation of performance obligations | 0.5 |
| Corporation tax | (0.1) |
| Total impact at 1 April 2018 | (0.2) |
| Current assets |
|
| Inventory | (1.8) |
| Trade and other receivables | 1.7 |
| Current liabilities |
|
| Trade and other payables - contract liabilities | (0.2) |
| Corporation tax | 0.1 |
| Total impact at 1 April 2018 | (0.2) |
As stated in the Annual Report and Accounts 2018, the Group originally intended to apply a fully retrospective approach to transition. However, as the net impact of transition to the opening balance sheet was not material, the adjustment on transition has been reflected in the restatement of opening retained earnings, as at 1 April 2018, as shown in the Consolidated Statement of Changes in Equity. The net movement in the Consolidated Income Statement for the year ended 31 March 2018 was £0.1m and also immaterial.
As the modified retrospective approach has been taken on transition, as described above, the comparatives for the year ended 31 March 2018 have not been restated.
Given the impact of implementing the new accounting policy under IFRS 15 is not materially different to the financial performance and position under the IFRS that previously applied, there has been no presentation of the current year financial statements under the previous IFRS. There is also no significant impact on any earnings per share measures disclosed.
The Group's revenue recognition policy under IFRS 15 is set out below.
New Standards and Interpretations not yet applied
At the date of authorisation of these financial statements, the following Standards and Interpretations that are potentially relevant to the Group, and which have not been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
- IFRS 16 'Leases' - effective for accounting periods beginning on or after 1 January 2019.
- IFRIC Interpretation 23 Uncertainty over income tax treatments - effective for accounting periods beginning on or after 1 January 2019.
- Amendments to IAS 19: Employee Benefits - effective for accounting periods beginning on or after 1 January 2019.
- Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures - effective for accounting periods beginning on or after 1 January 2019.
- Annual improvements 2015 - 2017 Cycle.
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group except for IFRS 16 'Leases'.
IFRS 16 'Leases'
IFRS 16 is applicable for annual reporting periods commencing 1 January 2019, so for the Group, transition to IFRS 16 has taken effect from 1 April 2019. The half year results for the period ending 30 September 2019 will be IFRS 16 compliant with the first Annual Report published in accordance with IFRS 16 being for the year ending 31 March 2020.
IFRS 16 replaces existing lease guidance including:
- IAS 17 Leases
- IFRIC 4 Determining whether an arrangement contains a lease
- SIC 15 Operating leases - Incentives
- SIC 27 Evaluating the substance of transactions involving the legal form of a lease
IFRS 16 provides a single on-balance sheet accounting model for lessees which recognises a right of use asset, representing its right to use the underlying asset, and lease liability, representing its obligations to make payment in respect of the use of the underlying asset. The distinction between finance and operating leases for lessees is removed. Lessor accounting remains similar to the existing standard with no significant impact expected.
During the year, the Group carried out an exercise to model the impact of adopting IFRS 16 on a representative sample of leases. From this exercise we have elected to adopt the modified retrospective approach (revalued assets) which has been applied upon transition.
The Group will apply the exemptions available in respect of leases which are less than 12 months long and those which have been classified as leases of low-value items. In addition, the Group will also apply the following practical expedients:
- allowing IFRS 16 to be applied to all contracts previously assessed as containing a lease under IAS 17 and IFRIC 4 without reassessing whether such contracts meet the definition of a lease under IFRS 16;
- to use hindsight in determining judgements for leases previously treated as operating leases, for example, such as the term of the lease where there is a termination clause; and
- to exclude direct costs from the Right of Use asset at the date of initial application.
Having carried out an exercise to identify all leases across the Group, including assessing whether there are any embedded leases, we have identified approximately 300 leases, of which c.80% are for land and buildings and the rest for vehicles and office equipment. The Group has used an interim solution to estimate the value of leases that will come on balance sheet and we're currently implementing a permanent leased asset solution that will be used to account for leases in future. Based on the results of the interim solution it is estimated that the adoption of IFRS 16 has increased the carrying value of property, plant and equipment at 1 April 2019 by approximately £45m, liabilities by approximately £49m and retained earnings has decreased by approximately £4m. In addition, existing lease accruals and prepayments at 31 March 2019 under the current accounting have been released to retained earnings.
Under the new standard, the existing operating lease expense previously recorded in operating costs will be replaced by a depreciation charge, which for 2019 is expected to be lower than the previous operating expense by approximately £2m, and a separate financing expense of approximately £2m, which will be recorded in interest expense. Consequently, Operating profit and EBITDA is estimated to increase for FY19/20 by £2m and £14m respectively.
There will be no net cash flow impact arising from the new standard, however, the profile of expenses related to leasing arrangements will change. Operating lease expenses will be replaced by the recognition of depreciation of the right-of-use asset and interest charges on lease liabilities. Whilst this will impact individual companies depending on where they are in the life of their lease, the portfolio effect of the Group's leases means that the net impact of this is minimal for 2019.
As the operating lease expense and depreciation and interest charges broadly offset, the impact on EPS and ROTIC is minimal. The impact of the net lease liability has a positive impact on ROTIC through improving total equity, but this is not large enough to significantly move the metric. ROCE, which is a before interest measure, at 31 March 2019 is impacted positively by approximately one percentage point.
Net debt to EBITDA is expected to increase by approximately 0.1 times compared to the previous accounting standard.
Use of Alternative performance measures (APMs)
In the reporting of the financial information, the Group uses certain measures that are not required under IFRS, the Generally Accepted Accounting Principles (GAAP) under which the Group reports. The Directors believe that Return on Total Invested Capital (ROTIC), Return on Capital Employed (ROCE), Organic growth at constant currency, adjusted profit and earnings per share measures and adjusted operating cash flow provide additional and more consistent measures of underlying performance to shareholders by removing non-trading items that are not closely related to the Group's trading or operating cash flows. These and other alternative performance measures are used by the Directors for internal performance analysis and incentive compensation arrangements for employees. The terms ROTIC, ROCE, organic growth at constant currency and 'Adjusted' are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures.
The principal items which are included in adjusting items are set out below in the Group's accounting policy and in note 1. The term 'adjusted' refers to the relevant measure being reported for continuing operations excluding adjusting items.
Definitions of the Group's material alternative performance measures along with reconciliation to their IFRS equivalent measure are included in note 3.
Key accounting policies
Below we set out our key accounting policies, with a list of all other accounting policies thereafter.
Going concern
The Directors believe, at the time of approving the financial statements, that 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 £550m Revolving Credit Facility running until November 2023 of which £475.6m remains undrawn at the date of this report. With this in mind, 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 these financial statements.
Pensions
The Group makes contributions to various pension plans.
For defined benefit plans, the asset or liability recorded in the Consolidated Balance Sheet is the difference between the fair value of the plan's assets and the present value of the defined obligation at that date. The defined benefit obligation is calculated separately for each plan on an annual basis by independent actuaries using the projected unit credit method.
Actuarial gains and losses are recognised in full in the period in which they occur and are taken to other comprehensive income.
Current and past service costs, along with the impact of any settlements or curtailments, are charged to the Consolidated Income Statement. The net interest expense on pension plans' liabilities and the expected return on the plans' assets is recognised within finance expense in the Consolidated Income Statement.
Contributions to defined contribution plans are charged to the Consolidated Income Statement when they fall due.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group measures goodwill at the acquisition date as:
- the fair value of the consideration transferred; plus
- the recognised amount of any non-controlling interests in the acquiree; plus
- the fair value of the existing equity interest in the acquiree; less
- the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Any contingent consideration payable may be accounted for as either:
a) Consideration transferred, which is recognised at fair value at the acquisition date. If the contingent purchase consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent purchase consideration are recognised in the Consolidated Income Statement; or
b) Remuneration, which is expensed in the Income Statement over the associated period of service. An indicator of such treatment includes when payments to employees of the acquired company are contingent on a post-acquisition event, but may be automatically forfeited on termination of employment.
For acquisitions between 4 April 2004 (the date from which the financial statements were reported under IFRS) and 2 April 2010, goodwill represents the difference between the cost of the acquisition, including acquisition costs and the fair value of the net identifiable assets acquired. Goodwill is not amortised, but is tested annually for impairment.
Goodwill is recognised as an intangible asset in the Consolidated Balance Sheet. Goodwill therefore includes non-identified intangible assets including business processes, buyer-specific synergies, know-how and workforce-related industry-specific knowledge and technical skills. Negative goodwill arising on acquisitions would be recognised directly in the Consolidated Income Statement. On closure or disposal of an acquired business, goodwill would be taken into account in determining the profit or loss on closure or disposal.
As permitted by IFRS 1, the Group elected not to apply IFRS 3 'Business Combinations' to acquisitions prior to 4 April 2004 in its consolidated accounts. As a result, the net book value of goodwill recognised as an intangible asset under UK GAAP at 3 April 2004 was brought forward unadjusted as the cost of goodwill recognised under IFRS at 4 April 2004 subject to impairment testing on that date; and goodwill that was written off to reserves prior to 28 March 1998 under UK GAAP will not be taken into account in determining the profit or loss on disposal or closure of previously acquired businesses from 4 April 2004 onwards.
Intangible assets
(a) Acquired intangible assets
An intangible resource acquired with a subsidiary undertaking is recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights, is expected to generate future economic benefits and its fair value can be measured reliably. Acquired intangible assets, comprising trademarks, technology and know-how and customer relationships, are amortised through the Consolidated Income Statement on a straight-line basis over their estimated economic lives of between three and twenty years.
(b) Product development costs
Research expenditure is written off in the financial year in which it is incurred.
Development expenditure is written off in the financial year in which it is incurred, unless it relates to the development of a new or substantially improved product, is incurred after the technical feasibility and economic viability of the product has been proven and the decision to complete the development has been taken, and can be measured reliably. Such expenditure is capitalised as an intangible asset in the Consolidated Balance Sheet at cost and is amortised through the Consolidated Income Statement on a straight-line basis over its estimated economic life of three years.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of Group accounts in conformity with IFRS requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experiences and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The following four areas of critical accounting judgement and key estimation uncertainty have been identified as having significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in the next financial year:
Critical accounting judgements
Goodwill impairment
Determining whether goodwill is impaired requires an estimation of the value in use of cash generating unit (CGU) groups to which goodwill has been allocated. Management allocates a new acquisition to a CGU group based on which one is expected to benefit most from that business combination. The allocation of goodwill to existing CGUs is generally straightforward and factual, but in some cases, acquisitions do not fit into one of the existing CGU groups and a new group is created. This was the case in the purchase of CenTrak and the creation of the Sensor Technologies grouping.
The value in use calculation involves an estimation of the present value of future cash flows of CGUs. The future cash flows are based on annual budgets, as approved by the Board, to which the management's expectation of market-share and long-term growth rates are applied. The present value is then calculated based on management's estimate of future discount rates. The Board reviews these key assumptions (market-share, long-term growth rates, and discount rates) and the sensitivity analysis around these assumptions.
Intangible assets
IFRS 3 (revised) 'Business Combinations' requires that goodwill arising on the acquisition of subsidiaries is capitalised and included in intangible assets. IFRS 3 (revised) also requires the identification and valuation of other separable intangible assets at acquisition. The assumptions involved in valuing these intangible assets require the use of estimates and judgements.
IAS 38 'Intangible Assets' requires that development costs, arising from the application of research findings or other technical knowledge to a plan or design of a new or substantially improved product, are capitalised, subject to certain criteria being met. Determining the technical feasibility and estimating the future cash flows generated by the products in development requires judgements which may differ from the actual outcome.
The estimates and judgements made in relation to both acquired intangible assets and capitalised development costs, cover identification of relevant assets, future growth rates, expected inflation rates and the discount rate used. Management also make judgements on the useful economic lives of the intangible assets.
Defined benefit pension plan liabilities
Determining the value of the future defined benefit obligation requires judgement in respect of the assumptions used to calculate present values. These include future mortality, discount rate and inflation. Management makes these judgements in consultation with an independent actuary.
Key sources of estimation uncertainty
Contingent consideration
Determining the value of contingent consideration recognised as part of the acquisition of subsidiaries requires assumptions to determine the expected performance of the acquired business and the amount of contingent consideration that will therefore become payable. Initial estimates of expected performance are made by the Directors responsible for completing the acquisition and form a key component of the financial due diligence that takes place prior to completion. Subsequent measurement of contingent consideration is based on the Directors' appraisal of the acquired business' performance in the post-acquisition period and the agreement of final payments, with any required adjustments to the amount payable recognised in the Consolidated Income Statement as required under IFRS 3. Further details are provided in note 8.
Other accounting policies
Basis of consolidation
The Group accounts include the accounts of Halma plc and all of its subsidiary companies made up to 31 March 2019, adjusted to eliminate intra-Group transactions, balances, income and expenses. The results of subsidiary companies acquired or discontinued are included from the month of their acquisition or to the month of their discontinuation.
Investments in associates
An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but without control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the Consolidated Balance Sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any deficiency of the cost of acquisition below the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition (i.e. discount on acquisition) is credited in profit or loss in the year of acquisition.
Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made for impairment.
Other intangible assets
(a) Computer software
Computer software that is not integral to an item of property, plant or equipment is recognised separately as an intangible asset, and is amortised through the Consolidated Income Statement on a straight-line basis over its estimated economic life of between three and five years.
(b) Other intangibles
Other intangibles are amortised through the Consolidated Income Statement on a straight-line basis over their estimated economic lives of between three and five years.
Impairment of non-current assets
All non-current assets are tested for impairment whenever events or circumstances indicate that their carrying value may be impaired. Additionally, goodwill and capitalised development expenditure relating to a product that is not yet in full production are subject to an annual impairment test.
An impairment loss is recognised in the Consolidated Income Statement to the extent that an asset's carrying value exceeds its recoverable amount, which represents the higher of the asset's fair value less costs to dispose and its value in use. An asset's value in use represents the present value of the future cash flows expected to be derived from the asset or from the cash generating unit to which it relates. The present value is calculated using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks specific to the asset concerned.
Impairment losses recognised in previous periods for an asset other than goodwill are reversed if there has been a change in the estimates used to determine the asset's recoverable amount, but only to the extent that the carrying amount of the asset does not exceed its carrying amount had no impairment loss been recognised in previous periods. Impairment losses in respect of goodwill are not reversed.
Segmental reporting
An operating segment is a distinguishable component of the Group that is engaged in business activities from which it may earn revenues and incur expenses, and whose operating results are reviewed regularly by the Chief Operating Decision Maker (the Group Chief Executive) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
Reportable segments are operating segments that either meet the thresholds and conditions set out in IFRS 8 or are considered by the Board to be appropriately designated as reportable segments. Segment result represents operating profits and includes an allocation of Head Office expenses. Segment result excludes tax and financing items. Segment assets comprise goodwill, other intangible assets, property, plant and equipment (excluding land and buildings), inventories, trade and other receivables. Segment liabilities comprise trade and other payables, provisions and other payables. Unallocated items represent land and buildings, corporate and deferred taxation balances, defined benefit plan liabilities, contingent purchase consideration, all components of net cash/borrowings and derivative financial instruments.
Inventories
Inventories and work in progress are included at the lower of cost and net realisable value. Cost is calculated either on a 'first in, first out' or an average cost basis and includes direct materials and the appropriate proportion of production and other overheads considered by the Directors to be attributable to bringing the inventories to their location and condition at the year end. Net realisable value represents the estimated selling price less all estimated costs to complete and costs to be incurred in marketing, selling and distribution.
Revenue
The Group's revenue streams are the sale of goods and services in the specialist safety, health and environmental technologies market. The revenue streams are disaggregated into four sectors, that serve like markets. Those sectors are Process Safety, Infrastructure Safety, Environmental & Analysis and Medical.
Revenue is recognised to depict the transfer of control over promised goods or services to customers in an amount that reflects the amount of consideration specified in a contract with a customer, to which the Group expects to be entitled in exchange for those goods or services.
It is the Group's judgement that in the majority of sales there is no contract until such time as the company performs, at which point the contract becomes the supplier's purchase order governed by the Company's terms and conditions. Where there are Master Supply Arrangements, these are typically framework agreements and do not contain clauses that would result in a contract forming under IFRS 15 until a Purchase Order is issued by the customer.
Revenue represents sales, net of estimates for variable consideration, including rights to returns, and discounts, and excluding value added tax and other sales related taxes. The amount of variable consideration is not considered to be material to the Group as a whole.
Performance obligations are unbundled in each contractual arrangement if they are distinct from one another. There is judgement in identifying distinct performance obligations where the product could be determined to be a system, or where a combination of products and services are provided together. For the majority of the Group's activities the performance obligation is judged to be the component product or service rather than the system or combined products and services. The contract price is allocated to the distinct performance obligations based on the relative standalone selling prices of the goods or services.
The way in which the Group satisfies its performance obligations varies by business and may be on shipment, delivery, as services are rendered or on completion of services depending on the nature of product and service and terms of the contract which govern how control passes to the customer. Revenue is recognised at a point in time or over time as appropriate.
Where the Group offers warranties that are of a service nature, revenue is recognised in relation to these performance obligations over time as the services are rendered. In our judgement we believe the associated performance obligations accrue evenly across the contractual term and therefore revenue is recognised on a pro-rated basis over the length of the service period.
In a small number of instances across the Group, products have been determined to be bespoke in nature, with no alternative use. Where there is also an enforceable right to payment for work completed, the criteria for recognising revenue over time have been deemed to have been met. Revenue is recognised on an input basis. This is not a material part of the Group's business as for the most part, where goods are bespoke in nature, it is the Group's judgement that the product can be broken down to standard component parts with little additional cost and therefore has an alternate use, or there is no enforceable right to payment for work performed. In these cases, the judgement is made that the requirements for recognising revenue over time are not met and revenue is recognised when control of the finished product passes to the customer.
Contract assets and liabilities
A contract asset is recognised when the Group's right to consideration is conditional on something other than the passage of time, for example the completion of future performance obligations under the terms of the contract with the customer.
In some instances, the Group receives payments from customers based on a billing schedule, as established in the contract, which may not match with the pattern of performance under the contract. In this instance, a contract asset or contract liability is recognised depending on the phasing of payment in relation to performance.
Contract assets are recognised within Trade and other receivables and are assessed for impairment on a forward-looking basis using the expected lifetime losses approach, as required by IFRS 9 ('Financial Instruments').
The Group has applied IFRS 15 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 18 and IAS 11. The accounting policy under IAS 18 and IAS 11 is as disclosed in the Annual Report and Accounts 2018. A description of the changes impacting the Group as well as the qualitative impact analysis has been disclosed above under New standards and interpretations applied for the first time.
Adjusting items
When items of income or expense are material and they are relevant to an understanding of the entity's financial performance, they are disclosed separately within the financial statements. Such adjusting items include material costs or reversals arising from acquisitions or disposals of businesses, including acquisition costs, creation or reversals of provisions related to changes in estimates for contingent consideration on acquisition, amortisation of acquired intangible assets, and other significant one-off items that may arise.
Taxation
Taxation comprises current and deferred tax. Tax is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in Total equity, in which case it too is recognised in Total equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, along with any adjustment to tax payable in respect of previous years. Taxable profit differs from net profit as reported in the Consolidated Income Statement because it excludes items that are never taxable or deductible.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes and is accounted for using the balance sheet liability method, apart from the following differences which are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates and laws, which are expected to apply in the year when the liability is settled, or the asset is realised. Deferred tax assets are only recognised to the extent that recovery is probable.
Foreign currencies
The Group presents its accounts in Sterling. Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates prevailing at that date. Any gain or loss arising from subsequent exchange rate movements is included as an exchange gain or loss in the Consolidated Income Statement.
Net assets of overseas subsidiary companies are expressed in Sterling at the rates of exchange ruling at the end of the financial year, and trading results and cash flows at the average rates of exchange for the financial year. Goodwill arising on the acquisition of a foreign business is treated as an asset of the foreign entity and is translated at the rate of exchange ruling at the end of the financial year. Exchange gains or losses arising on these translations are taken to the Translation reserve within Total equity.
In the event that an overseas subsidiary is disposed of or closed, the profit or loss on disposal or closure will be determined after taking into account the cumulative translation difference held within the Translation reserve attributable to that subsidiary. As permitted by IFRS 1, the Group has elected to deem the Translation to be £nil at 4 April 2004. Accordingly, the profit or loss on disposal or closure of foreign subsidiaries will not include any currency translation differences which arose before 4 April 2004.
Derivative financial instruments and hedge accounting
The Group enters into derivative financial instruments to manage its exposure to foreign exchange rate risk using forward exchange contracts.
Derivative financial instruments are classified as fair value through profit and loss (held for trading) unless they are in a designated hedge relationship.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in the Consolidated Income Statement, unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the Consolidated Income Statement depends on the nature of the hedge relationship. The Group designates certain derivatives as hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign operations.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
Cash flow hedge accounting
The Group designates certain hedging instruments as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument has been or is expected to be highly effective in offsetting changes in fair values or cash flows of the hedged item.
Note 26 sets out details of the fair values of the derivative instruments used for hedging purposes and the movements in the Hedging reserve in equity.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion as a result of being over hedged is recognised immediately in the Consolidated Income Statement.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to the Consolidated Income Statement in the periods when the hedged item is recognised in the Consolidated Income Statement. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income at that time is accumulated in equity and is recognised, when the forecast transaction is ultimately recognised, in the Consolidated Income Statement. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in the Consolidated Income Statement.
Net investment hedge accounting
The Group uses foreign currency denominated borrowings as a hedge against the translation exposure on the Group's net investment in overseas companies. Where the hedge is fully effective at hedging, the variability in the net assets of such companies caused by changes in exchange rates and the changes in value of the borrowings are recognised in the Consolidated Statement of Comprehensive Income and accumulated in the Translation reserve. The ineffective part of any change in value caused by changes in exchange rates is recognised in the Consolidated Income Statement.
Employee share plans
Share-based incentives are provided to employees under the Group's share incentive plan, the performance share plan and the executive share plan.
(a) Share incentive plan
Awards of shares under the share incentive plan are made to qualifying employees depending on salary and service criteria. The shares awarded under this plan are purchased in the market by the plan's trustees at the time of the award, and are then held in trust for a minimum of three years. The costs of this plan are recognised in the Consolidated Income Statement over the three-year vesting period of the awards.
(b) Performance share plan
Awards under this plan are partly equity-settled and partly cash-settled. Grants were subject to both market-based and non-market-based vesting criteria. No further grants are made under this plan.
The fair value of the equity-settled portion at the date of grant is established by using an appropriate simulation method to reflect the likelihood of market-based performance conditions being met. The fair value is charged to the Consolidated Income Statement on a straight-line basis over the three-year vesting period, with appropriate adjustments being made during this period to reflect expected and actual forfeitures arising from the non-market-based performance conditions only. The corresponding credit is to other reserves within Total equity.
(c) Executive share plan
During the year ended 2 April 2016, Halma plc introduced the Executive Share Plan, in which executive Directors and certain senior employees participate. Grants under this Plan are in the form of Performance Awards or Deferred Share Awards.
Performance Awards are subject to non-market-based vesting criteria, and Deferred Share Awards are subject only to continuing service of the employee. Share awards are equity-settled. The fair value of the awards at the date of grant, which is estimated to be equal to the market value, is charged to the Consolidated Income Statement on a straight-line basis over the vesting period, with appropriate adjustments being made during this period to reflect expected and actual forfeitures. The corresponding credit is to other reserves within Total equity.
(d) Cash settled
For cash-settled awards, a liability equal to the portion of the services received is recognised at the current fair value determined at each balance sheet date.
Provisions and contingent liabilities
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of the cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received, and the amount of the receivable can be measured reliably.
Contingent liabilities are disclosed where a possible obligation dependent on uncertain future events exists as at the end of the reporting period or a present obligation for which payment either cannot be measured or is not considered to be probable is noted. Contingent liabilities are not accrued for and no contingent liability is disclosed where the possibility of payment is considered to be remote.
Deferred government grant income
Government grant income that is linked to capital expenditure is deferred to the Consolidated Balance Sheet and credited to the Consolidated Income Statement over the life of the related asset. In addition, the Group claims research and development expenditure credits arising on qualifying expenditure in its UK-based subsidiaries and shows these 'above the line' in Operating profit. Where the credits arise on expenditure that is capitalised as part of internally generated capitalised development costs, the income is deferred to the Consolidated Balance Sheet and credited to the Consolidated Income Statement over the life of the related asset in line with the policy stated above.
Operating profit
Operating profit is presented net of direct production costs, production overheads, selling costs, distribution costs and administrative expenditure. Operating profit is stated after charging restructuring costs but before the share of results of associates, profit or loss on disposal of operations, finance income and finance costs.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits with an initial maturity of less than three months, and bank overdrafts that are repayable on demand.
Dividends
Dividends payable to the Company's shareholders are recognised as a liability in the period in which the distribution is approved by the Company's shareholders.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less provisions for impairment and depreciation which, with the exception of freehold land which is not depreciated, is provided on a straight-line basis over each asset's estimated economic life. The principal annual rates used for this purpose are:
| Freehold property | 2% |
| Leasehold properties: | 2% |
| Short leases (less than 50 years unexpired) | Period of lease |
| Plant, equipment and vehicles | 8% to 33.3% |
Leases
Leases that confer rights and obligations similar to those that attach to owned assets are classified as finance leases, of which the Group has none. All other leases are classified as operating leases. Operating lease rentals, and any incentives receivable, are charged to the Consolidated Income Statement on a straight-line basis over the lease term.
Finance income and expenses
The Group recognises Interest income or expense using the effective interest rate method. Finance income and finance costs include:
- Interest payable on loans and borrowings
- Net interest charge on pension plan liabilities
- Amortisation of finance costs
- Interest receivable in respect of cash and cash equivalents
- Unwinding of the discount on provisions
- Fair value movements on derivative financial instruments
| 1 Segmental analysis and revenue from contracts with customers
Sector analysis and disaggregation of revenue The Group has four reportable segments (Process Safety, Infrastructure Safety, Environmental & Analysis and Medical), which are defined by markets rather than product type. Each segment includes businesses with similar operating and marketing characteristics. These segments are consistent with the internal reporting reviewed each month by the Group Chief Executive. Nature of goods and services The following is a description of the principal activities - separated by reportable segments, which are defined by markets rather than product type - from which the Group generates its revenue. Further disaggregation of sector revenue by geography and by the pattern of revenue recognition depicts how economic factors affect the timing and uncertainty of the group's revenues. Process Safety sector generates revenue from providing products that protect assets and people at work. Products include: specialised interlocks that control critical processes safely; Instruments that detect flammable and hazardous gases; and explosion protection and corrosion monitoring systems. Products are generally sold separately, with contracts less than one year. Warranties are typically of an assurance nature. Revenue is typically recognised as control passes on delivery or dispatch. Payment is typically due within 60 days of invoice, except where a retention is held for documentation. Infrastructure Safety sector generates revenue from providing products that save lives, protect infrastructure and enable safe movement. Products include: fire detection systems, specialist fire suppression systems and people and vehicle flow technologies. Products are generally sold separately, with contracts less than one year. Warranties are typically of an assurance nature. Revenue is recognised as control passes on delivery or dispatch. Payment is typically due within 60 days of invoice. Environmental & Analysis generates revenue providing products and technologies for analysis in environmental safety and life sciences markets. Products include: market-leading opto-electronic technology and sensors, flow gap measurement instruments and gas conditioning products, and solutions for environmental data recording, water quality testing, water distribution network monitoring, and UV water treatment. Products and services are generally sold separately. Warranties are typically of an assurance nature, but some companies offer extended warranties. Depending on the nature of the performance obligation, revenue is recognised as control passes on delivery, dispatch or as the service is delivered. Contracts are typically less than one year in length, but some companies have contracts where certain service related performance obligations are delivered over a number of years, this results in contract liabilities where those performance obligations are invoiced ahead of performance. Payment is typically due within 60 days of invoice. Medical sector generates revenue from providing products and services that enhance the quality of life for patients and improve quality of care delivered by providers. Products include: devices that assess eye health, assist with eye surgery and primary care applications, critical fluidic components used by medical diagnostics and OEMs and laboratories, sensor technologies used in hospitals to track assets and support patient and staff safety. Products are generally sold separately, and warranties are typically of an assurance nature. Depending on the nature of the performance obligation, revenue is recognised as control passes on delivery or dispatch or as the service is delivered. Contracts are typically less than one year in length, but a limited number of companies have contracts where certain service related performance obligations are delivered over a number of years, this can result in contract liabilities where those performance obligations are invoiced ahead of performance. Payment is typically due within 60 days of invoice. |
Segment revenue disaggregation (by location of external customer)
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| Year ended 31 March 2019 Revenue by sector and destination (all continuing operations) | ||||||
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| United States of America £m | Mainland Europe £m | United Kingdom £m | Asia Pacific £m | Africa, Near and Middle East £m | Other countries £m | Total £m |
| Process Safety | 61.3 | 42.1 | 32.6 | 29.6 | 23.2 | 8.7 | 197.5 |
| Infrastructure Safety | 87.8 | 131.2 | 101.4 | 48.6 | 28.4 | 11.2 | 408.6 |
| Environmental & Analysis | 135.2 | 38.0 | 53.6 | 59.7 | 6.0 | 6.6 | 299.1 |
| Medical | 159.2 | 55.0 | 13.4 | 46.1 | 13.2 | 19.2 | 306.1 |
| Inter-segmental sales | (0.3) | - | (0.1) | - | - | - | (0.4) |
| Revenue for the year | 443.2 | 266.3 | 200.9 | 184.0 | 70.8 | 45.7 | 1,210.9 |
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| Year ended 31 March 2018 Revenue by sector and destination (all continuing operations) |
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| United States of America £m | Mainland Europe £m | United Kingdom £m | Asia Pacific £m | Africa, Near and Middle East £m | Other countries £m | Total £m |
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| Process Safety | 52.1 | 40.6 | 29.5 | 28.1 | 24.8 | 9.4 | 184.5 |
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| Infrastructure Safety | 66.4 | 112.2 | 87.8 | 46.1 | 23.9 | 12.4 | 348.8 |
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| Environmental & Analysis | 110.4 | 33.6 | 43.1 | 58.0 | 7.8 | 6.5 | 259.4 |
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| Medical | 145.3 | 51.3 | 13.0 | 42.7 | 13.2 | 18.3 | 283.8 |
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| Inter-segmental sales | (0.2) | - | (0.1) | - | - | - | (0.3) |
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| Revenue for the year | 374.0 | 237.7 | 173.3 | 174.9 | 69.7 | 46.6 | 1,076.2 |
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| Inter-segmental sales are charged at prevailing market prices and have not been disclosed separately by segment as they are not considered material. Revenue derived from the rendering of services was £69.8m (2018: £49.6m). All revenue was otherwise derived from the sale of products.
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The Group has unsatisfied (or partially satisfied) performance obligations at the balance sheet date with an aggregate amount of transaction price as follows.
The remaining transaction price comprises deferred income which is currently recognised as contract liabilities and committed sales. Time bands represented above present the expected timing of when the remaining transaction price will be recognised as revenue. Segment results | |||||||||||||||||||||||||||||||||||||||||||
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| Profit (all continuing operations) |
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| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
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| Segment profit before allocation of adjustments* |
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| Process Safety | 45.5 | 43.3 |
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| Infrastructure Safety | 88.9 | 73.3 |
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| Environmental & Analysis | 66.4 | 55.0 |
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| Medical | 76.9 | 67.1 |
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| 277.7 | 238.7 |
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| Segment profit after allocation of adjustments* |
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| Process Safety | 41.5 | 39.4 |
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| Infrastructure Safety | 79.1 | 65.1 |
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| Environmental & Analysis | 60.1 | 47.7 |
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| Medical | 60.1 | 44.7 |
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| Segment profit | 240.8 | 196.9 |
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| Central administration costs | (24.1) | (15.3) |
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| Net finance expense | (10.0) | (9.7) |
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| Group profit before taxation | 206.7 | 171.9 |
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| Taxation | (36.9) | (17.7) |
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| Profit for the year | 169.8 | 154.2 |
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* Adjustments include the amortisation of acquired intangible assets; acquisition items; significant restructuring costs; profit or loss on disposal of operations and the effect of equalisation of pension benefits for men and women in the defined benefit plans. Note 3 provides more information on alternative performance measures.
| The accounting policies of the reportable segments are the same as the Group's accounting policies. Acquisition transaction costs, adjustments to contingent consideration and release of fair value adjustments to inventory (collectively 'acquisition items') are recognised in the Consolidated Income Statement. Segment profit, before these acquisition items and the other adjustments, is disclosed separately above as this is the measure reported to the Group Chief Executive for the purpose of allocation of resources and assessment of segment performance. These adjustments are analysed as follows: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The transaction costs arose mainly on the acquisitions during the year. In Infrastructure Safety, they mainly related to LAN Controls Limited (£0.1m), Limotec (£0.1m), Navtech (£0.4m) and Business Marketers Group (trading as Rath Communications) (£0.1m) and a credit from a previous acquisition. In Environmental & Analysis, they related to the acquisition of FluxData in a previous year (£0.1m). In Medical, they mainly related to the acquisition of Visiometrics in a previous year (£0.5m). The £3.5m adjustment to contingent consideration comprised: a credit of £3.0m in Environmental & Analysis arising from decreases in estimates of the payable for FluxData (£2.7m) and Mini-Cam (£0.3m); and a credit of £0.5m in Medical arising from a decrease in estimate of the payable for CasMed NIBP (£0.1m) offset by a credit of £0.6m arising from exchange differences on the payable for Visiometrics which is denominated in Euros. The £2.7m release of fair value adjustments to inventory relates to Firetrace (£1.4m), Limotec (£0.3m), Navtech (£0.6m) and Rath (£0.3m), and Mini-Cam (£0.1m) within Environmental & Analysis. All amounts have now been released in relation to Firetrace, Limotec, Rath and Mini-Cam. The £2.1m defined benefit pension charge relates to the estimate of Guaranteed Minimum Pension equalisation for men and women. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Year ended 31 March 2018 | |||
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| Amortisation of acquired intangible assets £m | Acquisition items |
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| Transaction costs £m | Adjustments to contingent consideration £m | Release of fair value adjustments to inventory £m | Total amortisation charge and acquisition items £m |
£m |
Disposal of operations and restructuring
£m | Total £m | |
| Process Safety | (3.9) | - | - | - | (3.9) | - | - | (3.9) |
| Infrastructure Safety | (5.2) | (0.8) | - | (2.1) | (8.1) | - | - | (8.1) |
| Environmental & Analysis | (7.1) | (0.8) | 1.5 | (1.0) | (7.4) | - | - | (7.4) |
| Medical | (18.5) | (1.0) | (3.2) | (0.3) | (23.0) | - | 0.6 | (22.4) |
| Total Segment & Group | (34.7) | (2.6) | (1.7) | (3.4) | (42.4) | - | 0.6 | (41.8) |
In the prior year, the transaction costs arose mainly on the acquisitions during the prior year of Setco, S.A. (Setco) (£0.1m) and Argus Security S.r.l. and Sterling Safety Systems Limited (together 'Argus') (£0.7m) within Infrastructure Safety, Cas Medical Systems Inc's Non-Invasive Blood Pressure Monitoring product line (CasMed NIBP) (£0.5m) and Cardios (£0.5m) within Medical, and Mini-Cam (£0.8m) within Environmental & Analysis.
The £1.7m adjustment to contingent consideration comprised: a debit of £2.5m in Medical arising from a change in estimate of the payable for CasMed NIBP (£0.7m) and Visiometrics (£1.8m), offset by a credit of £1.5m in Environmental & Analysis arising from a change in estimate of the payable for FluxData. Exchange differences on the payable for Visiometrics which is denominated in Euros, and for Cardios which is denominated in Brazilian Reals, contributed a further debit of £0.7m in Medical.
The £3.4m release of fair value adjustments to inventory relates to Firetrace (£1.4m), Argus (£0.6m) and Setco (£0.1m) within Infrastructure Safety, Mini-Cam (£0.8m) and FluxData (£0.2m) within Environmental & Analysis and Cardios (£0.3m) within Medical. All amounts have been released in relation to Argus, Setco, Cardios and FluxData.
Information about major customers
No single customer accounts for more than 3% (2018: 2%) of the Group's revenue.
2 Earnings per ordinary share
Basic and diluted earnings per ordinary share are calculated using the weighted average of 379,159,755 shares in issue during the year (net of shares purchased by the Company and held as Own shares) (2018: 378,987,354). There are no dilutive or potentially dilutive ordinary shares.
Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation of acquired intangible assets; acquisition items; restructuring costs; profit or loss on disposal of operations; the effect of equalisation of defined pension benefits for men and women; the associated taxation thereon; and, in the prior year, the effect of the US tax reform measures. The Directors consider that adjusted earnings, which constitute an alternative performance measure, represent a more consistent measure of underlying performance as it excludes amounts not directly linked with trading. A reconciliation of earnings and the effect on basic and diluted earnings per share figures is as follows:
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| Per ordinary share | |
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| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m | Year ended 31 March 2019 pence | Year ended 31 March 2018 pence |
| Earnings from continuing operations | 169.8 | 154.2 | 44.78 | 40.69 |
| Amortisation of acquired intangible assets (after tax) | 27.5 | 26.0 | 7.25 | 6.85 |
| Acquisition transaction costs (after tax) | 1.0 | 2.4 | 0.27 | 0.65 |
| Adjustments to contingent consideration (after tax) | (2.9) | 1.9 | (0.75) | 0.51 |
| Release of fair value adjustments to inventory (after tax) | 2.1 | 2.6 | 0.55 | 0.69 |
| Defined benefit pension charge (after tax) | 1.7 | - | 0.44 | - |
| Disposal of operations and restructuring (after tax) | 0.8 | (0.6) | 0.20 | (0.19) |
| Impact of US tax reform measures | - | (14.9) | - | (3.94) |
| Adjusted earnings | 200.0 | 171.6 | 52.74 | 45.26 |
The Board uses certain alternative performance measures to help it effectively monitor the performance of the Group. The Directors consider that these represent a more consistent measure of underlying performance by removing non-trading items that are not closely related to the Group's trading or operating cash flows. These measures include Return on Total Invested Capital (ROTIC), Return on Capital Employed (ROCE), organic growth at constant currency, Adjusted operating profit and Adjusted operating cash flow.
Note 1 provides further analysis of the adjusting items in reaching adjusted profit measures.
Return on Total Invested Capital
|
| 31 March 2019 £m | 31 March 2018 £m |
| Profit after tax | 169.8 | 154.2 |
| Adjustments1 | 30.2 | 17.4 |
| Adjusted profit after tax1 | 200.0 | 171.6 |
| Total equity | 981.4 | 828.4 |
| Add back retirement benefit obligations | 39.2 | 53.9 |
| Less associated deferred tax assets | (7.0) | (9.8) |
| Cumulative amortisation of acquired intangible assets | 235.2 | 191.0 |
| Historical adjustments to goodwill2 | 89.5 | 89.5 |
| Total Invested Capital | 1,338.3 | 1,153.0 |
| Average Total Invested Capital3 | 1,245.7 | 1,125.1 |
| Return on Total Invested Capital (ROTIC)4 | 16.1% | 15.2% |
Return on Capital Employed
|
| 31 March 2019 £m | 31 March 2018 £m |
| Profit before tax | 206.7 | 171.9 |
| Adjustments1 | 39.0 | 41.8 |
| Net finance costs | 10.0 | 9.7 |
| Adjusted operating profit1 after share of results of associates | 255.7 | 223.4 |
| Computer software costs within intangible assets | 5.5 | 4.7 |
| Capitalised development costs within intangible assets | 33.1 | 29.9 |
| Other intangibles within intangible assets | 3.1 | 0.9 |
| Property, plant and equipment | 112.4 | 103.7 |
| Inventories | 144.3 | 128.0 |
| Trade and other receivables | 259.6 | 235.2 |
| Trade and other payables | (164.8) | (149.6) |
| Current provisions | (25.4) | (8.8) |
| Net tax liabilities | (13.2) | (11.4) |
| Non-current trade and other payables | (11.6) | (12.6) |
| Non-current provisions | (10.9) | (23.1) |
| Add back contingent purchase consideration | 26.8 | 25.0 |
| Capital Employed | 358.9 | 321.9 |
| Average Capital Employed3 | 340.4 | 312.1 |
| Return on Capital Employed (ROCE)4 | 75.1% | 71.6% |
1 Adjustments include the amortisation of acquired intangible assets; acquisition items; significant restructuring costs; profit or loss on disposal of operations and the effect of equalisation of defined pension benefits for men and women. Where after-tax measures, these also include the associated taxation on adjusting items and, in the prior year, the effect of the US tax reform measures. Note 1 provides more information on these items.
2 Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves.
3 The ROTIC and ROCE measures are expressed as a percentage of the average of the current and prior year's Total Invested Capital and Capital Employed respectively. Using an average as the denominator is considered to be more representative. The 1 April 2017 Total Invested Capital and Capital Employed balances were £1,097.1m and £302.2m respectively.
4 The ROTIC and ROCE measures are calculated as Adjusted profit after tax divided by Average Total Invested Capital and Adjusted operating profit after share of results of associates divided by Average Capital Employed respectively.
Organic growth at constant currency
Organic growth measures the change in revenue and profit from continuing Group operations. This measure equalises the effect of acquisitions by:
a. removing from the year of acquisition their entire revenue and profit before taxation; and
b. in the following year, removing the revenue and profit for the number of months equivalent to the pre-acquisition period in the prior year.
The results of disposals are removed from the prior period reported revenue and profit before taxation.
Constant currency measures the change in revenue and profit excluding the effects of currency movements. The measure restates the current year's revenue and profit at last year's exchange rates.
Organic growth at constant currency has been calculated for the Group as follows:
Group
|
| Revenue | Adjusted profit* before taxation | ||||
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m | % growth | Year ended 31 March 2019 £m | Year ended 31 March 2018 £m | % growth |
| Continuing operations | 1,210.9 | 1,076.2 | 12.5% | 245.7 | 213.7 | 15.0% |
| Acquired and disposed revenue/profit | (32.0) | (8.5) |
| (6.9) | 0.6 |
|
| Organic growth | 1,178.9 | 1,067.7 | 10.4% | 238.8 | 214.3 | 11.4% |
| Constant currency adjustment | (4.2) | - |
| (0.7) | - |
|
| Organic growth at constant currency | 1,174.7 | 1,067.7 | 10.0% | 238.1 | 214.3 | 11.1% |
Sector Organic growth at constant currency
Organic growth at constant currency is calculated for each segment using the same method as described above.
Process Safety
|
| Revenue | Adjusted* segment profit | ||||
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m | % growth | Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
|
| Continuing operations | 197.5 | 184.5 | 7.0% | 45.5 | 43.3 | 4.9% |
| Acquisition and currency adjustments | (0.5) | - |
| (0.2) | - |
|
| Organic growth at constant currency | 197.0 | 184.5 | 6.8% | 45.3 | 43.3 | 4.5% |
Infrastructure Safety
|
| Revenue | Adjusted* segment profit | ||||
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 | % growth | Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
|
| Continuing operations | 408.6 | 348.8 | 17.2% | 88.9 | 73.3 | 21.4% |
| Acquisition and currency adjustments | (21.8) | - |
| (4.2) | - |
|
| Organic growth at constant currency | 386.8 | 348.8 | 10.9% | 84.7 | 73.3 | 15.6% |
| Environmental & Analysis | Revenue | Adjusted* segment profit | ||||||||||
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 | % growth | Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| ||||||
| Continuing operations | 299.1 | 259.4 | 15.3% | 66.4 | 55.0 | 20.7% | ||||||
| Acquisition and currency adjustments | (10.3) | - |
| (4.3) | - |
| ||||||
| Organic growth at constant currency | 288.8 | 259.4 | 11.3% | 62.1 | 55.0 | 12.9% | ||||||
| Medical | Revenue | Adjusted* segment profit |
| |||||||||
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 | % growth | Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
|
| |||||
| Continuing operations | 306.1 | 283.8 | 7.9% | 76.9 | 67.1 | 14.8% |
| |||||
| Acquisition and disposal and currency adjustments | (3.6) | (8.5) |
| (0.5) | 0.6 |
|
| |||||
| Organic growth at constant currency | 302.5 | 275.3 | 9.9% | 76.4 | 67. 7 | 12.9% |
| |||||
* Adjustments include the amortisation of acquired intangible assets; acquisition items; restructuring costs; profit or loss on disposal of operations; and the effect of equalisation of pension benefits for men and women in the defined benefit plans.
Adjusted operating profit
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Operating profit | 217.8 | 181.2 |
| Add back: |
|
|
| Acquisition items (note 1) | 0.3 | 7.7 |
| Defined benefit pension charge | 2.1 | - |
| Amortisation of acquired intangible assets | 35.6 | 34.7 |
| Adjusted operating profit | 255.8 | 223.6 |
Adjusted operating cash flow
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Net cash from operating activities (note 9) | 219.0 | 173.3 |
| Add back: |
|
|
| Net acquisition costs | 1.2 | 2.6 |
| Taxes paid | 40.6 | 41.1 |
| Proceeds from sale of property, plant and equipment | 1.6 | 1.7 |
| Share awards vested not settled by Own shares* | 4.9 | 3.3 |
| Less: |
|
|
| Purchase of property, plant and equipment | (26.4) | (20.2) |
| Purchase of computer software and other intangibles | (4.9) | (2.0) |
| Development costs capitalised | (10.8) | (9.4) |
| Adjusted operating cash flow | 225.2 | 190.4 |
| Cash conversion % (adjusted operating cash flow/adjusted operating profit) | 88% | 85% |
* See Consolidated Statement of Changes in Equity
|
4 Finance income |
|
|
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Interest receivable | 0.4 | 0.2 |
| Fair value movement on derivative financial instruments | 0.1 | 0.1 |
|
| 0.5 | 0.3 |
5 Finance expense
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Interest payable on borrowings | 7.6 | 7.0 |
| Amortisation of finance costs | 0.9 | 1.0 |
| Net interest charge on pension plan liabilities | 1.2 | 1.7 |
| Other interest payable | 0.5 | 0.2 |
|
| 10.2 | 9.9 |
| Fair value movement on derivative financial instruments | 0.2 | - |
| Unwinding of discount on provisions | 0.1 | 0.1 |
|
| 10.5 | 10.0 |
6 Taxation
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Current tax |
|
|
| UK corporation tax at 19% (2018: 19%) | 10.9 | 9.8 |
| Overseas taxation | 33.6 | 29.1 |
| Adjustments in respect of prior years | 0.2 | (0.3) |
| Total current tax charge | 44.7 | 38.6 |
| Deferred tax |
|
|
| Origination and reversal of timing differences | (7.4) | (6.2) |
| Changes in tax rate - US tax reform measures | - | (15.0) |
| Adjustments in respect of prior years | (0.4) | 0.3 |
| Total deferred tax credit | (7.8) | (20.9) |
| Total tax charge recognised in the Consolidated Income Statement | 36.9 | 17.7 |
| Reconciliation of the effective tax rate: |
|
|
| Profit before tax | 206.7 | 171.9 |
| Tax at the UK corporation tax rate of 19% (2018: 19%) | 39.3 | 32.7 |
| Overseas tax rate differences | 9.4 | 12.8 |
| Effect of US tax reform measures | - | (15.0) |
| Effect of intra-group financing | (8.7) | (7.9) |
| Tax incentives, exemptions and credits (including patent box, R&D and High-Tech status) | (3.9) | (4.6) |
| Permanent differences | 1.0 | (0.3) |
| Adjustments in respect of prior years | (0.2) | - |
|
| 36.9 | 17.7 |
| Effective tax rate | 17.9% | 10.3% |
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Adjusted* profit before tax | 245.7 | 213.7 |
| Total tax charge on adjusted* profit | 45.7 | 42.1 |
| Effective tax rate | 18.6% | 19.7% |
* Adjustments include the amortisation of acquired intangible assets; acquisition items; significant restructuring costs; and profit or loss on disposal of operations and the effect of equalisation of pension benefits for men and women in the defined benefit plans. Note 3 provides more information on alternative performance measures.
The Group's future Effective Tax Rate (ETR) will mainly depend on the geographic mix of profits and whether there are any changes to tax legislation in the Group's most significant countries of operations.
In addition to the amount charged to the Consolidated Income Statement, the following amounts relating to tax have been recognised directly in the Consolidated Statement of Comprehensive Income and Expenditure:
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Deferred tax |
|
|
| Retirement benefit obligations | 1.6 | 2.4 |
| Short term timing differences | - | - |
|
| 1.6 | 2.4 |
In addition to the amounts charged to the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income and Expenditure, the following amounts relating to tax have been recognised directly in equity:
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Current tax |
|
|
| Excess tax deductions related to share-based payments on exercised awards | (1.5) | 1.1 |
| Deferred tax |
|
|
| Change in estimated excess tax deductions related to share-based payments | (0.9) | (0.5) |
|
| (2.4) | 0.6 |
|
| Per ordinary share |
|
| |
|
| Year ended 31 March 2019 pence | Year ended 31 March 2018 pence | Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Amounts recognised as distributions to shareholders in the year |
|
|
|
|
| Final dividend for the year ended 31 March 2018 (52 weeks to 1 April 2017) | 8.97 | 8.38 | 34.0 | 31.7 |
| Interim dividend for the year ended 31 March 2019 (31 March 2018) | 6.11 | 5.71 | 23.2 | 21.7 |
|
| 15.08 | 14.09 | 57.2 | 53.4 |
| Dividends declared in respect of the year |
|
|
|
|
| Interim dividend for the year ended 31 March 2019 (31 March 2018) | 6.11 | 5.71 | 23.2 | 21.7 |
| Proposed final dividend for the year ended 31 March 2019 (31 March 2018) | 9.60 | 8.97 | 36.4 | 34.0 |
|
| 15.71 | 14.68 | 59.6 | 55.7 |
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 25 July 2019 and has not been included as a liability in these financial statements.
8 Acquisitions
In accounting for acquisitions, adjustments are made to the book values of the net assets of the companies acquired to reflect their fair values to the Group. Acquired inventories are valued at fair value adopting Group bases and any liabilities for warranties relating to past trading are recognised. Other previously unrecognised assets and liabilities at acquisition are included and accounting policies are aligned with those of the Group where appropriate.
During the year ended 31 March 2019, the Group made four acquisitions namely:
LAN Controls Limited;
Limotec bvba;
Navtech Radar Limited; and
Business Marketers Group, Inc (trading as Rath Communications).
Below are summaries of the assets acquired and liabilities assumed and the purchase consideration of:
- the total of acquisitions;
- LAN Controls Limited, on a stand-alone basis;
- Limotec bvba, on a stand-alone basis;
- Navtech Radar Limited, on a stand-alone basis;
- Business Marketers Group, Inc (trading as Rath Communications), on a stand-alone basis; and
- The aggregate adjustments arising on prior year acquisitions.
Due to their contractual dates, the fair value of receivables acquired (shown below) 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 combined fair value adjustments made for the acquisitions above under IFRS 3, excluding acquired intangible assets recognised and deferred taxation thereon, increased the goodwill recognised by £2.0m (2018: £2.8m increase).
As at the date of approval of the financial statements, the acquisition accounting for all prior year acquisitions is complete. The accounting for all current year acquisitions is provisional; relating to finalisation of the valuation of acquired intangible assets, the initial consideration, which is subject to agreement of certain contractual adjustments, and certain other provisional balances.
a) Total of acquisitions
|
| Total £m |
| Non-current assets |
|
| Intangible assets | 31.2 |
| Property, plant and equipment | 1.7 |
| Current assets |
|
| Inventories | 4.6 |
| Trade and other receivables | 4.7 |
| Corporation tax | 0.1 |
| Cash and cash equivalents | 5.3 |
| Total assets | 47.6 |
| Current liabilities |
|
| Trade and other payables | (4.4) |
| Provisions | (0.5) |
| Corporation tax | 0.2 |
| Non-current liabilities |
|
| Deferred tax | (3.2) |
| Total liabilities | (7.9) |
| Net assets of businesses acquired | 39.7 |
|
|
|
| Initial cash consideration paid | 63.0 |
| Additional amounts paid in respect of cash acquired | 5.1 |
| Amounts owed to vendors* | 1.1 |
| Contingent purchase consideration estimated to be paid in respect of current year acquisitions | 8.3 |
| Contingent purchase consideration adjustment in respect of prior year acquisitions | (0.5) |
| Total consideration | 77.0 |
|
|
|
| Goodwill arising on acquisitions (current year) | 37.7 |
| Goodwill arising on acquisitions (prior year) | (0.4) |
| Total goodwill | 37.3 |
* In respect of net tangible asset adjustments and corporation tax relating to share options granted prior to acquisition and other adjustments relating to prior year acquisitions.
Analysis of cash outflow in the Consolidated Cash Flow Statement
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Initial cash consideration paid | 63.0 | 114.2 |
| Cash acquired on acquisitions | (5.3) | (3.9) |
| Initial cash consideration adjustment on current year acquisitions | 5.7 | 0.1 |
| Initial cash consideration adjustment on prior year acquisitions | (0.1) | 0.2 |
| Contingent consideration paid and loan notes repaid in cash in relation to prior year acquisitions* | 3.7 | 1.1 |
| Net cash outflow relating to acquisitions (per Consolidated Cash Flow Statement) | 67.0 | 111.7 |
*The £3.7m comprises £0.1 loan notes and £3.6m contingent consideration paid in respect of prior period acquisitions all of which had been provided in the prior period's financial statements.
b) LAN Controls Limited, on a stand-alone basis
|
| Total £m |
| Non-current assets |
|
| Intangible assets | 0.9 |
| Current assets |
|
| Trade and other receivables | 0.1 |
| Cash and cash equivalents | 0.1 |
| Total assets | 1.1 |
| Current liabilities |
|
| Trade and other payables | (0.1) |
| Non-current liabilities |
|
| Deferred tax | (0.2) |
| Total liabilities | (0.3) |
| Net assets of business acquired | 0.8 |
|
|
|
| Initial cash consideration paid | 1.0 |
| Contingent purchase consideration estimated to be paid | 0.1 |
| Total consideration | 1.1 |
|
|
|
| Goodwill arising on acquisition | 0.3 |
The Group acquired the entire share capital of LAN Controls Limited ('LAN') on 6 September 2018 for an initial cash consideration of £1.0m. The maximum contingent consideration payable is £0.8m.
The contingent purchase consideration recognised represents the estimated amount payable, based on revenue-based targets, for each of the three annual earnout periods, commencing 6 September 2018.
LAN, located in Nottingham, UK, provides specialist safety services for buildings, with extensive knowledge of a number of safety systems, including CCTV, Fire alarms, Intruder alarms and Access Controls. LAN will be a bolt-on to FFE Limited within the Group's Infrastructure Safety sector.
The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by technology related intangibles of £0.9m; with residual goodwill arising of £0.3m. The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
LAN contributed £0.3m of revenue and £nil profit after tax for the year ended 31 March 2019.
If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £0.2m and £nil higher respectively.
Acquisition costs totalling £0.1m were recorded in the Consolidated Income Statement.
The goodwill arising on the acquisition is not expected to be deductible for tax purposes.
c) Limotec bvba, on a stand-alone basis
|
| Total £m |
| Non-current assets |
|
| Intangible assets | 3.5 |
| Property, plant and equipment | 1.4 |
| Current assets |
|
| Inventories | 0.8 |
| Trade and other receivables | 1.1 |
| Cash and cash equivalents | 2.0 |
| Total assets | 8.8 |
| Current liabilities |
|
| Trade and other payables | (1.0) |
| Provisions | (0.1) |
| Corporation tax payable | (0.1) |
| Non-current liabilities |
|
| Deferred tax | (1.1) |
| Total liabilities | (2.3) |
| Net assets of business acquired | 6.5 |
|
|
|
| Initial cash consideration paid | 8.2 |
| Additional amounts paid in respect of cash acquired | 1.8 |
| Total consideration | 10.0 |
|
|
|
| Goodwill arising on acquisition | 3.5 |
The Group acquired the entire share capital of Limotec bvba ('Limotec')on 18 October 2018 for an initial cash consideration of €9.3m (£8.2m), adjustable for cash acquired. The adjustment was determined to be €2.1m (£1.8m).
Limotec, located in Vichte, Belgium is a leading fire control panel designer and manufacturer and seller of fire safety systems in Belgium. The company will continue to run under its own management team, and will become part of the Group's Infrastructure Safety sector.
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 £1.1m; trade name of £0.8m and technology related intangibles of £1.6m; with residual goodwill arising of £3.5m. The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
Limotec contributed £2.8m of revenue and £0.2m of profit after tax for the year ended 31 March 2019.
If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £3.5m higher and £0.2m higher respectively.
Acquisition costs totalling £0.1m were recorded in the Consolidated Income Statement.
The goodwill arising on the Limotec acquisition is not expected to be deductible for tax purposes.
d) Navtech Radar Limited, on a stand-alone basis
|
| Total £m |
| Non-current assets |
|
| Intangible assets | 12.6 |
| Property, plant and equipment | 0.2 |
| Current assets |
|
| Inventories | 2.1 |
| Trade and other receivables | 2.1 |
| Corporation tax | 0.1 |
| Cash and cash equivalents | 3.2 |
| Total assets | 20.3 |
| Current liabilities |
|
| Trade and other payables | (2.7) |
| Provisions | (0.2) |
| Non-current liabilities |
|
| Deferred tax | (1.8) |
| Total liabilities | (4.7) |
| Net assets of business acquired | 15.6 |
|
|
|
| Initial cash consideration paid | 21.0 |
| Additional amounts paid in respect of cash acquired | 3.3 |
| Amounts owed to vendors* | 0.6 |
| Contingent purchase consideration estimated to be paid | 8.2 |
| Total consideration | 33.1 |
|
|
|
| Goodwill arising on acquisition | 17.5 |
* In respect of net tangible asset adjustments and corporation tax relating to share options granted prior to acquisition.
The Group acquired the entire share capital of Navtech Radar Limited ('Navtech') on 14 November 2018 for an initial cash consideration of £21.0m, adjustable for cash acquired, estimated net tangible assets adjustments and tax receivables in respect of share options granted prior to acquisition. The total adjustments were estimated to be £3.9m. Maximum contingent purchase consideration payable is £18.0m.
The current contingent consideration payable represents the fair value of the estimated amounts payable for each of three annual consecutive earnout periods, commencing 1 April 2018. The earnout in each period is calculated by reference to the relevant earnings for the period compared to the target for the period.
Navtech, located in Wantage, UK, combines radar, cameras and software to improve road safety and provide real-time incident detection, including for tunnels and smart motorways. Navtech also delivers cost-effective real-time perimeter protection for critical infrastructure sites, such as airports, and supplies sensing applications for industrial automation in harsh outdoor environments. Navtech will continue to run under its current management team, and will become part of the Group's Infrastructure Safety sector.
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 £5.8m; trade name of £1.3m and technology related intangibles of £5.5m; with residual goodwill arising of £17.5m. The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
Navtech contributed £2.6m of revenue and £0.6m of profit after tax for the year ended 31 March 2019.
If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £4.9m higher and £2.1m higher respectively.
Acquisition costs totalling £0.4m were recorded in the Consolidated Income Statement.
The goodwill arising on the Navtech acquisition is not expected to be deductible for tax purposes.
e) Business Marketers Group, Inc (trading as Rath Communications), on a stand-alone basis
|
| Total £m |
| Non-current assets |
|
| Intangible assets | 14.2 |
| Property, plant and equipment | 0.1 |
| Current assets |
|
| Inventories | 1.7 |
| Trade and other receivables | 1.4 |
| Total assets | 17.4 |
| Current liabilities |
|
| Trade and other payables | (0.7) |
| Provisions | (0.2) |
| Non-current liabilities |
|
| Deferred tax | (0.1) |
| Total liabilities | (1.0) |
| Net assets of business acquired | 16.4 |
|
|
|
| Initial cash consideration paid | 32.8 |
| Total consideration | 32.8 |
|
|
|
| Goodwill arising on acquisition | 16.4 |
The Group acquired the entire share capital of Business Marketers Group, Inc trading as Rath Communications ('Rath'), on 17 January 2019 for an initial cash consideration of US$42.4m (£32.8m).
Rath, located in Wisconsin, USA, operates in a number of communications markets, including the provision of two-way communication systems in public and commercial buildings, for areas of refuge where evacuation may not be safe or possible. The company also operates in other market segments including elevator and public safety phones. Rath will become part of the Group's Infrastructure Safety sector, within the Avire 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 £7.7m; trade name of £3.6m and technology related intangibles of £2.9m; with residual goodwill arising of £16.4m. The goodwill represents:
a) the technical expertise of the acquired workforce;
b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and
c) the ability to exploit the Group's existing customer base.
Rath contributed £2.9m of revenue and £0.9m of profit after tax for the year ended 31 March 2019.
If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £9.5m higher and £2.5m higher respectively.
Acquisition costs totalling £0.1m were recorded in the Consolidated Income Statement.
The goodwill arising on the acquisition of Rath is expected to be deductible for tax purposes.
f) Adjustments in respect of prior year acquisitions
|
| Total £m |
| Current liabilities |
|
| Trade and other payables | 0.1 |
| Corporation tax | 0.3 |
| Total liabilities | 0.4 |
| Net adjustments to assets of businesses acquired in prior years | 0.4 |
|
|
|
| Amounts owed to vendors | 0.5 |
| Contingent purchase consideration paid | (0.5) |
| Total adjustments to consideration | - |
|
|
|
| Adjustment to goodwill | (0.4) |
In finalising the acquisition accounting for the prior year acquisitions of Setco, Cardios and Argus, adjustments were made to the opening balance sheet totalling a net credit to goodwill of £0.4m.
The adjustments were not material individually or in aggregate and as such the comparative balance sheet was not restated, instead the adjustments have been made through the current year.
The adjustments related to the release of a tax provision and corresponding indemnity asset in Argus, release of continent consideration and recognition of accruals in Cardios and adjustments to inventory provisions in Setco.
9 Notes to the Consolidated Cash Flow Statement
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| 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 associate and loss/profit on disposal of operations | 217.8 | 181.2 |
| Non-cash movement on hedging instruments | (0.1) | (0.3) |
| Depreciation of property, plant and equipment | 20.0 | 18.9 |
| Amortisation of computer software | 1.8 | 1.6 |
| Amortisation of capitalised development costs and other intangibles | 8.8 | 7.1 |
| Impairment of intangibles | 0.7 | 0.7 |
| Amortisation of acquired intangible assets | 35.6 | 34.7 |
| Share-based payment expense in excess of amounts paid | 4.7 | 4.4 |
| Additional payments to pension plans | (11.4) | (10.7) |
| Defined benefit pension charge | 2.1 | - |
| Profit on sale of property, plant and equipment and computer software | (0.6) | (0.5) |
| Operating cash flows before movement in working capital | 279.4 | 237.1 |
| Increase in inventories | (9.2) | (9.1) |
| Increase in receivables | (15.3) | (24.6) |
| Increase in payables and provisions | 8.2 | 9.3 |
| Revision to estimate of, and exchange differences arising on, contingent consideration payable | (3.5) | 1.7 |
| Cash generated from operations | 259.6 | 214.4 |
| Taxation paid | (40.6) | (41.1) |
| Net cash inflow from operating activities | 219.0 | 173.3 |
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Analysis of cash and cash equivalents |
|
|
| Cash and bank balances | 81.2 | 70.7 |
| Overdrafts (included in current borrowings) | (9.1) | (1.0) |
| Cash and cash equivalents | 72.1 | 69.7 |
|
| 31 March 2018 £m | Cash flow £m | Net cash/ (debt) acquired £m | Loan notes repaid £m | Exchange adjustments £m | 31 March 2019 £m |
| Analysis of net debt |
|
|
|
|
|
|
| Cash and bank balances | 70.7 | 4.2 | 5.3 | - | 1.0 | 81.2 |
| Overdrafts | (1.0) | (8.1) | - | - | - | (9.1) |
| Cash and cash equivalents | 69.7 | (3.9) | 5.3 | - | 1.0 | 72.1 |
| Loan notes falling due within one year | (0.1) | - | - | - | - | (0.1) |
| Loan notes falling due after more than one year | (176.6) | - | - | 0.1 | (2.8) | (179.3) |
| Bank loans falling due after more than one year | (113.3) | 43.9 | - | - | (5.0) | (74.4) |
| Total net debt | (220.3) | 40.0 | 5.3 | 0.1 | (6.8) | (181.7) |
The net increase in cash and cash equivalents of £1.4m comprised cash outflow of £3.9m and cash acquired of £5.3m.
The net cash outflow from bank loans of £43.9m comprised repayments of £110.3m offset by drawdowns of £66.4m.
The net cash outflow from loan notes relates to £0.1m repayment of existing loan notes issued in relation to the previous acquisition of Advanced Electronics Limited ("Advanced").
Reconciliation of movements of the Group's liabilities from financing activities
Liabilities from financing activities are those for which cash flows were, or will be, classified as cashflows from financing activities in the Consolidated Cash Flow Statement.
|
| 31 March 2018 £m | Changes from financing cash flows £m | Acquisition and disposal of subsidiaries £m | Other changes1 £m | Effects of foreign exchange £m | 31 March 2019 £m |
| Loan notes falling due within one year | 0.1 | - | - | - | - | 0.1 |
| Overdraft | 1.0 | - | - | 8.1 | - | 9.1 |
| Borrowings (current) | 1.1 | - | - | 8.1 | - | 9.2 |
| Loan notes falling due after more than one year | 176.6 | (0.1) | - | - | 2.8 | 179.3 |
| Bank loans falling due after more than one year | 113.3 | (43.9) | - | - | 5.0 | 74.4 |
| Borrowings (non-current) | 289.9 | (44.0) | - | - | 7.8 | 253.7 |
| Total liabilities from financing activities | 291.0 | (44.0) | - | 8.1 | 7.8 | 262.9 |
| Trade and other payables: falling due within one year | 149.6 | (8.2) | 3.7 | 17.2 | 2.5 | 164.8 |
1 Other changes include movements in overdraft which is treated as cash, interest accruals and other movements in working capital balances.
10 Disposal of operations and restructuring
On 30 June 2018, the Group sold the trade and assets of Accudynamics Inc, part of the Fluid Technology CGU group, for sale proceeds of £4.2m less disposal costs of £0.3m. £3.1m was received during the year, and we expect to receive the remaining £0.8m approximately one year after the sale, in accordance with the Asset Sale agreement.
The net assets on disposal were £4.4m comprising plant and equipment, inventory and trade receivables and payables, which together with the disposal of related goodwill of £0.8m and disposal costs of £0.3m, offset by the recycling of foreign exchange gains of £0.3m, resulted in a net loss on disposal (before taxation) of £1.0m.
In the prior year, on 27 March 2018, Optomed completed a new share offering for €5.5m in which the Group did not participate. This diluted our ownership interest to 23.3% from 26.7% realising a gain for the Group which was included as an adjusting item in the Consolidated Income Statement. The share issue was used to fund the acquisition of a digital software company, Commit Oy. Optomed continues to meet the tests for an associate.
11 Events subsequent to end of reporting period
There were no known material non-adjusting events which occurred between the end of the reporting period and prior to the authorisation of these financial statements on 11 June 2019.
12 Related party transactions
Trading transactions
|
| 31 March 2019 £m | 31 March 2018 £m |
| Associated companies |
|
|
| Transactions with associated companies |
|
|
| Purchases from associated companies | 1.3 | 1.6 |
| Balances with associated companies |
|
|
| Amounts due to associated companies | 0.2 | 0.3 |
Other related parties comprised one company that rents its premises from a pension scheme of which one of the directors is a member. All the transactions above are on an arm's length basis and on standard business terms.
Remuneration of key management personnel
The remuneration of the Directors and Executive Board members, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report in the Annual Report and Accounts 2019.
|
| Year ended 31 March 2019 £m | Year ended 31 March 2018 £m |
| Wages and salaries | 6.8 | 6.0 |
| Pension costs | 0.2 | 0.1 |
| Share-based payment charge | 3.3 | 3.2 |
|
| 10.3 | 9.3 |
| Cautionary note These Results contain certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events.
LEI number: 2138007FRGLUR9KGBT40 |