TIDMHLMA
RNS Number : 4035B
Halma PLC
10 June 2021
HALMA plc
FULL YEAR RESULTS 2021
Record profit for 18(th) 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
2021.
Financial Highlights
Change 2021 2020
Continuing Operations
Revenue -2% GBP1,318.2m GBP1,338.4m
Adjusted Profit before Taxation(1, +4% GBP278.3m GBP267.0m
3)
Adjusted Earnings per Share(2, 3) +2% 58.67p 57.39p
Statutory Profit before Taxation +13% GBP252.9m GBP224.1m
Statutory Earnings per Share +10% 53.61p 48.66p
Total Dividend per Share(4) +7% 17.65p 16.50p
Return on Sales(3,5) 21.1% 19.9%
Return on Total Invested Capital(3) 14.4% 15.3%
Net Debt(6) GBP256.2m GBP375.3m
-- Record profit: Adjusted(1) profit before tax up 4%; organic
constant currency(3,7) profit up 1%; statutory profit before tax up
13%, including a GBP21.6m gain on disposal of Fiberguide
Industries.
-- Three out of four sectors grew profit on a reported basis;
two on an organic constant currency(7) basis.
-- Revenue down 2%, with a 5% decline in the first half
improving to 2% growth in the second half.
-- O rganic constant currency(3,7) revenue down 6%, with an 11%
decline in the first half improving to a flat performance in the
second half.
-- Robust revenue performance in all major regions: Asia Pacific
slightly up including double digit growth in China; the USA and
Mainland Europe stable; a small decline in the UK.
-- Strong returns: Return on Sales(3,5) of 2 1.1 % and ROTIC(3) of 1 4.4 %.
-- Continued investment in future growth: R&D expenditure at 5.3% of revenue.
-- Impressive cash generation: cash conversion of 104%, driven
primarily by good working capital control.
-- Rebound in M&A activity since the start of the second
half, with a healthy pipeline and momentum continuing into the new
financial year.
-- Strong balance sheet and significant liquidity supporting
value-enhancing acquisitions and an increased dividend.
-- Total dividend(4) per share for the year up 7%, the 42(nd)
consecutive year of an increase of 5% or more.
Operational and Sustainability Highlights
-- Self-financed an employee furlough programme without
accessing the UK Government's employee support scheme. Total
employee numbers at end March 2021 unchanged from end March
2020.
-- No balance sheet support requested from the UK Government or our other stakeholders.
-- Accelerated planned technology investments to support our
companies' growth, including operational IT and digital product
development projects.
-- Increasing our impact: new Sustainability Framework to
amplify our positive impact from purpose-aligned growth and focus
our efforts on the most material areas both for Halma and its
stakeholders.
-- Set a 1.5 degree-aligned 2030 target for Scope 1 & 2
emissions and a target to achieve net zero Scope 1 & 2
emissions by 2040.
-- Made new public commitments including: paying a Real Living
Wage across UK operations from 1 June 2022; signing the Change the
Race Ratio charter; and disclosing for the first time the gender
pay gap in our UK and US operations.
-- Appointed Dame Louise Makin as Chair Designate and Dharmash
Mistry as non-executive Director. Dame Louise will succeed Paul
Walker as Chair at our AGM in July 2021.
-- Announced a new sector organisation from April 2021 to better
align Halma's operations and reporting with its purpose and focus
on the safety, environmental and health markets.
Andrew Williams, Group Chief Executive of Halma, commented:
"Halma's purpose is to grow a safer, cleaner, healthier future,
for everyone, every day. It underpins our growth strategy,
financial model, culture and organisational design. The combination
and interaction of these elements has created increasing value for
all stakeholders on a sustainable basis for almost 50 years.
Together, they have enabled us to make further progress during
the ongoing pandemic, giving us an agility which has been crucial
in allowing us to address short-term challenges while
simultaneously investing for a fast-changing future. Our progress
has also been supported by our teams' relentless execution across
all parts of our business, and our resilience which stems from the
diversity of our market niches, their fundamental growth drivers,
and the value of the solutions we provide.
For the year ahead, we expect our markets to continue to
recover, albeit at varying rates, while acknowledging that there
are potential headwinds including currency, inflation, and supply
chain constraints. Organic constant currency revenue for the period
from the beginning of January to the end of May is up 10%
year-on-year. We have made a good start to the year, order intake
is currently ahead of revenue and the same period last year, and we
also have a good pipeline of potential acquisition opportunities.
We currently expect to deliver full year low double-digit
percentage organic constant currency profit growth (prior to any
IAS 38 impact(8) ) and a more normal level of return on sales. We
look forward to making further progress, in this year and the
longer term."
Notes
1. Adjusted to remove the amortisation and impairment of acquired
intangible assets, acquisition items, restructuring costs,
and profit or loss on disposal of operations totalling GBP25.4m
(2020: GBP42.9m). See note 1 to the Results for details.
2. Adjusted to remove the amortisation and impairment of acquired
intangible assets, acquisition items, restructuring costs,
profit or loss on disposal of operations and the associated
taxation thereon. See note 2 to the Results for details.
3. Adjusted(1) Profit before Taxation, Adjusted(1) Earnings per
Share, organic growth rates, Return on Sales(5) 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.
4. Total dividend paid and proposed per share, comprising interim
dividend of 6.87p per share and proposed final dividend of
10.78p per share.
5. Return on Sales is defined as Adjusted(1) Profit before Taxation
from continuing operations expressed as a percentage of revenue
from continuing operations.
6. Includes IFRS 16 lease liabilities of GBP65.0m (2020: GBP61.5m).
7. Organic constant currency measures exclude the effect of movements
in foreign exchange rates on the translation of revenue and
profit (1) into Sterling, as well as acquisitions and disposals
for the year following completion.
8. See "New accounting standards and interpretations" section
in the Financial Review.
For further information, please contact:
Halma plc
Andrew Williams, Group Chief
Executive
Marc Ronchetti, Chief Financial +44 (0)1494 721 111
Officer
Charles King, Head of Investor
Relations +44 (0)7776 685948
MHP Communications
Andrew Jaques/Giles Robinson +44 (0)20 3128 8788
A copy of this announcement, together with other information
about Halma, may be viewed on the Group's website: www.halma.com
. A webcast of today's results presentation will be available
on the same website later today.
NOTE TO EDITORS
1. Halma is a global group of life-saving technology companies,
focused on growing a safer, cleaner, healthier future for everyone,
every day.
Its purpose defines the three broad market areas where it operates:
* Safety: protecting life as populations grown and
protecting worker safety.
* Environment: improving food and water quality, and
monitoring air pollution.
* Health: meeting rising healthcare demand as growing
populations age and lifestyles change.
It employs over 7,000 people in more than 20 countries, with
major operations in the UK, Mainland Europe, the USA and Asia
Pacific. Halma is listed on the London Stock Exchange (LON:
HLMA) and is a constituent of the FTSE 100 index.
In January 2021, Halma was named Britain's Most Admired Company
2020 by Management Today.
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
.
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
A true test of Sustainability and Purpose
I am pleased to report Halma's 18th consecutive year of profit
growth in the most challenging of circumstances, demonstrating both
the value of our Sustainable Growth Model and the authenticity of
our purpose. Our robust performance in the past year also reflected
the fundamental strength of Halma's DNA, including our focus on
market niches with long-term growth drivers, and our ability to
adapt rapidly to changes in our markets when they arise.
Adjusted1 profit before taxation rose by 4% to GBP278.3m, on
revenue which was broadly similar to last year at GBP1,318.2m.
Statutory profit before taxation, which benefited from the profit
realised on the disposal of Fiberguide Industries, increased by 13%
to GBP252.9m. Returns remained at a high level, with Return on
Sales1 increasing from 19.9% to 21.1% and a Return on Total
Invested Capital of 14.4%, remaining well above our Weighted
Average Cost of Capital of 6.7%. Cash generation was impressive,
with cash conversion of 104%, and our balance sheet position
remained strong, with net debt reducing by GBP119m to GBP256m,
representing gearing (net debt to EBITDA) of 0.76 times.
It is worth reminding ourselves that this time last year,
although faced with major uncertainties, we had a clear short-term
operational, financial, and organisational strategy to guide us
through the coming year in the interests of all stakeholders. Our
expectation was that profit would be 5-10% below the prior year,
and therefore ultimately delivering 4% profit growth is a terrific
achievement. While the Group has reported higher levels of growth
in previous years, I have never been prouder or more impressed with
Halma's ability to deliver a robust financial performance while
also satisfying the broader needs of all stakeholders. I was also
pleased that this was recognised externally with Halma being
awarded Britain's Most Admired Company 2020, as voted for by our
peers.
Our companies continued to meet their customers' needs by
providing lifesaving and life-sustaining solutions, while
establishing new ways of working to maintain the safety of their
people, suppliers, and customers throughout the pandemic. Many
Halma companies also directly provided support to their local and
national healthcare providers either through their core products,
or by repurposing their manufacturing capabilities to supply
urgently needed personal protective equipment. Meanwhile, as a
Group, we provided assistance to those colleagues and businesses in
difficulty through a variety of support programmes, without seeking
Government financial assistance, while continuing to create value
for shareholders.
I would like to pay tribute to everyone in all our businesses
for what they have achieved throughout the year and to thank them
personally for their continued support, unwavering commitment, and
operational excellence.
Given our performance in the year and the opportunities we see
for future growth, the Board is recommending an 8% increase in the
final dividend to 10.78p per share. Together with the 6.87p per
share interim dividend, this would result in a total dividend for
the year of 17.65p, up 7%, making this the 42nd consecutive year of
dividend per share growth of 5% or more.
Halma's Sustainable Growth Model
Our Sustainable Growth Model is designed to be resilient and to
deliver strong growth and returns over the long term. At its core
is our purpose, which is to grow a safer, cleaner, healthier future
for everyone, every day. This creates a motivating and stretching
ambition for everyone at Halma to play their part in growing our
positive impact on the world, while ensuring that we consider the
needs of all our stakeholders. Our positive impact is articulated
and amplified by Halma's Sustainability Framework, which is
discussed later in this review.
Our purpose has never been more relevant than it is today, as
our customers look to Halma to help them address significant,
long-term challenges, which have global impacts. Many of these are
well aligned with the increasing Environmental, Social and
Governance (ESG) demands being placed on individual citizens,
corporations and countries: from the pressure on natural resources
that comes from climate change and growing populations; to
increasing safety, environmental and health regulation; and the
impact of demographic and societal shifts, such as urbanisation,
ageing populations and changing lifestyles. The demand from our
customers for products and services which help them address these
ESG issues will sustain our growth over the long term.
The positive interdependency of our financial model,
organisational structure and growth strategy is critical to our
sustainability. The diversity of our portfolio and focus on
valuable market niches provides us with broad growth opportunities
and strong returns over the long term, but also enables us to be
resilient, rapidly adapting to changes in markets and economic
conditions. Our decentralised organisational model protects and
grows the valuable intellectual property in our companies to
maintain their strong market positions and financial returns, as
well as providing agility for portfolio management if long-term
market trends change.
Improving performance as the year progressed
Our Sustainable Growth Model enabled us to adapt our products
and operations quickly to the changes in our markets during the
year, including those brought about by the COVID-19 pandemic. As a
result, our trading performance strengthened as the year
progressed.
In the early part of the year, we saw significant changes in
demand in certain end markets and geographies, and our companies
faced a broad spectrum of challenges in manufacturing, sales, and
distribution as a result of the pandemic. These included the
overriding need to ensure safe working conditions and the
limitations on gaining physical access to customer sites.
Our agility and collaborative culture allowed us to respond
rapidly to these changes. To ensure that we maintained our
financial strength, we reduced our quarterly overhead cost run-rate
by more than GBP20m in the first quarter, with each company
determining what savings were appropriate for their situation. To
preserve liquidity, we decided not to complete any acquisitions in
the first half, and limited capital investment to research and
development (R&D) and essential projects only, until the impact
of the pandemic on our trading and balance sheet became clearer. We
also focused on effective management of working capital, while
ensuring that we maintained productive relationships with our
customers and suppliers.
At the same time as our companies were rapidly addressing new
challenges from disruptions to supply chains and their distribution
networks, they were also responding to new opportunities arising
from changes in their markets. These factors, combined with demand
normalising in some market segments during the course of the year,
meant that our trading momentum progressively strengthened,
allowing us to gradually ease some of the financial constraints we
had put in place in the early part of the year. These included a
rebounding in M&A activity in the second half of the financial
year and it is pleasing to see that this has continued into the new
financial year.
The sector reviews later in this document contain further
details of their individual performances, although there were
several common themes. These included accelerating the
digitalisation of products and introducing more online training and
remote installation support in response to restriction in physical
access; flexing manufacturing footprints and distribution
capabilities to respond to changes in product demand and product
mix; responding to new regulatory requirements; and rapidly
adapting existing technology to meet new market needs. The agility
of this response supported our delivery of a robust financial
performance in the year and will be a key element in sustaining our
growth in the future.
Market trends accelerated by the pandemic
Our strategy is to acquire and grow companies providing valuable
solutions for selected market niches with global reach, in our
chosen areas of safety, the environment and health. These niche
markets offer opportunities for sustainable, superior growth with
high returns, which are supported by long-term demographic,
climate, and regulatory trends.
The effects of the pandemic have accelerated some of the
existing long-term trends in our markets and have led to the
emergence of new growth opportunities and areas of investment:
- We expect our Medical sector to benefit from an increased
focus on ensuring the resilience of healthcare systems, not just in
acute care products and services, but also in helping to improve
patient outcomes, efficiency, and the safety of patients and
staff.
- The increased focus on hygiene has increased demand for
automated and touchless access systems in our People and Vehicle
Flow and Elevator businesses. We also expect it to drive the
adoption of technologies in our Medical sector such as our
real-time location systems for healthcare facilities, which control
access and ensure compliance with hand hygiene standards.
- The acceleration in the use of digital technology is driving
the increasing use of telemedicine in our Medical sector, and the
greater use of remote monitoring and control technologies in a
broad range of applications, from fire systems and elevator
monitoring, to water and waste water leak and spill detection, in
our Safety and Environmental & Analysis sectors.
- The pandemic has further heightened awareness of the need to
conserve increasingly scarce natural resources, given that climate
change and the degradation of the environment have the potential to
increase our susceptibility to disease in the future. We expect
this to increase demand for our technologies supporting the
transition to cleaner energy, water analysis and treatment,
environmental monitoring and improving industrial efficiency and
energy usage.
Increased investment despite the short-term challenges
Given our market opportunities, strong cash generation and
robust liquidity position, we increased investment for growth and
even accelerated our efforts in key areas.
Our companies continued to invest in new product development,
with R&D expenditure staying at the same level as the previous
year. They invested GBP70m, representing 5.3% of revenue,
reflecting their confidence in their long-term growth
prospects.
We have accelerated our planned technology investments, given
that the pandemic has amplified the importance of digital
technologies, both in terms of how we operate, and the way our
customers want to access our services and solutions.
In addition to the investments made by individual Halma
operating companies, we expect to invest at the Group level around
GBP10m of incremental expenditure over the next three years, as
well as adding around GBP2m per annum to our operating costs. These
will bring significant benefits in support of our companies' growth
in the medium term and modernise ways of working across Halma.
These include:
- Enhancing security, including for remote working, across the whole Group.
- Improving our data and analytics capabilities, and enhancing
controls, in central functions such as finance and treasury, talent
and human resources, sustainability, and legal.
- Supporting our companies in upgrading their operating
technology in areas such as sales and customer management,
procurement, e-commerce, and operations, finance, and human
resource management.
- Enabling our companies to create new digital business models
in line with our Halma 4.0 growth strategy, by building a common
core of technology to support their digital and Internet of Things
(IoT) solutions.
Investment in our innovation and digital growth programmes has
been focused on supporting our companies in bringing their digital
products to market and in enhancing the impact of our R&D spend
by supporting agile decision-making to increase the speed and
reduce the cost of new product development.
We currently have over 20 digital and agile new product
development projects underway within these programmes. These are
being supported by our Innovation and Digital team and our Digital
Champions network which enables the sharing of expertise between
companies. The interest these initiatives has generated was
reflected in our recent Digital Execution Accelerator Summit event,
which saw 130 attendees from across Halma explore new ways of
providing value to customers through digital products. To help our
companies assess their current digital development and potential,
we have further refined our definitions of digital offerings. We
now measure digital revenue based on connected devices, IoT
(Internet of Things) solutions, and software and services revenues,
while non-digital products include mechanical and non-connected
intelligent devices. Approximately 40% of our revenue currently
comes from digital products and solutions. These new definitions
are more consistent with external benchmarks and will allow us to
better assess our ability to capture, support and monetise digital
opportunities.
We have continued to develop our external partnerships,
including making minority investments through our Halma Ventures
programme, that offers Halma access to new technology and
capabilities. In January 2021, we announced that we had agreed a
minority investment and strategic partnership with Oxbotica, a
global leader in autonomous vehicle software. This strengthens the
existing relationship between Oxbotica and our Halma company
Navtech, which specialises in radar technology for transport
applications.
Shortly before the year end, we also completed the spin-out of
our food technology start-up, OneThird, from our company Ocean
Insight. This new digital business was created following our first
Halma Digital Edge programme in 2019 and uses spectroscopy data, a
software platform and artificial intelligence to predict the shelf
life of fresh produce to avoid food wastage. The spin-out will
provide OneThird with access to new external partners to further
accelerate its growth, with Halma retaining a minority shareholding
in the company.
We are continuing to invest in the expansion and modernisation
of our operating facilities to support recent and future growth
expectations. After a year of reduced activity and spend during the
pandemic of GBP26m, capital investment in the coming year is
expected be higher at around GBP30m, including the start of
construction of a new manufacturing facility for one of our largest
companies, BEA, in Belgium.
Organisational and leadership changes to drive our growth
strategy
During the year we announced several organisational, leadership
and reporting changes. These demonstrate our commitment to
developing our people to ensure we have a strong and sustainable
leadership succession for the future, as well as our ability to
recruit the very best talent.
In September 2020, we welcomed Funmi Adegoke as Group General
Counsel. Funmi's international legal and commercial background has
enabled her to have an immediate positive impact with our operating
companies, sectors, and Executive Board.
We announced at our half year results in November that, from 1
April 2021, we would operate and report as three sectors to better
align with our purpose and focus on safety, environmental and
health markets, while still providing an easily scalable
organisational model as we grow. Each of the three sectors is led
by a Sector CEO and small sector support team, following the same
model we have successfully deployed since 2014.
Two of our Divisional CEOs, Wendy McMillan and Constance
Baroudel have been promoted to Sector Chief Executive for the
Safety and Environmental & Analysis sectors respectively, while
Laura Stoltenberg will continue to lead the Medical Sector. This
change to three sectors will result in increased and dedicated
M&A support for our Environmental & Analysis and Medical
growth opportunities, and maintain the existing level of support
for the combined Safety sector.
Following the resignation of Paul Simmons at the start of the
pandemic in March 2020, Adam Meyers remained on our Executive Board
as interim Chief Executive of our Safety sector. After completion
of the Sector leadership succession process outlined above, Adam
will retire from the Executive Board and Halma Board after our
forthcoming Annual General Meeting in July 2021. I would like to
thank Adam for his exceptional contribution since he joined the
Group in 1996. In his time as a member of the Executive Board
(since 2003) and the Halma Board (since 2008), Adam has completed
over 20 acquisitions and had Divisional or Sector responsibility
for almost every company in the Group. He has been a tremendous
supporter of emerging talent and over the years has done a
fantastic job helping new Divisional CEOs and Sector CEOs
transition into their new roles. On behalf of everyone at Halma, I
wish him all the best for a long and happy retirement.
Accelerating our growth through M&A
Our M&A strategy is focused on acquiring businesses with
valuable intellectual property, which operate in market niches
aligned with our purpose of growing a safer, cleaner, healthier
future for everyone, every day.
Our organisational model is easily scalable and gives us the
ability to continue acquiring small-to-medium sized businesses
which increase our market opportunities and achieve our strategic
growth objectives. We are also able to sell and merge businesses
relatively easily should market dynamics change, enabling us to
maintain a growth-oriented portfolio without it becoming
significantly more complex to manage. The benefit of this active
portfolio management is reflected in the number of companies within
Halma remaining relatively stable, whilst we have grown and
maximised value for our shareholders. For example, in 2011, Halma
had revenue of GBP518m from 38 operating companies, and today we
have only 42 operating companies delivering revenue of over
GBP1.3bn.
After our decision to postpone M&A transactions in the first
half of the year, activity rapidly picked-up in the second half and
this has continued into the new financial year.
In December 2020, we acquired Static Systems Group, a UK-based
manufacturer of critical healthcare communication systems, for
GBP37.6m. In the same month, we divested Fiberguide Industries,
Inc., a US-based manufacturer of fibre optic technology, for US$38m
(GBP27.6m).
Following the year-end, in April 2021, we acquired PeriGen, a US
company whose advanced technology protects mothers and their unborn
babies by alerting doctors, midwives and nurses to potential
problems during childbirth, for US$58m (equivalent to approximately
GBP42m at the time of announcement).
We have also continued to strengthen our companies' capabilities
across our three sectors through bolt-on acquisitions:
- In the Safety sector, our wireless fire safety company, Argus,
purchased its Italian distributor for EUR0.5m and our industrial
access control company, Fortress, bought the assets and IP
associated with monitored safety valves from FluidSentry Pty Ltd in
Australia for A$0.6m.
- In the Environmental & Analysis sector, the UV Group
acquired Orca GmbH, a German manufacturer of ultraviolet
disinfection systems, primarily for the food and beverage sector,
for an initial consideration of EUR6.2m (GBP5.3m); Crowcon
purchased its UK flue gas analyser distribution partner, Anton
Industrial Services Limited, for GBP1.9m.
- In the Medical sector, Riester acquired the trade and assets
of RNK, a US-based digital stethoscope company, for an initial
consideration of US$2.7m (GBP1.9m).
A Sustainability Framework introduced to amplify our positive
impact
Our new Sustainability Framework, which we have developed this
year, aims to demonstrate our positive impact through continued and
more focused efforts to minimise our environmental footprint,
maximise our social impact, and be a responsible business. It is
designed to assist us in understanding the areas of sustainability
which are most important both for Halma and our stakeholders, and
to help our companies prioritise the actions that are going to
deliver the greatest return for the time and resources
invested.
Many of our technologies enable others to achieve their own
sustainability commitments including through the protection of
natural resources or reduction of carbon emissions. We have
recognised this by explicitly including climate change as a new key
long-term growth driver for our products and services, and when
assessing opportunities for future organic and inorganic growth.
The beneficial effects of our products and services, which help
solve many critical safety, environmental and health issues, also
contribute to the achievement of our chosen United Nations
Sustainable Development Goals (SDGs).
Our Sustainability Framework prioritises specific Key
Sustainability Objectives (KSOs), which we believe are both highly
aligned to our purpose, and key issues for Halma and our
stakeholders. While these may be refined over time, the initial
focus of our KSOs will be on addressing climate change,
transitioning our business towards a circular economy, and
continuing to build inclusion, diversity and equity in delivering
our purpose-aligned growth.
In the coming financial year, we will set challenging objectives
and KSO targets, and in future consider aligning management
incentives with them where appropriate. We will also continue to
develop policies and metrics relating to a wider scope of
responsible business issues in support of these KSOs.
The delivery of our Sustainability Framework is supported by our
new Head of Sustainability, who joined in September 2020, and two
new leadership groups created this year: our Group-wide
Sustainability Network, which includes representatives from almost
every Halma company, and a Sustainability Management Committee,
which is responsible for oversight of our sustainability
initiatives and KSOs, and includes senior Halma group
executives.
In addition to these structural changes, we have made
substantial progress on our specific sustainability initiatives.
For climate change, we have set a 1.5 degree-aligned 2030 target
for our Scope 1 and 2 emissions, in line with guidance from the
Science-Based Target Initiative, and a target to achieve net zero
Scope 1 and 2 emissions by 2040. Alongside these commitments, we
recognise the need for us to work towards net zero across our
entire value chain. Over the year, we will be carrying out a full
assessment of our supply chain and other Scope 3 emissions to
determine the targets and commitments that will be most appropriate
for Halma.
These objectives are supported by our ongoing work to further
increase the percentage of the energy we consume from renewable
sources. We have also commenced work towards implementing the
recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD), including initial identification of
opportunities and risks for Halma. Our target is to report fully
under the TCFD framework from next year.
We have also made progress in assessing the importance to Halma
of other key sustainability-related issues. We have commenced an
analysis of the sustainability-related impact and risk across our
supply chains, and an initial analysis of our operating presence in
water-stressed areas while improving our environmental reporting on
water and waste. These will enable us to establish more robust
baselines for reporting our future progress.
In October 2020, we were excited to launch our second group-wide
purpose-driven campaign, Water for Life, in partnership with the
international non-profit organisation WaterAid. Further details are
included in the Annual Report and Accounts 2021.
Building greater inclusion, equity, and diversity to drive our
performance
A critical component of Halma's continued success is our
culture, which in turn is dependent on the quality and diversity of
our leaders and teams. We seek to ensure that Halma is an
organisation that is inclusive and treats all people equitably. In
doing this, we maximise the pool of talent available to us, recruit
and retain the best people for every role, and build committed,
diverse and resilient teams. These qualities and benefits were
critical in our ability to deliver a robust performance in the
year.
Our continued efforts to embed the principles of diversity,
equity and inclusion (DEI) within Halma were supported by several
new initiatives this year. These included the global implementation
of an equal parental leave policy for all our employees and the
launch of Accelerate Inclusion, our programme to build deeper
awareness and provide practical tools to enable our teams around
the world to create inclusive cultures. These principles were
reinforced by the new public commitments we made in the year,
including paying a Real Living Wage across our UK operations from 1
June 2022, signing up to the Change the Race Ratio campaign, and
disclosing for the first time the gender pay gap in our UK and US
operations.
We are confident that our efforts will deliver results, as we
have already seen from the significant progress we have made in
recent years. For example, with new appointments to the Board and
Executive Board, our gender balance is now 42% and 70% women
respectively as at 10 June 2021. You can find more detail on our
progress on diversity, equity and inclusion in Our People and
Culture section in the Annual Report and Accounts 2021.
Halma Board changes
Earlier in 2021, we welcomed Dame Louise Makin and Dharmash
Mistry to our Board as non-executive Directors. Both will bring
significant additional expertise to our Board and I am looking
forward to working more closely with Louise when she steps up to
become our new Chair after our AGM in July.
With these changes, and in addition to the retirement of Adam
Meyers referred to above, Daniella Barone Soares and Paul Walker
will be retiring as non-executive Director and Chair respectively,
at the AGM. Both have made significant contributions to Halma's
development and growth and we give them our thanks and best wishes
for their new challenges ahead.
On a personal level, I would particularly like to thank Paul for
his support and guidance as Halma's Chair. During his tenure, Halma
has transitioned into a FTSE 100 company with its market
capitalisation growing from around GBP2bn in 2013 to over GBP9bn at
the end of this financial year. I have really appreciated Paul's
commitment to ensuring that we have strengthened our culture and
talent pool as we grow, the benefits of which are clearly to be
seen in the recent leadership succession processes for our
Executive and Sector Boards. He leaves a strong legacy and a
foundation upon which I am confident that Halma will continue to
deliver success in the future.
Summary and Outlook
Halma's purpose is to grow a safer, cleaner, healthier future,
for everyone, every day. It underpins our growth strategy,
financial model, culture and organisational design. The combination
and interaction of these elements has created increasing value for
all stakeholders on a sustainable basis for almost 50 years.
Together, they have enabled us to make further progress during
the ongoing pandemic, giving us an agility which has been crucial
in allowing us to address short-term challenges while
simultaneously investing for a fast-changing future. Our progress
has also been supported by our teams' relentless execution across
all parts of our business, and our resilience which stems from the
diversity of our market niches, their fundamental growth drivers,
and the value of the solutions we provide.
For the year ahead, we expect our markets to continue to
recover, albeit at varying rates, while acknowledging that there
are potential headwinds including currency, inflation, and supply
chain constraints. Organic constant currency revenue for the period
from the beginning of January to the end of May is up 10%
year-on-year. We have made a good start to the year, order intake
is currently ahead of revenue and the same period last year, and we
also have a good pipeline of potential acquisition opportunities.
We currently expect to deliver full year low double-digit
percentage organic constant currency profit growth (prior to any
IAS 38 impact) and a more normal level of return on sales. We look
forward to making further progress, in this year and the longer
term.
Andrew Williams
Group Chief Executive
(1) See Highlights
Financial Review
Record profit
Halma delivered a robust financial performance in the period,
despite the effects of the COVID-19 pandemic. We responded rapidly
to the challenges and new opportunities which arose in the year to
deliver a record profit for the 18th consecutive year, while
increasing our investment in future growth opportunities and
further strengthening our balance sheet. This financial performance
reflects the value of our Sustainable Growth Model and the
authenticity of our purpose.
Revenue for the year to 31 March 2021 was GBP1,318.2m (2020:
GBP1,338.4m), down 1.5%. This reflected a resilient organic
performance, supported by the agility of our companies in
responding to fast-changing market conditions, and a benefit from
recent acquisitions. Adjusted(1) profit before taxation grew 4.2%
to GBP278.3m (2020: GBP267.0m), and benefited from discretionary
variable cost reductions, good ongoing control of overheads and a
reduction in financing costs. Statutory profit before taxation
increased by 12.9% to GBP252.9m (2020: GBP224.1m), and included a
GBP21.6m gain on disposal of Fiberguide Industries, Inc. in the
second half of the year.
The decrease in revenue included a 5.6% decline in organic
constant currency revenue. The contribution from acquisitions was a
positive 5.4% (5.1% net of disposals), and there was a negative
effect from currency translation of 1.0%. The 4.2% increase in
Adjusted(1) profit comprised a 0.7% increase in organic constant
currency profit, a 4.7% contribution from acquisitions (4.5% net of
disposals), and a negative effect from currency of 1.0%.
Statutory profit before taxation of GBP252.9m is calculated
after charging the amortisation of acquired intangible assets of
GBP42.3m (2020: GBP38.3m), a GBP22.1m gain on disposals (2020:
GBP2.9m), and other items of a net GBP5.2m (2020: GBP7.5m). Further
detail on these items is given in note 1 to the Financial
Statements.
Cash conversion was very strong at 104%, primarily driven by
good underlying working capital control, in addition to specific
actions taken in response to the pandemic. As a result, net debt
(on an IFRS 16 basis which includes lease commitments) reduced
substantially to GBP256.2m (31 March 2020: GBP375.3m).
Robust revenue and profit performance
Revenue fell by 5.4% in the first half and increased by 2.2% in
the second half. Having declined in the first quarter, revenue
increased sequentially in each subsequent quarter. Constant
currency organic revenue declined by 5.6%, comprising an 11.0%
reduction in the first half, reflecting the effects of the COVID-19
pandemic, and a decline of only 0.3% in the second half. There was
a small negative effect of 0.4% from currency translation in the
first half which increased in the second half, giving a negative
effect of 1.0% for the year as a whole.
Adjusted(1) profit declined by 5.3% in the first half, but grew
by 13.1% in the second half. As a result, the first half/second
half split of adjusted profit was 44%/56%, compared to our typical
45%/55% pattern. As with revenue, profit grew sequentially from the
first quarter onwards, and there was a small negative effect from
currency translation in the first half, which increased in the
second half. Organic profit at constant currency declined by 11.1%
in the first half, but increased by 11.8% in the second half,
resulting in modest growth of 0.7% for the year.
Profitability in the year benefited from the discretionary
variable cost reductions delivered in the first quarter, good
ongoing control of overheads including reduced travel and trade
show costs and reduced absolute research and development spend in
line with revenue. These savings were, in part, offset by increased
distribution costs and one-off enhanced employee COVID-19 related
payments. These overall savings included the impact of our decision
during the second half to repay all employees below the Executive
Board the temporary salary reductions implemented from 1 April 2020
for a three-month period (ensuring all employees were paid at least
100% for hours worked). The Board and Executive Board incurred a
reduction in salaries of 20% for the first quarter and did not feel
it appropriate for this to be repaid.
Revenue and profit change
Percentage growth
----------------------------------
Organic Organic
2021 2020 Change Total growth(2) growth(2)
at constant
currency
GBPm GBPm GBPm % % %
-------------------- -------- -------- ------- ------ ----------- -------------
Revenue 1,318.2 1,338.4 (20.2) (1.5) (6.6) (5.6)
-------------------- -------- -------- ------- ------ ----------- -------------
Adjusted(1) profit
before taxation 278.3 267.0 11.3 4.2 (0.3) 0.7
Statutory profit
before taxation 252.9 224.1 28.8 12.9 - -
-------------------- -------- -------- ------- ------ ----------- -------------
(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 and profit or loss on
disposal of operations. All of these are included in the statutory
figures. Notes 1 and 3 to the Financial Statements give further
details with the calculation and reconciliation of adjusted
figures.
(2) See Highlights.
Stronger second half performance
Our companies saw significant and varying changes in demand in
the year as a result of the COVID-19 pandemic, and this was
reflected in the different sector performances. Having seen a
substantial decline in the first quarter (compared to the final
quarter of the prior year), overall performance improved as the
year progressed. All sectors delivered a stronger absolute revenue
and profit performance in the second half, compared to the first
half of the year. For the full year as a whole, while revenue
increased in only one sector, three of the four sectors grew profit
on a reported basis, and two on an organic constant currency
basis.
Process Safety revenue declined 5.6%, which included a benefit
from the acquisition of Sensit Technologies in the prior year.
Revenue on an organic constant currency basis fell 11.9%, which
reflected the adverse effects of the COVID-19 pandemic, including
the difficulty of gaining access to customer sites and the deferral
of project-based business, in addition to a challenging oil and gas
market and a strong comparative in Industrial Access Control (which
included a large logistics contract). Profit decreased by 16.7%
(21.5% on an organic constant currency basis), mainly because of
the decline in higher margin US onshore oil and gas business, as
well as one-off restructuring costs of GBP1.9m. As a result, Return
on Sales was lower, at 19.4% (2020: 21.9%). The second half saw a
sequential improvement in revenue, albeit still marginally down on
the same period last year, with revenue declining 1.0% on a
reported basis and 6.5% on an organic constant currency basis. Our
companies have continued to broaden and diversify their revenue
streams and acted to more closely align overheads with revenue, to
deliver an improved profit performance as the year progressed.
Looking ahead we anticipate some recovery in the Process Safety end
markets which, in addition to new product introductions, should
return the sector to growth for the year ahead.
Infrastructure Safety delivered a resilient performance for the
year, despite a 13.5% fall in revenue in the first half (a decline
of 16.2% on an organic constant currency basis) which included an
adverse impact from the COVID-19 pandemic. As market conditions
started to recover, revenue grew by 6.6% in the second half of the
year (6.7% on an organic constant currency basis) compared to the
same period in the prior year, resulting in revenue for the full
year being down 3.4% (4.7% on an organic constant currency basis).
Return on Sales was higher at 24.5% (2020: 23.1%), reflecting an
improvement in gross margin from favourable business mix and good
underlying overhead control. As a result, reported profit grew by
2.7% in the full year and by 1.2% on an organic constant currency
basis. Looking ahead we expect a continuation of the recovery we
saw in the second half, albeit against the potential headwinds
relating to ongoing supply chain challenges and the ongoing risk of
further COVID-19 related disruption.
The Environmental & Analysis sector delivered a robust
performance for the year. While reported revenue declined by 5.0%,
this was partly due to the disposal of Fiberguide Industries, Inc.
in the third quarter of the year, and revenue on an organic
constant currency basis fell by only 2.7%. This was a resilient
performance given the very strong comparative in the second half of
the previous year. Profit grew strongly, by 11.4% on a reported
basis and by 14.7% on an organic constant currency basis,
reflecting the benefit to gross margin from a favourable mix of
business, and very strong control of overheads. As a result, Return
on Sales increased to 25.1% (2020: 21.4%) and, given that this was
driven by mix of business, discretionary variable cost reductions
and the phasing of a long-term photonics project, we do not expect
this high level of Return on Sales to be maintained in the coming
year. Looking ahead we expect the sector to make continued progress
albeit against a strong comparative with the continued contribution
of some large photonics projects, in addition to the timing of the
UK water infrastructure investment cycle and the continued recovery
of the water testing markets.
The Medical sector delivered good revenue growth of 7.0% for the
year. This included a significant contribution from prior year
acquisitions, with revenue declining by 5.4% on an organic constant
currency basis. Sector companies experienced substantially
different changes in demand as a result of the pandemic, with some
having to meet significantly increased demand for products and
services related to the diagnosis or treatment of COVID-19, and
others seeing substantial falls in revenue as a result of a
slowdown in elective procedures and difficulties in gaining access
to hospitals. This change in business mix had an adverse effect on
gross margin which, alongside an increased R&D spend in the
year, meant that Return on Sales decreased by 1 percentage point to
23.3%. Our companies responded with agility to these changes, both
in terms of addressing new revenue opportunities and adjusting
overheads where required. This, together with some modest recovery
in elective procedures as the year progressed and a further
contribution from acquisitions, resulted in the sector returning to
revenue and profit growth in the second half. Looking ahead, we
expect to continue to see the recovery in elective procedures and
for there to be a decline in demand for COVID-19 related products.
These factors, alongside the continued contribution from recent
acquisitions means that the sector is expected to deliver
more normal levels of growth for the year ahead.
We continue to hold an additional GBP5.0m central provision for
bad debt, reflecting the continuing increased risk of customer bad
debt in all sectors due to the ongoing effects of the COVID-19
pandemic.
Central administration costs, which include our Growth Enabler
functions, decreased to GBP22.9m (2020: GBP26.3m). This principally
reflected the discretionary cost reduction measures implemented in
the first quarter of the year, in addition to ongoing overhead
control for the balance of the year. These actions delivered
savings across all functions driven by reduced travel, the use of
virtual conferences, deferred spend on projects, reduced
development programmes and a reduction in bonus payments as a
result of financial performance. These savings were in part offset
by the one-off enhanced employee COVID-19 related payments of GBP2m
and the acceleration of planned IT investment spend. As we plan to
increase and selectively accelerate investment in our Growth
Enablers in the year ahead, we expect central costs to increase to
approximately GBP32m in 2022 (excluding up to GBP5m of IT Software
as a Service (SaaS) configuration and customisation costs). This
will include both a return to more normalised levels of central
investment, in addition to an acceleration in our investments in IT
and Technology, strategic communications and governance and
compliance (including ESG), and a return to more normal levels of
annual bonus payments. This level of investment is expected to
normalise (relative to revenue) during the financial year ending
2023.
As previously announced, from 1 April 2021, we will align our
organisational structure and financial reporting with our purpose
and core market focus. We will report our performance in three
sectors, namely Safety, Environmental & Analysis, and
Medical.
Sector revenue change
2021 2020
-------- ----------- --------
% growth % organic
growth(2) at
constant
GBPm % of total GBPm % of total Change GBPm currency
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Process Safety 188.8 14 200.0 15 (11.2) (5.6) (11.9)
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Infrastructure
Safety 450.5 34 466.5 35 (16.0) (3.4) (4.7)
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Environmental &
Analysis 308.8 24 325.0 24 (16.2) (5.0) (2.7)
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Medical 371.3 28 347.2 26 24.1 7.0 (5.4)
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Inter-segment
sales (1.2) (0.3) (0.9)
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
1,318.2 100 1,338.4 100 (20.2) (1.5) (5.6)
----------------- -------- ----------- -------- ----------- ------------ --------- ----------------
Sector profit change
2021 2020
-------------------- --------------------
% organic
growth(2)
Change at constant
GBPm % of total GBPm % of total GBPm % growth currency
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Process Safety 36.6 12 43.9 14 (7.3) (16.7) (21.5)
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Infrastructure
Safety 110.6 35 107.7 35 2.9 2.7 1.2
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Environmental &
Analysis 77.4 25 69.4 23 8.0 11.4 14.7
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Medical 86.6 28 84.4 28 2.2 2.6 (10.5)
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Sector profit(3) 311.2 100 305.4 100 5.8
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Central administration
costs (22.9) (26.3) 3.4
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Net finance expense (10.0) (12.1) 2.1
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
Adjusted(4) profit
before tax 278.3 267.0 11.3 4.2 0.7
------------------------ ------- ----------- ------- ----------- ------- --------- -------------
(3) Sector profit before allocation of adjustments. See Note 1
to the Financial Statements.
(4) Adjusted profit excludes the amortisation and impairment of
acquired intangible assets; acquisition items; restructuring costs;
and profit or loss on disposal of operations. All of these are
included in the statutory figures. Note 3 to the Financial
Statements gives further details with the calculation and
reconciliation of adjusted figures.
Resilient revenue performance in all major regions
The Group's four major regions delivered a resilient revenue
performance and individually reflected the mix of businesses and
the extent of contributions from recent acquisitions in each
region. Asia Pacific delivered a small amount of growth, the USA
and Mainland Europe were flat, and the UK saw a small decline. The
contribution from acquisitions was largest in the USA, with a
modest benefit in the other three major regions. Revenue in other
regions fell more sharply, with the effects of the pandemic more
severe and sustained in a number of developing markets.
Revenue in the USA declined by 0.3%, and remains our largest
revenue destination, accounting for 39% of Group revenue, an
increase of one percentage point compared to the prior year.
Organic constant currency revenue declined by 6.0%. There was a
wide range of performances by each sector. On a reported basis,
Medical delivered strong growth, which included a substantial
benefit from recent acquisitions, and the other three sectors saw
modest declines. Revenue in Process Safety benefited from the
acquisition of Sensit, but on an organic constant currency basis
saw a significant decline given a strong comparator (due to a large
logistics contract in the prior year), in addition to weak demand
for safety products in the US onshore oil and gas related
businesses and site access issues. Environmental & Analysis
delivered the most resilient performance on an organic constant
currency basis, but total revenue was impacted by the disposal of
Fiberguide Industries, Inc. in the third quarter.
Mainland Europe revenue was 0.2% lower. There was a modest
contribution from recent acquisitions, and revenue on an organic
constant currency basis declined by 3.0%. The region's largest
sector, Infrastructure Safety, saw a small decline in revenue,
despite a strong performance in the People and Vehicle Flow sub
sector. The other three sectors grew on a reported basis, with
Process Safety benefiting from the fulfilment of some significant
projects, Environmental & Analysis seeing a good performance in
Water Analysis and Treatment, and Medical's performance including
the benefit of recent acquisitions.
UK revenue was 3.5% lower, or 7.0% on an organic constant
currency basis. Infrastructure Safety grew slightly, supported by a
strong recovery in the Fire and Security businesses in the second
half of the year. Environmental & Analysis, however, saw a
substantial decline against a very strong prior year comparator,
particularly in our Water businesses. In the other, much smaller,
sectors, Process Safety delivered a resilient performance, with a
modest decline in revenue, while the Medical sector revenue grew
strongly on a reported basis, with the benefit of the Static
Systems acquisition offsetting a sharp decline on an organic
constant currency basis.
Asia Pacific grew 1.3%, which included double-digit growth in
China, as it recovered from the effects of the pandemic. There was
good growth in South Korea, but significant declines in other
markets, largely as a result of the pandemic. There was good growth
in the Environmental & Analysis sector, supported by the
recovery in China, and a solid performance in Medical which
benefited from recent acquisitions. Revenue in the Safety sectors
declined with a slowing of large project approvals in Process
Safety. Infrastructure Safety's performance benefited from the
acquisition of Ampac in Australia in the prior year. On an organic
constant currency basis, Asia Pacific revenue declined by 3.6%.
In other regions, revenue was 11.5% lower and 10.6% down on an
organic constant currency basis. This performance reflected the
significant and continuing impact of the pandemic on developing
regions, with all sectors seeing a decline in revenue. Of the
larger countries, only Canada delivered growth. As a result, and
despite the modest improvement in Asia Pacific, revenue from
territories outside the UK/Mainland Europe/the USA fell by 3.2%,
which was below our 10% KPI growth target.
Geographic revenue
2021 2020
----------------------- ----------- --------------
% organic
growth at
Change constant
GBPm % of total GBPm % of total GBPm % change currency
-------------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
United States of
America 508.8 39 510.3 38 (1.5) (0.3) (6.0)
-------------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
Mainland Europe 276.0 21 276.4 21 (0.4) (0.2) (3.0)
-------------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
United Kingdom 213.6 16 221.2 16 (7.6) (3.5) (7.0)
-------------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
Asia Pacific 216.1 16 213.3 16 2.8 1.3 (3.6)
-------------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
Africa, Near and
Middle East 54.1 4 63.2 5 (9.1) (14.4) (15.1)
-------------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
Other countries 49.6 4 54.0 4 (4.4) (8.1) (5.3)
-------------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
1,318.2 100 1,338.4 100 (20.2) (1.5) (5.6)
-------------------- ---------- ----------- ---------- ----------- ---------- --------- ----------
Continued high returns
Halma's Return on Sales(2) has exceeded 16% for 36 consecutive
years. Our KPI target is to deliver Return on Sales in the range of
18-22% and this year Return on Sales increased to 21.1% (2020:
19.9%). This reflected discretionary cost reductions of over GBP20m
realised in the first quarter of the year (compared to the previous
quarter's run rate), strong ongoing overhead control, and a modest
reduction in research and development spend, in line with revenue.
The previously reported GBP5m increase in customer bad debt
provision included in 2020 due to the additional risk from COVID-19
has remained in place.
We successfully achieved our objective of continuing to invest
in our businesses while delivering growth and we maintained a high
level of Return on Total Invested Capital (ROTIC)(2) , the post-tax
return on the Group's total assets including all historical
goodwill. This year, ROTIC was 14.4% (2020: 15.3%), with the change
principally reflecting a lower level of constant currency earnings
growth than in the prior year, as well as lower dividend growth in
the year as a result of the COVID-19 pandemic. Our ROTIC remains
well ahead of our KPI target of 12% and substantially in excess of
Halma's Weighted Average Cost of Capital (WACC), estimated to be
6.7% (2020: 7.7%).
Currency effects 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, the Chinese Renminbi and the Australian Dollar. Over 45% of
Group revenue is denominated in US Dollars and approximately 12% in
Euros.
The Group has both translational and transactional currency
exposure with translational exposures not hedged. For transactional
exposures, after matching currency of revenue with currency of
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 forward.
Sterling strengthened on average in the year, principally in the
second half. This gave rise to a negative currency translation
impact of 1.0% on revenue and on profit for the full year.
Based on the current mix of currency denominated revenue and
profit, a 1% movement in the US Dollar relative to Sterling changes
revenue by GBP6.3m and profit by GBP1.3m. Similarly, a 1% movement
in the Euro changes revenue by GBP1.6m and profit by GBP0.3m.
If currency rates for the financial year 2022 were US Dollar
1.378/ Euro 1.174 relative to Sterling, and assuming a constant mix
of currency results, we would expect approximately a GBP39m
negative revenue and a GBP9m negative profit impact compared to
financial year 2021, with the majority of the impact in the first
half of the year.
Weighted average rates Exchange rates used
used in to
the Income Statement translate the Balance
Sheet
------------------------- -------------------------
2021 2020 2021 2020
First Full year Full year Year end Year end
half
------ ------ ------------ ----------- ------------ -----------
US$ 1.267 1.308 1.271 1.378 1.25
------ ------ ------------ ----------- ------------ -----------
Euro 1.116 1.121 1.144 1.174 1.133
------ ------ ------------ ----------- ------------ -----------
Financing cost decreased
The net financing cost in the Income Statement of GBP10.0m was
lower than the prior year (2020: GBP12.1m). This reflected the
lower average net borrowings in the year given strong cash
generation, a lower level of expenditure on acquisitions, and lower
interest rates (see the 'Average debt and interest rates' table
below for more information).
Interest cover (EBITDA as a multiple of net interest expense as
defined by our Revolving Credit Facility) was 47 times (2020: 40
times) which was substantially in excess of the four times minimum
required in our banking covenants.
The net pension financing impact under IAS 19 is included within
the net financing cost. This year the Group recognised a gain of
GBP0.1m (2020: charge of GBP0.8m), reflecting the lower net deficit
at 31 March 2020.
Group tax rate increased
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.
The Group's effective tax rate on adjusted profit was higher
than in the prior year at 20.1% (2020: 18.5%). This was mainly due
to the reversal of one-off credits in the prior year and a change
in the expected mix of profits arising from increased profits in
higher tax jurisdictions. Based on the forecast mix of adjusted
profits for the year to 31 March 2022 we currently anticipate the
Group effective tax rate to increase to approximately 21.5% of
adjusted profits. The forecast increase is a result of changes in
tax laws reducing the benefits arising from intra-group financing
arrangements.
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 many other UK
companies, Halma has benefited from the FCPE. The total benefit to
Halma in the periods affected by the European Commission's decision
has been approximately GBP15.4m in respect of tax. Halma has
appealed against the European Commission's decision, as have the UK
Government and several other UK companies. Following receipt of a
charging notice from HM Revenue & Customs (HMRC) in January, we
made payment of GBP13.9m to HMRC in respect of tax, and since the
year end have received a further charging notice in respect of
interest of approximately GBP0.8m. We expect these payments to be
refundable in the event of a successful appeal and have recognised
a corporation tax asset of GBP13.9m in the balance sheet.
Strong cash generation
Cash generation is an important component of the Halma model,
underpinning further investment in organic growth, supporting
value-enhancing acquisitions and funding an increasing dividend.
Our cash conversion in 2021 was strong.
Cash generated from operations was GBP331.4m (2020: GBP307.9m)
and adjusted operating cash flow, which excludes operating cash
adjusting items, and includes net cash capital expenditure, was
GBP300.3m (2020: GBP272.2m) which represented 104% (2020: 97%) of
adjusted operating profit. This was significantly ahead of our cash
conversion KPI target of 90%, reflecting a strong underlying
performance primarily driven by good working capital control and
the cash conservation measures in place during the year. Adjusted
operating cash flow is defined in note 3 to the Financial
Statements.
A summary of the year's cash flow is shown in the tables below.
The largest outflows in the year were in relation to acquisitions,
dividends and taxation paid.
There was a working capital inflow of GBP2.8m, comprising
changes in inventory, receivables and creditors (2020: outflow of
GBP9.3m), reflecting an increase in creditors, including from the
acquisition of Static Systems Group, a reduction in debtors, given
the Group's success in collecting aged receivables, and the
deferral of employer social security tax liabilities in the
USA.
The deferral of payment of tax liabilities related to the
employers' share of quarterly social security tax deposits in the
USA, as permitted during the COVID-19 pandemic, resulted in a
deferral of a cash tax liability of approximately US$6m (GBP5m)
relating to the period 27 March 2020 to 31 December 2020. Half of
this amount was due by 31 December 2021 and the remainder by 31
December 2022. Given the Group's strong financial position, we paid
substantially all of the amount due in May 2021, with the remainder
to be paid in June, ahead of these due dates.
Dividends totalling GBP63.7m (2020: GBP61.2m) were paid to
shareholders in the year.
Taxation paid increased to GBP53.8m (2020: GBP52.4m), and
included the GBP13.9m paid to HMRC following the receipt of the
charging notice for the UK FCPE State Aid issue. Excluding the
GBP13.9m payment, the taxation paid decreased compared to last year
mainly due to changes in the timing of tax payments in the prior
year.
Operating cash flow summary
2021 2020
GBPm GBPm
----------------------------------------------------- ----------- -------
Operating profit 240.8 233.4
Net acquisition costs and contingent consideration
fair value adjustments 5.2 7.5
Amortisation and impairment of acquisition-related
acquired intangible assets 42.3 38.3
----------------------------------------------------- ----------- -------
Adjusted operating profit 288.3 279.2
Depreciation and other amortisation 50.8 51.5
Working capital movements 2.8 (9.3)
Capital expenditure net of disposal proceeds (25.9) (32.2)
Additional payments to pension plans (13.0) (12.5)
Other adjustments (2.7) (4.5)
----------------------------------------------------- ----------- -------
Adjusted operating cash flow 300.3 272.2
----------------------------------------------------- ----------- -------
Cash conversion % 104% 97%
----------------------------------------------------- ----------- -------
Non-operating cash flow and reconciliation
to net debt
2021 2020
GBPm GBPm
--------------------------------------------------- -------- --------
Adjusted operating cash flow 300.3 272.2
--------------------------------------------------- -------- --------
Tax paid (53.8) (52.4)
--------------------------------------------------- -------- --------
Acquisition of businesses including cash/debt
acquired and fees (48.8) (238.0)
--------------------------------------------------- -------- --------
Purchase of equity investments (3.4) (4.8)
--------------------------------------------------- -------- --------
Disposal of businesses 26.1 7.6
--------------------------------------------------- -------- --------
Net movement in loan notes - 0.1
--------------------------------------------------- -------- --------
Net finance costs and arrangement fees (excluding
lease interest) (7.0) (8.5)
--------------------------------------------------- -------- --------
Lease liabilities additions (23.7) (26.3)
--------------------------------------------------- -------- --------
Dividends paid (63.7) (61.2)
--------------------------------------------------- -------- --------
Own shares purchased (16.2) (16.7)
--------------------------------------------------- -------- --------
Adjustment for cash outflow on share awards
not settled by own shares (7.8) (6.0)
--------------------------------------------------- -------- --------
Effects of foreign exchange 17.1 (9.3)
--------------------------------------------------- -------- --------
Movement in net debt 119.1 (143.3)
--------------------------------------------------- -------- --------
Opening net debt (375.3) (181.7)
--------------------------------------------------- -------- --------
Closing net debt (256.2) (375.3)
--------------------------------------------------- -------- --------
Net debt to EBITDA
2021 2020
GBPm GBPm
--------------------------------------------------- ------ ------
Adjusted operating profit 288.3 279.2
--------------------------------------------------- ------ ------
Depreciation and amortisation (excluding acquired
intangible assets) 50.8 51.5
--------------------------------------------------- ------ ------
EBITDA 339.1 330.7
--------------------------------------------------- ------ ------
Net debt to EBITDA 0.76 1.13
--------------------------------------------------- ------ ------
Average debt and interest rates
2021 2020
---------------------------------------------- ------ ------
Average gross debt (GBPm) 445.5 388.4
---------------------------------------------- ------ ------
Weighted average interest rate on gross debt 2.32% 2.86%
---------------------------------------------- ------ ------
Average cash balances (GBPm) 148.8 88.3
---------------------------------------------- ------ ------
Weighted average interest rate on cash 0.51% 0.63%
---------------------------------------------- ------ ------
Average net debt (GBPm) 296.7 300.1
---------------------------------------------- ------ ------
Weighted average interest rate on net debt 3.22% 3.52%
Capital allocation and funding priorities
Halma aims to deliver high returns, measured by ROTIC(2), well
in excess of our cost of capital. We invest to deliver the future
earnings growth and strong cash returns which underpin this aim,
and our capital allocation priorities remain 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.
Continued investment for organic growth
All sectors continue to innovate and invest in new products,
with R&D spend determined by each individual Halma company.
R&D expenditure as a percentage of revenue remained well above
our KPI target of 4% or more at 5.3% (2020: 5.4%). In absolute
terms, this meant that R&D expenditure declined by 2.1%, in
line with revenue, reflecting the caution and agility of our
companies in the earlier stages of the COVID-19 pandemic. 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 the 2021
financial year we capitalised GBP15.4m (2020: GBP15.6m), impaired
GBP1.9m (2020: GBP5.2m) and amortised GBP7.9m (2020: GBP7.9m). The
closing intangible asset carried on the Consolidated Balance Sheet,
after a GBP2.0m loss (2020: GBP0.5m gain) relating to foreign
exchange was GBP38.9m (2020: GBP36.1m). All R&D projects, and
particularly those requiring capitalisation, are subject to
rigorous review and approval processes.
Capital expenditure on property, plant, equipment and vehicles,
computer software and other intangible assets was GBP26.4m (2020:
GBP34.1m). The expenditure on fixed assets was lower than in the
prior year, reflecting our actions to limit capital investment to
essential projects and R&D due to the COVID-19 pandemic. We
anticipate capital expenditure to increase to approximately GBP30m
in the coming year, reflecting a level of catch up in deferred
expenditure as a result of the actions taken this year and further
investment across our sectors to support our future growth. This
includes the start of construction of a new manufacturing facility
for one of our largest companies, BEA, in Belgium, and other
facility expansions.
We are also investing in automation and technology upgrades
including the Group-level investment in enhanced security, improved
data and analytics capability and investments to support our
companies in upgrading their operating technology and creating new
digital models in line with our Halma 4.0 growth strategy. We
expect this investment to total approximately GBP12m in the
financial year ending 31 March 2022, which we expect to be mostly
operating expense although this will depend on the specifics of
each project.
Lease right-of-use asset additions were GBP24.3m (2020:
GBP21.9m). This included additions of GBP0.6m as a result of
acquisitions made in the year, and the commencement of new leases
and extensions or renewals of existing leases.
Value-enhancing acquisitions and investments
Acquisitions and disposals are a key component of our
sustainable growth strategy, as they keep our portfolio of
companies focused on markets which have strong growth opportunities
over the medium and long term.
In the year we made one acquisition at a cost of GBP38.4m (net
of cash acquired of GBP7.9m and including acquisition costs). In
addition, we paid GBP10.4m in contingent consideration and other
payments for acquisitions made in prior years, giving a total spend
of GBP48.8m. We also divested Fiberguide Industries, Inc., for
GBP26.1m, net of disposal costs.
Details of the acquisitions and investments made in the year are
given in the sector reviews in the Annual Report and Accounts 2021
and in note 8 to the Financial Statements. Details of acquisitions
made since the year end are contained in the Group Chief
Executive's review.
The acquisitions completed in the current and prior year
contributed to revenue in 2021 in line with expectations overall,
albeit that individual company performances were affected by end
market variations caused by the pandemic, and we expect a good
performance from these acquisitions in the future.
Regular and increasing returns for shareholders
Adjusted earnings per share increased by 2.2% to 58.67p (2020:
57.39p) and statutory earnings per share, which included a gain on
disposal of Fiberguide Industries, Inc., increased by 10.2% to
53.61p (2020: 48.66p).
The Board is recommending an 8.2% increase in the final dividend
to 10.78p per share (2020: 9.96p per share), which together with
the 6.87p per share interim dividend gives a total dividend per
share of 17.65p (2020: 16.50p), up 7.0% in total. Dividend cover
(the ratio of adjusted profit after tax to dividends paid and
proposed) is 3.33 times (2020: 3.48 times).
The final dividend for 2021 is subject to approval by
shareholders at the AGM on 22 July 2021 and, if approved, will be
paid on 12 August 2021 to shareholders on the register at 9 July
2021.
We aim to increase dividends per share each year, while
maintaining a prudent level of dividend cover, and declare
approximately 35-40% of the anticipated total dividend as an
interim dividend. The Board's determination of the proposed final
dividend increase this year took into account the Group's financial
performance, the effects of the COVID-19 pandemic, the continued
strong balance sheet and medium-term organic constant currency
growth.
Substantial funding capacity and liquidity
Halma's operations have continually been cash generative and the
Group has access to competitively priced committed debt finance,
providing good liquidity for the Group. Group treasury policy
remains conservative and no speculative transactions are
undertaken.
We have a strong balance sheet, strong cash generation, and
substantial available liquidity. At the year end, our committed
facilities totalled approximately GBP670m, based on exchange rates
at that time, with the earliest maturity being in 2023. The
financial covenants on these facilities remain for leverage (net
debt/adjusted EBITDA on a pre-IFRS 16 basis) to not be more than
three times and for adjusted interest cover to be not less than
four times. The Group continues to operate well within its banking
covenants with significant headroom under each financial ratio.
At 31 March 2021, net debt was GBP256.2m, a combination of
GBP325.3m of debt, GBP65.0m of IFRS 16 lease liabilities and
GBP134.1m of cash held around the world to finance local
operations. Net debt at 31 March 2020 was GBP375.3m.
The gearing ratio at the year end (net debt to EBITDA) was 0.76
times (2020: 1.13 times) on a post-IFRS 16 basis and 0.59 times
(2020: 1.00 times) on a pre-IFRS 16 basis. Net debt (on a post-IFRS
16 basis) represented 3% (2020: 5%) of the Group's year-end market
capitalisation.
Pensions update
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 2021
based on the market value of assets at that date and the valuation
of liabilities using year end AA corporate bond yields.
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.
On an IAS 19 basis the deficit on the Group's DB plans at the
2021 year end increased to GBP22.5m (2020: GBP5.2m) before the
related deferred tax asset. The value of plan assets increased to
GBP333.1m (2020: GBP298.8m). Plan liabilities increased to
GBP355.6m (2020: GBP304.0m) due to movements in the discount rate
and inflation rate. The discount rate decreased from 2.55% to
1.95%, as bond markets stabilised following the disruption at 31
March 2020 caused by the COVID-19 pandemic. The inflation rate
increased from 2.5% to 3.2% reflecting economic conditions at the
balance sheet date.
The plans' actuarial valuation reviews, rather than the
accounting basis, determine any cash deficit payments by Halma. In
2021 these contributions amounted to GBP13.7m, consistent with our
expectations, following a triennial actuarial valuation of the two
UK pension plans in 2017/18, after which cash contributions
increasing at 7% per annum aimed at eliminating the deficit were
agreed with the trustees. In the unlikely event that these payments
result in a surplus on winding up, the Group has an unconditional
right to a refund under the plan rules.
New accounting standards and interpretations
The Group adopted new accounting standards and interpretations
with effect from 1 April 2020 with no material impact on the
Group's financial statements. After the year-end, the IFRS
Interpretations Committee published a paper covering the
finalisation of their agenda decision regarding configuration and
customisation costs in Cloud Computing Arrangements (Software as a
Service, 'SaaS') under IAS 38. This agenda decision offers
clarification of the treatment of implementation costs which is
relevant to the Group's ongoing technology investments and Company
operational technology upgrades which are predominantly SaaS
arrangements with third party implementation partners.
The Interpretations Committee paper clarifies that much of the
implementation costs that previously may have been capitalised as
intangible assets are now likely to be expensed against profit
immediately for SaaS arrangements unless they meet the definition
of separate intangible assets. Going forward this will result in an
acceleration of costs recorded in the Income Statement in relation
to these projects. There was no material financial impact in this
or previous financial years, and we estimate an impact of up to
GBP12m for the financial year ending 31 March 2022, with subsequent
years' costs being lower where amortisation will not occur. The
timing and quantum of cash outflows for these projects will be
unchanged.
Conclusion
We delivered a robust financial performance, despite the
challenges of the COVID-19 pandemic, delivering a record profit and
strong cash flow, while increasing our investment in future growth
opportunities and further strengthening our balance sheet. I am
proud of the commitment shown by my colleagues in our finance and
risk teams in helping our companies to respond to the opportunities
and challenges in the year by ensuring that they had rapid access
to actionable insights, and in maintaining high standards of
control. I would like to thank all of them for their hard work in
difficult circumstances.
Marc Ronchetti
Chief Financial Officer
Process Safety Sector Review
Process Safety's technologies protect people and assets at work,
across a range of critical industrial and logistics operations.
Sector overview and growth drivers
Process Safety has a key part to play in making critical
industrial processes safer and cleaner. We provide innovative and
increasingly digitally connected products to address our customers'
needs around the
world. The longer-term growth prospects for our Process Safety
businesses are supported by increasing health and safety regulation
and associated legal risks, higher environmental standards to
address the
challenges of climate change, the continuing move toward
renewable energy sources and conserving scarce natural resources,
and growing industrialisation and automation.
Our ability to find new applications in adjacent industrial
markets is broadening the sector's growth opportunities, both
organically and through acquisition. In Gas Detection, market
growth over the longer term is being driven by ongoing
industrialisation, increasing safety and environmental regulatory
standards, greater demand for continuous monitoring of harmful
substances to protect worker safety, and the accelerated use of
wireless sensors and connected devices.
Increasing automation, higher electrical safety standards and
the increasing need for remote safety monitoring are growth drivers
for our Industrial Access Control, Pressure Management and Safe
Storage and Transfer businesses which serve a diverse range of
industrial end markets. The COVID-19 pandemic has also further
accelerated the growth of e-commerce and therefore of the logistics
sector which supports it; this offers opportunities to help our
customers ensure safe working environments in these highly
automated facilities.
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 estimated to have
reduced by 4% in 2020 as a result of the COVID-19 pandemic, but is
forecast to increase by 4.6% in 2021, and to continue to grow over
the long term, with forecasts putting demand in 2050 at between 25%
and 50% higher than current levels. Renewable energy is expected to
account for an ever greater proportion of consumption, and in
absolute terms to be at least three times greater in 2050 than
currently. The drive towards net zero emissions offers our
companies good opportunities for growth, both in helping our
customers minimise their environmental impact, and as we repurpose
our solutions to support more sustainable energy solutions.
Performance
It was a challenging year for Process Safety, with significant
reductions in end-market demand resulting in declines in both
revenue and profitability. There was a gradual improvement in
trading as the year progressed but overall performance was affected
by the lower oil price, which resulted in a fall in demand for
higher margin safety products in the US onshore oil and gas-related
businesses, by site access issues as a result of the pandemic, and
a slowdown in new projects in Gas Detection. The sector's
performance year-on-year also reflected a strong prior year
comparative in Industrial Access Control (which included a large
logistics contract), although this was partly offset by good demand
in this segment from logistics and paper and packaging and
electrical safety customers. The sector's companies continued to
invest in new connected technologies and in diversification away
from the oil market, which together with the development of
products and services to help customers address increasing safety
and environmental regulation, are expected to improve performance
in the longer term.
Revenue was GBP188.8m (2020: GBP200.0m), 5.6% lower. This
included a benefit from the acquisition in the prior year of Sensit
Technologies, and revenue was 11.9% lower on an organic constant
currency basis. Performance improved as the year progressed,
resulting in a small decline in reported revenue in the second half
and a moderate reduction on an organic constant currency basis.
Revenue trends on a regional basis reflected the trends in the
underlying markets. Mainland Europe grew, benefiting from the
fulfilment of significant Safe Storage and Transfer projects, some
of which had been in the order book prior to the start of the
financial year. However, revenue in the USA declined substantially
on an organic constant currency basis, due to weakness in the
onshore oil and gas market and the strong comparative in Industrial
Access Control, although on a reported basis this was partly offset
by a good contribution from the Sensit acquisition. The UK
delivered a resilient performance, but a slowing of large project
approvals affected Asia Pacific, particularly in the first half,
and our businesses in the Middle East. Performance improved in each
of the USA, the UK and Asia Pacific in the second half.
Profit was GBP36.6m (2020: GBP43.9m), representing a decline of
16.7%, or 21.5% on an organic constant currency basis. Gross margin
was broadly stable, with favourable product mix in Gas Detection
offsetting the effect of a decline in higher margin Pressure
Management business. Return on Sales, however, decreased to 19.4%
(2020: 21.9%), despite good overhead control, reflecting lower
revenues from higher Return on Sales businesses in US onshore oil
and gas and Industrial Access Control, one-off restructuring costs
of GBP1.9m, and a GBP1.6m increase in R&D expenditure, to 4.8%
of revenues (2020: 3.7%) as the sector continued to invest in
opportunities for future growth such as connected safety monitoring
solutions.
There were no acquisitions or disposals in the year, and the net
impact of prior year acquisitions was a positive effect of 6.9% on
revenue and 5.3% on profit. Currency exchange movements had a small
negative effect, of 0.6% on revenue and 0.5% on profit. Since the
year end one small bolt-on acquisition has been completed, with our
industrial access control company, Fortress, buying the assets and
IP associated with monitored safety valves from FluidSentry Pty Ltd
in Australia for A$0.6m. This acquisition provides complementary
products which ensure the safety of hydraulic and pneumatics
systems whose usage is growing as automation increases.
Looking ahead we anticipate a recovery in the Process Safety end
markets which, in addition to new product introductions, should
return Process Safety to growth in the year ahead.
Infrastructure Safety Sector Review
Infrastructure Safety's technologies save lives, protect
infrastructure and enable safe movement.
Sector overview and growth drivers
The Infrastructure Safety sector makes the world a safer place
by protecting commercial, industrial and public buildings and
spaces and enabling safe movement. Our products and services
address increasing life safety concerns, more stringent regulatory
requirements and accelerating demand for connected infrastructure
systems globally.
Growth in our Infrastructure Safety markets is supported by
expanding and ageing populations, increasing urbanisation, and
tighter safety regulation. We expect the agility of our companies
in responding to the evolution of these trends to support our
growth over the long term.
While we see the growth of cities as likely to continue, given
their economic, community and cultural attractions, new ways of
living and working are emerging as a result of the pandemic. These
are likely to lead to the acceleration and amplification of a
number of existing trends in our markets, and changes in the way
urban environments evolve, which we expect to provide opportunities
for our companies. They include upgrades of office space to allow
for better collaboration, health, and flexibility; changes in the
use of buildings; 'green' initiatives to improve energy use;
increased remote monitoring and efficiency through digital
innovation and connected products; and the use of touchless
technologies to support safety and hygiene.
We expect these trends to support continued growth across our
Infrastructure Safety markets. For example, the greater need to
manage health and safety concerns as a result of the COVID-19
pandemic is already presenting new opportunities for our People and
Vehicle Flow businesses to enhance safety through automated access
solutions as people move around, and increasing population
densities are driving demand for our solutions which address
congestion and help to increase the capacity of existing
infrastructure.
In global fire detection and suppression equipment, growth is
expected to be sustained by more stringent regulation and increased
adherence to that regulation, driven both by rising standards from
national and supranational regulators and by international
initiatives such as the International Fire Safety Standards (IFSS)
coalition. In addition, infrastructure upgrades are expected to
support greater demand for connected, intelligent building systems
to drive greater efficiency and support remote monitoring and
control.
The medium-term forecasts for the global elevator market also
reflect the trends of rising urbanisation and increasing spending
on maintenance and modernisation of existing equipment and
increased accessibility requirements. Opportunities are also
emerging to enhance efficiency through remote monitoring and
preventative maintenance, and safety and hygiene through touchless
operation.
Performance
Infrastructure Safety delivered a solid performance, with profit
growing both on a reported and organic constant currency basis,
despite a modest decline in revenue. Having been affected in the
early part of the year by difficulties of gaining physical access
to sites and the impact of furlough (or local equivalent schemes)
on the availability of installers, the sector's performance
improved substantially as the year progressed. This was partly
driven by the easing of lockdown restrictions and the furloughed
employees returning to work. It also reflected the agility of our
companies in responding to changes in demand and new customer
requirements. For example, a number of companies accelerated online
training and remote installation support in response to
restrictions on physical access, while the People and Vehicle Flow
subsector delivered a robust performance, driven by their agility
in responding to increased demand from logistics customers for door
automation technologies, and by refocusing their business to
address a mix shift away from sliding door sensors, to sensors
which can be retrofitted to swing doors and other touchless entry
devices. Our companies also successfully positioned themselves to
take advantage of new regulatory requirements in a number of
geographies, notably in the Fire businesses in the UK and the
Middle East, and for new opportunities emerging in highway safety,
and in retrofitting buildings, for example in Area of Refuge (part
of the Elevator Safety subsector).
Revenue of GBP450.5m (2020: GBP466.5m) was 3.4% lower, and 4.7%
lower on an organic constant currency basis. This included a
substantially improved performance in the second half of the year,
with organic constant currency revenue increasing by 6.7%.
The stronger second half performance included a substantial
recovery in Fire Detection, particularly in the UK market, and in
Security Sensors, as well as a strong performance in People and
Vehicle Flow. As a result, revenue in the UK market grew modestly
for the year as a whole, both on a reported and organic constant
currency basis, despite the substantial impact of the pandemic in
the early part of the year. Revenue in Mainland Europe saw a modest
decline; however, the region returned to growth in the second half,
with an improvement in revenue trends across all subsectors and a
strong performance in People and Vehicle Flow, driven by its swift
response to changes in customer demand. Asia Pacific revenue also
saw a modest decline; its performance included a contribution from
the acquisition of Ampac in Australia last year. In the USA,
revenue declined, but momentum improved in the second half, and
there were strong performances in People and Vehicle Flow and Area
of Refuge. Revenue fell in other regions largely due to the
prolonged impact of the COVID-19 pandemic in these territories.
Profit grew by 2.7% to GBP110.6m (2020: GBP107.7m), or by 1.2%
on an organic constant currency basis, and Return on Sales
increased to 24.5% (2020: 23.1%). This growth reflected an increase
in gross margin from a favourable mix of business, good overhead
control and, following last year's substantial increase, a modest
reduction in R&D expenditure as a percentage of revenue, to
5.7% (2020: 6.1%).
There were no acquisitions or disposals in the year, and the
impact of prior year acquisitions was a positive effect of 1.6% on
revenue and 1.8% on profit. Currency exchange movements had a small
negative effect, of 0.3%, on both revenue and profit.
In January 2021, we announced that we had agreed a minority
investment and strategic partnership with Oxbotica, a global leader
in autonomous vehicle software. This strengthens the existing
relationship between Oxbotica and the Halma company Navtech, which
specialises in radar technology for transport applications.
Since the year end, one small bolt-on acquisition has been
completed, with the Argus wireless fire safety company purchasing
its Italian distributor for EUR0.5m.
Looking ahead we expect a continuation of the recovery we saw in
the second half albeit against the potential headwinds relating to
ongoing supply chain challenges and risk of further COVID-19
related disruption.
Environmental & Analysis Sector Review
Environmental & Analysis' technologies are used to preserve,
monitor and protect the environment, ensure the availability,
quality and sustainability of natural resources, and to analyse
materials in a wide range of applications.
Sector overview and growth drivers
The Environmental & Analysis sector is focused on growing a
safer, cleaner and healthier future by improving the quality and
availability of life-critical natural resources such as air, water
and food, by protecting the environment and wellbeing, and by
delivering high-technology solutions in a wide variety of end
markets based on our digital, optical and optoelectronic expertise.
Our valuable solutions are technically differentiated through
strong application knowledge, supported by high quality and
customer responsiveness.
The sector's long-term growth is sustained by rising demand for
life-critical resources, increasing environmental regulations and
worldwide population growth with rising standards of living. It is
underpinned by our ability to design, develop and manufacture
innovative, high-technology detection and analysis solutions with
applications in a wide range of sectors. These include water and
waste water management and treatment (including water utilities);
gas analysis and detection; food, beverage, agriculture and
aquaculture; medical and bio-medical; communications; research and
science; and a variety of industrial markets.
Population growth is driving increasing demand for life-critical
natural resources, such as clean water and air, and these resources
are under growing pressure as a result of factors including climate
change, increasing urbanisation and industrialisation, and changing
patterns of land use. For example, according to the United Nations,
water use has been growing globally at more than twice the rate of
population increase in the last century, and 2.3 billion people
live in water-stressed countries, of which 721 million people live
in high and critically water-stressed countries. In terms of waste
water, according to the United Nations, less than 50% of domestic
waste water is safely treated (based on 24 out of 75 reporting
countries, most of which are high-income countries), and over 3
billion people are at risk because the health of their rivers,
lakes and groundwater is unknown. This drives demand for our water
testing and disinfection technologies, and for our water network
monitoring solutions which help to ensure integrity of
networks.
Similarly, air pollution is a growing health risk in both
developing and developed countries. The World Health Organization
(WHO) estimates that air pollution kills seven million people
worldwide every year. Their data shows that nine out of ten people
breathe air that exceeds WHO guideline limits containing high
levels of pollutants, with low- and middle-income countries
suffering from the highest exposures. This underpins the growth
opportunities for our spectroscopy solutions which assist in the
precise detection of contaminates, and for our environmental
solutions which support emissions and air quality monitoring and
calibrate pollution monitoring equipment.
Performance
Environmental & Analysis delivered a robust performance.
While there was a modest decline in revenue, this compared to a
very strong performance in the prior year, and profit grew
strongly, both on a reported and organic constant currency basis.
The agility of our companies in responding to market changes
contributed to the sector's performance in the year. Examples
included our gas flowmeter business, Alicat, rapidly adapting its
technology to make components to meet urgent new requirements from
ventilator manufacturers in response to the COVID-19 pandemic, and
Optical Analysis businesses addressing new opportunities which are
emerging in end-to-end measurement and calibration solutions for
use in a wide range of applications, including in laboratory
instrumentation, consumer electronics, biopharmaceuticals and food
and beverage.
Revenue of GBP308.8m (2020: GBP325.0m) was 5.0% lower, which
partly reflected the loss of revenue from the disposal of
Fiberguide Industries, Inc. in the third quarter of the year. On an
organic constant currency basis, revenue declined by 2.7% against a
very strong comparator, with the prior year having benefited both
from delivery of some large photonics projects within the Optical
Analysis subsector in the second half of the year, and increased
spending by UK water companies ahead of the end of the previous
five year Asset Management Plan (AMP) investment cycle.
There was strong revenue growth in Asia Pacific across all three
subsectors, driven by recovery in China, and Mainland Europe grew,
benefiting from a good performance in Water Analysis and Treatment.
The USA, the sector's largest region, delivered a resilient
performance, given a strong prior year comparative and the phasing
of some large photonics projects; underlying growth trends in
photonics remain strong, given increasing demand from customers to
help them build their digital and data capabilities. The UK saw a
substantial decline in revenue, given a very strong performance
last year, and delayed demand in UK water due to the start of the
new AMP cycle and COVID-19 related access restrictions; we continue
to see good opportunities for growth in this market, driven by
higher regulatory standards for clean water networks and an
increasing focus on waste water management. Other regions, which
represent less than 5% of sector revenue, also saw a decline,
mainly due to the non-repeat of large water testing contract in
Canada which had benefited the prior year.
Profit grew by 11.4% to GBP77.4m (2020: GBP69.4m), or by 14.7%
on an organic constant currency basis, and Return on Sales
increased substantially to 25.1% (2020: 21.4%). This reflected a
benefit to gross margin from a favourable mix of business,
including from some COVID-19 related and one-off orders, and very
strong control of overheads. R&D expenditure remained above the
Group average as a percentage of sales, at 5.4% (2020: 6.0%),
reflecting continued high investment in future growth across all
three subsectors.
There were no acquisitions in the year, and the net impact of
prior year acquisitions and the disposal of Fiberguide Industries,
Inc. was a negative effect of 0.7% on revenue and 1.2% on profit.
Currency exchange movements also had a negative effect, of 1.6% on
revenue and 2.1% on profit.
Since the year end, two sector companies have completed small
bolt-on acquisitions. The UV Group acquired Orca GmbH, a German
manufacturer of ultraviolet disinfection systems, primarily for the
food and beverage sector, for an initial consideration of EUR6.2m
(GBP5.3m), and Crowcon, which became part of the sector after the
year end, purchased its UK flue gas analyser distribution partner,
Anton Industrial Services Limited, for GBP1.9m.
Looking ahead we expect the sector to make continued progress
albeit against a strong comparative with the continued contribution
of some large photonics projects, in addition to the timing of the
UK water infrastructure investment cycle and the continued recovery
of the water testing markets. We expect Return on Sales to return
to more normalised levels driven by the mix of business and growth
going forward.
Medical Sector Review
Medical's technologies enhance the quality of life for patients
and improve the quality of care delivered by
healthcare providers.
Sector overview and growth drivers
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 providing critical
components, devices, systems and therapies which are embedded in
the standard of care. We look for niches where there is a
'non-discretionary' element, meaning our products and technologies
are critical to the function or management of care, for example
cataract surgery or cardiac monitoring, and where there is a
connection between medical conditions and chronic illnesses,
thereby driving potentially higher rates of demand on a sustainable
basis.
The sector's long-term growth is supported by increasing demand
due to worldwide population growth and ageing, and the greater
prevalence of chronic illnesses. There is little evidence that
people today are in better health than previous generations. We see
an increase in the prevalence of common health conditions
associated with ageing, which include cataracts, back and neck pain
and osteoarthritis, and diabetes, as well as cardiac and pulmonary
disease, depression and dementia. In addition, COVID-19 has reduced
average life expectancy and will likely present continued health
complications. These factors are key growth drivers for our
Therapeutic Solutions businesses, given their presence in the
ophthalmic surgery device, respiratory therapy and bone replacement
markets.
In Healthcare Assessment, we expect the rising prevalence of
cardiac, circulatory, and respiratory illness, increased health
awareness and availability of healthcare to drive growth over the
longer term. In addition, healthcare facilities are seeking to
improve outcomes, reduce costs and ensure the safety of patients
and staff, which is driving the global market for our real-time
location services business.
In Life Sciences, the market for our critical fluidic components
is being driven by more directed and personalised diagnostic
methods combined with increased testing efficiency. North America
and Europe continue to be our largest markets, with Asia Pacific
exhibiting the fastest growth rate.
Performance
Medical sector companies experienced significant variations in
demand in the year. Demand for products and services related to
elective healthcare procedures reduced sharply. This moderated as
the year progressed, reflecting an easing of the initial acute
effects of the pandemic on healthcare systems including some modest
improvement during the year in patient demand for elective
surgeries and discretionary ophthalmic diagnosis procedures. Demand
in general health diagnostics, including vital signs monitoring,
and in products supporting patient oxygenation remained at a high
level relative to previous years. Life Sciences businesses
continued to be adversely impacted by the ongoing focus on COVID-19
testing and point-of-care diagnostics. In Health Assessment, while
our location services business was affected by hospital access
restrictions, it has built a strong order book, driven by the need
for its healthcare customers to improve efficiency and ensure
hygiene and access control.
Revenue grew by 7.0% to GBP371.3m (2020: GBP347.2m), which
included a substantial contribution from current and prior year
acquisitions. On an organic constant currency basis, revenue
declined by 5.4%, reflecting the fall in demand for elective
healthcare and diagnostic procedures which represents a majority of
our Medical portfolio, partially offset by increases in patient
monitoring and respiratory products.
Revenue grew in four out of five regions. The USA, which
accounts for over half of sector revenues, grew strongly,
benefitting from recent acquisitions, including Maxtec (part of
Perma Pure), which saw a very substantial increase in demand for
its oxygen analysis and delivery products. On an organic constant
currency basis, the USA delivered a resilient performance given the
agility of our companies in responding to the COVID-19 pandemic,
with the modest decline in revenue also reflecting the mix of
businesses in the region. Mainland Europe and Asia Pacific saw a
similar pattern, with modest increases in reported revenue and
declines on an organic constant currency basis. There was strong
growth in China as the country recovered from the effects of the
pandemic, driven by good commercial execution. The UK, which
represents only 5% of sector revenue, delivered very strong growth,
benefiting from the acquisition in the third quarter of Static
Systems Group, a UK-based manufacturer of critical healthcare
communication systems, for GBP43.9m, including cash acquired;
revenue on an organic constant currency basis, however, saw a
substantial decline. Other regions saw revenues decline,
principally as a result of the effects of the COVID-19
pandemic.
Profit grew by 2.6% to GBP86.6m (2020: GBP84.4m) and declined by
10.5% on an organic constant currency basis. Return on Sales
remained above the Group average at 23.3% (2020: 24.3%), with the
decline reflecting the impact on gross margin of the substantial
changes in business mix in the year, and a further 14% increase in
research and development (R&D) investment to GBP18.8m; R&D
expenditure in the year represented 5.1% of revenues (2020: 4.8%).
These effects were partly offset by operational efficiencies and
strong overhead control.
The impact of current and prior year acquisitions (net of prior
year disposals) was a positive effect of 14.3% on revenue and 14.1%
on profit. Currency exchange movements had a negative effect, of
1.9% on revenue and 1.0% on profit.
After the year end, we acquired PeriGen, Inc., whose advanced
technology protects mothers and their unborn babies during
childbirth, for US$58m (approximately GBP42m), expanding our
presence in patient assessment and monitoring into the US perinatal
care market, and further extending our analytics capabilities. The
sector also completed one bolt-on acquisition, with Riester
acquiring the trade and assets of RNK, a US-based digital
stethoscope company, for an initial consideration of US$2.7m
(GBP1.9m).
Looking ahead, we expect to continue to see a recovery in
elective procedures and for there to be a decline in demand for
COVID-19 related products. These factors, alongside the continued
contribution from recent acquisitions, means that the sector is
expected to deliver more normal levels of growth for the year
ahead.
Principal Risks and Uncertainties
1. Organic Growth
Risk Owner: Andrew Williams
Gross risk level: High
Change: No Change
Risk appetite: Open
Growth enablers
-- Digital Growth Engines
-- Finance, Legal & Risk
-- Innovation Network
-- International Expansion
-- Strategic Communications and Brand
-- Talent & Culture
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.
-- Regional hubs, for example in China and India, support local
strategic growth initiatives for all companies.
-- Annual strategic plan and budgeting process with rolling 12 month forecasting.
-- Remuneration of company executives and above is based on profit growth.
-- Continued investment in R&D to drive innovation and
growth with KPIs monitored at Board level.
-- Innovation rewarded through Innovation Awards at leadership conferences.
-- Agile business model and culture of innovation to take
advantage of new growth opportunities as they arise.
-- Potential new acquisitions, partnerships and investments
assessed for future organic growth prospects to align to
strategy.
-- Focus on having the best talent on board to deliver strategy and therefore organic growth.
2. Acquisitions and Investments
Risk Owner: Andrew Williams
Gross risk level: High
Change: No Change
Risk appetite: Open
Growth enablers
-- Finance, Legal & Risk
-- International Expansion
-- M&A
-- Strategic Communications and Brand
-- Talent & Culture
Risk and impact
-- Failing to achieve our strategic growth target for
acquisitions and investments due to insufficient opportunities
being identified, poor due diligence or poor integration, resulting
in erosion of shareholder value. Whilst this risk remains high, our
available financial resources and performance during the last year
means we are well positioned to continue our acquisition strategy
going forward.
-- This risk has been updated during the year to also include
strategic partnerships and minority equity investments as well as
100% equity or asset purchases.
How do we manage the risk?
-- Clarity of strategy and agile business model that allows us
to take advantage of new growth opportunities
as they arise.
-- Acquisition of companies in our existing or adjacent markets.
-- Dedicated M&A Directors with Group Chief Executive, Chief
Financial Officer and plc Board oversight, scrutiny and approval of
all acquisitions.
-- Regular reporting of the acquisition pipeline to the Executive and plc Boards.
-- Careful due diligence by experienced staff who bring in specialist expertise as required.
-- Strategic transformation plans in place for new acquisitions
to seek to ensure they achieve their growth potential.
-- Clear process in place to ensure successful integration from
a control and compliance perspective.
-- Internal Audit visit within nine months of acquisition to review minimum expected controls.
-- Post-acquisition reviews are performed for all acquisitions
after 12 months to ensure strategic objectives are being met and to
identify learnings for future acquisitions.
-- Investment framework and model in place to capture process,
approvals and oversight for minority equity investments.
-- Regular review by the Investment Committee.
3. Business Model and its Communication
Risk Owner: Andrew Williams
Gross risk level: High
Change: No Change
Risk appetite: Open
Growth enablers
-- Digital Growth Engines
-- Finance, Legal & Risk
-- International Expansion
-- M&A
-- Strategic Communications and Brand
Risk and impact
-- Failing to clearly articulate or adapt our business model as
Halma grows through exploring and implementing additional or new
business models, resulting in missed growth opportunities and
erosion of shareholder value.
-- We have refined the communications risk reported last year to
specifically cover our business model which is critical to our
growth strategy, both organic and through acquisition.
How do we manage the risk?
-- Clear communication of Halma's business model and any new
developments disclosed in the Annual Report and Accounts and at
investor events. Regular external and internal communications to
reinforce business model understanding.
-- Comprehensive expert reviews of existing and potential new
markets to identify strategies with significant growth
potential.
-- Identification of companies with products or markets that
would have a good strategic fit for Halma. This includes start-ups,
service and software companies that could help accelerate the
growth of existing companies.
-- Monitoring of market trends, including customer preferences,
emerging technologies and competitors.
-- Developing collaboration capabilities of every company to
take advantage of identified opportunities.
-- Post-acquisition monitoring to ensure that the objective for
acquiring each business has been achieved and learning
opportunities identified.
-- Strategic reviews of business model at plc Board level to
consider the strengths and weaknesses of the existing business
model and alternative business models.
-- Sector and Executive Boards perform reviews to identify opportunities which may require a new organisational approach.
4. Talent and Diversity
Risk Owner: Jennifer Ward
Gross risk level: High
Change: Increased
Risk appetite: Open
Growth enablers
-- Digital Growth Engines
-- Innovation Network
-- International Expansion
-- Strategic Communications and Brand
-- Talent & Culture
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. The increased risk reflects retention risks
emerging due to our rapid escalation through the FTSE 100,
increased profile and track record of success .
How do we manage the risk?
-- Annual Performance and Development Review process for Sector
and Executive Board members. Nomination Committee annual review of
succession candidates and development plans.
-- Periodic assessment of diversity (gender, ethnicity and
nationality), used to drive action plans at each level.
-- Annual employee engagement survey to provide insight into
employee sentiment including alignment between strategy and
objectives and clarity to employees about their contribution
towards achieving objectives.
-- Comprehensive recruitment processes to recruit the best and brightest talent.
-- Development of talent and diversity across our companies,
including development programmes, to give us competitive advantage
and ensure we have motivated leaders to deliver our strategy.
-- Annual strategic review of sector board and company
leadership talent to identify and develop future leaders. Defined
competency and potential model used.
-- Future Leaders programme to develop graduates.
-- Senior Management reward structure aligned with strategic
priorities of companies, sectors and Group. Work is continuing in
this area to ensure that our reward packages are competitive,
reflect our high long term growth and are benchmarked to
market.
5. Innovation
Risk Owner: Inken Braunschmidt
Gross risk level: High
Change: No Change
Risk appetite: Seeking
Growth enablers
-- Digital Growth Engines
-- Innovation Network
-- M&A
-- Strategic Communications and Brand
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.
How do we manage the risk?
-- Product development is devolved to our companies who are closest to the customer.
-- Chief Innovation and Digital Officer promotes and accelerates
innovation by our companies, supporting sector management.
-- Digital innovation strategy focuses on incubation and
acceleration of innovation. Supported by a champions network and
partnerships.
-- Education of our companies around customer centricity and
voice of the customer to feed our innovation ideation.
-- Promotion of active collaboration of ideas and best practices between companies.
-- Conferences and development programmes help spread ideas and
best practice across the Group. Innovation awards reward and
encourage innovation.
-- Review of R&D budgets and projects by sectors to ensure
they are being spent most effectively in the markets where we want
to participate.
-- Halma senior management approval of all large R&D projects to ensure alignment with strategy.
-- Companies are encouraged to develop and protect intellectual property.
-- Focus on talent and retention to ensure there is sufficient expertise within the business.
-- M&A activity is targeted to help address innovation and
R&D gaps, in line with sector specific initiatives.
-- Monitoring of key R&D and innovation metrics.
-- Regular promotion, training and monitoring of agile or lean
start-up ways of working in companies.
6. Non-compliance with Laws and Regulations
Risk Owner: Funmi Adegoke
Gross risk level: High
Change: No Change
Risk appetite: Averse
Growth enablers
-- Finance, Legal & Risk
-- International Expansion
-- Strategic Communications and Brand
-- Talent & Culture
Risk and impact
-- We are not fully compliant with relevant laws and
regulations, resulting in fines, reputational damage and possible
criminal liability for Halma senior management.
How do we manage the risk?
-- The board of each company is accountable for identifying and
tracking what laws are relevant to their business, including any
emerging or changing legislation.
-- Group Legal identifies and tracks the most significant laws facing Halma companies.
-- Halma policies, procedures and guidance notes created by
Group Legal, setting out the Group's requirements from a compliance
and regulatory perspective.
-- All employees are required to sign to confirm that they have
read and understood the Halma Code of Conduct.
-- Ongoing training and advisory programme for companies.
-- Requirement for companies to self-report if something goes
wrong in terms of legal or regulatory compliance, or if they need
help.
-- A third party whistleblowing procedure and hotline exists for all employees and contractors.
-- Six monthly Internal Control Certifications submitted by
companies include the most critical legal and regulatory compliance
controls.
-- Thorough legal due diligence and acquisition support process
in place. Integration process for acquisitions includes legal
requirements.
-- Appropriate levels of Group insurance cover are maintained.
-- A crisis management plan exists to manage communications and
the reputational risk for Halma and/or its companies.
-- Periodic assurance reviews by Internal Audit.
7. Cyber
Risk Owner: Catherine Michel
Gross risk level: High
Change: Increased
Risk appetite: Averse
Growth enablers
-- Digital Growth Engines
-- Finance, Legal & Risk
-- International Expansion
-- Talent & Culture
Risk and impact
-- Loss of digital intellectual property/data or ability to
operate systems or connected devices 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 continued increase in this risk reflects the growing
threat generally from cyber-crime around the world.
How do we manage the risk?
-- Clear ownership of cyber risk, with Board level expertise.
The IT function reports into the Chief Technology Officer.
-- Digital control framework in place including digital growth,
cyber, data protection and incident response.
-- Halma approved services available to all companies to help them manage their cyber risks.
-- Monthly cyber threat reporting for all parts of the Group.
-- IT disaster recovery and back-up plans in place, required to be tested regularly.
-- Regular online IT awareness training provided for all employees who use computers.
-- Six monthly Internal Control Certifications submitted by
companies include the most critical IT controls.
-- All employees are required to read and sign up to the IT Acceptable Use policy.
-- Periodic assurance reviews by Internal Audit.
-- Crisis communications plan and access to cyber expertise should a cyber-attack occur.
8. Economic and Geopolitical Uncertainty
Risk Owner: Andrew Williams
Gross risk level: High
Change: No Change
Risk appetite: Cautious
Growth enablers
-- Finance, Legal & Risk
-- International Expansion
-- Talent & Culture
Risk and impact
-- Failure to anticipate or adapt to geopolitical changes or a
recession, resulting in a decline in financial performance and an
impact on the carrying value of goodwill and other assets. This
risk remains elevated in certain geographies due to COVID-19 and
also USA/China trade relations. Any residual risks related to
Brexit are now significantly reduced.
How do we manage the risk?
-- Diverse portfolio of companies across the sectors, in
multiple countries and in relatively non-cyclical global niche
markets help to minimise the impact of any single event operating
in one market.
-- Regular monitoring and assessment of potential risks and
opportunities relating to economic or geopolitical
uncertainties.
-- Identification of any wider trends by the Halma Executive Board that require action.
-- Risk managed at local company level and they have the autonomy to rapidly adjust to changing circumstances.
-- Financial strength and availability of pooled resources in
Group as well as robust credit management processes in place across
the Group.
-- Knowledge of regulatory requirements that are gradually being extended globally.
-- Financial warning signs give earlier indications of problems.
-- Active reduction of key customer or market concentration
through new product and market diversification for both core and
acquired businesses.
-- Monitoring of any changes in corporate and government
investment due to macroeconomic factors.
-- Periodic assessment of the carrying value of goodwill and other assets.
9. Financial Controls
Risk Owner: Marc Ronchetti
Gross risk level: Medium
Change: No Change
Risk appetite: Averse
Growth enablers
-- Finance, Legal & Risk
-- International Expansion
-- Talent & Culture
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.
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.
-- Formal policies and procedures are in place for expected financial controls.
-- Companies certify every six months that the most critical of
these controls are operating effectively. These include segregation
of duties, delegation of authorities and financial accounts
preparation checks.
-- Sector and Group Finance teams perform regular reviews of financial reporting and indicators.
-- Six-monthly peer reviews of reported results for each company
are performed to provide independent challenge.
-- Periodic assurance reviews by Internal Audit.
-- A third party whistleblowing procedure and hotline exists for all employees and contractors.
10. Climate Change and Natural Hazards
Risk Owner: Marc Ronchetti
Gross risk level: Medium
Change: Increased
Risk appetite: Averse
Growth enablers
-- Finance, Legal & Risk
-- M&A
-- International Expansion
-- Strategic Communications and Brand
-- Talent & Culture
Risk and impact
-- Climate change has the potential to impact the long-term
success and reputation of our business in a variety of ways, from
the changing macroeconomic landscape and market regulation to
changes in technology and potential increased costs. We have
therefore decided to include climate change for the first time this
year.
-- More widely, there is a risk we are unable to respond to
large scale natural hazards such as hurricanes, floods, fires or
pandemics, resulting in the inability of one or more of our
businesses to operate, causing financial loss and reputational
damage. COVID-19 required significant focus during the year. Our
companies were able to adapt quickly, make decisions locally and
ensure a safe working environment for our employees.
How do we manage the risk?
-- Halma operates in end markets with strong long-term growth
drivers and lower risks of shocks due to natural hazards.
-- Sustainability is a regular agenda item for the Executive and plc Boards.
-- Sustainability Network in place which raises the awareness of
sustainability issues, including climate change, in our
companies.
-- TCFD compliance work is helping to evaluate the potential
impacts of climate-related risks and opportunities and determine
the appropriate strategic actions.
-- 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 geographical diversity of Halma's companies reduces the
impact of any single event and Halma has manufacturing capability
in multiple locations which provides flexibility.
-- There is a culture of support to affected businesses from
other Halma companies if the need arises.
-- Group level oversight of IT communications infrastructure.
-- A crisis management plan exists to manage communications and
the reputational risk for Halma and/or its companies.
-- Business interruption insurance is in place where possible
and appropriate to limit any financial loss that may occur.
11. Product Failure
Risk Owner: Andrew Williams
Gross risk level: Medium
Change: No Change
Risk appetite: Averse
Growth enablers
-- Innovation Network
-- Strategic Communications and Brand
-- Talent & Culture
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?
-- Analysis of market requirements, including safety, are made
during a product design phase to ensure compliance with all
regulatory requirements and customer needs.
-- 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.
-- Clear quality requirements imposed on suppliers to ensure
safety and quality checks are performed on product received.
-- Monitoring of defects and warranty returns to identify any
potential safety defect which can then be rectified.
-- Traceability of product so that batches can be identified where appropriate.
-- Product compliance with regulations is checked as part of due diligence for any acquisition.
-- Terms and conditions of sale limit liability as much as
practically possible and liability insurance is in place.
-- A crisis management plan exists to manage communications and
the reputational risk for Halma and/or its companies.
12. Liquidity
Risk Owner: Marc Ronchetti
Gross risk level: Medium
Change: Decreased
Risk appetite: Averse
Growth enablers
-- Finance, Legal & Risk
-- International Expansion
Risk and impact
-- There is a risk that the Group's cash/funding resources are
inadequate to support its activities or there is a breach of
funding terms.
-- The risk was higher at this time last year as there was
increased uncertainty around the impact of the COVID-19 pandemic
and leverage was higher.
-- Our previous Treasury risk included both liquidity and
foreign exchange. Whilst foreign exchange risk will continue to be
managed as currently, we have decided that it is a well understood
and expected area for financial reporting and no longer needs to be
a principal risk.
How do we manage the risk?
-- A clear financial model and conservative balance sheet strategy exists.
-- The strong cash flow generated by the Group provides
financial flexibility, together with a revolving credit
facility.
-- Cash needs are monitored regularly through review of the
Group cash position and a 12-month rolling forecast.
-- Liquidity forecasts are prepared covering the next three
years and are updated and reviewed at least every six months.
-- A Treasury policy provides comprehensive guidance to companies on banking and transactions.
-- Monthly monitoring of current and forecast covenant compliance.
-- All drawdowns and all new or renewed sources of funding are
subject to approval by the Chief Financial Officer and Head of
Treasury.
-- The currency mix of debt is reviewed annually, and on acquiring or disposing of a business.
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 as at 31
March 2021, its cash flows, liquidity position and borrowing
facilities are set out in the Strategic Review. In addition, note
27 of the Annual Report and Accounts 2021 contains further
information concerning the security, currency, interest rates and
maturity of the Group's borrowings.
The financial statements have been prepared on a going concern
basis. In adopting the going concern basis the Directors have
considered all of the above factors, including potential scenarios
and its principal risks as set out above. Under the potential
scenarios considered, which includes a severe but plausible
downside scenario, the Group remains within its debt facilities and
the attached financial covenants for the foreseeable future and the
Directors therefore believe, at the time of approving the financial
statements, that the Company is well placed to manage its business
risks successfully and remains a going concern. The key facts and
assumptions in reaching this determination are summarised
below.
Our financial position remains robust with committed facilities
totalling approximately GBP670m which includes a GBP550m Revolving
Credit Facility maturing in November 2023 of which GBP333.4m
remains undrawn at the date of this report. The earliest maturity
in these facilities is for GBP70.0m in January 2023. The financial
covenants on these facilities are for leverage (net debt/adjusted
EBITDA*) of not more than three times and for adjusted interest
cover of not less than four times.
* net debt and adjusted EBITDA are on a pre-IFRS 16 basis for
covenant purposes
Our base case scenario has been prepared using forecasts from
each of our operating companies as well as cash outflows on
acquisitions and dividends in line with pre COVID-19 levels. In
addition, a severe but plausible downside scenario has been
modelled showing trading at similar levels to those in the year
ended 31 March 2021. This reduction in trading to that currently
forecasted could be caused by further significant, unexpected
COVID-19 impacts or another significant downside event. In
mitigating the impacts of the downside scenario there are actions
that can be taken which are entirely discretionary to the business
such as acquisitions spend and dividend growth rates. In addition,
the Group has demonstrated strong resilience and flexibility in the
first half of the year in managing overheads which could be used to
further mitigate the impacts of the downside scenario.
Neither of these scenarios result in a breach of the Group's
available debt facilities or the attached covenants and accordingly
the Directors believe there is no material uncertainty in the use
of the going concern assumption.
Viability Statement
During the year, the Board carried out a robust assessment of
the principal risks affecting the Group, 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
above.
The Board has assessed the viability of the Group over a
three-year period, taking into account the Group's current position
and the potential impact of the principal risks and uncertainties.
While 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-based period
over which awards granted under Halma's share-based inventive 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 a downside scenario based on the principal risks
identified in the Group's annual risk assessment process. The
scenarios modelled used the same assumptions as for the going
concern review, as set out above, for the years ending 31 March
2022 and 31 March 2023 with further assumptions applied for the
year ending 31 March 2024. The downside scenario included a
reduction in trading which could be caused by a significant
downside event with the addition of impacts from the Group's other
principal risks such as litigation or product failure.
In both scenarios, the effect on the Group's KPls and borrowing
covenants was considered, along with any mitigating factors. The
Board also considered the renewal of the Revolving Credit Facility,
which is due to expire in November 2023, and have assumed for the
purposes of assessing the viability of the Group that this will be
renewed with the same facility and covenant requirements. Based on
this assessment, the Board confirms that they have a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the three-year
period to 31 March 2024.
Shareholders and stakeholder engagement
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 for the Board
by the Head of Investor Relations outline the Company's dialogue
with investors and analysts. The Chair 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 executive management and the Chair. The
Board attends the AGM which gives individual shareholders the
opportunity to engage directly with them and raise questions about
the Company. The Board's engagement with other stakeholders is set
out in the Annual Report and Accounts 2021.
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 2021. 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 2021, confirm that, to the best of
their knowledge:
- The Company financial statements, which have been prepared in
accordance with United Kingdom Accounting Standards, comprising FRS
101, 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 international accounting standards in conformity
with the requirements of the Companies Act 2006 and international
financial reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in 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 10 June 2021.
Andrew Williams Marc Ronchetti
Group Chief Executive Chief Financial Officer
Results for the year to 31 March 2021
Consolidated Income Statement
Year ended 31 March Year ended 31 March
2021 2020
------------------------------------ ------------------------------------
Adjustments* Adjustments*
Before (note Before (note
adjustments* 1) Total adjustments* 1) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Continuing operations
Revenue 1 1,318.2 - 1,318.2 1,338.4 - 1,338.4
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Operating profit 288.3 (47.5) 240.8 279.2 (45.8) 233.4
Share of loss of associate - - - (0.1) - (0.1)
Profit on disposal
of operations 10 - 22.1 22.1 - 2.9 2.9
Finance income 4 1.0 - 1.0 0.6 - 0.6
Finance expense 5 (11.0) - (11.0) (12.7) - (12.7)
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Profit before taxation 278.3 (25.4) 252.9 267.0 (42.9) 224.1
Taxation 6 (55.8) 6.2 (49.6) (49.4) 9.7 (39.7)
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Profit for the year 1 222.5 (19.2) 203.3 217.6 (33.2) 184.4
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Attributable to:
Owners of the parent 203.4 184.4
Non-controlling interests (0.1) -
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
Earnings per share 2
From continuing operations
Basic and diluted 58.67p 53.61p 57.39p 48.66p
Dividends in respect
of the year 7
Paid and proposed (GBPm) 66.8 62.5
Paid and proposed per
share 17.65p 16.50p
--------------------------- ----- ------------- ------------ ------- ------------- ------------ -------
* Adjustments include the amortisation of acquired intangible
assets; acquisition items; significant restructuring costs, and
profit or loss on disposal of operations; and the associated
taxation thereon. Note 3 provides more information on alternative
performance measures.
Consolidated Statement of Comprehensive Income and
Expenditure
Year ended Year ended
31 March 31 March
2021 2020
Notes GBPm GBPm
-------------------------------------------------- ----- ---------- ----------
Profit for the year 203 .3 184.4
Items that will not be reclassified subsequently
to the Consolidated Income Statement:
Actuarial (losses)/gains on defined benefit
pension plans (30.6) 22.5
Tax relating to components of other comprehensive
income that will not be reclassified 6 5.9 (4.0)
Items that may be reclassified subsequently
to the Consolidated Income Statement:
Effective portion of changes in fair value of
cash flow hedges 1.0 (0.5)
Deferred tax in respect of cash flow hedges
accounted for in the hedging reserve 6 (0.2) 0.1
Exchange (losses)/gains on translation of foreign
operations and net investment hedge (72.7) 29.1
Exchange (gains)/losses on translation of foreign
operations recycled to the income statement
on disposal (2.8) 0.1
Other comprehensive (expense)/income for the
year (99.4) 47.3
-------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the year 103.9 231.7
-------------------------------------------------- ----- ---------- ----------
Attributable to
Owners of the parent 104.0 231.7
Non-controlling interests (0.1) -
-------------------------------------------------- ----- ---------- ----------
The exchange losses of GBP72.7m (2020: gains of GBP29.1m)
includes gains of GBP19.9m (2020: losses of GBP11.9m) which relate
to net investment hedges .
Consolidated Balance Sheet
31 March 31 March
2021 2020
Notes GBPm GBPm
--------------------------------------------- ----- -------- --------
Non-current assets
Goodwill 808.5 838.4
Other intangible assets 290.0 328.4
Property, plant and equipment 180.8 184.3
Interest in associates and other investments 9.3 4.8
Retirement benefit asset - 5.4
Tax receivable 11 13.9 -
Deferred tax asset 1.3 1.3
--------------------------------------------- ----- -------- --------
1,303.8 1,362.6
--------------------------------------------- ----- -------- --------
Current assets
Inventories 167.8 170.6
Trade and other receivables 268.0 286.6
Tax receivable 2.5 10.7
Cash and bank balances 134.1 106.3
Derivative financial instruments 1.7 1.0
--------------------------------------------- ----- -------- --------
574.1 575.2
--------------------------------------------- ----- -------- --------
Total assets 1,877.9 1,937.8
--------------------------------------------- ----- -------- --------
Current liabilities
Trade and other payables 186.7 186.7
Borrowings 3.0 75.1
Lease liabilities 13.3 13.0
Provisions 35.4 28.0
Tax liabilities 8.9 9.4
Derivative financial instruments 0.7 1.0
--------------------------------------------- ----- -------- --------
248.0 313.2
--------------------------------------------- ----- -------- --------
Net current assets 326.1 262.0
--------------------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 322.3 345.0
Lease liabilities 51.7 48.5
Retirement benefit obligations 22.5 10.6
Trade and other payables 16.8 13.3
Provisions 8.4 21.6
Deferred tax liabilities 40.6 48.7
--------------------------------------------- ----- -------- --------
462.3 487.7
--------------------------------------------- ----- -------- --------
Total liabilities 710.3 800.9
--------------------------------------------- ----- -------- --------
Net assets 1,167.6 1,136.9
--------------------------------------------- ----- -------- --------
Equity
Share capital 38.0 38.0
Share premium account 23.6 23.6
Own shares (20.9) (14.3)
Capital redemption reserve 0.2 0.2
Hedging reserve 0.7 (0.1)
Translation reserve 73.2 148.7
Other reserves (13.6) (7.7)
Retained earnings 1,065.8 949.2
--------------------------------------------- ----- -------- --------
Equity attributable to owners of the Company 1,167.0 1,137.6
--------------------------------------------- ----- -------- --------
Non-controlling interests 0.6 (0.7)
--------------------------------------------- ----- -------- --------
Total equity 1,167.6 1,136.9
--------------------------------------------- ----- -------- --------
The financial statements of Halma plc, company number 00040932,
were approved by the Board of Directors on 10 June 2021.
Andrew Williams Marc Ronchetti
Director Director
Consolidated Statement of Changes in Equity
Share Capital
Share premium Own redemption Hedging Translation Other Retained Non-controlling
capital account shares reserve reserve reserve reserves earnings interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
At 1 April 2020 38.0 23.6 (14.3) 0.2 (0.1) 148.7 (7.7) 949.2 (0.7) 1,136.9
Profit for the
year - - - - - - - 203.4 (0.1) 203.3
Other
comprehensive
income and
expense:
Exchange loss on
translation of
foreign
operations and
net
investment
hedge - - - - - (72.7) - - - (72.7)
Exchange gains
on
translation of
foreign
operations
recycled
to income
statement
on disposal - - - - - (2.8) - - - (2.8)
Actuarial losses
on defined
benefit
pension plans - - - - - - - (30.6) (30.6)
Effective
portion
of changes in
fair
value of cash
flow
hedges - - - - 1.0 - - - - 1.0
Tax relating to
components of
other
comprehensive
income
and expense - - - - (0.2) - - 5.9 - 5.7
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
Total other
comprehensive
income and
expense - - - - 0.8 (75.5) - (24.7) - (99.4)
Dividends paid - - - - - - - (63.7) - (63.7)
Share-based
payment
charge - - - - - - 11.9 - - 11.9
Deferred tax on
share-based
payment
transactions - - - - - - (0.4) - - (0.4)
Excess tax
deductions
related to
share-based
payments on
exercised
awards - - - - - - - 1.6 - 1.6
Purchase of own
shares - - (16.2) - - - - - - (16.2)
Performance
share
plan awards
vested - - 9.6 - - - (17.4) - - (7.8)
Adjustments to
non-controlling
interest
arising
on acquisition - - - - - - - - 1.4 1.4
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
At 31 March 2021 38.0 23.6 (20.9) 0.2 0.7 73.2 (13.6) 1,065.8 0.6 1,167.6
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
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 2021 the number of shares held by
the Employee Benefit Trust was 891,622 (2020: 760,894). The market
value of own shares was GBP21.2m (2020: GBP14.6m).
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.
Share Capital
Share premium Own redemption Hedging Translation Other Retained Non-controlling
capital account shares reserve reserve reserve reserves earnings interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
At 1 April 2019 38.0 23.6 (4.7) 0.2 0.3 119.5 (5.6) 810.1 - 981.4
Impact of
changes
in
Accounting
policies:
IFRS 16 'Leases' - - - - - - - (4.0) - (4.0)
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
Restated balance
at
1 April 2019 38.0 23.6 (4.7) 0.2 0.3 119.5 (5.6) 806.1 - 977.4
Profit for the
year - - - - - - - 184.4 - 184.4
Other
comprehensive
income and
expense:
Exchange gain on
translation of
foreign
operations and
net
investment
hedge - - - - - 29.1 - - - 29.1
Exchange loss on
translation of
foreign
operations
recycled
to income
statement
on disposal - - - - - 0.1 - - - 0.1
Actuarial gains
on
defined benefit
pension
plans - - - - - - - 22.5 - 22.5
Effective
portion
of changes in
fair
value of cash
flow
hedges - - - - (0.5) - - - - (0.5)
Tax relating to
components
of other
comprehensive
income and
expense - - - - 0.1 - - (4.0) - (3.9)
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
Total other
comprehensive
income and
expense - - - - (0.4) 29.2 - 18.5 - 47.3
Dividends paid - - - - - - - (61.2) - (61.2)
Share-based
payment
charge - - - - - - 10.5 - - 10.5
Deferred tax on
share-based
payment
transactions - - - - - - 0.5 - - 0.5
Excess tax
deductions
related to
share-based
payments on
exercised
awards - - - - - - - 1.4 - 1.4
Purchase of own
shares - - (16.7) - - - - - - (16.7)
Performance
share
plan awards
vested - - 7.1 - - - (13.1) - - (6.0)
Non-controlling
interest
arising on
acquisition - - - - - - - - (0.7) (0.7)
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
At 31 March 2020 38.0 23.6 (14.3) 0.2 (0.1) 148.7 (7.7) 949.2 (0.7) 1,136.9
---------------- ------- ------- ------ ---------- ------- ----------- -------- -------- --------------- -------
Consolidated Cash Flow Statement
Year ended Year ended
31 March 31 March
2021 2020
Notes GBPm GBPm
------------------------------------------------------- ----- ---------- ----------
Net cash inflow from operating activities 9 277.6 255.5
------------------------------------------------------- ----- ---------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment - owned
assets (22.8) (31.2)
Purchase of computer software (2.8) (2.6)
Purchase of other intangibles (1.2) (0.3)
Proceeds from sale of property, plant and equipment
and capitalised development costs 0.9 1.9
Development costs capitalised (15.4) (14.7)
Interest received 0.8 0.5
Acquisition of businesses, net of cash acquired 8 (46.4) (232.8)
Disposal of business 10 26.1 7.6
Purchase of equity investments (3.4) (4.8)
------------------------------------------------------- ----- ---------- ----------
Net cash used in investing activities (64.2) (276.4)
------------------------------------------------------- ----- ---------- ----------
Cash flows from financing activities
Dividends paid (63.7) (61.2)
Purchase of own shares (16.2) (16.7)
Interest paid (10.0) (11.1)
Proceeds from bank borrowings 9 - 308.1
Repayment of bank borrowings 9 (7.3) (151.7)
Repayment of loan notes 9 (72.2) -
Repayment of lease liabilities, net of interest (14.1) (13.7)
------------------------------------------------------- ----- ---------- ----------
Net cash generated (used in)/from financing activities (183.5) 53.7
------------------------------------------------------- ----- ---------- ----------
Increase in cash and cash equivalents 9 29.9 32.8
Cash and cash equivalents brought forward 105.4 72.1
Exchange adjustments (4.2) 0.5
------------------------------------------------------- ----- ---------- ----------
Cash and cash equivalents carried forward 9 131.1 105.4
------------------------------------------------------- ----- ---------- ----------
Year ended Year ended
31 March 31 March
2021 2020
Notes GBPm GBPm
---------------------------------------------------- ----- ---------- ----------
Reconciliation of net cash flow to movement in
net debt
Increase in cash and cash equivalents 29.9 32.8
Net cash outflow/(inflow) from repayment/(drawdown)
of bank borrowings 9 7.3 (156.4)
Loan notes repaid 9 72.2 0.1
Lease liabilities - additions including interest (25.0) (18.1)
Lease liabilities - arising on acquisition (0.5) (8.2)
Lease liabilities - extinguished on disposal 1.8 -
Repayment of lease liabilities 9 16.4 15.8
Exchange adjustments 17.0 (9.3)
---------------------------------------------------- ----- ---------- ----------
Decrease/(increase) in net debt 119.1 (143.3)
---------------------------------------------------- ----- ---------- ----------
Net debt brought forward (375.3) (181.7)
Impact of changes in accounting policies - IFRS
16 'Leases' - (50.3)
---------------------------------------------------- ----- ---------- ----------
Restated net debt brought forward (375.3) (232.0)
---------------------------------------------------- ----- ---------- ----------
Net debt carried forward (256.2) (375.3)
---------------------------------------------------- ----- ---------- ----------
Accounting Policies
Basis of presentation
The consolidated financial statements of Halma are prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and have also
applied International Financial Reporting Standards (IFRS) adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union (EU). The financial statements have also been
prepared in accordance with IFRS Interpretations Committee (IFRS
IC) interpretations issued and effective at the time of preparing
these financial statements.
The principal Group accounting policies are explained below and
have been applied consistently throughout the years ended 31 March
2021 and 31 March 2020, other than those noted below.
The Group accounts have been prepared under the historical cost
convention, except as described below under the headings
'Derivative financial instruments and hedge accounting', 'Financial
assets at fair value through other comprehensive income (FVOCI)',
'Pensions' and 'Business combinations and goodwill'.
New Standards and Interpretations applied for the first time in
the year ended 31 March 2021
The following Standards with an effective date of 1 January 2020
have been adopted without any significant impact on the amounts
reported in these financial statements:
- Amendments to IFRS 3: Definition of a Business
- Amendments to IAS 1 and IAS 8: Definition of Material
- Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39
and IFRS 7
- Conceptual Framework: Amendments to References to the
Conceptual Framework in IFRS Standards
In April 2021 the IFRS IC published its final agenda decision on
Configuration and Customisation ('CC') costs in a Cloud Computing
Arrangement. The agenda decision considers how a customer accounts
for configuration or customisation costs where an intangible asset
is not recognised in a cloud computing arrangement. The agenda
decision does not have a material impact on the Group in respect of
the current year or prior years. The Group is evaluating the IFRIC
publication in respect of costs expected to be incurred in the next
year and will update its accounting policy accordingly in the short
term to reflect the agenda decision published.
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 or UK):
- Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
- Reference to the Conceptual Framework - Amendments to IFRS
3
- Property, Plant and Equipment: Proceeds before Intended Use -
Amendments to IAS 16
- Onerous Contracts - Costs of Fulfilling a Contract -
Amendments to IAS 37
- Classification of Liabilities as Current or Non-current -
Amendments to IAS 1
- COVID-19 Related Rent Concessions - Amendment to IFRS 16
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.
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 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 as at 31
March 2021, its cash flows, liquidity position and borrowing
facilities are set out in the Strategic Review. In addition, note
27 of the Annual Report and Accounts 2021 contains further
information concerning the security, currency, interest rates and
maturity of the Group's borrowings.
The financial statements have been prepared on a going concern
basis. In adopting the going concern basis the Directors have
considered all of the above factors, including potential scenarios
and its principal risks as set out above. Under the potential
scenarios considered, which includes a severe but plausible
downside scenario, the Group remains within its debt facilities and
the attached financial covenants for the foreseeable future and the
Directors therefore believe, at the time of approving the financial
statements, that the Company is well placed to manage its business
risks successfully and remains a going concern. The key facts and
assumptions in reaching this determination are summarised
below.
Our financial position remains robust with committed facilities
totalling approximately GBP670m which includes a GBP550m Revolving
Credit Facility maturing in November 2023 of which GBP333.4m
remains undrawn at the date of this report. The earliest maturity
in these facilities is for GBP70.0m in January 2023. The financial
covenants on these facilities are for leverage (net debt/adjusted
EBITDA*) of not more than three times and for adjusted interest
cover of not less than four times.
* Net debt and adjusted EBITDA are on a pre-IFRS 16 basis for
covenant purposes.
Our base case scenario has been prepared using forecasts from
each of our operating companies as well as cash outflows on
acquisitions and dividends in line with pre COVID-19 levels. In
addition, a severe but plausible downside scenario has been
modelled showing trading at similar levels to those in the year
ended 31 March 2021. This reduction in trading to that currently
forecasted could be caused by further significant, unexpected
COVID-19 impacts or another significant downside event. In
mitigating the impacts of the downside scenario there are actions
that can be taken which are entirely discretionary to the business
such as acquisitions spend and dividend growth rates. In addition,
the Group has demonstrated strong resilience and flexibility in the
first half of the year in managing overheads which could be used to
further mitigate the impacts of the downside scenario.
Neither of these scenarios result in a breach of the Group's
available debt facilities or the attached covenants and accordingly
the Directors believe there is no material uncertainty in the use
of the going concern assumption.
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 measured at the proportionate share of the value of net
identifiable assets acquired; 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 Consolidated 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 has an indefinite
expected useful life and 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.
Payments for contingent consideration are classified as
investing activities within the consolidated cash flow statement,
with movements in contingent consideration provisions after the
measurement period included as a reconciling item between operating
profit and cash inflow from operating activities.
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
four and twenty years. The carrying value of intangible assets is
reviewed for impairment if events or changes in circumstances
indicate the carrying value may not be recoverable.
(b) Product development costs
Research expenditure is charged to the Consolidated Income
Statement in the financial year in which it is incurred.
Development expenditure is expensed 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, meeting the recognition
criteria of IAS 38 'Intangible Assets', 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.
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 in the period the expense relates
to.
Impairment of trade and other receivables
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 the
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.
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 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:
Critical accounting judgements
Goodwill impairment CGU groups
Determining whether goodwill is impaired requires management's
judgement in assessing cash generating unit (CGU) groups to which
goodwill should be 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 CGU groups is generally straightforward and
factual, however over time as new businesses are acquired and
management reporting structures change management reviews the CGU
groups to ensure they are still appropriate. There have been no
changes to the CGU groups in the current year.
Recoverability of non-current taxation assets
In the current year, determining the recoverability of tax
assets requires management's judgement in assessing the amounts
paid in relation to group financing partial exemption applicable to
UK controlled foreign companies as a result of the decision by the
European Commission that this constitutes state aid. Management's
assessment is that this represents a contingent liability and that
the GBP13.9m paid to HM Revenue & Customs (HMRC) in the year,
included within non-current assets on the balance sheet, will
ultimately be recovered ..
Key sources of estimation uncertainty
Contingent consideration changes in estimates
Determining the value of contingent consideration recognised as
part of the acquisition of a business requires management to
estimate 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
management 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's
performance in the post-acquisition period and the agreement of
final payments.
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 management estimates.
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
the use of management estimates.
The estimates made in relation to both acquired intangible
assets and capitalised development costs include identification of
relevant assets, future growth rates, expected inflation rates and
the discount rate used. Management also make estimates of the
useful economic lives of the intangible assets. Management engages
third party specialists to assist with the valuation assumption in
respect of acquired intangible assets.
Goodwill impairment future cash flows
The value in use calculation used to test for impairment of
goodwill involves an estimation of the present value of future cash
flows of CGU groups. The future cash flows are based on annual
budgets and forecasts of CGUs, as approved by the Board, to which
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 and growth rates. The
Board reviews these key assumptions (market-share, long-term growth
rates, and discount rates) and the sensitivity analysis around
these assumptions. Management believes that there is no reasonably
possible change in any of the key assumptions that would cause the
carrying value of any CGU group to exceed its recoverable
amount.
Defined benefit pension plan liabilities
Determining the value of the future defined benefit obligation
requires estimation in respect of the assumptions used to calculate
present values. These include future mortality, discount rate and
inflation. Management determines these assumptions in consultation
with an independent actuary.
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 2021, 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
provisioning is made for impairment.
Where the Group disposes of its entire interest in an associate
a gain or loss is recognised in the income statement on the
difference between the amount received on the sale of the associate
less the carrying value and costs of disposal.
Financial assets at fair value through other comprehensive
income
Financial assets at fair value through other comprehensive
income (FVOCI) comprise equity securities which are not held for
trading, and which the Group has irrevocably elected at initial
recognition to recognise as FVOCI. The Group considers this
classification relevant as these are strategic investments.
Financial assets at FVOCI are adjusted to the fair value of the
asset at the balance sheet date with any gain or loss being
recognised in other comprehensive income and held as part of other
reserves. On disposal any gain or loss is recognised in other
comprehensive income and the cumulative gains or losses are
transferred from other reserves to retained earnings.
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. Such reversals are recognised in the
Consolidated Income Statement. 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 and Right of Use assets
(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 (including Right of Use assets), corporate and deferred
taxation balances, defined benefit plan liabilities, contingent
purchase consideration, all components of net cash/borrowings,
lease liabilities 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, environmental technologies and health
markets. 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 satisfies its
performance obligation, 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. The transaction price is allocated to each
performance obligation on a relative standalone selling price
basis.
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 as
work progresses. Progress is measured with reference to the actual
cost incurred as a proportion of the total costs expected to be
incurred under the contract. 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. A
contract liability is only recognised on non-cancellable contracts
that provide unconditional rights to payment from the customer for
products and services that the Group has not yet completed
providing or that it will provide in the near future. Where
performance obligations are satisfied ahead of billing then a
contract asset will be recognised.
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').
Costs to obtain or fulfil a contract
The incremental costs of obtaining a contract with a customer
are capitalised as an asset if the Group expects to recover them.
Costs such as sales commissions may be incurred when the Group
enters into a new contract. Costs to obtain or fulfil a contract
are presented in the Consolidated Balance Sheet as assets until the
performance obligation to which they relate has been met. These
assets are amortised on consistent basis with how the related
revenue is recognised. Costs to obtain or fulfil a contract are
immaterial as at 31 March 2021 or 31 March 2020.
The Group applies the practical expedient in IFRS 15 (paragraph
94) and recognises incremental costs of obtaining a contract as an
expense when incurred if the amortisation period of the asset that
the Group would otherwise have recognised is one year or less.
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 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. Non-monetary assets and liabilities
denominated in foreign currencies are measured in terms of
historical costs using the exchange rate at the date of the initial
transaction. Any gain or loss arising on monetary assets and
liabilities 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 GBPnil 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.
Interest bearing loans and borrowings
Interest bearing loans and borrowings are initially recognised
in the balance sheet at fair value less directly attributable
transaction costs and are subsequently measured at amortised cost
using the effective interest rate method.
Trade payables
Trade payables are non-interest bearing and are stated at
amortised cost.
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. The Group continues to apply the requirements of IAS 39
for hedge accounting.
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.
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) Executive share plan
Under the Executive share plan, awards of shares are made to
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.
(c) 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 accumulated impairment and accumulated 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 improvements:
Long leases (more than 50 years unexpired) 2%
Short leases (less than 50 years unexpired) Period of lease
-------------------------------------------- ---------------
Plant, equipment and vehicles 8% to 33.3%
-------------------------------------------- ---------------
Leases
The Group assesses at contract inception whether a contract is,
or contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration. Where the Group determines the contract
is, or contains, a lease a right-of-use asset and a lease liability
is recognised at the lease commencement date.
The lease term is determined from the commencement date of the
lease and covers the non-cancellable term. If the Group has an
extension option, which it considers reasonably certain to
exercise, then the lease term will be considered to extend beyond
that non-cancellable period. If the Group has a termination option,
which it considers it reasonably certain to exercise, then the
lease term will be considered to be until the point the termination
option will take effect. The Group deem that it is not reasonably
certain to exercise an extension option or a termination option
with an exercise date past the planning horizon of five years.
The right-of-use asset is initially measured at cost, comprising
the initial amount of the lease liability plus any initial direct
costs incurred and an estimate of costs to restore the underlying
asset, less any lease incentives received. The right-of-use asset
is subsequently depreciated using the straight-line method from the
commencement date to the end of the lease term unless the
right-of-use asset is deemed to have a useful life shorter than the
lease term. The Group has taken the practical expedient to not
separate lease and non-lease components and so account for both as
a single lease component.
The right-of-use assets are also subject to impairment testing
under IAS 36. Refer to the previous section on Impairment of
non-current assets for further details.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the incremental borrowing rate. The lease payments
include fixed payments (including in-substance fixed payments) less
any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid under
residual value guarantees. Variable lease payments that depend on
an index or a rate, and amounts expected to be paid under residual
value guarantees are not material to the Group. The lease payments
also include the exercise price of a purchase option reasonably
certain to be exercised by the Group and payments of penalties for
terminating the lease, if the lease term reflects the Group
exercising the option to terminate. Variable lease payments that do
not depend on an index or a rate are recognised as expenses (unless
they are incurred to produce inventories) in the period in which
the event or condition that triggers the payment occurs. The lease
liability is measured at amortised cost using the effective
interest method by increasing the carrying amount to reflect
interest on the lease liability and by reducing the carrying amount
to reflect the lease payments made. The lease liability is
remeasured when there is a change in future lease payments arising
from a change in an index or a rate or a change in the Group's
assessment of whether it will exercise an extension or termination
option. When the lease liability is remeasured, a corresponding
adjustment is made to the right-of-use asset.
Payments associated with short-term leases or low-value assets
are recognised on a straight-line basis as an expense in the
Consolidated Income Statement. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets mostly comprise
of IT equipment and small items of office furniture. Lease payments
for short-term leases, low-value assets and variable lease payments
not included in the measurement of the lease liability are
classified as cash flows from operating activities within the
Consolidated Cash Flow Statement. The Group has classified the
principal and interest portions of lease payments within financing
activities.
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.
Notes to the Accounts
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 market
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 across a range of critical
industrial and logistics operations. Products include: specialised
interlocks that control critical processes safely; instruments that
detect hazardous gases and analyse air quality; and explosion
protection and corrosion monitoring systems. Products are generally
sold separately, with contracts less than one year in length.
Warranties are typically of an assurance nature. Revenue is
typically recognised as control passes on delivery or despatch.
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 protect people, property and assets and enable safe
movement in public spaces. Products include: fire detection
systems; specialist fire suppression systems; elevator safety
systems; security sensors; and people and vehicle flow
technologies. Products are generally sold separately, with
contracts typically less than one year in length. Warranties are
typically of an assurance nature. Revenue is recognised as control
passes on delivery or despatch.
Payment is typically due within 60 days of invoice.
Environmental & Analysis generates revenue providing
products and technologies that monitor and protect the environment,
ensuring the quality and availability of life-critical resources,
and use optical and imaging technologies in materials analysis.
Products include: market-leading optical, optoelectronic and
spectral imaging systems; water, air and gases monitoring
technologies; and systems for water analysis and treatment.
Products and services are generally sold separately. Warranties are
typically of an assurance nature, but some companies within the
Group offer extended warranties. Depending on the nature of the
performance obligation, revenue may be recognised as control passes
on delivery, despatch 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 can result 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 healthcare providers. Products
include: critical fluidic components used by medical diagnostics
and Original Equipment Manufacturers (OEMs), laboratory devices and
systems that provide valuable information to understand patient
health and enable providers to make decisions across the continuum
of care; technologies and solutions to enable in-vitro diagnostic
systems and life-science discoveries and development; and
technologies that enable positive outcomes across clinical
specialties. 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 despatch 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)
Year ended 31 March 2021
Revenue by sector and destination (all continuing
operations)
-----------------------------------------------------------------------------
Africa,
United Near and
States Mainland United Middle Other
of America Europe Kingdom Asia Pacific East countries Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================= =========== ======== ======== ============ ========= ========== =======
Process Safety 62.5 40.6 27.6 30.5 20.2 7.4 188.8
Infrastructure Safety 97.4 138.7 111.0 69.9 17.3 16.2 450.5
Environmental & Analysis 148.9 35.7 56.4 56.4 5.8 5.6 308.8
Medical 200.6 61.0 19.2 59.3 10.8 20.4 371.3
Inter-segmental sales (0.6) - (0.6) - - - (1.2)
------------------------- ----------- -------- -------- ------------ --------- ---------- -------
Revenue for the year 508.8 276.0 213.6 216.1 54.1 49.6 1,318.2
========================= =========== ======== ======== ============ ========= ========== =======
Year ended 31 March 2020
Revenue by sector and destination (all continuing
operations)
------------------------------------------------------------------------------
Africa,
United Near and
States Mainland United Middle Other
of America Europe Kingdom Asia Pacific East countries Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================= ============ ======== ======== ============ ========= ========== =======
Process Safety 67.0 39.7 28.7 33.2 21.8 9.6 200.0
Infrastructure Safety 105.5 142.9 109.9 70.9 22.6 14.7 466.5
Environmental & Analysis 157.3 34.3 67.2 51.9 7.1 7.2 325.0
Medical 180.7 59.6 15.4 57.3 11.7 22.5 347.2
Inter-segmental sales (0.2) (0.1) - - - - (0.3)
------------------------- ------------ -------- -------- ------------ --------- ---------- -------
Revenue for the year 510.3 276.4 221.2 213.3 63.2 54.0 1,338.4
========================= ============ ======== ======== ============ ========= ========== =======
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 GBP52.6m (2020: GBP53.1m). All revenue was otherwise derived
from the sale of products.
Year ended 31 March
2021
========================= ----------------------------------
Revenue
Revenue recognised
recognised at a point Total
over time in time Revenue
GBPm GBPm GBPm
========================= =========== =========== ========
Process Safety 0.6 188.2 188.8
Infrastructure Safety 3.4 447.1 450.5
Environmental & Analysis 69.2 239.6 308.8
Medical 20.6 350.7 371.3
Inter-segmental sales - (1.2) (1.2)
------------------------- ----------- ----------- --------
Revenue for the year 93.8 1,224.4 1,318.2
========================= =========== =========== ========
Year ended 31 March
2020
==================================
Revenue
Revenue recognised
recognised at a point Total
over time in time Revenue
GBPm GBPm GBPm
========================= =========== =========== ========
Process Safety 0.7 199.3 200.0
Infrastructure Safety 1.6 464.9 466.5
Environmental & Analysis 67.3 257.7 325.0
Medical 13.0 334.2 347.2
Inter-segmental sales - (0.3) (0.3)
------------------------- ----------- ----------- --------
Revenue for the year 82.6 1,255.8 1,338.4
========================= =========== =========== ========
Year ended 31 March 2021
--------------------------------------------------
Revenue
from Revenue
performance from
obligations Revenue performance
entered previously obligations
into and included satisfied
satisfied as in
in the contract previous Total
year liabilities periods Revenue
GBPm GBPm GBPm GBPm
========================= ============ ============ ============ ========
Process Safety 188.1 0.7 - 188.8
Infrastructure Safety 449.1 1.4 - 450.5
Environmental & Analysis 302.8 6.0 - 308.8
Medical 365.8 5.2 0.3 371.3
Inter-segmental sales (1.2) - - (1.2)
------------------------- ------------ ------------ ------------ --------
Revenue for the year 1,304.6 13.3 0.3 1,318.2
========================= ============ ============ ============ ========
Year ended 31 March 2020
--------------------------------------------------
Revenue
from Revenue
performance from
obligations Revenue performance
entered previously obligations
into and included satisfied
satisfied as in
in the contract previous Total
year liabilities periods Revenue
GBPm GBPm GBPm GBPm
========================= ============ ============ ============ ========
Process Safety 199.3 0.7 - 200.0
Infrastructure Safety 465.3 1.2 - 466.5
Environmental & Analysis 320.8 4.1 0.1 325.0
Medical 336.2 11.0 - 347.2
Inter-segmental sales (0.3) - - (0.3)
------------------------- ------------ ------------ ------------ --------
Revenue for the year 1,321.3 17.0 0.1 1,338.4
========================= ============ ============ ============ ========
The Group has unsatisfied (or partially satisfied) performance
obligations at the balance sheet date with an aggregate amount of
transaction price as follows. The time bands represented present
the expected timing of when the remaining transaction price will be
recognised as revenue.
Aggregate transaction price
allocated to
unsatisfied performance obligations
============================================
31 March
2021 Recognised Recognised Recognised
Total < 1 year 1-2 years > 2 years
GBPm GBPm GBPm GBPm
========================= ======== ========== ========== ==========
Process Safety 1.0 0.9 0.1 -
Infrastructure Safety 17.4 12.7 0.5 4.2
Environmental & Analysis 15.2 6.3 2.9 6.0
Medical 6.7 6.3 0.4 -
Inter-segmental sales - - - -
------------------------- -------- ---------- ---------- ----------
Total 40.3 26.2 3.9 10.2
========================= ======== ========== ========== ==========
Aggregate transaction price
allocated to
unsatisfied performance obligations
============================================
31 March
2020 Recognised Recognised Recognised
Total < 1 year 1-2 years > 2 years
GBPm GBPm GBPm GBPm
========================= ======== ========== ========== ==========
Process Safety 1.9 1.8 0.1 -
Infrastructure Safety 4.0 3.8 0.2 -
Environmental & Analysis 15.2 6.1 2.4 6.7
Medical 5.8 4.9 0.7 0.2
Inter-segmental sales - - - -
------------------------- -------- ---------- ---------- ----------
Total 26.9 16.6 3.4 6.9
========================= ======== ========== ========== ==========
Profit (all continuing
operations)
========================
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
------------------------------------------------- ----------- -----------
Segment profit before allocation of adjustments*
Process Safety 36.6 43.9
Infrastructure Safety 110.6 107.7
Environmental & Analysis 77.4 69.4
Medical 86.6 84.4
311.2 305.4
------------------------------------------------- ----------- -----------
Segment profit after allocation of adjustments*
Process Safety 30.3 38.6
Infrastructure Safety 96.5 83.4
Environmental & Analysis 92.2 62.6
Medical 66.8 77.9
Segment profit 285.8 262.5
Central administration costs (22.9) (26.3)
Net finance expense (10.0) (12.1)
------------------------------------------------- ----------- -----------
Group profit before taxation 252.9 224.1
Taxation (49.6) (39.7)
------------------------------------------------- ----------- -----------
Profit for the year 203.3 184.4
------------------------------------------------- ----------- -----------
* Adjustments include the amortisation of acquired intangible
assets; acquisition items; and significant restructuring costs and
profit or loss on disposal of operations. 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 on the previous page 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:
Year ended 31
March 2021
-------------- ------------------------------------------
Acquisition items
------------------------------------------
Disposal
Total of
Release amortisation operations
Amortisation of charge and
of acquired Adjustments fair value and restructuring
intangible Transaction to contingent adjustments acquisition (note
assets costs consideration to inventory items 10) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- -------------- ----------- -------------- ------------- ------------- ---------------- ------
Process Safety (5.5) - - (0.8) (6.3) - (6.3)
Infrastructure
Safety (11.7) - (2.4) - (14.1) - (14.1)
Environmental &
Analysis (8.6) - 1.3 - (7.3) 22.1 14.8
Medical (16.5) (1.9) 0.4 (1.8) (19.8) - (19.8)
----------------- -------------- ----------- -------------- ------------- ------------- ---------------- ------
Total Segment &
Group (42.3) (1.9) (0.7) (2.6) (47.5) 22.1 (25.4)
----------------- -------------- ----------- -------------- ------------- ------------- ---------------- ------
The transaction costs arose on the acquisition of Static Systems
(GBP0.5m) during the year and costs relating to Visiometrics
(GBP1.4m), both in the Medical sector.
The GBP0.7m adjustment to contingent consideration comprised: a
charge of GBP2.4m in Infrastructure Safety arising from an increase
in the estimate of the payables for Navtech (GBP1.5m) and FireMate
(GBP0.9m); a credit of GBP1.3m in Environmental & Analysis
arising from a decrease in estimate of the payables for Invenio
(GBP0.8m) and Enoveo (GBP0.5m), and a credit of GBP0.4m in Medical
arising from a decrease in the estimated payable for NeoMedix
(GBP1.7m), offset by an increase in estimate of the payable for
Infowave (GBP0.9m) and Spreo (GBP0.2m), and a charge of GBP0.2m
arising from exchange differences on balances denominated in
Euros.
The GBP2.6m release of fair value adjustments to inventory
relates to Sensit (GBP0.8m) in Process Safety and NovaBone
(GBP1.3m), Maxtec (GBP0.2m) and Static Systems (GBP0.3m) in
Medical. All amounts have now been released in relation to Sensit,
NovaBone, Maxtec and Static Systems.
Year ended
31 March 2020
-------------------------- ------------- --------------------------- ----------------------
Acquisition items
----------------------------------------
Disposal
Total of
Release amortisation operations
Amortisation of charge and
of acquired Adjustments fair value and restructuring
intangible Transaction to contingent adjustments acquisition (note
assets costs consideration to inventory items 10) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------- ----------- ------------- ------------ ------------- -------------- ------
Process Safety (4.2) (0.7) - (0.4) (5.3) - (5.3)
Infrastructure
Safety (11.0) (2.3) (8.2) (2.8) (24.3) - (24.3)
Environmental
& Analysis (9.2) (0.2) 2.6 - (6.8) - (6.8)
Medical (13.9) (2.7) 8.1 (0.9) (9.4) 2.9 (6.5)
---------------- ------------- ----------- ------------- ------------ ------------- -------------- ------
Total Segment
& Group (38.3) (5.9) 2.5 (4.1) (45.8) 2.9 (42.9)
---------------- ------------- ----------- ------------- ------------ ------------- -------------- ------
In the prior year, the transaction costs arose mainly on the
acquisitions during that year. In Process Safety they related to
the acquisition of Sensit (GBP0.7m). In Infrastructure Safety, they
related to the acquisition of Ampac (GBP2.1m) and FireMate
(GBP0.2m). In Environmental & Analysis, they related to the
acquisition of Invenio (GBP0.1m) and Enoveo (GBP0.1m). In Medical,
they mainly related to the acquisition of Infowave (GBP0.1m),
NeoMedix (GBP0.1m), NovaBone (GBP1.7m), Spreo (GBP0.1m) and Maxtec
(GBP0.3m).
The GBP2.5m adjustment to contingent consideration comprised: a
debit in Infrastructure Safety of GBP8.2m arising from an increase
in the estimate of the payable for Navtech; a credit of GBP2.6m in
Environmental & Analysis arising from decreases in estimates of
the payables for Mini-Cam (GBP2.6m) and Invenio (GBP0.1m), offset
by an increase in estimates of the payable for Enoveo (GBP0.1m);
and a credit of GBP8.1m in Medical arising from a decrease in
estimates of the payables for NovaBone (GBP8.0m) and Infowave
(GBP1.1m) offset by an increase in the estimate of the payable for
NeoMedix (GBP1.0m).
The GBP4.1m release of fair value adjustments to inventory
related to Sensit (GBP0.4m) in Process Safety, Navtech (GBP0.4m)
and Ampac (GBP2.4m) in Infrastructure Safety; and NeoMedix
(GBP0.3m), NovaBone (GBP0.5m), and Maxtec (GBP0.1m) in Medical. All
amounts have now been released in relation to Navtech, Ampac and
NeoMedix.
Information about major customers
No single customer accounts for more than 5% (2020: 5%) of the
Group's revenue.
2 Earnings per ordinary share
Basic and diluted earnings per ordinary share are calculated
using the weighted average of 379,157,495 shares in issue during
the year (net of shares purchased by the Company and held as own
shares) (2020: 379,086,833). 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 and profit or loss
on disposal of operations. 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:
Per ordinary
share
----------------------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2021 2020 2021 2020
GBPm GBPm pence pence
------------------------------------------------- ---------- ---------- ---------- ----------
Earnings from continuing operations attributable
to owners of the parent 203.4 184.4 53.61 48.66
Amortisation of acquired intangible assets
(after tax) 32.0 30.3 8.44 7.98
Acquisition transaction costs (after tax) 1.6 5.3 0.43 1.41
Adjustments to contingent consideration
(after tax) 0.7 (2.5) 0.20 (0.66)
Release of fair value adjustments to inventory
(after tax) 2.0 3.0 0.52 0.78
Disposal of operations and restructuring
(after tax) (17.1) (2.9) (4.53) (0.78)
Adjusted earnings attributable to owners
of the parent 222.6 217.6 58.67 57.39
------------------------------------------------- ---------- ---------- ---------- ----------
3 Alternative performance measures
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 31 March
2021 2020
GBPm GBPm
------------------------------------------------------ -------- --------
Profit after tax 203.3 184.4
Adjustments(1) 19.2 33.2
------------------------------------------------------ -------- --------
Adjusted profit after tax(1) 222.5 217.6
------------------------------------------------------ -------- --------
Total equity 1,167.6 1,136.9
Add back net retirement benefit obligations 22.5 5.2
Less associated deferred tax assets (4.0) (0.5)
Cumulative amortisation of acquired intangible assets 297.2 283.5
Historical adjustments to goodwill(2) 89.5 89.5
------------------------------------------------------ -------- --------
Total Invested Capital 1,572.8 1,514.6
------------------------------------------------------ -------- --------
Average Total Invested Capital(3) 1,543.7 1,426.5
------------------------------------------------------ -------- --------
Return on Total Invested Capital (ROTIC)(4) 14.4% 15.3%
------------------------------------------------------ -------- --------
Return on Capital Employed
31 March 31 March
2021 2020
GBPm GBPm
------------------------------------------------------- -------- --------
Profit before tax 252.9 224.1
Adjustments(1) 25.4 42.9
Net finance costs 10.0 12.1
Lease interest (2.3) (2.1)
======================================================= ======== ========
Adjusted operating profit(1) after share of results of
associates and lease interest 286.0 277.0
------------------------------------------------------- -------- --------
Computer software costs within intangible assets 6.0 5.9
Capitalised development costs within intangible assets 38.9 36.1
Other intangibles within intangible assets 3.4 3.1
Property, plant and equipment 180.8 184.3
Inventories 167.8 170.6
Trade and other receivables 268.0 286.6
Trade and other payables (186.7) (186.7)
Lease liabilities (13.3) (13.0)
Provisions (35.4) (28.0)
Net current tax receivable 7.5 1.3
Non-current trade and other payables (16.8) (13.3)
Non-current provisions (8.4) (21.6)
Non-current lease liabilities (51.7) (48.5)
Add back contingent purchase consideration 29.4 40.1
======================================================= ======== ========
Capital Employed 389.5 416.9
------------------------------------------------------- -------- --------
Average Capital Employed(3) 403.2 387.9
------------------------------------------------------- -------- --------
Return on Capital Employed (ROCE)(4) 70.9% 71.4%
------------------------------------------------------- -------- --------
1 Adjustments include the amortisation of acquired intangible
assets; acquisition items; and significant restructuring costs and
profit or loss on disposal of operations. Where after-tax measures,
these also include the associated taxation on adjusting items. 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
2019 Total Invested Capital and Capital Employed balances were
GBP1,338.3m and GBP358.9m 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 and lease
interest 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;
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; and
c. removing from the year prior to acquisition, any revenue
generated by sales to the acquired company which would have been
eliminated on consolidation had the acquired company been owned for
that period.
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
Adjusted*
profit
before
Revenue taxation
---------- ---------- -------- ---------- ---------- ---------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2021 2020 2021 2020
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Continuing operations 1,318.2 1,338.4 (1.5)% 278.3 267.0 4.2%
Acquired and disposed revenue/profit (72.4) (4.5) (12.6) (0.6)
===================================== ========== ========== ======== ========== ========== =========
Organic growth 1,245.8 1,333.9 (6.6)% 265.7 266.4 (0.3)%
Constant currency adjustment 14.0 - 2.6 -
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Organic growth at constant
currency 1,259.8 1,333.9 (5.6)% 268.3 266.4 0.7%
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
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 Adjusted*
segment
Revenue profit
---------- ---------- -------- ---------- ---------- ---------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2021 2020 2021 2020
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Continuing operations 188.8 200.0 (5.6)% 36.6 43.9 (16.7)%
Acquisition and currency adjustments (12.5) - (2.2) -
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Organic growth at constant
currency 176.3 200.0 (11.9)% 34.4 43.9 (21.5)%
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Infrastructure Safety Adjusted*
segment
Revenue profit
---------- ---------- -------- ---------- ---------- ---------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2021 2020 2021 2020
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Continuing operations 450.5 466.5 (3.4)% 110.6 107.7 2.7%
Acquisition and currency adjustments (7.4) (1.6) (1.7) -
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Organic growth at constant
currency 443.1 464.9 (4.7)% 108.9 107.7 1.2%
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Environmental & Analysis Adjusted*
segment
Revenue profit
---------- ---------- -------- ---------- ---------- ---------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2021 2020 2021 2020
GBPm GBPm % growth GBPm GBPm % growth
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Continuing operations 308.8 325.0 (5.0)% 77.4 69.4 11.4%
Acquisition and currency adjustments 4.5 (2.9) 1.4 (0.7)
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Organic growth at constant
currency 313.3 322.1 (2.7)% 78.8 68.7 14.7%
------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
Medical Adjusted*
segment
Revenue profit
---------- ---------- -------- ---------- ---------- ---------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2021 2020 2021 2020
GBPm GBPm % growth GBPm GBPm % growth
----------------------------- ---------- ---------- -------- ---------- ---------- ---------
Continuing operations 371.3 347.2 7.0% 86.6 84.4 2.6%
Acquisition and disposal and
currency adjustments (43.0) - (11.0) 0.1
----------------------------- ---------- ---------- -------- ---------- ---------- ---------
Organic growth at constant
currency 328.3 347.2 (5.4)% 75.6 84.5 (10.5)%
----------------------------- ---------- ---------- -------- ---------- ---------- ---------
* Adjustments include in the current and prior year the
amortisation of acquired intangible assets; acquisition items and
significant restructuring costs and profit or loss on disposal of
operations.
Adjusted operating profit
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
------------------------------------------- ---------- ----------
Operating profit 240.8 233.4
Add back:
Acquisition items (note 1) 5.2 7.5
Amortisation of acquired intangible assets 42.3 38.3
Adjusted operating profit 288.3 279.2
------------------------------------------- ---------- ----------
Adjusted operating cash flow
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
--------------------------------------------------------- ---------- ----------
Net cash from operating activities (note 9) 277.6 255.5
Add back:
Net acquisition costs paid 2.4 5.2
Taxes paid 53.8 52.4
Proceeds from sale of property, plant and equipment 0.9 1.9
Share awards vested not settled by own shares 7.8 6.0
Less:
Purchase of property, plant and equipment (22.8) (31.2)
Purchase of computer software and other intangibles (4.0) (2.9)
Development costs capitalised (15.4) (14.7)
========================================================= ========== ==========
Adjusted operating cash flow 300.3 272.2
--------------------------------------------------------- ---------- ----------
Cash conversion % (adjusted operating cash flow/adjusted
operating profit) 104% 97%
--------------------------------------------------------- ---------- ----------
4 Finance income
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
-------------------------------------------------------- ---------- ----------
Interest receivable 0.8 0.6
Net interest credit on pension plan liabilities 0.1 -
Fair value movement on derivative financial instruments 0.1 -
-------------------------------------------------------- ---------- ----------
1.0 0.6
-------------------------------------------------------- ---------- ----------
5 Finance expense
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
-------------------------------------------------------- ---------- ----------
Interest payable on borrowings 7.7 8.7
Interest payable on lease obligations 2.3 2.1
Amortisation of finance costs 0.7 0.7
Net interest charge on pension plan liabilities - 0.8
Other interest payable 0.1 0.2
-------------------------------------------------------- ---------- ----------
10.8 12.5
Fair value movement on derivative financial instruments 0.2 0.2
11.0 12.7
-------------------------------------------------------- ---------- ----------
6 Taxation
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
---------------------------------------------------------- ---------- ----------
Current tax
UK corporation tax at 19% (2020: 19%) 11.5 12.3
Overseas taxation 40.7 30.5
Adjustments in respect of prior years 1.7 (2.9)
---------------------------------------------------------- ---------- ----------
Total current tax charge 53.9 39.9
---------------------------------------------------------- ---------- ----------
Deferred tax
Origination and reversal of timing differences (4.4) (0.4)
Adjustments in respect of prior years 0.1 0.2
---------------------------------------------------------- ---------- ----------
Total deferred tax credit (4.3) (0.2)
---------------------------------------------------------- ---------- ----------
Total tax charge recognised in the Consolidated Income
Statement 49.6 39.7
---------------------------------------------------------- ---------- ----------
Reconciliation of the effective tax rate:
Profit before tax 252.9 224.1
Tax at the UK corporation tax rate of 19% (2020: 19%) 48.1 42.6
Overseas tax rate differences 6.3 6.1
Effect of intra-group financing (6.5) (6.2)
Tax incentives, exemptions and credits (including patent
box, R&D and High-Tech status) (4.4) (3.8)
Permanent differences 4.3 3.7
Adjustments in respect of prior years 1.8 (2.7)
---------------------------------------------------------- ---------- ----------
Total tax recognised in the Consolidated Income Statement 49.6 39.7
---------------------------------------------------------- ---------- ----------
Effective tax rate 19.6% 17.7%
---------------------------------------------------------- ---------- ----------
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
------------------------------------- ---------- ----------
Adjusted* profit before tax 278.3 267.0
Total tax charge on adjusted* profit 55.8 49.4
------------------------------------- ---------- ----------
Effective tax rate 20.1% 18.5%
------------------------------------- ---------- ----------
* Adjustments include the amortisation of acquired intangible
assets, acquisition items, significant restructuring costs and
profit or loss on disposal of operations. 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. The UK government announced in the Budget on 3 March
2021 an intention to increase the UK corporation tax rate from 19%
to 25% with effect from 1 April 2023. This change will impact the
value of our UK deferred tax balances as well as the tax charged on
UK profits from the effective date.
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 Year ended
31 March 31 March
2021 2020
GBPm GBPm
-------------------------------------------------------- ---------- ----------
Current tax
Retirement benefit obligations (2.5) -
Deferred tax
Retirement benefit obligations (3.4) 4.0
Effective portion of changes in fair value of cash flow
hedges 0.2 (0.1)
(5.7) 3.9
-------------------------------------------------------- ---------- ----------
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 Year ended
31 March 31 March
2021 2020
GBPm GBPm
----------------------------------------------------------- ---------- ----------
Current tax
Excess tax deductions related to share-based payments
on exercised awards (1.6) (1.4)
Deferred tax
Change in estimated excess tax deductions related to
share-based payments 0.4 (0.5)
Impact of changes in accounting policies: IFRS 16 'Leases' - (0.9)
----------------------------------------------------------- ---------- ----------
(1.2) (2.8)
----------------------------------------------------------- ---------- ----------
7 Dividends
Per ordinary
share
----------------------
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2021 2020 2021 2020
pence pence GBPm GBPm
---------------------------------------------------- ---------- ---------- ---------- ----------
Amounts recognised as distributions to shareholders
in the year
Final dividend for the year ended 31 March
2020 (31 March 2019) 9.96 9.60 37.7 36.4
Interim dividend for the year ended 31 March
2021 (31 March 2020) 6.87 6.54 26.0 24.8
---------------------------------------------------- ---------- ---------- ---------- ----------
16.83 16.14 63.7 61.2
---------------------------------------------------- ---------- ---------- ---------- ----------
Dividends declared in respect of the year
Interim dividend for the year ended 31 March
2021 (31 March 2020) 6.87 6.54 26.0 24.8
Proposed final dividend for the year ended
31 March 2021 (31 March 2020) 10.78 9.96 40.8 37.7
---------------------------------------------------- ---------- ---------- ---------- ----------
17.65 16.50 66.8 62.5
---------------------------------------------------- ---------- ---------- ---------- ----------
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting on 22 July 2021 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 2021, the Group completed the
acquisition of the Static Systems Group.
Below are summaries of the assets acquired and liabilities
assumed and the purchase consideration of:
a) the total of acquisitions;
b) Static Systems Group; and
c) 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, decreased the goodwill recognised by
GBP1.3m (2020: GBP2.7m increase).
As at the date of approval of the financial statements, the
acquisition accounting for all prior year acquisitions is complete.
The accounting for the current year acquisitions is provisional;
relating to finalisation of certain provisional balances.
a) Total of acquisitions
Total
GBPm
-------------------------------------------------------------- ------
Non-current assets
Intangible assets 15.4
Property, plant and equipment 3.5
Current assets
Inventories 2.0
Trade and other receivables 2.5
Cash and cash equivalents 7.9
-------------------------------------------------------------- ------
Total assets 31.3
-------------------------------------------------------------- ------
Current liabilities
Trade and other payables (3.7)
Lease liabilities (0.2)
Provisions (0.1)
Corporation tax (0.2)
Non-current liabilities
Lease liabilities (0.3)
Provisions (3.2)
Deferred tax (2.5)
-------------------------------------------------------------- ------
Total liabilities (10.2)
-------------------------------------------------------------- ------
Net assets of businesses acquired 21.1
-------------------------------------------------------------- ------
Non-controlling interest (1.4)
-------------------------------------------------------------- ------
Initial cash consideration paid 37.0
Additional amounts paid in respect of cash acquired and other
adjustments 6.9
Total consideration 43.9
============================================================== ======
Goodwill arising on acquisitions (current year) 20.6
Goodwill arising on acquisitions (prior year) 3.6
Total goodwill 24.2
-------------------------------------------------------------- ------
Analysis of cash outflow in the Consolidated Cash Flow
Statement
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
------------------------------------------------------------ ---------- ----------
Initial cash consideration paid 37.0 226.2
Cash acquired on acquisitions (7.9) (8.0)
Initial cash consideration adjustment and other amounts
paid to vendors on current year acquisitions 6.9 4.1
Contingent consideration paid and loan notes repaid in
cash in relation to prior year acquisitions* 10.4 10.5
------------------------------------------------------------ ---------- ----------
Net cash outflow relating to acquisitions (per Consolidated
Cash Flow Statement) 46.4 232.8
------------------------------------------------------------ ---------- ----------
* The GBP10.4m comprises GBP9.9m contingent consideration paid
and GBP0.5m other amounts in respect of prior period acquisitions
all of which had been provided in the prior period's financial
statements.
b) Static Systems Group
Total
GBPm
-------------------------------------------------------------- -----
Non-current assets
Intangible assets 15.4
Property, plant and equipment 3.6
Current assets
Inventories 2.0
Trade and other receivables 2.4
Cash and cash equivalents 7.9
-------------------------------------------------------------- -----
Total assets 31.3
============================================================== =====
Current liabilities
Trade and other payables (3.9)
Lease liabilities (0.2)
Provisions (0.1)
Corporation tax payable (0.2)
Non-current liabilities
Lease liabilities (0.3)
Deferred tax (3.3)
-------------------------------------------------------------- -----
Total liabilities (8.0)
-------------------------------------------------------------- -----
Net assets of business acquired 23.3
-------------------------------------------------------------- -----
Initial cash consideration paid 37.0
Additional amounts paid in respect of cash acquired and other
adjustments 6.9
Total consideration 43.9
-------------------------------------------------------------- -----
Goodwill arising on acquisition 20.6
-------------------------------------------------------------- -----
On 18 December 2020, the Group acquired the Static Systems Group
('Static Systems') for an initial cash consideration of GBP37.0m
adjustable for cash acquired and other adjustments. The adjustment
was determined to be GBP6.9m. The acquisition comprised of the
entire share capital of Static Systems Holdings Limited and its
subsidiary Static Systems Group Limited (formerly Static Systems
Group Plc).
Static Systems, based in Wolverhampton, UK, is a designer,
manufacturer and installer of critical communication systems, which
are central to UK healthcare trusts' patient care infrastructure.
Its technology enables hospital patients to alert healthcare
specialists in an emergency, protecting lives and decreasing the
response time of care provided. The company continues to run under
its own management team and has become part of the Group's Medical
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 GBP7.3m; trade name of GBP2.2m and
technology related intangibles of GBP5.9m; with residual goodwill
arising of GBP20.6m. 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 provide a route to the UK healthcare market
for certain existing products and services within the Group's
Medical sector.
Static Systems contributed GBP6.6m of revenue and GBP1.0m of
profit after tax for the year ended 31 March 2021.
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 GBP14.9m higher and GBP1.7m
higher respectively.
Acquisition costs totalling GBP0.5m were recorded in the
Consolidated Income Statement.
The goodwill arising on the Static Systems acquisition is not
expected to be deductible for tax purposes.
c) Adjustments in respect of prior year acquisitions
Total
GBPm
---------------------------------------------------------------- -----
Current liabilities
Trade and other payables 0.2
Non-current liabilities
Provisions (3.2)
Deferred tax 0.8
Total liabilities (2.2)
---------------------------------------------------------------- -----
Net adjustments to assets of businesses acquired in prior years (2.2)
---------------------------------------------------------------- -----
Non-controlling interest (1.4)
---------------------------------------------------------------- -----
Adjustment to goodwill 3.6
---------------------------------------------------------------- -----
In finalising the acquisition accounting for the prior year
acquisition of NeoMedix, an adjustment of GBP3.2m was made to
include a legal provision in relation to a case in existence at the
acquisition date. There was an adjustment made to decrease the
related deferred tax liability of GBP0.7m. Overall this resulted in
an increase in goodwill of GBP2.5m.
In finalising the acquisition accounting for the prior year
acquisition of Ampac, an adjustment of GBP0.2m was made to decrease
trade and other payables and GBP0.1m was made to reduce deferred
tax. Overall this resulted in a corresponding decrease in goodwill
of GBP0.3m.
In finalising the acquisition accounting for the prior year
acquisition of FireMate, a correction of the calculation of
non-controlling interest was made resulting in an increase in
goodwill of GBP1.4m.
The adjustments were not material and as such the comparative
balance sheet was not restated; instead the adjustments have been
made through the current year.
9 Notes to the Consolidated Cash Flow Statement
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
------------------------------------------------------------- ---------- ----------
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 profit on disposal of operations 240.8 233.4
Financial instruments at fair value through profit or
loss - 0.1
Depreciation and impairment of property, plant and equipment 37.8 35.8
Amortisation and impairment of computer software 2.8 2.2
Amortisation of capitalised development costs and other
intangibles 8.3 8.4
Impairment of capitalised development costs 1.9 5.2
Amortisation of acquired intangible assets 42.3 38.3
Share-based payment expense in excess of amounts paid 3.7 4.8
Payments to defined benefit pension plans net of charge (13.1) (12.5)
Loss/(profit) on sale of property, plant and equipment
and computer software 0.7 (0.1)
------------------------------------------------------------- ---------- ----------
Operating cash flows before movement in working capital 325.2 315.6
Increase in inventories (6.7) (5.1)
Decrease/(increase) in receivables 4.3 (9.0)
Increase in payables and provisions 7.9 8.9
Revision to estimate of, and exchange differences arising
on, contingent consideration payable 0.7 (2.5)
------------------------------------------------------------- ---------- ----------
Cash generated from operations 331.4 307.9
Taxation paid (53.8) (52.4)
------------------------------------------------------------- ---------- ----------
Net cash inflow from operating activities 277.6 255.5
------------------------------------------------------------- ---------- ----------
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
-------------------------------------------- ---------- ----------
Analysis of cash and cash equivalents
Cash and bank balances 134.1 106.3
Overdrafts (included in current borrowings) (3.0) (0.9)
-------------------------------------------- ---------- ----------
Cash and cash equivalents 131.1 105.4
-------------------------------------------- ---------- ----------
Net cash/
1 April Cash (debt) Net (cash)/ Loan notes Exchange 31 March
2020 flow acquired debt disposed repaid Additions adjustments 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------- ----- --------- -------------- ---------- --------- ------------ --------
Analysis of net debt
Cash and bank balances 106.3 24.5 7.9 (0.4) - - (4.2) 134.1
Overdrafts (0.9) (2.1) - - - - - (3.0)
-------------------------- ------- ----- --------- -------------- ---------- --------- ------------ --------
Cash and cash equivalents 105.4 22.4 7.9 (0.4) - - (4.2) 131.1
Loan notes falling due
within one year (74.2) - - - 72.2 - 2.0 -
Loan notes falling due
after more than one
year (108.6) - - - - - 3.3 (105.3)
Bank loans falling due
after more than one
year (236.4) 7.3 - - - - 12.1 (217.0)
Lease liabilities (61.5) 16.4 (0.5) 1.8 - (25.0) 3.8 (65.0)
-------------------------- ------- ----- --------- -------------- ---------- --------- ------------ --------
Total net debt (375.3) 46.1 7.4 1.4 72.2 (25.0) 17.0 (256.2)
-------------------------- ------- ----- --------- -------------- ---------- --------- ------------ --------
The net increase in cash and cash equivalents of GBP29.9m
comprised cash inflow of GBP22.4m, cash acquired of GBP7.9m and
cash disposed of GBP0.4m.
The net cash outflow from loan notes of GBP72.2m arose on the
maturity of the first tranche of USPP loan notes in January
2021.
The net cash outflow from bank loans of GBP7.3m comprised
repayments of GBP7.3m.
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 cash flows from financing
activities in the Consolidated Cash Flow Statement.
Trade and
Total other payables
liabilities falling
from financing due within
Borrowings Leases Overdraft activities one year
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----------- ------- ---------- ---------------- ----------------
At 1 April 2019 253.8 50.3 9.1 313.2 164.8
Cash flows from financing activities 156.3 (15.8) - 140.5 (9.0)
Acquisition of subsidiaries - 8.2 - 8.2 11.4
Exchange adjustments 9.1 0.7 - 9.8 0.5
Other changes* - 18.1 (8.2) 9.9 19.0
-------------------------------------- ----------- ------- ---------- ---------------- ----------------
At 31 March 2020 419.2 61.5 0.9 481.6 186.7
-------------------------------------- ----------- ------- ---------- ---------------- ----------------
Cash flows from financing activities (79.5) (16.4) - (95.9) (7.8)
Acquisition/disposal of subsidiaries - (1.3) - (1.3) 2.7
Exchange adjustments (17.4) (3.8) - (21.2) (5.2)
Other changes* - 25.0 2.1 27.1 10.3
-------------------------------------- ----------- ------- ---------- ---------------- ----------------
At 31 March 2021 322.3 65.0 3.0 390.3 186.7
-------------------------------------- ----------- ------- ---------- ---------------- ----------------
* Other changes include movements in overdraft which is treated
as cash, interest accruals, reclassifications from non-current to
current liabilities, lease additions and other movements in working
capital balances.
10 Disposal of operations
During the current year the Group recognised a profit on
disposal of operations of GBP22.1m (2020: GBP2.9m), which comprised
the following:
On 17 December 2020, the Group disposed of its entire interest
in Fiberguide Industries, Inc. to a third party for proceeds of
US$37.6m (GBP27.6m). This transaction resulted in the recognition
of a gain in the Consolidated Income Statement as follows:
GBPm
--------------------------------------------------------------- -----
Proceeds of disposal 27.6
Less: net assets on disposal (including deferred tax) (3.9)
Less: allocation of goodwill disposed (3.8)
Less: costs of disposal (1.1)
Add: foreign exchange gain recycled to the Consolidated Income
Statement on disposal 2.8
--------------------------------------------------------------- -----
Profit on disposal 21.6
--------------------------------------------------------------- -----
On 26 March 2021, OneThird B.V., a company that was incorporated
to spin-out the food technology start-up business from Ocean
Insight, issued new shares for EUR0.8m (GBP0.7m) to external
investors that reduced the Group's ownership interest from 60% to
35.3% resulting in a gain on deemed disposal of GBP0.5m (net of
disposal costs of GBP0.4m). Following the partial disposal OneThird
B.V. meets the tests to be accounted for as an associate.
Cash received on disposal of operations in the year of GBP26.1m
comprised proceeds from the sale of Fiberguide Industries Inc., of
GBP27.6m, less GBP1.1m of disposal costs, less disposal costs of
GBP0.4m relating to the spin-out and partial disposal of OneThird
B.V..
In the prior year, in January 2020, the Group disposed of its
entire interest in Optomed Oy to third parties for sale proceeds of
GBP7.6m less disposal costs of GBP0.4m. GBP0.8m was also received
from escrow relating to the previous sale of Accudynamics.
11 Contingent liabilities
Group financing exemptions applicable to UK controlled foreign
companies
On 24 November 2017, the European Commission (EC) published an
opening decision that the United Kingdom controlled foreign company
('CFC') group financing partial exemption ('FCPE') constitutes
State Aid. On 2 April 2019, the EC's final decision concluded that
the FCPE rules, as they applied up to 31 December 2018, constitute
State Aid. As previously reported, the Group has benefitted from
the FCPE with the total benefit for the periods from 1 April 2013
to 31 December 2018 being approximately GBP15.4m in respect of
tax.
Appeals have been made by the UK government, the Group and other
UK-based groups to annul the EC decision. Notwithstanding these
appeals, under EU law, the UK government is required to commence
collection proceedings. In January 2021, the Group received a
Charging Notice from HM Revenue & Customs (HMRC) for GBP13.9m
assessed for the period from 1 April 2016 to 31 December 2018. The
Group has appealed against the notice but as there is no right of
postponement the amount charged was paid in full in February 2021.
In February 2021, the Group received confirmation from HMRC that it
was not a beneficiary of State Aid for the period from 1 April 2013
to 31 March 2016.
The final impact on the Group remains uncertain. However, based
on its current assessment, the Group considers that the appeal will
be successful and therefore GBP13.9m is included within non-current
assets on the Consolidated Balance Sheet to reflect the Group's
view that the amount paid will ultimately be recovered.
In April 2021, a Charging Notice for GBP0.8m was received. The
GBP0.8m comprised interest on the GBP13.9m assessment noted above
and the interest was paid in May 2021.
The Group's maximum potential exposure at 31 March 2021 in
respect of recoverability of non-current assets is GBP13.9m.
Other contingent liabilities
The Group has widespread global operations and is consequently a
defendant in many legal, tax and customs proceedings incidental to
those operations. In addition, there are contingent liabilities
arising in the normal course of business in respect of indemnities,
warranties and guarantees. These contingent liabilities are not
considered to be unusual or material in the context of the normal
operating activities of the Group. Provisions have been recognised
in accordance with the Group accounting policies where required.
None of these claims are expected to result in a material gain or
loss to the Group.
12 Events subsequent to end of reporting period
From 1 April 2021, the Group aligned its organisational
structure and financial reporting with our purpose and focus on
safety, environmental and health markets. The three sectors are
called Safety, Environmental & Analysis, and Medical. Each
sector is led by a Sector CEO and small sector support team.
Process Safety has been combined with Infrastructure Safety to form
a single Safety sector, with the exception of the Group's two Gas
sensor companies (Crowcon and Sensit), which have moved from
Process Safety to Environmental & Analysis. We will report on
the basis of this revised structure in the Interim Statement for
the six months ending 30 September 2021.
On 27 April 2021, the Group acquired PeriGen, Inc., (PeriGen),
based in North Carolina, USA. PeriGen's advanced technology
protects mothers and their unborn babies by alerting doctors,
midwives and nurses to potential problems during childbirth. The
cash consideration for PeriGen was US$58m (approximately GBP42m),
on a cash and debt free basis. A detailed purchase price allocation
exercise is currently being performed to calculate the goodwill
arising on acquisition. The company continues to run under its own
management team and has become part of the Group's Medical
sector.
The Group has also acquired the following bolt-on
acquisitions.
On 1 April 2021, Fortress Interlocks Pty Limited, an industrial
access control company in the Group's Safety sector, bought the
assets and IP associated with monitored safety valves from
FluidSentry Pty in Australia for consideration of A$0.6m
(GBP0.3m).
On 26 April 2021, Argus Security S.R.L., a fire safety company
in the Group's Safety sector, purchased its Italian distributor for
consideration of EUR0.5m (GBP0.4m).
On 30 April 2021, Crowcon Detection Instruments Limited, a
company in the Group's Environmental & Analysis sector
purchased its UK flue gas analyser distribution partner, Anton
Industrial Services Limited, for consideration of GBP1.9m.
On 3 May 2021, the Group acquired Orca GmbH, a German
manufacturer of ultraviolet disinfection systems, primarily for the
food and beverage sector, for an initial consideration of EUR6.2m
(GBP5.3m). T he maximum contingent consideration payable is EUR2.5m
(GBP2.2m) based on profit-based targets for the years ending 31
March 2022, 31 March 2023 and 31 March 2024. The company has become
part of the Group's Environmental & Analysis sector.
On 7 May 2021 , Rudolf Riester GmbH, a company in the Group's
Medical sector acquired RNK, a US-based digital stethoscope
company, for an initial consideration of US$2.7m (GBP1.9m).
There were no other known material non-adjusting events which
occurred between the end of the reporting period and prior to the
authorisation of these financial statements on 10 June 2021.
13 Related party transactions
Trading transactions
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
--------------------------------------- ---------- ----------
Associated companies
Transactions with associated companies
Purchases from associated companies - 1.0
Balances with associated companies
Amounts due to associated companies - -
--------------------------------------- ---------- ----------
Other related parties
Balances with other related parties
Amounts due to other related parties - -
--------------------------------------- ---------- ----------
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 Annual Remuneration Report in the Annual Report and
Accounts 2021.
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
--------------------------- ---------- ----------
Wages and salaries 6.1 7.8
Pension costs 0.1 0.2
Share-based payment charge 4.4 4.3
--------------------------- ---------- ----------
10.6 12.3
--------------------------- ---------- ----------
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
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