Interim / Quarterly Report • Sep 30, 2017
Interim / Quarterly Report
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Halma plc Half Year Report 2017/18
Our purpose and strategy
Growing a safer, cleaner and healthier future for everyone, every day.
Our companies have a core focus on safety, health and the environment and our products provide innovative solutions for many of the key problems facing the world today.
Our strategy is to acquire and grow businesses in relatively non-cyclical, specialised global niche markets. The technology and application know-how in each company delivers strong competitive advantage to sustain growth and high returns.
Revenue (£m) Adjusted profit before taxation (£m) £506.3m +15% £94.5m +13% (2016/17: £442.1m) (2016/17: £83.6m)
Interim dividend declared (per share) Return on sales (%)
5.71p +7% 18.7% (2016/17: 5.33p) (2016/17: 18.9%)
| Continuing operations | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | £506.3m | £442.1m | +15% |
| Adjusted Profit before Taxation1,5 | £94.5m | £83.6m | +13% |
| Adjusted Earnings per Share2,5 | 19.37p | 17.23p | +12% |
| Statutory Profit before Taxation | £76.8m | £65.2m | +18% |
| Statutory Earnings per Share | 16.27p | 13.79p | +18% |
| Interim Dividend per Share3 | 5.71p | 5.33p | +7% |
| Return on Sales4 | 18.7% | 18.9% | |
| Return on Total Invested Capital5 | 13.4% | 13.8% | |
| Net Debt | £181.0m | £237.3m |
Halma made strong progress during the first half of the year. Revenue increased by 15% to £506m (2016/17: £442m) including a positive currency translation impact of 5%. Organic revenue growth at constant currency was 9%.
Adjusted profit before taxation1 increased by 13% to £94.5m (2016/17: £83.6m) including a positive currency translation impact of 5%. Organic profit growth at constant currency was 8%.
Return on Sales1 remained strong at 18.7% (2016/17: 18.9%). The Gross Margin % was very slightly below the prior year, with two sectors up and two down.
Our companies increased R&D expenditure by 19% to £27.3m (2016/17: £23.0m) representing 5.4% of Group revenue (2016/17: 5.2%) with higher rates of investment in the Medical and Environmental & Analysis sectors.
The Board has declared an increase of 7% in the interim dividend to 5.71p per share (2016/17: 5.33p per share). The interim dividend will be paid on 7 February 2018 to shareholders on the register on 29 December 2017. For the past 38 years we have increased our full year dividend by 5% or more each year.
We achieved revenue growth across all major regions including organic growth at constant currency in each region.
Asia Pacific revenue increased by 20%, including 14% organic constant currency growth. All sectors grew with Infrastructure Safety and
Environmental & Analysis sectors delivering the strongest growth. Sales to Asia Pacific exceeded those to the UK for the first time.
The USA remains our largest sales destination contributing 36% of total revenue, growing 13% in the half year, 6% at organic constant currency.
Revenue in Mainland Europe increased by 14% and in the UK by 9% with both regions achieving 9% organic constant currency growth. Growth in the Near and Middle East, Canada and Brazil contributed to the strong growth in Other regions.
The tables below summarise revenue growth by destination and by sector, including the underlying rates of organic growth at constant currency. Organic constant currency rates exclude the effect of currency translation and acquisitions.
| External revenue by destination | Half year 2017/18 |
Half year 2016/17 |
% organic growth at |
||||
|---|---|---|---|---|---|---|---|
| £m | % of total |
£m | % of total |
Change £m |
% growth |
constant currency |
|
| United States of America | 181.8 | 36% | 160.8 | 36% | 21.0 | 13% | 6% |
| Mainland Europe | 109.0 | 21% | 96.0 | 22% | 13.0 | 14% | 9% |
| United Kingdom | 79.8 | 16% | 72.9 | 16% | 6.9 | 9% | 9% |
| Asia Pacific | 83.9 | 17% | 69.7 | 16% | 14.2 | 20% | 14% |
| Other regions | 51.8 | 10% | 42.7 | 10% | 9.1 | 21% | 14% |
| 506.3 | 100% | 442.1 | 100% | 64.2 | 15% | 9% |
| External revenue by sector | Half year 2017/18 |
Half year 2016/17 |
% organic growth at |
||
|---|---|---|---|---|---|
| £m | £m | Change £m |
% growth |
constant currency |
|
| Process Safety | 88.8 | 76.7 | 12.1 | 16% | 12% |
| Infrastructure Safety | 167.9 | 148.0 | 19.9 | 13% | 10% |
| Medical | 133.3 | 118.7 | 14.6 | 12% | 5% |
| Environmental & Analysis | 116.5 | 98.8 | 17.7 | 18% | 11% |
| Inter-segmental revenue | (0.2) | (0.1) | (0.1) | – | – |
| 506.3 | 442.1 | 64.2 | 15% | 9% |
Infrastructure Safety revenue increased by 13% to £167.9m (2016/17: £148.0m) including 10% organic constant currency growth and a 3% positive impact from currency translation. There was growth in all major market segments with strong growth in People & Vehicle flow. These trends contributed to double-digit organic constant currency increases in Asia Pacific, Mainland Europe and Other regions with steady growth in the UK. Weaker demand in our Fire businesses resulted in a mid singledigit organic constant currency revenue decline in the USA.
Profit2 grew by 12% to £35.7m (2016/17: £32.0m) including 9% organic constant currency growth and a 3% positive impact from currency translation. Return on Sales was a healthy 21.4% (2016/17: 21.6%). R&D expenditure increased by 7% to £9.4m (2016/17: £8.8m). The sector is expected to make continued progress in the second half.
In November 2017, following the period end, we acquired Setco as a bolt-on for our global Elevator Safety business, Avire. Setco is based in Barcelona, Spain and adds new wireless communications technology which is highly complementary to Avire's existing product range and new product development roadmap.
Medical revenue was up by 12% to £133.3m (2016/17: £118.7m) including 5% organic constant currency growth, a 1% benefit from acquisitions in the last year and a 6% positive impact from currency translation. Our Ophthalmology and Sensors businesses progressed well. We saw weaker performance in our Patient Assessment businesses but our acquisitions of CasMed and Cardios during the first half add new blood pressure monitoring technology and geographic presence to this market segment. The integration of both businesses is proceeding well.
There was healthy single-digit organic constant currency revenue growth in the UK, the USA and Other regions. Organic constant currency revenue was slightly up in Asia Pacific and slightly down in Mainland Europe.
Profit2 was £28.7m, which was marginally below the prior year's £28.9m. This included 6% organic constant currency decline and a 6% positive impact from currency translation. Return on Sales reduced from 24.3% in 2016/17 to 21.6%, due to both a drop in Gross Margin % mainly due to mix effect and an increase in overhead spend. The majority of this overhead spend was targeted investment in sales, marketing and new product development, where R&D spend grew by 25% to £5.9m (2016/17: £4.7m).
The sector has taken action to control discretionary costs, which is expected to improve profitability during the second half of the year.
Environmental & Analysis revenue rose by 18% to £116.5m (2016/17: £98.8m) including 11% organic constant currency growth, a 2% benefit from acquisitions and a 5% positive impact from currency translation. There was growth in all main business segments with a strong performance in Spectroscopy & Photonics. Organic constant currency revenue from the UK and Asia Pacific increased significantly. There was steadier organic growth from the USA and small organic declines from Mainland Europe and Other regions.
Profit2 improved by an impressive 36% to £21.8m (2016/17: £16.0m). Organic constant currency profit growth was 27% and there was a 2% benefit from acquisitions in the last year. Currency translation had a 7% positive impact. Return on Sales improved significantly from 16.2% up to 18.7%, as a result of revenue growth this year and the trading impact (and benefit) of restructuring completed in the first half of last year. There was an improvement in the Gross Margin % and increased investment in new product development. R&D spend increased by 33% to £8.9m (2016/17: £6.7m) to represent 7.6% of revenue.
The integration of FluxData, acquired in January 2017, is proceeding well. Companies both inside and outside the sector are exploring collaborative projects using their multi-spectral imaging technologies. Following the half year end, the acquisition of
Mini-Cam in October 2017 added new waste water pipeline monitoring solutions to our group of Water businesses.
The sector is well positioned to make progress in the second half, albeit with a stronger prior year comparator.
Process Safety revenue increased by 16% to £88.8m (2016/17: £76.7m). There was organic constant currency growth of 12% and a 4% benefit from currency translation. The Safety Interlocks and Pressure Relief segments had good growth. Gas Detection was in line with the prior year. There was organic constant currency growth in all major regions, with particularly high growth in the USA and Other regions. There was good progress in Mainland Europe and Asia Pacific with steadier growth from the UK.
Profit2 increased by 16% to £20.2m (2016/17: £17.4m) including 13% organic constant currency growth and a 3% positive impact from currency translation. Return on Sales improved marginally to 22.8% (2016/17: 22.7%). R&D spend was up 11% to £3.1m (2016/17: £2.8m). The sector continues to benefit from increased market diversification and improved demand from the USA onshore energy market while other segments of the Oil and Gas market remain depressed. Despite the tougher comparators, the sector is well placed to make progress in the second half.
In July 2017, we acquired Cas Medical Systems, Inc's (CasMed) non-invasive blood pressure monitoring product line for an initial cash consideration of \$4.5m (£3.4m) with up to a further \$2m (£1.5m) payable based on achievement of certain sales targets.
In August 2017, we completed the acquisition of Cardios Sistemas Comercial e Industrial Ltda (Cardios) located in Brazil. The initial cash consideration was R\$50m (£12.4m) with further payment of up to R\$5m (£1.2m) payable based on future growth.
In October 2017, following the period end, we acquired Mini-Cam Enterprises Limited and its subsidiaries (Mini-Cam). The initial consideration was £62m, on a cash and debt-free basis, with up to a further £23.1m payable based on annualised profit growth to the end of March 2020.
In November 2017, we acquired Setco S.A. for a cash consideration of €17m (£15.1m). Consolidated 31 December 2016 profit, adjusted to IFRS, was €1.7m (£1.5m).
These transactions demonstrate our ability to find attractive, high quality businesses both in, and adjacent to, our existing sectors. The pipeline of potential acquisitions has continued to build across all sectors during the year.
Halma has always had a strong sense of purpose to make a positive impact on people's lives.
This core belief has helped us to build strong competitive positions in market niches with long-term growth drivers and has contributed to our sustained success.
Over many years, these fundamentals have been strengthened further by a relentless determination to increase strategic investment in innovation, international expansion and talent development, both centrally and within each sector.
The desire to make a positive difference to people's lives is encompassed in our newly articulated purpose of 'Growing a safer, cleaner and healthier future for everyone, every day'. This refined purpose statement will help to provide greater alignment across the Group as we confront the challenges and opportunities of the 4th Industrial Revolution, where technologies and industries are converging to create new value.
Our portfolio of companies means that we are uniquely positioned to take advantage of these opportunities. As we continue to evolve our strategy we will ensure that we use our ecosystem to leverage the diverse skills and assets we have at our disposal to create even more value for the Group.
This means that in addition to our commitment to continuing to grow our Core, we are exploring new ways to help our companies to add growth opportunities which require a Convergence of technologies and capabilities between two or more businesses and new business models.
In addition, we are building a stronger network of internal and external partnerships to provide us with a greater insight into new digital growth strategies or technologies at the Edge of our current strategic horizons.
Currency translation had a positive impact on the half year results. We report our results in Sterling with approximately 45% of Group revenue denominated in US Dollars and approximately 15% in Euros. Average exchange rates are used to translate results in the Income Statement. Sterling weakened during the first half of 2017/18 and has remained relatively weak in the period since. This resulted in a 5% positive currency translation impact on Group revenue and profit in the first half of 2017/18 relative to 2016/17. In the second half of 2017/18, if exchange rates remain at current levels, we expect the positive currency impact seen in the first half to reverse, resulting in a small positive impact for the year as a whole.
On an IAS19 basis the deficit on the Group's defined benefit plans at the half year has reduced to £66.8m (1 April 2017: £74.9m) before the related deferred tax asset. The value of plan liabilities reduced due to an increase in the discount rate used to value those liabilities and further employer contributions also reduced the plan deficit. There will be a triennial valuation of the two UK defined benefit pension plans as at December 2017 and April 2018, leading to a review of the amount and timing of future employer contributions to reduce the pension deficit.
Cash conversion (adjusted operating cash flow as a percentage of adjusted operating profit) was 84% (2016/17: 84%) just below our cash conversion target of 85%. Working capital increased more than in the first half of the prior year with higher rates of underlying revenue growth and
inventory for new products. As well as continued organic investment, dividend and tax payments increased this half year. Capital expenditure of £10.1m (2016/17: £11.4m) was 12% lower than the prior year due primarily to less property related expenditure.
Net debt at the end of the period was £181m (1 April 2017: £196m). Gearing (the ratio of net debt to EBITDA) at half year end was 0.8 times (1 April 2017: 0.86 times), comfortably within our typical operating range of up to 2 times gearing.
In November 2017 we extended the £550m Revolving Credit Facility, put in place in November 2016, by a further year to 2022. The combination of good cash generation, a healthy balance sheet and committed external financial resources provides us with the capacity we need to invest in organic growth and acquisitions to meet our growth objectives as well as to sustain our progressive dividend policy.
A number of potential risks and uncertainties exist which could have a material impact on the Group's performance over the second half of the financial year and could cause actual results to differ materially from expected and historical results. The Group has processes in place for identifying, evaluating and managing key risks. These risks, together with a description of our approach to mitigating them, are set out on pages 22 to 27 of the Annual Report and Accounts 2017, which is available on the Group's website at www.halma.com. The principal risks and uncertainties relate to operational, strategic, legal, financial, cyber, people and economic issues. See note 15 to the Condensed Financial Statements for further details.
The UK referendum decision in June 2016 and the subsequent triggering of Article 50 in March 2017 mean that the UK is now scheduled to leave the European Union by the end of March 2019. This decision has created a new dimension to the uncertainties surrounding global economic growth.
In 2016/17, approximately 10% of Group revenue came from direct sales between the UK and Mainland Europe. To date, the following Brexit risks have been identified as having an actual and/or potential impact on our business:
Halma has an executive working group to assess and monitor the potential impact on us of Brexit, to communicate updates and support our businesses in preparing for the range of possible outcomes.
Our decentralised model, with businesses in diverse markets and locations, will enable each Halma company to adapt quickly to changing trading conditions. This agility, together with the regulation driven demand for many of our products and services, will help us to mitigate any adverse impact and also take advantage of the opportunities presented by the decision to leave the European Union.
In 2017/18, the Board commissioned an external review of Halma's cyber related control framework. This review highlighted the strengths of our existing structure and identified further improvements in cyber controls and assurance.
The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report and Accounts 2017 and confirm that they remain relevant for the second half of the financial year. As part of their ongoing assessment of risk throughout the period, the Directors have considered the above risks in the context of the Group's delivery of its financial objectives. Movements in foreign exchange rates continue to remain a risk to financial performance.
After conducting a review of the Group's financial resources, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Condensed Financial Statements.
In July 2017, the Board announced that Marc Ronchetti, currently Group Financial Controller, will succeed Kevin Thompson as Group Finance Director. The transition process is underway and it is anticipated that it will be completed no later than 31 July 2018.
Halma has continued to make strong progress, delivering record revenue, profit and dividends for shareholders. The diversity of our business and the evolution of our organisational model through our four sectors is enabling us to sustain growth in varied market conditions. Since the period end, order intake has continued to be ahead of revenue and order intake last year. Halma remains on track to make progress in the second half of the year in line with the Board's expectations.
Chief Executive
1 See Highlights, page 1.
2 See note 2 to the Condensed Financial Statements.
We have reviewed Halma plc's half year financial information (the "interim financial statements") in the Half Year Report of Halma plc for the 6 months ended 30 September 2017. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
The interim financial statements included in the half year report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The Half Year Report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half year report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the half year report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Chartered Accountants Uxbridge 21 November 2017
| Unaudited | Unaudited | Audited | ||||||
|---|---|---|---|---|---|---|---|---|
| 6 months to | 26 weeks to | 52 weeks to | ||||||
| 30 September 2017 | 1 October 2016 | 1 April 2017 | ||||||
| Before | Adjustments* | Before | Adjustments* | |||||
| adjustments* | (note 2) | Total | adjustments* | (note 2) | Total | Total | ||
| Notes | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| Continuing operations | ||||||||
| Revenue | 2 | 506,329 | – | 506,329 | 442,121 | – | 442,121 | 961,662 |
| Operating profit | 99,489 | (17,722) | 81,767 | 88,564 | (18,405) | 70,159 | 167,070 | |
| Share of results | ||||||||
| of associates | (112) | – | (112) | (43) | – | (43) | (81) | |
| Finance income | 3 | 106 | – | 106 | 96 | – | 96 | 494 |
| Finance expense | 4 | (4,942) | – | (4,942) | (4,987) | – | (4,987) | (9,780) |
| Profit before taxation | 94,541 | (17,722) | 76,819 | 83,630 | (18,405) | 65,225 | 157,703 | |
| Taxation | 5 | (21,083) | 5,979 | (15,104) | (18,398) | 5,385 | (13,013) | (28,014) |
| Profit for the period | ||||||||
| attributable to equity | ||||||||
| shareholders | 73,458 | (11,743) | 61,715 | 65,232 | (13,020) | 52,212 | 129,689 | |
| Earnings per share | ||||||||
| from continuing | ||||||||
| operations | 6 | |||||||
| Basic and diluted | 19.37p | 16.27p | 17.23p | 13.79p | 34.25p | |||
| Dividends in respect | ||||||||
| of the period | 7 | |||||||
| Dividends paid and | ||||||||
| proposed (£000) | 21,678 | 20,183 | 51,916 | |||||
| Per share | 5.71p | 5.33p | 13.71p |
* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; profit on disposal of operations; and the associated taxation thereon.
| Unaudited | Unaudited | Audited | |
|---|---|---|---|
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| £000 | £000 | £000 | |
| Profit for the period | 61,715 | 52,212 | 129,689 |
| Items that will not be reclassified subsequently to the Income Statement: | |||
| Actuarial gains/(losses) on defined benefit pension plans | 3,506 | (45,838) | (31,059) |
| Tax relating to components of other comprehensive income that will | |||
| not be reclassified | (667) | 9,168 | 6,082 |
| Items that may be reclassified subsequently to the Income Statement: | |||
| Effective portion of changes in fair value of cash flow hedges | (265) | (453) | 1,197 |
| Exchange (losses)/gains on translation of foreign operations | |||
| and net investment hedge | (36,687) | 57,825 | 74,810 |
| Tax relating to components of other comprehensive income that | |||
| may be reclassified | 51 | 91 | (233) |
| Other comprehensive (expense)/income for the period | (34,062) 20,793 27,653 73,005 |
50,797 | |
| Total comprehensive income for the period attributable to equity shareholders | 180,486 |
The exchange losses of £36,687,000 (26 weeks to 1 October 2016 gains: £57,825,000; 52 weeks to 1 April 2017 gains: £74,810,000) include gains of £6,915,000 (26 weeks to 1 October 2016 losses: £16,267,000; 52 weeks to 1 April 2017 losses: £21,305,000) which relate to net investment hedges.
| Unaudited | Unaudited | Audited | |
|---|---|---|---|
| 30 September | 1 October | 1 April | |
| Notes | 2017 £000 |
2016 £000 |
2017 £000 |
| Non-current assets | |||
| Goodwill | 586,757 | 586,940 | 603,553 |
| Other intangible assets | 216,420 | 235,473 | 234,430 |
| Property, plant and equipment | 102,620 | 103,417 | 106,016 |
| Interests in associates | 3,431 | 3,660 | 3,553 |
| Deferred tax asset | 55,340 | 52,725 | 56,866 |
| 964,568 | 982,215 | 1,004,418 | |
| Current assets | |||
| Inventories | 124,231 | 113,757 | 118,780 |
| Trade and other receivables | 203,408 | 179,659 | 212,236 |
| Tax receivable | 386 | 474 | 124 |
| Cash and cash equivalents | 71,671 | 76,093 | 66,827 |
| Derivative financial instruments 12 |
592 | 135 | 598 |
| 400,288 | 370,118 | 398,565 | |
| Total assets | 1,364,856 | 1,352,333 | 1,402,983 |
| Current liabilities | |||
| Trade and other payables | 125,730 | 109,841 | 134,816 |
| Borrowings | 180 | 2,161 | 1,351 |
| Provisions | 4,752 | 5,571 | 6,776 |
| Tax liabilities | 14,897 | 12,446 | 16,055 |
| Derivative financial instruments 12 |
410 | 1,920 | 315 |
| 145,969 | 131,939 | 159,313 | |
| Net current assets | 254,319 | 238,179 | 239,252 |
| Non-current liabilities | |||
| Borrowings | 252,481 | 311,252 | 261,918 |
| Retirement benefit obligations 11 |
66,825 | 94,024 | 74,856 |
| Trade and other payables | 11,383 | 11,387 | 11,221 |
| Provisions | 16,888 | 18,859 | 16,917 |
| Deferred tax liabilities | 95,995 | 94,304 | 100,121 |
| 443,572 | 529,826 | 465,033 | |
| Total liabilities | 589,541 | 661,765 | 624,346 |
| Net assets | 775,315 | 690,568 | 778,637 |
| Equity | |||
| Share capital | 37,965 | 37,965 | 37,965 |
| Share premium account | 23,608 | 23,608 | 23,608 |
| Own shares | (3,669) | (4,896) | (7,263) |
| Capital redemption reserve | 185 | 185 | 185 |
| Hedging reserve | 140 | (972) | 354 |
| Translation reserve | 113,510 | 133,212 | 150,197 |
| Other reserves | (10,294) | (9,481) | (6,323) |
| Retained earnings | 613,870 | 510,947 | 579,914 |
| Shareholders' funds | 775,315 | 690,568 | 778,637 |
| Share capital £000 |
Share premium account £000 |
Own shares £000 |
Capital redemption reserve £000 |
Hedging reserve £000 |
Translation reserve £000 |
Other reserves £000 |
Retained earnings £000 |
Total £000 |
|
|---|---|---|---|---|---|---|---|---|---|
| At 1 April 2017 | |||||||||
| (audited) | 37,965 | 23,608 | (7,263) | 185 | 354 | 150,197 | (6,323) | 579,914 | 778,637 |
| Profit for the period | – | – | – | – | – | – | – | 61,715 | 61,715 |
| Other comprehensive | |||||||||
| income and expense: | |||||||||
| Exchange differences | |||||||||
| on translation of | |||||||||
| foreign operations | – | – | – | – | – | (36,687) | – | – | (36,387) |
| Actuarial gains on | |||||||||
| defined benefit | |||||||||
| pension plans | – | – | – | – | – | – | – | 3,506 | 3,506 |
| Effective portion of | |||||||||
| changes in fair value | |||||||||
| of cash flow hedges | – | – | – | – | (265) | – | – | – | (265) |
| Tax relating to | |||||||||
| components of other | |||||||||
| comprehensive | |||||||||
| income and expense | – | – | – | – | 51 | – | – | (667) | (616) |
| Total other | |||||||||
| comprehensive | |||||||||
| income and expense | – | – | – | – | (214) | (36,687) | – | 2,839 | (34,062) |
| Dividends paid | – | – | – | – | – | – | – | (31,733) | (31,733) |
| Share-based | |||||||||
| payments charge | – | – | – | – | – | – | 3,532 | – | 3,532 |
| Deferred tax on | |||||||||
| share-based | |||||||||
| payment | |||||||||
| transactions | – | – | – | – | – | – | (563) | – | (563) |
| Excess tax | |||||||||
| deductions related | |||||||||
| to share-based | |||||||||
| payments on | |||||||||
| exercised awards | – | – | – | – | – | – | – | 1,135 | 1,135 |
| Performance share | |||||||||
| plan awards vested | – | – | 3,594 | – | – | – | (6,940) | – | (3,346) |
| At 30 September | |||||||||
| 2017 (unaudited) | 37,965 | 23,608 | (3,669) | 185 | 140 | 113,510 | (10,294) | 613,870 | 775,315 |
For the 6 months to 30 September 2017
Own shares are ordinary shares in Halma plc purchased by the Company and held to fulfil the Company's obligations under the Company's share plans. As at 30 September 2017 the number of treasury shares held was 3,990 (1 October 2016: 462,188; 1 April 2017: 462,188) and the number of shares held by the Employee Benefit Trust was 421,991 (1 October 2016: 262,417 and 1 April 2017: 512,417).
| Share | Capital | |||||||
|---|---|---|---|---|---|---|---|---|
| Share | premium | Own | redemption | Hedging | Translation | Other | Retained | |
| capital | account | shares | reserve | reserve | reserve | reserves | earnings | Total |
| £000 | ||||||||
| 646,340 | ||||||||
| – | – | – | – | – | – | – | 52,212 | 52,212 |
| 57,825 | ||||||||
| (45,838) | ||||||||
| (453) | ||||||||
| 9,259 | ||||||||
| – | – | – | – | 57,825 | – | (36,670) | 20,793 | |
| (29,609) | ||||||||
| 3,110 | ||||||||
| – | – | – | – | – | – | (127) | – | (127) |
| – | – | – | – | – | – | – | 1,159 | 1,159 |
| – | – | 3,323 | – | – | – | (6,633) | – | (3,310) |
| 37,965 | 23,608 | 185 | 133,212 | (9,481) | 510,947 | 690,568 | ||
| £000 37,965 – – – – – – |
£000 23,608 – – – – – – |
£000 – – – – – – |
£000 (8,219) 185 – – – – – – (4,896) |
£000 – – 91 – – |
£000 (610) 75,387 57,825 – (453) – – (362) – – (972) |
£000 (5,831) – – – – – 3,110 |
£000 523,855 – (45,838) – 9,168 (29,609) – |
| For the 52 weeks to 1 April 2017 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Share capital £000 |
Share premium account £000 |
Own shares £000 |
Capital redemption reserve £000 |
Hedging reserve £000 |
Translation reserve £000 |
Other reserves £000 |
Retained earnings £000 |
Total £000 |
|
| At 2 April 2016 (audited) | 37,965 | 23,608 | (8,219) | 185 | (610) | 75,387 | (5,831) | 523,855 | 646,340 |
| Profit for the period | – | – | – | – | – | – | – | 129,689 | 129,689 |
| Other comprehensive income and expense: |
|||||||||
| Exchange differences on translation of foreign operations |
– | – | – | – | – | 74,810 | – | – | 74,810 |
| Actuarial losses on defined benefit pension plans |
– | – | – | – | – | – | – | (31,059) | (31,059) |
| Effective portion of changes in fair value of cash flow hedges |
– | – | – | – | 1,197 | – | – | – | 1,197 |
| Tax relating to components of other comprehensive income and expense |
– | – | – | – | (233) | – | – | 6,082 | 5,849 |
| Total other | |||||||||
| comprehensive income and expense |
– | – | – | – | 964 | 74,810 | – | (24,977) | 50,797 |
| Dividends paid | – | – | – | – | – | – | – | (49,788) | (49,788) |
| Share-based payments charge |
– | – | – | – | – | – | 6,076 | – | 6,076 |
| Deferred tax on share based |
|||||||||
| payment transactions | – | – | – | – | – | – | 65 | – | 65 |
| Excess tax deductions related to share-based payments on exercised |
|||||||||
| awards | – | – | – | – | – | – | – | 1,135 | 1,135 |
| Purchase of Own shares | – | – | (2,368) | – | – | – | – | – | (2,368) |
| Performance share plan awards vested |
– | – | 3,324 | – | – | – | (6,633) | – | (3,309) |
| At 1 April 2017 (audited) | 37,965 | 23,608 | (7,263) | 185 | 354 | 150,197 | (6,323) | 579,914 | 778,637 |
| Unaudited | Unaudited | Audited | |
|---|---|---|---|
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| Notes | £000 | £000 | £000 |
| Net cash inflow from operating activities 8 |
76,025 | 70,345 | 172,493 |
| Cash flows from investing activities | |||
| Purchase of property, plant and equipment | (9,134) | (10,728) | (21,875) |
| Purchase of computer software | (972) | (702) | (2,479) |
| Purchase of other intangibles | (117) | (209) | (281) |
| Proceeds from sale of property, plant and equipment | 1,177 | 287 | 1,495 |
| Development costs capitalised | (5,034) | (4,814) | (10,731) |
| Interest received | 106 | 96 | 211 |
| Acquisition of businesses, net of cash acquired 10 |
(17,086) | (148) | (9,972) |
| Net cash used in investing activities | (31,060) | (16,218) | (43,632) |
| Cash flows from financing activities | |||
| Dividends paid | (31,733) | (29,609) | (49,788) |
| Purchase of Own shares | – | – | (2,368) |
| Interest paid | (3,545) | (3,489) | (7,023) |
| Loan arrangement fee paid | – | – | (2,656) |
| Proceeds from bank borrowings | 30,748 | – | – |
| Repayment of bank borrowings | (33,300) | – | (54,761) |
| Net cash used in financing activities | (37,830) | (33,098) | (116,596) |
| Increase in cash and cash equivalents | 7,135 | 21,029 | 12,265 |
| Cash and cash equivalents brought forward | 65,637 | 49,526 | 49,526 |
| Exchange adjustments | (1,106) | 3,713 | 3,846 |
| Cash and cash equivalents carried forward | 71,666 | 74,268 | 65,637 |
| Unaudited | Unaudited | Audited | |
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 £000 |
2016 £000 |
2017 £000 |
|
| Reconciliation of net cash flow to movement in net debt | |||
| Increase in cash and cash equivalents | 7,135 | 21,029 | 12,265 |
| Net cash outflow from repayment of bank borrowings | 2,552 | – | 54,761 |
| Loan notes repaid in respect of acquisitions | 161 | 241 | 241 |
| Exchange adjustments | 5,604 | (11,873) | (16,991) |
| 15,452 | 9,397 | 50,276 | |
| Net debt brought forward | (196,442) | (246,718) | (246,718) |
| Net debt carried forward | (180,990) | (237,321) | (196,442) |
The Half Year Report, which includes the Interim Management Report and Condensed Financial Statements for the 6 months to 30 September 2017, was approved by the Directors on 21 November 2017.
Effective from this financial year, the Group changed its reporting basis from weeks to calendar months. The Half Year Report is prepared for the 6 month period to 30 September 2017 and the Annual Report will be prepared for the year to 31 March 2018. For the current financial year, 26 weeks is equivalent to 6 months so there is no difference between presentation on a weekly or calendar months basis.
The Report has been prepared solely to provide additional information to shareholders as a body to assess the Board's strategies and the potential for those strategies to succeed. It should not be relied on by any other party or for any other purpose.
The Report contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the Report. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events.
The Report has been prepared in accordance with International Accounting Standard 34, applying the accounting policies and presentation that were applied in the preparation of the Group's statutory accounts for the 52 weeks to 1 April 2017, with the exception of the policy for taxes on income, which in the interim period is accrued using the effective tax rate that would be applicable to expected total income for the financial year.
The figures shown for the 52 weeks to 1 April 2017 are based on the Group's statutory accounts for that period and do not constitute the Group's statutory accounts for that period as defined in Section 434 of the Companies Act 2006. These statutory accounts, which were prepared under International Financial Reporting Standards, have been filed with the Registrar of Companies. The audit report on those accounts was not qualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying the report, and did not contain statements under Sections 498 (2) or (3) of the Companies Act 2006.
At the date of authorisation of this Half Year Report, 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):
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 with the exception of IFRS 9 'Financial Instruments', IFRS 15 'Revenue from Contracts with Customers', and IFRS 16 'Leases' where our review of the impact is ongoing as described below.
For the Group, transition to IFRS 15 will take effect from 1 April 2018. The half year results for FY18/19 will be IFRS 15 compliant with the first Annual Report published in accordance with IFRS 15 being the 31 March 2019 report. The Group plans to adopt a fully retrospective transition approach and so comparatives for the year ended 31 March 2018 will be restated.
IFRS 15 sets out the requirements for recognising revenue from contracts with customers. The standard requires entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a stand-alone selling price basis, based on a five-step model.
The Group is making good progress in quantifying the full impact of this standard. Having performed an impact assessment in FY16/17, during the first half of FY17/18 the Group has been working through a comprehensive transition exercise at each of its subsidiaries. The autonomous nature of the Group means that each subsidiary sets its own terms and conditions and operating procedures and as such this was the appropriate level for the transition exercise. The transition exercise has involved scoping the Group's revenues to identify revenue streams with like commercial terms and performing sample contract reviews to determine the appropriate revenue recognition under IFRS 15. To ensure a consistent approach to the exercise and consistent judgements, the exercise has been supported from the centre through setting the approach to transition, and providing appropriate tools and guidance, including a revised Group Accounting Manual.
The review and conclusion of this exercise is ongoing, including reviewing the consistency of judgements between companies and review by the Group's auditor. Based on the initial views of the companies we do not expect there to be a material change in the timing or quantum of revenue recognition.
The following areas of potential differences were identified from our initial impact assessment which are being investigated as part of our transition exercise:
For the Group, transition to IFRS 9 will take effect from 1 April 2018. The half year results for FY18/19 will be IFRS 9 compliant with the first Annual Report published in accordance with IFRS 9 being the 31 March 2019 report. There is no requirement to restate comparatives.
IFRS 9 provides a new expected losses impairment model for financial assets, including trade receivables, and includes amendments to classification and measurement of financial instruments.
During this half year the Group has undertaken a high-level review of the impact of this new standard on its financial statements. The Group's use of financial instruments is limited to short-term trading balances such as receivables and payables, borrowings and derivatives used for hedging foreign exchange risks. We therefore expect that the impact of this standard will be limited to classification of financial instruments and the measurement of impairment of short-term financial assets using the expected losses impairment model.
Through the second half of the year we will be working to establish an appropriate impairment model and accompanying processes to be applied to receivables by our companies. However, the nature of the financial assets is such that we do not expect there will be a material change in level of impairment recognised compared to that based on current procedures.
For the Group, transition to IFRS 16 will take effect from 1 April 2019. The half year results for FY19/20 will be IFRS 16 compliant with the first Annual Report published in accordance with IFRS 16 being for the year ending 31 March 2020.
IFRS 16 provides a single model for lessees which recognises a right of use asset and lease liability for all leases which are longer than one year or which are not classified as low value. The distinction between finance and operating leases for lessees is removed.
The Group is currently assessing the impact of the new standard. The most significant impact currently identified will be that the Group's land and buildings leases will be brought on to the balance sheet. Further assessment of other leases is currently ongoing. The Group's future lease commitments for land and buildings as at 1 April 2017, which provides an indicator of the value to be brought on to the balance sheet, was £45m.
The Directors believe the Group is well placed to manage its business risks successfully. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities, which includes a £550m five-year Revolving Credit Facility (RCF) completed in November 2016 of which £477m remains undrawn at the date of this report. The RCF was extended to November 2022 following the period end.
With this in mind, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the half year Condensed Financial Statements.
The Group has four main reportable segments (Process Safety, Infrastructure Safety, Medical and Environmental & Analysis), which are defined by markets rather than product type. Each segment includes businesses with similar operating and market characteristics. These segments are consistent with the internal reporting as reviewed by the Chief Executive.
| Revenue (all continuing operations) | |||
|---|---|---|---|
| Unaudited | Unaudited | Audited | |
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| £000 | £000 | £000 | |
| Process Safety | 88,794 | 76,743 | 167,007 |
| Infrastructure Safety | 167,923 | 147,988 | 315,219 |
| Medical | 133,270 | 118,664 | 260,576 |
| Environmental & Analysis | 116,513 | 98,797 | 219,118 |
| Inter-segmental sales | (171) | (71) | (258) |
| Revenue for the period | 506,329 | 442,121 | 961,662 |
Inter-segmental sales are charged at prevailing market prices and have not been disclosed separately by segment as they are not considered material. The Group does not analyse revenue by product group. Revenue derived from the rendering of services was £23,399,000 (26 weeks to 1 October 2016: £14,034,000; 52 weeks to 1 April 2017: £39,011,000). All revenue was otherwise derived from the sale of products.
| Profit (all continuing operations) | |||
|---|---|---|---|
| Unaudited | Unaudited | Audited | |
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| £000 | £000 | £000 | |
| Segment profit before allocation of adjustments* | |||
| Process Safety | 20,247 | 17,395 | 40,243 |
| Infrastructure Safety | 35,736 | 31,991 | 65,129 |
| Medical | 28,730 | 28,876 | 66,704 |
| Environmental & Analysis | 21,776 | 16,022 | 41,698 |
| 106,489 | 94,284 | 213,774 | |
| Segment profit after allocation of adjustments* | |||
| Process Safety | 18,227 | 15,491 | 36,243 |
| Infrastructure Safety | 33,177 | 29,735 | 60,342 |
| Medical | 17,469 | 18,933 | 45,804 |
| Environmental & Analysis | 19,894 | 11,720 | 35,084 |
| Segment profit | 88,767 | 75,879 | 177,473 |
| Central administration costs | (7,112) | (5,763) | (10,484) |
| Net finance expense | (4,836) | (4,891) | (9,286) |
| Group profit before taxation | 76,819 | 65,225 | 157,703 |
| Taxation | (15,104) | (13,013) | (28,014) |
| Profit for the period | 61,715 | 52,212 | 129,689 |
* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations.
The accounting policies of the reportable segments are the same as the Group's accounting policies. For acquisitions after 3 April 2010, acquisition transaction costs and adjustments to contingent purchase consideration are recognised in the Consolidated Income Statement. Segment profit before these acquisition costs, the amortisation and impairment of acquired intangible assets, restructuring costs and the profit or loss on disposal of continuing operations is disclosed separately above as this is the measure reported to the Chief Executive for the purpose of allocation of resources and assessment of segment performance.
These adjustments are analysed as follows:
| Unaudited for the 6 months to 30 September 2017 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Acquisition items | ||||||||||
| Amortisation and impairment of acquired intangibles £000 |
Transaction costs £000 |
Adjustments to contingent consideration £000 |
Release of fair value adjustments to inventory £000 |
Total amortisation charge and acquisition items £000 |
Disposal of operations and restructuring £000 |
Total £000 |
||||
| Process Safety | (2,020) | – | – | – | (2,020) | – | (2,020) | |||
| Infrastructure Safety | (2,456) | (103) | – | – | (2,559) | – | (2,559) | |||
| Medical | (9,941) | (826) | (494) | – | (11,261) | – | (11,261) | |||
| Environmental & Analysis |
(2,899) | (3) | 1,121 | (101) | (1,882) | – | (1,882) | |||
| Total Segment & Group | (17,316) | (932) | 627 | (101) | (17,722) | – | (17,722) |
The transaction costs arose mainly on the acquisitions of CasMed NIBP and Cardios during the period. Further detail on the acquisitions is contained in note 10.
The £627,000 adjustment to contingent consideration comprises a credit of £1,121,000 in Environmental & Analysis arising from a change in estimate of the payable for FluxData, Inc. (FluxData), a prior year acquisition, offset by £494,000 in Medical arising from exchange differences on the payables for Visiometrics S.L. (Visiometrics) which is denominated in Euros and for Cardios which is denominated in Brazilian Reals.
The £101,000 charge relates to the release of the remaining fair value adjustment on revaluing the inventory of FluxData on acquisition in the prior year.
| Unaudited for the 26 weeks to 1 October 2016 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Acquisition items | |||||||||||
| Amortisation | Total | ||||||||||
| and | Release of | amortisation | Disposal of | ||||||||
| impairment | Adjustments | fair value | charge and | operations | |||||||
| of acquired | Transaction | to contingent | adjustments | acquisition | and | ||||||
| intangibles | costs | consideration | to inventory | items | restructuring | Total | |||||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |||||
| Process Safety | (1,904) | – | – | – | (1,904) | – | (1,904) | ||||
| Infrastructure Safety | (2,256) | – | – | – | (2,256) | – | (2,256) | ||||
| Medical | (8,815) | – | (338) | (790) | (9,943) | – | (9,943) | ||||
| Environmental | |||||||||||
| & Analysis | (2,217) | – | 15 | – | (2,202) | (2,100) | (4,302) | ||||
| Total Segment & Group | (15,192) | – | (323) | (790) | (16,305) | (2,100) | (18,405) |
The £338,000 charge to contingent consideration comprises a credit arising from a revision to the estimate of the payable for Value Added Solutions LLC (VAS) by £339,000 offset by a £677,000 charge arising from changes in the discount rate along with exchange differences on the payable for Visiometrics which is denominated in Euros.
The £790,000 charge relates to the release of the remaining fair value adjustment on revaluing the inventory of CenTrak Inc (CenTrak) on acquisition.
The £2,100,000 charge relates to inventory and fixed asset write downs and severance costs arising on the restructuring of non-core operations in one of the Group's subsidiaries, Pixelteq Inc (Pixelteq).
| Audited for the 52 weeks to 1 April 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Acquisition items | |||||||
| Amortisation | Total | ||||||
| and | Release of | amortisation | Disposal of | ||||
| impairment | Adjustments | fair value | charge and | operations | |||
| of acquired | Transaction | to contingent | adjustments | acquisition | and | ||
| intangibles | costs | consideration | to inventory | items | restructuring | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| Process Safety | (4,000) | – | – | – | (4,000) | – | (4,000) |
| Infrastructure Safety | (4,784) | (3) | – | – | (4,787) | – | (4,787) |
| Medical | (30,702) | (95) | 10,687 | (790) | (20,900) | – | (20,900) |
| Environmental | |||||||
| Analysis | (4,412) | (265) | 14 | (41) | (4,704) | (1,910) | (6,614) |
| Total Segment & Group | (43,898) | (363) | 10,701 | (831) | (34,391) | (1,910) | (36,301) |
Included within amortisation and impairment of acquired intangibles in the Medical sector is £12,429,000 impairment to a customer relationship asset of Visiometrics. Related to this impairment, included within the Medical sector, there is a credit arising from a revision to the estimate of the deferred contingent consideration payable for Visiometrics of £10,087,000 (€12,002,000). The majority of this revision relates to deferred contingent consideration payable on sales to the same customer.
The transaction costs arose mainly on the acquisition of FluxData on 6 January 2017.
The £10,701,000 credit to contingent consideration comprises mainly the revision to estimate of the payable for Visiometrics discussed above. The remaining credit relates to the change in estimate to the payable for VAS by £356,000, and for ASL Holdings Limited (ASL) by £14,000 on final settlement of the payable, and a credit of £244,000 arising from exchange differences on the Visiometrics payable which is denominated in Euros.
The £831,000 charge relates to the release of the fair value adjustment on revaluing the inventories of CenTrak (£790,000) and FluxData (£41,000) on acquisition. All amounts have now been released in relation to CenTrak.
The £1,910,000 charge relates to inventory and fixed asset write downs and severance costs arising on the restructuring of non-core operations in one of the Group's subsidiaries, Pixelteq.
The total assets and liabilities of all four segments have not been disclosed as there have been no material changes to those disclosed in the Annual Report and Accounts 2017.
The Group's revenue from external customers (by location of customer) is as follows:
| Revenue by destination | ||||
|---|---|---|---|---|
| Unaudited | Unaudited | Audited | ||
| 6 months to | 26 weeks to | 52 weeks to | ||
| 30 September | 1 October | 1 April | ||
| 2017 | 2016 | 2017 | ||
| £000 | £000 | £000 | ||
| United States of America | 181,808 | 160,807 | 345,295 | |
| Mainland Europe | 109,011 | 95,965 | 210,342 | |
| United Kingdom | 79,746 | 72,901 | 154,920 | |
| Asia Pacific | 83,928 | 69,686 | 151,626 | |
| Africa, Near and Middle East | 30,750 | 26,742 | 60,765 | |
| Other countries | 21,086 | 16,020 | 38,714 | |
| Group revenue | 506,329 | 442,121 | 961,662 |
| Unaudited | Unaudited | Audited | |
|---|---|---|---|
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| £000 | £000 | £000 | |
| Interest receivable | 106 | 96 | 211 |
| Fair value movement on derivative financial instruments | – | – | 283 |
| 106 | 96 | 494 |
| Unaudited | Unaudited | Audited | |
|---|---|---|---|
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| £000 | £000 | £000 | |
| Interest payable on loans and overdrafts | 3,470 | 3,463 | 6,977 |
| Amortisation of finance costs | 454 | 325 | 1,040 |
| Net interest charge on pension plan liabilities | 888 | 832 | 1,553 |
| Other interest payable | 75 | 25 | 126 |
| 4,887 | 4,645 | 9,696 | |
| Fair value movement on derivative financial instruments | 29 | 267 | 53 |
| Unwinding of discount on provisions | 26 | 75 | 31 |
| 4,942 | 4,987 | 9,780 |
The total Group tax charge for the 6 months to 30 September 2017 of £15,104,000 (26 weeks to 1 October 2016: £13,013,000; 52 weeks to 1 April 2017: £28,014,000) comprises a current tax charge of £17,991,000 (26 weeks to 1 October 2016: £15,032,000; 52 weeks to 1 April 2017: £34,766,000) and a deferred tax credit of £2,887,000 (26 weeks to 1 October 2016: £2,019,000; 52 weeks to 1 April 2017: £6,752,000). The tax charge is based on the estimated effective tax rate for the year.
The tax charge includes £14,885,000 (26 weeks to 1 October 2016: £12,253,000; 52 weeks to 1 April 2017: £27,525,000) in respect of overseas tax.
Basic and diluted earnings per ordinary share are calculated using the weighted average of 379,219,351 (1 October 2016: 378,549,906; 1 April 2017: 378,685,730) shares in issue during the period (net of shares purchased by the Company and held as treasury and Employee Benefit Trust shares). There are no dilutive or potentially dilutive ordinary shares.
Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; profit or loss on disposal of operations; and the associated taxation thereon.
The Directors consider that adjusted earnings represent a more consistent measure of underlying performance. A reconciliation of earnings and the effect on basic earnings per share figures is as follows:
| Unaudited 6 months to 30 September 2017 £000 |
Unaudited 26 weeks to 1 October 2016 £000 |
Audited 52 weeks to 1 April 2017 £000 |
|
|---|---|---|---|
| Earnings from continuing operations | 61,715 | 52,212 | 129,689 |
| Amortisation of acquired intangible assets (after tax) | 11,832 | 10,383 | 21,452 |
| Impairment of acquired intangible assets (after tax) | – | – | 9,322 |
| Acquisition transaction costs (after tax) | 574 | – | 240 |
| Release of fair value adjustments to inventory (after tax) | 62 | 490 | 569 |
| Adjustments to contingent consideration (after tax) | (725) | 300 | (10,650) |
| Disposal of operations and restructuring (after tax) | – | 1,847 | 1,648 |
| Adjusted earnings | 73,458 | 65,232 | 152,270 |
| Per ordinary share | |||
|---|---|---|---|
| Unaudited | Unaudited | Audited | |
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| pence | pence | pence | |
| Earnings from continuing operations | 16.27 | 13.79 | 34.25 |
| Amortisation of acquired intangible assets (after tax) | 3.12 | 2.74 | 5.66 |
| Impairment of acquired intangible assets (after tax) | – | – | 2.46 |
| Acquisition transaction costs (after tax) | 0.15 | – | 0.06 |
| Release of fair value adjustments to inventory (after tax) | 0.02 | 0.13 | 0.15 |
| Adjustments to contingent consideration (after tax) | (0.19) | 0.08 | (2.81) |
| Disposal of operations and restructuring (after tax) | – | 0.49 | 0.44 |
| Adjusted earnings | 19.37 | 17.23 | 40.21 |
| Per ordinary share | ||||
|---|---|---|---|---|
| Unaudited | Unaudited | Audited | ||
| 6 months to | 26 weeks to | 52 weeks to | ||
| 30 September | 1 October | 1 April | ||
| 2017 | 2016 | 2017 | ||
| pence | pence | pence | ||
| Amounts recognised as distributions to shareholders in the period | ||||
| Final dividend for the year to 1 April 2017 (2 April 2016) | 8.38 | 7.83 | 7.83 | |
| Interim dividend for the year to 1 April 2017 | – | – | 5.33 | |
| 8.38 | 7.83 | 13.16 | ||
| Dividends in respect of the period | ||||
| Interim dividend for the year to 31 March 2018 (1 April 2017) | 5.71 | 5.33 | 5.33 | |
| Final dividend for the year to 1 April 2017 | – | – | 8.38 | |
| 5.71 | 5.33 | 13.71 |
| Unaudited 6 months to 30 September 2017 |
Unaudited 26 weeks to 1 October 2016 |
Audited 52 weeks to 1 April 2017 |
|
|---|---|---|---|
| £000 | £000 | £000 | |
| Amounts recognised as distributions to shareholders in the period | |||
| Final dividend for the year to 1 April 2017 (2 April 2016) | 31,733 | 29,605 | 29,605 |
| Interim dividend for the year to 1 April 2017 | – | – | 20,183 |
| 31,733 | 29,605 | 49,788 | |
| Dividends in respect of the period | |||
| Interim dividend for the year to 31 March 2018 (1 April 2017) | 21,678 | 20,183 | 20,183 |
| Final dividend for the year to 1 April 2017 | – | – | 31,733 |
| 21,678 | 20,183 | 51,916 |
| Unaudited | Unaudited | Audited | |
|---|---|---|---|
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| £000 | £000 | £000 | |
| Reconciliation of profit from operations to net cash inflow from operating activities |
|||
| Profit on continuing operations before finance income and expense, share of results of associates and profit or loss on disposal of operations |
81,767 | 70,159 | 167,070 |
| Financial instruments at Fair value through profit or loss | (193) | – | – |
| Depreciation of property, plant and equipment | 9,139 | 8,743 | 17,798 |
| Amortisation of computer software | 845 | 696 | 1,432 |
| Amortisation of capitalised development costs and other intangibles | 3,375 | 3,508 | 6,947 |
| Impairment of intangibles | – | – | 98 |
| Amortisation of acquired intangible assets | 17,316 | 15,192 | 31,469 |
| Impairment of acquired intangible assets | – | – | 12,429 |
| Share-based payment expense in excess of/(less than) amounts paid | 552 | (695) | 1,880 |
| Additional payments to pension plans | (5,358) | (5,104) | (10,213) |
| Loss on restructuring of operation | – | 2,057 | 1,252 |
| (Profit)/loss on sale of property, plant and equipment and computer software | (522) | 14 | 138 |
| Operating cash flows before movement in working capital | 106,921 | 94,570 | 230,300 |
| Increase in inventories | (8,688) | (2,350) | (5,406) |
| Decrease/(increase) in receivables | 4,007 | 12,680 | (14,262) |
| (Decrease)/increase in payables and provisions | (8,106) | (18,104) | 5,750 |
| Revision to estimate of contingent consideration payable | (627) | 323 | (10,701) |
| Cash generated from operations | 93,507 | 87,119 | 205,681 |
| Taxation paid | (17,482) | (16,774) | (33,188) |
| Net cash inflow from operating activities | 76,025 | 70,345 | 172,493 |
| Unaudited 30 September 2017 £000 |
Unaudited 1 October 2016 £000 |
Audited 1 April 2017 £000 |
|
|---|---|---|---|
| Analysis of cash and cash equivalents | |||
| Cash and bank balances | 71,671 | 76,093 | 66,827 |
| Overdrafts (included in current Borrowings) | (5) | (1,825) | (1,190) |
| Cash and cash equivalents | 71,666 | 74,268 | 65,637 |
| At 1 April 2017 £000 |
Reclass £000 |
Cash flow £000 |
Net cash/(debt) acquired £000 |
Loan notes repaid £000 |
Exchange adjustments £000 |
At 30 September 2017 £000 |
|
|---|---|---|---|---|---|---|---|
| Analysis of net debt | |||||||
| Cash and bank balances |
66,827 | – | 5,795 | 155 | – | (1,106) | 71,671 |
| Overdrafts | (1,190) | – | 1,185 | – | – | – | (5) |
| Cash and cash equivalents |
65,637 | – | 6,980 | 155 | – | (1,106) | 71,666 |
| Loan notes falling due within one year |
(161) | (175) | – | – | 161 | – | (175) |
| Loan notes falling due after more than one year |
(181,157) | 175 | – | – | – | 1,916 | (179,066) |
| Bank loans falling due after more than one year |
(80,761) | – | 2,552 | – | – | 4,794 | (73,415) |
| Total net debt | (196,442) | – | 9,532 | 155 | 161 | 5,604 | (180,990) |
Overdrafts and Loan notes falling due within one year are included as current borrowings in the Consolidated Balance Sheet. Loan notes and Bank loans falling due after more than one year are included as non-current borrowings.
The Board uses certain non-GAAP measures to help it effectively monitor the performance of the Group. The Directors consider that these represent a more consistent measure of underlying performance. These measures include Return on Total Invested Capital, Return on Capital Employed, Organic growth at constant currency, Adjusted operating profit and Adjusted operating cash flow.
| Unaudited | Unaudited | Audited | |
|---|---|---|---|
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| £000 | £000 | £000 | |
| Profit after tax | 61,715 | 52,212 | 129,689 |
| Adjustments3 | 11,743 | 13,020 | 22,581 |
| Adjusted3 profit after tax | 73,458 | 65,232 | 152,270 |
| Shareholders' funds | 775,315 | 690,568 | 778,637 |
| Add back retirement benefit obligations | 66,825 | 94,024 | 74,856 |
| Less associated deferred tax assets | (12,424) | (17,506) | (13,947) |
| Cumulative amortisation of acquired intangible assets | 179,650 | 136,963 | 168,031 |
| Historical adjustments to goodwill4 | 89,549 | 89,549 | 89,549 |
| Total Invested Capital | 1,098,915 | 993,598 | 1,097,126 |
| Average Total Invested Capital2 | 1,098,021 | 942,335 | 994,099 |
| Return on Total Invested Capital (annualised)1 | 13.4% | 13.8% | 15.3% |
Return on Capital Employed (ROCE)
| Unaudited 6 months to 30 September |
Unaudited 26 weeks to 1 October |
Audited 52 weeks to 1 April |
|
|---|---|---|---|
| 2017 £000 |
2016 £000 |
2017 £000 |
|
| Profit before tax | 76,819 | 65,225 | 157,703 |
| Adjustments3 | 17,722 | 18,405 | 36,301 |
| Net finance costs | 4,836 | 4,891 | 9,286 |
| Adjusted operating profit3 after share of results of associates | 99,377 | 88,521 | 203,290 |
| Computer software costs within intangible assets | 4,633 | 3,353 | 4,466 |
| Capitalised development costs within intangible assets | 30,027 | 25,985 | 28,782 |
| Other intangibles within intangible assets | 1,079 | 1,099 | 1,111 |
| Property, plant and equipment | 102,620 | 103,417 | 106,016 |
| Inventories | 124,231 | 113,757 | 118,780 |
| Trade and other receivables | 203,408 | 179,659 | 212,236 |
| Trade and other payables | (125,730) | (109,841) | (135,257) |
| Provisions | (4,752) | (5,571) | (6,776) |
| Net tax liabilities | (14,511) | (11,972) | (15,931) |
| Non-current trade and other payables | (11,383) | (11,387) | (10,780) |
| Non-current provisions | (16,888) | (18,859) | (16,917) |
| Add back contingent purchase consideration | 15,228 | 18,500 | 16,444 |
| Capital Employed | 307,962 | 288,140 | 302,174 |
| Average Capital Employed2 | 305,068 | 273,394 | 280,411 |
| Return on Capital Employed (annualised)1 | 65.2% | 64.8% | 72.5% |
1 The ROTIC and ROCE measures are calculated as annualised Adjusted profit after tax divided by Average Total Invested Capital and annualised Adjusted operating profit after share of results of associates divided by Average Capital Employed respectively.
2 The ROTIC and ROCE measures are expressed as a percentage of the average of the current period's and prior year's Total Invested Capital and Capital Employed respectively. Using an average as the denominator is considered to be more representative. The March 2016 Total Invested Capital and Capital Employed balances were
£891,071,000 and £259,648,000 respectively. 3 Adjustments set out in note 2 include the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs and profit or loss on disposal of operations, and where applicable, the associated taxation thereon.
4 Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves.
Organic growth measures the change in revenue and profit from continuing Group operations. The measure equalises the effect of acquisitions by:
i. removing from the year of acquisition their entire revenue and profit before taxation, and
ii. in the following year, removing the revenue and profit for the number of months equivalent to the pre-acquisition period in the prior year.
The resultant effect is that the acquisitions are removed from organic results for one full year of ownership.
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 exchanges rates.
Organic growth at constant currency has been calculated below:
Organic growth at constant currency
| Revenue | Adjusted profit* before taxation | |||||
|---|---|---|---|---|---|---|
| Unaudited | Unaudited | Unaudited | Unaudited | |||
| 6 months to | 26 weeks to | 6 months to | 26 weeks to | |||
| 30 September | 1 October | 30 September | 1 October | |||
| 2017 | 2016 | 2017 | 2016 | |||
| £000 | £000 | % growth | £000 | £000 | % growth | |
| Continuing operations | 506,329 | 442,121 | 14.5% | 94,541 | 83,630 | 13.0% |
| Acquired and disposed revenue/profit | (3,587) | (172) | ||||
| Organic growth | 502,742 | 442,121 | 13.7% | 94,369 | 83,630 | 12.8% |
| Constant currency adjustment | (20,277) | (4,154) | ||||
| Organic growth at constant currency | 482,465 | 442,121 | 9.1% | 90,215 | 83,630 | 7.9% |
* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations.
Organic growth at constant currency is calculated for each segment using the same method as described above.
| Process Safety | Revenue | Adjusted* segment profit | ||||
|---|---|---|---|---|---|---|
| Unaudited | Unaudited | Unaudited | Unaudited | |||
| 6 months to | 26 weeks to | 6 months to | 26 weeks to | |||
| 30 September | 1 October | 30 September | 1 October | |||
| 2017 | 2016 | 2017 | 2016 | |||
| £000 | £000 | % growth | £000 | £000 | % growth | |
| Continuing operations | 88,794 | 76,743 | 15.7% | 20,247 | 17,395 | 16.4% |
| Acquisition and currency adjustments | (2,710) | (596) | ||||
| Organic growth at constant currency | 86,084 | 76,743 | 12.2% | 19,651 | 17,395 | 13.0% |
| Infrastructure Safety | Revenue | Adjusted* segment profit | ||||
|---|---|---|---|---|---|---|
| Unaudited 6 months to |
Unaudited 26 weeks to |
Unaudited 6 months to |
Unaudited 26 weeks to |
|||
| 30 September | 1 October | 30 September | 1 October | |||
| 2017 | 2016 | 2017 | 2016 | |||
| £000 | £000 | % growth | £000 | £000 | % growth | |
| Continuing operations | 167,923 | 147,988 | 13.5% | 35,736 | 31,991 | 11.7% |
| Acquisition and currency adjustments | (5,491) | (1,008) | ||||
| Organic growth at constant currency | 162,432 | 147,988 | 9.8% | 34,728 | 31,991 | 8.6% |
| Medical | Revenue | Adjusted* segment profit | ||||
|---|---|---|---|---|---|---|
| Unaudited | Unaudited | Unaudited | Unaudited | |||
| 6 months to | 26 weeks to | 6 months to | 26 weeks to | |||
| 30 September | 1 October | 30 September | 1 October | |||
| 2017 | 2016 | 2017 | 2016 | |||
| £000 | £000 | % growth | £000 | £000 | % growth | |
| Continuing operations | 133,270 | 118,664 | 12.3% | 28,730 | 28,876 | (0.5)% |
| Acquisition and currency adjustments | (8,360) | (1,663) | ||||
| Organic growth at constant currency | 124,910 | 118,664 | 5.3% | 27,067 | 28,876 | (6.3)% |
Sector organic growth at constant currency continued
| Environmental & Analysis | Revenue | Adjusted* segment profit | ||||
|---|---|---|---|---|---|---|
| Unaudited | Unaudited | Unaudited | Unaudited | |||
| 6 months to | 26 weeks to | 6 months to | 26 weeks to | |||
| 30 September | 1 October | 30 September | 1 October | |||
| 2017 | 2016 | 2017 | 2016 | |||
| £000 | £000 | % growth | £000 | £000 | % growth | |
| Continuing operations | 116,513 | 98,797 | 17.9% | 21,776 | 16,022 | 35.9% |
| Acquisition and currency adjustments | (7,303) | (1,379) | ||||
| Organic growth at constant currency | 109,210 | 98,797 | 10.5% | 20,397 | 16,022 | 27.3% |
* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations.
| Unaudited | Unaudited | Audited | |
|---|---|---|---|
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| £000 | £000 | £000 | |
| Operating profit | 81,767 | 70,159 | 167,070 |
| Add back: | |||
| Acquisition items | 406 | 1,113 | (9,507) |
| Loss on restructuring | – | 2,100 | 1,910 |
| Amortisation of acquired intangible assets | 17,316 | 15,192 | 31,469 |
| Impairment of acquired intangible assets | – | – | 12,429 |
| Adjusted operating profit | 99,489 | 88,564 | 203,371 |
| 1B | Unaudited | Unaudited | Audited |
|---|---|---|---|
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| £000 | £000 | £000 | |
| Net cash from operating activities (note 8) | 76,025 | 70,345 | 172,493 |
| Add back: | |||
| Net acquisition costs | 932 | – | 363 |
| Taxes paid | 17,482 | 16,774 | 33,188 |
| Proceeds from sale of property, plant and equipment | 1,177 | 287 | 1,495 |
| Share awards vested not settled by Own shares* | 3,346 | 3,310 | 3,309 |
| Less: | |||
| Purchase of property, plant and equipment | (9,134) | (10,728) | (21,875) |
| Purchase of computer software and other intangibles | (1,089) | (911) | (2,760) |
| Development costs capitalised | (5,034) | (4,814) | (10,731) |
| Adjusted operating cash flow | 83,705 | 74,263 | 175,482 |
| Cash conversion % (adjusted operating cash flow/adjusted operating profit) | 84% | 84% | 86% |
* See Consolidated Statement of Changes in Equity.
In the provisional accounting, adjustments are made to the book values of the net assets of the companies acquired to reflect their provisional fair values to the Group. Acquired inventories are valued at fair value adopting Group bases and any liabilities for warranties relating to past trading are recognised. Other previously unrecognised assets and liabilities at acquisition are included and accounting policies are aligned with those of the Group where appropriate.
During the period ended 30 September 2017, the Group made two acquisitions: Cas Medical Systems Inc's Non-Invasive Blood Pressure Monitoring product line ("CasMed NIBP") and Cardios Sistemas Comercial E Industrial Ltda and Cardio Dinamica Ltda (together "Cardios").
The combined fair value adjustments made for the acquisitions, excluding acquired intangible assets recognised and deferred taxation thereon, resulted in reducing the goodwill recognised by £558,000.
Below are summaries of the assets acquired and liabilities assumed and the purchase consideration of:
| Total £000 |
|
|---|---|
| Non-current assets | |
| Intangible assets | 9,817 |
| Property, plant and equipment | 232 |
| Current assets | |
| Inventories | 768 |
| Trade and other receivables | 1,834 |
| Cash and cash equivalents | 155 |
| Total assets | 12,806 |
| Current liabilities | |
| Trade and other payables | (925) |
| Provisions | (27) |
| Corporation tax liability | (8) |
| Non-current liabilities | |
| Deferred tax | (2,317) |
| Total liabilities | (3,277) |
| Net assets of businesses acquired | 9,529 |
| Initial cash consideration paid | 15,872 |
| Initial cash consideration payable | 23 |
| Contingent purchase consideration estimated to be paid | 1,314 |
| Total consideration | 17,209 |
| Goodwill arising on acquisitions | 7,680 |
Due to their contractual dates, the fair value of receivables acquired (shown above) approximate to the gross contractual amounts receivable. The amount of gross contractual receivables not expected to be recovered is immaterial.
There are no material contingent liabilities recognised in accordance with paragraph 23 of IFRS 3 (revised).
As at the date of approval of these Condensed Financial Statements the accounting for the acquisitions remains provisional. The measurement window expires in July 2018 for CasMed NIBP and in August 2018 for Cardios.
Analysis of cash outflow in the Consolidated Cash Flow Statement
| Unaudited | Unaudited | Audited | |
|---|---|---|---|
| 6 months to | 26 weeks to | 52 weeks to | |
| 30 September | 1 October | 1 April | |
| 2017 | 2016 | 2017 | |
| £000 | £000 | £000 | |
| Initial cash consideration paid | 15,872 | – | 9,878 |
| Initial cash consideration adjustment on prior year acquisitions | – | (166) | – |
| Cash acquired on acquisition | (155) | – | (496) |
| Deferred contingent consideration paid and loan notes repaid in cash in | |||
| relation to prior year acquisitions* | 1,369 | 314 | 590 |
| Net cash outflow relating to acquisitions (per Consolidated Cash Flow | |||
| Statement) | 17,086 | 148 | 9,972 |
* The £1,369,000 comprises £161,000 loan notes and £1,208,000 contingent consideration paid in respect of prior period acquisitions all of which had been provided in the prior period's financial statements.
| Goodwill arising on acquisition | 1,233 |
|---|---|
| Total consideration | 4,142 |
| Contingent purchase consideration estimated to be paid | 693 |
| Initial cash consideration paid | 3,449 |
| Net assets of business acquired | 2,909 |
| Intangible assets | 2,909 |
| Non-current assets | |
| £000 | |
| Total |
The Group acquired the trade and assets of the non-invasive blood pressure (NIBP) monitoring product line on 25 July 2017 for an initial cash consideration of US\$4,500,000 (£3,449,000). The maximum contingent consideration payable is US\$2,000,000 (£1,533,000).
The current provision of US\$905,000 (£693,000) represents the fair value of the estimated payable based on performance to date and the expectation of future cash flows. The earn-out is payable on the achievement of product net sales above a target threshold for the 24-month period to June 2019.
CasMed NIBP was purchased by SunTech Medical Inc within the Medical sector. NIBP monitoring products provide SunTech with more clinical grade options for OEM customers seeking NIBP technology for multi-parameter monitors, EMS defibrillators, haemodialysis machines and various other clinical monitoring devices.
The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of £1,250,000; and technology related intangibles of £1,659,000; with residual goodwill arising of £1,233,000. The goodwill represents:
Acquisition costs totalling £354,000 were recorded in the Consolidated Income Statement.
The goodwill arising on the acquisition is expected to be deductible for tax purposes.
(C) Cardios, on a stand-alone basis
| Total | |
|---|---|
| £000 | |
| Non-current assets | |
| Intangible assets | 6,908 |
| Property, plant and equipment | 232 |
| Current assets | |
| Inventories | 768 |
| Trade and other receivables | 1,834 |
| Cash and cash equivalents | 155 |
| Total assets | 9,897 |
| Current liabilities | |
| Trade and other payables | (925) |
| Provisions | (27) |
| Corporation tax liability | (8) |
| Non-current liabilities | |
| Deferred tax | (2,317) |
| Total liabilities | (3,277) |
| Net assets of businesses acquired | 6,620 |
| Initial cash consideration paid | 12,423 |
| Initial cash consideration payable | 23 |
| Contingent purchase consideration estimated to be paid | 621 |
| Total consideration | 13,067 |
| Goodwill arising on acquisition | 6,447 |
The Group acquired the entire share capital of Cardios Sistemas Comercial E Industrial Ltda and Cardio Dinamica Ltda (together "Cardios") on 4 August 2017 for an initial cash consideration of R\$50,000,000 (£12,423,000), adjustable based on closing date net assets and cash. The adjustment was determined to be R\$93,000 (£23,000). The maximum contingent consideration payable is R\$5,000,000 (£1,242,000).
The current provision of R\$2,500,000 (£621,000) represents the fair value of the estimated payable based on performance to date and the expectation of future cash flows. The earn-out is payable on gross margin growth in excess of a target threshold for the 12-month period post-acquisition.
Cardios, located in São Paulo, Brazil, designs and manufactures ambulatory ECG recorders and ambulatory blood pressure monitors for Brazilian healthcare providers. These devices are used by cardiologists and general practitioners to diagnose and prevent heart and blood vessel related diseases such as hypertension, diabetes, heart attacks, and heart arrhythmias. These products are similar or complementary to patient assessment devices currently manufactured and marketed by Halma'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 £934,000; trade name of £2,303,000 and technology related intangibles of £3,578,000; with residual goodwill arising of £6,447,000. The goodwill represents:
Acquisition costs totalling £367,000 were recorded in the Consolidated Income Statement.
The Group's significant defined benefit plans are for the qualifying employees of its UK subsidiaries. The defined benefit obligation at 30 September 2017 of £66,825,000 (1 October 2016: £94,024,000; 1 April 2017: £74,856,000) has been estimated based on the latest triennial actuarial valuations updated to reflect current assumptions regarding discount rates, inflation rates and asset values. The last triennial valuations were carried out at 1 December 2014 for the Halma Group Pension Plan and 1 April 2015 for the Apollo Pension and Life Assurance Plan.
The discount rate assumption was set at 2.6% (1 October 2016: 2.3%; 1 April 2017: 2.5%). All other assumptions are materially unchanged.
In addition, the defined benefit plan assets have been updated to reflect deficit reduction payments in the period totalling £5,400,000 (1 October 2016: £5,160,000; 1 April 2017: £10,700,000). The UK plans are closed to future accrual.
As at 30 September 2017, with the exception of the Group's fixed rate loan notes, there were no significant differences between the book value and fair value (as determined by market value) of the Group's financial assets and liabilities.
The fair value of floating rate borrowings approximate to the carrying value because interest rates are reset to market rates at intervals of less than one year.
The fair value of the Group's fixed rate loan notes arising from the United States Private Placement completed in January 2016 is estimated to be £180,087,000.
The fair value of financial instruments is estimated by discounting the future contracted cash flow using readily available market data and represents a level 2 measurement in the fair value hierarchy under IFRS 7.
As at 30 September 2017, the total forward foreign currency contracts outstanding were £26,396,000. The contracts mostly mature within one year and therefore the cash flows and resulting effect on profit and loss are expected to occur within the next 12 months.
The fair values of the forward contracts are disclosed as a £592,000 (1 October 2016: £135,000; 1 April 2017: £598,000) asset and £410,000 (1 October 2016: £1,920,000; 1 April 2017: £315,000) liability in the Consolidated Balance Sheet.
Any movements in the fair values of the contracts are recognised in equity until the hedge transaction occurs, when gains/losses are recycled to finance income or finance expense.
Effective November 2017, the Group extended its unsecured five-year £550,000,000 Revolving Credit Facility agreed in November 2016 for a further year to November 2022.
On 31 October 2017, the Group acquired the entire share capital of Mini-Cam Enterprises Limited and its subsidiary companies for cash consideration of £62,000,000, adjustable based on the closing date net assets and cash. Maximum deferred contingent consideration is payable of £23,100,000 based on annualised profit growth to the period ended 31 March 2020.
Mini-Cam, headquartered in Lancashire UK, specialises in pipeline inspection solutions for waste water systems in the UK and internationally. Mini-Cam's remotely-operated products and software enable utilities to identify leakages, blockages and potential ingress in waste water networks, thereby helping them to improve customer service levels and compliance with environmental regulations. The management team of Mini-Cam will continue to operate the business out of its current locations. Mini-Cam will join the Group's Environmental & Analysis sector where it provides new opportunities for commercial and technical collaboration with the sector's existing water technologies.
On 9 November 2017, the Group acquired the entire share capital of Setco S.A. for €17,000,000 (£15,088,000), adjustable based on closing date net assets and cash. Setco, based in Barcelona, Spain, will be a bolt-on for our global Elevator Safety business, Avire, and adds new wireless communications technology which is highly complementary to its existing product range and new product development roadmap. Setco will join the Infrastructure Safety sector.
The Group's financial results have not historically been subject to significant seasonal trends.
Issues and repurchases of Halma plc's ordinary shares and drawdowns and repayments of borrowings are shown in the Consolidated Cash Flow Statement.
There were no significant changes in the nature and size of related party transactions for the period to those reported in the Annual Report and Accounts 2017.
A number of potential risks and uncertainties exist that could have a material impact on the Group's performance over the second half of the financial year and could cause actual results to differ materially from expected and historical results.
The Group has in place processes for identifying, evaluating and managing key risks. These risks, together with a description of the approach to mitigating them, are set out on pages 22 to 27 in the Annual Report and Accounts 2017, which is available on the Group's website at www.halma.com. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report and Accounts.
The principal risks and uncertainties relate to:
The UK referendum decision in June 2016 and the subsequent triggering of Article 50 in March 2017 mean that the UK is now scheduled to leave the European Union by the end of March 2019. This decision has created a new dimension to the uncertainties surrounding global economic growth.
In 2016/17, approximately 10% of Group revenue came from direct sales between the UK and Mainland Europe.
To date, the following Brexit risks have been identified as having an actual and/or potential impact on our business:
Halma has an executive working group to assess and monitor the potential impact on us of Brexit, to communicate updates and support our businesses in preparing for the range of possible outcomes.
Our decentralised model with businesses in diverse markets and locations, will enable each Halma company to adapt quickly to changing trading conditions. This agility together with the regulation driven demand for many of our products and services will help us to mitigate any adverse impact and also take advantage of the opportunities presented by the decision to leave the European Union.
Movements in foreign exchange rates remain a risk to financial performance. Although the Group uses forward foreign exchange contracts to mitigate its transactional currency exposure risk, it does not hedge the translation of its currency profits. In the first half of the year, Sterling weakened on average by 6% relative to the US Dollar, and by 7% against the Euro, resulting in a 5% positive currency impact on reported revenue and 5% on reported profit.
We confirm that to the best of our knowledge:
By order of the Board
Andrew Williams Kevin Thompson Chief Executive Finance Director 21 November 2017
Misbourne Court Rectory Way Amersham Bucks HP7 0DE
Tel: +44 (0)1494 721111
[email protected] www.halma.com
Registered in England and Wales, No 00040932
Paul Walker* Chairman Andrew Williams Chief Executive Daniela Barone Soares* Carole Cran* Jo Harlow* Adam Meyers Tony Rice* Senior Independent Director Kevin Thompson Roy Twite* Jennifer Ward
* Non-executive
Andrew Williams Chief Executive Kevin Thompson Finance Director Chuck Dubois Sector Chief Executive, Environmental & Analysis Adam Meyers Sector Chief Executive, Medical Philippe Felten Sector Chief Executive, Process Safety Paul Simmons Sector Chief Executive, Infrastructure Safety Jennifer Ward Group Talent and Communications Director Inken Braunschmidt Chief Innovation and Digital Officer
Rachel Hirst/Andrew Jaques MHP Communications 6 Agar Street London WC2N 4HN
Tel: +44 (0)20 3128 8100 Fax: +44 (0)20 3128 8171 [email protected]
Andrew Williams Halma plc Misbourne Court Rectory Way Amersham Bucks HP7 0DE
Tel: +44 (0)1494 721111 [email protected]
Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ
Tel: +44 (0)370 707 1046 Fax: +44 (0)370 703 6101
www.investorcentre.co.uk
Auditor PricewaterhouseCoopers LLP The Atrium 1 Harefield Road Uxbridge UB8 1EX
Lazard & Co., Limited 50 Stratton Street London W1J 8LL
One Cabot Square London E14 4QJ
The Royal Bank of Scotland plc 280 Bishopsgate London EC2M 4RB
Credit Suisse International One Cabot Square London E14 4QJ
Investec Investment Banking 2 Gresham Street London EC2V 7QP
Misbourne Court Rectory Way Amersham Bucks HP7 0DE
Tel +44 (0)1494 721111 Fax +44 (0)1494 728032 Web www.halma.com
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