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RNS
Halma PLC  -  HLMA   

Half-year Report

Released 07:00 21-Nov-2017

RNS Number : 0273X
Halma PLC
21 November 2017
 

 

HALMA plc

 

HalF YEAR RESULTS 2017/18

 

Record first half results and continued dividend growth

 

 

Halma, the leading safety, health and environmental technology group, today announces its half year results for the 6 months to 30 September 2017.


Highlights

 


 

Change

 

2017

 

2016

Continuing Operations




Revenue

15%

£506.3m

£442.1m

Adjusted Profit before Taxation1,5

13%

£94.5m

£83.6m

Adjusted Earnings per Share2,5

12%

19.37p

17.23p





Statutory Profit before Taxation

18%

£76.8m

£65.2m

Statutory Earnings per Share

18%

16.27p

13.79p

Interim Dividend per Share3

7%

5.71p

5.33p





Return on Sales4


18.7%

18.9%

Return on Total Invested Capital5


13.4%

13.8%

Net Debt


£181.0m

£237.3m

 

 

 

Revenue up 15% with Adjusted1 pre-tax profit up 13%. Organic constant currency growth5: revenue up 9%, profit up 8%.

 

 

All four sectors achieved good organic constant currency revenue growth.

 

 

Revenue growth in all major regions. Significant growth in Asia Pacific where revenue exceeded the UK for the first time; good progress in the USA, Mainland Europe and Other regions.

 

 

Strong profit growth in the Process Safety, Infrastructure Safety and Environmental & Analysis sectors; Medical sector profit marginally lower although on track to improve profitability in the second half.

 

 

Strong returns with Return on Sales4 of 18.7% and ROTIC5 of 13.4%. R&D expenditure up 19%, representing 5.4% of revenue.

 

 

Interim dividend up 7%.

 

 

Good cash generation and strong balance sheet support sustained strategic investment; healthy acquisition pipeline with two acquisitions completed in the first half and two further acquisitions completed since the period end.

 

Andrew Williams, Chief Executive of Halma, commented:

 

"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."

 

 

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 £17.7m (2016/17: £18.4m). See note 2 to the Condensed Financial Statements 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 6 to the Condensed Financial Statements for details.

 

3

Interim dividend declared per share.

 

4

Return on Sales is defined as adjusted1 profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.

 

5

Adjusted1 Profit before Taxation, Adjusted1 Earnings per Share, organic growth rates and Return on Total Invested Capital (ROTIC) are alternative performance measures used by management. See notes 2, 6 and 9 to the Condensed Financial Statements for details.

 

 

For further information, please contact:

 

Halma plc
Andrew Williams, Chief Executive
Kevin Thompson, Finance Director

 

+44 (0)1494 721 111

MHP Communications
Rachel Hirst/Andrew Jaques

+44 (0)20 3128 8100

 

A copy of this announcement, together with other information about Halma, may be viewed on its website: www.halma.com.

 

 

NOTE TO EDITORS

 

1.

Halma develops and markets products used worldwide to protect life and improve the quality of life. The Group comprises four business sectors:

 


·    Process Safety

Products which protect assets and people at work.

 


·    Infrastructure Safety

Products and services that improve the safety and mobility of people and protect commercially and publicly owned infrastructure.

 


·    Medical

Products which enhance the quality of life for patients and improve the quality of care delivered by providers.

 


·    Environmental & Analysis

Products and technologies for analysis in environmental safety and life sciences markets.

 


The key characteristics of Halma's businesses are specialist technology and application knowledge for markets offering strong long term growth potential. Many Group businesses are market leaders in their specialist field.

 

2.

High resolution photos of Halma senior management, including Chief Executive Andrew Williams, and images illustrating Halma business activities can be downloaded from its website: www.halma.com. Click on the 'News & Media' link, then 'Media Gallery'.

 

3.

You can view or download copies of this announcement and the latest Half Year and Annual Reports from the website at www.halma.com or request free printed copies by contacting halma@halma.com.

 

4.

This announcement contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events.

 

Review of Operations

 

Record half year results

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%.

 

Adjusted1 profit before taxation 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.

 

Widespread revenue growth

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





£m

% of total

£m

% of total

Change
 £m

%
growth

% organic growth at 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





£m

£m

Change 
 £m
 

%
growth

% organic growth at 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% 

 

 

Strong revenue growth in all sectors

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 single-digit 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 effects 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.

 

Four acquisitions completed

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.

 

Growing a safer, cleaner and healthier future for everyone, every day

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 impacts

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.

 

Pension deficit

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 flow and funding

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.

 

Risks and uncertainties

A number of potential risks and uncertainties exist which could have a material impact on the Group's performance over the second half of the financial year and could cause actual results to differ materially from expected and historical results. The Group has 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:

 

·      Economic conditions: increased overall uncertainty including the specific impacts on growth, inflation, interest and currency rates

·      Defined benefit pension liability: movements in bond yields affecting discount rates which may increase the liability

·      Laws and regulations: potential changes to UK and EU-based law and regulation including product approvals, patents and import/export tariffs

·      Talent: mobility of the workforce

 

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.

 

Going concern

After conducting a review of the Group's financial resources, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Condensed Financial Statements.

 

Board changes

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.

 

Outlook

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.

 

 

 

Andrew Williams

Chief Executive

Kevin Thompson
Finance Director

 

1 See Highlights.

2 See note 2 to the Condensed Financial Statements.

 

Independent review report to Halma plc

 

Report on the Half Year Report

 

Our conclusion

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.

 

What we have reviewed

The interim financial statements comprise:

 

-       the Consolidated Balance Sheet as at 30 September 2017;

-       the Consolidated Income Statement and Consolidated Statement of Comprehensive Income and Expenditure for the period then ended;

-       the Consolidated Cash Flow Statement for the period then ended;

-       the Consolidated Statement of Changes in Equity for the period then ended; and

-       the explanatory notes to the interim financial statements.

 

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.

 

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

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.

 

What a review of interim financial statements involves

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.

 

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

Uxbridge

21 November 2017

 

Half year results 2017/18

 

Condensed Financial Statements

 

Consolidated Income Statement



Unaudited

6 months to 30 September 2017



Unaudited

26 weeks to 1 October 2016

Audited   
52 weeks to
   
1 April
   
 2017
   


Notes

Before 
adjustments*
£000
 

Adjustments*
(note 2)
£000
 

Total 
£000
 

Before 
adjustments*
£000
 

Adjustments*
(note 2)
£000
 

Total   
£000
   

Total   
£000
   

Continuing operations









Revenue

2

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.

 

Consolidated Statement of Comprehensive Income and Expenditure

 


Unaudited

 6 months to

30 September

2017

£000

Unaudited

 26 weeks to

1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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

50,797

Total comprehensive income for the period attributable to equity shareholders

27,653

73,005

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.

 

Consolidated Balance Sheet






Notes

Unaudited

30 September 

2017

£000

Unaudited

1 October

2016

£000

Audited

1 April

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

 

 

Consolidated Statement of Changes in Equity


For the 6 months to 30 September 2017


Share

capital

£000

Share

premium

account

£000

Own

shares

£000

Capital

redemption

reserve

£000

Hedging

reserve

£000

Translation reserve

£000

Other

reserves

£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)

-

-

(36,687)

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

 

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).

 



For the 26 weeks to 1 October 2016

 

 

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

-

-

-

-

-

-

-

52,212

52,212

Other comprehensive income and expense:










Exchange differences on translation of foreign operations

-

-

-

-

-

57,825

-

-

57,825

Actuarial losses on defined benefit pension plans

-

-

-

-

-

-

-

(45,838)

(45,838)

Effective portion of changes in fair value of cash flow hedges

-

-

-

-

(453)

-

-

-

(453)

Tax relating to components of other comprehensive income and expense

-

-

-

-

91

-

-

9,168

9,259

Total other comprehensive income and expense

-

-

-

-

(362)

57,825

-

(36,670)

20,793

Dividends paid

-

-

-

-

-

-

-

(29,609)

(29,609)

Share-based payments charge

-

-

-

-

-

-

3,110

-

3,110

Deferred tax on share-based payment transactions

-

-

-

-

-

-

(127)

-

(127)

Excess tax deductions related to share-based payments on exercised awards

-

-

-

-

-

-

-

1,159

1,159

Performance share plan awards vested

-

-

3,323

-

-

-

(6,633)

-

(3,310)

At 1 October 2016 (unaudited)

37,965

23,608

(4,896)

185

(972)

133,212

(9,481)

510,947

690,568

 



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

 

Consolidated Cash Flow Statement






Notes

Unaudited

6 months to

 30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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 6 months to

30 September 2017

£000

Unaudited 26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

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)

 

Notes to the Condensed Financial Statements

1   Basis of preparation

General information

The Half Year Report, which includes the Interim Management Report and Condensed Financial Statements for the 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.

 

Basis of preparation

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.

 

Standards and interpretations not yet applied

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):

 

-       IFRS 9 'Financial Instruments: Classification and measurement' - effective for accounting periods beginning on or after 1 January 2018.

-       IFRS 15 'Revenue from Contracts with Customers' - effective for accounting periods beginning on or after 1 January 2018.

-       IFRS 16 'Leases' - effective for accounting periods beginning on or after 1 January 2019.

-       Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions - effective for accounting periods beginning on or after 1 January 2018.

-       Annual Improvements 2014-2016 Cycle - effective for accounting periods beginning on or after 1 January 2018.

-       IFRIC Interpretation 22: Foreign Currency Transactions and Advance Consideration - effective for accounting periods beginning on or after 1 January 2018.

-       IFRIC Interpretation 23: Uncertainty over Income Tax Treatments - effective for accounting periods beginning on or after 1 January 2019.

-       Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures - effective for accounting periods beginning on or after 1 January 2019.

 

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.

 

(a) IFRS 15 'Revenue from Contracts with Customers'

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:

 

-       Certain companies across the Group provide a product which involves an element of customisation. Currently under IAS 18 the revenue recognition for such product is at a point in time on transfer of the risk and reward of the transaction to the customer. IFRS 15 requires that for such transactions, where certain criteria are met, revenue is recognised over time. Based on the review of specific contract terms against the requirements of IFRS 15 we do not currently expect the criteria of IFRS 15 to be met and as such do not expect there to be material change in the timing or quantum of revenue recognition in relation to these arrangements.

-       Certain companies across the Group arrange shipping and handling on behalf of their customers but, based on assessment of all terms and conditions, determine control of goods to pass on despatch. Accordingly shipping and handling is a separate performance obligation under IFRS 15 and revenue is only recognised when the performance obligation is fulfilled. Having reviewed the terms of the arrangements we do not currently expect there to be a material change in the timing or quantum of revenue recognition.

-       Many of our companies have warranty arrangements with their customers. Having reviewed the details of the warranty arrangements, these have been determined to be of an assurance nature and as such there is no material change in accounting required by IFRS 15.

-       Many of the companies have variable consideration arrangements with their customers. Having reviewed the details of these arrangements against IFRS 15 and current accounting practices, we do not currently expect there to be a material change in the timing or quantum of revenue recognition.

-       Sales commissions and other third-party sales acquisition costs resulting directly from securing contracts with customers are required to be recognised as an asset under IFRS 15 and recognised over the associated contract period where such contract is more than one year in length. Having reviewed the nature of the arrangements we do not currently expect there to be a change in the current accounting.

 

(b) IFRS 9 'Financial Instruments'

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.

 

(c) IFRS 16 'Leases'

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.

 

Going concern

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.

 

2   Segmental analysis

 

Sector analysis

The Group has four main reportable segments (Process Safety, Infrastructure Safety, Medical and Environmental & Analysis), which are defined by markets rather than product type. Each segment includes businesses with similar operating and market characteristics. These segments are consistent with the internal reporting as reviewed by the Chief Executive.

 

Segment revenue and results

 


Revenue (all continuing operations)


Unaudited

6 months to

 30 September

2017

£000

Unaudited

26 weeks to

1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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

6 months to

 30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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 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

(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 ended 1 April 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

(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.

 

Geographic information

 

The Group's revenue from external customers (by location of customer) is as follows:



Revenue by destination


Unaudited

 6 months to

30 September

2017

£000

Unaudited

 26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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

 

3   Finance income





Unaudited

 6 months to

30 September

2017

£000

Unaudited

 26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£000

Interest receivable

106

96

211

Fair value movement on derivative financial instruments

-

-

283


106

96

494

 

4   Finance expense





Unaudited

6 months to

30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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

 

 

5   Taxation

 

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.

 

 

 

6   Earnings per ordinary share

 

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

6 months to

 30 September

2017

pence

Unaudited

26 weeks to

 1 October

2016

pence

Audited

52 weeks to

1 April

2017

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

 

7   Dividends



Per ordinary share


Unaudited

6 months to

30 September

2017

pence

Unaudited

26 weeks to

 1 October

2016

pence

Audited

52 weeks to

1 April

2017

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

£000

Unaudited

26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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

 

8   Notes to the Consolidated Cash Flow Statement





Unaudited

6 months to

30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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

 

 

 

 

 

 

 

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)

(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.

 

9   Alternative performance measures

 

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.

 

 

Return on Total Invested Capital (ROTIC)





Unaudited

 6 months to

 30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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

2017

£000

Unaudited

26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

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 £258,648,000 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 and constant currency

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:

 




Revenue

Adjusted profit* before taxation


Unaudited

6 months to

30 September

2017

 £000

Unaudited

26 weeks to

 1 October

2016

 £000

% growth

Unaudited

6 months to

 30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£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.

 

Sector organic growth at constant currency

Organic growth at constant currency is calculated for each segment using the same method as described above.

 

Process Safety

Revenue

Adjusted* segment profit


Unaudited

6 months to

30 September

2017

 £000

Unaudited

26 weeks to

 1 October

2016

 £000

% growth

Unaudited

6 months to

 30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£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

30 September

2017

 £000

Unaudited

26 weeks to

 1 October

2016

 £000

% growth

Unaudited

6 months to

 30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£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

6 months to

30 September

2017

 £000

Unaudited

26 weeks to

 1 October

2016

 £000

% growth

Unaudited

6 months to

 30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£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)%

 

Environmental & Analysis

Revenue

Adjusted* segment profit


Unaudited

6 months to

30 September

2017

 £000

Unaudited

26 weeks to

 1 October

2016

 £000

% growth

Unaudited

6 months to

 30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£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.

 

 

Adjusted operating profit





Unaudited

6 months to

30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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

 

Adjusted operating cash flow





Unaudited

6 months to

30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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.

 

10   Acquisitions

 

In the provisional accounting, adjustments are made to the book values of the net assets of the companies acquired to reflect their provisional fair values to the Group. Acquired inventories are valued at fair value adopting Group bases and any liabilities for warranties relating to past trading are recognised. Other previously unrecognised assets and liabilities at acquisition are included and accounting policies are aligned with those of the Group where appropriate.

 

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:

 

a)    the total of CasMed NIBP and Cardios;

b)    CasMed NIBP, on a stand-alone basis; and

c)     Cardios, on a stand-alone basis.

 

(A) Total of CasMed NIBP and Cardios



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

6 months to

30 September

2017

£000

Unaudited

26 weeks to

 1 October

2016

£000

Audited

52 weeks to

1 April

2017

£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.

 

(B) CasMed NIBP, on a stand-alone basis

 


Total

 £000

Non-current assets


Intangible assets

2,909

Net assets of business acquired

2,909



Initial cash consideration paid

3,449

Contingent purchase consideration estimated to be paid

693

Total consideration

4,142



Goodwill arising on acquisition

1,233

 

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:

 

a)    the technical expertise of the acquired workforce;

b)    the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and

c)     the ability to exploit the Group's existing customer base.

 

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:

 

a)    the technical expertise of the acquired workforce;

b)    the opportunity to leverage this expertise across some of Halma's businesses through new technologies; and

c)     the ability to exploit the Group's existing customer base.

 

Acquisition costs totalling £367,000 were recorded in the Consolidated Income Statement.

 

11   Retirement benefits

 

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.

 

12   Fair values of financial assets and liabilities

 

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.

 

13   Subsequent events

 

Revolving Credit Facility extension

Effective from 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.

 

Acquisition of Mini-Cam Enterprises Limited and subsidiaries

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.

 

Acquisition of Setco

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.

 

14   Other matters

 

Seasonality

The Group's financial results have not historically been subject to significant seasonal trends.

 

Equity and borrowings

Issues and repurchases of Halma plc's ordinary shares and drawdowns and repayments of borrowings are shown in the

Consolidated Cash Flow Statement.

 

Related party transactions

There were no significant changes in the nature and size of related party transactions for the period to those reported in the Annual Report and Accounts 2017.

 

15   Principal risks and uncertainties

 

A number of potential risks and uncertainties exist that could have a material impact on the Group's performance over the second half of the financial year and could cause actual results to differ materially from expected and historical results.

 

The Group has in place processes for identifying, evaluating and managing key risks. These risks, together with a description of the approach to mitigating them, are set out on pages 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:

 

·    Globalisation

·    Competition

·    Economic conditions

·    Funding, treasury and pension deficit

·    Cyber security/Information Technology/Business interruption/Natural disasters

·    Acquisitions

·    Laws and regulations

·    Talent and diversity

·    Research & Development and Intellectual Property strategy

·    Product quality

 

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:

 

·    Economic conditions: increased overall uncertainty including the specific impacts on growth, inflation, interest and currency rates

·    Defined benefit pension liability: movements in bond yields affecting discount rates which may increase the liability

·    Laws and regulations: potential changes to UK and EU-based law and regulation including product approvals, patents and import/export tariffs

·    Talent: mobility of the workforce

 

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.

 

16   Responsibility statement

 

We confirm that to the best of our knowledge:

 

a)

these Condensed Financial Statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union;

 

b)

this Half Year Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule (DTR) 4.2.7R (indication of important events during the period and description of principal risks and uncertainties for the remainder of the financial year); and

 

c)

this Half Year Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

 

 

By order of the Board

 

 

 

Andrew Williams

Chief Executive

 

21 November 2017

 

 

 

 

Kevin Thompson

Finance Director

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Half-year Report - RNS