Final Results

RNS Number : 8826S

Halma PLC

14 July 2020

 

HALMA plc

FULL YEAR RESULTS 2020

Halma, the global group of life-saving technology companies focused on growing a safer, cleaner and healthier future, today announces its full year results for the 12 months to 31 March 2020.

Highlights

	Change	2020	2019
Continuing Operations
Revenue	+11%	£1,338.4m	£1,210.9m
Adjusted Profit before Taxation1	+9%	£267.0m	£245.7m
Adjusted Earnings per Share2, 3	+9%	57.39p	52.74p
Statutory Profit before Taxation	+8%	£224.1m	£206.7m
Statutory Earnings per Share	+9%	48.66p	44.78p
Total Dividend per Share4	+5%	16.50p	15.71p
Return on Sales5		19.9%	20.3%
Return on Total Invested Capital3		15.3%	16.1%
Net Debt6		£375.3m	£232.0m

· Record revenue and profit for the 17^th consecutive year.

· Good growth with revenue up 11%, Adjusted¹ profit before tax up 9% and statutory profit before tax up 8%.

· Solid organic constant currency revenue growth³ of 5%; organic constant currency³ Adjusted¹ profit before tax growth of 2%, or 4% excluding £5.0m of COVID-19-related customer bad debt provisions.

· Widespread growth: All sectors delivered revenue growth and three out of four sectors grew Adjusted¹ operating profit. Revenue grew in all major regions on a reported and organic constant currency basis³.

· Strong contribution from acquisitions, adding 5% to revenue and Adjusted¹ profit before tax growth; ten acquisitions completed and healthy acquisition pipeline.

· Continued increased investment while maintaining high Return on Sales⁵ and ROTIC³. R&D expenditure up 14%, representing 5.4% of revenue.

· Strong cash generation, with cash conversion of 97%, and robust balance sheet and liquidity position with gearing (net debt to EBITDA) at the year-end of 1.1 times.

· Total dividend for the year⁷ up 5%, the 41^st consecutive year of dividend per share increases of 5% or more.

· Resilient Q1 FY2021 trading: revenue 4% lower than in Q1 FY2020 reflecting the 'non-discretionary' demand for many Halma products; good cash generation; order intake ahead of revenue and the same period last year.

· Timing and profile of recovery remains uncertain; currently expect Adjusted¹ profit before tax for FY2021 to be 5%-10% below FY2020, and more weighted to the second half than in previous years.

Andrew Williams, Group Chief Executive of Halma, commented:

"Halma delivered a record financial performance in the past year, and trading in the first quarter has been resilient despite the effects of the COVID-19 pandemic. This reflects our clear purpose and focused strategy, our flexible and agile organisation, and the resilient, long-term growth drivers in our chosen markets. We expect these strengths, combined with the quality of our people and our increasing investment in innovation and technology, to enable us to continue to create value for all of our key stakeholders in the years ahead."

Notes

1	Adjusted to remove the amortisation of acquired intangible assets, acquisition items, significant restructuring costs, profit or loss on disposal of operations and in the prior year the effect of equalising pension benefits for men and women in the defined benefit pension plans, totaling £42.9m (2019: £39.0m). See note 1 to the Results for details.
2	Adjusted to remove the amortisation of acquired intangible assets, acquisition items, significant restructuring costs, profit or loss on disposal of operations, in the prior year the effect of equalising pension benefits for men and women in the defined benefit pension plans and the associated taxation thereon. See note 2 to the Results for details.
3	Adjusted1 Profit before Taxation, Adjusted1 Earnings per Share, organic growth rates, Return on Sales5 and Return on Total Invested Capital (ROTIC) are alternative performance measures used by management. See notes 1 , 2 and 3 to the Results for details.
4	Total dividend paid and proposed per share.
5	Return on Sales is defined as Adjusted1 Profit before Taxation from continuing operations expressed as a percentage of revenue from continuing operations.
6	Includes IFRS 16 lease liabilities of £61.5m (2019: £50.3m).
7	Comprising interim dividend of 6.54p and proposed final dividend of 9.96p.

For further information, please contact:
 

Halma plc Andrew Williams, Group Chief Executive Marc Ronchetti, Chief Financial Officer Charles King, Head of Investor Relations	[phone]   [phone]
MHP Communications Rachel Hirst/Andrew Jaques/Giles Robinson	[phone]

A copy of this announcement, together with other information about Halma, may be viewed on the Group's website: www.halma.com . A webcast of today's results presentation will be available on the same website later today.

NOTE TO EDITORS

1.	Halma is a global group of life-saving technology companies, focused on growing a safer, cleaner and healthier future for everyone, every day. Our innovative products and solutions address many of the key issues facing the world today. The Group comprises four business sectors:
	· Process Safety	Technologies that protect people and assets at work.
	· Infrastructure Safety	Technologies that save lives, protect infrastructure and enable safe movement in public spaces.
	· Environmental & Analysis	Technologies to improve environmental protection and the security of life-critical resources.
	· Medical	Technologies which enhance the quality of life for patients and improve the quality of care delivered by healthcare providers.

	The key characteristics of Halma's businesses are specialist technology and application knowledge for niches within markets offering strong long-term growth potential. Many Group businesses are market leaders in their specialist fields.
2.	You can view or download copies of this announcement and the latest Half Year and Annual Reports from the website at www.halma.com .
3.	This announcement contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events .

Strategic Review

Halma's purpose is to grow a safer, cleaner, healthier future, for everyone, every day. We play a positive role in society by addressing some of the world's most fundamental needs and challenges, from safer work and public spaces, to a cleaner, more sustainable environment, and improved medical care.

We have a clear and sustainable growth strategy, with a disciplined approach to choosing the markets in which we invest. This is supported by a flexible and agile organisation which means we can rapidly evolve and adapt to the changing needs of our customers. We attract talented people, who are aligned with our purpose, share our values and fit well into our inclusive culture of collaboration, entrepreneurialism and integrity.

These elements have supported our further progress in the year, and particularly in our response to COVID-19 which emerged in the final quarter. Importantly, I also believe that they have become increasingly vital in positioning Halma to meet the new challenges and opportunities which are emerging, as we continue to create value for all our stakeholders.

Halma has a long track record of successfully adapting to societal shifts and evolving markets. Increased awareness of the profound and global nature of the challenges we all face, whether specifically from the COVID-19 pandemic or longer-term trends such as climate change and growing, ageing and urbanising populations, has further reinforced the importance of our purpose, as well as our business model which can adapt swiftly to changing market needs. In recent years, we have also been increasing our organic and inorganic investment in digital technologies, which is likely to be accelerated further in the future.

In recent months, our focus has been the safety and well-being of all our stakeholders, and I am proud of the way in which everyone at Halma has addressed the challenges they have faced, both personally and professionally. They have ensured the continued supply of life-critical products to our customers, contributed directly and indirectly to the global fight against COVID-19, while protecting the health and safety of their colleagues and communities. I would like to thank them all for their hard work, dedication and determination in such challenging circumstances.

In this review, I will first look back at Halma's performance during the last financial year and then take a deeper dive into our response to the COVID-19 pandemic, our performance since the year-end and our prospects for the future.

Review of the 2019/2020 financial year

Record revenue and profit with strong returns

We delivered another record year for revenue and profit driven by solid organic growth and a record year for acquisitions.

Revenue increased by 11% to £1,338m (2019: £1,211m), including 5% organic constant currency revenue growth and a contribution from acquisitions of 5% (4% net of disposals). There was a benefit to revenue growth of 2% from currency translation, which principally arose in the first half of the year. We estimate that the adverse impact of COVID-19 during the final quarter was a reduction of approximately 1% on full year revenue.

Adjusted¹ profit rose by 9% to £267.0m (2019: £245.7m). This comprised 2% organic constant currency growth, or 4% excluding £5.0m of bad debt provisions in the second half of the year given the possible impacts of COVID-19. There was a 5% contribution from acquisitions (also 5% net of disposals) and a 2% benefit from currency translation.

Statutory profit before taxation increased by 8% to £224.1m (2019: £206.7m).

Returns remained at a high level. Return on Sales¹ was 19.9% (2019: 20.3%), within our target range of 18% - 22%. The post-tax Return on Total Invested Capital¹ was 15.3% (2019: 16.1%), well above our estimated Weighted Average Cost of Capital of 7.7%.  This slight reduction reflected a lower level of constant currency earnings growth than in the prior year, the increase in provisions, and also the weakening of Sterling against foreign currencies, which has a greater proportional effect on capital employed than on returns. 

We completed a record 10 acquisitions during the year spread across all four sectors. Annualised profit growth acquired equated to around 6% of Halma's earnings, ahead of our KPI of acquiring growth of 5% or more. This reflected our investment in increased M&A capability at the sector and company level in

recent years.

Strong cash generation and robust balance sheet and liquidity

Cash generation was strong with cash conversion of 97% (2019: 88%). This excellent performance was primarily driven by good working capital control, and by the positive effects on cash conversion of the implementation of IFRS 16, the leasing accounting standard (a 5% benefit), and the increase in provisions (a 2% benefit).

The year ended with net debt of £375.3m, which included for the first time £61.5m of lease liabilities as a result of the implementation of IFRS 16. Excluding these lease liabilities, net debt increased to £313.8m (2019: £181.7m), after spending £242.6m on current year acquisitions (2019: £68.1m) and £32.3m on capital expenditure, as well as paying dividends to shareholders of £61.2m and tax of £52.4m.

Our balance sheet and liquidity position remain robust. Gearing (net debt to EBITDA) at the year-end was 1.13 times (2019: 0.63 times), at the lower end of our targeted range of 1-2 times, and we have committed facilities totalling approximately £ 750m (at year-end exchange rates). The earliest maturity in these facilities is for £74m (at year-end exchange rates) in January 2021, with the remaining maturities from 2023 onward. We therefore do not intend to access funding from the UK Government's Covid Corporate Financing Facility (CCFF).

Annual dividend to increase by 5%

The Board is recommending a 3.8% increase in the final dividend to 9.96p per share (2019: 9.60p per share). Together with the 6.54p per share interim dividend, this would result in a total dividend for the year of 16.50p (2019: 15.71p), up 5%, making this the 41st consecutive year of dividend per share growth of 5% or more.

The final dividend for 2020 is subject to approval by shareholders at the AGM on 4 September 2020 and is expected to be paid on 1 October 2020 to shareholders on the register as at 28 August 2020.

Revenue growth in all major regions

We delivered revenue growth in all major regions, on a reported and organic constant currency basis, reflecting the global nature of the growth opportunities in our chosen markets of safety, health and the environment.

The USA, the UK and Asia Pacific performed strongly. The USA, our largest region, and the UK each delivered their second consecutive year of double-digit revenue growth, with increases of 15% and 10% respectively. Both regions achieved organic constant currency revenue growth of 8%.

Asia Pacific delivered the strongest reported growth, of 16%, principally driven by a good contribution from the acquisition of Ampac, based in Australia, which we completed in July 2019.  Organic growth in Asia Pacific was more modest at 4%, in part reflecting a decline of 4% in China mainly as a result of the impact of the COVID-19 pandemic for most of the final quarter of the year. There was good organic growth in most other major markets in the region.

Mainland Europe grew revenue by 4%, including 1% organic constant currency growth, against a strong performance last year which had benefited from some large contracts. In the Rest of the World, revenue was ahead overall, with a reduction in Africa, Near and Middle East more than offset by growth in Other countries, which included a strong performance in Canada.

Revenue growth in all sectors

All sectors delivered record revenue, and three out of four sectors delivered record Adjusted ¹ profit. This widespread growth represented a good performance given strong prior year comparatives and the effects, later in the year, of the COVID-19 pandemic. The following is a brief summary of each sector's performance with further details set out below in the sector reviews.

The Environmental & Analysis sector delivered a strong performance for the third consecutive year, supported by some large Optical Analysis projects together with continued new product development and increasing regulatory requirements in the UK water market, with profit growth consistent with that of revenue. Return on Sales was similar to last year. 

Infrastructure Safety also performed strongly, with reported revenue growth benefiting from recent acquisitions, notably Ampac in Australia. Although organic revenue growth slowed in the second half, the benefit of recent investments in automation and improved mix management towards higher margin products resulted in stronger organic profit growth. There was also an improvement in Return on Sales, despite a £2.1m increase in provisions for the risk of COVID-19 related customer bad debts.

The Medical sector reported good revenue growth, with solid contributions from both organic growth and recent acquisitions.  The reported profit increase was more modest, resulting in a decline in Return on Sales. There was higher R&D investment to generate future growth and a net charge of £2.5m reported in the first half of the year principally related to the rationalisation of product development strategies in two ophthalmic companies to improve their growth and profitability over the medium term.  The sector's results also included a £1.1m increase in provisions for the risk of COVID-19 related customer bad debts, resulting in a decrease in organic profit growth.

Process Safety reported a small increase in revenue, including the benefit of the Sensit acquisition and further good progress in the USA from a large logistics contract. However, unfavourable conditions in the US onshore oil and gas market, together with some customer project delays and a temporary site closure in California in the fourth quarter due to COVID-19, resulted in a decline in organic revenue, profit and Return on Sales.

Ten acquisitions completed across all four sectors

Halma's decentralised organisational model gives us the ability to continue acquiring small- to medium-sized businesses to achieve our strategic objectives. We are also able to sell and merge businesses relatively easily, should specific market dynamics change, enabling us to maintain a growth-oriented portfolio without becoming significantly more complex to manage. For example, in 2010 Halma had revenue of £ 459m from 36 operating companies, while today we have revenue of over £1.3bn from 44 operating companies.

Our core acquisition strategy is to find privately owned businesses operating in niches which are aligned with our purpose and which demonstrate long-term structural market growth. We focus most of our search efforts on our core, or closely adjacent, market niches although each sector board has the freedom to find new niches which might have the right product, market and financial characteristics. Every transaction is approved by the Group Chief Executive and Chief Financial Officer, with all deals over £ 10m requiring Board approval.

We have a healthy acquisition pipeline and, with increased capability added at the sector and company level in recent years, this translated into a record 10 acquisitions being completed in the year for a total initial cash consideration (including fees) of £ 231m. These were spread across all four sectors, with  performance in line with expectations during the year and we expect good contributions from them in the future. Full details of the acquisitions made in the year are given in note 9 to the Financial Statements.

In 2019, we added new expertise to manage and support small, minority investments that can bring new technology and capabilities to Halma without us taking full ownership. During the year we made two small strategic investments, totalling £ 4.8m, in Valencell, which provides wearable biometric solutions and Owlytics, focused on wearable-based analytics technology.  In the period, we also sold our interest in Optomed Oy, a manufacturer of handheld fundus cameras, at the time of its IPO in December 2019, for £ 6.8m (net of disposal costs) with a small net gain on our investment of £ 2.9m.

For reasons of financial prudence during the COVID-19 pandemic, we do not plan to complete any acquisitions in the first half of financial year 2020/21. However, our M&A search efforts are continuing, and we have a good pipeline of potential acquisitions should conditions become more favourable in the second half. 

We continue to build long-term relationships with business owners so that they see Halma as the right home for their business when they decide to sell, or as a strong strategic partner to help them grow their businesses.

Investment in central and Growth Enabler teams to support our growth strategy

With the rapid growth and evolution of the Group, we made further investments in the year in our central and Growth Enabler resources, which provide high level expertise and resources to our companies to support their growth. We made further good progress on our Halma 4.0 strategy, through which our companies are addressing the diverse challenges and opportunities presented by the digital age.

We increased strategic investment in our IT capabilities, to ensure that we have a future-ready technology infrastructure and digital architecture to support both our decentralised operational needs and the development of our digital growth initiatives. This will be an area of increased focus in the coming year, given the opportunities arising as a result of the COVID-19 pandemic, for example in enabling remote monitoring of safety and environmental systems, as well as in ensuring hygiene and facilitating remote diagnosis in healthcare.

We continued to strengthen our finance, internal audit, risk and legal teams to support continued strong governance, compliance and reporting as the Group grows. We also invested in our other Growth Enablers, for example in adding M&A capabilities in Asia-Pacific, and strengthening our Talent, Innovation and Digital Growth teams. These increased resources have already supported the purchase of several companies with digital business models, which this year included FireMate in Australia and Invenio in the UK.

Our companies increased their investment to support core growth, for example in new product development, with R&D spend up 14% to £ 72m (2019: £ 63m). Having achieved a major cultural mindset shift over the past three years, our innovation and digital accelerator programmes were re-focused from ideas generation onto the commercialisation of ideas and improving the speed and cost of innovation.

We launched a new Digital Execution Accelerator programme and an Agile NPD (New Product Development) Engine to help our companies shorten the time from investment to revenue, by addressing specific areas of challenge, such as the development of new routes to market and new technology. Approximately 7% of our revenues are currently derived from digital solutions and services or connected products (products which can transmit data wirelessly, for example through Wi-Fi or a cellular network, without the need for a further gateway device). In total, we currently have over 20 Digital and Agile NPD projects involving all four sectors.

To leverage the existing capabilities within Halma companies, we created a Digital Champions Network, to share expertise and to further embed innovation and digital programmes and tools across the Group. We also continued to build our external partnerships, with our collaboration with Hitachi's Centre of Excellence in Lisbon currently supporting the development of seven projects. Examples include: the remote monitoring of fire systems; remote diagnosis and telemedicine for vital signs monitoring and ophthalmology; and monitoring the shelf life of fresh produce to reduce food waste.

Our Convergence Accelerator, which combines our existing capabilities and technologies to create new solutions and business models has had another productive year. An example is a new integrated warehouse safety solution, called SCOPE, which combines technologies and capabilities from companies in three sectors. It combines expertise from people and vehicle flow (Infrastructure Safety), safety interlocks (Process Safety), and real-time location monitoring technology (Medical). We expect field trials of prototype SCOPE systems to begin in the next year.

Talent and Executive Board changes

The quality and diversity of our leaders and teams is a critical component of Halma's success. Their commitment and dedication have played a key role in our resilient response to the challenges presented by COVID-19.

We are committed to ensuring that Halma is an inclusive organisation, thereby maximising the pool of talent available to us and ensuring we recruit and retain the best people for each role. We are actively addressing the need for increasing diversity within our subsidiary companies' leadership teams by embedding strong diversity and inclusion principles.

 

One measure of inclusion is gender diversity, which on the Board has improved from 18% female six years ago to 40% today. We are also making encouraging progress in executive leadership with both our Executive Board roles and the Divisional Chief Executives on our Sector Boards on track to achieve gender parity in the next year. Neither of these groups had any female representation six years ago.

We fully recognise the value of having a variety of voices, backgrounds and experiences within our leadership teams and realise that we have more work to do to increase ethnic diversity.  Our recruitment patterns will be actively influenced by recognising the growing talent pool of ethnically diverse candidates and by leveraging the role models we already have within our business. We acknowledge that many of our stakeholders, including investors, customers and employees, regard leadership diversity as an important factor in facing up to the challenges of the modern world. We have begun to measure national and ethnic diversity across our workforce, to provide a benchmark on which we can demonstrate our progress in the future.

Several changes to the Executive Board in the past year have added important new capabilities and increased diversity, aligned with the needs of our growth strategy.

-  In September 2019, Catherine Michel joined Halma's Executive Board as our first Chief Technology Officer, with global responsibility for IT and digital architecture, working closely with Inken Braunschmidt in her role of driving the execution of Halma's Digital and Innovation growth strategy.

-  In October 2019, as planned, Laura Stoltenberg succeeded Adam Meyers as Sector Chief Executive for the Medical & Environmental sectors, which was followed by an extensive handover period up to March.

-  In July 2020, Adam Meyers succeeded Paul Simmons as Sector Chief Executive of our Safety sectors, following the announcement in April 2020 that Paul will leave Halma to join Hill & Smith plc as Chief Executive Designate. Adam has agreed to defer his retirement from Halma until 2021, to allow an orderly succession process to be completed.

Later in 2020, we look forward to welcoming Funmi Adegoke to Halma's Executive Board as our General Counsel, replacing Ruwan De Soyza who resigned from Halma early in the year.  Mark Jenkins has been re-appointed as Company Secretary.

Further progress in sustainability and living our purpose

Our purpose of growing a safer, cleaner, healthier future for everyone, every day is the foundation for our approach to sustainability. To meet the ambition which is embodied in our purpose, it is critical that our companies remain sustainable over the long term, since the issues that we help our customers address, in ensuring safety and protecting health and the environment, are likely to persist. Sustainable business is a core part of Halma's DNA, and we seek to demonstrate it in not just our financial performance but also in terms of the positive role we can play in society, and by behaving responsibly in the markets and communities we serve.

Our further progress in the year in advancing our ESG agenda was evident across a wide range of initiatives. These ranged from reducing our carbon footprint and improving our CDP rating from "Awareness C" to "Management B", to identifying Modern Slavery risks within our supply chain, and supporting and improving diversity and inclusion in the Group. I was also immensely pleased with the result of our first ever group-wide charitable campaign, Gift of Sight, and although the COVID-19 pandemic has delayed our next campaign, we intend to launch it later this year. Further detail on our progress in 2020 is given in the Sustainability review of the Annual Report and Accounts 2020.

Our response to the COVID-19 pandemic

Following the initial outbreak of COVID-19 in China in January 2020, we acted quickly to support our companies, to ensure the safety of our people, and to mitigate the potential adverse impacts on our businesses. As this regional outbreak evolved rapidly into a global pandemic, with health and economic challenges beyond what any of us have experienced in our lifetimes, it has become clear that it has some unique characteristics compared with previous downturns which Halma is relatively well positioned to address.

Firstly, Halma's agility and diversity has proved to be a major asset. Over many years, we have built an organisation and culture which has been created for fast, decentralised decision making by those closest to our stakeholders, accompanied with clear lines of accountability.

Secondly, from an early stage it was clear that our ability to respond rapidly needed to be tempered with the understanding that major decisions had to be taken with a holistic view, balancing the positive and  negative impacts across all of Halma's key stakeholders. These include our employees, suppliers, customers, debt holders, shareholders and a wide range of community stakeholders, including Government. I believe the actions we have taken so far have achieved that objective and, importantly, positioned Halma to create even greater value for all of them in the future.

To support our companies, we created both central and regional COVID-19 support groups, the first of which was established in January 2020. This enabled each of our 44 companies to implement an operating plan to suit its market and local circumstances across our 54 principal operating facilities in the UK, the USA, Mainland Europe and Asia Pacific. Over 30 of our companies deliver critical safety, healthcare and environmental protection solutions and received a mandate, or permission, from their regional or national authorities to continue to operate during shutdown restrictions. Only three facilities have had to implement extended shutdown periods since the end of March and, as at the date of this report, all our facilities are operational.

Our priority throughout the pandemic has been to ensure a safe working environment for all Halma employees. In addition to working from home wherever possible, measures taken have included increased spacing between workstations, appropriate protective equipment, staggered shifts and breaks, enhanced cleaning processes and contingency planning, plus a ban on non-essential travel and visitors to facilities.

Given these challenges, it was impressive to see the efforts which many Halma employees across the world made to re-purpose their resources and capabilities in order to manufacture personal protective equipment for healthcare providers. Colleagues from at least 11 Halma companies worked around the clock, individually and collaboratively, to contribute to their national effort and demonstrated a key characteristic of Halma's culture, which enables our companies to do the right thing without having to seek permission first.

As in previous downturns, we acted quickly to reduce costs, optimise cash flow, protect liquidity and, where necessary, change how we operate. These actions resulted in a cost reduction (net of the cost of implementation) of over £20m in the first quarter of the new financial year, compared to the previous fourth quarter's run-rate. We implemented a significant reduction in all discretionary overheads. We also ensured that our companies continued to manage their working capital effectively, while maintaining productive relationships with customers and suppliers. We limited capital investment to essential projects and R&D only and did not complete any acquisitions during the first quarter of the current financial year.

We also implemented a freeze on hiring and promotions, while company, sector and Group employees agreed to temporary salary reductions from 1 April 2020 for a three-month period. This helped to absorb a significant proportion of the cost savings necessary to protect ongoing operations in the face of tremendous uncertainty, demonstrating their support for, and commitment to, their companies and their colleagues across Halma. The Board and Executive Board also agreed to a 20% reduction in salaries or fees for a 3 month period, from 1 April 2020.

Whilst a small percentage of our workforce have been furloughed by their companies, Halma has funded this in the UK at our own expense, without any support from the UK Government's Coronavirus Job Retention Scheme. Unfortunately, given the significant declines in current and forecast demand in certain businesses, it is likely that there will be a small number of redundancies during the year though Halma has committed to providing additional financial support to those companies and employees which are affected. The estimated cost of these furlough and support programmes is approximately £5m, to be taken in the first half of 2020/21.

 

Current trading

Trading in the first quarter of the current financial year, from 1 April 2020 to 30 June 2020, has reflected the resilience of our business model and the essential nature of many of our products and services. Our order book has remained strong, with order intake ahead of revenue and ahead of the same period last year.  Cash generation remains good and we continue to have a strong balance sheet and liquidity position. This has enabled us to alleviate some of the more stringent cost saving measures implemented in the first quarter.

Group revenues in the first quarter were 4% lower than the prior year, and 13% lower on an organic constant currency basis. This resilient performance, achieved during a period of lockdown in most of our major regions, also highlighted the benefits of having a diverse portfolio and agile organisational model. There was a wide variation of performances in our companies, reflecting significant changes in demand in individual end markets, as well as additional production, sales and distribution challenges due to safe working requirements and limitations on physical access to customer sites.

These revenue trends were partially offset by the savings in variable costs referred to above. We expect our companies to continue to actively manage their cost bases for the remainder of the year according to their individual market conditions.

In the Safety sectors, Infrastructure Safety saw the largest decline in revenue, particularly in the UK, which accounts for around a quarter of its revenue. The challenges of gaining physical access to installation sites and the actions of customers in furloughing a large proportion of installers of our products during the period had a significant adverse impact. We expect this trend to improve as lockdown restrictions ease and installers return to work. Revenue in Process Safety also reduced, primarily driven by a fall in demand for safety products in its oil and gas related businesses as a result of the lower oil price.

In the Medical sector, a number of our companies, notably those supporting the monitoring of vital signs and the oxygenation of patients, saw strong increases in demand, while companies supporting elective surgery and discretionary ophthalmic diagnosis procedures experienced significant reductions, leading to an overall decline in revenue. We expect the high demand in vital signs and oxygenation products to moderate over the coming months, and the demand in markets supporting elective procedures and discretionary diagnosis to recover as healthcare systems attempt to normalise.

The Environmental & Analysis sector achieved continued revenue growth, with solid performances in Environmental Monitoring and Water Analysis & Treatment and strong growth in Optical Analysis.

Summary and Outlook

Halma's performance reflects our clear purpose, focused strategy, agile organisational model and the resilient, long-term growth drivers in our chosen markets. Our continued and accelerated investment in great talent, innovation and digital technologies will enable us to create value for all our key stakeholders in the future.

We have previously announced that the COVID-19 pandemic was expected to have a net adverse impact on our markets and our full year financial results to 31 March 2021, and for those results to have a significant second half weighting. This remains our view, with the increased second half weighting in part due to the costs of our employee support programmes in the second quarter.

We have delivered a resilient financial performance in the first quarter of the new financial year, despite the initial effects of the COVID-19 pandemic. Although the timing and profile of recovery remains uncertain, based on recent trading and internal forecasts, we currently expect Adjusted¹ profit before tax for the year to 31 March 2021 to be 5%-10% below that achieved in the 2020 financial year. We will provide further updates as we progress through the current year.

Andrew Williams

Group Chief Executive

¹ See Highlights

 

Financial Review

Record results

Halma made good progress in the period, delivering record revenue and profit for the 17th consecutive year, despite the effects from the COVID-19 pandemic in the fourth quarter of the financial year. We continued to execute well against our growth strategy and our key performance indicators, benefiting from the clarity of our purpose, our strong culture, our agile and responsive business model, and our robust financial position.

Revenue for the year to 31 March 2020 increased by 10.5% to £1,338.4m (2019: £1,210.9m) which reflected a solid contribution from organic growth and the benefit of recent acquisitions.  Adjusted¹ profit grew 8.7% to £267.0m (2019: £245.7m) and statutory profit before taxation increased by 8.4% to £224.1m

(2019: £206.7m).

The Board is recommending a 3.8% increase in the final dividend (2019: 7%), which would result in a 5.0% (2019: 7%) increase in the total dividend for the year. This reflects our performance in the year, our resilience in the first quarter of the current financial year, our continued confidence in the future growth prospects of the Group, and an equitable approach in relation to the Group's stakeholders given the effects of the COVID-19 pandemic. The proposed final dividend, if approved, would result in Halma delivering the 41st consecutive year of dividend per share growth of 5% or more.

The revenue growth of 10.5% included a 4.8% increase in organic constant currency revenue, with acquisitions also contributing a 4.8% increase (4.1% net of disposals), and a positive currency impact of 1.6%. The Adjusted¹ profit increase of 8.7% included charges totalling £5.0m for provisions in the second half of the year, reflecting the increased risk of customer bad debt in all sectors given the effects of the COVID-19 pandemic. Organic constant currency profit growth was 2.2%, with acquisitions contributing 4.9% to adjusted profit growth (4.7% net of disposals), and currency 1.8%.

Statutory profit before taxation of £224.1m is calculated after charging the amortisation of acquired intangible assets of £38.3m (2019: £35.6m), and other items of a net £4.6m (2019: £3.4m). Further detail on these items is given in note 1 to the  Financial Statements.

Cash conversion was excellent at 97%, reflecting a strong underlying cash performance, primarily driven by good working capital control, and also benefiting from the effects of the implementation of IFRS 16 'Leases' and the increase in provisions.  Our financial position remained robust, with net debt excluding lease commitments at 31 March 2020 of £313.8m, or £375.3m on an IFRS 16 basis which includes lease commitments (31 March 2019: £181.7m) and committed facilities of £750m.

Revenue and profit growth

Revenue grew by 11.7% in the first half and 9.5% in the second half. There was a 3.2% effect from currency translation in the first half which, with no material effect in the second half, gave a benefit of 1.6% for the year as a whole. Organic revenue growth at constant currency in the first half was 5.4% slowing to 4.3% in the second half of the year, partly reflecting the effects of the COVID-19 pandemic, giving a solid 4.8% growth rate for the year as a whole.

Adjusted¹ profit growth was 14.1% in the first half. Growth in the second half was 4.1% (7.8% excluding the customer bad debt provision). As with revenue, there was a benefit from currency translation in the first half, and no material effect in the second half. As a result, the first half/second half split of adjusted profit was 48%/52%, compared to our typical 45%/55% pattern.  Organic profit growth at constant currency was 6.5% in the first half, but declined 1.5% in the second half (growth of 2.3% excluding the customer bad debt provision), reflecting the mix of performances across the sectors as detailed below, and resulting in modest growth of 2.2% for the year as a whole.

 

Revenue and profit growth
									Percentage growth
	2020 £m		2019 £m		Increase  m		Total		Organic  growth2	Organic  growth2 at constant currency
Revenue	1,338.4		1,210.9		127.5		10.5%		6.4%	4.8%
Adjusted1 profit before taxation	267.0		245.7		21.3		8.7%		4.0%	2.2%
Statutory profit before taxation	224.1		206.7		17.4		8.4%		-	-

¹ In addition to those figures reported under IFRS Halma uses alternative performance measures as key performance indicators, as management believe these measures enable them to better assess the underlying trading performance of the business by removing

non-trading items that are not closely related to the Group's trading or operating cash flows. Adjusted profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; profit or loss on disposal of operations; and, in the prior year only, the effect of equalisation of benefits for men and women in the defined benefit pension plans. All of these are included in the statutory figures. Notes 1 and 3 to the Accounts give further details with the calculation and reconciliation of adjusted figures.

² See highlights.

Revenue growth in all sectors

All sectors delivered revenue growth and three out of four sectors reported adjusted profit growth against strong prior year comparatives in those sectors. On an organic constant currency basis, three out of four sectors grew revenue in both the first and the second half.

The Environmental & Analysis sector delivered a strong performance, with revenue growth of 16.1% and profit growth of 15.4%, driven by organic growth. All three subsectors delivered revenue and profit growth, with strong performances in the Environmental Monitoring subsector, supported by new product development and by regulatory requirements in the UK water market, and in Optical Analysis, which benefited from the delivery of some larger projects. Return on Sales was broadly stable at 21.4% (2019: 21.5%), with a lower gross margin driven by business mix and a £0.9m increase in additional provisions for the increased risk of customer bad debt given the effects of the COVID-19 pandemic being balanced by good control of overhead and research and development expenditure.

Infrastructure Safety performed strongly, with recent acquisitions being the principal driver behind revenue growth of 14.2%.  Organic constant currency revenue growth was modest, at 3.1%, largely reflecting planned reductions in lower margin business in the second half of the year. Return on Sales was higher at 23.1% (2019: 21.8%), despite additional provisions of £2.1m for the increased risk of customer bad debt given the effects of the COVID-19 pandemic. This reflected a higher gross margin as a result of the reduction in lower margin business, good underlying overhead control and benefits from recent investments in automation. Together with the increases in revenue, this resulted in reported profit growth of 21.0%, and 6.6% on an organic constant currency basis.

The Medical sector delivered good revenue growth of 6.8%, which included an organic contribution of 3.3% against a strong comparative of 10% organic constant currency growth in the 2019 financial year. There were mixed trends across its subsectors.  Profit growth was more modest at 1.5%, principally reflecting increased investment in research and development and a charge of £2.5m in the first half of the year due to portfolio rationalisation, both of which we expect to support future growth, partly offset by good control of overheads. There were also additional provisions of £1.1m for the increased risk of customer bad debt given the effects of the COVID-19 pandemic.  As a result, Return on Sales decreased by 1.3% to 24.3%.

Process Safety delivered a small increase in reported revenue of 1.2%. There was good progress in the Industrial Access Control and Gas Detection subsectors, and the sector also benefited from the recent acquisition of Sensit. However, Pressure Management revenue and profit declined, reflecting a challenging US onshore oil and gas market, and Safe Storage and Transfer suffered from customer project delays in the second half of the year and a temporary site closure in California in the fourth quarter of the year due to COVID-19. As a result, on an organic constant currency basis, revenue declined by 1.7% for the year as a whole. Profit decreased by 3.5% (6.1% on an organic constant currency basis), mainly as a result of a decline in the higher margin US onshore oil and gas business and additional provisions of £0.9m for the increased risk of customer bad debt given the effects of the COVID-19 pandemic, and Return on Sales was lower, at 21.9% (2019: 23.0%).

Central administration costs, which include Growth Enabler costs, increased to £26.3m (2019: £22.0m). This principally reflected increased investment, both in governance and compliance as the Group grows (including in our Finance, IT and Legal teams), and in support for our companies' growth over the medium-term, in the talent, strategic communications, digital transformation and innovation Growth Enablers. We expect central costs to decrease in 2021 to approximately £20m, mainly reflecting the cost reduction measures implemented in the first quarter of the year.

Sector revenue growth
		2020			2019
	£m	% of total		£m		% of total		Change £m		% growth		% organic growth2 at constant currency
Process Safety	200.0	15%		197.5		16%		2.5		1.2%		(1.7)%
Infrastructure Safety	466.5	35%		408.6		34%		57.9		14.2%		3.1%
Environmental & Analysis	325.0	24%		280.0		23%		45.0		16.1%		13.6%
Medical	347.2	26%		325.2		27%		22.0		6.8%		3.3%
Inter-segment sales	(0.3)			(0.4)				0.1
	1,338.4	100%		1,210.9		100%		127.5		10.5%		4.8%

Sector profit growth
	2020			2019
	£m	% of total		£m	% of total	Change £m	% growth	% organic growth2 at constant currency	% organic growth2 at constant currency excluding bad debt provisions5
Process Safety	43.9	14%		45.5	16%	(1.6)	(3.5)%	(6.1)%	(4.2)%
Infrastructure Safety	107.7	35%		88.9	32%	18.8	21.0%	6.6%	8.9%
Environmental & Analysis	69.4	23%		60.1	22%	9.3	15.4%	13.0%	14.5%
Medical	84.4	28%		83.2	30%	1.2	1.5%	(2.6)%	(1.3)%
Sector profit3	305.4	100%		277.7	100%	27.7	9.9%	3.1%	5.0%
Central administration costs	(26.3)			(22.0)		(4.3)
Net finance expense	(12.1)			(10.0)		(2.1)
Adjusted4 profit before tax	267.0			245.7		21.3	8.7%	2.2%	4.2%

³ Sector profit before allocation of adjustments. See Note 1

⁴ Adjusted profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; profit or loss on disposal of operations; and, in the prior year, the effect of equalisation of benefits for men and women in the defined benefit pension plans. All of these are included in the statutory figures. Note 3 to the Accounts gives further details

with the calculation and reconciliation of adjusted figures.

⁵ Provisions totalling £5.0m for the increased risk of customer bad debt given the effects of the COVID-19 pandemic.

Revenue growth in all major regions

All major regions delivered revenue growth, on a reported and an organic constant currency basis. Of our four major regions, three (the UK, USA and Asia Pacific) achieved double digit percentage increases. The UK and the USA also delivered good revenue growth on an organic constant currency basis, while organic constant currency revenue growth in Asia Pacific was modest. Mainland Europe's revenue growth was principally driven by recent acquisitions. In the smaller regions, Africa, Near and Middle East revenue growth slowed, and Other countries delivered a strong performance.

The USA delivered strong growth of 15.2%, and remains our largest revenue destination, accounting for 38% of Group revenue, an increase of one percentage point compared to the prior year. All sectors performed well, with Environmental & Analysis and Infrastructure Safety growing very strongly, the latter principally driven by recent acquisitions. Process Safety and Medical delivered good growth, which also included the benefit of recent acquisitions.

UK revenue increased by 10.1%, with all sectors except Process Safety, which accounts for less than 15% of UK revenue, delivering growth on a reported and organic constant currency basis. Environmental & Analysis grew very strongly, benefiting from new product development and increasing regulatory requirements in the UK water market. Process Safety revenue declined, reflecting a strong prior year comparative which had benefited from some larger contracts. Other sectors made good progress, which included the benefit of recent acquisitions.

Mainland Europe revenue increased by 3.8%, principally as a result of recent acquisitions. Organic constant currency revenue growth of 0.8% included a solid performance in Infrastructure Safety, which accounts for more than half of Mainland Europe revenue, but weaker trends in Process Safety, given the non-recurrence of some larger contracts which had benefited the prior year. The Medical and Environmental & Analysis sectors delivered a mixed performance, with small revenue declines on an organic constant currency basis.

Asia Pacific grew 15.8%, with very strong growth in Infrastructure Safety, driven by the recent Ampac acquisition, and good growth in the Process Safety and Medical sectors. On an organic constant currency basis, revenue growth was 3.6%, which included a 4% decrease in China, reflecting the impact of the COVID-19 pandemic in the final quarter of the year. In the region's other major markets, there was strong reported growth in Australasia, driven by the Ampac acquisition, but modest organic growth, and India, Japan and Singapore delivered good performances.

In the rest of the world, revenue grew in aggregate, with a decline in Africa, Near and Middle East revenue, principally reflecting a planned reduction in lower margin business in Infrastructure Safety, more than offset by strong growth in Other countries, which was broadly spread across all four sectors.

Revenue from territories outside the UK/Mainland Europe/the USA grew by 10.0%, in line with our 10% KPI growth target.

Geographic revenue growth
		2020					2019
			£m	% of total				£m	% of total		Change £m		% growth		% organic growth at constant currency
	United States of America		510.3	38%				443.2	37%		67.1		15.2%		7.8%
	Mainland Europe		276.4	21%				266.3	22%		10.1		3.8%		0.8%
	United Kingdom		221.2	16%				200.9	16%		20.3		10.1%		8.3%
	Asia Pacific		213.3	16%				184.0	15%		29.3		15.8%		3.6%
	Africa, Near and Middle East		63.2	5%				70.8	6%		(7.6)		(10.7)%		(11.9)%
	Other countries		54.0	4%				45.7	4%		8.3		18.3%		15.0%
			1,338.4	100%				1,210.9	100%		127.5		10.5%		4.8%

Continued high returns

Halma's Return on Sales² has exceeded 16% for 35 consecutive years. Our KPI target is to deliver Return on Sales in the range of 18-22%. This year Return on Sales remained strong at 19.9% (2019: 20.3%), with the change principally reflecting the increase in provisions for the increased risk of customer bad debt.

We successfully achieved our objective of continuing to invest in our businesses while delivering growth. This enables us to maintain a high level of Return on Total Invested Capital (ROTIC), the post-tax return on the Group's total assets including all historical goodwill. ROTIC was 15.3% (2019: 16.1%), with the change reflecting a lower level of constant currency earnings growth than in the prior year, and the weakening of Sterling against foreign currencies which has a negative effect on ROTIC as it has a greater proportional effect on capital employed than on returns. Our ROTIC remains well ahead of our KPI target of 12% and substantially in excess of Halma's Weighted Average Cost of Capital (WACC), estimated to be 7.7% (2019: 7.9%).

Currency effects well managed

Halma reports its results in Sterling. Our other key trading currencies are the US Dollar, Euro and to a lesser extent the Swiss Franc, the Chinese Renminbi and the Australian Dollar.  Over 45% of Group revenue is denominated in US Dollars and approximately 12% in Euros.

The Group has both translational and transactional currency exposure. Translational exposures are not hedged, while, for transactional exposures, after matching currency of revenue with currency costs wherever practical, forward exchange contracts are used to hedge a proportion (up to 75%) of the remaining forecast net transaction flows where there is a reasonable certainty of an exposure.

We hedge up to 12 months forward. At 31 March 2020 approximately 68% of our next 12 months' currency trading transactions were hedged.

Sterling weakened on average in the year, principally in the first half. This gave rise to a positive currency translation impact of 1.6% on revenue and 1.8% on profit for the year as a whole.

Based on the current mix of currency denominated revenue and profit, a 1% movement in the US Dollar relative to Sterling changes revenue by £6.3m and profit by £1.3m. Similarly, a 1% movement in the Euro changes revenue by £1.6m and profit by £0.3m.

If currency rates for the financial year 2021 were US Dollar 1.25/Euro 1.13 relative to Sterling, and assuming a constant mix of currency results, we would expect approximately a £13m positive revenue and a £3m positive profit impact compared to financial year 2020, the majority of which would be in the second half of

the year.

		Weighted average rates used in the Income Statement		Exchange rates used to translate the Balance Sheet
		2020	2019	2020	2019
	First half	Full year	Full year	Year end	Year end
US$	1.26	1.27	1.31	1.25	1.30
Euro	1.13	1.14	1.14	1.13	1.16

Increased financing cost

The net financing cost in the Income Statement of £12.1m was above the prior year (2019: £10.0m). This was as a result of higher average net borrowings in the year, given expenditure on acquisitions, and the inclusion of lease financing costs as a result of IFRS 16. These effects were partly offset by the average cost of financing which was lower given reductions in interest rates (see the 'Average debt and interest rates' table below and in the Annual Reports and Accounts 2020 for more information).

Interest cover (EBITDA as a multiple of net interest expense as defined by our Revolving Credit Facility) was 40 times (2019: 38 times) which was well in excess of the four times minimum required in our banking covenants.

The net pension financing charge under IAS 19 is included within the net financing cost. This year the cost decreased to £0.8m (2019: £1.2m), reflecting the reduction in the deficit on our defined benefit plans.

Group tax rate

The Group has major operating subsidiaries in 10 countries and the Group's effective tax rate is a blend of these national tax rates applied to locally generated profits. A significant proportion (approximately one fifth) of Group profit is generated and taxed in the UK.

The Group's effective tax rate on adjusted profit was similar to the prior year at 18.5% (2019: 18.6%). This was lower than expected, principally as a result of US Federal tax changes. For the year to 31 March 2021 we currently anticipate (based on the forecast mix of adjusted profits) the Group effective tax rate on adjusted profits to be broadly stable at approximately 19% of adjusted profits.

On 2 April 2019, the European Commission published its final decision that the UK controlled Finance Company Partial Exemption (FCPE) constituted State Aid. In common with a number of other UK companies, Halma has benefited from the FCPE, and the total benefit in 2020 and prior periods is approximately £15.4m in respect of tax and approximately £1.2m in respect of interest. Halma has appealed against the European Commission's decision, as has the UK Government and a number of other UK companies. In the meantime, the UK Government is required to commence collection proceedings and it is currently expected that the Group will have to make a payment in the second half of the year ending 31 March 2021 of up to £16.9m.  Based on its current assessment, the Group believes that no provision is required in respect of this issue.

Strong cash generation

Cash generation is an important component of the Halma model, underpinning further investment in our businesses, supporting value-enhancing acquisitions and funding an increasing dividend. Our cash conversion in 2020 was strong.

Cash generated from operations was £307.9m (2019: £259.6m) and adjusted operating cash flow was £272.2m (2019: £225.2m) which represented 97% (2019: 88%) of adjusted operating profit.  This was significantly ahead of our cash conversion KPI target of 85%, reflecting a strong underlying performance primarily driven by good working capital control, as well as benefits from the effects of the implementation of IFRS 16, which replaces a lease rental charge with charges for depreciation and financing costs (a 5% benefit), and from the additional provisions made in the year, which reduce operating profit but have no effect on cash generation (a 2% benefit).

A summary of the year's cash flow is shown in the table below and in the Annual Report and Accounts 2020.  The largest outflows in the year were in relation to acquisitions, dividends and taxation paid. Working capital outflow, comprising changes in inventory, receivables and creditors, reduced to £9.3m (2019: £16.3m), principally reflecting an improvement in debtor collection prior to the impact of the COVID-19 pandemic, and good control of stock and creditors.

Dividends totalling £61.2m (2019: £57.2m) were paid to shareholders in the year.

Taxation paid increased to £52.4m (2019: £40.6m), as a result of increased profitability and the acceleration of the payment timetable for UK Corporation Tax payments for larger companies which resulted in a one-off increase in cash taxation payable of approximately £5m.

In the financial year to 31 March 2021, we expect to defer the payment of tax liabilities, principally Value-Added Tax (VAT) in the UK and the employers' share of quarterly social security tax deposits in the USA, as permitted by governments as a result of the COVID-19 pandemic. The deferral of VAT payments will result

in the payment of a cash tax liability of approximately £4m being deferred from the first half of the financial year to March 2021 to the second half. There will therefore be no cash tax benefit from VAT deferral in the year as a whole. The Employer Payroll Tax deferral will result in a cash tax liability of approximately US$6m

(£5m) relating to the period 27 March 2020 to 31 December 2020 being deferred, with half of this amount due by 31 December 2021 and the remainder by 31 December 2022, resulting in a modest benefit to our cash flow in the 2021 financial year.

Operating cash flow summary
		2020 £m		2019 £m
Operating profit		233.4		217.8
Net acquisition costs and contingent consideration fair value adjustments		7.5		0.3
Defined benefit pension charge		-		2.1
Amortisation and impairment of acquisition-related acquired intangible assets		38.3		35.6
Adjusted operating profit		279.2		255.8
Depreciation and other amortisation		51.5		31.3
Working capital movements		(9.3)		(16.3)
Capital expenditure net of disposal proceeds		(32.2)		(29.7)
Additional payments to pension plans		(12.5)		(11.4)
Other adjustments		(4.5)		(4.5)
Adjusted operating cash flow		272.2		225.2
Cash conversion %		97%		88%

Non-operating cash flow and reconciliation to net debt
	2020 £m	2019 £m
Adjusted operating cash flow	272.2	225.2
Tax paid	(52.4)	(40.6)
Acquisition of businesses including cash/debt acquired and fees	(238.0)	(68.1)
Purchase of equity investments	(4.8)	-
Disposal of businesses	7.6	3.1
Net movement in loan notes	0.1	0.1
Net finance costs and arrangement fees (excluding lease interest)	(8.5)	(8.3)
Lease liabilities additions	(26.3)	-
Dividends paid	(61.2)	(57.2)
Own shares purchased	(16.7)	(3.8)
Adjustment for cash outflow on share awards not settled by own shares	(6.0)	(4.9)
Effects of foreign exchange	(9.3)	(6.9)
Movement in net debt	(143.3)	38.6
Lease Liabilities on adoption of IFRS 16 'leases'	(50.3)	-
Opening net debt	(181.7)	(220.3)
Closing net debt	(375.3)	(181.7)

Net debt to EBITDA
	2020 £m	2019 £m
Adjusted operating profit	279.2	225.8
Depreciation and amortisation (excluding acquired intangible assets)	51.5	31.4
EBITDA	330.7	287.2
Net debt to EBITDA	1.13	0.63
Lease liabilities	(61.5)
Net debt pre IFRS 16	(313.8)
Lease payments (as an approximation of operating lease rentals)	(15.8)
Estimated EBITDA pre IFRS 16	314.9
Estimated Adjusted net debt to EBITDA pre IFRS 16	1.00

Average debt and interest rates
Excluding IFRS 16 lease liabilities	2020	2019
Average gross debt (£m)	332.7	282.6
Weighted average interest rate on gross debt	2.72%	2.97%
Average cash balances (£m)	88.3	80.4
Weighted average interest rate on cash	0.63%	0.50%
Average net debt (£m)	244.4	202.2
Weighted average interest rate on net debt	3.48%	3.95%
Including IFRS 16 lease liabilities	2020
Average gross debt (£m)	388.4
Weighted average interest rate on gross debt	2.86%
Average cash balances (£m)	88.3
Weighted average interest rate on cash	0.63%
Average net debt (£m)	300.1
Weighted average interest rate on net debt	3.52%

Capital allocation and funding

Halma aims to deliver high returns, measured by ROTIC², well in excess of our cost of capital. We invest to deliver the future earnings growth and strong cash returns which underpin this aim, and our capital allocation priorities are as follows:

-  Investment for organic growth: Organic growth is our first priority and is driven by investment in our existing businesses, including through capital expenditure, innovation for digital growth and in new products, international expansion and the development of our people.

-  Value-enhancing acquisitions: We supplement organic growth with acquisitions in current and adjacent market niches. This brings new technology, intellectual property and talent into the Group and expands our market reach, keeping Halma well-positioned in growing markets over the long-term.

-  Regular and increasing returns to shareholders: We have maintained a progressive dividend policy for over 40 years and this is our preferred route for delivering regular cash returns to shareholders.

Increased investment for organic growth

All sectors continue to innovate and invest in new products, with R&D spend determined by each individual Halma company. This year R&D expenditure grew by 14.5%, ahead of revenue growth, reflecting our  companies' investment in their future growth. R&D expenditure as a percentage of revenue was 5.4% (2019: 5.2%), well in excess of our KPI target of 4% or more. In the medium term we expect R&D expenditure to continue to increase broadly in line with revenue growth.

Under IFRS accounting rules we are required to capitalise certain development projects and amortise the cost over an appropriate period, which we determine as three years. In the 2020 financial year we capitalised and acquired £15.6m (2019: £11.6m), impaired £5.2m (2019: £0.7m) and amortised £7.9m (2019: £8.5m). This results in an asset carried on the Consolidated Balance Sheet, after a £0.5m gain (2019: £0.5m gain) relating to foreign exchange, of £36.1m (2019: £33.1m). All R&D projects, and particularly those requiring capitalisation, are subject to rigorous review and approval processes.

Capital expenditure on property, plant, equipment and vehicles, computer software and other intangible assets was £34.1m (2019: £31.3m). The expenditure on fixed assets was spread across all four sectors and the Group functions, supporting our operating capability, capacity and growth including investment in IT and systems upgrades. We anticipate capital expenditure of approximately £30m in the coming year, reflecting further investment across our sectors to support our future growth, including in facility expansions and automation, balanced by good control of discretionary expenditure given the effects of the COVID-19 pandemic.

Lease right-of-use asset additions, a new asset category as a result the adoption of IFRS 16, were £21.9m. These included additions of £5.8m as a result of acquisitions made in the year, and extensions or renewals of existing leases.

Value-enhancing acquisitions and investments

Acquisitions and disposals are an important part of our growth strategy, as they keep our portfolio of companies focused on markets which have strong growth opportunities over the medium and long-term.

In the year we spent £227.5m on ten acquisitions (net of cash acquired of £8.0m including acquisition costs). In addition, we paid £10.5m in contingent consideration for acquisitions made in prior years, giving a total spend of £238.0m. We also made two small strategic minority investments in the healthcare sector,

totalling £4.8m, and sold our interest in Optomed Oy at the time of its IPO in December 2019, for £6.8m, net of disposal costs.

Details of the acquisitions and investments made in the year are given in the sector reviews and in note 9.

The acquisitions completed in the current and prior year contributed to revenue in 2020 in line with expectations and we expect a good performance from these acquisitions in the future.

Regular and increasing returns for shareholders

Adjusted earnings per share increased by 8.8% to 57.39p (2019: 52.74p) and statutory earnings per share increased by 8.7% to 48.66p (2019: 44.78p).

The Board is recommending a 3.8% increase in the final dividend to 9.96p per share (2019: 9.60p per share), which together with the 6.54p per share interim dividend gives a total dividend per share of 16.50p (2019: 15.71p), up 5.0% in total.  Dividend cover (the ratio of adjusted profit after tax to dividends paid and proposed) is 3.48 times (2019: 3.36 times).

The final dividend for 2020 is subject to approval by shareholders at the AGM on 4 September 2020 and will be paid on 1 October to shareholders on the register at 28 August.

We aim to increase the per share dividend amount each year, while maintaining a prudent level of dividend cover, with approximately 35-40% of the anticipated total dividend being declared as an interim dividend. The Board's determination of the proposed final dividend increase has taken into account the effects of the COVID-19 pandemic on our stakeholders, while considering the Group's medium-term rate of organic constant currency growth and the financial resources required in executing our strategy, including organic investment needs and acquisition opportunities, with the aim of maintaining moderate debt levels.

Funding capacity and liquidity

Halma operations are cash generative and the Group has access to competitively priced committed debt finance providing good liquidity for the Group. Group treasury policy remains conservative and no speculative transactions are undertaken.

We have a robust financial position, strong cash generation, and substantial available liquidity. In the final quarter of the financial year, we consulted with our lending groups following the outbreak of the COVID-19 pandemic to assess the availability of further funding should this be required and as part of our scenario planning. Our lending groups were supportive, and under the potential scenarios considered as part of our going concern review, we remain within our debt facilities and the attached financial covenants for the foreseeable future. We therefore do not currently intend to utilise the UK government's Covid Corporate Financing Facility.

At the year-end, our committed facilities totalled approximately £750m, based on exchange rates at that time. The earliest maturity in these facilities is for £74m (at year-end exchange rates) in January 2021, with the remaining maturities from 2023 onwards. The financial covenants on these facilities are for leverage (net debt/adjusted EBITDA on a pre-IFRS 16 basis) to not be more than three times and for adjusted interest cover to be not less than four times.

At the year-end, net debt was £375.3m, a combination of £420.1m of debt, £61.5m of IFRS 16 lease liabilities and £106.3m of cash held around the world to finance local operations. Net debt at 31 March 2019, which excluded IFRS 16 lease liabilities of £50.3m, was £181.7m.

The gearing ratio at the year-end (net debt to EBITDA) was 1.13 times (2019: 0.63 times, or 0.85 times had IFRS 16 been applied).  Excluding the impact of IFRS 16, the gearing ratio at the year-end would have been 1.00 times. Net debt represented 5% (2019: 3%) of the Group's year-end market capitalisation. The Group continues to operate well within its banking covenants with significant headroom under each financial ratio.

Pensions update

We closed the two UK defined benefit (DB) plans to new members in 2002. In December 2014 we ceased future accrual within these plans with future pension benefits earned within the Group's Defined Contribution (DC) pension arrangements.

The Group accounts for post-retirement benefits in accordance with IAS 19 Employee Benefits. The Consolidated Balance Sheet reflects the net deficit on our pension plans at 31 March 2020 based on the market value of assets at that date and the valuation of liabilities using year-end AA corporate bond yields.

On an IAS 19 basis the deficit on the Group's DB plans at the 2020 year-end had decreased to £5.2m (2019: £39.2m) before the related deferred tax asset. The value of plan assets increased to £298.8m (2019: £292.2m). Plan liabilities decreased to £304.0m (2019: £331.4m) due to movements in the discount rate and inflation rate. The discount rate increased from 2.4% to 2.55%, largely as result of the impact of the COVID-19 pandemic on bond yields at the year-end. The inflation rate reduced from 3.2% to 2.5% reflecting economic conditions at the balance sheet date.

The plans' actuarial valuation reviews, rather than the accounting basis, determine any cash deficit payments by Halma. In 2020 these contributions amounted to £12.8m, consistent with our expectations, following a triennial actuarial valuation of the two UK pension plans in 2017/18, after which cash contributions increasing at 7% per annum aimed at eliminating the deficit were agreed with the trustees. In the unlikely event that these payments result in a surplus on winding up, the Group has an unconditional right to a refund under the Plan rules.

New accounting standards

The Group adopted required new accounting standards and interpretations with effect from 1 April 2019. There has been no material impact on the Group's financial statements, with the exception of IFRS 16 'Leases', which brings leases, principally for land and buildings, on to the balance sheet. IFRS 16 resulted in a small reduction in net assets at the start of the year of £4.0m, comprising an increase in assets of £45.4m, recognising a right-of-use asset, and an increase in liabilities (principally from the lease liability) of £49.4m. The net effect on the Group's profit and loss account has been immaterial, with operating lease costs of approximately £15.6m being replaced by a depreciation charge of £13.2m and a financing expense of £2.1m, resulting in a benefit to operating profit of £2.4m and to Profit before tax of £0.3m.  There has been no impact on the Group's cash flows. Further details of all new accounting standards adopted, and their application to the Group's accounts, can be found in the Accounting Policies section of the Financial Statements.

Finance and Risk: supporting our companies' performance

Our finance and risk teams play a crucial role in supporting our companies and enabling agile commercial decisions by providing actionable and insightful data, maintaining strong financial controls and assessing and managing risk appropriately. I would like to thank all of my colleagues in these teams for their hard work in the year, and particularly for the commitment they have shown in helping our companies to adapt to the challenges and opportunities arising from the COVID-19 pandemic, in ensuring continued high standards of insight and control, and in preparing these year-end accounts in difficult circumstances.

Conclusion

We delivered a good financial performance, despite the effects of the COVID-19 pandemic in the fourth quarter of the year.  Our focus in the year ahead will be to ensure Halma's long-term sustainability as we continue to adapt to challenges and opportunities, including those arising from the COVID-19 pandemic and potential changes to international trade as a result of Brexit and revisions to cross-border tariffs. The clarity of our purpose and strategy, our agile business model and disciplined focus on critical safety, health and environmental niches, combined with a robust financial and liquidity position and continued strong cash generation, should enable us to deliver a resilient financial performance in the shorter-term and to benefit from the opportunities that our markets offer over the medium and longer term.

Marc Ronchetti

Chief Financial Officer

 

Process Safety Sector Review

Process Safety's technologies protect people and assets at work, across a range of critical industrial and logistics operations.

Performance
KPIs	2020	Group target
Revenue growth1	1%	-
Organic revenue growth1 (constant currency)	(2)%	≥5%
Profit growth1	(3)%	-
Organic profit growth1 (constant currency)	(6)%	≥5%
Return on Sales2	21.9%	≥18%
R&D % of Revenue3	3.7%	≥4%

¹ Revenue and adjusted operating profit are compared to the equivalent prior year figures.

² Return on Sales is defined as adjusted operating profit expressed as a percentage of revenue.

³ R&D expenditure expressed as a percentage of revenue.

Overview

The sector delivered a small increase in revenue, and a slight reduction in profitability. The lower profit was principally driven by product mix, and particularly a decline in the high-margin USA onshore oil and gas market, although there was also increased investment in R&D and strengthening leadership talent.

Industrial Access Control and Gas Detection both performed well. However, lower global oil prices and the deterioration in the USA onshore oil and gas market resulted in lower profits in Pressure Management and in Safe Storage and Transfer, with the latter also impacted by customer project delays and a site closure in the USA during the fourth quarter due to COVID-19.

There was one acquisition in the year, of Sensit Technologies, a US-based gas leak detection company. Its products protect workers in the natural gas distribution industry, ensure compliance with regulatory standards, and reduce climate change impacts by monitoring emissions of methane.  Further details are given in note 9 in the Financial statements.

Strategy

Process Safety has a key part to play in making critical industrial processes safer and cleaner.

Our strategy of investing both organically and by acquisition is ensuring that our businesses are providing innovative and increasingly digitally connected products to address our customers' needs around the world. For example, we have made good progress in developing new odour monitoring solutions which are gaining traction in China, and in creating new products and services that combine several Halma companies' capabilities. These include developing solutions to increase safety and efficiency in warehouses, which utilises technologies from companies in three Halma sectors. Both of these examples of early stage businesses have been developed through our digital growth enabler programmes.

We also continuously look for opportunities for acquisitions in new subsectors and of new applications. Our criteria are that they should have a strong fit to our purpose, be underpinned by strong long-term growth drivers, provide high value to our customers, and have high barriers to entry. These activities are led by our Divisional Chief Executives, supported by a small sector M&A team and also by our operating company leaders for bolt-ons to existing businesses. The increased organic and inorganic investment in this sector in recent years has resulted in greater end market diversity and less dependency on the energy markets which now represent approximately one third of sector revenue, down from around 50% five years ago.

Market trends and growth drivers

The longer-term growth prospects for our Process Safety businesses are supported by increasing health and safety regulation and associated legal risks, and growing industrialisation and automation. With an estimated 340 million injuries and 2.3 million workplace-related fatalities each year, it is likely that workplace health and safety regulations will continue to tighten. Our ability to find new applications in adjacent industrial markets is broadening our growth opportunities, both organically and through acquisition.

In Gas Detection, market growth over the longer-term is being driven by ongoing industrialisation, increased regulation, greater demand for continuous monitoring of harmful substances to protect worker safety, and the accelerated use of wireless sensors and connected devices.

Increasing automation and need for remote safety monitoring is becoming a stronger growth driver for our Industrial Access Control, Pressure Management and Safe Storage and Transfer businesses which serve a diverse range of industrial end markets.

Several of our businesses, notably in Pressure Management, operate in markets driven by the increasing need for energy and other critical resources. While the COVID-19 pandemic has resulted in a recent reduction in energy consumption, longer-term forecasts are that global energy demand is expected to

grow by nearly 50% between 2018 and 2050, with most of this growth coming from non-OECD countries, particularly in Asia.  The diversification of energy resources means we are repurposing our solutions to segments of the energy market where we expect good growth, for example in renewables.

Performance

Revenue grew by 1% to £200.0m (2019: £197.5m), while profit declined by 3% to £43.9m (2019: £45.5m). On an organic constant currency basis, revenue and profit declined by 2% and 6% respectively. Return on Sales was 21.9% (2019: 23.0%), reflecting a small reduction in gross margin, an increase of £0.9m in the second half of the year in COVID-19 related bad debt provisions, and a 7% increase in R&D investment to £7.5m (2019: £7.0m).

Industrial Access Control performed well, with further progress in a large US logistics contract, while Gas Detection benefited from the Sensit acquisition, which is performing in line with expectations. The unfavourable conditions in the USA market resulted in lower Pressure Management revenue, with a decline in profitability partially mitigated by proactive control of costs.  As mentioned above, Safe Storage and Transfer profits were also lower because of customer project delays and a site closure in California during the fourth quarter due to COVID-19.

There was strong growth in Asia Pacific driven by Gas Detection's investment in stronger sales resources. Despite the challenges in energy markets, there was good growth in the USA, which benefited from the Sensit acquisition and good progress in a large US logistics contract. The UK and Mainland Europe were weaker mainly due to the non-repeat of large customer contracts in the prior year. Africa, Near & Middle East declined, with weaker Pressure Management revenue partially offset by a good performance in Gas Detection, while other countries delivered a strong performance which was broadly based across all subsectors.

Infrastructure Safety Sector Review

Infrastructure Safety's technologies save lives, protect infrastructure and enable safe movement

Performance
KPIs	2020	Group target
Revenue growth1	14%	-
Organic revenue growth1 (constant currency)	3%	≥5%
Profit growth1	21%	-
Organic profit growth1 (constant currency)	7%	≥5%
Return on Sales2	23.1%	≥18%
R&D % of Revenue3	6.1%	≥4%

¹ Revenue and adjusted operating profit are compared to the equivalent prior year figures.

² Return on Sales is defined as adjusted operating profit expressed as a percentage of revenue.

³ R&D expenditure expressed as a percentage of revenue.

Overview

The sector delivered a strong performance, with revenue and profit growth including a significant contribution from recent acquisitions, and an increase in gross margins partly reflecting investments in automation.

The three largest subsectors, Fire Detection, People and Vehicle Flow and Elevator Safety, delivered the highest rates of growth.  There was lower organic growth from the sector in the second half, reflecting a planned elimination of lower margin business in the Elevator Safety and Fire Suppression subsectors. There was increased investment in both R&D and leadership talent, including adding more sector management resources in Asia Pacific.

There were two acquisitions in the year, both in the Fire Detection subsector, extending geographical reach and adding new highly complementary technologies. We acquired the Ampac Group, a leading fire and evacuation systems supplier in the Australasian market, and 70% of Australia-based FireMate, which provides cloud-based maintenance and approval software to fire contractors. Further detail on these acquisitions is given in note 9 to the Financial Statements.

Strategy

The Infrastructure Safety sector makes the world a safer place by protecting commercial, industrial and public buildings and spaces and enabling safe movement. Our products and services address increasing life safety concerns, more stringent regulatory requirements and accelerating demand for connected infrastructure systems globally.

Our strategy is to focus on less cyclical, niche markets, with high barriers to entry. We acquire companies with technological expertise, strength in new geographies and presences in adjacent markets. We grow them through leveraging Halma's growth enablers, with a particular focus in recent years on leadership talent and increasing product and digital innovation. We seek to expand our geographic footprint both organically, leveraging Halma's international hubs, and through acquisitions, such as the recent Ampac and FireMate acquisitions.

Market trends and growth drivers

Growth in our Infrastructure Safety markets is supported by expanding and ageing populations, increasing urbanisation, tighter safety regulation, and an increasing demand for remote monitoring and efficiency through digital innovation and connected products. A recent UN report projects that 68% of the world's population will live in urban areas by 2050, increasing from 55% in 2018, adding around 2.5 billion people to urban populations. We expect this to drive demand for better, safer and more connected infrastructure and for transportation safety and security products and systems, as more people live in more densely populated areas.

Although the COVID-19 pandemic has resulted in a reduction of demand in some markets in the short-term, we expect these long-term trends to continue to drive growth across our Infrastructure Safety markets. For example, in global fire detection and suppression equipment, growth is expected to be sustained by even more stringent regulation and greater demand for connected, intelligent building systems.

The medium-term forecasts for the global elevator market also reflect the trends of rising urbanisation, increasing spending on maintenance and modernisation of existing equipment, with emerging opportunities to enhance efficiency through remote monitoring and preventative maintenance. Similarly, we expect a greater need to manage health and safety concerns as a result of the COVID-19 pandemic to present new opportunities for our People and Vehicle Flow businesses in addressing congestion, increasing the capacity of existing infrastructure and enhancing safety through automated access solutions as people move around.

Performance

Revenue increased by 14% to £466.5m (2019: £408.6m), including 3% organic constant currency growth and a 10% contribution from acquisitions. Profit grew by 21% to £107.7m (2019: £88.9m), which included 7% organic constant currency growth and a 14% contribution from acquisitions, and additional provisions for COVID-19 related bad debt of £2.1m. Return on Sales increased to 23.1% (2019: 21.8%), even after 14% growth in R&D investment to £28.3m (2019: £24.9m), principally reflecting the benefit to gross margins from automation and the planned elimination of selected lower margin business.

The three largest subsectors, Fire Detection, People and Vehicle Flow and Elevator Safety, delivered double digit revenue and profit growth, principally driven by acquisitions. However, there was also strong organic growth in People and Vehicle Flow, driven by new product innovation and good progress in Fire Detection.  In the smaller subsectors, Security Sensors' profit grew strongly from a stable revenue base, reflecting efficiency gains from automation, while Fire Suppression revenue declined as a result of the above-mentioned reduction in lower margin business.

The sector's four largest geographic regions performed well.  There was strong revenue growth in the USA and Asia Pacific, principally as a result of the benefit from recent acquisitions.  There were good rates of growth in the UK and Mainland Europe, with the Fire Detection and People and Vehicle Flow businesses being key contributors to this improvement. The Africa, Near and Middle East region, which accounts for only 5% of sector revenue, declined, while the small Other countries segment grew strongly, driven by a strong performance in the Fire businesses.

Environmental & Analysis Sector Review

Environmental & Analysis' technologies are used to preserve, monitor and protect the environment, ensure the availability, quality and sustainability of natural resources, and to analyse materials in a wide range of applications.

Performance
KPIs	2020	Group target
Revenue growth1	16%	-
Organic revenue growth1 (constant currency)	14%	≥5%
Profit growth1	15%	-
Organic profit growth1 (constant currency)	13%	≥5%
Return on Sales2	21.4%	≥18%
R&D % of Revenue3	6.0%	≥4%

¹ Revenue and adjusted operating profit are compared to the equivalent prior year figures.

² Return on Sales is defined as adjusted operating profit expressed as a percentage of revenue.

³ R&D expenditure expressed as a percentage of revenue.

Overview

The sector delivered an excellent performance. All three subsectors grew revenue and profit, including exceptionally strong growth in Optical Analysis, which included the delivery of some larger projects in the second-half of the year. Good growth in Environmental Monitoring was driven by new product development and by the continuing regulatory requirements in the UK water market.

Two smaller bolt-on acquisitions were completed in the year. HWM in the UK acquired Invenio, a market leader in customer-side water leak detection, and Hydreka, a water resource management business in France, acquired Enoveo, which added expertise in biotechnologies and real-time pollution monitoring.

Perma Pure, one of the Group's gas conditioning businesses, was transferred from the Environmental & Analysis sector into the Medical sector, given that the majority of its revenues now come from medical uses following Halma's acquisition of Maxtec; historic comparatives have been restated to reflect this change.

Further detail on the acquisitions made in the year is given in note 9 to the Financial Statements. 

There was increased investment in R&D as well as in leadership at both the sector and company board levels. The planned Sector Chief Executive succession process was completed successfully. 

Strategy

The Environmental & Analysis sector is focused on growing a safer, cleaner and healthier future by improving the quality and availability of life-critical natural resources such as air, water and food, and by protecting the environment and wellbeing. Our valuable solutions are technically differentiated through strong application knowledge, supported by high quality and customer responsiveness.

We grow by developing new market-led solutions (current examples under development include deploying novel sensing techniques to help reduce food waste by accurately predicting the shelf life of perishable fruits, and pairing core knowledge with new techniques and a digital service model to enhance the capability of earth-imaging satellites and airborne platforms), and by increasing our geographical reach and expansion into new niches both organically and through acquisitions or partnerships.

Our increasing R&D investment includes developing new sensors that capture accurate and effective environmental and scientific information. We are enhancing this technology by investing in digital systems that provide real-time and remote management information since increasingly our offerings are, or are components of, digital solutions.

We continually seek to attract, develop and promote high quality, talented people. We ensure that our teams represent our diverse end markets and are constantly enhanced to match existing and emerging strategic capability needs.

Market trends and growth drivers

The Environmental & Analysis sector's long-term growth is sustained by rising demand for life-critical resources, increasing environmental regulations and worldwide population growth with rising standards of living.

Population growth continues to outpace the availability of key resources. According to the United Nations, nearly half the global population are already living in potential areas of water scarcity for at least one month per year and this could increase to some 4.8-5.7 billion people in 2050. This drives demand for our water testing and disinfection technologies, and our water network monitoring solutions which help to ensure integrity of networks.

Air pollution is a growing health risk in both developing and developed countries and is a top cause of premature deaths in the EU, contributing to an estimated 400,000 deaths in 2016.  Our spectroscopy systems assist in the precise detection of contaminates, while our environmental companies support emissions and air quality monitoring and calibrate pollution monitoring equipment.

According to the World Health Organization, one in ten people fall ill each year from eating contaminated food and 420,000 people die each year as a result. Some of our more recent development activities are focused on ensuring the quality of the food supply chain.

Performance

Revenue increased by 16% to £325.0m (2019: £280.0m) and profit grew by 15% to £69.4m (2019: £60.1m), with revenue growth of 14% and profit growth of 13% on an organic constant currency basis. Acquisitions had a marginal positive effect on both revenue growth and profit growth. Currency exchange movements had a positive effect of 2.1% on revenue and 2.3% on profit. Profit included £0.9m in additional provisions for the increased risk of customer bad debt given the effects of the COVID-19 pandemic.

Return on Sales was stable at 21.4% (2019: 21.5%). There was a slightly lower gross margin, mainly due to the changing mix of business in Optical Analysis, balanced by good control of costs. R&D expenditure remained above the Group average as a percentage of sales at 6.0% (2019: 6.3%), increasing by 9%

to £19.3m (2019: £17.8m), driven by rises in both Environmental Monitoring and Water Analysis and Treatment.

There was strong growth in the USA and the UK, led by, respectively, Optical Analysis and Environmental Monitoring. Revenue in the Mainland Europe, which only accounts for approximately 10% of sector revenue, was stable. Asia Pacific revenue saw a small decline, principally as a result of slower than expected Environmental Monitoring market penetration in China. There was strong growth in the Africa, Near & Middle East and Other countries, led by the Water Analysis and Treatment subsector.

Medical Sector Review

Medical's technologies enhance the quality of life for patients and improve the quality of care delivered by

healthcare providers.

Performance
KPIs	2020	Group target
Revenue growth1	7%	-
Organic revenue growth1 (constant currency)	3%	≥5%
Profit growth1	1%	-
Organic profit growth1 (constant currency)	(3)%	≥5%
Return on Sales2	24.3%	≥18%
R&D % of Revenue3	4.8%	≥4%

¹ Revenue and adjusted operating profit are compared to the equivalent prior year figures.

² Return on Sales is defined as adjusted operating profit expressed as a percentage of revenue.

³ R&D expenditure expressed as a percentage of revenue.

Overview

The sector delivered a solid performance, which included the benefit of recent acquisitions, against a strong organic 2019 comparative. Profit growth was modest, principally reflecting increased strategic investment for growth, and a portfolio rationalisation charge of £2.5m reported in the first half of the year. There was increased investment in R&D as well as in leadership at both the sector and company board levels. The planned Sector Chief Executive succession process was completed successfully.

The sector completed five acquisitions in the year. The acquisitions of NeoMedix, a bolt-on to MST, and NovaBone enhanced our Therapeutic Solutions offering, adding new market niches in minimally-invasive glaucoma surgery and synthetic bone graft products respectively. In Health Assessment, CenTrak acquired two small businesses, InfoWave and Spreo, to further expand its addressable market and enhance its technological and data capabilities. Two small strategic minority investments were made: in Valencell, which provides wearable biometric solutions; and in Owlytics, focused on wearable-based analytics technology. The Group's interest in Optomed Oy was also sold at the time of its IPO in December 2019.

Perma Pure, was transferred into the Medical sector from the Environmental & Analysis sector, given that the majority of its combined revenues now come from medical uses following the acquisition of Maxtec, a leader in oxygen analysis and delivery products. The integration of these acquisitions, on which further

detail is given in note 9 to the Financial Statements, is progressing well, and we expect them to contribute to sector growth in the years ahead.

While a number of sector companies within the Health Assessment sub-sector saw higher demand for their products in the last weeks of the year as a result of the COVID-19 pandemic, we estimate that the overall effect on the sector was marginally negative due to order delays and deferrals of our products

serving surgical procedures.

Strategy

The Medical sector is focused on growing a healthier future by enhancing the quality of life for patients and improving the quality of care delivered by providers.

We serve niche applications in global markets providing critical components, devices, systems and therapies which are embedded in the standard of care. We look for niches where there is a 'non-discretionary' element to long-term demand, for example cataract surgery or cardiac monitoring, or where there is a connection between medical conditions and chronic illnesses, thereby driving potentially higher rates of demand on a sustainable basis.

We are known for our brands, differentiated technologies and customer centricity. We build upon these positions of strength to enter new geographies, expand our product portfolios and leverage our technology in new and innovative ways. We are well diversified across the continuum of care in diagnostics, monitoring and therapies. This enables us to withstand individual market fluctuations and take advantage of emerging needs such as digital care models, as an example.

Market trends and growth drivers

The sector's long-term growth is supported by increasing demand due to worldwide population growth and ageing, and the greater prevalence of chronic illnesses such as diabetes, respiratory diseases, obesity, and hypertension.

According to a recent United Nations report, the world's population is expected to increase by two billion in the next 30 years, and by 2050 one in six people in the world is projected to be over age 65, up from one in 11 in 2019, increasing the prevalence of significant health risk factors. A growing elderly population is a key growth driver for our Therapeutic Solutions businesses, given their presence in the cataract and glaucoma surgery devices markets and the market for bone replacement products.

In Healthcare Assessment, we expect the rising prevalence of cardiac, circulatory, respiratory and ophthalmic disorders, increased health awareness and availability of healthcare to drive growth over the longer term. In addition, healthcare facilities are seeking to improve outcomes, reduce costs and ensure the safety of patients and staff, which is driving the global market for our real-time location services business.

In Life Sciences, the market for our critical fluidic components is being driven by more directed and personalised diagnostic methods combined with increased testing efficiency. North America and Europe continue to be our largest markets, with Asia Pacific exhibiting the fastest growth rate. 

Performance 

Revenue increased by 7% to £347.2m (2019: £325.2m), including 3% organic constant currency growth and an 1% contribution from acquisitions. Profit grew by 1% to £84.4m (2019: £83.2m), with organic constant currency profit declining 3%. Overhead spend out-paced revenue growth due to research and

development investment growing by 28% to £16.5m (2019: £12.9m), and a net charge of £2.5m in the first half of the year principally related to the portfolio rationalisation of two ophthalmic companies. Profit also included additional provisions of £1.1m for the increased risk of customer bad debt given the effects of the COVID-19 pandemic. Gross margin was stable and Return on Sales decreased to 24.3% (2019: 25.6%).

The Life Sciences subsector performed well, driven by a strong performance in fluidics sold to our major OEM customers. Health Assessment's performance was mixed, with growth in location services for healthcare facilities and weaker trends in ophthalmic diagnostics and segments of diagnostic patient devices. Therapeutic Solutions benefited from the acquisitions of NovaBone and Maxtec.

The USA, the sector's largest region, delivered good revenue growth, which also benefited from recent acquisitions. There was modest revenue growth in Mainland Europe, with good progress in diagnostics, gases and sensor technology offset by weaker trends in ophthalmology within Health Assessment. Other

regions grew in aggregate, led by CenTrak, our real-time location services business within Health Assessment.

Principal Risks and Uncertainties

1.  Cyber

Risk Owner: Catherine Michel

Gross risk level: High

Change: Increased

Risk appetite: Averse

Growth enablers

· International Expansion

· Talent & Culture

· Financial, Legal & Risk

· Digital Growth Engines

Risk and impact

· Loss of digital intellectual property/data or ability to operate systems or connected devices due to internal failure or external attack. There is resulting loss of information or ability to continue operations, and therefore financial and reputational damage. The increase in this risk reflects the growing threat generally from cyber-crime around the world and also a specific increase as a result of cyber-criminals seeking to take advantage of the COVID-19 pandemic.

How do we manage the risk?

· Clear ownership of cyber risk, with Board level expertise. IT function reports into Chief Technology Officer.

· Development of digital framework, including digital growth, cyber and data.

· Minimum required IT controls defined. All companies certify compliance every six months. Any gaps are tracked until addressed.

· Monthly cyber KRI/KPI reporting in place across the Group.

· Regular online IT awareness training for all employees using computers.

· IT disaster recovery and back-up plans in place, required to be tested regularly.

· Additional support provided by Group IT to companies to help them implement any changes due to COVID-19.

· Regular reviews by Group IT and Internal Audit.

2.  Organic Growth

Risk Owner: Andrew Williams

Gross risk level: High

Change: Increased

Risk appetite: Open

Growth enablers

· International Expansion

· Talent & Culture

· Financial, Legal & Risk

· Digital Growth Engines

· Innovation Network

· Strategic Marketing & Communications

Risk and impact

· Failing to deliver desired organic growth, resulting in missed expected strategic growth targets and erosion of shareholder value. The increase in this risk is a result of the higher levels of economic uncertainty due to COVID-19 and includes the impact of local government restrictions around the world.

How do we manage the risk?

· Clear Group strategy to achieve organic growth targets, supported by detailed company strategies and seven Halma Growth Enablers with Executive Board owners.

· Sector management ensure that the Group strategy is fulfilled through ongoing review and chairing of companies.

· Continued investment in R&D and innovation with KPIs monitored at Board level.

· Regional hubs, for example in China and India, support local growth strategic initiatives for all companies.

· Agile business model and culture of innovation to take advantage of new growth opportunities as they arise.

· Regular monitoring of financial performance at all levels, including by the Board.

· Remuneration of company executives and above is based on profit growth.

· Specific focus to protect operations during COVID-19 and manage costs to ensure Halma is able to invest for growth going forward.

3.  Making and Integrating Acquisitions

Risk Owner: Andrew Williams

Gross risk level: High

Change: Increased

Risk appetite: Open

Growth enablers

· M&A

· International Expansion

· Talent & Culture

· Financial, Legal & Risk

· Strategic Marketing & Communications

Risk and impact

· Missing our strategic growth target for acquisitions due to insufficient acquisitions being identified or poor due diligence or poor integration, resulting in erosion of shareholder value.  COVID-19 has increased this risk in terms of our ability make acquisitions and also to ensure they are fairly valued. On the flip-side, there may be an increase in the number of acquisition opportunities in the short to medium term.

How do we manage the risk?

· Acquisition of companies in existing or adjacent markets that are well known.

· Dedicated M&A Directors with Group Chief Executive, Chief Financial Officer and plc Board scrutiny and approval of all acquisitions.

· Regular reporting of the acquisition pipeline to the Executive and plc Board.

· Careful due diligence by experienced staff who bring in specialist expertise as required.

· Valuation model used for all acquisitions to ensure the price paid is appropriate.

· Strategic transformation plans in place for new acquisitions to seek to ensure they achieve their growth potential.

· Integration checklist covering control and compliance areas used to ensure consistent high quality and efficient integration into Halma.

· Clarity of strategy and agile business model to take advantage of new growth opportunities as they arise.

4.  Talent and Diversity

Risk Owner: Jennifer Ward

Gross risk level: High

Change: Increased

Risk appetite: Open

Growth enablers

· International Expansion

· Talent & Culture

· Digital Growth Engines

· Innovation Network

· Strategic Marketing & Communications

Risk and impact

· Not being able to recruit, develop and retain the calibre and diversity of talent at all levels of the organisation to deliver our strategy, resulting in reduced financial performance. The increased risk reflects retention risks emerging due to our rapid escalation through the FTSE100, increased profile and track record of success.

How do we manage the risk?

· Comprehensive recruitment processes to recruit the best and brightest talent.

· Development of talent and diversity across companies, including through development programmes, to create competitive advantage and motivated leaders to deliver the strategy.

· Succession planning process to identify and develop future leaders.

· Future leaders programme to develop graduates.

· Ongoing focus to increase employee diversity at all levels worldwide. Diversity metrics are monitored by the Board.

· We need to ensure that our reward packages are competitive, reflect our high long term growth and are benchmarked to market.

5.  Innovation

Risk Owner: Inken Braunschmidt

Gross risk level: High

Change: No change

Risk appetite: Seeking

Growth enablers

· M&A

· Talent & Culture

· Digital Growth Engines

· Innovation Network

· Strategic Marketing & Communications

Risk and impact

· Failing to innovate to create new high-quality products to meet customer needs or failure to adequately protect intellectual property, resulting in a loss of market share and poor financial performance.

How do we manage the risk?

· Product development is devolved to the companies who are closest to the customer, with support and guidance provided by sector management.

· Chief Innovation & Digital Officer promotes and accelerates innovation by companies, with support from sector management.

· Digital strategy is in place relating to innovation, with focus on four areas: 1. Digital execution, 2. Champions Network, 3. Agile new product development engines, 4. External Partnerships.

· Active collaboration of ideas and best practices between companies.

· Head Office approval of all large R&D projects to ensure alignment with strategy.

· Halma Innovation Awards encourage and reward innovation.

· Companies are encouraged to develop and protect intellectual property.

6.  Competition

Risk Owner: Andrew Williams

Gross risk level: Medium

Change: No change

Risk appetite: Open

Growth enablers

· International Expansion

· Talent & Culture

· Digital Growth Engines

· Innovation Network

· M&A

Risk and impact

· Failing to adapt to market and technological changes, either through organic or M&A activity, resulting in reduced financial performance.

How do we manage the risk?

· Focus on niche markets with high barriers to entry and seek to achieve strong market positions.

· Halma's decentralised business model enables operational resources to be closer to customers, and companies are empowered to monitor, anticipate and respond to changing market needs.

· Regular company and sector board meetings which review markets, competition and product innovation.

· Ongoing discussions with customers and monitoring of market and technological changes to identify new opportunities.

· Halma Chief Innovation & Digital Officer provides leadership and oversight for digital innovation and arranges Innovation "Go & See" visits for Halma leaders to see disruption examples in action.

7.  Economic and Geopolitical Uncertainty

Risk Owner: Andrew Williams

Gross risk level: High

Change: Increased

Risk appetite: Cautious

Growth enablers

· International Expansion

· Talent & Culture

· Finance, Legal & Risk

Risk and impact

· Risk of decline in financial performance due to recession or geopolitical changes and its potential impact on the carrying value of goodwill.  The increase in risk reflects increased economic and political uncertainty around COVID-19 and also other areas such as Brexit and USA/China trade relations.

How do we manage the risk?

· Diverse portfolio of companies across the four sectors, in multiple countries and in relatively non-cyclical global niche markets helps to minimise the impact of any single event operating in one market.

· Regular monitoring and assessment of potential risks and opportunities relating to economic or geopolitical uncertainties.

· Identification of any wider trends by the Halma Executive Board that require action.

· Local companies have the autonomy to rapidly adjust to changing circumstances.

· Periodic assessment of the carrying value of goodwill

8.  Natural Disasters

Risk Owner: Andrew Williams

Gross risk level: High

Change: Increased

Risk appetite: Cautious

Growth enablers

· M&A

· International Expansion

· Talent & Culture

· Finance, Legal & Risk

Risk and impact

· Being unable to respond to large-scale events or natural catastrophes such as hurricanes, floods, fire, or pandemics resulting in inability of one or more parts of our business to operate, therefore causing financial loss and reputational damage. This risk has been updated to specifically include pandemics and the risk has increased due to COVID-19.

How do we manage the risk?

· All parts of the Group are required to have business continuity plans in place which are tailored to manage the specific risks they are most likely to face and these are required to be tested periodically.

· Partnering with our central and regional COVID-19 support groups, our companies have implemented operational plans to suit their local markets and circumstances.

· The geographic diversity of companies limits the impact of most single events and Halma has manufacturing capability in multiple locations which provides flexibility.

· Business interruption insurance is in place to limit any financial loss that may occur.

9.  Communications

Risk Owner: Jennifer Ward

Gross risk level: High

Change: No change

Risk appetite: Open

Growth enablers

· Talent & Culture

· Innovation Network

· Strategic Marketing & Communications

Risk and impact

· Missed opportunities for growth and attainment of our strategy should we not clearly articulate our value propositions to potential partners, customers, employees or acquisition targets. The risk remains high, reflecting the need to ensure effective communication to all stakeholders during the COVID-19 pandemic.

How do we manage the risk?

· Halma plc Board members with responsibility for Communications and Investor Relations.

· Clear brand and communications strategy to enable clear understanding and alignment with Group strategy.

· Proactive brand and communications approach to reach existing and potential audiences to attract and engage them to drive new growth opportunities.

· Development of pitch books, purpose and strategy impact stories, product-solution case studies, and investment collateral that are delivered to the appropriate targets via direct, indirect, social media and investor channels.

· Monitoring of external, social and investor media to gauge sentiment, brand health and protect reputation.

· Periodic employee engagement survey to gain feedback on the effectiveness of internal communication.

· Communication platform to facilitate rapid collaboration and information sharing across the Group.

· Company MD network enabling rapid collaboration during COVID-19, supported by group and sector teams where escalation is required.

10.  Non-compliance with Laws and Regulations

Risk Owner: Marc Ronchetti

Gross risk level: High

Change: No change

Risk appetite: Averse

Growth enablers

· International Expansion

· Talent & Culture

· Finance, Legal & Risk

· Strategic Marketing & Communications

Risk and impact

· Failing to comply with laws and regulations resulting in damage to reputation and/or fines/penalties.

How do we manage the risk?

· High-quality management resources who implement controls to monitor and comply with legal requirements in all countries we operate.

· Companies ensure high product quality and compliance with legal standards.

· High ethical standards which are captured in Halma's Code of Conduct. All employees are required to read and sign up to it.

· Employees across the Group perform regular online compliance training.

· All parts of the Group complete six-monthly control self-certifications which include legal compliance.

· A whistleblowing hotline is in place and available for use by all employees.

11.  Financial Controls

Risk Owner: Marc Ronchetti

Gross risk level: High

Change: No change

Risk appetite: Averse

Growth enablers

· International Expansion

· Talent & Culture

· Finance, Legal & Risk

Risk and impact

· Failure in financial controls either on its own or via a fraud which takes advantage of a weakness, resulting in financial loss and/or misstated reported financial results.

How do we manage the risk?

· Local directors have legal, as well as operational, responsibility as they are statutory directors of their companies. This fits with Halma's decentralised model to ensure an effective financial control environment is in place.

· To mirror the decentralised model, Halma Group Finance prescribes the minimum expected financial controls to be in place and requires companies to certify every six months that these controls are operating effectively. These include segregation of duties, delegation of authorities and financial accounts preparation checks.

· Six-monthly peer reviews of reported results for each company are performed to provide independent challenge. Internal Audit also performs periodic risk-based reviews.

· A whistleblowing hotline is in place and available for use by all employees.

· All companies have reviewed their financial controls to ensure they remain effective during COVID-19, for example when home working has been required.

12.  Treasury Management

Risk Owner: Marc Ronchetti

Gross risk level: High

Change: Increased

Risk appetite: Averse

Growth enablers

· International Expansion

· Finance, Legal & Risk

Risk and impact

· There is a risk that the Group's cash resources are inadequate to support its activities or there is a breach of funding terms/covenants. There is a risk of volatility on the Group's Sterling reported result due to unhedged exposure to foreign currency movements. Geopolitical uncertainty, including the impact of COVID-19, has increased the risk of foreign exchange fluctuations and pressure on financial resources.

How do we manage the risk?

· A long-term Revolving Credit Facility is in place.

· Sources of funding, headroom and liquidity forecasts are regularly assessed and monitored.

· Funding terms are built into company policies and requirements, including restrictions on trading with sanctioned countries.

· A Group Treasury Policy includes hedging and there is regular monitoring of foreign currency exposure at local company and Group level.

· The Finance teams have been performing additional cash forecasting and stress testing to ensure Halma has sufficient liquidity, not just to survive the current COVID-19 crisis but also to ensure Halma can invest for growth going forward, whether organically or through acquisition.

13.  Product Failure

Risk Owner: Andrew Williams

Gross risk level: High

Change: No change

Risk appetite: Averse

Growth enablers

· Talent & Culture

· Finance, Legal & Risk

· Innovation Network

· Strategic Marketing & Communications

Risk and impact

· A failure in one of our products results in serious injury, death or damage to property, including due to non-compliance with product regulations, resulting in financial loss and reputational damage.

How do we manage the risk?

· Companies have strict product development and testing procedures in place to ensure quality of products and compliance with appropriate regulations.

· Rigorous testing of products during development and also during the manufacturing process.

· Terms and conditions of sale limit liability as much as practically possible and liability insurance is in place.

· Product compliance with regulations is checked as part of due diligence for any acquisition

Going Concern Statement

The Group's business activities, together with the main trends and factors likely to affect its future development, performance and position, and the financial position of the Group as at 31 March 2020, its cash flows, liquidity position and borrowing facilities are set out in the Strategic Report. In addition, note 27of the Annual Report and Accounts contains further information concerning the security, currency, interest rates and maturity of the Group's borrowings.

The financial statements have been prepared on a going concern basis. In adopting the going concern basis the Directors have considered all of the above factors, including potential scenarios arising from the COVID-19 pandemic and from its other principal risks as set out in the Principal Risks and Uncertainties Section. Under the potential scenarios considered, which are severe but plausible, the Group remains within its debt facilities and the attached financial covenants for the foreseeable future and the Directors therefore believe, at the time of approving the financial statements, that the Company is well placed to manage its business risks successfully and remains a going concern. The key facts and assumptions in reaching this determination are summarised below.

Our financial position remains robust with committed facilities totalling approximately £750m which includes a £550m Revolving Credit Facility, maturing in November 2023, of which £313.6m remains undrawn at the date of this report. The earliest maturity in these facilities is for £74m in January 2021, with the remaining

maturities from January 2023 onwards. The financial covenants on these facilities are for leverage (net debt/adjusted EBITDA*) of not more than three times and for adjusted interest cover of not less than four times.

* net debt and adjusted EBITDA are on a pre-IFRS 16 basis for covenant purposes

Our base scenario has been prepared using forecasts from each of our Operating Companies, with each considering both the challenges and opportunities they are facing as a consequence of COVID-19. Whilst these are varied, we have made assumptions in the following key areas:

-  The impact of government lockdown restrictions: physical lockdown of either our own or our suppliers, distributors or customers operations have a direct impact on our revenue.  This has impacted the Safety Sectors in particular with the challenges of physical access and our customers' ability to install products at end customer sites. We have assumed a gradual recovery of these sectors from Q2 with trading returning to more normal trading levels by the end of FY21.

-  The impact of the pandemic on elective surgery and discretionary ophthalmic diagnosis procedures: as health services have focussed on addressing the additional demand from the pandemic, certain businesses in the Medical sector have experienced reduced demand for their products in these end markets. We have assumed a gradual recovery from Q2 as healthcare systems normalise, returning to more normal trading levels by Q3.

-  The effect on essential businesses: a number of our businesses are considered essential in nature either as they make products that are critical to life or protect critical infrastructure. A small number of these businesses have experienced an increase in demand as a result of global efforts to fight COVID-19. We have assumed that the current high demand in these businesses is short term and moderates over the coming months, returning to more normal levels by Q4.

Mitigating actions assumed in the base case:

-  Cost reductions which have already been implemented in Q1 of the 2021 financial year including temporary salary reductions, hiring freezes and a significant reduction in discretionary overhead spending. We have assumed appropriate and achievable further reductions in overheads where this is required for individual companies to "right size" their cost base for the medium term.

-  Reduction of capital expenditure: we have assumed a reduction of non-essential capital expenditure for the rest of the financial year.

-  Suspension of M&A activity: we have assumed that we will not make any acquisitions for the balance of FY21, resuming a normal level of activity during FY22.

Further severe but plausible downside sensitivities modelled include:

-  A delay in the recovery of the impacted businesses from the effects of COVID-19.

-  A second wave of COVID-19 infection and corresponding government restrictions in the second half of FY21.

A reverse stress test scenario has been modelled which is considered remote in likelihood of occurring, which includes a combination of these scenarios with the addition of impacts from other of the Group's principal risks.

None of these scenarios result in a breach of the Group's available debt facilities or the attached covenants and accordingly the Directors believe there is no material uncertainty in the use of the going concern assumption.

Viability Statement

During the year, the Board carried out a robust assessment of the emerging and principal risks affecting the Group, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks and uncertainties, including an analysis of the potential impact and mitigating actions are set out in the Principal Risks and Uncertainties section.

The Board has assessed the viability of the Group over a three-year period, taking into account the Group's current position and the potential impact of the principal risks and uncertainties. While the Board has no reason to believe that the Group will not be viable over a longer period, it has determined that three years is an appropriate period. In drawing its conclusion, the Board has aligned the period of viability assessment with the Group's strategic planning process (a three-year period). The Board believes that this approach provides greater certainty over forecasting and, therefore, increases reliability in the modelling and stress testing of the Group's viability. In addition, a three-year horizon is typically the period over which we review our external bank facilities and is also the performance-based period over which awards granted under Halma's share-based incentive plan are measured.

In reviewing the Company's viability, the Board has identified the following factors which they believe support their assessment:

1.  The Group operates in diverse and relatively non-cyclical markets.

2.  There is considerable financial capacity under current facilities and the ability to raise further funds if required.

3.  The decentralised nature of our Group ensures that risk is spread across our businesses and sectors, with limited exposure to any particular industry, market, geography, customer or supplier.

4.  There is a strong culture of local responsibility and accountability within a robust governance and control framework.

5.  An ethical approach to business is set from the top and flows throughout our business.

In making their assessment, the Board carried out a comprehensive exercise of financial modelling and stress-tested the model with various scenarios based on the principal risks identified in the Group's annual risk assessment process. The scenarios modelled used the same assumptions as for the Going Concern Statement, as set out above, for the years ending 31 March 2021 and 31 March 2022 with further assumptions applied for the year ending 31 March 2023. These scenarios included a delay in the recovery of the impacted businesses from the effects of COVID-19, a second wave of COVID-19 infection and corresponding government restrictions in the second half of year ended 31 March 2021 and a combination of these scenarios with the addition of impacts from other of the Group's principal risks such as litigation or product failure. In each scenario, the effect on the Group's KPls and borrowing covenants was considered, along with any mitigating factors. Based on this assessment, the Board confirms that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period to 31 March 2023.

Shareholders and stakeholder engagement

The Board oversees the Company's dialogue with shareholders. The Group Chief Executive and Chief Financial Officer have regular contact with investors and analysts. Reports prepared for the Board by the Head of Investor Relations outline the Company's dialogue with investors and analysts on financial, operational, environmental, social and governance matters. The Chairman is available to meet with shareholders throughout the year and the Senior Independent Director provides an alternative channel for shareholders to raise concerns, independent of the executive management and the Chairman. The Board attends the AGM which gives individual shareholders the opportunity to engage directly with the Directors and raise questions about the Company both formally and informally. While for 2020 we will be holding a closed AGM, we have made arrangements for shareholders to ask questions ahead of the meeting. The Board's engagement with other stakeholders is set out in the Annual Report and Accounts 2020.

Responsibility Statement of the Directors on the Annual Report and Accounts

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year to 31 March 2020. Certain parts thereof are not included within these Results.

Each of the Directors, whose names and functions are listed in the Annual Report and Accounts 2020, confirm that, to the best of their knowledge:

-  The Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework" and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company.

-  The Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group.

-  The Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

This responsibility statement was approved by the Board of Directors on 14 July 2020

Andrew Williams Group Chief Executive

Marc Ronchetti Chief Financial Officer

Results for the year to 31 March 2020

Consolidated Income Statement

		Year ended 31 March 2020			Year ended 31 March 2019
	Notes	Before adjustments* £m	Adjustments* (note 1) £m	Total £m	Before adjustments* £m	Adjustments*  (note 1) £m	Total £m
Continuing operations
Revenue	1	1,338.4	-	1,338.4	1,210.9	-	1,210.9
Operating profit		279.2	(45.8)	233.4	255.8	(38.0)	217.8
Share of loss of associate		(0.1)	-	(0.1)	(0.1)	-	(0.1)
Profit/(loss) on disposal of operations	11	-	2.9	2.9	-	(1.0)	(1.0)
Finance income	4	0.6	-	0.6	0.5	-	0.5
Finance expense	5	(12.7)	-	(12.7)	(10.5)	-	(10.5)
Profit before taxation		267.0	(42.9)	224.1	245.7	(39.0)	206.7
Taxation	6	(49.4)	9.7	(39.7)	(45.7)	8.8	(36.9)
Profit for the year attributable to equity shareholders	1	217.6	(33.2)	184.4	200.0	(30.2)	169.8
Earnings per share	2
From continuing operations
Basic and diluted		57.39p		48.66p	52.74p		44.78p
Dividends in respect of the year	7
Paid and proposed (£m)				62.5			59.6
Paid and proposed per share				16.50p			15.71p

*  Adjustments include the amortisation of acquired intangible assets; acquisition items; significant restructuring costs, profit or loss on disposal of operations and in the prior year only the effect of equalisation of pension benefits for men and women in the defined benefit plans; and the associated taxation thereon. Note 3 provides more information on alternative performance measures.

Consolidated Statement of Comprehensive Income and Expenditure

	Notes	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Profit for the year		184.4	169.8
Items that will not be reclassified subsequently to the Consolidated Income Statement:
Actuarial gains on defined benefit pension plans		22.5	6.5
Tax relating to components of other comprehensive income that will not be reclassified	6	(4.0)	(1.6)
Items that may be reclassified subsequently to the Consolidated Income Statement:
Effective portion of changes in fair value of cash flow hedges		(0.5)	-
Deferred tax in respect of cash flow hedges accounted for in the hedging reserve	6	0.1	-
Exchange gains on translation of foreign operations and net investment hedge		29.1	32.5
Exchange loss/(gain) on translation of foreign operations recycled to income statement on disposal		0.1	(0.3)
Other comprehensive income for the year		47.3	37.1
Total comprehensive income for the year attributable to equity shareholders*		231.7	206.9

The exchange gain of £29.1m (2019: gain of £32.5m) includes losses of £11.9m (2019: losses of £7.9m) which relate to net investment hedges.

* The amount of income relating to non-controlling interests for non-wholly owned subsidiaries during the year was £nil (2019: £nil).

 

Consolidated Balance Sheet

	Notes	31 March 2020 £m	31 March 2019 Restated* £m
Non-current assets
Goodwill		838.4	694.0
Other intangible assets		328.4	245.2
Property, plant and equipment		184.3	112.4
Interest in associates and other investments		4.8	3.9
Retirement benefit asset		5.4	-
Deferred tax asset*		1.3	1.4
		1,362.6	1,056.9
Current assets
Inventories		170.6	144.3
Trade and other receivables	8	286.6	259.6
Tax receivable		10.7	0.2
Cash and bank balances		106.3	81.2
Derivative financial instruments		1.0	0.9
		575.2	486.2
Total assets		1,937.8	1,543.1
Current liabilities
Trade and other payables		186.7	164.8
Borrowings		75.1	9.2
Lease liabilities		13.0	-
Provisions		28.0	25.4
Tax liabilities		9.4	13.4
Derivative financial instruments		1.0	0.3
		313.2	213.1
Net current assets		262.0	273.1
Non-current liabilities
Borrowings		345.0	253.7
Lease liabilities		48.5	-
Retirement benefit obligations		10.6	39.2
Trade and other payables		13.3	11.6
Provisions		21.6	10.9
Deferred tax liabilities*		48.7	33.2
		487.7	348.6
Total liabilities		800.9	561.7
Net assets		1,136.9	981.4
Equity
Share capital		38.0	38.0
Share premium account		23.6	23.6
Own shares		(14.3)	(4.7)
Capital redemption reserve		0.2	0.2
Hedging reserve		(0.1)	0.3
Translation reserve		148.7	119.5
Other reserves		(7.7)	(5.6)
Retained earnings		949.2	810.1
Equity attributable to owners of the Company		1,137.6	981.4
Non-controlling interests		(0.7)	-
Total equity		1,136.9	981.4

*  As part of a review of deferred tax balances some balances were identified that were previously presented gross but should have been netted off as they are in the same jurisdiction and there is a legally enforceable right to set off current tax assets against current tax liabilities.

The financial statements of Halma plc, company number 00040932, were approved by the Board of Directors on 14 July 2020.

Andrew Williams Director	Marc Ronchetti Director

Consolidated Statement of Changes in Equity

	Share capital £m	Share premium account £m	Own shares £m	Capital redemption reserve £m	Hedging reserve £m	Translation  reserve £m	Other reserves £m	Retained earnings £m	Non-controlling interest £m	Total £m
At 1 April 2019	38.0	23.6	(4.7)	0.2	0.3	119.5	(5.6)	810.1	-	981.4
Impact of changes in Accounting policies:
IFRS 16 'Leases'	-	-	-	-	-	-	-	(4.0)	-	(4.0)
Restated balance at 1 April 2019	38.0	23.6	(4.7)	0.2	0.3	119.5	(5.6)	806.1	-	977.4
Profit for the year	-	-	-	-	-	-	-	184.4	-	184.4
Other comprehensive income and expense:
Exchange gain on translation of foreign operations and net investment hedge	-	-	-	-	-	29.1	-	-	-	29.1
Exchange loss on translation of foreign operations recycled to income statement on disposal	-	-	-	-	-	0.1	-	-	-	0.1
Actuarial gains on defined benefit pension plans	-	-	-	-	-	-	-	22.5	-	22.5
Effective portion of changes in fair value of cash flow hedges	-	-	-	-	(0.5)	-	-	-	-	(0.5)
Tax relating to components of other comprehensive income and expense	-	-	-	-	0.1	-	-	(4.0)	-	(3.9)
Total other comprehensive income and expense	-	-	-	-	(0.4)	29.2	-	18.5	-	47.3
Dividends paid	-	-	-	-	-	-	-	(61.2)	-	(61.2)
Share-based payment charge	-	-	-	-	-	-	10.5	-	-	10.5
Deferred tax on share-based payment transactions	-	-	-	-	-	-	0.5	-	-	0.5
Excess tax deductions related to share-based payments on exercised awards	-	-	-	-	-	-	-	1.4	-	1.4
Purchase of Own shares	-	-	(16.7)	-	-	-	-	-	-	(16.7)
Performance share plan awards vested	-	-	7.1	-	-	-	(13.1)	-	-	(6.0)
Non-controlling interest arising on acquisition	-	-	-	-	-	-	-	-	(0.7)	(0.7)
At 31 March 2020	38.0	23.6	(14.3)	0.2	(0.1)	148.7	(7.7)	949.2	(0.7)	1,136.9

Own shares are ordinary shares in Halma plc purchased by the Company and held to fulfil the Company's obligations under the Group's share plans. At 31 March 2020 the number of shares held by the Employee Benefit Trust was 760,894 (2019: 370,354). The market value of Own shares was £14.6m (2019: £6.2m).

The Translation reserve is used to record the difference arising from the retranslation of the financial statements of foreign operations. The Hedging reserve is used to record the portion of the cumulative net change in fair value of cash flow hedging instruments that are deemed to be an effective hedge.

The Capital redemption reserve was created on repurchase and cancellation of the Company's own shares. The Other reserves represent the provision for the value of the Group's equity-settled share plans.

	Share capital £m	Share premium account £m	Own shares £m	Capital redemption reserve £m	Hedging reserve £m	Translation  reserve £m	Other reserves £m	Retained earnings £m	Total £m
At 1 April 2018	38.0	23.6	(6.3)	0.2	0.3	87.3	(5.9)	691.2	828.4
Impact of changes in Accounting policies:
IFRS 9	-	-	-	-	-	-	-	0.1	0.1
IFRS 15	-	-	-	-	-	-	-	(0.2)	(0.2)
Restated balance at 1 April 2018	38.0	23.6	(6.3)	0.2	0.3	87.3	(5.9)	691.1	828.3
Profit for the year	-	-	-	-	-	-	-	169.8	169.8
Other comprehensive income and expense:
Exchange differences on translation of foreign operations	-	-	-	-	-	32.5	-	-	32.5
Exchange gains on translation of foreign operations recycled on disposal	-	-	-	-	-	(0.3)	-	-	(0.3)
Actuarial gains on defined benefit pension plans	-	-	-	-	-	-	-	6.5	6.5
Effective portion of changes in fair value of cash flow hedges	-	-	-	-	-	-	-	-	-
Tax relating to components of other comprehensive income	-	-	-	-	-	-	-	(1.6)	(1.6)
Total other comprehensive income and expense	-	-	-	-	-	32.2	-	4.9	37.1
Dividends paid	-	-	-	-	-	-	-	(57.2)	(57.2)
Share-based payment charge	-	-	-	-	-	-	9.7	-	9.7
Deferred tax on share-based payment transactions	-	-	-	-	-	-	0.9	-	0.9
Excess tax deductions related to share-based payments on exercised awards	-	-	-	-	-	-	-	1.5	1.5
Purchase of Own shares	-	-	(3.8)	-	-	-	-	-	(3.8)
Performance share plan awards vested	-	-	5.4	-	-	-	(10.3)	-	(4.9)
At 31 March 2019	38.0	23.6	(4.7)	0.2	0.3	119.5	(5.6)	810.1	981.4

Consolidated Cash Flow Statement

	Notes	Year ended 31 March 2020 £m	Year ended 31 March  2019 £m
Net cash inflow from operating activities	10	255.5	219.0
Cash flows from investing activities
Purchase of property, plant and equipment - owned assets		(31.2)	(26.4)
Purchase of computer software		(2.6)	(2.4)
Purchase of other intangibles		(0.3)	(2.5)
Proceeds from sale of property, plant and equipment and capitalised development costs		1.9	1.6
Development costs capitalised		(14.7)	(10.8)
Interest received		0.5	0.4
Acquisition of businesses, net of cash acquired	9	(232.8)	(67.0)
Disposal of business	11	7.6	3.1
Purchase of equity investments		(4.8)	-
Net cash used in investing activities		(276.4)	(104.0)
Cash flows from financing activities
Dividends paid		(61.2)	(57.2)
Purchase of Own shares		(16.7)	(3.8)
Interest paid		(11.1)	(8.2)
Loan arrangement fee paid		-	(0.5)
Proceeds from bank borrowings	10	308.1	66.4
Repayment of bank borrowings	10	(151.7)	(110.3)
Repayment of lease liabilities		(13.7)	-
Net cash generated from/(used in) financing activities		53.7	(113.6)
Increase in cash and cash equivalents	10	32.8	1.4
Cash and cash equivalents brought forward		72.1	69.7
Exchange adjustments		0.5	1.0
Cash and cash equivalents carried forward	10	105.4	72.1

	Notes	Year ended 31 March 2020 £m	Year ended 31 March  2019 £m
Reconciliation of net cash flow to movement in net debt
Increase in cash and cash equivalents		32.8	1.4
Net cash (inflow)/outflow from (drawdown)/repayment of bank borrowings	10	(156.4)	43.9
Loan notes repaid in respect of acquisitions	10	0.1	0.1
Lease liabilities - additions		(18.1)	-
Lease liabilities - arising on acquisition		(8.2)	-
Repayment of lease liabilities including interest		15.8	-
Exchange adjustments		(9.3)	(6.8)
(Increase)/decrease in net debt		(143.3)	38.6
Net debt brought forward		(181.7)	(220.3)
Impact of changes in accounting policies - IFRS 16 'Leases'		(50.3)	-
Restated net debt brought forward		(232.0)	(220.3)
Net debt carried forward		(375.3)	(181.7)

Accounting Policies

Basis of accounting

As the UK is still in the transition stage of its departure from the European Union, the financial statements continue to be prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU). They therefore comply with Article 4 of the EU IAS legislation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. The financial statements have also been prepared in accordance with IFRS and IFRS Interpretations Committee (IFRS IC) interpretations issued and effective at the time of preparing these financial statements.

The principal Group accounting policies are explained below and have been applied consistently throughout the years ended 31 March 2020 and 31 March 2019, other than those noted below.

The Group accounts have been prepared under the historical cost convention, except as described below under the heading 'Derivative financial instruments and hedge accounting' and under the heading 'Business combinations and goodwill'.

New Standards and Interpretations applied for the first time in the year ended 31 March 2020

IFRS 16 'Leases'

With effect from 1 April 2019 the Group has adopted IFRS 16 'Leases' and applied the modified retrospective approach. IFRS 16 provides a single on-balance sheet accounting model for lessees which recognises a right-of-use asset, representing its right to use the underlying asset, and a lease liability, representing its obligations to make payment in respect of the use of the underlying asset. The distinction between finance and operating leases for lessees is removed. Comparatives for the prior year have not been restated and the reclassifications and adjustments arising from the new leasing standard are therefore recognised in the opening balance sheet on 1 April 2019 as follows:

	1 April 2019 £m
Non-current assets
Property, plant and equipment (right of use assets)	45.4
Total assets	45.4
Current liabilities
Trade and other payables	0.3
Lease liabilities	(10.7)
Non-current liabilities
Lease liabilities	(39.6)
Provisions	(0.3)
Deferred tax liability	0.9
Total liabilities	(49.4)
Total movement in retained earnings as at 1 April 2019	(4.0)

On adoption of IFRS 16, the Group recognised liabilities for leases which had been classified as operating leases under previous accounting standards. The lease liability has been measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate as at 1 April 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 April 2019 was 3.7%.

	1 April 2019 £m
Operating lease commitments as disclosed at 31 March 2019	52.5
Reconciling items
- Effect of discounting (at incremental borrowing rate as a 1 April 2019)	(4.8)
- Short-term leases recognised on a straight-line basis as expense	(0.4)
- Low-value leases recognised on a straight-line basis as expense	(0.3)
- Recognition differences on new leases and extension assumptions	3.3
Lease liability recognised as at 1 April 2019	50.3

Practical expedients applied

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

-  Relied on previous assessments of whether leases are onerous

-  Excluded initial direct costs for the measurement of right-of-use assets at the date of the initial application

-  Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease

-  Where practicable arrangements containing both lease components and non-lease components are accounted for as though they comprise a single lease component

Additionally, on transition the Group elected not to reassess whether a contract is, or contains, a lease, instead relying on the assessment already made applying IAS 17 'Leases' and IFRIC 4 'Determining whether an Arrangement contains a Lease'.

Impact on the income statement

The impact on the income statement for the year ended 31 March 2020 is to increase operating profit by approximately £2.4m where the operating lease payments are replaced by a depreciation charge and increase finance costs by £2.1m, resulting in an increase in profit before tax of £0.3m.

Impact on the cash flow statement

There has been a change to the classification of cash flows in the cash flow statement, with operating lease payments previously categorised as net cash used in operations now being split between the principal element, included as repayment of lease liabilities within financing activities and the interest element, included as interest paid within financing activities. In the year ended 31 March 2020 there are £15.8m of lease payments within financing activities, comprising £13.7m of repayment of lease liabilities and £2.1m of interest paid.

Other new accounting standards and interpretations applied for the first time

The following Standards with an effective date of 1 January 2019 have been adopted without any significant impact on the amounts reported in these financial statements:

-  Amendments to IAS 19: Plan amendment, Curtailment of Settlement

-  Annual improvements 2015-2017 cycle

-  IFRIC Interpretation 23: Uncertainty over Income Tax Treatments

-  Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures

New Standards and Interpretations not yet applied

At the date of authorisation of these financial statements, the following Standards and Interpretations that are potentially relevant to the Group, and which have not been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

-  Amendments to IFRS 3: Definition of a Business

-  Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

-  Amendments to IAS 1 and IAS 8: Definition of Material

-  Conceptual Framework: Amendments to References to the Conceptual Framework in IFRS Standards

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

Use of Alternative performance measures (APMs)

In the reporting of the financial information, the Group uses certain measures that are not required under IFRS, the Generally Accepted Accounting Principles (GAAP) under which the Group reports. The Directors believe that Return on Total Invested Capital (ROTIC), Return on Capital Employed (ROCE), Organic growth at constant currency, adjusted profit and earnings per share measures and adjusted operating cash flow provide additional and more consistent measures of underlying performance to shareholders by removing non-trading items that are not closely related to the Group's trading or operating cash flows. These and other alternative performance measures are used by the Directors for internal performance analysis and incentive compensation arrangements for employees. The terms ROTIC, ROCE, Organic growth at constant currency and 'adjusted' are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures.

The principal items which are included in adjusting items are set out below in the Group's accounting policy and in note 1. The term 'adjusted' refers to the relevant measure being reported for continuing operations excluding adjusting items.

Definitions of the Group's material alternative performance measures along with reconciliation to their IFRS equivalent measure are included in note 3.

Key accounting policies

Below we set out our key accounting policies, with a list of all other accounting policies thereafter.

Going concern

The Group's business activities, together with the main trends and factors likely to affect its future development, performance and position, and the financial position of the Group as at 31 March 2020, its cash flows, liquidity position and borrowing facilities are set out in the Strategic Report. In addition, note 27 of the Annual Report and Accounts contains further information concerning the security, currency, interest rates and maturity of the Group's borrowings.

The financial statements have been prepared on a going concern basis. In adopting the going concern basis the Directors have considered all of the above factors, including potential scenarios arising from the COVID-19 pandemic and from its other principal risks set out in the Principal Risks and Uncertainties section. Under the potential scenarios considered, which are severe but plausible, the Group remains within its debt facilities and the attached financial covenants for the foreseeable future and the Directors therefore believe, at the time of approving the financial statements, that the Company is well placed to manage its business risks successfully and remains a going concern. The key facts and assumptions in reaching this determination are summarised below. 

Our financial position remains robust with committed facilities totalling approximately £750m which includes a £550m Revolving Credit Facility maturing in November 2023 of which £313.6m remains undrawn at the date of this report. The earliest maturity in these facilities is for £74m in January 2021, with the remaining maturities from January 2023 onwards. The financial covenants on these facilities are for leverage (net debt/adjusted EBITDA*) of not more than three times and for adjusted interest cover of not less than four times.

*  net debt and adjusted EBITDA are on a pre-IFRS 16 basis for covenant purposes

Our base scenario has been prepared using forecasts from each of our Operating Companies, with each considering both the challenges and opportunities they are facing as a consequence of COVID-19. Whilst these are varied, we have made assumptions in the following key areas:

-  The impact of government lockdown restrictions: physical lockdown of either our own or our suppliers, distributors or customers operations have a direct impact on our revenue. This has impacted the Safety Sectors in particular with the challenges of physical access and our customers' ability to install products at end customer sites. We have assumed a gradual recovery of these sectors from Q2 with trading returning to more normal trading levels by the end of FY21.

-  The impact of the pandemic on elective surgery and discretionary ophthalmic diagnosis procedures: as health services have focussed on addressing the additional demand from the pandemic, certain businesses in the Medical sector have experienced reduced demand for their products in these end markets. We have assumed a gradual recovery from Q2 as healthcare systems normalise, returning to more normal trading levels by Q3.

-  The effect on essential businesses: a number of our businesses are considered essential in nature either as they make products that are critical to life or protect critical infrastructure. A small number of these businesses have experienced an increase in demand as a result of global efforts to fight COVID-19. We have assumed that the current high demand in these businesses is short term and moderates over the coming months, returning to more normal levels by Q4.

-  Mitigating actions assumed in the base case:

-  Cost reductions which have already been implemented in Q1 of the 2021 financial year including temporary salary reductions, hiring freezes and a significant reduction in discretionary overhead spending. We have assumed appropriate and achievable further reductions in overheads where this is required for individual companies to "right size" their cost base for the medium term.

-  Reduction of capital expenditure: we have assumed a reduction of non-essential capital expenditure for the rest of the financial year.

-  Suspension of M&A activity: we have assumed that we will not make any acquisitions for the balance of FY21, resuming a normal level of activity during FY22.

Further severe but plausible downside sensitivities modelled include:

-  A delay in the recovery of the impacted businesses from the effects of COVID-19.

-  A second wave of COVID-19 infection and corresponding government restrictions in the second half of FY21.

A reverse stress test scenario has been modelled which is considered remote in likelihood of occurring, which includes a combination of these scenarios, with the addition of impacts from the Group's other principal risks. 

None of these scenarios result in a breach of the Group's available debt facilities or the attached covenants and accordingly the Directors believe there is no material uncertainty in the use of the going concern assumption.

Pensions

The Group makes contributions to various pension plans.

For defined benefit plans, the asset or liability recorded in the Consolidated Balance Sheet is the difference between the fair value of the plan's assets and the present value of the defined obligation at that date. The defined benefit obligation is calculated separately for each plan on an annual basis by independent actuaries using the projected unit credit method.

Actuarial gains and losses are recognised in full in the period in which they occur and are taken to other comprehensive income.

Current and past service costs, along with the impact of any settlements or curtailments, are charged to the Consolidated Income Statement. The net interest expense on pension plans' liabilities and the expected return on the plans' assets is recognised within finance expense in the Consolidated Income Statement.

Contributions to defined contribution plans are charged to the Consolidated Income Statement when they fall due.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group measures goodwill at the acquisition date as:

-  the fair value of the consideration transferred; plus

-  the recognised amount of any non-controlling interests in the acquiree measured at the proportionate share of the value of net identifiable assets acquired; plus

-  the fair value of the existing equity interest in the acquiree; less

-  the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Any contingent consideration payable may be accounted for as either:

a)  Consideration transferred, which is recognised at fair value at the acquisition date. If the contingent purchase consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent purchase consideration are recognised in the Consolidated Income Statement; or

b)  Remuneration, which is expensed in the Consolidated Income Statement over the associated period of service. An indicator of such treatment includes when payments to employees of the acquired company are contingent on a post-acquisition event, but may be automatically forfeited on termination of employment.

For acquisitions between 4 April 2004 (the date from which the financial statements were reported under IFRS) and 2 April 2010, goodwill represents the difference between the cost of the acquisition, including acquisition costs and the fair value of the net identifiable assets acquired. Goodwill has an indefinite expected useful life and is not amortised, but is tested annually for impairment.

Goodwill is recognised as an intangible asset in the Consolidated Balance Sheet. Goodwill therefore includes non-identified intangible assets including business processes, buyer-specific synergies, know-how and workforce-related industry-specific knowledge and technical skills. Negative goodwill arising on acquisitions would be recognised directly in the Consolidated Income Statement. On closure or disposal of an acquired business, goodwill would be taken into account in determining the profit or loss on closure or disposal.

As permitted by IFRS 1, the Group elected not to apply IFRS 3 'Business Combinations' to acquisitions prior to 4 April 2004 in its consolidated accounts. As a result, the net book value of goodwill recognised as an intangible asset under UK GAAP at 3 April 2004 was brought forward unadjusted as the cost of goodwill recognised under IFRS at 4 April 2004 subject to impairment testing on that date; and goodwill that was written off to reserves prior to 28 March 1998 under UK GAAP will not be taken into account in determining the profit or loss on disposal or closure of previously acquired businesses from 4 April 2004 onwards.

Intangible assets

(a) Acquired intangible assets

An intangible resource acquired with a subsidiary undertaking is recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights, is expected to generate future economic benefits and its fair value can be measured reliably. Acquired intangible assets, comprising trademarks, technology and know-how and customer relationships, are amortised through the Consolidated Income Statement on a straight-line basis over their estimated economic lives of between four and twenty years.

(b) Product development costs

Research expenditure is written off in the financial year in which it is incurred.

Development expenditure is written off in the financial year in which it is incurred, unless it relates to the development of a new or substantially improved product, is incurred after the technical feasibility and economic viability of the product has been proven and the decision to complete the development has been taken, and can be measured reliably. Such expenditure is capitalised as an intangible asset in the Consolidated Balance Sheet at cost and is amortised through the Consolidated Income Statement on a straight-line basis over its estimated economic life of three years.

Impairment of trade and other receivables

The Group assesses on a forward-looking basis the expected credit losses associated with its trade and other receivables carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

The Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. In order to estimate the expected lifetime losses, the Group categorises its customers into groups with similar risk profiles and determines the historic rates of impairment for each of those categories of customer. The Group then adjusts the risk profile for each group of customers by using forward looking information, such as the government risk of default for the country in which those customers are located, and determines an overall probability of impairment for the total trade and other receivables at the balance sheet date.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of Group accounts in conformity with IFRS requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experiences and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The following areas of critical accounting judgement and key estimation uncertainty have been identified as having significant risk of causing a material adjustment to the carrying amounts of assets and liabilities:

Critical accounting judgements

Goodwill impairment CGU groups

Determining whether goodwill is impaired requires management's judgement in assessing cash generating unit (CGU) groups to which goodwill should be allocated. Management allocates a new acquisition to a CGU group based on which one is expected to benefit most from that business combination. The allocation of goodwill to existing CGUs is generally straightforward and factual, however over time as new businesses are acquired and management reporting structures change management reviews the CGU groups to ensure they are still appropriate. During the current year, management has reviewed its CGU groups and made changes to the groups within the Medical and Environmental & Analysis sectors.

Changes to contingent consideration within 12 months of acquiring a business

Where the Group's expectations of future profit levels on which contingent consideration provisions are based change within 12 months of acquiring a business, judgement is required to assess whether those changes reflect post-acquisition events or measurement period events. Changes in contingent consideration that are determined to be as a result of post-acquisition events in the first 12 months following the acquisition are recognised in the Consolidated Income Statement whereas changes related to events that were known at the acquisition date are measurement period events and should be adjusted against goodwill. For all acquisitions in the year made prior to 11 March 2020, the date on which COVID-19 was declared a pandemic, the Group has determined changes in expectations arising from COVID-19 to be post-acquisition events.

Provisions for taxation

In the current year, determining the provision for taxation requires management's judgement in assessing the provision required in relation to group financing partial exemption applicable to UK controlled foreign companies as a result of the decision by the European Commission that this constitutes state aid. Management's assessment is that this represents a contingent liability and no provision is required at this time. Further details are provided in note 12.

Key sources of estimation uncertainty

Estimation of future cash flows

The Group uses estimates of future cash flows in a number of areas described below as required by IFRS. Estimates are made based on the latest available information by management closest to the related assets and end markets. The COVID-19 pandemic has increased the level of estimation uncertainty as the impact on countries and markets continues to be uncertain, however, the Group has modelled a range of scenarios to consider the impact on the carrying value of its assets as described in the going concern statement above and within each relevant note indicated below.

Contingent consideration changes in estimates

Determining the value of contingent consideration recognised as part of the acquisition of a business requires management to estimate the expected performance of the acquired business and the amount of contingent consideration that will therefore become payable. Initial estimates of expected performance are made by the management responsible for completing the acquisition and form a key component of the financial due diligence that takes place prior to completion. Subsequent measurement of contingent consideration is based on the Directors' appraisal of the acquired business's performance in the post-acquisition period and the agreement of final payments.

Intangible assets

IFRS 3 (revised) 'Business Combinations' requires that goodwill arising on the acquisition of subsidiaries is capitalised and included in intangible assets. IFRS 3 (revised) also requires the identification and valuation of other separable intangible assets at acquisition. The assumptions involved in valuing these intangible assets require the use of management estimates.

IAS 38 'Intangible Assets' requires that development costs, arising from the application of research findings or other technical knowledge to a plan or design of a new or substantially improved product, are capitalised, subject to certain criteria being met. Determining the technical feasibility and estimating the future cash flows generated by the products in development requires the use of management estimates.The estimates made in relation to both acquired intangible assets and capitalised development costs include identification of relevant assets, future growth rates, expected inflation rates and the discount rate used. Management also make estimates of the useful economic lives of the intangible assets.

Goodwill impairment future cash flows

The value in use calculation used to test for impairment of goodwill involves an estimation of the present value of future cash flows of CGUs. The future cash flows are based on annual budgets and forecasts, as approved by the Board, to which management's expectation of market-share and long-term growth rates are applied. The present value is then calculated based on management's estimate of future discount and growth rates. The Board reviews these key assumptions (market-share, long-term growth rates, and discount rates) and the sensitivity analysis around these assumptions.

Defined benefit pension plan liabilities

Determining the value of the future defined benefit obligation requires estimation in respect of the assumptions used to calculate present values. These include future mortality, discount rate and inflation. Management determines these assumptions in consultation with an independent actuary.

Trade and other receivables impairment

Determining the provision for impairment of trade and other receivables requires estimation of the expected lifetime losses. Management makes these estimates using forward looking information to determine the overall probability of impairment. Details of the estimates made in calculating the provision for impairment of trade and other receivables are disclosed in note 8.

Other accounting policies

Basis of consolidation

The Group accounts include the accounts of Halma plc and all of its subsidiary companies made up to 31 March 2020, adjusted to eliminate intra-Group transactions, balances, income and expenses. The results of subsidiary companies acquired or discontinued are included from the month of their acquisition or to the month of their discontinuation.

Investments in associates

An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but without control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the Consolidated Balance Sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any deficiency of the cost of acquisition below the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition (i.e. discount on acquisition) is credited in profit or loss in the year of acquisition.

Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made for impairment.

Where the Group disposes of its entire interest in an associate a gain or loss is recognised in the Income Statement on the difference between the amount received on the sale of the associate less the carrying value and costs of disposal.

Financial assets at fair value through other comprehensive income

Financial assets at fair value through other comprehensive income (FVOCI) comprise equity securities which are not held for trading, and which the Group has irrevocably elected at initial recognition to recognise as FVOCI. The Group considers this classification relevant as these are strategic investments.

Financial assets at FVOCI are adjusted to the fair value of the asset at the balance sheet date with any gain or loss being recognised in other comprehensive income and held as part of other reserves. On disposal any gain or loss is recognised in other comprehensive income and the cumulative gains or losses are transferred from other reserves to retained earnings.

Other intangible assets

(a) Computer software

Computer software that is not integral to an item of property, plant or equipment is recognised separately as an intangible asset, and is amortised through the Consolidated Income Statement on a straight-line basis over its estimated economic life of between three and five years.

(b) Other intangibles

Other intangibles are amortised through the Consolidated Income Statement on a straight-line basis over their estimated economic lives of between three and five years.

Impairment of non-current assets

All non-current assets are tested for impairment whenever events or circumstances indicate that their carrying value may be impaired. Additionally, goodwill and capitalised development expenditure relating to a product that is not yet in full production are subject to an annual impairment test.

An impairment loss is recognised in the Consolidated Income Statement to the extent that an asset's carrying value exceeds its recoverable amount, which represents the higher of the asset's fair value less costs to dispose and its value in use. An asset's value in use represents the present value of the future cash flows expected to be derived from the asset or from the cash generating unit to which it relates. The present value is calculated using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks specific to the asset concerned.

Impairment losses recognised in previous periods for an asset other than goodwill are reversed if there has been a change in the estimates used to determine the asset's recoverable amount, but only to the extent that the carrying amount of the asset does not exceed its carrying amount had no impairment loss been recognised in previous periods. Impairment losses in respect of goodwill are not reversed.

Segmental reporting

An operating segment is a distinguishable component of the Group that is engaged in business activities from which it may earn revenues and incur expenses, and whose operating results are reviewed regularly by the Chief Operating Decision Maker (the Group Chief Executive) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Reportable segments are operating segments that either meet the thresholds and conditions set out in IFRS 8 or are considered by the Board to be appropriately designated as reportable segments. Segment result represents operating profits and includes an allocation of Head Office expenses. Segment result excludes tax and financing items. Segment assets comprise goodwill, other intangible assets, property, plant and equipment & Right of Use assets (excluding land and buildings), inventories, trade and other receivables. Segment liabilities comprise trade and other payables, provisions and other payables. Unallocated items represent land and buildings (including Right of Use assets), corporate and deferred taxation balances, defined benefit plan liabilities, contingent purchase consideration, all components of net cash/borrowings, lease liabilities and derivative financial instruments.

Inventories

Inventories and work in progress are included at the lower of cost and net realisable value. Cost is calculated either on a 'first in, first out' or an average cost basis and includes direct materials and the appropriate proportion of production and other overheads considered by the Directors to be attributable to bringing the inventories to their location and condition at the year end. Net realisable value represents the estimated selling price less all estimated costs to complete and costs to be incurred in marketing, selling and distribution.

Revenue

The Group's revenue streams are the sale of goods and services in the specialist safety, environmental technologies and health markets. The revenue streams are disaggregated into four sectors, that serve like markets. Those sectors are Process Safety, Infrastructure Safety, Environmental & Analysis and Medical.

Revenue is recognised to depict the transfer of control over promised goods or services to customers in an amount that reflects the amount of consideration specified in a contract with a customer, to which the Group expects to be entitled in exchange for those goods or services.

It is the Group's judgement that in the majority of sales there is no contract until such time as the Company performs, at which point the contract becomes the supplier's purchase order governed by the Company's terms and conditions. Where there are Master Supply Arrangements, these are typically framework agreements and do not contain clauses that would result in a contract forming under IFRS 15 until a Purchase Order is issued by the customer.

Revenue represents sales, net of estimates for variable consideration, including rights to returns, and discounts, and excluding value added tax and other sales related taxes. The amount of variable consideration is not considered to be material to the Group as a whole.

Performance obligations are unbundled in each contractual arrangement if they are distinct from one another. There is judgement in identifying distinct performance obligations where the product could be determined to be a system, or where a combination of products and services are provided together. For the majority of the Group's activities the performance obligation is judged to be the component product or service rather than the system or combined products and services. The contract price is allocated to the distinct performance obligations based on the relative standalone selling prices of the goods or services.

The way in which the Group satisfies its performance obligations varies by business and may be on shipment, delivery, as services are rendered or on completion of services depending on the nature of product and service and terms of the contract which govern how control passes to the customer. Revenue is recognised at a point in time or over time as appropriate.

Where the Group offers warranties that are of a service nature, revenue is recognised in relation to these performance obligations over time as the services are rendered. In our judgement we believe the associated performance obligations accrue evenly across the contractual term and therefore revenue is recognised on a pro-rated basis over the length of the service period.

In a small number of instances across the Group, products have been determined to be bespoke in nature, with no alternative use. Where there is also an enforceable right to payment for work completed, the criteria for recognising revenue over time have been deemed to have been met. Revenue is recognised on an input basis. This is not a material part of the Group's business as for the most part, where goods are bespoke in nature, it is the Group's judgement that the product can be broken down to standard component parts with little additional cost and therefore has an alternate use, or there is no enforceable right to payment for work performed. In these cases, the judgement is made that the requirements for recognising revenue over time are not met and revenue is recognised when control of the finished product passes to the customer.

Contract assets and liabilities

A contract asset is recognised when the Group's right to consideration is conditional on something other than the passage of time, for example the completion of future performance obligations under the terms of the contract with the customer.

In some instances, the Group receives payments from customers based on a billing schedule, as established in the contract, which may not match with the pattern of performance under the contract. Where payment is received ahead of performance a contract liability will be created and where performance obligations are satisfied ahead of billing then a contract asset will be recognised.

Contract assets are recognised within Trade and other receivables and are assessed for impairment on a forward-looking basis using the expected lifetime losses approach, as required by IFRS 9 ('Financial Instruments').

Adjusting items

When items of income or expense are material and they are relevant to an understanding of the entity's financial performance, they are disclosed separately within the financial statements. Such adjusting items include material costs or reversals arising from acquisitions or disposals of businesses, including acquisition costs, creation or reversals of provisions related to changes in estimates for contingent consideration on acquisition, amortisation of acquired intangible assets, and other significant one-off items that may arise.

Taxation

Taxation comprises current and deferred tax. Tax is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in Total equity, in which case it too is recognised in Total equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, along with any adjustment to tax payable in respect of previous years. Taxable profit differs from net profit as reported in the Consolidated Income Statement because it excludes items that are never taxable or deductible.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes and is accounted for using the balance sheet liability method, apart from the following differences which are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates and laws, which are expected to apply in the year when the liability is settled, or the asset is realised. Deferred tax assets are only recognised to the extent that recovery is probable.

Foreign currencies

The Group presents its accounts in Sterling. Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates prevailing at that date. Any gain or loss arising from subsequent exchange rate movements is included as an exchange gain or loss in the Consolidated Income Statement.

Net assets of overseas subsidiary companies are expressed in Sterling at the rates of exchange ruling at the end of the financial year, and trading results and cash flows at the average rates of exchange for the financial year. Goodwill arising on the acquisition of a foreign business is treated as an asset of the foreign entity and is translated at the rate of exchange ruling at the end of the financial year. Exchange gains or losses arising on these translations are taken to the Translation reserve within Total equity.

In the event that an overseas subsidiary is disposed of or closed, the profit or loss on disposal or closure will be determined after taking into account the cumulative translation difference held within the Translation reserve attributable to that subsidiary. As permitted by IFRS 1, the Group has elected to deem the translation to be £nil at 4 April 2004. Accordingly, the profit or loss on disposal or closure of foreign subsidiaries will not include any currency translation differences which arose before 4 April 2004.

Interest bearing loans and borrowings

Interest bearing loans and borrowings are initially recognised in the balance sheet at fair value less directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method.

Trade payables

Trade payables are non interest bearing and are stated at amortised cost.

Derivative financial instruments and hedge accounting

The Group enters into derivative financial instruments to manage its exposure to foreign exchange rate risk using forward exchange contracts. The Group continues to apply the requirements of IAS 39 for hedge accounting.

Derivative financial instruments are classified as fair value through profit and loss (held for trading) unless they are in a designated hedge relationship.

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in the Consolidated Income Statement, unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the Consolidated Income Statement depends on the nature of the hedge relationship. The Group designates certain derivatives as hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign operations.

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

 

Cash flow hedge accounting

The Group designates certain hedging instruments as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument has been or is expected to be highly effective in offsetting changes in fair values or cash flows of the hedged item.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion as a result of being over hedged is recognised immediately in the Consolidated Income Statement.

Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to the Consolidated Income Statement in the periods when the hedged item is recognised in the Consolidated Income Statement. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income at that time is accumulated in equity and is recognised, when the forecast transaction is ultimately recognised, in the Consolidated Income Statement. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in the Consolidated Income Statement.

Net investment hedge accounting

The Group uses foreign currency denominated borrowings as a hedge against the translation exposure on the Group's net investment in overseas companies. Where the hedge is fully effective at hedging, the variability in the net assets of such companies caused by changes in exchange rates and the changes in value of the borrowings are recognised in the Consolidated Statement of Comprehensive Income and accumulated in the Translation reserve. The ineffective part of any change in value caused by changes in exchange rates is recognised in the Consolidated Income Statement.

Employee share plans

Share-based incentives are provided to employees under the Group's share incentive plan, the performance share plan and the executive share plan.

(a) Share incentive plan

Awards of shares under the share incentive plan are made to qualifying employees depending on salary and service criteria. The shares awarded under this plan are purchased in the market by the plan's trustees at the time of the award, and are then held in trust for a minimum of three years. The costs of this plan are recognised in the Consolidated Income Statement over the three-year vesting period of the awards.

(b) Executive share plan

During the year ended 2 April 2016, Halma plc introduced the Executive Share Plan, in which executive Directors and certain senior employees participate. Grants under this Plan are in the form of Performance Awards or Deferred Share Awards.

Performance Awards are subject to non-market-based vesting criteria, and Deferred Share Awards are subject only to continuing service of the employee. Share awards are equity-settled. The fair value of the awards at the date of grant, which is estimated to be equal to the market value, is charged to the Consolidated Income Statement on a straight-line basis over the vesting period, with appropriate adjustments being made during this period to reflect expected and actual forfeitures. The corresponding credit is to other reserves within Total equity.

(c) Cash settled

For cash-settled awards, a liability equal to the portion of the services received is recognised at the current fair value determined at each balance sheet date.

 

Provisions and contingent liabilities

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of the cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received, and the amount of the receivable can be measured reliably.

Contingent liabilities are disclosed where a possible obligation dependent on uncertain future events exists as at the end of the reporting period or a present obligation for which payment either cannot be measured or is not considered to be probable is noted. Contingent liabilities are not accrued for and no contingent liability is disclosed where the possibility of payment is considered to be remote.

Deferred government grant income

Government grant income that is linked to capital expenditure is deferred to the Consolidated Balance Sheet and credited to the Consolidated Income Statement over the life of the related asset. In addition, the Group claims research and development expenditure credits arising on qualifying expenditure in its UK-based subsidiaries and shows these 'above the line' in Operating profit. Where the credits arise on expenditure that is capitalised as part of internally generated capitalised development costs, the income is deferred to the Consolidated Balance Sheet and credited to the Consolidated Income Statement over the life of the related asset in line with the policy stated above.

Operating profit

Operating profit is presented net of direct production costs, production overheads, selling costs, distribution costs and administrative expenditure. Operating profit is stated after charging restructuring costs but before the share of results of associates, profit or loss on disposal of operations, finance income and finance costs.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, deposits with an initial maturity of less than three months, and bank overdrafts that are repayable on demand.

Dividends

Dividends payable to the Company's shareholders are recognised as a liability in the period in which the distribution is approved by the Company's shareholders.

Property, plant and equipment

Property, plant and equipment is stated at historical cost less provisions for impairment and depreciation which, with the exception of freehold land which is not depreciated, is provided on a straight-line basis over each asset's estimated economic life. The principal annual rates used for this purpose are:

Freehold property	2%
Leasehold properties and improvements: Long leases (more than 50 years unexpired)	2%
Short leases (less than 50 years unexpired)	Period of lease
Plant, equipment and vehicles	8% to 33.3%

Leases

The Group recognises a right-of-use asset and a lease liability at the lease commencement date.

The right-of-use asset is initially measured at cost, comprising the initial amount of the lease liability plus any initial direct costs incurred and an estimate of costs to restore the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the asset or the end of the lease term.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the incremental borrowing rate. The lease liability is measured at amortised cost using the effective interest method by increasing the carrying amount to reflect interest on the lease liability and by reducing the carrying amount to reflect the lease payments made. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or a rate or a change in the Group's assessment of whether it will exercise an extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the right-of-use asset.

Payments associated with short-term leases or low-value assets are recognised on a straight-line basis as an expense in the Consolidated Income Statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets mostly comprise of IT equipment and small items of office furniture.

The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be under IAS 17 'leases'. The accounting policy under IAS 17 is as disclosed in the Annual Report and Accounts 2019. A description of the changes impacting the Group has been disclosed above under New standards and interpretations applied for the first time.

Finance income and expenses

The Group recognises Interest income or expense using the effective interest rate method. Finance income and finance costs include:

-  Interest payable on loans and borrowings

-  Net interest charge on pension plan liabilities

-  Amortisation of finance costs

-  Interest receivable in respect of cash and cash equivalents

-  Unwinding of the discount on provisions

-  Fair value movements on derivative financial instruments

Notes to the Accounts

1 Segmental analysis and revenue from contracts with customers

Sector analysis and disaggregation of revenue

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

During the current year, following an acquisition that has materially changed its customer focus, one of the operating companies has been moved from the Environmental & Analysis sector to the Medical sector. The prior year segmental disclosures have been restated to reflect this change which moved £19.1m of revenue, £6.3m of profit, £6.5m of assets and £1.2m of liabilities from Environmental & Analysis to Medical. There was no change in the total group revenue, profit or net assets from this change.

Nature of goods and services

The following is a description of the principal activities - separated by reportable segments, which are defined by markets rather than product type - from which the Group generates its revenue.

Further disaggregation of sector revenue by geography and by the pattern of revenue recognition depicts how economic factors affect the timing and uncertainty of the Group's revenues.

Process Safety sector generates revenue from providing products that protect assets and people at work across a range of critical industrial and logistics operations. Products include: specialised interlocks that control critical processes safely; instruments that detect flammable and hazardous gases; and explosion protection and corrosion monitoring systems. Products are generally sold separately, with contracts less than one year. Warranties are typically of an assurance nature. Revenue is typically recognised as control passes on delivery or despatch.

Payment is typically due within 60 days of invoice, except where a retention is held for documentation.

Infrastructure Safety sector generates revenue from providing products that protect people, property and assets and enable safe movement in public spaces. Products include: fire detection systems, specialist fire suppression systems, elevator safety systems and people and vehicle flow technologies. Products are generally sold separately, with contracts less than one year. Warranties are typically of an assurance nature. Revenue is recognised as control passes on delivery or despatch.

Payment is typically due within 60 days of invoice.

Environmental & Analysis generates revenue providing products and technologies that monitor and protect the environment, ensuring the quality and availability of life-critical resources, and use optical and imaging technologies in materials analysis.. Products include: market-leading opto-electronic technology and sensors, flow gap measurement instruments and gas conditioning products, and solutions for environmental data recording, water quality testing, water distribution network monitoring, and UV water treatment. Products and services are generally sold separately. Warranties are typically of an assurance nature, but some companies offer extended warranties. Depending on the nature of the performance obligation, revenue may be recognised as control passes on delivery, despatch or as the service is delivered. Contracts are typically less than one year in length, but some companies have contracts where certain service related performance obligations are delivered over a number of years, this can result in contract liabilities where those performance obligations are invoiced ahead of performance.

Payment is typically due within 60 days of invoice.

Medical sector generates revenue from providing products and services that enhance the quality of life for patients and improve quality of care delivered by healthcare providers. Products include: critical fluidic components used by medical diagnostics and Original Equipment Manufacturers ('OEMs'), laboratory devices and systems that provide valuable information to understand patient health and enable providers to make decisions across the continuum of care, and technologies that enable positive outcomes across clinical specialties. Products are generally sold separately, and warranties are typically of an assurance nature. Depending on the nature of the performance obligation, revenue is recognised as control passes on delivery or despatch or as the service is delivered. Contracts are typically less than one year in length, but a limited number of companies have contracts where certain service related performance obligations are delivered over a number of years, this can result in contract liabilities where those performance obligations are invoiced ahead of performance.

Payment is typically due within 60 days of invoice.

Segment revenue disaggregation (by location of external customer)

	Year ended 31 March 2020 Revenue by sector and destination (all continuing operations)
	United States of America £m	Mainland Europe £m	United Kingdom £m	Asia Pacific £m	Africa, Near and Middle East £m	Other countries £m	Total £m
Process Safety	67.0	39.7	28.7	33.2	21.8	9.6	200.0
Infrastructure Safety	105.5	142.9	109.9	70.9	22.6	14.7	466.5
Environmental & Analysis	157.3	34.3	67.2	51.9	7.1	7.2	325.0
Medical	180.7	59.6	15.4	57.3	11.7	22.5	347.2
Inter-segmental sales	(0.2)	(0.1)	-	-	-	-	(0.3)
Revenue for the year	510.3	276.4	221.2	213.3	63.2	54.0	1,338.4

	Year ended 31 March 2019 Revenue by sector and destination (all continuing operations) Restated
	United States of America £m	Mainland Europe £m	United Kingdom £m	Asia Pacific £m	Africa, Near and  Middle East £m	Other countries £m	Total £m
Process Safety	61.3	42.1	32.6	29.6	23.2	8.7	197.5
Infrastructure Safety	87.8	131.2	101.4	48.6	28.4	11.2	408.6
Environmental & Analysis	117.6	38.0	53.6	58.2	6.0	6.6	280.0
Medical	176.8	55.0	13.4	47.6	13.2	19.2	325.2
Inter-segmental sales	(0.3)	-	(0.1)	-	-	-	(0.4)
Revenue for the year	443.2	266.3	200.9	184.0	70.8	45.7	1,210.9

Inter-segmental sales are charged at prevailing market prices and have not been disclosed separately by segment as they are not considered material. Revenue derived from the rendering of services was £53.1m (2019: £39.2m). All revenue was otherwise derived from the sale of products.

	Year ended 31 March 2020
	Revenue  recognised over time £m	Revenue  recognised at a point in time £m	Total Revenue £m
Process Safety	0.7	199.3	200.0
Infrastructure Safety	1.6	464.9	466.5
Environmental & Analysis	67.3	257.7	325.0
Medical	13.0	334.2	347.2
Inter-segmental sales	-	(0.3)	(0.3)
Revenue for the year	82.6	1,255.8	1,338.4

	Year ended 31 March 2019 Restated
	Revenue  recognised over time £m	Revenue  recognised at a point in time £m	Total Revenue £m
Process Safety	-	197.5	197.5
Infrastructure Safety	0.9	407.7	408.6
Environmental & Analysis	38.5	241.5	280.0
Medical	6.3	318.9	325.2
Inter-segmental sales	-	(0.4)	(0.4)
Revenue for the year	45.7	1,165.2	1,210.9

	Year ended 31 March 2020
	Revenue from  performance  obligations entered into and satisfied  in the year £m	Revenue previously included as  contract liabilities £m	Revenue from performance obligations satisfied in previous periods £m	Total Revenue £m
Process Safety	199.3	0.7	-	200.0
Infrastructure Safety	465.3	1.2	-	466.5
Environmental & Analysis	320.8	4.1	0.1	325.0
Medical	336.2	11.0	-	347.2
Inter-segmental sales	(0.3)	-	-	(0.3)
Revenue for the year	1,321.3	17.0	0.1	1,338.4

	Year ended 31 March 2019 Restated
	Revenue from  performance  obligations entered into and satisfied  in the year £m	Revenue previously included as  contract liabilities £m	Revenue from performance obligations satisfied in previous periods £m	Total Revenue £m
Process Safety	196.7	0.8	-	197.5
Infrastructure Safety	406.2	2.4	-	408.6
Environmental & Analysis	273.0	6.8	0.2	280.0
Medical	315.1	9.8	0.3	325.2
Inter-segmental sales	(0.4)	-	-	(0.4)
Revenue for the year	1,190.6	19.8	0.5	1,210.9

The Group has unsatisfied (or partially satisfied) performance obligations at the balance sheet date with an aggregate amount of transaction price as follows. The time bands represented present the expected timing of when the remaining transaction price will be recognised as revenue.

	Aggregate transaction price allocated to unsatisfied performance obligations
	31 March 2020 £m	2021 £m	2022 £m	2023 and beyond £m
Process Safety	1.9	1.8	0.1	-
Infrastructure Safety	4.0	3.8	0.2	-
Environmental & Analysis	15.2	6.1	2.4	6.7
Medical	5.8	4.9	0.7	0.2
Inter-segmental sales	-	-	-	-
Total	26.9	16.6	3.4	6.9

	Aggregate transaction price allocated to unsatisfied performance obligations
	31 March 2019 £m	2020 £m	2021 £m	2022 and beyond £m
Process Safety	0.1	0.1	-	-
Infrastructure Safety	4.7	4.3	0.3	0.1
Environmental & Analysis	16.9	10.1	1.6	5.2
Medical	5.5	3.5	0.9	1.1
Inter-segmental sales	-	-	-	-
Total	27.2	18.0	2.8	6.4

Segment results

	Profit (all continuing operations)
	Year ended 31 March 2020 £m	Year ended 31 March 2019 Restated £m
Segment profit before allocation of adjustments*
Process Safety	43.9	45.5
Infrastructure Safety	107.7	88.9
Environmental & Analysis	69.4	60.1
Medical	84.4	83.2
	305.4	277.7
Segment profit after allocation of adjustments*
Process Safety	38.6	41.5
Infrastructure Safety	83.4	79.1
Environmental & Analysis	62.6	53.8
Medical	77.9	66.4
Segment profit	262.5	240.8
Central administration costs	(26.3)	(24.1)
Net finance expense	(12.1)	(10.0)
Group profit before taxation	224.1	206.7
Taxation	(39.7)	(36.9)
Profit for the year	184.4	169.8

*  Adjustments include in the current and prior year the amortisation of acquired intangible assets; acquisition items; significant restructuring costs and profit or loss on disposal of operations and in the prior year the effect of equalisation of pension benefits for men and women in the defined benefit plans, see overleaf for more details. Note 3 provides more information on alternative performance measures.

The accounting policies of the reportable segments are the same as the Group's accounting policies. Acquisition transaction costs, adjustments to contingent consideration and release of fair value adjustments to inventory (collectively 'acquisition items') are recognised in the Consolidated Income Statement. Segment profit, before these acquisition items and the other adjustments, is disclosed separately on the previous page as this is the measure reported to the Group Chief Executive for the purpose of allocation of resources and assessment of segment performance. These adjustments are analysed as follows:

						Year ended 31 March 2020
		Acquisition items
	Amortisation of acquired intangible assets £m	Transaction costs £m	Adjustments to contingent consideration £m	Release of fair value adjustments to inventory £m	Total amortisation charge and acquisition items £m	Disposal of operations and restructuring  (note 11) £m	Total £m
Process Safety	(4.2)	(0.7)	-	(0.4)	(5.3)	-	(5.3)
Infrastructure Safety	(11.0)	(2.3)	(8.2)	(2.8)	(24.3)	-	(24.3)
Environmental & Analysis	(9.2)	(0.2)	2.6	-	(6.8)	-	(6.8)
Medical	(13.9)	(2.7)	8.1	(0.9)	(9.4)	2.9	(6.5)
Total Segment & Group	(38.3)	(5.9)	2.5	(4.1)	(45.8)	2.9	(42.9)

The transaction costs arose mainly on the acquisitions during the year. In Process Safety they related to the acquisition of Sensit (£0.7m). In Infrastructure Safety, they related to the acquisition of Ampac (£2.1m) and FireMate (£0.2m). In Environmental & Analysis, they related to the acquisition of Invenio (£0.1m) and Enoveo (£0.1m). In Medical, they mainly related to the acquisition of Infowave (£0.1m), NeoMedix (£0.1m), NovaBone (£1.7m), Spreo (£0.1m) and Maxtec (£0.3m).

The £2.5m adjustment to contingent consideration comprised: a debit in Infrastructure Safety of £8.2m arising from an increase in the estimate of the payable for Navtech; a credit of £2.6m in Environmental & Analysis arising from decreases in estimates of the payables for Mini-Cam (£2.6m) and Invenio (£0.1m), offset by an increase in estimates of the payable for Enoveo (£0.1m); and a credit of £8.1m in Medical arising from a decrease in estimates of the payables for NovaBone (£8.0m) and Infowave (£1.1m) offset by an increase in the estimate of the payable for NeoMedix (£1.0m).

The £4.1m release of fair value adjustments to inventory relates to Sensit (£0.4m) in Process Safety, Navtech (£0.4m) and Ampac (£2.4m) in Infrastructure Safety; and NeoMedix (£0.3m), NovaBone (£0.5m), and Maxtec (£0.1m) in Medical. All amounts have now been released in relation to Navtech, Ampac and NeoMedix.

					Year ended 31 March 2019
		Acquisition items
	Amortisation of acquired intangible assets £m	Transaction costs £m	Adjustments to contingent consideration £m	Release of fair value adjustments to inventory £m	Total amortisation charge and acquisition items £m	Defined benefit pension charge £m	Disposal of operations and restructuring £m	Total £m
Process Safety	(4.0)	-	-	-	(4.0)	-	-	(4.0)
Infrastructure Safety	(6.8)	(0.4)	-	(2.6)	(9.8)	-	-	(9.8)
Environmental & Analysis	(9.1)	(0.1)	3.0	(0.1)	(6.3)	-	-	(6.3)
Medical	(15.7)	(0.6)	0.5	-	(15.8)	-	(1.0)	(16.8)
Total Segment	(35.6)	(1.1)	3.5	(2.7)	(35.9)	-	(1.0)	(36.9)
Unallocated	-	-	-	-	-	(2.1)	-	(2.1)
Total Segment & Group	(35.6)	(1.1)	3.5	(2.7)	(35.9)	(2.1)	(1.0)	(39.0)

In the prior year, the transaction costs arose mainly on the acquisitions during that year. In Infrastructure Safety, they mainly related to LAN Control Systems Limited (£0.1m), Limotec (£0.1m), Navtech (£0.4m) and Business Marketers Group (trading as Rath Communications) (£0.1m) and a credit from a previous acquisition. In Environmental & Analysis, they related to the acquisition of FluxData in a previous year (£0.1m). In Medical, they mainly related to the acquisition of Visiometrics in a previous year (£0.5m).

The £3.5m adjustment to contingent consideration comprised: a credit of £3.0m in Environmental & Analysis arising from decreases in estimates of the payable for FluxData (£2.7m) and Mini-Cam (£0.3m); and a credit of £0.5m in Medical arising from an increase in estimate of the payable for CasMed NIBP (£0.1m) offset by a credit of £0.6m arising from exchange differences on the payable for Visiometrics which is denominated in Euros.

The £2.7m release of fair value adjustments to inventory related to Firetrace (£1.4m), Limotec (£0.3m), Navtech (£0.6m) and Rath (£0.3m) in Infrastructure and Safety; and Mini-Cam (£0.1m) within Environmental & Analysis. All amounts have been released in relation to Firetrace, Limotec, Rath and Mini-Cam.

The £2.1m defined benefit pension charge related to the estimate of Guaranteed Minimum Pension equalisation for men and women.

Information about major customers

No single customer accounts for more than 5% (2019: 3%) of the Group's revenue.

2 Earnings per ordinary share

Basic and diluted earnings per ordinary share are calculated using the weighted average of 379,086,833 shares in issue during the year (net of shares purchased by the Company and held as Own shares) (2019: 379,159,755). There are no dilutive or potentially dilutive ordinary shares.

Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation of acquired intangible assets; acquisition items; restructuring costs; profit or loss on disposal of operations; in the prior year, the effect of equalisation of defined pension benefits for men and women; and the associated taxation thereon. The Directors consider that adjusted earnings, which constitute an alternative performance measure, represent a more consistent measure of underlying performance as it excludes amounts not directly linked with trading. A reconciliation of earnings and the effect on basic and diluted earnings per share figures is as follows:

			Per ordinary share
	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m	Year ended 31 March 2020 pence	Year ended 31 March 2019 pence
Earnings from continuing operations	184.4	169.8	48.66	44.78
Amortisation of acquired intangible assets (after tax)	30.3	27.5	7.98	7.25
Acquisition transaction costs (after tax)	5.3	1.0	1.41	0.27
Adjustments to contingent consideration (after tax)	(2.5)	(2.9)	(0.66)	(0.75)
Release of fair value adjustments to inventory (after tax)	3.0	2.1	0.78	0.55
Defined benefit pension charge (after tax)	-	1.7	-	0.44
Disposal of operations and restructuring (after tax)	(2.9)	0.8	(0.78)	0.20
Adjusted earnings	217.6	200.0	57.39	52.74

3 Alternative performance measures

The Board uses certain alternative performance measures to help it effectively monitor the performance of the Group. The Directors consider that these represent a more consistent measure of underlying performance by removing non-trading items that are not closely related to the Group's trading or operating cash flows. These measures include Return on Total Invested Capital (ROTIC), Return on Capital Employed (ROCE), organic growth at constant currency, Adjusted operating profit and Adjusted operating cash flow.

Note 1 provides further analysis of the adjusting items in reaching adjusted profit measures.

Return on Total Invested Capital

	31 March  2020 £m	31 March  2019 £m
Profit after tax	184.4	169.8
Adjustments1	33.2	30.2
Adjusted profit after tax1	217.6	200.0
Total equity	1,136.9	981.4
Add back net retirement benefit obligations	5.2	39.2
Less associated deferred tax assets	(0.5)	(7.0)
Cumulative amortisation of acquired intangible assets	283.5	235.2
Historical adjustments to goodwill2	89.5	89.5
Total Invested Capital	1,514.6	1,338.3
Average Total Invested Capital3	1,426.5	1,245.7
Return on Total Invested Capital (ROTIC)4, 5	15.3%	16.1%

Return on Capital Employed

	31 March  2020 £m	31 March  2019 £m
Profit before tax	224.1	206.7
Adjustments1	42.9	39.0
Net finance costs	12.1	10.0
Lease interest	(2.1)	-
Adjusted operating profit1 after share of results of associates and lease interest	277.0	255.7
Computer software costs within intangible assets	5.9	5.5
Capitalised development costs within intangible assets	36.1	33.1
Other intangibles within intangible assets	3.1	3.1
Property, plant and equipment	184.3	112.4
Inventories	170.6	144.3
Trade and other receivables	286.6	259.6
Trade and other payables	(186.7)	(164.8)
Lease liabilities	(13.0)	-
Provisions	(28.0)	(25.4)
Net current tax receivable/(liabilities)	1.3	(13.2)
Non-current trade and other payables	(13.3)	(11.6)
Non-current provisions	(21.6)	(10.9)
Non-current lease liabilities	(48.5)	-
Add back contingent purchase consideration	40.1	26.8
Capital Employed	416.9	358.9
Average Capital Employed3	387.9	340.4
Return on Capital Employed (ROCE)4, 5	71.4%	75.1%

1  Adjustments include in the current and prior year the amortisation of acquired intangible assets; acquisition items; significant restructuring costs and profit or loss on disposal of operations and, in the prior year only, the effect of equalisation of pension benefits for men and women in the defined benefit plans. Where after-tax measures, these also include the associated taxation on adjusting items. Note 1 provides more information on these items.

2  Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves.

3  The ROTIC and ROCE measures are expressed as a percentage of the average of the current and prior year's Total Invested Capital and Capital Employed respectively. Using an average as the denominator is considered to be more representative. The 1 April 2018 Total Invested Capital and Capital Employed balances were £1,153.0m and £321.9m respectively.

4  The ROTIC and ROCE measures are calculated as Adjusted profit after tax divided by Average Total Invested Capital and Adjusted operating profit after share of results of associates divided by Average Capital Employed respectively.

5  The ROTIC and ROCE measures as at 31 March 2020 are after the adoption of IFRS 16 whereas the measures at 31 March 2019 are on a pre-IFRS 16 basis. The impact on the Group balance sheet on adoption of IFRS 16 is insignificant (reduction in net assets of £4.0m), and as such there has been no significant impact in the measurement of ROTIC or ROCE.

Organic growth at constant currency

Organic growth measures the change in revenue and profit from continuing Group operations. This measure equalises the effect of acquisitions by:

a. removing from the year of acquisition their entire revenue and profit before taxation;

b. in the following year, removing the revenue and profit for the number of months equivalent to the pre-acquisition period in the prior year; and

c. removing from the year prior to acquisition any revenue generated by sales to the acquired company which would have been eliminated on consolidation had the acquired company been owned for that period.

The results of disposals are removed from the prior period reported revenue and profit before taxation.

Constant currency measures the change in revenue and profit excluding the effects of currency movements. The measure restates the current year's revenue and profit at last year's exchange rates.

Organic growth at constant currency has been calculated for the Group as follows:

Group

			Revenue			Adjusted* profit before taxation
	Year ended 31 March  2020 £m	Year ended 31 March 2019 £m	% growth	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m	% growth
Continuing operations	1,338.4	1,210.9	10.5%	267.0	245.7	8.7%
Acquired and disposed revenue/profit	(58.0)	(7.3)		(12.1)	(0.6)
Organic growth	1,280.4	1,203.6	6.4%	254.9	245.1	4.0%
Constant currency adjustment	(18.8)	-		(4.4)	-
Organic growth at constant currency	1,261.6	1,203.6	4.8%	250.5	245.1	2.2%

Sector Organic growth at constant currency

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

Process Safety			Revenue			Adjusted* segment profit
	Year ended 31 March  2020 £m	Year ended 31 March 2019 £m	% growth	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m	% growth
Continuing operations	200.0	197.5	1.2%	43.9	45.5	(3.5)%
Acquisition and currency adjustments	(5.8)	-		(1.2)	-
Organic growth at constant currency	194.2	197.5	(1.7)%	42.7	45.5	(6.1)%

Infrastructure Safety			Revenue			Adjusted* segment profit
	Year ended 31 March  2020 £m	Year ended 31 March 2019 £m	% growth	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m	% growth
Continuing operations	466.5	408.6	14.2%	107.7	88.9	21.0%
Acquisition and currency adjustments	(49.1)	(3.7)		(12.8)	-
Organic growth at constant currency	417.4	404.9	3.1%	94.9	88.9	6.6%

Environmental & Analysis			Revenue			Adjusted* segment profit
	Year ended 31 March  2020 £m	Year ended 31 March 2019** £m	% growth	Year ended 31 March 2020 £m	Year ended 31 March 2019** £m	% growth
Continuing operations	325.0	280.0	16.1%	69.4	60.1	15.4%
Acquisition and currency adjustments	(7.0)	-		(1.5)	-
Organic growth at constant currency	318.0	280.0	13.6%	67.9	60.1	13.0%

Medical			Revenue			Adjusted* segment profit
	Year ended 31 March  2020 £m	Year ended 31 March 2019** £m	% growth	Year ended 31 March 2020 £m	Year ended 31 March 2019** £m	% growth
Continuing operations	347.2	325.2	6.8%	84.4	83.2	1.5%
Acquisition and disposal and currency adjustments	(14.9)	(3.6)		(3.9)	(0.6)
Organic growth at constant currency	332.3	321.6	3.3%	80.5	82.6	(2.6)%

*  Adjustments include in the current and prior year the amortisation of acquired intangible assets; acquisition items; significant restructuring costs and profit or loss on disposal of operations and in the prior year the effect of equalisation of pension benefits for men and women in the defined benefit plans.

** Sector growth rates are calculated using revenue and profit figures restated for the effect of moving an operating company from Environmental & Analysis to Medical. See note 1.

Adjusted operating profit

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Operating profit	233.4	217.8
Add back:
Acquisition items (note 1)	7.5	0.3
Defined benefit pension charge	-	2.1
Amortisation of acquired intangible assets	38.3	35.6
Adjusted operating profit	279.2	255.8

Adjusted operating cash flow

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Net cash from operating activities (note 10)	255.5	219.0
Add back:
Net acquisition costs paid	5.2	1.2
Taxes paid	52.4	40.6
Proceeds from sale of property, plant and equipment	1.9	1.6
Share awards vested not settled by Own shares*	6.0	4.9
Less:
Purchase of property, plant and equipment	(31.2)	(26.4)
Purchase of computer software and other intangibles	(2.9)	(4.9)
Development costs capitalised	(14.7)	(10.8)
Adjusted operating cash flow	272.2	225.2
Cash conversion % (adjusted operating cash flow/adjusted operating profit)	97%	88%

*  See Consolidated Statement of Changes in Equity

4 Finance income

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Interest receivable	0.6	0.4
Fair value movement on derivative financial instruments	-	0.1
	0.6	0.5

5 Finance expense

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Interest payable on borrowings	8.7	7.6
Interest payable on lease obligations	2.1	-
Amortisation of finance costs	0.7	0.9
Net interest charge on pension plan liabilities	0.8	1.2
Other interest payable	0.2	0.5
	12.5	10.2
Fair value movement on derivative financial instruments	0.2	0.2
Unwinding of discount on provisions	-	0.1
	12.7	10.5

6 Taxation

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Current tax
UK corporation tax at 19% (2019: 19%)	12.3	10.9
Overseas taxation	30.5	33.6
Adjustments in respect of prior years	(2.9)	0.2
Total current tax charge	39.9	44.7
Deferred tax
Origination and reversal of timing differences	(0.4)	(7.4)
Adjustments in respect of prior years	0.2	(0.4)
Total deferred tax credit	(0.2)	(7.8)
Total tax charge recognised in the Consolidated Income Statement	39.7	36.9
Reconciliation of the effective tax rate:
Profit before tax	224.1	206.7
Tax at the UK corporation tax rate of 19% (2019: 19%)	42.6	39.3
Overseas tax rate differences	6.1	9.4
Effect of intra-group financing	(6.2)	(8.7)
Tax incentives, exemptions and credits (including patent box, R&D and High-Tech status)	(3.8)	(3.9)
Permanent differences	3.7	1.0
Adjustments in respect of prior years	(2.7)	(0.2)
	39.7	36.9
Effective tax rate	17.7%	17.9%

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Adjusted* profit before tax	267.0	245.7
Total tax charge on adjusted* profit	49.4	45.7
Effective tax rate	18.5%	18.6%

*  Adjustments include, in the current and prior year, the amortisation of acquired intangible assets; acquisition items; significant restructuring costs and profit or loss on disposal of operations and, in the prior year only, the effect of equalisation of pension benefits for men and women in the defined benefit plans. Note 3 provides more information on alternative performance measures.

The Group's future Effective Tax Rate (ETR) will mainly depend on the geographic mix of profits and whether there are any changes to tax legislation in the Group's most significant countries of operations.

In addition to the amount charged to the Consolidated Income Statement, the following amounts relating to tax have been recognised directly in the Consolidated Statement of Comprehensive Income and Expenditure:

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Deferred tax
Retirement benefit obligations	4.0	1.6
Effective portion of changes in fair value of cash flow hedges	(0.1)	-
	3.9	1.6

In addition to the amounts charged to the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income and Expenditure, the following amounts relating to tax have been recognised directly in equity:

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Current tax
Excess tax deductions related to share-based payments on exercised awards	(1.4)	(1.5)
Deferred tax
Change in estimated excess tax deductions related to share-based payments	(0.5)	(0.9)
Impact of changes in accounting policies: IFRS 16 'Leases'	(0.9)	-
	(2.8)	(2.4)

7 Dividends

	Per ordinary share
	Year ended 31 March 2020 pence	Year ended 31 March 2019 pence	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Amounts recognised as distributions to shareholders in the year
Final dividend for the year ended 31 March 2019 (31 March 2018)	9.60	8.97	36.4	34.0
Interim dividend for the year ended 31 March 2020 (31 March 2019)	6.54	6.11	24.8	23.2
	16.14	15.08	61.2	57.2
Dividends declared in respect of the year
Interim dividend for the year ended 31 March 2020 (31 March 2019)	6.54	6.11	24.8	23.2
Proposed final dividend for the year ended 31 March 2020 (31 March 2019)	9.96	9.60	37.7	36.4
	16.50	15.71	62.5	59.6

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 4 September 2020 and has not been included as a liability in these financial statements.

8 Trade and other receivables

	31 March 2020 £m	31 March 2019 £m
Trade receivables	249.8	226.7
Allowance for doubtful debts	(12.7)	(5.0)
	237.1	221.7
Other receivables	11.0	10.2
Prepayments	18.3	18.6
Contract assets	20.2	9.1
	286.6	259.6

Other receivables comprise various financial assets across the Group, including sales tax receivables and other non-trade balances. In the prior year it also included acquisition consideration receivables and disposal consideration still to be received (note 11).

Receivables greater than 1 year comprise of £0.3m (2019: £0.4m) in trade receivables and £2.2m in other receivables (2019: £nil).

The movement in the allowance for doubtful debts in respect of trade receivables during the year was as follows:

	31 March 2020 £m	31 March 2019 £m
At beginning of the year	5.0	4.6
Restatement for adoption of IFRS 9	-	(0.1)
Transfer to trade and other payables following adoption of IFRS 15	-	(0.1)
Net impairment loss recognised	8.3	1.4
Amounts recovered against trade receivables previously written down/amounts utilised	(0.9)	(0.9)
Recognition of provisions for businesses acquired	0.2	-
Exchange adjustments	0.1	0.1
At end of the year	12.7	5.0

The Group assesses on a forward-looking basis the expected credit losses associated with its trade and other receivables carried at amortised cost. As a result of the COVID-19 pandemic, the Group has assessed that there has been an increase in credit risk and this is the main reason for the increase in the allowance for doubtful debts in respect of trade receivables as at 31 March 2020.

The Group assessed that no provisions or impairments were required in relation to contract assets (2019: £nil).

The fair value of trade and other receivables approximates to book value due to the short-term maturities associated with these items. There is no impairment risk identified with regards to prepayments or other receivables where no amounts are past due.

The ageing of trade receivables was as follows:

	Gross trade receivables		Trade receivables net of doubtful debts
	31 March 2020 £m	31 March 2019 £m	31 March 2020 £m	31 March 2019 £m
Not yet due	181.4	172.2	181.1	171.7
Up to one month overdue	34.6	28.5	34.3	28.5
Between one and two months overdue	10.5	8.8	10.5	8.8
Between two and three months overdue	5.0	5.0	4.5	5.0
Over three months overdue	18.3	12.2	6.7	7.7
	249.8	226.7	237.1	221.7

9 Acquisitions

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

During the year ended 31 March 2020, the Group made ten acquisitions namely:

- Invenio Systems Limited;

- Enoveo SARL; 

- Ampac Group;

- Infowave Solutions Inc.;

- Certain trade and assets of NeoMedix Corporation;

- FireMate Software Pty. Ltd.;

- NovaBone Products, LLC;

- Sensit Technologies, LLC;

- Certain trade and assets of Spreo LLC;

- Maxtec, LLC.

Below are summaries of the assets acquired and liabilities assumed and the purchase consideration of:

a)  the total of acquisitions;

b)  Invenio Systems Limited and Enoveo SARL;

c)  Ampac Group;

d) Infowave Solutions Inc. and certain trade and assets of Spreo LLC;

e) Certain trade and assets of NeoMedix Corporation;

f) FireMate Software Pty. Ltd.;

g) NovaBone Products, LLC;

h) Sensit Technologies, LLC;

i) Maxtec, LLC;

j) The aggregate adjustments arising on prior year acquisitions.

Due to their contractual dates, the fair value of receivables acquired (shown below) approximate to the gross contractual amounts receivable. The amount of gross contractual receivables not expected to be recovered is immaterial.

There are no material contingent liabilities recognised in accordance with paragraph 23 of IFRS 3 (revised).

The combined fair value adjustments made for the acquisitions above under IFRS 3, excluding acquired intangible assets recognised and deferred taxation thereon, increased the goodwill recognised by £2.7m (2019: £2.0m increase).

The acquisitions contributed £36.8m of revenue and £6.9m of profit after tax for the year ended 31 March 2020.

If these acquisitions had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £53.7m higher and £6.9m higher respectively.

As at the date of approval of the financial statements, the acquisition accounting for all prior year acquisitions is complete. The accounting for all current year acquisitions is provisional; relating to finalisation of the initial consideration, which is subject to agreement of certain contractual adjustments, and certain other provisional balances.

a)  Total of acquisitions

	Total £m
Non-current assets
Intangible assets	114.3
Property, plant and equipment	12.4
Investments	0.4
Deferred tax	0.4
Current assets
Inventories	18.1
Trade and other receivables	13.2
Cash and cash equivalents	8.0
Total assets	166.8
Current liabilities
Trade and other payables	(11.4)
Lease liabilities	(1.3)
Provisions	(0.3)
Corporation tax	(0.1)
Non-current liabilities
Lease liabilities	(6.9)
Provisions	(0.1)
Deferred tax	(13.8)
Total liabilities	(33.9)
Net assets of businesses acquired	132.9
Non-controlling interest	(0.7)
Initial cash consideration paid	226.2
Additional amounts paid in respect of cash acquired	3.1
Amounts owed to vendors*	1.4
Contingent purchase consideration estimated to be paid in respect of current year acquisitions	25.8
Total consideration	256.5
Goodwill arising on acquisitions (current year)	122.5
Goodwill arising on acquisitions (prior year)	0.4
Total goodwill	122.9

* In respect of net tangible asset adjustments and various contractual adjustments relating to current year acquisitions of which £1.0m was paid in the current year.

Analysis of cash outflow in the Consolidated Cash Flow Statement

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Initial cash consideration paid	226.2	63.0
Cash acquired on acquisitions	(8.0)	(5.3)
Initial cash consideration adjustment and other amounts paid to vendors on current year acquisitions	4.1	5.7
Initial cash consideration adjustment on prior year acquisitions	-	(0.1)
Contingent consideration paid and loan notes repaid in cash in relation to prior year acquisitions*	10.5	3.7
Net cash outflow relating to acquisitions (per Consolidated Cash Flow Statement)	232.8	67.0

*  The £10.5m comprises £0.1m loan notes and £10.4m contingent consideration paid in respect of prior period acquisitions all of which had been provided in the prior period's financial statements.

b) Invenio Systems Limited ('Invenio') and Enoveo SARL ('Enoveo')

	Total £m
Non-current assets
Intangible assets	2.1
Property, plant and equipment	0.3
Current assets
Trade and other receivables	1.1
Cash and cash equivalents	0.2
Total assets	3.7
Current liabilities
Trade and other payables	(0.6)
Non-current liabilities
Deferred tax	(0.4)
Total liabilities	(1.0)
Net assets of businesses acquired	2.7
Initial cash consideration paid	2.9
Additional amounts paid in respect of cash acquired	0.1
Additional amounts owed to vendors*	0.5
Contingent purchase consideration estimated to be paid	2.1
Total consideration	5.6
Goodwill arising on acquisitions	2.9

* Relates mainly to other receivables from third parties acquired which are due to the vendors under the terms of the sale and purchase agreement when these balances are received.

Invenio

The Group acquired the entire share capital of Invenio Systems Limited ('Invenio') on 2 July 2019 for an initial cash consideration of £2.8m adjustable for cash acquired. The adjustment was determined to be £0.1m.  The maximum contingent consideration payable is £3.0m.

The contingent purchase consideration recognised represents the estimated amount payable, based on profit-based targets, for each of the three annual earnout periods, commencing 1 April 2019.

Invenio, located in Durham, UK, is a market leader in customer-side leak detection, offering innovative, non-intrusive detection solutions for household leaks. Invenio has joined the Group as part of HWM, creating a global leader in leakage reduction within the Group's Environmental & Analysis sector.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by technology related intangibles of £1.3m and customer relationship intangibles of £0.4m; with residual goodwill arising of £2.5m. The goodwill represents:

a) the technical expertise of the acquired workforce;

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

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

Invenio contributed £1.0m of revenue for the year ended 31 March 2020.

Acquisition costs totalling £0.1m were recorded in the Consolidated Income Statement.

The goodwill arising on the acquisition is not expected to be deductible for tax purposes.

Enoveo

The Group also acquired the entire share capital of Enoveo on 1 July 2019 for an initial cash consideration of €0.2m (£0.1m). The maximum contingent consideration payable is €1.0m (£0.9m).

Enoveo, based in Lyon, France, provides services and monitoring tools for natural, urban or industrial aquatic environments. Enoveo has joined the Group as a bolt-on to Hydreka within the Environmental & Analysis sector.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by acquired intangibles of £0.4m, with residual goodwill arising of £0.4m.

There is no material impact on the Group's income statement for the year ended 31 March 2020 arising from the acquisition.

Acquisition costs totalling £0.1m were recorded in the Consolidated Income Statement.

The goodwill arising on the acquisition is not expected to be deductible for tax purposes.

c) Ampac Group

	Total £m
Non-current assets
Intangible assets	33.7
Property, plant and equipment	5.8
Deferred tax	0.4
Current assets
Inventories	7.4
Trade and other receivables	5.3
Cash and cash equivalents	6.6
Total assets	59.2
Current liabilities
Trade and other payables	(4.6)
Lease liabilities	(0.8)
Provisions	(0.1)
Corporation tax payable	(0.1)
Non-current liabilities
Lease liabilities	(5.2)
Provisions	(0.1)
Deferred tax	(10.4)
Total liabilities	(21.3)
Net assets of business acquired	37.9
Initial cash consideration paid	75.2
Additional amounts paid in respect of cash acquired	3.0
Total consideration	78.2
Goodwill arising on acquisition	40.3

On 15 July 2019, the Group acquired the Ampac group ('Ampac') for an initial cash consideration of A$135.0m (£75.2m), adjustable for cash acquired. The adjustment was determined to be A$5.4m (£3.0m). The acquisition comprised of the trade and assets of Ampac Technologies Pty Ltd, Ampac Distributors Pty Ltd and Ampac Pacific Ltd and the entire share capital of Ampac Europe Ltd and Cranford Controls Ltd.

Ampac, headquartered in Perth, Australia with offices in Australia, New Zealand and the UK is a leading fire and evacuation systems supplier in the Australian and New Zealand markets. The company continues to run under its own management team and has become part of the Group's Infrastructure Safety sector.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of £19.0m; trade name of £6.9m and technology related intangibles of £7.3m; with residual goodwill arising of £40.3m. The goodwill represents:

a)  the technical expertise of the acquired workforce;

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

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

Ampac contributed £24.3m of revenue and £4.6m of profit after tax for the year ended 31 March 2020.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £8.8m higher and £1.2m higher respectively.

Acquisition costs totalling £2.1m were recorded in the Consolidated Income Statement.

The goodwill arising on the Ampac acquisition is not expected to be deductible for tax purposes.

d) Infowave Solutions Inc. and certain trade and assets of Spreo LLC

	Total £m
Non-current assets
Intangible assets	3.4
Current assets
Trade and other receivables	0.5
Cash and cash equivalents	0.1
Total assets	4.0
Current liabilities
Trade and other payables	(1.1)
Non-current liabilities
Deferred tax	(0.4)
Total liabilities	(1.5)
Net assets of businesses acquired	2.5
Initial cash consideration paid	7.2
Contingent purchase consideration estimated to be paid	1.3
Total consideration	8.5
Goodwill arising on acquisitions	6.0

On 2 October 2019, the Group acquired the entire share capital of Infowave Solutions Inc. ('Infowave') for an initial cash consideration of US$8.3m (£6.8m). Maximum contingent purchase consideration payable is US$4.0m (£3.3m).

On 12 February 2020, the Group acquired certain trade and assets of Spreo LLC ('Spreo') for an initial cash consideration of US$0.5m (£0.4m). Maximum contingent consideration payable is US$5.0m (£3.8m).

Infowave, located in Indiana, USA, and certain trade and assets of Spreo have joined the Group as part of CenTrak within the Medical sector, complementing CenTrak's hardware capabilities with software, data and navigation capabilities.

The current contingent consideration payable represents, for Infowave the fair value of the estimated amounts payable for each of two annual consecutive earnout periods, commencing 1 April 2020, and for Spreo the fair value of the estimated amounts payable for each of three annual consecutive earnout periods, commencing 1 April 2020. The earnout in each period is calculated by reference to the relevant earnings for the period compared to the target for the period.

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 £1.2m; trade name of £0.4m and technology related intangibles of £1.8m; with residual goodwill arising of £6.0m. 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.

Infowave and Spreo contributed £1.4m of revenue and £0.6m of profit after tax for the year ended 31 March 2020.

If these acquisitions had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £2.2m higher and £0.5m higher respectively.

Acquisition costs totalling £0.2m were recorded in the Consolidated Income Statement.

The goodwill arising on these acquisitions is expected to be deductible for tax purposes.

e) Certain trade and assets of NeoMedix Corporation

	Total £m
Non-current assets
Intangible assets	10.6
Current assets
Inventories	0.8
Total assets	11.4
Non-current liabilities
Deferred tax	(0.2)
Total liabilities	(0.2)
Net assets of business acquired	11.2
Initial cash consideration paid	6.5
Amounts owed to vendor*	0.5
Contingent purchase consideration estimated to be paid	9.4
Total consideration	16.4
Goodwill arising on acquisition	5.2

* Relates to additional payments to the vendor under the contractual arrangements in the sale and purchase agreement.

On 4 October 2019, the Group acquired certain trade and assets of NeoMedix Corporation ('NeoMedix') for an initial cash consideration of US$8.0m (£6.5m). Maximum contingent consideration payable is US$17.0m (£14.0m).

The current contingent consideration payable represents the fair value of the estimated amounts payable for each of three annual consecutive earnout periods, commencing on the acquisition date. The earnout in each period is calculated by reference to the relevant revenue for the period compared to the target for the period, with the third earnout period only effective if the earnout for periods one and two exceed US$12.0m.

The glaucoma-related business and assets of NeoMedix were acquired by MicroSurgical Technology within the Medical sector to enhance the Company's offering in this area of expertise.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by technology related intangibles of £10.6m; with residual goodwill arising of £5.2m. The goodwill represents the ability to exploit the Group's existing customer base.

NeoMedix contributed £1.2m of revenue for the year ended 31 March 2020.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue would have been £1.4m higher.

Acquisition costs totalling £0.1m were recorded in the Consolidated Income Statement.

The goodwill arising on this acquisition is expected to be deductible for tax purposes.

f) FireMate Software Pty. Ltd.

	Total £m
Non-current assets
Intangible assets	2.8
Property, plant and equipment	0.1
Current assets
Cash and cash equivalents	0.6
Total assets	3.5
Current liabilities
Trade and other payables	(0.4)
Non-current liabilities
Deferred tax	(0.8)
Total liabilities	(1.2)
Net assets of business acquired	2.3
Non-controlling interest	0.7
Initial cash consideration paid	6.3
Contingent purchase consideration estimated to be paid	2.6
Total consideration	8.9
Goodwill arising on acquisition	5.9

On 13 January 2020, the Group acquired 70% of the share capital of FireMate Software Pty. Ltd. ('FireMate') for an initial cash consideration of A$11.8m (£6.3m). Maximum contingent consideration payable is A$6.4m (£3.3m). There is also an option for the Group to purchase the remaining 30% of FireMate, exercisable in the six months from 31 March 2025 based on a multiple of EBIT for the financial year ending 31 March 2025.

The current contingent consideration payable represents the fair value of the estimated amounts payable based on performance to 30 June 2022. The earnout is calculated by reference to the relevant monthly subscription revenue for the period compared to the target.

FireMate, located in Brisbane, Australia, provides cloud-based fire protection management software to fire contractors and will further strengthen the Group's capabilities in connected and integrated fire systems internationally. The company will continue to run under its own management team and will become part of the Group's Infrastructure Safety sector.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of 1.7m; trade name of £0.4m and technology related intangibles of £0.7m; with residual goodwill arising of £5.9m.

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.

There is no material impact on the Group's income statement for the year ended 31 March 2020 arising from this acquisition.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue would have been £1.3m higher.

Acquisition costs totalling £0.2m were recorded in the Consolidated Income Statement.

The goodwill arising on this acquisition is not expected to be deductible for tax purposes.

g) NovaBone Products, LLC

	Total £m
Non-current assets
Intangible assets	35.6
Investments	0.4
Property, plant and equipment	1.9
Current assets
Inventories	3.2
Trade and other receivables	2.4
Cash and cash equivalents	0.1
Total assets	43.6
Current liabilities
Trade and other payables	(1.2)
Lease liabilities	(0.1)
Non-current liabilities
Lease liabilities	(0.1)
Deferred tax	(0.6)
Total liabilities	(2.0)
Net assets of business acquired	41.6
Initial cash consideration paid	73.6
Amounts owed to vendor*	0.4
Contingent purchase consideration estimated to be paid	10.4
Total consideration	84.4
Goodwill arising on acquisition	42.8

*  In respect of an investment held on acquisition of £0.4m, sold in March 2020 and repaid to vendors in April 2020.

On 24 January 2020, the Group acquired the entire members' interests of NovaBone Products, LLC ('NovaBone') for an

initial cash consideration of US$96.5m (£73.6m). The initial cash consideration comprised the purchase price of US$97.0m (£74.0m) plus the purchase of freehold property of US$1.7m (£1.3m) less working capital adjustments of US$0.5m (£0.4m) and US$1.7m (£1.3m) held as holdback amounts in place of escrow balances. Maximum contingent consideration payable is US$40.0m (£30.5m) plus the holdback amounts.

The current contingent consideration payable (excluding holdback amounts) represents the fair value of the estimated amounts payable for each of two annual consecutive earnout periods, commencing 1 April 2020. The earnout in each period is calculated by reference to the relevant earnings for the period compared to the target for the period.

NovaBone, located in Florida, USA, produces products that are used to accelerate bone regeneration, primarily for orthopaedic and dental surgical procedures in the USA. It has strong technology and knowhow within the fast-growing biologics segment, developing biomaterials that harness the body's natural healing process to accelerate bone growth. The company continues to run under its own management team and has become part of the Group's Medical sector.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of 8.9m; trade name of £3.0m and technology related intangibles of £23.7m; with residual goodwill arising of £42.8m. 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.

NovaBone contributed £2.3m of revenue and £0.5m of profit after tax for the year ended 31 March 2020.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £12.3m higher and £3.1m higher respectively.

Acquisition costs totalling £1.7m were recorded in the Consolidated Income Statement.

The goodwill arising on this acquisition is expected to be deductible for tax purposes.

h) Sensit Technologies, LLC

	Total £m
Non-current assets
Intangible assets	18.3
Property, plant and equipment	2.2
Current assets
Inventories	4.4
Trade and other receivables	2.0
Cash and cash equivalents	0.4
Total assets	27.3
Current liabilities
Trade and other payables	(1.6)
Lease liabilities	(0.2)
Provisions	(0.1)
Non-current liabilities
Lease liabilities	(0.8)
Deferred tax	(0.5)
Total liabilities	(3.2)
Net assets of business acquired	24.1
Initial cash consideration paid	39.2
Total consideration	39.2
Goodwill arising on acquisition	15.1

On 4 February 2020, the Group acquired the entire members' interests of Sensit Technologies, LLC ('Sensit') for an initial cash consideration of US$51.5m (£39.2m). There is no contingent consideration.

Sensit, located in Indiana, USA, manufactures products that enable natural gas utilities to detect leaks in their pipes, reducing climate change effects by minimising emissions of methane, protecting workers in the natural gas distribution industry, and ensuring compliance with regulatory standards. Its technologies are also used in emergency response situations by firefighters entering burning buildings to ensure that they do not face explosion risk due to leaking natural gas. The company continues to run under its own management team and has become part of the Group's Process Safety sector.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of 6.6m; trade name of £2.9m and technology related intangibles of £8.5m; with residual goodwill arising of £15.1m.

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.

Sensit contributed £3.9m of revenue and £0.5m of profit after tax for the year ended 31 March 2020.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £14.5m higher and £1.6m higher respectively.

Acquisition costs totalling £0.7m were recorded in the Consolidated Income Statement.

The goodwill arising on this acquisition is expected to be deductible for tax purposes.

i) Maxtec, LLC

	Total £m
Non-current assets
Intangible assets	7.8
Property, plant and equipment	2.1
Current assets
Inventories	2.3
Trade and other receivables	1.9
Total assets	14.1
Current liabilities
Trade and other payables	(1.9)
Lease liabilities	(0.2)
Provisions	(0.1)
Non-current liabilities
Lease liabilities	(0.8)
Deferred tax	(0.1)
Total liabilities	(3.1)
Net assets of business acquired	11.0
Initial cash consideration paid	15.3
Total consideration	15.3
Goodwill arising on acquisition	4.3

On 20 February 2020, the Group acquired the entire members' interests of Maxtec, LLC ('Maxtec') for an initial cash consideration of US$20.0m (£15.3m). There is no contingent consideration payable.

Maxtec, located in Utah, USA, is a leader in the design, manufacture and distribution of oxygen analysis and delivery products for use in medical and non-medical applications. Maxtec specialises in innovative products for respiratory care, including oxygen sensors and analysers for use in hospital acute care units. Maxtec has joined Perma Pure within the Medical sector, whose medical dehydration products are also used in acute care units. Key members of Maxtec's leadership team remain with the business and it continues to operate in its current facility.

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 3.7m; trade name of £1.5m and technology related intangibles of £2.5m; with residual goodwill arising of £4.3m.

The goodwill represents:

a) the technical expertise of the acquired workforce;

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

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

Maxtec contributed £2.1m of revenue and £0.3m of profit after tax for the year ended 31 March 2020.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £12.7m higher and £0.7m higher respectively.

Acquisition costs totalling £0.3m were recorded in the Consolidated Income Statement.

The goodwill arising on this acquisition is expected to be deductible for tax purposes.

j) Adjustments in respect of prior year acquisitions

	Total £m
Non-current liabilities
Deferred tax	(0.4)
Total liabilities	(0.4)
Net adjustments to assets of businesses acquired in prior years	(0.4)
Adjustment to goodwill	0.4

In finalising the acquisition accounting for the prior year acquisition of Navtech, adjustments of £0.4m were made to increase the deferred tax liability resulting in a corresponding increase in goodwill of £0.4m.

The adjustment was not material and as such the comparative balance sheet was not restated; instead the adjustments have been made through the current year.

10 Notes to the Consolidated Cash Flow Statement

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Reconciliation of profit from operations to net cash inflow from operating activities:
Profit on continuing operations before finance income and expense, share of results of associate and loss on disposal of operations	233.4	217.8
Financial instruments at fair value through profit or loss	0.1	(0.1)
Depreciation of property, plant and equipment	35.8	20.0
Amortisation of computer software	2.2	1.8
Amortisation of capitalised development costs and other intangibles	8.4	8.8
Impairment of capitalised development costs	5.2	0.7
Amortisation of acquired intangible assets	38.3	35.6
Share-based payment expense in excess of amounts paid	4.8	4.7
Payments to defined benefit pension plans, net of charge	(12.5)	(9.3)
Profit on sale of property, plant and equipment and computer software	(0.1)	(0.6)
Operating cash flows before movement in working capital	315.6	279.4
Increase in inventories	(5.1)	(9.2)
Increase in receivables	(9.0)	(15.3)
Increase in payables and provisions	8.9	8.2
Revision to estimate of, and exchange differences arising on, contingent consideration payable	(2.5)	(3.5)
Cash generated from operations	307.9	259.6
Taxation paid	(52.4)	(40.6)
Net cash inflow from operating activities	255.5	219.0

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Analysis of cash and cash equivalents
Cash and bank balances	106.3	81.2
Overdrafts (included in current borrowings)	(0.9)	(9.1)
Cash and cash equivalents	105.4	72.1

	1 April 2019 £m	Restatement for changes in accounting standards IFRS 16 £m	Restated as at 1 April 2019 £m	Cash flow £m	Net cash/ (debt) acquired £m	Loan notes  repaid £m	Reclassification and additions £m	Exchange  adjustments £m	31 March 2020 £m
Analysis of net debt
Cash and bank balances	81.2	-	81.2	16.6	8.0	-	-	0.5	106.3
Overdrafts	(9.1)	-	(9.1)	8.2	-	-	-	-	(0.9)
Cash and cash equivalents	72.1	-	72.1	24.8	8.0	-	-	0.5	105.4
Loan notes falling due within one year	(0.1)	-	(0.1)	-	-	0.1	(74.2)	-	(74.2)
Loan notes falling due after more than one year	(179.3)	-	(179.3)	-	-	-	74.2	(3.5)	(108.6)
Bank loans falling due after more than one year	(74.4)	-	(74.4)	(156.4)	-	-	-	(5.6)	(236.4)
Lease liabilities	-	(50.3)	(50.3)	15.8	(8.2)	-	(18.1)	(0.7)	(61.5)
Total net debt	(181.7)	(50.3)	(232.0)	(115.8)	(0.2)	0.1	(18.1)	(9.3)	(375.3)

The net increase in cash and cash equivalents of £32.8m comprised cash inflow of £24.8m and cash acquired of £8.0m.

The net cash inflow from bank loans of £156.4m comprised drawdowns of £308.1m offset by repayments of £151.7m.

The net cash outflow from loan notes relates to £0.1m repayment of existing loan notes issued in relation to the previous acquisition of Advanced Electronics Limited.

Reconciliation of movements of the Group's liabilities from financing activities

Liabilities from financing activities are those for which cash flows were, or will be, classified as cash flows from financing activities in the Consolidated Cash Flow Statement.

	1 April 2019 £m	Restatement for changes in accounting standards IFRS 16 £m	Changes from  financing cash flows £m	Acquisition of subsidiaries £m	Other changes* £m	Effects of foreign exchange £m	31 March 2020 £m
Loan notes falling due within one year	0.1	-	(0.1)	-	74.2	-	74.2
Overdraft	9.1	-	-	-	(8.2)	-	0.9
Lease liabilities	-	10.7	(15.8)	1.3	16.8	-	13.0
Borrowings and lease liabilities (current)	9.2	10.7	(15.9)	1.3	82.8	-	88.1
Loan notes falling due after more than one year	179.3	-	-	-	(74.2)	3.5	108.6
Bank loans falling due after more than one year	74.4	-	156.4	-	-	5.6	236.4
Lease liabilities	-	39.6	-	6.9	1.3	0.7	48.5
Borrowings and lease liabilities (non-current)	253.7	39.6	156.4	6.9	(72.9)	9.8	393.5
Total liabilities from financing activities	262.9	50.3	140.5	8.2	9.9	9.8	481.6
Trade and other payables: falling due within one year	164.8	-	(9.0)	11.4	19.0	0.5	186.7

*  Other changes include movements in overdraft which is treated as cash, interest accruals, reclassifications from non-current to current liabilities and other movements in working capital balances.

 

11 Disposal of operations

In January 2020, following its IPO, the Group disposed of its entire interest in Optomed Oy to third parties for proceeds of €8.6m (£7.2m). This transaction resulted in the recognition of a gain in the Consolidated Income Statement as follows:

	£m
Proceeds of disposal	7.2
Less: carrying amount of investment on disposal	(3.8)
Less: costs of disposal	(0.4)
Less: foreign exchange loss recycled to income statement on disposal	(0.1)
Profit on disposal	2.9

Cash received on disposal of operations in the year of £7.6m comprised of proceeds from the sale of Optomed Oy of £7.2m, less £0.4m of disposal costs, plus £0.8m received from escrow relating to the sale of Accudynamics in the prior year. 

In the prior year, on 30 June 2018, the Group sold the trade and assets of Accudynamics Inc, part of the Fluid Technology CGU group, for sale proceeds of £4.2m less disposal costs of £0.3m, of which £3.1m was received during the prior year, and £0.8m in the current year. The net assets on disposal were £4.4m comprising plant and equipment, inventory and trade receivables and payables, which together with the disposal of related goodwill of £0.8m and disposal costs of £0.3m, offset by the recycling of foreign exchange gains of £0.3m, resulted in a net loss on disposal (before taxation) of £1.0m.

12 Contingent liabilities

Group financing exemptions applicable to UK controlled foreign companies

As previously reported, on 24 November 2017 the European Commission published an opening decision that the United Kingdom controlled foreign company ("CFC") group financing partial exemption ("FCPE") constitutes State Aid. On 2 April 2019, the European Commission's final decision concluded that the FCPE rules, as they applied up to 31 December 2018, constitute State Aid. On 12 June 2019, the UK government applied to annul the EC decision. The Group's application to annul the EC decision on the CFC FCPE was registered in the General Court on 9 September 2019 and has been stayed pending the outcome of the UK government's appeal. The Group has benefitted from the FCPE and the total benefit to date at 31 March 2020 was approximately £15.4m (2019: £15.4m) in respect of tax and approximately £1.2m (31 March 2019: £0.6m) in respect of interest. Based on its current assessment, the Group believes no provision is required at this time.

Other contingent liabilities

The Group has widespread global operations and is consequently a defendant in many legal, tax and customs proceedings incidental to those operations. In addition, there are contingent liabilities arising in the normal course of business in respect of indemnities, warranties and guarantees. These contingent liabilities are not considered to be unusual in the context of the normal operating activities of the Group. Provisions have been recognised in accordance with the Group accounting policies where required. None of these claims are expected to result in a material gain or loss to the Group.

13 Events subsequent to end of reporting period

There were no known material non-adjusting events which occurred between the end of the reporting period and prior to the authorisation of these financial statements on 14 July 2020.

14 Related party transactions

Trading transactions

	Year ended 31 March 2020 £m	Year ended 31 March 2019 £m
Associated companies
Transactions with associated companies
Purchases from associated companies	1.0	1.3
Balances with associated companies
Amounts due to associated companies	-	0.2
Other related parties
Balances with other related parties
Amounts due to other related parties	-	-

All the transactions above are on an arm's length basis and on standard business terms.

Remuneration of key management personnel

The remuneration of the Directors and Executive Board members, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. Further information about the remuneration of individual Directors is provided in the audited part of the Remuneration Report in the Annual Report and Accounts.

	Year ended 31 March  2020 £m	Year ended 31 March  2019 £m
Wages and salaries	7.8	6.8
Pension costs	0.2	0.2
Share-based payment charge	4.3	3.3
	12.3	10.3

Cautionary note

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

LEI number: 2138007FRGLUR9KGBT40

 

END

 

 

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