Interim Results

Halma PLC 07 December 2004 HALMA p.l.c. INTERIM RESULTS FOR THE HALF YEAR TO 2 OCTOBER 2004 7 DECEMBER 2004 Halma, the leading safety and environmental technology group, today announced its interim results for the half year to 2 October 2004. Highlights include: • Pre-tax profit* increased to £24.6m (2003: £24.4m) • Margins remained strong with ROCE** reaching its highest ever level at 65% • The Group remains ungeared and strongly cash generative despite funding two significant acquisitions from its own resources • Acquisitions of Ocean Optics and Diba Industries living up fully to the Board's expectations • Progressive dividend policy maintained with 6% growth * before goodwill amortisation of £2.7m (2003: £2.1m) ** ROCE (Return on Capital Employed) is defined as the annualised profit before taxation* expressed as a % of net tangible assets Commenting on the results, Stephen O'Shea, Chief Executive of Halma, said: 'There are some excellent features of the Group's performance over the last six months including underlying sales growth in our ongoing businesses, two valuable acquisitions, continued high profitability and good cash flow. Whilst we grew profits less than we had hoped in the first half, we expect the full year to be within the range of the Board's expectations. 'We have strengthened the Group's businesses and there are opportunities for volume growth. Currency translation would have had less impact on profits in the second half than the first, however the US Dollar is currently weakening further. Our people are committed to consistent growth in sales and profits and are finding routes to achieve these goals.' For further information, please contact: Halma p.l.c. Stephen O'Shea, Chief Executive +44 (0)1494 721111 Kevin Thompson, Finance Director +44 (0)1494 721111 Hogarth Partnership Limited Rachel Hirst/Andrew Jaques +44 (0)20 7357 9477 A copy of this announcement, together with other information about Halma, may be viewed on its website: www.halma.com. A copy of the Interim Report will be sent to shareholders and will be available to the general public on written request to the Company's registered office at: Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE. PHOTOGRAPHS High resolution photos of Halma senior management, including Chief Executive Stephen O'Shea, and images illustrating Halma business activities can be downloaded from its website: www.halma.com. Click on the 'News' link, then 'Image Library'. Photo queries: David Waller +44 (0)20 8205 0038, e-mail: dwaller@halmapr.com NOTE TO EDITORS Halma develops products used worldwide to enhance safety and to minimise hazards. The Group comprises six business sectors: • Fire and Gas detection • Water leak detection and UV treatment • Elevator and Door Safety • Bursting discs and sequential locking for Process Safety • High power electrical Resistors • Optics and Specialist technology The key characteristics of Halma's businesses are that they are based on advanced technology and offer strong growth potential. Each business group is a clear market leader in its specialist field and, in a number of cases, is the dominant world supplier. HALMA p.l.c. Interim Results for the 26 weeks to 2 October 2004 Financial Highlights Turnover - 2% to £144.1 million Overseas sales + 1% to £104.6 million Profit before taxation (1) + 1% to £ 24.6 million Earnings per share (2) + 1% to 4.59p Earnings per share - statutory - 2% to 3.91p Dividend per share + 6% to 2.58p Return on sales (3) 17.1% Return on capital employed (4) 65.1% (1) Before goodwill amortisation of £2,667,000 (2003: £2,116,000). (2) Before goodwill amortisation of 0.68p (2003: 0.53p) per share. (3) Return on sales is defined as profit before taxation(1) expressed as a % of turnover. (4) Return on capital employed is defined as the annualised profit before taxation(1) expressed as a % of net tangible assets. Financial Overview For the first half of this financial year, we earned profits before tax of a record £24.6m marginally ahead of last year's £24.4m and earnings per share were up 1% at 4.59p. Both figures are before goodwill amortisation*. Turnover was down 2% at £144.1m however adjusting for currency, disposals and acquisition impacts we did make organic growth of around 3%. Return on capital employed* reached its highest ever level of 65%, allowing us to self-fund two excellent acquisitions - Ocean Optics and Diba - and still remain debt free. *see Financial Highlights Chairman's Review Geoff Unwin, Chairman of Halma, said: 'In line with our progressive dividend policy, the interim dividend will amount to 2.58 pence per share an increase of 6% and will be paid on 8 February 2005 to shareholders on the register at 7 January 2005. 'We are making significant progress within the Group in terms of developing our management, improving our sales effectiveness and creating a stream of new product innovations, all of which add to the strength and resilience of the Group.' Chief Executive's Review Stephen O'Shea, Chief Executive of Halma, said: Summary 'There are some excellent features of the Group's performance over the last six months including underlying sales growth in our ongoing businesses, two valuable acquisitions, continued high profitability and good cash flow. 'Five of our six sectors grew in local currency terms but the weakness of the US Dollar affected both sales and profits when translated into Sterling. Our sales to the Far East grew at the fastest rate and we also demonstrated increased sales in Europe, the UK and the Middle East. The growth is based primarily on new products either developed in-house or obtained by acquisition. Continued strong ratios 'The management of our input costs and our productivity resulted in us succeeding in reaching a return on sales of 17.1% and return on capital employed* of 65%. This is a strong performance even though we would be willing to accept a return to more typical ratios as a route to greater growth. We completed the half year, having paid £22 million for two acquisitions and a record £14 million dividend, with net cash in the Group. Process development 'We are determined to deliver a regular pattern of growth. Ultimately this is based on the development of our people and improvement in our processes. Sales process reviews have been completed right across the Group and opportunities for improvement have been found. We have been working to secure the transfer of best practice wherever it is found in the Group. Sectoral development 'The strong growth in Optics and Specialist is a combination of three factors. The sale of under-performing companies during the prior financial year, growth of existing companies and two strong acquisitions all contributed. These acquisitions will contribute more in the second half. 'Our Water sector sales were 14% lower than in the first half of the prior year as this sector, in common with the Elevator and Door Safety sector, experienced delays in municipal contracts in the USA. Resistors, who have been having a difficult time, are working hard on improvement but is the sector most affected by the substantial rises in stainless steel prices. Focus on sales 'Much of our growth has come and, in the future, will come from retaining our typical ratios and increasing turnover. We have been moving resource from other areas into strengthening our selling teams. We are creating new and better products to help them with their task. This also opens up new territories for us to attack. Once again we spent 4% of our sales on research and development. The work we have been doing for some time to help US subsidiaries to export shows up in an increase, in US Dollar terms, of 21% in sales for US companies whilst sales into customers in the USA rose 12%. Outlook 'Whilst we grew profits less than we had hoped in the first half, we expect the full year to be within the range of the Board's expectations. 'We have strengthened the Group's businesses and there are opportunities for volume growth. Currency translation would have had less impact on profits in the second half than the first, however the US Dollar is currently weakening further. Our people are committed to consistent growth in sales and profits and are finding routes to achieve these goals.' *see Financial Highlights Interim Results for the 26 weeks to 2 October 2004 Consolidated Profit and Loss Account £000 Unaudited Unaudited Audited 26 weeks to 2 October 2004 27 weeks to 4 October 2003 Before Before 53 weeks to goodwill Goodwill goodwill Goodwill 3 April 2004 amortisation amortisation Total amortisation amortisation Total Total Turnover Continuing operations 135,138 - 135,138 139,775 - 139,775 279,611 Acquisitions 8,991 - 8,991 - - - - _______ _______ _______ _______ _______ _______ _______ Ongoing operations 144,129 - 144,129 139,775 - 139,775 279,611 Discontinued operations - - - 7,125 - 7,125 13,029 _______ _______ _______ _______ _______ _______ _______ 144,129 - 144,129 146,900 - 146,900 292,640 ======= ======= ======= ======= ======= ======= ======= Operating profit Continuing operations 22,769 (2,156) 20,613 24,563 (2,110) 22,453 46,213 Acquisitions 1,734 (511) 1,223 - - - - _______ _______ _______ _______ _______ _______ _______ Ongoing operations 24,503 (2,667) 21,836 24,563 (2,110) 22,453 46,213 Discontinued operations - - - (129) (6) (135) (381) 24,503 (2,667) 21,836 24,434 (2,116) 22,318 45,832 Loss on disposal of - - - - - - (9,149) discontinued operations Profit on ordinary activities before interest and taxation 24,503 (2,667) 21,836 24,434 (2,116) 22,318 36,683 Interest 115 - 115 15 - 15 232 _______ _______ _______ _______ _______ _______ _______ Profit on ordinary activities before taxation 24,618 (2,667) 21,951 24,449 (2,116) 22,333 36,915 Taxation (note 3) (7,757) 187 (7,570) (7,876) 165 (7,711) (14,593) _______ _______ _______ _______ _______ _______ _______ Profit for the financial period 16,861 (2,480) 14,381 16,573 (1,951) 14,622 22,322 _______ _______ _______ _______ _______ _______ _______ Ordinary dividends (9,559) (8,963) (22,725) _______ _______ _______ Profit/(loss) transferred to reserves 4,822 5,659 (403) ======= ======= ======= Ordinary dividend per share 2.58p 2.44p 6.19p Earnings per ordinary share before goodwill amortisation and exceptional items (note 4) 4.59p 4.53p 9.44p Earnings per ordinary share (note 4) 3.91p 4.00p 6.09p Diluted earnings per ordinary share 3.91p 3.99p 6.09p Consolidated Balance Sheet £000 Unaudited Unaudited Audited 2 October 4 October 3 April 2004 2003 2004 Fixed assets Intangible assets (note 2) 98,356 73,996 71,425 Tangible assets 48,325 50,267 47,139 _______ _______ _______ 146,681 124,263 118,564 _______ _______ _______ Current Assets Stocks 37,080 36,947 31,208 Debtors 67,652 64,913 67,080 Short-term deposits 20,405 22,417 33,898 Cash 10,090 16,244 14,584 _______ _______ _______ 135,227 140,521 146,770 _______ _______ _______ Creditors: amounts falling due within one year Borrowings 28,307 29,485 26,934 Creditors 49,905 43,217 44,394 Current taxation 6,224 6,923 5,563 Dividends payable 9,511 8,945 13,762 _______ _______ _______ 93,947 88,570 90,653 _______ _______ _______ Net current assets 41,280 51,951 56,117 _______ _______ _______ Total assets less current liabilities 187,961 176,214 174,681 Creditors: amounts falling due after one year 6,776 496 1,254 Provisions for liabilities and charges 7,202 6,150 6,067 _______ _______ _______ 173,983 169,568 167,360 ======= ======= ======= Capital and reserves Called up share capital 36,848 36,659 36,677 Share premium account 9,724 7,558 7,768 Capital redemption reserve 185 185 185 Profit and loss account 127,226 125,166 122,730 _______ _______ _______ Equity shareholders' funds (note 5) 173,983 169,568 167,360 ======= ======= ======= Consolidated Cash Flow Statement £000 Unaudited Unaudited Audited 26 weeks to 27 weeks to 53 weeks to 2 October 4 October 3 April 2004 2003 2004 Cash flow from operating activities (note 6) 26,778 31,779 59,782 _______ _______ _______ Return on investments and servicing of finance Interest received 594 407 952 Interest paid (338) (410) (731) _______ _______ _______ 256 (3) 221 Taxation Current taxation paid (6,083) (5,575) (14,093) Capital expenditure Purchase of tangible fixed assets (4,037) (5,856) (9,686) Sale of tangible fixed assets 182 731 1,004 _______ _______ _______ (3,855) (5,125) (8,682) Acquisitions and disposals Acquisition of businesses (24,319) (1,478) (2,947) Cash and overdrafts acquired 1,490 - - Disposal of businesses (512) - 4,567 _______ _______ _______ (23,341) (1,478) 1,620 Equity dividends paid (13,810) (12,910) (21,855) _______ _______ _______ (20,055) 6,688 16,993 Management of liquid resources Decrease/(increase) in short-term deposits 13,733 (8,114) (19,662) Financing Issue of ordinary share capital 2,127 1,293 1,521 (Decrease)/increase in loans (589) 2,683 2,683 _______ _______ _______ 1,538 3,976 4,204 _______ _______ _______ (Decrease)/increase in cash (note 6) (4,784) 2,550 1,535 ======= ======= ======= Segmental Analysis £000 Geographical analysis By destination By origin Unaudited Unaudited Unaudited Unaudited 26 weeks to 27 weeks to 26 weeks to 27 weeks to 2 October 4 October 2 October 4 October 2004 2003 2004 2003 Turnover United Kingdom 39,544 38,591 77,805 78,590 United States of America 43,750 43,723 49,211 45,298 Europe excluding UK 34,698 34,139 20,354 22,205 Far East and Australasia 16,085 13,871 7,204 7,336 Africa, Near and Middle East 4,989 4,740 - - Other 5,063 4,711 1,665 1,420 Inter-segmental sales - - (12,110) (15,074) _______ _______ _______ _______ Turnover from ongoing operations 144,129 139,775 144,129 139,775 Discontinued operations - 7,125 - 7,125 _______ _______ _______ _______ Group turnover 144,129 146,900 144,129 146,900 ======= ======= ======= ======= Profit before taxation United Kingdom 13,140 12,660 United States of America 6,561 7,045 Europe excluding UK 3,065 3,258 Other countries 1,737 1,600 _______ _______ Ongoing operations 24,503 24,563 Discontinued operations - (129) _______ _______ Segmental profit 24,503 24,434 Goodwill amortisation (2,667) (2,116) Interest 115 15 _______ _______ Profit on ordinary activities before taxation 21,951 22,333 ======= ======= Sector analysis Unaudited Unaudited 26 weeks to 27 weeks to 2 October 4 October 2004 2003 Turnover Fire and Gas 37,258 37,008 Water 14,785 17,129 Elevator and Door Safety 30,728 32,785 Process Safety 17,501 18,064 Resistors 13,384 14,097 Optics and Specialist 30,915 21,230 Inter-segmental sales (442) (538) _______ _______ Ongoing operations 144,129 139,775 Discontinued operations - 7,125 _______ _______ Group turnover 144,129 146,900 ======= ======= Notes on the Interim Report 1 Basis of preparation The interim report for the 26 weeks to 2 October 2004 is prepared on the basis of the accounting policies set out in the accounts for the 53 weeks to 3 April 2004. The figures shown for the 53 weeks to 3 April 2004 are an abridged version of the Group's statutory accounts for that period, which received an unqualified audit report and have been filed with the Registrar of Companies. 2 Intangible assets Goodwill arising on acquisitions after 28 March 1998 is capitalised and is classified as an intangible asset in the Consolidated Balance Sheet. Goodwill arising on acquisitions prior to that date was written off to reserves, and would be included in the determination of profit or loss arising from the sale or closure of the business to which it relates. Capitalised goodwill is amortised through the Consolidated Profit and Loss Account on a straight line basis over its estimated economic life of 20 years. 3 Taxation The tax charge for the 26 weeks to 2 October 2004 of £7,570,000 (2003: £7,711,000) comprises a current taxation charge of £7,315,000 (2003: £7,224,000) and a deferred tax charge of £255,000 (2003: £487,000). The current taxation charge is based on the estimated effective tax rate for the year. The tax charge includes £3,607,000 (2003: £4,159,000) in respect of overseas tax. 4 Earnings per ordinary share Earnings per ordinary share on a statutory basis are calculated by dividing the profit for the period of £14,381,000 (2003: £14,622,000) by the weighted average of 367,669,622 (2003: 365,863,585) shares in issue during the period. Earnings per ordinary share before goodwill amortisation and exceptional items as presented on the Consolidated Profit and Loss Account, represents a more consistent measure of underlying performance. A reconciliation of earnings and the effect on per share figures is presented below: Per ordinary share Unaudited Unaudited Unaudited Unaudited 26 weeks to 27 weeks to 26 weeks to 27 weeks to 2 October 4 October 2 October 4 October 2004 2003 2004 2003 £000 £000 p p Earnings 14,381 14,622 3.91 4.00 Add back: goodwill amortisation (after tax) 2,480 1,951 0.68 0.53 _______ _______ _______ _______ Earnings before goodwill amortisation 16,861 16,573 4.59 4.53 _______ _______ _______ _______ 5 Reconciliation of equity shareholders' funds £000 Unaudited Unaudited Audited 26 weeks to 27 weeks to 53 weeks to 2 October 4 October 3 April 2004 2003 2004 Equity shareholders' funds brought forward 167,360 163,446 163,446 Profit transferred to reserves 4,822 5,659 (403) Goodwill transferred to profit and loss account - - 5,595 Net proceeds of shares issued 2,127 1,293 1,521 Exchange adjustments (326) (830) (2,799) _______ _______ _______ Equity shareholders' funds carried forward 173,983 169,568 167,360 _______ _______ _______ 6 Notes on consolidated cash flow statement £000 Unaudited Unaudited Audited 26 weeks to 27 weeks to 53 weeks to 2 October 4 October 3 April 2004 2003 2004 Reconciliation of operating profit to net cash inflow from operating activities Operating profit 21,836 22,318 45,832 Depreciation 3,862 4,105 7,879 Goodwill amortisation 2,667 2,116 4,220 Loss on sale of tangible fixed assets 70 74 109 Decrease in SSAP 24 pension prepayment 14 62 112 Property sale receivable - 1,100 1,100 (Increase)/decrease in stocks (1,907) (2,310) 744 Decrease/(increase) in debtors 3,743 6,113 (1,404) Increase/(decrease) in creditors (3,507) (1,799) 1,190 _______ _______ _______ Net cash inflow from operating activities 26,778 31,779 59,782 _______ _______ _______ Reconciliation of net cash flow to movement in net cash/(debt) (Decrease)/increase in cash (4,784) 2,550 1,535 (Decrease)/increase in liquid resources (13,733) 8,114 19,662 Loans acquired (1,125) - - Cash outflow/(inflow) from loans 589 (2,683) (2,683) Exchange adjustments (307) 1,288 3,127 _______ _______ _______ (19,360) 9,269 21,641 Net cash/(debt) brought forward 21,548 (93) (93) _______ _______ _______ Net cash carried forward 2,188 9,176 21,548 _______ _______ _______ This information is provided by RNS The company news service from the London Stock Exchange

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