Final Results
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HALMA plc
PRELIMINARY RESULTS FOR THE 52 WEEKS TO 31 MARCH 2012
14 JUNE 2012
Record results and continued dividend growth
Halma, the leading safety, health and environmental technology group, today announces its preliminary results for the 52 weeks to 31 March 2012. |
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Highlights include: |
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Pre-tax profit(1) from continuing operations up 15% to £120.5m (2011: £104.6m) on revenue up 12% at £579.9m (2011: £518.4m). |
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Organic growth(2) at constant currency: Profit up 5%, Revenue up 6%. |
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High and increased level of returns achieved, Return on Sales(3) of 20.8% (2011: 20.2%), Return on Total Invested Capital(2) of 16.8% (2011: 15.5%) and Return on Capital Employed(2) of 74.7% (2011: 71.9%).
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Strong revenue growth in developed regions, with UK up 18%, Europe up 12% and US up 8%. Revenue from markets in the rest of the world up 11% including 25% growth in China.
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All three sectors reported increased revenue and profit, with particularly strong performances in Health and Analysis and Industrial Safety. |
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Adjusted earnings per share(4) from continuing operations up 19% to 24.46p (2011: 20.49p). Statutory earnings per share up 20% to 23.01p (2011: 19.23p).
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A final dividend of 5.95p per share, making a record total dividend of 9.74p per share for the year. The increase of 7% marks the 33rd consecutive year of dividend increases of 5% or more.
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Two acquisitions and one disposal completed during the year with three further acquisitions completed since the year end.
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Good cash generation resulting in year-end net debt of £18.7m (2011: £37.1m). Strong balance sheet with borrowing facilities of £260m in place until 2016 providing significant financial capacity for further organic growth and value adding acquisitions.
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Andrew Williams, Chief Executive of Halma, commented: |
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(2) |
Organic growth rates, Return on Total Invested Capital (ROTIC) and Return on Capital Employed (ROCE) are
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Return on Sales is defined as adjusted(1) profit before taxation from continuing operations expressed as a percentage
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(4) |
Adjusted to remove the amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration, profit on disposal of continuing operations and the associated tax. See note 6 to the Preliminary Announcement. |
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For further information, please contact:
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Halma plc Andrew Williams, Chief Executive Kevin Thompson, Finance Director
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+44 (0)1494 721111 |
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MHP Communications |
+44 (0)20 3128 8100 |
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A copy of this announcement, together with other information about Halma, may be viewed on its website: www.halma.com. |
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NOTE TO EDITORS |
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1. |
Halma develops and markets products used worldwide to protect life and improve the quality of life. The Group comprises three business sectors: |
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● Health and Analysis |
Products used to improve personal and public health. We develop technologies for analysis in safety, life sciences and environmental markets.
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● Infrastructure Sensors |
Products which detect hazards to protect assets and people in public, commercial and industrial buildings.
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● Industrial Safety |
Products which protect assets and people in industry. |
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The key characteristics of Halma's businesses are that they are based on advanced technology and offer strong growth potential. Many Group businesses are clear market leaders in their specialist field and, in a number of cases, are the dominant world supplier.
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2. |
High resolution photos of Halma senior management, including Chief Executive Andrew Williams, and images illustrating Halma business activities can be downloaded from its website: www.halma.com. Click on the 'News' link, then 'Image Library'. Photo queries: David Waller +44 (0)1494 721111, e-mail: dwaller@halmapr.com.
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3. |
You can view or download copies of this announcement and our latest Half Year and Annual reports from the website at www.halma.com or request free printed copies by contacting halma@halma.com.
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4. |
A copy of the Annual Report and Accounts will be made available to shareholders on 25 June 2012 either by post or on-line at www.halma.com and will be available to the general public on-line or on written request to the Company's registered office at Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE, UK.
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5. |
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. |
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HALMA plc
Group results for the 52 weeks to 31 March 2012
Group Highlights |
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52 weeks 31 March 2012 |
52 weeks 2 April 2011 |
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Continuing Operations: |
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Adjusted Profit before Taxation1 |
+ 15% |
£120.5m |
£104.6m |
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Statutory Profit before Taxation |
+ 14% |
£112.0m |
£98.3m |
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Adjusted Earnings per Share2 |
+ 19% |
24.46p |
20.49p |
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Statutory Earnings per Share |
+ 20% |
23.01p |
19.23p |
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Total Dividend per Share3 |
+ 7% |
9.74p |
9.10p |
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Return on Sales4 |
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20.8% |
20.2% |
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Return on Total Invested Capital5 |
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16.8% |
15.5% |
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Return on Capital Employed5 |
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74.7% |
71.9% |
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Pro-forma information: |
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Total dividend paid and proposed per share. |
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4 |
Return on Sales is defined as adjusted1 profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations. |
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Chairman's Statement
Halma: what we do and our strategy
Strategically we aim to grow profit and revenue in excess of 5% p.a. organically, to have Return on Sales in the region of 18% to 22% and generate post-tax Return on Total Invested Capital of more than 12%. As a result, we are highly cash generative and reinvest in our businesses through people, product and market development, continue to acquire more companies with similar characteristics and strive to give annual dividend growth of 5% or more to our shareholders. |
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Performance Full year revenue increased by 12% to £579.9m (2011: £518.4m), organic revenue growth1 was 5%, and 6% at constant currency. Profit before tax, amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration and profit on disposal of operations increased by 15% to £120.5m (2011: £104.6m), organic profit growth was 5% and the same at constant currency. Statutory profit before tax increased by 14% to £112.0m. Return on Total Invested Capital1 increased to 16.8% (2011: 15.5%), Return on Capital Employed at the operating level increased to 74.7% (2011: 71.9%). Return on Sales1 edged up to 20.8% compared to 20.2% the previous year. Net debt at the year end was £18.7m having spent £14.5m (including £1.1m of debt) on two acquisitions during the year, and received the first element of the disposal proceeds for Volumatic.
As a result the Board is recommending a final dividend of 5.95p per share giving a total dividend of 9.74p for the year, an increase of 7%. The final dividend is subject to approval by shareholders at the AGM on 24 July 2012 and will be paid on 22 August 2012 to shareholders on the register at 20 July 2012. This marks the 33rd consecutive year of dividend increases of 5% or more.
We also signed a new five-year banking facility of £260m (see the Financial Review). |
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Acquisitions/divestiture During the year we purchased Kirk Key Interlock Company for US$14.5m, including US$1.9m of debt, which strengthened our position in the US interlock market; and Avo Photonics for US$9.1m (plus a contingent payment of up to US$11m based on future profit growth).
At the year end we divested Volumatic, a cash handling business, for £4.4m with an additional contingent consideration of up to £3.9m.
At the start of the 2012/13 financial year, we announced two further acquisitions in our Health and Analysis sector: Sensorex which manufactures electro-chemical sensors for water analysis applications for US$37.5m and Accutome which designs and manufactures surgical and diagnostic instruments for the ophthalmic market place for a cash consideration of US$20m, including US$2.3m of debt, plus a contingent performance payment of up to US$5m.
At the end of May 2012 we acquired SunTech Medical Group for an initial cash consideration of US$46m for the share capital and US$5m for cash retained in the business, plus a contingent performance payment of up to US$6m. SunTech, which also joins the Health and Analysis sector, is a pre-eminent supplier of clinical grade non-invasive blood pressure monitoring products.
So one can see that we continue to manage the portfolio actively and continue to seek out growth opportunities. |
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Geographic market development One of our strategic aims is to have 30% of our revenue coming from markets outside the UK, USA and Mainland Europe by 2015. In 2006 the figure was 18%, last year we achieved 24% so we are well on our way. This reflects the focus and investments we have made over the recent years, and this year sales in China grew 25%.
Innovation Technical and application innovation is at the heart of what we do, listening to our customers and imaginatively responding to their needs. You will see many examples in this report. During the year we held a hugely successful internal Innovation and Technology Exposition, where all our companies showcased their latest innovative applications. This, in turn, spawned many new ideas for using new technologies in different applications.
People We continue to invest in new programmes to develop our people further, exposing them to new ideas, techniques and markets. We are also giving strong encouragement to diversity in all its aspects. The buzz between people at the Halma Innovation and Technology Exposition was palpable.
To everyone in the Group, sincere thanks for all you have done in producing these record results and building for the future. |
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Governance During the year we responded to the consultation document from the Financial Reporting Council on Gender Diversity on Boards. In summary, our response was that we supported diversity on the Board but not just gender; we also seek a variety of experiences which will help accelerate growth in our business sectors in all geographies. Our strong preference is to develop policies and actions which support our aims rather than simply establish targets and quotas in this area. We believe the former evolves into part of our corporate culture more readily than simply setting a target.
I am delighted that Daniela Barone Soares has joined the Board and is bringing her extensive experience to bear in and around the Board.
Outlook Many of the economic uncertainties that we saw at the beginning of the year are still with us. Our performance over the last year shows that we can make progress even in uncertain markets and we look forward to doing the same in the coming year.
Geoff Unwin, Chairman 1 See Group Highlights. |
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Strategic Review
Halma has made good progress this year, continuing to create value for shareholders through organic growth, successful acquisitions and increasing dividends.
Growth in all three sectors and all major regions Revenue growth was achieved in all three sectors and in all major geographic regions and increased by 12% to £580m (2011: £518m). Adjusted1 profit grew to £120.5m, an increase of 15% (2011: £104.6m). Organic revenue growth and organic profit growth were both 5%, increasing to 6% for continuing operations excluding the figures for Volumatic which we sold just before the year end.
Revenue grew in both developed and developing regions, demonstrating the resilience of the underlying growth drivers in our chosen markets of safety, health and environmental technology. UK was up by 18% to £126m (2011: £106m), whilst US increased 8% to £162m (2011: £150m). Revenue from Mainland Europe contributed £154m (2011: £138m), an increase of 12%. Revenue from outside these territories was up by 11%, representing 24% of the Group total (2011: 24%). This included 15% growth from Far East and Australasia. China revenue improved by 25% and represents slightly over 5% of Group revenue.
Health and Analysis performed well, increasing revenue by 16% to £254m (2011: £218m), contributing 44% of the Group (2011: 42%). Profit2 grew substantially by 25% to £57.8m (2011: £46.1m), 46% of Group operating profit2 (2011: 42%). Return on Sales grew strongly to 22.8% (2011: 21.1%). All four sub-sectors, Water, Photonics, Health Optics and Fluid Technology increased revenue with organic growth boosted significantly by acquisitions made in 2010/11. Following a tough first half year, Fluid Technology had a much steadier performance in the second half with revenue slightly ahead of the first six months. Water had a very good year gaining significant market share for water network monitoring instruments in the UK.
Infrastructure Sensors had a solid year increasing revenue by 4% to £204m (2011: £197m), 35% of the total (2011: 38%). Profit2 was marginally ahead of last year at £39.1m (2011: £39.0m), which is 31% of Group operating profit2 (2011: 36%). Return on Sales was 19.1% (2011: 19.8%). Fire Detection, Automatic Door Sensors and Security Sensors all increased revenue whilst Elevator Safety revenue was flat. A significant management reorganisation within Elevator Safety started in November 2011 and will be complete by mid-2012. This will reduce profitability in Elevator Safety by around £1m during the first half of 2012/13 but is expected to have delivered significant benefits to more than cover this charge by the end of the full year.
Industrial Safety performed strongly with revenue increasing by 19% to £122m (2011: £103m), which is 21% of the Group (2011: 20%). Profit2 increased by 20% to £29.2m (2011: £24.4m), which is 23% of Group operating profit2 (2011: 22%). The four sub-sectors of Gas Detection, Safety Interlocks, Bursting Disks and Asset Monitoring all increased revenue with demand underpinned by Health and Safety regulations and positive end-markets including Oil and Gas. Return on Sales in Industrial Safety remained the highest in the Group at 23.9% (2011: 23.7%). |
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Our three major measures of returns improved Return on Sales improved to a new record of 20.8% (2011: 20.2%) with acquisitions improving margins in Health and Analysis and organic growth edging up Industrial Safety's performance. Infrastructure Sensors was a little lower than the prior year, albeit well within our 18% to 22% target range.
A high Return on Capital Employed is a key metric for Halma companies and is a characteristic we look for when considering acquisition prospects. This year it improved to 74.7% from an already very high level of 71.9% last year.
Return on Total Invested Capital is the post-tax return Halma has generated on all our assets including all historical goodwill. It is, therefore, an important long-term measure of how efficiently we deploy capital to grow our business both organically and through acquisition thereby creating value for shareholders. This year it increased to 16.8% (2011: 15.5%), well above our weighted average cost of capital, estimated to be around 8%. |
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Good cash generation and a strong balance sheet Clearly, high returns are an indicator of a business' ability to generate cash. We aim to grow organically and through acquisition without becoming a highly geared business. This year cash generated was 104% of adjusted1 profit (2011: 108%) and we ended the year in a strong position with net debt of £19m (2011: £37m).
In October 2011, we decided to renew and increase our bank credit facilities which were due to terminate in February 2013. We have put in place a £260m five-year revolving credit facility which gives us greater certainty over our medium-term funding and a greater freedom to complete acquisitions when suitable opportunities arise. |
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Strategic growth priorities We have a clear strategy to generate sustained organic growth, actively manage our portfolio and deliver growing dividends. The medium-term rate of organic growth determines the rate at which we can acquire businesses and increase dividends. Our management reward structures are clearly aligned with our objectives of delivering sustained growth and high returns. We actively manage our business portfolio through acquiring in (or adjacent to) our existing markets, merging as market needs change and selling businesses where we do not see the medium-term prospects for sustaining high returns or growth.
We drive organic growth through a focus on investing in the three areas of: Innovation, People Development and International Expansion.
Innovation Our businesses build market leadership, gain market share or create new market opportunities through innovation in products and processes. Within Halma, companies have great opportunities to collaborate and share know-how with their sister companies. We are creating a culture and environment to encourage this behaviour in a variety of ways including ensuring a diverse mix of representation at Halma training programmes and holding a biennial Halma Innovation and Technology Exposition. Network groups and forums focused on specific functional areas such as manufacturing and IT have also been established to foster regular benchmarking and continuous improvement.
Innovation by individual employees is formally recognised in Halma through a monthly Eureka award (top prize £1,000) and the Halma Annual Innovation Awards (top prize £20,000).
In 2012, the Halma Innovation Award was won by a team from Oseco in Oklahoma, USA, who designed a new Bursting Disk product which improves safety in Oil and Gas exploration. The runners-up were a team from HWM-Water in Cwmbran, UK, who developed a software platform which gives customers a 'data-gateway' to easily integrate their control systems with HWM's water monitoring technology. In third place was a team from Ocean Thin Films in Colorado, USA, who created a spectral imaging camera which enables scientists to analyse target objects in real-time video through a range of discrete specialist optical filters simultaneously.
R&D expenditure increased by 7% to £27.4m (2011: £25.7m) representing 4.7% of Group revenue (2011: 5.0%), well above our 4% KPI target. Underlying growth in R&D spend was in line with revenue growth so the slight decline in spend as a percentage of revenue was due to the lower rate of R&D investment of companies recently acquired. One of the ways we aim to add value to newly acquired businesses is by increasing their rate of innovation through investment in new products. |
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People development Halma's decentralised operating structure relies upon having capable local managers empowered to make timely decisions in the best interests of their business. R&D, manufacturing, sales and administrative resources are controlled by local subsidiary boards who have an intimate knowledge of market dynamics and customer needs. Strategic objectives, annual performance goals and management incentives are aligned with a strong commitment to attract and develop high quality talent at all levels.
Halma offers a range of training programmes for employees including the Halma Executive Development Programmes (HEDP and HEDP+), Halma Management Development Programmes (HMDP and HMDP+) and Halma Certificate in Applied Technology (HCAT) programmes. During 2011/12, 166 employees attended these Halma-run programmes and many more benefited from training provided by their subsidiary company. The value of this investment is shown both in our excellent financial performance and succession planning. In April 2012, Philippe Felten the CEO of BEA, our Automatic Door Safety business, was promoted to the Halma Executive Board and took on the additional responsibility of our Security Sensors sub-sector.
In 2012, we launched the Halma Graduate Development Programme (HGDP) with the first group of UK and US graduates due to start in early Autumn 2012. Through HGDP, we aim to increase the depth of talent coming through our management ranks and also expect it to increase management diversity in the longer term. Graduates will work at Group companies in different global regions and attend residential training modules. Halma is an attractive employer for new graduates offering the chance to work in diverse markets, gaining international experience and providing a genuine opportunity for significant early career progression. |
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International expansion We have made great strides in recent years growing our business in developing markets. In the process, we have learned a lot about these markets and have improved our understanding of the growth opportunities, both organic and through acquisitions. In the future, we expect to find a greater number of acquisition opportunities in developing markets and we are building the resources to support this objective.
Our strategic objective is for at least 30% of revenue to come from outside the UK, USA and Mainland Europe by 2015 and we maintained that metric at 24% this year even with the acquisition of two US-focused businesses in the year (2011: 24%). By 2015 China is targeted to be 10% of the Group total.
This year, good momentum was maintained in China with revenue increasing by 25% to £29.5m (2011: £23.6m) which is slightly over 5% of total revenue. This compares with £6.6m in 2006 when we set up our first hubs in Shanghai and Beijing. In 2012, the number of employees based in China represents 10% of the total Halma workforce.
A number of Halma businesses are investing in building stronger channels to market in South America either directly or by developing trading relationships with local businesses. Revenue from South America increased by 23% to £11.2m (2011: £9.1m).
In India, there was slower progress, with revenue increasing by 8% to £7.0m (2011: £6.4m). We are adding both sales and technical resource in Mumbai and during the year moved to larger premises. However, it is clear that India is not currently offering us the same rate of revenue growth as China, South-East Asia and South America. |
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Acquisitions and disposals During the year, we completed two acquisitions and one disposal. Following the year end, we acquired a further three businesses. For these five acquisitions we paid £80m, including £3m of debt acquired, (plus potential for £14m of earn-outs) and received an initial payment of £4.4m for the disposal. All transactions, except the Kirk Key acquisition, were within our Health and Analysis sector.
In May 2011, we acquired Kirk Key Interlocks, based in Ohio, USA for US$14.5m (£8.8m), including US$1.9m of debt. Kirk Key was our most significant competitor for Safety Interlocks in the US market and is a strong addition to our group of market leading interlock businesses within the Industrial Safety sector.
In July 2011, we bought Avo Photonics, based in Pennsylvania, USA for US$9.1m (£5.7m) plus a one-year earn-out of up to US$11.0m dependent on profit growth. Avo adds significant new technology and manufacturing know-how to our Photonics businesses. Their expertise in miniature electro-optic design and manufacturing has potential applications across many other Halma sub-sectors.
In March 2012, we sold Volumatic, based in Coventry, UK to a private equity fund, for £4.4m plus performance based earn-outs of up to £3.9m. The end-markets for their cash counting products are retail and banking which do not have the long-term growth drivers we seek. This disposal is a further example of our ability to divest businesses for sensible prices where the longer-term returns and growth prospects do not meet our objectives. Volumatic was the only Halma business whose products and activities were not related to any of our 12 sub-sectors.
In April 2012, we paid US$37.5m (£23.4m) to acquire Sensorex, a manufacturer of water quality test sensors based in California, USA. Sensorex is very complementary to our existing water test business, Palintest, and joins the Water sub-sector.
In April 2012, we acquired Accutome for US$20m (£12.6m), including US$2.3m of debt, plus an earn-out of up to US$5m based on future profit growth. Accutome adds new products and greater sales and distribution strength in the USA for our Health Optics businesses. Based in Pennsylvania, USA, it already trades with our ophthalmic instrument businesses Keeler and Volk.
In May 2012, we acquired SunTech for US$46m (£29.6m) plus US$5m for cash retained in the business with a potential earn-out of US$6m. Their blood pressure monitoring technology is a perfect complement to Riester's own clinical grade blood pressure monitoring devices.
Our current acquisition prospect pipeline is strong. We are looking for successful businesses in, or closely related to, our existing sub-sectors. Although most of our transactions in recent years have been in the Health and Analysis sector, we continue to look for opportunities in our safety-related sectors too. This combination gives Halma a great balance between sustainable growth and strong returns. |
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Macro-economic, regulatory and competitive environment With our focus on the supply of safety, health and environmental related products, Halma businesses are positioned in relatively non-cyclical markets that have clear, long-term growth prospects. Most of our markets are underpinned by regulatory drivers where customer spending is often non-discretionary. Our businesses benefit from strong market positions providing upgrade and replacement sales opportunities. These factors combine to create genuine resilience in tough economic conditions and enable us to achieve organic growth above prevailing market growth rates.
With demand for our products increasingly stimulated by regulation, we can invest for the longer term with confidence. Our competitive environment is heavily influenced by global, regional and national product approvals or technical validations. Compliance with product regulations is a steadily increasing overhead and a technical challenge but our focus on this area enables us to build competitive advantage. We are exposed to a very diverse range of niche markets, each with its own unique competitive environment. Our strategy is to empower local management to respond to changing market conditions by controlling their own competitive strategy. More details are given in the sector reviews.
In the current macro-economic environment each of our businesses is experiencing very different challenges and opportunities according to their particular market and geographic exposure. In 2012/13, we expect the macro-economic and political circumstances in Europe and the Middle East to remain challenging with the USA maintaining a relatively low rate of growth. We believe that the broader socio-economic development of developing regions like Asia and South America will continue to increase demand for a safer environment and for greater access to healthcare and energy/water resources. This should benefit Halma businesses. |
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Our primary market growth drivers Halma's strategy is to develop market positions with a horizon of ten years or more. Growth strategies within our individual operating businesses tend to have three to five-year horizons.
The markets we select must have robust growth drivers with potential for organic growth well above the underlying market or GDP growth.
All of our businesses are positioned in markets that are underpinned by at least one of the following growth drivers:
Increasing demand for healthcare Three key demographic trends support increasing worldwide demand for healthcare: global population ageing, global population growth and rising incomes in the developing world. Demand for healthcare services and health-related products drives growth in our Health and Analysis markets.
Spending on healthcare continues to grow rapidly throughout the developed world, particularly in the USA where it is projected to rise by over a third between 2011 and 2016. Population growth and rising incomes in the developing world are other strong drivers of healthcare demand. China's healthcare expenditure, for example, grew at a compound annual growth rate of over 18% during 2006-2010, and is forecast to continue at this rate during the 12th Five Year Plan (2011-2015).
Population ageing creates rising healthcare needs and, as incomes rise, health services become available to an increasing number of people in the developing world. Continuous advances in medical technology create new medical procedures, which also stimulate demand for new instruments and equipment. The number of people aged 60 and over is increasing dramatically. In 2010 there were 759 million people in the world aged 60 and over; this is projected to rise to two billion by 2050. Although the older population is growing in all parts of the world, the increase is most marked in the developing world. The proportion of the world's older population living in less developed regions is forecast to rise from 65% in 2010 to about 80% by 2050. |
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Increasing demand for energy and water Rising energy consumption and water usage, the inevitable consequences of social and economic development, are driven by three key trends: population growth; rising living standards; and changing patterns of food consumption and agriculture. Energy and water supply are interdependent in many economies. Consumption of water for energy production in the USA is forecast to rise by 50% from 2005 to 2030, accounting for 85% of the total US increase in water demand.
Global energy consumption is projected to increase by over 50% from 2008 to 2035 with the highest growth in non-OECD economies. While water demand rises relentlessly, the quality and availability of clean water continues to decline. Eighty per cent of the world's population lives in areas with high levels of threat to water security.
Several of our Health and Analysis businesses are positioned to benefit from the global trend of rising demand for water. In both developed and developing regions we see increasing competition for water resources between economic groups and between national governments. The increasing value placed on water resources drives demand for our water conservation, treatment, monitoring and testing products.
Continued investment in Oil and Gas exploration and extraction drives demand for our Industrial Safety products. |
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Increasing urbanisation The world's population is currently growing faster than at any time in history. Despite a decline in the annual population growth rate to 1.2% per year, world population grows by about 83 million annually.
Future population increase will be a largely urban phenomenon. Falling birth rates in most developed economies mean that population growth will occur in the less developed regions, mainly among the poorest urban populations. The world's urban population is expected to rise by over 70% between 2011 and 2050. In China, for example, over two-thirds of the population is forecast to live in cities by 2030, a 300 million increase over 2012.
Urbanisation drives investment in non-residential buildings like shops, offices, and schools and in transportation, key markets for our Infrastructure Sensors businesses, while it also requires investment in healthcare facilities and utilities such as water, which are target markets in Health and Analysis.
Increasing Health & Safety regulation The International Labour Organisation estimates that about 2.3 million men and women die from work-related accidents and diseases every year. This includes close to 360,000 fatal accidents and an estimated 1.95 million fatal work-related diseases. Every day nearly 1 million workers will suffer a workplace accident, and around 6,300 workers will die due to an accident or disease from their work. However, significant advances are being made in occupational safety and health (OSH) and the number of fatal accidents has fallen over the last ten years.
In economic terms it is estimated that roughly 4% of the annual global GDP (US$1.25 trillion), is lost by the direct and indirect costs of occupational accidents and diseases such as lost working time, compensation, production downtime and medical expenses.
Throughout the world, governments are requiring employers to comply with increasingly strict laws and regulations to protect workers from workplace hazards. In parallel with government regulations, many multinational employers based in the developed world are extending health and safety protocols to developing regions. This combination of increasing safety regulation and globalisation drives demand for our Industrial Safety and Infrastructure Sensors products. |
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Delivering Corporate Responsibility and sustainability Our primary market growth drivers mean that Halma companies operate in markets in which their products contribute positively to the wider community. These market characteristics and our commitment to health and safety, the environment and people development are reflected in the values held by our employees and our operating culture. We review our responsibility and sustainability reporting in accordance with best practice. Recent legislative changes, particularly concerning the environment and bribery and corruption, have provided an opportunity to review and ensure that our procedures in these important areas are accessible, compliant and firmly embedded within our business.
A detailed report on Corporate Responsibility is set out in the Annual Report and Accounts. |
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Outlook Our focus on safety, health and environmental technology is continuing to provide opportunities for growth in both developed and developing regions. The combination of strong local operational management and active portfolio management ensures that we are able to deliver short-term financial performance and invest for growth in the longer term. These qualities are reflected in this year's performance and in Halma's track record of growth and high returns over a long period. We expect to continue to make progress in the year ahead.
Andrew Williams, Chief Executive 1 See Group Highlights. |
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Financial Review
Another year of record revenue, profit and dividend payments.
Delivering on our strategy This was another strong year for Halma, continuing to deliver financial results in keeping with our strategic objectives. We continued to deliver organic growth while maintaining high returns and good cash flow. Once again we acquired high quality businesses and we disposed of one business. Our geographic reach expanded further, building on established success in many countries. These record results were delivered with a growing dividend for shareholders while maintaining a strong financial position. |
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Revenue and profit growth Revenue grew by 11.9% to £579.9m (2011: £518.4m). Acquisitions made in 2011/12 and the prior year, at the run rate when acquired, added an incremental £34m to this year's revenue and so organic revenue growth was 5.4%. Currency translation had a minimal impact and therefore organic revenue growth at constant currency was 5.5%. |
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Percentage change |
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2012 £m |
2011 £m |
Increase |
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Organic growth* |
Organic growth* at constant currency |
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Revenue |
579.9 |
518.4 |
61.5 |
11.9% |
5.4% |
5.5% |
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Adjusted1 profit |
120.5 |
104.6 |
15.9 |
15.2% |
5.1% |
4.9% |
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* Organic growth2 is calculated excluding the results of acquisitions. |
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Adjusted1 profit before tax increased by 15.2% to the record level of £120.5m (2011: £104.6m) with organic profit growth of 5.1% and 4.9% at constant currency. This is the ninth consecutive year of record results, part of Halma's long history of achieving growth.
We believe that the adjusted profit figure we use gives a helpful view of underlying performance trends. Statutory profit before tax increased by 13.9% to £112.0m (2011: £98.3m). Statutory profit before tax is after charging the following items: amortisation of acquired intangible assets of £10.4m (2011: £4.8m) much higher this year due to the addition of intangibles relating to acquisitions in 2010/11 and 2011/12; acquisition transaction costs £0.7m (2011: £1.3m); and movement on contingent consideration relating to acquisitions including foreign exchange movements of £0.9m (2011: £0.2m). It is also after crediting the £3.5m profit on disposal of Volumatic.
Health and Analysis continues to be the largest of our three sectors and now represents 44% (2011: 42%) of Group revenue and 46% (2011: 42%) of Group profit. Industrial Safety delivered the highest organic growth this year extending its record of recent strong growth.
The first half/second half revenue and profit split was typical for Halma at 48%/52% building on a record first half performance. This continued the trend of half year over previous half year improvements we have seen in the past three years. |
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Geographic revenue growth The USA continues to be our largest sales destination and its 8% growth benefited from acquisitions. Mainland Europe is the next largest destination and grew by 12%, with Health and Analysis growing fastest. The UK saw significant growth of 18% in the year with a very strong performance by our Water business within Health and Analysis. Asia Pacific and Australasia grew by 15%, slower than the 29% reported last year but including 25% growth in China, now 5% of Group revenue. Economic and political uncertainty, particularly in the Middle East, also meant that the other countries grew by only 7%.
The geographic revenue pattern in the second half of the year was similar to the first but with Mainland Europe growing less quickly and the USA increasing its rate of growth.
In the past five years there has been substantial change in our geographic profile with the UK now representing 6 percentage points less, and territories outside USA/Mainland Europe/UK 5 percentage points more, of Group revenue compared with 2006/07.
We are targeting to have 30% of our revenue outside the USA/Mainland Europe/UK by 2015. In 2011/12 the figure is 24%, the same as the prior year. In part this was due to the strong growth we have seen in developed markets but also because recent acquisitions have the majority of their sales in the USA and Europe although they have good opportunities for growth in developing regions of the world. |
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|
2012 |
|
2011 |
|
|
||
|
|
|
% of |
|
|
% of |
Change |
% |
|
United States of America |
162.0 |
28% |
|
150.3 |
29% |
11.7 |
8% |
|
Mainland Europe |
154.4 |
27% |
|
138.3 |
27% |
16.1 |
12% |
|
United Kingdom |
125.6 |
21% |
|
106.1 |
20% |
19.5 |
18% |
|
Asia Pacific and Australasia |
87.3 |
15% |
|
76.2 |
15% |
11.1 |
15% |
|
Other countries |
50.6 |
9% |
|
47.5 |
9% |
3.1 |
7% |
|
|
579.9 |
100% |
|
518.4 |
100% |
61.5 |
12% |
|
High Return on Sales Our target is for the Group to operate in the 18% to 22% Return on Sales2 range. It has been above 16% for every one of the past 27 years and is an important performance measure for the Group.
In 2011/12 we achieved 20.8% (2011: 20.2%) Return on Sales2 with this year's increase coming from the high rate of profitability of recent acquisitions.
High Return on Sales2 is based on the good management of many factors including the mix of which products we sell, the cost of those products and close management of expenses. Gross margins (revenue less direct material and direct labour costs) exceeded 60% and remain a stable element of our profitability in the face of inevitable cost and price pressures. |
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Currency movement The Group has both translational and transactional currency exposure. Translational exposures arise on the consolidation of overseas company results into Sterling. Transactional exposures arise where the currency of sale or purchase transactions differs from the functional currency in which each company prepares its local accounts. Whilst we do not attempt to forecast future movement in currencies, we understand their impact on our business and try to mitigate the risk of volatility with a transactional hedging strategy.
Halma reports its results in Sterling. The most important other trading currencies are the US Dollar, Euro, and to a lesser extent the Swiss Franc. Approximately 30% of Group revenue is denominated in US Dollars and 20% in Euros. |
|
|
Weighted average rates used in |
|
Year end exchange rates used to |
||
|
|
2012 |
2011 |
|
2012 |
2011 |
|
US Dollar |
1.60 |
1.56 |
|
1.60 |
1.60 |
|
Euro |
1.16 |
1.18 |
|
1.20 |
1.13 |
|
In 2011/12 there was a limited net currency translational impact on the results as, on average, the US Dollar weakened by 3% but the Euro strengthened by 2% and the Swiss Franc strengthened relative to 2010/11 - although the Swiss Franc movement had limited year on year impact as our Swiss business only joined the Group in late 2010/11. The net currency translation impact was therefore only 0.1% adverse on revenue and 0.2% favourable on profit.
Based on the current mix of currency denominated revenue and profit, a 1% movement in the US Dollar relative to Sterling changes revenue by £1.9m and profit by £0.35m. Similarly, a 1% movement in the Euro changes revenue by £0.9m and profit by £0.2m.
Within the Group there is a good degree of natural hedging (similar amounts of purchase and sale transactions) in US Dollars. We typically buy less products in Euros than we sell and so have a net exposure of approximately Euro 30m in any year. Our transactional hedging strategy is to fix currency rates up to 12 months, and in certain specific circumstances 24 months, forward. We hedge between 30-75% of each operating company's net exposure giving approximately 50% hedging of our trading transactions. This gives our businesses greater certainty in their overseas trading. |
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Increased finance cost The net finance cost in the Income Statement increased to £1.4m (2011: £1.1m). The main elements are bank interest and funding costs and the pension financing charge. The net bank interest and funding costs increased because of higher average levels of debt, increased interest rates payable and the higher costs of funding our new bank facility.
The net pension financing charge reduced from £0.4m to £0.2m and this is dependent on the level of pension scheme assets and liabilities at the start of each year as well as the rates of return/discount rate applied to those assets/liabilities. This year the return on increased assets exceeded the cost of higher liabilities. In 2013/14 the pension accounting rules under IAS 19 will change and this will affect the Group Income Statement. The expected return on pension assets will be calculated using the same discount rate, effectively, as applied to the pension liabilities. This will cause a one-off increase in the net pension finance charge, which, based on current estimates, will reduce Group profit by approximately £1m for 2013/14 onwards. Comparative figures will be restated for this change at that time.
For 2012/13 we expect the net pension cost to be higher than 2011/12. In addition we expect a rise in bank interest and funding costs arising from a full year of the cost of the new bank facility. |
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Lower tax rates Our approach to taxation is to minimise the tax burden in a responsible manner, managing good relationships with tax authorities based on legal compliance, transparency and cooperation.
The Group has its primary operating subsidiaries in 13 countries so the Group's effective tax rate is a blend of these different national rates applied to locally generated profits. As expected the effective tax rate on adjusted1 profit reduced to 23.5% (2011: 26.2%) primarily due to the reduction in UK Corporation tax rates by 2%, the benefit of the low tax rates in Switzerland enjoyed by Medicel and the mix of profit earned in various jurisdictions.
We anticipate that the effective tax rate in 2012/13 will be similar to that in 2011/12. |
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Earnings per share and dividend increases We aim to deliver value to shareholders through consistent growth in earnings per share and increasing dividends. Adjusted2 earnings per share increased by 19.4% to 24.46p (2011: 20.49p). The increase was higher than the growth in adjusted2 profit due to the reduction in the effective tax rate. Statutory earnings per share also increased by 19.7% with acquisition related expense being higher than last year but this increase being offset by the gain on disposal.
Halma has a long record of growing its dividend. An increase of 7% is recommended in the final dividend to 5.95p (2011: 5.56p) and together with the 7.1% increase in the interim dividend gives a total dividend of 9.74p (2011: 9.10p). At the year end share price this represents a dividend yield of 2.6%. With this dividend increase Halma will have continued with its progressive dividend policy and increased the annual dividend by 5% or more for every one of the last 33 years, paying out £270m to shareholders in the past decade.
Dividend cover (the ratio of profit after taxation to dividends paid and proposed) calculated using adjusted2 profit is 2.51 times (2011: 2.25 times). |
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Further increased returns Return on Total Invested Capital (ROTIC), the post-tax return on the Group's assets including all historical goodwill, increased to a record of 16.8% (2011: 15.5%). Once again we were able to increase profits at a greater rate than growth in the asset base. Halma's ROTIC exceeds our long-term Weighted Average Cost of Capital (WACC) calculated as being approximately 8% (2011: 8.5%), indicating the creation of value for shareholders by the Group.
Return on Capital Employed (ROCE), measures this operating efficiency of our businesses and was also a record at 74.7% (2011: 71.9%). Both the ROTIC and ROCE figures exceeded our KPI targets.
Good cash generation Cash generated from operations, excluding taxation paid, was £125.5m (2011: £113.2m) and represented 104% (2011: 108%) of adjusted1 profit. A summary of the year's cash flow is shown in the table below.
The working capital increase in the year reflected the growth in our business, with the second half of the year seeing targeted working capital improvements.
Expenditure on property, plant and computer software this year was £16m (2011: £15m). This year's figure represents 122% of depreciation once again falling within the 100% to 125% range we would expect. Our businesses generate significant return from investment as evidenced by our ROCE and we therefore continue to encourage them to actively invest.
Taxation paid was £28m (2011: £18m) much higher than last year due to the tax paid on higher profits and a tax credit in the prior year. We expect a slightly lower ratio of tax paid to profit in the coming year as UK Corporation tax rates in particular fall. |
|
Cash Flow |
2012 |
2011 |
|
Operating cash flow before movement in working capital |
133.1 |
116.8 |
|
Increase in working capital |
(7.6) |
(3.6) |
|
Cash generated from operations |
125.5 |
113.2 |
|
Acquisition of businesses and cash/debt acquired |
(19.8) |
(82.1) |
|
Investment in associates |
- |
(1.7) |
|
Disposal of businesses |
3.6 |
- |
|
Development costs capitalised |
(4.7) |
(4.7) |
|
Net capital expenditure |
(15.3) |
(14.8) |
|
Dividends paid |
(35.2) |
(32.9) |
|
Taxation paid |
(27.8) |
(18.1) |
|
Issue of shares/treasury shares purchased |
(3.5) |
(4.5) |
|
Net interest paid/loan arrangement fees |
(3.2) |
(0.5) |
|
Exchange adjustments |
(1.2) |
(0.1) |
|
|
18.4 |
(46.2) |
|
Net (debt)/cash brought forward |
(37.1) |
9.1 |
|
Net debt carried forward |
(18.7) |
(37.1) |
|
Strong financial position and refinancing Halma is highly cash generative and has substantial bank facilities. We have access to competitively priced finance at short notice and spread our risks to provide good liquidity for the Group. Group treasury policy is conservative and no speculative transactions are allowed.
In October 2011 we refinanced our revolving credit facility. We now have in place a £260m facility (previously £165m) for five years to 2016 with five high quality international banks. Covenants remain unchanged and limits were improved in the new facility which is on attractive terms. We have continued security over a major source of funding, providing significant firepower for value adding acquisitions. The Group continues to operate well within its banking covenants. We use debt to accelerate the Group's development and review our funding needs regularly to ensure we have ample headroom.
Year end net debt was £18.7m (2011: £37.1m). The net debt figure is a combination of £64.0m of debt and £45.3m of cash (boosted by the receipt of cash from the disposal late in the year) held around the world to finance local operations. We have an active repatriation programme and are building on our existing cash pooling arrangements to ensure that our cash/debt position is managed efficiently. |
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Further acquisitions and a disposal Acquisitions and disposals are an important part of our growth model. Halma buys successful businesses in safety, health and environmental markets and helps them grow further through investment in increasing innovation, management development and international expansion. In the past ten years we have spent nearly £350m acquiring more than 25 businesses with deal sizes ranging from £70m down to below £1m.
In 2011/12 we spent £15m on two acquisitions plus £5m in payment of deferred consideration on acquisitions made in previous years. Details are given in the Chief Executive's Strategic Review.
Goodwill of £11m and intangible assets of £10m were recognised on the two acquisitions made in the year. As expected the amortisation of acquired intangible assets increased substantially to £10.4m (2011: £4.8m).
In March 2012 we disposed of Volumatic for a cash consideration of £4.4m, with a further £1.5m retained in escrow for release to Halma on achievement of an agreed performance target. Up to a further £2.4m is receivable if future sales targets are met. Over the past five years Volumatic's average annual profit has been £0.6m and average revenue £4.6m.
At the beginning of 2012/13 we spent a further £65m on three more acquisitions.
The two businesses acquired in 2011/12, together with the disposal in 2011/12 and the three acquisitions in 2012/13, are expected to add a net amount of £29.5m to revenue and £5.7m (after financing costs) to profit in 2012/13, based on their run rates at acquisition/disposal.
In April 2012 Halma made a further investment of Euro 3.9m in Optomed Oy, the Finnish ophthalmic equipment manufacturer. This is included as an Associate in the Group accounts. |
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Pension commitments The Group primarily provides either defined benefit (DB) or defined contribution pension arrangements for its employees. The DB sections of the Group's pension plans were closed to new entrants in January 2003. There are now fewer than 450 employees (11% of all employees) retaining access to future accrual under the DB plans so our key focus is in mitigating the impact of the past service deficit.
On an IAS 19 basis the deficit on the DB plans at March 2012 was £33m (2011: £36m) before the related deferred tax asset. Plan assets increased to £153.0m (2011: £140.8m) with some further recovery in equity values and additional cash contributions. In total, 59% of plan assets are invested in return seeking assets: 39% in equities and 20% in diversified growth funds providing a higher expected level of return over the longer term. No derivative financial instruments are currently used in investment. Plan liabilities increased to £186.0m (2011: £177.1m) mainly due to the reduction in the discount rate used to value these liabilities.
Triennial funding valuations of the DB plans are currently being performed. We continue to make extra contributions to the plans at a rate agreed with the actuary and expect this to be at the rate of £7m per year with the objective of eliminating the deficit over the next seven years. We will continue to develop and implement our plans for reducing the risk in the future cost of our DB plans over the coming year. |
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R&D Investment Expenditure on R&D increased to £27.4m (2011: £25.7m) an increase of 6.8% and representing 4.7% (2011: 5.0%) of revenue. All three sectors increased their absolute spend on R&D although the overall percentage of revenue fell due to a lower rate of R&D expenditure in some recent acquisitions.
We are required under IFRS to capitalise certain development expenditure and amortise it over an appropriate period, for us three years. R&D by its nature carries risk and all R&D projects, particularly those requiring capitalisation, are subject to close scrutiny and a rigorous approval and review process. In 2012 we capitalised £4.7m (2011: £4.7m) and amortised £3.7m (2011: £4.2m). This results in an asset carried on the Consolidated Balance Sheet, after £0.2m foreign exchange movements, of £10.5m (2011: £9.7m). |
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Managing risks and going concern considerations The main risks facing the Group and how we address them are reviewed in Principal Risks and Uncertainties below. The key operating risks are covered in the Chief Executive's Strategic Review and Sector Reviews.
We spread risk across the Group via well-resourced independent operating units. There is extensive and regular review of operations at a local and divisional level. This review is supplemented by Internal Audit. In the year we continued to build on the strength of our local finance functions with a number of strong recruitments, particularly in the USA, giving us very good oversight at a local level across the Group.
We are in the process of refining our risk appetite analysis to enable an even greater focus on areas for future growth. We have nearly completed the rollout of a centralised IT disaster recovery solution to complement existing local processes within subsidiaries. During the year we substantially revised our policies and processes on the mitigation of Bribery and Corruption in line with best practice and have issued a new Code of Conduct to all staff. This supported our long-standing ethical approach to business.
The Board considers all of the above factors in its review of 'Going Concern' as described below and has been able to conclude its review satisfactorily. It takes discipline and hard work to manage risks well and maintain high returns consistently over time. Our commitment to this will ensure that our long-term delivery of value to shareholders continues. |
|
Kevin Thompson, Finance Director
|
|
Health and Analysis Sector Review |
|
Photonics Market leading opto-electronic technology for scientific, medical and environmental applications.
Market trends and growth drivers Worldwide demand varied in our Photonics niches during 2011/12 but long-term growth prospects continue to be good. Asia is the key geographic growth area, with medical, biotechnology and industrial applications being the brightest prospects though overcapacity among LED manufacturers slowed growth in the first half of the year, but a change in focus towards the applied LED market delivered improvement in the second half. Our Photonics end-markets are very broad, providing a broad application base and global reach that creates overall resilience despite temporary local market changes.
Strategy Our primary Photonics strategy is to continue to strengthen technological leadership in our niche markets and expand geographical sales outside our traditional strongholds in the USA and Europe. Our emerging market emphasis remains on Asia but with increasing focus on Latin America. We will continue to expand sales, technical support, manufacturing and logistics to serve the Asian market. High R&D investment is required to maintain market leadership in advanced technologies. While development risks can be relatively high, we often achieve rapid payback from technological innovation. Our strategy has expanded towards building systems and solutions from easily configured base capabilities.
Performance The benefits of a continued high level of investment in R&D and international expansion helped to deliver record revenue and profit in Photonics. Avo Photonics, acquired in July 2011, is already collaborating with our other Photonics businesses in developing novel products.
Outlook We anticipate growth for Photonics for the coming year driven by market growth (particularly from OEM customers) and new market-leading products. Modest growth is expected in North America, but demand in Asia should rise. We also expect to grow business in South America. We expect to benefit significantly from the global transition to LED solid state lighting. The acquisition of Avo Photonics has increased our micro electro-optic capability. |
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Health Optics Devices used to assess eye health, diagnose disease, assist with eye surgery and for general medical applications.
Market trends and growth drivers New diagnostic and therapeutic technologies, ageing populations, increasing life expectancy and greater access to healthcare (in developing economies) drive growth in our Health Optics markets. The market for medical devices is heavily regulated. Compliance with product certifications continues to become more administratively complex and costly. The stringent regulatory environment creates a strong barrier for new market entrants and enhances the value of our well-established sales channels.
Strategy Geographic expansion, particularly in Asia and Latin America, remains the focus of our Health Optics growth strategy. We will continue to strengthen our sales and support teams in emerging markets and aim to begin manufacture of ophthalmic products in China and Brazil for their local markets during the next year. We will also increase collaborative product development. During 2011/12 two subsidiaries, Riester and Keeler, launched a jointly-developed line of ophthalmic diagnostic products which will be taken to market through their separate sales channels to general medical and ophthalmology, respectively.
Recently acquired Accutome and SunTech extend our capabilities in both surgical/diagnostic ophthalmic products and blood pressure monitoring, adding new technologies which complement those of other Halma businesses.
Performance In Health Optics we again achieved record revenue and profits. Medicel, acquired in 2011, exceeded expectations as the market continued to convert to its single-use cataract surgery devices.
Outlook We expect our Health Optics businesses to continue to outperform global market growth rates through faster growth in developing markets, enhanced distribution and the contribution from new products introduced in 2012/13. We will receive official registration in 2013 for our Sao Paulo, Brazil office which will reduce import duties and assist in product registration and distribution. |
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Water Products to monitor and find leaks in water networks; UV technology for disinfecting water; and water quality testing products.
Market trends and growth drivers Global demand for water treatment products is forecast to rise at over 6% per year until 2015, with growth of 8% in Asia. China is the second largest water treatment market in the world and is expected to remain the fastest growing major market. In emerging countries, growth drivers will be industrialisation, sanitation improvements and compliance with international wastewater discharge standards. Growth in developed markets will be driven by increased water reuse, drinking water quality improvements and environmental protection. Strong, legislation-driven growth in industrial applications is anticipated but demand from municipal customers is expected to remain slow.
Strategy Our market positions in Water will be strengthened by continued technological innovation, market leading customer service and by further development of geographic sales channels.
We aim to maintain world leadership in water leakage control instrumentation and increase market share in both drinking water and waste water network management systems. In water treatment, we plan to grow market share in water and environmental analysis products and in UV water disinfection systems for municipal, industrial and aquatic applications. Recently acquired photochemical sensor specialist Sensorex strengthens our presence in the US market significantly and adds new sensor technologies which complement those of other Group businesses.
Performance Continued investment in R&D, people development and export sales resources led to substantial profit growth. Our Water businesses increased sales in China by 63%.
Outlook New market-leading products are expected to boost sales growth in 2012/13. Water sector sales growth in Asia should accelerate, supported by investment in regional sales resources and the continuous stimulus of regulation. |
|
Fluid Technology Critical components such as pumps, probes, valves, connectors and gas conditioning products used by scientific, environmental and medical diagnostic OEMs for demanding applications.
Market trends and growth drivers Growth drivers for fluid technology markets remain strong, with rising demand for healthcare and improving standards of living around the world. We see good long-term growth prospects across all fluid technology markets, particularly in medical diagnostics and environmental monitoring.
Consolidation among instrument makers, relocation of OEM customers' manufacturing to low cost regions and continued price pressure are the key challenges facing our companies.
Strategy Customer diversification, both geographically and by markets served, is our primary strategy to stimulate growth and resilience. Our focus is on emerging niches, such as molecular diagnostics and genomics, where we will develop higher value-added products for customers. We will reflect our customers' manufacturing strategy by increasing non-US production and expanding manufacturing in China.
Performance Our Fluid Technology businesses achieved revenue growth but profit was slightly lower than last year. Major customer consolidation adversely affected results in many companies, including Accudynamics acquired in 2010.
Outlook Extra investment in R&D will deliver significant new products in 2012/13. Our own international expansion and the growing global medical diagnostic market should underpin a continuing shift away from the predominance of the US market. We anticipate a return to profit growth in 2012/13. |
|
Infrastructure Sensors Sector Review |
|
Fire Detection Fire and smoke detectors and audible/visual warning devices used in public, commercial and industrial property.
Market trends and growth drivers Worldwide fire market growth continues to be driven by legislation. Fire codes and standards governing installation, maintenance and servicing of fire products are extensive, often with differences at national, regional and even city level. In the emerging economies, codes and standards are still being created and slowly adopted. Although fire codes exist in Eastern Europe, South America and Asia there is often poor enforcement.
In the mature US and European markets, modest growth is forecast in 2012 for new installations and maintenance work. Stronger growth is expected in Asia Pacific and Latin American markets due to continuing construction investment, and increased regulation, particularly in China and Brazil.
Strategy Our primary strategy is world leadership in safety-critical sensor products used in commercial, public and industrial buildings. We are one of the world's largest manufacturers of point smoke detectors. Investment in worldwide product approvals and innovation in new products and technology will drive market share growth, maintain competitive advantage and ensure good margins.
Further investment in extending sales coverage in emerging markets will aid organic growth.
Performance Fire Detection revenue and profits grew. The Apollo brand was re-organised into a global business with significant operations in Europe, the United States and China. This gives us the ability to implement a global growth strategy with resources allocated according to the opportunity within each region.
Outlook Despite slowing demand from the new construction sector we anticipate continued growth as regulation drives demand in existing buildings. We expect our Fire Detection businesses to continue to gain market share due to robust IP protection, technology leadership and further penetration of regional markets. |
|
Automatic Door Sensors Sensors used on automatic doors in public, commercial and industrial buildings and transportation.
Market trends and growth drivers Demand in the niches that we target is driven by increasing legislation which improves the safety and security of people and processes. Asia is expected to be the fastest growth area, with a return to growth in the Americas. Supported by high levels of R&D spending, we continue to diversify outside our primary pedestrian door market. We believe that rail transport presents considerable growth opportunities.
Strategy Our core growth strategy is to maintain global market leadership in the pedestrian door sensors niche while growing sales by diversifying into industrial, security and transport door control applications.
Our response to the challenge of increased competitive pressure due to further consolidation among automatic door manufacturers is to enhance the value of our product offerings. Our unique award-winning laser scanner detectors demonstrate our commitment to global technology leadership. New, technologically advanced sensors, industry-leading manufacturing techniques and enhanced logistics will meet customers' needs and ensure competitive advantage.
Performance Revenue and profit improved despite economic uncertainty in a number of regions. A global board reorganisation was successfully completed without impact on performance. Despite short-term delays in the Chinese high-speed train projects, the overall diversification targets were achieved while maintaining growth in the core pedestrian door business.
Outlook Diversification into new applications such as transport, will enable revenue and profit growth above the rate of our traditional pedestrian door market. Spreading R&D resources globally will allow development of new products aligned with local customer needs and the ever-increasing regulations governing all of our door control markets. |
|
Elevator Safety Elevator/lift door safety sensors, emergency communication devices, displays and control panels.
Market trends and growth drivers Urbanisation, population ageing and increasing safety awareness are global drivers in the elevator market. We see wide regional variations in patterns of demand, with very positive growth in the emerging economies of Asia and Brazil, where growth comes from new-build installations. In our US and European markets, which are dependent on legislation-driven upgrades and building modernisation, demand is more steady. The worldwide market for elevator safety products is expected to grow by around 7% during 2012. The Chinese government's social housing programme, with a target of 36 million affordable homes over the next five years, demonstrates the impact of urbanisation. Chinese infrastructure investment now accounts for over half of global new elevator installations, and is forecast to grow by up to 20% per year.
Strategy Our strategy is to strengthen our offering by moving from a regional to a global presence. During 2011/12 we began the integration of our European and Asian Elevator Safety businesses, whose core technologies are door detectors, displays and emergency telephones, under a single management team. Sales, R&D and manufacturing resources are being rationalised with facilities in Europe, India, Singapore and China.
Performance Elevator Safety revenue was flat with profit lower partly due to reorganisation costs. We achieved strong revenue growth in Asia, while sales in Europe and the USA reflected the tougher trading conditions. Several global contracts were won for door safety devices which will provide significant revenue streams for the next three years at least.
Outlook The global elevator market is showing signs of lower growth in 2012/13. China will continue to be the focus of new-build elevator demand with the social housing programme scheduled to run until at least 2015. Longer term, a substantial Chinese service and modernisation market should emerge. Outside Asia, we expect to grow from market share gains, geographical expansion and new products. |
|
Security Sensors Security sensors and signals used in public, commercial and industrial property.
Market trends and growth drivers We anticipate positive changes in this market driven by new European standards for intruder alarm systems that take effect during 2012. We have invested in a completely new product line to ensure that our customers meet the new compliance and certification standards. Our security business has formed technology partnerships with leading providers in other security sectors to offer integrated systems and advanced building management and communication platforms. Our new wireless intruder detection technology, Ricochet, is gaining share as the first system of its type robust enough for commercial environments.
Strategy Our Security Sensors growth strategy remains focused on increasing revenue in Europe, the Middle East and Africa together with investment in sales resources in emerging economies like China and India. We have successfully integrated hazard signalling products into our security product portfolio to broaden our product offering. Innovation in new technologies, like Ricochet, will enable us to gain market share.
Performance Revenue grew slightly with profit lower than the prior year. This was partly accounted for by high investment in a fully renewed product line to meet new regulatory standards and reduce production costs.
Outlook We anticipate growth from Security Sensors during 2012/13. This should be supported by the impact of our new European-certified product portfolio, increasing adoption of wireless technology, and new revenue streams from our hazard signalling products. |
|
Industrial Safety Sector Review |
|
Safety Interlocks Specialised mechanical, electrical and electromechanical locks which ensure that critical processes operate safely.
Market trends and growth drivers Legislation-driven improvements in workplace safety standards is a resilient, long-term growth driver in safety interlocks markets. Continuously rising global energy consumption also creates demand.
Worldwide demand for industrial safety products reflects changing social and ethical attitudes towards worker safety and a recognition of the economic and reputation costs of accidents. We are seeing that local workplace safety regulations in most less-developed markets are becoming more widespread and better enforced each year. China's growing consumption of energy and raw materials is creating strong demand for interlocks from coal and metals producers within the wider Asian region.
Strategy We will grow revenue by investment in sales and manufacturing resources and in developing new applications, particularly in emerging markets. New products custom-engineered to match the needs of individual markets will be a key focus. We will increase manufacture of safety interlocks in China for rapid delivery to customers in Asia.
Performance Our Safety Interlocks businesses achieved record profit and revenue. We achieved strong growth in the UK and USA. Growth in China was steady while the government put investment in nuclear power on hold in response to the Fukushima nuclear disaster in Japan.
Outlook We expect continued growth in most geographic areas. Demand in Europe will be slower, particularly if the sovereign debt crisis intensifies. Oil and Gas project completions are likely to increase substantially as contractor bottlenecks are eased. Nuclear power investment in China, a significant growth market for our safety systems, may resume during 2012/13. |
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Gas Detection Portable instruments and fixed systems which detect flammable and hazardous gases.
Market trends and growth drivers Our core Gas Detection markets are the Oil and Gas industry, power generation, the utility industries and chemical processing. Global expansion of these markets will continue to support rising sales of toxic and flammable gas detection equipment. The underlying driver of demand is a growing focus on workplace safety coupled with the need to comply with stringent environmental and safety legislation. The global market is forecast to grow by around 4% p.a. New product introductions enable us to grow at rates in excess of the underlying market growth.
Strategy Geographic expansion, particularly into the Americas and Asia, supports our goal of growing revenue ahead of underlying market growth. Investment in the upgrading and extension of our product range allows us to continue to gain market share. We will continue to strengthen our senior management in China and our global marketing team.
Performance Our Gas Detection business again achieved record revenue and profits. This was based on market share gains in all regions except North America, Africa and Near and Middle East. We completed a comprehensive upgrade of our portable detector products in 2011/12. Our active new product development programme has resulted in over 50% of gas detector products sold during 2011/12 having been developed in the previous three years.
Outlook We anticipate continued growth in Gas Detection revenues underpinned by resilient regulatory drivers in our core industrial safety markets. Further growth opportunities will come from our new product development pipeline and entry into new gas detection applications and markets. |
|
Bursting Disks 'One time use' pressure relief devices to protect pressurised vessels and pipework in process industries.
Market trends and growth drivers Increasing global capital investment in both onshore and offshore Oil and Gas fields, combined with rising safety standards, continues to drive demand for our Bursting Disk safety devices. This rising investment trend is expected to be sustained during 2012 by high oil prices, with forecast growth of 13%. Technological advances have unlocked hydrocarbon resources from shale formations and we anticipate strong sales growth from this new gas production niche.
Strategy Our primary Bursting Disks strategy is to build on growth in our core oil, gas, process and manufacturing industry sectors while diversifying our customer base both geographically and in terms of applications. New offices were recently opened in China, Poland and Brazil. Potential new applications include medical instrumentation, aviation, storage safety and battery protection.
Performance During 2011/12 our Bursting Disks businesses achieved record revenue and profit with growth in all geographic regions except Far East, Africa and Near and Middle East.
Outlook Despite healthy market share in our traditional markets, we foresee additional growth potential through continued investment in innovative technology, expansion of global sales channels and diversification into new applications. |
|
Asset Monitoring Products for monitoring physical assets under water using sensors and communications technologies.
Market trends and growth drivers Our sonar products are used primarily on underwater, remotely-operated vehicles to monitor Oil and Gas industry offshore assets. The relatively high prices of oil and gas have prompted increasing investment in offshore production. Brazil, in particular, is experiencing huge capital investment growth as offshore production becomes increasingly viable. Other underwater applications, such as maintenance of harbours, sea-walls and dams, are increasing as post-war infrastructure projects (particularly in the USA) begin to decay. Construction of offshore renewable energy projects, such as wave, tidal and offshore wind power, may produce future growth opportunities.
Strategy Our strategy has been to grow market share through market-leading technology, investment in sales channels and entry into new niches like offshore renewable energy and subsea mining. During 2011/12 we expanded our presence in the USA and Brazil to get support resources closer to our customers.
Performance High R&D investment in our Asset Monitoring sonar products continued to drive growth and we achieved significant increases in revenue and profit.
Outlook We expect continued growth as high oil prices and political uncertainty over oil supply combine to drive investment in existing and new offshore assets. The relentless rise in global energy demand, forecast to rise by 30% between 2010 and 2040, also underpins growth in our subsea monitoring markets. |
|
Principal Risks and Uncertainties |
|
Risk description |
Potential impact |
Mitigation |
|
Operational Risk We seek to continuously grow our profits, generating and sustaining a high return for shareholders within a clear strategic framework. We view risk within the context of this objective as well as in absolute terms. In any business the inherent risks that are an integral component of business activities must be identified, managed and mitigated. We perceive our primary operational risks to emanate from remoteness of operations and the actions and quality of our employees. |
• Reduced financial performance • Inability to deliver growth strategy • Unexpected variation in Group results |
Our key means of risk control is the choice of the markets in which we operate and the people and methods we use to exploit those market opportunities. Our choice is to operate in the safety and health-related technology markets which we consider to be robust over the long term. Our products are predominantly critical components or instruments which are warranted as fit for the purpose rather than systems or intangible products where satisfactory performance is contingent upon third parties. Our quality systems and close management mitigate the risk of product failure/recall and the risk of an accident or fatality. We invest heavily in identifying, recruiting and training talented people who are able to manage the risks we face while delivering the excellent results we require. We always seek to spread our risks. We have processes in place to ensure any major transactions are reviewed at the appropriate level.
|
|
Organic Growth, Customer and Supplier Risk and Competition The Group faces competition in the form of pricing, service, reliability and substitution. Individual operating companies are at some risk of over-reliance on larger customers. We rely on high quality service from our supply partners. These constitute an ongoing potential threat to our growth. |
• Loss of market share • Disruption of service to customers • Reduced financial performance |
Our focus on investing in management development, innovation and international growth is a direct result of assessing these risks. We do not place undue reliance on any one Group company nor does the Group rely heavily on one customer, supplier or transaction. We address customer concentration at Company level through active diversification of the customer base. No customer represents more than 2% of Group revenue. We aim to manage the risk of timing and quality of component supply by dual sourcing and long-standing working relationships. By empowering and resourcing local operations to respond to changing market needs, the potential adverse impact of downward price pressure and competition can be mitigated and growth maintained. We recognise the competitive threat coming from emerging economies and by operating within these economies, typically using local staff, we are better placed to make fast progress ourselves.
|
|
New products are critical to our organic growth and underpin our ability to earn high margins and high returns over the long term.
|
• Reduced financial performance • Loss of market share • Failure to obtain adequate return on investment |
|
|
Our businesses build competitive advantage and strengthen barriers to entry in many ways including patents, product approvals, technical innovation, product quality, customer service levels and branding. We look for these qualities in the businesses we seek to acquire. Protection of our intellectual property is important to our continued success. |
|
|
|
Group operations are subject to wide-ranging laws and regulations including business conduct, employment, environmental and health and safety legislation. There is also exposure to product litigation and contractual risk. The laws and regulations we are exposed to as our businesses expand around the world increase each year. |
• Reduced financial performance • Reputational damage • Diversion of management resources • Financial penalties |
|
|
The identification and purchase of businesses which meet our demanding financial and growth criteria is an important part of our strategy for developing the Group, as is ensuring the new businesses are rapidly integrated into the Group. |
• Reduced financial performance • Unforeseen liabilities • Failure to deliver expected returns |
|
|
Group and operational management depend on timely and reliable information from our software systems. We seek to ensure continuous availability, security and operation of those systems. |
• Delay or impact on decision making • Reduced service to customers • Loss of Intellectual Property |
|
|
Our objective is to grow our business across the world and to increase revenue and profit outside of developed markets and particularly in Asia. This presents both operating and cultural risks across the world. We recognise that the size and remoteness of some operations may not permit full segregation of duties and that Internal and External Audit procedures may not always identify a financial irregularity.
|
• Reduced financial performance • Reputational damage • Missed opportunity • Inability to deliver on growth strategy
|
|
|
A key risk is that the Group will run out of cash or have inadequate access to cash. In addition, cash deposits need to be held in a secure form or location. |
• Constraints on, or inability to, trade • Inability to deliver on growth strategies • Permanent loss of shareholder funds |
|
|
Foreign currency risk is the most significant treasury related risk for the Group. In times of increased volatility this can have a significant impact on performance. The Sterling value of overseas profit earned during the year is sensitive to the strength of Sterling, particularly against the US Dollar and the Euro. The Group is exposed to a lesser extent to other treasury risks such as interest rate risk and liquidity risk. |
• Reduced financial performance • Reputational damage • Financial penalties |
|
|
In times of uncertain economic conditions businesses face additional or elevated levels of risk. These include market and customer risk, customer default, fraud, supply chain risk and liquidity risk. Uncertainty in the Eurozone in particular adds to current uncertainty. |
• Reduced financial performance • Loss of market share • Unforeseen liabilities • Disruption of service to customers |
The Group has reviewed its potential exposure to the current macro-economic uncertainty relating to the Eurozone economies. The Group operates in a broad spread of markets, which substantially limits the risk associated with instability in any given territory. Whilst the Group had sales into Mainland Europe of £154m in 2011/12 (27% of total Group sales), sales into Greece, Ireland, Italy, Portugal and Spain represented just £26m (4% of total Group sales). The Group does not have any significant operations within these countries. The Group holds no significant cash deposits in, and none of the Group's funding is provided by an institution primarily located in, any of these countries.
|
|
Monitoring the funding needs of the Group's pension plans is essential to funding our pension obligations effectively. Our UK defined benefit pension plans are closed to new members. |
• Excessive consumption of cash limiting investment • Unexpected variability in company results |
|
|
Going Concern Statement
The Group has considerable financial resources (including a £260m five-year revolving credit facility) together with contracts with a diverse range of customers and suppliers across different geographic areas and industries. No one customer accounts for more than 2% of Group turnover. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.
After conducting a formal review of the Group's financial resources, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. |
|
Responsibility Statement of the Directors
The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the 52 weeks to 31 March 2012. Certain parts thereof are not included within this Preliminary Announcement.
We confirm that to the best of our knowledge:
|
|
|
1. |
the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
|
|
2. |
the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. |
|
This responsibility statement was approved by the Board of Directors on 14 June 2012 and is signed on its behalf by: |
|
A J Williams Chief Executive |
K J Thompson Finance Director |
Preliminary results for the 52 weeks to 31 March 2012
Consolidated Income Statement
|
|
52 weeks to 31 March 2012 |
52 weeks to 2 April 2011 |
|||||
|
|
Notes |
Before Adjustments* £000 |
Adjustments* (note 2) £000 |
Total £000 |
Before Adjustments* £000 |
Adjustments* (note 2) £000 |
Total £000 |
|
Continuing operations |
|
|
|
|
|
|
|
|
Revenue |
2 |
579,883 |
- |
579,883 |
518,428 |
- |
518,428 |
|
Operating profit |
|
121,944 |
(12,034) |
109,910 |
105,708 |
(6,259) |
99,449 |
|
Share of results of associates |
|
(37) |
- |
(37) |
(59) |
- |
(59) |
|
Profit on disposal of continuing operations |
|
- |
3,543 |
3,543 |
- |
- |
- |
|
Finance income |
3 |
10,070 |
- |
10,070 |
9,420 |
- |
9,420 |
|
Finance expense |
4 |
(11,512) |
- |
(11,512) |
(10,518) |
- |
(10,518) |
|
Profit before taxation |
|
120,465 |
(8,491) |
111,974 |
104,551 |
(6,259) |
98,292 |
|
Taxation |
5 |
(28,256) |
2,996 |
(25,260) |
(27,367) |
1,509 |
(25,858) |
|
Profit for the year attributable to equity shareholders |
2 |
92,209 |
(5,495) |
86,714 |
77,184 |
(4,750) |
72,434 |
|
|
6 |
|
|
|
|
|
|
|
From continuing operations |
|
|
|
|
|
|
|
|
Basic |
|
24.46p |
|
23.01p |
20.49p |
|
19.23p |
|
Diluted |
|
|
|
22.97p |
|
|
19.19p |
|
Dividends in respect of the year |
7 |
|
|
|
|
|
|
|
Paid and proposed (£000) |
|
|
|
36,738 |
|
|
34,275 |
|
Paid and proposed per share |
|
|
|
9.74p |
|
|
9.10p |
|
* Adjustments include the amortisation of acquired intangible assets; acquisition transaction costs; movement on contingent consideration; profit on disposal of continuing operations; and the associated taxation thereon. |
Consolidated Statement of
Comprehensive Income and Expenditure
|
|
52 weeks to |
52 weeks to |
|
Profit for the year |
86,714 |
72,434 |
|
|
|
|
|
Exchange differences on translation of foreign operations and net investment hedge |
(5,707) |
(4,268) |
|
Actuarial (losses)/gains on defined benefit pension plans |
(3,024) |
857 |
|
Effective portion of changes in fair value of cash flow hedges |
545 |
(311) |
|
Tax relating to components of other comprehensive income |
(11) |
(887) |
|
Other comprehensive expense for the year |
(8,197) |
(4,609) |
|
|
|
|
|
Total comprehensive income for the year attributable to equity shareholders |
78,517 |
67,825 |
|
The exchange differences of £5,707,000 (2011: £4,268,000) comprise £776,000 (2011: £211,000) which relate to net investment hedges as described in the Accounting Policies set out in the Annual Report and Accounts 2012. |
Consolidated Balance Sheet
|
|
|
31 March |
2 April |
|
Non-current assets |
|
|
|
|
Goodwill |
|
267,471 |
259,954 |
|
Other intangible assets |
|
74,483 |
73,490 |
|
Property, plant and equipment |
|
72,118 |
69,891 |
|
Interests in associates |
|
1,968 |
1,989 |
|
Deferred tax asset |
|
11,039 |
10,779 |
|
|
|
427,079 |
416,103 |
|
Current assets |
|
|
|
|
Inventories |
|
57,368 |
54,540 |
|
Trade and other receivables |
|
114,674 |
110,456 |
|
Tax receivable |
|
288 |
237 |
|
Cash and cash equivalents |
|
45,305 |
42,610 |
|
Derivative financial instruments |
|
469 |
327 |
|
|
|
218,104 |
208,170 |
|
Total assets |
|
645,183 |
624,273 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
93,499 |
85,511 |
|
Provisions |
|
2,618 |
2,887 |
|
Tax liabilities |
|
11,870 |
14,997 |
|
Derivative financial instruments |
|
126 |
858 |
|
|
|
108,113 |
104,253 |
|
Net current assets |
|
109,991 |
103,917 |
|
Non-current liabilities |
|
|
|
|
Borrowings |
|
64,014 |
79,688 |
|
Retirement benefit obligations |
|
32,997 |
36,237 |
|
Trade and other payables |
|
13,388 |
22,848 |
|
Provisions |
|
2,301 |
1,593 |
|
Deferred tax liabilities |
|
26,258 |
24,269 |
|
|
|
138,958 |
164,635 |
|
Total liabilities |
|
247,071 |
268,888 |
|
Net assets |
|
398,112 |
355,385 |
|
Equity |
|
|
|
|
Share capital |
|
37,856 |
37,824 |
|
Share premium account |
|
22,177 |
21,744 |
|
Treasury shares |
|
(4,569) |
(5,016) |
|
Capital redemption reserve |
|
185 |
185 |
|
Hedging and translation reserve |
|
29,212 |
34,511 |
|
Other reserves |
|
1,346 |
3,634 |
|
Retained earnings |
|
311,905 |
262,503 |
|
Shareholders' funds |
|
398,112 |
355,385 |
Consolidated Statement of Changes in Equity
|
|
Share |
Share |
Treasury |
Capital |
Hedging |
Other |
Retained |
Total |
|
At 2 April 2011 |
37,824 |
21,744 |
(5,016) |
185 |
34,511 |
3,634 |
262,503 |
355,385 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
86,714 |
86,714 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income and expense: |
|
|
|
|
|
|
|
|
|
Exchange differences on translation of foreign operations |
- |
- |
- |
- |
(5,707) |
- |
- |
(5,707) |
|
Actuarial losses on defined benefit pension plans |
- |
- |
- |
- |
- |
- |
(3,024) |
(3,024) |
|
Effective portion of changes in fair value of cash flow hedges |
- |
- |
- |
- |
545 |
- |
- |
545 |
|
Tax relating to components of other comprehensive income |
- |
- |
- |
- |
(137) |
- |
126 |
(11) |
|
Total other comprehensive income and expense |
- |
- |
- |
- |
(5,299) |
- |
(2,898) |
(8,197) |
|
Share options exercised |
32 |
433 |
- |
- |
- |
- |
- |
465 |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
(35,232) |
(35,232) |
|
Share-based payments |
- |
- |
- |
- |
- |
(2,082) |
- |
(2,082) |
|
Deferred tax on share-based payment transactions |
- |
- |
- |
- |
- |
(206) |
- |
(206) |
|
Excess tax deductions related to |
- |
- |
- |
- |
- |
- |
818 |
818 |
|
Net movement in treasury shares |
- |
- |
447 |
- |
- |
- |
- |
447 |
|
At 31 March 2012 |
37,856 |
22,177 |
(4,569) |
185 |
29,212 |
1,346 |
311,905 |
398,112 |
|
|
|
|
|
|
|
|
|
|
|
At 2 April 2010 |
37,765 |
20,959 |
(2,581) |
185 |
39,013 |
4,178 |
222,974 |
322,493 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
72,434 |
72,434 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income and expense: |
|
|
|
|
|
|
|
|
|
Exchange differences on translation of foreign operations |
- |
- |
- |
- |
(4,268) |
- |
- |
(4,268) |
|
Actuarial gains on defined benefit pension plans |
- |
- |
- |
- |
- |
- |
857 |
857 |
|
Effective portion of changes in fair value of cash flow hedges |
- |
- |
- |
- |
(311) |
- |
- |
(311) |
|
Tax relating to components of other comprehensive income |
- |
- |
- |
- |
77 |
- |
(964) |
(887) |
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income and expense |
- |
- |
- |
- |
(4,502) |
- |
(107) |
(4,609) |
|
Share options exercised |
59 |
785 |
- |
- |
- |
- |
- |
844 |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
(32,891) |
(32,891) |
|
Share-based payments |
- |
- |
- |
- |
- |
(764) |
- |
(764) |
|
Deferred tax on share-based payment transactions |
- |
- |
- |
- |
- |
220 |
- |
220 |
|
Excess tax deductions related to |
- |
- |
- |
- |
- |
- |
93 |
93 |
|
Net movement in treasury shares |
- |
- |
(2,435) |
- |
- |
- |
- |
(2,435) |
|
At 2 April 2011 |
37,824 |
21,744 |
(5,016) |
185 |
34,511 |
3,634 |
262,503 |
355,385 |
|
Treasury shares are ordinary shares in Halma plc purchased by the Company and held to fulfil the Company's obligations under the performance share plan. At 31 March 2012 the number of treasury shares held was 1,404,269 (2011: 1,847,368) and their market value was £5,344,648 (2011: £6,558,156). The net movement of treasury shares of £447,000 (2011: (£2,435,000)) comprises the purchase of treasury shares of £3,985,000 (2011: £5,358,000) offset by the transfer to Other reserves of £4,432,000 (2011: £2,923,000).
The Hedging and translation reserve is used to record differences arising from the retranslation of the financial statements of foreign operations and the portion of the cumulative net change in the fair value of cash flow hedging instruments that are deemed to be an effective hedge. Other than a net income of £127,000 (2011: charge of £281,000), all amounts at year end relate to translation movements.
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 equity-settled share option plans and performance share plan. |
Consolidated Cash Flow Statement
|
|
|
52 weeks to |
52 weeks to |
|
Net cash inflow from operating activities |
9 |
97,687 |
95,064 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Purchase of property, plant and equipment |
|
(15,196) |
(14,399) |
|
Purchase of computer software |
|
(1,293) |
(1,019) |
|
Purchase of other intangibles |
|
(46) |
(6) |
|
Proceeds from sale of property, plant and equipment |
|
1,244 |
677 |
|
Development costs capitalised |
|
(4,718) |
(4,735) |
|
Interest received |
|
212 |
317 |
|
Acquisition of businesses, net of cash acquired |
8 |
(18,667) |
(82,093) |
|
Acquisition of investments in associates |
|
- |
(1,708) |
|
Disposal of business, net of cash disposed |
|
3,554 |
- |
|
Net cash used in investing activities |
|
(34,910) |
(102,966) |
|
|
|
|
|
|
Financing activities |
|
|
|
|
Dividends paid |
|
(35,232) |
(32,891) |
|
Proceeds from issue of share capital |
|
465 |
844 |
|
Purchase of treasury shares |
|
(3,985) |
(5,358) |
|
Interest paid |
|
(1,490) |
(825) |
|
Loan arrangement fee |
|
(1,903) |
- |
|
Proceeds from borrowings |
9 |
76,456 |
76,156 |
|
Repayment of borrowings |
9 |
(94,050) |
(18,152) |
|
Net cash (used in)/from financing activities |
|
(59,739) |
19,774 |
|
|
|
|
|
|
Increase in cash and cash equivalents |
9 |
3,038 |
11,872 |
|
Cash and cash equivalents brought forward |
|
42,610 |
31,006 |
|
Exchange adjustments |
|
(343) |
(268) |
|
Cash and cash equivalents carried forward |
|
45,305 |
42,610 |
Notes to the Preliminary Announcement
1 Basis of preparation General Information
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU) and 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 International Financial Reporting Interpretations Committee (IFRIC) interpretations issued and effective at the time of preparing these accounts.
The financial information set out in this Preliminary Announcement does not constitute the Group's statutory accounts for the years ended 31 March 2012 and 2 April 2011 but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's Annual General Meeting. The auditors' reports on the 2011 and the 2012 accounts were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
This Preliminary Announcement was approved by the Board of Directors on 14 June 2012. |
|
2 Segmental analysis Sector analysis
The Group has three main reportable segments (Health and Analysis, Infrastructure Sensors, and Industrial Safety), 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 as reviewed by the Chief Executive Officer.
|
|
|
Revenue (all continuing operations) |
|
|
|
52 weeks to |
52 weeks to |
|
Health and Analysis |
253,647 |
218,330 |
|
Infrastructure Sensors |
204,280 |
197,209 |
|
Industrial Safety |
122,240 |
103,058 |
|
Inter-segmental sales |
(284) |
(169) |
|
Revenue for the year |
579,883 |
518,428 |
|
Inter-segmental sales are charged at prevailing market prices and have not been disclosed separately by segment as they are not considered material. The Group does not analyse revenue by product group and has no material revenue derived from the rendering of services. |
|
|
Profit (all continuing operations) |
|
|
|
52 weeks to |
52 weeks to |
|
|
|
|
|
Health and Analysis |
57,848 |
46,108 |
|
Infrastructure Sensors |
39,099 |
39,023 |
|
Industrial Safety |
29,226 |
24,435 |
|
|
126,173 |
109,566 |
|
|
|
|
|
Health and Analysis |
49,779 |
40,170 |
|
Infrastructure Sensors |
39,276 |
38,981 |
|
Industrial Safety |
28,627 |
24,156 |
|
Segment profit |
117,682 |
103,307 |
|
Central administration costs |
(4,266) |
(3,917) |
|
Net finance expense |
(1,442) |
(1,098) |
|
Group profit before taxation |
111,974 |
98,292 |
|
Taxation |
(25,260) |
(25,858) |
|
Profit for the year |
86,714 |
72,434 |
|
The accounting policies of the reportable segments are the same as the Group's accounting policies. For acquisitions after 3 April 2010, acquisition transaction costs and movement on contingent consideration are recognised in the Consolidated Income Statement. Segment profit, before these acquisition costs, the amortisation of acquired intangible assets and the profit on disposal of continuing operations is disclosed separately above as this is the measure reported to the Chief Executive Officer for the purpose of allocation of resources and assessment of segment performance.
The amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration (including any arising from foreign exchange revaluation) and profit on disposal of continuing operations are analysed as follows: |
|
|
|
|
|
|
2012 |
|
|
|
|
Acquisition costs |
|
|
||
|
|
Amortisation |
Transaction |
Adjustments |
Disposal of |
Total |
|
|
Health and Analysis |
(9,804) |
(667) |
(1,141) |
3,543 |
(8,069) |
|
|
Infrastructure Sensors |
- |
- |
177 |
- |
177 |
|
|
Industrial Safety |
(548) |
(51) |
- |
- |
(599) |
|
|
Total Group |
(10,352) |
(718) |
(964) |
3,543 |
(8,491) |
|
|
The transaction costs mainly arose on the acquisitions in note 8 of SunTech Medical Group Limited (£225,000), Kirk Key Interlock Company LLC. (£51,000), Avo Photonics, Inc. (£55,000), Accutome, Inc. (£100,000) and Sensorex Inc. (£41,000). |
|
|
|
|
|
|
2011 |
|
|
|
|
Acquisition costs |
|
|
||
|
|
Amortisation |
Transaction |
Adjustments |
Disposal of |
Total |
|
|
Health and Analysis |
(4,481) |
(1,226) |
(231) |
- |
(5,938) |
|
|
Infrastructure Sensors |
- |
(42) |
- |
- |
(42) |
|
|
Industrial Safety |
(279) |
- |
- |
- |
(279) |
|
|
Total Group |
(4,760) |
(1,268) |
(231) |
- |
(6,259) |
|
|
|
||||
|
|
|
|
|
Revenue by |
|
|
|
|
2012 |
2011 |
|
United States of America |
|
|
161,951 |
150,280 |
|
Mainland Europe |
|
|
154,428 |
138,313 |
|
United Kingdom |
|
|
125,613 |
106,131 |
|
Asia Pacific and Australasia |
|
|
87,277 |
76,207 |
|
Africa, Near and Middle East |
|
|
27,750 |
28,756 |
|
Other countries |
|
|
22,864 |
18,741 |
|
|
|
|
579,883 |
518,428 |
|
3 Finance income |
|
|
|
|
2012 |
2011 |
|
Interest receivable |
212 |
317 |
|
Expected return on pension scheme assets |
9,529 |
9,103 |
|
|
9,741 |
9,420 |
|
Fair value movement on derivative financial instruments |
329 |
- |
|
|
10,070 |
9,420 |
|
4 Finance expense |
|
|
|
|
2012 |
2011 |
|
Interest payable on bank loans and overdrafts |
1,383 |
690 |
|
Amortisation of finance costs |
282 |
- |
|
Interest charge on pension scheme liabilities |
9,684 |
9,525 |
|
Other interest payable |
107 |
135 |
|
|
11,456 |
10,350 |
|
Fair value movement on derivative financial instruments |
- |
121 |
|
Unwinding of discount on provisions |
56 |
47 |
|
|
11,512 |
10,518 |
|
5 Taxation |
|
|
|
|
2012 |
2011 |
|
Current tax |
|
|
|
UK corporation tax at 26% (2011: 28%) |
9,021 |
10,009 |
|
Overseas taxation |
15,635 |
14,154 |
|
Adjustments in respect of prior years |
753 |
947 |
|
Total current tax charge |
25,409 |
25,110 |
|
Deferred tax |
|
|
|
Origination and reversal of timing differences |
362 |
1,361 |
|
Adjustments in respect of prior years |
(511) |
(613) |
|
Total deferred tax (credit)/charge |
(149) |
748 |
|
Total tax charge recognised in the Consolidated Income Statement |
25,260 |
25,858 |
|
Reconciliation of the effective tax rate: |
|
|
|
Profit before tax |
111,974 |
98,292 |
|
|
|
|
|
Tax at the UK corporation tax rate of 26% (2011: 28%) |
29,113 |
27,522 |
|
Overseas tax rate differences |
3,574 |
2,996 |
|
Permanent differences |
(7,669) |
(4,994) |
|
Adjustments in respect of prior years |
242 |
334 |
|
|
25,260 |
25,858 |
|
Effective tax rate (after amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration and profit on disposal of continuing operations) |
22.6% |
26.3% |
|
|
|
|
|
Profit before tax* |
120,465 |
104,551 |
|
Total tax charge* |
28,256 |
27,367 |
|
Effective tax rate* |
23.5% |
26.2% |
|
|
||
|
6 Earnings per ordinary share Basic earnings per ordinary share are calculated using the weighted average of 376,926,013 shares in issue during the year (net of shares purchased by the Company and held as treasury shares) (2011: 376,608,974). Diluted earnings per ordinary share are calculated using the weighted average of 377,473,142 shares (2011: 377,365,635), which includes dilutive potential ordinary shares of 547,129 (2011: 756,661). Dilutive potential ordinary shares are calculated from those exercisable share options where the exercise price is less than the average price of the Company's ordinary shares during the year.
Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration and profit on disposal of continuing operations after tax. The Directors consider that adjusted earnings represent a more consistent measure of underlying performance. A reconciliation of earnings and the effect on basic earnings per share figures is as follows: |
|
|
|
|
Per ordinary share |
|
|
|
2012 |
2011 |
2012 |
2011 |
|
Earnings from continuing operations |
86,714 |
72,434 |
23.01 |
19.23 |
|
Add back amortisation of acquired intangible assets (after tax) |
7,561 |
3,315 |
2.00 |
0.88 |
|
Acquisition transaction costs (after tax) |
691 |
1,268 |
0.18 |
0.34 |
|
Adjustments to contingent consideration (after tax) |
786 |
167 |
0.21 |
0.04 |
|
Profit on disposal of continuing operations (after tax) |
(3,543) |
- |
(0.94) |
- |
|
Adjusted earnings |
92,209 |
77,184 |
24.46 |
20.49 |
|
7 Dividends |
|
|
||
|
|
Per ordinary share |
|
||
|
|
2012 |
2011 |
2012 |
2011 |
|
Amounts recognised as distributions to shareholders in the |
|
|
|
|
|
Final dividend for the year to 2 April 2011 (3 April 2010) |
5.56 |
5.19 |
20,934 |
19,550 |
|
Interim dividend for the year to 31 March 2012 (2 April 2011) |
3.79 |
3.54 |
14,298 |
13,341 |
|
|
9.35 |
8.73 |
35,232 |
32,891 |
|
Dividends declared in respect of the year |
|
|
|
|
|
Interim dividend for the year to 31 March 2012 (2 April 2011) |
3.79 |
3.54 |
14,298 |
13,341 |
|
Proposed final dividend for the year to 31 March 2012 (2 April 2011) |
5.95 |
5.56 |
22,440 |
20,934 |
|
|
9.74 |
9.10 |
36,738 |
34,275 |
|
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 24 July 2012 and has not been included as a liability in these financial statements. If approved, the final dividend for 2011/12 will be paid on 22 August 2012 to shareholders on the register at the close of business on 20 July 2012.
The Company offers a Dividend Reinvestment Plan ('DRIP') to enable shareholders to elect to have their cash dividends reinvested in Halma shares. Shareholders who wish to elect for the DRIP for the forthcoming final dividend, but have not already done so, should return a DRIP mandate form to the Company's Registrars no later than 1 August 2012. |
|
8 Acquisitions
a) the total of both acquisitions and adjustments to prior year acquisitions; |
|
(A) Total of both acquisitions and adjustments to prior year acquisitions |
|
|
|
|
|
|
Provisional |
|
|
Non-current assets |
|
|
|
|
Intangible assets |
9 |
9,979 |
9,988 |
|
Property, plant and equipment |
518 |
405 |
923 |
|
Current assets |
|
|
|
|
Inventories |
739 |
17 |
756 |
|
Trade and other receivables |
1,565 |
(41) |
1,524 |
|
Cash and cash equivalents |
49 |
- |
49 |
|
Deferred tax |
- |
1,917 |
1,917 |
|
Total assets |
2,880 |
12,277 |
15,157 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
(763) |
(220) |
(983) |
|
Bank loans |
(1,144) |
- |
(1,144) |
|
Provisions |
- |
(245) |
(245) |
|
Corporation tax |
(41) |
(4) |
(45) |
|
Non-current liabilities |
|
|
|
|
Deferred tax |
- |
(3,679) |
(3,679) |
|
Total liabilities |
(1,948) |
(4,148) |
(6,096) |
|
Net assets of businesses acquired |
932 |
8,129 |
9,061 |
|
|
|
|
|
|
Cash consideration |
|
|
13,305 |
|
Contingent purchase consideration (current year acquisitions) |
|
|
6,464 |
|
Total consideration |
|
|
19,769 |
|
|
|
|
|
|
Goodwill arising on current year acquisitions |
|
|
10,781 |
|
Goodwill arising on prior year acquisitions |
|
|
(73) |
|
|
|
|
10,708 |
|
Due to their contractual dates, the fair value of receivables acquired (shown above) approximates 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).
£2,033,000 of the goodwill arising on acquisitions in the year is expected to be deductible for tax purposes.
Together, both acquisitions contributed £10,198,000 of revenue and £1,992,000 of profit after tax for the year ended 31 March 2012. If these acquisitions had been held since the start of the financial year, it is estimated the Group's reported revenue and profit after tax would have been £1,803,000 and £229,000 higher respectively.
Adjustments were made to the book values of the net assets of the companies acquired to reflect their provisional fair values to the Group. Acquired inventories were valued at the lower of cost and net realisable value adopting Group bases and any liabilities for warranties relating to past trading were recognised. Other previously unrecognised assets and liabilities at acquisition were included and accounting policies were aligned with those of the Group where appropriate.
Adjustments to prior year acquisitions resulted in decreases to net assets and consideration payable of £5,000 and £78,000 respectively leading to a reduction in goodwill of £73,000. |
|
Analysis of cash outflow in the Consolidated Cash Flow Statement |
|
|
|
|
2012 |
2011 |
|
Cash consideration in respect of acquisitions |
13,305 |
82,063 |
|
Cash acquired on acquisitions |
(49) |
(2,672) |
|
Contingent consideration paid in relation to prior year acquisitions* |
5,411 |
2,702 |
|
Net cash outflow relating to acquisitions (per cash flow statement) |
18,667 |
82,093 |
|
Bank loans acquired |
1,144 |
- |
|
Net cash outflow, including repayment of acquired bank loans |
19,811 |
82,093 |
|
* Of the £5,411,000 (2011: £2,702,000) contingent purchase consideration payment £5,411,000 (2011: £1,122,000) had been provided in the prior year's financial statements. |
|
(Bi) Kirk Key Interlock Company, LLC. |
|
|
|
|
|
|
Provisional |
|
|
Non-current assets |
|
|
|
|
Intangible assets |
9 |
5,555 |
5,564 |
|
Property, plant and equipment |
290 |
410 |
700 |
|
Current assets |
|
|
|
|
Inventories |
598 |
(77) |
521 |
|
Trade and other receivables |
738 |
1 |
739 |
|
Cash and cash equivalents |
47 |
- |
47 |
|
Deferred tax |
- |
1,918 |
1,918 |
|
Total assets |
1,682 |
7,807 |
9,489 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
(443) |
(103) |
(546) |
|
Bank loans |
(1,144) |
- |
(1,144) |
|
Provisions |
- |
(42) |
(42) |
|
Non-current liabilities |
|
|
|
|
Deferred tax |
- |
(2,111) |
(2,111) |
|
Total liabilities |
(1,587) |
(2,256) |
(3,843) |
|
Net assets of businesses acquired |
95 |
5,551 |
5,646 |
|
|
|
|
|
|
Cash consideration |
|
|
7,679 |
|
Contingent purchase consideration |
|
|
- |
|
Total consideration |
|
|
7,679 |
|
|
|
|
|
|
Goodwill arising on acquisition |
|
|
2,033 |
|
On 9 May 2011, the Group acquired 100% of the issued share capital of Kirk Key Interlock Company, LLC. (Kirk Key). Kirk Key is based in Ohio, USA and manufactures interlocking systems to protect personnel and equipment in industrial applications. Kirk Key forms part of the Industrial Safety sector and was acquired to give Halma greater market strength in the USA. 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 £4,571,000 and brand intangibles of £984,000 with residual goodwill arising of £2,033,000. The goodwill represents the value of the acquired workforce, cross-selling opportunities and the ability to exploit the Group's existing distribution arrangements, particularly in the Americas.
The initial consideration was US$12,583,000 (US$14,458,000 including repayment of US$1,875,000 bank loans). There are no contingent consideration payment arrangements.
The Kirk Key acquisition contributed £5,873,000 of revenue and £1,170,000 of profit after tax for the year ended 31 March 2012. |
|
(Bii) Avo Photonics, Inc. |
|
|
|
|
|
Book |
Provisional |
Total |
|
Non-current assets |
|
|
|
|
Intangible assets |
- |
4,424 |
4,424 |
|
Property, plant and equipment |
228 |
(5) |
223 |
|
Current assets |
|
|
|
|
Inventories |
140 |
50 |
190 |
|
Trade and other receivables |
826 |
(68) |
758 |
|
Cash and cash equivalents |
2 |
- |
2 |
|
Total assets |
1,196 |
4,401 |
5,597 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
(320) |
(22) |
(342) |
|
Provisions |
- |
(203) |
(203) |
|
Corporation tax |
(41) |
(23) |
(64) |
|
Non-current liabilities |
|
|
|
|
Deferred tax |
- |
(1,568) |
(1,568) |
|
Total liabilities |
(361) |
(1,816) |
(2,177) |
|
Net assets of businesses acquired |
835 |
2,585 |
3,420 |
|
|
|
|
|
|
Cash consideration |
|
|
5,704 |
|
Contingent purchase consideration |
|
|
6,464 |
|
Total consideration |
|
|
12,168 |
|
|
|
|
|
|
Goodwill arising on acquisition |
|
|
8,748 |
|
On 8 July 2011, the Group acquired 100% of the issued share capital of Avo Photonics, Inc. (Avo). Avo, based in Pennsylvania, USA, designs and manufactures advanced, miniaturised photonic components and subsystems for OEM customers serving a wide range of end-markets. Avo forms part of the Health and Analysis sector and was acquired to give Halma's Photonics businesses access to additional technologies and manufacturing processes. 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 £4,424,000 with residual goodwill arising of £8,748,000. The goodwill represents the engineering expertise of the acquired workforce, the opportunity to leverage this expertise across all Halma's Photonics businesses and the ability to exploit the Group's existing customer base.
The initial consideration was US$9,126,000 followed by contingent consideration payable on or around June 2012 of between US$nil and US$11,000,000 dependent on the profits of the acquired business for the year up to March 2012. The Directors revised the initial estimate of US$10,341,000 of contingent consideration to US$11,000,000 at year end, and the increase of US$659,000 was recognised in the Consolidated Income Statement.
The Avo acquisition contributed £4,325,000 of revenue and £822,000 of profit after tax for the year ended 31 March 2012. |
|
Since the balance sheet, the Group has made three further acquisitions.
(C) Accutome, Inc., Sensorex Inc. and SunTech Medical Group Limited Due to the proximity of the acquisition dates to the date of approval of the Annual Report, it is only practicable to provide provisional summaries of the assets and liabilities acquired and the purchase consideration for two of the acquisitions, namely Accutome, Inc. and Sensorex Inc. |
|
(Ci) Accutome, Inc. |
|
|
|
|
|
Book |
Provisional |
Total |
|
Non-current assets |
|
|
|
|
Intangible assets |
20 |
6,924 |
6,944 |
|
Property, plant and equipment |
683 |
(42) |
641 |
|
Current assets |
|
|
|
|
Inventories |
2,768 |
40 |
2,808 |
|
Trade and other receivables |
1,800 |
(527) |
1,273 |
|
Total assets |
5,271 |
6,395 |
11,666 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
(1,475) |
(433) |
(1,908) |
|
Bank loans and overdrafts |
(1,553) |
- |
(1,553) |
|
Provisions |
- |
(25) |
(25) |
|
Non-current liabilities |
|
|
|
|
Deferred tax |
- |
(2,256) |
(2,256) |
|
Total liabilities |
(3,028) |
(2,714) |
(5,742) |
|
Net assets of businesses acquired |
2,243 |
3,681 |
5,924 |
|
|
|
|
|
|
Cash consideration |
|
|
11,044 |
|
Contingent purchase consideration |
|
|
3,120 |
|
Total consideration |
|
|
14,164 |
|
|
|
|
|
|
Goodwill arising on acquisition |
|
|
8,240 |
|
On 2 April 2012, the Group acquired 100% of the issued share capital of Accutome, Inc. (Accutome). Accutome, based in Pennsylvania, USA, with a wholly owned subsidiary located in the Netherlands, designs, manufactures and sells surgical and diagnostic instruments and a variety of pharmaceuticals for the ophthalmic marketplace. Accutome is best known for its leading ultrasound diagnostic equipment (used prior to cataract surgery and to diagnose certain eye conditions), and for its surgical instrumentation, featuring its leading diamond bladed surgical knives. Accutome forms part of the Health and Analysis sector and was acquired to further expand Halma's footprint in ophthalmic diagnostic and surgical instrumentation. The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by supplier arrangement, customer-related, and trademark intangibles of £6,924,000 with residual goodwill arising of £8,240,000. The goodwill represents:
a) the value of the acquired workforce; b) the ability to exploit Accutome's distribution arrangements; c) potential synergies with other Halma companies within the ophthalmic market; and d) the ability to exploit the Group's existing distribution arrangements, particularly outside North America.
The initial cash consideration of US$17,697,000 (US$20,000,000 including repayment of US$2,303,000 bank loans) is adjustable based on the level of net working capital at closing. Contingent consideration of between US$nil and US$5,000,000 is payable dependent on the profits of the acquired business for the period up to September 2013. The Directors estimate that contingent consideration of US$5,000,000 will be paid. |
|
(Cii) Sensorex Inc. |
|||
|
|
Book |
Provisional |
Total |
|
Non-current assets |
|
|
|
|
Intangible assets |
- |
12,689 |
12,689 |
|
Property, plant and equipment |
286 |
- |
286 |
|
Current assets |
|
|
|
|
Inventories |
564 |
(121) |
443 |
|
Trade and other receivables |
1,176 |
(63) |
1,113 |
|
Total assets |
2,026 |
12,505 |
14,531 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
(268) |
(207) |
(475) |
|
Provisions |
- |
(19) |
(19) |
|
Non-current liabilities |
|
|
|
|
Deferred tax |
- |
- |
- |
|
Total liabilities |
(268) |
(226) |
(494) |
|
Net assets of businesses acquired |
1,758 |
12,279 |
14,037 |
|
|
|
|
|
|
Cash consideration (including £318,000 closing net asset adjustment) |
|
|
23,716 |
|
Contingent purchase consideration |
|
|
- |
|
Total consideration |
|
|
23,716 |
|
|
|
|
|
|
Goodwill arising on acquisition |
|
|
9,679 |
|
On 2 April 2012, the Group acquired the trade and assets of Sensorex Inc. (Sensorex). Sensorex, based in California, USA, manufactures electrochemical sensors for water analysis applications. Sensorex forms part of the Health and Analysis sector and was acquired for its range of sensors and associated accessories, which are incorporated by OEMs manufacturing single and multi-parameter probes and instruments for monitoring water quality, a market that is forecast to see continued growth. The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related and technological know-how intangibles of £12,689,000 with residual goodwill arising of £9,679,000. The goodwill represents:
a) the value of the acquired workforce;
b) potential synergies with other Halma companies within the Water market, especially the hubs in China and India; and c) the ability to exploit the Group's existing distribution arrangements, particularly outside North America.
The initial cash consideration of US$37,500,000 is adjustable based on the final level of agreed net tangible assets at closing. There are no contingent consideration payment arrangements. |
|
(Ciii) SunTech Medical Group Limited On 31 May 2012, the Group acquired SunTech Medical Group Limited (SunTech). The initial cash consideration of US$46,000,000 for the share capital and US$5,000,000 for cash retained in the business is adjustable based on the final level of agreed working capital and cash at closing. Contingent consideration of up to US$6,000,000 is payable if earnings for the year to December 2012 exceed a pre-determined target. SunTech forms part of the Health and Analysis sector and is a pre-eminent supplier of clinical grade non-invasive blood pressure monitoring products and technologies. Due to the proximity of the acquisition date to the date of approval of the Annual Report, it is impracticable to provide further information. |
|
9 Notes to the Consolidated Cash Flow Statement |
|
|
|
|
2012 |
2011 |
|
Reconciliation of profit from operations to net cash inflow from operating activities: |
|
|
|
Profit on continuing operations before finance income and expense, share of results of associates and profit on disposal of continuing operations |
109,910 |
99,449 |
|
Depreciation of property, plant and equipment |
12,178 |
11,523 |
|
Amortisation of computer software |
1,319 |
1,217 |
|
Amortisation of capitalised development costs and other intangibles |
3,820 |
4,230 |
|
Retirement/disposals of capitalised development costs and other intangibles |
- |
83 |
|
Amortisation of acquired intangible assets |
10,352 |
4,760 |
|
Share-based payment expense in excess of amounts paid |
2,432 |
2,015 |
|
Additional payments to pension plans |
(6,419) |
(6,399) |
|
Profit on sale of property, plant and equipment and computer software |
(495) |
(55) |
|
Operating cash flows before movement in working capital |
133,097 |
116,823 |
|
Increase in inventories |
(3,777) |
(5,369) |
|
Increase in receivables |
(1,190) |
(7,944) |
|
(Decrease)/increase in payables and provisions |
(2,671) |
9,670 |
|
Cash generated from operations |
125,459 |
113,180 |
|
Taxation paid |
(27,772) |
(18,116) |
|
Net cash inflow from operating activities |
97,687 |
95,064 |
|
|
2012 |
2011 |
|
Reconciliation of net cash flow to movement in net debt |
|
|
|
Increase in cash and cash equivalents |
3,038 |
11,872 |
|
Cash outflow/(inflow) from repayment/(drawdowns) of borrowings |
17,594 |
(58,004) |
|
Net debt acquired |
(1,144) |
- |
|
Exchange adjustments |
(1,119) |
(28) |
|
|
18,369 |
(46,160) |
|
Net (debt)/cash brought forward |
(37,078) |
9,082 |
|
Net debt carried forward |
(18,709) |
(37,078) |
|
|
2012 |
2011 |
|
Analysis of cash and cash equivalents |
|
|
|
Cash and bank balances |
45,305 |
42,610 |
|
|
At 2 April |
Cash flow |
Net debt |
Exchange |
At 31 March |
|
Analysis of net debt |
|
|
|
|
|
|
Cash and cash equivalents |
42,610 |
3,038 |
- |
(343) |
45,305 |
|
Bank loans |
(79,688) |
17,594 |
(1,144) |
(776) |
(64,014) |
|
Analysis of net debt |
(37,078) |
20,632 |
(1,144) |
(1,119) |
(18,709) |
|
The net cash outflow from bank loans in 2012 comprised drawdowns of £76,456,000 offset by repayments of £94,050,000 (2011: net cash inflow comprising drawdowns of £76,156,000 offset by repayments of £18,152,000).
Included within cash and cash equivalents is an amount of £nil (2011: £1,983,000) which is restricted. |
10 Non-GAAP measures
|
|
Return on Capital Employed |
|
|
|
|
2012 |
2011 |
|
Operating profit before amortisation of acquired intangible assets, acquisition transaction costs and movement on contingent consideration, but after share of results of associates |
121,907 |
105,649 |
|
Computer software costs within intangible assets |
2,678 |
2,734 |
|
Capitalised development costs within intangible assets |
10,508 |
9,653 |
|
Other intangibles within intangible assets |
215 |
252 |
|
Property, plant and equipment |
72,118 |
69,891 |
|
Inventories |
57,368 |
54,540 |
|
Trade and other receivables |
114,674 |
110,456 |
|
Trade and other payables |
(93,499) |
(85,511) |
|
Provisions |
(2,618) |
(2,887) |
|
Net tax liabilities |
(11,582) |
(14,760) |
|
Non-current trade and other payables |
(13,388) |
(22,848) |
|
Non-current provisions |
(2,301) |
(1,593) |
|
Add back contingent purchase consideration |
29,110 |
27,037 |
|
Capital employed |
163,283 |
146,964 |
|
Return on Capital Employed |
74.7% |
71.9% |
|
Return on Total Invested Capital |
|
|
|
|
2012 |
2011 |
|
Post-tax profit before amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration and profit on disposal of continuing operations |
92,209 |
77,184 |
|
Total shareholders' funds |
398,112 |
355,385 |
|
Add back retirement benefit obligations |
32,997 |
36,237 |
|
Less associated deferred tax assets |
(7,920) |
(9,422) |
|
Cumulative amortisation of acquired intangibles |
36,306 |
26,642 |
|
Goodwill on disposals |
5,441 |
5,441 |
|
Goodwill amortised prior to 3 April 2004 |
13,177 |
13,177 |
|
Goodwill taken to reserves prior to 28 March 1998 |
70,931 |
70,931 |
|
Total invested capital |
549,044 |
498,391 |
|
Return on Total Invested Capital |
16.8% |
15.5% |
|
Organic growth Organic growth measures the change in revenue and profit from continuing Group operations. The effect of acquisitions and disposals made during the prior financial year, and acquisitions made in the current financial year has been equalised by adjusting the current year results for a pro-rated contribution based on their revenue and profit before taxation at the date of acquisition or disposal. The results of disposals made in the prior financial year have been removed from the prior year reported revenue and profit before taxation. Organic growth has been calculated as follows: |
|
|
|
|
Revenue |
|
Profit* before taxation |
|
|
|
2012 |
2011 |
% |
2012 |
2011 |
% |
|
Continuing operations |
579,883 |
518,428 |
|
120,465 |
104,551 |
|
|
Acquired revenue/profit |
(33,715) |
- |
|
(10,538) |
- |
|
|
|
546,168 |
518,428 |
5.4% |
109,927 |
104,551 |
5.1% |
|
* Before amortisation of acquired intangible assets, acquisition transaction costs, movement on contingent consideration and profit on disposal of continuing operations. |
|
11 Events after the balance sheet date On 2 April 2012, the Group acquired Accutome, Inc. (Accutome) for an initial cash consideration of US$20.0 million, adjustable based on the level of net working capital at closing. Further contingent consideration of between US$nil and US$5.0 million is payable dependent on the profits of the business for the period up to September 2013. Accutome designs, manufactures and sells surgical and diagnostic instruments and a variety of pharmaceuticals for the ophthalmic marketplace. Further information is provided in note 8.
On 2 April 2012, the Group acquired the trade and assets of Sensorex Inc. (Sensorex), for a cash consideration of US$37.5 million, adjustable based on the level of net tangible assets at closing. Sensorex manufactures electrochemical sensors for water analysis applications. Further information is provided in note 8.
On 31 May 2012, the Group acquired SunTech Medical Group Limited (SunTech). The initial cash consideration of US$46,000,000 for the share capital and US$5,000,000 for cash retained in the business is adjustable based on the final level of agreed working capital and cash at closing. Contingent consideration of up to US$6,000,000 is payable if earnings for the year to December 2012 exceed a pre-determined target. SunTech forms part of the Health and Analysis sector and is a pre-eminent supplier of clinical grade non-invasive blood pressure monitoring products and technologies. Due to the proximity of the acquisition date to the date of approval of the Annual Report, it is impracticable to provide further information.
On 25 April 2012, the Group increased its investment in Optomed Oy from 15% to 40% for a cash consideration of Euro 3,894,000. Further information about the Group's investments in associates can be found in the Annual Report and Accounts 2012. |
|
12 Related party transactions |
|
Trading transactions |
|
|
|
|
2012 |
2011 |
|
Associated companies |
|
|
|
Purchases from associated companies |
860 |
57 |
|
Amounts due to associated companies |
98 |
401 |
|
Amounts due from associated companies |
302 |
- |
|
|
|
|
|
Other related parties |
|
|
|
Rent charged by other related parties |
365 |
109 |
|
Amounts due to other related parties |
20 |
- |
|
Other related parties comprise two companies with Halma employees on the Boards and from which two Halma subsidiaries rent property. 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 Divisional Chief Executives, 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 Directors' Remuneration Report in the Annual Report and Accounts 2012. |
|
|
2012 |
2011 |
|
Wages and salaries |
4,342 |
4,351 |
|
Pension costs |
173 |
185 |
|
Share-based payment charge |
1,532 |
959 |
|
|
6,047 |
5,495 |
|
Cautionary note This Preliminary 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. |
This information is provided by RNS
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