Full Year Results

Halma PLC

15 June 2023

 

HALMA plc

FULL YEAR RESULTS 2023

Record profit for 20^th consecutive year

Halma, the global group of life-saving technology companies focused on growing a safer, cleaner and healthier future for everyone, every day, today announces its full year results for the 12 months to 31 March 2023.

Highlights
	Change	2023	2022
Revenue	+21%	£1,852.8m	£1,525.3m
Adjusted Profit before Taxation1	+14%	£361.3m	£316.2m
Adjusted Earnings per Share2	+17%	76.34p	65.48p
Statutory Profit before Taxation	(4)%	£291.5m	£304.4m
Statutory Earnings per Share	(4)%	62.04p	64.54p
Total Dividend per Share3	+7%	20.20p	18.88p
Return on Sales4		19.5%	20.7%
Return on Total Invested Capital5		14.8%	14.6%
Net Debt6		£596.7m	£274.8m

Record revenue, Adjusted¹ Profit, and strategic investment

·           Record revenue, up 21%, and 10% on an organic constant currency⁷ basis.

·           20^th consecutive year of record profit: Adjusted¹ Profit before Taxation up 14%; up 3% on an organic constant currency⁷ basis.

·           Statutory Profit before Taxation down 4%; principally reflected non-recurrence of a gain on disposal of £34.0m in the prior year; up 8% excluding this gain.

·           Broad-based revenue growth in all sectors and regions, including on an organic constant currency⁷ basis; Adjusted¹ profit growth in all sectors.

·           Continued high returns: Return on Sales⁴ of 19.5% and ROTIC⁵ of 14.8%. Expect FY 2024 Return on Sales⁴ to increase to approximately 20%.

·           Cash conversion of 78% (90% in the second half of the year); strong balance sheet, with net debt/EBITDA of 1.38x (2022: 0.74x), underpins investment in organic growth and acquisitions.

·           Record strategic investment of over half a billion pounds to support our future growth:

o Seven acquisitions completed in the year for a maximum total consideration of £397m; two further acquisitions completed since the period end for a maximum total consideration of approximately £57m; a healthy acquisition pipeline across all sectors.

o R&D expenditure up by £17m to £103m, representing 5.5% of revenue

o Increased investment in technology by £7m to £18m

·           Total dividend per share for the year up 7%; 44^th consecutive year of dividend growth of 5% or more.

Marc Ronchetti, Group Chief Executive of Halma, commented:

"2023 was a successful year for Halma, reflecting the contributions and continued commitment to our purpose of everyone at Halma. We delivered record revenue and profit, achieving our 20^th consecutive year of profit growth and our 44^th consecutive year of dividend per share growth of 5% or more. At the same time, we substantially increased strategic investment to record levels, increasing our opportunities for future growth through organic investment and strategic acquisitions, while maintaining a strong balance sheet.

We have made a positive start to the new financial year. We have a strong order book, and order intake in the year to date is broadly in line with revenue and ahead of the comparable period last year. Based on current market conditions, we expect to deliver good organic constant currency⁷ revenue growth in the year ahead, and Return on Sales⁴ to increase to approximately 20%. We are well positioned to make further progress this year and in the longer term."

Notes:
1	Adjusted to remove the amortisation and impairment of acquired intangible assets, acquisition items and profit or loss on disposal of operations, totalling £69.8m (2021/22: £11.8m). See note 1 to the Results for details.
2	Adjusted to remove the amortisation and impairment of acquired intangible assets, acquisition items, profit or loss on disposal of operations and the associated taxation thereon and, in 2022, the increase in the UK's corporation tax rate from 19% to 25%. See note 2 to the Results for details.
3	Total dividend paid and proposed per share, comprising interim dividend of 7.86p per share and proposed final dividend of 12.34p per share.
4	Return on Sales is defined as adjusted1 profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.
5	Return on Total Invested Capital (ROTIC) is defined as post-tax Adjusted1 Profit as a percentage of average Total Invested Capital.
6	Net debt is defined as Borrowings plus lease liabilities net of Cash and bank balances.
7 8 9	Organic constant currency measures exclude the effect of movements in foreign exchange rates on the translation of revenue and profit1 into Sterling, as well as acquisitions in the year following completion and disposals. Adjusted1 profit before taxation, Adjusted2 Earnings per Share, organic growth rates, Return on Sales4, ROTIC5 and net debt6 are alternative performance measures used by management. See notes 1, 2 and 3 to the Results for details. Adjusted1 operating profit before central administration costs after share of associate.

For further information, please contact:

Halma plc Marc Ronchetti, Group Chief Executive Steve Gunning, Chief Financial Officer Charles King, Head of Investor Relations Clayton Hirst, Director of Corporate Affairs	[phone] [phone] [phone]
MHP Oliver Hughes/Rachel Farrington/Ollie Hoare	[phone] / 8613 / 8276

A copy of this announcement, together with other information about Halma, is available at www.halma.com. The webcast of the results presentation will be available on the Halma website later today: www.halma.com

NOTE TO EDITORS

1.	Halma is a global group of life-saving technology companies, focused on growing a safer, cleaner, healthier future for everyone, every day. Its purpose defines the three broad markets it operates in:
	·      Safety	Protecting people's safety and the environment as populations grow, and enhancing worker safety.
	·      Environment	Addressing the impacts of climate change, pollution and waste, protecting life-critical resources and supporting scientific research.
	·      Health	Meeting the increasing demand for better healthcare as chronic illness rises, driven by growing and ageing populations and lifestyle changes.

	Halma employs over 7,500 people in more than 20 countries, with major operations in the UK, Mainland Europe, the USA and Asia Pacific. Halma is listed on the London Stock Exchange (LON: HLMA) and is a constituent of the FTSE 100 index. Halma is named as one of Britain's Most Admired Companies and has retained its No. 1 ranking in the Engineering sector over the past four years.
2.	You can view or download copies of this announcement and the latest Half Year and Annual Reports from the website at www.halma.com or request free printed copies by contacting [e-mail].
3.	This announcement contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events.

Strategic Report

Record revenue, and record profit for the 20th consecutive year

In this, my first review as Group Chief Executive, I am pleased to report record revenue and Adjusted¹ profit, and Halma's 20th year of consecutive profit growth. We delivered strong revenue growth, continued high returns, well above our cost of capital, and solid cash generation, while at the same time investing record amounts, both organically and in acquisitions, to support our growth over the medium term.

Our performance in the year reflects the strength of our Sustainable Growth Model and the hard work and dedication of our people. I would like to thank everyone at Halma for their contributions to our success and their commitment to growing a safer, cleaner, healthier future for everyone, every day.

Driven by our purpose

It is a huge privilege to be leading a business with such a strong sense of purpose and inclusive culture, and that has a positive impact on millions of lives every day.

Halma's ability to deliver resilient growth reflects the strength of our Sustainable Growth Model. Our purpose sits at the heart of this. It unites and motivates us to help our customers address many of the key challenges facing society and helps us attract talented people who share our values. Our Sustainable Growth Model gives us the agility and entrepreneurialism to respond rapidly to changes in the markets we serve and the wider world, and ensures we take a disciplined approach to investing in markets with long-term, fundamental and highly sustainable growth drivers. It also provides a clear financial framework, of strong organic growth and margins, high returns and cash generation, and continuous reinvestment to expand our opportunities for growth.

Over the last 20 years, our profit before tax (on a statutory basis) has increased by over six times, at a 10% compound annual growth rate. This is a substantial achievement given that this period includes major economic and geopolitical shocks, such as the Global Financial Crisis and Brexit, and, more recently, the COVID pandemic and the war in Ukraine.

For most of the last 20 years, Halma was led by Andrew Williams, who stepped down as Group Chief Executive at the end of March after 18 years. Over that time, he has led the evolution of Halma to become an organisation with ever greater ambitions, considerable strengths and substantial growth opportunities. I would like to thank him for his leadership, the success he has created and for his investment in me personally as part of the Group Chief Executive transition, and wish him all the best after retiring from Halma.

I am excited by the opportunities in front of us and believe that we are well-positioned to address them. We have a resilient business model and clear growth strategy, diverse and high quality leadership teams, and a proven ability to adapt and evolve with agility to a rapidly changing world. Our robust financial model is underpinned by significant growth momentum and is enabling us to invest record amounts to help our customers address some of the biggest challenges facing the world today, and continue our track record of long-term growth.

A strong financial performance

We delivered a strong financial performance in the year. Revenue in the year grew by 21% to £1,852.8m, Adjusted1 profit before taxation increased by 14% to £361.3m and Adjusted1 earnings per share was up 17%, well above our 10% target. The decrease in Statutory profit before taxation of 4% to £291.5m principally reflected the non-recurrence of a gain on disposal of a Safety Sector business in the prior year.

Growth was broadly spread across our sectors, regions and companies. We delivered revenue growth in all our sectors and regions, including on organic constant currency basis, and Adjusted1 profit growth in all sectors.

We delivered continued high returns. Return on Sales1 was 19.5%, within our KPI target range of 18-22%. This compared to an unusually high level (within our target range) of 20.7% in the prior year, which had benefited from the cost reduction measures implemented during the COVID pandemic. Return on Total Invested Capital1 of 14.8% (2022: 14.6%) remained ahead of our KPI target of 12% and well above our estimated weighted average cost of capital of 8.9% (2022: 7.1%).

Cash conversion for the year was solid at 78%, compared to our KPI target of 90%, and was improved and in line with our target at 90% in the second half of the year. Our continued cash generation allows us to maintain a strong balance sheet, while making substantial investments to support our future growth. Our gearing ratio (net debt to EBITDA) at the year end was 1.38 times (2022: 0.74 times), well within our operating range of up to two times. Together, our cash generation and balance sheet strength underpin our investment in growth and provide capacity to fund acquisitions and our progressive dividend policy.

The Board is recommending a 7% increase in the final dividend to 12.34p per share (2022: 11.53p per share). Together with the 7.86p per share interim dividend, this would result in a total dividend for the year of 20.20p (2022: 18.88p), also up 7%, making this the 44th consecutive year of dividend per share growth of 5% or more.

Record strategic investment to support future growth

One of Halma's key strengths is the ability to deliver strong performance in the shorter-term and maintain a strong balance sheet, while simultaneously making substantial investments to support sustainable growth over the longer-term. We invested a record sum of over half a billion pounds in this financial year, to support our future growth. This included investment to expand our growth opportunities through acquisitions and organic investment in product research and development, technology infrastructure, and our people and culture so that we can continue to attract, develop, retain, and engage the high performing teams that are critical to our success.

Substantially increased investment in organic growth

During the year, we further increased investment supporting organic growth, for example in new product development. R&D expenditure increased by £17m to a record £103m and represented 5.5% of revenue (2022: 5.6%), remaining well ahead of our 4% KPI. We also increased investment in our technology infrastructure by £7m to £18m to improve our security, data and operating technology, both at the company level and centrally.

The increase in these investments reflects our companies' confidence in the substantial growth prospects they see in their markets. Our products and services have never been more relevant than today, as health, safety and environmental regulations continue to increase, demand for healthcare grows and the world addresses ever greater demands on life-critical resources and the urgent need to tackle climate change, waste, and pollution.

Seven acquisitions completed across all three sectors

We further expanded our opportunities for growth through a record investment of £397m in acquisitions (maximum total consideration), acquiring the equivalent of 5.5% of our prior year profit (after interest), ahead of our 5% KPI target. We made seven acquisitions, each highly aligned to our purpose. Of these seven acquisitions, four are standalone companies with the Group, and three are bolt-ons to enhance our companies' technologies and market reach.

The acquisitions were spread geographically across North America, Mainland Europe and the UK and across our three sectors, with four acquisitions in Safety, two in Environmental & Analysis and one in Healthcare. Details of the individual acquisitions are contained in the relevant sector reviews and in the notes to the Accounts.

We are particularly pleased to see this strong momentum in M&A combined with an overall increase in the scale of acquisitions, supported by investment in our three sector M&A teams over the past 18 months. This activity has continued since the period end, with two further acquisitions completed in the new financial year for a maximum total consideration of approximately £57m.

Investing in our talent and culture

People are at the heart of the Group's and our individual companies' growth strategies. We are committed to supporting their development and ensuring that Halma's culture is highly inclusive. In this way, we can recruit, develop and retain the very best talent and have a wide diversity of voices and experience within our leadership teams.

During the year, we increased investment in the development of our leaders, introducing three new leadership development programmes, with over 200 leaders participating in face-to-face learning events and 750 participating online. We also recognise that the current environment continues to present challenges and we therefore invested in support for our people's wellbeing, including through our Employee Assistance Programme and through flexible working practices and enhanced benefits.

One measure of inclusion is gender diversity. Last year, we introduced a stretching goal of achieving 40-60% gender balance on all company boards by March 2024, equivalent to the balance already achieved on the Group, Executive and sector boards. While female representation on our company boards has increased from 22% in 2021 to 29% at 31 March 2023, we recognise that we need to accelerate the pace of change. We launched a number of initiatives to support this, including promoting diverse sourcing strategies and inclusive hiring practices, and incorporating progress towards our target in the bonus element of remuneration for our senior leaders. Alongside gender equality, we also want to grow our ethnic diversity relative to the markets we operate in and remove barriers to leadership for ethnic minority groups, and launched a number of initiatives to support this aim.

Our seventh global employee engagement survey reflected the progress made in the year. Given the pressures our people continued to face, I was pleased that we continued to have a strong response rate of 85% and that our overall engagement score remained stable at 76%, reflecting the ongoing actions taken by our companies to support their people and nurture inclusive workplace cultures. We saw our biggest improvement in companies providing opportunities for our people to learn and grow, and our drive to build inclusive businesses was reflected in high engagement scores on colleagues feeling they are treated fairly and respectfully (83%) and can be their authentic self at work (80%).

I am also proud of the engagement our companies and our people have with the communities where they operate, and the positive impact we have through charitable initiatives. This year, for example, we continued to support the humanitarian relief effort for Ukraine through raising and matching employee donations and providing online support for our colleagues. We also completed our Water for Life campaign, which, together with our partner WaterAid, has provided access to safe, clean water for over 10,000 villagers in India and sustainable water infrastructure, supported by Halma fund raising of over £400,000.

Executive Board changes

With Andrew Williams retiring as Group Chief Executive at the end of the year, and my appointment to that role, we were delighted to welcome Steve Gunning to Halma as Chief Financial Officer on 16 January 2023. He brings a tremendous breadth of experience as a FTSE 100 Chief Financial Officer and I look forward to working with him as part of my leadership team.

Shortly after the year end, we announced internally that, after five years with Halma, Wendy McMillan, Safety Sector Chief Executive, had decided to leave Halma to pursue leadership opportunities elsewhere. Drawing from the strength and depth in our leadership team, we were delighted to be able to appoint Funmi Adegoke, currently Group General Counsel and Chief Sustainability Officer and a member of the Executive Board, to lead the Safety Sector from early July. Funmi brings strong strategic, commercial and business acumen and considerable experience across multiple industries to the Safety Sector Chief Executive role. As a result of this move, we were also pleased that Constance Baroudel, Environmental & Analysis Sector Chief Executive, will take on the additional role of Chief Sustainability Officer.

We also made the decision to restructure the digital growth support for our companies. As part of this restructure we announced that we would be disbanding the central Innovation and Digital team. This reflects its achievement over the last six years in embedding greater innovation and digital capabilities in our companies, and the resultant evolution of our companies' needs towards greater go-to-market support which will now be provided by our Technology team. As a result, we announced that Inken Braunschmidt, Chief Innovation and Digital Officer, will leave Halma at the end of June. 

I would like to thank Wendy and Inken for their significant contribution to Halma and wish them every success in the future.

Our Executive Board comprises a highly experienced team, drawn from different backgrounds, with diverse talents and capabilities. I am excited to be working with them in leading the next stage of Halma's success.

Increasing sustainability opportunities

Sustainability has always been at the heart of our Sustainable Growth Model and our purpose. In recent years, the scale and urgency of global sustainability challenges, for example, in terms of the changing climate, preserving the environment, or protecting human health, have grown. We are responding by increasing investment in products and solutions which help our customers address these issues, and by ensuring that we operate in a sustainable way.

We see substantial growth prospects for our companies in sustainability and are increasing the support we give to them in understanding sustainability-related trends, and in identifying opportunities arising from them to grow their businesses. We are also excited by acquisitions that deliver on our purpose and long-term growth drivers and additionally have significant, long-term sustainability opportunities, and it is pleasing that so many of our standalone acquisitions this year, such as FirePro, WEETECH and Deep Trekker, fit this profile.

We are also contributing by operating in a sustainable manner, to ensure that we can continue to grow over the long term. During the year, we continued to make progress on the two areas identified in 2021 as the most important in our own value chain: supporting our people and protecting our environment.

Each of our companies has now set their own bottom-up targets and action plans to support the Group's goals in these areas. The goals ensure we are focused on the substantial growth opportunities for our companies and translate simply into a challenge to "do more good" and "do less harm". In terms of protecting our environment, we were pleased to see our operational greenhouse gas emissions continue to reduce, with a 47% reduction since our FY20 baseline and renewable electricity reaching 62% of total consumption, thereby exceeding our targets.

These direct operational emissions are a small part of our broader emissions footprint. The majority of our environmental footprint arises within our wider value chain and we have focused this year on estimating indirect (Scope 3) emissions baselines so that we can set appropriate reduction targets in the future. It is encouraging that we are already seeing actions in a number of companies to reduce Scope 3 emissions, including through supplier engagement programmes and an increasing focus on sustainable design.

For the first time this year, our executive remuneration incorporated annual energy productivity metrics alongside the gender diversity targets mentioned above. We consider these metrics aligned to remuneration as a good starting point from which they will no doubt evolve and it is pleasing to see them driving a focus on gender balance and energy conservation within our companies.

Summary and Outlook

2023 was a successful year for Halma, reflecting the contributions and continued commitment to our purpose of everyone in the Group. We delivered record revenue and Adjusted1 profit, achieving our 20th consecutive year of profit growth and our 44th consecutive year of dividend per share growth of 5% or more. At the same time, we substantially increased strategic investment to record levels, increasing our opportunities for future growth through organic investment and acquisitions, while maintaining a strong balance sheet.

We have made a positive start to the new financial year. We have a strong order book, and order intake in the year to date is broadly in line with revenue and ahead of the comparable period last year. Based on current market conditions, we expect to deliver good organic constant currency1 revenue growth in the year ahead, and Return on Sales1 to increase to approximately 20%. We are well positioned to make further progress this year and in the longer term.

Marc Ronchetti

Group Chief Executive

¹ See Highlights

Chief Financial Officer's Review

A strong financial performance

I am pleased to report that the Group delivered a strong financial performance for the year, which included record revenue, record profit¹ for the 20th consecutive year, and continued high returns.

This performance was supported by strong and broadly-based demand for our products and services, and enabled by our Sustainable Growth Model which gives our companies considerable autonomy and agility, allowing them to respond quickly to new growth opportunities and to act rapidly to address operational challenges when they arise.

At the same time, we were able to make substantial investments, of over half a billion pounds in aggregate, to support our future growth. These included record levels of expenditure on research and development, technology infrastructure, and acquisitions to expand our market opportunities.

These investments were supported by the strength of our balance sheet, and by our continued cash generation. We expect our strong financial position and high levels of cash conversion to underpin our growth over the longer term as our companies address the significant opportunities in their markets.

Record revenue and profit

Revenue for the year to 31 March 2023 was £1,852.8m (2022: £1,525.3m), up 21.5%, which included a strong organic performance with organic constant currency² revenue growth up by 10.2%. There was a positive effect from currency translation of 8.1%, due to the weakness in Sterling, and a benefit from recent acquisitions (net of disposals) of 3.2%. Investment in our products and services to ensure they continue to address our customers' needs enabled us to deliver a resilient price performance, which offset the majority of cost increases, resulting in only a small decrease in gross margin. We estimate that price increases accounted for approximately four percentage points of our revenue growth, broadly evenly spread across the sectors.

Adjusted¹ profit before taxation grew by 14.2% to £361.3m (2022: £316.2m). This reflected the increase in revenue, partially offset by the reduction in Return on Sales² to 19.5% from the unusually high level of 20.7% in the prior year. Adjusted¹ profit growth comprised a 3.1% increase in organic constant currency² profit, a 2.1% contribution from acquisitions (net of disposals), and a positive effect from currency of 9.0% due to the weakening of Sterling.

Statutory profit before taxation of £291.5m (2022: £304.4m) was 4.2% lower; excluding the gain on disposal of a Safety Sector business in the prior year, Statutory profit before tax would have increased by 7.8%. There were no disposals made during this financial year. Statutory profit before taxation is calculated after charging the amortisation and impairment of acquired intangible assets of £56.5m (2022: £42.7m) and other items of a net £13.3m (2022: £3.1m). There were no gains on disposals (2022: £34.0m). Further detail on these items is given in note 1 to the Accounts.

Performance broadly based across sectors and regions

Our results reflected high levels of demand for our products and services, with this demand broadly spread across our sectors and regions. This resulted in strong revenue growth in all sectors, both on a reported and organic constant currency² basis. While there was more variability in sector profitability, all sectors grew Adjusted¹ profit, and only the Safety Sector saw a small decline on an organic constant currency² basis.

Our two largest regions, the USA and Mainland Europe grew strongly on both a reported and organic constant currency² basis. Growth in the UK was slower, but compared with an exceptionally strong performance in the prior year, while momentum in Asia Pacific was affected by lockdowns in China. There was strong growth in the smaller other regions.

Further information on regional and sector performance is given in the individual sector reviews later in this announcement.

Revenue and profit change	2023 £m	2022 £m	Change £m	Total growth %	Organic growth2 %	Organic growth2 at constant currency %
Revenue	1,852.8	1,525.3	327.5	21.5	18.3	10.2
Adjusted1 profit before taxation	361.3	316.2	45.1	14.2	12.1	3.1
Statutory profit before taxation	291.5	304.4	(12.9)	(4.2)	-	-

1     In addition to those figures reported under IFRS, Halma uses alternative performance measures as key performance indicators, as management believe these measures enable them to better assess the underlying trading performance of the business by removing non-trading items that are not closely related to the Group's trading or operating cash flows. Adjusted¹ profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs and profit or loss on disposal of operations. All of these are included in the statutory figures. Notes 1 and 3 to the Accounts give further details with the calculation and reconciliation of adjusted figures.

2      See Highlights.

Sector revenue change		2023		2022
	£m	% of total	£m	% of total	Change £m	% growth	% organic growth2 at constant currency
Safety	745.6	40	641.4	42	104.2	16.2	11.2
Environmental & Analysis	552.1	30	442.9	29	109.2	24.7	9.1
Healthcare	556.4	30	442.3	29	114.1	25.8	9.8
Inter-segment sales	(1.3)		(1.3)
	1,852.8	100	1,525.3	100	327.5	21.5	10.2

Sector profit³ change

		2023		2022
	£m	% of total	£m	% of total	Change £m	% growth	% organic growth2 at constant currency
Safety	152.5	37	146.2	41	6.3	4.3	(1.1)
Environmental & Analysis	134.2	32	109.8	31	24.4	22.2	7.1
Healthcare	130.1	31	99.5	28	30.6	30.8	14.0
Sector profit3	416.8	100	355.5	100	61.3
Central administration costs	(38.6)		(30.9)		(7.7)
Net finance expense	(16.9)		(8.4)		(8.5)
Adjusted4 profit before tax	361.3		316.2		45.1	14.2	3.1
Return on Sales	19.5%		20.7%

1     In addition to those figures reported under IFRS, Halma uses alternative performance measures as key performance indicators, as management believe these measures enable them to better assess the underlying trading performance of the business by removing non-trading items that are not closely related to the Group's trading or operating cash flows. Adjusted¹ profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs and profit or loss on disposal of operations. All of these are included in the statutory figures. Notes 1 and 3 to the Accounts give further details with the calculation and reconciliation of adjusted figures.

2     See Highlights

3     Sector profit before allocation of adjustments. See note 1 to the Accounts.

4     Adjusted¹ profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations. All of these are included in the statutory figures. Note 3 to the Accounts gives further details with the calculation and reconciliation of adjusted figures.

Continued high returns

Halma's Return on Sales² has exceeded 16% for 38 consecutive years⁵. This year's Return on Sales² was 19.5%, within our KPI target range of 18-22%. This year's performance compared to the unusually high levels of 20.7% in 2022 and 21.1% in 2021, which had benefited from lower spend on overheads such as travel and marketing during the COVID pandemic and the cost reduction measures we decided to take at the onset of the pandemic.

Our Return on Sales² performance in 2023 reflected the impact of increased finance costs given higher average levels of indebtedness and rises in interest rates. It also included the effect, mainly in the second half of the year, of supply chain disruptions in a number of companies, principally in the Safety Sector. We currently expect these disruptions to ease during the 2024 financial year and for Return on Sales² in the 2024 financial year to be approximately 20%.

We successfully achieved our objective of continuing to invest in our businesses while delivering growth, with record organic and inorganic investment in the year to support our future growth. We maintained a high level of Return on Total Invested Capital (ROTIC)², the post-tax return on the Group's total assets including all historical goodwill. This year, ROTIC² increased to 14.8% (2022: 14.6%), with the change principally reflecting a benefit from exchange rate movements, offsetting the effect of a lower level of constant currency earnings growth than in the prior year. Our ROTIC remains within our target range of 12% - 17%. It is also substantially above Halma's Weighted Average Cost of Capital (WACC), which is estimated to be 8.9% (2022: 7.1%), with the increase mainly a result of higher interest rates.

Record investment to support future growth

All sectors continue to innovate and invest in new products, reflecting our companies' confidence in the future growth prospects of their respective markets. R&D expenditure as a percentage of revenue remained well above our KPI target of 4% at 5.5% (2022: 5.6%), increasing by 20% to £102.8m (2022: £85.4m), in line with revenue growth.

We are also continuing to invest group-wide in automation and technology upgrades, including enhanced security, improved data and analytics capabilities and upgrades to operating technology both at the company level and centrally. Technology spend totalled £18m in the 2023 financial year, reflecting increased investment of £7m.

In the year we made a record investment in acquisitions of £391.5m (net of cash acquired of £10.1m and including acquisition costs). These seven acquisitions were broadly spread by both sector and geography. The acquisitions completed in the current and prior year contributed to revenue this year in line with expectations overall, and we expect a good performance from them in the future. 

Solid cash generation and strong financial position

Cash generation is an important component of the Halma model, underpinning further investment in organic growth, supporting value-enhancing acquisitions and funding an increasing dividend to shareholders.

We have a KPI target for cash conversion of 90%. For the year as a whole, cash conversion was solid at 78% (2022: 84%), reflecting continued good underlying working capital control, but also including strategic investment in inventory by a number of companies to support supply chain resilience, which resulted in cash conversion of 63% in the first half of the year. Cash conversion in the second half of the year was improved at 90%; we currently expect to deliver a strong cash performance in 2024.

Our financial position remains strong, with gearing (net debt to EBITDA) of 1.38 times at the year end. This was despite significant increases in both organic investment and acquisition spend, which resulted in net debt (on an IFRS 16 basis which includes lease commitments) increasing by £321.9m to £596.7m.

We have substantial available liquidity. In the first half of the year, we refinanced our syndicated credit facility, which remains at £550m. It now matures in May 2028, following the exercise, after the year end, of one of two options to extend its maturity for one year. We also completed a new Private Placement of c.£330m with a seven year average life. Further detail on cash generation and our financial position is given below.

Cash conversion and net debt

	2023	2022
Cash conversion	78%	84%
Closing net debt	£(596.7)m	£(274.8)m
Net debt to EBITDA	1.38x	0.74x

Conclusion

Halma is a company I have known and admired for many years. Since I joined in January, I have been impressed by the clear priority that is given to creating value over the longer term, guided by our Sustainable Growth Model. Balanced with this is the determination to deliver a strong financial performance every year. This year's results are further testimony both to the longer term decisions that have been made, and that determination.

I am excited by both the opportunities ahead for the Company and by the strength of the Halma team that will seek to convert them. The finance team will continue to play an important role in providing insights to support our sustained delivery of growth and high returns. I would like to thank all my colleagues for their warm welcome and support, and congratulate them on another successful year.

Steve Gunning

Chief Financial Officer

Financial Review

Revenue growth in all regions

Our revenue performance by region reflected broadly-based demand for the Group's products and services, with all regions delivering revenue growth on both a reported and an organic constant currency basis. Reported growth rates in each region were impacted to differing extents by acquisitions (net of disposals), and, outside the UK, positive effects from foreign currency translation, given the relative weakness of Sterling. On an organic constant currency basis, there was strong growth in our two largest regions, the USA and Mainland Europe, good growth in the UK against a strong prior year comparative, and a solid performance in Asia despite weakness in China as a result of lockdowns. The smaller other regions performed strongly.

Strong and broadly-based growth in the USA

Revenue in the USA increased by 30.7%, and the USA remains our largest revenue destination, accounting for 42% of Group revenue, an increase of three percentage points compared to the prior year. Reported revenue included a 4.6% contribution from acquisitions (net of disposals), and a positive effect of 14.0% from foreign exchange translation. Organic constant currency revenue increased 12.3%, with growth evenly spread across the three sectors, reflecting good momentum in the vast majority of subsectors.

Strong growth in Mainland Europe, led by Safety and Healthcare Sectors

Mainland Europe revenue was 22.2% higher, or up 13.5% on an organic constant currency basis. Reported revenue included a 5.0% contribution from acquisitions (net of disposals), and a positive effect of 3.7% from foreign exchange translation.

There was strong growth in the Safety Sector, led by the two largest subsectors, Fire Safety and Urban Safety, and in the Healthcare Sector, with a notably strong performance in the ophthalmology market within Therapeutic Solutions. Growth in the Environmental & Analysis Sector was more modest, with a strong performance in Environmental Monitoring partly offset by weaker trends in Water Analysis and Treatment.

Good organic growth in the UK

UK revenue was 4.4% higher, or up 6.0% on an organic constant currency basis. There was a negative effect on reported revenue from the prior year disposal, which was only partly offset by the benefit from acquisitions. The largest sector, Safety, delivered good growth, led by its largest subsector, Fire Safety. In the smaller Safety subsectors, while there was only marginal growth in Urban Safety following the end of a significant road safety contract, there was strong momentum in the Industrial Safety subsector. Healthcare grew strongly, reflecting demand for our communication technologies within the Healthcare Assessment & Analytics subsector. There was only modest growth within the Environmental & Analysis Sector, given lower order intake from UK utilities in Water Analysis and Treatment, and weaker demand in Gas Detection.

Strong growth in other regions despite weakness in China

Revenue from territories outside the UK/Mainland Europe/the USA grew by 18.1%, which was ahead of our 10% KPI growth target.

Asia Pacific revenue increased 12.6%, but by only 3.3% on an organic constant currency basis. This reflected an organic constant currency revenue decline in China, our largest market in the region at approximately 6% of Group revenue, mainly as a result of COVID lockdowns. This was partly offset by strong growth in India and Australasia, the second and third largest markets in the region. Performance by sector was mixed, with good organic constant currency growth in the Safety Sector and a strong performance by the Environmental & Analysis Sector. In Healthcare, however, organic constant currency revenue declined. Reported revenue included a 2.1% contribution from acquisitions (net of the impact of disposals), and a positive effect of 7.2% from foreign exchange translation.

Other regions, which represent 8% of Group revenue, reported revenue 31.5% higher on a reported basis, and up 15.6% on an organic constant currency basis reflecting strong growth in all sectors.

	2023		2022
	£m	% of total	£m	% of total	Change £m	% Change	% change organic at constant currency
United States of America	780.8	42	597.2	39	183.6	30.7	12.3
Mainland Europe	376.4	20	308.1	20	68.3	22.2	13.5
United Kingdom	278.9	15	267.0	18	11.9	4.4	6.0
Asia Pacific	282.4	15	250.8	16	31.6	12.6	3.3
Africa, Near and Middle East	63.6	4	53.6	4	10.0	18.6	13.2
Other countries	70.7	4	48.6	3	22.1	45.7	18.1
	1,852.8	100	1,525.3	100	327.5	21.5	10.2

First and second half profit performance

Revenue grew by 18.8% in the first half of the year and by 24.0% in the second half, with second half revenue 11.6% higher than revenue in the first. Organic constant currency revenue increased by 10.2%, comprising a 9.5% increase in the first half and growth of 10.9% in the second half. There was a positive effect of 8.3% from currency translation in the first half, and of 7.9% in the second half, giving a positive effect of 8.1% for the year as a whole. Acquisitions (net of disposals) had a positive effect of 3.2%, comprising a 1.0% positive effect in the first half and 5.2% in the second half.

Adjusted¹ profit increased by 10.9% in the first half and by 17.5% in the second half. There was a first half/second half split of Adjusted¹ profit of 48%/52%, compared to our typical 45%/55% pattern. Organic profit at constant currency increased by 1.9% in the first half, and by 4.3% in the second half, resulting in growth of 3.1% for the year.

Central costs, which include our Growth Enabler functions, increased from £30.9m in 2022 to £38.6m below our previous guidance as a result of strong cost control and revisions to the phasing of technology project spend. The increase reflected investment in our Growth Enabler teams, technology infrastructure and talent to support our future growth, and investment in reconnecting our Halma networks. In 2024, we expect central costs to be approximately £44m, including the revised phasing of technology spend referred to above.

Currency effects on reported revenue and profit

Halma reports its results in Sterling. Our other key trading currencies are the US Dollar, Euro and to a lesser extent the Swiss Franc, the Chinese Renminbi and the Australian Dollar. Almost 50% of Group revenue is denominated in US Dollars, approximately 26% in Sterling and approximately 12% in Euros.

The Group has both translational and transactional currency exposure. Translational exposures are not hedged, except for net investment hedges. Transactional exposures, after matching currency of revenue with currency costs wherever practical, are hedged using forward exchange contracts for a proportion (up to 75%) of the remaining forecast net transaction flows where there is a reasonable certainty of an exposure. We hedge up to 12 months forward.

Sterling weakened on average in the year, principally in the first half. This gave rise to a positive currency translation impact of 8.1% on revenue and 9.0% on profit for the full year.

Based on the current mix of currency denominated revenue and profit, a 1% movement in the US Dollar relative to Sterling changes revenue by approximately £9m and profit by approximately £2m. Similarly, a 1% movement in the Euro changes revenue by approximately £2m and profit by approximately £0.5m. If Sterling weakens against foreign currencies, this has a positive impact on revenue and profit as overseas earnings are translated into Sterling.

If currency rates for the financial year to the end of March 2024 were US Dollar 1.237/ Euro 1.138 relative to Sterling respectively, and assuming a constant mix of currency results, driven by the strengthening of Sterling versus the US Dollar, we would expect approximately a £20m negative revenue and a £4m negative profit impact compared to the financial year to the end of March 2023, with the majority of the impact in the first half of the year.

	Weighted average rates used in the income statement			Exchange rates used to translate the Balance sheet
	First half	2023 Full Year	2022 Full year	2023 Year end	2022 Year end
US$	1.216	1.205	1.367	1.237	1.315
Euro	1.174	1.158	1.176	1.138	1.183

Solid cash generation

Halma's operations have continually been cash generative. Cash generated from operations in the year was £325.2m (2022: £293.4m) and adjusted operating cash flow, which excludes operating cash adjusting items, and includes net cash capital expenditure, was £293.2m (2022: £273.2m) which represented a cash conversion of 78% (2022: 84%) of Adjusted operating profit¹.

Cash conversion was 63% in the first half of the year, reflecting strategic investment in inventory to support supply chain resilience, but was stronger at 90% in the second half of the year.

Overall, the strategic investment in inventory had an impact on working capital, with an outflow of £95.7m, comprising changes in inventory, receivables and creditors (2022: outflow of £62.7m), which also reflected the strong revenue growth in the period. These effects would have been more significant were it not for the continued good underlying control of working capital by our companies. Adjusted operating cash flow is defined in note 3 to the Accounts.

A summary of the year's cash flow is shown in the tables below. The largest outflows in the year were in relation to acquisitions, dividends and taxation paid. Acquisition of businesses including cash and debt acquired and fees increased to £391.5m (2022: £164.4m), reflecting the record M&A investment in the year. Dividends totalling £73.3m (2022: £68.7m) were paid to shareholders in the year. Taxation paid increased to £67.2m (2022: £56.0m).

Operating cash flow summary

	2023 £m	2022 £m
Operating profit	308.4	278.9
Acquisition items	13.3	3.1
Amortisation and impairment of acquisition-related acquired intangible assets	56.5	42.7
Adjusted operating profit	378.2	324.7
Depreciation and other amortisation	53.5	49.1
Working capital movements	(95.7)	(62.7)
Capital expenditure net of disposal proceeds	(27.1)	(25.5)
Additional payments to pension plans	(15.2)	(12.2)
Other adjustments	(0.5)	(0.2)
Adjusted operating cash flow	293.2	273.2
Cash conversion %	78%	84%

Non-operating cash flow and reconciliation to net debt

	2023 £m	2022 £m
Adjusted operating cash flow	293.2	273.2
Tax paid	(67.2)	(56.0)
Acquisition of businesses including cash/debt acquired and fees	(391.5)	(164.4)
Purchase of equity investments	(6.7)	(0.7)
Disposal of businesses	-	57.5
Net finance costs and arrangement fees (excluding lease interest)	(18.0)	(5.7)
Net lease liabilities additions	(34.1)	(21.5)
Dividends paid	(73.3)	(68.7)
Own shares purchased	(22.3)	(19.3)
Adjustment for cash outflow on share awards not settled by own shares	(4.5)	(7.1)
Effects of foreign exchange	2.5	(5.9)
Movement in net debt	(321.9)	(18.6)
Opening net debt	(274.8)	(256.2)
Closing net debt	(596.7)	(274.8)

Substantial funding capacity and liquidity; financing cost well managed

The Group has access to competitively priced committed debt finance, providing good liquidity. Group treasury policy remains conservative and no speculative transactions are undertaken.

We have a strong balance sheet and substantial available liquidity. At the beginning of the 2023 financial  year, we refinanced our syndicated revolving credit facility. The new facility remains at £550m. It now matures in May 2028, following the exercise after the year end of one of two one-year extension options. In addition, we completed a new Private Placement issuance of c.£330m in May 2022. The issuance consists of Sterling, Euro, US Dollar and Swiss Franc tranches and matures in July 2032, with an amortisation profile giving it a seven year average life.

The financial covenants on these facilities are for leverage (net debt /adjusted EBITDA) to not be more than three and a half times and for adjusted interest cover to be not less than four times. The Group continues to operate well within its banking covenants with significant headroom under each financial ratio.

At 31 March 2023, net debt was £596.7m, a combination of £677.3m of debt, £87.9m of IFRS 16 lease liabilities and £168.5m of cash held around the world to finance local operations. Net debt at 31 March 2022 was £274.8m.

The gearing ratio at the year-end (net debt to EBITDA) was 1.38 times (2022: 0.74 times). Net debt represented 7% (2022: 3%) of the Group's year-end market capitalisation.

The net financing cost in the Income Statement of £16.9m was higher than the prior year (2022: £8.4m). This reflected a higher weighted average interest rate in the year and a higher average level of indebtedness due to acquisitions. The Private Placement issuance has resulted in an increased proportion of fixed coupon debt on the Group's balance sheet (at 56% at 31 March 2023, compared to 30% at 31 March 2022, excluding leases), which positions us well ahead of any increases in interest rates, and secures debt financing sufficient to meet the Group's likely medium-term requirements. We would expect the net financing cost for the 2024 financial year to be approximately £29m, if no further acquisitions were to be made. This reflects higher average net debt and a forecast higher weighted average interest rate in the year.

The net pension financing impact under IAS 19 is included in the net financing costs. This year the Group recognised a gain of £1.1m (2022: charge of £0.3m).

Group tax rate decreased

The Group has major operating subsidiaries in a number of countries and the Group's effective tax rate is a blend of these national tax rates applied to locally generated profits.

The Group's effective tax rate on adjusted profit was lower than the prior year at 20.2% (2022: 21.6%) due to one-off credits. Based on the latest forecast mix of adjusted profits for the year to 31 March 2024 we currently anticipate the Group effective tax rate to be higher at approximately 22% of adjusted profits, reflecting the increase in the UK corporation tax rate to 25% from 1 April 2023.

On 2 April 2019, the European Commission (EC) published its final decision that the UK controlled Finance Company Partial Exemption (FCPE) constituted State Aid. In common with many other UK companies, Halma has benefited from the FCPE and had appealed against the European Commission's decision, as had the UK Government. The EU General Court delivered its decision on 8 June 2022. The ruling was in favour of the European Commission but in August 2022 the UK Government and the taxpayer have appealed this decision. Following receipt of charging notices from HM Revenue & Customs (HMRC) we made a payment in February 2021 of £13.9m to HMRC in respect of tax, and in May 2021 made a further payment of approximately £0.8m in respect of interest.

Whilst the EU General Court was in favour of the EC, our assessment is that there are strong grounds for appeal and the appeal is expected to be successful. As a result, and given the appeal process is expected to take more than a year, we continue to recognise a non-current receivable of £14.7m in the balance sheet.

Capital allocation and funding priorities

Halma aims to deliver high returns, measured by ROTIC², well in excess of our cost of capital. We invest to deliver the future earnings growth and strong cash returns which enable us to achieve this aim on a sustainable basis, and our capital allocation priorities remain as follows:

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

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

·      Regular and increasing returns to shareholders: We have maintained a progressive dividend policy for over 40 years and this is our preferred route for delivering regular cash returns to shareholders without impacting on our investment to grow our business.

Continued investment for organic growth

All sectors continue to innovate and invest in new products, with R&D spend determined by each individual Halma company. R&D expenditure as a percentage of revenue remained well above our KPI target of 4% at 5.5% (2022: 5.6%). In absolute terms, this meant that R&D expenditure increased by £17.4m to £102.8m (2022: £85.4m), and grew in line with revenue. This increasing investment reflects our companies' confidence in the growth prospects of their respective markets. In the medium term we expect R&D expenditure to continue to increase broadly in line with revenue growth.

Under IFRS accounting rules we are required to capitalise certain development projects and amortise the cost over an appropriate period, which we determine as three years. This year we capitalised £15.8m (2022: £13.4m), impaired £0.5m (2022: £2.9m) and amortised £8.5m (2022: £7.0m). The closing intangible asset carried on the Consolidated Balance Sheet, after a £1.2m gain (2022: £1.3m gain) relating to foreign exchange was £49.6m (2022: £41.7m). All R&D projects requiring capitalisation are subject to rigorous review and approval processes by the relevant sector board and Group financial control.

Capital expenditure on property, plant, equipment and vehicles, computer software and other intangible assets was £30.1m (2022: £26.6m), with last year reflecting a lower spend as a result of pandemic constraints. Expenditure was principally on plant, equipment and vehicles. We anticipate capital expenditure to increase to approximately £40m in the coming year, reflecting investment in the expansion of manufacturing facilities and automation to support future growth.

Lease right-of-use asset additions and remeasurements were £32.2m (2022: £23.0m). This included additions of £9.3m as a result of acquisitions made in the year, and the commencement of new leases and extensions or renewals of existing leases.

Net debt to EBITDA

	2023 £m	2022 £m
Adjusted operating profit	378.2	324.7
Depreciation and amortisation (excluding acquired intangible assets)	53.5	49.1
EBITDA	431.7	373.8
Net debt to EBITDA	1.38	0.74

Average debt and interest rates

		2023	2022
Average gross debt (£m)	602.5		426.8
Weighted average interest rate on gross debt	2.74%		1.90%
Average cash balances (£m)	170.3		143.1
Weighted average interest rate on cash	0.40%		0.16%
Average net debt (£m)	432.2		283.7
Weighted average interest rate on net debt	3.67%		2.78%

Value-enhancing acquisitions and investments

Acquisitions and disposals are a key component of our Sustainable Growth Model, as they keep our portfolio of companies focused on markets which have strong growth opportunities over the medium and long term.

In the year we made seven acquisitions at a cost of £386.9m (net of cash acquired of £10.1m and including acquisition costs). In addition, we paid £4.6m in contingent consideration for acquisitions made in prior years, giving a total spend of £391.5m. We also made two small strategic minority investments totalling £6.7m, including an incremental funding round for a minority investment in the Safety Sector. We made two further acquisitions following the year end, for a maximum total consideration of approximately £57m.

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

Regular and increasing returns for shareholders

Adjusted earnings per share increased by 16.6% to 76.34p (2022: 65.48p). Statutory basic earnings per share decreased by 3.9% to 62.04p (2022: 64.54p), as the prior year included a gain on the disposal of a Safety Sector business.

The Board is recommending a 7.0% increase in the final dividend to 12.34p per share (2022: 11.53p per share), which together with the 7.86p per share interim dividend gives a total dividend per share of 20.20p (2022: 18.88p), up 7.0% in total.

Dividend cover (the ratio of adjusted profit after tax to dividends paid and proposed) is 3.78 times (2022: 3.47 times).

The final dividend for the financial year ended March 2023 is subject to approval by shareholders at the Annual General Meeting on 20 July 2023 and, if approved, will be paid on 18 August 2023 to shareholders on the register at 14 July 2023.

We aim to increase dividends per share each year, while maintaining a prudent level of dividend cover, and declare approximately 35-40% of the anticipated total dividend as an interim dividend. The Board's determination of the proposed final dividend increase this year took into account the Group's financial performance, economic and geopolitical uncertainty, the Group's continued balance sheet strength and medium-term organic constant currency growth.

Pensions update

The Group accounts for post-retirement benefits in accordance with IAS 19 Employee Benefits. The Consolidated Balance Sheet reflects the net accounting surplus on our pension plans as at 31 March 2023 based on the market value of assets at that date and the valuation of liabilities using discount rates derived from year end AA corporate bond yields. Lane Clark & Peacock LLP assist the Company in setting assumptions, and the valuation work is performed by Mercer Limited.

We closed the two UK defined benefit (DB) plans to new members in 2002. In December 2014 we ceased future accrual within these plans with future pension benefits earned within the Group's Defined Contribution (DC) pension arrangements. These two plans represent over 95% of consolidated plan liabilities.

On an IAS 19 basis, before deferred taxes, the Group's DB plans at 31 March 2023 had a net surplus of £37.9m (2022: £30.5m surplus). The value of plan assets decreased to £284.7m (2022: £347.6m). Plan liabilities decreased to £246.8m (2022: £317.1m) due to the increase in the discount rate (2.80% to 4.75%) being greater than the decrease in the long-term inflation rate (3.6% to 3.3%). Mortality assumptions include this year an assumption for post pandemic mortality experience in line with market practices.

The plans' actuarial valuation reviews, rather than the accounting basis, are used to evaluate the level of any cash payments into the plan. This year these contributions amounted to £15.6m. Following a triennial actuarial valuation of the two UK pension plans in the 2021/22 financial year, the cash contributions were agreed with the trustees aimed at eliminating the deficit.

During the 2022/23 financial year the aggregate payments made since the last triennial actuarial valuation, coupled with the performance of the plan assets and movement in the liabilities resulted in the Halma Group Pension Plan being funded over the trustees' secondary funding target and close to the expected current valuation on a solvency basis. As a result, it has been agreed with the trustees of the Halma Group Pension Plan that contributions will be suspended until 1 April 2025, when they will either fall due or be superseded by cash contributions agreed with the trustees in respect of the latest triennial actuarial valuation.

We therefore expect contributions to the schemes in the 2023/24 financial year to be £4.2m. In the event that these payments result in a surplus on winding up of the schemes, the Group has an unconditional right to a refund under the plan rules.

Steve Gunning

Chief Financial Officer

Safety Sector Review

What the Safety Sector does

Our Safety Sector companies protect people, assets and infrastructure and enable safe movement. Many of their products also make the world cleaner and enhance efficiency. Their technologies are used in public and commercial spaces and in industrial and logistics operations.

The Safety Sector comprises companies which provide solutions to a number of fundamental and enduring safety issues. These are: fire safety, through fire detection and fire suppression solutions; safe movement in public, commercial and industrial spaces; elevator safety; communications in emergencies; control of access in potentially hazardous industrial and commercial environments; electrical safety; and the safe management of pipelines and storage assets.

The Safety Sector has diverse end markets and a wide range of customers. Its products and solutions are used to enhance safety and efficiency in a broad spectrum of applications and end markets including in: many different types of commercial buildings, for example, shops and restaurants, healthcare facilities, offices and stadiums; industrial and logistics assets; public spaces and critical infrastructure, including roads, tunnels and transportation hubs; and aerospace, rail and automotive applications.

The Safety Sector's long-term growth drivers

The long-term growth of the sector continues to be driven by increasing safety and environmental regulation, and by growing, ageing and urbanising populations. Increasing automation and accelerating demand for connected industrial and infrastructure systems further underpin the sector's growth prospects, as its customers have sought to benefit from the greater efficiency and safety that can be derived from these innovations.

The increasingly urgent need to address the causes and impacts of climate change continue to further enhance the growth opportunities available to Safety Sector companies. This includes, for example, increased demand for automated access solutions to both increase efficiency, including by minimising heat loss in commercial and industrial premises. Sector companies are also supporting the drive towards renewable and cleaner energy sources and uses, including through fire suppression in renewable energy facilities, electrical testing of electric vehicles (EVs) and mass transit systems, and increasing the efficiency of industrial processes. They are also repurposing technology towards areas such as carbon capture and hydrogen energy sources in sector businesses which serve industrial customers.

Safety Sector performance in the year

The Safety Sector delivered a solid performance. Revenue growth was very strong. Return on sales¹ was however lower than historic norms as a consequence of supply chain impacts related to electronic components. Investment in future growth continued, including through increased R&D spend and acquisitions.

Revenue of £745.6m (2022: £641.4m) was 16.2% higher than in the prior year. Year-on-year revenue growth on an organic constant currency¹ basis was strong at 11.2%, with double digit growth in both halves of the year. Growth was broadly spread, with all but two companies delivering organic constant currency¹ revenue growth. Sector companies continued to be agile in responding to customer demand while addressing supply chain challenges, although disruptions in a number of companies contributed to a small decline in Adjusted¹ profit on an organic constant currency¹ basis.

Revenue growth on an organic constant currency¹ basis was broadly spread across all four subsectors, with three achieving double-digit growth. Industrial Safety's performance reflected strong execution in two subsector companies and Power Safety saw strong demand for interlock products in the electrical sector. Growth on a reported basis also benefited from acquisitions including WEETECH Holding GmbH (WEETECH) during the year. The largest subsector, Fire Safety continued to grow strongly, having seen substantial growth in the prior year, supported by organic constant currency¹ revenue growth in all companies. Urban Safety organic constant currency¹ revenue growth was good overall, although performance was mixed with strong demand for automatic access solutions and elevator systems partially offset by the end of a significant road safety contract.

The sector's revenue performance by geography reflected these themes. There was strong growth in the sector's largest two geographies, the USA and Mainland Europe, both on a reported and organic constant currency¹ basis. This included strong growth in Industrial Safety in the USA, with Fire Safety and Urban Safety performing strongly in Mainland Europe. The UK saw good growth on an organic constant currency¹ basis led by its largest subsector, Fire Safety, and there was strong momentum in Industrial Safety. Urban Safety delivered a more mixed performance with the effect of the end of the road safety contract mentioned above offsetting good performance elsewhere. On a reported basis, UK growth was lower, due to the non-recurrence of revenue from a disposal in the prior year. Asia Pacific also saw good growth on an organic constant currency¹ basis, led by a strong performance in Fire Safety, which more than offset a decline in Urban Safety principally as a result of lockdowns, and a non-recurring road safety contract in China.

Profit¹ grew by 4.3% to £152.5m (2022: £146.2m), and decreased by 1.1% on an organic constant currency¹ basis. Return on Sales¹ decreased by 230 basis points to 20.5% (2022: 22.8%). This reflected a strong comparator, which had benefited from cost savings made during the pandemic, and supply chain disruptions in a number of companies. These resulted in higher costs for electronic components used in devices with current regulatory approvals, and costs in recertifying devices to use alternative components. We expect these disruptions to ease over the current financial year. R&D expenditure of £41.0m remained at a good level, representing 5.5% of revenue (2022: £35.6m; 5.6% of revenue).

The sector made four acquisitions in the year for an aggregate consideration of approximately £207m (on a cash and debt free basis and excluding acquisition costs). These included two new standalone companies within the sector: WEETECH, which designs and manufactures critical electrical testing technology, purchased in October 2022; and FirePro Systems Limited, a designer and manufacturer of aerosol-based fire suppression systems, which was acquired shortly before the financial year end. Sector companies also made two bolt-on acquisitions: Apollo Fire Detectors acquired Thermocable (Flexible Elements) Ltd, a developer and manufacturer of linear heat detectors; and Sentric purchased ZoneGreen Limited, a provider of rail depot protection solutions.

The impact of acquisitions was a positive effect of 2.4% on revenue and 2.3% on profit. The disposal of Texecom in the first half of the prior year had a negative effect of 2.6% on revenue and 1.4% on profit. Currency exchange movements had a positive effect of 5.2% on revenue and 4.5% on profit.

Environmental & Analysis Sector Review

What the Environmental & Analysis Sector does

Our Environmental & Analysis Sector companies provide high-technology solutions, that monitor the environment and improve the quality and availability of life-critical natural resources such as air, water and food, and analyse materials in a wide range of applications.

Their valuable solutions are technically differentiated through strong levels of application knowledge in environmental monitoring, water and waste water analysis and treatment, gas analysis and detection, and optical analysis. They are supported by high levels of customer responsiveness and often leverage digital, optical and optoelectronic expertise.

They serve a wide variety of end markets with applications across a very broad range of sectors and customers. Their end markets include: water and waste water management and treatment, including for water utilities; gas analysis and detection; food, beverage, medical and bio-medical; communications; aquaculture; research and science; inspection and maintenance of infrastructure in water, for example, dams and offshore wind turbines; and a variety of industrial markets.

The Environmental & Analysis Sector's long-term growth drivers

The sector's long-term growth is sustained by rising demand for life-critical resources, the impact of climate change, increasing environmental regulations and worldwide population growth with rising standards of living. It is underpinned by our ability to design, develop and manufacture innovative, high-technology detection and analysis solutions.

The increasingly urgent need to address climate change is creating new opportunities in many of the sector's markets. It is driving new policies globally, including initiatives to meet Net Zero commitments through energy transition and sectoral decarbonisation plans, as well as plans to increase adaptation and resilience. Combined with the biodiversity crisis and an increasing focus on plastics and waste, it is also driving new regulatory initiatives to preserve life-critical resources. These include initiatives such as, in the UK, Ofwat's investigations into waste water treatment and internal sewer flooding to prevent environmental degradation.

These and similar initiatives are creating growing long-term opportunities for our companies to help their customers, for example, to prevent emissions, detect leaks and analyse air and water quality, and to support new technologies to address these issues, such as renewable energy and storage, sustainable food systems and mobility in cities.

Environmental & Analysis Sector performance in the year

The Environmental & Analysis Sector delivered a good performance. Revenue of £552.1m (2022: £442.9m) was 24.7% higher than in the prior year, and up 9.1% on an organic constant currency¹ basis. Sector growth was driven by increasing demand and supported by strong execution, in particular from the sector's largest companies.

All subsectors grew revenue on an organic constant currency¹ basis. Organic constant currency¹ growth was led by Environmental Monitoring, where growth on a reported basis also benefited from the acquisition of Deep Trekker, Inc. (Deep Trekker) during the year. Organic constant currency¹ revenue growth was also strong in our gas detection companies, supported by increasing demand for products addressing the minimisation of emissions. Both the Optical Analysis and the Water Analysis & Treatment subsectors saw good organic constant currency¹ revenue growth, with Photonics within Optical Analysis continuing to benefit from increasing demand for technologies that support the building of digital and data capabilities; and within the Water Analysis & Treatment subsector, revenue grew more strongly in the second half of the year following a pick-up in project tenders from UK utilities, which offset lower order intake in our water testing and disinfection companies, principally relating to products related to consumer discretionary end-markets.

By region, the USA accounts for half of the sector's revenue, and reported the highest organic constant currency¹ growth at 12%. Performance was strong across all four subsectors, supported by further growth in a continuing large photonics contract within Optical Analysis, increased demand including larger customer orders in our gas detection companies, in products supporting the transition to new sources of energy in Environmental Monitoring, and international expansion from our water infrastructure companies within Water Analysis & Treatment. Asia Pacific also grew strongly, at 10% on an organic constant currency¹ basis, driven by substantial growth in the flow and pressure control market within Environmental Monitoring in India and China. Organic constant currency¹ revenue growth was more modest in the UK and Mainland Europe, with growth reflecting strengthening UK water project spend in the second half of the year, and strong demand in our gas detection companies in Mainland Europe.

In the other regions which represent about 6% of the sector's revenue, our gas detection companies continued to benefit from a recovery in the energy sector, which drove strong organic growth in Africa, Near & Middle East, and there was a good contribution to reported revenue growth in the other smaller regions from the acquisition of Deep Trekker.

Profit¹ grew by 22.2% to £134.2m (2022: £109.8m), or by 7.1% on an organic constant currency¹ basis. Return on Sales¹ decreased by 50 basis points to 24.3% (2022: 24.8%). This reflected a return to a level similar to the years before the pandemic. Gross margin was marginally higher, driven by business mix and good management of pricing. R&D expenditure of £28.6m was maintained at a good level at 5.2% of revenue (2022: £22.8m; 5.1% of revenue).

The sector made one standalone acquisition during the year for a consideration of approximately £38m: Deep Trekker, which is a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance, was purchased in April 2022. Ocean Insight also made a small bolt-on acquisition. Since the year end, there have been two further acquisitions in the sector for a maximum total consideration of approximately £57m: Sewertronics Sp. Z o.o., which designs and manufactures equipment and associated consumables for wastewater pipeline rehabilitation, was purchased as a standalone company in May 2023; and Visual Imaging Resources LLC, which distributes and services wastewater inspection equipment in North America, was purchased in April 2023 as a bolt-on to Minicam. This good momentum reflects the investment made in a dedicated M&A team for the Environmental & Analysis Sector, and the increasing ability of our individual companies to make bolt-on acquisitions to enhance their technological capabilities and market reach.

The impact of acquisitions during the year contributed growth of 6.6% to revenue, and 5.9% to profit. Currency exchange movements had a positive effect of 9.0% on revenue and 9.2% on profit.

Healthcare Sector Review

What the Healthcare Sector does

Our Healthcare Sector companies' technologies and digital solutions help providers improve the care they deliver and enhance the quality of patients' lives. Their products and technologies are components, devices, systems and therapies critical to delivering the required standards of care for patients.

Our Healthcare Sector companies deliver advanced technologies and solutions in high value niches. These include: eye health, where they support both diagnostics and surgical treatment; monitoring and support of vital signs, including blood pressure and respiration; products to assist with interventional radiology and oncology and image guided surgery; synthetic bone grafts for clinical applications; and artificial intelligence (AI) based early warning systems and clinical decision support tools for childbirth.

Sector companies also supply critical fluidic components for diagnostic and analytical instruments, and sensor technologies to track assets, increase efficiency, and support patient and staff safety.

The Healthcare Sector operates across a wide range of healthcare segments and settings, including ophthalmology, dentistry, orthopedics, perinatal care, surgical intervention, diagnostics and analytics. Its customers range from individual healthcare professionals to large healthcare systems and medical device original equipment manufacturers.

The Healthcare Sector's long-term growth drivers

The sector's long-term growth is supported by demographic trends, technological innovation, and improving the standard of care and increased efficiency.

Most countries in the world are experiencing growth in both the size of population and the proportion of older people. By 2050, the world's population of people aged 60 years and older is estimated to double to 2.1 billion. The number of people aged 80 years or older is forecast to triple by 2050 to reach 426 million. This is expected to lead to an increased prevalence of chronic conditions, driving demand for diagnostics and treatment. These factors are key growth drivers for our Therapeutic Solutions businesses, given their presence in the ophthalmic surgery, respiratory therapy, bone replacement, interventional radiology, oncology and image-guided surgery markets.

Technological innovations drive growth, by increasing the capabilities of healthcare professionals to prevent, diagnose and treat conditions, including remotely through telemedicine. They contribute to improving standards of care and increasing efficiency by enabling better, earlier, faster and more cost-effective diagnosis and treatment of patients. This in turn leverages the skills and availability of increasingly scarce healthcare staff. These factors are strong growth drivers for our Patient Assessment & Analytics businesses, such as PeriGen, whose AI-powered algorithms prevent complications during childbirth, or CenTrak, whose real-time location services improve safety, asset utilisation and efficiency in healthcare facilities.

Rising patient demand, workforce shortages, and disruptions as a result of the COVID pandemic have created substantial backlogs of patients, which are likely to persist for many years. Our Healthcare companies, through their innovative technologies and deep application knowledge, are helping to address these global health challenges.

Healthcare Sector performance in the year

The Healthcare Sector delivered a strong performance. Revenue of £556.4m (2022: £442.3m) was 25.8% higher, and up 9.8% on an organic constant currency¹ basis. Sector growth continued to be supported by a strong order book, reflecting high patient caseload levels and order backlogs, and by generally strong execution by sector companies, with all but three companies delivering organic constant currency¹ revenue growth, and five achieving organic constant currency¹ revenue growth of 15% or more.

All subsectors grew revenue on an organic constant currency¹ basis. Growth was led by Healthcare Assessment & Analytics, which benefited from demand in vital signs monitoring, clinical ophthalmology, and communication and software systems for healthcare facilities. There was good organic constant currency¹ growth in Therapeutic Solutions, supported by high patient caseload levels in eye surgery; subsector growth on a reported basis also benefited from the acquisition of IZI Medical Products, LLC (IZI) during the year. There was only marginal growth on an organic constant currency¹ basis in the smaller Life Sciences subsector, however, principally reflecting the impact of lockdown restrictions in China.

All regions except Asia Pacific reported double digit increases in revenue, on both a reported and organic constant currency¹ basis. On a reported basis, growth was strongest in the USA, which accounts for more than half of sector revenues. This was led by strong organic growth in communication and software systems for healthcare facilities, and the region also benefited from the positive effect of currency translation and the acquisition of IZI. There was also strong revenue growth on an organic constant currency¹ basis in Mainland Europe and the UK, driven by a substantial backlog of demand for eye surgery products and for communication systems for healthcare facilities respectively. However, revenue in Asia Pacific declined on an organic constant currency¹ basis, reflecting lockdowns in China, which represents close to half of the region's revenues.

Profit¹ grew by 30.8% to £130.1m (2022: £99.5m), or by 14.0% on an organic constant currency basis. Return on Sales¹ improved by 90 basis points to 23.4% (2022: 22.5%). This reflected a stable gross margin, which included a beneficial product mix and good management of pricing and material costs, and operational efficiencies. R&D expenditure increased to £33.1m, representing 5.9% of revenue (2022: £26.9m; 6.1% of revenue), reflecting continued high levels of investment in new product development.

The sector made one acquisition during the year: IZI was purchased in September 2022 for a maximum total consideration of £151m. IZI is a US-based designer, manufacturer and distributor of medical consumable devices which are mainly used by interventional radiologists and surgeons in a range of acute, hospital based diagnostic and therapeutic procedures.

Acquisitions had a positive effect of 4.7% on revenue and 4.0% on profit. Currency exchange movements had a positive effect of 11.3% on revenue and 12.8% on profit.

Principal Risks and Uncertainties

01. Innovation & Digital
Risk Owner: Chief Innovation and Digital Officer Inherent risk level: Critical Residual risk level: High Residual risk change: Marginal increase Risk appetite: Seeking	Risk and impact Failing to innovate to create new high-quality products to meet customer needs whilst capturing digital and sustainability growth opportunities, or failure to adequately protect intellectual property, resulting in a loss of market share and poor financial performance. Risk evolution The risk score was minimally adjusted during the year based on a new estimate of the missed opportunity of failing to innovate.	How do we manage the risk? Halma's digital innovation strategy focuses on the education of our companies around customer centricity and the incubation and acceleration of innovation across the companies. This includes regular promotion, training and monitoring of agile or lean start-up ways of working in companies. As the I&D team execute on their strategy over time, we expect that the companies will develop greater capabilities on innovation and digital as they drive their product strategies. The strategy delivery is supported by an innovation champions network and partnerships, conferences, development programmes and innovation awards which help spread and reward ideas across the Group. Sectors also play a key role in promoting active collaboration between companies to share ideas and experiences and reviewing R&D budgets and projects to ensure that the spend effectively supports the growth strategy in targeted markets. Sector M&A activity is also targeted to help address innovation and R&D gaps, in line with sector-specific initiatives. Key R&D and innovation metrics are periodically reviewed to measure positive impact. Product development is devolved to our companies who are closest to the customer. Companies are encouraged to develop and protect intellectual property, and focus on talent and retention to ensure there is sufficient expertise within the business.
02. Talent and Diversity
Risk Owner: Group Talent, Culture and Communications Director Inherent risk level: High Residual risk level: High Residual risk change: No change Risk appetite: Open	Risk and impact Not having the right talent and diversity at all levels of the organisation to deliver our strategy, resulting in reduced financial performance. Risk evolution During the year, a number of initiatives started in 2022 were finalised and fully implemented, such as a diversity, equity and inclusion target for the Managing Director level. The year saw the Group Chief Executive and Chief Financial Officer transitions, which, although brings an inherent risk, have been extensively planned, significantly mitigating the risk. Overall the risk level remains in line with the prior year.	How do we manage the risk? We have comprehensive recruitment processes to recruit the brightest talent, including the "Future Leaders" programme to attract and develop graduates into future leadership roles. The Senior Management reward structure is aligned with strategic priorities of companies, sectors and Group and DEI targets. Periodic review of reward packages to ensure competitiveness, benchmark with the market and alignment with high long-term growth. An Annual Performance and Development Review process is in place for sector and Executive Board members. The Nomination Committee reviews succession and development plans annually. A strategic review of sector board and company leadership talent is performed annually to identify and develop future leaders. Programmes to develop talent and enhance skills (including climate and sustainability-related skills) are in place across our companies. An annual employee engagement survey is carried out to provide insight into employee sentiment, including alignment between strategy and objectives and clarity to employees about their contribution towards achieving objectives.
03. Acquisitions and Investments
Risk Owner: Group Chief Executive Inherent risk level: Critical Residual risk level: High Residual risk change: Increased Risk appetite: Open	Risk and impact Failing to achieve our strategic growth target for acquisitions and investments due to insufficient opportunities being identified, poor due diligence or poor integration, resulting in erosion of shareholder value. Risk evolution During the year, the risk level rose due to the increasingly challenging macroeconomic (i.e. increased cost of capital and debt) and geopolitical environment. The highly volatile external environment increases the complexity of finding deals that are able to deliver on our inorganic growth strategy and are at the right level of risk appetite. Given their role in the acquisition strategy, we recognise that the Group Chief Executive and Chief Financial Officer combined change might be seen as introducing a certain level of risk. This potential risk is adequately mitigated by the strength of well established end-to-end M&A processes led by experienced teams. Furthermore, the Group Chief Executive and the Group Financial Offer have extensive M&A experience gained both internally to Halma and externally, which further mitigates this risk.	How do we manage the risk? Acquisitions are a core element of Halma's sustainable growth model; hence the Group has a clear strategy that allows us to take advantage of new growth opportunities through the acquisition of companies in our existing or adjacent markets. Regular reporting of the acquisition pipeline to the Executive Board and the Board. All acquisitions are reviewed and approved by the Group Chief Executive, Chief Financial Officer and Board. Dedicated M&A Directors who support the sectors in their acquisition strategy, from pipeline development to the delivery of the acquisition. A robust due diligence process is carried out for all acquisitions by experienced staff who bring in specialist expertise as required, and low-carbon transition risk and opportunity reviews are built into our standalone M&A process. Strategic transformation plans and clear processes are in place for new acquisitions to enable them to achieve their growth potential whilst integrating into the Group (including from a control framework and compliance perspective). Internal Audit reviews are performed within 12 months of acquisition to assess the effectiveness of the required control framework for standalone acquisitions. Post-acquisition reviews are performed for all acquisitions after 12 months to ensure strategic objectives are being met and to identify learnings for future acquisitions. Minority equity investments are assessed through the lenses of Halma's investment framework and executed in line with an established acquisition process which ensures an appropriate level of assessment and oversight. Minority investments are regularly reviewed by the Investment committee, and "Lessons learnt reviews" are carried out to improve the existing processes.
04. Cyber
Risk Owner: Chief Technology Officer Inherent risk level: Critical Residual risk level: Medium Residual risk change: Marginal increase Risk appetite: Averse	Risk and impact Loss of digital intellectual property/ data or ability to operate systems or connected devices due to internal failure or external attack. There is resulting loss of information or ability to continue operations, and therefore financial and reputational damage. Risk evolution The inherent risk level increased during the year due to the continuously evolving landscape of external cyber threats, however it is mitigated by the delivery of investments to upgrade the cybersecurity defence. The finalisation of the current initiatives is crucial to keep the risk within the risk appetite.	How do we manage the risk? Cyber risk is owned by the CTO at an executive level, who periodically updates the Board and Audit Committee. All employees are required to comply with the IT Acceptable Use Policy. Regular online IT awareness training is provided for all employees who use computers. A group-wide IT framework is in place, periodically reviewed and includes Cyber risk policies and procedures. Companies confirm the effectiveness of their most critical IT controls (including documented and tested disaster recovery plans for critical systems and infrastructure) every six months through the Internal Control Certification process. The Internal Audit & Assurance Team periodically and independently tests these controls. There are central and local IT resources maintaining and sharing updated technical knowledge. The central technology resources are available to companies to help them better manage cyber risk. Cyber threats are monitored and reported upon every two months for all parts of the Group. Group-wide Incident Management Policy and Crisis communications plans are in place. Access to cyber expertise is available should a cyberattack occur.
05. Economic and Geopolitical Uncertainty
Risk Owner: Group Chief Executive Inherent risk level: Critical Residual risk level: Medium Residual risk change: Increased Risk appetite: Cautious	Risk and impact Failure to anticipate or adapt to macroeconomic and geopolitical changes, resulting in a decline in financial performance and an impact on the carrying value of goodwill and other assets. This risk remains elevated in certain geographies due to geopolitical events such as the conflict in Ukraine and US/ China trade relations. Risk evolution During the year, the overall risk level increased, triggered by the higher level of inherent risk due to the macroeconomic situation and increasing geopolitical complexities. During the year, a deep dive risk assessment was carried out to assess the Group's exposure to key macroeconomic and geopolitical risks, which resulted in an enhanced monitoring process for relevant geopolitical risk factors. Halma remains resilient to macroeconomic volatility due to growth drivers linked to highly regulated markets, demand for healthcare and life-critical resources, and growing efforts to address climate change, waste and pollution.	How do we manage the risk? The diverse portfolio of companies across the sectors, in multiple countries and in relatively non-cyclical global niche markets with secular long-term growth drivers helps to minimise the impact of any single event. Monitoring mechanisms are established at Group, sector and company levels, including: ·     Regular monitoring and assessment of emerging trends and potential risks and opportunities relating to economic or geopolitical uncertainties. ·     Monitoring of end market exposure and changes in key end markets due to macroeconomic factors. ·     Financial warning signs KPIs give earlier indications of potential problems, and half-yearly assessments of the carrying value of goodwill and other assets are performed. In line with Halma's model, the risk is managed at the local company level through decentralised decision-making and autonomy to rapidly adjust to changing circumstances. The companies have robust credit management processes in place and operations, cash deposits and sources of funding in uncertain regions are kept to a minimum. The Group provides continuous support to company boards and DCEs to navigate geopolitical changes (including when these changes are triggered by disorderly low-carbon transition scenarios). Halma's financial strength and availability of pooled resources in the Group can be deployed, if needed, to further mitigate the risk.
06. Non-compliance with Laws and Regulations
Risk Owner: Group General Counsel & Chief Sustainability Officer Inherent risk level: Critical Residual risk level: Low Residual risk change: Marginal increase Risk appetite: Averse	Risk and impact We are not fully compliant with relevant laws and regulations, resulting in fines, reputational damage and possible criminal liability for Halma senior management. Risk evolution The marginal increase in the risk likelihood is primarily driven by the increasing complexity of the regulatory environment and the growth of our companies and the Group. Effective mitigating controls are in place to mitigate the current risk and take a proactive approach to this increasingly challenging context.	How do we manage the risk? Legal compliance is owned by the Group General Counsel & Chief Sustainability Officer at an executive level, who periodically updates the Board and Audit Committee. Group policies, procedures and guidance are in place, setting out the Group's requirements from a compliance and regulatory perspective. Companies confirm the effectiveness of their most critical legal compliance controls every six months through the Internal Control Certification process. The Internal Audit & Assurance Team periodically and independently tests these controls. Group Legal, Sustainability & Governance (LSG) Team advises on legislative and regulatory changes relevant to the Group as a listed company. All employees are required to sign to confirm that they have read and understood the Halma Code of Conduct. An ongoing compliance training programme is in place for Group and its companies. A whistleblowing hotline is available to all employees and third parties to raise concerns over the lack of compliance and misconduct. These are independently followed up and investigated. The Group LSG Team resources, including the Deputy General Counsels, who sit on the sector boards, and a panel of high-quality external legal advisors, are available to sectors and companies to help them better manage legal compliance risks, including during due diligence processes. The board of each company is accountable for identifying and monitoring what laws are relevant to their business, including any emerging or changing legislation, and for ensuring commercial legal risks are appropriately managed. Claims and litigation risks are reported to Group by all companies every six months. Material legal issues and risks are reported to and discussed by the Board every quarter. Appropriate levels of Group insurance cover are maintained. A crisis management plan exists to manage communications and the reputational risk for Halma and/or its companies.
07. Natural Hazards, including Climate Change
Risk Owner: Group General Counsel & Chief Sustainability Officer Inherent risk level: Medium Residual risk level: Low Residual risk change: No change Risk appetite: Averse	Risk and impact There is a risk we are unable to respond to large scale disasters or natural catastrophes such as hurricanes, floods, fires or pandemics, as well as longer term changes to the climate such as increasing water scarcity and temperatures, resulting in the inability of one or more of our businesses to operate, causing financial loss and reputational damage. This risk includes potential impacts from physical climate change on our supply chains. Risk evolution The reassessment of the climate-related risks and opportunities confirmed the risk level to be in line with the prior year. More information is available in our TCFD Statement in the Annual Report & Accounts.	How do we manage the risk? Halma operates in end markets with strong long-term growth drivers contributing to a low-carbon economy and lower risks of disruptions due to natural hazards. Our business model is expected to be resilient to climate-related risks, due to Halma's highly diversified portfolio of companies and agile business model, which enable our companies to quickly address challenges caused by natural hazards and climate change. The geographical diversity of Halma's companies reduces the impact of any single event, and the companies' manufacturing capabilities can be leveraged, in case of need, to provide flexibility to support the companies affected. All companies are required to have business continuity and disaster recovery plans in place which are tested periodically and tailored to manage the specific risks they are most likely to face. The Group has a crisis management plan to manage communications and the reputational risk for Halma and/or its companies. Business interruption insurance is in place to mitigate any financial loss that may occur from natural hazards. Climate risk and opportunity review processes and governance are in place, and we continue to work with our companies to help them manage disruption risks within their supply chains. More information on climate-related risks is available in the TCFD Statement in the Annual Report & Accounts.
08. Organic Growth
Risk Owner: Group Chief Executive Inherent risk level: Critical Residual risk level: Low Residual risk change: No change Risk appetite: Open	Risk and impact Failing to deliver desired organic growth, resulting in missed expected strategic growth targets and erosion of shareholder value. This risk includes potential impacts from the Net Zero transition on our supply chain. Risk evolution During the year, the delivery of the organic growth targets has been continuously challenged by the economic and geopolitical environment, however the ability to fulfil strategic growth targets remains strong.	How do we manage the risk? Halma has a clear Group strategy to achieve growth targets through the organic growth of Halma's companies, which is accelerated by the Halma Growth Enablers and the Halma DNA. The remuneration of companies' executives and above is based on profit growth. Companies achieve organic growth through the continuous focus on the development of an agile business model and a culture of innovation to take advantage of new growth opportunities as they arise. Company strategies are reviewed and challenged by the sector to ensure they are aligned with the Group strategy and organic growth targets. Sector management ensures that the Group strategy is fulfilled through ongoing review and chairing of companies. Regional hubs, for example those located in China and India, support local strategic growth initiatives for all companies. Potential new partnerships and investments are comprehensively assessed for future organic growth prospects. Companies continuously focus on attracting and developing the best talent to deliver Halma's organic growth strategy effectively. At a Group level, the annual strategic planning process, the annual budget and the monthly 12-month rolling forecast enable a review of the effectiveness of the delivery of the organic growth strategy through control over the Balance Sheet and the Profit & Loss. Climate risk and opportunity review processes and governance are in place, and we continue to work with our companies to help them manage transition risks within their supply chains.
09. Business Model and its Communication
Risk Owner: Group Chief Executive Inherent risk level: High Residual risk level: Low Residual risk change: No change Risk appetite: Cautious	Risk and impact Failing to clearly articulate or adapt our business model as Halma grows through exploring and implementing additional or new business models, resulting in missed growth opportunities and erosion of shareholder value. This risk includes meeting increasing or shifting shareholder expectations around climate change and sustainability. Risk evolution During the year, the risk appetite has been reassessed and reduced from "Open" to "Cautious" to capture the fact that although Halma's sustainable growth model is constantly challenged and fine-tuned to ensure that it enables the companies to grow, these evolutions are carefully thought through, and a low level of risk is sought. The inherent and residual risk level remains in line with the prior year.	How do we manage the risk? The Halma Sustainable Growth Model is at the core of the Group strategy and a key success factor underpinning the Group's ability to deliver returns for its stakeholders. The sector and Executive Boards perform periodic reviews to identify opportunities which may require a new organisational approach or evolutions of the existing approach. The current model is challenged through the lenses of the learnings from past experience and through the continuous search and exploration of innovative ideas and opportunities to grow and scale the Group as the global economic environment evolves. The Board performs strategic reviews of the business model to consider the strengths and weaknesses of the existing model and the need to make changes. The Group has a clear strategy to communicate its business model to internal and external stakeholders, which is crucial to the successful execution of the Group's sustainable growth strategy. Regular communications and updates on the business model underpin the delivery of the communication strategy. These target Group, sector and company boards throughout the year and are integral to the recruiting and onboarding process. Sustainability, including climate change, is integral to Halma's strategy at all levels. Sustainability strategies are regularly reviewed and discussed in the companies, sectors and, Executive Board as well as at the Board. Sustainability networks are in place to share learnings and promote awareness in our companies. There are central growth-enabling resources with sustainability-related knowledge which are available to sectors and companies to help them better manage sustainability risks and opportunities.
10. Product Failure or Non-compliance
Risk Owner: Group Chief Executive Inherent risk level: High Residual risk level: Low Residual risk change: Marginal increase Risk appetite: Averse	Risk and impact A failure in one of our products, including due to non-compliance with product regulations, may result in severe injuries, death, financial loss and reputational damage, which might be amplified in cases of large contracts. Risk evolution During the year, the risk likelihood saw a marginal increase to reflect the current/historical cases' frequency and the potential challenge posed by the Medical Device Regulation (MDR) to achieve regulatory compliance for some of the products of our Healthcare Sector companies produced for the European market. MDR is a key focus within the Healthcare Sector which is coordinating several risk-mitigating initiatives (e.g. regulatory monitoring, knowledge sharing amongst companies).	How do we manage the risk? Our companies manufacture and assemble a wide variety of product types across different geographies and end markets. They are, therefore, experts in their trade and carry the responsibility for complying with relevant product safety and quality requirements, obtaining relevant accreditations and all necessary product certifications. Halma's companies have adopted customised sets of controls to achieve high-quality standards - these might include but are not limited to: ·  Strict product development and rigorous testing procedures. ·  Clear requirements for suppliers to ensure safety and quality. ·  Quality checks on products received from suppliers. ·  Monitoring of defects and warranty returns. ·  Traceability of product. ·  Obtaining ISO 9001 certification, where relevant. ·  Product compliance with regulations is checked as part of due diligence for any new acquisition. ·  Ensuring employees have appropriate quality-related skills. Furthermore, potential liabilities are limited as much as possible through terms and conditions of sale and liability insurance cover.
11. Liquidity
Risk Owner: Chief Financial Officer Inherent risk level: Critical Residual risk level: Low Residual risk change: No change Risk appetite: Averse	Risk and impact There is a risk that the Group's cash/funding resources are inadequate to support its activities or there is a breach of funding terms. Risk evolution Due to the strength of Halma's cash-generation model and the tight controls over liquidity, the residual risk remains low, in line with the prior year. We renewed our syndicated credit facility during the year, which remains at £550m, and now matures in May 2028 and completed a new Private Placement of £330m with a seven year average life.	How do we manage the risk? A clear liquidity management strategy is a core pillar of the Halma financial model. The strong cash flow generated by the Group provides financial flexibility, together with a revolving credit facility. Treasury policy and procedures provide comprehensive guidance to the Group and companies on banking and transactions, including required approvals for drawdowns and all new or renewed sources of funding. Cash needs and the Group cash position are monitored regularly through the review of the 12-month rolling forecast, of the three-years liquidity forecast and of current and forecast covenant compliance. The currency mix of debt is reviewed annually, and on acquiring or disposing of a business.
12. Financial Controls
Risk Owner: Chief Financial Officer Inherent risk level: High Residual risk level: Very low Residual risk change: No change Risk appetite: Averse	Risk and impact Failure in financial controls either on its own or via a fraud which takes advantage of a weakness, resulting in financial loss and/or misstated reported financial results. Risk evolution No significant risk factors have been identified at both inherent and residual risk levels during the year. We continuously challenge, review and enhance our financial controls and the processes across the Group, which ensure these are effective whilst we continue to closely monitor the developments of the UK Corporate Governance Code.	How do we manage the risk? Group policies, procedures and guidance are in place, setting out the Group's requirements for financial controls. Companies confirm the effectiveness of their most critical financial controls (including segregation of duties, delegation of authorities and financial accounts reconciliations) every six months through the Internal Control Certification process. The Internal Audit & Assurance Team periodically and independently tests these controls. Sector and Group finance teams perform regular reviews of financial reporting and indicators. Six-monthly peer reviews of reported results for each company are performed to provide an independent challenge. Ongoing training of finance personnel (including finance teams of newly acquired companies) on Halma's policies and financial control framework. Companies' directors have legal and operational responsibilities as they are statutory directors of their companies. This fits with Halma's decentralised model and contributes to ensuring an effective financial control environment is in place.

Going concern statement

The Group's business activities, together with the main trends and factors likely to affect its future development, performance and position, and the financial position of the Group as at 31 March 2023, its cash flows, liquidity position and borrowing facilities are set out in the Strategic Report. In addition, the Annual Report and Accounts 2023 contains further information concerning the security, currency, interest rates and maturity of the Group's borrowings.

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

The base case scenario has been prepared using forecasts from each operating company as well as cash outflows on acquisitions in line with pre Covid pandemic levels.  In addition, a severe but plausible downside scenario has been modelled showing a decline in trading for the year ending 31 March 2024. This reduction in trading could be caused by events such as a significant resurgence in COVID-19 lockdowns beyond China or continued macroeconomic volatility leading to further inflation and interest rate increases. In mitigating the impacts of the downside scenario there are actions that can be taken which are entirely discretionary to the business such as reducing acquisition spend and dividend growth rates. In addition, the Group has demonstrated strong resilience and flexibility to manage its overheads and adapt its supply chains during the COVID pandemic and more recent global economic uncertainty.

Neither the base case nor severe but plausible downside scenarios result in a breach of the Group's available debt facilities or the attached covenants and, accordingly, the Directors believe there is no material uncertainty in the use of the going concern assumption and, therefore, deem it appropriate to continue to adopt the going concern basis of accounting for at least the next 12-month period.

Our financial position remains robust with committed facilities at the balance sheet date totalling approximately £931m which includes a £550m Revolving Credit Facility (RCF). The undrawn committed facilities as at 31st March 2023 amounted to £255.7m. In May 2022, the RCF was refinanced and now matures in May 2028, the first of two one-year extension options having been exercised post year-end. During May 2022, the Group also entered into a new Note Purchase Agreement which provided access to loan notes totalling £330m, which were drawn in various currencies in July 2022. The financial covenants across the facilities are for leverage (net debt/adjusted EBITDA) of not more than three and a half times and for adjusted interest cover of not less than four times.

Viability Statement

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

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

In reviewing the Company's viability, the Board has identified the following factors which they believe support their assessment:
1	2	3	4	5
The Group operates in diverse and relatively non-cyclical markets with long term growth drivers.	There is considerable financial capacity under current facilities and the ability to raise further funds if required.	The decentralised nature of our Group ensures that risk is spread across our businesses and sectors, with limited exposure to any particular industry, market, geography, customer or supplier.	There is a strong culture of local responsibility and accountability within a robust governance and control framework.	An ethical approach to business is set from the top and flows throughout our business.

In making their assessment, the Board carried out a comprehensive exercise of financial modelling and stress-tested the model with a downside scenario based on the principal risks identified in the Group's annual risk assessment process. The scenarios modelled used the same assumptions as for the going concern review, as set out above, for the years ending 31 March 2024 and 31 March 2025 with further assumptions applied for the year ending 31 March 2026. The base case reflects the latest forecasts and strategic plans of the business. The downside scenario included a reduction in trading for the year to 31 March 2024 which could be caused by a significant downside event with the addition of impacts from other of the Group's principal risks such as litigation or product failure.

For the years ending 31 March 2025 and 31 March 2026 the downside scenario reflects growth at half the rate modelled in the base case. In both scenarios, the effect on the Group's KPls and borrowing covenants was considered, along with any mitigating factors. Based on this assessment, the Board confirms that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period to 31 March 2026.

Responsibility Statement of the Directors on the Annual Report and Accounts

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year to 31 March 2023. Certain parts thereof are not included within these Results.

Each of the Directors, whose names and functions are listed in the Annual Report and Accounts 2023, confirm that, to the best of their knowledge:

·   the Group financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

·   the company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets, liabilities and financial position of the company; and

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

This responsibility statement was approved by the Board of Directors on 15 June 2023.

Marc Ronchetti Group Chief Executive

Steve Gunning Chief Financial Officer

Results for the year to 31 March 2023

Consolidated Income Statement

		Year ended 31 March 2023			Year ended 31 March 2022
	Notes	Adjusted* £m	Adjustments*  (note 1) £m	Total £m	Adjusted* £m	Adjustments* (note 1) £m	Total £m
Continuing operations
Revenue	1	1,852.8	-	1,852.8	1,525.3	-	1,525.3
Operating profit		378.2	(69.8)	308.4	324.7	(45.8)	278.9
Share of loss of associate		-	-	-	(0.1)	-	(0.1)
Profit on disposal of operations	9	-	-	-	-	34.0	34.0
Finance income	4	1.8	-	1.8	0.6	-	0.6
Finance expense	5	(18.7)	-	(18.7)	(9.0)	-	(9.0)
Profit before taxation		361.3	(69.8)	291.5	316.2	(11.8)	304.4
Taxation	6	(72.9)	15.7	(57.2)	(68.3)	8.1	(60.2)
Profit for the year	1	288.4	(54.1)	234.3	247.9	(3.7)	244.2
Attributable to:
Owners of the parent				234.5			244.4
Non-controlling interests				(0.2)			(0.2)
Earnings per share	2
From continuing operations
Basic		76.34p		62.04p	65.48p		64.54p
Diluted				61.86p			64.42p
Dividends in respect of the year	7
Paid and proposed (£m)				76.3			71.5
Paid and proposed per share				20.20p			18.88p

*  Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; significant restructuring costs, and profit or loss on disposal of operations; and the associated taxation thereon. Note 3 provides more information on alternative performance measures.

Consolidated Statement of Comprehensive Income and Expenditure

	Notes	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Profit for the year		234.3	244.2
Items that will not be reclassified subsequently to the Consolidated Income Statement:
Actuarial (losses)/gains on defined benefit pension plans		(8.8)	41.6
Tax relating to components of other comprehensive income that will not be reclassified	6	1.2	(9.6)
Unrealised changes in the fair value of equity investments at fair value through other comprehensive income		6.1	(1.7)
Items that may be reclassified subsequently to the Consolidated Income Statement:
Effective portion of changes in fair value of cash flow hedges		1.3	(1.5)
Deferred tax in respect of cash flow hedges accounted for in the hedging reserve	6	(0.3)	0.4
Exchange gains on translation of foreign operations and net investment hedge		45.1	43.9
Other comprehensive income for the year		44.6	73.1
Total comprehensive income for the year		278.9	317.3
Attributable to
Owners of the parent		279.2	317.5
Non-controlling interests		(0.3)	(0.2)

The exchange gains of £45.1m (2022: gains of £43.9m) includes losses of £7.4m (2022: losses of £8.6m) which relate to net investment hedges.

Consolidated Balance Sheet

	31 March 2023 £m	31 March 2022 £m
Non-current assets
Goodwill	1,120.5	908.7
Other intangible assets	472.3	325.2
Property, plant and equipment	222.9	194.0
Interest in associates and other investments	21.0	8.2
Retirement benefit asset	38.4	31.1
Tax receivable	14.7	14.7
Deferred tax asset	3.0	2.4
	1,892.8	1,484.3
Current assets
Inventories	312.4	228.8
Trade and other receivables	410.7	325.1
Tax receivable	1.5	0.7
Cash and bank balances	169.5	157.4
Derivative financial instruments	1.5	0.7
	895.6	712.7
Total assets	2,788.4	2,197.0
Current liabilities
Trade and other payables	280.7	242.7
Borrowings	1.0	72.5
Lease liabilities	19.2	15.5
Provisions	21.0	20.7
Tax liabilities	18.4	11.6
Derivative financial instruments	0.9	0.9
	341.2	363.9
Net current assets	554.4	348.8
Non-current liabilities
Borrowings	677.3	287.6
Lease liabilities	68.7	56.6
Retirement benefit obligations	0.5	0.6
Trade and other payables	21.9	19.0
Provisions	9.7	7.7
Deferred tax liabilities	70.2	58.5
	848.3	430.0
Total liabilities	1,189.5	793.9
Net assets	1,598.9	1,403.1
Equity
Share capital	38.0	38.0
Share premium account	23.6	23.6
Own shares	(46.1)	(30.7)
Capital redemption reserve	0.2	0.2
Hedging reserve	0.6	(0.4)
Translation reserve	162.3	117.1
Other reserves*	4.4	(1.7)
Retained earnings*	1,415.8	1,256.6
Equity attributable to owners of the parent	1,598.8	1,402.7
Non-controlling interests	0.1	0.4
Total equity	1,598.9	1,403.1

*See footnote to the Consolidated Statement of Changes in Equity below.

The financial statements of Halma plc, company number 00040932, were approved by the Board of Directors on 15 June 2023.

Marc Ronchetti             Steve Gunning

Director                                    Director

Consolidated Statement of Changes in Equity

	Share capital £m	Share premium account £m	Own shares £m	Capital redemption reserve £m	Hedging reserve £m	Translation reserve £m	Other reserves £m	Retained earnings £m	Non- controlling interest £m	Total £m
At 1 April 2022	38.0	23.6	(30.7)	0.2	(0.4)	117.1	(1.7)	1,256.6	0.4	1,403.1
Profit for the year	-	-	-	-	-	-	-	234.5	(0.2)	234.3
Other comprehensive income and expense	-	-	-	-	1.0	45.2	6.1	(7.6)	(0.1)	44.6
Total comprehensive income and expense	-	-	-	-	1.0	45.2	6.1	226.9	(0.3)	278.9
Dividends paid	-	-	-	-	-	-	-	(73.3)	-	(73.3)
Share-based payment charge	-	-	-	-	-	-	-	17.7	-	17.7
Deferred tax on share-based payment transactions	-	-	-	-	-	-	-	(0.7)	-	(0.7)
Excess tax deductions related to share-based payments on vested awards	-	-	-	-	-	-	-	-	-	-
Purchase of own shares	-	-	(22.3)	-	-	-	-	-	-	(22.3)
Performance share plan awards vested	-	-	6.9	-	-	-	-	(11.4)	-	(4.5)
At 31 March 2023	38.0	23.6	(46.1)	0.2	0.6	162.3	4.4	1,415.8	0.1	1,598.9

	Share capital £m	Share premium account £m	Own shares £m	Capital redemption reserve £m	Hedging reserve £m	Translation reserve £m	Other reserves £m	Retained earnings £m	Non- controlling interest £m	Total £m
At 1 April 2021	38.0	23.6	(20.9)	0.2	0.7	73.2	(13.6)	1,065.8	0.6	1,167.6
Transfer between reserves*	-	-	-	-	-	-	13.6	(13.6)	-	-
Restated at 1 April 2021	38.0	23.6	(20.9)	0.2	0.7	73.2	-	1,052.2	0.6	1,167.6
Profit for the year	-	-	-	-	-	-	-	244.4	(0.2)	244.2
Other comprehensive income and expense	-	-	-	-	(1.1)	43.9	(1.7)	32.0	-	73.1
Total comprehensive income and expense	-	-	-	-	(1.1)	43.9	(1.7)	276.4	(0.2)	317.3
Dividends paid	-	-	-	-	-	-	-	(68.7)	-	(68.7)
Share-based payment charge	-	-	-	-	-	-	-	12.2	-	12.2
Deferred tax on share-based payment transactions	-	-	-	-	-	-	-	(0.2)	-	(0.2)
Excess tax deductions related to share-based payments on vested awards	-	-	-	-	-	-	-	1.3	-	1.3
Purchase of own shares	-	-	(19.3)	-	-	-	-	-	-	(19.3)
Performance share plan awards vested	-	-	9.5	-	-	-	-	(16.6)	-	(7.1)
At 31 March 2022	38.0	23.6	(30.7)	0.2	(0.4)	117.1	(1.7)	1,256.6	0.4	1,403.1

Own shares are ordinary shares in Halma plc purchased by the Company and held to fulfil the Company's obligations under the Group's share plans.

The market value of own shares was £42.4m (2022: £29.5m).

The Capital redemption reserve was created on repurchase and cancellation of the Company's own shares. The Hedging reserve is used to record the portion of the cumulative net change in fair value of cash flow hedging instruments that are deemed to be an effective hedge.

The Translation reserve is used to record the difference arising from the retranslation of the financial statements of foreign operations, offset by net investment hedges with a carrying value of £33.9m (2022: £26.5m). The Other reserves represent the cumulative fair value adjustments on equity instruments held at fair value through other comprehensive income.

*  Effective for the year ended 31 March 2022, the share-based payment reserve, which was previously presented in Other reserves has been amalgamated with Retained earnings, in the Consolidated Statement of Changes in Equity and the Consolidated Balance Sheet as permitted by IFRS 2. This resulted in the £13.6m debit in brought forward Other reserves at 1 April 2021 being transferred to Retained earnings. There is no change in Total equity from this change, nor the amounts charged or credited to the reserves during the period, which represents a change in presentational accounting policy only.

Consolidated Cash Flow Statement

	Notes	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Net cash inflow from operating activities	10	258.0	237.4
Cash flows from investing activities
Purchase of property, plant and equipment - owned assets		(29.0)	(25.2)
Purchase of computer software		(0.8)	(0.9)
Purchase of other intangibles		(0.3)	(0.5)
Proceeds from sale of property, plant and equipment and capitalised development costs		3.1	1.1
Development costs capitalised		(15.8)	(13.4)
Interest received		0.7	0.2
Acquisition of businesses, net of cash acquired	8	(320.1)	(152.8)
Disposal of business, net of cash disposed	9	-	57.5
Purchase of equity investments		(6.7)	(0.7)
Net cash used in investing activities		(368.9)	(134.7)
Cash flows from financing activities
Dividends paid		(73.3)	(68.7)
Purchase of own shares		(22.3)	(19.3)
Interest paid		(17.5)	(8.2)
Loan arrangement fees		(4.1)	-
Proceeds from bank borrowings	10	451.8	161.4
Repayment of bank borrowings	10	(394.2)	(132.5)
Repayment of acquired debt on acquisition	10	(65.1)	-
Drawdown of loan notes	10	338.1	-
Repayment of loan notes	10	(74.4)	-
Repayment of lease liabilities, net of interest		(18.0)	(14.6)
Net cash from/(used in) financing activities		121.0	(81.9)
Increase in cash and cash equivalents	10	10.1	20.8
Cash and cash equivalents brought forward		156.7	131.1
Exchange adjustments		1.7	4.8
Cash and cash equivalents carried forward	10	168.5	156.7

	Notes	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Reconciliation of net cash flow to movement in net debt
Increase in cash and cash equivalents		10.1	20.8
Net cash inflow from bank borrowings and loan notes	10	(256.1)	(28.9)
Net debt acquired	10	(65.1)	-
Lease liabilities additions and accretion of interest		(24.9)	(19.0)
Lease liabilities acquired		(9.3)	(4.6)
Lease liabilities disposed of		-	2.1
Lease liabilities and interest repaid		20.9	16.8
Exchange adjustments		2.5	(5.8)
Increase in net debt		(321.9)	(18.6)
Net debt brought forward		(274.8)	(256.2)
Net debt carried forward		(596.7)	(274.8)

Accounting Policies

Basis of presentation

The consolidated financial statements of Halma are prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

The principal Group accounting policies are explained below and have been applied consistently throughout the years ended 31 March 2023 and 31 March 2022, other than those noted below.

The Group accounts have been prepared under the historical cost convention, except as described below under the headings 'Derivative financial instruments and hedge accounting', 'Financial assets at fair value through other comprehensive income (FVOCI)', 'Pensions' and 'Business combinations and goodwill'.

New Standards and Interpretations applied for the first time in the year ended 31 March 2023

The following Standards with an effective date of 1 January 2022, have been adopted without any significant impact on the amounts reported in these financial statements:

·      Reference to the Conceptual Framework - Amendments to IFRS 3

·      Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16

·      Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37

·      Annual Improvements to IFRS 2018- 2020

New Standards and Interpretations not yet applied

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

·      IFRS 17 Insurance Contracts

·      Classification of Liabilities as Current or Non-current - Amendments to IAS 1 - Not yet endorsed by the UK

·      Definition of Accounting Estimates - Amendments to IAS 8

·      Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2

·      Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12

·      Lease Liability in a Sale and Leaseback - Amendments to IFRS 16

·      Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants - Amendments to IAS 1 - Not yet endorsed by the UK

·      Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures - Not yet endorsed by the UK

·      Amendments to IAS 12 International Tax Reform Pillar Two Model Rule - Not yet endorsed by the UK

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

Use of Alternative performance measures (APMs)

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

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

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

Key accounting policies

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

Going concern

The Group's business activities, together with the main trends and factors likely to affect its future development, performance and position, and the financial position of the Group as at 31 March 2023, its cash flows, liquidity position and borrowing facilities are set out in the Strategic Report. In addition, the Annual Report and Accounts 2023 contains further information concerning the security, currency, interest rates and maturity of the Group's borrowings.

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

The base case scenario has been prepared using forecasts from each Operating Company as well as cash outflows on acquisitions in line with pre Covid pandemic levels. In addition, a severe but plausible downside scenario has been modelled showing a decline in trading for the year ending 31 March 2024. This reduction in trading could be caused by events such as a significant resurgence in the Covid pandemic lockdowns beyond China or continued macroeconomic volatility leading to further inflation and interest rate increases. In mitigating the impacts of the downside scenario there are actions that can be taken which are entirely discretionary to the business such as reducing acquisition spend and dividend growth rates. In addition, the Group has demonstrated strong resilience and flexibility to manage its overheads and adapt its supply chains during the COVID pandemic and more recent global economic uncertainty.

Neither the base case nor severe but plausible downside scenarios result in a breach of the Group's available debt facilities or the attached covenants and, accordingly, the Directors believe there is no material uncertainty in the use of the going concern assumption and, therefore, deem it appropriate to continue to adopt the going concern basis of accounting for at least the next 12-month period.

Our financial position remains robust with committed facilities at the balance sheet date totalling approximately £931m which includes a £550m Revolving Credit Facility (RCF). The undrawn committed facilities as at 31 March 2023 amounted to £255.7m. In May 2022, the RCF was refinanced and now matures in May 2028, the first of two one-year extension options having been exercised post year-end. During May 2022, the Group also entered into a new Note Purchase Agreement which provided access to loan notes totalling £330m, which were drawn in various currencies in July 2022. The financial covenants across the facilities are for leverage (net debt/adjusted EBITDA) of not more than three and a half times and for adjusted interest cover of not less than four times.

Business combinations and goodwill

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

·      the fair value of the consideration transferred; plus

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

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

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

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

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

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

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

Goodwill is recognised as an intangible asset in the Consolidated Balance Sheet. Goodwill therefore includes non-identified intangible assets including business processes, buyer-specific synergies, know-how and workforce-related industry-specific knowledge and technical skills. Negative goodwill arising on acquisitions would be recognised directly in the Consolidated Income Statement.

On closure or disposal of an acquired business, goodwill would be taken into account in determining the profit or loss on closure or disposal.

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

Payments for contingent consideration are classified as investing activities within the Consolidated Cash Flow Statement, except for amounts paid in excess of that estimated in the acquisition balance sheets which are recognised in the net cash inflow from operating activities in the year together with movements in contingent consideration provisions charged/credited to the Consolidated Income Statement which is included as a reconciling item between operating profit and cash inflow from operating activities.

Intangible assets

(a) Acquired intangible assets

An intangible resource acquired with a subsidiary undertaking is recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights, is expected to generate future economic benefits and its fair value can be measured reliably. Acquired intangible assets, comprising trademarks, technology and know-how and customer relationships, are amortised through the Consolidated Income Statement on a straight-line basis over their estimated economic lives of between three and 20 years. The carrying value of intangible assets is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.

(b) Product development costs

Research expenditure is charged to the Consolidated Income Statement in the financial year in which it is incurred.

Development expenditure is expensed in the financial year in which it is incurred, unless it relates to the development of a new or substantially improved product, is incurred after the technical feasibility and economic viability of the product has been proven and the decision to complete the development has been taken, and can be measured reliably. Such expenditure, meeting the recognition criteria of IAS 38 'Intangible Assets', is capitalised as an intangible asset in the Consolidated Balance Sheet at cost and is amortised through the Consolidated Income Statement on a straight-line basis over its estimated economic life of three years.

Pensions

The Group makes contributions to various pension plans.

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

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

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

Contributions to defined contribution plans are charged to the Consolidated Income Statement in the period the expense relates to.

Impairment of trade and other receivables

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

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

Critical accounting judgements and key sources of estimation uncertainty

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

In preparing the Consolidated Financial Statements management has considered the impact of climate change, particularly in the context of the disclosures included in the Strategic Report and the stated Net Zero ambitions. These considerations did not have a material impact on the financial reporting judgements and estimates in the current year. Climate change is not expected to have a significant impact on the Group's going concern assessment as at March 2023 nor the viability of the Group over the next three years.

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

Critical accounting judgements

Goodwill impairment CGU groups

Determining whether goodwill is impaired requires management's judgement in assessing cash generating unit (CGU) groups to which goodwill should be allocated. Management allocates a new acquisition to a CGU group based on which one is expected to benefit most from that business combination. The allocation of goodwill to existing CGU groups is generally straightforward and factual, however over time as new businesses are acquired and management reporting structures change, management reviews the CGU groups to ensure they are still appropriate. There have been no changes to the CGU groups in the current year.

Recoverability of non-current taxation assets

In the current year, determining the recoverability of tax assets requires management's judgement in assessing the amounts paid in relation to group financing partial exemption applicable to UK controlled foreign companies as a result of the decision by the European Commission that this constitutes state aid. Management's assessment is that this represents a contingent liability and that the £14.7m paid to HM Revenue & Customs (HMRC) in previous years, included within non-current assets on the Consolidated Balance Sheet, will ultimately be recovered.

Key sources of estimation uncertainty

Contingent consideration changes in estimates

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

Intangible assets

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

IAS 38 'Intangible Assets' requires that development costs, arising from the application of research findings or other technical knowledge to a plan or design of a new or substantially improved product, are capitalised, subject to certain criteria being met. Determining the technical feasibility and estimating the future cash flows generated by the products in development requires the use of management estimates.

The estimates made in relation to both acquired intangible assets and capitalised development costs include identification of relevant assets, future growth rates, expected inflation rates and the discount rate used. Management also make estimates of the useful economic lives of the intangible assets. Management engages third party specialists to assist with the valuation of acquired intangible assets for significant acquisitions. Depending on the nature of the assets the Group uses different valuation methodologies to arrive at the fair value including the excess earnings method, the relief from royalty method and the cost savings method. Financial projections are based on market participants' expectations and are discounted to their present value using rates of return which reflects the risk of the investment and the time value of money.

Goodwill and acquired intangibles impairment future cash flows

The 'value in use' calculation used to test for impairment of goodwill and acquired intangibles involves an estimation of the present value of future cash flows. For annual impairment testing of goodwill, the future cash flows of the CGU Group are based on annual budgets and forecasts of each relevant CGU, as approved by the Board, to which management's expectation of market-share and long-term growth rates are applied. The present value is then calculated based on management's estimate of future discount and growth rates. The Board reviews these key assumptions (operating assumptions, long-term growth rates, and discount rates) and the sensitivity analysis around these. Management believes that there is no reasonably possible change in any of the key assumptions that would cause the carrying value of any CGU group to exceed its recoverable amount.

Acquired intangibles are assessed each reporting period for any indicators of impairment, both qualitative and quantitative, including as a result of our assessments of climate-related risks. If there are deemed to be any indicators of impairment a 'value in use' calculation is performed over the remaining useful life of the asset to identify if any impairment is needed. Where required, in calculating the 'value in use', future cash flows are based on annual budgets and forecasts for the relevant business. The present value is then calculated based on management's estimate of future discount and growth rates. The Board and management reviews these key assumptions (operating assumptions, growth rates, and discount rates) and the sensitivity analysis around these.

Defined benefit pension plan liabilities

Determining the value of the future defined benefit asset/obligation requires estimation in respect of the assumptions used to calculate present values of plan liabilities. The significant assumptions utilised in the calculations are future mortality, discount rate and inflation. Management determines these assumptions in consultation with an independent actuary.

Other accounting policies

Basis of consolidation

The Group accounts include the accounts of Halma plc and all of its subsidiary companies made up to 31 March 2023, adjusted to eliminate intra-Group transactions, balances, income and expenses. The results of subsidiary companies acquired or disposed are included from the month of their acquisition or to the month of their disposal.

Segmental reporting

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

Reportable segments are operating segments that either meet the thresholds and conditions set out in IFRS 8 or are considered by the Board to be appropriately designated as reportable segments. Segment result represents operating profits and includes an allocation of Head Office expenses. Segment result excludes tax and financing items. Segment assets comprise goodwill, other intangible assets, property, plant and equipment and Right-of-Use assets (excluding land and buildings), inventories, trade and other receivables.

Segment liabilities comprise trade and other payables, provisions and other payables. Unallocated items represent land and buildings (including Right-of-Use assets), corporate and deferred taxation balances, defined benefit plan asset/obligation, contingent purchase consideration, all components of net cash/borrowings, lease liabilities and derivative financial instruments.

From 1 April 2022, the Group aligned its organisational structure and financial reporting with its purpose and focus on safety, environmental and health markets. The Group now has three main operating and reportable segments (Safety, Environmental & Analysis and Healthcare), which are defined by markets rather than product type. Each segment includes businesses with similar operating and market characteristics and are consistent with the internal reporting as reviewed by the Group Chief Executive.

Revenue

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

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

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

Revenue represents sales, net of estimates for variable consideration, including rights to returns, and discounts, and excluding value added tax and other sales related taxes. The amount of variable consideration is not considered to be material to the Group as a whole. The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

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

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

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

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

The Group applies the practical expedient in IFRS 15 (paragraph 63) and does not adjust the promised amount of consideration for the effects of a significant financing component if the Group expects, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Operating profit

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

Adjusting items

When items of income or expense are material and they are relevant to an understanding of the entity's financial performance, they are disclosed separately within the financial statements. This provides additional and more consistent measures of underlying performance to shareholders by removing items that are not closely related to the Group's trading or operating cash flows. Such adjusting items include costs or reversals arising from acquisitions or disposals of businesses, including acquisition costs, creation or reversals of provisions related to changes in estimates for contingent consideration on acquisition, amortisation and impairment of acquired intangible assets, and other significant one-off items that may arise.

Deferred government grant income

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

Finance income and expenses

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

·      Interest payable on loans, borrowings and lease obligations.

·      Net interest charge on pension plan liabilities.

·      Amortisation of finance costs.

·      Interest receivable in respect of cash and cash equivalents.

·      Unwinding of the discount on provisions.

·      Fair value movements on derivative financial instruments.

The Group has classified interest income and expenses within financing activities in the Consolidated Cash Flow Statement.

Taxation

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

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

Foreign currencies

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

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

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

Other intangible assets

(a) Computer software

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

Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets where the following criteria are met:

·      it is technically feasible to complete the software so that it will be available for use;

·      management intends to complete the software and use or sell it;

·      there is an ability to use or sell the software;

·      it can be demonstrated how the software will generate probable future economic benefits;

·      adequate technical, financial and other resources to complete the development and to use or sell the software are available; and

·      the expenditure attributable to the software during its development can be reliably measured.

Where the Group enters into a SaaS cloud computing arrangement to access software, there are limited cases for capitalisation of attributable implementation costs. If the arrangement contains a lease as defined by IFRS 16, lease accounting rules apply including capitalisation of directly attributable costs. Alternatively, directly attributable software costs can create an intangible asset if the software can be controlled by the entity, either through the option to be run on the entity's or a third-party's infrastructure or where the development of the software creates customised software that the entity has exclusive rights to.

(b) Other intangibles

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

Property, plant and equipment

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

Freehold property	2%
Leasehold buildings and improvements	Shorter of 2% or period of lease
Plant, equipment and vehicles	8% to 33.3%

Investments in associates

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

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

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

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

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

Financial assets at fair value through other comprehensive income

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

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

Impairment of non-current assets

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

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

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

Inventories

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

Cash and cash equivalents

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

Contract assets and liabilities

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

In some instances, the Group receives payments from customers based on a billing schedule, as established in the contract, which may not match with the pattern of performance under the contract. A contract liability is only recognised on non-cancellable contracts that provide unconditional rights to payment from the customer for products and services that the Group has not yet completed providing or that it will provide in the near future. Where performance obligations are satisfied ahead of billing then a contract asset will be recognised.

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

Costs to obtain or fulfil a contract

The incremental costs of obtaining a contract with a customer are capitalised as an asset if the Group expects to recover them. Costs such as sales commissions may be incurred when the Group enters into a new contract. Costs to obtain or fulfil a contract are presented in the Consolidated Balance Sheet as assets until the performance obligation to which they relate has been met. These assets are amortised on a consistent basis with how the related revenue is recognised.

The Group applies the practical expedient in IFRS 15 (paragraph 94) and recognises incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the Group would otherwise have recognised is one year or less.

Trade payables

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

Interest bearing loans and borrowings

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

Provisions and contingent liabilities

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

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

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

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

Derivative financial instruments and hedge accounting

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

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

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

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

Cash flow hedge accounting

The Group designates certain hedging instruments as cash flow hedges.

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

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

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

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

Net investment hedge accounting

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

Leases

The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Where the Group determines the contract is, or contains a lease, a right-of-use asset and a lease liability is recognised at the lease commencement date.

The lease term is determined from the commencement date of the lease and covers the non-cancellable term. If the Group has an extension option, which it considers reasonably certain to exercise, then the lease term will be considered to extend beyond that non-cancellable period. If the Group has a termination option, which it considers reasonably certain to exercise, then the lease term will be considered to be until the point the termination option will take effect. The Group deem that it is not reasonably certain to exercise an extension option or a termination option with an exercise date past the planning horizon of five years.

The right-of-use asset is initially measured at cost, comprising the initial amount of the lease liability plus any initial direct costs incurred and an estimate of costs to restore the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term unless the right-of-use asset is deemed to have a useful life shorter than the lease term. The Group has taken the practical expedient to not separate lease and non-lease components and so account for both as a single lease component.

The right-of-use assets are also subject to impairment testing under IAS 36. Refer to the previous section on Impairment of non-current assets for further details.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the incremental borrowing rate. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees are not material to the Group. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. The lease liability is measured at amortised cost using the effective interest method by increasing the carrying amount to reflect interest on the lease liability and by reducing the carrying amount to reflect the lease payments made. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or a rate or a change in the Group's assessment of whether it will exercise an extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the right-of-use asset.

Payments associated with short-term leases or low-value assets are recognised on a straight-line basis as an expense in the Consolidated Income Statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets mostly comprise of IT equipment and small items of office furniture. Lease payments for short-term leases, low-value assets and variable lease payments not included in the measurement of the lease liability are classified as cash flows from operating activities within the Consolidated Cash Flow Statement. The Group has classified the principal and interest portions of lease payments within financing activities.

Employee share plans

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

(a) Share incentive plan

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

(b) Executive share plan

Under the Executive share plan, awards of shares are made to Executive Directors and certain senior employees. Grants under this plan are in the form of Performance Awards or Deferred Share Awards.

Performance Awards are subject to non-market-based vesting criteria, and Deferred Share Awards are subject only to continuing service of the employee. Share awards are equity-settled. The fair value of the awards at the date of grant, which is estimated to be equal to the market value, is charged to the Consolidated Income Statement on a straight-line basis over the vesting period, with appropriate adjustments being made during this period to reflect expected and actual forfeitures. The corresponding credit is to Retained earnings within Total equity. Effective for the year ended 31 March 2022, the share-based payment reserve, which was previously presented as Other reserves has been amalgamated with Retained earnings, in the Consolidated Statement of Changes in Equity and the Consolidated Balance Sheet as permitted by IFRS 2. This resulted in the £13.6m debit in brought forward Other reserves at 1 April 2021 being transferred to Retained earnings. There is no change in Total equity from this change, nor the amounts charged or credited to the reserves during the period, which represents a change in presentational accounting policy only.

(c) Cash-settled

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

Dividends

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

Notes to the Accounts

1 Segmental analysis and revenue from contracts with customers

Sector analysis and disaggregation of revenue

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

Nature of goods and services

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

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

Safety sector generates revenue by providing products that protect people, assets and infrastructure, enabling safe movement and enhancing efficiency. The technologies are used in public and commercial spaces and in industrial and logistics operations. Markets include: Fire Safety Technologies that protect people and assets from fire; Power Safety Technologies that increase the integrity and safety of electrical systems in a range of industries; Industrial Safety Technologies that protect people and assets in industrial environments; and Urban Safety Technologies that protect people and assets in urban environments. Products are generally sold separately, with contracts typically less than one year in length. Warranties are typically of an assurance nature. Revenue is recognised as control passes on delivery or despatch.

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

Environmental & Analysis generates revenue by providing products and technologies that monitor the environment, that ensure the quality and availability of life-critical resources, and analyse materials in a wide range of applications. Markets include: Optical Analysis Technologies that provide world-class optical, optoelectronic and spectral imaging systems that use light to analyse materials in a wide range of applications; Water Analysis and Treatment Systems to sustainably improve water quality and availability; and Environmental Monitoring Technologies that detect hazardous gases and analyse air quality, gases and water to monitor the quality of our environment. Products and services are generally sold separately. Warranties are typically of an assurance nature, but some companies within the Group offer extended warranties. Depending on the nature of the performance obligation, revenue may be recognised as control passes on delivery, despatch or as the service is delivered. Contracts are typically less than one year in length, but some companies have contracts where certain service-related performance obligations are delivered over a number of years; this can result in contract liabilities where those performance obligations are invoiced ahead of performance.

Payment is typically due within 60 days of invoice.

Healthcare sector generates revenue by providing products and services that help providers improve the care they deliver and enhance the quality of patients' lives. Markets include: Life Sciences technologies and solutions to enable in-vitro diagnostic systems and accelerate life-science discoveries and development; Healthcare Assessment & Analytics components, devices and systems that provide valuable information and analytics so providers can better understand patient health and make decisions across the continuum of care; and Therapeutic Solutions Technologies, materials and solutions that enable treatment across key clinical specialties. Products are generally sold separately, and warranties are typically of an assurance nature. Depending on the nature of the performance obligation, revenue is recognised as control passes on delivery or despatch or as the service is delivered. Contracts are typically less than one year in length, but a limited number of companies have contracts where certain service-related performance obligations are delivered over a number of years; this can result in contract liabilities where those performance obligations are invoiced ahead of performance.

Payment is typically due within 60 days of invoice.

	Year ended 31 March 2023
	Revenue by sector and destination (all continuing operations)
	United States of America £m	Mainland Europe £m	United Kingdom £m	Asia Pacific £m	Africa, Near and Middle East £m	Other countries £m	Total £m
Safety	205.1	217.1	151.4	112.7	33.2	26.1	745.6
Environmental & Analysis	277.0	67.3	79.5	96.7	15.5	16.1	552.1
Healthcare	298.8	92.0	49.2	73.0	14.9	28.5	556.4
Inter-segmental sales	(0.1)	-	(1.2)	-	-	-	(1.3)
Revenue for the year	780.8	376.4	278.9	282.4	63.6	70.7	1,852.8

	Year ended 31 March 2022
	Revenue by sector and destination (all continuing operations)
	United States of America £m	Mainland Europe £m	United Kingdom £m	Asia Pacific £m	Africa, Near and Middle East £m	Other countries £m	Total £m
Safety	164.6	180.0	147.0	101.8	29.4	18.6	641.4
Environmental & Analysis	209.6	56.7	77.6	78.4	12.3	8.3	442.9
Healthcare	224.3	71.4	42.4	70.6	11.9	21.7	442.3
Inter-segmental sales	(1.3)	-	-	-	-	-	(1.3)
Revenue for the year	597.2	308.1	267.0	250.8	53.6	48.6	1,525.3

Inter-segmental sales are charged at prevailing market prices and have not been disclosed separately by segment as they are not considered material. Revenue derived from the rendering of services was £105.4m (2022 represented: £81.1m). The 2022 comparative has been represented to reflect £11.2m of service revenue previously classified as product revenue. All revenue was otherwise derived from the sale of products.

	Year ended 31 March 2023
	Revenue recognised over time £m	Revenue recognised at a point in time £m	Total Revenue £m
Safety	7.1	738.5	745.6
Environmental & Analysis	121.5	430.6	552.1
Healthcare	67.1	489.3	556.4
Inter-segmental sales	-	(1.3)	(1.3)
Revenue for the year	195.7	1,657.1	1,852.8

	Year ended 31 March 2022
	Revenue recognised over time £m	Revenue recognised at a point in time £m	Total Revenue £m
Safety	8.2	633.2	641.4
Environmental & Analysis	99.8	343.1	442.9
Healthcare	49.6	392.7	442.3
Inter-segmental sales	-	(1.3)	(1.3)
Revenue for the year	157.6	1,367.7	1,525.3

	Year ended 31 March 2023
	Revenue from performance obligations entered into and satisfied in the year £m	Revenue previously included as contract liabilities £m	Revenue from performance obligations satisfied in previous periods £m	Total Revenue £m
Safety	741.7	3.9	-	745.6
Environmental & Analysis	545.0	7.1	-	552.1
Healthcare	542.8	13.4	0.2	556.4
Inter-segmental sales	(1.3)	-	-	(1.3)
Revenue for the year	1,828.2	24.4	0.2	1,852.8

	Year ended 31 March 2022
	Revenue from performance obligations entered into and satisfied in the year £m	Revenue previously included as contract liabilities £m	Revenue from performance obligations satisfied in previous periods £m	Total Revenue £m
Safety	638.1	3.3	-	641.4
Environmental & Analysis	436.3	6.6	-	442.9
Healthcare	432.8	5.6	3.9	442.3
Inter-segmental sales	(1.3)	-	-	(1.3)
Revenue for the year	1,505.9	15.5	3.9	1,525.3

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

	Aggregate transaction price allocated to unsatisfied performance obligations
	31 March 2023 Total £m	Recognised < 1 year £m	Recognised 1-2 years £m	Recognised > 2 years £m
Safety	19.7	9.6	2.8	7.3
Environmental & Analysis	16.9	8.5	3.5	4.9
Healthcare	21.6	20.8	0.8	-
Inter-segmental sales	-	-	-	-
Total	58.2	38.9	7.1	12.2

	Aggregate transaction price allocated to unsatisfied performance obligations
	31 March 2022 Total £m	Recognised < 1 year £m	Recognised 1-2 years £m	Recognised > 2 years £m
Safety	27.0	15.2	4.5	7.3
Environmental & Analysis	15.3	7.0	3.4	4.9
Healthcare	14.4	12.9	1.5	-
Inter-segmental sales	-	-	-	-
Total	56.7	35.1	9.4	12.2

Segment results

	Profit (all continuing operations)
	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Segment profit before allocation of adjustments*
Safety	152.5	146.2
Environmental & Analysis	134.2	109.8
Healthcare	130.1	99.5
	416.8	355.5
Segment profit after allocation of adjustments*
Safety	123.9	163.5
Environmental & Analysis	121.5	96.9
Healthcare	101.6	83.3
Segment profit	347.0	343.7
Central administration costs	(38.6)	(30.9)
Net finance expense	(16.9)	(8.4)
Group profit before taxation	291.5	304.4
Taxation	(57.2)	(60.2)
Profit for the year	234.3	244.2

*  Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; significant restructuring costs and profit or loss on disposal of operations. Note 3 provides more information on alternative performance measures.

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

	Year ended 31 March 2023
		Acquisition items
	Amortisation and impairment of acquired intangible assets £m	Transaction costs £m	Adjustments to contingent consideration £m	Release of fair value adjustments to inventory £m	Total amortisation and impairment charge and acquisition items £m	Disposal of operations and restructuring (note 9) £m	Total £m
Safety	(25.1)	(3.1)	-	(0.4)	(28.6)	-	(28.6)
Environmental & Analysis	(11.4)	(0.9)	0.2	(0.6)	(12.7)	-	(12.7)
Healthcare	(20.0)	(1.9)	(3.9)	(2.7)	(28.5)	-	(28.5)
Total Segment & Group	(56.5)	(5.9)	(3.7)	(3.7)	(69.8)	-	(69.8)

The transaction costs arose mainly on the acquisitions during the year. In Safety, they related to the acquisition of FirePro (£1.6m), WEETECH (£1.0m), Thermocable (£0.4m) and Zonegreen (£0.1m). In Environmental & Analysis, they related to the acquisition of Deep Trekker (£0.5m) in the current year and Sewertronics (£0.4m) that was acquired in May 2023. In Healthcare, they related to the acquisition of IZI (£1.6m) in the current year, and the acquisition of Visiometrics in a previous year (£0.3m).

The £3.7m adjustment to contingent consideration comprised of a credit of £0.2m in Environmental & Analysis arising from a decrease in the estimate of the payables for Orca (£0.2m) and a debit of £3.9m in Healthcare arising from an increase in estimates of the payables for Infinite Leap (£2.7m), IZI (£1.4m) and Meditech (£0.3m), partially offset by a decrease in the estimate of the payable for Clayborn Lab (£0.3m) and Spreo (£0.2m).

The £3.7m release of fair value adjustments to inventory related to WEETECH (£0.3m) and Thermocable (£0.1m) in Safety; Deep Trekker (£0.3m) and International Light Technologies (£0.3m) in Environmental & Analysis; and IZI (£2.7m) in Healthcare. All amounts have been released in relation to International Light Technologies and Deep Trekker.

	Year ended 31 March 2022
		Acquisition items
	Amortisation of acquired intangible assets £m	Transaction costs £m	Adjustments to contingent consideration £m	Release of fair value adjustments to inventory £m	Total amortisation charge and acquisition items £m	Disposal of operations and restructuring (note 9) £m	Total £m
Safety	(14.9)	(0.5)	-	(1.3)	(16.7)	34.0	17.3
Environmental & Analysis	(10.3)	(1.6)	0.1	(1.1)	(12.9)	-	(12.9)
Healthcare	(17.5)	(2.1)	4.4	(1.0)	(16.2)	-	(16.2)
Total Segment & Group	(42.7)	(4.2)	4.5	(3.4)	(45.8)	34.0	(11.8)

The transaction costs arose on the acquisitions made in the prior year. In Safety, they related to the acquisition of Ramtech (£0.4m) and IBIT (£0.1m). In Environmental & Analysis, they related to the acquisition of Dancutter (£0.3m), Sensitron (£0.4m), Orca (£0.1m), Anton (£0.1m), International Light Technologies (£0.2m) in the year and Deep Trekker (£0.5m) that was acquired in April 2022. In Healthcare, they related to the acquisition of PeriGen (£1.4m), Infinite Leap (£0.3m), Clayborn Lab (£0.1m), Meditech (£0.1m) and RNK (£0.1m) in the year, and the acquisition of Visiometrics in a previous year (£0.1m).

The £4.5m adjustment to contingent consideration comprised of a credit of £0.1m in Environmental & Analysis arising from a decrease in the estimate of the payables for Invenio (£0.3m) offset by an increase in the estimate of the payable for Orca (£0.2m) and a credit of £4.4m in Healthcare arising from a decrease in estimates of the payables for NovaBone (£1.3m), NeoMedix (£3.0m) and Spreo (£0.1m) partially offset by an increase in the estimate of the payable for Infowave (£0.3m) and a credit of £0.3m arising from exchange differences on balances denominated in Euros.

The £3.4m release of fair value adjustments to inventory related to Ramtech (£1.3m) in Safety; Dancutter (£0.1m), Orca (£0.6m), Sensitron (£0.2m) and International Light Technologies (£0.2m) in Environmental & Analysis; and Meditech (£1.0m) in Healthcare. All amounts have been released in relation to Dancutter, Ramtech, Orca and Sensitron.

Other segment information

	Depreciation, amortisation and impairment
	31 March 2023 £m	31 March 2022 £m
Safety	39.6	29.0
Environmental & Analysis	19.3	19.3
Healthcare	28.2	24.7
Total segment depreciation, amortisation and impairment	87.1	73.0
Unallocated	22.8	18.8
Total Group	109.9	91.8

During the year impairment losses of £8.4m were recognised on Property, plant and equipment and other intangible assets, of which £8.0m was recognised in Safety, £0.1m was recognised in Environmental & Analysis and £0.3m was recognised in Healthcare (2022: £3.2m comprising £1.0m in Safety, £1.7m in Environmental & Analysis, £0.5m in Healthcare). Impairment losses mainly related to acquired intangible assets, due to changes in expected future cash flows, and to capitalised development costs recorded as a result of changes in the expected outcome of projects.

Information about major customers

No single customer accounts for more than 10% (2022: 10%) of the Group's revenue.

2 Earnings per share

Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to the equity shareholders of the parent by the weighted average number of shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to the equity shareholders of the parent by the weighted average number of shares outstanding during the year plus the weighted average number of shares that would be in issue on the conversion of all the dilutive potential shares.

The weighted average number of shares used to calculate both basic and diluted earnings per share exclude shares held in the employee benefit trust.

Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation and impairment of acquired intangible assets; acquisition items; significant restructuring costs, profit or loss on disposal of operations and the associated taxation thereon and in the prior year the increase in the UK's corporation tax rate from 19% to 25%. The Directors consider that adjusted earnings, which constitute an alternative performance measure, represent a more consistent measure of underlying performance as it excludes amounts not directly linked with trading. A reconciliation of earnings and the effect on basic and diluted earnings per share figures is as follows:

Basic earnings per share

			Per share
	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m	Year ended 31 March 2023 pence	Year ended 31 March 2022 pence
Earnings from continuing operations attributable to owners of the parent	234.5	244.4	62.04	64.54
Amortisation and impairment of acquired intangible assets (after tax)	42.3	33.1	11.19	8.73
Acquisition transaction costs (after tax)	5.3	3.8	1.41	0.99
Adjustments to contingent consideration (after tax)	3.8	(4.5)	1.00	(1.19)
Release of fair value adjustments to inventory (after tax)	2.7	2.6	0.70	0.70
Disposal of operations and restructuring (after tax)	-	(34.0)	-	(8.98)
Impact of UK tax rate change	-	2.6	-	0.69
Adjusted earnings attributable to owners of the parent	288.6	248.0	76.34	65.48
Weighted average number of shares in issue for basic earnings per share, million	378.0	378.7

Diluted earnings per share

			Per share
	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m	Year ended 31 March 2023 pence	Year ended 31 March 2022 pence
Earnings from continuing operations attributable to owners of the parent	234.5	244.4	61.86	64.42
Adjusted earnings attributable to owners of the parent	288.6	248.0
Weighted average number of shares in issue for basic earnings per share, million	378.0	378.7
Dilutive potential shares - share awards, million	1.1	0.7
Weighted average number of shares in issue for diluted earnings per share, million	379.1	379.4

3 Alternative performance measures

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

Note 1 provides further analysis of the adjusting items in reaching adjusted profit measures. Net debt is defined as Borrowings plus Lease liabilities net of Cash and bank balances, note 10 provides an analysis of net debt for the year.

Return on Total Invested Capital

	31 March 2023 £m	31 March 2022 £m
Profit after tax	234.3	244.2
Adjustments1	54.1	3.7
Adjusted profit after tax1	288.4	247.9
Total equity	1,598.9	1,403.1
Less net retirement benefit assets	(37.9)	(30.5)
Deferred tax liabilities on retirement benefits	9.6	7.7
Cumulative fair value adjustments on equity investments through other comprehensive income	(4.4)	1.7
Cumulative amortisation and impairment of acquired intangible assets	418.1	345.7
Historical adjustments to goodwill2	89.5	89.5
Total Invested Capital	2,073.8	1,817.2
Average Total Invested Capital3	1,945.5	1,695.0
Return on Total Invested Capital (ROTIC)4	14.8%	14.6%

Return on Capital Employed

	31 March 2023 £m	31 March 2022 £m
Profit before tax	291.5	304.4
Adjustments1	69.8	11.8
Net finance costs	16.9	8.4
Lease interest	(2.9)	(2.3)
Adjusted operating profit1 after share of results of associates and lease interest	375.3	322.3
Computer software costs within other intangible assets	3.2	4.2
Capitalised development costs within other intangible assets	49.6	41.7
Other intangibles within other intangible assets	3.4	3.6
Property, plant and equipment	222.9	194.0
Inventories	312.4	228.8
Trade and other receivables	410.7	325.1
Current trade and other payables	(280.7)	(242.7)
Current lease liabilities	(19.2)	(15.5)
Current provisions	(21.0)	(20.7)
Net tax (payable)/receivable	(2.2)	3.8
Non-current trade and other payables	(21.9)	(19.0)
Non-current provisions	(9.7)	(7.7)
Non-current lease liabilities	(68.7)	(56.6)
Add back contingent purchase consideration	16.4	15.2
Capital Employed	595.2	454.2
Average Capital Employed3	524.7	421.9
Return on Capital Employed (ROCE)4	71.5%	76.4%

1  Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; and significant restructuring costs and profit or loss on disposal of operations. Where after-tax measures, these also include the associated taxation on adjusting items. Note 1 provides more information on these items.

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

3  The ROTIC and ROCE measures are expressed as a percentage of the average of the current and prior year's Total Invested Capital and Capital Employed respectively. Using an average as the denominator is considered to be more representative. The 1 April 2021 Total Invested Capital and Capital Employed balances were £1,572.8m and £389.5m respectively.

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

Organic growth at constant currency

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

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

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

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

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

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

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

Group

			Revenue	Adjusted* profit before taxation
	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m	% growth	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m	% growth
Continuing operations	1,852.8	1,525.3	21.5%	361.3	316.2	14.2%
Acquired and disposed revenue/profit	(65.6)	(14.9)		(9.0)	(2.0)
Organic growth	1,787.2	1,510.4	18.3%	352.3	314.2	12.1%
Constant currency adjustment	(122.9)			(28.3)
Organic growth at constant currency	1,664.3	1,510.4	10.2%	324.0	314.2	3.1%

Sector Organic growth at constant currency

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

Safety

			Revenue	Adjusted* segment profit
	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m	% growth	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m	% growth
Continuing operations	745.6	641.4	16.2%	152.5	146.2	4.3%
Acquisition and currency adjustments	(48.6)	(14.6)		(9.9)	(2.0)
Organic growth at constant currency	697.0	626.8	11.2%	142.6	144.2	(1.1)%

Environmental & Analysis

			Revenue	Adjusted* segment profit
	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m	% growth	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m	% growth
Continuing operations	552.1	442.9	24.7%	134.2	109.8	22.2%
Acquisition and currency adjustments	(69.3)	(0.4)		(16.6)	-
Organic growth at constant currency	482.8	442.5	9.1%	117.6	109.8	7.1%

Healthcare

			Revenue	Adjusted* segment profit
	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m	% growth	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m	% growth
Continuing operations	556.4	442.3	25.8%	130.1	99.5	30.8%
Acquisition and currency adjustments	(70.7)	-		(16.7)	-
Organic growth at constant currency	485.7	442.3	9.8%	113.4	99.5	14.0%

*  Adjustments include in the current and prior year the amortisation and impairment of acquired intangible assets; acquisition items; significant restructuring costs and profit or loss on disposal of operations.

Adjusted operating profit

	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Operating profit	308.4	278.9
Add back:
Acquisition items (note 1)	13.3	3.1
Amortisation and impairment of acquired intangible assets (note 1)	56.5	42.7
Adjusted operating profit	378.2	324.7

Adjusted operating cash flow

	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Net cash from operating activities (note 10)	258.0	237.4
Add:
Net acquisition costs paid	4.6	4.1
Taxes paid	67.2	56.0
Proceeds from sale of property, plant and equipment and capitalised development costs	3.1	1.1
Share awards vested not settled by own shares	4.5	7.1
Deferred consideration paid in excess of payable estimated on acquisition	1.7	7.5
Less:
Purchase of property, plant and equipment (excluding Right of use assets)	(29.0)	(25.2)
Purchase of computer software and other intangibles	(1.1)	(1.4)
Development costs capitalised	(15.8)	(13.4)
Adjusted operating cash flow	293.2	273.2
Cash conversion % (adjusted operating cash flow/adjusted operating profit)	78%	84%

4 Finance income

	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Interest receivable	0.7	0.2
Net interest credit on pension plan assets	1.1	-
Fair value movement on derivative financial instruments	-	0.4
	1.8	0.6

5 Finance expense

	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Interest payable on borrowings	14.5	5.6
Interest payable on lease obligations	2.9	2.3
Amortisation of finance costs	0.8	0.7
Net interest charge on pension plan liabilities	-	0.3
Other interest payable	0.1	0.1
Fair value movement on derivative financial instruments	0.4	-
	18.7	9.0

6 Taxation

Recognised in the Consolidated Income Statement

	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Current tax
UK corporation tax at 19% (2022: 19%)	14.8	16.7
Overseas taxation	61.9	46.0
Adjustments in respect of prior years	(3.0)	0.5
Total current tax charge	73.7	63.2
Deferred tax
Origination and reversal of timing differences	(17.5)	(5.7)
Adjustments in respect of prior years	1.0	0.1
Changes in tax rates - UK	-	2.6
Total deferred tax credit	(16.5)	(3.0)
Total tax charge recognised in the Consolidated Income Statement	57.2	60.2
Reconciliation of the effective tax rate:
Profit before tax	291.5	304.4
Tax at the UK corporation tax rate of 19% (2022: 19%)	55.4	57.8
Profit on disposal of business	-	(6.5)
Overseas tax rate differences	9.0	6.2
Tax incentives, exemptions and credits (including patent box, R&D and High-Tech status)	(6.8)	(4.2)
Changes in tax rates - UK	-	2.6
Permanent differences	1.6	3.7
Adjustments in respect of prior years	(2.0)	0.6
Total tax charge recognised in the Consolidated Income Statement	57.2	60.2
Effective tax rate	19.6%	19.8%

	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Adjusted* profit before tax	361.3	316.2
Total tax charge on adjusted* profit	72.9	68.3
Effective tax rate	20.2%	21.6%

*  Adjustments include the amortisation and impairment of acquired intangible assets, acquisition items, significant restructuring costs and profit or loss on disposal of operations. Note 3 provides more information on alternative performance measures.

The Group's future Effective Tax Rate (ETR) will mainly depend on the geographic mix of profits and whether there are any changes to tax legislation in the Group's most significant countries of operations. The Finance Bill 2021 received Royal Assent on 10 June 2021 and included the increase in the UK corporation tax rate from 19% to 25% from 1 April 2023.

On 23 March 2023, the UK Government issued further draft legislation applicable to large multinational groups in relation to a new tax framework (part of the Organisation for Economic Co-operation and Development (OECD) BEPS initiative), which introduces a global minimum effective tax rate of 15% effective for accounting periods beginning on or after 31 December 2023. The Group monitors income tax developments in the territories in which it operates, as well as the applicable accounting standards, to understand their potential future impacts.

Recognised in the Consolidated Statement of Comprehensive Income and Expenditure

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

	Year ended 31 March 2023 £m	Year ended 31 March 2022  £m
Current tax
Retirement benefit obligations	(1.8)	(2.3)
Deferred tax
Retirement benefit obligations	0.6	11.9
Effective portion of changes in fair value of cash flow hedges	0.3	(0.4)
	(0.9)	9.2

Recognised directly in equity

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

	Year ended 31 March 2023 £m	Year ended 31 March 2022  £m
Current tax
Excess tax deductions related to share-based payments on vested awards	-	(1.3)
Deferred tax
Change in estimated excess tax deductions related to share-based payments	0.7	0.2
	0.7	(1.1)

7 Dividends

	Per ordinary share
	Year ended 31 March 2023 pence	Year ended 31 March 2022 pence	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Amounts recognised as distributions to shareholders in the year
Final dividend for the year ended 31 March 2022 (31 March 2021)	11.53	10.78	43.6	40.8
Interim dividend for the year ended 31 March 2023 (31 March 2022)	7.86	7.35	29.7	27.9
	19.39	18.13	73.3	68.7
Dividends declared in respect of the year
Interim dividend for the year ended 31 March 2023 (31 March 2022)	7.86	7.35	29.7	27.9
Proposed final dividend for the year ended 31 March 2023 (31 March 2022)	12.34	11.53	46.6	43.6
	20.20	18.88	76.3	71.5

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 20 July 2023 and has not been included as a liability in these financial statements.

8 Acquisitions

In accounting for acquisitions, adjustments are made to the book values of the net assets of the companies acquired to reflect their fair values to the Group. Other previously unrecognised assets and liabilities at acquisition are included and accounting policies are aligned with those of the Group where appropriate.

During the year ended 31 March 2023, the Group made seven acquisitions namely:

·      Deep Trekker Inc.;

·      IZI Healthcare Products, LLC;

·      WEETECH Holdings GmbH;

·      Certain trade and assets of Rigaku Corporation;

·      Thermocable (Flexible Elements) Limited;

·      Zone Green 2013 Ltd; and

·      FirePro Group.

Set out on the following pages are summaries of the assets acquired and liabilities assumed and the purchase consideration of:

a)   the total of acquisitions;

b)  Deep Trekker Inc.;

c)   IZI Healthcare Products, LLC;

d)  WEETECH Holding GmbH;

e)   Thermocable (Flexible Elements) Limited;

f)   FirePro Group;

g)  Other acquisitions; and

h)   adjustments arising on prior year acquisitions.

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

There are no material contingent liabilities recognised in accordance with paragraph 23 of IFRS 3 (revised). The acquisitions contributed £41.0m of revenue and £7.9m of profit after tax for year ended 31 March 2023.

If these acquisitions had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £51.6m and £14.9m higher respectively.

As at the date of approval of the financial statements, with the exception of Deep Trekker, the accounting for all other current year acquisitions is provisional; relating to the finalisation of the valuation of acquired intangible assets, the initial consideration, which is subject to agreement of certain contractual adjustments, and certain other provisional balances.

a) Total of acquisitions

	Total £m
Non-current assets
Intangible assets	192.4
Property, plant and equipment	14.4
Deferred tax	1.1
Current assets
Inventories	23.1
Trade and other receivables	19.9
Cash and cash equivalents	10.1
Total assets	261.0
Current liabilities
Payables	(10.4)
Borrowings	(65.1)
Lease liabilities	(1.5)
Tax liabilities	(1.9)
Non-current liabilities
Lease liabilities	(7.8)
Provisions	(0.4)
Deferred tax liabilities	(25.4)
Total liabilities	(112.5)
Net assets of businesses acquired	148.5
Initial cash consideration paid	321.0
Other adjustments to consideration	6.3
Contingent purchase consideration including retentions estimated to be paid	1.5
Total consideration	328.8
Total goodwill	180.3

Total goodwill of £180.3m comprises £180.0m relating to current year acquisitions and £0.3m relating to the prior year acquisition of International Light Technologies Inc..

Analysis of cash outflow in the Consolidated Cash Flow Statement

	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Initial cash consideration paid	321.0	151.2
Cash acquired on acquisitions	(10.1)	(18.2)
Initial cash consideration adjustments on current year acquisitions	6.3	13.1
Contingent consideration paid	4.6	14.2
Net cash outflow relating to acquisitions	321.8	160.3
Included in cash flows from operating activities	1.7	7.5
Included in cash flows from investing activities	320.1	152.8

Other adjustments are primarily adjustments for acquired working capital once balances are fully reconciled, forming part of the contractual payment mechanisms.

Contingent consideration included in cash flows from operating activities reflect amounts paid in excess of that estimated in the acquisition balance sheets.

b) Deep Trekker Inc.

	£m
Non-current assets
Intangible assets	14.9
Property, plant and equipment	2.2
Deferred tax	0.6
Current assets
Inventories	3.3
Trade and other receivables	1.1
Cash and cash equivalents	2.7
Total assets	24.8
Current liabilities
Payables	(2.1)
Borrowings	(4.7)
Lease liabilities	(0.4)
Tax liabilities	(0.2)
Non-current liabilities
Lease liabilities	(1.2)
Deferred tax liabilities	(3.9)
Total liabilities	(12.5)
Net assets of business acquired	12.3
Initial cash consideration paid	31.9
Other adjustments to consideration	1.9
Total consideration	33.8
Total goodwill	21.5

On 13 April 2022, the Group acquired the entire share capital of Deep Trekker Inc. (Deep Trekker) for total consideration £33.8m (C$55.5m), which comprised initial cash consideration of £31.9m (C$52.4m) and net cash/debt adjustments and working capital adjustments of £1.9m (C$3.1m). The initial consideration reflects a gross purchase price of £36.6m (C$60.0m) less debt acquired of £4.7m (C$7.6m) which was settled immediately post-acquisition. There is no contingent consideration payable.

Deep Trekker, based in Ontario, Canada, is a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance. Deep Trekker continues to run under its own management team and has joined the Environmental & Analysis sector.

On acquisition, acquired intangibles were recognised relating to customer related intangibles (£2.8m); trade name (£3.5m) and technology related intangibles (£8.6m). The residual goodwill of £21.5m represents:

a) the technical expertise of the acquired workforce;

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

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

Deep Trekker contributed £15.1m of revenue and £2.1m of profit after tax for the year ended 31 March 2023. If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £0.3m higher and £0.0m higher respectively.

Acquisition costs totalling £0.5m were recorded in the Consolidated Income Statement.

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

c) IZI Healthcare Products, LLC

	£m
Non-current assets
Intangible assets	64.4
Property, plant and equipment	5.6
Deferred tax	0.4
Current assets
Inventories	9.9
Trade and other receivables	5.3
Cash and cash equivalents	1.3
Total assets	86.9
Current liabilities
Payables	(2.9)
Borrowings	(53.8)
Lease liabilities	(0.6)
Tax liabilities	(0.1)
Non-current liabilities
Lease liabilities	(3.9)
Deferred tax liabilities	(2.4)
Total liabilities	(63.7)
Net assets of business acquired	23.2
Initial cash consideration paid	84.1
Other adjustments to consideration	1.9
Deferred contingent purchase consideration	1.5
Total consideration	87.5
Total goodwill	64.3

On 30 September 2022, the Group acquired the entire share capital of IZI Medical Products, LLC (IZI), for total consideration of £87.5m (US$97.4m). The initial consideration of £84.1m comprised a gross price of £137.9m (US$153.5m) less debt acquired of £53.8m (US$59.9m) which was settled immediately on acquisition. Other adjustments to consideration reflected adjustments for acquired working capital of £1.9m (US$2.1m). For the acquisition the maximum contingent consideration payable was £13.0m (US$14.5m) based on profit-based targets for the year ending 31 March 2023, of which £1.5m (US$1.8m) was estimated as the payable at the acquisition date.

IZI, based in Baltimore, Maryland, USA, is a leading designer, manufacturer and distributor of medical devices used across a range of diagnostic and therapeutic procedures. IZI continues to run under its own management team and has joined the Healthcare sector.

On acquisition, acquired intangibles were recognised relating to customer related intangibles (£19.9m); trade names (£2.6m) and technology related intangibles (£41.9m).

The residual goodwill of £64.3m represents:

a) the technical expertise of the acquired workforce;

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

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

IZI contributed £15.1m of revenue and £3.2m of profit after tax for the year ended 31 March 2023. If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £14.2m and £2.5m higher respectively.

Acquisition costs totalling £1.6m were recorded in the Consolidated Income Statement.

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

d) WEETECH Holding GmbH

	£m
Non-current assets
Intangible assets	17.8
Property, plant and equipment	2.2
Deferred tax	0.1
Current assets
Inventories	3.0
Trade and other receivables	6.4
Cash and cash equivalents	2.3
Total assets	31.8
Current liabilities
Payables	(2.4)
Borrowings	(6.6)
Lease liabilities	(0.1)
Tax liabilities	(1.1)
Non-current liabilities
Lease liabilities	(1.1)
Deferred tax liabilities	(5.1)
Total liabilities	(16.4)
Net assets of business acquired	15.4
Initial cash consideration paid	46.1
Other adjustments to consideration	0.9
Total consideration	47.0
Total goodwill	31.6

On 4 October 2022, the Group acquired the entire share capital of WEETECH Holding GmbH (WEETECH), for total consideration of £47.0m (€53.8m), which comprised initial cash consideration of £46.1m (€52.8m) and subsequent working capital adjustments of £0.9m (€1.0m). The initial consideration of £46.1m reflects a gross purchase price of £50.2m (€57.5m) less debt acquired of £6.6m (€7.6m) which was settled immediately post-acquisition plus other debt-like adjustments of £2.5m (€2.9m). There is no contingent consideration payable.

WEETECH, headquartered in Wertheim, Germany, designs and manufactures safety-critical electrical testing technology for the aviation, rail, automotive and engineering sectors. Its products ensure high and low voltage electric systems remain compliant with increasing safety regulation. WEETECH continues to run under its own management team and has joined the Safety sector.

On acquisition, acquired intangibles were recognised relating to customer related intangibles (£10.9m); trade names (£2.1m) and technology related intangibles (£4.6m).

The residual goodwill of £31.6m represents:

a) the technical expertise of the acquired workforce;

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

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

WEETECH contributed £8.7m of revenue and £1.8m of profit after tax for the year ended 31 March 2023. If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £9.3m and £1.4m higher respectively.

Acquisition costs totalling £1.0m were recorded in the Consolidated Income Statement.

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

e) Thermocable (Flexible Elements) Limited

	£m
Non-current assets
Intangible assets	13.0
Property, plant and equipment	1.2
Current assets
Inventories	1.8
Trade and other receivables	0.7
Cash and cash equivalents	0.8
Total assets	17.5
Current liabilities
Payables	(0.6)
Tax liabilities	(0.2)
Non-current liabilities
Deferred tax liabilities	(3.6)
Total liabilities	(4.4)
Net assets of business acquired	13.1
Initial cash consideration paid	22.0
Other adjustments to consideration	0.5
Total consideration	22.5
Total goodwill	9.4

On 31 January 2023, the Group acquired the entire share capital of Thermocable (Flexible Elements) Limited (Thermocable) for £22.5m, which comprised the purchase price of £22.0m and net cash/debt adjustments of £0.5m. There is no contingent consideration payable.

Thermocable, based in Bradford, UK, is a leading developer and manufacturer of Linear Heat Detectors (LHDs). LHDs are temperature sensitive cables, installed in areas at risk of overheating and fire, which trigger an alert when they detect a change of temperature. Thermocable has joined the Group as part of the Safety sector fire detection business, Apollo.

On acquisition, acquired intangibles were recognised relating to customer related intangibles (£8.7m); trade name (£1.6m) and technology related intangibles (£2.7m). The residual goodwill of £9.4m represents:

a) the technical expertise of the acquired workforce;

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

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

Thermocable contributed £1.3m of revenue and £0.5m of profit after tax for the year ended 31 March 2023. If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £5.3m higher and £1.5m higher respectively.

Acquisition costs totalling £0.4m were recorded in the Consolidated Income Statement.

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

f) FirePro Group

	£m
Non-current assets
Intangible assets	81.0
Property, plant and equipment	2.9
Current assets
Inventories	4.3
Trade and other receivables	6.0
Cash and cash equivalents	1.9
Total assets	96.1
Current liabilities
Payables	(1.8)
Lease liabilities	(0.4)
Tax liabilities	(0.3)
Non-current liabilities
Lease liabilities	(1.5)
Deferred tax liabilities	(10.1)
Total liabilities	(14.1)
Net assets of business acquired	82.0
Initial cash consideration paid	132.0
Other adjustments to consideration	1.2
Total consideration	133.2
Total goodwill	51.2

On 27 March 2023, the Group acquired the FirePro Group (FirePro) for total consideration of £133.2m (€151.3m), which comprised the cash and debt-free purchase price of £132.0m (€150.0m) and other adjustments of £1.2m (€1.3m). There is no contingent consideration payable. Directly or through another company acquired, the acquisition comprised the entire share capital of Skyterra Investments Ltd, Nisolio Investments Ltd, P.J.K.A Investments Ltd, FirePro Systems Ltd, Celanova Limited and I.D. Infinity Developments Cyprus Ltd.

FirePro, based in Cyprus, is a leading designer and manufacturer of aerosol-based fire suppression systems. FirePro continues to run under its own management team and has joined the Safety sector.

On acquisition, acquired intangibles were recognised relating to customer related intangibles (£44.9m); trade name (£7.1m) and technology related intangibles (£29.0m). The residual goodwill of £51.2m represents:

a) the technical expertise of the acquired workforce;

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

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

FirePro contributed £0.4m of revenue and £0.1m of profit after tax for the year ended 31 March 2023. If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £19.8m higher and £9.2m higher respectively.

Acquisition costs totalling £1.6m were recorded in the Consolidated Income Statement.

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

g) Other acquisitions

	£m
Non-current assets
Intangible assets	1.3
Property, plant and equipment	0.3
Current assets
Inventories	0.8
Trade and other receivables	0.4
Cash and cash equivalents	1.1
Total assets	3.9
Current liabilities
Payables	(0.6)
Lease liabilities	-
Non-current liabilities
Lease liabilities	(0.1)
Provisions	(0.1)
Deferred tax liabilities	(0.3)
Total liabilities	(1.1)
Net assets of businesses acquired	2.8
Initial cash consideration paid	4.9
Other adjustments to consideration	(0.1)
Total consideration	4.8
Total goodwill	2.0

On 21 November 2022, Ocean Optics Inc., a photonics technology company in the Group's Environment and Analysis sector, bought the assets and IP associated with laser-induced breakdown spectroscopy from Rigaku Analytical Devices Inc., and Rigaku Americas Holding Inc., in the United States for consideration of £1.0m (US$1.1m).

On 8 March 2023, the Group acquired the entire share capital of Zonegreen 2013 Ltd and its subsidiary company, Zone Green Ltd, for total cash consideration of £3.8m. Zonegreen, based in Sheffield, is renowned for its Rail Depot Personnel Protection System (DPPS™) and has joined the Group company Sentric, within the Safety sector.

In respect of these acquisitions, 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 £0.3m; trade name of £0.3m and technology related intangibles of £0.7m; with residual goodwill arising of £2.0m.

These acquisitions contributed £0.4m of revenue and £0.2m of profit after tax cumulatively for the year ended 31 March 2023. If these acquisitions had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £2.7m and £0.3m higher respectively.

Acquisition costs totalling £0.2m were recorded in administrative expenses in the Consolidated Income Statement. The goodwill arising on these acquisitions is not expected to be deductible for tax purposes.

h) Adjustments arising on prior year acquisitions

	£m
Non-current liabilities
Provisions	(0.3)
Total liabilities	(0.3)
Net adjustment to assets of business acquired in prior years	(0.3)
Adjustment to goodwill	0.3

In finalising the acquisition accounting for the prior year acquisition of International Light Technologies Inc., an adjustment of £0.3m was made to include a provision for sales tax on pre-acquisition sales. This resulted in an increase in goodwill of £0.3m.

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

9 Disposal of operations

In the prior year, in August 2021, the Group disposed of its entire interest in Texecom Limited. Cash received on disposal of operations in the prior year of £57.5m comprised proceeds from the sale of £64.8m, less £4.5m of cash disposed and £2.8m of disposal costs. The Group recognised a profit on disposal of operations of £34.0m.

10 Notes to the Consolidated Cash Flow Statement

	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Reconciliation of profit from operations to net cash inflow from operating activities:
Profit on continuing operations before finance income and expense, share of results of associate and profit on disposal of operations	308.4	278.9
Non-cash movement on hedging instruments	0.1	-
Depreciation and impairment of property, plant and equipment	41.5	36.1
Amortisation and impairment of computer software	2.2	2.5
Amortisation of capitalised development costs and other intangibles	9.2	7.6
Impairment of capitalised development costs	0.5	2.9
Amortisation of acquired intangible assets	48.7	42.7
Impairment of acquired intangible assets	7.8	-
Share-based payment expense in excess of amounts paid	12.9	5.0
Payments to defined benefit pension plans net of service costs	(15.1)	(11.7)
(Profit)/loss on sale of property, plant and equipment, capitalised development costs and computer software	(0.8)	0.8
Operating cash flows before movement in working capital	415.4	364.8
Increase in inventories	(54.9)	(51.9)
Increase in receivables	(52.4)	(43.6)
Increase in payables and provisions	15.1	36.1
Revision to estimate and exchange difference on contingent consideration payable less amounts paid in excess of payable estimated on acquisition	2.0	(12.0)
Cash generated from operations	325.2	293.4
Taxation paid	(67.2)	(56.0)
Net cash inflow from operating activities	258.0	237.4

	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Analysis of cash and cash equivalents
Cash and bank balances	169.5	157.4
Overdrafts (included in current borrowings)	(1.0)	(0.7)
Cash and cash equivalents	168.5	156.7

	31 March 2022 £m	Cash flow £m	Net cash/(debt) acquired £m	Additions and reclassifications £m	Exchange adjustments £m	31 March 2023 £m
Analysis of net debt
Cash and bank balances	157.4	0.3	10.1	-	1.7	169.5
Overdrafts	(0.7)	(0.3)	-	-	-	(1.0)
Cash and cash equivalents	156.7	_	10.1	-	1.7	168.5
Loan notes falling due within one year	(71.2)	74.4	-	-	(3.2)	-
Loan notes falling due after more than one year	(35.0)	(338.1)	-	-	(3.8)	(376.9)
Bank loans falling due within one year	(0.6)	65.7	(65.1)	-	-	-
Bank loans falling due after more than one year	(252.6)	(58.1)	-	-	10.3	(300.4)
Lease liabilities	(72.1)	20.9	(9.3)	(24.9)	(2.5)	(87.9)
Total net debt	(274.8)	(235.2)	(64.3)	(24.9)	2.5	(596.7)

The net increase in cash and cash equivalents of £10.1m comprised net cash inflow of £nil and cash acquired of £10.1m.

The movement in bank loans in the year represents the proceeds and repayments of bank borrowings and the borrowings acquired as a result of acquisition.

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

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

	Borrowings* £m	Leases £m	Overdraft £m	Total liabilities from financing activities £m	Trade and other payables falling due within one year £m
At 1 April 2021	322.3	65.0	3.0	390.3	186.7
Cash flows from financing activities	28.9	(16.8)	-	12.1	(5.9)
Acquisition/disposal of subsidiaries	-	2.5	-	2.5	11.7
Exchange adjustments	8.2	2.4	-	10.6	7.3
Other changes**	-	19.0	(2.3)	16.7	42.9
At 31 March 2022	359.4	72.1	0.7	432.2	242.7
Cash flows from financing activities	256.1	(20.9)	-	235.2	(14.4)
Acquisition/disposal of subsidiaries	65.1	9.3	-	74.4	8.7
Exchange adjustments	(3.3)	2.5	-	(0.8)	12.7
Other changes**	-	24.9	0.3	25.2	31.0
At 31 March 2023	677.3	87.9	1.0	766.2	280.7

*   Excluding overdrafts

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

11 Contingent liabilities

Group financing exemptions applicable to UK controlled foreign companies

On 2 April 2019, the European Commission (EC) published its final decision that the United Kingdom controlled Foreign Company Partial Exemption (FCPE) constitutes State Aid. As previously reported, the Group has benefited from the FCPE, which amounts to £15.4m of tax for the period from 1 April 2013 to 31 December 2018.

Appeals had been made by the UK Government, the Group and other UK-based groups to annul the EC decision. On 8 June 2022, the EU General Court delivered its decision in favour of the EC. In August 2022, the UK Government appealed this decision.

Notwithstanding this appeal, under EU law, the UK Government is required to commence collection proceedings. In January 2021, the Group received a Charging Notice from HM Revenue & Customs (HMRC) for £13.9m assessed for the period from 1 April 2016 to 31 December 2018. The Group appealed against the notice but, as there is no right of postponement, the amount charged was paid in full in February 2021 with a further £0.8m of interest paid in May 2021. In February 2021, the Group received confirmation from HMRC that it was not a beneficiary of State Aid for the period from 1 April 2013 to 31 March 2016.

Whilst the EU General Court was in favour of the EC, the Group's assessment is that there are strong grounds for appeal and the appeal is expected to be successful. As the amounts paid are expected to be fully recovered, and given the appeal process is expected to take more than a year, the Group continues to recognise a receivable of £14.7m (31 March 2022: £14.7m) on the Consolidated Balance Sheet within non-current assets.

Other contingent liabilities

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

12 Events subsequent to end of reporting period

On 24 April 2023, Minicam Inc., a company in the Group's Environmental & Analysis sector purchased its US service and distribution partner, Visual Imaging Resources LLC, for initial consideration of c.£2.3m (US$2.8m), and an earnout based on gross margin of a maximum of £1.0m (US$1.2m) per year for three years.

On 4 May 2023, completing on 11 May 2023, the Group acquired the entire share capital of Sewertronics Sp. Z o.o. (Sewertronics), based in Rzeszów, Poland for a cash consideration of c.£36m (€41m) on a cash and debt-free basis. Additional consideration of up to c.£16m (€18m) may be payable in cash, based on the fulfilment of certain conditions. Sewertronics' technology repairs and rehabilitates wastewater pipelines without the need to dig a trench, by inserting a lining into the pipe, which is then cured using its innovative and patented ultraviolet (UV) LED technology. Sewertronics will be part of Halma's Environmental & Analysis sector. As part of the acquisition a drawdown was made from the Group's Revolving Credit Facility of £26.7m (€30.3m).

A detailed purchase price allocation exercise is currently being performed to calculate the goodwill arising on these acquisitions.

There were no other known material non-adjusting events which occurred between the end of the reporting period and prior to the authorisation of these financial statements on 15 June 2023.

13 Remuneration of key management personnel

The remuneration of the Directors and Executive Board members, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. Further information about the remuneration of individual Directors is provided in the audited part of the Annual Remuneration Report in the Annual Report and Accounts 2023.

	Year ended 31 March 2023 £m	Year ended 31 March 2022 £m
Wages and salaries	10.8	11.9
Pension costs	-	0.1
Share-based payment charge	6.7	5.0
	17.5	17.0

Cautionary note

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

LEI number: 2138007FRGLUR9KGBT40

 

END