Half Yearly Report

RNS Number : 4875S

Halma PLC

22 November 2011

 



HALMA p.l.c. HALF YEAR REPORT FOR THE 26 WEEKS TO 1 OCTOBER 2011 22 NOVEMBER 2011 Record revenue and profit with increased returns Halma, the leading safety, health and sensor technology group, today announces its half year results for the 26 weeks to 1 October 2011.

Highlights include:
●	Pre-tax profit from continuing operations1 up 17% to £57.5m (2010/11: £49.3m) on revenue up 12% at £280m (2010/11: £249m).  Adjusted earnings per share from continuing operations2 up 21% at 11.75p (2010/11: 9.75p).
●	Organic growth3 at constant currency: Profit up 4.5%, Revenue up 5.8%.
●	High and increased level of returns achieved with Return on Sales4 of 20.5% (2010/11: 19.8%).
●	All three sectors increased revenue and profit with strong performances in Health & Analysis and Industrial Safety which both delivered pre-tax profit growth of 20% or more.
●	Order intake slightly ahead of revenue with a closing order book 5% higher than the start of the period.
●	Revenue outside the UK/Europe and USA increased to £65.5m, 23% of total revenue (2010/11: £58.1m), in line with our strategic objective of international expansion with a focus on Asia.
●	Statutory pre-tax profit up 8.5% to £51.3m (2010/11:£47.3m).  Statutory earnings per share up 12% at 10.52p (2010/11: 9.38p).
●	Increase in the interim dividend of 7%.
●	Successful acquisition of Avo Photonics, Inc. for an initial payment of £5.7m and Kirk Key Interlock Company, LLC for £8.8m.
●	Strong balance sheet with significant headroom for acquisitions.  Solid cash generation resulting in net debt of £56m.
●	New £260m 5-year revolving credit facility in place, replacing previous £165m facility.

Commenting on the results, Andrew Williams, Chief Executive of Halma, said: "Halma remains on track to make further progress in the second half. The diversity of our niche end-markets and our operational structure of locally managed, agile businesses have proved to be major strengths during challenging circumstances.  We will continue to focus on achieving growth and high returns in the short term whilst maintaining investment to support growth in the medium term." Notes:

1	Adjusted to remove the amortisation of acquired intangible assets and acquisition costs (including transaction costs and movement on contingent consideration) of £6.2m (2010/11: £2.0m).
2	Adjusted to remove the amortisation of acquired intangible assets and acquisition costs, and the associated tax.  See note 6 for details.
3	Organic growth rates are non-GAAP performance measures used by management to assess underlying performance.  See note 9 for details.
4	Return on Sales is defined as adjusted1 profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.

For further information, please contact:

Halma p.l.c. Andrew Williams, Chief Executive Kevin Thompson, Finance Director	[phone]
MHP Communications Rachel Hirst/Andrew Jaques	[phone]

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

NOTE TO EDITORS

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

	·      Health and Analysis	Products used to improve personal and public health.  We develop technologies for analysis in safety, life sciences and environmental markets.
	·      Infrastructure Sensors	Products which detect hazards to protect assets and people in public and commercial buildings.
	·      Industrial Safety	Products which protect assets and people at work.

The key characteristics of Halma's businesses are that they are based on advanced technology and offer strong growth potential.  Many Group businesses are clear market leaders in their specialist field and, in a number of cases, are the dominant world supplier.

2.

High resolution photos of Halma senior management, including Chief Executive Andrew Williams, and images illustrating Halma business activities can be downloaded from its website: www.halma.com.  Click on the 'News' link, then 'Image Library'.  Photo queries:  David Waller [phone], e-mail: [e-mail].

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

4.

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

HALMA p.l.c. Half year results for the 26 weeks to 1 October 2011 Financial Highlights

	Change	Unaudited 26 weeks to 1 October 2011	Unaudited 26 weeks to 2 October 2010
Continuing Operations
Revenue	+ 12%	£280.0m	£249.1m
Adjusted Profit before Taxation1	+ 17%	£57.5m	£49.3m
Statutory Profit before Taxation	+ 8%	£51.3m	£47.3m
Adjusted Earnings per Share2	+ 21%	11.75p	9.75p
Statutory Earnings per Share	+ 12%	10.52p	9.38p
Interim Dividend per Share3	+ 7%	3.79p	3.54p
Return on Sales4		20.5%	19.8%
Return on Total Invested Capital5		16.9%	15.5%
Return on Capital Employed5		68.8%	72.3%

Pro-forma information:
1	Adjusted to remove the amortisation of acquired intangible assets and acquisition costs (including transaction costs and movement on contingent consideration) of £6.2m (2010/11: £2.0m).
2	Adjusted to remove the amortisation of acquired intangible assets and acquisition costs, and the associated tax.  See note 6 for details.
3	Interim dividend declared per share.
4	Return on Sales is defined as adjusted1 profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.
5	Organic growth rates, Return on Total Invested Capital (ROTIC) and Return on Capital Employed (ROCE) are non-GAAP performance measures used by management in measuring the returns achieved from the Group's asset base.  See note 9 for details.

Chairman's Statement Geoff Unwin, Chairman of Halma, said: Halma remains on track Halma: what we do and our strategy Our business is to make products which protect lives and improve the quality of life for people worldwide. We do this through continuous innovation in market-leading products, which meet the increasing demands for improvements to health, safety and the environment. We build strong positions in market niches where the demand is global. Our businesses are autonomous and highly entrepreneurial.

Results For the first half, revenue from continuing operations of £280m was 12% up compared with the prior year (2010/11: £249m); organic revenue1 growth was 4.7% and, at constant currency, was 5.8%. Adjusted1 profit before tax from continuing operations increased 17% to £57.5m (2010/11: £49.3m), with organic growth of 4.5% at constant currency. Statutory profit before tax increased by 8% to £51.3m. Return on Total Invested Capital1 was 16.9% (2010/11: 15.5%). Cash flow was solid in the half year and we completed two acquisitions for initial payments totalling £14.5m, including £1.1m of debt (2010/11: £nil).  This contributed to net debt of £56m at the end of the period compared with £37m at 2 April 2011.

Dividends The Board declares a 7% increase in the interim dividend to 3.79 pence per share, maintaining the higher rate of dividend increase established last year.  This dividend will be paid on 8 February 2012 to shareholders on the register at 6 January 2012. This increase reflects the Board's continuing confidence in Halma's long-term growth prospects. Progress Halma's half year results reflect the continuing efforts of our employees to improve our effectiveness, controlling costs yet still delivering revenue growth.  In addition, we have acquired businesses over the past year which have strong product, market and financial characteristics.  This is demonstrated by the 0.7% improvement in the Group's half year Return on Sales1 to 20.5% (2010/11: 19.8%). We invest strongly in products, markets and people and expect to continue to see the results of these investments, particularly in new products and in China, in the short to medium term.

Acquisitions During the first half, Halma purchased Kirk Key Interlock Company, LLC for $14.5m (including $1.8m of debt) and Avo Photonics, Inc. for $9.1m (plus a contingent payment of up to $11m based on future profit growth).  These businesses add to our existing strength in the Safety Interlocks and Photonics markets respectively. Governance I am delighted that Daniela Barone Soares has joined the Halma Board. The Board continually keeps the appropriateness of its composition under review particularly in terms of relevant experience and diversity in its widest sense.  Daniela's experience demonstrates this commitment threefold - geographically, in terms of gender and by way of executive experience.  Daniela will certainly add to the Board's debate on value creation with her unique perspective. Outlook Although there are significant global economic uncertainties, our structure of decentralised management and the underpinning of demand from fundamental growth drivers have proved to be resilient in difficult markets. Halma remains on track to make further progress in the second half. 1 See Financial Highlights

Chief Executive's Review Andrew Williams, Chief Executive of Halma, said: Record revenue and profit with increased returns

Halma made good progress during the first half year, achieving record revenue and profit in every sector.  There was widespread growth geographically, with an especially strong performance in China where sales grew by 29%. Revenue grew by 12% to £280m (2010/11: £249m) and adjusted1 profit by 17% to £57.5m (2010/11: £49.3m).  The organic growth rates of 5.8% for revenue and 4.5% for profit (at constant currency), reflected increased investment in our three pillars of strategic growth: Innovation, International Expansion and People Development.  Return on Sales1 increased to 20.5% (2010/11: 19.8%). It was pleasing to see order intake growth maintained, resulting in an order book at the end of the period 5% higher than at the start.  Return on Total Invested Capital1 was excellent at 16.9% (2010/11: 15.5%) whilst Return on Capital Employed1 was also strong at 69% (2010/11: 72%).  Both these ratios reflect the good operational management by our subsidiary management teams as does the solid cash generation which continued throughout the period.  We ended the first half with net debt of £56m (March 2011: net debt £37m).

Halma is in a strong financial position and we have acted to ensure that continues.  In October 2011, we negotiated a new £260m syndicated revolving credit facility with a core group of well-established banks which runs to October 2016. It replaces the previous £165m facility which was due to end in February 2013. Growth and higher returns in all three sectors All three main sectors reported record revenue and profit and increased Return on Sales.  Health and Analysis saw revenue up by 17% to £121m (2010/11: £104m), and profit2 up by 26% to £28.0m (2010/11: £22.1m).  Return on Sales improved to 23.1% (2010/11: 21.3%).  Water, Photonics, Health Optics and Fluid Technology all reported revenue and profit growth with the latter benefiting significantly from the impact of acquisitions.  Water had a particularly strong performance in the UK, due to increased investment in water network monitoring devices by the UK water utilities. In Fluid Technology, further customer consolidation and some changes in the market shares amongst the major OEM players in medical diagnostic systems had an adverse impact on our organic performance.  We expect to see the impact of these factors ease as we move through 2012.

Infrastructure Sensors had another solid performance, growing revenue by 5% to £101m (2010/11: £96m) and profit2 by 8% to £19.4m (2010/11: £17.9m).  Return on Sales was 19.2% (2010/11: 18.7%).  Fire Detection and Automatic Door Sensors increased revenue whilst strengthening their global operations, particularly in Asia and the USA.  Elevator Safety had flat revenue and Security Sensors reported revenue marginally lower than last year with tough conditions in Europe and the USA for both businesses.

Industrial Safety had a particularly impressive first half, increasing revenue by 17% to £58m (2010/11: £49m) and profit2 by 20% to £13.6m (2010/11: £11.3m).  Return on Sales improved to 23.4% (2010/11: 22.9%).  Gas Detection, Bursting Disks, Safety Interlocks and Asset Monitoring all achieved double-digit growth in revenue and profit. Revenues increased in all major geographic regions  UK revenue was up by 18% whilst Mainland Europe also performed strongly with growth of 15%.  The challenges faced by our Fluid Technology and Elevator Safety sub-sectors contributed to lower growth in the USA of 6%.  China continued to make good progress, growing by 29%, despite lower growth in Automatic Door Sensors caused by the recent disruption to the state-sponsored High Speed Train investment programme.

Halma completed two acquisitions in the period  In May 2011, we acquired Kirk Key Interlock Company, LLC based in Ohio, USA for $14.5m (including $1.8m of debt) to give us a stronger presence in the US Safety Interlock market.  In July 2011, we acquired Avo Photonics, Inc. based in Pennsylvania, USA for an initial consideration of $9.1m and a contingent payment of up to $11m based on profit growth achieved up to March 2012.  Avo adds advanced design and manufacturing capabilities to Halma's successful Photonics businesses.  The integration of both businesses into the Group has proceeded well. We remain focused on identifying acquisition opportunities that add value by strengthening our market positions and technological capabilities.

Increased investment in product innovation, international expansion and people development R&D spend increased by 10% to £13.4m (2010/11: £12.2m) demonstrating our commitment to generating growth through product Innovation.  As reported in our recent Annual Report, in May 2011 we held a successful Halma Innovation and Technology Exposition in Orlando, Florida, which gave all Halma companies the opportunity to share knowledge and technology.  I am also encouraged by the steady increase in the number of products specifically designed for developing markets such as China.  Our ability to tailor products for local markets is increasingly important in driving revenue growth and market share in developing regions. Investment in our International Expansion strategic initiative continues apace with our five commercial offices in China now fully operational and our manufacturing hub in Shanghai attracting more Halma companies.  Our headcount in India is growing steadily and we plan to move to larger offices in Mumbai with light assembly and technical support facilities in the second half.  Two Halma sub-sectors now have a direct presence in South America, with a further four sub-sectors making progress towards that goal in 2012.

People Development is essential to our sustained success.  We have launched new advanced training programmes for previous Halma Executive Development Programme delegates and we are increasing our focus on developing local management talent in Asia.  We are making good progress towards the launch of the first Halma Graduate Development Programme in 2012. We are committed to increasing the diversity of our management talent and, in addition to our initiatives in Asia, we are identifying new ways in which we can encourage improvement in gender diversity. Risks and uncertainties There are no significant changes to the risks and uncertainties in the Annual Report and on our website, www.halma.com.  These are summarised in note 12 of this Half Year Report.

Summary Halma remains on track to make further progress in the second half. The diversity of our niche end-markets and our operational structure of locally managed, agile businesses have proved to be major strengths during challenging circumstances.  We will continue to focus on achieving growth and high returns in the short term whilst maintaining investment to support growth in the medium term. 1 See Financial Highlights 2 See note 2 to the Condensed Financial Statements

Half year results for the 26 weeks to 1 October 2011

Condensed Financial Statements

Consolidated Income Statement

				Unaudited 26 weeks to  1 October  2011			Unaudited 26 weeks to  2 October  2010	Audited 52 weeks to 2 April 2011
	Notes	Before amortisation of acquired intangibles and acquisition costs* £000	Amortisation of acquired intangibles and acquisition costs* £000	Total £000	Before amortisation of acquired intangibles and acquisition costs* £000	Amortisation of acquired intangibles and acquisition costs* £000	Total £000	Total £000
Continuing operations
Revenue	2	279,997	-	279,997	249,080	-	249,080	518,428
Operating profit		58,158	(6,218)	51,940	49,645	(1,987)	47,658	99,449
Share of results of associates		(94)	-	(94)	-	-	-	(59)
Finance income	3	4,919	-	4,919	4,758	-	4,758	9,420
Finance expense	4	(5,482)	-	(5,482)	(5,144)	-	(5,144)	(10,518)
Profit before taxation		57,501	(6,218)	51,283	49,259	(1,987)	47,272	98,292
Taxation	5	(13,258)	1,612	(11,646)	(12,561)	596	(11,965)	(25,858)
Profit for the period attributable to equity shareholders		44,243	(4,606)	39,637	36,698	(1,391)	35,307	72,434
Earnings per share	6
From continuing operations
Basic		11.75p		10.52p	9.75p		9.38p	19.23p
Diluted				10.50p			9.36p	19.19p
Dividends in respect of the period	7
Dividends (£000)				14,298			13,341	34,276
Per share				3.79p			3.54p	9.10p

*  Acquisition costs include transaction costs and movement on contingent consideration.

Consolidated Statement of Comprehensive Income and Expenditure

	Unaudited 26 weeks to 1 October 2011 £000	Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Profit for the period	39,637	35,307	72,434
Exchange differences on translation of foreign operations	3,384	(5,762)	(4,268)
Actuarial (losses)/gains on defined benefit pension plans	(11,440)	(8,396)	857
Effective portion of changes in fair value of cash flow hedges	244	137	(311)
Tax relating to components of other comprehensive income	2,529	1,836	(887)
Other comprehensive expense for the period	(5,283)	(12,185)	(4,609)
Total comprehensive income for the period attributable to equity shareholders	34,354	23,122	67,825

Consolidated Balance Sheet

	Unaudited 1 October  2011 £000	Unaudited 2 October  2010 £000	Audited 2 April 2011 £000
Non-current assets
Goodwill	273,049	194,203	259,954
Other intangible assets	80,665	30,849	73,490
Property, plant and equipment	72,508	65,923	69,891
Interests in associates	1,914	-	1,989
Deferred tax asset	11,148	13,095	10,779
	439,284	304,070	416,103
Current assets
Inventories	63,310	51,325	54,540
Trade and other receivables	109,029	96,901	110,456
Tax receivable	448	97	237
Cash and cash equivalents	41,674	41,210	42,610
Derivative financial instruments	108	320	327
	214,569	189,853	208,170
Total assets	653,853	493,923	624,273
Current liabilities
Borrowings	2,051	517	-
Trade and other payables	86,304	71,095	85,511
Provisions	2,691	2,138	2,887
Tax liabilities	12,627	15,014	14,997
Derivative financial instruments	380	247	858
	104,053	89,011	104,253
Net current assets	110,516	100,842	103,917
Non-current liabilities
Borrowings	95,649	13,054	79,688
Retirement benefit obligations	44,590	48,497	36,237
Trade and other payables	14,971	3,858	22,848
Provisions	2,108	1,897	1,593
Deferred tax liabilities	24,927	13,329	24,269
	182,245	80,635	164,635
Total liabilities	286,298	169,646	268,888
Net assets	367,555	324,277	355,385
Equity
Share capital	37,841	37,802	37,824
Share premium account	21,993	21,426	21,744
Treasury shares	(3,665)	(3,163)	(5,016)
Capital redemption reserve	185	185	185
Hedging and translation reserve	38,078	33,388	34,511
Other reserves	(96)	2,261	3,634
Retained earnings	273,219	232,378	262,503
Shareholders' funds	367,555	324,277	355,385

Consolidated Statement of Changes in Equity

For the 26 weeks ended 1 October 2011

	Share capital £000	Share premium account £000	Treasury shares £000	Capital redemption reserve £000	Hedging and translation reserve £000	Other reserves £000	Retained earnings £000	Total £000
At 2 April 2011 (audited)	37,824	21,744	(5,016)	185	34,511	3,634	262,503	355,385
Profit for the period	-	-	-	-	-	-	39,637	39,637
Other comprehensive income and expense:
Exchange differences on translation of foreign operations	-	-	-	-	3,384	-	-	3,384
Actuarial losses on defined benefit pension plans	-	-	-	-	-	-	(11,440)	(11,440)
Effective portion of changes in fair value of cash flow hedges	-	-	-	-	244	-	-	244
Tax relating to components of other comprehensive income	-	-	-	-	(61)	-	2,590	2,529
Total other comprehensive income and expense	-	-	-	-	3,567	-	(8,850)	(5,283)
Share options exercised	17	249	-	-	-	-	-	266
Dividends paid	-	-	-	-	-	-	(20,935)	(20,935)
Share-based payments	-	-	-	-	-	(3,261)	-	(3,261)
Deferred tax on share-based payment transactions	-	-	-	-	-	(469)	-	(469)
Excess tax deductions related to share- based payments on exercised options	-	-	-	-	-	-	864	864
Net movement in treasury shares	-	-	1,351	-	-	-	-	1,351
At 1 October 2011 (unaudited)	37,841	21,993	(3,665)	185	38,078	(96)	273,219	367,555

For the 26 weeks ended 2 October 2010

	Share capital £000	Share premium account £000	Treasury shares £000	Capital redemption reserve £000	Hedging and translation reserve £000	Other reserves £000	Retained earnings £000	Total £000
At 3 April 2010 (audited)	37,765	20,959	(2,581)	185	39,013	4,178	222,974	322,493
Profit for the period	-	-	-	-	-	-	35,307	35,307
Other comprehensive income and expense:
Exchange differences on translation of foreign operations	-	-	-	-	(5,762)	-	-	(5,762)
Actuarial losses on defined benefit pension plans	-	-	-	-	-	-	(8,396)	(8,396)
Effective portion of changes in fair value of cash flow hedges	-	-	-	-	137	-	-	137
Tax relating to components of other comprehensive income	-	-	-	-	-	-	1,836	1,836
Total other comprehensive income and expense	-	-	-	-	(5,625)	-	(6,560)	(12,185)
Share options exercised	37	467	-	-	-	-	-	504
Dividends paid	-	-	-	-	-	-	(19,550)	(19,550)
Share-based payments	-	-	-	-	-	(1,808)	-	(1,808)
Deferred tax on share-based payment transactions	-	-	-	-	-	(109)	-	(109)
Excess tax deductions related to share-based payments on exercised options	-	-	-	-	-	-	207	207
Net movement in treasury shares	-	-	(582)	-	-	-	-	(582)
At 2 October 2010 (unaudited)	37,802	21,426	(3,163)	185	33,388	2,261	232,378	324,277

For the 52 weeks ended 2 April 2011

	Share capital £000	Share premium account £000	Treasury shares £000	Capital redemption reserve £000	Hedging and translation reserve £000	Other reserves £000	Retained earnings £000	Total £000
At 3 April 2010 (audited)	37,765	20,959	(2,581)	185	39,013	4,178	222,974	322,493
Profit for the period	-	-	-	-	-	-	72,434	72,434
Other comprehensive income and expense:
Exchange differences on translation of foreign operations	-	-	-	-	(4,268)	-	-	(4,268)
Actuarial gains on defined benefit pension plans	-	-	-	-	-	-	857	857
Effective portion of changes in fair value of cash flow hedges	-	-	-	-	(311)	-	-	(311)
Tax relating to components of other comprehensive income	-	-	-	-	77	-	(964)	(887)
Total other comprehensive income and expense	-	-	-	-	(4,502)	-	(107)	(4,609)
Share options exercised	59	785	-	-	-	-	-	844
Dividends paid	-	-	-	-	-	-	(32,891)	(32,891)
Share-based payments	-	-	-	-	-	(764)	-	(764)
Deferred tax on share-based payment transactions	-	-	-	-	-	220	-	220
Excess tax deductions related to share-based payments on exercised options	-	-	-	-	-	-	93	93
Net movement in treasury shares	-	-	(2,435)	-	-	-	-	(2,435)
At 2 April 2011 (audited)	37,824	21,744	(5,016)	185	34,511	3,634	262,503	355,385

Consolidated Cash Flow Statement

	Unaudited 26 weeks to 1 October 2011 £000	Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Net cash inflow from operating activities (note 8)	36,571	49,460	95,064
Cash flows from investing activities
Purchase of property, plant and equipment	(7,658)	(5,906)	(14,399)
Purchase of computer software	(753)	(522)	(1,019)
Purchase of other intangibles	-	(17)	(6)
Proceeds from sale of property, plant and equipment	370	344	677
Development costs capitalised	(2,005)	(1,994)	(4,735)
Interest received	132	184	317
Acquisition of businesses, net of cash acquired (note 10)	(18,729)	(241)	(82,093)
Acquisition of investments in associates	-	-	(1,708)
Net cash used in investing activities	(28,643)	(8,152)	(102,966)
Financing activities
Dividends paid	(20,935)	(19,550)	(32,891)
Proceeds from issue of share capital	266	504	844
Purchase of treasury shares	(3,045)	(3,469)	(5,358)
Interest paid	(580)	(331)	(825)
Proceeds from borrowings	19,975	-	76,156
Repayment of borrowings	(4,305)	(8,348)	(18,152)
Net cash (used in)/from financing activities	(8,624)	(31,194)	19,774
(Decrease) /increase in cash and cash equivalents (note 8)	(696)	10,114	11,872
Cash and cash equivalents brought forward	42,610	31,006	31,006
Exchange adjustments	(240)	(427)	(268)
Cash and cash equivalents carried forward	41,674	40,693	42,610

Notes to the Condensed Financial Statements

1   Basis of preparation General information The Half Year Report, which includes the Interim Management Report and Condensed Financial Statements for the 26 weeks to 1 October 2011, has not been audited or reviewed by the Group's auditors and was approved by the Directors on 22 November 2011. The Report has been prepared in accordance with International Accounting Standard 34, applying the accounting policies and presentation that were applied in the preparation of the Group's statutory accounts for the 52 weeks to 2 April 2011. The figures shown for the 52 weeks to 2 April 2011 are based on the Group's statutory accounts for that period and do not constitute the Group's statutory accounts for that period as defined in Section 434 of the Companies Act 2006. These statutory accounts, which were prepared under International Financial Reporting Standards, have been filed with the Registrar of Companies. The audit report on those accounts was not qualified, did not include a reference to any matters for which the auditors drew attention by way of emphasis without qualifying the report, and did not contain statements under Sections 498 (2) or (3) of the Companies Act 2006. The Report has been prepared solely to provide additional information to shareholders as a body to assess the Board's strategies and the potential for those strategies to succeed. It should not be relied on by any other party or for any other purpose. The Report contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the Report. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events. The Directors believe the Group is well placed to manage its business risks successfully. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities (the existing £165 million loan facility was replaced by a £260 million loan facility on 20 October 2011). The Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the half-year Condensed Financial Statements.

2   Segmental Analysis Sector analysis The Group has three main reportable segments (Health and Analysis, Infrastructure Sensors and Industrial Safety), which are defined by markets rather than product type. Each segment includes businesses with similar operating and market characteristics. These segments are consistent with the internal reporting as reviewed by the Chief Executive Officer. During the second half of the previous year, Radio-Tech Limited was moved from the Group's Industrial Safety segment to its Health and Analysis segment. The prior year segment analysis has therefore been restated to reflect this change and to ensure that the presentation is on a consistent basis. These reportable segments remain unchanged from the 2 April 2011 consolidated accounts.

Segment revenue and results
	Revenue (all continuing operations)
	Unaudited 26 weeks to 1 October 2011 £000	(Restated) Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Health and Analysis	121,070	103,723	218,330
Infrastructure Sensors	101,102	96,008	197,209
Industrial Safety	58,007	49,463	103,058
Inter-segmental sales	(182)	(114)	(169)
Revenue for the period	279,997	249,080	518,428

Inter-segmental sales are charged at prevailing market prices and have not been disclosed separately by segment as they are not considered material. The Group does not analyse revenue by product group.

	Profit (all continuing operations)
	Unaudited 26 weeks to 1 October 2011 £000	(Restated) Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Segment profit before allocation of amortisation of acquired intangible assets, acquisition and central administration costs
Health and Analysis	27,953	22,113	46,108
Infrastructure Sensors	19,364	17,911	39,023
Industrial Safety	13,596	11,341	24,435
	60,913	51,365	109,566
Segment profit after allocation of amortisation of acquired intangible assets and acquisition costs
Health and Analysis	22,024	20,405	40,170
Infrastructure Sensors	19,364	17,911	38,981
Industrial Safety	13,307	11,062	24,156
Segment profit	54,695	49,378	103,307
Central administration costs	(2,849)	(1,720)	(3,917)
Net finance expense	(563)	(386)	(1,098)
Group profit before taxation	51,283	47,272	98,292
Taxation	(11,646)	(11,965)	(25,858)
Profit for the period	39,637	35,307	72,434

The accounting policies of the reportable segments are the same as the Group's accounting policies. Segment profit before acquisition costs (comprising acquisition transaction costs and adjustments to contingent purchase consideration) and amortisation of acquired intangible assets is disclosed separately above as this is the measure reported to the Chief Executive Officer for the purpose of allocation of resources and assessment of segment performance. The amortisation of acquired intangibles and acquisition costs (comprising acquisition transaction costs and adjustments to contingent purchase consideration, which includes any arising from foreign exchange revaluation) are analysed as follows:

		Unaudited 26 weeks to 1 October 2011 £000			Unaudited 26 weeks to 2 October 2010 £000			Audited 52 weeks to 2 April 2011 £000
	Amortisation of acquired intangibles	Acquisition costs*	Total	Amortisation of acquired intangibles	Acquisition  costs*	Total	Amortisation of acquired intangibles	Acquisition  costs*	Total
Health and Analysis	4,901	1,028	5,929	1,708	-	1,708	4,481	1,457	5,938
Infrastructure Sensors	-	-	-	-	-	-	-	42	42
Industrial Safety	244	45	289	279	-	279	279	-	279
Total Group	5,145	1,073	6,218	1,987	-	1,987	4,760	1,499	6,259

* Of the £1,073,000 (26 weeks to 2 October 2010: £nil; 52 weeks to 2 April 2011: £1,499,000) acquisition costs, £111,000 (26 weeks to 2 October 2010: £nil; 52 weeks to 2 April 2011: £1,268,000) related to transaction costs, the remainder to changes in contingent purchase consideration and related foreign exchange. The total assets have not been disclosed as there have been no material changes to those disclosed in the 2011 Annual Report.

Geographical information The Group's revenue from external customers (by location of customer) is as follows:
		Revenue by destination
	Unaudited 26 weeks to 1 October 2011 £000		Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
United States of America	78,598		74,400	150,280
Mainland Europe	75,264		65,404	138,313
United Kingdom	60,638		51,220	106,131
Asia Pacific and Australasia	41,611		35,061	76,207
Africa, Near and Middle East	13,024		14,037	28,756
Other countries	10,862		8,958	18,741
Group revenue	279,997		249,080	518,428

3   Finance income
	Unaudited 26 weeks to 1 October 2011 £000	Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Interest receivable	132	184	317
Expected return on pension assets	4,772	4,539	9,103
	4,904	4,723	9,420
Fair value movement on derivative financial instruments	15	35	-
	4,919	4,758	9,420

4   Finance expense
	Unaudited 26 weeks to 1 October 2011 £000	Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Interest payable on bank loans and overdrafts	543	313	690
Interest charge on pension scheme liabilities	4,845	4,760	9,525
Other interest payable	37	18	135
	5,425	5,091	10,350
Fair value movement on derivative financial instruments	-	-	121
Unwinding of discount on provisions	57	53	47
	5,482	5,144	10,518

5   Taxation

The total Group tax charge for the 26 weeks to 1 October 2011 of £11,646,000 (26 weeks to 2 October 2010: £11,965,000; 52 weeks to 2 April 2011: £25,858,000) comprises a current tax charge of £11,457,000 (26 weeks to 2 October 2010: £12,245,000; 52 weeks to 2 April 2011: £25,110,000) and a deferred tax charge of £189,000 (26 weeks to 2 October 2010: credit of £280,000; 52 weeks to 2 April 2011: charge of £748,000). The tax charge is based on the estimated effective tax rate for the year. The tax charge includes £7,903,000 (26 weeks to 2 October 2010: £7,202,000; 52 weeks to 2 April 2011: £14,154,000) in respect of overseas tax. Deferred tax assets have been recognised at the rate at which they are expected to reverse. In the UK, this is at the standard rate of corporation tax, which from 1 April 2012 will reduce from 26% to 25%. This reduction in rate has resulted in a debit to deferred tax of £392,000, of which £446,000 was taken to Other Comprehensive Income and £54,000 credited to the Income Statement.

6   Earnings per ordinary share

Basic earnings per ordinary share are calculated using the weighted average of 376,659,210 (2 October 2010: 376,493,113; 2 April 2011: 376,608,974) shares in issue during the period (net of shares purchased by the Company and held as treasury shares). Diluted earnings per ordinary share are calculated using 377,319,197 (2 October 2010: 377,361,172; 2 April 2011: 377,365,635) shares which includes dilutive potential ordinary shares of 659,987 (2 October 2010: 868,059; 2 April 2011: 756,661). Dilutive potential ordinary shares are calculated from those exercisable share options where the exercise price is less than the average price of the Company's ordinary shares during the period. Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation of acquired intangible assets and acquisition costs after tax. The Directors consider that adjusted earnings represent a more consistent measure of underlying performance. A reconciliation of earnings and the effect on basic earnings per share figures is presented below:

	Unaudited 26 weeks to 1 October 2011 £000	Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Earnings from continuing operations	39,637	35,307	72,434
Add back amortisation of acquired intangibles (after tax)	3,783	1,391	3,315
Acquisition transaction costs (after tax)	111	-	1,268
Adjustments to contingent consideration (after tax)	712	-	167
Adjusted earnings	44,243	36,698	77,184

	Per ordinary share
	Unaudited 26 weeks to 1 October 2011 pence	Unaudited 26 weeks to 2 October 2010 pence	Audited 52 weeks to 2 April 2011 pence
Earnings from continuing operations	10.52	9.38	19.23
Add back amortisation of acquired intangibles (after tax)	1.01	0.37	0.88
Acquisition transaction costs (after tax)	0.03	-	0.34
Adjustments to contingent consideration (after tax)	0.19	-	0.04
Adjusted earnings	11.75	9.75	20.49

7   Dividends
	Per ordinary share
	Unaudited 26 weeks to 1 October 2011 pence	Unaudited 26 weeks to 2 October 2010 pence	Audited 52 weeks to 2 April 2011 pence
Amounts recognised as distributions to shareholders in the period
Final dividend for the year to 2 April 2011 (3 April 2010)	5.56	5.19	5.19
Interim dividend for the year to 2 April 2011	-	-	3.54
	5.56	5.19	8.73
Dividends in respect of the period
Interim dividend for the year to 31 March 2012 (2 April 2011)	3.79	3.54	3.54
Final dividend for the year to 2 April 2011	-	-	5.56
	3.79	3.54	9.10

	Unaudited 26 weeks to 1 October 2011 £000	Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Amounts recognised as distributions to shareholders in the period
Final dividend for the year to 2 April 2011 (3 April 2010)	20,935	19,550	19,550
Interim dividend for the year to 2 April 2011	-	-	13,341
	20,935	19,550	32,891
Dividends in respect of the period
Interim dividend for the year to 31 March 2012 (2 April 2011)	14,298	13,341	13,341
Final dividend for the year to 2 April 2011	-	-	20,935
	14,298	13,341	34,276

8   Notes to the Consolidated Cash Flow Statement
	Unaudited 26 weeks to 1 October 2011 £000	Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Reconciliation of profit from operations to net cash inflow from operating activities
Profit from continuing operations before finance income and expense and share of results of associates	51,940	47,658	99,449
Depreciation of property, plant and equipment	6,077	5,665	11,523
Amortisation of computer software	588	616	1,217
Amortisation of capitalised development costs and other intangibles	1,879	2,142	4,230
Retirement/disposals of capitalised development costs	-	30	83
Amortisation of acquired intangible assets	5,145	1,987	4,760
Share-based payment expense in excess of amounts paid	1,250	1,162	2,015
Additional payments to pension scheme	(3,160)	(3,191)	(6,399)
Profit on sale of property, plant and equipment and computer software	(64)	(114)	(55)
Operating cash flows before movement in working capital	63,655	55,955	116,823
Increase in inventories	(7,504)	(4,934)	(5,369)
Decrease /(increase) in receivables	3,140	(181)	(7,944)
(Decrease) /increase in payables	(9,553)	2,852	9,670
Cash generated from operations	49,738	53,692	113,180
Taxation paid	(13,167)	(4,232)	(18,116)
Net cash inflow from operating activities	36,571	49,460	95,064
Reconciliation of net cash flow to movement in net (debt)/cash
(Decrease)/increase in cash and cash equivalents	(696)	10,114	11,872
Cash (inflow)/outflow from (drawdowns)/repayment of borrowings	(15,670)	8,348	(58,004)
Bank loan acquired	(1,144)	-	-
Exchange adjustments	(1,438)	95	(28)
	(18,948)	18,557	(46,160)
Net (debt)/cash brought forward	(37,078)	9,082	9,082
Net (debt)/cash carried forward	(56,026)	27,639	(37,078)
Analysis of net (debt)/cash
Cash and bank balances	41,674	41,210	42,610
Bank overdraft	-	(517)	-
Cash and cash equivalents	41,674	40,693	42,610
Bank loans falling due within one year	(2,051)	-	-
Bank loans falling due after more than one year	(95,649)	(13,054)	(79,688)
	(56,026)	27,639	(37,078)

9   Non-GAAP measures Return on Capital Employed
	Unaudited 26 weeks to 1 October 2011 £000	Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Operating profit from continuing operations before amortisation of acquired intangible assets and acquisition costs, but after share of results of associates	58,064	49,645	105,649
Computer software costs within intangible assets	2,948	2,907	2,734
Capitalised development costs within intangible assets	9,823	8,997	9,653
Other intangibles within intangible assets	216	177	252
Property, plant and equipment	72,508	65,923	69,891
Inventories	63,310	51,325	54,540
Trade and other receivables	109,029	96,901	110,456
Trade and other payables	(86,304)	(71,095)	(85,511)
Provisions	(2,691)	(2,138)	(2,887)
Net tax liabilities	(12,179)	(14,917)	(14,760)
Non-current trade and other payables	(14,971)	(3,858)	(22,848)
Non-current provisions	(2,108)	(1,897)	(1,593)
Add back accrued contingent purchase consideration	29,142	5,047	27,037
Capital employed	168,723	137,372	146,964
Return on Capital Employed (annualised)	68.8%	72.3%	71.9%

Return on Total Invested Capital
	Unaudited 26 weeks to 1 October 2011 £000	Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Post-tax profit before amortisation of acquired intangible assets and acquisition costs	44,243	36,698	77,184
Total shareholders' funds	367,555	324,277	355,385
Add back retirement benefit obligations	44,590	48,497	36,237
Less associated deferred tax assets	(11,148)	(13,095)	(9,422)
Cumulative amortisation of acquired intangible assets	31,663	23,723	26,642
Goodwill on disposals	5,441	5,441	5,441
Goodwill amortised prior to 3 April 2004	13,177	13,177	13,177
Goodwill taken to reserves prior to 3 April 1998	70,931	70,931	70,931
Total invested capital	522,209	472,951	498,391
Return on Total Invested Capital (annualised)	16.9%	15.5%	15.5%

Organic growth Organic growth measures the change in revenue and profit from continuing operations. The effect of acquisitions and disposals during the current and prior financial periods has been equalised by adjusting for their contributions based on their revenue and profit at the dates of acquisition and disposal.

10   Acquisitions The Group made two acquisitions during the period. Below are summaries of the assets and liabilities acquired and the purchase consideration of: a)     the total of both acquisitions and adjustments to prior year acquisitions; b)     the two acquisitions, namely Kirk Key Interlock Company, LLC and Avo Photonics, Inc.

(A)   Total of both acquisitions and adjustments to prior year acquisitions
	Book value £000	Provisional fair value adjustments £000	Total £000
Non-current assets
Intangible assets	9	9,979	9,988
Property, plant and equipment	518	405	923
Current assets
Inventories	738	2	740
Trade and other receivables	1,564	(89)	1,475
Cash and cash equivalents	49	-	49
Deferred tax	-	2,054	2,054
Total assets	2,878	12,351	15,229
Current liabilities
Trade and other payables	(763)	(190)	(953)
Bank loans	(1,144)	-	(1,144)
Provisions	-	(245)	(245)
Corporation tax	(41)	(23)	(64)
Non-current liabilities
Deferred tax	-	(3,679)	(3,679)
Total liabilities	(1,948)	(4,137)	(6,085)
Net assets of businesses acquired	930	8,214	9,144
Cash consideration			13,383
Contingent purchase consideration (current year acquisitions)			6,464
Contingent purchase consideration (revisions to prior year estimates)			(96)
Total consideration			19,751
Goodwill arising on current year acquisitions			10,648
Goodwill arising on prior year acquisitions			(41)
Goodwill arising on acquisitions			10,607

Due to their contractual dates, the fair value of receivables acquired (shown above) approximates to the gross contractual amounts receivable. The amount of gross contractual receivables not expected to be recovered is immaterial. There are no material contingent liabilities recognised in accordance with paragraph 23 of IFRS 3 (Revised). £3,108,000 of the goodwill arising on acquisitions in the year is expected to be deductible for tax purposes. Together, both acquisitions contributed £3,655,000 of revenue and £790,000 of profit after tax for the 26 weeks ended 1 October 2011. If these acquisitions had been held since the start of the financial year, it is estimated the Group's reported revenue and profit after tax would have been £1,755,000 and £222,000 higher respectively. Adjustments were made to the book values of the net assets of the companies acquired to reflect their provisional fair values to the Group. Acquired inventories were valued at the lower of cost and net realisable value adopting Group bases and any liabilities for warranties relating to past trading were recognised. Other previously unrecognised assets and liabilities at acquisition were included and accounting policies were aligned with those of the Group where appropriate. Adjustments to prior year acquisitions resulted in reductions to net assets and contingent consideration payable of £55,000 and £96,000 respectively leading to a reduction in goodwill of £41,000.

Analysis of cash outflow in the Consolidated Cash Flow Statement
	Unaudited 26 weeks to 1 October 2011 £000	Unaudited 26 weeks to 2 October 2010 £000	Audited 52 weeks to 2 April 2011 £000
Cash consideration in respect of current period acquisitions	13,383	236	82,063
Cash acquired on acquisitions	(49)	-	(2,672)
Contingent consideration paid in relation to prior year acquisitions*	5,395	5	2,702
Net cash outflow relating to acquisitions (per cash flow statement)	18,729	241	82,093
Bank loans acquired	1,144	-	-
Net cash outflow, including repayment of acquired bank loans	19,873	241	82,093

* Of the £5,395,000 (26 weeks to 2 October 2010: £5,000; 52 weeks to 2 April 2011: £2,702,000) contingent purchase consideration payment £5,395,000 (26 weeks to 2 October 2010: £5,000; 52 weeks to 2 April 2011: £1,122,000) has been provided in the prior year's financial statements.

(Bi)   Kirk Key Interlock Company, LLC
	Book value £000	Provisional fair value adjustments £000	Total £000
Non-current assets
Intangible assets	9	5,555	5,564
Property, plant and equipment	290	410	700
Current assets
Inventories	598	(77)	521
Trade and other receivables	738	1	739
Cash and cash equivalents	47	-	47
Deferred tax	-	2,054	2,054
Total assets	1,682	7,943	9,625
Current liabilities
Trade and other payables	(443)	(103)	(546)
Bank loans	(1,144)	-	(1,144)
Provisions	-	(42)	(42)
Non-current liabilities
Deferred tax	-	(2,111)	(2,111)
Total liabilities	(1,587)	(2,256)	(3,843)
Net assets of businesses acquired	95	5,687	5,782
Cash consideration			7,679
Contingent purchase consideration			-
Total consideration			7,679
Goodwill arising on acquisition			1,897

On 9 May 2011, the Group acquired 100% of the issued share capital of Kirk Key Interlock Company, LLC [Kirk]. Kirk is based in Ohio, USA and manufactures interlocking systems to protect personnel and equipment in industrial applications. Kirk forms part of the Industrial Safety sector and was acquired to give Halma greater market strength in the USA. The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of £4,571,000 and brand intangibles of £984,000 with residual goodwill arising of £1,897,000. The goodwill represents the value of the acquired workforce, cross-selling opportunities and the ability to exploit the Group's existing distribution arrangements, particularly in the Americas. The initial consideration was US$12,583,000 (US$14,458,000 including repayment of US$1,875,000 bank loans). There are no contingent consideration payment arrangements. The Kirk acquisition contributed £2,558,000 of revenue and £534,000 of profit after tax for the 26 weeks ended 1 October 2011.

(Bii)   Avo Photonics, Inc.
	Book value £000	Provisional fair value adjustments £000	Total £000
Non-current assets
Intangible assets	-	4,424	4,424
Property, plant and equipment	228	(5)	223
Current assets
Inventories	140	50	190
Trade and other receivables	826	(68)	758
Cash and cash equivalents	2	-	2
Total assets	1,196	4,401	5,597
Current liabilities
Trade and other payables	(320)	(25)	(345)
Provisions	-	(203)	(203)
Corporation tax	(41)	(23)	(64)
Non-current liabilities
Deferred tax	-	(1,568)	(1,568)
Total liabilities	(361)	(1,819)	(2,180)
Net assets of businesses acquired	835	2,582	3,417
Cash consideration			5,704
Contingent purchase consideration			6,464
Total consideration			12,168
Goodwill arising on acquisition			8,751

On 8 July 2011, the Group acquired 100% of the issued share capital of Avo Photonics, Inc. (Avo). Avo, based in Pennsylvania, USA, designs and manufactures advanced, miniaturised photonic components and subsystems for OEM customers serving a wide range of end-markets.  Avo forms part of the Health and Analysis sector and was acquired to give Halma's Photonics businesses access to additional technologies and manufacturing processes. The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of £4,424,000 with residual goodwill arising of £8,751,000. The goodwill represents the engineering expertise of the acquired workforce, the opportunity to leverage this expertise across all Halma's Photonics businesses and the ability to exploit the Group's existing customer base. The initial consideration was US$9,126,000 followed by contingent consideration payable on or around June 2012 of between US$nil and US$11,000,000 dependent on the profits of the acquired business for the year up to March 2012. The Directors estimate that contingent consideration of US$10,341,000 will be paid. The Avo acquisition contributed £1,097,000 of revenue and £256,000 of profit after tax for the 26 weeks ended 1 October 2011.

11   Other matters Seasonality The Group's financial results have not historically been subject to significant seasonal trends. Equity and borrowings Issues and repurchases of Halma p.l.c.'s ordinary shares and drawdowns and repayments of borrowings are shown in the Consolidated Cash Flow Statement. Related party transactions There were no significant changes in the nature and size of related party transactions for the period to those reported in the 2011 Annual Report. Events after the Balance Sheet date On 20 October 2011, the Group signed a new 5-year syndicated revolving credit facility for £260m.  This replaced the previous £165m facility which was due to expire in February 2013.

12   Principal risks and uncertainties A number of potential risks and uncertainties exist which could have a material impact on the Group's performance over the second half of the financial year and could cause actual results to differ materially from expected and historical results. The Group has in place processes for identifying, evaluating and managing key risks. These risks, together with a description of the approach to mitigating them, are set out in the 2011 Annual Report on pages 42 and 43 which is available on the Group's website at www.halma.com. The principal risks and uncertainties relate to:

●	Operational risk
●	Organic growth, supplier risk and competition
●	Research and Development
●	Intangible resources
●	Laws and regulations
●	Acquisitions
●	Information Technology/Business Interruption
●	Financial irregularities and international expansion
●	Cash
●	Treasury risks
●	Economic conditions
●	Pension deficit.

The Directors do not consider that the principal risks and uncertainties have changed since the publication of the 2011 Annual Report.

13   Responsibility statement We confirm that to the best of our knowledge:
(a)	these Condensed Financial Statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union;
(b)	this Half Year Report includes a fair review of the information required by Disclosure and Transparency Rule (DTR) 4.2.7R (indication of important events during the period and description of principal risks and uncertainties for the remainder of the financial year); and
(c)	this Half Year Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board Andrew Williams Chief Executive 22 November 2011

Kevin Thompson Finance Director

 

END

 

 

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