Halma plc Half year results 2016/17 Summary of analysts - PDF document

Page 1 Summary of analysts’ presentation 22 November 2016 Halma plc Half year results 2016/17 Summary of analysts’ presentation by: Andrew Williams, Chief Executive Kevin Thompson, Finance Director 22 November 2016

Page 2 Summary of analysts’ presentation 22 November 2016 Record first half results and continued dividend growth revenue). The total R&D spend represented Andrew Williams, Halma’s Chief 5.2% of Group revenue. Executive, summarised the half year results. We continued to grow our revenue from outside the UK, USA and Mainland Europe. A lot has changed in the world since we Revenue from these Rest of the World announced our full year results in June territories increased by 14% to £112m 2016. The results we have announced (above our 10% growth target) and included today are another demonstration of the real continued good growth in China. strengths of Halma’s strategy and business model delivering in what were, and indeed We had a strong operational and cash remain, quite varied market conditions. performance with cash flow at 84% of adjusted 1 profit. We are increasing our We continued to benefit from our market interim dividend by 7%. Our net debt has and geographic diversity. The value of our reduced slightly to £237m from the year-end market diversity is demonstrated with three level and we have increased our revolving of our sectors continuing to grow and more credit facility to support growth in the future. than compensating for a challenging first half for Process Safety. We also have good Overall, this is a good first half performance geographic diversity and balance with and we have a good platform to continue to growth in all of our major regions. Our agile make progress in the second half. and flexible operating model ensured that our businesses were capable of adjusting Kevin Thompson, Finance Director, quickly as market opportunities changed. reviewed the financial performance of the half year. We have had a good first half of the year delivering another record set of results. Halma has delivered another good set of half year results. The strong progress over the past five years is shown in the following table with record results each year. We had good growth and high returns with revenue up 16% to £442m and adjusted 1 profit up 12% to £84m. Return on sales 2 of 18.9% was below last year although within our 18% - 22% target range. Revenue grew by 16% to £442m. We continue to increase strategic investment. R&D spend was up by 16% to £23m with larger increases in Infrastructure Safety (now 6% of sector revenue) and Environmental & Analysis (6.7% of sector

Page 3 Summary of analysts’ presentation 22 November 2016 Organic 3 revenue growth at constant Asia Pacific showed the strongest growth at currency (excluding the impact of 7% with good progress in China, Japan and acquisitions and currency translation) was Singapore in particular. The USA, UK and 2%. This half year comprised 26 weeks Mainland Europe delivered low single digit compared with 27 weeks in the first half of revenue growth with a mixed picture in each last year. On a weekly average basis the region and tough conditions in the Oil & Gas growth this half year was 6% when adjusted market continuing to hold back progress in for the 27 weeks in the prior period. the Process Safety sector. In Europe there was good growth in Germany, Italy and There was an 8% positive impact in the half Spain. year from currency translation and 6% contribution to revenue from acquisitions Revenue in Other territories was down. made in the second half of 2015/16. Near and Middle East revenue was lower in all sectors, Infrastructure Safety in There was revenue growth in all the major particular. There was a better performance regions. in South America following the decline we experienced last year. The USA remains our largest sales Adjusted 1 profit grew by 12% to £84m. destination, growing 29% this half year and There was organic 3 constant currency representing 36% of total revenue (2015/16: growth of 2% and, as noted above for 33%); this was boosted by acquisitions and revenue, the weekly average growth rate currency translation. Mainland Europe and was 6% when adjusting for the 26 weeks Asia Pacific also showed strong increases this half year period versus 27 weeks in the with China up 17%. prior period. There was underlying growth in all the major There was 8% benefit to profit from regions at organic constant currency, currency translation. Acquisitions made in excluding acquisitions and currency the second half of 2015/16 contributed 2% translation impacts. to profit growth this half year.

Page 4 Summary of analysts’ presentation 22 November 2016 Return on Sales 2 for the Group was 18.9% Sterling has weakened further since compared with 19.7% in the first half last September. We are currently expecting year, within our target range of 18-22%. around 10% currency translation benefit to This reduction was due to the performance revenue and profit for the full year if current exchange rates continue and assuming our of the acquisitions made in the second half of 2015/16 and excluding these the Return expected revenue and profit mix. We are on Sales 2 for the half year was in line with encouraging our UK exporting businesses last year at 19.7%. to take the commercial opportunities of weaker Sterling. Cash conversion at 84% of adjusted 1 profit was just below our KPI target of 85%. We ended the year with net debt of £237m (Year end 2015/16: £247m) with the weakening of Sterling increasing currency denominated debt by £12m. In the half year we financed higher taxation and pension payments, a record dividend and increased investment in capital expenditure, up 27%, and in Research and Development, up 16%. In the half year acquisitions added £25m to revenue, £3.2m to operating profit and £1.5m to adjusted 1 profit after financing costs. Their performance in the period was below expectations due to increased investment and specific customer project delays. We are expecting improved performance from these businesses in the second half. In 2017/18, revenue and profit are expected to be back above the acquisition run rates and with exciting growth potential in the years beyond. Working capital continues to be managed closely. The effective tax rate for the half year was 22%, which is also our forecast for the 2016/17 full year (Full year 2015/16: 21.9%) Although the assets in our UK defined benefit pension plans grew this half year, the reduction in the discount rate following the EU referendum increased liabilities by more. The pension deficit increased from £52m at last year end to £94m, a significant increase, but not material to the Group. Following the most recent triennial As expected we saw a very positive valuations we increased pension currency translation impact due to 11% contributions to ~£10m/year, with steady stronger $ and 12% stronger Euro relative increases in future years, and will review the to Sterling. The big changes came as level of contributions again at the next Sterling weakened after the EU referendum valuation. results in June, the end of our first quarter. This resulted in a net 8% benefit to revenue and profit in the half year.