Halma plc Half year results 2018/19 Summary of a nalysts’ presentation by: Andrew Williams, Group Chief Executive Marc Ronchetti, Chief Financial Officer 20 November 2018 Halma plc, Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE, UK. Registered in England number 40932. Tel: +44 (0)1494 721111 Fax: +44(0)1494 728032 Email: investor.relations@halma.com Web: www.halma.com
Page 2 Summary of analysts’ presentation 20 November 2018 Record first half results and continued dividend growth Andrew Williams, Halma’s Group Chief tough comparative of 21% growth in the first Executive, summarised the half year half of last year. results. In the year to date, we have completed five Halma made excellent progress in the first acquisitions, including three in the first half half, delivering record revenue, profits and year and two since the half year end, dividends, while continuing to invest in our spending a total of £32m. This includes the strategic growth enablers for the longer purchase of Navtech, a provider of term. There was strong organic growth in all innovative radar surveillance and safety four sectors together with an excellent solutions, for an initial consideration of performance from Medical following a weak £21m, announced just last week. H1 last year. We had strong operating and cash As we look forward, there remains a lot of performance. Cash flow was 86% of macro-economic uncertainty with Brexit, adjusted 1 profit. We are recommending an and the US-China trade relationship. interim dividend increase of 7%, maintaining However, we are on track to deliver more our long-term progressive dividend policy. typical rates of constant currency organic Our balance sheet remains strong with net growth in the second half, in line with the debt of £195m, down from £220m at the board’s expectations , resulting in a strong year end. We have plenty of capacity for full year performance. further investment in line with our organic and acquisitive growth strategy. Marc Ronchetti, Chief Financial Officer, reviewed the half year’s financial performance. Halma has delivered another strong set of results, with widespread growth and strong performances across all regions and all four sectors, high levels of cash generation, and further investment for the longer term. It was another record first half, with very impressive growth and high returns underpinned by exceptionally good organic growth. Revenue was up 16% to £585m and adjusted 1 profit up 19% to £113m. Return on sales 2 was strong across all sectors and increased to 19.3%. In terms of strategic investment, there was continued strong investment in R&D, with spend up by 14% to £31m, representing Halma delivered a record Group revenue 5.3% of revenue. Our long-term investment and adjusted 1 profit performance, continuing in international expansion was reflected in our strong trend of year-on-year growth. Rest of World revenue rising by 10%, in line Revenue was £585m, up 16%, and that with our KPI, a good performance given the generated £113m of profit, up 19%, the first Halma plc, Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE, UK. Registered in England number 40932. Tel: +44 (0)1494 721111 Fax: +44(0)1494 728032 Email: investor.relations@halma.com Web: www.halma.com
Page 3 Summary of analysts’ presentation 20 November 2018 time our first half profit has exceeded £100m. There was good revenue growth in all the regions, both on a reported and an organic constant currency basis. There was very strong organic constant currency revenue growth of 14%, well The USA remains our largest sales ahead of our 5% KPI. This benefited from destination at 37% of revenue. It was also strong performances across all four sectors, our fastest growing region, with 23% driven by the continuation of the underlying organic constant currency growth, reflecting growth rates that we saw in the prior year, in good performances across all four sectors, addition to the phasing of the delivery of and the large orders mentioned previously. some large orders received in the second half of 17/18 and shipped in H1 this year. The UK also grew well at 13% organic constant currency, particularly in Order intake has continued at a good rate Environmental & Analysis and Infrastructure post September, ahead of both revenue and Safety. prior year, with our order book returning to more normal levels. Mainland Europe growth rate was similar to last year, with Medical and Environmental & Acquisitions made in last financial year, Analysis growing well, and slower growth in including Argus, Mini-Cam and Cardios, the two safety sectors. contributed 3.9%, while the Accudynamics disposal that we announced in our trading As regards Brexit, we remain confident that update, was a small negative of 0.6%. we will be resilient in the medium-term, given our business model and the agility it There was a 1.7% negative effect from gives us. While there is clearly some risk of currency translation, principally from the disruption in the immediate short term, we strengthening of Sterling against the US have lots of work under way to ensure that dollar. If exchange rates are in line with our these short-term risks are mitigated as current forecast rates, we expect the much as possible, especially given that currency effect to reverse in the second March is typically a relatively strong trading half, giving a broadly neutral effect for the month. year as a whole. In Asia Pacific, it was pleasing that China grew 8% on an organic constant currency basis. The region ’ s lower overall growth rate reflected a strong underlying performance, as last year included larger contract wins in China and South Korea. Other regions grew by 14% on an organic constant currency basis, with very good Halma plc, Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE, UK. Registered in England number 40932. Tel: +44 (0)1494 721111 Fax: +44(0)1494 728032 Email: investor.relations@halma.com Web: www.halma.com
Page 4 Summary of analysts’ presentation 20 November 2018 progress in the Middle East in Infrastructure We saw a £11m working capital outflow, an Safety improvement over last year. With strong growth in the business, this reflects the continuing focus of the Halma finance community on cash management in addition to our revenue and profit momentum. Capital expenditure at £14.9m was 47% higher than the same period last year, driven by facility and site expansion, investment in manufacturing capabilities, and investment in IT and operating system upgrades. We expect investment to continue in H2, and our full year forecast is for capex of £32m. Organic constant currency profit growth was very strong at 16.1%. This was driven by The effective tax rate was 20.5% compared the flow through of strong top line growth, in with 19.7% last full year and marginally up addition to the improvement in Medical on the guidance at the year end of 20%, margin that we saw in the second half of driven by the mix impact of strong growth in last year. the USA. With the organic growth rate in the second The deficit on our defined benefit pension half expected to be more in line with plans is £20.7m on an IAS19 basis, down historical trends, we expect the balance of from £53.9m at year end, with about two- profit in the year to be less skewed to the thirds of this change resulting from an second half than last year. increase in the discount rates and the remainder reflecting the benefit of Acquisitions contributed 5.1% to profit incorporating the outcomes of the Halma growth, reflecting healthy margins in the scheme triennial valuation that we businesses acquired last year. The completed in August, and contributions Accudynamics disposal also made a small during the period. contribution, while the currency effect was similar to that on revenue. We spent £5m on acquisitions in the half year, including earn-out payments from prior These factors all contributed to reported year acquisitions, and realised £3m from the headline profit growth of 19.4%. Accudynamics disposal. Since half year end we’ve spent a further £29m on Limotec and Navtech. The FY 17/18 final dividend increased 7%, with £34m paid out, continuing our policy of delivering sustainable and affordable dividend growth. With currency and other movements, net debt at Half year end was £195m. In terms of cash flow, cash conversion was strong, at 86%, against our KPI target of 85%. Halma plc, Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE, UK. Registered in England number 40932. Tel: +44 (0)1494 721111 Fax: +44(0)1494 728032 Email: investor.relations@halma.com Web: www.halma.com
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