Halma PLC
16 November 2023
| Halma plcHALF YEAR RESULTS 2023/24Record first half results and continued dividend growth Halma, the global group of life-saving technology companies focused on growing a safer, cleaner, healthier future for everyone, every day, today announces results for the 6 months to 30 September 2023. |
Highlights “Halma made good progress in the first half. The Group performance reflects the strength we derive from our Sustainable Growth Model and the long-term growth drivers that underpin our diverse portfolio. These enabled us to deliver record revenue, profit and dividend, while further enhancing our growth opportunities through increased strategic investment, supported by a strong cash flow performance and continued balance sheet strength. We remain on track to make further progress in the second half of the year.” Marc Ronchetti, Group Chief Executive. |
| Change | 2023/24 | 2022/23 | |||
| Revenue | +9% | £950.5m | £875.5m | ||
| Adjusted1 Earnings before Interest and Taxation (EBIT) | +7% | £189.9m | £177.9m | ||
| Adjusted1 Profit before Taxation | +3% | £177.5m | £171.7m | ||
| Adjusted Earnings per Share2 | +4% | 36.90p | 35.65p | ||
| Statutory Earnings before Interest and Taxation | +7% | £162.6m | £151.7m | ||
| Statutory Profit before Taxation | +3% | £150.2m | £145.5m | ||
| Statutory Earnings per Share | +3% | 31.39p | 30.39p | ||
| Interim Dividend per Share3 | +7% | 8.41p | 7.86p | ||
| Adjusted1 EBIT margin | (30)bps | 20.0% | 20.3% | ||
| Return on Sales4 | (90)bps | 18.7% | 19.6% | ||
| Return on Total Invested Capital5 | (60)bps | 13.2% | 13.8% | ||
| · Record revenue and profit:o Revenue +9%; organic constant currency6 (OCCY) revenue +5%;o Adjusted1 Profit before Taxation +3%; OCCY6 in line with first half of last year;o Statutory Profit before Taxation +3%. · Healthy contribution from recent acquisitions7, adding over 5% to revenue and profit growth. · Adjusted1 EBIT margin resilient at 20.0% (2022/23: 20.3%). · Return on Sales4 of 18.7% (2022/23: 19.6%): principally reflecting higher net finance expense; compares to strong performance, above pre-COVID level, in 2022/23 first half. · Continued strategic investment to support future growth:o R&D investment up 5% to £52m, representing 5.5% of revenue;o Five acquisitions completed in financial year to date (three in first half) for £126m maximum total consideration; healthy pipeline of potential acquisitions. · Strong cash performance; continued balance sheet strength: cash conversion9 of 96% (2022/23: 63%), above 90% target; net debt/EBITDA 1.4 times, within operating range of up to 2 times. · Revenue growth in all sectors:o Safety: continued strong progress including good OCCY6 growth and healthy acquisition contribution;o Environmental & Analysis: good reported and OCCY6 growth; includes very strong growth in photonics and water, partly offset by weaker trends in spectroscopy;o Healthcare: modest reported growth; flat OCCY6 revenue reflects strong growth in sensors & analytics and ophthalmology therapeutics, offset by continuing OEM customer destocking, especially in Life Sciences, and budgetary caution at healthcare providers. · Adjusted1 EBIT margin increase in Safety and Healthcare sectors; lower Environmental & Analysis margin mainly reflects reduction in higher margin spectroscopy revenue. · Revenue growth in all regions except Asia Pacific: strong growth in largest regions of USA and Mainland Europe; Asia Pacific mainly reflects weaker China trends. · Interim dividend +7%: reflects the Board’s continued confidence in the Group’s growth prospects in a continued uncertain environment. Marc Ronchetti, Group Chief Executive of Halma, commented: “Halma made good progress in the first half. The Group’s performance reflects the strength we derive from our Sustainable Growth Model and the long-term growth drivers that underpin our diverse portfolio. These enabled us to deliver record revenue, profit and dividend, while further enhancing our growth opportunities through increased strategic investment, supported by a strong cash flow performance and continued balance sheet strength. The current operating environment presents both challenges and opportunities. Our continued success in current varied market conditions is enabled by our Sustainable Growth Model. We benefit from our focus on markets aligned to our purpose, which present substantial opportunities for growth underpinned by resilient, long-term growth drivers; from the portfolio and geographic diversity of our businesses; from our talented people and our collaborative and entrepreneurial culture; from the agility of our business model; and from the strength of our sustainable financial model. We remain on track to make further progress in the second half of the year and to deliver good organic constant currency6 revenue growth in the full year to March 2024. Group order intake remains ahead of the comparable period last year and close to revenue in the year to date. Our current expectation is for full year 2024 Adjusted1 Profit before Taxation to be in line with analyst consensus expectations10.” | |||||
| Notes: | |||||
| 1 | Adjusted to remove the amortisation of acquired intangible assets; acquisition items; significant restructuring costs; and profit or (loss) on disposal of operations, totalling £27.3m (2022/23: £26.2m). See note 2 to the Condensed Interim Financial Statements for details. | ||||
| 2 | Adjusted to remove the amortisation of acquired intangible assets, acquisition items, significant restructuring costs, profit or (loss) on disposal of operations and the associated taxation thereon. See note 2 to the Condensed Interim Financial Statements 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 | Return on Total Invested Capital (ROTIC) is defined as post-tax Adjusted1 Profit as a percentage of average Total Invested Capital. See note 9 to the Condensed Interim Financial Statements for details. | ||||
| 6 | Organic constant currency (OCCY) measures exclude the effect of movements in foreign exchange rates on the translation of revenue and Adjusted1 Profit into Sterling, as well as acquisitions in the year following completion and disposals. See note 9 to the Condensed Interim Financial Statements for details. | ||||
| 7 | Net of disposals. The contribution to revenue or profit (as appropriate) from acquisitions made in the 12 months to 30 September 2023, less the effect on these measures from disposals made in the same period. | ||||
| 8 | Adjusted1 Earnings before Interest and Taxation, Adjusted1 Profit before Taxation, Adjusted2 Earnings per Share, organic growth rates, Return on Sales, ROTIC and net debt are alternative performance measures used by management. See notes 2, 6 and 9 to the Condensed Interim Financial Statements for details. | ||||
| 9 | Cash conversion is defined as adjusted operating cash flow as a percentage of adjusted operating profit. See note 9 to the Condensed Interim Financial Statements for details. | ||||
| 10 | Consensus available at www.halma.com, based on an aggregation of publicly available forecasts, collated from eleven research analysts in the period 4 October 2023 to 11 October 2023 is for Adjusted1 Profit before Taxation of £389.0m in the full year to end March 2024, with a range of £377.4m to £396.2m. | ||||
For further information, please contact:
| Halma plc Marc Ronchetti, Group Chief Executive Steve Gunning, Chief Financial Officer Charles King, Head of Investor RelationsClayton Hirst, Director of Corporate Affairs | +44 (0)1494 721 111 +44 (0)7776 685948+44 (0)7384 796013 |
| MHP Group Oliver Hughes/Rachel Farrington/Ollie Hoare | +44 (0)20 3128 8100 |
| A copy of this announcement, together with other information about Halma, may be viewed on its website: 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. | |
| It employs over 8,000 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 has been named one of Britain’s Most Admired Companies for the past five years. | |
| 2. | You can view or download copies of this announcement and our latest Annual Report from the website at www.halma.com, or request free printed copies of our Annual Report by contacting halma@halma.com. |
| 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. |
Review of Operations
Halma made further progress in the first half of the year, achieving record results in an operating environment which, while it presents significant opportunities for future growth, also remains challenging and volatile.
Our continued success in these varied market conditions is enabled by our Sustainable Growth Model and by the diversity of our portfolio, and is underpinned by the long-term growth drivers in our companies’ markets. The key elements of our Sustainable Growth Model are unchanged: a strong purpose which unites our people in tackling some of the largest and most important issues facing the planet today; an operating model which allows our companies to respond rapidly to opportunities and changes in their individual markets; a culture that encourages supportive collaboration and entrepreneurialism; and a sustainable financial model that allows for continued investment, both organically and by acquisition, in growth opportunities and to maintain our geographic and portfolio diversity.
The Sustainable Growth Model also allows us to evolve continuously in response to changing circumstances and to emphasise specific elements which have particular immediate relevance. In the current environment, we have focused on maximising the ability of our companies to address both the very substantial opportunities for growth that their markets offer, and the challenges that are presented by the wider operating environment. We have placed particular emphasis on the value of collaboration and the network amongst our companies, recognising the substantial benefits of sharing experience and capabilities, and on the autonomy of our companies to drive their own growth strategies. We are also ensuring that our companies continue to receive the support they ask for from our central teams to grow sustainably, with examples including help in recruiting and retaining talented people, in accessing new markets internationally, and in expanding their growth opportunities and technological capabilities through bolt-on acquisitions.
Record first half results
In our full year results announcement in June, we set out four priorities:
1. ensuring our continued organic growth by our focus on delivering value-added products and solutions to our customers;
2. retaining our disciplined approach to inorganic growth in markets which are aligned with our purpose and which offer long-term growth and high returns;
3. ensuring we maintain the agility of our business model through our decentralised organisational structure and our entrepreneurial and collaborative culture; and
4. optimising the returns on the substantial investments we are making.
I am pleased to report that we made good progress in these areas in the first half of this year. Our companies’ agility has enabled good organic revenue growth in varied market conditions. We have delivered a healthy contribution from acquisitions, supported by the investments we have made in our M&A capabilities, our strong cash performance and the strength of our balance sheet. Returns, although lower than in the first half of last year mainly as a result of higher interest rates and lower organic constant currency1 profit growth, remain high and well ahead of our cost of capital.
Revenue increased by 8.6%, to £950.5m (2022/23: £875.5m), which included revenue growth in all sectors, and in all regions except Asia Pacific. We delivered good organic constant currency1 growth of 5.4%. This included price increases averaging around 2%, with a stronger contribution in the Safety sector which underpinned that sector’s margin in the period. These price increases were supported by continued Group-wide investment in our products and services to ensure they continue to address our customers’ needs and resulted in a stable gross margin at the Group level. There was a healthy contribution to revenue growth from recent acquisitions (net of disposals)1 of 5.3%. The appreciation of Sterling resulted in a negative effect on revenue growth of 2.1%.
Adjusted1 Earnings before Interest and Tax (Adjusted1 EBIT) increased by 6.7% to £189.9m (2022/23: £177.9m) and the Adjusted1 EBIT margin was resilient at 20.0% (2022/23: 20.3%). This reflected the mix of sector performance as described below.
Adjusted1 Profit before Taxation was up 3.4% to £177.5m (2022/23: £171.7m), with acquisitions contributing 5.2% to growth (net of disposals)1. There was a negative effect from currency of 1.8%. As a result, Adjusted1 Profit before Taxation on an organic constant currency1 basis was unchanged. Return on Sales1 was 18.7% (2022/23: 19.6%), with the movement principally driven by the increase in net finance expense to £12.4m (2022/23: £6.2m) as a result of higher interest rates and higher average levels of indebtedness following recent acquisition spend. This accounted for 60 basis points of the change, with the remainder reflecting the Adjusted1 EBIT margin movement.
Statutory Profit before Taxation increased by 3.2% to £150.2m (2022/23: £145.5m), in line with the change in Adjusted1 profit before taxation.
It is a strength of Halma’s business model that we are able to simultaneously deliver a strong operating performance and maintain a strong balance sheet, while making substantial strategic investments to support our future growth. We further increased organic investment in the first half, for example through a 4.9% increase in R&D expenditure to £52.0m, representing 5.5% of Group revenue (2022/23: £49.6m; 5.7% of Group revenue).
We also further expanded our opportunities for growth in markets highly aligned to our purpose through investment in acquisitions, with three acquisitions in the first half for an aggregate maximum total consideration of £79m on a cash- and debt-free basis. We have made two further acquisitions following the period end, for an aggregate maximum total consideration of approximately £47m, bringing the total in the year to date to approximately £126m. Details of these acquisitions are given later in this review.
Cash conversion (adjusted operating cash flow as a percentage of adjusted operating profit – see note 9) was strong at 96%, a significant improvement compared to the 63% in the first half of last year, and above our cash conversion Key Performance Indicator (KPI) of 90%. We maintained a strong balance sheet and ended the period with net debt of £618.8m, equivalent to 1.4 times annualised Adjusted EBITDA (31 March 2023: net debt of £596.7m; 1.4 times Adjusted EBITDA). The strength of our cash generation and our balance sheet underpin our ongoing investment in future organic growth, provide substantial capacity for acquisitions, and support our progressive dividend policy.
Return on Total Invested Capital1 was 13.2% (2022/23: 13.8%), well above our KPI of 12% and our weighted average cost of capital, which we estimate at approximately 9% (2022/23: 7%). The change from 13.8% in the comparative period mainly reflects the effect of higher interest rates and the lower level of organic constant currency1 profit growth in the period.
The Board has declared an increase of 7% in the interim dividend to 8.41p per share (2022/23: 7.86p per share). The interim dividend will be paid on 2 February 2024 to shareholders on the register on 22 December 2023.
Broad-based organic constant currency1 revenue growth by region
| External revenue by destination | |||||||
| Half year 2023/24 | Half year 2022/23 | ||||||
| £m | % of total | £m | % of total | Change £m | % growth | % organic growth at constant currency1 | |
| United States of America | 402.0 | 42 | 364.2 | 42 | 37.8 | 10.4 | 9.6 |
| Mainland Europe | 203.2 | 22 | 170.5 | 19 | 32.7 | 19.2 | 9.2 |
| United Kingdom | 143.6 | 15 | 137.2 | 16 | 6.4 | 4.7 | 3.1 |
| Asia Pacific | 133.1 | 14 | 142.1 | 16 | (9.0) | (6.3) | (6.6) |
| Other regions | 68.6 | 7 | 61.5 | 7 | 7.1 | 11.5 | 2.7 |
| 950.5 | 100 | 875.5 | 100 | 75.0 | 8.6 | 5.4 | |
Our growth in the period was broadly-based, and revenue grew in all regions except Asia Pacific, both on a reported and organic constant currency1 basis. Reported growth rates in each region were impacted to differing extents by acquisitions (net of disposals), and effects from foreign currency translation.
The USA remains our largest sales destination and contributed 42% of total revenue. Revenue increased by 10.4% or 9.6% on an organic constant currency1 basis. Reported revenue included a contribution of 4.3% from recent acquisitions (net of disposals), including IZI Medical, as well as a negative effect from currency translation, of 3.5%. On an organic constant currency1 basis, the strongest growth was in the Environmental & Analysis sector, led by the Optical Analysis subsector, where a very strong performance in Photonics more than offset a decline in Spectroscopy. The Safety sector delivered a good organic constant currency1 performance, while Healthcare revenue was modestly lower on an organic constant currency1 basis given destocking by OEM customers and budgetary caution at healthcare providers.
Mainland Europe revenue increased by 19.2%, or 9.2% on an organic constant currency1 basis. All sectors grew revenue on both a reported and organic constant currency1 basis. There was an acquisition contribution (net of disposals) of 8.9%, principally from last year’s acquisitions of FirePro and WEETECH in the Safety sector, and a positive effect from currency translation of 1.1%. On an organic constant currency1 basis, there was good growth in Safety, the largest sector, and a very strong performance in the Healthcare sector, driven by Ophthalmology within the Therapeutic Solutions subsector. The Environmental & Analysis sector delivered a mixed performance by subsector, with growth in Water Analysis and Treatment and Environmental Monitoring partially offset by a decline in Optical Analysis as a result of weaker trends in Spectroscopy.
Revenue in the UK grew 4.7%, or 3.1% on an organic constant currency1 basis. There was a small benefit of 1.6% from acquisitions (net of disposals) in the period. Growth on an organic constant currency1 basis was driven by the Environmental & Analysis sector, principally as a result of a strong performance in the Water Analysis and Treatment subsector. This was partly offset by a modest decline on an organic constant currency1 basis in the Safety sector, mainly reflecting the end of a significant road safety contract in the UK.
Asia Pacific’s revenue was 6.3% lower, or 6.6% down on an organic constant currency1 basis. Reported growth included a 5.1% benefit from acquisitions (net of disposals) and a negative effect from currency translation of 4.8%. The region’s organic constant currency1 performance reflected weaker trends in China, as well as in a number of other smaller markets, partly offset by strong growth in Australasia. By sector, there was strong organic constant currency1 growth in Safety, driven by a very strong performance in Australasia, and including good growth in China reflecting recovery from the effects of COVID lockdowns in the prior period. There was a very weak performance in Environmental & Analysis, principally as a result of weakness in the Chinese spectroscopy market and a decline in the Environmental Monitoring subsector in India and China. Healthcare revenues were also lower, reflecting weakness in Life Sciences OEM demand in China.
Revenue in other regions, which represent 7% of Group revenue, grew by 11.5%, and by 2.7% on an organic constant currency1 basis. Reported growth included a 10.3% benefit from acquisitions (net of disposals), mainly FirePro in the Safety sector, and a negative effect from currency translation of 1.5%.
Sector revenue and Adjusted1 Profit
| External revenue by sector | |||||
| Half year 2023/24 | Half year 2022/23 | ||||
| £m | £m | Change £m | % growth | % organic growth at constant currency1 | |
| Safety | 400.7 | 355.4 | 45.3 | 12.7 | 6.5 |
| Environmental & Analysis | 284.1 | 263.8 | 20.3 | 7.7 | 8.8 |
| Healthcare | 266.3 | 256.7 | 9.6 | 3.7 | 0.3 |
| Inter-segmental revenue | (0.6) | (0.4) | (0.2) | ||
| 950.5 | 875.5 | 75.0 | 8.6 | 5.4 | |
| Adjusted1 Profit (EBIT) by sector | |||||
| Half year 2023/24 | Half year 2022/23 | ||||
| £m | £m | Change £m | % growth | % organic growth at constant currency1 | |
| Safety | 89.5 | 75.4 | 14.1 | 18.7 | 6.9 |
| Environmental & Analysis | 59.3 | 65.4 | (6.1) | (9.3) | (9.5) |
| Healthcare | 62.4 | 56.4 | 6.0 | 10.6 | 4.9 |
| Sector profit2 (EBIT) | 211.2 | 197.2 | 14.0 | 7.1 | 0.9 |
| Central administration costs | (21.3) | (19.3) | (2.0) | ||
| Net finance expense | (12.4) | (6.2) | (6.2) | ||
| Adjusted1 Profit before Taxation | 177.5 | 171.7 | 5.8 | 3.4 | – |
Safety sector
Revenue increased by 12.7% to £400.7m (2022/23: £355.4m) and organic constant currency1 revenue increased by 6.5%. There was a positive contribution from acquisitions (net of disposals) of 8.0% and there was a negative effect from currency translation of 1.8%. Growth was broadly spread, with the sector delivering revenue growth across its core markets and regions.
There was strong growth in Industrial and Power Safety, supported by strong execution and good customer demand for interlock and pressure management and safe storage technologies, and last year’s acquisition of WEETECH. Good organic growth in Fire Safety was supported by demand for fire systems and specialist and wireless fire detection products; the subsector’s reported revenue also benefited from the recent acquisitions of FirePro and Thermocable. Performance in Urban Safety was more mixed, with good demand for elevator safety and emergency communications solutions in the USA and United Kingdom, but a weaker performance in people and vehicle flow solutions reflecting order book normalisation and the end of a significant road safety contract in the UK. Together, these resulted in a modest decline in Urban Safety revenue overall.
By region, there was strong growth in Mainland Europe, the sector’s largest region, and in Asia Pacific which included a strong performance in Australia and also reflected recovery from lockdowns in China in the first half of last year. Both regions benefited from recent acquisitions (WEETECH, FirePro, Thermocable and Lazer Safe). Good momentum in the USA reflected growth across the sector, primarily in Fire Safety and elevator safety and emergency communications. UK revenue growth was modest, and declined slightly on an organic constant currency1 basis, with a strong performance in Industrial Safety offset by the end of the road safety contract referred to above. Revenue in other regions, which represent 9% of sector revenues, grew strongly, principally reflecting strong growth in safe storage and transfer solutions.
Adjusted Profit2 was 18.7% higher at £89.5m (2022/23: £75.4m), and included 6.9% organic constant currency1 growth, a benefit of 13.8% from recent acquisitions (net of disposals), and a negative effect from currency translation of 2.0%. The sector EBIT margin1 increased to 22.3% (2022/23: 21.2%), reflecting good progress as expected in recovery from last year’s supply chain challenges. R&D expenditure of £21.8m remained at a good level, which, with an increase in absolute investment of £2.2m, represented 5.4% of revenue (2022/23: 5.5%).
Environmental & Analysis sector
Revenue increased by 7.7% to £284.1m (2022/23: £263.8m), comprising 8.8% organic constant currency1 growth, a 1.7% contribution from acquisitions (net of disposals), and a negative effect of 2.8% from currency translation.
There was very strong growth in the Photonics segment within the Optical Analysis subsector, reflecting continued successful performance for a long-standing major technology customer. The Photonics segment is expected to benefit from a further acceleration of demand for technologies that support the transformation of digital and data capabilities in the second half of the year.
Within Optical Analysis, this strength in Photonics was partly offset by a weak performance in Spectroscopy, which saw a substantial reduction in revenue as a result of declines in a number of end markets including biopharma (mainly as a result of OEM destocking), and quality testing of semiconductors (particularly in the Chinese market) and consumer electronics. These effects were amplified by disruption relating to the deployment of a new IT system in one Spectroscopy company, which has since been stabilised.
There was strong growth in the Water Analysis and Treatment subsector, reflecting an increase in project tenders from UK utilities for our water infrastructure businesses. There was, however, a modest revenue decline in our water testing and disinfection companies, principally relating to products focused on consumer discretionary end markets. Environmental Monitoring revenues were also modestly lower, mainly reflecting a strong comparative in the first half of the prior year, which had benefited from a significant order from a major gas detection customer and substantial growth in the flow and pressure control market in India.
Revenue by region reflected these trends. The sector’s largest region, the USA, which accounts for over half of sector revenue, grew very strongly, driven by Photonics within Optical Analysis, while momentum in water infrastructure led strong UK growth. Asia Pacific revenue saw a substantial decline, largely as a result of weakness in China and India. In other smaller regions, there was modest growth in Europe, with good performance in most business segments partly offset by a decline in spectroscopy markets.
Adjusted Profit2 was 9.3% lower at £59.3m (2022/23: £65.4m) and 9.5% lower on an organic constant currency1 basis. There was a 2.0% contribution from acquisitions (net of disposals) and a negative effect of 1.8% from currency translation. The sector EBIT margin1 was 20.9%, compared to 24.8% in the prior period with the change reflecting a mix effect from the revenue decline in the higher margin spectroscopy businesses. R&D expenditure of £13.0m was 4.6% of sales (2022/23: 5.2%), with the change reflecting the change in the mix of sector revenues in the period.
Healthcare sector
Revenue increased by 3.7% to £266.3m (2022/23: £256.7m). Organic constant currency1 revenue was 0.3% ahead of the first half of last year. Acquisitions made a positive contribution of 5.3% to revenue, and there was a 1.9% negative impact from currency translation.
There was a wide range of performance by subsector. The Therapeutics Solutions subsector performed well, driven by strong growth in ophthalmology therapeutics, reflecting high surgical patient caseloads, and also benefiting from the acquisition of IZI Medical in the prior year. This strong momentum was partly offset by OEM customer destocking and budgetary caution at healthcare providers which had some effect on our acute therapeutics companies.
These factors also influenced the smaller Life Sciences subsector, which saw a substantial decline in revenues as OEM customers managed the inventory of diagnostic devices built up to mitigate post-COVID supply chain disruptions. This was compounded by global macroeconomic headwinds, and low demand in China where we have a significant Life Sciences footprint.
Our Healthcare Assessment & Analytics subsector benefited from a strong recovery in sensors and analytics, reflecting demand from healthcare providers for communication systems to improve efficiency and patient outcomes. This was offset by a weaker performance in the patient assessment and ophthalmology diagnostics companies due to OEM customer destocking and healthcare budgetary restraint, resulting in Healthcare Assessment & Analytics revenue in line with the first half of last year.
In terms of performance by geographic region, in the USA, the sector’s largest region, the mix of subsector performance described above and the benefit from the acquisition of IZI Medical resulted in modest growth overall. Mainland Europe grew strongly, mainly reflecting the strong demand in ophthalmology therapeutics. The UK saw modest growth, broadly in line with the sector. Asia Pacific revenue declined, principally reflecting its high Life Sciences exposure.
Adjusted Profit2 increased by 10.6% to £62.4m (2022/23: £56.4m), and by 4.9% on an organic constant currency1 basis. There was a 6.2% contribution from acquisitions (net of disposals) and a negative effect of 0.5% from currency translation. The sector EBIT margin1 increased to 23.4% (2022/23: 22.0%), principally reflecting a stronger gross margin driven by favourable portfolio mix and ongoing pricing discipline. R&D spend was £17.1m, representing 6.4% of revenue (2022/23: 6.3%), and reflecting continued healthy levels of new product development and investment by sector companies.
Five acquisitions completed this financial year to date across all three sectors
We have completed five acquisitions in the year to date, for a maximum total consideration of approximately £126m on a cash- and debt-free basis, three in the first half and two since the period end. Two were standalone companies within their sectors, increasing our opportunities to supplement our organic growth, while three were bolt-on acquisitions made by our companies to further expand their capabilities. The five acquisitions in the year to date were spread across all three sectors and, by region, two of the companies acquired were based in Mainland Europe, and one each in the USA, the UK and Asia Pacific.
We have a healthy pipeline of potential acquisitions across all three sectors, and continue to see good opportunities to acquire small- to medium-sized businesses which are strongly aligned to our purpose of growing a safer, cleaner, healthier future for everyone, every day.
In the first half, our Environmental & Analysis sector, we acquired Visual Imaging Resources LLC as a bolt-on to Minicam in April and Sewertronics Sp. Z o.o. as a standalone company in May; details of these acquisitions were previously reported in our 2023 Annual Report and Accounts released in June. In August, we acquired Lazer Safe Pty. Ltd., an Australia-based designer and manufacturer of safety solutions for industrial press brake applications, for A$45m (approximately £23m) on a cash- and debt-free basis, as a standalone company within the Safety sector. Further details of acquisitions made in the half year are given in note 10 to the Condensed Interim Financial Statements.
Since the half year end, we acquired the Alpha Instrumatics Group and AprioMed AB. Alpha Instrumatics, a designer and manufacturer of devices for high-precision measurement of trace moisture found in gases, was acquired for Alicat, one of our Environmental & Analysis sector companies, for an initial cash consideration of £31m on a cash and debt free basis. Additional earn-out consideration is payable in cash, based on its performance over each of the two financial years to 31 March 2025, up to an aggregate maximum of £5.5m.
In our Healthcare sector, we acquired AprioMed AB, a designer, manufacturer and distributor of medical devices used for bone biopsies, as a bolt-on for IZI Medical for SEK130m (approximately £10m) on a cash- and debt-free basis. This acquisition expands IZI’s offerings for minimally invasive procedures, complementing its products used to diagnose and treat cancer.
We also announced after the half year end that PeriGen, our Healthcare sector company whose AI systems protect mothers and babies during childbirth, had entered into a strategic partnership with, and invested US$2.5m (approximately £2m) in, Bloomlife Inc, a company focused on developing innovative solutions for maternal and foetal health monitoring (see note 14 of the Condensed Interim Financial Statements for details).
We actively manage our portfolio of global businesses to ensure that it continues to deliver strong growth and returns and is aligned with our purpose of growing a safer, cleaner, healthier future for everyone, every day. We made one small disposal in the first half, of our 70% stake in FireMate Software Pty. Ltd. (FireMate), for a total consideration of A$6.2m (£3.2m), of which A$2.1m (£1.1m) is deferred. A profit of £0.5m was recognised on the disposal. Halma has retained FireMate’s Nimbus digital solution that enables remote connectivity for fire and evacuation systems. See note 11 of the Condensed Interim Financial Statements for details.
Further progress on sustainability
Sustainability has always been at the heart of our Sustainable Growth Model and our purpose. We are driving growth in sustainability by encouraging our companies to target markets, products and applications in sustainable markets that help our customers address their sustainability challenges, while supporting our people and protecting our environment by addressing our direct and supply chain impacts.
In this half year, we relaunched our internal sustainability execution plan with refreshed requirements for our companies, based on their size and their impacts, and a focus on embedding sustainability within existing processes, sectors and functions. During our annual strategic review process, our sector teams continued to support their companies in identifying sustainability trends which will drive growth in their markets. Our companies will update their own Sustainability Action Plans, which seek to protect their environment and support their people, as part of the budget process during the second half of this year. We are supporting them by creating further shared resources on sustainability topics and training and discussion opportunities for our Divisional Chief Executives and our company Managing Directors and board members responsible for sustainability.
As part of our internal sustainability execution plan, we have now initiated the creation of Scope 3 decarbonisation plans, focused initially on a small number of companies that represent a majority of our Scope 3 emissions. These will support our work to set appropriate Scope 3 targets. At the Group level, we are embedding the assessment of wider potential sustainability risks into our enterprise risk management system as a first step towards a fuller materiality assessment and preparation for future reporting requirements.
Cash flow and funding
Cash conversion (adjusted operating cash flow as a percentage of adjusted operating profit – see note 9) in the first half of the year was 96% (2022/23: 63%), above our annualised cash conversion KPI of 90%. This was principally because of a reduced working capital outflow, given that the investment in inventory to support supply chain resilience in the prior half year was not repeated in this period, and lower pension deficit reduction payments (See “Pensions update” below).
Dividend payments increased to £46.5m (2022/23: £43.6m), in line with expectations. Tax payments were also higher at £45.5m, compared to £31.2m in the first half of 2022/23,reflecting the increase in the UK corporation tax rate to 25% (19% for the year ended 31 March 2023) from 1 April 2023, and the timing of US tax deductions on R&D expenditure.
Expenditure on acquisitions, which includes debt acquired and settled on acquisition, acquisition costs and contingent consideration for acquisitions made in prior years, totalled £65.5m (2022/23: £179.7m).
Capital expenditure (net of disposal proceeds) increased to £19.2m, compared to £15.6m in the first half of 2022/23. We continue to expect capital expenditure for the full year to be around £40m.
Net debt at the end of the period was £618.8m (31 March 2023: £596.7m). Gearing (the ratio of net debt to annualised EBITDA) at half year end was 1.4 times (31 March 2023: 1.4 times), within our typical operating range of up to two times.
Currency effects on reported revenue and profit
We report our results in Sterling with 48% of Group revenue denominated in US Dollars and 13% in Euros during the period. Average exchange rates are used to translate results in the Income Statement. Sterling strengthened against the US Dollar and the Euro during the first half of 2023/24. This resulted in a 2% negative currency translation effect on Group revenue and profit in the first half of 2023/24 relative to 2022/23. If exchange rates remain at current levels, we expect a further similar negative currency translation effect in the second half of 2023/24.
Pensions update
On an IAS 19 basis, the Group’s defined benefit pension plans at the half year end had a net surplus of £33.1m (31 March 2023: surplus of £37.9m) before the related deferred tax asset. The plans’ assets decreased due to market volatility, while there was a smaller decrease in the plans’ liabilities due to an increase in the discount rate used to value those liabilities. Together, these movements resulted in an overall decrease in the plans’ surplus.
The plans’ actuarial valuation reviews, rather than the accounting basis, determine any cash payments by the Group to eliminate the deficit. 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 the cash contributions in this regard for the two UK defined benefit plans in the 2023/24 financial year to be of £3.6m. Together with contributions to smaller overseas defined benefit plans of £0.6m, this consistent with our previous guidance of total contributions in the year of £4.2m.
Group effective tax rate higher as expected
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 Adjusted1 Profit was 21.5% (six months to 30 September 2022: 21.5%; year to 31 March 2023: 20.2%). The rate is higher than the prior full year rate, as expected, principally due to the increase in the UK corporation tax rate to 25% (19% for the year ended 31 March 2023) 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 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 we would expect such appeals to be successful. As the amounts paid are expected to be fully recovered, we continue to recognise a receivable of £14.7m within non-current assets in the balance sheet.
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 thereby cause actual results to differ materially from expected and historical results.
The Group has processes in place for identifying, evaluating and managing risk. As part of these processes, we are closely monitoring and assessing the potential effects on revenue, costs and working capital from macroeconomic and geopolitical volatility. We expect that our companies’ agility, and the support they receive from across the Group to share best practice in addressing these challenges, will continue to mitigate any potential material effects.
Our principal risks, together with a description of our approach to mitigating them, are set out on pages 91 to 97 of the Annual Report and Accounts 2023, which is available on the Group’s website at www.halma.com. See note 16 to the Condensed Interim Financial Statements for further details.
Going concern
After conducting a review of the Group’s business activities, financial position and main trends and factors likely to affect its future development, performance and position, and considering potential scenarios and principal risks, the Directors 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. For this reason they deem it appropriate to continue to adopt the going concern basis of accounting for at least the next 12-month period. Further information is available in the statement headed “Going concern” within note 1 to the Condensed Interim Financial Statements.
Summary and Outlook
Halma made good progress in the first half. The Group’s performance reflects the strength we derive from our Sustainable Growth Model and the long-term growth drivers that underpin our diverse portfolio. These enabled us to deliver record revenue, profit and dividend, while further enhancing our growth opportunities through increased strategic investment, supported by a strong cash flow performance and continued balance sheet strength.
The current operating environment presents both challenges and opportunities. Our continued success in current varied market conditions is enabled by our Sustainable Growth Model. We benefit from our focus on markets aligned to our purpose, which present substantial opportunities for growth underpinned by resilient, long-term growth drivers; from the portfolio and geographic diversity of our businesses; from our talented people and our collaborative and entrepreneurial culture; from the agility of our business model; and from the strength of our sustainable financial model.
We remain on track to make further progress in the second half of the year and to deliver good organic constant currency1 revenue growth in the full year to March 2024. Group order intake remains ahead of the comparable period last year and close to revenue in the year to date. Our current expectation is for full year 2024 Adjusted1 Profit before Taxation to be in line with analyst consensus expectations1.
Marc Ronchetti Steve Gunning
Group Chief Executive Chief Financial Officer
1 See Highlights, above.
2 See note 2 to the Condensed Interim Financial Statements. Profit is Adjusted1 operating profit before central administration costs after share of associate which equals Adjusted1 EBIT.