Halma plc Half Year Report 2019/2020/media/Files/H/Halma/Corp/reports...Halma lc Half ear Report 2019/20 01Highlights Continuing operations Half year 2019 Half year 2018 Change Revenue

Halma plcHalf Year Report 2019/2020

safer cleaner

healthier

Our purpose is to grow a safer, cleaner, healthier future for everyone, every day.

Contents

01 Highlights02 Review of Operations08 Strategy and business model14 Independent review report to Halma plc15 Consolidated Income Statement15 Consolidated Statement of Comprehensive Income and Expenditure16 Consolidated Balance Sheet17 Consolidated Statement of Changes in Equity20 Consolidated Cash Flow Statement21 Notes to the Accounts39 Shareholder Information and Advisers

01Halma plc Half Year Report 2019/20

Highlights

Continuing operationsHalf year

2019Half year

2018 Change

Revenue £653.7m £585.5m +12%

Adjusted1 Profit before Taxation £128.8m £112.9m +14%

Adjusted2 Earnings per Share 27.20p 23.67p +15%

Statutory Profit before Taxation £105.8m £94.5m +12%

Statutory Earnings per Share 22.40p 19.67p +14%

Interim Dividend per Share3 6.54p 6.11p +7%

Return on Sales4 19.7% 19.3%

Return on Total Invested Capital5 14.8% 14.9%

Net Debt6 £310.4m £194.6m

Pro-forma information1 Adjusted to remove the amortisation of acquired intangible assets, acquisition items, significant restructuring costs and profit or loss on disposal of operations, totalling £23.0m

(2018/19: £18.4m). See note 2 to the Condensed Interim Financial Statements.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.3 Interim dividend paid and 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.6 Includes an increase in 2019 of £57.0m as a result of the implementation of IFRS 16.7 Adjusted1 Profit before Taxation, Adjusted2 Earnings per Share, Return on Sales, organic growth rates and ROTIC are alternative performance measures used by management. See notes 2, 6

and 9 to the Condensed Interim Financial Statements.

Record first half results and continued dividend growth

Revenue

£653.7m +12%(2018/19: £585.5m)

Interim Dividend declared (per share)

6.54p +7%(2018/19: 6.11p)

Adjusted Profit before Taxation (£m)

£128.8m +14%(2018/19: £112.9m)

Return on Sales (%)

19.7%(2018/19: 19.3%)

02 Halma plc Half Year Report 2019/20

Record half year resultsHalma made good progress in the first half of the year. Revenue increased by 12% to £653.7m (2018/19: £585.5m), Adjusted1

Profit before Taxation increased by 14% to £128.8m (2018/19: £112.9m), and Statutory Profit before Taxation increased by 12% to £105.8m (2018/19: £94.5m).

Revenue growth included good organic constant currency revenue growth of 5%, against a strong comparative of 14% growth in the first half of the last financial year, a 4% contribution from acquisitions completed in this and the previous half year, and a positive currency translation effect of 3%.

The 14% increase in Adjusted1 Profit before Taxation included organic constant currency growth of 6% against a comparative of 16% growth in the first half of last year, a 4% contribution from acquisitions completed in this half year and the second half of last year and a positive currency translation effect of 4%.

Return on Sales1 improved to 19.7% (2018/19: 19.3%), including a further increase in strategic investment for future growth. Our companies increased R&D expenditure by 12% to £34.9m, representing 5.3% of Group revenue (2018/19: 5.3%).

The Board has declared an increase of 7% in the interim dividend to 6.54p per share (2018/19: 6.11p per share). The interim dividend will be paid on 5 February 2020 to shareholders on the register on 27 December 2019.

Revenue growth in all four major regionsWe grew revenue in all four major regions, with organic constant currency revenue growth in our four major regions and in all of our business sectors. This was further supported by a positive contribution from acquisitions and by favourable currency translation.

The USA remains our largest sales destination and contributed 38% of total revenue. Revenue increased 15%, or 7% on an organic constant currency basis, driven by strong performances in the Environmental & Analysis and Infrastructure Safety sectors. Reported revenue growth in Infrastructure Safety included a contribution, in line with our expectations, from Rath Communications, which was acquired in January 2019. Process Safety delivered a good performance, despite challenges in some areas including certain oil and gas-related markets, as it continued to benefit from a large logistics contract. The Medical sector grew at a slower rate, partly as a result of the disposal of Accudynamics in the last financial year.

Revenue in the UK grew 9%, or 8% on an organic constant currency basis, with strong contributions from the two largest sectors in the region, Environmental & Analysis and Infrastructure Safety, and good progress in the smaller Medical sector. This was partly offset by a slowdown in the Process Safety sector.

Review of Operations

External revenue by destinationHalf year

2019Half year

2018

£m % of total £m % of totalChange

£m%

growth

% organic growth at constant currency

United States of America 248.8 38% 216.0 37% 32.8 15% 7%

Mainland Europe 135.5 21% 124.3 21% 11.2 9% 4%

United Kingdom 105.2 16% 96.2 16% 9.0 9% 8%

Asia Pacific 106.8 16% 88.1 15% 18.7 21% 9%

Other regions 57.4 9% 60.9 11% (3.5) (6)% (9)%

653.7 100% 585.5 100% 68.2 12% 5%

Revenue

£653.7m+12% (2018/19: £585.5m)

Adjusted1 Profit before Taxation

£128.8m14% (2018/19: £112.9m)


Revenue growth in all sectorsInfrastructure Safety revenue increased by 18% to £232.9m (2018/19: £197.6m), with 4% organic constant currency growth and a 2% positive effect from currency translation. It also included 12% growth from last financial year’s acquisitions (Limotec, Navtech Radar and Rath Communications), as well as from the Ampac Group which was acquired in the first half of this financial year.

There was strong growth in Fire Detection, People and Vehicle Flow and Elevator Safety and growth across our four major regions. The USA performed strongly on an organic constant currency basis, with revenue increasing 13% against 24% organic constant currency growth in the first half of last year, driven by strong growth in the Elevator Safety, Fire Detection and the People and Vehicle Flow segments with the latter benefiting from new product innovation. Europe and the UK performed well with broadly spread growth across the business segments, while revenue declined in the Other regions due to less project-based business in the Middle East. Acquisitions made an excellent contribution to growth, particularly in Asia Pacific, the USA and Mainland Europe.

Profit2 grew by 25% to £52.3m (2018/19: £41.7m) including 9% organic constant currency growth, a 2% positive effect from currency translation and 14% growth from acquisitions. Return on Sales increased to 22.5% (2018/19: 21.1%), helped by recent investments in manufacturing process automation. Strategic investment in innovation increased, with R&D expenditure up 15% to £14.2m (2018/19: £12.4m).

Mainland Europe revenue increased by 9%, or 4% on an organic constant currency basis. Infrastructure Safety and Environmental & Analysis performed well, while there were small declines in the other two sectors.

Asia Pacific’s revenue grew 21%, or 9% on an organic constant currency basis. Organic growth reflected strong performances in the Process Safety and Medical sectors and modest growth in the Environmental & Analysis and Infrastructure Safety sectors. Total revenue growth in this region included a contribution of 9% from acquisitions, primarily the Ampac Group acquisition which was completed in July 2019, details of which are given below.

In the rest of the world, which represents just 9% of the Group, revenue fell 6%, or 9% on an organic constant currency basis. Revenue declined in the Africa, Near and Middle East territories, partially reflecting the timing of project-based business. Other countries performed well overall.

The tables on pages 2 and 3 summarise revenue growth by destination and by sector, including the rates of organic growth at constant currency. Organic constant currency measures exclude the effect of movements in foreign exchange rates on the translation of revenue and profit into Sterling, as well as acquisitions and disposals for the year following completion.

The sector is expected to make further progress in the second half, with continued organic revenue growth and benefits from recent acquisitions. Return on Sales in the second half is expected to be similar to the second half of last year, resulting in the sector delivering a good full year performance.

Process Safety revenue increased by 3% to £101.3m (2018/19: £97.9m). There was organic constant currency growth of 1%, which compared to last year’s very strong performance of 12% organic constant currency growth, and a 2% positive effect from currency translation. The Industrial Access Control segment grew strongly and continued to benefit from a large logistics safety contract in the USA. Pressure Management and Safe Storage & Transfer revenue declined, principally due to a challenging market in the USA for Pressure Management, although there was stronger growth in Asia Pacific. Gas Detection saw modest growth, with a weaker performance in developed markets, more than offset by good increases in Asia Pacific and the Middle East, driven by the benefits of recent investment in sales, marketing and new product development.

Overall, the sector saw strong growth in Asia Pacific and the USA, despite variable market conditions, the latter against a very strong comparative. Revenue in Other regions declined.

Review of OperationsContinued

External revenue by sectorHalf year

2019Half year

2018

£m £mChange

£m%

growth

% organic growth at constant currency

Process Safety 101.3 97.9 3.4 3% 1%

Infrastructure Safety 232.9 197.6 35.3 18% 4%

Environmental & Analysis 163.7 143.0 20.7 14% 10%

Medical 155.9 147.2 8.7 6% 4%

Inter-segmental revenue (0.1) (0.2) 0.1 – –

653.7 585.5 68.2 12% 5%



Profit2 increased by 12% to £24.9m (2018/19: £22.2m) including 9% organic constant currency growth and a 3% positive effect from currency translation. Return on Sales increased to 24.5%, from 22.6% in the first half of last year which included some one-off reorganisation costs. R&D investment rose 4% to £3.5m (2018/19: £3.4m).

The sector is expected to make progress in the second half, and to deliver a solid full year result, with revenue momentum steadily improving as the benefits from the actions taken over the past year to improve performance start to come through.

Environmental & Analysis revenue rose by 14% to £163.7m (2018/19: £143.0m), comprising 10% organic constant currency growth and a 4% positive effect from currency translation. There was growth in all business segments with particularly good performances in Spectroscopy & Photonics and in Environmental Monitoring. The USA and the UK delivered strong organic constant currency revenue growth: the USA driven by the Photonics businesses and the UK from an excellent performance in Environmental Monitoring, supported by new product development and by regulatory requirements in the UK water market. Mainland Europe grew well, also due to good contributions from the Spectroscopy & Photonics and Environmental Monitoring segments. Revenue in Asia Pacific grew modestly, while Other regions, which represent only 3% of sector revenue, declined.

Profit2 increased by 21% to £35.1m (2018/19: £29.0m). Organic constant currency profit growth was 16% and there was a 5% positive effect from currency translation. Return on Sales saw a further improvement from 20.3% to 21.5%. We expect Return on Sales for the full year to be broadly stable year on year due to the revenue mix expected in the second half. R&D investment rose by 2% to £9.8m (2018/19: £9.6m), representing 6.0% of revenue.

The sector is expected to continue to perform well in the second half of the year and achieve a strong full year performance.

Medical revenue was up by 6% to £155.9m (2018/19: £147.2m). There was 4% organic constant currency growth against a strong prior year comparator of 14%, a (3)% negative effect from last year’s Accudynamics disposal and a positive effect of 5% from currency translation. The Diagnostics and Sensor Technology segments made good progress while there were weaker performances in Ophthalmology and Patient Assessment.

Medical’s largest region, the USA, represented over 50% of the sector’s revenue and delivered modest organic growth, influenced by the timing of orders and product launches as well as the strong prior year performance. Certain customers also moved their operations from the USA to Asia Pacific, with that region’s revenue growing 22% (or 19% on an organic constant currency basis) as a result. Europe and UK revenue was stable in aggregate, with good progress in Diagnostics and Sensor Technology offset by lower revenue in Ophthalmology. Other regions grew strongly, led by the Sensor Technology segment.

Profit2 was £35.6m (2018/19: £35.0m), a 2% increase over the strong performance in the first half of last year which included a 22% organic constant currency increase. There was a £1.7m increase in R&D investment in this half year, notably in our Sensor Technology and Ophthalmology segments. Profit also included a net charge of £2.5m, principally related to the rationalisation of product development strategies, following the reorganisation and merger of two ophthalmic companies. This portfolio change is expected to improve their combined growth and profitability over the medium term. There was a (2)% negative effect following last year’s Accudynamics disposal, and a 5% positive impact from currency translation. Return on Sales decreased to 22.9% from 23.8% in 2018/19 with R&D investment (excluding the effect of the Accudynamics disposal) up 30% to £7.2m (2018/19: £5.5m) and now 4.6% of revenue.

We expect a stronger sector performance in the second half in order to deliver a solid full year performance.



Five acquisitions completed this financial yearWe made three acquisitions in the period, and a further two early in the second half of the year. These involved three sectors and four geographies, continuing our strategy of making value-enhancing acquisitions in core and adjacent markets to expand our future growth opportunities and geographical reach.

In July 2019, we completed the acquisition of the Ampac Group for a cash consideration of A$135.0m (£75.2m), on a cash- and debt-free basis, as part of our strategy to acquire regional partners to accelerate growth in our core Fire Detection markets within our Infrastructure Safety sector. The Ampac Group, as a leading fire and evacuation systems supplier in the Australian and New Zealand markets, extended our geographical reach and has brought highly complementary technologies to our existing Fire businesses.

In the first half we also completed two smaller bolt-on acquisitions to expand our technology capabilities in the Environmental & Analysis sector, for a maximum total consideration of £7m. These were: Invenio, a UK market leader in customer-side water leak detection, which is now part of our HWM Water business based in Cwmbran, Wales; and Enoveo, a French company with expertise in environmental microbiology, chemistry and biotechnologies and real-time pollution monitoring, which has been incorporated into our Hydreka business based in Lyon, France.

In October 2019, we further expanded our surgical product offering in Ophthalmology with the acquisition of the Trabectome and Goniotome product platforms from NeoMedix Inc., a USA-based company which designs, manufactures and markets surgical devices for the fast-growing minimally-invasive glaucoma surgery market. The initial cash consideration was US$8.1m (£6.6m) on a cash- and debt-free basis. Further earn-out considerations, capped at a total of US$17m (£14.0m) are payable in cash, dependent on performance in the three years to October 2022. This acquisition is being integrated into Medical’s MicroSurgical Technology (MST) business based near Seattle, USA.

In terms of the environment and specifically addressing the challenge of climate change, we are developing new long-term carbon emission targets. We expect them to be aligned with climate science and initially to cover our Scope 1 and 2 emissions. We are also beginning the evaluation of the steps we would need to take to report on our climate change strategy, risks and governance in line with the TCFD (Task Force on Climate-Related Financial Disclosures) framework. We expect to update on this in our Full Year results announcement.

We are committed to ensuring that Halma is an inclusive organisation, thereby maximising the pool of talent available to us and ensuring we recruit the best people for each role. One measure of our inclusivity is gender diversity, and the changes to our Executive Board outlined on page 6 will ultimately result in gender balance, setting a strong example to the rest of the Group. We were also pleased that our progress was recognised by three of our senior leaders being included in the Financial Times’ ranking of the 100 Most Influential Women in Engineering in the UK.

We were immensely pleased and energised with the result of our first ever group-wide charitable campaign, Gift of Sight. As part of the campaign, we screened the eyesight of 2,525 employees, approximately one-third of our global employee population, with the involvement of 33 Halma companies in the USA, the UK, India, Brazil and China. We raised over US$200,000 for our campaign partner, the Himalayan Cataract Project, which will help transform more than 8,000 people’s lives by giving them sight. We have now formed a team to identify and lead our next campaign in 2020, which will also be aligned with one of our chosen UN Sustainable Development Goals.

Currency effectsWe report our results in Sterling with 48% of Group revenue denominated in US Dollars and 12% in Euros during the period. Average exchange rates are used to translate results in the Income Statement. Sterling weakened against the US Dollar and the Euro during the first half of 2019/20. This resulted in a 3% positive currency translation effect on Group revenue and 4% on profit in the first half of 2019/20 relative to 2018/19. If exchange rates remain at current levels, we expect a broadly neutral currency translation effect in the second half of 2019/20.

In October 2019, we acquired Infowave Solutions Inc., a location sensing and software solutions provider, for CenTrak, one of our Medical sector companies, to further expand its addressable market and enhance its technological and data capabilities. The initial consideration for Infowave was US$8.3m (£6.8m) with further earn-out considerations, payable in cash, of up to US$4m (£3.3m) in total, payable dependent on performance in each of the financial years ended March 2021 and March 2022.

We continue to add to our pipeline of potential acquisitions both in, and adjacent to, our existing markets, with all aligned to our purpose of growing a safer, cleaner, healthier future. We have further strengthened our sector M&A teams globally to support the acquisition of both stand-alone businesses and bolt-ons to existing Halma companies.

Evolution of the Halma 4.0 growth strategyWe made further good progress on our Halma 4.0 strategy, through which our companies are addressing the diverse challenges and opportunities presented by the digital age. We have continued to increase investment to support our companies to improve the speed and cost of innovation.

Our innovation and digital accelerator programmes are increasingly focusing on the commercialisation of projects. We are piloting a new Execution Accelerator programme that delivers targeted support to shorten the time from investment to revenue by addressing specific areas of challenge, such as the development of new routes to market and new technology. Increasingly we are also leveraging our existing digital project development experience and will be creating improved IT and digital architecture.

Sustainability and living our purposeHalma’s approach to sustainability is defined by our purpose of growing a safer, cleaner, healthier future for everyone, every day. We aim to play a positive role in society over the long term, both through the beneficial effects of our products and services, and by behaving responsibly. We have carefully selected four UN Sustainable Development Goals to provide a framework for our initiatives, and began in the first half to develop measures to track our impacts in relation to these goals.



Pension deficit reducedOn an IAS 19 basis the deficit on the Group’s defined benefit plans at the half year end reduced to £27.6m (31 March 2019: £39.2m) before the related deferred tax asset. The plans’ liabilities increased due to a decrease in the discount rate used to value those liabilities, but this was more than offset by further employer contributions together with the return from the plans’ assets which resulted in the overall reduction in the plans’ deficit. The plans’ actuarial valuation reviews, rather than the accounting basis, determine any cash payments by the Group to eliminate the deficit. We expect the aggregate cash contributions in this regard for the two UK defined benefit plans in the 2019/20 financial year to be consistent with our previous guidance of £12.7m.

Group tax rate as expectedThe Group’s effective tax rate on adjusted profit was 19.9%. This is based on the forecast effective tax rate for the year as a whole, and is higher than in the Full Year 2018/19 (18.6%) mainly due to a change in expected mix of profits arising from increased profits in higher tax jurisdictions.

On 2 April 2019, the European Commission published its final decision that the UK controlled Finance Company Partial Exemption (FCPE) partially constituted State Aid. In common with other UK companies, Halma has benefited from the FCPE, which was a plan approved by the UK Government, and the total benefit to date is approximately £15.4m (in respect of tax) and approximately £0.9m (in respect of interest). Halma has appealed against the European Commission’s decision, as has the UK Government and a number of other UK companies. In the meantime, the UK Government is required to commence collection proceedings and therefore it is expected that the Group will have to make a payment in the second half of the year ending 31 March 2020 of up to £16.3m. Based on its current assessment, the Group believes that no provision is required in respect of this issue.

Laura Stoltenberg Laura succeeded Adam Meyers as Sector Chief Executive, Medical & Environmental from 1 October 2019, becoming a member of the Halma Executive Board. This followed the announcement in July 2019 of Adam’s intention to retire from Halma. Adam is supporting Laura in her transition to ensure an orderly handover occurs and he will remain on the Executive Board and the plc Board until July 2020. He has also agreed to support Halma beyond this date until mid-2021 should we need it.

Ruwan De Soyza In August 2019, Ruwan joined Halma as our General Counsel and Company Secretary following the retirement of Carol Chesney as Company Secretary in late 2018. This is a newly created role on Halma’s Executive Board, with global responsibility for the Group’s legal, compliance, governance and company secretarial affairs.

Catherine Michel In September 2019, Catherine joined Halma as our first Chief Technology Officer, with global responsibility for IT and digital architecture. Catherine’s remit covers both internal and externally facing IT systems and she will work closely with Inken Braunschmidt in her role of driving the execution of Halma’s Digital and Innovation growth strategy.

New capabilities added to the Executive BoardWe announced three changes to Halma’s Executive Board in the first half, as part of planned succession processes, which have added important new capabilities and increased diversity, aligned with the needs of our growth strategy.



New accounting standard IFRS 16 adoptedThe Group adopted required new accounting standards and interpretations with effect from 1 April 2019. There has been no material impact on the Group’s financial statements, with the exception of IFRS 16 ‘Leases’, which brings leases, principally for land and buildings, on to the balance sheet. IFRS 16 has resulted in a small reduction in net assets of £3.3m, comprising an increase in assets of £45.4m, recognising a right-of-use asset, and an increase in liabilities (principally from the lease liability) of £48.7m. The net effect on the Group’s profit and loss account has been immaterial, with operating lease costs of approximately £7.7m being replaced by a depreciation charge of £6.3m and a financing expense of £1.0m, resulting in a benefit to operating profit of £1.4m and to Profit before Tax of £0.4m. There has been no impact on the Group’s cash flow. Further details of all new accounting standards adopted, and their application to the Group’s accounts, can be found in the notes to the Condensed Interim Financial Statements.

Cash flow and fundingCash conversion (adjusted operating cash flow as a percentage of adjusted operating profit – see note 9) was 82% (2018/19: 86%), just below our cash conversion target of 85%. This included an increase in working capital of £25.2m (2018/19: £10.6m), principally reflecting the timing and relative quantum of payments and the Group’s continued strong growth.

Dividend and tax payments also increased this half year, with tax payments of £27.3m (2018/19: £19.0m). This included a one-off increase in cash taxation payable of £5.4m as a result of the acceleration of the payment timetable for UK Corporation Tax payments for larger companies, which will not be repeated in the second half. Acquisition expenditure (including acquisition costs and contingent consideration for acquisitions made in prior years) was £88.3m (2018/19: £4.7m). Capital expenditure reduced to £13.7m (2018/19: £14.9m) reflecting the timing of company projects rather than a specific action to limit investment. We continue to expect capital expenditure for the full year to be around £35m.

Net debt at the end of the period was £310.4m, which includes an increase of £57.0m for lease liabilities now included as a result of the adoption of IFRS 16 (31 March 2019 net debt: £181.7m, £232.0m restated for the effect of IFRS 16). Gearing (the ratio of net debt to EBITDA) at half year end was 0.98 times, which is within our typical operating range of up to 2 times gearing and included the effect of IFRS 16 on net debt and EBITDA.

Continued cash generation, a healthy balance sheet and committed external financial resources will allow us to continue to invest in organic growth and acquisitions to meet our growth objectives as well as to sustain our progressive dividend policy.

Principal risks and uncertaintiesA 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. Our principal risks, together with a description of our approach to mitigating them, are set out on pages 54 to 59 of the Annual Report and Accounts 2019, which is available on the Group’s website at www.halma.com. See note 15 to the Condensed Interim Financial Statements for further details.

We continue to closely monitor and assess any potential effects from the UK’s exit from the European Union, and to monitor and respond to changes in tariffs on certain goods by the USA and China. In the first half of this financial year, approximately 9% of Group revenue came from direct sales between the UK and Mainland Europe, and approximately 3% between the USA and China. We have not seen any material effects to date and consider that our decentralised model, with businesses in diverse markets and locations, enables our companies to adapt quickly to changing trading conditions. We expect that our companies’ agility, and the support we are providing from across the Group to share best practice will help us to prepare for these changes, to mitigate any potential effects, as well as enabling us to take advantage of any new opportunities that arise.

Going concernAfter conducting a review of the Group’s financial resources, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Condensed Interim Financial Statements.

OutlookHalma made good progress in the first half, delivering record revenue, profit and dividends, while increasing strategic investment to remain well positioned in global niche markets which have resilient, long-term growth drivers. Our strong purpose and culture, our portfolio and geographic diversity together with our agile business model are enabling us to deliver a good performance in varied market conditions and to sustain growth and returns over the longer term.

Since the period end, order intake has continued to be ahead of revenue and order intake last year. Halma remains on track to make further progress in the second half of the year and deliver another good full year performance.

Andrew Williams Group Chief Executive

Marc RonchettiChief Financial Officer

1 See Highlights, page 1.2 See note 2 to the Condensed Interim Financial Statements.

Profit is Adjusted1 operating profit before central administration costs after share of associate. Profit includes the effect of the adoption of IFRS 16 from 1 April 2019, which benefited Adjusted1 Operating Profit by £1.4m. The effect on each individual sector was immaterial.


Halma’s DNA runs through our business at all levels. It provides competitive advantage and core stability, and allows us to continuously adapt to new market needs.

Our purpose

Our purpose is to grow a safer, cleaner, healthier future for everyone, every day.

It drives every business decision we make. It ensures everyone who works with us is focused

on doing those things that make it happen.

Our companies develop technologies which protect and improve people’s lives. We solve

some of the world’s most pressing issues, from air quality to food security.

Our purpose defines the three broad market areas where we operate:

SafetyProtecting life as populations grow

and urbanise, and protecting worker safety.

Environment Improving food and water quality,

and monitoring air pollution.

HealthMeeting rising healthcare demand

as growing populations age and lifestyles change.

We believe these issues are global and long term in nature. We expect them to support Halma’s success sustainably for the foreseeable future.

Halma’s DNA


Halma Organisational

GenesThese are the core elements of our business structure and have proved themselves to be fundamental drivers in delivering consistent,

long-term growth. They describe what we will protect while we continuously

transform ourselves.

Purpose drives usOur purpose powers every business decision

we make, from choosing our markets to finding the right talent.

Agility is everythingWe are built to be responsive.

Decision-making is close to our customers. Individual businesses, as well

as the portfolio, can react with speed when market dynamics change.

We bet on talentWe insist on exceptional leaders who

are empowered and accountable to set strategy and grow their own businesses.

Diverse viewpoints on every team help to ensure we don’t miss a thing.

We are global niche specialistsWe are disciplined in targeting high-return,

well-defended global niches in markets with long-term growth drivers. We innovate with cutting-edge technology in these niches and

use our deep application knowledge.

We invest for the futureOur diverse portfolio allows us to take a long-term view and means we can

continue to innovate for the future even as short-term market conditions change.

We are structured for growthIndividual businesses within the Group have

access to our internal and external networks, enabling us to go faster by learning from the experiences of others. Central expertise and capital are available to accelerate organic

growth, which in turn allows us to continue to acquire additional growth and capabilities.

Halma Cultural Genes

These are the unique cultural and behavioural principles that we require, protect and leverage

to effectively optimise our organisational genes and deliver our purpose.

Live the purposeBe passionate about making the world safer, cleaner and healthier. See real problems and

create innovative solutions.

Embrace the adventureContinually grow and change, as individuals and collectively. Challenge assumptions and

see opportunities. Seek insight from all directions and leverage diverse points of view.

Be an entrepreneurBe an owner, risk-taker, visionary.

Transform bold ambitions into reality. Be agile and responsive in the face of constant change.

Be successful through and with others.

Say yes, and…Be comfortable with paradox. Choose Yes, and... to seemingly conflicting priorities.

Build for tomorrow and deliver today. Have stability and constantly evolve.

Enjoy autonomy and eagerly collaborate.

Just be a good personPlay to win, but not at the expense of others. Operate with impeccable ethics, transparency and integrity

in all that you do.


Edge Convergence

Core

Growing asafer, cleaner,

healthier futurefor everyone,

every day.

Our strategy is powered by our purpose. It is focused on acquiring and growing businesses in global niche markets, in our chosen areas of safety, health and the environment.

We divide our growth strategy into three areas. Our Core strategy is to grow our companies both organically and through M&A, and will continue to be our major focus.

Our Convergence and Edge strategies recognise that the increasing rate of technological change, including data and connectivity, is opening up new ways of growing our business and leveraging our collaborative culture.

Core Developing new products and services,

and growing organically and by acquisitions in niche markets with global reach which have resilient long-term growth drivers.

Convergence Developing new products, services and

business models by combining existing Halma technologies and capabilities in new ways, and potentially by adding capabilities and partnerships.

Edge Developing and investing in digital

business models that have the potential to completely disrupt existing models, and which can scale exponentially.

We choose our markets because they have resilient, long-term growth drivers. Their growth is driven by demographic changes, as populations grow and age, and as more people move to cities, and by ever increasing regulation, as standards for safety, cleanliness and care become ever higher.

We expect to drive consistently superior growth and returns over the long term from our disciplined focus on acquiring and growing businesses in these niche markets.

We continuously reinvest in our companies to ensure that we maintain strong positions in our chosen markets. This includes investment in developing our people, our products and services, our intellectual property and our knowledge of the markets we serve.

Our companies are small- to medium-sized businesses, which provide technology solutions in the safety, health and environmental markets.

We have a variety of routes to market, from direct sales to third party distribution, and a wide range of customers, from individuals to large OEMs.

Our customers operate in diverse sectors, including commercial and public buildings, utilities, healthcare, science and the environment, process industries, and energy and resources.

We operate in more than 20 countries, with major operations in the UK, Mainland Europe, the USA and Asia.

Our strategy

Our markets

Strategy and business modelContinued


A clear purposeOur purpose is to grow a safer, cleaner, healthier future for everyone, every day, and this gives us a strong motivation to make a positive difference to people’s lives worldwide, and provides us with exciting opportunities for growth in a diverse range of markets.

We believe that the combination of our purpose, strategy, culture and business model differentiates us from our peers, and we expect it to deliver superior and sustainable value for our shareholders. We set ourselves challenging targets, and aspire to double our earnings every five years, while maintaining high returns.

Investment proposition

High growth and returnsWe deliver high growth and returns. Over the past five full years, organic constant currency revenue growth has averaged 7% and growth in adjusted earnings per share has averaged 13%. Return on Sales has averaged 20.4% and Return on Total Invested Capital has averaged 15.7% over the same time period.

A strong and consistent track recordWe have a strong track record, having consistently achieved record profits, high returns and strong cash flows, with low levels of balance sheet gearing. We have delivered record levels of revenue and profit for 16 consecutive years, Return on Sales of 16% or more for 34 consecutive years, and have a 40 year track record of growing dividend per share by 5% or more every year.

Strong cash generation and modest leverageOur business is strongly cash generative. Cash generation (adjusted operating cash flow as a percentage of adjusted operating profit) has averaged 86% over the past five full years. We maintain modest levels of leverage, to allow us flexibility for organic investment and to make acquisitions.

Agile portfolio managementWe manage the mix of businesses in our Group to ensure we can sustain strong growth and returns over the long term. We acquire businesses to accelerate penetration of more attractive market niches, we merge businesses when market characteristics change, and we exit markets which offer less attractive long-term growth and returns through carefully planned disposals.



Our business model is simple. It is driven by our strategy and supported by Halma’s DNA. It is focused on sustaining our companies’ growth and returns over the longer term, while delivering strong performance in the shorter term.

Our companiesEach company is a separate legal entity with a board of directors. This drives accountability for performance and supports good governance. It also allows companies to drive innovation in their chosen niche markets, and be agile and responsive to changes in their customers’ needs to drive sustainable growth.

Our sectorsOur sector teams are the vital connection between our companies and support functions. They promote internal networks and collaboration between companies, enabling companies to capitalise on broader sector trends, and support M&A through small sector teams.

Support functionsSupport functions provide expertise in capital management and control frameworks. They support our companies through our Growth Enablers, manage our portfolio of companies and the allocation of capital, set our risk appetite, and ensure compliance and good governance.

Strong organic growthThe foundation of our financial model is strong and consistent organic revenue and profit growth. This is driven by our disciplined focus on markets which have resilient, long-term growth drivers, and market niches that offer consistently superior organic growth and high returns.

High returns and cash generationWe also choose markets that have relatively low capital intensity and high returns on sales. In turn, this drives strong returns on capital and high levels of cash generation.

Continuous reinvestmentWe use this cash generation to continuously reinvest in R&D and product innovation to maintain our strong market and product positions, and to drive growth and maintain a high return on sales.

Value-enhancing acquisitions Strong cash generation also allows us to make value-enhancing acquisitions in core and adjacent markets to expand our growth opportunities and geographical reach.

Flexibility to invest and grow dividends We maintain modest levels of financial leverage, to allow us flexibility to invest and sustain a progressive dividend policy for our shareholders.

Our business modelWe are structured for growth

Our structure is simple and lean, with only three layers – companies, sectors and support functions – all three of which are focused and rewarded on driving growth. This allows for fast decision-making, and minimises bureaucracy.

We have a sustainable financial model

Our purpose and strategy define the markets we operate in, and our focus on growing and acquiring businesses in global niches in the safety, health and environmental markets.

Our choice of markets results in a highly sustainable financial model: strong organic growth and cash generation allow us to continuously reinvest in future growth and acquisitions.



M&AWe acquire and grow businesses which are aligned with our strategy, and sell or merge businesses to ensure we maintain our strategic focus.

International ExpansionWe assist our companies in growing their businesses in key export markets, including through our hubs in the USA, Brazil , UK, India and China.

Talent and CultureWe attract and develop ambitious people who want to make a difference, and who prosper from the freedom to make their own decisions.

Finance and RiskWe give our leaders the insight to make good decisions, through accurate, timely, and actionable financial data and risk analysis.

Digital Growth EnginesWe provide innovation and accelerator programmes to help our companies discover new opportunities and build digital capabilities.

Innovation NetworkWe connect our companies with each other and experts from around the world to help them learn from each other and stay current with market trends.

Strategic CommunicationsWe assist our companies in reaching all stakeholders who can help them to build their brand and develop market-leading positions.

Setting challenging targetsWe aspire to double our earnings every five years while maintaining high returns, and set targets for our growth, returns, cash generation and investment KPIs. We work hard to ensure that we have the right culture, talent and diversity and set challenging targets for employee engagement, health and safety and training.

Closely monitoring performanceWe closely monitor our companies’ performance, their strategic plans and forecasts. Each company certifies twice a year its compliance with minimum controls for finance, legal and IT; this is complemented by independent peer reviews of financial performance, and internal and external audits.

We are developing new ways of measuring the delivery of our strategy, for example in the effect of Convergence and Edge strategies, and how we are achieving our purpose, by more effectively measuring our impact on the world.

Rewarding our peopleOur people are rewarded on performance. We reward them for delivering superior and sustainable growth and returns and hold them accountable for delivering our strategy and complying with our control frameworks. Short-term incentives based on Economic Value Added (profit growth, adjusted for a charge for the use of any capital) are balanced by longer-term incentives in the form of Halma shares.

We support our companies through our Growth Enablers Our Growth Enablers support our companies in delivering our growth strategy. These seven Growth Enablers leverage a unique set of skills and expertise from across the Group, powered and co-ordinated by small central teams.

We measure our achievements and reward performanceWe measure our achievements through financial and non-financial key performance indicators (KPIs), and through customer satisfaction and the delivery of shareholder value.



Independent review report to Halma plc

Report on the Condensed Interim Financial StatementsOur conclusionWe have reviewed Halma plc’s Condensed Interim Financial Statements (the “interim financial statements”) in the Half Year Report of Halma plc for the 6 month period ended 30 September 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

What we have reviewedThe interim financial statements comprise:

— the Consolidated Balance Sheet as at 30 September 2019;

— the Consolidated Income Statement and Consolidated Statement of Comprehensive Income and Expenditure for the period then ended;

— the Consolidated Cash Flow Statement for the period then ended;

— the Consolidated Statement of Changes in Equity for the period then ended; and

— the explanatory notes to the interim financial statements.

The interim financial statements included in the Half Year Report have been prepared in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the reviewOur responsibilities and those of the directorsThe Half Year Report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half Year Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Half Year Report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involvesWe conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half Year Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLPChartered Accountants Watford 19 November 2019


Condensed Interim Financial Statements

Halma plc Half Year Report 2019/2020 12

Consolidated Income Statement

Unaudited Six months to

30 September 2019


30 September 2018

Audited Year to

31 March 2019

Notes

Before adjustments*

£m

Adjustments* (note 2)

£m Total

£m

Before adjustments*

£m

Adjustments* (note 2)

£m Total

£m Total

£m

Continuing operations Revenue 2 653.7 – 653.7 585.5 – 585.5 1,210.9 Operating profit 134.6 (23.0) 111.6 117.9 (17.5) 100.4 217.8 Share of results of associates (0.1) – (0.1) (0.1) – 0.1) 0.1) Loss on disposal of operations 2 – – – – (0.9) (0.9) (1.0) Finance income 3 0.4 – 0.4 0.1 – 0.1 0.5 Finance expense 4 (6.1) – (6.1) (5.0) – (5.0) (10.5) Profit before taxation 128.8 (23.0) 105.8 112.9 (18.4) 94.5 206.7 Taxation 5 (25.6) 4.8 (20.8) (23.1) 3.2 (19.9) (36.9) Profit for the period attributable to equity shareholders

103.2 (18.2) 85.0

89.8

(15.2)

74.6

169.8 Earnings per share from continuing operations

6

Basic and diluted 27.20p 22.40p 23.67p 19.67p 44.78p Dividends in respect of the period

7

Dividends paid and proposed (£m)

24.8

23.2

59.6

Per share 6.54p 6.11p 15.71p

* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; significant restructuring costs; profit or loss on disposal of operations; and the associated taxation thereon. Note 9 provides more information on alternative performance measures.

Consolidated Statement of Comprehensive Income and Expenditure Unaudited

Six months to 30 September

2019 £m

Unaudited Six months to 30 September

2018 £m

Audited Year to

31 March 2019

£m

Profit for the period 85.0 74.6 169.8 Items that will not be reclassified subsequently to the Income Statement: Actuarial gains on defined benefit pension plans 6.0 28.2 6.5 Tax relating to components of other comprehensive income that will not be reclassified (1.1) (5.2) (1.6) Items that may be reclassified subsequently to the Income Statement: Effective portion of changes in fair value of cash flow hedges (0.4) (0.6) – Exchange gains on translation of foreign operations and net investment hedge 43.2 37.3 32.5 Exchange gain on translation of foreign operations recycled on disposal – (0.4) (0.3) Tax relating to components of other comprehensive income that may be reclassified (0.1) – – Other comprehensive income for the period 47.6 59.3 37.1 Total comprehensive income for the period attributable to equity shareholders 132.6 133.9 206.9

The exchange gains of £43.2m (six months to 30 September 2018: £36.9m gain; year to 31 March 2019: £32.5m gain) include losses of £8.0m (six months to 30 September 2018: £10.7m losses; year to 31 March 2019: £7.9m losses), which relate to net investment hedges.


Consolidated Balance Sheet

Halma plc Half Year Report 2019/2020

13

Notes

Unaudited 30 September

2019 £m


2018 Restated

£m

Audited 31 March

2019 Restated

£m

Non-current assets Goodwill 10 765.5 655.6 694.0 Other intangible assets 272.4 229.9 245.2 Property, plant and equipment 171.7 109.6 112.4 Interests in associates and other investments 5.5 3.9 3.9 Deferred tax asset 1.4 1.7 1.4 1,216.5 1,000.7 1,056.9 Current assets Inventories 162.9 141.2 144.3 Trade and other receivables 275.2 241.8 259.6 Tax receivable 4.8 0.7 0.2 Cash and bank balances 83.2 66.4 81.2 Derivative financial instruments 11 0.9 0.3 0.9 527.0 450.4 486.2 Total assets 1,743.5 1,451.1 1,543.1 Current liabilities Trade and other payables 157.9 154.5 164.8 Borrowings 1.7 3.0 9.2 Lease liabilities 12.3 – – Provisions 20.5 18.2 25.4 Tax liabilities 13.4 13.3 13.4 Derivative financial instruments 11 0.7 0.5 0.3 206.5 189.5 213.1 Net current assets 320.5 260.9 273.1 Non-current liabilities Borrowings 334.9 258.0 253.7 Lease liabilities 44.7 – – Retirement benefit obligations 27.6 20.7 39.2 Trade and other payables 13.3 9.7 11.6 Provisions 7.9 4.7 10.9 Deferred tax liabilities 41.1 41.2 33.2 469.5 334.3 348.6 Total liabilities 676.0 523.8 561.7 Net assets 1,067.5 927.3 981.4 Equity Share capital 38.0 38.0 38.0 Share premium account 23.6 23.6 23.6 Own shares (6.6) (3.5) (4.7) Capital redemption reserve 0.2 0.2 0.2 Hedging reserve (0.2) (0.3) 0.3 Translation reserve 162.7 124.2 119.5 Other reserves (11.8) (10.9) (5.6) Retained earnings 861.6 756.0 810.1 Total equity 1,067.5 927.3 981.4


Consolidated Balance Sheet


13

Notes


2019 £m


2018 Restated

£m

Audited 31 March

2019 Restated

£m

Non-current assets Goodwill 10 765.5 655.6 694.0 Other intangible assets 272.4 229.9 245.2 Property, plant and equipment 171.7 109.6 112.4 Interests in associates and other investments 5.5 3.9 3.9 Deferred tax asset 1.4 1.7 1.4 1,216.5 1,000.7 1,056.9 Current assets Inventories 162.9 141.2 144.3 Trade and other receivables 275.2 241.8 259.6 Tax receivable 4.8 0.7 0.2 Cash and bank balances 83.2 66.4 81.2 Derivative financial instruments 11 0.9 0.3 0.9 527.0 450.4 486.2 Total assets 1,743.5 1,451.1 1,543.1 Current liabilities Trade and other payables 157.9 154.5 164.8 Borrowings 1.7 3.0 9.2 Lease liabilities 12.3 – – Provisions 20.5 18.2 25.4 Tax liabilities 13.4 13.3 13.4 Derivative financial instruments 11 0.7 0.5 0.3 206.5 189.5 213.1 Net current assets 320.5 260.9 273.1 Non-current liabilities Borrowings 334.9 258.0 253.7 Lease liabilities 44.7 – – Retirement benefit obligations 27.6 20.7 39.2 Trade and other payables 13.3 9.7 11.6 Provisions 7.9 4.7 10.9 Deferred tax liabilities 41.1 41.2 33.2 469.5 334.3 348.6 Total liabilities 676.0 523.8 561.7 Net assets 1,067.5 927.3 981.4 Equity Share capital 38.0 38.0 38.0 Share premium account 23.6 23.6 23.6 Own shares (6.6) (3.5) (4.7) Capital redemption reserve 0.2 0.2 0.2 Hedging reserve (0.2) (0.3) 0.3 Translation reserve 162.7 124.2 119.5 Other reserves (11.8) (10.9) (5.6) Retained earnings 861.6 756.0 810.1 Total equity 1,067.5 927.3 981.4

Consolidated Statement of Changes in Equity


Own shares are ordinary shares in Halma plc purchased by the Company and held to fulfil the Company’s obligations under the Company’s share plans. As at 30 September 2019 the number of shares held by the Employee Benefit Trust was 393,672 (30 September 2018: 289,966 and 31 March 2019: 370,354).

The Translation reserve is used to record the difference arising from the retranslation of the financial statements of foreign operations. The Hedging reserve is used to record the portion of the cumulative net change in fair value of cash flow hedging instruments that are deemed to be an effective hedge.

The Capital redemption reserve was created on repurchase and cancellation of the Company’s own shares. The Other reserves represent the provision for the value of the Group’s equity-settled share plans.

For the six months to 30 September 2019

Share

capital £m

Share premium account

£m

Own shares

£m

Capital redemption

reserve £m

Hedging reserve

£m

Translation reserve

£m

Other reserves

£m

Retained earnings

£m Total

£m

At 1 April 2019 (audited) 38.0 23.6 (4.7) 0.2 0.3 119.5 (5.6) 810.1 981.4 Impact of changes in accounting policies: IFRS 16 – – – – – – – (3.3) (3.3) Restated balance at 1 April 2019 38.0 23.6 (4.7) 0.2 0.3 119.5 (5.6) 806.8 978.1 Profit for the period – – – – – – – 85.0 85.0 Other comprehensive income and expense: Exchange differences on translation of foreign operations – – – – – 43.2 – – 43.2 Actuarial gains on defined benefit pension plans – – – – – – – 6.0 6.0 Effective portion of changes in fair value of cash flow hedges – – – – (0.4) – – – (0.4) Tax relating to components of other comprehensive income and expense – – – – (0.1) – – (1.1) (1.2) Total other comprehensive income and expense – – – – (0.5) 43.2 – 4.9 47.6 Dividends paid – – – – – – (36.4) (36.4) Share-based payments charge – – – – – – 5.2 – 5.2 Deferred tax on share-based payment transactions – – – – – – 0.8 – 0.8 Excess tax deductions related to share-based payments on exercised awards – – – – – – – 1.3 1.3 Purchase of own shares – – (8.5) – – – – – (8.5) Performance share plan awards vested – – 6.6 – – – (12.2) – (5.6) At 30 September 2019 (unaudited) 38.0 23.6 (6.6) 0.2 (0.2) 162.7 (11.8) 861.6 1,067.5


Consolidated Statement of Changes in Equity Continued


15


Share

capital £m


£m

Own shares

£m

Capital redemption

reserve £m

Hedging reserve

£m

Translation reserve

£m

Other reserves

£m

Retained earnings

£m Total

£m

At 1 April 2018 (audited) 38.0 23.6 (6.3) 0.2 0.3 87.3 (5.9) 691.2 828.4 Impact of changes in accounting policies: IFRS 9 – – – – – – – 0.1 0.1 IFRS 15 – – – – – – – (0.2) (0.2) Restated balance at 1 April 2018 38.0 23.6 (6.3) 0.2 0.3 87.3 (5.9) 691.1 828.3 Profit for the period – – – – – – – 74.6 74.6 Other comprehensive income and expense: Exchange differences on translation of foreign operations – – – – – 37.3 – – 37.3 Exchange gains on translation of foreign operations recycled on disposal – – – – – (0.4) – – (0.4) Actuarial gains on defined benefit pension plans – – – – – – – 28.2 28.2 Effective portion of changes in fair value of cash flow hedges – – – – (0.6) – – – (0.6) Tax relating to components of other comprehensive income and expense – – – – – – – (5.2) (5.2) Total other comprehensive income and expense – – – – (0.6) 36.9 – 23.0 59.3 Dividends paid – – – – – – – (34.0) (34.0) Share-based payments charge – – – – – – 4.9 – 4.9 Deferred tax on share-based payment transactions – – – – – – 0.5 – 0.5 Excess tax deductions related to share-based payments on exercised awards – – – – – – – 1.3 1.3 Purchase of own shares – – (2.7) – – – – – (2.7) Performance share plan awards vested – 5.5 – – – (10.4) – (4.9) At 30 September 2018 (unaudited) 38.0 23.6 (3.5) 0.2 (0.3) 124.2 (10.9) 756.0 927.3




15


Share

capital £m


£m

Own shares

£m

Capital redemption

reserve £m

Hedging reserve

£m

Translation reserve

£m

Other reserves

£m

Retained earnings

£m Total

£m

At 1 April 2018 (audited) 38.0 23.6 (6.3) 0.2 0.3 87.3 (5.9) 691.2 828.4 Impact of changes in accounting policies: IFRS 9 – – – – – – – 0.1 0.1 IFRS 15 – – – – – – – (0.2) (0.2) Restated balance at 1 April 2018 38.0 23.6 (6.3) 0.2 0.3 87.3 (5.9) 691.1 828.3 Profit for the period – – – – – – – 74.6 74.6 Other comprehensive income and expense: Exchange differences on translation of foreign operations – – – – – 37.3 – – 37.3 Exchange gains on translation of foreign operations recycled on disposal – – – – – (0.4) – – (0.4) Actuarial gains on defined benefit pension plans – – – – – – – 28.2 28.2 Effective portion of changes in fair value of cash flow hedges – – – – (0.6) – – – (0.6) Tax relating to components of other comprehensive income and expense – – – – – – – (5.2) (5.2) Total other comprehensive income and expense – – – – (0.6) 36.9 – 23.0 59.3 Dividends paid – – – – – – – (34.0) (34.0) Share-based payments charge – – – – – – 4.9 – 4.9 Deferred tax on share-based payment transactions – – – – – – 0.5 – 0.5 Excess tax deductions related to share-based payments on exercised awards – – – – – – – 1.3 1.3 Purchase of own shares – – (2.7) – – – – – (2.7) Performance share plan awards vested – 5.5 – – – (10.4) – (4.9) At 30 September 2018 (unaudited) 38.0 23.6 (3.5) 0.2 (0.3) 124.2 (10.9) 756.0 927.3



For the year to 31 March 2019

Share

capital £m


£m

Own shares

£m

Capital redemption

reserve £m

Hedging reserve

£m

Translation reserve

£m

Other reserves

£m

Retained earnings

£m Total

£m

At 1 April 2018 (audited) 38.0 23.6 (6.3) 0.2 0.3 87.3 (5.9) 691.2 828.4 Impact of changes in accounting policies: IFRS 9 – – – – – – – 0.1 0.1 IFRS 15 – – – – – – – (0.2) (0.2) Restated balance at 1 April 2018 38.0 23.6 (6.3) 0.2 0.3 87.3 (5.9) 691.1 828.3 Profit for the period – – – – – – – 169.8 169.8 Other comprehensive income and expense: Exchange differences on translation of foreign operations – – – – – 32.5 – – 32.5 Exchange gains on translation of foreign operations recycled on disposal – – – – – (0.3) – – (0.3) Actuarial gains on defined benefit pension plans – – – – – – – 6.5 6.5 Effective portion of changes in fair value of cash flow hedges – – – – – – – – – Tax relating to components of other comprehensive income – – – – – – – (1.6) (1.6) Total other comprehensive income and expense – – – – – 32.2 – 4.9 37.1 Dividends paid – – – – – – – (57.2) (57.2) Share-based payments charge – – – – – – 9.7 – 9.7 Deferred tax on share-based payment transactions – – – – – – 0.9 – 0.9 Excess tax deductions related to share-based payments on exercised awards – – – – – – – 1.5 1.5 Purchase of own shares – – (3.8) – – – – – (3.8) Performance share plan awards vested – – 5.4 – – – (10.3) – (4.9) At 31 March 2019 (audited) 38.0 23.6 (4.7) 0.2 0.3 119.5 (5.6) 810.1 981.4


Consolidated Cash Flow Statement


17

Notes


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Net cash inflow from operating activities 8 95.6 96.8 219.0 Cash flows from investing activities Purchase of property, plant and equipment (12.0) (13.7) (26.4) Purchase of computer software (1.5) (1.2) (2.4) Purchase of other intangibles (0.2) (0.8) (2.5) Proceeds from sale of property, plant and equipment and capitalised development costs

0.3 0.4 1.6

Development costs capitalised (6.3) (4.3) (10.8) Interest received 0.3 0.1 0.4 Acquisition of businesses, net of cash acquired (84.5) (4.7) (67.0) Disposal of business 0.8 3.0 3.1 Payments for financial assets at fair value through other comprehensive income (1.8) – – Net cash used in investing activities (104.9) (21.2) (104.0) Cash flows from financing activities Dividends paid 7 (36.4) (34.0) (57.2) Purchase of own shares (8.5) (2.6) (3.8) Interest paid (5.2) (4.0) (8.2) Loan arrangement fee paid – – (0.5) Proceeds from bank borrowings 91.9 28.0 66.4 Repayment of bank borrowings (18.4) (70.4) (110.3) Repayment of lease liabilities (6.7) – – Net cash from/(used in) financing activities 16.7 (83.0) (113.6) Increase/(decrease) in cash and cash equivalents 7.4 (7.4) 1.4 Cash and cash equivalents brought forward 72.1 69.7 69.7 Exchange adjustments 2.0 1.2 1.0 Cash and cash equivalents carried forward 81.5 63.5 72.1


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash and cash equivalents 7.4 (7.4) 1.4 Net cash (inflow)/outflow from (drawdown)/repayment of bank borrowings (73.5) 42.4 43.9 Loan notes repaid in respect of acquisitions 0.1 0.1 0.1 Lease liabilities additions (9.0) – – Lease liabilities acquired (3.6) – – Lease liabilities and interest repaid 7.7 – – Exchange adjustments (7.5) (9.4) (6.8) (Increase)/decrease in net debt (78.4) 25.7 38.6 Net debt brought forward (181.7) (220.3) (220.3) Impact of changes in accounting policies – IFRS 16 (50.3) – – Restated net debt brought forward (232.0) (220.3) (220.3) Net debt carried forward (310.4) (194.6) (181.7)


Consolidated Cash Flow Statement


17

Notes


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Net cash inflow from operating activities 8 95.6 96.8 219.0 Cash flows from investing activities Purchase of property, plant and equipment (12.0) (13.7) (26.4) Purchase of computer software (1.5) (1.2) (2.4) Purchase of other intangibles (0.2) (0.8) (2.5) Proceeds from sale of property, plant and equipment and capitalised development costs

0.3 0.4 1.6

Development costs capitalised (6.3) (4.3) (10.8) Interest received 0.3 0.1 0.4 Acquisition of businesses, net of cash acquired (84.5) (4.7) (67.0) Disposal of business 0.8 3.0 3.1 Payments for financial assets at fair value through other comprehensive income (1.8) – – Net cash used in investing activities (104.9) (21.2) (104.0) Cash flows from financing activities Dividends paid 7 (36.4) (34.0) (57.2) Purchase of own shares (8.5) (2.6) (3.8) Interest paid (5.2) (4.0) (8.2) Loan arrangement fee paid – – (0.5) Proceeds from bank borrowings 91.9 28.0 66.4 Repayment of bank borrowings (18.4) (70.4) (110.3) Repayment of lease liabilities (6.7) – – Net cash from/(used in) financing activities 16.7 (83.0) (113.6) Increase/(decrease) in cash and cash equivalents 7.4 (7.4) 1.4 Cash and cash equivalents brought forward 72.1 69.7 69.7 Exchange adjustments 2.0 1.2 1.0 Cash and cash equivalents carried forward 81.5 63.5 72.1


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash and cash equivalents 7.4 (7.4) 1.4 Net cash (inflow)/outflow from (drawdown)/repayment of bank borrowings (73.5) 42.4 43.9 Loan notes repaid in respect of acquisitions 0.1 0.1 0.1 Lease liabilities additions (9.0) – – Lease liabilities acquired (3.6) – – Lease liabilities and interest repaid 7.7 – – Exchange adjustments (7.5) (9.4) (6.8) (Increase)/decrease in net debt (78.4) 25.7 38.6 Net debt brought forward (181.7) (220.3) (220.3) Impact of changes in accounting policies – IFRS 16 (50.3) – – Restated net debt brought forward (232.0) (220.3) (220.3) Net debt carried forward (310.4) (194.6) (181.7)

Notes to the Condensed Interim Financial Statements

1 Basis of preparation General information The Half Year Report, which includes the Interim Management Report and Condensed Interim Financial Statements for the six months to 30 September 2019, was approved by the Directors on 19 November 2019.

Basis of preparation 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 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 year to 31 March 2019, with the exception of the policy for taxes on income, which in the interim period is accrued using the effective tax rate that would be applicable to expected total income for the financial year, and except for the adoption of new accounting standards described below.

The figures shown for the year to 31 March 2019 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 to which the Auditor 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.

As part of a review of deferred tax balances as at 30 September 2019, some balances were identified (mainly relating to intangible assets on US acquisitions) that were previously presented gross but should have been netted off as they are in the same jurisdiction and there is a legally enforceable right to set off current tax assets against current tax liabilities. These balances have now been netted off. Restatements have been made to the prior periods as at 30 September 2018 and 31 March 2019, resulting in a netting down of assets and liabilities of £29.2m and £40.7m respectively. There is no impact on net assets, cash or other KPIs. There was no impact on opening net assets as at 1 April 2018.

Going concern The Directors believe the Group is well placed to manage its business risks successfully. The Group’s forecasts and projections, taking account reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities, which includes a £550m five-year Revolving Credit Facility (RCF) running until November 2023 of which £398.8m remains undrawn at the date of this report. With this in mind, 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.

New accounting standards and policies With effect from 1 April 2019 the Group has adopted the following new accounting standard:

IFRS 16 ‘Leases’ The Group has adopted IFRS 16 from 1 April 2019 and applied the modified retrospective approach. IFRS 16 provides a single on-balance sheet accounting model for lessees which recognises a right-of-use asset, representing its right to use the underlying asset, and lease liability, representing its obligations to make payment in respect of the use of the underlying asset. The distinction between finance and operating leases for lessees is removed. Comparatives for the prior period have not been restated and the adjustments arising from the new leasing standard are therefore recognised in the opening balance sheet on 1 April 2019 as follows:

1 April 2019 £m

Non-current assets Property, plant and equipment (right of use assets) 45.4 Total assets 45.4 Current liabilities Trade and other payables 0.4 Lease liabilities (10.7) Non-current liabilities Lease liabilities (39.6) Deferred tax liability 1.2 Total liabilities (48.7) Total movement in retained earnings as at 1 April 2019 (3.3)


Notes to the Condensed Interim Financial Statements Continued


19

On adoption of IFRS 16, the Group recognised liabilities for leases which had been classified as operating leases under previous accounting standards. The lease liability has been measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate as at 1 April 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 April 2019 was 3.7%.

Practical expedients applied In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

— Relied on previous assessments of whether leases are onerous

— Excluded initial direct costs for the measurement of right-of-use assets at the date of the initial application

— Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease

Additionally, on transition the Group elected not to reassess whether a contract is, or contains, a lease, instead relying on the assessment already made applying IAS 17 ‘Leases’ and IFRIC 4 ‘Determining whether an Arrangement contains a Lease’.

Impact on the income statement The impact on the income statement for the six months ended 30 September 2019 is to increase operating profit by approximately £1.4m and increase finance costs by £1.0m resulting in an increase in profit before tax of £0.4m. The impact on the income statement for the year ended 31 March 2020 is expected to increase operating profit by approximately £2.8m and increase finance costs by £2.0m resulting in an increase in profit before tax of £0.8m.

Impact on the cash flow statement There has been a change to the classification of cash flows in the cash flow statement with operating lease payments previously categorised as net cash used in operations now being split between the principal element, included as repayment of lease liabilities within financing activities and the interest element, included as interest paid within financing activities. In the six months to 30 September 2019 there are £7.7m of lease payments within financing activities comprising £6.7m of repayment of lease liabilities and £1.0m of interest paid.

Accounting policy The Group recognises a right-of-use asset and a lease liability at the lease commencement date.

The right-of-use asset is initially measured at cost, comprising the initial amount of the lease liability plus any initial direct costs incurred and an estimate of costs to restore the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the asset or the end of the lease term.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the incremental borrowing rate. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or a rate or a change in the Group’s assessment of whether it will exercise an extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the right-of-use asset.

Payments associated with short-term leases or low-value assets are recognised on a straight-line basis as an expense in the income statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets mostly comprise of IT equipment and small items of office furniture.

Other new accounting standards and interpretations applied for the first time The following Standards with an effective date of 1 January 2019 have been adopted without any significant impact on the amounts reported in these financial statements:

— Amendments to IAS 19: Plan amendment, Curtailment of Settlement

— Annual improvements 2015-2017 cycle

— IFRIC Interpretation 23: Uncertainty over Income Tax Treatments

— Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures

1 April 2019 £m

Operating lease commitments as disclosed at 31 March 2019 52.5 Reconciling items — Effect of discounting (at incremental borrowing rate as a 1 April 2019) (4.8) — Short-term leases recognised on a straight-line basis as expense (0.4) — Low-value leases recognised on a straight-line basis as expense (0.3) — Recognition differences on new leases and extension assumptions 3.3 Lease liability recognised as at 1 April 2019 50.3




19

On adoption of IFRS 16, the Group recognised liabilities for leases which had been classified as operating leases under previous accounting standards. The lease liability has been measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate as at 1 April 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 April 2019 was 3.7%.

Practical expedients applied In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

— Relied on previous assessments of whether leases are onerous

— Excluded initial direct costs for the measurement of right-of-use assets at the date of the initial application

— Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease

Additionally, on transition the Group elected not to reassess whether a contract is, or contains, a lease, instead relying on the assessment already made applying IAS 17 ‘Leases’ and IFRIC 4 ‘Determining whether an Arrangement contains a Lease’.

Impact on the income statement The impact on the income statement for the six months ended 30 September 2019 is to increase operating profit by approximately £1.4m and increase finance costs by £1.0m resulting in an increase in profit before tax of £0.4m. The impact on the income statement for the year ended 31 March 2020 is expected to increase operating profit by approximately £2.8m and increase finance costs by £2.0m resulting in an increase in profit before tax of £0.8m.

Impact on the cash flow statement There has been a change to the classification of cash flows in the cash flow statement with operating lease payments previously categorised as net cash used in operations now being split between the principal element, included as repayment of lease liabilities within financing activities and the interest element, included as interest paid within financing activities. In the six months to 30 September 2019 there are £7.7m of lease payments within financing activities comprising £6.7m of repayment of lease liabilities and £1.0m of interest paid.

Accounting policy The Group recognises a right-of-use asset and a lease liability at the lease commencement date.

The right-of-use asset is initially measured at cost, comprising the initial amount of the lease liability plus any initial direct costs incurred and an estimate of costs to restore the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the asset or the end of the lease term.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the incremental borrowing rate. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or a rate or a change in the Group’s assessment of whether it will exercise an extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the right-of-use asset.

Payments associated with short-term leases or low-value assets are recognised on a straight-line basis as an expense in the income statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets mostly comprise of IT equipment and small items of office furniture.

Other new accounting standards and interpretations applied for the first time The following Standards with an effective date of 1 January 2019 have been adopted without any significant impact on the amounts reported in these financial statements:

— Amendments to IAS 19: Plan amendment, Curtailment of Settlement

— Annual improvements 2015-2017 cycle

— IFRIC Interpretation 23: Uncertainty over Income Tax Treatments

— Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures

1 April 2019 £m

Operating lease commitments as disclosed at 31 March 2019 52.5 Reconciling items — Effect of discounting (at incremental borrowing rate as a 1 April 2019) (4.8) — Short-term leases recognised on a straight-line basis as expense (0.4) — Low-value leases recognised on a straight-line basis as expense (0.3) — Recognition differences on new leases and extension assumptions 3.3 Lease liability recognised as at 1 April 2019 50.3



2 Segmental analysis and revenue from contracts with customers Sector analysis The Group has four main reportable segments (Process Safety, Infrastructure Safety, Environmental & Analysis and Medical), 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.

Segment revenue disaggregation (by location of external customer) Unaudited Six months to 30 September 2019

Revenue by sector and destination (all continuing operations)

United States

of America £m

Mainland Europe

£m

United Kingdom

£m Asia Pacific

£m

Africa, Near and

Middle East £m

Other countries

£m Total

£m

Process Safety 35.4 19.2 13.4 17.3 10.7 5.3 101.3 Infrastructure Safety 55.5 71.8 53.9 33.3 11.8 6.6 232.9 Environmental & Analysis 78.1 19.5 31.3 29.6 2.5 2.7 163.7 Medical 79.9 25.0 6.6 26.6 5.7 12.1 155.9 Inter-segmental sales (0.1) – – – – – (0.1) Revenue for the period 248.8 135.5 105.2 106.8 30.7 26.7 653.7

Unaudited Six months to 30 September 2018


United States

of America £m

Mainland Europe

£m

United Kingdom

£m Asia Pacific

£m

Africa, Near and

Middle East £m

Other countries

£m Total

£m

Process Safety 32.5 19.8 15.4 13.9 12.0 4.3 97.9 Infrastructure Safety 39.8 61.2 50.2 24.4 16.2 5.8 197.6 Environmental & Analysis 65.6 17.7 24.7 28.1 3.7 3.2 143.0 Medical 78.2 25.6 6.0 21.7 6.6 9.1 147.2 Inter-segmental sales (0.1) – (0.1) – – – (0.2) Revenue for the period 216.0 124.3 96.2 88.1 38.5 22.4 585.5

Audited year end 31 March 2019


United States

of America £m

Mainland Europe

£m

United Kingdom

£m Asia Pacific

£m

Africa, Near and

Middle East £m

Other countries

£m Total

£m

Process Safety 61.3 42.1 32.6 29.6 23.2 8.7 197.5 Infrastructure Safety 87.8 131.2 101.4 48.6 28.4 11.2 408.6 Environmental & Analysis 135.2 38.0 53.6 59.7 6.0 6.6 299.1 Medical 159.2 55.0 13.4 46.1 13.2 19.2 306.1 Inter-segmental sales (0.3) – (0.1) – – – (0.4) Revenue for the period 443.2 266.3 200.9 184.0 70.8 45.7 1,210.9

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. Revenue derived from the rendering of services was £26.6m (six months to 30 September 2018: £18.0m; year to 31 March 2019: £39.2m). All revenue was otherwise derived from the sale of products.

The majority of the Group’s revenue is recognised when control passes at a point in time.




21

2 Segmental analysis continued Segment results Profit (all continuing operations)


2019 £m


30 September 2018

£m

Audited Year to

31 March 2019

£m

Segment profit before allocation of adjustments* Process Safety 24.9 22.2 45.5 Infrastructure Safety 52.3 41.7 88.9 Environmental & Analysis 35.1 29.0 66.4 Medical 35.6 35.0 76.9 147.9 127.9 277.7 Segment profit after allocation of adjustments* Process Safety 22.9 20.2 41.5 Infrastructure Safety 43.0 37.3 79.1 Environmental & Analysis 30.3 25.5 60.1 Medical 28.7 26.5 60.1 Segment profit 124.9 109.5 240.8 Central administration costs (13.4) (10.1) (24.1) Net finance expense (5.7) (4.9) (10.0) Group profit before taxation 105.8 94.5 206.7 Taxation (20.8) (19.9) (36.9) Profit for the period 85.0 74.6 169.8

* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; significant restructuring costs; and profit or loss on disposal of operations. Note 9 provides more information on alternative performance measures.

The accounting policies of the reportable segments are the same as the Group’s accounting policies. Acquisition transaction costs, adjustments to contingent consideration and release of fair value adjustments to inventory (collectively ‘acquisition items’) are recognised in the Consolidated Income Statement. Segment profit before these acquisition items and other adjustments, is disclosed separately above as this is the measure reported to the Group Chief Executive for the purpose of allocation of resources and assessment of segment performance.




21

2 Segmental analysis continued Segment results Profit (all continuing operations)


2019 £m


30 September 2018

£m

Audited Year to

31 March 2019

£m

Segment profit before allocation of adjustments* Process Safety 24.9 22.2 45.5 Infrastructure Safety 52.3 41.7 88.9 Environmental & Analysis 35.1 29.0 66.4 Medical 35.6 35.0 76.9 147.9 127.9 277.7 Segment profit after allocation of adjustments* Process Safety 22.9 20.2 41.5 Infrastructure Safety 43.0 37.3 79.1 Environmental & Analysis 30.3 25.5 60.1 Medical 28.7 26.5 60.1 Segment profit 124.9 109.5 240.8 Central administration costs (13.4) (10.1) (24.1) Net finance expense (5.7) (4.9) (10.0) Group profit before taxation 105.8 94.5 206.7 Taxation (20.8) (19.9) (36.9) Profit for the period 85.0 74.6 169.8

* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; significant restructuring costs; and profit or loss on disposal of operations. Note 9 provides more information on alternative performance measures.

The accounting policies of the reportable segments are the same as the Group’s accounting policies. Acquisition transaction costs, adjustments to contingent consideration and release of fair value adjustments to inventory (collectively ‘acquisition items’) are recognised in the Consolidated Income Statement. Segment profit before these acquisition items and other adjustments, is disclosed separately above as this is the measure reported to the Group Chief Executive for the purpose of allocation of resources and assessment of segment performance.



2 Segmental analysis continued These adjustments are analysed as follows:

Unaudited for the Six months to 30 September 2019

Amortisation of acquired intangibles

£m

Acquisition items Total amortisation

charge and acquisition

items £m

Disposal of operations and

significant restructuring

£m Total

£m

Transaction costs

£m

Adjustments to contingent consideration

£m

Release of fair value

adjustments to inventory

£m

Process Safety (2.0) – – – (2.0) – (2.0) Infrastructure Safety (5.2) (2.2) – (1.9) (9.3) – (9.3) Environmental & Analysis (4.6) (0.2) – – (4.8) – (4.8) Medical (6.5) (0.5) 0.1 – (6.9) – (6.9) Total Segment & Group (18.3) (2.9) 0.1 (1.9) (23.0) – (23.0)

The transaction costs arose mainly on the acquisitions during the year. In Infrastructure Safety, they related to Ampac £2.2m. In Environmental and Analysis, they related to the acquisitions of Invenio (£0.1m) and Enoveo (£0.1m). In Medical, they mainly related to the acquisition of Visiometrics in a previous year (£0.3m).

The £1.9m release of fair value adjustments to inventory relates to Navtech Radar (£0.4m) and Ampac (£1.5m). All amounts have now been released in relation to Navtech Radar.

Unaudited for the Six months to 30 September 2018

Amortisation

of acquired intangibles

£m



items £m



£m Total

£m

Transaction costs

£m


£m



£m

Process Safety (2.0) – – – (2.0) – (2.0) Infrastructure Safety (3.0) – – (1.4) (4.4) – (4.4) Environmental & Analysis (4.5) – 1.1 (0.1) (3.5) – (3.5) Medical (8.0) – 0.4 – (7.6) (0.9) (8.5) Total Segment & Group (17.5) – 1.5 (1.5) (17.5) (0.9) (18.4)

The £1.5m adjustment to contingent consideration comprised a credit of £1.1m in Environmental & Analysis arising from a change in estimate of the payable for FluxData, Inc. and a credit of £0.4m in Medical arising from exchange differences on the payables for Visiometrics S.L. (“Visiometrics”) which is denominated in Euros.

The £1.5m charge related to the release of the remaining fair value adjustment on revaluing the inventory of Firetrace (£1.4m) and Mini-Cam Enterprises Limited and subsidiaries (£0.1m).

The loss on disposal of operations of £0.9m arose on the sale of the trade and assets of Accudynamics Inc, for sale proceeds of £4.1m. The net assets on disposal were £4.3m, which together with the disposal of related goodwill of £0.8m and disposal costs of £0.3m, offset by the recycling of foreign exchange gains of £0.4m, resulted in a net loss on disposal (before taxation) of £0.9m.




23

2 Segmental analysis continued Audited for the year to 31 March 2019


£m



items £m



£m Total

£m

Transaction costs

£m


£m



£m

Defined benefit

pension charge

£m

Process Safety (4.0) – – – (4.0) – – (4.0) Infrastructure Safety (6.8) (0.4) – (2.6) (9.8) – – (9.8) Environmental & Analysis (9.1) (0.1) 3.0 (0.1) (6.3) – – (6.3) Medical (15.7) (0.6) 0.5 – (15.8) – (1.0) (16.8) Total Segment (35.6) (1.1) 3.5 (2.7) (35.9) – (1.0) (36.9) Unallocated – – – – – (2.1) – (2.1) (35.6) (1.1) 3.5 (2.7) (35.9) (2.1) (1.0) (39.0)

The transaction costs arose mainly on the acquisitions during the year. In Infrastructure Safety, they mainly related to LAN Controls Limited (£0.1m), Limotec (£0.1m), Navtech Radar (£0.4m) and Business Marketers Group (trading as Rath Communications) (£0.1m) and a credit from a previous acquisition. In Environmental & Analysis, they related to the acquisition of FluxData in a previous year (£0.1m). In Medical, they mainly related to the acquisition of Visiometrics in a previous year (£0.5m).

The £3.5m adjustment to contingent consideration comprised: a credit of £3.0m in Environmental & Analysis arising from decreases in estimates of the payable for FluxData (£2.7m) and Mini-Cam (£0.3m); and a credit of £0.5m in Medical arising from an increase in estimate of the payable for CasMed NIBP (£0.1m) offset by a credit of £0.6m arising from exchange differences on the payable for Visiometrics which is denominated in Euros.

The £2.7m release of fair value adjustments to inventory related to Firetrace (£1.4m), Limotec (£0.3m), Navtech Radar (£0.6m) and Rath (£0.3m) in Infrastructure and Safety; and Mini-Cam (£0.1m) within Environmental & Analysis. All amounts have now been released in relation to Firetrace, Limotec, Rath and Mini-Cam.

The £2.1m defined benefit pension charge related to the estimate of Guaranteed Minimum Pension equalisation for men and women.

3 Finance income Unaudited


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Interest receivable 0.3 0.1 0.4 Fair value movement on derivative financial instruments 0.1 – 0.1 0.4 0.1 0.5

4 Finance expense Unaudited


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Interest payable on loans and overdrafts 3.7 3.9 7.6 Interest payable on lease obligations 1.0 – – Amortisation of finance costs 0.4 0.4 0.9 Net interest charge on pension plan liabilities 0.4 0.6 1.2 Other interest payable 0.1 0.1 0.5 5.6 5.0 10.2 Fair value movement on derivative financial instruments 0.2 – 0.2 Unwinding of discount on provisions 0.3 – 0.1 6.1 5.0 10.5

5 Taxation The total Group tax charge for the six months to 30 September 2019 of £20.8m (six months to 30 September 2018: £19.9m; year to 31 March 2019: £36.9m) comprises a current tax charge of £23.3m (six months to 30 September 2018: £21.2m; year to 31 March 2019: £44.7m) and a deferred tax credit of £2.5m (six months to 30 September 2018: £1.3m; year to 31 March 2019: £7.8m). The tax charge is based on the estimated effective tax rate for the year, for profit before tax before adjustments. The tax rates applied to the adjustments are established on an individual basis for each adjustment.

The tax charge includes £19.6m (six months to 30 September 2018: £17.3m; year to 31 March 2019: £33.6m) in respect of overseas tax.




23

2 Segmental analysis continued Audited for the year to 31 March 2019


£m



items £m



£m Total

£m

Transaction costs

£m


£m



£m

Defined benefit

pension charge

£m

Process Safety (4.0) – – – (4.0) – – (4.0) Infrastructure Safety (6.8) (0.4) – (2.6) (9.8) – – (9.8) Environmental & Analysis (9.1) (0.1) 3.0 (0.1) (6.3) – – (6.3) Medical (15.7) (0.6) 0.5 – (15.8) – (1.0) (16.8) Total Segment (35.6) (1.1) 3.5 (2.7) (35.9) – (1.0) (36.9) Unallocated – – – – – (2.1) – (2.1) (35.6) (1.1) 3.5 (2.7) (35.9) (2.1) (1.0) (39.0)

The transaction costs arose mainly on the acquisitions during the year. In Infrastructure Safety, they mainly related to LAN Controls Limited (£0.1m), Limotec (£0.1m), Navtech Radar (£0.4m) and Business Marketers Group (trading as Rath Communications) (£0.1m) and a credit from a previous acquisition. In Environmental & Analysis, they related to the acquisition of FluxData in a previous year (£0.1m). In Medical, they mainly related to the acquisition of Visiometrics in a previous year (£0.5m).

The £3.5m adjustment to contingent consideration comprised: a credit of £3.0m in Environmental & Analysis arising from decreases in estimates of the payable for FluxData (£2.7m) and Mini-Cam (£0.3m); and a credit of £0.5m in Medical arising from an increase in estimate of the payable for CasMed NIBP (£0.1m) offset by a credit of £0.6m arising from exchange differences on the payable for Visiometrics which is denominated in Euros.

The £2.7m release of fair value adjustments to inventory related to Firetrace (£1.4m), Limotec (£0.3m), Navtech Radar (£0.6m) and Rath (£0.3m) in Infrastructure and Safety; and Mini-Cam (£0.1m) within Environmental & Analysis. All amounts have now been released in relation to Firetrace, Limotec, Rath and Mini-Cam.

The £2.1m defined benefit pension charge related to the estimate of Guaranteed Minimum Pension equalisation for men and women.

3 Finance income Unaudited


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Interest receivable 0.3 0.1 0.4 Fair value movement on derivative financial instruments 0.1 – 0.1 0.4 0.1 0.5

4 Finance expense Unaudited


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Interest payable on loans and overdrafts 3.7 3.9 7.6 Interest payable on lease obligations 1.0 – – Amortisation of finance costs 0.4 0.4 0.9 Net interest charge on pension plan liabilities 0.4 0.6 1.2 Other interest payable 0.1 0.1 0.5 5.6 5.0 10.2 Fair value movement on derivative financial instruments 0.2 – 0.2 Unwinding of discount on provisions 0.3 – 0.1 6.1 5.0 10.5

5 Taxation The total Group tax charge for the six months to 30 September 2019 of £20.8m (six months to 30 September 2018: £19.9m; year to 31 March 2019: £36.9m) comprises a current tax charge of £23.3m (six months to 30 September 2018: £21.2m; year to 31 March 2019: £44.7m) and a deferred tax credit of £2.5m (six months to 30 September 2018: £1.3m; year to 31 March 2019: £7.8m). The tax charge is based on the estimated effective tax rate for the year, for profit before tax before adjustments. The tax rates applied to the adjustments are established on an individual basis for each adjustment.

The tax charge includes £19.6m (six months to 30 September 2018: £17.3m; year to 31 March 2019: £33.6m) in respect of overseas tax.



6 Earnings per ordinary share Basic and diluted earnings per ordinary share are calculated using the weighted average of 379,134,587 (30 September 2018: 379,043,693; 31 March 2019: 379,159,755) shares in issue during the period (net of shares purchased by the Company and held as Employee Benefit Trust shares). There are no dilutive or potentially dilutive ordinary shares.

Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation of acquired intangible assets; acquisition items; significant restructuring costs; profit or loss on disposal of operations; and the associated taxation thereon.

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 as follows:


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Earnings from continuing operations 85.0 74.6 169.8 Amortisation of acquired intangible assets (after tax) 14.1 14.9 27.5 Acquisition transaction costs (after tax) 2.8 – 1.0 Adjustments to contingent consideration (after tax) (0.1) (1.5) (2.9) Release of fair value adjustments to inventory (after tax) 1.4 1.1 2.1 Defined benefit pension charge (after tax) – – 1.7 Disposal of operations and restructuring (after tax) – 0.7 0.8 Adjusted earnings 103.2 89.8 200.0

Per ordinary share


2019 pence


2018 pence

Audited Year to

31 March 2019

pence

Earnings from continuing operations 22.40 19.67 44.78 Amortisation of acquired intangible assets (after tax) 3.72 3.93 7.25 Acquisition transaction costs (after tax) 0.75 – 0.27 Adjustments to contingent consideration (after tax) (0.04) (0.40) (0.75) Release of fair value adjustments to inventory (after tax) 0.37 0.29 0.55 Defined benefit pension charge (after tax) – – 0.44 Disposal of operations and restructuring (after tax) – 0.18 0.20 Adjusted earnings 27.20 23.67 52.74




25

7 Dividends Per ordinary share


2019 pence


2018 pence

Audited Year to

31 March 2019

pence

Amounts recognised as distributions to shareholders in the period Final dividend for the year to 31 March 2019 (31 March 2018) 9.60 8.97 8.97 Interim dividend for the year to 31 March 2019 – – 6.11 9.60 8.97 15.08 Dividends in respect of the period Proposed interim dividend for the year to 31 March 2020 (31 March 2019) 6.54 6.11 6.11 Final dividend for the year to 31 March 2019 – – 9.60 6.54 6.11 15.71


2019 £m


2018 £m

Audited Year to

31 March 2019

£m





25

7 Dividends Per ordinary share


2019 pence


2018 pence

Audited Year to

31 March 2019

pence



2019 £m


2018 £m

Audited Year to

31 March 2019

£m




8 Notes to the Consolidated Cash Flow Statement Unaudited


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Reconciliation of profit from operations to net cash inflow from operating activities Profit on continuing operations before finance income and expense, share of results of associates and profit or loss on disposal of operations 111.6 100.4 217.8 Financial instruments at fair value through profit or loss – (0.1) (0.1) Depreciation of property, plant and equipment 17.0 9.8 20.0 Loss on disposal of capitalised development costs – 0.7 – Amortisation of computer software 1.1 0.8 1.8 Amortisation of capitalised development costs and other intangibles 4.1 4.3 8.8 Impairment of capitalised development costs 2.0 – 0.7 Amortisation of acquired intangible assets 18.3 17.5 35.6 Share-based payment expense in excess of amounts paid 0.2 – 4.7 Additional payments to pension plans (6.2) (5.5) (11.4) Defined benefit pension charge – – 2.1 Loss/(profit) on sale of property, plant and equipment and computer software 0.1 – (0.6) Operating cash flows before movement in working capital 148.2 127.9 279.4 Increase in inventories (6.5) (9.9) (9.2) Increase in receivables (2.3) (1.2) (15.3) (Decrease)/increase in payables and provisions (16.4) 0.5 8.2 Revision to estimate of contingent consideration payable (0.1) (1.5) (3.5) Cash generated from operations 122.9 115.8 259.6 Taxation paid (27.3) (19.0) (40.6) Net cash inflow from operating activities 95.6 96.8 219.0


2019 £m


2018 £m

Audited 31 March

2019 £m

Analysis of cash and cash equivalents Cash and bank balances 83.2 66.4 81.2 Overdrafts (included in current Borrowings) (1.7) (2.9) (9.1) Cash and cash equivalents 81.5 63.5 72.1




27

8 Notes to the Consolidated Cash Flow Statement continued

At 31 March

2019 £m

Restatement for changes in

accounting standards

IFRS 16 £m

Restated as at 1 April

2019 £m

Cash flow £m

Net cash/(debt)

acquired £m

Loan notes repaid

£m

Lease liabilities additions

£m

Exchange adjustments

£m

At 30 September

2019 £m

Analysis of net debt Cash and bank balances 81.2 – 81.2 (6.8) 6.8 – – 2.0 83.2 Overdrafts (9.1) – (9.1) 7.4 – – – – (1.7) Cash and cash equivalents 72.1 – 72.1 0.6 6.8 – – 2.0 81.5 Loan notes falling due within one year

(0.1) – (0.1) – – 0.1 – – –

Loan notes falling due after more than one year

(179.3) – (179.3) – – – – (4.4) (183.7)

Bank loans falling due after more than one year

(74.4) – (74.4) (73.5) – – – (3.3) (151.2)

Lease liabilities – (50.3) (50.3) 7.7 (3.6) – (9.0) (1.8) (57.0) Total net debt (181.7) (50.3) (232.0) (65.2) 3.2 0.1 (9.0) (7.5) (310.4)

Overdrafts and Loan notes falling due within one year are included as current borrowings in the Consolidated Balance Sheet. Loan notes and Bank loans falling due after more than one year are included as non-current borrowings.

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

Note 2 provides further analysis of the adjusting items in reaching adjusted profit measures.

Return on Total Invested Capital (ROTIC) Unaudited


2019 £m


30 September 2018

£m

Audited Year to

31 March 2019

£m

Profit after tax 85.0 74.6 169.8 Adjustments1 18.2 15.2 30.2 Adjusted profit after tax1 103.2 89.8 200.0 Total equity 1,067.5 927.3 981.4 Add back retirement benefit obligations 27.6 20.7 39.2 Less associated deferred tax assets (4.7) (3.6) (7.0) Cumulative amortisation of acquired intangible assets 264.8 219.0 235.2 Historical adjustments to goodwill2 89.5 89.5 89.5 Total Invested Capital 1,444.7 1,252.9 1,338.3 Average Total Invested Capital3 1,391.5 1,203.0 1,245.7 Return on Total Invested Capital (annualised)4 14.8% 14.9% 16.1%




27

8 Notes to the Consolidated Cash Flow Statement continued

At 31 March

2019 £m

Restatement for changes in

accounting standards

IFRS 16 £m

Restated as at 1 April

2019 £m

Cash flow £m

Net cash/(debt)

acquired £m

Loan notes repaid

£m

Lease liabilities additions

£m

Exchange adjustments

£m

At 30 September

2019 £m

Analysis of net debt Cash and bank balances 81.2 – 81.2 (6.8) 6.8 – – 2.0 83.2 Overdrafts (9.1) – (9.1) 7.4 – – – – (1.7) Cash and cash equivalents 72.1 – 72.1 0.6 6.8 – – 2.0 81.5 Loan notes falling due within one year

(0.1) – (0.1) – – 0.1 – – –

Loan notes falling due after more than one year

(179.3) – (179.3) – – – – (4.4) (183.7)

Bank loans falling due after more than one year

(74.4) – (74.4) (73.5) – – – (3.3) (151.2)

Lease liabilities – (50.3) (50.3) 7.7 (3.6) – (9.0) (1.8) (57.0) Total net debt (181.7) (50.3) (232.0) (65.2) 3.2 0.1 (9.0) (7.5) (310.4)

Overdrafts and Loan notes falling due within one year are included as current borrowings in the Consolidated Balance Sheet. Loan notes and Bank loans falling due after more than one year are included as non-current borrowings.

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

Note 2 provides further analysis of the adjusting items in reaching adjusted profit measures.

Return on Total Invested Capital (ROTIC) Unaudited


2019 £m


30 September 2018

£m

Audited Year to

31 March 2019

£m

Profit after tax 85.0 74.6 169.8 Adjustments1 18.2 15.2 30.2 Adjusted profit after tax1 103.2 89.8 200.0 Total equity 1,067.5 927.3 981.4 Add back retirement benefit obligations 27.6 20.7 39.2 Less associated deferred tax assets (4.7) (3.6) (7.0) Cumulative amortisation of acquired intangible assets 264.8 219.0 235.2 Historical adjustments to goodwill2 89.5 89.5 89.5 Total Invested Capital 1,444.7 1,252.9 1,338.3 Average Total Invested Capital3 1,391.5 1,203.0 1,245.7 Return on Total Invested Capital (annualised)4 14.8% 14.9% 16.1%



9 Alternative performance measures continued Return on Capital Employed (ROCE) Unaudited


2019 £m


30 September 2018

£m

Audited Year to

31 March 2019

£m

Profit before tax 105.8 94.5 206.7 Adjustments1 23.0 18.4 39.0 Net finance costs 5.7 4.9 10.0 Lease interest (1.0) – – Adjusted operating profit1 after share of results of associates 133.5 117.8 255.7 Computer software costs within intangible assets 6.0 5.1 5.5 Capitalised development costs within intangible assets 34.7 30.2 33.1 Other intangibles within intangible assets 3.3 3.0 3.1 Property, plant and equipment 171.7 109.6 112.4 Inventories 162.9 141.2 144.3 Trade and other receivables 275.2 241.8 259.6 Trade and other payables (157.9) (154.5) (164.8) Provisions (20.5) (18.2) (25.4) Net current tax liabilities (8.6) (12.6) (13.2) Non-current trade and other payables (13.3) (9.7) (11.6) Non-current provisions (7.9) (4.7) (10.9) Lease liabilities (57.0) – – Add back contingent purchase consideration 19.4 14.8 26.8 Capital Employed 408.0 346.0 358.9 Average Capital Employed3 383.5 334.0 340.4 Return on Capital Employed (annualised)4 69.6% 70.5% 75.1%

1 Adjustments include the amortisation of acquired intangible assets; acquisition items; significant restructuring costs and profit or loss on disposal of operations. These also include the associated taxation on adjusting items where after-tax measures.

2 Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves. 3 The ROTIC and ROCE measures are expressed as a percentage of the average of the current period’s and prior year’s Total Invested Capital and Capital Employed respectively.

Using an average as the denominator is considered to be more representative. The March 2018 Total Invested Capital and Capital Employed balances were £1,125.1m and £312.1m respectively.

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

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

a. removing from the year of acquisition their entire revenue and profit before taxation, and

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

The resultant effect is that the acquisitions are removed from organic results for one full year of ownership.

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

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

Organic growth at constant currency has been calculated as follows:

Organic growth at constant currency Revenue Adjusted profit* before taxation


2019 £m


2018 £m % growth


2019 £m


30 September 2018

£m % growth

Continuing operations 653.7 585.5 11.7% 128.8 112.9 14.1% Acquired and disposed revenue/profit (23.4) (3.6) (5.1) (0.6) Organic growth 630.3 581.9 8.3% 123.7 112.3 10.2% Constant currency adjustment (18.7) – (4.1) – Organic growth at constant currency 611.6 581.9 5.1% 119.6 112.3 6.5%

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




29

9 Alternative performance measures continued Sector organic growth at constant currency Organic growth at constant currency is calculated for each segment using the same method as described above.

Process Safety Revenue Adjusted* segment profit


2019 £m


2018 £m

% growth Unaudited Six months to 30 September

2019 £m


30 September 2018

£m

% growth

Continuing operations 101.3 97.9 3.5% 24.9 22.2 12.2% Acquisition and currency adjustments (2.4) – (0.7) – Organic growth at constant currency 98.9 97.9 1.0% 24.2 22.2 9.3%

Infrastructure Safety

Revenue Adjusted* segment profit


2019 £m


2018 £m


2019 £m


30 September 2018

£m

% growth


Environmental & Analysis



2019 £m


2018 £m


2019 £m


30 September 2018

£m

% growth


Medical



2019 £m


2018 £m


2019 £m


30 September 2018

£m

% growth

Continuing operations 155.9 147.2 6.0% 35.6 35.0 1.8% Acquisition and currency adjustments (6.7) (3.6) (1.6) (0.6) Organic growth at constant currency 149.2 143.6 3.9% 34.0 34.4 (1.1%)


Adjusted operating profit Unaudited


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Operating profit 111.6 100.4 217.8 Add back: Acquisition items 4.7 – 0.3 Defined benefit pension charge – – 2.1 Amortisation of acquired intangible assets 18.3 17.5 35.6 Adjusted operating profit 134.6 117.9 255.8




29

9 Alternative performance measures continued Sector organic growth at constant currency Organic growth at constant currency is calculated for each segment using the same method as described above.

Process Safety Revenue Adjusted* segment profit


2019 £m


2018 £m


2019 £m


30 September 2018

£m

% growth


Infrastructure Safety



2019 £m


2018 £m


2019 £m


30 September 2018

£m

% growth


Environmental & Analysis



2019 £m


2018 £m


2019 £m


30 September 2018

£m

% growth


Medical



2019 £m


2018 £m


2019 £m


30 September 2018

£m

% growth

Continuing operations 155.9 147.2 6.0% 35.6 35.0 1.8% Acquisition and currency adjustments (6.7) (3.6) (1.6) (0.6) Organic growth at constant currency 149.2 143.6 3.9% 34.0 34.4 (1.1%)


Adjusted operating profit Unaudited


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Operating profit 111.6 100.4 217.8 Add back: Acquisition items 4.7 – 0.3 Defined benefit pension charge – – 2.1 Amortisation of acquired intangible assets 18.3 17.5 35.6 Adjusted operating profit 134.6 117.9 255.8



9 Alternative performance measures continued Adjusted operating cash flow


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Net cash from operating activities (note 8) 95.6 96.8 219.0 Add back: Net acquisition costs 2.0 – 1.2 Taxes paid 27.3 19.0 40.6 Proceeds from sale of property, plant and equipment 0.3 0.4 1.6 Share awards vested not settled by own shares* 5.6 4.9 4.9 Less: Purchase of property, plant and equipment (12.0) (13.7) (26.4) Purchase of computer software and other intangibles (1.7) (2.0) (4.9) Development costs capitalised (6.3) (4.3) (10.8) Adjusted operating cash flow 110.8 101.1 255.2 Cash conversion % (adjusted operating cash flow/adjusted operating profit) 82% 86% 88%

* See Consolidated Statement of Changes in Equity.

Return on Sales Group Return on Sales is defined as Adjusted Profit before Taxation as a percentage of revenue. For the sectors, Return on Sales is defined as Adjusted segment profit as a percentage of segment revenue. Adjusted Profit before Taxation and Adjusted segment profit is as defined in note 2.

10 Acquisitions In accounting for acquisitions, adjustments are made to the book values of the net assets of the companies acquired to reflect their fair values to the Group. Acquired inventories are valued at fair value adopting Group bases and any liabilities for warranties relating to past trading are recognised. Other previously unrecognised assets and liabilities at acquisition are included and accounting policies are aligned with those of the Group where appropriate.

During the period ended 30 September 2019, the Group made three acquisitions namely:

— Invenio Systems Limited;

— Enoveo SARL; and

— Ampac Group.

Below are summaries of the assets acquired and liabilities assumed and the purchase consideration of:

a) the total of acquisitions;

b) Invenio Systems Limited and Enoveo SARL; and

c) Ampac Group, on a stand-alone basis.

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

There are no material contingent liabilities recognised in accordance with paragraph 23 of IFRS 3 (revised).

The combined fair value adjustments made for the acquisitions above under IFRS 3, excluding acquired intangible assets recognised and deferred taxation thereon, increased the goodwill recognised by £1.7m (30 September 2018: £Nil).

The accounting for all current year and prior year acquisitions with the exception of LAN Control Systems is provisional; relating to finalisation of the valuation of acquired intangible assets, the initial consideration, which is subject to agreement of certain contractual adjustments, and certain other provisional balances.

During the period ended 30 September 2019 goodwill increased by £43.1m as a result of acquisitions and £28.4m from movements in foreign exchange.




31

10 Acquisitions continued a) Total of acquisitions

Analysis of cash outflow in the Consolidated Cash Flow Statement

Total £m

Non-current assets Intangible assets 35.7 Property, plant and equipment 6.3 Current assets Inventories 7.4 Trade and other receivables 6.6 Cash and cash equivalents 6.8 Total assets 62.8 Current liabilities Trade and other payables (10.0) Provisions (2.0) Corporation tax (0.1) Non-current liabilities Deferred tax (10.4) Total liabilities (22.5) Net assets of businesses acquired 40.3 Initial cash consideration paid 78.2 Additional amounts paid in respect of cash acquired 3.1 Contingent purchase consideration estimated to be paid in respect of current year acquisitions 2.1 Total consideration 83.4 Goodwill arising on acquisitions (current year) 43.1 Total goodwill 43.1


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Initial cash consideration paid 78.2 1.2 63.0 Cash acquired on acquisitions (6.8) – (5.3) Initial cash consideration adjustment on current year acquisitions 3.1 – 5.7 Initial cash consideration adjustment on prior year acquisitions – – (0.1) Contingent consideration paid and loan notes repaid in cash in relation to prior year acquisitions 10.0 3.5 3.7 Net cash outflow relating to acquisitions (per Consolidated Cash Flow Statement) 84.5 4.7 67.0




31

10 Acquisitions continued a) Total of acquisitions

Analysis of cash outflow in the Consolidated Cash Flow Statement

Total £m

Non-current assets Intangible assets 35.7 Property, plant and equipment 6.3 Current assets Inventories 7.4 Trade and other receivables 6.6 Cash and cash equivalents 6.8 Total assets 62.8 Current liabilities Trade and other payables (10.0) Provisions (2.0) Corporation tax (0.1) Non-current liabilities Deferred tax (10.4) Total liabilities (22.5) Net assets of businesses acquired 40.3 Initial cash consideration paid 78.2 Additional amounts paid in respect of cash acquired 3.1 Contingent purchase consideration estimated to be paid in respect of current year acquisitions 2.1 Total consideration 83.4 Goodwill arising on acquisitions (current year) 43.1 Total goodwill 43.1


2019 £m


2018 £m

Audited Year to

31 March 2019

£m

Initial cash consideration paid 78.2 1.2 63.0 Cash acquired on acquisitions (6.8) – (5.3) Initial cash consideration adjustment on current year acquisitions 3.1 – 5.7 Initial cash consideration adjustment on prior year acquisitions – – (0.1) Contingent consideration paid and loan notes repaid in cash in relation to prior year acquisitions 10.0 3.5 3.7 Net cash outflow relating to acquisitions (per Consolidated Cash Flow Statement) 84.5 4.7 67.0



10 Acquisitions continued b) Invenio Systems Limited (‘Invenio’) and Enoveo SARL (‘Enoveo’)

Invenio The Group acquired the entire share capital of Invenio Systems Limited (‘Invenio’) on 2 July 2019 for an initial cash consideration of £2.8m adjustable for cash acquired. The adjustment was determined to be £0.2m. The maximum contingent consideration payable is £3.0m.

The contingent purchase consideration recognised represents the estimated amount payable, based on profit-based targets, for each of the three annual earnout periods, commencing 1 April 2019.

Invenio, located in Durham, UK, is a market leader in customer-side leak detection, offering innovative, non-intrusive detection solutions for household leaks. Invenio will join the Group as part of HWM, creating a global leader in leakage reduction within the Group’s Environmental & Analysis sector.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by technology related intangibles of £1.3m and customer relationship intangibles of £0.4m; with residual goodwill arising of £2.5m. The goodwill represents:

a) the technical expertise of the acquired workforce;

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

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

There is no material impact on the Group’s income statement for the six months ended 30 September 2019 arising from the acquisition.

Acquisition costs totalling £0.1m were recorded in the Consolidated Income Statement.

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

Enoveo The Group also acquired the entire share capital of Enoveo on 1 July 2019 for an initial cash consideration of €0.2m (£0.2m). The maximum contingent consideration payable is €1.0m (£0.9m).

Enoveo, based in Lyon, France, provides services and monitoring tools for natural, urban or industrial aquatic environments. Enoveo will be a bolt-on to Hydreka within the Environmental & Analysis sector.

The excess of the fair value of the consideration paid over the fair value of the assets acquired of £0.4m has provisionally been allocated to goodwill.

There is no material impact on the Group’s income statement for the six months ended 30 September 2019 arising from the acquisition.

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

Total £m

Non-current assets Intangible assets 2.1 Property, plant and equipment 0.2 Current assets Trade and other receivables 0.8 Cash and cash equivalents 0.2 Total assets 3.3 Current liabilities Trade and other payables (0.6) Non-current liabilities Deferred tax (0.4) Total liabilities (1.0) Net assets of business acquired 2.3 Initial cash consideration paid 3.0 Additional amounts paid in respect of cash acquired 0.1 Contingent purchase consideration estimated to be paid 2.1 Total consideration 5.2 Goodwill arising on acquisition 2.9




33

10 Acquisitions continued c) Ampac Group, on a stand-alone basis

On 15 July 2019, the Group acquired the Ampac group (‘Ampac’) for an initial cash consideration of A$135.0m (£75.2m), adjustable for cash acquired. The adjustment was determined to be A$5.4m (£3.0m). The acquisition comprised of the trade and assets of Ampac Technologies Pty Ltd, Ampac Distributors Pty Ltd and Ampac Pacific Ltd and the entire share capital of Ampac Europe Ltd and Cranford Controls Ltd.

Ampac, headquartered in Perth, Australia with offices in Australia, New Zealand and the UK is a leading fire and evacuation systems supplier in the Australian and New Zealand markets. The company will continue to run under its own management team and will become part of the Group’s Infrastructure Safety sector.

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 £19.0m; trade name of £6.9m and technology related intangibles of £7.3m; with residual goodwill arising of £40.2m. The goodwill represents:




Ampac contributed £8.3m of revenue and £2.1m of profit after tax for the six months ended 30 September 2019.


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

Total £m

Non-current assets Intangible assets 33.6 Property, plant and equipment 6.1 Current assets Inventories 7.4 Trade and other receivables 5.8 Cash and cash equivalents 6.6 Total assets 59.5 Current liabilities Trade and other payables (9.4) Provisions (2.0) Corporation tax payable (0.1) Non-current liabilities Deferred tax (10.0) Total liabilities (21.5) Net assets of business acquired 38.0 Initial cash consideration paid 75.2 Additional amounts paid in respect of cash acquired 3.0 Total consideration 78.2 Goodwill arising on acquisition 40.2




33

10 Acquisitions continued c) Ampac Group, on a stand-alone basis

On 15 July 2019, the Group acquired the Ampac group (‘Ampac’) for an initial cash consideration of A$135.0m (£75.2m), adjustable for cash acquired. The adjustment was determined to be A$5.4m (£3.0m). The acquisition comprised of the trade and assets of Ampac Technologies Pty Ltd, Ampac Distributors Pty Ltd and Ampac Pacific Ltd and the entire share capital of Ampac Europe Ltd and Cranford Controls Ltd.

Ampac, headquartered in Perth, Australia with offices in Australia, New Zealand and the UK is a leading fire and evacuation systems supplier in the Australian and New Zealand markets. The company will continue to run under its own management team and will become part of the Group’s Infrastructure Safety sector.

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 £19.0m; trade name of £6.9m and technology related intangibles of £7.3m; with residual goodwill arising of £40.2m. The goodwill represents:




Ampac contributed £8.3m of revenue and £2.1m of profit after tax for the six months ended 30 September 2019.


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

Total £m

Non-current assets Intangible assets 33.6 Property, plant and equipment 6.1 Current assets Inventories 7.4 Trade and other receivables 5.8 Cash and cash equivalents 6.6 Total assets 59.5 Current liabilities Trade and other payables (9.4) Provisions (2.0) Corporation tax payable (0.1) Non-current liabilities Deferred tax (10.0) Total liabilities (21.5) Net assets of business acquired 38.0 Initial cash consideration paid 75.2 Additional amounts paid in respect of cash acquired 3.0 Total consideration 78.2 Goodwill arising on acquisition 40.2



11 Fair values of financial assets and liabilities As at 30 September 2019, with the exception of the Group’s fixed rate loan notes, there were no significant differences between the book value and fair value (as determined by market value) of the Group’s financial assets and liabilities.

The fair value of floating rate borrowings approximates to the carrying value because interest rates are reset to market rates at intervals of less than one year.

The fair value of the Group’s fixed rate loan notes arising from the United States Private Placement completed in January 2016 is estimated to be £189.9m, against a carrying value of £183.7m.

The fair value of financial instruments is estimated by discounting the future contracted cash flow using readily available market data and represents a level 2 measurement in the fair value hierarchy under IFRS 7.

As at 30 September 2019, the total forward foreign currency contracts outstanding were £49m. The contracts mostly mature within one year and therefore the cash flows and resulting effect on profit and loss are expected to occur within the next 12 months.

The fair values of the forward contracts are disclosed as a £0.9m (30 September 2018: £0.3m; 31 March 2019: £0.9m) asset and £0.7m (30 September 2018: £0.5m; 31 March 2019: £0.3m) liability in the Consolidated Balance Sheet.

Any movements in the fair values of the forward contracts are recognised in equity until the hedge transaction occurs, when gains/losses are recycled to finance income or finance expense.

12 Subsequent events On 2 October 2019, the Group acquired the entire share capital of Infowave Solutions Inc., located in the USA, for an initial cash consideration of US$8.3m (£6.8m). Infowave will join the Group as part of CenTrak, complementing CenTrak’s hardware capabilities with software and data capabilities, within the Medical sector. The maximum contingent consideration payable is US$4.0m (£3.3m) based on profit-based targets for the years ended March 2021 and March 2022.

On 4 October 2019, the Group acquired certain trade and assets of NeoMedix, located in the USA, for an initial cash consideration of US$8.1m (£6.6m). The glaucoma-related assets of NeoMedix was acquired by MicroSurgical Technology within the Group’s Medical sector. The maximum contingent consideration payable is US$17.0m (£14.0m) based on revenue-based targets for three years from the completion of the acquisition.

13 Contingent liability Group financing exemptions applicable to UK controlled foreign companies As previously reported, on 2 April 2019 the European Commission issued its final decision in a State Aid investigation into the Group Financing Exemption in the UK controlled foreign company rules. The European Commission found that part of the Group Financing Exemption constitutes State Aid. The Group Financing Exemption was introduced in legislation by the UK government in 2013. In common with other UK -based international companies whose arrangements are in line with current UK CFC legislation the Group may be affected by the ultimate outcome of this investigation. In June and July 2019, the UK government and other UK -based international companies, including the Group, appealed to the General Court of the European Union against the decision. In the meantime, the UK Government is required to commence collection proceedings and therefore it is expected that the Group will have to make a payment in the second half of the year ending 31 March 2020 in respect of this case. At present it is not possible to determine the amount that the UK government will seek to collect.

If the decision of the European Commission is upheld, the Group calculates its maximum potential liability at 30 September 2019 to be approximately £15.4m (31 March 2019: £15.4m) in respect of tax and approximately £0.9m in respect of interest (31 March 2019: £0.6m). Based on its current assessment, the Group believes that no provision is required in respect of this issue.

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

14 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 plc’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 Annual Report and Accounts 2019.




35

15 Principal risks and uncertainties A number of potential risks and uncertainties exist that 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 on pages 54 to 59 in the Annual Report and Accounts 2019, which is available on the Group’s website at www.halma.com. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report and Accounts.

The principal risks and uncertainties relate to:

— Cyber

— Organic growth

— Making and integrating acquisitions

— Talent and diversity

— Innovation

— Competition

— Economic and geopolitical uncertainty

— Natural disasters

— Communications

— Non-compliance with laws and regulations

— Financial controls

— Treasury management

— Product failure

16 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 and the ASB’s 2007 statement on half-yearly reports;

b) this Half Year Report includes a fair review of the information required by Disclosure Guidance 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 Marc Ronchetti Group Chief Executive Chief Financial Officer 19 November 2019


Shareholder Information and AdvisersNotes to the Condensed Interim Financial Statements Continued


35

15 Principal risks and uncertainties A number of potential risks and uncertainties exist that 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 on pages 54 to 59 in the Annual Report and Accounts 2019, which is available on the Group’s website at www.halma.com. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report and Accounts.

The principal risks and uncertainties relate to:

— Cyber

— Organic growth

— Making and integrating acquisitions

— Talent and diversity

— Innovation

— Competition

— Economic and geopolitical uncertainty

— Natural disasters

— Communications

— Non-compliance with laws and regulations

— Financial controls

— Treasury management

— Product failure

16 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 and the ASB’s 2007 statement on half-yearly reports;

b) this Half Year Report includes a fair review of the information required by Disclosure Guidance 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 Marc Ronchetti Group Chief Executive Chief Financial Officer 19 November 2019

Registered Office Misbourne Court Rectory Way AmershamBucks HP7 0DE

Tel: +44 (0)1494 [email protected] www.halma.com

Registered in England and Wales, Number 040932

RegistrarComputershare Investor Services PLC The PavilionsBridgwater Road Bristol BS99 6ZZ

Tel: +44 (0)370 707 1046www.investorcentre.co.uk

Board of DirectorsPaul WalkerChairman

Andrew WilliamsGroup Chief Executive


Adam Meyers Executive Director

Jennifer Ward Group Talent and Communications Director

Tony Rice*Senior Independent Director

Daniela Barone Soares*

Carole Cran*

Jo Harlow*

Roy Twite*

* Non-executive Director

Company SecretaryRuwan De Soyza

Executive BoardAndrew WilliamsGroup Chief Executive


Adam MeyersExecutive Director

Jennifer WardGroup Talent and Communications Director

Paul SimmonsSector Chief Executive, Safety

Laura StoltenbergSector Chief Executive, Medical and Environmental

Inken BraunschmidtChief Innovation and Digital Officer

Ruwan De SoyzaGeneral Counsel and Company Secretary

Catherine MichelChief Technology Officer

Investor relations contactsCharles KingHead of Investor RelationsHalma plc Misbourne Court Rectory Way Amersham Bucks HP7 0DE

Tel: +44 (0)1494 [email protected]

Rachel Hirst/Andrew Jaques MHP Communications6 Agar Street London WC2N 4HN

Tel: +44 (0)20 3128 [email protected]


Shareholder Information and AdvisersContinued

AuditorPricewaterhouseCoopers LLP 54 Clarendon RoadWatford HertfordshireWD17 1DU

Financial advisers Lazard & Co., Limited 50 Stratton Street London W1J 8LL

Credit Suisse International One Cabot Square London E14 4QJ

BankersThe Royal Bank of Scotland plc 280 BishopsgateLondon EC2M 4RB

BrokersCredit Suisse International One Cabot Square London E14 4QJ

Investec Investment Banking 30 Gresham StreetLondon EC2V 7QP

SolicitorsCMS Cameron McKenna Nabarro Olswang LLPCannon Place78 Cannon Street London EC4N 6AF

Halma plc Misbourne Court Rectory Way Amersham Bucks HP7 0DE

Tel +44 (0)1494 721111 Fax +44 (0)1494 728032 Web www.halma.com

Halma plc Half Year Report 2019/2020/media/Files/H/Halma/Corp/reports...Halma lc Half ear Report 2019/20 01Highlights Continuing operations Half year 2019 Half year 2018 Change Revenue

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