2016_Halma_ARA_160610_2

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Financial Review Building on long-term achievement Through a combination of organic and acquisitive growth Halma aims to deliver sustained long-term shareholder value. We have a long track record of growing dividends and of investment in our business. This year’s record results build on that achievement. Kevin Thompson Finance Director Statutory profit before taxation increased by 2.0% to £136.3m (2015: £133.6m). Statutory profit is calculated after charging the amortisation of acquired intangible assets of £23.1m (2015: £19.9m) and after charging acquisition related items, including revisions to provisions for acquisition contingent consideration and related foreign exchange movements, of £7.2m (2015: £1.5m) arising from current and prior year acquisitions. There was also a gain on disposal of £0.6m (2015: £1.4m) relating to the part disposal of shares in our Associated operation, Optomed Oy. In both the first and second half years revenue grew by 11%. There was a positive contribution from currency translation in both halves. Organic revenue growth at constant currency was 7% in the first half, and principally due to the performance of the Process Safety sector, was 4% in the second half. Adjusted 1 profit grew by 8% in both the first and second half. The first half/second half profit split was 45%/55% as in the prior year. Organic constant currency profit growth was 4% in the first half and 3% in the second half. RECORD RESULTS Halma achieved record revenue and profit for the thirteenth consecutive year. Revenue increased by 11.2% to £807.8m (2015: £726.1m) and adjusted 1 profit was up by 8.1% to £166.0m (2015: £153.6m). Our balance sheet remains strong following our highest ever spend on acquisitions, with a proposed dividend increase of 7%, the 37th consecutive year of 5% or more dividend growth. The 11.2% (£81.7m) increase in revenue included 5.7% organic constant currency revenue growth. Acquisitions, net of a small disposal in the prior year, contributed 3.5% to growth and there was a 2.0% positive currency translation impact. The adjusted 1 profit increase of 8.1% (£12.4m) included 3.4% organic constant currency profit growth. Acquisitions contributed 2.9% to growth and there was a 1.8% positive currency translation impact. Three of the four sectors delivered strong revenue and profit growth. Environmental & Analysis recovered strongly this year as expected to deliver a record result and delivered profit growth well ahead of significant revenue growth. Process Safety revenue and profit was lower than the prior year due to the impact of tougher conditions in oil and gas related markets, which make up around 40% of sector revenue, and the non-repeat in the second half of a contract in South America. Organic constant currency profit decline for Process Safety in the second half was broadly in line with the first half. Medical and Infrastructure Safety sectors achieved double digit rates of revenue and profit growth boosted by a contribution from acquisitions and good underlying organic growth. This year we have simplified the calculation of our organic growth KPI to now exclude the first 12 months’ performance (for profit, net of financing cost) of any acquisitions to calculate the organic growth rate. Previously we used the run rate at the time of acquisition to make the calculation. There was little impact this year on the organic growth rates arising from this change and we have revised the KPI comparatives for prior years accordingly. REVENUE AND PROFIT GROWTH 2016 £m 2015 £m Increase £m Total Percentage growth Organic growth 2 Organic at constant growth 2 currency Revenue 807.8 726.1 81.7 11.2% 7.7% 5.7% Adjusted 1 profit 166.0 153.6 12.4 8.1% 5.2% 3.4% 1 In addition to those figures reported under IFRS Halma uses adjusted figures as key performance indicators. The Directors believe the adjusted figures give a more representative view of underlying performance. Adjusted profit excludes the amortisation of acquired intangible assets; acquisition items and profit or loss on disposal of operations. All of these are included in the statutory figures. More details are given in note 3. 2 See Highlights. 42 Halma plc Annual Report and Accounts 2016
Adjusted profit bridge £m 160 155 150 145 140 153.6 4.4 0.1 2.7 5.2 166.0 2015 Acquisition Disposals Currency Organic constant currency Revenue bridge £m 800 750 700 650 600 2.9% –% 3.7% (0.2%) 1.8% 2015 Acquisition Disposals Currency Organic constant currency 3.4% 8.1% 2016 726.1 27.1 (1.2) 14.5 41.3 807.8 Geographic revenue bridge £m 800 750 700 650 600 22% 2015 USA Mainland Europe 7% 5% UK 2.0% Asia Pacific 5.7% 11.2% 2016 726.1 49.5 11.9 6.5 8.2 5.6 807.8 * Comprises Africa, Near and Middle East & Other Countries. 7% 7% 11% Other* 2016 In the year, we have continued to develop risk and control capability within each sector to support the growth of our businesses. Central administration costs of £8.9m (2015: £9.0m) were in line with last year. As expected there was an increase in investment in talent development, international expansion and the cost of our biennial HITE conference. This increase was offset by the profit on sale of a Group freehold property. We expect a further increase in the underlying costs in 2016/17 as we continue to support the growth of the Group. WIDESPREAD GROWTH Revenue grew in all major regions. The USA continues to be our largest revenue destination increasing by 22% to now contribute 34% (2015: 31%) of Group revenue, with strong growth in both the first and second half of the year. The high rates of organic growth in the Infrastructure Safety and Medical sectors were boosted by acquisitions, with the strong growth in the Environmental & Analysis sector being all organic. Currency translation benefited USA revenue and organic constant currency growth in the USA was 9%. Mainland Europe revenue grew by 7% with growth in all sectors and a particularly strong increase in the Medical sector, which was largely organic. UK revenue increased by 5% with steady growth across all four sectors. 10% of Group revenue with its destination in Mainland Europe originates in the UK. Changes in short/medium term trading or regulatory arrangements between the UK and the EU would have an impact on the Group but are unlikely to be material. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS GEOGRAPHIC REVENUE GROWTH 2016 2015 % of total £m Change £m % growth % organic growth at constant currency £m United States of America 272.9 34% 223.4 31% 49.5 22% 9% Mainland Europe 179.3 22% 167.4 23% 11.9 7% 7% United Kingdom 144.8 18% 138.3 19% 6.5 5% 4% Asia Pacific 125.0 15% 116.8 16% 8.2 7% 3% Africa, Near and Middle East 55.7 7% 44.0 6% 11.7 27% 16% Other countries 30.1 4% 36.2 5% (6.1) (17)% (22)% 807.8 100% 726.1 100% 81.7 11% 6% % of total Halma plc Annual Report and Accounts 2016 43
Page 1 and 2: Halma plc Annual Report and Account
Page 3 and 4: Highlights Another record year of r
Page 5 and 6: Infrastructure Safety Products whic
Page 7 and 8: Revenue from outside the USA, UK an
Page 9 and 10: Our decentralised organisational st
Page 11 and 12: INCREASING HEALTH AND SAFETY REGULA
Page 13 and 14: INCREASING DEMAND FOR LIFE-CRITICAL
Page 15 and 16: Acquisition focus Insight Our marke
Page 17 and 18: Insight Trapped key interlocking is
Page 19 and 20: Insight Regulations around the worl
Page 21 and 22: Insight People are living longer th
Page 23 and 24: Insight Many processes rely on prec
Page 25 and 26: Resources and relationships Committ
Page 27 and 28: GROW INNOVATE ACQUIRE EMPOWER STRAT
Page 29 and 30: INNOVATE GROW ACQUIRE EMPOWER STRAT
Page 31 and 32: process and one which is subject to
Page 33 and 34: Mitigation Increased risk No change
Page 35 and 36: Mitigation Increased risk No change
Page 37 and 38: a considerable impact on the oil an
Page 39 and 40: towards the use of more sensors, no
Page 41 and 42: A third of American adults suffer f
Page 43: Today 1.8 billion people drink faec
Page 47 and 48: fell from 21% to 20% this year, and
Page 49 and 50: The Group accounts for post-retirem
Page 51 and 52: ENVIRONMENTAL MANAGEMENT SYSTEM (EM
Page 53 and 54: In return, we offer: • The opport
Page 55 and 56: Our intention is to create effectiv
Page 57 and 58: PEOPLE AND CULTURE I reported in la
Page 59 and 60: CAROLE CRAN NON-EXECUTIVE DIRECTOR
Page 61 and 62: Corporate Governance Report Leaders
Page 63 and 64: Board governance structure Board Pr
Page 65 and 66: October 2015 • Group strategic pe
Page 67 and 68: The Board and Committee evaluations
Page 69 and 70: Jane Aikman is in her final term, h
Page 71 and 72: Audit Committee COMMITTEE CHAIRMAN
Page 73 and 74: POLICY ON AUDITOR INDEPENDENCE AND
Page 75 and 76: Remuneration Committee COMMITTEE CH
Page 77 and 78: REMUNERATION POLICY The remuneratio
Page 79 and 80: Opportunity Maximum opportunity: 15
Page 81 and 82: EXECUTIVE DIRECTOR SERVICE CONTRACT
Page 83 and 84: NON-EXECUTIVE DIRECTORS Unless othe
Page 85 and 86: SINGLE FIGURE OF TOTAL REMUNERATION
Page 87 and 88: The three-year period over which th
Page 89 and 90: PERCENTAGE CHANGE IN CEO REMUNERATI
Page 91 and 92: Date of grant As at 28 March 2015 G
Page 93 and 94: Other Statutory Information ACTIVIT
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The Companies Act 2006 also require
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Directors’ Responsibilities The D
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Risk Impairment of the carrying val
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AN OVERVIEW OF THE SCOPE OF OUR AUD
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Respective responsibilities of dire
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Consolidated Statement of Comprehen
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Consolidated Statement of Changes i
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Consolidated Cash Flow Statement Co
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Accounting Policies continued KEY A
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Critical accounting judgements Good
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Segmental reporting An operating se
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Accounting Policies continued Cash
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Cash and cash equivalents Cash and
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Notes to the Accounts continued 1 S
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Notes to the Accounts continued 1 S
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Notes to the Accounts continued 3 N
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Notes to the Accounts continued 6 P
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Notes to the Accounts continued 9 T
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Notes to the Accounts continued 11
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26 FINANCIAL INSTRUMENTS continued
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26 FINANCIAL INSTRUMENTS continued
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Company Statement of Changes in Equ
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Notes to the Company Accounts conti
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C12 RESERVES The Capital redemption
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C14 EXPLANATION OF TRANSITION TO FR
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2009/10 £000 2010/11 £000 2011/12
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Principal locations Telephone E-mai
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Principal locations Telephone E-mai
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DIVIDEND REINVESTMENT PLAN The Comp
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