Halma Plc (LON:HLMA), the global group of life-saving technology companies focused on growing a safer, cleaner and healthier future for everyone, every day, has today announced its full year results for the 12 months to 31 March 2023.
Highlights | ||||
| Change | 2023 | 2022 | ||
| Revenue | +21% | £1,852.8m | £1,525.3m | |
| Adjusted Profit before Taxation1 | +14% | £361.3m | £316.2m | |
| Adjusted Earnings per Share2 | +17% | 76.34p | 65.48p | |
| Statutory Profit before Taxation | (4)% | £291.5m | £304.4m | |
| Statutory Earnings per Share | (4)% | 62.04p | 64.54p | |
| Total Dividend per Share3 | +7% | 20.20p | 18.88p | |
| Return on Sales4 | 19.5% | 20.7% | ||
| Return on Total Invested Capital5 | 14.8% | 14.6% | ||
| Net Debt6 | £596.7m | £274.8m | ||
Record revenue, Adjusted1 Profit, and strategic investment
· Record revenue, up 21%, and 10% on an organic constant currency7 basis.
· 20th consecutive year of record profit: Adjusted1 Profit before Taxation up 14%; up 3% on an organic constant currency7 basis.
· Statutory Profit before Taxation down 4%; principally reflected non-recurrence of a gain on disposal of £34.0m in the prior year; up 8% excluding this gain.
· Broad-based revenue growth in all sectors and regions, including on an organic constant currency7 basis; Adjusted1 profit growth in all sectors.
· Continued high returns: Return on Sales4 of 19.5% and ROTIC5 of 14.8%. Expect FY 2024 Return on Sales4 to increase to approximately 20%.
· Cash conversion of 78% (90% in the second half of the year); strong balance sheet, with net debt/EBITDA of 1.38x (2022: 0.74x), underpins investment in organic growth and acquisitions.
· Record strategic investment of over half a billion pounds to support our future growth:
o Seven acquisitions completed in the year for a maximum total consideration of £397m; two further acquisitions completed since the period end for a maximum total consideration of approximately £57m; a healthy acquisition pipeline across all sectors.
o R&D expenditure up by £17m to £103m, representing 5.5% of revenue
o Increased investment in technology by £7m to £18m
· Total dividend per share for the year up 7%; 44th consecutive year of dividend growth of 5% or more.
Marc Ronchetti, Group Chief Executive of Halma, commented:
“2023 was a successful year for Halma, reflecting the contributions and continued commitment to our purpose of everyone at Halma. We delivered record revenue and profit, achieving our 20th consecutive year of profit growth and our 44th consecutive year of dividend per share growth of 5% or more. At the same time, we substantially increased strategic investment to record levels, increasing our opportunities for future growth through organic investment and strategic acquisitions, while maintaining a strong balance sheet.
We have made a positive start to the new financial year. We have a strong order book, and order intake in the year to date is broadly in line with revenue and ahead of the comparable period last year. Based on current market conditions, we expect to deliver good organic constant currency7 revenue growth in the year ahead, and Return on Sales4 to increase to approximately 20%. We are well positioned to make further progress this year and in the longer term.”
| Notes: | |
| 1 | Adjusted to remove the amortisation and impairment of acquired intangible assets, acquisition items and profit or loss on disposal of operations, totalling £69.8m (2021/22: £11.8m). See note 1 to the Results for details. |
| 2 | Adjusted to remove the amortisation and impairment of acquired intangible assets, acquisition items, profit or loss on disposal of operations and the associated taxation thereon and, in 2022, the increase in the UK’s corporation tax rate from 19% to 25%. See note 2 to the Results for details. |
| 3 | Total dividend paid and proposed per share, comprising interim dividend of 7.86p per share and proposed final dividend of 12.34p 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 | Net debt is defined as Borrowings plus lease liabilities net of Cash and bank balances. |
| 7 8 9 | Organic constant currency measures exclude the effect of movements in foreign exchange rates on the translation of revenue and profit1 into Sterling, as well as acquisitions in the year following completion and disposals. Adjusted1 profit before taxation, Adjusted2 Earnings per Share, organic growth rates, Return on Sales4, ROTIC5 and net debt6 are alternative performance measures used by management. See notes 1, 2 and 3 to the Results for details. Adjusted1 operating profit before central administration costs after share of associate. |
Strategic Report
Record revenue, and record profit for the 20th consecutive year
In this, my first review as Group Chief Executive, I am pleased to report record revenue and Adjusted1 profit, and Halma’s 20th year of consecutive profit growth. We delivered strong revenue growth, continued high returns, well above our cost of capital, and solid cash generation, while at the same time investing record amounts, both organically and in acquisitions, to support our growth over the medium term.
Our performance in the year reflects the strength of our Sustainable Growth Model and the hard work and dedication of our people. I would like to thank everyone at Halma for their contributions to our success and their commitment to growing a safer, cleaner, healthier future for everyone, every day.
Driven by our purpose
It is a huge privilege to be leading a business with such a strong sense of purpose and inclusive culture, and that has a positive impact on millions of lives every day.
Halma’s ability to deliver resilient growth reflects the strength of our Sustainable Growth Model. Our purpose sits at the heart of this. It unites and motivates us to help our customers address many of the key challenges facing society and helps us attract talented people who share our values. Our Sustainable Growth Model gives us the agility and entrepreneurialism to respond rapidly to changes in the markets we serve and the wider world, and ensures we take a disciplined approach to investing in markets with long-term, fundamental and highly sustainable growth drivers. It also provides a clear financial framework, of strong organic growth and margins, high returns and cash generation, and continuous reinvestment to expand our opportunities for growth.
Over the last 20 years, our profit before tax (on a statutory basis) has increased by over six times, at a 10% compound annual growth rate. This is a substantial achievement given that this period includes major economic and geopolitical shocks, such as the Global Financial Crisis and Brexit, and, more recently, the COVID pandemic and the war in Ukraine.
For most of the last 20 years, Halma was led by Andrew Williams, who stepped down as Group Chief Executive at the end of March after 18 years. Over that time, he has led the evolution of Halma to become an organisation with ever greater ambitions, considerable strengths and substantial growth opportunities. I would like to thank him for his leadership, the success he has created and for his investment in me personally as part of the Group Chief Executive transition, and wish him all the best after retiring from Halma.
I am excited by the opportunities in front of us and believe that we are well-positioned to address them. We have a resilient business model and clear growth strategy, diverse and high quality leadership teams, and a proven ability to adapt and evolve with agility to a rapidly changing world. Our robust financial model is underpinned by significant growth momentum and is enabling us to invest record amounts to help our customers address some of the biggest challenges facing the world today, and continue our track record of long-term growth.
A strong financial performance
We delivered a strong financial performance in the year. Revenue in the year grew by 21% to £1,852.8m, Adjusted1 profit before taxation increased by 14% to £361.3m and Adjusted1 earnings per share was up 17%, well above our 10% target. The decrease in Statutory profit before taxation of 4% to £291.5m principally reflected the non-recurrence of a gain on disposal of a Safety Sector business in the prior year.
Growth was broadly spread across our sectors, regions and companies. We delivered revenue growth in all our sectors and regions, including on organic constant currency basis, and Adjusted1 profit growth in all sectors.
We delivered continued high returns. Return on Sales1 was 19.5%, within our KPI target range of 18-22%. This compared to an unusually high level (within our target range) of 20.7% in the prior year, which had benefited from the cost reduction measures implemented during the COVID pandemic. Return on Total Invested Capital1 of 14.8% (2022: 14.6%) remained ahead of our KPI target of 12% and well above our estimated weighted average cost of capital of 8.9% (2022: 7.1%).
Cash conversion for the year was solid at 78%, compared to our KPI target of 90%, and was improved and in line with our target at 90% in the second half of the year. Our continued cash generation allows us to maintain a strong balance sheet, while making substantial investments to support our future growth. Our gearing ratio (net debt to EBITDA) at the year end was 1.38 times (2022: 0.74 times), well within our operating range of up to two times. Together, our cash generation and balance sheet strength underpin our investment in growth and provide capacity to fund acquisitions and our progressive dividend policy.
The Board is recommending a 7% increase in the final dividend to 12.34p per share (2022: 11.53p per share). Together with the 7.86p per share interim dividend, this would result in a total dividend for the year of 20.20p (2022: 18.88p), also up 7%, making this the 44th consecutive year of dividend per share growth of 5% or more.
Record strategic investment to support future growth
One of Halma’s key strengths is the ability to deliver strong performance in the shorter-term and maintain a strong balance sheet, while simultaneously making substantial investments to support sustainable growth over the longer-term. We invested a record sum of over half a billion pounds in this financial year, to support our future growth. This included investment to expand our growth opportunities through acquisitions and organic investment in product research and development, technology infrastructure, and our people and culture so that we can continue to attract, develop, retain, and engage the high performing teams that are critical to our success.
Substantially increased investment in organic growth
During the year, we further increased investment supporting organic growth, for example in new product development. R&D expenditure increased by £17m to a record £103m and represented 5.5% of revenue (2022: 5.6%), remaining well ahead of our 4% KPI. We also increased investment in our technology infrastructure by £7m to £18m to improve our security, data and operating technology, both at the company level and centrally.
The increase in these investments reflects our companies’ confidence in the substantial growth prospects they see in their markets. Our products and services have never been more relevant than today, as health, safety and environmental regulations continue to increase, demand for healthcare grows and the world addresses ever greater demands on life-critical resources and the urgent need to tackle climate change, waste, and pollution.
Seven acquisitions completed across all three sectors
We further expanded our opportunities for growth through a record investment of £397m in acquisitions (maximum total consideration), acquiring the equivalent of 5.5% of our prior year profit (after interest), ahead of our 5% KPI target. We made seven acquisitions, each highly aligned to our purpose. Of these seven acquisitions, four are standalone companies with the Group, and three are bolt-ons to enhance our companies’ technologies and market reach.
The acquisitions were spread geographically across North America, Mainland Europe and the UK and across our three sectors, with four acquisitions in Safety, two in Environmental & Analysis and one in Healthcare. Details of the individual acquisitions are contained in the relevant sector reviews and in the notes to the Accounts.
We are particularly pleased to see this strong momentum in M&A combined with an overall increase in the scale of acquisitions, supported by investment in our three sector M&A teams over the past 18 months. This activity has continued since the period end, with two further acquisitions completed in the new financial year for a maximum total consideration of approximately £57m.
Investing in our talent and culture
People are at the heart of the Group’s and our individual companies’ growth strategies. We are committed to supporting their development and ensuring that Halma’s culture is highly inclusive. In this way, we can recruit, develop and retain the very best talent and have a wide diversity of voices and experience within our leadership teams.
During the year, we increased investment in the development of our leaders, introducing three new leadership development programmes, with over 200 leaders participating in face-to-face learning events and 750 participating online. We also recognise that the current environment continues to present challenges and we therefore invested in support for our people’s wellbeing, including through our Employee Assistance Programme and through flexible working practices and enhanced benefits.
One measure of inclusion is gender diversity. Last year, we introduced a stretching goal of achieving 40-60% gender balance on all company boards by March 2024, equivalent to the balance already achieved on the Group, Executive and sector boards. While female representation on our company boards has increased from 22% in 2021 to 29% at 31 March 2023, we recognise that we need to accelerate the pace of change. We launched a number of initiatives to support this, including promoting diverse sourcing strategies and inclusive hiring practices, and incorporating progress towards our target in the bonus element of remuneration for our senior leaders. Alongside gender equality, we also want to grow our ethnic diversity relative to the markets we operate in and remove barriers to leadership for ethnic minority groups, and launched a number of initiatives to support this aim.
Our seventh global employee engagement survey reflected the progress made in the year. Given the pressures our people continued to face, I was pleased that we continued to have a strong response rate of 85% and that our overall engagement score remained stable at 76%, reflecting the ongoing actions taken by our companies to support their people and nurture inclusive workplace cultures. We saw our biggest improvement in companies providing opportunities for our people to learn and grow, and our drive to build inclusive businesses was reflected in high engagement scores on colleagues feeling they are treated fairly and respectfully (83%) and can be their authentic self at work (80%).
I am also proud of the engagement our companies and our people have with the communities where they operate, and the positive impact we have through charitable initiatives. This year, for example, we continued to support the humanitarian relief effort for Ukraine through raising and matching employee donations and providing online support for our colleagues. We also completed our Water for Life campaign, which, together with our partner WaterAid, has provided access to safe, clean water for over 10,000 villagers in India and sustainable water infrastructure, supported by Halma fund raising of over £400,000.
Executive Board changes
With Andrew Williams retiring as Group Chief Executive at the end of the year, and my appointment to that role, we were delighted to welcome Steve Gunning to Halma as Chief Financial Officer on 16 January 2023. He brings a tremendous breadth of experience as a FTSE 100 Chief Financial Officer and I look forward to working with him as part of my leadership team.
Shortly after the year end, we announced internally that, after five years with Halma, Wendy McMillan, Safety Sector Chief Executive, had decided to leave Halma to pursue leadership opportunities elsewhere. Drawing from the strength and depth in our leadership team, we were delighted to be able to appoint Funmi Adegoke, currently Group General Counsel and Chief Sustainability Officer and a member of the Executive Board, to lead the Safety Sector from early July. Funmi brings strong strategic, commercial and business acumen and considerable experience across multiple industries to the Safety Sector Chief Executive role. As a result of this move, we were also pleased that Constance Baroudel, Environmental & Analysis Sector Chief Executive, will take on the additional role of Chief Sustainability Officer.
We also made the decision to restructure the digital growth support for our companies. As part of this restructure we announced that we would be disbanding the central Innovation and Digital team. This reflects its achievement over the last six years in embedding greater innovation and digital capabilities in our companies, and the resultant evolution of our companies’ needs towards greater go-to-market support which will now be provided by our Technology team. As a result, we announced that Inken Braunschmidt, Chief Innovation and Digital Officer, will leave Halma at the end of June.
I would like to thank Wendy and Inken for their significant contribution to Halma and wish them every success in the future.
Our Executive Board comprises a highly experienced team, drawn from different backgrounds, with diverse talents and capabilities. I am excited to be working with them in leading the next stage of Halma’s success.
Increasing sustainability opportunities
Sustainability has always been at the heart of our Sustainable Growth Model and our purpose. In recent years, the scale and urgency of global sustainability challenges, for example, in terms of the changing climate, preserving the environment, or protecting human health, have grown. We are responding by increasing investment in products and solutions which help our customers address these issues, and by ensuring that we operate in a sustainable way.
We see substantial growth prospects for our companies in sustainability and are increasing the support we give to them in understanding sustainability-related trends, and in identifying opportunities arising from them to grow their businesses. We are also excited by acquisitions that deliver on our purpose and long-term growth drivers and additionally have significant, long-term sustainability opportunities, and it is pleasing that so many of our standalone acquisitions this year, such as FirePro, WEETECH and Deep Trekker, fit this profile.
We are also contributing by operating in a sustainable manner, to ensure that we can continue to grow over the long term. During the year, we continued to make progress on the two areas identified in 2021 as the most important in our own value chain: supporting our people and protecting our environment.
Each of our companies has now set their own bottom-up targets and action plans to support the Group’s goals in these areas. The goals ensure we are focused on the substantial growth opportunities for our companies and translate simply into a challenge to “do more good” and “do less harm”. In terms of protecting our environment, we were pleased to see our operational greenhouse gas emissions continue to reduce, with a 47% reduction since our FY20 baseline and renewable electricity reaching 62% of total consumption, thereby exceeding our targets.
These direct operational emissions are a small part of our broader emissions footprint. The majority of our environmental footprint arises within our wider value chain and we have focused this year on estimating indirect (Scope 3) emissions baselines so that we can set appropriate reduction targets in the future. It is encouraging that we are already seeing actions in a number of companies to reduce Scope 3 emissions, including through supplier engagement programmes and an increasing focus on sustainable design.
For the first time this year, our executive remuneration incorporated annual energy productivity metrics alongside the gender diversity targets mentioned above. We consider these metrics aligned to remuneration as a good starting point from which they will no doubt evolve and it is pleasing to see them driving a focus on gender balance and energy conservation within our companies.
Summary and Outlook
2023 was a successful year for Halma, reflecting the contributions and continued commitment to our purpose of everyone in the Group. We delivered record revenue and Adjusted1 profit, achieving our 20th consecutive year of profit growth and our 44th consecutive year of dividend per share growth of 5% or more. At the same time, we substantially increased strategic investment to record levels, increasing our opportunities for future growth through organic investment and acquisitions, while maintaining a strong balance sheet.
We have made a positive start to the new financial year. We have a strong order book, and order intake in the year to date is broadly in line with revenue and ahead of the comparable period last year. Based on current market conditions, we expect to deliver good organic constant currency1 revenue growth in the year ahead, and Return on Sales1 to increase to approximately 20%. We are well positioned to make further progress this year and in the longer term.
Marc Ronchetti
Halma Plc Group Chief Executive
1 See Highlights
