Final Results

About this update from Halma Plc

[{"type":"text","content":"\n \n \n \n HALMA plc \n \n \n \n \n   \n \n \n \n \n FULL YEAR RESULTS 2022 \n \n \n \n \n   \n \n \n \n \n Record profit for 19 th consecutive year \n \n \n \n   \n \n \n Halma, the global group of life-saving technology companies focused on growing a safer, cleaner and healthier future for everyone, every day, today announces its full year results for the 12 months to 31 March 2022. \n \n \n \n \n \n \n \n \n \nHighlights \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n Change \n \n \n \n \n \n \n   \n \n \n \n \n 2022 \n \n \n \n \n \n \n   \n \n \n \n \n 2021 \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n \n \n Revenue \n \n \n \n \n \n \n +16% \n \n \n \n \n \n \n £1,525.3m \n \n \n \n \n \n \n £1,318.2m \n \n \n \n \n   \n \n \n \n \n \n \n Adjusted Profit before Taxation 1 \n \n \n \n \n \n \n +14% \n \n \n \n \n \n \n £316.2m \n \n \n \n \n \n \n £278.3m \n \n \n \n \n   \n \n \n \n \n \n \n Adjusted Earnings per Share 2 \n \n \n \n \n \n \n +12% \n \n \n \n \n \n \n 65.48p \n \n \n \n \n \n \n 58.67p \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n \n \n Statutory Profit before Taxation \n \n \n \n \n \n \n +20% \n \n \n \n \n \n \n £304.4m \n \n \n \n \n \n \n £252.9m \n \n \n \n \n   \n \n \n \n \n \n \n Statutory Basic Earnings per Share \n \n \n \n \n \n \n +20% \n \n \n \n \n \n \n 64.54p \n \n \n \n \n \n \n 53.61p \n \n \n \n \n   \n \n \n \n \n \n \n Total Dividend per Share 3 \n \n \n \n \n \n \n +7% \n \n \n \n \n \n \n 18.88p \n \n \n \n \n \n \n 17.65p \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n \n \n Return on Sales 4 \n \n \n \n \n \n \n   \n \n \n \n \n \n \n 20.7% \n \n \n \n \n \n \n 21.1% \n \n \n \n \n   \n \n \n \n \n \n \n Return on Total Invested Capital 5 \n \n \n \n \n \n \n   \n \n \n \n \n \n \n 14.6% \n \n \n \n \n \n \n 14.4% \n \n \n \n \n   \n \n \n \n \n \n \n Net Debt \n \n \n \n \n \n \n   \n \n \n \n \n \n \n £274.8m \n \n \n \n \n \n \n £256.2m \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n   \n \n \n · \n Record revenue, up 16%, and 17% on an organic constant currency 6 basis. \n \n \n   \n \n \n · \n 19 th consecutive year of record profit: Adjusted 1 Profit before Taxation up 14%; 15% on an organic constant currency 6 basis \n \n \n   \n \n \n · \n Statutory Profit before Taxation up 20%; includes a £34.0m gain on the Texecom disposal. \n \n \n   \n \n \n · \n Strong organic constant currency 6 revenue and profit growth in all three sectors and all major regions. \n \n \n   \n \n \n · \n Continued strong returns: Return on Sales 4 of 20.7% and ROTIC 5 of 14.6% \n \n \n   \n \n \n · \n Substantially increased strategic investment to support our future growth: \n \n \n o \n R&D expenditure up 21%, representing 5.6% of revenue \n \n \n o \n 13 acquisitions completed in the year for a total maximum consideration of £164m; one further acquisition completed since the period end for £37m; a healthy acquisition pipeline across all sectors. \n \n \n   \n \n \n · \n Solid cash conversion of 84% and a strong balance sheet, with net debt/EBITDA of 0.74x (2021: 0.76x), supporting investment in organic growth and acquisitions. \n \n \n   \n \n \n · \n Total dividend per share for the year up 7%; 43 rd consecutive year of dividend growth of 5% or more. \n \n \n   \n \n \n Andrew Williams, Group Chief Executive of Halma, commented: \n \n \n   \n \n \n \"This was a year of notable achievements for Halma, with revenue exceeding £1.5bn and profit £300m for the first time. We delivered our 19 th consecutive year of record profit, and our 43 rd consecutive year of dividend growth of 5% or more, while substantially increasing strategic investment including further strengthening our leadership, teams and culture to support our future growth. \n \n \n   \n \n \n Halma's Sustainable Growth Model enabled our companies to act with agility to address new market opportunities and to respond rapidly to the multiple operational and economic challenges they faced during the year. Our strong performance reflects huge credit on the dedication of our people across the business, and was underpinned by our empowering purpose and culture, our focus on niche markets with long-term, fundamental growth drivers and the high value of the solutions we provide to our customers. \n \n \n   \n \n \n 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 ahead of revenue and in line with the very strong intake in the same period of the prior year. We expect to deliver continued growth and maintain high returns in the 2022/23 financial year, with good single digit percentage organic constant currency revenue growth and a Return on Sales similar to the second half of the 2021/22 financial year. We are well positioned to make further progress in the full year and in the longer-term.\" \n \n \n   \n \n \n \n \n \n \n Notes: \n \n \n   \n \n \n \n \n \n \n 1 \n \n \n \n \n Adjusted to remove the amortisation of acquired intangible assets, acquisition items and profit or loss on disposal of operations, totalling £11.8m (2020/21: £25.4m). See note 1 to the Results for details. \n \n \n   \n \n \n \n \n \n \n 2 \n \n \n \n \n Adjusted to remove the amortisation 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. \n \n \n   \n \n \n \n \n \n \n 3 \n \n \n \n \n Total dividend paid and proposed per share, comprising interim dividend of 7.35p per share and proposed final dividend of 11.53p per share. \n \n \n \n \n \n \n 4 \n \n \n \n \n Return on Sales is defined as adjusted 1  profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations \n \n \n   \n \n \n \n \n \n \n 5 \n \n \n \n \n Return on Total Invested Capital (ROTIC) is defined as post-tax Adjusted 1 Profit as a percentage of average Total Invested Capital. \n \n \n   \n \n \n \n \n \n \n 6 \n \n \n \n \n Organic constant currency measures exclude the effect of movements in foreign exchange rates on the translation of revenue and profit 1 into Sterling, as well as acquisitions in the year following completion and disposals. \n \n \n   \n \n \n \n \n \n \n 7 \n \n \n \n \n Adjusted 1 Profit before Taxation, Adjusted 2 Earnings per Share, organic growth rates, Return on Sales and ROTIC are alternative performance measures used by management. See notes 1, 2 and 3 to the Results for details. \n \n \n \n \n \n \n   \n \n \n For further information, please contact: \n \n \n \n \n \n \n \n Halma plc \n \n \n \n \n \n \n Andrew Williams, Group Chief Executive \nMarc Ronchetti, Chief Financial Officer \n \n \n Charles King, Head of Investor Relations \n \n \n Clayton Hirst, Director of Corporate Affairs \n \n \n   \n \n \n \n \n +44 (0)1494 721 111 \n \n \n   \n \n \n +44 (0)7776 685948 \n \n \n +44 (0)7834 796 013 \n \n \n \n \n \n \n \n MHP Communications \n \n \n \n \n \n \n Andrew Jaques/Rachel Farrington \n \n \n \n \n +44 (0)20 3128 8404 \n \n \n \n \n \n \n   \n \n \n \n \n \n \n A copy of this announcement, together with other information about Halma, may be viewed on its website: \n \n www.halma.com \n \n .  The webcast of the results presentation will be available on the Halma website later today: \n \n www.halma.com \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n NOTE TO EDITORS \n \n \n \n \n \n \n   \n \n \n \n \n \n \n 1. \n \n \n \n \n Halma is a global group of life-saving technology companies, focused on growing a safer, cleaner and healthier future for everyone, every day. Its purpose defines the three broad market areas where it operates: \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n · \n Safety \n \n \n \n \n Protecting life as populations grow and protecting worker safety. \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n · \n Environment \n \n \n \n \n Addressing the impacts of climate change, pollution and waste, protecting life-critical resources and supporting scientific research. \n \n \n \n \n \n \n \n \n \n \n \n \n \n ·     \n Medical \n \n \n   \n \n \n   \n \n \n \n Meeting rising healthcare demand as growing populations age and lifestyles change. \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n Halma employs over 7,000 people in more than 20 countries, with major operations in the UK, Mainland Europe, the USA and Asia Pacific. Halma is listed on the London Stock Exchange (LON: HLMA) and is a constituent of the FTSE 100 index. \n \n \n   \n \n \n In January 2022, Halma was named one of Britain's Most Admired Companies by Management Today. \n \n \n   \n \n \n \n \n \n \n 2. \n \n \n \n \n You can view or download copies of this announcement and the latest Half Year and Annual Reports from the website at \n \n www.halma.com \n \n or request free printed copies by contacting \n \n [email protected] \n \n . \n \n \n   \n \n \n \n \n \n \n 3. \n \n \n \n \n This announcement contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events \n . \n \n \n \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n Strategic Report \n \n \n \n \n   \n \n \n \n \n A year of notable achievements \n \n \n \n This has been a year of notable achievements for Halma. We delivered record profit for the 19th consecutive year, our revenue exceeded £1.5 billion and profit £300 million for the first time, and our companies successfully addressed multiple economic and geopolitical challenges including the ongoing effects of the COVID pandemic and more recently the conflict in Ukraine. At the same time, we substantially increased investment in our digital and innovation activities while also making further progress on our Key Sustainability Objectives. \n \n \n   \n \n \n Our achievements reflect the relevance of our purpose in addressing our customers' needs and consequently many key challenges facing our planet and society. They were enabled by Halma's Sustainable Growth Model, built on a culture and organisational model which allows our companies to respond with agility to changes in their markets and the wider world. \n \n \n   \n \n \n However, all of this is brought to life through the commitment of our employees worldwide who rose to the challenges and lived Halma's purpose of growing a safer, cleaner, healthier future for everyone, every day. I would like to thank them for their dedication and their contributions over the past year. \n \n \n   \n \n \n \n A strong financial performance \n \n \n \n Revenue grew by 16% to £1,525.3m and Adjusted 1 profit before taxation increased by 14% to £316.2m. Statutory profit before taxation increased by 20% to £304.4m. \n \n \n   \n \n \n Growth was broadly spread across our sectors, regions and companies. All sectors delivered double digit rates of revenue and profit growth on an organic constant currency basis. There was double digit organic constant currency revenue growth in all major regions, and approximately 80% of our companies delivered double digit organic constant currency revenue growth. \n \n \n   \n \n \n Returns remained strong, with Return on Sales 1 well within our target range of 18-22% and Return on Total Invested Capital over double our estimated weighted average cost of capital of 7.1%. Cash conversion was solid, which reflected strong underlying cash generation and working capital control, but also the effect of some selective working capital investment to support the strong growth in the period. Our continued cash generation and strong balance sheet underpin our investment in future organic growth, as well as providing capacity to fund acquisitions and our progressive dividend policy. \n \n \n   \n \n \n The Board is recommending a 7% increase in the final dividend to 11.53p per share (2021: 10.78p per share). Together with the 7.35p per share interim dividend, this would result in a total dividend for the year of 18.88p (2021: 17.65p), up 7%, making this the 43rd consecutive year of dividend per share growth of 5% or more. \n \n \n   \n \n \n \n Organisational model and DNA enable our strong performance \n \n \n \n Our Sustainable Growth Model, and in particular our organisational model and our DNA, have been critical in delivering our strong performance this year. \n \n \n   \n \n \n At its core is our purpose, which not only continues to motivate us, as demonstrated by our high employee engagement scores, but is also proving to be an important asset in attracting new talent. \n \n \n   \n \n \n Our organisational model gives our companies the resources, agility and authority to respond to changes in their markets and the global operating environment, led by their local management team. It also has inherent scalability, allowing us to use M&A to expand our opportunities for growth, without adding further complexity to our structures and decision making or to divest when growth opportunities become more limited. As we have grown, we have deliberately developed a more collaborative culture. This has allowed our companies to address opportunities and solve common issues together, benefiting from the Group's increasing scale, while still retaining the advantages of being small, agile companies, close to their markets. This has been crucial during the COVID pandemic and will continue to be so as we address the further opportunities and challenges ahead. \n \n \n   \n \n \n Our organisational design and DNA means that companies have short spans of control and the autonomy to act in their best interests without seeking approval first. A good example of this in action has been the different actions they have taken to address the wide range of operational challenges they have faced during the past year. These include: \n \n \n   \n \n \n - introducing radically different shift patterns and increasing employee engagement in response to increased demand and labour market shortages, which has also added capacity and flexibility for further growth; \n \n \n - collaborating to source alternative supplies, share component inventories or leverage the Group's scale to address shortages and delays of critical components in supply chains; \n \n \n - rapidly redesigning products to use alternative components or making components themselves, using \n \n \n cross-functional groups to achieve fast times to market; and \n \n \n - leveraging their close relationships with their customers to ensure that we continue to deliver value to them as well as to address increasing costs by price changes. \n \n \n   \n \n \n \n Increased strategic investment to support future growth \n \n \n \n One of Halma's key strengths is the ability to deliver strong performance in the shorter-term, while simultaneously making substantial investments to support sustainable growth over the longer-term. \n \n \n   \n \n \n We invested over a quarter of a billion pounds in aggregate in this financial year. This investment broadened our opportunities for growth both organically and through acquisition, ensured our products continue to create value for our customers and further strengthened our infrastructure across the Group. \n \n \n   \n \n \n Increasing these investments reflects our confidence in the long-term growth drivers we see in our 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 expanding demands on life-critical resources including the urgent need to tackle climate change, waste and pollution. \n \n \n   \n \n \n \n Increased strategic investment in new products and technology \n \n \n \n Our companies increased investment in new product development above the rate of revenue growth, reflecting their own confidence in their long-term growth prospects. R&D expenditure grew by £15m to £85m, which represented 5.6% of revenue, up from 5.3% in the prior year. \n \n \n   \n \n \n Investment in our technology infrastructure was £11m, to support future growth and modernise ways of working across Halma. We are upgrading our operational technologies to simplify the way in which central functions collect the data required from our companies' systems, with the objectives of increasing automation, improving accuracy and control, and facilitating deeper data insights. We are largely complete in the rollout of our global Treasury Management solution and have commenced implementation of our new Finance and Talent Management platforms. We are also investing significantly in upgrading our global security architecture, which has already brought the added benefits of more secure connectivity between our companies and locations. We are assisting each of our companies in considering how their core business opportunities and challenges can be addressed through improved technology solutions. \n \n \n   \n \n \n Our Digital and Technology teams have been active in supporting the advancement of digital solutions across our companies' product portfolios. Revenue from digital products and solutions increased by 15% in the year, and represents over 40% of Group revenue, with revenue from IoT solutions and from software and services both up by more than 40% year-on-year. \n \n \n   \n \n \n We are making steady progress in establishing a common technology core to support our ongoing IoT product development, with companies trialling a number of potential solutions addressing areas such as telemedicine, fire detection, and critical asset tracking and management. \n \n \n   \n \n \n As our companies increasingly incorporate connected technologies into their products, we are helping to accelerate their IoT / digital product development through a number of initiatives. Examples include diagnostic and design clinics which help companies devise their digital solutions; digital incubators to help companies rapidly prototype and test their new concepts; and strategic partnerships with third-party digital technology platforms and software development partners to assist companies in scaling and launching products to market. \n \n \n   \n \n \n These activities were supported by a range of initiatives which encourage collaboration and by our innovation network. They included an Innovation & Digital Summit, which brought together over 100 participants from across the Group to share their experiences and learn from external experts, a regular Innovation & Digital newsletter, and the release of a self-learning resource through our Innovation & Digital Champions Network. \n \n \n   \n \n \n \n 13 acquisitions completed across all three sectors \n \n \n \n Our M&A strategy is focused on acquiring businesses with valuable intellectual property, which operate in market niches aligned with our purpose of growing a safer, cleaner, healthier future for everyone, every day. \n \n \n   \n \n \n Our lean organisational model is scalable and gives us the ability to continue acquiring small-to-medium sized businesses to add new capabilities and supplement our underlying organic growth. \n \n \n   \n \n \n We are also able to sell and merge businesses relatively easily should market dynamics change, enabling us to maintain a purpose-driven, growth-oriented portfolio without it becoming significantly more complex to manage. The benefit of this active portfolio management is reflected in the number of companies within Halma remaining relatively stable, whilst we have grown and maximised value for our shareholders. For example, in 2012, Halma had revenue of £580m from 38 operating companies, and today we are delivering revenue of over £1.5bn from only 44 operating companies. \n \n \n   \n \n \n We made 13 acquisitions in the year, for a maximum total consideration of £164m, while disposing of one business for £65m. The acquisitions were spread across our three sectors, with five acquisitions each in the Environmental & Analysis and Medical sectors and three in the Safety sector. They were broadly spread geographically, with acquisitions made in the UK, the USA, a number of countries in Mainland Europe, and in Australia. \n \n \n   \n \n \n It is particularly pleasing to see the acquisition momentum in the Environmental & Analysis sector increasing, following the formation of the new sector leadership team at the beginning of the year including a dedicated M&A team. \n \n \n   \n \n \n Three of the acquisitions made in the year will be standalone companies within the Group. They are: \n \n \n   \n \n \n - PeriGen, Inc., whose advanced technology protects mothers and their unborn babies during childbirth by alerting doctors, midwives and nurses to potential problems. PeriGen was acquired for a cash consideration of US$57.3m (approximately £40.1m) on a cash and debt-free basis; \n \n \n - The Ramtech group of companies, a UK-based supplier of wireless fire systems for temporary sites, which was purchased for a cash consideration of £15.7m, on a cash and debt-free basis; and \n \n \n - Sensitron S.r.L., an Italian gas detection company, which was acquired for a cash consideration of €20.1m (£17.1m), on a cash and debt-free basis. \n \n \n   \n \n \n An increasing number of our companies now have the size and capability to grow their businesses through acquisition as well as organically, and 10 of the acquisitions in the year were made by our companies as bolt-ons to enhance their technologies and market reach. Details of these transactions are contained in the notes to the Accounts. \n \n \n   \n \n \n Since the period end, we have acquired Deep Trekker, a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance. It will be a stand-alone company within our Environmental & Analysis sector. It serves markets including aquaculture, renewable energy and ocean science and research, and was acquired for a cash consideration of C$60m (approximately £36.6m) on a cash and debt-free basis. \n \n \n   \n \n \n We have also continued to develop our external partnerships through our Halma Ventures programme, that offers Halma access to new technology and capabilities via minority ownership, and have a good pipeline of further potential opportunities. Since the year end, we have made one further investment in VAPAR, whose AI technology enables faster and more accurate condition assessment of wastewater infrastructure. \n \n \n   \n \n \n \n Talent and Executive Board changes \n \n \n \n The quality and diversity of our leaders and teams is a critical component of Halma's success, and their continued commitment to bringing our purpose to life was reflected in our global engagement survey. This had a high response rate of 85% and an engagement score of 76%, with improvements across all dimensions compared to 2020. This result was supported by the ability of our companies to act quickly to look after their employees' wellbeing in response to events such as the ongoing pandemic and the invasion of Ukraine. \n \n \n   \n \n \n We are committed to maximising the quality of talent available to us by ensuring that Halma is an inclusive organisation, thereby also ensuring a diversity of voices and experiences within our leadership teams. \n \n \n   \n \n \n Diversity, Equity and Inclusion is one of our Key Sustainability Objectives, and one measure of inclusion is gender diversity. We have introduced a target of achieving 40-60% gender balance on all company boards by March 2024. Although this is a stretching goal, we made progress towards it in the year, increasing female representation from 22% last year to 26% at 31 March 2022. \n \n \n   \n \n \n We manage the development and diversity of our leadership teams to ensure that we have robust succession plans for senior positions within the Group and that we have the appropriate capabilities in our teams to support the Group's future growth. \n \n \n   \n \n \n Since the beginning of the year, we have been operating and reporting as three sectors, to better align with our purpose and our focus on safety, health and environmental markets. Each sector team includes a Sector Chief Executive, a Chief Financial Officer, a team to support M&A activity as well as legal and talent management resource, to deliver its growth strategy. \n \n \n   \n \n \n The new dedicated sector team created for the Environmental & Analysis sector has brought increased focus on the significant opportunities we see in its markets. Its new M&A team, for example, has already benefited the sector, with five acquisitions completed in the year, and Deep Trekker acquired after the year end. \n \n \n   \n \n \n We are also investing in our leadership team in Asia-Pacific, reflecting the substantial organic and inorganic growth potential in the region over the longer term. This team is led by Aldous Wong, who was one of our Divisional Chief Executives (DCEs), as President of Halma Asia Pacific and an advisor to Halma's Executive Board. We made one further change to the Executive Board in the year, with Steve Brown also being promoted from DCE to succeed Laura Stoltenberg as the Sector Chief Executive for the Medical sector. \n \n \n   \n \n \n \n Good progress on our Key Sustainability Objectives \n \n \n \n Following the introduction of our Sustainability Framework in the prior year, each of our companies is creating its own plan to set out how they will contribute to the Group's goals and ambitions for our Key Sustainability Objectives (KSOs) - Climate Change, Diversity, Equity and Inclusion (DEI), and Circular Economy. Achieving these objectives will add to the positive impact delivered through our purpose-aligned growth. \n \n \n   \n \n \n In addition, we advanced our work to enable us to report against the recommendations from the Task Force for Climate-related Financial Disclosures (TCFD). This further highlighted not only the challenges but also the significant opportunities for Halma arising from the transition to a lower carbon world and from global efforts to address climate change. The ways in which our companies can address these opportunities are diverse. These include solutions to reduce greenhouse gas (GHG) emissions; helping customers in energy-transitioning industries to increase safety and reduce costs; providing products with a lower carbon footprint; and helping customers and societies adapt to the worsening physical impacts of climate change. We will be supporting our companies in identifying and assessing relevant opportunities as part of their strategic growth plans, as well as continuing to assess these opportunities as part of our M&A strategy. \n \n \n   \n \n \n We have several targets already in place for our Climate Change KSO. We have made progress towards our 2040 Net Zero and 2030 1.5 degree aligned targets for Scope 1 & 2 emissions, with a 35% reduction in GHG emissions from our 2020 baseline, compared to 14% reported revenue growth over those two years. We have rapidly increased our use of renewable electricity from 8% of consumption in 2020 to 42% in 2022, which is on the way to our target of 80% renewable electricity by 2025. From FY23, we have also introduced a new target of at least 4% annual growth in energy productivity to support our Scope 1 & 2 goals. \n \n \n   \n \n \n We recognise that Scope 1 & 2 is only a small portion of our total carbon footprint and that we need to work towards Net Zero for our entire value chain. We have made progress during the year in estimating our full Scope 3 footprint. We will be looking to show strong progress towards setting appropriate Scope 3 goals and targets during the coming financial year. \n \n \n   \n \n \n Our new annual energy productivity metrics have been incorporated into our executive remuneration for FY23, alongside the gender diversity targets mentioned above. Performance against stretching annual targets is required for participants to achieve 10% of the maximum annual bonus. We consider this change in our remuneration as a good starting point; in the future we will consider further metrics as well as evolving the scope and type of sustainability-linked remuneration. \n \n \n   \n \n \n \n Summary and Outlook \n \n \n \n Halma's Sustainable Growth Model enabled our companies to act with agility to address new market opportunities and to respond rapidly to the multiple operational and economic challenges they faced during the year. Our strong performance reflects huge credit on the dedication of our people across the business, and was underpinned by our empowering purpose and culture, our focus on niche markets with long-term, fundamental growth drivers and the high value of the solutions we provide to our customers. \n \n \n   \n \n \n 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 ahead of revenue and in line with the very strong intake in the same period of the prior year. We expect to deliver continued growth and maintain high returns in the 2022/23 financial year, with good single digit percentage organic constant currency revenue growth and a Return on Sales similar to the second half of the 2021/22 financial year. We are well positioned to make further progress in the full year and in the longer-term. \n \n \n   \n \n \n Andrew Williams \n \n \n Group Chief Executive \n \n \n   \n \n \n \n 1 \n \n See Highlights \n \n \n \n   \n \n \n \n \n Financial Review \n \n \n \n \n   \n \n \n \n \n Record profit \n \n \n \n Halma reported a strong financial performance in the period. We delivered record profit for the 19th consecutive year, while substantially increasing investment to support future growth. Our Sustainable Growth Model enabled our companies to respond with agility to new opportunities in their end markets and to benefit from recovery in a number of markets that had been affected by the COVID pandemic. It also allowed them to act rapidly to address multiple economic and geopolitical challenges including the ongoing effects of the pandemic and, in the fourth quarter of the year, from the conflict in Ukraine. The increased investment in the year was supported by the continued strength of our financial position and solid cash flow, and will underpin our growth over the longer term as our companies address the significant opportunities in their markets. \n \n \n   \n \n \n Revenue for the year to 31 March 2022 was £1,525.3m (2021: £1,318.2m), up 15.7%, which principally reflected a strong organic performance. There was also a benefit from recent acquisitions (net of the effect of a disposal in the year), and a negative effect from currency translation. The increase in Adjusted 1 profit before taxation of 13.6% to £316.2m (2021: £278.3m) reflected the increase in revenue and the return of discretionary variable overhead costs in the second half of the year as the effects of the pandemic eased. It also included a net benefit of £3m, comprising a £5m release of a centrally-held provision for the risk of customer bad debt as a result of the COVID pandemic, offset in part by an increase of £2m in provisions in relation to bad debt and contract risk relating to our decision to cease trading with Russia. As a result of the continued strong performance, we were able to increase investment to support future growth, including further resources for our central Growth Enabler teams, and £7m increase in expenditure to upgrade our information technology infrastructure. Statutory profit before taxation increased by 20.4% to £304.4m (2021: £252.9m). \n \n \n   \n \n \n Revenue growth of 15.7% was driven by a 17.4% increase in organic constant currency revenue. The contribution from acquisitions was a positive 4.8% (1.6% net of disposals), and there was a negative effect from currency translation of 3.3%. The 13.6% increase in Adjusted 1 profit comprised a 15.4% increase in organic constant currency profit, a 3.6% contribution from acquisitions (1.7% net of disposals), and a negative effect from currency of 3.5%. \n \n \n   \n \n \n Statutory profit before taxation of £304.4m is calculated after charging the amortisation of acquired intangible assets of £42.7m (2021: £42.3m), a £34.0m gain on disposals (2021: £22.1m), and other items of a net £3.1m (2021: £5.2m). Further detail on these items is given in note 1 to these Accounts. \n \n \n   \n \n \n Cash conversion was solid at 84%, reflecting good underlying working capital control, partially offset by selective investment by our companies in their stock of components and raw materials to ensure continuity of production and to manage price increases. Our financial position remained strong, despite significant organic investment and acquisition spend, with net debt (on an IFRS 16 basis which includes lease commitments) increasing by only £18.6m to £274.8m, and representing gearing (net debt to EBITDA) of 0.74 times. \n \n \n   \n \n \n \n Strong revenue and profit performance \n \n \n \n Revenue grew by 19.2% in the first half of the year and by 12.6% in the second half, with second half revenue 6.9% higher than revenue in the first. Constant currency organic revenue increased by 17.4%, comprising a 23.2% increase in the first half and growth of 12.2% in the second half. There was a negative effect of 6.2% from currency translation in the first half, and of 0.7% in the second half, giving a negative effect of 3.3% for the year as a whole. \n \n \n   \n \n \n Adjusted 1 profit increased by 27.0% in the first half and grew by 3.2% in the second half. This resulted in a first half/second half split of adjusted profit of 49%/51%, compared to our typical 45%/55% pattern. Organic profit at constant currency increased by 31.7% in the first half, and by 2.6% in the second half, resulting in growth of 15.4% for the year. Growth in the second half of the year included an investment of £6m in information technology infrastructure (out of £7m in the year as a whole), and a net £3m benefit from the release of provisions relating to the risk of customer bad debt and our decision this year to cease trading with Russia as described above. \n \n \n   \n \n \n \n \n \n \n \n Revenue and profit change \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2022 \n \n \n \n \n £m \n \n \n \n \n \n 2021 \n \n \n £m \n \n \n \n \n \n Change \n \n \n \n \n  m \n \n \n \n \n \n \n Total \n \n \n \n \n % \n \n \n \n \n \n \n Organic \n \n \n \n \n growth 2 \n \n \n \n \n % \n \n \n \n \n \n \n Organic \n \n \n \n \n growth 2 \n \n \n \n \n at constant currency % \n \n \n \n \n   \n \n \n \n \n \n Revenue \n \n \n \n \n \n 1,525.3 \n \n \n \n \n \n 1,318.2 \n \n \n \n \n \n 207.1 \n \n \n \n \n \n \n 15.7 \n \n \n \n \n \n \n 14.1 \n \n \n \n \n \n \n 17.4 \n \n \n \n \n   \n \n \n \n \n \n Adjusted 1 profit before taxation \n \n \n \n \n \n 316.2 \n \n \n \n \n \n 278.3 \n \n \n \n \n \n 37.9 \n \n \n \n \n \n \n 13.6 \n \n \n \n \n \n \n 11.9 \n \n \n \n \n \n \n 15.4 \n \n \n \n \n   \n \n \n \n \n \n Statutory profit before taxation \n \n \n \n \n \n 304.4 \n \n \n \n \n \n 252.9 \n \n \n \n \n \n 51.5 \n \n \n \n \n \n \n 20.4 \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n 1 \n \n In addition to those figures reported under IFRS, Halma uses alternative performance measures as key performance indicators, as management believe these measures enable them to better assess the underlying trading performance of the business by removing non-trading items that are not closely related to the Group's trading or operating cash flows. Adjusted profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs and profit or loss on disposal of operations. All of these are included in the statutory figures. Notes 1 and 3 to the Accounts give further details with the calculation and reconciliation of adjusted figures. \n \n \n \n 2 \n \n See Highlights. \n \n \n   \n \n \n \n Strong revenue and profit growth in all sectors \n \n \n \n All sectors delivered strong revenue and profit growth, both on a reported and organic constant currency basis, and all sectors grew revenue and profit in both the first half and the second half of the year. \n \n \n   \n \n \n The Environmental & Analysis sector delivered the strongest performance. Revenue increased 22.6% driven by strong organic constant currency growth of 24.5%, with all regions reporting growth on an organic constant currency basis. Profit grew 23.0%, or by 23.3% on an organic constant currency basis. The sector's strong revenue growth principally reflected a recovery in customer demand, including a number of larger contracts, as the effects of the COVID pandemic eased, and its operational agility in spite of supply chain disruptions. Acquisitions, net of disposals, contributed growth of 1.6% to revenue, and 3.5% to profit. Return on Sales was marginally higher at 24.8% (2021: 24.7%). There was a reduction in gross margin as a result of product mix, in addition to increased sector costs following the creation of a new dedicated sector leadership team (rather than one shared with the Medical sector, as in the previous year). These factors were mitigated by continued strong overhead control. Absolute expenditure on R&D increased to £22.8m (2021: £20.6m) although that represented a reduction in R&D expenditure as a percentage of sales from 5.7% to 5.1%. Looking ahead, while there are continued risks from supply chain disruptions and a robust comparative (notably in the first half), we expect the sector to make further strong progress, supported by a substantial order book and a contribution from recent acquisitions. \n \n \n   \n \n \n The Medical sector also grew strongly, with revenue growth of 19.1%, including an organic constant currency increase of 13.0% and a contribution from acquisitions of 10.1%. Growth was broad-based across the sector, with the majority of companies delivering double digit growth as a result of strong increases in customer demand as the effects of the COVID pandemic abated and healthcare systems began to normalise. This was partially offset by a small number of companies which had seen significant increases in demand as a result of the pandemic seeing a decline in sales. Profit grew 15.0% (10.5% on an organic constant currency basis) and Return on Sales was 22.5% (2021: 23.3%). This included a substantial increase in R&D expenditure to £26.9m, representing 6.1% of revenue (2021: £18.8m; 5.1% of revenue), given an intensification of new product development and new product launches in the year. It also reflected the allocation of the full cost of a dedicated sector leadership team following the creation of a separate team for the Environmental & Analysis sector. These effects were partly offset by strong control of overheads. While risks remain of further supply chain disruptions and delays to customer orders, the sector is anticipated to deliver good growth in the year ahead, supported by a strong order book. \n \n \n   \n \n \n The Safety sector also saw strong growth, with revenue increasing by 15.9% on an organic constant currency basis. Reported revenue growth was 9.3% and included negative effects of 5.2% from the disposal of Texecom in the first half of the year and 2.7% from foreign exchange translation, which were partly offset by a benefit from recent acquisitions of 1.3%. Sector growth was driven by double digit revenue growth in all but two (smaller) subsectors, reflecting our companies' agility in responding to the recovery in customer demand as the effects of the COVID pandemic eased, and was achieved despite increased supply chain, logistics and labour market disruption during the year. Profit increased 8.1%, or 13.3% on an organic constant currency basis, and Return on Sales was 22.8% (2021: 23.0%), reflecting higher technology costs and an increase in R&D spend to 5.6% of revenue (2021: 5.2%), partly offset by strong overhead control and the effect of the disposal of Texecom during the year. While there are risks from continued inflationary, operational and supply chain challenges, the sector is expected to deliver a strong organic constant currency performance in the year ahead. \n \n \n   \n \n \n Central administration costs, which include our Growth Enabler functions, increased to £30.9m. These had declined in 2021 to £22.9m from £26.3m in 2020, as a result of the discretionary cost reduction measures implemented at the beginning of the COVID pandemic. The increase reflected the partial return of discretionary variable overhead costs as our business activity recovered, investment in our governance and compliance teams given the increased scale of the Group and planned investment in technology and our Growth Enabler teams to support our future growth. In 2023, we expect the same factors, principally technology investment, to result in central administration costs being approximately £40m. \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n Sector revenue change \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n 2022 \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n 2021 \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n £m \n \n \n \n \n \n \n % of total \n \n \n \n \n \n \n   \n \n \n \n \n \n £m \n \n \n \n \n % of total \n \n \n \n \n \n Change £m \n \n \n \n \n \n \n   \n \n \n \n \n % growth \n \n \n \n \n \n \n % organic growth 2 at constant currency \n \n \n \n \n \n \n \n Safety \n \n \n \n \n \n 641.4 \n \n \n \n \n \n \n 42 \n \n \n \n \n \n \n \n \n \n \n \n \n 587.0 \n \n \n \n \n 45 \n \n \n \n \n \n 54.4 \n \n \n \n \n \n \n 9.3 \n \n \n \n \n \n \n 15.9 \n \n \n \n \n \n \n \n Environmental & Analysis \n \n \n \n \n \n 442.9 \n \n \n \n \n \n \n 29 \n \n \n \n \n \n \n \n \n \n \n \n \n 361.1 \n \n \n \n \n 27 \n \n \n \n \n \n 81.8 \n \n \n \n \n \n \n 22.6 \n \n \n \n \n \n \n 24.5 \n \n \n \n \n \n \n \n Medical \n \n \n \n \n \n 442.3 \n \n \n \n \n \n \n 29 \n \n \n \n \n \n \n \n \n \n \n \n \n 371.3 \n \n \n \n \n 28 \n \n \n \n \n \n 71.0 \n \n \n \n \n \n \n 19.1 \n \n \n \n \n \n \n 13.0 \n \n \n \n \n \n \n \n Inter-segment sales \n \n \n \n \n \n (1.3) \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n (1.2) \n \n \n \n \n \n \n \n \n \n \n \n \n (0.1) \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 1,525.3 \n \n \n \n \n \n \n 100 \n \n \n \n \n \n \n \n \n \n \n \n \n 1,318.2 \n \n \n \n \n 100 \n \n \n \n \n \n 207.1 \n \n \n \n \n \n \n 15.7 \n \n \n \n \n \n \n 17.4 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n Sector profit change \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2022 \n \n \n \n \n \n \n   \n \n \n \n \n \n 2021 \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n £m \n \n \n \n \n \n \n % of total \n \n \n \n \n \n \n   \n \n \n \n \n \n £m \n \n \n \n \n % of total \n \n \n \n \n \n Change £m \n \n \n \n \n \n \n % growth \n \n \n \n \n \n \n % organic growth 2 at constant currency \n \n \n \n \n \n \n \n Safety \n \n \n \n \n \n 146.2 \n \n \n \n \n \n \n 41 \n \n \n \n \n \n \n \n \n \n \n \n \n 135.3 \n \n \n \n \n 43 \n \n \n \n \n \n 10.9 \n \n \n \n \n \n \n 8.1 \n \n \n \n \n \n \n 13.3 \n \n \n \n \n \n \n \n Environmental & Analysis \n \n \n \n \n \n 109.8 \n \n \n \n \n \n \n 31 \n \n \n \n \n \n \n \n \n \n \n \n \n 89.3 \n \n \n \n \n 29 \n \n \n \n \n \n 20.5 \n \n \n \n \n \n \n 23.0 \n \n \n \n \n \n \n 23.3 \n \n \n \n \n \n \n \n Medical \n \n \n \n \n \n 99.5 \n \n \n \n \n \n \n 28 \n \n \n \n \n \n \n \n \n \n \n \n \n 86.6 \n \n \n \n \n 28 \n \n \n \n \n \n 12.9 \n \n \n \n \n \n \n 15.0 \n \n \n \n \n \n \n 10.5 \n \n \n \n \n \n \n \n Sector profit 3 \n \n \n \n \n \n 355.5 \n \n \n \n \n \n \n 100 \n \n \n \n \n \n \n \n \n \n \n \n \n 311.2 \n \n \n \n \n 100 \n \n \n \n \n \n 44.3 \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Central administration costs \n \n \n \n \n \n (30.9) \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n (22.9) \n \n \n \n \n \n \n \n \n \n \n \n \n (8.0) \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Net finance expense \n \n \n \n \n \n (8.4) \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n (10.0) \n \n \n \n \n \n \n \n \n \n \n \n \n 1.6 \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Adjusted 4 profit before tax \n \n \n \n \n \n 316.2 \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n 278.3 \n \n \n \n \n \n \n \n \n \n \n \n \n 37.9 \n \n \n \n \n \n \n 13.6 \n \n \n \n \n \n \n 15.4 \n \n \n \n \n \n \n \n \n   \n \n \n \n \n 3 \n \n Sector profit before allocation of adjustments. See Note 1 to the Financial Statements. \n \n \n \n 4 \n \n Adjusted profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations. All of these are included in the statutory figures. Note 3 to the Financial Statements gives further details with the calculation and reconciliation of adjusted figures. \n \n \n \n   \n \n \n \n \n Strong revenue growth in all major regions \n \n \n \n The Group's four major regions delivered a strong revenue performance on a reported and organic constant currency basis, and all of them grew on an organic constant currency basis. \n \n \n   \n \n \n Revenue in the USA increased by 17.4%, and the USA remains our largest revenue destination, accounting for 39% of Group revenue, the same as in the prior year. Organic constant currency revenue grew by 19.8%. All sectors performed well, with the Environmental & Analysis sector reporting very strong growth, driven by Environmental Monitoring and Optical Analysis. The Safety sector \n also performed strongly, with a recovery in customer demand following the pandemic resulting in strong growth in a number of subsectors including emergency communication in Elevator Safety, Fire Detection, Pressure Management and Industrial Access Control. The Medical sector performed well, with many companies seeing substantial growth as elective procedure volumes increased, together with a positive contribution from recent acquisitions, principally PeriGen. This was partly offset, however, by a decline in demand for products supporting the diagnosis or treatment of COVID. \n \n \n   \n \n \n Mainland Europe revenue was 11.6% higher, or 12.8% on an organic constant currency basis. Reported revenue included a modest contribution from acquisitions (net of the impact of disposals), and a negative effect from foreign exchange translation. The Environmental & Analysis sector delivered a very strong performance, driven by the Water Analysis and Treatment subsector and also benefiting from the acquisition of Sensitron in the year. Medical sector growth was also strong, reflecting momentum in the Healthcare Assessment subsector. The Safety sector also performed well, with strong performances in People and Vehicle Flow and Fire Detection, although more mixed in the rest of the sector. \n \n \n   \n \n \n UK revenue was 25.0% higher, which included a small positive contribution from acquisitions, including Static Systems and Ramtech, net of the disposal of Texecom. Organic constant currency revenue growth was 24.8%. The Medical sector saw strong organic constant currency growth following a sharp decline in the prior year as a result of the COVID-19 pandemic, and additionally benefited from the acquisition of Static Systems in the year. The Environmental & Analysis sector saw good growth, driven by strong demand for pipeline inspection and maintenance solutions in the Water Analysis and Treatment subsector and good momentum in gas detection within Environmental Monitoring. Growth in the Safety sector was strong, and reflected high rates of organic growth, driven by a strong performance in Fire Detection, more than compensating for the negative impact from the disposal. \n \n \n   \n \n \n Revenue from territories outside the UK/Mainland Europe/the USA grew by 10.4%, in line with our 10% KPI growth target. This comprised a strong performance in Asia Pacific and a small decline in revenue in other regions. \n \n \n   \n \n \n Asia Pacific revenue increased 16.0%, or 18.3% on an organic constant currency basis. Revenue in China, our largest market in the region at approximately 7% of Group revenue, grew at a similar rate to the Asia Pacific region overall. The Environmental & Analysis and Medical sectors delivered strong performances, supported by our companies' alignment with the major elements of the Chinese government's Five Year Plan. Elsewhere in the region, the other larger markets of Australasia, India, Japan, South Korea and Singapore delivered double digit revenue growth, and, in the smaller markets, only Malaysia and Indonesia saw a decline. The net effect of acquisitions and disposals was broadly neutral. \n \n \n   \n \n \n Other regions, which represent less than 7% of Group revenue, reported revenue 1.4% lower on a reported basis, principally as a result of foreign exchange translation. There was a 2.1% increase on an organic constant currency basis, which reflected modest organic growth in Africa, Near and Middle East and a wide range of performances in other countries. There was a strong performance in the Environmental & Analysis sector and good growth in Medical, while Safety sector revenue was lower. \n \n \n   \n \n \n \n \n \n \n \n Geographic revenue \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2022 \n \n \n \n \n \n \n   \n \n \n \n \n \n 2021 \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n £m \n \n \n \n \n \n \n % of total \n \n \n \n \n \n \n   \n \n \n \n \n \n £m \n \n \n \n \n % of total \n \n \n \n \n Change £m \n \n \n \n \n % change \n \n \n \n \n % organic growth at constant currency \n \n \n \n \n \n   \n \n \n \n United States of America \n \n \n \n \n \n 597.2 \n \n \n \n \n \n \n 39 \n \n \n \n \n \n \n \n \n \n \n \n \n 508.8 \n \n \n \n \n 39 \n \n \n \n \n 88.4 \n \n \n \n \n 17.4 \n \n \n \n \n 19.8 \n \n \n \n \n \n   \n \n \n \n Mainland Europe \n \n \n \n \n \n 308.1 \n \n \n \n \n \n \n 20 \n \n \n \n \n \n \n \n \n \n \n \n \n 276.0 \n \n \n \n \n 21 \n \n \n \n \n 32.1 \n \n \n \n \n 11.6 \n \n \n \n \n 12.8 \n \n \n \n \n \n   \n \n \n \n United Kingdom \n \n \n \n \n \n 267.0 \n \n \n \n \n \n \n 18 \n \n \n \n \n \n \n \n \n \n \n \n \n 213.6 \n \n \n \n \n 16 \n \n \n \n \n 53.4 \n \n \n \n \n 25.0 \n \n \n \n \n 24.8 \n \n \n \n \n \n   \n \n \n \n Asia Pacific \n \n \n \n \n \n 250.8 \n \n \n \n \n \n \n 16 \n \n \n \n \n \n \n \n \n \n \n \n \n 216.1 \n \n \n \n \n 16 \n \n \n \n \n 34.7 \n \n \n \n \n 16.0 \n \n \n \n \n 18.3 \n \n \n \n \n \n   \n \n \n \n Africa, Near and Middle East \n \n \n \n \n \n 53.6 \n \n \n \n \n \n \n 4 \n \n \n \n \n \n \n \n \n \n \n \n \n 54.1 \n \n \n \n \n 4 \n \n \n \n \n (0.5) \n \n \n \n \n (0.9) \n \n \n \n \n 3.0 \n \n \n \n \n \n   \n \n \n \n Other countries \n \n \n \n \n \n 48.6 \n \n \n \n \n \n \n 3 \n \n \n \n \n \n \n \n \n \n \n \n \n 49.6 \n \n \n \n \n 4 \n \n \n \n \n (1.0) \n \n \n \n \n (2.0) \n \n \n \n \n 1.2 \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n 1,525.3 \n \n \n \n \n \n \n 100 \n \n \n \n \n \n \n \n \n \n \n \n \n 1,318.2 \n \n \n \n \n 100 \n \n \n \n \n 207.1 \n \n \n \n \n 15.7 \n \n \n \n \n 17.4 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n   \n \n \n \n Currency effects \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Weighted average rates used in the Income Statement \n \n \n \n \n Exchange rates \n used to translate the Balance Sheet \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n First half \n \n \n \n \n \n \n 2022 \n \n \n \n \n Full year \n \n \n \n \n \n   \n \n \n 2021 \n \n \n Full year \n \n \n \n \n \n 2022 \n \n \n \n \n Year end \n \n \n \n \n \n 2021 \n \n \n Year end \n \n \n \n \n \n \n US$ \n \n \n \n \n \n \n \n \n \n \n \n \n 1.388 \n \n \n \n \n \n \n 1.367 \n \n \n \n \n \n 1.308 \n \n \n \n \n \n 1.315 \n \n \n \n \n \n 1.378 \n \n \n \n \n \n \n Euro \n \n \n \n \n \n \n \n \n \n \n \n \n 1.165 \n \n \n \n \n \n \n 1.176 \n \n \n \n \n \n 1.121 \n \n \n \n \n \n 1.183 \n \n \n \n \n \n 1.174 \n \n \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n \n Continued high returns \n \n \n \n Halma's Return on Sales \n \n 2 \n \n has exceeded 16% for 37 consecutive years. Our KPI target is to deliver Return on Sales in the range of 18-22% and this year Return on Sales was 20.7%, or 20.5% when the benefit of £3m from a net decrease in customer bad debt and Russia-related provisions is excluded. This compares to an unusually high level of 21.1% in 2021, which had benefited from the stringent cost reduction measures we decided to take during the COVID-19 pandemic. \n \n \n   \n \n \n We successfully achieved our objective of continuing to invest in our businesses while delivering growth and we maintained a high level of Return on Total Invested Capital (ROTIC) \n \n 2 \n \n , the post-tax return on the Group's total assets including all historical goodwill. This year, ROTIC increased to 14.6% (2021: 14.4%), with the change principally reflecting the higher level of constant currency growth in the year, partially offset by the negative effect of currency movements. Our ROTIC remains well ahead of our KPI target of 12% and more than double Halma's Weighted Average Cost of Capital (WACC), estimated to be 7.1% (2021: 6.7%). \n \n \n   \n \n \n \n Currency effects well managed \n \n \n \n Halma reports its results in Sterling. Our other key trading currencies are the US Dollar, Euro and to a lesser extent the Swiss Franc, the Chinese Renminbi and the Australian Dollar. Over 46% of Group revenue is denominated in US Dollars, approximately 28% in Sterling and approximately 12% in Euros. \n \n \n   \n \n \n The Group has both translational and transactional currency exposure. Translational exposures are not hedged. Transactional exposures, after matching currency of revenue with currency costs wherever practical, are hedged using forward exchange contracts for a proportion (up to 75%) of the remaining forecast net transaction flows where there is a reasonable certainty of an exposure. We hedge up to 12 months forward. \n \n \n   \n \n \n Sterling strengthened on average in the year, principally in the first half. This gave rise to a negative currency translation impact of 3.3% on revenue and 3.5% on profit for the full year. \n \n \n   \n \n \n Based on the current mix of currency denominated revenue and profit, a 1% movement in the US Dollar relative to Sterling changes revenue by £7.1m and profit by £1.6m. Similarly, a 1% movement in the Euro changes revenue by £1.8m and profit by 0.4m. \n \n \n   \n \n \n If currency rates for the financial year to the end of March 2023 were US Dollar 1.260/ Euro 1.190 relative to Sterling, and assuming a constant mix of currency results, we would expect approximately a £59m positive revenue and a £13m positive profit impact compared to financial year to the end of March 2022, with the majority of the impact in the first half of the year. \n \n \n   \n \n \n \n Financing cost decreased \n \n \n \n The net financing cost in the Income Statement of £8.4m was lower than the prior year (2021: £10.0m). This principally reflected a lower weighted average interest rate in the year (see the \"Average debt and interest rates'\" table below for more information). \n \n \n   \n \n \n We expect the net financing cost for the 2023 financial year to be approximately £14m, if no further acquisitions are made. This reflects a forecast higher weighted average interest rate in the year, following the completion of a new Private Placement issuance (for details, see the \"Substantial funding capacity and liquidity\" section below). This issuance results in an increased proportion of fixed coupon debt on the Group's balance sheet, and secures debt financing sufficient to meet the Group's likely medium-term requirements. \n \n \n   \n \n \n The net pension financing impact under IAS 19 is included within the net financing cost. This year the Group recognised a charge of £0.3m (2021: gain of £0.1m). \n \n \n   \n \n \n \n Group tax rate increased \n \n \n \n The Group has major operating subsidiaries in a number of countries and the Group's effective tax rate is a blend of these national tax rates applied to locally generated profits. \n \n \n   \n \n \n The Group's effective tax rate on adjusted profit was higher than in the prior year at 21.6% (2021: 20.1%). This was mainly due to changes in tax laws reducing the benefits from intra-group financing arrangements. Based on the latest forecast mix of adjusted profits for the year to 31 March 2023 we currently anticipate the Group effective tax rate to be broadly stable at approximately 22% of adjusted profits. \n \n \n   \n \n \n On 2 April 2019, the European Commission (EC) published its final decision that the UK controlled Finance Company Partial Exemption (FCPE) constituted State Aid. In common with many other UK companies, Halma has benefited from the FCPE and had appealed against the European Commission's decision, as had the UK Government. The EU General Court delivered its decision on 8 June 2022. The ruling was in favour of the European Commission but the UK Government and the taxpayer have the option to appeal this decision. Following receipt of charging notices from HM Revenue & Customs (HMRC) we made a payment in February 2021 of £13.9m to HMRC in respect of tax, and in May 2021 made a further payment of approximately £0.8m in respect of interest. \n \n \n   \n \n \n Whilst the EU General Court was in favour of the EC, our assessment is that there are strong grounds for appeal and we would expect such appeals to be successful. As a result we continue to recognise a receivable of £14.7m in the balance sheet. \n \n \n   \n \n \n \n Solid cash generation \n \n \n \n Cash generation is an important component of the Halma model, underpinning further investment in organic growth, supporting value-enhancing acquisitions and funding an increasing dividend to shareholders. \n \n \n   \n \n \n Cash generated from operations was £293.4m (2021: £331.4m) and adjusted operating cash flow, which excludes operating cash adjusting items, and includes net cash capital expenditure, was £273.2m (2021: £300.3m) which represented 84% (2021: 104%) of adjusted operating profit. While this was below our cash conversion KPI target of 90%, it included the impact of selective investment by our companies in their stock of components and raw materials to ensure continuity of production and manage price increases. This had an impact on working capital, with an outflow of £62.7m, comprising changes in inventory, receivables and creditors (2021: inflow of £2.8m), which also reflected the strong revenue growth in the period. These effects would have been more significant were it not for the continued strong underlying control of working capital by our companies. Adjusted operating cash flow is defined in note 3 to the Accounts. \n \n \n   \n \n \n A summary of the year's cash flow is shown in the tables at the end of this review. The largest outflows in the year were in relation to acquisitions, dividends and taxation paid. Acquisition of businesses including cash and debt acquired and fees increased to £164.4m (2021: £48.8m), reflecting the higher levels of M&A activity in the year. Dividends totalling £68.7m (2021: £63.7m) were paid to shareholders in the year. Taxation paid increased to £56.0m (2021: £53.8m). \n \n \n   \n \n \n \n Capital allocation and funding priorities \n \n \n \n Halma aims to deliver high returns, measured by ROTIC², well in excess of our cost of capital. We invest to deliver the future earnings growth and strong cash returns which enable us to achieve this aim on a sustainable basis, and our capital allocation priorities remain as follows: \n \n \n   \n \n \n - Investment for organic growth: Organic growth is our first priority and is driven by investment in our existing businesses, including through capital expenditure, innovation in digital growth and new products, international expansion and the development of our people. \n \n \n - Value-enhancing acquisitions: We supplement organic growth with acquisitions in current and adjacent market niches, aligned with our purpose. This brings new technology, intellectual property and talent into the Group and expands our market reach, keeping Halma well-positioned in growing markets over the long term. \n \n \n - Regular and increasing returns to shareholders: We have maintained a progressive dividend policy for over 40 years and this is our preferred route for delivering regular cash returns to shareholders without impacting on our investment to grow our business. \n \n \n   \n \n \n \n Continued investment for organic growth \n \n \n \n All sectors continue to innovate and invest in new products, with R&D spend determined by each individual Halma company. R&D expenditure as a percentage of revenue remained well above our KPI target of 4% at 5.6% (2021: 5.3%). In absolute terms, this meant that R&D expenditure increased by 21% to £85.4m (2021: £70.3m), which was ahead of revenue growth. This increasing investment reflects our companies' confidence in the growth prospects of their respective markets. In the medium term we expect R&D expenditure to continue to increase broadly in line with revenue growth. \n \n \n   \n \n \n Under IFRS accounting rules we are required to capitalise certain development projects and amortise the cost over an appropriate period, which we determine as three years. This year we capitalised £13.4m (2021: £15.4m), impaired £2.9m (2021: £1.9m) and amortised £7.0m (2021: 7.9m). The closing intangible asset carried on the Consolidated Balance Sheet, after a £1.3m gain (2021: £2.0m loss) relating to foreign exchange was £41.7m (2021: £38.9m). All R&D projects, and particularly those requiring capitalisation, are subject to rigorous review and approval processes by the relevant sector board. \n \n \n   \n \n \n Capital expenditure on property, plant, equipment and vehicles, computer software and other intangible assets was £26.6m (2021: £26.4m), with both years reflecting a lower spend as a result of pandemic constraints. Expenditure was principally on plant, equipment and vehicles. We anticipate capital expenditure to increase to approximately £34m in the coming year, reflecting investment in the expansion of manufacturing facilities and automation to support future growth. \n \n \n   \n \n \n We are also investing in automation and technology upgrades. Technology spend totalled £11m in the 2022 financial year, reflecting increased investment of £7m, and we expect expenditure in the financial year ending 31 March 2023 to be approximately £20m. This Group-wide investment includes enhanced security, improved data and analytics capabilities and support for our companies in upgrading their operating technology and creating new digital models in line with our Halma 4.0 growth strategy. \n \n \n   \n \n \n Lease right-of-use asset additions were £23.0m (2021: £24.3m). This included additions of £4.6m as a result of acquisitions made in the year, and the commencement of new leases and extensions or renewals of existing leases. \n \n \n \n   \n \n \n \n \n Value-enhancing acquisitions and investments \n \n \n \n Acquisitions and disposals are a key component of our sustainable growth strategy, as they keep our portfolio of companies focused on markets which have strong growth opportunities over the medium and long term. \n \n \n   \n \n \n In the year we made 13 acquisitions at a cost of £154.3m (net of cash acquired of £18.2m and including acquisition costs). In addition, we paid £14.2m in contingent consideration and other payments for acquisitions made in prior years, giving a total spend of £168.5m. We also divested Texecom Limited, for £62.0m, net of disposal costs. \n \n \n   \n \n \n The acquisitions completed in the current and prior year contributed to revenue this year in line with expectations overall, and we expect a good performance from these acquisitions in the future. \n \n \n   \n \n \n Details of the acquisitions and investments made in the year are given in the sector reviews in the Annual Report and Accounts 2022 and in note 8 to the Financial Statements. \n \n \n   \n \n \n Since the year end, we have made one further acquisition, of Deep Trekker, a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance, for a cash consideration of C$60m (approximately £36.6m), on a cash and debt-free basis. \n \n \n   \n \n \n \n Regular and increasing returns for shareholders \n \n \n \n Adjusted earnings per share increased by 11.6% to 65.48p (2021: 58.67p) and statutory basic earnings per share, which included a gain on disposal of Texecom Limited, increased by 20.4% to 64.54p (2021: 53.61p). \n \n \n   \n \n \n The Board is recommending a 7.0% increase in the final dividend to 11.53p per share (2021: 10.78p per share), which together with the 7.35p per share interim dividend gives a total dividend per share of 18.88p (2021: 17.65p), up 7.0% in total. \n \n \n   \n \n \n Dividend cover (the ratio of adjusted profit after tax to dividends paid and proposed) is 3.47 times (2021: 3.33 times). \n \n \n   \n \n \n The final dividend for the financial year ended March 2022 is subject to approval by shareholders at the AGM on 21 July 2022 and, if approved, will be paid on 18 August 2022 to shareholders on the register at 15 July 2022. \n \n \n   \n \n \n We aim to increase dividends per share each year, while maintaining a prudent level of dividend cover, and declare approximately 35-40% of the anticipated total dividend as an interim dividend. The Board's determination of the proposed final dividend increase this year took into account the Group's financial performance, economic and geopolitical uncertainty including the effects of the COVID pandemic and the war in Ukraine, the Group's continued balance sheet strength and medium-term organic constant currency growth. \n \n \n   \n \n \n \n Substantial funding capacity and liquidity \n \n \n \n Halma's operations have continually been cash generative and the Group has access to competitively priced committed debt finance, providing good liquidity for the Group. Group treasury policy remains conservative and no speculative transactions are undertaken. \n \n \n   \n \n \n We have a strong balance sheet, solid cash generation, and substantial available liquidity. Shortly after the year end, we refinanced our syndicated revolving credit facility. The new facility remains at £550m and matures in May 2027, and there are two one-year extension options. In addition, we completed a new Private Placement issuance of c.£330m in May 2022. The issuance consists of Sterling, Euro, US Dollar and Swiss Franc tranches and matures in July 2032, with an amortisation profile giving it a seven year average life. Once the January 2023 tranche of our existing Private Placement has matured this will give us additional funding capacity of £260m. \n \n \n   \n \n \n The financial covenants on these facilities are for leverage (net debt/ adjusted EBITDA) to not be more than three and a half times and for adjusted interest cover to be not less than four times. The Group continues to operate well within its banking covenants with significant headroom under each financial ratio. \n \n \n   \n \n \n At 31 March 2022, net debt was £274.8m, a combination of £360.1m of debt, £72.1m of IFRS 16 lease liabilities and £157.4m of cash held around the world to finance local operations. Net debt at 31 March 2021 was £256.2m. \n \n \n   \n \n \n The gearing ratio at the year-end (net debt to EBITDA) was 0.74 times (2021: 0.76 times). Net debt represented 3% (2021: 3%) of the Group's year-end market capitalisation. \n \n \n   \n \n \n \n Operating cash flow summary \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2022 \n \n \n \n \n £m \n \n \n \n \n \n 2021 \n \n \n £m \n \n \n \n \n \n \n \n Operating profit \n \n \n \n \n \n \n 278.9 \n \n \n \n \n \n 240.8 \n \n \n \n \n \n \n Net acquisition costs and contingent consideration fair value adjustments \n \n \n \n \n \n 3.1 \n \n \n \n \n \n 5.2 \n \n \n \n \n \n \n Amortisation and impairment of acquisition-related acquired intangible assets \n \n \n \n \n \n 42.7 \n \n \n \n \n \n 42.3 \n \n \n \n \n \n \n \n Adjusted operating profit \n \n \n \n \n \n \n 324.7 \n \n \n \n \n \n 288.3 \n \n \n \n \n \n \n Depreciation and other amortisation \n \n \n \n \n \n 49.1 \n \n \n \n \n \n 50.8 \n \n \n \n \n \n \n Working capital movements \n \n \n \n \n \n (62.7) \n \n \n \n \n \n 2.8 \n \n \n \n \n \n \n Capital expenditure net of disposal proceeds \n \n \n \n \n \n (25.5) \n \n \n \n \n \n (25.9) \n \n \n \n \n \n \n Additional payments to pension plans \n \n \n \n \n \n (12.2) \n \n \n \n \n \n (13.0) \n \n \n \n \n \n \n Other adjustments \n \n \n \n \n \n (0.2) \n \n \n \n \n \n (2.7) \n \n \n \n \n \n \n \n Adjusted operating cash flow \n \n \n \n \n \n \n 273.2 \n \n \n \n \n \n 300.3 \n \n \n \n \n \n \n   \n \n \n \n Non-operating cash flow and reconciliation to net debt \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2022 \n \n \n \n \n £m \n \n \n \n \n \n 2021 \n \n \n £m \n \n \n \n \n \n \n \n Adjusted operating cash flow \n \n \n \n \n \n \n 273.2 \n \n \n \n \n \n 300.3 \n \n \n \n \n \n \n Tax paid \n \n \n \n \n \n (56.0) \n \n \n \n \n \n (53.8) \n \n \n \n \n \n \n Acquisition of businesses including cash/debt acquired and fees \n \n \n \n \n \n (164.4) \n \n \n \n \n \n (48.8) \n \n \n \n \n \n \n Purchase of equity investments \n \n \n \n \n \n (0.7) \n \n \n \n \n \n (3.4) \n \n \n \n \n \n \n Disposal of businesses \n \n \n \n \n \n 57.5 \n \n \n \n \n \n 26.1 \n \n \n \n \n \n \n Net finance costs and arrangement fees (excluding lease interest) \n \n \n \n \n \n (5.7) \n \n \n \n \n \n (7.0) \n \n \n \n \n \n \n Net lease liabilities additions \n \n \n \n \n \n (21.5) \n \n \n \n \n \n (23.7) \n \n \n \n \n \n \n Dividends paid \n \n \n \n \n \n (68.7) \n \n \n \n \n \n (63.7) \n \n \n \n \n \n \n Own shares purchased \n \n \n \n \n \n (19.3) \n \n \n \n \n \n (16.2) \n \n \n \n \n \n \n Adjustment for cash outflow on share awards not settled by own shares \n \n \n \n \n \n (7.1) \n \n \n \n \n \n (7.8) \n \n \n \n \n \n \n Effects of foreign exchange \n \n \n \n \n \n (5.9) \n \n \n \n \n \n 17.1 \n \n \n \n \n \n \n \n Movement in net debt \n \n \n \n \n \n \n (18.6) \n \n \n \n \n \n 119.1 \n \n \n \n \n \n \n \n Opening net debt \n \n \n \n \n \n \n (256.2) \n \n \n \n \n \n (375.3) \n \n \n \n \n \n \n \n Closing net debt \n \n \n \n \n \n \n (274.8) \n \n \n \n \n \n (256.2) \n \n \n \n \n \n \n   \n \n \n \n Net debt to EBITDA \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2022 \n \n \n \n \n £m \n \n \n \n \n \n 2021 \n \n \n £m \n \n \n \n \n \n \n \n Adjusted operating profit \n \n \n \n \n \n \n 324.7 \n \n \n \n \n \n 288.3 \n \n \n \n \n \n \n Depreciation and amortisation (excluding acquired intangible assets) \n \n \n \n \n \n 49.1 \n \n \n \n \n \n 50.8 \n \n \n \n \n \n \n \n EBITDA \n \n \n \n \n \n \n 373.8 \n \n \n \n \n \n 339.1 \n \n \n \n \n \n \n \n Net debt to EBITDA \n \n \n \n \n \n \n 0.74 \n \n \n \n \n \n 0.76 \n \n \n \n \n \n \n   \n \n \n \n Average debt and interest rates \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2022 \n \n \n \n \n \n 2021 \n \n \n \n \n \n \n Average gross debt (£m) \n \n \n \n \n \n 426.8 \n \n \n \n \n \n 445.5 \n \n \n \n \n \n \n Weighted average interest rate on gross debt \n \n \n \n \n \n 1.90% \n \n \n \n \n \n 2.32% \n \n \n \n \n \n \n Average cash balances (£m) \n \n \n \n \n \n 143.1 \n \n \n \n \n \n 148.8 \n \n \n \n \n \n \n Weighted average interest rate on cash \n \n \n \n \n \n 0.16% \n \n \n \n \n \n 0.51% \n \n \n \n \n \n \n Average net debt (£m) \n \n \n \n \n \n 283.7 \n \n \n \n \n \n 296.7 \n \n \n \n \n \n \n Weighted average interest rate on net debt \n \n \n \n \n \n 2.78% \n \n \n \n \n \n 3.22% \n \n \n \n \n \n \n   \n \n \n \n Pensions update \n \n \n \n The Group accounts for post-retirement benefits in accordance with IAS 19 Employee Benefits. The Consolidated Balance Sheet reflects the net accounting surplus on our pension plans as at 31 March 2022 based on the market value of assets at that date and the valuation of liabilities using discount rates derived from year end AA corporate bond yields. Lane Clark & Peacock LLP assist the Company in setting assumptions, and valuation work is performed by Mercer Limited. \n \n \n   \n \n \n We closed the two UK defined benefit (DB) plans to new members in 2002. In December 2014 we ceased future accrual within these plans with future pension benefits earned within the Group's Defined Contribution (DC) pension arrangements. These two plans represent over 95% of consolidated plan liabilities. \n \n \n   \n \n \n On an IAS 19 basis, before deferred taxes, the Group's DB plans at 31 March 2022 had a surplus of £30.5m (2021: £22.5m deficit). The value of plan assets increased to £347.6m (2021: £333.1m). Plan liabilities decreased to £317.1m (2021: £355.6m) due to the increase in the discount rate (1.95% to 2.80%) being greater than the increase in the long-term inflation rate (3.2% to 3.6%). Mortality assumptions have been aligned to updated actuarial information. \n \n \n   \n \n \n The plans' actuarial valuation reviews, rather than the accounting basis, determine any cash deficit payments. This year these contributions amounted to £11.8m, slightly lower than expected due to a delay in agreement of the revised schedule of contributions. Following a triennial actuarial valuation of the two UK pension plans in this financial year, cash contributions increasing at 7% per annum aimed at eliminating the deficit were agreed with the trustee, and in FY23 we expect contributions to be £14.6m. In the unlikely event that these payments result in a surplus on winding up of the schemes, the Group has an unconditional right to a refund under the plan rules. \n \n \n   \n \n \n \n Conclusion \n \n \n \n We delivered a strong financial performance, despite the challenges arising from economic and geopolitical uncertainty including the COVID pandemic and, more recently, the conflict in Ukraine. We delivered record revenue and profit and solid cash flow, while substantially increasing our investment in future growth opportunities and maintaining a strong balance sheet. My colleagues in our finance and risk teams have helped our companies to successfully respond to the opportunities and challenges that have arisen in the year, through actionable insights and strong control. I would like to thank them for their hard work and commitment throughout the year. \n \n \n   \n \n \n Marc Ronchetti \n \n \n Chief Financial Officer \n \n \n   \n \n \n \n Safety Sector Review \n \n \n \n \n   \n \n \n \n \n Sector overview and growth drivers \n \n \n \n The Safety sector makes the world a safer place by protecting people, assets and infrastructure and enabling safe movement in a wide range of environments, including public and commercial spaces, and industrial and logistics operations. Many of the sector's products and services also make the world cleaner and improve efficiency. \n \n \n   \n \n \n The long-term growth of the sector continues to be driven by increasing safety and environmental regulation, and growing, urbanising and ageing populations. In recent years, increasing automation and accelerating demand for connected industrial and infrastructure systems have further underpinned the sector's growth prospects, as our customers have sought to benefit from the greater efficiency and safety that can be derived from these innovations. \n \n \n   \n \n \n The COVID pandemic and the urgent need to address the causes and impacts of climate change have further enhanced the opportunities available to our companies. We are already seeing effects in a number of our businesses. For example, we are seeing increasing demand for automated access solutions to both increase efficiency, including by minimising heat loss in commercial and industrial premises, and to enhance hygiene, for example through touchless operation. We are also supporting the drive towards renewable and cleaner energy sources, including through installing our fire suppression technology in wind turbines, or increasing the efficiency of industrial processes and repurposing technology towards areas such as carbon capture and hydrogen energy sources in our businesses which serve industrial customers. \n \n \n   \n \n \n \n Performance in the year \n \n \n \n The Safety sector delivered a strong performance, benefiting from the substantial increase in customer demand following the easing of lockdown restrictions, and the agility of its companies in successfully responding to new opportunities in their markets whilst addressing supply chain and other challenges. Growth was broadly spread across the majority of subsectors, with most delivering double-digit revenue growth, and across all major regions. \n \n \n   \n \n \n Revenue of £641.4m (2021: £587.0m) was 9.3% higher than in the prior year, and up 15.9% on an organic constant currency basis. This included a very strong performance in the first half of the year (and particularly in the first quarter), with organic constant currency growth of 25.3%, against a weaker comparative. The second half of the year saw a more normal level of revenue growth, with organic constant currency revenue increasing by 7.6%. \n \n \n   \n \n \n This strong performance was led by substantial growth in Fire Detection, which had been most affected in the first half of last year by lockdown restrictions and the furloughing of customer employees, with the subsector benefiting from the easing of lockdown restrictions and the resumption of construction activity. \n \n \n   \n \n \n People and Vehicle Flow also grew strongly. Continued demand for its touchless and automated entry devices, driven by changing customer needs as a result of the pandemic, supported good growth at BEA, and the successful execution of significant road safety contracts drove strong growth at Navtech. Elevator Safety also grew well, benefiting from a strong market in emergency communication. \n \n \n   \n \n \n Growth in a number of other subsectors reflected our companies' ability to respond rapidly to changing customer needs, for example identifying and meeting strong demand from logistics customers for our interlock products in Industrial Access Control, and prioritising technologies supporting the decarbonisation of energy sources in Pressure Management. \n \n \n   \n \n \n Across the sector, the agility of our companies also enabled them to manage ongoing disruption in their supply chains, through a range of initiatives including diversifying supplies, redesigning products and selectively holding higher inventory levels to ensure continued production. \n \n \n   \n \n \n The smaller Safe Storage and Transfer and Fire Suppression subsectors are, respectively, seeing delays to larger infrastructure projects, and weakness in specific markets such as aerospace (partly offset by solid growth in other markets such as clean energy and critical infrastructure). \n \n \n   \n \n \n The sector's revenue performance by region reflected these themes. The UK saw the strongest revenue growth, led by Fire Detection and People and Vehicle Flow, which included the road safety contract mentioned above. Revenue growth in the USA was also strong and broadly spread by sector, with the principal drivers being Fire Detection, logistics within Industrial Access Control, Pressure Management and emergency communication within Elevator Safety. Asia Pacific also grew strongly, with organic constant currency revenue growth across all subsectors, and very strong growth in People and Vehicle Flow and in Industrial Access Control. Overall revenue growth in Mainland Europe was good, although there was a more mixed performance by subsector, with strong progress in Fire Detection and Industrial Access Control, more modest gains in some other subsectors and declines in Safe Storage and Transfer and Fire Suppression. Other regions, accounting for around 7% of sector revenue, saw a decline, principally reflecting delays to some larger infrastructure projects in the Middle East, a change in delivery location for a large customer, and the continuing impact of the COVID pandemic in specific countries. \n \n \n   \n \n \n Profit grew by 8.1% to £146.2m (2021: £135.3m), or by 13.3% on an organic constant currency basis. There was a modest decline in Return on Sales to 22.8% (2021: 23.0%). This reflected increased investment to support future growth, in research and development, which rose to 5.6% of revenue (2021: 5.2% of revenue), and in technology (including ongoing enterprise systems at some of the sector's larger companies), as well as a return of discretionary variable overhead costs. These effects were partly offset by strong overhead control and the effect of the disposal of Texecom, which had a lower margin, in the year. Gross margin remained broadly unchanged compared to the prior year. \n \n \n   \n \n \n There were three acquisitions in the year for an aggregate consideration of approximately £16.5m: the Ramtech group of companies and two small bolt-on acquisitions for Fortress Safety and Argus. In August 2021, Texecom, a UK-based provider of electronic security systems, was sold for a total cash consideration of £65m on a cash and debt-free basis. The impact of acquisitions was a positive effect of 1.3% on revenue and 0.4% on profit, while the disposal of Texecom had a negative effect of 5.2% on revenue and 3.3% on profit. Currency exchange movements had a negative effect of 2.7% on revenue and 2.3% on profit. \n \n \n   \n \n \n \n Environmental & Analysis Sector Review \n \n \n \n \n   \n \n \n \n \n Sector overview and growth drivers \n \n \n \n The Environmental & Analysis sector is focused on growing a safer, cleaner and healthier future by improving the quality and availability of life-critical natural resources such as air, water and food and by delivering high-technology solutions in a wide variety of end markets based on our digital, optical and optoelectronic expertise. The sector's valuable solutions are technically differentiated through strong application knowledge, supported by high levels of customer responsiveness. \n \n \n   \n \n \n The sector's long-term growth is sustained by rising demand for life-critical resources, the impact of climate change, increasing environmental regulations and worldwide population growth with rising standards of living. It is underpinned by our ability to design, develop and manufacture innovative, high-technology detection and analysis solutions with applications in a wide range of sectors. These include water and waste water management and treatment (including water utilities); gas analysis and detection; food, beverage, medical and bio-medical; communications; research and science; and a variety of industrial markets. \n \n \n   \n \n \n The increasingly urgent need to address climate change is creating new opportunities in many of the sector's markets. It is driving new policies globally, including national, state and city initiatives to meet Net Zero commitments through energy transition and sectoral decarbonisation plans, as well as plans to increase adaptation and resilience. Combined with the biodiversity crisis and an increasing focus on plastics and waste, it is also driving new regulatory initiatives to preserve life-critical resources. These include initiatives such as, in the UK, Ofwat's investigations into wastewater treatment and internal sewer flooding to prevent environmental degradation. These and similar initiatives are creating growing long-term opportunities for our companies to help their customers, for example, to prevent emissions, detect leaks and analyse air and water quality, and to support new technologies to address these issues, such as renewable energy and storage, sustainable food systems and mobility in cities. \n \n \n   \n \n \n \n Performance in the year \n \n \n \n The Environmental & Analysis sector delivered a very strong performance, driven by a recovery in customer orders as the effects of the COVID pandemic eased, and benefiting from its agility in executing these orders in spite of supply chain disruptions. Growth was broadly spread, with all subsectors and all regions delivering double digit revenue growth. \n \n \n   \n \n \n Revenue of £442.9m (2021: £361.1m) was 22.6% higher, and up 24.5% on an organic constant currency basis. Acquisitions (net of disposals) contributed 1.6% to revenue growth. The sector's growth was led by a strong recovery in gas detection within Environmental Monitoring, reflecting higher activity (including some larger contracts) as the effects of the pandemic abated, and an increasing customer focus on protecting the environment and scarce natural resources. This also supported greater demand within Water Analysis & Treatment, although revenue in clean water leak detection was lower, given an absence of large project tenders from UK utilities. \n \n \n   \n \n \n Within Optical Analysis, photonics also performed strongly, as it continued to benefit from increasing demand for technologies that support the building of digital and data capabilities. \n \n \n   \n \n \n By region, the USA accounts for nearly half of the sector's revenue, and reported the strongest organic constant currency growth, driven by further growth in photonics within Optical Analysis, and in gas detection, which benefited from post-pandemic recovery and large new customer orders in the second half of the year. Asia Pacific also grew strongly, benefiting from customer demand for products supporting new fuel cell technology, from investment in talent to support the development of gas detection businesses, and from recovery in the pharmaceutical and beverage markets. Mainland Europe reported strong growth on an organic constant currency basis, driven by good performances in Water Analysis and Treatment, and also benefited from acquisitions, notably those of Sensitron, Orca and Dancutter. Strong growth in Africa, Near and Middle East was mainly attributable to a post COVID recovery in the oil and gas sector, which benefited our gas detection companies. The UK reported the slowest growth given lower order intake in clean water technologies from UK utilities, although this was partly offset by a larger contract win in waste water infrastructure and the acquisition of Anton Industrial Services within gas detection. \n \n \n   \n \n \n Profit grew by 23.0% to £109.8m (2021: £89.3m), or by 23.3% on an organic constant currency basis, and Return on Sales was marginally higher at 24.8% (2021: 24.7%). This reflected a reduction in gross margin as a result of product mix offset by continued strong overhead control. While there was a reduction in R&D expenditure as a percentage of sales from 5.7% to 5.1%, this was in part driven by product mix, and absolute expenditure on R&D increased to £22.8m (2021: 20.6m). \n \n \n   \n \n \n There were five acquisitions in the sector during the year, and a further acquisition, of Deep Trekker, was made shortly after the year end. This good momentum reflected the investment made in a dedicated M&A team, as part of the new Environmental & Analysis sector team, and the increasing ability of our individual companies to make bolt-on acquisitions to enhance their technological capabilities and market reach. The acquisitions made in the year were (all considerations were in cash and are given on a cash and debt-free basis): \n \n \n   \n \n \n - Anton Industrial Services, Crowcon's UK flue gas analyser distribution partner, for £1.9m; \n \n \n - Sensitron S.R.L., an Italian gas detection company, for €20.1m (approximately £17.1m), as a standalone company in the sector; \n \n \n - Dancutter A/S, a Danis0h designer and manufacturer of trenchless pipeline rehabilitation equipment, for €17.6m (approximately £15.0m), for Minicam; \n \n \n - Orca GmbH, a German manufacturer of ultraviolet disinfection systems, for €8.1m (approximately £7.0m), for the UV Group of companies; and \n \n \n - International Light Technologies, a leading developer of technical lighting sources and light measurement systems, for US$26.3m (approximately £19.4m), for Ocean Insight. \n \n \n   \n \n \n Since the year end, there has been one further acquisition in the sector, Deep Trekker, of C$60.0m (approximately £36.6m), which will be a stand-alone company. Deep Trekker is a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance. \n \n \n   \n \n \n Acquisitions (net of disposals) had a positive effect of 1.6% on revenue and 3.5% on profit. Currency exchange movements had a negative effect of 3.5% on revenue and 3.8% on profit. \n \n \n   \n \n \n \n Medical Sector Review \n \n \n \n   \n \n \n \n Sector overview and growth drivers \n \n \n \n The Medical sector is focused on growing a healthier future by enhancing the quality of life for patients and improving the quality of care delivered by healthcare providers. We serve niche applications in global markets providing critical components, devices, systems and therapies which are embedded in the standard of care. We look for markets where our products and technologies are critical to the function or management of care, for example cataract surgery or cardiac monitoring. We also often participate in niches where there is a connection between medical conditions and chronic illnesses, thereby driving potentially higher rates of demand on a sustained basis. \n \n \n   \n \n \n The sector's long-term growth is supported by demographic trends, technological innovation, and aspirations to improve the standard of care and increase efficiency. \n \n \n   \n \n \n The global population is expected to reach nearly 10 billion by 2050, an increase of around 2 billion from current levels, and the proportion of the world's population aged over 60 is forecast to increase from 12% to 22%. This is expected to lead to an increased prevalence of chronic conditions, driving demand for diagnosis and treatment of a wide variety of long-term illnesses. These factors are key growth drivers for our Therapeutic Solutions businesses, given their presence in the ophthalmic surgery device, respiratory therapy and bone replacement markets. \n \n \n   \n \n \n Technological innovations are also driving growth. They are increasing the capabilities of healthcare professionals to prevent, diagnose and treat conditions. They are also helping healthcare providers to improve the standards of care and increase efficiency, including by treating more people remotely through telemedicine. These innovations are enabling better, earlier and faster diagnosis and treatment of patients, providing healthcare providers with new tools to tackle the backlog of conditions caused by the COVID pandemic. At the same time, new products and services are enabling them to provide more healthcare for less, and improving hygiene compliance. These factors are strong growth drivers for our diagnostics businesses, and also for businesses such as PeriGen, in helping to prevent complications during childbirth, and CenTrak, with its real-time location services which improve safety and efficiency in healthcare facilities. \n \n \n   \n \n \n Globally, we also see rising demand, from both patients and healthcare providers, for improvements to the quality and responsiveness of healthcare services. The COVID pandemic has shown the importance of robust healthcare systems and the long-term benefits of investing in the health of populations. It is still too early to predict the eventual outcomes of the pandemic on healthcare spending, but increased utilisation of assets and rising demand seem likely to support increases in the future. \n \n \n   \n \n \n From 16 June 2022, the sector has been renamed Healthcare, to reflect the breadth of these growth drivers, and our wider aspiration to support patient diagnosis and treatment, as well as healthcare providers in improving the delivery of patient-centred care. \n \n \n   \n \n \n \n Performance in the year \n \n \n \n The sector delivered a strong performance. Revenue of £442.3m (2021: £371.3m) was 19.1% higher, and up 13.0% on an organic constant currency basis. Acquisitions contributed 10.1% to revenue growth. Overall, sector companies successfully responded to variations in customer demand and to continuing operational challenges in their supply chains, in labour markets, and in their ability to access customer premises. All but three sector companies delivered double digit growth as a result of strong increases in customer demand as the effects of the COVID pandemic abated and medical systems began to normalise. \n \n \n   \n \n \n There was double digit revenue growth across all major regions. The USA accounts for half of the sector's revenue. There was good growth in the region on an organic constant currency basis, reflecting increased customer demand and a strong order book. On a reported basis, there was also a benefit from recent acquisitions, including PeriGen. A small number of companies which had seen very strong demand through the COVID pandemic saw reduced customer demand, and there was also some impact from continued delays to elective surgeries. \n \n \n   \n \n \n Mainland Europe and Asia Pacific grew strongly, principally reflecting recovery from the effects of the pandemic. The UK saw very strong growth, particularly in ophthalmology, and also benefited from the acquisition of Static Systems in the prior year, to reach just under 10% of sector revenue. Other regions, which represent a small percentage of sector revenue, grew more modestly. \n \n \n   \n \n \n Profit grew by 15.0% to £99.5m (2021: £86.6m), or by 10.5% on an organic constant currency basis, and Return on Sales was 22.5% (2021: 23.3%). This included a substantial increase in R&D expenditure to £26.9m, representing 6.1% of revenue (2021: £18.8m; 5.1% of revenue), given an intensification of new product development and new product launches in the year. It also reflected the allocation of the full cost of a sector team following the creation of a separate team for the Environmental & Analysis sector. These effects were partly offset by an increase in gross margin as most sector companies successfully managed pressures resulting from supply chain disruptions, and by ongoing strong overhead control. \n \n \n   \n \n \n There were five acquisitions in the sector during the year. These comprised PeriGen, which will be a new standalone company in the sector, and four bolt-on acquisitions to enhance the capabilities of existing sector companies. The acquisitions were: \n \n \n   \n \n \n - PeriGen, whose advanced technology protects mothers and their unborn babies during childbirth, was acquired for a cash consideration of US$57.3m (approximately £40.1m) on a cash and debt-free basis; \n \n \n - Assets and intellectual property associated with RNK's digital stethoscope, for Riester, for a consideration of US$3.0m (approximately £2.1m); \n \n \n - Meditech Kft, a Hungarian manufacturer of ambulatory blood pressure monitors and ECG Holter devices, for a maximum total consideration of €5.7m (approximately £5.0m), which will be integrated with our SunTech business; \n \n \n - Infinite Leap, a healthcare consulting and services provider for real-time ...

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