Full Year Results 2021

About this update from Halma Plc

[{"type":"text","content":"\n \n \n \n RNS Number : 4035B \n Halma PLC \n 10 June 2021 \n   \n \n \n \n HALMA plc \n \n \n   \n \n \n FULL YEAR RESULTS 2021 \n \n \n   \n \n \n Record profit for 18 th consecutive year \n \n \n   \n \n \n Halma, the global group of life-saving technology companies focused on growing a safer, cleaner and healthier future, today announces its full year results for the 12 months to 31 March 2021. \n \n \n   \n \n \n Financial Highlights \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 2021 \n \n \n \n \n   \n \n \n 2020 \n \n \n \n \n \n \n Continuing Operations \n \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n \n Revenue \n \n \n \n \n -2% \n \n \n \n \n £1,318.2m \n \n \n \n \n £1,338.4m \n \n \n \n \n \n \n Adjusted Profit before Taxation 1, 3 \n \n \n \n \n +4% \n \n \n \n \n £278.3m \n \n \n \n \n £267.0m \n \n \n \n \n \n \n Adjusted Earnings per Share 2, 3 \n \n \n \n \n +2% \n \n \n \n \n 58.67p \n \n \n \n \n 57.39p \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 +13% \n \n \n \n \n £252.9m \n \n \n \n \n £224.1m \n \n \n \n \n \n \n Statutory Earnings per Share \n \n \n \n \n +10% \n \n \n \n \n 53.61p \n \n \n \n \n 48.66p \n \n \n \n \n \n \n Total Dividend per Share 4 \n \n \n \n \n +7% \n \n \n \n \n 17.65p \n \n \n \n \n 16.50p \n \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n \n Return on Sales 3,5 \n \n \n \n   \n \n \n \n 21.1% \n \n \n \n \n 19.9% \n \n \n \n \n \n \n Return on Total Invested Capital 3 \n \n \n \n   \n \n \n \n 14.4% \n \n \n \n \n 15.3% \n \n \n \n \n \n \n Net Debt 6 \n \n \n \n   \n \n \n \n £256.2m \n \n \n \n \n £375.3m \n \n \n \n \n \n \n   \n \n \n   \n \n \n · \n Record profit: Adjusted 1 profit before tax up 4%; organic constant currency 3,7 profit up 1%; statutory profit before tax up 13%, including a £21.6m gain on disposal of Fiberguide Industries. \n   \n \n \n   \n \n \n · \n Three out of four sectors grew profit on a reported basis; two on an organic constant currency 7 basis. \n \n \n   \n \n \n · \n Revenue down 2%, \n with a 5% decline in the first half improving to 2% growth in the second half. \n \n \n   \n \n \n · \n O \n rganic constant currency 3,7 revenue down 6%, with an 11% decline in the first half improving to a flat performance in the second half. \n \n \n   \n \n \n · \n Robust revenue performance in all major regions: \n Asia Pacific slightly up including double digit growth in China; the USA and Mainland Europe stable; a small decline in the UK. \n \n \n   \n \n \n · \n Strong returns: Return on Sales 3,5 of 2 \n 1.1 \n % and ROTIC 3 of 1 \n 4.4 \n %. \n \n \n   \n \n \n · \n Continued investment in future growth: R&D expenditure at 5.3% of revenue. \n \n \n   \n \n \n · \n Impressive cash generation: cash conversion of 104%, driven primarily by good working capital control. \n \n \n   \n \n \n · \n Rebound in M&A activity since the start of the second half, with a healthy pipeline and momentum continuing into the new financial year. \n \n \n   \n \n \n · \n Strong balance sheet and significant liquidity supporting value-enhancing acquisitions and an increased dividend. \n   \n \n \n   \n \n \n · \n Total dividend 4 per share for the year up 7%, the 42 nd consecutive year of an increase of 5% or more. \n \n \n   \n \n \n Operational and Sustainability Highlights \n \n \n   \n \n \n · \n Self-financed an employee furlough programme without accessing the UK Government's employee support scheme. Total employee numbers at end March 2021 unchanged from end March 2020. \n \n \n   \n \n \n · \n No balance sheet support requested from the UK Government or our other stakeholders. \n \n \n   \n \n \n · \n Accelerated planned technology investments to support our companies' growth, including operational IT and digital product development projects. \n \n \n   \n \n \n · \n Increasing our impact: new Sustainability Framework to amplify our positive impact from purpose-aligned growth and focus our efforts on the most material areas both for Halma and its stakeholders. \n \n \n   \n \n \n · \n Set a 1.5 degree-aligned 2030 target for Scope 1 & 2 emissions and a target to achieve net zero Scope 1 & 2 emissions by 2040. \n \n \n   \n \n \n · \n Made new public commitments including: paying a Real Living Wage across UK operations from 1 June 2022; signing the Change the Race Ratio charter; and disclosing for the first time the gender pay gap in our UK and US operations. \n \n \n   \n \n \n · \n Appointed Dame Louise Makin as Chair Designate and Dharmash Mistry as non-executive Director. Dame Louise will succeed Paul Walker as Chair at our AGM in July 2021. \n \n \n   \n \n \n · \n Announced a new sector organisation from April 2021 to better align Halma's operations and reporting with its purpose and focus on the safety, environmental and health markets. \n \n \n   \n \n \n Andrew Williams, Group Chief Executive of Halma, commented: \n \n \n   \n \n \n \"Halma's purpose is to grow a safer, cleaner, healthier future, for everyone, every day. It underpins our growth strategy, financial model, culture and organisational design. The combination and interaction of these elements has created increasing value for all stakeholders on a sustainable basis for almost 50 years. \n \n \n   \n \n \n Together, they have enabled us to make further progress during the ongoing pandemic, giving us an agility which has been crucial in allowing us to address short-term challenges while simultaneously investing for a fast-changing future. Our progress has also been supported by our teams' relentless execution across all parts of our business, and our resilience which stems from the diversity of our market niches, their fundamental growth drivers, and the value of the solutions we provide. \n \n \n   \n \n \n For the year ahead, we expect our markets to continue to recover, albeit at varying rates, while acknowledging that there are potential headwinds including currency, inflation, and supply chain constraints. Organic constant currency revenue for the period from the beginning of January to the end of May is up 10% year-on-year. We have made a good start to the year, order intake is currently ahead of revenue and the same period last year, and we also have a good pipeline of potential acquisition opportunities. We currently expect to deliver full year low double-digit percentage organic constant currency profit growth (prior to any IAS 38 impact 8 ) and a more normal level of return on sales. We look forward to making further progress, in this year and the longer term.\" \n \n \n   \n \n \n   \n \n \n Notes \n \n \n \n \n \n \n 1. \n \n \n \n \n Adjusted to remove the amortisation and impairment of acquired intangible assets, acquisition items, restructuring costs, and profit or loss on disposal of operations totalling £25.4m (2020: £42.9m). 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 and impairment of acquired intangible assets, acquisition items, restructuring costs, profit or loss on disposal of operations and the associated taxation thereon. See note 2 to the Results for details. \n \n \n \n \n \n \n 3. \n \n \n \n \n Adjusted 1 Profit before Taxation, Adjusted 1 Earnings per Share, organic growth rates, Return on Sales 5 and Return on Total Invested Capital (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 4. \n \n \n \n \n Total dividend paid and proposed per share, comprising interim dividend of 6.87p per share and proposed final dividend of 10.78p per share. \n \n \n \n \n \n \n 5. \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 6. \n \n \n \n \n Includes IFRS 16 lease liabilities of £65.0m (2020: £61.5m). \n \n \n \n \n \n \n 7. \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 \n \n 1 \n \n  into Sterling, as well as acquisitions and disposals for the year following completion. \n \n \n \n \n \n \n 8. \n \n \n \n \n See \"New accounting standards and interpretations\" section in the Financial Review. \n \n \n \n \n \n \n   \n \n \n For further information, please contact: \n \n  \n \n \n \n \n \n \n Halma plc \n \n \n Andrew Williams, Group Chief Executive \nMarc Ronchetti, Chief Financial Officer \n \n \n   \n \n \n Charles King, Head of Investor Relations \n \n \n   \n \n \n \n \n +44 (0)1494 721 111 \n \n  \n \n   \n \n \n   \n \n \n +44 (0)7776 685948 \n \n \n \n \n \n \n \n MHP Communications \n \n \n Andrew Jaques/Giles Robinson \n \n \n \n \n +44 (0)20 3128 8788 \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 the Group's website: \n \n \n www.halma.com \n \n \n . A webcast of today's results presentation will be available on the same website later today. \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, healthier future for everyone, every day. \n \n \n   \n \n \n 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 Safety: protecting life as populations grown and protecting worker safety. \n \n \n   \n \n \n \n \n \n   \n \n \n \n · \n Environment: improving food and water quality, and monitoring air pollution. \n \n \n   \n \n \n \n \n \n   \n \n \n \n · \n Health: meeting rising healthcare demand as growing populations age and lifestyles change. \n \n \n   \n \n \n \n \n \n   \n \n \n \n It 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 2021, Halma was named Britain's Most Admired Company 2020 by Management Today. \n \n \n   \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 \n www.halma.com \n \n \n . \n \n \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 Strategic Review \n \n \n   \n \n \n A true test of Sustainability and Purpose \n \n \n   \n \n \n I am pleased to report Halma's 18th consecutive year of profit growth in the most challenging of circumstances, demonstrating both the value of our Sustainable Growth Model and the authenticity of our purpose. Our robust performance in the past year also reflected the fundamental strength of Halma's DNA, including our focus on market niches with long-term growth drivers, and our ability to adapt rapidly to changes in our markets when they arise. \n \n \n   \n \n \n Adjusted 1 profit before taxation rose by 4% to £278.3m, on revenue which was broadly similar to last year at £1,318.2m. Statutory profit before taxation, which benefited from the profit realised on the disposal of Fiberguide Industries, increased by 13% to £252.9m. Returns remained at a high level, with Return on Sales 1 increasing from 19.9% to 21.1% and a Return on Total Invested Capital of 14.4%, remaining well above our Weighted Average Cost of Capital of 6.7%. Cash generation was impressive, with cash conversion of 104%, and our balance sheet position remained strong, with net debt reducing by £119m to £256m, representing gearing (net debt to EBITDA) of 0.76 times. \n \n \n   \n \n \n It is worth reminding ourselves that this time last year, although faced with major uncertainties, we had a clear short-term operational, financial, and organisational strategy to guide us through the coming year in the interests of all stakeholders. Our expectation was that profit would be 5-10% below the prior year, and therefore ultimately delivering 4% profit growth is a terrific achievement. While the Group has reported higher levels of growth in previous years, I have never been prouder or more impressed with Halma's ability to deliver a robust financial performance while also satisfying the broader needs of all stakeholders. I was also pleased that this was recognised externally with Halma being awarded Britain's Most Admired Company 2020, as voted for by our peers. \n \n \n   \n \n \n Our companies continued to meet their customers' needs by providing lifesaving and life-sustaining solutions, while establishing new ways of working to maintain the safety of their people, suppliers, and customers throughout the pandemic. Many Halma companies also directly provided support to their local and national healthcare providers either through their core products, or by repurposing their manufacturing capabilities to supply urgently needed personal protective equipment. Meanwhile, as a Group, we provided assistance to those colleagues and businesses in difficulty through a variety of support programmes, without seeking Government financial assistance, while continuing to create value for shareholders. \n \n \n   \n \n \n I would like to pay tribute to everyone in all our businesses for what they have achieved throughout the year and to thank them personally for their continued support, unwavering commitment, and operational excellence. \n \n \n Given our performance in the year and the opportunities we see for future growth, the Board is recommending an 8% increase in the final dividend to 10.78p per share. Together with the 6.87p per share interim dividend, this would result in a total dividend for the year of 17.65p, up 7%, making this the 42nd consecutive year of dividend per share growth of 5% or more. \n \n \n   \n \n \n Halma's Sustainable Growth Model \n \n \n   \n \n \n Our Sustainable Growth Model is designed to be resilient and to deliver strong growth and returns over the long term. At its core is our purpose, which is to grow a safer, cleaner, healthier future for everyone, every day. This creates a motivating and stretching ambition for everyone at Halma to play their part in growing our positive impact on the world, while ensuring that we consider the needs of all our stakeholders. Our positive impact is articulated and amplified by Halma's Sustainability Framework, which is discussed later in this review. \n \n \n   \n \n \n Our purpose has never been more relevant than it is today, as our customers look to Halma to help them address significant, long-term challenges, which have global impacts. Many of these are well aligned with the increasing Environmental, Social and Governance (ESG) demands being placed on individual citizens, corporations and countries: from the pressure on natural resources that comes from climate change and growing populations; to increasing safety, environmental and health regulation; and the impact of demographic and societal shifts, such as urbanisation, ageing populations and changing lifestyles. The demand from our customers for products and services which help them address these ESG issues will sustain our growth over the long term. \n \n \n   \n \n \n The positive interdependency of our financial model, organisational structure and growth strategy is critical to our sustainability. The diversity of our portfolio and focus on valuable market niches provides us with broad growth opportunities and strong returns over the long term, but also enables us to be resilient, rapidly adapting to changes in markets and economic conditions. Our decentralised organisational model protects and grows the valuable intellectual property in our companies to maintain their strong market positions and financial returns, as well as providing agility for portfolio management if long-term market trends change. \n \n \n   \n \n \n Improving performance as the year progressed \n \n \n Our Sustainable Growth Model enabled us to adapt our products and operations quickly to the changes in our markets during the year, including those brought about by the COVID-19 pandemic. As a result, our trading performance strengthened as the year progressed. \n \n \n   \n \n \n In the early part of the year, we saw significant changes in demand in certain end markets and geographies, and our companies faced a broad spectrum of challenges in manufacturing, sales, and distribution as a result of the pandemic. These included the overriding need to ensure safe working conditions and the limitations on gaining physical access to customer sites. \n \n \n   \n \n \n Our agility and collaborative culture allowed us to respond rapidly to these changes. To ensure that we maintained our financial strength, we reduced our quarterly overhead cost run-rate by more than £20m in the first quarter, with each company determining what savings were appropriate for their situation. To preserve liquidity, we decided not to complete any acquisitions in the first half, and limited capital investment to research and development (R&D) and essential projects only, until the impact of the pandemic on our trading and balance sheet became clearer. We also focused on effective management of working capital, while ensuring that we maintained productive relationships with our customers and suppliers. \n \n \n   \n \n \n At the same time as our companies were rapidly addressing new challenges from disruptions to supply chains and their distribution networks, they were also responding to new opportunities arising from changes in their markets. These factors, combined with demand normalising in some market segments during the course of the year, meant that our trading momentum progressively strengthened, allowing us to gradually ease some of the financial constraints we had put in place in the early part of the year. These included a rebounding in M&A activity in the second half of the financial year and it is pleasing to see that this has continued into the new financial year. \n \n \n   \n \n \n The sector reviews later in this document contain further details of their individual performances, although there were several common themes. These included accelerating the digitalisation of products and introducing more online training and remote installation support in response to restriction in physical access; flexing manufacturing footprints and distribution capabilities to respond to changes in product demand and product mix; responding to new regulatory requirements; and rapidly adapting existing technology to meet new market needs. The agility of this response supported our delivery of a robust financial performance in the year and will be a key element in sustaining our growth in the future. \n \n \n   \n \n \n Market trends accelerated by the pandemic \n \n \n Our strategy is to acquire and grow companies providing valuable solutions for selected market niches with global reach, in our chosen areas of safety, the environment and health. These niche markets offer opportunities for sustainable, superior growth with high returns, which are supported by long-term demographic, climate, and regulatory trends. \n \n \n   \n \n \n The effects of the pandemic have accelerated some of the existing long-term trends in our markets and have led to the emergence of new growth opportunities and areas of investment: \n \n \n   \n \n \n -  We expect our Medical sector to benefit from an increased focus on ensuring the resilience of healthcare systems, not just in acute care products and services, but also in helping to improve patient outcomes, efficiency, and the safety of patients and staff. \n \n \n   \n \n \n -  \n The increased focus on hygiene has increased demand for automated and touchless access systems in our People and Vehicle Flow and Elevator businesses. We also expect it to drive the adoption of technologies in our Medical sector such as our real-time location systems for healthcare facilities, which control access and ensure compliance with hand hygiene standards. \n \n \n   \n \n \n -  \n The acceleration in the use of digital technology is driving the increasing use of telemedicine in our Medical sector, and the greater use of remote monitoring and control technologies in a broad range of applications, from fire systems and elevator monitoring, to water and waste water leak and spill detection, in our Safety and Environmental & Analysis sectors. \n \n \n   \n \n \n -  \n The pandemic has further heightened awareness of the need to conserve increasingly scarce natural resources, given that climate change and the degradation of the environment have the potential to increase our susceptibility to disease in the future. We expect this to increase demand for our technologies supporting the transition to cleaner energy, water analysis and treatment, environmental monitoring and improving industrial efficiency and energy usage. \n \n \n   \n \n \n Increased investment despite the short-term challenges \n \n \n   \n \n \n Given our market opportunities, strong cash generation and robust liquidity position, we increased investment for growth and even accelerated our efforts in key areas. \n \n \n   \n \n \n Our companies continued to invest in new product development, with R&D expenditure staying at the same level as the previous year. They invested £70m, representing 5.3% of revenue, reflecting their confidence in their long-term growth prospects. \n \n \n   \n \n \n We have accelerated our planned technology investments, given that the pandemic has amplified the importance of digital technologies, both in terms of how we operate, and the way our customers want to access our services and solutions. \n \n \n   \n \n \n In addition to the investments made by individual Halma operating companies, we expect to invest at the Group level around £10m of incremental expenditure over the next three years, as well as adding around £2m per annum to our operating costs. These will bring significant benefits in support of our companies' growth in the medium term and modernise ways of working across Halma. These include: \n \n \n   \n \n \n -  Enhancing security, including for remote working, across the whole Group. \n \n \n   \n \n \n -  Improving our data and analytics capabilities, and enhancing controls, in central functions such as finance and treasury, talent and human resources, sustainability, and legal. \n \n \n   \n \n \n -  Supporting our companies in upgrading their operating technology in areas such as sales and customer management, procurement, e-commerce, and operations, finance, and human resource management. \n \n \n   \n \n \n -  Enabling our companies to create new digital business models in line with our Halma 4.0 growth strategy, by building a common core of technology to support their digital and Internet of Things (IoT) solutions. \n \n \n   \n \n \n Investment in our innovation and digital growth programmes has been focused on supporting our companies in bringing their digital products to market and in enhancing the impact of our R&D spend by supporting agile decision-making to increase the speed and reduce the cost of new product development. \n \n \n   \n \n \n We currently have over 20 digital and agile new product development projects underway within these programmes. These are being supported by our Innovation and Digital team and our Digital Champions network which enables the sharing of expertise between companies. The interest these initiatives has generated was reflected in our recent Digital Execution Accelerator Summit event, which saw 130 attendees from across Halma explore new ways of providing value to customers through digital products. To help our companies assess their current digital development and potential, we have further refined our definitions of digital offerings. We now measure digital revenue based on connected devices, IoT (Internet of Things) solutions, and software and services revenues, while non-digital products include mechanical and non-connected intelligent devices. Approximately 40% of our revenue currently comes from digital products and solutions. These new definitions are more consistent with external benchmarks and will allow us to better assess our ability to capture, support and monetise digital opportunities. \n \n \n   \n \n \n We have continued to develop our external partnerships, including making minority investments through our Halma Ventures programme, that offers Halma access to new technology and capabilities. In January 2021, we announced that we had agreed a minority investment and strategic partnership with Oxbotica, a global leader in autonomous vehicle software. This strengthens the existing relationship between Oxbotica and our Halma company Navtech, which specialises in radar technology for transport applications. \n \n \n   \n \n \n Shortly before the year end, we also completed the spin-out of our food technology start-up, OneThird, from our company Ocean Insight. This new digital business was created following our first Halma Digital Edge programme in 2019 and uses spectroscopy data, a software platform and artificial intelligence to predict the shelf life of fresh produce to avoid food wastage. The spin-out will provide OneThird with access to new external partners to further accelerate its growth, with Halma retaining a minority shareholding in the company. \n \n \n   \n \n \n We are continuing to invest in the expansion and modernisation of our operating facilities to support recent and future growth expectations. After a year of reduced activity and spend during the pandemic of £26m, capital investment in the coming year is expected be higher at around £30m, including the start of construction of a new manufacturing facility for one of our largest companies, BEA, in Belgium. \n \n \n   \n \n \n Organisational and leadership changes to drive our growth strategy \n \n \n   \n \n \n During the year we announced several organisational, leadership and reporting changes. These demonstrate our commitment to developing our people to ensure we have a strong and sustainable leadership succession for the future, as well as our ability to recruit the very best talent. \n \n \n   \n \n \n In September 2020, we welcomed Funmi Adegoke as Group General Counsel. Funmi's international legal and commercial background has enabled her to have an immediate positive impact with our operating companies, sectors, and Executive Board. \n \n \n   \n \n \n We announced at our half year results in November that, from 1 April 2021, we would operate and report as three sectors to better align with our purpose and focus on safety, environmental and health markets, while still providing an easily scalable organisational model as we grow. Each of the three sectors is led by a Sector CEO and small sector support team, following the same model we have successfully deployed since 2014. \n \n \n   \n \n \n Two of our Divisional CEOs, Wendy McMillan and Constance Baroudel have been promoted to Sector Chief Executive for the Safety and Environmental & Analysis sectors respectively, while Laura Stoltenberg will continue to lead the Medical Sector. This change to three sectors will result in increased and dedicated M&A support for our Environmental & Analysis and Medical growth opportunities, and maintain the existing level of support for the combined Safety sector. \n \n \n   \n \n \n Following the resignation of Paul Simmons at the start of the pandemic in March 2020, Adam Meyers remained on our Executive Board as interim Chief Executive of our Safety sector. After completion of the Sector leadership succession process outlined above, Adam will retire from the Executive Board and Halma Board after our forthcoming Annual General Meeting in July 2021. I would like to thank Adam for his exceptional contribution since he joined the Group in 1996. In his time as a member of the Executive Board (since 2003) and the Halma Board (since 2008), Adam has completed over 20 acquisitions and had Divisional or Sector responsibility for almost every company in the Group. He has been a tremendous supporter of emerging talent and over the years has done a fantastic job helping new Divisional CEOs and Sector CEOs transition into their new roles. On behalf of everyone at Halma, I wish him all the best for a long and happy retirement. \n \n \n   \n \n \n Accelerating our growth through M&A \n \n \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 organisational model is easily scalable and gives us the ability to continue acquiring small-to-medium sized businesses which increase our market opportunities and achieve our strategic growth objectives. We are also able to sell and merge businesses relatively easily should market dynamics change, enabling us to maintain a 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 2011, Halma had revenue of £518m from 38 operating companies, and today we have only 42 operating companies delivering revenue of over £1.3bn. \n \n \n   \n \n \n After our decision to postpone M&A transactions in the first half of the year, activity rapidly picked-up in the second half and this has continued into the new financial year. \n \n \n   \n \n \n In December 2020, we acquired Static Systems Group, a UK-based manufacturer of critical healthcare communication systems, for £37.6m. In the same month, we divested Fiberguide Industries, Inc., a US-based manufacturer of fibre optic technology, for US$38m (£27.6m). \n \n \n   \n \n \n Following the year-end, in April 2021, we acquired PeriGen, a US company whose advanced technology protects mothers and their unborn babies by alerting doctors, midwives and nurses to potential problems during childbirth, for US$58m (equivalent to approximately £42m at the time of announcement). \n \n \n   \n \n \n We have also continued to strengthen our companies' capabilities across our three sectors through bolt-on acquisitions: \n \n \n   \n \n \n -  In the Safety sector, our wireless fire safety company, Argus, purchased its Italian distributor for €0.5m and our industrial access control company, Fortress, bought the assets and IP associated with monitored safety valves from FluidSentry Pty Ltd in Australia for A$0.6m. \n \n \n   \n \n \n -  In the Environmental & Analysis sector, the UV Group acquired Orca GmbH, a German manufacturer of ultraviolet disinfection systems, primarily for the food and beverage sector, for an initial consideration of €6.2m (£5.3m); Crowcon purchased its UK flue gas analyser distribution partner, Anton Industrial Services Limited, for £1.9m. \n \n \n   \n \n \n -  In the Medical sector, Riester acquired the trade and assets of RNK, a US-based digital stethoscope company, for an initial consideration of US$2.7m (£1.9m). \n \n \n   \n \n \n A Sustainability Framework introduced to amplify our positive impact \n \n \n   \n \n \n Our new Sustainability Framework, which we have developed this year, aims to demonstrate our positive impact through continued and more focused efforts to minimise our environmental footprint, maximise our social impact, and be a responsible business. It is designed to assist us in understanding the areas of sustainability which are most important both for Halma and our stakeholders, and to help our companies prioritise the actions that are going to deliver the greatest return for the time and resources invested. \n \n \n   \n \n \n Many of our technologies enable others to achieve their own sustainability commitments including through the protection of natural resources or reduction of carbon emissions. We have recognised this by explicitly including climate change as a new key long-term growth driver for our products and services, and when assessing opportunities for future organic and inorganic growth. The beneficial effects of our products and services, which help solve many critical safety, environmental and health issues, also contribute to the achievement of our chosen United Nations Sustainable Development Goals (SDGs). \n \n \n   \n \n \n Our Sustainability Framework prioritises specific Key Sustainability Objectives (KSOs), which we believe are both highly aligned to our purpose, and key issues for Halma and our stakeholders. While these may be refined over time, the initial focus of our KSOs will be on addressing climate change, transitioning our business towards a circular economy, and continuing to build inclusion, diversity and equity in delivering our purpose-aligned growth. \n \n \n   \n \n \n In the coming financial year, we will set challenging objectives and KSO targets, and in future consider aligning management incentives with them where appropriate. We will also continue to develop policies and metrics relating to a wider scope of responsible business issues in support of these KSOs. \n \n \n   \n \n \n The delivery of our Sustainability Framework is supported by our new Head of Sustainability, who joined in September 2020, and two new leadership groups created this year: our Group-wide Sustainability Network, which includes representatives from almost every Halma company, and a Sustainability Management Committee, which is responsible for oversight of our sustainability initiatives and KSOs, and includes senior Halma group executives. \n \n \n   \n \n \n In addition to these structural changes, we have made substantial progress on our specific sustainability initiatives. For climate change, we have set a 1.5 degree-aligned 2030 target for our Scope 1 and 2 emissions, in line with guidance from the Science-Based Target Initiative, and a target to achieve net zero Scope 1 and 2 emissions by 2040. Alongside these commitments, we recognise the need for us to work towards net zero across our entire value chain. Over the year, we will be carrying out a full assessment of our supply chain and other Scope 3 emissions to determine the targets and commitments that will be most appropriate for Halma. \n \n \n   \n \n \n These objectives are supported by our ongoing work to further increase the percentage of the energy we consume from renewable sources. We have also commenced work towards implementing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), including initial identification of opportunities and risks for Halma. Our target is to report fully under the TCFD framework from next year. \n \n \n   \n \n \n We have also made progress in assessing the importance to Halma of other key sustainability-related issues. We have commenced an analysis of the sustainability-related impact and risk across our supply chains, and an initial analysis of our operating presence in water-stressed areas while improving our environmental reporting on water and waste. These will enable us to establish more robust baselines for reporting our future progress. \n \n \n   \n \n \n In October 2020, we were excited to launch our second group-wide purpose-driven campaign, Water for Life, in partnership with the international non-profit organisation WaterAid. Further details are included in the Annual Report and Accounts 2021. \n \n \n   \n \n \n Building greater inclusion, equity, and diversity to drive our performance \n \n \n   \n \n \n A critical component of Halma's continued success is our culture, which in turn is dependent on the quality and diversity of our leaders and teams. We seek to ensure that Halma is an organisation that is inclusive and treats all people equitably. In doing this, we maximise the pool of talent available to us, recruit and retain the best people for every role, and build committed, diverse and resilient teams. These qualities and benefits were critical in our ability to deliver a robust performance in the year. \n \n \n   \n \n \n Our continued efforts to embed the principles of diversity, equity and inclusion (DEI) within Halma were supported by several new initiatives this year. These included the global implementation of an equal parental leave policy for all our employees and the launch of Accelerate Inclusion, our programme to build deeper awareness and provide practical tools to enable our teams around the world to create inclusive cultures. These principles were reinforced by the new public commitments we made in the year, including paying a Real Living Wage across our UK operations from 1 June 2022, signing up to the Change the Race Ratio campaign, and disclosing for the first time the gender pay gap in our UK and US operations. \n \n \n   \n \n \n We are confident that our efforts will deliver results, as we have already seen from the significant progress we have made in recent years. For example, with new appointments to the Board and Executive Board, our gender balance is now 42% and 70% women respectively as at 10 June 2021. You can find more detail on our progress on diversity, equity and inclusion in Our People and Culture section in the Annual Report and Accounts 2021. \n \n \n   \n \n \n Halma Board changes \n \n \n   \n \n \n Earlier in 2021, we welcomed Dame Louise Makin and Dharmash Mistry to our Board as non-executive Directors. Both will bring significant additional expertise to our Board and I am looking forward to working more closely with Louise when she steps up to become our new Chair after our AGM in July. \n \n \n   \n \n \n With these changes, and in addition to the retirement of Adam Meyers referred to above, Daniella Barone Soares and Paul Walker will be retiring as non-executive Director and Chair respectively, at the AGM. Both have made significant contributions to Halma's development and growth and we give them our thanks and best wishes for their new challenges ahead. \n \n \n   \n \n \n On a personal level, I would particularly like to thank Paul for his support and guidance as Halma's Chair. During his tenure, Halma has transitioned into a FTSE 100 company with its market capitalisation growing from around £2bn in 2013 to over £9bn at the end of this financial year. I have really appreciated Paul's commitment to ensuring that we have strengthened our culture and talent pool as we grow, the benefits of which are clearly to be seen in the recent leadership succession processes for our Executive and Sector Boards. He leaves a strong legacy and a foundation upon which I am confident that Halma will continue to deliver success in the future. \n \n \n   \n \n \n Summary and Outlook \n \n \n   \n \n \n Halma's purpose is to grow a safer, cleaner, healthier future, for everyone, every day. It underpins our growth strategy, financial model, culture and organisational design. The combination and interaction of these elements has created increasing value for all stakeholders on a sustainable basis for almost 50 years. \n \n \n   \n \n \n Together, they have enabled us to make further progress during the ongoing pandemic, giving us an agility which has been crucial in allowing us to address short-term challenges while simultaneously investing for a fast-changing future. Our progress has also been supported by our teams' relentless execution across all parts of our business, and our resilience which stems from the diversity of our market niches, their fundamental growth drivers, and the value of the solutions we provide. \n \n \n   \n \n \n For the year ahead, we expect our markets to continue to recover, albeit at varying rates, while acknowledging that there are potential headwinds including currency, inflation, and supply chain constraints. Organic constant currency revenue for the period from the beginning of January to the end of May is up 10% year-on-year. We have made a good start to the year, order intake is currently ahead of revenue and the same period last year, and we also have a good pipeline of potential acquisition opportunities. We currently expect to deliver full year low double-digit percentage organic constant currency profit growth (prior to any IAS 38 impact) and a more normal level of return on sales. We look forward to making further progress, in this year and the longer term. \n \n \n Andrew Williams \n \n \n Group Chief Executive \n \n \n \n 1 \n \n See Highlights \n \n \n   \n \n \n Financial Review \n \n \n   \n \n \n Record profit \n \n \n   \n \n \n Halma delivered a robust financial performance in the period, despite the effects of the COVID-19 pandemic. We responded rapidly to the challenges and new opportunities which arose in the year to deliver a record profit for the 18th consecutive year, while increasing our investment in future growth opportunities and further strengthening our balance sheet. This financial performance reflects the value of our Sustainable Growth Model and the authenticity of our purpose. \n \n \n   \n \n \n Revenue for the year to 31 March 2021 was £1,318.2m (2020: £1,338.4m), down 1.5%. This reflected a resilient organic performance, supported by the agility of our companies in responding to fast-changing market conditions, and a benefit from recent acquisitions. Adjusted 1 profit before taxation grew 4.2% to £278.3m (2020: £267.0m), and benefited from discretionary variable cost reductions, good ongoing control of overheads and a reduction in financing costs. Statutory profit before taxation increased by 12.9% to £252.9m (2020: £224.1m), and included a £21.6m gain on disposal of Fiberguide Industries, Inc. in the second half of the year. \n \n \n   \n \n \n The decrease in revenue included a 5.6% decline in organic constant currency revenue. The contribution from acquisitions was a positive 5.4% (5.1% net of disposals), and there was a negative effect from currency translation of 1.0%. The 4.2% increase in Adjusted 1 profit comprised a 0.7% increase in organic constant currency profit, a 4.7% contribution from acquisitions (4.5% net of disposals), and a negative effect from currency of 1.0%. \n \n \n   \n \n \n Statutory profit before taxation of £252.9m is calculated after charging the amortisation of acquired intangible assets of £42.3m (2020: £38.3m), a £22.1m gain on disposals (2020: £2.9m), and other items of a net £5.2m (2020: £7.5m). Further detail on these items is given in note 1 to the Financial Statements. \n \n \n   \n \n \n Cash conversion was very strong at 104%, primarily driven by good underlying working capital control, in addition to specific actions taken in response to the pandemic. As a result, net debt (on an IFRS 16 basis which includes lease commitments) reduced substantially to £256.2m (31 March 2020: £375.3m). \n \n \n   \n \n \n Robust revenue and profit performance \n \n \n   \n \n \n Revenue fell by 5.4% in the first half and increased by 2.2% in the second half. Having declined in the first quarter, revenue increased sequentially in each subsequent quarter. Constant currency organic revenue declined by 5.6%, comprising an 11.0% reduction in the first half, reflecting the effects of the COVID-19 pandemic, and a decline of only 0.3% in the second half. There was a small negative effect of 0.4% from currency translation in the first half which increased in the second half, giving a negative effect of 1.0% for the year as a whole. \n \n \n   \n \n \n Adjusted 1 profit declined by 5.3% in the first half, but grew by 13.1% in the second half. As a result, the first half/second half split of adjusted profit was 44%/56%, compared to our typical 45%/55% pattern. As with revenue, profit grew sequentially from the first quarter onwards, and there was a small negative effect from currency translation in the first half, which increased in the second half. Organic profit at constant currency declined by 11.1% in the first half, but increased by 11.8% in the second half, resulting in modest growth of 0.7% for the year. \n \n \n   \n \n \n Profitability in the year benefited from the discretionary variable cost reductions delivered in the first quarter, good ongoing control of overheads including reduced travel and trade show costs and reduced absolute research and development spend in line with revenue. These savings were, in part, offset by increased distribution costs and one-off enhanced employee COVID-19 related payments. These overall savings included the impact of our decision during the second half to repay all employees below the Executive Board the temporary salary reductions implemented from 1 April 2020 for a three-month period (ensuring all employees were paid at least 100% for hours worked). The Board and Executive Board incurred a reduction in salaries of 20% for the first quarter and did not feel it appropriate for this to be repaid. \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 \n \n   \n \n \n \n Percentage growth \n \n \n \n   \n \n \n \n \n   \n \n \n \n 2021 \n \n \n £m \n \n \n \n \n 2020 \n \n \n £m \n \n \n \n \n Change \n \n \n  m \n \n \n \n \n Total \n \n \n % \n \n \n \n \n Organic \n \n \n growth 2 \n \n \n % \n \n \n \n \n Organic \n \n \n growth 2 \n \n \n at constant currency % \n \n \n \n   \n \n \n \n \n \n Revenue \n \n \n \n \n 1,318.2 \n \n \n \n \n 1,338.4 \n \n \n \n \n (20.2) \n \n \n \n \n (1.5) \n \n \n \n \n (6.6) \n \n \n \n \n (5.6) \n \n \n \n   \n \n \n \n \n \n Adjusted 1 profit before taxation \n \n \n \n \n 278.3 \n \n \n \n \n 267.0 \n \n \n \n \n 11.3 \n \n \n \n \n 4.2 \n \n \n \n \n (0.3) \n \n \n \n \n 0.7 \n \n \n \n   \n \n \n \n \n \n Statutory profit before taxation \n \n \n \n \n 252.9 \n \n \n \n \n 224.1 \n \n \n \n \n 28.8 \n \n \n \n \n 12.9 \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 Financial Statements 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 Stronger second half performance \n \n \n   \n \n \n Our companies saw significant and varying changes in demand in the year as a result of the COVID-19 pandemic, and this was reflected in the different sector performances. Having seen a substantial decline in the first quarter (compared to the final quarter of the prior year), overall performance improved as the year progressed. All sectors delivered a stronger absolute revenue and profit performance in the second half, compared to the first half of the year. For the full year as a whole, while revenue increased in only one sector, three of the four sectors grew profit on a reported basis, and two on an organic constant currency basis. \n \n \n   \n \n \n Process Safety revenue declined 5.6%, which included a benefit from the acquisition of Sensit Technologies in the prior year. Revenue on an organic constant currency basis fell 11.9%, which reflected the adverse effects of the COVID-19 pandemic, including the difficulty of gaining access to customer sites and the deferral of project-based business, in addition to a challenging oil and gas market and a strong comparative in Industrial Access Control (which included a large logistics contract). Profit decreased by 16.7% (21.5% on an organic constant currency basis), mainly because of the decline in higher margin US onshore oil and gas business, as well as one-off restructuring costs of £1.9m. As a result, Return on Sales was lower, at 19.4% (2020: 21.9%). The second half saw a sequential improvement in revenue, albeit still marginally down on the same period last year, with revenue declining 1.0% on a reported basis and 6.5% on an organic constant currency basis. Our companies have continued to broaden and diversify their revenue streams and acted to more closely align overheads with revenue, to deliver an improved profit performance as the year progressed. Looking ahead we anticipate some recovery in the Process Safety end markets which, in addition to new product introductions, should return the sector to growth for the year ahead. \n \n \n   \n \n \n Infrastructure Safety delivered a resilient performance for the year, despite a 13.5% fall in revenue in the first half (a decline of 16.2% on an organic constant currency basis) which included an adverse impact from the COVID-19 pandemic. As market conditions started to recover, revenue grew by 6.6% in the second half of the year (6.7% on an organic constant currency basis) compared to the same period in the prior year, resulting in revenue for the full year being down 3.4% (4.7% on an organic constant currency basis). Return on Sales was higher at 24.5% (2020: 23.1%), reflecting an improvement in gross margin from favourable business mix and good underlying overhead control. As a result, reported profit grew by 2.7% in the full year and by 1.2% on an organic constant currency basis. Looking ahead we expect a continuation of the recovery we saw in the second half, albeit against the potential headwinds relating to ongoing supply chain challenges and the ongoing risk of further COVID-19 related disruption. \n \n \n   \n \n \n The Environmental & Analysis sector delivered a robust performance for the year. While reported revenue declined by 5.0%, this was partly due to the disposal of Fiberguide Industries, Inc. in the third quarter of the year, and revenue on an organic constant currency basis fell by only 2.7%. This was a resilient performance given the very strong comparative in the second half of the previous year. Profit grew strongly, by 11.4% on a reported basis and by 14.7% on an organic constant currency basis, reflecting the benefit to gross margin from a favourable mix of business, and very strong control of overheads. As a result, Return on Sales increased to 25.1% (2020: 21.4%) and, given that this was driven by mix of business, discretionary variable cost reductions and the phasing of a long-term photonics project, we do not expect this high level of Return on Sales to be maintained in the coming year. Looking ahead we expect the sector to make continued progress albeit against a strong comparative with the continued contribution of some large photonics projects, in addition to the timing of the UK water infrastructure investment cycle and the continued recovery of the water testing markets. \n \n \n   \n \n \n The Medical sector delivered good revenue growth of 7.0% for the year. This included a significant contribution from prior year acquisitions, with revenue declining by 5.4% on an organic constant currency basis. Sector companies experienced substantially different changes in demand as a result of the pandemic, with some having to meet significantly increased demand for products and services related to the diagnosis or treatment of COVID-19, and others seeing substantial falls in revenue as a result of a slowdown in elective procedures and difficulties in gaining access to hospitals. This change in business mix had an adverse effect on gross margin which, alongside an increased R&D spend in the year, meant that Return on Sales decreased by 1 percentage point to 23.3%. Our companies responded with agility to these changes, both in terms of addressing new revenue opportunities and adjusting overheads where required. This, together with some modest recovery in elective procedures as the year progressed and a further contribution from acquisitions, resulted in the sector returning to revenue and profit growth in the second half. Looking ahead, we expect to continue to see the recovery in elective procedures and for there to be a decline in demand for COVID-19 related products. These factors, alongside the continued contribution from recent acquisitions means that the sector is expected to deliver more normal levels of growth for the year ahead. \n \n \n   \n \n \n We continue to hold an additional £5.0m central provision for bad debt, reflecting the continuing increased risk of customer bad debt in all sectors due to the ongoing effects of the COVID-19 pandemic. \n \n \n   \n \n \n Central administration costs, which include our Growth Enabler functions, decreased to £22.9m (2020: £26.3m). This principally reflected the discretionary cost reduction measures implemented in the first quarter of the year, in addition to ongoing overhead control for the balance of the year. These actions delivered savings across all functions driven by reduced travel, the use of virtual conferences, deferred spend on projects, reduced development programmes and a reduction in bonus payments as a result of financial performance. These savings were in part offset by the one-off enhanced employee COVID-19 related payments of £2m and the acceleration of planned IT investment spend. As we plan to increase and selectively accelerate investment in our Growth Enablers in the year ahead, we expect central costs to increase to approximately £32m in 2022 (excluding up to £5m of IT Software as a Service (SaaS) configuration and customisation costs). This will include both a return to more normalised levels of central investment, in addition to an acceleration in our investments in IT and Technology, strategic communications and governance and compliance (including ESG), and a return to more normal levels of annual bonus payments. This level of investment is expected to normalise (relative to revenue) during the financial year ending 2023. \n \n \n   \n \n \n As previously announced, from 1 April 2021, we will align our organisational structure and financial reporting with our purpose and core market focus. We will report our performance in three sectors, namely Safety, Environmental & Analysis, and Medical. \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 2021 \n \n \n \n   \n \n \n   \n \n \n \n 2020 \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 % of total \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 % growth \n \n \n \n \n % organic growth 2 at constant currency \n \n \n \n \n \n \n Process Safety \n \n \n \n \n 188.8 \n \n \n \n \n 14 \n \n \n \n   \n \n \n \n 200.0 \n \n \n \n \n 15 \n \n \n \n \n (11.2) \n \n \n \n \n (5.6) \n \n \n \n \n (11.9) \n \n \n \n \n \n \n Infrastructure Safety \n \n \n \n \n 450.5 \n \n \n \n \n 34 \n \n \n \n   \n \n \n \n 466.5 \n \n \n \n \n 35 \n \n \n \n \n (16.0) \n \n \n \n \n (3.4) \n \n \n \n \n (4.7) \n \n \n \n \n \n \n Environmental & Analysis \n \n \n \n \n 308.8 \n \n \n \n \n 24 \n \n \n \n   \n \n \n \n 325.0 \n \n \n \n \n 24 \n \n \n \n \n (16.2) \n \n \n \n \n (5.0) \n \n \n \n \n (2.7) \n \n \n \n \n \n \n Medical \n \n \n \n \n 371.3 \n \n \n \n \n 28 \n \n \n \n   \n \n \n \n 347.2 \n \n \n \n \n 26 \n \n \n \n \n 24.1 \n \n \n \n \n 7.0 \n \n \n \n \n (5.4) \n \n \n \n \n \n \n Inter-segment sales \n \n \n \n \n (1.2) \n \n \n \n   \n \n \n   \n \n \n \n (0.3) \n \n \n \n   \n \n \n \n (0.9) \n \n \n \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 \n \n 1,338.4 \n \n \n \n \n 100 \n \n \n \n \n (20.2) \n \n \n \n \n (1.5) \n \n \n \n \n (5.6) \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 2021 \n \n \n \n   \n \n \n \n 2020 \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 % of total \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 % growth \n \n \n \n \n % organic growth 2 at constant currency \n \n \n \n \n \n \n Process Safety \n \n \n \n \n 36.6 \n \n \n \n \n 12 \n \n \n \n   \n \n \n \n 43.9 \n \n \n \n \n 14 \n \n \n \n \n (7.3) \n \n \n \n \n (16.7) \n \n \n \n \n (21.5) \n \n \n \n \n \n \n Infrastructure Safety \n \n \n \n \n 110.6 \n \n \n \n \n 35 \n \n \n \n   \n \n \n \n 107.7 \n \n \n \n \n 35 \n \n \n \n \n 2.9 \n \n \n \n \n 2.7 \n \n \n \n \n 1.2 \n \n \n \n \n \n \n Environmental & Analysis \n \n \n \n \n 77.4 \n \n \n \n \n 25 \n \n \n \n   \n \n \n \n 69.4 \n \n \n \n \n 23 \n \n \n \n \n 8.0 \n \n \n \n \n 11.4 \n \n \n \n \n 14.7 \n \n \n \n \n \n \n Medical \n \n \n \n \n 86.6 \n \n \n \n \n 28 \n \n \n \n   \n \n \n \n 84.4 \n \n \n \n \n 28 \n \n \n \n \n 2.2 \n \n \n \n \n 2.6 \n \n \n \n \n (10.5) \n \n \n \n \n \n \n Sector profit 3 \n \n \n \n \n 311.2 \n \n \n \n \n 100 \n \n \n \n   \n \n \n \n 305.4 \n \n \n \n \n 100 \n \n \n \n \n 5.8 \n \n \n \n   \n \n \n   \n \n \n \n \n \n Central administration costs \n \n \n \n \n (22.9) \n \n \n \n   \n \n \n   \n \n \n \n (26.3) \n \n \n \n   \n \n \n \n 3.4 \n \n \n \n   \n \n \n   \n \n \n \n \n \n Net finance expense \n \n \n \n \n (10.0) \n \n \n \n   \n \n \n   \n \n \n \n (12.1) \n \n \n \n   \n \n \n \n 2.1 \n \n \n \n   \n \n \n   \n \n \n \n \n \n Adjusted 4 profit before tax \n \n \n \n \n 278.3 \n \n \n \n   \n \n \n   \n \n \n \n 267.0 \n \n \n \n   \n \n \n \n 11.3 \n \n \n \n \n 4.2 \n \n \n \n \n 0.7 \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 Resilient revenue performance in all major regions \n \n \n   \n \n \n The Group's four major regions delivered a resilient revenue performance and individually reflected the mix of businesses and the extent of contributions from recent acquisitions in each region. Asia Pacific delivered a small amount of growth, the USA and Mainland Europe were flat, and the UK saw a small decline. The contribution from acquisitions was largest in the USA, with a modest benefit in the other three major regions. Revenue in other regions fell more sharply, with the effects of the pandemic more severe and sustained in a number of developing markets. \n \n \n   \n \n \n Revenue in the USA declined by 0.3%, and remains our largest revenue destination, accounting for 39% of Group revenue, an increase of one percentage point compared to the prior year. Organic constant currency revenue declined by 6.0%. There was a wide range of performances by each sector. On a reported basis, Medical delivered strong growth, which included a substantial benefit from recent acquisitions, and the other three sectors saw modest declines. Revenue in Process Safety benefited from the acquisition of Sensit, but on an organic constant currency basis saw a significant decline given a strong comparator (due to a large logistics contract in the prior year), in addition to weak demand for safety products in the US onshore oil and gas related businesses and site access issues. Environmental & Analysis delivered the most resilient performance on an organic constant currency basis, but total revenue was impacted by the disposal of Fiberguide Industries, Inc. in the third quarter. \n \n \n   \n \n \n Mainland Europe revenue was 0.2% lower. There was a modest contribution from recent acquisitions, and revenue on an organic constant currency basis declined by 3.0%. The region's largest sector, Infrastructure Safety, saw a small decline in revenue, despite a strong performance in the People and Vehicle Flow sub sector. The other three sectors grew on a reported basis, with Process Safety benefiting from the fulfilment of some significant projects, Environmental & Analysis seeing a good performance in Water Analysis and Treatment, and Medical's performance including the benefit of recent acquisitions. \n \n \n   \n \n \n UK revenue was 3.5% lower, or 7.0% on an organic constant currency basis. Infrastructure Safety grew slightly, supported by a strong recovery in the Fire and Security businesses in the second half of the year. Environmental & Analysis, however, saw a substantial decline against a very strong prior year comparator, particularly in our Water businesses. In the other, much smaller, sectors, Process Safety delivered a resilient performance, with a modest decline in revenue, while the Medical sector revenue grew strongly on a reported basis, with the benefit of the Static Systems acquisition offsetting a sharp decline on an organic constant currency basis. \n \n \n   \n \n \n Asia Pacific grew 1.3%, which included double-digit growth in China, as it recovered from the effects of the pandemic. There was good growth in South Korea, but significant declines in other markets, largely as a result of the pandemic. There was good growth in the Environmental & Analysis sector, supported by the recovery in China, and a solid performance in Medical which benefited from recent acquisitions. Revenue in the Safety sectors declined with a slowing of large project approvals in Process Safety. Infrastructure Safety's performance benefited from the acquisition of Ampac in Australia in the prior year. On an organic constant currency basis, Asia Pacific revenue declined by 3.6%. \n \n \n   \n \n \n In other regions, revenue was 11.5% lower and 10.6% down on an organic constant currency basis. This performance reflected the significant and continuing impact of the pandemic on developing regions, with all sectors seeing a decline in revenue. Of the larger countries, only Canada delivered growth. As a result, and despite the modest improvement in Asia Pacific, revenue from territories outside the UK/Mainland Europe/the USA fell by 3.2%, which was below our 10% KPI growth target. \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 2021 \n \n \n \n   \n \n \n \n 2020 \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 % of total \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 508.8 \n \n \n \n \n 39 \n \n \n \n   \n \n \n \n 510.3 \n \n \n \n \n 38 \n \n \n \n \n (1.5) \n \n \n \n \n (0.3) \n \n \n \n \n (6.0) \n \n \n \n \n \n   \n \n \n \n Mainland Europe \n \n \n \n \n 276.0 \n \n \n \n \n 21 \n \n \n \n   \n \n \n \n 276.4 \n \n \n \n \n 21 \n \n \n \n \n (0.4) \n \n \n \n \n (0.2) \n \n \n \n \n (3.0) \n \n \n \n \n \n   \n \n \n \n United Kingdom \n \n \n \n \n 213.6 \n \n \n \n \n 16 \n \n \n \n   \n \n \n \n 221.2 \n \n \n \n \n 16 \n \n \n \n \n (7.6) \n \n \n \n \n (3.5) \n \n \n \n \n (7.0) \n \n \n \n \n \n   \n \n \n \n Asia Pacific \n \n \n \n \n 216.1 \n \n \n \n \n 16 \n \n \n \n   \n \n \n \n 213.3 \n \n \n \n \n 16 \n \n \n \n \n 2.8 \n \n \n \n \n 1.3 \n \n \n \n \n (3.6) \n \n \n \n \n \n   \n \n \n \n Africa, Near and Middle East \n \n \n \n \n 54.1 \n \n \n \n \n 4 \n \n \n \n   \n \n \n \n 63.2 \n \n \n \n \n 5 \n \n \n \n \n (9.1) \n \n \n \n \n (14.4) \n \n \n \n \n (15.1) \n \n \n \n \n \n   \n \n \n \n Other countries \n \n \n \n \n 49.6 \n \n \n \n \n 4 \n \n \n \n   \n \n \n \n 54.0 \n \n \n \n \n 4 \n \n \n \n \n (4.4) \n \n \n \n \n (8.1) \n \n \n \n \n (5.3) \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 \n \n 1,338.4 \n \n \n \n \n 100 \n \n \n \n \n (20.2) \n \n \n \n \n (1.5) \n \n \n \n \n (5.6) \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 Continued high returns \n \n \n   \n \n \n Halma's Return on Sales 2 has exceeded 16% for 36 consecutive years. Our KPI target is to deliver Return on Sales in the range of 18-22% and this year Return on Sales increased to 21.1% (2020: 19.9%). This reflected discretionary cost reductions of over £20m realised in the first quarter of the year (compared to the previous quarter's run rate), strong ongoing overhead control, and a modest reduction in research and development spend, in line with revenue. The previously reported £5m increase in customer bad debt provision included in 2020 due to the additional risk from COVID-19 has remained in place. \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) 2 , the post-tax return on the Group's total assets including all historical goodwill. This year, ROTIC was 14.4% (2020: 15.3%), with the change principally reflecting a lower level of constant currency earnings growth than in the prior year, as well as lower dividend growth in the year as a result of the COVID-19 pandemic. Our ROTIC remains well ahead of our KPI target of 12% and substantially in excess of Halma's Weighted Average Cost of Capital (WACC), estimated to be 6.7% (2020: 7.7%). \n \n \n   \n \n \n Currency effects well managed \n \n \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 45% of Group revenue is denominated in US Dollars and approximately 12% in Euros. \n \n \n   \n \n \n The Group has both translational and transactional currency exposure with translational exposures not hedged. For transactional exposures, after matching currency of revenue with currency of costs wherever practical, forward exchange contracts are used to hedge 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 second half. This gave rise to a negative currency translation impact of 1.0% on revenue and 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 £6.3m and profit by £1.3m. Similarly, a 1% movement in the Euro changes revenue by £1.6m and profit by £0.3m. \n \n \n   \n \n \n If currency rates for the financial year 2022 were US Dollar 1.378/ Euro 1.174 relative to Sterling, and assuming a constant mix of currency results, we would expect approximately a £39m negative revenue and a £9m negative profit impact compared to financial year 2021, with the majority of the impact in the first half of the year. \n \n \n   \n \n \n   \n \n \n \n \n \n   \n \n \n   \n \n \n \n Weighted average rates used in \n \n \n the Income Statement \n \n \n \n \n Exchange rates used to \ntranslate the Balance Sheet \n \n \n \n \n \n   \n \n \n   \n \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n \n   \n \n \n \n First half \n \n \n \n \n Full year \n \n \n \n \n Full year \n \n \n \n \n Year end \n \n \n \n \n Year end \n \n \n \n \n \n \n US$ \n \n \n \n \n 1.267 \n \n \n \n \n 1.308 \n \n \n \n \n 1.271 \n \n \n \n \n 1.378 \n \n \n \n \n 1.25 \n \n \n \n \n \n \n Euro \n \n \n \n \n 1.116 \n \n \n \n \n 1.121 \n \n \n \n \n 1.144 \n \n \n \n \n 1.174 \n \n \n \n \n 1.133 \n \n \n \n \n \n \n   \n \n \n   \n \n \n Financing cost decreased \n \n \n   \n \n \n The net financing cost in the Income Statement of £10.0m was lower than the prior year (2020: £12.1m). This reflected the lower average net borrowings in the year given strong cash generation, a lower level of expenditure on acquisitions, and lower interest rates (see the 'Average debt and interest rates' table below for more information). \n \n \n   \n \n \n Interest cover (EBITDA as a multiple of net interest expense as defined by our Revolving Credit Facility) was 47 times (2020: 40 times) which was substantially in excess of the four times minimum required in our banking covenants. \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 gain of £0.1m (2020: charge of £0.8m), reflecting the lower net deficit at 31 March 2020. \n \n \n   \n \n \n Group tax rate increased \n \n \n   \n \n \n The Group has major operating subsidiaries in 10 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 20.1% (2020: 18.5%). This was mainly due to the reversal of one-off credits in the prior year and a change in the expected mix of profits arising from increased profits in higher tax jurisdictions. Based on the forecast mix of adjusted profits for the year to 31 March 2022 we currently anticipate the Group effective tax rate to increase to approximately 21.5% of adjusted profits. The forecast increase is a result of changes in tax laws reducing the benefits arising from intra-group financing arrangements. \n \n \n   \n \n \n On 2 April 2019, the European Commission 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. The total benefit to Halma in the periods affected by the European Commission's decision has been approximately £15.4m in respect of tax. Halma has appealed against the European Commission's decision, as have the UK Government and several other UK companies. Following receipt of a charging notice from HM Revenue & Customs (HMRC) in January, we made payment of £13.9m to HMRC in respect of tax, and since the year end have received a further charging notice in respect of interest of approximately £0.8m. We expect these payments to be refundable in the event of a successful appeal and have recognised a corporation tax asset of £13.9m in the balance sheet. \n \n \n   \n \n \n Strong cash generation \n \n \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. Our cash conversion in 2021 was strong. \n \n \n   \n \n \n Cash generated from operations was £331.4m (2020: £307.9m) and adjusted operating cash flow, which excludes operating cash adjusting items, and includes net cash capital expenditure, was £300.3m (2020: £272.2m) which represented 104% (2020: 97%) of adjusted operating profit. This was significantly ahead of our cash conversion KPI target of 90%, reflecting a strong underlying performance primarily driven by good working capital control and the cash conservation measures in place during the year. Adjusted operating cash flow is defined in note 3 to the Financial Statements. \n \n \n   \n \n \n A summary of the year's cash flow is shown in the tables below. The largest outflows in the year were in relation to acquisitions, dividends and taxation paid. \n \n \n   \n \n \n There was a working capital inflow of £2.8m, comprising changes in inventory, receivables and creditors (2020: outflow of £9.3m), reflecting an increase in creditors, including from the acquisition of Static Systems Group, a reduction in debtors, given the Group's success in collecting aged receivables, and the deferral of employer social security tax liabilities in the USA. \n \n \n   \n \n \n The deferral of payment of tax liabilities related to the employers' share of quarterly social security tax deposits in the USA, as permitted during the COVID-19 pandemic, resulted in a deferral of a cash tax liability of approximately US$6m (£5m) relating to the period 27 March 2020 to 31 December 2020. Half of this amount was due by 31 December 2021 and the remainder by 31 December 2022. Given the Group's strong financial position, we paid substantially all of the amount due in May 2021, with the remainder to be paid in June, ahead of these due dates. \n \n \n   \n \n \n Dividends totalling £63.7m (2020: £61.2m) were paid to shareholders in the year. \n \n \n   \n \n \n Taxation paid increased to £53.8m (2020: £52.4m), and included the £13.9m paid to HMRC following the receipt of the charging notice for the UK FCPE State Aid issue. Excluding the £13.9m payment, the taxation paid decreased compared to last year mainly due to changes in the timing of tax payments in the prior year. \n \n \n   \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 \n \n   \n \n \n \n 2021 \n \n \n £m \n \n \n \n \n 2020 \n \n \n £m \n \n \n \n \n \n \n Operating profit \n \n \n \n \n 240.8 \n \n \n \n \n 233.4 \n \n \n \n \n \n \n Net acquisition costs and contingent consideration fair value adjustments \n \n \n \n \n 5.2 \n \n \n \n \n 7.5 \n \n \n \n \n \n \n Amortisation and impairment of acquisition-related acquired intangible assets \n \n \n \n \n 42.3 \n \n \n \n \n 38.3 \n \n \n \n \n \n \n Adjusted operating profit \n \n \n \n \n 288.3 \n \n \n \n \n 279.2 \n \n \n \n \n \n \n Depreciation and other amortisation \n \n \n \n \n 50.8 \n \n \n \n \n 51.5 \n \n \n \n \n \n \n Working capital movements \n \n \n \n \n 2.8 \n \n \n \n \n (9.3) \n \n \n \n \n \n \n Capital expenditure net of disposal proceeds \n \n \n \n \n (25.9) \n \n \n \n \n (32.2) \n \n \n \n \n \n \n Additional payments to pension plans \n \n \n \n \n (13.0) \n \n \n \n \n (12.5) \n \n \n \n \n \n \n Other adjustments \n \n \n \n \n (2.7) \n \n \n \n \n (4.5) \n \n \n \n \n \n \n Adjusted operating cash flow \n \n \n \n \n 300.3 \n \n \n \n \n 272.2 \n \n \n \n \n \n \n Cash conversion % \n \n \n \n \n 104% \n \n \n \n \n 97% \n \n \n \n \n   \n   \n   \n   \n   \n \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 2021 \n \n \n £m \n \n \n \n \n 2020 \n \n \n £m \n \n \n \n \n \n \n Adjusted operating cash flow \n \n \n \n \n 300.3 \n \n \n \n \n 272.2 \n \n \n \n \n \n \n Tax paid \n \n \n \n \n (53.8) \n \n \n \n \n (52.4) \n \n \n \n \n \n \n Acquisition of businesses including cash/debt acquired and fees \n \n \n \n \n (48.8) \n \n \n \n \n (238.0) \n \n \n \n \n \n \n Purchase of equity investments \n \n \n \n \n (3.4) \n \n \n \n \n (4.8) \n \n \n \n \n \n \n Disposal of businesses \n \n \n \n \n 26.1 \n \n \n \n \n 7.6 \n \n \n \n \n \n \n Net movement in loan notes \n \n \n \n \n - \n \n \n \n \n 0.1 \n \n \n \n \n \n \n Net finance costs and arrangement fees (excluding lease interest) \n \n \n \n \n (7.0) \n \n \n \n \n (8.5) \n \n \n \n \n \n \n Lease liabilities additions \n \n \n \n \n (23.7) \n \n \n \n \n (26.3) \n \n \n \n \n \n \n Dividends paid \n \n \n \n \n (63.7) \n \n \n \n \n (61.2) \n \n \n \n \n \n \n Own shares purchased \n \n \n \n \n (16.2) \n \n \n \n \n (16.7) \n \n \n \n \n \n \n Adjustment for cash outflow on share awards not settled by own shares \n \n \n \n \n (7.8) \n \n \n \n \n (6.0) \n \n \n \n \n \n \n Effects of foreign exchange \n \n \n \n \n 17.1 \n \n \n \n \n (9.3) \n \n \n \n \n \n \n Movement in net debt \n \n \n \n \n 119.1 \n \n \n \n \n (143.3) \n \n \n \n \n \n \n Opening net debt \n \n \n \n \n (375.3) \n \n \n \n \n (181.7) \n \n \n \n \n \n \n Closing net debt \n \n \n \n \n (256.2) \n \n \n \n \n (375.3) \n \n \n \n \n \n \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 2021 \n \n \n £m \n \n \n \n \n 2020 \n \n \n £m \n \n \n \n \n \n \n Adjusted operating profit \n \n \n \n \n 288.3 \n \n \n \n \n 279.2 \n \n \n \n \n \n \n Depreciation and amortisation (excluding acquired intangible assets) \n \n \n \n \n 50.8 \n \n \n \n \n 51.5 \n \n \n \n \n \n \n EBITDA \n \n \n \n \n 339.1 \n \n \n \n \n 330.7 \n \n \n \n \n \n \n Net debt to EBITDA \n \n \n \n \n 0.76 \n \n \n \n \n 1.13 \n \n \n \n \n \n \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 \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n \n \n Average gross debt (£m) \n \n \n \n \n 445.5 \n \n \n \n \n 388.4 \n \n \n \n \n \n \n Weighted average interest rate on gross debt \n \n \n \n \n 2.32% \n \n \n \n \n 2.86% \n \n \n \n \n \n \n Average cash balances (£m) \n \n \n \n \n 148.8 \n \n \n \n \n 88.3 \n \n \n \n \n \n \n Weighted average interest rate on cash \n \n \n \n \n 0.51% \n \n \n \n \n 0.63% \n \n \n \n \n \n \n Average net debt (£m) \n \n \n \n \n 296.7 \n \n \n \n \n 300.1 \n \n \n \n \n \n \n Weighted average interest rate on net debt \n \n \n \n \n 3.22% \n \n \n \n \n 3.52% \n \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n \n   \n \n \n Capital allocation and funding priorities \n \n \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 underpin this aim, 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 for digital growth and in new products, international expansion and the development of our people. \n \n \n   \n \n \n -  Value-enhancing acquisitions: We supplement organic growth with acquisitions in current and adjacent market niches. 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   \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. \n \n \n   \n \n \n Continued investment for organic growth \n \n \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% or more at 5.3% (2020: 5.4%). In absolute terms, this meant that R&D expenditure declined by 2.1%, in line with revenue, reflecting the caution and agility of our companies in the earlier stages of the COVID-19 pandemic. 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. In the 2021 financial year we capitalised £15.4m (2020: £15.6m), impaired £1.9m (2020: £5.2m) and amortised £7.9m (2020: £7.9m). The closing intangible asset carried on the Consolidated Balance Sheet, after a £2.0m loss (2020: £0.5m gain) relating to foreign exchange was £38.9m (2020: £36.1m). All R&D projects, and particularly those requiring capitalisation, are subject to rigorous review and approval processes. \n \n \n   \n \n \n Capital expenditure on property, plant, equipment and vehicles, computer software and other intangible assets was £26.4m (2020: £34.1m). The expenditure on fixed assets was lower than in the prior year, reflecting our actions to limit capital investment to essential projects and R&D due to the COVID-19 pandemic. We anticipate capital expenditure to increase to approximately £30m in the coming year, reflecting a level of catch up in deferred expenditure as a result of the actions taken this year and further investment across our sectors to support our future growth. This includes the start of construction of a new manufacturing facility for one of our largest companies, BEA, in Belgium, and other facility expansions. \n \n \n   \n \n \n We are also investing in automation and technology upgrades including the Group-level investment in enhanced security, improved data and analytics capability and investments to support our companies in upgrading their operating technology and creating new digital models in line with our Halma 4.0 growth strategy. We expect this investment to total approximately £12m in the financial year ending 31 March 2022, which we expect to be mostly operating expense although this will depend on the specifics of each project. \n \n \n   \n \n \n Lease right-of-use asset additions were £24.3m (2020: £21.9m). This included additions of £0.6m 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 Value-enhancing acquisitions and investments \n \n \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 one acquisition at a cost of £38.4m (net of cash acquired of £7.9m and including acquisition costs). In addition, we paid £10.4m in contingent consideration and other payments for acquisitions made in prior years, giving a total spend of £48.8m. We also divested Fiberguide Industries, Inc., for £26.1m, net of disposal costs. \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 2021 and in note 8 to the Financial Statements. Details of acquisitions made since the year end are contained in the Group Chief Executive's review. \n \n \n   \n \n \n The acquisitions completed in the current and prior year contributed to revenue in 2021 in line with expectations overall, albeit that individual company performances were affected by end market variations caused by the pandemic, and we expect a good performance from these acquisitions in the future. \n \n \n   \n \n \n Regular and increasing returns for shareholders \n \n \n   \n \n \n Adjusted earnings per share increased by 2.2% to 58.67p (2020: 57.39p) and statutory earnings per share, which included a gain on disposal of Fiberguide Industries, Inc., increased by 10.2% to 53.61p (2020: 48.66p). \n \n \n   \n \n \n The Board is recommending an 8.2% increase in the final dividend to 10.78p per share (2020: 9.96p per share), which together with the 6.87p per share interim dividend gives a total dividend per share of 17.65p (2020: 16.50p), up 7.0% in total. Dividend cover (the ratio of adjusted profit after tax to dividends paid and proposed) is 3.33 times (2020: 3.48 times). \n \n \n   \n \n \n The final dividend for 2021 is subject to approval by shareholders at the AGM on 22 July 2021 and, if approved, will be paid on 12 August 2021 to shareholders on the register at 9 July 2021. \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, the effects of the COVID-19 pandemic, the continued strong balance sheet and medium-term organic constant currency growth. \n \n \n   \n \n \n Substantial funding capacity and liquidity \n \n \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, strong cash generation, and substantial available liquidity. At the year end, our committed facilities totalled approximately £670m, based on exchange rates at that time, with the earliest maturity being in 2023. The financial covenants on these facilities remain for leverage (net debt/adjusted EBITDA on a pre-IFRS 16 basis) to not be more than three 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 2021, net debt was £256.2m, a combination of £325.3m of debt, £65.0m of IFRS 16 lease liabilities and £134.1m of cash held around the world to finance local operations. Net debt at 31 March 2020 was £375.3m. \n \n \n   \n \n \n The gearing ratio at the year end (net debt to EBITDA) was 0.76 times (2020: 1.13 times) on a post-IFRS 16 basis and 0.59 times (2020: 1.00 times) on a pre-IFRS 16 basis. Net debt (on a post-IFRS 16 basis) represented 3% (2020: 5%) of the Group's year-end market capitalisation. \n \n \n   \n \n \n Pensions update \n \n \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 deficit on our pension plans at 31 March 2021 based on the market value of assets at that date and the valuation of liabilities using year end AA corporate bond yields. \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. \n \n \n   \n \n \n On an IAS 19 basis the deficit on the Group's DB plans at the 2021 year end increased to £22.5m (2020: £5.2m) before the related deferred tax asset. The value of plan assets increased to £333.1m (2020: £298.8m). Plan liabilities increased to £355.6m (2020: £304.0m) due to movements in the discount rate and inflation rate. The discount rate decreased from 2.55% to 1.95%, as bond markets stabilised following the disruption at 31 March 2020 caused by the COVID-19 pandemic. The inflation rate increased from 2.5% to 3.2% reflecting economic conditions at the balance sheet date. \n \n \n   \n \n \n The plans' actuarial valuation reviews, rather than the accounting basis, determine any cash deficit payments by Halma. In 2021 these contributions amounted to £13.7m, consistent with our expectations, following a triennial actuarial valuation of the two UK pension plans in 2017/18, after which cash contributions increasing at 7% per annum aimed at eliminating the deficit were agreed with the trustees. In the unlikely event that these payments result in a surplus on winding up, the Group has an unconditional right to a refund under the plan rules. \n \n \n   \n \n \n New accounting standards and interpretations \n \n \n   \n \n \n The Group adopted new accounting standards and interpretations with effect from 1 April 2020 with no material impact on the Group's financial statements. After the year-end, the IFRS Interpretations Committee published a paper covering the finalisation of their agenda decision regarding configuration and customisation costs in Cloud Computing Arrangements (Software as a Service, 'SaaS') under IAS 38. This agenda decision offers clarification of the treatment of implementation costs which is relevant to the Group's ongoing technology investments and Company operational technology upgrades which are predominantly SaaS arrangements with third party implementation partners. \n \n \n   \n \n \n The Interpretations Committee paper clarifies that much of the implementation costs that previously may have been capitalised as intangible assets are now likely to be expensed against profit immediately for SaaS arrangements unless they meet the definition of separate intangible assets. Going forward this will result in an acceleration of costs recorded in the Income Statement in relation to these projects. There was no material financial impact in this or previous financial years, and we estimate an impact of up to £12m for the financial year ending 31 March 2022, with subsequent years' costs being lower where amortisation will not occur. The timing and quantum of cash outflows for these projects will be unchanged. \n \n \n   \n \n \n Conclusion \n \n \n   \n \n \n We delivered a robust financial performance, despite the challenges of the COVID-19 pandemic, delivering a record profit and strong cash flow, while increasing our investment in future growth opportunities and further strengthening our balance sheet. I am proud of the commitment shown by my colleagues in our finance and risk teams in helping our companies to respond to the opportunities and challenges in the year by ensuring that they had rapid access to actionable insights, and in maintaining high standards of control. I would like to thank all of them for their hard work in difficult circumstances. \n \n \n   \n \n \n Marc Ronchetti \n \n \n Chief Financial Officer \n \n \n   \n \n \n Process Safety Sector Review \n \n \n   \n \n \n Process Safety's technologies protect people and assets at work, across a range of critical industrial and logistics operations. \n \n \n   \n \n \n Sector overview and growth drivers \n \n \n   \n \n \n Process Safety has a key part to play in making critical industrial processes safer and cleaner. We provide innovative and increasingly digitally connected products to address our customers' needs around the \n \n \n world. The longer-term growth prospects for our Process Safety businesses are supported by increasing health and safety regulation and associated legal risks, higher environmental standards to address the \n \n \n challenges of climate change, the continuing move toward renewable energy sources and conserving scarce natural resources, and growing industrialisation and automation. \n \n \n   \n \n \n Our ability to find new applications in adjacent industrial markets is broadening the sector's growth opportunities, both organically and through acquisition. In Gas Detection, market growth over the longer term is being driven by ongoing industrialisation, increasing safety and environmental regulatory standards, greater demand for continuous monitoring of harmful substances to protect worker safety, and the accelerated use of wireless sensors and connected devices. \n \n \n   \n \n \n Increasing automation, higher electrical safety standards and the increasing need for remote safety monitoring are growth drivers for our Industrial Access Control, Pressure Management and Safe Storage and Transfer businesses which serve a diverse range of industrial end markets. The COVID-19 pandemic has also further accelerated the growth of e-commerce and therefore of the logistics sector which supports it; this offers opportunities to help our customers ensure safe working environments in these highly automated facilities. \n \n \n   \n \n \n Several of our businesses, notably in Pressure Management, operate in markets driven by the increasing need for energy and other critical resources. Global energy demand is estimated to have reduced by 4% in 2020 as a result of the COVID-19 pandemic, but is forecast to increase by 4.6% in 2021, and to continue to grow over the long term, with forecasts putting demand in 2050 at between 25% and 50% higher than current levels. Renewable energy is expected to account for an ever greater proportion of consumption, and in absolute terms to be at least three times greater in 2050 than currently. The drive towards net zero emissions offers our companies good opportunities for growth, both in helping our customers minimise their environmental impact, and as we repurpose our solutions to support more sustainable energy solutions. \n \n \n   \n \n \n Performance \n \n \n   \n \n \n It was a challenging year for Process Safety, with significant reductions in end-market demand resulting in declines in both revenue and profitability. There was a gradual improvement in trading as the year progressed but overall performance was affected by the lower oil price, which resulted in a fall in demand for higher margin safety products in the US onshore oil and gas-related businesses, by site access issues as a result of the pandemic, and a slowdown in new projects in Gas Detection. The sector's performance year-on-year also reflected a strong prior year comparative in Industrial Access Control (which included a large logistics contract), although this was partly offset by good demand in this segment from logistics and paper and packaging and electrical safety customers. The sector's companies continued to invest in new connected technologies and in diversification away from the oil market, which together with the development of products and services to help customers address increasing safety and environmental regulation, are expected to improve performance in the longer term. \n \n \n   \n \n \n Revenue was £188.8m (2020: £200.0m), 5.6% lower. This included a benefit from the acquisition in the prior year of Sensit Technologies, and revenue was 11.9% lower on an organic constant currency basis. Performance improved as the year progressed, resulting in a small decline in reported revenue in the second half and a moderate reduction on an organic constant currency basis. \n \n \n   \n \n \n Revenue trends on a regional basis reflected the trends in the underlying markets. Mainland Europe grew, benefiting from the fulfilment of significant Safe Storage and Transfer projects, some of which had been in the order book prior to the start of the financial year. However, revenue in the USA declined substantially on an organic constant currency basis, due to weakness in the onshore oil and gas market and the strong comparative in Industrial Access Control, although on a reported basis this was partly offset by a good contribution from the Sensit acquisition. The UK delivered a resilient performance, but a slowing of large project approvals affected Asia Pacific, particularly in the first half, and our businesses in the Middle East. Performance improved in each of the USA, the UK and Asia Pacific in the second half. \n \n \n   \n \n \n Profit was £36.6m (2020: £43.9m), representing a decline of 16.7%, or 21.5% on an organic constant currency basis. Gross margin was broadly stable, with favourable product mix in Gas Detection offsetting the effect of a decline in higher margin Pressure Management business. Return on Sales, however, decreased to 19.4% (2020: 21.9%), despite good overhead control, reflecting lower revenues from higher Return on Sales businesses in US onshore oil and gas and Industrial Access Control, one-off restructuring costs of £1.9m, and a £1.6m increase in R&D expenditure, to 4.8% of revenues (2020: 3.7%) as the sector continued to invest in opportunities for future growth such as connected safety monitoring solutions. \n \n \n   \n \n \n There were no acquisitions or disposals in the year, and the net impact of prior year acquisitions was a positive effect of 6.9% on revenue and 5.3% on profit. Currency exchange movements had a small negative effect, of 0.6% on revenue and 0.5% on profit. Since the year end one small bolt-on acquisition has been completed, with our industrial access control company, Fortress, buying the assets and IP associated with monitored safety valves from FluidSentry Pty Ltd in Australia for A$0.6m. This acquisition provides complementary products which ensure the safety of hydraulic and pneumatics systems whose usage is growing as automation increases. \n \n \n   \n \n \n Looking ahead we anticipate a recovery in the Process Safety end markets which, in addition to new product introductions, should return Process Safety to growth in the year ahead. \n \n \n   \n \n \n Infrastructure Safety Sector Review \n \n \n   \n \n \n Infrastructure Safety's technologies save lives, protect infrastructure and enable safe movement. \n \n \n   \n \n \n Sector overview and growth drivers \n \n \n   \n \n \n The Infrastructure Safety secto...

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