Halma plc

Good morning and welcome to our full year 24 results presentation. It's great to be here to present another strong set of results. Before we turn to the detail of the numbers, I'd like to take this opportunity to thank everyone at Halma for their personal contributions to our record performance in the year. The commitment to delivering our purpose, and the success that we've achieved in varied market conditions is something we should all be proud of. Thank you. It's turning now to the highlights of the year. These record results have further strengthened our foundations and increased my confidence in our future growth. We've reported record revenue and our 21st consecutive year of record profit. We've delivered healthy revenue and profit growth, both on a reported and organic basis. Our EBIT margin and our return on sales were well within our target ranges. We've continued to deliver high returns, substantially above our cost of capital. And this, alongside our strong cash generation, which was well ahead of our KPI, has enabled us to make substantial investments to support our future growth. This of financial performance that supports a further dividend increase, making this the 45th consecutive year of dividend growth of 5% or more. All in all, a great demonstration of our sustainable growth model in action. Steve will give you more detail and insight on our financial results in a moment, And after that, I'll come back to share my reflections on my first full year as CEO. And I'll look at the elements within our model that have both enabled this strong performance and more importantly, give me confidence that we'll continue to deliver long-term sustainable growth. With that, over to Steve.

Thanks, Mark. Good morning. As you've already heard, we have delivered a strong financial performance, achieving record levels of revenue and profit. Given the varied market conditions we've seen in the year and other headwinds such as FX and both higher interest rates and tax rates, the results demonstrate the benefit of our sustainable growth model. In particular, the benefits of diversity and breadth of our portfolio and the agility our operating companies have to act and react. Importantly, the results have enabled us to continue to make substantial investments to support future growth whilst maintaining a strong balance sheet. So let's take a look at the results. I'm pleased that we've delivered good growth and returns. Revenue is up over 2 billion for the first time, up a healthy 10%. Adjusted EBIT is up 12%, an EBIT margin at 20.8, around the middle of our target range of 19 to 23. Given the increased interest costs from higher interest rates and higher average net debt in the year, the adjusted profit before tax is up 10%, resulting in a return on sales of 19.5%, flat compared to the prior year. This is the first full year of substantially higher interest rates, and it remains our objective to absorb these higher costs in the medium term. We continue to invest strongly to support future growth. R&D spend reached 107 million, which represented 5.3% of group revenue. This investment is critical for our companies to continue growing over the medium term. It's also a good reflection of the opportunities our companies see before them. We made eight acquisitions in the year, four standalone and four bolt-on, and invested nearly £300 million, hence maintaining the momentum following the record investment last year. Mark will take you through the eight acquisitions later in the presentation. As we look forward, the M&A pipeline remains healthy across all three sectors. It's also great to see that the acquisitions are contributing 5% or more to both revenue and profit growth. All of these investments are enabled by our strong cash generation and balance sheet. So let's take a look at some of the metrics behind these. Cash conversion at 103% is well above our target level of 90%. This was achieved through good underlying working capital control. Net debt to EBITDA at 1.35 has come down very slightly despite the substantial investment in the year. Finally, we are proposing to increase the dividend by 7% again. This will be the 45th consecutive year we have increased it 5% or more. Once again, signalling our confidence in the future. So now let's look at revenue in more detail. This slide provides a bridge of the year-on-year revenue growth of 9.8%. Looking at the individual components, organic constant currency OCCY revenue growth was up 7.9%. If we look at price and volume in turn, price increases provided around 3% of the revenue growth. This is above the upper end of our typical range of 1% to 2%. The price causal was higher in healthcare and also in safety where we saw annualized benefits of some of the higher price increases from the prior year. Volume increases at around 5% were within the historic range, driven by continuing underlying demand and supported by our order intake, which remains ahead of last year. Acquisitions made a good contribution to revenue growth of 5%. As we look ahead, it's worth noting that based on latest currency rates, we'd expect an FX headwind of about 1% in FY25. Now if we look at revenue through a different lens. Regional destination. This slide shows revenue growth by region. On the left-hand side, you have reported revenue growth, and on the right-hand side, you have OCCY growth. It's good to see revenue growing in all regions with the exception of Asia Pacific. If we now focus on the chart on the right that analyzes the OCCY growth. We saw very strong growth in the US, our largest sales region. The key driver was the environmental and analysis sector, E&A, with the exceptional growth in photonics. The growth in the US was also supported by the good performance of the safety sector. Growth in Europe and the UK was solid, reflecting the mix of company performances. In Europe, the key driver was the healthcare sector, with very strong growth in eye health therapeutics. This was also supported by a good performance in the E&A sector, led by strong growth in the water analysis and treatment sub-sector. Growth in the UK was also driven by the water subsector. In addition, in FY23, a larger public safety contract was successfully completed in the UK. Underlying growth excluding that contract was over 8%. Asia Pacific's revenue was 3% lower, reflecting weaker trends in China, partially offset by stronger growth in Australasia. For context, China represents about 5% of group revenue. If we now move from revenue to profit, This slide shows the year-on-year EBIT bridge. EBIT was above 400 million for the first time, up a healthy 12.1% at the reported level and 7.2% on an OCCY basis. This was broadly in line with the OCCY revenue growth, with good margin recovery and safety, which was offset by margin declines in the other two sectors. I will take you through the individual sector movements in a few moments. Moving on to acquisitions, they made a good contribution to EBIT at 7.6%. This reflects the quality of the businesses we have recently acquired. Disposals had a small positive impact of 0.2%. Since the year end, we have made a further disposal, demonstrating we are continuously reviewing and refining our business portfolio. As with revenue, there was a currency drag of nearly 3% from the strength of sterling. Overall, it is pleasing that our performance resulted in an EBIT margin of 20.8%, which is in the middle of our target range. Let's now move on to the sector commentaries, and I'll start with safety. The safety sector was a star performer in the year. We had guided that it would recover from a challenging FY23, and it more than met that expectation. Revenue growth was strong at 11% and positive across all regions. It also included a good contribution from acquisitions. Europe, safety's largest region, benefited in particular from the acquisition of VTech, which was completed last year, and the acquisition of LaserSafe, which we completed this year. The good OCCY revenue growth of 6% was also broadly spread across the regions and subsectors and was supported by a healthy order book. The US saw good growth with a strong contribution from worker safety. Europe and the UK saw modest growth, reflecting a mixed performance in public safety. There was a strong contribution from Asia-Pacific, which reflected a steady recovery in China following the post-COVID slowdown, and also strong growth in Australasia. And finally, there was a strong contribution from the smaller other regions, due primarily to fire safety subsector. I was particularly pleased to see safety's profit margin improve 280 basis points. This was ahead of our expectation with an exceptionally strong performance in the second half. Hence more than recovering the 230 basis points reduction experienced in FY23 as a result of supply chain challenges. The sector benefited from good pricing with relatively stable costs compared to previous years. It was further supported by portfolio improvements, including the completion of a significant ERP upgrade in one of the sector's largest companies. The companies within the sector remained well invested to support their future growth. Turning now to the environmental and analysis sector. E&A saw very strong reported and OCCY revenue growth of 19% and 21% respectively. If we take a look at it by region, there was a very strong growth in the US. This was dominated by the exceptional growth in photonics in the optical analysis subsector. This business is experiencing an acceleration of demand for technologies that support the transformation of digital and data capabilities. It was also supported by international expansion in our water infrastructure companies within the water analysis and treatment subsector. Strong photonics performance was partly offset by substantial revenue declines in our high margin spectroscopy businesses, as we talked about at the half year. UK growth was strong with continued growth in our water infrastructure companies and strong demand in gas detection. And Europe saw good overall growth with, again, strong demand in gas detection. Asia Pacific was down 19% on an OCCY basis, reflecting weakness in spectroscopy and lower demand in the flow and pressure control market in India and China. In terms of profitability, the profit margin declined 180 basis points. This largely reflected the significant revenue decline in the higher margin spectroscopy businesses, particularly in the first half. At the half year, we said we expected to see a significant improvement in the sector's profit margin. And that is exactly what we delivered in the second half. The profit margin improved from 20.9% in the first half to a more typical level of 23.7% in the second half. This improvement was due to continued momentum in photonics and the water subsector. In addition, spectroscopy benefited from the actions taken on the cost base and the stabilization of the IT system implementation. The E&A sector continued to invest at a good level with low on R&D spend as a percentage of revenue resulting from a mixed effect. We also saw good momentum in converting the M&A pipeline with four acquisitions in the year. So let's turn to the healthcare sector. Overall, the healthcare sector delivered a subdued performance with a modest decline in revenue. There was a good contribution from acquisitions. It's also great to see continued momentum with three acquisitions completed in the year. Reported revenue was down 1% and OCCY revenue down 3%. By geography, all regions declined except for Europe, which saw strong growth on a reported and OCCY basis. Overall, this reflected a diverse range of performances at the sub-sector level. Most of our companies in healthcare assessment and analytics experienced soft demand, which reflected a combination of OEM destocking and budgetary headwinds. Within the sub-sector, however, analytics and sensors performed well due to high patient caseloads and demands from healthcare providers for systems to improve efficiency and patient outcomes. Our smaller life sciences subsector experienced a significant slowdown reflecting these headwinds. However, our therapeutic solutions subsector continued to benefit from strong growth in cataract and glycoma procedures. This is the key driver for the strong revenue growth in Europe. In terms of profitability, profit margin decreased 70 basis points to 22.7%. This reflected the impact from the weakness in volumes, partially offset by good management of pricing and cost disciplines across the sector. R&D spend increased and reflected good investment in new product development. And I'm pleased to see continued high levels of investment in R&D to support our medium-term growth. If we now turn to the group's cash flow performance. This chart summarizes the group's cash flows for the year. I'll point out four key items. The strong EBITDA generation of 483 million, up 12%, typical for the group and an important part of our sustainable growth model. The working capital outflow was much improved as expected. We are starting to see companies moderating inventories following the strategic buildup in prior years. In fact, stock turnover improved by nearly one whole turn in the year. This aided cash conversion, which was strong at 103% and well ahead of our 90% KPI target. The net acquisition spend reflects the eight acquisitions and the one disposal we made in the period. These acquisitions will become a source of incremental EBITDA in future years. Interest costs increased 10.7 million to 27.6 million in the year. This was a result of both higher interest rates and higher average levels of net debt. Net debt only increased by 56 million despite the strong year for M&A, continued investment in our businesses and the higher interest costs. As we look forward, we continue to have substantial available liquidity. We have very recently extended the maturity of the Group RCF to May 2029. In addition, in April we completed a £336 million private placement debt issuance at competitive interest rates. This placement secures financing to meet the Group's likely medium-term requirements. Finally, it is worth mentioning that you can find the usual slide in the appendix with our expectations for FY25 in relation to capex, the effective tax rate, and interest costs. Now let's turn to our financial KPIs and how we performed against them. In my opinion, these are a strong set of results, especially when I consider the varied market conditions and the other headwinds we have faced in the year. Those other headwinds include higher interest and tax rates and adverse FX movements. In terms of the specific KPIs, I'll limit myself to a few points, as I've already touched on a number of these. It's pleasing to see good performance on the three revenue and profit growth KPIs. Turning to EPS and ROTIC, both were impacted by the higher interest and tax rates and adverse FX movements. EPS growth of 7.9% was respectable, but below our 10% KPI. If those three factors just mentioned had been flat, the EPS growth would have been five point higher at about 13% this year. ROTIC at 14.4% remained high and well above our weighted average cost of capital and within our KPI range too. This level of return coupled with the strong growth in the year means the group created significant value in FY24. Compared to last year, our underlying ROTIC performance improved by about 40 basis points. However, this was more than offset by the adverse effects from currency, interest and tax movements. Moving on now to my penultimate slide. These graphs show the 10-year performance of the group at the reported revenue and adjusted EBIT level. For me, the consistency of performance demonstrates the effectiveness of our sustainable growth model. This includes benefits such as the intentional diversity and breadth of our portfolio and the agility our businesses enjoy to act and react to whatever is in front of them. That said, as a team, we're continually looking to evolve and progress the business. And two areas of focus this year have been, firstly, capital returns. We have sought to sharpen our focus throughout the group. This is partly due to the higher interest rate environment. This focus has included, amongst other things, ongoing review of the portfolio, looking at the working capital and cash management procedures, reviewing the relevant internal reporting and metrics, and seeking to optimize interest costs. This work is ongoing. Secondly, metrics and KPIs. We've evolved our metrics and KPIs to better reflect our strategy, the new environment, and also aid comparison with our peers. For example, at the half year, we began giving prominence to EBIT, an EBIT margin, and pre-interest growth measures. This has further progressed at the full year. Now to my last slide, which is on guidance. Building on our performance in FY24 and in respect of FY25, we are providing the following guidance. Firstly, we've made a positive start to the new financial year. Our order intake in the year to date is ahead of both revenue and the same period last year. For FY25, we expect to deliver good OCCY revenue growth and with an adjusted EBIT margin of around 21% in the middle of our target range. Finally, we remain well positioned to make further progress this year and into the future. And with that, I'll hand you back to Mark.

Thanks, Steve. So to start this section of the presentation, let me remind you of the four priorities that I set 12 months ago, against which I'm pleased to report that we've made good progress. Organic growth was above our medium-term trend. In terms of inorganic growth, we had another successful year for acquisitions. And as you heard from Steve, returns remained strong and well above our cost of capital. And our continued agility was a key asset in delivering our strong performance, a point that I'll come back to shortly. These priorities will remain for FY25 and their delivery will be underpinned by our sustainable growth model that ensure that we will remain focused on capturing the significant growth opportunities in our markets. Let me now take a step back and share the key elements which I believe have driven our success in the last year. starting with our relentless focus on providing value-added solutions to critical customer issues.