Halma plc

Morning and welcome to our half year results presentation. It's great to be here to present a really strong set of results. But before we dive into the numbers, I want to start today by recognising the incredible efforts of everyone at HALMA for both their individual and collective contributions to another set of record results. I'm extremely proud of your dedication and your ongoing commitment to making a positive impact on people's lives. It's this that drives our continued success. Thank you. Steve will provide more details on our financial performance shortly. However, in summary, really pleased to report record revenue and profit with a couple of milestones reach for this first half of the year. Revenue is above 1 billion pounds and EBIT is above 200 million pounds for the first time. And it's great to see that our reported performance is underpinned by a strong foundation of organic growth with double digit increases for both revenue and profit. Alongside this growth, we've continued to deliver strong margins, high returns and excellent cash generation. These enabling us to make substantial investments to support our future growth, both organically and through acquisitions, with M&A momentum continuing in the second half. This strong performance supports a 7% increase in the interim dividend, reflecting our continued confidence in our future prospects. These results further extend our track record of delivering strong and compounding revenue and profit growth. It's great to see the 10-year compound annual growth rates of both revenue and profit at 12% in excess of our KPI. And this through a volatile period for economic and geopolitical events. For example, the COVID pandemic, supply chain challenges and significant government and policy changes. Importantly, if we look over the longer term, our continued performance reflects the benefits we derive from our sustainable growth model and the importance of the long-term growth drivers that underpin growth in our diverse portfolio. All in all, a very successful and pleasing half for Halma. And our performance means that we're well positioned to make further progress this year and to deliver strong and sustainable growth and returns for decades to come. More on this in the second half of the presentation. But first, let me hand over to Steve for more details on our financial performance.

Thanks, Mark. Good morning. As you've already heard, we've delivered strong half one results, achieving record levels of revenue and profit and continuing our track record of strong compounding growth. I'm pleased to say we are well placed to deliver for the full year. Given the varied market conditions in our company's end markets and other headwinds such as FX and higher tax rates, results demonstrate once again the strength of the Halmer model. So let's take a look at the first half results. We've delivered strong growth at high returns. Revenue was over 1 billion for the first time and was up 13%. Adjusted EBIT is over 200 million for the first time, up by 17%, with the EBIT margin improving 70 basis points to 20.7%. Return on total invested capital, ROTIC, was 14.3%, up 110 basis points, driven by the strong level of constant currency profit growth. This is slightly ahead of our 10 year average first half RoTec and remains well above our weighted average cost of capital. In the first half, we've invested over 130 million pounds to support future growth. R&D spend was up 8% to 54 million, which represented 5% 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 for the future. And it's pleasing to see our companies remaining well invested. We've made four acquisitions in half one, one standalone and three bolt-ons and invested 84 million. As you'll hear from Mark, we've made two further bolt-on acquisitions since the end of September, and we've also just announced a standalone acquisition this week, so the total acquisition spend for the year to date is now at £158 million. Looking forward, the M&A pipeline remains healthy across all three sectors. It's also great to see the acquisitions we have recently made contributing more than 4% to EBIT growth in the first half. All of these investments are enabled by our strong cash generation and healthy balance sheet. So let's look at some of the metrics behind these. Cash conversion at 108% is strong and well above our target KPI. Thanks to this high cash generation, net debt to EBITDA at 1.27 has come down slightly from the year end. And this is after the continued substantial investment. Finally, our continued growth, high cash generation, and strong balance sheets support an interim dividend increase of 7%, once again signalling our confidence in the future. So let's have a look at revenue in more detail. This slide provides a bridge of the year-on-year revenue growth of 13%. Organic revenue growth was up 11.5%. So let's look at price and volume. Volumes delivered the vast majority of the growth, driven by continued underlying demand and supported by our order intake, which remains ahead of revenue and last year. Price increases provided 1-2% of this growth and was within our typical historical range and consistent with our previous guidance. These increases enabled the gross margin to remain high and stable, reflecting the ongoing value that our products provide. We expect the benefit of price increases to be at the lower end of our historical range in the second half. This is because we are cycling against significant price increases put through by many of our companies in the prior period. Next, acquisitions, including the likes of Tadan, MK Test and LaserSafe, made a contribution to revenue growth of 3.5%. There was one disposal, Hydrica, in May this year, and this made a negative contribution to revenue of 0.4%. Finally, there was a currency drag of 1.6% due to the strengthening of sterling. Based on latest currency rates, we expect a similar headwind in the second half. So let's look at revenue through a different lens. This slide analyzes the revenue growth by region. On the left-hand side, you have the reported revenue growth and on the right-hand side, you have organic constant currency growth, OCCY. It is good to see revenue growing in all regions on a reported basis and all regions with the exception of Europe on an OCCY basis. It's worth remembering that for us, the rate of growth in each region is mainly driven by the strength of demand in a particular niche market, as opposed to specific geographical factors. If we now focus on the chart on the right, that analyzes 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 exceptional growth in the optical analysis sub-sector. In Europe, revenue declined 1%, or a weak healthcare performance more than offset good growth in the other sectors. This was down to the weakness in eye health therapeutics, following a very strong performance over the previous two years. UK growth at 4% reflected a good performance in safety and E&A, partially offset by a decline in healthcare. Asia Pacific's revenue was up strongly, 11% higher than last year, reflecting strong growth in China, compared to weaker trends in the prior year. For context, China represents about 5% of group revenue. If we now move from revenue to profit, Adjusted EBIT was up 17.2% at the reported level and up 14.8% on an OCCY basis. This is an impressive level of growth, but it is cycling over a relatively soft prior year comparator. OCCY profit growth was ahead of revenue growth due to the good margin performance in both safety and E&A, partly offset by a decline in healthcare. I will take you through the individual sector commentaries in a few moments. Moving on to acquisitions, they made a good contribution to the half-year profit of 4.1%. This was a head of revenue contribution and reflects the quality of the businesses we have recently acquired. Disposals had a small positive impact of 0.2%, demonstrating our continued discipline in capital allocation as we continuously review the portfolio. As with revenue, there was a currency drag of 1.9% from the strengthening of sterling. Overall, it is pleasing that our performance resulted in an EBIT margin increase of 70 basis points to 20.7%. This is towards the top end of what we have historically achieved in the first half of the year. This positions us well to deliver our margin guidance for the full year. Let's now move on to the sector commentaries. I'll start with the safety sector. The safety sector building off a strong FY24 delivered an excellent performance in the half, revenue up 11% and profit up 20%. This performance was broad-based with positive revenue growth across all regions and sub-sectors. On an OCCY basis, revenue grew at 10%. This reflected double-digit growth in the US and Asia Pacific with growth broadly spread across the sub-sectors. It also reflected good growth in the UK and other regions, while Europe's growth of 4% was more modest. Growth in the UK, other regions and Europe primarily reflected a positive performance in the fire safety subsector. In Europe, this was partly offset by weaker trends in worker safety. Profit was up 20% on a reported basis and up 18% on an OCCY basis, and it was up across all sub-sectors. I was particularly pleased to see safety's profit margin expand by 190 basis points. This is a continued margin improvement well beyond the recovery from the supply chain challenges of two years ago. The margin benefited from stronger sales growth, more favorable product mix, and good discipline on costs. It also included a good contribution from recent acquisitions, including LaserSafe, MKTest, and AMPAC's recent bolt-on global fire equipment. Finally, it was great to see the companies within the sector increased investment to support their future growth, with R&D as a percentage of revenue increasing to 5.7%. Turning now to the environmental and analysis sector. The E&A sector saw very strong reported and OCCY revenue growth, both at 27%. In addition, all regions grew revenue. If we take a look at the detail by the regions on an OCCY basis. The main takeaway is that there was very strong growth in the US. This was primarily driven by photonics in the optical analysis subsector, reflecting growth in demand for technologies that support the transformation of data and digital capabilities. In particular, the continued successful execution for a longstanding customer. Revenue in photonics in half one was, as expected, similar to the second half of last year. It is expected to remain at a similar level in half two. Europe and the UK both grew well, driven by leak detection solutions within the water analysis and treatment subsector. And in the UK, a good performance in gas detection within environmental monitoring. Asia-Pac saw good growth. This mainly reflected an improved performance in spectroscopy in China, which is seeing slightly firmer trends in selected end markets, including biopharma and solutions for OEM customers. In terms of profitability, profit increased by 36% on an OCCY basis, and the profit margin saw some recovery versus last year, improving 190 basis points to 22.8%. The increase reflected the benefit of growth in all sub-sectors except water analysis and treatment. This also included some recovery in higher margin spectroscopy, which had a tough first half last year. The sector continued to invest at a good level, with R&D increasing 9% to 14 million. The lower R&D spend as a percentage of revenue reflected a mixed effect from the recent growth in photonics, which has a lower R&D requirement. There was also a good contribution from recent acquisitions, including bolt-ons for Minicam and Alicat Scientific. Now let's turn to the healthcare sector. The healthcare sector delivered a subdued performance with the reported revenue growth of 1%, but a decline of 2.5% on an OCCY basis. By geography, the US, Asia Pacific and other regions all grew, but Europe and the UK declined. If we take a look at the detail by region on an OCCY basis. There was a modest growth in the US, reflecting early signs of healthcare markets improving. In Europe, revenue declined with a key driver being weakness in the iHealth therapeutics within the therapeutic solution subsector. This compares to a very strong performance over the past two years in iHealth and reflects delays to OEM customer product launches and destocking. In the UK, revenue was lower, reflecting budgetary caution by healthcare providers. Asia Pacific revenue grew modestly. This principally reflects a gradual return of demand in life sciences in China. In terms of profitability, the profit margin decreased 260 basis points to 20.8% against a strong comparator in the first half of last year. It was good to see the gross margin stronger as a sign of the value in use of our products to our customers. But this was more than offset by the effect of the revenue decline in higher margin eye health therapeutics. R&D spend remained at a good level and there was good contributions from acquisitions. It's great to see continued momentum with the acquisition of Lamadie Noorie announced this week. If we now turn to our cash flow performance. This chart summarises the group's cash flows for the first half. I'll pick out just three items, working capital, acquisitions and pensions. I'm really pleased to see how our focus on working capital across the group is bearing fruit. This resulted in an actual working capital inflow despite the strong growth in the half. This is also the driver behind our strong cash conversion of 108%, well ahead of our 90% KPI target. The net acquisition spend mainly reflects the four acquisitions and one disposal made in the period. Just as we've seen in this half year, these acquisitions will become a source of incremental EBITDA in future periods. Finally, pensions. While not a substantial item for us, it is worth noting that in September we purchased buy-in policies for the Group's two main defined benefit schemes. This has no P&L or cash flow impact and has the benefit of reducing the principal risks associated with the two schemes. Now let's turn to our financial KPIs and how we've performed against them. Across the board, these are a strong set of results. This is especially true given the varied market conditions our companies are seeing in their end markets. We have met or exceeded all of our financial KPIs. In short, we've seen strong growth at high margins. A good profit contribution from recent acquisitions. Our profit growth resulting in a strong EPS performance despite adverse FX and tax movements. Cash conversion well over 100%. our companies remaining well invested, and return on total invested capital at 14.3%, significantly up from last year and well above our weighted average cost of capital. These high returns and strong growth coupled with a disciplined risk appetite mean the group continues to create significant value for shareholders. Moving on to my last slide, which is on guidance. The strength of our first half performance means we are well placed to deliver our existing guidance for FY25. While we continue to experience varied conditions in our individual companies and markets, for the year as a whole we expect to deliver good OCCY revenue growth and an adjusted EBIT margin of around 21% in the middle of our target range. This is additionally supported by our group order intake, which remains ahead of both revenue in the year to date and the comparable period last year. Overall, we are well positioned to make further progress in the remainder of the year. And with this, I'll now hand you back to Mark.

Thanks, Steve. Fantastic to see the excellent performance against our KPIs in the first half. A strong set of results driven by the disciplined execution of our sustainable growth model. In this part of the presentation, I'll highlight three aspects of our model that were key to our success in the first half and which will support Haumer's delivery of compounding growth and high returns over the long term. First is a deep understanding our companies have of their markets. This allows them to identify our customers' biggest challenges and innovate to solve them. To bring that to life, I'll focus on the positive impact that these solutions have on people's lives. And it's this impact, inspired by our purpose, which we're constantly looking to grow. It's both a significant motivator for our people and an underpinning for our financial performance. The second is the substantial benefits that come from our diverse portfolio of businesses. A portfolio that not only gives us fantastic growth opportunities, but also resilience to changes in individual markets. And as you'll hear, the acquisitions we've made so far this year have reinforced those benefits. And third, talent and culture, which are crucial to our performance. Our devolved and autonomous model relies on having talented people close to their customers, focused on delivering in their markets. So it's critical that we recruit, develop and retain the very best people. And we also know that there's huge benefits from collaboration and learning across our companies. So three elements, all of which important to our growth. Really understanding our markets, having a great diverse portfolio of companies and a fantastic team working together.