Halma plc

Good morning and welcome to our full year 25 results presentation. It's great to be here to present a really strong set of results. In fact, overall, I'd say some of the best results that I've seen in my nine years here at Halma. These are results which clearly demonstrate both the benefits of our sustainable growth model and the value of having exceptional talent and teams across the group. And I'd like to start today by thanking everyone at HALMA for their continued commitment to delivering our purpose and their contributions to our success over the last year. Something we should all be extremely proud of. I'd also like to take this opportunity to introduce Carol, who joined as our CFO at the beginning of April. And it's been great to work with Carol over the last nine years in her role as a non-executive director on our board. And it's absolutely fantastic that she's now part of my leadership team. And I know that we'll all see the benefit of her significant experience as a finance leader and her passion for Halma's purpose and culture as we work together to deliver Halma's growth strategy. In a few moments Carol will give you some more insight into our financial performance in the last year, but first let me start with some of the highlights. As I say, it's great to report another set of strong results with record revenue and profit. This now being our 22nd consecutive year of profit growth. And I'm really pleased to see that these results are underpinned by strong organic growth above our long-term average. We've also delivered increases to our margins and to returns on capital with both metrics now at the upper part of our target ranges. And once again, cash generation has been excellent, well above our KPI, enabling us to make continued substantial investments to support our future growth. And delivery of this financial performance in varied and fast-changing market conditions further increases my confidence in our ability to continue to deliver strong and compounding growth and returns. And it's also a financial performance that supports a further dividend increase, making this the 46th consecutive year of dividend growth of 5% or more. I'll share my thoughts on how we've delivered these excellent results later. However, before that, let me hand over to Carol for some more insights into our performance in the year.

Thank you very much, Mark. Good morning, everyone. I'm really pleased to be here today to present my first set of results as Halma's CFO. I'm now a couple of months into my new role after a successful handover period with Steve. This is the ideal opportunity to get out into the business and to spend time with my new colleagues. The last nine years as a non-exec mean that I have an understanding of the sustainable growth model and the companies, people and culture that have delivered many years of success, with revenues growing from 700 million to 2.2 billion over that time. Five months spending time with my colleagues and visiting 11 of the companies have given me a fresh perspective. I'm looking forward to more trips planned in the summer and later this year. Two things have particularly struck me. One, the talent of our people and the inspiration and drive they get from our collective purpose. And two, that our people are passionate about what they do and solving problems for their customers. Today's results continue our track record of delivering long-term compounding growth and strong returns. So let's look at the results in more detail. I'm pleased that we've delivered strong growth and increased our already strong margins and returns, with revenue up 11% and EBIT up 15%. EBIT margin up 80 basis points to 21.6% and ROTIC up 60 basis points to 15%. Our strong growth and returns have enabled us to continue to invest for the long term. Our companies are well invested, £108 million in R&D, which is 4.8% of group revenues. We made seven acquisitions during the year, two standalones and five bolt-ons with a consideration of £157 million. Acquisitions made in the year represented 3.5% of profit. This follows on from the eight businesses we acquired last year. We have a healthy pipeline across all three sectors and we will continue to maintain our discipline in inquiring only the best businesses. Our strong growth and high returns are demonstrated by the strength of our cash conversion and balance sheet. This means we have the funding for future investment and growth. So let's look at the metrics. It's fantastic to see our cash conversion at 112% and well ahead of our target of 90%. Even with combined investment of more than £300 million in the year, our cash generative model means that our leverage reduced to just under one. This gives us the firepower and flexibility to deliver on our M&A strategy. Finally, as you heard from Mark, this supports a dividend increase of 7%. Now let's look at our revenue growth in more detail. This slide bridges the year-on-year revenue growth of 10.5%. Organic growth was strong at 9.4%, and as Mark said, ahead of our long-term trend. This reflected good growth across safety and E&A and includes a level of premium growth from photonics. The majority of the growth was volume driven with a typical price increase of 1-2%. Acquisitions including the most recent standalones MK-Test and Lama de Nure contributed to revenue growth of 3.1%. This was partially offset by the Hydreca disposal completed in the first half of the year. Finally, there was a translational currency headwind of 1.6% due to the strengthening of sterling primarily against the US dollar. It's worth noting that based on latest currency rates, we expect a headwind of around 4% in FY26. Let's now move from revenue to profit and margins. EBIT was up 14.7% on a reported basis and a healthy 12.6% on an organic basis. This was ahead of revenue growth and reflects good operational delivery and mix, with margin expansion across all three sectors, which I'll come back to. Acquisitions contributed 4.1%, ahead of the revenue contribution, reflecting the quality of the businesses that we have acquired. the currency headwind was 1.9%. Overall, it was good to see the EBIT margin increase 80 basis points to 21.6%, which is modestly above the middle of our target range of 19 to 23%. Moving on to the sector commentaries. It is worth remembering that when we look at the sectors while we show revenue by destination, the rate of growth in each region is driven by the strength of demand in a particular company as opposed to the geography. I'll start with the safety sector. The safety sector delivered another strong performance, building on the momentum of an excellent year in 2024 and good that it was broad based. Revenue and profit grew across all subsectors. On an organic basis, revenue grew 8%. The sector delivered a double digit increase in profit, up 14% on a reported basis and 12% organically. The margin increased 90 basis points to 24.2%, which is around our historic highs for the sector. The performance was driven by strong revenue growth, favourable product and portfolio mix and good operational delivery. Our safety companies are well invested to support their future growth, with R&D spend increasing to 5.6% of revenue. Finally, there was a solid contribution from acquisitions of 3.9%. Turning next to the environmental and analysis sector. Fantastic to see the sector delivering strong revenue growth with reported growth of 18% and organic growth of 19%, which included very strong growth in the optical analysis sub-sector. The main driver for this was exceptional growth in photonics. which continued to benefit from increased customer demand for digital and data capabilities. Mark will come back to this later in the presentation. Growth in this subsector was also supported by recovery in a number of spectroscopy markets. The exceptional growth in photonics and recovery in spectroscopy are reflected in the very strong growth in the USA. While this recovery is also coming through strongly in Asia Pacific. The environmental monitoring sub sector also grew well. This reflected a strong performance in gas detection and analysis, which you can also see coming through in the US, US and Asia Pacific numbers. The water analysis and treatment sub sector had a mixed performance. We saw modest growth in water testing and disinfection, but this was more than offset by a decline in water infrastructure. Our companies experienced a slow start to utility companies' capital projects at the beginning of the UK AMP cycle. Profit increased by 26% on an organic basis. The profit margin was up 140 basis points to 23.9%. and was driven by the recovery in higher margin spectroscopy, good cost discipline and leveraging the top line growth. At the same time, it was pleasing to see continuing investment. R&D was up 4%, noting that R&D as a percentage of revenue is lower than for the other sectors, with the growth in photonics having a lower R&D intensity. And finally, there was a solid contribution from acquisitions, partially offset by the disposal of Hydreca. Now let's turn to the healthcare sector. The healthcare sector delivered a resilient performance given the subdued backdrop. That said, it was good to see a substantial improvement as the year progressed. All three subsectors delivered organic revenue and profit growth in the second half of the year. This reinforcing our confidence in our healthcare end markets and the long-term trends that support their growth. By sub-sector, there was modest revenue growth in healthcare assessment and analytics and improved momentum in half two. Performance in therapeutic solutions was mixed, however, also improving in half two. There was strong growth in several of our surgical and respiratory devices companies. This was offset by a decline in eye health therapeutics in Europe, coming off of two years of very strong growth. Life Sciences delivered good growth following a significant slowdown in the prior year. Profit was 4% higher on a reported basis and marginally up on an organic basis. This reflected a decline in half one with strong recovery in half two, coming through operating leverage from improved revenue growth. The margin increased 20 basis points in the year to 22.9%. Our healthcare companies are well invested with R&D at 5.2% of sales. Finally, there was a good contribution from acquisitions reflecting the quality of businesses we recently acquired. I'll now talk about the strength of our cash flows and balance sheet and how we've allocated capital during the year. The cash generative nature of our companies is represented by the dark green bar. with strong organic growth, self-funding more than £300 million of investment that I mentioned for future growth. Within this, it's also great to see the impact of strong working capital management from our companies, with inventory returned to pre-COVID levels. And as always, we have the flexibility to support our companies to invest in working capital where it makes strategic sense to do so. Simply put, our capital allocation priorities are, firstly, organic investment to support our long-term growth, represented here by the organic investments through R&D and CapEx of £154 million. Second, continued value enhancing acquisitions, which as you can see through our net acquisition spend of £162 million. And finally, a progressive return to shareholders through the dividend with £84 million returned this year. Our continued balance sheet strength gives us the flexibility and firepower to support our healthy pipeline. Now let's turn to our financial KPIs and how we performed against them. This is a really strong set of results across the board and credit to everyone in Halma for delivering this. We are well within range or have exceeded all our KPI targets except one. We delivered strong growth and increase our already strong EBIT margins. This while we continued to invest for sustainable long-term growth, both organically and through acquisitions. While the in-year spend was below our KPI this year at 3.5%, over the last five years, our acquisition profit KPI has averaged 6% above our 5% target. This reflecting the timing and nature of the acquisitions we make. Cash conversion was very strong and well ahead of our KPI target, noting that with the unwind of inventory to more normal levels, we would expect cash conversion to be more in line with our target of 90% going forward. Fantastic to see ROTIC improving to 15% now in the upper half of our target range, reflecting strong revenue growth and margin progression. Our performance across our KPI shows that we continue to create significant value for our shareholders. Turning to my next slide, which I think speaks for itself. The consistency of growth we have delivered over the last 10 years at the revenue and EBIT level, both compounding at 12%. A performance that we have delivered through economic cycles and the global events of our time. Our track record demonstrates the benefits of the diversity and agility that we derive from our sustainable growth model and reinforces our confidence to continue to deliver strong growth and returns. Moving now to my last slide, which is on guidance for FY26. We've made a positive start to 2026 financial year with a strong order book and the order intake ahead of revenue and last year. While the geopolitical and economic environment remain uncertain, we currently expect to deliver upper single digit percentage organic revenue growth in this financial year. This includes a premium from further very strong growth in photonics within the environmental and analysis sector. Adjusted EBIT margin is expected to be modestly above the middle of our target range of 19% to 23%. I will now hand you back to Mark.

Thanks, Carol. And great to see that growth in revenue and profit further extending our strong track record of compounding growth and returns. This time last year, I spoke about how our growth over the last 50 years has been underpinned by the principles which form our sustainable growth model. This is a model that's been tested and proven to be resilient, and whilst it continues to evolve, the fundamentals have remained. The continuous interaction of the elements you see on this slide have been critical in enabling our performance over many years, including the strong growth and returns in the last year that Carol's just described. Our model also underpins my belief that we can continue to generate strong growth, high margins and returns well above our cost of capital for decades to come. Today, I'm going to take a closer look at three critical aspects of the model. What makes a great Halmer company and a great Halmer leader? How are companies benefit from being a part of Halmer? And finally, how our organisational design enables our companies to maintain close relationships with their customers, which in turn informs the many opportunities they see to provide innovative solutions to their critical needs. So let's look first at the qualities of a Houma company and a Houma leader, two fundamentals of our model. And unsurprisingly, There's a high level of overlap between the two. For both our companies and leaders, alignment with our purpose and cultural fit are critical. We want our companies and our people to be ambitious, entrepreneurial, and focused on creating opportunities to grow our positive impact. We want them to do that by leveraging the power of networks and teams in their companies and across Halmar. For both our companies and for our leaders, agility is key. We want to be able to respond with pace to opportunities and to challenges in each of our markets. And this is why we focus on niche products in markets where growth is supported by long-term growth drivers. These are markets where our leaders can be close to their customers and understand their challenges. And as part of our organisational model, we give our leaders the autonomy to react rapidly to provide high value, critical solutions to complex problems. And in turn, this means our leaders need to be diverse thinkers, intellectually capable and inquisitive, entrepreneurial and agile in their thinking. They also need to be comfortable with the accountability that comes with their autonomy. And at the same time, we want them to harness the power of teams and networks to create ever better solutions for our customers, requiring our leaders to have a low ego and be willing to celebrate success through others. so how does this work in practice when we're selecting the companies that we wish to buy these are the acquisitions that we made in 2025 all acquisitions which have increased the diversity of our portfolio further broadening our market presence across all three of our sectors as i look forward i'm confident in further progress in 2026 We've got a healthy pipeline of potential acquisitions, and we've made further investments in our M&A capabilities, adding further skilled resources in our sector and dedicated M&A teams. And it's been great to see a really high level of activity in these teams alongside our continued discipline in selecting only companies that fit with Halma. Let me try and bring this approach to life by looking at one of this year's acquisitions, MK Test Systems. Ensuring the safety of workers and critical assets has always been a focus for Halma. It was one of the first markets that we entered back in 1971 through the purchase of Castell, which is now part of Centric. And over the years, this is broadened to include solutions for new end markets, examples including renewable energy installations and data centres. With our knowledge of safety needs in manufacturing and transportation, we identified a further market niche in testing the integrity and safety of electrical systems. And this led us to the acquisition of VTEC in Germany in 2022. And then in May last year to MK Test. So why did we choose MK Test? First, it's strongly aligned to our purpose, not only to safety, but also it offers opportunities to support electrification as part of green energy use. Second, we see a very strong long term drivers underpinning its growth. electrical systems are getting ever more complex and more hazardous with increasing use of high voltage. And as a result, regulation is increasing to protect workers and users. And in turn, that means that manufacturers have a greater need to automate electrical testing to fulfill regulatory requirements more efficiently. In an MK test, we saw a company that had that specialist technology to help its customers. It also had strong customer relationships with companies such as Airbus and Daimler Truck, resulting in a deep understanding of their developing needs. And really importantly, we also saw that MK Test has an entrepreneurial culture with an ambitious and growth-focused leadership team that would fit well within Hauma. And all of these elements giving us the confidence that MK Test can continue to deliver strong and superior growth, margins and returns for many years to come. So why would a successful business such as MK Test want to join us here at Halma? Simply put, I believe it's because we can offer them what I see is the best of both worlds. The advantages of retaining their entrepreneurial agility while being part of a large FTSE 100 global group. Our model helps them to overcome the barriers to growth that many SMEs experience, how to attract and retain the best talent, how to internationalize their business, how to grow through M&A, and how to leverage the best technology, including in AI and cybersecurity. In addition, and for me of real value, It gives them the opportunity to network and share learnings with other companies in the group. All of this while also benefiting from the capital and resources that Halma has to offer. But don't take it from me. Let's hear from some of our companies.