Halma plc

Good morning and welcome to our half year 26 results presentation. I'm pleased to be here to present a really strong set of results for the six month period. Results which clearly demonstrate the enduring strength of our sustainable growth model and most importantly the exceptional talent and commitment of our teams across the group. And I'd like to start by thanking everyone at Halma for their individual contributions that enable us to live a consistent growth and positive impact. Carol will provide more insight into our financial performance shortly. But first, let me start with the highlights. As I say, it's great to report another set of record half-year results. And I'm really pleased to see these results underpinned by strong organic growth. And fantastic to see the strong performance across all three sectors, in addition to the premium growth of our photonics business. We've also delivered a very strong margin performance and continued high returns on capital, and this supporting further substantial investment in the significant opportunities we see for future growth. And these results put us on track to deliver our 23rd consecutive year of record profit. Delivery of this financial performance demonstrates the power of our sustainable growth model, a model which has supported strong compounding growth and returns over decades, and a model which, when combined with the opportunities we see in our markets, underpins my confidence in our continued long-term success. the strength of our model lies in the way that each of the elements are interlinked, aligned and complement each other. Together, they remain critical to the delivery of our performance, both in the short and long term, a topic which I'll come back to later in the presentation. But first, let me hand you over to Carol for more details on our financial performance.

Thank you, Mark. And a very warm welcome to everyone on the call. I'll be taking you through some of the detail behind this excellent set of results. First, let me give you the highlights. For me, these results are a great demonstration of what the Halma model can deliver. First, strong growth. We reported headline revenue growth of 15% and EBIT grew 27%. Excluding a one-off benefit in E&A that we've already flagged in our trading update, revenue grew 14% and EBIT 23%. And we delivered an exceptionally strong first half margin of 22.3%, up 160 basis points. I'll give you more detail of the drivers of this increase in the sector reviews. A fantastic performance, and as you will see, driven by organic growth broadly spread across our sectors. At the same time, we've continued to make substantial strategic investments to support our future growth. We've invested 300 million in the first half, including nearly 60 in R&D, around 130 in acquisitions and over 100 million in CapEx and working capital to support growth in a number of our companies. While this investment resulted in cash conversion being below our KPI at 79%, we expect it to be more in line with our 90% KPI at the full year. All in all, a substantial level of investment reflecting the significant growth opportunities our companies see in their markets and our confidence in continuing to deliver strong growth and returns. The strength of our financial model means that we've been able to make these investments while maintaining a strong balance sheet and delivering high returns. Net debt to EBITDA is essentially unchanged since the year end at just over one times. And returns have increased significantly, 190 basis points to 16.2%, a very strong performance. All of this supporting a further increase in our dividend, putting us on track to deliver our 47th year of dividend increases of 5% or more. Now let's look at our revenue growth in more detail. This slide bridges the year-on-year revenue growth of 15.2%. Organic revenue growth was very strong at 16.7%. This reflected healthy growth broadly spread across all three sectors and a continued benefit from premium growth in photonics, which accounted for around half of the organic growth. Most of the growth was volume-driven, with price increases averaging between 1% and 2%. There was a modest contribution from acquisitions of 1.6%, reflecting the number of deals completed in the last year. This acquisition contribution was partly offset by the disposal of AEI, which we sold in July. As a reminder, AEI's revenue last year was approximately 42 million, so there will be a larger effect in the second half. There was also a translational currency headwind of 3.2%, primarily due to the weaker US dollar. Based on latest currency rates, we expect a similar headwind for the year as a whole. Finally, the one-off benefit was equivalent to 0.9% growth. Excluding this, reported revenue growth was strong at 14.3%. Let's now move from revenue to profit and margins. EBIT was up 22.8%, excluding the one-off, and a very healthy 22.7% on an organic basis. This was ahead of revenue growth and reflects margin expansion across all three sectors. Acquisitions contributed 3.1%, again ahead of revenue, reflecting the quality of the businesses we have bought, while disposals were also accretive to margins. The currency headwind was similar to revenue at 3.4% and the one-off benefit of 3.9% completes the bridge. Moving on to the sector commentaries, starting with safety. It was great to see further momentum in safety following two years of double-digit growth. On an organic basis, revenue grew 6%, led by strength in the public safety and worker safety sub-sectors. This was partly offset by a mixed performance in the other two sub-sectors, given some specific end-market trends and customer project delays, notably in the US. Profit grew 16%, reflecting a 280 basis point margin increase to 27%. This is a historic high for the sector and was driven by four main factors. The sector's continued revenue growth, favourable portfolio and product mix, strong operational delivery and benefits from accretive acquisitions and disposals. our safety companies continue to invest at a good level to support their future growth, with R&D spend increasing by 11% to 6.1% of revenue. Turning next to environmental and analysis. This slide shows E&A's performance excluding the one-off. There's a slide in the appendix which shows performance including it. The sector delivered an exceptionally strong organic revenue and profit growth of 36% and 38% respectively. And it's really pleasing to see this driven by growth across all sub-sectors. Strength in water analysis and treatment was driven by water infrastructure demand in both the US and UK. A strong performance environmental monitoring reflected growth in US gas detection and gas management in Asia Pacific. And in optical analysis, we saw continued premium growth in photonics, reflecting increased demand from our long-standing hyperscaler customer. The profit increase of 38% on an organic basis included a 90 basis point increase in margin to 23.6%, driven by growth in all subsectors and continued cost discipline. At the same time, it was pleasing to see a good level of investment with R&D up 7%. Adjusting for photonics, where development is part of the revenue we earn, R&D for the sector is at a healthy level at over 6% of revenue. And finally, it was good to see a strong 4.3% contribution from acquisitions, including Brownline and Minicam's bolt-on Haythorn. Now let's turn to healthcare. which delivered a stronger performance compared to last year, reflecting good execution against a background of steady recovery in healthcare markets. This was supported by improving customer confidence and demand for solutions which improve our customers' efficiency given increasing health burdens and rising patient backlogs. This resulted in good levels of organic growth in both therapeutic solutions and healthcare assessment, which together account for over 90% of the sector's revenue. Therapeutic solutions saw strong performance in a number of surgical and respiratory device companies, although this was partly offset by continued softness in eye health therapeutics in Europe. Growth in healthcare assessment was broad-based, with most companies in the sub-sector delivering solid organic growth. Sector profit was 10% higher and on a reported basis up 8% organically. Margin increased 50 basis points to 21.3%, reflecting benefits from stronger revenue growth and improved pricing and mix. our healthcare companies remain well invested with R&D at 5.4% of sales. Finally, there was a good contribution from acquisitions, reflecting the quality of businesses we recently acquired, such as Lameday Norie. I'll now talk about our cash flow and balance sheet, and how we've allocated capital during the first six months. The cash generative nature of our companies means that we've been able to make a substantial investment to support our future growth while maintaining a strong financial position. Our first capital allocation priority is organic investment to support our long-term growth, represented here by investment through R&D and CAPEX of £93 million. Our financial strength means that we have also been able to support a number of our companies in making strategic investments in working capital. This resulted in a larger than usual outflow of £75 million. Together with higher CapEx investment, this was the driver behind our lower cash conversion in the half, and we expect it to drive a stronger position at the full year. Our second priority is continued value-enhancing acquisitions, where we invested a net 148 million. And our third is a progressive return to shareholders through the dividend, with 53 million returned in this first half. In total, we've invested over 300 million in the half to support future growth, both organically and through acquisitions. And our leverage has remained almost unchanged at just over one times net debt to EBITDA. So before I look at our financial KPIs, let me briefly describe the M&A investments we've made this half year. First Brownline, which is a fantastic purpose-aligned acquisition, which extends our strengths in the trenchless technology market. Its location services deliver pinpoint accuracy underground for operators of horizontal directional drilling equipment. This is increasingly vital as utilities and data providers look to improve resilience and safety by burying their pipelines and cables. At the same time, they also want to reduce the surface disruption of digging trenches while safely navigating increasingly congested underground spaces. Brownline's best-in-class technology and deep technical know-how make it a great addition to Halma. Next, new perspectives. A small but strategic acquisition for iHealth assessment company Keeler, enhancing its capability in cryogenic technology. This reflects a broader trend across Halma of our companies using bolt-ons to expand into adjacent markets and deepen their presence in existing niches. We also remain disciplined in managing our portfolio. The disposal of AEI reflects our commitment to continually assess our portfolio for strategic fit and to ensure each company contributes to our long-term ambitions for growth and returns. Looking forward, I'm confident we'll make further progress in 2026. We have a healthy pipeline of acquisitions and a good mix of deals by size and type, both bolt-ons and standalone acquisitions. Now let's turn to our performance against our financial KPIs. It's clear that this half year represents a strong performance by any measure, driven by broad-based growth and strong returns across all three sectors, combined with premium growth from our photonics business. We're substantially ahead of our targets for organic revenue and profit growth and delivered margins and returns well into the upper quartile of our target ranges. And while acquisition profit and cash conversion were below our KPIs, this principally reflects the dynamics in this specific half year. Over longer term, our performance is ahead of our targets. So all in all, a very pleasing half year, but one that I'm aware comes from an unusual combination of broad positive momentum in both revenue and margins across all three sectors. Taking a longer term perspective, this half year provides another proof point of what the Halma model can deliver. And these KPIs frame our ambition to deliver strong and compounding growth and returns over the longer term and further extend our strong track record against our targets. Moving on to my last slide on full year guidance. The strength of our first half performance across our portfolio together with our current expectations for the remainder of the year means we have upgraded our full year guidance for the second time this year. While our companies continue to experience varied conditions in their end markets and the economic and geopolitical environment remains uncertain, we've made a good start to the second half of the year. For the year as a whole, we now expect to deliver mid-teens percentage organic constant currency revenue growth, including a continued benefit from premium growth in photonics and an adjusted EBIT margin of around 22%. I'll now hand you back to Mark.

Thanks, Carol. Fantastic to see the excellent performance against our financial KPIs and the further upgrade in our four-year guidance. In this section, I wanted to take a step back from the results themselves and provide insight into the role of our sustainable growth model in driving our continued success. It's a model which has always been key to our past success, including in the first half of this year. And it underpins our ability to deliver compounding growth and high returns over the long term. you'll recognize the core elements of our sustainable growth model. In June at our full year results, I looked back over the last 50 years and shared how our model has been tested and proven to be resilient in a wide range of environments. And this enabling us to continue to scale through many different geopolitical events, economic cycles, technological advancements, and changing market dynamics. And while our model continues to evolve, its fundamental elements remain at its core. Today, I want to highlight how our model enables one of Halma's most important characteristics, our ability to combine a long-term view with short-term agility. At Halma, we're guided by our clear and ambitious purpose and powered by long-term growth drivers that underpin our markets. And this enables us to think in decades and take a long-term view for determining the talent and capabilities we need or for the organisational model required to scale and when we're choosing the markets and opportunities in which to invest. If I take our markets as an example, we invest in markets with resilient, often regulatory driven growth drivers that extend over decades. And our disciplined approach targets niches with high barriers to entry, strong societal benefit and sustainable demand. Markets and niches where we enable our customers to tackle some of the biggest challenges we face today. Better healthcare for everyone, clean air, clean water, and how to keep us safe in our cities and in the places where we work. All of these fundamental challenges which are intensifying, supporting our growth and returns for decades and giving us the confidence to invest ahead of the opportunity that's in front of us. And thinking in decades also enables us to continuously scan the horizon to identify long-term trends and reshape our portfolio to align with those evolving markets and technologies. And at the same time, our decentralized model and the quality of our leaders means that we're able to seize new opportunities. Agility is embedded in Houma's DNA. It enables us to respond quickly to fast changing challenges and opportunities without losing sight of our long-term goals. Our model puts our companies close to their customers and their end market. And this gives our entrepreneurial leaders who are not dependent on other parts of the organization, the freedom to innovate and adapt rapidly to changing market conditions. And this means that while maintaining their core long-term focus, they can also look for opportunities to apply their deep technical expertise to those faster growing end markets for a period of time. Let me just bring that to life. Crocon is applying its gas detection expertise into battery energy storage, detecting hazardous gases to protect these systems that provide critical backup power for sectors like healthcare. Centric is applying its industrial interlock technology to keep assets and people safe in the fast-growing data center space. And Alicat's proven ability to apply its flow and pressure control expertise to many different fast-growing end markets. Just a few examples of how our companies are always looking to capture emerging additional growth opportunities. And this combination of long-term thinking and short-term agility is a powerful combination let's look a little bit closer at how we can maintain our agility as we continue to scale and this is why we insist on talented entrepreneurial leaders with the ambition to act quickly and to innovate Our structure enables fast decision making and by having our companies close to our customers, they can anticipate and adapt their changing needs. And this focus on the long term alongside the importance of agility means that we're constantly balancing seemingly contradictory requirements at the group sector and the company level. At Halma, we see these as complementary. It's not either or. We call it yes and. It's embedded in our DNA and our sustainable growth model. It's part of our culture and a source of our strength. Our leaders have the autonomy to grow their business in the way that's right for them. And they are held accountable for delivering that growth. Our leaders are focused on delivering this year's results and they're focused on where the growth is going to come from five years from now. Our companies have the agility and speed of SMEs and they get the benefits of being part of a global group. And it's this ability to combine the long term and short term agility that enables us to capture those fast growing emerging opportunities with pace and invest ahead for future growth. And it's this same approach that we're adopting through this period of premium growth in photonics, a great example of everything that I've just said. When we first acquired the company in 2011, our long-term view recognized Photonics as an enabler of technologies across many end markets. We could also see how the company was showing exceptional agility in capturing growth opportunities by accessing new, faster-growing markets, a consequence of great leaders and deep technical expertise. And one of these opportunities has led to a period of over 10 years of working closely with their hyperscaler customer. They're using their substantial application knowledge to support their customer with the development of a relatively small but critical component of a wider solution in data centers. Our model allows us to maximize the opportunity with the customer while remaining focused on the continued delivery of our group strategy of sustainable compounding growth and returns. And this outstanding delivery in the short term through excellent local execution allows us also to reinvest for the long term to enable future organic and acquisition growth. Investments in innovative R&D at our companies, in building out our teams for scalability, in our M&A capability, and in the addition of great value-added acquisitions such as Brownline. As we heard from Carol Brownline, another great example of a fantastic acquisition underpinned by long-term growth drivers. Urbanization, the need for resilient infrastructure, including water, electrification, and the rollout of fiber and data networks. And this combination of a long-term view and short-term agility is critical in the continued delivery of our strategy. Being invested in niche markets underpinned by long-term growth drivers and having that org model and culture that gives us the ability to operate with agility is a fantastic start point. However, it's our talent that is the enabler and the multiplier. We structure for growth and agility, but it requires leaders and a culture that can realize it. It's our entrepreneurial and ambitious leaders that maximize our potential. And the criticality and therefore the focus on talent isn't new. It's been there since the beginning, embedded into Houma by our founders, David Barber and Mike Arthur. In fact, it remains such a critical element of our model that we brought together all our MDs and presidents for our Accelerate event last month. And we spent two days solely focused on how we as a leadership team can all become even better at spotting and developing talent to help maximise Helmer's potential. A truly inspiring event and a demonstration of how our great individual leaders benefit from the power of our network. But don't take it from me. Let's hear from some of our leaders on why talent is so important to their businesses.