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Halma plc is a global group of life-saving technology companies, focused on growing a safer, cleaner, healthier future for everyone, every day. The company is listed on the LSE main market, is a constituent of the FTSE100 and has a market cap of £8.5bn. Full year results to 31st March 2023 were released on 15th June.
We were delighted to welcome Charles King, Head of Investor Relations, and Melanie Horton, Deputy Head of Investor Relations to a webinar for private investors to talk about these results and how the company is performing in the current environment. A recording of the webinar is available here.
Full year results to 31 March 2023 were another record performance for Halma. The company combined continued strong growth and high returns with record levels of investment to report record profits for the 20th year. Revenues were up 21% to £1.85bn and profits grew 14% to £361m. Over £500m was invested in the business and this reflects the scale of opportunities available in its markets. This investment was both organic investment, comprising R&D and in personnel and inorganic investment through M&A. Almost £400m was spent on acquisitions during the year. The balance sheet remains strong and the company ended the year with net debt to ebitda at 1.4x, a level described as modest. Cash generation improved during the year and was back at their target level of 90% in H2. Growth is being delivered with high ROIC of 14.8%, a touch below the previous year. All of this supported a 7% increase in the dividend and this is the 44th year Halma has increased its dividend by 5% or more, another strong signal of their confidence in the future. The company has made a good start to the current year and they are well placed for further growth in 2024 and beyond.
Looking at the performance in more detail across sectors of Safety, Environmental & Analysis and Healthcare, all three sectors delivered good organic revenue growth reflecting the strong levels of customer demand. Environmental & Analysis grew by 9.1% with environmental monitoring leading the way and good support from gas detection, optical analysis and water analysis. Healthcare grew 9.8% with all regions strong excluding Asia Pacific which was impacted by Covid lockdown measures across China. Looking forward there is a strong order book and order back-log. Safety grew 11.2% with good double digit growth in both halves and across the 4 subsectors. Safety also made 4 acquisitions at a cost of over £200m. Overall, five companies across the group achieved constant currency revenue growth of 15% or more.
There was a similar performance when the picture is analysed by geography. The largest market, USA (42%) grew 12% organically with strong growth across all three sectors, Europe (20%) grew 14% with Healthcare and Safety leading the way, the UK (15%) grew 6% and Asia Pacific (15%) grew 3%. AP growth was strong in all territories excluding China.
Looking at performance against financial KPI’s organic revenue growth of 10.2% was comfortably above the 5% threshold and included price increases of 4% and volume growth of 6%, at the high end of the historic range. Reported profit was up 14.2% but organic profit only increased 3.1% impacted by lower margins caused by supply chain disruptions in the Safety sector and higher interest expense due to record levels of investment and higher interest rates. The company is guiding the margin will improve to c 20% from the 19.5% achieved in 2023. Acquisition profit growth was 5.5% which is stated after interest charges. Cash conversion was 78% compared to the threshold of 90% due to 63% cash conversion in the first half caused by higher investment in stock to mitigate against supply chain issues. Cash conversion improved to 90% in the second half of the year and is expected to exceed this in 2024. ROIC remained high at 14.8% which is well above the cost of capital of 8.9%
The longer term track record remains as impressive as ever. 10 year revenue CAGR is 12% and 10 year PBT CAGR is 11%. Few companies match these numbers.
At the heart of the sustainable growth model is the company purpose which remains to create a “safer, greener, healthier future for everyone, everyday”. The purpose helps Halma focus on the long term growth drivers which underpin the growth in the markets where they operate. Investment in these growth areas is enabled by the strong revenue growth and margins achieved in their existing businesses. Marc Ronchetti, the new CEO, appointed in April following a 6 year stint as CFO, outlined 4 key areas for Halma to focus on going forward: Organic growth; inorganic growth; maintaining the agility of the business model and optimising return on investment. These are very much in keeping with the sustainable growth model which has served the company so well.
As a reminder the long term growth drivers which underpin the sectors where Halma operates are: Increasing demand for Healthcare; Protecting life-critical resources (such as clean air and water); climate change, waste and pollution; and improving safety and efficiency. The growth drivers reflect demographic trends, increasing demands on infrastructure and natural resources and growing sustainability related opportunities. In each of these 4 areas growth is also helped by increasing regulations as governments and regulators require higher standards in response to these challenges.
Halma is evolving its portfolio to make the most of these growth drivers, especially the sustainability opportunity and acquisitions have played a key part in this development. OsecoElFab has developed their technology from the Oil and Gas industry to support the development of electricity distribution networks. Sensit and Crowcon, two of the gas detection companies in the portfolio, joined forces to develop air quality monitoring sensors. Longer, a Chinese based company, has developed custom built pumps for the dialysis market. The portfolio has also developed through acquisitions and over £400m was spent last year, normally buying companies that fit these sustainability criteria and are in adjacent or overlapping areas to existing portfolio companies. The strategy is to buy great companies which are aligned to the Halma purpose and culture where there are good growth opportunities and with Halmas’ input, growth can be achieved in excess of what they could achieve on their own.
In summary, FY 23 was another very successful year for Halma, reflecting the benefits from their sustainable growth model and the contribution from everyone in the group. FY 24 has started well and the group has a strong order book with order intake ahead of last year. Halma expects to deliver good constant currency revenue growth in the year ahead and a return on sales of c20%.
A very clear presentation and one which left a strong expectation of continued delivery given the very strong track record over many years. The prospects for future growth in sales, profits and dividends are good.
A recording of the webinar is available here. If you would like further information on other webinars organised by Yellowstone Advisory, please contact info@yellowstoneadvisory.com