Halma Regulatory News (HLMA)

HALMA plc

FULL YEAR RESULTS 2023

Record profit for 20th consecutive year

Halma, the global group of life-saving technology companies focused on growing a safer, cleaner and healthier future for everyone, every day, today announces its full year results for the 12 months to 31 March 2023.

Record revenue, Adjusted1 Profit, and strategic investment

· Record revenue, up 21%, and 10% on an organic constant currency7 basis.

· 20th consecutive year of record profit: Adjusted1 Profit before Taxation up 14%; up 3% on an organic constant currency7 basis.

· Statutory Profit before Taxation down 4%; principally reflected non-recurrence of a gain on disposal of £34.0m in the prior year; up 8% excluding this gain.

· Broad-based revenue growth in all sectors and regions, including on an organic constant currency7 basis; Adjusted1 profit growth in all sectors.

· Continued high returns: Return on Sales4 of 19.5% and ROTIC5 of 14.8%. Expect FY 2024 Return on Sales4 to increase to approximately 20%.

· Cash conversion of 78% (90% in the second half of the year); strong balance sheet, with net debt/EBITDA of 1.38x (2022: 0.74x), underpins investment in organic growth and acquisitions.

· Record strategic investment of over half a billion pounds to support our future growth:

o Seven acquisitions completed in the year for a maximum total consideration of £397m; two further acquisitions completed since the period end for a maximum total consideration of approximately £57m; a healthy acquisition pipeline across all sectors.

o R&D expenditure up by £17m to £103m, representing 5.5% of revenue

o Increased investment in technology by £7m to £18m

· Total dividend per share for the year up 7%; 44th consecutive year of dividend growth of 5% or more.

Marc Ronchetti, Group Chief Executive of Halma, commented:

"2023 was a successful year for Halma, reflecting the contributions and continued commitment to our purpose of everyone at Halma. We delivered record revenue and profit, achieving our 20th consecutive year of profit growth and our 44th consecutive year of dividend per share growth of 5% or more. At the same time, we substantially increased strategic investment to record levels, increasing our opportunities for future growth through organic investment and strategic acquisitions, while maintaining a strong balance sheet.

We have made a positive start to the new financial year. We have a strong order book, and order intake in the year to date is broadly in line with revenue and ahead of the comparable period last year. Based on current market conditions, we expect to deliver good organic constant currency7 revenue growth in the year ahead, and Return on Sales4 to increase to approximately 20%. We are well positioned to make further progress this year and in the longer term."

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Strategic Report

Record revenue, and record profit for the 20th consecutive year

In this, my first review as Group Chief Executive, I am pleased to report record revenue and Adjusted1 profit, and Halma's 20th year of consecutive profit growth. We delivered strong revenue growth, continued high returns, well above our cost of capital, and solid cash generation, while at the same time investing record amounts, both organically and in acquisitions, to support our growth over the medium term.

Our performance in the year reflects the strength of our Sustainable Growth Model and the hard work and dedication of our people. I would like to thank everyone at Halma for their contributions to our success and their commitment to growing a safer, cleaner, healthier future for everyone, every day.

Driven by our purpose

It is a huge privilege to be leading a business with such a strong sense of purpose and inclusive culture, and that has a positive impact on millions of lives every day.

Halma's ability to deliver resilient growth reflects the strength of our Sustainable Growth Model. Our purpose sits at the heart of this. It unites and motivates us to help our customers address many of the key challenges facing society and helps us attract talented people who share our values. Our Sustainable Growth Model gives us the agility and entrepreneurialism to respond rapidly to changes in the markets we serve and the wider world, and ensures we take a disciplined approach to investing in markets with long-term, fundamental and highly sustainable growth drivers. It also provides a clear financial framework, of strong organic growth and margins, high returns and cash generation, and continuous reinvestment to expand our opportunities for growth.

Over the last 20 years, our profit before tax (on a statutory basis) has increased by over six times, at a 10% compound annual growth rate. This is a substantial achievement given that this period includes major economic and geopolitical shocks, such as the Global Financial Crisis and Brexit, and, more recently, the COVID pandemic and the war in Ukraine.

For most of the last 20 years, Halma was led by Andrew Williams, who stepped down as Group Chief Executive at the end of March after 18 years. Over that time, he has led the evolution of Halma to become an organisation with ever greater ambitions, considerable strengths and substantial growth opportunities. I would like to thank him for his leadership, the success he has created and for his investment in me personally as part of the Group Chief Executive transition, and wish him all the best after retiring from Halma.

I am excited by the opportunities in front of us and believe that we are well-positioned to address them. We have a resilient business model and clear growth strategy, diverse and high quality leadership teams, and a proven ability to adapt and evolve with agility to a rapidly changing world. Our robust financial model is underpinned by significant growth momentum and is enabling us to invest record amounts to help our customers address some of the biggest challenges facing the world today, and continue our track record of long-term growth.

A strong financial performance

We delivered a strong financial performance in the year. Revenue in the year grew by 21% to £1,852.8m, Adjusted1 profit before taxation increased by 14% to £361.3m and Adjusted1 earnings per share was up 17%, well above our 10% target. The decrease in Statutory profit before taxation of 4% to £291.5m principally reflected the non-recurrence of a gain on disposal of a Safety Sector business in the prior year.

Growth was broadly spread across our sectors, regions and companies. We delivered revenue growth in all our sectors and regions, including on organic constant currency basis, and Adjusted1 profit growth in all sectors.

We delivered continued high returns. Return on Sales1 was 19.5%, within our KPI target range of 18-22%. This compared to an unusually high level (within our target range) of 20.7% in the prior year, which had benefited from the cost reduction measures implemented during the COVID pandemic. Return on Total Invested Capital1 of 14.8% (2022: 14.6%) remained ahead of our KPI target of 12% and well above our estimated weighted average cost of capital of 8.9% (2022: 7.1%).

Cash conversion for the year was solid at 78%, compared to our KPI target of 90%, and was improved and in line with our target at 90% in the second half of the year. Our continued cash generation allows us to maintain a strong balance sheet, while making substantial investments to support our future growth. Our gearing ratio (net debt to EBITDA) at the year end was 1.38 times (2022: 0.74 times), well within our operating range of up to two times. Together, our cash generation and balance sheet strength underpin our investment in growth and provide capacity to fund acquisitions and our progressive dividend policy.

The Board is recommending a 7% increase in the final dividend to 12.34p per share (2022: 11.53p per share). Together with the 7.86p per share interim dividend, this would result in a total dividend for the year of 20.20p (2022: 18.88p), also up 7%, making this the 44th consecutive year of dividend per share growth of 5% or more.

Record strategic investment to support future growth

One of Halma's key strengths is the ability to deliver strong performance in the shorter-term and maintain a strong balance sheet, while simultaneously making substantial investments to support sustainable growth over the longer-term. We invested a record sum of over half a billion pounds in this financial year, to support our future growth. This included investment to expand our growth opportunities through acquisitions and organic investment in product research and development, technology infrastructure, and our people and culture so that we can continue to attract, develop, retain, and engage the high performing teams that are critical to our success.

Substantially increased investment in organic growth

During the year, we further increased investment supporting organic growth, for example in new product development. R&D expenditure increased by £17m to a record £103m and represented 5.5% of revenue (2022: 5.6%), remaining well ahead of our 4% KPI. We also increased investment in our technology infrastructure by £7m to £18m to improve our security, data and operating technology, both at the company level and centrally.

The increase in these investments reflects our companies' confidence in the substantial growth prospects they see in their markets. Our products and services have never been more relevant than today, as health, safety and environmental regulations continue to increase, demand for healthcare grows and the world addresses ever greater demands on life-critical resources and the urgent need to tackle climate change, waste, and pollution.

Seven acquisitions completed across all three sectors

We further expanded our opportunities for growth through a record investment of £397m in acquisitions (maximum total consideration), acquiring the equivalent of 5.5% of our prior year profit (after interest), ahead of our 5% KPI target. We made seven acquisitions, each highly aligned to our purpose. Of these seven acquisitions, four are standalone companies with the Group, and three are bolt-ons to enhance our companies' technologies and market reach.

The acquisitions were spread geographically across North America, Mainland Europe and the UK and across our three sectors, with four acquisitions in Safety, two in Environmental & Analysis and one in Healthcare. Details of the individual acquisitions are contained in the relevant sector reviews and in the notes to the Accounts.

We are particularly pleased to see this strong momentum in M&A combined with an overall increase in the scale of acquisitions, supported by investment in our three sector M&A teams over the past 18 months. This activity has continued since the period end, with two further acquisitions completed in the new financial year for a maximum total consideration of approximately £57m.

Investing in our talent and culture

People are at the heart of the Group's and our individual companies' growth strategies. We are committed to supporting their development and ensuring that Halma's culture is highly inclusive. In this way, we can recruit, develop and retain the very best talent and have a wide diversity of voices and experience within our leadership teams.

During the year, we increased investment in the development of our leaders, introducing three new leadership development programmes, with over 200 leaders participating in face-to-face learning events and 750 participating online. We also recognise that the current environment continues to present challenges and we therefore invested in support for our people's wellbeing, including through our Employee Assistance Programme and through flexible working practices and enhanced benefits.

One measure of inclusion is gender diversity. Last year, we introduced a stretching goal of achieving 40-60% gender balance on all company boards by March 2024, equivalent to the balance already achieved on the Group, Executive and sector boards. While female representation on our company boards has increased from 22% in 2021 to 29% at 31 March 2023, we recognise that we need to accelerate the pace of change. We launched a number of initiatives to support this, including promoting diverse sourcing strategies and inclusive hiring practices, and incorporating progress towards our target in the bonus element of remuneration for our senior leaders. Alongside gender equality, we also want to grow our ethnic diversity relative to the markets we operate in and remove barriers to leadership for ethnic minority groups, and launched a number of initiatives to support this aim.

Our seventh global employee engagement survey reflected the progress made in the year. Given the pressures our people continued to face, I was pleased that we continued to have a strong response rate of 85% and that our overall engagement score remained stable at 76%, reflecting the ongoing actions taken by our companies to support their people and nurture inclusive workplace cultures. We saw our biggest improvement in companies providing opportunities for our people to learn and grow, and our drive to build inclusive businesses was reflected in high engagement scores on colleagues feeling they are treated fairly and respectfully (83%) and can be their authentic self at work (80%).

I am also proud of the engagement our companies and our people have with the communities where they operate, and the positive impact we have through charitable initiatives. This year, for example, we continued to support the humanitarian relief effort for Ukraine through raising and matching employee donations and providing online support for our colleagues. We also completed our Water for Life campaign, which, together with our partner WaterAid, has provided access to safe, clean water for over 10,000 villagers in India and sustainable water infrastructure, supported by Halma fund raising of over £400,000.

Executive Board changes

With Andrew Williams retiring as Group Chief Executive at the end of the year, and my appointment to that role, we were delighted to welcome Steve Gunning to Halma as Chief Financial Officer on 16 January 2023. He brings a tremendous breadth of experience as a FTSE 100 Chief Financial Officer and I look forward to working with him as part of my leadership team.

Shortly after the year end, we announced internally that, after five years with Halma, Wendy McMillan, Safety Sector Chief Executive, had decided to leave Halma to pursue leadership opportunities elsewhere. Drawing from the strength and depth in our leadership team, we were delighted to be able to appoint Funmi Adegoke, currently Group General Counsel and Chief Sustainability Officer and a member of the Executive Board, to lead the Safety Sector from early July. Funmi brings strong strategic, commercial and business acumen and considerable experience across multiple industries to the Safety Sector Chief Executive role. As a result of this move, we were also pleased that Constance Baroudel, Environmental & Analysis Sector Chief Executive, will take on the additional role of Chief Sustainability Officer.

We also made the decision to restructure the digital growth support for our companies. As part of this restructure we announced that we would be disbanding the central Innovation and Digital team. This reflects its achievement over the last six years in embedding greater innovation and digital capabilities in our companies, and the resultant evolution of our companies' needs towards greater go-to-market support which will now be provided by our Technology team. As a result, we announced that Inken Braunschmidt, Chief Innovation and Digital Officer, will leave Halma at the end of June. 

I would like to thank Wendy and Inken for their significant contribution to Halma and wish them every success in the future.

Our Executive Board comprises a highly experienced team, drawn from different backgrounds, with diverse talents and capabilities. I am excited to be working with them in leading the next stage of Halma's success.

Increasing sustainability opportunities

Sustainability has always been at the heart of our Sustainable Growth Model and our purpose. In recent years, the scale and urgency of global sustainability challenges, for example, in terms of the changing climate, preserving the environment, or protecting human health, have grown. We are responding by increasing investment in products and solutions which help our customers address these issues, and by ensuring that we operate in a sustainable way.

We see substantial growth prospects for our companies in sustainability and are increasing the support we give to them in understanding sustainability-related trends, and in identifying opportunities arising from them to grow their businesses. We are also excited by acquisitions that deliver on our purpose and long-term growth drivers and additionally have significant, long-term sustainability opportunities, and it is pleasing that so many of our standalone acquisitions this year, such as FirePro, WEETECH and Deep Trekker, fit this profile.

We are also contributing by operating in a sustainable manner, to ensure that we can continue to grow over the long term. During the year, we continued to make progress on the two areas identified in 2021 as the most important in our own value chain: supporting our people and protecting our environment.

Each of our companies has now set their own bottom-up targets and action plans to support the Group's goals in these areas. The goals ensure we are focused on the substantial growth opportunities for our companies and translate simply into a challenge to "do more good" and "do less harm". In terms of protecting our environment, we were pleased to see our operational greenhouse gas emissions continue to reduce, with a 47% reduction since our FY20 baseline and renewable electricity reaching 62% of total consumption, thereby exceeding our targets.

These direct operational emissions are a small part of our broader emissions footprint. The majority of our environmental footprint arises within our wider value chain and we have focused this year on estimating indirect (Scope 3) emissions baselines so that we can set appropriate reduction targets in the future. It is encouraging that we are already seeing actions in a number of companies to reduce Scope 3 emissions, including through supplier engagement programmes and an increasing focus on sustainable design.

For the first time this year, our executive remuneration incorporated annual energy productivity metrics alongside the gender diversity targets mentioned above. We consider these metrics aligned to remuneration as a good starting point from which they will no doubt evolve and it is pleasing to see them driving a focus on gender balance and energy conservation within our companies.

Summary and Outlook

2023 was a successful year for Halma, reflecting the contributions and continued commitment to our purpose of everyone in the Group. We delivered record revenue and Adjusted1 profit, achieving our 20th consecutive year of profit growth and our 44th consecutive year of dividend per share growth of 5% or more. At the same time, we substantially increased strategic investment to record levels, increasing our opportunities for future growth through organic investment and acquisitions, while maintaining a strong balance sheet.

We have made a positive start to the new financial year. We have a strong order book, and order intake in the year to date is broadly in line with revenue and ahead of the comparable period last year. Based on current market conditions, we expect to deliver good organic constant currency1 revenue growth in the year ahead, and Return on Sales1 to increase to approximately 20%. We are well positioned to make further progress this year and in the longer term.

Marc Ronchetti

Group Chief Executive

1 See Highlights

Chief Financial Officer's Review

A strong financial performance

I am pleased to report that the Group delivered a strong financial performance for the year, which included record revenue, record profit1 for the 20th consecutive year, and continued high returns.

This performance was supported by strong and broadly-based demand for our products and services, and enabled by our Sustainable Growth Model which gives our companies considerable autonomy and agility, allowing them to respond quickly to new growth opportunities and to act rapidly to address operational challenges when they arise.

At the same time, we were able to make substantial investments, of over half a billion pounds in aggregate, to support our future growth. These included record levels of expenditure on research and development, technology infrastructure, and acquisitions to expand our market opportunities.

These investments were supported by the strength of our balance sheet, and by our continued cash generation. We expect our strong financial position and high levels of cash conversion to underpin our growth over the longer term as our companies address the significant opportunities in their markets.

Record revenue and profit

Revenue for the year to 31 March 2023 was £1,852.8m (2022: £1,525.3m), up 21.5%, which included a strong organic performance with organic constant currency2 revenue growth up by 10.2%. There was a positive effect from currency translation of 8.1%, due to the weakness in Sterling, and a benefit from recent acquisitions (net of disposals) of 3.2%. Investment in our products and services to ensure they continue to address our customers' needs enabled us to deliver a resilient price performance, which offset the majority of cost increases, resulting in only a small decrease in gross margin. We estimate that price increases accounted for approximately four percentage points of our revenue growth, broadly evenly spread across the sectors.

Adjusted1 profit before taxation grew by 14.2% to £361.3m (2022: £316.2m). This reflected the increase in revenue, partially offset by the reduction in Return on Sales2 to 19.5% from the unusually high level of 20.7% in the prior year. Adjusted1 profit growth comprised a 3.1% increase in organic constant currency2 profit, a 2.1% contribution from acquisitions (net of disposals), and a positive effect from currency of 9.0% due to the weakening of Sterling.

Statutory profit before taxation of £291.5m (2022: £304.4m) was 4.2% lower; excluding the gain on disposal of a Safety Sector business in the prior year, Statutory profit before tax would have increased by 7.8%. There were no disposals made during this financial year. Statutory profit before taxation is calculated after charging the amortisation and impairment of acquired intangible assets of £56.5m (2022: £42.7m) and other items of a net £13.3m (2022: £3.1m). There were no gains on disposals (2022: £34.0m). Further detail on these items is given in note 1 to the Accounts.

Performance broadly based across sectors and regions

Our results reflected high levels of demand for our products and services, with this demand broadly spread across our sectors and regions. This resulted in strong revenue growth in all sectors, both on a reported and organic constant currency2 basis. While there was more variability in sector profitability, all sectors grew Adjusted1 profit, and only the Safety Sector saw a small decline on an organic constant currency2 basis.

Our two largest regions, the USA and Mainland Europe grew strongly on both a reported and organic constant currency2 basis. Growth in the UK was slower, but compared with an exceptionally strong performance in the prior year, while momentum in Asia Pacific was affected by lockdowns in China. There was strong growth in the smaller other regions.

Further information on regional and sector performance is given in the individual sector reviews later in this announcement.

1 In addition to those figures reported under IFRS, Halma uses alternative performance measures as key performance indicators, as management believe these measures enable them to better assess the underlying trading performance of the business by removing non-trading items that are not closely related to the Group's trading or operating cash flows. Adjusted¹ profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs and profit or loss on disposal of operations. All of these are included in the statutory figures. Notes 1 and 3 to the Accounts give further details with the calculation and reconciliation of adjusted figures.

2 See Highlights.

Sector profit3 change

1 In addition to those figures reported under IFRS, Halma uses alternative performance measures as key performance indicators, as management believe these measures enable them to better assess the underlying trading performance of the business by removing non-trading items that are not closely related to the Group's trading or operating cash flows. Adjusted¹ profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs and profit or loss on disposal of operations. All of these are included in the statutory figures. Notes 1 and 3 to the Accounts give further details with the calculation and reconciliation of adjusted figures.

2 See Highlights

3 Sector profit before allocation of adjustments. See note 1 to the Accounts.

4 Adjusted¹ profit excludes the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations. All of these are included in the statutory figures. Note 3 to the Accounts gives further details with the calculation and reconciliation of adjusted figures.

Continued high returns

Halma's Return on Sales2 has exceeded 16% for 38 consecutive years5. This year's Return on Sales2 was 19.5%, within our KPI target range of 18-22%. This year's performance compared to the unusually high levels of 20.7% in 2022 and 21.1% in 2021, which had benefited from lower spend on overheads such as travel and marketing during the COVID pandemic and the cost reduction measures we decided to take at the onset of the pandemic.

Our Return on Sales2 performance in 2023 reflected the impact of increased finance costs given higher average levels of indebtedness and rises in interest rates. It also included the effect, mainly in the second half of the year, of supply chain disruptions in a number of companies, principally in the Safety Sector. We currently expect these disruptions to ease during the 2024 financial year and for Return on Sales2 in the 2024 financial year to be approximately 20%.

We successfully achieved our objective of continuing to invest in our businesses while delivering growth, with record organic and inorganic investment in the year to support our future growth. We maintained a high level of Return on Total Invested Capital (ROTIC)2, the post-tax return on the Group's total assets including all historical goodwill. This year, ROTIC2 increased to 14.8% (2022: 14.6%), with the change principally reflecting a benefit from exchange rate movements, offsetting the effect of a lower level of constant currency earnings growth than in the prior year. Our ROTIC remains within our target range of 12% - 17%. It is also substantially above Halma's Weighted Average Cost of Capital (WACC), which is estimated to be 8.9% (2022: 7.1%), with the increase mainly a result of higher interest rates.

Record investment to support future growth

All sectors continue to innovate and invest in new products, reflecting our companies' confidence in the future growth prospects of their respective markets. R&D expenditure as a percentage of revenue remained well above our KPI target of 4% at 5.5% (2022: 5.6%), increasing by 20% to £102.8m (2022: £85.4m), in line with revenue growth.

We are also continuing to invest group-wide in automation and technology upgrades, including enhanced security, improved data and analytics capabilities and upgrades to operating technology both at the company level and centrally. Technology spend totalled £18m in the 2023 financial year, reflecting increased investment of £7m.

In the year we made a record investment in acquisitions of £391.5m (net of cash acquired of £10.1m and including acquisition costs). These seven acquisitions were broadly spread by both sector and geography. The acquisitions completed in the current and prior year contributed to revenue this year in line with expectations overall, and we expect a good performance from them in the future. 

Solid cash generation and strong financial position

Cash generation is an important component of the Halma model, underpinning further investment in organic growth, supporting value-enhancing acquisitions and funding an increasing dividend to shareholders.

We have a KPI target for cash conversion of 90%. For the year as a whole, cash conversion was solid at 78% (2022: 84%), reflecting continued good underlying working capital control, but also including strategic investment in inventory by a number of companies to support supply chain resilience, which resulted in cash conversion of 63% in the first half of the year. Cash conversion in the second half of the year was improved at 90%; we currently expect to deliver a strong cash performance in 2024.

Our financial position remains strong, with gearing (net debt to EBITDA) of 1.38 times at the year end. This was despite significant increases in both organic investment and acquisition spend, which resulted in net debt (on an IFRS 16 basis which includes lease commitments) increasing by £321.9m to £596.7m.

We have substantial available liquidity. In the first half of the year, we refinanced our syndicated credit facility, which remains at £550m. It now matures in May 2028, following the exercise, after the year end, of one of two options to extend its maturity for one year. We also completed a new Private Placement of c.£330m with a seven year average life. Further detail on cash generation and our financial position is given below.

Cash conversion and net debt

Conclusion

Halma is a company I have known and admired for many years. Since I joined in January, I have been impressed by the clear priority that is given to creating value over the longer term, guided by our Sustainable Growth Model. Balanced with this is the determination to deliver a strong financial performance every year. This year's results are further testimony both to the longer term decisions that have been made, and that determination.

I am excited by both the opportunities ahead for the Company and by the strength of the Halma team that will seek to convert them. The finance team will continue to play an important role in providing insights to support our sustained delivery of growth and high returns. I would like to thank all my colleagues for their warm welcome and support, and congratulate them on another successful year.

Steve Gunning

Chief Financial Officer

Financial Review

Revenue growth in all regions

Our revenue performance by region reflected broadly-based demand for the Group's products and services, with all regions delivering revenue growth on both a reported and an organic constant currency basis. Reported growth rates in each region were impacted to differing extents by acquisitions (net of disposals), and, outside the UK, positive effects from foreign currency translation, given the relative weakness of Sterling. On an organic constant currency basis, there was strong growth in our two largest regions, the USA and Mainland Europe, good growth in the UK against a strong prior year comparative, and a solid performance in Asia despite weakness in China as a result of lockdowns. The smaller other regions performed strongly.

Strong and broadly-based growth in the USA

Revenue in the USA increased by 30.7%, and the USA remains our largest revenue destination, accounting for 42% of Group revenue, an increase of three percentage points compared to the prior year. Reported revenue included a 4.6% contribution from acquisitions (net of disposals), and a positive effect of 14.0% from foreign exchange translation. Organic constant currency revenue increased 12.3%, with growth evenly spread across the three sectors, reflecting good momentum in the vast majority of subsectors.

Strong growth in Mainland Europe, led by Safety and Healthcare Sectors

Mainland Europe revenue was 22.2% higher, or up 13.5% on an organic constant currency basis. Reported revenue included a 5.0% contribution from acquisitions (net of disposals), and a positive effect of 3.7% from foreign exchange translation.

There was strong growth in the Safety Sector, led by the two largest subsectors, Fire Safety and Urban Safety, and in the Healthcare Sector, with a notably strong performance in the ophthalmology market within Therapeutic Solutions. Growth in the Environmental & Analysis Sector was more modest, with a strong performance in Environmental Monitoring partly offset by weaker trends in Water Analysis and Treatment.

Good organic growth in the UK

UK revenue was 4.4% higher, or up 6.0% on an organic constant currency basis. There was a negative effect on reported revenue from the prior year disposal, which was only partly offset by the benefit from acquisitions. The largest sector, Safety, delivered good growth, led by its largest subsector, Fire Safety. In the smaller Safety subsectors, while there was only marginal growth in Urban Safety following the end of a significant road safety contract, there was strong momentum in the Industrial Safety subsector. Healthcare grew strongly, reflecting demand for our communication technologies within the Healthcare Assessment & Analytics subsector. There was only modest growth within the Environmental & Analysis Sector, given lower order intake from UK utilities in Water Analysis and Treatment, and weaker demand in Gas Detection.

Strong growth in other regions despite weakness in China

Revenue from territories outside the UK/Mainland Europe/the USA grew by 18.1%, which was ahead of our 10% KPI growth target.

Asia Pacific revenue increased 12.6%, but by only 3.3% on an organic constant currency basis. This reflected an organic constant currency revenue decline in China, our largest market in the region at approximately 6% of Group revenue, mainly as a result of COVID lockdowns. This was partly offset by strong growth in India and Australasia, the second and third largest markets in the region. Performance by sector was mixed, with good organic constant currency growth in the Safety Sector and a strong performance by the Environmental & Analysis Sector. In Healthcare, however, organic constant currency revenue declined. Reported revenue included a 2.1% contribution from acquisitions (net of the impact of disposals), and a positive effect of 7.2% from foreign exchange translation.

Other regions, which represent 8% of Group revenue, reported revenue 31.5% higher on a reported basis, and up 15.6% on an organic constant currency basis reflecting strong growth in all sectors.

First and second half profit performance

Revenue grew by 18.8% in the first half of the year and by 24.0% in the second half, with second half revenue 11.6% higher than revenue in the first. Organic constant currency revenue increased by 10.2%, comprising a 9.5% increase in the first half and growth of 10.9% in the second half. There was a positive effect of 8.3% from currency translation in the first half, and of 7.9% in the second half, giving a positive effect of 8.1% for the year as a whole. Acquisitions (net of disposals) had a positive effect of 3.2%, comprising a 1.0% positive effect in the first half and 5.2% in the second half.

Adjusted1 profit increased by 10.9% in the first half and by 17.5% in the second half. There was a first half/second half split of Adjusted1 profit of 48%/52%, compared to our typical 45%/55% pattern. Organic profit at constant currency increased by 1.9% in the first half, and by 4.3% in the second half, resulting in growth of 3.1% for the year.

Central costs, which include our Growth Enabler functions, increased from £30.9m in 2022 to £38.6m below our previous guidance as a result of strong cost control and revisions to the phasing of technology project spend. The increase reflected investment in our Growth Enabler teams, technology infrastructure and talent to support our future growth, and investment in reconnecting our Halma networks. In 2024, we expect central costs to be approximately £44m, including the revised phasing of technology spend referred to above.

Currency effects on reported revenue and profit

Halma reports its results in Sterling. Our other key trading currencies are the US Dollar, Euro and to a lesser extent the Swiss Franc, the Chinese Renminbi and the Australian Dollar. Almost 50% of Group revenue is denominated in US Dollars, approximately 26% in Sterling and approximately 12% in Euros.

The Group has both translational and transactional currency exposure. Translational exposures are not hedged, except for net investment hedges. Transactional exposures, after matching currency of revenue with currency costs wherever practical, are hedged using forward exchange contracts for a proportion (up to 75%) of the remaining forecast net transaction flows where there is a reasonable certainty of an exposure. We hedge up to 12 months forward.

Sterling weakened on average in the year, principally in the first half. This gave rise to a positive currency translation impact of 8.1% on revenue and 9.0% on profit for the full year.

Based on the current mix of currency denominated revenue and profit, a 1% movement in the US Dollar relative to Sterling changes revenue by approximately £9m and profit by approximately £2m. Similarly, a 1% movement in the Euro changes revenue by approximately £2m and profit by approximately £0.5m. If Sterling weakens against foreign currencies, this has a positive impact on revenue and profit as overseas earnings are translated into Sterling.

If currency rates for the financial year to the end of March 2024 were US Dollar 1.237/ Euro 1.138 relative to Sterling respectively, and assuming a constant mix of currency results, driven by the strengthening of Sterling versus the US Dollar, we would expect approximately a £20m negative revenue and a £4m negative profit impact compared to the financial year to the end of March 2023, with the majority of the impact in the first half of the year.

Solid cash generation

Halma's operations have continually been cash generative. Cash generated from operations in the year was £325.2m (2022: £293.4m) and adjusted operating cash flow, which excludes operating cash adjusting items, and includes net cash capital expenditure, was £293.2m (2022: £273.2m) which represented a cash conversion of 78% (2022: 84%) of Adjusted operating profit1.

Cash conversion was 63% in the first half of the year, reflecting strategic investment in inventory to support supply chain resilience, but was stronger at 90% in the second half of the year.

Overall, the strategic investment in inventory had an impact on working capital, with an outflow of £95.7m, comprising changes in inventory, receivables and creditors (2022: outflow of £62.7m), which also reflected the strong revenue growth in the period. These effects would have been more significant were it not for the continued good underlying control of working capital by our companies. Adjusted operating cash flow is defined in note 3 to the Accounts.

A summary of the year's cash flow is shown in the tables below. The largest outflows in the year were in relation to acquisitions, dividends and taxation paid. Acquisition of businesses including cash and debt acquired and fees increased to £391.5m (2022: £164.4m), reflecting the record M&A investment in the year. Dividends totalling £73.3m (2022: £68.7m) were paid to shareholders in the year. Taxation paid increased to £67.2m (2022: £56.0m).

Operating cash flow summary

Non-operating cash flow and reconciliation to net debt

Substantial funding capacity and liquidity; financing cost well managed

The Group has access to competitively priced committed debt finance, providing good liquidity. Group treasury policy remains conservative and no speculative transactions are undertaken.

We have a strong balance sheet and substantial available liquidity. At the beginning of the 2023 financial year, we refinanced our syndicated revolving credit facility. The new facility remains at £550m. It now matures in May 2028, following the exercise after the year end of one of two one-year extension options. In addition, we completed a new Private Placement issuance of c.£330m in May 2022. The issuance consists of Sterling, Euro, US Dollar and Swiss Franc tranches and matures in July 2032, with an amortisation profile giving it a seven year average life.

The financial covenants on these facilities are for leverage (net debt /adjusted EBITDA) to not be more than three and a half times and for adjusted interest cover to be not less than four times. The Group continues to operate well within its banking covenants with significant headroom under each financial ratio.

At 31 March 2023, net debt was £596.7m, a combination of £677.3m of debt, £87.9m of IFRS 16 lease liabilities and £168.5m of cash held around the world to finance local operations. Net debt at 31 March 2022 was £274.8m.

The gearing ratio at the year-end (net debt to EBITDA) was 1.38 times (2022: 0.74 times). Net debt represented 7% (2022: 3%) of the Group's year-end market capitalisation.

The net financing cost in the Income Statement of £16.9m was higher than the prior year (2022: £8.4m). This reflected a higher weighted average interest rate in the year and a higher average level of indebtedness due to acquisitions. The Private Placement issuance has resulted in an increased proportion of fixed coupon debt on the Group's balance sheet (at 56% at 31 March 2023, compared to 30% at 31 March 2022, excluding leases), which positions us well ahead of any increases in interest rates, and secures debt financing sufficient to meet the Group's likely medium-term requirements. We would expect the net financing cost for the 2024 financial year to be approximately £29m, if no further acquisitions were to be made. This reflects higher average net debt and a forecast higher weighted average interest rate in the year.

The net pension financing impact under IAS 19 is included in the net financing costs. This year the Group recognised a gain of £1.1m (2022: charge of £0.3m).

Group tax rate decreased

The Group has major operating subsidiaries in a number of countries and the Group's effective tax rate is a blend of these national tax rates applied to locally generated profits.

The Group's effective tax rate on adjusted profit was lower than the prior year at 20.2% (2022: 21.6%) due to one-off credits. Based on the latest forecast mix of adjusted profits for the year to 31 March 2024 we currently anticipate the Group effective tax rate to be higher at approximately 22% of adjusted profits, reflecting the increase in the UK corporation tax rate to 25% from 1 April 2023.

On 2 April 2019, the European Commission (EC) published its final decision that the UK controlled Finance Company Partial Exemption (FCPE) constituted State Aid. In common with many other UK companies, Halma has benefited from the FCPE and had appealed against the European Commission's decision, as had the UK Government. The EU General Court delivered its decision on 8 June 2022. The ruling was in favour of the European Commission but in August 2022 the UK Government and the taxpayer have appealed this decision. Following receipt of charging notices from HM Revenue & Customs (HMRC) we made a payment in February 2021 of £13.9m to HMRC in respect of tax, and in May 2021 made a further payment of approximately £0.8m in respect of interest.

Whilst the EU General Court was in favour of the EC, our assessment is that there are strong grounds for appeal and the appeal is expected to be successful. As a result, and given the appeal process is expected to take more than a year, we continue to recognise a non-current receivable of £14.7m in the balance sheet.

Capital allocation and funding priorities

Halma aims to deliver high returns, measured by ROTIC², well in excess of our cost of capital. We invest to deliver the future earnings growth and strong cash returns which enable us to achieve this aim on a sustainable basis, and our capital allocation priorities remain as follows:

· Investment for organic growth: Organic growth is our first priority and is driven by investment in our existing businesses, including through capital expenditure, innovation in digital growth and new products, international expansion and the development of our people.

· Value-enhancing acquisitions: We supplement organic growth with acquisitions in current and adjacent market niches, aligned with our purpose. This brings new technology, intellectual property and talent into the Group and expands our market reach, keeping Halma well-positioned in growing markets over the long term.

· Regular and increasing returns to shareholders: We have maintained a progressive dividend policy for over 40 years and this is our preferred route for delivering regular cash returns to shareholders without impacting on our investment to grow our business.

Continued investment for organic growth

All sectors continue to innovate and invest in new products, with R&D spend determined by each individual Halma company. R&D expenditure as a percentage of revenue remained well above our KPI target of 4% at 5.5% (2022: 5.6%). In absolute terms, this meant that R&D expenditure increased by £17.4m to £102.8m (2022: £85.4m), and grew in line with revenue. This increasing investment reflects our companies' confidence in the growth prospects of their respective markets. In the medium term we expect R&D expenditure to continue to increase broadly in line with revenue growth.

Under IFRS accounting rules we are required to capitalise certain development projects and amortise the cost over an appropriate period, which we determine as three years. This year we capitalised £15.8m (2022: £13.4m), impaired £0.5m (2022: £2.9m) and amortised £8.5m (2022: £7.0m). The closing intangible asset carried on the Consolidated Balance Sheet, after a £1.2m gain (2022: £1.3m gain) relating to foreign exchange was £49.6m (2022: £41.7m). All R&D projects requiring capitalisation are subject to rigorous review and approval processes by the relevant sector board and Group financial control.

Capital expenditure on property, plant, equipment and vehicles, computer software and other intangible assets was £30.1m (2022: £26.6m), with last year reflecting a lower spend as a result of pandemic constraints. Expenditure was principally on plant, equipment and vehicles. We anticipate capital expenditure to increase to approximately £40m in the coming year, reflecting investment in the expansion of manufacturing facilities and automation to support future growth.

Lease right-of-use asset additions and remeasurements were £32.2m (2022: £23.0m). This included additions of £9.3m as a result of acquisitions made in the year, and the commencement of new leases and extensions or renewals of existing leases.

Net debt to EBITDA

Average debt and interest rates

Value-enhancing acquisitions and investments

Acquisitions and disposals are a key component of our Sustainable Growth Model, as they keep our portfolio of companies focused on markets which have strong growth opportunities over the medium and long term.

In the year we made seven acquisitions at a cost of £386.9m (net of cash acquired of £10.1m and including acquisition costs). In addition, we paid £4.6m in contingent consideration for acquisitions made in prior years, giving a total spend of £391.5m. We also made two small strategic minority investments totalling £6.7m, including an incremental funding round for a minority investment in the Safety Sector. We made two further acquisitions following the year end, for a maximum total consideration of approximately £57m.

Details of the acquisitions and investments made in the year are given in the sector reviews below.

Regular and increasing returns for shareholders

Adjusted earnings per share increased by 16.6% to 76.34p (2022: 65.48p). Statutory basic earnings per share decreased by 3.9% to 62.04p (2022: 64.54p), as the prior year included a gain on the disposal of a Safety Sector business.

The Board is recommending a 7.0% increase in the final dividend to 12.34p per share (2022: 11.53p per share), which together with the 7.86p per share interim dividend gives a total dividend per share of 20.20p (2022: 18.88p), up 7.0% in total.

Dividend cover (the ratio of adjusted profit after tax to dividends paid and proposed) is 3.78 times (2022: 3.47 times).

The final dividend for the financial year ended March 2023 is subject to approval by shareholders at the Annual General Meeting on 20 July 2023 and, if approved, will be paid on 18 August 2023 to shareholders on the register at 14 July 2023.

We aim to increase dividends per share each year, while maintaining a prudent level of dividend cover, and declare approximately 35-40% of the anticipated total dividend as an interim dividend. The Board's determination of the proposed final dividend increase this year took into account the Group's financial performance, economic and geopolitical uncertainty, the Group's continued balance sheet strength and medium-term organic constant currency growth.

Pensions update

The Group accounts for post-retirement benefits in accordance with IAS 19 Employee Benefits. The Consolidated Balance Sheet reflects the net accounting surplus on our pension plans as at 31 March 2023 based on the market value of assets at that date and the valuation of liabilities using discount rates derived from year end AA corporate bond yields. Lane Clark & Peacock LLP assist the Company in setting assumptions, and the valuation work is performed by Mercer Limited.

We closed the two UK defined benefit (DB) plans to new members in 2002. In December 2014 we ceased future accrual within these plans with future pension benefits earned within the Group's Defined Contribution (DC) pension arrangements. These two plans represent over 95% of consolidated plan liabilities.

On an IAS 19 basis, before deferred taxes, the Group's DB plans at 31 March 2023 had a net surplus of £37.9m (2022: £30.5m surplus). The value of plan assets decreased to £284.7m (2022: £347.6m). Plan liabilities decreased to £246.8m (2022: £317.1m) due to the increase in the discount rate (2.80% to 4.75%) being greater than the decrease in the long-term inflation rate (3.6% to 3.3%). Mortality assumptions include this year an assumption for post pandemic mortality experience in line with market practices.

The plans' actuarial valuation reviews, rather than the accounting basis, are used to evaluate the level of any cash payments into the plan. This year these contributions amounted to £15.6m. Following a triennial actuarial valuation of the two UK pension plans in the 2021/22 financial year, the cash contributions were agreed with the trustees aimed at eliminating the deficit.

During the 2022/23 financial year the aggregate payments made since the last triennial actuarial valuation, coupled with the performance of the plan assets and movement in the liabilities resulted in the Halma Group Pension Plan being funded over the trustees' secondary funding target and close to the expected current valuation on a solvency basis. As a result, it has been agreed with the trustees of the Halma Group Pension Plan that contributions will be suspended until 1 April 2025, when they will either fall due or be superseded by cash contributions agreed with the trustees in respect of the latest triennial actuarial valuation.

We therefore expect contributions to the schemes in the 2023/24 financial year to be £4.2m. In the event that these payments result in a surplus on winding up of the schemes, the Group has an unconditional right to a refund under the plan rules.

Steve Gunning

Chief Financial Officer

Safety Sector Review

What the Safety Sector does

Our Safety Sector companies protect people, assets and infrastructure and enable safe movement. Many of their products also make the world cleaner and enhance efficiency. Their technologies are used in public and commercial spaces and in industrial and logistics operations.

The Safety Sector comprises companies which provide solutions to a number of fundamental and enduring safety issues. These are: fire safety, through fire detection and fire suppression solutions; safe movement in public, commercial and industrial spaces; elevator safety; communications in emergencies; control of access in potentially hazardous industrial and commercial environments; electrical safety; and the safe management of pipelines and storage assets.

The Safety Sector has diverse end markets and a wide range of customers. Its products and solutions are used to enhance safety and efficiency in a broad spectrum of applications and end markets including in: many different types of commercial buildings, for example, shops and restaurants, healthcare facilities, offices and stadiums; industrial and logistics assets; public spaces and critical infrastructure, including roads, tunnels and transportation hubs; and aerospace, rail and automotive applications.

The Safety Sector's long-term growth drivers

The long-term growth of the sector continues to be driven by increasing safety and environmental regulation, and by growing, ageing and urbanising populations. Increasing automation and accelerating demand for connected industrial and infrastructure systems further underpin the sector's growth prospects, as its customers have sought to benefit from the greater efficiency and safety that can be derived from these innovations.

The increasingly urgent need to address the causes and impacts of climate change continue to further enhance the growth opportunities available to Safety Sector companies. This includes, for example, increased demand for automated access solutions to both increase efficiency, including by minimising heat loss in commercial and industrial premises. Sector companies are also supporting the drive towards renewable and cleaner energy sources and uses, including through fire suppression in renewable energy facilities, electrical testing of electric vehicles (EVs) and mass transit systems, and increasing the efficiency of industrial processes. They are also repurposing technology towards areas such as carbon capture and hydrogen energy sources in sector businesses which serve industrial customers.

Safety Sector performance in the year

The Safety Sector delivered a solid performance. Revenue growth was very strong. Return on sales1 was however lower than historic norms as a consequence of supply chain impacts related to electronic components. Investment in future growth continued, including through increased R&D spend and acquisitions.

Revenue of £745.6m (2022: £641.4m) was 16.2% higher than in the prior year. Year-on-year revenue growth on an organic constant currency1 basis was strong at 11.2%, with double digit growth in both halves of the year. Growth was broadly spread, with all but two companies delivering organic constant currency1 revenue growth. Sector companies continued to be agile in responding to customer demand while addressing supply chain challenges, although disruptions in a number of companies contributed to a small decline in Adjusted1 profit on an organic constant currency1 basis.

Revenue growth on an organic constant currency1 basis was broadly spread across all four subsectors, with three achieving double-digit growth. Industrial Safety's performance reflected strong execution in two subsector companies and Power Safety saw strong demand for interlock products in the electrical sector. Growth on a reported basis also benefited from acquisitions including WEETECH Holding GmbH (WEETECH) during the year. The largest subsector, Fire Safety continued to grow strongly, having seen substantial growth in the prior year, supported by organic constant currency1 revenue growth in all companies. Urban Safety organic constant currency1 revenue growth was good overall, although performance was mixed with strong demand for automatic access solutions and elevator systems partially offset by the end of a significant road safety contract.

The sector's revenue performance by geography reflected these themes. There was strong growth in the sector's largest two geographies, the USA and Mainland Europe, both on a reported and organic constant currency1 basis. This included strong growth in Industrial Safety in the USA, with Fire Safety and Urban Safety performing strongly in Mainland Europe. The UK saw good growth on an organic constant currency1 basis led by its largest subsector, Fire Safety, and there was strong momentum in Industrial Safety. Urban Safety delivered a more mixed performance with the effect of the end of the road safety contract mentioned above offsetting good performance elsewhere. On a reported basis, UK growth was lower, due to the non-recurrence of revenue from a disposal in the prior year. Asia Pacific also saw good growth on an organic constant currency1 basis, led by a strong performance in Fire Safety, which more than offset a decline in Urban Safety principally as a result of lockdowns, and a non-recurring road safety contract in China.

Profit1 grew by 4.3% to £152.5m (2022: £146.2m), and decreased by 1.1% on an organic constant currency1 basis. Return on Sales1 decreased by 230 basis points to 20.5% (2022: 22.8%). This reflected a strong comparator, which had benefited from cost savings made during the pandemic, and supply chain disruptions in a number of companies. These resulted in higher costs for electronic components used in devices with current regulatory approvals, and costs in recertifying devices to use alternative components. We expect these disruptions to ease over the current financial year. R&D expenditure of £41.0m remained at a good level, representing 5.5% of revenue (2022: £35.6m; 5.6% of revenue).

The sector made four acquisitions in the year for an aggregate consideration of approximately £207m (on a cash and debt free basis and excluding acquisition costs). These included two new standalone companies within the sector: WEETECH, which designs and manufactures critical electrical testing technology, purchased in October 2022; and FirePro Systems Limited, a designer and manufacturer of aerosol-based fire suppression systems, which was acquired shortly before the financial year end. Sector companies also made two bolt-on acquisitions: Apollo Fire Detectors acquired Thermocable (Flexible Elements) Ltd, a developer and manufacturer of linear heat detectors; and Sentric purchased ZoneGreen Limited, a provider of rail depot protection solutions.

The impact of acquisitions was a positive effect of 2.4% on revenue and 2.3% on profit. The disposal of Texecom in the first half of the prior year had a negative effect of 2.6% on revenue and 1.4% on profit. Currency exchange movements had a positive effect of 5.2% on revenue and 4.5% on profit.

Environmental & Analysis Sector Review

What the Environmental & Analysis Sector does

Our Environmental & Analysis Sector companies provide high-technology solutions, that monitor the environment and improve the quality and availability of life-critical natural resources such as air, water and food, and analyse materials in a wide range of applications.

Their valuable solutions are technically differentiated through strong levels of application knowledge in environmental monitoring, water and waste water analysis and treatment, gas analysis and detection, and optical analysis. They are supported by high levels of customer responsiveness and often leverage digital, optical and optoelectronic expertise.

They serve a wide variety of end markets with applications across a very broad range of sectors and customers. Their end markets include: water and waste water management and treatment, including for water utilities; gas analysis and detection; food, beverage, medical and bio-medical; communications; aquaculture; research and science; inspection and maintenance of infrastructure in water, for example, dams and offshore wind turbines; and a variety of industrial markets.

The Environmental & Analysis Sector's long-term growth drivers

The sector's long-term growth is sustained by rising demand for life-critical resources, the impact of climate change, increasing environmental regulations and worldwide population growth with rising standards of living. It is underpinned by our ability to design, develop and manufacture innovative, high-technology detection and analysis solutions.

The increasingly urgent need to address climate change is creating new opportunities in many of the sector's markets. It is driving new policies globally, including initiatives to meet Net Zero commitments through energy transition and sectoral decarbonisation plans, as well as plans to increase adaptation and resilience. Combined with the biodiversity crisis and an increasing focus on plastics and waste, it is also driving new regulatory initiatives to preserve life-critical resources. These include initiatives such as, in the UK, Ofwat's investigations into waste water treatment and internal sewer flooding to prevent environmental degradation.

These and similar initiatives are creating growing long-term opportunities for our companies to help their customers, for example, to prevent emissions, detect leaks and analyse air and water quality, and to support new technologies to address these issues, such as renewable energy and storage, sustainable food systems and mobility in cities.

Environmental & Analysis Sector performance in the year

The Environmental & Analysis Sector delivered a good performance. Revenue of £552.1m (2022: £442.9m) was 24.7% higher than in the prior year, and up 9.1% on an organic constant currency1 basis. Sector growth was driven by increasing demand and supported by strong execution, in particular from the sector's largest companies.

All subsectors grew revenue on an organic constant currency1 basis. Organic constant currency1 growth was led by Environmental Monitoring, where growth on a reported basis also benefited from the acquisition of Deep Trekker, Inc. (Deep Trekker) during the year. Organic constant currency1 revenue growth was also strong in our gas detection companies, supported by increasing demand for products addressing the minimisation of emissions. Both the Optical Analysis and the Water Analysis & Treatment subsectors saw good organic constant currency1 revenue growth, with Photonics within Optical Analysis continuing to benefit from increasing demand for technologies that support the building of digital and data capabilities; and within the Water Analysis & Treatment subsector, revenue grew more strongly in the second half of the year following a pick-up in project tenders from UK utilities, which offset lower order intake in our water testing and disinfection companies, principally relating to products related to consumer discretionary end-markets.

By region, the USA accounts for half of the sector's revenue, and reported the highest organic constant currency1 growth at 12%. Performance was strong across all four subsectors, supported by further growth in a continuing large photonics contract within Optical Analysis, increased demand including larger customer orders in our gas detection companies, in products supporting the transition to new sources of energy in Environmental Monitoring, and international expansion from our water infrastructure companies within Water Analysis & Treatment. Asia Pacific also grew strongly, at 10% on an organic constant currency1 basis, driven by substantial growth in the flow and pressure control market within Environmental Monitoring in India and China. Organic constant currency1 revenue growth was more modest in the UK and Mainland Europe, with growth reflecting strengthening UK water project spend in the second half of the year, and strong demand in our gas detection companies in Mainland Europe.

In the other regions which represent about 6% of the sector's revenue, our gas detection companies continued to benefit from a recovery in the energy sector, which drove strong organic growth in Africa, Near & Middle East, and there was a good contribution to reported revenue growth in the other smaller regions from the acquisition of Deep Trekker.

Profit1 grew by 22.2% to £134.2m (2022: £109.8m), or by 7.1% on an organic constant currency1 basis. Return on Sales1 decreased by 50 basis points to 24.3% (2022: 24.8%). This reflected a return to a level similar to the years before the pandemic. Gross margin was marginally higher, driven by business mix and good management of pricing. R&D expenditure of £28.6m was maintained at a good level at 5.2% of revenue (2022: £22.8m; 5.1% of revenue).

The sector made one standalone acquisition during the year for a consideration of approximately £38m: Deep Trekker, which is a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance, was purchased in April 2022. Ocean Insight also made a small bolt-on acquisition. Since the year end, there have been two further acquisitions in the sector for a maximum total consideration of approximately £57m: Sewertronics Sp. Z o.o., which designs and manufactures equipment and associated consumables for wastewater pipeline rehabilitation, was purchased as a standalone company in May 2023; and Visual Imaging Resources LLC, which distributes and services wastewater inspection equipment in North America, was purchased in April 2023 as a bolt-on to Minicam. This good momentum reflects the investment made in a dedicated M&A team for the Environmental & Analysis Sector, and the increasing ability of our individual companies to make bolt-on acquisitions to enhance their technological capabilities and market reach.

The impact of acquisitions during the year contributed growth of 6.6% to revenue, and 5.9% to profit. Currency exchange movements had a positive effect of 9.0% on revenue and 9.2% on profit.

Healthcare Sector Review

What the Healthcare Sector does

Our Healthcare Sector companies' technologies and digital solutions help providers improve the care they deliver and enhance the quality of patients' lives. Their products and technologies are components, devices, systems and therapies critical to delivering the required standards of care for patients.

Our Healthcare Sector companies deliver advanced technologies and solutions in high value niches. These include: eye health, where they support both diagnostics and surgical treatment; monitoring and support of vital signs, including blood pressure and respiration; products to assist with interventional radiology and oncology and image guided surgery; synthetic bone grafts for clinical applications; and artificial intelligence (AI) based early warning systems and clinical decision support tools for childbirth.

Sector companies also supply critical fluidic components for diagnostic and analytical instruments, and sensor technologies to track assets, increase efficiency, and support patient and staff safety.

The Healthcare Sector operates across a wide range of healthcare segments and settings, including ophthalmology, dentistry, orthopedics, perinatal care, surgical intervention, diagnostics and analytics. Its customers range from individual healthcare professionals to large healthcare systems and medical device original equipment manufacturers.

The Healthcare Sector's long-term growth drivers

The sector's long-term growth is supported by demographic trends, technological innovation, and improving the standard of care and increased efficiency.

Most countries in the world are experiencing growth in both the size of population and the proportion of older people. By 2050, the world's population of people aged 60 years and older is estimated to double to 2.1 billion. The number of people aged 80 years or older is forecast to triple by 2050 to reach 426 million. This is expected to lead to an increased prevalence of chronic conditions, driving demand for diagnostics and treatment. These factors are key growth drivers for our Therapeutic Solutions businesses, given their presence in the ophthalmic surgery, respiratory therapy, bone replacement, interventional radiology, oncology and image-guided surgery markets.

Technological innovations drive growth, by increasing the capabilities of healthcare professionals to prevent, diagnose and treat conditions, including remotely through telemedicine. They contribute to improving standards of care and increasing efficiency by enabling better, earlier, faster and more cost-effective diagnosis and treatment of patients. This in turn leverages the skills and availability of increasingly scarce healthcare staff. These factors are strong growth drivers for our Patient Assessment & Analytics businesses, such as PeriGen, whose AI-powered algorithms prevent complications during childbirth, or CenTrak, whose real-time location services improve safety, asset utilisation and efficiency in healthcare facilities.

Rising patient demand, workforce shortages, and disruptions as a result of the COVID pandemic have created substantial backlogs of patients, which are likely to persist for many years. Our Healthcare companies, through their innovative technologies and deep application knowledge, are helping to address these global health challenges.

Healthcare Sector performance in the year

The Healthcare Sector delivered a strong performance. Revenue of £556.4m (2022: £442.3m) was 25.8% higher, and up 9.8% on an organic constant currency1 basis. Sector growth continued to be supported by a strong order book, reflecting high patient caseload levels and order backlogs, and by generally strong execution by sector companies, with all but three companies delivering organic constant currency1 revenue growth, and five achieving organic constant currency1 revenue growth of 15% or more.

All subsectors grew revenue on an organic constant currency1 basis. Growth was led by Healthcare Assessment & Analytics, which benefited from demand in vital signs monitoring, clinical ophthalmology, and communication and software systems for healthcare facilities. There was good organic constant currency1 growth in Therapeutic Solutions, supported by high patient caseload levels in eye surgery; subsector growth on a reported basis also benefited from the acquisition of IZI Medical Products, LLC (IZI) during the year. There was only marginal growth on an organic constant currency1 basis in the smaller Life Sciences subsector, however, principally reflecting the impact of lockdown restrictions in China.

All regions except Asia Pacific reported double digit increases in revenue, on both a reported and organic constant currency1 basis. On a reported basis, growth was strongest in the USA, which accounts for more than half of sector revenues. This was led by strong organic growth in communication and software systems for healthcare facilities, and the region also benefited from the positive effect of currency translation and the acquisition of IZI. There was also strong revenue growth on an organic constant currency1 basis in Mainland Europe and the UK, driven by a substantial backlog of demand for eye surgery products and for communication systems for healthcare facilities respectively. However, revenue in Asia Pacific declined on an organic constant currency1 basis, reflecting lockdowns in China, which represents close to half of the region's revenues.

Profit1 grew by 30.8% to £130.1m (2022: £99.5m), or by 14.0% on an organic constant currency basis. Return on Sales1 improved by 90 basis points to 23.4% (2022: 22.5%). This reflected a stable gross margin, which included a beneficial product mix and good management of pricing and material costs, and operational efficiencies. R&D expenditure increased to £33.1m, representing 5.9% of revenue (2022: £26.9m; 6.1% of revenue), reflecting continued high levels of investment in new product development.

The sector made one acquisition during the year: IZI was purchased in September 2022 for a maximum total consideration of £151m. IZI is a US-based designer, manufacturer and distributor of medical consumable devices which are mainly used by interventional radiologists and surgeons in a range of acute, hospital based diagnostic and therapeutic procedures.

Acquisitions had a positive effect of 4.7% on revenue and 4.0% on profit. Currency exchange movements had a positive effect of 11.3% on revenue and 12.8% on profit.

Principal Risks and Uncertainties

Going concern statement

The Group's business activities, together with the main trends and factors likely to affect its future development, performance and position, and the financial position of the Group as at 31 March 2023, its cash flows, liquidity position and borrowing facilities are set out in the Strategic Report. In addition, the Annual Report and Accounts 2023 contains further information concerning the security, currency, interest rates and maturity of the Group's borrowings.

The financial statements have been prepared on a going concern basis. In adopting the going concern basis the Directors have considered all of the above factors, including potential scenarios and its principal risks set out above. Under the potential scenarios considered, which includes a severe but plausible downside scenario, the Group remains within its debt facilities and the attached financial covenants for the foreseeable future and the Directors therefore believe, at the time of approving the financial statements, that the Company is well placed to manage its business risks successfully and remains a going concern. The key facts and assumptions in reaching this determination are summarised below.

The base case scenario has been prepared using forecasts from each operating company as well as cash outflows on acquisitions in line with pre Covid pandemic levels. In addition, a severe but plausible downside scenario has been modelled showing a decline in trading for the year ending 31 March 2024. This reduction in trading could be caused by events such as a significant resurgence in COVID-19 lockdowns beyond China or continued macroeconomic volatility leading to further inflation and interest rate increases. In mitigating the impacts of the downside scenario there are actions that can be taken which are entirely discretionary to the business such as reducing acquisition spend and dividend growth rates. In addition, the Group has demonstrated strong resilience and flexibility to manage its overheads and adapt its supply chains during the COVID pandemic and more recent global economic uncertainty.

Neither the base case nor severe but plausible downside scenarios result in a breach of the Group's available debt facilities or the attached covenants and, accordingly, the Directors believe there is no material uncertainty in the use of the going concern assumption and, therefore, deem it appropriate to continue to adopt the going concern basis of accounting for at least the next 12-month period.

Our financial position remains robust with committed facilities at the balance sheet date totalling approximately £931m which includes a £550m Revolving Credit Facility (RCF). The undrawn committed facilities as at 31st March 2023 amounted to £255.7m. In May 2022, the RCF was refinanced and now matures in May 2028, the first of two one-year extension options having been exercised post year-end. During May 2022, the Group also entered into a new Note Purchase Agreement which provided access to loan notes totalling £330m, which were drawn in various currencies in July 2022. The financial covenants across the facilities are for leverage (net debt/adjusted EBITDA) of not more than three and a half times and for adjusted interest cover of not less than four times.

Viability Statement

During the year, the Board carried out a robust assessment of the principal risks affecting the Group, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks and uncertainties, including an analysis of the potential impact and mitigating actions are set out above.

The Board has assessed the viability of the Group over a three-year period, taking into account the Group's current position and the potential impact of the principal risks and uncertainties. While the Board has no reason to believe that the Group will not be viable over a longer period, it has determined that three years is an appropriate period. In drawing its conclusion, the Board has aligned the period of viability assessment with the Group's strategic planning process (a three-year period). The Board believes that this approach provides greater certainty over forecasting and, therefore, increases reliability in the modelling and stress testing of the Company's viability. In addition, a three-year horizon is typically the period over which we review our external bank facilities and is also the performance-based period over which awards granted under Halma's share-based incentive plan are measured.

In making their assessment, the Board carried out a comprehensive exercise of financial modelling and stress-tested the model with a downside scenario based on the principal risks identified in the Group's annual risk assessment process. The scenarios modelled used the same assumptions as for the going concern review, as set out above, for the years ending 31 March 2024 and 31 March 2025 with further assumptions applied for the year ending 31 March 2026. The base case reflects the latest forecasts and strategic plans of the business. The downside scenario included a reduction in trading for the year to 31 March 2024 which could be caused by a significant downside event with the addition of impacts from other of the Group's principal risks such as litigation or product failure.

For the years ending 31 March 2025 and 31 March 2026 the downside scenario reflects growth at half the rate modelled in the base case. In both scenarios, the effect on the Group's KPls and borrowing covenants was considered, along with any mitigating factors. Based on this assessment, the Board confirms that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period to 31 March 2026.

Responsibility Statement of the Directors on the Annual Report and Accounts

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year to 31 March 2023. Certain parts thereof are not included within these Results.

Each of the Directors, whose names and functions are listed in the Annual Report and Accounts 2023, confirm that, to the best of their knowledge:

· the Group financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

· the company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets, liabilities and financial position of the company; and

· the Strategic Report and the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and company, together with a description of the principal risks and uncertainties that it faces.

This responsibility statement was approved by the Board of Directors on 15 June 2023.

Results for the year to 31 March 2023

Consolidated Income Statement

* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; significant restructuring costs, and profit or loss on disposal of operations; and the associated taxation thereon. Note 3 provides more information on alternative performance measures.

Consolidated Statement of Comprehensive Income and Expenditure

The exchange gains of £45.1m (2022: gains of £43.9m) includes losses of £7.4m (2022: losses of £8.6m) which relate to net investment hedges.

Consolidated Balance Sheet

*See footnote to the Consolidated Statement of Changes in Equity below.

The financial statements of Halma plc, company number 00040932, were approved by the Board of Directors on 15 June 2023.

Marc Ronchetti Steve Gunning

Director Director

Consolidated Statement of Changes in Equity

Own shares are ordinary shares in Halma plc purchased by the Company and held to fulfil the Company's obligations under the Group's share plans.

The market value of own shares was £42.4m (2022: £29.5m).

The Capital redemption reserve was created on repurchase and cancellation of the Company's own shares. The Hedging reserve is used to record the portion of the cumulative net change in fair value of cash flow hedging instruments that are deemed to be an effective hedge.

The Translation reserve is used to record the difference arising from the retranslation of the financial statements of foreign operations, offset by net investment hedges with a carrying value of £33.9m (2022: £26.5m). The Other reserves represent the cumulative fair value adjustments on equity instruments held at fair value through other comprehensive income.

* Effective for the year ended 31 March 2022, the share-based payment reserve, which was previously presented in Other reserves has been amalgamated with Retained earnings, in the Consolidated Statement of Changes in Equity and the Consolidated Balance Sheet as permitted by IFRS 2. This resulted in the £13.6m debit in brought forward Other reserves at 1 April 2021 being transferred to Retained earnings. There is no change in Total equity from this change, nor the amounts charged or credited to the reserves during the period, which represents a change in presentational accounting policy only.

Consolidated Cash Flow Statement

Accounting Policies

Basis of presentation

The consolidated financial statements of Halma are prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

The principal Group accounting policies are explained below and have been applied consistently throughout the years ended 31 March 2023 and 31 March 2022, other than those noted below.

The Group accounts have been prepared under the historical cost convention, except as described below under the headings 'Derivative financial instruments and hedge accounting', 'Financial assets at fair value through other comprehensive income (FVOCI)', 'Pensions' and 'Business combinations and goodwill'.

New Standards and Interpretations applied for the first time in the year ended 31 March 2023

The following Standards with an effective date of 1 January 2022, have been adopted without any significant impact on the amounts reported in these financial statements:

· Reference to the Conceptual Framework - Amendments to IFRS 3

· Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16

· Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37

· Annual Improvements to IFRS 2018- 2020

New Standards and Interpretations not yet applied

At the date of authorisation of these financial statements, the following Standards and Interpretations that are potentially relevant to the Group, and which have not been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the UK):

· IFRS 17 Insurance Contracts

· Classification of Liabilities as Current or Non-current - Amendments to IAS 1 - Not yet endorsed by the UK

· Definition of Accounting Estimates - Amendments to IAS 8

· Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2

· Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12

· Lease Liability in a Sale and Leaseback - Amendments to IFRS 16

· Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants - Amendments to IAS 1 - Not yet endorsed by the UK

· Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures - Not yet endorsed by the UK

· Amendments to IAS 12 International Tax Reform Pillar Two Model Rule - Not yet endorsed by the UK

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

Use of Alternative performance measures (APMs)

In the reporting of the financial information, the Group uses certain measures that are not required under IFRS, the Generally Accepted Accounting Principles (GAAP) under which the Group reports. The Directors believe that Return on Total Invested Capital (ROTIC), Return on Capital Employed (ROCE), Organic growth at constant currency, Adjusted profit and earnings per share measures, net debt, cash conversion and Adjusted operating cash flow provide additional and more consistent measures of underlying performance to shareholders by removing items that are not closely related to the Group's trading or operating cash flows. These and other alternative performance measures are used by the Directors for internal performance analysis and incentive compensation arrangements for employees. The terms ROTIC, ROCE, organic growth at constant currency and 'adjusted' are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures.

The principal items which are included in adjusting items are set out below in the Group's accounting policy and in note 1. The term 'adjusted' refers to the relevant measure being reported for continuing operations excluding adjusting items.

Definitions of the Group's material alternative performance measures along with reconciliation to their IFRS equivalent measure are included in note 3.

Key accounting policies

Below we set out our key accounting policies, with a list of all other accounting policies thereafter.

Going concern

The Group's business activities, together with the main trends and factors likely to affect its future development, performance and position, and the financial position of the Group as at 31 March 2023, its cash flows, liquidity position and borrowing facilities are set out in the Strategic Report. In addition, the Annual Report and Accounts 2023 contains further information concerning the security, currency, interest rates and maturity of the Group's borrowings.

The financial statements have been prepared on a going concern basis. In adopting the going concern basis the Directors have considered all of the above factors, including potential scenarios and its principal risks set out above. Under the potential scenarios considered, which includes a severe but plausible downside scenario, the Group remains within its debt facilities and the attached financial covenants for the foreseeable future and the Directors therefore believe, at the time of approving the financial statements, that the Company is well placed to manage its business risks successfully and remains a going concern. The key facts and assumptions in reaching this determination are summarised below.

The base case scenario has been prepared using forecasts from each Operating Company as well as cash outflows on acquisitions in line with pre Covid pandemic levels. In addition, a severe but plausible downside scenario has been modelled showing a decline in trading for the year ending 31 March 2024. This reduction in trading could be caused by events such as a significant resurgence in the Covid pandemic lockdowns beyond China or continued macroeconomic volatility leading to further inflation and interest rate increases. In mitigating the impacts of the downside scenario there are actions that can be taken which are entirely discretionary to the business such as reducing acquisition spend and dividend growth rates. In addition, the Group has demonstrated strong resilience and flexibility to manage its overheads and adapt its supply chains during the COVID pandemic and more recent global economic uncertainty.

Neither the base case nor severe but plausible downside scenarios result in a breach of the Group's available debt facilities or the attached covenants and, accordingly, the Directors believe there is no material uncertainty in the use of the going concern assumption and, therefore, deem it appropriate to continue to adopt the going concern basis of accounting for at least the next 12-month period.

Our financial position remains robust with committed facilities at the balance sheet date totalling approximately £931m which includes a £550m Revolving Credit Facility (RCF). The undrawn committed facilities as at 31 March 2023 amounted to £255.7m. In May 2022, the RCF was refinanced and now matures in May 2028, the first of two one-year extension options having been exercised post year-end. During May 2022, the Group also entered into a new Note Purchase Agreement which provided access to loan notes totalling £330m, which were drawn in various currencies in July 2022. The financial covenants across the facilities are for leverage (net debt/adjusted EBITDA) of not more than three and a half times and for adjusted interest cover of not less than four times.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group measures goodwill at the acquisition date as:

· the fair value of the consideration transferred; plus

· the recognised amount of any non-controlling interests in the acquiree measured at the proportionate share of the value of net identifiable assets acquired; plus

· the fair value of the existing equity interest in the acquiree; less

· the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Any contingent consideration payable may be accounted for as either:

a) Consideration transferred, which is recognised at fair value at the acquisition date. If the contingent purchase consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent purchase consideration are recognised in the Consolidated Income Statement; or

b) Remuneration, which is expensed in the Consolidated Income Statement over the associated period of service. An indicator of such treatment includes when payments to employees of the acquired company are contingent on a post-acquisition event, but may be automatically forfeited on termination of employment.

For acquisitions between 4 April 2004 (the date from which the financial statements were reported under IFRS) and 2 April 2010, goodwill represents the difference between the cost of the acquisition, including acquisition costs and the fair value of the net identifiable assets acquired. Goodwill has an indefinite expected useful life and is not amortised, but is tested annually for impairment.

Goodwill is recognised as an intangible asset in the Consolidated Balance Sheet. Goodwill therefore includes non-identified intangible assets including business processes, buyer-specific synergies, know-how and workforce-related industry-specific knowledge and technical skills. Negative goodwill arising on acquisitions would be recognised directly in the Consolidated Income Statement.

On closure or disposal of an acquired business, goodwill would be taken into account in determining the profit or loss on closure or disposal.

As permitted by IFRS 1, the Group elected not to apply IFRS 3 'Business Combinations' to acquisitions prior to 4 April 2004 in its consolidated accounts. As a result, the net book value of goodwill recognised as an intangible asset under UK GAAP at 3 April 2004 was brought forward unadjusted as the cost of goodwill recognised under IFRS at 4 April 2004 subject to impairment testing on that date; and goodwill that was written off to reserves prior to 28 March 1998 under UK GAAP will not be taken into account in determining the profit or loss on disposal or closure of previously acquired businesses from 4 April 2004 onwards.

Payments for contingent consideration are classified as investing activities within the Consolidated Cash Flow Statement, except for amounts paid in excess of that estimated in the acquisition balance sheets which are recognised in the net cash inflow from operating activities in the year together with movements in contingent consideration provisions charged/credited to the Consolidated Income Statement which is included as a reconciling item between operating profit and cash inflow from operating activities.

Intangible assets

(a) Acquired intangible assets

An intangible resource acquired with a subsidiary undertaking is recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights, is expected to generate future economic benefits and its fair value can be measured reliably. Acquired intangible assets, comprising trademarks, technology and know-how and customer relationships, are amortised through the Consolidated Income Statement on a straight-line basis over their estimated economic lives of between three and 20 years. The carrying value of intangible assets is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.

(b) Product development costs

Research expenditure is charged to the Consolidated Income Statement in the financial year in which it is incurred.

Development expenditure is expensed in the financial year in which it is incurred, unless it relates to the development of a new or substantially improved product, is incurred after the technical feasibility and economic viability of the product has been proven and the decision to complete the development has been taken, and can be measured reliably. Such expenditure, meeting the recognition criteria of IAS 38 'Intangible Assets', is capitalised as an intangible asset in the Consolidated Balance Sheet at cost and is amortised through the Consolidated Income Statement on a straight-line basis over its estimated economic life of three years.

Pensions

The Group makes contributions to various pension plans.

For defined benefit plans, the asset or liability recorded in the Consolidated Balance Sheet is the difference between the fair value of the plan's assets and the present value of the defined obligation at that date. The defined benefit obligation is calculated separately for each plan on an annual basis by independent actuaries using the projected unit credit method.

Actuarial gains and losses are recognised in full in the period in which they occur and are taken to other comprehensive income.

Current and past service costs, along with the impact of any settlements or curtailments, are charged to the Consolidated Income Statement. The net interest expense on pension plans' liabilities and the expected return on the plans' assets is recognised within finance expense in the Consolidated Income Statement.

Contributions to defined contribution plans are charged to the Consolidated Income Statement in the period the expense relates to.

Impairment of trade and other receivables

The Group assesses on a forward-looking basis the expected credit losses associated with its trade and other receivables carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

The Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. In order to estimate the expected lifetime losses, the Group categorises its customers into groups with similar risk profiles and determines the historic rates of impairment for each of those categories of customer. The Group then adjusts the risk profile for each group of customers by using forward looking information, such as the government risk of default for the country in which those customers are located, and determines an overall probability of impairment for the total trade and other receivables at the balance sheet date.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of Group accounts in conformity with IFRS requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experiences and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

In preparing the Consolidated Financial Statements management has considered the impact of climate change, particularly in the context of the disclosures included in the Strategic Report and the stated Net Zero ambitions. These considerations did not have a material impact on the financial reporting judgements and estimates in the current year. Climate change is not expected to have a significant impact on the Group's going concern assessment as at March 2023 nor the viability of the Group over the next three years.

The following areas of critical accounting judgement and key estimation uncertainty have been identified as having significant risk of causing a material adjustment to the carrying amounts of assets and liabilities:

Critical accounting judgements

Goodwill impairment CGU groups

Determining whether goodwill is impaired requires management's judgement in assessing cash generating unit (CGU) groups to which goodwill should be allocated. Management allocates a new acquisition to a CGU group based on which one is expected to benefit most from that business combination. The allocation of goodwill to existing CGU groups is generally straightforward and factual, however over time as new businesses are acquired and management reporting structures change, management reviews the CGU groups to ensure they are still appropriate. There have been no changes to the CGU groups in the current year.

Recoverability of non-current taxation assets

In the current year, determining the recoverability of tax assets requires management's judgement in assessing the amounts paid in relation to group financing partial exemption applicable to UK controlled foreign companies as a result of the decision by the European Commission that this constitutes state aid. Management's assessment is that this represents a contingent liability and that the £14.7m paid to HM Revenue & Customs (HMRC) in previous years, included within non-current assets on the Consolidated Balance Sheet, will ultimately be recovered.

Key sources of estimation uncertainty

Contingent consideration changes in estimates

Determining the value of contingent consideration recognised as part of the acquisition of a business requires management to estimate the expected performance of the acquired business and the amount of contingent consideration that will therefore become payable. Initial estimates of expected performance are made by the management responsible for completing the acquisition and form a key component of the financial due diligence that takes place prior to completion. Subsequent measurement of contingent consideration is based on the Directors' appraisal of the acquired business's performance in the post-acquisition period and the agreement of final payments.

Intangible assets

Intangible assets IFRS 3 (revised) 'Business Combinations' requires that goodwill arising on the acquisition of subsidiaries is capitalised and included in intangible assets. IFRS 3 (revised) also requires the identification and valuation of other separable intangible assets at acquisition. The assumptions involved in valuing these intangible assets require the use of management estimates.

IAS 38 'Intangible Assets' requires that development costs, arising from the application of research findings or other technical knowledge to a plan or design of a new or substantially improved product, are capitalised, subject to certain criteria being met. Determining the technical feasibility and estimating the future cash flows generated by the products in development requires the use of management estimates.

The estimates made in relation to both acquired intangible assets and capitalised development costs include identification of relevant assets, future growth rates, expected inflation rates and the discount rate used. Management also make estimates of the useful economic lives of the intangible assets. Management engages third party specialists to assist with the valuation of acquired intangible assets for significant acquisitions. Depending on the nature of the assets the Group uses different valuation methodologies to arrive at the fair value including the excess earnings method, the relief from royalty method and the cost savings method. Financial projections are based on market participants' expectations and are discounted to their present value using rates of return which reflects the risk of the investment and the time value of money.

Goodwill and acquired intangibles impairment future cash flows

The 'value in use' calculation used to test for impairment of goodwill and acquired intangibles involves an estimation of the present value of future cash flows. For annual impairment testing of goodwill, the future cash flows of the CGU Group are based on annual budgets and forecasts of each relevant CGU, as approved by the Board, to which management's expectation of market-share and long-term growth rates are applied. The present value is then calculated based on management's estimate of future discount and growth rates. The Board reviews these key assumptions (operating assumptions, long-term growth rates, and discount rates) and the sensitivity analysis around these. Management believes that there is no reasonably possible change in any of the key assumptions that would cause the carrying value of any CGU group to exceed its recoverable amount.

Acquired intangibles are assessed each reporting period for any indicators of impairment, both qualitative and quantitative, including as a result of our assessments of climate-related risks. If there are deemed to be any indicators of impairment a 'value in use' calculation is performed over the remaining useful life of the asset to identify if any impairment is needed. Where required, in calculating the 'value in use', future cash flows are based on annual budgets and forecasts for the relevant business. The present value is then calculated based on management's estimate of future discount and growth rates. The Board and management reviews these key assumptions (operating assumptions, growth rates, and discount rates) and the sensitivity analysis around these.

Defined benefit pension plan liabilities

Determining the value of the future defined benefit asset/obligation requires estimation in respect of the assumptions used to calculate present values of plan liabilities. The significant assumptions utilised in the calculations are future mortality, discount rate and inflation. Management determines these assumptions in consultation with an independent actuary.

Other accounting policies

Basis of consolidation

The Group accounts include the accounts of Halma plc and all of its subsidiary companies made up to 31 March 2023, adjusted to eliminate intra-Group transactions, balances, income and expenses. The results of subsidiary companies acquired or disposed are included from the month of their acquisition or to the month of their disposal.

Segmental reporting

An operating segment is a distinguishable component of the Group that is engaged in business activities from which it may earn revenues and incur expenses, and whose operating results are reviewed regularly by the Chief Operating Decision Maker (the Group Chief Executive) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Reportable segments are operating segments that either meet the thresholds and conditions set out in IFRS 8 or are considered by the Board to be appropriately designated as reportable segments. Segment result represents operating profits and includes an allocation of Head Office expenses. Segment result excludes tax and financing items. Segment assets comprise goodwill, other intangible assets, property, plant and equipment and Right-of-Use assets (excluding land and buildings), inventories, trade and other receivables.

Segment liabilities comprise trade and other payables, provisions and other payables. Unallocated items represent land and buildings (including Right-of-Use assets), corporate and deferred taxation balances, defined benefit plan asset/obligation, contingent purchase consideration, all components of net cash/borrowings, lease liabilities and derivative financial instruments.

From 1 April 2022, the Group aligned its organisational structure and financial reporting with its purpose and focus on safety, environmental and health markets. The Group now has three main operating and reportable segments (Safety, Environmental & Analysis and Healthcare), which are defined by markets rather than product type. Each segment includes businesses with similar operating and market characteristics and are consistent with the internal reporting as reviewed by the Group Chief Executive.

Revenue

The Group's revenue streams are the sale of goods and services in the specialist safety, environmental technologies and health markets. The revenue streams are disaggregated into three sectors, that serve like markets. Those sectors are Safety, Environmental & Analysis and Healthcare.

Revenue is recognised at the point of the transfer of control over promised goods or services to customers in an amount that reflects the amount of consideration specified in a contract with a customer, to which the Group expects to be entitled in exchange for those goods or services.

It is the Group's judgement that in the majority of sales there is no contract until such time as the Operating Company satisfies its performance obligation, at which point the contract becomes the Operating Company's terms and conditions resulting from the supplier's purchase order. Where there are Master Supply Arrangements, these are typically framework agreements and do not contain clauses that would result in a contract forming under IFRS 15 until a Purchase Order is issued by the customer.

Revenue represents sales, net of estimates for variable consideration, including rights to returns, and discounts, and excluding value added tax and other sales related taxes. The amount of variable consideration is not considered to be material to the Group as a whole. The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

Performance obligations are unbundled in each contractual arrangement if they are distinct from one another. There is judgement in identifying distinct performance obligations where the product could be determined to be a system, or where a combination of products and services are provided together. For the majority of the Group's activities the performance obligation is judged to be the component product or service rather than the system or combined products and services. The contract price is allocated to the distinct performance obligations based on the relative standalone selling prices of the goods or services.

The way in which the Group satisfies its performance obligations varies by business and may be on shipment, delivery, as services are rendered or on completion of services depending on the nature of product and service and terms of the contract which govern how control passes to the customer. Revenue is recognised at a point in time or over time as appropriate.

Where the Group offers warranties that are of a service nature, revenue is recognised in relation to these performance obligations over time as the services are rendered. In our judgement we believe the associated performance obligations accrue evenly across the contractual term and therefore revenue is recognised on a pro-rated basis over the length of the service period.

In a small number of instances across the Group, products have been determined to be bespoke in nature, with no alternative use. Where there is also an enforceable right to payment for work completed, the criteria for recognising revenue over time have been deemed to have been met. Revenue is recognised on an input basis as work progresses. Progress is measured with reference to the actual cost incurred as a proportion of the total costs expected to be incurred under the contract. This is not a significant part of the Group's business as for the most part, where goods are bespoke in nature, it is the Group's judgement that the product can be broken down to standard component parts with little additional cost and therefore has an alternate use, or there is no enforceable right to payment for work performed. In these cases, the judgement is made that the requirements for recognising revenue over time are not met and revenue is recognised when control of the finished product passes to the customer.

The Group applies the practical expedient in IFRS 15 (paragraph 63) and does not adjust the promised amount of consideration for the effects of a significant financing component if the Group expects, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Operating profit

Operating profit is presented net of direct production costs, production overheads, selling costs, distribution costs and administrative expenditure. Operating profit is stated after charging restructuring costs but before the share of results of associates, profit or loss on disposal of operations, finance income and finance costs.

Adjusting items

When items of income or expense are material and they are relevant to an understanding of the entity's financial performance, they are disclosed separately within the financial statements. This provides additional and more consistent measures of underlying performance to shareholders by removing items that are not closely related to the Group's trading or operating cash flows. Such adjusting items include costs or reversals arising from acquisitions or disposals of businesses, including acquisition costs, creation or reversals of provisions related to changes in estimates for contingent consideration on acquisition, amortisation and impairment of acquired intangible assets, and other significant one-off items that may arise.

Deferred government grant income

Government grant income that is linked to capital expenditure is deferred to the Consolidated Balance Sheet and credited to the Consolidated Income Statement over the life of the related asset. In addition, the Group claims research and development expenditure credits arising on qualifying expenditure and shows these 'above the line' in operating profit. Where the credits arise on expenditure that is capitalised as part of internally generated capitalised development costs, the income is deferred to the Consolidated Balance Sheet and credited to the Consolidated Income Statement over the life of the related asset in line with the policy stated above.

Finance income and expenses

The Group recognises interest income or expense using the effective interest rate method. Finance income and finance costs include:

· Interest payable on loans, borrowings and lease obligations.

· Net interest charge on pension plan liabilities.

· Amortisation of finance costs.

· Interest receivable in respect of cash and cash equivalents.

· Unwinding of the discount on provisions.

· Fair value movements on derivative financial instruments.

The Group has classified interest income and expenses within financing activities in the Consolidated Cash Flow Statement.

Taxation

Taxation comprises current and deferred tax. Tax is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in Total equity, in which case it too is recognised in Total equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, along with any adjustment to tax payable in respect of previous years. Taxable profit differs from net profit as reported in the Consolidated Income Statement because it excludes items that are never taxable or deductible.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes and is accounted for using the balance sheet liability method, apart from the following differences which are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates and laws, which are expected to apply in the year when the liability is settled, or the asset is realised. Deferred tax assets are only recognised to the extent that recovery is probable.

Foreign currencies

The Group presents its accounts in Sterling. Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates prevailing at that date. Non-monetary assets and liabilities denominated in foreign currencies are measured in terms of historical costs using the exchange rate at the date of the initial transaction. Any gain or loss arising on monetary assets and liabilities from subsequent exchange rate movements is included as an exchange gain or loss in the Consolidated Income Statement.

Net assets of overseas subsidiary companies are expressed in Sterling at the rates of exchange ruling at the end of the financial year, and trading results and cash flows at the average rates of exchange for the financial year. Goodwill arising on the acquisition of a foreign business is treated as an asset of the foreign entity and is translated at the rate of exchange ruling at the end of the financial year. Exchange gains or losses arising on these translations are taken to the Translation reserve within Total equity.

In the event that an overseas subsidiary is disposed of or closed, the profit or loss on disposal or closure will be determined after taking into account the cumulative translation difference held within the Translation reserve attributable to that subsidiary. As permitted by IFRS 1, the Group has elected to deem the translation to be £nil at 4 April 2004. Accordingly, the profit or loss on disposal or closure of foreign subsidiaries will not include any currency translation differences which arose before 4 April 2004.

Other intangible assets

(a) Computer software

Computer software that is not integral to an item of property, plant or equipment is recognised separately as an intangible asset and is amortised through the Consolidated Income Statement on a straight-line basis from the point at which the asset is ready to use over its estimated economic life of between three and five years.

Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets where the following criteria are met:

· it is technically feasible to complete the software so that it will be available for use;

· management intends to complete the software and use or sell it;

· there is an ability to use or sell the software;

· it can be demonstrated how the software will generate probable future economic benefits;

· adequate technical, financial and other resources to complete the development and to use or sell the software are available; and

· the expenditure attributable to the software during its development can be reliably measured.

Where the Group enters into a SaaS cloud computing arrangement to access software, there are limited cases for capitalisation of attributable implementation costs. If the arrangement contains a lease as defined by IFRS 16, lease accounting rules apply including capitalisation of directly attributable costs. Alternatively, directly attributable software costs can create an intangible asset if the software can be controlled by the entity, either through the option to be run on the entity's or a third-party's infrastructure or where the development of the software creates customised software that the entity has exclusive rights to.

(b) Other intangibles

Other intangibles are amortised through the Consolidated Income Statement on a straight-line basis over their estimated economic lives of between three and ten years.

Property, plant and equipment

Property, plant and equipment is stated at historical cost less provisions for accumulated impairment and accumulated depreciation which, with the exception of freehold land which is not depreciated, is provided on a straight-line basis over each asset's estimated economic life. The principal annual rates used for this purpose are:

Investments in associates

An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but without control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the Consolidated Balance Sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any deficiency of the cost of acquisition below the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition (i.e. discount on acquisition) is credited in profit or loss in the year of acquisition.

Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provisioning is made for impairment.

Where the Group disposes of its entire interest in an associate a gain or loss is recognised in the income statement on the difference between the amount received on the sale of the associate less the carrying value and costs of disposal.

Financial assets at fair value through other comprehensive income

Financial assets at fair value through other comprehensive income (FVOCI) comprise equity securities which are not held for trading, and which the Group has irrevocably elected at initial recognition to recognise as FVOCI. The Group considers this classification relevant as these are strategic investments.

Financial assets at FVOCI are adjusted to the fair value of the asset at the balance sheet date with any gain or loss being recognised in other comprehensive income and held as part of other reserves. On disposal any gain or loss is recognised in other comprehensive income and the cumulative gains or losses are transferred from other reserves to retained earnings.

Impairment of non-current assets

All non-current assets are tested for impairment whenever events or circumstances indicate that their carrying value may be impaired. Additionally, goodwill and capitalised development expenditure relating to a product that is not yet in full production are subject to an annual impairment test.

An impairment loss is recognised in the Consolidated Income Statement to the extent that an asset's carrying value exceeds its recoverable amount, which represents the higher of the asset's 'fair value less costs to dispose' and its 'value in use'. An asset's 'value in use' represents the present value of the future cash flows expected to be derived from the asset or from the cash generating unit to which it relates. The present value is calculated using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks specific to the asset concerned.

Impairment losses recognised in previous periods for an asset other than goodwill are reversed if there has been a change in the estimates used to determine the asset's recoverable amount, but only to the extent that the carrying amount of the asset does not exceed its carrying amount had no impairment loss been recognised in previous periods. Such reversals are recognised in the Consolidated Income Statement. Impairment losses in respect of goodwill are not reversed.

Inventories

Inventories and work in progress are included at the lower of cost and net realisable value. Cost is calculated either on a 'first in, first out' or an average cost basis and includes direct materials and the appropriate proportion of production and other overheads considered by the Directors to be attributable to bringing the inventories to their location and condition at the year end. Net realisable value represents the estimated selling price less all estimated costs to complete and costs to be incurred in marketing, selling and distribution.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, deposits with an initial maturity of less than three months, and bank overdrafts that are repayable on demand.

Contract assets and liabilities

A contract asset is recognised when the Group's right to consideration is conditional on something other than the passage of time, for example the completion of future performance obligations under the terms of the contract with the customer.

In some instances, the Group receives payments from customers based on a billing schedule, as established in the contract, which may not match with the pattern of performance under the contract. A contract liability is only recognised on non-cancellable contracts that provide unconditional rights to payment from the customer for products and services that the Group has not yet completed providing or that it will provide in the near future. Where performance obligations are satisfied ahead of billing then a contract asset will be recognised.

Contract assets are recognised within Trade and other receivables and are assessed for impairment on a forward-looking basis using the expected lifetime losses approach, as required by IFRS 9 ('Financial Instruments').

Costs to obtain or fulfil a contract

The incremental costs of obtaining a contract with a customer are capitalised as an asset if the Group expects to recover them. Costs such as sales commissions may be incurred when the Group enters into a new contract. Costs to obtain or fulfil a contract are presented in the Consolidated Balance Sheet as assets until the performance obligation to which they relate has been met. These assets are amortised on a consistent basis with how the related revenue is recognised.

The Group applies the practical expedient in IFRS 15 (paragraph 94) and recognises incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the Group would otherwise have recognised is one year or less.

Trade payables

Trade payables are non-interest bearing and are stated at amortised cost.