Halma reported full-year organic revenue growth of 9%, ignoring currency impacts, to £2.2bn. Underlying operating profit grew 13% to £486.3mn, ahead of expectations.
Seven acquisitions were completed, with a maximum consideration of £157mn.
Net debt, including leases, improved by £117.4mn to £535.8mn, or 0.97 times cash profit (EBITDA). Due to higher profits and efficient cash management, free cash flow rose from £435.1mn to £545.7mn.
The new year has made a positive start, and Halma is aiming to deliver upper single digit organic revenue growth in the coming year. Underlying operating profit margin is expected to be modestly above 21% (usual target range 19-23%).
A final dividend of 14.12p was announced, taking the total to 23.12p, up 7%.
The shares are up 8.1% in early trading.
Our view
Halma continues to showcase its strengths as a collection of quality businesses in attractive end markets. Last year’s performance was better than expected, largely off the back of strong growth from a single business that plays a critical role in AI data centres.
Halma's essentially a collection of businesses working to provide technology solutions in the safety, health, and environmental markets. This differentiated business model, geared toward non-discretionary and sustainability related demand, offers exposure to some resilient long-term growth drivers. These include increasing demand for healthcare, tighter safety regulations, and growing global efforts to address climate change, waste and pollution.
The healthcare sector has been under some pressure over the past year or so, but we were encouraged to see a significant improvement in more recent performance. This will be a key area to watch as we move through the new financial year.
More broadly, Halma has shown itself to be a safe pair of hands, delivering its 22nd consecutive year of profit growth. This provides some comfort that it can prosper even in a challenging economic environment, but there are no guarantees.
Acquisitions are key to the strategy, so cash conversion (the level of operating profit backed up by cash) is essential. This is a key strength for Halma, it regularly generates more cash than profit – a strong signal of a well-run business. One of the first things we look at in a buy-and-build business model is its ability to throw off cash flow. Buying businesses isn't cheap; it's much more sustainable if it can be funded by internally generated cash.
The amount of capital spent in the acquisition arena did lag a little in the year just ended, coming off a few years of higher activity. We don’t want Halma to buy for the sake of it, but having a healthy pipeline of deals and being able to execute is key.
One of the benefits of spending less was a decent reduction in net debt. The balance sheet is in a very healthy position, supporting future acquisitions and the company’s stellar track record of growing the dividend. The yield is modest, but the most recent hike marks the company’s 46th year of a 5% or higher dividend increase - though, of course, nothing is guaranteed.
All in, we're supportive of Halma's business model and growth drivers. But we aren't alone, and while the valuation has come down from its pandemic highs, it's still towards the top of its peer group. There's plenty of pressure to deliver.
Environmental, social and governance (ESG) risk
General Industrial companies are medium risk in terms of ESG but can trend up to the higher end of the spectrum depending on subindustry. The primary risks can include labour relations, emissions (either product or production-based), business ethics and product governance. Other concerns are waste and health & safety.
According to Sustainalytics, Halma’s management of material ESG issues is strong
Halma has appointed a dedicated management committee to oversee these areas and implemented a strong environmental policy. While its ESG reporting doesn't fully align with leading standards yet, there is a clear link between executive pay and sustainability goals. Additionally, Halma has a robust whistleblower program in place to ensure accountability.
Halma key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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