Halma: Record first half revenues and profits delivered

Halma PLC is a global group of life-saving technology companies, focused on growing a safer, cleaner, healthier future for everyone, every day. The company is listed on the LSE main market, is a constituent of the FTSE100 and has a market cap of £10.2bn. Half year results to 30 September 2024 were released on 21 November 2024.  

We were delighted to welcome Charles King, Head of Investor Relations, and Melanie Horton, Deputy Head of Investor Relations to a webinar for private investors to talk about these results and how the company is performing in the current environment. A recording of the webinar is available here.

The presentation started with a reminder that Halma reported record revenues, profit and dividends in the six months to 30 September 2024. Revenues grew to more than £1bn, adjusted EBIT grew to more than £200m for the first time and this came from strong double digit organic growth and contributions from M&A. Confidence in the future was evident in the 7% increase in the dividend. The company remains a higher margin, high return business which is strongly cash generative. Going forward growth will come from both organic and acquired sources and Halma has made 7 acquisitions in the year to date.

Delving deeper into the financials, revenues grew 13% to £1.074m, EBIT was up 17% and the margin improved 70bps to 20.7%. Combined this generated a RoTIC, the company’s main returns metric, of 14.3% up from 13.2%. This RoTIC is slightly ahead of the 10 year H1 RoTIC. Halma has consistently invested in future growth opportunities and in the first half invested £130m on R&D and M&A. This was made up of £54m (+8%) invested in R&D, equivalent to 5% of sales and additionally £84m was spent on 4 acquisitions. One of these was a new standalone company and 3 were bolt on investments for existing companies in the group. Since the half year end 2 further bolt on acquisitions have been made and 1 further standalone acquisition. M&A spend to date is now £158m and there is a strong pipeline of future acquisition targets. In total M&A added 4.3% to EBIT. Cash conversion came in at 108% which helped to reduce net debt/EBITDA to 1.27x and enabled a 7% increase in the dividend to 9p. Halma is on track for its 46th consecutive year of 5% or more dividend growth. The company is in a very strong financial position.

At a sector level Safety grew revenues 11% and profits 20% and remains the largest sector accounting for 41% of revenues. There was positive revenue growth across all regions and the margin in Safety grew 190bps. The standout performer was Environment & Analysis which grew 27% and now makes up 34% of revenues. All the geographic regions also grew revenue with the US contributing very strong growth. Profit increased by 36% and margin recovered 190bps to 22.8%. Finally the Healthcare sector grew revenues 1% and in total accounts for 25% of revenues. The US, Asia Pacific and other regions all grew but there were declines in Europe and the UK. Profit margins fell 260bps to 20.8%, however gross margins improved slightly.

A video was then played which showcased three Halma companies and their products and services in fire safety, water leak detection and healthcare. Each example showing the positive impact on peoples lives across the globe.

A key part of the strategy has been growth through acquiring companies in related areas and helping these companies to grow with the benefit of the Halma infrastructure. So far this year the company has made 7 acquisitions investing across all sectors, 3 were highlighted which are focussed on long term growth trends. MK Test, is a company supporting the energy transition involved in high voltage electrical testing and adds to recently acquired capabilities. Hathorn has expanded the mini cams capabilities and helps to ensure clean water and prevent pollution. Finally, Lamidey Noury adds capabilities in minimally invasive surgery to the health care vertical. Bolt on acquisitions have been used by existing portfolio companies to further their growth ambitions. More acquisitions are being sourced to continue the contribution M&A makes to revenue and profit growth. Where necessary disposals are also made and the first half Halma sold Hydreka for £7m.

Looking at performance against financial KPI’s the company has again performed exceptionally well, meeting or exceeding them on every measure. Organic revenue growth of 11.5% was comfortably above the 5% threshold, organic profit was up 14.8%, again comfortably higher than the 5% threshold. Acquisition profit grew 8.6% ahead of the 5% threshold and EPS growth of 16.6% beat the 10% target. EPS growth was achieved despite adverse currency and tax movements. Cash conversion improved to 108%, above the 90% target and R&D spend of 5% of sales was just above the 4% threshold. RoTIC of 14.3% was significantly up from last year and way ahead of the WACC. Adjusted EBIT margin of 20.7% was also within the 19-23% target range. Taken together these numbers are evidence of a very high quality company.

Looking ahead at guidance for FY 3/25 the strength of the first half performance means they are well placed to deliver existing guidance for the FY. The company expects to deliver good organic constant currency revenue growth, Adjusted EBIT margin of 21% in the middle of the target range and see order intake ahead of revenues and the prior year. Overall the company is well positioned to make further progress in the second half of the year.

Summarising performance in the context of the longer term track record, Halma has delivered a 10 year revenue CAGR of 12% and a 10 year EBIT CAGR of 12%. This is despite tough external markets and underlines the importance of being exposed to long term growth markets. Few companies come anywhere close to matching this compounding performance. 

Charles and Melanie provided a very clear explanation of the Halma performance and strategy. They also sounded particularly confident about the continuation of sustainable revenue and profit growth. The outlook  for future growth in sales, profits and dividends appears attractive. History suggests they will continue to deliver.

A recording of the webinar is available here. If you would like further information on other webinars organised by Yellowstone Advisory, please contact info@yellowstoneadvisory.com