H2 20/21

Jun 10, 2021

Good morning, everyone, and welcome to our results presentation. It's my 17th full year results presentation as Halma's CEO. And although it's another year of record profit, it's been the most challenging year I've had and probably the most humbling year I've had in terms of what's been achieved across the group because you'll see today how the pandemic has really brought to life all of the elements that ensure Halma continues to create value for all our stakeholders and will continue to thrive in the future whatever challenges may come along. The effects of the COVID pandemic have also tested our sustainable growth model and the authenticity of our purpose in a way we haven't seen before. But the real heroes for me throughout the year have been our companies who have faced disruption in their markets, have dealt with customers who faced disruption in their markets with their suppliers. They needed to ensure a safe place for people to work. The welfare of employees has been important, and they've had to find new ways of working with their customers. So for example, addressing the limitations of not having physical access to many of their customer locations. At the same time, the pandemic has significantly accelerated the pace of change in many of our markets. So we've seen the hastening adoption of digital technologies, and we've seen increasing demand for services and products which conserve scarce natural resources, the impact of Climate Change. But it's the agility and collaborative culture which is embodied in our DNA which has really allowed us to respond to these new challenges to meet those customer needs by providing life saving and life enhancing solutions in the short term, yet at the same time managed to carry on investing in key areas to secure our success over the longer term. And finally, the pandemic has intensified the scrutiny from external stakeholders on businesses, on companies like Halma. And in this context, our purpose of growing a safer, cleaner, healthier future everyone every day has never been more relevant. And I'm proud of not just what we've achieved, but also how we've achieved it. And as we go through today's presentation, you're going to see pictures like this of Halma employees to give them the recognition of what they've done and what they've contributed. And this one here is from our company of the year, Permapure, one of our medical companies. And briefly, in February 2020, Permapure completed the acquisition of Maxtech, which is a business that specializes in patient monitoring and respiratory technology. So immediately after completing the acquisition, they were thrown into the pandemic and they saw a huge surge in demand for their products to help patients suffering from COVID-nineteen. And they managed to not only keep their production lines running but also triple our output and at the same time find new ways of working to keep people safe. So this is just one example of what's been going on across our group this year, and I'd like to thank all the people across Halma for what they've sacrificed and what they've contributed to living our purpose and making sure we satisfied the broader needs of all of our stakeholders. So how have we created value for those stakeholders? So we delivered a robust financial performance, and importantly, we delivered that without accessing external support from U. K. Government or indeed from shareholders. At the same time, we've enhanced support for our people, both financially and through various well-being programs. We recognize that the pandemic has presented them with new challenges. Our leaders have passed an unprecedented test of their leadership and resilience. And that's really critical in an organization like Halma where we have devolved decision making. And it's been really helped also by having a clear operating model and a real clear sense of purpose across our business. We delivered not just financially, but also we continue to invest and make strategic investments. We've even transitioned now to a new sector structure for our organization, and we've successfully completed some planned and orderly succession for key roles in the group. And finally, we've created a new sustainability framework, and that sustainability framework gives us a new structure. It amplifies our positive impact. It amplifies the impact we get from our purpose aligned growth, but most importantly, focuses our attention on those things we think are most important for Halma but also for our key stakeholders. Let's look at what we achieved financially over the past year because it was a record profit year. It was our 18th consecutive year of record profit. Our revenue was down only 2% or £20,000,000 on last year's level, and we saw very significant variation across our markets, and Mark will give you some more information on that in a few moments. However, our adjusted profit increased by 4% or £11,000,000 and that included 1% of organic constant currency growth. And that contributed to an impressive 13% increase in statutory profit, which included the Fiber Guy disposal we completed in the Q3. It's worth remembering that this time last year, we were expecting a 5% to 10% profit reduction in the year compared to the prior year. So it's a tremendous achievement by our companies and reflects not just that sense of purpose, but also the agility in our operating model and our ability to flexibly manage our cost base. And Mark, again, will give you more details on that shortly. At the start of the year, we prioritized ensuring strong cash generation and maintaining liquidity. And I'm really pleased to see the cash performance this year an excellent cash performance with cash conversion of over 104%. As a result of that, our net debt is reduced by around £120,000,000 to £256,000,000 and we have available liquidity of over £400,000,000 for investment in future growth. The financial strength we have, but also our company's confidence in the future, has meant they've maintained a high level of R and D investment, this time around 5.3% of revenue, which is really encouraging to see as we come into the new year. And then finally, we've continued to deliver high return. So our return on sales at 21.1 percent is towards the higher end of our 18% to 22% target range, again driven by those discretionary cost savings. And our ROATIC at 14.4% is well above our 12% KPI and almost double our weighted cost of capital, which we estimate to be around 6.7%. So given this overall robust performance and our confidence in the future, we are increasing our final dividend by 8.2%, which together with our interim dividend increase of 5%, gives us a full year dividend increase of 7%, which would be our 42nd consecutive year of increasing full year dividends by 5% or more. It was very much a year where we saw sequential improvement as we went through the period. And you can see that on these figures, which show you the comparison between the first half of the year and the second half of the year. So after the initial dip in the Q1, we saw substantially improved performance as the year progressed as some markets began to recover and our companies began to respond to the new challenges and opportunities. Revenue increased sequentially in each of the 4 quarters of the year, and all the sectors delivered a stronger revenue performance in the second half of the year. That strong cost control results in double digit profit growth in the second half, both on a reported and an organic basis. And finally, you can see here that following our decision to postpone M and A transaction in the first half of the year, Activity rapidly picked up in the second half and has continued into this financial year. So all of this clearly gives us good trading momentum as we came into the new financial year. And together with that continued investment, leaves us well placed to make further progress in the year ahead. I'm now going to hand over to Mark, who's going to take you through more details of our financial performance. Thank you, Andrew, and good morning, everyone. As you've heard from Andrew, we've delivered a robust performance in 2021 with record profit, continued high returns, together with a very strong cash performance, which enabled us to further strengthen our balance sheet while also increasing our investment to support future growth. For me, this performance reinforces the value of our sustainable growth model, the benefits of our Growth model, the benefits of our clear purpose and strong culture and the flexibility of our business model, which allows our and the variability of underlying sector performance, I'll focus on the group level numbers, including some phasing and key profit driver analysis before sharing some highlights from the 4 sectors. So let's start with group revenue. As you can see, revenue decreased 1.5%, which include a resilient organic performance and a benefit from recent acquisitions. It was positive to see stronger momentum in the second half with revenue up 2% compared to a fall of 5% in the first half in addition to a sequential improvement throughout the year. This momentum has continued with organic constant currency revenue for this calendar year to the end of May, up 10% year on year. So working from left to right, organic constant currency revenue was down 5.6% with an 11% reduction in the first half improving to a flat performance in the second half. There was a strong contribution of 5.4% from acquisitions, principally those made during the last financial year but also including a benefit from the purchase of Static Systems Group, which we completed in December. There was a small negative from disposals, mainly reflecting the sale of FiberGuide Industries in the second half of the year. This, together with a 1% negative effect from currency as sterling strengthened, completes the bridge to our reported revenue decline of 1.5%. So looking now at our revenue performance by destination. The chart on the left shows the reported revenue split by destination and reported growth by region, while the table on the right shows the evolution across the year of organic constant currency growth by region, which better reflects the underlying trends. On a reported basis, we delivered a resilient revenue performance in all major regions. This reflected the mix of business in each region and their end market dynamics as well as the contribution from acquisitions, which was largest in the U. S. A. Other regions saw a more substantial fall, reflecting the significant impact of the COVID pandemic on a number of developing markets. Looking now at the organic constant currency trends in the right hand table. We saw a sequential improvement throughout the year in all regions. There was good momentum in the U. S. A. However, the Year on year result was impacted by a strong second half comparative, which included the phasing of a long term program with a large technology company and a large logistics contract in the prior year. Europe, the U. K. And Asia Pacific all reported growth on an organic constant currency basis in the second half. Europe was driven by the recovery within infrastructure safety subsectors in addition to good momentum in environmental and analysis. Following a tough first half, the U. K. Recovered well, driven by a strong recovery in infrastructure safety, more than offsetting a strong comparator in our water business. Asia Pacific benefited from double digit growth in China, driven by the post pandemic recovery across all sectors, with our environmentally focused businesses performing particularly well. So switching now to adjusted profit. We delivered a record profit with profit growing on both a reported and organic constant currency basis, a fantastic performance and significantly ahead of our expectations 12 months ago. Profit grew sequentially from the Q1 onwards with reported profit down 5% in the first half but up 13% in the second half, giving a 44.56% first half second half split. Looking at the detail and again working from left to right. Organic constant currency profit was up 0.7% with the first half decline of 11%, reversing to growth of 12% in the second half. I'll look in more detail at the drivers behind this growth in a moment. Acquisition and currency The effects on profit was similar to those on revenue, with the acquisitions net of disposals contributing 4.5% to profit and a negative effect from currency translation of 1%. This completes the bridge to the headline profit growth of 4.2%, an increase of £11,000,000 despite a reduction of £20,000,000 in revenue. So let me now give some more detail on the drivers behind this profit performance. This slide shows the effect on profit of the changes in revenue and costs in the year, which resulted in our return on sales increasing by 1.2 percentage points to 21.1%. Starting on the left, the decline in organic constant currency revenue resulted in a £49,000,000 reduction in gross profit with acquisitions net of disposals contributing £15,000,000 Travel and entertainment expense fell by £17,000,000 to £4,000,000 due to COVID restrictions and reduced trade show activity. I expect this to largely rebound in FY 'twenty two depending on the speed at which lockdowns are eased in our major markets. Employee costs declined by GBP 13,000,000 as a result of reduced hours, smaller bonus payments given lower profitability and a reduction in recruitment and training costs. There was some benefit from the small reduction in headcount, but this was largely offset by COVID enhanced employee payments made in the year. Again, I don't expect savings to repeat given the variable nature of these expenses and the fact that overall headcount has remained in line year on year. There was a £7,000,000 reduction in R and D spend and amortization, in line with revenue, while marketing costs fell GBP 6,000,000 given the reduced number of exhibitions and trade shows. Other factors, including lower financing costs, increased IT investment in currency, together resulted in a small saving. So in conclusion, profitability in the year benefited from discretionary variable cost reductions in the Q1 and continued good ongoing control of overheads throughout the year. Given the nature of these savings, I expect the group return on sales to return to more normalized levels in the year ahead. So looking now at cash flow and net debt. We delivered another very strong cash performance in the period. This has further strengthened our balance sheet and increased our liquidity, while also, as you'll hear from Andrew, increased our investment in sustainable growth. So highlighting the key headlines. Cash conversion was strong at 104%, well ahead of our KPI target, which we've increased from 85% to 90% to account for the beneficial effect of IFRS 16 on this metric. This pleasing cash conversion performance acted a strong performance on working capital, tax payment phasing and a reduction in capital expenditure. We saw an inflow from working capital, which included good collection of aged receivables. And to date, we've recorded very little bad debt, and we paid our suppliers on a timely basis. That said, we do continue to see an enhanced bad debt risk and have maintained our bad debt provision at a similar level to that at the half year and continue to hold the additional €5,000,000 provision at the group level. CapEx at £26,000,000 was lower than the £32,000,000 in 2020, this reflecting the cash conservation measures our companies implemented in the first half. Moving on to net acquisition spend. This was £26,000,000 including the £37,000,000 paid for Static Systems Group, earn out payments for past acquisitions, net of the £26,000,000 received from the FiberGuide disposal. The effective tax rate increased to 20.1%, mainly due to the reversal of 1 off credits in the prior year and a change in the expected mix of profits arising from increased profits in higher tax jurisdictions. We paid pension contributions of £13,700,000 in the year. The pension deficit increased to £23,000,000 given bond yields and discount rates versus the end of last year. And finally, with dividend payments totaling £64,000,000 in other items, this resulted in a substantial reduction in debt more than GBP 100,000,000 to GBP 256,000,000 representing a net debt to EBITDA ratio of 0.76x, well within our typical operating range of up to 2x gearing. So overall, excellent cash generation, resulting in a strong balance sheet and with committed facilities of approximately GBP 670,000,000 significant available liquidity. Looking forward, we'll continue our focus on underlying working capital management and maintain levels appropriate to enable our growth. We expect an increase in our effective tax rate to 21.5% in FY 'twenty 2. This is a result of changes in tax laws relating to intergroup financing arrangements and our expected profit mix. FY 'twenty one pension contributions will be £14,600,000 based on the current triennial valuation. The triennial valuation for both U. K. Pension schemes is currently underway, and we expect the outcome later this year. We expect CapEx to increase to £30,000,000 more in line with our historic levels, including a small amount of catch up, with the key areas of investment being in automation and machine upgrades and in facility upgrades and expansion for current and of future growth. We'll also be increasing our investment in technology with a spend of circa GBP 12,000,000 in FY 'twenty two, of which CHF 5,000,000 is at the group level, reflecting the initial spend of our wider CHF 10,000,000 investment over the next 3 years and £7,000,000 relating to system upgrades across a number of our largest opcodes. Until very recently, I was expecting the software as a service or SaaS technology investments to be included in CapEx, which would have increased the €30,000,000 forecast I just mentioned to €42,000,000 However, during April, the IFRS Interpretations Committee or IFRIC published its agenda decision relating to configuration and customization costs in cloud computing arrangements. The key clarification is that much of the implementation costs that previously may have been capitalized as intangible assets under these arrangements are now likely to be expensed against profit immediately. Given that this is an interpretation clarification of the existing standard IAS 38, it will be applicable with immediate effect. Whilst we still have more work to do both internally and with our auditors to determine the exact impact, our current estimate is that the majority of our planned CHF 12,000,000 SaaS related spend in FY 'twenty two is likely to be expensed during the year rather than capitalized and amortized over 3 to 5 years. Ultimately, there'll be an acceleration of costs recorded in the FY 'twenty two income statement with subsequent costs in later years being lower as amortization will not occur. It is important to note that the strategic need, timing and quantum of cash flows for our technology investments remain unaffected. For context, Historically, our spend on IT upgrades has been in the region of £2,000,000 to £3,000,000 per annum. This interpretation clarification just happens have landed in the year in which we are performing a major upgrade. I'll, of course, update in more detail as and when we have formalized our final assessment of the impact. Turning now to the sectors. As a reminder, this is the last time we'll be reporting 4 sectors. We'll report on a 3 sector basis going forward aligned with our purpose and our focus on the safety, environmental and health markets. So first, process safety, where we saw a decline in revenue and profit with the reported results supported by contribution from the Sensip acquisition. This sector's performance reflects substantial declines in the first half as a result of COVID disruption, which included site access issues and deferral of project based spend, this in addition to a strong comparative given a large logistics contract in the prior year and underlying weak oil and gas markets. That said, the sector saw a return to profitable growth in the second half at a reported level. Return on sales fell, reflecting the decline in higher margin oil and gas business, one off structuring costs of £1,900,000 and an increase in R and D spend to support future growth. Looking ahead, we anticipate a return to growth over the full year in FY 'twenty two, supported by further recovery in end markets and new product introductions. So turning now to infrastructure safety, which delivered a resilient performance for the year despite a 13.5% fall in revenue in the first half driven by the impact of COVID-nineteen. As market conditions improved, revenue grew by 7% in the second half with a notably strong recovery in the U. K. As installers returned from furlough following easing of lockdown restrictions. Return on sales increased, driven by an improvement to gross margin from favorable business mix, IS's contribution to overall group cost savings as revenue recovered in the second half and cost savings were maintained and a lower R and D spend following a substantial increase in FY 'twenty. Looking ahead, we expect a continuation of the recovery we've seen in the second half, albeit with the potential for headwinds from supply chain disruption and further lockdowns. Moving on to environmental and analysis, which delivered a robust performance for the year against strong 2nd half comparatives. Reported revenue was minus 5%, partly driven by FiberGUIDE disposal, and organic constant currency revenue fell 3%, reflecting strong second half comparatives in U. S. Photonics and U. K. Water. The sector delivered strong profit growth. This was supported by a higher gross margin due to product mix and the phasing of a long term program with a large technology company. It also reflected strong overhead control and a reduction in R and D following a 9% increase last year. As I said, R and D remaining in line with the group average at 5.4 percent of revenue. In FY 'twenty two, we expect environmental analysis to make continued progress against a strong comparative and for the sector's return on sales to be more in line with historic levels given a more normal mix of business. Turning now to Medical, where performance reflected the changes in end market demand with significant increases from vital signs and respiratory products and services and declines in those relating to elective procedures and in those requiring access to hospitals. The sector delivered good reported revenue growth of 7% for the year. This including a significant contribution from with organic constant currency down 5%. There was a stronger performance in the second half with reported revenue plus 10% and organic constant currency flat as trends in the underlying markets began to normalize. The decline in return on sales reflected lower gross margin as a result of product mix and higher R and D spend to support future growth. Looking ahead, we expect more normal levels of underlying growth in FY '22, with continued recovery in elective procedures, further investment and a contribution from recent Acquisitions. So now looking at our performance against our financial KPIs. While revenue and profit were below their respective KPIs, they represent a robust performance in very challenging advances, and as I said earlier, is significantly ahead of our expectations 12 months ago. This headline result delivered while maintaining high returns, excellent cash conversion and high levels of investment to support future growth. So to summarize, we delivered a record profit for the 18th consecutive year with growth on both the reported and organic constant currency basis. Our revenue performance was robust, and each of our major regions delivered a resilient performance. We saw a stronger second half with significant improvements in organic constant currency revenue and profit compared to the first half, and we delivered high levels of cash generation and further strengthened our balance sheet and liquidity position. Looking ahead, we've made a good start to the year with our order book ahead of revenue in the same period last year. We expect to deliver full year organic constant currency profit growth pre any IAS 38 impact in the low double digit percentages and more normal level of returns. I'll now hand you back to Andrew for a strategy update. Thanks, Mark. So I'm going to take you through our strategy, but also give you an insight into what our priorities are for the year ahead. When we were preparing these results for our advisers with our advisers, their initial response was very much how had we managed to deliver such an exceptional performance in what are, let's face it, the most challenging of circumstances. And my answer was that It wasn't achieved by accident. It wasn't achieved by good fortune, but was made possible by a relentless evolution of our sustainable growth model over the last 5 years. The core elements of our model are shown here on this slide, on the left hand side of this slide. And I think one of the important points to note here is it's very much a system. So it's important that each element is successful, but they're very much related to one another. It's designed to deliver sustainable growth, high returns and maintain that positive impact on the world, but also to give us the strength and flexibility to be able to address new challenges and opportunities as they arise. So let me just remind you of some of the examples of how we have actively evolved these elements of our model, our sustainable growth model over the last 5 years. For our purpose and our DNA, well, we've refined our purpose statement to express the scale of our ambition. We've explicitly articulated our DNA so that as we grow, as we change, all our stakeholders understand what are the core elements So our culture and our values that aren't going to change, and we've expressed all of that visually through our new Halma brand. The core attributes of our growth strategy remain constant as reflected in us maintaining strong R and D investment. However, we've added new things. We've added a new growth enabler with digital growth engine programs to create new digital solutions and business models, and we supported that with some higher technology M and A, including minority investments in early stage startups via our Halma Ventures program. Our business model has evolved. We're now organized into 3 sectors, which reflect the strong growth opportunities in our Medical and our Environmental sectors. And we've just created our growth enabler model, which define how we add value to support our company's growth as well as strengthening the governance, control and reporting as these companies become more global in nature themselves. Leadership and people are critical to our success, and I think the way that we dovetailed the talent management with our growth strategy has been a key differentiator for Halma over many years. In the past 5 years, it's ensured that we've had an orderly succession process in many key roles as we've grown. So for example, we've added new roles to our Executive Board by recruiting expertise in legal, in digital innovation and also technology. We promoted internally to the sector CEO positions, and we've completed the succession for our group CFO and our group chair. But it's not just been about the senior leadership, we've also enhanced the employee experience for the wider workforce and we've seen that reflected in the improvement in our employee engagement scores. Most recently, we've created a new sustainability framework, which is aligned with our positive impact aligns our positive impact with the UN Sustainable Development Goals. And that's going to focus our efforts on where we can make the biggest difference. And we've seen that brought to life with our 2 global charitable campaigns, Gift site and our current campaign, Water For Life. So all of this requires significant action and investment in advance of the opportunity or challenge coming along. And it's by improving our sustainable growth model and these elements we're able to deliver value over the long term for all of our stakeholders. So what are the current actions Investments we're making this year, particularly as we think about a post COVID world. We've identified 5 key areas which we'll be focusing our efforts and investment and resources in the months and years ahead, and these are organic growth, M and A, talent, sustainability and infrastructure. So let's look briefly at each of these in turn, firstly, by looking at our organic growth investment. Firstly, we're going to continue to expand into new markets in Technologies, and that's going to be supported by continued high investment in R and D and new product development. Secondly, the pandemic has amplified the importance of digital technologies, both in terms of how we operate but also how our customers want to access those solutions. And as you heard from Mark, we've accelerated our technology investments and we'll be spending around £12,000,000 this year at the Group and in our operating companies, and that's to enable our companies to create new digital solutions. For example, we're going to build a common core of technology which they can use to support their digital and IoT Solutions. And thirdly, we're reconfiguring our digital growth engine growth enabler into incubation and acceleration. So the incubators will help companies develop and generate new ideas, whereas the accelerators will help them commercialize them. And we supported that this year by helping our companies to think differently about their current digital potential. So we now measure our revenue across the digital value chain right the way from discrete, non digital mechanical devices through to fully digital software services. And today, approximately 40% of our revenue currently comes from digital, connected devices, IoT solutions or software and services. So this new definition of our digital revenue is more consistent with external benchmarks, but importantly will allow us to better assess and report progress as we grow. Let's move on to M and A. And as I mentioned earlier, after our decision to postpone any M and A transactions in the first half of the year, we've seen activity rapidly pick up in the second half of the year and continue into this year. As you see on the right hand side of the slide, we've completed 2 standalone acquisitions since the half Since the half year results, including the Medical Technology Businesses Static Systems in the U. K. And Perrigen in the U. S. We've also completed 5 small bolt on acquisitions since near end, which has brought new technology and a market presence across all three of our sectors. And finally, we've made one disposal in the period that of FiberGuide. And as always, we'll continue to review our portfolio for any businesses with long term growth prospects which are becoming less aligned with our purpose or where we don't see the opportunity to deliver our targeted financial returns and growth. As we look to the future, well, we've increased our resources and now have an M and A team in each of our 3 sectors who are building and managing a good pipeline of potential prospects. We've also asked them to map out the perhaps the new opportunities that are arising post COVID. So what are the new What are the new niches that are emerging in their markets? And I have no doubt we're going to see the benefit of that work in the years ahead. Let's move across now and think about talent, the talent to scale and what it means for Halma because There are key qualities in our DNA which underpin our talent philosophy and particularly our leadership culture, and you can see them here. I mean, they encompass our drive, our commitment, our engagement, our diversity, our entrepreneurial spirit. Importantly though, they're all with a very strong sense of empowerment and accountability. And I think that balance of empowerment and accountability has been absolutely key to our performance during the pandemic. But how do these translate into practical actions? I think like most businesses, one of the challenges has been how do we ensure the health, safety and well-being of our employees during the pandemic. And we've been able to leverage the power of our network, our global networks, to share best practice across the group, for example, through regional forums that have been led by Halma leaders based in each region. We've also recognized that in the past year, the way in which we work is going through significant and rapid transformation. And we've published our Future of Work philosophy, which sets out how we can enable a more inclusive way of working amongst our global employees, including our commitment to giving all employees a degree of flexibility regardless of their role so that we can ensure there's fairness and balance for all. We've developed some new bespoke tools to help us with the assessment, recruitment, development and retention of our key leaders. And we're going to continue to actively seek to hire and develop talented people ahead of the curve for our future needs to drive growth. And it's through that that we build a deep pool of talent to ensure we have an orderly succession to those key leadership roles. We're continuing to be committed and to make significant progress on diversity, equity and inclusion, and that's supported by a number of new initiatives. So this past year, we've launched a global equal parental pay policy. We've accelerated introduced our Accelerate Inclusion program, which is a virtual program focused on creating inclusive cultures across our business. And we've made new commitments, including to pay a real living wage in our U. K. Companies by from the 1st June 2022. We signed up to the Change the Race ratio campaign. And for the first time this year, we're disclosing our gender pay gap in our U. K. And U. S. Operations. Our next strategic priorities is sustainability. Simply, we believe that we create long term value for stakeholders by delivering on each of these elements, by delivering growth, returns, but also increasing the positive impact we have on the world. And as I said earlier, our sustainability framework aims to start measuring and amplifying that positive impact alongside those growth and return metrics. By doing so, it's also going to help our companies to prioritize the actions that they take. So the way we've approached this is to prioritize 3 key sustainability objectives, KSOs, which we believe are both highly aligned with our purpose, but also the key issues that our Halma and our stakeholders believe are important for our business. As you know, our initial focus has been on those first two, so addressing climate change and continue to build diversity, equity and inclusion. And then we have a 3rd KSO we'll be transitioning our businesses across towards that circular economy, and I'm sure there'll be more to come on this as we start developing new programs and as we start to understand how we can really address that particular objective. This year, we're making more ambition putting more ambition into what we do, and we're making new long term commitments support these goals. So we're committing to a 1.5 degree science based target by 2,030 for our carbon emissions, and we're committing to net 0 by 2,040 for Scope 1 and 2 emissions. Following the success we've had at PLC Board, Executive Board and Sector Leadership level, we're targeting achieving a goal of 40% to 60% gender balance in our operating company boards in the years ahead. And then finally, one of the things we recognize is that in setting corporate goals, corporate challenges, we've got to turn those into actions and initiatives which our companies can engage with. And I believe we're pushing on an open door as we move forward, and we'll be further embedding these principles into our companies through our growth enablers, but also helping them in terms of their decision making and factoring these factors into their decision making. And through that, we're going to increasingly then be able to define our KPIs and disclose our progress against those KPIs, both internally and externally. And then finally, a few words about And we've covered some of these already today. There are 3 priorities that I'd highlight, which really we're seeing accelerated levels of investment in the year ahead, which will sustain our growth in the longer term. First of all, the IT investment that we've already discussed, which is going to enhance our operational data analysis. It's going to help us upgrade the cyber security infrastructure across the group, particularly as we think about the challenges of remote working. We're also adding to our legal and compliance capabilities and really using the strength of Halma as a global FTSE 100 company to attract a much higher level of support for our companies than they would otherwise be able to achieve on their own. And we're supporting that by adding internal resource as well as those external partners for our companies to use with many of them becoming more global in terms of their operations and markets, as I mentioned earlier. And then finally, as you heard from Mark, we will be increasing our capital expenditure, including expanding our production facilities to support our companies as they continue to deliver high levels of growth. So to conclude, these are the core elements of Halma's sustainable growth model, which have enabled us to deliver great results during the most challenging of years. They've ensured that we have delivered a robust financial performance during a whole year of operating in a global pandemic. And they've also enabled us to generate improved trading momentum in the second half of the year coming through into the new financial year. We've created further value for all our stakeholders, not just by delivering record profit, but also by satisfying their broader needs and bringing our purpose to life. And importantly, while dealing with the major short term challenges the pandemic and delivering profit growth, we've also increased the investment to sustain growth returns and our positive impact over the longer term. And all of this translates into a positive impact for the current year. As Mark said earlier, We've had a good start to the new financial year. We now expect low double digit percentage organic constant currency profit growth, more normal level of returns and to make further progress in the year ahead. And now we have time for questions. We've got a couple of questions submitted already. So should we take those first and then we'll go to the hands. So first one from Mike Tindle. On M and A, are owners now more amenable to selling, assuming earnings have normalized and could this drive acceleration in M and A. So I think on that one, it's definitely more More conversations going on. I think actually we're still in the, I suppose, the difficult period where historic trading in many businesses we look at are obviously atypical because of what's happened in the past year. And so there is a big question around, are you basing valuations on what's happened in the past 12 months or indeed what happened the couple of years before that and how we look forward over the next 2 to 3 years. In our favor, obviously, we're buying businesses that are closely aligned with the ones we already own in the 3 sectors that we're in. So we do have some reference points, if you like, in terms of the performance of our own businesses before we look at how what's kind of multiple we apply to the new companies we're acquiring. So I still think valuation is probably the biggest uncertainty that's out there, but there certainly are opportunities. And as we've seen since the beginning of the half year, We've completed 2 separate deals. We completed 5 bolt ons. So clearly, some of those deals are coming through. And then also, Michael was asking On COVID, are we seeing recurring impacts in terms of access, in other words, in infrastructure and elective procedures, as infections restrictions rise or have our customers figured out ways to operate in this changing environment? Yes. I'll pick up that one, Andrew. So I think the first thing to say is that certainly, the impact is very different by geography and will be driven by local restrictions in terms of scale of lockdown. I do though think in terms of that access for infrastructure. The big impact that we had in the first half of this year was within the UK. And if you recall, that was driven by furloughing of the end installers. So for as long as that complete lockdown in the U. K. And furlough doesn't come through as an example, then we would find a way through that or certainly the end installers would. And then I think from a medical perspective, that's very much following the trend of the wider elective surgeries globally. And again, I would say that's driven more by geography than it is necessarily each of the end markets. But I think the final thing to say is clearly with the organization of the group and how we're structured, it's down to our individual companies with their individual boards of directors who are close to their customers to find ways of working through what restrictions there may be in place locally. Thanks, Michael. And then we've got a couple of questions from Anthony. One's a follow on on the M and A question, which was when looking at pipeline, what percentage would we say are deals outside U. K, U. S. And EU? That's a fairly simple one to answer. It's probably in the region sort of 5%, 10%, So relatively small proportion and obviously with some of the difficulties and challenges of remote working, it's been easier for us to have conversations and in many cases visit opportunities in those markets where we've got a stronger local presence. So I think that's one of those things that over time we expect to change, but probably not in the next sort of 6 to 12 months. And then the second question was basically focused around Halma Ventures and just what are we aiming to achieve and what kind of deals are we looking at? Halma Ventures is actually formalizing something that we've done for many years. Some of you may even remember an investment we made in an early stage business called Optomed in our ophthalmology part of our medical sector, which we divested a year or so back. So what we're looking to achieve here is not so much have a financial fund that's looking to just generate financial returns, but more working with our operating companies and saying to them, if you can see early stage businesses that have technology that could either accelerate your growth or could be or capabilities that could be disrupted in your market over the next 3 to 5 years, then we're prepared to make an investment in that business in order to secure that partnership secure that commercial relationship. Obviously, from the start ups point of view, we then offer them a strategic partner, we offer them funding and obviously expertise in how to scale and grow their business. So we've made, I think, about 4 or 5 investments so far. There many of them are in our medical sector. You may have seen one more The business called Oxbotica, which was what I would call sort of a mobile radar technology business that's very closely aligned with the work that Navtech, one of our safety businesses has worked with over many, many years. And not in all cases, but quite often, we'll have some kind of representation on the company Board. So we will be have at least visibility in some cases be involved in the decision making around the strategic direction of that start up. But as I say, the real thing we're aiming for is a reasonable financial return, so obviously a successful investment, but more importantly, bringing that new capability into our existing business. We'll switch over now to the hand the questions with the hands up. And the first question, I'd like to invite Mark Davies Jones to ask his question. Thank you very much, Andrew, and morning. Just also back on M and A, but a slightly different angle, given Fairly high asset valuations at the moment and you're sort of doubling down on some of your strategic and sustainability goals. Chance that we see an acceleration of the disposal side of the equation as you look again at the range of exposures and what really fits with your purpose? I think the first thing to say is that our portfolio today fits very well with our purpose. So We haven't got any particular areas of the group where you'd say actually there's a mismatch or a need to make sort of a big adjustment. So I feel very comfortable where we are. So the decisions around any future disposals are more about how do we see that future growth. Partly that's purpose aligned, but also partly that will be the financial returns that we see from that business over the longer term. So I don't think anything's really changed as we've seen, for example, ESG become a more significant consideration. And on the other side of the coin, which is always a good sign, is in each of our 3 sectors, we still very much See some really good growth opportunities in each sector. So we don't see, if you like, a substantial part of the group where the opportunities for M and A are drying up. Okay. Thank you very much. That's clear. And just for Mark, on these IAS38 costs, Something in the low double digits you're steering to and that will just follow The phasing of that and the split of that by division just largely follows revenues, but with a chunk of it at core. Is that the message? So there was the €12,000,000 of spend that we had forecast for FY 'twenty two, it's split between GBP 5,000,000 relating to the center, which is half of the GBP 10,000,000 of CapEx that we talked to over the next 3 years. So you can see that as being GBP 5,000,000 in year 1 split, then GBP 2,500,000, GBP 2,500,000 in the subsequent years. The other balance for next year is GBP 7,000,000 in the opcos in terms of updating their systems. That feels a lot more as if that's, if you like, a one off pull forward in that it's a number of our largest opcos. So I think the way to think about that is more normalized level of investment of around £2,000,000 a year going forward. Certainly, how we're looking at it is that the FY 'twenty two will be, if you like, a one off increment to the income statement. But then moving forward, we would be looking to cover those costs as part of the group and returning to a more normal level of return on sales. Thank you. That's very helpful. Thanks, Mark. Can I invite Andre from Credit Suisse to ask his question? Sounds like we've got a bit of a sound issue there, but I'll come back to you later, Andre. Let's move on to Richard, Richard Page. Morning, all. Couple of questions from me, please. So environmental analysis, where do we stand on the long term Photonics Project. So I know the first half benefited from the big ramp in the U. S, but I think that's ameliorated. But obviously, Asia has had good growth as well. Where are we on those, please? Yes. And in terms of the phase and then, Rich, you're absolutely right. We had the ramp up in the second half of last year to the level, therefore, you were getting that comparative come through. Those programs are continuing their long term programs, and what we will do is just signal where we see a big ramp up. So I think the key message here is they're not one off contracts, they're long term programs that continue. All that we will do is call out when there's a impact on what you're seeing on underlying performance. Okay. Thank you. And then secondly on Navtech, I've also seen a lot of press about this Allanes running and the Highways England, I think, have contracted Navtech on there. Could you just give us a bit more detail around how Navtech is doing at the moment, please? Navtech is doing very well. And to your point, just so everyone's clear what Navtech provide is the radar solution, which gives you that ability to detect, let's say, unsafe situations on the motorway or indeed just the traffic flow on the motorways. And so it is the solution that everyone's looking to accelerate to improve safety. And as you can imagine, Highways England are very keen for us to be able to deliver that solution, if you like, as fast as they can install it. So We're anticipating that Navtech will have a very busy year. Clearly, because they're now part of the group, we have the resources and the capabilities to help them scale up their operations and give them support in the way they scale up their operations to meet that new demand. So Yes, positive outlook for Navtech in the year ahead. And are there any international opportunities on that front, whereas The U. K. Yes. I mean, Avtex is an international business already, so it's built off international contracts in a variety of different situations. So The use of radar, that's one example of the use of radar in this case in terms of road infrastructure, but historically, they've also won significant contracts in areas such as Major ports, for example, tunnel safety. So yes, it's an international business already. And I mean, to the extent that smart motorways or something similar will be adopted in other countries or there's a need to use radar to maintain safety on motorways, then clearly, we can support them in their international growth too. I see. Thank you. Thanks, Richard. Andre, we'll give you one more go if you're able to ask your question. Hi, good morning. Can you hear me now? Yes, I hear you crystal clear. Great. Thank you. Sorry about earlier. Thank you very much for the opportunity to ask questions. I wanted to ask a broader one on demand. And you've alluded to highlighted elective procedures as being one area that is still somewhat pent up and not recovering. Are there any other parts of the group where we have got these situations where fundamentally we should be Kind of at a better place or a higher level of demand or maybe because of post COVID effects or component shortages or any other sort of disruptions? Yes, it's very it's certainly still quite variable across different markets, different countries and different geographies. And as Mark alluded to earlier, relying on the individual operating companies to make the right choices. I do think the big themes are what's driven the, if you like, the momentum and recovery coming into through the second half of the year coming into this year, The big picture stuff is outside of Medical is probably as part of one of those earlier questions that the access to customer location. So there's no doubt that our infrastructure safety companies, whether it be fire structures safety companies, whether it be fire detection, elevator safety, door safety are benefiting from the fact of opening up of buildings, commercial buildings and if you like a catch up in terms of the work needs to be done either to finish off existing construction sites or as you know, 70% of it is modernization for us. So just the modernization of upgrades of existing facilities. I mean, looking slightly further down the track, even if we see a substantial change of use in terms of a lot of, let's say, office buildings in urban environments, Just that change of use in itself will provide us with opportunity for further growth because when you change the use of a building, quite typically, you've got to change, for example, the fire detection system at the same time. So we do see a number of, let's say, medium term Acceleration factors coming out of the pandemic, but there's no doubt we're still seeing a lot of variation in direction of travel depending on what the geographic exposure is, but also, I'd say, some of these end market dynamics. Thank you. And the second question I have is On the comments you made on CapEx about expanding production facilities and introducing more automation, should we think about this as a More of a production kind of Halma production system revamp starting up? Or is it more of a normal ongoing Kind of CapEx activities. Yes. Andre, I would be thinking of it much more in terms of evolution of the business and growth of the business, so capacity, but at the same time, always looking at better ways of doing things in each individual business, so there'll be an element of automation, but the vast majority of the largest spend will be more about facility expansion to meet customer demand than it necessarily will be a complete overhaul of the way that we do things. Very clear. Thank you very much to both of you. Thanks, Andre. Can I invite Jollion Wellington to ask his question from Peel Hunt? Well, hello. Good morning. Thank you very much for your presentation. A couple of quick questions, please. Just Firstly, in terms of organic growth, clearly, quite a nice target you put in for FY 'twenty two, the Low double digit organic growth. Just wondering, divisionally, how should we think about that? Do you think there'll be Do you think all divisions will grow at similar organic growth rate or which do you think will be the sort of divisional hotspots? And then just looking into FY 'twenty three, I appreciate I don't want to get too far ahead, but just wondering What levels of organic growth you might be able to sustain sort of post FY 'twenty two? Yes, I'll pick that up. I think I'll answer the second part of the question first. So I think the way to think certainly into FY 'twenty three comes back to our financial model and our long term growth rate. So from an organic perspective, our long our, if you like, aspiration is 7.5% organic growth. Our target is 5%. Our CAGR has been around just over between 5% 6%, so I very much see the outer years in a year of normality being back to that level. And then coming back to your first question, I think what we're going to see next year are some rather strange growth rates at different periods, certainly in the first half when you think around some of the comparatives. So infrastructure safety would be a good example there, where in the first half of last year, we were impacted very heavily, certainly in the UK, by the furlough and those site access issues. So in the first half of the year, well, our revenue was down 14% and then in the second half up 7%. So let's just assume that, that plus 7% runs into the first half of the year, that will be a significant growth on the face of it versus a weaker comparator. So I think that will be playing out. In terms of the end market drivers, As we say, infrastructure safety has recovered well in the second half. Environmental analysis has been robust, and we expect that to continue. Process Safety returned to profitable growth in on a reported basis in the second half of the year, and we're expecting again for growth over the full year. And then medical is all about that phasing in terms of the 2 thirds of the that is more exposed to site hospital access and elective procedures and the pace at which that comes back. So I think I could spend a long time going through each of the sectors. The way to think about it is have a look at the outlook statements that we've made under each sector and then think about the current year comparator in terms of what that means for growth rates. Okay. That's clear. Thanks for that. And then just turning to the cash flow, just post the guidance on Of working capital from the presentation, what are you sort of expecting in terms of cash flow Conversion, I mean, you've been clear on CapEx, but just on operating cash flow conversion, what are you sort of expecting in FY 'twenty two, please? Yes. As I said in the presentation, we raised our target from 85% to 90 percent to reflect the impact of IFRS 16. And clearly, this year, over 100%, that's an exceptional performance. So very much going forward, as you're going into a growth period, clearly, there is demand for working capital during that period. So we are setting our target very much in line with our KPIs. So we will be targeting good solid growth next this year and cash conversion above our target of 90%. Okay, that's great. Thanks very much. Thanks very much. Now read out a couple of questions from Andy Douglas, which I have to say, yes, some great questions these, Andy, because I think they sort of hit to the nub of how companies are going to address some of these challenges and sustainability. So Andy's question is, given the greater focus on sustainability, if your ultimate end customers are not focusing on sustainability or not operating sustainably, would you walk away from business? And sort of an addendum to that, would you also then not get involved with customers if their values are not aligned with yours? I think it's a great question because you can start off with some very clear principles and we have very clear principle that Our purpose is to grow a safer, cleaner, healthier future for everyone every day. And therefore, from an M and A point of view and from an organic growth point of view, we want to be aligned with delivering on that purpose. And to the extent that we have the opportunity to work with other businesses that are not just not aligned with it, but actually going against that purpose, then we would question whether we should be doing business with them. I think it also then plays out already in terms of the profile of our M and A pipeline. That's our primary filter, our purpose. If the business the target business doesn't align with that, then we're not going to pursue it. I think then there is also Sort of hard commercial reality here is quite clearly, we don't want to be acquiring or indeed having deep relationship with customers who don't have a sustainable business because we ourselves take a medium to long term view in terms of growth and relationships. And so working with customers that don't have that or share that long term view is probably not a good match for us. I think then the final point I'd say is Part of the purpose of Halma is going to be to help other businesses become more aligned from an ESG point of view and build greater sustainability in their business. So for example, we've got, as you know, I think it must be around sort of a 5% of our overall sales are some way connected into Safety Solutions to the oil and gas market. So on the one hand, you could say there's elements of that industry which absolutely So it's aligned with our purpose, but at the same time, we have a clear duty to help, first of all, their existing operations to be safe. But then more importantly, how can we work with them in order to be able to help them turn their business into more sustainable business, which is becoming more aligned with our purpose. So I do think that It's kind of a quite a large gray area between the black and the white of does it fit with the purpose or not. And I think it then comes down to you're making really sensible decisions down the operating company level in terms of who they deal with and also at the group level who we deal with. But I say with that overarching filter of how does it match up against the overall purpose that we have as an organization. So I do think that's going to evolve, that whole story over the next 2 or 3 years, but I think it's a really great question, which just hits the number of the challenges that many businesses are facing today. And then we have another question from Jonathan of Barclays. And Jonathan's question is, can you talk about what you're seeing at BA, which is our door sensor business on the back of COVID and also give some more color on the outlook for the water market in environmental and analysis. Mark, do you want to take that one first? Yes, certainly. So BA, I think, going back to the point From door sensors, there's certainly been a shift and an increase in focus in demand for touchless entry. So we're certainly seeing that come through. And then, of course, in that logistics sector, there's going to be opportunities there in terms of touchless entry and door sensors. So yes, we're seeing that come through off the back of COVID. In terms of outlook for the water market, we're back into the 1st year of the AMP site in the UK, so we expect to see off the back of the tough comparator in FY 'twenty, a return to good growth in the UK water market underlined, if you like, with the focus from COVID on clean water moving forward. So both of those markets certainly have got tailwinds coming out of the back of COVID. And then next question is on M and A for the Environmental Analysis sector. It's the sector has been growing well, but deals here have been less than the other sectors. Can we expect this to increase? I think the simple answer to that is yes. It's one of the primary reasons why we've reorganized into our 3 sectors, and Many people look at the reorganization as the merger of the 2 safety sectors, but actually, the key change has been to separate out the environmental sector from the medical sector from an M and A point of view, in other words, have a dedicated M and A team in our environmental sector that's completely separate from the medical sector, because there's no doubt that the M and A team, when they were looking after both sectors, We're working very hard and delivering good acquisitions on the medical side, but struggling to map out the opportunities in environmental and push more strongly on front. So the very fact that we've got a dedicated team there already, we're starting to see better visibility of opportunities there. We've made 1 or 2 small bolt ons already this year. And so again, if we take a sort of 3 to 5 year view as a result of the organizational change we've made, I'd be, yeah, confident that we're going to see that pick up in the years ahead. And then finally, one for you, Mark. Yes. Just picking up on Jonathan's third question. Bad debt provision has been maintained at €5,000,000 at the group level, but you have talked about low levels of bad debt. Can we expect this provision to reverse in FY 'twenty two. So I think the first thing to say is you're absolutely right in terms of the low levels of bad debt, a fantastic performance from the operating companies. And again, I do think there's a real benefit of our structure there where we've got local teams close to customers and therefore, that real close relationship to work through. So I'll take the opportunity to say well done and thank you to the local teams for the hard work on debt during the last 12 months. Looking forward, actually, I think there's a different risk of bad debt now as we enter into a wider recovery period. So over the last 6 to 12 months, that pressure has been very much about liquidity. From a downturn perspective, we're almost seeing pressure now over the next 6 to 12 months of fast growth in many of our customers and therefore that first in need for working capital and cash. So I see at least as high a level of risk as we did at the half year. That said, we've got a 6 month period now. We'll keep close in terms of working capital and bad debt, and we will revisit the appropriateness of that provision at the half year. Thank you, everyone. Thanks for the questions. Currently, we've got no further questions either on the text or indeed in terms of our hands up. Oh, we got one coming in now. So this is a question which might take a Bit of time to answer, which is can you indicate the total addressable markets for each segment and who are your principal competitors? Can I suggest, Mike, it's Michael Foster, can I suggest that you follow-up with Charles King, our Investor Relations Head, who will be very happy to go through all of the sectors, the subsectors and their addressable markets? Otherwise, as I say, it may take us a little while do that on the call today, but appreciate the question nonetheless. And you'll find details of Charles' contact details on our RNS announcement we delivered today. Very good. Well, thank you, everyone. Thanks for joining us on the call today. Thanks very much for the questions. Appreciate it as always and look forward to catching up face to face sometime soon. Thank you.