RNS Number : 0371R

Halma PLC

12 June 2018

12 JUNE 2018

HALMA plc

FULL YEAR RESULTS 2018

Record Revenue and Profit for the 15^th consecutive year

Halma, the leading safety, health and environmental technology group, today announces its full year results for the year to 31 March 2018.

Highlights

Continuing Operations	2018	2017	Change

Revenue	£1,076.2m	£961.7m	+12%
Adjusted¹ Profit before Taxation	£213.7m	£194.0m	+10%
Adjusted² Earnings per Share	45.26p	40.21p	+13%

Statutory Profit before Taxation	£171.9m	£157.7m	+9%
Statutory Earnings per Share	40.69p	34.25p	+19%
Total Dividend per Share³	14.68p	13.71p	+7%

Return on Sales⁴	19.9%	20.2%
Return on Total Invested Capital⁵	15.2%	15.3%
Net Debt	£220.3m	£196.4m

●	Revenue up 12% with Adjusted¹ pre-tax profit up 10%. Revenue growth of 10% and profit growth of 9% respectively on an organic⁶ constant currency basis.
●	Revenue and profit growth in all four sectors with over £1 billion of sales achieved for the first time in the Group's history.
●	Revenue growth in all regions. Good progress in the UK, USA, Mainland Europe and Other regions. Strong growth in Asia Pacific where revenue exceeded the UK for the first time.
●	High returns maintained with Return on Sales⁴ of 19.9% and ROTIC⁵ of 15.2%.
●	Spend of £116m on five acquisitions completed during the financial year and a healthy acquisition pipeline.
●	Strong cash generation and a robust balance sheet providing capacity for future investment.
●	Final dividend up 7%. 39^th consecutive year of dividend per share increase of 5% or more.

Andrew Williams, Group Chief Executive of Halma, commented:

"Halma has completed another successful year, achieving record results while increasing strategic investment as part of an enhanced growth strategy.

Halma's market and geographic diversity, combined with the agility of our business model, will be important assets as accelerating technological and geopolitical change continues to impact individual regions and industries. Trading since the last financial year end has been positive, with order intake ahead of the order intake last year and revenue this year. We expect to continue to make progress in the coming year."

Notes:
1	Adjusted to remove the amortisation and impairment of acquired intangible assets, acquisition items, restructuring costs and profit or loss on disposal of operations, totalling £41.7m (2017: £36.3m). See note 2 to the Results.
2	Adjusted to remove the amortisation and impairment of acquired intangible assets, acquisition items, restructuring costs, profit or loss on disposal of operations, the associated taxation thereon and the effect of the US tax reform measures. See note 6 to the Results.
3	Total dividend paid and proposed per share.
4	Return on Sales is defined as Adjusted¹ Profit before Taxation from continuing operations expressed as a percentage of revenue from continuing operations.
5	Return on Total Invested Capital (ROTIC) is defined as post-tax Adjusted² Profit as a percentage of average Total Invested Capital.
6	Adjusted¹ Profit before Taxation, Adjusted² Earnings per Share, organic growth rates and ROTIC are alternative performance measures used by management. See notes 2, 6 and 11 to the Results.

For further information, please contact:

Halma plc

Andrew Williams, Group Chief Executive

Kevin Thompson, Finance Director

+44 (0)1494 721 111

MHP Communications
Rachel Hirst / Andrew Jaques

+44 (0)20 3128 8100

A copy of this announcement, together with other information about Halma, may be viewed on its website. The webcast of the results presentation will be available on the Halma website later today: www.halma.com

NOTE TO EDITORS

Halma is a global group of life-saving technology companies with a mission to grow a safer, cleaner, healthier future for everyone, every day. The Group comprises four business sectors:

	● Process Safety	Products which protect assets and people at work.
	● Infrastructure Safety	Products and services that improve the safety and mobility of people and protect commercially and publicly owned infrastructure.
	● Medical	Products which enhance the quality of life for patients and improve the quality of care delivered by providers.
	● Environmental & Analysis	Products and technologies for analysis in environmental safety and life sciences markets.

	The key characteristics of Halma's businesses are specialist technology and application knowledge for markets offering strong long-term growth potential. Many Group businesses are market leaders in their specialist field.
2.	High resolution photos of Halma senior management, including Group Chief Executive Andrew Williams, and images illustrating Halma business activities can be downloaded from its website: www.halma.com. Click on the 'News & Media' link, then 'Media Gallery'.
3.	You can view or download copies of this announcement and the latest Half Year and Annual Reports from the website at www.halma.com or request free printed copies by contacting halma@halma.com.
4.	This announcement contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events.

Strategic Review

Significant milestones and our growth strategy enhanced

Halma made strong progress during the year and achieved record revenue and profit for the fifteenth consecutive year, surpassing £1 billion of revenue for the first time. In December 2017, Halma entered the FTSE 100 index reflecting both our outstanding track record of growth and exciting potential for the future.

We have a clear growth strategy, a sustainable financial model and a unique organisational structure, which is customer- focused and enables us to adapt quickly to market changes. During the year, the Halma 4.0 growth strategy was launched, which will support new ways to grow our business by embracing the opportunities and challenges of digital technologies with greater connectivity. At its centre is a revitalised commitment to make a major positive impact in the world through our renewed purpose of "Growing a safer, cleaner, healthier future for everyone, every day".

Underpinning our continuing success is the outstanding commitment, abilities and dedication of talented individuals in every part of Halma. I thank all of them for their contribution to not only delivering exceptional financial results but also for ensuring that Halma has a transformational impact on people's lives every day.

Record revenue and profit with strong returns

Revenue increased by 12% to £1,076m (2017: £962m) including 10% organic constant currency growth and a 2% contribution from acquisitions. Adjusted¹ profit increased by 10% to £213.7m (2017: £194m) including 9% organic constant currency growth and a 1% contribution from acquisitions. Currency rate movements had a marginal impact on the translation of revenue and profit for the full year, with a positive impact in the first half, offset by a negative impact in the second half.

Returns remained at a high level. Return on Sales¹ of 19.9% (2017: 20.2%) was within our target range of 18% - 22%. The post-tax Return on Total Invested Capital¹ was 15.2% (2017: 15.3%) and well above our estimated Weighted Average Cost of Capital of 7.7%.

Good cash generation and a strong balance sheet to support future investments

Cash generation was good throughout the year, which ended with a net debt of £220m (2017: £196m) after spending £116m on current year acquisitions (2017: £10m), £22m on capital expenditure (2017: £24m), £53m on dividends to shareholders (2017: £50m) and paying £41m of tax (2017: £33m).

Gearing at the year-end (net debt to EBITDA) was 0.87 times (2017: 0.86 times), which was below our targeted range of 1-2 times. We have sufficient headroom to support future investment in organic and acquisitive growth in line with our strategic objectives.

Final dividend to increase by 7%

The Board is recommending a final dividend of 8.97p per share (2017: 8.38p) which contributes to a total dividend per share of 14.68p for the full year (2017: 13.71p). This 7% increase in the total dividend per share is subject to shareholder's approval at Halma's Annual General Meeting on 19 July 2018 and will be paid on 15 August 2018 to shareholders on the register on 13 July 2018.

Revenue growth in all major regions

Our businesses have continued to invest in expanding their presence in international markets, often collaborating with other Halma companies or using Halma's growth hubs in China and India. Our growth in both developed and developing regions reflects the global and sustainable nature of our safety, health and environmental market growth drivers.

Revenue growth was strong in the Asia Pacific region with an increase of 15% to £175m (2017: £152m), including 14% organic constant currency growth. This included a revenue increase of 20% from China to £82m (2017: £68m), with 18% organic constant currency growth.

There were good rates of growth in the UK, Mainland Europe and the USA of 12%, 13% and 8% respectively, all including organic constant currency growth rates of 8% - 9%. The USA remained our largest region with revenue of £374m (2017: £345m). Revenue from Mainland Europe was £238m (2017: £210m) and from the UK was £173m (2017: £155m).

Revenue from Other regions, which includes South America, Africa, Near and Middle East grew strongly by 17% to £116m (2017: £99m), including 12% organic constant currency growth.

Revenue and profit growth in all sectors

The Process Safety sector performed in line with our expectations and maintained the improved performance which started to emerge in the second half of the last financial year.

Revenue was up by 11% to £185m (2017: £167m) and profit² rose by 8% to £43.4m (2017: £40.2m). This was almost all organic constant currency growth as there was minimal impact from currency movement and no acquisitions during the year. Return on Sales was 23.5% (2017: 24.1%). R&D spend increased by 6% to £6.3m (2017: £6.0m). The Pipeline Management, Safety Interlocks and Pressure Management segments performed strongly with a more modest rate of growth in Gas Sensors.

Steadily improving demand from the onshore energy market contributed to strong organic constant currency growth from the USA. There was also excellent progress in Asia Pacific and Other regions. There was solid progress in Mainland Europe and lower growth in the UK.

The Process Safety sector is continuing to invest in its products, markets and organisation to make it more resilient in responding to adverse changes in its largest end-market, oil and gas. We expect it to make progress in the year ahead.

The Infrastructure Safety sector performed well. Revenue increased by 11% to £349m (2017: £315m), including 8% organic constant currency growth. Profit² grew by 13% to £73.3m (2017: £65.1m) including 10% organic constant currency growth. Both revenue and profit benefited by 2% from acquisitions and 1% from currency. Return on Sales was 21% (2017: 20.7%). R&D spend increased by 13% to £20.4m (2017: £18.0m). There were strong performances in the Fire and People Movement segments and solid progress in Security and Elevator Safety.

Regionally, the highest rates of organic constant currency revenue growth were in Asia Pacific and Other regions. There continues to be a gradual strengthening of safety regulation for public and commercial infrastructure in developing regions, which promises to support continued growth in the future. There were good rates of organic constant currency growth in the UK and Mainland Europe. Despite demand trends improving in the second half, there was a small organic constant currency decline in the USA.

Given this widespread growth, both geographically and in each market segment, the Infrastructure Safety sector is expected to make continued progress in the coming year.

The Medical sector achieved consistent revenue growth throughout the year and improved its rate of profitability as the year progressed.

Revenue increased by 9% to £284m (2017: £261m) including 7% organic constant currency growth and a 2% contribution from acquisitions. Profit² improved by 0.4% to £67.0m (2017: £66.7m) including a 0.4% organic constant currency decline and 1% contribution from acquisitions. There was a very small negative impact from currency on both revenue and profit. Return on Sales was 23.6% (2017: 25.6%). R&D spend increased by 4% to £11.8m (2017: £11.3m). The Ophthalmology, Patient Assessment, Diagnostic and Sensor segments all achieved revenue growth with increased investment and revenue mix reducing, as expected, the relative rate of profit growth.

There was good organic constant currency revenue growth in the USA, which is the largest regional market. There was solid growth in the UK, Mainland Europe and Asia Pacific and strong growth in Other regions.

The Medical sector is well positioned to make further progress in the coming year through sustained revenue growth and maintaining its improving profitability.

The Environmental & Analysis sector had an outstanding year, achieving strong underlying growth and also benefitting from the reorganisation completed in the prior year.

Revenue grew by 18% to £259m (2017: £219m) including organic constant currency growth of 15% and a 3% contribution from acquisitions. Profit² increased by 32% to £55.0m (2017: £41.7m) including organic constant currency growth of 28%, a 6% contribution from acquisitions and a 2% adverse currency movement. Return on Sales was 21.2% (2017: 19.0%). R&D spend increased by 17% to £17.8m (2017: £15.1m). The Photonics, Water and Environmental & Monitoring segments all contributed strongly to this outstanding result.

There was strong organic constant currency revenue growth in Asia Pacific, the UK and the USA with solid growth from Mainland Europe. The UK benefited from good demand from the water utilities. There was a decline in demand from Other regions, which represents around 5% of sector revenue.

The Environmental & Analysis sector has good momentum in its chosen market segments and is well placed to continue to make progress this year.

Five acquisitions completed across three sectors

Our core acquisition strategy is to find privately-owned businesses operating in niches, which are aligned with our purpose of "Growing a safer, cleaner, healthier future for everyone, every day". We focus the majority of our search efforts in our core, or closely adjacent, market niches although each sector board has freedom to explore new niches which might have the right product, market and financial characteristics. In most cases we acquire 100% of an entity, but we make minority investments to gain access to potentially valuable intellectual property if an outright purchase is not appropriate or possible. Every transaction is approved by the Group Chief Executive and Finance Director, with all deals of £10m or over requiring Halma plc Board approval.

Coming into the year, we had an improving acquisition pipeline having built stronger, sector-focused M&A search resources. It was pleasing to see this translate into five acquisitions completed in the year and it is encouraging that we maintained a healthy pipeline of opportunities as we entered the new financial year.

In July 2017, we acquired blood pressure monitoring technology and product lines from Cas Medical Systems, Inc for an initial consideration of US$4.5m (£3.4m), with a potential performance-based contingent payment of up to US$2.0m (£1.5m). The assets acquired were merged into SunTech within our Medical sector.

In August 2017, we acquired Cardios, also a blood pressure monitoring specialist, for R$50m (£12.4m), with a potential payment of up to R$5m (£1.2m) for further growth. Based in São Paulo, Brazil, this is our first ever acquisition in South America. Cardios has joined the Medical sector.

In October 2017, we acquired Mini-Cam, a pipeline inspection business focused on water utilities. We paid an initial consideration of £64.9m and there is potential further payment of £23.1m based on future profit growth. Mini-Cam is based in the UK and is now part of the Environmental & Analysis sector.

In November 2017, we acquired Setco, based near Barcelona, Spain for a consideration of €17m (£15.1m). Trading under the Microkey brand, this brings new telecommunications capabilities to our Elevator Safety business, Avire, which is part of the Infrastructure Safety sector.

In December 2017, we acquired Argus Security and its UK distributor, Sterling, for a combined consideration of €20.8m (£18.4m). Argus is based in Trieste, Italy and manufactures fire detection solutions. It will operate within our Infrastructure Safety sector.

Our sector-focused organisational model gives us the scalability we need to continue to acquire small-to-medium sized businesses or even to acquire small groups of companies. Our portfolio structure enables us to easily integrate new acquisitions as well as to merge or sell businesses should the longer-term market potential change adversely. This enables Halma to grow rapidly without becoming more complex. In 2008, Halma had revenue of £398m from 39 operating companies while today we have revenue of £1,076m and 41 operating companies.

Halma 4.0 growth strategy launched and increased digital investment

The Halma 4.0 growth strategy provides a clear framework which helps our companies to face the diverse challenges and opportunities presented by the digital age.

It maintains a focus on growing our 'Core' business as the foundation of Halma's success (for example, through new product development and international expansion) and, during the year, R&D spend increased by 12% to £56.5m (2017: £50.6m) representing 5.2% of Group revenue (2017: 5.3%). However, Halma 4.0 also adds two further growth strategies, called 'Convergence' and 'Edge'.

Convergence growth is achieved through the creation of new digital solutions, often with new business models, arising from the combination of capabilities or technologies from more than one Halma company and/or new partnerships outside the Group (for example, using a safety-related technology for a medical application).

Edge growth will come from creating new business opportunities via partnerships with external companies which have valuable capabilities which we do not wish to, or are unable to, acquire (for example, Artificial Intelligence).

At the fulcrum of executing the Halma 4.0 strategy are our Growth Enablers. These are the resources provided by the Group to every company to help them to grow. They include well-established components of our growth strategy including M&A, Talent, International Expansion, Innovation and Finance & Risk. To these, Halma 4.0 has added 'Digital Growth Engines' and 'Strategic Communications'.

As we have done successfully in the past, our approach is to make central investment in high-quality resources for our companies to use according to their needs and ambition.

In July 2017, we were delighted to welcome Inken Braunschmidt as our first Chief Innovation and Digital Officer and member of the Executive Board. Inken has already been working very closely with our operating companies and is building a much stronger collaborative network across the Group and with external expert partners to accelerate the development of our innovation and digital capabilities for Core, Convergence and Edge growth. We look forward to sharing success stories from these new initiatives in the future.

Executive Board changes

In order to leverage the benefit of stronger networking within Halma and to provide greater visibility to the company boards of what is available to them, the Executive Board was streamlined in December 2017.

The number of Sector Chief Executives (SCEs) was reduced from four to two. Paul Simmons became the SCE responsible for our two Safety sectors and Adam Meyers the SCE responsible for the Medical and Environmental sectors. I would like to thank Philippe Felten and Chuck Dubois for their contributions to Halma's success as members of the Executive Board over many years.

In addition, we re-established the Divisional Chief Executive (DCE) role. The DCEs chair each Halma operating company and report into a SCE. They have greater direct interaction with the Halma Executive Board than the previous Sector Vice President role and therefore will be well positioned to bring the value of the Group to each business.

Finance Director succession

At the close of the AGM on 19 July 2018, Kevin Thompson will retire from Halma after 30 years of service, including 20 years as Finance Director. Kevin has made a huge contribution to Halma's development over this long period, not least by ensuring that the critical elements of our success, such as organic growth, free cash flow and a strong balance sheet have remained at the forefront of our growth strategy. I would like to thank Kevin for his support to me and to the Board over this long period and wish him health and happiness in the future.

I am delighted that, after an extensive internal and external recruitment process, the Board selected Halma's Group Financial Controller, Marc Ronchetti, as Kevin's successor. Marc will start as Halma's new Chief Financial Officer on 1 July 2018³. He has been completing an extensive handover process from Kevin and the transition has progressed smoothly. I look forward to working closely with Marc in the years ahead and welcome him to the Board.

Corporate responsibility and sustainability is at Halma's core

Our primary market growth drivers mean that Halma companies operate in markets in which their products contribute positively to the wider community. These market characteristics and our commitment to health and safety, the environment and people development are reflected in the values held by our employees and our operating culture. We review our responsibility and sustainability reporting in accordance with best practice. Legislative changes, particularly concerning the environment and bribery and corruption, have provided an opportunity to review and ensure that our procedures in these important areas are accessible, compliant and firmly bedded within our business.

A detailed report on Sustainability is set out in the Annual Report and Accounts 2018.

Outlook

Halma has completed another successful year, achieving record results while increasing strategic investment as part of an enhanced growth strategy.

Andrew Williams, Group Chief Executive

¹See Highlights.
² See note 2 to the Results.

³There is no information to disclose under LR 9.6.13R in respect of Marc Ronchetti's appointment.

Financial Review

Record results

Halma achieved record revenue and profit for the fifteenth consecutive year, exceeding £1 billion of revenue and £200m of adjusted¹ profit for the first time. Revenue increased by 11.9% to £1,076.2m (2017: £961.7m) and adjusted¹ profit was up by 10.1% to £213.7m (2017: £194.0m). Our balance sheet remains strong with significant financial capacity to continue investment in growth and to acquire. The Board is proposing a further dividend increase of 7%, the 39th consecutive year of 5% or more dividend growth.

The 11.9% increase in revenue included 9.9% organic constant currency revenue growth. Acquisitions contributed 2.0% to growth.

The adjusted¹ profit increase of 10.1% included 8.5% organic constant currency profit growth. Acquisitions contributed 1.5% to growth.

Despite currency volatility during the year there was negligible net currency translation impact on revenue and adjusted¹ profit for the year as a whole.

Statutory profit before taxation increased by 9.0% to £171.9m (2017: £157.7m). Statutory profit is calculated after charging the amortisation and impairment of acquired intangible assets of £34.7m (2017: £43.9m) and after charging acquisition related items, including revisions to provision for acquisition contingent consideration, related foreign exchange movements and disposal of operations and restructuring, of £7.0m (2017: £9.5m credit) arising from current and prior year acquisitions. In the prior year the reduction in forecast acquisition contingent consideration, and the related impairment of acquired intangible assets were primarily attributable to Visiometrics as discussed in the 2016/17 Annual Report. Statutory profit in the prior year included a charge of £1.9m for the restructuring of Pixelteq, within the Environmental & Analysis sector.

Revenue grew by 14.5% in the first half and 9.7% in the second half. There was a 5% positive contribution from currency translation in the first half which reversed in the second half to give a neutral impact for the year. Organic revenue growth at constant currency was 9.1% in the first half increasing to 10.6% in the second half to give 9.9% growth for the year, with continued growth in the two Safety sectors and increased second half growth in the Medical and Environmental & Analysis sectors.

Adjusted¹ profit growth was 13.0% in the first half and 7.9% in the second half. As with revenue, there was a 5% positive contribution from currency translation in the first half which reversed in the second half, giving a neutral impact in the full year. Organic profit growth at constant currency was 7.9% in the first half increasing to 9.0% in the second half. The first half/second half split of adjusted¹ profit was 44%/56% in line with our typical 45%/55% pattern.

All four sectors delivered revenue and profit growth. At organic constant currency all sectors achieved strong revenue growth. All except the Medical sector delivered organic constant currency profit growth for the year, although it did deliver growth in the second half after a decline in the first half.

Central administration costs were £15.3m (2017: £10.5m). As expected there was increased investment in digital/innovation capability to support our growth strategy as well as the increased cost of performance-based rewards resulting from high rates of growth. In addition, we held our biennial HITEx conference in the year. We expect a further increase in central costs in 2018/19 with continued investment to support our growth strategy, although in the medium-term central costs are expected to grow no faster than revenue.

Revenue and profit growth
				Percentage growth
	2018 £m	2017 £m	Increase £m	Total	Organic growth²	Organic growth² at constant currency
Revenue	1,076.2	961.7	114.5	11.9%	9.9%	9.9%
Adjusted¹ profit before tax	213.7	194.0	19.7	10.1%	8.6%	8.5%

Widespread growth There was strong revenue growth in all regions as well as all sectors with Process Safety and Medical growing in all regions. Headline growth benefited from positive currency translation impacts in the first half, with underlying growth strengthening further in the second half. The USA remains our largest revenue destination increasing by 8% to contribute 35% (2017: 36%) of Group revenue. All sectors except Infrastructure Safety grew in the USA with the largest increase in the Environmental & Analysis sector. In Mainland Europe revenue increased by 13% and all sectors grew, with a particularly strong performance by Infrastructure Safety. Asia Pacific was up 15% with very strong growth in the Environmental & Analysis sector. Asia Pacific revenue now exceeds that in the UK, where revenue rose by 12%. Africa, Near and Middle East grew by 15% and Other countries increased by 20% with good growth in Canada and Brazil. Revenue from territories outside the UK/Mainland Europe/the USA grew by 16%, ahead of our 10% KPI growth target for these territories. We achieved 10% growth in revenue in the UK/Mainland Europe/the USA. When measured at organic constant currency (removing the impact of currency translation and acquisitions) there was 9.9% growth for the year. This growth was widespread by region and sector. The USA grew in the year by 9% with Infrastructure Safety showing a small decline and the other sectors growing well in the second half. Mainland Europe grew by 8% with a strong performance from Infrastructure Safety. The UK grew by 9%, achieving higher growth in the second half, with Infrastructure Safety performing well and the highest growth coming from the Environmental & Analysis sector. Asia Pacific grew by 14% at organic constant currency continuing the trend of the first half. There was strong growth in Environmental & Analysis and good growth in the Safety sectors. China grew by 18%. In Africa, Near and Middle East and in Other countries there was a decrease in the Environmental & Analysis sector but good organic constant currency growth in the other three sectors.
Geographic revenue growth
		2018		2017
	£m	% of total	£m	% of total	Change £m	% growth	% organic growth at constant currency
United States of America	374.0	35%	345.3	36%	28.7	8%	9%
Mainland Europe	237.7	22%	210.4	22%	27.3	13%	8%
United Kingdom	173.3	16%	154.9	16%	18.4	12%	9%
Asia Pacific	174.9	16%	151.6	16%	23.3	15%	14%
Africa, Near and Middle East	69.7	7%	60.8	6%	8.9	15%	13%
Other countries	46.6	4%	38.7	4%	7.9	20%	10%
	1,076.2	100%	961.7	100%	114.5	12%	10%

Continued high returns

Halma's Return on Sales² has exceeded 16% for 33 consecutive years. We aim to deliver Return on Sales in the range of 18-22%. This year Return on Sales was 19.9% (2017: 20.2%).

The mix of sector performances and increased central administration costs contributed to the slightly reduced Return on Sales for the Group. Return on Sales for Process Safety slightly reduced this year but strengthened in the second half and remains at the high rate of 23%. The Infrastructure Safety sector remained in line with last year at 21%. The Medical sector had lower profitability in the first half mainly due to the mix effect of increased overhead spend, recovering in the second half and ending the year with Return on Sales of 24% (2017: 26%). Environmental & Analysis improved profitability again, building on the increase in the prior year and achieved 21% Return on Sales.

Return on Total Invested Capital² (ROTIC), the post-tax return on the Group's total assets including all historic goodwill, remained at the high level of 15.2% (2017: 15.3%).

Our objective is to continue to invest in our businesses to deliver growth whilst maintaining a high level of ROTIC, and this was achieved in the year due to the strong rate of growth delivered. ROTIC was once again ahead of our target of 12% and well in excess of Halma's Weighted Average Cost of Capital (WACC), estimated to be 7.7% (2017: 7.1%).

Every year the addition of prior year retained earnings to Total Invested Capital mean that high rates of organic constant currency profit and acquisition growth are needed just to maintain ROTIC. Currency movements also have an impact on ROTIC. Total Invested Capital, which includes significant US Dollar and Euro assets, has typically been affected by currency movements more than the post-tax return.

Currency impacts

Halma reports its results in Sterling. Our other key trading currencies are the US Dollar, Euro and to a lesser extent the Swiss Franc and Chinese Renminbi. Over 45% of Group revenue is denominated in US Dollars and approximately 15% in Euros.

The Group has both translational and transactional currency exposure. Translational exposures arise on the consolidation of overseas company results into Sterling. Translational exposures are not hedged.

Transactional exposures arise where the currency of sale or purchase transactions differs from the functional currency in which each company prepares its local accounts. After matching currency of revenue with currency costs wherever practical, forward exchange contracts are used to hedge 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 and, in certain specific circumstances, up to 24 months forward. At 31 March 2018 approximately 60% of our next 12 months' currency trading transactions were hedged.

There is a good degree of natural hedging within the Group in US Dollars but we spend less in Euros than we sell and this year had a net exposure of approximately €30m.

We saw continued volatility in currencies throughout the year although by year end this had a relatively limited impact on the Consolidated Income Statement. Average exchange rates are used to translate results in the Income Statement. Sterling weakened in the first half of the year, giving rise to a 5% positive currency translation impact on both revenue and profit. However in the second half of the year this position reversed, with stronger Sterling. Currency translation therefore had a neutral impact on revenue and adjusted¹ profit for 2017/18.

		Weighted average rates used in the Income Statement		Exchange rates used to translate the Balance Sheet
		2018	2017	2018	2017
	First half	Full year	Full year	Year end	Year end
US$	1.29	1.33	1.31	1.41	1.25
Euro	1.14	1.13	1.19	1.14	1.17

Based on the current mix of currency denominated revenue and profit, a 1% movement in the US Dollar relative to Sterling changes revenue by £4.9m and profit by £0.9m. Similarly, a 1% movement in the Euro changes revenue by £1.4m and profit by £0.3m.

We expect currency rates to continue to be volatile. If currency rates through the 2018/19 year were: US Dollar 1.35/Euro 1.13 relative to Sterling, and assuming a constant mix of currency results, we would expect approximately 1% adverse currency translation impact on revenue and profit in 2018/19 compared with 2017/18. On this basis there would be a higher adverse impact in the first half of the year, with some reversal in the second half of the year.

Increased financing cost

The net financing cost in the Income Statement of £9.7m was slightly above the prior year (2017: £9.3m). Average net borrowings were lower this year, despite significant acquisition expenditure, but the average cost of financing increased as interest rates edged up for US Dollars in particular (see the 'Average debt and interest rates' table below for more information).

Interest cover (EBITDA as a multiple of net interest expense as defined by our Revolving Credit Facility) was 32 times (2017: 30 times) which was well in excess of the four times minimum required in our banking covenants.

The net pension financing charge under IAS 19 is included within the net financing cost. This year it was in line with the prior year at £1.7m (2017: £1.6m).

Reduced group tax rate

This year the Board published the Group's Tax Strategy which sets out the Group's approach to tax matters. The strategy is available on our website at www.halma.com/responsibility/tax.

The Group's approach to tax is to ensure compliance with the tax regulations in all of the countries in which it operates, paying in full all taxes that are due. The key features of this are: (1) Tax compliance - Halma is committed to maintaining good relationships with tax authorities based on cooperation, transparency and paying in full the tax due in each jurisdiction; (2) Tax strategy - our tax arrangements have an underlying business purpose and, where possible, we consider mitigating tax in compliance with local legislation; and (3) Tax policy - the Board of Directors is regularly updated, either directly or through the Audit Committee, on the Group's Tax policy and management of tax risks.

The Group has major operating subsidiaries in 10 countries and the Group's effective tax rate is a blend of these national tax rates applied to locally generated profits. A significant proportion (approximately one quarter) of Group profit is generated and taxed in the UK. The Group's effective tax rate on adjusted¹ profit is lower than the prior year at 19.7% (2017: 21.5%) due to the lower US corporate income tax rate, the mix of profits earned in different jurisdictions and increased benefit under UK 'Patent Box' rules.

We expect the recently enacted US Tax Cuts and Jobs Act ('the Act') to positively impact the Group's current and future US after tax adjusted earnings due primarily to a reduction in US federal corporate income tax rates. This year, the changes in the Act had a positive impact of 0.7% on the Group's effective tax rate on adjusted¹ profit. The changes also resulted in a one-off non-cash tax credit of £15m relating to the revaluation of US deferred tax assets and liabilities. This credit has been included within Adjustments in the Consolidated Income Statement. We will continue to review and provide updated guidance in light of future clarifications that are expected to be issued by the US authorities on the complex provisions in the Act.

For the year to 31 March 2019 we currently anticipate (based on the forecast mix of adjusted¹ profits) a Group effective tax rate on adjusted¹ profits of approximately 20%.

Strong cash generation

Cash generation is an important component of the Halma model underpinning further investment in our businesses, supporting value enhancing acquisitions and funding an increasing dividend. Our cash conversion in 2017/18 was strong. Adjusted operating cash flow was £190.4m (2017: £175.5m) and represented 85% (2017: 86%) of adjusted operating profit, in line with our cash conversion KPI target of 85%.

Operating cash flow summary
	2018 £m	2017 £m
Operating profit	181.3	167.1
Net acquisition costs and contingent consideration fair value adjustments	7.8	(9.5)
Amortisation and impairment of acquisition-related acquired intangible assets	34.6	43.9
Loss on restructuring of operations	-	1.9
Adjusted operating profit	223.7	203.4
Depreciation and other amortisation	28.4	26.3
Working capital movements	(24.4)	(13.9)
Capital expenditure net of disposal proceeds	(20.5)	(23.1)
Additional payments to pension plans	(10.8)	(10.2)
Other adjustments	(6.0)	(7.0)
Adjusted operating cash flow	190.4	175.5
Cash conversion %	85%	86%

Non-operating cash flow and reconciliation to net debt
	2018 £m	2017 £m
Adjusted operating cash flow	190.4	175.5
Tax paid	(41.1)	(33.2)
Acquisition of businesses including cash/debt acquired	(117.6)	(10.2)
Net movement in loan notes	0.2	0.2
Net finance costs and arrangement fees	(7.3)	(9.5)
Dividends paid	(53.4)	(49.8)
Own shares purchased	(2.6)	(2.4)
Adjustment for cash outflow on share awards not settled by own shares	(3.3)	(3.3)
Effects of foreign exchange	10.8	(17.0)
Movement in net debt	(23.9)	50.3

Opening net debt	(196.4)	(246.7)

Closing net debt	(220.3)	(196.4)

Net debt to EBITDA
	2018 £m	2017 £m
Adjusted operating profit	223.7	203.4
Depreciation and amortisation (excluding acquired intangible assets)	28.4	26.3
EBITDA	252.1	229.7

Net debt to EBITDA	0.87	0.86

A summary of the year's cash flow is shown in the table above. The largest outflows in the year were in relation to acquisitions, dividends and taxation paid. Working capital outflow, comprising changes in inventory, receivables and creditors, totalled £24.4m (2017: £13.9m). This outflow was higher than the prior year due to increased debtors following continued strong revenue momentum in the final quarter and higher inventory levels supporting new product introductions. Debtor days remain in line with the prior year and outstanding debtor balances are actively reviewed as part of our year-end process.

Dividends totalling £53.4m (2017: £49.8m) were paid to shareholders in the year. Taxation paid was £41.1m (2017: £33.2m).

Capital allocation and funding

Halma aims to deliver high returns, measured by ROTIC, well in excess of our cost of capital. Future earnings growth and strong cash returns underpin ROTIC and our capital allocation as follows:

Investment for organic growth

Organic growth is our priority and is driven by investment in our businesses, in particular through capital expenditure, innovation for digital growth and in new products, international expansion and the development of our people.

Regular and increasing returns to shareholders

We have maintained a long-term progressive dividend policy as our preferred route for delivering cash returns to shareholders.

Value enhancing acquisitions

We supplement organic growth with acquisitions in related markets. This brings new technology and intellectual property into the Group and can expand our market reach.

Investment for organic growth

All sectors continue to innovate and invest in new products with R&D spend determined by each individual Halma company. This year R&D expenditure grew by 12%, in line with Group revenue, with increased investment through the year. R&D expenditure as a percentage of revenue was 5.2% (2017: 5.3%). 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.

In 2017/18 we capitalised and acquired £9.7m (2017: £10.7m), impaired £0.7m (2017: £0.1m) and amortised £6.9m (2017: £6.8m). This results in an asset carried on the Consolidated Balance Sheet, after £1.0m (2017: £1.4m gain) of foreign exchange loss, of £29.9m (2017: £28.8m). All R&D projects and particularly those requiring capitalisation, are subject to rigorous review and approval processes.

Capital expenditure on property, plant, equipment and computer software this year was £22.1m (2017: £24.4m). The prior year included additional investment in Group properties. The expenditure on fixed assets was spread across the four sectors supporting our operating capability, capacity and growth.

There was reduced spend in the Process Safety and Medical sectors following completion of projects in the prior year, and the highest increase was in the Environmental & Analysis sector accompanying high rates of growth. We anticipate capital expenditure of £34m in the coming year.

Regular and increasing returns for shareholders

Adjusted¹ earnings per share increased by 13% to 45.26p (2017: 40.21p), higher than the increase in Adjusted¹ Profit due to the lower effective tax rate this year. Statutory earnings per share increased by 19% to 40.69p (2017: 34.25p). Statutory earnings per share benefited from the one-off credit arising from revisions to US taxation rates discussed above.

The Board is recommending a 7.0% increase in the final dividend to 8.97p per share (2017: 8.38p per share), which together with the 5.71p per share interim dividend gives a total dividend of 14.68p (2017: 13.71p), up 7.1%. This year dividend cover (the ratio of adjusted¹ profit after tax to dividends paid and proposed) is 3.08 times (2017: 2.93 times).

The final dividend for 2017/18 is subject to approval by shareholders at the AGM on 19 July 2018 and will be paid on 15 August 2018 to shareholders on the register at 13 July 2018.

Dividend growth has been an important contributor to our Total Shareholder Return over many years. Halma has a long-term progressive dividend policy which aims to deliver consistent, sustainable and affordable dividend growth, whilst maintaining a prudent level of dividend cover.

We aim to increase the per share dividend amount each year, with approximately 35-40% of the anticipated total dividend being declared as an interim dividend. The Board's determination of recommended annual dividend increases takes into account the medium-term rate of organic constant currency growth and the financial resources required in executing our strategy, including organic investment needs and acquisition opportunities, whilst maintaining moderate debt levels.

Five acquisitions completed

Acquisitions and disposals are an important part of our growth strategy. We buy businesses already successful in, or adjacent to, the niches in which we operate.

In the year we spent £116m on five acquisitions (net of cash/(debt) acquired of £1m including acquisition costs). In addition, we paid £1m in contingent consideration for acquisitions made in prior years, giving a total spend of £117m.

The acquisitions made in 2017/18 were as follows:

In July 2017, we acquired Cas Medical Systems, Inc's (CasMed) non-invasive blood pressure monitoring product line for an initial cash consideration of US$4.5m (£3.4m) with up to a further US$2m (£1.5m) payable based on achievement of certain sales targets. We expect the majority of this deferred consideration to be paid.

In August 2017, we completed the acquisition of Cardios Sistemas Comercial e Industrial Ltda (Cardios) located in Brazil. The initial cash consideration was R$50m (£12.4m) with further payment of up to R$5m (£1.2m) payable based on future growth. Our current estimate is that R$2.5m (£0.6m) will be paid.

In October 2017, we acquired Mini-Cam Enterprises Limited and its subsidiaries (Mini-Cam). The initial consideration was £62m, on a cash and debt-free basis, with up to a further £23.1m payable based on annualised profit growth to the end of March 2020. Our current estimate is that £8.1m will be paid in deferred contingent consideration and this has been provided for in these accounts.

In November 2017, we acquired Setco S.A. for a cash consideration of €17m (£15.1m).

In December 2017, we acquired Argus Security S.r.l (Argus) and its UK-based distributor Sterling Safety Systems Limited (Sterling) for a combined cash consideration of €20.8m (£18.4m).

The acquisitions completed in the current and prior year contributed to revenue in 2017/18 in line with expectations. Their aggregate profit contribution was lower than the annualised run-rate at the time of acquisition due to the timing of certain acquisitions and additional investment under Halma ownership.

We expect a good performance from these acquisitions in the coming year and in the long term.

Funding capacity extended

Halma operations are cash generative and the Group has access to competitively priced debt finance providing good liquidity for the Group. Group treasury policy remains conservative and no speculative transactions are undertaken. We continue to fund organic and acquisition growth through our strong cash flow and use of debt facilities.

In November 2017 we extended the £550m Revolving Credit Facility, put in place in November 2016, by a further year to 2022. This supplements the US$250m US Private Placement drawn down in January 2016 which provided diversification of Group funding.

At the year end net debt was £220.3m (2017: £196.4m), a combination of £291.0m of debt and £70.7m of cash held around the world to finance local operations. The gearing ratio at year end (net debt to EBITDA) was 0.87 times (2017: 0.86 times). We are comfortable operating at this level of gearing and would increase to 2 times gearing if the timing of acquisitions required it. Net debt represents 5% (2017: 5%) of the Group's year-end market capitalisation. The Group continues to operate well within its banking covenants with significant headroom under each financial ratio.

These sources of funding provide Halma with the financial resources to operate within its existing business model for the medium term, continuing investment in our business and with substantial capacity for further acquisitions.

Average debt and interest rates
	2018	2017
Average gross debt (£m)	284.5	300.5
Weighted average interest rate on gross debt	2.16%	2.00%
Average cash balances (£m)	76.5	67.3
Weighted average interest rate on cash	0.33%	0.32%
Average net debt (£m)	208.0	233.3
Weighted average interest rate on net debt	2.83%	2.49%

Pensions update

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.

The Group accounts for post-retirement benefits in accordance with IAS 19 Employee Benefits. The Consolidated Balance Sheet reflects the net deficit on our pension plans at 31 March 2018 based on the market value of assets at that date and the valuation of liabilities using year end AA corporate bond yields.

On an IAS 19 basis the deficit on the Group's DB plans at the 2017/18 year end had decreased to £53.9m (2017: £74.9m) before the related deferred tax asset. The value of plan assets increased to £271.7m (2017: £265.0m).

In total, about 50% of plan assets are invested in return seeking assets providing a higher expected level of return over the longer term. Plan liabilities reduced to £325.6m (2017: £339.9m) due primarily to the revision to mortality assumptions based on latest guidance.

The plans' actuarial valuation reviews, rather than the accounting basis, determine any cash deficit payments by Halma. Following the 2014/15 triennial actuarial valuation of the two UK pension plans, cash contributions aimed at eliminating the deficit were agreed with the trustees. In 2017/18 these contributions amounted to £10.8m (2017: £10.2m). The latest triennial valuation for the two UK plans are in the process of completion and review. Appropriate contribution rates will be set following discussion between the Company and the pension plan trustees.

Brexit update

The UK referendum decision in June 2016 and the subsequent triggering of Article 50 in March 2017 mean that the UK is now scheduled to leave the European Union ('Brexit'), creating a new dimension to the uncertainties surrounding global economic growth. In March 2018, the EU announced that agreement in principle had been reached on a transition (or 'implementation') period running from the UK's withdrawal from the EU on 29 March 2019 to the end of 2020.

In 2017/18, approximately 10% of Group revenue came from direct sales between the UK and Mainland Europe. Our decentralised model, with business in diverse markets and locations, enables each Halma company to adapt quickly to changing trading conditions.

Halma formed an executive working group that is tasked with assessing and monitoring the impacts on our business and to communicate updates and guidance as the Brexit process evolves. This approach will continue throughout the transition period.

To date, the following Brexit risks have been identified as having an actual and/or potential impact on our business:

- Economic conditions: increased overall uncertainty including the specific impacts on growth, inflation, interest and currency rates

- Defined benefit pension liability: movements in bond yields affecting discount rates which may increase the liability

- Laws and regulations: potential changes to UK and EU-based law and regulation including product approvals, patents and import/export tariffs

- Talent: mobility of the workforce

Finally... on a personal note

I am very proud to have been part of Halma's progress over the past 30 years, including 20 years as Finance Director. Halma has grown and evolved significantly. Over that 30-year period, our compound revenue growth has been 11% (with growth in all but 2 years), delivering consistently high returns, acquiring over 100 businesses and growing the dividend by 5% or more every year, without becoming highly geared. However, Halma remains very much the business I joined - in its core strategy, model, culture and approach to ethical business. I have been lucky enough to work with many talented people, past and present. They have been key to Halma's success. I wish them all the very best for continued progress over the years to come.

Kevin Thompson, Finance Director

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. Adjusted 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 11 to the Results gives further details with the calculation and reconciliation of adjusted figures.

See Highlights.

Process Safety Sector Review

We create products that protect people and assets at work.

Sector progress summary

The sector delivered strong organic revenue and profit¹ growth. The first half of the year was particularly strong against a weaker comparison period, but solid progress was also made in the second half.

The Pressure Management sub-sector took advantage of their strong product portfolios and the improving US onshore oil and gas market, to produce outstanding results with double digit revenue and profit growth. The Pipeline Management sub-sector also produced strong organic growth, capitalising on the improving capex spending in Asia and the Middle East. The remaining sub-sectors also contributed organic revenue growth.

Market trends and growth drivers

Our Safety Interlocks and Gas Detection businesses are continuing to benefit from increasing health and safety regulation and a growing population. With an estimated 374 million injuries and 2.74 million fatalities occurring in the workplace each year, it is likely that the ongoing tightening and advancement of health and safety regulations will continue.

Our companies have been adept at expanding into adjacent markets. Examples include the use of interlock technology in warehousing applications while also keeping pace with technology changes in core markets, such as the increasing use of collaborative robots in the workplace. With the global demand for collaborative robots expected to grow further, an agile approach to complement or leverage such technological developments is key for our companies.

As a critical global resource, energy demand continues to be a significant growth driver for our Pressure Management and Pipeline Management businesses. The global demand for energy remains high, growing by 2.1% in 2017 with 70% of the demand being met by oil, natural gas and coal.

Current projections indicate that the demand for oil is likely to remain relatively flat through to the year 2040, partly due to the rise in renewable energy and demand for electric vehicles. However, the additional new supply required to offset the decline in natural production will require new production, equal to nearly 5% of the total, be added each year.

The Pressure Management sub-sector has particularly benefited from the recent resurgence in investment in unconventional oil and gas and the growing use of Natural Gas Liquids as chemical feedstock in the USA. These trends are expected to continue for the next 20 years.

Geographic trends

The Sector performed strongly in all geographies. Asia Pacific, the USA and Other regions were particularly strong. The US performance was driven by the improving Oil and Gas market and, while upstream capex remains well below the record levels of 2014, it grew by 35% in the USA in 2017 (4% globally). Upstream capex should grow by an estimated 8% in 2018 compared to 2017, again led by the USA.

Strategy

The sector's markets are diverse and its products provide valuable safety solutions in a wide variety of niche applications within the energy, chemical, pharmaceutical, biotechnology, automotive, transportation and industrial end markets. Our companies are strengthening their international presence whilst accelerating activities to moderate our dependency the Oil and Gas market.

Through partnering and acquisition activity we are seeking new opportunities in specialised niches where we can provide valuable solutions to high stake problems. As an example, our corrosion monitoring business, Cosasco, entered into an exclusive commercial partnership with Sensorlink AS, a Norwegian business with novel ultrasonic non-intrusive corrosion monitoring technology. This moves Cosasco to the forefront of its market with a broader range of sensing and connected data solutions.

Increasingly we are looking to increase the value we provide our customers through combining new digital technology with our existing, market-leading conventional technologies. Targeted acquisitions will be sought to accelerate this process. We are also finding more ways for the operating companies within Process Safety with other Halma sectors to collaborate on solutions that combine technology and insight from two or more operating companies.

Performance

The Process Safety sector has increased revenue by 11% to £185m and grew profit¹ by 8% to £43m. On an organic constant currency basis, revenue and profit grew by 11% and 8%, respectively. The Pressure Management sub-sector enjoyed a year of strong revenue and profit growth, primarily in the US chemical and energy markets. The Pipeline Management sub-sector benefited from several large capital project awards in Asia and the Middle East. Our Gas Sensors and Safety Interlock business also grew. We strengthened our acquisition pipeline, although all the growth delivered in the year was organic.

Gross margins remained healthy. Overheads were controlled with spend increasing in line with revenue growth. Return on Sales remained above Halma group target at 23.5%. Strong working capital management and profit generation helped improve Return on Capital Employed, maintaining it well above target. R&D spend at 3.4% of revenue was below the Group target, but is expected to increase as we focus on digital technology and new product development.

New product and process development continued to play a large role in our success. The Salvo product extended our sequential safety companies' markets into trailer loading bay safety. The Pressure Management sub-sector developed industry leading technology for their scored rupture disc and welded disc assembly product lines.

Outlook

We are aiming to acquire businesses in core and adjacent markets with a strong emphasis on digital technology and new business models. Through diversifying our product and service offerings, both at the individual company level and at the sector level through acquisition, we plan to steadily reduce our exposure to Oil and Gas over the medium term.

With strong growth prospects in core and adjacent markets and a steadily improving Oil and Gas market we expect to make progress in the coming year.

¹See note 2 to the Results.

Infrastructure Safety Sector Review

We create products that save lives protect infrastructure and enable safe movement.

Sector progress summary

The sector has had a strong year, led by robust organic growth in our Fire businesses and our People and Vehicle Flow business. All the sector's companies posted record revenue and the majority record profits¹. Return on Sales and Return on Capital Employed both showed good improvements, with the increased levels of R&D spend of recent years maintained.

The sector added two important technologies to the portfolio via the acquisition of a wireless smoke detection business and an elevator safety communication company.

Market trends and growth drivers

Our Fire businesses operate in markets driven by increasingly tight regulations, an expanding world population and greater urbanisation. As a result, the industry is experiencing global growth, with Fire Detection growing an estimated 5.3% per annum between 2015 and 2020 and Fire Suppression growing 4.7% per annum.

Increasing population growth and urbanisation, allied to a heightened focus on life safety, are driving even higher rates of growth for fire systems in many developing markets across the world. For example, the Indian market for both Fire Detection and Fire Suppression systems is forecast to grow 12% -13% each year between 2015 and 2020.

Tens of thousands of people worldwide die every year due to fire. Most of these deaths are preventable and employers and building owners are under increasing pressure to comply with stricter government laws and regulations to protect their workers.

High-profile tragedies are driving welcome improvements in the fire safety of existing infrastructure, and we expect to see more regulations coming into force to protect people's lives in both commercial and residential property. Although standards and practices vary between countries, these standards are improving every year and becoming more closely aligned.

Wireless fire systems provide a fast, effective and non-intrusive way of improving the safety of existing infrastructure. As a result, we expect demand for wireless products to continue accelerating in the coming years as governments, regulators and business owners all respond to the need to improve fire safety. Our recent acquisition, Argus, which manufactures wireless fire sensors, is poised to benefit from this trend.

The market for security products is increasingly linked to the emergence of intelligent buildings. It is estimated that by 2024 there will be 2.1 million connections in the intelligent buildings sector in the UK, with 70% of those connections related to security.

Our Security business is ideally positioned to benefit from the connected trend with its cloud based platform, which enables remote monitoring and control of a building's intrusion system.

The OEM elevator market continues to be highly competitive although the fast-growing maintenance market is more attractive, with a faster growth rate (4%) and higher profitability. The increasing use of mobile technology in elevators for emergency and monitoring communications was the driver behind our acquisition of Setco, a Spanish M2M communications technology company.

In both developed and developing countries there is a significant increase of people moving into urban areas and living in larger buildings. A recent United Nations report has highlighted this trend, estimating that by 2050 68% of the global population will be living in an urban area. This long-term trend is creating demand for better infrastructure and better transportation services, as people from all countries move into more densely populated areas.

Our People and Vehicle Flow and our Elevator businesses are positioning themselves to capitalise on this growing trend, providing products and services that enable safer transportation and people flow control in and around buildings, transportation networks and public spaces.

Geographic trends

The sector has a strong international footprint although most principal businesses are located in the UK, Mainland Europe and the USA. There was strong growth of 16% in Asia Pacific and Other regions which compares favourably to the sector's overall revenue growth rate of 11%. The performance in Asia Pacific was underpinned by large projects in vehicle registration and mass transit safety.

Revenue grew well in the UK and Mainland Europe with the USA underperforming due to weaker performances by our fire companies.

Strategy

Our strategy aims to accelerate growth due to increasing life safety concerns and the digitalisation of infrastructure, whilst maintaining a focus on less cyclical, niche applications with high barriers to entry. There are three main elements as follows:

- Core growth

- Organically expand our geographic footprint, especially in China, India and South East Asia and accelerate this international growth through acquisition.

- Accelerate the pace of innovation and product development to continue delivering sustainable and differentiated value to our customers.

- Convergence towards connected systems and infrastructure

- Move our companies' offerings along the digital value chain, to leverage our strong sensor technology portfolio and new cloud-based systems.

- Acquire technology in the integrated buildings market.

- Acquisition

- Continue to acquire businesses in our core markets and close adjacencies.

- Focus increasingly on digital and connected technologies to accelerate growth and enable convergence opportunities.

Our strategy is supported by a strong focus on talent: developing our people and recruiting the best talent in the market.

Performance

The sector delivered a strong performance, with revenue up 11% (8% organic constant currency) and profit¹ increasing by 13% (10% organic constant currency).

The People and Vehicle Flow business performed very strongly due to new product introductions and larger project successes in Asia Pacific. Buoyed by the acquisition of Setco, our Elevator Safety business had a good year both in terms of financial results and transitioning the business to more profitable products and services.

The Fire and Security businesses outperformed the market through a combination of new products and international growth, making a strong contribution to the sector's performance. The recently acquired Fire business, Argus, performed in line with expectation in its first three months.

Gross margins remained strong despite component cost headwinds. With good overhead control, Return on Sales increased to 21.0%.

All key financial metrics met or exceeded Halma targets, with strong cash generation and Return on Capital Employed.

Outlook

Our key growth drivers of increasing regulation, population growth and urbanisation will continue to prevail in the coming years. We expect our robust growth trend to continue, supported by sound investment decisions in innovation and people, and by strategic acquisitions in both our core markets and in digital adjacencies.

Whilst we will continue to grow steadily in developed markets, our geographic footprint will continue to shift to Asia.

Alongside our sales of core sensor products, we will grow our share of revenues from services and data insight.

¹See note 2 to the Results.

Medical Sector Review

We create products that enhance quality of life for patients and improve quality of care for providers.

Sector progress summary

The sector delivered record revenue and profit¹. Revenue grew in all our major geographies. While revenue growth was strong in both the first and second half of the year, first half profitability was below expectations due to higher spending on sales, marketing and new product development and lower gross margin caused by mix. After addressing both, the second half delivered improved profitability, resulting in a full year Return on Sales of 23.6% and profit marginally up.

Revenue for the year grew 8.9% as reported and 7.2% on an organic constant currency basis.

R&D spending grew by 4.0%, remaining at the prior year level of 4.1% of revenue and added new capabilities to our teams.

Return on Capital Employed and cash production continued above Group targets.

Market trends and growth drivers

The increasing demand for global healthcare continues to be supported by:

- worldwide population ageing and increasing life expectancy

- increasing global prevalence of chronic illnesses such as diabetes, obesity, hypertension and cancer

- new medical diagnostic and surgical technologies

- increased healthcare access in developing economies

The world population is expected to increase by 1 billion by 2025 with 300 million of that increase in the over 65 category. Ageing population is a key driver for growth in our medical portfolios focused in Ophthalmology, Patient Assessment and Diagnostics due to the increased prevalence of significant health risk factors such as diabetes, hypertension and cancer and the increased demand for healthcare services as age increases.

Age is associated with complex functional changes in the eye which can ultimately result in development of eye diseases such as cataract, diabetic eye disease, glaucoma, dry eye and low vision. Portable and easy to use diagnostic screening tools provide early screening to identify eye disease so that patients can gain treatment, slowing down progression and possibly preventing blindness. Cataract surgery is one of the most frequent surgical operations carried out worldwide, with more than 25 million operations annually. The growing and aging global population increases demand for diagnostic and surgical applications and positions our Ophthalmology businesses for continued growth in the future.

International product registration requirements continue to increase with a growing diversity of requirements by geography. This is increasing time and cost to market for much of the world, but provides barriers to entry for new entrants. We continue to build local expertise in this area to navigate these increasing requirements.

Currently, one in every three US adults has high blood pressure and only half of these individuals have their condition under control. A further one third have prehypertension which means they should continue to have their blood pressure monitored by the type of products made by our Patient Assessment companies. In Brazil, hypertension is an important public health problem with population-based studies showing a hypertension prevalence of 35%. Cardios, our recent acquisition in Brazil, focuses on hypertension and cardiac monitoring in the ambulatory market, providing new opportunities for our global Patient Assessment businesses.

The increasing prevalence of lifestyle-connected and chronic disease is driving growth in the in-vitro diagnostics and laboratory testing markets served by our Diagnostic companies. This market is projected to grow at 5.5% through to 2021.

With increased ageing, the demand for acute care and long-term care facilities also increases with more healthcare facilities under pressure to improve patient outcomes, reduce costs, improve throughput and ensure safety of staff and patients. The global market for real-time location systems, which assist in these applications, is forecast to grow at 24% per year between 2016 and 2022.

Strategy

The Medical sector is focused on enhancing the quality of life for patients and improving the quality of care delivered by providers.

We serve niche applications in global markets. By investing in our current portfolio and acquiring additional companies, we aim to continue to deliver growth rates at, or above Group targets.

Key sector strategic initiatives to increase growth organically and via acquisition include:

- recruiting and retaining high calibre, diversified talent

- increasing collaboration to drive geographic expansion and product development with a high focus on data an digital solutions

- increasing R&D investment to adapt to quickly changing market needs and respond to increased ageing population trends

- acquiring businesses in both core and adjacent market niches

Geographic trends

The global medical device market is expected to continue to grow at 5% through to 2021. North America will remain the largest market for medical device technologies, growing at 4%. In the Asia Pacific market, growth is forecast to continue above 7%, with Europe recovering at 5% through to 2021.

However, geographic variations in the global medical device market continue due to local economic conditions, government spending programmes, currency fluctuations and regulatory mandates. Therefore, our growth strategies will continue to vary by region.

Performance

The Medical sector grew revenue by 8.9% to £284m (2017: £261m) and profit¹ by 0.4% to £67m (2017: £67m). Organic constant currency revenue growth was stronger than prior year at 7% (2017: 4%). First half organic constant currency profit growth was below expectations, declining 6% due mostly to investments in sales, marketing and innovation. Second half organic constant currency profit growth rebounded to 4% growth as overhead growth slowed and good revenue growth continued.

We delivered revenue growth in all major regions with the USA ahead 8%, Europe up 6%, the UK 3% higher and Asia Pacific ahead 4%. South & Central America increased by 46% bolstered by our acquisition of Cardios in Brazil.

The sector continues to deliver high returns. Return on Sales remained high at 23.6% (2017: 25.6%). Return on Capital Employed and cash generation was also strong.

We completed two acquisitions. These businesses delivered encouraging second half performances and will contribute to sector growth in the years ahead.

Outlook

In the medium term, we expect our Patient care and Provider solutions segments to outperform the market with rising revenue driven by product innovation and increased penetration in key markets. The impact of global population growth and ageing on the healthcare market will continue as key drivers of our growth.

We will continue to build our acquisition targets pipeline within existing and adjacent niches, and expect continued growth from the businesses acquired. This and the profit and revenue momentum from the second half, should position us well to make progress in 2018/19.

¹See note 2 to the Results.

Environmental & Analysis Sector Review

We create products that monitor and protect life-critical resources.

Sector progress summary

The sector achieved record results with very strong organic revenue and profit¹ growth, both exceeding Group targets. This continues progress made over recent years. Growth in 2017/18 was achieved across multiple areas and benefited from the Pixelteq/Ocean Optics consolidation completed in 2016/17 and an acquisition completed mid-year.

Growth was achieved in all major geographies with particular strength in Asia driven by the Spectroscopy & Photonics and Environmental Monitoring businesses.

The mid-year acquisition of Mini-Cam added to our water network capabilities and continues to integrate well into the Sector.

R&D investment continues to grow, up £2.6m, representing 6.9% of revenues. We continue to focus our innovation efforts on markets that benefit from resilient long-term growth drivers.

Market trends and growth drivers

The sector's long-term growth is sustained by three key drivers:

- rising demand for life-critical resources such as energy, water and food

- increasing environmental monitoring and regulations

- worldwide population growth, urbanisation and rising standards of living

Our businesses contribute to the growing worldwide efforts to provide clean drinking water, treat water for agricultural and recreational irrigation, ensure safe sanitary wastewater removal and monitor air and water for pollution and industrial emissions. Our equipment, technology and services enable our customers to tackle these globally important challenges.

The need for clean water will continue to increase to provide enough safe water to drink and to support increasing agricultural development needs. Demand for both food and water continues to be driven by a growing global population. About half a billion people live in regions that cannot provide even half the water needs through renewable resources. Our businesses provide water disinfection technologies to make safe drinking water and agricultural or industrial use water more available.

Since 1990, although 2.1 billion people have gained access to improved sanitation, 2.4 billion people still remain without access to proper sanitation systems. Lack of access to safe water and sanitation systems are among the leading causes of child mortality and morbidity. Only 26% of urban sanitation and wastewater services effectively prevent human contact with contaminants along the entire sanitation chain. Our water testing systems help identify the contaminants in these water networks and our inspection solutions monitor them to create standards-compliant inspection data to ensure integrity of the network.

More than 90% of the world's population breathe air that exceeds safe limits as established by the World Health Organization (WHO). "The health risks of breathing dirty air include respiratory infections, cardiovascular disease, stroke, chronic lung disease and lung cancer and air pollution is the fourth largest threat to human health behind high blood pressure, dietary risks and smoking." Our gas conditioning systems aid in the monitoring of industrial emissions and our spectral imaging technologies are used in identifying contaminates.

Geographic trends

We continue to operate in a variety of diverse regional and end-market niches. While the near-term market dynamics in each of these region/market segments can be quite different, over the medium term, certain trends prevail.

For example, the global environmental monitoring market will grow between 7% and 8% annually through to 2021 to reach £14 billion. This growth remains dependent on new regulations and the enforcement of existing regulations in both developed and developing markets, along with increased government funding in developing markets. It is likely that developing markets will see the largest increase in the use of sensors for pollution monitoring and general air and water monitoring. North America will remain the largest region in this market by volume, followed by Europe. However, Asia Pacific, led by China and India, will see the strongest levels of growth.

We achieved good revenue growth across all major regions. Sales to Asia Pacific increased by 29% and sales to developed markets in the UK, USA, and Europe increased by 18%.

Strategy

Our products improve the quality of air, water and food for everyone, every day. They also enable the development and manufacture of products that improve our health and well-being.

Our growth strategy encompasses the development of market-led new products and services, acquisitions building on our existing technologies and/or market knowledge, geographic expansion and collaboration to extend market reach.

R&D is focused on applications addressing these long-term growth drivers. We continue to seek, foster and invest for growth in emerging markets.

Most of our companies provide sensors that collect data and our companies are increasing their efforts to explore innovative ways to use digital technologies to capture, manage, analyse and utilise data.

We continually seek to attract, develop and promote high quality talent and ensure our talent is representative of our diverse end markets and matched to our strategic needs.

Performance

The sector grew revenue by 18.4% to £259m (2017: £219m) and profit¹ by 32% to £55m (2017: £42m). Organic revenue growth at constant currency was 15.3% and profit growth was 27.5%, both well above Group targets. Return on Sales continued to improve to 21.2% (2017: 19.0%) and Return on Capital Employed also increased. We achieved these improved returns while continuing to increase R&D spending, which rose by 17% and was maintained at 6.9% of revenue.

We achieved the projected benefits associated with the 2016/17 Pixelteq restructuring and have successfully transferred its core technology and assets into Ocean Optics.

Mini-Cam was acquired during the year and added new capabilities in monitoring and inspecting of sewage and waste water networks to ensure both proper sanitation and compliance with environmental regulations.

Outlook

Global population growth, population ageing and increasing standards of living will continue to drive demand for energy resources, cleaner air, safer food and water. Our products, technologies and companies continue to build on these long-term growth drivers to deliver growth throughout the world.

We will continue to invest in our businesses to drive collaboration, technology development, business model evolution and development of digital and data management capabilities.

Our acquisition pipeline is growing and we continue to actively search for businesses complimentary to our existing portfolio along with those in adjacent areas.

We expect to continue to deliver good revenue and profit growth while maintaining our existing high level of returns.

¹See note 2 to the Results.

Principal Risks and Uncertainties

Halma's principal risks and uncertainties are detailed below and are supported by the robust risk management and internal control systems and procedures noted in the Annual Report and Accounts 2018.

1. Cyber

Risk Owner: Inken Braunschmidt

Gross risk level: High

Change: Increased

Risk appetite: Averse

Growth enablers

· Finance & Risk

· Digital Growth Engines

Risk and impact

· Loss of digital intellectual property/data or ability to operate systems due to internal failure or external attack. There is resulting loss of information or ability to continue operations, and therefore financial and reputational damage. The increase in this risk reflects the growing threat from cyber crime around the world.

How do we manage the risk?

· Clear ownership of cyber risk, with Board level expertise. IT function reports into Chief Innovation & Digital Officer.

· Group IT Strategy and policies in place, which require use of VPN and email filtering. Minimum required IT controls defined and strengthened during the year. All companies certify compliance every 6 months. Any gaps are tracked until addressed.

· Monthly cyber threat reporting in place across the Group.

· Regular online IT awareness training provided for all employees using computers.

· Disaster recovery and back-up plans in place, required to be tested regularly.

· Regular reviews by Group IT and Internal Audit.

2. Organic Growth

Risk Owner: Andrew Williams

Gross risk level: High

Change: New risk

Risk appetite: Open

Growth enablers

· International Expansion

· Talent & Culture

· Digital Growth Engines

· Innovation Network

· Strategic Communications

Risk and impact

· Failing to deliver desired organic growth, resulting in missed expected strategic growth targets and erosion of shareholder value.

How do we manage the risk?

· Clear Group strategy to achieve our organic growth targets, supported by detailed operating company strategies.

· Sector management ensure that the Group strategy is fulfilled through ongoing review and chairing of operating companies. They are critical in achieving the right balance between autonomy and adherence to the overall objectives of the Group.

· Regional hubs, for example in China and India, support local growth strategic initiatives for all operating companies.

· Culture of innovation and development of new opportunities.

· Regular monitoring of financial performance, at all levels, including at the Board.

· Clarity of strategy and agile business model that allows us to take advantage of new growth opportunities as they arise.

3. Making and Integrating Acquisitions

Risk Owner: Andrew Williams

Gross risk level: High

Change: No change

Risk appetite: Open

Growth enablers

· Talent & Culture

· M&A

· Finance & Risk

Risk and impact

· Missing our strategic growth target for acquisitions due to insufficient acquisitions being identified or poor due diligence or poor integration, resulting in erosion of shareholder value.

How do we manage the risk?

· Acquisition of companies in our existing or adjacent markets.

· Dedicated M&A Directors with Group Chief Executive, Finance Director and plc Board oversight and approval of all acquisitions.

· Regular reporting of the acquisition pipeline to the Executive and plc Board.

· Careful due diligence by experienced staff who bring in specialist expertise as required.

· Valuation model used for all acquisitions to ensure price paid is appropriate.

· Integration checklist covering control and compliance areas used to ensure consistent high quality and efficient integration into Halma.

· Clarity of strategy and agile business model that allows us to take advantage of new growth opportunities as they arise.

4. Talent & Diversity

Risk Owner: Jennifer Ward

Gross risk level: Medium

Change: No change

Risk appetite: Open

Growth enablers

· Talent & Culture

· Digital Growth Engines

· Innovation Network

· Strategic Communications

Risk and impact

· Not having the right talent and diversity at all levels of the organisation to deliver our strategy, resulting in reduced financial performance.

How do we manage the risk?

· Comprehensive recruitment processes to recruit the best and brightest talent.

· Development of talent and diversity across our operating companies, including through development programmes, to give us a competitive advantage and ensure that we have motivated leaders to deliver our strategy.

· Succession planning to identify and develop future leaders.

· Graduate development programme.

· Ongoing focus to increase diversity of our employees at all levels worldwide.

5. Innovation

Risk Owner: Inken Braunschmidt

Gross risk level: High

Change: Increased

Risk appetite: Seeking

Growth enablers

· Talent & Culture

· Digital Growth Engines

· Innovation Network

· Strategic Communications

Risk and impact

· Failing to innovate to create new high-quality products to meet customer needs, or failure to adequately protect intellectual property, resulting in a loss of market share and poor financial performance. The increasing speed of innovation and potential for disruption has increased this risk.

How do we manage the risk?

· Product development is devolved to the operating companies who are closest to the customer, with support and guidance provided by sector management.

· New Chief Innovation & Digital Officer role added during the year to promote and accelerate innovation by our companies including building relationships with new start-ups.

· Active collaboration of ideas and best practices between operating companies.

· Head Office approval of all large R&D projects to ensure alignment with strategy.

· Halma Innovation Awards reward and encourage innovation.

· Operating companies are encouraged to develop and protect intellectual property.

6. Competition

Risk Owner: Andrew Williams

Gross risk level: Medium

Change: Increased

Risk appetite: Open

Growth enablers

· International Expansion

· Talent & Culture

· Digital Growth

· Innovation Network

Risk and impact

· Failing to adapt to market and technological changes, either through organic or M&A activity, resulting in reduced financial performance. Just as our innovation risk has increased, the threat of disruption from competitors has increased.

How do we manage the risk?

· Focus on niche markets with high barriers to entry and seek to achieve strong market positions.

· In line with our decentralised business model where we place our operational resources close to our customers, we empower operating companies to monitor and respond to changing market needs.

· Regular company and sector board meetings which review markets, competition and product innovation.

· Ongoing discussions with customers and monitoring of market and technological changes to identify new opportunities.

7. Economic and Geopolitical Uncertainty

Risk Owner: Andrew Williams

Gross risk level: High

Change: Increased

Risk appetite: Cautious

Growth enablers

· International Expansion

· Finance & Risk

· Talent & Culture

Risk and impact

· Risk of decline in financial performance due to recession or geopolitical changes and its potential impact on the carrying value of goodwill.

How do we manage the risk?

· Diverse portfolio of companies across the four sectors, in multiple countries and in relatively non-cyclical specialised global niche markets helps to minimise the impact of any single event operating in one of our markets.

· Regular monitoring and assessment of potential risks and opportunities relating to geopolitical or economic uncertainties such as Brexit or healthcare reform in the USA. A Brexit Committee is in place to monitor developments and support operating companies.

· Identification of any wider trends by the Halma Executive Board that require action.

· Local operating companies have the autonomy to rapidly adjust to changing circumstances.

· Annual assessment of the carrying value of goodwill.

8. Natural Disasters

Risk Owner: Andrew Williams

Gross risk level: Medium

Change: No change

Risk appetite: Cautious

Growth enablers

· Finance & Risk

· Talent & Culture

Risk and impact

· Being unable to respond to large scale events or natural catastrophes such as hurricanes, floods or fire, resulting in inability of one or more parts of our business to operate, therefore causing financial loss and reputational damage.

How do we manage the risk?

· All parts of the Group are required to have business continuity plans in place which are tailored to manage the specific risks they are most likely to face and these are required to be tested periodically.

· The geographic diversity of operating companies limits the impact of any single event and Halma has manufacturing capability in multiple locations which provides flexibility.

· Business interruption insurance is in place to limit any financial loss that may occur.

9. Communications

Risk Owner: Jennifer Ward

Gross risk level: High

Change: New risk

Risk appetite: Open

Growth enablers

· Strategic Communications

· Talent & Culture

· Innovation

Risk and impact

· Missed opportunities for growth and attainment of our massive transformative purpose (MTP) should we not clearly articulate our value propositions to potential partners, customers, employees or acquisition targets.

How do we manage the risk?

· Halma plc Board members responsible for Communications and Investor Relations.

· Clear brand and communications strategy to enable clear understanding and alignment with Group strategy.

· Proactive brand and communications approach to reach existing and potential audiences to attract and engage them to drive new growth opportunities.

· Development of pitch books, MTP impact stories, product-solution case studies and investment collateral that are delivered to the appropriate targets via direct, indirect, social media and investor channels.

· Monitoring of external, social and investor media to gauge sentiment, brand health and protect reputation.

· Periodic employee engagement survey to gain feedback on the effectiveness of internal communication.

· Communication platform to enable rapid collaboration and information sharing.

10. Non-compliance with Laws and Regulations

Risk Owner: Kevin Thompson

Gross risk level: High

Change: No change

Risk appetite: Averse

Growth enablers

· Finance & Risk

· Talent & Culture

Risk and impact

· Failing to comply with laws and regulations resulting in damage to reputation and/or fines/penalties.

How do we manage the risk?

· High-quality management resources who implement controls to monitor and comply with legal requirements in all countries we operate.

· Operating companies ensure high product quality and compliance with legal standards.

· High ethical standards which are captured in our Code of Conduct. All employees are required to read and sign up to it.

· Employees across the group perform regular online compliance training.

· A whistleblowing hotline is in place and available for use by all employees.

· All parts of the group complete six-monthly control self-certifications which include legal compliance.

· Management of a specific coordinated project to achieve compliance with GDPR regulations.

11. Financial Controls

Risk Owner: Kevin Thompson

Gross risk level: Medium

Change: New risk

Risk appetite: Averse

Growth enablers

· Finance & Risk

· Talent & Culture

Risk and impact

· Failure in financial controls either on its own or via a fraud which takes advantage of a weakness, resulting in financial loss and/or misstated reported financial results. This risk has reduced following an update of the minimum expected controls for operating companies and a coordinated focus to address the most common financial control gaps identified.

How do we manage the risk?

· Local directors have legal, as well as operational, responsibility as they are statutory directors of their operating companies. This fits with Halma's decentralised model to ensure an effective financial control environment is in place.

· To mirror the decentralised model, Halma Group Finance prescribes the minimum expected financial controls to be in place and requires operating companies to certify every six months that these controls are operating effectively. These include segregation of duties, delegation of authorities and financial accounts preparation checks.

· Six-monthly peer reviews of reported results for each company to provide independent challenge. Internal Audit also performs periodic risk based reviews.

· A whistleblowing hotline is in place and available for use by all employees.

12. Treasury Management

Risk Owner: Kevin Thompson

Gross risk level: Medium

Change: No change

Risk appetite: Averse

Growth enablers

· Finance & Risk

Risk and impact

· There is a risk that the Group's cash resources are inadequate to support its activities, there is an inadvertent breach of funding terms/covenants, or that there is volatility on the Group's Sterling reported result due to unhedged exposure to foreign currency movements.

How do we manage the risk?

· A long-term Revolving Credit Facility is in place.

· Sources of funding, headroom and liquidity forecasts are regularly assessed and monitored.

· Funding terms are built into company policies and requirements, including export controls to sanctioned countries.

· A Group Treasury Policy includes hedging and there is regular monitoring of foreign currency exposure at local operating company and Group level.

13. Product Failure

Risk Owner: Andrew Williams

Gross risk level: Medium

Change: No change

Risk appetite: Averse

Growth enablers

· Finance & Risk

· Innovation Network

· Talent & Culture

Risk and impact

· A failure in one of our products results in serious injury, death or damage to property, including due to non-compliance with product regulations, resulting in financial loss and reputational damage.

How do we manage the risk?

· Operating companies have strict product development and testing procedures in place to ensure quality of products and compliance with appropriate regulations.

· Rigorous testing of products during development and also during the manufacturing process.

· Terms and conditions of sale limit liability as much as practically possible and liability insurance is in place.

· Product compliance with regulations is checked as part of due diligence for any acquisition.

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, its cash flows, liquidity position and borrowing facilities, are set out herein.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities, which includes a £550m Revolving Credit Facility running until November 2022 of which £437m remains undrawn at the date of this report. The Revolving Credit Facility was extended to November 2022 during the year. The Group contracts with a diverse range of customers and suppliers across different geographic areas and industries and no one customer accounts for more than 2% of Group turnover.

With this in mind, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the annual financial statements.

Longer-term Viability

During the year, the Board carried out a robust assessment of the principal risks affecting the Company, including those that would threaten its business model, future performance, solvency or liquidity. The Board has assessed the viability of the Company over a three-year period, taking into account the Group's current position and the potential impact of the principal risks and uncertainties. Whilst 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, as it aligns with the Group's strategic planning process, therefore it provides greater certainty over forecasting and 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 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 various scenarios based on the principal risks identified in the Group's annual risk assessment process. Scenarios modelled included increases and decreases in the level of acquisitions, major events such as litigation or product failure and a significant increase in pension deficit payments. Combinations of the above scenarios were also modelled. In each scenario, the effect on the Group's KPIs 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 Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period to 31 March 2021. The full Viability Statement is set out in the Annual Report and Accounts 2018.

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 2018. Certain parts thereof are not included within these Results. We confirm that to the best of our knowledge:
-	the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
-	the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
-	the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.

This responsibility statement was approved by the Board of Directors on 12 June 2018 and is signed on its behalf by:

A J Williams

Group Chief Executive

K J Thompson

Finance Director

Results for the year to 31 March 2018

Consolidated Income Statement

		Year ended 31 March 2018**			52 weeks to 1 April 2017
	Notes	Before adjustments* £000	Adjustments* (note 2) £000	Total £000	Before adjustments* £000	Adjustments* (note 2) £000	Total £000
Continuing operations
Revenue	2	1,076,211	-	1,076,211	961,662	-	961,662
Operating profit		223,705	(42,447)	181,258	203,371	(36,301)	167,070
Share of results of associate		(310)	-	(310)	(81)	-	(81)
Profit on disposal of operations	9	-	719	719	-	-	-
Finance income	3	295	-	295	494	-	494
Finance expense	4	(10,013)	-	(10,013)	(9,780)	-	(9,780)
Profit before taxation		213,677	(41,728)	171,949	194,004	(36,301)	157,703
Taxation	5	(42,143)	24,422	(17,721)	(41,734)	13,720	(28,014)
Profit for the year attributable to equity shareholders	2	171,534	(17,306)	154,228	152,270	(22,581)	129,689
Earnings per share	6
From continuing operations
Basic and diluted		45.26p		40.69p	40.21p		34.25p

Dividends in respect of the year	7
Paid and proposed (£000)				55,639			51,916
Paid and proposed per share				14.68p			13.71p
* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; profit or loss on disposal of operations and the associated taxation thereon; and the effect of the US tax reform measures. Note 11 provides more information on alternative performance measures. ** During the year the accounting reference date was changed to 31 March, see Accounting Policies in the Annual Report and Accounts 2018 for further details.

Consolidated Statement of Comprehensive Income and Expenditure

	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Profit for the year	154,228	129,689
Items that will not be reclassified subsequently to the Consolidated Income Statement:
Actuarial gains/(losses) on defined benefit pension plans	11,839	(31,059)
Tax relating to components of other comprehensive income that will not be reclassified	(2,453)	6,082
Items that may be reclassified subsequently to the Consolidated Income Statement:
Effective portion of changes in fair value of cash flow hedges	(62)	1,197
Exchange (losses)/gains on translation of foreign operations and net investment hedge	(62,937)	74,810
Tax relating to components of other comprehensive income that may be reclassified	15	(233)
Other comprehensive (expense)/income for the year	(53,598)	50,797

Total comprehensive income for the year attributable to equity shareholders	100,630	180,486

The exchange loss of £62,937,000 (2017: gain of £74,810,000) includes losses of £13,263,000 (2017: gains of £21,305,000) which relate to net investment hedges as described in the Annual Report and Accounts 2018.

Consolidated Balance Sheet

	31 March 2018 £000	1 April 2017 £000
Non-current assets
Goodwill	632,162	603,553
Other intangible assets	234,562	234,430
Property, plant and equipment	103,727	106,016
Interest in associate	3,993	3,553
Deferred tax asset	36,977	56,866
	1,011,421	1,004,418
Current assets
Inventories	127,966	118,780
Trade and other receivables	235,184	212,236
Tax receivable	859	124
Cash and bank balances	70,721	66,827
Derivative financial instruments	705	598
	435,435	398,565
Total assets	1,446,856	1,402,983
Current liabilities
Trade and other payables	149,600	134,816
Borrowings	1,142	1,351
Provisions	8,834	6,776
Tax liabilities	12,175	16,055
Derivative financial instruments	223	315
	171,974	159,313
Net current assets	263,461	239,252
Non-current liabilities
Borrowings	289,913	261,918
Retirement benefit obligations	53,896	74,856
Trade and other payables	12,621	11,221
Provisions	23,072	16,917
Deferred tax liabilities	66,983	100,121
	446,485	465,033
Total liabilities	618,459	624,346
Net assets	828,397	778,637
Equity
Share capital	37,965	37,965
Share premium account	23,608	23,608
Own shares	(6,285)	(7,263)
Capital redemption reserve	185	185
Hedging reserve	307	354
Translation reserve	87,260	150,197
Other reserves	(5,844)	(6,323)
Retained earnings	691,201	579,914
Shareholders' funds	828,397	778,637

Consolidated Statement of Changes in Equity

	Share capital £000	Share premium account £000	Own shares £000	Capital redemption reserve £000	Hedging reserve £000	Translation reserve £000	Other reserves £000	Retained earnings £000	Total £000
At 2 April 2017	37,965	23,608	(7,263)	185	354	150,197	(6,323)	579,914	778,637
Profit for the year	-	-	-	-	-	-	-	154,228	154,228
Other comprehensive income and expense:
Exchange differences on translation of foreign operations	-	-	-	-	-	(62,937)	-	-	(62,937)
Actuarial gains on defined benefit pension plans	-	-	-	-	-	-	-	11,839	11,839
Effective portion of changes in fair value of cash flow hedges	-	-	-	-	(62)	-	-	-	(62)
Tax relating to components of other comprehensive income	-	-	-	-	15	-	-	(2,453)	(2,438)
Total other comprehensive income and expense	-	-	-	-	(47)	(62,937)	-	9,386	(53,598)
Dividends paid	-	-	-	-	-	-	-	(53,375)	(53,375)
Share-based payment charge	-	-	-	-	-	-	7,867	-	7,867
Deferred tax on share-based payment transactions	-	-	-	-	-	-	(449)	-	(449)
Excess tax deductions related to share-based payments on exercised awards	-	-	-	-	-	-	-	1,048	1,048
Purchase of Own shares	-	-	(2,615)	-	-	-	-	-	(2,615)
Performance share plan awards vested	-	-	3,593	-	-	-	(6,939)	-	(3,346)
At 31 March 2018	37,965	23,608	(6,285)	185	307	87,260	(5,844)	691,201	828,397

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. At 31 March 2018 the number of treasury shares held was 3,990 (2017: 462,188) and the number of shares held by the Employee Benefit Trust was 631,991 (2017: 512,417). The market value of Own shares was £7,498,000 (2017: £9,980,000).

The Translation reserve is used to record the difference arising from the retranslation of the financial statements of foreign operations. 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 Capital redemption reserve was created on repurchase and cancellation of the Company's own shares. The Other reserves represent the provision for the value of the Group's equity-settled share plans.

	Share capital £000	Share premium account £000	Own shares £000	Capital redemption reserve £000	Hedging reserve £000	Translation reserve £000	Other reserves £000	Retained earnings £000	Total £000
At 3 April 2016	37,965	23,608	(8,219)	185	(610)	75,387	(5,831)	523,855	646,340
Profit for the year	-	-	-	-	-	-	-	129,689	129,689
Other comprehensive income and expense:
Exchange differences on translation of foreign operations	-	-	-	-	-	74,810	-	-	74,810
Actuarial losses on defined benefit pension plans	-	-	-	-	-	-	-	(31,059)	(31,059)
Effective portion of changes in fair value of cash flow hedges	-	-	-	-	1,197	-	-	-	1,197
Tax relating to components of other comprehensive income	-	-	-	-	(233)	-	-	6,082	5,849
Total other comprehensive income and expense	-	-	-	-	964	74,810	-	(24,977)	50,797
Dividends paid	-	-	-	-	-	-	-	(49,788)	(49,788)
Share-based payment charge	-	-	-	-	-	-	6,076	-	6,076
Deferred tax on share-based payment transactions	-	-	-	-	-	-	65	-	65
Excess tax deductions related to share-based payments on exercised awards	-	-	-	-	-	-	-	1,135	1,135
Purchase of Own shares	-	-	(2,368)	-	-	-	-	-	(2,368)
Performance share plan awards vested	-	-	3,324	-	-	-	(6,633)	-	(3,309)
At 1 April 2017	37,965	23,608	(7,263)	185	354	150,197	(6,323)	579,914	778,637

Consolidated Cash Flow Statement

	Notes	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Net cash inflow from operating activities	10	173,250	172,493

Cash flows from investing activities
Purchase of property, plant and equipment		(20,202)	(21,875)
Purchase of computer software		(1,915)	(2,479)
Purchase of other intangibles		(140)	(281)
Proceeds from sale of property, plant and equipment and capitalised development costs		1,750	1,495
Development costs capitalised		(9,403)	(10,731)
Interest received		255	211
Acquisition of businesses, net of cash acquired	8	(111,711)	(9,972)
Net cash used in investing activities		(141,366)	(43,632)

Financing activities
Dividends paid		(53,375)	(49,788)
Purchase of Own shares		(2,615)	(2,368)
Interest paid		(7,185)	(7,023)
Loan arrangement fee paid		(419)	(2,656)
Proceeds from bank borrowings	10	119,185	-
Repayment of bank borrowings	10	(81,409)	(54,761)
Net cash used in financing activities		(25,818)	(116,596)

Increase in cash and cash equivalents	10	6,066	12,265
Cash and cash equivalents brought forward		65,637	49,526
Exchange adjustments		(2,034)	3,846
Cash and cash equivalents carried forward		69,669	65,637
	Notes	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Reconciliation of net cash flow to movement in net debt
Increase in cash and cash equivalents		6,066	12,265
Net cash (inflow)/outflow from (drawdown)/repayment of bank borrowings	10	(37,776)	54,761
Net debt acquired	10	(3,109)	-
Loan notes repaid in respect of acquisitions	10	161	241
Exchange adjustments		10,766	(16,991)
		(23,892)	50,276
Net debt brought forward		(196,442)	(246,718)
Net debt carried forward		(220,334)	(196,442)

Notes to the Results

1 Basis of preparation

General Information

The Results are based on the Company's financial statements which are prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU) and therefore comply with Article 4 of the EU IAS legislation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. The financial statements have also been prepared in accordance with IFRS and IFRS Interpretations Committee (IFRS IC) interpretations issued and effective at the time of preparing these accounts.

With the exception of the new standards adopted in the year, as discussed below, there have been no significant changes in accounting policies from those set out in Halma plc's Annual Report and Accounts 2017. The accounting policies have been applied consistently throughout the years ended 31 March 2018 and 1 April 2017 other than those noted below.

The financial information set out in these Results does not constitute the Group's statutory accounts for the years ended 31 March 2018 and 1 April 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting. The auditor's reports on the 2017 and the 2018 accounts were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The following Standards with an effective date of 1 January 2017 have been adopted without any significant impact on the amounts reported in these financial statements.

- Amendments to IAS 7: Disclosure Initiative;

- Amendments to IAS 12: Recognition of deferred tax assets for unrealised losses; and

- Annual improvement 2014-2016 Cycle.

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 EU):

- IFRS 9 'Financial Instruments: Classification and measurement' - effective for accounting periods beginning on or after 1 January 2018.

- IFRS 15 'Revenue from Contracts with Customers' - effective for accounting periods beginning on or after 1 January 2018.

- IFRS 16 'Leases' - effective for accounting periods beginning on or after 1 January 2019.

- Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions - effective for accounting periods beginning on or after 1 January 2018.

- Annual Improvements 2014-2017 Cycle - effective for accounting periods beginning on or after 1 January 2018.

- IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration - effective for accounting periods beginning on or after 1 January 2018.

- IFRIC Interpretation 23 Uncertainty over income tax treatments - effective for accounting periods beginning on or after 1 January 2019.

- Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures - effective for accounting periods beginning on or after 1 January 2019.

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 except for IFRS 16 'Leases'. Further information on the impact of the adoption of IFRS 9 'Financial Instruments: Classification and measurement', IFRS 15 'Revenue from Contracts with Customers' and IFRS 16 'Leases' is given below.

IFRS 9 'Financial Instruments'

For the Group, transition to IFRS 9 is effective from 1 April 2018. The half year results for the period ended 30 September 2018 will be IFRS 9 compliant with the first Annual Report published in accordance with IFRS 9 being the 31 March 2019 report. The Group has elected not to restate comparatives on initial application of IFRS 9, the opening impact of adoption of IFRS 9 will be recognised in reserves.

IFRS 9 provides a new expected losses impairment model for financial assets, including trade receivables, and includes amendments to classification and measurement of financial instruments. An accounting policy choice is available with regards to applying the new hedge accounting requirements or retaining IAS 39. The Group has elected to retain IAS 39.

During this reporting period the Group has undertaken an impact assessment of this new standard on its financial statements. The Group's use of financial instruments is limited to short-term trading balances such as receivables and payables, borrowings and derivatives used for hedging foreign exchange risks. Therefore, the standard impacts the Group's classification of financial instruments and the measurement of impairment of short-term financial assets.

As part of the impact assessment, using the simplified approach allowed by the standard, we established an appropriate impairment model and accompanying processes to be applied to receivables by our companies and have asked them to recalculate their provision at 31 March 2018 using this new methodology. The impact is an immaterial release of provision of less than £500,000 arising where certain companies have historically held larger provisions. For most companies the revised methodology results in a similar level of provision to that held under current accounting standards.

In accordance with IFRS 9, this adjustment will be reflected as an opening retained earnings adjustment in the Annual Report for the year ended 31 March 2019.

IFRS 15 'Revenue from Contracts with Customers'

For the Group, transition to IFRS 15 is effective from 1 April 2018. The half year results for the period ended 30 September 2018 will be IFRS 15 compliant with the first Annual Report published in accordance with IFRS 15 being the 31 March 2019 report. The Group plans to adopt a fully retrospective transition approach and so comparatives for the year ended 31 March 2018 will be restated.

IFRS 15 replaces existing revenue guidance including:

- IAS 18 Revenue

- IAS 11 Construction contracts

- IFRIC 13 Customer Loyalty Programmes

IFRS 15 sets out the requirements for recognising revenue from contracts with customers. The standard requires entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a stand-alone selling price basis, based on a five-step model.

The Group has successfully completed its transition exercise in quantifying the full impact of this standard. Having performed an impact assessment in 2016/17, during 2017/18 the Group has worked through a comprehensive transition exercise at each of its subsidiaries. The autonomous nature of the Group means that each subsidiary sets its own terms and conditions and operating procedures and as such this was the appropriate level for the transition exercise. The transition exercise has involved scoping the Group's revenues to identify revenue streams with like commercial terms and performing sample contract reviews to determine the appropriate revenue recognition under IFRS 15. To ensure a consistent approach to the exercise and consistent judgements, the exercise has been supported by Group through setting the approach to transition, and providing appropriate tools and guidance, including a revised Group Accounting Manual.

The following areas of potential differences were identified from our initial impact assessment which have been investigated as part of our transition exercise:

- Certain companies across the Group provide a product which involves an element of customisation. Currently under IAS 18 the revenue recognition for such product is at a point in time on transfer of the risk and reward of the transaction to the customer. IFRS 15 requires that for such transactions, where certain criteria are met, revenue is recognised over time. Based on the review of specific contract terms against the requirements of IFRS 15 only in very limited circumstances are the criteria met and as such there is no material change in the timing or quantum of revenue recognition in relation to these arrangements.

- Certain companies across the Group arrange shipping and handling on behalf of their customers but, based on assessment of all terms and conditions, determine control of goods to pass on despatch. Accordingly shipping and handling is a separate performance obligation under IFRS 15 and revenue is only recognised when the performance obligation is fulfilled. Having reviewed the terms of the arrangements there is not a material change in the timing or quantum of revenue recognition from this change.

- Many of our companies have warranty arrangements with their customers. Having reviewed the details of the warranty arrangements, these have been largely determined to be of an assurance nature and as such there is no material change in accounting required by IFRS 15.

- Many of the companies have variable consideration arrangements with their customers. Having reviewed the details of these arrangements against IFRS 15 and current accounting practices, there is no change in the timing or quantum of revenue recognition.

- Sales commissions and other third-party sales acquisition costs resulting directly from securing contracts with customers are required to be recognised as an asset under IFRS 15 and recognised over the associated contract period where that contract is more than one year in length. Having reviewed the nature of the arrangements there is no change in the current accounting.

Based on our work, most of our companies are unaffected, but have implemented process changes to comply with IFRS 15 now and in the future. A small number of our companies have individually material adjustments to their balance sheets through acceleration or deferral of revenue on the opening balance sheet. However, at a Group level these do not represent a material change.

The net impact to the opening balance sheet and balance sheet as at 31 March 2018 is an immaterial credit of less than £500,000 with a corresponding debit to retained earnings. Accordingly, the net movement in the Consolidated Income Statement for the year ended 31 March 2018 is less than £100,000 and also immaterial.

IFRS 16 'Leases'

For the Group, transition to IFRS 16 will take effect from 1 April 2019. The half year results for the period ending 30 September 2019 will be IFRS 16 compliant with the first Annual Report published in accordance with IFRS 16 being for the year ending 31 March 2020.

IFRS 16 replaces existing lease guidance including:

- IAS 17 Leases

- IFRIC 4 Determining whether an arrangement contains a lease

- SIC 15 Operating leases - Incentives

- SIC 27 Evaluating the substance of transactions involving the legal form of a lease

IFRS 16 provides a single on-balance sheet accounting model for lessees which recognises a right of use asset, representing its right to use the underlying asset, and lease liability, representing its obligations to make payment in respect of the use of the underlying asset. The distinction between finance and operating leases for lessees is removed. Lessor accounting remains similar to the existing standard with no significant impact expected.

The Group will likely opt to apply the exemptions available in respect of leases which are less than 12 months long and those which have been classified as leases of low-value items. In addition, the Group will likely apply the practical expedient allowing for IFRS 16 to be applied to all contracts previously assessed as containing a lease under IAS 17 and IFRIC 4 without reassessing whether such contracts meet the definition of a lease under IFRS 16. The Group is currently assessing whether a full retrospective approach will be applied upon transition or whether a modified approach will be taken with optional practical expedients.

The Group is currently assessing the financial impact of the new standard. The most significant impact currently identified will be that the Group's land and buildings leases will be brought on to the balance sheet. Further assessment of other leases is currently ongoing. The actual impact of applying IFRS 16 is dependent on future economic conditions including:

- movements in the Group's borrowing rate at 31 March 2019;

- the composition of the Group's lease portfolio at transition date;

- the Group's view on whether renewal options will be exercised; and

- the Group's final decisions regarding the use of recognition exemptions and practical expedients for transition.

The Group's future lease commitments for land and buildings at the balance sheet date, which provides an indicator of the value to be brought on to the balance sheet, is £43m.

In addition, the profile of expenses related to leasing arrangements will change. Straight line operating lease expenses will be replaced by the recognition of depreciation of the right-of-use asset and interest charges on lease liabilities.

No significant impacts are expected in relation to leases currently classified as finance leases in the Group financial statements.

These Results were approved by the Board of Directors on 12 June 2018.

2 Segmental analysis

Sector analysis

The Group has four reportable segments (Process Safety, Infrastructure Safety, Medical, and Environmental & Analysis), which are defined by markets rather than product type. Each segment includes businesses with similar operating and marketing characteristics. These segments are consistent with the internal reporting reviewed each month by the Group Chief Executive.

Segment revenue and results	Revenue (all continuing operations)
	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Process Safety	184,552	167,007
Infrastructure Safety	348,763	315,219
Medical	283,758	260,576
Environmental & Analysis	259,411	219,118
Inter-segmental sales	(273)	(258)
Revenue for the year	1,076,211	961,662

Inter-segmental sales are charged at prevailing market prices and have not been disclosed separately by segment as they are not considered material. Revenue derived from the rendering of services was £49,622,000 (2017: £39,011,000). All revenue was otherwise derived from the sale of products.

	Profit (all continuing operations)
	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Segment profit before allocation of adjustments*
Process Safety	43,350	40,243
Infrastructure Safety	73,295	65,129
Medical	66,981	66,704
Environmental & Analysis	55,024	41,698
	238,650	213,774
Segment profit after allocation of adjustments*
Process Safety	39,411	36,243
Infrastructure Safety	65,164	60,342
Medical	44,673	45,804
Environmental & Analysis	47,674	35,084
Segment profit	196,922	177,473
Central administration costs	(15,255)	(10,484)
Net finance expense	(9,718)	(9,286)
Group profit before taxation	171,949	157,703
Taxation	(17,721)	(28,014)
Profit for the year	154,228	129,689

* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations. Note 11 provides more information on alternative performance measures.

The accounting policies of the reportable segments are the same as the Group's accounting policies. Acquisition transaction costs, adjustments to contingent consideration and release of fair value adjustments to inventory (collectively 'acquisition items') are recognised in the Consolidated Income Statement. Segment profit, before these acquisition items and the other adjustments, is disclosed separately above as this is the measure reported to the Group Chief Executive for the purpose of allocation of resources and assessment of segment performance. These adjustments are analysed as follows:

		Year ended 31 March 2018
		Acquisition items
	Amortisation and impairment of acquired intangible assets £000	Transaction costs £000	Adjustments to contingent consideration £000	Release of fair value adjustments to inventory £000	Total amortisation charge and acquisition items £000	Disposal of operations and restructuring (note 9) £000	Total £000
Process Safety	(3,939)	-	-	-	(3,939)	-	(3,939)
Infrastructure Safety	(5,178)	(814)	-	(2,139)	(8,131)	-	(8,131)
Medical	(18,446)	(1,001)	(3,252)	(328)	(23,027)	719	(22,308)
Environmental & Analysis	(7,105)	(805)	1,535	(975)	(7,350)	-	(7,350)
Total Segment & Group	(34,668)	(2,620)	(1,717)	(3,442)	(42,447)	719	(41,728)

The transaction costs arose mainly on the acquisitions during the period of Setco, S.A. (Setco) (£114,000) and Argus Security S.r.l. and Sterling Safety Systems Limited (together 'Argus') (£700,000) within Infrastructure Safety, Cas Medical Systems Inc's Non-Invasive Blood Pressure Monitoring product line (CasMed NIBP) (£374,000) and Cardios Sistemas Comercial e Industrial Ltda and Cardio Dinamica Ltda (together 'Cardios') (£538,000) within Medical, and Mini-Cam Enterprises Limited and subsidiaries (Mini-Cam) (£805,000) within Environmental & Analysis. See note 8 for further detail on the acquisitions.

The £1,717,000 adjustment to contingent consideration comprises: a debit of £2,564,000 in Medical arising from a change in estimate of the payable for CasMed NIBP (£725,000) and Visiometrics S.L (£1,839,000), offset by a credit of £1,535,000 in Environmental & Analysis arising from a change in estimate of the payable for FluxData. Exchange differences on the payable for Visiometrics S.L which is denominated in Euros, and for Cardios which is denominated in Brazilian Reals, contributes a further debit of £688,000 in Medical.

The £3,442,000 release of fair value adjustments to inventory relates to Firetrace (£1,370,000), Argus (£615,000) and Setco (£154,000) within Infrastructure Safety, Cardios (£328,000) within Medical, and Mini-Cam (£875,000) and FluxData (£100,000) within Environmental & Analysis. All amounts have now been released in relation to Argus, Setco, Cardios and FluxData.

					52 weeks to 1 April 2017
		Acquisition items
	Amortisation of acquired intangible assets £000	Transaction costs £000	Adjustments to contingent consideration £000	Release of fair value adjustments to inventory £000	Total amortisation charge and acquisition items £000	Disposal of operations and restructuring (note 9) £000	Total £000
Process Safety	(4,000)	-	-	-	(4,000)	-	(4,000)
Infrastructure Safety	(4,784)	(3)	-	-	(4,787)	-	(4,787)
Medical	(30,702)	(95)	10,687	(790)	(20,900)	-	(20,900)
Environmental & Analysis	(4,412)	(265)	14	(41)	(4,704)	(1,910)	(6,614)
Total Segment & Group	(43,898)	(363)	10,701	(831)	(34,391)	(1,910)	(36,301)

Included within amortisation and impairment of acquired intangible assets in the Medical sector was £12,429,000 impairment to a customer relationship asset of Visiometrics and related to this impairment a credit arising from a revision to the estimate of the deferred contingent consideration payable of £10,087,000 (€12,002,000) payable on sales to the same customer.

The remaining credit to contingent consideration related to the changed estimate to the payable for Value Added Solutions LLC by £356,000, and for ASL Holdings Limited by £14,000 on final settlement of the payable, and a credit of £244,000 arising from exchange differences on the Visiometrics payable which is denominated in Euros.

The transaction costs arose mainly on the acquisition of FluxData on 6 January 2017.

The £831,000 charge related to the release of the fair value adjustment on revaluing the inventories of CenTrak (£790,000) and FluxData (£41,000) on acquisition. The £1,910,000 charge related to inventory and fixed asset write downs and severance costs arising on the restructuring of non-core operations in one of the Group's subsidiaries, Pixelteq.

Geographic information

The Group's revenue from external customers (by location of customer) is detailed below:

	Revenue by destination
	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
United States of America	374,007	345,295
Mainland Europe	237,716	210,342
United Kingdom	173,277	154,920
Asia Pacific	174,918	151,626
Africa, Near and Middle East	69,715	60,765
Other countries	46,578	38,714
	1,076,211	961,662

3 Finance income
	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Interest receivable	255	211
Fair value movement on derivative financial instruments	40	283
	295	494

4 Finance expense	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Interest payable on borrowings	6,970	6,977
Amortisation of finance costs	970	1,040
Net interest charge on pension plan liabilities	1,708	1,553
Other interest payable	215	126
	9,863	9,696
Fair value movement on derivative financial instruments	64	53
Unwinding of discount on provisions	86	31
	10,013	9,780

5 Taxation	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Current tax
UK corporation tax at 19% (2017: 20%)	9,809	9,282
Overseas taxation	29,075	27,525
Adjustments in respect of prior years	(291)	(2,041)
Total current tax charge	38,593	34,766
Deferred tax
Origination and reversal of timing differences	(6,230)	(7,365)
Changes in tax rate - US tax reform measures	(14,947)	-
Adjustments in respect of prior years	305	613
Total deferred tax credit	(20,872)	(6,752)
Total tax charge recognised in the Consolidated Income Statement	17,721	28,014
Reconciliation of the effective tax rate:
Profit before tax	171,949	157,703
Tax at the UK corporation tax rate of 19% (2017: 20%)	32,670	31,541
Overseas tax rate differences	12,756	9,230
Effect of US tax reform measures	(14,947)	-
Effect of intra-group financing	(7,937)	(6,095)
Tax incentives, exemptions and credits (including patent box, R&D and High-Tech status)	(4,575)	(3,461)
Permanent differences	(260)	(1,773)
Adjustments in respect of prior years	14	(1,428)
	17,721	28,014
Effective tax rate	10.3%	17.8%

	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Adjusted* profit before tax	213,677	194,004
Total tax charge on adjusted* profit	42,143	41,734
Effective tax rate	19.7%	21.5%

* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations and the associated taxation for each of these items. Note 11 provides more information on alternative performance measures.

The Group's future Effective Tax Rate (ETR) will mainly depend on the geographic mix of profits and whether there are any changes to tax legislation in the Group's most significant countries of operations. Phased reductions in the UK corporation tax rate to 19% (from 1 April 2017) and 17% (from 1 April 2020) have been substantively enacted which have impacted the ETR in the current period.

A reduction in the US federal corporate income tax rate from 35% to 21%, effective from 1 January 2018, was enacted as part of the US Tax Cuts and Jobs Act on 22 December 2017. 'Effect of US tax reform measures', above, refers to the one-off deferred tax credit of £14,947,000 arising from the re-measurement of deferred tax balances at a lower blended federal and state tax rate, with a federal tax element of 21%.

The Group does not expect the future ETR to be materially impacted by the changes to the international tax landscape resulting from the package of measures developed under the OECD Base Erosion and Profit Shifting project and the investigations and proposals of the European Commission.

In addition to the amount charged to the Consolidated Income Statement, the following amounts relating to tax have been recognised directly in the Consolidated Statement of Comprehensive Income and Expenditure:

	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Deferred tax
Retirement benefit obligations	2,453	(6,082)
Short-term timing differences	(15)	233
	2,438	(5,849)

In addition to the amounts charged to the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income and Expenditure, the following amounts relating to tax have been recognised directly in equity:

	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Current tax
Excess tax deductions related to share-based payments on exercised awards	1,048	1,135
Deferred tax
Change in estimated excess tax deductions related to share-based payments	(449)	65
	599	1,200

6 Earnings per ordinary share

Basic and diluted earnings per ordinary share are calculated using the weighted average of 378,987,354 shares in issue during the year (net of shares purchased by the Company and held as Own shares) (2017: 378,685,730). There are no dilutive or potentially dilutive ordinary shares.

Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; profit or loss on disposal of operations; the associated taxation thereon; and the effect of the US tax reform measures. The Directors consider that adjusted earnings, which constitute an alternative performance measure, represent a more consistent measure of underlying performance. A reconciliation of earnings and the effect on basic and diluted earnings per share figures is as follows:

			Per ordinary share
	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	Year ended 31 March 2018 pence	52 weeks to 1 April 2017 pence
Earnings from continuing operations	154,228	129,689	40.69	34.25
Amortisation of acquired intangible assets (after tax)	25,988	21,452	6.85	5.66
Impairment of acquired intangible assets (after tax)	-	9,322	-	2.46
Acquisition transaction costs (after tax)	2,452	240	0.65	0.06
Adjustments to contingent consideration (after tax)	1,919	(10,650)	0.51	(2.81)
Release of fair value adjustments to inventory (after tax)	2,613	569	0.69	0.15
Disposal of operations and restructuring (after tax)	(719)	1,648	(0.19)	0.44
Impact of US tax reform measures (note 5)	(14,947)	-	(3.94)	-
Adjusted earnings	171,534	152,270	45.26	40.21

7 Dividends	Per ordinary share
	Year ended 31 March 2018 pence	52 weeks to 1 April 2017 pence	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Amounts recognised as distributions to shareholders in the year
Final dividend for the 52 weeks to 1 April 2017 (2 April 2016)	8.38	7.83	31,734	29,606
Interim dividend for the year ended 31 March 2018 (52 weeks to 1 April 2017)	5.71	5.33	21,641	20,182
	14.09	13.16	53,375	49,788
Dividends declared in respect of the year
Interim dividend for the year ended 31 March 2018 (52 weeks to 1 April 2017)	5.71	5.33	21,641	20,182
Proposed final dividend for the year ended 31 March 2018 (52 weeks to 1 April 2017)	8.97	8.38	33,998	31,734
	14.68	13.71	55,639	51,916

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 19 July 2018 and has not been included as a liability in these financial statements.

The Company offers a Dividend Reinvestment Plan ('DRIP') to enable shareholders to elect to have their cash dividends reinvested in Halma shares. Shareholders who wish to elect for the DRIP for the forthcoming final dividend, but have not already done so, should return a DRIP mandate form to the Company's Registrars no later than 25 July 2018.

8 Acquisitions

In accounting for acquisitions, adjustments are made to the book values of the net assets of the companies acquired to reflect their fair values to the Group. Acquired inventories are valued at fair value adopting Group bases and any liabilities for warranties relating to past trading are recognised. Other previously unrecognised assets and liabilities at acquisition are included and accounting policies are aligned with those of the Group where appropriate.

During the year ended 31 March 2018, the Group made five acquisitions namely:

- Cas Medical Systems Inc's Non-Invasive Blood Pressure Monitoring product line (CasMed NIBP);

- Cardios Sistemas Comercial e Industrial Ltda and Cardio Dinamica Ltda (together 'Cardios');

- Mini-Cam Enterprises Limited and subsidiaries (Mini-Cam);

- Setco, S.A. (Setco); and

- Argus Security S.r.l. and Sterling Safety Systems Limited (together 'Argus').

Below are summaries of the assets acquired and liabilities assumed and the purchase consideration of:

a) the total of acquisitions;

b) CasMed NIBP, on a stand-alone basis;

c) Cardios, on a stand-alone basis;

d) Mini-Cam, on a stand-alone basis;

e) Setco, on a stand-alone basis; and

f) Argus, on a stand-alone basis.

Due to their contractual dates, the fair value of receivables acquired (shown below) approximate to the gross contractual amounts receivable. The amount of gross contractual receivables not expected to be recovered is immaterial.

There are no material contingent liabilities recognised in accordance with paragraph 23 of IFRS 3 (revised).

The combined fair value adjustments made for the acquisitions above under IFRS 3, excluding acquired intangible assets recognised and deferred taxation thereon, increased the goodwill recognised by £2,755,000 (2017: £541,000 reduction).

As at the date of approval of the financial statements, the acquisition accounting for FluxData (prior year acquisition) is complete. The accounting for all current year acquisitions is provisional; relating to finalisation of the valuation of acquired intangible assets, the initial consideration, which is subject to agreement of certain contractual adjustments, and certain other provisional balances.

a) Total of acquisitions	Total £000
Non-current assets
Intangible assets	53,579
Property, plant and equipment	2,642
Deferred tax	413
Current assets
Inventories	7,082
Trade and other receivables	8,673
Cash and cash equivalents	3,893
Total assets	76,282
Current liabilities
Trade and other payables	(8,153)
Bank loans	(3,109)
Provisions	(654)
Corporation tax liabilities	(1,321)
Non-current liabilities
Trade and other payables	(816)
Deferred tax	(11,922)
Total liabilities	(25,975)
Net assets of businesses acquired	50,307

Initial cash consideration paid	114,216
Additional amounts payable*	523
Amounts owed by vendors*	(1,176)
Contingent purchase consideration estimated to be paid (CasMed NIBP, Cardios, Mini-Cam)	9,411
Total consideration	122,974

Goodwill arising on acquisitions (current year)	72,667
Total goodwill	72,667
* Estimate in respect of net tangible asset adjustments payable/receivable, indemnity asset and adviser fees payable.

Analysis of cash outflow in the Consolidated Cash Flow Statement	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Initial cash consideration paid	114,216	9,878
Cash acquired on acquisitions	(3,893)	-
Initial cash consideration adjustment on current year acquisitions	55	-
Initial cash consideration adjustment on prior year acquisitions	183	(496)
Contingent consideration paid and loan notes repaid in cash in relation to prior year acquisitions*	1,150	590
Net cash outflow relating to acquisitions (per Consolidated Cash Flow Statement)	111,711	9,972
* The £1,150,000 comprises £161,000 loan notes and £989,000 contingent consideration paid in respect of prior period acquisitions all of which had been provided in the prior period's financial statements.

b) CasMed NIBP, on a stand-alone basis	Total £000
Non-current assets
Intangible assets	2,866
Net assets of businesses acquired	2,866

Initial cash consideration paid	3,449
Contingent purchase consideration estimated to be paid	693
Total consideration	4,142

Goodwill arising on acquisition	1,276

The Group acquired the trade and assets of Cas Medical Inc's non-invasive blood pressure (NIBP) monitoring product line (CasMed NIBP), on 25 July 2017 for an initial cash consideration of US$4,500,000 (£3,449,000). The maximum contingent consideration payable is US$2,000,000 (£1,533,000).

The provision on acquisition of US$905,000 (£693,000) represented the fair value of the estimated payable based on performance to date and the expectation of future cash flows subsequently. As a result of post-acquisition changes, this estimate has been increased by US$962,000 (£725,000). The earn-out is payable on the achievement of product net sales above a target threshold for the 24-month period to June 2019.

CasMed NIBP was purchased by SunTech Medical Inc within the Medical sector. NIBP monitoring products provide SunTech with more clinical grade options for OEM customers seeking NIBP technology for multi-parameter monitors, EMS defibrillators, haemodialysis machines and various other clinical monitoring devices.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of £1,206,000; and technology related intangibles of £1,660,000; with residual goodwill arising of £1,276,000. The goodwill represents:

a) the technical expertise of the acquired workforce;

b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and

c) the ability to exploit the Group's existing customer base.

The CasMed NIBP acquisition contributed £1,911,000 of revenue and £415,000 of profit after tax for the year ended 31 March 2018.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £678,000 and £185,000 higher respectively.

Acquisition costs totalling £374,000 were recorded in the Consolidated Income Statement.

The goodwill arising on the acquisition is expected to be deductible for tax purposes.

c) Cardios, on a stand-alone basis	Total £000
Non-current assets
Intangible assets	6,817
Property, plant and equipment	145
Current assets
Inventories	1,089
Trade and other receivables	1,756
Cash and cash equivalents	155
Total assets	9,962
Current liabilities
Trade and other payables	(977)
Provisions	(195)
Non-current liabilities
Deferred tax	(2,420)
Total liabilities	(3,592)
Net assets of businesses acquired	6,370

Initial cash consideration paid	12,423
Additional amounts payable*	23
Contingent purchase consideration estimated to be paid	621
Total consideration	13,067

Goodwill arising on acquisition	6,697
* Estimate in respect of net tangible asset adjustment payable.

The Group acquired the entire share capital of Cardios Sistemas Comercial e Industrial Ltda and Cardio Dinamica Ltda (together 'Cardios') on 4 August 2017 for an initial cash consideration of R$50,000,000 (£12,423,000), adjustable based on closing date net assets and cash. The adjustment was determined to be R$93,000 (£23,000). The maximum contingent consideration payable is R$5,000,000 (£1,242,000).

The current provision of R$2,500,000 (£621,000) represents the fair value of the estimated payable based on performance to date and the expectation of future cash flows. The earn-out is payable on gross margin growth in excess of a target threshold for the 12-month period post-acquisition.

Cardios, located in São Paulo, Brazil, designs and manufactures ambulatory ECG recorders and ambulatory blood pressure monitors for Brazilian healthcare providers. These devices are used by cardiologists and general practitioners to diagnose and prevent heart and blood vessel related diseases such as hypertension, diabetes, heart attacks and heart arrhythmias. These products are similar or complementary to patient assessment devices currently manufactured and marketed by Halma's Medical sector.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of £927,000; trade name of £2,289,000 and technology related intangibles of £3,574,000; with residual goodwill arising of £6,697,000. The goodwill represents:

a) the technical expertise of the acquired workforce;

b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and

c) the ability to exploit the Group's existing customer base.

The Cardios acquisition contributed £4,117,000 of revenue and £184,000 of loss after tax for the year ended 31 March 2018.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £2,598,000 higher and £226,000 lower respectively.

Acquisition costs totalling £538,000 were recorded in the Consolidated Income Statement.

None of the goodwill arising on the Cardios acquisition is expected to be deductible for tax purposes.

d) Mini-Cam, on a stand-alone basis	Total £000
Non-current assets
Intangible assets	30,107
Property, plant and equipment	660
Current assets
Inventories	3,297
Trade and other receivables	1,984
Cash and cash equivalents	2,653
Total assets	38,701
Current liabilities
Trade and other payables	(1,405)
Provisions	(100)
Corporation tax liabilities	(433)
Non-current liabilities
Deferred tax	(5,960)
Total liabilities	(7,898)
Net assets of businesses acquired	30,803

Initial cash consideration paid	64,901
Contingent purchase consideration estimated to be paid	8,097
Total consideration	72,998

Goodwill arising on acquisition	42,195

On 31 October 2017, the Group acquired the entire share capital of Mini-Cam Enterprises Limited and its subsidiary companies for cash consideration of £64,901,000. Maximum deferred contingent consideration is payable of £23,100,000 based on a multiple of profit growth above a target annualised for the post-acquisition period to 31 March 2019 and then for the year to 31 March 2020. The provisional estimated value of contingent consideration payable is £8,097,000.

Mini-Cam, headquartered in Lancashire UK, specialises in pipeline inspection solutions for waste water systems in the UK and internationally. Mini-Cam's remotely-operated products and software enable utilities to identify leakages, blockages and potential ingress in waste water networks, thereby helping them to improve customer service levels and compliance with environmental regulations. The management team of Mini-Cam will continue to operate the business out of its current locations. Mini-Cam joined the Group's Environmental & Analysis sector where it provides new opportunities for commercial and technical collaboration with the sector's existing water technologies.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of £16,701,000; trade name of £2,520,000, non-compete agreements of £4,979,000 and technology related intangibles of £5,895,000; with residual goodwill arising of £42,195,000. The goodwill represents:

a) the technical expertise of the acquired workforce;

b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and

c) the ability to exploit the Group's existing customer base.

The Mini-Cam acquisition contributed £5,234,000 of revenue and £1,998,000 of profit after tax for the year ended 31 March 2018.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £8,485,000 and £3,745,000 higher respectively.

Acquisition costs totalling £805,000 were recorded in the Consolidated Income Statement.

None of the goodwill arising on the Mini-Cam acquisition is expected to be deductible for tax purposes.

e) Setco, on a stand-alone basis	Total £000
Non-current assets
Intangible assets	6,803
Property, plant and equipment	313
Deferred tax	117
Current assets
Inventories	738
Trade and other receivables	1,462
Cash and cash equivalents	55
Total assets	9,488
Current liabilities
Trade and other payables	(1,024)
Provisions	(125)
Corporation tax liabilities	(126)
Non-current liabilities
Deferred tax	(1,697)
Total liabilities	(2,972)
Net assets of businesses acquired	6,516

Initial cash consideration paid	15,087
Additional amounts payable*	55
Total consideration	15,142

Goodwill arising on acquisition	8,626

* Estimate in respect of net tangible asset and cash adjustment.

On 9 November 2017, the Group acquired the entire share capital of Setco S.A. for €17,000,000 (£15,087,000), adjustable based on closing date net assets and cash.

Setco, based in Barcelona, Spain, will be a bolt-on for the Group's global Elevator Safety business, Avire, in the Infrastructure Safety sector, and adds new wireless communications technology which is highly complementary to its existing product range and new product development roadmap.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of £3,231,000; trade name of £291,000 and technology related intangibles of £3,265,000; with residual goodwill arising of £8,626,000. The goodwill represents:

a) the technical expertise of the acquired workforce;

b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and

c) the ability to exploit the Group's existing customer base.

The Setco acquisition contributed £2,240,000 of revenue and £569,000 of profit after tax for the year ended 31 March 2018.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £3,494,000 and £779,000 higher respectively.

Acquisition costs totalling £114,000 were recorded in the Consolidated Income Statement.

None of the goodwill arising on the Setco acquisition is expected to be deductible for tax purposes.

f) Argus, on a stand-alone basis	Total £000
Non-current assets
Intangible assets	6,986
Property, plant and equipment	1,524
Deferred tax	296
Current assets
Inventories	1,958
Trade and other receivables	3,471
Cash and cash equivalents	1,030
Total assets	15,265
Current liabilities
Trade and other payables	(4,747)
Provisions	(234)
Bank loans	(3,109)
Corporation tax liabilities	(762)
Non-current liabilities
Trade and other payables	(816)
Deferred tax	(1,845)
Total liabilities	(11,513)
Net assets of businesses acquired	3,752

Initial cash consideration paid	18,356
Additional amounts payable*	445
Amounts owed by vendors*	(1,176)
Total consideration	17,625

Goodwill arising on acquisition	13,873

* Estimate in respect of net tangible asset receivable and indemnity asset, and adviser fees payable.

The Group acquired the entire share capital of Argus Security S.R.L. and Sterling Safety Systems Ltd. on 22 December 2017 for an initial consideration of €20,760,000 (£18,356,000).

Argus Security, based in Trieste, is a leading Italian manufacturer of products such as fire detectors, call points, sounders and beacons. Sterling Safety Systems is Argus' exclusive distributor in the UK, operating under the Hyfire brand. Argus joined the Infrastructure Safety sector.

The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related intangibles of £1,584,000; trade name of £932,000 and technology related intangibles of £3,973,000; with residual goodwill arising of £13,873,000. The goodwill represents:

a) the technical expertise of the acquired workforce;

b) the opportunity to leverage this expertise across some of Halma's businesses through future technologies; and

c) the ability to exploit the Group's existing customer base.

The Argus acquisition contributed £3,342,000 of revenue and £236,000 of profit after tax for the year ended 31 March 2018.

If this acquisition had been held since the start of the financial year, it is estimated that the Group's reported revenue and profit after tax would have been £10,515,000 and £933,000 higher respectively.

Acquisition costs totalling £700,000 were recorded in the Consolidated Income Statement.

None of the goodwill arising on the Argus acquisition is expected to be deductible for tax purposes.

9 Disposal of operations and restructuring

The profit on disposal of operations shown in the year of £719,000 relates to a deemed disposal in the Group's associate, Optomed.

On 27 March 2018, Optomed completed a new share offering for €5,500,000 in which the Group did not participate. This diluted our ownership interest to 23.3% from 26.7% realising a gain for the Group which is included as an adjusting item in the Consolidated Income Statement. The share issue was used to fund the acquisition of a digital software company, Commit Oy. Optomed continues to meet the tests for an associate.

During the prior year the Group restructured non-core operations in its subsidiary, Pixelteq. The £1,910,000 loss on restructuring included in operating profit comprised fixed asset and inventory write downs and severance costs.

10 Notes to the Consolidated Cash Flow Statement	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Reconciliation of profit from operations to net cash inflow from operating activities:
Profit on continuing operations before finance income and expense, share of results of associate and profit on disposal of operations	181,258	167,070
Non-cash movement on hedging instruments	(284)	-
Depreciation of property, plant and equipment	18,944	17,798
Impairment of property, plant and equipment	24	-
Amortisation of computer software	1,633	1,432
Amortisation of capitalised development costs and other intangibles	7,068	6,947
Impairment of intangibles	707	98
Amortisation of acquired intangible assets	34,668	31,469
Impairment of acquired intangible assets	-	12,429
Share-based payment expense in excess of amounts paid	4,355	1,880
Additional payments to pension plans	(10,750)	(10,213)
Loss on restructuring of operations	-	1,252
(Profit)/loss on sale of property, plant and equipment and computer software	(544)	138
Operating cash flows before movement in working capital	237,079	230,300
Increase in inventories	(9,112)	(5,406)
Increase in receivables	(24,630)	(14,262)
Increase in payables and provisions	9,300	5,750
Revision to estimate of, and exchange differences arising on, contingent consideration payable	1,717	(10,701)
Cash generated from operations	214,354	205,681
Taxation paid	(41,104)	(33,188)
Net cash inflow from operating activities	173,250	172,493

	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Analysis of cash and cash equivalents
Cash and bank balances	70,721	66,827
Overdrafts (included in current borrowings)	(1,052)	(1,190)
Cash and cash equivalents	69,669	65,637

	1 April 2017 £000	Cash flow £000	Net cash/(debt) acquired £000	Loan notes repaid £000	Exchange adjustments £000	31 March 2018 £000
Analysis of net debt
Cash and bank balances	66,827	2,035	3,893	-	(2,034)	70,721
Overdrafts	(1,190)	138	-	-	-	(1,052)
Cash and cash equivalents	65,637	2,173	3,893	-	(2,034)	69,669
Loan notes falling due within one year	(161)	-	-	71	-	(90)
Loan notes falling due after more than one year	(181,157)	-	-	90	4,458	(176,609)
Bank loans falling due after more than one year	(80,761)	(37,776)	(3,109)	-	8,342	(113,304)
Total net debt	(196,442)	(35,603)	784	161	10,766	(220,334)

The net increase in cash and cash equivalents of £6,066,000 comprised cash inflow of £2,173,000 and cash acquired of £3,893,000.

The net cash inflow from bank loans of £37,776,000 comprised repayments of £81,409,000 offset by drawdowns of £119,185,000.

The net cash outflow from loan notes relates to £161,000 repayment of existing loan notes issued in relation to the previous acquisition of Advanced Electronics Limited.

Reconciliation of movements of the Group's liabilities from financing activities

Liabilities from financing activities are those for which cash flows were, or will be, classified as cash flows from financing activities in the Consolidated Cash Flow Statement.

	1 April 2017 £000	Changes from financing cash flows £000	Acquisition of subsidiary £000	Other Changes¹ £000	Effects of foreign exchange £000	31 March 2018 £000
Loan notes falling due within one year	161	-	(161)	90	-	90
Overdraft	1,190	-	-	(138)	-	1,052
Borrowings (current)	1,351	-	(161)	(48)	-	1,142
Loan notes falling due after more than one year	181,157	-	-	(90)	(4,458)	176,609
Bank loans falling due after more than one year	80,761	37,776	3,109	-	(8,342)	113,304
Borrowings (non-current)	261,918	37,776	3,109	(90)	(12,800)	289,913
Total liabilities from financing activities	263,269	37,776	2,948	(138)	(12,800)	291,055
Trade and other payables: falling due within one year	134,816	(7,185)	8,558	16,732	(3,321)	149,600

¹ Other changes include movements in overdraft which is treated as cash, interest accruals and other movements in working capital balances.

11 Alternative performance measures

The Board uses certain alternative performance measures to help it effectively monitor the performance of the Group. The Directors consider that these represent a more consistent measure of underlying performance by removing non-trading items that are not closely related to the Group's trading or operating cash flows. These measures include Return on Total Invested Capital (ROTIC), Return on Capital Employed (ROCE), organic growth at constant currency, Adjusted operating profit and Adjusted operating cash flow.

Return on Total Invested Capital	31 March 2018 £000	1 April 2017 £000
Profit after tax	154,228	129,689
Adjustments¹	17,306	22,581
Adjusted profit after tax¹	171,534	152,270
Total shareholders' funds	828,397	778,637
Add back retirement benefit obligations	53,896	74,856
Less associated deferred tax assets	(9,765)	(13,947)
Cumulative amortisation of acquired intangible assets	191,013	168,031
Historical adjustments to goodwill²	89,549	89,549
Total Invested Capital	1,153,090	1,097,126
Average Total Invested Capital³	1,125,108	994,099
Return on Total Invested Capital (ROTIC)⁴	15.2%	15.3%

Return on Capital Employed	31 March 2018 £000	1 April 2017 £000
Profit before tax	171,949	157,703
Adjustments¹	41,728	36,301
Net finance costs	9,718	9,286
Adjusted operating profit¹ after share of results of associates	223,395	203,290
Computer software costs within intangible assets	4,680	4,466
Capitalised development costs within intangible assets	29,936	28,782
Other intangibles within intangible assets	932	1,111
Property, plant and equipment	103,727	106,016
Inventories	127,966	118,780
Trade and other receivables	235,184	212,236
Trade and other payables	(149,600)	(135,257)
Current provisions	(8,834)	(6,776)
Net tax liabilities	(11,316)	(15,931)
Non-current trade and other payables	(12,621)	(10,780)
Non-current provisions	(23,072)	(16,917)
Add back contingent purchase consideration	25,013	16,444
Capital Employed	321,995	302,174
Average Capital Employed³	312,085	280,411
Return on Capital Employed (ROCE)⁴	71.6%	72.5%
1 Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations. Where after-tax measures, these also include the associated taxation on adjusting items and the effect of the US tax reform measures. 2 Includes goodwill amortised prior to 3 April 2004 and goodwill taken to reserves. 3 The ROTIC and ROCE measures are expressed as a percentage of the average of the current and prior year's Total Invested Capital and Capital Employed respectively. Using an average as the denominator is considered to be more representative. The March 2016 Total Invested Capital and Capital Employed balances were £891,071,000 and £258,648,000 respectively. 4 The ROTIC and ROCE measures are calculated as Adjusted profit after tax divided by Average Total Invested Capital and Adjusted operating profit after share of results of associates divided by Average Capital Employed respectively.

Organic growth at constant currency

Organic growth measures the change in revenue and profit from continuing Group operations. This measure equalises the effect of acquisitions by:

a) removing from the year of acquisition their entire revenue and profit before taxation; and

b) in the following year, removing the revenue and profit for the number of months equivalent to the pre-acquisition period in the prior year.

The results of disposals are removed from the prior period reported revenue and profit before taxation.

Constant currency measures the change in revenue and profit excluding the effects of currency movements. The measure restates the current year's revenue and profit at last year's exchange rates.

Organic growth at constant currency has been calculated for the Group as follows:

Group	Revenue			Adjusted profit* before taxation
	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	% growth	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	% growth
Continuing operations	1,076,211	961,662	11.9%	213,677	194,004	10.1%
Acquired revenue/profit	(19,306)			(2,930)
Organic growth	1,056,905	961,662	9.9%	210,747	194,004	8.6%
Constant currency adjustment	249			(205)
Organic growth at constant currency	1,057,154	961,662	9.9%	210,542	194,004	8.5%

Sector Organic growth at constant currency

Organic growth at constant currency is calculated for each segment using the same method as described above.

Process Safety	Revenue			Adjusted* segment profit
	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	% growth	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	% growth
Continuing operations	184,552	167,007	10.5%	43,350	40,243	7.7%
Acquisition and currency adjustments	34			159
Organic growth at constant currency	184,586	167,007	10.5%	43,509	40,243	8.1%

Infrastructure Safety	Revenue			Adjusted* segment profit
	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	% growth	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	% growth
Continuing operations	348,763	315,219	10.6%	73,295	65,129	12.5%
Acquisition and currency adjustments	(7,839)			(1,793)
Organic growth at constant currency	340,924	315,219	8.2%	71,502	65,129	9.8%

Medical	Revenue			Adjusted* segment profit
	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	% growth	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	% growth
Continuing operations	283,758	260,576	8.9%	66,981	66,704	0.4%
Acquisition and currency adjustments	(4,443)			(554)
Organic growth at constant currency	279,315	260,576	7.2%	66,427	66,704	(0.4%)
Environmental & Analysis	Revenue			Adjusted* segment profit
	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	% growth	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000	% growth
Continuing operations	259,411	219,118	18.4%	55,024	41,698	32.0%
Acquisition and currency adjustments	(6,809)			(1,860)
Organic growth at constant currency	252,602	219,118	15.3%	53,164	41,698	27.5%

* Adjustments include the amortisation and impairment of acquired intangible assets; acquisition items; restructuring costs; and profit or loss on disposal of operations.

Adjusted operating profit	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Operating profit	181,258	167,070
Add back:
Acquisition items (note 2)	7,779	(9,507)
Loss on restructuring	-	1,910
Amortisation of acquired intangible assets	34,668	31,469
Impairment of acquired intangible assets	-	12,429
Adjusted operating profit	223,705	203,371

Adjusted operating cash flow	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Net cash from operating activities (note 10)	173,250	172,493
Add back:
Net acquisition costs	2,620	363
Taxes paid	41,104	33,188
Proceeds from sale of property, plant and equipment	1,750	1,495
Share awards vested not settled by Own shares*	3,346	3,309
Less:
Purchase of property, plant and equipment	(20,202)	(21,875)
Purchase of computer software and other intangibles	(2,055)	(2,760)
Development costs capitalised	(9,403)	(10,731)
Adjusted operating cash flow	190,410	175,482
Cash conversion % (adjusted operating cash flow/adjusted operating profit)	85%	86%

* See Consolidated Statement of Changes in Equity.

12 Events subsequent to end of reporting period

There were no known material non-adjusting events which occurred between the end of the reporting period and prior to the authorisation of these results on 12 June 2018.

13 Related party transactions

Trading transactions

	31 March 2018 £000	1 April 2017 £000
Associated companies
Transactions with associated companies
Purchases from associated companies	1,581	384
Balances with associated companies
Amounts due to associated companies	282	51

Other related parties
Transactions with other related parties
Rent charged by other related parties	19	-
Balances with other related parties
Amounts due to other related parties	-	-

Other related parties comprised one company that rents its premises from a pension scheme of which one of the directors is a member. All the transactions above are on an arm's length basis and on standard business terms.

Remuneration of key management personnel

The remuneration of the Directors and Executive Board members, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report in the Annual Report and Accounts 2018.

	Year ended 31 March 2018 £000	52 weeks to 1 April 2017 £000
Wages and salaries	6,027	4,886
Pension costs	43	112
Share-based payment charge	3,245	2,470
	9,315	7,468

Cautionary note

These Results contain certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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