Earnings Transcript for HLMA.L - Q4 Fiscal Year 2019

Andrew Williams : Good morning, and welcome to Halma’s Full Year Results. You’ll see today that we’ve delivered another year of record results, but clearly hasn’t been business as usual and so today we’ll give you an insight into what we’ve achieved over the past year and how we’ve responded to the COVID-19 crisis. But also a greater understanding of how we see the current year panning out and a shared confidence in our ability to sustain and create value for our stakeholders in the future. Let’s start by setting some context around that long-term sustainable value creating. As a society, we are obviously facing quite a profound and a set of global challenges not only in the medium term, immediate term from COVID-19, but also in the longer term from things such as climate change and also demographic changes. So the growing population, the ageing population, the urbanization of population. These challenges really further reinforce the importance of many of Halma’s strengths. So Halma’s purpose of growing a safer, cleaner, healthier future for everyone every day is clearly very relevant. Our growth strategy to grow and acquire businesses in global niche safety, health and environmental markets with long-term growth drivers, our business model which includes an organization and culture which gives us huge agility, but also local autonomy with accountability and our recent strategic investment focus, for example our focus on diversity and inclusion in our teams or our investment in digital technologies. But all of that is also underpinned by a very robust financial model where we’ve got high levels of cash generation which allow us to grow whilst maintaining modest levels of leverage. And these charts clearly illustrates how these elements have helped to sustain value creation over a long period. In each of the last seventeen years, we’ve delivered record revenue and profits. Over this period our revenue has grown by more than £1 billion to over £1.3 billion, a 10% compound annual growth rate. While profit has increased more than five folds to £267 million, that’s an 11% compound annual growth rate. And that’s being driven by a disciplined choice of finding valuable product niches, where there is a strong element of non-discretionary spend, for example, due to regulation. But I think that’s only part of the story, because we’ve also boosted that by a continuous increase in strategic investments. And we show one example here. Our R&D investment over the period has grown from £10 million to £70 million and is now over 5% of our sales. We’ve invested in our physical assets and we’ve invested in our growth enablers which support our company’s growth. For example, helping them build and create great leadership talent. However, our disciplined and highly productive allocation of capital and talent has enabled us not only deliver great growth, but also very strong returns. And that is reflected in our return on total invested capital, ROTIC which is being consistently above our weighted average cost of capital or WACC for each of those are seventeen years. In fact, this year our ROTIC was 15.3%, almost doubled our weighted average cost of capital. Let’s bring these elements back to the here and now and you can see that they are more crucial than ever. We’ve made further good progress in the last financial year. Our ability to respond rapidly to emergence of COVID-19 in the first quarter of this year shows the importance of those elements and it’s going to position us to deliver a resilient performance not only in the first quarter of the current financial year, but also for the year as a whole and we are expecting our profit to be just 5% to 10% below the prior year. Importantly, we can achieve that in a way which ensures we continue to balance the value created for all our stakeholders including our employees, our customers, our suppliers, our investors, our communities and in fact, society in general. And I believe we could sustain that value creation in the future too. Let’s look at the headlines of our most recent financial year performance. It was another year of widespread growth, but also an important contribution from acquisitions. Revenue increased by 10.5% to over £1.3 billion, while profit increased 8.7% to £267 keeping our return on sales strong at 19.9%. And that’s even after the increased investment and also a £5 million provision for COVID-19-related customer bad debts. Marc will give us more details on that later. Turning to our increased strategic investment in growth enablers and bear in mind, this is led by our operating company with selected central investment in our growth enablers. In innovation, our companies increased their R&D spend by 14% to £72 million, that’s up as a percentage of revenue to 5.4% maintaining a high level of investment in new products and solutions. We continue to support our growth through further facility expansions and fixed asset additions with CapEx growing 9% to £34 million, that’s well ahead of depreciation excluding leases. And it was a record year for acquisitions. We acquired ten companies across all four of our sectors bringing new technologies, digital capabilities and further expanding our geographic reach. I was very pleased with our operational performance. A very strong cash performance with cash conversion of 97% of adjusted profit which is against our KPI of 85%, because that supports the investment and supports our return to shareholders. We are increasing our total dividend for the year by another 5% and that reflects that good performance in 2020 the resilient start to the current financial year, but that continues confidence in the Group’s prospects and an equitable approach to the Group’s stakeholders. We have now delivered dividend growth of 5% or more every year for the last 41 years. And finally, we’ve got a robust balance sheet and strong liquidity position. Our net debt to the period end with £325 million including our IFRS 16 leases and our gearing showed net debt-to-EBITDA of 1.1 times. So overall you can see it’s been a successful year providing us with an excellent platform to navigate our way through the current health and economic crisis. However, it’s worth reiterating at this point that we’ve not achieved these results without the tremendous commitment and determination of the teams in all of our companies or sectors and the Group centrally. And I’d like to say how proud I am of the way of what they’ve achieved so far but also how they’ve positioned Halma to continue to deliver strong value for all our stakeholders in the future. I’ll give you a strategic update later on, but now hand over to Marc to go through the financial review.

Marc Ronchetti: Thank you, Andrew, and good morning, everyone. As we’ve heard from Andrew, we delivered a good set of results and executed well against our growth strategy and our key performance indicators. For me, this reinforces the benefits of our clear purpose and strong culture, our agile and responsive business model, and the long-term growth drivers in our end-markets. This performance was underpinned by a continued focus on capital allocation and ensuring continued organic investment to support future growth and managing our diverse portfolio of companies through acquisitions and disposals and in maintaining a robust financial position with modest leverage and substantial liquidity. Let’s take a more detailed look at the drivers behind this performance starting with Group revenue growth. So working from left to right, as you can see there was good organic constant currency growth of 4.8%, which reflected growth in three of our four sectors. While we saw some impact from COVID-19 in the fourth quarter, this was not material for the Group as a whole given that the downside impact from China and a site closure in March was largely offset by a pull-forward of orders ahead of the wider global lockdown. Acquisitions contributed a healthy 4.8% to revenue growth with a record ten acquisitions made in the year. There was a small negative of 0.7% from disposals, principally from the sale of Accudynamics, which we completed in the second half of last year. Total constant currency growth was therefore 8.9%. There was a positive effect of currency of 1.6% mainly in the first half as sterling weakened and this completes the bridge to our reported growth of 10.5% reflecting the value inherent in the diversity of our portfolio and the long-term growth drivers in our end-markets in varied economic conditions. So looking now at revenues by destination. The charts on the left shows the reported revenue split by destination in addition to the reported growth by regions with the charts on the right showing the regional organic constant currency growth. It was great to see growth in all our major regions on both the reported and organic constant currency basis. This included double-digit reported growth in the USA, Asia Pacific and the UK. So starting with the USA which remains our largest sales destination at 38% of revenue. It was positive to see that the region continues to grow strongly with 15% reported growth. This was driven by good performances in all sectors with strong growth in environmental analysis and infrastructure safety which benefited from a positive contribution from the Rath acquisition. There were also good performances in medical and process safety both of which benefited from acquisitions including NovaBone, MaxTec, and NeoMedix in medical and Sensit in process safety. Moving to the UK, which grew well at an 8% organic constant currency driven by strong performance in environmental and analysis which delivered very strong organic constant currency growth of 26%. Mainland Europe grew 4% with a solid performance in infrastructure safety which included a good contribution from Navtech and Limotec which were acquired in 2019. Process safety was weaker, given the non-recurrence of some larger contracts and we saw mixed performances in the other sectors. Asia Pacific growth was 16% on a reported basis benefiting from the Ampac acquisition which closed in July 2019. Growth was 4% on an organic constant currency basis reflecting good performances in process safety and medical. We saw a 4% decline in China, driven by the impact of COVID-19 in the fourth quarter. Finally completing the geographic split in the smaller rest of the world segment, reported revenue was marginally ahead. There was a decline in the African near and Middle East territory as a result of the planned reduction in low margin business, but this was offset by strong growth in other territories, which was broadly spread across all four sectors. Switching now to adjusted profit. We delivered solid profit growth with a return on sales at 19.9% making this the 35th consecutive year of return on sales of over 16%. Organic constant currency growth was 2.2% and included £5 million of sector provisions for increased customer bad debt risk given COVID-19. Without these, growth would have been 4.2%. There was a strong contribution from acquisitions as with revenue reflecting good margins in the businesses that we’ve acquired in the last year where disposals were a small negative mainly from the Accudynamics sales. As with revenue, there was a positive effect from currency translations in the period. And this completes the bridge to the headline profit growth of 8.7%. To put some color on the Group performance, I’ll now take you through more details at the sector level turning first to infrastructure safety, which made good progress with revenue up 14% and profits up 21%. This include an impressive 10% revenues and 14% profit contribution from acquisitions including Ampac and FireMate in the current year and in the prior year, Rath, Navtech and Limotec. Organic constant currency revenue growth was more modest at 3% reflecting a solid underlying performance offset by planned reductions in lower margin business in the second half. The three largest subsectors Fire Detection, People and Vehicle Flow and Elevated Safety delivered double-digit revenue and profit growth benefiting from recent acquisitions, but also from strong organic growth in People and Vehicle Flow and good growth in Fire Detection. Organic constant currency profit growth was stronger at 7%, despite a £2.1 million increase in sector provisions for the potential customer bad debts. The increase in return on sales driven by increased gross margins as a result of past investments in automation and the planned revenue reduction. And moving on now to revenue by destination in the middle of the page. There was a good performance in all major regions with strong headline growth in the USA and Asia Pacific benefiting from the current year and prior year acquisitions. The UK and Mainland Europe also saw good rates of growth with Fire Detection and People and Vehicle Flow businesses being the key contributors to this improvement. There was 14% growth in R&D investment representing 6.1% of revenue. So moving now on to process safety where revenue grew by 1% to £200 million. This included a positive effect of 1.9% from the Sensit acquisition and a 1% benefit from currency. There was good progress in some markets such as industrial access control and gas detection. But these were more than offset by challenging U.S. onshore oil and gas market conditions in addition to customer project delays and a site closure in the fourth quarter due to COVID-19. As a result, despite proactive overhead management, profit declined 3% and 6% on an organic constant currency basis. The reduction in return on sales reflecting a small reduction in gross margin giving the mix shift away from the higher margin oil and gas sector, as well as an increase in sector bad debt provisions of £0.9 million and in R&D spend to support future growth. There was a positive effect on profit of 1.5% from acquisitions and 1.1% from currency. So looking now at revenue by destination. There was good growth in the USA despite the weakness in the U.S. onshore oil and gas market driven by good contribution from the Sensit acquisition and continued benefits from a large U.S. logistics contract. UK and Mainland Europe are weaker, driven by the timing of large customer contracts and the phasing of a five year utility contract within gas detection. There was strong growth in Asia Pacific driven by gas detection’s investment in sales leadership and resource. And we saw a 7% increase in R&D spend with continued investment in innovation and marketing to deliver more consistent growth in the future. So moving now on to environmental and analysis, which I am pleased to report continues to perform strongly having now delivered double-digit reported and organic constant currency revenue and profit growth for three consecutive years. Revenue grew 16% and by 14% on an organic constant currency basis with strong growth in the environmental monitoring driven by new product development and regulatory requirements in the UK water market and in optical analysis driven by delivery of some larger photonics projects in the second half of the year. Reported profit grew 15% to £69 million with organic constant currency growth an impressive 13%. There was a small benefit from acquisitions of 0.4% revenue and 0.1% profit and a currency benefit of 2.1% to revenue and 2.4% to profit. Turning now to revenue by destination. It was positive to see continued strong growth in the two largest regions, the USA and the UK led by optical analysis and environmental monitoring respectively. In other smaller regions, revenue in the relatively small Mainland Europe region was broadly stable, while Asia Pacific revenue saw a small decline principally as a result of COVID-19 impact in the second half. This is more than offset by strong growth in the Africa and Middle East territories led by the water analysis and treatment subsector. Return on sales was stable year-on-year with a reduction in gross margins mainly driven by the mix of business balanced by good control of overheads which also included a £0.9 million provision for customer bad debt. We continue to invest in the opportunities in the sector and R&D increased by 9% to £19 million representing 6% of revenue. So to conclude our sector review, turning now to medical, which delivered solid revenue growth of 7%. This included a small negative impact in the fourth quarter due to COVID-19 with the high demand for products in respiratory and vital signs monitoring being offset by order delays and deferrals of procedures in other subsectors. Reported revenue growth included organic growth of 3% against a strong organic comparative of 10% and the benefit from the five acquisitions made in the year. Currency also contributed 2.6% to revenue growth. Turning to profit, profit increased by 1% comprising a 3% organic constant currency decline, a 2% contribution from acquisitions and a 2.7% benefit from currency translations. Profit also included a first half charge of £2.5 million relating to the merger of two of our ophthalmology companies that are flagged in those results and £1.1 million increase in sector bad debt provisions in the second half. Excluding these, organic profit growth would have been broadly in line with revenue growth. So looking at the revenue by destination, the USA, the sector’s largest geographical end-market delivered good revenue growth which included organic constant currency growth of 4% against its strong comparative of 14% last year and a good contribution from recent acquisitions. Good growth in the Asia Pacific region driven by strong OEM sales in the life sciences with the launch of new IVD instruments. There was modest growth in Mainland Europe with good progress in life sciences and sensor technology market, but underperformance of one of the ophthalmology companies which were addressing through the merger that I’ve already referred to and a mixed performance in health assessment. Return on sales remains strong at 24.3% underpinned by a slightly higher gross margin and good control of underlying overhead costs in addition to an increase of 28% and R&D investment of £16.5 million to support future growth. Now moving on to net debt and focusing on the larger movements, the first of which being IFRS 16. This is the first full year in which IFRS 16 applied, which increased starting net debt by £50 million and introduced for the first time lease additions, a non-cash movement, the majority of which relates to the renewal or extension of leases and the Ampac acquisition. So turning now to the larger cash impacts on net debt. Headline cash conversion was excellent at 97%, significantly ahead of our KPI of 85%. This reflected a strong underlying performance of 90% driven by good working capital control, as well as the benefits of the implementation of IFRS 16, approximately 5% and from the additional provisions made in the year of approximately 2%. CapEx, cash tax and cash pension costs were broadly in line with our guidance and we’ve included more details on these areas in the Appendix slides including guidance for the 2021 financial year. As stated, it was a record year for acquisitions with acquisition spend of £238 million. We paid £61 million in dividends continuing our policy of delivering progressive and sustainable returns to our shareholders and we therefore ended the year with IFRS 16 adjusted year-end net debt of £375 million. This represents a net debt to EBITDA ratio of approximately 1.1 times, well within our typical operating range of up to 2 times gearing. With continued good cash generation in the first quarter, our net debt has reduced to circa £320 million. We therefore continue to have a robust financial position, strong cash generation and substantial available liquidity of circa £500 million and over £300 million of capacity with an operating range of up to two times gearing. So to conclude, looking at performance against our financial KPIs. So a pleasing performance of seven out of eight metrics meeting or exceeding our targets and while our organic profit growth was below our target, this principally reflected the sector provisions taken for customer bad debts as a result of COVID-19. So to sum up, a good performance over the year with record revenue, profit and acquisition activity with continued high returns and cash generation. I’ll now hand you back to Andrew for a strategy update.

Andrew Williams: Thank you, Marc. So turning first to our response to COVID-19 before I start talking through our strategic progress during the year. Through the pandemic, I think our response is being led by our purpose and our aim is being to ensure continued supply of our critical safety, health and environmental products and solutions. But I think also indicative of our culture that many individuals in the Group have taken the initiative to repurpose their resource with our resources to develop PPE and other support solutions, critical healthcare supplies, if you like, for their local communities. And I am very proud of what they’ve achieved. And I think they’ve really led the way in terms of living our purpose within the Group. So, thank you to them for their contributions. The current crisis has many unique characteristics, compared particularly with some of the previous downturns I’ve led the Group through, but I think Halma is being well positioned to address them. Our agility, our diversity has been a major asset. Over many years, we’ve built an organization and culture which has been created for fast decentralized decision making by those who are closest to stakeholders, but a company with clear aligned accountability. And this has been vital and a major asset as I say. As I said earlier, what was also clear from an early stage was that we needed to be able to respond rapidly but that needed to be tampered with an understanding that major decisions has to be taken with a holistic view balancing the positive and negative impacts across our various stakeholder groups whether they are internal or external. So what does that meant in practice? Well, firstly, we created very rapidly virtual support groups for our company. Sometimes they were a functioning focus, sometimes they were a geographically or regionally focused, but the overall aim was to enable our companies to address the challenges they were facing and to set a plan that was suited to their own market and their local circumstances. Over 30 of our 44 companies received permission to operate during the lockdown, primarily because of their delivery of critical non-discretionary safety health and environmental solutions. In fact, only three of our 54 principal facilities have an extended shutdown period and all of them are currently operational. Supported with the advice from those central and regional groups, our organizational structure of strong local and empowered management teams ensured that we had short lines of communication and feedback with our employees, but importantly, we had a lot of collaboration going on across our business where the companies were able to share best practices with each other. But still overall ensuring that each company all the measures they took was suited to their particular needs, because you can imagine, companies in China were faced with different set of needs and circumstances to the ones in Italy, from the UK and from the U.S., all very different than alone when you think about the end-markets that they serve. Like many others through the pandemic our priorities has been to ensure the welfare and safety of our employees and make sure that they have a safe working environment and we’ve implemented a wide range of measures whether it’s enhanced hygiene protocols, home working, staggered shifts, so just safe social distancing measures in the workplace. Secondly, we acted quickly to reduce costs and protect our balance sheets and we decided not to access the UK government’s CCFF scheme. So that in the first quarter, we saw a reduction in our runrate to variable costs of over £20 million, compared with the runrate in the fourth quarter of the previous year. We had a company-wide program with salary reductions and a freeze on hiring and promotions. With that, we also had close management of our working capital but making sure we still have productive relationships with customers and suppliers. And we limited investments to essential projects and also to R&D projects and that included not completing any acquisitions during the first quarter of the year. Given the essential nature of many of the products that we sell, only a small percentage of our workforce were furloughed and we decided to fund this without accessing the UK government support. And said that, of course some companies are seeing significant demand reductions and this may result in a small number of redundancies until that demand recovers. And so, we’ve also committed to providing additional financial support so those companies’ employees affected either by the furlough plans or by the redundancies at an estimated cost of £5 million in the first half of this year. Finally, it’s increasingly clear that our strategy and investment priorities coming into the crisis have not only served us well during the crisis, but will be even more relevant to our future success. And so we will be doubling down on those investments and accelerating some of them in the future. And I think it’s a good way to think about our strategic investments is to look at it through the lens of our growth enablers framework. Areas of focus during the past year included new programs, to accelerate commercialization of digital and innovation projects. We launched a new digital execution accelerator and also an agile new product development program which now includes 20 projects across all four of our sectors. In M&A, we added new capabilities in Asia Pacific, which will obviously support our international expansion in the future and we strengthened our finance, legal and risk teams to support continuing strong governance, compliance and reporting as the Group grows. And then finally, in talent and culture, we added new talent acquisition capabilities to accelerate our ability to attract great new talent into the Group, alongside our well established development programs. And that brings us nicely on to how our strategic focus are, our focus for investment has been led by the evolution of our executive board where we have built a diverse and high caliber team with deep functional knowledge and capabilities. And there has been a few changes this year. Catherine Michel joined as our first Chief Technology Officer and Catherine is really going to ensure that we have the right technology capabilities to commercialize the ideas including the ideas that Inco’s digital innovation team are helping to create. So for example, Catherine’s team will look at how we can have a common approach to the internet of things to make sure that we collect data. We curate it. We store it and we use data in a consistent way across the Group. And this is an example where we see – I suppose an example of even greater importance in a world where remote working and monitoring of systems is likely become much more important in the future. In other changes, Adam Meyers succeeded Paul Simmons as the sector CEO of our Safety Sectors in July having previously hand over the responsibility for the medical and environmental sector to Laura Stoltenberg earlier in the year as we planned. And finally, it’s also worth noting that Funmi Adegoke will join us later in the year as our General Counsel and continue to work to ensure he maintain a strong legal and compliance capability as we grow. I think one final word on this is that, we put a lot of effort over the last year, over the last couple of years in fact, trying to build a team amongst our executive board. So, it’s a team of group leaders if you like rather than a collection of group of individual contributors. And I think that’s really paid dividends over the last few months as I’ve been able to give group-wide leadership roles to our executive board members outside of their functional expertise. Now let’s look at M&A in a bit more depth, because as we mentioned before, it’s been a record year for acquisitions. We’ve completed ten acquisitions across four sectors spending a total consideration of £238 million. They’ve opened new niches in both new technologies and capabilities to the Group. So, for example, with Sensit we’ve got new gas detection capabilities. With NovaBone, they’ve bought orthopedic bone graft technology and MaxTec has bought medical ventilator and oxygenation products. We’ve also enhanced our digital capabilities in some of our core markets. So, for example, FireMates has bought some fire protection maintenance software and Spreo have added indoor mapping technology to Centrak existing real-time location monitoring solution for healthcare. As usual, we’ve continued to expand our geographic region. A great example of that is the safety sector’s acquisition of Ampac in Australia. Despite the fact we have made an acquisition in the first quarter we are continuing to add to our pipeline of potential acquisitions and we continue to see good opportunities to make acquisitions in the future. And then turning to ESG, I think it’s worth a few words about Halma’s approach to ESG and sustainability, because obviously our purpose of growing a safer, cleaner, healthier future for everyone every day is very much aligned with many of the various elements of ESG. And has certainly been given greater clarity and focus by the COVID-19 pandemic. And we think taking further steps throughout the year in advancing our ESG agenda across a wide range of niches and I’d like to take you through a few of those now. In terms of quantifying our positive impact, we’ve identified that two-thirds of our revenue is aligned with our four chosen UN sustainable development goals, which are focused on how water and sustainable industrialization in cities. And it’s also evidenced with the acquisitions I just talk through with all ten of those acquisitions also aligned with these four goals. Concerning our reducing environmental impacts I am specifically addressing the challenges to climate change once again, we’ve substantially exceeded our existing targets reduced intensity of carbon emissions and we’ve taken further steps to reduce our carbon footprint. For example, by contracts for renewable electricity and gas and they will help to reduce our annual scope one and scope two emissions by around 2,000 tons or 10%. These carbon emissions also put us on track to adopt a science-based target in the coming year and we are preparing to report in line with the recommendations of the taskforce of climate-related financial disclosures or CCFD by 2022. Moving on to social society. You’ve already heard how we balanced our decisions carefully during the pandemic and I’d now like to go to three aspects with perhaps a slightly longer term perspective. Firstly, Halma’s diverse and inclusive culture is a crucial asset in our success. One aspect of that is obviously gender diversity and we have a new ambition for all our senior management teams where there is a company, sector or group level have a gender balance in the range 40% to 60%. We’ve already achieved that at the PLC Board level and also on our executive board and now our divisional chief executive roles are also over 40% female. I want to look back, I am really pleased with the substantial progress that we made since we introduced the new sector structure back in 2014. At that point, our PLC board had less than 20% women and actually we had no women at all on either our executive board or in our divisional CEO roles. Over the past year, we’ve begun to measure national and ethnic diversity. And as a global business, obviously we already benefit from this but need to make improvements in our leadership group from companies right the way up to centrally. And so, what gives me confidence is that, that improvement made in agenda diversity gives us real confidence we can make a real improvement in ethnic and national diversity in the years ahead and we can report that progress as we go through the coming years. Secondly, at the start, I talked about creating value across all our stakeholders and the key one of those is obviously our suppliers, our supply chain. The nature of our business model means that our supply chains are relatively short. They are managed at a local level by each company and that does reduce some of the inherent risks of having a single centralized procurement function with long supply chains. And it's certainly been a crucial asset for us as we’ve responded to the COVID-19 crisis and also I think will help our business resilience in the future. However, we’ve also looked at the aggregated risk across our supply chain. And this year, we completed an analysis of our major and modern slavery risk across our global supply chain. And as a result of that we are creating a much better methodology for the analysis of those potential risks from both direct and indirect suppliers of goods and services across the Group. And thirdly, following the success of our gift to site charitable campaign, we're launching our next global community campaign later this year. Once again it’s going to be aligned with one of our four chosen UN sustainable development goals, this time, it will be clean water and sanitation. So overall, I believe there is increasing recognition and appreciation of the value of ESG and also that it is well aligned with Halma. I am really pleased with the success of these initiatives and that it is an honored to be recognized externally including by CDP in the improvement of our score in their latest survey over the past year. Let’s finish by turning to our performance in the first quarter and also our outlook for the year ahead. Group revenues in the first quarter were just 4% lower than the first quarter last year with prior year acquisitions partly offsetting a 13% organic cost of currency decline. And this resilient performance reflects the essential nature of many of our products and services during a period of lockdown in all of our major regions during that period. Our order book has remained strong with order intake marginally ahead of revenue and ahead of the same period last year. As Marc has alluded to in the latter part of last year there continued to be a wide variation in performances across our companies reflecting just the significant change in demand in individual end-markets. As Marc alluded to even within the medical sector, we’ve seen very strong demand for example in vital signs monitoring, and much weaker demand in elective procedures for example, in ophthalmology. In infrastructure safety, for example, we’ve seen weaker demand for our fire detection businesses really caused by the limitations of physical access to customer sites. And I think FireMate, the recent software acquisition will help with that in the future. That organic revenue decline and the additional cost challenges due to – obviously having to create safe working requirements were partly offset by the Q1 overhead savings resulting in the Group’s first quarter profit trends being very similar to revenue. Cash generation remains good and we continue to have a strong balance sheet and liquidity position and this has enabled us to alleviate some of the more stringent cost saving measures implemented in the first quarter including the reversal of company-wide employee salary reductions. So in conclusion, you’ve heard today how Halma’s good performance is sustained by a clear purpose, a focused growth strategy supported by increased investment in market niches with long-term sustainable growth drivers and an agile organizational model which is enabled by a strong focus on investing and building diverse and high caliber teams as we grow. As we announced in April it remains our view that the pandemic is expected to have a net adverse impact on our markets and full year results. And as I stated at the start here, based on the recent trading and internal forecast in assuming no further substantial second wave, lockdown, we currently expect profit to the year to be 5% to 10% below the prior year. And due to revenue trends and those increased costs of employee support programs in the second quarter, we expect a greater second half weighting. There is no doubt that these are challenging times and the world is changing but I am confident that our agility, our continued investments and our strong focus on growing a safer, cleaner, healthier future for everyone every day is going to enable us to create value for all our stakeholders in the future.

A - Andrew Williams: Well, good morning everyone. It’s Andrew Williams J with Marc and Cathy and we’ve now got the opportunity for you to ask your questions. Now there are two ways we can do this. The first one is you can raise your hands using the tool at the bottom of your screen. And then I’ll invite you to ask the question if you can give your name and company, that would be great. Or you can type your question and then Marc and I will read out and answer. And again, if you type your question, could you please add your name and company, so that we know who it’s coming from. So, the first step, I’d like to invite Anthon ask a question and then following that is Marc could follow on. Anthon could you please ask your question first?

Unidentified Analyst: Yes, good morning. Thank you very much for taking my questions. I have two please. Firstly, on the guidance of 5% to 10% decline in profit this year, could you maybe elaborate a bit on how much of conservatism is baked into this guidance, considering only 4% revenue decline in Q1? And my second question is basically about emerging stronger on the other end of the downturn that’s what we have seen from quality companies in previous downturns. So maybe could you elaborate on the cost actions and on other efficiency actions you are taking to maybe emerge stronger on the other end of this downturn?

Andrew Williams: Thanks, Anthon. So I think the first part of the question around our forecast, just to remind you that our forecasts are bottom up driven. So these are the forecast if you like, coming from the 45 individual operating companies according to what they are seeing in their individual markets. And the reality is that across the Group that we alluded in the presentation there is a very wide range of different dynamics going on from – whether it’s geographic perspective or indeed from a market perspective. And so, for example, as you said in medical, the vital science businesses have done very well during the first quarter but you would expect some of that demand to tail off as we go through the year away from that peak and on the other hand, you’ve got the elective products, like the ophthalmic surgical products which as healthcare systems normalize it should come back strongly later in the year. So it is a real mix and sort of a blended average of growth across the Group. In general, it’s a group that the companies are realistic in their forecast that they understand their markets very well, I’d say as we go through the year we’ll have the opportunity to update the market on that progress. As far as the – if I think in broader terms, that the – sort of the two uncertainties in our thinking, first of all second quarter, so the quarter we are just entering, some of the businesses in the first quarter were essentially been letting off the order book they had coming into the quarter. And as you go into the second quarter, there is a question mark around whether you’ve missed the first quarter opportunity to generate that new business for the second quarter. So, it will be interesting to see how quickly that demand comes back and how quickly that order intake comes back as our sales teams are clearly more active than they were during the height of lockdown. And then obviously, as you look through to the second half of the year, there is the question mark over to what extent there is a second wave and to what extent there is lockdowns going to impact upon our business again globally. So, it is a pragmatic view. A prudent view in terms of where we think we’ll end up at the full year and it’s very much based on our view of the top-line. As I alluded to in the presentation, we are not – although we’ve taken – we took a lot of cost action in the first quarter, we’ve actually been fortunate because of resilience able to reverse some of the more stringent steps that we took in the first quarter, for example around employee salary cuts. And so, I think our resilient forecast, if we did, if the revenue wasn’t quite where we thought it was going to be we still got the opportunity to take more cost out if we needed to equally if the revenue is better than we are forecasting then we could be upside of that forecast. So, we see sort of a prudent strokes that are realistic forecast at this point in time.

Unidentified Analyst: Okay. Thank you very much.

Andrew Williams: So, Marc, if you can now ask your question and then following that we’ll have Andrew Wilson.

Unidentified Analyst: You are mute – just unmuted. I apologize. Morning, Andrew. Morning, Marc.

Andrew Williams: Hi.

Unidentified Analyst: Can I ask about infrastructure safety? Obviously, there has been disruption as you've not been able to access those customer facilities. But the big end-market there is the non-residential buildings. To what extent are you concerned about more structurals themes around perhaps retail or office buildings or whatever it might be, how quickly do you think of that returns? Is it just an access issue or is it something a bit longer term potentially lacking behind that?

Andrew Williams: That’s a good question and I think, there is two – if I think of the two biggest businesses within that sector, I think it is quite interesting to think how that’s going play out. Now on the one hand you got our fire detection business, which is the largest business in the Group and the largest business in that sector. There is no doubt in my mind that there is not going to be less – there is going to no let up in terms of fire regulations globally and the need to make sure that all types of buildings, commercial buildings, buildings at the public use continue to be safe from a fire perspective. So, I see that as is a hiatus but it’s going to recovery quite quickly when access is renewed because people have to comply with regulation. They have to comply and maintain their buildings in accordance with the regulation. A little sort of extension of that my mention it in the presentation is that a couple of the acquisitions done in recent years have been to essentially add on the ability to remotely monitor the condition of fire systems in those commercial buildings so that we made an acquisition of LAN Control a couple of years back and then FireMate more recently. So we recognize that in any case there is a direction of travel, the ability to remotely monitor and service some of these installations was going to have a better benefit from a technology point of view. I think the COVID-19 pandemic and the lack of access to site certainly accelerated that. So, that’s fire. I think on the other interesting one for us is in our second biggest business which is the people and vehicle flow business or BA as many of you have visited before, because the ability to access facilities, access buildings, get around buildings without having to touch doors, in other words, through automatic door sensors, whether it’s in a healthcare facility or indeed in a retail environment. Again, it’s going to be actually more important in the future. And interesting enough that’s a part of the Group where we see more resilient demand during the first quarter of the year. So, I am actually confident that the combination of the technological change that’s happening and the track we are already on the regulatory environments and then the sort of the ability to get around buildings without touching doors and opening doors physically is going to helpful for us. So, I don’t anticipate sort of any major structural change in those two larger businesses in that sector and I am confident about the longer term opportunities there.

Unidentified Analyst: Thanks. That’s very interesting. And can I do a follow-up for Marc? On the helpful appendix of your guidance for 2021, both central costs and finance costs seems surprisingly modest particularly given the increased debt. Could you just run through the thinking behind those?

Marc Ronchetti: Yes, certainly, I guess, I’ll pick up on the finance cost first and I’ll get off the back of a year with record M&A. We have seen increased interest cost from the borrowings in that forecast to-date. We don’t have significant M&A certainly in the first half. So, that would drive down the financing costs. And you are absolutely right to take upon the head office costs. I have couple of things in there in terms of why do we see a relatively large downturn year-on-year. One is to say follow-up in terms of some of the savings that we made in the first quarter around discretionary spend. So, the pace if you like, the recovery around travel, around entertainment, around the use of consultants. So, there is very much that mindset in our central costs in both the growth enablers and the government’s costs that we need to play our part in terms of the recovery in the second half. Another large chunk in that year-on-year will be around bonuses and of course the key thing there is we are not fundamentally changing the structure of our bonus scheme. So everybody is remunerated on growth in a year that you are forecasting the 5% to 10% and clearly that number comes down. And offsetting that, we do have investment in IT for the balance of the year savings. It’s really been certainly around, I’ll get you by split central cost into the two chunks, governance and control we won’t be making any savings there but we will bring any risk into the Group. In terms of the growth enablers, that’s all being about prioritization and making the appropriate investments with certainly some backing of IT in the second half as Andrew alluded to in the presentation.

Unidentified Analyst: Thank you very much.

Andrew Williams: Thanks, Marc. Can we now move on to Andrew Wilson? Andrew, over to you.

Andrew Wilson: Hi, good morning guys. Hopefully you can hear me okay?

Andrew Williams: Yes, we can hear you great. Thanks, Andrew.

Andrew Wilson: Perfect. I just wanted to kind of follow-up a little bit on an earlier question. But just thinking about the kind of the Q2 expectations and not really trying to draw you on the numbers as much just kind of get an indication of how to think about I think you made a comment around all that’s being slightly better than revenue in terms of the Q1. And I guess I would sort of assume given some of the easing lockdowns that sort of Q2 would be a little bit better than Q1 but kind of thinking for each division is perhaps easier to see that trajectory in safety improving rather than process safety for example just where the oil price for example might have more of an impact. Just trying to think of it will be on how could it guide for the Q1, so and for Q2 as to Q1 if orders and revenues have been in the kind of similar place. Just trying to get a little bit help in terms of this trajectory on that?

Andrew Williams: Yes. I’ll say that you’ve got a sort of a couple of points. So from a revenue point of view, I think you are right. I do think it will vary across the sectors. We’ve already talked about within the medical sector itself you might see a slight weakening of demand of a peak for vital signs and a comeback in demand for the elective surgical products. I think you are right, you could draw a comparison through process safety and infrastructure safety and you need to say, well, our site access does come back, infrastructure safety has got the ability to bounce back quite quickly and in fact, some of those businesses have sort of the shortest order books in the Group. So we are really be matching demand as it comes through whereas process safety is the one part of the group really where we have some larger projects which have longer lead times and to your point the proportion which will have 30% of that sector is focused on oil and gas may be well before that demand comes back. And then environmental analysis is a bit of a mix really. It’s always being quite a diverse sector and so we’ve got – we got UK water, some positive signs there. I mean, the recent announcements around UK water reduced leakage, you would say, well, they are going to keep the pressure upon that as they go through the second quarter. But again, second guess in the timing when she get that granular, I think it’s quite difficult. And I think sort of it’s more a question that we are asking from a revenue point of view. And I think the likelihood is we will see diversity benefiting us. But at the same time a slightly different story playing out in each of the sectors. The one other point I would mention about second quarter and I mentioned it in the presentation was, we’ve got around a sort of 5 million profit charge by choosing to not access UK government support furloughing and also providing and also providing additional financial support for any employees who are going to be made redundant. So, from a profitability point of view, we’ve also got an additional headwind factor in there irrespective of the revenue trends.

Andrew Wilson: Yes. That’s helpful and thanks. And maybe just on environment and analysis you could say it’s been a very, very good performance in recent years and so that looks like from the commentary that Q1 is – has been certainly very good on a relative basis and very good on a standalone basis. Just any sort of indication that as a change within that in terms of facing of orders that we should be thinking about or see this is the difficult context. So just trying to get a sense of, I guess, how sustainable it’s still going forward environmental analysis in the sense at the moment it seems like it’s probably just going to continue to grow for you this year?

Andrew Williams: Yes. Again, I think long-term – you got to say long-term trends are going to be positive there in terms of the – things like the – I don’t know the environmental monitoring that we go, air quality over the monitoring. We are doing, obviously, water leak detection, and water pressure monitoring, water treatment. So, long term trends in the context of the ESG and climate change. It’s got to be a good place to be. We’ve got within the water business, there is no doubt but we have got a focus on the UK. So, to the extent to which the UK water utilities we are investing, particularly as I mentioned earlier on the leakages, it’s helpful to us as we go through the year. The photonics business is tend to be or the optical analysis business tends to be quite widespread in terms of who they serve in the market, they serve research and development in U.S. It’s quite important to us. So, yes, I think, it’s always been as you know, because you’ve been following us long enough. It’s always been also one of the more volatile parts of the Group. At the moment things appear to be well aligned and we seem to have more of the businesses staying year-on-year growth which is we struggled to do in the past. So, overall, I’d say positive long-term. The only other factor I can think obviously in the first quarter, we had one or two of the businesses that have to be environmental analysis but repurposed some of that technology to be used in some medical applications. Again, that boosted the Q1 result, but obviously in the same way we talk about volatile times within medical maybe not being so strong in the rest of the years as the healthcare system normalize. We’ll see a little bit of that effect too. But I think, thinking about that’s probably the only – let’s call it unusual event in the first quarter just a little bit of repurposing towards medical applications.

Andrew Wilson: Perfect. And maybe if I can just ask one more and it’s kind of a bigger picture question. It might be a little bit early to have and I guess a view on this, but just interested in terms of how COVID-19 and the impact of it and you’ve obviously talked about it, it's been very difficult across the Group and should expect. But just how it's need you think about the existing portfolio and sort of direction where any changes in terms of how you might think about the portfolio going forward in terms of sort of where you choose to allocate capital and obviously interested in terms of any of the – I guess, anything that's informed your thinking around certain aspects of the current portfolio. I am think I might be little bit early, just interested in.

Andrew Williams: Yes. It’s really that – Yes, but I'll be honest with you. The initial view and widespread view is actually doubling down on what we are doing, so our focus on safer, cleaner, healthier. There is no doubt that is a – got to be a very – three very strong themes coming out of the COVID-19 experience in all sorts of different ways. So, clearly around the edges we would continue to say, okay, are we in market here that can give us that long-term growth and the returns are not and as we discussed many times before, you’ve got to say from an oil and gas point of view is that the right kind of long-term market to be in. But I mean, we’ve been asking that question for different reasons for the last five or ten years. More broadly than that though, we still – we think we are very well positioned both from an organic growth point of view and from an acquisition opportunity perspective. And you think about the other investments we’ve been making which have been in things like diversity and inclusion within our business, and the people in our business, the focus on technology and ramping up the digital innovation. All those themes we believe are even more important coming out of the COVID-19 experience. So, almost, as I said in the presentation, it’s almost the case of doubling down on what we were doing. I think you are probably right. It’s one of those things impacts later in the year, you really take a deep dive on the portfolio and say, has anything changed structurally here. Equally, are there any new areas or new niches that are emerging that we should be participating into. So, yes, I am really positive about the future coming out of this and also how we have positioned coming in.

Andrew Wilson: Perfect. Thanks Andrew, thanks for sharing for all the detail and also in the statement as well.

Andrew Williams: Yes. Thanks, Andrew, again. So, now we got two questions from Robert Davis at Morgan Stanley which I’ll read out. The first one is, can you give some additional color around customer commentary and regional differences within the process safety business? Where are you most optimistic or concerned on the process safety business in FY 2021? And there is a second one which I’ll follow-up in a minute. Do you want to give the color on the process safety, Marc?

Marc Ronchetti: Yes. Certainly and I’ll try and sort of keep away from what I’ve already said in the script. So I think taking a big step back on process safety and as a reminder about 30% of that sector and albeit 4% for the Group is exposed to oil and gas. So, there was most definitely downward pressure on that part of the business. So you had underlying pressure on oil and gas. In addition to that, we did have a closure of a site within the sector in the first part of quarter which was probably the equivalent of about £3 million of revenue, just over £2 million of profit. So, again, a chunk of downward pressure that then partially offset by some good underlying growth in our non oil and gas sectors which included continued benefit from the logistics contracts and of course then the contribution from Sensit acquisition which was just under 2%. So, really what you’ve got playing out there is a portfolio within the process safety business. And I guess, that’s reflected in some ways in terms of what we then saw in the geographical split with the USA largely flat with the logistics contract benefits offsetting the onshore oil and gas. The UK is down largely due to timing of contracts but then good growth out in Asia Pacific as we continued to make progress in the non oil and gas sectors of the sector.

Andrew Williams: Thanks, Marc. And then the second question from Robert was, how much of the pullback in planned M&A runrate in the first half of this new financial year is due to a more conservative approach to cash management versus transactions being more difficult to convert in the current environment and what are the key signals we are looking for before M&A resumes with a normalized level for Halma? Perhaps I’ll take this one. Very much the former in terms of cash management, certainly early on in that first quarter as reflected in our cost reduction efforts as well. We were very mindful about protecting cash, conserving cash, protecting the balance sheet until we got a very – a much clearer view about how the whole cash side of things and liquidity side of things are going to pan out during the year. So, initially, very much the former. However, as we are now already moving our thinking towards, okay, what capacity do we have and what are the kind of deals we do want to do. I think we're now going to start really understanding whether there is also an issue around how quickly we can convert these opportunities. When I recall what happened back in 2008, 2009, we did exactly the same thing. We had a sort of a three month to six month hiatus in terms of completing deals, but continued working hard looking for opportunities. And coming out of the downturn which was probably around sort of six, six months plus from the initial hit. We very quickly got comfortable with first of all being able to look at a new company, a target company’s books and knowing what it could look like. In other words, we knew what – how we had performed during the downturn and bearing in mind with buying related businesses. We knew how we have done and therefore when we were looking at a target, we could then see actually there do appears they have the same kind of characteristics that we are looking for in terms of resilience in growth and returns. And I would anticipate us getting to that position as we alluded to in an announcement as we go into the second half of this year. And in terms of - based on the forecast that we’ve given – the outlook was given for the full year, we will have the financial capacity to continue to - with our M&A effort as you say some more normalized level for Halma. So, yes, in that sense, I would see as if the opportunity there picking up in the second half of the year, I think we will be in a position to judge that these are the kind of deals we want to do. What we haven’t tested yet and I am sure, all of us will want to know is, what does it mean in terms of valuations for these deals both from the vendor side and also from the acquirer side. I don’t know the answer to that yet. That’s something that we will find out as we go through the second quarter into the second half of the financial year. So, thank you Robert for those two questions. Now, we’ve got some questions here from Jonathan Hurn at Barclays. The first question from Jonathan is, first quarter is down 13% organically on revenue. Can you give us an idea of what the exit rate was for June? Second question was for process safety. The margin in the second half was down around 500 basis points sequentially with the first half, with around 40% of the division exposed to oil and gas. I think it’s around 30%. Do you think that the margin of process safety can recover to the level of the mid-20s? And the final question is, how fast do you think you can diversify the end-market exposure of process safety? So, Marc, do you want to do the first, in terms of key – sort of the trends?

Marc Ronchetti: Yes. I would probably answer those two.

Andrew Williams: Okay.

Marc Ronchetti: And then if you pick up on the diversification. So, I guess in terms of exit rate for June, we guess the simple answer there is, we are giving guidance on the first quarter as opposed to any individual months. For us it’s a business and certainly for Halma and our investors thinking over the medium to long term goes more appropriate than looking at the monthly runrate. So, we haven’t given any guidance for the standalone month of June. Moving onto the second question around process safety margin in H2. There is couple of key points there is, there has been a small reduction in gross margin given the mix shift away from the higher margin oil and gas sector. So, I’ve talked that through earlier. So I think more relevant here is the a sector level bad debt provision which was in process safety was £0.9 million. So, in the second half performance, within an annual performance that equates to circa 2% profit and you therefore look at that on a half year basis. And that is covering circa 400 basis points of that 400 BPS that you picked up on. Do we think it can recover to a level in the mid-20s based on having no further one-offs that I just talked to the underlying rates, as I said it was slightly down due to the mix shift, but yet back up to normal runrate that we’ve seen within process safety.

Andrew Williams: As was the other thing I'll add just that the first question there around exit toward the first quarter and sort of the trending during the first quarter. All I can say is that the – from our start point to the end of March, when we set that sort of expectations and took the action it has been encouraging to see that each month the business have exiting in total exceeded the forecast that they’ve been making. So, it’s felt like a sort of more encouragement as we’ve gone through the quarter rather than less encouragement, but as I said before, it’s a real mixture across the whole Group. So, we need to see how that now starts to play out in the second quarter. And I think about diversification to the market exposure in process safety, as you know, Jonathan, over the last decade, we’ve reduced the exposure to oil and gas from around 50% of that sector down to around 30%. So, we’ve already got a long way to doing that. How much further we need to go I think is difficult to tell – or how quickly we can get there is difficult to tell. All I can say is, both from the point of view of the organic product development as much as the M&A effort, both of those are moving us to become less dependent on that oil and gas market. So, I think it’s one of the things over the longer term you would see that likely to be reducing rather than increasing, I’d say particularly from the – not just the organic side, but also from the companies we are acquiring. Okay. Those are the questions I’ve got to read out. Now I’d like to invite Richard Paige to ask a question.

Richard Paige: Yes. Good morning. Thank you. Just on China, because you gave us a minus 4% organic decline for the year, obviously impacted by COVID, I don't think we have a number for the first half, but I assume that all of that is on the Q4 impact. But you also mentioned that the environmental monitoring market penetration is being slower than expected. Just wondering where we are – where you were in Q1? Has that market started to grow again? Was there pent-up demand anywhere, just trying to understand a bit more what's going on over there, please?

Andrew Williams: You mean specifically in China, Richard?

Richard Paige: Yes, specifically in China, because I guess I've always seen this as a big opportunity for you and a bit surprised that we are not seeing better growth there at the moment.

Andrew Williams: Yes. No. I think that’s fair and I think, it’s still sluggish in the first quarter. Clearly we got some businesses that are picking up faster than others. But it’s certainly not universal across that economy. And so, selling into some of the R&D – within environmental and analysis, selling into some of the R&D applications is slower. Clearly, we’ve got higher hopes for areas, some of the sort of environmental air monitoring and water quality side of things. But, yes, it’s not been a universal recovery across the Group in China during the first quarter. And it’s still – the recovery is still emerging. I think you say it’s fair across the Group overall. And as you went through the last financial year, we certainly would seeing – although we were getting growth in the first half of the year and you are right, it’s mainly a final quarter impact that resulted in revenue being lower in China for the whole year. The reality is, it hasn’t – it wasn’t at the rates of growth that we’d be seeing, certainly two or three four years ago, which will come to be double-digit. It was much more sort of mid high-single-digit during the past year. So, yes, a much slower recovery story there and it would be interesting to see how some of the western markets recover and compare the two.

Richard Paige: Okay. Thank you.

Andrew Williams: Okay. Do you have any more questions? Okay. It doesn’t look like. If you do have any further questions and please don’t hesitate to contact Charles King. He will do his best to answer them for you. Thanks as always for your interest and for your questions. Look forward to catching up sometime soon. Thank you.