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Edited Transcript of HLMA.L earnings conference call or presentation 14-Jul-20 7:30am GMT

Full Year 2020 Halma PLC Earnings Presentation

Bucks Aug 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Halma PLC earnings conference call or presentation Tuesday, July 14, 2020 at 7:30:00am GMT

TEXT version of Transcript


Corporate Participants


* Andrew J. Williams

Halma plc - Group CEO, Member of Executive Board & Executive Director

* Marc A. Ronchetti

Halma plc - Group CFO & Executive Director


Conference Call Participants


* Andrew J. Wilson

JPMorgan Chase & Co, Research Division - Analyst

* Richard Paul Paige

Numis Securities Limited, Research Division - Analyst




Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [1]


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, it 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 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 just start by setting some context around that long-term sustainable value creating. As a society, we're obviously facing quite a profound and set of global challenges, not only in the medium -- 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 aging population, 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 17 years, we've delivered record revenue and profit.

Over this period, our revenue has grown by more than GBP 1 billion to over GBP 1.3 billion, a 10% compound annual growth rate, while profit has increased more than fivefold to GBP 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 nondiscretionary 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 investment.

And we show 1 example here. Our R&D investment over the period has grown from GBP 10 million to over GBP 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 to deliver great growth but also very strong returns. And that is reflected in our return on total invested capital, or ROTIC, which has been consistently above our weighted average cost of capital, or WACC, for each of those last 17 years. And in fact, this year, our ROTIC was 15.3%, almost double our weighted average cost of capital.

Let's just bring these elements back here and now, and you can see that they're more crucial than ever. We've made further good progress in the last financial year. Our ability to respond rapidly to the 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're expecting our profit to be just 5% to 10% below the prior year.

Importantly, we're going to 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 can sustain that value creation in the future, too.

So 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 GBP 1.3 billion, while profit increased 8.7% to GBP 267 million, keeping our return on sales strong at 19.9%. And that's even after the increased investment and also a GBP 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 our growth enablers. And bear in mind, this is led by our operating companies with selected central investment in our growth enablers. In innovation, our companies increased their R&D spend by 14% to GBP 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 GBP 34 million. That's well ahead of depreciation, excluding leases. And it was a record year for acquisitions. We acquired 10 companies across all 4 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're 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 the continued 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 at the period end was GBP 375 million, including IFRS 16 leases. And our gearing showed net debt-to-EBITDA of 1.1x.

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 would not have achieved these results without the tremendous commitment, determination of the teams in all of our companies, our sectors and the group centrally. 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 I hand over to Marc to go through the financial review.


Marc A. Ronchetti, Halma plc - Group CFO & Executive Director [2]


Thank you, Andrew, and good morning, everyone. As we've heard from Andrew, we've 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 our continued focus on capital allocation in ensuring continued organic investment to support future growth, in 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 3 of our 4 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 10 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 revenue by destination. The chart on the left shows the reported revenue split by destination, in addition to the reported growth by region, with the chart 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 U.S.A., Asia Pacific and the U.K.

So starting with the U.S.A., 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 U.K., which grew well at 8% organic constant currency, driven by strong performance in Environmental & 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.

And finally, completing the geographic split, in the smaller Rest of the World segment, reported revenue was marginally ahead. There was a decline in the Africa, Near and Middle East territory as a result of a planned reduction in low-margin business, but this was offset by strong growth in other territories, which was broadly spread across all 4 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 GBP 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, while disposals were a small negative, mainly from the Accudynamics sale. As with revenue, there was a positive effect from currency translation 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 detail at the sector level, turning first to Infrastructure Safety, which made good progress, with revenue up 14% and profit up 21%. This include an impressive 10% revenue 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 3 largest subsectors, Fire Detection, People and Vehicle Flow and Elevator 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 GBP 2.1 million increase in sector provisions for potential customer bad debt, the increase in return on sales, driven by increased gross margins as a result of past investment in automation and the planned revenue reduction.

I'm 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 U.S.A. and Asia Pacific benefiting from the current year and prior year acquisitions. The U.K. 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 GBP 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 GBP 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 U.S.A. despite the weakness in the U.S. onshore oil and gas market, driven by a good contribution from the Sensit acquisition and continued benefits from a large U.S. logistics contract. U.K. and Mainland Europe were weaker, driven by the timing of large customer contracts and the phasing of a 5-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 & Analysis, which I'm pleased to report continues to perform strongly having now delivered double-digit reported and organic constant currency revenue and profit growth for 3 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 U.K. 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 GBP 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 2 largest regions, the U.S.A. and the U.K., 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 impacts in the second half. This was more than offset by strong growth in the Africa, Near 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 margin, mainly driven by the mix of business, balanced by good control of overheads, which also included a GBP 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 GBP 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 5 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 translation. Profit also included a first half charge of GBP 2.5 million relating to the merger of 2 of our ophthalmology companies that are flagged in those results and a GBP 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 U.S.A., the sector's largest geographical end market, delivered good revenue growth, which included organic constant currency growth of 4% against a 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 1 of the ophthalmology companies, which we're addressing through the merger that I've already referred to and a mixed performance in health assessment. Return on sales remained 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% in R&D investment to GBP 16.5 million to support future growth.

So moving on to net debt, and focusing on the larger movements, the first of which being IFRS 16. This was the first full year in which IFRS 16 applied, which increased starting net debt by GBP 50 million and introduced for the first time lease additions, a noncash movement, the majority of which relates to the renewal or extension of leases and the Ampac acquisition.

So turning now to 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, 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 GBP 238 million. We paid GBP 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 GBP 375 million. This represents a net debt-to-EBITDA ratio of approximately 1.1x, well within our typical operating range of up to 2x gearing.

With continued good cash generation in the first quarter, our net debt has reduced to circa GBP 320 million. We, therefore, continue to have a robust financial position, strong cash generation and substantial available liquidity of circa GBP 500 million and over GBP 300 million of capacity within an operating range of up to 2x gearing.

So to conclude, looking at performance against our financial KPIs, this is a pleasing performance with 7 out of 8 metrics meeting or exceeding our target. And while 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 J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [3]


Thank you, Marc. So turning first to our response to COVID-19 before I start talking through our strategic progress during the year. Throughout the pandemic, I think our response has been led by our purpose. And our aim has been to ensure continued supply of our critical safety, health and environmental products and solutions. But I think it's also indicative of our culture that many individuals in the group have taken the initiative to repurpose their resources -- our resources to develop PPE and other support solutions, critical health care supplies, if you like, for their local communities. And I'm 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 has been well positioned to address them. Our agility, our diversity has been a major asset. Over many years, we built an organization and culture which has been created for fast, decentralized decision-making by those who are closest to our stakeholders, but accompanied with clear lines of 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 tempered with an understanding that major decisions had to be taken with a holistic view, balancing the positive and negative impacts across our various stakeholder groups, whether they're internal or external.

So what has that meant in practice? Well, firstly, we created very rapidly virtual support groups for our company. Sometimes they were functional focused, sometimes they were 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 nondiscretionary safety, health and environmental solutions. In fact, only 3 of our 54 principal facilities had 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 were suited to their particular needs. Because you can imagine, companies in China were faced with a different set of needs and circumstances to the ones in Italy, from the U.K. and from the U.S., all very different let 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, homeworking, staggered shifts or just safe social distancing measures in the workplace. Secondly, we acted quickly to reduce costs and protect our balance sheet, and we decided not to access the U.K. government's CCFF scheme. So that in the first quarter, we saw a reduction in our run rate of variable costs of over GBP 20 million compared with the run rate 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 had productive relationships with customers and suppliers. And we limited investment 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 access in the U.K. government support. Having said that, of course, some companies have seen 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 to those companies' employees affected either by the furlough plan or by the redundancies at an estimated cost of GBP 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'll be doubling down on those investments and accelerating some of them in the future.

And I think a good way to think about our strategic investment 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 4 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 -- 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 have been a few changes this year. Catherine Michel joined us 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 Inken'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 the world where remote working and monitoring of systems is likely to 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 handed 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 we maintain a strong legal and compliance capability as we grow.

I think 1 final word on this is that we've 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, a 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 10 acquisitions across 4 sectors, spending a total consideration of GBP 238 million. They've opened up new niches and bought new technologies and capabilities to the group. So for example, with Sensit, we've got new gas detection capabilities. With NovaBone, they bought orthopedic bone graft technology, and Maxtec have bought medical ventilator and oxygenation products.

We've also enhanced our digital capabilities in some of our core markets. So for example, FireMate has bought some fire protection maintenance software, and Spreo have added indoor mapping technology to CenTrak's existing real-time location monitoring solution for healthcare.

As usual, we've continued to expand our geographic reach. And a great example of that is the safety sector's acquisition of Ampac in Australia. Despite the fact we haven't made any acquisitions 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've been taking further steps throughout the year in advancing our ESG agenda across a wide range of initiatives. And I'd like to take you through a few of those now.

In terms of quantifying our positive impact, we've identified that 2/3 of our revenue is aligned with our 4 chosen UN Sustainable Development Goals, which are focused on health, water and sustainable industrialization of the cities. And it's also evident with the acquisitions I just talked through with all 10 of the acquisitions also aligned with these 4 goals.

Concerning our reducing environmental impacts and specifically addressing the challenge of climate change, once again, we've substantially exceeded our existing target to reduce 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 1 and Scope 2 emissions by around 2,000 tonnes or 10%. These carbon emissions also put us on track to adopt a science-based target in the coming year, and we're preparing to report in line with the recommendations of the Task Force on Climate-related Financial Disclosures, or TCFD, by 2022.

Moving on to social society. You've already heard how we've balanced our decisions carefully during the pandemic and I'd like to go 3 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, whether it's a company sector or group level, to 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.

And when I look back, I'm 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. So what gives me confidence is that, that improvement we made in the gender diversity gives us real confidence we can make a real improvement in ethnic and national diversity in the years ahead. And we're going to report that progress as we go through the coming years.

Secondly, at the start, I talked about creating value across all our stakeholders. And a key 1 of those is obviously our suppliers, our supply chain. The nature of our business model means that actually our supply chains are relatively short. They manage 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 modern slavery risk across our global supply chain. And as a result of that, we're 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 of Sight charitable campaign, we're launching our next global community campaign later this year. Once again, it's going to be aligned with 1 of our 4 chosen UN Sustainable Development Goals. This time, it will be clean water and sanitation.

So overall, I believe there's increasing recognition and appreciation of the value of ESG and also that it is well aligned with Halma. I'm really pleased with the success of these initiatives and that they're starting to be recognized externally, including by CDP, in the improvement of our score in their latest survey over the past year.

So 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 constant 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 changes 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 recent trading and internal forecast and assuming no further substantial second wave lockdown, we currently expect profit for 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's no doubt that these are challenging times and the world is changing but I'm confident that our agility, our continued investment 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.


Questions and Answers


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [1]


Well, good morning, everyone. It's Andrew Williams here with Marc Ronchetti, and we've now got the opportunity for you to ask your questions. Now there are 2 ways we can do this. The first 1 is you can raise your hand 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 it. Again, if you type your question, could you please add your name and company so that we know who it's coming from.

So first up, I'd like to invite [Arthur] to ask a question. And then following that, if [Mark] could follow-on. So Arthur , can you please ask your question first?


Unidentified Analyst, [2]


I have 2, please. Firstly, on the guidance of 5% to 10% decline in profits 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've seen from quality companies in previous downturns. So maybe could you elaborate on the cost actions and other efficiency actions you're taking to maybe emerge stronger on the other end of this downturn?


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [3]


Thanks, [Arthur]. 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're seeing in their individual markets. And the reality is, across the group, as we alluded to in the presentation, there's a very wide range of different dynamics going on from whether it's geographic perspective or indeed, from an end 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'd 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 health care systems normalize, 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, as a group, the companies are realistic in their forecasts. They understand their markets very well. And clearly, as we go through the year, we'll have the opportunity to update the market on that progress. I suppose the -- if I think in broader terms, the sort of the 2 uncertainties in our thinking -- well, first of all, second quarter, so the quarter we're just entering, some of the businesses in the first quarter have essentially been living off the order book they had coming into the quarter. And as you go into the second quarter, there's a question mark around whether you've missed the first quarter opportunity to generate that new business for the second quarter. So it would 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 we look through to the second half of the year, there's the question marks over to what extent there is a second wave and to what extent there is lockdown is 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're not -- although we've taken -- we took a lot of cost action in the first quarter. We've actually been fortunate because of the 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 I see that as quite a 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're forecasting, then we could be upside of that forecast. So we see it's sort of a prudent -- sort of realistic forecast at this point in time.

Okay. So [Mark], if you can now ask your question. And then following that, we'll have Andrew Wilson.


Unidentified Analyst, [4]


Can I ask about Infrastructure Safety? Obviously, there's been disruption as you've not been able to access closed customer facilities. But the big end market there is nonresidential buildings. To what extent are you concerned about more structural themes around perhaps retail or office buildings or whatever it might be? How quickly do you think that, that returns? Is it just an access issue? Or is there something a bit longer-term potentially lurking behind that?


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [5]


I think it's a good question. And I think there's 2 -- if I think of the 2 biggest businesses within that sector, I think it is quite interesting to think how that's going to play out. Now on the one hand, you've got our Fire Detection business, which is the largest business in the group and the largest business in that sector. There's no doubt in my mind that there's not going to be -- there's going to be no let up in terms of fire regulations globally and the need to make sure that all types of buildings, commercial buildings, buildings that the public use, continue to be safe from a fire perspective. So I see that as a hiatus that is going to recover 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, and I mentioned it in the presentation, is that a couple of the acquisitions we've 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 Controls a couple of years back and then FireMate more recently. So we recognize that, in any case, is a direction of travel, the ability to remotely monitor and service some of these installations was going to have better benefit from a technology point of view, I think the COVID-19 pandemic and the lack of access to sites have only accelerated that. So that's fire.

I think then the other interesting one for us is in our second biggest business, which is the People and Vehicle Flow business or BEA. As many of you 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 health care facility or indeed in a retail environment, again, is 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'm actually confident that the combination of the technological change that's happening, which -- and the track we are already on, the regulatory environment, and then the sort of the ability to get around buildings without touching doors and opening doors physically is going to be helpful for us. So I don't anticipate sort of any major structural change, particularly in those 2 larger businesses in that sector, and I'm confident about the longer-term opportunities there.


Unidentified Analyst, [6]


That's very interesting. And can I do a follow-up for Marc. On the helpful appendix to your guidance for '21, both central costs and finance costs seem surprisingly modest, particularly given the increased debt. Could you just run through the thinking behind those?


Marc A. Ronchetti, Halma plc - Group CFO & Executive Director [7]


Yes. Certainly, I guess, I'll pick up on finance costs first. And I guess, off the back of a year with record M&A, we've seen increased interest costs from the borrowing 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're absolutely right to pick up on the head office costs. I guess, couple of things in there in terms of why do we see a relatively large downturn year-on-year. One is just a 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, of recovery around travel, around entertainment, around the use of consultants. So there's very much that mindset in our central costs in both the growth enablers and the governance costs that we need to play our part in terms of the recovery in the second half.

Another large chunk in there 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%, then clearly, that number comes down. And offsetting that, we do have investment in IT for the balance of the year. So it's really been certainly around, I guess, if I split central costs into the 2 chunks, governance and control, we won't be making any savings there that will bring any risk into the group. In terms of the growth enablers, that's all been about prioritization and making the appropriate investments with certainly some backing of IT in the second half, as Andrew alluded to in the presentation.


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [8]


Thanks, Mark. Can we now move on to Andrew Wilson? Andrew, over to you.


Andrew J. Wilson, JPMorgan Chase & Co, Research Division - Analyst [9]


Perfect. And I just wanted to kind of follow-up a little bit on an earlier question. Just thinking about the kind of the Q2 expectations. I'm not really trying to draw you on the numbers as much as kind of just get an indication of how to think about it. I think you made a comment around orders being slightly better than revenue in terms of the Q1. And I guess I would sort of assume given some easing lockdowns that sort of Q2 would be a little bit better than Q1, but kind of thinking through the divisions, it's perhaps easier to see that trajectory in Infrastructure 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 a little bit on how good a guide for the Q1 -- sorry, for the Q2 is the Q1, if orders and revenues have been in the kind of similar place? Just trying to get a little bit of help in terms of the trajectory on that.


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [10]


Yes. I think you've got a sort of just a couple of points. So from a revenue point of view, I think you're 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 off of a peak for vital signs and a comeback in demand for the elective surgical products.

I think you're right, you could draw a comparison between Process Safety and Infrastructure Safety. You need to say, well, as 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'd already be sort of matching the demand as it comes through, whereas Process Safety is the 1 part of the group really where we have some larger projects, which have longer lead times. And to your point, the proportion which is about 30% of that sector that's focused on oil and gas, may be a while before that demand comes back.

And then Environmental & Analysis is a bit of a mix really. It's always been quite a diverse sector. And so we've got U.K. water, some positive signs there. I mean the recent announcements around U.K. water having to reduce leakage, you'd say, well, they're going to keep the pressure up on that as they go through the second quarter. But again, second guessing the timing once you get that granular, I think, is quite difficult. And I think sort of it's more a question that we're asking from a revenue point of view. And I think the likelihood is we'll see diversity benefiting us but at the same time, a slightly different story playing out in each of the sectors.

The 1 other point I'd mention about second quarter, and I mentioned it in the presentation was we've got around a sort of GBP 5 million profit charge by choosing to not access U.K. government support for furloughing and also providing additional financial support for any employees who're 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 J. Wilson, JPMorgan Chase & Co, Research Division - Analyst [11]


Yes. That's extremely helpful. And maybe just on Environmental & Analysis because clearly, it's kind of where it's been a very, very good performer in recent years and sort of looks like from the commentary that the Q1 has been certainly very good on a relative basis and very good on a stand-alone basis. Just any sort of indication of a change within that in terms of phasing of orders that we should be thinking about or obviously the difficult context here. So just to try and get a sense of, I guess, how sustainable is still growing for Environmental & Analysis in the sense at the moment, it seems like it's probably just going to continue to grow through this year?


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [12]


Yes. Again, I think long term, you've got to say long-term trends, we've got to be positive there in terms of things like the, I don't know, the environmental monitoring stuff, we've got air quality, odor monitoring we're doing, obviously, water leak detection and water pressure monitoring, water treatment. So long-term trends in the context of ESG and climate change, it's got to be a good place to be.

We've got within the water business, there's no doubt that we have got a focus on the U.K. So to the extent to which U.K. water utilities are investing particularly, as I mentioned earlier on, in leakage is helpful to us as we go through the year. The photonics businesses tend to be or the optical analysis business tends to be quite widespread in terms of who they serve and the markets they serve. Research and development in U.S. is quite important to us.

So yes, it's always been, as you know, because you've been following us long enough, it's always being also 1 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 able to sustain year-on-year growth which is something that we struggled to do in the past. So overall, I'd say, positive long-term.

The only other factor I can think of in the first quarter, we had 1 or 2 of the businesses that happened to be in Environmental & Analysis but repurposed some of their technology to be used in some medical applications. Again, that boosted the Q1 result. But obviously, in the same way we talk about vital signs within Medical maybe not being so strong, in the rest of the year as the health care system normalize, we'll see a little bit of that effect, too. But I think thinking about it, 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 J. Wilson, JPMorgan Chase & Co, Research Division - Analyst [13]


Perfect. And maybe if I can just ask 1 more, and it's kind of a bigger picture question. It might be a little bit early to have, 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 being very different across the group you should expect but just how it's made you think about the existing portfolio and sort of direction in the way -- 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, a picture that might be a little bit early, just interested in...


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [14]


Yes, it is really but I'll be honest with you, the initial view and widespread view is actually doubling down on what we're doing. So our focus on safer, cleaner, healthier. There's no doubt that is -- got to be a very -- 3 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 markets here that can give us that long-term growth and the returns or not? And as we've 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 5 or 10 years.

More broadly than that, though, we still -- we think we're very well positioned, both from an organic growth point of view and from an acquisition opportunity perspective. When 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 things, 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're probably right. It's 1 of those things and perhaps 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'm really positive about the future coming out of this and also how we're positioned coming in.

So now we've got 2 questions from Robert Davies at Morgan Stanley, which I'll read out. The first 1 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 '21? And there's a second one, which I'll follow-up in a minute.

Do you want to give some color on the Process Safety, Marc?


Marc A. Ronchetti, Halma plc - Group CFO & Executive Director [15]


Yes. Certainly, and I'll try and sort of keep away from what I already said in the script, but I think taking a big step back on Process Safety, and as a reminder, about 30% of that sector albeit 4% of the group is exposed to oil and gas. So there was most definitely downward pressure on that part of 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 fourth quarter, which was probably the equivalent of about GBP 3 million of revenue, just over GBP 2 million of profit. So a big -- 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 contract. And of course, then the contribution from Sensit, the 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 U.S.A. largely flat with the logistics contract benefits offsetting the onshore oil and gas, the U.K. down largely due to timing of contracts, but then good growth out in Asia Pacific as we continue to make progress in the non-oil and gas sectors of this sector.


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [16]


Thanks, Marc. And then the second question from Robert was how much of the pullback in planned M&A run rate 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 at a more 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've got a very -- a much clearer view about how the whole cash side of things and liquidity side of things were 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's also an issue around how quickly we can convert these opportunities.

When I recall what happened back in 2008, '09, we did exactly the same thing. We had a sort of a 3-month to 6-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 6, 6 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 how we've performed during the downturn of -- bear in mind we're buying related businesses. We knew how we had done. And therefore, when we were looking at a target, we could then see, actually, they do appear to have the same kind of characteristics that we're looking for in terms of resilience in growth and returns.

And I would anticipate us getting to that position, as we alluded to an announcement as we go into the second half of this year. And in terms of -- based on the forecast that we've given in the outlook we've given for the full year, we will have the financial capacity to continue to -- with our M&A effort, as you say, to more normalized level for Halma. So yes, in that sense, I would see us, if the opportunity there, picking up in the second half of the year. I think we'll 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'm sure all of us would 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 2 questions. Now I've got some questions here from Jonathan Hurn at Barclays. The first question from Jonathan is first quarter was 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 the -- the sort of the trend...


Marc A. Ronchetti, Halma plc - Group CFO & Executive Director [17]


Yes, I can probably answer those 2 and then if you pick up on the diversification. So I guess, in terms of exit rate for June, I guess, the simple answer there is we're giving guidance on the first quarter as opposed to any individual month. For us as a business and certainly for Halma and our investors, thinking over the medium to long-term feels more appropriate than looking at a monthly run rate. So we haven't given any guidance for the stand-alone month of June.

Moving on to the second question around Process Safety margin in H2. There's a 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 talked that through earlier. But I think more relevant here is the sector level bad debt provision, which within Process Safety was GBP 0.9 million. So in their second half performance -- in 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 500 that you picked up on outbound due to the mix shift. But yes, back up to normal run rates that we've seen within Process Safety.


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [18]


As far as the only other thing I'll add just that the first question around exit for the first quarter and sort of the trending during the first quarter, all I can say is that the -- from our start point at the end of March, when we set out sort of expectations and took the action, it has been encouraging to see that each month, the businesses have, in total, exceeded the forecast that they've been making. So it 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 of 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 gone 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're 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 Paul Paige, Numis Securities Limited, Research Division - Analyst [19]


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. You also mentioned that the environmental monitoring market penetration is being slower than expected. Just wondering where you were in Q1. Has that market started to grow again? Was there pent-up demand anywhere? I'm just trying to understand a bit more what's going on over there, please?


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [20]


You mean specifically in China, Richard?


Richard Paul Paige, Numis Securities Limited, Research Division - Analyst [21]


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


Andrew J. Williams, Halma plc - Group CEO, Member of Executive Board & Executive Director [22]


Yes. No, I think that's fair. And I think it's still sluggish in the first quarter. Clearly, we've 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 & Analysis, selling into some of the R&D applications is slower. Clearly, we've got high hopes for air in 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. It's still -- the recovery is still emerging I think it's fair to say across the group overall.

And as we went through the last financial year, we certainly weren't seeing -- although we were getting growth in the first half of the year, and you're right, it's mainly a final quarter impact that's resulted in revenue being lower in China for the whole year, the reality is it hasn't -- it wasn't the rates of growth that we've been seeing certainly 2 or 3, 4 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'd be interesting to see how some of the western markets recover and compare the 2.

Okay. Do we have any more questions? Okay. Doesn't look like. If you do have any further questions, then please don't hesitate to contact Charles King. He'll 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.