Final Results

Halma PLC 22 June 2004 HALMA p.l.c. PRELIMINARY RESULTS FOR THE YEAR TO 3 APRIL 2004 22 JUNE 2004 Halma, the leading safety and environmental technology group, today announced its preliminary results for the year to 3 April 2004. Highlights include: • Organic and acquisition growth contribute to record pre-tax profit* (2004: £50.3m; 2003: £46.5m) • Widespread improvement in sales performance across the Group's businesses and regions produced 9% turnover growth (2004: £292.6m; 2003: £267.3m) • Return on capital employed** above 50% (2004: 52.4%; 2003: 53.5%) delivered cash generation of £22m during the year • Quality of Halma's operations strengthened by the sale of three non-core businesses in the year followed by two acquisitions since the year end • Progressive dividend policy maintained with 7% growth * Before goodwill amortisation of £4,220,000 (2003: £3,235,000) and exceptional items on disposal of non-core businesses of £9,149,000 (2003: £nil). ** Return on capital employed is defined as profit before taxation* expressed as a percentage of net tangible assets (being equity shareholders' funds less intangible assets). Commenting on the results, Stephen O'Shea, Chief Executive of Halma, said: 'It is especially pleasing that we have delivered record profits on a lower level of operating assets and despite both the impact of adverse currency movements and no overall improvement in our underlying markets. 'There is real momentum across our business. Our focus on innovation and investment in research and development is bringing forward increasing numbers of new products and accelerating the acquisition of new customers. The free cash generated by our businesses, and through disposals, has been invested in maintaining this momentum and building our range of products through judicious acquisitions. We will benefit significantly once our markets improve but we are not dependent on this. 'I am proud of my team's achievements this year and look forward to building on these in the year ahead.' For further information, please contact: Halma p.l.c. +44 (0)1494 721111 Stephen O'Shea, Chief Executive Kevin Thompson, Finance Director Hogarth Partnership Limited +44 (0)20 7357 9477 Rachel Hirst/Andrew Jaques A copy of this announcement, together with other information about Halma, may be viewed on its website: www.halma.com A copy of the Annual Report and Accounts will be sent to shareholders on 5 July 2004 and will be available to the general public on written request to the Company's registered office at: Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE. PHOTOGRAPHS High resolution photos of Halma senior management, including Chief Executive Stephen O'Shea, and images illustrating Halma business activities can be downloaded from its website: www.halma.com. Click on the 'News' link, then 'Image Gallery'. Photo queries: David Waller +44 (0)20 8205 0038, e-mail: dwaller@halmapr.com NOTE TO EDITORS Halma p.l.c. develops products used worldwide to enhance safety and to minimise hazards. The Group comprises six business groups: • Fire and Gas detection • Water leak detection and UV treatment • Elevator and Door Safety • Bursting discs and sequential locking for Process Safety • High power electrical Resistors • Optics and Specialist technology The key characteristics of Halma's businesses are that they are based on advanced technology and offer strong growth potential. Each business group is a clear market leader in its specialist field and, in a number of cases, is the dominant world supplier. HALMA p.l.c. Group Results for the 53 weeks to 3 April 2004 Financial Highlights Change 2004 2003 £m £m Turnover + 9% 292.6 267.3 Overseas sales + 10% 206.1 188.2 Profit before taxation (1) + 8% 50.3 46.5 Earnings per share (2) + 10% 9.44p 8.55p Earnings per share - statutory 6.09p 7.76p Dividend per share + 7% 6.19p 5.812p Return on sales (3) 17.2% 17.4% Return on capital employed (4) 52.4% 53.5% 1 Before goodwill amortisation of £4,220,000 (2003: £3,235,000) and exceptional items on disposal of non-core businesses of £9,149,000 (2003: £nil). 2 Before goodwill amortisation of 1.07p (2003: 0.79p) and exceptional items of 2.28p (2003: nil) per share. 3 Return on sales is defined as profit before taxation(1) expressed as a percentage of turnover. 4 Return on capital employed is defined as profit before taxation(1) expressed as a percentage of net tangible assets (being equity shareholders' funds less intangible assets). Chairman's Review Geoff Unwin, Chairman of Halma, said: 'In my first year as Chairman of Halma, I am delighted to announce record profit before tax* of £50.3 million. Observations from a new Chairman 'However, before turning to more of the headline numbers, I thought it might be useful, as a new boy to the Group, to share some of my initial observations, and to glimpse behind the scenes at some of the issues we have been tackling. 'Firstly let me say that I was attracted to Halma by its extraordinary track record (one of the top performing stocks on the London Stock Exchange over 20 years), its management style and the robustness of demand for its products even under difficult market conditions. I was intrigued. My induction into the Group, guided by David Barber, was exemplary. He left me alone to go where I wanted, ask whatever I wished, yet was always available to discuss, debate and question what I had observed. 'Over the first few months I visited operations accounting for about half our profits. I saw companies both large and small; some fighting in tough markets, many successful - the picture became clearer. The strengths were evident: • demand related to health and safety provided a driver or (at least) support to demand. • high market shares gave some protection to pricing. • autonomously run companies gave clarity of responsibility and ownership of performance. • high returns on sales and capital. • financial control was tight. • a track record of which to be proud. • many truly excellent and dedicated people. 'However, over the last few years, performance as measured by our high historic standards had not moved ahead as we would have wished. This was undoubtedly due, to a certain extent, to the tough economic conditions we have seen recently, but had other factors crept in that were holding us back? Our Response 'This was the question that was posed to the Board and senior management. Extremely thoughtful answers came in followed by very lively debates - no factor remained unexamined, no cow, sacred or otherwise, undisturbed. The outcome? Work was accelerated on a number of potential bottlenecks: • management: much strengthening (from both within and outside) and training programmes increased. • incentives: new bonus schemes to explicitly align performance to shareholder value. • knowledge transfer: 'wiring up' the Group to facilitate transfer of knowledge without destroying the foundations of autonomy. • reduced span of control: remarkably, senior management felt they could be more effective if they had fewer companies to manage and could therefore implement necessary change faster. Done. • sales: renewed emphasis on all aspects of selling and sharing of the best ideas for tackling new markets across the Group. • innovation: more funds allocated to innovation and new techniques introduced to get improved or new products to market, faster. • resource allocation: the beginnings (more to come) of a more rigorous allocation of resources (capital and management) to higher growth areas. This year we have made three non-core disposals. 'Have the actions on these issues had some effect on performance? Impossible to quantify but no one is in any doubt we are the better for focusing on these priorities. However, what is undeniable is that the results from these actions are due to the hard work and single-mindedness of the management team together with the dedication from all our employees towards our customers. The Results 'Profit before tax* was a record £50.3 million and earnings per share*, also a record, increased by 10% to 9.44p. Return on capital* was 52.4% and net cash at the year end was £22 million. 'Turnover grew by 9% to a record £292.6 million. During the year we disposed of three businesses deemed to be non-core, and shortly after the year end, acquired Diba Industries, Inc., strengthening our position in the life sciences market, and Ocean Optics, Inc., extending our optical technology. 'The Board recommend a final dividend of 3.75 pence per share, giving an increase of 7% for the year. Prospects 'There is no shortage of ideas, determination or actions and these should show through next year, as they have this year, in our results. We continue to focus on those areas that are clearly under our control or influence, notwithstanding that there is still little evidence of any significant uplift in our markets.' * See Financial Highlights Chief Executive's Review Stephen O'Shea, Chief Executive of Halma, said: Strong and active management delivers record profits 'The Group performance has been strong despite market conditions remaining difficult. We achieved record profits* of £50.3 million on a lower level of operating assets, despite a net £1 million profit hit from currency movements. Widespread improvement in sales performance across the Group's businesses and regions produced 9% sales growth. These results reflect our active management approach through which we achieve growth through focused acquisitions, efficiency improvements and the organic development of our existing businesses. I am pleased that excellent efforts from our management teams produced a return on capital employed* of 52%, outstanding for any engineering and manufacturing company. 'In the year we sold three non-core businesses from our Optics and Specialist sector that were not compatible with our targets for growth and financial returns. Since the year end we have made two important acquisitions for a total initial sum of £22 million, significantly strengthening this sector. Looking forward we expect to gain useful benefits from our acquisition and disposal activities. Two further businesses were also consolidated to achieve the benefits of greater integration. We remain strongly cash generative, creating net cash of £22 million during the year. We funded our acquisitions from profits and also paid a record sum in dividends to our shareholders. Well positioned for growth 'Our growth has come primarily from new products, the new customers they attract and new applications for long-term repeat ordering customers. We spent a record amount on research and development which now accounts for 4% of sales and launched many new products. Our cost base has been well managed so that we maintained our 17% return on sales* for yet another year. The Group is in a strong position to benefit from improvements in our end markets although we saw no upturn in the 2003/04 financial year and are not reliant on a market recovery for our future growth. Management team strengthened 'There has been a seamless transition with our Chairman, Geoff Unwin, stepping up from his previous role as Deputy Chairman in July 2003 and with the appointment of a new non-executive Director, Stephen Pettit, in September 2003. The management team has been further strengthened with the recruitment of two additional senior managers, Nigel Trodd and Andy Richardson, whom we welcome into the Group. We said goodbye to David Barber, the founder and architect of the Halma culture who served the Group over an outstanding tenure of 31 years. We owe much to him and all of us wish him well in his retirement. Widespread sales and profit growth 'I am encouraged by the number of countries where we have built up stronger positions. Territorial sales were grown to the UK, Europe, USA, Middle and Far East and Other Countries. The US Dollar weakened considerably during the year so that although sales in the USA grew by 12% in local currency, this translated to a 2% increase in Sterling terms. We make over a quarter of our profits from our US based companies. They increased US Dollar profits although in Sterling terms this converts to a small decline of 5%, £0.7 million. We were helped in the early part of the year by the strength of the Euro. 'Sales from our European companies grew by 42% to £43.7 million. We owned BEA, the world market leading supplier of automatic door sensors, for the whole of the year (compared to a 6 month contribution last year). This very successful acquisition continues to deliver impressive results by producing excellent products and growing its customer base across the world. We have rolled out one of BEA's innovation techniques across the whole of the Group, demonstrating our commitment to transferring best practice. 'Just over half our sales and profits are made by the UK companies. Continuing operations earned profits of £26.6 million, reflecting organic growth of £1.9 million, and increased sales by £10.6 million. Profits from our companies outside of the UK and USA, helped by £2.7 million from BEA, rose by £3.2 million. New Elevator safety products 'Our Elevator and Door Safety sector performed particularly well demonstrating both organic and acquisition growth. Its profits are now £12.1 million, 24% of the Group's total. The Far East and Asia are increasingly important territories and we extended our premises in Beijing and our manufacturing facilities in Shanghai and Beijing, as well as growing in Singapore. Important product innovations include new emergency communication equipment, demand for which is likely to grow following new European legislation in this area. Repositioning in Optics and Specialist sector 'We are increasing the focus on higher technology products and more technically advanced customers. Evidence of this can be seen in both the disposals made this year and in the acquisitions of Diba and Ocean Optics since the year end, both of which significantly broaden our capabilities in our Optics and Specialist sector. Diba products extend our product range offered to instrument makers in the growing field of life sciences. Ocean Optics make spectrometers that help analyse substances via their reaction to light. They are closely related to our water purity measuring photometers and other optical diagnostic equipment. Our trading in this sector produced increased profits. However within the sector we report our Head Office companies and the improved trading was more than offset by the costs of increasing senior management and lower income from subsidiaries who reduced their capital employed whilst growing profits. The net effect was a reduction in profits of £0.4 million to £7.1 million. Organic growth in Fire and Gas sector 'The Fire and Gas sector increased both sales and profits with new fire detectors and personal gas warning monitors. They earned £1.6 million of organic profit growth. This sector increased its already effective use of assets, producing a return on capital employed of 84%, exceeding even the Group's strong ratios. Resistors sector as predicted 'As expected, our Resistors sector continued to suffer a depressed market, particularly in US heavy industry. There are some indications of improvement in one of our customer areas, mass transit systems. The sector has been managed vigorously in terms of both cost and working capital reductions though we have yet to reverse the decline in profits. Investment in new products 'Our Process Safety sector did not quite match last year's sales and profits. The UK market proved difficult although there are now improving conditions in the petrochemical sector, which look likely to continue. New applications and specially developed products are particularly important in this sector. New products introduced late in the year that improve safety at delivery bays and provide enhanced emergency pressure relief, are examples of increasing innovation in this otherwise stable sector. Product leadership helps Water sector to increased profits 'Our Water sector increased both sales and profits this year. We believe we are now offering customers the best UV sterilisation systems for drinking water on the market. Sales of water leak detection and control equipment are growing in the USA and there are prospects of capital spending by UK water utilities beginning to rise. We see this as a long-term growth sector. Sustained growth based on sustained innovation 'Our focus on innovation and investment in research and development is bringing forward increasing numbers of new products and accelerating the acquisition of new customers. The free cash generated by our businesses and through disposals has been invested in maintaining this momentum and building our range of products through judicious acquisitions. We will benefit significantly once our markets improve but we are not dependant on this. We have the talent and the resources we need to build on our progress through our own efforts. The evidence for this is the record sales and profits earned this year and the confidence we have in continuing our rapid rate of dividend increase. I look forward to the coming year.' * See Financial Highlights Finance Director's Review Kevin Thompson, Finance Director of Halma, said: Record profit with organic growth despite adverse currency movements 'I am pleased to report that turnover for the year was 9% higher than last year at £293 million (2002/03: £267 million). Turnover on continuing operations was increased by 10%. Profit before tax* set a new record at £50.3 million (2002/ 03: £46.5 million). Return on sales* exceeded 17%, as it has now done every year for more than a decade. 'Currency translation, with about one-third of our profits linked to the currently weak US Dollar, offset slightly by profits earned in stronger Euros, reduced 2003/04 reported sales and profits by around 2%. Looking ahead, if the US Dollar and Euro were to stay at their level so far in this new financial year and with the current mix of results we might expect a further 3% adverse translation impact on our 2004/05 profits. 'The extra £1.7 million of UK National Insurance, pension and general insurance costs which I anticipated in my review last year have arisen and have been funded within this year's profits. These extra costs are ongoing. However, their effects are mitigated by our success in producing consistently high net and gross margins through continuous improvements in procurement and processes. '6% of the turnover increase over last year came from acquisitions. Stripping out the currency effect and the incremental impact of acquisitions and disposals, I am very pleased to report that these figures show 6% organic growth in turnover, and profits show the same trend. Consistently high returns generate strong cash flow 'Each year I comment on our key metric, return on capital employed (profit before tax* expressed as a percentage of net tangible assets). This key indicator guides our operations, combining both return on sales and asset turns. We have generated £22 million of cash in the year and despite its inclusion in the Group's return on capital employed calculation we still produced a figure of 52% - remarkable by any measure. 'On my regular visits to our businesses I see the benefits we obtain from a deep understanding of the importance of producing high returns from the minimum possible level of assets. This efficient use of assets benefits our customers and shows through in our return on capital* which has exceeded 40% for well over 20 years. We grew this year and used less operating assets to do it. The result of these outstanding returns is a strong flow of cash available to us for further investment in our businesses, to pay dividends and to make acquisitions. Investing for the future 'New products and innovation in our processes underpin our future growth. This year we invested a record amount of £11.2 million, about 4% of turnover, in research and development. We have maintained the investment in the capital assets used across our businesses with capital expenditure once again at a typical level of around 125% of depreciation. We have used the tougher market conditions which we have experienced in the recent years to strengthen our businesses with this type of investment, to gain market share and put ourselves in the best shape for the future. A progressive dividend policy with dividend cover edging up 'The Board recommends a final dividend of 3.75p per share, giving a full year dividend of 6.19p per share, 7% up on last year's record level. This dividend represents a continuation of Halma's progressive dividend policy and also makes a small contribution toward increasing the dividend cover which is our intention over the medium term. 'If approved, this final dividend will be paid on 23 August 2004 to shareholders on the register at the close of business on 23 July 2004. Together with the interim dividend this will give a total of £23 million paid to shareholders in relation to the 2003/04 year financed by our strong cash flow, with a total of £88 million distributed as dividends in the past five years. Prudent approach to treasury, tax and pensions 'With three-quarters of the Group's sales made overseas and half the profits made by companies based outside the UK, the Group's results are sensitive to movements in exchange rates, particularly the US Dollar and Euro. Currency movements in the year affect our results through the translation into Sterling of profits earned in local currencies as well as affecting the underlying transactions. We have an element of natural hedging, in particular through the purchase of components in US Dollars. Our operating companies hedge their trading transactions back into their local reporting currency. We do hedge the majority of our US Dollar and Euro net assets using currency loans. The objective of our treasury activities is risk management and control, no speculative transactions are undertaken. 'The effective tax rate on profits* was 31.3% compared with 32.9% in 2002/03. We benefited from higher profits earned in lower tax jurisdictions, including China. 'We have continued to adopt the transitional provisions of FRS 17 (Retirement Benefits) pending the introduction of International Accounting Standards. The value of the pension plans' assets have increased since the last balance sheet date, however revised inflation assumptions have increased the calculated liabilities. The net deficit on an FRS 17 basis has reduced by 7% to £29 million after the related deferred tax. 'As noted last year, we have closed our defined benefit schemes to new members and established a defined contribution scheme. Contributions into the defined benefit schemes are in line with the actuaries' recommendations, following the triennial actuarial valuations last year and are fully reflected in the Consolidated Profit and Loss Account, with no further increases necessary at this time. 'I note that the funding of pension obligations is a long-term issue, even though scheme assets are subject to short-term fluctuations. Our long-term funding basis is solid and the currently reported deficit, by any set of rules, is small relative to the Group's market capitalisation. Compliance and control continue at a high level 'I remain committed to maintaining strong internal control across the Group. For many years we have successfully used our senior finance staff to carry out reviews of our operating companies at half year and year end, making rotational visits at other times to assess internal controls. During the year we have enhanced these procedures and in particular those relating to internal control visits by the introduction of independent reporting lines. In 2004/05 we intend to confirm that our procedures amount to a formal internal audit function. 'Through close monitoring of our businesses, the use of simple relevant systems and involvement of high quality finance executives based at each operating company, we continue to have a strong control environment whilst providing value to our entrepreneurial operations. Active management of our operations 'We have taken a number of actions to improve our businesses and make good use of our cash. Shortly before the end of the year we sold three non-core businesses for £5 million. They accounted for turnover of £13 million and in aggregate were operating around breakeven. If these discontinued operations are excluded the Group's return on sales is 18%. After deducting the costs of sale and pension and property obligations retained within the Group, the net result was an exceptional charge of £9.1 million including related goodwill of £5.8 million. The goodwill adjustment is a non-cash item and includes £5.6 million previously written off to reserves and now recycled. The net effect of the disposals will be a net cash inflow to the Group having met all necessary costs. 'Combining the proceeds from the above transactions with our existing self-generated cash, we spent £22 million just after the year end on two high-quality acquisitions, Diba Industries, Inc., and Ocean Optics, Inc. This active management produces an even stronger base for future growth. International Accounting Standards on the horizon 'International Accounting Standards will be in full effect for the first time in our 2005/06 accounts, although preparations are in progress now to collect data for use in the comparative figures. Other than the additional disclosures which will be required, we anticipate that these new Standards will have most impact in the following areas: accounting for share options, pensions and accounting for research and development. Continuously creating value 'Our returns and cash flow performance this year have been up to the high standards we have established over many years. The business has been strengthened by investment in new product innovation, prudent acquisitions, the disposal of non-core assets and by further process improvement. The objective remains unchanged, to maintain a resilient group in excellent shape to create even more value for our shareholders.' * See Financial Highlights Operating Review Fire and Gas Our Fire and Gas sector companies lead the world in sensor technologies that detect hazards before they become life-threatening and give people warning to get out of harm's way. Our commercial quality fire detection products, sold to 70 countries, protect both people and buildings from the risk of fire. Workers in many industries rely on our gas detectors to safeguard their lives and protect them from exposure to toxic or explosive gases. We also make specialist products for conditioning gas samples before they are analysed. The principal sales channels for fire detectors are distributors and fire alarm installers, whereas customers for gas detectors range from lone contractors to multinational oil companies. During 2003/04 our Fire and Gas sector companies produced 27% of continuing Group turnover and 33% of operating profit*. We achieved significant advances in both sales and profits throughout this sector. All of our fire products companies raised profits during 2003/04, coupled with increased market shares. Most growth in fire detector sales came from the UK, Europe, the Middle East and the US. We also grew gas detector sales and profits significantly, aided by the recruitment of a direct sales force in the US. Increased co-operation between our fire product companies on research and development, marketing and shared sales channels enhanced our competitive advantage. Development of new smoke detectors and electronic fire sounders benefited from inter-company collaboration. New microprocessor-based smoke detectors were successfully launched, opening new markets in Eastern Europe and the Middle East. In total, twenty new fire products were launched during 2003/04. Despite fierce price competition in the global fire products market, and dropping prices, our companies achieved improved gross margins. This was due to continued manufacturing investment, improved supplier relationships and skilful marketing. The regulatory burden on fire safety product manufacturers continues to increase. New standards were imposed in all major markets during 2003/04. Through regular presentations, the Group educates customers, regulatory bodies and government departments on the impact of new regulations. Restructuring of European gas detector sales through directly controlled branch operations in Holland, Germany, Poland and France led to significant European sales growth. Prices of portable gas detectors declined as manufacturers cut production costs through improved manufacturing and offshore sourcing. However, lower pricing is creating greater demand and increasing the use of personal protection products, particularly in developing countries. Certification of our gas detectors by the principal marine approvals organisation has created new sales opportunities in the high growth marine market. We expect to reach many new customers via a new distribution agreement with a leading multinational marine support business. A new multi-gas portable detector was successfully launched with ease of maintenance, leading to low cost of ownership, proving critical. For several years we have been working closely with US developers of fuel cells. These are electro-chemical devices that function like batteries or electric generators but run on hydrogen gas as fuel. Until now, this has mainly been a prototyping market. However, in 2003/04 we began to sell gas conditioning components used in fully commercial fuel cell systems for small-scale power generation. Water We have world class companies operating in three areas of water technology: ultraviolet (UV) light water treatment, instruments for conserving water in distribution networks and water analysis products. All of these markets are global and exports account for a high proportion of sales in this sector. Our principal customers in this sector are drinking water supply companies and municipal authorities together with food and process industry manufacturers. Based in the UK, the Netherlands, France and the US, during 2003/04 our Water sector companies produced 12% of continuing Group turnover and 11% of operating profit*. Worldwide growth in demand for clean drinking water, industrial process water and wastewater treatment results from continuing industrialisation, urbanisation and population growth. Other factors, such as tighter water quality and waste regulations, environmental issues and water shortages, also stimulate the need for our water technology products. During 2003/04 we saw sales and profits grow in this sector. We won significant new leak instrumentation business in the US and South-East Asia. In the American mid-west there is growing interest in managing and conserving existing water supplies, instead of further depletion of natural sources. US sales of water conservation instruments doubled. We won a major contract for leak detection equipment from the city authority in Las Vegas, Nevada. Las Vegas has the fastest growing population of any US city with 20,000 new homes built each year. Nevada's water supplies are under pressure and may hit crisis point without new supplies and conservation measures. The world market for UV water treatment technology is predicted to double within 5 years, mainly driven by environmental concerns. There is a shift away from chemical techniques in treating drinking water, wastewater and swimming pool water towards the UV process which greatly reduces or eliminates the use of chemicals. Major progress has been made in the US in supplying UV drinking water treatment plants that comply with new, stringent US Environmental Protection Agency requirements. A 15 million gallons per day treatment plant that we supplied to the city of Henderson, Nevada was the first major project in the US which met the new regulations. Sales of water analysis instruments were buoyant, particularly in Europe and Australia. A new photometer water analyser, launched during 2003/04, is already the laboratory sector market leader. We will soon launch a low cost water analyser for monitoring private swimming pools and spas, transferring technology developed for the public pool market into the domestic arena. A large UK water company has chosen our ammonia monitoring system to control its wastewater plants, which will positively impact on sales in 2004/05. Elevator and Door Safety We are world leaders in infrared and microwave sensors for controlling the opening and closing of elevator doors and automatic doors. Our door sensor products have three functions. They ensure public safety, make buildings more accessible to people with disabilities and optimise traffic within buildings. We also make control systems, voice communication and visual display equipment for elevators. These businesses are based in Belgium, the UK, New Zealand, the US, Singapore and China. Both the elevator and automatic door markets split into new-build and refurbishment sectors. The new-build sector is dominated by a small number of multinational elevator and door manufacturers, whereas refurbishment projects are usually handled by relatively small local contractors. During 2003/04, this sector produced 23% of continuing Group turnover and 24% of operating profit*. We saw a large rise in both sales and profits from the Elevator and Door sector in 2003/04. This followed inclusion of the first full year of trading at Belgian door sensor specialist BEA, which we acquired in October 2002. Our other companies in this sector delivered good overall organic growth despite adverse currency movements, reinforcing BEA's excellent progress. Sales growth in Asia was exceptionally strong, with major volume increases in China, Japan and Australia. We now have two manufacturing facilities in China and satisfy half of the entire Chinese market for both elevator door sensors and automatic door sensors. Sales of in-elevator LCD display panels also achieved substantial growth aided by the Group's worldwide distribution network. One fundamental driver affecting demand for door automation products is the global trend towards urbanisation. Increasing population densities in cities require high rise office and residential buildings, and also large public access buildings where automatic doors are commonly used. Population growth is declining in many countries. This demographic shift is creating an ageing population more likely to benefit from elevators and automated doors. New legislation that improves access to public buildings for people with disabilities continually raises demand for our door safety and emergency communication products. We are the clear leader in the US market for automatic door sensors. A new elevator intercom product was introduced mid-year designed to meet new US building codes and sales have been very promising. New European regulations covering elevator door safety and emergency communications should also help drive up demand in 2004/05. European sales of elevator emergency telephones almost doubled last year and we are rapidly establishing market leadership for these products in the UK. One in ten of our employees in this sector works on research and development. Innovative new products protect market share where we are dominant and provide leverage into new markets. An entirely new type of visual safety product launched recently warns when elevator doors are closing. This is a unique product that is creating a new market. Another new product that controls pedestrian access barriers in retail and transport facilities is already selling well in Europe. Process Safety In this sector we make two types of industrial safety products. Our companies are world leaders in safety interlocks, products that safeguard dangerous machinery and process equipment. They protect industrial workers from death or injury and prevent damage to plant. Our second process safety speciality is bursting discs. These devices prevent excessive pressure and protect people, the environment and process equipment from the risk of explosion. Process safety markets are global, but demand varies from one country to another due to wide variation in safety legislation. Customers for our process safety systems range from very small businesses up to the world's largest corporations. Operating from the UK, the US and France, process safety generated 13% of continuing Group turnover and 13% of operating profit* in 2003/04. During 2003/04 buoyancy of the petrochemicals market has been at an all time high, and is still rising. Growth is fuelled by the quest for new energy sources, particularly by China, Japan and the US. High oil prices encourage capital expenditure in petrochemicals exploration and processing which, in turn, creates demand for our process safety products. We are seeing a worldwide trend towards raising local safety standards to match the best international practice. Oil companies are increasingly adopting the best practices from their worldwide exploration and production sites and applying them globally. This raises safety standards in many territories and strengthens underlying demand for our products. Recent UK and EU safety legislation also continues to exert a positive influence on demand, particularly in the operation of pipelines and pressurised process plant. Sales of safety interlocks for controlling valves in the petrochemicals sector increased significantly. However, sector performance overall was flat. Increased UK export sales to the enlarged EU offset a decline in UK demand. We responded by developing new, technically innovative products, due for launch in 2004/05, and through diversification. We have recently launched a unique, patented product, targeted at the growing retail logistics market, which prevents accidents to fork lift truck operators. The initial reaction from some of the UK's largest retailers and logistics companies is very positive. During 2004/05 we will also launch a new generation of industrial access and control products, with benefits far ahead of any competitor, and create sales opportunities in new areas of manufacturing industry worldwide. Our two bursting disc manufacturers maintained market share during 2003/04. Over the past 3 years, our bursting disc businesses have been restructured; production costs have been cut, new managers have been recruited and new methods of servicing the European market are now in place. The end result is higher product quality, lower cost products, improved delivery and a stream of innovative new products that should increase market share. Resistors The high power resistor market is global, with demand subject to macroeconomic trends. The principal applications are in rail transport, the process industries and power distribution where our products are used to safely dissipate electrical energy. Our strategy to maintain world leadership in this sector is to continuously innovate and develop resistor products with global sales potential. Our six resistor makers, based in the US, Canada, Australia and the UK, contributed 10% of continuing Group sales and 5% of operating profit* in 2003/04. We succeeded in growing exports in this sector and saw strong sales growth in transit and power filtration markets during 2003/04. However, overall resistor sales were flat and profits declined. The impact of Dollar/Sterling exchange rate movements disguises our North American performance; an 8% Dollar increase in resistor sales translated into a 1% Sterling decline. Competition in this sector is tougher than it has ever been. We are protecting market share and margins through innovation, overhead cost reduction and raised productivity. With a US economic upturn, the trend of declining demand could reverse. Expansion in key resistor markets, notably mining, metals refining and oil and gas processing, should lead to rising demand. Sales of filter resistors increased due to rising capital investment by metals processing industries in response to commodity price rises. Tighter US emissions regulations for diesel locomotives, coming into force in 2005, could stimulate rolling stock replacement and restore transit resistor demand to the normal historical level. We supply both of the US diesel locomotive builders. Predictions of higher fuel costs for cars, together with increased government spending on mass transport infrastructure, also suggest that transit sector demand will rise. New US safety legislation designed to protect industrial workers from electrical arc flash hazards should stimulate demand for high resistance grounding systems in the future. This technology protects workers from injury. It also cuts costs by reducing production stoppages caused by electrical faults. As the market leader in high resistance grounding equipment in North America, we expect to benefit from the new regulations. We have continued to rationalise manufacturing between production centres to gain efficiency benefits. Manufacture of transit resistors has been concentrated in the US, creating a true world player, well positioned to exploit the huge Chinese market for urban transit systems. During 2003/04 our resistor businesses took advantage of the growing commercial opportunities in China. Increased raw materials sourcing from Chinese suppliers has helped shield margins from erosion. At the same time, resistor sales into the Chinese market rose substantially. A new partnership project to manufacture our resistors in Shenzhen, China, will add impetus to Asian regional sales growth in 2004/05 and also deliver highly competitive products to sell into our traditional markets. Optics and Specialist We own two world leading optical technology businesses. We make ophthalmic instruments and lenses, for examining eyesight and diagnosing visual defects, and optical sensing systems for measuring colour, brightness and chemical properties. Our secondary focus in this sector is on high precision fluid control products for use in clinical and analytical instrumentation. Both areas have been strengthened by acquisitions since the year end. We have made several changes in this sector, including selling three non-core businesses. The market for our optical products is global and exports account for a high proportion of sales. Customers for our fluid technology products are primarily high-tech instrument manufacturers, mostly based in the US or Europe. The companies in this sector are based in the UK and the US, and in 2003/04 contributed 15% of continuing Group turnover and 14% of operating profit*. Improved sales and profits at our core optics and fluid technology companies were offset by slightly disappointing performances from some of the specialist businesses in this sector. Head Office company results are reported within this sector, and their income reduced this year. As a result, the Optics and Specialist sector sales performance was flat in 2003/04 and its profit contribution declined. Both of our ophthalmic optics companies pushed up export sales, with significant growth in the US, Japan and Australia. Our US ophthalmic lens business has been increasingly successful at developing OEM business. Several manufacturers of electro-optical instruments now design our optical components into their products. Two new types of surgical lens will help protect patients from disease transmission; one format will withstand high temperature sterilisation and another is disposable. Sales of ophthalmic instruments benefited from a series of new and improved products. The most significant were cordless, battery-powered versions of our indirect ophthalmoscopes, world market leading products. These instruments offer significant benefits to ophthalmologists and initial sales have been encouraging, particularly in the US. In May 2004 we acquired Ocean Optics, Inc., a manufacturer of optical sensing systems. A world market leader in miniature fibre-optic spectrometers, its specialist measurement instruments are used in consumer electronics, process control, environmental monitoring, life sciences and medical diagnostics. Like other Halma businesses, Ocean Optics has strong positions in niche markets and significant growth opportunities exist for its optical sensor-based products. Three non-core subsidiaries were sold during 2003/04. They did not achieve our profit growth or return on investment targets due to long-term market changes. We extended our interests in fluid technology with the acquisition of Diba Industries, Inc. in May 2004. Our specialist fluid technology companies grew sales in two high-tech markets: bio-hazard detection and clinical diagnostics. We won contracts for critical components built into biological hazard detection equipment, a new emerging market. These systems analyse air samples from mail sorting machines and identify anthrax or other terrorist biological threats. The United States Postal Service will use this equipment in mail distribution centres across the US. * before interest, tax and goodwill amortisation - see Segmental Analysis Preliminary Results for the 53 weeks to 3 April 2004 Consolidated Profit and Loss Account £000 53 weeks to 3 April 2004 52 weeks to 29 March 2003 Before goodwill Goodwill Before Goodwill amortisation and amortisation goodwill amortisation exceptional items and Total amortisation and Total exceptional and exceptional items exceptional items items Turnover Continuing operations 279,611 - 279,611 254,001 - 254,001 Discontinued operations 13,029 - 13,029 13,292 - 13,292 _______ _______ _______ _______ _______ _______ 292,640 - 292,640 267,293 - 267,293 ======= ======= ======= ======= ======= ======= Operating profit Continuing operations 50,422 (4,209) 46,213 46,023 (3,224) 42,799 Discontinued operations (370) (11) (381) 77 (11) 66 50,052 (4,220) 45,832 46,100 (3,235) 42,865 Exceptional items Loss on sale of businesses - (3,394) (3,394) - - - Associated goodwill - (5,755) (5,755) - - - Loss on disposal of discontinued operations - (9,149) (9,149) - - - _______ _______ _______ _______ _______ _______ Profit on ordinary activities before interest and taxation 50,052 (13,369) 36,683 46,100 (3,235) 42,865 Interest 232 - 232 408 - 408 _______ _______ _______ _______ _______ _______ Profit on ordinary activities before taxation 50,284 (13,369) 36,915 46,508 (3,235) 43,273 Taxation (note 2) (15,727) 1,134 (14,593) (15,279) 365 (14,914) _______ _______ _______ _______ _______ _______ Profit for the financial year 34,557 (12,235) 22,322 31,229 (2,870) 28,359 _______ _______ _______ _______ _______ _______ Ordinary dividends (note 3) (22,725) (21,246) _______ _______ (Loss)/profit transferred (from)/to reserves (403) 7,113 ======= ======= Earnings per ordinary share before goodwill amortisation and exceptional items (note 4) 9.44p 8.55p Earnings per ordinary share 6.09p 7.76p (note 4) Diluted earnings per ordinary share 6.09p 7.75p Consolidated Balance Sheet £000 3 April 2004 29 March 2003 Fixed assets Intangible assets 71,425 76,592 Tangible assets 47,139 49,883 _______ _______ 118,564 126,475 _______ _______ Current assets Stocks 31,208 35,186 Debtors 67,080 73,076 Short-term deposits 33,898 14,309 Cash at bank and in hand 14,584 13,265 _______ _______ 146,770 135,836 _______ _______ Creditors: amounts falling due within one year Borrowings 26,934 27,667 Creditors 44,394 46,090 Current taxation 5,563 5,286 Dividends payable 13,762 12,892 _______ _______ 90,653 91,935 _______ _______ Net current assets 56,117 43,901 _______ _______ Total assets less current liabilities 174,681 170,376 Creditors: amounts falling due after one year 1,254 1,665 Provisions for liabilities and charges 6,067 5,265 _______ _______ 167,360 163,446 ======= ======= Capital and reserves Called up share capital 36,677 36,549 Share premium account 7,768 6,375 Other reserves 185 185 Profit and loss account 122,730 120,337 _______ _______ Equity shareholders' funds 167,360 163,446 ======= ======= Statement of Total Recognised Gains and Losses £000 53 weeks to 52 weeks to 3 April 2004 29 March 2003 Profit for the financial year 22,322 28,359 Other recognised gains and losses Exchange adjustments (2,799) (2,408) Related corporation tax - 364 _______ _______ (2,799) (2,044) _______ _______ Recognised gains and losses relating to the year 19,523 26,315 ======= ======= Movements in Equity Shareholders' Funds £000 53 weeks to 52 weeks to 3 April 2004 29 March 2003 Profit for the financial year 22,322 28,359 Dividends (22,725) (21,246) _______ _______ (Loss)/profit transferred (from)/to reserves (403) 7,113 Total other recognised gains and losses (2,799) (2,044) Net proceeds of shares issued 1,521 820 Goodwill transferred to the Consolidated Profit and Loss Account in respect of businesses sold 5,595 - _______ _______ Increase in equity shareholders' funds 3,914 5,889 _______ _______ Equity shareholders' funds brought forward 163,446 157,557 _______ _______ Equity shareholders' funds carried forward 167,360 163,446 ======= ======= Consolidated Cash Flow Statement £000 53 weeks to 52 weeks to 3 April 2004 29 March 2003 Cash flow from operating activities (note 5) 59,782 60,309 Return on investments and servicing of finance Interest received 952 1,280 Interest paid (731) (622) _______ _______ 221 658 Taxation Current taxation paid (14,093) (15,498) Capital expenditure Purchase of tangible fixed assets (9,686) (11,257) Sale of tangible fixed assets 1,004 1,872 _______ _______ (8,682) (9,385) Acquisitions and disposals Acquisition of businesses (2,947) (49,857) Cash and overdrafts acquired - 2,655 Disposal of businesses 4,567 - _______ _______ 1,620 (47,202) Equity dividends paid (21,855) (20,066) _______ _______ 16,993 (31,184) Management of liquid resources (Increase)/decrease in short-term deposits (19,662) 20,064 Financing Issue of ordinary share capital 1,521 820 Increase in loans 2,683 13,399 _______ _______ 4,204 14,219 _______ _______ Increase in cash (note 5) 1,535 3,099 ======= ======= Segmental Analysis £000 Geographical analysis By destination By origin 53 weeks to 52 weeks to 53 weeks to 52 weeks to 3 April 2004 29 March 2003 3 April 2004 29 March 2003 Turnover United Kingdom 77,534 70,503 159,462 148,902 United States of America 84,047 82,003 87,958 84,724 Europe excluding UK 70,730 58,941 43,690 30,823 Far East and Australasia 28,054 24,385 14,133 10,199 Africa, Near and Middle East 9,944 9,576 - - Other 9,302 8,593 2,853 2,840 Inter-segmental sales - - (28,485) (23,487) _______ _______ _______ _______ Turnover from continuing operations 279,611 254,001 279,611 254,001 Discontinued operations 13,029 13,292 13,029 13,292 _______ _______ _______ _______ Group turnover 292,640 267,293 292,640 267,293 _______ _______ _______ _______ Profit before taxation United Kingdom 26,601 24,691 United States of America 13,617 14,366 Europe excluding UK 7,111 5,228 Other countries 3,093 1,738 _______ _______ Continuing operations 50,422 46,023 Discontinued operations (370) 77 _______ _______ Segmental profit 50,052 46,100 Goodwill amortisation and exceptional items (13,369) (3,235) Interest 232 408 _______ _______ Profit on ordinary activities before taxation 36,915 43,273 _______ _______ Sector analysis 53 weeks to 52 weeks to 3 April 2004 29 March 2003 Turnover Fire and Gas 74,998 70,026 Water 34,485 33,090 Elevator and Door Safety 65,070 46,308 Process Safety 36,030 35,241 Resistors 27,195 27,493 Optics and Specialist 42,824 42,704 Inter-segmental sales (991) (861) _______ _______ Turnover from continuing operations 279,611 254,001 Discontinued operations 13,029 13,292 _______ _______ Group turnover 292,640 267,293 _______ _______ Profit before taxation Fire and Gas 16,621 15,028 Water 5,767 5,517 Elevator and Door Safety 12,102 8,126 Process Safety 6,579 6,753 Resistors 2,218 3,067 Optics and Specialist including holding companies 7,135 7,532 _______ _______ Continuing operations 50,422 46,023 Discontinued operations (370) 77 _______ _______ Segmental profit 50,052 46,100 Goodwill amortisation and exceptional items (13,369) (3,235) Interest 232 408 _______ _______ Profit on ordinary activities before taxation 36,915 43,273 _______ _______ Notes on the Preliminary Announcement 1 Basis of preparation Based on audited accounts the financial information set out above does not constitute the Company's statutory accounts for the years ended 3 April 2004 or 29 March 2003, but is derived from those accounts. Statutory accounts for 2003 have been delivered to the Registrar of Companies and those for 2004 will be delivered before the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under s237(2) or (3) Companies Act 1985. 2 Taxation £000 53 weeks to 52 weeks to 3 April 2004 29 March 2003 Current tax UK corporation tax at 30% (2003: 30%) 7,573 7,114 Overseas taxation 7,434 6,829 Adjustments in respect of prior years (383) 203 _______ _______ Total current tax 14,624 14,146 _______ _______ Deferred tax Origination and reversal of timing differences (49) 738 Adjustments in respect of prior years 18 30 _______ _______ Total deferred tax (credit)/charge (31) 768 _______ _______ 14,593 14,914 _______ _______ Reconciliation of effective tax Before goodwill amortisation After goodwill amortisation rate on profit on ordinary and exceptional items and exceptional items activities 53 weeks to 52 weeks to 53 weeks to 52 weeks to 3 April 2004 29 March 2003 3 April 2004 29 March 2003 % % % % UK corporation tax rate 30.0 30.0 30.0 30.0 Higher tax rates on overseas profits 2.7 3.3 3.5 3.6 Adjustments in respect of prior (0.7) 0.5 (1.0) 0.5 years Other timing differences (0.7) (0.9) 7.0 0.4 _______ _______ _______ _______ Effective tax rate 31.3 32.9 39.5 34.5 _______ _______ _______ _______ 3 Ordinary dividends 53 weeks to 52 weeks to 53 weeks to 52 weeks to 3 April 2004 29 March 2003 3 April 2004 29 March 2003 p p £000 £000 Interim paid 2.44 2.285 8,945 8,352 Final proposed 3.75 3.527 13,762 12,892 Balance of final dividend - - 18 2 _______ _______ _______ _______ 6.19 5.812 22,725 21,246 _______ _______ _______ _______ If approved at the Annual General Meeting, the final dividend for 2004 will be paid on 23 August 2004 to shareholders on the register at the close of business on 23 July 2004. 4 Earnings per ordinary share Earnings per ordinary share on a statutory basis are calculated by dividing the profit for the financial year of £22,322,000 (2003: £28,359,000) by the weighted average of 366,237,803 shares in issue during the year (2003: 365,411,453). The earnings per ordinary share before goodwill amortisation and exceptional items as presented on the Consolidated Profit and Loss Account, represents a more consistent measure of underlying performance. A reconciliation of earnings and the effect on per share figures is presented below: Per ordinary share 53 weeks to 52 weeks to 53 weeks to 52 weeks to 3 April 2004 29 March 2003 3 April 2004 29 March 2003 £000 £000 p p Earnings 22,322 28,359 6.09 7.76 Add back: goodwill amortisation (after tax) 3,880 2,870 1.07 0.79 exceptional items (after tax) 8,355 - 2.28 - _______ _______ _______ _______ Earnings before goodwill amortisation and exceptional items 34,557 31,229 9.44 8.55 _______ _______ _______ _______ 5 Notes on cash flow statement £000 53 weeks to 52 weeks to 3 April 2004 29 March 2003 Reconciliation of operating profit to net cash inflow from operating activities Operating profit 45,832 42,865 Depreciation 7,879 7,554 Goodwill amortisation 4,220 3,235 Loss/(profit) on sale of tangible fixed assets 109 (155) Decrease/(increase) in SSAP 24 pension prepayment 112 (916) Property sale receivable 1,100 (1,100) Decrease in stocks 744 3,288 (Increase)/decrease in debtors (1,404) 122 Increase in creditors 1,190 5,416 _______ _______ Net cash inflow from operating activities 59,782 60,309 _______ _______ Reconciliation of net cash flow to movement in net cash/(debt) Increase in cash 1,535 3,099 Increase/(decrease) in liquid resources 19,662 (20,064) Loan notes issued - (1,083) Cash inflow from loans (2,683) (13,399) Exchange adjustments 3,127 744 _______ _______ 21,641 (30,703) Net (debt)/cash brought forward (93) 30,610 _______ _______ Net cash/(debt) carried forward 21,548 (93) _______ _______ This information is provided by RNS The company news service from the London Stock Exchange

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