Halma
Annual Report 2004

Plain-text annual report

H A L M A A n n u a l R e p o r t & A c c o u n t s 2 0 0 4 H A L M A A N N U A L R E P O R T A N D A C C O U N T S 2 0 0 4 Halma p.l.c. Misbourne Court Rectory Way Amersham Bucks HP7 0DE Tel: +44 (0) 1494 721111 Fax: +44 (0) 1494 728032 www.halma.com Halma p.l.c. Annual Repor t and Accounts 2004 Financial Highlights Halma at a glance Chairman’s Statement Chief Executive’s Review Financial Review Operating Review Shareholder Information Directors and Advisers Management Team Report of the Directors Corporate Responsibility Report Corporate Governance Report on Remuneration Responsibilities of the Directors Independent Auditors’ Report Consolidated Profit and Loss Account Consolidated Balance Sheet Statement of Total Recognised Gains and Losses Movements in Equity Shareholders’ Funds Consolidated Cash Flow Statement Halma p.l.c. Balance Sheet Accounting Policies Notes on the Accounts Notice of Meeting Summary 1995 to 2004 Group Directory 1 2 4 7 10 14 26 27 28 30 33 36 40 46 47 48 49 50 50 51 52 53 55 74 76 78 Halma online news Keep up to date with the latest Halma news by visiting our investor relations website: www.halma.com. Register online for news alerts and you will be e-mailed whenever significant announcements are made. We have chosen to print this document on Revive Special Silk, a partially recycled paper made from a mixture of Totally Chlorine Free and Elemental Chlorine Free pulp in a mill with ISO 14001 environmental management accreditation. Printed at Pillans & Waddies’ Edinburgh plant which also has ISO 14001 environmental accreditation. H A L M A Financial Highlights Turnover Overseas sales Profit before taxation(1) Earnings per share(2) Earnings per share – statutory Dividend per share Change +9% +10% +8% +10% +7% 2004 £m 292.6 206.1 50.3 9.44p 6.09p 6.19p 2003 £m 267.3 188.2 46.5 8.55p 7.76p 5.812p Return on sales(3) 17.2% 17.4% Turnover to net tangible assets Return on capital employed(4) 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 3.05 times 3.08 times 52.4% 53.5% (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). Highlights – Organic and acquisition growth contribute to record pre-tax profit(1) – Widespread improvement in sales performance across the Group’s businesses and regions produced 9% turnover growth – Return on capital employed(4) above 50% 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 Halma p.l.c. 2004 1 H A L M A Halma at a glance Business profile Halma is a strongly cash generative and highly profitable group which develops, makes and markets products worldwide that are used to enhance public safety and minimise hazards at work. Our six specialist business groupings are: 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 Value creation strategy Our over-riding objective is to create shareholder value by: Building global businesses that sustain a leading position in specialised markets in areas of long-term sales growth Concentrating on high margin activities where products and services are differentiated on the basis of performance, not price, and where barriers to entry are high Tightly managing our asset base in order to maintain our outstanding operating ratios and powerful cash generation Investing in marketing, new product development and innovation to maintain high organic growth Acquiring businesses and intellectual assets that extend our existing activities, add value, contribute to growth and will produce our exceptional operating ratios Maintaining a high return on capital employed to self-fund organic growth, acquisition activity and rising dividends Recruiting and retaining top quality management by preserving an entrepreneurial culture within a framework of rigorous financial planning, reporting and control 2 Halma p.l.c. 2004 H A L M A Halma at a glance continued Dividend growth £25m £15m £5m 0 95 98 01 04 Profit growth (before goodwill amortisation and exceptional items)* £60m £40m £20m Sales ROCE* 0 95 98 01 04 £300m £200m £100m 0 95 98 01 04 60% 40% 20% An exceptional record of unbroken dividend growth over more than 20 years Long-term profit growth accompanied by excellent cash generation. Growing sales in tough world markets. ROCE consistently above 40% delivering real shareholder value. *see Financial Highlights 0 95 98 01 04 Halma p.l.c. 2004 3 H A L M A Chairman’s Statement ‘‘. . . no shortage of ideas, determination or actions . . .’’ Geoff Unwin, Chairman 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. *see Financial Highlights 4 Halma p.l.c. 2004 H A L M A Chairman’s Statement continued 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. *see Financial Highlights Halma p.l.c. 2004 5 H A L M A Chairman’s Statement continued 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. Geoff Unwin 6 Halma p.l.c. 2004 H A L M A Chief Executive’s Review ‘‘strong and active management delivers record profits’’ Stephen O’Shea, Chief Executive 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 initial sum of year end we have made two important acquisitions for a total £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. *see Financial Highlights Halma p.l.c. 2004 7 H A L M A Chief Executive’s Review continued 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. innovations include new emergency communication equipment, demand for which is likely to grow following new European legislation in this area. Important product 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 8 Halma p.l.c. 2004 H A L M A Chief Executive’s Review continued 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 85%, 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 in this sector. New products developed products are particularly important 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. Stephen R O’Shea Halma p.l.c. 2004 9 H A L M A Financial Review ‘‘. . .a resilient group in excellent shape . . .’’ Kevin Thompson, Finance Director 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. *see Financial Highlights 10 Halma p.l.c. 2004 H A L M A Financial Review continued 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 as can be seen from the FRS 17 disclosures, 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. *see Financial Highlights Halma p.l.c. 2004 11 H A L M A Financial Review continued 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 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. 12 Halma p.l.c. 2004 H A L M A Financial Review continued 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. Kevin J Thompson Halma p.l.c. 2004 13 H A L M A Operating Review – Fire and Gas Fire and Gas turnover 2004 2003 £75.0m £70.0m Fire and Gas profit* 2004 2003 £16.6m £15.0m Segmental turnover, 2004 Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 75.0 Segmental profit, 2004* Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 20.0 *before interest, tax and goodwill amortisation – see note 1 on the Accounts 14 Halma p.l.c. 2004 Sector Overview 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. Our latest gas detectors protect workers from four different gas hazards simultaneously. Halma p.l.c. 2004 15 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. H A L M A Operating Review – Water Water turnover 2004 2003 £34.5m £33.1m Water profit* 2004 2003 £5.8m £5.5m Segmental turnover, 2004 Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 75.0 Segmental profit, 2004* Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 20.0 *before interest, tax and goodwill amortisation – see note 1 on the Accounts 16 Halma p.l.c. 2004 Sector Overview 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. Las Vegas, Nevada, where our leak detection technology helps to conserve the city’s water supplies. Halma p.l.c. 2004 17 H A L M A Operating Review – Elevator and Door Safety Elevator and Door Safety turnover 2004 2003 £46.3m £65.1m Sector Overview 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. 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. Elevator and Door Safety profit* 2004 2003 £12.1m £8.1m Segmental turnover, 2004 Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 75.0 Segmental profit, 2004* Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 20.0 *before interest, tax and goodwill amortisation – see note 1 on the Accounts 18 Halma p.l.c. 2004 Visitors to The Louvre Museum, Paris, are protected by our elevator safety and door control products. Halma p.l.c. 2004 19 H A L M A Operating Review – Process Safety 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. Process Safety turnover 2004 2003 £36.0m £35.2m Process Safety profit* 2004 2003 £6.6m £6.8m Segmental turnover, 2004 Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 75.0 Segmental profit, 2004* Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 20.0 *before interest, tax and goodwill amortisation – see note 1 on the Accounts 20 Halma p.l.c. 2004 Sector Overview 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 Our process safety products prevent accidents and explosions at chemical and petrochemical plants worldwide. Halma p.l.c. 2004 21 H A L M A Operating Review – Resistors 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. Resistors turnover 2004 2003 £27.2m £27.5m Resistors profit* 2004 2003 £2.2m £3.1m Segmental turnover, 2004 Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 75.0 Segmental profit, 2004* Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 20.0 *before interest, tax and goodwill amortisation – see note 1 on the Accounts 22 Halma p.l.c. 2004 Sector Overview 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 In the energy sector, our resistor products protect electrical power distribution networks from damage when faults occur. Halma p.l.c. 2004 23 H A L M A Operating Review – Optics and Specialist Optics and Specialist turnover 2004 2003 £42.8m £42.7m Optics and Specialist profit* 2004 2003 £7.1m £7.5m Segmental turnover, 2004 Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 75.0 Segmental profit, 2004* Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist £m 20.0 *before interest, tax and goodwill amortisation – see note 1 on the Accounts 24 Halma p.l.c. 2004 Sector Overview 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. Biological hazard detection is an emerging market for our high-precision fluid control and optical sensing products. Halma p.l.c. 2004 25 H A L M A Shareholder Information Financial calendar 2003/04 Interim results 9 December 2003 2003/04 Interim dividend paid 9 February 2004 Trading update 2003/04 Preliminary results 29 April 2004 22 June 2004 2003/04 Report and Accounts issued 5 July 2004 Annual General Meeting 4 August 2004 2003/04 Final dividend payable 23 August 2004 Trading update 2004/05 Interim results end October 2004 7 December 2004 2004/05 Interim dividend payable February 2005 Trading update 2004/05 Preliminary results end April 2005 June 2005 Analysis of shareholders at 2 June 2004 Shareholders Shares Number % Number % Number of shares held 1 - 7,500 5,439 78.4 11,105,243 3.0 3.1 4.8 0.3 9.2 7,501 - 25,000 25,001 - 100,000 100,001 - 750,000 750,000 and over 866 366 191 63 12.5 11,446,651 5.3 17,792,427 2.8 57,086,667 15.6 1.0 269,588,043 73.5 A A AA A A A AA A 6,925 100.0 367,019,031 100.0 Category of shareholders Notifiable shareholders Directors 3 8 0.1 103,099,183 28.1 0.1 1,166,163 Private shareholders 5,091 73.5 33,709,943 Others 1,823 26.3 229,043,742 62.4 A A AA A A A AA A 6,925 100.0 367,019,031 100.0 Share price London Stock Exchange, pence per 10p share 2004 2003 2002 2001 2000 Highest Lowest Year end 151 109 149 166 97 114 175 126 164 145 137 82 129 94 95 Dividends Pence per 10p share Investor information Visit our website, www.halma.com, for investor information and company news. In addition to accessing financial data, you can view and download analyst presentations and find contact details for Halma senior executives and subsidiary companies. E-mail news alert You can subscribe to an e-mail news alert service on our website www.halma.com to automatically receive an e-mail when significant announcements are made. Shareholding information Please contact our registrars directly for all enquiries about your shareholding. Visit www.computershare.com for online information about your shareholding. (You will need your shareholder reference number which can be found on your share certificate). Computershare Investor Services PLC PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH UK Tel: Fax: E-mail: web.queries@computershare.co.uk +44 (0)870 702 0000 +44 (0)870 702 0005 Investor relations contacts Stephen O’Shea Halma p.l.c. Misbourne Court Rectory Way Amersham Bucks HP7 0DE UK Tel: Fax: E-mail: halma@halma.com +44 (0)1494 721111 +44 (0)1494 728032 Rachel Hirst/Andrew Jaques Hogarth Partnership Limited The Butlers Wharf Building 36 Shad Thames London SE1 2YE Tel: Fax: +44 (0)20 7357 9477 +44 (0)20 7357 8533 Brokers Dresdner Kleinwort Wasserstein Limited 20 Fenchurch Street London EC3P 3DB Tel: Fax: E-mail: halma@drkw.com +44 (0)20 7475 7319 +44 (0)20 7283 4667 2004 2003 2002 2001 2000 Interim 2.44 2.285 2.077 1.806 1.570 Final Total 3.75 3.527 3.206 2.787 2.423 6.19 5.812 5.283 4.593 3.993 Annual General Meeting The 110th Annual General Meeting of Halma p.l.c. will be held at The Ballroom, The Berkeley Hotel, Wilton Place, London SW1X 7RL on Wednesday, 4 August 2004 at 12 noon. The Notice convening the Meeting is on page 74. 26 Halma p.l.c. 2004 H A L M A Directors and Advisers Board of Directors Secretary Executive Board Registered Office E Geoffrey Unwin Chairman* Stephen R O’Shea Chief Executive Kevin J Thompson BSc FCA Neil Quinn BSc Richard A Stone MA FCA* Keith J Roy MSc Andrew J Walker MA CEng* Stephen R Pettit MSc* Carol T Chesney BA FCA *Non-executive Stephen R O’Shea Chief Executive Nigel J Young Specialist Products Neil Quinn Fire Kevin J Thompson Group Finance Director John S Campbell Resistors Keith J Roy Water and Gas William J Seymour Elevator and Door Safety Andrew J Williams Optics Adam J Meyers Fluid Technology Nigel J B Trodd Process Safety Andrew J Richardson Water Management Misbourne Court Rectory Way Amersham Bucks HP7 0DE Telephone: +44 (0)1494 721111 Fax: +44 (0)1494 728032 Website: www.halma.com Registered Number 40932 Auditors Bankers Financial Advisers Brokers and Joint Financial Advisers Solicitors Registrars Deloitte & Touche LLP Abbots House Abbey Street Reading Berks RG1 3BD The Royal Bank of Scotland plc 15 Bishopsgate London EC2P 2AP Lazard Brothers & Co., Limited 50 Stratton Street London W1J 8LL Dresdner Kleinwort Wasserstein Limited 20 Fenchurch Street London EC3P 3DB CMS Cameron McKenna Mitre House 160 Aldersgate Street London EC1A 4DD Computershare Investor Services PLC PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH Telephone: +44 (0)870 702 0000 Halma p.l.c. 2004 27 H A L M A Halma Management Team 1 Geoff Unwin (aged 61) is non-executive Chairman of the Halma Group and serves on the Audit Committee, Remuneration Committee and the Nomination Committee (Chairman). He was appointed Deputy Chairman and Chairman Elect in September 2002 and Chairman in July 2003. He is Chairman of United Business Media plc, Trigenix Limited and Liberata plc and a non-voting board director of Capgemini Group. He is also an advisory Board member of Hartwell plc and Palamon Capital Partners LLP. 3 Stephen Pettit (aged 53) was appointed a non-executive Director of Halma in September 2003 and serves on the Audit Committee and Remuneration Committee. He is a non-executive Director of Norwood Systems, National Grid Transco plc, National Air Traffic Services and KBC Advanced Technologies plc. 5 Andrew Williams (aged 37) is Chief Executive of the Optics Division. He joined Halma in 1994 as Manufacturing Director of Reten Acoustics (now Palmer Environmental) and became Managing Director of that company in 1997. He was appointed Assistant Divisional Chief Executive of the Optics and Water Instrumentation Division in 2001 and became Divisional Chief Executive of that division and a member of the Executive Board in 2002. Andrew is a Chartered Engineer and a production engineering graduate of Birmingham University. 7 Carol Chesney (aged 41) is Company Secretary of Halma p.l.c. She spent three years with English China Clays p.l.c. before joining Halma in 1995 as Group Finance Manager. Carol was appointed Company Secretary in 1998. She is a maths graduate of Randolph-Macon Woman’s College, Virginia and qualified as a Chartered Accountant with Arthur Andersen. 9 Bill Seymour (aged 44) is Chief Executive of the Elevator and Door Safety Division. He joined Halma on the acquisition of Janus Elevator Products in December 1990 and became Vice President of that company in 1991. In 1993 he was appointed Joint President of Janus and in 1999 became an Assistant Divisional Chief Executive. In 2000 Bill was appointed Divisional Chief Executive of the Elevator Electronics Division and a member of the Executive Board. He is an electrical engineering graduate of Limerick College of Technology. 11 Andrew Walker (aged 52) was appointed a non-executive Director of Halma in May 2003 and serves on the Audit Committee (Chairman) and Remuneration Committee. He is a non-executive Director of Ultra Electronics Holdings plc, Manganese Bronze plc and API Group plc. 13 Andrew Richardson (aged 39) is Chief Executive of the Water Management Division. He joined Halma in April 2004 and is a member of the Executive Board. Andrew is an engineering graduate of Cambridge University. Prior to joining Halma he was Divisional Managing Director of the Clutch Division for the Automotive Products Group. 15 Richard Stone (aged 61) was appointed a non-executive Director of Halma in January 2001. He serves on the Audit Committee, Remuneration Committee (Chairman) and Nomination Committee and is the Senior Independent Director. He is Chairman of Shearings Group Limited and CSW Group Limited, a non-executive Director of British Nuclear Fuels plc, Gartmore Global Trust p.l.c., Trust Union Finance (1991) plc, Engandscot Limited and TR Property Investment Trust plc. 2 Stephen O’Shea (aged 58) is Chief Executive of the Halma Group. He was one of the founders of Apollo Fire Detectors Limited in 1980 and was Managing Director when it joined the Group in 1983. He joined the Halma p.l.c. Board in 1990 and became a Divisional Chief Executive in 1992. He was appointed Deputy Chief Executive in 1994 and Chief Executive in 1995. 4 Kevin Thompson (aged 44) is Finance Director of the Halma Group. He joined the Group in 1987 as Group Financial Controller and in 1995 was appointed to the Executive Board as Finance Director. In 1997 he became Group Finance Director and in 1998 was appointed to the Halma p.l.c. Board. An economics and accounting graduate of Bristol University, Kevin qualified as a Chartered Accountant with Price Waterhouse. 6 Nigel Young (aged 54) is Chief Executive of the Specialist Products Division. He joined Halma as Managing Director of Fortress Interlocks Limited when the company joined the Group in 1987. Nigel was appointed Assistant Divisional Chief Executive in 1990 and took up his current position as Divisional Chief Executive in 1992. He was appointed to the Executive Board in 1994. He has an MBA from Aston University. 8 Adam Meyers (aged 42) is Chief Executive of the Fluid Technology Division. He joined Halma in 1996 as President of Bio-Chem Valve Inc. He was appointed Assistant Divisional Chief Executive in April 2001 and became Divisional Chief Executive of the newly formed Fluid Technology Division and a member of the Executive Board in April 2003. He is a systems engineering graduate of the University of Pennsylvania and gained his MBA from Harvard Business School. 10 Neil Quinn (aged 54) is Chief Executive of the Fire Division. He joined the Group as Sales Director of Apollo Fire Detectors Limited in 1987, becoming Managing Director in 1992. In 1994 he was appointed Chief Executive of the Fire Detection Division and was appointed to the Halma p.l.c. Board in 1998. He is a material science graduate from Sheffield University. 12 Keith Roy (aged 54) is Chief Executive of the Water and Gas Division. He joined Halma having been joint owner of Reten Acoustics when Halma acquired it in 1992 and was appointed Managing Director and subsequently Chairman of Palmer Environmental Limited. He became an Assistant Divisional Chief Executive in 1998. In 2000 Keith was appointed Divisional Chief Executive of the Water Technology Division and was appointed to the Halma p.l.c. Board in 2001. He is an electronic engineering graduate of both Nottingham University (BSc) and Aston University (MSc). 14 John Campbell (aged 45) joined the Group in 1995 as President of IPC Resistors Inc. and became Chief Executive of the Resistors Division upon its formation in 1998 and a member of the Executive Board. He is an electrical engineering graduate of the University of Toronto and before joining Halma was a senior sales and marketing executive within the Industrial Power Group of Rolls-Royce p.l.c. 16 Nigel Trodd (aged 46) is Chief Executive of the Process Safety Division. He joined Halma in July 2003 and is a member of the Executive Board. Prior to joining Halma he was V.P. Europe, Middle East and Africa for Tyco Suppression Systems based in Frankfurt. Nigel is a business studies graduate of Thames Valley University and is a member of the Chartered Institute of Marketing. 28 Halma p.l.c. 2004 2 7 12 1 3 8 9 4 11 13 15 16 5 10 6 14 Halma p.l.c. 2004 29 H A L M A Report of the Directors The Directors present their annual report on the affairs of the Group, together with the Accounts and the Independent Auditors’ Report, for the 53 weeks to 3 April 2004. Activities Halma p.l.c. is a holding company. A list of its principal subsidiary companies and their activities is set out on pages 78 and 79. Results of the period The Consolidated Profit and Loss Account for the 53 weeks to 3 April 2004 is set out on page 48. The Group profit before taxation, goodwill amortisation and exceptional items is £50,284,000 (2003: £46,508,000). The profit after taxation, goodwill amortisation and exceptional items amounts to £22,322,000 (2003: £28,359,000). Ordinary dividends The Directors will submit a resolution at the Annual General Meeting proposing a final dividend of 3.75p per share and if approved this dividend will be paid on 23 August 2004 to ordinary shareholders on the register at the close of business on 23 July 2004. Together with the interim dividend of 2.44p per share already paid, this will make a total of 6.19p per share for the financial year. Review A review of activities together with business and future developments is included on pages 7 to 25 inclusive. Share capital Details of share capital issued in the financial year are set out in note 19 on the Accounts. Allotment authority Articles of Association 30 Halma p.l.c. 2004 The special business of the Annual General Meeting includes a special resolution to disapply Section 89(1) of the Companies Act 1985 with respect to certain allotments. The effect of this special resolution, if approved, will be to give the Directors authority until the date of the next Annual General Meeting, firstly to issue shares to employees under share schemes previously approved in general meeting, and secondly, to allot up to 5% of the issued ordinary share capital for cash otherwise than pro-rata to existing shareholders. In accordance with the Electronic Communications Act 2000 and in accordance with the Institute of Chartered Secretaries and Administrators’ recommendations, the Company is proposing to amend its Articles to allow it the flexibility to introduce the use of electronic communications in circumstances where the Directors think fit and where agreed between the members and the Company. This includes the use of electronic communications for proxy voting (Articles 85 to 90) and for the sending of notices to an address notified by the member for that purpose or the posting of such notices on a website with corresponding notification to the members (Articles 150 to 156). There are also consequential amendments in relation to the deemed date of delivery of an e-mail (Article 155). The amended Articles also allow for minor changes to the conduct of meetings of the Board and to the appointment of directors and alternate directors (Articles 101, 109, 119 and 123). There are also amendments in relation to: the definitions and interpretations of words and phrases (Article 2); the method of consent for a variation of class rights (Article 11.1); the effects of omission to send or non-receipt of a notice (Article 59); amendments to resolutions (Article 69); votes of incapable members (Article 81); and the authentication of documents (Article 130). H A L M A Report of the Directors continued Purchase of own shares Supplier payment policy Employees It is the Board’s intention, with the personal consent of each member, to gradually introduce electronic communications with members upon the adoption of the amended Articles of Association. Copies of the proposed new Articles of Association and interlined copies of the current Articles of Association are available for inspection at CMS Cameron McKenna, Mitre House, 160 Aldersgate Street, London EC1A 4DD until the close of the Annual General Meeting and will also be available at The Ballroom, The Berkeley Hotel, Wilton Place, London SW1X 7RL for fifteen minutes preceding, and then during, the Annual General Meeting. The Company was authorised at the 2003 Annual General Meeting to purchase up to 36,000,000 (approximately 10%) of its own 10p ordinary shares in the market. This authority expires at the end of the 2004 Annual General Meeting. In accordance with the Directors’ stated intention to seek annual renewal, a special resolution will be proposed at the Annual General Meeting to renew this authority until the end of the next Annual General Meeting. The Directors consider it desirable that the possibility of making such purchases, under appropriate circumstances, is available. The Directors have no present intention of using this authority. In reaching a decision to purchase shares, the Directors will take into account the Company’s cash resources, capital requirements and the effect of any purchase on the Company’s earnings per share. It is anticipated that renewal of the authority will be requested at subsequent Annual General Meetings. The Company does not follow any particular supplier payment code of practice. The Company has due regard to the payment terms of suppliers and generally settles all undisputed accounts within 30 days of the due date for payment. At 3 April 2004 the Company’s trade creditors represented 35 days (2003: 38 days) of annual purchases. Matters which affect the Group are communicated to employees through formal and informal meetings, internal announcements, the Group Intranet, the Group bulletin board on our secure Virtual Private Network (VPN) and regular contact with Directors and Divisional Chief Executives. An employee share scheme is open to all UK employees of the Group following a qualifying period and has been operating since 1980. The Company is an equal opportunity employer with particular reference to non-discrimination and non-harassment on the basis of ethnic origin, religion, gender, age, disability and sexual orientation. Halma gives disabled people the same consideration as other individuals. Directors’ remuneration The Directors consider it appropriate that shareholders be given the opportunity to approve the remuneration of Directors as set out in the Report on Remuneration on pages 40 to 45. The special business of the Annual General Meeting contains an ordinary resolution seeking such shareholder approval. Corporate responsibility The Group’s Corporate Responsibility report is set out on pages 33 to 35. Research and development Group companies have continuous research and development programmes established with the objective of the improvement of their product ranges and increasing the profitability of their operations. Halma p.l.c. 2004 31 H A L M A Report of the Directors continued Donations Directors Group companies made charitable donations amounting to £9,923 (2003: £1,308) during the financial year. There were no political donations (2003: £nil). The Directors of the Company are listed on page 27. Brief biographies are set out on page 28. Mr A J Walker was appointed to the Board as a non-executive Director on 8 May 2003. Mr D S Barber retired from service with the Group and resigned as Chairman of the Board immediately after the 2003 Annual General Meeting on 29 July 2003. Following the resignation of Mr Barber, Mr E G Unwin, who was appointed Deputy Chairman (Chairman Elect) on 2 September 2002, was appointed Chairman of the Board with effect from the close of the 2003 Annual General Meeting. Mr S R Pettit was appointed to the Board as a non-executive Director on 16 September 2003. Lord McGowan, who joined the Board in 1997, died on 7 May 2003. Directors proposed for re-election Mr R A Stone, Mr K J Roy and Mr S R O’Shea retire by rotation and being eligible offer themselves for re-election. Mr S R Pettit, who joined the Board since the last Annual General Meeting, retires under Clause 95 of the Articles of Association and being eligible offers himself for re-election. Shareholdings As at 11 June 2004 the Company has been notified under Section 198 of the Companies Act 1985 of the following notifiable holdings of the Company’s ordinary shares: Silchester International Investors Limited Sprucegrove Investment Management Limited Legal & General Investment Management Limited shares 65,511,005 25,267,545 12,320,633 per cent 17.8 6.8 3.3 No other notification has been received in respect of a holding of 3% or more of the Company’s ordinary share capital. Auditors Resolutions will be proposed at the Annual General Meeting to re-appoint Deloitte & Touche LLP as Auditors and to authorise the Directors to determine their remuneration. By Order of the Board C T Chesney Misbourne Court Rectory Way Amersham Bucks HP7 0DE 22 June 2004 Secretary 32 Halma p.l.c. 2004 H A L M A Corporate Responsibility Report Socially responsible investment Investing in Halma shares meets the criteria of many professional and private investors who base their decisions on environmental, ethical and social considerations. The Group is a world leader in several key environmental technologies and has a reputation for honesty and integrity in its relationships with employees, customers and business partners. Social conditions can be improved for all through the creation of wealth. Halma creates wealth responsibly allowing our employees, customers, business partners and shareholders to determine where this wealth is best distributed. In each of the following areas, the regulatory demands upon us vary considerably around the world, so Halma establishes the core structure to ensure that Group companies fully comply with regulatory requirements while permitting them to tailor the solutions to their particular needs. The environment Within Halma, we have an excellent long-term record and a clear strategy for addressing environmental issues that affect our businesses and for developing products that protect the environment and improve safety at work and in public places. During the past year, Perma Pure LLC elected to purchase a state-of-the-art extrusion system for precision tubing to replace its existing extruder. Perma Pure anticipated that the new extruder would reduce consumptionofanexpensive fluoropolymer Nafion(cid:1), which it uses as a key component, by reducing rejected material and permitting extrusion of finer walled tubing, saving material as well. Sixmonths after installing the new extruder at a cost of $250,000, Perma Pure has already observed not only increased production capacity but also a considerable reduction in rejected material, amounting to more than $50,000 per annum. Additional savings are anticipated as the dimensions of the extruded tubing are refined to benefit from the narrow tolerances of the new extruder. Our products Many of our innovative products play a very positive role in monitoring and improving the environment. Halma brands lead the world in a number of technologies which help to minimise environmental damage. technologies are water Our principal environmental leakage detection, gas emissions monitoring, water and effluent analysis and UV water treatment. We tirelessly promote the use of UV water sterilisation which eliminates the need to use dangerous chemicals, as well as products that minimise the waste of clean water. Our commitment to the development of equipment for measuring environmental changes and controlling the damaging impact of industrial activities is long-term. For example, Palmer Environmental’s Permalog(cid:1) is an acoustic leak noise logger which transmits leakage information to a radio receiver to enable leaks in water supply pipes to be located for prompt repair thereby reducing the loss of clean water. Atmospheric levels of highly flammable hydrogen can be precisely monitored in locations such as laboratories, refineries, battery rooms and fuel cell facilities with Crowcon’s TXgard-IS+. We make safety equipment for use at work, in public places and in transportation systems that contribute to increased personal safety by ensuring safe practice at work, protecting people from fire and making elevators and automatic doors safe and effective. We are the major world supplier in several of these areas. Volk Optical has developed a new autoclavable vitrectomy lens for use in retinal surgery which means that ethylene oxide gas is not required for sterilisation. Environmental policy The Group’s policy on environmental issues is published on our website and has been distributed and explained to all Halma business units. A senior executive in each of our business units is responsible for implementing the environmental policy at local level. The Group Finance Director, Mr K J Thompson, has principal responsibility for coordinating and monitoring the policy. Halma p.l.c. 2004 33 H A L M A Corporate Responsibility Report continued Environmental management system We are committed to developing and implementing an environmental management system (‘EMS’) throughout the Group to measure, control and, where practical, reduce our environmental impacts. We are developing performance indicators that will assist local management in implementing the policy and developing an EMS. The requirement for an EMS and the related reporting has been rolled out to all UK business units, which represent over 50% of Group production facilities in terms of external turnover. All Group companies are encouraged to undertake ISO 14001, the international environmental standard, accreditation where warranted. The requirement to implement an EMS will be extended to the rest of the Group in the medium term. None of the UK Group companies has incurred a Health and Safety Executive fine, received a notification of a breach or been prosecuted during the year under review. Equivalent information is not currently collected for the rest of the world. Our impacts We support the concept of sustainability and recognise that, in common with all businesses, our activities have an environmental impact. Our products do not require capital-intensive manufacturing processes, so the environmental effect of our operations is relatively low compared to manufacturers in other sectors. The Group is sponsoring an Innovation Initiative which encourages the research and development teams at each Group company to re-examine their product designs with a view to being more efficient and effective using components which are more environmentally acceptable. Group companies are encouraged to improve energy efficiency, reduce waste and emissions and to reduce the use of materials in order to reduce our environmental impact. The Group is carrying out an audit in 2004/05 to establish baseline data on emissions to air and water, water and energy consumption and waste production. The data collected will enable the Group to set objectives for reducing its environmental impacts in those areas and to look at setting targets for reduction in key areas. The Group plans to report shortly on CO2 emission and water consumption as well as waste disposal. The baseline data is expected to confirm that the main areas of impact on the environment are energy consumption and waste disposal. The Group does not operate a fleet of distribution vehicles although we do own a number of company cars. Few of our assembly processes require water, so there are not large quantities of waste water to manage. After the 2004/05 data collection exercise is completed and targets have been set in key areas of environmental impact, the Group is committed to examining the establishment of green procurement policies. The Group’s environmental performance will continue to be reported in both the Annual Report and on our website. Demonstrating the Group’s commitment to ensure all companies comply with applicable regulations, Apollo Fire Detectors Limited is workingon complying with the requirements of the Restriction of Hazardous Substances Directive removing cadmium, chromium, mercury and certain flame-retardants from their products even though fire detectors are currently exempt from the EU legislation. Apollo has also commenced its compliance plan for the Waste Electrical and Electronic Equipment Directive that comes into force in August 2005. Across the Group we also operate programmes, where commercially viable, to ensure the responsible disposal of packaging, including the re-use and recycling of all packaging types and, where necessary, the use of licensed contractors to dispose of non-recyclable waste packaging safely. In addition, the use of biodegradable packaging material is on the increase in Group companies. One Group company, Memco Limited has invested in a cardboard compactor, which reduces the volume of their cardboard waste considerably. The waste is now collected, free of charge, by a local company who recycles the cardboard. 34 Halma p.l.c. 2004 H A L M A Corporate Responsibility Report continued Health and safety Ethics FTSE4Good index The Group recognises the necessity of safeguarding the health and safety of our own employees whilst at work and operates so as to provide a safe and comfortable working environment for employees, visitors and the public. The Group has a health and safety policy, which is set out on the Company’s website. It is the Group’s policy to manage its activities to avoid causing any unnecessary or unacceptable risks to health and safety. The policy is understood by all Group companies. Given the autonomous structure of the Group, operational responsibility for compliance with relevant local health and safety regulations is delegated to the board of directors of each Group company. Health and safety training is carried out within companies as appropriate and we intend to commence collecting data on accident rates with a view to publishing them in the medium term. Adequate internal reporting exists in order that the Group Finance Director may monitor each company’s compliance with this policy. Halma encourages its employees to act fairly in their dealings with fellow employees, customers, suppliers and business partners. Our suppliers are of high quality and operate to acceptable international standards. Halma operates a confidential ‘‘whistleblowing’’ policy, which enables all Group employees to raise any concerns they may have. Halma was designated a member of the FTSE4Good UK index on its establishment in July 2001. The FTSE4Good index measures and benchmarks the performance of companies with good records of corporate social responsibility and aids investors who use socially responsible investment criteria. The FTSE4Good Selection Criteria cover three areas: working towards environmental sustainability; developing positive relationships with stakeholders; and upholding and supporting universal human rights. Halma p.l.c. 2004 35 H A L M A Corporate Governance The Board is committed to the maintenance of high standards of Corporate Governance. The policy of the Board is to manage the affairs of the Company in accordance with the Principles of Good Governance and the Code Provisions set out in Section 1 of the Combined Code on Corporate Governance (‘‘the Combined Code’’) issued by the Financial Services Authority in June 1998. The Group is controlled and directed by a Board consisting of a non-executive Chairman, four executive Directors and three other non-executive Directors. Their biographies appear on page 28. The Board considers each of the non-executive Directors to be independent. The Board recognises that the revised Combined Code considers that a non-executive director ceases to be independent upon appointment as chairman, however the Board believes that Mr Unwin’s Chairmanship of the Board does not interfere with his independence as regards, in particular, membership of the Audit and Remuneration Committees. In assessing independence, the Board considers that the Chairman and non-executive Directors are independent of management and free from business and other relationships which could interfere with the exercise of independent judgement now and in the future. The Board believes that any shareholdings of non-executive Directors serve to align their interests with those of all shareholders. Mr Stone is acknowledged as the Senior Independent Director. Upon appointment and at regular intervals, all Directors are offered appropriate training. Each Director is subject to re-election at least every three years. The Directors retain responsibility for the formulation of corporate strategy, investment decisions, and treasury and risk management policies. There is a formal schedule of matters reserved for the Board’s decision and the Board meets at least eight times each year with further ad hoc meetings as required. Directors are issued an agenda and comprehensive board papers in the week preceding each Board Meeting. All Directors have access to the advice and services of the Company Secretary as well as there being an agreed procedure for obtaining independent professional advice. Mr Stone chairs the Remuneration Committee of which each of the non-executive Directors is a member. Mr Walker and Mr Pettit joined the Committee during the year. Mr Barber was a member until his retirement in July 2003 and Lord McGowan remained a member until his death in May 2003. Formal terms of reference exist which follow the recommendations of the Combined Code and are available on request from the Company Secretary. The Committee makes recommendations to the Board on the framework for executive Directors’ and senior executives’ remuneration based on proposals formulated by the Group Chief Executive. The Committee meets at least twice per year. Following Lord McGowan’s death, Mr Unwin chaired the Audit Committee. In October 2003, Mr Walker assumed the Chairmanship of the Audit Committee. Each of the non-executive Directors is a member of the Committee. Formal terms of reference exist which follow the recommendations of the Combined Code and are available on request from the Company Secretary. The Committee reviews the interim and annual accounts, the statement on internal controls and is responsible for the relationship with the external auditors. The Group Chief Executive, Group Finance Director and representatives from the Auditors attend Committee meetings by invitation in order to provide appropriate advice. The Committee meets at least three times per year. Mr Barber chaired the Nomination Committee until his retirement at which point Mr Unwin assumed the role of Chairman. Mr Stone and Mr O’Shea are also members of the Committee. Formal terms of reference exist which follow the Application of the principles of good governance 36 Halma p.l.c. 2004 H A L M A Corporate Governance continued recommendations of the Combined Code and are available on request from the Company Secretary. The Committee makes recommendations to the Board on the appointment of new Directors. External search consultancies are retained when recruiting non-executive Directors. The Committee meets at least annually. Control of divisional operating matters is delegated to the Executive Board of which the Group Chief Executive, Group Finance Director and all of the Divisional Chief Executives are members. Biographies of Executive Board members appear on page 28. The Group Chief Executive chairs the Executive Board, which meets regularly, thereby ensuring the Board’s strategies are communicated to those overseeing operations. The Executive Board reviews operational activities, trading results, budgets, policy matters, investment opportunities, resource allocation and risk exposures. Any matters arising out of the Executive Board meetings are reported to the Board via the Group Chief Executive’s report to the Board. The Group Chief Executive and Group Finance Director also meet regularly with each Divisional Chief Executive to monitor progress against key objectives and review operational performance. Individual operating company boards, chaired by the appropriate Divisional Chief Executive, manage operating companies. These boards have clearly defined responsibilities for the operation of their businesses, including compliance with legislation and regulations, and for internal reporting. The system of internal control exercised within the Group is described below. In regular meetings with shareholders and analysts the Group Chief Executive and Group Finance Director communicate the Group’s methods and results. Meetings include the Annual General Meeting and briefings following the interim and annual results. The Financial Calendar is set out on page 26. The Group website, www.halma.com, contains copies or summaries of all Company announcements, summaries of presentations to analysts, electronic versions of the latest Annual Report and Accounts, biographical information on key Directors and Officers, share price information, and full subsidiary company contact details as well as hotlinks to their own websites. The website also contains the facility to request e-mail alerts relating to announcements made by the Group. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Board of Directors has overall responsibility to the shareholders for the Group’s system of internal control and responsibility for reviewing its effectiveness has been delegated to the Audit Committee. Any system of internal control can provide only reasonable but not absolute assurance against material misstatement or loss. Following publication by the Turnbull Committee of the guidance for directors on internal control (‘‘Internal Control: Guidance for Directors on the Combined Code’’), the Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, that this has been in place for the year under review and up to the date of approval of the Annual Report and Accounts. This process has been reviewed by the Board, and the Group accords with the Turnbull guidance. Halma p.l.c. 2004 37 Investor relations Going concern Internal control H A L M A Corporate Governance continued The Group’s external auditors, Deloitte & Touche LLP, have audited the financial statements and have reviewed the internal financial control systems to the extent they consider necessary to support their audit report. The Board meets regularly throughout the year and has adopted a schedule of matters which are required to be brought to it for decision. This procedure is intended to ensure that the Directors maintain full and effective control over all significant strategic, financial and organisational issues. Group companies operate under a system of controls which includes but is not limited to: * a defined organisational structure with an appropriate delegation of authority to operational management * the identification and appraisal of risks both formally, through the annual process of preparing business plans and budgets, and informally through close monitoring of operations * a comprehensive financial reporting system within which actual results are compared with approved budgets and previous year’s figures on a monthly basis and reviewed at both local and Group level * an investment evaluation procedure to ensure an appropriate level of approval for all capital expenditure * self-certification by operating company management of compliance and control issues * a prescribed robust structure under which it is appropriate to adopt means of electronic communication and to conduct e-commerce. The processes which the Board has applied in reviewing the effectiveness of the Group’s system of internal control are summarised below. * Operating companies carry out a detailed risk assessment each year and identify mitigating actions in place or proposed for each significant risk. A risk register is compiled from this information, against which action is monitored through to resolution. In addition, Divisional Chief Executives carry out an independent risk assessment for each operating company. A review of Group risks is also conducted. * Each month the board of each operating company meets, discusses and reports on its operating performance, its opportunities, the risks facing it and the resultant actions. The relevant Divisional Chief Executive chairs this meeting. Divisional Chief Executives meet regularly with the Group Chief Executive and Group Finance Director and report progress to the Executive Board. * The Group Chief Executive submits a report to each Halma p.l.c. Board meeting which includes financial information, the main features of Group operations and an analysis of the significant risks facing the Group at that time. * Internal control visits are carried out by senior finance staff resulting in actions fed back to each company and followed up by Divisional Finance Directors; visit reports are coded in terms of risk with any significant control failings reported directly to the Audit Committee and a summary of all such visits reported to the Audit Committee regularly; senior finance staff also carry out financial reviews at each operating company prior to publication of half year and year end figures. 38 Halma p.l.c. 2004 H A L M A Corporate Governance continued * The Group Finance Director and Group Chief Executive report to the Audit Committee on all aspects of Internal Control for its review. The Board receives the minutes of the Audit Committee meetings and uses these as a basis for its annual review of internal control. As noted above, a programme of internal control visits is conducted. Following its review of internal control activities in 2004, the Audit Committee has now put in place procedures for independent reporting of the outcome of these visits to the Audit Committee. Whilst internal audit is not a separate function within the Group, the Board anticipates that the procedures now in place will allow it to report in 2004/05 that it has procedures which amount to an internal audit function. The Audit Committee has responsibility for reviewing auditor independence and objectivity annually. During the year, the Committee set down the ‘‘Policy on Auditor Independence and Services provided by the External Auditor’’. This policy states that the Group will only use the appointed external auditor for non-audit services in cases where these services do not conflict with the auditor’s independence. The policy also sets a fee level above which non-audit services are subject to a tendering process. Auditor independence Compliance with the code of best practice The Company complied with the provisions of the Combined Code throughout the financial year. Halma p.l.c. 2004 39 H A L M A Report on Remuneration Remuneration policy The following sections of the Report on Remuneration have been audited: the table of Directors’ remuneration; pension benefits; Directors’ interests in shares. The policy on Directors’ Remuneration is to provide the remuneration packages necessary to attract, retain and motivate Directors of the quality required to run the Group successfully, manage the business of the Group and to align the interests of the Directors with those of the shareholders. In accordance with rule 12.43A(c) of the Listing Rules of the Financial Services Authority the Board presents its Report on Remuneration to the shareholders. The Board confirms that when determining the remuneration policy for executive Directors for 2003/04 full consideration was given to the Combined Code appended to the Listing Rules of the Financial Services Authority. The Remuneration Committee consists entirely of non-executive Directors, the current members being Mr R A Stone (Chairman of the Committee), Mr E G Unwin, Mr A J Walker and Mr S R Pettit. Messrs Walker and Pettit were appointed to the Committee during the past year. Mr D S Barber was a member of the Committee prior to his retirement and Lord McGowan was a member prior to his death. The Board has considered and confirmed Mr Stone’s independence following the third anniversary of his appointment to the Board. The Board has also affirmed its decision to appoint Mr Unwin to the Committee as the Board believes that his Chairmanship of the Board does not interfere with his independence as regards membership of the Committee. Mr Unwin does not take part in discussions concerning his own remuneration. The Committee makes recommendations to the Board on the framework for executive remuneration, based on proposals formulated by the Group Chief Executive, and determines the terms of service and remuneration of executive Directors and senior executives. The Committee’s Terms of Reference are available from the Company Secretary on request. Basic salary and benefits In determining recommended basic salary levels for each individual, the Committee does not currently employ remuneration consultants but uses independent surveys, compiled by New Bridge Street Consultants, IDS and Deloitte & Touche LLP, and other relevant data to relate remuneration levels to comparable publicly quoted companies. In assessing the data that the Committee utilises, the Committee considers the benefits in comparable companies, the Company’s market capitalisation, the Group’s turnover and the complexity of Group operations in order to determine each Executive’s basic salary level. Basic salary levels are set in order to achieve a balance between fixed and variable remuneration. Share options 40 Halma p.l.c. 2004 The Directors have long believed that share option plans are an excellent way to align the interests of senior management with those of shareholders and that share options provide excellent motivation. The Committee recognises the need to continually assess and evaluate such incentives and therefore has asked Ernst & Young LLP to assist them in developing the next phase of incentive arrangements to introduce across the Group. The 1990 and 1996 Share Option Plans each provide for the grant of two categories of option both of which are subject to performance criteria. The exercise criteria for these two plans are noted in Note 19 on the Accounts. No further grants may be made from either of these plans. H A L M A Report on Remuneration continued Performance related bonus scheme Directors’ remuneration Options under the 1999 Company Share Option Plan have more stringent exercise criteria than the 1990 and 1996 Share Option Plans. Section ‘A’ options are exercisable after three years if the Company’s earnings per share growth exceeds the growth in the Retail Price Index plus 3% per annum. Section ‘B’ options are exercisable after five years if the Company’s earnings per share growth exceeds the earnings per share growth of all but the top quarter of companies which were within a peer group at the date of grant of any option. The granting of options is spread over the life of the plan. Executive Directors receive a triennial award of ‘A’ options, an annual award of ‘B’ options and the possibility of further ‘A’ options under the Performance Related Bonus Scheme. This scheme, which applies only to executive Directors and Divisional Chief Executives, is reviewed annually by the Remuneration Committee and approved by the Board. Without approval of this scheme there is no alternative bonus arrangement for Directors and Divisional Chief Executives. During 2003/04 the Remuneration Committee carefully considered existing bonus arrangements and determined that incentive levels are appropriately set. In the case of a Divisional Chief Executive a bonus would be earned if the profit of the Division for which he is responsible exceeds a target calculated from the profits of the three preceding financial years. The profits calculated for this purpose regard each Division as a stand-alone group of companies charging it with the cost of capital it utilises including the cost of acquisitions. For the Group Chief Executive and Group Finance Director, bonuses are based on the aggregated profit of the Divisions exceeding a target calculated from the profits of the Divisions for the three preceding financial years. A pre-determined percentage of the profit improvement is payable in cash and generally a further percentage is granted in the form of Section ‘A’ share options. The percentage payable in cash commences at a low level for modest growth increasing, in percentage terms, as performance improves. The maximum cash bonus payable to any one Director or Divisional Chief Executive is capped at 100% of his salary. D S Barber E G Unwin S R O’Shea C Q Summerhayes Lord McGowan H M J Ritchie K J Thompson N Quinn R A Stone K J Roy A J Walker S R Pettit Salaries and fees £000 52 112 315 – 8 – 160 160 32 135 27 16 Bonus £000 – – 90 – – – 46 81 – 2 – – Benefits £000 – 12 24 – – – 9 18 – 18 – – 2004 Total £000 52 124 429 – 8 – 215 259 32 155 27 16 2003 Total £000 81 65 314 16 22 10 158 162 22 143 – – A A A A A 1,017 219 81 1,317 993 A A A A A The fees paid in relation to Mr E G Unwin were paid to Gunwin Limited. Halma p.l.c. 2004 41 H A L M A Report on Remuneration continued Pension benefits After inclusion of gains on the exercise of share options, where applicable, Mr S R O’Shea was the highest paid director in the financial year. The executive Directors participate in the appropriate section of the Halma Group Pension Plan. This section is a funded, Inland Revenue approved, final salary occupational pension scheme, which provides a pension equal to the lower of two- thirds of final pensionable salary and the Inland Revenue maximum pension at normal pension age (60). Pensionable salary is the greatest salary of the last three complete tax years immediately before retirement or leaving service. Bonuses and other fluctuating emoluments and benefits in kind are not pensionable. The scheme also provides for life cover of three times pensionable salary, pensions in the event of early retirement through ill health and dependants’ pensions of one-half of the member’s prospective pension. Early retirement pensions, possible from age 50 with the consent of the Company and the Trustees of the Halma Group Pension Plan, are subject to actuarial reduction. Pensions in payment increase by 3% per annum for service up to 5 April 1997 and by price inflation thereafter subject to a maximum of 5%. Details of the value of individual pension entitlements are shown below. Age at 3.4.04 58 44 54 53 Years of service at 3.4.04 28 16 16 11 Accrued pension Increase 2003 in the year £000 £000 16 145 6 44 6 52 9 23 Accrued pension 2004 £000 165 51 60 33 S R O’Shea K J Thompson N Quinn K J Roy The accrued pension shown is that which would be paid annually on retirement based on service to the end of the year. The increase in accrued pension during the year is the amount in excess of the increase due to inflation. Transfer value 29.3.03 £000 2,279 363 674 297 Directors’ contributions £000 25 12 12 10 Increase in transfer value net of contributions £000 418 69 126 132 Transfer value 3.4.04 £000 2,722 444 812 439 S R O’Shea K J Thompson N Quinn K J Roy The transfer values disclosed above do not represent a sum paid or payable to the individual Director. Instead they represent a potential liability of the pension scheme. These values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. Total shareholder return The graph below shows the Company’s total shareholder return performance over the five years to 3 April 2004 as compared to the FTSE 250 and Engineering & Machinery indices which have been chosen as the Company is a constituent of both of these indices. Over the period indicated, the Company’s total shareholder return was 95% compared to 33% for the FTSE 250 and 8% for the FTSE Engineering & Machinery sector. 42 Halma p.l.c. 2004 H A L M A Report on Remuneration continued At the commencement of the five-year period depicted in the graph, the Halma p.l.c. ordinary share price was 92p and the total of dividends in respect of the year ended 3 April 1999 was 3.327p per share. The Halma p.l.c. ordinary share price at 3 April 2004 was 149.25p and the total of dividends in respect of the year then ended was 6.19p per share. Directors’ interests in shares The beneficial interests of Directors and their families in the ordinary shares of the Company during the financial year were as follows: E G Unwin S R O’Shea K J Thompson N Quinn R A Stone K J Roy A J Walker S R Pettit Shares 3.4.04 38,250 258,075 49,749 33,788 5,000 744,587 35,714 1,000 Shares 29.3.03 38,250 242,482 47,786 25,596 5,000 744,587 –* –* *as at date of appointment There are no non-beneficial interests of Directors. There were no changes in Directors’ interests from 3 April 2004 to 22 June 2004. The movements in share options during the financial year were as follows: S R O’Shea K J Thompson N Quinn K J Roy As at 29.3.03 1,458,328 579,346 731,358 436,992 Granted 94,030 167,164 167,164 40,299 Exercised 142,398 8,354 34,442 16,177 Lapsed As at 3.4.04 – 1,409,960 738,156 – 864,080 – 461,114 – The total gains on options exercised by Directors during the financial year amounted to £39,853. The gains are calculated by deducting the exercise price from the closing middle market price at the date of exercise or the actual gross sales proceeds if appropriate. Halma p.l.c. 2004 43 H A L M A Report on Remuneration continued Options granted to Directors during the financial year were at an exercise price of 134p. The closing middle market price of the Company’s ordinary shares on Friday, 2 April 2004, the last trading day preceding the financial year end, was 149.25p per share and the range during the year was 109p to 151.25p. Details of Directors’ options outstanding at 3 April 2004 are set out in the table below. The status of the options can be summarised as follows: 1 Exercisable at that date at a price less than 149.25p. 2 Not yet exercisable, will only be exercisable when the performance criteria, set out above, have been met and have an exercise price per share of less than 149.25p. 3 Not yet exercisable, will only be exercisable when the performance criteria, set out above, have been met and have an exercise price per share of greater than 149.25p. S R O’Shea K J Thompson N Quinn K J Roy Status of options (see above) 1 2 3 1 2 3 1 2 3 1 2 3 Year of grant 1994-99 1997-00; 2002-03 2001 1994-98 1997-00; 2002-03 2001 1994-99 1997-00; 2002-03 2001 1994-99 1997-00; 2002-03 2001 Number of shares 690,131 619,029 100,800 260,206 429,550 48,400 297,630 469,550 96,900 169,565 236,849 54,700 Weighted average exercise price (p) per share 126.34 132.68 163.50 121.73 125.15 163.50 120.38 123.64 163.50 120.78 132.61 163.50 Service contracts All options lapse if not exercised within 10 years from the date of grant. The Company’s Register of Directors’ Interests, which is open to inspection at the Registered Office, contains full details of Directors’ shareholdings and share options. It is the Company’s policy that executive Directors should have contracts with an indefinite term providing for a maximum of one year’s notice. The service contract of Mr S R O’Shea has a two-year rolling notice period which reduces monthly in the two years preceding normal retirement. At the date of this report, Mr O’Shea’s notice period is, effectively, 18 months. The Board reviewed this contract term during the year and confirmed its appropriateness. All other executive Directors have contracts with a notice period of one year. None of the contracts has pre-determined compensation clauses in the event of early termination. The Board and the Remuneration Committee confirm that these contracts are appropriate having regard, amongst other things, to the individuals’ length of service. Non-executive Directors All non-executive Directors have specific terms of engagement and their remuneration is determined by the Board based on independent surveys of fees paid to non-executive directors of similar companies. The non-executive Directors fees for membership and/or receive a basic fee supplemented by additional chairmanship of the Audit and Remuneration Committees. 44 Halma p.l.c. 2004 H A L M A Report on Remuneration continued The contract in respect of Mr Unwin’s services provides for termination, by either party, by giving not less than six months’ notice. Mr Unwin’s basic fee for 2003/04 was set at £108,000 per annum excluding Committee membership fees, and he received a contribution of £1,000 per month towards his office costs. The other non-executive Directors do not have service contracts. Non-executive Directors’ fees were last reviewed by the Board of Directors in April 2004. By Order of the Board R A Stone Chairman of the Remuneration Committee Misbourne Court Rectory Way Amersham Bucks HP7 0DE 22 June 2004 Halma p.l.c. 2004 45 H A L M A Responsibilities of the Directors United Kingdom Company Law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss for that period. The Directors have responsibility for ensuring that proper accounting records are maintained which disclose with reasonable accuracy at any time the financial position of the Company and the Group and which enable them to ensure that the financial statements comply with the Companies Act 1985. The Directors also have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities and are responsible for the system of internal control. The Directors consider that, in preparing the financial statements on pages 48 to 73 and the disclosures on pages 40 to 45 relating to the remuneration of the Directors, appropriate accounting policies have been used, which have been consistently applied and supported by reasonable and prudent judgements and estimates, that all accounting standards which they consider to be applicable have been followed. 46 Halma p.l.c. 2004 H A L M A Independent Auditors’ Report To the Members of Halma p.l.c. We have audited the consolidated financial statements of Halma p.l.c. for the 53 weeks to 3 April 2004 which comprise the Consolidated Profit and Loss Account, the Balance Sheets, the Consolidated Cash Flow Statement, the statement of Accounting Policies and the related Notes numbered 1 to 25, together with the Statement of Total Recognised Gains and Losses and the reconciliation of Movements in Equity Shareholders’ Funds. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the part of the Directors’ Remuneration Report that is described as having been audited. This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members on those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditors As described in the statement of Directors’ Responsibilities, the Company’s Directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and Accounting Standards. They are also responsible for the preparation of the other information contained in the Annual Report including the Directors’ Remuneration Report. Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report described as having been audited in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors’ Remuneration Report described as having been audited have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors’ Report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and transactions with the Company and other members of the Group is not disclosed. We review whether the Corporate Governance statement reflects the Company’s compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the Directors’ Report and the other information contained in the Annual Report for the above period as described in the contents section including the unaudited part of the Directors’ Remuneration Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of audit opinion We conducted our audit in accordance with United Kingdom Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors’ Remuneration Report described as having been audited. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the circumstances of the Company, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration Report described as having been audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ Remuneration Report described as having been audited. Opinion In our opinion: * the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 3 April 2004 and of the profit of the Group for the 53 week period then ended; and * the financial statements and part of the Directors’ Remuneration Report described as having been audited have been properly prepared in accordance with the Companies Act 1985. Deloitte & Touche LLP Chartered Accountants and Registered Auditors Reading 22 June 2004 Neither an audit nor a review provides assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular whether any changes may have occurred to the financial information since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions. Halma p.l.c. 2004 47 H A L M A Consolidated Profit and Loss Account £000 53 weeks to 3 April 2004 52 weeks to 29 March 2003 Before goodwill Goodwill amortisation amortisation and exceptional exceptional items items and s e t o N Total Before goodwill Goodwill amortisation amortisation and exceptional exceptional items items and Total A Turnover 1 A Continuing operations 279,611 – 279,611 254,001 – 254,001 A Discontinued operations 13,029 – 13,029 13,292 – 13,292 A A A A A A A A A A A A A A 292,640 – 292,640 267,293 – 267,293 Operating profit 3 A Continuing operations 50,422 (4,209) 46,213 46,023 (3,224) 42,799 A Discontinued operations (370) (11) (381) 77 (11) 66 A A A A A A A A 50,052 (4,220) 45,832 46,100 (3,235) 42,865 Exceptional items 4 A Loss on sale of businesses – (3,394) (3,394) – – – A Associated goodwill – (5,755) (5,755) – – – A Loss on disposal of discontinued operations – (9,149) (9,149) – – – A A A A A A A Profit on ordinary activities before interest and taxation 50,052 (13,369) 36,683 46,100 (3,235) 42,865 A Interest 7 232 – 232 408 – 408 A A A A A A A Profit on ordinary activities before taxation 1 50,284 (13,369) 36,915 46,508 (3,235) 43,273 A Taxation 8 (15,727) 1,134 (14,593) (15,279) 365 (14,914) A A A A A A A Profit for the financial year 34,557 (12,235) 22,322 31,229 (2,870) 28,359 A A A A A A A Ordinary dividends 9 (22,725) (21,246) A A A (Loss)/profit transferred (from)/to reserves 10 (403) 7,113 A A A Earnings per ordinary share before goodwill amortisation and exceptional items 2 9.44p 8.55p A Earnings per ordinary share 2 6.09p 7.76p A Diluted earnings per ordinary share 2 6.09p 7.75p A The notes on pages 55 to 73 form part of these Accounts. 48 Halma p.l.c. 2004 Consolidated Balance Sheet £000 H A L M A s e t o N At 3 April 2004 At 29 March 2003 A Fixed assets A Intangible assets 11 71,425 76,592 A Tangible assets 12 47,139 49,883 A A A A A A 118,564 126,475 Current assets A Stocks 13 31,208 35,186 A Debtors 14 67,080 73,076 A Short-term deposits 33,898 14,309 A Cash at bank and in hand 14,584 13,265 A A A A A A Creditors: amounts falling due within one year A Borrowings 15 26,934 27,667 A Creditors 16 44,394 46,090 A Current taxation 5,563 5,286 A Dividends payable 13,762 12,892 A A A 146,770 135,836 90,653 91,935 A A A Net current assets 56,117 43,901 A A A Total assets less current liabilities 174,681 170,376 A A A Creditors: amounts falling due after one year 17 1,254 1,665 A Provisions for liabilities and charges 18 6,067 5,265 A A A 167,360 163,446 A A A Capital and reserves A Called up share capital 19 36,677 36,549 A Share premium account 10 7,768 6,375 A Capital redemption reserve 10 185 185 A Profit and loss account 10 122,730 120,337 A A A Equity shareholders’ funds 167,360 163,446 A A A Approved by the Board of Directors on 22 June 2004 E G Unwin K J Thompson Directors Halma p.l.c. 2004 49 H A L M A Statement of Total Recognised Gains and Losses £000 2004 53 weeks 2003 52 weeks A Profit for the financial year 22,322 28,359 A A A Other recognised gains and losses A Exchange adjustments (2,799) (2,408) A Related corporation tax – 364 A A A A A A Recognised gains and losses relating to the year 19,523 26,315 A A A (2,799) (2,044) Movements in Equity Shareholders’ Funds s e t o N 2004 53 weeks 2003 52 weeks A Profit for the financial year 22,322 28,359 A Dividends (22,725) (21,246) AA A (Loss)/profit transferred (from)/to reserves 10 (403) 7,113 A Total other recognised gains and losses (2,799) (2,044) A Net proceeds of shares issued 1,521 820 A Goodwill transferred to the Consolidated Profit and Loss Account in respect of businesses sold 5,595 – AA A Increase in equity shareholders’ funds A Equity shareholders’ funds brought forward 3,914 5,889 163,446 157,557 A A A Equity shareholders’ funds carried forward 167,360 163,446 A A A 50 Halma p.l.c. 2004 Consolidated Cash Flow Statement £000 H A L M A s e t o N 2004 53 weeks 2003 52 weeks A Cash flow from operating activities 22 59,782 60,309 A Return on investments and servicing of finance A Interest received 952 1,280 A Interest paid (731) (622) A A A A A A 221 658 Taxation A Current taxation paid (14,093) (15,498) A A A Capital expenditure A Purchase of tangible fixed assets (9,686) (11,257) A Sale of tangible fixed assets 1,004 1,872 A A A A A A Acquisitions and disposals A Acquisition of businesses 22 (2,947) (49,857) A Cash and overdrafts acquired – 2,655 A Disposal of businesses 4,567 – A A A (8,682) (9,385) A A A Equity dividends paid (21,855) (20,066) A A A 1,620 (47,202) A A A Management of liquid resources A (Increase)/decrease in short-term deposits 22 (19,662) 20,064 A A A 16,993 (31,184) Financing A Issue of ordinary share capital 1,521 820 A Increase in loans 2,683 13,399 A A A A A A Increase in cash 22 1,535 3,099 A A A 4,204 14,219 Halma p.l.c. 2004 51 H A L M A Halma p.l.c. Balance Sheet £000 s e t o N At 3 April 2004 At 29 March 2003 A Fixed assets A Tangible assets 12 3,136 3,663 A Investments 20 40,959 42,760 A A A A A A 44,095 46,423 Current assets A Debtors 14 124,042 119,983 A Short-term deposits 32,410 14,000 A Cash at bank and in hand – 57 A A A A A A Creditors: amounts falling due within one year A Borrowings 15 26,758 27,506 A Creditors 16 21,376 17,084 A Current taxation 1,138 1,462 A Dividends payable 13,762 12,892 A A A 156,452 134,040 63,034 58,944 A A A Net current assets 93,418 75,096 A A A Total assets less current liabilities 137,513 121,519 A A A Creditors: amounts falling due after one year 17 1,157 143 A Provisions for liabilities and charges 18 294 534 A A A A A A 136,062 120,842 Capital and reserves A Called up share capital 19 36,677 36,549 A Share premium account 10 7,768 6,375 A Capital redemption reserve 10 185 185 A Profit and loss account 21 91,432 77,733 A A A Equity shareholders’ funds 136,062 120,842 A A A Approved by the Board of Directors on 22 June 2004 E G Unwin K J Thompson Directors 52 Halma p.l.c. 2004 Accounting Policies H A L M A Basis of accounting The accounts set out on pages 48 to 73 are prepared under the historical cost convention and comply with applicable United Kingdom Accounting Standards. The principal Group accounting policies have been applied consistently throughout the current and preceding year and are described below. The accounts also reflect the transitional requirements of FRS 17 (Retirement Benefits). Basis of consolidation The consolidated accounts include the accounts of Halma p.l.c. and its subsidiary companies made up to 3 April 2004. The results of subsidiary companies acquired are included from the month of acquisition. Acquisitions Fair values are ascribed to tangible assets and liabilities of subsidiary companies and businesses at the dates of acquisition and the resultant goodwill is capitalised as an intangible asset. Prior to 28 March 1998 any goodwill surplus or deficiency was taken to reserves as a matter of accounting policy. Intangible assets Goodwill arising on acquisitions after 28 March 1998 is capitalised and is classified as an intangible asset in the Consolidated Balance Sheet. Goodwill arising on acquisitions prior to that date was written off to reserves, and would be included in the determination of profit or loss arising from the sale or closure of the business to which it relates. Capitalised goodwill is amortised through the Consolidated Profit and Loss Account on a straight line basis over its estimated economic life of 20 years. Foreign currencies Transactions in foreign currency are recorded at the rate of exchange at the date of the transaction unless matched by a forward currency contract. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates prevailing at that date, or, where appropriate, at the forward currency contract rate. Any gain or loss arising from subsequent exchange rate movements is included as an exchange gain or loss in the Consolidated Profit and Loss Account. Net assets of overseas subsidiary companies are expressed in Sterling at the rates of exchange ruling at the end of the financial year, and trading results and cash flows at the average rates of exchange for the financial year. Exchange gains or losses arising on these translations, together with those on foreign currency borrowings which are taken out to hedge the Group’s overseas investments, are taken to reserves. Turnover Turnover represents sales, less returns, by subsidiary companies to external customers excluding value added tax. Transactions are recorded as sales when the delivery of products or performance of services takes place in accordance with the contracted terms of sale. Investments Investments are stated at cost less provision for impairment. Halma p.l.c. 2004 53 H A L M A Accounting Policies continued Tangible fixed assets and depreciation Tangible fixed assets are stated at cost less provisions for impairment and depreciation which, with the exception of freehold land which is not depreciated, is provided on all tangible fixed assets on the straight line method, each item being written off over its estimated life. The principal annual rates used for this purpose are: Freehold buildings Leasehold properties - more than 50 years unexpired less than 50 years unexpired Plant, machinery and equipment Motor vehicles Short-life tooling 2% 2% Period of lease 8% to 20% 20% 331⁄3% Leases The costs of operating leases of property and other assets are charged as incurred. Pensions The Group makes contributions to various pension schemes, covering the majority of its employees, which are charged against profits on a systematic and rational basis over the period during which benefit is derived from the service. Any differences between this charge and amounts payable to the schemes are recorded as provisions or prepayments as appropriate. Research and development Expenditure on research and development is written off in the financial year in which it is incurred. Stocks Stocks and work in progress of subsidiary companies are included at the lower of cost and net realisable value. Cost includes the appropriate proportion of production and other overheads considered by the Directors to be attributable to bringing the stock to its location and condition at the year end. Deferred taxation The Group provides for taxation deferred because of timing differences between profits as computed for taxation purposes and profits as stated in the accounts, on an undiscounted basis. Deferred taxation is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. The principal timing differences in the Group accounts arise on the excess of tax allowances on tangible fixed assets over the corresponding depreciation charged in the accounts; and on goodwill arising in jurisdictions where it is eligible for deduction against tax, where it has been charged against reserves in the Group accounts but would be accounted for through the Consolidated Profit and Loss Account on a sale or closure of the business to which it relates. 54 Halma p.l.c. 2004 Notes on the Accounts £000 H A L M A 1 Segmental analysis Geographical analysis Turnover United Kingdom United States of America Europe excluding UK Far East and Australasia Africa, Near and Middle East Other Inter-segmental sales By destination By origin 2004 2003 2004 2003 77,534 84,047 70,730 28,054 9,944 9,302 – 70,503 159,462 148,902 82,003 58,941 24,385 9,576 8,593 87,958 43,690 14,133 – 84,724 30,823 10,199 – 2,853 2,840 – (28,485) (23,487) Turnover from continuing operations 279,611 254,001 279,611 254,001 A A A A Discontinued operations 13,029 13,292 13,029 13,292 Group turnover Profit before taxation United Kingdom United States of America Europe excluding UK Other countries Continuing operations Discontinued operations Segmental profit A A A A 292,640 267,293 292,640 267,293 A A A A 26,601 13,617 7,111 3,093 24,691 14,366 5,228 1,738 A A 50,422 46,023 (370) 77 A A 50,052 46,100 Goodwill amortisation and exceptional items (13,369) (3,235) Interest Profit on ordinary activities before taxation 232 408 A A 36,915 43,273 A A Net assets United Kingdom United States of America Europe excluding UK Other countries Continuing operations Discontinued operations Net cash/(debt) Net tangible assets Intangible assets Equity shareholders’ funds 41,348 16,873 11,494 4,672 43,745 22,916 12,659 4,609 A A 74,387 83,929 A A – 3,018 74,387 21,548 86,947 (93) A A 95,935 71,425 86,854 76,592 A A 167,360 163,446 A A Halma p.l.c. 2004 55 H A L M A Notes on the Accounts continued £000 1 Segmental analysis continued Sector analysis Turnover Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist Inter-segmental sales Turnover from continuing operations Discontinued operations Group turnover Profit before taxation Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist including holding companies Continuing operations Discontinued operations Segmental profit 2004 2003 74,998 34,485 65,070 36,030 27,195 42,824 70,026 33,090 46,308 35,241 27,493 42,704 (991) (861) A A 279,611 254,001 13,029 13,292 A A 292,640 267,293 A A 16,621 15,028 5,767 12,102 6,579 2,218 7,135 5,517 8,126 6,753 3,067 7,532 A A 50,422 46,023 (370) 77 A A 50,052 46,100 Goodwill amortisation and exceptional items (13,369) (3,235) Interest Profit on ordinary activities before taxation Net assets Fire and Gas Water Elevator and Door Safety Process Safety Resistors Optics and Specialist including holding companies Continuing operations Discontinued operations Net cash/(debt) Net tangible assets Intangible assets Equity shareholders’ funds 232 408 A A 36,915 43,273 A A 19,578 14,279 16,130 10,504 7,347 6,549 18,239 14,747 16,416 11,176 8,483 14,868 A A 74,387 83,929 A A – 3,018 74,387 21,548 86,947 (93) A A 95,935 71,425 86,854 76,592 A A 167,360 163,446 A A 56 Halma p.l.c. 2004 All of the Group’s land and buildings, dividends payable, taxation (including provisions for deferred taxation) and deferred purchase consideration are included within the net tangible assets of the sector described as Optics and Specialist including holding companies. Notes on the Accounts continued £000 H A L M A 2 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). Diluted earnings per ordinary share are calculated using the same earnings as for earnings per ordinary share, divided by 366,686,599 shares (2003: 365,809,420) which includes dilutive potential ordinary shares of 448,796 (2003: 397,967). The Company’s dilutive potential ordinary shares are calculated from those exercisable share options where the exercise price is less than the average price of the Company’s ordinary shares during the year. 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: Earnings Add back: goodwill amortisation (after tax) exceptional items (after tax) Earnings before goodwill amortisation 2004 2003 22,322 28,359 3,880 8,355 2,870 – Per ordinary share 2004 p 6.09 1.07 2.28 2003 p 7.76 0.79 – A A A A and exceptional items 34,557 31,229 9.44 8.55 A A A A 3 Operating profit Operating profit comprises: Turnover Cost of sales Gross profit Distribution costs 2004 2003 292,640 267,293 (205,118) (187,006) A A 87,522 80,287 (7,545) (6,725) Administrative expenses (including goodwill amortisation) (34,320) (31,092) Other operating income 175 395 A A 45,832 42,865 A A Included in the above are the following amounts related to discontinued operations: cost of sales £11,679,000 (2003: £11,499,000); gross profit £1,350,000 (2003: £1,793,000); distribution costs £416,000 (2003: £430,000); administrative expenses £1,315,000 (2003: £1,297,000) (including goodwill amortisation £11,000 (2003: £11,000)). Halma p.l.c. 2004 57 H A L M A Notes on the Accounts continued £000 3 Operating profit continued Operating profit is arrived at after charging: Depreciation Goodwill amortisation Research and development Auditors’ remuneration: Audit services Non-audit services Operating lease rents property other 2004 2003 7,879 4,220 11,242 463 44 3,138 300 7,554 3,235 9,623 430 3 3,129 132 Auditors’ remuneration includes £65,000 (2003: £60,000) in respect of the Company. 4 Exceptional items Exceptional items arose on the sale of the entire share capital of Thames Side-Maywood Limited, Kerry Ultrasonics Limited and S&P Coil Products Limited in March and April 2004. Of the loss on disposal of £9,149,000, £5,755,000 related to goodwill, of which £5,595,000 had been previously written off directly to reserves on acquisition. Cash of £4,567,000 has been received by 3 April 2004 and, after settlement of costs, the net cash inflow on disposal is expected to be £3,687,000. 5 Employee information The average number of persons employed by the Group during the year was: 2004 Number 2003 Number United Kingdom Overseas Group employee costs comprise: Wages and salaries Social security costs Other pension costs (note 25) 1,788 1,137 1,801 992 A A 2,925 2,793 A A £000 68,207 10,137 5,095 £000 63,334 8,485 3,859 A A 83,439 75,678 A A 6 Directors’ remuneration Details of Directors’ remuneration are set out on pages 40 to 45 within the Report on Remuneration and form part of these financial statements. 7 Interest Interest receivable on short-term deposits Interest payable on bank loans and overdrafts Other interest 2004 995 (700) (63) 2003 1,220 (717) (95) A A 232 408 A A 58 Halma p.l.c. 2004 Notes on the Accounts continued £000 H A L M A 8 Taxation Current tax UK corporation tax at 30% (2003: 30%) Overseas taxation Adjustments in respect of prior years Total current tax Deferred tax Origination and reversal of timing differences Adjustments in respect of prior years Total deferred tax (credit)/charge 2004 2003 7,573 7,434 (383) 7,114 6,829 203 A A 14,624 14,146 A A (49) 18 738 30 A A (31) 768 A A 14,593 14,914 A A Reconciliation of effective tax rate on profit on ordinary activities: Before goodwill amortisation and exceptional items After goodwill amortisation and exceptional items UK corporation tax rate Higher tax rates on overseas profits Adjustments in respect of prior years Other timing differences Effective tax rate 9 Ordinary Dividends Interim paid Final proposed Balance of final dividend 2004 % 30.0 2.7 (0.7) (0.7) 2003 % 30.0 3.3 0.5 (0.9) 2004 % 30.0 3.5 (1.0) 7.0 2003 % 30.0 3.6 0.5 0.4 A A A A 31.3 32.9 39.5 34.5 A A A A 2004 p 2.44 3.75 – 2003 p 2.285 3.527 – 2004 8,945 2003 8,352 13,762 12,892 18 2 A A A A 6.19 5.812 22,725 21,246 A A A A The accrual for the 2003/04 final dividend takes into account shares issued since 3 April 2004. 10 Reserves At 29 March 2003 Loss transferred from reserves Share options exercised Exchange adjustments Goodwill transferred to the Consolidated Profit and Loss Account in respect of businesses sold At 3 April 2004 Share premium account 6,375 – 1,393 – – Capital redemption reserve Profit and loss account 185 120,337 – – – – (403) – (2,799) 5,595 A A A 7,768 185 122,730 A A A Halma p.l.c. 2004 59 H A L M A Notes on the Accounts continued £000 11 Fixed assets – intangible assets Cost At 29 March 2003 Adjustments Disposals At 3 April 2004 Amortisation At 29 March 2003 Charge for the year Disposals At 3 April 2004 Net book amounts At 3 April 2004 At 29 March 2003 Goodwill 85,602 (787) (213) A 84,602 A 9,010 4,220 (53) A 13,177 A 71,425 76,592 The adjustments to goodwill comprise revisions to the estimate of contingent deferred purchase consideration payable in respect of prior years’ acquisitions. Cumulative goodwill written off against reserves on acquisitions prior to 28 March 1998, net of that attributable to closures and sales, amounts to £70,931,000 (2003: £76,526,000). 12 Fixed assets – tangible assets Group Cost Land and buildings Freehold properties Long leases Short leases Plant equipment & vehicles Total At 29 March 2003 27,503 1,448 2,623 67,090 98,664 Assets of businesses sold Additions at cost Disposals (345) 717 (437) Exchange adjustments (1,032) – – – – (141) (3,802) (4,288) 303 (82) 8,666 9,686 (5,082) (5,601) (110) (2,500) (3,642) At 3 April 2004 26,406 1,448 2,593 64,372 94,819 A A A A A A A A A A Accumulated depreciation At 29 March 2003 4,420 319 1,357 42,685 48,781 Assets of businesses sold Charge for the year Disposals Exchange adjustments (112) 543 (63) (162) – 31 – – (44) 253 (59) (55) (2,607) (2,763) 7,052 7,879 (4,366) (4,488) (1,512) (1,729) At 3 April 2004 4,626 350 1,452 41,252 47,680 A A A A A A A A A A Net book amounts At 3 April 2004 At 29 March 2003 21,780 23,083 1,098 1,129 1,141 1,266 23,120 24,405 47,139 49,883 60 Halma p.l.c. 2004 Notes on the Accounts continued £000 H A L M A 12 Fixed assets – tangible assets continued Halma p.l.c. Cost At 29 March 2003 Additions at cost Disposals At 3 April 2004 Accumulated depreciation At 29 March 2003 Charge for the year Disposals At 3 April 2004 Net book amounts At 3 April 2004 At 29 March 2003 13 Stocks Raw materials and consumables Work in progress Finished goods and goods for resale 14 Debtors Falling due within one year: Land and buildings Freehold properties Short leases Plant equipment & vehicles Total 3,778 37 (772) 167 1,012 4,957 – – 288 (116) 325 (888) A A A A 3,043 167 1,184 4,394 A A A A 670 45 (172) 51 6 – 573 159 (74) 1,294 210 (246) A A A A 543 57 658 1,258 A A A A 2,500 3,108 110 116 526 439 3,136 3,663 2004 2003 15,337 15,231 6,000 9,871 8,024 11,931 A A 31,208 35,186 A A Group Halma p.l.c. 2004 2003 2004 2003 Trade debtors 61,772 65,578 – – Amounts due from Group companies Prepayments and accrued income Other debtors – 3,603 1,705 – 122,857 117,588 3,979 3,519 1,096 89 1,259 1,136 A A A A 67,080 73,076 124,042 119,983 A A A A Halma p.l.c. 2004 61 H A L M A Notes on the Accounts continued £000 15 Borrowings Falling due within one year: Group Halma p.l.c. 2004 2003 2004 2003 Unsecured bank loans and overdrafts 26,934 26,584 26,758 26,423 Other unsecured loans A A A A – 1,083 – 1,083 26,934 27,667 26,758 27,506 A A A A 16 Creditors Trade creditors Group 2004 2003 26,971 28,878 Halma p.l.c. 2004 428 2003 375 Other taxation and social security 3,574 3,842 1,208 1,197 Amounts owing to Group companies Accruals and deferred income Other creditors – 9,089 4,760 – 15,163 13,609 8,778 4,592 1,813 2,764 1,144 759 A A A A 44,394 46,090 21,376 17,084 A A A A 17 Creditors: amounts falling due after one year Deferred purchase consideration Other creditors Group Halma p.l.c. 2004 159 1,095 2003 1,665 2004 62 – 1,095 2003 143 – A A A A 1,254 1,665 1,157 143 A A A A 18 Provisions for liabilities and charges Deferred taxation Group Halma p.l.c. 2004 6,067 2003 5,265 2004 294 2003 534 A Analysis of Group deferred tax provided is as follows: Accelerated capital allowances Short-term timing differences Goodwill timing differences Net deferred tax liability 2004 3,098 2003 3,186 (2,468) (2,223) 5,437 4,302 A A 6,067 5,265 A A 62 Halma p.l.c. 2004 Notes on the Accounts continued £000 H A L M A 18 Provisions for liabilities and charges continued Movement in deferred tax liability At 29 March 2003 Charge/(credit) to profit and loss account: UK Overseas Disposals Exchange adjustments At 3 April 2004 Group Halma p.l.c. 5,265 534 (821) (240) 790 (55) 888 – – – A A 6,067 294 A A No provision is made for taxation which might become payable if profits retained by overseas subsidiary companies are distributed as dividends. There are no plans to pay such dividends. 19 Called up share capital Ordinary shares of 10p each 43,656 43,656 36,677 36,549 Authorised 2004 2003 Issued and fully paid 2003 2004 The number of ordinary shares in issue at 3 April 2004 was 366,773,945. Changes during the year in the issued ordinary share capital were as follows: At 29 March 2003 Share options exercised At 3 April 2004 Issued and fully paid 36,549 128 A 36,677 A The total consideration received in respect of share options exercised amounted to £1,521,000. Options in respect of 1,136,639 ordinary shares remained outstanding at 3 April 2004 under the share option plan approved by shareholders in 1990. Subject to the performance restrictions on the exercise of options granted under this plan, options are exercisable for the periods and at the prices set out below: Number of shares Option price Five years from Seven years from 307,903 185,598 52,665 122,200 22,200 91,600 167,013 178,794 3,866 4,800 122.63p – 130.52p 111.75p – 126p 138p – 144.76p 122.5p – 126.5p 101.5p – 116.5p 120p – 137p 104.24p – 124.88p 111.75p – 126p 138.02p 120p 1997 1998 1999 2000 2001 2002 1999 2000 2001 2004 Halma p.l.c. 2004 63 H A L M A Notes on the Accounts continued £000 19 Called up share capital continued Options in respect of 4,348,758 ordinary shares remained outstanding at 3 April 2004 under the share option plan approved by shareholders in 1996. Subject to the performance restrictions on the exercise of options granted under this plan, options are exercisable for the periods and at the prices set out below: Number of shares Option price Five years from Seven years from 341,594 767,600 331,600 1,025,800 302,264 394,200 394,500 791,200 138p – 144.75p 122.5p – 138.5p 101.5p – 123.5p 120p – 137p 138p – 144.75p 122.5p – 137p 101.5p – 123.5p 120p – 136p 1999 2000 2001 2002 2001 2002 2003 2004 Options in respect of 11,094,816 ordinary shares remained outstanding at 3 April 2004 under the share option plan approved by shareholders in 1999. Subject to the performance restrictions on the exercise of options granted under this plan, options are exercisable for the periods and at the prices set out below: Number of shares Option price Five years from Seven years from 2,035,900 1,205,000 1,801,170 2,474,804 906,900 688,600 963,671 1,018,771 111p 163.5p 132p – 144.33p 134p 111p 163.5p 144.33p 134p 2003 2004 2005 2006 2005 2006 2007 2008 The 1990, 1996 and 1999 Share Option Plans provide for the grant of two categories of option, both of which are subject to performance criteria. Section A options are exercisable after three years if the Company’s earnings per share growth exceeds, for the 1990 Plan, the growth in the Retail Price Index, for the 1996 Plan, the growth in the Retail Price Index plus 2% per annum and, for the 1999 Plan, the growth in the Retail Price Index plus 3% per annum. Section B options are exercisable after five years if the Company’s earnings per share growth exceeds the earnings per share of, for the 1990 and 1996 Plans, all but the top quarter of companies which were within the FTSE 100 at the date of grant of any option and for the 1999 Plan, all but the top quarter of companies which were within a peer group at the date of grant of any option. All options lapse if not exercised within 10 years from the date of grant. 64 Halma p.l.c. 2004 Notes on the Accounts continued £000 H A L M A 20 Investments Shares in Group companies At cost less amounts written off at 29 March 2003 Additions Disposals At cost less amounts written off at 3 April 2004 2004 2003 42,760 40,119 – 2,641 (1,801) – A A 40,959 42,760 A A The disposals relate to the sale of the whole of the issued share capital of Kerry Ultrasonics Limited, Thames Side-Maywood Limited and S&P Coil Products Limited, all of which were incorporated in Great Britain. Details of principal subsidiary companies are set out on pages 78 and 79. All these subsidiaries are wholly owned and, apart from the following, are subsidiaries of Halma p.l.c. and are incorporated in Great Britain where they principally operate. Name of company Country of incorporation Fortress Systems Pty. Limited *IPC Resistors Inc. *HF Se´curite´ S.A.S. *Hydreka S.A.S. *S.E.R.V. Trayvou Interverrouillage S.A.S. *Apollo Gesellschaft fu¨r Meldetechnologie mbH *Berson Milieutechniek B.V. *Bureau D’Electronique Applique´e S.A. *TL Jones Limited *E-Motive Display Pte Limited *Halma Holdings Inc. *Air Products and Controls Inc. *Aquionics Inc. *B.E.A. Inc. *Bio-Chem Valve Inc. Diba Industries, Inc.(cid:1) *Electronic Micro Systems Inc. *IPC Power Resistors Inc. *Janus Elevator Products Inc. *Marathon Sensors Inc. *Monitor Controls Inc. *Mosebach Manufacturing Company *Ocean Optics, Inc.(cid:1) *Oklahoma Safety Equipment Co. Inc. *Perma Pure LLC *Post Glover Resistors Inc. *Volk Optical Inc. *Interests held by subsidiary companies. (cid:1)Acquired since year end. Australia Canada France France France Germany The Netherlands Belgium New Zealand Singapore USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA Halma p.l.c. 2004 65 H A L M A Notes on the Accounts continued £000 21 Profit and loss account of Halma p.l.c. As permitted by Section 230 of the Companies Act 1985, the Profit and Loss Account of Halma p.l.c. is not presented as part of these accounts. The movements on that account during the year were: At 29 March 2003 Profit after taxation Dividends Exchange adjustments At 3 April 2004 22 Consolidated cash flow statement Reconciliation of operating profit to net cash inflow from operating activities Operating profit Depreciation Goodwill amortisation Loss/(profit) on sale of tangible fixed assets Decrease/(increase) in SSAP 24 pension prepayment Property sale receivable Decrease in stocks (Increase)/decrease in debtors Increase in creditors Net cash inflow from operating activities 2004 2003 77,733 34,094 82,041 18,152 (22,725) (21,246) 2,330 (1,214) A A 91,432 77,733 A A 2004 2003 45,832 42,865 7,879 4,220 109 112 1,100 744 (1,404) 1,190 7,554 3,235 (155) (916) (1,100) 3,288 122 5,416 A A 59,782 60,309 A A Included in the Consolidated Cash Flow Statement are the following amounts related to discontinued operations: net cash inflow from operating activities £270,000 (2003: £1,073,000); net interest paid £49,000 (2003: £17,000 received); taxation paid £79,000 (2003: £248,000); net capital expenditure £287,000 (2003: £378,000). The cash outflow of £2,947,000 on the acquisition of businesses relates to the payment of deferred purchase consideration which arose from acquisitions made in earlier years, and where provision was made in prior years’ financial statements. Reconciliation of net cash flow to movement in net cash/(debt) Increase in cash Increase/(decrease) in liquid resources Loan notes issued Cash inflow from loans Exchange adjustments Net (debt)/cash brought forward Net cash/(debt) carried forward 2004 2003 1,535 3,099 19,662 (20,064) – (1,083) (2,683) (13,399) 3,127 744 A A 21,641 (30,703) (93) 30,610 A A 21,548 (93) A A 66 Halma p.l.c. 2004 Notes on the Accounts continued £000 H A L M A 22 Consolidated cash flow statement continued At 29 March 2003 Cash flow Other non-cash changes Exchange adjustments At 3 April 2004 Analysis of net cash/(debt): Cash Overdrafts 13,265 (162) 1,639 (104) A 1,535 Short-term deposits 14,309 19,662 Bank loans (26,422) (3,766) Other unsecured loans (1,083) 1,083 – – – – – (320) 14,584 8 (258) (73) 33,898 3,512 (26,676) – – A A A A A (93) 18,514 – 3,127 21,548 A A A A A 23 Financial instruments Policy The Group does not use complex derivative financial instruments. No trading or speculative transactions in financial instruments are undertaken. Where it does use financial instruments these are mainly to manage the currency risks arising from normal operations and its financing. Operations are financed mainly through retained profits and in certain geographical locations, bank borrowings. Foreign currency risk is the most significant aspect for the Group in the area of financial instruments. It is exposed to a lesser extent to other risks such as interest rate risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and these policies are summarised below. Policies have remained unchanged since the beginning of the financial year. Foreign currency risk The Group has transactional currency exposures. These arise on sales or purchases by operating companies in currencies other than the companies’ operating (or ‘functional’) currency. Significant sales are hedged at the date of invoicing by means of matched borrowings and forward currency contracts. Significant purchases are hedged by means of forward currency contracts. The Group which is based in the UK and reports in Sterling, has a significant investment in overseas operations in the USA and Europe, with further investments in Australia, New Zealand, Canada, Malaysia, Singapore and China. As a result, the Group’s balance sheet can be affected by movements in these countries’ exchange rates. Where significant and appropriate, currency denominated net assets are hedged by currency borrowings. These currency exposures are reviewed regularly. The Group does not hedge future currency profits, so the Sterling value of overseas profits earned during the year is sensitive to the strength of Sterling, particularly against the US Dollar and the Euro. Finance and interest rate risk The Group does not have significant exposure to interest rate fluctuations. Where bank borrowings are used to finance operations they tend to be short-term with floating interest rates. Borrowings used to manage foreign currency risk are drawn on the Group’s loan facilities and have fixed interest rates with maturities of not more than one year. Halma p.l.c. 2004 67 H A L M A Notes on the Accounts continued £000 23 Financial instruments continued Surplus funds are placed on short-term fixed rate deposit or in floating rate deposit accounts. Liquidity risk The Group has a strong cash flow and the funds generated by operating companies are managed regionally based on geographic location. Funds are placed on deposit with secure, highly-rated banks. For short-term working capital purposes, most operating companies utilise local bank overdrafts. These practices allow a balance to be maintained between continuity of funding, security and flexibility. Because of the nature of their use, the facilities are typically ‘on demand’ and as such uncommitted. Borrowing facilities, including the Group’s revolving loan facilities, are typically renewed annually. Currency exposures The table below shows the Group’s net foreign currency monetary assets and liabilities. These are the assets and liabilities of Group companies which are not denominated in the functional currency of the company involved. They comprise cash and overdrafts, and certain debtors and creditors. These foreign currency monetary assets and liabilities give rise to the net currency gains and losses recognised in the profit and loss account as a result of movement in exchange rates. As at year end these exposures were as follows: 2004 Functional currency of operation Sterling US Dollar Euro Other Total 2003 Net foreign currency monetary assets/(liabilities) Sterling US Dollar – 5 (79) 79 747 – 1,509 1,249 Euro 1,850 (3) – 13 Other (115) – 77 (2) Total 2,482 2 1,507 1,339 A A A A A A A A A A 5 3,505 1,860 (40) 5,330 Net foreign currency monetary assets/(liabilities) Functional currency of operation Sterling US Dollar Sterling US Dollar Euro Other Total – (45) 20 129 1,345 – 666 798 Euro 2,593 19 – 1 Other 146 – 40 53 Total 4,084 (26) 726 981 A A A A A 104 2,809 2,613 239 5,765 A A A A A The amounts shown in the tables above take into account the effect of any forward currency contracts entered into to manage these currency exposures. Interest rate risk profile The Group’s financial assets which are subject to interest rate fluctuations comprise cash deposits which totalled £33,898,000 at 3 April 2004 (2003: £14,309,000). These comprised Sterling denominated deposits of £32,531,000 (2003: £14,022,000), US Dollar denominated deposits of £nil (2003: £58,000), Euro and other currency deposits of £1,367,000 (2003: £229,000) which are placed on local money markets and earn interest at market rates. 68 Halma p.l.c. 2004 Notes on the Accounts continued £000 H A L M A 23 Financial instruments continued The financial liabilities which are subject to interest rate fluctuations are bank loans, bank overdrafts and certain unsecured loans, which totalled £26,934,000 at 3 April 2004 (2003: £27,667,000). All are subject to floating rates of interest. These comprise US Dollar denominated bank loans of £20,218,000 (2003: £19,745,000) which bear interest with reference to the US Dollar LIBOR rates, US Dollar denominated bank overdrafts of £76,000 (2003: £152,000) which bear interest at rates referenced to US Dollar base rates, Euro denominated bank loans of £6,458,000 (2003: £6,678,000) which bear interest with reference to the Euro LIBOR rates, Euro denominated bank overdrafts of £142,000 (2003: £nil) which bear interest at rates referenced to Euro base rates and Sterling denominated bank overdrafts of £40,000 (2003: £9,000) and Sterling loan notes of £nil (2003: £1,083,000) which bear interest at rates referenced to UK base rates. Maturity of financial liabilities With the exception of the deferred purchase consideration and other creditors due after one year, all of the Group’s financial liabilities mature in one year or less or on demand. The total of deferred purchase consideration due after one year includes £44,000 (2003: £1,492,000) due between one and two years, with the balance of £115,000 (2003: £173,000) due between two and five years. Other creditors due after more than one year include £105,000 (2003: £nil) due between one and two years, £379,000 (2003: £nil) due between two and five years, with the balance of £611,000 (2003: £nil) due after more than five years. Borrowing facilities The Group’s principal source of borrowing facilities is through ‘on demand’ bank overdrafts which are, by definition, uncommitted. These facilities are generally reviewed on an annual or ongoing basis and hence the facilities expire within one year or less. The Group also has committed borrowing facilities which are used for the purpose of managing foreign currency risk. At 3 April 2004 committed facilities of this type amounted to £57,219,000 of which £26,676,000 was drawn down. The borrowing facilities are reviewed annually, and as such the weighted average maturity of the facilities is less than one year. Fair values of financial assets and financial liabilities As at 3 April 2004 there was no significant difference between the book value and fair value (as determined by market value) of the Group’s financial assets and liabilities. Hedging As explained above, the Group’s policy is to hedge significant sales and denominated in foreign currency using forward currency contracts. The gains and losses on these instruments are recognised upon recognition of the underlying exposure. The amounts of unrecognised gains or losses on instruments used for hedging at 3 April 2004 and 29 March 2003 are not significant. With the exception of currency exposures, the disclosures in this note exclude short-term debtors and creditors. 24 Commitments Capital commitments Capital expenditure authorised and contracted at 3 April 2004 but not provided in these accounts amounts to £523,000 (2003: £2,101,000). Halma p.l.c. 2004 69 H A L M A Notes on the Accounts continued £000 24 Commitments continued Commitments under operating leases Annual commitments under non-cancellable operating leases expire as follows: Within one year Within two to five years After five years Land and buildings Other 2004 352 1,482 930 2003 380 1,594 1,229 2004 39 193 8 2003 44 254 – A A A A 2,764 3,203 240 298 A A A A Total annual commitments under non-cancellable operating leases amount to £3,004,000 (2003: £3,501,000). 25 Pensions Group companies operate both defined benefit and defined contribution pension schemes. The Halma Group Pension Plan and the Apollo Pension and Life Assurance Plan have sections of the defined benefit type with assets held in separate trustee administered funds. During the previous financial year, both of these defined benefit sections were closed to new entrants and a defined contribution section was established within the Halma Group Pension Plan. Defined contribution schemes are mainly adopted in overseas subsidiaries. Pension contributions for the Group are paid in accordance with the advice of professionally qualified actuaries. The total pension cost for the Group was £5,095,000 (2003: £3,859,000) of which £812,000 (2003: £757,000) relates to overseas schemes. The Halma Group Pension Plan was last assessed as at 1 December 2002, and the Apollo Pension and Life Assurance Plan as at 1 April 2002, using the projected unit method. The principal actuarial assumptions adopted in both valuations were firstly that the investment return would exceed the rate of salary growth by 3.25% per annum dependent on the scheme membership category, and secondly that pensions in the course of payment would increase at 2.5% per annum or, for future service, in accordance with the requirements of the Pension Act 1995. At 1 December 2002 the market value of the Halma Group Pension Plan’s assets was £42,533,000. The actuarial value of the scheme’s assets represented 69% of the benefits that had accrued to members after allowing for expected future increases in earnings. The shortfall is being addressed by increased company contributions. At 1 April 2002 the market value of the Apollo Pension and Life Assurance Plan’s assets was £7,283,000. The actuarial value of the scheme’s assets represented 77% of the benefits that had accrued to members after allowing for expected future increases in earnings. The shortfall is being addressed by increased company contributions. Financial Reporting Standard 17 (Retirement Benefits) The Group has adopted the transitional provisions of FRS 17 (Retirement Benefits), and the following third year transitional disclosures are required. 70 Halma p.l.c. 2004 Notes on the Accounts continued £000 H A L M A 25 Pensions continued The financial assumptions used to calculate scheme liabilities at 3 April 2004 under FRS 17 are: Rate of increase in salaries Rate of increase in pensions in payment (pre April 1997) Rate of increase of pensions in payment (post April 1997) Discount rate Inflation assumption 2004 2003 2002 4.25% 2.75% 2.75% 5.50% 2.75% 4.00% 3.00% 2.50% 5.50% 2.50% 4.25% 3.00% 2.75% 6.00% 2.75% The expected rates of return and the aggregated assets in the UK defined benefit schemes were: Equities Bonds Property Expected rate of return 2004 Market value 2004 Expected rate of return 2003 Market value 2003 Expected rate of return 2002 Market value 2002 7.75% 51,323 7.50% 37,301 8.25% 45,407 4.75% 8,349 4.50% 7,569 5.25% 6.25% 1,755 6.00% 1,704 6.75% 8,128 1,609 A A A Total market value of assets 61,427 46,574 55,144 Present value of scheme liabilities Deficit in schemes Related deferred tax asset (102,196) (90,545) (67,705) A A A (40,769) 12,231 (43,971) 13,191 (12,561) 3,768 A A A (28,538) (30,780) (8,793) A A A Analysis of the amount that would have been charged to operating profit under FRS 17 in respect of the UK defined benefit schemes: Current service cost Curtailment gain Total operating charge 2004 3,160 (979) 2003 2,924 – A A 2,181 2,924 A A Analysis of the amount that would have been (charged)/credited to net finance income under FRS 17: Expected return on pension scheme assets Interest on scheme liabilities Net finance (cost)/income 2004 3,377 2003 4,438 (5,032) (4,153) A A (1,655) 285 A A Halma p.l.c. 2004 71 H A L M A Notes on the Accounts continued £000 25 Pensions continued Analysis of the actuarial gain/(loss) that would have been recognised in the statement of total recognised gains and losses: Actual return less expected return on scheme assets Experience losses arising on scheme liabilities Changes in assumptions Net gain/(loss) recognised Movement in deficit during the year: Deficit at beginning of year Current service cost Contributions paid Curtailment gain Net finance (cost)/income Actuarial gain/(loss) Deficit at end of year History of experience gains/(losses): 2004 2003 7,717 (17,042) – (3,260) (4,731) (12,427) A A 2,986 (32,729) A A 2004 2003 (43,971) (12,561) (3,160) (2,924) 4,052 979 (1,655) 3,958 – 285 2,986 (32,729) A A (40,769) (43,971) A A 2004 2003 Difference between expected and actual return on scheme 7,717 (17,042) Percentage of scheme assets Experience losses on scheme liabilities Percentage of scheme liabilities Total actuarial gain/(loss) recognised in the statement of total recognised gains and losses Percentage of scheme liabilities 13% (37)% – –% (3,260) (4)% 2,986 (32,729) 3% (36)% 72 Halma p.l.c. 2004 Notes on the Accounts continued £000 H A L M A 25 Pensions continued If the above amount were recognised in the Accounts, the Group’s net assets and profit and loss account reserve would be as follows: Net assets excluding pension liability SSAP 24 pension prepayment SSAP 24 accrual in respect of discontinued operations Pension liability Net assets including pension liability 2004 2003 167,360 163,446 (930) (1,042) 1,557 – (28,538) (30,780) A A 139,449 131,624 A A Profit and loss account reserve excluding pension liability 122,730 120,337 SSAP 24 pension prepayment SSAP 24 accrual in respect of discontinued operations Pension liability Profit and loss account reserve including pension liability (930) (1,042) 1,557 – (28,538) (30,780) A A 94,819 88,515 A A Other post retirement benefits liabilities are already fully included in net assets. Halma p.l.c. 2004 73 H A L M A Notice of Meeting Notice is hereby given that the one hundred and tenth Annual General Meeting of Halma p.l.c. will be held at The Ballroom, The Berkeley Hotel, Wilton Place, London SW1X 7RL on Wednesday, 4 August 2004 at 12 noon for the following purposes: Ordinary business 1 2 3 4 5 6 7 8 To approve the Report of the Directors, the audited part of the Report on Remuneration and the Accounts for the period of 53 weeks to 3 April 2004. To declare a dividend on the ordinary shares. To re-elect as a Director Mr R A Stone* who retires from the Board by rotation and being eligible offers himself for re-election. To re-elect as a Director Mr K J Roy who retires from the Board by rotation and being eligible offers himself for re-election. To re-elect as a Director Mr S R O’Shea who retires from the Board by rotation and being eligible offers himself for re-election. To re-elect as a Director Mr S R Pettit** who was appointed in September 2003 and who retires in accordance with the Articles of Association. To re-appoint Deloitte & Touche LLP as Auditors. To authorise the Directors to determine the remuneration of the Auditors. Special business To consider, and if thought fit, pass the following ordinary resolution: 9 That the Report on Remuneration as set out on pages 40 to 45 of the Report and Accounts for the 53 weeks to 3 April 2004 be approved. To consider, and if thought fit, pass the following special resolutions: 10 That the draft Articles of Association as set out in the document produced to the meeting and, for the purposes of identification, signed by the Chairman, be and are hereby adopted as the new Articles of Association of the Company. 11 That the Directors be and are hereby empowered pursuant to Section 95 of the Companies Act 1985 to allot or to make any offer or agreement to allot equity securities of the Company pursuant to the authority contained in Resolution 10 passed at the Company’s Annual General Meeting on 1 August 2002 as if Section 89(1) of the Companies Act 1985 did not apply to any such allotment, provided that such power shall be limited to the allotment of equity securities: (a) pursuant to the terms of any share scheme for employees approved by the Company in general meeting; and (b) otherwise than pursuant to sub-paragraph (a) above, up to an aggregate nominal amount of £1,835,000, and shall expire at the conclusion of the next Annual General Meeting of the Company, save that the Company may make any offer or agreement before such expiry which would or might require equity securities to be allotted after such expiry; and the Directors may allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred hereby has expired; words and expressions defined in or for the purposes of Section 89 to 96 inclusive of the Companies Act 1985 shall bear the same meanings in this resolution. 74 Halma p.l.c. 2004 Notice of Meeting continued H A L M A 12 That the Company be and is hereby generally and unconditionally authorised to make market purchases (within the meaning of Section 163(3) of the Companies Act 1985) of ordinary shares of 10p each ("ordinary shares") provided that: (a) the maximum number of shares hereby authorised to be acquired is 36,000,000 ordinary shares, having an aggregate nominal value of £3,600,000; (b) the maximum price which may be paid for any ordinary share is an amount equal to 105 per cent of the average of the middle market quotations for such an ordinary share as derived from the London Stock Exchange’s Daily Official List for the five business days immediately preceding the day on which the share is contracted to be purchased and the minimum price which may be paid for any such ordinary share shall be the nominal value of that share; and (c) the authority hereby conferred shall expire at the conclusion of the Company’s next Annual General Meeting (except in relation to the purchase of ordinary shares the contract for which was concluded before such date and which would or might be executed wholly or partly after such date), unless such authority is renewed prior to such time. A member entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend and on a poll, vote instead of him. A proxy need not be a member. A personalised form of proxy is enclosed. By signing and returning the form of proxy, a shareholder will not be precluded from attending and voting in person should he subsequently find it possible to be present. By Order of the Board C T Chesney Misbourne Court Rectory Way Amersham Bucks HP7 0DE 5 July 2004 Secretary In accordance with the requirements of the Companies Act 1985, a summary of any transactions during the past year by the Directors and their family interests in the Company’s shares and copies of Directors’ service contracts will be available for inspection at the registered office of the Company from the date of the above notice until 4 August 2004 and at The Berkeley Hotel from 11:45 am on the day of the meeting until the close of the meeting. In addition, in accordance with the Listing Rules, copies of the draft Articles of Association referred to in resolution 10 are available for inspection at the offices of CMS Cameron McKenna, Mitre House, 160 Aldersgate Street, London EC1A 4DD from the date of the above notice until the close of the meeting and will also be available for inspection at the Berkeley Hotel 15 minutes prior to and during the meeting. Full biographical information of the Directors proposed for re-election appears on page 28 of the Report and Accounts. * ** denotes non-executive Director and membership of the Remuneration, Audit and Nomination Committees of the Board denotes non-executive Director and membership of the Remuneration and Audit Committees of the Board Halma p.l.c. 2004 75 H A L M A Summary 1995 to 2004 A 94/95 95/96 96/97 97/98 98/99 99/00 Turnover 153,739 173,652 200,140 213,777 217,758 233,485 A Overseas sales 90,045 104,432 119,235 126,863 134,189 150,727 A Profit before taxation, goodwill amortisation and exceptional items 29,234 33,619 37,076 42,391 41,823 43,751 A A A Net tangible assets 63,833 77,650 81,209 98,249 102,101 89,755 A Borrowings 7,096 8,350 3,763 2,784 7,730 14,700 A Cash and short-term deposits 19,759 27,459 13,447 22,639 29,894 21,900 A Employees 2,226 2,384 2,677 2,861 2,827 2,975 A A A Earnings per ordinary share (Note 1) 5.59p 6.44p 7.01p 6.87p 7.91p 6.08p A Earnings per ordinary share before goodwill amortisation and exceptional items (Note 1) 5.59p 6.44p 7.01p 8.26p 7.99p 8.41p A Year on year increase/(decrease) in earnings per ordinary share before goodwill amortisation and exceptional items 16.7% 15.2% 8.9% 17.8% (3.3)% 5.3% A Net tangible assets per ordinary share (Note 1) 17.9p 21.7p 22.5p 27.1p 28.2p 24.9p A Year on year increase/(decrease) in net tangible assets per ordinary share 14.7% 21.2% 3.7% 20.4% 4.1% (11.7%) A Return on sales (Note 2) 19.0% 19.4% 18.5% 19.8% 19.2% 18.7% A Return on capital employed (Note 3) 45.8% 43.3% 45.7% 43.1% 41.0% 48.7% A Year on year increase in dividends per ordinary share 20% 20% 20% 20% 20% 20% A Ordinary share price at financial year end (Note 1) 113p 138p 134p 124p 92p 95p A Market capitalisation at financial year end £401.5m £492.1m £479.2m £447.3m £330.6m £340.1m A Notes: 1. Restated for the capitalisation issues made in 1995 and 1997. 2. Return on sales is defined as profit before taxation, goodwill amortisation and exceptional items as a % of turnover. 3. Return on capital employed is defined as profit before taxation, goodwill amortisation and exceptional items expressed as a % of net tangible assets (being equity shareholders’ funds less intangible assets). 4. Figures prior to 2000/01 have not been restated for the adoption of FRS 19. 76 Halma p.l.c. 2004 £000 H A L M A 00/01 01/02 02/03 03/04 A 268,322 267,597 267,293 292,640 A 181,831 183,259 188,161 206,102 A 49,698 48,255 46,508 50,284 A A A 99,991 117,515 86,854 95,935 A 7,758 15,047 27,667 26,934 A 21,484 45,657 27,574 48,482 A 3,059 2,859 2,793 2,925 A A A Earnings per share (before goodwill amortisation and exceptional items) 10p 6p 2p 0p 95 98 01 04 8.91p 8.58p 7.76p 6.09p Overseas sales A £250m £150m £50m £0m 9.34p 9.10p 8.55p 9.44p A 11.1% (2.6%) (6.0%) 10.4% A 27.7p 32.2p 23.8p 26.2p A 11.2% 16.2% (26.1%) 10.1% A 18.5% 18.0% 17.4% 17.2% A 49.7% 41.1% 53.5% 52.4% A 95 98 01 04 15% 15% 10% 7% A Net tangible assets per share 129p 164p 114p 149p A £465.7m £598.2m £416.7m £546.5m A 35p 25p 15p 5p 0p 95 98 01 04 Halma p.l.c. 2004 77 Halma Group Directory Main products A Air Products and Controls Inc. Duct detectors and control relays for smoke control systems A Apollo Fire Detectors Limited Smoke and heat detectors for commercial fire alarm systems A Apollo Gesellschaft fu¨r Meldetechnologie mbH Smoke and heat detectors for commercial fire alarm systems A Aquionics Inc. Ultraviolet light equipment for water sterilisation A B.E.A. Inc. Sensors for automatic doors A Berson Milieutechniek B.V. Ultraviolet light equipment for treating waste water and process water used in the manufacture of food and drinks A Bio-Chem Valve Inc. Miniature valves, micro pumps and fluid components for medical, life science and scientific instruments A Bureau D’Electronique Applique´e S.A. Sensors for automatic doors A Castell Safety International Limited Safety systems for controlling the use of and access to dangerous machines A Cressall Resistors Limited High power electrical resistors A Crowcon Detection Instruments Limited Gas detection instruments for personnel and plant safety A Diba Industries, Inc. Specialist components and complete fluid transfer subassemblies for medical, life science and scientific instruments A Electronic Micro Systems Inc. Elevator controls and emergency communication systems A Elfab Limited Pressure sensitive relief devices to protect process plant A E-Motive Display Pte Limited Electronic displays for providing information to elevator passengers A Fire Fighting Enterprises Limited Beam smoke detectors and specialist fire extinguishing systems A Fortress Interlocks Limited Safety systems for controlling access to dangerous machines A Fortress Systems Pty. Limited Machinery and process safety systems and high power electrical resistors A Halma Holdings Inc. American holding company A Hanovia Limited Ultraviolet light equipment for treating drinking water and water used in the manufacture of food, drinks, pharmaceuticals and electronic components A HF Se´curite´ S.A.S. Safety systems and high security locks A Hydreka S.A.S. Equipment and software for flow analysis of water and sewerage systems and leak detection systems A IPC Power Resistors Inc. High power electrical resistors A IPC Resistors Inc. High power electrical resistors and ground fault detection equipment A Janus Elevator Products Inc. Infrared safety systems for elevator doors and elevator electronic displays A Keeler Limited Ophthalmic instruments for diagnostic assessment of eye conditions A Klaxon Signals Limited Audio/visual warning systems for industrial security A Marathon Sensors Inc. Sensors and instruments for combustion control and heat treatment processes A Memco Limited Infrared safety systems for elevator doors and elevator emergency communications A Monitor Controls Inc. Elevator signal fixtures A Mosebach Manufacturing Company High power electrical resistors A Ocean Optics, Inc. Miniature fibre optic spectrometers for consumer electronics, process control, environmental monitoring, life sciences and medical diagnostics A Oklahoma Safety Equipment Co. Inc. Pressure sensitive relief devices to protect process plant A Palintest Limited Instruments for analysing water and measuring environmental pollution A Palmer Environmental Limited Instrumentation for quantifying, detecting and controlling leakage in underground water pipelines A Perma Pure LLC Gas dryers and humidifiers for fuel cell, medical, scientific and industrial use A Post Glover Resistors Inc. High power electrical resistors A Post Glover Lifelink Electrical isolation panels and electrical raceways for hospital, laboratory and industrial facilities A Radcom (Technologies) Limited Instrumentation for recording data, and detecting and controlling leakage, in water distribution pipelines A SEAC Limited Specialist fasteners for the building trade A Secomak Limited Industrial heaters, fans, drying systems, heat tunnels, loudspeakers and microphones A S.E.R.V. Trayvou Interverrouillage S.A.S. Safety systems for controlling access to dangerous machines A Smith Flow Control Limited Process safety systems for petrochemical and industrial applications A TL Jones Limited Infrared safety systems for elevator doors A Volk Optical Inc. Ophthalmic lenses as aids to diagnosis and surgery A Volumatic Limited Cash security and handling from point-of-sale to cash office A 78 Halma p.l.c. 2004 www.halma.com visit the Halma website and register for e-mail news alerts Location Contact Telephone E-mail Website A Pontiac, Michigan Jim Ludwig +1 (1)248 332 3900 info@ap-c.com www.ap-c.cc A Havant, Hampshire Michael Hamilton +44 (0)23 9249 2412 enquiries@apollo-fire.co.uk www.apollo-fire.co.uk A Gu¨tersloh, Germany Falk Blo¨dorn +49 (0)524 133060 info@apollo-feuer.de www.apollo-feuer.de A Erlanger, Kentucky John Murta +1 (1)859 341 0710 sales@aquionics.com www.aquionics.com A Pittsburgh, Pennsylvania Patrick Mercier +1 (1)412 249 4100 sales@beainc.com www.beainc.com A Eindhoven, The Netherlands Sjors van Gaalen +31 (0)40 290 7777 sales@bersonuv.com www.bersonuv.com A Boonton, New Jersey George Gaydos +1 (1)973 263 3001 info@bio-chemvalve.com www.bio-chemvalve.com A Lie`ge, Belgium Philipe van Genechten +32 (0)4361 6565 info@bea.be www.beasensors.com A Kingsbury, London David Milner +44 (0)20 8200 1200 sales@castell.co.uk www.castell.com A Leicester David Boughey +44 (0)116 273 3633 info@cressall.com www.cressall.com A Abingdon, Oxfordshire Allan Stamper +44 (0)1235 553057 crowcon@crowcon.com www.crowcon.com A Danbury, Connecticut Jack Olich +1(1)203 744 0773 salesdept@dibaind.com www.dibaind.com A Hauppauge, New York Mike Ryan +1 (1)631 864 4742 sales@emscomm.com www.emscomm.com A North Shields, Tyne & Wear Simon Keenan +44 (0)191 293 1234 sales@elfab.com www.elfab.com A Singapore Steven Black +65 6776 4111 sales@emotive.com.sg www.emotive.com.sg A Stevenage, Hertfordshire Warren Rees +44 (0)1438 317216 info@ffeuk.com www.ffeuk.com A Wolverhampton, West Midlands Mike Golding +44 (0)1902 499600 sales@fortress-interlocks.co.uk www.fortress-interlocks.co.uk A Melbourne, Australia David Atkin +61 (0)3 9587 4099 fortress@fortress.com.au www.fortress.com.au A Cincinnati, Ohio Steve Sowell +1 (1)513 772 5501 halmaholdings@halmaholdings.com www.halmaholdings.com A Slough, Berkshire Jon McClean +44 (0)1753 515300 sales@hanovia.com www.hanovia.com A Cluses, France Ge´rard Denis +33 (0)4 50 98 96 71 hfsecurite@hfsecurite.com www.hfsecurite.com A Lyon, France Alain Soulie´ +33 (0)4 72 53 11 53 hydreka@hydreka.fr www.hydreka.com A Erlanger, Kentucky Richard Field +1 (1)859 282 2900 eng@ipcresistors.com www.ipcresistors.com A Toronto, Canada Andy Cochran +1 (1)905 673 1553 info@ipc-resistors.com www.ipc-resistors.com A Hauppauge, New York Mike Byrne +1 (1)631 864 3699 sales@januselevator.com www.januselevator.com A Windsor, Berkshire Mark Lavelle +44 (0)1753 857177 info@keeler.co.uk www.keeler.co.uk A Oldham, Lancashire Barry Coughlan +44 (0)161 287 5555 sales@klaxonsignals.com www.klaxonsignals.com A Cincinnati, Ohio Eric Boltz +1 (1)513 772 1000 sales@marathonsensors.com www.marathonsensors.com A Maidenhead, Berkshire Peter Bailey +44 (0)1628 770734 sales@memco.co.uk www.memco.co.uk A Hauppauge, New York John Farella +1 (1)631 543 4334 sales@mcontrols.com www.mcontrols.com A Pittsburgh, Pennsylvania Gordon Denny +1 (1)412 220 0200 info@mosebachresistors.com www.mosebachresistors.com A Dunedin, Florida Mike Morris +1(1)727 733 2447 info@oceanoptics.com www.oceanoptics.com A Broken Arrow, Oklahoma Joe Ragosta +1 (1)918 258 5626 info@oseco.com www.oseco.com A Gateshead, Tyne & Wear John Lever +44 (0)191 491 0808 palintest@palintest.com www.palintest.com A Cwmbran, South Wales Neil Summers +44 (0)1633 489479 sales@palmer.co.uk www.palmer.co.uk A Toms River, New Jersey David Leighty +1 (1)732 244 0010 info@permapure.com www.permapure.com A Erlanger, Kentucky John Whincup +1 (1)859 283 0778 sales@postglover.com www.postglover.com A Erlanger, Kentucky Judy Kathman +1(1)859 283 5900 sales@postgloverlifelink.com www.postgloverlifelink.com A Romsey, Hampshire Mick Merrick +44 (0)1794 528 700 sales@radcom.co.uk www.radcom.co.uk A Leicester David Buckley +44 (0)116 273 9501 enquiries@seac.uk.com www.seac.uk.com A Stanmore, Middlesex Ian Roffe +44 (0)20 8952 5566 sales@secomak.com www.secomak.com A Paris, France Ste´phane Majerus +33 (0)1 48 18 15 15 enquiries@servtrayvou.com www.servtrayvou.com A Witham, Essex Mike D’Anzieri +44 (0)1376 517901 sales@smithflowcontrol www.smithflowcontrol.com A Christchurch, New Zealand Chris Stoelhorst +64 (0)3 349 4456 info@tljonesltd.com www.tljonesltd.com A Mentor, Ohio Pete Mastores +1 (1)440 942 6161 volk@volk.com www.volk.com A Coventry, West Midlands Paul Bonne´ +44 (0)247 668 4217 info@volumatic.com www.volumatic.com A Halma p.l.c. 2004 79 Pillans & Waddies, Edinburgh. 76306 H A L M A A n n u a l R e p o r t & A c c o u n t s 2 0 0 4 H A L M A A N N U A L R E P O R T A N D A C C O U N T S 2 0 0 4 Halma p.l.c. Misbourne Court Rectory Way Amersham Bucks HP7 0DE Tel: +44 (0) 1494 721111 Fax: +44 (0) 1494 728032 www.halma.com 

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